From the February 2015 E-Brief

Ninth Circuit Amends AUO Decision in TFT-LCD Cartel Case, Finds “Domestic Effects” Test Satisfied

On January 30, 2015, the United States Court of Appeals for the Ninth Circuit issued an Amended Order in United States of America v. Hui Hsuing, case no. 12-10492.  The January 30, 2015 order (1) amended the Ninth Circuit’s opinion in United States of America v. Hui Hsuing, 758 F.3d 1074 (9th Cir. 2014), filed on July 10, 2014; (2) denied a petition for panel rehearing; and (3) denied a petition for rehearing en banc.  The Hui Hsuing case is commonly referred to as “AUO”, in reference to one of the primary corporate defendants.

In the Amended Order, the Ninth Circuit explicitly ruled on the “domestic effects” test of the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a and ruled that the domestic effects requirement of the FTAIA had been satisfied.     

The case arose from the long-running cartel to fix the prices of TFT-LCD panels.   The appellants were convicted of violating the Sherman Act.  The cartel involved a conspiracy by Korean and Taiwanese companies which included five years of secret meetings in Taiwan, sales of TFT-LCD panels worldwide including in the United States, and millions of dollars of profits for the cartelists.  The appellants were Taiwanese company AU Optronics (AUO), AUOA, AUO’s retailer and wholly owned subsidiary, and two executives from AUO.  While Appellants asserted multiple grounds to challenge their convictions – all of which were rejected – this article focuses on their challenges based on the FTAIA, specifically their argument that because “the bulk of the panels were sold to third parties worldwide rather than for direct import into the United States, the nexus to United States commerce was insufficient under the Sherman Act as amended by the” FTAIA. 

In its July 10, 2014 opinion, the Ninth Circuit determined that it did not need to “resolve whether the evidence of the defendants’ conduct was sufficiently ‘direct’ or whether it ‘gives rise to an antitrust claim,’ because, as we noted earlier, ‘any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,’ with respect to import trade.”  758 F.3d at 1094 (citations omitted, emphasis in original).

In the Amended Order, the Ninth Circuit explicitly addressed this domestic effects test, holding “[l]ooking at the conspiracy as a whole, and recognizing the standard on appeal is whether ‘any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt,’ [ ] we conclude that the conduct was sufficiently ‘direct, substantial, and reasonably foreseeable with respect to the effect on United States commerce.”  Opinion at 41. In “looking at the conspiracy as a whole", the Ninth Circuit noted that:

  1. TFT-LCDs are a substantial cost component of finished products.

  2. The cartel’s secret meetings and agreements in furtherance of the conspiracy “led to direct negotiations with United States companies, both domestically and overseas, on pricing decisions.”  Opinion at 42.

  3. Some panels were sold overseas to foreign subsidiaries of American companies or to systems integrators and incorporated into finished products, and it was “understood” that substantial numbers of these finished products were destined for the United States and thus “the practical upshot of the conspiracy would be and was increased prices to customers in the United States.”  Opinion at 42.

The Ninth Circuit elaborated on point three with examples of (1) panel purchaser Dell having a factory in Malaysia where 100% of the products were destined for American markets, (2) foreign systems integrators purchasing panels for integration into finished products with direct oversight of TFT-LCD pricing by United States manufacturers, (3) the global product arm of a United States company purchasing price-fixed panels from a defendant and selling them to  systems integrators, and (4) system integrators purchasing panels from defendants based on custom orders from United States companies.  Based on these factors, the court found an “integrated, close and direct connection between the purchase of the price-fixed panels, the United States as the destination for the products, and the ultimate inflation of prices in finished products imported to the United States.”  Opinion at 43.   The court concluded that this direct connection was “neither speculative nor insulated by multiple disconnected layers of transactions.”  Id.  The court further distinguished the facts before it from the claimed domestic effect which was deemed insufficient in United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004), describing that claim as “resting on speculation as to future innovation in tomato seeds and lack[ing] an existing effect on American tomato customers.”  Opinion at 43.

The court directly addressed the recent Seventh Circuit decision in Motorola Mobility LLC v. AU Optronics Corp., 2014 U.S. App. LEXIS 22408 (7th Cir. November 26, 2014), which arose from the same cartel and applied the FTAIA in granting summary judgment to the defendants.  That opinion was discussed in the Antitrust Section’s January 2015 e-brief. The court indicated that its ruling was consistent with Motorola because the “private” claim in Motorola ultimately failed due to the bar against indirect purchaser claims of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).  The Ninth Circuit also noted that the Seventh Circuit in Motorola had indicated that the United States could pursue criminal charges and injunctive relief provided that the requisite statutory effects were present.

The Ninth Circuit also noted in a footnote that both the Second Circuit and the Seventh Circuit disagree with the Ninth Circuit’s more stringent definition of “direct effects” for purposes of the FTAIA.  The Ninth Circuit has held that an effect is “direct” if it “follows as an immediate consequence of the defendant’s activity”, United States v. LSL Biotechnologies, 379 F.3d 672, 692 (9th Cir. 2004).  The Second Circuit has held that the direct effects test requires only a “reasonably proximate causal nexus”, Lotes Co., Ltd. v. Hon Hai Precision Industry Co., Ltd, 753 F.3d 395, 398 (2d Cir. 2014) while the Seventh Circuit has held that “[s]uperimposing the idea of ‘immediate consequence’ on top of the full phrase results in a stricter test than the complete statute can bear.”  Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 857 (7th Cir. 2012). In the Amended Order, the Ninth Circuit stated that whether it should reconsider “the stricter standard we impose is not within the province of this panel because a three judge panel may not overrule a prior decision of the court” while noting that “in any event, the result is the same and the defendants benefit from our circuit’s formulation.”  Opinion at 41 n. 9.

Steve Williams
Cotchett, Pitre & McCarthy, LLP

Supreme Court Permits Immediate Appeal from District Court Dismissal in LIBOR Antitrust MDL

In Ellen Gelboim, et al. v. Bank of America Corporation et al. 574 U.S. __, 2015 U.S. LEXIS 756  (January 21, 2015), Petitioners  Gelboim and Zacher brought an action against defendant banks for violating federal antitrust law by acting in concert to depress the London InterBank Offered Rate (LIBOR). Petitioners’ case was centralized for pretrial proceedings in the Southern District of New York together with some 60 other cases pursuant to 28 U.S.C. § 1407. The District Court granted the banks’ motion to dismiss on the basis that the plaintiffs had not properly pled antitrust injury. Acting on its own motion, the Court of Appeals for the Second Circuit dismissed the appeal filed by petitioners for want of appellate jurisdiction.  The Supreme Court reversed, holding that immediate appellate review could be sought because the Gelboim-Zacher action retained its independent status for purposes of appellate jurisdiction under 28 U.S.C. § 1291.

