COVID-19 is creating a gray area between legitimate collaboration and anticompetitive collusion. (Not all information exchanges point to price-fixing.) Morrison Foerster’s David Cross and Margaret Webb explain the impact this is having on lawful collaboration.
Collaboration among businesses, including competitors, is critically important to help address the global pandemic. The U.S. Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) recently recognized a need for “unprecedented cooperation between federal, state and local governments and among private businesses to protect Americans’ health and safety” during the COVID-19 crisis.[1] Effective cooperation between competing businesses typically requires exchanging at least some commercially-sensitive information. Unfortunately, the manner in which exchanges of information between cooperating competitors is often presented in antitrust cases involving price-fixing allegations creates a strong disincentive for collaboration by too easily blurring the line between legitimate collaboration and anticompetitive collusion. This needs to change.
Courts and antitrust enforcement agencies have long recognized that information exchanges between competitors often serve legitimate business purposes that can be procompetitive. But competitor information exchanges also can establish an antitrust violation, either as unlawful restraints on competition in and of themselves or as circumstantial evidence of a price-fixing agreement among competitors. The distinction between these two types of violations is very important.
When information exchanges are challenged as unlawful themselves in an antitrust lawsuit, the competing firms can defend their conduct as legitimate, procompetitive business activities. When they are challenged as evidence of a price-fixing agreement, on the other hand, they are treated as per se unlawful, and the competing firms are prohibited from offering any procompetitive justifications, such as helping combat a global pandemic. As a result, plaintiffs in antitrust lawsuits — including sweeping class actions seeking billions of dollars in purported damages — can unilaterally deprive competing firms of the opportunity to defend their actions as legitimate, procompetitive business by simply challenging those actions as per se price-fixing. In other words, they can blur the line between lawful collaboration and unlawful collusion simply by the way they choose to characterize the conduct at issue. And they can “infer” unlawful agreements far broader than what actually occurred or when no agreements existed at all.
Plaintiffs of course must be allowed to rely on information exchanges to prove up price-fixing agreements when such exchanges actually facilitate unlawful collusion. But courts must first operate as gatekeepers and carefully evaluate each such exchange before plaintiffs can rely on it, as with other evidence that can confuse or mislead juries. When information exchanges are admissible in price-fixing cases, the competing firms must be allowed to defend those exchanges as legitimate, procompetitive activities. In cases where naked price-fixing communications also occurred, information exchanges should not simply be lumped together with those communications as if they are the same.
Information Exchanges Are Often Procompetitive
To analyze whether specific conduct violates the federal antitrust laws, courts typically apply either the per se framework or the “rule of reason.” Under the rule of reason, judges and juries must balance the conduct’s anticompetitive harm against any procompetitive benefits.[2] On the other hand, conduct is deemed illegal per se if it is so presumptively harmful to competition that it warrants condemnation without further inquiry into its effects on the market.[3] Price-fixing is the quintessential example of a per se antitrust violation.
Plaintiffs may infer price-fixing agreements from circumstantial evidence, including evidence of information exchanges among competitors.[4] Such exchanges are not themselves per se illegal, though.[5] Information exchanges, standing alone, are analyzed under the rule of reason, which evaluates any procompetitive effects of the conduct.[6] This is because the exchange of competitively sensitive information “does not invariably have anticompetitive effects.”[7] For example, they can “produce fairer price levels” and avoid “waste.”[8] Where the information is made public, information exchanges “may better equip buyers to compare products, rendering the market more efficient.”[9]
Sharing sensitive information with competitors can be necessary to achieve the benefits of important, lawful collaborations.[10] The DOJ and FTC acknowledge that “sharing certain technology, know-how or other intellectual property may be essential to achieve the procompetitive benefits of an R&D collaboration,” for instance.[11] Information exchanges also can enable competitors to expand into foreign markets, fund expensive innovation efforts and lower costs.[12] “Such collaborations, which may include information-sharing, are often not only benign, but procompetitive.”[13] And again, the antitrust enforcement agencies recently acknowledged that competing businesses may need to work together to respond to the “exigent circumstances” of the COVID-19 pandemic.[14]
The FTC has issued numerous advisory opinions recognizing the procompetitive benefits of certain information exchanges. For example, the FTC has blessed proposals involving the exchange of price, cost and supply information among competitors that appeared likely to result in cost and quality efficiencies for consumers.[15] Yet plaintiffs often rely on information exchanges regarding price, cost or supply to infer price-fixing agreements, even though such exchanges are not necessarily anticompetitive. In so doing, they often blur the line between lawful and unlawful communications between competitors, who are then limited in what they can offer to defend those communications.
