chocolate
()

The makers of three-quarters of America’s chocolate—Hershey, Mars and Nestle—got a federal judge in Harrisburg, Pa., to toss 91 cases claiming that the companies fixed prices between 2002 and 2007.

The allegations, brought by dozens of grocery stores and direct purchasers that bought chocolate during that time period, were based largely on a parallel investigation in Canada, which led to a guilty plea by Hershey Canada last year and has charges pending against the Canadian affiliates of Mars and Nestle.

“Initially, plaintiffs’ claims of a domestic price-fixing conspiracy were quite plausible,” said U.S. District Chief Judge Christopher C. Conner of the Middle District of Pennsylvania in In re Chocolate Confectionary Antitrust Litigation. “The Canadian trade spend conspiracy raised the specter of Sherman Act violations in our contiguous marketplace. Litigation and merits discovery properly ensued. But, at the end of the day, the probata could not match the allegata.”

Conner held oral arguments on the six motions to dismiss in the multidistrict litigation in October and was told by the parties the following month that the final court-ordered mediation session hadn’t resulted in an agreement. He granted all six motions for summary judgment Wednesday.

“Specifically, plaintiffs contend that defendants were in possession of one another’s pricing information prior to formal price increase announcements and, spurred by the success of a price-fixing conspiracy among their affiliates in Canada, tacitly agreed to follow in lockstep any list price increases initiated by competitors,” Conner said.

Noting that years of litigation and extensive discovery had fully developed the record, Conner said the “plaintiffs cannot establish that defendants’ actions were more likely than not the result of concerted and collusive action.”

The plaintiffs identified price increases in 2002, 2004 and 2007 as incidents that demonstrate price-fixing among America’s biggest chocolate producers. Hershey holds 42 percent of the domestic market, Mars has 28 percent and Nestle has 8 percent, according to the opinion. Although it’s third in the United States, Nestle is the market leader in Canada, Conner said in a footnote.

Having explained that regular candy bars are called “singles” and king-sized bars are called “kings,” both of which fall into the category of immediate consumption products, Conner said, “It is undisputed that from 2002 through 2007, the period in which defendants allegedly conspired to raise the prices of singles and kings, the average market cost for cocoa increased by 53 percent.”

Other than immediate-consumption goods, there are future-consumption goods, which include bags of small candies called “bite-size” or “miniature.” Singles and kings are typically consumed immediately after purchase, while bags of small candies are usually consumed at a date later than when they are purchased.

In December 2002, Mars was the first to raise the price of its singles by 3.5 cents. Two days later, Hershey increased its prices by the same amount and later that month Nestle raised its price by 3.3 cents, according to the opinion.

In November 2004, Mars announced price increases for its future-consumption products. The next month, Hershey increased its prices by the same amount, followed by additional increases on its singles and kings. Nestle, again, followed suit, according to the opinion.

Finally, in March 2007, Mars increased the price of singles by 2 cents and kings by 3 cents. The next month, Hershey matched those increases and the next day Nestle did the same.

The manufacturers pointed to historic patterns of price increases where one company raises its prices and competitors quickly follow. Years noted in the opinion were 1979, 1981, 1986, 1991 and 1995.

“As an explanation for these pricing actions,” Conner said, “defendants cite to rising production and ingredient costs and posit that the increases were determined independently of one another, in a manner consistent with each company’s best interests.”

However, “plaintiffs alleged broadly that the overlap of economic, operational, and managerial factors between the two markets is ‘so extensive’ as to effectively eviscerate the border between the countries, merging the domestic and Canadian chocolate markets into a ‘single market.’ This theory quickly withered on the vine in the absence of any factual support,” Conner said.

The judge repeatedly noted the extent of discovery in the case and the absence of any concrete evidence of a price-fixing scheme.

“Despite diligent efforts on the part of plaintiffs counsel and nearly unfettered access to defendants’ records, plaintiffs are before the court with nothing more than speculation as to the who, what, when, where, and how of the communications that allegedly facilitated the parallel price increases,” Conner said. “Nothing scandalous or improper has been discovered within our borders, and no evidence permits a reasonable inference of a price-fixing agreement.”

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 58-page opinion in In re Chocolate Confectionary Antitrust Litigation, PICS No. 14-0324, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)