Energy Shot Producer’s Distribution of Recall Notice Could Be False Advertising

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The producer of a two-ounce energy shot drink known as "5-Hour ENERGY" could have engaged in false advertising in violation of Sec. 43(a) of the Lanham Act by distributing a letter, entitled "Legal Notice," to retailers notifying them of a court-ordered recall of a competing "6 Hour" energy shot product, the U.S. Court of Appeals in Cincinnati has decided. Summary judgment in the producer’s favor was reversed as the false advertising claim, although it was affirmed as to a competitor’s monopolization and attempted monopolization claims.

False Advertising

The complaining company, which marketed one of several "6 Hour" energy shots not subject to the recall, offered sufficient evidence to create a genuine dispute as to whether the notice was misleading and tended to deceived its intended audience, the court held. The language of the recall notice "teeter[ed] on the cusp between ambiguity and literal falsity" both descriptively and grammatically. A statement in the contested letters that the 5-Hour maker "won a decision against a "6 Hour" energy shot" was not literally true, as the 5-Hour maker had actually won a decision against a particular "6 Hour" competitor’s use of an overall product image, the court explained.

Moreover, confusion could ensue from the recall notice’s uses of the prefatory words "a" and "any" to refer to a 6 Hour energy shot—incorrectly suggesting that any shot bearing the name 6 Hour was subject to recall. Also problematic was a subsequent use of "the," which implied that there was only one specific product at issue, though the statement as a whole failed to specify exactly what product.

A lower court’s exclusion, on hearsay grounds, of documentary and testimonial evidence from the complaining company, distributors, and brokers showing confusion as to whether 6 Hour POWER had been recalled was erroneous, the appellate court said. Phone calls from retailers to distributors were not relied on to show the content of the conversations, but to show that the conversations occurred and the state of mind of the declarants. That so many people called the complaining company immediately after receiving the notice at the very least raised a genuine issue of material fact as to whether a significant portion of the recipients were misled, in the appellate court’s view.

The defendant’s characterization of the calls as "non-actionable customer inquiries" could be rejected by a jury, in light of testimony that many distributors had called to stop buying the complaining company’s product after the notice was issued, that sales growth for the product dropped significantly, and that the company lost an estimated $3.4 million in sales as a result of the recall notice. All of the calls evidenced a belief that 6 Hour POWER had been recalled; had the called lacked such a mistaken belief, the calls would not have occurred, the court reasoned.

Monopoly, Attempt

The producer of "5-Hour ENERGY" did not engage in monopolization or attempted monopolization in violation of Sec. 2 of the Sherman Act through its actions against the competitor, the court also ruled. The producer allegedly undertook a broad anticompetitive scheme that included: (1) asserting a fraudulently obtained supplemental trademark registration for its product; (2) false advertising in connection with its distribution of the Legal Notice letter to retailers; (3) offering incentives to retailers for superior product placement, (4) requesting that retailers sell its product at the exclusion of other energy shot products, and (5) registering certain Internet domain names similar to the names of a competitor’s product.

Because the complaining competitor specified damages resulting only from the recall notice, only the anticompetitive effects of the recall notice could lead to antitrust liability. However, there could be no harm to competition from the recall notice, even if the notice amounted to false advertising. The complaining competitor was able to—and did—counter that information by sending notices that its product, 6 Hour POWER, had not been recalled.

The decision is Innovation Ventures, LLC, v. N.V.E., Inc., 2012-2 Trade Cases ¶78,053.

KEVLAR Maker’s Supply Agreements Did Not Foreclose Fiber Market

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The manufacturer of "KEVLAR"-branded aramid fiber, a high-strength fiber used in ballistics applications and protective apparel, did not engage in unlawful monopolization or attempted monopolization of the para-aramid fiber market in the United States by procuring exclusive long-term supply agreements with certain high-volume customers, the federal district court in Richmond, Virginia, has held. Summary judgment against federal antitrust claims asserted by a Korean competitor was therefore granted.

The defending manufacturer, E.I. Du Pont de Nemours & Co. (DuPont), did not possess the requisite monopoly power over the para-aramid fiber market in the United States to have engaged in monopolization, the court held. The highest market share DuPont held during the relevant period was only 59 percent, and that share—which had already been in decline for decades—only further fell over the time span relevant to the suit. Thus, DuPont clearly lacked the power to control prices and exclude competition.

Even if the complaining competitor—Kolon Industries, Inc.—had been able to establish that DuPont had the requisite market power, it still failed to demonstrate illegal maintenance of such power over the relevant market, the court added. The alleged exclusive agreements were not shown to have substantially foreclosed competition in the market.

Kolon did not even attempt to quantify foreclosure of the relevant market or to show how much of the market was closed off by the supply agreements. Its evidence of the degree of foreclosure in three particular segments within the relevant markets was scant at best, but more importantly did nothing to reveal the amount of foreclosure in the market as a whole—which consisted of numerous segments of varying size, and extended well beyond the few segments addressed by the competitor.

