The opinion of the court was delivered by: KIMBA M. WOOD
On February 10, 1993 the State of New York ("the State") sued Kraft General Foods, Inc. ("Kraft") and RJR Nabisco Holdings Corp. ("Nabisco"), attacking Kraft's acquisition of Nabisco's ready-to-eat ("RTE") cereal assets (the "Acquisition"). The State also seeks either to rescind the transaction or to divest Kraft of Nabisco's RTE cereal assets. The State claims that the Acquisition violates Section 7 of the Clayton Act, 15 U.S.C. § 18; Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1; and Section 340 of New York's Donnelly Act, N.Y. Gen. Bus. L. § 340.
Pending a final determination, the State sought to preliminarily enjoin Kraft from taking any action that would alter the status quo as of November 11, 1992, with respect to the RTE cereal assets purchased from Nabisco and any assets currently used by Nabisco for the production of RTE cereals. The order sought by the State would bar Kraft from altering the trade dress of the former Nabisco brands so that Kraft would be required to sell the newly acquired RTE cereals under the Nabisco trademark and trade dress pending the outcome of trial.
The court denied the motion for a preliminary injunction at the conclusion of a hearing conducted on May 5, 1993. The following constitutes the court's factual findings and conclusions of law with respect to plaintiff's motion, and supplements the court's May 5, 1993 oral ruling.
I. The RTE Cereal Industry
Sales of RTE cereals in 1991 totalled more than $ 7 billion. First Cotterill Aff. P 8. Before and after Kraft acquired Nabisco's RTE cereal assets, Kraft was the third largest RTE cereal producer in the United States. Kraft sells RTE cereals under the "Post" trademark, including Grape Nuts, Raisin Bran, Honeycomb, Pebbles, Honey Bunches of Oats, Alphabits and Cocoa Pebbles.
Prior to Nabisco's exit from the RTE cereal business after almost half a century, Nabisco was the sixth largest RTE cereal producer, making such products as Big Biscuit Shredded Wheat, Spoon Size Shredded Wheat, Shredded Wheat 'N Bran, Shredded Wheat with Oat Bran (collectively "Shredded Wheat"), 100% Bran, Frosted Wheat Squares, various Fruit Wheats and Team Flakes. Krash May 21, 1993 Letter, Schedule 1.1C. From 1988 to 1992, Nabisco adopted a short-term, profit maximization strategy of raising prices well above the industry average
and reducing marketing support for its RTE cereal products by 70%. First Cotterill Aff. P 30. Nabisco also did not introduce any new brands. The result of this strategy was a steady erosion in Nabisco's market share from 5.52% percent in 1988 to 2.94% in 1992. By April 1, 1992, Nabisco's core brands, Spoon Size Shredded Wheat and Big Biscuit Shredded Wheat, were in danger of being dropped from trade accounts if market share declined any further, because their sales volume would not have justified their shelf space. Thomas Aff. P 3.
Such delisting occurred with respect to Nabisco's Frosted Wheat Squares, Fruit Wheats and Team Flakes, whose market share of less than 1% each led to their distribution in only limited geographic markets. Id.
Prior to the Acquisition, the United States market for RTE cereal sales in 1992 was shared by six major companies and private label and other firms as follows:
General Mills 25.58
Private Label &
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