US Futures Exchange, LLC v Board of Trade of the City of Chicago, Inc
The Seventh Circuit addressed the Noerr-Pennington doctrine in this decision 1 involving the commodities and futures marketplace. Under Noerr-Pennington, with some exceptions, private entities ordinarily enjoy immunity from antitrust liability when they join together to petition legislative, administrative and judicial bodies for actions that may entail anticompetitive effects. 2 The Court’s ruling underscores a circuit split concerning ‘pattern’ and non-pattern allegations under Noerr-Pennington’s ‘sham litigation’ exception.
The Court reviewed a record developed in protracted litigation in the district court. 3 US Futures Exchange Holdings, Inc, through its subsidiary, plaintiff US Futures Exchange, LLC (USFE), sought to produce an electronics-based futures exchange platform. 4 This digital exchange ‘posed a direct competitive threat’ to entrenched exchanges, including the Chicago Board of Trade (CBOT). 5 To launch its platform, USFE needed approval as a ‘designated contract market’ by the Commodity Futures Trading Commission (CFTC). 6 The CFTC solicited public comment on the application, and CBOT raised 54 objections to USFE’s application. 7 When the CFTC set a date for a public hearing on the application, CBOT moved to postpone the hearing, and the CFTC postponed it. 8 CBOT also proposed and obtained approval of a new exchange rule, Rule 701.01, allegedly to deprive USFE of ‘startup liquidity’ for its exchange. 9 Six months into the process, USFE obtained approval from the CFTC. However, because delays in the approval process detracted potential market participants from trading on USFE’s exchange, the platform failed. 10 USFE sued defendants, including CBOT, alleging Sherman Act and state law claims based on CBOT’s actions. 11
The Seventh Circuit reviewed the district court’s order granting summary judgment to CBOT and affirmed, concluding that none of USFE’s theories placed the case within the ambit of Noerr-Pennington’s exceptions and CBOT possessed implied immunity for seeking adoption of Rule 701.01. 12
First, the Court rejected USFE’s argument that CBOT made ‘fraudulent misrepresentations’ in the designated contract market approval proceeding. The Court, despite acknowledging that the CFTC’s review process ‘involves a combination of legislative and adjudicative features,’ found that the proceeding was ‘legislative instead of adjudicative.’ 13 Therefore, the ‘fraudulent misrepresentations’ exception was inapplicable to CBOT’s alleged conduct. 14 The Court underscored that the CFTC’s exercise of quasi-rulemaking authority, encouragement of lobbying and political influence over the process, consideration of information not proffered under oath or affirmation, and informal fact-gathering made the ‘review process a legislative one.’ 15
Second, the Court adopted the First Circuit’s test for evaluating sham lawsuit claims based on an alleged pattern of sham filings. 16 Under Noerr-Pennington, the sham lawsuit exception applies only if a challenged litigation is ‘objectively meritless.’ 17 However, as opposed to a single sham litigation, USFE cited other circuits’ decisions upholding a more generous exception whenever a plaintiff alleges a pattern of sham filings. USFE further argued that even if USFE could not demonstrate that any of CBOT’s individual petitions to CFTC were objectively meritless, the multiple filings and letters lodged in the CFTC proceeding collectively satisfied the sham exception to Noerr-Pennington immunity. 18
The Seventh Circuit refused to discard the objectively meritless requirement ‘whenever more than a single petition has been made.’ As articulated by the First Circuit, ‘the sham exception has never hinged on the petitioner’s subjective intent alone,’ 19 and there is ‘“little logic” in concluding that a petitioner loses the right to file an objectively reasonable petition merely because it chooses to exercise that right more than once.’ 20 The district court properly refused to entertain the sham exception where the ‘petitioning [at issue] was colorable.’ 21 In holding that the district court properly required the same standard for non-pattern and pattern sham cases, the Seventh Circuit joined the First Circuit in a clear split from the Ninth, Second, Third and Fourth circuits – all of which construe existing law to apply a lower standard than ‘objective reasonableness’ where a pattern of sham filings is alleged. 22
Third, the Court concluded that the new exchange rule did not implicitly preclude application of the antitrust laws under the implied immunity doctrine. 23 The Court underscored that in approving the rule, the CFTC possessed clear and adequate regulatory authority, exercised that authority actively (by reviewing the proposal and soliciting comment letters) and in an ongoing manner (the same concerns raised by the rule had been studied in preceding years by the CFTC), and the rule was approved ‘in spite of potential anticompetitive effects,’ rendering the rule ‘clearly incompatible’ with antitrust laws. 24 Therefore, the district court properly reasoned that the CFTC’s ‘approval of Rule 701.01 was “clearly incompatible” with the antitrust laws,’ such that the CFTC’s explicit approval of the rule impliedly immunized the defendants for purposes of USFE’s claims. 25
Viamedia v Comcast
With apologies to Mark Twain, reports of the death of ‘refusal to deal’ as a viable antitrust theory, as had been suggested in the wake of Verizon Communications, Inc v Law Offices of Curtis V Trinko, LLP, have been greatly exaggerated – at least in the Seventh Circuit. 26 Under the Court’s ruling, such claims are less amenable to resolution on a motion to dismiss.