Petitioners argued that the order dismissing their case in its entirety removed them from the MDL, thereby triggering their right to appeal under § 1291. The Supreme Court agreed, holding that petitioners’ right to appeal ripened when the District Court dismissed their case, not upon the eventual completion of multi-district proceedings in all of the cases. Cases consolidated for MDL pretrial proceedings ordinarily retain their separate identities, so an order disposing of one of the discrete cases in its entirety qualifies under § 1291 as an appealable final decision. Furthermore, the Supreme Court held, the District Court’s order dismissing the Gelboim-Zacher complaint for lack of antitrust injury had the hallmarks of a final decision. The District Court ruled on the merits of the case, completed its adjudication of petitioners’ complaint, and terminated their action. The § 1407 centralization offered convenience for the parties and promoted efficient judicial administration, but did not meld the Gelboim-Zacher action and others in the MDL into a single unit.

The Court rejected defendants’ argument that after centralization under § 1407 consolidation no right to appeal accrues until the entire MDL ends. Defendant banks also argued that the position adopted by the Court would permit parties with the weakest cases to appeal sooner than other parties, while parties with stronger cases would be unable to appeal simultaneously because they have other claims still pending.  Defendants argued that Federal Rule of Civil Procedure 54(b) could be used to grant early appeals, but Rule 54(b) was of no avail to Gelboim and Zacher because it “does not apply to a single claim action nor to a multiple claims action in which all of the claims have been finally decided.”

Joyce Chang
Cotchett, Pitre & McCarthy, LLP

The Ninth Circuit Rules That “San Jose has struck out” on its bid to Overturn Baseball’s Antitrust Exemption

Baseball is the only national sport that is exempt from the antitrust laws.  The baseball exemption has existed for 92 years and withstood both court and Congressional challenges, despite the United States Supreme Court’s acknowledgement that the exemption may be described as “unrealistic, inconsistent, or illogical” (see Radovich v. Nat’l Football League, 352 U.S. 445, 451-52 (1957)).  The exemption was created in 1922, when the Supreme Court first held that Major League Baseball (“MLB”) was not subject to the federal antitrust laws because it was not involved in interstate commerce.  Over the years, the federal courts have adopted the view that baseball is exempt from the antitrust laws, even though it is undisputedly engaged in interstate commerce.  Since 1953, the Supreme Court has addressed baseball’s antitrust exemption from federal antitrust laws several times and each time explicitly refused to overturn it, stating repeatedly that baseball’s exemption could only be altered through legislation.  Then, in 1998, Congress passed the Curt Flood Act, which revoked baseball’s antitrust exemption with respect to employment issues but did not disturb it for other matters.

Given this history, it is not surprising that on January 15, 2015, the Ninth Circuit rejected San Jose’s appellate arguments for overturning baseball’s antitrust exemption.  See City of San Jose v. Office of the Comm’r of Baseball, _ F3d. _, No. 14-15139, 2015 WL 178358 (9th Cir. Jan. 15, 2015) (“San Jose v. MLB”).  The appeal arose as a result of the Oakland Athletics’ effort to relocate their baseball franchise to San Jose.  When the A’s asked MLB for permission to move to San Jose, the league shelved the request in a committee.  San Jose then sued MLB, claiming that the refusal was an agreement among MLB team owners to preserve the San Francisco Giants’ local monopoly in violation of the federal and state antitrust laws.  Judge Ronald Whyte of the Northern District of California dismissed San Jose’s action on grounds that “MLB’s alleged interference with the A’s relocation to San Jose is exempt from antitrust regulation.”  City of San Jose v. Office of the Comm’r of Baseball, 2013 WL 5609346, at *11 (N.D. Cal., Oct. 11, 2013).  San Jose appealed to the Ninth Circuit.

Judge Kozinski, writing for the Ninth Circuit, affirmed the dismissal of San Jose’s antitrust claims stating “San Jose has struck out” on its effort to overturn baseball’s antitrust exemption.  San Jose v. MLB, 2015 WL 178358, at *5.  After reviewing the Supreme Court case law assigning responsibility to Congress to make any necessary changes to the exemption, the Ninth Circuit concluded that congressional acquiescence to the baseball antitrust exemption was evident through the 1998 Curt Flood Act.  The Court explained:


[W]hen Congress specifically legislates in a field and explicitly exempts an issue from that legislation, our ability to infer congressional intent to leave that issue undisturbed is at its apex.

The exclusion of franchise relocation from the Curt Flood Act demonstrates that Congress (1) was aware of the possibility that the baseball exemption could apply to franchise relocation; (2) declined to alter the status quo with respect to relocation; and (3) had sufficient will to overturn the exemption in other areas.


Id. at *4.  The Ninth Circuit also affirmed the dismissal of San Jose’s state antitrust claims because “[b]aseball is an exception to the normal rule that ‘federal antitrust laws supplement, not displace, state antitrust remedies.”  Id.  Baseball’s special status under the antitrust laws was thus, once again, affirmed in full.

San Jose has indicated that it will appeal the Ninth Circuit’s ruling to the Supreme Court.  Counsel for the City of San Jose, Joseph Cotchett, said: “We argued to the Ninth Circuit Court of Appeals that, no matter which way they held, this case was going to the Supreme Court.  We believe the Supreme Court will treat baseball like any other business in America and find MLB’s supposed exemption does not apply to the A’s proposed move.  The A’s should be allowed to relocate to San Jose.”

The issue is what can the Supreme Court do?  Some argue that if Congress addressed the franchise relocation issue in the Curt Flood Act, the Supreme Court can only find the Curt Flood Act unconstitutional, it cannot rewrite a statute with which it does not agree.  Others argue that the Curt Flood Act addressed only the reserve clause not the franchise relocation issue and furthermore, having created the exemption, the Court has the power to abrogate the exemption.​

John L. Cooper and Racheal Turner
Farella Braun + Martel LLP

Supreme Court Hears Arguments on Preemption of State Antitrust Law

On January 12, the United States Supreme Court heard arguments in Oneok, Inc., v. Learjet, Inc., No. 13-271, a case presenting important questions regarding federal preemption of state antitrust laws.

