Circuit Court Affirms Dismissal Of Challenge To Nestle Ice Cream Merger

The U.S. Court of Appeals for the First Circuit has affirmed the dismissal of a claim that the 2003 merger between Nestlé S.A.’s subsidiary, Nestlé Puerto Rico (Nestlé PR), and ice cream distributer, Payco Foods Corp., violated the Sherman and Clayton Antitrust Acts.

The plaintiff in Sterling Merch., Inc. v. Nestlé S.A. et al. is a distributer of ice cream in Puerto Rico.  Nestlé S.A. manufactures ice cream that is sold and marketed in Puerto Rico by Nestlé PR.  Prior to the 2003 merger, Payco was a competitor of both Sterling and Nestlé PR.  Sterling alleged that Nestlé abused its market power to gain exclusive contracts, favor Payco in distribution agreements, and reduce competition in the Puerto Rican market.

The court of appeals affirmed the district court’s dismissal of plaintiff’s complaint on grounds of lack of standing based on an inability to prove antitrust injury.  Antitrust injury under Zenith Radio Corp. v. Hazeltine Research Inc. must “reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.”

According to the holding, Nestlé neither restricted output nor increased prices.  The court found that the price paid by many consumers fell after the merger and that Nestlé’s market share fell by 15% in the 4 years following the merger.  Sterling was unable to demonstrate antitrust injury due to its success in the same market.  While suffering from declining financial performance prior to 2003, Sterling’s post-merger net sales grew at an average of 11% per year with market share growth over 6% during the five years immediately following the merger.  The injury alleged by Sterling was that “in a but-for-2003-merger world,” its market share would have grown more than 6%.  In the court’s view, Sterling was unable to substantiate this claim.