VIOLATED: Starbucks Is Back In The Wars With "The Small Guy"

ust about every day someone, somewhere, is taking Starbucks on.

What, exactly, are they thinking?

Anyone that knows anything about marketing knows that Starbucks is a BLESSING for the small boutique coffee shop. But some people just don't want to know...

Starbucks Accused of Abusing Monopoly Power in Violation of Sherman Act

SEATTLE, Sept. 25 /PRNewswire/ -- An independent specialty coffeehouseowner filed a proposed class action lawsuit today against StarbucksCorporation (NYSE: SBUX), claiming the company, from its monopoly position inthe specialty coffee market, engages in a range of anti-competitive activitiesaimed at eliminating competition.

Filed in U.S. District Court, the suit alleges that Starbucks hasexploited its monopoly power in the specialty coffee retail market to stiflecompetition through a series of predatory practices including exclusive leaseagreements, "cluster bombing" of stores and competitor buy-outs.

Among the allegations leveled in the complaint, Penny Stafford -- anindependent coffee-shop operator -- claims that Starbucks locks outcompetition through a series of exclusive lease agreements with propertymanagers of Class A high-rises, preventing other specialty coffee shops fromoperating in the same building.

In this practice, Starbucks frequently offers to make lease paymentshigher than fair market value in exchange for a property owner's agreement toprevent competitors from leasing space in the same building, the complaintsays.

In the Seattle and Bellevue markets, the majority of Class A space iscontrolled by a handful of Real Estate Investment Trusts (REITs), making suchagreements 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, managingpartner of Hagens Berman Sobol Shapiro and attorney for Stafford. "We intendto show that as a monopolist, Starbucks is abusing their market power to thedetriment of its competitors, and to consumers."

"We contend that Starbucks' market practices are more about destroyingcompetition than pouring a good cup of coffee," Berman added.

According to published reports, Starbucks controls 73 percent of thespecialty coffeehouse market.

"Fair, even bare-knuckle competition is one thing, but we believeStarbucks has repeatedly crossed the line in denying competition the chance togo toe-to-toe with them," said Berman.

Stafford, owner of Belvi Coffee and Tea Exchange Inc., tried to enter thespecialty coffeehouse business by seeking retail spaces located in Seattle andBellevue's Class A high-rise office buildings, but her entry was repeatedlyblocked despite consumer demand in these locations, the suit claims.

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 predatoryactions when Stafford was finally able to obtain Class A retail space in May2005.

"Once I found a way into a Class A building, it was obvious to me thatStarbucks decided I had to go," said Stafford. "The nearest Starbucks wasaround the corner, but they continually sent employees loaded with free drinksamples to stand in front of my shop, drawing away customers."

Starbucks' campaign lasted for months, and eventually led to the store'sclosing, 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 hugefinancial power to purchase other independent providers in an effort to squashany presence of independent coffee purveyors.

For example in 2003 Starbucks purchased Seattle Coffee Company acquiringSeattle's Best Coffee and Torrefazione Italia for $72 million, which boasted22 Seattle's Best Coffee and five Torrefazione Italia stores in the greaterSeattle area.

Starbucks then closed all the Torrefazione stores, and more than half ofthe SBC stores.

"It is clear to us that Starbucks' game plan is to completely dominate amarket by forcing out competition, something they've done quite well in theSeattle area," Berman added. "We also believe that this scorched-earthapproach is happening in many other major markets across the U.S."

The suit is asking the court to end what it claims are anti-competitiveactivities and seeks to represent coffee shop owners who seek to occupy retailspace in commercial office buildings in Seattle or Bellevue.

According to Berman, he has heard from other coffeehouse owners across thecountry who are experiencing the same treatment, and could expand the suit toinclude them sometime in the near future.

Starbucks currently sells approximately four million coffee drinks dailyin the U.S. alone. With more than 1,200 stores expected to open this year, thecompany continues to grow into a global empire. Its long-term goal is to haveover 15,000 U.S. stores and 30,000 stores worldwide.

For additional information regarding this suit, contact Hagens BermanSobol Shapiro at (206) 623-7292 or visit www.hbsslaw.com .

About Hagens Berman Sobol Shapiro