Ninth Circuit

In 2021, the Ninth Circuit issued a number of antitrust decisions involving a variety of industries and alleged anticompetitive restraints and damage claims. In addition, the Supreme Court affirmed the Ninth Circuit’s 2020 decision in National Collegiate Athletic Association v Alston to permanently enjoin the North Collegiate Athletic Association (NCAA) from limiting education-related benefits that member conferences or schools could provide for student-athletes.

National Collegiate Athletic Association v Alston

Current and former collegiate student-athletes brought a lawsuit against the NCAA, alleging that the NCAA and some of its member institutions violated federal antitrust law by limiting the compensation they could receive in exchange for their athletic services.^[1] The Supreme Court affirmed the district court and Ninth Circuit’s permanent injunction enjoining the NCAA from limiting education-related benefits that member conferences or schools could provide for student-athletes.^[2]

The student-athletes alleged that the NCAA’s rules that limit the compensation they may receive in exchange for their athletic services violated Section 1 of the Sherman Act.^[3] Applying a rule-of-reason analysis, the district court determined that the NCAA’s compensation limits produce significant anticompetitive effects in the relevant market, and rejected nearly all of the NCAA’s purported procompetitive justifications.^[4] However, the district court agreed with the NCAA that the rules aimed at ensuring student-athletes do not receive unlimited payments not related to education reasonably serve the procompetitive effect of sustaining consumer demand for college athletics by differentiating them from professional sports.^[5] For rules that limit education-related benefits, such as scholarships for graduate or vocational school, payments for academic tutoring, or paid post-eligibility internships, the court found that such benefits could not be confused with a professional athlete’s salary, and enjoined the NCAA’s restrictions on these forms of compensation alone.^[6] Both sides appealed – the student-athletes argued that the district court should have enjoined all of the NCAA’s challenged compensation limits, while the NCAA argued that the district court should have approved all its existing restraints.^[7] The Ninth Circuit affirmed in full, explaining that the district court struck the right balance between preventing anticompetitive harm to student-athletes and serving the procompetitive purpose of preserving consumer demand for college athletics.^[8]

The NCAA asked the Supreme Court to reverse the decision, arguing that the lower court should have used a ‘quick look’ review rather than a rule-of-reason analysis, because the NCAA is a procompetitive joint venture.^[9] Without deciding whether the NCAA is a joint venture, the Supreme Court explained that quick-look approval was not warranted, given the NCAA enjoys monopsony power and its restraints harm competition.^[10] The Supreme Court rejected the NCAA’s reliance on Board of Regents, which suggests courts should carefully consider the procompetitive possibilities of the NCAA’s restraints on student-athlete compensation.^[11] The Court clarified that Board of Regents did not suggest courts must reject all challenges to the NCAA’s compensation restrictions, and it was not binding especially in light of how significantly the market has changed.^[12] Furthermore, the Supreme Court rejected the NCAA’s argument that it should be exempt from a rule of reason analysis because it is not a ‘commercial enterprise’.^[13] The Court reasoned that Congress would have to exempt the NCAA from the usual operation of the antitrust laws, not the Court.^[14]

The NCAA further objected to the district court’s application of the rule of reason, arguing that it effectively required it to prove that each of its rules were the least restrictive means of achieving the procompetitive purpose of differentiating college sports and preserving demand for them.^[15] The Supreme Court agreed that the antitrust laws do not require businesses to use the least restrictive means of achieving legitimate business purposes, but noted that the district court did not require that and simply found most of the NCAA’s procompetitive evidence unpersuasive.^[16] Relatedly, the Supreme Court dismissed the NCAA’s argument that the district court impermissibly defined the product by rejecting the NCAA’s views of amateurism.^[17] The Court refused to overturn the district court’s factual findings, and explained that the district court found the NCAA’s restrictions were unnecessary to preserve consumer demand, which is a straightforward application of the rule of reason.^[18]

