US Monopolisation Cases

This chapter provides an overview of the applicable US case law and principles relating to private monopolisation claims in the civil context. We outline the elements of a monopolisation claim under Section 2 of the Sherman Act, followed by an examination of types of exclusionary conduct that may give rise to a claim, before concluding with recent cases reflecting current trends, particularly in the technology and pharmaceutical industries. High-tech and pharma industries are under outsized antitrust scrutiny and are a fertile breeding ground for cutting-edge theories of antitrust harm that yield a substantial volume of private Section 2 litigation, but which can face significant headwinds in US federal courts.

Introduction to Section 2 of the Sherman Act

Section 2 of the Sherman Act (Section 2) is the primary US federal statute prohibiting monopolisation, attempted monopolisation and conspiracies to monopolise that harm competition. The statute provides that ‘every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony’.

Section 2 reaches unilateral conduct by a single firm.[2] A monopolisation claim has two elements: the possession of monopoly power in a relevant market; and the acquisition, enhancement or maintenance of that power by anticompetitive or exclusionary conduct.[3] Attempted monopolisation requires a showing of predatory or anticompetitive conduct, with a specific intent to monopolise and a dangerous probability of achieving monopoly power in a relevant market.[4] Conspiracy to monopolise claims require showing the existence of a conspiracy, an overt act in furtherance of the conspiracy and a specific intent to monopolise.[5]

Violations of Section 2 are punishable by civil and criminal penalties, but private plaintiffs can only pursue cases civilly. Private plaintiffs may bring civil suits under Section 2 pursuant to Section 4 of the Clayton Act, which authorises private plaintiffs to sue for treble damages when they have been harmed by conduct that violates the Sherman Act, and under Section 16 of the Clayton Act, to obtain an injunction prohibiting the anticompetitive practice.

Under modern precedents, monopolisation claims are often analysed under a three-step burden-shifting framework. First, the plaintiff must make out its prima facie case that the defendant possessed monopoly power and engaged in anticompetitive conduct with the requisite anticompetitive effect. Second, if the plaintiff establishes a prima facie case the burden shifts to the defendant to provide a pro-competitive justification for the challenged conduct. Third, if the defendant shows a pro-competitive justification the burden shifts back to the plaintiff – on whom the ultimate burden of proof rests – to show either that the defendant’s pro-competitive justification is pretextual, or that the anticompetitive harm outweighs the pro-competitive benefit.

Elements of a monopolisation claim under Section 2

It is ‘settled law’ that monopolisation requires ‘the possession of monopoly power in the relevant market’.[6] The Supreme Court has defined monopoly power as ‘the power to control prices or exclude competition’.[7] In making its prima facie case of monopoly power, the plaintiff does not need to establish that ‘prices are raised and that competition is actually excluded’, but only that the defendant has the power to do so.[8]

There are two ways to establish monopoly power. First, a plaintiff may present direct evidence that a defendant actually controls price or excludes competition, or both.[9] If the plaintiff presents such direct evidence, some courts allow for a reduced burden on defining the relevant market in which the alleged harm occurs.[10] As direct evidence of monopoly power is rare, plaintiffs may also establish monopoly power with indirect evidence, which entails defining a ‘relevant market’ in which the alleged harm occurs, and showing that the defendant has a dominant share of that market.[11]

The ‘relevant market’ for antitrust purposes includes both a relevant product market and a relevant geographic market.[12] The relevant product market includes ‘products that have reasonable interchangeability for the purposes for which they are produced – price, use, and qualities considered’.[13] The concept of cross-­elasticity of demand – the extent to which a price change in one product impacts demand for a second product – is also central to the relevant product market definition.[14] The inquiry into the relevant product market ultimately seeks to identify economic substitutes, namely, the products that exhibit cross-elasticity of demand such that they constrain the price of the product or products at issue.

The relevant geographic market is the area in which a seller competes with other sellers.[15] It is the ‘area of effective competition’, and like the relevant product market, the scope of the geographic market is based on the alternatives customers could turn to, for example in response to a price increase.[16]

Once the relevant market is defined, the next step is to consider the defendant’s market share and the presence of any barriers to entry.[17] The market share required to show monopoly power may vary depending on the circumstances; however, a share of 90 per cent or more is generally sufficient to establish monopoly power, while ‘it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three percent is not’.[18]

The Supreme Court has noted that ‘without barriers to entry it would presumably be impossible to maintain supra-competitive prices for an extended time’.[19] Thus, a mere showing of substantial or even dominant market share may not be sufficient to support a Section 2 claim: ‘a firm cannot possess monopoly power in a market unless that market is also protected by significant barriers to entry’.[20] Barriers to entry may include regulatory or legal licence requirements, high costs of capital, technological obstacles, control of an essential or superior resource and intellectual property.[21]

Exclusionary conduct

Monopoly power standing alone is not unlawful.[22] Monopoly power resulting from ‘growth or development as a consequence of a superior product, business acumen, or historic accident’ does not violate Section 2.[23] The Supreme Court has reasoned that it is ‘[t]he opportunity to charge monopoly prices – at least for a short period – [that] attracts ‘business acumen’ in the first place.’[24]

Instead, there must be something more – some ‘exclusionary conduct’ – that resulted in defendant maintaining, enhancing, or achieving that monopoly power. The standard for showing such exclusionary conduct is fact dependent, and distinguishing between competitive and exclusionary conduct is often difficult. Indeed, ‘[d]efining the contours of this element . . . has been one of the most vexing questions in antitrust law.’[25]

On one hand, courts have repeatedly found no Section 2 violation based on vigorous, ‘rough’ competition, and have held that even driving a competitor from the market is not necessarily enough to support a claim.[26] On the other hand, if there is no legitimate or procompetitive reason for the conduct, that is, it is done for the sole purpose of harming competition, that is most likely to be found to be ‘exclusionary’. As one influential judge has noted:

