The statement of response filed by Strauss Group Ltd. (TASE:STRS) with the Tel Aviv District Court to the claims by Carmit Candy Industries Ltd. (TASE: CMRT) that Strauss (then known as Strauss-Elite) drove Cadbury, a leading British chocolate brand that Carmit distributed, out of the Israeli market in the early 2000s.
Hundreds of pages of depositions and documents were filed last week by Strauss to the court, in an attempt to prove that Carmit’s failure stemmed from a series of bad business decisions, which greatly harmed its ability to sell products, and not from Strauss-Elite’s activities to block the competition. The main claim is that “Carmit failed miserably, due to amateurism and a lack of professionalism."
A “Defensive Shield” against Cadbury
The Elite-Cadbury Affair, as it was called by the Antitrust Authority in the early 2000s, due to suspicions that Elite torpedoed the import of Cadbury chocolate to Israel, which were marketed by Carmit, controlled by Lenny Sackstein. At the end of the investigation, then-Antitrust Authority Director General Dror Strum formulated a settlement, under which Strauss-Elite pledged to refrain from similar activities in the future, and to pay NIS 5 million. After the settlement was approved, Carmit sued Strauss-Elite, claiming that it decided to prevent Cadbury chocolate from entering the market by any means possible, and, with a series of aggressive activities, thwarted its entry, in violation of the Restraint of Trade Law and through abuse of its monopoly status.
Later, in 2005, Carmit claimed that Cadbury decided to end its relationship with the company, and to end its attempt to enter the Israeli market. As part of the civil suit, Carmit submitted evidence that was added to the Antitrust Authority’s investigation. The material included presentations seized from Strauss-Elite offices during a raid in 2003. In one of the presentations submitted, entitled “Operation Defensive Shield,” it said, under the heading “Cadbury Obstruction Plan,” that the goal was “to prevent Cadbury from entering in the coming season - to cause them a major failure that would serve as an example to others as well.” The way to achieve this was defined as, “To build an aggressive marketing and commercial obstruction plan.” Another document submitted by Carmit to the court said that all the regional directors at Strauss-Elite were apparently told, “Any distributor who sells Cadbury will lose all Elite discounts.” Documents indicating industrial espionage on Cadbury and Carmit by Strauss-Elite were also submitted.
“Militant” language
Strauss-Elite responded with a long series of statements by senior executives. Most of the statements by Strauss-Elite employees consistently claimed that Carmit failed miserably on its own, and that Strauss-Elite operated within the bounds of all competition laws, launched legitimate competitive activities, never bullied anyone, and never threatened anyone. Using statements made by then-Strauss-Elite CEO Giyora Bar-Dea, Strauss-Elite is attempting to counter Carmit’s claims, one by one, regarding the “improper” activities that they purportedly engaged in. Among other things, Bar-Dea stated that Strauss-Elite, like any company operating in a competitive market, followed the competitive threats facing it at every step of the way, followed its market competitors’ products - their prices, their market shares, newly launched products, and other relevant topics - in attempt to preserve the status of the company’s products among consumers. He says, however, that this does not amount to “industrial espionage,” as Carmit claims in its lawsuit.
Legal strategies
Bar-Dea further said that Strauss-Elite’s aggressive competition was in the company’s DNA, but legal. “Every one of the company's sales staff at Elite knew this - we will be aggressively advertising on TV, we will be aggressive commercially, we will launch new products, we will give new discounts, and we will be aggressive at the point of sale… but all this without violating the law, without threatening supply to those who sell our competitors’ [goods], without threatening to reduce discounts to a retail because he sells to a competitor’s [goods], without removing competitors’ stands. It was clear to everyone that all these things are not only forbidden, they are simply not accepted. Such activity does not exist in the market,” said Bar-Dea.
Strauss-Elite's attorney Adv. Niv Zecler said, “We will prove in court, using materials that are in our possession, that Carmit’s failure stemmed only from its business failure, and Cadbury International’s decisions regarding Carmit, and the attempt to place the blame on Elite, which only competed in the market, is baseless and is truly wrong.”
Carmit: Elite’s activity was bullying and illegal
Carmit's attorney, Adv. Zohar Lande, from Barnea & Co., responded, “Strauss took care to eliminate the competition in the chocolate market using means forbidden for a monopoly. Strauss’ bullying behavior caused not only the elimination of competition in the Israeli market and huge losses for Carmit, but also served a fatal blow to the consumer public in Israel.
“Currently, Strauss is trying to blur its actions and is trying to play down the severity of its deeds. The evidence that was gathered by the Antitrust Authority, and the testimony that we have in our hands, point clearly to the fact that Strauss operated systematically, in an organized manner, to block the entry of Cadbury to the Israeli market, and all this was done with no regard for the law.”
Battle of public opinion
Both sides of the legal battle involved in the “Carmit-Cadbury-Elite Affair” armed themselves with professional opinions of the top antitrust and marketing experts in the country. As reported in “Globes” a few months ago, Carmit filed an sharply-worded opinion with the court by former Antitrust Authority chief economist Merav Beeri, which states, "The damage to Carmit from the blockage of Cadbury by Strauss is estimated at NIS 80 million… This is one of the most blatant cases of antitrust, in which a monopoly abused its position in the market and harmed a competitor and competition." She adds that the general public was also harmed, because it lost out on the low prices that competition could have produced.
Carmit also filed an opinion by marketing expert Prof. Jacob Hornik, which attributes Cadbury's failure to enter the Israeli market to the actions of Strauss-Elite.
Exaggerated estimate of damages
Strauss-Elite countered with two opinions of its own, one by Menachem Perlman, also a former Antitrust Authority chief economist, intended to counter Beeri's opinion; and the second by Prof. Barak Libai, a lecturer of marketing at Interdisciplinary Center Herzliya, which examines Carmit's failure to bring Cadbury chocolate to the market, and intended to counter Hornik's opinion.
Perlman criticizes Beeri, saying, "The claim that inappropriate acts by Elite are the reason for Carmit's failed attempt to bring and sell Cadbury products in Israel is groundless, because the alleged damage is exaggerated and baseless, and because there is no causal connection between Elite's inappropriate actions and the damage claimed."
Libai states, "It is hard not to show empathy for Carmit's managers, who tried to bring a large brand like Cadbury to Israel with the desire 'to put the company in a new league', and for this purpose invested time, effort, and money. Their frustration from this bitter failure and the wish to seek someone to blame are obvious to me, but from a careful examination from a distance of years, it is hard to believe that this with lack of seriousness, an attempt was made at a major investment to bring a large brand to Israel. There were fundamental problems in each of the components of the marketing mix."
Libai adds, "There was a combination of a small and inexperienced player in branding, which tried to bring to the market a brand in which it had no experience, and a foreign manufacturer that was not prepared to get involved, and was not prepared to provide proper support from the earliest stages. Under these conditions, this investment was doomed to failure before it began."
Published by Globes [online], Israel business news - www.globes-online.com - on January 28, 2014
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