By: Dan Minutillo, Esq., Minutillo Law
In March 2019, the Massachusetts Supreme Judicial Court (the Court) affirmed a $2.6 million dollar fine against Craft Brewers Guild (CBG), a wholesaler. The reason, alleged violation of anti-price discrimination statutes and other commercial bribery regulations.
CBG allegedly paid companies money as a rebate in exchange for an agreement to sell CBG product at bars and restaurants. To hide the payments, these companies allegedly billed CBG for services like marketing support and promotional services that never happened.
The Court held that CBG violated commercial bribery regulations and participated in a commercial bribery scheme to encourage retailers to supply CBG distributed products. The Court held that this type of commercial bribery falls with the purpose of the Massachusetts Liquor Control Act. CBG’s conduct was allegedly illegal because the regulations prohibit companies like CBG from providing money to induce the purchase of certain alcoholic beverages. When money is given to a company to persuade that company to purchase a product, at that point there is a possible violation of these regulations.
In the present case CBG allegedly did not offer these rebates to all retailers, and rebate amounts differed among the retailers involved so it is held responsible for violating the anti-price discrimination statutes and allegedluy also the commercial bribery regulations.
A bribe to induce a company to do something in violation of law or anti-discrimination policies is illegal no matter what form the bribe takes or how the paper trail is structured. Rebates, refunds and other incentives to illegally induce a company to sell its products could be construed as a bribe if there is no logical and legal basis for the transfer of money. A bribe is a bribe no matter what form it appears.
US antitrust laws regulate the relationship of companies involved in a supply chain at different levels. There cannot be an arrangement by these companies to reduce competition. Courts will lift the veil behind the name of written documentation (how an agreement is titled), or even behind the words used in documents to determine whether an agreement to pay money is actually a bribe.
The courts look to substance (the real relationship between the parties and of their conduct) over form (the words in a document). This principle holds true in many transactions when documents are drafted to embody the terms of the transaction. During litigation, substance and conduct will usually trump form (a cleaverly written document disguising a bribe or anti-competitive conduct as something else).
Massachusetts’ commercial bribery regulations are valid, banning discounts, rebates and other inducements to buy alcohol from only one particular vendor. These regulations help to prevent price discrimination and an even, fair, competitive playing field for all craft-brewing companies trying to sell product based on quality and market price as opposed to “buying” their way to higher sales using illegal practices.
15 U.S. Code § 13 (15 USC 13), deals with pricing and selection of customers in the supply of products. In accordance with this Code section, It is unlawful for any person engaged in sales or distribution of products either directly or indirectly, to discriminate in price between different purchasers of commodities of the same type of grade and quality of that product if the products are sold for use, consumption, or resale within the US if the effect of such discrimination may be substantially to lessen competition.
This Code Section Also Indicates:
“PAYMENT OR ACCEPTANCE OF COMMISSION, BROKERAGE, OR OTHER COMPENSATION It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.”
This rule does not apply if there are differences in the cost of manufacture, sale, or delivery relating to one purchaser and not to another. Also the rule does not prohibit price changes from time to time where a price change is in response to changing market conditions of the goods concerned, such as actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales due to the discontinuance of sales of the goods concerned. The US Federal Trade Commission has the power to stop any kind of unfair business practices including but not limited to exclusionary exclusive dealing contracts.
Anti-bribery regulations are made, published and implemented all over the world. They are becoming more obvious in China, Ireland, and Saudi Arabia. Enforcement in other countries is somewhat irregular. Enforcement in the US is aggressive when the facts warrent investigatioin and punishment.
The Massachuetts Supreme Judicial Court case discussed in this article will be followed closely by other jurisdictions in the US. This type of kick-back may be viewed as a form of bribery in other jurisdictions with large fines to follow. Be aware.