A hub-and-spoke conspiracy (or hub-and-spokes conspiracy) is a legal construct or doctrine of United States antitrust and criminal law.The U.S. use of the doctrine can be traced to an origin in the 1930s or 1940s. See Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939); Kotteakos v. United States , 328 U.S. 750 (1946). But since 2000 European cartel authorities have begun to use the concept. See, e.g., JJB Sports PLC v Office of Fair Trading, EWCA Civ 1318(UK Ct App 2003).See also . In such a conspiracy, several parties ("spokes") enter into an unlawful agreement with a leading party ("hub"). 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. These co-conspirators participate in independent transactions with the individual or group of individuals at the "hub" that collectively further a single, illegal enterprise.United States v. Newton, 326 F.3d 253, 255 n.2 (1st Cir. 2003).

The United States Court of Appeals for the Third Circuit explained the concept in these terms:

Such a conspiracy involves a hub, generally the dominant purchaser or supplier in the relevant market, and the spokes, made up of the distributors involved in the conspiracy. The rim of the wheel is the connecting agreements among the horizontal competitors (distributors) that form the spokes.Howard Hess Dental Labs. Inc. v. Dentsply Int'l, Inc., 602 F.3d 237, 255 (3d Cir. 2010).

The antitrust cases often emphasize the importance of interdependence among the spokes and their recognition of one another. The general criminal cases, such as narcotics conspiracy prosecutions, tend to require only a more general knowledge among the spokes that there is a larger overall unlawful scheme involving other actors who are cooperating with the hub in carrying out the scheme. It is controversial, particularly in the antitrust cases, how much knowledge spoke actors must have of the conduct of other spoke actors—which is to say how much of a "rim" must be put around the "wheel" of the hub-and-spoke conspiracy for it to be a single conspiracy rather than many separate "vertical" conspiracies. There is a controversy and some uncertainty over the legal status of the "rimless" conspiracy—one with very limited interaction among the spokes.

History

The leading two Supreme Court cases were Interstate Circuit and Kotteakos.Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939); Kotteakos v. United States, 328 U.S. 750 (1946).

Interstate Circuit

In Interstate Circuit, Inc. v. United States,306 U.S. 208 (1939). the Government sued two groups of defendants for engaging in a price-fixing conspiracy. 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.306 U.S. at 214-15. The manager of the defendant theater owners sent a same or similar letter to each of the distributor defendants, naming on its face as addressees all of the defendant distributors. The letter demanded as a condition of continued dealing that the distributor (1) require that second-run theaters never exhibit the films at a smaller admission price than 25¢, and (2) never exhibit them in conjunction with another feature picture (so-called double features). Conferences discussing the matter were held between representatives of Interstate and individual distributors. The distributors each agreed and complied with the demands.306 U.S. at 216-17.

The Supreme Court held it permissible to draw "the inference of agreement from the nature of the proposals made . . .[and] from the substantial unanimity of action taken upon them by the distributors." The Court emphasized that each distributor knew that the distributors all knew that the others were getting the same letter and knew that "without substantially unanimous action with respect to the restrictions for any given territory, there was risk of a substantial loss of the business and goodwill of the subsequent-run and independent exhibitors, but that, with it, there was the prospect of increased profits." The Court said that provided "strong motive for concerted action."306 U.S. at 221–22. 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. Each distributor was advised that the others were asked to participate; each knew that cooperation was essential to successful operation of the plan. . . . 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.306 U.S. at 226–27.

Kotteakos

In Kotteakos v. United States,328 U.S. 750 (1946). Simon Brown, owner of a construction company, conspired with Kotteakos and 31 other persons to defraud the Government by filing false statements in applications for loans for modernization and renovation under the National Housing Act. No connections was shown between the individual loan applicants. In each case, however, Brown induced the applicants to file the loan application and assisted them in applying, in return for a 5% commission.

