Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Furniture company alleges price fixing conspiracy among manufacturers of flexible polyurethane foam, (Jun 21, 2013)

By Tobias J. Gillett, J.D., LL.M.

A purchaser of flexible polyurethane foam has filed a complaint in the federal district court in Harrisonburg, Virginia, alleging a conspiracy among manufacturers of the foam to fix its price and to allocate customers (Jackson Furniture Company of Virginia v. Hickory Springs Manufacturing Co., June 20, 2013).

Jackson Furniture Company of Virginia filed suit against the manufacturers, alleging a conspiracy to fix, inflate, and maintain prices for flexible polyurethane foam. Polyurethane foam is used in products such as furniture, carpet underlay, and automobiles.

According to Jackson’s complaint, in February 2010 defendant manufacturer Vitafoam, Inc. voluntarily self-reported evidence of illegal antitrust activities between itself and other companies and individuals to the Department of Justice Antitrust Division. In seeking leniency from the DOJ, Vitafoam employees allegedly were interviewed and described the way the conspiracy operated.

The polyurethane manufacturers allegedly would communicate with each other approximately two to three times per year to discuss price increases, often in connection with meetings of the Polyurethane Foam Association, a trade association. The price increases generally were explained as the result of increases in the price of raw materials, and prices were increased at the same time and by approximately the same amount.

Participants in the conspiracy would police the scheme by communicating with other participants to ensure that the increases occurred, and would review each other’s price increase letters to ensure they complied, Jackson charged. If a participant did not agree to a price increase, the other participants “would pressure the hold out until it acquiesced.” The complaint details a variety of alleged communications made in furtherance of the conspiracy.

The participants allegedly kept their conspiracy secret by avoiding the use of full names in communications; by disguising their attendance at trade association meetings and at meetings at each other’s facilities where prices were discussed as information gathering; and by communicating through fax machines at local stores, so the transmitter’s identity would be concealed.

The structure of the polyurethane foam industry also facilitated their conspiracy, according to the complaint. The market has limited competition, with importation of foam into North America “neither practical nor economical, and is characterized by consolidation “rather than attracting new entrants.” “Demand for flexible polyurethane foam is relatively inelastic,” and the foam has no “acceptable substitute.” Polyurethane foam is a commodity product, with “purchase decisions based principally on price.”

The complaint claims that Jackson could not have discovered the conspiracy “prior to disclosure in 2010 of the raids by government agencies of certain Defendants’ facilities.” The manufacturers allegedly “affirmatively concealed” their conspiracy by meeting secretly, by agreeing not to publicly discuss the elements of the scheme, by “disguising price-fixing meetings and communications as technical and operational meetings,” and by “sending communications in a manner designed to hide the origin or source of the communications.”

Jackson asserts that the manufacturers’ conduct in agreeing to fix prices for flexible polyurethane foam, in participating in meetings and communications regarding prices for the foam, in agreeing to allocate customers, in keeping the existence of the conspiracy unknown, and in refusing to offer foam at prices below the agreed prices “constitute[d] a per se violation of Section 1 of the Sherman Antitrust Act.”

The complaint seeks a judgment that the conspiracy violated Section 1 of the Sherman Act; a judgment entered against the manufacturers for treble damages, costs, attorneys’ fees, and interest; and a permanent injunction to enjoin the manufacturers and related entities and individuals (1) from “continuing, maintaining or renewing” the conspiracy or any other conspiracy “having similar purpose or effect,” and (2) from communicating with each other “except to the extent necessary in connection with a bona fide sales transaction between the parties to such transaction.”

The case is No. 5:13-cv-00065-MFU.

Attorneys: Robert C. Lunger (Wharton, Aldhizer & Weaver, P.L.C.) for Jackson Furniture Company of Virginia.

Companies: Jackson Furniture Company of Virginia; Hickory Springs Manufacturing Co.; The Carpenter Company; Flexible Foam Products, Inc.; Scottdel, Inc.; FXI-Foamex Innovations, Inc.; Future Foam, Inc.; Vitafoam Products Canada Limited; Vitafoam, Inc.; British Vita Unlimited; Mohawk Industries, Inc.; Leggett & Platt, Inc.; E.R. Carpenter, L.P.; Carpenter Holdings, Inc.; Woodbridge Sales & Engineering, Inc.; Woodbridge Foam Fabricating, Inc.; Woodbridge Foam Corp.

News: Antitrust VirginiaNews