Information Exchanges Should Not Be Treated as Naked Price-Fixing
To avoid misconstruing lawful collaborations between competitors as unlawful collusion, defendants in price-fixing cases need to be allowed to offer evidence of legitimate business reasons for their conduct and procompetitive benefits flowing from their collaborations. Before admitting evidence of information exchanges in price-fixing cases, including those with direct evidence of unlawful collusion, courts should first examine the legitimate business reasons and procompetitive benefits offered by the competing firms for those exchanges, just as a rule of reason analysis requires for such communications. For information exchanges to be admitted, courts should require a threshold showing by a preponderance of the evidence, much like they require for co-conspirator statements. And when they admit evidence of information exchanges, they should instruct the jury to consider legitimate business reasons and procompetitive benefits for those communications when evaluating the allegations of collusion, including the nature and scope of any alleged conspiracy (and whether it occurred at all in cases without direct evidence of a price-fixing agreement). Due process demands no less.
The approach to this issue in United States v. Marr highlights the substantial prejudice defendants face with information exchanges in price-fixing cases and the unfair control courts afford plaintiffs over the evidence defendants can offer.[16] In that case, the government charged individuals with conspiring to rig bids at public real estate foreclosure auctions in Northern California.[17] The defendants sought a jury instruction explaining that information exchanges among competitors can increase market competition and economic efficiency and do not prove a conspiracy in and of themselves.[18] In rejecting the instruction, the court reasoned that it “addresses whether there was an unreasonable restraint of trade, which is not at issue in this per se bid rigging case” because “the government does not focus on allegations that defendants exchanged information to establish a bid rigging agreement.”[19] In other words, the court rejected an important jury instruction because the government chose not to “focus” its allegations on information exchanges to prove up the alleged bid-rigging conspiracy. As a result, the jury was allowed to consider information exchanges in determining whether the defendants had committed criminal bid-rigging but not instructed to consider any legitimate, procompetitive reasons for those exchanges. The government was free to lump information exchanges in with naked bid-rigging communications as if they were the same, rather than confront — and meet its burden to overcome — the important legal distinction between the two types of communications.
The court’s reasoning in Marr misapprehends the real prejudice of admitting evidence of information exchanges in price-fixing cases without a threshold evidentiary assessment by the court and appropriate instruction to the jury. The court reasoned: “Based on the government’s proffered evidence of an agreement to rig bids, defendants have not shown any risk that they would be found guilty only on the basis of exchanging information.”[20] But this is not the salient risk to protect against. Rather, it is the risk of a guilty verdict resulting from blending information exchanges together with naked price-fixing communications. When whites and darks are washed together, even the whites come out a little dark. Similarly, when combined with naked price-fixing communications, even lawful competitor communications can start to look suspect to a jury. While defendants may not be found guilty, or liable, only on the basis of exchanging information, the inclusion of such exchanges could help tip the scales against defendants during jury deliberations. This of course is one of the reasons plaintiffs rely on them.
Moreover, the sheer volume of competitor communications can mislead jurors into believing that an alleged antitrust conspiracy existed when the communications before them are all characterized as unlawful collusion without evidence of legitimate, procompetitive explanations for many — or most — of those communications. In fact, civil plaintiffs have a strong financial incentive to present evidence of information exchanges to support an alleged conspiracy far broader than what actually occurred, because this significantly increases their “damages” recovery. And under the approach in Marr, they need not establish that those exchanges actually were anticompetitive as long as they do not “focus” on the exchanges (a vague standard the court does not specify) to prove up their alleged conspiracy.
The U.S. Supreme Court has long emphasized that “conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.”[21] Determining whether information exchanges constitute “permissible competition” necessarily requires evaluating legitimate, procompetitive explanations for those exchanges. This is true even when direct evidence of unlawful collusion exists. The fact that competing firms colluded in some respects does not necessarily render mere information exchanges per se antitrust violations. Such exchanges may have nothing to do with any collusion that occurred. The employees involved in those exchanges, for example, may have been wholly unaware of any collusion among their employers. Indeed, this often is the case. Unfortunately, in some cases, plaintiffs exhibit little reluctance to enhance their potential payout by broadly labeling dozens — or even hundreds — of individual employees as criminal price-fixers based on communications that involve nothing more than an exchange of information. But plaintiffs should not be permitted to approach their burden to prove up allegations of a far-reaching antitrust conspiracy like providing an all-you-can-eat-buffet. Quantity is no substitute for quality in the context of serious antitrust claims that present criminal penalties and treble damages.
