A justice of the British Columbia Supreme Court has ruled that an alleged worldwide diamond cartel led by rough diamond seller De Beers had sufficient anticompetitive impact on Canadian consumers to enable a price-fixing class action to survive a motion to dismiss at the pleading stage.

The plaintiff alleges that De Beers and the other defendants sought to eliminate competition in the sale of gem grade diamonds in British Columbia, Canada, and elsewhere, by fixing the price of gem grade diamonds and allocating the market for gem grade diamonds.

De Beers had argued that the court lacked jurisdiction of the claims in Fairhurst v. Anglo American PLC because only one of the defendants did any business in British Columbia.  And all defendants traded only in rough diamonds, not the gem grade diamonds purchased by consumers like the plaintiff.  De Beers argued that the defendants were far higher in the “diamond pipeline.”  In the words of its expert, “any connection between the Defendant’s sales of rough diamonds on the one hand and the Plaintiff, other Proposed Class Members and any diamond jewelry purchases made in British Columbia on the other hand, is remote in the extreme.”

Madam Justice B.J. Brown, however, concluded that De Beers was not only higher in the “diamond pipeline”– it more or less owned the pipeline.  The court noted that De Beers was long the largest producer of rough diamonds in the world, acted historically as the “diamond industry custodian,” and “possessed a degree of monopoly power in the rough diamond market for over a century.”

Drawing upon jurisdictional authority to hold foreign manufacturers liable for knowingly sending hazardous products into the stream of commerce in Canada, the court ruled that a “tortious conspiracy” such as the alleged worldwide diamond cartel is said to occur wherever damage from the conspiracy is suffered:  “The defendants do not suggest that ‘their’ diamonds were not sold in British Columbia.  The diamonds arrived in British Columbia in the ordinary course of De Beers’ business, and the defendants knew or ought to have known that the product would be sold in British Columbia.”

The court deemed allegations of a diamond cartel whose aim was to “creat[e] an overcharge” that would necessarily harm consumers was sufficient to give the court jurisdiction at this stage in the litigation.

Savant alleges that Crestron is the largest supplier of high-end home automation systems – equipment that controls everything from audio/video and lighting systems to climate and security, and costs from $25,000 to $100,000 to install – with a market share of over 80 percent. 

According to Savant, the market is particularly constrained by the fact that automation products are not sold directly to consumers, but through local dealer networks.  The vast majority of these dealers – 80 to 90 percent – are Crestron dealers.  Savant says Crestron offers discounts to dealers who refuse to carry Savant and penalizes those who do.  According to the complaint, Crestron’s misconduct is exemplified by a recent guide telling dealers, “Remember, you can’t be a Crestron dealer and also sell Savant products.” 

Savant has alleged that these and other exclusionary activities are designed to restrain competition by precluding Savant’s access to the dealer network and protect Crestron’s monopoly.  The suit also alleges that Crestron published false information about Savant, such as “asserting that only Crestron has an exclusive relationship with Apple . . . .”  Other allegedly false statements include Crestron’s warning to customers that “when you buy Savant, you buy Savant – a one-room storefront on Cape Cod – not Apple.” 

Judge Harrington of the U.S. District Court for the District of Massachusetts rejected Crestron’s arguments in a two-paragraph order, setting the stage for full-blown discovery and inevitable re-examination at summary judgment.  The market for programmable home (and commercial) automation technology, currently more than $200 million annually, appears to be growing rapidly.

Skyrocketing gas prices may be getting an extra boost from anticompetitive conduct according to some Democratic legislators that are urging the Federal Trade Commission to investigate possible anticompetitive conduct by gasoline refineries.

Last week, Democratic senators, including Senators Claire McCaskill, Charles Schumer, Patty Murray and Senate Majority Leader Harry Reid, asked the FTC to investigate whether gasoline refiners have restrained supply of gasoline in order to increase prices.  In a letter to Jon Leibowitz, the Chairman of the FTC, they questioned whether U.S. inventories may have been kept artificially low in order to maintain high gas prices, citing evidence that “refineries are using only 81.7 percent of their capacity, a decline of 7 percent from the same time last year.” 

D.C. and Maryland attorneys general also recently announced investigations.

