The Kansas Supreme Court has overturned a lower court’s decision granting defendant handbag and accessory maker Leegin Creative Leather Products, Inc. summary judgment in a state antitrust suit brought by a class of consumers challenging Leegin’s resale price maintenance pricing policy.

The plaintiffs in O’Brien v. Leegin Creative Leather Products Inc. allege that Leegin’s resale price maintenance pricing policy amounted to illegal price fixing and violated the Kansas Restraint of Trade Act (“KRTA”). 

Leegin’s resale price maintenance practices fared better in a federal antitrust challenge to those practices in the U.S. Supreme Court decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007).  In that case, the U.S. Supreme Court decided that – contrary to the longstanding per se ban on vertical resale price maintenance established in the early 1900s – resale price maintenance no longer constituted a per se Sherman Act violation and would instead need to be evaluated under the rule of reason. 

According to the Kansas high court, however, the KRTA does not follow in lockstep with federal antitrust law.  While federal antitrust decisions may be persuasive authority, they are nonbinding on Kansas state courts.  The Kansas high court thus declined to apply federal law precedent relating to the requirement to show “antitrust injury” and the application of a rule of reason standard of review to vertical price maintenance claims.  The U.S. Supreme Court’s decision in Leegin did not preempt the state antitrust claim under the KRTA.

The Kansas legislature, however, has been quick to react.  State lawmakers have proposed a bill (House Bill No. 2797) to “correct” the court’s ruling and overturn it for any pending or future lawsuits.  The stated intention of the proposed bill is to “minimize conflicts between the Kansas restraint of trade act and section 1 of the Sherman Act … and reduce uncertainty as to the law applicable to commerce in Kansas.”

A member of the American Quarter Horse Association (“AQHA”) has filed a complaint, alleging that an AQHA rule prohibiting the registry of cloned horses and their offspring violates antitrust laws.

The case is Abraham & Veneklasen Joint Venture, et al.  v. American Quarter Horse Association, in the U.S. District Court for the Northern District of Texas.

Plaintiff Jason Abraham and two of his companies, Abraham & Veneklasen Joint Venture and Abraham Equine Inc., allege that AQHA’s rule 227(a), in effect since 2004, violates Section 2 of the Sherman Act and the Texas Free Enterprise and Antitrust Act of 1983.  Plaintiffs claim that AQHA has market power in the U.S. market for high quality registered Quarter Horses. 

Plaintiffs allege that their cloned horses are excluded from AQHA events as a result of AQHA’s rule prohibiting cloned horses and their offspring from registering in AQHA’s registry of Quarter Horses.  AQHA events include approximately 8,000 sanctioned races throughout the U.S. each year.   Purses for AQHA races totaled over $129 million in 2011.  Plaintiffs also allege that AQHA’s enforcement of the rule harms purchasers of the horses by limiting the supply, and increasing the prices, of registered Quarter Horses. 

Plaintiffs seek to have the rule amended to permit cloned horses and their offspring to be registered and eligible for AQHA events.  Plaintiffs are also seeking treble damages, including for lost profits and the diminution in value of their horses. 

AQHA is currently reviewing the lawsuit according to a statement by vice president Don Treadway posted on the AQHA website.

In the suit, PNY Technologies, Inc. v. SanDisk Corporation, downstream competitor PNY alleged that SanDisk violated Sections1 and 2 of the Sherman Act through licensing practices of its extensive patent portfolio.

According to the complaint, SanDisk owns more than 1,400 U.S. patents, covering 100% of the technology used to manufacture or assemble flash memory – such that every single firm in the industry must pay royalties to SanDisk or face litigation.  The complaint alleged that SanDisk exploited its robust portfolio by coercing competitors to enter licensing agreements which required licensees to:

* Pay multiple royalties on the same product as it is sold along the distribution chain;

* Pay royalties on worldwide sales, regardless of whether SanDisk had patent rights;

* License a full patent portfolio, rather than specific individual patents; and

* Grant back to SanDisk a worldwide, royalty-free license to any of the licensee’s future technological innovations related to flash memory.

Judge Yvonne Gonzalez Rogers pointed to the “tension” between the legitimate rights of patent holders and ruled that the complaint failed to sufficiently explain how SanDisk dominated the market.  While granting leave to amend the complaint, the court pointed to the “overarching inadequacy” of the allegations that failed to “distinguish[] between and among the various markets and causes of action,” and the failure “at its most basic level” to relate alleged anticompetitive conduct to the “legally obtained monopoly of the patented technology.”

