Condom Maker’s Shelf Agreements with Retailers Not a Barrier to Competition

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

The manufacturer of Trojan condoms did not engage in exclusive dealing, monopolization, attempted monopolization, or a conspiracy to monopolize by entering into "planogram" shelf-space agreements with large chain retailers or by allegedly abusing a "category captain" position granted to it by some retailers, the federal district court in San Francisco has decided.

A complaining niche competitor failed to raise a genuine issue of material fact as to whether the agreements substantially foreclosed competition in the relevant market for male condoms sold to retailers. The competitor’s antitrust claims were therefore dismissed.

Under the planogram agreements, the manufacturer offered the retailers a percentage rebate off its wholesale price in exchange for the retailer’s commitment to devote a certain percentage of the condom shelf space to the manufacturer’s products. "Category captain" described a position to which the manufacturer was appointed by some retailers in order to assist with shelf space allocations and to give advice on how best to present the category.

Market Power

The complaining competitor failed to provide direct or circumstantial evidence that the defendant possessed market power over the relevant market, the court held at the outset. The competitor, whose market share never surpassed one-half of one percent throughout the relevant period, offered no evidence of restricted output or supra-competitive prices.

Although the defending manufacturer clearly held a dominant share—over 75 percent—of the relevant market, the complaining competitor could not demonstrate that there were significant barriers to entry into that market or that existing competitors lacked the capacity to increase their output in the short run. The rebate program at issue in the suit did not constitute a substantial barrier to entry. It was undisputed that just three major players had long dominated the condom market, and that while small players like the plaintiff had entered the market, none had seriously challenged the big three recently.

The market structure indicated that a combination of factors might have prevented the market from self-correcting in the face of anticompetitive conduct, the court stated. Even assuming significant barriers to entry, the competitor failed to produce any evidence, or even argument, as to whether existing competitors lacked the capacity to increase their output in the short run.

Market Foreclosure

The planogram program did not force retailers to give any specified amount of shelf space to the defending manufacturer over its rivals, the court observed. In addition, retailers could terminate their already-short contract agreements at any time, for any reason, with minimal enough notice to substantially negate the risk of foreclosure effects. The terminability of the contracts rendered them presumptively lawful, the court noted. Finally, the rebate program left open existing and potential alternative channels of distribution to the manufacturer’s competitors.

The program was not shown to be coercive in practice any more than in theory, the court explained. A significant number of large retailers did not participate. Even those who did were not clustered at the bottom tier of the rebate structure in the manner that the plaintiffs’ theory of coercive effect suggested they would be. The record contained qualitative evidence that retailers could, and did, reduce or eliminate their participation in the planogram program based on market forces.

Further, evidence indicated that the manufacturer’s share of sales at non-participating retailers was roughly on par with its sales at participating retailers, its shelf share system-wide seldom exceeded its market share, and its two primary competitors apparently avoided any purported anticompetitive effect of the planogram program.

The complaining company’s own competitive misfortunes had myriad causes other than the defending manufacturer’s alleged exclusionary conduct, the court explained. Moreover, even if a coercive effect had been demonstrated, there was still no evidence that competition was foreclosed from a substantial portion of the market.

Exclusionary Conduct?

The Trojan maker’s "planogram" agreements and "category captain" conduct did not amount to sufficiently exclusionary conduct to support claims of unlawful monopolization, attempted monopolization, or monopolization conspiracy, the court declared. The complaining competitor provided no evidence as to how often the manufacturer’s recommendations were adopted or whether they had the intent and/or effect of sabotaging the competitor. Undisputed evidence in the record indicated that it was commonplace in the industry for manufacturers to suggest planogram designs or provide retailers with other information to advocate for their brands, and even the complaining competitor had engaged in certain advocacy tactics in an attempt to influence retailer decisions.

The fact that the defending manufacturer was successful in achieving a degree of cooperation with retailers did not, without more, establish anticompetitive conduct. Without a showing of exclusionary conduct, no reasonable inference could be made of either general or specific intent to monopolize to support either a claim of completed or attempted monopolization, the court reasoned.

Antitrust Injury

The defending manufacturer also would not have caused a cognizable antitrust injury through the alleged conduct, the court added. While the complaining competitor sufficiently alleged harm to itself and to other small manufacturers, it failed to show that its losses were the result of the defending manufacturer’s alleged anticompetitive acts as opposed to other market forces, and further failed to demonstrate harm to competition. It offered no explanation for why other larger rivals in the industry managed to compete with the defendant despite the alleged misconduct.

The decision is Church & Dwight Co., Inc v. Mayer Laboratories, Inc., 2012-1 Trade Cases ¶77,863.

