MINUTES OF THE
SENATE Committee on Judiciary
Seventy-second Session
March 10, 2003
The Senate Committee on Judiciary was called to order by Chairman Mark E. Amodei, at 9:07 a.m., on Monday, March 10, 2003, in Room 2149 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Mark E. Amodei, Chairman
Senator Maurice E. Washington, Vice Chairman
Senator Terry Care
Senator Mike McGinness
Senator Dennis Nolan
Senator Dina Titus
Senator Valerie Wiener
STAFF MEMBERS PRESENT:
Nicolas Anthony, Committee Policy Analyst
Bradley Wilkinson, Committee Counsel
Ann Bednarski, Committee Secretary
OTHERS PRESENT:
Laurel A. Stadler, Lobbyist, Mothers Against Drunk Driving – Lyon County Chapter
Christie Lin, Student, Carson Middle School
John E. Jeffrey, Lobbyist, Brown & Williamson Tobacco Corporation
Steve Kegel
Barton Freedman
Mike Francoeur, Stateline Smoke Shop, and Dart Discount Liquors
Robert Bashar Elyousef, Craig Rancho Mart
Suzette Miller, 7-Eleven Food Store No. 23673
Adam Khan, Sun Valley Economart
Mary Lau, Lobbyist, Retail Association Of Nevada
Alfredo Alonso, Lobbyist, R.J. Reynolds Tobacco Holdings Incorporated
Samuel P. McMullen, Lobbyist, Retail Association of Nevada
George A. Ross, Lobbyist, Philip Morris U.S.A., and Altria Group Incorporated
Ed Allison, Lobbyist, Brown & Williamson Tobacco Corporation
Stan Olsen, Lobbyist, Las Vegas Metropolitan Police Department
James F. Nadeau, Lobbyist, Nevada Sheriff’s and Chief’s Association North, and Washoe County Sheriff’s Office
Chairman Amodei announced the committee would hear Senate Bill (S.B.) 205.
SENATE BILL 205: Prohibits impairment of minor by use of alcoholic beverage. (BDR 15-1030)
Laurel A. Stadler, Lobbyist, Mothers Against Drunk Driving (MADD) – Lyon County Chapter, began with a public statement of appreciation for Senator O’Connell and the members of the Legislative Commission Subcommittee to Study Suicide Prevention. She said S.B. 205 resulted from the recommendation of that committee. Accompanying Ms. Stadler were several students from Carson Middle School. This bill, Ms. Stadler said, looked beyond the ultimate problem of suicide to one of the root problems leading to the fatal choice of suicide.
Ms. Stadler described the frustration felt when people discuss suicide, the dropout rate at school, teen pregnancy, and other social problems. She said these things were discussed often without looking at the root causes of the problems. In Exhibit C, results of studies on alcohol and its relationship to teen suicide are reported.
“Our Mission at MADD,” Ms. Stadler said, “is to stop drunk driving, support the victims of this violent crime, and prevent underage drinking.” She said currently it was against the law for a minor to purchase, consume, or possess alcohol; she added there are some clearly defined exceptions to the law. Senate Bill 205 addressed the anomaly of internal possession not found in the present statute. She explained possession currently was defined to mean physical possession of the alcoholic beverage, not the internal possession of the alcohol itself. This, Ms. Stadler explained, limited the ability of law enforcement to issue a citation for possession to the minor.
Ms. Stadler said S.B. 205 “sets in motion the specific sanctions including evaluation and treatment, if indicated.” She said she realized many people opposed stringent sanctions on minors because they are regarded as punitive in nature. Ms. Stadler said she hoped this bill would be regarded as an opportunity to get young people needed treatment and prevent future alcohol-related actions such as suicide attempts. If the law was clarified by S.B. 205, law enforcement would be provided a necessary tool, she explained.
Ms. Stadler stated:
The effective change with internal possession specified in statute would enable law enforcement, when they come into contact with a minor who had obviously consumed alcohol and was in internal possession of the alcohol, to cite the minor and get them into the system with the ability to have the minor evaluated for alcohol abuse. Often, only by detection by law enforcement which includes school police, can minors be offered the treatment they need in a positive, not a punitive, way.
Ms. Stadler reported the average age for first alcoholic consumption was 12.8 years old. She added it was estimated that each day about 11,000 children began their first experience with drinking. One group working towards avoiding this potential health problem was Leadership to Keep Children Alcohol Free, a coalition of governors’ spouses, federal agencies, and public and private organizations, Ms. Stadler reported. Nevada First Lady Dema Guinn joined the coalition after the members of Fighting Alcohol Through Education (FATE), at Carson Middle School approached her. Several members of that group were in attendance and delivered canvas totes to the committee. Ms. Stadler said included in each tote were handouts with more information and shocking statistics on teenage drinking, Exhibit C. She said they targeted children between 9 and 15 years old, the objective being to get the children into treatment, if applicable.
