November 27, 2006



November 27, 2006

Penny Stafford, the owner of Stafford’s Coffee Shop, Belvi Coffee, and Tea Exchange, located in Bellevue, Washington, has brought an antitrust suit against Starbucks. She alleges that through its exclusive leases, Starbucks bans other coffee shops from competing. These exclusive leases do not allow landlords to lease space to another coffee shop in the same building as Starbucks.

The suit is based on the unclear legal area of antitrust law known as predatory conduct. A monopoly is not illegal unless it was not acquired through superior skill, foresight, and industry, but instead, through predatory means. Unfortunately, “predatory means” is a term no one yet fully understands.

Starbucks currently has a 73% market share and $8.4 billion in annual sales in the US. It owns 7,551 of the 21,400 coffee houses located in the United States. However, if Dunkin Donuts, Krispy Kreme, and Tim Horton’s are included in the gourmet coffee market, then Starbucks holds only 43% of the market.

Starbucks purchased Seattle’s Best Coffee in 2003 and Torrefazione Italia in the same year. Starbucks then closed one-half of all the SBC stores and all of the Torrefazione outlets. Starbucks currently runs 59 stores within a 2-mile radius of downtown Seattle. Market power, predatory practices, etc. would all be part of the suit.

Safford alleges that Starbucks has exclusive leases with landlords wherein the landlords cannot lease space in the same building to another coffee shop. Does such an exclusive lease violate any antitrust laws or are such clauses permitted under the law?

FOR MORE INFORMATION:

Edward Iwata, “Owner of small coffee shop takes on java titan Starbucks,” USA Today, Dec. 20, 2006, p. 1B.

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