In actuality, the degree of foreclosure—if it existed at all—was de minimus, the court determined. The agreements at issue resulted in no more than two percent of the market being foreclosed. Further, examination of the agreements themselves revealed even a two percent estimate to be greatly exaggerated, as many or most of the agreements could not be classified as the sort of exclusive or multi-year pacts at the heart of Kolon’s theory of the suit.

Given DuPont’s moderate market share during the relevant time period, the alleged anticompetitive agreements accounted for an even smaller fraction of the total revenue from para-aramid sales in the United States, the court said.

Kolon put forth no evidence demonstrating that other competitors had been shut out of the market and all the evidence in the record was to the contrary. Customers had no difficulty comparison shopping or switching sellers, and many did business with Kolon during the relevant time period, the court observed.

Attempted Monopolization

Kolon’s failure to show market foreclosure was fatal to its attempted monopolization claim, as well. Kolon failed to establish that the alleged anticompetitive acts, coupled with a presumed alleged intent to monopolize, "presented a reasonable probability that monopolization would sooner or later occur," the court concluded.

The decision is Kolon Industries, Inc. v. E.I. Du Pont de Nemours & Company, 2012-1 Trade Cases ¶77,857.

Night Clubs Allege Antitrust Claims Against Online Music Marketplace, Competing Club

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

Antitrust claims against “Beatport”—an online marketplace that catered to consumers and producers of “Electronic Dance Music”—and a related “Beta” nightclub were adequately alleged, the federal district court in Denver has ruled. Thus, a motion to dismiss claims brought by a group of commonly-owned night clubs comprising Denver’s South of Colfax Nightlife district (SOCO) was denied. The claims of the owner of the complaining clubs were, however, dismissed because the owner lacked standing to pursue the claims individually.

Two of the SOCO night clubs were nationally recognized in the Electronic Dance Music scene. They emphasized Electronic Dance Music and live performance by DJs. The clubs alleged that the defendants engaged in anticompetitve conduct to coerce DJs to boycott the SOCO venues and only perform at Beta.

The court refused to dismiss the SOCO clubs’ claim that Beatport and Beta coerced DJs into performing only at Beta by threatening to remove artists on a DJ’s label from Beatport if they performed at the SOCO clubs. Because access and promotion on Beatport were critical to both a DJ’s and a label’s success, many DJs and agents were allegedly compelled to agree to the defendants’ demands. The complaining clubs alleged that the defendants had sufficient market power in the market for Electronic Dance Music downloads to adversely effect competition for live performances of "A-list" DJs.

Standing

The complaining clubs asserted that they possessed standing to bring antitrust claims by virtue of their status as competitors who were foreclosed from the market for live performance of A-list DJs. The two SOCO clubs that emphasized Electronic Dance Music and live DJ performance alleged antitrust injuries of lost past and future profits, decreased ability to compete, and decreased value of real property.

Additional evidence and facts would be needed to prove harm to the other SOCO nightclubs as the case proceeded, the court noted. However, there were sufficient facts to support the clubs’ antitrust standing for purposes of a motion to dismiss. The owner of the SOCO clubs failed to support a claim that he suffered an injury separate from the injury sustained by the SOCO clubs based on an injury to his reputation or devaluation of real property of the clubs, the court ruled.

Attempted Monopolization

The clubs adequately alleged an attempted monopolization claim against Beta, which controlled more than half the market for live performance by A-list DJs in the Denver metropolitan area. There was a dangerous probability that Beta could achieve monopoly power in the market for A-list DJ performances.

The complaining clubs pled a specific intent to monopolize by stating that Beta and its owner engaged in predatory and anticompetitive conduct, including illegal tying, exclusive dealing, reciprocal dealing, monopoly leveraging, market allocation, group boycott and the concerted combination of these actions.

Conspiracy

Conspiracy claims were not dismissed, despite the defendants’ assertions that, as related entities, they were incapable of conspiring. Although some common ownership existed between Beta and Beatport, it was not sufficient to warrant dismissal under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 1984-2 Trade Cases ¶66,065, which held that wholly owned subsidiaries were incapable of conspiring. Further, a defending part-owner of Beta had an “independent personal stake” in restraint of trade of the club’s competitors.

The March 14 opinion is Christou v. Beatport, LLC, 2012-1 Trade Cases ¶77,829.

Tactics to Win Cloud Computing Services Could Be Tying, Attempt to Monopolize, Exclusive Dealing

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A computer software company could have violated federal and California antitrust law by allegedly conditioning customers’ purchasing of licenses for its popular property management back office accounting software on their agreement not to use competitors’ cloud computing services, the federal district court in Los Angeles has ruled.

Cloud computing services enable customers with multiple software applications—such as back office accounting, maintenance, leasing, revenue management, payment processing, and background screening applications—to have those applications hosted and managed in an off-site data center.

The company’s conduct was sufficiently alleged to constitute a per se illegal negative tying arrangement, an attempt to monopolize the cloud market, or at least exclusive dealing, the court found. Dismissal of a rival cloud service’s claims, which were asserted as counterclaims to the software company’s suit alleging theft of certain proprietary information from its password-protected website, was therefore denied.