A bit of background is necessary. Multi-channel video programming distributors (MVPD), including AT&T, WOW!, RCN and Comcast, are companies that provide cable TV programming to consumers. 27 MVPDs sell two to three minutes of local advertising time per hour. 28 Because geographic markets are served by multiple MVPDs, advertisers that wish to air an ad in the entire market at a certain time (for instance, during a particular show) faced the prospect of having to negotiate with each MVPD. In response, MVPDs created ‘interconnects,’ a cooperative arrangement that allows an advertiser to buy a time slot and its ad to be shown across every MVPD in that market at a specific time. 29
In Viamedia v Comcast, 30 the plaintiff, Viamedia, is an ‘ad rep’ company: it works for MVPDs and sells the two to three minutes per hour of advertising time that they own. 31 Viamedia is not owned by an MVPD. 32 Comcast has a business unit that provides ad rep services, both for Comcast’s own MVPD operation, as well as for other MVPDs. 33 Comcast’s ad rep business competes with Viamedia. Comcast also operates the interconnects in the geographic markets at issue in the case. 34
Viamedia alleged that, in 2012, Comcast refused to renew its contract with Viamedia, causing the MVPDs Viamedia represented to choose Comcast as their ad rep. 35 The district court dismissed the refusal to deal claim, concluding Comcast had no duty to deal with a competitor. 36 The district court relied on the complaint’s allegation that Comcast had refused to deal with Viamedia to vertically integrate and eliminate a middleman, which are ‘pro-competitive’ purposes. 37 On summary judgment, the district court rejected Viamedia’s claim that Comcast’s conduct constituted ‘tying.’ It found there was no evidence Comcast ‘conditioned’ access to the interconnects on Comcast serving as an MVPD’s ad rep. 38
In a 105-page opinion, the Seventh Circuit reversed both rulings. The Court held Viamedia’s refusal to deal allegations fit within the factors the Supreme Court identified in Aspen Skiing Co v Aspen Highlands Skiing Corporation. 39 The Seventh Circuit found Comcast’s asserted ‘pro-competitive’ rationales for its refusal to deal were insufficient to uphold dismissal of the claim. Comcast argued ‘there is no liability under Aspen Skiing where, as here, the defendant’s alleged termination of a pre-existing course of dealing was not “irrational but for its anticompetitive effect.”’ 40 The Seventh Circuit held that refusals to deal were rarely ‘amenable to resolution on the pleadings’ because whether an antitrust defendant was truly acting in a pro-competitive manner was a question of fact. 41 The Seventh Circuit concluded Comcast’s ‘irrational but for its anticompetitive effect’ test, patterned on a test articulated by the Tenth Circuit, called for balancing the anticompetitive effects versus the pro-competitive effects of a refusal to deal. 42 This balancing is typically not amenable to resolution on the pleadings. For a refusal to deal claim to survive dismissal, ‘it is enough to allege plausibly that the [claim] has some of the key anticompetitive characteristics identified in Aspen Skiing.’ 43 Turning to Viamedia’s tying claim, the Seventh Circuit held Viamedia presented evidence that MVPDs view ‘interconnect services’ (a market in which Comcast is a monopolist) and ‘ad rep services’ as separate products that MVPDs purchased separately. 44
Addressing issues that may arise on remand, the Seventh Circuit rejected Comcast’s argument that forcing Comcast to sell ‘interconnect services’ to Viamedia and its MVPD customers would position courts as ‘central planners.’ 45 The Court stated courts regularly ‘undertake complicated, long-term supervision of complex cases and remedies’ and thus ‘should not adopt a posture of learned helplessness in the fact of proven antitrust violations.’ 46
Although he joined the panel’s holding on the refusal to deal claim, Judge Brennan dissented on the tying claim. He agreed with Comcast that Viamedia had failed to present proof of any antitrust violation independent of the alleged refusal to deal.
Antitrust plaintiffs will rely on this decision in opposing motions to dismiss refusal to deal claims.
Marion Healthcare, LLC v Becton Dickinson & Co
In Marion Healthcare, LLC v Becton Dickinson & Co, 47 the Seventh Circuit applied the direct purchaser requirement of Illinois Brick to an alleged multi-level conspiracy. The Court held that the first purchaser outside a conspiracy has standing to sue as a direct purchaser. The Court further held that the conspiracy the plaintiffs alleged was insufficient. The Court remanded the case to permit the plaintiffs to try to state a claim.
Marion involved a dispute between healthcare providers and the suppliers from which they purchase devices. Providers join group purchasing organizations (GPO) that negotiate contract terms with manufacturers on behalf of their members. 48 If the provider chooses to purchase on the terms a GPO negotiated, it may choose a distributor that obtains the product from the manufacturer and resells it to the provider at the terms negotiated by the GPO. 49 The plaintiffs alleged Becton Dickinson, a manufacturer of medical devices, several GPOs and several distributors were part of a multi-level conspiracy. 50 The district court ruled that the providers were indirect purchasers and dismissed. 51 Any conspiratorial markup was charged on the sale from the manufacturer to the distributor. Because the distributor resold the product to the provider, the provider was an indirect purchaser.
