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From Antitrust Law Daily, August 11, 2015

Discriminatory pricing, exclusively dealing claims against Nestle Waters washed away

By Linda O’Brien, J.D., LL.M.

A small producer and distributor of bottled water failed to sufficiently allege a discriminatory pricing scheme or the relevant market for bottled water to pursue claims against leading distributor, Nestle Waters North America, for allegedly engaging in deceptive and anticompetitive practices in an attempt to drive the small competitor out of the market, the federal district court in Albany, New York has held (Nirvana, Inc. v. Nestle Waters North America, Inc., August 10, 2015, D’Agostino, M.).

Nirvana, Inc. is a family-owned company that bottles and distributes natural spring water. Nestle Waters North America produces and distributes several brands of bottled water and is the largest distributor of bottled water in the United States.

In 2011, Nirvana introduced its own self-branded water. When Nirvana began gaining market share, Nestle inquired about the possibility of purchasing Nirvana and requested internal proprietary information in anticipation of the possible acquisition. In 2012, the companies signed a non-disclosure agreement (NDA) in light of the sensitive information that Nestle requested from Nirvana. Subsequently, Nestle engaged in substantial research into Nirvana’s operations.

Nestle never made any formal written offer to purchase Nirvana, but told retailers that purchased from both companies that it planned to buy Nirvana. Nestle also entered into exclusive dealing contracts with two supermarket companies by paying them to discontinue carrying Nirvana’s water and charged higher prices to commercial buyers who also bought water from Nirvana.

After Nirvana’s sales fell dramatically, in August 2014, the company filed suit against Nestle, asserting exclusive dealing, predatory pricing, and unfair competition in violation of the New York Donnelly Act, Clayton Act, and Robinson-Patman Act. Nestle moved to dismiss the complaint for failure to state a claim.

Antitrust standing. The court determined that the plaintiff established standing to pursue its claims of antitrust violations. For its discriminatory pricing claim, Nirvana alleged that Nestle charged higher prices to commercial buyers who also purchased Nirvana’s bottled water, which was an incentive for those buyers to stopping purchasing from Nirvana. Nestle also paid two supermarkets to discontinue carrying Nirvana’s water. Each of the alleged practices plausibly stated an anticompetitive practice in violation of an antitrust statute.

Nirvana also alleged that it suffered an actual injury—a significant decrease in its sales revenues—which was the type of injury that the antitrust laws were intended to prevent. Furthermore, Nirvana was a suitable plaintiff to bring its antitrust claims, since Nirvana was the specific target of Nestle’s actions, a sustained loss of revenue was not speculative, and there was no potential for duplicative recoveries.

Discriminatory pricing. However, the plaintiff failed to plead sufficient facts to show a predatory pricing scheme. To state a claim under the Robinson-Patman Act, a plaintiff must allege price discrimination that threatens injury to competition. According to the court, Nirvana did not allege that Nestle priced and sold its bottled water at a level below any cost or that Nestle had a reasonable prospect of recouping its investment in below-cost pricing. Nirvana’s allegations that Nestle had the intent to harm it with competitive acts did not state a claim for price discrimination.

Moreover, Nirvana’s contention that Nestle’s payment to two supermarkets in exchange for not purchasing Nirvana’s bottled water violated the Robinson-Patman Act did not make a prima facie case to establish commercial bribery. The payment of money from Nestle to the supermarkets did not implicate an agent, fiduciary duty, or breach of fiduciary duty, the court noted.

Exclusive dealing. To state a violation of the Clayton Act, the exclusive dealing agreement must foreclose competition in a substantial share of the relevant market. Nirvana alleged that Nestle’s payments to the two supermarkets in exchange for not purchasing Nirvana’s bottled water were unlawful exclusive dealing agreements. In the court’s view, Nirvana failed to properly plead a relevant market. Despite identifying the product line in the case as bottled spring water, Nirvana did not reference the product market in its exclusive dealings claims beyond the bottled water produced by Nirvana and Nestle. Under Nirvana’s definition that “water is water,” there was no plausible basis why other types of bottled water were not part of the relevant product market.

Finally, Nirvana failed to plead a geographic market as part of the relevant market. Nirvana’s allegations that the geographic market was the sale of bottled water in five northeastern states where the parties competed did not provide any plausible basis for the selection of those five states. In fact, Nirvana conceded that some market shares alleged in the complaint did not account for all sales of bottled water in every retail outlet or the sales of bottled water in every state where the two companies competed, the court noted.

The case is No. 6:14-cv-01181-MAD-ATB.

Attorneys: Richard Pertz (Office of Richard Pertz) for Nirvana, Inc. Adam L. Hudes, Carmine R. Zarlegna, III, and Stephen M. Medlock (Mayer Brown LLP) for Nestle Waters North America, Inc.

Companies: Nirvana, Inc.; Nestle Waters North America, Inc.

MainStory: TopStory Antitrust NewYorkNews

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