A California state appellate court has upheld the denial of class certification in a case brought by consumers alleging that Fresh Del Monte Produce Inc. monopolized the extra-sweet pineapple market in violation of California Unfair Competition Law.

Del Monte was accused in Conroy v. Fresh Del Monte Produce Inc. of attempting to obtain a patent for extra-sweet pineapple – despite knowing that pineapple variety was unpatentable – and then using sham patent litigation to foreclose competition and to charge supracompetitive prices. 

The California Court of Appeal for the First District held that the indirect purchaser class of plaintiffs failed to show that the trial court improperly denied class certification when it decided that substantial individual questions needed to be resolved to establish injury to class members.  Even if liability could have been established, the trial court held that plaintiffs did not meet their burden of showing how members of the class could be notified to participate in any kind of cost effective claims process. 

In 2004, a complaint with similar allegations was filed in federal court in the Southern District of New York on behalf of direct and indirect purchasers.  In 2008, the federal court certified a class of direct purchasers but refused to certify an indirect purchaser class because of issues with manageability. 

In 2009, the plaintiffs in the California action moved for class certification.  The trial court adopted portions of the Southern District’s decision and denied the motion. 

The California appellate court affirmed the trial court’s decision and held that it had acted within its discretion by finding that plaintiffs’ evidence did not overcome the manageability issued identified by the Southern District.

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.”

Judge Ryan Zobel of the U.S. District Court for the District of Massachusetts has denied the motion to dismiss filed in the consolidated class action of In re Prograf Antitrust Litigation by the defendant, organ transplant drug manufacturer Astellas Pharma US, Inc.

Plaintiffs are direct purchasers of Prograf – a brand-name immunosuppressant drug that fights organ rejection following heart, kidney and liver transplants – who allege that its manufacturer, Astellas, violated the antitrust laws by filing a citizen petition with the Food and Drug Administration (“FDA”) that was designed to stave off competition and prolong the drug’s monopoly.  The court’s denial of Astellas’ motion to dismiss means that the direct purchasers’ monopolization claims under Section 2 of the Sherman Antitrust Act will proceed

The plaintiffs claim that Astellas recognized that generic manufacturers would seek FDA approval to sell competing drugs and that Astellas’ citizen petition was “objectively baseless,” and used “to stall the approval of generic manufacturers’ Abreviated (sic) New Drug Applications.” 

In addition to filing a citizen petition with the FDA, Astellas unsuccessfully moved in the District Court for the District of Columbia in August 2009 for a temporary restraining order and preliminary injunction to prevent the FDA from approving generic competing drugs.  Astellas’ motion for injunctive relief was denied by Judge Urbina on August 12, 2009.  Astellas voluntarily dismissed that matter in November 2009. 

Plaintiffs allege that Astellas’ administrative and legal actions “unlawfully continued a monopoly in the market … for up to two years, selling well over a billion dollars of Prograf during that time.” 

Astellas moved to dismiss the class action complaint, arguing primarily that the citizen petition was protected by the Noerr-Pennington doctrine granting immunity to legitimate petitioning activity.  The plaintiffs argued that Noerr-Pennington immunity is inapplicable since the petition “was an objectively baseless ‘sham.’” 

Judge Zobel relied on Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49, 61 (1993), for its two-pronged test to determine whether a plaintiff survives a motion to dismiss on Noerr-Pennington grounds by availing itself of the “sham” exception: whether “(1) defendant’s petitioning activity was ‘objectively baseless’ in the sense that no reasonable petitioner before the agency ‘could realistically expect success on the merits;’ and [whether] (2) … the baseless petitioning ‘concealed an attempt to interfere directly with the business relationship of a competitor through the use of the governmental process … as an anti-competitive weapon.’” 

With respect to the first prong, the judge held that the class plaintiffs properly alleged that the petitioning activity was objectively baseless since, among other things, plaintiffs alleged that (1) “the FDA found no merit to defendant’s petition,” and (2) “the materials provided by defendant failed to support its requested relief and, in particular, … the studies cited contained severe flaws in their methodology and design and reliance thereon was wholly unreasonable.”  The judge likewise found the second prong satisfied because, among other reasons, plaintiffs alleged that “Prograf sales were $929 million for 2009, giving Astellas an incredibly strong financial incentive to extend its position as the sole … provider” and “Astellas’ citizen petition had the actual effect of delaying generic entry.”

