Description
Wednesday, February 24, 2016
of that market, which the court found sufficient
to infer the existence of monopoly power. The
court also ruled that the evidence of exclusive
contracts and other allegedly exclusionary
conduct was sufficient to withstand summary
judgment on the monopolization claims, stating
that the standard for exclusive dealing under §2
of the Sherman Act was lower than under §1.
Pleading a Conspiracy
Another New York federal court dismissed a
proposed class action antitrust lawsuit alleging
that affiliates of Goldman Sachs, JP Morgan Chase
and others conspired to increase the price of zinc.
See In Re: Zinc Antitrust Litigation, 2016 WL 93864,
No. 14-cv-3728 (S.D.N.Y. Jan.
7, 2016). Purchasers of zinc brought §1 conspiracy and §2 monopolization claims against three owner-operators of zinc warehouses and their corporate affiliates that traded financial instruments with prices tied to the price of zinc. Plaintiffs alleged that the conspiracy began in 2010 when JPMorgan, Goldman Sachs and Glencore Ltd. (which had previously acquired another named defendant, Pacorini Metals) acquired zinc warehouse operators and then engaged in load-out delays and other coordinated activity to reduce the supply of zinc and artificially increase its price. Judge Katherine B.
Forrest decided that plaintiffs did not sufficiently allege an agreement between the defendants and dismissed all §1 claims with prejudice. The only claims allowed to be re-pleaded were §2 claims against Glencore and Pacorini. As evidence of an alleged agreement between defendants, plaintiffs pointed to a 2012 agreement providing that Pacorini would prioritize the loading out of defendants’ zinc from its warehouses and that the defendants would coordinate their order cancellations to minimize overlap. The court reasoned that the alleged agreement “is simply too thin a branch” and “too isolated” to support the broad, five-year, multi-defendant scheme alleged.
Most of the conduct provided for in the agreement was undertaken by a single defendant, Pacorini. Further, because the agreement only described the way in which Pacorini would prioritize the loading out of zinc, it was output neutral and therefore did not support plaintiffs’ theory that defendants restricted the supply of zinc in order to increase its price. Plaintiffs also asserted that defendants engaged in parallel conduct which provided circumstantial evidence of an agreement. Plaintiffs alleged that defendants acquired zinc warehouses during the same time period in 2010, used those warehouses to make policy recommendations to the London Metal Exchange (LME) regarding minimum load-out rules, offered financial incentives for zinc storage, and engaged in shadow warehousing whereby defendants moved zinc to non-registered warehouses in attempts to manipulate numbers reported to the LME. The court reasoned that such allegations did little to support the existence of an agreement between defendants because they were consistent with rational, independent economic behavior.
“It hardly seems remarkable to have commodities traders decide—if they can afford it—to buy and hold the commodity to drive up the price. While this may violate LME rules, financial regulations, or even market expectations, that alone does not render such conduct a violation of the antitrust laws.” (emphasis in the original). The court dismissed plaintiffs’ §2 claims as well. In doing so, the court highlighted the tension between plaintiffs’ §1 and §2 claims.
In support of their §2 claims, plaintiffs alleged that Glencore possessed a significant dominance in the physical zinc market accounting for 60 percent of the world’s zinc trading. Such allegations, however, required further explanation with regards to plaintiffs’ §1 claims. For example, the court posited, given Glencore’s alleged dominance in the physical zinc market, why would it need to rely on outside conspirators to assist in the alleged anticompetitive scheme? The court also declined to extend the “inextricably intertwined” theory of antitrust injury to plaintiffs’ §2 claims.
Although antitrust injury is A New York federal court dismissed a proposed class action antitrust lawsuit alleging that affiliates of Goldman Sachs, JP Morgan Chase and others conspired to increase the price of zinc. generally limited to consumers or competitors of the defendant in the restrained market, antitrust injury extends to injuries that are “inextricably intertwined with the injury the conspirators sought to inflict.” Plaintiffs in this case were not participants in the zinc warehousing market, but they paid inflated prices in the market for purchasing zinc. These inflated prices, the court reasoned, were “necessarily directly impacted” by defendants’ alleged scheme to cause dysfunction in the price-setting process in order to drive up the price of zinc. Therefore, plaintiffs had antitrust standing to bring their §1 claims. However, the court held that the “inextricably intertwined” theory could not apply to plaintiffs’ §2 claims.
Section 2 is aimed at conduct within a single market, and requires specific intent to monopolize a particular market. Therefore, injury in a market other than that in which defendants allegedly conspired to monopolize “is not of the type that Section 2 was intended to prevent.” Justice Scalia The passing of Justice Scalia and the ensuing battle over his replacement have spawned heated debates in political spheres. His antitrust legacy is perhaps slightly less controversial but undoubtedly worthy of examination.
