Fifth Circuit

Fifth Circuit decisions

Jurisdiction over administrative denial of state-action immunity

Louisiana Real Estate Appraisers Board v FTC

This case involves the Louisiana Real Estate Appraisers Board (the Board), which is a state agency that licenses and regulates residential and commercial real estate appraisers and management companies in the state of Louisiana.^[1] The Board adopted a rule that set forth certain methods by which an appraisal management company could establish that the rate paid to an appraiser was ‘customary and reasonable’, in contrast to federal regulations that set out the market conditions for establishing a customary and reasonable rate.^[2] The Federal Trade Commission (FTC) filed an administrative complaint against the Board, alleging that it had violated the Federal Trade Commission Act (the FTC Act) by ‘prohibiting [appraisal management companies] from arriving at an appraisal fee through the operation of the free market’ and unlawfully restraining price competition.^[3] The Board denied the allegations and claimed that it was immune from antitrust liability pursuant to the state-action doctrine.^[4] The Board moved to dismiss the FTC’s complaint in the administrative proceedings, and the FTC cross-moved for summary judgment on the Board’s defense of state-action immunity.^[5] The FTC, acting in its adjudicatory role, denied the Board’s motion and granted the FTC’s motion.^[6] Thereafter, the Board petitioned the Fifth Circuit directly for review of the Commission’s summary judgment order on the state action question, which the Fifth Circuit dismissed for lack of jurisdiction.^[7] The Board then sued the FTC in federal district court, alleging that the FTC’s order violated the Administrative Procedures Act (APA) and seeking a stay of the ongoing FTC proceedings.^[8] The district court granted the motion for a stay pending resolution of the merits of the Board’s claim.^[9] The FTC appealed the district court’s order, contending that the district court lacked jurisdiction.^[10]

On appeal, the Fifth Circuit noted that section 704 of the APA permits non-statutory judicial review of certain ‘final agency action,’ but that ‘absent a showing of finality, a district court lacks jurisdiction to review APA challenges to administrative proceedings.’ ^[11] The court noted that the collateral order doctrine – which is a judicially created exclusion to the ‘final decision’ requirement of 28 USC section 1291 regarding appellate jurisdiction over final district court decisions – provides for immediate appeals of interlocutory decisions if the decision ‘(1) conclusively determines the disputed question; (2) resolves an important issue completely separate from the merits of the action; and (3) is effectively unreviewable on appeal from a final judgment.’^[12] The court reasoned that even if it assumed for argument’s sake that the collateral order doctrine applied to section 704 of the APA, thereby allowing interlocutory review of non-final administrative decisions if the three criteria were met, the Board’s arguments for why it could appeal the FTC’s order were still unavailing because it had failed to establish the second and third prongs of the analysis.^[13]

In explaining its reasoning, the court briefly summarized the development of case law regarding the state-action doctrine, noting that it has been applied narrowly with particular wariness toward situations where market participants have been tasked with regulatory rule-making, which may in fact blend with private anticompetitive motives.^[14] The court noted that any interlocutory ruling on the application of the state action doctrine would necessarily affect the question of liability and therefore would not resolve an issue ‘completely separate from the merits of the action.’ ^[15] The court also found that the state-action immunity issue was not unreviewable on appeal from a final judgment.^[16] Accordingly, the court held that the FTC’s order rejecting the Board’s assertion of state-action immunity did not constitute appealable final agency action under section 704 and the collateral order doctrine did not apply.^[17] Thus, the district court lacked jurisdiction and the case was remanded for dismissal.^[18]

This case is significant because it establishes that an administrative order denying state-action immunity from antitrust liability does not constitute an immediately appealable order under the collateral order doctrine.

