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Valspar Corp. v. E. I. Du Pont De Nemours and Co.

United States Court of Appeals, Third Circuit

September 14, 2017

VALSPAR CORPORATION; VALSPAR SOURCING, INC., Appellant
v.
E. I. DU PONT DE NEMOURS AND COMPANY

          Argued March 9, 2017

         On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-14-cv-00527) District Judge: Honorable Richard G. Andrews

          James M. Lockhart [Argued] James P. McCarthy Kathryn E. Wendt Lindquist & Vennum Frederick L. Cottrell, III Jason J. Rawnsley Chad M. Shandler Richards Layton & Finger Counsel for Plaintiffs-Appellants.

          Randa Adra Crowell & Moring Clifton S. Elgarten Shari R. Lahlou [Argued] Benjamin C. Wastler Crowell & Moring Kathleen F. McDonough John A. Sensing Potter Anderson & Corroon Counsel for Defendant-Appellee.

          Richard M. Brunell American Antitrust Institute Suite Counsel for American Antitrust Institute as Amicus Curiae in support of Plaintiff-Appellant.

          Before: HARDIMAN and KRAUSE, Circuit Judges, and STENGEL, [*] Chief District Judge.

          OPINION

          HARDIMAN, CIRCUIT JUDGE.

         This appeal involves an alleged conspiracy to fix prices in the titanium dioxide industry in violation of Section 1 of the Sherman Act. Appellant Valspar, a purchaser of titanium dioxide, claimed Appellee DuPont conspired with other titanium dioxide suppliers to fix prices. Valspar argued that the price-fixing agreement was made manifest primarily by thirty-one parallel price increase announcements issued by the suppliers. DuPont countered that the parallel pricing was not the product of an agreement, but rather the natural consequence of the marketplace. Specifically, DuPont posited that because the market for titanium dioxide is an oligopoly, the price movement was caused by "conscious parallelism"-an economic theory that explains oligopolists will naturally follow a competitor's price increase in the hopes that each firm's profits will increase. The District Court agreed with DuPont and granted its motion for summary judgment. We will affirm.

         I

         The facts of this case were essentially undisputed in the District Court. The parties agree that the market for titanium dioxide is an oligopoly. Titanium dioxide is a commodity-like product with no substitutes, the market is dominated by a handful of firms, and there are substantial barriers to entry.

         Valspar, a large-scale purchaser of titanium dioxide, alleges that a group of titanium dioxide suppliers conspired to increase prices. It claims that the conspiracy began when DuPont-the largest American supplier-joined the Titanium Dioxide Manufacturers Association (TDMA) in 2002, when the association opened participation to non-European companies. Shortly after joining the TDMA, DuPont announced a price increase. Within two weeks, DuPont's price increase was matched by Millennium, Kronos, and Huntsman (other TDMA members and members of the alleged conspiracy). This began what Valspar alleged to be the "Conspiracy Period"- twelve years during which the alleged conspirators announced price increases 31 times.

         Valspar claims the conspiracy ended in late 2013 when DuPont exited the TDMA. According to Valspar's calculations, the conspirators inflated the cost of titanium dioxide by an average of 16%. Because Valspar purchased $1.27 billion of titanium dioxide from DuPont during the relevant period, it claims it was overcharged to the tune of $176 million.

         II

         In 2010, a class of titanium dioxide purchasers filed a price-fixing action against the suppliers in the United States District Court for the District of Maryland. Valspar opted out of that class and the remaining defendant suppliers settled the case after they were denied summary judgment. See In re Titanium Dioxide Antitrust Litig., 959 F.Supp.2d 799, 832 (D. Md. 2013). Valspar then filed its own claim in the United States District Court for the District of Minnesota, which was subsequently severed. Valspar settled all claims except this one against DuPont, which was transferred to the United States District Court for the District of Delaware, where DuPont moved for summary judgment. Although presented with "substantially the same record . . . as in the Maryland Class Action, " the District Court reached a "different conclusion." Valspar Corp. v. E.I. Du Pont De Nemours, 152 F.Supp.3d 234, 252 (D. Del. 2016). Reviewing the record and our Court's precedents, the District Court found that "evidence of an actual agreement to fix prices" was "lacking." Id. at 253. Reasoning that such evidence is necessary for a plaintiff to survive summary judgment, the District Court granted DuPont's motion. Id.