Class representatives and their counsel in the Vitamin C Antitrust Litigation have won another initial round in their suit alleging that Chinese vitamin C manufacturers conspired to fix prices and to limit the output of vitamin C exported to the United States.

Federal Judge Brian Cogan of the Eastern District of New York has rejected all but one of defendants’ arguments seeking disqualification of class representatives and class counsel in Animal Science Products, Inc., et al. v. Hebei Welcome Pharmaceutical Co., Ltd. et al., 2012 WL 251909 (E.D.N.Y. 2012).  Judge Cogan had previously denied defendants’ motions to dismiss on foreign sovereign compulsion and related comity grounds.

The four main defendants are Hebei Welcome Pharmaceutical Co. Ltd.; Jiangsu Jiangshan Pharmaceutical Co. Ltd.; Northeast Pharmaceutical Co. Ltd.; and Weisheng Pharmaceutical Co. Ltd.  Plaintiffs The Ranis Company and Magno–Humphries Laboratories, Inc. (“MHL”) moved for class certification on behalf of a group of direct purchasers seeking treble damages against all defendants except Northeast Pharmaceutical Co. Ltd.  Plaintiff Animal Science Products, Inc. moved separately for certification of a class of direct and indirect purchasers seeking injunctive relief against all defendants, including Northeast.

Judge Cogan granted class certification on behalf of a damages class represented by Ranis, but concluded that MHL could not serve as class representative because it is not a member of the class it seeks to represent.  The court also granted certification of an injunction class represented by Animal Science.

In certifying representatives for a damage class under Federal Rule of Civil Procedure 23(b)(3) and an injunctive relief class under Rule 23(b)(2), Judge Cogan made three key rulings:  (1) the “own and control” exemption to the ban on indirect-purchaser damage claims under the rule of Illinois Brick v. Illinois, 431 U.S. 720 (1977), does not permit a plaintiff to sue a defendant based on purchases from a subsidiary; (2) a plaintiff whose claim was assigned and had no actual purchases from a defendant could serve as a class representative; and (3) a wholesale direct purchaser had no conflict of interest in representing a class containing retail direct purchasers, even though a wholesale purchaser might favor higher retail prices.

While Judge Cogan rejected most of defendants’ challenges to the plaintiffs’ representative status, the court did deny class representative status to MHL, a purchaser from a defendant’s subsidiary.  Judge Cogan held that under Illinois Brick, MHL could not represent the direct purchaser class since MHL had only purchased from a subsidiary of a defendant.

Judge Cogan rejected defendants’ argument that plaintiff Ranis could not be a class representative because it only had an assigned claim from a direct purchaser and had not itself purchased any vitamin C from defendants.  Defendants had claimed that there is a “rule” prohibiting assignment of a class membership.  Judge Cogan held that no such rule existed.

Similarly, Judge Cogan rejected defendants’ argument that Ranis, as an assignee of a wholesale purchaser, had a conflict of interest with many class members who were retail purchasers, and thus should be disqualified as a class representative.  The court disagreed that there was any conflict, holding that “Ranis and the rest of the class, including the end-users, have precisely the same goal in this case: to demonstrate that the defendants’ alleged antitrust violations caused each plaintiff to purchase vitamin C at an artificially inflated price.”

Judge Cogan also held that that inclusion of indirect purchasers in the injunctive class did not create a conflict of interest between direct and indirect purchasers.  Moreover, inclusion of indirect purchasers in the Rule 23(b)(2) injunctive class did not demonstrate that class counsel had prejudiced the state law claims of the indirect purchasers – making them inappropriate as counsel to the class – because inclusion of indirect purchasers in a Rule 23(b)(2) settlement should not extinguish their subsequent state-law claims, if any, on res judicata grounds.

A federal judge in Oregon has certified a class of fishermen in an antitrust lawsuit against Pacific Seafood Group, the nation’s largest seafood company.

