Ninth Circuit

Circuit Court decisions

Corcoran v CVS Health Corporation

In Corcoran v CVS Health Corporation, ¹ plaintiffs brought a multi-state consumer putative class action against CVS Pharmacy (CVS), alleging that CVS misrepresented its ‘usual and customary’ prices of certain generic prescription drugs to third-party insurance providers and pharmacy benefit managers (PBMs) by failing to submit the lower prices that CVS charged to members of its Health Savings Pass program. ² The district court granted CVS’ motion for summary judgment; granted in part the plaintiffs’ motion for class certification; and granted CVS’ motion to exclude and strike one of the plaintiffs’ expert’s opinions. The plaintiffs appealed and the Ninth Circuit reversed and remanded, finding that the district court erred in all of its rulings. ³

The Court reviewed the district court’s grant of summary judgment de novo, finding that it erred in granting summary judgment to CVS because, even though the district court found the plaintiffs’ evidence ‘relevant,’ it placed the parties’ evidence on ‘equal footing and impermissibly weighed the evidence and failed to credit and draw all reasonable inferences from the evidence in plaintiffs’ favor.’ ⁴ The Court found that there were disputed factual questions related to the interpretation of certain agreements and whether CVS had been obligated to report certain prices as ‘usual and customary’ prices, as well as other genuine issues of material fact that should have been put to a jury. ⁵

The Court also reviewed the district court’s class certification ruling – which narrowed the plaintiffs’ proposed classes by limiting each class to the PBM(s) in four separate states – for abuse of discretion, and found that the district court did in fact abuse its discretion by narrowing the proposed classes on typicality grounds. ⁶ While CVS’ agreements with each state PBM were unique, the Court found that the district court failed to identify any meaningful differences that would have put the class representatives at odds with absent class members. ⁷

Finally, the Court reviewed the district court’s decision to exclude and strike the plaintiffs’ expert’s testimony for abuse of discretion, finding again that the district court did in fact abuse its discretion when it struck the expert’s testimony due to a lack of foundation. ⁸ The Court found that, based on the evidence before it, the expert had an adequate basis for his testimony. ⁹ Additionally, the Court found that the district court abused its discretion when it relied, at least in part, on CVS’ expert’s disagreement with the plaintiffs’ expert’s analysis and conclusions. ¹⁰ The Court found that the CVS expert’s analysis did not show the plaintiffs’ expert’s analysis ‘to be without foundation or to be the product of questionable or unreliable methodology,’ and resolving the conflict between experts is a matter for the jury, not a basis to exclude an expert under Federal Rule of Evidence 702. ¹¹

While this decision is a helpful practice reminder on issues pertinent to summary judgment, class certification and Federal Rule of Evidence 702 – all issues that loom large in antitrust litigation – it is important to note that the Court identified its decision as not appropriate for publication and stated that it is not precedent except as provided by Ninth Circuit Rule 36-3.

In re NFL’s Sunday Ticket Antitrust Litigation

A putative class of subscribers to DirectTV’s NFL Sunday Ticket, a bundled package of all National Football League (NFL) games available exclusively to subscribers of DirectTV’s satellite television service, brought an action against the NFL, the 32 individual NFL teams and DirectTV, alleging violations of sections 1 and 2 of the Sherman Act arising out of certain interlocking agreements for the telecast rights of NFL games. ¹² The district court dismissed the plaintiffs’ complaint for failure to state a claim, the plaintiffs appealed, and the Ninth Circuit reversed and remanded. ¹³

