Marketplace.org has the story. A nice little summary of the new Google case and the principle that while “[h]aving a big market share by itself is OK,” “the problem is when companies abuse that market share by taking anticompetitive actions that hurt  competitors and customers.” A good link to share with non-antitrusters.
Franklin Foer, at the New Republic, argues that the answer is yes. The alleged “crime”: predatory pricing — if not express, than at least in spirit.
In “There’s one huge problem with calls for anti-trust action against Amazon” at vox.com, Matthew Yglesias rightly points out that market share does not by itself a monopoly make, and further argues that
One important hint about Amazon’s non-monopoly status can be found in its quarterly financial reports. That’s where you find out about a company’s profits. In its most recent quarter, for example, Amazon lost $126 million. Losing money is pretty typical for Amazon, which is not really a profitable company. If you’d like to know more about that, I published 5,000 words on the subject in January. But suffice it to say that “low and often non-existent profits” and “monopoly” are not really concepts that go together.
Competitors hate Amazon because retail was an ultra-competitive low-margin game before Jeff Bezos ever came to town. To delve into this field and make it even more competitive and even lower-margin seems somewhere between unseemly and insane — but it’s the reverse of a monopoly.
Of course, U.S. price predation law can be violated when a firm prices below cost — and loses money — if it is likely to recoup its losses later after its competitors exit the market and it raises prices. Query whether that is a possibility with online distribution — I don’t know, and am not taking a position for now, but there are certainly reasons to be pretty skeptical — low entry barriers and the like.
Interesting discussion, though.
Update: Paul Krugman says that “Amazon’s Monopsony Is Not O.K.” But the problems he identifies seem largely theoretical.
Update II: The Wall Street Journal reports that Amazon just reported its biggest operating loss.
It’s really a very difficult thing to do — and query whether it’s worth the effort. See, e.g., The Apple iPod iTunes Antitrust Litigation, 2014 U.S. Dist. LEXIS 136437 (N.D. Cal. Sept. 26, 2014) (Gonzalez Rogers, J.) (denying Daubert motions all around). At least that’s true when the economist is a well-known professor at a major university.
The iPod litigation is, by the way, quite interesting . . . the court has refused to grant Apple summary judgment on the claim that an iTunes update caused consumer lock in. In an earlier summary judgment order, the court found a triable issue of fact as to whether iTunes update 7.0 was a genuine product improvement so as to not be anticompetitive.
In PNY Technologies, Inc. v. SanDisk Corp., Case No. C-11-04689 (N.D. Cal. Apr. 25, 2014) (Orrick, J.), the court dismissed PNY’s exclusive dealing and attempted monopolization claims. I previously covered the case here.
The case is significant because it found – on a motion to dismiss – that allegations of foreclosure from a substantial percentage of retail outlets were insufficient as a matter of law. The court took judicial notice of SanDisk’s contracts with retailers under the “incorporation by reference” doctrine, and proceeded to conclude that because they were terminable on short notice, they did not plausibly foreclose competition. Unfortunately, due to protective order issues, the court redacted information on the term(s) of SanDisk’s exclusives, so we don’t know precisely how long would be too long.
The court also determined that PNY had failed to adequately plead a lack of alternative channels of distribution. Although PNY alleged that non-retail channels were insufficient, the court held that PNY’s allegations were wholly conclusory and therefore insufficient. The court gave PNY leave to amend.
The case is a (relatively) uncommon exclusive dealing victory at the motion to dismiss stage for defendants. It shows that courts will scrutinize and look at exclusive dealing contracts (even if not attached to the complaint). It also demonstrates that in the case of short-term exclusives, and where the plaintiff does not allege in substantial detail why other distribution channels are insufficient to compete, plaintiffs’ claims may be dismissed.
I’ve uploaded my slide deck from the Advanced Antitrust U.S. conference (Feb. 6, 2014) on strategic refusals to license IP. You can find a copy here.
Back in January, I covered the case of Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), where Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung. On December 3, 2013, Judge Rogers refused to dismiss Cascades’ amended complaint. See 2013 U.S. Dist. LEXIS 170517.
Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.
Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.
In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.
In granting defendants’ motions to dismiss the original complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition. In its amended complaint,(*) Cascades provided much greater detail about the negotiation history with RPX. Those alleged facts were sufficient for the Court to conclude that Cascades had adequately alleged both a horizontal conspiracy – an agreement among manufacturers not to deal with Cascades except through RPX – and a vertical conspiracy, i.e., an agreement between each manufacturing defendant and RPX. “[W]hile the [amended complaint] alleges a written agreement between RPX and each Manufacturing Defendant which permits individual negotiation, it also suggests that in this instance each Manufacturing Defendant understood that it should refrain from exercising its right to negotiate individually with Cascades and instead deal with Cascades either through RPX or not at all.”
