Parallel Texts: Tacit Collusion Still Legal

Although it cited but a single case, a Seventh Circuit panel exhaustively addressed the crucial antitrust standard for examining parallel conduct in its April 9, 2015 affirmance of a defense summary judgment in In re: Text Messaging Antitrust Litigation.1  Judge Richard Posner authored the unanimous opinion in this class action alleging a price-fixing conspiracy involving pay-per-use text messages – an opinion that was expressly intended to “help lawyers understand the risks of invoking ‘collusion’ without being precise about what they mean.”2


Between 2005 and 2008, each of the four major wireless network providers (which collectively dominated the text messaging market) increased the prices charged to send or receive per-use text messages (i.e., those not purchased in a bulk package) from as low as 2 cents to 20 cents.3  Congressional and Department of Justice Antitrust Division investigations followed,4  as did numerous class action lawsuits alleging that the companies had conspired to increase their text message prices. Those lawsuits were consolidated in 2009 in a multidistrict litigation in the U.S. District Court for the Northern District of Illinois.5

In 2010, the district court denied a motion to dismiss an amended consolidated complaint,6  and the Seventh Circuit allowed an interlocutory appeal. The appeal was of particular interest to the antitrust bar because previously the Seventh Circuit had “only twice discussed the application of [the Supreme Court’s pleading standard in] Twombly7  to antitrust violations, and in both cases only in passing.”8  Judge Posner wrote the opinion, affirming the lower court’s ruling on the ground that, consistent with Twombly, plaintiffs had stated a “plausible” conspiracy claim. Judge Posner noted that many of the allegations of the complaint indeed were both consistent with a possible conspiracy as well as with parallel behavior undertaken independently, but allowed the case to go forward, observing that the plaintiffs may find in discovery “the smoking gun or … additional circumstantial evidence that further tilts the balance in favor of liability.”9

There followed three years of discovery, after which the district court granted summary judgment in favor of the defendants.10  Plaintiffs appealed.

The Seventh Circuit Opinion

Judge Posner took the opportunity on his second review of the case to provide a thorough guide to the differences between consciously parallel and collusive conduct in a Sherman Act Section 1 conspiracy claim. The decision offered hypotheticals, behavioral economics, and an argument in favor of keeping tacit collusion legal despite the conflicting view of a noted antitrust scholar (Louis Kaplow). The decision provides a robust defense of companies mirroring their competitors’ price increases. It makes plain that, absent an extraordinary set of parallel actions that are absolutely inexplicable absent collusion or a smoking gun admission of collusion, proving a conspiracy case in the Seventh Circuit will be extremely difficult.

Judge Posner began by quoting extensively from his earlier decision in the case, stressing the reasons he had discerned a “plausible” conspiracy at the pleading stage:

we pointed to the small number of leading firms in the text messaging market, which would facilitate concealment of an agreement to fix prices; to the alleged exchanges of price information, orchestrated by the firms’ trade association; to the seeming anomaly of a price increase in the face of falling costs; and to the allegation of a sudden simplification of pricing structures followed very quickly by uniform price increases.11

He noted that many of these allegations could have naturally resulted from market forces pushing the competitors to independently coordinate their pricing “without an actual agreement to do so” – permissible “conscious parallelism” (in legal parlance), also called “tacit collusion” (in the language of economists). The “challenge” faced by “the plaintiffs in discovery was thus to find evidence that the defendants had colluded expressly....”12  The Seventh Circuit Panel failed to find such evidence.

The purported “smoking gun” evidence plaintiffs offered – emails between two employees of one of the companies characterizing the company’s price move as “colusive [sic]” – did not demonstrate a “conspiracy among the carriers,” according to the Seventh Circuit.13  The evidence actually pointed only to lawful “tacit collusion.” The argument that the emails amounted to an improper agreement, according to Judge Posner, demonstrated plaintiffs’ counsel’s “failure to understand the fundamental distinction between express and tacit collusion. Express collusion violates antitrust law; tacit collusion does not.”14

Judge Posner then turned to Professor Kaplow’s argument that tacit collusion should be “deemed a violation of the Sherman Act.”15  That standard, according to Judge Posner, would provide “perverse” incentives to market competitors and potential competitors. It would turn antitrust law into a “scheme resembling public utility price regulation, now largely abolished.”16

The “problem” that antitrust plaintiffs find is that market behavior arising from permissible tacit collusion can also arise from impermissible express collusion. Circumstantial evidence of express collusion, Judge Posner continued, “might be a decline in the market shares of the leading firms in a market;” “inflexibility of the market leaders’ market shares over time;” “a surge in nonprice competition;” and “a high elasticity of demand.” However, “these phenomena are consistent with tacit as well as express collusion; their absence would tend to negate both, but their presence would not point unerringly to express collusion.”17

