Opinion ID: 543660
Heading Depth: 2
Heading Rank: 1

Heading: The Matsushita Decision

Text: 12 In Matsushita, plaintiffs Zenith and National Union Electric Corp. (Zenith) sued several Japanese companies that manufacture consumer electronic products. Zenith alleged that the Japanese companies had engaged in a predatory pricing conspiracy aimed at driving American firms from the U.S. consumer electronic products market. After several years of discovery, the defendants moved for summary judgment. The district court granted the defendants' motion, concluding that any inference of conspiracy was unreasonable. Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 513 F.Supp. 1100 (E.D.Pa.1981). The Third Circuit reversed as to 21 of the 24 defendants, concluding that the plaintiffs had presented sufficient evidence to permit a reasonable factfinder to infer that the defendants had engaged in a predatory pricing conspiracy. In re Japanese Elec. Prods. Antitrust Litig., 723 F.2d 238, 304-11 (3d Cir.1983). 13 The Supreme Court reversed this decision because it concluded that the evidence proffered by the plaintiffs did not provide any basis for concluding that the alleged predatory pricing was rational; in the Court's words, the defendants simply had no rational economic motive to conspire. Matsushita, 475 U.S. at 596, 106 S.Ct. at 1361. This fact, combined with the evidence that the defendants' conduct was consistent with other, equally plausible [innocent] explanations implied that the defendants' conduct could not give rise to an inference of conspiracy. Id. at 596-97, 106 S.Ct. at 1361. Moreover, the Court stated that, even if the defendants had had a rational economic motive to conspire, summary judgment would still have been appropriate in light of the fact that conduct that is as consistent with permissible competition as with illegal conspiracy does not, without more, support even an inference of conspiracy. Id. at 597 n. 21, 106 S.Ct. at 1362 n. 21 (citing Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 763-64, 104 S.Ct. 1464, 1470-71, 79 L.Ed.2d 775 (1984)). In such circumstances, the plaintiff must come forward with sufficiently unambiguous evidence  'that tends to exclude the possibility'  that the defendants were acting lawfully. Id. 475 U.S. at 588, 597, 106 S.Ct. at 1356, 1362 (quoting Monsanto, 465 U.S. at 764, 104 S.Ct. at 1471). 14 We do not take these latter comments as suggesting that a district court may grant summary judgment to antitrust defendants whenever the court concludes that inferences of conspiracy and inferences of innocent conduct are equally plausible. Allowing the district court to make that decision would lead to a dramatic judicial encroachment on the province of the jury. To read Matsushita as requiring judges to ask whether the circumstantial evidence is more consistent with the defendants' theory than with the plaintiff's theory would imply that the jury should be permitted to choose an inference of conspiracy only if the judge has first decided that he would himself draw that inference. This approach would essentially convert the judge into a thirteenth juror, who must be persuaded before an antitrust violation may be found. 15 Indeed, under this interpretation of Matsushita, a trial judge would not even need to evaluate whether the inference of conspiracy meets a threshold standard of reasonableness, which is the usual standard for judging inferences on summary judgment. See Batchelor v. Oak Hill Medical Group, 870 F.2d 1446, 1447 (9th Cir.1989). Since any inference that the trial judge thinks is more plausible than its alternatives must necessarily be a reasonable one, the trial judge would only need to ask whether he thinks the inference of conspiracy is the more plausible one. This cannot be what the Supreme Court meant when it stated that antitrust law limits the range of permissible inferences from ambiguous evidence in a Sec. 1 case. Matsushita, 475 U.S. at 588, 106 S.Ct. at 1356. The Court purported to limit the application of the traditional summary judgment rules in the antitrust context; it did not intend to abolish them and replace them with an entirely different set, one which raises troubling seventh amendment concerns. Cf. Standard Oil v. Arizona, 738 F.2d 1021 (9th Cir.1984) (holding, in a prior appeal in this case, that the seventh amendment guarantees a right to jury trial in antitrust cases), cert. denied, 469 U.S. 1132, 105 S.Ct. 815, 83 L.Ed.2d 807 (1985). Indeed, the Court noted that, within the limits imposed by antitrust law, it remained true that  '[o]n summary judgment the inferences to be drawn from the underlying facts ... must be viewed in the light most favorable to the party opposing the motion.'  Matsushita, 475 U.S. at 587-88, 106 S.Ct. at 1356 (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)). 16 Nor do we think that Matsushita and Monsanto can be read as authorizing a court to award summary judgment to antitrust defendants whenever the evidence is plausibly consistent with both inferences of conspiracy and inferences of innocent conduct. Such an approach would imply that circumstantial evidence alone would rarely be sufficient to withstand summary judgment in an antitrust conspiracy case. After all, circumstantial evidence is nearly always evidence that is plausibly consistent with competing inferences. See United States v. Henderson, 693 F.2d 1028, 1031 (11th Cir.1982) ([C]ircumstantial evidence is not testimony to the specific fact being asserted, but testimony to other facts and circumstances from which the jury may infer that the fact being asserted does or does not exist.). Thus, such an interpretation of Matsushita would seem to be tantamount to requiring direct evidence of conspiracy. This cannot be what the Court meant in Matsushita. Since direct evidence will rarely be available, such a reading would seriously undercut the effectiveness of the antitrust laws. Furthermore, Monsanto itself clearly indicates that circumstantial evidence may be sufficiently unambiguous to survive summary judgment. Monsanto, 465 U.S. at 764, 104 S.Ct. at 1471 (plaintiff must present direct or circumstantial evidence that reasonably tends to prove that the defendants were engaged in a conspiracy rather than acting independently) (emphasis added); see also Harkins Amusement Enterprises, Inc. v. General Cinema Corp., 850 F.2d 477, 485 (9th Cir.1988) (circumstantial evidence found to be sufficiently unambiguous under Monsanto ), cert. denied, 488 U.S. 1019, 109 S.Ct. 817, 102 L.Ed.2d 806 (1989). 