Amicus Curiae Brief — Chevron Corp. v. Arizona

No. 90-1552

IN THE

Siupreuw Court of thy United States

OCTOBER TERM, 1990

CHEVRON CORPORATION, et al.,

. Petitioners,

STATE OF ARIZONA, et al.,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE OF THE CHAMBER OF

COMMERCE OF THE UNITED STATES OF AMERICA

AND THE NATIONAL ASSOCIATION OF

MANUFACTURERS IN SUPPORT OF THE

PETITIONERS

BERT W. REIN

WILEY, REIN & FIELDING

1776 K Street, N.W.

Washington, D.C. 20006

(202) 429-7000

STEPHEN A. BOKAT

Councel of Record for the

Amici Curiae

KENNETH B. ALEXANDER

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JAN S$. AMUNDSON

QUENTIN RIEGEL

NATIONAL ASSOCIATION OF

MANUFACTURERS

1331 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 637-3058

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

IN THE

Sipreme Court of the United States

OCTOBER TERM, 1990

No. 90-1552

CHEVRON CORPORATION, et al.,

Petitioners,

vV.

STATE OF ARIZONA, et al.,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

Pursuant to Rule 37 of the Rules of the Supreme Court

of the United States, the Chamber of Commerce of the

United States of America (‘the Chamber’) and the Na-

tional Association of Manufacturers of the United States

of America (“NAM”) hereby move for leave to file the

attached brief amicus curiae in support of the Petition

for Writ of Certiorari. The Petitioners have consented

to the filing of the brief. The Respondents have denied

consent.*

1. The Chamber of Commerce of the United States of

America (the ‘“Chamber’) is the largest federation of

business companies and associations in the world. The

Chamber represents nearly 180,000 businesses and _ or-

ganizations, with substantial membership in each of the

50 states, and serves as the principal voice of the Amer-

* See attached letters.

ican business community. Eighty-nine percent of the

Chamber’s members (approximately 160,000) are small

businesses with 49 or fewer employees. The vast ma-

jority of its members conduct interstate commerce and

are subject to the federal antitrust laws. The Chamber

has a strong interest in cases such as this, which threaten

the way business is conducted across the nation. The

holding of the Ninth Circuit, if allowed to stand, will have

a substantial and potentially anticompetitive impact on

the manner in which the Chamber’s members make pric-

ing decisions,

2. The National Association of Manufacturers of the

United States of America (“NAM”) is a voluntary busi-

ness association of approximately 12,500 companies and

subsidiaries, employing eighty-five percent of all manu-

facturing workers and producing over eighty percent of

the nation’s manufactured goods. More than 158,000 ad-

ditional businesses are affiliated with NAM through its

Associations Council and National Industrial Council.

The members of NAM and these councils are vitally in-

terested in restrictions on their ability to announce the

prices of their products.

3. Pursuant to Rule 37.1 of the Rules of the Court,

the Chamber and NAM move to file their brief amicus

curiae to bring “relevant matter{s] to the attention of

the Court that [have] not already been brought to its

attention by the parties” that strongly support exercise

of the Court’s jurisdiction. Our brief highlights the fol-

lowing issues, in addition to the matters addressed in de-

tail in the Petition.

4. First, our brief argues that what the Ninth Circuit

labels in its decision “interdependence” is the very es-

sence of the competitive process—the essential interaction

through which the law of supply and demand forces prices

to adjust to relative scarcity and oversupply. Both as a

matter of policy and to preserve the ordinary and proper

business practices of its members, the amici oppose any

effort to confuse “interdependence”? with collusion. This

essential difference between lawful interdependence ond

unlawful collusion must be preserved ‘defined by this

Court as a “conscious commitment to a common scheme

designed to achieve an unlawful objective”).

5. Second, our brief argues that the use of circum-

stantial evidence to establish a “conscious commitment to

a common scheme” must be viewed with great skepticism

because the powerful pressure on business people to meet

competition often makes observed pricing patterns in in-

tensely competitive markets as tightly bunched as pricing

patterns in theoretically collusive markets. The Cham-

ber’s and NAM’s small business members, whose pricing

must almost always be “at market,” are peculiarly vul-

nerable to such dualistic interpretations of pricing be-

havior, For this reason, the Chamber and NAM firmly

support the teaching of Monsanto Co. v. Spray-Rite Serv-

ice Corp., 465 U.S. 752 (1984) and Matsushita Elec.

Industrial Co. v. Zenith Radio, 475 U.S. 574 (1986) that

observed conduct which can be equally explained by com-

petitive interaction or collusion is simply not probative on

the issue of “conscious commitment.”