While the court accepted that PNY had adequately alleged monopoly power and barriers to entry in the upstream market for flash memory, the complaint failed to allege monopoly power in the downstream markets.  The court concluded that SanDisk’s power to extract a royalty on the same patented technology on all downstream market sales did not establish that SanDisk has the power to control downstream prices or competitors.

The court also found that PNY had not alleged anticompetitive conduct in the relevant markets.  As to the technology market, the complaint did not allege any willful acquisition of a monopoly.  With respect to the other downstream markets, the complaint failed to allege that SanDisk was demanding “double royalties,” as opposed to collecting separate royalties for separate patents.  And the grantback provision was not clearly anticompetitive, because PNY did not allege that the provision in fact stifled innovation.

The dismissal followed the unsealing earlier in the month of a federal court decision in the Western District of Wisconsin dismissing nearly identical claims against SanDisk after a full bench trial on the merits.  That case involved antitrust counterclaims asserted by Kingston Technologies in response to an infringement suit brought by SanDisk.  Rejecting Kingston’s claims that SanDisk’s patent licensing protocol was unfair and anticompetitive, Judge Barbara Crabb found that Kingston failed to prove “that the challenged licensing terms would have an adverse effect upon the market for USB flash drives in the United States.”

The case, In re Facebook, Inc. PPC Advertising Litigation, was filed in 2009 by advertisers on Facebook.  The plaintiffs, who paid Facebook on a “cost-per-click” basis, allege that they were billed for “invalid” clicks.  Their complaint alleges violations of California’s Unfair Competition Law and breach of contract because Facebook failed to ensure that its advertising system could detect and prevent those “invalid” clicks.

In her opinion denying the motion, Judge Phyllis Hamilton found that plaintiffs satisfied the numerosity, commonality, and typicality requirements of Federal Rule of Civil Procedure 23, but they fell short in showing adequacy of class representation and whether questions of law or fact common to putative class members predominate over any questions affecting only individual members. 

Under Rule 23(a)(4), a court must find the class representatives “will fairly and adequately protect the interests of the class.”  Judge Hamilton found the plaintiffs failed to make the requisite showing for several reasons.  First, the Court found that two of the class representatives had not attempted to show any “concrete injury” from specific “invalid” clicks and that they had never disputed Facebook charges within the time period prescribed in the contract to avoid waiver.  Those deficiencies could require the litigation of individualized defenses.  Second, the Court found that the same two class representatives have different interests than other class members because they are self-service advertisers.  The class, as defined by the plaintiffs, would also include large corporations who contract directly with Facebook on different terms.  Third, the Court found that one of the class representatives stated in his deposition that he knew “essentially nothing about the case.”

Under Rule 23(b)(3), a court must find that “questions of law or fact common to class members predominate over any questions affecting only individual members.”  The Court found the plaintiffs’ arguments lacking when it examined the underlying causes of action. 

For the breach of contract claim, the plaintiffs could not identify a “uniform written contract” to the Court’s satisfaction.  The plaintiffs pointed to various parts of the Facebook website as comprising the agreement, but none of the pages that the Court deemed part of the contract contained a promise that advertisers would never be billed for “invalid” clicks.  Adding to the lack of commonality, the Court also found that direct advertisers, who contract directly with Facebook, would have no reason to look at certain parts of the Facebook website because they work with Facebook employees directly or work with third-party advertising agencies.  The Court also found that plaintiffs failed to establish the existence of a uniform method to identify “invalid” clicks and whether damages could be identified for the class as a whole.

For the unfair business practices claims, the Court found that common questions do not predominate for the same reasons that the breach of contract claim failed.  The Court further found that the plaintiffs had no “viable method” to prove each class member’s individual recovery, and California’s Unfair Competition Law requires plaintiffs to show that Facebook obtained the plaintiffs’ payments “by means of” the alleged wrongful conduct.  Accordingly, the Court ruled that plaintiffs had failed to establish restitution as a common question that could be resolved in a single case.

This decision is a big win for Facebook because the company, like many Internet-based firms, depends greatly on advertising revenue generated by its 900 million users.  In the first quarter of 2012, Facebook reported $872 million in advertising revenue, which represented 82% of total revenue for that time period.

This marks the second loss to Kolon in the complex legal battle of Kolon Industries v. E.I. du Pont de Nemours, in the U.S. District Court for the Eastern District of Virginia.

The battle began when DuPont filed a suit against Kolon alleging that it stole highly confidential trade secrets relating to one of DuPont’s synthetic fibers.  Kolon fired back with a counterclaim alleging that DuPont had monopolized or attempted to monopolize the market for para-aramid synthetic fibers used in body armor. 