Last, the NCAA challenged the lower courts’ holdings that substantially less restrictive alternatives exist that could deliver the same procompetitive benefits as its current rules.^[19] The Supreme Court agreed with the NCAA’s underlying premise that courts should not micromanage business judgements, but believed the district court honored that principle, given that the court only enjoined restraints on education-related benefits after finding this was a significantly less restrictive means of achieving the same procompetitive benefits as the NCAA’s current rules.^[20] The Court further emphasized that ‘the district court enjoined only restrictions on education-related compensation or benefits that may be made available from conferences or schools, and that the NCAA could continue to restrict paid internships.^[21] The Court also noted that the district court’s ruling that aggregate athletic awards cannot be higher than aggregate academic awards still gives the NCAA leeway to reduce or choose its criteria for athletic awards to ensure that awards are ‘legitimately related to education’.^[22] Last, the Court found that allowing schools to provide in-kind educational benefits will lead to exploitation because the NCAA is free to prohibit ‘in-kind benefits unrelated to a student’s actual education’.^[23] Accordingly, the Supreme Court affirmed the lower courts’ judgment in full.^[24]

This case highlights that the antitrust laws are comprehensive enough to address novel market players, and that courts are resistant to exempt them from ordinary regulation.

Optronic Techs, Inc v Ningbo Sunny Elec Co, Ltd

A telescope distributor, Optronic, also known as Orion, brought claims under federal and California antitrust laws against a telescope manufacturer, Ningbo Sunny Electronic and Sunny Optics (collectively, Sunny) for their alleged conspiracy to allocate the telescope market and fix prices with Synta Entities (collectively, Synta).^[25] At the time, the main telescope manufactures were Sunny, Synta, and Meade, and in 2013, Sunny acquired Meade.^[26] Orion alleged that Sunny had violated Section 1 of the Sherman Act by conspiring with Synta to acquire Meade. Sunny argued that Orion lacked standing on this claim because Orion would not have acquired Meade regardless of any misconduct by Sunny.^[27] The district court agreed Orion would not have acquired Meade, but found that Orion may still have been harmed by Sunny’s acquisition because it concentrated the telescope market more than five times the amount presumed to enhance market power.^[28] A jury found Sunny liable on all claims and awarded Orion a total of $16.8 million in damages, which was trebled to $50.4 million.^[29]

Sunny appealed, arguing that there was insufficient evidence to support the jury’s verdict.^[30] The court found substantial evidence to support the jury’s verdict, including evidence of collusion between Sunny and Synta to acquire Mead, and that the acquisition was part of a larger scheme for Sunny and Synta to jointly control the telescope market.^[31] Additionally, the court found that Orion offered specific price-fixing evidence, such as price lists showing that Sunny charged Orion 50 percent more than it charged Synta’s subsidiary for identical items.^[32] Further, the court found that evidence regarding overlapping production capabilities showed that Sunny had the technical capability to manufacture the same telescopes as Synta, but chose not to, which constituted illegal market allocation in violation of Section 1.^[33]

Sunny also argued that the evidence did not support the jury’s verdict on the Sherman Act Section 2 claims.^[34] The court found there was substantial evidence that Sunny was dangerously close to acquiring monopoly power and that the jury could have found that the parties intended for Sunny to have a monopoly over the telescope manufacturing market.^[35] The court found that Orion properly established the relevant market through expert testimony showing the market is so broad that it is geographically unbound and encompasses all products potentially substituted for and sold with telescopes, and that there is no real substitute for telescope manufacturing.^[36] Furthermore, the court found there was sufficient evidence that Sunny specifically intended and was dangerously close to attaining monopoly, given there was evidence that Synta’s subsidiary was aware that its conduct was anticompetitive and Sunny’s market share was just over 49 percent.^[37]

As for damages, Sunny argued that Orion did not prove damages for its violation of Section 7 of the Clayton Act.^[38] The court disagreed, finding that by acquiring Meade, Sunny gained increased control over telescope manufacturing, enabling Sunny and its competitors to charge supracompetitive prices for telescopes that resulted in overcharges to Orion.^[39] Sunny also claimed that the district court’s order for injunctive relief under Section 16 of the Clayton Act, requiring Sunny to supply Orion on non-discriminatory terms, was inappropriate because it would result in a windfall for Orion.^[40] The court ruled that the district court acted in its discretion to extend injunctive relief to Orion after finding it would enhance, not stifle, competition.^[41]

