Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Lithium Ion Batteries Court Addresses Illinois Brick Exception, Finds Standing for Certain Indirect Purchasers of Component Products

In In re: Lithium Ion Batteries Antitrust Litigation, 2014 U.S. Dist. LEXIS 7516 (N.D. Cal. Jan. 21, 2014) (Gonzalez Rogers, J.), the Northern District of California largely rejected a motion to dismiss an antitrust price-fixing complaint, but held that the plaintiffs had not adequately pled that they fell within a recognized exception to the Illinois Brick rule against indirect purchaser suits.

Lithium ion battery by Varta (Museum Autovisio...

Lithium ion battery by Varta (Museum Autovision Altlußheim, Germany) (Photo credit: Wikipedia)

Under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), indirect purchasers lack standing to sue under the federal antitrust laws. There are several exceptions to the Illinois Brick rule, including the so-called Royal Printing exception (see Royal Printing Co. v. Kimberly Clark Corp., 621 F.2d 323 (9th Cir. 1980)). Under Royal Printing, indirect purchasers may sue when, inter alia, a conspiring seller owners or controls the direct purchaser.

In Lithium Ion Batteries, purchasers purchased batteries (not lithium ion battery cells) from “packers,” not from the defendant manufacturers. The court held that the complaint did not adequately allege that the defendants controlled the packers, and that influence over their business was insufficient.

Significantly, the court also rejected defendants’ argument that Royal Printing bars standing for an indirect purchaser who has purchased a price-fixed component (here, battery cells) as part of a finished product (here, batteries) from an entity owned or controlled by a conspirator. Otherwise, “[p]rice-fixers of components of complex goods . . . would be immunized.” In so holding, the court followed two other recent cases from the Northern District of California.  The court gave plaintiffs an opportunity to replead to establish that they satisfy the Royal Printing exception.

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Direct Purchasers Can Bring Walker Process Claims

In Ritz Camera & Image v. SanDisk Corp., No. 2012-1183 (Fed. Cir. Nov. 20, 2012), the Federal Circuit held that direct purchasers have antitrust standing to bring Walker Process claims.

In a typical Walker Process claim, an alleged patent infringer claims that the patentee fraudulently obtained a patent or patents from the Patent and Trademark Office.  Usually the claim is brought as a type of monopolization claim.

In Ritz Camera, a direct purchaser of SanDisk products (not an alleged patent infringer) brought a Walker Process claim, alleging that by fraudulently obtaining patents, SanDisk was able to raise prices above competitive levels.  The Federal Circuit found that the plaintiff had antitrust standing.  “Ritz’s status as a direct purchaser gives it standing to pursue its Walker Process claim even if it could not have sought a declaratory judgment of patent invalidity or unenforceability.”

The ruling increases patentees’ potential exposure to antitrust claims arising out of patent prosecution and enforcement.

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Why You Need to Pay Close Attention to Antitrust Standing

In a nutshell, you need to pay attention to antitrust standing doctrine because the doctrine has real teeth and can result in dismissal of claims.

That’s what the plaintiff in Static Control Components, Inc. v. Lexmark International, Inc., Nos. 09-6287/6288/6449 (6th Cir. Aug. 29, 2012), recently discovered. The case concerns Lexmark’s alleged conspiracy with unidentified microchip suppliers and resellers of Lexmark-manufactured printers to restrain trade and otherwise monopolize the market for printer toner cartridges. (Like many printer manufacturers, Lexmark employs technology and microchips to ensure that only its cartridges will work with its printers.) The plaintiff sells microchips to remanufacturers of Lexmark toner cartridges along with other parts to facilitate the repair and resale of Lexmark toner cartridges.

The Sixth Circuit affirmed dismissal of Static Control’s antitrust claims on antitrust standing grounds. Normally, only claimants who are competitors or consumers within the injured market have standing to sue. Static Control – a chip manufacturer – was neither a competitor nor a consumer in the market for toner cartridges.

Noting the exception for injuries in adjacent markets if “inextricably intertwined” with the injury sought to be inflicted upon the relevant market or participants, see Blue Shield of Va. v. McCready, 457 U.S. 465 (1982), the Sixth Circuit held that the exception is a narrow one and not designed to give standing to claimants whose injuries are a “tangential byproduct” of monopolistic conduct in a related market. To succeed, a claimant must show that the defendants “manipulated or utilized [the claimant] as a fulcrum, conduit or market force to injure competitors or participants in the relevant product and geographical markets.”

The court held that Static Control had not made such allegations. Its claim made no mention of being used by Lexmark as a fulcrum, and it did not allege that it was harmed because it was manipulated into harming the remanufacturers. Instead, the allegations made clear that Lexmark was using the end users to obtain the desired anticompetitive effects (through, e.g., “prebate” programs), rather than using Static Control.

In short, Static Control’s allegations “resemble a classic case of a supplier seeking standing to recover for indirect damages following anticompetitive conduct directed at its customers’ market.” It therefore lacked antitrust standing.

It’s too simplistic to say that only a direct competitor or a customer has antitrust standing. That said, it’s a good idea when evaluating a claim to ask whether the plaintiff or potential plaintiff is a direct competitor or a customer. If the answer is “no,” careful though should be given as to whether the plaintiff or potential plaintiff  in fact has antitrust standing.

P.S. I covered an earlier, related Lexmark decision on patent exhaustion here.

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ATM Users Lack Standing to Challenge Bank ATM Fees

In In re: ATM Fee Antitrust Litigation, No. 10-17354 (9th Cir. July 12, 2012), the Ninth Circuit ruled that consumers (ATM cardholders) could not challenge ATM fees paid by ATM card issuing banks to the owner of the ATMs accessed by the cardholders. Those fees were allegedly fixed by the banks. However, the fees were not directly paid by cardholders, who instead may have paid higher charges passed on by the banks. The cardholders’ claims were, therefore, indirect price-fixing claims, for which the cardholders had no Sherman Act monetary remedy.

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Digital Content Producers Lack Antitrust Standing to Sue Wireless Carriers Over MMS

Wireless Telephony

Davis v. AT&T Wireless Services, Inc., No. CV 11-02674 DDP (March 1, 2012) (Pregerson, J.)

Not everyone can sue for an antitrust violation.  Usually, if plaintiffs and defendants do not at least participate in the same market, plaintiffs lack standing.
In Davis, Judge Pregerson dismissed antitrust claims against various wireless telephone companies and other defendants brought by a purported class of commercial producers of multimedia content.  Plaintiffs claimed that when the wireless carriers created the Multimedia Messaging Service standard for sending multimedia data files, they agreed not to implement digital rights management measures that would have protected materials copyrighted by third parties.  Allegedly, the carriers’ motive was to increase revenues and profits from the use of MMS.
The Court ruled that the plaintiffs had not alleged antitrust injury, and therefore lacked antitrust standing.  Plaintiffs are producers and owners of multimedia content; defendants, to the contrary, are wireless service carriers who enable subscribers to send messages that can include multimedia content.  “Plaintiffs and Defendants are therefore not participants in the same market, and Plaintiffs fail to allege the required antitrust injury.”
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