The Misapplication of Matsushita's Heightened Summary Judgment Standard

• Publication year: 2014
• Author: By Ara Jabagchourian

THE MISAPPLICATION OF MATSUSHITA'S HEIGHTENED SUMMARY JUDGMENT STANDARD

By Ara Jabagchourian^*

I. Introduction

The courts have long recognized that horizontal collusion in the marketplace creates a significant risk of harm to competition. Anticompetitive conduct in the form of price collusion, market division, bid-rigging, or output restriction is treated under the per se rule because of the likelihood such conduct will result in higher prices or diminished product quality. Despite these harmful consequences on the economy and consumer welfare, proof of collusion under antitrust law faces a number of hurdles. Some of those hurdles have been created by appellate decisions that have wrongly interpreted Matsushita as raising the standard to prove that an economically sensible and anticompetitive conspiracy took place.

Courts have held that direct evidence alone, such as admissions by a defendant or a document, may establish an agreement.¹ Without either a confession or a Federal Bureau of Investigation hidden camera videotaping a meeting where the rivals agree to set prices or divide the market, however, plaintiffs must rely on circumstantial evidence to prove an agreement.² Courts have recognized that "[o]nly rarely will there be direct evidence of an express agreement" in a conspiracy case,³ and have found that circumstantial evidence of informal and even tacit understandings may suffice to establish a violation of Section 1.⁴ A reliance on circumstantial evidence complicates the question of how much circumstantial evidence and of what nature is necessary to overcome a defendant's motion for summary judgment.

The core tension that arises in attempting to answer that question exists between the economic theory of interdependence or conscious parallelism in an oligopolistic market and the standards set forth under federal procedural law. For instance, does Rule 56 of the Federal Rules of Civil Procedure allow a judge to grant summary judgment when the antitrust theory is implausible, even though it is supported by circumstantial facts, or does Rule 56 merely require raising a genuine issue of material fact through circumstantial evidence and thus the plausibility issue is reserved for argument before the jury? Or is this a false dichotomy, requiring a third alternative?

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Courts have addressed these questions by developing rules for the types of evidence required to prove collusion. Under these rules, circumstantial evidence of parallel conduct, such as closely timed price increases, cannot alone prove an agreement.⁵

"'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 recognizing their shared economic interests and their interdependence with respect to price and output decisions.'"⁶ As Areeda and Hovenkamp explain, when "[e]ach firm's pricing decision is interdependent with that of its rivals[,] each knows that its choice will affect the others, who are likely to respond, and that their responses will affect the profitability of each actor's initial choice."⁷ Thus, "because of their mutual awareness, oligopolists' decisions may be interdependent although arrived at independently."⁸

Therefore, "a plaintiff must prove more than that the defendants acted in parallel; it must prove that they did so pursuant to an agreement."⁹ To prove an agreement, "a plaintiff must show additional circumstances—often referred to as 'plus factors' — which, when viewed in conjunction with the parallel conduct, would permit a fact-finder to infer a conspiracy."¹⁰ "Evidence of [] plus factors tends to ensure that courts punish 'concerted action'—an actual agreement—instead of the 'unilateral, independent conduct of competitors.'"¹¹

Those "plus factors" must "tend[] to exclude the possibility of independent action by the [parties]."¹² "That is, there must be . . . circumstantial evidence that reasonably tends to prove that [the parties] had a conscious commitment to a common scheme."¹³ Courts and commentators agree "[t]here is no finite set of [plus factors]; no exhaustive list exists."¹⁴ Nonetheless, Areeda and Hovenkamp assert, the Supreme Court's decision in Bell Atlantic Corp. v. Twombly¹⁵ "made clear that if proof of agreement rests on the existence of plus factors, at least a sufficient number of them must be pled to raise an inference of conspiracy."¹⁶

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Thus, when determining whether to grant a defendant's motion for summary judgment, courts evaluate plaintiff's alleged "plus factors" to determine whether they "tend to exclude" the possibility of independent action by the alleged conspirator. This test already inserts a judge into the typical province of the jury: evaluating the inferences that should be drawn from circumstantial evidence.

