A class action filed in the Northern District of California on behalf of U.S. consumers of milk and other dairy products is alleging that dairy producers prematurely slaughtered more than half a million cows to drive up the prices of dairy products.

The plaintiffs in Matthew Edwards et al., v. National Milk Producers Federation, aka Cooperatives Working Together et al. allege that from 2003 to 2010 several dairy companies and trade groups, including Land O’Lakes, Dairy Farmers of America, Agri-Mark, Dairylea, National Milk Producers Federation, and Cooperatives Working Together (“CWT”), engaged in the premature slaughter of cows as part of a scheme to raise the price of milk and other dairy products by decreasing the supply of milk. 

The plaintiffs claim that defendants manipulated the supply of milk which led to higher prices through “herd retirements” coordinated by the CWT.

Dairy farmers in every state participate in CWT, producing almost 70% of the nation’s milk.  Dairy farmers submit bids for the price at which they sell their herds for slaughter through the retirement program.  The plaintiffs allege that more than 500,000 healthy cows were slaughtered prematurely under the program which reduced the supply of milk by approximately 10 billion pounds and resulted in a $9.55 billion total increase in the price of milk.

CWT members say that the program, which ended in 2010, was created to assist dairy farmers who were losing money and that the program operated in full compliance with the antitrust laws.

The dairy price-fixing class action lawsuit is brought on behalf of U.S. consumers who purchased milk and other dairy products (including cream, half & half, yogurt, cottage cheese, cream cheese and sour cream) from 2004 through the present.

After denying four of six motions to dismiss just three weeks earlier, a federal judge in the Eastern District of Pennsylvania denied an additional motion to dismiss that was primarily aimed at limiting the scope of discovery in the In re Processed Egg Products Antitrust Litigation.

The plaintiffs allege that Defendant egg producers and trade groups engaged in a conspiracy to manipulate the supply of, and thereby fix prices for, domestically sold eggs in violation of section 1 of the Sherman Act.  Plaintiffs charge that defendants’ objective was to take advantage of consumers’ “relatively inelastic” demand for eggs as well as the fact that eggs are commodities and have no market substitutes.

Ruling on the prior motions to dismiss on September 26, 2011, District Judge Gene E.K. Pratter granted the motions to dismiss of Hillandale Gettysburg L.P., Hillandale Farms Inc., Hillandale Farms East, Inc. and the United Egg Association while denying the remaining four motions to dismiss.

The question before the court was whether plaintiffs adequately alleged particularized facts that each defendant was a participant in the conspiracy.

The court rejected attempts by the plaintiffs to implicate certain defendants by use of the generic reference “defendants” where there were no particularized facts pertaining to a specific defendant within the complaint.

After the court found the existence of sufficient facts that explicitly detailed the participation of the four defendants whose motions were denied, the defendants again moved, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, for the court to enter an order dismissing any claim that defendants engaged in a conspiracy to reduce the production, or raise the price, of “egg products” based on a theory that the only purported conspiracy for which any facts are alleged is a conspiracy to reduce the supply of “shell eggs.”

Defendants complained that the complaint’s references to “egg products” might be an entree for plaintiffs to expand the scope of discovery to information not relevant to the case.  The court, however, was not persuaded.

Judge Pratter denied this additional motion noting that Rule 12(b)(6) should not be used to chisel issues for trial.  Additionally, Judge Pratter found that defendants did not adequately show why the well-pled facts supporting the conspiracy to reduce the supply of “shell eggs” would not also suffice to support a conspiracy to reduce the supply of “egg products” or why they should be considered separate markets.

In denying defendants’ motion, Judge Pratter ruled it more prudent for defendants to address their concerns through pretrial devices which provide a more appropriate means for circumscribing the scope of discovery and defining the issues.

October was a busy month for European and U.S. antitrust enforcers, who revised “best practices” aimed at enhancing the efficiency of antitrust investigations on both sides of the Atlantic.

First, on October 14, 2011, the U.S. Department of Justice, the Federal Trade Commission and the European Commission (the “EC”) issued an updated set of “best practices” that they use to coordinate merger reviews under their concurrent jurisdictions.  Three days later, the EC announced another set of revised best practices regarding its unilateral review of alleged anticompetitive conduct.

The revised practices regarding merger reviews are the latest development in a joint effort by the U.S. and the EC, started in 1991, “to promote cooperation and coordination and lessen the possibility or impact of differences … in the application of their [respective] competition laws.”  In 2002, they jointly issued their first set of best practices on concurrent merger reviews.

The trans-Atlantic antitrust enforcers have now revised those practices, “confirming” the 2002 version and building on the “experience gained” since they were issued. 

