Kleen Prods. LLC v. Georgia-Pacific LLC
910 F.3d 927 (2018)
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Rule of Law:
Under Section 1 of the Sherman Act, a plaintiff alleging a price-fixing conspiracy must present evidence that tends to rule out the possibility that the defendants were acting independently, as lawful conscious parallelism in an oligopoly does not constitute an illegal agreement.
Facts:
- Containerboard is a standardized commodity product with inelastic demand, high barriers to entry, and is manufactured at large, costly mills by a handful of major players in an oligopolistic market.
- From February 2004 to November 2010, containerboard prices rose dramatically, with defendant manufacturers (including Georgia-Pacific and WestRock) attempting price increases on 15 occasions, often following a lead firm with identical or comparable increases.
- During this period, overall North American containerboard production capacity fell, with original defendant companies, including WestRock, closing a significant number of mills, and Georgia-Pacific slowing its rate of production to avoid excess inventory while never missing an order.
- Company executives and other employees, including those from Georgia-Pacific and WestRock, were in regular communication by phone and at trade association meetings, some discussing interfirm trading of containerboard.
- Internal and public-facing statements by employees, including a Weyerhaeuser employee discussing a specific increase two days before WestRock announced it, and a Norampac executive stating 'you have to be ready to let go business if you want to keep the price up,' suggested coordinated behavior or foreknowledge of price increases.
- WestRock filed for bankruptcy in 2009 and received a discharge in June 2010, which eliminated any antitrust liability incurred up to the date of discharge.
Procedural Posture:
- In September 2010, direct purchasers of containerboard ('the Purchasers') filed a putative class action suit in district court, alleging violations of Section 1 of the Sherman Act against multiple manufacturers.
- The district court consolidated the suit with similar actions and denied several motions to dismiss.
- In March 2015, the district court granted the Purchasers' motion for class certification, defining a nationwide class of direct buyers.
- The Seventh Circuit Court of Appeals affirmed the class certification decision in Kleen Prods. LLC v. Int'l Paper Co., 831 F.3d 919 (7th Cir. 2016).
- Back in the district court, the remaining defendants, Georgia-Pacific LLC and WestRock CP, LLC, moved for summary judgment after other defendants had settled.
- The district court granted Georgia-Pacific and WestRock summary judgment, concluding that the record did not tend to rule out the possibility of independent action, and entered partial final judgment for these defendants under Federal Rule of Civil Procedure 54(b).
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Issue:
Does circumstantial evidence of parallel pricing, output reductions, and interfirm communications in an oligopolistic market tend to exclude the possibility of independent, self-interested business conduct sufficiently to raise a triable issue of fact for a Sherman Act Section 1 conspiracy claim?
Opinions:
Majority - Wood, Chief Judge
No, the circumstantial evidence presented by the Purchasers, including parallel pricing, output reductions, and interfirm communications, does not tend to exclude the possibility that Georgia-Pacific and WestRock engaged only in independent, self-interested business conduct, and therefore does not establish a triable issue for a Sherman Act Section 1 conspiracy claim. The court reiterated that Section 1 prohibits agreements that restrict competition, but not independent oligopolistic behavior, even if it results in consciously parallel conduct. Citing Bell Atlantic Corp. v. Twombly and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., the court emphasized that a plaintiff at summary judgment must present evidence tending to rule out independent action. While the containerboard market's structure is conducive to collusion, it is equally conducive to lawful conscious parallelism. The parallel price hikes, even if frequent, are consistent with rational self-interest in an oligopoly. The 40% failure rate of price increases undermined the notion of a disciplined cartel. Regarding output restrictions, WestRock's mill closures, while potentially 'perilous leading' (risky without an agreement), largely occurred pre-bankruptcy discharge, and there was insufficient evidence it rejoined a conspiracy post-discharge. Georgia-Pacific's production adjustments were flexible and consistent with an independent 'run-to-demand' strategy. Frequent communications between executives, without evidence of specific illicit discussions, only prove the opportunity to conspire, which is insufficient under Monsanto Co. v. Spray-Rite Serv. Corp. and In re Text Messaging Antitrust Litigation. Finally, incriminating internal statements, if not directly attributable to Georgia-Pacific, or if specific to WestRock, largely predated its bankruptcy discharge, leaving no post-discharge evidence of renewed participation in an agreement. The court found that the evidence, even viewed in aggregate, did not sufficiently shift the balance away from the inference of independent action.
Analysis:
This case reinforces the high evidentiary burden antitrust plaintiffs face when alleging a Section 1 conspiracy in oligopolistic markets, particularly at the summary judgment stage. It solidifies the principle that 'conscious parallelism' – independent but parallel business conduct – is not illegal under the Sherman Act, even if it leads to similar economic outcomes as a conspiracy. The ruling emphasizes the need for evidence that 'tends to rule out' independent action, rather than merely presenting a plausible alternative interpretation. This decision makes it more challenging for plaintiffs to bring successful antitrust claims against industries with inherent oligopolistic characteristics unless they can uncover direct evidence of an explicit agreement or highly compelling circumstantial evidence that makes independent action economically irrational.
