Liggett Group, Inc. v. Brown & Williamson Tobacco

• Citation: 748 F. Supp. 344
• Decision Date: 27 August 1990
• Docket Number: Civ. No. C-84-617-D.
• Court: U.S. District Court — Middle District of North Carolina
• Parties: LIGGETT GROUP, INC., Plaintiff, v. BROWN & WILLIAMSON TOBACCO CORPORATION, Defendant.

748 F. Supp. 344

LIGGETT GROUP, INC., Plaintiff, v. BROWN & WILLIAMSON TOBACCO CORPORATION, Defendant.

Civ. No. C-84-617-D.

United States District Court, M.D. North Carolina, Durham Division.

August 27, 1990.

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William H. Hogeland, Bruce Topman, Adam Barker, Webster & Sheffield, Joseph Diamante, Pennie & Edmonds, New York City, C. Allen Foster, Patton, Boggs & Blow, Greensboro, N.C., Josiah S. Murray, III, Durham, N.C., Garrett G. Rasmussen, Patton, Boggs & Blow, Washington, D.C., for plaintiff Liggett Group Inc.

On antitrust brief: William Hogeland, of Webster & Sheffield, New York City; C. Allen Foster, of Patton, Boggs & Blow, Greensboro, N.C.

On trademark brief: Joseph Diamante and Darren W. Saunders, of Pennie & Edmonds, New York City; C. Allen Foster and E. Russell Gaines, III, of Patton, Boggs & Blow, Greensboro, N.C.

Martin London, Andrew J. Peck, Daniel J. Leffell, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Michael L. Robinson, Norwood Robinson, Petree Stockton & Robinson, Winstom-Salem, N.C., for defendant Brown & Williamson Tobacco Corp.

On antitrust briefs: Martin London, Daniel J. Leffell, Julie A. Domonkos and Nathaniel B. Smith, of Paul, Weiss, Rifkind, Wharton & Garrison; Norwood Robinson and Michael L. Robinson of Petree Stockton & Robinson.

On trademark brief: Martin London, Andrew J. Peck, Jennifer S. Conovitz, Jean E. Collins, Rhea N. Schaenman and David M. Schnorrenberg, of Paul, Weiss, Rifkind, Wharton & Garrison; Norwood Robinson and Michael L. Robinson, of Petree Stockton & Robinson.

MEMORANDUM OPINION

BULLOCK, District Judge.

Liggett Group, Inc., ("Liggett") brought this private antitrust suit to recover treble damages against Brown & Williamson Tobacco Corporation ("B & W") alleging predatory price discrimination in violation of Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a).¹ Liggett also charged that B & W violated the unfair competition section of the Lanham Trade-Mark Act, 15 U.S.C. § 1125(a),² as well as various state common law and statutory unfair trade practices.³

After a lengthy trial,⁴ the jury returned a verdict in favor of Liggett on the Robinson-Patman Act claim in the amount of $49,600,000.00. When trebled pursuant to 15 U.S.C. § 15(a), Liggett's award totals $148,800,000.00, excluding post-judgment interest and attorneys' fees. The jury found that Brown & Williamson was not liable to Liggett on the trademark and unfair competition claims.

B & W has moved for judgment notwithstanding the verdict (JNOV) under Federal Rule of Civil Procedure 50(b) and, alternatively, for a new trial under Federal Rule of Civil Procedure 59 on the antitrust portion of the case.⁵ Liggett has moved for a new trial under Federal Rule of Civil Procedure 59 on its trademark and unfair competition claims. After careful consideration, the court will set aside the antitrust verdict and grant B & W's motion for judgment notwithstanding the verdict. The court will deny B & W's alternative motion for a new trial.⁶ Liggett's motion for a new trial on the trademark and unfair competition claims will be denied.

I. FACTS

The cigarette industry in the United States during the mid-1980's provides the setting for this dispute. Six major manufacturers form this industry.⁷ Philip Morris and R.J. Reynolds Tobacco Corp. ("RJR") are the industry giants. The other cigarette manufacturers hold substantially smaller market shares. Liggett and B & W compete for wholesale and retail customers across the United States. Both companies sell branded⁸ and generic⁹ cigarettes. At year-end 1985, B & W's total cigarette sales in the United States were about double Liggett's, although Liggett still sold more generic cigarettes than B & W.

The market shares of both companies have declined in recent years. Since 1975 when its market share was nearly seventeen per cent (17%), B & W's sales have steadily declined. Liggett has had even less success. Years ago, Liggett was a major force in the cigarette industry, enjoying market shares exceeding twenty per cent (20%). However, Liggett's sales declined precipitously for many years. By 1980, Liggett's market share stood at 2.33%, and the company was close to going out of business. Out of desperation, Liggett became the first major cigarette manufacturer to sell generic cigarettes.¹⁰ Liggett encouraged its customers to buy large quantities of generic cigarettes by offering volume rebates so that the more a customer bought the less that customer paid on a per carton basis.

