Monday, June 17, 2013

Canadians Indict Chocolate Companies for Price-Fixing After Lengthy Investigation

Criminal price-fixing charges were recently filed against Canadian affiliates of Nestle and Mars, a network of wholesale distributors, and three individuals, alleging that they conspired to fix chocolate prices in Canada.  In addition, Hershey Canada agreed to plead guilty to price-fixing related to conspiratorial communications with competitors in 2007.

According to recently unsealed documents, a price-fixing investigation of the chocolate companies began when Cadbury came forward as a whistleblower in July 2007 seeking to participate in an immunity program in return for its cooperation.  The chocolate companies allegedly fixed prices during meetings in coffee shops, restaurants, and at trade conventions, and through phone calls and e-mails beginning in 2002.  The conspiracy allegedly involved senior employees in both the United States and Canada.

Chocolate purchasers filed class action lawsuits in the United States against Hershey, Nestle, Mars, and Cadbury in 2008, and class certification was granted in 2012.  Those suits are ongoing.

I was asked in a recent media interview why chocolate in particular was subjected to price-fixing as opposed to some other product.  While a lot of other products are subject to price fixing agreements besides chocolate, products are more susceptible to collusion under certain economic conditions that are present in the chocolate industry.  These include an oligopolistic market, high barriers to entry, high fixed costs, a commodity product, many small customers, and inelasticity of demand (e.g., the absence of close substitutes for the product). 


As chocolate lovers (like myself) can attest, there is no close substitute for chocolate, which many people crave, and which is reported to provide certain health benefits when consumed.  In other words, one of the qualities that makes chocolate susceptible to price-fixing is that people love chocolate, and will continue to purchase chocolate even if prices are artificially inflated.

Update June 21, 2013: Hershey's received a fine of almost $4 million in connection with its guilty plea.  A trial date for Nestle and Mars is set for October 3.

Wednesday, June 12, 2013

Pension Fund Files Derivative Suit Related News America Marketing’s Anticompetitive Acts

On June 7, a pension fund filed a derivative suit against News Corp and its top executives for breach of fiduciary duty, and against the executives for waste of corporate assets and unjust enrichment.  These claims are based on News America Marketing’s illegal and anti-competitive business practices, including monopolizing the market for in-store promotion services and for FSIs.

News America has paid almost $655 million to settle lawsuits from three competitors related to its anti-competitive practices, and may be forced to pay millions more to resolve a lawsuit filed by customers such as Heinz and Dial, and by Foster Poultry Farms on behalf of a proposed class of customers.  In addition, News America was the subject of an FBI investigation related to News America’s computer hacking, and was allegedly investigated by the DOJ for possible antitrust violations.

According to the Complaint, News Corp acquired dominance in the market for advertising and promotion services geared toward CPGs “through various wrongful acts designed to impede competition, including: (i) entering into long-term exclusive contracts with retailers; (ii) paying large economically unjustifiable cash payments to retailers to derail competitor contracts; (iii) bundling and predatorily pricing its in-store advertising and promotion products and services with its FSIs; (iv) hacking into competitors’ computer files; (v) dishonestly disparaging competitors’ compliance rates and financial viability; and (vi) defacing competitors' advertisements.”

Defendants allegedly breached their fiduciary duties by “creating a culture of lawlessness within News Corp, and/or consciously failing to prevent the Company from engaging in the unlawful acts.”

As relief, the plaintiffs seek an order: requiring News to “reform and improve its corporate governance,” requiring disgorgement of benefits obtained by the defendants, and awarding fees and other appropriate relief.
 

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