Antitrust Attorney Blog

The nine gas stations on Martha's Vineyard charge prices that are thirty-five cents a gallon more than prices charged on Cape Cod, even after adjusting for the higher cost of getting gas to Martha's Vineyard. Profits from the sale of gas on the island increased substantially in the wake of Hurricanes Katrina and Rita in 2005. Four of the nine stations were sued by a class of consumers for horizontal price-fixing and under state law for price-gouging. Summary judgment for the defendants was affirmed by the 1st Circuit. White v. R.M. Packer Co., 2011 WL 565655 (February 18, 2011).

There was no direct evidence of an agreement among the station owners. Thus, the case was decided under the Twombly, Monsanto and Matsushita standard of requiring evidence that is more consistent with a conclusion of concerted action than independent, or which tends to exclude the possibility of independent action.

The court was faced with a textbook example of an oligopoly where it was in each station owner's unilateral self-interest to price in parallel with its competitors. Among the factors considered by the court were:

• The product, gasoline, is homogenous and fungible.

• Sales are made frequently and in small quantities.

• There are only a few competitors, and they publicly post their prices, so price-cutting can be easily be monitored. Rivals can easily and rapidly adjust prices to counter any price-cutting.

• Sales are inelastic. Higher prices will not appreciably diminish sales by driving consumers to competitors in nearby markets, and low prices will not increase sales by drawing consumers from nearby markets, because Martha's Vineyard is an island and there are no easily-accessible nearby markets.

• Barriers to entry are high. New entrants need approval from the Martha's Vineyard Commission, and the Commission has denied all petitions for new stations since 1997.

Given these economic factors, the court concluded, station owners would be expected to set prices at supracompetitive levels in parallel with each other. Conscious parallelism, without agreement, is lawful.

The plaintiffs cited nine plus factors in an effort to permit an inference of agreement. The court rejected that effort. Most of the plus factors merely demonstrated that the market is conducive to conscious parallelism. They also showed a motive to conspire, but the motive was equally indicative of parallel supracompetitive prices without agreement.

Two plus factors gave the court pause, though they ultimately were insufficient. First, one defendant who functioned both as a gas retailer and wholesaler made an implicit threat of reducing shipments to a retailer that cut prices. The court was not persuaded. This could have been only vertical pressure from a wholesaler to its customer rather than evidence of a horizontal agreement. The plaintiffs also pointed to apparently false testimony by a station owner about his profits, arguing that an inference could be drawn from the pretextual testimony. The court ruled that the statement, even if pretextual, did not support an inference of conspiracy, but only the amount of profits.

Consequently, the court affirmed summary judgment on the price-fixing allegation.

The price-gouging allegation raised interesting and novel questions. Prices had shot up in the wake of the two 2005 hurricanes. But because costs also increased dramatically, there was no gouging. Later, costs quickly declined back to normal ranges. Prices, however, declined slowly. Because prices did not decline as fast as costs did, profit margins expanded substantially in a market where prices were dropping. Given the volatility of the market and the lack of clear guidance from state courts, the court declined to find price-gouging where prices were declining, even though profit margins were increasing.

David Fierst
Stein, Mitchell & Muse LLP

The Second Circuit affirmed a summary judgment dismissing a section 2 monopolization class action in a market for extra-sweet pineapples. American Banana Co., Inc. v. J. Bonafede Co., Inc., 09-4561-CV, 2010 WL 4342217 (2d Cir. Nov. 3, 2010). The complaint was filed on behalf of two classes -- direct purchasers of extra-sweet pineapples (retail stores such as Whole Foods and IGA) seeking both injunctive relief and treble damages, and indirect purchasers (consumers who purchased from the direct purchasers) seeking only injunctive relief.

The complaint alleged that a research cooperative of competing pineapple growers that included Del Monte, Dole and Maui patented an extra-sweet pineapple designated as the 73-114. Del Monte began selling the 73-114 in North America in 1996, identified as the MD-2. In 2000, Dole began selling its version of the 73-114, calling it the MG-3. Maui sold a related pineapple (73-50) which it called CO-2. The CO-2 pineapple had been patented by Del Monte.

Del Monte sent so-called "threat letters" to various Costa Rican laboratories developing MD-2 seeds, alleging that the MD-2 plant material had been stolen, and that Del Monte held a patent on the MD-2 variety. Del Monte also sued Dole, challenging its sales of the MG-3. That case was settled, and Dole agreed not to market its MG-3 pinapple. Del Monte also asserted that Maui's sales of the CO-2 pineapple infringed its patent, but Del Monte dismissed that claim when it became clear that Maui's sales of the CO-2 preceded the patent by more than one year.

The class action complaint alleged that Del Monte monopolized the market for extra-sweet MD-2 pineapples by filing a patent application for a product it knew to be unpatentable, by sending misleading letters threatening litigation against competitors who sold the patented pineapple, and by pursuing sham litigation to enforce the allegedly fraudulent patent against competitors. A class of direct purchasers was certified. The class of consumers was not certified.

The district court struck plaintiffs' expert, who had sought to define the product market as Del Monte's MD-2 pineapple. The expert did not adequately consider competition from the other sweet pineapples, the MG-1 and the CO-2, and thus defined the market too narrowly. However, even assuming a properly-defined market, the case failed. Noerr-Pennington immunizes suits unless they are objectively baseless, and pre-suit efforts incident to litigation, such as threat letters, are also immune unless they are sham. Del Monte's claims were not objectively baseless, even though Del Monte later dismissed the patent claim against Maui relating to the CO-2 pineapple. Moreover, the court found there was no plausible evidence that the threat letters and litigation had any adverse competitive impact. Finally, Del Monte had a legitimate business purpose for its conduct, and so it could not have been exclusionary.

On appeal, the court's decision reflected how judicial attitudes towards antitrust have changed. Long gone are the days where the Supreme Court would say that summary procedures should be used "sparingly" because motive and intent are important, and evidence is often in the hands of the defendants. Now, the Second Circuit says, "summary judgment is particulatrly favored [in antitrust cases] because of the concern that protracted litigation will chill pro-competitive market forces."

The appellate court addressed only the district court's conclusion that there was no competitive injury from the challenged conduct. The court concluded that there was no genuine dispute that the allegedly exclusionary conduct had in fact delayed any entry to the market, regardless of how defined. Competitors and potential competitors testified that they had not been dissuaded from competing by the litigation or threatening letters. Because the plaintiffs could not show any injury to competition, there was no need for the court to address the other issues.