Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Containerboard manufacturers charged with price fixing conspiracy, (Jun 25, 2015)

By Linda O’Brien, J.D., LL.M.

Manufacturers of containerboard products engaged in anticompetitive conduct by conspiring to impose capacity restraints that created an artificial storage of containerboard products and allowed the manufacturers to charge supra-competitive prices to purchasers, according to a complaint filed in the federal district court in Miami, Florida (Del Monte Fresh Produce N.A. v. Packaging Corporation of America, June 24, 2015).

Containerboard is the principal raw material used to make corrugated products, including corrugated medium and linerboard. Packaging Corp. of America, International Paper, Cascades Canada, Norampac Holdings U.S. Inc., Weyerhaeuser Co., Georgia Pacific, Temple-Inland Inc., Tin Inc., and Rock-Tenn Co. manufacturer and sell containerboard, corrugated medium, linerboard, corrugated boxes, and corrugated containers. Del Monte Fresh Produce is one of the world’s largest suppliers of fresh and prepared fruits and vegetables.

The complaint states that, in 2005, the containerboard industry experienced decreasing profit margins, rising product demand, and a promising economic outlook. However, the defendants began a coordinated imposition of capacity restraints, leading to a restriction in the supply of containerboard products on the market. From 2005 to 2010, there were an exceptional number of containerboard plant closings, capacity reductions, and price increases that could only be explained by concerted action by the defendants.

According to the complaint, the defendant manufacturers increased containerboard prices eight times between August 2005 and August 2010, resulting in an overall price increase of 50 percent despite the economic downturn during the latter half of that timeframe. Each of the price increases was implemented by the defendants nearly simultaneously and facilitated by reductions in supply and production capacity. In the face of increasing demand, the reductions made no economic sense absent conspiracy and collusion. Moreover, there were no sustained significant changes in production costs which would account for the price increases, or reductions in manufacturing capacity and product supply.

The defendants were able to facilitate the conspiracy by causing the artificially-inflated prices to be published in trade publications that function as list prices for containerboard products purchasers. Certain supply and purchase contracts between the defendants and purchasers were tied to the prices listed in the trade publications, the complaint states.

The characteristics of the containerboard industry make it highly susceptible to horizontal price-fixing and output restrictions. First, the containerboard industry is heavily concentrated. As of 2010, the defendants had a combined share of approximately 83 percent of the market, controlling nearly thirty million tons of annual production. Second, there are significant barriers to entry, including capital-intensive start-up costs and high transportation costs. Third, there are no close substitutes in the market for containerboard. Finally, the demand for containerboard products is very inelastic since purchasers will continue to buy nearly the same quantity of containerboard despite price increases, the complaint alleges.

The plaintiff asserts claims for unlawful restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory relief, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-22361-KMW.

Attorneys: Carlos M. Sires (Boies, Schiller & Flexner LLP) for Del Monte Fresh Produce N.A., Inc.

Companies: Del Monte Fresh Produce N.A., Inc.; Packaging Corporation of America; International Paper; Cascades Canada, Inc.; Norampac Holdings U.S. Inc.; Weyerhaeuser Company; Georgia Pacific LLC; Temple-Inland Inc.; Tin Inc.; Rock-Tenn Company

News: Antitrust FloridaNews