While Justice Scalia authored many majority, dissenting and concurring opinions in antitrust cases, we will focus on three decisions. Scalia authored the majority opinion in Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S.
398 (2004), where the Supreme Court decided that Verizon’s alleged breach of its duty to share its network with rivals under telecommunications law did not state a Sherman Act claim. He dissented in Eastman Kodak Co. v. Image Technical Services, 504 U.S.
451 (1992), where it was alleged that Kodak had unlawfully tied the sale of service for its copying machines to the sale of parts, in violation of §1 of the Sherman Act, and had unlawfully monopolized the sale of service and parts for such machines, in violation of §2. The court ruled that a jury could find that Kodak possessed market power in the aftermarket for Kodak parts and that Kodak could be found liable for per se tying. Justice Scalia disagreed: “Because the interbrand market will generally punish intrabrand restraints that consumers do not find in their interest, we should not—under the guise of a per se rule—condemn such potentially procompetitive arrangements simply because of the antitrust defendant’s inherent power over the unique parts for its own brand.” 504 U.S. at 502. In both of these opinions, Justice Scalia revealed his faith in markets over antitrust regulation.
In Trinko, he observed that the opportunity to charge monopoly prices, at least for a short time, induces risk-taking and that if antitrust law imposed upon monopolists a duty to deal, it may lessen the incentive to innovate. “The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.” 540 U.S. at 407. And as he wrote in Kodak, “…if the interbrand market is vibrant, it is simply not necessary to enlist §2’s machinery to police a seller’s intrabrand restraints.
In such circumstances, the interbrand market functions as an infinitely more efficient and more precise corrective to such behavior, rewarding the seller whose intrabrand restraints enhance consumer welfare while punishing the seller whose control of the aftermarkets is viewed unfavorably by interbrand consumers.” Id. at 503. Justice Scalia’s conviction that competition between brands would discipline restraints involving sellers of the same brand was also evident in his opinion for the majority in Business Electronics v. Sharp Electronics, 485 U.S.
717 (1988), where the court affirmed that vertical non-price restraints are not per se unlawful, even when designed to penalize a price-cutting dealer. In rejecting the possibility that the categories subject to per se illegality should remain forever fixed, Justice Scalia confronted the tension between applying current economic learning and interpreting the Sherman Act as it was originally understood when enacted in 1890. Justice Scalia wrote: “The Sherman Act adopted the term ‘restraint of trade’ along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890.” 485 U.S.
at 732. Reprinted with permission from the February 24, 2016 edition of the NEW YORK LA JOURNAL © 2014 ALM Media Properties, LLC. All rights reserved. Further W duplication without permission is prohibited.
For information, contact 877-257-3382 or reprints@alm.com. # 070-02-16-30 .
7, 2016). Purchasers of zinc brought §1 conspiracy and §2 monopolization claims against three owner-operators of zinc warehouses and their corporate affiliates that traded financial instruments with prices tied to the price of zinc. Plaintiffs alleged that the conspiracy began in 2010 when JPMorgan, Goldman Sachs and Glencore Ltd. (which had previously acquired another named defendant, Pacorini Metals) acquired zinc warehouse operators and then engaged in load-out delays and other coordinated activity to reduce the supply of zinc and artificially increase its price. Judge Katherine B.
Forrest decided that plaintiffs did not sufficiently allege an agreement between the defendants and dismissed all §1 claims with prejudice. The only claims allowed to be re-pleaded were §2 claims against Glencore and Pacorini. As evidence of an alleged agreement between defendants, plaintiffs pointed to a 2012 agreement providing that Pacorini would prioritize the loading out of defendants’ zinc from its warehouses and that the defendants would coordinate their order cancellations to minimize overlap. The court reasoned that the alleged agreement “is simply too thin a branch” and “too isolated” to support the broad, five-year, multi-defendant scheme alleged.
Most of the conduct provided for in the agreement was undertaken by a single defendant, Pacorini. Further, because the agreement only described the way in which Pacorini would prioritize the loading out of zinc, it was output neutral and therefore did not support plaintiffs’ theory that defendants restricted the supply of zinc in order to increase its price. Plaintiffs also asserted that defendants engaged in parallel conduct which provided circumstantial evidence of an agreement. Plaintiffs alleged that defendants acquired zinc warehouses during the same time period in 2010, used those warehouses to make policy recommendations to the London Metal Exchange (LME) regarding minimum load-out rules, offered financial incentives for zinc storage, and engaged in shadow warehousing whereby defendants moved zinc to non-registered warehouses in attempts to manipulate numbers reported to the LME. The court reasoned that such allegations did little to support the existence of an agreement between defendants because they were consistent with rational, independent economic behavior.
