Dean Foods Antitrust Action Moves Forward

(CN) - A federal judge in Milwaukee refused to dismiss a lawsuit accusing the nation's largest dairy processor and distributor of dominating part of the Midwest market by buying out an aggressive competitor in 2009.

Dean Foods Co. faces an antitrust complaint from the states of Wisconsin, Illinois and Michigan, along with the federal government, over its acquisition of Foremost USA, a Wisconsin-based dairy cooperative.

The $35 million purchase gave Dean more than 57 percent of all milk sales in Michigan's Upper Peninsula, Wisconsin and northeastern Illinois.

The states and the government say the merger will likely decrease competition among the market's milk producers, resulting in higher consumer prices.

Dean urged U.S. District Judge J.P. Stadtmueller to dismiss the complaint, challenging the plaintiffs' definition of the relevant geographic market for milk.

Dean said the states improperly focused on where the merged milk producers compete, instead of where the effect of the merger on competition will be "direct and immediate."

Judge Stadtmueller was not convinced.

"Just because the geographic area where parties competed is not necessarily the relevant geographic market, that does not mean that it therefore cannot be the relevant geographic market," he wrote.

"[P]laintiffs alleged that the presence of Foremost as an aggressive price competitor constrained defendant's ability to raise its prices. The acquisition of Foremost by defendant will obviously remove that constraint," he added.

"Thus, the effect of the merger will be direct and immediate in the geographic area where the previous price constraint existed, but no longer does - i.e., areas where defendant previously had to compete with Foremost, but no longer does."

The judge said consumers would have a hard time avoiding price increases by turning to distant sellers, because milk has a limited shelf life and is expensive to transport.

"[I]t is clear that the complaint is alleging that defendant, as a result of the acquisition, will be able to impose [higher prices] on targeted customers that such customers will not be able to defeat through recourse to more distant sellers," Stadtmueller wrote. "Of course, it would have been better if plaintiffs used those exact words in their complaint; however, the court does not require plaintiffs to include magic words in order to survive a motion to dismiss."

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