The Seventh Circuit reversed the district court’s Illinois Brick ruling. 52 The Court acknowledged the principle underlying Illinois Brick that indirect purchasers harmed by a monopoly overcharge ‘must take their lumps and hope that the market will essentially sort everything out.’ 53 ‘[M]atters are different, however, when a monopolist enters into a conspiracy with its distributors.’ 54 In that case, the first purchaser outside the conspiracy has standing to sue. 55 The district court erred by limiting this rule to vertical price fixing conspiracies. 56 Under Illinois Brick, the type of conspiracy makes no difference. 57
The Court found the plaintiffs had not adequately alleged an antitrust conspiracy. 58 The Court focused on the role of the distributors. If the distributors were not part of the conspiracy, then the plaintiffs’ case ‘falls apart: no conspiracy, no direct purchaser status, no right to recover.’ 59 To allege an antitrust conspiracy, plaintiffs must show all members of the conspiracy ‘had a conscious commitment to a common scheme designed to achieve an unlawful purpose.’ 60 The plaintiffs asserted a hub-and-spoke conspiracy, which required a coordinating party at the hub (Becton), participants at the rim (distributors) and an allegation that the rim coordinated with the hub and would not have attempted to inflate prices without assurances that members at the rim were abiding by the agreement and behaving in the same way. 61 The complaint failed in this regard. The complaint did not allege that distributors engaged in parallel conduct or coordinated their actions. 62 The acts the plaintiffs alleged amounted to no more than abiding by the contract the providers’ GPOs had negotiated. 63 The Court of Appeals remanded the case for further consideration of the pleadings, including an amended complaint. 64
Marion establishes that the first purchaser of a price-fixed good outside a conspiracy has standing to sue. It also makes clear that an antitrust plaintiff must allege a plausible claim of illegal conduct. For a hub-and-spoke conspiracy, the plaintiff must show an agreement linking the parties at the hub to the rim, and linking the defendants on the rim with each other.
Mountain Crest SRL, LLC v Anheuser-Busch InBev SA/NV
In Mountain Crest SRL, LLC v Anheuser-Busch InBev SA/NV, 65 the plaintiff, Mountain Crest, is an independent Wisconsin-based brewery. 66 It sued Anheuser Busch, owner of the Canadian brewery Labatt, and Molson Coors, owner of the other major Canadian brewery, Molson, under sections 1 and 2 of the Sherman Act. 67 According to the complaint, there are two places to buy beer in Ontario, Canada: liquor stores run by the Liquor Control Board of Ontario (LCBO), a government agency; and a chain known as The Beer Store, which sells 75 per cent of the beer in Ontario and is jointly owned by Labatt and Molson. 68 Historically, LCBO only sold beer in six-packs; to get beer in packs of 12 or 24, consumers had to visit The Beer Store. 69 In the early 1990s, LCBO sought to add larger package sizes to its stores and entered into negotiations with Labatt and Molson to buy larger package sizes. 70 Labatt and Molson balked at providing larger package sizes to LCBO because LCBO was required, by law, to provide the same sales opportunities to all breweries. 71 If LCBO sold 12- or 24-packs of Labatt or Molson beer, LCBO could sell those sizes of other beer brands. Plaintiffs alleged Labatt and Molson were concerned that if LCBO began selling larger sizes of other brands, they would offer discounts that would reduce the market share of The Beer Store. 72
According to the complaint, Labatt and Molson gained leverage in negotiations with LCBO through a group boycott in which they refused to sell beer to LCBO until LCBO agreed to not sell beer in sizes larger than six-packs or to otherwise sell beer at prices below the six-pack price. 73 According to the complaint, when LCBO acceded to this demand and signed agreements to this effect, this constituted a conspiracy to fix prices and allocate markets in violation of sections 1 and 2 of the Sherman Act. 74
The district court dismissed the lawsuit under the act of state doctrine, which is a substantive defense that ‘generally forbids an American court to question the act of a foreign sovereign that is lawful under that sovereign’s laws.’ 75 The district court held that ‘the conduct that allegedly violates the Sherman Act involves a public act by the Ontario government’ and that for the plaintiff ‘would require the court to determine that the Ontario government violated the Sherman Act as well.’ 76 The Seventh Circuit agreed, in part. Mountain Crest conceded that the agreements between Molson, Labatt and LCBO were ‘official acts of the Province of Ontario for the purposes of the act of state doctrine.’ 77 From this premise, the Seventh Circuit held the act of state doctrine served as a defense to the claim that the ‘6-pack rule, contained in agreements entered into by the Ontario government and approved of in legislation, violates section 1 of the Sherman Antitrust Act because it constitutes a price-fixing and market allocation arrangement.’ 78 To this extent, it affirmed the district court.
