Kensington Antitrust Advisors Group

Failed Solar Panel Company Alleges Anticompetitive Dumping into US Market

November 13, 2012 – 12:37 pm

In Solyndra LLC v. Suntech Power Holdings Co. et al., bankrupt solar power company Solyndra filed an antitrust action in a Northern District of California alleging that Suntech Power Holdings Co. Ltd. and two other Chinese companies conspired to drive American manufacturers from the market.

Solyndra, which is famous for failing after having received a significant loan guarantee from the U.S. government, lleges that the defendants recognized “that they could not keep pace with the innovation presented by Solyndra’s technology,” and thus they conspired “with key suppliers and lenders to dump product at predatory levels [in the United States] and to drive Solyndra and other American solar manufacturers out of business.”

The suit followed a U.S. Department of Commerce announcement that Chinese solar panel makers were benefitted from unfair government subsidies and that imports of the panels from China were being illegally dumped into the United States.

Suntech America’s managing director stated the company’s intent to “defend against these allegations vigorously.”

Posted in Dumping, Predatory Pricing, US Federal Courts | Comments (0)

Federal Circuit to Decide Whether Patent Fraud Antitrust Claims Can Be Asserted Independently of Infringement Claims and Amended Complaint Upheld in Related Flash Memory Monopolization Challenge

November 9, 2012 – 9:19 am

In Ritz Camera & Image LLC v. SanDisk Corp., the Federal Circuit will decide whether a firm that is not at risk of being sued for patent infringement can prosecute an antitrust claim based on fraudulently obtained patent. Defendant SanDisk Corp. argued that an affirmative decision would “open the floodgates” to litigation.

The putative class action was filed by Ritz Camera alleging that SanDisk used false patents and sham litigation to maintain a monopoly in the flash memory market. SanDisk sought to dismiss the case on the ground that Ritz was a memory purchaser and not a competitor in the technology market or a licensee subject to potential patent infringement claims. A California district court refused to dismiss the case, and it is not pending before the Federal Circuit.

Patent fraud antitrust claims were upheld by the U.S. Supreme Court in the Walker Process case. There, the Court held that enforcing a patent procured from the USPTO by fraud could constitute an anticompetitive act violating the antitrust laws if the other elements of the claim were met.

SanDisk argues that purchasers, like Ritz, should be denied antitrust standing, because allowing them to sue could lead to a flood of litigation. Ritz, however, asserts that only four cases have been filed after the Second Circuit’s 1999 ruling in In re: DDAVP Direct Purchaser Antitrust Litigation that opened the door to direct purchaser patent fraud claims.

During oral argument, one judge asked whether SanDisk’s concerns were realistic. “I’m always skeptical of floodgates arguments,” the judge asserted, “because they’re made frequently and they often turn out not to produce much by way of a flood.” Another member of the court pointed out that the Supreme Court’s language in Walker Process did not suggest that anything more than a valid antitrust claim would be required to use a patent fraud theory.

In another case challenging ScanDisk’s licensing practices, PNY Technologies Inc. v. ScanDisk Corp., Northern District of California Judge Yvonne Gonzalez Rogers denied ScanDisk Corp.’s motion to dismiss PNY Technologies Inc.’s lawsuit alleging that ScanDisk threatened litigation to force rivals into anti-competitive patent licensing agreements. PNY initially claimed that ScanDisk’s patent licensing and royalty strategy harmed competition in the U.S. flash memory market and kept prices high. In April, Judge Rogers dismissed that complaint for failing to adequately plead the antitrust claims. The court held that PNY admitted that SanDisk’s monopoly in the flash memory technology market was a consequence of the patent laws, but it contained no allegations that the defendant willfully acquired this monopoly in violation of the Sherman Act. The court also held that while PNY alleged “anti-competitive conduct” generally, it failed to relate that conduct to the maintenance of SanDisk’s legally obtained monopoly of the patented technology.

Following the April ruling, PNY filed an amended complaint with additional allegations attacking SanDisk’s licensing activities and other allegedly anti-competitive behavior. The plaintiff alleged that the defendant’s conduct was undertaken “with the specific intent to acquire or the intent to maintain monopoly power in and over the flash memory technology market.” The amended complaint further alleged that ScanDisk’s grant-back provision lessens the incentive to innovate because the companies can never break away from ScanDisk’s licensing grasp. Additionally, PNY contended that SanDisk unfairly required licensees to pay for access to a broad portfolio of patents, as opposed to specific ones, and the licensees were forced to pay royalties on worldwide sales, even in countries where SanDisk holds no patent rights. In denying ScanDisk’s second motion to dismiss, the court held that these new allegations in PNY’s amended complaint addressed the original complaint’s deficiencies that led to the earlier suit’s dismissal.