The cases were split and on September 14, 2011, DuPont won its trade secrets case.  The jury awarded nearly $920 million dollars in damages.

DuPont also filed a motion for injunctive relief asking that the court require Kolon to stop making or selling products using the allegedly stolen technology.  That motion, along with requests for sanctions and attorney’s fees, is still pending.

In the meantime, Kolon lost its second battle when U.S. District Judge Robert E. Payne dismissed its antitrust case with prejudice. 

Judge Payne held that DuPont did not monopolize or attempt to monopolize the market, and that there was no evidence that DuPont had foreclosed the market to Kolon.  Judge Payne found that, to the contrary, DuPont was actually unable to prevent “the rise of one of its major competitors.”

Plaintiffs alleged that the defendants, Pacific Seafood Group and Ocean Gold Seafoods, Inc., fixed prices in buying fish, harming fishermen and consumers.  Plaintiffs also alleged that Pacific Seafood, the largest seafood-buying company in the United States, either monopolized or attempted to monopolize west coast markets for Pacific seafood.

The settlement agreement does not require any damages to be paid or for Pacific Seafood to break up the company.  Instead, Pacific Seafood has agreed to adopt a series of procompetitive measures designed to increase transparency, fairness, and, most of all, competition in the seafood markets.  This series of procompetitive measures includes Pacific Seafood’s promise to end its relationship with co-defendant Ocean Gold Seafoods in 2016.

Although nothing in the settlement agreement would prevent Pacific Seafood Group from entering a new contract with Ocean Gold, the settlement requires approval of any such contract by U.S. District Judge Michael Hogan, who mediated the settlement.   The settlement agreement will be effective for five years, at which point the plaintiffs may petition Judge Hogan for a five-year extension.

In a press release, Judge Hogan commented, “this case could have gone on for years, including appeals.  The fishermen and the processors, especially Pacific Seafood Group, are to be commended for taking a statesmanlike approach to resolving this complicated case.”

Attorneys for the plaintiff are expected to collect $2.9 million in fees and expenses to be paid by Pacific Seafood’s insurer.

The court also ruled, however, that the price fixing claims brought by the direct purchaser plaintiffs, Orangeburg Milling Company, Inc., Bar Ale, Inc., and Air Krete, Inc., could move forward. 

Both indirect and direct purchasers alleged that the defendants, Premier Chemicals, LLC, Sumitomo Corporation of America and YAS, Inc., engaged in a conspiracy to fix prices and allocate shares of the domestic magnesium oxide market from January 2002 to the present.  Magnesium oxide is used to manufacture many products including fertilizer, animal feed and pharmaceuticals. 

The direct purchasers filed their initial class action complaint in October 2010 alleging antitrust violations under both the Clayton and Sherman Acts.  The indirect purchaser consumers filed a similar suit a month later.

Judge Debevoise dismissed both the indirect and direct purchasers’ claims on the grounds they were not timely under the four-year statute of limitations, but ruled that the plaintiffs could toll the statute with evidence that the defendants fraudulently concealed the alleged conspiracy.   Both classes filed amended complaints.

The court was satisfied with the direct purchasers’ amended complaint, which alleged that misrepresentations by the defendants caused the plaintiffs to believe that price increases were due to normal competitive market forces. 

The court dismissed the indirect purchasers’ amended complaint because they bought their products at local mills and never dealt directly with defendants.  The amended complaint failed to show that the indirect purchasers were aware of the price increase.  In addition, the products purchased contained too small an amount of magnesium oxide for any alleged price fixing to have a foreseeable effect on the price.

The Second Circuit reversed the decision of Judge Paul A. Crotty of the Southern District of New York that applied heightened pleading standards in granting defendants’ motion to dismiss for failure to state a claim and denying leave to file an amended complaint.

The plaintiff, Anderson News, was forced into liquidation proceedings in 2009, after being a wholesaler in the magazine industry since 1917.  Anderson purchased magazines from publishers and resold them to retailers.  Anderson’s complaint accused five magazine publishers, four magazine distributors, and one magazine wholesaler of conspiring in violation of Section 1 of the Sherman Act to eliminate Anderson as a wholesaler after Anderson imposed a surcharge of seven cents for each magazine that Anderson received and distributed.

In granting the defendants’ motion to dismiss, the district court held that the complaint did not meet the heightened pleading standard set by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly.  The district court noted that the defendants’ different reactions to a surcharge that Anderson imposed in January 2009 undermined Anderson’s theory of conscious parallel conduct.  Despite the fact that Anderson had alleged a number of meetings and communications suggestive of a conspiracy, the district court held that the defendants’ decisions to stop doing business with Anderson – the key parallel conduct allegation – did not create an inference of collusion since such conduct was consistent with unilateral and competitive business strategies.

