In re Chocolate Confectionary Antitrust Litigation (602 F. Supp. 2d 538, 2009)

MEMORANDUM

CHRISTOPHER C. CONNER, District Judge.

This is a multidistrict antitrust matter brought under Section 1 of the Sherman Act, 15 U.S.C. § 1, and various state antitrust and consumer protection statutes. Plaintiffs allege that defendants conspired to fix the prices of chocolate confectionary products in the United States. Defendants, who control approximately 75% of the American market for chocolate candy, allegedly entered pricing agreements, resulting in coordinated price increases on three distinct occasions between 2002 and 2007. Defendants argue that the amended complaints fail to raise a plausible inference of an agreement to fix prices as required by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Defendants have filed motions to dismiss (Docs. 464, 469, 477) the complaints under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Defendants Cadbury pic, Cadbury Holdings, Mars Canada, Nestlé S.A., and Nes-tlé Canada have also filed motions to dismiss (Docs. 466, 471, 473, 474) under Rule 12(b)(2) for lack of in personam jurisdiction. These defendants contend that they do not sell chocolate candy in the United States, maintain no facilities inside the U.S., and have no pricing authority in the U.S. chocolate market.

For the reasons that follow, the Rule 12(b)(2) motions will be deferred during a period of jurisdictional discovery. The Rule 12(b)(6) motions filed by the remaining defendants will be denied except with respect to certain common law and consumer protection claims. The Rule 12(b)(6) motions filed by Cadbury pic, Cad-bury Holdings, Mars Canada, Nestlé S.A. and Nestlé Canada will be deferred until resolution of their jurisdictional challenges.

I. Factual Background

Defendants are members of four multinational corporate families that produce chocolate confectionary products for markets around the globe. Plaintiffs allege that from December 2002 to April 2007 defendants conspired to fix prices in the American chocolate candy market, as evidenced by three synchronized price increases that occurred during the early- and mid-2000s. In August 2008, three putative subclasses of plaintiffs and one group of individual plaintiffs filed consolidated amended complaints against all defendants.

A. Defendants’ Respective Corporate Structures and Market Shares

Defendant The Hershey Company (hereinafter “Hershey Global”) dominates the American chocolate confectionary market, supplying more than 40% of the chocolate candy sold in the U.S. (Doc. 418 ¶ 19; Doc. 420 ¶ 80; Doc. 448 ¶ 31.) Defendant Hershey Canada, a wholly owned subsidiary of Hershey Global, distributes Hershey products in Canada. (Doc. 418 ¶ 20; Doc. 420 ¶ 50; Doc. 448 ¶ 28.) Hershey Global has integrated its American and Canadian operations, and Hershey North America, a division of Hershey Global, oversees sales and marketing operations in both countries. (Doc. 418 ¶ 20; Doc. 448 ¶ 30.)

Defendant Mars, Inc. (“Mars Global”) possesses a 26% share of the American chocolate candy market. (Doc. 418 ¶ 22; Doc. 420 ¶ 80; Doc. 448 ¶ 38.) In the U.S. and Canada, Mars Global operates through two subsidiaries: defendants Mars Snack-food U.S. LLC (“Mars Snackfood”) and Mars Canada, Inc. (“Mars Canada”). (Doc. 418 ¶¶ 23-24; Doc. 420 ¶¶ 53-54; Doc. 448 ¶¶ 36-38.) These subsidiaries collectively form Mars Global’s North America division (Doc. 418 ¶¶ 23-24; Doc. 420 ¶¶ 53-54; Doc. 448 ¶¶ 36-38.)