The most significant enhancement is the emphasis on the role of merging parties in facilitating cooperation.  For example, the revised practices encourage parties to authorize the agencies to share information, and to execute confidentiality waivers to enable such sharing.

The practices also advise parties to coordinate the timing of their filings with the various agencies, warning that if a final decision in one jurisdiction is reached before filing has taken place in the other, any possibility of meaningful cooperation between the agencies will have been excluded.

In addition, the practices implore the agencies to do their part to improve coordination.  For instance, they advise the agencies to:   

• contact one another promptly upon learning of a merger that may require simultaneous review;  

• align the timing of their investigations;

• engage in inter-agency consultations, particularly at “key stages” such as before issuing a second request, negotiating remedies, or deciding to prohibit a merger;

• sharing information such as draft discovery requests and their analyses of market definition, competitive effects and other relevant issues; and

• permitting parties to give joint presentations, interviews and document submissions to the agencies.

The revision notes the particular value of cooperating with respect to remedies, and includes an expanded discussion of how coordination can be improved in that regard.  For instance, it advises the agencies to “keep one another informed” of remedy discussions, “share draft remedy proposals,” and generally ensure that their remedies “do not impose inconsistent or conflicting obligations.”  The revised practices also encourage improvement of coordination with authorities in other nations.  For example, they advise parties to inform the U.S. and EU of any actual or anticipated outside review, and they advise the agencies to “seek to cooperate with [such] other authorities….” 

Like the revised best practices on merger review, the EC’s recently-revised best practices for unilateral antitrust proceedings also aim to promote efficiency.  They follow a 2010 draft and were developed through “public consultation and practical experience.”  Significant improvements over the 2010 draft include advising the EC to:     

• inform parties of the parameters for potential fines;

• extend “state of play meetings” to cartel cases and complainants in certain circumstances;

• provide enhanced access  to “key submissions” such as economic studies; and

• publish rejection of complaints.

The EC has also expanded the role of the independent Hearing Officer, who is responsible for guarding the procedural rights of the parties being reviewed.  Among other changes, the Hearing Officer can now resolve issues regarding attorney-client privilege and questions that might force parties to admit to violations.

In a transaction valued at $21.1 billion – one of the largest energy deals in history – Kinder Morgan, Inc. has announced a deal to purchase the El Paso Corporation.

The two corporations are large “midstream energy” companies that process and transport oil and gas.  If the deal is approved by shareholders and the FTC, Kinder Morgan will be the largest midstream energy company in North America, controlling some 67,000 miles of pipelines linking every major production field to market.

The FTC is expected to examine whether the combined firm will exert too much control nationally, with particular attention to certain local markets where the firms have overlapping networks.  There is substantial overlap of networks in the center of the Untied States, between the Rocky Mountains and the Midwest.

Kinder Morgan has stated it is willing to sell assets to win approval of the deal.  Some concern about decreased competition may be eased because pipeline rates are regulated by the Federal Energy Regulatory Commission, which must also approve the closure of any pipelines where no alternate supply routes exist.

It is not hard to find precedent for divestiture in the sector.  In fact, the FTC intervened in a previous El Paso merger.  In 2001, El Paso and its merger partner were required to divest 11 gas pipelines stretching more than 2,500 miles before the deal was allowed to proceed.

The Kinder Morgan transaction – which contains a $650 million breakup fee – is expected to close next spring.  The deal has already triggered a lawsuit by the Louisiana Municipal Police Employees Retirement System against Goldman Sachs.  The fund claims that Goldman Sachs – which owns about 20 percent of Kinder Morgan – had a conflict of interest when it advised El Paso to sell to Kinder Morgan Inc.  The lawsuit alleges Goldman advised El Paso to sell at a lower price to earn more fees than if El Paso had gone through with a previously announced spinoff.

A federal judge in the Eastern District of Texas has slapped Pilgrim’s Pride Corp., the largest poultry producer in the U.S., with a $26 million damage award for manipulating the price of chicken.

According to Magistrate Judge Charles Everingham IV, Pilgrim’s Pride violated the Packers and Stockyards Act of 1921 by shutting down a packing plant in El Dorado, Arkansas and refusing to sell the operations to its competitors with the intent to artificially raise prices.

The decision to idle the plant in 2009 followed Pilgrim’s Pride’s filing for bankruptcy during a time of rising feed costs and a market decline.  Pilgrim’s Pride later emerged from bankruptcy after being taken over by the Brazilian meatpacking company JBS Swift.

Judge Everingham cited an email from the company’s chief restructuring officer, William Snyder, in which he wrote that Pilgrim’s Pride intended “to restrict the chicken in the area and allow the prices to rise.”

