Opinion ID: 2936316
Heading Depth: 2
Heading Rank: 3

Heading: Traditional Conspiracy Evidence

Text: We now consider the most important plus factor in this case: whether there is enough traditional conspiracy evidence to create a reasonable inference that the Chocolate Manufacturers conspired to fix prices. The Plaintiffs identify several categories of traditional conspiracy evidence, but the most important is evidence of the contemporaneous Canadian conspiracy. We therefore discuss the Canadian conspiracy evidence first, followed by the Plaintiffs’ other traditional conspiracy evidence.
conspiracy 29 The Individual Plaintiffs and the Direct Purchaser Class do not ascribe the same meaning to the Canadian conspiracy evidence. According to the Individual Plaintiffs, it is reasonable to infer a domestic conspiracy from the evidence of a Canadian conspiracy based on the fact that the Canadian market is a similar adjacent market involving the same participants. The Individual Plaintiffs further contend that a jury should be permitted to weigh evidence of the Canadian conspiracy in assessing the credibility of the Chocolate Manufacturers’ explanations for the U.S. price increases. Finally, the Individual Plaintiffs argue, based on testimony from their economic expert, that the Canadian conspiracy “actuated” or facilitated the U.S. conspiracy. According to Dr. Vellturo’s actuation theory, the sharing of information between the Chocolate Manufacturers and their Canadian counterparts led the Chocolate Manufacturers to observe the success of the Canadian conspiracy and implement a tacit or express U.S. conspiracy. See J.A. 2191– 92. On appeal, the Direct Purchaser Class distances itself from the actuation theory, arguing instead that the Canadian conspiracy is relevant to assessing the Chocolate Manufacturers’ conduct because it enhances the plausibility of a domestic conspiracy. We have not considered what inferences may be permissibly drawn from evidence of a foreign antitrust conspiracy about the existence of a domestic antitrust conspiracy. The Areeda treatise guides our analysis, and we quote from it at length: Illegal behavior elsewhere in time or place does not generally allow the inference of an immediate conspiracy. If the immediately challenged behavior would not imply a conspiracy among firms that are similar to the defendants [but that are not involved in a 30 conspiracy elsewhere], then a distinct conspiracy in the past or in a different market has little power to explain the present behavior. But if there is other evidence of a present conspiracy, the defendants’ sins elsewhere may cast doubt on the truthfulness of their innocent explanations. Of course, the scope of a proved conspiracy will often be uncertain. It may be difficult to define the boundaries of a conspiracy proved to cover an adjacent time period, product, or region. Competitors who were conspiring in this market yesterday may still be doing so today. Parties who are conspiring in New York may be doing the same in New Jersey. If immediate parallelism is as likely to result from present interdependence as from proved conspiracy in the past, we should not lightly assume in fact or presume in law that the earlier conspiracy continues. Contemporaneous conspiracies in adjacent geographic markets could reasonably be deemed sufficient to transfer to the defendants at least the burden of going forward with evidence of an explanation that performance is different in the second market, that any motivation for conspiracy in one market does not extend to the other, or that the personnel or other circumstances make it unreasonable to interpret the proved conspiracy as extending to the adjacent market. Areeda & Hovenkamp, supra, ¶ 1421a, at 160. 31 The Second and Eleventh Circuits have taken positions consistent with the Areeda treatise. In In re Elevator Antitrust Litigation, 502 F.3d 47, 51–52 (2d Cir. 2007) (per curiam), the Second Circuit concluded that a claim of a domestic or worldwide conspiracy in the elevator and elevator services markets was unsupported by allegations of a conspiracy in the European elevator market given the absence of “any evidence of linkage between” the foreign and domestic conduct. Without such a link, the plaintiffs’ argument was merely “‘if it happened there, it could have happened here.’” Id. at 52. Similarly, in Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1316–17 (11th Cir. 2003), the Eleventh Circuit held that a district court did not abuse its discretion in