Plaintiffs’ allegations related to three specific agreements: (1) the Teams-NFL Agreement, under which ‘the 32 individual NFL teams, each of which is a separate “independently owned, and independently managed business,” . . . entered into an agreement with the NFL to pool their telecasting rights and give the NFL the [exclusive] authority to exercise those rights’; (2) the NFL-Network Agreement, under which the NFL licensed the teams’ telecast rights to CBS and Fox and allowed the networks to broadcast a limited number of local games through free, over-the-air television; and (3) the NFL-DirectTV Agreement, under which the NFL allowed DirectTV to purchase all of the live telecasts produced by CBS and Fox and deliver the bundled feeds to DirectTV’s NFL Sunday Ticket subscribers. ¹⁴ Due to these agreements, fans who want access to more than two or three local games each Sunday afternoon must subscribe to DirectTV’s Sunday Ticket. ¹⁵ The plaintiffs alleged that the agreements ‘work together to suppress competition for the sale of professional football game telecasts,’ and that – absent the Teams-NFL and NFL-DirectTV agreements – ‘a greater number of telecasts of NFL games would be created, and those telecasts would be more accessible to more viewers at lower prices.’ ¹⁶

The Ninth Circuit’s section 1 analysis focused on whether the plaintiffs adequately alleged that the interlocking agreements actually injured competition, and whether the plaintiffs had antitrust standing.

As to injury, the Court relied heavily on National Collegiate Athletic Association v Board of Regents of the University of Oklahoma (NCAA), ¹⁷ in which the Supreme Court found that an agreement among college football teams and the National Collegiate Athletic Association (NCAA) violated section 1 because it eliminated competition in the market for college football telecasts. ¹⁸ Similar to the NCAA agreement, the Court found that the interlocking agreements imposed similar restrictions, namely: (1) they ‘limited the “amount of televised [professional] football” that one team may televise because they restrict the number of telecasts made to a single telecast for each game’; (2) under the agreements, ‘no individual NFL team is permitted to sell its telecasting right independently‘; (3) the Teams-NFL Agreement is a ‘horizontal restraint’ that ‘places an artificial limit on the quantity of televised football that is available [for sale] to broadcasters and consumers‘; and (4) the agreements constitute a ‘naked restraint’ on the number of telecasts available for broadcasters and consumers. ¹⁹ Since the NCAA restrictions were found to constitute an injury to competition, the Court concluded that the plaintiffs’ complaint also plausibly alleged an injury to competition. ²⁰

The defendants made a number of counter arguments. First, the defendants argued that the horizontal Teams-NFL Agreement should be analyzed separately from the vertical NFL-DirectTV Agreement, and that the NFL-DirectTV Agreement did not injure competition because it was an exclusive distribution agreement. ²¹ The Court disagreed, taking a ‘holistic look’ at how the interlocking agreements impacted competition, and concluding that the agreements worked in tandem to restrain competition. ²² Second, the defendants argued that the production of the telecasts – which they viewed as copyrighted work jointly authored by the NFL, the two competing teams and the broadcast network – necessarily required joint action and therefore the restrictions were pro-competitive. ²³ The Court rejected this argument, relying on copyright law to conclude that ‘the agreements not to compete concern[ed] separately owned intellectual property, and impose[d] an unlawful restraint on independent competition.’ ²⁴ Third, the defendants argued that the NFL-DirectTV Agreement did not reduce the output of broadcasts because every regular season NFL game was still broadcast over free television in some geographic area. ²⁵ The Court disagreed with the defendants’ definition of ‘output,’ finding instead that the plaintiffs plausibly alleged ‘that the output . . . is the number of telecasts of games, and that [defendants’] agreements reduce[d] that output.’ ²⁶ Finally, the defendants argued that the complaint failed to allege a properly defined market in which the defendants had market power. ²⁷ The Court found, however, that the defendants had effective control over the entire market for telecasts of professional football games, and concluded that ‘[b]ecause the complaint adequately alleged that the defendants have imposed a ‘naked restraint’ on output, it has not failed to allege market power.’ ²⁸

As to antitrust standing, the defendants argued that the plaintiffs’ claims should be barred under Illinois Brick Co v Illinois. ²⁹ The Court disagreed, finding that Illinois Brick did not apply and that the plaintiffs had standing to challenge the Teams-NFL Agreement because they alleged that their injury was caused by a single conspiracy between the NFL, the individual teams and DirectTV. ³⁰ While the defendants argued that the co-conspirator ‘exception’ to Illinois Brick laid out in In re ATM Antitrust Fee Litigation ³¹ applied only to price-fixing conspiracies, the Court disagreed, finding that the rationale used in In re ATM Antitrust Litigation was equally applicable to output-restriction conspiracies, such as the one alleged by the plaintiffs. ³²

