The opinion
Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
1-12-1999
Jacob Blinder & Sons v. Gerber Prod Co
Precedential or Non-Precedential:
Docket 97-5609
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Filed January 12, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos.: 97-5609 and 98-5125
In Re: Baby Food Antitrust Litigation
JACOB BLINDER & SONS, INC., WISEWAY SUPER FOOD
CENTER, INC., SUPER CENTER, INC., UNITED
BROTHERS FINER FOODS, INC., L. L. HARRIS
WHOLESALE GROCERY, PETER J. SCHMITT & CO., 3932
CHURCH STREET SUPERMARKET, INC., ARLEEN FOOD
PRODUCTS CO., INC., RUBIN BROOKS AND SONS, INC.,
Appellants
(D.C. Civil No. 92-cv-05495)
JACOB BLINDER & SONS, INC., on behalf of itself and all
others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) fka BEECH-NUT-NUTRITION fka BEECH-NUT
FOODS CORPORATION (now dissolved) fka
BAKER/BEECH-NUT CORPORATION (now dissolved) BCN
CORPORATION, (now dissolved) fka BEECH-NUT
CORPORATION; NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 92-cv-05495)
PETER J. SCHMITT CO., on behalf of itself
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) aka BEECH-NUT-NUTRITION aka BEECH-NUT
FOODS CORPORATION (now dissolved) aka
BAKER/BEECH-NUT CORPORATION (now dissolved) BCN
CORPORATION, (now dissolved) aka BEECH-NUT
CORPORATION; NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-00047)
WISEWAY SUPER FOOD CENTER, INC., on behalf of itself
and all others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) aka BEECH-NUT-NUTRITION aka BEECH-NUT
FOODS CORPORATION (now dissolved) aka
BAKER/BEECH-NUT CORPORATION (now dissolved) BCN
CORPORATION, (now dissolved) aka BEECH-NUT
CORPORATION; NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-00048)
SUPER CENTER, INC., on behalf of itself and all others
similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) aka BEECH-NUT-NUTRITION aka BEECH-NUT
FOODS CORPORATION (now dissolved) aka
BAKER/BEECH-NUT CORPORATION (now dissolved) BCN
CORPORATION, (now dissolved) aka BEECH-NUT
CORPORATION; NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-00049)
UNITED BROTHERS FINER FOODS, INC., on behalf of
itself and all others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) aka BEECH-NUT-NUTRITION aka BEECH-NUT
FOODS CORPORATION (now dissolved) aka
BAKER/BEECH-NUT CORPORATION (now dissolved) BCN
CORPORATION, (now dissolved) aka BEECH-NUT
CORPORATION; NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-00050)
L. L. HARRIS WHOLESALE GROCERY, a partnership, on
2
behalf of itself and all others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION, (now
dissolved) aka BEECH-NUT-NUTRITION CORPORATION
(now dissolved) aka BEECH-NUT FOODS CORPORATION
(now dissolved) aka BAKER/BEECH-NUT CORPORATION
(now dissolved) BNC CORPORATION, aka BEECH-NUT
CORPORATION; (now dissolved); NESTLE
HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-00051)
3932 CHURCH STREET SUPERMARKET, INC., an Illinois
Corporation, on behalf of itself and all others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION,
(formerly known successively as Baker/Beech-Nut
Corporation, Beech Nut Foods Corporation, and Beech
Nut Nutrition Corporation) (now dissolved); BNC
CORPORATION, (formerly known as Beech-Nut
Corporation) (now dissolved); NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-0320)
ARLEEN FOOD PRODUCTS CO., INC., on behalf of itself
and all others similarly situated
v.
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION,
(formerly known successively as Baker/Beech-Nut
Corporation, Beech-Nut Foods Corporation, and Beech-
Nut Nutrition Corporation) (now dissolved) BNC
CORPORATION, (formerly known as Beech-Nut
Corporation) (now dissolved); NESTLE HOLDINGS, INC.;
(Newark New Jersey Civil No. 93-cv-0407)
RUBIN BROOKS AND SONS, INC., on behalf of himself
and all others similarly situated
v.
3
GERBER PRODUCTS COMPANY; H.J. HEINZ COMPANY;
RALSTON PURINA COMPANY; BNNC CORPORATION,
(formerly known successively as Baker/Beech-Nut
Corporation, Beech-Nut Foods Corporation and Beech-Nut
Nutrition Corporation) (now dissolved); BNC
CORPORATION, (formerly known as Beech-Nut
Corporation (now dissolved); NESTLE HOLDINGS, INC.
(Newark New Jersey Civil No. 93-cv-00802)
Jacob Blinder & Sons, Inc., Wiseway Super Food Center,
Inc., Super Center, Inc., United Brothers Finer Foods,
Inc., L. L. Harris Wholesale Grocery, Peter J. Schmitt &
Co., 3932 Church Street Supermarket, Inc., Arleen Food
Products Co., Inc., Rubin Brooks and Sons, Inc.,
Appellants in No. 98-5125
Appeal for the United States District Court
For the District of New Jersey
D.C. Nos.: 92-cv-05495, 93-cv-00047, 93-cv-00048,
93-cv-00049, 93-cv-00050, 93-cv-00051,
93-cv-00320, 93-cv-00407
District Judge: Honorable Nicholas H. Politan
Argued: October 1, 1998
Before: BECKER, Chief Judge, ROSENN, Circuit Judge and
KATZ, District Judge*
(Filed January 12, 1999)
*The Honorable Marvin Katz, District Judge, Eastern District of
Pennsylvania, sitting by designation.
4
Michael J. Freed, Esquire
Much, Shelist, Freed, Denenberg,
Ament, Bell & Rubenstein
200 North Lasalle Street, Suite 2100
Chicago, IL 60601
and
Joel C. Meredith, Esquire
Daniel B. Allanoff, Esquire
Meredith, Cohen, Greenfogel &
Skirnick
117 South 17th Street, 22nd Floor
Philadelphia, PA 19103
and
Joseph J. De Palma, Esquire
Allyn Z. Lite, Esquire
Goldstein, Lite & De Palma
Two Gateway Center, 12th Floor
Newark, NJ 07102
and
Perry Goldberg, Esquire
Granvil I. Specks, Esquire
Specks & Goldberg
10 South Wacker Drive, Suite 3500
and
Dianne M. Nast, Esquire
Roda & Nast
801 Estelle Drive
Lancaster, PA 18702
and
Robert A. Skirnick, Esquire (Argued)
Meredith, Cohen, Greenfogel &
Skirnick
63 Wall Street, 32nd Floor
New York, NY 10005
Counsel for Appellants
Arnold B. Calmann, Esquire
Saiber, Schlesinger, Satz &
Goldstein
One Gateway Center, Suite 1300
Newark, NJ 07102
5
and
Joseph A. Tate, Esquire (Argued)
Judy L. Leone, Esquire
George G. Gordon, Esquire
Dechert, Price & Rhoads
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, PA 19103
Counsel for Appellee Gerber
Product Company
Edward P. Henneberry, Esquire
(Argued)
Keith E. Pugh, Jr., Esquire
Robert L. Green, Jr, Esquire
Ellen S. Winter, Esquire
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, DC 20004
and
Matthew P. Boylan, Esquire
Lowenstein Sandler, Esquire
65 Livingston Avenue
Roseland, NJ 07068
Counsel for Appellee HJ Heinz
Company
Mary E. Kohart, Esquire (Argued)
Patrick T. Ryan, Esquire
Patricia Proctor, Esquire
Drinker, Biddle & Reath
1345 Chestnut Street
Philadelphia National Bank Building
Philadelphia, PA 19107
Counsel for Appellee Ralston
Purina Company
6
Terrence C. Sheehy, Esquire
(Argued)
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, DC 20004
Counsel for Appellees BNNC
Corporation; BCN Corporation;
and Nestle Holdings, Inc.
OPINION OF THE COURT
ROSENN, Circuit Judge.
This appeal, relating to a highly concentrated nationwide
industry, raises interesting questions of proof and law in a
hotly-contested antitrust action. The plaintiffs, direct
purchasers of baby food from defendant manufacturers,
include wholesalers, supermarket chains, and other direct
purchasers. The defendants, nationally prominent
corporations, are Gerber Products Company ("Gerber"), H.J.
Heinz Co. ("Heinz"), Nestle Food Company/Beech-Nut
("Nestle/Beech-Nut") and Ralston Purina Company/Beech-
Nut ("Ralston/Beech-Nut") (collectively "Beech-Nut").1
Collectively, they account for over 98% of all baby food
products manufactured and sold in the United States.
The plaintiffs are Jacob Blinder & Sons, Inc., Wiseway
Super Food Center, Inc., Super Center, Inc., United
Brothers Finer Foods, Inc., L.L. Harris Wholesale Grocery,
Peter J. Schmitt & Co., 3932 Church Street Supermarket,
Inc., Arleen Food Products Co., Inc., and Rubin Brooks and
Sons, Inc. They brought this anti-trust class action against
the defendant manufacturers under SS 4 and 6 of the
Clayton Act, 15 U.S.C. SS 15 and 26, in the United States
District Court for the District of New Jersey. They allege
that beginning in early 1975 and continuing until
_________________________________________________________________
1. Before 1989, Beech-Nut was owned by Nestle Food Co. In November
1989, Ralston Purina purchased Beech-Nut from Nestle. Therefore, the
four defendants are actually Heinz, Gerber, Nestle/Beech-Nut, and
Ralston/Beech-Nut.
7
December 31, 1993,2 the defendants engaged in an
unlawful conspiracy in violation of Section 1 of the
Sherman Act (15 U.S.C. S 1) to fix, raise, and maintain
wholesale prices and price levels of baby food in the United
States resulting in injury and damage to the plaintiffs.
At the conclusion of discovery, each defendant filed a
motion for summary judgment. The District Court granted
the motion in favor of all defendants. The clerk taxed costs
in favor of the defendants and that court affirmed the
award of costs.
Defendants timely appealed from both orders to this
court. We affirm.
I.
Background
Gerber, although the smallest of the defendant
corporations, is the nation's largest manufacturer of baby
food products and accounts for approximately 70% of the
total market in the United States. Heinz and Beech-Nut
share almost equally the balance of the market. Gerber
manufactures and sells approximately 200 different baby
food products; Heinz follows closely with 165 and Beech-
Nut with approximately 140. Collectively, they sell slightly
more than 500 baby food products grouped into five broad
categories: First Food, Second Foods, Third Foods, Cereals,
and Juices. Together, they provide much of the nutrition for
most of the nation's infant population.
Through the pricing of their products, each defendant
has sought to differentiate itself and carve out a company
niche in the marketplace. Gerber is the undisputed market
leader and premium brand, selling its products nationwide
and focusing only on baby food. Heinz is the "value" brand,
consistently adopting strategies to maintain a significant
price spread between itself and Gerber. Heinz has had a
strong presence in the central Midwestern and
_________________________________________________________________
2. The District Court certified the action as a class for the period
beginning January 1, 1989, and ending December 31, 1992.
8
Southwestern parts of the country. Beech-Nut, initially
positioned as a low-priced brand, underwent a struggle
from 1985 through 1989 under Nestle ownership to become
a premium brand with prices higher than Gerber's. In
1989, when Ralston acquired Beech-Nut from Nestle,
Ralston decided to elevate its price structure to be
competitive with Gerber's. Beech-Nut traditionally has had
a strong presence in New England, New York, and Eastern
Pennsylvania.
Many retailers have come to carry only two brands of
baby food. Gerber is almost always one of the two.