Defendant Nestlé S.A. is the world’s largest food and beverage corporation and controls 8% of the American chocolate candy market. (Doc. 418 ¶ 26; Doc. 420 ¶ 80; Doc. 448 ¶ 47.) Nestlé S.A., based in Vev-ey, Switzerland, does not operate directly in either the United States or Canada. (Doc. 418 ¶ 26; Doc. 420 ¶ 56; Doc. 422 1110; Doc. 448 ¶ 42.) Rather, its subsidiaries, defendants Nestlé U.S.A., Inc. (“Nestlé U.S.A.”) and Nestlé Canada, Inc. (“Nestlé Canada”), market and distribute Nestlé products in the nations for which they are named. (Doc. 418 ¶¶ 27-28; Doc. 420 ¶¶ 57-58; Doc. 422 ¶¶ 9, 11; Doc. 448 ¶¶ 43-44.) Both Nestlé U.S.A. and Nestlé Canada are members of Nestlé S.A.’s Zone Americas division. (Doc. 418 ¶ 26; Doc. 448 ¶ 46.)

Defendant Cadbury pic is also a titan in worldwide chocolate markets. Cadbury pic is the corporate parent of defendant Cadbury Holdings Ltd. (“Cadbury Holdings”) and defendant Cadbury Adams Canada, Inc. (“Cadbury Canada”). (Doc. 418 ¶¶ 30-32; Doc. 420 ¶¶ 60-62; Doc. 422 ¶ 13-14; Doc. 448 ¶ 51-53.) Cadbury Canada produces and distributes Cadbury products in Canada. (Doc. 418 ¶ 32; Doc. 420 ¶ 62; Doc. 422 ¶ 14; Doe. 448 ¶ 53.) In the U.S., Hershey Global distributes Cadbury-branded products under license agreements with Cadbury Holdings and Cadbury pic. (Doc. 418 ¶¶ 30, 89; Doc. 420 ¶¶ 61, 82; Doc. 422 ¶¶ 13, 61; Doc. 448 ¶¶ 51,107.g.) The amended complaints contain few other details about the role that Cadbury pic, Cadbury Holdings, and Cad-bury Canada play in the American market.

B. Integration of the American and Canadian Markets for Chocolate Candy

Defendants collectively control approximately 75% of the chocolate candy market in the U.S. and 64% in Canada. (Doc. 418 ¶ 52; Doc. 420 ¶80; Doc. 422 ¶35; Doc. 448 ¶ 107.a.) Plaintiffs contend that these markets are tightly interwoven and consist of homogenous, interchangeable chocolate candy products. (Doc. 418 ¶ 52; Doc. 420 ¶ 80; Doc. 422 ¶ 35; Doc. 448 1fl07.a.) They bolster this assertion with trade statistics that allegedly demonstrate synergism between the markets. For example, in 2003 the United States imported approximately $1.8 billion in confectionary products, 40% of which consisted of chocolate candy. (Doc. 418 ¶ 49.) According to the amended complaints, much of this chocolate originated in Canada, where defendants manufactured and packaged it for sale in the United States. (Doc. 418 ¶¶ 49, 53; Doc. 422 ¶40; Doc. 448 ¶ 107.h) The U.S. also ships chocolate products to Canada. American manufacturers purportedly supply approximately 45% of Canada’s chocolate candy imports. (Doc. 420 ¶ 90; Doc. 422 ¶ 40.)

Defendants have allegedly integrated their American and Canadian operations. Plaintiffs assert that defendants have developed manufacturing and distribution systems designed to serve consumers across international borders. Defendants supply similar chocolate products to both markets. In addition, defendants have created North American divisions that oversee U.S. and Canadian operations. (Doc. 418 ¶¶ 82-83; Doc. 420 ¶92; Doc. 422 ¶¶ 85-89; Doc. 448 ¶ 107.b.)