D.C.’s Attorney General is investigating Capitol Petroleum Group (“CPG”), D.C.’s largest owner of gas stations, for potential anticompetitive practices.  CPG owns/operates a large number of gasoline stations in D.C.  The investigation will center on whether CPG’s gas station holdings represent an illegal monopoly under D.C.’s antitrust law, and might also look into CPG’s primary owner’s dual role as a gas station owner and gas wholesaler through another company called DAG Petroleum.  Four years ago, the D.C. Council repealed a law prohibiting wholesalers from owning individual service stations based on competition concerns.  It might be revisiting that decision.  CPG’s owner in a statement argued that the gas stations he owns are managed by individual franchisees which independently set the price of gas at the pump.

Maryland’s Attorney General is investigating “sudden and dramatic” increases in gas prices at a number of Maryland stations supplied by Empire Petroleum Holdings.  Empire, a distributor, apparently told its retailers that prices had to be raised about 25 cents a gallon because of the Mississippi River flooding.

Both target companies are contesting allegations of anticompetitive conduct.

Bob Marley may have been the first Reggae superstar and the writer of such hits as I Shot The Sheriff, but he is not a product market, according to a California federal judge.

The U.S. District Court for the Central District of California has dismissed the antitrust claims in Rock River Communications Inc. v. Universal Music Group Inc., rejecting Rock River’s theory that reggae music – and Bob Marley in particular – is a relevant product market that Universal was monopolizing. 

The litigation stems from Rock River’s 2006 release of remixed Bob Marley and the Wailers recordings titled “Roots, Rock, Remixed.”  Universal, which claimed to have the exclusive right to these recordings, sent “cease and desist” letters to several major music distributors, including Apple Inc.’s iTunes, Amazon and Virgin, who promptly pulled the album from their shelves. 

In response, Rock River sued Universal alleging that it violated Sections 2 and 7 of the Sherman Act by (1) attempting to monopolize the reggae genre of sound records in the United States; and (2) restraining trade and threatening to create a monopoly.  Rock River also sued Universal for allegedly interfering with its prospective economic advantage by sending the cease and desist letters.

Despite nearly three years of litigating the case, Rock River offered paltry evidence as to product market definition, market power and barriers to entry.  In particular, Rock River argued that Universal had monopoly power based on the percentage of Bob Marley albums it has sold.  Rock River alleged that Universal “accounted for 81 percent of the reggae sound recordings sold, and Bob Marley recordings accounted for 76 percent of the total reggae recordings sold.”  In formulating these market share numbers, Rock River simply presented a declaration from a lay witness.  Moreover, Rock River essentially agreed with defendants that there were no barriers to entry in the market for reggae music.

Based on Rock River’s failure to show that there were any genuine issues of material fact, the court granted Universal’s motion for summary judgment on the antitrust claims.  The court held that plaintiff’’s proposed product market was “too narrow to be relevant for antirust purposes” as it focused on Bob Marley sound recordings, rather than reggae music as a whole.  The court noted, however, that even if the product market were a single genre of music, Rock River failed to offer evidence regarding either price-sensitivity of the market or that other genres of music are not a reasonable substitute for reggae music.

Finally, the court found that Rock River presented “no cognizable evidence” with respect to market share or any evidence showing that there are barriers to entry in the alleged market. 

The court allowed Rock River’s claim for interference with prospective economic advantage to go forward, finding that there is a question of fact regarding whether Universal indeed had the exclusive right to sell the recordings at issue.

Although Microsoft’s epic antitrust battle with the U.S. Department of Justice officially comes to an end tomorrow, with the expiration of the government’s decade-long oversight of the software giant, Microsoft has learned that another antitrust challenge has just received a new lease on life.

The United States Court of Appeals for the Fourth Circuit has revived the antitrust action Novell filed against Microsoft involving Novell’s office software applications WordPerfect and Quattro Pro.  Last year, the U.S. District Court in Maryland dismissed Novell’s antitrust claims.

The Fourth Circuit has now held that Novell is free to pursue an antitrust claim even though Microsoft settled a related suit with another company, Caldera, Inc., for $280 million.  The Fourth Circuit ruled that Novell’s sale in 1996 of its desktop operating system business to Caldera did not prevent it from seeking damages from Microsoft for allegedly using its monopoly power in the operating systems market to squash Novell’s office applications.