The problem is less acute when plaintiffs rely entirely on circumstantial evidence for an alleged conspiracy, because “a court must consider a defendant’s pro-competitive explanation for its exchange of price and other critical business information” in such cases[22] — even if plaintiffs allege a per se antitrust violation.[23] A defendant can obtain summary judgment in such cases by showing that its “conduct is consistent with other plausible explanations, and [that] permitting an inference of conspiracy would pose a significant deterrent to beneficial procompetitive behavior.”[24] Thus, courts explicitly recognize that inferences of collusion drawn from information exchanges can deter “beneficial procompetitive behavior.” Plaintiffs can still prevail on their antitrust claims, though, if they “come forward with other evidence that is sufficiently unambiguous and tends to exclude the possibility that the defendant acted lawfully.”[25]
In In re Static Random Access Memory (SRAM) Antitrust Litigation, the plaintiffs relied entirely on circumstantial evidence for an alleged price-fixing agreement among SRAM manufacturers that met and exchanged certain information.[26] Although the court denied summary judgment on the finding that the evidence tended to exclude the possibility that the defendant acted lawfully, the court first evaluated the defendant’s “purported motive for sharing crucial price and business information.”[27] The court recognized that “[a] number of factors, including most prominently the nature of the information exchanged and the structure of the industry involved, are generally considered in divining the pro-competitive or anticompetitive effects of” exchanging sensitive business information, including prices.[28]
Courts should, at a minimum, conduct a similar analysis in cases involving both direct and circumstantial evidence of per se antitrust violations for the same reason as in entirely circumstantial cases — because an inference of conspiracy in such cases also poses “a significant deterrent to beneficial procompetitive behavior” when mistakenly drawn from legitimate, procompetitive information exchanges. That such exchanges are not the only evidence offered to prove up the alleged conspiracy is immaterial to how the information exchanges themselves should be evaluated or what evidence the defendants should be permitted to offer to explain and defend those exchanges. Again, the sheer volume of such exchanges alone can confuse and mislead jurors about the true nature and scope of the actual antitrust violation that occurred.
In re Flat Glass Antitrust Litigation illustrates a problem of lumping different types of competitor communications together in a single bucket to prove up an alleged per se antitrust conspiracy.[29] The plaintiffs alleged a horizontal price-fixing agreement and the Third Circuit reversed the district court’s ruling granting summary judgment for the defendant.[30] The defendant argued that the court should disregard evidence of information exchanges, which was not in and of itself indicative of collusion.[31] But the Third Circuit evaluated “the evidence as a whole,” examining information exchanges alongside other evidence, including, for example, an alleged co-conspirator’s statement regarding its leniency application under the DOJ Antitrust Division’s “Corporate Leniency Policy,” which required the applicant to be “forthcoming with information of its wrongdoing.”[32] The Third Circuit emphasized that the leniency applicant had acknowledged that there had been “an agreed upon, across the board price increase for the entire United States.”[33] The Third Circuit rightly recognized that the statement was not direct evidence that the defendant — as opposed to the leniency applicant itself — had participated in the admitted price increase.[34] In fact, the Third Circuit acknowledged the statement’s significant ambiguity by offering three different interpretations of its meaning and the scope of the agreed price increase, only one of which necessarily supported the plaintiffs’ alleged conspiracy.[35] The Third Circuit nonetheless emphasized the statement in finding that the totality of the evidence that the plaintiffs presented was sufficient to support an inference that the defendant participated in the alleged conspiracy.[36] Again, even the whites start to look gray when tossed into the wash with the darks.