         III

         The District Court had jurisdiction under 28 U.S.C. § 1331. We have appellate jurisdiction under 28 U.S.C. § 1291. Our standard of review is intertwined with substantive antitrust law and the parties dispute its contours. We therefore begin by reviewing the applicable law.

         A

         Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade." 15 U.S.C. § 1. Unlike § 2 of the Sherman Act, which addresses monopolization and other illegal unilateral conduct, § 1 applies only when there is an agreement to restrain trade; so a single firm's independent action, no matter how anticompetitive its aim, does not implicate § 1. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984). While some offenses under § 1 are reviewed for reasonableness, Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885-86 (2007), others have no possible competitive virtue and are therefore per se illegal, Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 19-20 (1979). Horizontal price fixing (i.e., price fixing among competitors) is one such per se violation because it is a "threat to the central nervous system of the economy." United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (1940).

         Oligopolies pose a special problem under § 1 because rational, independent actions taken by oligopolists can be nearly indistinguishable from horizontal price fixing. This problem is the result of "interdependence, " which occurs because "any rational decision [in an oligopoly] must take into account the anticipated reaction of the other firms." In re Flat Glass Antitrust Litig., 385 F.3d 350, 359 (3d Cir. 2004) (alteration omitted) (quoting Philip E. Areeda & Herbert Hovenkamp, Antitrust Law 207 (2d ed. 2000)). In a market with many firms, "the effects of any single firm's price and output decisions 'would be so diffused among its numerous competitors that they would not be aware of any change.'" Id. (quoting Areeda & Hovenkamp, supra, at 206). The opposite is true in an oligopoly, where any price movement "will have a noticeable impact on the market and on its rivals." Id. (quoting Areeda & Hovenkamp, supra, at 206); see also In re Text Messaging Antitrust Litig., 782 F.3d 867, 875 (7th Cir. 2015) (oligopolists "watch each other like hawks").

         This "oligopolistic rationality" can cause supracompetitive prices because it discourages price reductions while encouraging price increases. A firm is unlikely to lower its price in an effort to win market share because its competitors will quickly learn of that reduction and match it, causing the first mover's profits to decline and a subsequent decline in the overall profits of the industry. Flat Glass, 385 F.3d at 359. Similarly, if a firm announces a price increase, other market participants will know that "if they do not increase their prices to [the first-mover's] level, [the first-mover] may be forced to reduce its price to their level. Because each of the other firms know this, each will consider whether it is better off when all are charging the old price or [the new one]. They will obviously choose [the new price] when they believe that it will maximize industry profits." Id. (quoting Areeda & Hovenkamp, supra, at 207-08).

         The Supreme Court has explained that this behavior does not violate antitrust laws. See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993). Even though such interdependence or "conscious parallelism" harms consumers just as a monopoly does, it is beyond the reach of antitrust laws for two reasons. First, some courts and scholars theorize "that interdependent behavior is not an 'agreement' within the term's meaning under the Sherman Act." Flat Glass, 385 F.3d at 360 (citing Donald F. Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals to Deal, 75 Harv. L. Rev. 655, 663-65 (1962)). And second, "it is close to impossible to devise a judicially enforceable remedy for 'interdependent' pricing." Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 484 (1st Cir. 1988) (Breyer, J.). The problem is this: "How does one order a firm to set its prices without regard to the likely reactions of its competitors?" Id.