According to the pleadings, Hershey Global has instituted a single corporate division to coordinate all North American sales and marketing, and the company aggregates operations in the United States, Canada, Mexico, and Brazil for purposes of its reporting obligations under the Securities Exchange Act of 1934. (Doc. 418 ¶¶ 83-84; Doc. 420 ¶92; Doc. 422 ¶85; Doc. 448 ¶ 107.b.) Hershey allegedly groups these nations based upon “similar economic characteristics, and similar products and services, production processes, types of consumers, distribution methods, and the similar nature of the regulatory environment in each location.” (Doc. 418 ¶ 84.) Similarly, Mars Canada manufactures and packages chocolate candy products in Canada for sale in the United States. (Doc. 418 ¶ 53; Doc. 420 ¶ 53; Doc. 422 ¶ 21; Doc. 448 ¶¶ 37, 39.) Either Mars Canada or another member of Mars Global’s corporate family purportedly manages the sale of these products. (Doc. 418 ¶ 22, 24, 53; Doc. 420 ¶ 52-53; Doc. 422 ¶ 20-21; Doc. 448 ¶¶ 37, 39.) Nestlé S.A., Cadbury pic, and Cadbury Holdings likewise fuse the United States and Canada for purposes of corporate operations. Nestlé’s Zone Americas is the company’s leading sales territory and includes the U.S., Canada, Mexico, and Central and South America. (Doc. 418 ¶¶ 86-87; Doc. 420 ¶ 92; Doc. 422 ¶ 88; Doc. 448 ¶ 107.b.) And the president of Cadbury’s Americas Confectionery division possesses ultimate responsibility for the daily management and operation of the Cadbury chocolate business in both the United States and Canada. (Doc. 418 ¶¶ 86-87; Doc. 420 ¶ 92; Doc. 422 ¶87; Doc. 448 ¶ 107.b.)

Licensing agreements among defendants further contribute to the coalescence of these markets. Cadbury Holdings and Hershey Global have executed asset purchase and trademark licensing agreements under which Hershey possesses an exclusive license to manufacture and market Cadbury-branded products in the United States. (Doc. 418 ¶¶ 30, 89; Doc. 420 ¶¶ 61, 82; Doc. 422 ¶¶13, 61; Doc. 448 ¶¶ 51, 107.g.) Brands subject to the license include York Peppermint Patties ™, Mounds®, and Almond Joy®. (Doc. 418 ¶ 30; Doc. 420 ¶ 61; Doc. 422 ¶ 13; Doc. 448 ¶ 51.) Hershey also has a similar licensing arrangement for certain Nestlé-branded products including Kih-Kat® and Rolo®. (Doc. 418 ¶ 90; Doc. 420 ¶ 82; Doc. 422 ¶ 62; Doc. 448 ¶ 107.g.) Under the Hershey-Cadbury agreements, Hershey Global remits quarterly royalty payments to Cadbury pic and Cadbury Holdings, which may audit Hershey’s accounting records, observe its manufacturing processes, and test its products for quality. (Doc. 478-6 at 3, 13-14; Doc. 478-8 at 10, 16-18; Doc. 418 ¶¶ 89-90; Doc. 420 ¶ 84.) The agreements require personnel from both companies to meet on a quarterly basis to discuss marketing, promotion, and development of Cadbury-branded products. (Doc. 478-6 at 16; Doc. 478-8 at 18-19.)

In contrast to monolithic supply points, demand in the American and Canadian markets for chocolate candy is diffuse. (Doc. 418 ¶ 55; Doc. 420 ¶ 80; Doc. 422 ¶ 36; Doc. 448 ¶¶ 65, 103.) Direct buyers include supermarkets, convenience stores, retail chains, and other wholesale customers, none of which possesses a dominant share of the demand market. (Doc. 418 ¶ 55; Doc. 420 ¶ 80; Doc. 422 ¶ 36; Doc. 448 ¶ 103.) These disparate purchasers form the markets’ predominant distribution channels with no single buyer capable of exercising power over defendants’ pricing structures. (Doc. 418 ¶ 55; Doc. 420 ¶ 80; Doc. 422 ¶ 36; Doc. 448 ¶ 104.)