City of Oakland v Oakland Raiders

The City of Oakland brought a lawsuit against the National Football League (NFL), and each of its 32 member teams, alleging that the Raiders’ decision to relocate from Oakland to Las Vegas, and the league’s approval of that decision, violated federal antitrust laws and the league’s own governing documents.^[42] Oakland claimed that the NFL created artificial scarcity in their product (NFL teams) in order to demand supracompetitive prices from host cities, which Oakland could not pay.^[43] Oakland contended that the NFL violated Section 1 of the Sherman Act by creating an unlawful group boycott and horizontal price-fixing scheme.^[44] The district court dismissed Oakland’s Sherman Act claims for failure to state a claim.^[45] The Ninth Circuit affirmed the district court’s decision.

The Ninth Circuit first found that Oakland had constitutional standing to bring the lawsuit.^[46] The NFL argued that Oakland did not have standing because its purported injury could not be fairly traced to the NFL’s rules, given Oakland did not allege that any team sought to play in the NFL and was denied admission.^[47] The court found that Oakland only needed to allege there is a ‘substantial probability’ that it could have retained the Raiders absent the NFL’s rules.^[48] Oakland satisfied this standard by alleging that Oakland is a prime location for an NFL team, that there would be more NFL teams in a consumer-driven market, and that, in a competitive market, teams would not be able to use a threat of relocation to demand supracompetitive concessions from host cities.^[49]

Next, the court rejected the group boycott theory because Oakland’s allegations showed only that the Raiders boycotted the city and that other defendants supported the Raiders’ boycott, which is not the same as alleging that all the other teams refused to ‘sell’ to Oakland.^[50] Moreover, the court found that the City did not specifically allege that there was any actual agreement among the other teams that they would neither relocate to Oakland nor allow an expansion team to locate there.^[51]

Turning to Oakland’s horizontal price-fixing theory, the court found that Oakland failed to meet all five requirements of antitrust standing.^[52] First, the court found Oakland did adequately allege an antitrust injury.^[53] Oakland adequately alleged that the NFL acted as a cartel by restricting the number of NFL teams and demanding supracompetitive prices from host cities, that but for the NFL’s restrictions on output, the Raiders would have stayed in Oakland, that Oakland’s injuries stem from the loss of the Raiders, and that Oakland’s injuries (reduced output and increased prices) were of the type that antitrust laws are meant to prevent.^[54] However, the court found that Oakland failed to meet the requirement that the alleged injury was the direct result of allegedly anticompetitive conduct.^[55] Oakland’s injuries were less direct than cities who actually acquired NFL teams by agreeing to supracompetitive prices.^[56] Additionally, Oakland did not plausibly allege that it would have retained the Raiders, but for the limited number of teams, given that Oakland did not allege what the playing field would look like if the NFL allowed more teams.^[57] For the same reasons, the court found that Oakland failed to meet the third factor, which considers whether damages are only speculative.^[58] The court reasoned that because it did not know whether Oakland would have retained the Raiders, it could not know whether Oakland would have avoided the harm it alleges.^[59] Even if Oakland demonstrated that it would have retained the Raiders, damages, including lost investment value, tax revenues, and property value, would be ‘exceedingly difficult’ to calculate.^[60] The court found the remaining factors – risk of duplicative recoveries and the complexity in apportioning damages – did not undermine Oakland’s antitrust standing.^[61] Still, the court was persuaded that Oakland lacked antitrust standing because of the indirectness of Oakland’s injuries, the existence of more direct victims, the speculative measure of harm, and the difficulty in calculating damages.^[62] Thus, the court held that Oakland could not pursue its horizontal price-fixing theory.^[63]

This case highlights that antitrust injuries cannot rely on speculation. Instead, actual damages must be tied directly to the alleged anticompetitive actor and its activities.

