Tacit Agreement Under Section 1 of the Sherman Act

• Author: William H. Page
• Position: Marshall M. Criser Eminent Scholar, University of Florida Levin College of Law
• Pages: 593-639

TACIT AGREEMENT UNDER SECTION 1

OF THE SHERMAN ACT

W

ILLIAM

H. P

AGE

*

In perhaps the most frequent confrontation in modern antitrust litigation,

plaintiffs allege that oligopolists have agreed to fix prices,

1

allocate markets,

2

or exclude rivals,

3

all per se violations of Section 1 of the Sherman Act.

4

The

defendants respond that, even if they are coordinating their competitive ac-

* Marshall M. Criser Eminent Scholar, University of Florida Levin College of Law. I thank

Joe Harrington, Danny Sokol, Wentong Zheng, and participants at a faculty workshop at the

University of Florida Levin College of Law for comments on various earlier versions of this

article.

1

In 2015 alone, the courts of appeals decided In re Dairy Farmers of America, Inc. Cheese

Antitrust Litigation, 801 F.3d 758, 762–65 (7th Cir. 2015); In re Chocolate Confectionary Anti-

trust Litigation, 801 F.3d 383, 395–412 (3d Cir. 2015); and In re Text Messaging Antitrust

Litigation, 782 F.3d 867, 872–79 (7th Cir. 2015) (Posner, J.), all concluding the plaintiffs pro-

duced insufficient evidence of an agreement on prices to avoid summary judgment. Three circuit

court cases considered the sufficiency of allegations of agreement on motions to dismiss, with

varying outcomes. In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1193–98

(9th Cir. 2015) (affirming district court’s dismissal); Osborn v. Visa Inc., 797 F.3d 1057,

1066–69 (D.C. Cir. 2015) (reversing district court’s dismissal); Name.Space, Inc. v. Interstate

Corp. for Assigned Names & Nos., 795 F.3d 1124, 1129–31 (9th Cir. 2015) (affirming district

court’s dismissal). Another, United States v. Apple, Inc., 791 F.3d 290, 321–25 (2d Cir. 2015),

affirmed a trial court’s decision that Apple had conspired with book publishers to facilitate the

adoption of an agency model of ebook distribution that allowed publishers to raise retail prices.

And Ross v. Citigroup, Inc., 630 F. App’x 79, 82–83 (7th Cir. 2015), affirmed a decision after a

bench trial that banks had not conspired to adopt class-action-barring clauses in credit card

agreements.

2

See Stanislaus Food Prods. Co. v. USS-POSCO Indus., 803 F.3d 1084, 1088–95 (9th Cir.

2015) (finding insufficient evidence that tin can manufacturers had agreed to allocate territories).

3

See Abraham & Veneklasen Joint Venture v. Am. Quarter Horse Ass’n, 776 F.3d 321,

330–34 (5th Cir. 2015) (reversing a jury verdict that defendants conspired to excluded cloned

horses from breed registry); SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 429–35 (5th

Cir. 2015) (holding the complaint sufficiently alleged that table saw manufacturers conspired to

exclude plaintiff’s safety technology); MM Steel, L.P. v. JSW Steel (USA) Inc., 806 F.3d 835,

844–47 (5th Cir. 2015) (reversing a jury verdict that one steel manufacturer joined a conspiracy

of distributors to exclude a rival, but affirming the verdict against a second manufacturer).

4

15 U.S.C. § 1 (2006). On the development and current scope of the per se rule, see 2 J

OSEPH

B

AUER

, W

ILLIAM

H. P

AGE

& J

OHN

L

OPATKA

, F

EDERAL

A

NTITRUST

L

AW

§ 12 (3d ed. 2013).

