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INDIAN COFFEE CORP. v. P&G

January 16, 1980

INDIAN COFFEE CORP. and PENN-WESTERN FOOD CORP., Plaintiffs,
v.
THE PROCTER & GAMBLE COMPANY and THE FOLGER COFFEE COMPANY, Defendants.



The opinion of the court was delivered by: DIAMOND

Plaintiffs, Indian Coffee Corp. (Indian) and its wholly-owned subsidiary, Penn-Western Food Corp., (Penn-Western) filed this suit alleging that the defendants, The Procter & Gamble Company (Procter & Gamble) and its wholly-owned subsidiary, The Folger Coffee Company (Folger) violated § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), by granting discriminatory prices in the sale of Folger's brand coffee in the Cleveland-Pittsburgh market area during 1971-74. In the context of a motion for partial summary judgment, the defendants present the court with a Robinson-Patman question which apparently has never been squarely addressed by the federal courts or the Federal Trade Commission (Commission): Whether a common marketing device known as a "consumer coupon" is an element of "price" under § 2(a) of Robinson-Patman. For the reasons set forth below, we conclude that the consumer coupons as utilized by the defendants in this case were not such an element of "price", and, accordingly, we will grant the defendants' motion for partial summary judgment.

I. FACTUAL BACKGROUND

 Prior to 1971, the nation's two largest suppliers of coffee, Folger and the General Foods Corp. (General Foods), split the country's coffee market geographically. General Foods, marketing Maxwell House, Sanka, Yuban, Brim, and Max-Pax, was firmly entrenched as the dominant seller in the eastern United States; whereas Folger, marketing Folger's brand, enjoyed a similar status in the western states. In 1971 Folger undertook a marketing campaign designed to challenge General Foods' eastern domination. As part of that campaign, Folger initiated a series of promotions in the Cleveland-Pittsburgh market area from 1971 until March of 1974. These promotions were undertaken on two distinct levels trade and consumer. Promotions to the retailers included, inter alia, price discounts, trade coupons, advertising allowances, and display allowances, and were designed to encourage retailers (hence "trade" promotions) to buy and prominently feature Folger's coffee. Consumer promotions were aimed directly at the consumer, and included free samples, refunds, premium offers, and the herein disputed consumer coupons. These were designed directly to increase consumer use of Folger's coffee.

 Plaintiffs allege that at the time Folger initiated its promotional campaign in the Cleveland-Pittsburgh area, plaintiffs, who traded only in the Cleveland-Pittsburgh area, enjoyed a substantial and profitable business selling their brands of coffee in that region. In April of 1974, however, plaintiffs sold their coffee interests, allegedly because of defendants' predatory pricing practices. Thereafter, plaintiffs brought the instant suit against defendants charging that they violated the anti-price discrimination provisions of § 2(a) of Robinson-Patman by selling Folger's coffee at lower prices in the Cleveland-Pittsburgh area than in other geographic areas throughout the country. Plaintiffs allege no other anti-trust violation.

 Folger answered the complaint by denying that it was guilty of any discriminatory pricing practices and asserted an affirmative defense under § 2(a) by claiming that even if it did discriminate, such discrimination was done in good faith to meet a competitor's, General Foods, price.

 Presently before the court is defendants' motion for partial summary judgment relative to that portion of plaintiffs' complaint in which plaintiffs charge that the defendants violated § 2(a) and engaged in a discriminatory pricing practice through distribution of consumer coupons. *fn1" In support of the motion, defendants contend that consumer coupons are not an element of "price" within the meaning of § 2(a).

 In order to assess defendants' contention, we must first consider the operation and effect of consumer coupons as well as that of trade coupons. A consumer coupon is the coupon one often sees in newspaper ads offering a certain number of "cents-off" the regular price of a particular grocery item. It is distributed by, and under the name of, the Manufacturer of the advertised item. When the consumer clips the coupon and presents it at a retailer's check-out line, the consumer is given a commensurate reduction in the price of the item purchased. The retailer then returns the coupon to the manufacturer and is reimbursed for the reduction he has given the consumer. *fn2" It should be noted that it is the consumer who receives the reduced price and the manufacturer, not the retailer, who underwrites that reduction.

 During much of the period in question, defendants distributed consumer coupons offering price reductions on Folger's coffee to Cleveland and Pittsburgh residents. That distribution was accomplished via direct mailings, newspaper advertisements, and inserts in the product package itself. Except for variations in their face value, all of defendants' coupons were subject to the same conditions of redemption. For purposes of this motion, the two most significant of those conditions were: (1) the coupons could be redeemed at any retail outlet in the country that stocked Folger's coffee, and (2) the retailer seeking reimbursement could be requested by Folger to prove that it had purchased amounts of coffee at least equal to the number of coupons redeemed.

 II. LEGAL BACKGROUND

 In its pertinent part, § 2(a) of Robinson-Patman states:

 
"It shall be unlawful for any person engaged in commerce . . . either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality . . . where the effect of such discrimination may be to substantially lessen competition . . . ."

 The quoted language sets forth the essential elements of a § 2(a) prima facie case. The Act provides three affirmative defenses which a defendant may establish to rebut such a prima facie showing; namely, cost justification, good faith meeting of a competitor's price, *fn4" and changed circumstances. *fn5"

 While there are various elements to a § 2(a) suit, the principal one is discrimination in price. 4 Von Kalinowski, "Antitrust Laws and Trade Regulation" P 27.01. This, of course, is the issue underlying the dispute on the present motion. The defendants claim that ...


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