Oneok v. Learjet stems from manipulation of the natural gas market during the 2000-02 energy crisis that resulted in dramatic increases in the prices of electricity and natural gas, particularly in California.  Learjet and other plaintiffs filed state court class action complaints on behalf of retail purchasers of natural gas, alleging that the defendants, natural gas sellers and marketers, violated state antitrust laws that resulted in higher retail gas prices.  The conduct included engaging in “wash trades” — offsetting sales among the defendants designed to inflate prices — and reporting false prices to publishers of gas price “indexes,” on which a substantial number of gas sale contracts refer to establish pricing.  Plaintiffs alleged that as a result retail natural gas purchasers paid artificially higher prices.

The cases were removed to federal court under the Class Action Fairness Act and consolidated in a multi-district proceeding in the District Court of Nevada.  The defendant gas companies marketed natural gas pursuant to “blanket certificates” issued by the Federal Energy Regulatory Commission (“FERC”) pursuant to the federal Natural Gas Act (“NGA”).  In 2011, the District Court entered summary judgment against the plaintiffs, reasoning that plaintiffs’ state law antitrust claims are preempted by the NGA, which confers exclusive jurisdiction in FERC to regulate interstate wholesale sales of natural gas as well as practices “affecting” gas rates within FERC’s jurisdiction.  Because the conduct, wash sales and false reports to index publishers, had been expressly addressed by FERC orders and affected wholesale prices — even though the conduct may also have affected retail prices that were outside of FERC’s jurisdiction — the District Court held that the state law claims were preempted, concluding the federal regulatory scheme “occupied the field” in which the plaintiffs sought to apply state antitrust laws.

On appeal, the Ninth Circuit Court of Appeals reversed.  The Ninth Circuit concluded that the state law claims were not preempted because the specific transactions that were at issue in the lawsuits — retail purchases by the plaintiffs — did not fall within FERC’s jurisdiction.  The Ninth Circuit recognized that FERC has exclusive jurisdiction over practices that affect wholesale rates within its jurisdiction.  But it held that the NGA’s grant of exclusive jurisdiction to FERC does not preempt state antitrust claims that “aris[e] out of price manipulation associated with [retail] transactions falling outside of FERC’s jurisdiction.”   The Supreme Court granted certiorari to resolve the question of the scope of federal preemption over state antitrust claims.

The main question before the Supreme Court is where the analysis should focus for purposes of determining federal field preemption of state antitrust laws.  Should a court focus on the conduct that has been alleged and whether that conduct falls within the jurisdiction of the federal agency?  If so, then because it was not disputed that FERC could, and did, regulate the defendants’ conduct, the state law claims here would be preempted.  Or should a court focus on the transaction in which the plaintiffs claimed to have experienced artificially higher prices, regardless of whether the conduct that ultimately caused those prices was within the federal agency’s authority?  In that case, the state antitrust claims would not be preempted because the retail transactions in which the plaintiffs purchased natural gas are not within FERC’s jurisdiction to regulate wholesale gas prices.

At the January 12, 2015 oral argument, a number of justices appeared to struggle with these questions.  The justices asked both sides a number of detailed hypotheticals to try to flesh out where the preemption lines should be drawn.  For example, Justice Kagan asked counsel for the gas companies:

[W]hy should the field preemption carry into a sphere where the practice being regulated is commonly affected, both wholesales sales, which are clearly in the bailiwick of the federal government, and retail sales which are just as clearly in the bailiwick of the state?

By contrast, Justice Scalia focused on the conduct of the defendants rather than the purchases of the plaintiffs, commenting:

The gravamen of your complaint is the fiddling with the reporting. . . . That is the antitrust violation, that conspiracy to report false amounts and to make false sales.   There is no doubt that the Natural Gas Act places that within the control of the commission.  They ­­ it does have the power to regulate those transactions and to punish violations of those transactions.

Notably, the United States appeared as an amicus supporting the defendant natural gas companies’ position.  A number of individual states appeared in support of the plaintiffs.

The decision in Oneok v. Learjet could have broad implications on the reach of state antitrust laws in areas of commerce that are subject to some federal regulation but which are not solely or entirely covered by federal regulatory statutes.  These include not only energy sales but also a variety of transactions in the fields of securities, banking, insurance, transportation, pharmaceuticals, and numerous others.  The Supreme Court should issue its decision by June.

Geoffrey T. Holtz
Morgan Lewis & Bockius LLP

New Faces on the Bench:  Profile of District Judge Haywood Gilliam

The United States District Court for the Northern District of California has a new face on the bench.  On the recommendation of Senator Dianne Feinstein, President Obama nominated Haywood S. Gilliam, Jr. in August 2014 to fill a vacancy created by Chief U.S. District Judge Claudia Wilken of the Oakland Division, who has transferred to senior status.  The Senate confirmed Judge Gilliam in December 2014. 

Judge Gilliam graduated magna cum laude from Yale in 1991, and earned his law degree in 1994 from Stanford Law School, where he was an Article Editor for the Stanford Law Review.  After graduating, Judge Gilliam clerked for U.S. District Judge Thelton Henderson in the Northern District of California from 1994 to 1995.  He then entered private practice, working as an associate at the law firm of McCutchen, Doyle, Brown & Enersen from 1996 to 1999.  As a young associate, his practice was focused on civil litigation in securities, telecommunications, antitrust, construction and breach of contract matters.

In 1999, Judge Gilliam left private practice, serving as an Assistant United States Attorney for the Northern District of California until 2006.  During that time he investigated and prosecuted cases including securities fraud, mail and wire fraud, violent crimes and immigration crimes.  He served as the Chief of the Securities Fraud Section from 2005 to 2006, supervising a team of attorneys in prosecuting securities and corporate fraud matters.  During this time, he also served on the Department of Justice’s nationwide Securities and Commodities Fraud Working Group.

Judge Gilliam returned to private practice in 2006 as a partner at Bingham McCutchen LLP, where his practice consisted of counseling clients in criminal and regulatory enforcement matters and internal investigations, including securities, antitrust, healthcare, anti-corruption, export controls, trade secret, environmental and other white collar matters.  Three years later, he became a partner at Covington & Burling, where he served as the Vice-Chair of the firm’s White Collar Defense and Investigations practice group. 