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.

Publisher Could Have Monopolized Market for Bank Rate Websites

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

A company in the business of aggregating and publishing bank rate tables listing interest rates from financial institutions could have unlawfully monopolized or attempted to monopolize the market for bank rate websites, but had not engaged in a predatory price fixing conspiracy, the federal district court in Newark, New Jersey, has ruled.

A complaining competitor adequately alleged that the company violated federal and New Jersey antitrust law by entering into exclusive dealing arrangements with online media outlets that allegedly prevented competitors from gaining necessary distribution outlets for their data, the court found.

The competitor, however, failed to offer factual allegations that the defending company acted in concert with any other entity to price below some measure of cost. Therefore, a motion to dismiss was granted as to the price fixing claim, but denied as to the other claims.

Monopoly Power

The complaining competitor sufficiently alleged that the defendant possessed monopoly power by claiming: that the defendant had reached a relevant market share of over 95%, that it had entered into agreements with more than 300 partner sites, that the prices it charged to customers had become inelastic, and that independent competitors had been pushed out or acquired as a result of the defendant's scheme.

Predatory Pricing

The allegations of anticompetitive conduct was bolstered by claims that the defendant purposefully predatorily priced its rate listings below cost, and sometimes for free, in order to acquire customers from its rivals and to drive those rivals out of the market, the court noted.
The court rejected arguments that there was no market foreclosure and that a one-year contract with partner websites was not restrictive to the extent condemned by the antitrust laws.

The complaint alleged conduct—such as an agreement with a financial media website allowing the defendant to set rates in exchange for waiving annual license fees—that would impair the opportunities of rivals for whom waiving license fees was not feasible and who were, as a consequence, excluded from doing business with those website partners, in the court’s view.

The decision is BanxCorp. v. Bankrate Inc., 2011-2 Trade Cases ¶77,750.

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.

Final Claims Dismissed in Novell’s Antitrust Suit Against Microsoft

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

Software developer Novell, Inc. could not pursue two claims remaining in an antitrust action against Microsoft because Novell transferred the claims to a third party in an asset purchase agreement, the federal district court in Baltimore has ruled.

Novell alleged that Microsoft’s anticompetitive conduct in 1994-1996 damaged Novell’s ability to market its office productivity applications, including WordPerfect and Quattro Pro. In 2007, the district court dismissed as time-barred Novell’s claims alleging anticompetitive conduct in the office productivity applications market (2007-2 Trade Cases ¶75,901, CCH Computer Cases ¶49,423).

Novell’s remaining monopolization and restraint of trade claims, alleging harm in the operating systems market, were allowed to proceed because they were tolled during the pendency of the government’s action against Microsoft.

Assignment of Claims

In an Asset Purchase Agreement dated July 23, 1996, Novell assigned to Caldera, Inc., claims “held by Novell at the Closing Date and associated directly or indirectly with any of the DOS Products.”

Novell contended that the agreement meant to assign only claims for harm inflicted on the DOS products themselves, not on the operating system market, which comprised the actual market in which the DOS Products competed. However, the plain language of the assignment clause did not limit its application to claims inflicting “harm” on the DOS products; rather, it assigned claims “associated” with the DOS products, according to the court.

The APA assignment language encompassed the present claims because they were “associated directly or indirectly with the DOS Products.”

Merits

Despite finding that Novell lacked standing to pursue the claims at issue, the court nevertheless addressed the merits of each claim. If Novell had not transferred the claims to Caldera, Novell’s restraint of trade claim would have been decided in favor of Microsoft, but its monopolization claim would have proceeded to trial.

Novell alleged that Microsoft violated Sec. 2 of the Sherman Act by exclusive dealing—entering into “agreements with OEMs and others not to license or distribute Novell's office productivity applications.” To be considered “exclusive,” an agreement must expressly preclude a party from doing business with the defendant's competitors or engage in other conduct that has the practical effect of exclusivity.

Microsoft's agreements with computer manufacturers (OEMs) did not foreclose a substantial share of the software applications market, and its agreements with distributors were not exclusive or otherwise anticompetitive—they simply provided modest rebates for increased sales and “blended share” of Microsoft products.

With regard to its Sherman Act Sec. 1 claim, Novell’s evidence raised sufficient factual issues to preclude summary judgment. Although a monopolist generally has a right to refuse to cooperate with a competitor, Novell’s evidence suggested more, including that Microsoft acted out of predatory motives and affirmatively misled Novell about Windows 95 functionality and licensing.