Plaintiffs had argued that the four wireless carrier defendants, which comprised 90 percent of the text messaging market, only raised their text message pricing because they had agreed to act in concert. If they did not conspire, Plaintiffs’ counsel contended, customers would have signed up with any competitor that did not raise its prices.18  Judge Posner offered six reasons why the structure of the market, and the incentives each carrier faced, made it just as likely that the defendants had all raised prices independently.19  These reasons ranged from how a “rational profit-maximizing seller” views losing customers (it cares far more about “its total revenues relative to its total costs”); to the fact that the companies might have wanted to raise individual text message pricing to push customers into buying text messages in bulk (“bundled” plans). If the carriers were going to conspire to fix prices, according to Judge Posner, they would have done so in the much larger bundled plan market.

Further, Judge Posner found factual inconsistencies in plaintiffs’ argument. The companies did not raise their prices simultaneously. In fact, one carrier kept its price lower than the others for several months. More significantly, that carrier did not gain a “significant number of customers” due to its lower prices during that period.20  Ultimately, the panel’s decision concluded, plaintiffs did not offer enough circumstantial evidence to infer an agreement to raise prices. The circumstantial evidence plaintiffs offered either contradicted the likelihood of collusion or was consistent with parallel behavior.

The court also discredited plaintiffs’ allegations that defendants had the opportunity to, and did, exchange pricing information at trade group meetings. While opportunities for “senior leaders of the defendants to meet privately” at the trade group retreats “abounded,” two facts cut against plaintiffs’ contention: there were “substantial lags” in the “simultaneous price increase[s]” instated by defendants; and there was “no evidence of what information was exchanged at these meetings.”21  As such, there was no basis for an “inference that they were using the meetings to plot” price increases.22

The Decision in Perspective

The Seventh Circuit’s decision is a clean bookend to its 2010 decision allowing the case to proceed. In 2010, applying Twombly specifically for the first time to an antitrust conspiracy claim, the appellate court found enough “parallel-plus” allegations to make collusion “plausible.” At the end of the day, however, with plaintiffs having not discovered sufficient pre-trial evidence tending to prove conspiracy, the Seventh Circuit failed to find genuine issues of fact to allow the case to proceed to trial. Judge Posner was explicit as to the failings of the pre-trial evidence: it is “difficult to prove illegal collusion without witnesses to an agreement.”23  Many of the hallmarks of collusive behavior, according to Judge Posner, are also consistent with independent conduct.24  And circumstantial evidence “consistent with an inference of collusion, but … equally consistent with independent parallel behavior” is not enough to survive summary judgment.25  Significantly, the panel hearing the case was unanimous in its decision despite including both Judge Posner, widely considered a conservative arbiter of antitrust theory, and Judge Diane Wood, who is generally viewed as a pro-enforcement antitrust judge.26

The Seventh Circuit panel emphasized that in a concentrated industry, courts should “expect competing firms to keep close track of each other’s pricing and other market behavior,” and to imitate it, rather than undermine it.27  While it may look like a possible antitrust conspiracy when companies in an oligopoly all adopt price increases, absent much more the claim will fail. Without a witness to an agreement, to defeat summary judgment antitrust plaintiffs will have to uncover behavior that is incompatible with tacit collusion. Conversely, defendants may have to retain experts who can offer rational economic explanations for seemingly damning, or at least problematic, evidence. The wireless carriers and their trade organization did that, and their arguments carried the day.

 1 In re: Text Messaging Antitrust Litig., No. 14-2301 (7th Cir. April 9, 2015), (“Slip Op.”). up
 2 Id. at 21. up
 3 Id. at 14. up
 4 Id. up
 5 Id. up
 6 See In re Text Messaging Antitrust Litig., No. 08 C 7082, 2010 WL 1782006 (N.D. Ill. April 30, 2010). up
 7 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). up
 8 In re Text Messaging Antitrust Litig., 630 F.3d 622, 626-27 (7th Cir. 2010). up
 9 Id. at 629. up
 10 See In re Text Messaging Antitrust Litig., No. 08 C 7082, 2014 WL 2106727 (N.D. Ill. May 19, 2014). up
 11 Slip Op. at 5. up
 12 Id. at 6-7. up
 13 Id. at 9. up
 14 Id. at 8.up
 15 Id. at 10. up
 16 Id. at 11. up
 17 Id. at 17. up
 18 Id. at 17. up
 19 Id. at 17-19. up
 20 Id. up
 21 Id. at 20-21. up
 22 Id. at 21. up
 23 Id. up
 24 Id. at 17. up
 25 Id. up
 26 The third member of the panel was Judge John Daniel Tinder. up
 27 Slip Op. at 17. up