Judge Backs Rivals Who Oppose Philip Morris’ Retail Displays

A federal judge Tuesday granted a preliminary injunction against the world’s biggest cigarette company, Philip Morris Cos., after three other big tobacco companies claimed it was trying to monopolize prime retail space.

The ruling against portions of Philip Morris’ Retail Leaders marketing program was issued by U.S. District Judge Frank Bullock in Greensboro, N.C. The program encourages retailers to use a tall behind-the-counter display case that prominently shows Philip Morris brands, including Marlboro, Virginia Slims and Basic, while leaving competing bands virtually out of sight.

“The Retail Leaders program will cause all plaintiffs to suffer irreparable harm in the form of loss of advertising opportunities, goodwill, brand equity, and the potential for permanent loss of customers,” the judge wrote in his decision.

A Philip Morris spokesman said that although the company was disappointed with the ruling, he was pleased it applied to only one of four aspects of the Retail Leaders programs. The packages will be displayed the same way, but more competitors’ ads will be allowed.

“We believe it to be completely lawful,” said Philip Morris spokesman Mike Pfeil. “Philip Morris expects the entire program will be reinstated in court.”

Mark Smith, a spokesman for Brown & Williamson Tobacco, which makes Kool and GPC cigarettes, said: “We’re pleased the court recognized the serious competitive consequences of Philip Morris’ marketing program and stopped their unfair marketing practices while the case is in court.”

The case was filed against Philip Morris by R.J. Reynolds Tobacco Holdings Inc., Lorillard Tobacco Co. (a division of Loews Corp.) and Brown & Williamson (a unit of British American Tobacco).

“This is interfering with a free market, and that’s not what this court can do,” Philip Morris attorney Jerome Chapman said during arguments in the case.

During the trial, R.J. Reynolds’ attorneys displayed a scale model of a convenience store counter in the courtroom, including a lottery ticket display, beef jerky, gum and a jar of pigs feet on the counter.

“Reynolds Tobacco believes that the judge’s order will help preserve retail competition while the case moves forward to trial,” said RJR spokesman John Singleton. “Retail Leaders constitutes unfair competition.”

Singleton said he expects the case to go to trial next spring.

Bullock’s ruling notes that the four major companies control 97% of the U.S. tobacco market. In 1998, Philip Morris controlled 53% of that market.

As the pool of adult smokers shrinks, tobacco companies are seeking to maintain brand loyalty. Within the last two years, 6 million smokers, or about 14%, switched their usual brand, Bullock noted in the ruling. Advertising at points of sale has become extremely important as the industry’s options are restricted and the points of sale are where a smoker is most likely to decide to try a different brand.

The judge noted there would be no harm to Philip Morris, except short-term “administrative chaos” related to re-stacking the displays.

On the New York Stock Exchange, Philip Morris fell 88 cents to close at $40.13, RJR ended down 56 cents at $32, Loews rose 75 cents to close at $80 and BAT’s American depositary receipts climbed 13 cents to close at $19.38.