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Media Alerts - In re Chocolate Confectionary Antitrust Litigation - Third Circuit
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September 23, 2015
  In re Chocolate Confectionary Antitrust Litigation - Third Circuit
Headline: Evidence of Canadian Antitrust Conspiracy Insufficient to Prove Existence of U.S. Antitrust Conspiracy

Area of Law: Antitrust Law

Issue Presented: Can evidence of a contemporaneous antitrust conspiracy in a foreign market prove the existence of an antitrust conspiracy in the U.S. market?

Brief Summary: Evidence of a contemporaneous antitrust conspiracy in a foreign market did not prove the existence of an antitrust conspiracy in the U.S. market because the evidence was ambiguous. Plaintiffs alleged that the Chocolate Manufacturers conspired to raise prices on chocolate candy products in 2002, 2004, and 2007 in violation of the Sherman Act. However, the Chocolate Manufacturers were participants in an oligopolist market. The Chocolate Manufacturers' interdependent decision-making could have led to higher prices under "conscious parallelism." Plaintiffs failed to create an inference of a conspiracy by showing conscious parallelism and certain "plus factors" including evidence of a Canadian conspiracy. Plaintiffs failed to prove a U.S. conspiracy with evidence of a Canadian conspiracy because they failed to show that the Canadian conspiracy evidence was relevant to or facilitated the U.S. conspiracy.

Extended Summary: This case concerns how courts should view evidence of a contemporaneous antitrust conspiracy in a foreign market when that evidence is offered to prove the existence of an antitrust conspiracy in the U.S. market. Federal law prohibits conspiracies in unreasonable restraint of trade or commerce under ยง 1 of the Sherman Act. Horizontal price fixing among competitors is a restraint of trade that is deemed per se unreasonable. Individual Plaintiffs and a Direct Purchaser Class (collectively "Plaintiffs") alleged that the Hersey Company, Nestle USA, Inc., and Mars, Inc. (collectively, "the Chocolate Manufacturers") conspired to raise prices on chocolate candy products in 2002, 2004, and 2007 in violation of the Sherman Act. Plaintiffs argued that this case presented a per se unreasonable restraint on trade. Thus, Plaintiffs had to show that the Chocolate Manufacturers agreed to fix prices under a common design in order to show that the Chocolate Manufacturers violated the Sherman Act.

However, the U.S. chocolate market was an oligopolistic market. The economic theory of interdependence provides that in oligopolistic markets, one firm's change in output or price will noticeably impact the market and other firms. Further, oligopolists could independently decide that the industry would be better served by higher prices and cause a rise in prices. Interdependent decision-making that leads to higher prices is "conscious parallelism" and lawful under the Sherman Act. In order to ensure that the Court punishes actual agreement rather than unilateral, independent conduct, Plaintiffs must create a reasonable inference of a conspiracy bearing in mind the nature of an oligopolist market. Thus, Plaintiffs must supplement a showing of conscious parallelism with "plus factors."

Plaintiffs failed to create an inference of a conspiracy by showing motive or actions against self-interest because the evidence Plaintiff presented was consistent with interdependence. Plaintiffs could not show that the anticompetitive price increases were the result of unlawful price-fixing rather than lawful, rational interdependence.

Plaintiffs also failed to create an inference of a conspiracy by showing traditional conspiracy evidence. First, Plaintiffs sought to prove a U.S. conspiracy with evidence of a Canadian conspiracy. Plaintiffs argued that the Court could reasonably infer a domestic conspiracy from evidence of a Canadian conspiracy because the Canadian market was a similar adjacent market, it involved the same participants, a jury should be permitted to weigh the Canadian conspiracy evidence, and the Canadian conspiracy "actuated" or facilitated the U.S. conspiracy. The Direct Purchaser Class argued that the Canadian conspiracy enhanced the plausibility of a conspiracy among the Chocolate Manufactures.

The Court held that the Canadian conspiracy evidence was ambiguous and, without more, a conspiracy in a foreign country generally did not prove a domestic conspiracy. First, Plaintiffs failed to show a link between the Canadian conspiracy and the Chocolate Manufacturers' conduct in the U.S. The people involved in the Canadian conspiracy were different from the people involved in the alleged U.S. conspiracy. The Canadian Chocolate Manufacturers were distinct legal entities operating under the laws of a different country. The circumstances surrounding the Canadian conspiracy, including the involvement of a direct purchaser and major distributor of chocolate in fixing prices, were very different from the circumstances of the alleged U.S. conspiracy. Plaintiffs' argument merely amounted to the allegation that if a conspiracy to fix prices happened in Canada, it could happen in the U.S. Plaintiffs' argument was insufficient to show a conspiracy especially when the anticompetitive price increases were consistent with lawful, rational interdependence.