In fairness, the Third Circuit also examined the information exchanges in the context of additional circumstantial evidence.[37] But importantly, while it speculated about anticompetitive motives that might be inferred from “the evidence as a whole,” it did not consider legitimate, procompetitive explanations for the information exchanges that it relied on to reverse the district court’s grant of summary judgment for the defendant.[38] Instead, the Third Circuit brushed aside the defendant’s explanations as “well-suited for an argument before a jury.”[39] In so doing, the court abdicated its role — and that of the district court — to serve as a gatekeeper that excludes evidence that may confuse or mislead the jury at trial. That the standard for summary judgment requires courts to “view the facts and any reasonable inferences drawn therefrom in the light most favorable to the party opposing summary judgment”[40] does not require — or justify — kicking all legitimate, procompetitive explanations for competitor communications to the jury to evaluate. Doing so ignores the substantial prejudice of the cumulative impact of bombarding the jury with one communication after another and treating different types of communications as the same. But if this is to be permitted, it highlights the need to allow defendants to offer evidence of legitimate business reasons and procompetitive benefits for their information exchanges and to adequately instruct juries on how to properly assess such evidence in evaluating the allegations of collusion. These measures are necessary to help “avoid deterring innocent conduct that reflects enhanced, rather than restrained, competition,” even in cases involving naked price-fixing.[41]
In In re TFT-LCD (Flat Panel) Antitrust Litigation, the court explicitly instructed the jury about the limited probative value of information exchanges.[42] The plaintiffs alleged a per se price-fixing conspiracy among TFT-LCD manufacturers, some of whom pled guilty in a related criminal investigation. At trial, the plaintiffs introduced evidence of exchanges of price information and claimed that such exchanges helped prove the alleged agreement to fix prices.[43] The court instructed the jury that the “fact that a Defendant exchanged price information does not necessarily establish an agreement to fix prices,” as there “may be other legitimate reasons that would lead competitors to exchange price information, and the law recognizes that exchanges of price information may enhance competition and benefit consumers.”[44] The court’s instruction helped the jury understand the important distinction between evidence of information exchanges and direct evidence of collusion.
While jury instructions can help juries properly evaluate information exchanges, courts should not give plaintiffs carte blanche to introduce evidence of information exchanges simply because they allege a per se antitrust violation. In so doing, courts rely too heavily on how plaintiffs choose to portray the evidence instead of conducting an objective analysis of the admissibility of the evidence before it reaches a jury, as courts are required to do. For example, before admitting an alleged co-conspirator’s statement, courts must first find that the proponent of the evidence has established by a preponderance of the evidence that the declarant knowingly participated in a conspiracy and made the statement “during the course and in furtherance of the conspiracy.”[45] Courts are required to conduct this analysis for every alleged co-conspirator statement.
Courts should similarly examine evidence of information exchanges in per se price-fixing cases, including those involving direct evidence of collusion. Before admitting such evidence, courts first should require, for each information exchange, that the proponent establish by a preponderance of the evidence that the individuals who exchanged the information knowingly made the statements effectuating the information exchange during the course and in furtherance of the alleged conspiracy. In making this determination, courts should consider any legitimate business reasons and procompetitive benefits offered for each exchange and avoid “permitting the inference of conspiratorial behavior from evidence consistent with both lawful and unlawful conduct,” which “would deter pro-competitive conduct.”[46] It is no less important in per se antitrust conspiracy cases for courts to serve as gatekeepers for information exchanges than they do for alleged co-conspirator statements. Both pose a significant risk of misleading juries and imposing liability that exceeds the scope of actual misconduct or where no misconduct occurred at all.
Conclusion
U.S. antitrust law has long recognized a critical distinction between information exchanges and naked price-fixing. The latter is per se unlawful; the former is not. Courts must strictly enforce this important distinction in price-fixing cases, including — and perhaps especially — in cases involving direct evidence of collusion. The courts, not plaintiffs, should decide what legal framework applies in such cases and what evidence is admissible to prove up the plaintiffs’ conspiracy allegations.[47] Defendants should not be deprived of the important opportunity to explain and defend their information exchanges with evidence of legitimate business reasons and procompetitive benefits for those exchanges. Courts should carefully examine the admissibility of such exchanges and take care to exclude them where an inference of collusion would deter procompetitive conduct. And they should be sure to adequately instruct juries about the difference between information exchanges and naked price-fixing communications so that jurors are not easily confused or misled about the import of such exchanges.
Due process demands that courts take appropriate measures to avoid penalizing and deterring lawful collaboration between competing firms. But these measures are especially important today when information exchanges and other legitimate cooperation among competitors may be needed literally to save lives in the midst of a global pandemic. For example, businesses may need to obtain sensitive information about a competitor’s robust logistics capabilities to more efficiently deliver important goods to those in need or learn about a competitor’s costs for manufacturing certain products to more efficiently produce critical goods like respirators and ventilators. As businesses consider novel ways to meet the needs of their customers and others they may not normally serve, they need to do so without fear of facing massive treble damages in bet-the-company antitrust litigation. Otherwise, they will have a strong incentive not to cooperate, and consumers will suffer even more than they already are.
[1] FTC & U.S. Dep’t of Justice, Joint Antitrust Statement Regarding COVID-19 (Mar. 24, 2020).
[2] Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007).
[3] Id. at 885-86.
[4] In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 906 F.2d 432, 462 (9th Cir. 1990).
