Molson has the exclusive right to distribute Miller products such as Miller Genuine Draft in Canada under a deal that goes back decades. But Miller wants to kill off the arrangement because it thinks it can do a better job of selling its own beer in Canada.DARRYL DYCK/The Globe and Mail
Molson Canada sold far less Miller Genuine Draft beer in Canada over the past three years than the targets called for under its agreement with Miller Brewing Co.
That under-performance – spelled out in court filings – is at the crux of a dispute that has erupted between the two companies, as Miller tries to cancel its Canadian licensing agreement with Molson.
Molson has the exclusive right to distribute Miller products such as Miller Genuine Draft in Canada under a deal that goes back decades. But Miller wants to kill off the arrangement because it thinks it can do a better job of selling its own beer in Canada.
In court documents filed in the case, Miller says that Molson sold just 86 per cent of the target volume of Genuine Draft in 2010, 77 per cent of the 2011 target, and 75 per cent of the goal in 2012.
That, says Miller, is a shortfall deep enough to give it the right to cancel the contract on six month's notice. It gave that notice on Jan. 18, indicating that the licence agreement will end on July 22.
Molson is fighting the cancellation in Ontario Superior Court, and has asked for a ruling that the termination amounts to a breach of contract. A hearing in the case is expected to take place in May.
The dispute is complicated by the fact that many of the terms of the current agreement between the two firms – including the volume targets for Miller Genuine Draft – were temporarily suspended at the beginning of 2012.
That's because the companies were expecting a change in an industry rule (regarding the use of clear bottles) that would have allowed Molson to brew Miller Genuine Draft in Canada, instead of importing the beer from the United States. That change would have improved Molson's profit margin, and given it more incentive to sell the Miller product in Canada.
But the rule change didn't take place by a 2012 year-end deadline. As a result, Miller says, the volume targets, and its right to cancel on the basis of under-performance, came back into effect on Jan. 1, 2013.
Molson said Miller agreed to negotiate new volume targets, but Miller denies that it was obliged to do so.
Molson also alleges that Miller has been trying to poach its staff, and is prematurely taking steps to manufacture and distribute its beer in Canada.
Miller denies that too, saying that it hasn't approached any Molson employees, although some "have contacted Miller about the potential for employment." Moreover, Miller said, it is entitled to begin preparations for brewing and distributing its brands in Canada, although it won't take any concrete action until its deal with Molson is terminated.
The bottom line, Miller says in its defence filing, is that "Molson will naturally continue to prefer its own brands over Miller's." Molson has acknowledged that it makes less money on each bottle of Miller Genuine Draft than it makes on its domestic brands, the Miller documents allege.
As a result, killing off the licensing agreement "will not result in any catastrophic loss of business or reputation or constitute irreparable harm of any kind, to Molson," the Miller defence statement says.
This isn't the first time the two companies have been in court to fight over their Canadian marketing arrangement, which dates back to the 1980s.
In 2005 Miller sued Molson to try to end an earlier version of the contract, saying that Molson's merger with Adolph Coors had cut into the Canadian company's incentive to promote the Miller brand in Canada. That legal battle went on for more than a year, but in 2007 it was settled and the agreement was extended.
Despite the legal fight in Canada, the two companies are partners in the United States where they jointly sell their products through a joint venture called MillerCoors.