AAI Helps Persuade Eighth Circuit that Customer Allocation Remains Per Se Illegal

May 23 2014
AAI Announcements

At the AAI’s urging, the Eighth Circuit has reversed a district court ruling that threw into doubt the per se illegality of horizontal customer allocation agreements.  In In re Wholesale Grocery Products Antitrust Litigation, the plaintiff, “a small town, family-owned grocery store,” alleged that the defendants, two of the largest grocery wholesalers in the United States, entered an asset exchange agreement that concealed a broader agreement not to compete against each other for their respective customers, which resulted in higher prices for wholesale grocery products in the Midwest.  In granting the defendants’ motion for summary judgment, the district court had troublingly stated that a partial customer allocation is subject to the rule of reason and that only “exclusive” market allocation is per se illegal.

In its amicus brief, the AAI argued that customer allocation has long been per se illegal without regard to exclusivity and that application of the rule of reason would compromise the deterrence of this harmful practice. AAI also argued that parties to a market allocation agreement should have the burden to show that the restraint is ancillary to a larger economic integration if they want to escape per se condemnation. 

In reversing the district court, the panel held unequivocally that customer allocation is per se illegal, quoting a number of leading Supreme Court and lower court decisions that the AAI had cited for the same proposition.  Importantly, the panel directed judges and juries to look to the function—and not the form—of an agreement to decide whether defendants have conspired not to compete for each other’s customers. The court emphasized that “this is not a contracts case,” and that the nature of the conduct need not be divined from the four corners of the defendant’s asset exchange and accompanying non-compete agreements, without regard to parol evidence.  The court observed:

Perhaps there are aspiring monopolists foolish enough to reduce their entire anticompetitive agreement to writing, which would make the answer easy. But most would-be monopolists probably can be expected to display a bit more guile, jotting down only a few seemingly common terms while sealing their true anticompetitive agreement with a knowing nod and wink.

The brief was written by AAI Senior Counsel Randy Stutz and AAI Special Counsel Sandeep Vaheesan, with assistance from AAI Advisory Board Member Dan Gustafson.