[a]ggressive, competitive conduct by any firm, even one with market power, is beneficial to consumers. Courts should prize and encourage it. Aggressive, exclusionary conduct is deleterious to consumers, and courts should condemn it. The big problem lies in this: competitive and exclusionary conduct look alike.[27]

Courts have grappled with how to distinguish truly exclusionary conduct from legitimate aggressive competition, and various tests have been developed to make this assessment. One test considers whether the conduct makes any economic sense but for its impact on competition, that is, whether the conduct in question contributed any profit to the firm apart from its exclusionary effect.[28] Another looks at profit sacrifice – whether the firm is forgoing profits in the short term but will make them up in the long term after it has succeeded in driving out competition.[29] The US antitrust agencies have argued for a ‘disproportionality test’, pursuant to which conduct is anticompetitive under Section 2 when it results in competitive harm that is ‘disproportionate to consumer benefits (by providing a superior product, for example) and to the economic benefits to the defendant (aside from benefits that accrue from diminished competition)’.[30] Similar to a balancing-effects test, under the disproportionality test, conduct that potentially has both procompetitive and anticompetitive effects is anticompetitive under Section 2 if its likely anticompetitive harms substantially outweigh its likely procompetitive benefits.[31]

In its amicus brief filed in Viamedia, Inc. v. Comcast Corp., a case discussed further below, the Antitrust Division referred to the ‘no-economic sense’ test in advocating that ‘a refusal to deal is not actionable under Section 2 unless it would make no economic sense for the defendant but for its tendency to eliminate or lessen competition. This position permits refusals to deal that are supported by valid business justifications and is consistent with long-standing Department of Justice policy.’[32]

Types of exclusionary conduct

This section provides a brief overview of some of the standard forms of exclusionary conduct alleged in Section 2 claims.

Predatory pricing

Predatory pricing is ‘pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run.’[33] In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., the Supreme Court articulated a two-factor test that plaintiffs must meet in bringing a predatory pricing claim: defendant priced below an appropriate measure of its costs; and there is a ‘dangerous probability’ the defendant will ‘recoup[] its investment in below-cost prices’.[34]

Successful predatory pricing cases are relatively rare.[35] The Supreme Court has recognised that ‘cutting prices in order to increase business often is the very essence of competition. Thus, mistaken inferences . . . are especially costly, because they chill the very conduct the antitrust laws are designed to protect.’[36]

Bundling

Bundling is the practice of offering discounts or rebates conditioned on the purchaser buying two or more different products or services. Courts have recognised that bundled discounts are pervasive, generally benefit consumers, and are not inherently wrongful.[37] Similar to the concern presented by predatory pricing and tying, antitrust may be implicated when a monopolist uses a bundled discount in a manner that forecloses equally or more efficient competitors, harming competition in the long run. To determine whether bundled pricing may be unlawful under Section 2, courts have developed different methodologies,[38] with the more recent cases focusing on whether the bundle resulted in pricing below cost under a ‘discount attribution’ test.[39]

Tying

Tying arrangements, when a supplier sells one product (‘tying product’) on the condition that a purchaser also buys a second product (‘tied product’), are generally challenged under Section 1 of the Sherman Act.[40] To bring a tying claim under Section 2, the plaintiff must show actual or probable monopolisation of the tied or tying product market, namely, that the defendant supplier used the tie to maintain a monopoly in the tying product market or to attempt to monopolise the tied market.[41]

Exclusive dealing

In an exclusive dealing arrangement, a buyer is required to purchase products or services for a certain time from one supplier, exclusively or on a de facto exclusive basis. Most exclusive dealing arrangements do not violate Section 2. Relevant factors in the competitive analysis include the amount of competition foreclosed to rivals based on the agreement,[42] the duration of the exclusivity provision,[43] the business justification for the exclusivity[44] and the parties’ respective market shares.[45]

Unilateral refusals to deal with a rival

Under US antitrust law, there is no general duty to deal with competitors, but courts recognise narrow exceptions, primarily of the type articulated in the Supreme Court’s 1985 opinion in Aspen Skiing Co. v. Aspen Highlands Skiing Corp.[46] In Aspen Skiing, the defendant operated three ski locations in Aspen, Colorado, and the plaintiff operated a fourth.[47] After jointly offering a ski ticket that allowed a skier to ski at all four locations for many years, the defendant terminated the relationship.[48] The Court, while recognising that ‘even a firm with monopoly power has no duty to engage in joint marketing with a competitor’, found the defendant’s conduct could be exclusionary: the withdrawal was ‘not motivated by efficiency concerns’ and the defendant was ‘willing to sacrifice short-run benefits and consumer goodwill in exchange for a perceived long-run impact on its smaller rival’.[49]

Later, in Trinko, a refusal to deal case in 2004, the court characterised Aspen Skiing as being ‘at or near the outer boundary of § 2 liability’,[50] and since Trinko, the lower courts have, too, held that only in very narrow circumstances does a monopolist have a duty to deal with its rivals.[51]

Section 2 private litigation in the pharmaceutical and technology sectors

Over the past few years, there has been growing antitrust scrutiny on pharmaceutical and technology companies, both by government enforcers as well as private plaintiffs bringing cases under monopolisation theories rooted in Section 2 of the Sherman Act. This section overviews recent cases demonstrating novel ways in which conduct may be alleged to be ‘exclusionary’ for Section 2 purposes, and the ways courts have in recent years addressed these types of theories.

The intense antitrust focus on pharmaceuticals and technology is expected to continue, especially in light of President Biden’s recent sweeping executive order, which encourages agencies to focus on antitrust enforcement in these industries, and is likely to also spur private litigation.

Viamedia, Inc. v. Comcast Corp., et al

A split three-judge panel for the United States Court of Appeals for the Seventh Circuit gave new life to a refusal to deal claim this year, allowing Viamedia to proceed to trial on its allegations that Comcast violated Section 2 of the Sherman Act.