Finally, while the defendants argued that the plaintiffs’ complaint failed to adequately allege either a conspiracy to monopolize or a monopolization claim in violation of section 2 of the Sherman Act, the Court held that the plaintiffs adequately alleged section 2 claims for the same reasons the complaint sufficiently stated a claim under section 1. ³³ In particular, the Court found that the plaintiffs adequately alleged injury to competition, that the defendants had market power in the market for professional football telecasts, and the interlocking Teams-NFL and NFL-DirectTV agreements were designed to maintain market power. ³⁴

This decision provides additional clarity on the Ninth Circuit’s application of Illinois Brick to single conspiracies that involve alleged conspirators at multiple levels of the supply chain. The decision also indicates that, in assessing the interlocking agreements, the district court should utilize the rarely used ‘quick look’ approach to the rule of reason, as opposed to a full rule of reason analysis. The defendants appealed the Ninth Circuit’s decision to the US Supreme Court, filing a petition for a writ of certiorari in February 2020, which remains pending at the time of writing.

In re: Lithium Ion Batteries Antitrust Litigation

A putative class of indirect purchaser plaintiffs (IPP) entered into a series of settlement agreements with various corporate defendants. ³⁵ The district court certified a nationwide settlement class, approved the settlement agreements and ‘approved IPP’s plan to distribute the settlement fund pro rata to settlement class members, regardless of whether their claim(s) arose in Illinois Brick repealer or non-repealer states.’ ³⁶ An objecting class member appealed, and the Ninth Circuit vacated the district court’s final approval order and remanded for further proceedings. ³⁷

The Court criticized the district court’s ‘cursory’ analysis of the requirements of Federal Rule of Civil Procedure 23, finding that the district court failed to explain why a nationwide class should be certified and a pro rata distribution plan approved even though there are ‘substantial differences’ in state law between repealer and non-repealer states. ³⁸ The Court expressed further concern that there were potential inconsistencies in the district court’s approval of similar settlements, noting that the district court had recently approved ‘another set of settlement agreements whose distribution plans specifically account[ed] for the difference between repealer and non-repealer states.’ ³⁹ The Court remanded for a more fulsome analysis. ⁴⁰

The Court identified its decision as not appropriate for publication and stated that it is not precedent except as provided by Ninth Circuit Rule 36-3. However, the decision serves as an important reminder that the Ninth Circuit is carefully reviewing the district court’s orders approving settlement agreements and is cognizant that there should be consistency in how the court certifies a settlement class and determines appropriate distribution of settlement funds.

Northern District of California decisions

FTC v Qualcomm Inc

In January 2017, the Federal Trade Commission (FTC) voted 2-1 to sue Qualcomm, Inc (Qualcomm) for alleged unlawful maintenance of its monopoly over the sale of cellular phone processors (processors or modem chips) ⁴¹ in violation of section 5(a) of the FTC Act, 15 USC § 45(a). ⁴² The FTC alleged that Qualcomm applied a novel but exclusionary ‘no license, no chips’ policy, wherein the chipmaker refused to sell its processors to cellular phone manufacturers that refused to agree to Qualcomm’s licensing terms for patents essential to widely adopted cellular standards. ⁴³

After the Court denied Qualcomm’s motion to dismiss in mid-2017, ⁴⁴ and after more than a year of discovery, the FTC moved for partial summary judgment on the issue of whether two cellular industry agreements – born out of the discussion, research and adoption processes of standard-setting organizations (SSOs) – obligate Qualcomm to license its essential patents to competing modem chip manufacturers. ⁴⁵ In late 2018, the Court concluded that, consistent with ‘Ninth Circuit precedent, the plain text of the [SSO] policies, and the relevant extrinsic evidence,’ Qualcomm – as a holder of standard essential patents (SEPs) – must license its SEPs to modem chip suppliers. ⁴⁶ The Court then scheduled a bench trial on the FTC’s remaining claim that Qualcomm’s sales and licensing practices violated the FTC Act.

