Antitrust Law Daily Loyalty program antitrust claims failed to properly define relevant market
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Tuesday, February 4, 2020

Loyalty program antitrust claims failed to properly define relevant market

By J. Preston Carter, J.D., LL.M.

The relevant market for tobacco rewards programs included the entire market of convenience, grocery, liquor, tobacco, and gasoline service stations, not only Shell Fuel Rewards locations.

Federal antitrust actions involving companies that offered convenience store loyalty programs were dismissed for failure to properly define the relevant market, held the federal district court in Bridgeport, Connecticut. The dispute arose from Shell Oil service stations participating in a tobacco loyalty program. However, the plaintiff failed to allege the defendants’ market power over the properly defined relevant market for tobacco rewards programs, encompassing more than just the Shell Fuel Rewards program and including the entire market of convenience, grocery, liquor, tobacco, and gasoline service stations (Success Systems, Inc. v. Excentus Corp., February 1, 2020, Bolden, V.).

Loyalty programs. Success Systems, Inc., offers programs for convenience stores across the county, including a tobacco loyalty program—"Smokin’ Rebates®"—that offers rebates to convenience store owners who agree to share tobacco sale and scan data from their stores. Excentus Corp. also operates loyalty programs, including "Fuel Rewards," operated in conjunction with Shell Oil. Excentus does not offer tobacco loyalty programs.

For a Shell service station to participate in a tobacco loyalty program, according to the complaint, the service station would require Excentus to provide the Point of Sale data for all tobacco sales to the tobacco loyalty program provider because Excentus’ Fuel Rewards system is the only system that can gather and provide this data in a Fuel Rewards Shell service station. Johnson Oil owns and operates several Shell service stations and participates in the Excentus-operated Fuel Rewards program.

Success Systems alleged that, "unbeknownst to Success or Johnson Oil, Excentus had been working for some time behind the scenes" with Skupos, Inc., an alleged competitor of Success Systems. Success Systems contended that Excentus sought "to provide a tobacco reward program to its clients (including Johnson Oil) in conjunction with Fuel Rewards and in violation [of] its agreement with Success." Success Systems alleged that Excentus worked to "to conspire and breach the agreement" with Success Systems "to give the tobacco rewards business to Skupos." After Skupos and Excentus finalized their own agreement, "Excentus abruptly informed Success that it had no intention of living up to its agreement to integrate Smokin’ Rebates with Fuel Rewards," according to Success Systems. Success Systems said it lost significant revenue from the inability to offer its program to other Shell Fuel Rewards locations.

Success Systems further alleged that Excentus’ effective monopoly on 12,000 Shell Oil locations means Excentus "effectively control[s] who can provide tobacco rewards regardless of which tobacco rewards provider the individual Shell Fuel Rewards location wants to use." By restricting the tobacco reward provider to Skupos, "Excentus and Skupos conspired to create a vertical monopoly by which Skupos would be the only provider of tobacco rewards programs to all 12,000 Fuel Rewards locations." Excentus and Skupos "engage in unethical, unfair, and anticompetitive schemes and strategies in restraint of trade."

Clayton Act claims. Success Systems alleged violations under the Clayton Act against both Excentus and Skupos for conspiracy to restrain trade and exclusive dealing. Excentus argued that the Clayton Act covers goods, supplies, and commodities, and because "Success mentions no commodity offered for sale or lease by Excentus" the claim should be dismissed. The court agreed, stating that Success Systems’ claims revolved around a contract to gather, collect, and report data from convenience stores attached to gas stations. Success Systems, however, has failed to allege in its complaint or its memorandum in opposition how the antitrust violations it complains of relate to goods or commodities. Similarly, Success Systems "fails to allege a plausible Clayton Act claim against Skupos," and the court dismissed that claim.

Sherman Act claims. The remaining claims all related to Sections 1 and 2 of the Sherman Act. Under Section 1 of the Sherman Act, Success Systems alleged a conspiracy to restrain trade in the tobacco rewards market against both Excentus and Skupos. Under both Sections 1 and 2 of the Sherman Act combined, Success Systems alleged exclusive dealing in the tobacco rewards market against both Excentus and Skupos. Finally, under Section 2 of the Sherman Act, Success Systems alleged monopolization of the tobacco rewards market against Skupos only.

The court dismissed Success Systems’ claim of unreasonable restraint of trade against Excentus and Skupos. Excentus argued that "Section 1 of the Sherman Act require[s] a plaintiff to show that the defendant has market power in the relevant market" and Success Systems pleaded "that Excentus owns only 12% of the market." The court stated that while Success Systems rightly alleged that Excentus has 100% of the market share of the Shell Fuel Rewards market, Success Systems failed to allege Excentus’ market power over the properly defined relevant market. Because the tobacco rewards programs are interchangeable, the court held, the relevant market cannot plausibly be limited to Shell gas stations participating in the Shell Fuel Rewards program, and must include all convenience stores, grocery stores, liquor stores, tobacco stores and gasoline service stations capable of using tobacco rewards programs. Skupos also argued that Success Systems failed to define any relevant market, to which the court agreed.

The court dismissed the exclusive dealing claims against Excentus and Skupos. It held that Success Systems failed to allege a plausible claim for exclusive dealing because Success Systems failed to allege a relevant market or the antitrust injury felt within that market.

Finally, the court dismissed the monopolization claims against Skupos. The court said Success Systems’ arguments regarding monopolization fail for the same reasons that its arguments about market power and the relevant market failed: the absence of plausible and actionable allegations regarding Skupos’ share of the relevant general tobacco rewards market, a market that extends far beyond the Shell Fuel Rewards program.

The case is No. 3:19-cv-00455-VAB.

Attorneys: Nathan Craig Zezula (Lueker Mott Zezula LLC) for Success Systems, Inc. and Smart C-Stores, LLC. Jonathan Adam Winter (St. Onge Steward Johnston & Reens LLC) and Michael B. Johnson (Winston & Strawn LLP) for Excentus Corp. Erica Ruth Sutter (Fenwick & West LLP) and James T. Shearin (Pullman & Comley, LLC) for Skupos, Inc.

Companies: Success Systems, Inc.; Smart C-Stores, LLC; Excentus Corp.; Skupos, Inc.

MainStory: TopStory Antitrust ConnecticutNews

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