Plaintiff Viamedia alleged that Comcast operated in both the interconnect market, in which it had monopoly power, and in the advertisement representation (ad rep) market, in which Viamedia had also competed, and leveraged its monopoly power in the interconnect market to exclude Viamedia from the ad rep market.[52] Viamedia premised its allegations on, among other things, a refusal to deal theory, stating that Comcast denied Viamedia’s customers (multichannel video programming distributors (MVPDs)) access to the interconnect market if they used any company other than Comcast for ad rep services. Absent such access, Viamedia argued, the MVPDs could not provide their services effectively, thereby dissuading them from using any Comcast competitor in the ad rep market and ultimately preventing such competitors from participating in that market.[53] Viamedia sued Comcast in 2016, seeking nearly US$160 million in damages.[54]

The United States District Court for the Northern District of Illinois dismissed Viamedia’s refusal to deal claim on the basis that there may be sound business judgment behind Comcast’s alleged refusal to deal.[55] The court stated that the complaint did not ‘explain[] how Defendants’ refusal to deal . . . has no rational procompetitive purpose’ and reasoned that Comcast’s refusal ‘offers potentially improved efficiency’ because it removes Viamedia as a middleman.[56]

Viamedia appealed to the Seventh Circuit,[57] and on 24 February 2020, the Seventh Circuit reversed. The court relied primarily on Aspen Skiing,[58] which as noted above, the Supreme Court has more recently recognised sits ‘at or near the outer boundary of § 2 liability’.[59] The Seventh Circuit recognised Aspen Skiing’s limited application but found that ‘Viamedia has presented a case that is well within those bounds and appears to be stronger than Aspen Skiing’.[60] The court explained that Viamedia had alleged that: (1) there was a preexisting relationship between the parties that indicates joint dealings were efficient and profitable; (2) similar joint agreements are used in comparable markets; and (3) defendant sacrificed profits to harm its rival, which was sufficient to allege a refusal to deal claim.[61]

The Seventh Circuit rejected Comcast’s argument that any possible business justification for the refusal overcomes potential liability, stating that, ‘at the pleading stage, it is enough to allege plausibly that the refusal to deal has some of the key anticompetitive characteristics identified in Aspen Skiing’ and ‘balancing’ tests analysing procompetitive benefits are appropriate only after extensive fact finding, not at the pleading stage.[62] The court further warned that if discovery supports Viamedia’s prima facie case, Comcast will take on ‘the burden to prove what would need to be some dazzling procompetitive benefits to justify its conduct’.[63] On 28 June 2021, the Supreme Court denied Comcast’s petition for a writ of certiorari reviewing the Seventh Circuit’s opinion.[64]

In re Humira (Adalimumab) Antitrust Litigation

The District Court for the Northern District of Illinois dismissed a complaint alleging monopolisation based on the defendant developing and enforcing a ‘patent thicket’ around the blockbuster immunosuppressant Humira.[65] The court dismissed the claim – which it characterised as a ‘new theory of § 2 antitrust liability’ – both because the ‘vast majority of the alleged scheme is immunized from antitrust scrutiny’ and because plaintiffs failed to allege antitrust injury.[66]

Among other things, plaintiffs argued that AbbVie engaged in unlawful monopolisation by developing over 100 patents for Humira. Plaintiffs alleged that ‘the sheer volume of AbbVie’s patents blocks entry regardless of whether individual challenged patents are adjudged invalid or non-infringed’.[67]

The court concluded that the Section 2 theory was largely premised on petitioning activity: prosecuting the patents, engaging in the FDA approval process, and pursuing patent infringement actions.[68] Under the Noerr-Pennington doctrine, such conduct is generally immune from antitrust challenge unless plaintiff can show the petitioning was a ‘sham’, under a two-part test. First, the lawsuit must be ‘objectively baseless’ in that no reasonable litigant could realistically expect success on the merits. Second, the suit must reflect a subjective intent to use the governmental process – as opposed to the outcome of that process – as an anticompetitive weapon.[69]

The court found that plaintiffs failed to establish the first element of the sham petitioning test, that AbbVie’s petitioning had been ‘objectively baseless’. The court emphasised, for instance, that more than half of AbbVie’s patent applications resulted in issued patents, that AbbVie had prevailed in 13 out of 18 inter partes review proceedings, and that the infringement suits were settled on terms that provided substantial value to AbbVie.[70]

The Humira court distinguished the facts at issue – in particular, that AbbVie’s patents had been developed internally – from cases finding Section 2 liability where patents had been acquired from third parties, such as patent pools.[71] The court cited the influential Areeda & Hovenkamp treatise for the proposition: ‘[W]e would never hold internal patent development to be a § 2 exclusionary practice because we do not wish to discourage innovation, even by monopolists.’[72]

The court also found that plaintiffs failed to allege antitrust injury, a critical element of private antitrust claims. The court noted that so long as AbbVie had a single valid, infringed patent, then ‘it was the patent—and not AbbVie’s other conduct—that was the but-for cause of the monopoly prices’.[73] But the court found that the ‘complaint never allege[d] that all of AbbVie’s patents were invalid or not infringed’.[74] The court concluded that by not identifying ‘a clear pathway to establish how prices would have fallen . . . plaintiffs’ complaint leaves the defendants (and the reader) without notice of their claim.’[75]

The Humira plaintiffs have appealed to the Seventh Circuit, which heard oral arguments earlier this year.[76]

In Re Lantus Direct Purchaser Antitrust Litigation

While reviving a monopolisation claim premised on alleged improper listing of a patent in the Orange Book, the First Circuit recognised as a potential defence to Section 2 liability that the patent had been listed as part of a reasonable, good-faith effort to comply with regulatory requirements.[77]

Drug manufacturers that own FDA-approved drugs are required to file patents with the FDA that claim the drug or a method of using the drug. The FDA publishes these patents in a publication referred to as the ‘Orange Book’. Under the Hatch–Waxman Act,[78] a potential generic entrant must make a certification with respect to each patent listed in the Orange Book. A certification that the listed patent is invalid, unenforceable, or will not be infringed, known as a Paragraph IV certification, allows the patent holder to initiate an infringement lawsuit, which triggers an automatic 30-month stay of FDA approval.