6. Finally, our brief demonstrates how the Ninth Cir-

cuit’s decision, if not reversed, will create grave risks for

businessmen who collect, disseminate and or permit dis-

semination of pricing information to facilitate unilateral

pricing decisions. Unless a trial court acting under that

decision determines that price dissemination is signifi-

cantly procompetitive ‘whatever that vague new standard

means) in a particular market, observed price dissemina-

tion itself would block summary judgment on price-fixing

charges and permit a jury to infer both a “conscious com-

mitment to a common scheme” of price exchange and a

consequent price-fixing agreement. The consequences will

be both widespread, unfair and punitive labelling of avid

competitors as price fixers and a severe chilling effect on

the accumulation of competitive intelligence. It is essen-

tial to preserve the distinction between unlawful collu-

sion and the inevitable, welfare-maximizing, interdepend-

ence of unilateral decisionmaking in competitive markets.

In order to bring these matters to the attention of the

Court, the Chamber and NAM respectfully move for leave

to file the attached brief in support of the Petition for

Writ of Certiorari.

BERT W. REIN

WILEY, REIN & FIELDING

1776 K Street, N.W.

Washington, D.C. 20006

(202) 429-7060

Respectfully submitted,

STEPHEN A. BOKAT

Counsel of Record for the

Amici Curiae

KENNETH B. ALEXANDER

NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JAN S. AMUNDSON

QUENTIN RIEGEL

NATIONAL ASSOCIATION OF

MANUFACTURERS

1331 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 637-3058

TABLE OF CONTEsATS

Page

STATEMENT OF INTEREST cae a ee ae 1

ARGUMENT ; ‘ene 3

l. THE NINTH CIRCUIT’S OPINION IS A

RADICAL DEPARTURE FROM MONSANTO

AND MATSUSHITA SINCE THE EVIDENCE

WAS AT LEAST AS PROBATIVE OF UNI-

LATERAL PRICING DECISIONS AS IT WAS

OF COLLUSIVE BEHAVIOR ca tatee reas ah 3

Il. PRICE DISSEMINATION IS AS ESSENTIAL

TO UNILATERAL PRICING DECISIONS BY

SELLERS AS IT IS TO UNILATERAL CON-

SUMER CHOICE .... aashadgeteoesiccna saa ualeaca aed 6

CONCLUSION caladsaart deeeaaceaue ner aoe 9

(i)

ii

TABLE OF AUTHORITIES

Cases: Page

Bigelow wv. RKO Radio Pictures, 327 U.S. 251

dR ee a 8

Matsushita Elec. Industrial Co. . Zenith Radio,

475 U.S. 574 (1986) ................. Go taacds ce

Monsanto Co. v. Spray-Rite Service Corp., 465

a Oo lak vraneiaklcpevons passim

State of Arizona v. Standard Oil Co. of California,

906 F.2d 432 (9th Cir. 1990) iacae pear ei ; 2

United States v. Container Corp. of America, 393

EERE SUR RIOR ee aC ee 6

Statutes:

Sherman Antitrust Act § 1, 15 U.S.E€. § 1 oon... 2

Articles:

DeSanti and Kovacic, Matsushita: Its Construe-

tion and Application by the Lower Courts, 59

Antitrust L.J. 609, 628 _.... BE LTS RICO ET LEP, 2 4

IN THE

Siuprene Court of the United States

OCTOBER TERM, 1990

No. 90-1552

CHEVRON CORPORATION, ef a/.,

Petitioners,

Vv.

STATE OF ARIZONA, ef al.,

Responds nts.

F

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF AMICUS CURIAE OF THE CHAMBER OF

COMMERCE OF THE UNITED STATES OF AMERICA

AND THE NATIONAL ASSOCIATION OF

MANUFACTURERS IN SUPPORT OF THE

PETITIONERS

STATEMENT OF INTEREST OF THE AMIC! CURIAE

The Chamber of Commerce of the United States of

America (“the Chamber”) is the largest federation of

businesses and associations in the world. The Chamber

represents nearly 180,000 businesses and organizations,

with substantial membership in each of the 50 states, and

serves as the principal voice of the American business

community. Eighty-nine percent of the Chamber’s mem-

bers (approximately 160,000) are small businesses with

49 or fewer employees.

The National Association of Manufacturers of the

United States of America (“NAM”) is a voluntary busi-

ness association of approximately 12,500 companies and

subsidiaries, employing eighty-five percent of all manu-

facturing workers and producing over eighty percent of

the nation’s manufactured goods. More than 158,000 ad-

ditional businesses are affiliated with NAM through its

Associations Council and National Industrial Council.

