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From Antitrust Law Daily, October 14, 2015

Tin makers defeat market allocation claims

By Jeffrey May, J.D.

A conspiracy among the nation’s leading tin manufacturers to cede the tin mill products market in the western United States to a single company was economically implausible, and a complaining tin can purchaser failed to provide “specific evidence” of a market allocation agreement to exclude the possibility that the tin makers were acting independently, the U.S. Court of Appeals in San Francisco has decided. Therefore, summary judgment in favor of the manufacturers was upheld (Stanislaus Food Products Co. v. USS-POSCO Industries, October 13, 2015, McKeown, M.).

Stanislaus Food Products Company, a tomato cannery, claimed that it paid artificially high prices for tin cans as the result of an illegal market allocation agreement. The alleged co-conspirators were United States Steel Corporation (U.S. Steel), POSCO America Steel Corporation (POSCO), and a joint venture equally owned by the two companies, known as USS-POSCO Industries (UPI). The purported objective of the conspiracy was to allocate a dominant position in the western U.S. tin mill products territory to UPI.

Noting that the case hinged on circumstantial evidence, the court first considered the plausibility of Stanislaus’s claims in light of their factual context. Because U.S. Steel never exited the market, Stanislaus focused its theory on U.S. Steel’s failure to price competitively against UPI.

U.S. Steel’s participation in the market allocation conspiracy made little economic sense, the appellate court ruled. UPI stood to gain from the conspiracy by being able to charge higher prices in the absence of meaningful competition in the region. Furthermore, POSCO, a joint owner of UPI that did not sell tin mill products in the United States, stood to gain by reaping the benefit of the increased prices. However, it would not have been rational for U.S. Steel, which sold tin mill products throughout the United States, to conspire. If U.S. Steel joined the conspiracy, then it would have had to stop competing on price nationwide or refuse customers in order not to compete on price in the western United States, according to the court. Under U.S. Steel's nationwide supply contracts with major tin can manufacturers, the customer selected where U.S. Steel was to ship the products. “The geographic neutrality is a significant practical obstacle to the viability of the alleged allocation agreement,” the court explained.

Stanislaus unsuccessfully argued that the fact that POSCO did not enter the western U.S. market was evidence of a conspiracy. POSCO's decision not enter a new market just to compete with its own joint venture was perfectly justifiable, the court noted.

Because the market allocation claims were implausible claims, Stanislaus was required to make a “more persuasive” showing “that tends to exclude the possibility” of independent action. However, the complaining firm failed to meet this burden. Parallel pricing behavior during a single year did not establish conduct that was contrary to U.S. Steel’s self-interest and indicative of a conspiracy, particularly since U.S. Steel’s prices were still lower than those of UPI, the court decided.

Stanislaus also offered evidence of information exchanges between U.S. Steel and UPI, including an ambiguous communication from the UPI president about “our understanding of what U.S. Steel is doing.” Although the evidence was not irrelevant, the communication could just as easily have referred to what U.S. Steel was doing in the face of the same challenging market conditions as to deliberately failing to price competitively, in the court's view.

Expert report. Lastly, the appellate court ruled that the lower court did not improperly ignore Stanislaus's expert report when it only reviewed a two-page portion of the 82-page report. “The district court was not required to put the puzzle together from a boxful of facts,” according to the appellate court. In any event, the appellate court concluded that the report’s “broad conclusions and cited evidence essentially mirror[ed] Stanislaus’s arguments elsewhere and nothing in the market analysis rescue[d] Stanislaus’s case.”

The case is No. 13-15475.

Attorneys: William Bernstein (Lieff Cabraser Heimann & Bernstein LLP) for Stanislaus Food Products Co. Donald Scott Macrae (Steyer Lowenthal Boodrookas Alvarez & Smith LLP) for USS-POSCO Industries. Daniel I. Booker (Reed Smith LLP) and Mandy Louise Jeffcoach (McCormick Barstow, LLP) for PITCAL, Inc. and United States Steel Corp. Nicholas Cule Adams (Akin Gump Strauss Hauer & Feld LLP) for POSCO-California Corp. and POSCO American Steel Corp.

Companies: Stanislaus Food Products Co.; USS-POSCO Industries; PITCAL, Inc.; United States Steel Corp.; POSCO-California Corp.; POSCO American Steel Corp.

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