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Kleen Products LLC v. Georgia-Pacific LLC

United States Court of Appeals, Seventh Circuit

December 7, 2018

Kleen Products LLC, et al., Plaintiffs-Appellants,
Georgia-Pacific LLC and WestRock CP, LLC, Defendants-Appellees.

          Argued May 23, 2018

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 10 C 5711 - Harry D. Leinenweber, Judge.

          Before Wood, Chief Judge, and Bauer and Rovner, Circuit Judges.

          WOOD, CHIEF JUDGE.

         Oligopolies have always posed problems for conventional antitrust law: without something that can be called an agreement, they elude scrutiny under section 1 of the Sherman Act, 15 U.S.C. § 1, and yet no individual firm has enough market power to be subject to Sherman Act section 2, 15 U.S.C. § 2. Tacit collusion is easy in those markets, see In re Text Messaging Antitrust Litigation, 782 F.3d 867 (7th Cir. 2015), and firms have little incentive to compete on the basis of price, "preferring to share the profits [rather] than to fight with each other." Joe Sanfelippo Cabs, Inc. v. City of Milwaukee, 839 F.3d 613, 615 (7th Cir. 2016).

         This appeal concerns the fine line between agreement and tacit collusion, or, put another way, conscious parallelism. Direct purchasers of containerboard ("the Purchasers") charged multiple manufacturers with conspiring to increase prices and reduce output between 2004 and 2010. We affirmed the district court's decision to certify a nationwide class of buyers. Kleen Prods. LLC v. Int'l Paper Co., 831 F.3d 919 (7th Cir. 2016). Before and after that ruling, most of the defendants settled with the Purchasers. But two companies-Georgia-Pacific LLC and WestRock CP, LLC-decided to fight. They persuaded the district court that there was not enough evidence of a conspiracy to proceed to trial. We agree with that assessment and affirm the judgment dismissing the case.



         Containerboard is the name of the material used in countless boxes: it consists of a corrugated layer of heavy paper sandwiched between two smooth pieces of linerboard. Demand is relatively inelastic, meaning that customers will not defect to other products even if the price goes up, because the available substitutes are inferior. Containerboard is manufactured at large, costly mills, which are hard to duplicate, given both the high cost of construction and the myriad of environmental laws that must be satisfied. A handful of major players dominate the industry. Those players include the original defendants in this suit: International Paper ("IP"), Georgia-Pacific, Temple-Inland, Inc., WestRock, [1] Weyerhaeuser Co., Norampac Holdings U.S. Inc., and Packaging Corporation of America ("PCA").

         During the early 2000s, prices for containerboard were low. But from February 2004 to November 2010, they rose dramatically. The original defendants attempted to institute price increases on 15 different occasions. The pattern was a common one. After one company announced that it would raise its prices for containerboard, the rest followed suit with identical or comparable increases in the ensuing hours, days, or weeks. (The one exception was a failed attempt in which there were three hold-outs.) Such efforts took place from time to time. For example, in March 2003, the defendants attempted an ultimately unsuccessful increase. Of the proposed hikes from 2004 to 2010, Georgia-Pacific, WestRock, and a non-defendant each led the effort twice. The price increases were sustained nine times, a 60% success rate.

         While containerboard prices rose, containerboard production capacity fell in North America (despite the inelasticity of demand and growth throughout the rest of the globe). The initial defendants were not immune from this decline. The Purchasers' expert concluded that the defendant companies reduced their production capacity by an amount almost double that of non-defendants, though they used different strategies to accomplish this goal. They closed a significant number of mills during the class period-WestRock alone was responsible for more than a third of those closures. WestRock also took care, through measures such as buyer selection and machinery sales, to avoid adding containerboard supply into the market. Georgia-Pacific kept all its mills running, but it slowed the rate of production. It would periodically "slow back" production by idling or shutting down machines and taking extra downtime. While these practices diminished supply to the point that it sometimes pinched, in the end Georgia-Pacific never missed an order. And the company actually increased its overall capacity by acquiring a new mill in 2007.

         During this period, the defendants were in regular communication. Company executives and other employees spoke by phone and at trade association meetings every few days. The record does not reveal the contents of all these conversations, but at least some dealt with the timing and pricing of interfirm trading of containerboard -a common practice.

