Magazine Wholesaler Plausibly Alleged Boycott

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

The federal district court in New York City should not have rejected allegations that a magazine wholesaler was driven out of business as a result of an antitrust conspiracy, the U.S. Court of Appeals in New York City has decided. The appellate court vacated the lower court’s judgment granting a motion to dismiss the wholesaler’s Sherman Act Sec. 1 claim for failure to state a claim and denying leave to file an amended complaint.

According to the appellate court, the lower court misapplied the plausibility standards set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 2007-1 Trade Cases ¶75,709, and Ashcroft v. Iqbal, 129 S. Ct. 1937, 2009-2 Trade Cases ¶76,785.

The lower court should not have dismissed plausible allegations of a boycott, merely because it found a different version of events more plausible. By finding the plaintiff’s view of the events implausible, or less plausible than the possibility that the defendants acted unilaterally, the lower court improperly made factual findings, it was held.

Prior to being forced into bankruptcy liquidation, Anderson News was the second largest magazine wholesaler in the United States. After ceasing operations in 2009, Anderson brought an antitrust action against five national magazine publishers and their four distribution representatives, as well as two smaller wholesalers. Anderson alleged that, along with the country’s largest magazine wholesaler—Source Interlink Distribution, LLC—it was the target of a boycott.

Anderson contended that the boycott to eliminate the nation’s two largest magazine wholesalers followed a move by Anderson to impose a surcharge on publishers for each magazine copy it distributed, regardless of whether the copy was sold by a retailer. The surcharge was an attempt to recover costs associated with retrieving unsold magazine copies from retailers and disposing of them. Shortly after Anderson announced the surcharge, Source announced that it too would impose a similar surcharge.

The defendants, in an effort to get Anderson to drop the surcharge, allegedly invited the wholesaler to join in the elimination of Source, but Anderson declined. According to Anderson, thereafter, the defendants met or communicated with each other and agreed to reject Anderson’s proposed surcharge, to refuse any other accommodation, and to stop supplying Anderson with magazines.

Anderson’s allegations of conspiracy were plausible, in the appellate court’s view. The appellate court explained what differentiated the complaint filed by Anderson from the complaint at issue in Twombly.

Anderson alleged an actual agreement to eliminate Anderson and/or Source as wholesalers in the market and to divide the market between two smaller wholesalers. According to the appellate court, “the facts alleged in the [proposed amended complaint] are sufficient to suggest that the cessation of shipments to Anderson resulted … from a lattice-work of horizontal and vertical agreements to boycott Anderson.”

The appellate court went on to say that it had “difficulties with some of the court’s analytical constructs, including its application of Twombly’s plausibility test.” The lower court’s plausibility inquiry was “misdirected” when it ruled that Anderson did not state a plausible Sherman Act, Sec. 1 claim, simply because unilateral parallel conduct by the defendants was completely plausible.

According to the appellate court, “although an innocuous interpretation of the defendants’ conduct may be plausible, that does not mean that the plaintiff’s allegation that that conduct was culpable is not also plausible.” Moreover, on a Rule 12(b)(6) motion it was “not the province of the court to dismiss the complaint on the basis of the court’s choice among plausible alternatives.”

The appellate court also rejected the lower court’s determinations that Anderson’s conspiracy claim was implausible because the defendants had “a variety of reactions” to Anderson’s announcement of the surcharge or because Anderson’s surcharge was a nonnegotiable demand on the publishers. There was nothing implausible about coconspirators’ starting out in disagreement as to how to deal conspiratorially with their common problem.

Moreover, the presentation of a common economic offer might lend itself to independent, parallel responses, but it did not provide antitrust immunity to the publishers if they decided to get together to boycott the offeror.

The decision is Anderson News, LLC v. American Media, Inc., 2012-1 Trade Cases ¶77,843.

Magazine Publisher Boycott of Wholesaler Not Plausible

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

A defunct magazine wholesaler failed to plausibly allege a conspiracy to drive it out of business among national magazine publishers, distributors, and wholesalers, the federal district court in New York City has ruled. The wholesaler’s claims were dismissed with prejudice.

The wholesaler—the second largest magazine wholesaler in the United States before it was forced into liquidation bankruptcy proceedings in 2009—alleged that it was the victim of a boycott that came in response to its imposition of a surcharge on all single-copy magazines shipped.

According to the wholesaler, the surcharge was intended to create an incentive to eliminate the waste and inefficiency caused by the shipping of excessive copies of magazines. The wholesaler contended that the publishers responded to the surcharge by cutting off 80% of its magazine supply.

Plausibility Standard

The wholesaler’s complaint had to be dismissed with prejudice because it failed to meet the plausibility standard of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007-1 Trade Cases ¶75,709), and its progeny, the court held. The ultimate goal of the alleged conspiracy—to eliminate two of the four largest magazine wholesalers—was not plausible.

Publishers and national distributors had an economic self-interest in having more wholesalers—not fewer. More wholesalers yielded greater competition, which was good for suppliers. Moreover, the defendants had different reactions to the wholesaler’s “take it or leave it” surcharge, which undermined the wholesaler’s theory of conscious parallel conduct.

Parallel Conduct

The defendants’ decision to stop doing business with the wholesaler—the key parallel conduct allegation—did not create an inference of collusion. The defendants responded to the wholesaler’s unilateral demand, a negative stimulus, by pursuing similar but predictable policies to protect their business interests.

It was plausible that each of the publisher defendants unilaterally stopped shipping magazines to the wholesaler rather than pay the surcharge, the court explained.

The August 2 decision in Anderson News LLC v. American Media, Inc. appears at 2010-2 Trade Cases ¶77,114.

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