Judge Injuncts Philip Morris Marketing Preference Scheme

01 September 2003

Wholesale Leaders 2003, a Philip Morris marketing program aimed at cigarette wholesalers, may violate antitrust laws, a Tennessee court ruled last week.

The program sells cigarettes at differential wholesale prices via a triple-tier of discounts and rebates geared to the proportion of wholesalers’ sales made up by Philip Morris brands. Following a lawsuit filed by sixteen wholesalers [WAMN: 08-Jul-03], the judge granted a preliminary injunction on grounds that the program was both discriminatory and an attempt to monopolize the market.

The wholesalers had established the elements of a prima facie case, decided the judge. He ruled that the cigarette giant must offer cigarettes to the sixteen plaintiffs – whose number includes some of the largest wholesalers in the US – at the most preferential terms in the program.

Although requesting a stay of the preliminary injunction, Philip Morris has apparently conceded victory to the dissidents. A spokesman for the cigarette company said on Thursday it would terminate the programme from December 27, given the uncertainty created by the decision. The 'cents per carton' (volume-related) rebate, a key element of the program, will cease at the end of September.

According to Smith Barney tobacco analyst Bonnie Herzog, PM’s decision to pull the scheme could save it millions of dollars – but possibly at the expense of market share. It could also damage those wholesalers who rely on such cash incentives.

Data sourced from: Financial Times; additional content by WARC staff