         B

         "When faced with whether a plaintiff has offered sufficient proof of an agreement to preclude summary judgment, a court must generally apply the same summary judgment standards that apply in other contexts." Flat Glass, 385 F.3d at 357. Accordingly, a court will enter summary judgment when the evidence shows "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). As in other summary judgment contexts, we "review the record as a whole and in the light most favorable to the nonmovant, drawing reasonable inferences in its favor." In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383, 396 (3d Cir. 2015).

         However, we have recognized there is "an important distinction" to this general standard in antitrust cases. Flat Glass, 385 F.3d at 357. "[A]ntitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986). Specifically, "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Id.[1] The reason for this more rigorous standard is that mistaken inferences are especially costly in antitrust cases, since they could penalize desirable competitive behavior and "chill the very conduct the antitrust laws are designed to protect." Id. at 594.[2]

         With those principles informing our analysis, this Court has developed specialized evidentiary standards at summary judgment in antitrust cases in general and in oligopoly cases in particular. Our analysis often begins with evidence of parallel price movements. See Chocolate, 801 F.3d at 397. In non-oligopolistic markets, "[p]arallel behavior among competitors is especially probative of price fixing because it is the sine qua non of a price fixing conspiracy." Southway Theatres, Inc. v. Ga. Theatre Co., 672 F.2d 485, 501 (5th Cir. Unit B 1982). But in an oligopolistic market, parallel behavior "can be a necessary fact of life, " In re Baby Food Antitrust Litig., 166 F.3d 112, 122 (3d Cir. 1999), and "[a]ccordingly, evidence of conscious parallelism cannot alone create a reasonable inference of a conspiracy, " Chocolate, 801 F.3d at 398. Therefore, to prove an oligopolistic conspiracy with proof of parallel behavior, that evidence "must go beyond mere interdependence" and "be so unusual that in the absence of an advance agreement, no reasonable firm would have engaged in it." Baby Food, 166 F.3d at 135.

         Because proof of parallel behavior will rarely itself create an inference of conspiracy, a plaintiff will often need to "show that certain plus factors are present" in order "[t]o move the ball across the goal line." Chocolate, 801 F.3d at 398-99. "Plus factors are proxies for direct evidence because they tend to ensure that courts punish concerted action-an actual agreement." Id. (internal formatting and citations omitted). "Although we have not identified an exhaustive list of plus factors, they may include (1) evidence that the defendant had a motive to enter into a price fixing conspiracy; (2) evidence that the defendant acted contrary to its interests; and (3) evidence implying a traditional conspiracy." Id. at 398.

         While normally all three plus factors are weighed together, in the case of oligopolies the first two factors are deemphasized because they "largely restate the phenomenon of interdependence." Flat Glass, 385 F.3d at 360. Put another way, "[e]vidence of a motive to conspire means the market is conducive to price fixing, and evidence of actions against self-interest means there is evidence of behavior inconsistent with a competitive market." Chocolate, 801 F.3d at 398. Since those qualities are intrinsic to oligopolies, we instead focus on the third plus factor: "evidence implying a traditional conspiracy." Flat Glass, 385 F.3d at 360 (citation omitted). To meet this factor, we require "proof that the defendants got together and exchanged assurances of common action or otherwise adopted a common plan even though no meetings, conversations, or exchanged documents are shown." Id. at 361 (citations omitted).[3]

         After evaluating the evidence through our plus factor analysis, we then assess whether, "[c]onsidering the evidence as a whole, " it is "more likely than not [that the defendants] conspired to fix prices." Chocolate, 801 F.3d at 412.[4] This Court has at times employed different approaches for sifting through the proffered evidence. Compare Flat Glass, 385 F.3d 363-69 (summarizing all of plaintiff's evidence without editorializing, and then performing an "Analytical Summary" to decide whether the body of evidence made conspiracy more likely than not), with Chocolate, 801 F.3d at 403-12 (looking at individual groupings of evidence to see whether any "supported an inference of conspiracy, " id. at 408, and then taking a holistic view of the evidence in context and determining that "it does not tend to exclude the possibility that [defendants] acted lawfully, " id. at 412). Whatever method is used, the bottom line is that "a plaintiff relying on ambiguous evidence alone cannot raise a reasonable inference of a conspiracy sufficient to survive summary judgment, " Chocolate, 801 F.3d at 396, but-like in all other summary judgment cases-that evidence must be viewed in the context of all other evidence, Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1364-65 (3d Cir. 1992).