Senator Wiener asked how law enforcement handled at-home drinking parties. She asked if there was an education campaign to alert parents about how young children start drinking.
Ms. Stadler responded, “MADD has educational programs for every age group, from kindergarten through college and adult ages. Every time we speak to any group, we include a message about preventing underaged drinking.” She added part of the MADD mission statement referenced underage drinking, stating whether MADD was at a prison or addressing a service club, the talk included the subject of underage drinking.
Ms. Stadler said by statute, it was legal for parents to give their own child alcohol in their own home. But, she said it was not legal for a parent to give alcohol to other children in the neighborhood. She said this often happened at underage drinking parties. She explained S.B. 205, by design, did not prevent a parent from allowing his child to consume alcohol in the home, but allowed this child, should he go out into the community after at-home drinking and no longer under the supervision of the adult or the parent, to be subject to the internal possession consideration intended by the bill.
Senator McGinness asked how it would be established that the child was impaired. Ms. Stadler replied, “Impairment is defined on page 2, lines 4 and 5, ‘Any observable signs or symptoms commonly associated with the use of alcoholic beverages.’” She said signs would include the odor of alcohol. She added this bill was patterned after some local ordinances and suggested law enforcement would be better prepared to answer.
Senator McGinness said signs of impairment that might be interpreted as internal alcohol possession might be caused by other things. Ms. Stadler said already in the juvenile law were provisions preventing the use, possession, sale, or distribution of a controlled substance. He asked if S.B. 205 was prepared to close the loopholes in existing statutes. Ms. Stadler responded, “Exactly. It was presented to plug up that internal possession anomaly.”
Christie Lin, student, Carson Middle School, announced she was a member of the FATE Club at Carson Middle School located in Carson City in Senator Amodei’s district. Chairman Amodei wanted it noted for the record he was an alumnus of the Home of the Solons, and welcomed her.
Ms. Lin explained the FATE Club is a group of middle school students educating their peers and the community about the dangers of underage drinking. She said, “We need everyone’s help, the schools, the community, and this Legislature, in sending a clear, consistent, no-use message to young people.” Ms. Lin added, “We were very pleased when Mrs. Guinn made her commitment to the leadership initiative and we believe passage of S.B. 205 will send a strong no-use message from the Legislature.” She urged passage of this bill.
Chairman Amodei closed the hearing on S.B. 205 and announced the committee was now a subcommittee and opened the hearing on S.B. 66.
SENATE BILL 66: Revises provisions governing certain agreements relating to sale of cigarettes. (BDR 32-186)
John E. Jeffrey, Lobbyist, Brown & Williamson Tobacco Corporation, introduced Barton Freedman, an attorney from Louisville, Kentucky, representing Brown & Williamson Tobacco Corporation, and Steve Kegel, local territorial manager. Mr. Jeffrey said several people planned to testify from Las Vegas, but would not be able to do so because videoconferencing was not available. He said the bill had not emerged from bill drafting as intended; therefore, it was amended. He asked Mr. Freedman to explain the proposed amendments referenced in Exhibit D.
Mr. Freedman said S.B. 66 was designed to protect cigarette retailers in Nevada against any cigarette manufacturer who used marketing programs to restrict the retailers’ decisions about how to run their own stores. He explained the problem, in Exhibit E, stating the objective of the bill was to “Give the retailer back the keys to the store.” He said the cigarette industry was subject to extensive government regulation in many areas including advertising. Therefore, he continued, the cigarette retail stores were among the only places the industry could communicate with the consumer. Mr. Freedman added for most retail stores, the greatest source of profit was the sale of cigarettes. Manufacturers marketed their products through the retail stores. He said some of the dominant manufacturers of cigarettes used discount programs to economically coerce retailers into making choices about the products sold in their stores and those displayed in their stores.
Mr. Freedman said Philip Morris U.S.A.’s Marlboro brand of cigarettes had close to a 50 percent share of the market. He said Philip Morris had very generous discount promotions and the packages offered to the retailers often coerced them into decisions to stay competitive with other stores. He said very often the conditions of the promotions or the contracts were designed to eliminate other cigarette manufacturers. He noted the focus of S.B. 66 was limited to the cigarette world to make it unlawful for a cigarette manufacturer to restrict the choices of retailers concerning other competitors’ products. Particularly, S.B. 66 would not allow discount programs linked to retailers’ conduct and would ban percentage-pricing programs.
Senator Care asked for confirmation Mr. Freedman was saying Philip Morris was engaging in unfair trade practices. He mentioned the uniform law and fair-trade practices had a provision for seeking injunctive relief. He asked Mr. Freedman if he had ever attempted injunctive relief and if so, did it remedy the problem.
