Antitrust Attorney Blog

A putative class of direct purchasers of Magnesium Oxide (MgO) survived a motion to dismiss on limitations grounds by adequately pleading fraudulent concealment. A putative class of indirect purchasers, however, was dismissed for failing to adequately plead fraudulent concealment. In re Magnesium Oxide Antitrust Litigation, 2012 WL 1150123 (D.N.J., April 5, 2012).

The defendants were sued for fixing prices and allocating shares in the domestic market for MgO. Two complaints were filed, one by direct purchasers (DP) and a second by indirect purchasers (IP). The IP plaintiffs were farmers who purchased cattle feed and other products containing a form of MgO.

The complaints had previously been dismissed without prejudice on limitations grounds. Neither set of plaintiffs had adequately pleaded fraudulent concealment. Plaintiffs amended; defendants again moved to dismiss on limitations grounds.

The court noted that the doctrine of fraudulent concealment applies to every federal statute of limitations. To show fraudulent concealment, the plaintiff must show (1) an affirmative act of concealment or that the conspiracy was self-concealing; (2) the concealment must mislead the plaintiff's inquiry or get him to relax his vigilance, and (3) the plaintiff must have exercised due diligence in investigating his cause of action. Allegations of fraudulent concealment must be pled with particularity in accordance with F.R.Civ.P. 9(b). Courts have relaxed the rule on particularity where the necessary information is peculiarly in the defendant's possession, but the plaintiff in that case must allege why the necessary information is controlled by the defendant. The court also noted the requirements of Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), that only allegations of fact are credited in ruling on a motion to dismiss, but recitals of the elements or the cause of action supported by conclusory statements are not.

The DP plaintiffs adequately alleged affirmative acts of concealment because the defendants had given pretextual reasons for some of the price increases. That is, the defendants had justified price increases due to increased energy prices or tight supply. The DP plaintiffs alleged that they believed the justifications, and were persuaded by them that the price increases resulted from market forces. The DP plaintiffs also explained when they discovered the conspiracy, and how. Their current counsel were on inquiry notice much earlier. However, they were not plaintiffs' counsel at that time, and there was no indication that the plaintiffs themselves, or any agents of theirs at the time, were on inquiry notice.

The IP purchasers, however, met a different fate. No pretextual justifications for price increases were given to them. Nor was there anything about the conspiracy that caused them to relax their vigilance or which misled them. They were therefore time barred.

The court addressed additional reasons why the IP plaintiffs' case could not proceed. The MgO constituted a very minor component of cattle feed. There was not a sufficient nexus between the price of MgO and the price of cattle feed. While a small percentage of a price-fixed ingredient in a product may not be fatal to a product purchaser's standing to bring an antitrust action, the court said, there must be a showing that a price increase in that ingredient has a significant foreseeable effect on the price of the purchased product. Here, there was not.

Homeowners failed in a suit against a mortgage company that loaned them 100% of the purchase price of a home at a high interest rate. Latson v. Plaza Home Mortgage, Inc., 2012 WL 848231(D.Mass. 2012).

The plaintiffs alleged first that the size of the mortgage and the high interest rate breached the mortgage company's covenant of good faith and fair dealing. The court rejected that. The covenant of good faith and fair dealing is in fact implied, but it only provides that neither party shall do anything that will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. It does not create rights not otherwise in the contract. The "fruit" of this contract was a loan to the homeowners to enable them to buy a home. That was not impaired.

The high interest rate was fully disclosed. Nothing was done to prevent or hinder the homeowners from becoming familiar with the terms of the loans.

The mortgage company had no duty under the covenant of good faith to make a smaller loan, or to offer different terms.

Nor was there a violation of the Massachusetts consumer protection law. The law prohibits unfair or deceptive practices, leading to a loss of money or property. In the absence of any misleading statement, there is nothing unfair or deceptive about making a loan that the homeowners found difficult to repay.

The homeowners were not helped by an allegation that the lender knew that the appraisal overstated the property's actual value. Even if true, that allegation did not amount to misrepresentation.

A district court rejected a suit by a private entity seeking a mandatory injunction against the Federal Trade Commission to require it to enforce a consent order against Google. Electronic Privacy Information Center v. Federal Trade Commission, 2012 WL 593063 (D.D.C. 2012).

