Lawsuits claim Keurig Green Mountain violating antitrust laws
Keurig Green Mountain’s plans to introduce a new single-serve brewer that will lock out competitors has triggered a backlash that includes 14 lawsuits filed in the last two months, alleging violations of both federal and state antitrust and anti-competitive laws.
The reaction to the Keurig 2.0, which comes out this year and will only accept K-Cup portion packs manufactured by Keurig, has also been expressed in a barrage of negative comments from current and potential customers in the Twitterverse and blogosphere.
Lisa Smits of Fredericksburg, Va. is one of the hundreds of people complaining in various forums online, saying of the Keurig 2.0 in an email sent to the Burlington Free Press, “This is like selling a toaster and in small print saying, ‘requires using our exclusive patented Wonder Bread.’”
Smits said she also posted a comment on Amazon.com, where she said she felt obligated to warn others of the “ridiculous confusion” she believes the Keurig 2.0 will create.
“If someone bought this brewer for their elderly parents, how the heck are they going to know what’s what when grocery shopping?” Smith wrote. “All they want is a cup of coffee and they have to buy these overpriced little cups, get home, and find out they don’t fit. So much for having a cup of coffee.”
The 14 lawsuits break down to 12 class action complaints brought by individuals in California, Florida, New York, Massachusetts, and New Jersey, and an insurance company in Maryland. The other two lawsuits were filed by companies that currently make their own portion cups for brewers that use Keurig’s K-Cup portion packs — Rogers Family Co., based in Lincoln, Calif. and TreeHouse Foods, based in Oakbrook, Ill.
Both companies have already won lawsuits filed against them by Keurig when they introduced their portion cups, which the Keurig 2.0 will reject.
“If the Keurig 2.0 is even legal it’s certainly not friendly to the consumer,” said Jim Rogers, vice-president of Rogers Family Co., in an interview with the Burlington Free Press. “I don’t think anyone is happy with it. There are quite a few unlicensed manufacturers out there who are unsure what’s going to happen. It’s not just us and TreeHouse.”
TreeHouse Foods chairman, president and CEO Sam Reed said in a statement that the lawsuit is “fundamentally about consumer choice versus monopoly power.”
“It’s not just one piece of technology, but a long-standing pattern of anti-competitive behavior, and it’s important to read the entire complaint to get a full sense of the litany of acts that have come before,” Reed said. “With regard to the Keurig 2.0 technology, it was simply the catalyst for us to say enough is enough. This is about the rule of law and access to open markets. Green Mountain is seeking an unfair competitive advantage that harms consumers, suppliers and resellers everywhere in the United States.”
Keurig Green Mountain spokeswoman Suzanne Dulong declined to comment, except to say the lawsuits were without merit and that the company will defend itself vigorously.
Keurig Green Mountain – Litany of acts
The allegations in all of the lawsuits echo those brought by TreeHouse, the first to file its civil action on Feb. 11. TreeHouse details in its complaint the “litany of acts” it alleges Keurig undertook in its efforts to maintain complete control over the single-serve coffee market after the patent on the K-Cup portion pack expired in September 2012.
Keurig “abused its dominance in the brewer market by coercing business partners at every level of the K-Cup distribution system to enter into anticompetitive agreements intended to unlawfully maintain Green Mountain’s monopoly over the markets in which K-Cups are sold,” the TreeHouse lawsuit states.
Despite those efforts, TreeHouse says it and other companies have captured about 14 percent of the multi-billion-dollar market for K-Cup style portion packs by offering “innovative, quality products at substantially lower prices,”
In an investor call on Feb. 5, Keurig Green Mountain President and CEO Brian Kelley said Keurig controls about 86 percent of the market for cups that are compatible with brewers that use K-Cup portion packs. K-Cup portion pack sales accounted for $3.1 billion of Keurig’s net sales of $4.35 billion in 2013.
In response to the foothold TreeHouse and others have gained in the market for K-Cup style portion packs, TreeHouse says Keurig “announced a new anticompetitive plan to maintain its monopoly by redesigning its brewers to lock out competitors’ products.”
“Such lock-out technology cannot be justified based on any purported consumer benefit, and Green Mountain itself has admitted that the lock-out technology is not essential for the new brewer’s function,” the lawsuit states. “Like its exclusionary agreements, this lock-out technology is intended to serve anticompetitive and unlawful ends.”
