The Times said the dispute centres on a claim by Diageo that it should have been allowed to exercise an option to extend the distribution agreement for a further three years.
Brown-Forman which sold Jack Daniel’s through Diageo for more than 18 years, has awarded the rights to Bacardi instead. And the deal Southern Comfort and Woodford Reserve whiskey brands.
Brown-Forman said that Diageo's option to renew its exclusive distribution rights had been conditional upon the distributor meeting certain performance criteria and making a renewal payment.
In a filing to the Securities and Exchange Commission, Brown-Forman claimed that Diageo had failed to meet either of these conditions, the paper said.
British smokers are already buying more cigarettes overseas after import allowances were relaxed by the government in October, according to cigarette giant Gallaher.
The maker of Benson and Hedges and Silk Cut said there was early evidence that the government's decision to increase the personal allowance from 800 to 3,200 cigarettes reduced sales of UK duty-paid cigarettes in November and December.
However, as reported in The Financial Times this morning, Gallaher said the shift should not have a material effect on its profits because it was also benefiting - albeit at a lower profit margin - from the extra sales in continental Europe.