The plaintiffs in Whaley et al. v. Pacific Seafood Group, et al. claim that defendants, Pacific Seafood and Ocean Gold Seafoods, Inc., used market shares of 50 to 70 percent to monopolize the Dungeness crab, Oregon coldwater shrimp, groundfish, and whiting seafood markets, and conspired to pay plaintiffs below-market prices for fish.

U.S. District Judge Owen M. Panner’s grant of class certification is a significant victory for plaintiffs alleging that commercial fishing vessel owners and fishermen were damaged by alleged anticompetitive practices of Pacific Seafood and Ocean Gold.

The defendants had argued that the numerosity requirement was not met and that there was insufficient harm alleged.  However, the attorneys for Pacific Seafood and Ocean Gold were unable to convince Judge Panner that the lawsuit did not merit class action status.

Included in the certified class are commercial vessel owners as well as fishermen who do not own vessels.  But Judge Panner decided against the inclusion of a subclass of fishermen who delivered Pacific whiting for onshore processing, stating that the proposed subclass was too small to satisfy the numerosity requirement of class certification.

The lawsuit stems from a 2006 agreement between Pacific Seafood and Ocean Gold.  Both companies claim that their partnership and practices only benefit the fleet, and that no matter how much market share they may command in the West Coast fishery, the companies are helping, not harming, the plaintiffs.

Alleging direct evidence of price fixing, plaintiffs argued that Pacific Seafood and Ocean Gold used their collective buying power to fix prices for fish and intimidate competitors who might otherwise offer more competitive prices to the plaintiffs.

In addition to seeking more than $500 million in damages, the plaintiffs are asking the court to break Pacific Seafood into smaller parts, sell off many of its assets in the processing industry, and nullify the contract between Pacific Seafood and Ocean Gold.

The FTC has approved the final order resolving claims that Pool Corporation, Inc. (“PoolCorp”) acted anticompetitively in violation of Section 5 of the Federal Trade Commission Act. 

PoolCorp is a major distributor of commercial and residential swimming pool supplies, products, and equipment.  According to the FTC complaint in In the Matter of Pool Corporation, PoolCorp is the “largest nationwide buyer of pool products, commonly representing 30 to 50 percent of a manufacturer’s total sales.”  In local markets, PoolCorp allegedly has had “a market share of approximately 80 percent or higher for at least the past five years.”    

The FTC alleged that PoolCorp “unlawfully maintained its monopoly power by threatening to refuse to deal with any manufacturer that sells its pool products to a new distributor entering the market, thereby foreclosing potential rivals from an input necessary to compete.”  The Statement provided by Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez in support of the Complaint and Order highlights a lack of independent business reasons or efficiency justifications for the alleged conduct. 

Commissioner J. Thomas Rosch provided a Dissenting Statement in which he claimed there was a lack of evidence of any violation.  In particular, Commissioner Rosch noted that “no entrants were actually excluded” from the markets at issue and that there was “no consumer injury” in this case.  Moreover, Commissioner Rosch found “legitimate reasons” for manufacturers not to sell to new entrants, such as a new entrant’s failure to demonstrate that it offers “adequate facilities, a history of successful operations, and a favorable credit history ….” 

PoolCorp has executed a Consent Agreement requiring particular conduct and reporting practices.

The Federal Trade Commission (“FTC”) has filed a complaint alleging price fixing against the three largest U.S. suppliers of ductile iron pipe fittings – Star Pipe Products, Ltd., McWane, Inc., and Sigma Corp.

The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

King Pharmaceuticals Inc. begins the new year with another antitrust headache caused by a class action complaint brought in federal court in the Eastern District of Tennessee by two pharmacies alleging that it has unlawfully conspired to suppress competition to its muscle relaxant, Skelaxin.

According to the complaint in Johnson’s Village Pharmacy, Inc. et al. v. King Pharmaceuticals, Inc., King Pharmaceuticals (which was acquired by Pfizer in 2010) restrained trade in violation of the Tennessee Trade Practices Act and common law by entering into a reverse-payment agreement in 2005 with Mutual Pharmaceutical Company.  In the agreement, Mutual agreed to delay selling a generic version of the drug in exchange for an up-front payment of $35 million and a 10%-30% annual share of King Pharmaceuticals’ sales of Skelaxin.