Tying

An argument by the software company that no tie existed because customers were not required to use any cloud computing service at all in conjunction with the accounting software was rejected under the precedent established in Eastman Kodak Co. v. Image Technical Services, Inc. (1992-1 Trade Cases ¶69,839). Close factual parallels existed between the two cases, the court observed. The theory that customers could self-maintain their own cluster of management applications was as unavailing to the court as the notion that "equipment owners could simply self-repair their equipment" was to the Kodak court.

In addition, the court found that the complaining competitor’s definition of the relevant tied product market as "the market for vertically-integrated cloud computing services specialized to the needs of real estate owners and property managers" was not facially unsustainable, even though that market included only two participants. The definition considered and rejected multiple interchangeable substitute products with reference to the rule of reasonable interchangeability.

The competitor also sufficiently demonstrated that the defendant could have had market power over the tying market for property management back office accounting software, in the court’s view, by alleging that it had successfully coerced its accounting software customer base into signing anticompetitive amendments to their licensing agreements by threatening to terminate the licenses of those who refused to accede to the amendments.

Attempted Monopolization

The complaining competitor adequately stated a claim for attempted monopolization as well, the court determined. The competitor’s definitions of the relevant geographic and product markets were acceptable, as were its allegations showing that the company had a dangerous probability of successful monopolization. The software company’s license amendments constituted anticompetitive conduct.

The competitor’s contention that the defendant’s market share in the back office accounting software market could be imputed to its market share in the vertical cloud market created only a tenuous, "flimsy" inference of market power in the cloud market. However, allegations that the two parties were the only competitors in the cloud market and that multiple barriers to entry precluded others from entering it were more significant. Given these assertions, the court said, the competitor’s specific intent contentions were "particularly compelling."

Exclusive Dealing

Finally, the software company’s alleged scheme could have amounted to unlawful exclusive dealing, the court also ruled. Assertions that the company and the defendant were the only two participants in the vertical cloud market and that several entry barriers inhibited entry into the cloud market rendered plausible its charge that the amended license agreements foreclosed competition in a substantial share of vertical cloud services commerce.

The decision is RealPage, Inc. v. Yardi Systems,Inc. 2012-1 Trade Cases ¶77,799.

FTC Subpoenas, Civil Investigative Demands Enforced in Monopolization Probe

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

In an FTC investigation into a consumer products manufacturer’s potentially monopolistic practices in the market for condoms, the agency was entitled to seek information on products other than condoms because the inquiry extended to the manufacturer’s products other than condoms, the U.S. Court of Appeals in Washington, D.C. has ruled.

An order granting enforcement of the Commission’s subpoena and the associated civil investigative demands (CID) (2010-2 Trade Cases ¶77,215) was affirmed.

The manufacturer accounts for approximately 70 percent of the latex condoms sold in the United States. It offers retailers a discount based on the amount of shelf space they devote to its condoms.

Exclusionary Bundling

The Commission’s inquiry lawfully extended to the possibility that the manufacturer was engaging in the exclusionary bundling of rebates to retailers that sold the manufacturer’s condoms, as well as its other products, in order to acquire or maintain a monopoly in the U.S. market for condoms.

Pursuant to a Resolution Authorizing Use of Compulsory Process, the Commission had issued a subpoena seeking, among other things, production of documents related to the manufacturer’s sales and distribution of condoms in the United States and Canada. In addition, the Commission issued a CID seeking information about cost, pricing, production, and sales of the company’s condoms in the United States and Canada.

When the manufacturer turned over to the Commission documents and data sets relating to its condom business with the information on other products redacted, it petitioned the Commission either to limit or to quash the subpoena and the CID. The Commission denied the request, and a federal district court granted the agency’s petition to enforce the subpoena and the CID.

The district court later denied the manufacturer’s motion to stay the enforcement order pending appeal (2011-2 Trade Cases ¶77,720). Earlier this year, the Commission denied review of the manufacturer’s petition to quash, limit, or stay four subpoenas ad testificandum directed to the company’s employees (CCH Trade Regulation Reporter ¶16,682).

Relevance, Burden

The district court did not err in finding the request to be “reasonably relevant” to the Commission’s investigation and not unduly burdensome. The Commission maintained that its Resolution contemplated an investigation into the possibility that the manufacturer was engaged in exclusionary practices in which products other than condoms might play a role, include bundling discounts. However, the manufacturer’s claims rested upon an unduly narrow interpretation of the Resolution. Deferring to the Commission’s own interpretation of its Resolution, the district court correctly interpreted the resolution to include an inquiry that implicated the manufacturer’s products other than condoms.

The court declined to decide whether the Commission’s bundling theory under LePage’s Inc. v. 3M, 324 F.3d 141, ultimately would be successful in the District of Columbia Circuit. According to the court, an inquiry into the bundling of rebates on condoms and other types of products with the purpose of sustaining market power in the market for condoms is arguably within the condemnation of the Sherman Act as the Third Circuit construed it in LePage’s. However, the court said that the LePage’s decision
was not the law of the D.C. Circuit, and had been roundly criticized.