excluding evidence of contemporaneous foreign conspiracies involving cigarette manufacturers that were also charged with a domestic antitrust conspiracy. The court reasoned that without “some palpable tie between these overseas activities and [the manufacturers’] pricing actions in the United States, the foreign undertakings . . . do not tend to exclude the possibility of independent action in the setting of domestic cigarette prices.” Id. at 1317. We are persuaded by the sensible approach articulated by the Areeda treatise and inherent in the reasoning of the courts in Elevator and Williamson Oil. A conspiracy elsewhere, without more, generally does not tend to prove a domestic conspiracy, especially when the conduct observed domestically is just as consistent with lawful interdependence as with an antitrust conspiracy. To hold otherwise would sanction the use of unabashed propensity reasoning—the fallacy that “if it happened there, it could have happened here”—to prove a domestic conspiracy using evidence of a foreign conspiracy. But if two markets are sufficiently similar or adjacent and the relevant activities therein are sufficiently 32 linked or tied in some way, e.g., the people involved in the conspiracies are the same or overlapping, it may be reasonable to use evidence of a foreign conspiracy to support an inference of a domestic conspiracy.13 Based on our review of the record, we conclude that the Plaintiffs have not adequately linked the Canadian conspiracy to the purported U.S. conspiracy to justify using the former to support an inference of the latter. First, the people involved in the Canadian conspiracy are different from those involved in the purported U.S. conspiracy. Granted, Mars Canada and Hershey Canada are subsidiaries whose executives report to and receive final approval from U.S. executives on certain decisions, including pricing decisions. 13 Our decision in Flat Glass is not to the contrary. There we noted in dicta that evidence of a defendant’s price fixing in a market for original equipment manufacturer glass would be relevant to the claim that the same defendant also conspired to fix prices in the market for flat glass, a closely related but distinct product market in the same geographic area. See 385 F.3d at 377–78. The evidence in Flat Glass involved identical companies and one executive who participated in the price-fixing conspiracies in both product markets. It is therefore consistent with the rule stated above because the people and companies involved in both conspiracies overlapped. Nor does the standard we adopt here conflict with Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962). Continental Ore is inapposite because the relevant foreign conduct in that case was part of a single conspiracy that “was effectuated both here and abroad,” id. at 706, and the Plaintiffs do not contend a single conspiracy existed here. 33 But the evidence does not show that any U.S. executives were involved in the Canadian trade spend or price-fixing conspiracies. The evidence instead shows that the conspiratorial conduct occurred in Canada when Canadian executives and ITWAL agreed to limit trade spend or raise prices in concert, not when they received final approval from U.S. executives on price changes. And as for Nestlé USA, the case is stronger yet. Nestlé Canada is not a subsidiary of Nestlé USA, and Nestlé Canada’s pricing decisions did not need Nestlé USA’s approval. Second, although the Canadian and U.S. markets are in a sense adjacent, they are not adjacent in the same way that the New York and New Jersey markets are, to use the example from the Areeda treatise. The Canadian Chocolate Manufacturers are distinct legal entities operating in a different country, and their wrongdoing does not tend to show that the Chocolate Manufacturers engaged in similar wrongdoing in the United States. Cf. Ins. Brokerage, 618 F.3d at 341 n.44 (“[A] subsidiary is a distinct legal entity and is not liable for the actions of its parent or sister corporations simply by dint of the corporate relationship.”). Third, the circumstances surrounding the Canadian conspiracy are markedly different from the purported U.S. conspiracy, and comparing the two reveals gaping holes in the Plaintiffs’ proof in this case. In Canada, ITWAL played a primary role in instigating, organizing, and facilitating the Canadian conspiracy; the Plaintiffs here identify no similar U.S. player. In Canada, the conspiracy involved concerted action on trade spend in addition to price