In 2010, a public interest research center called the Electronic Privacy Information Center (EPIC) complained to the FTC about Google's social networking service, Google Buzz. The complaint alleged that Google was failing to protect the privacy of its customers.

The Commission investigated, and issued a consent order that became final on October 13, 2011. The order required Google to undertake certain measures to protect the privacy of its customers.

On January 24, 2012, Google announced a new set of privacy policies, to go into effect as of March 1, 2012.

EPIC sued the FTC, seeking mandatory injunctive relief forcing the FTC to enforce the consent order. EPIC contended that section 706(1) of the Administrative Procedures Act, 5 U.S.C. §7801 et seq., made the FTC's failure to take action reviewable as a final agency action.

Although there is a strong presumption that agency action is subject to judicial review, as the court noted, there is no review of actions that are committed to agency discretion by law. The court relied on Heckler v. Chaney, 470 U.S. 821 (1985), in which the Supreme Court refused to force the Food and Drug Administration to initiate an enforcement action with respect to drugs used for capital punishment. An agency decision whether to enforce, the Court ruled, involves a complicated balancing of a number of factors within the agency's expertise. and that decision is not reviewable.

EPIC was unable to demonstrate that Congress intended courts to monitor the FTC's enforcement of its own consent decrees. There are no legislative guidelines that would indicate that such review may be undertaken or setting forth governing standards.

The court also rejected EPIC's effort to distinguish Heckler on the grounds that Heckler involved only the initiation of enforcement actions, but this case seeks the enforcement of a final order that resulted from the agency's prior investigation and enforcement actions. The court found no basis for this distinction. At bottom, the court ruled, "the FTC's decision whether to take action with respect to a potential violation of the Consent Order is a quintessential enforcement decision that is committed to the agency's discretion and is not subject to judicial review."

The court denied the injunctive relief, and dismissed the case.

The District Court for the Eastern District of New York certified both a damages class and an injunctive class in the long-running (since 2005) Vitamin C price-fixing case. In re Vitamin C Antitrust Litigation, 2012 WL 251909 (E.D.N.Y. 2012).

The court had deferred ruling on class certification until resolution of an omnibus summary judgment motion based on the defense that the Chinese government had compelled the price-fixing conspiracy. The motion was denied, and class certification was ripe for decision.

The court addressed in sequence the Rule 23 requirements: numerosity, commonality, typicality, and adequacy of representation.

With respect to numerosity, the court noted that there is no absolute requirement of any particular number of parties. The putative class representative need only show that there are sufficient class members that joinder is difficult or inconvenient. It is not necessary to show that joinder is impossible. In the Second Circuit, the general presumption is that joinder is impracticable if the class has more than 40 members. The defendants did not dispute that a class of 139 class members was sufficiently large to satisfy the numerosity test.

In addressing commonality, the court applied the recent decision in Wal-mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011). Commonality is not satisfied by the mere raising of common questions, even if there are many of them. Rather, commonality addresses the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. The defendants did not dispute commonality.

The disputes over certification were limited to adequacy and typicality.

Adequacy requires that the class representative possess the same interests and suffer the same injuries as the other class members. The court expressed wariness of a defense argument on adequacy that would eliminate any class representative.

As a threshold matter, a class representative is not adequate unless it is a member of the class. If so, then the representative must show that counsel is able to conduct the litigation. There must be no conflict of interest between the class representative and the other class members, and the representative must exhibit the integrity and credibility to diligently perform its fiduciary duties to the class. The last two factors - lack of conflict and sufficient integrity and credibility - were disputed.

One of the putative representatives purchased vitamin C from a subsidiary of a defendant rather than from the defendant itself. The plaintiff sought to invoke the ownership or control exception to Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). The mere fact of the parent-subsidiary relationship was not sufficient. The parent did not control the pricing decisions of the subsidiary, and thus the representative was an indirect purchaser from an alleged conspirator. Because the representative was therefore an indirect purchaser, it lacks standing, is not a member of the class and cannot serve as class representative.

The other putative class representative, named The Ranis Company, had not purchased vitamin C itself, but had purchased the antitrust claims of a direct purchaser. Because antitrust claims are transferable, a class member that purchases its claims is a member of the class and can be the representative.

