Wholesale Failure

R.J. Reynolds wins price discrimination lawsuit

Published in CSP Daily News

WINSTON-SALEM, N.C. -- A federal judge dismissed an antitrust lawsuit charging R.J. Reynolds Tobacco Co. with price discrimination against some of its wholesalers, reported Reuters.

The lawsuit was brought by Johnson City-based Smith Wholesale Co. Inc. of Tennessee, 19 other wholesalers and the states of Tennessee and Mississippi. The plaintiffs had sought a permanent injunction and unspecified damages that would have totaled millions of dollars, R.J. Reynolds lawyer Darryl Marsch said.

The lawsuit centered on a program the tobacco [image-nocss] company uses to build market share. It gives wholesalers discounts depending on the percentage of R.J. Reynolds cigarettes sold. In the lawsuit, the wholesalers charged they were unable to meet R.J. Reynolds' targets due to greater customer demand for low-priced cigarettes from nonmajor manufacturers, Marsch said.

Smith Wholesale could not be reached for comment, Reuters said.

The Tennessee U.S. District Court judge, however, ruled that the discounts remained available to the wholesalers. R.J. Reynolds did not take advantage of them due to their own customer demands rather than anything the tobacco company did, Marsch said. He added the ruling was significant for R.J. Reynolds because the wholesale price program was designed to boost its share of cigarette sales.

In a statement, R.J. Reynolds Tobacco Co. said it applauds the ruling dismissing the antitrust lawsuit.

We were always confident we would prevail in this case, said Darryl R. Marsch, senior counsel for R.J. Reynolds. Our wholesale program is fair and our discounts are available to all of our wholesalers regardless of size. Antitrust experts generally recommend market-share based discount programs like R.J. Reynolds' because they are size-blind'.

In granting summary judgment, U.S. District Judge J. Ronnie Greer of the U.S. District Court for the Eastern District of Tennessee (Greeneville), said. Because the plaintiffs did not take advantage of a lower price or discount which was functionally available on an equal basis, no price discrimination has occurred.

Winston-Salem, N.C.-based R.J. Reynolds' product line includes five of the nation's 10 best-selling cigarette brands: Camel, Winston, Kool, Salem and Doral.