fixing; the purported U.S. conspiracy only involved price fixing. In Canada, the Canadian Chocolate Manufacturers’ most senior executives exchanged pricing information and agreed to fix prices, see, e.g., J.A. 14106 (describing a November 22, 2007, telephone 34 call between a Nestlé Canada executive and a Hershey Canada executive in which the Hershey Canada executive promised that Hershey Canada would follow a Nestlé Canada price increase); J.A. 11817–18 (Sculthorpe of Cadbury Canada testifying to a meeting with Leonidas of Nestlé Canada where Leonidas said Nestlé Canada was raising prices and Sculthorpe said Cadbury Canada would follow); the Plaintiffs here can point to hardly any communications, let alone pricing communications, among the Chocolate Manufacturers’ U.S. executives. And in Canada, Cadbury Canada’s cooperation with the Canadian Competition Bureau’s investigation yielded evidence of conspiratorial conduct in Canada; Cadbury’s settlement with the Plaintiffs here required cooperation as a condition of the settlement, but despite that cooperation, no similar evidence was uncovered in the United States. As to the actuation theory, we reject its application here for the reasons stated by the District Court.14 The actuation theory posits that conspiratorial “conduct and outcomes” in Canada facilitated an unlawful U.S. conspiracy. 14 We have doubts about the actuation theory and whether it unduly blurs an already fine line between lawful interdependence and unlawful conspiracies, especially when the alleged conspiracy involves price fixing among oligopolists supposedly formed by a tacit agreement. “[E]ven when each firm rests its own [pricing] decision upon its belief that competitors will do the same,” that only shows interdependence, not a conspiracy. Clamp-All, 851 F.2d at 484. But because the District Court concluded that Dr. Vellturo’s theory was admissible and the Chocolate Manufacturers do not challenge that decision on appeal, we reject the theory’s application on its own terms. 35 J.A. 2192. The theory therefore presumes a factual foundation, namely that the U.S. decision makers knew of the unlawful conduct in Canada and their knowledge of that conduct gave them confidence to raise U.S. prices by a tacit or express agreement. See J.A. 2186 (concluding that the U.S. price increases were the result “of collusion (either tacit or express) that was actuated as a result of information and confidence collected by [the Chocolate Manufacturers] on the development, execution and conduct of conspiratorial action among their Canadian operations”).15 15 Dr. Vellturo’s explanation of the actuation theory in his report drives home the point. There he opines that before 2002, the Chocolate Manufacturers were unable to raise prices together. Posing a thought experiment, he says to “consider a scenario in which U.S. executives from each Defendant with pricing authority for both the U.S. and Canada fly to a meeting in Canada” and “[w]ithout ever uttering an express word regarding U.S. prices, the three executives agree to raise prices in Canada by 10%.” J.A. 2193. The thought experiment continues with the executives returning to the U.S. and monitoring the Canadian outcomes, and then, without any further communication, one firm announces a price increase of 10% in the U.S. Dr. Vellturo opines that under these circumstances, the “coordinated anticompetitive agreement in Canada has significantly changed the information known about likely responses to a price increase in the U.S. by these same companies,” with the price leader expecting the other companies to follow the price increase. J.A. 2194. This thought experiment presumes not only that the conspirators in the U.S. knew of the Canadian conspiracy but also that the U.S. conspirators are the same people as the Canadian conspirators. 36 And for good reason. Unless there is direct or circumstantial evidence showing that the U.S. Chocolate Manufacturers knew of the unlawful Canadian conspiracy, the U.S. Chocolate Manufacturers would have no basis to know whether the Canadian parallel trade spend reductions and pricing were the result of a conspiracy or interdependence. If we inferred the existence of a U.S. conspiracy based on evidence that only shows that U.S. Moreover, at oral argument, counsel for the Individual Plaintiffs clearly explained that Dr. Vellturo premised his theory on evidence showing “that the U.S. executives with pricing authority at a minimum knew that there was a [sic] joint conduct in