In re Pressure Sensitive Labelstock Antitrust Lit.

• Decision Date: 15 February 2005
• Docket Number: No. MDL No. 1556.,MDL No. 1556.
• Citation: 356 F.Supp.2d 484
• Parties: In re: PRESSURE SENSITIVE LABELSTOCK ANTITRUST LITIGATION
• Court: U.S. District Court — Middle District of Pennsylvania

356 F.Supp.2d 484

In re: PRESSURE SENSITIVE LABELSTOCK ANTITRUST LITIGATION

No. MDL No. 1556.

United States District Court, M.D. Pennsylvania.

February 15, 2005.

COPYRIGHT MATERIAL OMITTED

Stewart M. Weltman, Cohen, Milstein, Hausfeld & Toll, PLLC, Washington, DC, Joseph A. Murphy, Murrphy, Piazza, & Genello, P.C., Joseph P. Coviello, Joseph E. Mariotti, Coviello & Mariotti, Mary D. Walsh-Dempsey, Thomas J. Gilbride, O'Malley & Langan, P.C., Todd J. O'Malley, Scranton, PA, Richard I. Creighton, Keating, Muething & Klekamp P.L.L., Cincinnati, OH, Steven A. Asher, Fox Rothschild, LLP, Howard J. Sedran, Levin, Fishbein, Sedran & Berman, Steven J. Greenfogel, Meredith, Cohen, Greenfogel & Skimick, P.C., Ira Neil Richards, Peter D. Winebrake, Trujillo, Rodriguez & Richards, LLC., Eugene A. Spector, John A. Macoretta, Spector Roseman & Kadroff, Philadelphia, PA, W. Joseph Bruckner, Lockridge, Grindal & Nauen, Samuel D. Heins, Heins, Mills & Colson, PLC, Minneapolis, MN, Joseph M. Barton, Steven O. Sidener, Gold, Bennett, Cera & Sidener LLP, San Francisco, CA, Craig L. Briskin, Goodkind, Labaton, Rudoff & Sucharow, LLP, New York, NY, Kenneth Wexler, The Wexler Firm, Chicago, IL, Mark J. Conway, Dunmore, PA, for Plaintiffs.

Charles J. Phillips, Leisawitz Heller Abramowitch Phillips, P.C., Wyomissing, PA, J. Thomas Rosch, Joshua N. Holian, Karen E. Silverman, Latham & Watkins, San Francisco, CA, Jack M. Stover, Buchanan Ingersoll, Harrisburg, PA, Matthew B. Mock, Timothy B. Hardwicke, Latham & Watkins, Patrick J. Ahern, Baker & McKenzie, Chicago, IL, Jackson N. Steele, Hamilton Gaskins Fay & Moon PLLC, Charlotte, NC, Christopher M. Curran, White & Case, LLP, Julia E. McEvoy, Washington, DC, for Defendants.

MEMORANDUM

VANASKIE, Chief Judge.

In the wake of an announcement by the United States Department of Justice that it was pursuing an action to enjoin a merger in the self-adhesive labelstock industry and was undertaking a grand jury investigation into the competitive practices in that industry, Plaintiffs, seeking to represent a nationwide class of self-adhesive labelstock purchasers, brought this action asserting a conspiracy among self-adhesive labelstock producers to fix prices in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The named Defendants are Avery Dennison Corporation ("Avery"), the largest producer of self-adhesive labelstock ("SAL") in the United States; Morgan Adhesives Company ("MACtac"), the third largest SAL producer in the United States; Bemis Company ("Bemis"), the parent of MACtac; Raflatac, Inc., a wholly-owned subsidiary of UPM-Kymmene and the second largest SAL producer in the United States; and UPM-Kymmene, a Finnish corporation and a major producer of various types of paper used to produce labelstock. Presently pending in this matter is the Rule 12(b)(6) motion to dismiss of Defendants Bemis and MACtac, who assert that Plaintiffs have failed to allege facts from which their involvement in the purported conspiracy may be inferred. Because I find to be without merit the movants' contention that antitrust actions such as this one are governed by a heightened pleading standard, and that Plaintiffs have averred sufficient bases for inferring movants' knowing participation in a conspiracy to restrain trade, the motion to dismiss will be denied.

I. BACKGROUND

The product at issue in this case is used to make self-adhesive, or pressure-sensitive, labels. As described in the Amended and Consolidated Class Action Complaint:

Self-adhesive labelstock is used to create labels for a number of different products and uses, including labels for monitoring the flow of goods through production and distribution, price labels, product information labels, ticket labels, electronic data processing printing labels, functional and security labels and promotional labels for the food and beverage industry, non-food consumer goods industry, the health and beauty industry and the pharmaceutical industry.

* * * * * *

Self-adhesive labelstock generally consists of four elements: a face material, which may include paper, metal foil, plastic film or fabric; an adhesive, which may be permanent or removable and which fixes the label to the surface; a silicon layer or release coating, which allows an easy release of the face material from the base material; and a base or backing material, to protect the adhesive against premature contact with other surfaces, and which can also serve as the carrier for supporting and dispensing individual labels. When the products are to be used, the release coating and protective backing are removed, exposing the adhesive, and the label or other face material is pressed or rolled into place.

