WHAT HAPPENED:

  • On October 2, 2017, the US Court of Appeals for the Third Circuit unsealed its opinion in Valspar Corp. v. E.I. Du Pont De Nemours & Co., No. 16-1345 2017 WL 4364317 (3d Cir. Sept. 14, 2017) in which the court affirmed the district court’s grant of summary judgment for defendant on the grounds that plaintiff lacked sufficient evidence to allege a conspiracy to fix prices.
  • Valspar alleged that titanium dioxide suppliers engaged in price-fixing, citing evidence that the manufacturers announced 31 price increases in a twelve year period and other circumstantial evidence. at *5. The parties agreed that the titanium dioxide market is oligopolistic, with a handful of firms, substantial barriers to entry, and no substitute products. Id. at *1.
  • After Valspar settled with all defendants but DuPont, the latter moved for summary judgment. The district court found that Valspar lacked evidence of an actual agreement among defendant suppliers to fix prices. at *1.
  • The Third Circuit agreed with the district court and found that Valspar’s argument failed on two grounds. First, the court explained that Valspar neglected to consider conscious parallelism when it claimed that it was “inconceivable” that defendants executed identical price increases on 31 occasions without a conspiracy. at *5. Price movement in an oligopoly is expected to be interdependent, as rational decision makers anticipate the movements of other firms. Second, Valspar was required to show that defendants’ parallel pricing “went beyond mere interdependence and was so unusual that in the absence of advance agreement, no reasonable firm would have engaged in it.” Id. at *6 (quoting In re Baby Food Antitrust Litig., 166 F.3d 112, 135 (3d Cir. 1999)).

WHAT THIS MEANS:

  • The Valspar case is interesting in that it is an opt-out case from the In re Titanium Dioxide class action litigation, in which the United States District Court for the District of Maryland denied defendants’ motion for summary judgment based on the same evidence that here allowed the District of Delaware, as affirmed by the Third Circuit, to grant it. The Third Circuit attributed the different outcomes in the class and opt-out cases to the fact that the District of Maryland—which sits in the US Court of Appeals for the Fourth Circuit—is not bound by Third Circuit precedent while the District of Delaware is so bound. at *11 (“This resulted in the Maryland court applying a standard quite different from the one we have developed and that the [Delaware court] applied.”).
  • The opinion clarifies the evidence required under Third Circuit precedent to prove a conspiracy in an oligopolistic industry. The court explained that in oligopoly cases, evidence that price increases are not correlated to supply or demand is “largely irrelevant.” at *7. Awareness among defendants of the conscious parallelism is similarly not enough. Id. at *4 n.3. Plaintiffs must show proof of an explicit, manifest agreement. Id. A plaintiff alleging a conspiracy among defendants may not rely on “ambiguous evidence alone” to survive summary judgment. Id. at *5 (quoting In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383, 396 (3d Cir. 2015)).

On July 24, 2017, the US Court of Appeals for the Ninth Circuit affirmed the dismissal of an antitrust counterclaim brought by ICTSI Oregon, Inc. (ICTSI), the operator of a marine shipping facility, against the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). ILWU is a labor union that represents many ICTSI employees, including longshoremen and mechanics. PMA is a multi-employer collective bargaining association covering the West Coast of the United States, which represents employers, including ICTSI, in negotiations with labor unions.

The opinion elucidates the current law surrounding the scope of Noerr-Pennington immunity and the implied labor exemption to antitrust liability.

WHAT HAPPENED

  • ICTSI’s antitrust counterclaim arose out of a labor dispute concerning ILWU’s collective bargaining agreement (CBA) with PMA, which required that all “reefer work” (i.e., plugging, unplugging and monitoring refrigerated shipping containers) performed by PMA members must be assigned to ILWU workers. When ICTSI instead assigned its reefer work to a rival union, the collective bargaining agreement administrator, the Joint Coast Labor Relations Committee, notified ICTSI that it was in violation of the CBA and faced monetary fines and expulsion from the collective bargaining association.
  • ICTSI initiated a proceeding before the National Labor Relations Board (NLRB) to resolve the dispute. The NLRB ruled that the rival union workers were entitled to the reefer work. While the NLRB proceedings were pending, ILWU and PMA filed suits in the US District Court for the District of Oregon seeking an injunction ordering ICTSI to comply with the Joint Committee decision and assign the work to ILWU.