593

594

A

NTITRUST

L

AW

J

OURNAL

[Vol. 81

tions, they have not formed an agreement within the meaning of Section 1;

5

they are only engaging in lawful oligopolistic behavior. When the service sta-

tions on Martha’s Vineyard were accused of fixing prices of gasoline, for

example, they pointed out that, because of their isolated location, relatively

small number, and transparent pricing, they could “engage in ‘cooperative

pricing’ without any secret meetings or any explicit agreements that would

violate the nation’s antitrust laws. The defendants are each rationally taking

account of their competitors’ likely responses to their actions and would be

foolish not do so.”

6

Courts usually resolve this confrontation in a casuistic

process

7

on pretrial motions to dismiss or for summary judgment, applying the

standards of pleading and evidentiary sufficiency to hundreds of patterns of

conduct.

8

The outcomes on these motions depend in large part on what the courts

think a Section 1 agreement is. Even after 125 years of Section 1 litigation,

however, the meaning of that fundamental concept remains uncertain. We do

know some things. It is now clear that what the service stations on Martha’s

5

Section 1 requires a “contract, combination . . . , or conspiracy,” terms that courts have read

collectively to mean agreement. R

ICHARD

A. P

OSNER

, A

NTITRUST

L

AW

262 (2d ed. 2001)

(“[T]he courts sensibly have not worried about whether the terms ‘contract,’ ‘combination,’ and

‘conspiracy,’ in section 1, have nonoverlapping meanings.”).

6

Defendants-Appellees’ Brief at *31, White v. R.M. Packer Co., 635 F.3d 571 (1st Cir.

2011) (No. 10-1130), 2010 WL 3213231. The brief then asked rhetorically “[w]ould the plain-

tiffs prefer that the defendants not post their prices? Should the defendants not reasonably antici-

pate the results of their pricing actions?” Id. at *31–32. The appellate court agreed with the

implicit answer. White, 635 F.3d at 585 (“Plaintiffs’ ambiguous evidence is entirely consistent

with permissible conscious parallelism.”). Economists often analyze a similar scenario of gas

stations located on opposite corners of the same intersection in a remote area as an instance of

tacit collusion. See L

OUIS

K

APLOW

, C

OMPETITION

P

OLICY AND

P

RICE

F

IXING

23–24 (2013); R

OB-

ERT

C. M

ARSHALL

& L

ESLIE

M. M

ARX

, T

HE

E

CONOMICS OF

C

OLLUSION

11–12 (2012); Dennis

W. Carlton, Robert H. Gertner & Andrew M. Rosenfield, Communication Among Competitors:

Game Theory and Antitrust, 5 G

EO

. M

ASON

L. R

EV

. 423, 428–29 (1997).

7

For a discussion of the advantages and disadvantages of casuistic over rule-based decision-

making, see Cass R. Sunstein, Problems with Rules, 83 C

ALIF

. L. R

EV

. 953, 958 (1995) (“In the

casuistic enterprise, judgments are based not on a preexisting rule, but on comparisons between

the case at hand and other cases, especially those that are unambiguously within a generally

accepted norm.”).

8

The decisions on the motions are frequently decisive of the entire litigation. Cases that

survive motions to dismiss on the pleadings may still fail on summary judgment. See, e.g., In re

Text Messaging Antitrust Litig., 782 F.3d 867, 873–79 (7th Cir. 2015) (affirming summary judg-

ment four years after the same court of appeals had affirmed the denial of a motion to dismiss in

In re Text Messaging Antitrust Litigation, 630 F.3d 622 (7th Cir. 2011)). If a case survives

summary judgment, it is frequently settled. The net effect has been substantially (and controver-

sially) to narrow the range of issues resolved as matters of fact. See Laumann v. NHL, 56 F.

Supp. 3d 280, 307 (S.D.N.Y. 2014) (“It is an unfortunate trend that judges increasingly resolve

trial-worthy disputed fact issues or characterize cases as implausible, thereby disposing of them

on motion rather than allowing them to proceed to trial.”) (citation and internal quotation marks

omitted).