Plaintiffs – a putative class of direct purchasers of a drug used to manage diabetes – allege that Sanofi delayed generic competition by improperly listing a patent in the Orange Book to take advantage of the automatic 30-month stay. Sanofi argued the patent had not been improperly listed, but that even if it was, that was the result of a reasonable mistake, and that in this setting Sanofi should not be held liable under antitrust law for a reasonable mistake.[79]

As a general matter, courts in Section 2 cases focus on the competitive effect of the challenged conduct, rather than the intent behind it. While intent evidence may be relevant to the extent it helps to understand effects, it is typically the competitive effect (or lack thereof) that matters.

The First Circuit found, however, that ‘section 2 liability might work a bit differently in the regulatory context’, which provides at least ‘some reason to consider the rationale for the monopolist’s challenged conduct, rather than just the effects of that conduct’.[80] The court reasoned that concluding otherwise would deter reasonable, good-faith attempts at compliance, which could impair the achievement of regulatory goals.[81] Further, the court was somewhat sympathetic to the argument that the failure to list patents could itself potentially expose pioneer companies to risk of Section 2 claims for treble damages, because the failure to list could arguably deprive potential competitors of notice and other benefits.[82]

The First Circuit thus held that Sanofi could defend the antitrust claim by proving it had listed the patent as part of a reasonable, good-faith attempt to comply with the regulatory scheme. The court still reversed the dismissal of the claim under F.R.C.P. 12(b)(6), however, finding that further factual development was required before that defence could be adjudicated.[83]

SC Innovations, Inc. v. Uber Techs., Inc

Plaintiff Sidecar (through its successor SC Innovations), now a defunct transportation network company, brought suit against Uber alleging ‘monopolization in violation [of] section 2 of the Sherman Act, based both on predatory pricing and on exclusionary tortious conduct [and] attempted monopolization’.[84] In its second amended complaint, Sidecar alleged that Uber engaged in predatory pricing on each of the two ‘sides’ of the ride-hailing market, offering above-market incentive payments to recruit plaintiff’s drivers and below-market fares to passengers, and, at least in some circumstances, pricing rides below the costs that it pays drivers.[85] It also claimed that Uber had engaged in exclusionary conduct by conducting ‘campaigns to disrupt rivals (including Sidecar) by submitting requests for rides through rivals’ platforms and either canceling the requests before the drivers arrived,’ or ‘having Uber representatives actually ride with rival ride-hailing companies’ drivers and attempt to convince them to drive exclusively for Uber.’[86]

Uber disputed the claims, arguing that plaintiffs had not alleged cognisable monopoly power, which is required under any Section 2 claim, specifically stating that Sidecar had failed to consider both sides of the two-sided ride sharing platform. Sidecar argued it had pled market power through circumstantial evidence as it had ‘define[d] the relevant market, show[ed] that the defendant owns a dominant share of that market, show[ed] that there are significant barriers to entry, and showed that existing competitors lack the capacity to increase their output in the short run’.[87]

After granting Uber’s first motion to dismiss on Sidecar’s first amended complaint, the Court denied Uber’s subsequent motion to dismiss and allowed Sidecar’s second amended complaint to proceed. The court found that Sidecar had plausibly pled that Uber had market power by alleging that ‘the network effects of Uber’s market dominance’ prevented rivals from ‘respond[ing] effectively or . . . increas[ing] its own share of rides as a restraint on Uber’s pricing’.[88] The court also found that Sidecar sufficiently pled a predatory pricing claim with sufficient facts supporting a ‘dangerous probability of recoupment’ (by pleading that ‘Uber could unilaterally raise the [price] that it keeps for itself from ride-hailing transactions to supracompetitive levels’).[89] It also found Sidecar’s description of Uber’s alleged ‘“fraudulent” ride requests’ also ‘plausibly allege[s] harm to competition.’[90] Despite allowing Sidecar’s lawsuit to proceed, the court made clear that nothing in its order ‘should be construed as resolving any issue of fact that might be disputed at a later stage of the case’ and its ruling was simply based on plaintiff’s allegations, as it must be at the motion to dismiss stage.[91]

After over a year of discovery, SC Innovations and Uber filed a joint stipulation in which SC Innovations withdrew, with prejudice, its monopolisation claims against Uber.[92]

Continental Automotive System, Inc. v. Avanci, LLC

When a standard-setting organisation (SSO) develops a standard, that standard may require implementers to exercise patents considered ‘essential’ to the standard (SEPs). To balance the interests of SEP holders in being ‘fairly and adequately rewarded for the use of their SEPs’ and the ‘need for implementers to get access to the technology defined in’ the standard, SSOs generally require SEP holders to commit to licensing SEPs on ‘fair, reasonable, and non-discriminatory’ (FRAND) terms as a condition for incorporating the SEP in the standard.[93]

In 2020, the Ninth Circuit expressed scepticism that a SEP holder allegedly violating its FRAND commitments by refusing to provide SEP licences to rivals, on its own, constitutes an antitrust violation. In Federal Trade Commission v. Qualcomm, Inc., the FTC alleged that Qualcomm, a telecom SEP holder and chipmaker, violated its FRAND commitments when it chose to only license downstream OEMs and not rival chipmakers, and by doing ‘impair[ed] the opportunities of rivals’ in violation of Section 2.[94] The Ninth Circuit rejected the FTC’s position, finding that even if Qualcomm had violated such a commitment, the FTC failed to identify any ‘harm to competition’ resulting from such an act, especially in light of facts such as Qualcomm providing de facto licences to chipmakers allowing chipmakers to practice Qualcomm’s SEPs, and players such as MediaTek and Intel entering into the modem chip market during the relevant period.[95] The court also noted:

the persuasive policy arguments of several academics and practitioners with significant experience in SSOs, FRAND, and antitrust enforcement, who have expressed caution about using the antitrust laws to remedy what are essentially contractual disputes between private parties engaged in the pursuit of technological innovation.[96]

