Shearman & Sterling LLP | Antitrust Blog | Jury In The Eastern District Of Pennsylvania Finds No Liability For Egg Producers In Alleged Price Fixing Suit
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  • Jury In The Eastern District Of Pennsylvania Finds No Liability For Egg Producers In Alleged Price Fixing Suit

    On June 14, 2018, a jury in the Eastern District of Pennsylvania found three egg producers not liable for violating Section 1 of the Sherman Act based on an alleged conspiracy to restrict the supply of egg-laying hens and artificially inflate the price of eggs. In re Processed Eggs Prods. Antitrust Litig., 2:08-md-02002 (E.D. Pa. June 14, 2018).

    In a class action suit, plaintiffs had alleged egg producers had illegally conspired to restrict production and fix the prices of egg products sold in the United States in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and this alleged conspiracy resulted in more than $1 billion in damages. Plaintiffs alleged that defendants had improperly used a number of interrelated programs, including an industry association’s animal welfare program, to cut production and thereby raise egg prices. Defendants created the United Egg Producers Scientific Advisory Committee (“SAC”) to address, among other things, animal welfare. SAC made several recommendations with respect to cage spacing, ceasing backfilling (that is, adding young hens to older hens’ cages), and certain other hen treatment metrics that plaintiffs alleged were designed to reduce the supply of eggs and increase prices. Defendants argued that there was no conspiracy to reduce supply or fix prices, but instead the industry was adapting to market pressures, including because major buyers, such as Wal-Mart, demanded the animal welfare guidelines. The jury found that two of defendant egg producers did not enter into the challenged agreement. As to the third, the jury found that it had entered an agreement with competitors with regard to the animal welfare program, but that the arrangement did not constitute an unreasonable restraint of trade.

    Prior to trial, plaintiffs argued that defendants’ conduct constituted a per se antitrust violation because the program was an agreement among horizontal competitors to impose output restrictions that limited egg supply and increased prices. The defense did not dispute that the animal welfare program constituted an agreement, at least as to those defendants who had expressly agreed to participate, but argued that the agreement was not an express agreement to reduce supply or fix prices and had procompetitive benefits, and therefore must be analyzed under the rule of reason. In re Processed Egg Prods. Antitrust Litig., 206 F. Supp. 3d 1033, 1045-46 (E.D. Pa. 2016). After an intensive review and analysis of the facts on a motion for summary judgment, Judge Gene Pratter rejected the per se rule, holding that plaintiffs’ allegations must be evaluated under the rule of reason because the agreement was not an express agreement to reduce supply or fix prices and the defense had offered plausible procompetitive benefits, such as how the cage spacing may actually increase hen productivity and egg output, for the arrangement. Id. at 1045-48. Under this ruling, plaintiffs were required to show at trial that the alleged conduct was unreasonable with an anticompetitive effect in the marketplace.

    Before trial, several other co-defendants settled with a class of direct purchasers for approximately $150 million, leaving three defendants to take their case to the jury. In the course of a month-long trial, plaintiffs presented evidence that the alleged conspiracy reduced output and increased egg prices by 20% over competitive levels, while the defense presented evidence that the supply of hens had actually increased and the price of eggs had declined. As noted above, the jury sided with the defense on the issue of conspiracy with regard to two defendants, and with regard to defendant that had entered into an agreement, found that the agreement was not an unreasonable restraint of trade.

    The trial of an antitrust class action with $3 billion in exposure is not a frequent occurrence and the defense is to be commended for an effective presentation on the procompetitive benefits of the arrangement that the jury found persuasive.