He has been widely recognized for his accomplishments in private practice.  He was included as a Best Lawyers in America for Criminal Defense: White Collar in 2013 and 2014, a Benchmark Litigation Future Star in 2013 and 2014, and was recognized by Northern California Super Lawyers from 2008 to 2013.

While in private practice, Judge Gilliam had significant defense-side antitrust experience.  Judge Gilliam’s white collar practice at Covington included representing clients before the Antitrust Division in bid rigging and price fixing investigations.  While at Bingham McCutchen he represented the NCAA in a federal class action antitrust claim brought by former college football and basketball players.  White et al. v. National Collegiate Athletic Association, Case 2:06-cv-00999-VBF-MAN (C.D. Cal. 2008).  In that case, the players alleged the rules governing financial aid awarded to student athletes was an unlawful restraint on competition, violating the Sherman Act § 1.  The case ultimately settled before trial.   Additionally Judge Gilliam coauthored a paper concerning the intersection of white collar and antitrust investigations.  See Strategic Considerations in Cases Involving Joint Criminal Investigations by the Antitrust Division of the US. Department of Justice and Other U.S. Law Enforcement Agencies, Bloomberg Antitrust & Trade Law Report (June 28, 2010).  Judge Gilliam also participated in the Mock Trial held at the 2012 ABA Section of Antitrust Law Spring Meeting in Washington D.C.

Lee F. Berger & Mary H. Walser
Paul Hastings LLP


From the December 2014 E-Brief

New & Noteworthy: FTC v. AT&T, Case No. 14-cv-04785-enc (N.D. Cal., Judge Chen)

On October 28, 2014, the Federal Trade Commission (“FTC”) filed a complaint against AT&T Mobility alleging that AT&T has misled millions of its smartphone customers by charging them for “unlimited” data plans while reducing or throttling their data speeds, in some cases by nearly 90 percent. The complaint charges that AT&T violated the FTC Act by changing the terms of customers’ unlimited data plans while those customers were still under contract, and by failing to adequately disclose the nature of the throttling program to consumers who renewed their unlimited data plans.

Optical Disk Drive Judge Denies Class Certification

In re Optical Disk Drive Antitrust Litigation, Case No. 10-md-2143 (N.D. Cal. Oct. 3, 2014), 2014 U.S. Dist. LEXIS 142678. On October 3, 2014, The Hon. Richard Seeborg issued an order denying class certification in a case involving alleged price fixing by the manufacturers of optical disks drives (“ODDs”) (which include CDs, DVDs and Blu-Ray ODDs). Judge Seeborg held that the two groups of plaintiffs (direct purchaser plaintiffs (“DPPs”) and indirect purchaser plaintiffs (“IPPs”)) did not demonstrate that common issues of fact and law predominated with respect to class-wide antitrust injury and damages.

The DPPs had tried to demonstrate antitrust injury and damages through their expert who opined that the ODD industry was “conducive” to anticompetitive activity. But Judge Seeborg found that the DPPs’ expert only demonstrated that the purchasers on the whole may have been overcharged. The expert made no attempt to establish, but instead merely assumed, class wide-impact stemming from the alleged anticompetitive conduct. As to damages, Judge Seeborg held that DPPs’ method of calculating damages (calculating a flat percentage of the overall price of the sold product) was flawed as a purchaser of, for example, an expensive computer would be found to have suffered more than a purchaser of a bargain computer, even though the same ODD was installed.

Judge Seeborg further held that, even if the DPPs had established predominance, the class as defined by the DPPs would not meet the standard of typicality or superiority. The named plaintiffs were three small companies and four individuals who purchased non-customized ODDs from one of the defendants at non-negotiable list prices. The DPP’ class included ODD purchasers who had the ability to negotiate prices. The disparity in purchasing power between these purchasers would preclude class certification of a class as defined by DPP.

As for the IPPs, while Judge Seeborg held that held that while they had established commonality, typicality and adequacy, the IPPs, like the DPPs, failed to demonstrate that antitrust injury and resulting damages could be shown on a class-wide basis. Again, the IPPs’ expert assumed class-wide impact rather than demonstrating antitrust injury through results. The IPPs’ expert analysis also demonstrated a high correlation between prices across customers and across different types of ODDs but did not account for the fact that such correlations could exist even without the alleged price fixing. Judge Seeborg noted that during the class period, prices of ODDs were declining due to independent factors.

Dominique Chantal-Alepin
Mayer Brown

Magistrate Strikes Portions of Expert Opinions, Recommends Class Certification in Air Cargo Price-Fixing Case

In re Air Cargo Shipping Services Antitrust Litigation, E.D.N.Y. case no. 1:06-md-1775-JG-VVP (Oct. 15, 2014) Magistrate Judge Viktor V. Pohorelsky issued a 114 page opinion recommending that the district court grant the plaintiffs’ motion for class certification. The plaintiffs had alleged that the defendant airlines participated in a global conspiracy to unlawfully inflate the prices charged to ship goods by air transportation by imposing a uniform “fuel surcharge.”

In connection with their motion for class certification, the plaintiffs moved to strike certain opinions of the defendants’ three experts. The Court granted plaintiff’s motion to strike certain of those opinions on the grounds that they were unsupported by scientific evidence, contained a “devastating miscalculation,” and were misleading.

As to the issue of class certification, the defendant airlines attempted to defeat class certification by arguing that common issues of antitrust injury and damages did not predominate. The defendants argued that each plaintiff was capable of individually negotiating different base rates for shipping, which would have allowed them to “negotiate away” or waive the impact of the fuel surcharges. But plaintiffs submitted evidence that fuel surcharge waivers and negotiation offsets did not happen very often. The court found this evidence persuasive. It held that even if it was true that each plaintiff had a chance to negotiate, the law did not require plaintiff to demonstrate that every class member suffered damages.

Dominique Chantal-Alepin
Mayer Brown

Titanium Dioxide Case Falters on AGC Standing Issues . . .

Los Gatos Mercantile, Inc. v E.I. DuPont de Nemours and Company et al, Case No. 13 cv-01180-BLF (N.D. Cal. Sept. 22, 2014), 2014 U.S. Dist. LEXIS 133540.Four manufacturers of titanium dioxide moved to dismiss collusive pricing claims asserted by indirect purchaser plaintiffs under the federal Sherman Act, 15 U.S.C. § 1, and various state antitrust, consumer protection and unjust enrichment statutes for lack of antitrust standing under Article III andAssoc. Gen. Contractors v. Cal. State Council of Carpenters (“AGC”), 459 U.S. 519 (1983). On September 22, 2014, District Court Judge Beth Labson Freeman granted the motion, in part, with leave to amend. The Court held that only plaintiffs that reside or purchased the product in the state have standing to assert claims under that particular state’s antitrust or consumer laws. The Court also found that the ‘antitrust standing’ principles enunciated by the Supreme Court in AGC applied to claims asserted by plaintiffs under California and New York antitrust laws, following precedent with respect to those states’ laws.

