United States: Expert Excluded For Failing To Apply Tampa Electric Standard When Defining Relevant Geographic Market

The district court in the Southeastern Milk Antitrust Litigation⁵ excluded a plaintiffs' expert because the expert testified that his definition of the relevant geographic market did not comport with the standard enunciated by the U.S. Supreme Court in Tampa Electric v. Nashville Coal Co.⁶ The court's decision is a stark reminder that practitioners must ensure that their experts are well-versed with key language from prior Supreme Court cases in their area of expertise.

The Southeastern Milk Antitrust Litigation is a multidistrict class action in the Eastern District of Tennessee brought by plaintiffs Food Lion and Fidel Breto (d/b/a Family Foods) on behalf of purchasers of processed milk alleging that several defendants, including the Dean Foods Company (Dean Foods), Dairy Farmers of America (DFA), and National Dairy Holdings (NDH), violated §§ 1 and 2 of the Sherman Act.⁷ As part of their suit, plaintiffs asserted claims for unlawful monopolization, attempted monopolization, and conspiracy to monopolize against defendant Dean Foods, and alleged that Dean Foods has used predatory conduct to obtain and maintain monopoly power in the processed milk market.⁸ Plaintiffs also alleged that Dean Foods conspired with DFA and NDH to monopolize the processed milk market through an agreement not to compete for sales of processed milk to retail stores.⁹

In support of their claims against Dean Foods, plaintiffs designated expert Professor Luke Froeb to testify regarding the relevant geographic market.¹⁰ Professor Froeb, who was a former Director of the Bureau of Economics at the Federal Trade Commission, identified the relevant geographic market by constructing an economic model of competition between milk producers and applying the "hypothetical monopolist/SSNIP" test set forth in the DOJ/FTC's Horizontal Merger Guidelines¹¹ to ask whether a hypothetical monopolist who owns all the milk processing plants in a candidate market would find it profitable to raise price by a small but significant amount.¹²

Defendants moved to strike Professor Froeb's testimony contending that, although proper application of the SSNIP test is an accepted method to analyze the geographic market in an antitrust case, Professor Froeb only paid "lip service" to the SSNIP test and based his opinion on a theoretical model that was inconsistent with the applicable legal standards and real-world facts.¹³ Specifically, defendants claim that rather than comparing the hypothetical monopolist scenario to the actual ownership of the plants, Professor Froeb compared the hypothetical monopolist to another hypothetical scenario where each plant was independently owned by different firms.¹⁴

The district court agreed with defendants and struck Professor Froeb's testimony. In reaching this conclusion, the court relied primarily on the following excerpt from Professor Froeb's deposition:¹⁵

According to the district court, Professor Froeb's testimony that the verbatim Tampa Electric standard (i.e. "the area in which the seller operates and to which the seller can practically turn for supplies") was not his definition of a relevant geographic market and did not "characterize what [he had done] or [his] conclusion" rendered his methodology unreliable and invalid.¹⁶ The court concluded that it is an expert's responsibility to know the applicable Supreme Court precedent in his area and rejected the plaintiffs' contention that Professor Froeb was deceived by the questioner's use of the verbatim Tampa Electric standard.¹⁷ The court took at face value Professor Froeb's testimony that he did not apply the Tampa Electric standard and disclaimed any need to independently review his methodology to determine whether it actually complied with the Tampa Electric standard.¹⁸

The district court also rejected Professor Froeb's testimony as unreliable because he did not consider relevant facts regarding the actual behavior within the market.¹⁹ For instance, Professor Froeb failed to consider information regarding where retailers for processed milk actually turn for supplies in the market or information regarding how purchasers in the market actually react to price increases.²⁰ Professor Froeb also did not consider evidence of the retailer plaintiffs' purchasing behavior or the sales and pricing data of Dean Foods and other milk processors.²¹ The court concluded that Professor Froeb's failure to consider these "real-world" facts meant that his conclusions regarding the relevant geographic market did not "correspond to the commercial realities" as required by Tampa Electric.

Beyond its cautionary value to practitioners and experts, the district court's decision is also notable because of its reluctance to equate the hypothetical monopolist/ SSNIP test, even a proper application of the test, to the Tampa Electric standard.²² The court noted that the Supreme Court has not ruled that the hypothetical monopolist test satisfies the Tampa Electric standard and that the Merger Guidelines where the test originates is not binding on the courts.²³ In the end, the court accepted the parties' agreement that proper application of the SSNIP test would satisfy Tampa Electric and did not decide the issue.²⁴ It bears watching future cases to see whether this district court or any other court will find a proper application of the SSNIP test inconsistent with the Tampa Electric standard.

Footnotes

5 In re Southeastern Milk Antitrust Litigation, Master File No. 2:08-MD-1000, 2012 WL 947106 (E.D. Tenn. March 20, 2012).

6 365 U.S. 320, 327 (1961).

7 In re Southeastern Milk Antitrust Litigation, 730 F. Supp. 2d 804, 809 (E.D. Tenn. 2010)

8 Id. at 820.

9 Id.

10 In re Southeastern Milk Antitrust Litigation, 2012 WL 947106 at *1.

11 Id.

12 Id.

13 Defendants' Response to Retailer Plaintiffs' Objection to December 8, 2010 Order of Magistrate Judge Granting Defendants' Motion To Exclude the Testimony of Plaintiffs' Expert Professor Luke Froeb, Master File No. 2:08-MD-1000, Document 1229.

14 Id.

15 In re Southeastern Milk Antitrust Litigation, 2012 WL 947106 at *9-10.

16 Id. at *10. ("To paraphrase Professor Froeb's deposition...:"I would not say that a relevant geographic market is the area in which the seller operates and to which the purchaser can practically turn for supplies. That's not how I would put it. I don't think the Tampa Electric standard characterizes well what I've done here, or my conclusions here. I've taken a different approach." 17 Id. at *10 ("It is ludicrous for plaintiffs to suggest that an expert on the relevant antitrust market would not be familiar with Supreme Court pronouncements on the subject, especially given his background at DOJ/FTC.")

18 Id. at *11.

19 Id. at *13.

20 Id.

21 Id.

22 Id. at *6 ("So far as this Court can tell, neither the United States Supreme Court nor the Sixth Circuit have specifically equated the SNIPP test, or any variation of it, with the standard enunciated in Tampa Electric.")

23 Id. at *9. ("Unless and until the Tampa Electric standard is repudiated or modified by the Supreme Court, this Court is bound to apply it, and, although the parties agree that the SNNIP test mirrors the Tampa Electric standard, neither the Supreme Court nor the Sixth Circuit has explicitly said so.")

24 Id. at *9 ("The Court accepts, however, for the purposes of deciding this Daubert motion, that proper application of the SSNIP test meets the necessary standard.")

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