Louisa Coca-Cola Bottling v. Pepsi-Cola Metropol.
| Citation | 94 F.Supp.2d 804 |
| Decision Date | 11 June 1999 |
| Docket Number | No. CIV. A. 99-114.,CIV. A. 99-114. |
| Parties | LOUISA COCA-COLA BOTTLING CO., Plaintiff, v. PEPSI-COLA METROPOLITAN BOTTLING CO., INC., Defendant. |
| Court | U.S. District Court — Eastern District of Kentucky |
Bradley F. Wallace, Louisa, KY, Richard A. Getty, Gregory A. Keyser, Getty, Keyser & Mayo, LLP, Lexington, KY, for Plaintiff.
William P. Emrick, McKenzie, Woolery, Emrick & Webb, P.S.C., Ashland, KY, Richard T. Colman, Edward P. Henneberry, Michael P.A. Cohen, Howrey & Simon, Washington, DC, for Defendant.
Plaintiff, a soft drink distributor, brought this antitrust action against its chief rival for monopolizing the local soft drink market. Plaintiff accuses the Defendant of unfair trade practices including coercive marketing plans, illegal payoffs, and commercial bribery to obtain an unfair competitive advantage. Defendant denies any wrongdoing and accuses the Plaintiff, in turn, of unfair, anticompetitive conduct as well, including defaming Defendant and abusing the Court system in an effort to stifle legitimate competition.
This matter is currently before the Court on Defendant's motions for (1) summary judgment on each of Plaintiff's claims and (2) partial summary judgment on Counts II and III of Defendant's counterclaims. The parties fully briefed these motions and the Court conducted oral argument on the same. The Court having been sufficiently advised, the motions are now ripe for decision.
Pepsi1 and Coke2 both manufacture a variety of beverage syrups and concentrates which they distribute to bottling companies. The bottlers manufacture bottled and canned beverages from the syrups which they sell to retailers for resale to the public. Each bottler has a franchise territory in which it holds exclusive distribution rights for its products.
Pepsi Cola Metropolitan Bottling Co., Inc ("Pepsi-Metro") and the Louisa Coca-Cola Bottling Co. ("Louisa Coke") are bottlers servicing parts of Eastern Kentucky and West Virginia3. Pepsi-Metro, one of the world's largest bottlers, is a wholly owned subsidiary of the Pepsi Cola Co. It began distribution in Kentucky and West Virginia after acquiring one of Pepsi's independent bottlers, East Kentucky Beverage Co. ("EKB") in the early 1990's. Louisa Coke, by contrast, is a small, privately-held business owned and operated by Harold Britton ("Britton") which consists of ten employees and services only a seven county area.4 Coke services the remainder of Kentucky and West Virginia through Coca-Cola Enterprises, Inc. ("CCE"), the largest Coke bottler in the world; Coca-Cola Bottling Co. Consolidated ("Coke Consolidated"), Coke's second largest bottling operation; and Middlesboro Coca-Cola Bottling Works ("Middlesboro Coke"), another small, independent bottler servicing an eight county, tristate rural franchise. Pepsi-Metro's Pepsi franchise territory covers the entire Louisa Coke franchise territory and parts of those serviced by each of these other Coke bottlers. Thus, Pepsi-Metro competes with all of these Coke bottlers, large and small, for business in the Eastern Kentucky/West Virginia market.
National and regional retailers are the biggest outlets for Coke and Pepsi products. Many larger grocery and convenience store retailers like SuperAmerica, Kroger, and Winn Dixie have stores in more than one bottler's territory and operate out of multi-state marketing and distribution centers without regard to local bottlers. To provide these larger clients with consistency in distribution, pricing, service, advertising and promotion of soft drink products, Coke and Pepsi implement national and regional marketing programs. They coordinate the displays and advertising and give the retailers certain promotional allowances. They also provide their bottlers with funds for promotions in local stores within the bottler's sale territory. At issue in this case are two promotional tools, Calender Marketing Agreements ("CMAs", also known as Customer Development Agreements or "CDAs" by Pepsi); and "dealer loaders".
CMAs are written agreements in which the retailer agrees to promote a particular brand on certain weeks and holidays by featuring that product in newspaper ads to the exclusion of the competition, providing a certain amount of shelf space and the opportunity to place vending equipment, as well as displaying the product in a certain way or place during the promotional period. The retailer is usually compensated for his performance on a per case basis. Large retailers frequently enter into CMAs with more than one company on an annual basis. Thus, Coke will be the retailer's featured product on some weeks, Pepsi on others. The retailers are free to cancel the agreement at any time and the only penalty for noncompliance is loss of the per case discount.