Affirmance of damages award

Hewlett-Packard Company v Quanta Storage, Inc

In this case, Quanta asked the Fifth Circuit to set aside the district court’s orders enforcing a $438.65 million award against Quanta after a jury had found Quanta liable for illegally fixing the prices of optical disk drives.^[19]

Hewlett-Packard Company (HP) had sued Quanta and several other manufacturers of optical disk drives for an alleged conspiracy to fix the prices of drives, which HP and its subsidiaries purchased from Quanta and others.^[20] The parties went to trial in October 2019, during which HP’s damages expert testified to the jury that, according to her damages model, HP was overcharged $176.3 million for optical disk drives.^[21] At the conclusion of the trial, the jury unanimously found in favor of HP and found that HP had overpaid by $176 million.^[22] After trebling the damages and accounting for certain settlement payments, the district court entered a damages award of $438.65 million against Quanta, which Quanta timely appealed.^[23]

Thereafter, HP sought to collect the award and moved for a writ of execution from the district court.^[24] The court granted a writ of execution and ordered Quanta to turn over its property.^[25] After waiting two more weeks, HP sought an order to show cause why Quanta should not be held in contempt for failing to comply with the turnover order.^[26] The court denied HP’s motion for a show-cause hearing but set a deadline for Quanta’s compliance with the turnover order.^[27] Quanta sought clarification of the order, which the court provided but kept in place the compliance deadline.^[28] Quanta timely appealed the three turnover orders issued by the district court.^[29]

On appeal, the Fifth Circuit first considered Quanta’s appeal of the district court’s award of damages, noting that the validity of the judgment depended on an analysis of the Foreign Trade Antitrust Improvements Act (FTAIA).^[30] The court explained that, historically, there had been a presumption that conduct that occurred outside the United States was not actionable in US courts.^[31] However, the court noted that as globalization increased throughout the 20th century, ‘the Supreme Court relaxed its previous stance and held that the Sherman Act authorized jurisdiction over foreign defendants so long as domestic commerce was affected and some conduct occurred within the United States.’ ^[32] This rule was codified in the Foreign Trade Antitrust Improvements Act of 1982, which clarified that federal antitrust law applies to imports and to conduct that (1) has a ‘direct, substantial and reasonably foreseeable effect’ on US trade and (2) gives rise to a claim under federal antitrust law.^[33] As applied to the facts of the case, Quanta argued that damages relating to drives shipped to a foreign country, which were incorporated into computers that were shipped into and sold in the United States, were not recoverable because HP’s foreign subsidiaries had purchased the drives, not HP itself, and those subsidiaries had then resold the drives to HP.^[34] Quanta’s arguments rested on the contention that HP was therefore an indirect purchaser of the drives, and under the Supreme Court’s holding in Apple Inc v Pepper, indirect purchasers cannot sue for damages.^[35] Thus, Quanta argued that HP would be unable to satisfy the second prong of the FTAIA analysis without a valid antitrust cause of action.^[36]

The court found that it need not reach the legal question regarding the indirect purchaser rule, because Quanta had failed to establish the requisite factual predicate that there was no evidence to support the finding that HP was a direct purchaser of the drives.^[37] The court held that the district court’s ruling allowing HP’s expert to testify that the purchases were made by HP was not an abuse of discretion.^[38] The court found Quanta’s other arguments equally unavailing and held that the damages award would stand.^[39]

Regarding Quanta’s appeals of the turnover orders, the Fifth Circuit first analyzed whether it had jurisdiction to decide the appeal.^[40] The court held that 28 USC section 1291, which grants the circuit court ‘jurisdiction of appeals from all final decisions of the district courts of the United States,’ encompassed within its reach the grant of jurisdiction over an order requiring defendants to transfer property to plaintiffs.^[41] Having determined that it had jurisdiction, the court then reviewed the turnover orders for abuse of discretion.^[42] Quanta argued that the orders should be set aside because they violated principles of Taiwanese law and international comity, because Quanta needed more time to complete the steps required to turn over the property, and because the orders were unenforceably vague.^[43] The court rejected the comity and vagueness arguments, but agreed that the evidence supported Quanta’s argument that it would need more than a matter of weeks to have independent, professional appraisals of its assets in China and Taiwan, particularly in light of pandemic-related shutdowns.^[44] The court therefore vacated the turnover orders to the extent that they set a deadline of 1 May for the turnover of Quanta’s property, but otherwise affirmed the orders in all other respects.