In 1996, Novell made a deal assigning certain rights to sue Microsoft to Caldera.  Caldera sued Microsoft over competition in the operating system market, receiving a $280 million settlement four years later, of which Novell received a $35 million share.  Then in 2004, Novell sued Microsoft in its own right, claiming WordPerfect was the victim of unfair competition by Microsoft, and last year Microsoft won summary judgment against Novell in that case on the grounds that Novell’s claims were subject to the 1996 agreement with Caldera.

But whereas the district court held that Novell signed away its software application claims to Caldera along with the operating system claims, the appeals court refused to abandon distinctions between the products harmed by Microsoft’s allegedly anticompetitive practices and will allow Novell to proceed with its one remaining antitrust claim.

Novell, which was purchased by Seattle-based Attachmate, Inc. last month, is seeking several billion dollars in treble damages under the antitrust laws.

Adobe Systems Inc. has been hit with an antitrust class action in federal court by Free FreeHand Corp., a non-profit group, and graphic design professionals and consumer users of FreeHand, the vector-graphic illustration software product acquired by Adobe several years ago.

The complaint in Free FreeHand Corp. et al. v. Adobe Systems Inc., 5:11-cv-02174 (N.D. Cal.), alleges monopolization in violation of the Sherman Act § 2 as well as violations of California’s antitrust statute, the Cartwright Act, and the State’s broad-sweeping Unfair Competition Law.  The complaint also seeks relief under Washington’s antitrust and unfair competition statutes.

The complaint alleges that when Adobe bought Macromedia Inc. in 2005 and acquired the FreeHand software, it did so to monopolize the market for vector-graphic illustration software by eliminating competition for its own software product, Illustrator, the chief competition for FreeHand in the professional graphic software market.

Plaintiffs allege that Adobe has a 100% share of Mac users and an 80% share of Windows users in the relevant market.  The complaint excludes so-called “hobbyist” level vector-graphic illustration software from the alleged market, such as Serif DrawPlus, Xara X, Draw well, Photoline, Inkscape, Lineform, Sketsa SVG editor, Zeusdraw, Easy draw, and Intaglio.  The complaint also excludes computer-aided design programs, bitmap graphic illustration and page layout software from the alleged market.

Adobe likely will challenge the market definition vigorously as that threshold issue could determine whether Adobe is found to have market power. 

Free Freehand alleges that Adobe monopolized the market by acquiring the competing software, then raising the price of Illustrator and at the same time failing to update FreeHand.  It also alleges that Adobe tried to eliminate FreeHand from the market completely by announcing that it would stop developing FreeHand in 2007 and by publishing documents detailing how consumers can migrate from FreeHand to Illustrator.

The complaint, however, may be vulnerable to an argument by Adobe that the claims are barred by the applicable four-year statutes of limitations.  If the complaint survives a motion to dismiss, Adobe is also likely to argue that the plaintiffs’ claims encroach on its product design decisions which were undertaken for legitimate and procompetitive reasons. 

In addition to seeking damages for purported overcharges, the complaint seeks a divestiture of Freehand source code to turn it into an open-source competitor of Illustrator.

Adobe won antitrust clearance from U.S. regulators in 2005 for the acquisition of Macromedia Inc., the developers of FreeHand, which cleared the way for the $3 billion deal.  Approval came after U.S. Justice Department officials issued a second request to take a closer look at the design and vector-graphics illustration products at issue in the complaint.

U.S. Airways is seeking to ground high-flying Sabre Holdings Corp. – which runs the largest U.S. global distribution system linking travel agents with airline fares and other services – for allegedly engaging in monopolistic acts.

U.S. Airways has filed an antitrust lawsuit against Sabre in the U. S. District Court for the Southern District of New York.  The airline’s complaint in U.S. Airways, Inc., v. Sabre Holdings Corporation et al., No. 11 CV 2725 (SDNY), alleges that Sabre has suppressed the ability of travel agents to book tickets directly with airlines, and that it used anti-competitive practices to force the airline into an unfair agreement.

