The Pleading Problem in Antitrust Cases and Beyond

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa Law) explains The Pleading Problem in Antitrust Cases and Beyond.

ABSTRACT: In Twombly the Supreme Court held that an antitrust complaint failed because its allegations did not include enough “factual matter” to justify proceeding to discovery. Two years later the Court extended this new pleading standard to federal complaints generally. Twombly’s unnecessarily broad language had led to a broad rewriting of federal pleading doctrine.

Naked market division conspiracies such as the one pled in Twombly must be kept secret because antitrust enforcers will prosecute them when they are detected. This inherent secrecy, which the Supreme Court did not discuss, has dire consequences for pleading if too much factual specificity is required. Indeed, it can close the door in cases where the conspiracy is reasonably suspected but supporting evidence has not already been uncovered.

In the paradigm cartel case the defendants meet secretly in a hotel room and plot prices or output. But antitrust agreements can be proven by other evidence, including evidence of interdependence, parallel behavior, and actions contrary to independent self-interest. By indicating that the complaint failed because it did not state “which of their employees” may have conspired and that there was some “when” or “where” that the agreement took place, the Court was apparently requiring the plaintiff to plead something in its complaint that existing law would not require it to show in order to avoid summary judgment or a JML at trial. Or to say it differently, the Court was changing conspiracy doctrine at the same time that it was changing pleading doctrine.

The most salient fact about Twombly is that, although it was a proof-of-agreement case, the claim was of geographic market division rather than parallel pricing. For all of its lengthy discussion about the facts essential to a good complaint, the Supreme Court paid little attention to the difference between price fixing and market division. While parallel pricing typically is interdependent conduct, parallel failures to enter one another’s markets typically are not. As a result, methods of indirect proof that might work in a case alleging unlawful price fixing are unlikely to work in one alleging unlawful market division. Twombly clearly reached the correct conclusion, but it could have done less damage to the values of notice pleading stated in the Federal Rules had it focused more narrowly on the mechanisms by which anticompetitive agreements are proven. Pleading reform requires, not an increase in “factual matter,” but rather a closer correlation between the legal elements that must be proven and the allegations in a complaint.