Republic Tobacco v. North Atlantic Trading
| Decision Date | 01 September 2004 |
| Docket Number | No. 04-1202.,No. 04-1098.,04-1098.,04-1202. |
| Citation | 381 F.3d 717 |
| Parties | REPUBLIC TOBACCO CO., Plaintiff-Appellee/Cross-Appellant, v. NORTH ATLANTIC TRADING COMPANY, INC., et al., Defendants-Appellants/Cross-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the United States District Court for the Northern District of Illinois, John F. Grady, J.
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Charles S. Bergen (argued), Michael Kazan, Grippo & Elden, Chicago, IL, for Plaintiff-Appellee.
Christopher Landau (argued), Kirkland & Ellis, Washington, DC, Anne G. Kimball, Wildman, Harrold, Allen & Dixon, Chicago, IL, for Defendant-Appellant.
Before FLAUM, Chief Judge, and MANION and WILLIAMS, Circuit Judges.
This appeal involves the claims that two competing tobacco companies brought against one another—one company suing for violation of antitrust laws, the other for defamation. North Atlantic Trading Co., Inc. ("North Atlantic") was upset when its efforts to engage new markets for its cigarette papers proved unsuccessful. It blamed its difficulties in cultivating new customers on the business practices of its competitor, Republic Tobacco Company ("Republic") and decided to sue. The hard feelings went both ways—Republic became upset with North Atlantic after North Atlantic criticized Republic's business practices in two letters sent to customers. Claiming that it had been defamed (among other things), Republic also decided to sue.
The parties' dueling lawsuits were eventually consolidated into one case before the United States District Court for the Northern District of Illinois. At summary judgment, the district court considered both parties' multiple claims and counterclaims —the only one to survive being Republic's defamation claim. Not only did it advance; it was successful at summary judgment. Following this judgment, a jury trial was held on the issue of damages, both presumed and punitive, for the defamation claim. The jury returned a verdict for $8.4 million in presumed damages and $10.2 million in punitive damages. The trial court granted North Atlantic's subsequent motion for remittitur, reducing the awards to $3.36 million and $4.08 million, respectively.
On appeal, North Atlantic seeks review of: (1) the district court's decision to grant summary judgment to Republic on its defamation claim; (2) the remitted damage awards; and (3) the district court's decision to grant summary judgment to Republic on North Atlantic's antitrust claims. Republic cross-appeals the district court's refusal to entertain a procedure that might have enabled Republic to appeal the remittitur. For the reasons stated in this opinion, we affirm the district court's decisions with respect to Republic's defamation claim, North Atlantic's antitrust claims, and Republic's cross-appeal. On the issue of damages, we vacate the district court's award of presumed and punitive damages, and award to Republic $1 million in presumed damages and $2 million in punitive damages.
Republic and North Atlantic are competitors in the market for premium roll-your-own ("RYO") cigarette papers, tobacco, and other tobacco-related products. Republic and North Atlantic sell their RYO products to distributors and wholesalers, who in turn resell the products to outlets such as convenience stores, drugstores, gas stations, and minimarts. Republic's products are marketed under several brand names, including Job, Top, and Drum, while North Atlantic's products are marketed under the brand name Zig-Zag. North Atlantic's Zig-Zag has been the number-one selling domestic RYO cigarette paper brand since its introduction in the U.S. in 1938. North Atlantic estimates its domestic market share of cigarette paper is 49 percent or higher. Republic is the second largest supplier of cigarette paper, with a market share of approximately 25 percent. Robert Burton Associates ("RBA") is the third major competitor in the cigarette paper business.
In 1997, North Atlantic acquired an exclusive license to market and distribute the Zig-Zag brand of RYO papers in the United States. At this time, North Atlantic announced that it sought to challenge Republic's historic market dominance in the "Southeastern" United States—a group of nine states where Republic's total market share is as much as 95 to 98 percent. Things did not go according to North Atlantic's plan and the company experienced some difficulty in penetrating this market. Republic asserts that North Atlantic's disappointing sales growth in these states was the product of simple market economics, principally Republic's lower pricing and superior marketing strategy.