The Ninth Circuit distinguished the Third Circuit’s 2007 decision in Broadcom Corp. v. Qualcomm Inc.,[97] on the grounds that there the SEP holder had allegedly engaged in ‘discriminatory pricing’ after making an ‘intentionally false promise to license [SEPs] on FRAND terms’.[98]

Shortly thereafter, the Northern District of Texas in Continental Automotive System, Inc. v. Avanci, LLC[99] went a step further, holding that allegedly fraudulent FRAND declarations ‘do not constitute anticompetitive conduct that can be the basis of a § 2 claim’.[100] In that case, Continental, an auto parts manufacturer, sued various telecom SEP licensors alleging, among other things, illegal monopolization based on entering into a licensing pool ‘to require non-FRAND terms for SEP licenses, offered only to OEMs’, and not upstream parts manufacturers such as Continental.[101] Defendants allegedly achieved this exclusionary goal by ‘making fraudulent FRAND declarations to the SSOs that induced the SSOs to include Defendants’ SEPs in their standards’.[102] The Northern District of Texas found that, even if Continental had antitrust standing (which it held it did not), Broadcom’s holding that ‘deception of an SSO constitutes the type of anticompetitive conduct required to support a § 2 claim was incorrect, as “[d]eceptive conduct – like any other kind – must have an anticompetitive effect in order to form the basis of a monopolization claim”’.[103] The court then dismissed the monopolisation claim with prejudice.[104]

Intel Corp. v. Fortress Investment Group LLC

This case involves an antitrust challenge to the business practices of ‘patent assertion entities’ (PAEs), which possess a portfolio of patents that they do not practice themselves but instead assert against alleged infringers.[105] Intel and Apple alleged that Fortress Investment Group and other PAEs make ‘endless patent assertions’ of ‘weak patents’ by ‘aggregat[ing] a massive . . . portfolio of patents that purportedly read on high-tech consumer and enterprise electronic devices’.[106] Plaintiffs allege that this violates federal and state antitrust laws because it results ‘in actual anticompetitive effects – in particular, supracompetitive pricing’ in certain technology markets.[107]

The district court initially found that while ‘Plaintiffs’ general theory of antitrust liability was not inherently implausible’. it was subject to dismissal because plaintiffs improperly relied on a general ‘electronics patents market’, which the court rejected as overly ‘vague and overbroad’.[108] The plaintiffs then filed an amended complaint alleging 13 narrower product markets, but on 6 January 2021, the court again dismissed the claim, finding that the alleged markets remained either inadequately alleged or lacked sufficient factual support.[109]

More fundamentally, however, the court found that even assuming ‘supracompetitive pricing by itself is enough to establish anticompetitive effects . . . Plaintiffs have not plausibly shown that Defendants extracted supracompetitive royalties as a result of their aggregation’.[110] The court noted that the mere assertion that the royalties obtained were ‘supracompetitive’ was a ‘conclusory allegation’ insufficient to meet the pleading standard.[111]

The court also found that the complaint lacked other facts to allow it to determine whether the royalties sought were plausibly supracompetitive. For example, the court noted that the plaintiffs failed to provide sufficient factual support that royalties obtained for other patents in the same field were ‘fair comparators’ and that the challenged patents were the ‘crown jewels’ of the relevant field rather than ‘just a small portion of a large field of substitutes.’[112] Plaintiffs have filed another amended complaint, and another motion to dismiss is pending.[113]

On 28 September 2021, the court filed a sealed opinion granting in part and denying in part defendants’ motion to dismiss, and issued a judgment in favour of defendants.[114]


Notes

1 Dee Bansal and Jacqueline Grise are partners, and Julia Brinton, David Burns and Richard Lee are associates, at Cooley LLP.

2 In contrast, Section 1 of the Sherman Act, 15 U.S.C. § 1, proscribes agreements in restraint of trade and Section 7 of the Clayton Act, 15 U.S.C. § 18, prohibits mergers and acquisitions where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly’. The U.S. Federal Trade Commission may also challenge exclusionary conduct under Section 5 of the FTC Act, 15 U.S.C. § 45.

3 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 595 (1985).

4 Spectrum Sports v. McQuillan, 506 U.S. 447, 459 (1993) (‘We hold that petitioners may not be liable for attempted monopolization under § 2 of the Sherman Act absent proof of a dangerous probability that they would monopolize a particular market and specific intent to monopolize.’); Duty Free Ams., Inc. v. Estée Lauder Cos., 797 F.3d 1248, 1263 (11th Cir. 2015) (same).

5 Am. Tobacco Co. v. United States, 328 U.S. 781, 789, 809 (1946); Howard Hess Dental Labs. v. Dentsply Int’l, 602 F.3d 237, 253 (3d Cir. 2010); Int’l Distrib. Ctrs. v. Walsh Trucking Co., 812 F.2d 786, 795 & n.8 (2d Cir. 1987).

6 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004).

7 United States v. E.I. duPont de Nemours & Co., 351 U.S. 377, 391 (1956).

8 Am. Tobacco, 328 U.S. at 811.

9 e.g., Shak v. JPMorgan Chase & Co., 156 F. Supp. 3d 462, 482 (S.D.N.Y. 2016) (‘[M]onopoly power may be established, not only by proof of a defendant’s market share in a relevant market, but alternatively by direct evidence of a defendant’s price control or exclusion of competitors from a particular market in a manner indicative of its possession of monopoly power.’); see also Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1434 (9th Cir.), cert. denied, 516 U.S. 987 (1995) (‘If the plaintiff puts forth evidence of restricted output and supracompetitive prices, that is direct proof of the injury to competition which a competitor with market power may inflict, and thus, of the actual exercise of market power.’)

