Tuesday, October 24, 2006

Term Starts with Three Antitrust Cases Set for Review

Following a term in which it decided four antitrust cases, the U.S. Supreme Court started its October 2006 Term having granted review in three antitrust cases, with several other interesting petitions still in play.

In Bell Atlantic Corp. v. Twombley, the Court will review a Second Circuit decision (2005-2 TRADE CASES ¶74,951) that the customers of a telecommunications company did not have to plead so-called “plus factors” to sufficiently allege that telecommunications providers conspired to refrain from competing against one another. Defendant Bell Atlantic questioned whether the customers had stated a claim under Section 1 of the Sherman Act by merely alleging that the company engaged in parallel conduct and participated in a conspiracy—without including any allegation that would establish the existence of a conspiracy under the applicable legal standard.

The Federal Trade Commission and the Department of Justice submitted a joint brief in favor of Bell Atlantic, arguing that the Federal Rules of Civil Procedure require that a complaint allege enough facts to place a defendant on notice and that specificity in pleading is particularly important in a Section 1 Sherman Act action. Claims of parallel conduct, together with bald allegations of conspiracy, are insufficient to state a claim under Section 1, according to the agencies. The Court granted review on June 26. Oral argument is scheduled for November 27.

In another case—Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc—the Court will consider a decision of the Ninth Circuit (2005-1 TRADE CASES ¶74,817), upholding a jury verdict of monopolization and attempted monopolization by lumber products giant Weyerhaeuser Co. The appeals court held that the standard for a predatory pricing claim articulated by the Supreme Court in Brooke Group Ltd. V. Brown & Williams Tobacco Corp. (1993-1 TRADE CASES ¶70,277) did not apply to a case that alleged “predatory bidding” in violation of Section 2 of the Sherman Act. The Brooke Group decision maintained that a plaintiff asserting predatory pricing must prove that the defendant suffered a short-term loss from the pricing and had a dangerous probability of recouping its loss through “supracompetitive” pricing after the elimination of competition. The appeals court upheld instructions that allowed a jury to find a Section 2 violation based on factors such as “fairness” and “necessity.”

Again the Federal Trade Commission and Department of Justice submitted a brief in favor of the defendant, contending that “competitive bidding” was analogous to “competitive pricing” and therefore the Brooke Group standards should apply. Certiorari was granted on June 26. Oral argument is scheduled for November 28.

The third case involves a patent licensee’s antitrust claim against the patent owner for extending control of the invention through a settlement agreement with a competitor. In MedImmune, Inc. v. Genentech, Inc., the Federal Circuit held that the interference settlement between competing biotechnology companies was not per se or presumptively illegal under the Sherman Act (2005-2 TRADE CASES ¶74,972). The court ruled that application of a per se illegality standard would discourage—if not prevent—settlements, placing unnecessary burdens on the courts and the Patent and Trademark Office (PTO). Moreover, the per se or presumptive illegality urged by the licensee for interference settlements was contrary to both precedent and policy, as recorded in the Department of Justice/FTC’s Antitrust Guidelines for the Licensing of Intellectual Property (http://www.usdoj.gov/atr/public/guidelines/0558.htm). In addition to the antitrust claims, the licensee had alleged fraud on the PTO, which was rejected for failure to meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure.

The petition for review questioned whether a patent licensee is required to refuse to pay royalties and materially breach a license agreement before bringing suit to declare the patent invalid, unenforceable, or not infringed. The Supreme Court granted review of the decision on February 21. Oral arguments were held on October 4.

This activity is a continuation of a trend from the October 2005 Term, one of more active terms in recent years. During the last term, the Supreme Court handed down antitrust decisions on the topics of tying arrangements ( Illinois Tool Works Inc. et al. v. Independent Ink, Inc., 2006-1 Trade Cases ¶75,144); joint venture pricing (Texaco Inc. v. Dagher, 2006-1 Trade Cases ¶75,143); attempted monopolization (Unitherm Foods Systems, Inc .v. Swift-Eckrich, Inc., 2006-1 Trade Cases ¶75,100); and price discrimination (Volvo Trucks North America, Inc.v. Reeder-Simco GMC, Inc., 2006-1 Trade Cases ¶75,077).

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