THE FACTOR/ELEMENT DISTINCTION IN ANTITRUST LITIGATION.

• Author: Leslie, Christopher R.

TABLE OF CONTENTS INTRODUCTION 588 I. FACTOR TESTS IN THE LAW 591 II. ANTITRUST LAW'S USE OF FACTORS TO PROVE ILLEGAL COLLUSION THROUGH CIRCUMSTANTIAL EVIDENCE 593 A. Proving Price Fixing 594 B. Evaluating Plus Factors 596 III. How FEDERAL COURTS TREAT CERTAIN PLUS FACTORS AS ELEMENTS 598 A. Market Structure 599 1.Elemental? 600 2.Not an Element 602 B. Cartel Enforcement Mechanicm 604 1.Elemental? 607 2.Not an Element 609 C. Stable Market Shares 611 1.Elemental? 614 2.Not an Element 616 D. Intercompetitor Communications 619 1.Elemental? 620 2.Not an Element 622 E. Simultaneity 625 1.Elemental? 627 2.Not an Element 628 IV. THE CONSEQUENCES OF MISTREATING PLUS FACTORS AS ELEMENTS 630 A. Roadmap for Collusion 630 B. Undermining the Goals of Antitrust Law 634 C. The Solution: Treat Plus Factors as Factors 636 CONCLUSION 638 INTRODUCTION

Most areas of law make a fundamental distinction between factors and elements. In an element test, a litigant must prove a series of independent elements in order to prove their cause of action or their defense. (1) If a single element remains unproven, then the claim or the defense fails. (2) In contrast, in a factor test, no individual factor is required; (3) if it were, it would be an element. The distinction between elements and factors can be dispositive.

Like many areas of law, antitrust doctrine uses a combination of element tests and factor tests. This Article explores the as-yet unappreciated problem of federal courts confusing the relationship between elements and factors in antitrust claims. In particular, some federal judges have taken to treating factors as elements in a manner that fundamentally undermines antitrust rules against illegal price fixing.

Price-fixing conspiracies overcharge consumers by billions of dollars. (4) Meeting in luxury resorts or seedy bars, well-heeled executives socially collude with their rivals to raise prices and reduce their output. (5) Collusion among competitors is the "supreme evil of antitrust." (6) Congress intended the Sherman Act to condemn and deter price-fixing conspiracies. Courts consider price fixing to be so dangerous that it is treated as per se illegal, which means that price fixing is presumed to be unreasonably anticompetitive as a matter of law. (7)

Antitrust law both criminalizes price fixing and provides a private right of action to those harmed by illegal collusion. (8) In theory, the prospect of imprisonment and private liability should deter price-fixing activity. But antitrust law can only work if properly applied by federal courts. Unfortunately, many federal judges misapply the legal framework of antitrust law in a manner that immunizes clever conspirators from antitrust liability.

Price-fixing conspiracies are difficult to prove because cartel managers employ a range of tactics to conceal their collusion, including code names, secret meetings, and well-coordinated lies. (9) Because direct evidence of price collusion rarely exists, most antitrust plaintiffs rely on circumstantial evidence to make their cases. (10) Price-fixing litigation generally turns on whether the plaintiffs can present sufficient circumstantial evidence from which a reasonable jury could infer that the defendants did, in fact, conspire to raise the prices that they charge consumers. (11) This generally entails the proffering of plus factors, a type of evidence that suggests parallel conduct by the defendants--most notably, parallel price increases--was the product of collusion, not independent decisions. (12) Courts have recognized several plus factors from which fact-finders can infer that antitrust defendants conspired to restrain trade.

As their name suggests, plus factors are just that--factors. Proving a collection of factors may be necessary for a plaintiff's case, but no individual factor is ever required. (13) If it were, it wouldn't be a factor; it would be an element. Several federal antitrust opinions, however, have transformed certain plus factors into elements.

This Article explains how some federal courts have improperly converted some aspects of antitrust law's factor test into an element test, which raises the plaintiff's evidentiary burdens in a way that protects price-fixing conspiracies from antitrust liability. Too often, judges have suggested that the absence of a particular plus factor should constitute evidence that no conspiracy exists or ever existed. In many antitrust cases, price-fixing defendants have vigorously tried to flip the plus-factor framework on its head, imploring judges to treat individual plus factors as burdens that a plaintiff must meet.