Case Background:

Several paint retailers filed a nationwide indirect purchaser class action in the District Court for the Northern District of California against four manufacturers of titanium dioxide, asserting claims under state and federal antitrust laws, state consumer protection statutes, and state common laws. Titanium dioxide is a chemical used in paint and in other products (such as paper, plastic, inks, pharmaceutical coatings, toothpaste, sunscreen, cosmetics, rubber, ceramic and food). Plaintiffs allege defendants and co-conspirators engaged in collusive pricing to dominate and control the titanium dioxide market in the United States by, among other things, discussing pricing when they met at trade show functions and engaging in lock-step price increases. Plaintiffs allege the coordinated price increases occurred from 2002 through 2008 despite flat demand and excess supply. They further allege that overcharges for titanium dioxide were passed through each level of distribution to plaintiffs, who purchased “paint and other products containing Titanium Dioxide manufactured by one or more of the Defendants.”

The operative complaint asserts claims for (1) damages under antitrust laws of 25 states; (2) damages under consumer protection laws of thirteen states; (3) disgorgement under unjust enrichment of thirty-two states; and (4) injunctive and equitable relief under the Sherman Act, 15 U.S.C. § 1. Defendants moved to dismiss all claims for lack of Article III standing, lack of antitrust standing, and failure to state a claim on which relief may be granted. The original named plaintiffs are residents of seven states.

The Court’s Order:

In the first part of the motion, defendants argued that plaintiffs lacked Article III standing to assert antitrust, consumer production or other claims under the laws of those states in which no plaintiff resided or purchased products. Judge Freeman analyzed whether questions regarding the ultimate scope of the class action should be addresses at class certification and not at the pleading stage. Although the Court found “no controlling case law on this issue,” Judge Freeman noted “the trend in the Northern District of California is to consider Article II issues at the pleading stage in antitrust cases and to dismiss claims asserted under the laws of states in which no plaintiff resides or has purchased products,” citing In re Ditropan XL Antitrust Litig., 529 F. Supp. 2d 1098 (N.D. Cal. 2007) and cases following Ditropan’s lead.Order at 5-6. The Court acknowledged that cases from other courts and other jurisdictions have reached contrary holdings. Id. a 6-7. The Court’s order “joins the majority of courts in the Northern District in concluding that dismissal is appropriate with respect to claims asserted under the laws of the states in which no Plaintiff resides or has purchased products,” and grants the motion to dismiss with leave to amend to add additional plaintiffs.

Judge Freeman next addressed the question of whether AGC’s requirements for ‘antitrust standing’ apply to state law antitrust claims. In AGC, the Supreme Court held that, with respect to antitrust claims brought under the Sherman Antitrust Act, the presiding court must determine “whether the plaintiff is a proper party to bring a private antitrust action.” AGC, 560 U.S. at 535, n.31. Under AGC, as applied in the context of federal antitrust claims, courts consider the question of ‘antitrust standing’ in light of several factors: (1) the nature of plaintiffs’ injuries and whether plaintiffs were participants in the relevant markets; (2) the directness of the alleged injury; (3) the speculative nature of the alleged harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages. In re TFT-LCD (Flat Panel) Antitrust Litig. (“LCDs”), 586 F.Supp.2d 1109, 1123 (N.D. Cal. 2008) (citing AGC, 459 U.S. at 536-39).

Plaintiffs argued that the AGC analysis did not apply to state law antitrust law claims, asserting that such application would effectively abrogate the remedies authorized by relevant states’ repealer statutes. Judge Freeman acknowledged different approaches by district courts within the Ninth Circuit addressing the issue, including two key cases: In Re Dynamic Random Access (DRAM) Antitrust Litig. (“DRAM I”), 516 F. Supp. 2d 1072, 1093-95 (N.D. Cal. 2007) (holding that AGC applies to the antitrust statutes of thirteen other states based upon state court decisions applying federal law and/or statutory harmonizing provisions indicating that federal law applies); and LCDs, 586 F. Supp. at 1123 (holding that “it is inappropriate to broadly apply the AGC test to plaintiffs’ claims under the repealer states’ laws in the absence of a clear directive from those states’ legislatures or highest courts”). Adopting in large part the approach used by the court in LCDs, Judge Freemen held: “it is appropriate to apply the AGCfactors to a repealer statute if the state legislature or a state court decision clearly indicates that federal law should be followed in construing the statute. A decision of the state’s highest court is controlling, and a lower state court is in a better position than this Court to predict its highest court’s approach. However, the Court is not persuaded that AGC should be applied to a repealer statute based solely on a general harmonization provision therein.” Order at 9.

The Court then looked to state law cases applying AGC to the state’s antitrust laws. Observing that courts in California and New York had applied AGC to those states’ antitrust statutes, Judge Freeman held it was appropriate to apply the AGC factors to claims asserted under California and New York state antitrust laws. Order at 10. Finding no state court decisions applying AGC to the antitrust statutes of Mississippi or Tennessee, the Court declined to applyAGC to the claims arising under the antitrust laws of those states. Id. at 10-11.

Applying the AGC factors to the Sherman Act § 1 claims and the claims brought under the antitrust laws of California and New York, the Court concluded that plaintiffs had failed to plead facts to establish ‘antitrust standing’ in two key respects.

First, the court held that plaintiffs failed to plead facts to show that they were participants in the relevant market (the first AGC factor), which plaintiffs defined as including “every product in the United States that contains titanium dioxide.” Order at 12. To satisfy AGC, Judge Freeman held, plaintiffs must at a minimum allege facts to show that the market for products containing titanium dioxide is “inextricably linked” to the titanium market in which the alleged collusive pricing behavior occurred. Plaintiffs must also allege facts to so show they will be able to physically trace titanium dioxide manufactured by defendants through the distribution chain to a plaintiff purchased product. Id. Facts to support such tracing also are necessary, the court held, to satisfy AGC’s requirements that the directness of alleged injury and nature of the alleged harm is neither speculative nor too remote. Id. at 13-14.