The court then considered whether Ranis has a conflict of interest. A conflict would not make a representative inadequate unless it is fundamental and concrete. A speculative conflict should be disregarded.

The alleged conflict was that the company that assigned the claim to Ranis was a distributor who would benefit from higher prices, though the rest of the class members were hypothetically (but probably not really) end users who would benefit from lower prices. The court rejected this argument. Even if the assignor would benefit from selling at higher prices, it would nonetheless have an interest in buying from the conspirators at a lower price. Thus its interests were not in conflict with the other class members.

The court noted that had Ranis sought to represent an injunctive class there might have been a conflict. But in a damages-only class, a representative's interest in higher prices that he could mark-up and pass on is not a relevant conflict.

Nor, the court concluded, did counsel representing the class have a conflict of interest. The same counsel represented both the direct purchasers seeking damages and the direct and indirect purchasers seeking injunctive relief. Although the classes seek different forms of relief, their goals do not conflict, and there is no conflict of interest.

The defendants challenged Ranis' credibility and integrity on the basis that the manner in which it acquired its interest - purchasing an assignment of the cause of action from a direct purchaser - was a ruse to conceal wrongdoing by the assignor. Ranis provided a legitimate reason for trying to keep the assignor's identity secret, and the court found no improper conduct of the type that would foreclose representing the class.

Ranis met the typicality requirement because its claims were parallel to the claims of the other plaintiffs. It was sufficiently knowledgeable about the case, although it lacked a full understanding of some procedural issues.

Defendants also argued that the case was lawyer-driven, and that the lawyers had enlisted Ranis as a front man to create litigation that otherwise would not exist. The judge called this naïve. Of course the lawyers instigated the case in hopes of generating fees. That, the court said, is the goal of Rule 23, to allow profit-seeking lawyers to bring cases that individual plaintiffs would not bring themselves, for lack of legal understanding of financial ability. The court contrasted the Private Securities Litigation Reform Act of 1995, which was intended to curtail lawyer-driven securities fraud class actions, with the absence of any such statute curtailing antitrust class actions.

The predominance inquiry was satisfied because in a horizontal price-fixing case the existence and effect of the conspiracy are the prime issues and are common across the class. The individual issues and individual defenses did not destroy predominance because there remained a sufficient constellation of common issues to bind the case together.

The superiority requirement was met because the cost of proceeding would have been disproportionate to the size of the claims.

The court also certified an injunction class. There was antitrust injury even assuming the purchasers could pass on the overcharges and recoup the excess payments. The dual role of counsel in representing both a direct-buying damages class and an indirect injunction class did not bar them. Nor were they barred by the possibility that participation in an injunction class could have barred some class members from bringing other individual claims. The breadth of the class, and the fact that members were at multiple distribution levels, did not make the class unascertainable. The members could still be identified with objective criteria.

The District Court for Minnesota dismissed a section 1 antitrust claim by an internet-based real estate agent against a multiple listing service, an association of real estate brokers and competing realtors, because the complaint failed adequately to allege injury to competition. TheMLSonline.com, Inc. v. Regional Multiple Listing Service of Minnesota, Inc., 2012 WL 37144 (D.Minn., January 5, 2012).

MLSonline was an internet-based real estate agent. It had a number of domain names using the term "mls," generally known as an abbreviation for multiple listing service. The local association of realtors, which operated the multiple listing service, had a rule prohibiting members from using the phrase "mls" or "multiple listing service" in their firm names or domain names where doing so could be misleading.

When the association threatened to enforce that rule against MLSonline in 2007, MLSonline filed an antitrust complaint. That case was settled with an agreement that allowed MLSonline to continue to use its business and domain name, so long as it included an appropriate disclaimer.

Later, competitors of MLSonline filed ethics complaints alleging that it violated another rule. That rule requires realtors to be honest and truthful. The ethics complaint alleged, among other things, that the use of "mls" in the name and website was deceptive. The association held a hearing. It first rejected a timeliness defense to the complaint, and then concluded that the name and website were deceptive. MLSonline was fined $5,000, issued a letter of reprimand, and required to attend a class on ethics and social media. It continued to use its name and website, and the association took no action to prevent that.