According to U.S. Airways, Sabre threatened to pull U.S. Airways’ listings from its services, which includes the reservations systems used by online travel agency Travelocity, potentially forcing U.S. Airways into bankruptcy because the Sabre Global Distribution System accounts for 35 percent, or about $3.5 billion, of U.S. Airways’ revenues.

Sabre responded to the suit by stating that the antitrust claim was a “misguided attempt by an airline” to undermine a distribution model that “has brought competition to the airline industry,” and that Sabre would “aggressively defend against US Airways’ lawsuit, pursue our own legal rights and take appropriate action to protect consumers’ right to a transparent marketplace.”

The case is just the latest development in a wave of antitrust suits against the global distribution system in the airline sector.  In January, American Airlines sued Sabre on similar grounds, saying that it could lose “countless sales” if Sabre were permitted to give preference to other airlines in flight listings.  American accused Sabre of anticompetitive behavior by slanting information viewed by travel agents before they book flights.  That action is on hold until June 1 as the parties try to reach an agreement.

And just last week, American sued online travel agency Orbitz Worldwide and its largest stakeholder, Travelport, over “anticompetitive business practices” for trying to control the distribution of airline tickets.  In that suit, American contends that Travelport and Orbitz violated Sections 1 and 2 of the Sherman Act by using their control over the distribution of air fare information to maintain their monopoly power and to hinder the development of alternative technologies that could help consumers find cheaper fares.  American pulled its listings from Orbitz and Expedia in December after those services declined to include American’s Direct Connect reservation system for its listings.

In contrast to American, U.S. Airways signed a multiyear content agreement with Expedia in January.  U.S. Airways touted this agreement in announcing its first quarter of 2011 financial results in a section entitled “Notable First Quarter Accomplishments.”  There is no mention among its notable first-quarter accomplishments of U.S. Airways’ agreements with Sabre and Travelocity in February.  Instead, although the action occurred in April, after the first quarter ended, U.S. Airways noted among its “accomplishments” that it filed an antitrust lawsuit against Sabre.

A federal court has decided that Digital Sun’s wireless sprinkler system may be innovative, but its claims of anticompetitive conduct by competitor Toro Company are all wet.

Judge Lucy Koh of the U. S. District Court for the Northern District of California has ruled that that Digital Sun’s antitrust complaint in Digital Sun v. The Toro Company falls well short of pleading standards, and dismissed all claims without oral argument.  Digital Sun, a small Silicon Valley startup that invented and markets a wireless sprinkler system, sued Toro, a worldwide manufacturer of outdoor maintenance equipment and associated products with 2010 net sales of $1.69 billion, for attempted monopolization of the wireless sprinkler market under Section 2 of the Sherman Act, unfair competition under California law, and fraud.

The grounds for this lawsuit can be traced to a proposed deal for Toro to take over Digital Sun.  During negotiations, Toro made a series of loans to Digital Sun and, in return, Digital Sun granted patent licenses (one exclusive license and one nonexclusive license) to its wireless sprinkler technologies to Toro.  When negotiations fell apart, Digital Sun filed this action after it realized that Toro now had patent rights to Digital Sun’s only product line.

In its complaint, Digital Sun alleged that Toro attempted to monopolize the wireless sprinkler market by engaging in bad faith negotiations to take over Digital Sun when all Toro really wanted was patent licenses for Digital Sun’s technologies.

Judge Koh found that Digital Sun failed to sufficiently allege its monopolization claim, including its allegations that Toro possessed market power and engaged in anticompetitive conduct.  The court observed that Digital Sun made no allegations of market share in its complaint other than ownership of patent rights in a particular type of wireless sprinkler technology.  In addition, Digital Sun acknowledged Toro did not hold Digital Sun’s patent rights in their entirety, and the license agreements actually created another competitor in most fields of use.  According to Judge Koh, these facts, as pled, could not give rise to findings of market power or anticompetitive conduct.

The court also found that Digital Sun did not sufficiently plead anticompetitive injury.  Despite the plaintiff’s allegations of bad faith negotiations by Toro, Judge Koh pointed out that Digital Sun was never forbidden from selling its product and was free to negotiate with other potential buyers.  Moreover, in the fields that Digital Sun cannot sell because of Toro’s exclusive license, Toro has simply replaced Digital Sun as the monopolist and, accordingly, the competitive landscape was unchanged.