In Matsushita, the Supreme Court added another task for the district court judge: evaluating whether plaintiff's collusion claim is plausible. The Court framed the issue this way: "if the factual context renders respondents' claim implausible — if the claim is one that simply makes no economic sense — respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary."¹⁷

This article seeks to explore how courts have applied — or misapplied — Matsushita's mandate. Two circuits in particular — the third and the eighth — have misapplied Matsushita's standard to limit the inferences that can be drawn when an economically sensible and manifestly anticompetitive conspiracy is alleged. A proper understanding of Matsushita has become even more important now that the Supreme Court has required that for an antitrust claim to survive a motion to dismiss, a plaintiff must present "only enough facts to state a claim to relief that is plausible on its face (emphasis supplied)" in order to survive a motion to dismiss.¹⁸ This article will discuss how other courts and a leading antitrust commentator have criticized the misuse of Matsushita. Secondarily, the article will touch upon the "tend to exclude" analysis and how such an analysis may be too stringently applied in the summary judgment phase, especially when courts apply Matsushita's heightened standard to economically sensible conspiracies. Finally, the article will assess the ramifications associated with imposing a heightened standard to prove economically sensible and anticompetitive conspiracies.

II. Rule 56, Matsushita and the Implausible Conspiracy

Under Federal Rules of Civil Procedure 56 ("Rule 56"), courts may grant summary judgment only if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."¹⁹ There is a genuine dispute about a material fact "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."²⁰ In the context of an antitrust claim, a genuine dispute as to a material fact may be about the plausibility of allegedly anticompetitive behavior,²¹ whether that conduct had an anticompetitive effect,²² or whether there is a causal relation between the behavior and injury.²³ For the most part, prior to 1986, antitrust cases were treated no differently in regards to analysis under Rule 56 than any other case.²⁴

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Matsushita Electric Ind. Co., Ltd. v. Zenith Radio Corp. laid the groundwork for a heightened standard for a particular type of antitrust case in the summary judgment context.²⁵ The core issue in the case was centered on the proper summary judgment analysis regarding a predatory pricing conspiracy. The case was brought by two American consumer electronics (primarily televisions) companies against 21 Japanese based consumer electronics manufacturers.²⁶ The plaintiffs brought forth several conspiracy claims under Section 1 of the Sherman Act as well as monopolization claims under Section 2 of the Sherman Act and Section 2 under the Robinson-Patman Act.²⁷ The plaintiffs' key allegation was that the defendants had entered into a conspiracy for over 20 years to cut prices on electronics in the United States to drive out the American manufacturers.²⁸ The District Court granted summary judgment for defendants, reasoning that the evidence of "the alleged price-cutting conspiracy did not rebut the more plausible inference that petitioners were cutting prices to compete in the American market and not to monopolize it."²⁹

The Court of Appeals for the Third Circuit reversed.³⁰ Based on the oligopolistic market structure, coordinated agreements through Japan's Ministry of International Trade and Industry, as well as other factors, the "Court of Appeal concluded that a reasonable factfinder could find a conspiracy to depress prices in the American market . . ."³¹

The Supreme Court took up a limited review on the issue of whether the Court of Appeal applied the proper standards in evaluating the District Court's decision on summary judgment.³² The Court framed the issue this way: "if the factual context renders respondents' claim implausible—if the claim is one that simply makes no economic sense—respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary."³³

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In taking on the issue, the Matsushita Court acknowledged that on summary judgment, the inferences should be drawn in favor of the non-moving party.³⁴ However, the Court pointed out that "antitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case."³⁵ The basis of the statement is two-fold. First, as referenced above, the theory must make economic sense.³⁶ If it does not, then the respondents must put forth more persuasive evidence than normally required in a Section 1 case that makes economic sense. Second, under Section 1 of the Sherman Act, an agreement to conspire can arise explicitly or tacitly. Likewise, proving that an agreement exists can be shown through either direct or...