Philip Morris Sued by Distributors

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Philip Morris Sued by Distributors

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

Sixteen wholesalers filed legal action in a federal court in Tennessee claiming that Philip Morris's Wholesale Leaders 2003 program constitutes "price discrimination and attempts to monopolize," the Financial Times of London reported.

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

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

Earl Booze, one of the plaintiffs' lawyers, says the program 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. "We want an injunction that would prevent [Philip Morris] from either implementing or maintaining a discriminatory program, and then we are seeking damages as a result of the program," Booze said.

Philip Morris said it disagreed with the claims in the lawsuit. "We plan to vigorously defend the case, and ultimately we believe that the program will be found to be completely lawful," the company said in a statement.

Philip Morris added that the marketing scheme did not impede the ability of competitors to get their products to market. A hearing is expected this month.