The Commission could lawfully investigate whether the manufacturer’s practices would constitute a violation of the law in the Third Circuit, the court explained.

The December 13 decision in FTC v. Church & Dwight Co. will appear at 2011-2 Trade Cases ¶77,721.

Certification of Cable TV Subscriber Class in Antitrust Action Was Proper

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Certification of a class of approximately two million non-basic cable television programming services customers in the Philadelphia area—alleging that cable provider Comcast engaged in unlawful monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements—was a proper exercise of discretion, the U.S. Court of Appeals in Philadelphia has ruled.

The trial court satisfied the "rigorous analysis" standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3). Certification (2010-1 Trade Cases ¶76,869) was therefore affirmed.

The trial court’s finding that the plaintiffs established by a preponderance of evidence that they would be able to prove, through common evidence, not only class-wide antitrust impact in the form of higher costs for programming but also a common methodology to quantify damages on a class-wide basis was not clearly erroneous, the appellate court decided.

In granting certification, the lower court had limited the class’s theories of class-wide impact to the theory that Comcast’s clustering conduct through the swaps and acquisitions had deterred competition from overbuilders in the Philadelphia market.

Relevant Geographic Market, Antitrust Impact

Arguments that the trial court had failed to apply the correct legal standard for determining the relevant geographic market and had made clearly erroneous factual findings by relying on the plaintiffs' expert for proof of class-wide antitrust impact were rejected by the appellate court.

Comcast’s contention that the relevant geographic market was each complaining individual’s household would have set a market so small as to be impractical and inefficient, whereas the class’s market definition capturing the whole of the Philadelphia area was based on record evidence showing that customers throughout the aggregated area faced similar competitive choices.

Moreover, the trial court had carefully considered the plaintiffs’ theories of class-wide impact before concluding that the class met its burden of demonstrating that the anticompetitive effect of clustering on overbuilder competition was capable of proof through evidence common to the class.

The econometric analysis of the plaintiffs’ damages expert demonstrating that the alleged antitrust impact was class-wide and utilizing a “but-for” pricing model to reach a final conservative estimated overcharge value was sufficiently sound, the appellate court also concluded. The damages model provided a methodology that could establish damages on a class-wide basis using common proof.

Attacks by the cable provider on the merits of the model were premature and missed the point, the court said. Some variation of damages among class members did not defeat certification, the court noted.

Finally, the trial court did not lack any legal authority to certify a per se claim based on the class’s allegations, the appellate court held. Comcast’s request to have the appellate court declare on the merits that the plaintiffs could not establish a per se antitrust violation was beyond the scope of the certification decision from which it appealed, the court explained.

Partial Dissent

A separate opinion partially dissenting from the majority’s conclusion argued that damages could not be proven using evidence common to the entire class. According to the partial dissent, the damages expert’s testimony was incapable of identifying any damages caused by reduced overbuilding in the Philadelphia area—the plaintiffs’ only viable theory of antitrust impact—and thus did not fit the case. Therefore, it was irrelevant and should be deemed inadmissible at trial, leaving the class with no evidence of class-wide proof of damages.

Because of this, the partial dissent stated, the certification order should have been vacated to the extent that it provided for a single class as to proof of damages and remanded to the lower court to consider whether the class could be divided into subclasses for the purpose of proving damages.

The decision in Behrend v. Comcast Corp. will be reported at 2011-2 Trade Cases ¶77,575.

City Not Immune from Electrical Cooperative's Antitrust Claims

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

The City of Newkirk, Oklahoma was not shielded under the state action doctrine from a rural electrical cooperative's claims that the city engaged in unlawful tying and attempted monopolization, the U.S. Court of Appeals in Denver has decided. The challenged conduct was not a foreseeable result of state legislation authorizing anticompetitive conduct.

Dismissal of the cooperative's antitrust claims (2010-2 Trade Cases ¶77,138) was reversed, and the case was remanded for further proceedings on the allegations of unlawful tying and attempted monopolization of electricity services.

Thwarting Cooperative’s Ability to Compete

When a new jail was proposed outside the city limits in an area traditionally serviced by the complaining cooperative, the city annexed the area, allegedly thwarting the cooperative’s ability to operate there.

Then, the city—the only provider of sewage services in the area—allegedly refused to provide any sewage services to the new jail, unless the jail also bought the city's electricity. The operators of the jail went with the city's package deal over the cooperative's offer.

While the city cited a number of general enabling statutes conferring on the city the authority to do business, none authorized the kind of anticompetitive conduct alleged by the complaining cooperative, the court noted. Moreover, the Oklahoma legislature had expressed a clear preference for competition for electricity services in annexed areas.

Foreseeability

Oklahoma's Rural Electric Cooperative Act foreseeably sought to preserve competition after annexation by constraining municipalities from using their considerable regulatory powers to harm rival rural electricity providers.

In addition, Oklahoma's Electric Restructuring Act expressed an unmistakable policy preference for competition in the provision of electricity, according to the court.

The decision is Kay Electric Cooperative v. The City of Newkirk, Oklahoma, 2011-2 Trade Cases ¶77,550.