Mr. Freedman responded several different things were tried. He said the Brown & Williamson Tobacco Corporation was currently involved in litigation in North Carolina in a complicated antitrust lawsuit. Mr. Freedman explained R.J. Reynolds, Brown & Williamson, and Lorillard had sued Philip Morris over the same issues addressed in S.B. 66 in early 1999. He added the lawsuit was dismissed on summary judgment and was under appeal. He informed the committee the case would continue for years but oral arguments would begin next month. He said there were several obvious errors made by the judge, not the least of which was an injunction the judge had issued a few years ago.
Mr. Freedman said the aforementioned lawsuit proved from an antitrust enforcement standpoint, litigation was not the answer. Therefore, he continued, S. B. 66 actually clarified definitions of unfair business practices.
Senator Care verified that consumers buy cigarettes in the same manner most consumers shop, with a specific product in mind. However, he explored the possibility that now, with the Tobacco Master Settlement Agreement (TMSA) and the resultant lack of cigarette advertising, their intentions changed with promotion prices found within cigarette stores. He asked if consumers were influenced to try another brand based on a discounted price.
Mr. Freedman responded:
Very definitely, we have research that shows that when many consumers go into convenience stores and see what looks like a Marlboro billboard waiting for them, they come to the conclusion that the store does not sell anything else. Very often the consumer does not want to take the time to ask the cashier for anything else.
Mr. Freedman continued, stating often the consumer purchased a brand of cigarettes they did not intend to or, he said, more detrimental to the retailer, the consumer concluded the retailer did not sell his brand and took his business elsewhere. The consumer would change his habits and shop somewhere else that sold all the things he wished to purchase, such as gasoline, bread, and beer. He concluded not only did the retailer lose the cigarette purchase but the customer when he sold other things as well. He explained consumers tired of asking for things that were not in plain sight.
Senator Care asked if Mr. Freedman knew if any cigarette company, such as Philip Morris, had entered into exclusive agreements with retailers. Mr. Freedman said the term “exclusive” was used but really it meant the store gave a dominant appearance to Marlboro brands of cigarettes but sold others that were sometimes kept under the counter. Mr. Freedman said with passage of S.B. 66 a retailer could enter into an exclusive agreement if he so desired, but currently, Philip Morris did not produce all the brands of cigarettes consumers smoked and therefore, it would be counter productive for retailers to stock only Philip Morris brands of cigarettes. He explained there was not a problem with the availability of different brands of cigarettes stating a retailer could purchase whatever he desired from the distributor.
Senator Wiener was curious to know why this amended bill was brought to the Nevada Legislature. She asked if it had been presented in other states and how they reacted. Mr. Freedman said legislation similar to the amended version of S.B. 66 had been introduced in several states, adding over 13,000 store owners from all over the country supported it. Mr. Freedman said these retailers had submitted declarations of their support. He said other cigarette companies had joined Brown & Williamson in their effort to correct this unfair practice.
Mr. Freedman said:
So far we have met a great deal of resistance as you would expect from Philip Morris and R. J. Reynolds Companies who have gone public on the fact they would not support anything that basically takes away the programs they’re running right now. … I am not surprised that they’re opposing.
Additionally, Mr. Freedman said, there was opposition from giant retailers. He explained these giant retailers believed they would lose a lot of money if S.B. 66 was enacted. Mr. Freedman said the only way anyone would lose money was if Philip Morris and R. J. Reynolds decided they did not want to compete anymore. He added, this bill opens up the marketplace so much, that many, many manufacturers would be competing and if anything, it would increase the amount of payments the retailer received. Mr. Freedman said:
Having said all that as background, we have not yet had this bill passed anywhere … because of the opposition. … We are very confident somewhere we will find a legislature who’s going to do the right thing and it will start to spread like wildfire. This is the opportunity for Nevada to say, “We’re going to do the right thing. … we’re going to protect our retailers and the manufacturers doing business here.”
Chairman Amodei responded, “Well, this is certainly the session for doing the right thing, so your timing’s excellent.”
Senator Care said his recollection of the Tobacco Master Settlement Agreement was a provision for each tobacco company to pay its share of the settlement according to its share of the market. He asked if the Brown & Williamson share of the market had diminished over the last 5 years and wondered if the company could demonstrate harm. He asked him to respond regarding the national market and Nevada specifically.
Mr. Freedman responded the TMSA and the “Retail Leaders Program,” Philip Morris’ programs, were instituted at the same time, October to November 1998. The result was Brown & Williamson’s share went down dramatically during 1999 and 2000. He said they attributed a great deal of that to the fact they were forced out of the retail stores. Since then, Brown & Williamson became creative and had tried to educate retailers, he said. He explained the legislative effort was launched in New York in late 2000. The result of the effort was a turnaround in the declines of their share. If, he added, this legislation does not pass, Brown & Williamson’s market share will likely decline again.