Significantly, each company has two pricing levels: the list
price and the transaction price. The list price, the price
officially announced by the company, is used as a base
price from which customer discounts and allowances are
deducted to obtain the transaction price. The transaction
price is the price at which the wholesalers and supermarket
chains actually buy the baby food; the price takes into
account discounts, bulk-purchasing, rebates, regional
considerations, and special promotions. The
manufacturers, however, do not offer discounts across the
board; at any given time, one customer may pay a different
price than the next customer for the same product. Heinz
claims that it sells more than 80% of its baby food at prices
below list. In addition, Heinz and Beech-Nut do not
implement uniform national price increases, often delaying
increases in particular geographic regions.
The plaintiffs' foremost allegation is that the defendants
exchanged information with each other regarding future
price increases before announcing any increases to the
public. Plaintiffs maintain that the defendants had no
legitimate business reason for informing each other of price
increases before publicly announcing them except for their
motivation to conspire. The plaintiffs allege that Gerber, the
dominant company in the industry and the price leader,
would decide to raise its prices and, if the other two
competitors did not follow the price increase immediately,
the time-gap between Gerber's price increase and the
increases of the other companies would be of sufficient
length to disturb their respective market shares. Therefore,
giving advance notice solved this problem. The plaintiffs
9
claim that because advance notice did occur, this evidences
that an agreement economically to conspire among the
defendants was in place.
Following exhaustive discovery over a period of three
years, the District Court granted summary judgment for all
defendants on the ground that plaintiffs' case was "sorely
lacking" in any evidence pointing to an agreement among
the defendants to fix prices. The plaintiffs timely appealed.
II.
The Underlying Legal Concepts
The legal fulcrum for the plaintiffs' complaint is Section
1 of the Sherman Act. Section 1 provides: "Every contract,
combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is hereby declared to
be illegal." 15 U.S.C. S 1. The existence of an agreement is
the hallmark of a Section 1 claim. Alvord-Polk, Inc. v. F.
Schumacher & Co., 37 F.3d 996, 999 (3d Cir. 1994).
Liability is necessarily based on some form of "concerted
action." Id.3 Indeed, we have defined a conspiracy as a
"conscious commitment to a common scheme designed to
achieve an unlawful objective." Edward J. Sweeney & Sons,
Inc. v. Texaco, Inc., 637 F.2d 105, 111 (3d Cir. 1980). In
other words, " `unity of purpose or a common design and
understanding or a meeting of the minds in an unlawful
arrangement' must exist to trigger Section 1 liability."
Alvord-Polk, 37 F.3d at 999, (quoting Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 771 (1984)).
In determining whether certain concerted action amounts
to an unreasonable restraint this court applies one of two
methods of analysis. See e.g. Rossi v. Standard Roofing,
156 F.3d 452, 461 (3d Cir. 1998). The concerted action is
either analyzed (1) through the per se sta ndard, which
_________________________________________________________________
3. The phrase "concerted action" is often used as shorthand for any form
of activity meeting the Section 1 " `contract . . . combination or
conspiracy' requirement." Bogosian v. Gulf Oil Corp., 561 F.2d 434, 445-
46 (3d Cir. 1977) quoting L. Sullivan, Law of Anti-Trusts, p. 312 (1977).
10
presumes that the questionable conduct has anti-
competitive effects without comprehensive inquiry into
whether the concerted action produced adverse, anti-
competitive effects, or (2) through the so-called rule of
reason, a case-by-case method that involves consideration
of all of the circumstances of a case to decide whether
certain concerted action should be prohibited because it
amounts to an anti-competitive practice. The analysis to be
applied depends on the essence of concerted action in
dispute. Id.
Generally, price-fixing agreements are considered a per se
violation of the Sherman Act. See United States v. Socony-
Vacuum Oil Co., 310 U.S. 150, 218 (1940). Per se violations
include those types of restraints on competition that are in
and of themselves considered unreasonable because "their
pernicious effect on competition and lack of any redeeming
virtue are conclusively presumed to be unreasonable."
United States v. Cargo Service Stations, Inc., 657 F.2d 676,
682 n.4 (5th Cir. Unit B 1981) (quoting Northern Pacific Ref.
v. United States, 356 U.S. 1, 5 (1958)). However, when the
evidence consists of mere exchanges of information the
presumption vanishes. See United States v. United States
Gypsum Co., 438 U.S. 422, 441 n.16 (1978). Exchanges of
information are not considered a per se violation because
"such practices can in certain circumstances increase
economic efficiency and render markets more, rather than
less, competitive." Gypsum, Id. at 441 n.16. Therefore, such
exchanges of information are evaluated under a rule of
reason analysis.
This court has previously articulated what Section 1 rule
of reason analysis entails. We laid down four steps of proof
that a plaintiff must present: (1) that the defend ants
contracted, combined or conspired among each other;
(2) that the combination or conspiracy produced ad verse
anti-competitive effects within the relevant product and
geographic markets; (3) that the objects of and co nduct
pursuant to the contract or conspiracy were illegal; and
(4) that the plaintiffs were injured as a proximat e result of
that conspiracy. J.F. Fesser, Inc. v. Serv-A-Portion, Inc., 909
F.2d 1524, 1541 (3d Cir. 1990).4 Under the rule of reason,
_________________________________________________________________
4. The District Court disposed of plaintiffs' case under the first prong
of
Fesser; it did not reach prongs (2), (3), and (4). Only Nestle questioned
11
all the evidence presented must be weighed to determine
whether the defendants' purported price fixing practices
violated the Sherman Act.
III.
The Evidence
Although there are some subordinate questions, the
instant case stands or falls on the question whether the
plaintiffs produced sufficient probative evidence to meet the
demanding standard of proof required in the context of an
antitrust case. Accordingly, we turn to an analysis of the
voluminous evidence introduced by the plaintiffs.
The plaintiffs have produced extensive circumstantial
evidence, but claim that their direct evidence sufficiently
proves a price-fixing conspiracy. They spiritedly claim that
their direct evidence of reciprocal price exchanges and a
collusive truce is sufficient to support a Section 1
conspiracy claim. Direct evidence in a Section 1 conspiracy
must be evidence that is explicit and requires no inferences
to establish the proposition or conclusion being asserted.
As we noted recently in Rossi, with direct evidence "the fact
finder is not required to make inferences to establish facts."
156 F.3d at 466.
The plaintiffs heavily rely on the deposition testimony of
Brian Anderson, formerly employed by Heinz as a sales
representative until 1986, and Marshall Gibbs, formerly
employed by Heinz as a district sales manager until 1984.
Their testimony reveals that they were required to submit
competitive activity reports to their superiors concerning
baby food sales from information they picked up from
competitor sales representatives. The information they
obtained was verbal and usually passed on orally to their
superiors. There was no organized system to secure the
_________________________________________________________________
whether the defendants provided sufficient proof of fact of injury and
damages under prong (4). Because the District Court did not address
and the defendants did not argue that plaintiffs' evidence fell short with
respect to prongs (2) and (3), we do not consider them.
12
information; it was obtained sporadically, verbally, and
informally in conversations among the representatives.
Anderson testified that his supervisor, Area Manager Fred
Runk, informed him on a regular basis before any
announcement to the trade as to when Heinz's competitors
were going to increase the wholesale list prices of their baby
food products. Anderson also testified that he exchanged
future price information with various sales representatives
of Beech-Nut and Gerber as to whether Heinz, Beech-Nut,
and Gerber were planning to announce future price
increases. Moreover, according to Anderson, such
exchanges between sales representatives were common in
the baby food industry.
Gibbs similarly testified that he personally exchanged
pricing information with sales representatives of the other
companies. Specifically, Gibbs stated "[I] would, obviously,
get with another rep., and say, you can give me and I can
give you and we can pat each other on the back and get
this information in because we both have the same
accountability." Beech-Nut also required its sales
representatives to gather competitive information. In their
depositions, Neils Hoyvald, President of Beech-Nut prior to
1988, and James Nichols, who succeeded Hoyvald, testified
that it was company policy for sales representatives to
gather and report pricing information of their competitors.
On September 1, 1986, Gerber's New York Division
Manager, Don Beaudoin, sent a competitive price change
and activity report to Gerber's Regional Manager for the
Eastern Region and Vice President of Sales. Attached to the
report was an unsigned Beech-Nut announcement of a
forthcoming September 29, 1986 price increase. Beech-Nut
executives admitted that Gerber appears to have had
possession of the September 29 price increase
announcement as early as September 1, 1986, but claim
ignorance as to how Gerber obtained the document.
Beech-Nut obtained advance notice of a February 13,
1989 Gerber price increase at least a week before it was
announced to the trade. Each page of the memorandum
was stamped "HIGHLY CONFIDENTIAL." The memorandum
instructed the division managers not to notify their
accounts of the price increase until February 13, 1989, the
13
effective date of the increase. Gerber did not notify the
trade of the price increase until February 13, 1989, yet
Beech-Nut knew of the increase at least as early as
February 6, 1989.
Gerber had advance knowledge of a May 1, 1989 Beech-
Nut price increase at least a day before it was announced
to the trade. A March 31, 1989 memorandum from Norman
Knorr of Gerber confirms this by describing a March 27
conference call between Gerber's Al Gorsky, Vice President
of Sales, and Gerber's regional managers. The
memorandum stated in part: "We received a report from the
Boston Division that a [Beech-Nut] price increase will be in
effect on May 1. Details were telexed to the field."
Beech-Nut had advance knowledge of a planned February
1990 Gerber list price increase as early as two months and
no less than eight days before its announcement to the
trade on December 28, 1989. In an October 13, 1989
memorandum to Theuer, Joseph Gaeto, Vice President of
Marketing of Beech-Nut, wrote, "I strongly suspect that
Gerber will increase their prices on Friday, March 2, 1990."
In a December 20, 1989, memorandum to Beech-Nut's
regional and zone managers, Humbarger (Beech-Nut's
Operation Manager in New York) stated "We have heard
very strong rumors that Gerber will most likely increase
their base price in February, 1990."5
In a competitive activity report one week before Beech-
Nut's announcement on November 27, 1991, of a list price
increase that excluded the West Coast, Dick Grainger,
Gerber's Los Angeles District Manager, reported to Jerri
Jean Wilson, Gerber Director of Field Communications, a
"[r]umor that Beech-Nut will not advance prices for at least
three months [on the West Coast]." The same day, Grainger
also sent a report to Gerber's Vice-President, Al Gorsky,
_________________________________________________________________
5. Plaintiffs assert that in the baby food industry a communication from
a competitor is referred to as "rumor," a term of art. This
characterization is attributed to an exchange between plaintiffs' counsel
and Jerri Jean Wilson, Gerber's Director of Field Communications,
during her deposition, where she stated that "rumor" means chit-chat
that occurs among employees of the defendants on "the street."
14
that advised "Beech-Nut has no plans for a price increase
within the next three months."
A September 25, 1992, e-mail from Beech-Nut's Bob
Butcher related the details of a conversation between
Beech-Nut's District Manager Joe Piscola and Frank
Garritano of Gerber, in which Piscola told Garritano that
Beech-Nut would not be taking "a price increase at this
time." A handwritten note on the Gerber e-mail printout
stated, "Keep me advised on any price increases by
competition! We will be in a world of hurt if Heinz/Beech-
Nut does not increase." Al Gorsky, among others at Gerber,
received copies of this document. James Nichols, President
of Beech-Nut, also testified that at least two to three times
a year Mick Humbarger would inform him of conversations
between Beech-Nut and Gerber personnel in metropolitan
New York.