Medical Patent Licensee Could Have Violated Antitrust Laws

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A Florida hospital sufficiently alleged that the exclusive licensee of two patents involving the administration of adenosine to patients undergoing cardiac stress tests engaged in tying, exclusive dealing, and attempted monopolization, the federal district court in Tampa has ruled. Adenosine is a naturally-occurring compound that induces the dilation of blood vessels. A motion to dismiss was denied.

After disposing of a challenge to the hospital’s standing, the court rejected the defendant’s argument that the tying claims should be dismissed for failure to allege plausible relevant markets, two separate and distinct product markets, or anticompetitive
effects in the tied product market.

A further contention that the exclusive dealing allegations were “simply a re-packaging of its defective tying theory” was unavailing, given that the tying claims were not found to be defective with respect to their relevant market description or under a rule of reason analysis.

Attempted Monopolization

The hospital’s assertion that the licensee engaged in attempted monopolization prohibited by federal or state antitrust law was well supported by the charge that the licensee charged customers 450 percent more for its adenosine than customers would pay for adenosine from alternative providers.

The complaining hospital sufficiently alleged that the defendant was able to control the cost for adenosine and was able to foreclose competitors from customers of adenosine, the court added.

In addition, the hospital submitted factual allegations that the licensee possessed a dangerous probability of successfully attaining and retaining monopoly power in the relevant market.

There was an alleged perception in the health care community that use of the process patent for administering adenosine was the medically accepted standard of care, which created barriers to entry.

Further, the licensee allegedly used threats and misleading communications regarding its process patent and extended the patent to its branded product.

The July 25 decision is Lakeland Regional Medical Center, Inc. v. Astellas US LLC, 2011-2 Trade Cases ¶ 77,544.

Youth Hockey League’s Exclusive Participation Rule Could Be Anticompetitive

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

A for-profit youth hockey program adequately alleged monopolization and attempted monopolization claims against a local district of USA Hockey, the national governing board for amateur hockey, the federal district court in Minneapolis has ruled.

The complaining youth program challenged the local district's adoption of an "outside league rule," which prohibited players from participating in competing hockey leagues. The local district's motion to dismiss the monopoly claims was denied; however, the court rejected conspiracy claims.

Monopoly

The complaining program pled sufficient facts to state facially plausible monopoly claims that the defendants engaged in anticompetitive behavior under either an actual exclusion or market power test, according to the court.

The complaining program provided numerous affidavits of parents who withdrew their children from its programming as a result of the outside league rule. It also noted decreased enrollment in its leagues, losing up to 40 players as a result of the rule.

While these events might have been attributable to other factors, such as the downturn in the economy, along with the withdrawal of players already registered and who forfeited deposits, these facts alleged detrimental effects sufficient to survive a motion to dismiss, the court ruled.

Attempted Monopolization

Dismissal of the attempted monopolization claim was also denied. In order to state a claim of attempted unlawful monopolization, a plaintiff had to allege (1) a specific intent by the defendant to control prices or destroy competition; (2) predatory or anticompetitive conduct undertaken by the defendant directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success.

Regarding specific intent, the complaining program alleged that the motive behind the rule was to prevent it from “taking” players from the defendants. Although the defending league’s stated purpose for the rule was to avoid scheduling conflicts and to prevent player fatigue, certain organizations that arguably would have caused such issues were exempted from the rule. Finally, the withdrawal of players from the complaining program, citing the rule, adequately alleged a dangerous probability of success.

Conspiracy

Conspiracy claims were not adequately alleged, however. The court found that the defendants should be considered part of a “unilateral actor.” The associations within the district did not compete and were deemed a “single economic actor.” Moreover, Minnesota Hockey, the state arm of the national hockey governing board, and the local district were incapable of conspiring.

The May 12 decision, Minnesota Made Hockey, Inc. v. Minnesota Hockey, Inc., is reported at 2011-1 Trade Cases ¶77,453.

Refusal to Sell Parts to Competitor Could Be Monopolization

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A company in the business of providing heavy lift helicopter services and supplying replacement parts to other owners of several particular models could have engaged in unlawful monopolization or attempted monopolization by refusing to sell parts to a competing operator of heavy helicopter services, the federal district court in Portland, Oregon, has decided.

The defending parts seller/services competitor was obligated to sell parts to other owners of a particular model of heavy lift helicopter under a 14-year-old contract with the manufacturer. The claims were neither time-barred nor insufficient as a matter of law, the court held. The defending company’s motion for summary judgment on the antitrust claims was therefore denied.

Statute of Limitations

Although the complaining helicopter services operator first suffered injury upon the parts seller’s initial refusal to deal following execution of its contract with the manufacturer well before the four-year limitations period applicable to federal antitrust actions, the Sherman Act claims were not barred under the statute of limitations, the court ruled.

Even if the parts seller’s initial refusal to deal was final, any damages suffered within the four-year limitations period were not time-barred unless all of the damages resulted solely from that initial refusal.

Any overt act inflicting damages generally was its own cause of action with a fresh four-year statute of limitations, and any new injury within the limitations period resulting from a continuing violation was a separate cause of action.