Chairman Amodei asked if an amended S.B. 66 passed, would the enforcement tool be litigation brought by a company that was aggrieved. Mr. Freedman said the enforcement provision was contained in the bill which allowed for private rights of action. More importantly, the bill was drafted in so much detail any retailer could become his own enforcer of its provisions. He said, “ … the retailer now has a statute … the retailer can point to it and say to a rep, ‘You can’t demand that I interfere with somebody else’s business.’” Mr. Freedman added he hoped with this law there would not be a need for litigation. He added the education provided to retailers in discussions of this bill had been significant.
Chairman Amodei said many retailers had submitted letters of support for S.B. 66 and these seemed to be from small businesses (Exhibit F. Original is on file at the Research Library.). He continued, he knew the retail association would testify in opposition and asked what the difference was between smaller and larger retailers. He wanted to know why this legislation was so important.
Mr. Freedman responded larger retail stores did not sell cigarettes as a major part of their businesses therefore the larger retailers did not understand this bill. He said he believed they viewed this bill as an interference with their right to sell space in their stores. He said he believed that was the grounds for opposition to the bill. Mr. Freedman said:
I have never yet been able to get a retail association or chain to sit down and focus on this thing long enough to realize that they should not want a manufacturer coercing their membership into doing things that are against their best interest either. … How could any retailer of any size oppose a bill that basically says nobody can coerce me anymore …
Mr. Freedman stated he also thought the money from the shelf-space programs was another reason for opposition to the bill. Supermarkets particularly, he claimed, did not mind the coercion because cigarette sales were not a significant part of their overall business. In addition, he said, there was a lot of space in supermarkets compared to smaller retailers. Passage of S.B. 66 would not make the incentives unavailable to supermarkets however, cigarette departments would be managed differently.
Senator McGinness said his mother liked a certain cracker. However, he explained the major retailer in his hometown does not stock them. When he inquired why they were not available there the store manager informed him the manufacturer demanded too much space. Senator McGinness admitted he did not know exactly how the retail shelf-renting operation worked but said the store still did not stock the cracker. Senator McGinness said, “A major retailer made the decision … that they’re not going to accede to their demands.” He asked Mr. Freedman, “Couldn’t you do the same? Isn’t this a business choice?” This same supermarket chain, Senator McGinness continued, had Coca-Cola products always a big display on an end cap. He asked if Gatorade came in and offered to pay twice as much for that location, was the decision not up to the retailer?
Mr. Freedman responded using Senator McGinness’ mother’s crackers as an example. “The retailer has made the choice that he is not interested in satisfying your mother in this case.” He said, the difference is the retailer also made the choice he is not going to fuss with whatever manufacturer demands have been made, adding he assumed the cracker in question was not a “must have” brand as Marlboro cigarettes were. He continued, “The retailer can live without satisfying your mother … the cracker is probably such a small part of both the cracker business in the store and the total marketplace business in the store.” Marlboro with 50 percent of the market is different, he said, particularly when a store’s business is selling cigarettes.
Mr. Freedman explained the retailer involved in the cigarette business could not afford to have customers shop across the street 50 percent of the time. He said:
You have a totally different marketplace in cigarettes. Cigarettes is a unique product because of the regulation, because of the limited space, because of the price on it, and because of the fact that Marlboro all by itself … in Nevada is larger than the next 15 cigarette brands combined. … The retailer just has to have Marlboro. … It’s a very successful brand, but they are using it to abuse the retailer who has no choice but to either sell that Marlboro or lose a lot of business.
Senator Care said he assumed and wanted verification that the subject under discussion was an unfair trade practice or monopolization and said he had heard no testimony on price-fixing. Mr. Freedman said there was an element issue of vertical price-fixing and, “There is certainly no manufacturer horizontal price‑fixing issue; … everyone sets their own prices at the manufacturer level … ” He continued stating R. J. Reynolds currently sponsored a program concerned with raising or lowering the price of cigarettes. Mr. Freedman explained the R. J. Reynolds incentive program rewarded retailers for not carrying any brand priced less than an R. J. Reynolds brand designated by the company for promotion. The retailer was “paid handsomely” for keeping anybody lower-priced from coming into the store. Essentially, he said, the consumer was denied a choice and the retailer was denied the right to stock a cheaper product. He said retailers sometimes had to raise the price of other cigarette brands in order to comply with the incentive program of R.J. Reynolds. Mr. Freedman added S.B. 66 addressed this issue which was an unfair trade practice.
