Motion to Dismiss, filed by Southern and RNDC, Denied “in its Entirety”. Case Moves into Discovery. Southern and RNDC have Illegally Blocked Retailer Orders Communicated by Provi, Illegally Barred Retailers from Using Provi in Effort to Control the Market and Market Data. Case was First of its Kind Since the White House, Treasury Department, Federal Trade Commission and Department of Justice Identified Abuses in the Alcohol Distribution Industry. Provi’s Antitrust Case Advances as FTC Investigates Southern Glazer’s for Antitrust Violations
CHICAGO, IL, May 30, 2024 – Today, a federal judge ruled the antitrust complaint filed by Provi, the largest online marketplace for the beverage alcohol industry, against the nation’s two largest wine and spirits distributors, Southern Glazer’s Wines and Spirits (Southern) and Republic National Distributing Company (RNDC), will move forward as the court denied a Motion to Dismiss “in its entirety” filed by the defendants.
U.S. District Court Judge Nancy L. Maldonado ruled the antitrust lawsuit alleging Southern and RNDC illegally stifled competition related to the alcohol industry can proceed and move into discovery.
In her ruling issued today, available here, Judge Maldonado wrote Provi has “adequately alleged an agreement in violation of § 1 of the Sherman Act.” Further, she noted the impact of Southern and RNDC’s alleged anticompetitive practices likely extends across the industry: “…Defendants’ allegedly anticompetitive conduct affects both competitors and customers in the relevant markets, making it even more reasonable to infer that Defendants’ allegedly anticompetitive conduct harms competition in the relevant markets, as opposed to Provi individually…These allegations suggest that any harm stemming from Defendants’ behavior was not limited to Provi alone.”
Provi’s complaint, accessible here, was filed in the United States District Court for the Northern District of Illinois Eastern Division in March 2022, and seeks treble damages and injunctive relief arising from federal and state antitrust violations and tortious interference – unlawful efforts by Southern and RNDC designed to stifle competition and maintain or enhance their respective monopoly power in the relevant markets for Online Alcohol Marketplaces, Search and Display Advertising on Online Alcohol Marketplaces, and Data Analytics Services in at least certain states.
The news of Provi’s success in advancing its antitrust lawsuit comes as Southern is currently under investigation by the Federal Trade Commission (FTC) for antitrust violations.
Provi’s lawsuit was the first of its kind after President Biden signed the Executive Order on Promoting Competition in the American Economy in July 2021, which included a directive for the Secretary of the Treasury to produce a report assessing the “threats to competition and barriers to new entrants” in the alcohol industry. The Secretary’s report to the President, issued on February 9, 2022, identifies large distributors like Southern and RNDC as threats to fair competition, stating, “distributors with a larger national footprint may be able to leverage their size and enter exclusive agreements with producers that tend to push out smaller competitors.”
Provi CEO and Founder Taylor Katzman said, “Today’s definitive decision allows our case to move forward. The tactics regularly and often openly used by Southern and RNDC stifle competition in the markets we identified and harm everyone from producers to retailers and consumers. The case is important for the industry’s future, as it necessarily transitions to digital solutions. We look forward to our case proceeding and obtaining valuable relief for Provi and the industry more broadly.”
David Cross, lead counsel for Provi and Morrison Foerster’s Antitrust Litigation Chair, said, “We brought this case on behalf of Provi to bring competition back to the industry, and we’re pleased with the court’s decision allowing us to do exactly that. We’re confident that discovery will reveal the great lengths to which Southern and RNDC have gone to thwart competition from Provi and others, to the detriment of suppliers, retailers, and ultimately consumers. We look forward to proving up our case at trial and holding these monopolists responsible for their conduct.”
Provi’s complaint details Southern and RNDC’s violations of antitrust laws, including:
Blocking and rejecting orders for wine and spirits products when retailers choose to communicate through Provi;
Conspiring to boycott Provi by forcing or coercing retailers not to use Provi; and
In the case of Southern, forcing retailers to use its own e-commerce marketplace by requiring all online sales to come through its own online marketplace – which a Southern sales representative described as “an abysmal failure of epic proportions.”