Plaintiffs also point to a varied assortment of documents
and memoranda they introduced into evidence, the most
significant of which are: (1) A September 1, 198 6 Gerber
memorandum which plaintiffs assert proves that Gerber
had advance knowledge of a September 29, 1986 Beech-
Nut list price increase on all of its products. Notice of the
increase was not officially sent to the Beech-Nut brokers
and sales force for announcement to the trade until
September 4, 1986. (2) A February 6, 1989, letter from
Nestle's President, Theuer, to the Chairman of his Board
notifying him that "[w]e have unconfirmed news from the
trade that on February 13, Gerber will increase prices." On
February 10, Theuer wrote that "it is confirmed that Gerber
will increase prices on February 13, 1989." Theuer testified
that he assumes that he received this information from the
trade, in light of his language in the February 6 memo.
(3) Plaintiffs' remaining examples show that Gerber knew of
a Beech-Nut price increase one day before it was
announced.
In addition, plaintiffs point to defendants' expert Dr.
William C. Myslinski's testimony that "when two defendants
. . . get together and they mutually exchange information"
and "indicate to each other what they are going to charge
in the future," such conduct "would be consistent with a
conspiracy." In addition, they highlight the defendants'
15
failure to explain how Gerber knew of the September 4,
1986 price increase three days early, when Beech-Nut's
sales force and customers were not told of the increase
until September 4.
Furthermore, the plaintiffs submitted evidence of a 1984
Heinz communication from Gerber's area manager, Ron
Coble, to his superior, Terry Ryan. The background for
Coble's communications, the plaintiffs claim, was an
important shift in the early 1980s in the baby food
industry. Baby food distributors realized that it was no
longer economically beneficial to stock each of the
defendants' products. They decided to turn to a "two-brand"
system and stock the market leader, Gerber, and either
Heinz or Beech-Nut. Coble's memorandum to Ryan stated:
In Nov. 1983, I was told by MDI management [a
prospective Heinz customer] that they wanted to stock
only two brands of baby food -- Gerber and someone
else. Their main objective was to stock the lines that
were preferred by the retailers. I advised them that we
would make every effort to secure a majority base of
distribution. However, with our "truce" in effect, I knew
our hands were tied.
The plaintiffs regard this memorandum as significant direct
evidence of price-fixing. At his deposition, Coble testified
that he did not recall why he used the word "truce," but
believed that it referred to the Heinz Marketing Department.
They, he stated, made the policies "based on costs" as to
the territories where the company was to do business.
The plaintiffs hypothesize that in the early 80s, changes
in consumers' purchasing practices caused a change in the
wholesalers' market strategy that "provoked a new market
dynamic characterized by a price struggle between Heinz
and Beech-Nut for the second brand position, a struggle in
which Gerber was forced to join in order to preserve its own
market share." Although this episode does not appear to
relate to price-fixing but to unfair competition, the plaintiffs
argue that the "truce" had the effect and purpose of
enabling the defendants to fix prices.
The plaintiffs assert that their version of the "truce" is
supported by statements and correspondence from other
16
Heinz employees. For instance, the plaintiffs note that Tim
Senft, Heinz's Manager of Sales Planning, explained to a
subordinate that "[t]he days of 3/store are gone - B/N's
[Beech-Nut's] move to Stages[6] nationally should abate the
war. We don't want it to start again."
Furthermore, the plaintiffs contend that the impact of the
"truce" on the level of competition is evidenced by (1) a
letter from Neils L. Hoyvald, President of Beech-Nut, to
James Biggar, Chairman of Nestle Enterprises, Inc., in
which he states that they were able to accomplish"[t]he
elimination of all competitive counter offers, which was
stopped late 1983 and the situation has held, with Heinz
following our initiative";7 (2) a 1984 internal Heinz
memorandum from Holscher and Haviland requesting
extension of an allowance on strained food in the Florida
district, which contained a statement that Heinz lost
distribution in fiscal year 1983 in Miami "and since Heinz
has taken the position that we do not want to [pursue] the
business in Miami," a Beech-Nut market App. at 1739; and
(3) a note to a 1985 Heinz memorandum from Senft t o
Costello stating: "There are people who think . .. [that
Heinz's] . . . previous attempts to gain distribution in Miami
. . . started the last `Tet Offensive.' "
To boost their claim that the 1984 "truce" in price
competition existed, plaintiffs point to the absence of any
list price increases for the two and one half years preceding
the "truce," but note that after it became effective, list
prices increased at least once a year. Plaintiffs also claim
that Heinz's refusal to enter the Chicago market
demonstrated the truce's success.
We have reviewed the documentary evidence and the
testimony of Anderson and Gibbs and we conclude that
they do not make out a case of direct evidence. The
plaintiffs here have been unable to present evidence of
conspiracy to fix prices without drawing on inferences from
all of the evidence they have introduced. The direct
_________________________________________________________________
6. According to plaintiffs, "Stages" marked the beginning of Beech-Nut's
effort to displace Gerber as the premium price brand of baby food and
end its competition with Heinz for the more price sensitive consumer.
7. At the time, Beech-Nut was owned by Nestle.
17
evidence evinces only an exchange of information among
the defendants. Accordingly, we apply the rule of reason.
Amey, 758 F.2d at 1505.
We, therefore, turn to the parallel pricing evidence on
which the plaintiffs also rely to prove joint collaborative
action.
IV.
Parallel Pricing
In the absence of direct evidence, the plaintiffs may
nevertheless support their claim with circumstantial
evidence of conscious parallelism. Weit v. Continental
Illinois National Bank & Trust Company, 641 F.2d 457, 462
(7th Cir. 1981). Conscious parallelism, sometimes called
oligopolistic price coordination, is described as the process
"not in itself unlawful, by which firms in a concentrated
market might in effect share monopoly power, setting their
prices at a prefixed maximizing, supracompetitive level by
recognizing their shared economic interests and their
interdependence with respect to price and output
decisions." Brooke Group, 509 U.S. 209, 227 (1993). The
theory of conscious parallelism is that uniform conduct of
pricing by competitors permits a court to infer the existence
of a conspiracy between those competitors. Todorov v. DCH
Healthcare Authority, 921 F.2d 1438, 1456 n.30 (11th Cir.
1991). The theory is generally applied to highly
concentrated markets where few sellers exist and where
they establish their prices, not by express agreement, but
rather in a consciously parallel fashion. Shapiro v. General
Motors, 472 F. Supp. 636, 647 (D.Md. 1979). Thus, when
two or more competitors in such a market act separately
but in parallel fashion in their pricing decisions, this may
provide probative evidence of the existence of an
understanding by the competitors to fix prices. Todorov,
921 F.2d at 1456 n.30.
In an oligopolistic market, meaning a market where there
are few sellers, interdependent parallelism can be a
necessary fact of life but be the result of independent
pricing decisions.
18
[I]n a market served by three large companies, each
firm must know that if it reduces its price and
increases its sales at the expense of its rivals, they will
notice the sales loss, identify the cause, and probably
respond. In short, each firm is aware of its impact
upon the others. Though each may independently
decide upon its own course of action, any rational
decision must take into account the anticipated
reaction of the other two firms. Whenever rational
decision-making requires an estimate of the impact of
any decision on the remaining firms and an estimate of
their response, decisions are said to be
"interdependent." Because of their mutual awareness,
oligopolists' decisions may be interdependent although
arrived at independently."
Areeda, Antitrust Law S 1429 (1986). See Bogosian v. Gulf
Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977).
Because the evidence of conscious parallelism is
circumstantial in nature, courts are concerned that they do
not punish unilateral, independent conduct of competitors.
Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475
U.S. 574, 594 (1985). They therefore require that evidence
of a defendant's parallel pricing be supplemented with "plus
factors." Petruzzi's IGA v. Darling-Delaware, 988 F.2d 1224,
1243 (3d Cir. 1993). The simple term "plus factors" refers
to "the additional facts or factors required to be proved as
a prerequisite to finding that parallel action amounts to a
conspiracy." Areeda, Antitrust Law S 1433(e). They are
necessary conditions for the conspiracy inference. Venzie
Corp. v. United States Mineral Products Co., 521 F.2d 1309,
1314 (3d Cir. 1975); Areeda, S1434. They show that the
allegedly wrongful conduct of the defense was conscious
and not the result of independent business decisions of the
competitors. The plus factors may include, and often do,
evidence demonstrating that the defendants: (1) ac ted
contrary to their economic interests, and (2) were motivated
to enter into a price fixing conspiracy. See Petruzzi's, 998
F.2d at 1242.
The concept of "action against self-interest" is ambiguous
and one of its meanings could merely constitute a
restatement of interdependence. As the court pointed out in
19
Coleman v. Cannon Oil Company, 849 F. Supp. 1458, 1467
(N.D. Ala. 1993), refusing to raise or lower prices unless
rivals do the same could be against a firm's self-interest but
nevertheless could spring from independent behavior.
Similarly, conspiratorial motivation is ambiguous because it
"can describe mere interdependent behavior and, therefore,
it could mean that interdependent behavior is a Sherman
Act Section 1 conspiracy." Areeda, S 1434(c). Thus, no
conspiracy should be inferred from ambiguous evidence or
from mere parallelism when defendants' conduct can be
explained by independent business reasons.
Once the plaintiffs have presented evidence of the
defendants' consciously parallel pricing and supplemented
this evidence with plus factors, a rebuttable presumption of
conspiracy arises. Todorov, 921 F.2d at 1456 n.30. "[T]he
mere presence of one or more of these `plus factors' does
not necessarily mandate the conclusion that there was an
illegal conspiracy between the parties, for the court may
still conclude, based upon the evidence before it, that the
defendants acted independently of one another, and not in
violation of antitrust laws." Balaklaw v. Lovell, 822 F.
Supp. 892 (N.D. N.Y. 1993); Todorov, 921 F.2d at 1456
n.30.
In an effort to reinforce their claim of collusive price-
fixing, plaintiffs presented the testimony of an expert for the
purpose of showing a pattern of parallel price increases in
each of the five baby food product categories throughout
the certified time period, except for the First Food category
in August 1992. The plaintiffs requested Dr. Albert
Madansky to conduct statistical analyses of the defendants'
list price increases for the period January 1989 through
December 1992. He concluded that the results of his
analyses established a pattern of parallel pricing by the
defendants. Dr. Madansky's conclusion is depicted infive
charts. The charts represent each of the five categories of
baby food: First Foods, Second Foods, Third Foods, Cereals,
and Juices.
Through his analysis of the defendants' average monthly
list prices, Dr. Madansky further concluded that
transaction prices likewise increased in parallel fashion
from 1989 to 1992. Again, similar to what he did with list
20
prices, his analysis of transaction price trend lines is
depicted in five charts that reflect the five categories of baby
foods. According to Dr. Madansky, the charts show that the
defendants' prices moved upward in parallel fashion on
99.5% of the total volume analyzed.
The plaintiffs argue documentary and testimonial
evidence also confirm that the defendants engaged in
parallel pricing and prove that the price increases resulted
from concerted action by the defendants. They point to an
internal Beech-Nut memo of February 24, 1989, from
Joseph Gaeto, Beech-Nut's Vice-President of Marketing, to
Theuer stating: "We have taken a position [of] parity with
Gerber to reflect our current plan for a price increase this
year." In addition, Beech-Nut's 1988 Long Term Plan
pontificated "Gerber will accept the price leadership of
Beech-Nut and will accept price increases as a means of
improving profitability." They also cite the testimony of
Heinz's area manager, Ron Coble, that Heinz's "selling
philosophy" from 1970 to the early 1990s was to sell their
products at 29È a case below the prices of Beech-Nut and
Gerber on all 24-pack merchandise. Plaintiffs argue that
the maintenance of more or less constant differentials
between defendants' prices is clear evidence of parallel
pricing.