The Chamber and NAM are greatly concerned that the

Ninth Circuit has created a summary judgment standard

in Sherman Act Section 1 cases ' founded on cireumstan-

tial -videnee that will greatly restrict, if not completely

prohibit, heretofore legitimate business conduct... The de-

cision will have a negative impact on Chamber and NAM

members of all sizes, not just the large oi] companies di

rectly involved. The decision threatens the availability

of summary judgment in situations where it should

clearly be available and deters procompetitive business

practices which have previously been recognized as essen-

tial to the orderly functioning of free markets. In those

instances when the alleged conspiratorial practice is a

matter of economic necessity, Chamber and NAM mem-

bers will be subject to treble damages for conduct which

the marketplace demands of them.

Price competition between businesses, the virtual hall-

mark of a free economy, will be seriously impaired. Un-

der the Ninth Circuit’s ruling, a plaintiff will need only to

produce evidence of interdependent pricing by two or

more businesses, coupled with public pricing announce-

ments, to bring a credible lawsuit, even though this

Court has always held that interdependent pricing alone

is not enough to base a finding of a Section 1 violation.

Regardless of the legitimacy of the claim, businesses of

all sizes will be faced with increased litigation exposure,

and the courts will be burdened by many more cases. The

Ninth Cireuit seems determined to rewrite the law on

summary judgment in antitrust suits.

‘15 USC. § 1.

* State of Arizona v. Standard Oi! Co, of Califernia, 906 F.2d 482

(9th Cir. 1990).

3

The Ninth Circuit declares the basis of its ruling to be

Matsushita Elec, Industrial Co. v. Zenith Radio, 475 U.S.

574 (1986) and Monsanto Co. v. Spray-Rite Service

Corp., 465 U.S. 752 (1984), yet the decision is a radical

departure from those cases. In marked contrast, no other

court of appeals has adopted such a restrictive view of

when summary judgment is properly granted.

The plaintiffs’ primary allegation in this case is that

the defendants engaged in a conspiracy to fix prices, and

their main evidence of this is interdependent pricing.

This brief illustrates the imbalances the new standard

will create in the arena of price competition between

small businesses, using the same type of evidence in the

illustration that the plaintiffs have asserted in the case.

ARGUMENT

I. THE NINTH CIRCUIT’S OPINION IS A RADICAL

DEPARTURE FROM MONSANTO AND MATSUSH-

{7A SINCE THE EVIDENCE WAS AT LEAST AS

PROBATIVE OF UNILATERAL PRICING DECI-

SIONS AS IT WAS OF COLLUSIVE BEHAVIOR.

The Chamber and NAM are firm believers in the un-

constrained operation of free markets and thus support

the antitrust laws and oppose price collusion. At the

same time, the Chamber and NAM recognize that in a

free market economy their members must take account of

each other’s competitive conduct, including competitive

pricing, in deciding how rationally to conduct their busi-

ness affairs. Indeed, as this Court has often held, the

boundaries of a competitive market are defined by cross-

elasticities of supply and demand—j.v., the degree to

which buyers and sellers respond to each other’s actions.

Thus, what the Ninth Circuit labels in its decision “inter-

dependence” is the very essence of the competitive process

—the essential interaction through which the law of sup-

ply and demand forces prices to adjust to relative scarcity

and oversupply. Both as a matter of policy and to pre-

4

serve the ordinary and proper business practices of its

members, the Chamber and NAM oppose any effort to

confuse “interdependence” with collusion. This essential

difference between lawful interdependence and unlawful

collusion ‘defined by this Court as a “conscious commit-

ment to a common scheme designed to achieve an unlaw-

ful objective” *) must be preserved. The Ninth Circuit

undermines this definition by allowing mere interdepend-

ence to be collusion.

The use of circumstantial evidence consisting of legally

ambiguous or perfectly lawful conduct to establish a “‘con-

scious commitment to a common scheme” must be viewed

with great skepticism because without such practices most

markets don’t work. The Chamber’s and NAM’s small

business members, whose pricing must almost always be

“at market,” are peculiarly vulnerable to such dualistic

interpretations of pricing behavior. For this reason, the

amici firmly support the teaching of Monsanto Co. V.

Spray-Rite Service Corp., 465 U.S. 752 (1984) and Mat-

sushita Elec. Industrial Co. v. Zenith Radio, 475 U.S.