However, the Seventh Circuit held that the complaint ‘also sets out allegations that [Labatt] and [Molson], acting through the officers and employees, violated the . . . Sherman Act by conspiring to bring about the Ontario government’s approval of the six-pack rule. These allegations do not implicate the act of state doctrine’ because Mountain Crest was not seeking to ‘undo or disregard governmental action’ but instead to ‘“obtain damages from private parties that procured [the government action]” illegally.’ 79 The Seventh Circuit remanded to consider these claims anew. The Seventh Circuit noted that even these surviving claims may be barred by other defenses, most notably the Noerr-Pennington doctrine, though the Court noted a division of authority on that doctrine’s applicability to lobbying foreign governments. 80
This decision suggests the Seventh Circuit will refuse to entertain antitrust claims that directly implicate the legality of an otherwise legal act of a foreign government. This may particularly affect claims that target industries that are highly regulated. Moreover, the Seventh Circuit flagged an issue that will most surely be tackled by the district court on remand: the applicability of the Noerr-Pennington doctrine to lobbying foreign governments. As at the time of writing, a motion to dismiss is pending in the district court.
Paramount Media Group, Inc v Village of Bellwood
In 2005, Paramount Media Group, the plaintiff in Paramount Media Group, Inc v Village of Bellwood, 81 leased a parcel of land in Bellwood, Illinois in order to erect a billboard. 82 By 2009, Paramount had not applied for a permit or constructed a billboard 83 and Bellwood enacted a ban on new billboard permits. 84 Not yet stymied, Paramount tried to lease a different parcel of land from the village of Bellwood itself, because the permit ban exempted village-owned property. Instead, the village leased the land to a rival billboard company. 85 Paramount sued Bellwood and the competitor under a number of legal theories, including a claim under section 1 of the Sherman Act that they conspired to restrain trade and a claim under section 2 of the Sherman Act that Bellwood monopolized the market for billboards in Bellwood. 86 The district court granted summary judgment for Bellwood, holding it had municipal immunity under Parker v Brown 87 and Paramount had failed to put forth sufficient evidence that the competitor engaged in anticompetitive behavior. 88 On appeal, Paramount argued that the Seventh Circuit should find a ‘market participant’ exception to municipal antitrust immunity. 89
The Seventh Circuit agreed that Bellwood enjoyed municipal antitrust immunity and that the competitor could not be liable under section 1 for conspiring with an immune entity. 90 The Court did not consider whether a market participant exception existed because Paramount’s section 1 and 2 claims failed for independent reasons. 91 Most notably, Paramount had failed to ‘offer proof of either anticompetitive effects or a conspiracy to restrain trade’ between Bellwood and the competitor because Paramount only showed harm to it individually, not to competition more broadly. 92 This doomed Paramount’s section 1 claim.
Paramount’s section 2 claim failed because Paramount had offered no proof that Bellwood had market power in a relevant geographic market. 93 Paramount asserted that the geographic market was limited to Bellwood proper, but failed to provide any evidence as to why neighboring towns or cities should not be included in the billboard market in which Bellwood operated. 94 ‘Paramount offers no evidence that the Village could raise prices for billboard leases in spite of competition from landowners in neighboring Chicago suburbs. Its failure to do so defeats its claim.’ 95
This case illustrates that the Seventh Circuit requires antitrust plaintiffs demonstrate harm to ‘competition’ and not ‘competitors.’
Alarm Detection Systems, Inc v Village of Schaumburg
In 2016, Schaumburg, Illinois enacted an ordinance requiring all commercial buildings to maintain fire alarm systems that sent signals directly to the local 911 dispatch center. 96 The 911 dispatch center has an exclusive arrangement with Tyco Integrated Security, LLC such that to send an alarm signal directly to the dispatch center commercial buildings must use Tyco equipment. 97 Tyco’s alarm company competitors sued, 98 alleging Schaumburg, the dispatch center and Tyco conspired, in violation of section 1 of the Sherman Act, to grant Tyco a monopoly on alarm transmission services inside Schaumburg. 99 The district court dismissed the antitrust claims and the Seventh Circuit affirmed, holding that the alarm companies failed to plead an agreement between the defendants to restrain trade. 100 According to the Seventh Circuit, the well-pleaded factual allegations failed to suggest that it was an illegal agreement, ‘as opposed to an independent, legislative decision’ that caused Schaumburg to enact its ordinance. 101 The Court rejected the contention that Schaumburg made more money from the arrangement with Tyco – Schaumburg made the same amount of money no matter which company provided the service. The complaint offered ‘no plausible reason for Schaumburg to have conspired with [the dispatch center] and Tyco to pass the Ordinance.’ 102 Because the section 2 claim was predicated on an agreement between Schaumburg, Tyco and the dispatch center to monopolize the alarm transmission market, it failed for the same reason. 103
Alarm Detection Systems, Inc v Orland Park Fire Protection District
