Fifth Circuit Considers Independent Conduct On Vertical Agreements To Facilitate Horizontal Conspiracy

On November 25, 2015, the Court of Appeals for the Fifth Circuit affirmed the $156 million antitrust judgment in MM Steel, L.P. v. JSW Steel (USA) Incorporated; Nucor Corporation, upholding a jury verdict that found one defendant steel manufacturer (JSW Steel) liable for participation in an illegal conspiracy to block distributor MM Steel from entering the market. The Court of Appeals reversed the jury verdict as to defendant Nucor, another steel manufacturer. In so doing, the Fifth Circuit identified evidence that does—and does not—tend to exclude the possibility of independent conduct for purposes of finding a violation of § 1 of the Sherman Act. The court also underscored that per se liability (and not the rule of reason) attaches to horizontal conspirators' use of vertical agreements to shut competitors out of the market.

MM Steel is a steel distributor created in 2011 by two salesmen who had previously worked for other distributors. JSW and Nucor are steel manufacturers with a history of business with MM's competitors. After JSW and Nucor refused to sell steel to MM, MM sued those manufacturers and its competitor distributors in the Southern District of Texas. MM alleged that the competitor steel distributors had formed an illegal horizontal conspiracy to prevent MM from entering the market, and that manufacturers JSW and Nucor joined the conspiracy by agreeing to refuse business with MM—all in contravention of § 1 of the Sherman Act.

After a trial that lasted over a month, and deliberations that lasted only half a day, the jury agreed. It awarded $52 million in damages, which the District Court trebled. Only JSW and Nucor appealed; the other defendants settled.

On appeal, the Fifth Circuit held that the record showed substantial evidence that JSW entered into a conspiracy with MM's competitor distributors to refuse to deal with MM. Of course, the court explained, quoting the Supreme Court's decision in Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984), a manufacturer "generally has a right to deal, or refuse to deal, with whomever it likes." However, as Monsanto made clear, a company's refusal to deal must be independent conduct. Without direct evidence of JSW's participation in the conspiracy, MM had to prove that JSW's refusal to deal was a result of anticompetitive conduct by offering evidence "that tends to exclude the possibility of independent conduct."

The appeals court highlighted several facts that tended to exclude...