Accordingly, 2019 brought a series of high-profile developments and precedential rulings in the FTC’s case against Qualcomm. Throughout January, the Court held a 10-day bench trial. Qualcomm argued that its deals with cellphone makers were the result of balanced negotiations with ‘sophisticated’ parties, with many of the licensing agreements predating the period when Qualcomm began selling modem chips. FTC countered that Qualcomm threatens to cut off supply of modem chips – even writing the ‘no license, no chip’ policy into its supply agreements – when manufacturers attempted to negotiate the terms of licensing agreements. Executives from both Intel and Apple testified against Qualcomm, and the FTC also called an economics professor to testify that Qualcomm’s patent royalties were a ‘naked tax’ on its modem chips. Qualcomm’s economist disagreed, testifying that the company’s historical royalty rate data have been consistent for a quarter-century, and thus there is no evidence that Qualcomm leveraged its modem chip market power to charge supracompetitive royalties. The parties also disagreed on the FTC’s burden of proof, with the FTC arguing that the government only had to show that Qualcomm’s conduct ‘reasonably appear[ed] capable of making a significant contribution to . . . maintaining monopoly power,’ ⁴⁷ while Qualcomm argued that – under Ohio v American Express ⁴⁸ – the FTC had to show that the alleged harm to consumers from Qualcomm’s policy outweighed the potential benefits of the same policy. ⁴⁹

Post-trial but pre-verdict, the Department of Justice (DOJ) Antitrust Division, filed a Statement of Interest asking the Court to carefully consider any proposed remedy that would follow a finding of liability, warning that an ‘overly broad remedy . . . could reduce competition and innovation in markets for [cell phone] technology’ and related downstream applications. ⁵⁰ In a rare public disagreement between the two federal competition agencies, the FTC challenged the appropriateness of the DOJ’s filing, calling it ‘untimely’ and suggesting its substantive disagreement with the DOJ’s arguments. ⁵¹

On 22 May 2019, Judge Lucy Koh issued her findings of fact and conclusions of law, holding that Qualcomm’s conduct violated federal antitrust law and harmed competition. ⁵² Specifically, the Court found that Qualcomm’s anticompetitive acts included: (1) refusing to sell an original equipment manufacturer (OEM) modem chips exhaustively (ie, refusing to agree to the traditional commercial practice wherein Qualcomm’s patent rights in the chip would be terminated upon the authorized sale); ⁵³ (2) unlawfully wielding its ‘chip monopoly power’ by threatening to withhold OEMs’ chip supply until OEMs sign patent license agreements on Qualcomm’s preferred terms; ⁵⁴ (3) using incentive funds to reduce the price of Qualcomm’s chips and induce OEMs to agree to Qualcomm’s licensing terms, which the Court found to be ‘de facto exclusive deals that foreclose OEMs from purchasing modem chips from Qualcomm’s rivals’; ⁵⁵ and (4) refusing to provide samples of modem chips, withholding technical support and delaying delivery of software until OEMs sign Qualcomm’s patent license agreements. ⁵⁶ The Court concluded that this conduct ‘generate[s] and sustain[s] Qualcomm’s unreasonably high royalty rates,’ which ‘impose an artificial and anticompetitive surcharge on the price of rivals’ modem chips.’ ⁵⁷

The Court then ordered a five-part remedy, enjoining Qualcomm’s conduct at issue. This injunctive relief, in part, included ordering Qualcomm (1) to cease conditioning the supply of its modem chips on a customer’s patent license status; (2) to make exhaustive SEP licenses available to competitor modem chip suppliers on FRAND ⁵⁸ terms; (3) to refrain from entering express or de facto exclusive dealing agreements for the supply of modem chips; and (4) to submit to seven years of compliance and monitoring procedures, with annual reports to the FTC. ⁵⁹ Qualcomm moved the Court to stay her ruling while it appealed the decision to the Ninth Circuit, ⁶⁰ but the Court denied the motion. ⁶¹

