A series of class-action antitrust cases involving poultry, pork, and turkey processors have been settled before a trial could take place. However, these litigations reveal an information exchange that allegedly enabled the exploitation of consumers, suppliers, and workers. Antitrust enforcers should intervene.
For several years, a cluster of class action antirust cases against poultry, pork, and turkey processors, brought on behalf of restaurants, fast food chains, grocery retailers, as well as consumers and other groups of indirect buyers, have occupied the courts.
The claims in these cases revolve around a massive information exchange coordinated and administered by a company called AgriStats. Starting about a decade ago, AgriStats collected from almost all the processors detailed information about their ongoing business activities and then distributed that information to all the participating processors. Hence, everyone knew what everyone else was doing. The plaintiffs’ theory in the cases is that this information exchange allowed the processors to coordinate reductions in production so that prices increased despite the usual expectation of competition where a variety of products were produced and the products were sold to a diverse set of buyers at a significant range of prices. Typically, such variety should make conventional price collusion very difficult, if not impossible.
In addition, farmers who raised poultry have claimed that the same coordination resulted in lower earnings for them, as the numbers of flocks they raised were reduced. Employees of the poultry integrators (processors that own the birds, have farmers raise them, and then slaughter and sell them) have also sued, claiming that the companies coordinated on wages and agreed not to poach each other’s workers.
Thus, the information exchange allegedly made possible the exploitation of consumers, suppliers, and workers.
After several years of discovery and before any trial could take place, two of the major poultry integrators, Tyson and Pilgrim’s Pride (owned by JBS Swift), have offered settlements to some of the plaintiffs’ lawsuits; so far, the total proposed payout is over $300 million, including payments from smaller defendants. Other defendants still have not settled, and various other claims against the settling defendants remain open. JBS Swift has also proposed to settle some of the pork claims with a $24.5 million payment.
After the poultry case had been pending for a period time, the US Justice Department finally took an interest and has since indicted several poultry executives from Pilgrim’s Pride for criminal price-fixing, conduct for which the company has been ordered to pay a $107 million fine. The individual defendants are still contesting their criminal liability, which confronts them with the potential for prison time. Tyson is seeking leniency with respect to criminal liability by providing the prosecutors with evidence of the conspiracy—or conspiracies—in which it participated to assist in their prosecution. This will allow its employees to escape criminal liability and limit its potential civil liability if any of the damage cases went to trial.
Thus, behind this information exchange there were more traditional collusive agreements. The payouts and the settlements of the criminal claims, combined with the preliminary rulings from the courts overseeing the civil cases, strongly support the conclusion that AgriStats’ information exchange system seriously harmed the competitive process.
All good law enforcement, one might say. But if you look a little deeper, the payouts are unlikely to return to those overcharged, under-served, or otherwise exploited anything close to the costs imposed on those victims. In 2019, poultry sales exceeded $28 billion which means that the settlements to date, covering a multiyear period, represent barely one percent of a single year’s sales.
Litigation is costly and risky. The lawyers for the plaintiffs carry those costs and run the risk of never recovering them if the courts reject the claims, whether on their merits or for technical reasons such as “standing” or the appropriateness of the class. So, settlement is the norm with both sides wanting to avoid the risk of an actual jury verdict that favors the other side. The claims of growers and workers in the poultry cases are at least as challenging in terms of defining liability and damages.
Based on the general pattern of settling class action cases, these cases will likely settle on modest terms as well, relative to the actual losses (and assuming the courts remain favorable to the plaintiffs). Consequently, the harms caused to market participants will not be fully compensated. Neither the compensatory nor deterrent function of antitrust liability will be effectively served. Thus, massive information exchange would remain an attractive strategy for nominal competitors to employ to exploit consumers, suppliers, and workers.
Even more troubling from the perspective of public policy is the failure, so far, to address the underlying problem of information exchange itself. AgriStats proposed to competing companies that they agree on the information they wanted and the metrics to measure it. The information exchanged is usually regarded as highly confidential. It included very specific information about current and prospective inventory, sales, costs, etc. AgriStats then collected that data, monitored and audited the companies to ensure accuracy, compiled it on a plant-by-plant basis, and then distributed it to the participants. Only participating companies (15 or more) had access to this information.
Moreover, nominally the identity of each plant was kept confidential from participants except for their own plants, but it is generally asserted that any expert in the business could identify each plant. Thus, the participants could monitor each other’s conduct in detail, with information about inventory, current sales, etc. This kind of information exchange is in itself anticompetitive whenever overt or tacit coordination is feasible and attractive. But antitrust law has failed to connect those dots doctrinally.
