Cigarette Vending Suit to Proceed
The U.S. Supreme Court refused Monday to block a billion-dollar lawsuit that accuses Altria Group Inc.’s Philip Morris unit of illegally discriminating against vending machine companies by giving promotional payments to retailers.
The justices, without comment, turned away Philip Morris’ arguments that a U.S. appeals court misinterpreted a federal antitrust law that limits price discrimination.
Philip Morris, the largest U.S. tobacco company, argued unsuccessfully that the lower court decision would “deny manufacturers the flexibility to structure their promotional programs in the most efficient manner.”
The high court action clears the way for trials to begin in federal court in Nashville, Tenn. Some 240 vending machine companies are pressing claims against New York-based Philip Morris.
Vending companies, led by Nashville-based B&H; Vendors, said Philip Morris paid “staggering” sums to retailers -- more than $40 million to 20 retail chains in the fourth quarter of 1998 alone. In exchange, retailers provided prominent shelf space for Philip Morris brands, displayed in-store ads and cut prices during promotions.
The lawsuit says Philip Morris cut off a similar program it once had for vending machine operators, leaving them at a competitive disadvantage.
The vending companies are seeking $375 million in compensation, according to their attorney, Douglas B. McFadden. That figure would be tripled under federal antitrust law.
Similar suits are pending in federal court in Michigan against R.J. Reynolds Tobacco Co. and Loews Corp.’s Lorillard unit.
The suit against Philip Morris invokes the 1936 Robinson-Patman Act, which was designed to protect small retailers from the greater purchasing power of larger competitors. The law bars sellers from discriminating among buyers in prices or promotions when the effect is to undermine competition.
A federal trial judge, ruling in 10 test cases, said the vending machine companies couldn’t sue under the law. The U.S. 6th Circuit Court of Appeals reversed that ruling, saying the vending machine companies were entitled to present their case at trial.
Altria shares fell 17 cents to $47.83 on the New York Stock Exchange.