Continue Reading THE LATEST: Ninth Circuit Affirms Dismissal of Antitrust Counterclaim against Labor Union Clarifying Scope of Noerr-Pennington Doctrine and the Implied Labor Exemption

Companies are increasingly facing parallel proceedings involving government investigations and follow-on private litigation. These complex cases often involve competing interests between the parties that can influence a judge’s determination on discovery timing and process.

  • Private plaintiffs are incentivized to obtain as much information about the case as early as possible to support their allegations and avoid having the case dismissed on summary judgment.
  • Defendants hope to delay, or save altogether, the expenditure of potentially millions in discovery costs.

For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.

Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.

Read the full article.

Originally published in Law360.com, April 11, 2017.

On 10 March 2017, France finally implemented into French law the EU Directive 2014/104 of 26 November 2014 on antitrust damages actions. The implementation provisions faithfully transpose the Directive, but some concepts still, however, need to be clarified by courts at the EU and French levels.

Read the full article.

In an antitrust case involving bundled discount on sutures, the United States Court of Appeals for the Tenth Circuit affirmed a lower court decision granting summary judgment in favor of defendants Cardinal Health 200, LLC and Owens & Micro Distribution, Inc.  The Tenth Circuit held that Plaintiff-Appellant Suture Express, Inc. could not prove that the defendants individually possessed market power and that it had not demonstrated that defendants caused substantial adverse effects on competition.

WHAT HAPPENED:

  • Suture Express, a distributor focused on the sale of sutures, sued Cardinal Health and Owens & Micro, which are national distributors of a broad array of medical-surgical products, claiming that they had engaged in illegal tying through their practice of bundling sutures with other medical-surgical products in a manner that penalized customers that purchased sutures from other suppliers.
  • The parties filed cross motions for summary judgment and the lower court granted summary judgment to the defendants.  The court held that Suture Express’ claims failed as a matter of law because it could not prove that the defendants individually possessed market power.  The court also held that Suture Express could not meet the antitrust injury requirement because it had not shown that competition had been harmed.
  • The Tenth Circuit affirmed the lower court’s ruling.  On the issue of market power, the appellate court agreed with the lower courts’ findings that the defendants’ market shares on the alleged tying products (medical-surgical products excluding sutures) were relatively low (31 percent and 38 percent), there were many examples of customers switching to other distributors, and the defendants’ declining profit margins on medical-surgical products excluding sutures demonstrated that the defendants did not have the ability to control prices.
  • With respect to antitrust injury, the Tenth Circuit stated that the antitrust laws are meant to protect competition, not individual competitors.  The appellate court noted that despite the fact that roughly half of the market was not constrained by the bundling arrangement at issue, Suture Express accounted for a relatively small portion of this piece of the market.  This raised the question of whether it was just Suture Express that was harmed as opposed to competition generally.

WHAT THIS MEANS:

  • Establishing market power when defendants have relatively low market shares is difficult.  While market shares in and of themselves are not determinative of whether market power exists, the courts give market shares significant weight and when evidence of low market shares is combined with the other factors the Tenth Circuit found here, it is difficult for a plaintiff to meet its burden.
  • Vertical pricing arrangements that offer discounts to customers, even if associated with a bundling arrangement, are often viewed as procompetitive.  A plaintiff has the difficult burden of showing that a defendant’s bundle creates anticompetitive effects that outweigh its procompetitive effects.  The plaintiff must demonstrate that the arrangement caused harm not only to the plaintiff, but to competition as a whole.  Even if a plaintiff finds it difficult to compete against a defendant’s bundle, if customers have shown that they are willing and able to switch from the defendant’s bundle, establishing harm to competition will be a challenge.

A private lawsuit filed by Retrophin Inc. (Retrophin), under then-CEO Martin Shkreli, likely triggered an investigation by the FTC into a consummated transaction.  Both the private lawsuit and the FTC complaint resulted in settlement.  In addition, the FTC levied a $100 million penalty.

WHAT HAPPENED:

  • In 2013, Questcor Pharmaceuticals, Inc. (Questcor) acquired the U.S. rights to Synacthen Depot (Synacthen) from Novartis (Mallinckrodt later acquired Questcor).
  • Questcor’s $135 million deal with Novartis out-bid several companies seeking to acquire Synacthen, including biopharmaceutical company Retrophin, who bid $16 million for the Synacthen license.
  • In 2014, Retrophin (under then-CEO Martin Shkreli) filed suit against Questcor, alleging that the purpose of the transaction between Questcor and Novartis was to eliminate competition for Achthar, Novartis’ ACTH drug used to treat infantile spasms and nephrotic syndrome, by shutting down Synacthen.
  • Retrophin’s case was settled in 2015 with Mallinckrodt (who acquired Questcor in the interim) paying Retrophin $15.5 million.
  • There are reports that the FTC challenged the consummated transaction of Questcor/Novartis following Retophin’s lawsuit. The FTC’s challenge recently resulted in a $100 million monetary payment and licensing of Synacthen for treatment of infantile spasms and nephrotic syndrome to an FTC approved licensee.

