Distribution, Competition, and Antitrust / IP Law

Ninth Circuit Rejects Irrational Market Allocation Claim

In Stanislaus Food Products Co. v. USS-Posco Industries, No. 13-15475 (9th Cir. Oct. 13, 2015), the Ninth Circuit affirmed a defense summary judgment in a case alleging that U.S. Steel and its joint venture conspired to allocate the sale of “hot band steel” in the western United States to the joint venture.

The evidence of a market allocation scheme was circumstantial. The problem for the plaintiff was that U.S. Steel had nationwide supply contracts with all of the major tin can manufacturers (consumers of hot band steel). Under these contracts, U.S. Steel sells tin mill products F.O.B. U.S. Steel’s mill, which means that the customer selects where U.S. Steel is to ship the products and pays for shipping costs. As a result, “the price and other terms are negotiated without U.S. Steel knowing whether a customer will request items be sent, say, to California or to New York.” This “geographic neutrality” is a significant practical obstacle to the viability of the alleged conspiracy, because in order not to compete on price in the Western U.S., “U.S. Steel would need to stop competing on price nationwide or refuse customers. Both options risk losses to U.S. Steel’s bottom line and make little economic sense.”

In other words, the alleged scheme would not be rational “unless U.S. Steel had little competition outside of the western United States or the potential payoff through ownership of [the JV] was likely to be significant.” The court found that U.S. Steel faced significant competition, making the alleged agreement implausible. The plaintiff’s proffered circumstantial evidence of an agreement (much of which the Ninth Circuit found to be ambiguous at best) was insufficient to overcome this finding of implausibility.

The case reinforces the requirement that allegations of a conspiracy must tend to exclude the possibility that the alleged conspirators acted independently.

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About Howard Ullman

Antitrust, competition, and IP law enthusiast.

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