Nespresso Fined by French Court for Unfair Competition

Nestle’s Nespresso Growth Hit by Swiss Contender Migros
Migros, whose annual profit last year was about 7 percent of Nestle’s, began selling five flavors of Cafe Royal capsules that fit in Nespresso machines last year. Photographer: Duncan Chard/Bloomberg

Nestle SA was ordered to pay 500,000 euros ($677,000) plus legal fees to Ethical Coffee Co. after a French court ruled that Nespresso competed unfairly against the maker of knock-off capsules that work in its machines.

The decision, confirmed by Ethical Coffee founder Jean-Paul Gaillard, follows a December 2012 allegation by the Fribourg, Switzerland-based company that Nespresso conducted a “smear” campaign against its products through the Nespresso Club, online and through machine distributors.

Nespresso plans to appeal the ruling, Diane Duperret, a spokeswoman for the Nestle brand, said in an e-mailed statement.

Nespresso, Europe’s biggest maker of single-serve coffee, has been losing market share to capsules made by companies including D.E Master Blenders 1753, Mondelez International Inc. and Ethical Coffee as some of its patents expire. The brand has been adding espresso varieties and expanding in countries such as the U.S. to boost sales.

“We are disappointed in the decision by the Paris court,” Duperret said. “We do not agree with the way in which our communications have been characterized. We are committed to free and fair competition.”

In April, Nestle came to an agreement to end a probe by the French competition regulator by offering to lift obstacles to makers of rival capsules. France is the source of more than a quarter of Nespresso’s sales, according to the regulator.

Nestle stopped reporting Nespresso’s sales after 2011, when annual revenue was at least 3.5 billion Swiss francs ($3.9 billion). The brand has boosted sales by about 500 million francs a year at constant exchange rates for the past seven years, Nestle said in a presentation last week.

(An earlier version of this story was corrected to fix a conversion of the fine into dollars in the first paragraph.)

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