574 (1986) that observed conduct which can be equally

explained by competitive interaction or collusiorm is simply

not probative on the issue of “conscious commitment.”

The Ninth Circuit has departed radically from Moin-

santo and Matsushita, and a whole line of cases allowing

parallel pricing, by treating non-probative conduct, such

as parallel pricing and unilateral publication of pricing

actions, as permitting an inference of collusion.’ Paying

lip service to Monsanto and Matsushita, the Ninth Circuit

would foreclose that inference from blocking summary

3 Monsanto, 465 U.S. at 764.

4“This Ninth Circuit reading of Matsushita conflicts with other

circuits’ opinions applying Matsushita, as well as with earlier Ninth

Circuit opinions requiring only that the defendant prove plausible,

independent business justifications for its conduct.”” DeSanti and

Kovacie, Matsushita: Its Construction and Application by the

Lower Courts, 59 Antitrust L.J. 609, 628.

vo

judgment only where the Court believes the observed bo-

havior at issue to be significantly procompetitive, what-

ever that vague new standard means.” In all other cir-

cumstances, the Ninth Circuit wouid permit a plaintiff to

put collusion allegations before a jury even where the ob-

served evidence relied upon could be equally explained by

competitive interaction or collusion.

On the specific facts presented below, the Ninth Circuit

held that parallel pricing itself could defeat summary

judgment if the Court determined the market to be less

than necessarily interdependent. Finding interdependence

to be appropriate in the wholesale gasoline market at

issue, horvever, the Ninth Circuit went on to rest its

denial of summary judgment on observed “price dissemi-

nation” practices which: (1) could be explained equally

by collusion or by the parallel, but unilateral, interest of

the petitioners involved in facilitating the acquisition of

market intelligence; (2) were determined by the Court,

de novo, to be not significantly procompetitive: and (3)

were further determined py the Court to support the

highly questionable double inference: (a) that collusive

price exchanges were in place, (b) for the purpose of

supporting a “conscious commitment to a common scheme”

to fix prices.

Petitioners have fully explained the Ninth Circuit’s

deviation from: the teaching of Monsanto and Matsushita;

the sounder interpretation of that guidance by other cir-

cuits; and the relevant principles of antitrust law and

evidence. The Chamber and NAM concur in that analysis

and need not repeat it. However, the Chamber and NAM

would like to draw the Court’s attention to their particular

© Apparently, in the context of the present case, the unilateral

publication of price information and conscious parallel pricing

within an industry are presumptively lawful as long as prices are

falling, but give rise to an inference of unlawful collusion whenever

industry prices rise. A “free market” necessarily assumes prices

can move up or down, in response to supply and demand.

6

concern with the Ninth Circuit’s misplaced focus on price

dissemination and with the potential for abuse of the

Ninth Circuit’s standard to unfairly pressure small busi-

nesses and to stifle meaningful price competition. In addi-

tion to the error in the Ninth Circuit’s analysis of this

Court’s teaching and its consequent weakening of the

salutary principles of Monsanto and Matsushita, these

factors clearly support a grant of certiorari’ to avoid

widespread adverse impacts on Chamber and NAM mem-

bers.

Ii. PRICE DISSEMINATION IS AS ESSENTIAL TO

UNILATERAL PRICING DECISIONS BY SELLER>

AS IT IS TO UNILATERAL CONSUMER CHOICE.

The Ninth Circuit, perhaps confused by this Court’s

decision in United States v. Container Corp. of America,

393 U.S. 333 (1969), which arose in the special circum-

stances of an individually quoted market where secrecy

was a competitive weapon, viewed “price dissemination”

with vreat suspicion. As practical business people, how-

ever, Chamber and NAM members recognize that market

information is as essential to unilateral pricing decisions

by sellers as it is to unilateral consumer choice. A _ busi-

ness person who is slow to acquire competitive pricing

information will inadequately protect his sales base and

or his revenue base and may find it hard to survive in a

competitive market. Thus, even the most fiercely competi-

tive business person may find it in his unilateral self in-

terest not to disturb custom and usage—for example, price

postings or trade press reporting—which rapidly dis-

seminate pricing intelligence. Moreover, business people

are highly unlikely to take affirmative action to foreclose

dissemination by their customers or intermediaries like

brokers who routinely acauire price lists. Indeed, as a

practical matter, business people will often determine uni-

laterally that the benefits of information acquisition in

an “open market” outweigh the costs of sacrificing the

temporary secrecy of their own pricing initiatives. Par-

7

ticularly where, as in this case, retail sales make whole-

sale price changes known to the trade in a relatively

short time, the competitive benefits of temporary secrecy

appear very limited relative to the advantages of an open

market in reaching unilateral pricing decisions.