Part I of this Article provides a brief primer on factor tests generally. Part II introduces antitrust law's plus-factor framework for inferring collusion. Because price-fixing conspirators generally conceal their collusion, antitrust plaintiffs must rely on circumstantial evidence to prove that the defendants' parallel price increases are the product of collusion, not independent action. The plus-factor framework is designed to ease the plaintiff's burden in proving collusion through use of circumstantial evidence.

As of late, however, several federal opinions have turned this pro-plaintiff apparatus on its head and converted some factors into burdens that antitrust plaintiffs must bear to get their case to a jury. Courts have done so by treating some plus factors as though they were elements that the plaintiff must satisfy. (14) Part III reviews several plus factors that various judicial opinions have treated as quasi-elements, chastising plaintiffs for not being able to prove a particular plus factor or drawing a strong negative inference from a plus factor's absence. These plus factors include: concentrated market structure, cartel enforcement mechanisms, stable market shares, intercompetitor communications, and simultaneity of price increases. (15)

Part III performs a three-part analysis for each of these plus factors. First, it describes why the plus factor is probative of collusion and, thus, a plus factor. Second, it illustrates how some courts have distorted the plus factor's probative value by treating its absence as evidence that no collusion has taken place. Third, using empirical examples and economic theory, it explains why price-fixing conspiracies can exist and thrive even without generating evidence of the particular plus factor that some courts have treated as quasi-elemental.

The plus-factor apparatus for proving collusion through circumstantial evidence only works if judges properly understand, interpret, and apply plus factors. Part IV explores the consequences of federal courts sometimes treating certain plus factors as if they were elements. Such reasoning misconstrues the plus-factor framework for proving an agreement through circumstantial evidence. Plus factors are just that--factors. They are not elements of the offense that an antitrust plaintiff must prove in order to make out a claim. This Part explains why courts should not penalize plaintiffs for not having evidence of any particular plus factor. When courts treat an absence of evidence as evidence of absence, they craft a roadmap for price-fixing cartels to harm consumers while evading antitrust liability. This undermines all the goals of antitrust: compensating victims of price fixing, disgorging ill-gotten gains, and deterring future violations.

1. FACTOR TESTS IN THE LAW

   The clear distinction between element tests and factor tests may obscure the fact that factor tests come in many varieties. Most factor tests commonly take one of two forms: balancing tests or over-the-line tests. When a factor test requires balancing, courts define a finite set of factors and each factor falls on one side of the balance. (16) Although, in theory, "a true balancing test explicitly or implicitly presents an exhaustive listing of factors to be weighed against one another," (17) courts sometimes treat the list of factors in some balancing tests as nonexhaustive. (18) Having a finite list of factors facilitates balancing because "true balancing implies rough quantification of the factors" and "the quantification must come in a commensurable measure, so as to allow an attempt at true balancing." (19) An open-ended, ever-expanding, idiosyncratic list of factors does not lend itself to this quantification and commensurability.

   In a balancing-factor test, the absence of a factor has legal significance because the presence or absence of each factor determines the overall balance of factors. (20) There are two sides of the ledger, one for factors that support the plaintiff's position and one for factors that support the defendant's position. Of course, when applying a balancing-factor test, courts and fact-finders do not merely count up the number of factors on each side of the ledger. The factors are weighed against each other, because some factors may be more important than others. (21)

   In contrast to balancing tests, over-the-line tests do not entail weighing. These tests require the party with the burden of proof to present enough factors to meet their burden. (22) The two-sided ledger is replaced with a line--an evidentiary threshold that the party with the burden of proof must cross. (23) So long as that party can present enough evidence--a sufficient number of factors--the test is satisfied. (24) Under this approach, there is no finite list of factors, all of which must be discussed and assigned labels of pro-plaintiff, pro-defendant, or neutral. (25) This approach requires no balancing of factors.

   In both versions of these factor tests, no single factor is ever required. (26) If a factor were required, it wouldn't be a factor; it would be an element. Confusing a factor for an element, or vice versa, will necessarily distort the analysis--and sometimes the results--in many legal disputes.

   In the context of antitrust litigation, mistakenly treating a factor as an element can lead...