In July, Qualcomm – with support from the DOJ – moved the Ninth Circuit to stay the district court’s ruling and to expedite the appeal. ⁶² The Circuit Court agreed to expedite briefing, ⁶³ and granted a partial stay of the district court’s injunction, staying the requirements that Qualcomm must make its licenses available to competitor manufacturers and must not condition the supply of its chips upon a customer’s license status. ⁶⁴

Notable amici – including the Departments of Justice, Energy and Defense – filed briefs in support of Qualcomm’s appeal, ⁶⁵ briefing on which was completed at the end of 2019. The Ninth Circuit heard oral argument in early 2020, and granted the DOJ permission to participate in the panel hearing, in which the DOJ argued that the district court’s injunction raised national security concerns.

As at the time of writing, the Ninth Circuit’s decision on the merits of Qualcomm’s appeal remains pending. The outcome of the appeal will directly govern future patent licensing practices – for both the technology industry and beyond – particularly for those companies with substantial market shares for products critical to a particular supply chain. In particular, antitrust practitioners will want to watch closely the Ninth Circuit’s ruling on the district court’s conclusion that Qualcomm ‘has an antitrust duty to license its [standard essential patents] to rival’ competitors, ⁶⁶ which the Court based on its reading of the Supreme Court’s controversial 1985 decision in Aspen Skiing ⁶⁷ – another refusal-to-deal case – which has been significantly narrowed by the Court in the intervening 35 years.

City of Oakland v Oakland Raiders, et al

The City of Oakland (Oakland) filed a complaint against the Oakland Raiders (Raiders), the NFL and 31 other teams in the NFL, ⁶⁸ asserting, among other claims, that the Raiders’ 2017 decision to leave Oakland, and the NFL’s approval of that decision, violated section 1 of the Sherman Act. ⁶⁹ Chief Magistrate Judge Joseph C Spero granted the defendants’ motion to dismiss. The key issue was whether Oakland had sufficiently alleged antitrust injury such that it had antitrust standing to bring its claims. The Court ultimately found that it did not.

The Court laid out the Raiders’ history with Oakland, explaining that the Raiders have been based in Oakland for the vast majority of the team’s history, which began in 1960, playing their home games at a stadium in Oakland known as the Coliseum. ⁷⁰ In 2017, the Raiders announced plans to relocate to Las Vegas. ⁷¹ Despite efforts by Oakland to keep the Raiders – including numerous negotiations regarding construction and funds for a new stadium – the Raiders ultimately applied to the NFL for permission to move to Las Vegas. ⁷² Following NFL rules regarding team relocation, the Raiders negotiated a $378 million transfer fee with the NFL and team owners, and the NFL team owners ultimately approved the relocation by a vote of 31 to 1. ⁷³

Oakland asserted three antitrust claims:

• a group boycott in violation of section 1, ‘based on Oakland’s inability to retain the Raiders or attract another NFL team so long as it was not willing to “pay the enormous demands associated with new and renovated stadia”’;
• a concerted refusal to deal in violation of section 1, ‘based on defendants’ demands for stadium funding as well as “freezing the number of competitive professional football teams”’; and
• price-fixing in violation of section 1, ‘based again on the demands for stadium funding.’ ⁷⁴

Oakland claimed damages ‘including over $240 million invested in reliance on the Raiders remaining in Oakland, loss of “tax and other income that it derives from the presence of the Raiders and the economic activity their presence generates,” and reduced property value of the Coliseum as a result of the stadium having “been boycotted by the NFL.”’ ⁷⁵

The defendants moved to dismiss all of Oakland’s claims with prejudice, arguing, in part, that Oakland failed to allege antitrust injury and lacked standing because (1) ‘allowing the Raiders to move to a city willing to provide more funding promotes, rather than impairs, competition, and because the restrictions on relocation tended to benefit rather than harm Oakland in its efforts to keep the team from leaving,’ and (2) the loss of tax revenue – the only injury Oakland alleged – was a sovereign rather than commercial interest. ⁷⁶