[5] United States v. U.S. Gypsum Co., 438 U.S. 422, 443 n.16 (1978); see also In re Static Random Access Memory (SRAM) Antitrust Litig., No. 07-md-01819 CW, 2010 WL 5138859, at *8 (N.D. Cal. Dec. 10, 2010) (“Without more, the exchange of price information does not raise an inference of a collusive agreement to fix prices.”).
[6] SourceOne Dental, Inc. v. Patterson Cos., 310 F. Supp. 3d 346, 363 (E.D.N.Y. 2018).
[7] Gypsum, 438 U.S. at 443 n.16; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 593 (1986) (“[C]ourts should not permit factfinders to infer conspiracies when such inferences are implausible, because the effect of such practices is often to deter procompetitive conduct.”).
[8] Maple Flooring Mfrs.’ Ass’n v. United States, 268 U.S. 563, 582-83 (1925).
[9] Todd v. Exxon Corp., 275 F.3d 191, 213 (2d Cir. 2001).
[10] FTC & U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors, at 15 (Apr. 2000); Organisation for Economic Co-operation and Development, DAF/COMP/WD(2010)117, Roundtable on Information Exchanges Between Competitors Under Competition Law, at 2 (Oct. 21, 2010).
[11] Antitrust Guidelines for Collaborations Among Competitors, supra note 10, at 15.
[12] Roundtable on Information Exchanges Between Competitors Under Competition Law, supra note 10, at 2.
[13] Id.
[14] Joint Antitrust Statement Regarding COVID-19, supra note 1.
[15] Letter from Markus H. Meier, Assistant Dir., FTC, to Christi J. Braun, Counsel to Greater Rochester Independent Practice Association, Inc. (Sept. 17, 2007), at 16, (on file with FTC); Letter from Markus H. Meier, Assistant Dir., FTC, to Christi J. Braun, Counsel to TriState Health Partners, Inc. (Apr. 13, 2009), at 1 (on file with FTC); Letter from Michael Bloom, Assistant Dir. for Policy & Coordination, FTC, to Joanne Lewers, Counsel to Rx-360 Int’l Pharm. Supply Chain Consortium (Sept. 15, 2010), at 6-7 (on file with FTC).
[16] United States v. Marr, No. 14-cr-00580-PJH, 2017 WL 1540815 (N.D. Cal. Apr. 28, 2017), aff’d sub nom. United States v. Sanchez, 760 F. App’x 533 (9th Cir. 2019).
[17] Marr, 2017 WL 1540815, at *7.
[18] Id. at *23.
[19] Id.
[20] Id. (emphasis added).
[21] Matsushita, 475 U.S. at 588.
[22] In re SRAM Antitrust Litig., 2010 WL 5138859, at *8.
[23] In re Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir. 2004); In re Polyurethane Foam Antitrust Litig., 152 F. Supp. 3d 968, 983 (N.D. Ohio 2015) (addressing the “legitimate reasons that may be offered for exchanging the information” in a per se horizontal price-fixing claim).
[24] In re Coordinated Pretrial Proceedings in Petroleum Prods., 906 F.2d at 440 (emphasis added); see also Petruzzi’s IGA Supermarkets, Inc. v. Darling–Delaware Co., 998 F.2d 1224, 1232 (3d Cir. 1993) (noting that if the court allowed mistaken inferences to be drawn from the defendants’ price-cutting policies, it would chill procompetitive behavior”).
[25] In re Coordinated Pretrial Proceedings in Petroleum Prods., 906 F.2d at 440.
[26] In re SRAM Antitrust Litig., 2010 WL 5138859, at *8.
[27] Id. at *9.
[28] Id. at *6.
[29] In re Flat Glass Antitrust Litig., 385 F.3d at 360.
[30] Id. at 368-69.
[31] Id.
[32] Id. at 363.
[33] Id.
[34] Id.
[35] Id.
[36] Id. at 363-64.
[37] Id. at 368-69.
[38] Id.
[39] Id. at 368.
[40] Id. at 357.
[41] Id.
[42] In re TFT-LCD (Flat Panel) Antitrust Litig., Nos. C 07-MDL-1827 SI, et al., 2013 WL 8118446 (N. D. Cal Aug. 29, 2013).
[43] Id.
[44] Id.
[45] Bourjaily v. United States, 483 U.S. 171, 175 (1987); see also Fed. R. Evid. 801(d)(2)(E).
[46] In re Citric Acid Litig., 191 F.3d 1090, 1094 (9th Cir. 1999) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 593 (1986)).
[47] See In re Wholesale Grocery Prods. Antitrust Litig., 752 F.3d 728, 733 (8th Cir. 2014) (“To be sure, the selection of a mode of analysis is entirely a question of law.”) (internal quotation marks omitted).