Canada, [and] at a maximum directed that it occur.” Oral Argument at 25:38, available at http://www2. ca3.uscourts.gov/oralargument/audio/14- 2790InReChocolateConfectionaryAntitrust.mp3. That being said, Dr. Vellturo backtracked in his deposition by asserting that the U.S. Chocolate Manufacturers’ awareness of the Canadian conspiracy was “not essential to [his] opinion.” J.A. 2529. In that case, we acknowledge that the factual prerequisites for this variation of the actuation theory—that the Chocolate Manufacturers monitored Canadian prices and communicated (lawfully) with their Canadian affiliates—are satisfied. But under this variant theory, the inference of a U.S. conspiracy is tenuous because the U.S. result of parallel pricing is perfectly consistent with interdependence. See Areeda & Hovenkamp, supra, ¶ 1422b, at 170 (noting that facilitating devices alone do not imply a traditional conspiracy because “any parallelism in subsequent behavior will often be of the sort that can be satisfactorily explained by oligopolistic interdependence alone and without regard to the facilitating practice”). 37 executives observed the parallel outcomes in Canada but had no knowledge of the cause of those outcomes (a conspiracy or interdependence), we would chill lawful conduct. We would essentially prohibit an oligopolist from recognizing its interdependence in a foreign market and applying those lessons in a domestic market, even though interdependence at home or abroad is lawful under the Sherman Act. If interdependence alone is not unlawful, we fail to see how evidence that effectively shows “interdependence squared” suddenly would create a reasonable inference of a U.S. conspiracy. Therefore, for the actuation theory to make a meaningful dent in the Plaintiffs’ burden, they must show more than similar outcomes in Canada and the United States; they must instead show that the unlawful Canadian conduct actuated, facilitated, or informed the U.S. conduct.16 The District Court correctly found factual support for the actuation theory lacking in this case, either in the form of the U.S. Chocolate Manufacturers’ direct participation in or knowledge of the Canadian conspiracy. First, the theory finds no support in a 2007 email from Humberto Alfonso, a U.S.- based Hershey executive, connecting Eric Lent, the new General Manager of Hershey Canada, with Schulthorpe, Cadbury Canada’s President. In the email, Alfonso wrote, “In keeping with the good advice from ‘The Godfather,’ keep close to your competition.” J.A. 8380. Because Alfonso participated in the 2007 U.S. pricing decision, and perhaps also because he appears to have referenced the sinister words 16 To the extent Dr. Vellturo’s opinion is based only on similar outcomes, see supra note 15, it is insufficient on its own to create a reasonable inference of a conspiracy. 38 of Michael Corleone from The Godfather Part II,17 the Direct Purchaser Class wants us to infer something more sinister from this social introduction—that Alfonso encouraged or facilitated the Canadian conspiracy. But social contacts between competitors without more are not unlawful. See Baby Food, 166 F.3d at 133. Without anything else to suggest Alfonso’s further involvement in the Canadian conspiracy, and with Alfonso’s sworn declaration that he sent the email only as a social introduction and lacked knowledge of the Canadian conspiracy, see J.A. 12996–97, we cannot read this email as anything other than a social introduction. Nor does Leonidas, CEO of Nestlé Canada, establish the necessary link between the Canadian and U.S. markets. According to the Plaintiffs, Leonidas played a key role in the Canadian conspiracy and regularly interacted with U.S. executives, including with Nestlé USA’s team when Nestlé considered buying Hershey in 2002. But this purported common player did not have pricing authority for the U.S. market and none of Leonidas’s documented communications with U.S. executives hinted at illegal conduct in Canada, leaving a significant gap in the inferences the Plaintiffs ask us to draw to connect the two conspiracies. A set of emails from Hershey Canada executives to Hershey executives in the U.S. is also not enough. In 2003, Bruce Brown, Hershey Canada’s General Manager, emailed Burt Snyder, the Interim President of Hershey International, shortly after Nestlé Canada initiated a price increase. Speaking of the Canadian market, Brown said he had “some intelligence” that “[Mars] is anxious to follow [Nestlé’s] price 17 “My father taught me . . . keep your friends close, but your enemies closer.” The Godfather Part II (Paramount Pictures 1974). 