(Amended Complaint, ¶¶ 37, 40.)

Plaintiffs allege that "Defendants are by far the largest producers in the self-adhesive labelstock market in the United States, and combined, they control 60-80% of the worldwide market and over 70% of the North American market." (Id., ¶ 45.) Avery, the largest labelstock producer in the United States, is also UPM-Kymmene's largest outside customer of label papers. (Id., ¶ 20.) UPM-Kymmene participates in the SAL industry through its Raflatac Group. (Id.) Raflatac, Inc., a Texas corporation, is UPM-Kymmene's wholly-owned subsidiary participating in the North American self-adhesive labelstock market. (Id. at ¶ 19.)

Plaintiffs aver that before the expansion of UPM-Kymmene into the relevant market in North America, MACtac (Bemis' wholly-owned subsidiary) and Avery had elected not to compete for customers. (Id., ¶ 48.)¹ Plaintiffs further aver that a decision on the part of MACtac to refrain from competition with Avery would be contrary to its economic self-interest in light of newly developed and considerable excess production capacity. (Id., ¶ 49.) Plaintiffs assert that as a result of the forbearance from competition by the largest SAL producers, "their respective market shares remained relatively stable and so did the prices of labelstock...." (Id., ¶ 48.) Plaintiffs further maintain that the entry of UPM-Kymmene into the North American market, notwithstanding the existence of considerable excess capacity, indicates that the largest producers had deliberately refrained from competition and that "prices were being set at supracompetitive levels...." (Id., ¶ 50.) According to Plaintiffs, UPM-Kymmene, through its wholly-owned subsidiary, Raflatac, made a successful entry into the North American market by undercutting prices by 10% or more. (Id., ¶ 50.)

The objective of this aggressive price competition was to have Raflatac acquire a 20% share of the North American market. (Id., ¶ 53.) Avery, the largest outside purchaser of label paper from UPM-Kymmene, "accused UPM-Kymmene of `destroying the market.'" (Id., ¶ 54.) Plaintiffs assert that, as a result, meetings were conducted between UPM-Kymmene and Avery "to discuss containing the level of price competition between them." (Id., ¶ 55.) The meetings resulted in an understanding that UPM-Kymmene would acquire MACtac in order to attain its goal of a 20% market share, while at the same time refraining from competing with Avery on price. (Id., ¶¶ 55-56.)

UPM-Kymmene and Bemis subsequently entered into an agreement for UPM-Kymmene to acquire MACtac for $420 million. Plaintiffs allege that the sale price was half the amount that Bemis had rejected for MACtac just two years earlier. (Id., ¶ 47.) Plaintiffs further allege that "simultaneous with Bemis' agreement to sell its pressure sensitive labels business to UPM-Kymmene, UPM-Kymmene agreed to sell a European flexible packaging entity to Bemis on favorable terms, thus enabling Bemis to compensate for the loss of its sensitive labels business in North America by doubling its market share of its flexible packaging business in Europe." (Id., ¶ 58.) According to Plaintiffs:

Bemis was not just an innocent third party who was merely attempting to sell a business to UPM-Kymmene. In fact, evidence suggests that Bemis and MACtac knew about UPM-Kymmene's agreement with Avery to refrain from future price competition. Prior to the attempted closing of the sale, MACtac's CEO, who had been selected by UPM-Kymmene to head its North American labelstock business after the transaction, stated that the transaction should bring pricing `discipline' to UPM-Kymmene, a statement which makes no sense in the absence of Bemis/MACtac's awareness of UPM-Kymmene's collusive agreement with Avery to exercise price discipline.

(Id., ¶ 59.)

As noted above, the Department of Justice took action to enjoin the sale of MACtac. In a decision dated July 25, 2003, Judge Zagel of the Northern District of Illinois concluded that there was a probability that the transaction would substantially lessen competition in that it was "probable that price competition will be diminished if the merger goes forward." United States v. UPM-Kymmene Oyj, No. 03-C-2528, 2003 WL 21781902, at *12. (N.D.Ill. July 25, 2003).

While the action to enjoin the acquisition of MACtac was pending in the Northern District of Illinois, Scranton Labels, Inc. and a number of other self-adhesive labelstock purchasers commenced antitrust actions against Defendants in this and various other district courts throughout the nation. In total, eleven separate actions were brought. On November 5, 2003, the Panel for Multi-District Litigation consolidated the actions in this Court for pretrial purposes. On February 16, 2004, Plaintiffs filed the Amended and Consolidated Class Action Complaint. On March 31, 2004, Bemis and MACtac moved for dismissal from this action, while the remaining Defendants answered the amended pleading. Oral argument on the motion to dismiss was held on January 25, 2005. The matter is ripe for disposition.

II. DISCUSSION

Plaintiffs assert that Defendants and unnamed co-conspirators "engaged in a continuing agreement, understanding and conspiracy in restraint of trade to artificially raise, fix, maintain or...