February 10, 2014

Umbrella Liability For Price Fixing: Does The Forecast Call For More Damages In The EU And U.S.?

A View from Constantine Cannon’s London Office

By Irene Fraile and Ankur Kapoor

The European Union may be on the verge of embracing “umbrella liability”—a theory of liability that would significantly increase the exposure of members of anticompetitive cartels.

The European Court of Justice is being urged by one of its advocates general to hold that, under EU law, victims of cartels can seek damages from cartel members for higher prices paid to non-cartel members that were able to raise their prices under the pricing “umbrella” created by the cartel. If the Court of Justice endorses such umbrella liability, antitrust liability in the EU could diverge from the approach evolving in U.S. courts which have been reluctant to embrace umbrella liability. click here for more »

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Categories: Antitrust Enforcement, Antitrust Law and Monopolies, Antitrust Legislation, Antitrust Litigation, Antitrust Policy, International Competition Issues

    December 17, 2013

    Court Closes The Book On Bookhouse Antitrust Claims Against Amazon And Publishers

    By Allison F. Sheedy

    The U.S. District Court for the Southern District of New York has dismissed antitrust claims against Amazon and the six largest book publishers related to the publishers’ contracts with Amazon for the distribution of e-books requiring the use of digital rights management software (“DRM”) in The Bookhouse of Stuyvesant Plaza, Inc. et al. v. Amazon.com, Inc. et al.

    The Bookhouse plaintiffs are independent bookstores that sell both print books and e-books.  They alleged claims of unlawful restraints of trade under Section 1 of the Sherman Act against all defendants, and claims of monopolization and attempted monopolization under Section 2 of the Sherman Act against Amazon.

    Generally speaking, DRM limits the ability to use digital content after its sale.  The plaintiffs alleged that Amazon, manufacturer of the Kindle e-reader, employed more restrictive DRM technology than required by its agreements with the six publisher defendants – Random House Inc., Penguin Group (USA) Inc., Hachette Book Group USA Inc., Simon & Schuster Inc., HarperCollins Publishers LLC and Macmillan Publishers Inc.  Plaintiffs claimed that this DRM technology effectively restricted the devices on which e-books sold and distributed by Amazon could be read, which rendered Amazon’s e-book platform a “closed ecosystem.”  click here for more »

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    Categories: Antitrust and Price Fixing, Antitrust Law and Monopolies, Antitrust Litigation

      October 8, 2013

      Tenth Circuit Rules Microsoft Had No Duty To Deal With Novell’s WordPerfect

      The U.S. Court of Appeals for the Tenth Circuit has rejected Novell, Inc.’s bid to resurrect its antitrust claims accusing Microsoft Corporation of maintaining its monopoly in the operating systems market by withdrawing its support for WordPerfect and other Novell applications.

      The Court affirmed the decision of the U.S. District Court for the District of Utah in Novell v. Microsoft Corp. granting Microsoft judgment as a matter of law on Novell’s antitrust claims after a hung jury failed to return a verdict at trial.

      In November 2004, Novell filed its antitrust complaint alleging that in the 1990s Microsoft engaged in anticompetitive conduct that caused WordPerfect—a dominant word processor in the 1980s and early 1990s—to lose market share to Microsoft Word.  Novell claimed that Microsoft’s conduct in the 1990s damaged its business and forced the company to sell WordPerfect and other software programs to Corel Corp. at a loss of more than $1 billion.

      Novell’s claim that Microsoft sought or maintained a monopoly in a market for applications generally, or office suite applications more particularly, was dismissed on the ground that the statute of limitations for conduct back in the 1990s had long since run.

      Novell sought to keep its antitrust claims alive by alleging that Microsoft had maintained its monopoly in the operating systems market by withdrawing its support for WordPerfect and other Novell applications—which support had made it easy for consumers to use those applications on Microsoft operating systems.  Although this claim was also based on Microsoft’s conduct in the 1990s, it was not barred by the statute of limitations because the statute was tolled on such a claim as a result of the U.S. government’s long-running antitrust case against Microsoft based on allegations of monopolization of the operating systems market.  Although Novell was permitted to bring this claim to trial, the jury deadlocked on the claim, and then the district court dismissed it as a matter of law.

      The Tenth Circuit agreed with the district court’s ruling that, as a matter of law, Novell could not show that Microsoft’s withdrawal of Windows 95 support for Novell applications was monopoly behavior in violation of Section 2 Sherman Act.  The Court noted that the Supreme Court and the Tenth Circuit have rejected the idea that an alleged monopolist must give a helping hand to rivals.  The Court stated that “the proper focus of Section 2 isn’t on protecting the competitors but on protecting the process of competition, with the interests of the consumers, not competitors, in mind.”

      The Court relied on the general rule that a company is free to decide with whom to assist or deal, rejecting Novell’s claim that it came within the exception set forth in the U.S. Supreme Court’s decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp.  Under Aspen, a monopolist can be found to have violated the Sherman Act if it ends a voluntary, profitable business relationship with a rival solely to attain an anticompetitive end, which cost the monopolist short term profits.  However, the Tenth Circuit held that Novell failed to prove that Microsoft willingly gave up short-term profits when it withdrew its support for Novell applications.  The Court stated that “to the contrary, all the evidence suggests that Microsoft’s decision came about as a result of a desire to maximize the company’s immediate and overall profits.”