Generic cigarettes were an unqualified success for Liggett. The segment grew steadily, and by mid-1984 generic sales accounted for 4.1% of the total United States cigarette business with Liggett holding ninety-seven per cent (97%) of the segment. The popularity of generic cigarettes attracted other major cigarette manufacturers. In 1983, both RJR and B & W introduced "25's" in response to the success of generic cigarettes.¹¹ In May 1984, RJR also introduced "branded generics."¹² Later that month, B & W announced it would start selling black and white cigarettes positioned to compete directly with Liggett. B & W offered prospective customers volume rebates similar to Liggett's, only higher. Liggett responded by increasing its volume rebates. The rebate war between the companies continued for several more rounds. When the dust settled, B & W's published volume rebates were greater than Liggett's published volume rebates.¹³ This rebate activity took place before B & W sold its first generic cigarette. B & W began selling generic cigarettes in July 1984, giving rise to this lawsuit in which Liggett alleges that, until the end of 1985, B & W engaged in a predatory pricing campaign designed to "kill" the generic cigarette category.

Today generic cigarettes are a fixture in the cigarette market. Five of the six major cigarette companies have significant entries in the category¹⁴ and growth has been steady. The growth of generic cigarettes has encouraged additional competition, primarily in the form of couponing and stickering,¹⁵ on branded cigarettes.

II. THE ANTITRUST ISSUES

B & W's JNOV motion may be granted only if, taking all the evidence in the light most favorable to Liggett, there is no substantial evidence to support the jury's verdict. Evington v. Forbes, 742 F.2d 834, 835 (4th Cir.1984). Evidence is substantial if it is "of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment could reasonably return a verdict for the nonmoving party." Wyatt v. Interstate & Ocean Transp. Co., 623 F.2d 888, 891 (4th Cir. 1980). However, a mere scintilla of evidence is insufficient to sustain a verdict. Austin v. Torrington Co., 810 F.2d 416, 420 (4th Cir.), cert. denied, 484 U.S. 977, 108 S.Ct. 489, 98 L.Ed.2d 487 (1987). Therefore, in order to warrant JNOV, B & W must show that Liggett has failed to prove an essential element of its claim.

Liggett's antitrust claim is a private, primary-line,¹⁶ non-geographic¹⁷ Robinson-Patman Act suit. Except for the issue of price discrimination, the jurisdictional elements are undisputed.¹⁸ Despite the connotations of the term "discrimination," there is nothing illegal per se about a company discriminating in price. Price discrimination means price difference and nothing more. See Texaco Inc. v. Hasbrouck, ___ U.S. ___, 110 S.Ct. 2535, 2544, 110 L.Ed.2d 492 (1990). B & W discriminated in price by charging different net prices¹⁹ to different purchasers via volume rebates in actual black and white cigarette transactions. The other elements²⁰ — competitive injury, causation, and antitrust injury — have been vigorously contested throughout the entire litigation. The court believes that Liggett's evidence falls short in each of these categories.

A. Competitive Injury

The Robinson-Patman Act prohibits only price discrimination the effect of which "may be substantially to lessen competition." 15 U.S.C. § 13(a). This statutory language has been interpreted to proscribe only that price discrimination which has a reasonable possibility²¹ of injuring competition in the relevant market. Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434-35, 103 S.Ct. 1282, 1288-89, 75 L.Ed.2d 174 (1983). Prior to trial, the parties stipulated that the relevant market in which to examine competitive injury was the entire United States cigarette market. Therefore, Liggett must prove that B & W's price discrimination in the sale of its black and white cigarettes had a reasonable possibility of injuring competition in the United States cigarette market as a whole.

The competitive injury requirement of the Robinson-Patman Act in the context of this primary-line, non-geographic claim is not fundamentally different from an attempted monopolization claim under Section 2 of the Sherman Act. 15 U.S.C. § 2. Of course, the standards to evaluate competitive injury are different. The Robinson-Patman Act requires a showing of reasonable possibility of injury to competition while the Sherman Act requires a dangerous probability that the attempt to monopolize will be successful. See Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413 (7th Cir.1989). However, this difference affects only the quantum of proof needed to satisfy the respective statute's competitive injury requirements and not the type of evidence which furnishes that proof.²² In the present case, the court believes that such evidence must consist of predatory pricing practices indicating a reasonable possibility of injury to competition and consumer welfare rather than evidence merely of injury to a competitor combined with bad intent. Absent some objective economic ability to injure competition conduct cannot be illegal no matter what the intent. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588-93, 106 S.Ct. 1348, 1356-59, 89 L.Ed.2d 538 ...