Questions of fact existed as to whether the refusal to deal was final and irrevocable or was instead continuing, given allegations that the company had provided some service manuals and updates in prior years and that it had ultimately reversed course and begun providing parts and service again on the heels of an antitrust settlement with another heavy lift helicopter services competitor sixteen years after that initial refusal, the court observed.

Merits of Claims

Even if federal jurisprudence demanded the termination of a prior course of dealing as a prerequisite to finding a refusal to deal illegal under federal antitrust law, the claims against the defendant did not fail on the merits, the court said.

Given that the manufacturer of the parts had provided overhaul manuals and parts to helicopter operators prior to the entry of a contract between itself and the defending parts supplier/helicopter services provider—and that the defendant had thereafter abruptly ceased to sell parts to those operators—a reasonable juror could conclude that the defendant unilaterally terminated a voluntary course of dealing with the complaining competitor, in the court’s view.

The legitimacy of the defendant’s claim that it had decided not to follow the manufacturer’s course—owing to liability concerns—was a factual issue not suitable for summary judgment, the court concluded.

Other disputed questions of material fact also precluded summary judgment, including whether there was a relevant market for heavy lift helicopters, whether the defendant’s decision to not provide parts or manuals was motivated by good business sense or monopolistic intent, and whether it improperly prohibited third-party manufacturers from dealing with the plaintiff.

The January 26 decision is Evergreen Helicopters, Inc. v. Erickson Air-Crane Inc., 2011-1 Trade Cases ¶77,327.

Intel Agrees to Settle FTC Allegations of Anticompetitive Conduct

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

FTC Chairman Jon Leibowitz, joined by Commissioner Julie Brill and Bureau of Competition Director Richard Feinstein, announced today a proposed consent order to resolve the agency’s action against Intel Corporation for allegedly stifling competition in the markets for computer chips.

The agency’s December 2009 complaint (CCH Trade Regulation Reporter ¶16,398) alleged that Intel unlawfully maintained its monopoly in the markets for x86 Central Processing Units (CPUs) for desktops, notebooks, and servers, as well as smaller relevant markets, and sought to acquire a second monopoly in the relevant graphics markets. The conduct allegedly violated Sec. 5 of the FTC Act, which prohibits unfair methods of competition and unfair acts or practices.

Chairman Leibowitz said that the relief obtained from Intel in this “exceptionally important case” goes well beyond relief achieved elsewhere, including a private settlement with AMD Corp.-- Intel’s only significant competitor in the relevant x86 CPU markets--and international enforcement actions. Intel has been fined by the European Commission and Korea Fair Trade Commission for anticompetitive practices.

The FTC settlement applies, not only to CPUs, but also to graphics processing units (GPUs), and chipsets. It prohibits Intel from using threats, bundled prices, or other offers to exclude or hamper competition or otherwise unreasonably inhibit the sale of competitive CPUs or GPUs, according to the agency.

The FTC settlement order is intended to protect competition and not any single competitor. Chairman Leibowitz noted that the conduct restrictions would provide a level playing field for AMD and smaller rival VIA Technologies. Both the international settlements and the settlement between Intel and AMD focused primarily, if not exclusively, on AMD’s ability to compete in CPU market.

The settlement also prohibits Intel from deceiving computer manufacturers about the performance of non-Intel CPUs or GPUs. Intel allegedly redesigned its compiler and library software to reduce the performance of competing CPUs and failed to disclose the effects of its redesigned compiler on the performance of non-Intel CPUs.

Under the proposed consent order, Intel would be required to take steps to prevent future misrepresentations related to its compilers and libraries used by software developers to write software and make it work efficiently. In addition, Intel would be required to implement a $10 million fund to reimburse customers who relied on Intel’s statements regarding its compilers or libraries for the costs associated with recompiling their software using non-Intel compilers or library products.

Commissioner Brill said that the case reflected the FTC's efforts to maintain competition in high tech markets--a top priority at the Commission. She said that the Commission would not hesitate to challenge conduct involving complex, high tech products in innovative markets in the future.

Intel Response

“This agreement provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices,” said Doug Melamed, Intel senior vice president and general counsel. “The settlement enables us to put an end to the expense and distraction of the FTC litigation,” he added.

Intel admitted no wrongdoing. In response to the agency’s complaint, Intel had argued that microprocessor prices had fallen and that innovation had dramatically increased during the relevant period. Intel also challenged the FTC’s “unbounded application” of Section 5 of the FTC Act.

At the time the FTC issued its complaint, Melamed took issue with the “unprecedented remedies” sought by the agency. According to the FTC officials, however, the parties agreed on terms that included most of the relief outlined by the agency in the complaint’s Notice of Contemplated Relief.

The proposed consent order, In the Matter of Intel Corporation, FTC Dkt. No. 9341, will appear at Trade Regulation Reporter ¶16,483.

A story on the issuance of the administrative complaint ("FTC Sues Intel for Monopolization") was posted December 16, 2009 on Trade Regulation Talk.