In contrast, North Atlantic claims that its sales difficulties were caused, in part, by Republic's unfair and unlawful business practices. North Atlantic believed Republic to be violating antitrust and unfair competition laws by pursuing enhanced exclusivity agreements through its incentive programs for distributors and retailers. North Atlantic also claims that it believed Republic was violating trademark and unfair competition laws by defacing Zig-Zag display boxes.1
Naturally, in the course of business relations, North Atlantic and Republic sent letters to their customers. Statements contained in two letters sent from North Atlantic representatives to North Atlantic customers or potential customers that were critical of Republic's business practices form the basis of Republic's defamation suit. The first letter (the "Czerewko Letter") was sent to a potential customer in the course of North Atlantic and Republic's battle for retail outlets. The second letter (the "August 13 Letter") was sent to North Atlantic customers shortly after North Atlantic filed its lawsuit against Republic.
In January 1998, North Atlantic Regional Manager John Czerewko sent a letter to a customer attacking the integrity of Republic's business conduct and accusing Republic of engaging in inappropriate activity with respect to the plastic display boxes. In late 1997, Clark Oil, one of the largest convenience store chains in the Midwest, elected to stock and sell Republic's products exclusively. Czerewko was involved in a North Atlantic campaign to convince Clark to drop its exclusivity with Republic. North Atlantic offered $95,000 in promotional money to Clark if it agreed to sell North Atlantic products, however this offer was less lucrative than the $110,000 offer Clark received from Republic.
In the course of courting this potential client, Czerewko wrote a one-page letter to Clark buyer Sanjiv Jain discussing Republic's competing proposal for exclusivity as well as the modifications to the display boxes. Czerewko wrote, "Frankly, I have some concerns not only with the Exclusivity proposal, the rationale, the Cigarette Paper category, but also for Clark in long term consequences." Below this sentence, are two boldface headings ("The Republic Proposal for exclusivity" and "Similarity of Display Units"), each with a series of bullet-points underneath. According to Republic and the district court, the defamatory statements in the Czerewko Letter consist of the following three sentences located under the "Similarity of Display Units" heading:
• Recently, another Chain was positioned for exclusivity and a modified, defaced Zig Zag unit was used. We own the patent-trademark which has been violated.
• Our Attorneys initiated legal action regarding this and had to include the Chain in the Trademark-Patent violation.
Republic contends that these statements were false and defamatory because North Atlantic held no patent or trademark rights in the boxes and had not initiated litigation against anyone in connection with the display boxes.
After receiving the Czerewko Letter, Clark forwarded it to Clark's supplier, Eby-Brown, which buys products directly from Republic and distributes them to retailers. Thereafter, Eby-Brown discontinued its participation in Republic's incentive programs. Clark subsequently discontinued its participation in Republic's incentive program as well.
In June 1998, Republic filed this defamation action, a few days after Clark cancelled its exclusive contract. Two weeks later, North Atlantic filed a second suit in the U.S. District Court for the Western District of Kentucky, alleging unfair competition, deceptive trade practices, and antitrust violations. On August 13, 1998, North Atlantic sent a letter to all of its customers—many of whom were also customers of Republic—explaining that North Atlantic had filed a lawsuit against Republic, charging Republic with "unfair competition, deceptive trade practices and antitrust violations." The letter went on to describe the substance of these allegations as follows:
The complaint alleges that Republic Tobacco's exclusivity agreements, rebates, incentive programs, buybacks and other activities violate federal and state antitrust and unfair competition laws. The complaint charges that Republic Tobacco entered into contracts, combinations, and conspiracies in illegal restraint of trade and has attempted to illegally monopolize, and has illegally monopolized, the roll-your-own ("RYO") cigarette paper market in the southeast United States.
The complaint also alleges that Republic Tobacco has defaced and directed others to deface North Atlantic's and National Tobacco's vendor displays for ZIG-ZAG® RYO cigarette papers. On many of these vendors, the ZIG-ZAG® brand name has been covered up with an advertisement for JOB®, TOP®, and other Republic Tobacco RYO cigarette brands. The lawsuit alleges that these activities violate North Atlantic's and National Tobacco's rights and constitute unfair competition under federal and state law.
Republic responded to the August 13 Letter with a letter of its own, calling North Atlantic's claims "frivolous,"...
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