Judge Loretta Preska dismissed a putative class action against major record labels on the ground that the complaint failed to allege sufficient facts to establish an anticompetitive agreement under the recent Twombly decision. Plaintiffs, according to the court, needed to demonstrate the lack of a legitimate purpose in the companies dealings with each other and third parties.
Dicover Suit Against Visa/MasterCard Settled
October 13, 2008 – 9:35 am
Update: The parties are confirming that they have agreed to settle the case. No dollar figures have been released.
Judge Barbara Jones, Southern District of New York, issued a sweeping and bold decision permitting Discover to reach a jury on its claim that Visa and MasterCard antitcompetitively restrained banks from issuing Discover cards. The case is essentially a follow-on to the successful government prosecution of the two credit card giants that overturned system rules that allowed banks to issue both Visa and MasterCard cards, but neither AmEx nor Discover cards. Visa and MasterCard recently settled a similar case filed by AmEx.
Judge Jones recent decision granted, in part, Discover’s motion to employ non-mutual, offensive collateral estoppel to prevent Visa and MasterCard from re-litigating issues decided in the government prosecution. These included (1) market definition and market power; (2) the anticompetitive effect of Visa’s and MasterCard’s rules; (3) the lack of any procompetitive justification; and (4) that the harm to consumers necessarily caused antitrust injury to Discover. The court emphasized that employing collateral estoppel would serve the interests of judicial econonmy even though the jury would have to consider much of the same evidence in Discover’s damages case. In a clear rebuke to the defendants, the court emphasized that they had “demonstrated clearly by their unwillinness to accept even the most basic underpinnings of this Court’s decision in the DOJ action, that precluding them from relitigating those core determinations would conserve judicial resources, despite the fact that there may be substantial overlap in the evidence to support the damages model and liability.”
The court also rejected Visa’s statute of limitations defense concluding that separate causes of action accrued when individual banks refused to deal with Discover as a result of the Visa rule in large part because a claim for damages would have been entirely too speculative before that point. The DOJ action was also held to toll the statute with respect to both credit card claims (the subject of the DOJ suit) and debit claims, which were not asserted by the government, because the court found in the DOJ case that Visa’s anticompetitive conduct impacted the debit market.
The court also rejected Visa and MasterCard’s challenges to Discover’s attempt to collect damages for its inability to partner with third party acquirers, even though Visa and MasterCard’s rules placed limits only on issuers. Discover, the court held, had presented sufficient evidence to create a triable issue on whether the issuing limitation impacted acquiring as well.
MasterCard also complained that Discover failed to apportion damages between the two defendants, but the court agreed with Discover that they would be jointly and severally liable.
The court did reject Discover’s intersystem conspiracy and debit-related claims, finding insufficient evidence of an agreement between Visa and MasterCard to adopt their exclusionary rules or to prohibit Discover’s access to the debit market.
The court also dismissed Discover’s Section 2 claims on the ground that it failed to articulate an adequate theory of harm, pointing out that Visa had not foreclosed a sufficient percentage of the market to support an exclusive dealing theory.
Update: MasterCard has asked the court to clarify that Discover’s debit related claims do not relate to MasterCard.
Update 2: The court has ordered Visa and MasterCard to submit information about their agreement to apportion any damages that may be awarded with Visa paying a higher share.
Update 3: The court denied the defendants’ summary judgment motions with respect to injury in fact. Although the Court described the evidence as “thin even when viewed in the light most favorable to discover,” it held that the evidence was sufficient to create material issues of fact.
Update 4: The court granted Visa’s motion to reconsider a portion of the courts earlier ruling granting, in part, Discover’s motion to collaterally estop Visa and MasterCard from questioning the liability determinations in the early Department of Justice litigation. On reconsideration, the court reversed its decision to allow finding from the earlier case based on debit card markets to collaterally estop Visa and MasterCard in the current Discover case. Although the court reiterated that the it had made relevant debit-related findings that could support collateral estoppel, Discover would nonetheless have had to prove a relevant debit market and Visa’s market power in it, because those issues were not addressed in the earlier case. Given that the requirement of re-proving anticompetitive effect in the debit market would not significantly add Discover’s burden and held the potential to confuse the jury, the Court held that Discover had to prove its entire debit claim.