39 increase but would rather have Hershey or Cadbury announce ahead of them.” J.A. 7174. Brown went on to call Cadbury “the wild card” because he had heard rumors of Cadbury taking a price increase but also of Cadbury offering deep discounts to certain stores. Id. Snyder responded by approving the proposed price increase. In 2005, Brown emailed J.P. Bilbrey, the President of Hershey International, to say Brown “had heard rumours swirling around about a potential competitive price increase (Nestl[é]/Cadbury) in Canada . . . and had it confirmed last week, although details are sketchy.” J.A. 8316. And in October 2007, following a meeting between Hershey Canada General Manager Lent and Leonidas where Leonidas told Lent that Nestlé Canada would be increasing prices, J.A. 11941, an email circulated among Hershey executives in the U.S., noting that “[Lent] knows Nestl[é]’s [p]ricing in Canada, and hears [Mars/Cadbury] following,” and that Cadbury Canada and Nestlé Canada had “floated” price increases. J.A. 8421–22. The October 2007 emails, however, made no reference to the meeting between Lent and Leonidas. Even assuming the Plaintiffs are correct that an inference could be drawn from these emails that some Hershey executives in the United States were aware of the Canadian conspiracy (an inference better supported by some emails than others), that is all they show; they say nothing about what Mars and Nestlé USA knew. Indeed, the record is devoid of evidence showing that Mars and Nestlé USA knew 40 of the Canadian conspiracy.18 Even if the Canadian conspiracy informed Hershey’s unilateral actions, it could not have facilitated a U.S. conspiracy if two of the three purported conspirators (including Mars, the price leader in all three instances) were unaware of the Canadian conspiracy. In sum, under any of the theories presented by the Plaintiffs, there must be a sufficient factual basis for the Canadian conspiracy to be relevant to or facilitative of the purported U.S. conspiracy. Because such evidence is lacking, 18 A September 2005 email from Don Robinson, President of Mars Canada, to Robert Gamgort, President of Mars North America, does not show that Mars executives in the U.S. knew of the Canadian conspiracy. In that email, Robinson said that “an industry wide price increase has been rumoured for a few weeks” and reported the price increases already taken and being taken by Mars Canada’s competitors. J.A. 1395. Unlike the aforementioned 2003 Brown to Snyder email, for example (which suggested that Hershey Canada contemplated a coordinated response to a Nestlé Canada price increase with its rivals), this Mars email does not include information that tends to show a Canadian conspiracy. Nor does a March 2002 email from Frank Higgins, Vice President of Marketing for Nestlé USA, to other Nestlé USA executives show that Nestlé USA knew of the ongoing Canadian conspiracy. In that email, Higgins reported on a Hershey Canada price increase and promised he would “get[] more information from Nestl[é] Canada to assess the likelihood that they will increase prices in the US.” J.A. 7394. This email shows that Nestlé USA monitored outcomes in Canada but says nothing of whether Nestlé USA knew the price increases there were the result of interdependence or a conspiracy. 41 the contemporaneous Canadian conspiracy does not support a reasonable inference of a U.S. conspiracy, and we move on to consider other traditional conspiracy evidence.
information The Plaintiffs also highlight evidence that they argue shows that the Chocolate Manufacturers exchanged pricing information before they publicly announced the price increases. Specifically, the Plaintiffs point to an internal Hershey document from 2002 reflecting that Hershey knew as early as September 2002 that “Mars [wa]s considering a price increase due to rising cocoa costs,” J.A. 5300, even though Mars did not publicly announce a price increase until December. According to the Direct Purchaser Class, only a small group of Mars senior executives knew about the planned price increase in September, and Hershey reacted by changing its internal pricing system in anticipation of a price increase, both of which, the Direct Purchaser Class argues, support an inference that the information was more than rumor and came from Mars executives. Hershey insists that it did not obtain the information from Mars, citing an internal pricing presentation