Furthermore, the Court rejected the argument that the Canadian conspiracy "actuated" or facilitated the U.S. conspiracy. The actuation theory presumed that the Chocolate Manufacturers knew about the unlawful conduct in Canada, and that knowledge gave them the confidence to engage in the alleged U.S. conspiracy. Plaintiffs needed to show more than similar outcomes in Canada and the U.S. Rather, Plaintiffs needed to show that Canadian conduct actuated the U.S. conduct. In other words, the Chocolate Manufacturers needed to have known the cause of the outcomes they observed in Canada. At most, a series of emails between U.S. Hersey executives and upper management in Hershey Canada inferred that some Hershey executives in the U.S. knew about the Canadian conspiracy. However, the Canadian conspiracy could not have facilitated a U.S. conspiracy if Hershey acted unilaterally and the other two alleged conspirators were unaware of the Canadian conspiracy.

Second, Plaintiffs sought to prove a U.S. conspiracy with other traditional conspiracy evidence. Plaintiffs argued that the Chocolate Manufacturers exchanged information before fixing prices. However, Plaintiffs' argument failed because possession of competitive information did not amount to evidence of concerted action to fix prices. Plaintiffs failed to show that the source, substance, timing, and effect of the advanced pricing information inferred a concerted action to fix prices.

Plaintiffs also failed to show a reasonable inference of concerted action by arguing that the Chocolate Manufacturers had opportunities to conspire. The 2002 sale process of Hershey and improper communications between individuals of the Chocolate Manufacturers who did not have pricing authority did not create an inference of a conspiracy absent evidence of suspect meetings or conversations about pricing. Lastly, Plaintiffs failed to show that the Chocolate Manufacturers' pretextual reasons for their price increases, namely that the Chocolate Manufacturers raised prices because of raised costs, created a reasonable inference of a conspiracy. While costs increased for the Chocolate Manufacturers during the alleged conspiracy time period, Plaintiffs argued that the prices did not rise in proportion with the rise in costs. Plaintiff's argument failed. Even if their pretextual argument was stronger, it would not create a reasonable inference of a conspiracy by itself. To read the full opinion, please visit http://www2.ca3.uscourts.gov/opinarch/142790p.pdf

Panel (if known): Fisher, Hardiman, and Roth, Circuit Judges.

Date of Argument: April 30, 2015

Date of Issued Opinion: September 15, 2015

Docket Numbers: Nos. 14-2790 through 14-2795

Decided: Sept. 15, 2015

Case Alert Author: Sarah Adams

Counsel: Scott E. Perwin, Esq., Kenny Nachwalter, Steve D. Shadowen, Esq., counsel for Appellants in 14-2790; Moira E. Cain-Mannix, Esq., Brian C. Hill, Esq., Scott D. Livingston, Esq., Bernard D. Marcus, Esq., Joseph T. Lukens, Esq., counsel for Appellants in 14-2791; Daniel H. Gold, Esq., counsel for Appellant in 14-2792; Richard L. Coffman, Esq., David P. Germaine, Esq., Alberto Rodriguez, Esq., Joseph M. Vanek, Esq., Steve D. Shadowen, Esq., counsel for Appellants in 14-2793; Ruthanne Gordon, Esq., Michael J. Kane, Esq., H. Laddie Montague, Jr., Esq., Hilary K. Scherrer, Esq., Roberta D. Liebenberg, Esq., Adam Pessin, Esq., counsel for Appellants in 14-2794; Eric L. Bloom, Esq., counsel for Appellant in 14-2795; William F. Cavanaugh, Jr., Esq., Stephanie M. Gyetvan, Esq., Adeel A. Mangi, Esq., counsel for Appellees Hershey Co. and Hershey Canada, Inc.; Nicole L. Castle, Esq., David Marx, Esq., Stefan M. Meisner, Esq., counsel for Appellees Mars, Inc. and Mars Snackfood United States LLC; Peter E. Moll, Esq., Daniel J. Howley, Esq., Adam L. Hudes, Esq., Stephen M. Medlock, Esq., Carmine R. Zarlenga, III, Esq., counsel for Appellee Nestle USA, Inc.

Author of Opinion: Judge Fisher

Circuit: Third Circuit

Case Alert Supervisor: Professor Mary E. Levy

    Posted By: Susan DeJarnatt @ 09/23/2015 02:50 PM     3rd Circuit  

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