Coca-Cola Co. v. Harmar Bottling Co.
Texas Supreme Court 03-0737, 10-20-2006.
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FACTS: Five Royal Crown Cola franchisees sued Coca-Cola Enterprises Inc., and five of its affiliates (collectively, CCE) and The Coca-Cola Co., which manufactures Coca-Cola, complaining of their use of calendar marketing agreements (CMAs) with carbonated soft drink retailers in the territories plaintiffs served. Generally, a CMA provides that during stated periods of time a retailer will promote a wholesaler's products in preference to competing products in exchange for payments and price discounts from the wholesaler.
For carbonated soft drinks, price and prominent retail display are critical marketing factors. Typically, CMAs do not prohibit retailers from selling competing products but do require more favorable promotion of the wholesaler's products and limited or no promotion of competing products. CMAs may also require retailers to price the wholesaler's products below competing products, even if the differential is achieved by pricing competing products higher than they otherwise would be. CMAs typically cover only specific time periods during the year, not the entire year, and are terminable at will by either the retailer or the wholesaler. Retailers receive price discounts and direct payments and bonuses for their promotional efforts.
The RCC franchisees alleged that throughout the 1990s Coke had engaged in an unreasonable restraint of trade and had monopolized, attempted to monopolize and conspired to monopolize the soft drink market in their exclusive territories in the "Ark-La-Tex region," all in violation of the Texas Free Enterprise and Antitrust Act (TFEAA) and the antitrust laws of Arkansas, Louisiana and Oklahoma. The jury found that CCE had engaged in monopolization or attempted monopolization, that CCE and The Coca-Cola Co. had engaged in an unreasonable restraint of trade and a conspiracy to monopolize, that CCE and The Coca-Cola Co. had acted willfully or flagrantly, and that in so doing CCE and The Coca-Cola Co. had wrongfully interfered with the RCC franchisees' existing and future business relationships with retailers.
The court trebled the total actual antitrust damages of $5,153,898.80 as required by statute, credited $817,000 paid by the Pepsi defendants in settlement, and rendered judgment against Coke for $14,644,696.40, plus $500,000.00 attorney fees. The court also enjoined Coke from prohibiting any retailer from engaging in any form of advertisement or promotion of any nationally branded soft drink, prohibiting any retailer from displaying or placing cold equipment for any nationally branded soft drink, prohibiting any retailer from selling any nationally branded soft drink or flavor, requiring or suggesting that any retailer use horizontal sets, or requiring or suggesting any retailer use a ratio to allocate space in cold equipment, through any contract or incentive program, in any county or parish where the RCC franchisees operated in Arkansas, Louisiana, Oklahoma and Texas for a period of seven years.
The court of appeals affirmed.
HOLDING: Reversed and rendered.
The court concluded, as a matter of statutory construction, that the Texas legislature did not intend for the TFEAA to be enforced by an award of damages and injunctive relief for injury that occurred in other states. The court also concluded that the district court should not have entertained the RCC franchisees' claims under Arkansas, Louisiana and Oklahoma law.
The court then weighed alleged RCC's Texas injuries. "Unquestionably," the majority opinion stated, "Coke's CMAs could have had anticompetitive and monopolistic effects. The court of appeals concluded that the jury was therefore entitled to infer that the CMAs did have such effects. But to allow such an inference violates the rule of reason analysis that must be applied to such conduct." The court held that for a plaintiff to prevail under the TFEAA, there must be evidence of "demonstrable economic effect," not just an inference of possible effect.
The RCC franchisees' claim of conspiracy to monopolize fails for the same reason, the court stated. As a result of the RCC franchisees' antitrust claims failing, the franchisees' claim for tortious interference with a business relationship also failed, because it requires proof of independently tortious or unlawful conduct.
Coke's use of CMAs store by store and area by area cannot be viewed in isolation but must be seen as a whole in assessing its impact on the market, the court stated. There was no evidence any relevant market claimed by the RCC franchisees was harmed by Coke's CMAs, the court stated.
OPINION: Hecht, J., delivered the opinion of the court, in which Wainwright, Green, Johnson and Willett, J.J., joined.
Brister, J. filed a dissenting opinion, in which Jefferson, C.J., and O'Neill and Medina, J.J., joined. "After buying up distributors of the leading soft drink brands in the Ark-La-Tex area, Coke began demanding that retailers stop advertising competing brands, stop selling some of them, and artificially raise the prices of the rest. Retailers who refused to play along were punished with higher wholesale prices; only Wal-Mart (a behemoth in its own right) successfully refused.
"There is a line between competing and bullying, and the jury found that Coke crossed it. As evidence in the record would allow reasonable jurors to reach that conclusion, I would not render judgment to the contrary; because the Court does, I respectfully dissent."
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