Second Circuit Weighs in on Antitrust Injury
Antitrust standing is one of the most beguiling concepts in antitrust law, but it is a hurdle that a plaintiff must negotiate if its claim can proceed. This week, the Second Circuit provided some clarity to the doctrine when it affirmed a district court decision dismissing the antitrust claims of end users of aluminum for lack of antitrust standing in In re Aluminum Warehousing Antitrust Litigation.
Plaintiffs’ complaint, like many others involving purported industrial conspiracies, rests on complex factual allegations, but at its core, the complaint alleges that defendants—derivatives traders and warehousers of aluminum—conspired to manipulate the price of storing aluminum that was traded in the aluminum derivatives market. These increased costs allegedly caused higher prices for aluminum in the market for physical aluminum under the theory that the derivative warehouse storage price is one input in the market price for physical aluminum. Plaintiffs—end users of physical aluminum—alleged that they were harmed because they paid higher prices due to the conspiracy in the aluminum derivatives storage market.
The Second Circuit determined that the district court correctly dismissed the end users’ claims because they lacked antitrust injury, one of the elements of antitrust standing, finding that those users did not participate in defendants’ market and their injuries were not “inextricably intertwined” with the defendants’ conduct.
The Second Circuit recognized that occasionally, individuals or entities who are not consumers, competitors, or other participants in the defendants’ market can suffer antitrust injury. Although typically defendants corrupt the market in which they themselves participate, sometimes their antitrust violation distorts a different market in which the plaintiff is a participant. This typically happens, the Second Circuit explained, when the conspirators use the plaintiff’s injury as the “means,” “fulcrum,” “conduit,” or “market force” to realize their illegal goals.
The Second Circuit laid out the following framework to analyze claims of antitrust injury:
• What was the alleged anti-competitive conduct?
• In which market(s) did the alleged anti-competitive conduct take place or have a significant effect?
• Did the plaintiff participate in one of those markets?
The Second Circuit held that the defendants in this case allegedly effectuated their conspiracy by increasing costs in the aluminum derivatives storage market. Because the end-user plaintiffs did not participate in the derivatives storage market, their injury was not an antitrust injury. Any effect of the anti-competitive conduct on the end-user market was merely incidental and not “inextricably intertwined” with the allegedly offending conduct.
• The Second Circuit distilled Supreme Court and other Circuits’ caselaw to a seemingly concise rule: a plaintiff that participates in a separate market from defendants does not suffer injury unless the defendants are required to corrupt that separate market to achieve their illegal ends. A plaintiff does not suffer antitrust injury if its injury is merely incidental, and not proximate, to the illegal conduct. The court had little trouble applying this rule in this case to find that the end users did not show antitrust injury, but the rule leaves open the possibility that a plaintiff outside the defendants’ market can sometimes show antitrust injury.
• In this case, the court did not need to be concerned that its ruling would cause plausible allegations of anti-competitive conduct to go unchallenged. As we wrote earlier, the district court found that the direct purchasers of aluminum have alleged antitrust injury because, unlike the end users, they were central to the creation of the market underying aluminum storage and derivative trading and were directly impacted by the alleged conduct. Their claims are proceeding at the district court.
• To show antitrust standing, a plaintiff needs to show both that it suffered antitrust injury and that it is an efficient enforcer of the antitrust laws. Because the Second Circuit held that plaintiffs did not show antitrust injury, it sidestepped, for now, an interesting question of whether the “efficient enforcer” requirement must be shown when a plaintiff seeks only injunctive relief—but not damages—under federal law.