This case is significant because it demonstrates that trebled damages in an antitrust action can result in a very sizeable damages award, and courts will not lightly disturb such an award, even if it results in a significant financial strain on the defendant company.

Effect of settlement on ability to prove claims against alleged co-conspirators

United Biologics, LLC v Allergy & Asthma Network/Mothers of Asthmatics, Inc

In this case,^[45] the plaintiffs (entities that provided physicians with allergy treatment supplies to facilitate an alternative way to obtain allergy treatment) sued several entities and individuals alleging Sherman Act and Texas antitrust violations, tortious interference with contract and prospective business relations, and civil conspiracy to commit such torts.^[46] The plaintiffs claimed that the defendants, which included a patient advocacy organization, its chief executive officer, and various sellers of allergy testing equipment, had conspired against the plaintiffs to interfere with their business model. Several of the defendants settled in advance of trial, with only two proceeding to trial.^[47] At trial, the jury found that neither defendant had individually committed tortious interference, and the jury responded to a conditional question on the verdict form indicating that the defendants’ agreement with one or more of the other defendants ‘was only an attempt to persuade . . . lawmakers to take official government action, thus falling within the Noerr-Pennington safe harbor.’ ^[48] After trial, the defendants moved for a directed verdict, based in part on the argument that civil conspiracy was ‘a legal impossibility’ because the alleged co-conspirator that had purportedly committed the underlying tort had settled out of the case prior to trial and the court therefore ‘[could not] adjudicate the conduct of parties who [were not] before it.’ ^[49] The district court agreed with the defendants and entered a directed verdict in the defendants’ favor on the issue of civil conspiracy.^[50]

On appeal, the Fifth Circuit first analyzed the district court’s entry of a directed verdict on the issue of civil conspiracy owing to the fact that the defendants’ alleged co-conspirator had settled prior to trial.^[51] The court found that where the alleged tortfeasor co-conspirator had been joined in the same suit as its alleged co-conspirators, it did not matter that that defendant had settled in advance of trial and would not face liability.^[52] The plaintiffs were still able to prove a civil conspiracy case against the non-settling co-conspirator defendants and the district court’s entry of a directed verdict on that issue was in error.^[53]

The court found that the jury had made a mistake on the jury form and should not have answered the question about the application of the Noerr-Pennington doctrine, in either the affirmative or the negative, because it had been instructed by the verdict form to stop answering questions based on prior responses.^[54] Thus, the court declined to consider the jury’s finding and held that the finding would not protect any civil conspiracy in which the defendants had engaged.^[55]

The court then analyzed the sufficiency of the evidence with respect to the underlying alleged tortious interference with contract and tortious interference with prospective business relations.^[56] The court found that the plaintiffs had not sufficiently established that the defendants’ actions caused physicians to terminate their contracts with the plaintiffs, and that even if the plaintiffs’ business had declined in part because of the defendants’ activities, ‘competition alone is not tortious interference.’ ^[57] Similarly, the court held that the plaintiffs put forth insufficient evidence to support a claim of civil conspiracy based on tortious interference with prospective business relations, as they had not identified any independent tort or illegal act in which the defendants had allegedly engaged.^[58] Thus, while the court reversed the legal findings underlying the district court’s directed verdict, it affirmed the verdict based on the insufficiency of the plaintiffs’ evidence.^[59]

This case is significant because it highlights that even if certain alleged co-conspirators settle a case before trial, the settlement has no bearing on the ability of a plaintiff to try claims against the remaining co-conspirators and seek to prove those defendants liable for conspiracy.