Highlights from Today’s Opinion Issued by United States District Court, Northern District of Illinois
- “…the Court denies Defendants’ motion to dismiss in its entirety.” (page 1)
- “…this Court finds that Provi has provided factual allegations demonstrating that Defendants simultaneously changed their sustained business practice of fulfilling orders through Provi…Provi has alleged considerably more than parallel conduct and has, therefore, adequately alleged an agreement in violation of § 1 of the Sherman Act…the Court concludes that Provi has stated a per se horizontal conspiracy claim and denies Defendants’ motion to dismiss Provi’s horizontal conspiracy claim. (page 43)
- “The Court finds that Provi has adequately demonstrated that Southern has sufficient market power in the tying market to force retailers ‘to appreciably restrain free competition in the market for the tied product’ The Court has already found that Provi has adequately alleged that both Defendants have monopoly power in the three relevant markets based on Defendants’ substantial market shares in the wine and distilled spirits distribution market in certain states…Provi plausibly alleges that Southern leverages its substantial market shares and its exclusive rights to distribute must-have brands to force retailers to use Proof if retailers want to order products online. (page 53)
- “…Provi is properly seeking an opportunity to compete on the merits. The Court further finds that Provi has also sufficiently alleged a causal connection between its harms, lost profits and lost volume, and Defendants’ allegedly anticompetitive conduct.” (page 56)
- “…Defendants’ allegedly anticompetitive conduct affects both competitors and customers in the relevant markets, making it even more reasonable to infer that Defendants’ allegedly anticompetitive conduct harms competition in the relevant markets, as opposed to Provi individually…. These allegations suggest that any harm stemming from Defendants’ behavior was not limited to Provi alone.” (page 57)
- “The Court finds that Provi’s allegations satisfy the elements of tortious interference with a business expectancy.” (page 59)
- “These allegations suggest that Defendants knew of Provi’s business expectancies with its retailer customers and intentionally interfered with – and thus prevented the realization of – said expectancies.” (page 60)
Southern and RNDC’s Pattern of Anticompetitive Practices and Related Recent Troubles
Provi’s antitrust case moving forward is not the only scrutiny Southern and RNDC are facing for anticompetitive practices.
Southern Glazer’s Wine and Spirits, the largest alcohol distributor in the United States, and the 10th largest privately held company in the U.S., with approximately $25 billion in revenue, is currently being investigated by the FTC for multiple possible antitrust violations, including “discriminatory practices in its sales to retailers in violation of the Robinson-Patman Act” and “other unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act.”
Further, the Internal Revenue Service and the Alcohol and Tobacco Tax and Trade Bureau, conducted a raid on Southern’s offices in California.
Republic National Distributing Company is the second largest alcohol distributor in the United States and last year was sued by prominent alcohol maker Sazerac Company, which holds more than 450 alcohol brands worldwide, for failure to pay invoices and illegal “tie-in” sales, defined as instances of “an industry member requires a retailer to purchase a product that the retailer did not want to purchase, in order to obtain the product the retailer wants,” according to the Alcohol and Tobacco Tax and Trade Bureau.
Nor is this the first time that Southern and RNDC have faced antitrust claims for allegedly conspiring with one another to eliminate competition. In 2020, Plaintiff Bryan Hendershot, owner of now-defunct Boardwalk Distribution Company, sued Southern and RNDC for effectuating a group boycott to eliminate Boardwalk as a viable competitor. Like in Provi’s case, a federal district court in Oklahoma found that Hendershot presented sufficient facts for the case to move forward. Southern and RNDC ultimately settled.
Highlights from Provi’s Antitrust Complaint:
- Southern sent letters to and left voicemails for retailers stating, “[Southern] will no longer accept orders transmitted by third-party e-commerce platforms or services, such as Provi, SevenFifty, or others.”
- Alan Rosenberg, General Counsel of RNDC, conveyed to Provi that: “RNDC will continue to promote and steer our customers towards using our own e-commerce platform and away from Provi.”
- Tracy Ariail, Senior Vice President of eCommerce & Digital at RNDC, conveyed to Provi that “RNDC will continue to block all incoming email traffic and/or orders sent to RNDC using Provi.”
- One national retailer called RNDC’s position “confus[ing]” since “the only thing Provi is doing is submitting the order to the rep the same [as] has always been done… [while] giv[ing] us the ability to place all of our orders from one page rather than having to visit multiple places.”
- Nathan Mansperger, Southern’s Vice President of eCommerce, recently acknowledged that Southern’s “goal is to achieve a higher share online vs. offline,” confirming its intention to extend its longstanding market dominance to online markets with even higher shares of those markets.
- A Southern sales representative admitted that Southern’s decision to reject orders that retailers communicated through third-party online alcohol marketplaces was “the pinnacle of stupidity” and motivated by “an effort to force our customers to use our poor excuse of [a] software, Proof.” That sales representative further characterized Proof as “amateurish and very difficult to navigate” and, more bluntly, “an abysmal failure of epic proportions.”
About Provi
Provi is the largest online marketplace that simplifies the complex process of ordering wholesale alcohol by connecting buyers, distributors, and suppliers. Active in all markets throughout the U.S., Provi’s robust online marketplace improves communication and efficiency between on- and off-premise buyers and distributors. Founded in 2016 and headquartered in Chicago, Provi received Built In Chicago’s Best Places to Work recognition in 2022. In 2022, Provi joined forces with SevenFifty, which included the Beverage Media properties with an industry legacy dating back to the repeal of prohibition, along with SevenFifty Daily, an award-winning industry publication discussing the beverage alcohol business and culture.