Second, with respect to the California and New York state law antitrust claims, the court held that plaintiffs had not pled facts that would enable a trier of fact to readily apportion damages and avoid duplicative recovery -- a task the court viewed as difficult given that the putative classes here include indirect purchasers at every level of the distribution chain, and purchases of all products containing titanium dioxide (even if in trace amounts). Order, at 14.

Implications for Indirect Purchaser Claims in California Antitrust Actions

Judge Freeman follows Northern District of California precedent to hold that indirect purchaser plaintiffs asserting state law claims must establish Article III standing at the pleading stage, by alleging facts that they reside in or purchased products in the applicable state. She also follows Northern District of California precedent in holding that ‘antitrust standing’ is a required pleading element, and in finding that the AGC factors for assessing ‘antitrust standing’ will be applied at the pleading stage in antitrust cases involving indirect purchaser claims. She also concludes that the AGC analysis extends not only to indirect purchaser claims brought under the Sherman Act, but also to indirect purchaser claims under individual state repealer statutes where the courts of the applicable state have “clearly indicated” that federal law should be followed in construing the state statute.

According to Judge Freeman, California courts have “clearly indicated” that AGC applies to state law antitrust claims brought under the California Cartwright Act. Therefore, plaintiffs alleging antitrust violations under both the federal Sherman Act and the California Cartwright Act must plead facts to support ‘antitrust standing’ under AGC.

Elizabeth C. Pritzker
Pritzker Levine LLP

. . . While Batteries Plaintiff Class Surmounts AGC Challenge

In re Lithium Ion Batteries Antitrust Litig., Case No. 13-MD-2420-YGR(N.D. Cal. October 2, 2014), 2014 U.S. Dist. LEXIS 141358. This multidistrict litigation involving both direct, indirect and governmental purchasers stems from allegations of a multi-year conspiracy among Japanese and Korean companies and their U.S. subsidiaries to fix the prices of lithium ion battery cells, the chemical core of rechargeable batteries in consumer electronics. On October 2, 2014, District Court Judge Yvonne Gonzalez Rogers issued a 78-page opinion addressing several Rule 12(b)(6) pleading challenges raised by defendants. Two key issues raised by the motions involved questions of antitrust standing under Assoc. Gen. Contractors v. Cal. State Council of Carpenters (“AGC”), 459 U.S. 519 (1983), and antitrust injury traceable to a purchase from an entity owned or controlled by an alleged conspirator under Royal Printing Co. v. Kimberly Clark Corp. (“Royal Printing”), 621 F.3d 323 (9th Cir. 1980). The Court found that the direct and indirect purchaser complaints largely satisfied the requirements of AGC andRoyal Printing and denied the motions to dismiss in all respects except as to allegations asserted by one direct purchaser plaintiff against Hitachi-branded lithium ion batteries and camcorders containing those batteries.

Case Background:

This is a multidistrict action stemming from allegations that several Japanese and Korean defendant families and their U.S. subsidiaries, including LG Chem, Samsung, Panasonic, Sanyo, Sony, Hitachi, Maxell, GS Yuasa, NEC and Toshiba, conspired to fix the prices of lithium ion battery cells. As alleged in the complaints, lithium ion cells are the chemical core of a lithium ion battery. The cells are manufactured in a raw state, and then one or more cells are “packed” into a casing that makes them suitable for use as lithium ion batteries. The cells are useless unless packed, and the cost of manufacturing the cell makes up a substantial majority of the cost of a completed battery. Lithium ion batteries are the predominant form of rechargeable battery used in consumer electronic products.

Plaintiffs allege the conspiracy caused injury to both direct and indirect purchasers of lithium ion batteries and products containing them in the form of alleged price overcharges. The direct purchaser plaintiffs filed suit on behalf of purchasers of lithium ion batteries and products, seeking injunctive relief and damages under the federal Sherman Antitrust Act. The indirect purchaser plaintiffs include persons, businesses and municipal and regional governments injured by the alleged overcharge; these plaintiffs filed suit for injunctive relief under the Sherman Act, and for damages under various state antitrust and consumer laws.

The Court’s Order:

The Court’s order is part of a phased series of orders that address specific issues of law. In a prior order issued on January 21, 2014, Judge Gonzalez Rodgers upheld the parties’ initial consolidated complaints finding that both complaints plausibly alleged a conspiracy going back to 2002, but granted defendants’ motions to dismiss with respect to the direct purchaser plaintiffs only, finding that the complaints failed to plead antitrust standing under Royal Printing. The Court reserved issues relating to the indirect purchaser plaintiffs’ antitrust standing underAGC, which were briefed and argued after the plaintiffs amended their respective complaints following the Court’s January 21 order.

The Court’s October 2 order begins with an analysis of the indirect purchaser plaintiffs’ antitrust standing under AGC. In AGC, the Supreme Court reasoned that “[a]n antitrust violation may be expected to cause ripples of harm to flow through the Nation’s economy, but despite the broad wording of § 4 [of the Clayton Act] there is a point beyond which the wrongdoer should not be held liable.” AGC, 459 U.S. at 534 (quoting Blue Shield of Virginia v. McCready, 457 U.S. 465, 476-77 (1982) (internal quotation marks omitted)). To determine where the point lies in a particular case, courts must “evaluate the plaintiff’s harm, the alleged wrongdoing by the defendants, and the relationship between them.” Id at 535. To guide this evaluation, courts employ a five-factor balancing test for determining whether plaintiffs suing for damages under Section 4 of the Clayton Act, despite having been injured in their business or property by reason of something forbidden in the antitrust laws, are nevertheless too “remote” from the alleged cause of the injury for federal law to countenance a recovery. Id. at 530-35.

Because the indirect purchaser plaintiffs sought damages under various state antitrust laws -- and not under federal law -- the Court first focused on whether the AGC test for antitrust standing applies to a particular state-law claim asserted by indirect purchasers in the complaint. Second, if AGC was found to apply, the Court considered whether its application barred a particular state-law claim asserted in the indirect purchaser complaint.

