Monday, December 24, 2007

Chocolate-Makers Allegedly Fixed Prices

A few days ago, we reported on allegations that Christmas-tree growers conspired to fix prices. Now, there are allegations that another product considered sacred by many has been subjected to price fixing: chocolate.

Government Investigations - Hershey's, Mars, Nestle, and other chocolate makers were accused in recently unsealed Canadian court documents of secretly meeting to discuss prices at industry conventions and restaurants, several reports indicated. According to the reports, the U.S. DOJ antitrust division is also investigating. The conspiracy allegedly began in February 2002, and continued through most of 2007. While search warrants were issued in the Canadian investigation, no charges have yet been filed. An industry spokeswoman noted that candy-makers are facing higher dairy and sugar prices, as well as higher fuel costs.

Cooperation with Authorities - Employees of one company reportedly have been cooperating with Canadian authorities, providing information and documents to authorities.

DOJ Leniency Program - Under the DOJ's leniency program, and its "amnesty plus" program, companies can receive amnesty or reduced liability if they are the first to report a conspiracy or the first to report a second, unrelated conspiracy and they cooperate fully with the investigations. Lesser reductions may be available for cooperating companies that are not the first to report the conspiracy. DOJ's cooperation programs can provide substantial benefits to the companies being investigated, making it important for companies and their lawyers to learn about and report any possible violations before DOJ learns about them from another source.

Leniency Program Binding on DOJ - One recent court decision found that these agreements were binding on DOJ. In Stolt-Nielsen, DOJ entered into an amnesty agreement with a shipping company and two of its executives related to their involvement in a customer allocation conspiracy. DOJ alleged that the defendants had not met the conditions of the agreement, and indicted them. The U.S. District Court for the Eastern District of Pennsylvania dismissed the suit, finding no credible evidence that the agreement had been violated. See Memorandum & Order, United States v. Stolt-Nielsen, S.A., No. 06-cr-466 (E.D. Penn. Nov. 29, 2007).

UPDATE 1/16/08: Class-action lawsuits were filed against Hershey's, Mars, Nestle, Cadbury, Masterfoods, and other chocolate-makers in federal courts in Pennsylvania and New Jersey on behalf of direct and indirect purchasers, as reported here and here. A docket search in the Middle District of Pennsylvania reveals two cases filed. See Coffey v. Hershey Co, et al., No. 2008cv00084 (M.D. Penn. Jan. 11, 2008); Woodman v. Hershey Co. et al., No. 2007cv02336 (M.D. Penn. Dec. 28, 2007). The same search in New Jersey reveals seven filings. See Lavin v. Hershey Co., et al., No. 2008cv00259 (D.N.J. Jan. 11, 2008); D Controls, Inc., No. 2008cv00257 (D.N.J. Jan. 11, 2008); Snow, No. 2008cv00199 (D.N.J. Jan. 10, 2008); Chiger, No. 2008cv00195 (D.N.J. Jan. 10, 2008); Matsuda, No. 2008cv00191 (D.N.J. Jan. 2008); Lense, 2008cv00192 (D.N.J. Jan. 9, 2008); CNS Confectionary Prods., 2007cv06088 (D.N.J. Dec. 21, 2007). More lawsuits are likely to follow.
UPDATE 1/18/08: According to an article in today's Patriot News, chocolate makers were apparently engaged in anti-competitive practices back in the late 1930s:



The charges from the late 1930s arose out of arrangements to fill vending
machines in movie theaters. Hershey and a forerunner to Nestle, Peter
Cailler Kohler Swiss Chocolate Co., struck a deal to supply chocolate bars
exclusively to three of the country's largest vending companies, according
to the 1939 annual report of the Federal Trade Commission.

"The result was that competing vending-machine operators had difficulty in
getting and keeping their vending machines in theaters, because they could not
buy the Hershey and Nestle chocolate bars at a price that would permit
sufficient profit," the FTC said.

Update 1/28/08: Hershey's and Mars raise wholesale prices of its chocolate bars by 13 percent, citing higher costs, according to news reports. This follows a price hike of 4 to 5 percent last April. Mars also increased its prices of candy bars, by 5 percent, last week. In defending the price hike, a Hershey spokesman stated that "we have no way of knowing what others are thinking, or what their cost situation is, . . . [but] our products include far more pure milk chocolate and solid chocolate than our competitors." Considering that the price-fixing investigation was revealed so recently, the decision to raise prices was probably subjected to increased scrutiny by Hershey's lawyers, and there is presumably a strong business justification for the decision.

Related Posts: Investigation of Chocolate Price Fixing Goes Global;
U.K. Offers Cash Rewards for Antitrust Informants
 

The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies


This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.