February 19, 2013

Drywall Manufacturers Accused Of Constructing Price-Fixing Facade

Eight of the largest drywall manufacturers in the United States are facing three antitrust complaints that allege price fixing and other anticompetitive coordination have harmed homebuilders and other direct purchasers of drywall.

Defendants include CertainTeed Corp., Georgia-Pacific LLC, USG Corp., United States Gypsum Co., New NGC, Inc., LaFarge North America Inc., American Gypsum Co. LLC, TIN Inc. and PABCO Building Products, LLC.

Sierra Drywall Systems Inc. was the first to file a class action complaint in Illinois against the drywall manufacturers.  Sierra installs drywall for commercial and residential construction projects and argues it was negatively affected by two different anticompetitive actions.  Sierra’s action was moved to the U.S. District Court for the Eastern District of Pennsylvania after both Janicki Drywall of Erie Pennsylvania and New Deal Lumber & Millwork Company Inc. of Philadelphia launched two additional cases against the defendants.

According to the complaint in Sierra Drywall Systems, Inc. v. CertainTeed Corp., the eight drywall manufacturers coordinated their prices, including in September and October 2011, when they each announced they would raise prices 35 to 37 percent.  News media at the time reported that drywall makers were blaming the poor economy for price hikes.

Sierra alleges that not only did the drywall manufacturers coordinate increasing their prices, they also eliminated job quotes, the decades-long industry practice of negotiating a flat rate for all drywall needed during the duration of a construction project.  According to Sierra, job quotes guaranteed customers the best price because several companies could make competing offers.

“Any one Defendant seeking to eliminate these competitive price terms by itself would have been met with opposition and likely defections from customers.  Only through coordination was the reversal and elimination of this long-standing practice possible,” Sierra alleges in the complaint.

A second round of price increases increased the drywall prices by 25 to 35 percent for 2013.

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Categories: Antitrust and Price Fixing, Antitrust Litigation

    January 24, 2013

    Court Certifies Chocolate Antitrust Class Action

    A federal judge has certified a class action alleging that The Hershey Company, Mars Inc., and Nestlé U.S. A., Inc. fixed chocolate prices and inflated the prices of chocolate candy starting in 2002.

    The class action is being brought on behalf of 2,900 wholesalers, grocery stores, and other businesses that directly purchase chocolate from the three companies.  The alleged price-fixing conspiracy has resulted in 91 legal actions across multiple districts, consolidated for pretrial purposes as In re Chocolate Confectionary Antitrust Litigation.

    According to the plaintiffs, after a decade of stability the chocolatiers made a series of price raises between 2002 and 2007.  Although the defendants claim the price increases were due to rising production costs, the plaintiffs allege that the chocolate companies had advance knowledge of each other’s price changes and had numerous opportunities to meet and agree to the price increases.

    In holding that the class of direct purchasers alleged by the plaintiffs should be certified, Judge Christopher C. Conner of the U.S. District Court for the Middle District of Pennsylvania treated the testimony of the plaintiffs’ experts as crucial to the plaintiffs’ burden to prove the Federal Rule of Civil Procedure 23 requirements for class certification.  The court also found that the plaintiffs’ experts’ testimony was required to, and did, meet the Daubert standards of admissibility at the class certification stage.

    According to one of the plaintiffs’ experts, the chocolate confectionary industry is more susceptible than other markets to anticompetitive manipulation due to various factors, including:  the relative inelasticity of the demand for chocolate products; high barriers to market entry and the defendants’ market power; the reasonably interchangeable nature of the products; and “the myriad of opportunities for executive discourse in formal settings.”  The court held that these opinions were sufficiently supported by record evidence.

    Before granting certification, the court expressed concern whether a class action would be able to adequately address the antitrust injury each individual plaintiff experienced given that each direct purchaser paid varying prices for the chocolates.  Judge Connor concluded that common proof of antitrust injury was possible because the plaintiffs’ expert in econometrics accounted for the effects of other explanatory variables on price, including production costs, and because his analysis showed “that Direct Purchasers paid nearly identical prices – within a range of one-and-one-half cent – for each unit of a particular chocolate confectionary product.”

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    Categories: Antitrust and Price Fixing, Antitrust Litigation

      September 18, 2012

      Court Finds Musical Instrument Antitrust Claims Out Of Tune Under Twombly

      Judge Larry Burns of the U.S. District Court for the Southern District of California has granted the defendants’ motion to dismiss plaintiffs’ antitrust claim under Section One of the Sherman Act in In re: National Association of Music Merchants, Musical Instruments and Equipment Antitrust Litigation.

       The plaintiffs alleged that defendants conspired to fix the prices of acoustic, electric and bass guitars, and guitar amplifiers.  Plaintiffs’ theory was that certain guitar manufacturers and retailers, faced with price competition from Internet merchants and “big box” retailers, sought ways to stabilize or increase guitar and amplifier prices.  As the court explained, defendants “allegedly did this with the support and assistance of the National Association of Music Merchants (NAMM) by requiring that dealers adhere to policies setting minimum advertised prices (MAPs).”

