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In the last two decades, the 3rd U.S. Circuit Court of Appeals has published 18 opinions regarding the proof needed for a Section 1 Sherman Act claim to survive a motion for summary judgment or directed verdict. In those opinions, the 3rd Circuit reversed and remanded half the cases: In nine opinions, the court affirmed the district court’s entry of summary judgment on the basis of inadequate proof of conspiracy to raise a genuine issue of material fact; In five opinions, it reversed the district court’s entry of summary judgment on that same basis; In two opinions, the court remanded for further discovery; and In two opinions, it affirmed in part and reversed in part. This history suggests some confusion on the part of both litigants and district courts in antitrust conspiracy cases in the summary judgment context. At least part of the confusion can be traced to two opinions on point issued by the U.S. Supreme Court in 1984 and 1986, Matsushita Elec. Indus. Co. v. Zenith Radio Corp. and Monsanto Co. v. Spray-Rite Serv. Corp. A recent 3rd Circuit opinion applying the rules laid down in those two Supreme Court cases offers a renewed opportunity for practitioners, litigants and district courts to re-examine these important issues and eliminate (or at least, reduce) the confusion. In Nelson v. Pilkington PLC (In re Flat Glass Antitrust Litig.) the 3rd Circuit reversed Chief Judge Donetta W. Ambrose’s entry of summary judgment on what may initially appear to be a technical ground: the inferences that may be drawn from circumstantial evidence. However, as set forth below, that issue drove the reversal and can often – as a practical matter – be determinative in the Section 1 summary judgment context. The reason is simple: Section 1 plaintiffs are frequently forced to rely on such inferences in attempting to prove an unlawful agreement or conspiracy. While direct evidence of a conspiracy in restraint of trade is ideal, it is often difficult to establish in discovery. As a result, Section 1 plaintiffs often use indirect evidence, including circumstantial evidence, to establish such a conspiracy. If the court is not permitted to rely on such inferences for purposes of defeating a defense motion for summary judgment, a plaintiff’s chances of prevailing against a summary judgment motion plummet. Section 1 itself provides that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.” In the absence of direct proof of an express agreement, a Section 1 plaintiff may establish an unlawful agreement nonetheless if it can show the following: The defendants’ behavior was parallel; The defendants were conscious of each other’s conduct and that this awareness was an element in their decision-making process; and Certain so-called “plus” factors. While courts have cited numerous such “plus factors,” three often-cited factors are the following: Evidence that the defendant had a motive to enter into a price fixing conspiracy; Evidence that the defendant acted contrary to its own economic interests; and Evidence “implying a traditional conspiracy.” Given the rarity of “smoking gun” documents or testimony, Section 1 plaintiffs often seek to establish the requisite concerted action by proffering evidence of these “plus factors.” As a result, the inferences are especially important in deciding motions for summary judgment in Section 1 cases, because they will help establish the “plus factors” and make the facts and circumstances of a particular case seem more conspiratorial. The 3rd Circuit’s recent decision in Flat Glass is a perfect example. There, defendant PPG asserted the classic Section 1 defense – the plaintiff could not prove PPG had entered into a conspiracy, as PPG had simply engaged in legally permissible, unilateral, independent conduct. In order to establish a concerted agreement, the Flat Glass plaintiff was forced to rely on inferences to be drawn from circumstantial evidence. As a result, although it may seem highly technical, the ruling on the inferences drove the ruling on the motion for summary judgment – and the reversal of the district court’s judgment. In Flat Glass, the 3rd Circuit essentially applied rules laid down by the U.S. Supreme Court in Monsanto and Matsushita. Those same rules had been followed previously in Petruzzi’s IGA Supermarket v. Darling-Delaware Co., Rossi v. Standard Roofing Inc. and In re Baby Food Antitrust Litig. The Monsanto Opinion In Monsanto, the plaintiff alleged, inter alia, that Monsanto and some of its distributors conspired to fix the resale prices of Monsanto herbicides. At trial, the jury found there was a conspiracy, and Monsanto appealed, arguing there was insufficient evidence to support the jury’s finding that its nonprice practices were created pursuant to a conspiracy to fix prices. The 7th U.S. Circuit Court of Appeals affirmed. The Supreme Court reversed on the ground that the 7th Circuit had applied the incorrect evidentiary standard. “There must be evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently.” The court further held that conduct that is just as consistent with permissible competition as with illegal conspiracy, does not, standing alone, support an inference of antitrust conspiracy. In other words, courts should not permit juries to infer conspiracies when such inferences are implausible, because the effect of such practices is often to deter pro-competitive conduct. Using that standard, the Supreme Court found sufficient evidence for the jury to have reasonably found a conspiracy. The Matsushita Opinion In Matsushita, the plaintiffs (American manufacturers of television sets) alleged that the defendants (Japanese manufacturers of consumer electronic products) had conspired to fix prices below market level in the United States so as to drive plaintiffs from that market and simultaneously to fix prices above market level in Japan. District Judge Edward R. Becker granted defendants’ motion for summary judgment after finding insufficient evidence of a conspiracy. The 3rd Circuit reversed, holding that the plaintiffs had proffered sufficient evidence from which a conspiracy reasonably could be inferred. On appeal, however, the Supreme Court reversed the 3rd Circuit, having