Competition: The Journal of the Antitrust and Unfair Competition Law Section of the State Bar of California
By: Ara Jabagchourian <*>
The courts have long recognized that horizontal collusion in the marketplace creates a significant risk of harm to competition. Anticompetitive conduct in the form of price collusion, market division, bid-rigging, or output restriction is treated under the per se rule because of the likelihood such conduct will result in higher prices or diminished product quality. Despite these harmful consequences on the economy and consumer welfare, proof of collusion under antitrust law faces a number of hurdles. Some of those hurdles have been created by appellate decisions that have wrongly interpreted Matsushita as raising the standard to prove that an economically sensible and anticompetitive conspiracy took place.
Courts have held that direct evidence alone, such as admissions by a defendant or a document, may establish agreement. <1> Without either a confession or a Federal Bureau of Investigation hidden camera videotaping a meeting where the rivals agree to set prices or divide the market, however, plaintiffs must rely on circumstantial evidence to prove an agreement. <2> Courts have recognized that “[o]nly rarely will there be direct evidence of an express agreement” in a conspiracy case, <3> and have found that circumstantial evidence of informal and even tacit understandings may suffice to establish a violation of Section 1. <4> A reliance on circumstantial evidence complicates the question of how much circumstantial evidence and of what nature is necessary to overcome a defendant’s motion for summary judgment.
The core tension that arises in attempting to answer that question exists between the economic theory of interdependence or conscious parallelism in an oligopolistic market and the standards set forth under federal procedural law. For instance, does Rule 56 of the Federal Rules of Civil Procedure allow a judge to grant summary judgment when the antitrust theory is implausible, even though it is supported by circumstantial facts, or does Rule 56 merely require raising a genuine issue of material fact through circumstantial evidence and thus the plausibility issue is reserved for argument before the jury? Or is this a false dichotomy, requiring a third alternative?
Courts have addressed these questions by developing rules for the types of evidence required to prove collusion. Under these rules, circumstantial evidence of parallel conduct, such as closely timed price increases, cannot alone prove an agreement. <5> “‘Conscious parallelism’ describes ‘the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing supracompetitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions.'” <6> As Areeda and Hovenkamp explain, when “[e]ach firm’s pricing decision is interdependent with that of its rivals[,] each knows that its choice will affect the others, who are likely to respond, and that their responses will affect the profitability of each actor’s initial choice.” <7> Thus, “because of their mutual awareness, oligopolists’ decisions may be interdependent although arrived at independently.” <8>
Therefore, “a plaintiff must prove more than that the defendants acted in parallel; it must prove that they did so pursuant to an agreement.” <9> To prove an agreement, “a plaintiff must show additional circumstances — often referred to as ‘plus factors’ – which, when viewed in conjunction with the parallel conduct, would permit a fact-finder to infer a conspiracy.” <10> “Evidence of  plus factors tends to ensure that courts punish ‘concerted action’- an actual agreement- instead of the ‘unilateral, independent conduct of competitors.'” <11>
Those “plus factors” must “tend [ ] to exclude the possibility of independent action by the [parties].” <12> “That is, there must be . . . circumstantial evidence that reasonably tends to prove that [the parties] had a conscious commitment to a common scheme.” <13> Courts and commentators agree “[t]here is no finite set of [plus factors]; no exhaustive list exists.” <14> Nonetheless, Areeda and Hovenkamp assert, the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly <15> “made clear that if proof of agreement rests on the existence of plus factors, at least a sufficient number of them must be pled to raise an inference of conspiracy.” <16>
Thus, when determining whether to grant a defendant’s motion for summary judgment, courts evaluate plaintiff’s alleged “plus factors” to determine whether they “tend to exclude” the possibility of independent action by the alleged conspirator. This test already inserts a judge into the typical province of the jury: evaluating the inferences that should be drawn from circumstantial evidence.
In Matsushita, the Supreme Court added another task for the district court judge: evaluating whether plaintiff’s collusion claim is plausible. The Court framed the issue this way: “if the factual context renders respondents’ claim implausible – if the claim is one that simply makes no economic sense – respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary.” <17>
This article seeks to explore how courts have applied – or misapplied – Matsushita’s mandate. Two circuits in particular – the third and the eighth – have misapplied Matsushita’s standard to limit the inferences that can be drawn when an economically sensible and manifestly anticompetitive conspiracy is alleged. A proper understanding of Matsushita has become even more important now that the Supreme Court has required that for an antitrust claim to survive a motion to dismiss, a plaintiff must present “only enough facts to state a claim for relief that is plausible on its face (emphasis supplied).” in order to survive a motion to dismiss. <18> This article will discuss how other courts and a leading antitrust commentator have criticized the misuse of Matsushita. Secondarily, the article will touch upon the “tend to exclude” analysis and how such an analysis may be too stringently applied in the summary judgment phase, especially when courts apply Matsushita’s heightened standard to economically sensible conspiracies. Finally, the article will assess the ramifications associated with imposing a heightened standard to prove economically sensible and anticompetitive conspiracies.
II. Rule 56, Matsushita and the Implausible Conspiracy