         IV

         We now turn to the evidence of record, which we will evaluate in light of the principles just outlined. We first consider the parallel pricing evidence, then move to evidence under the plus factors, and finally consider the record in toto.

         A

         1

         Valspar bases its case primarily on the 31 parallel price increase announcements issued by the competitors during the alleged conspiracy, arguing that it is "inconceivable" that, on 31 occasions, the competitors "conduct[ed] independent analyses . . . [and] nearly simultaneously arrived at identical price increase amounts to be implemented on exactly the same day." Valspar Br. 37.

         Valspar's argument fails for two reasons. First, its characterization of the suppliers' price announcements neglects the theory of conscious parallelism and flies in the face of our doctrine that in an oligopoly "any rational decision must take into account the anticipated reaction of the other . . . firms." Baby Food, 166 F.3d at 122 (emphasis added) (citations omitted).[5] Thus, DuPont does not claim that the competitors' numerous parallel price increases were discrete events-nor could it do so with a straight face. But it doesn't need to. The theory of interdependence recognizes that price movement in an oligopoly will be just that: interdependent. And that phenomenon frequently will lead to successive price increases, because oligopolists may "conclude that the industry as a whole would be better off by raising prices." Chocolate, 801 F.3d at 397.[6]

         Second, Valspar does not engage this Court's demanding rule that in order to raise an inference of conspiracy on this point, it was required to show that the suppliers' parallel pricing went "beyond mere interdependence [and was] so unusual that in the absence of advance agreement, no reasonable firm would have engaged in it." Baby Food, 166 F.3d at 135. Valspar never cites this important controlling precedent, nor does it attempt to show how it might be met.

         Apart fromValspar's failure to carry its burden, DuPont demonstrates that "market realities . . . clearly controvert [Valspar's] contention" that these announcements are evidence of a conspiracy. Id. at 131. First, supply contracts in the titanium dioxide industry contained price-protection clauses requiring a notice period to customers before a price increase, meaning that if a supplier failed to match a competitor's announcement, it was foregoing the possibility of negotiating a price increase during that period. These industry-wide contractual provisions made the benefit of matching a price increase announcement high and the risk minimal: if a competitor later undercut that price in an effort to take market share, the supplier could refrain from implementing the price increase or even respond by lowering its price. Second, DuPont demonstrated that the market for titanium dioxide remained competitive despite the frequent price increase announcements. Indeed, Valspar employees testified that it was "very common" to negotiate away a supplier's attempt to increase price, DuPont Br. 6, and said that "[o]ften . . . an aggressive supplier would be interested in achieving more volume and would come in and offer a [lower] price, " id. at 9. Across all suppliers' attempted price increases, Valspar was able to avoid that increase (or even negotiate a decrease) one-third of the time. Thus, Valspar's characterization of this evidence is controverted by market realities; "aggressive" and "common" price competition between firms is inconsistent with the idea that those same firms have conspired not to compete on price.[7]

         2

         Valspar also advances the related argument that the flurry of price announcements reflects a drastic change from pre-conspiracy behavior in the titanium dioxide market. A change in industry practices must be "radical" or "abrupt" to "create an inference of a conspiracy." Chocolate, 801 F.3d at 410 (citation omitted). Valspar claims to have met this standard because there were only three parallel price increase announcements before the alleged conspiracy period (as compared to the thirty-one during the conspiracy period).