The Alarm Detection Systems, Inc v Orland Park Fire Protection District case 104 arises out of similar conduct addressed in Schaumburg. In 2014, a group of Chicago suburbs enacted ordinances requiring commercial buildings to send fire alarm signals directly to the local 911 dispatch center. 105 Because of an exclusive agreement between the dispatch center and the alarm company Tyco, those ordinances meant that all commercial buildings needed to use Tyco as their alarm system provider. 106 Tyco’s competitors sued the dispatch center and Tyco, but not the villages, under sections 1 and 2 of the Sherman Act. 107 In a bench trial, the district court ruled for the defendants, holding that the alarm companies’ claims were precluded by Fisher v City of Berkeley, which ‘holds that restraints on trade that are unilaterally imposed by the government do not form the basis of a [section 1] claim.’ 109 The Seventh Circuit recognized Fisher distinguished between ‘unilateral’ restraints, which do not violate the Sherman Act, and ‘hybrid restraints’ which can be evaluated under the antitrust laws. 110 Hybrid restraints are those that leave the private parties some ‘degree of private regulatory power’ as opposed to the ‘complete control’ of a unilateral restraint. 111 Here, the ordinances in question mandated a direct transmission from a commercial business to the local dispatch center. 112 As a practical matter, the district court found, a direct transmission between business and local dispatch ‘required an exclusive arrangement with an alarm-system provider’ such as Tyco. 113 Because the ordinance required a direct transmission and that, in turn, required an exclusive arrangement, that arrangement could not violate the Sherman Act. 114 Though the Seventh Circuit considered a number of arguments attacking the premise that direct transmission requires an exclusive arrangement, it did not find clear error in the district court’s findings to the contrary. 115 The alarm companies also argued that, even if the ordinance mandated exclusivity, it did not mandate the prices that Tyco could charge for its services. 116 The Seventh Circuit, however, pointed out that the antitrust injury of which the alarm companies complained was being excluded from the alarm-transmission market, not inflated prices, and thus they could not use the fact that someone else allegedly paid higher prices to escape the scope of Fisher. 117 The Fisher analysis also precluded the section 2 claims because the exclusivity arrangement was the only supposed anticompetitive conduct underlying that claim. 118
This case, along with the related Schaumburg case summarized above, demonstrates that the Seventh Circuit will not liberally entertain antitrust claims that are founded upon the decision of a local government body.
Chicago Studio Rental, Inc v Illinois Department of Commerce
From 1979 to 2010, Chicago Studio, the plaintiff in Chicago Studio Rental, Inc v Illinois Department of Commerce, 119 operated the sole film studio in Chicago. 120 In 2010, rivals opened Cinespace, a larger film studio, in Chicago. 121 By January 2015, Chicago Studio’s business had declined and Cinespace had expanded its studio, resulting in Chicago Studio failing to turn a profit while the Illinois film industry experienced significant growth in gross revenue and new jobs. 122 Facing financial ruin, Chicago Studio filed suit against three state actors charged with promoting the Illinois film industry: the Illinois Department of Commerce and Economic Opportunity (IDCEO), the Illinois Film Office (IFO) and Betsy Steinberg. 123 IDCEO administers grant programs to film studios and tax credits to film producers to promote the profile of Illinois as a leading business destination for filmmakers. 124 IFO composes part of IDCEO. Betsy Steinberg served as IFO’s managing director. 125
The complaint asserted a section 1 conspiracy in restraint of trade among IDCEO, IFO and Steinberg to boycott Chicago Studio in favor of Cinespace by steering film tax credits to producers who patronized Cinescape’s studio and granting Cinespace state funding. 126 Chicago Studio further claimed defendants and Cinespace conspired to monopolize and attempted to monopolize the Chicago film studio market through the same practices. 127 Chicago Studio alleged that conspiring to steer business toward Cinespace rendered IDCEO, IFO and Steinberg active market participants in a ‘Chicago Film Production Market’ composed of ‘entities providing production facilities in Chicago.’ 128 The complaint alleged four specific injuries: (1) a 10-factor reduction in Chicago Studio’s market share; (2) Chicago Studio’s inability to compete; (3) reduced market competition; and (4) increased transactional costs associated with producing film and television to consumers. 129 The district court dismissed the Sherman Act claims with prejudice. 130
The Seventh Circuit affirmed dismissal for failure to state plausible antitrust injury. 131 The Court held that two of Chicago Studio’s alleged injuries – reduced market share and an inability to compete – asserted harms to a competitor, not the requisite anticompetitive injury to competition in the defined market. 132 The remaining injuries – reduced competition and an increase in transactional costs in delivering movies and television to Chicago consumers – ’could be competitive injuries’ but Chicago Studio failed to allege either plausibly. 133 Despite Chicago Studio’s ‘conclusory’ allegation that competition decreased due to the defendants’ acts, the Court noted that the number of studios in the market doubled, the film industry grew from $184 million to $350 million in gross revenue from 2012 to 2013 after Cinescape’s entry, and Chicago Studio kept operating and failed to allege exclusion from the market. 134 Similarly, the Court found a ‘one-sentence, conclusory statement that transactional costs increased’ implausible to state antitrust injury absent factual allegations regarding ‘who’ experienced increased costs, ‘how much’ costs increased, ‘what’ specific transactional costs increased, or reduction in output or higher prices in the relevant market. 135