Pilgrim’s Pride CEO, Bill Lovette, said the company will appeal the ruling.   

The case was brought on behalf of approximately 90 chicken farmers in Arkansas who were injured when Pilgrim’s Pride shut down the plant and refused to buy chickens from them.  According to Peter Carstensen, an antitrust law professor at the University of Wisconsin, the ruling may open up a new avenue for farmers to sue processors in the beef and pork markets as well.

Federal Judge Sue L. Robinson in the District of Delaware has given the go-ahead to a suit alleging truck manufacturers conspired to create and maintain a monopoly with supracompetitive prices in the market for heavy duty truck transmissions.

Judge Robinson has denied the defendants’ motion to dismiss the complaint in Wallach v. Eaton Corp.

The class action, brought by Mark S. Wallach, the bankruptcy trustee for Performance Transportation Services Inc., and Tauro Bros. Trucking Co., alleged that defendants conspired to create and maintain Eaton’s monopoly in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act.  Defendant Eaton is a manufacturer of heavy duty truck transmissions.  The other named defendants are original equipment manufacturers (OEMs) that purchase transmissions.  It is alleged that all defendants shared in the increased profits earned by Eaton.

The complaint alleges that in response to both a downturn in the market for heavy duty trucks and increased sales by Eaton’s competitor, ZF Meritor, the OEMs and Eaton conspired to remove ZF Meritor from the transmission market.

The alleged monopolization was enacted through the use of long term agreements.  Under these agreements, Eaton gave discounts and rebates to the co-defendants in exchange for their purchasing of transmissions exclusively from Eaton.  The agreements were allegedly de facto exclusive dealing contracts that forced ZF Meritor to leave the market for heavy duty truck transmissions.  According to the complaint, this enabled Eaton to charge higher prices to OEMs that were not members of the conspiracy.

Ruling that there was sufficient evidence to suggest both a conspiracy and the maintenance of increased prices, Judge Robinson ruled that the Sherman Act claims should proceed, though she dismissed the Clayton Act claim.

This litigation follows a suit in front of Judge Robinson in which ZF Meritor successfully proved antitrust violations by Eaton.  However, no damages were awarded in that case.

Canada’s Competition Bureau has released final revisions to its Merger Enforcement Guidelines.

The Guidelines describe how the Competition Bureau will analyze merger transactions. 

The new Guidelines were issued on October 6, 2011, after the Bureau held consultations during the last two years with foreign competition agencies and throughout Canada.  The changes are the first revisions to the Guidelines since 2004. 

The Guidelines were changed after the United States revised its Horizontal Merger Guidelines in 2010.  As we reported in an earlier post, the U.S. revisions offered a more tolerant approach for analyzing mergers by downplaying the role of market definition and by emphasizing the need to avoid interference with competitively beneficial mergers. 

Some of the Canadian revisions follow the U.S. approach by having less of an emphasis on market definition and by looking more at the competitive effects of a merger.  Other features of the new Guidelines include discussing how a merger is defined under the Competition Act, providing for greater scrutiny of vertical mergers, and giving an update to the merger “efficiencies defence.”

Basketball legend Bill Russell, who led the Boston Celtics dynasty that dominated the NBA in the 1960s, is charging down court once again, but this time it’s in a federal – not a basketball – court.

The former basketball star at the University of San Francisco, five-time winner of the NBA Most Valuable Player Award and a 12-time All-Star, is suing the NCAA, the Collegiate Licensing Company (“CLC”) and Electronic Arts, Inc. (“EA”), claiming that they are violating federal antitrust laws with licensing practices that enable them to profit from college basketball players’ likenesses long after they’ve left college.

The complaint in Russell v. NCAA, which was filed in federal court in the Northern District of California, alleges that the defendants violated Section 1 of the Sherman Act by engaging in a price-fixing conspiracy and a boycott that “unlawfully foreclosed class members from receiving compensation in connection with the commercial exploitation of their images, likeness and/or names following their cessation of intercollegiate athletic competition.”

The complaint claims that the defendants’ practices of having student-athletes contract away their rights to the commercial use of their images is the product of an anticompetitive conspiracy and results in unjust enrichment, entitling the plaintiff to damages and injunctive relief.  Russell is challenging the validity of the form used to achieve the transfer of rights. 

The market for collegiate merchandise is significant.  The complaint cites the CLC website for the proposition that “there is a ‘$4.0 billion annual market for collegiate licensed merchandise.’”  Russell claims that while the defendants continue to reap financial benefits from players’ participation in collegiate sports, even former players are “foreclosed from participating or sharing” in the “commercial benefits from the sale and use of the players’ images,” notwithstanding the fact that the players have moved on from their respective collegiate careers. 