Posted in High Importance, Patent Litigation, Section 2 Standards | Comments (0)

Avery Dennison & 3M Scrap Division Purchase Plans

November 7, 2012 – 11:54 am

After initially indicating that they would restructure their deal in light of Department of Justice antitrust concerns, Avery Dennison Corp. and 3M Co. have now decided to abandon 3M’s proposed purchase of Avery Dennison’s office and consumer products business division.

The DOJ claimed that the deal would eliminate 3M’s main rival and give the giant conglomerate a label and sticky note market share in excess of 80%, which would likely lead to higher prices.

Avery Dennison maintained it will continue its efforts to sell its office and consumer products division.

Posted in Antitrust Division Action, market definition, Merger Review | Comments (0)

FTC Closes Investigation Into Several Drug Patent Deals

November 6, 2012 – 2:05 pm

The Federal Trade Commission has ended its investigation of settlements involving Bayer’s Yasmin birth control drug between Bayer Schering Pharma AG and Barr Laboratories Inc. The investigation stemmed from an agreement between Barr, which was acquired by Teva for $9 billion in 2008, in which Barr was granted the right to market a generic version of the Yasmin oral contraceptive, thereby resolving a long-running patent dispute between the pharmaceutical companies.

“Upon further review of this matter,” the FTC explained in letters to the parties, that “it now appears that no further action is warranted by the commission at this time.” The Commission made clear that its action should not be interpreted as a finding that the deal was not anticompetitive and it reserved “the right to take such further action as the public interest may require.”

Posted in Federal Trade Commission, Patent Litigation | Comments (0)

AndroGel Drug Patent Litigation Not a Sham

October 31, 2012 – 3:48 pm

In In Re: AndroGel Antitrust Litigation (No. II), Northern District of Georgia judge Thomas W. Thrash granted defendants summary judgment on antitrust claims alleging that Solvay Pharmaceuticals Inc. filed sham patent infringement litigation to delay the entry of generic Androgel. The court had previously dismissed a claim challenging a reverse payment agreement between Solvay and generic manufacturers.

Under Eleventh Circuit law, pay-for-delay settlements of infringement claims against generic drug manufacturers are legal as long as they do not exceed the scope of the patent. But a drug patent holder may violate the antitrust laws if plaintiffs can prove that the settlements were based on objectively baseless, sham litigation.

Proving sham litigation requires plaintiffs to bear what the court described as a “heavy burden.” It must be objectively obvious that the litigation would fail and the patent holder must have filed it, knowing it would fail, solely for illegitimate purposes. Here, that standard could not be met. As Judge Thrash explained, “a reasonable litigant could have expected some chance that the patent was not invalid based on prior public use.”

Posted in Noerr-Pennington, Patent Litigation, US Federal Courts | Comments (1)

Conditioning Rebates on Percentage Purchased May Violate the Antitrust Laws Even If Prices are Above Cost

October 30, 2012 – 11:32 am

In ZF Meritor v. Eaton Corp., a divided panel of the Third Circuit upheld a jury verdict in favor of the plaintiff truck transmission manufacturer against its competitor Eaton Corp. The complaint alleged that Eaton violated the antitrust laws by entering agreements with each large truck manufacturer that contained the following provisions:

(1) Conditional rebate provisions under which the truck manufacturer would receive a discount only if it used Eaton transmission in a specific percentage of its trucks. The percentages varied from a low of 70% to a high of 97.5%. Although the contracts did not require purchases at these percentages – they merely conditioned discounts on them – some of the contracts permitted Eaton to terminate the agreements if the percentages were not met;

(2) Restrictions on informing truck customers of the availability of competing transmissions;

(3) Requirements that truck manufacturers price Eaton transmissions lower than competitors; and

(4) Competitiveness provisions permitting truck manufacturers to purchase competitive transmissions only if Eaton could not match the price or quality.

After the adoption of these agreements, the plaintiff’s market share fell and it left the market.

Eaton characterized the complaint as stating a predatory pricing case and it argued that such a claim must fail as a matter of law because Eaton’s prices were always above cost. The plaintiff, however, characterized its complaint as attacking exclusive dealing agreements that would violate the antitrust laws if their probable effect were to substantially lessen competition.

A 2-1 majority of the Third Circuit panel agreed with the plaintiffs. As Judge Fisher explained, the below-cost-pricing requirement is limited to cases in which “the clearly predominant mechanism of exclusion” is the defendant’s low prices. Here, the industry-wide agreements between the defendant and all truck manufacturers went well beyond mere pricing. For example, they forced truck manufacturers to list Eaton transmissions as preferred choices and to remove competitor transmissions from the books offered to truck buyers when selecting options. The case was thus effectively an exclusive dealing case, the panel majority held because “the defendant’s low price was [not] the clear driving force behind the customer’s compliance with purchase targets, and the customers [truck manufacturers] were [not] free to walk away if a competitor offered a better price.”