Other competitors filed new ethics complaints, making the same allegations of deception. MLSonline filed an antitrust suit to prevent adjudication of the new ethics complaint.

Defendants moved to dismiss on the grounds that plaintiff lacked standing, because he had not pleaded antitrust injury. The district court correctly noted that the law was clear - antitrust standing requires a showing of antitrust injury, which is injury of the type the antitrust laws are intended to prevent and which flow from that which makes the acts unlawful. The court noted that in the 8th Circuit, the standing issue of antitrust injury and the substantive claim of injury to competition are closely related, and sometimes conflated.

The court then focused on whether the complaint alleged injury to competition for purposes of stating a substantive claim under the Sherman Act. The court first rejected the argument that this was a per se group boycott. A group boycott, the court ruled, requires a showing of market power and attempts to influence the behavior of customers or suppliers, neither of which was alleged. The court also noted that in other realtor association cases, courts applied the rule of reason.

The complaint failed under the rule of reason. First, it only alleged an effort to drive plaintiff out of the real estate market, but not an injury to the broader market. Nor did the complaint allege that the alleged boycott had driven plaintiff from the market. So far, the only repercussions were a fine and a reprimand. The new ethics complaint has not been resolved yet, and the association may find in plaintiff's favor. Thus, there is no allegation of injury to competition, and the complaint was dismissed.

The District Court for the Southern District of New York declined an invitation to rule that multiple lawful competitive acts, when aggregated, could be anticompetitive. Eatoni Ergonomics, Inc. v. Research in Motion Corporation, 2011 WL 6019295 (S.D.N.Y., Dec. 5, 2011).

Eatoni and RIM have disputed for years over the Eatoni patent for a reduced QWERTY keyboard and related software. A reduced QWERTY keyboard is one where multiple letters are assigned to a single key.

The matter began as a declaratory judgment action, progressed to arbitration, mediation, a settlement, failed collaboration on a new product, and finally multi-count litigation. The suit originally alleged breach of contract, fraud, breach of fiduciary duty, patent infringement and antitrust claims. All allegations other than the §2 antitrust claim were later dropped. RIM moved to dismiss for failure to state a claim.

Eatoni alleged that RIM possesses a monopoly for QWERTY smartphones and reduced QWERTY smartphones. It claimed that RIM locked in its market dominance through multiple anticompetitive acts.

It was not disputed that RIM has a monopoly. The issue was whether it engaged in anticompetitive conduct to acquire or maintain the monopoly. As the court noted, monopoly power without anticompetitive conduct is not unlawful.

Eatoni's first argument was that RIM's patent infringement itself was the anticompetitive conduct. The court rejected that. It noted that no prior case has found that patent infringement itself was anticompetitive conduct. Moreover, Eatoni had licensed RIM to use the patent, and in that context had released all claims for infringement.

Eatoni then pointed to the fact that the earlier settlement had called for joint product development, but RIM ultimately rejected the joint design and terminated the joint product development. It alleged this was a refusal to deal. The arbitrator in the earlier arbitration had ruled that RIM did not breach any duties owed to Eatoni. Moreover, a unilateral refusal to deal is not anticompetitive except in very limited circumstances, such as in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 427 U.S. 585 (1985). Here, none of the necessary circumstances in Aspen Skiing were present, and RIM's refusal to deal was lawful.

Eatoni argued that even if the infringement and the refusal to deal were not individually anticompetitive, in combination they were. A course of conduct that impedes a competitor could be unlawful although made up of individually lawful acts, Eatoni argued, based on Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962). The Supreme Court there held that the evidence should not be compartmentalized, but rather viewed as a whole. While that accurately reflects Continental Ore, it does not stand for the proposition that business conduct that is lawful becomes unlawful if combined with other lawful conduct. Or, as the court put it, zero plus zero is zero.

Finally, Eatoni argued that RIM denied Eatoni of an essential facility by refusing it access to its Blackberry platform. But that is contrary to the inherent right of a patent holder to use the exclusionary power of a patent. RIM had the undeniable right under the patent law to withhold its Blackberry from Eatoni. Further, RIM's products were not "essential" because other companies manufacture smartphones, including Samsung, HTC, Motorola, Sony Ericsson, Nokia and T-Mobile.

