Dow Chemical: Bargaining From a Rigged Starting Price
The Dow urethane antitrust settlement committed Dow Chemical to pay $835 million after a jury found that it conspired to fix polyurethane chemical prices. Customers negotiated their own contracts, rebates and discounts. The case showed how those negotiations could start from a price that competing suppliers had already worked together to inflate.
Industrial purchasers brought the case over chemicals used in mattress foam, insulation, sealants and footwear. Those buyers paid the inflated prices. What made it more than a collection of similar price letters was the evidence behind them: insider testimony about confidential conversations, efforts to hold increases during customer negotiations, and messages inside the companies describing the results.
What Is Price Fixing?
Price fixing in the Dow urethane case meant coordinating price-increase announcements and agreeing to try to make those increases stick when buyers negotiated. The jury found that Dow participated in the conspiracy and that purchasers paid more than they would have in a competitive market.
The products were polyether polyols, TDI, MDI and polyurethane systems. The appeals court’s account of the trial describes a market with both long-term contracts and spot purchases. Buyers negotiated price alongside rebates, early-payment discounts and protection against future increases. Some contracts fixed the price. Others let manufacturers announce increases in advance.
Those announcements did not always become the price on the invoice. A buyer could negotiate an increase down or avoid it. That was central to the scheme: suppliers were coordinating what they would ask for and trying to hold that position across separate negotiations.
The purchasers also sued Bayer, BASF, Huntsman International and Lyondell Chemical Company. All defendants except Dow settled before trial.
What Qualifies as Collusive Conduct?
In this case, the evidence of collusive conduct connected private conversations between competitors to public price announcements, sales decisions and prices customers actually paid. The appeals court described testimony from a Dow insider who acknowledged the company’s participation and implicated three Dow executives.
A Bayer witness described exchanging confidential pricing information with competitors to encourage industry-wide increases. The witness also described using pay telephones and a prepaid phone card instead of the office phone, and meeting rivals in coffee shops and hotels. These were conversations about future prices with the companies that were supposed to compete for the same customers.
The purchasers’ economics expert described frequent executive contacts occurring within days of price announcements. Manufacturers announced the same or similar increases, taking effect at about the same time. The expert also described companies holding to list prices even when that meant walking away from profitable business at a lower price, and monitoring one another to detect and discipline departures from the arrangement.
The market conditions gave those decisions their significance. The expert testified that sales were concentrated among a handful of firms, entry was difficult and buyers lacked close substitutes. Producers had excess capacity, which put downward pressure on prices. The suppliers could make more than customers wanted to buy, yet the expert described them turning down profitable orders to hold the price.
The evidence also reached inside the pricing results. The court cited Dow emails acknowledging that the company had obtained full increases, alongside Bayer memoranda describing increases taking effect and being paid. The story connected what executives discussed to what sales teams sought and what customers paid.
A Discount Could Still Leave the Buyer Overcharged
A buyer could negotiate below an announced price and still pay too much if the starting price had been inflated. That was the court’s explanation for why individually negotiated contracts could share the same underlying harm.
Product price lists and parallel announcements supplied a common starting point for bargaining. The court reasoned that an inflated starting point could affect transactions across the market, even when the final prices differed. The size of each buyer’s loss could vary while the agreement causing the loss remained the same.
The trial evidence went further than successful price increases. Witnesses described manufacturers using announcements to prevent prices from falling. In a market with spare production capacity, holding a price steady could matter as much as raising it. The comparison was with what competition would have produced, not simply with last month’s invoice.
For a purchasing manager, that is the uncomfortable part of the case. Winning a concession from the announced increase could look like successful bargaining while still leaving the company paying an overcharge. The bargaining result and the competitive price were different questions.
From the Jury Award to the Settlement
The Dow urethane jury award became a treble-damages judgment, which the later settlement resolved. The court tripled the buyer losses found by the jury and deducted payments from defendants that had already settled.
The purchasers’ statistical expert estimated competitive prices and compared them with the prices buyers actually paid. The jury assessed buyer losses at $400,049,039, below the expert’s $496,680,486 estimate. After the multiplier and settlement credits, the court entered a judgment against Dow of $1,060,847,117.
In its 2017 quarterly report, Dow reported that the court had approved its settlement and that the funds had been released from escrow.
What the Sales Desk Could See
The Dow case shows the value of connecting a pricing instruction to the customer negotiation that followed it. An announcement gives the buyer the proposed increase. An insider may be able to explain the competitor conversation behind it or the decision to refuse a profitable sale.
The paper Whistleblowing and Criminal Antitrust Cartels: A Primer and Call for Reform, hosted by Scholastica, identifies sales managers and estimators as potential sources of cartel information. It distinguishes a report of simultaneous increases from an insider’s knowledge of the arrangement behind them. That is an argument about access to evidence, and it fits the testimony in the urethane case.
For someone inside a chemical supplier, the important connection may run between a rival’s confidential price, the next announcement and instructions about which customer concessions to refuse. The Dow trial brought those kinds of communications and commercial decisions together with transaction evidence. An employee who understands the sales decisions can explain something the customer-facing letter leaves out.
How Much of a Settlement Does a Whistleblower Get?
A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That route applies when collusion also produces qualifying false claims for government payment. Dow’s settlement compensated purchasers for their own losses.
Government purchasing can bring the False Claims Act connection into focus. In the military-fuel case involving Hanjin Transportation, the government alleged bid rigging on contracts to supply fuel to U.S. military bases in South Korea. Hanjin’s filed civil settlement documents included a False Claims Act agreement. There, the pricing arrangement reached government payments.
For an insider with cartel information, the Antitrust Division’s rewards program offers another reason to talk with us. We assess the conduct you saw and the information you hold with you, and identify the whistleblower route that fits.
You Know Why the Price Held
If a Dow customer negotiated from an agreed starting price, tell our whistleblower experts how the list increase and discount were chosen.
