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Chilean court rules in favor of compensation for tobacco giant

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The long-running legal battle between the world’s two largest tobacco companies entered a new phase on Monday when Santiago’s Court of Appeals ruled that British American Tobacco Chile pay US$2.2 million in compensation to Philip Morris (PM) for lost market share due to anti-competitive practices.
The decision – which revoked an earlier ruling by the Civil Court of Santiago rejecting the compensation request by PM – is the latest in a series of cases dating back to 2002.

In that year, PM accused British American Tobacco Chile – then called Chiletabacos – of unfair marketing strategies that allowed it to monopolize the Chilean market and prevent competition, such as implementing clauses that prevented distributors from selling other brands.

After a two-and-a-half-year court case that ended in 2005, PM’s accusations were vindicated and the Court of Free Competition (TDLC) awarded the largest amount of compensation for anti-competitive practices permitted by Chilean law: US$600,500.

That decision was ratified in 2006 by the Supreme Court which found that the firm used “monopolistic powers to eliminate competition.”

However the ruling did not consider economic loss suffered on account of monopolistic practices, which formed the basis of the latest case.

In the most recent case PM sued its rival for the loss of market share that it would have attained, had it not been for the monopolistic practices of Chiletabacos. PM claimed that it would have reached 25 percent of the market, an amount of revenue equal to US$156 million.

Despite being the world’s largest tobacco company PM only represents 1 percent of the market share in Chile, while British American Tobacco represents 98 percent.

However the fine of US$2.2 million attached to Monday’s ruling was well short of the what Philip Morris had sought.

“It isn’t possible to make economic estimations of all the speculation about the percentage of the market share in the case,” said the tribunal.

Legal proceedings may still continue as both sides have a period of 15 days in which to file an appeal to the Supreme Court.

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