Update 5: The court rejected a Visa and MasterCard motion to exclude testimony by Discover executives about what Citibank excutives told them with respect to Citibank’s decision not to enter a card issuing joint venture with Discover. Trial now appears likely to be a he-said, she-said battle. Discover’s executives will testify that Citi refused to enter a JV because of the Visa and MasterCard rules being attacked in the case. Citi will say that those rules were only one consideration. Visa and MasterCard argued that the Discover executives testimony would be hearsay, but the court held that it could come in under the state of mind exception so long as Discover makes an adequate proffer that a deal between Discover and Citi was likely.
Blue-ray Chip Manufacturer Sues over Licensing of Audio Standard
October 10, 2008 – 12:43 pm
Zoran Corp., a manufacturer of chip sets used to make Blue-ray DVD players, has filed a monopolization case against DTS, Inc., licensor of the technology used to encode audio on Blue-ray discs. Zoran argues that DTS is obligated by the Blue-ray standard setting agreement to license the technology and fair, reasonable, and non-discriminatory terms. Zoran argues that DTS has violated this standard by (1) demanding a large up-front payment to even begin licensing negotiations; (2) demanding unreasonable indemnity provisions; and (3) failling to respond to Zoran’s mark-up of a draft license. Zoran contends that these actions constitution the abuse of a monopoly position in violation of Section 2 of the Sherman Act.
IPhone Antitrust Litigation to Proceed
October 9, 2008 – 4:55 pm
Judge James Ware, U.S. Dictrict Court for the District of California, denied Apple and AT&T’s motions to dismiss a putative class action alleging that Apple violated Section 2 of the Sherman Act by monopolizing the market for aftermarket iphone applications. The complaint alleges that Apple notified iphone users that downloading third-party applications would void the phone’s warranty. The complaint also alledges that Apple and AT&T monopolized the market for iphone voice and data service by entering a 5-year exclusivity deal. Although iphone purchasers agreed to a 2-year contract with AT&T for voice and data service, Apple and AT&T are alleged to have improperly monopolized the market for iphone voice and data service after the initial 2-year contracts expire.
Class Action Filed Against Door & Hardware Manufacturers
October 9, 2008 – 2:09 pm
A contractor, Taj Construction, has filed a putative class action in the Western District of Texas against door and hardware manufacturers under Department of Justice criminal antitrust indictments. The defendants, Architectual Products Co., and El Paso Steel Doors and Frames (along with an executive from each company) were recently charged with engaging in a decade-plus long bid-rigging and customer allocation conspiracy.
DOJ/EC & Manitowoc Settle Merger Dispute
October 9, 2008 – 1:53 pm
To resolve Department of Justice and European Commission antitrust concerns with its acquisition of British competitor Enodis, Manitowoc agreed to disvest Enodis’s U.S. ice making operations.
European Commission Upholds Graphite Electrode Cartel Fines
October 9, 2008 – 1:48 pm
Several members of a grahpite electrode cartel challenged the propriety of a December 2003 decision to impose massive fines, but not the liability decision, for a price fixing scheme that began in the late-80s/early 90s. The Commission upheld all of the fines. The fines upheld ranged from 23 million to 43 million euros.
Broadcom Files New Patent Case Against Qualcomm
October 9, 2008 – 12:55 pm
Broadcom has filed a new patent claim in the Southern District of California arguing that Qualcomm has improperly required customers who purchase chipsets for use in cell phone handsets to pay additional licensing fees when the handsets are sold. In Quanta Computer v. LG Electronics, 128 S. Ct. 2109 (2008), the U.S. Supreme Court recently held that a patent holder may not restrict the use of an invention after it sells that invention to a customer. Where the patent owner sells components that substantially embodied the patented invention, even if they are combined with other components, the Court held that the sale exhausts the patent. Broadcom argues that similar reasoning should render Qualcomm’s patents exhausted.
Payment Processing Tying Claim Survives Motion to Dismiss
October 2, 2008 – 11:48 am
A NJ Federal district court denied Chase Paymentech Solution’s motion to dismiss a claim alleging an illegal tying agreement between a payment’s processor and the supplier of point-of-sale payment equipment.
Court Denies Lockheed Martin Motion to Dismiss
October 2, 2008 – 11:44 am
L-3 Communications, a refurbisher of propeller aircraft manufactured by Lockheed Martin, has alleged that the manufucturer has engaged in anticompetitive practices such as denying L-3 access to government owned tooling and suggesting to potential customers that dealing with L-3 would lead to legal problems. A Northern District of Texas court has denied Lockheed’s motion to dismiss.