from October 2002 stating that “[third] party cocoa suppliers believe Mars will soon take a price increase.” J.A. 4606. That Hershey had advance warning of Mars’s price increase is further supported, the Plaintiffs contend, by a memo from Hershey CEO Lenny to the Hershey board stating that the Mars 2002 price increase was “roughly in line with expectations,” J.A. 4620. Additionally, the Direct Purchaser Class points to a 2004 Hershey memo, again from Lenny to the Hershey board, stating that Hershey “received confirmation that both Mars and Nestl[é] have also raised their prices on loose bars.” J.A. 42 5276. Lenny’s statement came two days before Nestlé USA publicly announced its price increase. According to the Hershey vice president who passed the information about Nestlé USA’s price increase on to Lenny, the information came from a customer, not Nestlé USA. See J.A. 12999. The “mere possession of competitive memoranda” is not evidence of concerted action to fix prices. Baby Food, 166 F.3d at 126. In Baby Food, the plaintiffs also relied on the defendants’ possession of documents that contained competitor pricing information in advance of any public announcements. Low-level employees gathered some of the information, but the defendants provided no explanation as to how they obtained other information. Still, we decided that this evidence did not support the plaintiffs’ conspiracy claim. Id. For information that came from low-level employees, we viewed it as less worrisome than if it had come from upperlevel executives. Id. at 125–26 & n.8. We also insisted on proof that such information “had an impact on pricing decisions.” Id. at 125. Even for the advance information from unexplained sources, we noted that “it makes common sense to obtain as much information as possible of the pricing policies and marketing strategies of one’s competitors.” Id. at 126. In Flat Glass, we distinguished Baby Food and held that the evidence showing possession of advance pricing information supported an inference of conspiracy. The evidence in Flat Glass showed that the information exchanges occurred among the conspiring companies’ upper ranks and that the exchanges affected prices. See 385 F.3d at 369 (citing example of a fax from one competitor to another revealing the sender’s planned price increase and noting that the fax recipient announced an identical price increase before the fax sender). We summarized the evidence: 43 [H]ere the exchanges of information are more tightly linked with concerted behavior and therefore they appear more purposive. Several of the key documents emphasize that the relevant price increases were not economically justified or supportable, but required competitors to hold the line. Others suggest not just foreknowledge of a single competitor’s pricing plans, but of the plans of multiple competitors. Predictions of price behavior were followed by actual price changes. The inference of concerted rather than interdependent action is therefore stronger. Id. On the spectrum of advance pricing evidence, the Plaintiff’s evidence here is much closer to the evidence in Baby Food than to the evidence in Flat Glass. The Plaintiffs have no direct or strong circumstantial evidence that the information came from Hershey’s competitors, much less their upper-level executives. The information is also limited to advance pricing information and, unlike in Flat Glass, does not reveal pricing plans dependent on others following. Furthermore, the two-day notice of Nestlé USA’s 2004 price increase came after Hershey had already announced its price increase, so it is hard to say it affected Hershey’s pricing decision. Finally, the record shows that the Chocolate Manufacturers’ pricing actions were intended to, and in some cases did, catch their rivals by surprise. See J.A. 1261 (Mars 2002 internal document explaining how Mars leading a price increase could “disrupt[] distracted competition”); J.A. 3641 (Hershey 2004 email from David West stating he was “[a]ngry at [him]self” that Hershey did not anticipate Mars’s 2004 price increase on packaged products); J.A. 5274 (Mars 44 2007 email from Gamgort praising Mars’s 2007 price increase as brilliantly timed because it “caught [Hershey] and [Nestlé USA] totally by surprise”). In sum, gathering the price information of competitors can be just as consistent with lawful interdependence as with a price-fixing conspiracy. See Baby Food, 166 F.3d at 126. The evidence summarized above does not support an inference of a conspiracy.
