A federal district court judge recently dismissed all claims that a group of warehouse operators and financial institutions conspired to increase the price of zinc. The court found that plaintiffs failed to demonstrate that there was an antitrust violation. The zinc litigation is one of several cases alleging that banks and commodities firms have manipulated metals markets. The court found the zinc litigation claims to be weaker than claims remaining in similar antitrust litigation involving aluminum.
Zinc is purchased on the London Metal Exchange (LME) through warrants, which are documents of title to specific lots and weights of metal stored in LME-licensed warehouses. Customers designate zinc for retrieval from warehouses, making it unavailable to the market, by cancelling warrants. Plaintiffs, who sought class status, were five companies who purchased zinc from defendants and paid allegedly manipulated prices. They claimed that defendants entered into anticompetitive agreements that increased the waiting time to retrieve zinc from LME-licensed warehouses. Defendants’ control and manipulation of warrant cancellations allegedly restrained the market supply of zinc and artificially increased the regional premium components of zinc prices, thus harming plaintiffs. Plaintiffs also claimed that two defendants monopolized or attempted to monopolize the market for services for zinc stored in LME warehouses.
The court found insufficient evidence to support plaintiffs’ allegations of anticompetitive agreements. Certain defendant conduct, such as shipping zinc to non-licensed locations, could be consistent with independent and rational economic decision-making and not necessarily indicate anticompetitive behavior. Plaintiffs did not plausibly explain why the two defendants they claimed dominated the market for physical zinc needed the other defendants to participate in the alleged anticompetitive scheme, nor why those firms would want to participate. Moreover, several trends that plaintiffs alleged resulted from anticompetitive conduct actually started prior to the class period and prior to much of the alleged anticompetitive behavior.
The court further ruled that plaintiffs lacked standing to bring Section 2 monopolization claims as pleaded. Plaintiffs purchased physical zinc, but their monopolization claims related to the market for services for zinc stored in LME-licensed warehouses. Plaintiffs did not purchase warehouse services. The court noted that unlike Section 1 claims, Section 2 claims may not arise from monopoly power in one market causing competitive harm in an “inextricably intertwined” second market unless the plaintiff shows that there is actual or a dangerous probability of successful monopolization in the second market. The Court gave plaintiffs leave to re-plead their Section 2 claims but warned that future pleadings will need to show that defendants came dangerously close to obtaining monopoly power in the market for physical zinc.