The Seventh Circuit rejected a claim by an antitrust defendant that its liability insurance covers the defense of class action suits for price fixing. Rose Acre Farms, Inc. v. Columbia Casualty Co., 2011 WL 5313818 (7th Cir. Nov. 1, 2011).

Rose Acre, the nation's second-largest egg producer, is a defendant in multiple class action suits alleging that it and other egg producers conspired to fix the price of eggs. Rose Acre sought a defense from its liability carrier, and when that was refused, sued to enforce the insurance policy. The district court granted summary judgment for the carrier, and Rose Acre appealed. The Seventh Circuit affirmed.

The policy covered "personal and advertising injury," but not antitrust suits. Rose Acre argued that there could have been advertising injury because its advertising emphasized the extra effort, and by implication, the extra cost, involved in free-range egg production. That advertising could have, Rose Acre posited, hindered consumers suspicious of high egg prices from discovering the true reason. Judge Posner, writing for the court, noted the "convoluted" nature of this argument.

Nowhere in the complaint, he noted, is there any allegation that the advertising threw the plaintiffs off the scent. Nor does the complaint allege price fixing of free-range eggs; it dealt only with price-fixing of eggs from caged hens.

Significantly, even if the advertising could be alleged as furthering the conspiracy, the liability alleged in the complaint did not arise from the advertising. The alleged liability arose from the conspiracy to fix prices, and the advertising, if anything, merely disguised the conspiracy.

Judge Posner then pointed out the common sense rejoinder to Rose Acre's argument. Antitrust is a major business risk, especially for a business that is one of the largest competitors in a major market. He had earlier noted that Rose Acre had previously been an antitrust defendant, citing A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989) (in which the Seventh Circuit affirmed a decision absolving Rose Acres of monopolization and Robinson-Patman Act challenges). It is unlikely that an insurance contract would cover such a major risk indirectly under a provision relating to advertising injury without mentioning it directly.

As a final bonus, Judge Posner judicially resolved the question that has bedeviled philosophers for centuries - the chicken came before the egg. As support, he cited the Rose Acre website which answered the question by quoting Genesis, that on the fourth day, God created the fowl that fly above the earth.

The Third Circuit affirmed a judgment by the District Court for Delaware dismissing a Sherman Act Section 1 claim arising from parallel refusals to extend credit following at least 27 telephone conversations among the defendants. Burtch v. Milberg Factors, Inc., 2011 WL 5027511 (3rd Cir. Oct. 24, 2011).

The plaintiff is a trustee in bankruptcy representing Factory 2-U Stores, a discount clothing retailer. The defendants are garment "factors." The factors extend credit to garment retailers by buying accounts receivable from garment manufacturers. If the factor refuses to buy the receivables of a retailer, manufacturers will not sell to that retailer. Thus, the complaint alleged, the factors can control the viability of any particular retailer.

The plaintiff suffered sales declines in 2001 and 2002. The defendant factors allegedly exchanged credit information about the plaintiff in a series of 27 telephone calls. The defendant factors then declined to buy manufacturers' accounts receivable from the plaintiff. Because the plaintiff could no longer obtain credit, it was unable to buy sufficient inventory, saw its profits decline and filed for bankruptcy.

The complaint was dismissed for failing to state a claim. On appeal, the court relied on a three-part test that the Third Circuit derived from Bell Atlantic v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009): The court must (1) take note of the elements of the cause of action; (2) distinguish between allegations of fact entitled to a presumption of truth and allegations of conclusions not so entitled; and (3) determine whether the well-pleaded allegations of fact plausibly give rise to a claim for relief.

The court recognized the ordinary elements of a claim under Section 1 - concerted action and unreasonable injury to competition.

The court rejected the argument that exchanging information about creditworthiness of customers necessarily violates the Sherman Act. It is not the exchange of information that is unlawful, the court concluded, but the joint understanding about customers to whom credit should be accorded that may violate antitrust law. Nor does it necessarily matter whether the information is historical or future. The necessary ingredient of an antitrust violation is whether the exchange of information results in an agreement to extend or refuse to extend credit.