The plaintiffs, Johnson’s Village Pharmacy Inc. and Russell’s Mr. Discount Drugs Inc., allege that this agreement forced a class of thousands of businesses that have purchased Skelaxin for resale to overpay by millions of dollars.

The complaint follows an earlier antitrust action brought under the federal Sherman Act by SigmaPharm Inc. against both King Pharmaceuticals and Mutual.  In that case, SigmaPharm alleged that the King-Mutual agreement eliminated sales of a generic version of Skelaxin to the detriment of SigmaPharm, which had a development agreement with Mutual.

The SigmaPharm action was dismissed last year because the federal district court found that SigmaPharm did not qualify as a consumer or competitor that could bring suit under the Sherman Act.  The United States Court of Appeals for the Third Circuit affirmed that ruling in December.

The Eleventh Circuit recently affirmed the decision of the U.S. District Court for the Middle District of Georgia to dismiss the FTC’s antitrust challenge to the proposed acquisition of Palmyra Park Hospital, Inc. (“Palmyra”) and the subsequent lease of Palmyra to Phoebe Putney Health System, Inc. (“PPHS”) or one of its subsidiaries.  As the district court did, the Eleventh Circuit predicated its decision on the state-action doctrine.

A subsidiary of PPHS currently leases Phoebe Putney Memorial Hospital (“Memorial”), a 443-bed hospital in Albany, Georgia that offers “inpatient general acute-care services.”  Memorial’s “only real competitor”—in the words of the Eleventh Circuit—is Palmyra, a 248-bed hospital offering similar services.  In its opinion, the Eleventh Circuit stated that “Memorial controls 75 percent and Palmyra 11 percent of their geographic market.”

In December 2010, PPHS announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), purchase Palmyra and lease Palmyra’s assets to PPHS or one of its subsidiaries.  The City of Albany and Dougherty County authorities created the Hospital Authority in 1941 pursuant to Georgia’s Hospital Authorities Law, in order to address public health needs of the area. 

In April 2011, the FTC brought a federal action to preliminarily enjoin the acquisition pending resolution of the FTC’s related administrative proceeding.  In its complaint for a preliminary injunction, the FTC alleged that the proposed acquisition was practically a “merger to monopoly” that “threaten[ed] substantial harm to competition in the relevant market for inpatient general acute-care hospital services sold to commercial health plans.” 

Defendants took the position that the state-action doctrine immunized the acquisition and planned operation of the hospitals from antitrust scrutiny.  On this point, the FTC alleged that the Hospital Authority was merely a straw-man that was included in the transaction for the sole purpose of shielding the transaction from antitrust scrutiny.  

The district court agreed with the defendants, finding that the state-action doctrine applied and therefore that the defendants were immunized from antitrust scrutiny.  Accordingly, the district court dismissed the complaint with prejudice.  The FTC appealed. 

On de novo review, the Eleventh Circuit agreed with the FTC that “the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  However, the court affirmed dismissal on the grounds of state-action immunity. 

The court began its analysis of the state-action doctrine by citing the seminal case of Parker v. Brown, 317 U.S. 341 (1943) and the doctrine’s emphasis on principles of federalism.  The court acknowledged that state-action immunity does not automatically extend to municipalities or political subdivisions.  To resolve whether the Hospital Authority, the political subdivision at issue, was entitled to state-action immunity, the court applied the rule announced in FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184, 1187-88 (11th Cir. 1994) (citing Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985)) that “a political subdivision … enjoys state-action immunity if it shows that, ‘through statues, the state generally authorizes [it] to perform the challenged action’ and that, ‘through statutes, the state has clearly articulated a state policy authorizing anticompetitive conduct.’”  Of interest, particularly given the FTC’s straw-man argument, the Eleventh Circuit did not cite or address the “active supervision” element of California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) and its progeny, presumably due to the statement in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) that “the active state supervision requirement should not be imposed in cases in which the actor is a municipality.”  

