PITTSBURGH (CN) – Evidence suggesting possible multi-national collusion between Hershey, Mars and Nestle to fix chocolate bar prices, could just as easily be proof of their interdependence, the Third Circuit ruled, tossing an antitrust suit against the candy giants.
Tuesday’s decision by the three-judge panel ended a long and complicated case that began in 2007 with the consolidation of 91 multi-district lawsuits filed primarily by local grocery stores and pharmacies.
Cadbury, which was named a defendant when the suits were consolidated, was dismissed from the action in 2011. U.S. District Judge Christopher Conner dismissed the entire case last year.
Explaining the panel’s decision to uphold Conner’s ruling , U.S. Circuit Judge Michael Fisher wrote that their essentially rested on two “simple” factors.
“First, the people involved in and the circumstances surrounding the Canadian conspiracy are different from those involved in and surrounding the purported U.S. conspiracy,” Fisher said.
“Second, the evidence that the Chocolate Manufacturers in the United States knew of the unlawful Canadian conspiracy is weak and, in any event, relates only to Hershey,” he continued. “Because we also conclude that the Plaintiffs’ other traditional conspiracy evidence is insufficient to create a reasonable inference of a U.S. price-fixing conspiracy, we will affirm.”
According to the consolidated complaint, Hershey, Mars and Nestles controlled 75 percent of the confectionary market between 2002 and 2007, the years the alleged price fixing was said to have occurred.
“Given the market concentration and high barriers to entry, the U.S. chocolate confectionary market was ripe for collusion. But evidence of motive without more does not create a reasonable inference of concerted action because it merely restates interdependence,” Fisher wrote.
The plaintiffs did not dispute that prices for making chocolate increased in those years, but they claimed to have uncovered “sufficient evidence of parallel pricing” to prevail on their claims.
But the three-judge panel held that the evidence presented was far too circumstantial to prove the plaintiffs’ conspiracy theory.
Additionally, while the plaintiffs claimed the chocolate companies agreed not to poach each other’s existing customer accounts, the panel concluded
the parallel price increases that were supposedly part of that bargain are not “are not uncommon” in the candy industry.
A horizontal price-fixing agreement occurs when competitors in the same market agree to fix or control prices for their goods or services.
Price-fixing agreements “are all banned because of their actual or potential threat to the central nervous system of the economy,” but there is “an important distinction” in antitrust cases, Fischer says.
“[C]onduct consistent with permissible competition, as with illegal conspiracy, does not, standing alone, support an inference of antitrust conspiracy.”
“Importantly,” he continues, “even when armed with a plausible economic theory, a plaintiff relying on ambiguous evidence alone cannot raise a reasonable inference of a conspiracy sufficient to survive summary judgment.”
While the plaintiffs built their case on “a logical enough foundation,” the panel found that the evidence did not exclude the possibility that the defendants were working interdependently.
“Even though this practice of parallel pricing, known as ‘conscious parallelism,’ produces anticompetitive outcomes, it is lawful under the Sherman Act for two reasons,” Fisher wrote. “First, conscious parallelism is not an agreement, but ‘can be a necessary fact of life.’ Second, the “courts have no effective remedy for the problem.”
“Accordingly, evidence of conscious parallelism cannot alone create a reasonable inference of a conspiracy,” he said.
The opinion describes the U.S. chocolate market as “a textbook example of an oligopoly,” and the panel decided that “we cannot infer too much from mere evidence of parallel pricing among oligopolists.”
“In a concentrated or oligopolistic market, a single firm’s change in output or price ‘will have a noticeable impact on the market and on its rivals.’ Oligopolists may maintain supracompetitive prices through rational, interdependent decision-making, as opposed to unlawful concerted action, if the oligopolists independently conclude that the industry as a whole would be better off by raising prices,” Fisher wrote.
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