The panel majority held that total exclusivity was not required to prove an antitrust violation. But exclusivity provisions often have pro-competitive effects. To succeed, a plaintiff must establish that the defendant is using the agreement “to deprive other suppliers of a market for their goods.” The majority found that the evidence was sufficient to meet this standard. The market was highly concentrated and Eaton’s position was dominant; the percentage of foreclosure approached 90%; and the agreements were not of short duration. “Evidence presented at trial,” Judge Fischer thus explained, “indicated that not only were lower prices (rebates) conditioned on the OEMs meeting the market-share targets, but so too was Eaton’s continued compliance with the [agreements]. . . . Critically, due to Eaton’s position as the dominant supplier, no OEM could satisfy customer demand without at least some Eaton products, and therefore no OEM could afford to lose Eaton as a supplier. Accordingly, [the panel majority] agree with the District Court that a jury could have concluded that, under the circumstances, the market penetration targets were as effective as express purchase requirements ‘because no risk averse business would jeopardize its relationship with the largest manufacturer of transmissions in the market.’” The other provisions in the agreements requiring truck manufacturers to favor Eaton further justified the jury’s finding of anticompetitive conduct. These anticompetitive effects could reasonably be found to outweigh any pro-competitive price reductions that may have resulted from the agreements.

A class of truck purchasers has now filed a putative class action based on similar claims. Although the district court dismissed consumer protection claims, it has allowed the antitrust claims to move forward.

Posted in Bundled Discounts, Exclusive Dealing, High Importance, Predatory Pricing, Section 2 Standards, US Federal Courts, Vertical Restraints | Comments (0)

LCD Manufacturers Move to Dismiss Price-Fixing Claims Based on ATM Fee Ruling

October 29, 2012 – 10:00 pm

In In re: TFT-LCD Flat Panel Antitrust Litigation, Toshiba, Corp. moved to dismiss Best Buy Co. Inc.’s liquid crystal display (LCD) price-fixing claims, on the ground that Best Buy lacks standing to seek antitrust damages under the Ninth Circuit’s recent ATM fee antitrust ruling. In July, the Ninth Circuit rejected claims brought by consumers over the foreign ATM fees banks pay to ATM network owners. The Ninth Circuit’s ruling was based on the U.S. Supreme Court’s 1977 ruling in Illinois Brick that a purchaser of a finished product containing price-fixed components cannot establish standing on the ground that it purchased the product directly from the alleged violator. In its motion to dismiss Best Buy’s claims, Toshiba claims that in light of this recent Ninth Circuit decision, Best Buy should not be allowed to seek damages under the federal antitrust laws because it bought laptops, monitors, and televisions that incorporate LCD products, but were not themselves price-fixed.

Besides Toshiba, thirteen other LCD defendants and a number of cathode ray tube manufacturers also moved to dismiss claims from companies who bought finished products, on the same grounds.

Posted in Antitrust Standing | Comments (0)

Supreme Court Will Address Antitrust State Action Exemption

October 24, 2012 – 8:28 am

The state action exemption to the federal antitrust laws holds that governments do not violate the antitrust laws, firms do. State laws with anticompetitive impacts thus do not run afoul of federal law when they restrain trade even though the same conduct by private actors would violate the law. The exemption is entirely judge-made and rests on the notion that Congress intended the antitrust laws to reach only private conduct.

The Supreme Court’s engagement with the exemption has been sporadic. After creating it in the mid-20^th Century Parker v. Brown case – where the Court upheld California’s anticompetitive regulation of the raisin industry – the Court allowed the bare bones doctrine to evolve in the lower courts for decades. A flurry of cases in the 1980s set out the current parameters of the exemption. Sovereign state action is entirely exempt from antitrust scrutiny. Agency and municipal doctrine must be undertaken pursuant to a state policy recognizing the validity of anticompetitive conduct. And private actors may rely on the exemption only when their anticompetitive conduct is both (1) pursuant to state policy, and (2) actively supervised by state actors.

Critics have long questioned why the exemption permits restraints of trade that would be illegal if imposed by private actors without the imprimatur of government. Indeed, the exemption appears as a sort of reverse preemption, enabling state law to trump federal law. The best explanation for the doctrine is that the federal antitrust laws recognize the value in regulation that restrains trade, but not private restraints. Government actors are charged with a duty to act in the public interest and thus can generally be trusted to restrain trade only when the public will benefit. Private actors, by contrast, are driven by the desire to maximize profit and will thus restrain trade when it is privately beneficial but harms the public interest.

On 26 November, the Supreme Court will reenter the fray, hearing oral argument in FTC v. Phoebe Putney Health System.

