Third Circuit Finds That Plaintiffs Can Sue Price-Fixing Conspirators Even When Overpriced Goods Contain Components Supplied By Innocent Non-Conspirators
In a recent decision, the Third Circuit Court of Appeals found that plaintiffs in antitrust cases can have standing to sue price-fixing conspirators under §4 of the Clayton Act (15 U.S.C. § 15(a)) even when the overpriced goods in question contain ingredients or components provided by innocent non-conspirators. The case is In re: Processed Egg Products Antitrust Litigation, No. 16-3795 (3rd Cir. Feb. 2, 2018) (“Op.”).
In Processed Egg Products, direct purchasers of processed egg products, including such well-known names as Kraft Foods and Kellogg Company, sued the alleged price fixers — suppliers of shell eggs and egg products, as well as an egg trade association — under the Sherman Act (15 U.S.C. § 1) for allegedly reducing the supply of eggs, and, consequently, artificially inflating the market price for egg products. In other words, the purchasers alleged that the defendants conspired to reduce the supply of shell eggs, and thereby inflated the price of shell eggs, with the intent and effect of also artificially inflating the price of egg products, of which shell eggs are the main input.
The dispute before the Third Circuit concerned the fact that some proportion of the overpriced egg products the plaintiffs purchased contained eggs that the defendant suppliers obtained from innocent egg producers who did not engage in anticompetitive conduct. The ingredients in the egg products that the defendants sold included a combination of eggs that the defendants sourced internally, and eggs sourced from other suppliers who were not part of the conspiracy. The plaintiffs’ damages calculation did not distinguish between overpayments attributable to the defendants’ eggs and non-conspirator eggs. The plaintiffs argued this distinction was irrelevant, because the defendants’ conspiracy caused an increase in the market price of all eggs, regardless of their source.
Seeking damages from a price-fixing conspirator based on purchases from innocent non-conspirators is called seeking “umbrella damages.” Umbrella damages are damages caused when non-cartel members raise prices in response to cartel behavior. As the Third Circuit phrased it, an umbrella theory concerns allegations whereby “the price-fixing defendants’ wrongful conduct created an artificially high price ‘umbrella’ under which non-conspiring producers from whom the plaintiff purchased also benefitted by charging higher prices.” Op. at 27-28 (emphasis omitted).
The lower court agreed with the defendants and found that the plaintiffs lacked antitrust standing because they impermissibly sought to “link the raw egg prices of non-conspirators to the conspiracy.” Id. at 11. The Third Circuit reversed. The Court found it persuasive that the plaintiffs were in a direct purchasing relationship with the defendants, which distinguished the case from both an umbrella theory, as well as a situation where the purchaser is in an indirect relationship with a price-fixing conspirator, and absorbs the overcharge further down the supply chain. The Third Circuit held:
Plaintiffs are in a direct purchaser relationship with the conspirator Defendants. Plaintiffs simply are not seeking to press an indirect purchaser antitrust claim: the egg products are alleged to be price-fixed, as the principal component of the egg products – shell eggs – is alleged to be price-fixed, regardless of whether those shell eggs are internal eggs or non-conspirator eggs.
Id. at 30.
The Third Circuit limited its opinion to standing, and did not weigh in on the merits of the case. The opinion demonstrates that defendants must face the threat of liability when they artificially inflate the price of goods, even when the goods purchased include inputs supplied from innocent competitors.
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About David Calvello:
David Calvello is an Associate in Faruqi & Faruqi’s New York office and focuses his practice on antitrust litigation with a focus on competition in the pharmaceutical industry.