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In re Text Messaging Antitrust Litigation

Court of Appeals for the Seventh Circuit
630 F.3d 622 (2010)
ELI5:

Rule of Law:

To state a plausible claim for an antitrust conspiracy under Bell Atlantic Corp. v. Twombly, a complaint must allege more than just parallel conduct; it must include additional 'plus factors' such as an industry structure conducive to collusion, opportunities for direct communication, and anomalous pricing behavior that suggest a preceding agreement.


Facts:

  • Four defendant companies collectively controlled 90% of the U.S. text messaging services market.
  • The defendants were members of a trade association where they exchanged price information directly at meetings.
  • Within the association, defendants formed an elite "leadership council" with a stated mission to substitute "co-opetition" for competition.
  • While the defendants' costs for providing text messaging were steeply falling, they all increased their prices.
  • The defendants simultaneously and uniformly changed their heterogeneous and complex pricing structures to a single, common pricing structure.
  • Following the structural change, the defendants all jacked up their prices by a third at the same time.

Procedural Posture:

  • Plaintiffs filed a class action suit in the U.S. District Court, charging defendants with conspiring to fix prices of text messaging services.
  • The district court dismissed the plaintiffs' first amended complaint.
  • The plaintiffs were permitted to file a second amended complaint.
  • Defendants objected to the second amended complaint, arguing it still failed to state a claim under Bell Atlantic Corp. v. Twombly.
  • The district court judge certified the question of the second amended complaint's adequacy for an interlocutory appeal under 28 U.S.C. § 1292(b).
  • Defendants petitioned the U.S. Court of Appeals for the Seventh Circuit for permission to bring the appeal.

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Issue:

Does a complaint alleging an antitrust conspiracy satisfy the Twombly plausibility standard when it pleads parallel conduct plus other circumstantial evidence, such as a highly concentrated market, direct information exchange at trade association meetings, and simultaneous, uniform price increases despite falling costs?


Opinions:

Majority - Posner, Circuit Judge

Yes, a complaint alleging an antitrust conspiracy satisfies the Twombly plausibility standard when it alleges not just parallel conduct but also 'plus factors' that make a preceding agreement plausible. The core purpose of the Twombly standard is to prevent defendants from being subjected to burdensome discovery in cases of 'extremely dubious merit.' However, a complaint does not need to present direct evidence—a 'smoking gun'—of a conspiracy. Circumstantial evidence can be sufficient to establish a 'nonnegligible probability' that the claim is valid. Here, the plaintiffs alleged parallel behavior (simultaneous price hikes) that was anomalous in a competitive market (costs were falling), coupled with an industry structure ripe for collusion (a four-firm oligopoly). The complaint further identified a specific mechanism for collusion—a trade association and its 'leadership council'—where price information was exchanged. The combination of these 'parallel plus' allegations pushes the claim from merely conceivable to plausible, warranting the progression to discovery.



Analysis:

This decision provides crucial guidance on the application of the Twombly plausibility standard in complex antitrust litigation. It clarifies that while Twombly heightened pleading requirements to screen out speculative claims, it did not create an insurmountable barrier requiring direct evidence of conspiracy at the outset. The court's endorsement of the 'parallel plus' framework, where parallel conduct is combined with circumstantial evidence like market structure and suspicious behavior, establishes a clear pathway for plaintiffs to survive a motion to dismiss. This ruling ensures that potentially meritorious antitrust cases based on strong circumstantial evidence can proceed to discovery, where direct evidence of an agreement may be uncovered.

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