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The Franchise Memorandum

Court Allows Price Discrimination Claim to Proceed, but Dismisses Sherman Act Claim for Failure to Plead Viable Relevant Market
Posted in Antitrust

The United States District Court for the Eastern District of Pennsylvania granted some, but not all, of a manufacturer's motion to dismiss antitrust claims brought by a cigar distributor that sells mass-market cigars to convenience stores. Satnam Distr. LLC v. Commonwealth-Altadis, Inc., 2015 WL 5971583 (E.D. Pa. Oct. 14, 2015). Satnam sued a competing distribution company and one of the manufacturers of a particular cigar brand, alleging that the manufacturer provided discounts to the distributor, which allowed the distributor to sell the manufacturer's cigars for less than the net cost at which Satnam was able to purchase the same cigars. As a result, Satnam alleged that this price discrimination squeezed it out of the market for this manufacturer's cigars, in violation of both the Robinson-Patman Act and the Sherman Act. In moving to dismiss, the defendant distributor and manufacturer argued that Satnam had failed to plead sufficient competitive injury because it did not identify any customers that had been lost, and that the Sherman Act claims failed to identify a relevant market.

The Pennsylvania federal court denied the motion with regard to the Robinson-Patman Act claim, noting that Satnam had pleaded facts supporting a plausible inference that the defendant distributor gained market share at Satnam's expense as a result of discounts it received on the cigars in question, which was sufficient for the pleading stage. The successful pleading of a price discrimination claim is a rarity in modern antitrust jurisprudence. With regard to the Sherman Act claim, however, the court was troubled by Satnam's attempt to define a relevant market as the market for only the distribution of the defendant manufacturer's cigars in Pennsylvania. Satnam had acknowledged in its pleading that a distributor of mass-market cigars must carry a full line of all major mass-market cigar brands produced by a number of manufacturers, and that convenience stores and wholesalers likewise were required to carry a full line of all major brands. Taking Satnam's allegations as true, the court concluded that the relevant product market for both distributors appeared to be the full line of massmarket cigars, and Satnam's attempt to carve out a mere subset of this market for its monopolization claims did not establish a plausible Sherman Act claim.

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