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      Categories: Antitrust Law and Monopolies, Antitrust Litigation

        July 24, 2013

        Eleventh Circuit Rules Steel Is Too Elastic To Support Monopolization Claims

        The U.S. Court of Appeals for the Eleventh Circuit has affirmed dismissal of monopolization claims against steel producer Nucor Corp., finding that the cross-elasticity of supply for various steel products defeated the limited product market alleged by the plaintiff.

        The appellate court affirmed the district court’s grant of summary judgment in favor of Nucor in Gulf States Reorganization Group Inc. v. Nucor Corp.  Gulf States Reorganization Group (GSRG) sued Nucor for allegedly attempting to monopolize the market for black hot rolled coil steel, a popular type of steel which is rolled into a coil for ease of storage, handling and transportation.

        Nucor is a leading manufacturer of black hot rolled coil steel.  In 1999, Gulf States Steel, one of Nucor’s main competitors, filed for bankruptcy.  After GSRG bought the bankrupt company’s non-steel-producing assets, it contracted with the bankruptcy trustee in 2002 to purchase the steel-producing assets for $5 million unless another party bid higher, which would cause a public auction.  Nucor entered into a confidential agreement with Casey Equipment Co., which buys steel-related equipment, to create a limited liability company to bid on Gulf States’ steel-producing assets.  The limited liability company bid $5.25 million for the assets, which triggered a public auction.  In the public auction, Nucor’s limited liability company bid $6.3 million.  Although GSRG bid $7 million, its bid was denied due to its failure to meet auction rules.  As a result, Nucor’s limited liability company purchased the steel-producing assets of Gulf States.

        GSRG sued Nucor, alleging that it was attempting to obtain a monopoly in the black hot rolled coil steel market in the Southeast United States, in violation of § 2 of the Sherman Act.

        The Court of Appeals affirmed the district court’s holding that GSRG’s proposed relevant product market—black hot rolled coil steel—was too limited because it failed to “account for the fact that manufacturers of pickled and oiled steel could, without much difficulty or cost, switch their production to that of black hot rolled coil steel.”  Pickled and oiled steel is simply black hot rolled coil steel that has been bathed in acid and coated with oil.

        The Eleventh Circuit noted that one way to determine if manufacturers can take business away from a potential monopolist is to apply the concept of cross-elasticity of supply, which analyzes competition from the viewpoint of the producers of products, instead of consumers.  The court concluded that black hot rolled coil steel has a high cross-elasticity of supply because producers of pickled and oiled steel could easily and cheaply switch their production to black hot rolled coil steel.

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        Categories: Antitrust Law and Monopolies, Antitrust Litigation

          July 8, 2013

          Contractor Alleges Graco Constructed Foam Insulation Equipment Monopoly

          A contractor has filed a class action complaint in the United States District Court for the Middle District of Pennsylvania alleging that Graco Inc. and its distributors harmed a class of contractors through anticompetitive conduct in the market for fast-set spray foam equipment, which is used by contractors for the installation of foam insulation in residential and commercial buildings.

          Insulate SB, Inc., a contractor that purchases and uses fast-set equipment, alleges in Insulate SB, Inc. v. Abrasive Products & Equipment, et al., that Graco Inc., Graco Minnesota (collectively “Graco”) and co-conspirator distributors violated the Sherman Act, the Clayton Act and various state antitrust, consumer protection and unfair competition laws. 

          Insulate’s suit follows the settlement of a similar action brought by the Federal Trade Commission (“FTC”).  In April of this year, the FTC filed a complaint alleging that Graco violated antitrust laws by buying its two closest competitors in the fast-set equipment market, Gusmer Corp. and GlasCraft, Inc.

          Fast-set equipment is a highly pressured, foam spray system almost exclusively used by building contractors to install foam insulation in residential and commercial buildings and to apply protective coating on structures such as bridges, holding tanks, pipelines and marine hulls.  It is considered to be “green” technology because of the superior insulating capabilities of the foam.

          The FTC’s complaint alleged that after Graco’s acquisition of its primary competitors in the fast-set equipment market in North America, Graco raised its prices on the equipment, reduced its product options, reduced innovation and raised barriers for entry for any fast-set equipment manufacturers through exclusivity requirements in contracts with its distributors.  When the FTC filed its complaint against Graco, Graco agreed to a consent order requiring it to end its exclusivity policies with its distributors.

          Insulate ’s complaint alleges a “hub-and-spoke conspiracy,” in which Graco—which controls over 90% of the fast-set equipment market in North America—used exclusivity agreements with its distributors to suppress competition in the market.  This conspiracy allegedly deprived the purported class of contractors fair access to innovations in the equipment, better quality, and lower-priced equipment that allegedly could have been provided by potential new market entrants.

          The plaintiff alleges that after Graco purchased Gusmer and GlasCraft, it closed the manufacturing facilities of these two companies and withdrew a less expensive and more reliable fast-set foam installation system from the market.  Graco then allegedly contracted with its distributors to exclusively sell its product with sophisticated electronics and hard-to-access mechanical parts that require expensive repairs by service professionals.  These contracts, the complaint alleges, enabled the distributors to charge contractors anticompetitive prices for the equipment.  Graco is also alleged to have maintained its monopoly by granting distributors substantial rebates, discounts, market share incentives, and geographic control of sales territories in exchange for excluding new fast-set equipment market entrants.

          The suit seeks class certification, trebled damages and injunctive relief declaring that Graco’s and the distributors’ actions violate the Sherman Act, the Clayton Act, and various state antitrust, consumer protection and unfair competition laws.

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          Categories: Antitrust Law and Monopolies, Antitrust Litigation

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