Finding first, that Georgia’s Hospital Authorities Law contemplated the anticompetitive effects and conduct alleged in the complaint; second, that the state legislature granted hospital authorities the power to purchase or lease “projects” (i.e., hospitals); and third, that the state legislature “must have anticipated anticompetitive harm when it authorized hospital acquisitions by the authorities,” the court held that state-action immunity protects the proposed plan. 

The appellate court rejected the FTC’s argument that the Hospital Authority acted as a mere straw-man by citing City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991) for the proposition that a court cannot scrutinize governmental actions to attempt to uncover “perceived conspiracies to restrain trade.” (internal quotes omitted).

The case is Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-12906, in the United States Court of Appeals for the Eleventh Circuit.

On December 9, Chief Judge Christina Reiss of the District of Vermont denied the plaintiff dairy farmers’ motion for class certification in Allen v. Dairy Farmers of America, Inc., 2011 WL 6148678 (D. Vt. Dec. 9, 2011).  However, Judge Reiss invited plaintiffs to renew their motion after addressing issues with their expert report. 

Plaintiffs are New York and Vermont dairy farmers.  Defendants are Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services LLC (DMS).  (Dean Foods was originally a defendant but it settled in May for $30 million.)  DFA is the largest dairy cooperative in the United States, and it not only produces, but also processes, markets and distributes raw Grade A milk.  DMS is a milk marketing agency allegedly created, owned and controlled by DFA and certain other cooperatives.  Some of the plaintiffs are members of DFA.  All of the plaintiffs have, at some point since 2002, sold their milk to processors through DMS. 

Plaintiffs sued DFA and DMS in October 2009 on behalf of all similarly situated dairy farmers in New York, Vermont and ten other Northeast states – an area designated by the USDA as “Federal Milk Market Order 1.”  Order 1 also is the relevant geographic market alleged by plaintiffs. 

Plaintiffs claim that defendants have conspired to fix and suppress the prices plaintiffs receive from cooperatives and processors for their raw Grade A milk, in violation of Sections 1 and 2 of the Sherman Act.  As damages, plaintiffs seek the amount they have been underpaid.  As injunctive relief, they seek to enjoin the alleged conduct and require divestiture of defendants’ processing plants.  

Judge Reiss evaluated plaintiffs’ motion under In re IPO, 471 F.3d 24 (2d Cir. 2006), which requires a “rigorous analysis” of the Rule 23 requirements and “enough evidence” that each of them has been met.  Where plaintiffs lost the motion was on Rule 23(a)(2)’s commonality requirement, specifically as to impact.  Commonality was satisfied as to “the formation, duration and implementation of the alleged conspiracy.”  However, as to adverse impact, Judge Reiss said there was “a clear failure of proof” with respect to plaintiffs’ expert report:  (1) adherence to opinions that plaintiffs had conceded were incorrect; (2) apparent use of incorrect prices in calculating damages; and (3) failure to consider the existence of either non-conspirator processing plants or class members who benefited or broke even from the alleged conduct. 

However, Judge Reiss also said that the expert analysis “may ultimately prove to be an acceptable means of analyzing causation and damages in this case,” though it is not “presently sufficient to perform this task because too many uncertainties remain . . . .”  Her other findings also indicate potential for success: Rule 23(a)(1) numerosity was satisfied, with 9,000 class members dispersed throughout several states.  Rule 23(a)(3) typicality was satisfied to the same extent as commonality, i.e., as to formation, duration and implementation but not adverse impact, for the same reasons as commonality.  And the 23(a)(4) adequacy of the named plaintiffs could be satisfied with subclasses represented by separate counsel, which would overcome the potential conflicts.  Given that prerequisite to certification, Judge Reiss declined to reach 23(a)(4)’s adequacy of class counsel.  She also declined to reach Rule 23(b)’s predominance requirement.

In light of the invitation to renew the class motion, defendants sought to extend their time to serve expert reports from December 16 until whenever plaintiffs serve their new report(s) (if they do).  Judge Reiss denied that motion, finding “no good cause to further delay the provision of expert reports in this ongoing litigation.”  No deadline has been set to renew the class motion.