Wednesday, August 18, 2010

Tobacco Settlement Agreement, State Statute Did Not Create Cost-Sharing Pact, Output Cartel

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The Master Settlement Agreement (MSA)—a multi-billion dollar settlement of national tobacco litigation—and a related Louisiana escrow statute did not create and implement a cost-sharing agreement and output cartel that constituted a per se violation of the Sherman Act, the U.S. Court of Appeals in New Orleans has ruled.

The state’s escrow statute requires tobacco manufacturers not participating in the MSA to either join the settlement or make an annual deposit into a qualified escrow account based on the quantity of cigarettes they sold in the state. A grant of summary judgment in favor of the Louisiana Attorney General was affirmed.

Escrow Statute

The court explained that any argument by the complaining non-participating manufacturers that the escrow statute alone violated antitrust laws per se was foreclosed by its own recent decision in Xcaliber Int’l Ltd. LLC v. Caldwell (2010-2 Trade Cases ¶77,099).

In that ruling, the court had reasoned that the escrow statute did not mandate or authorize conduct that necessarily constituted a violation of the antitrust laws in all cases. Nor did not place irresistible pressure on a private party to violate the antitrust law in order to comply with the statute.

Even considering the MSA and escrow statute together, the court agreed with the rationale offered by the Sixth, Eighth, and Ninth Circuits when they rejected similar suits.

Source of Anticompetitive Behavior

Those courts reasoned that the genesis of the alleged anticompetitive behavior did not stem from either the MSA or the statutory scheme the state enacted to give effect to the MSA’s provisions, but from the participating manufacturers’ behavior following the MSA’s enactment.

This behavior consisted primarily of increasing cigarette prices in order to keep sales volume—and consequently the payments they owed to the settling states—down.

Despite the price hike, the manufacturers were able to maintain a stable market share. The statutory scheme merely offered a disincentive for non-participating manufacturers to engage in price competition against the participating manufacturers, in that an increase in their market share would have subjected them to higher escrow payments, the court concluded.

The August 10 decision in S&M Brands Inc v. Caldwell appears at 2010-2 Trade Cases ¶77,122.

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