Friday, February 08, 2008

Computer Buyers Fail to Allege Antitrust Injury in Price Fixing Action Against DRAM Makers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a closely watched case, a federal district court in San Francisco has dismissed a substantial number of state law antitrust claims brought on behalf of computer purchasers who allegedly paid artificially inflated prices for a type of semiconductor chip called dynamic random access memory (DRAM), which was a component of the computers. The consumers—indirect purchasers of DRAM—alleged violations of the California Cartwright Act, as well as violations of 22 states' antitrust and unfair competition laws.

Acknowledging that the ruling has a “potentially devastating effect” on the case, the court granted the defending DRAM manufacturers’ motion to dismiss certain claims for relief, based on violations of the antitrust laws of 15 states—Arizona, California, Iowa, Kansas, Maine, Michigan, Mississippi, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, South Dakota, West Virginia, and Wisconsin—for lack of antitrust standing.

Market Participation Requirement

The consumers failed to adequately allege market participation the allegedly-restrained market for purposes of satisfying antitrust injury requirements under the U.S. Supreme Court’s decision in Assoc. Gen. Contractors of Cal. v. Cal. State Council of Carpenters (1983) 1983-1 Trade Cases ¶65,226, 459 U.S. 519.

The complaining consumers failed to allege that they were either consumers or participants in the market for DRAM. Rather, they alleged that they were consumers in secondary markets (e.g., computer markets) incidental to the market for DRAM itself.

The consumers argued that the DRAM and computer markets were “inextricably linked” and that allegations of “inextricably linked” markets were sufficient to allege market participation. According to the consumers, 90 percent of the DRAM sold during the relevant period was used for computers; DRAM “has no free-standing use”; increases in the price of DRAM “lead to quick, corresponding price increases at the OEM and retail levels for [c]omputers”; and the demand for DRAM was ultimately determined by computer end-buyers, among other things. However, the consumers’ allegations of “inextricably linked” markets could not sufficiently allege that the plaintiffs were participating in the same market as the allegedly restrained DRAM market.

Nebraska and New York Consumer Protection Claims

Because the Assoc. Gen. Contractors analysis applied to standing under the Nebraska and New York state consumer protection where the plaintiffs' consumer protection claims were based on antitrust violations, the consumers’ Nebraska and New York state consumer protection claims were rejected. According to the court, the defendants failed to support their argument that claims under the North Carolina consumer protection law should be dismissed on the same ground.

The court noted that it was not considering the standing of the plaintiffs who purchased free-standing DRAM modules. It did, however, allow the plaintiffs to add an individual named plaintiff, who allegedly purchased DRAM modules, rather than DRAM as a component in computers.

The court rejected the defending manufacturers’ argument that they would be prejudiced by the addition of the named plaintiff after the close of discovery. If briefing on class certification had been complete, then prejudice to defendants would be great. However, no undue prejudice would result from allowing the added plaintiff to proceed as named plaintiff, the court reasoned.

The parties were ordered to submit a stipulated proposed order on a briefing schedule and hearing date in connection with the motion for class certification no later than February 13, 2008.

The January 29, 2008, decision in Dynamic Random Access Memory (DRAM) Antitrust Litigation, No. 02-1486, will appear at 2008-1 Trade Cases ¶76,031.

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