WHAT THIS MEANS:

  • Even if a transaction is non-reportable under the Hart-Scott-Rodino (HSR) Act, the FTC or DOJ may open an investigation into the transaction. The Questcor/Novartis transaction was not reported under the then-existing HSR rules because Novartis, the licensor, retained some manufacturing rights to Synacthen.
  • The FTC and DOJ may learn about potentially anticompetitive transactions in numerous ways, including HSR filings, news reports, complaints from disgruntled customers or competitors, private litigation involving the transaction, and as shown here, from the losing bidder.
  • HSR clearance or a determination that a transaction is not HSR reportable does not mean that the transaction is free and clear of government antitrust investigations or private litigation.

To bring a claim for antitrust damages, indirect purchasers must show that they have antitrust standing. They must demonstrate that their injuries are sufficiently direct and intertwined with the alleged cartel conduct that they are entitled to recover an overcharge, despite being downstream – sometimes by several levels – from the direct purchasers.

WHAT HAPPENED:

  • In Supreme Auto Transport LLC, et. al. v. Arcelor Mittal, et al. (Supreme Auto), defendant steel producers defeated state antitrust, consumer protection, and unjust enrichment claims brought by a purported class of indirect purchasers of retail products containing steel. The court found that plaintiffs lacked antitrust standing to recover for their alleged indirect harm.
  • Plaintiffs alleged that defendant steel manufacturers conspired to restrict steel output, thereby raising the price of steel. Plaintiffs contended that direct purchasers of steel  passed on these price overcharges to the plaintiff purchasers of steel-containing products such as refrigerators, dishwashers, automobiles, and construction equipment.
  • The court found it appropriate to apply the Associated General Contractors (AGC) standard – the prevailing test for antitrust standing under federal law – to each of the state antitrust claims. AGC looks at factors including the causal connection between the violation and the harm, the directness of the injury, and the risk of speculative and duplicative damages to determine whether a plaintiff is a proper party to bring the antitrust action.
  • Though plaintiff retail customers described their injury as inextricably intertwined with the defendants’ alleged restriction of the steel market, the court held that plaintiffs’ injury was too remote to confer standing. The complaint failed to account for interceding steps in the distribution and manufacturing chain that occurred between defendants’ production of raw steel and plaintiffs’ purchase at retail of a product containing steel as a component. Nor did the complaint provide a basis to link the steel in an end-use product to that produced in any of defendants’ steel mills.
  • The court determined that remoteness similarly doomed the plaintiffs’ other state law claims because they could not establish proximate cause between plaintiffs’ harm and defendants’ alleged misconduct.
  • The court also found that plaintiffs’ claims were time-barred, rejecting class action tolling of the statutes of limitations or relation back of the amended claims.

WHAT THIS MEANS:

  • Supreme Auto adds to a growing body of caselaw (see, e.g., In re Aluminum Warehousing Antitrust Litigation; In re Dairy Farmers of America, Inc. Cheese Antitrust Litigation) in which courts have found that indirect purchasers’ relationship to the alleged misconduct is too attenuated for plaintiffs to possess antitrust standing. Courts are rejecting attempts by indirect purchaser plaintiffs to justify standing based on their injury being “inextricably intertwined” with injuries of market participants.
  • A defendant facing antitrust claims by indirect purchasers should raise any gaps in the link between the alleged misconduct and the ultimate injury, highlighting interceding parties, steps in the manufacturing and distribution processes, and component traceability issues. This can be done in a motion to dismiss, prior to class certification.

On February 9, the US Court of Appeals for the Third Circuit upheld a ruling by the US District Court for the District of Delaware that indirect purchasers of Class 8 transmissions did not meet the requirements for class certification. The Third Circuit found that only the individual claims may proceed in the case. The opinion is significant because it reaffirms the difficulty indirect purchaser plaintiffs face when attempting to certify a class.

Read the full article here.

Bilal Sayyed, a McDermott partner and former official at the Federal Trade Commission, has prepared a thoughtful series of recommendations for actions which the new administration’s FTC might take. His paper considers options which the new administration may take based on prior precedents.

Read the full report here.