Download Six Vitamin Firms to Pay $1

Six Vitamin Firms to Pay $1.1 Billion
Settlement Would Set Record in Antitrust Case
By David Segal
Washington Post Staff Writer
Tuesday, September 7, 1999; Page A01
Six giants of the vitamin industry have agreed to pay more than $1.1 billion
to settle a landmark price-fixing lawsuit, the largest sum ever paid in an
antitrust case, sources close to the negotiations said yesterday.
The settlement will resolve allegations that the companies orchestrated a
vast and tightly controlled nine-year conspiracy to fix prices for wholesale
vitamins. The conspiracy was alleged to have led to artificially high prices
for hundreds of food and beverage makers -- including Coca-Cola Co.,
General Mills Inc. and Kraft Foods Inc. -- and to have pinched consumers
by inflating the costs of everything from breakfast cereal to peanut butter.
"There's still some language to work on, but the major points have been
agreed upon," said one attorney involved in the discussions, who declined
to be identified.
In roughly two weeks, an agreement will be presented to Judge Thomas F.
Hogan of the U.S. District Court for the District of Columbia, sources said.
The judge will then hold hearings to determine the settlement's fairness to
all sides.
The deal is the latest in a series of financial setbacks and embarrassments
for the world's largest vitamin makers. The companies, all based outside
the United States, aren't household names to most Americans, but they
collectively command more than 80 percent of the market for the most
popular vitamins, including A, C and E.
In May, the Justice Department extracted a record-setting criminal fine of
$750 million from three vitamin manufacturers: F. Hoffman La Roche &
Co. of Switzerland, BASF AG of Germany and Rhone-Poulenc SA of
France. Officials alleged that the companies had colluded to divide up
markets and set vitamin prices in meetings at hotels and homes around the
world. Participants were accused of rigging sales so brazenly that Justice
lawyers compared the group to the mammoth trusts of yesteryear, labeling
it "Vitamins Inc."
Justice officials have promised that additional charges will be filed against
other vitamin makers.
Now, those three companies and three others -- Eisai Co., Daiiche
Pharmaceutical Co. and Takeda Chemical Industries Ltd., all of Japan -are set to resolve civil claims in the case. Under terms of the deal, almost
1,000 corporate buyers of bulk vitamins would receive just over $1 billion,
an amount reflecting overcharges during the years of the alleged
conspiracy.
The companies' U.S. offices were closed in observance of Labor Day and
could not be reached for comment.
The roughly 50 law firms involved in the matter would be paid close to
$125 million, a little more than 11 percent of the settlement. The litigation
was launched in 1997 by Jonathan Schiller of Boies & Schiller, a
Washington law firm. The other lead firms are Cohen, Milstein, Hausfeld &
Toll of Washington and Susman Godfrey of Houston.
For consumers, the settlement is unlikely to yield a windfall any time soon.
Food and beverage companies aren't required to pass along their
recovered millions to shoppers in the form of lower prices. But a group of
separate lawsuits filed in 16 states plus the District of Columbia -- though
not Virginia or Maryland -- will seek to recover damages on behalf of
consumers. Damage awards, if any result, would either be paid directly to
shoppers or given to local nonprofit groups.
Negotiations over terms of the deal have been hard-fought and fitful,
according to participants. In June, the parties reached such an impasse that
the two sides broke off talks for weeks, having determined that they were
roughly $400 million apart on a final settlement figure. The two sides
returned to the table in August and have been meeting at law firms in
Washington and New York.
"It was like a poker game," said one attorney. "The stakes were high and
the emotions were high."
One key sticking point: The vitamin companies demanded that plaintiffs'
lawyers reduce their fee from the 20 percent to 30 percent of the
settlement that is standard in such cases.
The plaintiffs' lawyers, in turn, wanted a clause ensuring that their clients
would be paid as much as any food and beverage maker that decided to
opt out of the class settlement and take the vitamin makers to court on their
own.
Those issues were resolved, in part, because all parties had good reason to
get the matter behind them quickly. Food and beverage companies were
uncomfortable battling what are, after all, their principal suppliers. And for
the defendants there was the prospect of an interminable slog through the
courts, one that could end with them handing over even more money.
Under federal antitrust law, companies engaged in price fixing are liable for
treble-damage awards.
Both sides in the suit employed teams of economists to come up with an
answer to a highly abstract question: What would vitamin prices have been
if the companies had never met to fix prices? After weeks of haggling on
that issue, the two sides agreed that defendants should hand back roughly
20 cents of every dollar of vitamins purchased by each client.
In the food and animal feed industries, there has been a long-simmering
suspicion that vitamin makers were somehow colluding on prices and
dividing markets. For years, companies buying vitamins would invite bids
from a handful of companies and invariably would hear back from just one.
According to the Justice Department, vitamin makers developed a highly
elaborate set of rules and enforcement agreements to ensure that prices
and market allocations each year were fixed and stayed that way. Top
managers allegedly would gather yearly to haggle over which company
would be allowed to sell how much of each particular vitamin. A maker of
vitamin C, for instance, would be granted a certain percent of the market.
This so-called top-shot meeting also would establish price increases for the
coming year.
A few months later, global marketing heads would meet to approve the
"budget." Then at a third meeting, other executives would gather to make
certain that all participants were sticking to the cartel's rules. The
companies, according to Justice, tried to hide their activities by burning any
paper documenting the conspiracy.
Researcher Nancy Shiner contributed to this report.
© Copyright 1999 The Washington Post Company