Inferred express and tacit agreements

Rule: express agreements to fix prices are illegal

• Goal: in the absence of direct evidence, what circumstantial evidence is necessary to infer an agreement?

Note on tacit agreements: tacit agreements to fix price are legal

• Such agreements involve firms that are strategically interdependent (respond to other firm's activity strategically) and may engage in "conscious parallelism"
• Conscious parallelism is insufficient to prove conspiracy (Rule 50 and Monsanto), defeat D's motion for summary judgment (Rule 56 and Matsushita), and defeat D's motion to dismiss for failure to state a claim (Rule 12(b)(6) and Twombly)
• Gas station example: one station raises prices, the other follows, no agreement, not illegal

Types of circumstantial evidence:

Type 1: indications of express collusion (stronger, needed to win) (intuition: rules out not communicating)

• Improbable uniformity
• Frequent and unusual communication (something more than normal operations)
• Sharp break from past behavior
• History of collusion

Type 2: industry is conducive to collusion, i.e., collusion makes sense and would work in the industry (weaker, can't win with only Type 2) (intuition: consistent with communication)

• Industry features
• History of coordination
• Adoption of facilitating practices
• Actions that only make sense if done jointly

Caselaw:

Interstate Circuit v. United States (1939)

• Holding: sufficient circumstantial evidence to infer an express horizontal agreement under a preponderance standard at trial
  • Court considered Type 1 and Type 2 factors:
    • Type 1: all distributors agreed to exceptions for some cities (e.g., Galveston) - how do you exclude Galveston without talking?
    • Type 2: each distributor got the same offer from the theater and knew it (distributors were all listed on the letterhead in the offer provided by the theater)
    • Type 2 (potentially Type 1 based on profitability): drastic change from prior practices - only in an industry prone to coordination would you see these changes
    • Type 2: independently implementing the conspiracy offer is not profitable - they would have been undercut and lost business
  • Dicta in support of very broad approach to conspiracy: "subsequent-run exhibits was not a prerequisite for an unlawful exhibit" - court is saying that even if they find that the distributors didn't talk, this is still illegal, their actions were anticompetitive (narrowed in Twombly)
• Facts: Hub (movie theater) and spoke (Hollywood movie distributors) conspiracy to offer first run movies for 40 cents, second run for 25, and no double features (to prevent showing runs together as a workaround to the agreement)
  • Distributors only communicated with the theater and adopted the same agreement with the theater in parallel - no direct evidence of conspiracy between distributors
• Note: two interpretations:
  1. Narrow: this is an example of where there is enough evidence to infer that an actual agreement occurred between the distributors from circumstantial evidence
  2. Broad: dicta says that there is enough evidence to convict even without proof of agreement between the studios - each agreement with the studio made understanding other studios were making the same agreement

Theatre Enterprises v. Paramount (1954)

• Holding: parallel conduct isn't sufficient proof of an agreement
  • Parallel conduct is not dispositive: could be that all distributors just thought that the theatre wasn't good enough
• Facts: Theatre wanted access to first-run films, all major film distributors refused, Theatre sued.