In determining whether the AGC test for antitrust standing applies to a particular state-law claim, the Court surveyed cases from several jurisdictions. The Court rejected the notion that harmonization statutes are sufficient, in and of themselves, to invoke AGC’s application: “[S]imply because a state statute encourages reference to federal law does not impose a mandate on state courts to conform in fact to federal law.” Order at 20. Using similar reasoning, the Court parted ways with decisions by other courts in the Northern District of California, and held that a recent case from the California Supreme Court (Areyh v. Canon Business Solutions, Inc., 55 Cal. 4th 1185, 1195 (2013)) severely weakens any argument that California courts apply the AGC test to antitrust claims brought under the California Cartwright Act. Order, at 20-21. According to Judge Gonzalez Rogers, the appellate courts of only three states -- Nebraska, New Mexico, and Nevada --have “affirmatively announce[d] after a reasoned analysis that their high courts do or would apply AGC as applied in the federal courts.” Id. at 17, 21-22. “For the remaining states,” the Court concluded, “the authority is too uncertain to conclude they would apply AGC without any modification, making indirect-purchaser standing more readily available.” Id. at 22.

Rejecting defendants’ argument that each state identified by defendants would apply AGC, Judge Gonzales Rogers nonetheless concluded that the indirect purchaser plaintiffs “adequately alleged facts to satisfy AGC for pleading purposes.” Order at 22. Under AGC, courts consider (1) the nature of plaintiffs’ injuries and whether plaintiffs were participants in the relevant markets; (2) the directness of the alleged injury; (3) the speculative nature of the alleged harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages. Order at 23 (citing Am. Ad. Mgmt., Inc. v. Gen. Tel. Co. of California, 190 F.3d 1494, 1505 (9th Cir. 1996)).

The Court held that plaintiffs satisfied the first AGC factor, finding that the indirect purchaser plaintiffs had adequately pled markets for battery cells, batteries and batteries which were plausibly pled to be inextricably intertwined. Order at 25. Plaintiffs also had adequately pleaded that they purchased batteries and battery products with cells allegedly traceable to defendants, and that the batteries in which the cells are incorporated “do not undergo any physical alterations as they move through the chain of distribution.” Id. Plaintiffs also pled that the battery cell is a “substantial part of a [battery] product” that comprises a “substantial component cost” of such products.” Id. Additionally, plaintiffs alleged that price increases associated with components, such as batteries, can be isolated through regression analyses such that the impact of the overcharge “can be measured and quantified.” Id. The Court held that ‘[s]imilar allegations have been deemed sufficient for pleading purposes.” Id. at 25-26.

Turning to the second AGC factor, directness of injury, the Court found that plaintiffs’ allegations that the overcharge was “passed on to them by direct purchaser manufacturers, distributors and retailers” and coupled with plaintiffs’ allegations distribution chain is such that a distinct and identifiable overcharge moves automatically through its layers to consumer purchasers was “not too indirect to favor standing under AGC.” Order at 29.

With respect to the third AGC factor, speculative nature of the harm, the Court held that plaintiffs’ allegations that the price of the allegedly fixed battery cell can be traced to show the changes in prices paid by direct purchasers of batteries affect prices paid by indirect purchasers of batteries and battery products, using expert and regression analyses, was sufficient to establish antitrust standing. “The IPP’s allegation that they have suffered somedamage, along with a method of demonstrating the fact of their damage, satisfies the Court that this factor tips in favor of standing for purposes of the pleading stage.” Order at 30 (italics in original).

Reasoning that the fourth and fifth AGC factors -- risk of duplicative recovery and unduly complex apportionment of damages -- “are two sides of the same coin,” the Court considered these factors together. And, while defendants argued that there was a risk of undue complexity in the apportionment of damages, the Court found that “this factor does not weigh against standing.” Id. at 31. “...[D]efendants do not explain why damages could not be apportioned in this case, as they have in other complex antitrust cases, such that the case should be dismissed on the pleadings alone. It is a rule of long standing ‘that in complicated antitrust cases plaintiffs are permitted to use estimates and analysis to calculated a reasonable approximation of their damages.’” Id (citing Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 493 (7th Cir. 2002)).

Turning its attention from the indirect purchaser case to the direct purchaser case, the Court then went through a detailed analysis of the direct purchaser plaintiffs’ antitrust standing underRoyal Printing. With respect to Royal Printing’s requirements, the Court observed: “the DPPs must allege facts that lead to a plausible inference that they have suffered an antitrust injury traceable to a purchase from an entity owned or controlled by an alleged conspirator.” Order at 46.

The Court held that the direct purchasers satisfied the pleading requirements of Royal Printing, except in one narrow circumstance. Specifically, the Court held, direct purchasers alleged the particular batteries and battery products purchased by each direct purchaser plaintiff, specifying type, brand and model number. Order at 46. With respect to battery products, the Court found that plaintiffs’ allegations that the products bore distinctive markings of a defendant met Royal Printing’s traceability requirement. Id. The complaint also was held to satisfy traceability by limiting the direct purchaser plaintiff claims to those purchases involving battery cells packed by a defendant or its co-conspirator, a separate company on defendant’s behalf “where title to said cells did not transfer” or by companies owned or controlled by defendants or their co-conspirators. Id at 47.

Importantly, Judge Gonzalez Rogers rejected defendants’ efforts to limit antitrust standing only to direct purchaser plaintiffs and only to purchases made by direct purchasers from a particular defendant that either owned or controlled a seller. Order at 49. As the Court held, “Royal Printing permits indirect purchasers who buy from any seller owned or controlled by anyconspirator to sue all of the conspirators on a theory of joint and several liability.” Id (italics in original).

The Court found “one exception” to the direct purchaser plaintiffs’ “otherwise adequate pleading of purchases of price-fixed components through a chain of co-conspirators or entities under their ownership or control.” Order at 49-50. One plaintiff, Alfred H. Siegel, sued in his capacity as a liquidating trustee for Circuit Stores, Inc. Liquidating Trust, alleging that Circuit City purchased Hitachi-branded lithium ion batteries and camcorders from a sibling entity of an alleged conspirator. Id. at 50. Although the sibling entities shared a common corporate parent, there were no allegations that the corporate parent engaged in any wrongdoing. “As such,” the Court held, “the DPPs fail to satisfy Royal Printing with respect to Circuit City’s alleged purchases of Hitachi batteries and camcorders from Hitachi America Ltd.” Id. at 50-51.

Implications for Indirect Purchaser Claims in California Antitrust Actions

Judge Gonzalez Rogers follows Northern District of California precedent in holding that ‘antitrust standing’ is a required pleading element, and in finding that the AGC factors for assessing ‘antitrust standing’ will be applied at the pleading stage in antitrust cases involving indirect purchaser claims. She concludes, however, that no California court has clearly held that AGC applies to antitrust claims under the California Cartwright Act. Therefore, under this ruling, AGC does not limit claims brought under California law.

