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

Under Agency Law, Standard Setting Organizations May Be Liable for Antitrust Violations of Their Members

As noted in this recent blog post, in TruePosition, Inc. v. LM Ericsson Telephone Co., No. 11-4574 (E.D. Pa. Oct. 4, 2012), the court held that a Standard Setting Organization (SSO) known as 3GPP may be liable for alleged Sherman Act Section 1 antitrust claims involving the wrongful actions of persons who acted on behalf of the SSO, even when those persons are representatives of the SSO’s corporate members.  (Hat tip to this LinkedIn posting which informed me about the blog post.)

The case involves allegations that defendants conspired to exclude plaintiff’s technology from industry standards (for Long Term Evolution, or LTE, telephone technology).  The SSO argued that the plaintiff’s claims were insufficient because the plaintiff’s theory of liability was one of “acquiescence.”  The SSO characterized the plaintiff’s claims as alleging that the SSO was on notice of the corporate defendants’ alleged misconduct but that the SSO failed to remedy it.  This “inaction,” according to the SSO, did not show the requisite agreement necessary to support a Sherman Act Section 1 claim.

Applying American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982), the district court rejected the SSO’s acquiescence argument. 

“As Chairmen of the pertinent 3GPP subcommittees, the Corporate Defendants were agents of 3GPP acting on behalf of 3GPP, even when their actions violated 3GPP’s rules and regulations . . . .  As the facts are set forth in the Amended Complaint, and granting all reasonable inferences to TruePosition, 3GPP is charged with acting through agents whom it has imbued with apparent authority.  Such alleged action involved concerted action.  This is not a case involving mere membership in a standard-setting organiztion . . . .  It is the Corporate Defendants’ alleged unlawful conspiratorial conduct taken with 3GPP’s apparent authority as Chairmen of the relevant committees that makes 3GPP potentially liable for their actions. Under the facts presented in the Amended Complaint, 3GPP cannot consider itself as separate and distinct from the actions of the Corporate Defendants when they were acting with 3GPP’s apparent authority.”

The court also determined that the complaint adequately alleged minimally sufficient facts to plausibly suggest that 3GPP assented to the alleged conspiracy through the corporate defendants’ actions taken with the apparent authority of 3GPP holding leadership positions within its committees.  “This is not a case where most of the alleged unlawful activities were conducted by the Corporate Defendants outside the confines of 3GPP but, rather, the majority of the allegations specifically involve the actions of the Corporate Defendants as Chairmen of 3GPP’s committees thwarting and using its standardization process to disadvantage a competitor.”

The case is a useful reminder that an SSO has potential antitrust exposure for the activities of its members when the members act under color of authority of the SSO.

Private Standard-Setting Efforts Pose Antitrust Risks

English: Stateic Ram chip form a NES clone. 2K...

SRAM (Photo credit: Wikipedia)

By “private” standard-setting, I’m referring to agreements between or among competitors outside the context of a Standard-Setting Organization (“SSO”) open to the industry and governed by (at least relatively transparent) rules.

Such agreements carry antitrust risks, as illustrated by the recent case of GSI Technology, Inc. v. Cypress Semiconductor Corp., Case No. 5:11-cv-03613 EJD (N.D. Cal. July 6, 2012) (Davila, J).

GSI, a competitor of Cypress in the field of development and manufacture of static random access memory (“SRAM”), alleged that Cypress and other competitors agreed to share information for the development of new “networking” SRAM products. The alleged “consortium” used its agreement to exclude GSI and others from participation in development of product standards intended to serve the market, and allegedly injured their ability to enter the market in a timely manner and to compete effectively for customers. Delayed market entry — even by just a few months — allegedly enable the consortium to lock in the market’s relatively few purchasers, including Cisco.

The court held that the complaint sufficiently alleged, among other things, a Sherman Act Section 1 (unreasonable restraint of trade) violation.

Now, not every non-price agreement between competitors will survive a motion to dismiss. However, in the GSI case, the plaintiff alleged that the consortium supplied 2/3 of the “fast” SRAM worldwide, and that the goal of the consortium was monopolization. The defendant allegedly was the largest networking SRAM supplier in 2010. Given these allegations, the court concluded that the complaint sufficiently alleged that the defendant had market power.

I express no opinion on the facts of the case. However, the decision refusing to dismiss the complaint nicely illustrates the dangers inherent in competitor collaborations — especially those that are not open to the industry.  Any such collaboration should be evaluated for antitrust risk, especially where the firms have substantial market shares.

(Open SSOs pose their own share of antitrust issues, however. See the related article below, for example.)

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Trade Associations and Selling to the Government

I’ll have more to say about trade associations in future posts.  For now, keep in mind that trade associations are collections of competitors that frequently meet together.  Although they often take pro-competitive actions (by improving efficiency, setting industry standards, and communicating with the public about key issues), they also can take actions that prompt antitrust claims (either the conspiracy type, monpolization type, or both).

Trade associations (and everyone else, for that matter) do enjoy an antitrust immunity for government petitioning under the so-called Noerr-Pennington doctrine, which is derived from the First Amendment.  However, what happens when an association’s members sell to the government?

In that case, associations must be extra careful when they lobby.  Some courts have held that Noerr-Pennington doesn’t apply, because selling, not petitioning, is occurring.  To avoid such a result, associations should remind all members that they must act independently in the market when setting prices.  Associations should also focus on broad policy arguments, not pricing, and lobby only relatively senior officials, while staying away from procurement-level personnel and organizations.

 

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