Johnson Bros Sues Bacardi and B-F


Dear Client:

WSD has learned that Johnson Brothers filed a compliant yesterday (April 4) against Bacardi and Brown-Forman in a federal court in Minnesota alleging antitrust and franchise law violations. They claim in the lawsuit that Bacardi and B-F agreed to terminate Johnson's distribution rights in their respective states - North Dakota for Bacardi, and Iowa, Minnesota, North Dakota and South Dakota for B-F - and appoint RNDC instead.

Johnson claims that the two distillers coordinated the terminations and conspired to refuse to deal with Johnson in violation of the federal antitrust laws. Johnson also claims that the terminations were done without cause in violation of the Minnesota Franchise Act, which Johnson alleges applies because its headquarters is in Minnesota and it managed the distributorships from there. And furthermore, they allege they will lose gross profits of $5 million annually and will have a difficult time acquiring the distribution rights to other whiskey and rum brands due to their "longstanding affiliation with Bacardi and Brown-Forman brands."

ALLEGED FRANCHISE LAW VIOLATIONS. According to the complaint, both Bacardi and B-F "violated the Minnesota Franchise Act by terminating Johnson Brothers' distribution rights without good cause."

On December 30, 2010, Bacardi served Johnson a written notice to terminate their 2004 distributor agreement in North Dakota, effective March 31, 2011. It then transferred its brands to RNDC.

Then on January 4, 2011, B-F "served written confirm its intent to terminate Johnson Brothers' wine distribution rights in Minnesota, wine and spirits distribution rights in Iowa, and all distribution rights in North and South Dakota." According to the suit, B-F also moved its brands to RNDC in North and South Dakota.

ALLEGED ANTITRUST VIOLATIONS. Johnson claims: "Bacardi and Brown-Forman violated the antitrust laws by engaging in a concerted refusal to deal with Johnson Brothers."

The lawsuit points out that Bacardi and B-F have aligned themselves in many distribution houses across the country and in international markets. And B-F said in its January 4 termination letter that it is "'moving to align [its] brands [with Bacardi's brands] in dedicated and focused distributor houses throughout the country.'" Johnson claims this is anticompetitive.

Says the lawsuit: "Faced with the prospect of competing against each other, Bacardi and Brown-Forman had two options: either embrace that competition, which would have resulted in lower prices for distributors, retailers, and individual consumers, or strategically align the two companies, conspire with each other, and jointly manage their distributor agreements."

The fact that Bacardi and B-F sent termination letters within days of one another is evidence that they are "taking a joint approach of appointing and managing their relationships with distributors," says the lawsuit. And if the two companies "had acted independently, it would not have been in their legitimate economic self-interests to jointly terminate Johnson Brothers' distribution rights and establish a distributorship with RNDC, especially given Johnson Brothers' historic success as a competitor to RNDC," the lawsuit alleges.

Now as a result of Bacardi and B-F's "illegal agreement," the lawsuit claims, "RNDC now controls greater market share-for example, 99 percent of the market for whiskey and 95 percent of the market for rum-in at least the Dakotas." Using RNDC also "eliminated competition between Bacardi and Brown-Forman, and Jim Beam (distiller of Jim Beam whiskey), and Cruzan International (distiller of Cruzan brand rums) which distribute its rum and whiskey products in North and South Dakota through RNDC," says the lawsuit.

As a result, "Bacardi and Brown-Forman's anticompetitive activities have stifled or will stifle competition in the markets for distributing liquor in North Dakota and South Dakota, ultimately injuring retailers, such as liquor stores, grocery stores, and restaurants, as well as individual consumers."

They are asking for actual damages, treble damages under the antitrust law, and attorney fees.

You may recall we reported last week that Bacardi left Southern Wine & Spirits in Illinois to join Wirtz Beverage Illinois, who already distributes B-F and Remy Cointreau. Wirtz then launched a new Alliance Division to focus solely on those Alliance supplier partners. If Bacardi and B-F are indeed joining together in distributor houses "throughout the country" as B-F's termination letter states, we could see other similar lawsuits, particularly in franchise states.


Washington House Democrats have unveiled their proposal to plug the state's $5.1 billion gap, and it includes privatization. It seems they have jumped on board with Tom Luce's plan to lease the state's spirits distribution system for 20-years to the highest bidder. Under Tom's plan, he or another investor would give the state as much as $300 upfront in exchange for the rights to operate the system and a cut of the profits.

This is just a preliminary step, however. First the budget bill must make it out of the House Ways and Means Committee, then the House must vote on it, then the Senate must agree to it and finally, Gov Gregoire must sign it. The Senate is expected to release its version of a spending plan next week.

There are still many in the state, including lawmakers and the Washington Restaurant Association, who are skeptical about the privatization piece of the plan. Chairman of the House Ways and Means Committee, Rep Ross Hunter, told the Seattle PI that it is a "'work in progress,' but the goal was to better serve restaurants and bars while making more money for taxpayers."


TTB SAYS ADVERTISING RULES APPLY TO LIVE COMMERCIALS. The TTB had ruled that live commercials during television and radio broadcasts must include the mandatory required for all alcohol advertisements under the FAA Act and TTB regulations. Furthermore, "the TTB regulations that prohibit certain practices and statements in advertisements also apply to the media personality advertising statements, regardless of whether they are scripted or non-scripted, and industry members are ultimately responsible for the content of such statements." To read the circular, click here.

VAN GOGH VODKA has chosen Truth Be Told as its agency of record. "We did an extensive search to find the right agency for Van Gogh and no one showed us more clearly that they understood our target consumer (young women 21-35), had spirits industry knowledge and took a creative approach to reaching them," said chief Norman Bonchick.

Until tomorrow, Megan

"I merely took the energy it takes to pout and wrote some blues."
Duke Ellington

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