United States: A Bogosian Shortcut Through The Mushroom Patch – The Latest Chapter Of A Fairytale Doctrine

Few cases in the antitrust canon have been invoked more frequently, for the wrong reasons, than the Third Circuit's 1977 decision in Bogosian v. Gulf Oil. For four decades now – culminating in the recent release of a decision certifying class in the long-running Mushrooms case – litigants and courts have cited a "presumption" or "short-cut" embedded in Bogosian and argued about whether it suffices to warrant class certification in a given case. This short-cut, however, is more fantasy than reality.

Neither the word "presumption" nor "short-cut" (nor like terms) appear in the Bogosian opinion. The "presumption" has instead been drawn from the following paragraph:

If . . . a nationwide conspiracy is proven, the result of which was to increase prices to a class of plaintiffs beyond the prices which would [otherwise] obtain ... an individual plaintiff could prove the fact of damage simply by proving that the free market prices would be lower than the prices paid and that he made some purchases at the higher price. If the price structure in the industry is such that nationwide the conspiratorially affected prices at the wholesale level fluctuated within a range which ... was higher in all regions than the range which would have [otherwise] existed ... it would be clear that all members of the class suffered some damage.

The first sentence is tautological – a consumer can "prove" damage if he "proves" he purchased at prices inflated by a "proven" conspiracy. The second sentence broadens the tautology to the class level and complicates it by positing that the defendant comes to market with multiple prices. In that example, if the plaintiff proves that the conspirator set prices according to a formula that links one price to the next, and one of those prices is inflated by a conspiracy, then all of the prices have been inflated. There is no need to presume classwide impact if these factors are met, because the court set forth a mathematical proof of such impact, as in the following example.

Plaintiffs' Proof:  Conspiracy-inflated price Plaintiffs' Proof:  But-For World Price Impact?
Wholesale Customer Prices $1.25 (fixed price) $1.00 Yes
Retail Customer Prices $1.50 (rigidly tied to fixed price) $1.25 Yes

A class containing both types of (direct) purchasers, assuming proper proof and the satisfaction of Rule 23's other requirements, is ripe for certification regardless of the dispersion of prices paid because, by the hypo's design, each member suffered some damage. This is straightforward. Nonetheless, Bogosian has been said to stand for a myriad of misguided principles, including that classwide injury may be presumed: (i) through evidence of a price fixing conspiracy only; (ii) through evidence of a price structure only; and (iii) through evidence that average prices have been inflated and the defendant utilizes a formulaic price structure. The last problem is particularly acute because it has the look of Bogosian's reasoning, without its logic.

Plaintiffs' Proof:  Conspiracy-inflated price Plaintiffs' Proof: But-For World Price Impact?
Wholesale Customer Prices $1.25 (fixed price) On average, 25% lower than actual prices ?
Retail Customer Prices $1.50 (rigidly tied to fixed price) On average, 25% lower than actual prices ?

The Mushrooms decision fails to clarify Bogosian doctrine.  In response to the "shortcut's" invocation, the defendants argued that it does not apply to cases decided according to the Rule of Reason. Such cases require plaintiffs to establish that a practice is "unreasonable" because its anticompetitive effects outweigh its procompetitive effects.  In contrast, cases applying the "per se" standard (as in hardcore price fixing challenges) proceed without a need to show unreasonableness. Defendants' argument was therefore mistaken because whether a restraint is reasonable is distinct from whether it impacted all class members. In the second chart above, for example, the price fixing was per se unreasonable, yet did not necessarily impact all class members. Here, despite proof of a conspiracy and of a price structure, this proof should fail to show classwide impact because there are infinite ways that the 25% overcharge could be derived from but-for world prices. If, for example, but-for world wholesale prices would have been 50% lower, but retail prices would remain the same, then average prices would be 25% lower (assuming an even distribution of sales), but retail customers would not be impacted. A contrary "presumption" would be improper, and Bogosian does not authorize one.

Nonetheless, the Court agreed with the (ultimately trivial) point that Bogosian had only been previously applied in per se cases, and that the claim in question was to be determined under the Rule of Reason, making Bogosian "on its own [in]sufficient to support a finding that common proof of antitrust impact predominates." We will have to await future decisions to bring clarity to the coldly rational, yet often perplexing, Bogosian "presumption."

A Bogosian Shortcut Through the Mushroom Patch – The Latest Chapter of a Fairytale Doctrine

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