The Ninth Circuit’s decision, if not reversed, will cre-

ate grave risks for businessmen and women who collect,

disseminate and or permit dissemination of pricing infor-

mation to facilitate unilateral pricing decisions. Unless a

trial court acting under that decision determines that price

dissemination is significantly procompetitive in a particu-

lar market, observed price dissemination itself would

block summary judgment on price-fixing charges and ver-

mit a jury to infer both a “conscious commitment to a

common scheme” of price exchange and a consequent price-

fixing agreement. The consequences will be both wide-

spread, unfair and punitive labelling of avid competitors

as price fixers and a severe chilling effect on the accumu-

lation of competitive intelligence resulting in markets

which sluggishly and inefficiently respond to competitive

initiatives. Consumers, as well as Chamber and NAM

members, can only be harmed in the process.

The pernicious, and essentially irrational, character of

the Ninth Circuit’s analysis can be illustrated by consid-

ering two competing lumber suppliers in each of two

small towns who post lumber prices on their doors. In

the first town, both suppliers deal exclusively with con-

tractors with whom they have historic ties, a situation

reinforced by their location at opposite ends of town. In

the second town, both suppliers have exclusive and non-

exclusive customers and occupy relatively contiguous loca-

tions. In both towns, however, contractors compete with

each other for all jobs with lumber cost a key factor so

that the lumber suppliers are sensitive to each other’s

pricing,

Using the Ninth Circuit’s analysis, posting in the first

town could be determined not to be a significantly pro-

8

competitive activity since contractors do not comparison

shop. Thus, posting activitv—particularly combined with

the parallel pricing necessary to preserve contractor rela-

tions with lumber suppliers——would estab'ish a jury case

of price fixino. Posting in the second town, however,

would like'y be determined to be significantly procompeti-

t've because it facilitates shoppiny by non-exclusive con-

tractors. Thus, the same posting and parallel pricing ac-

t'vity in the second town would not be deemed sufficient

to estab'ish a jury case of price fixing despite the fact

that the potential impact of market intelligence on the

actions of the lumber suppliers would be the same in both

towns. Even assuming that sophisticated lawyers, eco-

nomists and judges could understand and accept these

differing resu'ts, Chamber and NAM members and con-

sumers will inevitably find them contrary to common

sense and reasonable business conduct. The result will be

aun inevitable deterioration of respect for the antitrust

laws coupled with a systematic effort—by those fortunate

enouch to avoid the inevitable trap for the unwary or un-

counselled—to operate on a market intelligence-blind basis

with a clear reduction of the efficiency that antitrust is

intended to promote.

Chamber and NAM members are particularly sensi-

tive to aberrational interpretations of the antitrust laws

relating to price fixing because they can, as illustrated

above, distort the central nervous system of competitive

markets and because they also threaten grave and unfair

consequences for innocent sellers. The threat of massive

treble damages based on speculative analysis under the

Bigelow rule,® the imposition of attorneys fees in addition

to damages and the moral opprobrium of a price fixer

label put a powerful litigating tool into the hands of

plaintiff’s counsel. Faced with the cost and uncertainty

of a jury trial on circumstantial evidence, business people

-——particularly small business people—may be bullied into

6 Bigelow v. RKO Radio Pictures, 327 U.S. 251 (1946).

9

totally unfair settlements simply because they sought com-

petitive intelligence. The teaching of Monsanto and

Matsushita avoided this in (cerrorem effect by giving the

courts power to stop such inferential exercises at the

threshold. The Ninth Circuit’s decision, unless reversed,

will undo that comfort, send chills throughout the small

business community, and erect a “regulatory” barrier to

the flow of price information which is the lifeblood of a

competitive and efficient market.

CONCLUSION

For the reasons stated above, the Court should grant

the Petition for Certiorari, and reverse and remand the

decision of the Ninth Circuit.

tespectfully submitted,

BERT W. REIN STEPHEN A. BOKAT

WILEY, REIN & FIELDING Counsel of Record for the

1776 K Street, N.W. Amici Curiae

Washington, D.C. 20006 KENNETH B. ALEXANDER

(202) 429-7000 NATIONAL CHAMBER LITIGATION

CENTER, INC.

1615 H Street, N.W.

Washington, D.C. 20062

(202) 463-5337

JAN S. AMUNDSON

QUENTIN RIEGEL

NATIONAL ASSOCIATION OF

MANUFACTURERS

1331 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 637-3058