The Court also rejected various other arguments advanced by the defendants, including the argument that defendants did not want to deal with Cascades individually because Cascades had overpriced its patents. While that theory was “plausib[le],” the Court did “not find it so fully and convincingly explanatory as to render Cascades’ revised allegations implausible by comparison.” The Court also determined that the conspiracy alleged by Cascades “makes economic sense because it would permit potential licensees . . . to realize RPX’s publically stated promise of ‘wholesale’ pricing, provided they refrained from competitively bidding against each other and sent RPX to the market in their stead, where it would be the sole viable purchaser.”
Cascades raises novel issues involving the application of antitrust law to the activities of defensive patent aggregators. It will be interesting to see how the case develops after discovery is completed.
(*) Cascades voluntarily dismissed its claims against LG and did not name Dell as a defendant in its amended complaint.
Trademarks are commonly thought to convey no market power. In RJ Machine Co. v. Canada Pipeline Accessories Co., Case No. 1:13-cv-00579-SS (W.D. Tex. Nov. 22, 2013) (Sparks, J.), the court dismissed antitrust claims predicated upon alleged trademark misuse – but interestingly left the door (slightly) open to future claims based on similar conduct.
The case involves flow conditioners in oil pipelines. The defendant had a patent on a type of flow conditioner which expired in 2011. The defendant also obtained a trademark registration for the terms “50E” and “CPA-50E” for certain flow conditioners. Additionally, the defendant allegedly claims the design of its 50E flow conditioner comprises non-functional, distinctive, and protectable trade dress.
The plaintiff (a potential market entrant) claimed that the defendant threatened to sue if the plaintiff advertised or marketed a flow conditioner using the design taught in the expired patent or used the term “50E” to identify its flow conditioner, and brought antitrust and other claims. The court dismissed the antitrust claims because the defendant was allegedly enforcing registered trademarks, and the exercise and enforcement of those marks could not be a “sham” or in “bad faith” under a Noerr-Pennington type analysis.
However, the court did not entirely agree with the defendant that enforcement of trademarks and claimed trade dress can never be considered an antitrust injury because the plaintiff “in order to escape the clutches of an alleged trademark monopoly” can just market its product under a different name. The court noted that
RJ Machine contends the term “50E”, based on the history and development of the market for this product, is the only term consumers associate with this flow conditioner. In addition, according to RJ Machine’s allegations, Canada Pipeline has been able to “lock in” consumers of 50E conditioners because they can only be replaced by flow conditioners with the same 50E design. The anticompetitive argument is even more persuasive when it comes to trade dress. If the 50E design is as functional as RJ Machine alleges, it would be difficult, if not impossible, for RJ Machine to compete in the flow conditioner market without using the same functional design Canada Pipeline is claiming to be its trade dress.
The decision thus leaves open the theoretical possibility that in certain unusual situations, trademark assertion or misuse could lead to antitrust injury.
In Surface Supplied, Inc. v. Kirby Morgan Dive Systems, Inc., 2013 U.S. Dist. LEXIS 143478 (N.D. Cal. Oct. 3, 2013) (Chesney, J.), the Court dismissed attempted monopolization and monopolization counterclaims with leave to amend. The Court found a number of defects in the claims, which were grounded in allegations that Kirby had filed anticompetitive litigation.
The Court drew a sharp line between two types of sham litigation claims. If the alleged anticompetitive behavior consists of bringing a single sham lawsuit (or a small number of such suits), the antitrust plaintiff must demonstrate that the lawsuit was (1) objectively baseless and (2) a concealed attempt to interfere with the plaintiff’s business relationships. Kottle v. Nw. Kidney Centers, 146 F.3d 1056, 1060 (9th Cir. 1988). On the other hand, if the alleged anticompetitive behavior is the filing of a series of lawsuits, the question becomes not whether any one of them has merit – some may turn out to, just as a matter of chance – but whether they are brought pursuant to a policy of starting legal proceedings without regard to the merits and for the purpose of injuring a market rival. See id.
SSI alleged a “pattern and practice” of filing a series of lawsuits, but identified only two. Therefore, the Court held, it had not alleged a series-type sham litigation claim. But if SSI intended to rest its claim on anticompetitive behavior from the two lawsuits it expressly referenced, it failed to plead any facts showing those lawsuits to be objectively baseless. “In sum, SSI fails to adequately plead the first element of a claim for attempt to monopolize.” (The monopolization claim failed for the same reason.)