communications The Plaintiffs also contend that the Chocolate Manufacturers had opportunities to conspire during the proposed sale of Hershey and at trade show meetings. The Plaintiffs’ evidence is essentially that the executives from the Chocolate Manufacturers were in the same place at the same time, which is insufficient to support a reasonable inference of concerted activity. See Petruzzi’s, 998 F.2d at 1235. Even if we assume that Nestlé USA learned of Hershey’s commodities cost coverage during the 2002 sale process 45 (which is far from clear),19 there is nothing to suggest that Hershey and Nestlé USA used the sale process to hatch a price-fixing conspiracy, especially because Mars, the price leader in 2002, was uninvolved in the sale process. This evidence of mere opportunities to conspire stands in stark contrast to the evidence of secret meetings and communications in the Canadian conspiracy and cannot alone support an inference of a conspiracy. Relatedly, the Direct Purchaser Class argues that there is evidence of improper communications among the Chocolate Manufacturers’ employees and that these communications support an inference of a conspiracy. The Class cites (1) a 2004 email between Nestlé USA managers showing that a Hershey employee had given a Nestlé USA employee information about Hershey’s pricing promotions on multipack products, J.A. 9270; (2) a January 2007 email between two Mars sales executives about a conversation with a Hershey manager and information learned about Hershey’s 19 Compare J.A. 7105 (2002 Hershey internal document explaining that “the bidders conducted extensive due diligence reviews and were provided with additional information as requested (in some instances for competitive and regulatory reasons only certain non-operational personnel of potential bidders were provided information)”), and J.A. 13295–96 (Direct Purchaser Class’s expert acknowledging the complete lack of record evidence showing that either Nestlé S.A. or Nestlé USA received information about Hershey’s commodities cost coverage), with J.A. 12843–45 (Cadbury officer acknowledging that Cadbury received information about Hershey’s commodities cost coverage in an email from an investment banker working for Hershey during the sale process). 46 promotional activities, J.A. 9269; and (3) a September 2007 email between Mars executives relaying that one had obtained information about costs from his counterpart at Hershey, J.A. 9267. These sporadic communications among individuals without pricing authority are insufficient to create a reasonable inference of a conspiracy. See Baby Food, 166 F.3d at 125. Moreover, the September 2007 communication occurred after the 2007 price increase, so it could not have affected the relevant pricing decisions. Accordingly, we will not infer a conspiracy from this evidence.
conduct The Plaintiffs argue further that the Chocolate Manufacturers departed from their pre-conspiracy conduct by deciding to follow price increases during the conspiracy period and that this is traditional conspiracy evidence. For a change in conduct to create an inference of a conspiracy, the shift in behavior must be a “radical” or “abrupt” change from the industry’s business practices. Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 935 (7th Cir. 2000). The Plaintiffs have failed to show such a shift here. First, the Plaintiffs’ argument is not premised on an apples-to-apples comparison. To show a shift in conduct, the Plaintiffs rely on a “failed” September 2001 price increase on packaged candy initiated by Hershey. Instead of following the price increase, Mars responded by reducing its weight on M&M packaged candy and maintaining prices, but three months later, Mars raised prices on miniatures packaged chocolate candy. J.A. 6192–93. The Plaintiffs also cite a January 2002 proposed price increase by Hershey on certain boxed chocolates that Hershey rescinded when it received pushback from customers. By contrast, the 2002 and 2007 47 parallel price increases involved only singles and kings, and the 2004 parallel price increases involved singles and kings as well as packaged candy. In fact, the Chocolate Manufacturers did not exactly follow each other on packaged products in the 2002 price increases, lending further support to the notion that different considerations factored into the pricing decisions for immediate consumption products and future consumption products. Putting aside the fact that Mars actually responded to Hershey’s 2001 price increase and did not simply stand pat, the “failed” price increases in 2001 and early 2002 involved different products at different times than the parallel price increases in 2002, 2004, and 2007. Second, the focus of the Plaintiffs’ argument is unduly narrow. Historically, parallel pricing in the U.S. chocolate market has not been at all uncommon. See J.A. 1087 (detailing parallel pricing in 1981 and 1983); J.A. 1105–06 (detailing a 1979 weight reduction on singles initiated by Hershey and matched by Mars; a 1986 price increase on singles, kings, and six packs initiated by Mars and matched by Hershey; a 1991 price increase on singles, kings, and six packs initiated by Hershey and matched by Mars; and a 1995 price increase on singles, kings, and six packs initiated by Hershey and matched by Mars and Nestlé USA). Moreover, after the alleged conspiracy period, the Chocolate Manufacturers have raised prices in parallel three other times. J.A. 2866–67. The Plaintiffs do not argue that all of these parallel price increases resulted from an unlawful conspiracy, so we fail to see why we should infer a conspiracy existed between 2002 and 2007 from behavior that is in fact consistent with how this industry has historically operated. Third, it is generally unremarkable for the pendulum in oligopolistic markets to swing from less to more interdependent and cooperative. See Areeda & Hovenkamp, 48 supra, ¶ 1431a, at 229 (noting that the degree of interdependence “may be either weak or strong and may vary from time to time within a given market”). Accordingly, the evidence presented by the Plaintiffs does not show an abrupt shift in behavior that can support a reasonable inference of a conspiracy.
