Antitrust Lawsuit Filed by Boies Schiller Flexner LLP Alleges Volkswagen Used its Power Over Suppliers to Extract Anticompetitive Agreements and Harm Competition in the Market for Automotive Component Parts
DETROIT, Nov. 18, 2019 /PRNewswire/ -- The Prevent Group, an automotive parts supplier, filed suit today against Volkswagen AG and Volkswagen Group of America, Inc. ("Volkswagen") alleging violations of federal antitrust laws, civil conspiracy, and tortious interference. (Case No. 19-13400). Prevent, represented by litigation powerhouse Boies Schiller Flexner LLP, alleges that Volkswagen used anticompetitive tactics to stop larger suppliers like Prevent from acquiring smaller auto parts suppliers in the U.S., including at least seven based in Michigan.
Small, fragmented, and pushed to the brink of insolvency, Volkswagen's lower-tier suppliers typically have no choice but to "comply or die" with Volkswagen's unfair terms and prices, the complaint states. If these smaller firms were acquired by a larger supplier like Prevent, the complaint alleges, Volkswagen feared that it would lose its ability to extract prices and terms that were below competitive levels.
When Prevent acquired a company called Car Trim that had been a supplier of parts for Volkswagen vehicles, this was the "last straw" for Volkswagen, the complaint alleges. In response, Volkswagen launched an anticompetitive campaign internally called "Project 1," which is detailed in the complaint based on internal Volkswagen documents obtained from a senior source inside the Company. The purpose of this strategy, the complaint says, was to stop any acquisitions of smaller, "high dependency" suppliers. Volkswagen tracked these suppliers on a secretive "Problematic Suppliers List," monitored potential M&A activity, and then intervened to stop any sales that it deemed threatening to its market power.
The complaint alleges that these efforts escalated in the wake of Volkswagen's agreement to pay $15.5 billion to settle public and private lawsuits resulting from its "Dieselgate" scandal. Desperate to cut costs to cover the historic settlements and fines, the Company used its market power to squeeze its small Tier 2 and Tier 3 suppliers and to stop any acquisitions that might limit this market power.
Prevent Group, a privately held global network of companies engaged in supplying automotive component parts, was a direct target of this anticompetitive campaign. For the past 15 years, Prevent Group has grown by acquiring smaller, Tier 2 and Tier 3 auto parts suppliers around the world, increasing their efficiency and output.
Volkswagen deployed "Project 1" to block at least seven other acquisitions by Prevent in the United States, the complaint alleges. The tactics detailed in the complaint included extracting written agreements from management of target companies not to sell their business to the Prevent Group. As described in the complaint, the agreements also required the small suppliers to notify Volkswagen if approached by a potential acquirer. The purpose and effect of these agreements was to stop procompetitive consolidation among suppliers, tortuously interfere with Prevent's business opportunities, and cause harm to Prevent. The complaint estimates that, in the absence of Volkswagen's anticompetitive scheme, Prevent would have been able to realize over $750 million in profits from the successful acquisition of target suppliers headquartered in the United States.
Duane L. Loft, a partner at Boies Schiller Flexner who represents the Prevent Group, said: "This lawsuit painstakingly lays out the existence of a scheme by Volkswagen to maintain its stranglehold over automotive component parts suppliers, to stop acquisitions that would have been good for competition, and to harm consumers of automobiles. We look forward to justice being done and for Volkswagen to answer for its misconduct in open court."
Prevent is seeking damages in excess of $750 million and injunctive relief for Volkswagen's alleged violations in the Eastern District of Michigan, the federal court in Detroit.
About The Prevent Group
The Prevent Group is a family of companies involved in the manufacture and distribution of automotive component parts. With sales and logistics expertise, the Prevent Group combines comprehensive know-how with cost-efficient, environmentally friendly production processes.
About Boies Schiller Flexner
Boies Schiller Flexner LLP (www.bsfllp.com) is one of the premier law firms in the United States, regularly serving as lead counsel in the biggest, highest-profile disputes and representing some of the world's largest and most sophisticated organizations when the results matter most.