The current state of antitrust law makes direct challenge to information exchanges difficult. Information about market conditions is central to the competitive process, and so it is not feasible to condemn every exchange as unlawful. Hence, plaintiffs’ lawyers are reluctant to challenge information exchanges directly because they must show in some way that the specific exchange is “unreasonable.” This can be a challenging standard to satisfy because of the potential arguments that can be made to justify having market participants be better informed.
Furthermore, if the effect of an exchange on competition is only to facilitate tacit collusion (no provable overt understanding), the courts will excuse such tacit conduct from liability because of an excessive fear of undue interference with business decisions. There are criteria available to determine when tacit collusion should be unlawful, including when it is dependent on a detailed exchange of information, but so far the courts have failed to recognize that potential.
In the poultry and related cases, the plaintiffs have usually contended that the information exchange “facilitated” an actual understanding about restricting production based on overt communications among and by the participating businesses. These communications provide the basis to claim an unlawful conspiracy. But that suggests to actual and potential defendants that if they are less overt about their plan, then there is no “price fixing conspiracy.” There is, of course, an agreement (conspiracy) to exchange information, but the standards for determining whether it is an unlawful exchange are ambiguous at best. A “conspiracy” is an agreement among set of firms or individuals to engage in common conduct. Such a conspiracy is unlawful if it is “unreasonable,” but private lawyers are reluctant at best to take on cases where they have to prove “unreasonableness.”
This is why the antitrust enforcement agencies, the DOJ and the FTC, should be directly involved in these cases, as they did in a somewhat similar case involving an airline prices information exchange in the early 1990s. They have a duty to protect the public interest in keeping markets workably competitive. This requires standards for what is permissible, both for the information exchanged and the circumstances in which this exchange occurs. The private litigants and their lawyers in antitrust cases have limited incentive to undertake the heavy lifting of identifying appropriate remedies to balance the need for market information with the need to limit the potential to use information to coordinate production. The attorneys for these parties are not well positioned to propose or enforce such remedies, even though the standard complaint demands injunctive relief as well as damages.
Identifying and enforcing such remedies is the domain of public law enforcers. But they are absent from this set of cases as they have been absent from other cases involving other kinds of anticompetitive conduct in agricultural markets. Their absence here is even more curious, however, given the increasing concern about information collection and use by the major internet companies such as Facebook, Google, and Amazon. The data collection by tech companies provides even more complex challenges to define appropriate standards. Hence, one might have expected rational agencies to start with somewhat more understandable problems, such as: How much and what kind of information can competitors exchange, and under what conditions?
There is guidance of sorts in the 1996 Statements of Antitrust Enforcement Policy in Health Care, which the agencies issued to explain enforcement policy and provide guidance to lawyers and health care providers. The guidance on information exchange requires at least five participants only sharing aggregated (averaged) data that is at least three months old. These guidelines do not, however, make exchanges that violate their standards illegal. They are only competitively suspect. This is not an unreasonable position given that many factors can make such exchanges more or less threatening to competition. Nevertheless, applied to the kind of current, plant-by-plant data provided by AgriStats the guidelines would make this exchange clearly unacceptable. It takes only a “quick look” to see that there is no legitimate business justification for the exchange of such detailed, proprietary information. The only possible use is to facilitate coordinated restraint of competition among the participants.
Thus, the question is why the Justice Department did not commence a civil suit to enjoin AgriStats from engaging in this kind of information gathering and exchanging? Such a suit could have resulted in an injunction that would have defined what is forbidden and what is permissible.
The challenge of defining the scope of information that can be exchanged involves deciding what kinds of information competitors ought to be allowed to exchange. For example, when there are public sources such as the reports the USDA provides on most agricultural commodities or the commodities futures markets, one might question whether there is any reason to allow private, confidential exchanges of such information. How much plant-specific data from how many plants do businesses need to compare the efficiency of their plant(s)? When, if ever, is it permissible for all or almost all participants in any industry to share information on a confidential basis?
Indeed, there is a major question about the confidentiality conditions under which information is being pooled and exchanged. If it remains confidential, other market participants are put at an informational disadvantage that can be significant. Certainly, when firms agree to provide detailed internal information to a third party for pooling and exchange, there is at least some waiver of confidentiality. Thus, who can get access on what terms is another significant question that public policy should address.
The failure of enforcement agencies to engage directly with the problems of information exchange in the poultry cases, all while expressing concerns generally about the potential problems, is very troubling. The result is that the combined public and private system of antitrust law enforcement fails to provide deterrence, compensation, and reform to create better competition. Even if the first two failures reflect a realistic result, given uncertainty and private party interests, the failure of public enforcers to carry out their role is even less acceptable or forgivable.