-
About NERA
Since 1961, NERA has provided unparalleled guidance on the most important market, legal, and regulatory questions of the day. Our work has shaped industries and policy around the world. Our field-leading experts and deep experience allows us to provide rigorous analysis, reliable expert testimony, and data-powered policy recommendations for the world’s leading law firms and corporations as well as regulators and governments. Our experience, integrity, and economic ingenuity mean you can depend on us in the face of your biggest economic and financial challenges.
3 January 2019/New York—On 17 December, after three hours of deliberation, a San Francisco jury rendered a complete verdict for the defense, ending a five-week federal antitrust class action trial. Defendants, Nongshim Co. Ltd., Nongshim America, Inc., Ottogi Company, Ltd., and Ottogi America, Inc., had been accused of price fixing.
The trial had some unusual features. Not only is it uncommon for an antitrust class action to go to trial, but this appears to be the only federal antitrust trial in which both direct and indirect purchaser classes of Plaintiffs proceeded through trial to verdict by a single jury.
The facts and allegations of the case were also unusual. The trial addressed allegations that a price fixing conspiracy in Korea had raised the price of ramen noodles manufactured and sold in Korea. Plaintiffs also claimed that the allegedly elevated prices in Korea had an impact on prices in the United States, even though there was no allegation of a separate conspiracy directed at the prices of ramen noodles sold in the United States.
The case originated from an investigation by the Korean Fair Trade Commission (KFTC). The KFTC ruled that Korean ramen manufacturers had conspired to fix prices and succeeded in raising prices to supracompetitive levels from 2001 through January 2010. It came to this conclusion notwithstanding two important features of the Korean market at that time: 1) de facto price controls by the government of Korea and 2) a market in which a single company held a market share of about 75%. The Supreme Court of Korea overturned the KFTC’s ruling. The Court found that the “follow-the-leader” pricing patterns the KFTC pointed to as evidence of a price fixing conspiracy were explained by the structure of the market and the government’s price controls. It ordered the repayment of all fines.
Nevertheless, classes of both direct and indirect purchasers pursued claims in the United States, which were consolidated in the Northern District of California. The remaining Defendants at trial were Korea-based units of Nongshim and Ottogi and their subsidiaries supplying the US markets. NERA was retained by Squire Patton Boggs on behalf of the Nongshim Defendants and by Gibson, Dunn & Crutcher LLP on behalf of the Ottogi Defendants. Economists and analysts at NERA undertook an extensive economic and econometric analysis of the Defendants’ prices and costs, analyzing markets in both Korea and the United States.
Dr. Alan Cox of NERA’s San Francisco office supervised the analysis and provided expert testimony at trial. He addressed two primary issues raised by both the direct and indirect purchasers. First, he addressed the issue of whether the economic evidence was consistent with the existence of a price fixing conspiracy in Korea. Second, assuming there had been a conspiracy, he analyzed whether such a supposed conspiracy had, or could have had, an impact on prices paid for ramen noodles in the United States.
On the first point, Dr. Cox told the jury that the overwhelming statistical and econometric evidence indicated that price changes in Korea were driven by changes in the costs of important inputs to making ramen, such as flour and palm oil. Moreover, the alleged conspirators did not have the necessary shared and aligned interests to establish and sustain a conspiracy. Furthermore, there was no evidence of the existence of an agreement of the sort necessary to maintain a lengthy conspiracy to fix the prices of a wide variety of products. Finally, he pointed out that the “follow-the-leader” pricing behavior was not only common in competitive markets but reinforced in the ramen market in Korea by the concentrated oligopolistic market structure and government price controls. In these market conditions, such behavior was consistent with market participants acting independently in their own self-interest. Dr. Cox also pointed out that the evidence did not support the presence of key elements of a conspiracy, such as effective mechanisms for monitoring and enforcement.
Dr. Cox also testified that, even if there had been a conspiracy in Korea, raising prices in Korea would not have had an impact on prices set in the United States, absent an agreement on pricing in the United States. Plaintiffs did not assert the existence of a conspiracy to fix prices in the United States. The relevant markets in the two countries were just too different for there to have been a link between allegedly manipulated wholesale prices in Korea and export prices. As an initial issue, in the United States, Korean manufacturers of ramen noodles faced significant competition from ramen made by Japanese companies, companies based in other Asian countries, and American companies. These competitive constraints were reflected in both business planning documents and by third-party analysts. They were also confirmed by empirical analysis of cross-price elasticities conducted by NERA, demonstrating that consumers tend to switch in response to changes in relative prices.
In addition, the evidence at trial made it very clear that the pattern of price changes for ramen sold by the Korean entities to their US subsidiaries was very different than the pricing patterns of ramen sold to Korean customers. In fact, the largest Korean supplier of ramen in the United States, Nongshim, built a plant in Southern California early in the alleged conspiracy period. Nongshim supplied most of the products it sold in the United States from that plant, using inputs, such as flour and palm oil, that were purchased on the world market. Evidence presented at trial indicated that pricing decisions for ramen sold in the United States were made independently of pricing in Korea, a finding that is consistent with prudent business practice and practical economic analysis. Finally, Dr. Cox showed that the relationship between price changes and cost changes before the alleged conspiracy period explained all the price changes that occurred during the alleged conspiracy. This finding was reinforced by the fact that the gross percentage margin in the period before the alleged conspiracy did not increase during the alleged conspiracy period.
NERA also assisted Professor Michael Klausner of the Stanford Law School who provided expert testimony on corporate governance issues.
After deliberation, the jury found that the Plaintiffs did not prove that there was a conspiracy to fix the prices of Korean ramen noodles. That verdict ended the case, without the need for the jury to reach any other questions or make any other findings.