Coke USA and Pepsi enter into many CMAs with retailers at the national and regional level on behalf of all their bottlers. Similarly, all of the individual Coke and Pepsi bottlers in the Kentucky/West Virginia market area with the exception of Louisa Coke offer CMAs of their own to local retailers. Pepsi, Coke USA and all Coke bottlers other than Louisa Coke agree that CMAs foster competition, drive up volume, improve efficiency and reduce retail prices. Everyone agrees consumer prices would rise if CMAs were eliminated.
Even though a few customers have requested CMAs from Louisa Coke, it refuses to offer such. Britton testified that he refuses to offer the same because he believes they are anticompetitive. Pepsi claims Britton does not want to go to the expense of competing in this fashion or investing in his company's future. To prove its point, Pepsi notes that Britton's warehouses are nearly completely depreciated and he has purchased no new equipment for his operations other than two used trucks. Pepsi further notes that Britton has made a number of interest free loans to himself and his family, abandoned his contracts with the Jenny Wiley State Park System, and refuses to carry the full line of Coke products or any fountain syrups. Britton does not deny these facts but says his decision to abandon fountain syrups and other coke products are attributable to Pepsi's lock on the market. Britton also says he abandoned the Jenny Wiley account because of a dispute with the park service over a decision to reopen the bidding process.
Whatever Louisa Coke's reasons are for not offering its own CMAs, the fact remains that it does operate under and benefit from the national and regional CMAs negotiated by Coke USA and other bottlers with such large clients as Winn-Dixie, Kroger, Wal-Mart, Food City, SuperAmerica, and Happy Mart, though. Louisa Coke simply reports its case sales to Coke USA who then makes its contractual payments to the retailer's account.
Louisa Coke sells 40% of its volume to customers with national or regional Coke CMAs. Furthermore, every other Coke bottler in this region negotiates CMAs of their own — some of which Louisa Coke benefits from. Louisa Coke insists, however, that the Court should enjoin Pepsi-Metro from offering or participating in the same. It complains that Pepsi-Metro has secured for itself the best advertising, display, shelf and storage space for all of the key marketing weeks and holidays. Louisa Coke says there is no point in providing CMA benefits to retailers in its franchise territory because Pepsi has already taken the most desirable promotional dates. Louisa Coke further complains that the CMAs restrict the shelf space available for Coke products. This causes diminished shelf and storage space which means Coke drivers make more trips to deliver less product. This increases costs and decreases efficiency. Finally, Louisa Coke says it has to offer retailers lower prices than Pepsi in order to keep its products priced competitively by the retailer during the Pepsi promotions. Thus, it sells for less that which it is delivering inefficiently for more. Until the CMAs are eliminated in its territory, Louisa Coke complains it will not be able to compete effectively and that prices will remain artificially low.
Dealer loaders are sales incentive contests and display programs implemented through written agreements with the retailers in which the bottlers award prizes to retailers who meet specific performance criteria like increased sales. The retailer is free to accept or reject these promotions. Those who do participate are free to do with the prize as they like. Most raffle them off to customers or employees. Like CMAs, dealer loaders are designed to increase sales volume which leads to lower retail prices. Dealer loaders are commonly offered nationwide by many product manufacturers including those outside the soft drink industry.
As with CMAs, Louisa Coke does not offer dealer loaders but Coke USA and all of the other Coke bottlers servicing the eastern Kentucky region do. For example, Coke USA gave SuperAmerica's racing team $100,000 in exchange for its bottlers' exclusive right to market soft drinks for a one month period, two to one display space over Pepsi during the promotional period, "first position" on displays and cold ice barrel placements; and a lowered promotional margin to consumers. Louisa Coke benefitted from this dealer loader and Coke USA assessed Louisa Coke's proportionate share of the costs against a Louisa Coke marketing account funded by Coke USA. Other Coke USA dealer loaders funded from Louisa Coke's account include golf outings, trips to the beach, World Cup Soccer tickets; Final Four tickets; golf clubs, Disney World passes and NFL tickets. Because of the widespread use of these programs, all of the other regional Coke Bottlers agree that Pepsi-Metro would be placed at a serious competitive disadvantage if enjoined from participating.
Louisa Coke believes that dealer loaders are anticompetitive and that it would be a waste of time...
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