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Condom Distribution Battle Goes Forward in Federal Court

Condom Distribution Battle Goes Forward in Federal Court
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Apr 11, 2011 4:00 PM PDT    Text size: 

SAN FRANCISCO — In a battle over distribution channels and pricing of condoms, a federal judge has dismissed only one of Mayer Laboratories' 12 counterclaims in an antitrust suit against Church & Dwight, the maker of Trojan and other brand name rubbers.

The suit, filed at U.S. District Court in San Francisco, and its counterclaims hone in on the growing competitive  market of ultra-thin condoms, which purportedly comprise approximately 22 percent of the overall retail market.

New Jersey-based Church & Dwight (C&D) sued Mayer of California in November 2008 seeking declaratory judgment over the use of alleged anticompetitive activities.

But Mayer answered the suit with  12 counterclaims in February 2009 that alleged that the Trojan maker engaged in five distinct but related anticompetitive activities that have the combined effect of "greatly diminishing and in some cases eliminating competition in the relevant markets."

Mayer's countersuit included allegations of violations of the Sherman Act, California professional and business codes, violations of California laws on exclusive dealing and secret rebates, tortious interference, unfair competition and trademark violations.

U.S. District Judge Edward Chen's 34-page ruling last week means Mayer can go ahead with nearly all of its counterclaims against C&D, with the exception of one on retailer deals called "planogram agreements."

Planograms are  diagrams showing where specific products are to be positioned in the space allotted by a retail store for a particular category of products.

Mayer, known for its Kimono and Kimono MicroThin condoms made by Japan-based Sagami Rubber Industries, claims it was "instrumental in establishing the ultra-thin condom segment in the U.S. market." In fact it registered its trademark for "MicroThin" condoms in 2009.

Mayer alleged that C&D engages in five distinct but related anticompetitive activities that have the combined effect of "greatly diminishing and in some cases eliminating competition in the relevant markets."

Mayer claims C&D offers "'Condom Planogram Agreements' to large chain retailers, which together account for nearly 100 percent of condom sales nationwide."  

"Such agreements give the chain the opportunity to receive a substantial kickback or rebate on its purchases of C&D condoms," Mayer attorneys said in the suit. "Rebates are given if the retailer accepts and follows a planogram designed by C&D and guarantees that C&D's condoms occupy a specified minimum percentage of the available facings on its in-store display."

Secondly, Mayer attorneys also say that retailers allegedly have agreed to give C&D the "ability to decide and influence which brands of condoms are included in a chain's stores, where individual condom  [products] are placed in the store displays, which condom [products] are discontinued, and which new condom [products] are added."

C&D purportedly uses this position "to obtain preferential display locations for its products, to recommend replacement of competing brands with [C&D] products, and to reduce visibility for (or exclude altogether) competing brands, including Mayer Labs' products.'

Thirdly, Mayer alleges that C&D has exclusive dealing arrangements with some retail chains, including 7-Eleven, obligating them to sell only C&D condoms.

Mayer in its fourth claim asserts that in 2006 C&D began targeting the Japanese-made, ultra-thin condom market segment. C&D initially distributed "Trojan Ultrathin" condoms

Mayer asserts C&D began using the term "ultra-thin," which had previously associated with Mayer's products. C&D allegedly began using the term MicroThin for its Trojan brand Ultrathin condoms in 2007, and for its ThinTensity condoms in 2008.

Mayer as a result says its sales of Kimono Microthin condoms declined 33 percent, from $1.17 million in 2006 to $1.12 million in 2007 due to C&D's anticompetitive conduct.

Lastly, Mayer claims that in 2007, C&D tortiously induced its Japanese maker, Sagami, to begin supplying it with condoms in violation of an exclusive contract Mayer had with Sagami.

The suit has revealed some interesting numbers delivered from Mayer.

According to the company, Trojan is the largest-selling brand of condoms in the U.S. and that C&D's condoms account for more than 75 percent of all retail condom sales. The next popular brand is Durex, marketed by SSL Americas Inc., with approximately 15 percent of sales. The third largest-selling brand is Lifestyle, marketed by Ansell Healthcare, with 8 percent of the market.

"Together, condoms sold by these three companies account for over 98 percent of the nationwide market," Mayer attorneys said in the suit.

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