The claims for unfair competition under California law and fraud likewise failed to pass muster.

This case showcases the challenges plaintiffs face when pleading patent-based antitrust claims, especially under the heightened pleading requirements of Twombly and its progeny.  Nevertheless, Judge Koh allowed Digital Sun to file an amended complaint to cure the pleading defects but cautioned the plaintiff that its “own arguments leave the Court with doubts as to whether these claims can be resurrected.”

In addition to antitrust, Constantine Cannon has an environmental and sustainability practice and represents green technology companies profiting from wise resource use.  These different disciplines that we work in are reflected in a recent filing we noticed in the federal district court for Connecticut, Environmental Products Corp. (“Envipco”). v. Tomra of North America, Inc. (D. Conn. filed Nov. 4, 2010).

In Envipco, both plaintiffs and defendants are in the business of manufacturing and operating Reverse Vending Machines (RVMs), which collect deposit bottles and cans and refund the deposit.  The RVM company must then sort the containers of each manufacturer and return each one’s bottles and cans to it.  The suit alleges that a good pick-up service for the cans to return them to their manufacturers requires that each firm have a concentrated customer base and collection route, requiring a contract with at least one major supermarket chain in which the RVM company operates.  Envipco says that Tomra has entered into exclusive RVM contracts with 12 of 20 major supermarket chains that account for the majority of RVM use, foreclosing Evipco from a substantial portion of business in the bottle bill states that constitute the relevant market or markets.  Moreover, Tomra is alleged to have entered into equity-based partnerships with beverage manufacturers, precluding Envipco from a substantial portion of the can and bottle pickup business, forcing Envipco to turn to Tomra for that function in those places, and causing Envipco to lose underlying RVM business.  Envipco also alleges that Tomra engaged in deceptive billing practices to lure in customers and forged joint ventures with key players in the market, “denying competitors the ability to compete on a level playing field.”

The complaint also claims that Tomra is negotiating to buy another reverse vending company, Can & Bottle Systems Inc., that has monopoly power in Oregon.  Tomra and Envipco are alleged to be the only significant competitors in the U.S. in this particular market, with Tomra enjoying a 70 percent market share — or 77 percent, if the company is successful in its plans to acquire Can & Bottle.

Asserting claims under the Clayton Act and the Sherman Act, the complaint, citing to Tomra’s alleged monopoly power and market manipulation, seeks compensatory, punitive and treble damages and an order blocking Tomra from entering into long-term exclusive contracts with customers.

Businesses such as these that promote the effective use of bottle bills that recycle cans and bottles are a positive in the environmental marketplace.  The suit raises important antitrust concerns and we will monitor its progress.

A class of more than 4,500 dairy farmers spread across 11 southeastern states in two geographic markets has been certified by Judge J. Ronnie Greer of the U. S. District Court for the Eastern District of Tennessee in a case alleging a conspiracy to monopolize the production, marketing and processing of milk.

The dairy farmers allege multiple claims of antitrust conspiracy against Dean Foods Company (the nation’s largest dairy processor), National Dairy Holdings, L.P., Dairy Farmers of America, Inc., and other defendants.

The class is divided into two subclasses.  One is comprised of roughly 3,000 farmers who are members of the Dairy Farmers of America and the other consists of independent and cooperative dairy farmers.  All class members sold grade A milk to the defendants from January 1, 2001, to the present.

In opposing class certification, the defendants argued that the two subclasses have a “fundamental and irremediable conflict of interest” because the Dairy Farmers Association subclass members benefited from the alleged unlawful behavior at the expense of the independent farmers.  While Judge Greer found this aspect of the case “troubling,” he granted certification because the defendants failed to provide any testimony supporting their argument, rendering it “somewhat hypothetical.”  Judge Greer noted, however, that he may decertify or modify the class if evidence supporting the defendants’ argument can be established.

Judge Greer rejected class certification for a breach of contract claim brought on behalf of farmer-members of the Dairy Farmers Association because the claim necessarily would require each class member to individually demonstrate membership in the association at the time of the alleged breach, making the contract claim “not susceptible to class action treatment.”