         Internal and public-facing statements made by the defendants' employees shed light on these economic developments. Some email exchanges may be read to imply that the defendants had foreknowledge of other companies' proposed increases before they were announced. For example, just before three price hikes, a PCA employee offered an opinion about how high prices would need to go over the next year and a half in order to recover the cost of capital. A Georgia-Pacific staffer wrote "the party begins" when discussing an increase attempt. A WestRock vice president emailed that the company "always follow[s] IP," even though in fact "always" was an overstatement. And a Weyerhaeuser employee discussed a specific increase two days before WestRock first made its new price public. Other statements support the inference that a coordinated plan was in place. For instance, a Weyerhaeuser employee wrote that he "made up a bunch" of information in a report about what was learned from customers about competition, asking others to "be more specific" to stay "out of anti-trust legal issues." A Norampac executive, discussing problems with the industry, said "you have to be ready to let go business if you want to keep the price up," and "everybody needs to do the same thing."

         Georgia-Pacific and WestRock made their own incriminating remarks. Because some details remain under seal in this court, some of our examples are a bit vague, but we have reviewed the sealed materials and they are consistent with the remainder of the evidence. A WestRock vice-president made remarks in an email that could easily be construed as an undertaking to follow-the-leader. A different vice-president complained that the company "ha[d] no choice but to support [a price increase] initiative" and that WestRock "ha[d] done [its] part." At one point, a company employee wrote that the "only way to get paid is to have a 1994-95 situation where the tide rises for all boats," perhaps referring to the container-board industry's earlier run-ins with antitrust law. See, e.g., In re Linerboard Antitrust Litig., 305 F.3d 145 (3d Cir. 2002). Publicly, WestRock's CEO was reported to have said that the company had a restructuring plan to "cut supply enough at [WestRock] to force price increases throughout the industry." Georgia-Pacific's president gave a speech during the period in question urging the industry to resist customer requests for price breaks.


         In September 2010, the Purchasers filed a putative class action alleging violations of section 1 of the Sherman Act. 15 U.S.C. § 1. The district court consolidated the suit with similar actions and denied several motions to dismiss. Discovery followed. Then in March 2015, the district court granted the Purchasers' motion for class certification under Federal Rule of Civil Procedure 23. It defined the class as follows:

All persons that purchased Containerboard Products directly from any of the Defendants or their subsidiaries or affiliates for use or delivery in the United States from at least as early as February 15, 2004 through November 8, 2010.

Kleen Prods., 831 F.3d at 922. We affirmed the certification decision while making clear that we were not addressing the merits. E.g., id. at 928.

         Back in the district court, the litigation rolled onward. The court largely denied the parties' cross-motions to exclude each other's experts. Both sides moved for summary judgment. Before the court acted on those motions, some of the defendants settled with the Purchasers. The district court granted the remaining defendants, Georgia-Pacific and WestRock, summary judgment. In a lengthy opinion that delved deeply into the Purchasers' evidence, the court concluded that the record, viewed holistically in the light most favorable to the Purchasers, did not tend to rule out that the defendants had acted independently. With only the final approval of settlement agreements pending, the district court entered partial final judgment for the remaining defendants under Rule 54(b). The Purchasers ask us to revisit that ruling.


         Section 1 of the Sherman Act prohibits every "contract, combination, ... or conspiracy in restraint of trade ... ." Courts have understood for more than a century that this language does not ban all contracts, but instead reaches only agreements that restrict competition. Copperweld Corp. v. Indep. Tube Corp.,467 U.S. 752, 768 (1984); see also Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc.,441 U.S. 1 (1979); United States v. Socony-Vacuum Oil Co. (1940). In the absence of an agreement, the antitrust laws forbid only monopolization or attempts to monopolize, see 15 U.S.C. § 2, as well as a few other arrangements including anticompetitive mergers and acquisitions, see 15 U.S.C. § 18. But this case concerns only section 1; the plaintiffs make no claim that any of the defendants has even attempted to monopolize, much less succeeded in such an effort. See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993). We can therefore disregard all other antitrust theories and focus on the question whether the district court correctly decided that the Purchasers did not present enough evidence to permit a trier of fact to find the agreement necessary for section 1 liability. As the Supreme Court put it in Bell Atlantic ...

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