TreeHouse sues GMCR, Keurig for 'monopolizing' single-serve brewer market

In its complaint, TreeHouse claims that GMCR's Keurig 2.0 brewer system would exclude competition and force consumers to purchase higher-priced Green Mountain cups.

TreeHouse Foods Inc. along with its wholly owned subsidiaries Bay Valley Foods LLC and Sturm Foods Inc. filed a lawsuit against Green Mountain Coffee Roasters Inc. (GMCR) and Keurig Inc., accusing them of violating federal antitrust laws to maintain a monopoly over the single-serve brewer cup market.

"We reluctantly brought this lawsuit not just for ourselves, but for consumers and other companies that similarly encounter anticompetitive practices that violate the law,” said Sam K. Reed, chairman, president and CEO of TreeHouse Foods, in a statement.

In its complaint (see the full text here), filed in US district court for the Southern District of New York, TreeHouse asserts that GMCR violated federal antitrust laws, along with state antitrust and unfair competition statutes and common law in New York, Wisconsin and Illinois.

"We believe the suit is totally without merit and we intend to defend it vigorously," GMCR company spokesperson Suzanne DuLong told FoodNavigator-USA.

More specifically, the plaintiffs assert that since GMCR’s cup patents expired, it has been using various exclusionary agreements with suppliers and distributors to maintain a monopoly in the cup market. Furthermore, GMCR’s highly anticipated Keurig 2.0 brewer rollout, set for later this year, will contain anti-competitive lock-out technology that will prevent the Keurig 2.0 brewers from functioning with cups supplied by unlicensed competitors.

Keurig 2.0 system forces consumers to buy higher-priced Green Mountain cups, eliminating choice

Since K-cups went off patent in 2012, anyone can make them. According to a recent GMCR earnings call, unlicensed versions (which sell for 15-25% less) accounted for a record 12% of sales of single-serve coffee/tea for Keurig machines in the fourth quarter of 2013. GMCR CEO and president Brian Kelley said during the call that the reason the system will not brew unlicensed packs is to “ensure the system delivers on the promise of excellent quality beverages produced simply and consistently every brew, every time.”

He noted that the system's so-called “interactive readability” will offer such “game-changing functionality” that consumers and unlicensed players alike will want to switch, adding that GMCR was "actively engaged in discussions with a large number of unlicensed players to welcome them into the [new 2.0] system…”

But in its complaint, TreeHouse asserts that these actions are an attempt to eliminate consumer choice and to coerce Keurig 2.0 brewer owners into buying only Green Mountain owned or licensed K-cups. GMCR’s plans to eliminate the current lineup of K-cup brewers that function with competitive cups would “exclude competition and force consumers to purchase higher-priced Green Mountain cups,” which outweighs any of the supposed benefits derived from the new technology.

Anti-competition outweighs positives of new technology

Reed asserted that TreeHouse’s introduction of private brands has increased the focus on category management “and has led to better pricing, expanded assortment and increased promotional programs, all of which have driven category growth in a meaningful way,” he said.

“We are firm believers in price competition, flavor innovation, product improvements and product engineering to compete and to develop products for use by Keurig machine owners of all formats. A favorable ruling for TreeHouse and our subsidiary businesses will prove beneficial to the entire spectrum of consumers, retailers and suppliers."

Dan K. Webb and Aldo A. Badini of Winston & Strawn are leading the antitrust legal team for the plaintiffs.

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Left to right: Single Cup Coffee sales representative Bill Cook and co-founder Robin White in the Buddy Valastro's (Cake Boss, whose brand Single Cup licensed) New Jersey bakery. White: “Consumers want variety. They had access to Green Mountain's Vermont Country Blend for last 20 years. They want fresh brands and something new and exciting."

Single Cup Coffee founder: 'When one company has a virtual monopoly, it creates a vacuum for variety'

GMCR CEO: 'We anticipate a large number of current Keurig users choosing to switch into the new system because it's a better one.'

Green Mountain Coffee Roasters: ‘Game-changing’ Keurig 2.0 will tackle unlicensed K-Cup challenge

Photo: Kyle May/Flickr

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Comments (1)

RobertTaylor - 12 Feb 2014 | 05:18

If Apple made them...

You would have to buy a new machine when your supply of coffee packages ran out.

12-Feb-2014 at 05:18 GMT

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