Seizing upon the "opportunity to clarify the application of the standards established" more than a quarter-century ago in Matsushita Electric Industrial Co. v. Zenith Radio Corp.[1] for determining the existence of a jury question as to collusive behavior, the Second Circuit reversed a summary judgment granted entered for an alleged price-fixer in In re Publication Paper Antitrust Litigation.[2] Relying on the Third Circuit's decision in In re Flat Glass Antitrust Litigation,[3] The three-judge panel[4] declared that the "when the conspiracy is economically sensible for the alleged conspirators to undertake and ‘the challenged activities could not reasonably be perceived as procompetitive,'" then "broader inferences are permissible from ambiguous evidence and Matsushita's requirement that the evidence ‘tends to exclude' independent conduct is "more easily satisfied."[5]  

Background and District Court Decision

Publication Paper involves a price-fixing story as classic as a boy-meets-girl, boy-loses-girl movie script (including a betrayal). Two former colleagues and close friends rose to become executives controlling North American operations and pricing for a division and subsidiary, respectively, of competing major manufacturers of commercial paper (used for publications) headquartered in Helsinki, Finland.[6] Twenty years after they had last worked together, they met for lunch and estimated that they controlled collectively 40 percent of the market for a particular grade of paper. One executive advised the other that his company, UPM, "has been a follower and will be a follower" regarding price increases.[7]  

And, as price increases were announced by the other company, SENA, or by other market participants, UPM did, in fact, follow – and the executives created voice-mails and fax transmissions that would prove to be of interest to the U.S. Department of Justice, which initiated an investigation of the industry less than two years after the executives' fateful lunch meeting.[8] When the DOJ sought to interview the UPM executive, he called his old friend from a public telephone booth and proposed that they develop a "joint story" concerning their discussions (omitting any talk of pricing), to which his competitor also agreed. But alas, the UPM executive instead decided to tell the government everything, obtaining conditional full immunity in return for the company's cooperation in the price-fixing investigation.[9]  

In the criminal trial that ensued, the UPM executive testified to the existence of an "agreement" and the SENA executive noted only "some phone calls" during which "intentions were exchanged" about price increases. The jury acquitted SENA of criminal antitrust violations.[10]  

Of course, that "beyond a reasonable doubt" verdict was far from the end of the road. After the DOJ investigation became public, nine separate civil actions were brought against various manufacturers for price-fixing in the U.S. publication paper market; they were consolidated in a multidistrict proceeding in the District of Connecticut before Judge Stefan R. Underhill; a class was certified; and defendants moved for summary judgment, which Judge Underhill granted, relying on Matsushita and finding that the class plaintiffs "failed to offer sufficient evidence to dispel the possibility that SENA and UPM acted independently."[11]  

Second Circuit Reversal

In reversing the grant of summary judgment,[12] the Second Circuit rejected Judge Underhill's statements that plaintiffs were required to "exclude" or "dispel" the possibility of independent action, finding that "places too heavy a burden on the plaintiff. Rather, if a plaintiff relies on ambiguous evidence to prove its claim, the existence of a conspiracy must be a reasonable inference that the jury could draw from that evidence; it need not be the sole inference."[13] The appellate court noted that the Matsushita standard does not apply at all in the presence of unambiguous pricefixing evidence, as direct evidence requires no competing inference.[14]  

The Second Circuit reviewed the plaintiffs' evidence, which included not only the familiar proffers concerning the industry's characteristics that were allegedly conducive to collusion (a limited number of sellers, high entry barriers, excess capacity and historically low prices during the time period), as well as the evidence of meetings and conspiratorial behavior, but also the UPM executive's testimony of the existence of an "agreement." With respect to the last point, the panel observed that even if there were ambiguity as to the alleged co-conspirator's parallel understanding of the same communications (perhaps because, as the district court noted, English was not the native language of either executive), "the testimony is surely strong evidence of a collusive scheme" that "would be sufficient to satisfy Matsushita's ‘tends to exclude' standard even if plaintiffs' theory were implausible, which it is not."[15]  

Having determined that Matsushita did not compel summary judgment on the question of an unlawful price-fixing agreement, the Second Circuit quickly dispatched the notion that there was an insufficient causal link between that agreement and the price increases for the class plaintiffs to proceed to trial. Here, the Second Circuit assumed, without deciding, that the Matsushita "tends to exclude" standard also applies to the causation element, and determined that the evidence would satisfy the standard – noting that a plaintiff need only prove enough of a link for the conduct to be a material cause of the antitrust injury (not the sole cause), citing Zenith Radio Corp. v. Hazeltine Research, Inc.,[16] and that price-fixing agreements are so pernicious and so likely to result in artificially higher prices that the defendant bears the burden of rebutting the "strong inference" of causation, relying on an earlier Second Circuit decision.[17] The panel found that defendants' arguments, inter alia, that lower-level employees made independent pricing decisions were inadequate to preclude the question of causation from going to the jury.  


Depending on how one views the facts, it seems that the Second Circuit panel said a great deal more in Publication Paper than was necessary to reverse the district court. Whether one views it as "direct" evidence or an ambiguous statement, the UPM executive's statement that an "agreement" was reached would seem to have been sufficient to put the plaintiffs' claims past the equipoise position that would be insufficient to withstand summary judgment under Matsushita. Nevertheless, the panel saw fit to "clarify" its view that while the Matsushita standard applies in the context of an "implausible" theory, it is more readily satisfied when the alleged conspiracy is economically sensible and not procompetitive – a carve-out, or at least modification, of the Matsushita rule that could potentially extend to virtually every cartel case involving consciously parallel pricing in a concentrated industry. And the panel quoted conspicuously from the Third Circuit's Flat Glass decision (one frequently cited by the antitrust plaintiffs' bar and often strongly criticized by defense counsel) to make the point.  

However, the simple motive to obtain higher profits is hardly probative of collusion, and in a concentrated industry, higher profits often result from follow-the-leader pricing in the complete absence of collusion (a simple reflection of oligopolistic interdependence, if a price increase "sticks") – an economic fact recognized previously by the Second Circuit.[18] It would not be surprising to soon see antitrust plaintiffs argue to the courts within the Circuit (and even elsewhere) that the Matsushita standard, as "clarified" by Publication Paper, should be narrowly construed, close to its own facts or theories that are similarly "implausible." This view could severely limit the availability of summary judgment in cases under Section 1 of the Sherman Act.  

In short, the Publication Paper decision may indicate that some significant pages in the Second Circuit's Matsushita book yet remain to be written.