The Court analyzed all three of Oakland’s claims under the same theory of recovery, finding that Oakland had not identified separate conduct to support the various claims, and determining that the conduct would be analyzed under the rule of reason. ⁷⁷ It then turned to the issues of antitrust standing and injury, finding that Oakland failed to plausibly allege either. First, the Court determined that ‘[t]o the extent Oakland base[d] its claims on the NFL’s requirement that teams seeking to relocate pay a fee to the NFL to obtain approval, Oakland has not plausibly alleged antitrust injury as a result of that policy.’ ⁷⁸ The Court found that the relocation fee would have discouraged, rather than encouraged, the Raiders’ decision to relocate, and thus Oakland failed to plausibly allege that the Raiders would have been less likely to relocate but for the fee. ⁷⁹ Second, the Court found that Oakland failed to allege injury-in-fact as a result of the NFL’s 32-team structure, because Oakland did not allege any facts that would support the conclusion that Oakland would be able to host an NFL team if the NFL allowed more teams in the league. ⁸⁰

The Court also weighed in on Oakland’s theory of damages, holding that Oakland could not recover damages based on sunk investment costs in stadium development, nor could it recover damages ‘based on lost tax revenue from the broad scope of economic activity associated with the presence of a professional football team.’ ⁸¹

This decision provides additional insight on the district court’s analysis of antitrust injury and standing, particularly in the context of professional organized sports.

Home Depot v DuPont

In the latest of a series of antitrust cases related to alleged price-fixing in the titanium oxide industry, Judge Beth Labson Freeman ruled in August that Home Depot had presented enough evidence of a price-fixing conspiracy among major suppliers of titanium dioxide – an important ingredient in paint products – to survive the defendants’ motion for summary judgment. ⁸² Similar suits sharing substantially the same record had been previously adjudicated on summary judgment in separate jurisdictions with varying results. In a suit brought by direct purchasers, the District Court for the District of Maryland denied the defendants’ motions for summary judgment under Fourth Circuit law. ⁸³ In contrast, in yet another suit brought by an opt-out plaintiff from the direct purchaser case, the District Court for the District of Delaware granted the defendants’ summary judgment motion, which was later affirmed by the Third Circuit Court of Appeals. ⁸⁴ In breaking the tie, Judge Freeman examined two issues in turn: (1) whether Third Circuit law as articulated in Valspar is identical to Ninth Circuit law, and (2) whether the defendants here were entitled to summary judgment under Ninth Circuit law.

The titanium dioxide market was an oligopoly that had been in distress until the early 2000s, when DuPont, the largest American producer of titanium dioxide, joined a trade group that had previously been closed to non-European producers. Around the same time DuPont joined, the trade group implemented a program for the sharing of statistics that allegedly allowed group members to estimate market shares, inventories and production for themselves and each other. Thereafter, members of the group announced 31 parallel price increases – allegedly a marked change from the preceding period when only a few price increases had occurred. Based on these core allegations, plaintiffs in the several titanium dioxide cases alleged a price-fixing conspiracy among producers in violation of section 1 of the Sherman Act. ⁸⁵

Analyzing applicable Ninth Circuit and Third Circuit law, Judge Freeman noted that, since the Supreme Court decided Matsushita, ⁸⁶ each circuit has developed a set of legal standards to address summary judgment motions in antitrust cases, and that the Third Circuit ‘has developed specialized evidentiary standards at summary judgment in antitrust cases in general and in oligopoly cases in particular.’ ⁸⁷ While the circuits agree that evidence of conscious parallelism in an oligopolistic market cannot by itself create a reasonable inference of conspiracy, Judge Freeman noted that the Third and Ninth Circuits disagree on the evidentiary weight to be given the additional ‘plus factor’ evidence of conspiracy requisite to surviving summary judgment in a case based on circumstantial evidence. Judge Freeman found that the Third Circuit’s and Valspar’s focus on traditional conspiracy evidence requires the plaintiff to present ‘smoking gun’ type evidence and that a plaintiff ‘may defeat summary judgment only if, after evaluating the evidence as a whole, the court determines that it is more likely than not that the defendants conspired to fix prices.’ ⁸⁸ The Ninth Circuit, in contrast, has articulated a two-part test to be applied at summary judgment with respect to section 1 claims based on circumstantial evidence: (1) the defendant can rebut an allegation of conspiracy by showing a plausible and justifiable reason for its conduct that is consistent with proper business practices; and (2) if the defendant makes this showing, the burden shifts back to the plaintiff to provide specific evidence tending to show that the defendant was not engaging in permissible competitive behavior. ⁸⁹ ‘Nor does the Ninth Circuit authority allow, much less require, district judges to weigh evidence’; rather, ‘the plaintiff need only present evidence showing that inference of conspiracy is reasonable in light of competing inferences of independent action or collusive action that could not have harmed [the plaintiff].’ ⁹⁰

