Antitrust Law Daily Wrap Up, ANTITRUST NEWS: McCormick, Wal-Mart charged with conspiring to fix the price of pepper, (Sep 16, 2015)

By Linda O’Brien, J.D., LL.M.

Spice manufacturer McCormick and retailer Wal-Mart conspired to artificially fix prices for pepper by reducing the amount of pepper in pepper tins and grinders sold to consumers while maintaining prices, according to a complaint filed in the federal district court in Chicago (Vladimirsky v. McCormick and Company, Inc., September 15, 2015).

McCormick and Company manufactures spices, herbs, and flavorings for retail, commercial, and industrial markets. McCormick has obtained a dominant share of the spice market by establishing itself as the leading provider of private label spices and herbs. Retailer Wal-Mart is one of McCormick’s largest customers, including for its store brand, Great Value spices. Julia Vladimirsky and Bernard Ortiz are consumers who purchased tins of McCormick black pepper in retail stores.

The complaint states that black pepper is grown in India, Brazil, Indonesia, Malaysia, Sri Lanka, Vietnam, and other locations around the world. The United States is the largest importer of pepper spice. Recently, the commodity price of black pepper substantially increased worldwide. McCormick, the leading provider of spices and herbs, had promised its shareholders that it would achieve over $85 million in cost savings for the 2015 fiscal year, through its comprehensive continuous improvement program. The rise in raw material costs put pressure on McCormick regarding its promise to shareholders to cut costs.

According to the complaint, for decades, McCormick sold ground black pepper in non-transparent metal tins that came in three different sizes. To improve its bottom line, in January 2015, McCormick allegedly agreed with its retail customers to reduce the amount of black pepper in its tins and grinders by 25 percent, while maintaining the size and price for the tins and grinders. Although the tins and grinders note the weight in small print, the containers remained the exact same size. McCormick did not plainly or adequately disclose the material fact that it reduced the amount of pepper, the plaintiffs charged.

McCormick and the retailers were alleged to continue marketing the tins and grinders as full, and consumers reasonably expected that the tins and grinders were full. By implementing a scheme to short change consumers, McCormick and the retailers were able to effectuate a de facto price increase and increase revenues without disclosing that they were raising prices. As a result of the defendants’ actions, consumers paid for full containers of pepper that in fact contained just 75 percent pepper and 25 pepper air and, therefore, did not receive the benefit of the bargain, the complaint alleges.

The plaintiffs also claim that there is substantial evidence that McCormick conspired with retailers in a “slack fill” scheme. First, McCormick controls about 70 percent of the black pepper retail market and 50 percent of the store branded spice market. Second, McCormick contracts directly with retailers to manufacture their store branded pepper and had regular opportunities to meet and exchange information. Third, the conspirators exchanged competitively sensitive, non–public information in the context of negotiations of contracts for McCormick to supply the store branded pepper containers to retailers. Fourth, the defendants had a motive to maintain profit margins in the face of the rising price of pepper in the global market. Finally, once McCormick instigated its slack fill scheme, the retailers permitted McCormick to roll out the scheme to their store branded containers as well, while maintaining the retail prices of the slack filled black pepper containers.

The plaintiffs assert claims for unjust enrichment, restraint of trade in violation of Section 1 of the Sherman Act, and violations of state consumer protection statutes. The action seeks declaratory and injunctive relief, restitution, disgorgement, treble and compensatory 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-08102.

Attorneys: Elizabeth A. Fegan and Steve W. Berman (Hagens Berman Sobol Shapiro LLP), J. Barton Goplerud (Hudson, Mallaney, Shindler & Anderson, P.C.), and David Freydin (Freydin Law Offices) for Julia Vladimirsky and Bernard Ortiz.

Companies: McCormick and Company, Inc.; Wal-Mart Stores, Inc.

News: Antitrust IllinoisNews