Stromberg v Qualcomm Incorporated

The Ninth Circuit vacated the certification of a class of up to 250 million consumers who were indirect purchasers of Qualcomm’s cell phone chips, holding that the district court erred in its choice-of-law analysis and in light of the Ninth Circuit’s decision in FTC v Qualcomm Inc^[64] after this case was submitted.^[65]

The consumer plaintiffs who bought cell phones allege that Qualcomm maintained a monopoly in modem chips by (1) engaging in a ‘no-license-no-chips’ policy by which it sold chips only to original equipment manufacturers that paid above-FRAND (fair, reasonable, and non-discriminatory) royalty rates to license Qualcomm’s standard essential patents, (2) refusing to license its standard essential patents to rival chip suppliers, and (3) entering into exclusive dealing arrangements with Apple that prevented rival chip suppliers from competing with Qualcomm to supply Apple’s chip demand.^[66] The plaintiffs contended that Qualcomm’s practices harmed consumers because the above-FRAND royalty overages were passed on to them through the distribution chain in the form of higher prices or reduced quality in cell phones.^[67] The district court certified the class consisting of all natural persons who purchased cell phones from 11 February 2001, treating the plaintiffs’ Sherman Act and California’s Cartwright Act claims together.^[68] The district court found that, despite the material difference between California’s Cartwright Act, as an Illinois Brick repealer state^[69] that allows indirect purchasers to seek damages, and the antitrust laws of non-repealer states that bar indirect purchasers from seeking damages under the Sherman Act, non-repealer states had no interest in applying their laws in California and instead held that California’s Cartwright Act applies to the nationwide class.^[70]

The Ninth Circuit held that the class was erroneously certified under Rule 23(b)(3) of the Federal Rules of Civil Procedure under a faulty choice-of-law analysis because differences in relevant state laws swamp the predominance analysis.^[71] The court found that the lower court erred in the first step of California’s three-step governmental interest test by overlooking variations in the antitrust laws of repealer states.^[72] As to the second step, the court found that the district court erroneously concluded that other states have no interest in applying their laws to the current dispute because other repealer and non-repealer states alike all have an interest in how their markets are managed and how best to enforce antitrust violations in their states.^[73] The court further found that allowing non-repealer states to apply their laws to class members purchasing cell phones in-state furthers those states’ antitrust enforcement determinations and their interest in reducing excessive and complicated antitrust litigation with duplicative damages recovery.^[74] Additionally, the court found that the lower court failed to evaluate state interests as the ‘place of the wrong’ in the tort context, finding that individuals bought cell phones from retailers throughout the 50 states, making the ‘place of the wrong . . . the state where the consumer bought the cellphone’.^[75] As to the third step, the court found that the district court failed to determine which states’ interests would be more impaired if their policies were subordinated to another state’s law.^[76]

Additionally, although the court found that the variations in state law are not implicated in the district court’s certification of the Rule 23(b)(2) class, it vacated the certification so that the district court can reconsider certification of the entire class given FTC v Qualcomm likely has preclusive effect on many issues raised by the plaintiffs in this case.^[77]

In re German Automotive Manufacturers Antitrust Litigation

In October 2021, the Ninth Circuit affirmed the district court’s dismissal of US automobile dealers’ (direct purchasers) consolidated class action alleging that five German automakers and their American subsidiaries violated Section 1 of the Sherman Act.^[78] The court found the direct purchasers’ few specific examples of the defendants’ alleged collusion were either devoid of factual development or too narrow to establish an overarching conspiracy to restrict innovation on all, or most, aspects of vehicle development.^[79] The court further found the direct purchasers’ allegations that the defendants’ conduct in coordinating major product updates and refreshes could just as easily suggest rational, legal business behavior as they could suggest an illegal conspiracy.^[80] The court also upheld the district court’s finding that the complaint failed to plausibly allege a credible antitrust injury.^[81] The court found that the direct purchasers did not allege any facts suggesting that the prices of the defendants’ vehicles increased while the alleged steel conspiracy was in effect or decreased after it ended.^[82] Finally, the court found that the district court properly dismissed the direct purchasers’ claim alleging that the defendants conspired to not develop electric vehicles.^[83] The court found that three defendants launched plug-in/hybrid vehicles while the alleged conspiracy was in effect and the complaint’s explanation for the defendants’ conduct was benign, finding that the defendants had already invested heavily in diesel engines when the demand for low-emission vehicles began to rise.^[84] The court concluded by adding that common motive and the defendants’ participation in trade organization meetings where information is exchanged and strategies are advocated does not suggest an illegal agreement.^[85]