Chairman Amodei clarified the shelf-space agreements of concern were those requiring significantly in excess of 50 percent of shelf space be devoted to particular products. Mr. Freedman responded that was the number one concern because he said what they found was not only with shelf space but, with inventory loading, with the percentage of product the store carried, Philip Morris and R. J. Reynolds, the leading cigarette brands, demanded space far in excess of their market shares. He predicted the representatives from those companies would deny his allegations, but, he said, their programs were sophisticated enough to require more space.
Mr. Freedman then said there was no magic in percentages. He explained most industries did not use percentages because they were a counterintuitive way for retailers to operate their businesses. He continued, if a retailer sold Marlboro cigarettes 50 percent of the time, it did not mean 50 percent of his shelf space had to be devoted to the product, nor did 50 percent of his advertising need to be devoted to the biggest seller. He added, some retailers had their stock replenished daily, and therefore, did not require so much space. The space then could be used for brands with very low market shares, stating a carton or two of these off-brand cigarettes would be regarded as overstocked.
Steve Kegel said the current environment in which to sell tobacco was “ridiculous.” He said, “Our last true venue to communicate our product is at retail.” Mr. Kegel said the market was extremely competitive and tobacco companies used discounts to entice the consumer to choose a brand. Philip Morris used so much space to display its product, other companies had to have their brands under the counter. He said when he spoke to retailers about space he felt he should get approval from Philip Morris to do so. Mr. Kegel continued there was space in stores to advertise his company’s cigarettes and pricing, but Philip Morris took it, too. What continued to happen, he said, was retailers were afraid of being in violation of some part of a contract with Philip Morris. He said the purpose of a retail business was to sell items and if Brown & Williamson were not able to promote its products the company would be out of business. He concluded control of the cigarette market was Philip Morris’ goal, which would put other companies out of business.
Mr. Jeffrey said four retailers were present to testify. Mike Francoeur, Stateline Smoke Shop and Dart Discount Liquors, said of his two retail stores, the Stateline Smoke Shop at the South Lake Tahoe, California border, was an exclusive Philip Morris “PM3 level” contract, and one was a retail beer, wine, and cigarette store, Dart Liquor. He said he supported S.B. 66 because the tobacco retailers of Nevada did not currently have “freedom of contract.” Space allocation contracts by a manufacturer of cigarettes that did not properly reflect their balance of sales tied up retailers. Mr. Francoeur explained demands for a percentage of available space did not work because he only had so much space to divide among different companies. He reported before the buy-downs, he had gone through a period of time when he did not have a contract to sell Philip Morris cigarettes.
He added the “Rob Reiner Initiative,” California Proposition 10 of 1999, that imposed a $5 per carton tax on cigarettes sold in California saved his business without the Philip Morris product. Mr. Francoeur explained his location and the tax in California generated a lot of consumers from California. Today, he said, his two outlets grossed $4 million in tobacco sales and 95 percent of his business was the California market.
Mr. Francoeur said cigarette buyers were loyal only to price and availability. He said he built an exclusive store for Philip Morris to allow himself to enter into contracts of his choice with other cigarette manufacturers in his other store. He conceded the payments he received from Philip Morris were better with the exclusive arrangement. At Dart Liquor, he reported, he satisfied “RJR, Brown & Williamson, and all the other little entities.” Today 37 percent of his business was with Brown & Williamson, 36.5 percent was with R. J. Reynolds, 23 percent was Philip Morris, and the balance of about 4 percent was with all the other companies. He said with these figures, Philip Morris asked for 50 percent of the available display space. He continued, when he said he did not want a contract, the Philip Morris representative said, “If you don’t want a contract here, then we can’t provide you with a contract in your cigarette smoke shop.” When Mr. Francoeur asked to have this proposal in writing, he was refused. He said this exchange forced him to reconsider what he would do in his main store, Dart Liquor. He concluded stating, “I’m not here because I am against tobacco companies. I am here to protect my business.”
Senator Care clarified Mr. Francoeur had two stores, one of which had an exclusive contract with Philip Morris, and asked if the wholesale price of cigarettes was different at each store. Mr. Francoeur responded, “No.” The price of cigarettes for both stores was the same, he said. But, he explained, the exclusive store was not self-service and there was a 90-cent-per-carton incentive. Senator Care asked Mr. Francoeur to provide copies of the contracts he had with Philip Morris for both stores. Mr. Francoeur said the contracts in question were called “PM Level 3,” the exclusive, and “PM Level 1” was the one common to most retailers.
Senator Care said he thought copies of the contract would be helpful to the committee and Robert Bashar Elyousef, Craig Rancho Mart, interrupted stating, “You’ll be so confused if you see the contracts from Philip Morris. It’s unbelievable. They showed it to me a million times. I still don’t understand it.” Mr. Elyousef said he was from Las Vegas and had discussed the arrogance of power Philip Morris used against retailers to control the space behind the counter. He explained, “You have to kick almost every cigarette retailer out of your store to satisfy Philip Morris.” We keep missing the point, Mr. Elyousef said, explaining 10 years from now, if such practices continued, there would, for example, only be Hershey’s candy available and Nestlé’s candy would be gone. He added he had to remove Newport cigarettes because of his contract with Philip Morris.
