Pepsico, Inc. v. Coca-Cola Co.

• Decision Date: 19 September 2000
• Docket Number: No. 98Civ.3282(LAP).,98Civ.3282(LAP).
• Parties: PEPSICO, INC., Plaintiff, v. THE COCA-COLA COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

114 F.Supp.2d 243

PEPSICO, INC., Plaintiff, v. THE COCA-COLA COMPANY, Defendant.

No. 98Civ.3282(LAP).

United States District Court, S.D. New York.

September 19, 2000.

Kaye, Scholer, Fierman, Hays & Handler, LLP, New York, NY (Randolph S. Sherman, Richard M. Steuer, of counsel), Jones, Day, Reavis & Pogue, Cleveland, OH (Thomas F. Cullen, Jr., Robert H. Rawson, Jr., of counsel), Richard C. Weisberg, Merion, PA, Gerard W. Casey, PepsiCo, Inc., Purchase, NY, for Plaintiff PepsiCo, Inc.

Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York, NY (Jonathan M. Jacobson Robert Johnson, Daniel McInnis, of counsel), W. Dixon Shay III, Jonathan Gottlieb, King & Spalding, Atlanta, GA (Michael C. Russ, Jeffrey S. Cashdan, of counsel), Joel M. Neuman, Marshall B. Dukes, the Coca-Cola Company, Atlanta, GA, for Defendant the Coca-Cola Company.

OPINION

PRESKA, District Judge.

In 1986, PepsiCo's then-President and CEO, Roger Enrico, made the following observation in his book, The Other Guy Blinked: How Pepsi Won The Cola Wars:

By comparison [to the major battles of history], of course, the battles that Pepsi-Cola and Coke fight in the Cola Wars are trivial. There are no final defeats. The ammunition we fire at one another is often damn silly stuff. But for all that, our battles are very real.

Tens of billions of dollars are at stake. And "market share"—the sales performance of a soft drink compared to others in its category. And something intangible, but no less important: pride. That last reason is, in this story, perhaps the most important ingredient.¹

Whatever may be the "most important ingredient" in making cola and whatever may be the "most important ingredient" in the Cola Wars, the most important ingredient in opposing summary judgment is "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). By this measure, PepsiCo's brew falls flat.

Plaintiff PepsiCo, Inc. ("PepsiCo") brought this action against defendant The Coca-Cola Company ("Coca-Cola") for monopolization and attempted monopolization of the market for fountain-dispensed soft drinks distributed through independent foodservice distributors throughout the United States in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Coca-Cola's motion to dismiss the complaint was denied. PepsiCo later amended the complaint to add a claim under section 1 of the Sherman Act, 15 U.S.C. § 1, alleging that Coca-Cola entered into various agreements with individual foodservice distributors amounting to concerted action in restraint of trade. Coca-Cola now moves for summary judgment on all claims pursuant to Fed.R.Civ.P. 56. For the reasons that follow, Coca-Cola's motion is granted.

BACKGROUND

Restaurant chains, movie theater chains and other foodservice outlets purchase fountain soda syrup through intermediaries who, in turn, have supply agreements with the syrup manufacturers. These intermediaries include distributors and bottlers. Certain distributors, so-called "independent foodservice distributors," provide "one-stop shopping," which allows the customer to obtain all necessary supplies from one distributor at each of the customer's locations. (See Adzia Decl. ¶ 11.) The type of distribution provided by independent foodservice distributors is referred to as "systems distribution," and these independent foodservice distributors are sometimes referred to as systems distributors. Bottlers provide fountain syrup and beverages to customers but do not provide the "one-stop shopping" characteristic of foodservice distributors. (See Wilson Dep. Tr. Ex. 12 at CCND2034082.)

Independent foodservice distributors receive fountain syrup products pursuant to agreements with the particular fountain syrup manufacturer. Coca-Cola's agreements contain a so-called "loyalty" or "conflict of interest" policy, which provides that distributors who supply customers with Coca-Cola may not "handle[] the soft drink products of [PepsiCo]." (Pl.'s Opp. App. Ex. 55 (CCND2015918).) Foodservice distributors who breach the loyalty policy risk termination by Coca-Cola. (See, e.g., Gaffney Dep. Tr. Ex. 41 at CCND2012038; Wilson Dep. Tr. at 431-33.) Thus, a distributor subject to the loyalty policy can supply all its customers with either Pepsi or Coke, not both. (Kaiser Dep. Tr. at 98) ("[Y]ou either live in a red world [Coke] or a blue world [Pepsi].... You can't live in both worlds.") Because distributors are given an all or nothing choice, a customer of a distributor subject to Coca-Cola's loyalty policy who wants Pepsi will have to go elsewhere to get it.

