Price-fixing cases over the past decade have read like a virtual electronics product materials list. Government investigators and civil plaintiffs have pursued actions involving a wide array of electronic parts ranging from passive components like capacitors and inverters to large, high-cost components such as LCDs and cathode ray tubes. Recently, however, a new wave of antitrust cases has emerged, and it looks far more like a grocery list.
It is now big food’s turn in the crosshairs of government regulators and civil plaintiffs. Indeed, over the past five years alone, high-profile price-fixing cases have been launched against the manufacturers of everything from milk, to mushrooms, to the biggest protein staples in the American diet: tuna, chicken and pork. And, in the past week alone, conspiracy claims have been lodged against manufacturers of beef and farm-raised salmon.
In 2015, Chicken of the Sea’s parent company Thai Union Group announced that it was scrapping its deal to acquire Bumble Bee Foods LLC for $1.5 million amid swirling disapproval from federal regulators who believed the deal would harm competition in the tuna industry.
Around the same time, the U.S. Department of Justice commenced an investigation into a price-fixing conspiracy perpetrated by Chicken of the Sea, Bumble Bee, and the third of the “big three” tuna suppliers, Starkist. Together, the three companies controlled 80% of the U.S. tuna market. In May 2017, Bumble Bee pleaded guilty to conspiring with their competitors and paid a $25 million fine. In October of last year, federal prosecutors announced that Starkist had also agreed to plead guilty and would face a fine of up to $100 million.
After blowing the whistle on the conspiracy, Chicken of the Sea was granted amnesty from criminal prosecution by the DOJ. Both Bumble Bee and Starkist have agreed to plead guilty for their role in the canned tuna price-fixing conspiracy. Four tuna industry executives were criminally charged for their part in the collusion, including the CEO of Bumble Bee.
The criminal liability is only the beginning of the big three tuna suppliers’ legal problems. Over 70 civil lawsuits have been filed by some of the largest purchasers of canned tuna in the country. Last month, Starkist settled opt-out actions brought by Target Corp., Sysco Corp. and US Foods Inc. Earlier this year, Starkist settled with Walmart for $20 million. More substantial payouts from the tuna suppliers are likely.
As for the broiler chicken industry, 17 of the country’s largest wholesale chicken producers, including Tyson Foods Inc., Sanderson Farms Inc., Pilgrim’s Pride Corp. and Perdue Farms Inc. are accused of colluding for 10 years to restrict the supply of chickens raised for consumption, and manipulate industry price indices to drive up prices. The plaintiffs contend that manufacturers went so far as to destroy breeder hens and kill newly hatched chicks in an effort to reduce their supply and, in turn, hike up profits. The case is currently pending in the U.S. District Court for the Northern District of Illinois, where the district judge has denied the defendants’ motions to dismiss.
Similarly, in August 2018, eight pork producers controlling over 80% of the market — including Tyson and Hormel Foods Corp. — were named as defendants in a class action accusing them of colluding to limit pork production, with the “intent and expected result” of increasing pork prices. Just as in Chicken, the defendants are accused of raising prices in unison by exchanging sensitive pricing data through detailed benchmarking reports. The conspirators’ actions are alleged to have affected prices of bacon, ham, hot dogs and other pork products sold in the United States since 2009.
The effect of big food's anti-competitive behavior is far reaching. The average American family that overpays for a can of tuna or a package of frozen chicken breast at the local supermarket is the clearest victim. Paradoxically, however, as products move through the distribution chain to an end consumer, the more remote — and harder to prove — the damage to the final purchaser becomes. Moreover, because the individual damage suffered from the purchase of a can of price-fixed tuna or bag of chicken nuggets is likely not very substantial on its own, the end consumer is the least likely candidate to hold the price-fixers legally accountable.