The plaintiffs also contend that the evidence they
produced showed that the defendants' pricing was
"conscious." For this purpose, they rely heavily on the
reciprocal exchange in pricing information previously
referred to, including the deposition testimony of Anderson
and Gibbs. The plaintiffs therefore argue that sales
representatives of each defendant, largely at the behest of
senior management and mostly by word of mouth,
maintained a continuous network to exchange price
information as well as a system to communicate that
information to executive decision makers. The plaintiffs
claim that the evidence shows that the defendants on a
consistent basis ordered their sales representatives to
gather competitive information, such as their competitors'
pricing plans and strategies. The plaintiffs aver that once
this information was obtained, the sales representatives
reported the information to their area or territory manager,
who in turn passed the information on to their superiors.
21
In addition, the plaintiffs argue that the defendants'
pricing data represents parallel list and transaction pricing.
They assert that following the "truce" an understanding
existed among the defendants not to intrude upon the
other's position in the market place, which culminated in
an agreement to jointly coordinate and implement price
increases. In support of their theory of the defendants' price
parallelism, plaintiffs claim that their expert's testimony
shows statistical analysis of the defendants' list price
increases per pack between January 1989 and December
1992. The plaintiffs also contend that the parallel list price
increases caused the transaction prices to increase and,
thus, the transaction prices suffered from parallel pricing
as well. Specifically, as to the period certified for the class
action, January 1, 1989 to December 31, 1992, plaintiffs
maintain that defendants' list prices and actual transaction
prices were higher than they would have been had the
defendants not engaged in price fixing.
V.
Summary Judgment Principles
This court's review of the District Court's grant of
summary judgment is plenary. Erie Telecommunications,
Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir. 1988). We
evaluate the evidence using the same standard the District
Court applied in reaching its decision.
Summary judgment is warranted where "there is no
genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed. R.
Civ. P. 56(c). In the context of an antitrust case, the
nonmoving party's burden "is no different than any other
case." Big Apple BMW, Inc. v. BMW of North America, Inc.,
974 F.2d 1358, 1363 (3d Cir. 1992). Hence, "summary
judgment should be granted if, after drawing all reasonable
inferences from the underlying facts in the light most
favorable to the nonmoving party, the court concludes that
there is no genuine issue of material fact to be resolved at
trial and the moving party is entitled to judgment as a
matter of law." Petruzzi's IGA v. Darling-Delaware, 998 F.2d
at 1230 (3d Cir. 1993).
22
The extent of what constitutes a reasonable inference in
the context of an antitrust case, however, is somewhat
different from cases in other branches of the law in that
"antitrust law limits the range of permissible inferences
from ambiguous evidence in a S 1 case." Matsushita, 475
U.S. at 588. The acceptable inferences which we can draw
from circumstantial evidence vary with the plausibility of
the plaintiffs' theory and the danger associated with such
inferences. Petruzzi's, 998 F.2d at 1232. Therefore, the
Supreme Court has held in the antitrust context "that
conduct consistent with permissible competition as with
illegal conspiracy does not, standing alone, support an
inference of antitrust conspiracy." Matsushita, 475 U.S. at
588, (citing Monsanto, 465 U.S. at 764). Thus, to withstand
a motion for summary judgment "a plaintiff seeking
damages for a violation of S 1 must present evidence that
tends to exclude the possibility that the alleged competitors
acted independently." Id. The reason, of course, is that
mistaken inferences in such a context "are especially costly
because they chill the very conduct the antitrust laws are
designed to protect." Matsushita, 475 U.S. at 594.
In deciding whether summary judgment is warranted, the
District Court may not weigh the evidence or make
credibility determinations. Big Apple BMW, 974 F.2d at
1363. Moreover, the non-movants' evidence should be
analyzed as a whole and not be tightly compartmentalized
to see if together it supports an inference of concerted
action. Big Apple BMW, 974 F.2d at 1364.
A plaintiff in a Section 1 conspiracy can establish a case
solely on circumstantial evidence and the reasonable
inferences to be drawn therefrom, and the movant
defendant for summary judgment bears the burden of
proving that drawing inferences of unlawful behavior is
unreasonable. Petruzzi's, 998 F.2d at 1230. "Nonetheless,
in drawing favorable inferences from underlying facts, a
court must remember that often a fine line separates
unlawful concerted action from legitimate business
practices." Id. Therefore, care must be exercised to ensure
that inferences drawn of unlawful behavior from ambiguous
evidence do not infringe upon the defendants' freedom. Id.
Thus, the court must ascertain whether the plaintiffs have
23
presented "evidence that is sufficiently unambiguous"
showing that the defendants conspired. Matsushita, 475
U.S. at 597.
With these principles in mind, we address the evidence
before us.
VI.
Analysis of the Evidence
The District Court carefully considered the plaintiffs'
evidence concerning the reciprocal exchange of price
information by the defendants. The court concluded that
the evidence did not support an inference of a conspiracy to
fix prices but portrayed nothing more than intense efforts
on the part of three large and strong competing companies
in the baby food industry to ascertain:
[w]hat their competitors would be doing with regard to
pricing, promotions and products. . . . These instances
do not allow the inference of some conspiracy to fix
prices. Much of the specific instances cited by plaintiffs
concern not pricing information, but promotional or
product information of certain defendants which were
reported by other defendants." D.C. Op. at p. 27.
With respect to the written documents of one competitor
found in the files of another, the court determined that
many of them reflect competitive information concerning
the discontinuance of products or changes in product
ingredients or in packaging. It concluded that the presence
of this information was consistent with independent action
and not grounds for assuming "some shadowy conspiracy."
Id.
The plaintiffs assert that the exchange of pricing
information by lower level employees is sufficient to defeat
a motion for summary judgment in Section 1 cases.8 We
_________________________________________________________________
8. At oral argument, the plaintiffs cited the following cases as authority
for this assertion: Vernon v. Southern Calif. Edison Co., 955 F.2d 1361
(9th Cir. 1992); In re Coordinated Pretrial Proceedings, 906 F.2d 432 (9th
24
disagree. Evidence of sporadic exchanges of shop talk
among field sales representatives who lack pricing authority
is insufficient to survive summary judgment. Krehl v.
Baskin Robbins Ice Cream Co., 664 F.2d 1348, 1357 (9th
Cir. 1982). Furthermore, to survive summary judgment,
there must be evidence that the exchanges of information
had an impact on pricing decisions. See Krehl, 664 F.2d at
1357. Plaintiffs, for this purpose, rely on their expert's
opinion that concerted action drove the transaction prices
up 6.16%.
The plaintiffs here contend that the holdings of United
States v. Container Corp. of America, 393 U.S. 333 (1969)
and United States v. United States Gypsum Co., 438 U.S.
422 (1978) compel the conclusion that the evidence they
presented concerning the exchange of future pricing
information impacted the market as a whole and is more
than sufficient to survive summary judgment. We do not
agree.
In Container Corp., the court held that the reciprocal
exchange of price information pursuant to an agreement by
the defendants was concerted action sufficient to establish
a price-fixing conspiracy. It analogized the agreement
among the defendants there with the "sophistication and
well-supervised plan for the exchange of price information
between competitors" in American Column & Lumber Co. v.
United States, U.S. 257 U.S. 377 (1921) and the "elaborate
plan for the exchange of price data among competitors" in
United States v. American Linseed Oil Co., 262 U.S. 371
(1923).
_________________________________________________________________
Cir. 1990); Rosenfield v. Falcon Jet Corp., 701 F.Supp. 1053 (D.N.J.
1988). However, we conclude that none of these cases support the
plaintiffs. Vernon did not involve price-fixing; rather, it concerned
whether the defendant denied the plaintiff access to certain power
transmission lines. In Pretrial Proceedings, testimony indicated that
upper level executives engaged in secret conversations regarding product
pricing. Id. at 450. Similarly, in Rosenfield, testimony showed that
several upper level executives "were aware of the price information
exchange and considered the data obtained by sales engineers to set the
price of business jets." Id. at 1064.
25
In Container Corp., the plaintiffs presented direct
evidence of an agreement among the defendants to
exchange pricing information, as well as evidence that once
a defendant had the competitors' pricing information, in a
"majority of instances," the defendant quoted the same
price as his competitor. This compared to evidence of
periods where there were no pricing exchanges and
"exceptionally sharp and vigorous price reductions
resulted." See 393 U.S. at 340 (Fortas, J., concurring).
Conversely, in Gypsum, the Court could not have been
more clear: "The exchange of price data and other
information among competitors does not invariably have
anticompetitive effects; indeed such practices can in certain
circumstances increase economic efficiency and render
markets more, rather than less, competitive." 438 U.S. at
443 n.16.
The plaintiffs also complain that the District Court
improperly weighed Anderson's testimony and failed to even
consider Gibbs' testimony. Anderson was a salesman, who
characterized his status as "a little mouse." He had no
authority to set the prices for the baby food he sold. His
superior did not instruct him to provide competitors with
information. He considered himself a good salesman, and,
therefore, his practice was to garner as much information
as he could find "in the street" about the competition.
Whatever competitive information he acquired he passed on
to his superior. The information came from chit-chat during
chance encounters in the field among competitors'
employees with whom he was acquainted. Runk, his
superior, never directed him to disseminate Heinz price
information to competitors in the field.
We have held previously that communications between
competitors do not permit an inference of an agreement to
fix prices unless "those communications rise to the level of
an agreement, tacit or otherwise." Alvord-Polk, 37 F.3d at
1013. See also Amey, 758 F.2d at 1505 (11th Cir.
1985)(Exchange of pricing information by itself is an
insufficient basis upon which to allow an inference of
agreement to fix prices); Market Force Inc. v. Wauwatosa
Realty Co., 906 F.2d 1167, 1173 (7th Cir. 1990)("[i]t is well
established that evidence of informal communications
26
among several parties does not unambiguously support an
inference of a conspiracy.") Gathering competitors' price
information can be consistent with independent competitor
behavior. See e.g., Stephen Jay Photography Ltd. v. Olan
Mills, Inc., 903 F.2d 988, 996 (4th Cir. 1990); Wallace v.
Bank of Bartlett, 55 F.3d 1166, 1169 (6th Cir. 1995).
The District Court appropriately discounted Gibbs's
testimony entirely because he gave it in another proceeding
involving Heinz's vinegar product, not baby food. Neither
Gerber nor Beech-Nut manufactured vinegar. Moreover, he
testified that (1) any communications he had wit h
competitors were neither related to setting the price of
vinegar nor related to any agreement with competition on
the price of vinegar, (2) the information he commu nicated
was all current or public, and (3) Heinz generally did not
act on any information obtained through those
communications. We see no error in the court's treatment
of Gibbs's testimony.
The plaintiffs also argue that the assortment of
memoranda found in the files of the defendants concerning
advance prices of competition, one or two of which were
unexplained, proved "a pervasive exchange of confidential
information concerning future promotions." We do not
believe that the mere possession of competitive memoranda
is evidence of concerted action to fix prices. In a highly
competitive industry, as is the baby food industry, intensely
dependent on marketing strategy, it makes common sense
to obtain as much information as possible of the pricing
policies and marketing strategy of one's competitors.
The fact that the price information about one company
is found in a competitor's files or an employee reports
a competitor's pricing policy to his home office and the
two companies charge similar prices for their products,
without more, cannot support an inference that the
two competitors entered into an agreement to share
prices. To successfully raise an inference that two
competitors agreed to share price information, a
complainant must produce some evidence which tends
to exclude the possibility that the competitors acted
independently.