Applying these Ninth Circuit principles, Judge Freeman found that allegations of a distressed industry inviting a US producer into its trade group and then raising prices 31 times plausibly suggested a price-fixing conspiracy. While acknowledging that evidence of a motive to conspire was equally consistent with conscious parallelism as with a conspiracy, Judge Freeman noted that Home Depot had presented testimony of the defendants’ executives in which they expressly denied engaging in follow-the-leader pricing, which gave rise to a reasonable inference that the defendants acted not independently but in concert. Home Depot also offered evidence that the defendants acted against their own self-interest, which likewise supported a reasonable inference of a conspiracy. Viewed as a whole, the Court concluded, there was sufficient evidence for a fact-finder to conclude that the defendants’ 31 parallel price-increase announcements were the product of a price-fixing conspiracy rather than lawful market activity to be expected in an oligopoly. DuPont’s subsequent request for interlocutory appeal was denied. ⁹¹

This ruling serves to emphasize the fact that the Ninth Circuit remains hospitable ground, at least compared to the Third Circuit, for plaintiffs relying on ‘plus factor’ evidence in price-fixing cases in oligopolistic markets.

Jones et al v Micron Technology et al

Judge Jeffrey S White sided with the defendants and granted, in large part, their motions to dismiss a proposed class action suit brought by indirect purchasers of dynamic random access memory (DRAM). ⁹² While granting leave to amend, the Court ruled that the plaintiffs’ complaint fell short on a variety of grounds, holding that the purported indirect purchaser class (1) lacked article III standing, (2) lacked federal antitrust standing, (3) failed to sufficiently allege ‘plus factors’ necessary to state an antitrust claim based on circumstantial evidence of conspiracy, and (4) failed to sufficiently allege facts to support the plaintiffs’ other state law claims.

The plaintiffs represent a putative class of individuals and entities alleged to have purchased DRAM products between June 2016 and February 2018. They alleged they purchased products containing DRAM units – mobile phones, personal computers, televisions and other digital electronics – at artificially inflated prices due to the defendants’ conspiracy to reduce the supply of DRAM products in violation of section 1 of the Sherman Act and the antitrust and unfair competition laws of various other states. The defendants are major manufacturers of DRAM products responsible for 96 per cent of worldwide DRAM sales. ⁹³

Regarding article III standing, Judge White first assessed whether the plaintiffs’ alleged injury was sufficiently traceable to the defendants’ conduct, noting that ‘the court must be able to, from the face of the Complaint, infer both that the supracompetitively-priced DRAM component and its supracompetitive price wended their way into the DRAM Products Plaintiffs purchased.’ ⁹⁴ Here, the plaintiffs failed to allege sufficient detail concerning not only the types, makes and models of the products implicated in their complaint but also the pertinent OEMs or retailers who manufactured or sold the relevant DRAM products, and thereby failed to meet the traceability threshold. ⁹⁵ The plaintiffs also lacked article III standing with regard to 20 of their 25 ‘sister state’ claims. Noting that courts in the Ninth Circuit have ‘consistently held that a plaintiff in a putative class action lacks standing to assert claims under the laws of states other than those where the plaintiff resides or was injured,’ Judge White held that standing was lacking in all but the five states where named plaintiffs were alleged to reside. ⁹⁶