It is for these reasons that under the federal antitrust laws, only direct purchasers — i.e., the person or entity that purchases product directly from an illegal actor, and likely at far greater quantities — have the right to bring a claim for money damages caused by anti-competitive conduct. This means that the direct purchaser, like a food or electronics distributor, is entitled to the full measure of damages caused by defendants’ illegal conduct. And, the defendants may not introduce any evidence of the fact that the direct purchaser plaintiff was able to pass on part or all of the alleged overcharge to its customers.
The civil penalties for antitrust violations provide great incentives for direct purchaser plaintiffs. First, all defendants that participate in a price-fixing case (regardless of how long they participate) are jointly and severally liable for the entire conspiracy. Second, there is no right of contribution among defendants. This means that, unlike most other areas of the law, as long as a plaintiff purchased the price-fixed product from one co-conspirator, it can recover the full measure of its damages from a single defendant or group of defendants. This is true even if the plaintiff never purchased a single dollar worth of product from a defendant. Third, the antitrust laws provide for automatic trebling of a plaintiff’s damages.
These unique aspects of antitrust law help explain a relatively recent phenomenon in these cases — the emergence of the opt-out class. Those that buy directly from conspirators and in large quantities, such as distributors and retailers/ restaurants, often have the largest claims in the case, and thus frequently elect to leave the class and pursue their own cases. As a result, the claims of the opt-outs often dwarf those of the class, leading to increased prominence for the opt outs, and in turn, more control and influence over the case.
In the LCD price-fixing case, for example, over 90% of the direct purchases by dollar volume opted out of the class and brought their own actions against the defendants. This opt-out trend is continuing in the big food cases. In both the tuna and chicken actions over 60 direct purchasers have filed independent actions. The trend is not surprising. Because of the unique features of the antitrust laws, the largest customers of the illegal actors face the prospect of recovering hundreds of millions of dollars in damages. In fact, even smaller, regional companies can accrue claims that reach into the nine-figures. Cognizant of the substantial opportunities available, general counsel at the nations’ largest food retailers, distributors and restaurants are giving the green light to antitrust suits with increasing frequency.
This is likely only the beginning of a much larger and deeper dive into potential antitrust concerns in the food business. With the lid now blown on tuna, chicken and pork, government regulators and direct purchasers alike are keeping their eyes open and their ears perked when news of irregular pricing activity occurs in other areas of the supermarket.
In view of this "new normal" permeating the industry, counsel for distributors, supermarket chains, restaurants and food service operators who buy product from the nations' food producers must be equipped to understand and appreciate the opportunities that may exist as new investigations come to light. Early monitoring of antitrust developments is a must.
Because of the ubiquitous nature of the products affected (i.e. chicken and tuna), investigations into collusive behavior by food manufacturers can become top headlines. Cases in early stages of a government investigation, however, may not garner as much media attention. And, noteworthy developments are not always limited to the United States.
For example, last year, the Competition Bureau of Canada announced an investigation into price-fixing in the bread industry; whether the case will have implications here in the United States is yet to be seen. Finally, a plaintiff's best information sources might be right in front of them. Company employees that deal directly with suppliers engaging in price-fixing — such as purchasing department personnel — are best positioned to recognize persistent pricing irregularities.
Early monitoring and strategizing pays significant dividends for those that ultimately chose to opt out and pursue their own case. Because the determination as to whether to opt out of the class is often informed by complex issues such as the nature of the company's purchases and what products should and should not be included in a damages computation, the earlier a company can address those issues (oftentimes tied to historical data) the better.
Equally important is the decision of who to sue. Litigation against business partners can raise valid concerns regarding the impact the case might have on ongoing valued business relationships. It is therefore important to recognize that the decision to file an antitrust claim against a business partner is not solely a legal question. It is key, from the outset, to involve the relevant business personnel, so that all of these important issues are fully vetted before proceeding.
Finally, in order to conserve resources and create efficiencies, opt-out actions often proceed along with class actions in a multidistrict litigation format or as consolidated proceedings before the same judge for pretrial purposes. The earlier in the lifespan of the class case that the opt-out case is filed, the greater the opportunity for the opt-out plaintiff take an active and meaningful role in discovery, legal briefing, and other aspects of case strategy.