South-Western Legal Studies in Business

Coke's Loyalty Requirements for Distributors Not Restraint of Trade
Description Appeals court affirmed that Pepsi failed to show that Coke's exclusive dealing requirement for food service distributors who handle Coke fountain syrup products was an illegal restraint of trade as the market is highly competitive.
Topic Antitrust
Key Words Monopolization; Restraint of Trade; Distributor Agreements; Loyalty Provisions
C A S E   S U M M A R Y
Facts Coke and Pepsi bid to supply fountain syrup and negotiate prices directly with customers, such as a restaurant chain. They pay a distributor to deliver the product to the customer. Pepsi uses bottler distributors to handle the work; Coke uses both bottler distributors and independent food service distributors (IFDs), who can offer customers one-stop shopping for all restaurant supplies. When Pepsi tried to hire some IFDs to distribute its fountain syrup, it found that many had signed contracts that contained "loyalty" or "conflict of interest" policies that prohibited them from carrying Pepsi products. IFDs who distribute Pepsi will not be allowed to carry Coke products. Pepsi sued, contending that the loyalty provisions are an illegal monopolization in violation of the Sherman Act and an illegal horizontal restraint of trade. The trial court granted Coke summary judgment after 18 months of discovery, ruling that Pepsi failed to introduce sufficient evidence on any of its claims to support a triable issue. Pepsi appealed.

Affirmed. Contrary to Pepsi's claim, the fountain syrup distributed by IFDs is not a separate market. There is no evidence that distribution by IFDs is cheaper than by bottler distributors. Coke lacked enough market power in the fountain syrup market to support a monopolization claim, as only half of all fountain syrup is delivered by IFDs and Coke has only a share of that market. The evidence is clear that there is intense competition in the market. The loyalty provisions are not an illegal restraint of trade under a rule of reason analysis.

Citation PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101 (2nd Cir., 2002)

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