The Second Circuit reversed and permitted Anderson to file an amended complaint, holding that the district court had misapplied Twombly’s plausibility standard.

The appellate court held that to present a plausible claim at the pleading stage, the plaintiff need not show that its allegations suggesting an agreement are more likely than not true or that they rule out the possibility of independent action, and that the choice between two plausible inferences that may be drawn from factual allegations is not a choice to be made by the court on a motion to dismiss.  The question at the pleading stage, held the court, is whether there are sufficient factual allegations to make the complaint’s claim plausible, not whether there is a plausible alternative to the plaintiff’s theory.

The Second Circuit held that in making its plausibility determination that the defendants had acted unilaterally, the district court had made a number of factual findings inappropriate at the pleading stage, such as determining that certain alleged statements by defendants were not suggestive of a “massive antitrust conspiracy.”  The appellate court also disagreed with the district court’s determination that the conspiracy was implausible because the defendants had a variety of reactions to Anderson’s announcement of the surcharge, noting that there is “nothing implausible about coconspirators starting out in disagreement as to how to deal conspiratorially with their common problem.”

The manufacturers are Nestle Purina Petcare France SAS, Royal Canin SAS (owned by Mars, Inc.), and Hill’s Pet Nutrition (owned by Colgate Palmolive Co.).  Collectively, they sold 70 percent of Frances’ premium dry pet food during the relevant period of 2004 to 2008.   

Nestle Purina and Royal Canin sell their pet food to wholesale distributors, who then sell it to retailers, who in turn sell it to pet owners.  Their wholesaler agreements restricted resale territories and prices, and “set up distinct and impenetrable distribution systems” that “partition[ed] the markets . . . for some product ranges.”  The results were reduced choices and increased costs, which were passed on to consumers.

Hill’s, which markets its pet food only through veterinary offices and specialty stores, prohibited its distributors from exporting its products outside France.  This prohibition had little or no impact, however, because it pertained only to veterinary offices and was never actually applied.  

Nonetheless, the Autorite noted that on the whole, these agreements could cause significant damage because the price elasticity of demand for pet food is low.  The reason is that pet food “elicit[s] an emotional investment for end consumers, who are vulnerable to brand loyalty.”      

Nestle Purina was fined 19.5 million euros, Royal Canin 11.6 million, and Hill’s 4.6 million, for a total of 35.3 million euros ($46.7 million).

In setting these fines, the Autorite considered the duration of the restrictions and each company’s global reach and financial resources.  It also considered prior offenses – which probably hurt Royal Canin, which was sanctioned in 2005 for abusing its dominant position.  Hill’s, on the other hand, likely owes the comparatively small size of its fine to the minimal impact of its restriction.  Nestle Purina’s and Royal Canin’s fines also were reduced, by 18 and 20 percent respectively, because they declined to dispute the Autorite’s allegations and committed to reinforce their competition compliance programs.

Although the Republican-controlled U.S. House of Representatives has passed a bill that would repeal the antitrust exemption for health insurers, the bill is not likely to pass the Democratic-controlled Senate.

The repeal of the antitrust exemption enjoyed by health insurers was included in the Protecting Access to Healthcare Act (the “PATH Act”), which was drafted by opponents of President Obama’s healthcare overhaul to repeal parts of that law.  The PATH Act recently passed the House (H.R. 5), largely along party lines.

As originally drafted, the amendment repealing the antitrust exemption would have applied broadly across the insurance industry.  However, the amendment was revised to keep the antitrust exemption for life insurance, annuities, property and casualty insurance, and other types of insurance other than health insurance.

Representative Paul Gosar (R-Arizona) sponsored the repeal amendment, stating that the measure was necessary “so that we can empower health insurance companies to compete more aggressively.”  On the other hand, Gosar also emphasized that the amendment would preclude class action lawsuits against health insurers, leaving antitrust enforcement to government authorities.

Representative John Conyers (D-Michigan) expressed the view of many Democrats by noting that the class action bar “effectively destroyed” the repeal.  Implicit in his statement was the acknowledgment that private actions play a major role in enforcement of the antitrust laws.

In the end, though, none of this is likely to amount to much more than political posturing in an election year.  The PATH Act is not likely to be passed by the Senate.  Not only are Senate Democrats unlikely to support the PATH Act, but President Obama has threatened to veto the bill if it makes it to his desk.