The Court rejected Chicago Studio’s argument that ‘exclusion from the market is a valid antitrust injury,’ given the complaint nowhere alleged that the studio ‘was entirely excluded from the market’ and Chicago Studio, in fact, was an actual competitor in the relevant market. 136 The monopolization claims failed for an independent reason, because the Court found the allegation that the defendants were ‘market participants’ was implausible. Chicago Studio did not and could not allege that the defendants competed in the defined relevant market for film studio space, nor that the defendants possessed or abused market power. 137
Chicago Studio Rental reaffirms the Seventh Circuit’s ‘antitrust-injury doctrine,’ further delineating between insufficient, conclusory allegations of injury to competition and the factual allegations sufficient to plead antitrust injury-in-fact. 138
McGarry & McGarry, LLC v Bankruptcy Management Solutions, Inc
In 2011, Bankruptcy Management Solutions, Inc (BMS) contracted to provide software services in a chapter 7 bankruptcy proceeding. 139 McGarry & McGarry, LLC, a Chicago law firm and unsecured creditor, filed a claim in the proceeding. 140 In 2013, the bankruptcy trustee filed a final report granting McGarry a portion of its claim and listing a $514.16 service-fee payment deducted from the estate. 141 After learning that the service fee went to BMS, McGarry sued BMS in Cook County Circuit Court alleging a putative class-action under the Illinois Antitrust Act. 142
According to the complaint, BMS possessed a 50 per cent market share in the national market for bankruptcy software services. 143 McGarry asserted BMS engaged in a conspiracy to fix the price of bankruptcy software services based on BMS: (1) approaching its competitors Epiq Systems and TrueSolutions in 2011; (2) agreeing to implement a new billing model requiring payment of fees for software services based on a percentage of funds in a bankruptcy estate’s account; and (3) requesting the Executive Office of the US Trustee to suspend an earlier rule precluding trustees from paying bank fees with estate funds. 144 McGarry alleged that all three providers agreed to change their billing model, which had the effect of requiring bankruptcy estates to pay supracompetitive prices. 145
Following removal, the district court dismissed the case for failure to state a claim, finding that McGarry was ‘not a purchaser at all’ in the relevant market. 146 After finding the complaint ‘just barely’ alleged facts to support article III standing, the Seventh Circuit evaluated whether McGarry was ‘a proper plaintiff to bring [a] price-fixing claim’ despite never purchasing bankruptcy software services. 147 McGarry argued that but for the conspiracy, BMS could not have charged a percentage of the estate funds as a software-services fee. 148 The district court concluded that McGarry failed to ‘allege the type of injury the antitrust laws were meant to prevent,’ because the firm ‘d[id] not participate in the market . . . in any way that would make it a proper plaintiff to bring an antitrust claim’ against BMS. 149 Its ‘attenuated’ injury as a bankruptcy creditor was ‘too remote’ to sue BMS. 150 Even if the firm could plead antitrust injury, it could not establish antitrust standing, because McGarry never participated in the market in ‘any meaningful way,’ was ‘not a participant in the market,’ and sustained merely derivative injuries as a creditor to the bankruptcy estate. McGarry therefore was not ‘an appropriate plaintiff’ and failed to allege antitrust injury. 151
Sharif Pharmacy, Inc v Prime Therapeutics, LLC
Sharif Pharmacy, J&S Pharmacy and customers of J&S sued Prime Therapeutics, a pharmacy benefits manager, after Prime terminated the pharmacies’ membership in Prime’s ‘network.’ 152 The plaintiffs alleged their customers switched to ‘in-network’ pharmacies as a result and that the refusal to the deal with them was an attempt to benefit a pharmacy chain that was Prime’s joint venture partner. The district court dismissed both complaints on the pleadings. 153
During the appeal, Prime readmitted J&S to the network; J&S dismissed its appeal. 154 That left only Sharif and J&S customers who alleged they were ‘injured because they could no longer use [J&S] to fill their prescriptions and were “too poor or physically or mentally weak to regularly travel to a distant pharmacy for their medicine,” “particularly during inclement weather.”’ 155 The Seventh Circuit affirmed dismissal of the customers’ claim pursuant to Illinois Brick, holding that because the customers were indirect purchasers, they could not seek damages under the federal antitrust laws. The Court also stated the customers had likely not been injured in their ‘business or property’ as is required to maintain an action under the Sherman Act. 156
The Court decided Sharif’s suit on the merits of its refusal to deal claim. The Seventh Circuit affirmed dismissal because Sharif had failed to plead that Prime possessed or was dangerously likely to possess market or monopoly power in a relevant market. Sharif had merely alleged that Prime sought to increase its market share in the nationwide or Chicago prescription drug markets, not that it had the ability to raise prices to supracompetitive levels. 157 An allegation that Prime engaged in legal conduct (seeking to increase market share) without an allegation of market power did not adequately plead unlawful conduct.