2017]

T

ACIT

A

GREEMENT

U

NDER

S

HERMAN

A

CT

S

ECTION

1

595

Vineyard claimed to be doing—“mere interdependence,”

9

a process the

courts

10

and economists

11

call tacit collusion

12

—is not an agreement at all; no

matter how much it restricts output and raises prices, it is per se legal. The

Supreme Court explained in 2007 in Bell Atlantic Corp. v. Twombly

13

that the

“inadequacy of showing parallel conduct or interdependence, without more,

mirrors the ambiguity of the behavior: consistent with conspiracy, but just as

much in line with a wide swath of rational and competitive business strategy

unilaterally prompted by common perceptions of the market.”

14

Although

9

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 n.4 (2007) (quoting 6 P

HILLIP

A

REEDA

&

H

ERBERT

H

OVENKAMP

, A

NTITRUST

L

AW

¶ 1425, at 167–85 (2d ed. 2003)).

10

Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993) (“Tacit

collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes

the process, not in itself unlawful, by which firms in a concentrated market might in effect share

monopoly power, setting their prices at a profit-maximizing, supracompetitive level by recogniz-

ing their shared economic interests and their interdependence with respect to price and output

decisions.”). See also Motorola Mobility LLC v. AU Optronics Corp., 775 F.3d 816, 822 (7th

Cir. 2014) (dictum) (Posner, J.) (stating if rivals were to match a slight price increase, it would

“be an example of tacit collusion, which is not an antitrust violation”); White, 635 F.3d at 576 n.3

(“Conscious parallelism has also been called ‘tacit collusion’ or ‘oligopolistic price coordina-

tion.’” (citing Brooke Group, 509 U.S. at 227)); In re Insurance Brokerage Antitrust Litig., 618

F.3d 300, 339 n.19 (3d Cir. 2010) (equating conscious parallelism and tacit collusion and observ-

ing that courts have “found that it is not, without more, sufficient evidence of a § 1 violation,

both because it is not an agreement within the meaning of the Sherman Act, and because it is

resistant to judicial remedies”); Bailey v. Allgas, Inc., 284 F.3d 1237, 1251 (11th Cir. 2002)

(“The hallmark of an oligopoly is tacit collusion among competitors.”).

11

See, e.g., Edward J. Green et al., Tacit Collusion in Oligopoly,in 2 O

XFORD

H

ANDBOOK OF

I

NTERNATIONAL

A

NTITRUST

E

CONOMICS

464, 467–68 (Roger D. Blair & D. Daniel Sokol eds.,

2015); Richard A. Posner, Review of Kaplow,Competition Policy and Price Fixing, 79 A

NTI-

TRUST

L.J. 761, 765 (2014) [hereinafter Posner, Kaplow Review] (“What [Donald F.] Turner

called oligopolistic interdependence . . . I called and continue to call tacit collusion . . . .”).

Posner cited Donald F. Turner, The Definition of Agreement Under the Sherman Act: Conscious

Parallelism and Refusals to Deal, 75 H

ARV

. L. R

EV

. 655 (1962), which did not actually use the

term “oligopolistic interdependence” but expressed the same idea as “conscious parallelism.”

See, e.g.,id. at 671 (“[O]ligopolists who take into account the probable reactions of competitors

in setting their basic prices, without more in the way of ‘agreement’ than is found in ‘conscious

parallelism,’ should not be held unlawful conspirators under the Sherman Act even though . . .

they refrain from competing in price.”).

12

But cf. Patrick Andreoli-Versbach & Jens-Uwe Franck, Econometric Evidence to Target

Tacit Collusion in Oligopolistic Markets, 11 C

OMPETITION

L. & E

CON

. 463, 467 (2015) (distin-

guishing “[t]acit collusion[, which] arises from decisions endogenous to the market by one or

several firms that aim to reduce or eliminate competition” from “oligopolistic interdependence[,

which] stems from best response to market conditions, including other firms’ behavior, that favor

non-competitive performance”). American antitrust law makes no such distinction.

13

550 U.S. 544 (2007).

14

Id. at 554.