Cases & Deals

R.J. Reynolds Tobacco summary judgment in Tennessee price discrimination case by cigarette wholesalers is affirmed by Sixth Circuit

Client(s) R.J. Reynolds Tobacco Company

Jones Day successfully defended R.J. Reynolds Tobacco Company (RJR) in response to Robinson-Patman claims filed in the United States District Court for the Eastern District of Tennessee by more than 20 cigarette wholesalers. The plaintiffs challenged RJR's wholesale program, which granted discounts and rebates to wholesalers willing to devote a certain percentage of their business to the promotion and sale of RJR savings brands. According to the wholesalers, RJR's lower prices were not "functionally available" to them because their retail customers primarily sold to lower income consumers who "demanded" cigarettes priced at a lower level than any brand available from RJR. Arguing that their role was to fill orders, not influence purchasing decisions, the wholesalers claimed that it was "impossible" for them to meet the percentage of their savings brand sales required to qualify for RJR's higher level discounts and rebates.

The district court, after two years of discovery, granted RJR's motion for summary judgment. In February, 2007, in affirming the district court's decision, the Sixth Circuit found that RJR offered its market share discounts "to all wholesalers using a non-discriminatory formula" (2007 U.S. App. LEXIS 4254 at *71), that "[t]he capacity of plaintiffs to qualify for the [wholesaler program's] best discount was a matter of marketing strategy and brand prioritization, a choice inherent and unavoidable in multi-brand incentive programs," and that RJR's prices were therefore functionally available. (Id.) The Court also rejected "plaintiffs' invitation to re-engineer" RJR's program "to make it more reasonable for some participants." (Id. at *67.) In short, the Sixth Circuit agreed that the Act did not bar RJR from using share-based incentive targets to influence its customers' marketing behavior in favor of RJR's brands.

Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., No. 2:06-cv-00022 E.D. Tenn.), aff'd, No. 05-6053, 2007 U.S. App. LEXIS 4254 (6th Cir. Feb. 27, 2007)