Mr. Elyousef concluded stating:
I’ve been in retail for 22 years, and since 1998, I have never seen such a thing. Very soon you will only find Philip Morris. It’s about choice. It’s about competition. It’s about the freedom of choice for the retailer. That’s what makes this country great.
He said he was sure if Brown & Williamson had the edge, however, they would do the same thing. Mr. Elyousef said he was testifying for the retailers, for the store owners who need to take back their stores. He described the situation as pure power abuse adding, “They will tell you different, but I live it every day.”
Suzette Miller, 7-Eleven Food Store No. 23673, said she was not present for the benefit of Brown & Williamson Company or Philip Morris, but rather for herself as a franchisee. Ms. Miller explained the 7-Eleven Food Store corporate office did negotiate contracts on her behalf, but, she added, she was not obligated to accept the contracts.
Ms. Miller said her store was located near a school and 50 percent of her customers were children. She said, “I don’t want to put cigarettes on my counter, but if I don’t or I don’t comply with regulations in these contracts, they take away that money and you can’t be competitive.” She said Marlboro was her largest selling cigarette, adding Pepsi was her largest selling soda. The difference between these products was she did not have to provide one whole drawer to sell Pepsi, but she was required to give Philip Morris a huge space behind her counter.
Ms. Miller recounted a situation of noncompliance she had which resulted in her contacting the 7-Eleven Food Store corporate office to get assistance solving her dilemma between contracts with both Philip Morris and Brown & Williamson. She noted the contact person at 7-Eleven Food Store headquarters asked her, “Who pays you more money?” She testified that was not the solution to the contract problem.
Senator Care asked if S.B. 66 was amended as proposed, would retailers make more money, less money, or would there be no difference. Mr. Elyousef responded, “It’s more about the freedom of choice as a retailer inside the store.” Mr. Elyousef used the meeting room in an analogy of how Philip Morris contracted the display of their product stating, Chairman Amodei, seated alone with committee members perpendicular to him, made him the focal point of the room and was the way Philip Morris wanted their products displayed.
Adam Khan, Sun Valley Economart, said he owned a small store of about 1000square feet. He said when a cigarette company came in and demanded 50 percent of the shop, he did not know if he would sell that much product. “The choice should be up to us, the business owners, not the cigarette companies,” he said
Mr. Francoeur responded to Senator Care’s earlier question regarding product placement stating, “Yes, we will probably make more money. … We will increase sales.” Senator Care again requested a copy of the contracts, explaining, “It is difficult to contemplate the legislation without seeing what one of these looks like.” Mr. Francoeur agreed to send them.
Mary Lau, Lobbyist, Retail Association of Nevada, testified in opposition to S.B. 66. She said the retailers were being caught in a “turf battle” between manufacturers, something she had not seen in years. She said the situation was very unfortunate and paraphrased, anti-trust is to protect competition not competitors. She said the Retail Association of Nevada viewed this as a battle between competitors.
Ms. Lau referred to Senator Care’s request to view contracts and suggested there were many contracts offered to retailers by Philip Morris and confirmed the contracts were very confusing to read. She added the 7-Eleven Food Store Corporation was a member of the retail association and had voted against supporting this legislation. She explained this issue failed to pass the association’s public policy test, adding, “We do not accept single-issue legislation. … From a public policy standpoint, we cannot support this.”
Alfredo Alonso, Lobbyist, R.J. Reynolds Tobacco Holdings Incorporated, testified the numbers prove that between one competitor and another, one is selling more product than the other and commonly the one without the business “cries foul” which he said was what we were seeing here. Additionally he said, “There are laws with respect to unfair trade practices.” Mr. Alonso said he was not sure how a retailer was coerced into taking money and signing a contract. He said, “This is marketing.”
Mr. Alonso said shelf space was important to R.J. Reynolds and admitted its shelf space was far less than space for Philip Morris products. He conceded there might be some issues with the trade practices but reiterated legal means to address that already exist. He viewed S.B. 66 as nothing more than one company trying to get a competitive edge over the other.
Samuel P. McMullen, Lobbyist, Retail Association of Nevada, testified this is an issue between companies and really not a reason for legislation. Concurring with Ms. Lau and Mr. Alonso, Mr. McMullen said this contract issue was a “function of market share. … a function of the salability of the products. … a function of business decisions … regretted after the fact.”
Generally, Mr. McMullen said, matters of contract should be a function between the marketplace, the retailer, and the distributor. He said S.B. 66 was relatively specific in giving responsibilities to the tax department for enforcement. He said the responsibility shifted to the tax department to intervene when contractual problems existed.