The opinion, In re Microsoft Corp. Antitrust Litigation, is reported at CCH Guide to Computer Law ¶49,927. It will appear in CCH Trade Regulation Reporter.

Firms' Gap Insurance Demands Did Not Violate Sherman, Bank Holding Company Act

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

A seller of motor vehicle gap insurance products could not maintain Sherman Act or Bank Holding Company Act claims against a financial services firm and two affiliate entities for the firm's refusal to purchase, from car dealers, credit transactions that included the complaining seller's gap insurance products, the federal district court in Covington, Kentucky, has held.

The complaining insurance seller failed to allege a cognizable antitrust injury stemming from the defendants' conduct and did not establish an unlawful tying arrangement prohibited by the Bank Holding Company Act, the court determined. Dismissal of the claims was granted.

Gap insurance is a type of policy covering the difference, in the event of a "total" loss, between what a car buyer owes on a car and what the primary insurance carrier pays out as its market value at the time of loss. The defendants allegedly would buy credit transactions containing gap insurance products only if those products were on their "approved list," which included products from their own subsidiary but not the complaining company.

Antitrust Injury

The only injury that the plaintiff alleged from the defendants' tying, reciprocal dealing, and exclusive dealing related to its own ability to sell gap insurance products, the court observed. Even if the defendants' alleged actions caused it to lose business, that injury alone was not an antitrust injury because no harm occurred either to the consumer or to competition as a whole.

Although the insurance seller claimed that the conduct decreased competition within the market, it did not allege facts that demonstrated competition was actually diminished. It failed to state how many gap insurance providers existed and how many were on the approved list, thus rendering it impossible to tell the extent to which competition may have been affected.

Moreover, the insurance seller failed to allege an injury that flowed from that which made the defendants' act unlawful. Its alleged injury flowed from its exclusion from the approved list, not from the alleged tying arrangement itself. The Sherman Act did not prohibit use of an approved list by a buyer, or restrict that buyer's freedom to select the entity from which it would purchase products, noted the court.

Tying, Reciprocal Dealing, Exclusive Dealing

Even if the insurance seller had not failed to plead antitrust injury, which was fatal to its Sherman Act claims, its allegations against the defendants had not described a tying arrangement, reciprocal dealing, or exclusive dealing that was prohibited by the Sherman Act, in the court's view.

Bank Holding Company Act

The defending financial services firm and its two affiliate entities did not engage in an unlawful tying arrangement prohibited by the Bank Holding Company Act (BHCA) through their credit transaction purchasing practices, the court stated. The complaining gap insurance seller was unable to establish the first element for a BHCA claim—the firm's imposition of an anticompetitive tying arrangement by conditioning an extension of credit upon borrower's obtaining additional credit or services from the bank—because the defendants did not extend any credit or provide a service. Rather, they purchased credit transactions that had already been completed between the car dealer and the car buyer.

No tying arrangement existed because the defendants did not require dealers to include gap insurance products in the credit transactions the defendants purchased, or even to buy gap insurance products at all.

The decision is Midwest Agency Services, Inc. v. J.P. Morgan Chase Bank, N.A., 2010-1 Trade Cases ¶76,940.

Exclusive Dealing Suit Proceeds to Trial

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

A medical products company could have illegally foreclosed competition in the U.S. market for sharps containers in violation of federal antitrust law by offering purchasers discounts and rebates under market share contracts and by entering in exclusive contracts with group purchasing organizations (GPOs), the federal district court in Boston has ruled.

Summary judgment against the claims of the plaintiffs—a certified nationwide class of direct purchasers (2009-2 Trade Cases ¶76,746)—was denied, clearing the last hurdle to trial in the case. The trial was scheduled to begin on December 7.

Sharps containers are products or systems used to dispose of needle-inclusive biohazard products such as syringes and blood collection devices. The contracts at issue allegedly gave purchasers discounts if they purchased virtually all their needs from the company.

Market Share Discounts

Rejected was an argument by the company that the market share discounts could not have violated the Sherman Act because they were governed by predatory pricing case law, and predatory pricing could not be proven because the discounted prices were still above cost.

The case dealt with exclusionary dealing, not predatory pricing, the court noted. While above-cost market share discounts did not, on their own, constitute improper exclusionary dealing that violated the Sherman Act, the class' assertion of additional coercive factors could suffice to demonstrate illegal conduct.

The class pointed to obstacles, both contractual and practical, that allegedly prevented hospitals from terminating the contracts, the court observed. They contended that the lack of a termination clause in the contracts effectively forced customers to buy all their requirements from the company for an indefinite duration. They also presented evidence indicating that the company policed and bullied its customers to ensure satisfaction of their ex ante purchasing requirements.

