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The case of the bad egg: 3rd Circuit revives $111 million antitrust suit

 |  February 6, 2018

Posted by Reuters

By Alison Frankel

The case of the bad egg: 3rd Circuit revives $111 million antitrust suit

Kraft, Kellogg, General Mills and Nestle use a lot of “egg products” – egg yolks and whites removed from their shells and pasteurized industrially – in the food they manufacture. So, according to Kraft and the other food companies, when some of the companies that sell eggs supposedly hatched a scheme to drive up egg prices, the food companies were forced to pay more for the processed egg products they rely on. A lot more: In a price-fixing suit that’s part of consolidated multidistrict litigation in Philadelphia federal court over manipulation of the egg market, Kraft and its co-plaintiffs claim damages of more than $111 million.

Their theory seemed basic – if the eggs that went into processed egg products were illegally priced, then the egg products were also price-fixed – but faced two potential problems. The first was the U.S. Supreme Court’s 1977 decision in Illinois Brick v. Illinois, which holds that, in general, purchasers at the end of a tainted supply chain can’t bring antitrust claims against antitrust conspirators because it’s too hard for courts to figure out what portion of the product’s ultimate cost is attributable to illegal conduct. The food companies’ lawyers at Jenner & Block framed the case to define Kraft and the other plaintiffs not as indirect egg purchasers but as direct purchasers of egg products. They named as defendants only egg product sellers that were supposedly part of the conspiracy to boost the price of eggs by reducing the number of egg-laying hens.

The second obstacle was a problem of facts more than law. The defendants didn’t just use their own allegedly overpriced eggs when they made the egg products Kraft and the other food companies purchased. They also used eggs from egg companies that were not part of the supposed price-fixing conspiracy. In fact, according to defense lawyers from Weil Gotshal & Manges and Stinson Leonard Street, the defendant that sold the highest volume of processed egg products to Kraft and the other food companies annually used hundreds of millions of pounds of eggs purchased from non-conspirators.

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