New York Law Review

Tag: Price Discrimination

  • Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316 (2003): Legality of Cigarette Manufacturer Promotions Under the Cigarette Marketing Standards Act

    Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316 (2003)

    The Cigarette Marketing Standards Act (CMSA) prohibits cigarette sales below cost with the intent to harm competition, and manufacturer promotions that create price differentiation among retailers can be presumed to violate this act.

    Summary

    Lorillard Tobacco Co. challenged the New York Department of Taxation and Finance’s interpretation of the Cigarette Marketing Standards Act (CMSA), arguing that certain manufacturer promotions did not violate the prohibition on selling cigarettes below cost. The Court of Appeals held that manufacturer promotions resulting in price differentiation among retailers could be presumed to violate the CMSA because they could harm competition, even if the retailer ultimately receives the full price for each pack of cigarettes. The court found that the Department’s interpretation was correct, focusing on the legislative intent to prevent unfair price competition at the retail level.

    Facts

    Lorillard, a cigarette manufacturer, used promotions like paper coupons, affixed coupons/stickers, and “buy-down” promotions where the manufacturer reimbursed retailers for price reductions. The Department of Taxation and Finance issued a TSB Memorandum asserting that master-type and buy-down promotions violated the CMSA, threatening retailers with fines and license suspensions. Lorillard and ATN, a retailer, sued for declaratory and injunctive relief after some retailers refused to participate in these promotions.

    Procedural History

    The Supreme Court denied the Tax Department’s motion to dismiss and later granted the Department’s motion for summary judgment, finding its interpretation of the CMSA rational. The Appellate Division affirmed. Lorillard appealed to the New York Court of Appeals.

    Issue(s)

    Whether manufacturer-funded cigarette promotions, such as buy-down and master-type promotions, that result in different retail prices for the same cigarettes violate the Cigarette Marketing Standards Act’s prohibition on sales below cost with the intent to harm competition.

    Holding

    Yes, because the Cigarette Marketing Standards Act (CMSA) is designed to limit price differences at the retail level, and manufacturer promotions resulting in price differentiation among retailers can be presumed to violate the CMSA’s prohibition on sales below cost with the intent to harm competition.

    Court’s Reasoning

    The Court of Appeals determined that the Department of Taxation and Finance’s interpretation of the CMSA was correct, although the court declined to give deference to the Department’s interpretation. The court emphasized that while the CMSA doesn’t explicitly require universal availability of manufacturer promotions, it also doesn’t allow prices reduced by promotions that create price differentiation among retailers. The court noted that Tax Law § 485 (a)(2) states that payments from a manufacturer to a retailer for promotional purposes “shall not be considered in determining the cost of cigarettes,” indicating that the legislature did not intend to let such promotions distort the retail price structure. The legislative history showed a concern for protecting independent retailers from unfair price competition from larger chains. The court distinguished between presumptively lawful promotions, like widely distributed paper coupons, and those like buy-down or master-type promotions that might not be available to all retailers. The court stated, “Nothing suggests that such a sale is permissible if the retailer ultimately recovers the difference between the sale price and its cost. Such a reimbursement would be cold comfort to a competing retailer excluded from the promotion and, at bottom, we find more persuasive the Tax Department’s view that the CMSA aims, in part, to protect that competing retailer.”

  • Brown-Forman Distillers Corp. v. New York State Liquor Authority, 64 N.Y.2d 479 (1985): State’s Power to Regulate Liquor Prices and the Commerce Clause

    Brown-Forman Distillers Corp. v. New York State Liquor Authority, 64 N.Y.2d 479 (1985)

    A state’s regulation of liquor prices, including affirmation statutes requiring distillers to offer prices no higher than those offered elsewhere, does not necessarily violate the Commerce Clause if it serves legitimate state objectives and has only an incidental impact on interstate commerce.

    Summary

    Brown-Forman Distillers Corp. challenged the New York State Liquor Authority’s determination that it violated the Alcoholic Beverage Control Law by not factoring in promotional allowances given to wholesalers outside New York when affirming its prices. The New York Court of Appeals upheld the Authority’s decision, finding substantial evidence supported the determination that the promotional allowances were effectively discounts. The court also found the affirmation statute constitutional, holding it did not violate the Commerce Clause because it aimed to prevent price discrimination against New York consumers and had only an incidental effect on interstate commerce. The court emphasized the importance of the 21st Amendment granting states control over alcohol regulation.

    Facts

    Brown-Forman provided promotional allowances (lump-sum credits) to wholesalers outside New York to encourage promotion of its brands. These allowances were calculated annually based on past purchases and projected sales. New York law prohibited such promotional programs. The allowances were expected to be used for price reductions to retailers, and Brown-Forman monitored their use. New York’s Alcoholic Beverage Control Law required distillers to affirm that their prices to New York wholesalers were no higher than the lowest price offered to wholesalers anywhere else in the U.S., taking into account all discounts and inducements.

    Procedural History

    The State Liquor Authority determined that Brown-Forman’s promotional credits were payments that should have been factored into its affirmed price schedules. Brown-Forman challenged this determination and the constitutionality of the affirmation statute in an Article 78 proceeding. Special Term transferred the proceeding to the Appellate Division, which confirmed the Authority’s determination and dismissed the petition. Brown-Forman appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the State Liquor Authority’s determination that Brown-Forman’s promotional allowances should be considered in its affirmed price schedules was supported by substantial evidence?
    2. Whether the New York Alcoholic Beverage Control Law § 101-b (3), requiring distillers to affirm that their prices are no higher than those offered elsewhere in the U.S., violates the Commerce Clause of the U.S. Constitution?

