Distribution, Competition, and Antitrust / IP Law

TFT-LCD Antitrust Court Addresses Quantum of Proof for Class Impact and Refuses to Exclude Plaintiffs’ Economists

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (Feb. 21, 2012) (Illston, J.)

Judge Illston refused to exclude indirect purchaser plaintiffs’ economics experts. In doing so, the Court addressed the necessary quantum of proof for class impact in an indirect purchaser case.

The indirect purchaser plaintiffs indirectly purchased TFT-LCD panels made by the defendants. They allege price-fixing, and seek injunctive relief under federal law and damages under state antitrust law. Plaintiffs retained two experts, Drs. Janet Netz and William Comanor, who concluded that defendants’ alleged cartel increased prices to direct purchasers (by around 12%), who in turn passed on overcharges to indirect purchasers, resulting in some $3 billion in alleged damages.

Defendants argued that the case was not amenable to class treatment, because plaintiffs could not show “with certainty” that class members were impacted. However, the Court rejected this argument. “[P]laintiffs need not be able to articulate the precise degree to which every individual class member was injured; it suffices to show that it was more likely than not that classwide impact occurred.” According to the Court, the nature of the industry rendered defendants’ proposed standard inappropriately strict; plaintiffs asserted that TFT-LCD panels are fungible commodities. “It is therefore unnecessary for plaintiffs to provide evidence of panel-by-panel impact. Rather, plaintiffs may resort to generalized methods of proof.”

In short, the Court held that “[p]laintiffs need not identify the overcharge on each and every panel sold to direct purchasers, and they need not trace that specific overcharge through the manufacturing and retail chains to the ultimate purchaser. The fact that plaintiffs lack perfect proof does not mean that plaintiffs lack any proof at all.”

The Court then addressed defendants’ related argument that the experts’ economic regression analyses, while relevant to damages, cannot be used to establish either impact to direct purchasers or pass-through to indirect purchasers. Because the Court had determined that plaintiffs need not establish, to a certainty, class members’ injuries on an LCD panel-by-panel basis, the Court rejected this argument – at least in its categorical form. “Even if regression models are not enough, standing alone, to establish classwide impact, they may nevertheless be relevant to the issue. A large average overcharge, for example, might make it more likely that every direct purchaser was overcharged to some degree.” The Court declined to preclude the experts from testifying that their models establish impact, but agreed to let defendants renew their objections when the experts’ specific testimony is before the Court.

The Court then turned to, and rejected, defendants’ various specific arguments about the experts’ regression analyses, finding that they did not render the testimony inadmissible under the Daubert standard.

Sony’s Indirect LCD Purchaser Claims Survive Motion to Dismiss on Foreign Trade Antitrust Improvements Act and Other Grounds

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (Feb. 15, 2012) (Illston, J.)

Sony filed suit against LG as an indirect purchaser of thin-film transistor liquid-crystal display (“TFT-LCD”) panels. In rejecting LG’s motion to dismiss, Judge Illston ruled that allegations of fraudulent concealment were sufficient to toll the statute of limitations.

Judge Illston also rejected LG’s Foreign Trade Antitrust Improvements Act (“FTAIA”) argument, noting that Sony contended that its purchases fell within the domestic injury exception to the FTAIA because its claims were based solely on purchases made in the U.S. LG countered that Sony’s purchases were foreign – and therefore beyond the Sherman Act’s reach – because Sony took possession outside the U.S. of LCD panels and products it purchased. In rejecting this second LG argument, the Court held that it is the location of the purchase, not the ultimate destination of the LCD products, that determines where the injury occurred. Because Sony alleged domestic purchases (Sony alleged that it agreed to pay and paid inflated prices for LCD panels and products from its U.S. headquarters), the Court concluded that Sony had adequately alleged domestic purchases and domestic injury.

Finally, the Court also rejected LG’s antitrust standing argument and LG’s argument that Sony could not assert a stand-alone claim for unjust enrichment.

Monopolization Claims Against Adobe Relating to Acquisition of FreeHand Survive Motion to Dismiss

Free FreeHand Corp. v. Adobe Systems Inc., No. 11-CV-02174-LHK (Feb. 10, 2012) (Koh, J.).

