Hub-and-spoke conspiracy

The United States Court of Appeals for the First Circuit explained the concept in these terms: In a "hub-and-spoke conspiracy," a central mastermind, or "hub," controls numerous "spokes," or secondary co-conspirators.

One group of eight defendants were distributors (such as Paramount Pictures) of motion picture films, that distributed about 75 percent of all first-class feature films exhibited in the United States.. A second group of defendants were two dominant theater owners in Texas and New Mexico—Interstate Circuit and a related company—which had a monopoly of first-run theaters in various cities.

"[8] The Court added: It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it.

Acceptance by competitors, without previous agreement, of an invitation to participate in a plan the necessary consequence of which, if carried out, is restraint of interstate commerce is sufficient to establish an unlawful conspiracy under the Sherman Act.

The Supreme Court said that each licensee "acted independently of the others, negotiated only with [the patent holder], desired the agreement regardless of the action that might be taken by any of the others, did not require as a condition of its acceptance .

"[14] Nevertheless, the Court applied Interstate Circuit because: It is not clear at what precise point of time each [defendant licensee] became aware of the fact that its contract was not an isolated transaction but part of a larger arrangement.

The conspiracies therefore were distinct and disconnected, not parts of a larger general scheme, both in the phase of agreement with Brown and also in the absence of any aid given to others as well as in specific object and result.

[18]In Klor's, Inc. v. Broadway-Hale Stores, Inc.,[19] a major California department store, Broadway-Hale, induced Admiral, Emerson Radio, General Electric, Philco, RCA, Whirlpool, Zenith, and other major appliance manufacturers to stop selling to Klor's, a price cutter in San Francisco.

In United States v. General Motors Corp.,[22] a group of Chevrolet car dealers in the Los Angeles area persuaded GM to eliminate price cutters.

In response to dealers' complaints organized by their trade associations, GM Los Angeles area officials treated the "principal offenders" to "unprecedented individual confrontations" and obtained promises to abandon the practices deemed objectionable.

Most agreed promptly but one put off decision for a week "to make sure that the other dealers, or most of them, had stopped their business dealings with discount houses."

What resulted was a fabric interwoven by many strands of joint action to eliminate the discounters from participation in the market, to inhibit the free choice of franchised dealers to select their own methods of trade, and to provide multilateral surveillance and enforcement.

"Exclusion of traders from the market by means of combination or conspiracy is so inconsistent with the free market principles embodied in the Sherman Act that it is not to be saved by reference to the need for preserving the collaborators' profit margins or their system for distributing automobiles, any more than by reference to the allegedly tortious conduct against which a combination or conspiracy may be directed. . . .

The proofs of the government show that all appellants were associated in this scheme, some by virtue of selling or delivering the heroin to the Poliafico group, others because of being associated with the group in carrying out the scheme, collecting money through resales of the drug, making payments to suppliers, or carrying on negotiations for the purchase or resale.

The overall conspiracy was the plan conceived by the intermediary group — Alvarez, Zayas, and their fellows — to buy and resell marihuana at a profit.

"That too would be fallacious," the court said, because there was only one conspiracy as far as the defendant smugglers were concerned: For it was of no moment to them whether the middlemen sold to one or more groups of retailers, provided they had a market somewhere.

[35]To sustain a chain conspiracy charge, the evidence must establish "that each conspirator had the specific intent to further the common unlawful objective.

E–B argued that Federated (and/or its predecessor Rike's) and the suppliers conspired to destroy E–B's ability to compete on fair terms, and for the purpose of attempting to obtain a department store monopoly in the Dayton, Ohio area.

"We, therefore, hold that on this record Elder-Beerman failed to offer sufficient probative evidence to establish the alleged single conspiracy upon which it bases its claim for damages.

Here, in contrast, the supplier spokes are not in court, "and the case proceeds against the central party charged with the conspiracy, the hub of this particular wheel."

The FTC concluded that "Toys "R" Us and its reluctant collaborators set out to eliminate from the marketplace a form of price competition and a style of service that increasing numbers of consumers preferred," and that Toys "R" Us' had orchestrated a boycott that harmed the clubs, competition, and consumers without any "business justification for a boycott that had [such] a pronounced anticompetitive effect.

Mattel and Hasbro executives testified that they went along with "the special warehouse club policy (or, in the Commission's more pejorative language, boycott)" only "because our competitors had agreed" to it.

In exchange, the OEM defendants received various benefits, including discounts on software and "greater cooperation from Microsoft in product development."

[57] The court saw the key question before it as "whether plaintiffs have pleaded sufficient facts to provide a plausible basis from which we can infer the alleged [manufacturers' horizontal] agreements' existence.

The prospect of establishing a violation per se is much more appealing to plaintiffs than the potential difficulty and costliness of proving a § 1 claim under the rule of reason.

[59]The plaintiffs relied on proof of the manufacturers' parallel conduct (they adopted the minimum price policy at about the same time) together with some so-called plus factors.

The claim that the manufacturers' conduct was interdependent—that is, it would succeed only if they all did the same thing as appropriate united front—was not enough, the court said, because "companies base their actions in part on the anticipated reactions of their competitors.

In his view, "When truly analyzed together, the six plus factors strongly suggest that the manufacturer defendants reached an illegal horizontal agreement, which 'nudge' plaintiffs' allegations 'from conceivable to plausible.'

"[62] Professor Barak Orbach asserts that in the Guitar Center case "the Ninth Circuit made the error of trying to break the alleged conspiracy 'into its constituent parts, the respective vertical and horizontal agreements.'

The result is that the court provides "a free pass to hub-and-spoke conspiracies where vertical communications may have dispensed with the need for such horizontal coordination.