In the recent Bell Atlantic Corp. v. Twombly decision, the U.S. Supreme Court held that allegations of parallel business conduct by competing companies, without more, are not enough to sustain an antitrust lawsuit. The decision should help antitrust defendants avoid becoming embroiled in costly discovery and related proceedings based on vague allegations of conspiracy. The Court held that allegations that plausibly suggest the existence of an illegal “agreement” were necessary to state a claim under Section 1 of the Sherman Act. Otherwise, the Court reasoned, entities that engage in independent conduct that was consistent with rational competitive behavior would be accused of violating the Sherman Act merely because competitors took similar action.
Federal antitrust law prohibits agreements among competitors that unreasonably restrain trade. Included among Section 1 violations are: (1) agreements among competitors to limit price competition ("price fixing"); (2) joint actions resulting in refusals to deal with certain competitors, customers, or suppliers, or to sell in particular territories ("boycotts"); and (3) agreements among horizontal competitors to allocate customers or geographic or product markets ("market division").
At issue in Twombly was whether a complaint that alleged an agreement based on parallel conduct by defendants, but did not allege facts showing the existence of an actual agreement, could proceed. Overturning the Court of Appeals for the Second Circuit, the Supreme Court held that "allegations of parallel conduct … must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action."
The Supreme Court emphasized the need to scrutinize the adequacy of the allegations in antitrust lawsuits to prevent businesses from improperly being subjected to very costly litigation. The cost of discovery alone in antitrust litigation is so burdensome that companies often settle even frivolous cases simply to avoid the expense. Prior to this ruling, plaintiffs could file lawsuits based on allegations of parallel conduct and proceed through discovery to fish for some evidence of agreement. Such an approach has enabled "a plaintiff with ‘a largely groundless claim’ [to] be allowed to ‘take up the time of [others] … with the right to do so representing an in terrorem increment of the settlement value’"
In recent years, the Supreme Court has dealt with a number of antitrust issues and has two remaining cases on its docket for this term addressing the per se rule against vertical minimum price fixing, and the standard for implied antitrust immunity in underwriting syndication for securities offerings. Because antitrust laws are complex and damages can be large, it is important that companies have in place effective antitrust compliance programs.