Judge Koh refused to dismiss the bulk of an antitrust complaint Against Adobe Systems relating to its acquisition of FreeHand, a professional vector graphic illustration software. Although Adobe signed an FTC consent order in 1994 requiring it to divest itself of FreeHand after it acquired Aldus, that provision expired in 2005, whereupon Adobe acquired FreeHand by purchasing Macromedia. The plaintiffs alleged a “monopoly broth” of post-merger anti-competitive conduct, including (1) alleged charging of monopoly prices, (2) discontinuing support for and development of FreeHand, (3) bundling of Adobe’s Illustrator product with other Adobe products, and (4) declining to release FreeHand’s source code to the open source community. Although the court determined that declining to release the source code could not be considered as part of the overall effect of Adobe’s alleged anticompetitive conduct, it allowed the other allegations to stand.

 

N.D. Cal. Certifies Antitrust / Arbitration Estoppel Question to Ninth Circuit

In re Apple & AT&TM Antitrust Litigation, No. C 07-05152 JW (Feb. 1, 2012) (Ware, J.)

Judge Ware certified for interlocutory appeal the question of whether a non-signatory may assert equitable arbitration estoppel against a signatory plaintiff.

The case involves a Sherman Act Section 2 / aftermarket claim against Apple. The case arose from the plaintiff’s service contract with defendant ATTM. As part of that service contract, the plaintiff signed an arbitration agreement with defendant ATTM which precluded class arbitrations and class actions.

The district court initially followed Mundi v. Union Security Life Ins. Co., 555 F.3d 1042 (9th Cir. 2009), in finding that equitable estoppel required plaintiff to arbitrate with non-signatory Apple as well. The Mundi court had found a dearth of prior Ninth Circuit precedent, and had looked to other circuits for guidance — in particular, the Second Circuit in Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354 (2d Cir. 2008). The Ninth Circuit allowed the assertion of equitable estoppel where the dispute is “intertwined” with the contract and there is a sufficient “relationship” between the parties.

Plaintiff filed a motion for reconsideration. Because the Apple Court’s prior order “was premised on an interpretation of Mundi which required the Court to undertake an extensive analysis of both that opinion itself and the Second Circuit caselaw to which the Mundi court looked for guidance, and given the language in Mundi which indicates that the Ninth Circuit did not mean to extend the ‘concept of equitable estoppel of third parties’ beyond the ‘very narrow confines’ delineated in previous cases,” the Apple Court found reason to certify the issue of arbitration by equitable estoppel for interlocutory review.

 

T-Mobile’s State Law Claims Dismissed in LCD (Flat Panel) Case

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (Feb. 6, 2012) (Illston, J.)

Judge Illston dismissed T-Mobile’s California and New York state law price-fixing claims, ruling that because T-Mobile did not allege that it had made purchases in California or New York, it could not invoke the laws of those states.  Judge Illston refused to dismiss T-Mobile’s allegations against Sanyo, noting that it had already ruled against Sanyo in connection with Motorola Mobility’s substantially identical claims.

 

Barnes & Noble’s Patent Infringement Affirmative Defenses (Alleging SSO Fraud) Survive Motion to Strike

Barnes & Noble, Inc. v. LSI Corp., No. C-11-2709 EMC (Chen, J.)

On February 2, Judge Chen refused to dismiss affirmative defenses pled by Barnes & Noble against infringement claims concerning patents related to the Barnes & Noble Nook’s 3G, WiFi, and audio technology.  Some of the defenses were based on allegations of unenforceability due to standard-setting misconduct arising from alleged fraud on Standard Setting Organizations (“SSOs”).  In making its ruling, the Court conducted a fairly extensive analysis of the elements (misleading statements or omissions, duty to disclose, essentiality of the patents, intent, and reliance) and whether they were sufficiently pled.  The Court also found that Barnes & Noble had adequately pled that the SSO conduct of Lucent, a predecessor of LSI, could be imputed for purposes of unenforceability of patent rights, even if it could not be imported for purposes of tort-like antitrust liability.

The Court did dismiss two defenses relating to laches and judicial estoppel.

Personal Jurisdiction Exercised Over Taiwanese Company

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. C-10-0117 SI (N.D. Cal. Feb. 1, 2012) (Illston, J.)

Judge Illston refused to dismiss on personal jurisdiction grounds an amended complaint brought by Electrogaph Systems, Inc. and Electrograph Technologies Corp. against Mitsui Taiwan.  The Court found that personal jurisdiction was appropriate because plaintiffs had alleged that Mitsui Taiwan “purposefully directed” conspiratorial activities towards the United States.  The Court noted plaintiffs’ evidence puporting to show that Mitsui Taiwan participated in a price-fixing conspiracy which was aimed, at least in part, at an American company.  It also rejected the arguments that Mitsui Taiwan’s actions did not contribute to the effectiveness of the alleged conspiracy in the U.S. and that Mitsui Taiwan’s communications were merely “inter-affiliate” price discussions that could not support personal jurisdiction.

 

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