A recent decision by the Third Circuit permits plaintiffs to pursue antitrust damages for egg products supplied by non-conspiring parties. This decision could represent a crack in the “umbrella damages” rule that precludes plaintiffs from seeking damages for transactions with parties that are not part of an alleged antitrust conspiracy.
Umbrella damages often come up in cases where an alleged conspiracy could increase the price level across a market. In such situations, it is said that non-conspirators are able to increase their prices without fear of losing market shares because they are protected by the conspiracy’s price “umbrella.” Courts usually cite two main rationales for concluding that plaintiffs lack antitrust standing to recover damages for alleged anticompetitive prices paid to non-conspirators selling under a conspiracy’s umbrella. First is the high degree of uncertainty with attributing the non-conspirators’ prices to the conduct of the alleged conspirators. See Mid-West Paper Prods. Co. v. Cont’l Group, 596 F. 2d 573 (3rd Cir. 1979). Second is the amount of speculation inherent in tracing the distribution chain and apportioning the amount of overcharge to the alleged conspirators to avoid multiple liability. See Illinois Brick Co. v. Ill., 431 U.S. 720 (1977).
In In re Processed Egg Products Litigation, a case entering its 10th year of litigation, a variety of plaintiffs allege several chicken egg producers and their trade association conspired to reduce the population of egg-laying hens under the guise of an animal welfare program, resulting in reduced supply of eggs and egg products (i.e., dried, frozen or liquid eggs removed from the shell). A group of Processed Egg plaintiffs claim the alleged conspiracy increased the prices paid for all the eggs across the market – including prices plaintiffs paid the alleged conspirators for egg products containing eggs supplied by parties not alleged to be part of the conspiracy. Finding claims for damages from purchases of products that include non-conspirator supplied eggs “at odds with the ‘umbrella damages’ rule,” the District Court, dismissed the claims on summary judgment.
On appeal, the Third Circuit’s opinion narrowly defined the issue as whether a direct purchaser of a product that includes a price-fixed input may pursue a claim against a conspiring party that sold the product to the purchaser, when the product also includes some amount of price-fixed input supplied by a non-conspirator. The Third Circuit reasoned that the two main rationales for barring umbrella damages did not apply to Processed Egg’s “novel” facts. First, because plaintiffs are pressing claims directly against the alleged price-fixing suppliers, there is little uncertainty with linking the prices paid to the conduct of the alleged conspirators. And second, because plaintiffs purchased the egg products directly from the alleged conspirators, there is little speculation in tracing and allocating the alleged overcharges to the conspirators. Finding the umbrella damages inapplicable, the Third Circuit ruled that plaintiffs have antitrust standing.
While the Third Circuit explicitly limited its ruling to Processed Egg’s facts, alleged conspiracies involving any number of commoditized products with inelastic demand (such as eggs) or products assembled from components provided by multiple suppliers (such as consumer electronics) could present factual situations somewhat similar to that of Processed Egg. Courts in such cases, if they were to follow Processed Egg, could possibly permit umbrella damages. See, e.g., In re Cathode Ray Tube (CRT) Antitrust Litig., No. C-07-5944 JST., slip op. (N.D. Cal. Oct. 26, 2016) (explaining that umbrella damages may be available in a case alleging conspiracy to fix prices of some components in electronic products when plaintiffs are near conspirators in the distribution chain). The decisions that follow should confirm whether Processed Egg will help plaintiffs recover for non-conspirator transactions, or whether the umbrella damages bar is solidified by limiting non-conspirator transaction damages to Processed Egg’s “novel” facts.