    Holding

    1. Yes, because the promotional allowances effectively reduced the prices Brown-Forman charged wholesalers, and the Authority’s determination was therefore supported by substantial evidence.
    2. No, because the statute serves legitimate state objectives (preventing price discrimination against New York consumers) and has only an incidental impact on interstate commerce.

    Court’s Reasoning

    Regarding the promotional allowances, the court found that the evidence showed they effectively reduced prices to wholesalers, as their continued availability was linked to purchases and use, and wholesalers were expected to discount prices to retailers. The court deferred to the Authority’s determination as supported by substantial evidence. Regarding the Commerce Clause challenge, the court noted the presumption of constitutionality, amplified by the 21st Amendment granting states control over alcohol regulation. The court applied a flexible approach, balancing the state’s interest against the burden on interstate commerce, since the statute didn’t facially discriminate against interstate trade. The court distinguished United States Brewers Assn. v. Healy, emphasizing that the Connecticut statute in Healy was designed to protect local industry and discriminate against out-of-state businesses, while the New York statute aimed to end discrimination against in-state consumers. The court also noted that the impact on interstate commerce was slight, as New York’s statute was nationwide in scope and other states had similar laws. The court rejected Brown-Forman’s argument that New York’s unique treatment of promotional allowances would lead to a downward price spiral, deeming it speculative. The court stated, “[t]he principal focus of inquiry must be the practical operation of the statute, since the validity of state laws must be judged chiefly in terms of their probable effects.”

  • Seagram & Sons, Inc. v. Hostetter, 16 N.Y.2d 47 (1965): State’s Power to Regulate Liquor Prices and Promote Consumer Welfare

    Seagram & Sons, Inc. v. Hostetter, 16 N.Y.2d 47 (1965)

    States have broad authority under the Twenty-first Amendment to regulate the sale and distribution of alcohol within their borders, including the power to enact price regulations aimed at protecting consumers, even if such regulations impact interstate commerce.

    Summary

    This case addresses the constitutionality of a New York statute designed to lower liquor prices for consumers by requiring distillers to affirm that their prices to New York wholesalers are no higher than the lowest price charged to wholesalers anywhere else in the United States. Several distillers and wholesalers challenged the statute, arguing that it interfered with interstate commerce and exceeded the state’s regulatory power. The New York Court of Appeals upheld the statute, emphasizing the state’s broad authority under the Twenty-first Amendment to regulate alcohol and protect its consumers from discriminatory pricing practices by the liquor industry.

    Facts

    Following a Moreland Commission report detailing price discrimination against New York consumers in the liquor industry, the New York legislature enacted a statute (L. 1964, ch. 531) aimed at lowering liquor prices. Section 9 of the statute required brand owners, when filing price schedules with the State Liquor Authority, to affirm that their prices to New York wholesalers were no higher than the lowest price charged to any wholesaler elsewhere in the country. The plaintiffs, a group of distillers and wholesalers, argued that this provision was unconstitutional.

    Procedural History

    The plaintiffs brought suit in Special Term, seeking a declaration that the 1964 statute was invalid. The Special Term granted judgment for the defendants (State Liquor Authority and Attorney-General), upholding the statute’s validity. The Appellate Division affirmed the Special Term’s decision. This appeal followed.

    Issue(s)

    Whether Section 9 of the New York statute (L. 1964, ch. 531), requiring distillers to affirm that their prices to New York wholesalers are no higher than the lowest price charged elsewhere in the country, is a constitutional exercise of the state’s power to regulate alcohol under the Twenty-first Amendment, or whether it impermissibly interferes with interstate commerce?

    Holding

    Yes, because the Twenty-first Amendment grants states broad authority to regulate the sale and distribution of alcohol within their borders, including the power to enact price regulations aimed at protecting consumers, and the challenged statute is a valid exercise of that power.

    Court’s Reasoning

    The court reasoned that New York has a broad and specific right, protected by the Twenty-first Amendment, to regulate liquor traffic within its borders. The statute was enacted to address a demonstrated price discrimination against New York consumers, as revealed by the Moreland Commission. The court stated that the legislature could act to correct this problem. The court emphasized that even without the Twenty-first Amendment, New York could prohibit the sale of liquor entirely. The court rejected the argument that the statute interfered with interstate commerce, stating that it merely regulated the price distillers charged within New York, an effect “closely associated with the sale and distribution of liquor within the State.”

    The court acknowledged that the statute’s effect was to tie New York prices to a national price, but found nothing unreasonable in this. The court highlighted that the distillers themselves controlled the base price, as they determined the lowest price charged elsewhere. If that price was too low for New York, they had the power to raise it in other markets. The court stated, “It is thoroughly settled that when it comes to the regulation of liquor traffic a wide area of public power may be exercised in plenary fashion by State governments without Federal interference either under the commerce clause or under the equal protection provisions of the Constitution.” The court distinguished United States v. Frankfort Distilleries, stating that it only prohibited unlawful conspiracies to fix prices, not state regulations designed to control prices. The court concluded that the statute was a reasonable exercise of the state’s power to protect its consumers and promote the general welfare.