Judge Sarah S. Vance, Eastern District of Louisiana Legal Issues in Cartel Cases

Judge Sarah S. Vance, Eastern District of Louisiana

Legal Issues in Cartel Cases

Sherman Act, Section 1—prohibits “every contract, combination . . . or conspiracy” that unreasonably restrains trade.

Cartel: an agreement by competitors to fix prices, rig bids or allocate markets.

A cartel agreement is conclusively presumed to unreasonably restrain competition. Proof of a cartel requires evidence that independent firms

agreed to engage in prohibited conduct. Must be proof of concerted action; independent action

by firms is not illegal under Section 1.

Rule of Reason: other types of restrictive agreements require proof of agreement plus proof of actual effect on competition in relevant market.

1Legal Issues in Cartel Cases

An express agreement is not required to prove a prohibited agreement. (American Tobacco (1946); Interstate Circuit (1939)).

Proof that coordinated action was contemplated and the firms conformed to the action contemplated are sufficient.

An agreement may be inferred from circumstantial evidence.

Parallel behavior, without more, is insufficient to prove an agreement.

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Monsanto (1984): Is there evidence of a conscious commitment to a common scheme?

Direct or circumstantial evidence must tend to exclude the possibility of independent action.

Circumstantial evidence that is equally consistent with both competition and a conspiracy does not, without more, establish an unlawful agreement.

Policy concern: mistaken inference of an illegal agreement could injure consumers by deterring pro-competitive conduct.


Direct evidence: proves a proposition without inferences.

Example: defendant’s assistant testifies that defendant directed her to meet with competitor and work out details of price fixing agreement (U.S. v. Taubman).

Direct evidence is often obtained in criminal cases brought by U.S. Department of Justice. DOJ has powerful investigative techniques. Convictions result in serious criminal fines and jail terms. DOJ may offer immunity to witnesses in exchange for

testimony. DOJ may offer leniency or amnesty to firms that withdraw

from and report existence of cartel before government investigation.


Circumstantial evidence: circumstances from which agreement may be inferred.

Inference of conspiracy must be reasonable in light of competing inferences that firms acted independently.

Example: employees of firms made statements that it was important to keep competitors happy; there was an understanding not to make “irrational decisions”; and it was industry practice not to undercut each other’s prices (In re High Fructose Corn Syrup Antitrust Litigation).


Proof of parallel business conduct, without more, is insufficient to prove an illegal agreement. E.g., it is insufficient to show only that two

firms raised prices at the same time.

Conscious parallelism: Firms are not prohibited from strategically observing and reacting to their competitors’ moves.


Plus factors: courts require something extra to determine that parallel conduct resulted from an illegal agreement.

No established list of plus factors.

More than one plus factor typically must be present before a court infers an illegal agreement.


Is there a rational motive for firms to act in concert?

Example: a concentrated market with declining demand, high fixed costs and excess capacity may make price-fixing feasible.


Did firms take actions that would be against their self-interest if they acted alone, but make sense as part of a collective plan?

Example: firms satisfy demand by buying products from each other when it is cheaper to produce the products themselves and they have the capacity to do so.


Results that can be explained only by concerted action E.g., firms submit identical sealed bids that

cannot be explained by common cost factors.

Other conspiracies Participation in other anticompetitive

conspiracies may be considered. Courts generally do not rely on this factor

unless the conspiracies involve similar conduct or overlapping markets.


Did firms have an opportunity to communicate? Were communications public or private? Did communications involve past information or

information on current or future prices, costs or output?

Did individuals who exchanged price information have pricing authority?

Was timing of communications close to parallel actions?

Were there mutual assurances or discipline against cheaters?

The mere fact of meetings, without more, will not establish that a conspiracy exists.


Did firms use devices that facilitate collusion?

Standardized pricing makes it easier for firms to track each other’s prices and monitor cheating.

Most-favored nations clauses reduce the incentive to cut prices.

Use of MFNs allows rivals to trust that noncompetitive prices will be maintained.


Does market structure or industry characteristics favor collusion? Product homogeneity Absence of close substitutes Readily observed price adjustments Standardized prices Excess capacity Few sellers High barriers to entry

Market structure, without more, is unlikely to be a sufficient plus factor.


Does industry performance data suggest successful coordination?

E.g., extraordinary profits or higher prices that cannot be explained by changes in input costs.


Have defendants given pretextual explanations for price increases or output restrictions?

Example: a defendant told a customer that it would not sell to it for a legitimate reason, when in fact its reason was that it would not solicit business in the other defendant’s territory.


No established hierarchy among plus factors or methods of analysis to explain which are more probative.

Prof. William Kovacic: circumstantial evidence should establish three economic prerequisites for collusion: 1) reaching consensus on pricing, output or

terms of trade; 2) ability to detect deviations from the

consensus; 3) capacity to punish cheaters.


Economic experts give testimony on whether firms’ conduct would be rational in the absence of a cartel.

Economists analyze whether market structure makes collusion feasible.

Do market features make it easy to reach consensus, detect cheating and punish cheaters?

Consider degree of concentration, barriers to entry, homogeneity of products and availability of price information.

Market simplicity facilitates collusion (e.g., are there homogeneous products, few firms, similar firms, similar customers, and stable market conditions?).

Market transparency facilitates collusion (e.g., can sellers observe each other’s pricing and customers without time lag?). Legal Issues in Cartel Cases

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Economists analyze whether market performance supports an inference of conspiracy.

Are observed outcomes consistent with collusion?

Economists construct models to compare outcomes that result during an alleged conspiracy with outcomes that would have resulted under competition.

Economists seek to isolate differences in prices due to collusion.


Copperweld Corp. (1984) —Coordinated activity of parent and wholly owned subsidiary viewed as single enterprise; they are incapable of conspiring with each other.

Rationale Unity of economic interest Control by parent

Companies owned by same parent cannot be co-conspirators.


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Judge Sarah S. Vance, Eastern District of Louisiana Legal Issues in Cartel Cases