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 a clearly articulated an affirmatively expressed state policy to displace competition.”  And, while Mississippi’s statutory scheme clearly prevents intra-brand competition by requiring exclusive territories, it does nothing to restrict competition between brands, which was the subject of Major Mart’s claims.  Further, no state statute or regulation expressly or impliedly allowed any of Mitchell’s actions.

The court also found that Major Mart had met the interstate commerce requirement because the beer sold by Mitchell had been acquired from breweries outside the state and the restrictions on beer sales affected sales of other products in interstate commerce, such as the tobacco, food and gasoline sold at Major Mart stores.

Regarding Major Mart’s monopolization claim, the court analyzed the elements of that claim under the Sherman Act: that the defendant (1) possesses monopoly power in the relevant market, and (2) has willfully acquired, maintained or enhanced that monopoly power through exclusionary conduct.  Mitchell argued that no evidence showed that it had effectively wielded any monopoly power and that Major Mart had not demonstrated that other wholesalers are so “capacity constrained” as to prevent them from effectively competing with Mitchell. The court disagreed, pointing to Mitchell’s 70-75 percent market share of wholesale beer sales as sufficient evidence to raise a question of fact as to Mitchell’s monopoly power.

On the issue of Mitchell’s exclusionary conduct, Major Mart argued that Mitchell was using its market power to punish Major Mart for selling other brands of beer by slowing or ceasing deliveries, delivering damaged product, and taking other retaliatory actions when Major Mart lowered prices or refused to reconsider allocation of shelf space.  The court ultimately denied Mitchell’s summary judgment motion, finding that the issues presented in Mitchell’s motion required the evaluation of testimony to resolve.

Major Mart’s price discrimination claims centered on Mitchell’s practice of “granting discounts, promotions, special services and rebates to other retailers, but not to Major Mart.” Sections 2(d) and 2(e) of the Robinson-Patman Act protect against suppliers granting promotional benefits in connection with sales to favored customers.  A supplier violates 2(d) if it discriminates by compensating only selected customers for customer-performed promotion and violates 2(e) if it discriminates in performing promotional services for selected buyers.

The court never evaluated these claims, however, as Mitchell successfully contended that Major Mart did not satisfy the “in commerce” requirement for jurisdiction under the Fifth Circuit’s interpretation of the Robinson-Patman Act.  This “in commerce” requirement is interpreted more narrowly than the interstate commerce requirement of the Sherman Act.  Under Fifth Circuit precedent, the “in commerce” requirement “is not satisfied unless the sales actually cross a state line,” which may be met if the goods are sold or resold in interstate commerce or the goods were sold to those who compete in interstate commerce.  Because Major Mart did not buy the beer or resell the beer in interstate commerce—just in Mississippi—nor compete in interstate commerce, since “those who received rebates and coupons from Mitchell are located in Mississippi,” the “in commerce” requirement of Robinson-Patman was not met.  So, while Major Mart satisfied the Sherman Act interstate commerce requirement because its purchase of beer from a wholesaler affected interstate commerce, it could not satisfy the Robinson-Patman Act “in commerce” requirement because its sales of beer did not take place across state lines.

This case serves as a reminder of how regulation can affect the antitrust treatment of beer and other beverage distributors.  Regulation of licensing procedures or territorial restrictions, for example, can erect barriers to entry that practically insulate wholesalers from competition within a brand, but cannot shield a wholesaler from antitrust claims of misuse of market power bestowed by that state-sanctioned “monopoly.”  While distributors of dominant brands who have exclusive rights within a geographic area do not have to worry about losing those rights to competing firms absent rare circumstances, they must be on guard against antitrust claims arising from their dealings.  Conduct toward retailers, manufacturers or other distributors that would otherwise be considered merely “rough dealing” can rise to the level of a federal antitrust violation or invite state and federal regulatory antitrust scrutiny because of that exclusive distribution relationship.

This case also reminds us that state regulatory schemes and franchise laws cannot insulate wholesalers from antitrust scrutiny under state action immunity, even though a wholesaler’s exclusive right to distribute the brands it carries often is conferred by state law.  For a private actor to obtain state action immunity, the state must clearly articulate a policy to displace competition and actively supervise the private actor’s conduct under the statutory scheme.  These types of regulations and laws typically make no such articulation, and in this case, the alleged exclusionary conduct of the wholesaler bore no relation to the regulatory scheme that permitted its exclusive distribution relationship.

Finally, as illustrated by this case, despite the risk of federal antitrust violations for wholesalers of dominant brands articulated above, wholesalers of any brands typically face no risk of violating federal price discrimination laws related to the pricing of beer to retailers because those transactions do not cross state lines.  Perhaps that is small comfort, however, given the existence of state price discrimination laws and the potential for certain pricing schemes by wholesalers of dominant brands to constitute exclusionary conduct in violation of the Sherman Act.