Addressing Philip Morris’ contracts, Mr. McMullen said there were five category management contracts offered to all retailers. These contracts did not involve pricing. Mr. McMullen conceded he was not sure about that aspect. He said the contracts were a resource to retailers in category management, which included location and eye appeal and manufacturers would pay to have their product displayed in a premium location. This marketing concept was not limited to cigarette sales.
Mr. McMullen offered the opinion that one of the unintended consequences of the contracts and incentives for cigarette sales was they were used to help retailers support the multistate Tobacco Master Settlement Agreement. Philip Morris, Mr. McMullen explained, gave rebate dollars to retailers who complied with the TMSA because Philip Morris realized these incentives were a very good way to enforce the provisions of the TMSA.
Mr. McMullen said many of the accusations of coercion and power abuse were exaggerations for a company willing to pay for shelf space. He said it was a stretch to use words such as arrogance of power about the contracts offered by Philip Morris. “It’s called contract … not legislation,” Mr. McMullen concluded.
Senator Wiener asked if retailers had any room for negotiations when contracts were presented. Mr. McMullen responded the retailer chose the contract they wanted from among the five offered. He said there was not a point-by-point negotiation, but the contracts were designed to assure the retailer had the same options as the competition.
Senator Wiener asked if a retailer chose the middle level, did the representative limit him or her to only one of the available options. Mr. McMullen said retailers were not told which level was available to them, but added, Philip Morris did reserve the right to deny the contract. Senator Wiener then asked what feature was common to all five levels of contracts. The contracts varied, Mr. McMullen answered, from retailer to retailer and what the configuration of the display would be. Senator Wiener asked if all five levels required 50 percent of space or did the percentage vary according to share of sales. Mr. McMullen said he believed all levels required 50 percent of space, but admitted he was not sure about the specifics of the contracts.
Senator Wiener asked for sample contracts for a comparative study, noting Senator Care had made the same request of another testifier. She agreed, as Senator Care suggested, having contracts would be very helpful to the committee.
Senator Titus addressed Mr. Alonso asking if the Philip Morris contract issue was comparable to the International Gaming Technology (IGT) gaming contract problem with competing interests. Mr. Alonso referred the question to Mr. McMullen, who said the IGT problem was resolved “just the way we’d like this one to be resolved.” He said the IGT dilemma was a matter of contract. Senator Titus asked if both sides in that controversy were brought to mediation and each expected to make some concessions in order to keep legislation from dealing with the problem. Mr. McMullen said that problem was between consumers of a product and manufacturers of that product. The difference between IGT and Philip Morris debates was IGT and consumers wanted to know who bore the tax burden on these products, Mr. McMullen stated, adding they negotiated between parties as a matter of contract.
Senator Titus said this contract problem with retailers and Philip Morris was also between consumers and manufacturers. Senator Care said he recalled the IGT issue but wanted to further discuss S.B. 66 and referred to section 1 of the bill, which required the retailer to allocate, for any purpose, all or any portion of the category space. He then asked if candy bar and toy companies had different contracts about placement of their products.
Ms. Lau said there was a placement issue for candy bars and toys, and said there were many contracts at many levels to market products. She said the placement of products in a retail store was comparable to real estate: location. Ms. Lau said a lot of money was spent on marketing products to specific populations. She said there was an underlying issue and that was why every retail executive came forward to reject S.B. 66 and similar legislation had been rejected in 17 states. Ms. Lau said this kind of legislation was now proposed in 11 states and she did not want to see Nevada as the first state to enact it.
George A. Ross, Lobbyist, Philip Morris U.S.A., and Altria Group Incorporated, said he would focus his comments on the North Carolina court case. He said what that case established was the stimulation of competition in the cigarette market meant retailers must be prevented from entering into certain types of contracts. “Nothing,” he said, “in the Philip Morris retail leaders merchandising agreements prevents any cigarette company from competing in the marketplace.” Mr. Ross continued, the premise of this proposed legislation was rejected in a federal court in North Carolina in 2002 brought by some of Philip Morris’ competitors including Brown & Williamson. Mr. Ross stated, “After a thorough review of the facts, the court granted summary judgment against the plaintiffs, and upheld, under the settled principles of antitrust law, Philip Morris U.S.A. had a right to continue its existing cigarette merchandising program.”
Mr. Ross offered the following findings of the May 1, 2002, North Carolina civil court case, R. J. Reynolds v. Philip Morris Incorporated:
The retail leaders program is not anticompetitive. It does not harm consumers. The retail leaders program has induced rivals to compete more vigorously. There are higher levels of discounting in cigarettes since the retail leaders program, which benefits consumers. Other cigarette manufacturers have the ability to obtain significant market penetration for their merchandising programs. Finally, in the 2 1/2 years since Philip Morris implemented its challenged retail leaders program, the cigarette market in the United States remains highly competitive as evidenced by the general stability of market shares in the light of long-term trends, the profitability of other cigarette manufacturers, and ongoing entry and increasing market share of new manufacturers.