The plaintiffs also lacked the requisite antitrust standing to survive dismissal. Applying the five factors of the AGC antitrust standing test, ⁹⁷ the Court first found that the plaintiffs failed to allege detail sufficient to show that the market for DRAM and end products containing DRAM were ‘inextricably intertwined’ and therefore failed antitrust injury under AGC. ⁹⁸ This same lack of specificity in the allegations linking DRAM price increases to increased costs of DRAM end products similarly weighed against finding antitrust standing under the other AGC factors: the directness of injury, the speculative measure of the harm, the risk of duplicative recovery and the complexity in apportioning damages.

The Court also evaluated the sufficiency of the plaintiffs’ allegations of a price-fixing conspiracy under Ninth Circuit law. In the absence of any allegations of direct evidence of conspiracy, Judge White focused entirely on the plaintiffs’ circumstantial allegations, noting that plaintiffs must present allegation of parallel conduct by defendants as well as ‘plus factors,’ which are ‘economic actions or outcomes that are largely inconsistent with unilateral, lawful conduct but largely consistent with explicitly coordinated action.’ ⁹⁹ Allegations that DRAM is a commodity product in an oligopolistic market with high barriers to entry were ‘just as likely to be consistent with innocent as unlawful behavior.’ ¹⁰⁰ Similarly, allegations of the defendants’ membership in several trade organizations, absent additional allegations of actual or suspected interactions between the defendants at these trade organizations, were mere ‘opportunities to collude’ and therefore insufficient to state a section 1 claim. ¹⁰¹ The plaintiffs also alleged that the defendants made public statements that invited anticompetitive conduct and provided reassurances of compliance with the conspiracy. The Court rejected these as evidence of conspiracy, noting that the defendants’ comments and behavior were ‘consistent with lawful conscious parallelism.’ ¹⁰² The fact that the statements were made in a public setting in response to investor questions or in speeches to industry groups further weighed against their illegality. Lastly, allegations that the defendants had deviated from past behavior ‘is a poor plus factor because it merely relabels parallel conduct.’ ¹⁰³ The only allegations credited by the Court as potential evidence of conspiracy were the defendants’ prior guilty pleas, factual admissions, sentences and fines in prior price-fixing cases related to the DRAM market. Taken as a whole, however, Judge White held that ‘[p]laintiffs cannot state a claim under the Sherman Act based solely on parallel conduct and past guilty pleas and admissions regarding anticompetitive behavior.’ ¹⁰⁴

This case should remind practitioners of the importance of well-developed and well-pleaded allegations linking the price of the end product to that of the price-fixed component in order to withstand a challenge to article III and antitrust standing. Carefully articulated pleading is likewise important to meet the Ninth Circuit’s criteria for bringing sister state claims. Lastly, pleading a price-fixing conspiracy in an oligopolistic market continues to impose challenges on plaintiffs to ensure that sufficient ‘plus factor’ evidence of conspiracy is adequately alleged.

Significant additional antitrust developments in the Northern District of California

In September, US District Judge Edward Chen sentenced Starkist Co for its participation in a tuna price-fixing conspiracy, imposing a $100 million fine and 13 months of probation. Starkist had pled guilty to antitrust violations, but had argued to the Court that a $100 million fine, as recommended by the DOJ, would bankrupt the company. Judge Chen rejected Starkist’s argument, but agreed to a five-year payment plan that back-loaded the bulk of the fine. ¹⁰⁵ In December, following a four-week trial, a federal jury found Bumble Bee Foods LLC’s former CEO, Chris Lischewski, guilty of price-fixing in the same price-fixing conspiracy to which Starkist pled guilty. ¹⁰⁶

In a fairly infrequent development, Judge James Donato, prior to ruling on Daubert motions, ordered parties in a price-fixing conspiracy case to hold an expert ‘hot-tub,’ a novel concurrent expert evidence technique in which the experts for both parties testify concurrently and answer direct questions from the judge and each other. ¹⁰⁷

Notes