Wednesday, April 07, 2010

Challenge to Consummated Acquisition in Dairy Market Survives Motion to Dismiss

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Milwaukee today refused to dismiss one of the two counts in a complaint filed by the U.S. Department of Justice and the States of Illinois, Michigan, and Wisconsin against Dean Foods Company for violating Section 7 of the Clayton Act. In the complaint, the government challenged Dean's consummated acquisition of the Consumer Products Division of Foremost Farms USA, a dairy cooperative headquartered in central Wisconsin.

The government alleged that the acquisition adversely affected two types of markets: the markets for the sale of school milk to individual school districts located throughout the State of Wisconsin and the Upper Peninsula (UP) of Michigan (Count 1); and the market for the sale of fluid milk to purchasers, such as retailers, distributors, food service companies, located in Wisconsin, the UP, and northeastern Illinois (Count 2).

Dean, the country's largest processor and distributor of milk and other dairy products, sought to dismiss Count 2. Dean "critique[d] the premise on which plaintiffs' proposed geographic market is based, and criticize[d] the sufficiency with which it is defined." Dean argued that the government improperly defined the geographic market based on the region in which Dean and Foremost competed for fluid milk sales prior to the acquisition. While a geographic market was comprised of the area where customers look to buy a product and not the region in which the seller attempts to sell its product, that did not mean that the geographic area where the parties competed was not the relevant geographic market, the court explained.

The court also rejected challenges to the sufficiency of the pleading of the relevant geographic market. The government's geographic market definition was based on a hypothetical monopolist's ability to impose a small but significant and nontransitory increase in price ("SSNIP") on certain targeted buyers. The test is described in section 1.22 of the joint Federal Trade Commission/U.S. Department of Justice Horizontal Merger Guidelines. The court noted that the Merger Guidelines were not binding, but that they were considered to be persuasive authorities.

The court accepted the geographic market despite Dean's contentions that the plaintiffs had not sufficiently pled: (1) the identities and particular locations of customers that defendant could target for price discrimination; (2) that targeted customers could not defeat a SSNIP by turning to more distant sellers; and (3) that targeted customers could not defeat a SSNIP through arbitrage. The court refused to apply the highly specific pleading standard advocated by Dean.

The text of the April 7, 2010, order in U.S. v. Dean Foods Co., Case 2:10-cv-00059-JPS, appears at 2010-1 Trade Cases ¶76,952.

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