In short, “sham” litigation claims require appropriate factual support – conclusory, naked allegations are often insufficient.
In Somers v. Apple, Inc., Case No. 11-16896 (9th Cir. Sept. 3, 2013), the Ninth Circuit affirmed the district court’s dismissal of a putative class action against Apple, Inc., alleging antitrust violations in connection with Apple’s iPod and its Tunes Music Store. The case illustrates the dangers of failing to adequately allege a price effect caused by a defendant’s purportedly anticompetitive conduct.
On behalf of a putative class, Somers alleges that she suffered injury in the form of inflated music prices. The premise of her overcharge theory is that Apple used software updates to thwart competitors (e.g., Real Networks) and gain a monopoly in the music download market, which permitted Apple to charge higher prices for its music than it could have in a competitive market. Specifically, Somers alleges that if Apple had not engaged in anti-competitive conduct to exclude Real Networks from the market, “it would have had to price Audio Downloads to compete on price with Real Networks.”
(Slip Opinion at 19-20.)
But, unfortunately for Somers, her allegations did not square with her overcharge theory. Apple’s price for music downloads remained stable before the time it allegedly acquired a monopoly and afterwards.
if Somers’ overcharge theory were correct, then Apple’s music prices from 2004 to 2008 were supracompetitive as a result of software updates that excluded competition, and the emergence of a large seller such as Amazon would have caused iTS [iTunes] music prices to fall. But Somers alleges no such price reduction. Somers’ overcharge theory is thus implausible in the face of contradictory market facts alleged in her complaint. As Somers herself acknowledges, under basic economic principles, increased competition—as Apple encountered in 2008 with the entrance of Amazon—generally lowers prices.
(Id. at 20.) “The fact that Apple continuously charged the same price for its music irrespective of the absence or presence of a competitor renders implausible Somers’ conclusory assertion that Apple’s software updates affected music prices.” (Id. at 21.)
The Ninth Circuit agreed that price “is only one possible indicator in assessing competitive markets. Monopoly power may be evaluated by other factors, such as barriers to entry or structural evidence of a monopolized market.” (Id. at 21.) “But if Apple did not charge inflated prices for its music, then this fact contradicts Somers’ overcharge theory, and there would be no basis for damages in the first place.” (Id.)
While Somers suggested that it was conceivable that Apple’s music was not priced higher because of some other factor, such as superior product or greater efficiency, the court found that to state a plausible antitrust injury, a plaintiff must allege facts that rise beyond mere conceivability or possibility. “We are only left to speculate on what factors could have permitted Apple to charge 99 cents continuously.” (Id. at 22.) Somers therefore failed to plead a plausible, non-speculative claim.
Modern antitrust law’s focus on inter-brand competition has made it much more difficult to plead and prove single-brand market claims. The law’s concern with inter-brand competition is so strong that some observers have all but written off such claims as essentially impossible to maintain.
But that would be a mistake. Proper, careful pleading in appropriate cases can at least take single-brand claims past a motion to dismiss.
For example, on August 2, the Northern District of California denied a motion to dismiss challenging antitrust claims arising out of the National Football League’s exclusive license deal with Reebok International, Inc. See Dang v. San Francisco Forty Niners, et al., Case No. 5:12-CV-5481 (EJD) (August 2, 2013) (Davila, J.). The court held that the putative class plaintiffs had adequately alleged a relevant market for the licensing of the trademark, logos, and other emblems of individual NFL teams for use in/on clothing.
True, the court noted that the plaintiffs had alleged “a market consisting of the intellectual property of at least thirty different and competing professional football teams as well as the intellectual property owned by the NFL itself.” But in doing so, it was rejecting the defendants’ argument that the market was “sports apparel or apparel in general.” Because the NFL decides which teams are its members, NFL-branded products in some sense constitute or belong to a single brand. As the court wrote, “the logos and trademarks of the NFL and NFL teams may very well be the products themselves that consumers seek to￼￼￼￼￼￼purchase” (emphasis added).
The court in Lima LS PLC v. PHL Variable Ins. Co., Case No. 3:12-cv-1122 (WWE) (July 1, 2013) (Eginton, J.), was even clearer that a single-brand product market can be cognizable. There, the plaintiff advanced a Kodak-type aftermarket lock-in claim and alleged that the defendant insurance company monopsonized, or attempted to monopsonize, the secondary market for its own life insurance products. (Full disclosure: I worked on the briefs for the plaintiff.)
It is certainly true that it is not easy to prevail upon these sorts of claims — but it is not in all cases impossible.