Although credit and price may be linked, they are distinct. Sharing information concerning credit is not, the court ruled, treated the same as discussions of price. Exchanges of price information typically serves no purpose other than suppressing competition, but an exchange of information about creditworthiness can protect competitors from insolvent customers. Moreover, the court explained, even if price and credit are treated as the same, the dissemination of price information is not a per se violation. The violation is an agreement on price, and an exchange of information concerning price may not be indicative of an agreement.

The court then addressed the plausibility of the allegations of concerted conduct. The plausibility standard that the court used was not whether the complaint was believable or likely, but whether it alleged facts sufficient to allow an inference of unlawful concerted action. The court found that it did not. There was no allegation of direct evidence of agreement. The allegation of circumstantial evidence was of conscious parallelism without any of the necessary plus factors. That is, there was no motive to act in concert; every defendant's conduct was consistent with its unilateral interest in not buying the receivables of a retailer who is unlikely to pay them; and although the defendants shared information about their plans, there was no allegation of any assurance of common action. The wisdom of not buying the receivables owed by a possibly insolvent retailer did not depend on whether other factors did or did not buy receivables owed by that retailer.

The court also refused leave to amend the complaint. Leave had been requested after the judgment of dismissal, and was therefore controlled by F.R.Civ.P. 59. However, in this instance, the court ruled that a post-judgment motion to amend would be covered by the more lenient standards in F.R.Civ.P. 15. Even so, the amended complaint would be futile because it failed to cure the deficiencies found by the court in the original complaint.

The nine gas stations on Martha's Vineyard charge prices that are thirty-five cents a gallon more than prices charged on Cape Cod, even after adjusting for the higher cost of getting gas to Martha's Vineyard. Profits from the sale of gas on the island increased substantially in the wake of Hurricanes Katrina and Rita in 2005. Four of the nine stations were sued by a class of consumers for horizontal price-fixing and under state law for price-gouging. Summary judgment for the defendants was affirmed by the 1st Circuit. White v. R.M. Packer Co., 2011 WL 565655 (February 18, 2011).

There was no direct evidence of an agreement among the station owners. Thus, the case was decided under the Twombly, Monsanto and Matsushita standard of requiring evidence that is more consistent with a conclusion of concerted action than independent, or which tends to exclude the possibility of independent action.

The court was faced with a textbook example of an oligopoly where it was in each station owner's unilateral self-interest to price in parallel with its competitors. Among the factors considered by the court were:

• The product, gasoline, is homogenous and fungible.

• Sales are made frequently and in small quantities.

• There are only a few competitors, and they publicly post their prices, so price-cutting can be easily be monitored. Rivals can easily and rapidly adjust prices to counter any price-cutting.

• Sales are inelastic. Higher prices will not appreciably diminish sales by driving consumers to competitors in nearby markets, and low prices will not increase sales by drawing consumers from nearby markets, because Martha's Vineyard is an island and there are no easily-accessible nearby markets.

• Barriers to entry are high. New entrants need approval from the Martha's Vineyard Commission, and the Commission has denied all petitions for new stations since 1997.

Given these economic factors, the court concluded, station owners would be expected to set prices at supracompetitive levels in parallel with each other. Conscious parallelism, without agreement, is lawful.

The plaintiffs cited nine plus factors in an effort to permit an inference of agreement. The court rejected that effort. Most of the plus factors merely demonstrated that the market is conducive to conscious parallelism. They also showed a motive to conspire, but the motive was equally indicative of parallel supracompetitive prices without agreement.

Two plus factors gave the court pause, though they ultimately were insufficient. First, one defendant who functioned both as a gas retailer and wholesaler made an implicit threat of reducing shipments to a retailer that cut prices. The court was not persuaded. This could have been only vertical pressure from a wholesaler to its customer rather than evidence of a horizontal agreement. The plaintiffs also pointed to apparently false testimony by a station owner about his profits, arguing that an inference could be drawn from the pretextual testimony. The court ruled that the statement, even if pretextual, did not support an inference of conspiracy, but only the amount of profits.

Consequently, the court affirmed summary judgment on the price-fixing allegation.

The price-gouging allegation raised interesting and novel questions. Prices had shot up in the wake of the two 2005 hurricanes. But because costs also increased dramatically, there was no gouging. Later, costs quickly declined back to normal ranges. Prices, however, declined slowly. Because prices did not decline as fast as costs did, profit margins expanded substantially in a market where prices were dropping. Given the volatility of the market and the lack of clear guidance from state courts, the court declined to find price-gouging where prices were declining, even though profit margins were increasing.

David Fierst
Stein, Mitchell & Muse LLP

A monopolization counterclaim alleging predatory conduct in connection with an allegedly improper and invalid trademark was dismissed for lack of antitrust injury. Dish Network, LLC v. Fun Dish Inc., 1:08 CV 1540 (N.D. Ohio, Dec. 16, 2010).

The defendant alleged that the plaintiff had engaged in predatory acts to monopolize the market of direct broadcast satellite of multichannel video programming distribution.

The District Court granted a motion to dismiss on the section 2 monopolization counterclaim for failure to allege an antitrust injury. The court explained that in order to have antitrust standing, a private antitrust plaintiff must allege injury in fact and antitrust injury. Injury in fact requires that there be actual injury, or threatened injury, caused by the defendant's allegedly unlawful conduct.

Antitrust injury, the court stated, is injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendant's acts unlawful. That is, the plaintiff must show that the alleged antitrust violation tends to reduce competition, and that the plaintiff's injury would result from a decrease in that competition rather than from some other consequence of the defendant's actions.

In this case, the court found that the counterclaim failed to allege either injury in fact or antitrust injury. The counterclaim alleged that the plaintiff sought to impair competition, but did not allege an actual injury to competition. Further, the allegations of injury to it were purely conclusory, of the type that no longer satisfy pleading standards as articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

A two-count antitrust counterclaim arising from alleged patent misuse and fraud on the Patent Office survives a motion to dismiss, but prompts a threat by the court to impose sanctions if one of the allegations ultimately lacks merit. Hurricane Shooters, LLC v. EMI Yoshi, Inc., 2010 WL 4983673 (M.D. Fla. Dec. 2, 2010).

Plaintiff is the owner of two patents for plural chamber drinking cups for serving mixed drinks and shooters. It alleged infringement. The defendant counterclaimed that the plaintiff violated section 1 by acquiring multiple patents in order to obtain licenses from competitors at exorbitant rates, and section 2 by procuring a patent by fraud on the Patent Office. The plaintiff moved to dismiss the two antitrust counterclaims.

The court denied the motion. It did not decide whether the section1 claim was a per se or rule of reason claim. "Regardless of terminology," it ruled, "the ultimate purpose of the antitrust inquiry is to form a judgment with respect to the competitive significance of the restraint at issue." The court acknowledged that it is not a violation of the antitrust laws to acquire patents from others, and a patent owner may exclude others. However, a patent owner may not exploit it in a way that injures competition, such as, by example, fixing the prices at which licensees will sell the patented article.

The court, noting its obligation to assume the truth of the allegations, denied the motion on the grounds that the counterclaim alleges that the plaintiff and the company from which it acquired the patent conspired to restrain competition. It then warned that, because the mere acquisition of a patent is not a violation, "if it is determined, at a later stage, that these allegations were lacking in merit, the Court will not hesitate to award sanctions."

The court then addressed the fraud on the Patent Office monopolization claim. The counterclaim alleged that the patents were acquired through "inequitable" conduct, and that one of the patents resulted from knowing and willful misrepresentations to the Patent Office that subject matter added to the claims was not new matter. That was, the court ruled, sufficient to state a claim for monopolization.

The Second Circuit affirmed a summary judgment dismissing a section 2 monopolization class action in a market for extra-sweet pineapples. American Banana Co., Inc. v. J. Bonafede Co., Inc., 09-4561-CV, 2010 WL 4342217 (2d Cir. Nov. 3, 2010). The complaint was filed on behalf of two classes -- direct purchasers of extra-sweet pineapples (retail stores such as Whole Foods and IGA) seeking both injunctive relief and treble damages, and indirect purchasers (consumers who purchased from the direct purchasers) seeking only injunctive relief.

The complaint alleged that a research cooperative of competing pineapple growers that included Del Monte, Dole and Maui patented an extra-sweet pineapple designated as the 73-114. Del Monte began selling the 73-114 in North America in 1996, identified as the MD-2. In 2000, Dole began selling its version of the 73-114, calling it the MG-3. Maui sold a related pineapple (73-50) which it called CO-2. The CO-2 pineapple had been patented by Del Monte.