27
Stephen Jay Photography, 903 F.2d at 996 (citing
Monsanto, 465 U.S. at 764).
The plaintiffs stressed during trial and on appeal the
significance of the evidence concerning the "truce." They
argue that the District Court simply erred in its treatment
of all the evidence presented regarding this incident. They
contend that the District Court failed to discuss the 1984
memorandum from Hoyvald to Biggar, in which Hoyvald
stated that all large competitive counter-offers have been
eliminated, or Heinz's rejection of McCloskey's
recommendation for Heinz to enter the Chicago market in
1988 and 1991. Further, they take issue with the court's
conclusion that the 1984 truce memorandum was
"irrelevant to Gerber" and "clearly as consistent with
normal business conduct as it is with some alleged
conspiracy between Heinz and Beech-Nut."
The plaintiffs failed to present any evidence
demonstrating that Gerber was involved in a "truce." In
considering the evidence relating to the "truce," the District
Court concluded:
[t]here is evidence that 1984 marked the end of a trade
war in the baby food business, and certain customers
at that time, in certain areas of the country, utilized a
"two-brand approach." This meant that those
customers would stock Gerber products and either
Heinz or Beech-Nut products. . . . The Court notes that
it would be irrelevant to Gerber if this truce did in fact
exist, so the Court declines to make the leap that
Gerber had any input into an alleged "truce."
Op. at 33. As to Coble's explanation for his isolated, single
use of the term in his 1984 memorandum, the District
Court concluded that the deposition testimony of other
Heinz employees "corroborate[d] the fact that Heinz was
skittish about doing anything which might erupt in another
conflagration in the industry. This evidence is clearly as
consistent with normal business conduct as it is with some
alleged conspiracy between Heinz and Beech-Nut." Id. at
33-34. We agree.
The "truce" expression relied on by the plaintiffs was
largely intended to buttress their case on reciprocal price-
28
fixing. However, the single use of the term in a highly
competitive business environment and in the face of
continuing fierce competition is as consistent with
independent behavior as it is with price-fixing.
Furthermore, the explanation for the use of the term by an
employee without price-fixing authority is more plausibly
explained as an exercise of independent business judgment
by Heinz not to enter a new market. The evidence reflects
Heinz's strategic planning as to whether and when to
pursue particular business opportunities. We are unwilling
to question such business judgment. Furthermore, the
price-fixing inferences that the plaintiffs would have us
draw from this evidence, which relates ostensibly to
business competition and not price-fixing, require us to
make an unjustified jump in judgment that this record does
not warrant, especially in the face of the District Court's
conclusion.
The plaintiffs place great weight on Heinz's decision not
to invest in the Chicago and the Miami markets. 9 However,
such investment required substantial capital expenditures
and resource commitments. Only Heinz was in a position to
decide whether it was in its best interest to make such
commitments, particularly in light of its interests in many
other products in the general food industry. Only it knew
how much spending on promotion and allowances would be
required to penetrate the Chicago market, and how much
competitive resistance it would encounter, whether the cash
flow generated would justify committing a portion of its
finite marketing budget, or whether there were better
opportunities elsewhere. We can discover no hard evidence
that allowances and promotion activity was abandoned at
the time or in the geographic territory referred to in these
documents.
Moreover, Coble's 1984 memorandum, which used the
_________________________________________________________________
9. Plaintiffs assert that Heinz's McCloskey strongly advocated that Heinz
enter the Chicago market in 1988 and 1991 and its unwillingness to
enter proves that the 1984 "truce" remained in place. Plaintiffs ignore,
however, the effort of Heinz to enter the Chicago market in 1988,
evidenced by its formal, written proposal to Dominick's, a large Chicago
supermarket chain. Dominick's rejected the proposal.
29
term "truce," also reports aggressive competition: "We
attempted to expand our distribution from July to
November 1983, but were unsuccessful in obtaining any
significant distribution gains. Every attempt to dislodge
Beech-Nut was met with defensive programs that were
substantial." Furthermore, there would be strategic issues
for Heinz to consider, that might draw fire from its
competitors. They could aggressively respond to Heinz's
territorial expansion in the expanded area and in other
territories that might prove the expansion to be eruptive,
destructive, and expensive. These considerations may have
weighed against the likelihood of long-run success in
Heinz's ability to maintain its presence on retail shelves
and gain market share in the face of its competitors'
response. Such decisions are consistent with permissible,
rational competitive conduct. We therefore hold that
plaintiffs' evidence pertaining to the alleged "truce" is not
sufficiently probative of unlawful concerted action.
The plaintiffs argue that they presented substantial
evidence that the defendants' list and transaction prices
increased in parallel fashion. In addition to their expert's
affidavit, they also state that the testimony of other
witnesses and documentary evidence confirm that the price
increases were attributable to the defendants' consciously
parallel action. On appeal, therefore, they vigorously assert
that the District Court overlooked and otherwise
disregarded this important evidence of conspiratorial price-
fixing.
In the absence of direct evidence, as we previously stated,
consciously parallel business behavior can be important
circumstantial evidence from which to infer an agreement
in violation of the Sherman Act. Weit, 641 F.2d at 462.
Although "mere consciously parallel behavior alone is
insufficient to prove a conspiracy, it is circumstantial
evidence from which, when supplemented by additional
evidence, an illegal agreement can be inferred." Petruzzi's,
998 F.2d at 1242. In an oligopoly consisting of no more
than three companies at one time and collectively
controlling almost the entire market, there is pricing
structure in which each company is likely aware of the
pricing of its competitors. The District Court in this case
30
concluded that upon examining the charts prepared by
plaintiffs' expert, Dr. Madansky, the defendants' prices were
not parallel. The plaintiffs were "unable to show that
defendants' prices moved in a parallel fashion. This is true
both for list prices and transaction prices. . . . On this basis
alone, plaintiffs' case fails." D.C. op. at 21.
The District Court noted that there were many "clear
instances," for example, when Gerber raised its prices and
Beech-Nut lowered theirs or kept them the same. For
instance, "in March of 1990, Gerber raised the prices . . .
[and] [i]n that same period, Heinz lowered its prices." D. C.
op. at 23-24. The court also pointed to many instances
where Gerber either lowered its prices or kept them the
same when Heinz and/or Beech-Nut raised theirs. Id. at 24.
The court also observed upon examining Dr. Madansky's
report that all during the alleged conspiracy period, "there
were fifteen instances (out of 175) where Gerber, Beech-
Nut, and Heinz all raised their prices. There were seven
instances where the three lowered their prices, and there
were five where they kept them the same." Thus, it
concluded that "15.5% of the time, Gerber, Beech-Nut, and
Heinz made similar pricing decisions. . . . That leaves,
however, 84.5% of the time during which defendants priced
their products differently." (Id. at 24).
From our own analysis of the evidence, we perceive no
error on the part of the District Court in concluding that
the evidence was insufficient to prove conscious
parallelism. Because Gerber controlled 70% of the market
in baby foods and was the acknowledged leader in this
industry, Gerber's pricing understandably may have had an
influence on its competitors' pricing. Conscious parallelism,
however, will not be inferred merely because the evidence
tends to show that a defendant may have followed a
competitor's price increase. See, e.g., Theatre Enterprises v.
Paramount Film Dist. Corp., 346 U.S. 537, 541 (1954);
Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478,
484 (1st Cir. 1988).
The plaintiffs complain that the District Court
disregarded the testimony of their expert, Dr. Madansky,
with respect to parallelism. We can well understand the
District Court's attitude toward this expert's testimony and
31
supporting charts. In an industry with hundreds of
products and a pervasive policy of allowing discounts and
promotional allowances to purchasers, allowances that
varied even to the same customer if it conducted business
in different geographical areas, charts and reports focusing
on list prices rather than transactional prices have little
value. "Especially in an oligopoly setting, in which price
competition is most likely to take place through less
observable and less regular means than list prices, it would
be unreasonable to draw conclusions about the existence of
tacit coordination or supracompetitive pricing from data
that reflect only list prices." Brooke Group, 509 U.S. at 236.
Yet, the plaintiffs focus on the defendants' list pricing. In
their initial brief, they assert that Dr. Madansky proffered
substantial, uncontroverted evidence from which a jury
could find "list price parallelism." They also point to Dr.
Madansky's January 14, 1997 affidavit in which he
analyzed "defendants' list prices and submitted five charts
. . . graphically depicting the parallel movement of
defendants' list prices over time." Id. (Emphasis added)
Without making any effort, or offering any explanation for
his failure to do so, Dr. Madansky made no statistical
analysis of the movement of defendants' transaction prices.
His conclusion with respect to transaction prices is reached
by simply comparing defendants' list prices over time with
the corresponding trend line of average monthly transaction
prices on a per pack basis to show that following list price
increases, transaction prices increased. Dr. Madansky's
original testimony and report made no reference to
transactional prices. Dr. Madansky made no in-depth
analysis of transaction prices. His affidavit of January 14,
1997, came as a response to the District Court's request
and arguments of defendants' counsel at the oral hearing
on the motion for summary judgment.
Furthermore, Dr. Madansky's analysis did not consider
any transaction pricing for Nestle/Beech-Nut.10 Moreover,
_________________________________________________________________
10. Dr. Madansky initially set out to determine the prices paid by the
plaintiffs to the defendants for baby food products. His results were
based on "the monthly dollar-volume weighted average of the per ounce
price paid by Gerber and Beech-Nut customers who qualified for pricing
at the 40,000 lb. or over price bracket and by all Heinz customers for the
baby foods comprising Gerber's First Foods, Second Foods, Third Foods,
Juices, and Cereals categories . . . ." The purpose at the time apparently
was to provide a basis for damages.
32
he relies on "trend lines" of average transaction prices, not
actual prices of the other companies, to reach a conclusion
that transaction prices increased following list price
increases. We do not believe that trend lines of average
prices are a reliable indicator of transactional prices.
Moreover, a trend line showing an increase in transaction
prices for baby foods during a period of the economy when
general food prices were increasing is readily
understandable and charts depicting it are not helpful as
evidence of parallelism. See Consumer Price Index -- All
Urban Consumers, Bureau of Labor Statistics, Food and
Beverages, 1967-1998.
We see a further weakness in the methodology of Dr.
Madansky's report that also furnished a sufficient basis for
the District Court to reject it as proof of parallelism. The
defendants sold their baby food products by the case and
priced their sales by the case. Dr. Madansky's report of
conscious parallelism is predicated on a per ounce basis. In
response to the criticism his initial report evoked at the
summary judgment hearing, Dr. Madansky submitted his
January 1997 affidavit in which he concluded that"a per
pack (i.e. per unit) basis during the period January 1989
through December 1992 in each product category reveal[ed]
that defendants increased their list prices in parallel
fashion." (Emphasis added). He then leaped to the
conclusion, ipse dixit, that "[a] per case analysis . . . would
yield the same results as [his] per pack analysis because
case sizes in the relevant baby food categories did not
change during the period." Again his conclusion is based on
list prices.
The plaintiffs also point to the charts provided in Dr.
Madansky's January 1997 affidavit as proof that the
defendants' prices exhibited parallel behavior. There are 31
charts. Charts 1-5 represent a comparison of defendants'
list price increases on a per pack (i.e. per unit) basis and
purport to show that defendants' list prices increased in
parallel fashion. However, the pertinent inquiry is on the
prices actually paid, the transaction prices. Thus, these
charts' probity is minimal. Charts 6-20 represent"[a]
comparison of defendants' list price increases over time
with the corresponding trend line of average monthly
33
transaction prices on a per pack basis." However, the
defendants sell baby food to their customers by the case.
Therefore, these charts do not reflect case transaction
prices.
