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Provi v. SGWS and RNDC

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Despite claims of conspiracy and antitrust, outdated regulations may make a decision difficult.

By Jeff Siegel

 

Online marketplace Provi’s anti-trust lawsuit against the country’s two biggest wine and spirits wholesalers, Southern Glazer’s Wine and Spirits and Republic National Distributing Company,  will almost certainly take years to play out — assuming it gets past the preliminary stages. Even then, says Alex Hershey, an attorney with Clark Hill PLC in Pittsburgh, Penn., anyone who claims to know what will happen is just guessing. Further complicating matters: the Provi complaint raises 21st century issues that were unheard of when the applicable anti-trust laws were written a century ago.

“When it comes to anti-trust cases, a lot of people will opine, but there is almost never a clear answer,” says Hershey, whose practice includes anti-trust claims. “Anti-trust law is messy, and this suit doesn’t seem to be any different.”

Provi’s voluminous filing — 88 pages and 301 counts — details what it calls “unlawful efforts” by Southern Glazer’s and RNDC to prevent retailers from using Provi to place orders with each wholesaler. As such, Provi’s suit alleges, the distributors used their “monopoly power” to force retailers to use other online ordering services. Specifically, it says Southern tried to push retailers to its own proprietary online service. Both wholesalers denied the allegations.

Most wholesalers let Provi access their online catalog, says a Provi spokesman. Retailers can then use Provi to order from a variety of distributors at one time instead of placing separate orders with each wholesaler. Provi doesn’t sell wine or spirits or charge retailers; it generates revenue by selling software subscriptions for tools and services to distributors and brands.

My general impressions are that, regardless of whether their case has merit, it appears Provi is teeing this up as a starting point,” says Rebecca Stamey-White, a partner with Hinman & Carmichael LLP in San Francisco, Calif., noting that Provi has tied its suit to this spring’s federal government report calling for more scrutiny of the second tier.

Says Stamey-White, “These are definitely the distributors most likely to face scrutiny for their industry practices, and the ones many industry members would most like to see restrained to foster greater competition for smaller players.”

So what might happen as the case starts to make its way through the federal court system?

  • The consensus from attorneys interviewed for this story — with the anti-trust caveat mentioned above — is that the suit probably won’t be dismissed and will make it to the discovery phase. That’s when each side asks the other for information about the case before the actual trial.
  • What happens at trial, says Hershey, will depend on specific interpretations of anti-trust law and its by-play with 21st technology (such as ecommerce). In the former, he says, it has been rare in the past 30 years for a suit like this to succeed, given the prevailing interpretation. In the latter, making predictions is almost useless, given that the issues raised in Provi’s suit have probably never before been applied to anti-trust law.
  • Several attorneys say it’s not clear if Provi has standing to sue, given the 21st Amendment’s protection of alcohol regulation. In addition, it’s not illegal for wholesalers to refuse to let retailers order through a service like Provi. What’s illegal is a conspiracy to prevent, which is much more difficult to prove.
  • Settlements aren’t unusual in anti-trust cases, says Hershey. It’s also possible that one of the wholesalers could buy Provi to make the suit moot.

Stay tuned as this matter makes its way through the discovery process. The ultimate decision could be ground-breaking.

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Jeff Siegel

Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”

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