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Federal Trade Commission Readies For Lawsuit Against Largest U.S. Wine & Spirits Distributor, Alleging “Secret Kickbacks”

As reported by CNBC, the largest U.S. alcohol distributor, Southern Glazer's Wine and Spirits, is on the radar of the Federal Trade Commission (FTC) as the agency gears up to launch an antitrust lawsuit against the company. Two sources familiar with the matter told CNBC that the FTC's case is in the final stages and could be filed within the next few weeks.

According to one source, the FTC is expected to allege that Southern Glazer's has been engaging in the provision of "secret kickbacks" to prominent retail customers, thereby violating the 1936 Robinson-Patman Act. This potential legal action was first reported by Politico.

Southern Glazer's Wine and Spirits, based in Florida, distributes alcoholic beverages for over 7,000 brands across 44 states, acting as an intermediary between alcohol producers and retail outlets. With a reported revenue of $26 billion in 2023, the company holds a significant position in the industry.

The Robinson-Patman Act, an obscure antitrust law enacted in 1936, prohibits companies from offering preferential prices to certain buyers for the same commodity. Notably, a case has not been brought under this law since 2000.

Interpreted by the FTC, the Robinson-Patman Act does not entirely prohibit price discrimination and may allow for volume discounts. However, the law comes into play when these discriminatory practices impede competition, a legally intricate challenge to prove, as stated on the FTC's website.

Critics argue that the Robinson-Patman Act's restrictive nature inadvertently outlaws discounts that could potentially lower consumer prices. This perspective poses a dilemma for President Joe Biden, whose economic agenda prioritizes reducing costs for the public.

Moreover, concerns have been raised that the law essentially criminalizes the offering of discounts on bulk goods, raising issues about the ability of smaller purchasers to handle substantial quantities, as per insider sources.

The FTC's case is further complicated by the fragmented regulatory framework of the alcohol industry, where distribution laws are primarily state-specific rather than governed by a unified federal policy. This could pose challenges for the FTC in litigating a case against Southern Glazer's, noted one source.

At the initial time of press, spokespeople for both the FTC and Southern Glazer's have declined to comment on the matter.

A potential FTC lawsuit against Southern Glazer's would add to the company's legal woes, as it faced a lawsuit in 2022 from alcohol distribution startup Provi, previously known as Tiz Inc. The suit accused Southern Glazer's and another major distributor, Republic National Distributing Company, of engaging in anticompetitive conduct, leading to a subsequent judge's refusal to dismiss the case.

This possible legal action against Southern Glazer's reflects the FTC's heightened antitrust enforcement under the Biden administration. Over the past few years, the agency has pursued numerous challenges, including attempts to block mergers and filing antitrust lawsuits against companies such as Meta, Amazon, Microsoft, and Kroger.

Lina Khan, FTC Chairman | Source: FTC

Speaking at CNBC's CEO Council Summit in Washington, FTC Chair Lina Khan emphasized the shift towards stringent antitrust enforcement, highlighting the need to invest public resources in litigating cases when unlawful deals bypass the initial screening process. 

“We were previously living in a regime where there were deals making it out of the boardroom that were facially unlawful.” “That means that we then have to spend public resources going to court.”

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