Charts 21-26 purport to compare "defendants' list prices
to defendants' monthly average transaction prices on a per
pack basis in the month immediately preceding their next
list price increase." These charts focus on Dr. Madansky's
use of trend lines. These trend lines reveal nothing more
than that the transaction prices tended to increase over
time. However, such analysis has been explicitly rejected by
the Supreme Court. "[R]ising prices do not themselves
permit an inference of a collusive market dynamic. Even in
a concentrated market, the occurrence of a price increase
does not in itself permit a rational inference of conscious
parallelism or supracompetitive pricing." Brooke Group, 509
U.S. at 237.
The explanation proffered by the plaintiffs for Dr.
Madansky's calculations on a per ounce basis is that it
provided a common unit for the defendants' products
because they sold some of the same products in different
size jars. The use of a per ounce calculation, however,
especially when utilizing list prices, reflected prices within
a fraction of one cent of each other. The District Court
commented that such a methodology was at odds with
marketing practices for "the industry does not use [per
ounce prices] when setting list prices. Per ounce prices are
necessarily within a fraction of one cent of each other due
to the relatively minimal per ounce cost." D.C. Op. at 24. As
the defendants observe, if Dr. Madansky had performed his
analysis on the basis of quarter-ounces, the distribution
prices would appear even closer together. They claim his
conversion into ounces "is an attempt to mask the real
price differential." The defendants argue that analyzing
price differentials on a per ounce basis is misleading.
For example, by reducing prices from a per-case basis
to a per-ounce basis, plaintiffs reduced the unit of
measurement by a factor of almost 100 in the case of
Gerber Second Foods (one case equals approximately
96 ounces) and by a factor of 30 in the case of Gerber
First Foods (one case equals 30 ounces). When prices
34
are measured properly, in terms of price per case,
plaintiffs cannot argue that each of the defendants'
prices are within cents of each other.
In response to this telling criticism of the inappropriate
use of the per-ounce calculation, Dr. Madansky's January
affidavit moved to a per-pack comparison. He then leaps
the gap to a per-case analysis. He accomplishes this with
the aid of a slender, unsupported strand in his affidavit
stating that a "per case analysis (adjusting for Gerber's
smaller case size in First Foods) would yield the same
results as my per ounce analysis because case sizes in the
relevant baby food categories did not change during the
period." This amounts to nothing more than an observation
which adds little substance, if any, to his opinion.
In their appeal to this court, the plaintiffs rely on the per-
pack analysis made in Dr. Madansky's January affidavit.
Although this is a more reasonable unit size, the
defendants observe that the plaintiffs do not argue that the
per-package analysis of defendants' list or transaction
prices were within cents or fractions of cents of each other,
nor could they. Moreover, the defendants argue that the
step graphs generated by Dr. Madansky in his January
1997 affidavit compress the time axes to a minute scale to
create the illusion of parallel pricing. In addition, as we
have previously mentioned, the step graphs are based on
list prices and the accompanying charts (Numbers 27-31)
depict average monthly price trend lines on a per pack
basis.
Even when measured in ounces, as the defendants'
analysis of the Madansky data illustrates, the evidence
shows that the defendants' actual transaction prices moved
in different directions more often than not. The undisputed
evidence shows similar disparities with respect to list
prices: sometimes competitors did not follow price increases
at all, other times they followed by less, sometimes by the
same amount, and sometimes they followed only in certain
geographic areas.
With respect to the plaintiffs' contention that the District
Court ignored substantial testimony of defendants' own
employees that confirmed the parallel movement of
35
defendants' list prices, as well as their expert, we turn to
the specific documents and testimony to which they point
in support of this argument. The plaintiffs refer to two
documents: (1) a February 24, 1989 memorandum from
Joseph Gaeto, Beech-Nut Vice President of Marketing, to
Richard Theuer, Beech-Nut's then President, stating "we
have taken a position [of] parity with Gerber to reflect our
current plan for a price increase," and (2), a Heinz
communication dated Nov. 5, 1991, from employee Wyker
to his superior that "requests approval to implement a
Grocery Baby Food Price Increase to match the recently
announced Gerber Price Increase." The plaintiffs note that,
in sharp contrast to the District Court's conclusion, the
defendants' own economic expert, Dr. Almarin Phillips, as
well as Coble, testified that it was Heinz's general policy to
maintain a "more or less constant differential" between
Gerber's list prices and Heinz's list prices. Id.
The District Court may not have specifically addressed
this testimony but that does not mean the court ignored it.
Nonetheless, we will address it in light of the plaintiffs'
argument on appeal. The Beech-Nut memorandum
regarding cereal prices confirms the plaintiffs' assertion
that Beech-Nut has "taken a position [of] parity with
Gerber." However, plaintiffs omitted the preceding phrase
explaining that the position was taken "[F]or market
reasons. . . ." Furthermore, the charts Dr. Madansky
generated show that Nestle/Beech-Nut's list cereal prices
were not at parity with Gerber's prices. The charts show
that in February 1989, the same month as the date on the
Beech-Nut document, Gerber's cereal prices jumped from
slightly below Beech-Nut's prices to well above those prices,
and that Beech-Nut's cereal prices did not rise again until
seven months later, shortly before Nestle left the baby food
business. The same Nestle/Beech-Nut document upon
which plaintiffs rely repeatedly emphasizes that prices were
being raised due to market factors, including increased
costs in raw materials and packaging, and that the
incremental price increase was less than the increase in
costs. This document, therefore, reflects Beech-Nut's
competitive behavior and not conscious parallelism.
Contemporaneous documents also show that Heinz made
independent pricing decisions in 1989. On February 14,
36
1989, Joe Fay, Heinz's product manager, sent Robert
Roussey, Heinz's general business manager, a
memorandum obtained from the trade, attaching a copy of
Gerber's announced wholesale price advance effective
February 13, 1989. Fay recommended that Heinz follow
immediately on four of its food categories, but delay
announcing any strained 4.2 oz juice price increase"till
we've analyzed the strained retail pricing analysis study."
On March 2, 1989, Fay recommended that Heinz
implement a price increase effective May 4, 1989, to"match
Gerber's and maintain our per ounce case differentials
versus Gerber" on Junior, Meat, Cereal, and Juice.
Conversely, Fay also recommended Heinz increase prices
by only 11c or 2% on Beginner Foods, compared to
Gerber's price increase of 40c on the same product
segment due to Heinz's "inability to obtain our desired retail
price differential using larger LTA [long term allowance] and
smaller base cost differential." A revised Fay memorandum
dated March 23, 1989, reflecting Heinz's decision to depart
from Fay's original recommendation, was attached to the
final product price change form. Furthermore, the memo
revealed Heinz's decision not to match Gerber increases in
Meats or Junior Foods, and "to expand our retail price
differentials to levels (2-3c on Meats, 4c on Junior Foods)
which will improve the volume of these historically
declining businesses."11 Thus, these memoranda show in-
depth, unilateral behavior, not collusive conformation.
The defendants' personnel and expert testified that it was
Heinz's general policy to maintain a "more or less constant
differential" between Gerber's list prices and Heinz's list
prices. Contrary to the plaintiffs' argument, the District
Court did not ignore this testimony. Rather, the testimony
_________________________________________________________________
11. We observe that most of the documents introduced by the plaintiffs
merely discuss "rumors" that the authors heard or "suspicions" that they
had. As such, the documents can be discounted as non-probative for
they show a lack of knowledge about the competitors' pricing and are
inconsistent with a price-fixing scheme. For example, in the March 2,
1990, Beech-Nut document to which the plaintiffs point, the author
merely states that he "anticipates" a Gerber price increase in the first
quarter of 1987. In another Beech-Nut document the author has had
heard "very strong rumors" of a Gerber price increase. App. at 3893a.
37
shows a business judgmental policy to offer the public
consumer a "value brand" at a price less costly than the
price offered by the market leader, Gerber. This policy fails
to prove parallel price behavior.
Market realities also clearly controvert the plaintiffs'
contention. On March 30, 1987, six months after Beech-
Nut's price increase, Heinz increased the list price on cereal
by an amount that was less than Gerber and Beech-Nut to
maintain its traditional position "as the price value brand."
The same fiscal year 1987 price increase memorandum
recommendation to Roussey noted that "[i]n September
FY87, Beech-Nut attempted to lead the industry with a
price increase (+20È per case) but they were not followed by
Gerber or Heinz at that time." In 1988, Heinz did not raise
prices on Junior Foods, despite Gerber's price increase.
Heinz chose this strategy because "[a]ny increase to these
differentials due to a price increase will decrease Heinz's
Junior Foods volume as a result of a weakening of its
price/value positioning and possibly due to reduced
distribution."
Beech-Nut, who increased its list prices three months
before Heinz's increase, did not increase list prices for
Junior Foods. In 1990, Heinz did not match Gerber's price
increase on Junior Foods "to widen the objective Heinz-
Gerber retail price differential from 4c to 5c." Supp. App. at
4892. In addition, Heinz did not match Gerber's price
increase on Meats "in an effort to stabilize [its] Meats
business." Id. However, in so doing, it "widen[ed] [its] retail
price differential from 3c to 4c." Id.
In 1991, Heinz's D. F. Ryan recommended fiscal year
1991 baby food price increases to match Gerber's increase
to "maintain our price differentials versus Gerber." The
recommendation, however, excluded any price increase for
Second or Third Food meats and suggested an increased
price for cereal of 61c as against Gerber's increase of 80È
so as to expand the unit differential between them from
4.4c to 6.0. An August 1992 memo from Heinz employee
Deborah Billow informed G. Price that "Bob and I have
agreed to not follow Gerber's most recent price increase on
Beginner Food until January 1, 1993 when it is currently
budgeted."
38
Although we recognize that parallel pricing does not
require "uniform prices," and permits prices within an
agreed upon range, Socony-Vacuum, 310 U.S. at 222, the
memoranda to Roussey and the subsequent memoranda of
Ryan and Billow demonstrate that the defendants did not
blindly raise their prices to follow Gerber, the price leader.
The defendants' prices were neither uniform nor within any
agreed upon price range of each other. These memoranda
reveal that the defendants engaged in independent pricing
determined by market conditions at the time, profit
margins, and the effect of price increases or decreases on
sales volume and distribution. They provide a striking
insight into the defendants' marketing strategy which
negates the plaintiffs' inference of conscious parallelism.
Thus, we see no substance to plaintiffs' argument that
the District Court ignored testimony and documents of the
defendants' witnesses which would have confirmed the
plaintiffs' case for conscious parallelism. On the contrary,
defendants' marketing activities refute rather than support
parallel pricing.
VII.
The Plus Factors
The plaintiffs strenuously argue on appeal that, in
addition to direct and circumstantial evidence showing the
defendants' joint action, they presented more than
sufficient evidence of "plus factors" to defeat summary
judgment. They claim that the record contains substantial
evidence that all the defendants (1) had an econom ic
motive to conspire in order to increase their profits, (2) had
ample opportunity to conspire, and (3) acted again st their
independent economic self-interests by exchanging price
information, including information concerning future price
increases. They assert that the District Court, in
discovering no plus factors, simply ignored the evidence.12
_________________________________________________________________
12. Despite its earlier conclusion "that there is no permissible inference
of parallel pricing," the District Court devoted approximately 20% of its
34-page opinion to the discussion of the plus factors. The extensive
discussion by the district court at least negates the plaintiffs'
complaint
that the district court ignored the evidence.
39
In Petruzzi, we stated that a conspiracy based on
consciously parallel behavior requires a plaintiff not only to
show parallel behavior and awareness in their decision
making, but also certain plus factors. Id. at 1242; see also
Shoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d
205, 208 (3d Cir. 1980). Moreover, the Supreme Court has
stated that evidence of plus factors must tend to exclude
the possibility of independent conduct. Monsanto, 465 U.S.
at 764.
