Security Tag Plaintiffs Knock Down Specificity Challenge To Complaint

A federal judge in Ohio has ruled that the heightened pleading standard set by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly does not require plaintiffs to specify lost profits or to name the market participants injured by allegedly anticompetitive distribution agreements for the electronic security tags that merchants use to protect their merchandise.

Judge John Adams rejected Checkpoint Systems Inc.’s motion to dismiss the complaint filed by Universal Surveillance Systems in Universal Surveillance Corp., v. Checkpoint Systems, Inc., No. 11-cv-01755 (N.D. Ohio).  Universal Surveillance Systems alleges that Checkpoint has been suppressing competition in the electronic security tag market by using long-term, anticompetitive distribution agreements.  

At the heart of the dispute is technology known as electronic article surveillance (EAS) or, as the court aptly described it, “the small security labels that often trigger alarms when one attempts to leave a store.”

According to Universal Surveillance Systems, Checkpoint, which controls roughly 80 % of the market, originally offered to make a distribution deal with Universal Surveillance Systems that would have precluded Universal Surveillance Systems from selling goods from competitors to Checkpoint’s customers.  When Universal Surveillance Systems refused the deal, Checkpoint began making deals that prohibited its customers from doing business with Checkpoint’s competitors and bundled Checkpoint’s EAS tags with its EAS monitoring towers (the tall, plastic or metal towers you walk between when entering or exiting a store). 

Checkpoint also argued that the market class, which was identified as food and drug retailers, was insufficiently defined, and that the complaint needed to name injured market participants and specify the lost profits or sales that they had suffered.  The court rejected these arguments, noting that “such a precise pleading standard has never been adopted.”