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.