Vague claims, no substance
Green Mountain Chief Executive Officer Brian Kelley told the Burlington Free Press last October that the Keurig 2.0 utilizes interactive technology to recognize licensed pods, and brew them “perfectly.” Kelley said Keurig would be offering manufacturers of unlicensed pods the opportunity to “come into the system so they can be perfectly brewed too.”
Jim Rogers, whose family-held company does about $100 million in sales annually, said he wasn’t interested in joining the ranks of licensed manufacturers.
“We want to compete,” he said. “We think we can kick their butt.”
Keurig will use a proprietary identifying tag built into the lid of the K-Cup portion packs produced for the Keurig 2.0 brewer to make them recognizable to the brewer, according to the complaint filed by Rogers Family Co.
“This tag purportedly will be read by ‘interactive technology’ in the 2.0 K-Cup Brewer and thus allow communication between the 2.0 K-Cup Brewer and the 2.0 Compatible Portion Packs,” the lawsuit states.
But TreeHouse contends the only relevant communication that will be shared between the 2.0 K-Cup portion pack and the 2.0 brewer will be to agree to reject competitors’ portion cups.
“Mr. Kelley claims that this function will provide ‘game-changing performance,’ allowing the brewers to provide consumers with the perfect brew settings for each beverage by recognizing the ‘recipes’ of licensed portion packs,” the lawsuit states. “However, these vague claims lack any real substance, are without merit, and are pretextual sham justifications for Green Mountain’s anticompetitive and exclusionary conduct.”
TreeHouse also takes a shot at Keurig’s Vue brewer, introduced with great fanfare in New York City two years ago as the next generation of single-serve brewer, with a proprietary Vue single-serving cup that was recyclable.
“Green Mountain’s claim that its lock-out technology benefits consumers by providing ‘game-changing’ performance by recognizing the ‘recipes’ on K-Cups is also belied by Green Mountain’s own experience with its Vue Brewer, which also touted the same feature, but was largely rejected by consumers,” the lawsuit states.
In its lawsuit, TreeHouse provides a behind-the-scenes look at other ways Keurig allegedly tried to freeze the company out of the business of producing pods for K-Cup brewers, by cutting off access to the machinery and supplies required to make those pods.
TreeHouse cites the example of R.A. Jones & Co. in Covington, Ky., which makes the machines that make K-Cup portion packs. TreeHouse, one of the largest private label food and beverage companies in the country with sales of about $2 billion, already owned a Spee-Dee Holmatic machine from R.A. Jones that it converted to produce portion cups for K-Cup brewers.
In 2013, TreeHouse went back to Jones to buy another Spee-Dee Holmatic machine, but was rebuffed.
“TreeHouse requested a price quote for a new machine, but on December 19, 2013, a Sales Manager from R.A. Jones responded in an email, stating: ‘I am quite embarrassed to be writing this email, but it needs to be done. R.A. Jones is declining to quote the new machine for soluble, non-filtered product,’” the lawsuit states.
According to the TreeHouse complaint, in a subsequent email the sales manager explained that under an agreement with Keurig, R.A. Jones was prohibited from quoting any equipment that could be used to make “anything that goes into a Keurig brewer.”
TreeHouse states in its lawsuit that it ran into similar roadblocks trying to source the plastic cups, foil lids and filters it needed to make its single-serve cups. The Illinois company details similar strong-arm tactics in the wholesale and retail distribution channels for K-Cup portion packs.
“Green Mountain’s lawful right to exclude competitive Cup makers from the Compatible Cup Market has expired and it cannot extend this right beyond the term it was granted by the U.S. Patent Office simply because it was the first to make K-Cup Brewers or K-Cups,” the TreeHouse lawsuit states. “Indeed, as a quid pro quo for its initial, now expired, right to exclude competition, it was statutorily required to enable competitors to practice its invention upon the expiration of its patent.”
Jim Rogers said both his company and TreeHouse want the same thing.
“There’s a pretty big backlash about this,” Rogers said. “Basically we’re not trying to make a bunch of money, we just want to compete. We’re not worried about competing.”
By: D DAmbrosio