State action immunity from antitrust liability

Spec’s Family Partners, Ltd v Nettles

In this case,^[60] the Texas Alcoholic Beverage Commission (TABC) had investigated the plaintiff, Spec’s Family Partners, and had brought an administrative action against it, alleging various violations of state laws and regulations.^[61] Through that action, TABC sought the cancellation or suspension of all of Spec’s permits or, as an alternative, civil penalties of more than $713 million.^[62] During the pendency of the proceedings, TABC placed administrative holds on all the plaintiff’s permit applications, protested the plaintiff’s permit applications, and refused to grant regular renewals of the plaintiff’s existing licenses.^[63] Ultimately, the administrative proceedings were resolved in favor of Spec’s on every allegation except one, for which the administrative law judges recommended only a warning.^[64] Spec’s thereafter sued several TABC officials in federal court, alleging claims under 42 USC section 1983, the Sherman Act, and state law.^[65] The TABC officials claimed various forms of immunity, and the district court granted the defendants’ motion to dismiss.^[66] The Fifth Circuit reviewed dismissal of Spec’s claims de novo.^[67]

On appeal, the court first analyzed whether TABC’s actions during the pendency of the administrative proceedings – namely placing holds on Spec’s permit applications, protesting the applications and refusing to renew Spec’s existing permits – were protected action for which the officials enjoyed absolute immunity from section 1983 claims.^[68] The court applied the factors from the Supreme Court’s decision in Butz v Economou,^[69] and determined that, in taking those actions, the defendants were ‘functioning in quasi-prosecutorial roles as the State’s advocate in a way “intimately associated with” judicial proceedings’ and, therefore, were entitled to absolute immunity.^[70] The court then analyzed whether the defendants were entitled to immunity from the plaintiff’s claim that they intentionally withheld information from a TABC auditor to obtain favorable testimony.^[71] The court held that, contrary to the district court’s finding, the defendants were not entitled to immunity from that allegation, given that pretrial fabrication of evidence is not protected by absolute immunity.^[72] The court also affirmed the district court’s ruling that sovereign immunity barred the section 1983 claims against the defendants in their official capacities.^[73]

The court next analyzed the plaintiff’s request for a declaration that a provision of the Texas Alcoholic Beverage Code was a per se violation of the Sherman Act, and that the defendants’ denials of Spec’s permit renewals and other related actions violated the Sherman Act.^[74] The court briefly described the development of the case law relating to state-action immunity from antitrust scrutiny, and summarized that there are ‘three approaches to analyzing a state-action defense. First, true state action is ipso facto exempt from antitrust scrutiny. Second, acts by a typical state agency or municipality are entitled to state-action immunity if the conduct is pursuant to a clearly articulated and affirmatively expressed state policy to replace competition with regulation. Third, for acts by private parties, or by state “agencies” composed of individuals who participate in the market they regulate, we apply both Midcal requirements – we ask both whether the acts were taken pursuant to a clearly articulated state policy and whether the acts were supervised by the state.’ ^[75]

The court examined the plaintiff’s claim regarding section 102.07(a)(7) of the Texas Alcoholic Beverage Code, which states that ‘no person who owns or has an interest in the business of a distiller, brewer, rectifier, wholesaler, class B wholesaler, winery, or wine bottler, nor the agent, servant, or employee of such a person, may . . . allow an excessive discount to a retailer.’ ^[76] The plaintiff argued that this provision was a ‘hybrid restraint’ of trade in violation of the Sherman Act, but the court held that the district court had properly dismissed this claim, given that state legislation is ipso facto exempt from antitrust liability as an exercise of state sovereign authority.^[77] As for the plaintiff’s claims that the defendants had violated the Sherman Act by placing holds on Spec’s permit applications, denying renewals and seeking to suspend Spec’s existing permits, the court found that each of these actions was protected by state-action immunity.^[78] The court found that the actions need only satisfy the first prong of the Midcal analysis, namely that the challenged acts were ‘affirmatively expressed as state policy’ and ‘the displacement of competition is the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature.’ ^[79] The court held that the challenged actions satisfied this requirement, as they were pursuant to TABC’s mandate to regulate the alcoholic beverage industry, including the regulation of competition in that industry.^[80] Finally, the court vacated the portion of the district court’s decision declining to exercise supplemental jurisdiction of the state law claim, because the basis of that declination (that all the federal claims were dismissed) was no longer valid.^[81]

This case is significant because it articulates the three levels of analysis to determine state-action immunity from antitrust liability, and shows that the Fifth Circuit will consider acts of a state regulatory body to be immune from scrutiny if they are pursuant to clearly articulated state policy.

