Defendants are “basic” manufacturers of crop protection products (also commonly known as agricultural “pesticides”). Both develop, patent, and register the “active” chemical ingredient within crop protection products that kills or controls the targeted pest. Basic manufacturers obtain exclusive rights to sell crop protection products containing those active ingredients for a period of years. Once patent and regulatory exclusivity periods expire, generic manufacturers, who typically do not develop their own active ingredients, may sell products with the same active ingredients, which can lead to dramatic price reductions. According to the complaint, 90 percent of all sales of crop-protection products by manufacturers to farmers and/or independent retailers are handled by a small group of large distributors, and scale and range of services impose significant entry barriers.
Plaintiffs’ complaint alleges that Defendants’ “loyalty programs” function as unlawful exclusionary schemes through which Defendants have foreclosed a substantial portion of the relevant markets. Defendants allegedly offer each distributor a “complex set of incentive payments” (marketed by Defendants as a “rebate” for “loyalty”) based on its purchases of branded crop-protection productions, on the condition that the distributor limits its purchases of comparable generic products to a very small, set percentage share. Distributors are required to meet high loyalty thresholds with correspondingly high consequences for missing a loyalty threshold. This allegedly deters distributors from selling significant volumes of competing, lower-priced generic crop protection products, which Plaintiffs allege results in less innovation, fewer consumer choices, and higher prices for farmers. Defendants purportedly threaten and retaliate against disloyal distributors.
In their respective motions to dismiss, Syngenta and Corteva argue, among other things, that their exclusive dealing arrangements are legal because distributors’ participation in the arrangements is voluntary, and because Plaintiffs do not allege that the loyalty programs fail the “price-cost test,” under which a plaintiff must prove that the price charged is below an appropriate measure of the defendant’s cost. Defendants also dispute Plaintiffs’ definition of the relevant markets, which correspond with the different pesticide active ingredients, arguing that the market definitions impermissibly exclude substitutes. Plaintiffs respond that coercion is not required for an exclusive dealing arrangement to be illegal if the arrangement has the practical effect of tying up customers. Plaintiffs further argue that they have sufficiently alleged coercion, nonetheless. Plaintiffs also contend that the “price-cost test” does not apply because they are not arguing the “loyalty program” payments made to Defendants are used to cut Defendants’ prices to predatory levels, but rather, that the payments are made to secure de facto exclusive dealing arrangements. There has been no ruling yet on the motions to dismiss.
Plaintiff States allege violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, Section 3 of the Clayton Act, 15 U.S.C. § 14, and various state antitrust and unfair competition statutes, while the FTC alleges violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and Section 3 of the Clayton Act.
While the lawsuit has been brought by a coalition of the FTC and state attorneys general, the enforcers are seeking different remedies. Following the Supreme Court’s ruling in AMG Capital Management, LLC, et al. v. FTC, 141 S. Ct. 1341 (2021), which held that Section 13(b) of the FTC Act does not authorize the FTC to obtain monetary remedies such as restitution or disgorgement, the FTC may only seek injunctive relief. Meanwhile, the States—California, Colorado, Illinois, Indiana, Iowa, Minnesota, Nebraska, Oregon, Tennessee, Texas, Washington, and Wisconsin—are seeking monetary remedies on behalf of consumers pursuant to their respective statutes, reflecting a growing trend where state antitrust enforcers seek monetary recovery that is no longer available to the FTC.
Currently, the ability of state attorneys general to seek federal disgorgement is also uncertain as courts consider whether and how states may seek such remedies following AMG. In 2021, the Southern District of New York upheld the right of state attorneys general to seek disgorgement on a national level from antitrust defendants in FTC et al. v. Vyera Pharmaceuticals (S.D.N.Y.). The Vyera court relied on an interpretation of the equitable powers held by New York’s attorney general—which state courts had previously held include powers to seek disgorgement—when enforcing the state’s laws, including the state antitrust statute. In contrast, the court in In Re: Generic Pharmaceuticals Pricing Antitrust Litigation (E.D. Pa) tossed the federal disgorgement claims brought by forty-seven attorneys general because their claims were asserted under Section 16 of Clayton Act, which the Generics court ruled does not authorize such monetary relief. The Syngenta court will likely have to take a position on open questions concerning the ability of states to seek nationwide disgorgement in federal court, making this case an important one to watch.