Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Chemical companies ask High Court to consider application of per se rule to “output reduction cartel”, (Jul 9, 2013)

By Jeffrey May, J.D.

The U.S. Supreme Court has been asked to review a decision of the U.S. Court of Appeals in Chicago, rejecting the application of the per se rule of antitrust liability to an alleged “output reduction cartel” in the market for sulfuric acid. Complaining chemical companies that purchased sulfuric acid as one of the inputs into their production of chemicals filed a petition for certiorari with the Court on June 28, seeking review of the “Seventh Circuit's unfounded assault upon the per se rule of antitrust liability” (Ohio Chemical Services v. Falconbridge Ltd., Dkt. 13-19).

At issue is a decision (703 F.3d 1004, 2012-2 Trade Cases ¶78,197), rejecting the application of the per se rule to alleged “shutdown agreements” among Canadian and American producers of sulfuric acid. Pursuant to the challenged agreements, the American companies purchased and distributed the Canadian companies’ excess sulfuric acid in lieu of producing their own. The principal defendants in the case are Noranda, Inc. and Falconbridge Ltd., Canadian mining companies that merged to form a single company named Xstrata Canada after the period of the alleged antitrust violations (1988-2002).

The court rejected the complaining purchasers' assertions that, because the agreements reduced total sales of acid in the United States and raised the market price, they constituted per se illegal conduct. The court acknowledged that the shutdown agreements were a form of price fixing, but noted that the rule of reason governed where, as here, the net effect of the challenged practice on economic welfare may well have been positive.

In their petition, the chemical companies ask specifically:

(1) whether an agreement among horizontal competitors to curtail their output of a commodity chemical to facilitate market entry by certain of those competitors so as not to “disrupt prices” in a “balanced market” was a per se violation of the antitrust laws; and

(2) whether a joint venture formed by horizontal competitors which: (a) had no assets; (b) produced no product; (c) was formed to jointly price and market its parents' output; (d) avoided preclearance by the Department of Justice and FTC under the Hart-Scott-Rodino Act despite being the “largest single marketing entity of sulfuric acid in the world”; and (e) used its market power to convince other horizontal competitors to curtail production facilities, should be judged by the per se rule of antitrust liability.

According to the petitioning chemical companies, the Seventh Circuit's decision repudiates the U.S. Supreme Court's 1940 decision in U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150, 1940 Trade Cases ¶56,031, which held that agreements among horizontal competitors to reduce output are per se illegal. The chemical companies suggested that this case was a rerun of Socony-Vacuum, which involved an agreement among large oil refiners to pay small ones not to sell. According to the plaintiffs, Noranda and Falconbridge paid the U.S. producers of sulfuric acid not to produce. The Seventh Circuit concluded, however, that the difference was that the effect of the price fixing agreement in Socony-Vacuum was to raise prices, while, in the current dispute, the aim was to facilitate entry into the U.S. market, which eventually lowered prices.

The petitioners also asked the Court to apply the per se rule to an output joint venture that was “formed to price and market the output of its parents, horizontal competitors.” They contend that the joint venture had no prospects for procompetitive effects.

Attorneys: Mary Jane Fait (Wolf Haldenstein Adler Freeman & Herz LLC) for Ohio Chemical Services.

Companies: Ohio Chemical Services; Falconbridge, Ltd.; Noranda, Inc.; Xstrata Canada Corp.

News: Antitrust