The Court characterized the facts as showing: "As the Government puts it, the pattern was 'that of separate spokes meeting at a common center,' though we may add without the rim of the wheel to enclose the spokes." The Court therefore held that while the indictment alleged one conspiracy the Government proved several (at least eight) conspiracies.328 U.S. at 755. That is, the Government failed to demonstrate the rim of the wheel, that connected the spokes to one another. "Without the rim, an alleged hub-and-spoke cartel is merely a set of vertical relationships (or restraints) that result in parallel conduct and does not establish" a hub-and-spoke conspiracy.Barak Orbach, Hub-and-Spoke Conspiracies, (April 2016).

Subsequent Supreme Court hub-and-spoke conspiracy cases

Since Interstate Circuit, the Supreme Court decided four hub-and-spoke conspiracy cases and one case rejecting a parallel-action conspiracy claim.

Masonite

United States v. Masonite Corp.,316 U.S. 265 (1942), was a patent–antitrust price-fixing case, in which the patent holder negotiated licenses with price-fixing clauses while resolving infringement disputes with some of the licensees. 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 . . . an agreement with any of the others, and had no discussions with any of the others."316 U.S. at 275. 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. But it [was] clear that as the arrangement continued each became familiar with its purpose and scope."316 U.S. at 275.

Accordingly, even if the evidentiary requirements of Interstate Circuit were not met at the outset of the cartel arrangement, they were met after it remained in place. "It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it."

Blumenthal

In Blumenthal v. United States, the Supreme Court looked at the other side of the coin of Kotteakos. The Court distinguished the Kotteakos case involving several conspiracies from the case before it involving one conspiracy:

[In Kotteakos] no two of those agreements were tied together as stages in the formation of a larger all-inclusive combination, all directed to achieving a single unlawful end or result. On the contrary each separate agreement had its own distinct, illegal end. Each loan was an end in itself, separate from all others, although all were alike in having similar illegal objects. Except for Brown, the common figure, no conspirator was interested in whether any loan except his own went through. And none aided in any way, by agreement or otherwise, in procuring another's loan. 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. There was no drawing of all together in a single, over-all, comprehensive plan. Here the contrary is true. All knew of and joined in the overriding scheme.Blumenthal v. United States, 332 U.S. 539, 558 (1948).

Theater Enterprises

In Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.,346 U.S. 537 (1954). the Supreme Court rejected a claim by a suburban theater owner (TEI) that a group of motion picture producers and distributors had violated the antitrust laws by conspiring to restrict first-run films to downtown Baltimore theaters, thus confining petitioner's suburban theater to subsequent runs and unreasonable "clearances." Each of the defendant motion picture producers and distributors refused to make first-run films available to TEI and adhered to an established policy of restricting first-runs in Baltimore to the eight downtown theaters. There was no direct evidence of illegal agreement among the defendants. The "crucial question" was whether the defendants' conduct against TEI "stemmed from independent decision or from an agreement, tacit or express." The lower court, in effect, refused to direct the jury to find a conspiracy based on the facts as to parallel refusals to deal with TEI. The Supreme Court said that was correct, because:

[T]his Court has never held that proof of parallel business behavior conclusively establishes agreement or, phrased differently, that such behavior itself constitutes a Sherman Act offense. Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy, but "conscious parallelism" has not yet read conspiracy out of the Sherman Act entirely.346 U.S. at 541.

Klor's

In Klor's, Inc. v. Broadway-Hale Stores, Inc.,359 U.S. 207 (1959). 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. Klor's brought an antitrust treble damages suit, alleging a conspiracy among Broadway-Hale and the manufacturers. By pre-trial order the case one was limited to a single conspiracy charging a Sherman Act violation. The defendants moved for summary judgment, and the lower courts agreed, on the grounds that Klor's was only one of many stores selling such goods, so that its elimination as a competitive factor did not substantially lessen competition in the general market—there was no public injury. Whether a conspiracy existed was by-passed, even though the allegations appear to have described a rimless wheel conspiracy, without the spokes (appliance manufacturers) being connected to one another, knowing what one another were doing, or being interdependent. The Supreme Court reversed, on the grounds that Klor's sufficiently pleaded a boycott conspiracy. The Court said, "Alleged in this complaint is a wide combination consisting of manufacturers, distributors, and a retailer."359 U.S. at 213.

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