District court decisions

Antitrust standing and market definition

Shah v VHS San Antonio Partners, LLC

The plaintiff in this case^[82] is a pediatric anesthesiologist who was denied permission to practice at a hospital and sued the hospital operator and its officers for alleged violations of the Sherman Act and for tortious interference with business relations.^[83] The plaintiff had previously joined STAR Anesthesia, PA (STAR), which was party to a series of agreements to be the exclusive provider of anesthesia services at hospitals operated by Baptist Health System in the San Antonio area.^[84] An adjustment in the financial terms of these contracts resulted in disagreement between the plaintiff and STAR, ultimately resulting in the plaintiff being terminated for cause.^[85] The plaintiff subsequently requested authorization to provide anesthesia services to one of the Baptist Health System hospitals, but was not permitted to do so given that the hospital had contracted exclusively with STAR for those services.^[86] The plaintiff filed suit against the hospital administrator and three of its officers, alleging violations of sections 1 and 2 of the Sherman Act as well as tortious interference with a business relationship.^[87] The defendants moved for summary judgment.^[88]

The court first analyzed the defendants’ argument that the plaintiff’s Sherman Act claims should be dismissed because he lacked ‘antitrust standing for two reasons: (i) he cannot demonstrate an antitrust injury, and (ii) he is not a proper plaintiff.’ ^[89] The defendants contended that the plaintiff’s only allegations of injury were the existence of complaints from physicians at the hospital about difficulties with scheduling and the fact that certain patients were seen by anesthesiologists who were not pediatric specialists or were not board certified.^[90] The plaintiff characterized his injury as resulting from the ‘tying arrangement’ between his former practice and the hospital, claiming that he had been restrained from entering the market for the tied product, thereby sustaining antitrust injury.^[91] The court noted that the facts of the case presented the ‘atypical case’ where even if the court assumed the plaintiff had demonstrated antitrust injury, he still lacked antitrust standing because he was not the proper plaintiff to address those injuries.^[92] Rather, the physicians or the patients who purportedly had scheduling issues or received inferior services would be the proper plaintiffs to pursue the claims.^[93] The district court noted, however, that it was ‘mindful of the Fifth Circuit’s warning against granting summary judgment based on lack of antitrust standing’ and therefore proceeded to analyze the merits of the plaintiff’s claims.^[94]

The court assessed the plaintiff’s relevant market definition, finding that it was insufficient as a matter of law owing to flaws in both the scope of the defined product market and geographic market.^[95] The court held that certain hospital and non-hospital facilities were improperly excluded from the market, and that the geographic scope was based not on where consumers may go for services, but rather on employment-related markets.^[96] In sum, the court found that the plaintiff’s market definition failed because he did not ‘offer any evidence to support his purported relevant market definition in terms of the actual consumers of pediatric anesthesia services. Instead, he proffers a definition of a market that revolves entirely around himself – a single competitor excluded from a single hospital system.’ ^[97]

The court also found that the plaintiff had failed to produce any evidence of market-wide harm or harm to competition.^[98] As the court explained, the plaintiff’s ‘evidence of harm to a single competitor (himself) in a single hospital system is insufficient to overcome summary judgment on Sherman Act antitrust claims. This court agrees with many others that have held a hospital’s staffing decision, without more, does not violate the Sherman Act.’ ^[99] Finally, the court noted that because the plaintiff’s predicate antitrust claim failed, his tortious interference claim also failed.^[100] The court therefore granted the defendants’ motion for summary judgment.^[101]

This case is significant because it reflects the court’s reaffirmance that a plaintiff alleging an antitrust violation must allege harm to competition, rather than just harm to oneself; and exclusion from a market by way of an exclusive dealing arrangement will not support antitrust standing if a plaintiff cannot demonstrate a legitimate market-wide harm to competition flowing from that arrangement.^[102]