Material to the antitrust claims, the supply market for chocolate candy features formidable entry barriers. (Doc. 418 ¶ 56; Doc. 420 ¶ 89; Doc. 422 ¶ 42; Doc. 448 ¶ 63.) Confectionery is a highly technical business, requiring significant capital outlay for manufacturing facilities, engineering expertise, and distribution channels to compete on a market-wide scale. (Doc. 418 ¶ 56; Doc. 420 ¶ 89; Doc. 422 ¶ 42; Doc. 448 ¶ 63.) New entrants must also invest considerable sums to promote new products and build brand loyalty among consumers presented with a wide selection of interchangeable goods. (Doc. 418 ¶¶ 55-57; Doc. 420 ¶89; Doc. 422 ¶¶ SO-SO; Doc. 448 ¶ 64.) In contrast, an established market player can expand production at will. (Doc. 422 ¶ 43; Doc. 448 ¶ 66.) Market leaders, including defendants, typically operate at less than full capacity, giving them the ability to compete against one another by increasing output and by launching new products. (Doc. 422 IT 43; Doc. 448 ¶ 66.)

C. Price Increases in the U.S. Chocolate Confectionary Market

Plaintiffs contend that this cross-national market garrisoned within high entry barriers facilitated defendants’ collusive pricing. From the mid-1990s until 2002, chocolate candy prices in the United States remained stable. (Doc. 418 ¶ 59; Doc. 448 ¶ 95.) None of the defendants implemented permanent price increases during this period because a unilateral increase would have caused a decline in sales as consumers purchased competitors’ products at lower prices. (Doc. 448 ¶ 95.) Hence, plaintiffs assert that no defendant could have raised prices without first confirming that other defendants would reciprocate the increase.

The first allegedly anticompetitive price jump occurred on December 9, 2002, when Mars instituted a 10.7% increase for its standard-size chocolate bars and a 22% increase on packages of six bars. (Doc. 418 ¶ 60; Doc. 420 ¶94.^ Doc. 422 ¶45; Doc. 448 ¶ 79.) Two days later, Hershey followed Mars’s lead, boosting prices by 10.7% for standard-size bars and 7.6% for six-packs. (Doc. 418 ¶ 61; Doc. 420 ¶ 94.a; Doc. 422 ¶ 46; Doc. 448 ¶ 80.) Another two days saw an upsurge of 10.3% for Nestlé’s standard-size bars. (Doc. 418 ¶ 62; Doc. 420 ¶ 94.a; Doc. 422 ¶ 47; Doc. 448 ¶ 81.) Defendants allegedly reaped extensive financial benefits from this initial price swell despite stable costs and stagnating demand. For example, in July 2003 Hershey Global reported second-quarter net profits of $71.5 million, an increase of $8.4 million compared with the same period for 2002. (Doc. 418 ¶¶ 80-81; Doc. 420 ¶ 102; Doc. 422 ¶ 48; Doc. 448 ¶ 98.) Representatives of Hershey Global publicly acknowledged that this growth in profits was attributable, in part, to the December 2002 price increase. (Doc. 418 ¶ 80; Doc. 422 ¶ 48; Doc. 448 ¶ 98.)

Prices climbed again on November 19, 2004, when Mars announced increases of between 2.9% and 15.6% on variously sized bags of chocolate candy. (Doc. 418 ¶ 65; Doc. 420 ¶ 94.b; Doc. 422 ¶ 49; Doc. 448 ¶ 82.) The next month, Hershey promulgated a 5.5% rise in the price of standard-size bars, which Mars followed with an identical increase. (Doc. 418 ¶¶ 65-66; Doc. 420 ¶ 94.b; Doc. 422 ¶¶ 49-50; Doc. 448 ¶¶ 83-84.) Hershey also raised prices for bags of chocolate candy between 2.5% and 7.6%. (Doc. 418 ¶ 66; Doc. 422 ¶ 50; Doc. 448 ¶ 84.) Prices for Nestlé standard-size bars and bags of chocolate candy grew by 5.7% the next week. (Doc. 418 ¶ 67; Doc. 420 ¶ 94.b; Doc. 422 ¶ 51; Doc. 448 ¶ 85.)