False Tooth Makers’ Claims Against Monopolist Cleared for Trial, Leading to Settlement

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Artificial tooth maker Dentsply International, Inc. could have engaged in unlawful monopolization through practices that included tooth swaps with dental product dealers and the offering of loyalty rebates to exclusive dealers, the federal district court in Harrisburg, Pennsylvania, has ruled.

The two dental supply manufacturers asserting the claim, Univac Dental Company and Lactona Corporation, presented sufficient evidence of damages from the tooth swaps and dealer exclusivity policies—which included Dentsply’s maintenance and enforcement of a policy prohibiting the dealers from adding competitors’ artificial teeth to their product lines—to survive summary judgment, the court stated.

At the outset, the court noted that the complaining manufacturers were not entitled to a preclusive finding that Dentsply’s actions injured them based upon an appellate court’s determination—in a government enforcement action, U.S. v. Dentsply Int’l, Inc.—that the tooth maker’s actions harmed all of its competitors, including the corporate predecessor of both Univac and Lactona, Universal Dental Company (2005-1 Trade Cases ¶74,706).

Causation and Damages

Collateral estoppel did not operate to resolve the issues of causation and damages in the case because, in the prior action, the issues—as they related to Univac and Lactona—were not fully litigated. Moreover, the determination of any issues related to them was not essential to that prior judgment. Thus, they were required to prove damages in the present case.

The court rejected Dentsply’s argument that Univac and Lactona would not be able to show that Dentsply’s actions foreclosed a sufficiently significant portion of the market because they were still able to maintain access to dealers through a grandfather exception to the exclusivity policy.

No legal authority required an individual competitor to prove that its own access to the market had been foreclosed in order to make a showing that it was injured or that the challenged practices severely restricted the market’s ambit, the court explained.

Anticompetitive, Injurious Actions

The complaining manufacturers did not fail to meet their burden of showing that Dentsply took action that was both anticompetitive and injurious to them within the statute of limitations period. Although the evidence was not conclusive, it was sufficient to present the issue to a finder of fact, the court said.

A contention that it would be improper to consider evidence of actions directed not only toward Univac and Lactona specifically, but also that infringed competition in the relevant market generally, was without merit.

Evidentiary Matters

In the same opinion, the court also ruled on several evidentiary matters intended to clear the path to trial. It confirmed that a magistrate judge’s refusal to grant preclusive effect to several proposed factual findings was proper. In addition, the court declined to reject several of the magistrate’s recommended findings regarding the effects of Dentsply’s conduct on the basis that they were allegedly inapplicable or misleading. Any potential for one particular finding to mislead the jury could be alleviated by the defendant’s evidence and arguments, in the court’s view.

The fact that several other findings referred to competitors other than Univac and Lactona did not render those findings misleading, inaccurate, or immaterial. A reference to events occurring outside the limitations period applicable to the suit did not warrant another finding’s rejection.

Amount of Damages

In a separate ruling issued on April 27, the court found that expert testimony offered to establish the amount of damages suffered by the complaining manufacturers was sufficiently reliable and fit to the facts to be admitted into evidence. Objections by the defendant to the testimony were more directly related to its probative value than to its admissibility.

he testimony was based upon a proper foundation, the court said, and the expert’s calculation of an estimated amount of damages without regard to causation or any other elements of liability was “perfectly acceptable.”

Settlement

One day after the latter ruling on expert testimony, the parties reportedly reached an agreement to avoid going to trial. On April 29, the presiding judge in the matter, Christopher Conner of the U.S. District Court for the Middle District of Pennsylvania, signed a dismissal order allegedly acknowledging that the matter had been settled.

None of the involved companies has issued a statement divulging the terms of the settlement, but the dismissal order purportedly noted that either side could reinstate the action within 60 days if the settlement does not get consummated.

The March 31 and April 27 rulings in Univac Dental Co. v. Dentsply International, Inc., Civil Action No. 1:07-CV-0493, appears at 2010-1 Trade Cases ¶76,998 and ¶76,999.

Hospital's Exclusive Pact with Medical Group Not Monopolization

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A southwest Colorado hospital did not engage in monopolization or attempted monopolization in violation of federal or Colorado antitrust law by entering into an exclusive contract for nephrology physician services with one medical group and terminating the staff privileges of a competing kidney doctor, the U.S. Court of Appeals in Denver has decided.

A federal district court's grant of summary judgment in favor of the hospital (2008-2 Trade Cases ¶76,279) was affirmed.

The appellate court did not address the lower court's grounds for rejecting the terminated doctor's claims—that the hospital lacked monopoly power or the dangerous probability of achieving it.

Addressing that rationale on appeal was unnecessary because the decision could be affirmed "on any basis that [had] adequate support in the record," the court stated. The hospital sufficiently presented two such bases, in the court's view—the doctor's failures to establish anticompetitive conduct and antitrust injury.

Anticompetitive Conduct

The hospital's refusal to deal did not constitute anticompetitive conduct within the meaning of Sec. 2 of the Sherman Act or its state log analog, the appellate court held. A business, even a putative monopolist, had no antitrust duty to deal with its rivals, the court explained.

