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R.J. Reynolds Tobacco Wins Pricing Suit

Winston-Salem, N.C. -- A federal judge in Greeneville, Tenn., ruled discount pricing programs by cigarette maker R.J. Reynolds Tobacco Co. did not discriminate against wholesale customers.

Smith Wholesale Co. Inc. in Tennessee filed a federal antitrust lawsuit in 2003 against R.J. Reynolds, claiming it was unlawful for the tobacco giant to offer deep discounts only to wholesalers who sold more of their brands than those of competitors, the Associated Press reported.

Attorneys for Smith and 19 other wholesalers who joined the suit have said their clients sell cigarettes in largely rural areas, where many smokers prefer brands that are cheaper than those made by R.J. Reynolds and other major manufacturers. The states of Tennessee and Mississippi joined the suit as plaintiffs.

The plaintiff's lawyer, Kyle Keegan, has argued his clients have no choice but to sell the cheaper brands that customers demand. "If customers' demands prevent the plaintiffs and most distributors from qualifying for Reynolds favorable pricing as a practical and realistic matter than that pricing is functionally unavailable under the price discrimination law," Keegan said. "Reynolds did not argue otherwise."

Judge J. Ronnie Greer disagreed with the plaintiffs and wrote that "there is no causal link between [Reynolds'] practices and the plaintiff's alleged injuries."

"We were always confident we would prevail in this case," said Darryl R. Marsch, senior counsel for R.J. Reynolds, which is based in Winston-Salem, N.C. "Our wholesale program is fair and our discounts are available to all of our wholesalers regardless of size. Antitrust experts generally recommend market-share-based discount programs like R.J. Reynolds' because they are 'size-blind.'"

Keegan said he was surprised and disappointed with the ruling. "It was sort of a curveball," he said. "We simply read the cases differently than the court did."

A similar lawsuit against cigarette maker Philip Morris USA is still pending before Greer. Bill Phelps, a spokesman for Philip Morris, said the company filed a request for summary judgment, and the motion is pending with the court.

"As far as the decision today, we think the judge's decision was correct," he said. "We believe that we should prevail as well."

Keegan, who also represents the plaintiffs in that case, said he expects a ruling in the Philip Morris case soon.
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