         We disagree. In Chocolate, the plaintiffs advanced a similar argument, relying on an increased frequency in parallel pricing activity from pre-conspiracy behavior. There, we explained that "the focus of the Plaintiffs' argument is unduly narrow" because "[h]istorically, parallel pricing in the U.S. chocolate market has not been at all uncommon." Chocolate, 801 F.3d at 410. Here too, public parallel price increase announcements are "consistent with how this industry has historically operated." Valspar, 152 F.Supp.3d at 252 (quoting Chocolate, 801 F.3d at 410). Similarly, when other courts have found a radical or abrupt change to indicate conspiracy, that change has generally been more than just an uptick in frequency of a pre-established industry practice. See Toys "R" Us, Inc. v. FTC, 221 F.3d 928, 935 (7th Cir. 2000) (group of toy distributors unanimously stopped dealing with warehouse clubs after years of that being an industry norm). That logic rings particularly true in this context because "it is generally unremarkable for the pendulum in oligopolistic markets to swing from less to more interdependent and cooperative." Chocolate, 801 F.3d at 410 (citing Areeda & Hovenkamp, supra, at 229).

         B

         Having found that the pattern of parallel price increases does not raise an inference of conspiracy, we next turn to Valspar's argument that the plus factors evidence a conspiracy. As explained above, this Court has developed a specialized rule that in oligopolistic markets, "'the first two factors largely restate the phenomenon of interdependence, ' . . . [which] leaves traditional non-economic evidence of a conspiracy as the most important plus factor." Chocolate, 801 F.3d at 398 (citation omitted). Tellingly, Valspar ignores this important point and instead emphasizes why the first two plus factors are met. Valspar's "victory . . . is a hollow one, " however, having succeeded in showing interdependence but not conspiracy. Id. at 400.

         1

         The first factor relates to motive to enter a conspiracy, i.e., that "the market is conducive to price fixing." Id. at 398. There is little doubt that this highly concentrated market for a commodity-like product with no viable substitutes and substantial barriers to entry was conducive to price fixing.

         The second plus factor looks for evidence of action against self-interest, i.e., "evidence that the market behaved in a noncompetitive manner." Flat Glass, 385 F.3d at 361 (citation omitted). Valspar presents evidence that there was "a 16% overcharge" and that "price increases were not correlated to supply-and-demand principles." Valspar Br. 57. While true, this is largely irrelevant because it ignores the fact that "firms in a concentrated market may maintain their prices at supracompetitive levels, or even raise them to those levels, without engaging in any overt concerted action." Flat Glass, 385 F.3d at 359.[8]

         Most of Valspar's other economic expert evidence addresses the first two plus factors as well. See Flat Glass, 385 F.3d at 361 (explaining that the third plus factor is where "non-economic evidence" should be considered (emphasis added)). For example, Valspar notes that its expert "concluded there was economic evidence of ability to enforce their price-fixing agreement, " and "found from an economic point of view the markets were relatively stable." Valspar Br. 41, 43. From findings like these, Valspar argues that "the district court should have accepted [the expert's] economic conclusions" that the competitors could not have acted independently. Valspar Br. 42. This gets things backwards. There is no dispute that the market was primed for anticompetitive interdependence and that it operated in that manner. Valspar's expert evidence confirming these facts mastered the obvious.[9]

         2

         We finally reach Valspar's evidence under our third plus factor: traditional conspiracy evidence, where we look for "proof that the defendants got together and exchanged assurances of common action or otherwise adopted a common plan even though no meetings, conversations, or exchanged documents are shown."[10] Flat Glass, 385 F.3d at 361 (citation omitted). We approach the third plus factor as this Court did in Chocolate, first considering individual groups of evidence to see whether any raise an inference of conspiracy, before evaluating all of the proof in context. See 801 F.3d at 403-12. Here, we agree with the District Court that Valspar failed to raise an inference of conspiracy. Each strand of evidence is weaker than similar evidence in cases where this Court has affirmed summary judgment in favor of companies that operate in an oligopolistic market.

