Thursday, February 2, 2006
Coca-Cola Company Wins Verdicts Despite Owner’s Admissions
By ROGER M. GRACE
The Coca-Cola Company wanted its money back.
Taxed under the War Revenue Act of 1898 on the ground that its product was a medical preparation, the company insisted that Coke was nothing but a soda fountain beverage.
However, that contention flew in the face of advertising of the drink as a cure for headaches and nervous exhaustion.
As related here last week, in the first trial of Coca-Coca’s federal action in Atlanta for a refund, in 1901, there was a hung jury, the vote being 11-1 in favor of the drink maker. The near-win came despite the admission of the owner and president of the Coca-Cola Company, Asa G. Candler, that the advertising of Coke as a medical remedy virtually stopped for the very purpose of skirting the tax, and that the properties of the drink had not changed.
That brings us to the second trial, in 1902. Candler’s testimony at that trial also put the company’s legal position in jeopardy.
There was this dialogue during cross-examination of Candler (a future mayor of Atlanta):
Q. Cocaine is a drug, is it not?
A. Yes, sir.
Q. Now, there are three drugs in your Coca-Cola, are there not?
A. More than that, probably.
Q. They are medicines too, are they?
A. Yes, sir.
Q. It is a compound of different kinds of drugs and medicines, is it not?
Another witness for Coca-Cola was John S. Candler, vice president of the company and a younger brother of Asa Candler. He told of his conversation with an Internal Revenue Department official in Washington in which he urged that Coke not be subjected to the war tax. An aspect of the testimony that rendered it noteworthy under today’s ethical standards is that Candler was, at the time he engaged in the lobbying (as well as at the time he testified), a judge of the Superior Court in Atlanta. (He ascended to membership on the Georgia Supreme Court later in 1902.)
The second trial ended on Feb. 5, 1902 with an 11-0 verdict for the Coca-Cola Company. (An ill juror had been excused and the parties agreed to continue with less than a dozen in the box.) Damages were set at $10,858.86 in principal, plus $2,072.35 in interest, covering the period from June 1, 1898-June 29, 1899.
An article in the Atlanta Constitution commented:
“The appeal papers in the case will, including Judge [William T.] Newman’s charge [to the jury], make quite an extensive lot of reading and will give the transcriber, whether the work is done by pen and ink or by a machine, a long time job.”
Affirmance came Oct. 21, 1902 in a one-line order from the Fifth U.S. Circuit Court of Appeals which read, simply, “The judgment of the circuit court is affirmed.”
Meanwhile, the Coca-Cola Company had instituted a second action, seeking a refund of taxes for a later period, Aug. 5, 1899-July 1, 1901. In the trial of that action, the government now contended not only that Coca-Cola was a medical compound, but that it was was so strong a one that it should be sold only on a doctor’s prescription.
The government showed that the Coca-Cola Company operated under a charter granted Jan. 29, 1892 by the Fulton County, Ga. Superior Court, and that the application for that charter specified that “the object of the association is the manufacture and sale of a copyrighted medicinal article known as Coca Cola.”
It was during the seminal years of the 1900s, and perhaps edging back a bit, that Coca-Cola had started trying to filter out the cocaine while supposedly still using both “coca” and “cola” so as to maintain its name. Curiously, the government’s evidence at the second trial suggested that cola nuts, which had supplied caffeine to the drink, were no longer in the recipe.
At the first trial, it was assumed that the presence of caffeine in Coca-Cola was incidental to use of cola nuts as an ingredient. At the second trial, the U.S. Attorney’s Office argued that new evidence required a different result from before—that evidence being that “pure caffeine,” which it characterized as being nothing other than a drug, was dumped into Coke.
On Feb. 11, 1903, the jury found for the Coca-Cola Company in the amount of $28,864.95, plus interest.
Affirmance by the Fifth Circuit came Oct. 17, 1903. The order said:
“As we find that the taxable character of Coco-Cola [sic], under the revenue act, was settled adversely to the United States in the former adjudication…, duly pleaded on the trial, the record herein presents no reversible error, and the judgment of the Circuit Court is affirmed.”
Conclusion of that litigation did not end Coca-Cola’s conflict with the federal government. The next fray was to go all the way to the U.S. Supreme Court.
Copyright 2006, Metropolitan News Company
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