Antitrust standing and section 1 and 2 claims in context of FRAND obligations

Continental Automotive Systems, Inc v Avanci, LLC

In this case,^[103] the plaintiff was a producer and supplier of telematics control units (TCUs) for vehicles, which are used by original equipment manufacturers (OEMs) to provide cars with cellular connectivity.^[104] The plaintiff alleged that the various licensor defendants (including Nokia, Conversant, Optis, and Sharp) owned standard essential patents (SEPs) for 2G, 3G, and 4G connectivity standards that had been established by various standard setting organizations.^[105] The plaintiff alleged that those licensor defendants were obligated to license the SEPs to the plaintiff on fair, reasonable, and non-discriminatory (FRAND) terms and conditions.^[106] Instead, the plaintiff claimed that the licensor defendants had pooled their SEPs and agreed that Avanci would serve as the joint licensing agent.^[107] The plaintiff alleged that ‘while the Avanci licensing pool is purportedly intended to allow customers to obtain from a single supplier licenses for many necessary 2G, 3G, and 4G SEPs, it is actually an agreement between Defendants to require non-FRAND terms for SEP licenses, offered only to OEMs, who are better positioned and thus more likely to accept those excessive, unreasonable terms than would component suppliers like Plaintiff.’ ^[108] The plaintiff initially brought its claims in the Northern District of California, alleging violations of section 1 and 2 of the Sherman Act, breach of contract, promissory estoppel, violations of the California unfair competition law, and seeking declaratory judgment on the defendants’ FRAND obligations.^[109] The defendants filed a motion to transfer the venue to the Northern District of Texas, which was granted, and also filed a joint motion to dismiss.^[110]

In assessing the defendants’ motion, the court first noted that the government was seeking leave to file a statement of interest.^[111] The court found that although the statement was filed six months after the defendants filed their motion to dismiss, it was timely given the venue transfer and in light of the limited case law in the Fifth Circuit regarding FRAND obligations in the context of section 2 of the Sherman Act.^[112] The court also held that it would take judicial notice of the Avanci licensing agreement and the defendants’ FRAND declarations, but would not consider new factual allegations set forth for the first time in the plaintiff’s response to the motion to dismiss.^[113]

Turning to standing and ripeness, the court noted that the parties disputed whether the plaintiff had suffered an injury in fact and whether the action was sufficiently ripe.^[114] The court held that the plaintiff had pleaded a sufficient injury based on its allegation that the defendants had refused to license on FRAND terms the SEP licenses that the plaintiff needed for its TCUs.^[115] The court next addressed the defendants’ claim that the court lacked subject-matter jurisdiction over claims involving foreign patents under the FTAIA.^[116] The court found that because the plaintiff sought to use the licenses at issue to manufacture TCUs in the United States, the claims involved the import of licenses for foreign patents and, therefore, were not barred by the FTAIA.^[117] Moreover, the defendants’ FRAND obligations applied generally to the defendants’ activities in global licensing and product markets, including those in the United States, so the defendants’ contentions under the FTAIA were unavailing.^[118]

The court next analyzed whether the plaintiff had antitrust standing to assert its claims under the Sherman Act, including injury-in-fact, antitrust injury, and proper plaintiff status.^[119] The court found that the plaintiff had sufficiently demonstrated injury in fact for the purposes of antitrust standing in light of its allegation that it was unable to obtain FRAND licenses from the defendants.^[120] However, the court held that the plaintiff had not demonstrated antitrust injury.^[121] The plaintiff’s alleged injury of not being able to obtain FRAND licenses did not harm its competitive position, nor did it hinder the plaintiff’s ability to sell TCUs to OEMs, since the OEMs were able to obtain licenses to the SEPs.^[122] The court noted that to the extent OEMs paid higher non-FRAND royalties, the OEMs may have suffered antitrust injury, but the plaintiff had not sufficiently alleged that such an overcharge was passed on to the plaintiff.^[123] Similarly, the court found that OEMs, not the plaintiff, would be the proper plaintiff to bring such antitrust claims, given that ‘[a]ny antitrust injury felt by Plaintiff would depend on whether, and if so, to what extent, the OEMs decide to pass on the extra costs of the SEP licenses to Plaintiff, if at all. The tenuous connection between Plaintiff’s potential antitrust injury and the alleged misconduct “presents the sort of ‘speculative’ and ‘abstract’ causal chain” on which antitrust standing cannot be based.’ ^[124] The court therefore granted the defendants’ motion to dismiss based on lack of standing.^[125]

