Distribution, Competition, and Antitrust / IP Law

Supreme Court lets Fourth Circuit’s Articulation of Standard for Pleading a Sherman Act Conspiracy Stand – for Now

A rudimentary table saw

A rudimentary table saw (Photo credit: Wikipedia)

On Monday, the U.S. Supreme Court refused to review the Fourth Circuit’s decision in SD3, LLC v. Black & Decker (U.S.) Inc., et al., 801 F.3d 412 (4th Cir. 2015), allowing the decision – and, arguably, a circuit split on the pleading standard for Sherman Act Section 1 conspiracy claims – to stand.

SD3, LLC and its subsidiary, SawStop, LLC alleged that they developed a new safety technology for saws to avoid or minimize injuries, and that the saw manufacturers engaged in a group boycott of the technology, primarily because they feared that if some manufacturers (but not others) licensed it, those who did not might be exposed to product liability claims.  The district court dismissed the group boycott claim, but the Fourth Circuit reversed.

According to the Fourth Circuit, for a Section 1 claim to survive, a plaintiff must plead parallel conduct and something “more.”  However, the court emphasized, the question is whether a plaintiff has alleged a plausible conspiracy, not whether the conspiracy is more probable than not.  Further, unlike at summary judgment, the plaintiff need not summon evidence tending to exclude the possibility of independent action.

Applying that standard, the Fourth Circuit held that SD3 had adequately alleged a group boycott under Sherman Act Section 1.  It had alleged parallel conduct (refusals to license – effectuated in different ways, perhaps (allegedly) to disguise the conspiracy), as well as the “more.”  It had alleged the particular time, place, and manner in which the boycott initially formed.  It also alleged the “why” (to avoid product liability claims).  And it alleged a number of communications among the defendants, as well as a market in which the market shares or power were concentrated in the hands of a relatively small number of defendants.  In the Fourth Circuit’s view, these facts were sufficient to sustain the group boycott claim.  (The circuit court upheld dismissal of separate conspiracy allegations which did not allege anything more than ordinary standard-setting activity.)

In their petition to the Supreme Court, the defendants strenuously argued that the Fourth Circuit’s rejection of a standard requiring evidence tending to exclude the possibility of independent action (or innocent explanations of the defendants’ conduct) was both unwise and in conflict with decisions from the Third, Ninth, and Eleventh Circuits.  For now, to the extent there is a difference in views among the circuits, the issue remains unresolved.

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