increases Finally, we address the Plaintiffs’ argument that the Chocolate Manufacturers’ pretextual explanations for their price increases support a reasonable inference of a conspiracy. See Fragale & Sons Beverage Co. v. Dill, 760 F.2d 469, 474 (3d Cir. 1985) (recognizing that pretextual explanations for disputed conduct “would disprove the likelihood of independent action”). The Chocolate Manufacturers publicly explained their price increases by citing rising costs. The Plaintiffs contend these cost-based explanations were cover for the real reason—to advance a price-fixing conspiracy. The same evidence that we credited earlier as showing that cost increases did not justify the price increases does not necessarily show pretext, i.e., that the Chocolate Manufacturers lied when they gave their cost-based explanations for their price increases. The Plaintiffs acknowledge that raw materials costs went up during this period; they simply dispute whether the increases were enough to justify the price increases. See J.A. 13892 (Tollison Report) (acknowledging that “cocoa prices did rise during the class period”); J.A. 6273–74 (same). Nor do the Plaintiffs dispute that other input costs, such as labor and energy costs, increased during this period. 49 Moreover, contemporaneous internal documents show that some who worked for the Chocolate Manufacturers were concerned about cost increases during the conspiracy period. See, e.g., J.A. 1031 (Nestlé USA 2002 internal document suggesting budget revisions “due to increased cocoa prices”); J.A. 1261 (Mars 2002 internal document proposing price increase in December 2002 in part because of “emerging material cost pressures” and because of belief that “all” the Chocolate Manufacturers “will likely face significant cost pressures in 2003”); J.A. 7649 (September 2002 email from Hershey’s David West noting “organizational momentum around pricing behind commodity prices,” but expressing disagreement with that organizational view); J.A. 1114 (citing March 2003 Hershey annual report that expressed concern about cocoa costs going up in 2004). But see, e.g., J.A. 4619 (October 2002 report from Hershey CEO Lenny to the Hershey board explaining cost coverage on cocoa through 2004); J.A. 7906 (December 2004 email from Hershey CEO Lenny discussing how to publicly explain the 2004 price increase given Hershey’s “outspoken[ness] about [Hershey’s] ‘coverage’ on cocoa and to a lesser extent on all input costs”). Therefore, to the extent the Plaintiffs’ pretext argument is that costs were going up but not enough to justify a price increase, their showing of pretext is weak. But even if the evidence of pretext were stronger, it would still be insufficient to survive summary judgment because pretext alone does not create a reasonable inference of a conspiracy. See Miles Distribs., Inc. v. Specialty Constr. Brands, Inc., 476 F.3d 442, 452 (7th Cir. 2007) (“[W]e hold that [pretextual reasons] are insufficient to create a genuine issue of fact without other evidence pointing to a price-fixing agreement.”); DeLong Equip. Co. v. Washington Mills Abrasive Co., 887 F.2d 1499, 1514 (11th Cir. 1989) (citing 50 Fragale, 760 F.2d at 474) (same); H. L. Moore Drug Exch. v. Eli Lilly & Co., 662 F.2d 935, 941 (2d Cir. 1981) (“[T]he mere fact that a business reason advanced by a defendant for its [action] is undermined does not, by itself, justify the inference that the conduct was therefore the result of a conspiracy.”). Requiring something more than pretext to survive summary judgment makes particular sense in cases like this one. In their pretext argument, the Plaintiffs rely on the same evidence they did in arguing that the Chocolate Manufacturers acted contrary to their interests—evidence which we have already said is insufficient to defeat summary judgment. That evidence is also insufficient here. That rising costs may not have been the full or even real reason for increasing prices does not show whether the real reason was interdependence or a conspiracy. Therefore, allegations of pretext must be accompanied by other traditional conspiracy evidence or economic evidence to create a reasonable inference of a conspiracy. Because such other evidence is lacking here, any evidence of pretext is insufficient to preclude summary judgment.