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Oklahoma Supreme Court Strikes Down New Distribution Statute as Unconstitutional

In a win for alcohol beverage suppliers, on Wednesday the Oklahoma Supreme Court issued an opinion in The Institute For Responsible Alcohol Policy v. State ex rel. Alcohol Beverage Laws Enforcement Comm’n. In a 5-4 ruling, the court struck down as unconstitutional a statute requiring the top 25 wine and spirits brands in the state, by volume, to be offered to all wholesalers without discrimination. The effect of the ruling is that a supplier of any brand of alcohol is free to choose its preferred or potentially exclusive distributor in the State of Oklahoma.

As background, Oklahoma has historically prohibited suppliers of wine and spirits from having an exclusive distribution relationship with an Oklahoma wholesaler, and required suppliers to sell their products to any Oklahoma wholesaler desiring to purchase them. For those familiar with the concept of “franchise” laws in the alcohol beverage industry—which typically require suppliers and wholesalers to establish exclusive distribution relationships—this provision effectively operated as a “reverse franchise” law.

Following a voter referendum in the fall of 2016, Oklahoma enacted a constitutional amendment overhauling its alcohol beverage laws. As part of the legislative changes, a new statute authorized suppliers to appoint a single wholesaler for their products in Oklahoma. The new statute allowed, but did not require, suppliers to establish exclusive distribution relationships with Oklahoma wholesalers.

As a reaction to the constitutional amendment and 2016 legislative changes, Oklahoma enacted a new law in May 2019 that partially restored the reverse franchise law, requiring any wine or spirit product constituting a “top brand” (i.e., by volume) to be made available to all Oklahoma wholesalers. A number of parties, including The Institute for Responsible Alcohol Policy and several members of the alcohol industry, comprising the supplier, wholesaler, and retailer tiers, sued to challenge the law. The plaintiffs argued that the law conflicted with the new constitutional amendment.

In August 2019, a district court judge held the law unconstitutional. The wholesalers appealed, and in this ruling the Oklahoma Supreme Court affirmed the lower court’s decision. Specifically, the court’s majority opinion held:

  1. The statute in question is “clearly, palpably, and plainly inconsistent” with the 2016 constitutional amendment’s provision giving discretion to a supplier of spirits or wine to determine what wholesaler(s) sells its products. Because the statute “infringes on a manufacturer’s constitutionally granted discretion to select one wholesaler to the exclusion of all others,” it is unconstitutional.
  1. The statute “is not a proper use of legislative authority,” as the constitutional amendment does not conflict with the Oklahoma constitution’s prohibition on anti-competitive activities (i.e., monopolies). The amendment does not require suppliers to sell their brands to only one wholesaler, and instead places discretion in the hands of the suppliers to determine how they will distribute their products in the state.

The ruling allows for a level playing field for all suppliers, including suppliers of high-volume brands in Oklahoma, to determine how their products will be distributed in Oklahoma.




Local Wholesaler-Retailer Dispute Has Federal Implications

On August 14, the U.S. District Court for the Southern District of Mississippi issued an opinion finding that state regulations bolstered one antitrust claim and hindered another in an ongoing dispute between a northern Mississippi convenience store chain, Major Mart, and an Anheuser-Busch InBev (ABI, a/k/a “Red Network”) distributor, Mitchell Distributing Company.

In Mississippi, by statute, like those of many other states, beer manufacturers must designate exclusive sales territories for each brand.  Mitchell holds the exclusive right to sell ABI brands to retailers in the counties in which Major Mart operates its 11 convenience stores.

The relationship between Mitchell and Major Mart started to break down in 2010, when Major Mart claimed that it was receiving inaccurate and confusing price information from Mitchell.  Major Mart asked Mitchell for compensation of lost profits due to the incorrect pricing information.  Mitchell denied the request, and Major Mart decided later to remove ABI displays and signs, lower the prices of competitors’ products, and reduce the cooler space allocated to ABI in some of its stores.  According to Major Mart’s complaint, Mitchell retaliated by (1) demanding shelving allocation that represented ABI’s market share of approximately 70 percent, (2) demanding price parity with competing products of ABI, (3) changing its deliveries to Major Mart stores to once a week so as to fill up Major Mart’s coolers and storerooms, leaving no room for competitor products and (4) delivering on Fridays so that Major Mart stores would not have cold beer on the “best selling day of the week.”

After litigation was first initiated, the parties reached a settlement in 2011, agreeing that Mitchell would increase its deliveries to at least twice per week and Major Mart would reconsider shelf space allocation and increase prices on competing brands of beers to the same price as ABI products.  This temporary resolution, however, failed when Major Mart did not reallocate its shelf space.  In response, Mitchell once again cut deliveries to one day per week and thereafter began to provide sales coupons and promotional giveaways exclusively to Major Mart’s competitors.  Major Mart also claimed that Mitchell delivered beer that was close to the end of its shelf-life, replaced fresher beer Major Mart had with older beer and missed deliveries during key dates, including July 4 and just as students were returning to college.  Eventually, Major Mart sued.

Major Mart alleged that Mitchell engaged in monopolization and attempted monopolization in violation of the Sherman Act and price discrimination in violation of the Robinson-Patman Act.  In response, Mitchell filed a motion for summary judgment asserting that the Sherman Act did not apply, as (1) Mitchell’s actions were immunized by the State Action Doctrine—the principle that the Sherman Act does not apply to states acting in their capacities as sovereigns—and (2) Mitchell’s actions, which occurred solely in Mississippi, did not affect interstate commerce—as required for Sherman Act jurisdiction.

Quickly discarding the State Action Doctrine assertion, the court noted that to qualify as a state’s action, conduct must be “undertaken pursuant to [...]

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