The case arises from a Federal Trade Commission (FTC) challenge to the merger of two Georgia hospitals. The Eleventh Circuit held that the state action doctrine exempted the merger from antitrust scrutiny even if, as the FTC alleged, the merger created an “absolute monopoly” in certain hospital services in the geographic market.

The merging hospitals argued that Georgia’s Hospital Authorities Law authorized regional hospital authorities to ensure that medical services are available to the poor on a nonprofit basis in otherwise underserved areas. Toward that end, the law empowers the authority buy, sell, and operate hospital assets as necessary to achieve that goal. In this case, the regional hospital authority nominally purchased Palmyra Hospital and then promptly transferred it to Phoebe Putney, a hospital providing non-profit health care services.

The Eleventh Circuit rejected two arguments raised by the FTC. First, the Commission argued that the Hospital Authorities Law did not did not anticipate anticompetitive conduct. But the lower court carefully detailed the broad powers that the state granted and convincingly explained that they fell within the scope of prior cases in which state authorization of anticompetitive conduct has been found. Unless the Supreme Court plans to revisit this prong of the test, the Eleventh Circuit’s decision rests on firm ground.

Second, the FTC argued that the decision was not really that of the Authority, but rather Phoebe Putney Hospital’s private interests drove the merger despite the nominal cloak of state authority. Again, however, the Eleventh Circuit properly rejected the argument. The Supreme Court made clear in Omni Outdoor Advertising that there is no co-conspirator exception to the state action exemption. Courts are prohibited from probing the minds of state actors to see whether they were perhaps improperly influenced by private actors with an interest in the government activity.

Another issue that should be central to the case, however, was never addressed by the Eleventh Circuit. This is a case against private parties, the hospitals, not the state or the Hospital Authority as a regulatory arm of the state. When private conduct is at issue, the state action exemption normally requires active state supervision. It would appear to be a relevant question whether state law provides sufficient mechanisms for the Hospital Authority to supervise Phoebe Putney going forward to ensure that the state policy of access to health services by the poor is in fact the result of the merger rather than merely higher prices for health care.

Posted in Federal Trade Commission, Merger Review, State Action Immunity, US Federal Courts | Comments (0)

European Commission Cracks Down on Microsoft in Browser Case

October 22, 2012 – 10:25 am

EU Competition Commissioner Joaquin Almunia has reported that the European Commission will charge Microsoft for failing to comply with a 2009 Commission order requiring the software giant to offer a “choice screen” to Windows users enabling them to select a browser from a list that included non-Microsoft options. Beginning in 2011, Microsoft began violating the order. Up to 28 million purchasers of Windows 7, according to Almunia, may not have been offered an option to use a preferred browser other than Internet Explorer.

The EC will open a formal investigation, but the matter is expected to move quickly. According to Almunia, Microsoft “explicitly recognized its breach of the agreement.” Although an initial compliance report stated that the firm had met its obligations, the company later admitted the violation, blaming a technical error.

Posted in EU News, Tying Claims | Comments (0)

Hospital Lacks Standing To Seek Damages in a Challenge to a Tying Arrangment Because It Purchased the Bundle Indirectly

October 22, 2012 – 10:24 am

In Lakeland Regional Medical Center Inc. v. Astellas Pharma US Inc. et al., Middle District of Florida Judge Virginia M. Hernandez Covington held that a Florida hospital lacked standing to sue for damages, allegedly totally $867 million, in an antitrust class action accusing Astellas Pharma of using a patented testing process to restrain competition in the market for a cardiac testing drug.

The plaintiff alleged that Astellas anticompetitively tied a particular drug to its patented cardiac stress test process. The proprietary testing method requires a doctor to inject the unpatented drug adenosine in order to create the illusion of heart stress in patients unable to accellerate their own heart rate by running on a treadmill. Lakeland Regional alleged Astellas anticompetitively compelled hospitals to be Astellas’s brand of adenosine at supra-competitive prices more than four times that of a generic version of the drug.

Because Lakeland Regional purchased Astellas’ branded drug from third-parties, the plaintiff was an indirect purchaser that thus barred from seeking damages under the U.S. Supreme Court’s 1977 Illinois Brick decision.

This bar to seeking damages, according to the court, also “eviscerates Lakeland Regional’s . . . ability to meet the [class certification] requirements of Rule 23(a).” Although Illinois Brick’s rule only applies to damages — not injunctive or declaratory relief — the judge held that those claims were alleged in an overly vague fashion and thus could not proceed. “The amorphous injunctive and declaratory relief sought,” Judge Covington found, “appears to be completely incidental to the damages claim.”

Posted in Class Certification, Indirect Purchaser Issues, Patent Litigation, US Federal Courts | Comments (0)