Sharif also attempted to frame the relevant geographic market as the ‘five block radius around its’ pharmacy. The Seventh Circuit held that this allegation was not plausible: ‘It defies belief to suggest that a hypothetical monopolist retail pharmacy could raise its drug prices substantially without losing customers to competitors outside that tiny area.’ 158 A complaint that fails, in part, due to an implausibly small geographic market also arises in the Paramount Media Group, Inc v Village of Bellwood case summarized above. The Seventh Circuit also affirmed because Sharif had failed to allege that Prime had market power in a relevant product market. 159 The Court, however, disagreed with Prime that Sharif’s proposed product market – a ‘bundle or cluster of prescription drugs that are typically sold in brick-and-mortar retail pharmacies’ – was facially implausible due to the inability to define the cross-elasticity of a number of different drugs. Instead, the Court noted that ‘[a] cluster of products can comprise a relevant product market “if the cluster is itself an object of consumer demand.”’ 160 For a ‘future antitrust plaintiff,’ the Court contended, such a relevant market definition might be available.
The Court nonetheless affirmed the district court’s dismissal with prejudice. Although plaintiffs are often given leave to amend at least once following dismissal, in this case, ‘it is apparent that the federal antitrust claims are based on misunderstandings about foundational principles of antitrust law.’ ‘It is evident from the proceedings in the district courts and the arguments in plaintiffs’ appellate briefs that the defects in these cases cannot be corrected, so that further amendment would be futile.’ 161
Maui Jim, Inc v SmartBuy Guru Enterprises
In Maui Jim, Inc v SmartBuy Guru Enterprises, 162 the plaintiff, Maui Jim, Inc, is a designer, manufacturer and provider of sunglasses. The defendants (collectively, SBG) sold luxury designer eyewear online. 163 SBG asserted a counterclaim asserting section 1 violations based on Maui Jim’s distribution contracts. 164 According to the counterclaim, Maui Jim set minimum resale prices with its authorized distributors ‘for the express purpose of eliminating or suppressing price competition’ among Maui Jim retailers, and threatened retailers that sold Maui Jim products to the defendants. 165 SBG claimed consumers paid supracompetitive prices for Maui Jim sunglasses, competition was reduced and SBG was harmed through the reduction of its supply of Maui Jim sunglasses. 166
The district court dismissed the counterclaim with prejudice because SBG’s allegations failed both ‘essential elements of a Sherman Act claim.’ 167 The district court quickly dispatched with SBG’s injury allegations, finding that SBG could not be harmed by its ‘direct competitor’ charging supracompetitive prices. 168 Indeed, in a competitive market for eyewear, SBG stood ‘to gain from any conspiracy to raise the market price.’ 169
The district court’s analysis is most notable for its discussion of SBG’s deficient ‘single-brand market’ allegations. 170 SBG defined the relevant market as the ‘Maui Jim sunglasses market, specifically Maui Jim sunglasses that are marketed and sold throughout the United States either online or through retail stores.’ 171 While pausing to note ‘a single-brand market may exist’ for purposes of stating a Sherman Act claim, the court concluded that SBG’s factual allegations were fatal to its proposed – and futile – market definition. 172 SBG did not allege facts suggesting Maui Jim’s glasses are ‘unique’ and non-substitutable with other brands’ eyewear, nor any facts regarding cross-elasticities of demand between Maui Jim and other brands in the market. 173 SBG’s assertions about consumer preferences, standing alone, also did not plead a relevant ‘single-brand market.’ 174 Finally, the court rejected the argument that SBG’s counterclaim required the aid of discovery to determine that ‘there are no interchangeable substitutes for Maui Jim sunglasses[.]’ 175 Even without discovery, the plaintiff’s factual allegations could not establish a plausible single-brand market.
1 U.S. Futures Exch., LLC v Bd. of Trade of the City of Chi., Inc., No. 18-3558, 2020 WL 1426596, at *1 (7th Cir. Mar. 23, 2020).
2 Id. at *2 (noting the ‘doctrine flows from First Amendment origins: antitrust laws do not supersede the people’s right to petition their government in favor of a desired monopoly’ (citation omitted)).
3 Id. at *1.
11 Id. at *2.
12 See id. at *5, *8–10.
13 Id. at *5.
16 See id. at *6–7 (citing Puerto Rico Tel. Co. v San Juan Cable LLC, 874 F.3d 767 (1st Cir. 2017)).
17 Id. at *6 (citation omitted). If a challenged litigation is objectively meritless, the court may proceed to the second prong of the ‘sham’ test, not relevant here, which ‘examine[s] the litigant’s subjective motive.’ Id. (citation omitted).
18 Id. at *6–7.
20 Id. at *7 (citing Puerto Rico Tel., 874 F.3d at 772).
21 Id. at *8.
22 See, eg, USS-POSCO Indus. v Contra Costa Cnty. Bldg. & Constr. Trades Council, AFL-CIO, 31 F.3d 800, 810–11 (9th Cir. 1994).
23 U.S. Futures Exch., 2020 WL 1426596, at *9–10 (citing Credit Suisse Securities (USA) LLC v Billing, 551 U.S. 264, 270–71 (2007) (establishing ‘four-part test for implied immunity’)).
24 Id. at *9.
26 540 U.S. 398 (2004).
