Judge Engelmayer’s opinion in In Re Interest Rate Swaps Antitrust Litigation dissects one of the most interesting questions in anti-trust law—when does an anti-trust complaint fail because a plaintiff only alleges parallel conduct by companies acting in their own self-interest, as opposed to a conspiracy or agreement between them to act in concert. “The crucial question…is therefore whether the challenged conduct stems from independent decision, or from an agreement, tacit or express.” This crucial question, of course, is broader than anti-trust, as allegations of conspiracy are made frequently in civil litigation, but not so easily proven.

As explained by Judge Engelmayer, the Plaintiffs primarily are buyers and sellers of interest rate swaps. Historically, swap customers communicated almost exclusively with Dealers by phone, which created a “one-way” information flow to the Dealers that the Dealers used to their trading advantage. The Dealers were largely household name investment banks who were swaps market makers. The development of technologically advanced anonymous “all to all” electronic swaps exchanges, however, threatened to “disintermediate” the Dealers by allowing buyers “to access a broader market of sellers with transparent pricing.” The Plaintiffs claimed the Dealers conspired in violation of the anti-trust laws to prevent the creation of independent swap exchanges that offered lower transaction costs than they offered, and then, once the exchanges were established, sought to squelch them. The lawsuit spans the period 2007-2016, during with electronic swap exchanges blossomed as a technology, in part as a result of new regulatory requirements imposed by the 2010 Dodd-Frank Act.

For the pre-Dodd Frank period of 2007-2012, the Dealers allegedly alleged conspired to inhibit modern trading platforms from coming into existence; post 2012, the Dealers allegedly conspired to quash the newly established “all to all” platforms. The opinion is a terrific guide to what’s needed to plead an agreement between defendants, above and beyond independent parallel conduct.

For the pre-Dodd Frank period, Judge Engelmayer found that “shards” of parallel conduct could not give rise to an inference of an agreement amongst the Dealers to block development of new trading platforms. Each Dealer independently had good reason “to preserve the status quo,” and independent self-interest is an “obvious alternative explanation for defendants’ common behavior.” Further, because the computing infrastructure for the development of the new platform was not yet in place, there was “no urgency” for collective action, making the inference of an actual agreement remote.

Judge Engelmayer also rejected the claim that the Dealers joint purchase of an existing platform with the capacity to develop anonymous trading, and their business decision not to develop that platform demonstrated actual collaboration by the Dealers. A decision to “alter the direction of a single financial technology company” is not on its face illegal, and the acquired company was not “an unattractive investment opportunity, such that only one with conspiratorial aims would have invested in it.”

But financial technology moves on, and post-2012, Dodd-Frank encouraged the development of “all to all” trading platforms with their own clearing capacity. The Plaintiff swaps buyers, together with three new “all to all” swap trading platforms, claimed that the Dealers successfully “conspired to starve” the new platforms to maintain the Dealers’ market position. Judge Engelmayer rejected the Dealers’ claim that a collective refusal to do business, like in the pre-2012 period, had a “natural explanation.” Problematic to the Dealers defenses was the fact that four of the Dealers made virtually identical statements to one of the exchanges on the day it opened for trading–that they would not do business until they had audited the exchange’s rule book (even though it had been approved the regulator)—and never sought to complete their audits. The “contemporaneous and similar calls” on the same day “suggest coordination,” especially as the new technology now was a direct competitive threat, not a concern about what may happen in the future.

The defendants also submitted voluminous material that the “market reality” was that the new swaps exchanges had many start-up problems that caused them to lose traction, irrespective of any boycott, and that they were unattractive to investors. But this “alternative narrative,” although plausible, did not make plaintiffs’ claim of a group boycott implausible. And it was not up to the court on a motion to dismiss to make a choice “between two plausible inference”– that’s the purpose of a trial.

There’s much more in Judge Engelmayer’s lengthy opinion, but little as important as his careful parsing of when parallel conduct is of such a nature that it can support an inference of an agreement or conspiracy, as opposed to similar but independent decision-making “with a natural explanation.”