The circumstantial evidence on which the Court in Interstate Circuit based its inference of agreement included, in addition to the distributors’ uniform parallel behavior in accepting Interstate Circuit’s contract demands, several plus factors: (1) universal distributor doubling of minimum later-run-exhibition prices was a “radical departure from the previous business practices of the industry”; (2) the lack of “any persuasive explanation, other than agreed concert of action,” for the distributors’ parallel actions; (3) Interstate Circuit’s contract demands were made in a letter sent simultaneously to all the film distributors, which included all the distributors as co-addressees, so that “from the beginning each of the distributors knew that the proposals were under consideration by the others”; and (4) while the distributors may have had a joint interest in increasing later-run prices, complying with Interstate Circuit’s contract demands was contrary to each film distributor’s individual economic interests, absent assurance that all distributors would similarly comply. “Each was aware that all were in active competition and that without substantially unanimous action . . . there was risk of a substantial loss of the business and good will of the subsequent-run and independent exhibitors.”
Based on this circumstantial evidence, the Court concluded that “[i]t taxes credulity to believe” the distributors would “have accepted and put into operation with substantial unanimity such far-reaching changes in their business methods without some understanding that all were to join, and we reject as beyond the range of probability that it was the result of mere chance.”
I argue in this article that, contrary to the Court’s reasoning, the plus factors identified in Interstate Circuit cannot be applied to infer agreement because what was involved was an alleged hub-and-spoke conspiracy—not a purely horizontal conspiracy. To properly determine whether such circumstantial evidence can be used to infer agreement in the context of a hub-and-spoke conspiracy, one must explicitly consider the vertical relationship between the hub and spokes and exclude the possibility that parallel spoke behavior is “nothing more than a series of separate, similar vertical agreements.”
Determining whether a fact pattern should be considered circumstantial evidence of a horizontal agreement or merely a series of purely vertical agreements is often difficult. As the Ninth Circuit perceptively observed in In re Musical Instruments & Equipment Antitrust Litigation (Guitar Center), in hub-and-spoke cases, “the line between horizontal and vertical restraints can blur.” This article clarifies how this line should be drawn by focusing on evidence of the key distinguishing economic condition—the hub’s ability to unilaterally enforce its vertical contract demands. Inference of an agreement must refute the possibility that the hub’s vertical contract enforcement sanction is sufficient, by itself, to obtain universal spoke compliance without any agreement among the spokes.
To illustrate, consider a simple vertical contract restraints case, such as the resale price maintenance contracts that were the subject of Leegin. One obviously cannot infer a horizontal agreement among the retailers to accept Leegin’s demand for resale price maintenance solely based on parallel retailer acceptance of the demand, combined with the circumstantial “plus factors” that (1) Leegin communicated its contract demand simultaneously to all retailers, (2) each retailer’s decision to stop discounting was a major change from its previous practices, and (3) each retailer’s acceptance of the Leegin contract demand to stop discounting appears contrary to the retailer’s selfinterests, absent all retailers similarly agreeing to stop discounting.
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