         First, Valspar shows that DuPont and the other competitors took part in a data sharing program offered by the Titanium Dioxide Manufacturers Association. As part of this program (the Global Statistics Program, or GSP) the competitors provided production, inventory, and sales-volume data (but never price data) to the TDMA, which then aggregated, anonymized, and redistributed the data.

         Without citing any precedent to show why this type of information sharing was illegal, Valspar argues that the GSP allowed each conspirator to calculate its own market share and thus deduce whether it was getting its fair share of the conspiracy's profits. This argument suffers from the loaded question fallacy. Instead of setting out to prove: "Does the GSP show that a conspiracy existed?, " Valspar attempts to answer: "How did the GSP further the conspiracy?" This approach cannot satisfy Valspar's burden. "[A] litigant may not proceed by first assuming a conspiracy and then explaining the evidence accordingly." Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, 203 F.3d 1028, 1033 (8th Cir. 2000).

         Moreover, our prior decisions undermine Valspar's argument that the GSP supports an inference of conspiracy For example, in Baby Food, we affirmed summary judgment despite the fact that the alleged conspirators' sales representatives had "exchang[ed] pricing information, " explaining that there was no evidence these exchanges had any effect over the companies' final pricing decisions, 166 F.3d 117, and observing, in any event, that "[t]he exchange of price data . . . can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive." Id. at 125 (quoting United States v. U.S. Gypsum Co., 438 U.S. 422, 443 n.16 (1978)). And in Flat Glass, the alleged conspirators each provided price data to a business that would use those inputs to set recommended prices for the industry. 385 F.3d at 355. The alleged conspirators knew how the recommended prices were calculated, so "were able to calculate backwards" and determine the price inputs used. Id. at 370. We explained that although this would rightfully "raise suspicion, " the "publication of pricing information can have a pro-competitive effect" and, with little other evidence supporting the inference of a conspiracy, affirmed summary judgment on that claim. Id.

         The data exchanged as part of the GSP looks innocuous when compared to the information in Baby Food and Flat Glass. The GSP aggregated and blinded "members' monthly sales, production, and inventory data worldwide, " but never collected price information. Valspar Br. 47. Valspar argues that "the co-conspirators partially disaggregated the data to track individual firms." Valspar Br. 48. But as the District Court noted, "the evidence provided by Valspar does not support this conclusion" and Valspar's own expert conceded that the GSP merely allowed each firm to calculate its own market share. Valspar, 152 F.Supp.3d at 245-46.[11]

         Relatedly, Valspar claims that the alleged conspirators "used the TDMA meetings to communicate their pricing plans, coordinate price increases, and confirm that each competitor would follow the leader on price increases." Valspar Br. 50. Valspar's argument essentially begins and ends with opportunity: the TDMA meetings brought the competitors together, so one should assume that they used the meetings to conspire. But as the District Court noted, "[t]here is no evidence that there was any discussion of prices during these meetings and certainly no evidence of an agreement." Valspar, 152 F.Supp.3d at 246. Consequently, Valspar's argument falls short under our precedents. Chocolate, 801 F.3d at 409 ("[E]vidence . . . that the executives from the [alleged conspirators] were in the same place at the same time . . . is insufficient to support a reasonable inference of concerted activity."); Petruzzi's IGA Supermarkets, Inc. v. Darling-Del. Co., 998 F.2d 1224, 1235 (3d Cir. 1993) ("Proof of opportunity to conspire, without more, will not sustain an inference that a conspiracy has taken place." (citation omitted)).

         Next, Valspar suggests that the competitors used industry consultants as conduits to funnel information. For example, Valspar points to an e-mail from a Kronos employee to a consultant noting that the employee had heard rumors of an impending Huntsman price increase, but thought it "sound[ed] weird" and wanted to know if the ...


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