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From Antitrust Law Daily, February 28, 2014

Chocolate candy manufacturers entitled to summary judgment on price-fixing conspiracy claims

By Linda O’Brien, J.D., LL.M.

Manufacturers of chocolate confectionary products were entitled to summary judgment in a class action by individual and direct purchasers of chocolate confectionary products, alleging a conspiracy to fix the prices of the chocolate products, where there was insufficient evidence of a price-fixing agreement, the federal district court in Harrisburg, Pennsylvania has decided (In re Chocolate Confectionary Antitrust Litigation, February 26, 2014, Conner, C.).

Nestle, U.S.A., Inc., The Hershey Company, and Mars, Inc. are multinational companies that manufacture, sell, and distribute chocolate confectionary products in a global market. The domestic chocolate confectionary market is highly concentrated, with the three companies control more than 75 percent of the market. Each company manufactures a wide array of chocolate products in a variety of different package types and sizes. Retail grocers, convenience stores, and distributors that purchased chocolate confectionary products from the companies filed a series of class actions, alleging a conspiracy to implement price increases in violation of Section 1 of the Sherman Act. Specifically, the plaintiffs alleged that the candy companies were in possession of one another’s pricing information and conspired to raise prices of their chocolate products.

In 2002, a Canadian distributor conspired with Canadian chocolate candy manufacturers, who shared parent corporations with the domestic defendants, to reduce trade spend discounting and restrict competition. The Canadian companies were subsequently criminally charged by the Canadian Competition Bureau. The plaintiffs claimed that the domestic executives of the candy companies had knowledge of the success of the Canadian trade spend conspiracy and actuated a domestic price-fixing conspiracy. The defendants moved for summary judgment.

Parallel pricing. The court found that the plaintiffs produced sufficient evidence that the companies’ price increases were made with an awareness of their competitors’ pricing decisions and were influenced by those pricing decisions. To establish a conspiracy in restraint of trade, a plaintiff must show “some unity of purpose, common design and understanding, or a meeting of the minds in an unlawful arrangement.” The defendants contended that the price increases were motivated by increased ingredient, manufacturing, and distribution costs, and exercised with independent business judgment. It was undisputed that the defendants’ price increases were synchronized and parallel throughout the alleged conspiracy period and was sufficient to show that each company’s pricing action was reactive to almost entirely in step with their competitors’ price announcements. However, evidence of conscious parallel pricing alone was insufficient to infer the existence of a conspiracy between competitors, the court noted.

Plus factor evidence. The court determined that there was insufficient “plus factor” evidence to show that the alleged wrongful conduct was conscious and not the result of independent business decisions of the competitors. The plaintiff submitted reliable evidence that the structure of the chocolate confectionary market made price fixing feasible and the market was ripe for collusion. Their expert testimony established that the market was highly concentrated, there were high barriers to entry, and there were opportunities for collusion.

However, there was no evidence that the defendants acted contrary to their business interests. It was undisputed that the average markets costs for ingredients were increasing during the alleged conspiracy period. It was rational, competitive, and self-interest-motivated behavior for the companies to increase prices to mitigate the effect of anticipated cost increases. It also was rational that the companies pricing decisions, while largely identical and simultaneous, were timed in a manner to achieve momentary pricing advantages over their competitors.

Moreover, there was no non-economic evidence implying the existence of a traditional conspiracy, according to the court. First, the plaintiffs failed to show any plausible connection between the Canadian trade spend conspiracy and the companies’ domestic pricing decisions. The court noted that plaintiffs’ expert conceded that there was no evidence that the companies’ domestic pricing decision-makers had specific knowledge of any anticompetitive activity in Canada. Second, the defendants’ occasional advanced notice of the competitors’ price increases from market sources alone was insufficient to show a conspiracy to fix prices. Third, interaction among competitors at trade association meetings was insufficient to show an inference of a conspiracy. The plaintiffs presented no evidence of any unlawful communications and an inference of a conspiracy from the contemporaneous presence of the defendants’ executives at trade association meetings was purely speculative. Thus, the court concluded that there was no genuine issue of any material fact that the conduct of the candy companies was consistent with permissible competition.

The case is No. 1:08-MDL-1935.

Attorneys: Christopher Lovell (Lovell Stewart Halebian, LLP) for Michael McNamara. Adam J. Pessin (Fine Kaplan and Black, RPC), Howard J. Sedran (Levin, Fishbein, Sedran & Berman) and Jayne A. Goldstein (Pomerantz Grossman Hufford Dahlstrom & Gross, LLP) for Lorain Novelty Co., Inc. Adam J. Levitt (Grant & Eisenhofer) for Mandel Tobacco Co., Inc. Daniel A. Small (Cohen Milstein Sellers & Toll PLLC) for Stephen L. LaFrance Pharmacy, Inc., Western Skier, Ltd. and CNS Confectionery Products, LLC. Allan Steyer (Steyer Lowenthal Boodrookas Alvarez & Smith LLP) for Webb’s Candies, Inc. Alejandro H. Cruz (Patterson Belknap Webb & Tyler LLP) and Jonathan D. Brightbill (Kirkland & Ellis LLP) for Hershey Co. Brian J. McMahon (Gibbons PC), David Marx, Jr. (McDermott Will & Emery LLP) and Jennifer Mara (Baldassare & Mara) for Mars, Inc. Carmine R. Zarlenga (Mayer Brown) and Matthew M. Haar (Saul Ewing, LLP) for Nestle USA, Inc. Bridget E. Montgomery (Eckert Seamans Cherin & Mellott, LLC) for Cadbury Adams Canada, Inc. Alan R. Boynton, Jr. (McNees, Wallace & Nurick) for Hershey Canada, Inc.

Companies: Lorain Novelty Co., Inc.; Mandel Tobacco Co., Inc.; Stephen L. LaFrance Pharmacy, Inc.; Western Skier, Ltd.; CNS Confectionery Products, LLC; Webb’s Candies, Inc.; Hershey Co.; Mars, Inc.; Nestle USA, Inc.; Cadbury Adams Canada, Inc.; Hershey Canada, Inc.

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