We have undertaken a comprehensive review of the
record and we do not agree with the plaintiffs that the
District Court "ignored the evidence" in discovering no plus
factors. On the contrary, the court determined that the
evidence showed that each defendant independently was
able to obtain information concerning its competitors'
product pricing and promotions. The District Court
concluded that the evidence did not permit it to reasonably
infer a price-fixing conspiracy. D.C. Op. at 27. It stated that
"[t]here [was] a paucity of written documentation evidencing
any concerted exchange of pricing information." D.C. Op. at
27. Moreover, the court determined that the record simply
showed that the defendants were sophisticated corporations
that sought and prized competitive information concerning
the activities of their competitors. D.C. Op. at 28.
In keeping with its consideration of the plus factors, the
court discussed the evidence as to the defendants' advance
price announcements. It noted that other courts have
determined that advance price announcements " `served an
important purpose in the industry.' " D.C. Op. at 29,
(quoting Reserve Supply Corp. v. Owens-Corning Fiberglass
Corp., 971 F.2d 37, 54 (7th Cir. 1992)). The court
concluded the defendants' advance notices do not support
proof of concerted action by them; many of the documents
to which plaintiffs point speak only in terms of "a suspicion
or rumor that one of the defendants would be raising prices
or making changes to a particular product." D.C. Op. at 29.
As examples, it pointed to a Beech-Nut budget document
dated December 31, 1986, in which Beech-Nut President
Theuer stated that he "anticipated a Gerber price increase."
Id. (Emphasis added). The court also observed in another
Beech-Nut document that the author stated that he
40
"strongly suspects" that Gerber would increase prices on
March 2, 1990. Id.
The court determined that the nature of the exchanges of
information among the defendants' sales representatives
amounted to mere "chit chat" at chance meetings or trade
shows among persons with no pricing authority. Op. at 30.
The court further noted that courts generally reject
conspiracy claims that "seek to infer an agreement from . . .
communications despite a lack of independent evidence
tending to show an agreement and in the face of
uncontradicted testimony that only informational
exchanges took place." Op. at 31, (quoting Alvord-Polk, 37
F.3d at 1014). The trial judge's perceptive observation is
correct.
The District Court also dealt with the evidence of
opportunity to conspire emphasized by the plaintiffs. In
Petruzzi, this court, in considering plus factors, did not
attach much weight to evidence of opportunity. We noted
that evidence of social contacts and telephone calls among
representatives of the defendants was insufficient to
exclude the possibility that the defendants acted
independently. 998 F.2d at 1242 n.15. The trial court also
concluded that "[s]uch evidence of `opportunity' should be
accorded little, if any weight. Company personnel do not
often operate in a vacuum or `plastic bubble'; they
sometimes engage in the longstanding tradition of social
discourse." Op. at 32.
The court concluded that there were a number of reasons
to reject plaintiffs' argument with respect to motive to
conspire. The court reasoned that if there were a
conspiracy, Gerber, the market leader, would not lower its
prices from time to time while at or about the same time,
Beech-Nut or Heinz, or both, raised their prices.
Furthermore, if, as the plaintiffs contend, the defendants
had a motive to achieve higher prices, "then every company
in every industry would have such a `motive.' " (D.C. op. at
32). Accordingly, it concluded that Heinz and Beech-Nut
had no motive to enter into a price-fixing conspiracy with
Gerber.
In further consideration of the plus factors, the court also
turned to the Coble testimony concerning the alleged truce
41
and the testimony of other employees. The court found that
the testimony failed to support the plaintiffs' argument as
to plus factors. This evidence, the court found, showed only
Heinz's fear that penetrating territory dominated by a
competitor "might erupt in another conflagration in the
industry." (D.C. op. at 33).
We agree with the District Court that the plaintiffs'
evidence of alleged plus factors do not prove concerted,
collusive behavior, although our reasoning may differ. We
also have examined the testimony of plaintiffs' expert, Dr.
Sam Peltzman, on whom the plaintiffs largely depend for
proof of motive and conduct contrary to self-interest. Dr.
Peltzman supplied the plaintiffs with two affidavits, the
latest and more substantive of which was dated January
1997.
In summary, his affidavits opine that there is a perfectly
plausible motive for a firm like Heinz or Beech-Nut to
engage in a conspiracy even if it "locks" itself into a 15%
market because their profits from the conspiracy would be
greater than from acting independently. (Peltzman Aff. I at
P3) He rejects the claim that Heinz or Beech-Nut could have
obtained the full benefit of a conspiracy by merely following
Gerber's price increases as inconsistent with economic
theory because, absent a conspiracy, Gerber would have set
a lower price. Further, he stated that if Heinz or Beech-Nut
determined their prices independently, their respective
prices would have been lower, and their sales of baby food
would have been higher, than under a price-fixing
agreement. (Peltzman Aff. I at P4) Finally, he avers that
economic theory suggests that Nestle and Ralston would do
better with conspiratorial prices than without them so that,
absent the conspiracy, their losses on the Beech-Nut
business would have been greater still. (Peltzman Aff. I at
P5)
Without examining the validity of Dr. Peltzman's
economic speculations, serious consideration may not be
attributed to them because his opinion was based on the
express assumption that the defendants had agreed to
conspire. His assumptions and conclusions rest on the
basic premise that there is an ongoing conspiracy. In his
deposition of February 1996, he acknowledged that his
42
opinion assumed there was a conspiracy beginning January
1, 1984 and lasting until December 31, 1993. For example,
he rationalizes:
If Heinz or Beech-Nut determined their sales
independently, free of any restraint imposed by a
conspiratorial agreement, the total sales of baby food
would be higher and prices lower than would be
obtained under an agreement. It is precisely this
specter of lower prices and profit margins from
independent behavior which provides the incentive for
the parties to enter into and maintain a price-fixing
agreement.
Moreover, he knew nothing about the baby food industry
other than "the knowledge one acquires as a casual
consumer."
When Dr. Peltzman was subsequently deposed, he
acknowledged that he had not undertaken any independent
study of the baby food business in connection with his
assignment in this case. He further conceded that he had
no analysis of pricing by these defendants, except to review
the average transaction prices reported in Table 1, as
revised, by Dr. Madansky. He further acknowledged that he
had not undertaken any review or study of the particular
buyers of baby foods from the defendants in this case.
Neither had he made any analysis of promotional programs
nor looked at whether the baby food industry fits the model
of manufacturers following in their pricing practices the
price leader.
With such limited information before him, Peltzman
opined that each of the defendants had a motive to engage
in a conspiracy, even if they "locked" themselves into a 15%
market share because "their profits from the conspiracy
would be greater than from acting independently," and that
any benefit that Heinz and Beech-Nut could have obtained
by simply following Gerber's list price increases is
inconsistent with basic economic theory. Peltzman's opinion
is nothing more than an abstract statement based on
"economic theory" that the interest in enhancing profits
motivated the defendants to conspire. He never made any
reference to the evidence in this case; he never analyzed the
43
pricing conduct of any of the defendants. In a free
capitalistic society, profit is always a motivating factor in
the conduct of a business. Profit is a legitimate motive in
pricing decisions, and something more is required before a
court can conclude that competitors conspired tofix pricing
in violation of the Sherman Act. Here, there is nothing more
or unusual other than the alleged instances of trade wars
between the defendants. Thus, if a firm's motivation is
merely to meet rival prices, it would constitute only
interdependence. Accordingly, to prove conspiracy, evidence
of action that is against self-interest or motivated by profit
must go beyond mere interdependence. Parallel pricefixing
must be so unusual that in the absence of an advance
agreement, no reasonable firm would have engaged in it.
Coleman v. Cannon Oil Co., 849 Supp. 1458, 1467 (M.D.
Ala. 1993).
With respect to the defendants' alleged conduct contrary
to self-interest, Peltzman also assumes that as
conspirators, the defendants "exchanged with each other
information about price changes and changes in marketing
plans, such as increased couponing and changed
promotional allowances prior to the announcement to the
trade." No evidence in this record, however, shows that any
executive of any defendant exchanged price or market
information with any other executive. As we have already
noted, any information obtained about a competitor was
information plucked from the trade in the marketplace,
"chit-chat" of field representatives, and their informal and
casual conversations at trade shows or while stocking
shelves. This desultory collection of information"on the
street" by sales representatives is far removed from a
concerted reciprocal exchange of important pricing and
marketing information by the officers of major companies,
particularly an exchange pursuant to an agreement.
Even assuming the admissibility of Dr. Peltzman's
opinion, we conclude that his testimony and report offers
little substance, if any, to advance the defendants'
argument that the defendants acted contrary to their self-
interest. An expert opinion based on the meager superficial
information on which Peltzman relied is highly speculative,
unreliable, and of dubious admissibility before a jury.
44
"When an expert opinion is not supported by sufficient
facts to validate it in the eyes of the law, or when
indisputable record facts contradict or otherwise render the
opinion unreasonable, it cannot support a jury's verdict."
Brooke Group, 509 U.S. at 242. See also Advo v.
Philadelphia Newspapers, Inc., 51 F.3d 1191, 1199 (3d Cir.
1995). We, therefore, conclude Dr. Peltzman's opinion offers
meager evidence of defendants' behavior contrary to self-
interest and of motivation to conspire.
We need not dwell on plaintiffs' contention that evidence
of the "alleged" truce and the unwillingness of Heinz to
enter the Chicago or Florida areas as conduct against its
own self-interest. We previously discussed this argument
and our rationale then is sufficient reason to reject this
evidence as a plus factor. Plaintiffs cite to Milgrim v. Loews,
192 F.2d 579 (3d Cir.), cert. denied, 343 U.S. 929 (1952),
in support of their argument that Heinz's rejection of
advantageous offers constitutes a plus factor. Milgrim
involved the distribution of films in the movie industry in
which eight distributors were charged under the Sherman
Act for refusing to distribute first run films to plaintiff's
drive-in theaters. All eight distributors acted in"complete
unanimity" in refusing to license features onfirst-run films
to plaintiff even when offered a higher rental. All acted in
substantial unanimity in refusing to make sure that feature
films were available to plaintiff until after a 28-day run in
conventional theaters. Id. at 583. The court therefore
concluded that "each distributor has thus acted in
apparent contradiction to its own self interest . . . for the
conduct of the distributors is, in the absence of a valid
explanation, inconsistent with decisions independently
arrived at." Id.
Milgrim is inapposite. Instead of joint and conspiratorial
activity to fix prices and eviscerate competition as the
plaintiffs in this case claim, our review of the record
convinces us that the evidence overwhelmingly establishes
that the defendants in their marketing activities acted
independently rather than in "complete unanimity,"
competitively rather than conspiratorially, and aggressively
rather than supinely.
45
Some illustrations follow. In an intra-corporate
memorandum dated December 15, 1989, from Heinz's
Gorsky to all division and assistant division managers, he
explained that the reason for a price increase was "[r]ising
costs for raw ingredients, packaging materials, and fringe
benefits." Heinz continued to emphasize a "two brand
strategy" to oust Beech-Nut from markets and accounts,
and Beech-Nut countered with aggressive competitive
activity against Heinz. Heinz's Five Year Business Plan,
dated October 1989, constituted a ninety million dollar
program approved by the Heinz board of directors to
renovate its Pittsburgh factory and lower its operating costs
"in the face of intense competitive activity from Beech-Nut
and Gerber." This demonstrates aggressive competitor
activity, not collusive, price fixing behavior.
Continuing, a Sales Division Activity Report for January
1989, reflects Heinz's loss of several important accounts to
substantial competitive offers by Beech-Nut. A Heinz Baby
Food Presentation for Dallas, Texas, refers to
implementation of a "Texas Defense Program" in 1988
undertaken specifically to protect against Beech-Nut's
major push to enter Texas's principal markets. A November
1988 Heinz report noted that "Beech-Nut continues to be
aggressive and as a result has forced us to spend heavily to
defend our distribution base." A September 27, 1988 Heinz
Activity Report noted that Beech-Nut was aggressively
pursuing Heinz's accounts in a number of markets and that
Heinz's defensive measures had been generally effective. A
November 1988 Heinz report noted that "Beech-Nut
continues to be aggressive and as a result has forced us to
spend heavily to defend our distribution base." A May 1992
Heinz report describing a Detroit business program
initiated in May 1990 after Beech-Nut "assaulted the
Detroit district" noted a fiscal year 1991 increase of 74% in
discounts and allowances. This too demonstrates
independent, aggressive action, not collaborative, concerted
conduct.
Various business documents also reflect Heinz's desire to
gradually reduce "deal spending," i.e., promotions and
allowances as early as September 1984. This was met by
continued, competitive pressures as reflected by Heinz's
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Business Plan FY86 referring to "Beech-Nut's continuing
roll-out of Stages as a full line replacement for Heinz Wet."
The Plan shows that by the end of 1985, Heinz was worried
about the "fiercely competitive environment," viewing
Beech-Nut as "a formidable competitor" whose"aggressive
new distribution efforts have again increased the cost of
doing business for Heinz Wet." Furthermore, the Plan
concluded that "[i]ncreased competitive trade spending will
continue to make it difficult for the Product Group and
Sales to implement riskier trade spending reductions."
As for Beech-Nut, in a document dated October 30, 1984,
Hoyvald wrote to Biggar regarding the 1984 fiscal budget.
He stated that the problem confronting Beech-Nut was
"rising costs and no general offset in selling price
increases." As a consequence of the rising costs, Hoyvald
stated that "we are forced to include a planned price
increase in STAGES products April 1st." Id. At the same
time, he observed that the baby food industry had not
made a general price increase since May 1982. Finally, he
noted that their budget allowed no new investments, but
they planned "to work on and have ready an alternate
aggressive expansion plan to be submitted at a time when
a solid success story is projectable."
In a weekly position letter for the week ending September
13, 1986, a Beech-Nut employee recommended, based on
Gerber's decision to reformulate the size of their first foods
products, that Beech-Nut repackage its Stages One
products "to maintain our exclusivity in small wholesaler
and independent sources." In a January 16, 1990 Status
Report, Beech-Nut's Humbarger stated that "once the sale
of Beech-Nut Nutrition was announced July 5th, the
competition in the category began to heat up. Both Gerber
and Heinz were trying to take advantage of the situation."
In a May 10, 1990 Status Report, he noted that "Gerber
continues to call on our exclusive stores with money offers
and free goods. Gerber has presented a program to King
Kullen for consideration." This report and the earlier
communications unequivocally refute any price-fixing
agreement on the part of Beech-Nut with any of the other
defendants.
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With the exception of a $7,000 pre-tax profit in 1980, the
first year Nestle's ownership of Beech-Nut, Nestle made no
profit on its baby food business in any of the ten years
during which it owned Beech-Nut. For instance, shortly
before Nestle sold Beech-Nut to Ralston, Beech-Nut Baby
Food Presentation documents illustrate that the
Nestle/Beech-Nut's company-wide average selling price per
case of baby food was $7.51 and the average cost per case
was $8.23. Thus, at that time, Nestle lost an average of 72È
per case for every case it sold. It is inconceivable that with
losses running at least 10% for every case sold, Nestle
would have remained a party to a conspiracy to fix prices,
preserve Gerber's market share year after year, and run up
its own losses.
As to Ralston, the plaintiffs offer no references to any
Ralston business plans, internal documents, testimony, or
any other evidence of record that even suggests that
Ralston acted with the intention of preserving Gerber's
market share. No evidence was presented establishing that
Ralston ever had knowledge of price increases by either
Gerber or Heinz before Gerber or Heinz announced those
increases to their customers. No evidence was presented
showing that either Gerber or Heinz had prior knowledge of
price increases by Ralston prior to Ralston's
announcements to the trade. No evidence was presented to
support any claim that Ralston entered into a "truce" with
Gerber or Heinz. Only expert Dr. Peltzman made reference
to Ralston, and we perceive no probative value in his
testimony.
With the foregoing evidence of strong, intensive
competition and hardly a scintilla of evidence of concerted,
collusive conduct, we can see no error in the District
Court's conclusion that there was insufficient evidence to
satisfy the "plus factor" requirement. The plaintiffs'
argument that the record shows "that all defendants had
an economic motive to conspire in order to increase their
profit margins" rests solely on the unsupported opinion of
Dr. Peltzman. In a free capitalistic society, all entrepreneurs
have a legitimate understandable motive to increase profits.
Profit is the essence of a capitalistic economy. Dr.
Peltzman's bare opinion of an obvious fact cannot avoid
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summary judgment. We can discover nothing in this record
to show that any of the defendants acted unlawfully. The
best that the plaintiffs can do is to point to ambiguous
inferences.
VIII.
Conclusion
Price-fixing, we have been instructed by the Supreme
Court, "includes more than the mere establishment of
uniform prices." Socony-Vacuum, 310 U.S. at 222. The
circumstantial evidence addressed by plaintiffs, though
voluminous, lacks the essential substance to find a
conspiracy. There is no evidence of record showing
reciprocal exchange of information by any executive of the
defendants with price-fixing authority. Despite exhaustive
and prolonged discovery, no evidence has been produced
showing that, during the alleged 17-year conspiratorial
period, any executive of any of the defendants with price-
fixing authority communicated with executives of the other
defendants, either by writing, telephone or meeting.
Whatever information sales representatives culled from the
trade or from each other amounted to no more than an
accumulation of sporadic market snippets, not an
organized, concerted exchange of information among
company executives or their authorized agents.
The evidence of conscious parallelism to prove tacit
collusion falls far short of being probative proof of concerted
action. The market here is nationwide for the two largest
defendants and considerably smaller for Nestle/Ralston;
their varied products are in the hundreds. Allowances and
discounts to specific customers and in specific areas are
pervasive, even varying at times between the same
customer and with the quantities purchased and the areas
served. There is no evidence that in such a diffuse and
frenetic discount market there was any mechanism in place
to detect conspirator cheating. Without such a mechanism,
no conspiracy, if it existed, could long endure.
Because Gerber, Heinz and either Nestle or Ralston
collectively controlled 98% of the baby food industry
49
nationwide, and during a prolonged period of time when
wholesale food prices generally were escalating, they were
an especially inviting target to attack under the Sherman
Act for price-fixing. However, there is positive and
unequivocal evidence that the defendants engaged in
unilateral, aggressive competition limited only by budgetary
considerations, cash, and market conditions.
We are cognizant that the baby food industry is highly
concentrated with only three companies controlling the
nationwide manufacture and distribution of their baby food
products. We realize that such a scenario could facilitate
explicit or tacit price-fixing. We also are aware that during
the period spanned by the alleged conspiracy, wholesale
food prices in the nation generally escalated; this upward
movement could provide cover for non-competitive pricing
practices. Furthermore, the baby food industry carries the
crucial responsibility for providing much of the nutrition for
almost all of the infants nationwide, an obligation that
emphasizes the necessity for total compliance under the
Sherman Act. As a court, however, we have the duty to
examine the record carefully and decide the case fairly on
the law and not on mere conjecture, ambiguous
circumstantial evidence, and suspicion. The plaintiffs have
not produced any evidence of an explicit agreement to fix
prices and preserve market share. Drawing all inferences in
their favor, they have failed to produce sufficient
circumstantial evidence to prove concerted collusion that
tends to exclude the possibility of independent action. See
Monsanto, 465 U.S. at 768.
Accordingly, the judgment of the district will be affirmed.
IX.
Taxation of Costs
Following the District Court's grant of summary
judgment, three of the defendants moved the Clerk of the
District Court to tax costs for, inter alia, deposition
transcripts used by the court in reaching its decision. The
Clerk, relying on 28 U.S.C. S 1920(2), awarded costs to the
defendants in the following amounts: Gerber: $24,299.52,
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Heinz: $18,833.01, Nestle: $1,507.10, and Ralston:
$12,221.00. On appeal to the District Court, it affirmed the
Clerk's award. See Order of January 27, 1998.13
The plaintiffs take no issue with the amount of the costs.
Their contention is that the District Court erred by ignoring
the clear mandate of L.Civ.R.54.1(g)(7),14 as well as the
principal commentary accompanying that section. The
commentary provides that "L.Civ.R.54.1(g)(7) allows for the
taxation of deposition costs directly related to the use of the
deposition transcript at trial. The key to taxability under
this provision is that the transcript be `used at trial'
pursuant to Fed.R.Civ.P.32.' " Lite, N.J. Federal Practice
Rules, Comment 4.e to Rule 54.1(Gann 1998 ed.) at 106.
The plaintiffs argue that the Clerk lacked the authority to
award tax costs because this case never reached the trial
stage. Alternatively, the plaintiffs contend that the District
Court erred because it was "bound by the local rules of the
district where [it] reside[s]." Pl. Br. at 53. Accordingly, the
court was obligated to apply L.Civ.R.54.1(g)(7). Finally, they
assert that this court should review the District Court's
decision de novo, because the latter made a legal
interpretation of a rule of procedure.
The plaintiffs' contentions fail. First, a District Court's
grant of costs is reviewed for abuse of discretion. Tilton v.
Capital Cities/ABC, Inc., 115 F.3d 1471, 1474 (10th Cir.
1997) See also, Morgan v. Perry, 142 F.3d 670,682 (3d Cir.
1998). Second, section 1920 has been interpreted as
permitting the taxation of costs for depositions used in
deciding summary judgment motions. See, e.g., Id. This
makes common sense, for to hold otherwise would penalize
_________________________________________________________________
13. 28 U.S.C. S 1920(2) provides that a federal court may tax costs "for
all or any part of the stenographic transcript necessarily obtained for
use
in the case."
14. New Jersey Local Rule 54.1(g)(7) provides, in pertinent part:
In taxing costs, the Clerk shall allow all or part of the fees and
charges incurred in the taking and transcribing of depositions used
at the trial under Rule 32 of the Civil Rules. Fees and charges for
the taking and transcribing of any other deposition shall not be
taxed as costs unless the Court otherwise orders. . . .[emphasis
added.]
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the prevailing party for winning in the early stages of the
proceeding. Third, L.Civ.R.54.1(g)(7) provides a
discretionary mechanism. More particularly, it provides
"fees and charges for the taking and transcribing of any
other deposition shall not be taxed as costs unless the
Court otherwise orders." Id. The "otherwise orders" provision
was explicitly utilized by the District Court in this case. The
court explained that "it is clear from the Rule that this
Court has the authority to award costs for any other
depositions." D.C. Op. at 4.
We hold that the District Court was well within its
discretion to order the plaintiffs to pay costs. Fed. R. Civ.
P. 32 suggests that the "used at trial" language in the local
rule should be interpreted in accordance with Rule 32,
which takes a broader approach to deposition use than the
literal use "at trial." Furthermore, to the extent that it
conflicts with S 1920, L.Civ.R.54.1(g)(7) must give way. See
Fed. R. Civ. P. 83. The order of the District Court taxing
costs will be affirmed.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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