Customer Complaints and Competitor Boycotts: Two Antitrust Decisions Highlight Antitrust Trouble Spots
Responding to Customer Complaints
In the first case, American Contractors Supply, LLC, v. HD Supply Constructions Supply, Ltd., the 11th Circuit Court of Appeals considered antitrust claims that arose from a complaint from a distributor to its longtime supplier. The distributor, White Cap, had served as the exclusive distributor in Florida for Meadow Burke, a manufacturer of specialized equipment used in “tilt” concrete wall construction. After White Cap learned that Meadow Burke was planning on doing business with another distributor in Florida, White Cap’s account manager called up his contact at Meadow Burke to express his displeasure and disappointment with Meadow Burke. Among other things, the account manager noted that he would be meeting with one of Meadow Burke’s main competitors the next day to discuss business opportunities. An understandably concerned employee of Meadow Burke relayed her concerns to upper management as follows:
We need damage control ASAP…Please confirm we will NO Longer allow anyone other than W[hite] C[ap] to sell Tilt in Florida. Please call to discuss how we can move forward and fix what we have done.
Meadow Burke management went into damage control mode. Meadow Burke’s tilt business lead called White Cap to discuss its concerns and agreed to meet with White Cap in person in Florida. Meanwhile, Meadow Burke’s management conferred internally and decided not to move forward with its plans to add the second distributor, American Contractor Supply or “ACS,” in Florida. When Meadow Burke and White Cap met in person, Meadow Burke “reassured” White Cap that it was not going to support ACS in the Florida market and acknowledged that the decision was due in part to “pressure” from White Cap. Later on, White Cap bragged to another company that they had the buying power to force Meadow Burke to cut off ACS, stating they “sent [ACS] packing. We do millions a year with Meadow Burke.”
ACS sued White Cap under federal antitrust and common law tortious interference laws alleging that White Cap and Meadow Burke conspired to terminate ACS from the Florida market. After the district court ruled for White Cap on a motion for summary judgment, ACS appealed to the 11th Circuit.
The 11th Circuit affirmed summary judgment in favor of White Cap. The court emphasized the relatively high burden of proof for antitrust plaintiffs, noting that antitrust law does not permit liability for conduct that is equally consistent with independent conduct as it is with concerted action. Here, the court concluded that the evidence was at least equally consistent with the decision having been an independent one, without an agreement, conspiracy, or combination. Of particular importance to the appeals court was the fact that Meadow Burke appeared to have made a decision to terminate ACS before its in-person meeting with White Cap. The fact that Meadow Burke acted in response to a complaint or pressure from White Cap was not determinative because “a manufacturer may legitimately respond to pressure from a [distributor] in order to avoid losing that particular dealer’s business.”
In addition, the court concluded that Meadow Burke had legitimate business reasons to try to preserve its relationship with White Cap. Among other things, White Cap had hired dozens of employees with significant experience with Meadow Burke products and had substantially invested in promoting the Meadow Burke product. Moreover, Meadow Burke believed that White Cap had performed well.
While White Cap ultimately avoided liability, this case is a reminder that complaints from customers should be handled with care. Complaints from one customer about another, particularly when they are direct competitors, should be treated especially cautiously and handled in close coordination with legal counsel. Meanwhile, “bad emails” like the one that popped up here likely put the company at far greater risk in this antitrust case, and staff need training that when customers complain about other customers, it is often best to keep the internal assessment out of email unless legal counsel is included to maintain the attorney-client privilege.
Trade Associations and Coordination Between Competitors
Another recent case involved a dispute between organizations that offered competing accreditation programs for pharmacies. On one side of the dispute were several organizations that strongly opposed the importation of prescription drugs, including the National Association of Boards of Pharmacy, the Alliance for Safe Online Pharmacies, the Center for Safe Internet Pharmacies, and member companies that offered accreditation services (collectively, the “Defendants”). On the other side was PharmacyChecker.com (PC). While PC does not itself sell or import prescription drugs, it does provide information about circumstances in which personal importation of drugs may be permissible.
The Defendants coordinated various efforts to combat illegal importation of prescription drugs, including developing the “.pharmacy” domain to play “a gatekeeping function” for online pharmacies and developing and administering a “Not Recommended Sites” list of pharmacies suspected of unlawful or unsafe business practices. Companies placed on the “Not Recommended” list could have their websites marked by major internet service provider as unsecure or unsafe, leading to drastic reductions in web traffic. After being placed on the list, PC’s traffic from organic search results dropped more than 78%, and its click-through revenue dropped more than 77%. PC was also the subject of a disparaging targeted advertising campaign by certain of the Defendants, which PC alleged contained several false claims.
According to PC’s complaint, the Defendants’ conduct amounted to a group boycott against PC in order to prevent it from competing in the global market for online pharmacy verification. The Defendants meanwhile, alleged that the “primary purpose [of Plaintiff's business] is to facilitate unlawful importation,” and therefore their conduct does not give rise to antitrust liability.
After the Defendants filed a motion to dismiss the complaint, the Southern District of New York concluded that PC adequately alleged circumstantial evidence of a conspiracy to exclude PC from the relevant market. The court found especially persuasive that the Defendants (i) had interlocking memberships and participated in frequent joint meeting attendance and (ii) that the Defendants participated in a handful of meetings and issued other communications suggesting a coordinated plan to restrain online pharmacies. For example, during a 2011 meeting, two of the Defendants “discussed cutting off websites that promote online international pharmacy sales.” While none of this conduct would necessarily be sufficient on its own to support antitrust liability, the court found the weight of the evidence sufficient to survive a motion to dismiss.
The court also rejected arguments that the Defendants were merely engaged in a public advocacy campaign and raising legitimate matters of public interest in their criticisms of PC. Instead, the court concluded that there was insufficient evidence to support the Defendants’ contention that PC was engaged primarily in illegal conduct, which might have been a defense to the antitrust claim. Rather, the court concluded that the Defendants were acting primarily to protect their own commercial interests or those of their members by coordinating to exclude a direct competitor from the marketplace.
This case underscores the potential antitrust hazards posed by trade associations which, by definition, bring groups of competitors together to discuss issues of mutual interest. Importantly, the court emphasized that membership in trade associations and attendance at trade shows is not enough, standing alone, to give rise to antitrust liability. Here, however, PC was able to allege particular conduct by the Defendants that appeared intended to cut off a direct competitor’s access to the market. Moreover, there was insufficient evidence to support the Defendants’ arguments that PC was engaged in illegal conduct or that the Defendants’ conduct was otherwise justified by legitimate business considerations.
This type of risk often may be mitigated at trade association meetings by reminding all participants of their obligations under the antitrust laws, preparing carefully reviewed minutes, and coordinating closely with antitrust counsel.