Distribution, Competition, and Antitrust / IP Law

Archives for April 2013

It Is Becoming Tougher for Plaintiffs to Allege Harm to Competition

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It has long been the case that Sherman Act Section 1 Rule of Reason claims as well as Section 2 claims require proof of harm to competition. But the courts, particularly in the Ninth Circuit, have been tightening up on the requirement to plead such harm, as evidenced by the recent case of Orchard Supply Hardware LLC v. Home Depot USA, Inc., 2013 U.S. Dist LEXIS 53214 (Apr. 11, 2013) (Tigar, J).

In Orchard Supply, the plaintiff, a retailer, challenged Home Depot’s alleged agreements with several tool manufacturers to be the exclusive carrier of the manufacturers’ lines of power tools and accessories. The court dismissed the plaintiff’s Rule of Reason claim, although it granted leave to amend.

The complaint’s defect was its failure to allege harm to competition itself. Although the complaint alleged that the exclusives would enable Home Depot to charge higher prices and deprive consumers of choice, this is not enough. As the court held, “[a]llegations that an agreement has the effect of reducing consumers’ choices or increasing prices to consumers does not sufficiently allege an injury to competition.” Id. at *16, quoting Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1202 (9th Cir.), cert. denied, 133 S. Ct. 573 (2012).

In the case of exclusives, if they actually or potentially cause substantial market foreclosure or the exit of competitors, harm to competition may exist. But higher consumer prices do not themselves amount to an actionable antitrust injury.

Monopolization Claims Against In-Flight Internet Provider Dismissed

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In Stewart v. Gogo, Inc., 2013 U.S. Dist. LEXIS 51895 (N.D. Cal. Apr. 10, 2013) (Chen, J.), a putative class of airline passengers challenged Gogo’s long-term exclusive contracts to provide Internet access connectivity to various domestic airlines under, among other things, Sherman Act Section 2.

The complaint suggested that Gogo’s exclusive contracts with the airlines effectively operated as a wholesale bar preventing the contracting airline from using an Internet access provider other than Gogo on any of its planes.  However, at oral argument, plaintiffs clarified that the typical Gogo contract binds an airline on an aircraft-by-aircraft basis. In other words, where an airline agreed to have an airplane equipped with Gogo for Internet access, that airplane would use only Gogo’s services (and no other company’s) for the ten years. Thus, conceivably, an airline could have some of its airplanes equipped for Gogo’s services but use a different Internet access provider for its other planes.

In dismissing the complaint (but granting leave to amend), the court found that the relevant market could not be limited to North American aircraft that actually provide Internet access, but must take into account the North American aircraft that could be equipped to provide such access, in which case Gogo has only a 16% market share (not 85% or higher as alleged by plaintiffs who focused only on the North American aircraft actually equipped).

The court noted that Plaintiffs had not made any allegations as to why airplanes that could be equipped should not be included in the full range of selling opportunities reasonably open to a competitor. Plaintiffs did not allege, for example, that there are substantial technological or design barriers to installing a competitor’s Internet connectivity services on such planes, nor did they allege that there are substantial financial barriers which prevent competition for these planes.

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Should Antitrust Regulate Trolls?

Look at them, troll mother said. Look at my so...

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Professor Michael Carrier has written a recent op-ed over at arstechnica suggesting that the answer is “yes.”  Highlights:

“To start, [the antitrust agencies] can challenge concerning aggregations of patents . . . . [M]assive patent portfolios can be used offensively and can be valuable because of their size rather than the validity of each patent. These portfolios can have anticompetitive effects, including holdup, raised rivals’ costs, increased price, and reduced innovation.”

“The agencies could also promote transparency. Much troll activity today is hidden beneath a labyrinth of shell companies . . . .  Given this, how could potential targets engage in licensing negotiations or evaluate patent portfolios? The agencies must be able to shine sunlight on this subterranean network, obtaining complete information from patent acquisitions, among other conduct, to determine competitive effects.”

“It seems particularly slippery for trolls to avoid promises made by their predecessors. The agencies could prohibit transfers to trolls that refuse to adhere to promises to keep licensing costs reasonable.”

The article discusses other ideas as well, and also suggests that Section 5 of the FTC Act could be used where “certain trolls have market power in technology (licensing) markets, do not offer non-trivial efficiencies, and cause competitive harm that results in higher prices or reduced innovation for consumers.”

(Note: some people prefer the term “patent assertion entities,” or PAEs, over the term “trolls.”)

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