10 e.g., Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 477 (1992) (‘It is clearly reasonable to infer that Kodak has market power to raise prices and drive out competition in the aftermarkets, since respondents offer direct evidence that Kodak did so’.); Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 n.3 (3d Cir. 2007) (‘[D]irect proof of monopoly power does not require a definition of the relevant market’); Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 737 (7th Cir. 2004) (‘[I]f a plaintiff can show the rough contours of a relevant market, and show that the defendant commands a substantial share of the market, then direct evidence of anticompetitive effects can establish the defendant’s market power—in lieu of the usual showing of a precisely defined relevant market and a monopoly market share.’). But see Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1199 (10th Cir. 2009) (noting that this circuit has ‘discussed the possibility that proof of anticompetitive effects rendered definition of a relevant market unnecessary in a § 2 case’ but has not resolved the issue).

11 United States v. Microsoft Corp., 253 F.3d 34, 54-56 (D.C. Cir. 2001); Rebel Oil, 51 F.3d at 1434.

12 Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962) (‘The “area of effective competition” must be determined by reference to a product market (the “line of commerce”) and a geographic market (the “section of the country”)’).

13 E.I. duPont, 351 U.S. at 404; see also PepsiCo, Inc. v. The Coca-Cola Co., 315 F.3d 101, 105 (2d Cir. 2002) (‘Products will be considered to be reasonably interchangeable if consumers treat them as “acceptable substitutes”.’).

14 FTC v. Sysco Corp., 113 F. Supp. 3d 1, 14 (D.D.C. 2015) (‘Whether goods are “reasonable substitutes” depends on two factors: functional interchangeability and cross-elasticity of demand. “Functional interchangeability” refers to whether buyers view similar products as substitutes.’ (quoting FTC v. Staples, Inc., 970 F. Supp. 1066, 1074 (D.D.C. 1997)); id. at 15 (‘Cross-elasticity of demand also depends on the “ease and speed with which customers can substitute [the product] and the desirability of doing so.”’) (quoting FTC v. Whole Foods Market, Inc., 548 F.3d 1028, 1037 (D.C. Cir. 2008)).

15 United States v. Phil. Nat’l Bank, 374 U.S. 321, 359 (1963).

16 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961) (‘[T]he area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies.’).

17 United States v. Grinnell Corp., 384 U.S. 563, 571 (1966) (‘The existence of such [monopoly] power ordinarily may be inferred from the predominant share of the market.’); Rebel Oil, 51 F.3d at 1434 (the plaintiff must ‘(1) define the relevant market, (2) show that the defendant owns a dominant share of that market, and (3) show that there are significant barriers to entry and show that existing competitors lack the capacity to increase their output in the short run.’); Broadcom Corp., 501 F.3d at 307 (‘To support an inference of monopoly power, a plaintiff typically must plead and prove that a firm has a dominant market share, and that significant “entry barriers” protect that market.’).

18 United States v. Aluminum Co. of Am., 148 F.2d 416, 424 (2d Cir. 1945). The Supreme Court has found monopoly power based on an 87 per cent share (Grinnell, 384 U.S. at 571), and over 66 per cent (Am. Tobacco, 328 U.S. at 797). The shares vary among the circuits, but generally must be greater than 50 per cent, e.g., United States v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir. 2015) (‘a share significantly larger than 55% has been required . . .’); Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir. 1997) (‘Courts generally require a 65% market share . . .’); Blue Cross & Blue Shield United v. Marshfield Clinic, 65 F.3d 1406, 1411 (7th Cir. 1995) (‘50 percent is below any accepted benchmark for inferring monopoly power from market share’); Exxon Corp. v. Berwick Bay Real Estate Partners, 748 F.2d 937, 940 (5th Cir. 1984) (‘[M]onopolization is rarely found when the defendant’s share of the relevant market is below 70%.’).

19 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 591 n.15 (1986); see also Rebel Oil, 51 F. 3d at 1439 (‘The plaintiff must show that new rivals are barred from entering the market and show that existing competitors lack the capacity to expand their output to challenge the predator’s high price.’).

20 Microsoft, 253 F.3d at 82.

21 Rebel Oil, 51 F. 3d at 1439.

22 United States v. Standard Oil, 221 U.S. 1, 62 (1911).

23 Grinnell, 384 U.S. at 570-71.

24 Trinko, 540 U.S. at 407.

25 Antitrust Law Developments, ‘Chapter 2: Monopolization & Related Offenses’ at 241 (8th ed. 2017); Microsoft, 253 F.3d at 58.

26 Am. Football League v. Nat’l Football League, 205 F. Supp. 60, 65 (D. Md. 1962) (‘Neither rough competition nor unethical business conduct is sufficient. The requisite intent to monopolize must be present and predominant.’).

27 Frank H Easterbrook, ‘When Is It Worthwhile to Use Courts to Search for Exclusionary Conduct?’, Colum. Bus. L. Rev. 345, 345 (2003).

28 Aspen Skiing, 472 U.S. at 608 (finding liability, noting the defendant ‘elected to forgo [] short-term benefits because it was more interested in reducing competition in the Aspen market over the long run’); Morris Commc’ns Corp. v. PGA Tour, Inc., 364 F.3d 1288, 1295 (11th Cir. 2004) (‘[A]nticompetitive conduct . . . is conduct without a legitimate business purpose that makes sense only because it eliminates competition.’) (quoting Gen. Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 804 (8th Cir. 1987)).

29 Neumann v. Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir. 1986) (‘[P]redation involves aggression against business rivals through the use of business practices that would not be considered profit maximizing except for the expectation that (1) actual rivals will be driven from the market, or the entry of potential rivals blocked or delayed, so that the predator will gain or retain a market share sufficient to command monopoly profits, or (2) rivals will be chastened sufficiently to abandon competitive behavior the predator finds threatening to its realization of monopoly profits.’); William Inglis & Sons Baking Co. v. ITT Cont’l Baking Co., 668 F.2d 1014, 1030 (9th Cir. 1981) (to violate § 2, conduct ‘must be such that its anticipated benefits were dependent upon its tendency to discipline or eliminate competition and thereby enhance the firm’s long-term ability to reap the benefits of monopoly power’).

