Starbucks Accused of Abusing Monopoly Power in Violation of Sherman Act

Seattle Coffee-House Files Suit Which Could Have Impact Nationally

Sep 25, 2006, 01:00 ET from Hagens Berman Sobol Shapiro

    SEATTLE, Sept. 25 /PRNewswire/ -- An independent specialty coffeehouse
 owner filed a proposed class action lawsuit today against Starbucks
 Corporation (NYSE:   SBUX), claiming the company, from its monopoly position
 in the specialty coffee market, engages in a range of anti-competitive
 activities aimed at eliminating competition.
     Filed in U.S. District Court, the suit alleges that Starbucks has
 exploited its monopoly power in the specialty coffee retail market to
 stifle competition through a series of predatory practices including
 exclusive lease agreements, "cluster bombing" of stores and competitor
     Among the allegations leveled in the complaint, Penny Stafford -- an
 independent coffee-shop operator -- claims that Starbucks locks out
 competition through a series of exclusive lease agreements with property
 managers of Class A high-rises, preventing other specialty coffee shops
 from operating in the same building.
     In this practice, Starbucks frequently offers to make lease payments
 higher than fair market value in exchange for a property owner's agreement
 to prevent competitors from leasing space in the same building, the
 complaint says.
     In the Seattle and Bellevue markets, the majority of Class A space is
 controlled by a handful of Real Estate Investment Trusts (REITs), making
 such agreements with Starbucks possible, the suit claims.
     "We believe Starbucks has become such a dominating force in the coffee-
 house segment, it has become a monopolist," said Steve Berman, managing
 partner of Hagens Berman Sobol Shapiro and attorney for Stafford. "We
 intend to show that as a monopolist, Starbucks is abusing their market
 power to the detriment of its competitors, and to consumers."
     "We contend that Starbucks' market practices are more about destroying
 competition than pouring a good cup of coffee," Berman added.
     According to published reports, Starbucks controls 73 percent of the
 specialty coffeehouse market.
     "Fair, even bare-knuckle competition is one thing, but we believe
 Starbucks has repeatedly crossed the line in denying competition the chance
 to go toe-to-toe with them," said Berman.
     Stafford, owner of Belvi Coffee and Tea Exchange Inc., tried to enter
 the specialty coffeehouse business by seeking retail spaces located in
 Seattle and Bellevue's Class A high-rise office buildings, but her entry
 was repeatedly blocked despite consumer demand in these locations, the suit
     Berman says the lease agreement tactic is just one of a myriad of anti-
 competitive steps Starbucks uses to avoid fair competition.
     According to the complaint, Starbucks also participated in predatory
 actions when Stafford was finally able to obtain Class A retail space in
 May 2005.
     "Once I found a way into a Class A building, it was obvious to me that
 Starbucks decided I had to go," said Stafford. "The nearest Starbucks was
 around the corner, but they continually sent employees loaded with free
 drink samples to stand in front of my shop, drawing away customers."
     Starbucks' campaign lasted for months, and eventually led to the
 store's closing, according to Stafford.
     The complaint cites a number of other predatory tactics used by
 Starbucks, including reports in which Starbucks offers to buy out
 competitors at below- market prices, and threatens to open stores nearby if
 the offer is rejected.
     The complaint also cites instances in which Starbucks uses its huge
 financial power to purchase other independent providers in an effort to
 squash any presence of independent coffee purveyors.
     For example in 2003 Starbucks purchased Seattle Coffee Company
 acquiring Seattle's Best Coffee and Torrefazione Italia for $72 million,
 which boasted 22 Seattle's Best Coffee and five Torrefazione Italia stores
 in the greater Seattle area.
     Starbucks then closed all the Torrefazione stores, and more than half
 of the SBC stores.
     "It is clear to us that Starbucks' game plan is to completely dominate
 a market by forcing out competition, something they've done quite well in
 the Seattle area," Berman added. "We also believe that this scorched-earth
 approach is happening in many other major markets across the U.S."
     The suit is asking the court to end what it claims are anti-competitive
 activities and seeks to represent coffee shop owners who seek to occupy
 retail space in commercial office buildings in Seattle or Bellevue.
     According to Berman, he has heard from other coffeehouse owners across
 the country who are experiencing the same treatment, and could expand the
 suit to include them sometime in the near future.
     Starbucks currently sells approximately four million coffee drinks
 daily in the U.S. alone. With more than 1,200 stores expected to open this
 year, the company continues to grow into a global empire. Its long-term
 goal is to have over 15,000 U.S. stores and 30,000 stores worldwide.
     For additional information regarding this suit, contact Hagens Berman
 Sobol Shapiro at (206) 623-7292 or visit .
     About Hagens Berman Sobol Shapiro
     Hagens Berman Sobol Shapiro is a law firm with offices in Seattle,
 Cambridge, Los Angeles, and Phoenix. The firm has developed a nationally
 recognized practice in class-action litigation. The firm is co-lead counsel
 in litigation to recover losses from Enron employees' retirement funds and
 represented Washington and 12 other states in lawsuits against the tobacco
 industry that resulted in the largest settlement in the history of
 litigation. The firm also served as counsel in several other high-profile
 cases including the Washington Public Power Supply litigation, which
 resulted in a settlement of more than $850 million, and the $92.5 million
 settlement of The Boeing Company litigation. Other notable cases include
 litigation involving the Exxon Valdez oil spill; Louisiana Pacific Siding;
 Morrison Knudsen; Piper Jaffray; Nordstrom; Boston Chicken; Noah's Bagels;
 TAP Pharmaceutical's Lupron litigation; and SmithKline Beecham's Paxil
      Mark Firmani (206) 443-9357
      Firmani + Associates Inc.

SOURCE Hagens Berman Sobol Shapiro