      Last year, the court granted in part the defendants’ motion to dismiss, but allowed plaintiffs an opportunity to obtain limited discovery to find information sufficient to state their claims.  After discovery, the defendants again moved to dismiss and Judge Burns dismissed plaintiffs’ federal antitrust claim with prejudice.

      The court was not convinced that the plaintiffs’ allegations that the defendants’ representatives attended meetings where MAPs were discussed met the  pleading standard set forth in Bell Atlantic v. Twombly, 550 U.S. 544 (2007).  Based on its reading of Twombly, the court stated that “unilateral advocacy, particularly in an open and public forum, is not itself an agreement or conspiracy.  And independent responses to public advocacy without an agreement, even if consciously parallel to other entities’ activity, would simply be permissible parallel conduct.”

      Similarly, Judge Burns was not persuaded by the plaintiffs’ purported “plus factors,” and found such allegations insufficient to state a claim.

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      Categories: Antitrust and Price Fixing, Antitrust Litigation

        July 11, 2012

        Penguin’s Motion To Compel Arbitration Doesn’t Fly In eBooks Case

        A federal judge in the Southern District of New York has shot down a motion to compel arbitration filed by Penguin Group (USA), Inc. in the widely-followed case of In re: Electronic Books Antitrust Litigation.

        Plaintiffs allege that Penguin and other book publishers violated the antitrust laws by conspiring to fix and raise prices for eBooks.  Penguin moved the court to stay the proceedings and compel arbitration for those plaintiffs who purchased their eBooks through Amazon and Barnes & Noble.  Penguin claimed that these plaintiffs were bound by arbitration agreements and the class action waivers contained in those agreements.  Judge Denise Cote denied Penguin’s motion, following the reasoning of the Second Circuit in In re American Express Merchants’ Litigation (“In re Amex”), 667 F.3d 204 (2d Cir. 2012).

        The decision is not unexpected.  As reported in a prior Antitrust Today post, class action waivers in arbitration agreements are vulnerable under the reasoning of In re Amex.  In that case, the Second Circuit found an arbitration clause that contained a class action waiver unenforceable because the high cost of individual actions effectively precluded the plaintiffs from enforcing their statutory rights under the antitrust laws.  The Second Circuit has since denied a request for a rehearing en banc.  Given the widespread use of mandatory arbitration provisions with class action waivers, particularly in consumer contracts, many commentators believe this decision could have profound implications.

        Judge Cote cited In re Amex numerous times, including the Second Circuit’s statement that “plaintiffs may successfully invalidate an arbitration agreement that contains a class action waiver on the grounds that the agreement would prevent them from ‘effectively vindicating’ their federal statutory rights.”

        The district court found that the plaintiffs’ affidavits successfully established that “it would be economically irrational for any plaintiff to pursue his or her claims through an individual arbitration.”  The court also stated that “given the complexities of proving this particular antitrust violation, plaintiffs can expect at most a median recovery of $540 in treble damages, and face several hundred thousand dollars to millions of dollars in expert expenses alone.”

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        Categories: Antitrust and Price Fixing, Antitrust Litigation

          May 17, 2012

          Kansas Supreme Court Beefs Up Antitrust Scrutiny Of Resale Price Maintenance

          Resale price maintenance policies that pass muster under federal antitrust law may not survive state antitrust scrutiny in Kansas, according to that state’s highest court. 

          The Kansas Supreme Court has overturned a lower court’s decision granting defendant handbag and accessory maker Leegin Creative Leather Products, Inc. summary judgment in a state antitrust suit brought by a class of consumers challenging Leegin’s resale price maintenance pricing policy.

          The plaintiffs in O’Brien v. Leegin Creative Leather Products Inc. allege that Leegin’s resale price maintenance pricing policy amounted to illegal price fixing and violated the Kansas Restraint of Trade Act (“KRTA”). 

          Leegin’s resale price maintenance practices fared better in a federal antitrust challenge to those practices in the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007).  In that case, the U.S. Supreme Court decided that – contrary to the longstanding per se ban on vertical resale price maintenance established in the early 1900s – resale price maintenance no longer constituted a per se Sherman Act violation and would instead need to be evaluated under the rule of reason. 

          According to the Kansas high court, however, the KRTA does not follow in lockstep with federal antitrust law.  While federal antitrust decisions may be persuasive authority, they are nonbinding on Kansas state courts.  The Kansas high court thus declined to apply federal law precedent relating to the requirement to show “antitrust injury” and the application of a rule of reason standard of review to vertical price maintenance claims.  The U.S. Supreme Court’s decision in Leegin did not preempt the state antitrust claim under the KRTA.

          The Kansas legislature, however, has been quick to react.  State lawmakers have proposed a bill (House Bill No. 2797) to “correct” the court’s ruling and overturn it for any pending or future lawsuits.  The stated intention of the proposed bill is to “minimize conflicts between the Kansas restraint of trade act and section 1 of the Sherman Act … and reduce uncertainty as to the law applicable to commerce in Kansas.”

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          Categories: Antitrust and Price Fixing, Antitrust Litigation

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