Mr. Ross said the last finding was most important in view of antitrust concerns. He said those who proposed this legislation were “bailing out” for their own commercial shortcomings. This was evidenced clearly by the introduction of new brands of cigarettes on the market and was an indication of a lack of need to continue this legislation.
Chairman Amodei referred to page 2 of S.B. 66 and asked about pricing of other manufacturers’ products. He asked if these contracts required the retailer to change the price of another product and if there were any objections to those sorts of prohibitions. He requested Mr. Ross to get some feedback on this portion of contracts and supply it to Nicolas Anthony, Committee Counsel. Ms. Lau volunteered to contact the national retailers association and inquire about its view on this issue.
Senator McGinness said those who opposed this bill had not looked at the fiscal note and taxation interest in it. He reported the cost to implement this legislation was $45,000. He commented about black market cigarettes purchased in Los Angeles. Mr. McMullen said there currently were several lawsuits pending filed on behalf of Philip Morris charging counterfeiting or black‑marketing their cigarette brands.
Ed Allison, Lobbyist, Brown & Williamson Tobacco Corporation, said, “It is very important to emphasize we are all here because government decided to interfere with the normal forces of private enterprise as it relates to the tobacco industry.” He said it was unfair to compare Coca-Cola to the cigarette industry because Coca-Cola had many outlets to advertise. Mr. Allison described the tobacco industry as unique because of the restrictions imposed by the government. Noting he was foregoing discussion on the wisdom of such government interference, he said it was “most certainly the government action that has disrupted the market forces and compels us to be here.” He explained this government intrusion had restricted competitiveness, making it germane to seek a level playing field.
Mr. Allison said the little guy, small businessmen, found it “tough to litigate.” He said they were seeking a level playing field from the legislative process because, generally, the small business owner did not have the resources or the expertise to litigate. He said, S.B. 66 meant:
No one will be prohibited from signing any contract he or she wishes to sign, … whether the business involved is big, small, or in between. … It corrects the government interference and allows the small businessperson to have a choice. … a choice that does not exist for him or her today.
Mr. Allison summed up his comments by asking the committee to level the playing field, enabling the small business owner to make decisions regarding contracts without being penalized for it.
Chairman Amodei recessed the hearing on S.B. 66 and opened the hearing on S.B. 199.
SENATE BILL 199: Makes various changes to provisions pertaining to firearms. (BDR 15-331)
Stan Olsen, Lobbyist, Las Vegas Metropolitan Police Department, said S.B. 199 was sponsored by Senator McGinness for the Las Vegas Metropolitan Police Department and encompassed four major areas, Exhibit G.
First, Mr. Olsen stated S.B. 199 addressed “straw purchases” which were firearm purchases made to provide the gun to someone who had a criminal record and could not pass a background check. Second, it provided for prosecution of those who destroy, obliterate, or alter serial numbers on a firearm. He added, in the past, prosecution was impaired without proof the person in possession of the firearm was the person responsible for the alteration. The third area elevated a second conviction for possession of a concealed weapon, a machine gun, or a silencer without the appropriate documentation to the level of a felony crime. Finally, conviction for possession of a firearm by those who were prohibited from carrying a firearm including fugitives, narcotic addicts, the adjudicated as mentally ill, and those illegally in the United States would be punished as a Category B felony.
Mr. Olsen said the intent of S.B. 199 was to mirror federal law. This would allow Nevada law enforcement to operate without relying on federal involvement or federal oversight.
Senator Care asked if it was possible for someone to possess a firearm with an altered serial number and not be aware of it. Mr. Olsen responded, unless the firearm was an antique, it was unlikely a person would not know because the serial number was displayed prominently on the firearm. He added, when the serial number was obliterated, it was obvious because the number had a new plate or was scratched out or clearly altered in some way. Mr. Olsen said when firearms were manufactured, the serial numbers were rolled into the steel with a specific type of dye and were difficult to alter. He added he had never seen an obliterated serial number that resembled the one engraved by the manufacturer.
James F. Nadeau, Lobbyist, Nevada Sheriff’s and Chief’s Association North, and Washoe County Sheriff’s Office, voiced support of S.B. 199.
Chairman Amodei closed the hearing on S.B. 199 and announced the hearing on S.B. 66 was closed in terms of testimony, but the committee reserved the right to reopen it for a work session or another hearing. He adjourned the meeting at 10:59 a.m.
RESPECTFULLY SUBMITTED:
Ann Bednarski,
Committee Secretary
APPROVED BY:
Senator Mark E. Amodei, Chairman
DATE: