March 18, 2014
A federal judge recently granted summary judgment in favor of US chocolate makers Nestlé, Hershey, and Mars in an opinion that underscores the limitations of a plaintiff’s reliance on inferences alone to prove an antitrust claim.1 It also serves as a reminder that expert opinions alone cannot otherwise save a case that is not supported by facts, and that expert testimony sufficient to support a motion for class certification may nevertheless be found insufficient for purposes of the liability phase of the case.
The complaint accused the chocolate makers of exchanging information regarding future pricing decisions and conspiring to follow one another’s price increases in the United States. However, while the plaintiffs presented claims that were “quite plausible,”2 along with evidence of parallel price increases, the evidence presented was as consistent with independent business conduct as a conspiracy to fix prices, and hence was insufficient to create a triable question on the issue of concerted action.
Nestlé USA, Inc., The Hershey Co., Mars, Inc., and Mars Snackfood US, LLC dominate the concentrated chocolate confectionary industry, controlling more than 75 percent of the US market. From 2002 through 2007, the alleged conspiracy period, the market cost for defendants’ primary ingredient, cocoa, increased by over 50 percent. In 2002, 2004, and 2007, the defendants increased the prices of their products in a lockstep, nearly simultaneous fashion. Individual purchasers and a class of direct purchasers of chocolate products filed multiple lawsuits alleging price-fixing in violation of Section 1 of the Sherman Act.
At the class certification stage, the court considered the testimony of the plaintiffs’ experts sufficient to establish a plausible economic theory of “actuation” to support the plaintiffs’ antitrust claim ‒ namely, that collusive conduct in Canada “actuated” similar conduct in the US. According to the plaintiffs, during the alleged conspiracy period, ITWAL, a Canadian distribution company, actively encouraged Canada’s largest chocolate manufacturers, including Nestlé Canada, Mars Canada, and Hershey Canada, to curb promotions and discounts. This led to agreements among the manufacturers to rein in trade spend discounting, thereby restricting competition. Canadian civil class actions were settled by the manufacturers and criminal charges were filed by the Canadian Competition Bureau.3 The plaintiffs’ experts posited that the initial success of the Canadian conspiracy, in combination with structural factors of the confectionary industry, made the US market ripe for collusion. The plaintiffs alleged that the defendants agreed to exchange pricing information in advance of price increases and to conspire to follow one another’s list price increases in the US. In opposing class certification, the defendants countered that each company’s US price increases were determined independent of one another, motivated by rational business considerations, such as rising ingredient costs, and legitimate procompetitive goals. The court certified the class. After the completion of discovery, the defendants moved for summary judgment. On the merits of the US conspiracy claims, the court ruled for the defendants, finding that the plaintiffs had failed to meet their burden of proof.
The Court’s Opinion
In a 58-page opinion, the court held that the record ‒ now fully developed after “exhaustive and comprehensive discovery, hundreds of depositions, the production of thousands of documents, and the tireless efforts of all counsel”4 ‒ was insufficient to permit an inference of conspiracy among the defendants. “Because of the fine lines separating unlawful conduct from legitimate business practices, courts are prohibited from drawing inferences of antitrust liability when a plaintiff’s evidence merely bespeaks conduct that is ‘as consistent with permissible competition as illegal conspiracy.’”5
Where, as here, the plaintiffs lacked a “smoking gun” revealing an illegal conspiracy, the plaintiffs needed to present circumstantial evidence sufficient to establish the existence of an agreement among the defendants. Under Third Circuit precedent,6 this required the plaintiffs to prove both “conscious parallelism” ‒ that each defendant was aware of the others’ conduct and this awareness was an element in their own decision-making process ‒ and certain “plus” factors, including, importantly, non-economic evidence of conspiracy. The plaintiffs adequately proved parallel conduct and the existence of a market structure conducive to price-fixing.7 However, the court found that the plaintiffs’ proof was insufficient to show affirmative evidence of collusion in the face of evidence that it was rational for each defendant to have individually increased prices for the purpose of mitigating anticipated cost increases, and not just realized increases. The evidence arguably showed competitive, self-interested behavior. Where evidence of the defendants’ pricing decisions could reflect the exercise of independent business judgment driven by practical efforts to maximize competitive advantage, and the plaintiffs presented only conclusory allegations to the contrary, the plaintiffs had not met their burden.
Regarding the plaintiffs’ “actuation” theory, attempting to tie conduct in Canada to conduct in the US, the court found that the record remained “entirely devoid of any facts establishing a plausible, much less a palpable, tie between the Canadian trade spend conspiracy and domestic pricing decisions.”8 The absence of evidence supporting an inference of actuation compelled the court “to conclude that the existence of a Canadian trade spend conspiracy lends no support to plaintiffs’ claims of anticompetitive conduct in the United States.”9Indeed, the court found that the record evidence illuminated material differences between what occurred in Canada and what the plaintiffs alleged in the US case. The Canadian conduct, it found, involved concerted managerial efforts to curb trade spend promotional practices, while the domestic conduct involved alleged collusion on list pricing decisions10 that was unsupported by evidence: there was a “dearth of evidence” to prove the defendants exchanged information,11“pure conjecture” regarding alleged opportunities the defendants had to conspire,12 and “no evidence tending to exclude the possibility that defendants acted independently.”13
Thus, concluded the court, “[d]espite diligent efforts on the part of plaintiffs’ counsel and nearly unfettered access to defendants’ records, plaintiffs are before the court with nothing more than speculation . . . . Nothing scandalous or improper has been discovered within our borders, and no evidence permits a reasonable inference of a price-fixing agreement.”14 The court has no choice, it concluded, but to hold that the defendants’ conduct in increasing prices on three separate occasions was “‘as consistent with permissible competition as with illegal conspiracy.’”15 In such circumstances, the court reasoned, liability could not follow, and summary judgment for the defendants was proper.
The decision underscores the necessity of developing record evidence that demonstrates individual wrongdoing, as opposed to proof of a general motive and opportunity to conspire, to support an antitrust conspiracy claim. The plaintiffs here appear to have proceeded as though evidence of a conspiracy in Canada, alongside the defendants’ general opportunity to conspire, would be enough to permit an inference of conspiracy in the US. The plaintiffs failed because they could not counter evidence that such conduct was explainable as individual conduct and not conspiracy.
- In re Chocolate Confectionary Antitrust Litigation, No. 1:08-MDL-1935 (M.D. Pa. Feb. 26, 2014) [hereinafter In re Chocolate].↵
- Id. at 57.↵
- Mars Canada, Nestlé Canada, Hershey Canada, and Cadbury Adams each settled, in an amount totaling approximately $22.4 million, a 2008 civil action lawsuit alleging a conspiracy to fix prices on chocolate in Canada. In 2013, Canada’s Competition Bureau filed criminal charges against the chocolate makers stemming from the same alleged conspiracy. Hershey Canada pled guilty and paid a $4 million fine to settle. See http://www.law360.com/articles/452200.↵
- In re Chocolate, at 56-57.↵
- Id. at 5.↵
- Petruzzi’s IGA Supermarkets v. Darling-Delaware Co., Inc., 998 F. 2d 1224 (3d Cir. 1993).↵
- The conditions conducive to collusion included (1) a concentrated market; (2) high entry barriers; (3) similar cost structures; and (4) inelastic demand. In re Chocolate, at 22.↵
- Id. at 42.↵
- Id. at 48-49.↵
- Id. at note 19.↵
- Id. at 53.↵
- Id. at 55.↵
- Id. at 56.↵
- Id. at 57.↵
- Id. at 58 (quoting Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)).↵