BAT offshoot wins landmark US judgment

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The Independent Online
NEW YORK - An American subsidiary of BAT won a landmark 'predatory pricing' judgment in the US Supreme Court yesterday, overturning a dollars 150m award to a rival cigarette maker that had claimed it sold a generic brand at below cost, writes Larry Black.

Brown & Williamson, the BAT subsidiary, had lost an earlier jury trial in North Carolina to Brooke Group, the first large American tobacco company to introduce discounted 'generic' brand cigarettes in 1980. B&W responded with a generic brand of its own, priced well below those sold by Brooke, then known as Liggett Group.

Brooke accused BAT of maintaining high prices on its branded cigarettes but pricing its discount cigarettes at below cost in a deliberate effort to drive it from the market. The jurors found that B&W had violated US anti-trust laws by undercutting Brooke's prices, and agreed that Brooke had sustained dollars 50m worth of damages in 1984 and 1985 as a result. The award was automatically trebled under US monopolies law.

But the Supreme Court, reiterating the argument of a US appeals court, noted that B&W had a number of other competitors and was unable to discipline a particular rival with sustained below-cost pricing.

Only a monopolist could benefit from so-called predatory pricing, the court said, ruling 6-3 against Brooke. Discount cigarettes have gone on to capture almost 35 per cent of the US tobacco market and are now made by all large tobacco companies active in the US. Legal experts said the ruling constituted an important precedent in anti-trust law.