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The Coca-Cola Company has won the latest installment of the ongoing cola wars with archrival PepsiCo Inc. Judge Loretta A. Preska of the U.S. District Court for the Southern District of New York granted summary judgment yesterday against PepsiCo in PepsiCo Inc. v. The Coca-Cola Company, 98 Civ. 3282, on PepsiCo’s claim that Coca-Cola had a monopoly on the distribution of soda fountain syrup. PepsiCo claimed that Coca-Cola enforced a monopoly through “loyalty agreements” and a “conflict of interest policy” that prevented independent distributors of Coca-Cola syrup to restaurants and other venues from handling PepsiCo products. Attempting to prove a claim under the Sherman Antitrust Act, PepsiCo needed first to demonstrate, for purposes of proving monopoly power, that the relevant market is fountain syrup delivered by independent food service distributors. The company claimed that under loyalty agreements and the conflict of interest policy, Coca-Cola had a stranglehold on the market, effectively barring independent distributors from delivering Pepsi products. Coca-Cola had argued that the mode of delivery of syrup could not be considered a relevant market because customers from restaurants to movie chains see other modes of delivery, such as bottle delivery, as an acceptable substitute for syrup delivery. Preska said that one of PepsiCo’s problems in making its monopoly claim was that it tried to define the customer base at issue as large chain accounts with predictable needs, centralized management and limited franchising that have meals served with fountain drinks, but not with bottled or canned drinks. The judge called this a “gerrymandered customer definition.” “PepsiCo has chosen to define the elements of the relevant market to suit its desire for high Coca-Cola market share, rather than letting the market define itself,” she said. “Regardless of the substance of the proffered customer definition or the method by which it was arrived at, PepsiCo has not proffered sufficient evidence from which a finder of fact could conclude that the customer base should be viewed so narrowly.” Moreover, Preska said, even though Coca-Cola’s independent distributors bundle other services together with syrup delivery, which she called “one-stop shopping,” the product and services bundle urged by PepsiCo does not comprise a separate market, either. “Despite one-stop shopping’s advantageous features, the evidence does not show that the preference for independent food service distributors is so strong so as to eliminate delivery through other means as an acceptable alternative,” she said. Preska said there was not enough evidence that soda bottlers, through price reductions or marketing strategies, could not “lure significant numbers of customers into buying fountain syrup from bottlers.” PRODUCT SETS THE MARKET The judge said there was a lack of recognition in the industry that different delivery methods constitute separate markets. Even one of PepsiCo’s own officers testified that the relevant market is fountain syrup, irrespective of delivery method, she said. “The product that PepsiCo contends is at issue here is not really the fountain syrup, but the distribution method,” she said. “The distribution method, however, is not a product of PepsiCo or Coca-Cola, but rather of the distributors and bottlers; thus, this factor weighs against the finding of a separate market for distribution through systems distributors because PepsiCo and Coca-Cola do not engage in the distribution line of commerce.” Finally, PepsiCo had argued that Coca-Cola’s loyalty policy is a per se illegal horizontal conspiracy. But the judge found that allegation unsupported by the facts and the law, noting that the U.S. Supreme Court has stated that the per se rule is limited to cases involving horizontal agreements among direct competitors. Representing PepsiCo were Randolph S. Sherman and Richard M. Steuer of New York-based Kaye, Scholer, Fierman, Hays & Handler; Thomas F. Cullen Jr. and Robert H. Rawson Jr., of New York-based Jones, Day, Reavis & Pogue; and Richard C. Weisberg. Gerard W. Casey of PepsiCo also served as counsel. Representing Coca-Cola were Jonathan M. Jacobson, Robert Johnson and Daniel McInnis, of Dallas-based Akin, Gump, Strauss, Hauer & Feld; and Michael C. Russ and Jeffrey S. Cashdan, of King & Spaulding. Joel M. Neuman and Marshall B. Dukes of Coca-Cola also served as counsel.

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