Tobacco Company Wins Pricing Lawsuit– Broad Implications

A judge threw out a lawsuit brought against R.J. Reynolds Tobacco Co., saying their wholesaler discount program did not violate fair pricing laws. RJR offers discounts not based on the volume of business through a particular wholesaler, but based on the percentage of the wholesaler’s tobacco business that goes to RJR. This means that RJR can offer the discount to wholesalers of all sizes, since even the smallest firm might give a high percentage of their business to RJR.

Rural distributors complained that their customers preferred cheaper, off-brand cigarettes, and therefore the discount program was effectively not available to them.

The tobacco industry aside (this case has direct implications for a similar upcoming case about Philip Morris), the ruling has broad implications for channel-based discounts, since it appears to assert the legality of a highly effective and somewhat exclusionary tactic. For companies who had considered such pricing policies, but rejected them due to legal concerns, now is the time to circle the lawyers and decide if the approach could benefit your business while staying on the right side of the law.

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