The court nonetheless proceeded to analyze the substance of the plaintiff’s section 1 and 2 claims.^[126] Regarding the section 1 claim, the court noted that ‘[a] licensing pool’s agreement to establish royalty rates does not unreasonably restrain trade if customers have a “realistic opportunity” to obtain individual licenses outside of the pool.’ ^[127] Because the defendants could license the SEPs outside the pooling platform, the court held that the plaintiff had not alleged an agreement to unreasonably restrain trade under section 1.^[128] The court then discussed the plaintiff’s section 2 allegations that the defendants had attempted to abuse their monopoly power by charging supracompetitive royalty rates and excluding certain market participants from practicing the standards.^[129] The court held that it is ‘not anticompetitive for an SEP holder to violate its FRAND obligations,’ and that a violation of a party’s contractual obligation to license an SEP on FRAND terms does not equate to an antitrust violation.^[130] The court also discussed the plaintiff’s allegation that the defendants had made fraudulent declarations to the standard setting organizations (SSOs), thereby inducing the SSOs to include the defendants’ patents in their standards and resulting in an unlawfully obtained monopoly.^[131] The court referenced several recent cases, which held that fraud toward the SSO constituted unlawful monopolization, but stated that it did ‘not agree with those cases concluding that deception of an SSO constitutes the type of anticompetitive conduct required to support a § 2 claim.’ ^[132] The court explained that deceptive conduct of this type did not diminish competition or harm the competitive process, even if it may cause harm to individual competitors.^[133] Thus, the court granted the motion to dismiss the plaintiff’s section 2 claims. Given that all the federal claims were dismissed, the court declined to exercise supplemental jurisdiction of the declaratory judgment and state law claims.^[134]

This case is significant because it examines the interplay between the FRAND obligations of a patent holder – a lawful monopolist that gains even more market power when its patents are incorporated into a standard by an SSO – and section 2 of the Sherman Act proscribing unlawful monopolization. This case demonstrates that within this district, a violation of a patent holder’s FRAND obligations may be a contractual violation but not an antitrust violation. Moreover, this case is significant in breaking with a line of cases by finding that deception of an SSO to get a patent included in a standard is not conduct sufficient to support a section 2 claim.

Required level of oversight for state action immunity

Veritext Corp v Bonin

Plaintiff Veritex Corporation, a court reporting agency, provides negotiated discounted rates to certain customers who enter into preferred-provider agreements.^[135] The defendants are the CSR Board, a regulatory body that oversees the shorthand reporting profession, and members of the Louisiana Board of Examiners of Certified Shorthand Reporters (the Board), which regulates the court reporting profession in Louisiana.^[136] The Board had announced its intention to enforce a provision of the Louisiana Code that prohibited court reporters from entering into volume-based contracts with customers.^[137] The plaintiff filed a lawsuit challenging the law’s constitutionality and alleging that the defendants had violated section 1 of the Sherman Act.^[138] Following a motion to dismiss and motion for partial reconsideration, the district court dismissed all claims, and the Fifth Circuit affirmed dismissal of the constitutional law claims but reversed the dismissal of the Sherman Act claims.^[139] On remand, the defendants moved to dismiss all Sherman Act claims that sought an injunction or money damages.^[140]

In assessing the Sherman Act claims and the defendants’ state-action immunity defense, the court noted that the Fifth Circuit had already held that Veritext alleged sufficient facts that ‘the board’s actions do not resemble a municipality under active supervision but instead represent an unbridled regulatory environment.’ ^[141] Moreover, the court stated that the Fifth Circuit had found that ‘Veritext pled facts sufficient to support a finding that the Board’s conduct does indeed restrain trade,’ including by taking regulatory actions to deter and delay entry by national court reporting firms.^[142] The court also found that the defendants were not entitled to immunity from the Sherman Act, given that the Board had failed to establish that its activities were subject to active state supervision.^[143] As such, the court denied the defendants’ motion for partial summary judgment and permitted the Sherman Act claims to proceed.^[144]

Notes