“It hardly seems remarkable to have commodities traders decide—if they can afford it—to buy and hold the commodity to drive up the price. While this may violate LME rules, financial regulations, or even market expectations, that alone does not render such conduct a violation of the antitrust laws.” (emphasis in the original). The court dismissed plaintiffs’ §2 claims as well. In doing so, the court highlighted the tension between plaintiffs’ §1 and §2 claims.
In support of their §2 claims, plaintiffs alleged that Glencore possessed a significant dominance in the physical zinc market accounting for 60 percent of the world’s zinc trading. Such allegations, however, required further explanation with regards to plaintiffs’ §1 claims. For example, the court posited, given Glencore’s alleged dominance in the physical zinc market, why would it need to rely on outside conspirators to assist in the alleged anticompetitive scheme? The court also declined to extend the “inextricably intertwined” theory of antitrust injury to plaintiffs’ §2 claims.
Although antitrust injury is A New York federal court dismissed a proposed class action antitrust lawsuit alleging that affiliates of Goldman Sachs, JP Morgan Chase and others conspired to increase the price of zinc. generally limited to consumers or competitors of the defendant in the restrained market, antitrust injury extends to injuries that are “inextricably intertwined with the injury the conspirators sought to inflict.” Plaintiffs in this case were not participants in the zinc warehousing market, but they paid inflated prices in the market for purchasing zinc. These inflated prices, the court reasoned, were “necessarily directly impacted” by defendants’ alleged scheme to cause dysfunction in the price-setting process in order to drive up the price of zinc. Therefore, plaintiffs had antitrust standing to bring their §1 claims. However, the court held that the “inextricably intertwined” theory could not apply to plaintiffs’ §2 claims.
Section 2 is aimed at conduct within a single market, and requires specific intent to monopolize a particular market. Therefore, injury in a market other than that in which defendants allegedly conspired to monopolize “is not of the type that Section 2 was intended to prevent.” Justice Scalia The passing of Justice Scalia and the ensuing battle over his replacement have spawned heated debates in political spheres. His antitrust legacy is perhaps slightly less controversial but undoubtedly worthy of examination.
While Justice Scalia authored many majority, dissenting and concurring opinions in antitrust cases, we will focus on three decisions. Scalia authored the majority opinion in Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S.
398 (2004), where the Supreme Court decided that Verizon’s alleged breach of its duty to share its network with rivals under telecommunications law did not state a Sherman Act claim. He dissented in Eastman Kodak Co. v. Image Technical Services, 504 U.S.
451 (1992), where it was alleged that Kodak had unlawfully tied the sale of service for its copying machines to the sale of parts, in violation of §1 of the Sherman Act, and had unlawfully monopolized the sale of service and parts for such machines, in violation of §2. The court ruled that a jury could find that Kodak possessed market power in the aftermarket for Kodak parts and that Kodak could be found liable for per se tying. Justice Scalia disagreed: “Because the interbrand market will generally punish intrabrand restraints that consumers do not find in their interest, we should not—under the guise of a per se rule—condemn such potentially procompetitive arrangements simply because of the antitrust defendant’s inherent power over the unique parts for its own brand.” 504 U.S. at 502. In both of these opinions, Justice Scalia revealed his faith in markets over antitrust regulation.
In Trinko, he observed that the opportunity to charge monopoly prices, at least for a short time, induces risk-taking and that if antitrust law imposed upon monopolists a duty to deal, it may lessen the incentive to innovate. “The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.” 540 U.S. at 407. And as he wrote in Kodak, “…if the interbrand market is vibrant, it is simply not necessary to enlist §2’s machinery to police a seller’s intrabrand restraints.
In such circumstances, the interbrand market functions as an infinitely more efficient and more precise corrective to such behavior, rewarding the seller whose intrabrand restraints enhance consumer welfare while punishing the seller whose control of the aftermarkets is viewed unfavorably by interbrand consumers.” Id. at 503. Justice Scalia’s conviction that competition between brands would discipline restraints involving sellers of the same brand was also evident in his opinion for the majority in Business Electronics v. Sharp Electronics, 485 U.S.
717 (1988), where the court affirmed that vertical non-price restraints are not per se unlawful, even when designed to penalize a price-cutting dealer. In rejecting the possibility that the categories subject to per se illegality should remain forever fixed, Justice Scalia confronted the tension between applying current economic learning and interpreting the Sherman Act as it was originally understood when enacted in 1890. Justice Scalia wrote: “The Sherman Act adopted the term ‘restraint of trade’ along with its dynamic potential. It invokes the common law itself, and not merely the static content that the common law had assigned to the term in 1890.” 485 U.S.
at 732. Reprinted with permission from the February 24, 2016 edition of the NEW YORK LA JOURNAL © 2014 ALM Media Properties, LLC. All rights reserved. Further W duplication without permission is prohibited.
For information, contact 877-257-3382 or reprints@alm.com. # 070-02-16-30 .
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