30 Brief for the United States & the Federal Trade Commission as Amici Curiae Supporting Petitioner at 14, Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (No. 02-682).

31 id. at 14 (citing Microsoft, 253 F.3d at 58).

32 Brief for the United States as Amicus Curiae in Support of Neither Party at 7, Viamedia Inc. v. Comcast Corp., et al., case No. 1:16-cv-05486 (7th Cir. Nov. 8, 2018).

33 Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117 (1986).

34 509 U.S. 209, 222, 224 (1993).

35 See e.g., SC Innovations, Inc. v. Uber Techs., Inc., discussed further below.

36 Matsushita, 475 U.S. at 594.

37 Cascade Health Sols. v. PeaceHealth, 515 F.3d 883, 894-96 (9th Cir. 2008) (bundled discounts ‘generally benefit buyers’); Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264, 271 (6th Cir. 2015) (‘Competitive sellers generally aim to make their products significantly cheaper than their competitors’, and there is nothing inherently wrong with doing so via differential pricing.).

38 LePage’s Inc. v. 3M Co., 324 F.3d 141, 157 (3d Cir. 2003) (en banc) (relying on evidence that rebates in some cases were ‘as much as half of [plaintiff’s] entire prior tape sales to that customer’); ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 274 n.11 (3d Cir. 2012) (limiting LePage’s reasoning ‘to cases in which a single-product producer is excluded through a bundled rebate program offered by a producer of multiple products, which conditions the rebates on purchases across multiple different product lines.’); Cascade Health, 515 F.3d at 903 (rejecting LePage’s, holding that ‘the exclusionary conduct element of a claim arising under [Section] 2 of the Sherman Act cannot be satisfied by reference to bundled discounts unless the discounts result in prices that are below an appropriate measure of the defendant’s costs.’); Collins Inkjet, 781 F.3d at 275 (using the Ninth Circuit’s ‘discount attribution’ test to assess whether the discount resulted in defendant selling below its incremental cost to make the product, noting that such discounting may violate Section 2 because ‘[w]hen the defendant effectively sells below its own costs, it puts pressure on its competitors to lower prices without actually lowering its own costs or otherwise creating a market efficiency.’).

39 Inline Packaging, LLC v. Graphic Packaging Int’l, LLC, 351 F. Supp. 3d 1187, 1210-12 (D. Minn. 2018); Vesta Corp. v. Amdocs Mgmt., 129 F. Supp. 3d 1012, 1031-31 (D. Or. 2015) (dismissing predatory pricing and bundled discounting claims in part for failing to sufficiently allege defendants had priced below their costs).

40 A per se tying claim under Section 1 requires: ‘(1) the tying and tied goods are two separate products; (2) the defendant has market power in the tying product market; (3) the defendant affords consumers no choice but to purchase the tied product from it; and (4) the tying arrangement forecloses a substantial volume of commerce.’ Microsoft, 253 at 85; Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12-18 (1984).

41 Microsoft, 253 F.3d at 95-96 (DOJ alleged Microsoft engaged in anticompetitive tying by tying its Windows operating system to the Internet Explorer web browser because Microsoft’s conduct, which deterred computer manufacturers from using competing web browser and developers from choosing rival program interfaces, resulted in Microsoft maintaining its monopoly over its Windows operating system).

42 The level of foreclosure required may differ for a Section 1 versus a Section 2 claim. Microsoft, 253 F.3d at 70 (‘a monopolist’s use of exclusive contracts, in certain circumstances, may give rise to a § 2 violation even though the contracts foreclose less than the roughly 40% or 50% share usually required in order to establish a § 1 violation’); LePage’s, 324 F.3d at 157 n.10 (‘The jury’s finding against [plaintiff] on its exclusive dealing claim under § 1 [] and § 3 of the Clayton Act does not preclude the application of evidence of [defendant’s] exclusive dealing to support [plaintiff’s] § 2 claim.’). But see Imaging Ctr., Inc. v. W. Md. Health Sys., Inc., 158 Fed Appx. 413, 421 & n.6 (4th Cir. 2005) (district court did not err in refusing to consider whether conduct found not to be in violation of Section 1 was a violation of Section 2, noting ‘Courts generally consider conduct not deemed anticompetitive under [Section] 1 similarly unactionable under [Section] 2.’).

43 e.g., Methodist Health Servs. Corp. v. OSF Healthcare Sys., 859 F.3d 408, 409 (7th Cir. 2017) (affirming grant of summary judgment for ‘dominant hospital’ that entered into exclusive contracts with health insurance providers, noting ‘if [defendant] had signed long-term exclusive contracts with all the health insurance companies serving the tri-county market, the destruction of competition in health services might result in sky-high prices for such services and the bankruptcy of the other hospitals in the market’ and that there was ‘no evidence that [defendant’s] exclusive contracts have a significant exclusionary effect, since most of the contracts expire every year or two’).

44 e.g., Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 237 (1st Cir. 1983) (finding no violation for exclusive contract based on defendant’s showing of legitimate business rationale, including lower costs and creating a stable source of supply).

45 Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 394 (7th Cir. 1984) (‘A plaintiff must prove two things to show that an exclusive-dealing agreement is unreasonable. First, he must prove that it is likely to keep at least one significant competitor of the defendant from doing business in a relevant market. If there is no exclusion of a significant competitor, the agreement cannot possibly harm competition.’).

46 472 U.S. 585 (1985).

47 id. at 589.

48 id. at 592.

49 id. at 610–11.

50 Trinko, 540 U.S. at 409.

51 e.g., FTC v. Qualcomm Inc., 969 F.3d 974, 993-95 (9th Cir. 2020).