In addition, the class offered proof that the at least some of the contracts applied not just to single products, but across a range of bundled items. Such programs could be exclusionary even whether the discounts were above cost, since even an equally efficient rival might find it impossible to compensate for lost discounts on products that it did not produce, the court explained.

The court concluded that summary judgment on the claim based on market share contracts was not warranted, given the class's showing of:

(1) Substantial foreclosure of the market,
(2) Above cost loyalty discounts,
(3) Indefinitely long affirmative exclusionary purchasing commitments,
(4) Bundling,
(5) Policing and enforcement of the contracts in order to prevent departure, and
(6) Anticompetitive motive

Exclusive GPO Pacts

The class's exclusive dealing claims based on the GPO contracts were similarly viable, the court decided. GPOs negotiate contracts between manufacturers/suppliers and their member hospitals. The exclusive pacts allegedly foreclosed competitors unfairly from the most efficient distribution channel for medical supplies, the GPO services market.

The plaintiffs' expert defined a relevant market based on evidence that rivals' alternatives for selling their products were not reasonably interchangeable. This demonstrated market foreclosure raised rivals' costs and created barriers to entry. This showing, along with evidence that GPOs exiting the sole source agreements would have to abandon their entire contracts—accepting lower administrative fees—and that the selection process by which GPOs chose sole source manufacturers was not competitive, sufficed to survive summary judgment, the court said.

Market Power

The court also held that the defending company could have possessed the substantial market or monopoly power required for a violation of Sec. 2 of the Sherman Act. The company's declining market share did not preclude a finding of market power. Given that the parties'
experts disagreed substantially as to whether the company's prices and profit margins did in fact fall during the relevant period, a genuine issue of material fact existed as to the company's market power, the court found.

The decision is Natchitoches Parish Hospital Service District v. Tyco International, Ltd., 1:05-CV-12024-PBS, November 20, 2009. It appears at 2009-2 Trade Cases ¶76,815.

Convention Authority’s Preferred Promoter Agreement Might Be Anticompetitive

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

A Michigan county convention/arena authority and the private company that managed its facility could have engaged in a conspiracy in violation of federal antitrust law by entering into a preferred promoter agreement (PPA) with a concert/events promoter that included a reciprocal agreement for sharing arena and promoter revenue at the county’s facility as well as those of competitors, the federal district court in Grand Rapids has ruled.

The court denied a motion by the county authority and private management company to dismiss a competing arena’s antitrust claims.

Plausible grounds existed for an inference that the agreement had illegal anticompetitive effect, the court stated. None of a variety of arguments or scenarios advanced by the defendants was fatal to the competitor’s claim as a whole. Until the details of its antitrust theory were fleshed out and the record was further developed, “dismissal would be based on far greater speculation than would permitting this action to proceed to the next stage, said the court.

Immunity from Suit

Neither the county authority nor the management company was protected from the claims by state action immunity, the court found. Regarding the county authority’s protection as a municipality, it could not be assumed at pleading that the authority’s conduct was authorized by a clearly articulated state policy because it was not clear that the challenged conduct was a foreseeable consequence of what the state law authorized. Moreover, its conduct was not regulatory activity, but instead fell into the less-protected category of commercial market activity.

The arena management company, as a private entity, fell even further from the doctrine’s protection. The company failed to show that the contract was formed pursuant to a clearly articulated state policy that authorized anticompetitive conduct. Any relationship between the statutory authorization that governed the county authority and the competitor arena revenue siphoning provision of the PPA was “tenuous at best,” the court said.

Further, the company did not demonstrate that the State of Michigan could—and did—exercise control over the alleged misconduct. The claims could not be dismissed on the basis of the limited immunity available under the Local Government Antitrust Act either, the court added.

Interlocutory Appeal

On March 4, the court subsequently refused to certify its earlier ruling for interlocutory appeal. The defendants sought review of the court’s rulings regarding (1) whether they were entitled to antitrust immunity as a matter of law; (2) whether the plaintiff’s allegations, if true, constituted legally cognizable antitrust injury; and (3) whether the allegations, if true, established a relevant market, market power, and anticompetitive effects.

Immediate appeal was not warranted because there was no matter of controlling law that created substantial grounds for a difference of opinion about either the legal standard applied by the court for deciding the defendants’ immunity or the adequacy of the plaintiff’s complaint, in the court’s view.

The decisions in Delta Turner, Ltd. v. Grand-Rapids-Kent County Convention/Arena Authority appear at 2009-1 Trade Cases ¶ 76,530 and 2009-1 Trade Cases ¶ 76,531.