United States v. Andreas
216 F.3d 645 (2000)
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Rule of Law:
An agreement among competitors to allocate sales volumes constitutes a form of output restriction and is a per se violation of Section 1 of the Sherman Antitrust Act. Such horizontal market division is considered a naked restraint of trade that requires no further inquiry into its actual effect on the market or its reasonableness.
Facts:
- Archer Daniels Midland Co. (ADM) entered the global lysine market in 1991, which was previously dominated by a cartel of three Asian companies.
- ADM's entry ignited a price war that caused the price of lysine to drop significantly, from as high as $3.00 per pound to about 70 cents per pound.
- In June 1992, ADM executives, including Terrance S. Wilson, met with competitors in Mexico City to conspire to fix prices and allocate sales volumes.
- While the companies agreed on a schedule to raise prices, they initially failed to agree on how to allocate sales volumes, as ADM demanded a larger market share than competitors would concede.
- In October 1993, ADM executive Michael D. Andreas met with a competitor's top management and threatened to flood the market with lysine unless they agreed to a sales volume allocation.
- Following this meeting, the cartel agreed on specific tonnage maximums and percentage market shares for each producer.
- To enforce the agreement, the conspirators established a system where any company that exceeded its sales quota would have to buy lysine from a company that sold less than its quota, thereby eliminating the incentive to cheat by lowering prices.
- From late 1992 onward, ADM executive Mark Whitacre cooperated with the FBI as an informant, secretly recording many meetings and conversations related to the conspiracy.
Procedural Posture:
- The United States government filed a single-count conspiracy indictment against Michael D. Andreas and Terrance S. Wilson in the U.S. District Court for the Northern District of Illinois.
- Before trial, the defendants moved to suppress inculpatory tape recordings and other evidence; the district court denied the motions.
- After a two-month trial, a jury returned guilty verdicts against both Andreas and Wilson for conspiring to violate Section 1 of the Sherman Antitrust Act.
- At sentencing, the district court applied a sentence enhancement based on the volume of commerce affected but denied the government's request for an enhancement based on the defendants' leadership roles in the conspiracy.
- Andreas and Wilson (appellants) appealed their convictions and sentences to the U.S. Court of Appeals for the Seventh Circuit.
- The United States (appellee) cross-appealed the district court's denial of the leadership role sentencing enhancement.
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Issue:
Does an agreement among competitors to allocate sales volumes, which includes a mechanism to compensate for over- or under-selling, constitute a per se violation of Section 1 of the Sherman Antitrust Act?
Opinions:
Majority - Kanne, Circuit Judge
Yes. An agreement among competitors to allocate sales volumes is a per se violation of Section 1 of the Sherman Antitrust Act. The court reasoned that although the scheme did not fit the precise mold of a classic geographic or customer-based market division, it was functionally an agreement to restrict output. Output restrictions have long been treated as per se illegal because they 'always or almost always tend to restrict competition and decrease output.' Such agreements are considered 'naked restraints of trade with no purpose except stifling of competition.' The lysine cartel's plan, which included a mechanism requiring over-producers to purchase from under-producers, cemented the anti-competitive scheme by eliminating any incentive for a member to cheat by lowering its price to gain more sales. The court found no special circumstances or pro-competitive justifications, like those present in cases such as NCAA or Broadcast Music, that would warrant a departure from per se treatment.
Analysis:
This decision reinforces the broad application of the per se rule to horizontal restraints of trade under the Sherman Act. It clarifies that sophisticated or novel market division schemes, such as the sales volume allocation here, will be treated as functionally equivalent to classic output restrictions and condemned without a full rule of reason analysis. The case serves as a significant precedent, warning businesses that any agreement with competitors to limit production or sales, regardless of its specific form, is highly likely to be deemed illegal per se. This solidifies the principle that the substance of an anti-competitive agreement, not its label, determines its illegality.
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