52 Viamedia, Inc. v. Comcast Corp., 951 F.3d 429 (7th Cir. 2020).

53 id. at 454–466.

54 Complaint, Viamedia, Inc. v. Comcast Corp., et al., Docket No. 1:16-cv-05486 at Para 16 (N.D. Ill. 23 May 2016).

55 Viamedia, Inc. v. Comcast Corp., 218 F. Supp. 3d 674 (N.D. Ill. 2016).

56 id. at 698–99.

57 id. at 699.

58 951 F.3d at 458; Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).

59 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).

60 951 F.3d at 458.

61 id. at 489–90.

62 id. at 460–61. Notably, the Antitrust Division of the Department of Justice filed a statement of interest, arguing that a company’s refusal to deal with others only violates the antitrust laws in limited circumstances, such as when it makes no economic sense for a firm to engage in such exclusionary behaviour. Viamedia, Inc. v. Comcast Corp. et al., No. 18-2852 (7th Cir. Nov. 8, 2018).

63 id. at 474.

64 Comcast Corp. v. Viamedia, Inc., --- S. Ct. ----, 2021 WL 2637989 (28 June 2021).

65 In re Humira (Adalimumab) Antitrust Litig., No. 1:19-cv-01873, 2020 WL 3051309 (N.D. Ill. 8 June 2020).

66 id. at *8, *14, *23. In addition to the monopolisation claim, plaintiffs also alleged Sherman Act Section 1 claims challenging settlements of patent infringement litigation.

67 Complaint, In re Humira (Adalimumab) Antitrust Litig., No. 19-cv-01873, at Para 199 (N.D. Ill. Mar. 18, 2019).

68 In re Humira, 2020 WL 3051309, at *9.

69 Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61 (1993).

70 id. at *10-*14. In doing so, the court applied the recent Seventh Circuit decision in U.S. Futures Exch., L.L.C. v. Bd. of Trade of the City of Chicago, Inc., 953 F.3d 955, 958 (7th Cir. 2020). That case – which was decided while briefing on the Humira motion to dismiss was pending – holds that the ‘objectively baseless’ element of the sham petitioning test applies whether the allegations involve a single instance of sham petitioning or a series of petitioning, as was the case in Humira.

71 In re Humira, 2020 WL 3051309, at *15.

72 id. (citing Areeda & Hovenkamp, Antitrust Law Para 704c).

73 id. at *23.

74 id.

75 id.

76 Notice of Appeal, In Re Lantus Direct Purchaser Antitrust Litig., No. 1:19-cv-01873 (N.D. Ill. 28 July 2020).

77 In re Lantus Direct Purchaser Antitrust Litig., 950 F.3d 1 (1st Cir. 2020).

78 Officially known as ‘The Drug Price Competition and Patent Term Restoration Act of 1984’, Pub. L. 98-417, 98 Stat. 1585 (1984), 21 U.S.C. § 355 (1994).

79 id. at 6–7, 10.

80 id. at 11–12.

81 id. at 12–13.

82 id. at 11.

83 id. at 14.

84 SC Innovations, Inc. v. Uber Techs., Inc., No. 18-cv-07440-JCS, 2020 WL 2097611, at * 5 (N.D. Cal. 2020).

85 id. at *3 (citing Second Amended Complaint (‘SC SAC’), SC Innovations, Inc. v. Uber Techs., Inc., No. 18-CV-07440-JCS, at Paras 9, 11, 96, 102 (N.D. Cal. Feb. 4, 2020)).

86 id. at *10 (citing SC SAC at Paras 13, 114-22).

87 id. at *5 (citation and internal quotation marks omitted).

88 id. at *8.

89 id. at *10.

90 id. at *11.

91 id. at *2.

92 Stipulation and Order of Dismissal with Prejudice, SC Innovations, Inc. v. Uber Techs., Inc., No. 18-CV-07440-JCS (N.D. Cal. 27 August 2021).

93 See, e.g., ETSI, Intellectual Property Rights, https://www.etsi.org/intellectual-property-rights (last visited 27 August 2021). Qualcomm, 969 F.3d at 996.

94 id. F.3d at 995.

95 id. at 996.

96 id. at 997.

97 501 F.3d 279 (3rd Cir. 2007).

98 969 F.3d at 996.

99 485 F. Supp. 3d 712 (N.D. Tx. 2020).

100 id. at 735.

101 id. at 723.

102 id. at 734.

103 id. at 735 (quoting Rambus Inc. v. FTC, 522 F.3d 456, 464 (D.C. Cir. 2008).

104 id.

105 Intel Corp. v. Fortress Inv. Grp. LLC, --- F. Supp. 3d. ---, 2021 WL 51727 (N.D. Cal. 2021)

106 id. at *1 (citation and internal quotation marks omitted).

107 id. at *3. Apple also alleged that defendants violated California unfair competition law by taking over ‘declared essential SEPs’ from SSO members, while not being SSO members themselves and therefore able to ‘escape the protections for licensees to which licensors agree through making a FRAND commitment’ pursuant to the SSO’s IP policy requiring such a commitment. Id. at *6. The court dismissed this claim because it amounted to an allegation that ‘a breach of an SSO commitment’, which, under the Ninth Circuit’s ruling in Qualcomm, ‘does not rise to the level of an antirust violation’.

108 id. at *2.

109 id. at *9-*12.

110 id. at *14-*15.

111 id. at *15.

112 id. at *16.

113 See Defs’ Joint Notice of Mot. and Mot. to Dismiss and to Strike Plaintiffs’ Second Am. Compl., Intel Corp. v. Fortress Inv. Grp. LLC, 3:19-cv-07651-EMC, ECF No. 244 (N.D. Cal. 26 Apr 2021).

114 Intel Corp. v. Seven Networks LLC, No. 19-cv-07651-EMC (N.D. Cal. 28 Sept 2021).

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