March 13, 2013

Vitamin C Makers Seek Boost From Former Chinese Official In Price-Fixing Trial

Vitamin C manufacturers currently on trial in federal court in Brooklyn are hoping their defense to price-fixing claims will get a boost from last week’s testimony by a former Chinese government official that China compelled them to engage in allegedly anticompetitive behavior.

Plaintiffs in the class action In re Vitamin C Antitrust Litigation are seeking to convince a jury in the U.S. District Court for the Eastern District of New York that the defendant Chinese manufacturers harmed U.S. purchasers of vitamin C by conspiring to fix prices and limit the supply of vitamin C exports to the U.S.

The defendants are relying on the foreign sovereign compulsion defense, claiming that they risked losing their right to export vitamin C if they did not adhere to minimum prices and volume restrictions set by the Chinese government.

Last week, the jury heard the testimony of Qiao Haili, a retired China Ministry of Commerce official, whom the defendants called for his testimony that the Chinese government could halt exports from Vitamin C manufacturers that failed to comply with its coordination of prices and production of the vitamin.  In cross-examination, plaintiffs challenged whether the former official actually had the authority to punish companies that did not comply with the government’s restrictions.

In re Vitamin C Antitrust Litigation is a multidistrict class action case that began in 2005.  Plaintiffs allege that the defendant Chinese manufacturers of vitamin C controlled exports to inflate prices.  Plaintiffs have alleged that the defendants, which controlled 60 percent of the global market, caused prices to rise from $2.30 per kilogram in 2001 to $15 per kilogram in 2003.

Judge Brian Cogan green-lighted the case for trial just last month, by denying a motion for summary judgment by defendant North China Pharmaceutical Group Corporation (“NCPGC”).

NCPGC argued that it never received pricing information because the company indirectly owns one of the manufacturer defendants and is not involved in production or sales.  Without knowing vitamin C prices, the company claimed it could not have participated in the price-fixing scheme.  The court, however, concluded that there was “evidence from which a jury could conclude that NCPGC participated in the conspiracy at the heart of this litigation.”

In May 2012, one of the defendants agreed to a $10.5 million settlement.

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Categories: Antitrust and Price Fixing, Antitrust Litigation

    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

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