Beer Giants Defend Canadian Deals in Seventh Circuit

CHICAGO (CN) – The Seventh Circuit weighed the reach of U.S. antitrust laws Friday in a case accusing Anheuser-Busch and Molson Coors of making secret deals with Canadian authorities to promote sales of their beer at the expense of small breweries.

Last year, Mountain Crest sued Anheuser-Busch and Molson Coors, America’s first and second largest breweries, claiming they abused their monopoly power to restrain trade – particularly, beer exports to Ontario, Canada.

Mountain Crest, the 21st largest brewer in the U.S., brews beer for Ravinder Minhas, a Canadian entrepreneur, for export to Alberta. Since 2009, it’s been trying to expand its market to Ontario, but claims the defendants have stiff-armed it through “secret agreements.”

Brewers can distribute beer in the province of Ontario in two ways: through the Liquor Control Board of Ontario, a government-owned retailer, or through Brewers Retail Inc. aka The Beer Store, which is jointly owned by Anheuser-Busch and Molson Coors and controls 80 percent of Ontario’s beer market.

The government-owned retailer only allows the sale of six-packs of beer, with few exceptions, and does not charge listing fees to its brewer-suppliers, but The Beer Store does. Mountain Crest calls The Beer Store the world’s largest beer retailer, with more than 450 outlets in Ontario alone, and the store charges fees to stock brewers’ beer.

“Defendants have raised [The Beer Store] fees for other brewers every year, at a rate of approximately six times inflation,” according to the lawsuit.

The “most flagrant” restraint on trade was exposed on Dec. 9, 2014, “when the Toronto Star published a leaked copy of a secret anticompetitive market allocation agreement,” the complaint states.

This secret agreement allegedly stipulated that if any small brewer, like Mountain Crest, wanted to sell 12 or 24-packs of beer in Ontario, they would have to pay listing, handling and service charges to sell through The Beer Store. Anheuser Busch and Molson Coors brands were exempt from the fees.

After the Star broke the story, the secret agreement was reportedly replaced by a new “master framework agreement” in 2015.

But Mountain Crest says it has had to pay The Beer Store $632,000 in listing fees, and that despite paying the money to be carried in 440 of the defendants’ stores, many of the outlets are “out of stock” of Mountain Crest’s beer at any given time.

A federal judge dismissed the lawsuit as barred by the act-of-state doctrine, because all the challenged conduct is governed by a contract with the Ontario government.

But Mountain Crest’s attorney Charles Benoit told a Seventh Circuit panel Friday that this interpretation of the law immunizes illegal conduct abroad by American companies.

“Can a beer company offer $10 million [to a foreign government] to block all other beer sales? The [act-of-state] doctrine cannot be a defense,” Benoit told the three-judge panel. “It’s absurd.”

He argued, “It is clear the Sherman Act was intended to protect U.S. exporters.”

U.S. Circuit Judges Michael Kanne, Illana Rovner and William Ripple sat on Friday’s panel.

On the other side, Anheuser-Busch’s counsel Steven Sunshine of Skadden Arps urged the court not to judge the Canadian contract.

“It is not for U.S. courts to inquire into the motivation of a foreign government,” Sunshine said, saying that the panel must presume Ontario had a valid reason to limit the sale of beer to six-packs in most government-owned outlets.

Anheuser-Busch controls 45 percent of the U.S. beer market and 43 percent of the Canadian market. Molson Coors controls 28 percent of the U.S. market and 34 percent of the market in Canada, according to Mountain Crest’s complaint.

The U.S. beer market alone was more than $34 billion for the year ending in January, according to industry publications.

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