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Posted on 07/06/2003 8:07:19 PM PDT by SheLion

Philip Morris, the world's biggest tobacco company, is facing a lawsuit from US cigarette wholesalers who claim that a new marketing programme violates antitrust laws.
Under the programme, Philip Morris will sell cigarettes at different prices to wholesalers according to what proportion of their sales involve the company's brands.

The best deal is reserved for distributors for whom Philip Morris brands such as Marlboro constitute up to 49.9 per cent of their revenues. The new programme, launched on June 30, is part of an attempt by Philip Morris USA, the US tobacco arm of Altria Group, to combat the rise of "deep discount" cigarettes.

These cut-price brands have taken more than 10 per cent of the US cigarette market. Many come from small manufacturers that were not part of a 1998 legal settlement with US states that imposed heavy charges on the big tobacco makers to cover the "costs" of tobacco use.

Sixteen wholesalers have launched a lawsuit in a federal court in Tennessee claiming that Philip Morris's Wholesale Leaders 2003 programme constitutes "price discrimination and attempts to monopolise".

Earl Booze, one of the plaintiffs' lawyers, says the programme puts distributors that sell a higher proportion of discount brands and lower proportion of Philip Morris products at an "extreme competitive disadvantage".

Those wholesalers would not be able to offer competitive prices for Marlboro, driving customers away. If these distributors suffered, the complaint continues, that could also harm the manufacturers of smaller, discount brands - entrenching Philip Morris's dominant position. Mr Booze said: "We want an injunction that would prevent [Philip Morris] from either implementing or maintaining a discriminatory programme, and then we are seeking damages as a result of the programme."

Philip Morris said it disagreed with the claims in the lawsuit.

"We plan to vigorously defend the case, and ultimately we believe that the programme will be found to be be completely lawful," the company said.

Philip Morris added that the marketing scheme did not impede the ability of competitors to get their products to market.

"It is a pay-for-performance programme," the company said. "It aligns the resources in our promotional programme with those [wholesalers] that are doing best in terms of meeting Philip Morris share goals."

Mr Booze said Tennessee's attorney-general had filed a complaint and motion to intervene on behalf of the state, also alleging that the Philip Morris programme was anticompetitive.

A Tennessee judge on Thursday denied a motion by Philip Morris to move the case to a New York court. A hearing is expected this month.

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