Aya Healthcare Services, Inc v AMN Healthcare, Inc

In August 2021, the Ninth Circuit affirmed the district court’s order granting summary judgment for defendant AMN Healthcare Services, Inc (AMN) over Aya Healthcare Services, Inc’s (Aya) antitrust action alleging that a no-poach provision in their subcontractor assignment contract acted as an unreasonable restraint on trade by prohibiting Aya from soliciting AMN’s employees.^[86]

The court found that both parties are healthcare staffing agencies that place travel nurses on temporary assignments and that AMN entered into nursing assignment referral agreements with Aya, which contained a provision prohibiting Aya from soliciting AMN’s employees.^[87] AMN terminated the business relationship in December 2015 after Aya actively solicited AMN’s travel nurse recruiters.^[88] Aya filed an amended complaint against AMN in February 2017, alleging claims under Sections 1 and 2 of the Sherman Act.^[89] In May 2017, the district court entered an order for summary judgment for AMN, holding that Aya failed to proffer evidence that AMN had sufficient market power in the various markets identified for Aya’s Section 2 claims, or that AMN’s conduct had harmed competition.^[90] In June 2020, the district court entered another order for summary judgment for AMN on Aya’s claims for exclusionary damages, holding that Aya failed to raise a genuine issue of material fact regarding whether AMN has market power.^[91] Aya appealed.

The Ninth Circuit found that the non-solicitation provision was an ancillary horizontal restraint, rather than a naked horizontal restraint, and was subject to rule-of-reason analysis.^[92] In distinguishing between ancillary and naked horizontal restraints, the court noted that naked horizontal restraints are always analyzed under the per se standard because they have no purpose but to stifle competition.^[93] The court found that the non-solicitation provision was an ancillary restraint because the agreement had a procompetitive purpose to fulfill hospitals’ demand for travel nurses.^[94] The court also found that the non-solicitation agreement was necessary to achieve that purpose because it ensured that AMN would not lose its personnel during the collaboration.^[95] The court further found that AMN did not need to satisfy a less-restrictive-means test to demonstrate that the non-solicitation agreement was an ancillary restraint.^[96]

Additionally, the court agreed with the district court’s finding that Aya failed to proffer any evidence (direct or indirect) that the restraint violates the rule-of-reason standard.^[97] The court also found that Aya failed to present any evidence to support its assertion that AMN’s supracompetitive pricing in certain markets was attributable to the non-solicitation provisions.^[98] Further, the court concluded that Aya failed to prove that AMN’s non-solicitation agreement had a substantial anticompetitive effect that harmed consumers in the relevant market.^[99]

Klein v Facebook, Inc

In April 2021, a plaintiff class of consumers and advertisers brought an antitrust class action suit against Facebook, alleging that Facebook has monopoly power in the social network and social media markets in violation of Sections 1 and 2 of the Sherman Act, and made false representations about Facebook’s collection and monetization of data.^[100] Facebook moved to dismiss all claims, arguing that the consumers and advertisers failed to allege cognizable product markets, plausible monopoly power, the anticompetitive nature and timeliness of its data privacy practices, and causal antitrust injury.^[101]