17 We think that the key to the proper interpretation of Matsushita lies in the Court's emphasis on the dangers of permitting inferences from certain types of ambiguous evidence. In Matsushita, the Court was unwilling to permit an inference of predatory pricing in part because the Court was concerned about the inference's possible anticompetitive side-effects. The Court noted that the plaintiffs attempted to prove an antitrust conspiracy through evidence of rebates and other price-cutting activities. 475 U.S. at 594, 106 S.Ct. at 1360. However, as the Court went on to observe, 18 [C]utting prices in order to increase business often is the very essence of competition. Thus, mistaken inferences in cases such as this one are especially costly, because they chill the very conduct the anti-trust laws are designed to protect. See Monsanto, [465 U.S.] at 763-764 [104 S.Ct. at 1470-1471]. '[W]e must be concerned lest a rule or precedent that authorizes a search for a particular type of undesirable pricing behavior end up by discouraging legitimate price competition.'  19 Id. (quoting Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 234 (1st Cir.1983)). 20 Thus, Matsushita establishes that a trial judge should not permit an inference of antitrust conspiracy from circumstantial evidence where to do so would have the effect of deterring significant procompetitive conduct. We emphasize, however, that an antitrust defendant is not entitled to summary judgment simply by virtue of the fact that the plaintiff's inference of conspiracy would have some deterrent effects; the effects must be significant. As the Court stated in Matsushita, the concern with avoiding deterrent effects must be balanced against the desire that illegal conspiracies be identified and punished. 475 U.S. at 594, 106 S.Ct. at 1360. In short, the trial court must consider whether, on the evidence presented, the protection of innocent independent conduct outweighs the costs associated with the potential decrease in strict antitrust enforcement. If it does, then the plaintiff must come forward with additional, sufficiently unambiguous evidence that does not have these undesirable deterrent effects. Id. at 597-98 & n. 21, 106 S.Ct. at 1361-62 & n. 21. 21 This reading of Matsushita is further supported by examining the Court's decision in Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), upon which the Matsushita Court relied heavily. In Monsanto, plaintiff Spray-Rite alleged that Monsanto had illegally conspired with its other distributors in deciding to terminate Spray-Rite's distributorship. Among the items of evidence introduced in support of this claim was the fact that Monsanto terminated Spray-Rite after receiving complaints from its other distributors about Spray-Rite's price cutting practices. Monsanto, on the other hand, contended that it had acted independently in deciding to terminate Spray-Rite. In analyzing the proper standard of proof for such a claim, the Supreme Court began by noting that, while it is per se illegal for a manufacturer to get together with its distributors and agree on prices, see Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-09, 31 S.Ct. 376, 383-85, 55 L.Ed. 502 (1911), it is nonetheless permissible for a manufacturer to announce its retail prices in advance and then to terminate those distributors who fail to comply, see United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919). See Monsanto, 465 U.S. at 761, 104 S.Ct. at 1469. In light of these cases, the Court concluded that it could not permit an inference of conspiracy to be drawn from the mere fact that a distributor had been terminated after the manufacturer had received complaints from other distributors about price cutting. The Court reasoned that permitting such an inference would effectively preclude a manufacturer from exercising its independent termination rights under Colgate once it received any complaints from its distributors. In the Court's words: 22 Permitting an agreement to be inferred merely from the existence of complaints, or even from the fact that termination came about in response to complaints, could deter or penalize perfectly legitimate conduct.... To bar a manufacturer from acting solely because the information upon which it acts originated as a price complaint would create an irrational dislocation in the market. In sum, [t]o permit the inference of concerted action on the basis of receiving complaints alone and thus to expose the defendant to treble damage liability would ... inhibit management's exercise of its independent business judgment.... 23 Monsanto, 465 U.S. at 763-64, 104 S.Ct. at 1470-71 (quoting Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 111 n. 2 (3d Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981)) (other citations omitted). 24 Monsanto thus clearly illustrates that courts should be careful not to permit inferences of antitrust conspiracy when to do so would create a significant irrational dislocation in the market or would result in significant anticompetitive effects. 1 25 In summary, we conclude that where an antitrust plaintiff relies entirely upon circumstantial evidence of conspiracy, a defendant will be entitled to summary judgment if it can be shown that (1) the defendant's conduct is consistent with other plausible explanations, and (2) permitting an inference of conspiracy would pose a significant deterrent to beneficial procompetitive behavior. Once the defendant has made such a showing, the plaintiff must come forward with other evidence that is sufficiently unambiguous and tends to exclude the possibility that the defendant acted lawfully.