The complaint focuses on the development of EA’s video games, such as “NCAA Basketball” and “NCAA Football,” which incorporate “photorealistic” graphics of players and venues. 

The suit is being brought as a class action under Rules 23(b)(2) and (b)(3) of the Federal Rules of Civil Procedure.  Russell is the putative representative of two classes: one class of certain former student-athletes (for purposes of antitrust damages and injunctive relief), and one class of certain current and former student-athletes (for purposes of declaratory and injunctive relief). 

This is the latest chapter in the perennial debate over the propriety of compensating collegiate athletes.  The complaint references a number of such pending litigations in California state and federal courts, including In re NCAA Student-Athlete Name & Likeness Licensing Litigation, and suggests the possibility of consolidation.

Federal Judge David C. Godbey of the Northern District of Texas has green lighted a suit alleging taxicab companies conspired to monopolize by fixing prices that drivers must pay to operate a taxicab in certain counties in the Dallas-Fort Worth metropolitan area. 

The judge denied the defendants’ motion to dismiss the plaintiffs’ complaint in Association of Taxicab Operators USA v. Yellow Checker Cab Company of Dallas/Fort Worth Inc.  Defendants’ motion relied exclusively on immunity afforded under the state action doctrine.  But as Judge Godbey’s decision explained, defendants failed to make the essential showing that “a municipality expressly authorized or actively supervised their mergers or pricing.” 

Plaintiffs, led by a trade association of taxicab companies, allege that permit fees defendants charged drivers to operate in the Dallas-Fort Worth area were anticompetitive.  According to plaintiffs, through a variety of entities and agreements, two individuals control over 52 percent of the authorized taxi cabs in the area.  Their lawsuit seeks injunctive relief breaking up the defendants’ grip on the market and monetary damages. 

Both parties and the court agreed that California Retail Liquor Dealers Assoc. v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980), sets forth the two-prong test applicable when private actors claim immunity from the antitrust laws under the state action doctrine.  “First, the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second the policy must be actively supervised by the State itself.”  Id .

Defendants argued they meet the first prong of the Midcal test, citing a Texas state law directing municipalities to “license, control, and otherwise regulate each private passenger vehicles … that provides passenger taxicab transportation services for compensation.”  The statute permits municipal regulation of (1) entry into the taxicab business by controlling the total number of persons providing the service, (2) rates charged, and (3) safety and insurance requirements.  Through this statute, defendants argued, “Texas clearly articulated and affirmatively expressed its policy to regulate taxicabs through its cities.”

But Judge Godbey was unmoved.  While the statute “shows Texas wants municipalities to regulate competition,” he wrote, it “does not authorize private taxicab companies to create monopolies or fix [] fees without municipal approval.” 

The court was equally unimpressed with defendants’ argument that they met the second Midcal prong.  To show that the price fixing challenged by plaintiffs is actively supervised by the state, and therefore immune from the antitrust laws under the state action doctrine, defendants cited ordinances giving municipalities the authority to regulate fees.  As Judge Godbey’s decision points out, “mere authorization does not satisfy the active supervision requirement.”  “Defendants,” Judge Godbey continued, “do not claim that a municipality established, reviewed, regulated or monitored the fees.”

Ruling that the complaint, on its face, does not demonstrate that defendants’ actions are shielded under the state action doctrine, Judge Godbey denied defendants’ motion to dismiss.

The European Commission is expected to unveil proposed legislation in the coming weeks designed to curb speculation in commodities trading, which has been blamed for sharp increases in energy and food prices.

A draft of the Commission’s proposed revisions to the EU’s 2004 Markets in Financial Instruments Directive (“MiFID”) obtained by some news outlets would require “that all trading venues on which commodity derivative contracts are traded adopt appropriate [position] limits or alternative arrangements to ensure the orderly functioning of the market and settlement conditions for physically delivered commodities and provide systematic, granular and standardised information on positions by different types of financial and commercial traders to regulators … and market participants ….”

The Commission is reported to be simultaneously drawing up plans for an overhaul of the Market Abuse Directive (“MAD”) enacted in 2003.  If adopted by the Council of the European Union and the European Parliament, that reform would give European regulators enhanced authority to investigate trading systems on spot commodity markets, which had thus far escaped effective oversight.

Reuters has quoted a leaked draft of the Commission’s proposal as saying that “By gaining access to spot commodity market traders’ systems, competent authorities are also able to monitor real-time data flows.”

The Commission’s proposed amendments to MiFID and MAD are expected to be made public – officially, this time – this month.