PepsiCo defined the relevant customer base in the amended complaint as "restaurant chains, movie theater chains and other `on-premise' accounts across America." (Am.Compl. ¶ 7.) PepsiCo appears to have narrowed its customer definition in its submission on this motion to large restaurant chain accounts that are not "heavily franchised" with low fountain "volume per outlet." (Pl.'s 56.1 Counterstmt. ¶¶ 30-31, 33, 36(a), (c).)

PepsiCo's amended complaint defines the relevant market pertinent to the instant antitrust inquiry as "the market for fountain-dispensed soft drinks distributed through independent food service distributors throughout the United States." (Am. Compl. ¶ 6.) The affidavits and exhibits show that customers have a preference for receiving fountain syrup through independent foodservice distributors because of the various one-stop shopping advantages. For example, customers who receive most or all of their supplies from a single source can minimize back-door deliveries to each outlet, which in turn minimizes business interruption. In addition, independent foodservice distributors can provide consolidated invoicing and minimized distribution costs.

Coca-Cola has been distributing fountain syrup through independent foodservice distributors for many years. PepsiCo traditionally distributed its fountain syrup through bottlers but, in the late 1990s, decided to change that distribution method to utilize independent foodservice distributors. However, Coca-Cola began to enforce its loyalty policy. Thus, PepsiCo was essentially prohibited from distributing its syrup via then-existing systems distribution. PepsiCo contends that Coca-Cola's enforcement of the loyalty policy amounts to unlawful monopolization and attempted monopolization.

Coca-Cola argues that PepsiCo has improperly defined the relevant product market. Specifically, Coca-Cola asserts that the relevant market cannot be limited to fountain drinks "distributed through independent foodservice distributors." According to Coca-Cola, customers of independent foodservice distributors can obtain fountain drinks through other acceptable substitutes, such as bottlers.

Coca-Cola also argues that there is no evidence that Coca-Cola has monopoly power or any dangerous probability of achieving it and that Coca-Cola's conduct has not caused PepsiCo any injury.

Last, Coca-Cola contends that its distributor agreements do not restrain trade unreasonably and do not demonstrate a per se unlawful horizontal conspiracy among the foodservice distributors.

ANALYSIS

I. Legal Standard.

"A motion for summary judgment may not be granted unless the court determines that there is no genuine issue of material fact to be tried and that the facts as to which there is no such issue warrant judgment for the moving party as a matter of law." Chambers v. TRM Copy Centers Corp., 43 F.3d 29, 36 (2d Cir.1994); see Fed.R.Civ.P. 56(c); see generally Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). An issue of fact is genuine when "a reasonable jury could return a verdict for the nonmoving party," and facts are material to the outcome of the particular litigation if the substantive law at issue so renders them. Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

The burden of establishing that no genuine factual dispute exists rests on the party seeking summary judgment. Chambers, 43 F.3d at 36. Of particular relevance here is the Supreme Court's reiteration in Celotex, 477 U.S. at 325, 106 S.Ct. 2548, that "the burden on the moving party may be discharged by `showing'— that is pointing out to the district court— that there is an absence of evidence to support the nonmoving party's case." Accord Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995) ("In moving for summary judgment against a party who will bear the ultimate burden of proof at trial," however, "the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim."); Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223-24 (2d Cir.1994) ("[T]he moving party may obtain summary judgment by showing that little or no evidence may be found in support of the nonmoving party's case."). The moving party, in other words, does not bear the burden of disproving an essential element of the nonmoving party's claim.

If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); accord Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir.1994). The nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. Instead, the nonmovant must "`come forward with enough evidence to support a jury verdict in its favor, and the motion will not be defeated merely ... on the basis of conjecture or surmise.'" Trans Sport v. Starter Sportswear, 964 F.2d 186, 188 (2d Cir.1992) (citation omitted).

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