Interstate Circuit and Conspiracy Theories

Abstract

An antitrust conspiracy is an unlawful horizontal agreement in restraint of trade. Proof of antitrust conspiracy requires evidence that tends to exclude the possibility of independent conduct. In most conspiracy cases, however, direct evidence is not available. Instead, circumstantial evidence is used to prove the existence of the alleged conspiracy. Interstate Circuit v. United States (1939), one of the most known Supreme Court antitrust opinions, laid the foundation of conspiracy inference in antitrust law. Hundreds of judicial opinions, books, monographs, and articles summarize and interpret the facts of the case. With some minor variations, the summaries of Interstate Circuit are similar in their details, yet materially incomplete and erroneous.

As summarized in judicial opinions and the literature, Interstate Circuit concerned a powerful retailer who sent a letter to eight suppliers requiring them to amend their distribution policies to raise his rivals’ costs. The letter named all recipients, informing each supplier that its competitors received the same letter. The suppliers’ compliance was partial but uniform. This account raises the question of whether parallel compliance with an invitation to collude permits the inference of conspiracy. It became the paradigmatic illustration of hub-and-spoke conspiracies, the agreement requirement, conscious parallelism, tacit agreement, and the raising rivals’ costs strategy.

Interstate Circuit, however, presents a very different set of factual findings: a powerful retailer, which was a partially-owned subsidiary of one of its suppliers, negotiated a deal with its parent company and its rivals.

This Article explores the Interstate Circuit myth. It offers a detailed study of cartel formation in an industry with intricate relationships among the colluding parties. The study finds that the extensive use of an incorrect account of Interstate Circuit by courts and commentators explains, in part, some of the flaws of antitrust’s conspiracy doctrines. It, thus, refines four antitrust concepts whose origins are in Interstate Circuit: the agreement requirement, conscious parallelism, plus factors, and tacit agreement. The Interstate Circuit myth, this Article argues, demonstrates that erroneous myths may last long and influence policies.

Keywords: antitrust, interstate circuit, conspiracy inference, motion picture industry