Del Monte sent so-called "threat letters" to various Costa Rican laboratories developing MD-2 seeds, alleging that the MD-2 plant material had been stolen, and that Del Monte held a patent on the MD-2 variety. Del Monte also sued Dole, challenging its sales of the MG-3. That case was settled, and Dole agreed not to market its MG-3 pinapple. Del Monte also asserted that Maui's sales of the CO-2 pineapple infringed its patent, but Del Monte dismissed that claim when it became clear that Maui's sales of the CO-2 preceded the patent by more than one year.

The class action complaint alleged that Del Monte monopolized the market for extra-sweet MD-2 pineapples by filing a patent application for a product it knew to be unpatentable, by sending misleading letters threatening litigation against competitors who sold the patented pineapple, and by pursuing sham litigation to enforce the allegedly fraudulent patent against competitors. A class of direct purchasers was certified. The class of consumers was not certified.

The district court struck plaintiffs' expert, who had sought to define the product market as Del Monte's MD-2 pineapple. The expert did not adequately consider competition from the other sweet pineapples, the MG-1 and the CO-2, and thus defined the market too narrowly. However, even assuming a properly-defined market, the case failed. Noerr-Pennington immunizes suits unless they are objectively baseless, and pre-suit efforts incident to litigation, such as threat letters, are also immune unless they are sham. Del Monte's claims were not objectively baseless, even though Del Monte later dismissed the patent claim against Maui relating to the CO-2 pineapple. Moreover, the court found there was no plausible evidence that the threat letters and litigation had any adverse competitive impact. Finally, Del Monte had a legitimate business purpose for its conduct, and so it could not have been exclusionary.

On appeal, the court's decision reflected how judicial attitudes towards antitrust have changed. Long gone are the days where the Supreme Court would say that summary procedures should be used "sparingly" because motive and intent are important, and evidence is often in the hands of the defendants. Now, the Second Circuit says, "summary judgment is particulatrly favored [in antitrust cases] because of the concern that protracted litigation will chill pro-competitive market forces."

The appellate court addressed only the district court's conclusion that there was no competitive injury from the challenged conduct. The court concluded that there was no genuine dispute that the allegedly exclusionary conduct had in fact delayed any entry to the market, regardless of how defined. Competitors and potential competitors testified that they had not been dissuaded from competing by the litigation or threatening letters. Because the plaintiffs could not show any injury to competition, there was no need for the court to address the other issues.

Joint action involving sports leagues continue to raise antitrust issues. Antitrust attorneys at Stein, Mitchell & Muse represented the PGA Tour in an FTC investigation that was closed in 1995. Similar issues have now been addressed by the Third circuit in a recent decision involving tennis tournaments. The Third Circuit affirmed a jury verdict exonerating a new plan by the ATP tennis tour that favored some tournaments over others, and restrained the ability of the top players to choose which tournaments to participate in. The plan revised the schedule to make some tournaments more convenient and desirable to the top players, and also made participation in some tournaments mandatory for the best players. The plan also prohibited the top 50 players from participating in tournaments that compete against ATP tournaments. All of the restrictions were justified by the decline in top-player participation in ATP tournaments.

The plaintiff tennis tournaments could no longer compete for the top players, and became less successful.

On appeal from a jury verdict in favor of the ATP, the court ruled that in the absence of a timely objection, a market definition under § 1 is the same as a market under §2. It affirmed the jury verdict that the plaintiffs failed to prove a relevant product market. The court rejected a per se analysis to restraints on player mobility because horizontal restraints are necessary for the tennis tour, like other sports, to make the product available at all. It rejected a "quick look" analysis because in the context of a tennis tour, the net competitive impact of a restraint on the top players with plausible competitive justifications was not immediately apparent. The court did not find it necessary to decide whether the tennis tour was a single enterprise for § 1 purposes. Nor did the court decide whether the district court properly ruled that there could be no personal liability against the ATP directors unless they participated in inherently unlawful acts.

Deutscher Tennis Bund v. ATP Tour, Inc., No. 08-4123. (3d Cir. June 25, 2010).