On November 25, 2015, the Fifth Circuit Court of Appeals in MM Steel, L.P. v. JSW Steel (USA), 2015 U.S. App. LEXIS 20520, affirmed a $156 million antitrust jury verdict against a steel manufacturer in a Sherman Act Section 1 case. The jury in the court below had found that the plaintiff steel distributor was forced out of business when two of its competitors conspired to pressure certain steel manufacturers not to supply it with steel. The Fifth Circuit’s opinion accepted a framework for evaluating group boycotts and concerted refusals to deal that sets a low bar for future plaintiffs and calls into question the circumstances in which a manufacturer can pursue its own self-interest in choosing to deal with incumbent customers who threaten not to purchase its products if it sells to their competitors.
Key takeaways from the opinion are:
- Businesses continue to have the right to determine with whom they want to deal and the right to unilaterally refuse to deal with other entities, but those rights must be exercised carefully;
- A manufacturer can listen to distributors’ complaints and independently decide what is in its best interests, but must avoid conduct which could lead a jury to infer an agreement with the complaining distributor that would harm the other distributor;
- Businesses can face antitrust liability for knowingly joining an agreement orchestrated by others even if they had no involvement in orchestrating it themselves;
- Prohibited antitrust agreements can be established by circumstantial evidence and inference;
- Refusals to deal with other entities are easier to defend as unilateral if they are consistent with preexisting company policies; and
- Group boycott agreements like the ones in this case are considered per se illegal meaning that companies alleged to have knowingly joined such agreements will be foreclosed from showing that the agreement did not harm competition.
The Fifth Circuit found sufficient evidence to support the jury’s finding that JSW joined the horizontal distributor conspiracy, but not Nucor.
JSW had initially entered a contract to sell to MM, but breached that contract after AA and Chapel each threatened not to buy from JSW if it sold to MM. According to the Fifth Circuit, that both AA and Chapel “made these threats within several weeks of each other was sufficient evidence for a reasonable juror to conclude that JSW was aware of the horizontal conspiracy to exclude MM from the market” and that “JSW’s abrupt decision to no longer deal with MM following these threats … tended to exclude the possibility” that JSW reached its decision not to sell to MM independently. The court found that a reasonable jury could infer that JSW knew that it was joining a group boycott conspiracy between AA and Chapel.
The court reached a different result with respect to Nucor. Immediately after MM told Nucor that it was open for business, Nucor’s President wrote Chapel to “pledge his ‘fullest support.’” Although there was some evidence that Chapel threatened not to purchase from Nucor if Nucor sold to MM, Nucor declined to sell to MM both before and after those threats were made, in accordance with Nucor’s “incumbency practice” where “Nucor remains loyal to established customers, such as Chapel, in order to maintain its original supply chain.” Thus, unlike JSW, Nucor had never agreed to sell to MM in the first place, and so was not reversing course, which the court found significant. The Fifth Circuit held that this evidence was consistent with the possibility that Nucor’s was acting independently of any conspiracy between AA and Chapel.
The case appears to put a substantial limitation on a manufacturer’s long-acknowledged right to choose with whom it will deal, including its right to deal with one distributor over another when that distributor threatens to withhold business if the manufacturer sells to both. Here, JSW appears to be liable because:
- It received threats from two large customers and not just one of them—thereby permitting the jury inference that JSW knew that AA and Chapel were conspiring; and
- It reneged on its promise, made before AA’s and Chapel’s threats, to sell to MM even though reneging seems equally consistent with the pursuit of its self-interest as with conspiracy under the circumstances of threats by major customers.
Peter K. Huston
+1 415 772 1280
|Scott D. Stein
+1 312 853 7520
| John W. Treece
+1 312 853 2937
1 United States v. Apple, Inc., 791 F.3d 290, 345-46 (2nd Cir. 2015) (Jacobs, J. dissent).
2 Nw. Wholesale Stationers v. Pacific Stationary & Printing Co., 472 U.S. 284, 294 (1985).
3 In re Musical Instrument & Equipment Antitrust Litigation, 798 F.3d 1186, 1192 (9th Cir., 2015) (“once the conspiracy is broken into its constituent parts, the respective vertical and horizontal agreements can be analyzed either under the rule of reason or as violations per se”).
To receive Sidley Updates, please subscribe at www.sidley.com/subscribe.
Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.