The court ruled that the consumers and advertisers adequately alleged that Facebook has monopoly power in social network and social media markets.^[102] The consumers alleged that a social network service is a distinct type of service, enabling users to share various forms of media with other application users, whereas Facebook argued that the consumers inadequately provided a basis for determining which products are in the social network market.^[103] The court found that Facebook’s own statements regarding the competitiveness of its social network supports the consumers’ allegations, that the consumers explained in detail why social network services and generic social media, professional networking, and other online services are not reasonably interchangeable, and that there has been significant industry and public recognition of the social network market as a separate economic entity.^[104] The court dismissed Facebook’s arguments that the consumers failed to address the cross-elasticity of demand as ‘irrelevant’, and rejected Facebook’s arguments that the market cannot contain multiple distinct submarkets, finding that consumers have no obligation to address every possible substitute.^[105] Similarly, the court found that the consumers adequately alleged that the social media market is not reasonably interchangeable with other services, and that Facebook’s arguments to the contrary were unconvincing.^[106]

Next, the court ruled that the consumers adequately alleged that Facebook had market power in the social media and social network markets, given that the consumers alleged Facebook is the only significant social network service and provided detailed calculations showing that Facebook’s market share exceeds 80 percent.^[107] The court rejected Facebook’s arguments that the consumers failed to account for large rivals, finding that they had minimal market shares compared to Facebook.^[108] The court went on to find that the consumers had plausibly alleged that network effects (i.e., the value of the service increases as the number of users increase) and switching costs (i.e., that users are reluctant to switch to an alternative unless many others simultaneously switch) pose significant barriers to enter social network and media markets.^[109] Similarly, the court held that the advertisers had adequately alleged that Facebook has monopoly power in the social advertising market.^[110]

In reviewing the consumers’ first theory of Sherman Act liability – that Facebook acquired and maintained monopoly power by making false representations as to its own data privacy practices – the court denied Facebook’s motion to dismiss these claims.^[111] The court held that the plaintiffs adequately alleged that Facebook knew the success of its business depended on both users’ desire for data protection and advertisers’ desire to purchase their data, and then proceeded to sell increased amounts of data while representing to users that it was keeping data private, allowing Facebook to maximize its user base and its revenue.^[112] Facebook argued that none of its alleged representations were ‘clearly false’ and that the consumers’ data privacy claims are barred by the statute of limitations.^[113] The court disagreed, finding that the consumers alleged with sufficient particularity several ‘clearly false’ representations that were continually made within the limitations period.^[114] The court further rejected Facebook’s argument that its false representations were neutralized or offset by rivals, given even sophisticated third parties cannot access user data without Facebook’s permission.^[115] The court held that the consumers adequately alleged that Facebook’s false representations were clearly material and that the consumers’ had adequately alleged an antitrust injury.^[116]

The court dismissed the consumers’ and advertisers’ ‘copy, acquire, and kill’ claims with leave to amend.^[117] According to these claims, Facebook deceptively identified particularly popular mobile social media applications, copied and acquired several potential competitors’ products, and enticed thousands of potential competitors to build their products using Facebook’s platform and then removed access to the platform.^[118] The mobile social media applications that the plaintiffs alleged that Facebook had deceptively copied and acquired included Instagram, WhatsApp, Snapchat, and Houseparty.^[119] However, the court ruled that these claims, as currently alleged, were untimely because the plaintiffs failed to allege facts showing that Facebook inflicted a ‘new and accumulating’ injury within the four years prior to filing their complaint.^[120]

The court held that the advertisers adequately alleged that Facebook additionally maintained monopoly power by agreeing with Google not to enter each other’s market.^[121] The court found that the allegation that this agreement allowed Facebook to maintain supracompetitive prices was a sufficient antitrust injury.^[122]

Last, the court dismissed the consumers’ unjust enrichment claim with leave to amend.^[123] The consumers alleged that Facebook unjustly made billions from deceptively obtaining users’ data, but the court stated that California does not recognize a separate cause of action for unjust enrichment.^[124]

* The authors would like to thank Hyoungguen (Steven) Hong (currently a secondee in K&L Gates’ antitrust, competition and trade regulation practice group) and Sebastian A Crisan (a summer associate in K&L Gates’ antitrust, competition and trade regulation practice group) for their assistance in researching and writing this update.

Notes