Cases & Deals

R.J. Reynolds Tobacco summary judgment against discount stores' antitrust suit is affirmed by Seventh Circuit

Client(s) R.J. Reynolds Tobacco Company

Jones Day successfully defended R.J. Reynolds Tobacco Company (RJR) against Sherman Act and Robinson-Patman counterclaims filed by a retail chain of discount tobacco stores known as Cigarettes Cheaper (CC). The retail chain had filed its antitrust counterclaims after RJR sued the chain for trademark infringement. CC claimed that RJR conspired with other retailers to provide discounts to those retailers, but not Cigarettes Cheaper. The plaintiff-retailer also claimed that RJR engaged in price discrimination in violation of the Robinson-Patman Act. Cigarettes Cheaper contended that internal RJR documents demonstrated a competitive animus towards the plaintiff-retailer because it had been providing the bulk of its store signage and shelf space to RJR's chief competitor (PM), and had relegated RJR's brands to secondary locations in its stores. Cigarettes Cheaper argued that RJR retaliated by trying to drive CC out of business by working with competing retailers to offer low prices on RJR brands. RJR argued, in response, that RJR's marketing program offered discounts to retailers that were willing to provide display and advertising to RJR's brands, that RJR's program was available to Cigarettes Cheaper, which had rejected RJR's program in favor of PM's program, and that RJR had the right to offer discounts on the condition that retailers pass the discounts along to consumers.

Prior to trial, RJR obtained summary judgment on the Section 1 claim despite the existence of documents that, as the Seventh Circuit would later say, "discusse[d] ways to 'shut down' and 'kill' Cigarettes Cheaper" 'on the breach'." 462 F.3d at 696. The Robinson-Patman claim went to trial in late 2004, and Jones Day achieved a complete defense verdict after a 5-week trial.

In August 2006, the Seventh Circuit, in a 3-0 opinion (Easterbrook), affirmed the district court's grant of summary judgment on the Sherman Act claim and rejected the retail chain's challenges to certain of the trial court's evidentiary rulings and jury instructions on the Robinson-Patman claim. In affirming the grant of summary judgment, the Seventh Circuit ruled that "none of the evidence . . . would have allowed a reasonable jury to infer that there was any horizontal agreement" between RJR and other retailers to harm the plaintiff retailer. 462 F.3d at 697. The appellate court agreed that "RJR had every right, under antitrust law, to condition discounts on agreement by its customers to reduce the prices they charged to consumers." Id. The appellate court further held that the district court did not err in granting RJR's motion to exclude evidence of RJR's claimed "ill intent," which the chain had wanted to present as part of its Robinson-Patman case at trial because "a bad intent is not part of plaintiff's prima facie case under §13(a), and a 'good intent' (apart from its bearing on the statutory justifications) does not excuse price discrimination;" thus, such evidence "could have played little role beyond confusing jurors." Id. at 698. The court thus rejected what it described as Cigarettes Cheaper's "tidbits" (id. at 696), and later commented that "[t]he district court sensibly prevented an excursion through Reynolds's files, which would have hijacked this trial." Id. at 701. Finally, the Seventh Circuit agreed that, to take advantage of the Robinson-Patman Act's meeting competition defense, RJR was not required to meet competition on a customer-by-customer basis but could instead meet competition on a broader basis so long as it showed (as it did) that its action was a genuine reasonable response to a competitor's activities.

On February 20, 2007, the United States Supreme Court denied CC's petition for certiorari without comment or elaboration.

R.J. Reynolds Tobacco Co. v. Premium Tobacco Stores, No. 99 C 1174, 2005 WL 293512 (N.D. Ill. Nov. 15, 2004), aff'd, 462 F.3d 690 (7th Cir. 2006), cert. denied, No. 06-848, 2007 U.S. LEXIS 2142 (Feb. 20, 2007)