Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Coffee producers allege anticompetitive conduct by Keurig in single-serve coffee brewer market, (Mar 14, 2014)

By Linda O’Brien, J.D., LL.M.

A manufacturer of coffee brewers has engaged in anticompetitive conduct in the single-serve brewer and compatible portion pack markets by acquiring its competitors, pursuing meritless patent claims against competitors, entering into exclusive agreements with distributors and retailers, and disparaging competitors and their products, according to a complaint filed in the federal district court of Sacramento (JBR, Inc., d/b/a Rogers Family Company v. Keurig Green Mountain, Inc., March 13, 2014).

JBR, Inc. is in the business of roasting, packaging, and selling gourmet coffee products, including the sale of individual portion packs for single serve coffee brewers. Keurig Green Mountain manufactures coffee brewers for home and commercial use. Its main product is the K-Cup, a single-serving coffee brewing system. Keurig has certain patents on its proprietary K-Cup format used in its single-cup brewers and holds a dominant market position in the single-serve brewers and portion packs markets.

The complaint states that, in 2012, Keurig’s patents expired and the company engaged in anticompetitive conduct to maintain its monopoly and exclude competition by abusing its market power. Currently, Keurig controls approximately 90 percent of the market for the sale of single-serve brewers and 73 percent of the market for portion packs compatible with other single-serve brewers.

Keurig has announced plans to change the technology utilized in its single-serve brewers to eliminate the use of competitors’ portion packs products. The proposed “lock-out” feature of the new technology is not necessary to the functioning of its brewer system; rather, the objective is to protect Keurig’s monopoly by eliminating competition, according to the complaint. As a result, the technology was alleged to protect Keurig’s products from competing on the merits and deprive consumers of the quality and pricing benefits that competition produces in the portion packs market.

The complaint alleges that there are significant barriers to entry into the single-serve brewers market. In addition to access to significant capital, technological knowledge and design capabilities are required. Potential market entrants need access to distribution channels through retailers and distributors – many of these are prohibited from purchasing single-serve brewers from entities other than Keurig as a result of their distribution agreements with Keurig. Additionally, Keurig has entered into licensing agreements with various major coffee retailers that allow K-Cups to be marketed and sold with the trademarks of those entities.

Keurig has engaged in anticompetitive conduct to maintain its monopoly by (1) acquiring competing brands in the compatible portion packs market; (2) litigating meritless intellectual property claims against competitors; (3) coercing distributors, retailers, and other customers into entering exclusive dealing agreements; and (4) providing customers and potential customers with false and disparaging information regarding its competitors and their products, the complaint charges.

JBR, Inc. asserts claims for unenforceable restraints of trade, monopolization, attempted monopolization, exclusive dealing, patent misuse, and violations of Section 2 of the Sherman Act, Clayton Act, Cartwright Act, and California’s Unfair Competition Law. The action seeks declaratory and injunctive relief, treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

Similarly, a purchaser of K-Cup portion packs has filed suit against Keurig in the federal district court in New York City, claiming that the company has engaged in anticompetitive conduct in the single-serve brewer and compatible portion pack markets by acquiring potential competitors, entering into restrictive exclusive agreements with distributors and retailers, and tying sellers of compatible portion pack brewers with exclusive dealing agreements to eliminate competition (Ney Silverman Insurance Associates, LLC v. Keurig Green Mountain, Inc., March 11, 2014).

The case is No. 2:14-cv-00677-KJM.

Attorneys: Daniel Johnson, Jr. and Kent M. Roger (Morgan, Lewis & Bockius, LLP) for JBR, Inc.

Companies: JBR, Inc.; Keurig Green Mountain, Inc.

News: Antitrust CaliforniaNews