27 Attorneys at Jenner & Block represented the Comcast defendants in this case.
28 Id. at 437.
29 Id. at 438.
30 Id. at 429.
31 Id. at 442–43.
33 Id. at 443
35 Id. at 435, 444–45.
36 Id. at 449.
38 Id. at 450.
39 472 U.S. 585 (1985).
40 951 F.3d at 460.
42 Id. (construing Novell, Inc. v Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013)).
43 Id. at 462.
44 Id. at 469.
45 Id. at 480.
47 2020 WL 1059951 No. 18-3735 (7th Cir. Mar. 5, 2020). Jenner & Block attorneys represented a defendant in this case.
48 Id. at *1.
52 Id. at *5.
53 Id. at *1.
56 Id. at *4.
58 Id. at *6–7
59 Id. at *5.
60 Id. at 12 (quoting Monsanto Co. v Spray-Rite Service Corp., 465 U.S. 752, 768 (1984)).
61 Id. at *6.
64 Id. at *7.
65 Mountain Crest SRL, LLC v Anheuser-Busch InBev SA/NV, 937 F.3d 1067 (7th Cir. 2019).
66 Id. at 1069.
67 Id. at 1070.
68 Id. at 1071.
70 Id. at 1072.
72 Id. at 1072–74.
73 Id. at 1074.
74 Id. at 1077.
75 Id. at 1080 (quoting Nocula v UGS Corp., 520 F.3d 719, 727 (7th Cir. 2008)).
76 Id. at 1078 (quoting Mountain Crest SRL, LLC v Anheuser-Such InBev SA/NV, 2018 WL 2247224, at *6 (W.D. Wis. May 16, 2018)).
77 Id. at 1083.
78 Id. at 1085.
79 Id. (quoting, in part, W.S. Kirkpatrick & Co., Inc. v Envtl. Tectonics Corp., 493 U.S. 400, 407 (1990) (brackets omitted)).
80 Id. at 1086 and n.80.
81 929 F.3d 914 (7th Cir. 2019).
82 Id. at 917.
86 Id. at 921.
87 317 U.S. 341 (1943).
88 929 F.3d at 919.
89 Id. at 921.
93 Id. at 922.
96 930 F.3d at 818 (7th Cir. 2019).
98 Id. at 812.
99 Id. at 827.
103 Id. at 828.
104 929 F.3d 865 (7th Cir. 2019).
105 Id. at 867.
111 Id. (quoting Fisher, 475 U.S. at 267–69).
112 Id. at 873.
116 Id. at 873–74.
118 Id. at 874.
119 940 F.3d 971 (7th Cir. 2019).
120 Id. at 974–75.
123 Id. at 975–76.
124 Id. (citing 35 ILCS 16/10; 14 Ill. Admin. Code § 528.70 (2013)).
125 Id. at 976.
126 Id. at 977–78.
127 Id. at 978.
128 Id. at 976.
130 Id. at 977.
132 Id. at 978 (citing NYNEX Corp. v Discon, Inc., 525 U.S. 128, 135, 139 (1998) (concluding that plaintiff ‘must allege and prove harm, not just to a single competitor, but to the competitive process, i.e., to competition itself’)).
135 Id. at 979.
136 Id. (‘Transfer of business from one company to another . . . without an accompanying effect on competition, cannot be an antitrust violation’ (quoting Tri-Gen Inc. v Int’l Union of Operating Eng’rs, Local 150, 433 F.3d 1024, 1031–32 (7th Cir. 2006)).
137 See id.
138 See id. at 978 (citing United States Gypsum Co. v Ind. Gas. Co., Inc., 350 F.3d 623, 627 (7th Cir. 2003)).
139 937 F.3d 1056, 1062 (7th Cir. 2019).
140 Id. at 1062.
144 Id. at 1061–62.
145 Id. at 1062.
147 Id. at 1064.
148 Id. at 1065.
149 Id. at 1061; see also Id. at 1065–66.
151 Id. at 1066.
152 950 F.3d 911 (7th Cir. 2020).
153 Id. at 914, 916.
154 Id. at 914.
155 Id. at 915.
157 Id. at 916.
159 Id. at 918 (‘Sharif has not pleaded facts sufficient to support an inference that defendants have the requisite market power within a viable product market for retail prescription drugs.’)
160 Id. (quoting FTC v Advocate Health Care Network, 841 F.3d 460, 467 (7th Cir. 2016)).
162 386 F. Supp. 2d 926 (N.D. Ill. 2019).
163 Id. at 935.
165 Id. at 943.
167 Id. at 947.
168 Id. at 944
169 Id. (quoting O.K. Sand & Gravel, Inc. v Martin Marietta Techs., Inc., 36 F.3d 565, 573 (7th Cir. 1994) (internal quotation omitted)).
170 See id. at 945.
174 Id. at 947
175 See id. (citing House of Brides, Inc. v Alfred Angelo, Inc., 2014 WL 6845862, at *4 (N.D. Ill. 2014) (‘That market definition is often, or even usually, a fact-intensive exercise, however, says nothing about whether the plaintiffs’ allegations of a single brand market . . . warrant further discovery.’)).