Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Skin care product maker charged with discriminatory pricing among preferred distributors, (Apr 6, 2015)

By Linda O’Brien, J.D., LL.M.

A manufacturer of skin care products engaged in discriminatory pricing by offering reduced prices to certain preferred distributors through secret deals and provided the confidential customer lists from a terminated distributor to those preferred distributors in breach of a confidentiality and non-disclosure agreement, according to a complaint filed in the federal district court of Cleveland (JLW-TW Corp. v. Merchant Capital, LLC, April 3, 2015).

New Sunshine, LLC and subsidiaries Merchant Capital, LLC, Australian Gold, LLC, Cal Tan, LLC, Designer Skin, LLC, and ETS, LLC manufacture lotions and creams for skin protection and care, and license point-of-sale software for the indoor tanning industry. JLW-TW Corp., doing business as Suntan Supply, is a distributor of indoor tanning products.

The complaint alleges that, beginning in 1992, Suntan Supply entered into a distribution agreement with New Sunshine in which Suntan Supply would purchase and resell the defendants’ products to Suntan Supply’s customer base. New Sunshine had similar agreements with at least 14 other distributors, with whom Suntan Supply directly competed for customers. New Sunshine had in place “distributor programs” under which distributors qualified for different pricing levels based on order volume. Each year, the defendants published and circulated a chart delineating the pricing levels that would be applied to the distributors. Rebates were extended to distributors based on order volume and percentage increase of sales of the defendants’ tanning products from the previous year, according to the complaining distributor.

In 2010, New Sunshine gave certain preferred distributors the opportunity to take advantage of prices better than those at their corresponding pricing level through secret side deals. The favorable pricing was not offered to all distributors. Since the implementation of the secret side deals, the defendants have continuously and unlawfully offered identical products for sale at discriminatory prices, resulting in significant harm to Suntan Supply’s business. As a result of the discriminatory pricing offered to certain distributors, Suntan Supply allegedly suffered a competitive disadvantage and effectively paid in excess of $1 million more than the preferred distributors for the identical products.

As part of their ongoing distribution relationship, Suntan Supply and the defendants routinely engaged in discussions regarding inventory, pricing, balances, and future products and business dealings. In light of these discussions, Suntan Supply and the defendants executed a confidentiality and non-disclosure agreement under which the defendants agreed to keep confidential certain defined information, including customer lists and related customer information, the lawsuit claimed.

In March 2015, New Sunshine notified Suntan Supply that it was terminating the business distribution agreement and notified Suntan Supply’s competing distributors that the distribution agreement with Suntan Supply had been terminated. New Sunshine also directly contacted Suntan Supply’s existing customers to inform them that Suntan Supply was no longer authorized to sell its products. Without privilege or justification, New Sunshine distributed Suntan Supply’s customer list and customer information to Suntan Supply’s competing distributors and encouraged those competitors to direct solicit Suntan Supply’s customers so they would cease doing business with Suntan Supply and enter into contracts with Suntan Supply’s competitors, according to the plaintiff.

Suntan Supply asserts claims of breach of contract, tortious interferences with business relations, and violations of Robinson-Patman Act. The action seeks injunctive relief, compensatory and punitive damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:15-cv-00663.

Attorneys: Brian C. Lee (Reminger Co., L.P.A.) for JLW-TW Corp.

Companies: JLW-TW Corp.; Merchant Capital, LLC; New Sunshine, LLC; Australian Gold, LLC; Cal Tan, LLC; Designer Skin, LLC; ETS, LLC

News: Antitrust OhioNews