concluded that the plaintiffs’ theory of conspiracy did not make sense from an economic standpoint, as the plaintiffs had proffered no plausible motive for the alleged conspirators to so conspire. The court noted the absence of evidence of defendants’ motive in foregoing profits with only a speculative promise of a return. Only through recoupment would such a conspiracy make sense, and there was insufficient evidence that the defendants would be able to recoup their losses. Under such circumstances, the Matsushita court held, the plaintiffs would need to provide “more persuasive evidence to support their claim than would otherwise be necessary.” Justice Lewis Powell, writing for the court, emphasized again that evidence that is equally consistent with legal and illegal conduct, standing alone, cannot support an inference of antitrust conspiracy. In other words, where plaintiffs’ conspiracy claims are based on price reductions, for example, plaintiffs will need more proof of a conspiracy than a typical case, because cutting prices (defendants’ alleged conduct) is often procompetitive, rather than anticompetitive. As a result, the court held, inferring from ambiguous evidence that firms are engaging in predatory pricing would chill procompetitive behavior. The Flat Glass Opinion More recently, in Flat Glass, plaintiffs alleged that a glass manufacturer conspired with its competitors to fix the prices of flat glass and automotive replacement glass. After discovery, Ambrose granted defendant PPG’s motion for summary judgment after finding no plausible evidence of a conspiracy. On appeal, the 3rd Circuit reversed in part and affirmed in part. Circuit Judge Michael Chertoff, writing for the court, explained, in a comprehensive unanimous opinion with Circuit Judges Richard L. Nygaard and Theodore A. McKee, that “the acceptable inferences which can be drawn from circumstantial evidence vary with the plausibility of the plaintiffs’ theory and the dangers associated with such inferences.” In applying the Monsanto/Matsushita rule, the 3rd Circuit in Flat Glass concluded that because the plaintiffs’ theory of unlawful agreement or conspiracy (an agreement among oligopolists to fix prices at supracompetitive prices) made “perfect economic sense” and that raising prices generally does not approximate – and cannot be mistaken as – competitive conduct, the court could properly draw inferences from circumstantial evidence. After reviewing the inferences in some detail, the circuit court concluded that there was sufficient evidence of a conspiracy to create a genuine issue of material fact regarding PPG’s participation in the defendants’ conspiracy to fix prices in the flat glass industry, and reversed the district court’s entry of summary judgment. In sum, concluding that the court could properly draw inferences from circumstantial evidence resulted in a reversal because once the inferences were considered, there was a genuine issue of material fact regarding the existence of a conspiracy, precluding the entry of summary judgment in PP&G’s favor. In Flat Glass, the 3rd Circuit affirmed Ambrose’s entry of summary judgment with regard to the alleged conspiracy in automotive replacement glass, after concluding that plaintiffs had failed to adduce sufficient evidence of a conspiracy to create a genuine issue of material fact. The court explained that plaintiffs had proffered no evidence that PPG exerted influence over truckload prices used to formulate list prices or that the manufacturers had agreed to adjust their list prices according to that recommended price (unlike the plaintiffs’ proofs of conspiracy in the flat glass market). Litigants must be prepared to argue either compliance or non-compliance with the Monsanto/Matshushita rule, as it may well make a significant difference in the disposition of a summary judgment motion. Plaintiffs should review these cases carefully before filing a Section 1 claim. Plaintiffs should also take care to build a discovery record supporting the plausibility of their economic theory and establishing that the conduct could not be confused with pro-competitive conduct, all in an effort to make the inferences from circumstantial evidence permissible for summary judgment purposes. Likewise, defendants faced with Section 1 claims should review these opinions with care and pursue discovery to establish that the plaintiff’s economic theory is nonsensical and that their conduct could well be confused with pro-competitive conduct, all in an effort to make those same inferences impermissible for summary judgment purposes. Finally, district courts should carefully examine inferences to be drawn from circumstantial evidence in the context of a summary judgment motion or risk reversal and remand. Understanding and applying each of the two prongs of the Monsanto/Matsushita rule is essential to assessing the merits of a conspiracy claim, and ruling on a motion for summary judgment. In conclusion, does the Monsanto/Matsushita rule, even if properly applied, mean there is a different summary judgment standard in antitrust cases and that district courts should hesitate to grant summary judgment in such cases? The 3rd Circuit stated in Baby Food and Petruzzi’s that the answer to this question is no. The 3rd Circuit’s reversal rate in such cases discussed above, however, may suggest a different answer. Most recently, in Flat Glass, Chertoff identified a critical distinction regarding this issue, which raises some doubt as to whether the answer remains no (if, indeed, it ever was). “Although [the] normal summary judgment principles apply in antitrust cases, an important distinction exists. As the Supreme Court held in Matsushita . . . antitrust law limits the range of permissible inferences from ambiguous evidence in a Section 1 case. . . . In other words, certain inferences may not be drawn from circumstantial evidence in an antitrust case. . . . This higher threshold is imposed in antitrust cases to avoid deterring innocent conduct that reflects enhanced, rather than restrained, competition.” On Nov. 3, the 3rd Circuit denied defendants’ petitions for rehearing and for rehearing en banc in the Flat Glass case.

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