A third series of price increases commenced in the spring of 2007 with Mars again serving as bellwether. On March 23, 2007, Mars raised the prices of its standard-size and king-size bars by 5.3% and 4.5% respectively. (Doc. 418 ¶ 69; Doc. 420 ¶ 94.c; Doc. 422 ¶ 53; Doc. 448 ¶ 87.) Hershey joined Mars on April 4, raising standard-size bar prices by 5.2% and king-size bar prices by 4.5%. (Doc. 418 ¶ 70; Doc. 420 ¶ 94.c; Doc. 422 ¶ 54; Doc. 448 ¶ 88.) Nestlé completed the series the following day with price hikes of 5.4% on standard-size chocolate bars and 4.6% on king-size bars and six-packs. (Doc. 418 ¶ 71; Doc. 420 ¶ 94.c; Doc. 422 ¶ 55; Doc. 448 ¶ 89.)

Throughout the period of these increases, the cost of defendants’ raw materials remained stable, benefitting from relative calm in commodity markets as well as defendants’ investment in futures contracts as a hedge against price fluctuations. (Doc. 418 ¶¶ 59, 79; Doc. 420 ¶ 97; Doc. 422 ¶ 58; Doc. 448 ¶ 91.) Energy costs also remained stable, (Doc. 418 ¶ 79), but demand for chocolate candy products waned as consumers sought healthier snack options. (Doc. 418 ¶¶ 75, 80; Doc. 420 ¶ 91; Doc. 422 ¶57; Doc. 448 ¶ 96.)

D. Defendants’ Pricing Conduct in the Canadian Market

Plaintiffs contend that evidence of defendants’ price-fixing agreements in the Canadian chocolate confectionary market corroborates the conspiracy that allegedly occurred in the United States. In July 2007, Canadian antitrust officials commenced an investigation into alleged price fixing by Cadbury Canada, Hershey Canada, Mars Canada, and Nestlé Canada (hereinafter “the Canadian defendants”). The investigation purportedly revealed that Glenn Stevens (“Stevens”), president of non-defendant candy distributor IT-WAL, Inc., provided the catalyst for a Canadian price-fixing agreement by transmitting several letters to senior managers of the Canadian defendants. (Doc. 418 ¶ 100; Doc. 420 ¶ llO.c; Doc. 422 ¶82; Doc. 448 ¶ 113.) The recipients included Bob Leonidas (“Leonidas”), president and chief executive officer of Nestlé Canada, as well as executives of Cadbury Canada, Hershey Canada, and Mars Canada. (Doc. 418 ¶ 100; Doc. 420 ¶110.£ Doc. 422 ¶ 82; Doc. 448 ¶ 113.) The initial letter, entitled “TAKE ACTION NOW!!,” proposed that defendants reduce trade spending, which is the practice of providing promotional discounts and rebates to consumers:

At the ‘end of the day’ it is only the suppliers’ control and discipline of the trade spending that can restore functionality in the marketplace. The problem is completely out of control on the part of the suppliers. I am being forced to reexamine how we operate in the market and I am not sure it would be in the best interests of [Cadbury Canada, Hershey Canada, Mars Canada, and Neátlé Canada.]

I urge you to meet and take action before this chocolate bar ‘bubble bursts.’

(Doc. 173, Ex. E ¶ 5.7; Doc. 418 ¶ 100; Doc. 420 ¶ llO.f; Doc. 422 ¶ 83; Doc. 448 ¶ 113) (emphasis added.)

During the ensuing fifteen months, the Canadian defendants received more than twenty additional “Take Action Now” notices (hereinafter “TAN notices”) from Stevens- evidencing various facets of the alleged price-fixing conspiracy in the Canadian market. (Doc. 420 ¶ 110.h-.o; Doc. 448 ¶¶ 115-16.) An April 2002 TAN notice reflects that the Canadian defendants instituted audit procedures and hired third-party investigators to curtail retail discounting and agreed to “immediate termination” of buyers that failed to adhere to their trade spending policies. • (Doc. 173, Ex. E ¶ 5.10.) TAN notices dated December 2002 document that the Canadian defendants had undertaken “concerted and committed efforts to clean up the dysfunctional retail trade spending” in the Canadian market by reducing or eliminating 2-for-99