Forcing the hospital to share the source of its competitive advantage—its facilities—would lessen its incentive to undertake the risky investment in new endeavors or facilities. The hospital was entitled to recoup its investment without sharing with a competitor, in the court's view.

Moreover, the hospital's conduct was actually procompetitive, the court said. The exclusive contract with the medical group ensured consumers greater access to full-time nephrology services in the area and avoided a scenario in which the hospital prematurely exhausted the loss reserves it had set aside for its investment, not only chilling future investment but again leaving the area without any nephrologists.

Denominating the claim as sounding in monopoly leveraging did nothing to save it, the court added.

Antitrust Injury

The complaining physician also failed to show that he could have suffered antitrust injury from either the hospital's termination of his staff privileges or its entry into the exclusive contract with the rival medical group. In seeking reinstatement of active medical staff privileges, the excluded physician sought not the prevention or breaking apart of a monopoly, but the chance to share in that monopoly, according to the court. Thus, whatever the physician's injury, it was not one the antitrust laws were designed to protect consumers from suppliers, rather than suppliers from each other, the court noted.

Requiring the hospital to accommodate the excluded physician's demand would not necessarily benefit consumers, since the hospital could still impose terms and conditions to prevent him from undercutting the hospital's own nephrology practice.

Even if the physician sought an order in which the hospital had to share its facilities with him in a manner that was likely to help consumers, it would have been inappropriate for the judiciary to so dictate the terms of such an arrangement, the appellate court counseled. "The federal judiciary is not a price control agency," the court declared.

The September 29 decision in Four Corners Nephrology Associates, P.C. v. Mercy Medical Center of Durango appears at 2009-2 Trade Cases ¶76,756.

Internet Name Registrar Could Have Violated Antitrust Law to Get Contracts

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Internet domain name registry operator VeriSign, Inc., could have violated federal antitrust law by allegedly conspiring with, or engaging in predatory conduct against, the Internet Corporation for Assigned Names and Numbers (ICANN), the U.S. Court of Appeals in San Francisco has ruled.

VeriSign's conduct was purportedly intended to set artificially high prices for its registry services and to ensure that it would receive successor contracts with ICANN without having to go through a competitive bidding process.

Dismissal of Sherman Act, Sec. 1 and 2 claims brought against VeriSign by an organization composed of participants in the Internet domain name system (such as Web site owners) was therefore reversed and remanded.

VeriSign acts as the sole operator of the ".com" and ".net" Internet domain name registries pursuant to separate agreements with ICANN, which coordinates the Internet domain name system on behalf of the U.S. Department of Commerce.

Conspiracy

The automatic renewal term of the contract for the ".com" domain was an actionable restraint on trade because it was sufficiently alleged to have been the product of a conspiracy between VeriSign and ICANN in which VeriSign participated with the intent to restrain trade, the appellate court held.

Further, the pricing provisions of the contract, which provided for a seven percent per year increase in the allowable registration fee, could give rise to antitrust liability because that increase was alleged to exceed the rate competitive market conditions would produce.

An argument that an antitrust claim could not be based on price increases alone was rejected because the pricing at issue was not alleged to be unilateral action in the context of a monopolization claim but concerted action intended to restrain trade.

The renewal and pricing terms of the ".net" contract, on the other hand, were not similarly actionable because they were reached as a result of competitive bidding, not conspiratorial action, the court stated.

Attempted Monopolization

The organization's extensive factual allegations of predatory conduct, in which VeriSign engaged in order to secure the ".com" agreement, sufficed to state a claim for attempted monopolization, in the appellate court's view.

It was noted that the trial court, in concluding that the organization had failed to state a claim for predatory conduct, had erroneously construed that allegation in the complaint as pertaining solely to VeriSign's litigation against ICANN, rather than to the predatory and harassing activities that accompanied that litigation. These alleged activities included actions such as paying lobbyists to support its positions, stacking ICANN's public meetings, paying bloggers to attack ICANN's position, planting news stories critical of ICANN in mainstream media, and threatening various investigations and lawsuits. Thus, the lower court's reliance on the Noerr-Pennington doctrine—which immunizes only litigation activity, but not other forms of threats or harassment—was misplaced.

However, as with the Sec. 1 claim, the claim of predatory conduct in the ".net" registration market was insufficiently stated, the court added. The complaint's allegations did not reflect any assertion that VeriSign's predatory activity had any bearing on the competitive bidding process that resulted in the ".net" agreement.

Relevant Market

The organization's claim that VeriSign attempted to monopolize the market for expiring domain names also should not have been dismissed, the appellate court decided. The viability of the claim turned on the issue of relevant market, namely whether the organization adequately pled the existence of a separate market.

According to the organization, expiring domain names were more valuable than other names because, in all likelihood, they had already been advertised by the previous owner and already had Web traffic. In light of these market conditions, which had not been explained to the district court, the appellate court was not prepared to affirm the lower court's ruling that no separate market existed.

The June 5 decision is Coalition for ICANN Transparency, Inc. v. VeriSign, Inc., 2009-1 Trade Cases ¶76,642.