Judge Gonzalez Rogers relies on detailed pleading allegations regarding product and component branding, distinctive marking, title and corporate ownership, control or direction to find that direct purchaser plaintiffs satisfy antitrust standing under Royal Printing. Royal Printing does not limit standing only to direct purchases from a particular defendant/conspirator. Joint and several liability remains the standard. “Royal Printing permits indirect purchasers who buy from any seller owned or controlled by any conspirator to sue all of the conspirators on a theory of joint and several liability.” Order at 49.

Elizabeth C. Pritzker
Pritzker Levine LLP

Adobe Data Breach/Privacy Challenge Survives Standing Assault

In re Adobe Systems, Inc. Privacy Litigation, Case No. 13-cv-05226-LHK (N.D.Cal. September 4, 2014), 2014 U.S. Dist. LEXIS 124126. On September 4, 2014, the Hon. Lucy Koh issued an order granting, in part, Adobe’s motion to dismiss various claims arising from an intrusion into Adobe’s computer network in the summer and fall of 2013 and a resulting data breach.

Plaintiffs allege four causes of action related to the intrusion and breach on behalf of contract and damages classes affected by the intrusion: (1) injunctive relief for violations of the California Customer Records Act, Civil Code §§ 1798.81.5 and 1798.82; (2) declaratory relief; (3) declaratory and injunctive relief for violations of the California Unfair Competition Law (“UCL”), Bus. & Prof. Code § 17200 et seq., and (4) restitution under the UCL. Adobe moved to dismiss all causes of action.

Adobe’s primary arguments in support of its motion involve standing. Adobe argued that because plaintiffs had not alleged that they, in fact, had suffered harm (such as unauthorized credit card use) from the misuse of their personal or credit card data, plaintiffs failed to satisfy the requirements for Article III standing. The precise legal question presented by the motion was whether the recent Supreme Court decision in Clapper v. Amnesty, Int’l USA, __ U.S. __, 133 S.Ct. 1138, 1146 (2013), which rejected “[a]llegations of possible future injury” as a basis for Article III standing, requiring instead that a “threatened injury [] be certainly impending to constitute injury in fact (Clapper, 122 S.Ct. at 1147), supplants the framework articulated by the Ninth Circuit in Krottner v. Starbucks (9th Cir. 2010) for Article III standing in the context of stolen personal information. Krottner holds that “the possibility of future injury may be sufficient to confer standing” where the plaintiff is “immediately in danger of sustaining some direct injury as the result of the challenged conduct.” Id at 1142.

Adobe argued that Clapper changed the law governing Article III standing, and that Krottner is no longer good law. Judge Koh disagreed, finding that the two decisions were not “clearly irreconcilable.” On the contrary, Judge Koh held, the difference in phrasing between the Ninth Circuit’s decision in Krottner, which requires the degree of imminence a plaintiff must allege to have standing as “immediate[] [] danger of sustaining some direct injury,” and a “credible threat of real and immediate harm” and the Supreme Court’s decision in Clapper, which describes the harm as “certainly impending,” was not substantial. Judge Koh went on to conclude that the threatened harm alleged by the plaintiffs -- the risk that their personal data would be misused by hackers that breached Adobe’s network -- is both immediate and real. Such allegations, the Court held, suffice to establish Article III injury-in-fact standing at the pleadings stage, under both Krottner and Clapper. Plaintiffs who allege they incurred costs to mitigate the increased risk of harm (by purchasing credit monitoring services, for example) also had a second, additional basis to assert Article III injury-in-fact standing, the Court found.

In a separate part of the order, the Court rejected Adobe’s challenge to plaintiffs’ claim for a declaratory relief related to Adobe’s contractual obligation, under its End User Licensing Agreements (EULAS) and General Terms of Use Agreements (GTUAs), to provide reasonable security. Adobe argued that plaintiffs’ declaratory relief claim is essentially a declaration that Adobe breached its contractual obligations. According to Adobe, plaintiffs had alleged a breach of contract claim “in disguise” without alleging all elements for breach of contract. Judge Koh again disagreed. The Court held that plaintiffs are not seeking a declaration that Adobe was in breach of a contract at the time of the 2013 data breach alleged, but rather a declaration clarifying Adobe’s ongoing contractual obligation to provide reasonable security. Finding that plaintiffs’ claims are prospective in nature, the Court held that plaintiffs’ declaratory relief claim “requests precisely the type of relief that the Declaratory Relief Act is supposed to provide: a declaration that will prevent future harm from ongoing and future violations before the harm occurs.”

The Court granted Adobe’s motion to dismiss, in part, on two grounds.

Plaintiffs allege an additional claim under the Consumer Records Act stemming from Adobe’s alleged failure to reasonably notify customers about the breach. Judge Koh held that plaintiffs did not allege an injury resulting solely from the failure to provide reasonable notification; thus, plaintiffs could not establish Article III standing for this particular claim. The motion to dismiss was granted, in part, and with leave to amend on this ground. Plaintiffs declined to amend.

Two of the six named plaintiffs did not specifically allege they would not have purchased Adobe products had they known Adobe was not providing the reasonable security that Adobe represented it would provide. Judge Koh dismissed the UCL claim as to these two plaintiffs only, again with leave to amend, finding that these plaintiffs had not pled that they personally lost money or property as a result of the alleged unfair competition as required for UCL claims.

Elizabeth C. Pritzker
Pritzker Levine LLP

Older Items

April 10, 2014

McSweeny Confirmed as FTC Commissioner.  After a year-long vacancy, the FTC is finally complete with the 95-1 vote in favor of confirmation for Terrell McSweeny, who served as a senior antitrust attorney for the U.S. Department of Justice.   For more details, see this article

February 28, 2014
Post- KWIKSET: Labels Do Matter -- Exploring the "All Natural" Jurisprudence


In 2011, the California Supreme Court held in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), that product labels needed to be truthful and upheld standing to bring actions under the UCL to challenge false, deceptive and unfair labeling. Kwikset involved clams that "Made in America" product labels misrepresented the fact that the goods were manufactured abroad. Finding that plaintiffs relied on the "Made in America" label in purchasing the product, the court ruled that plaintiffs were injured when they purchased a product, even a useful product, which was not accurately labeled.

Subsequently, there has been an explosion of recent litigation that has sought to challenge products labeled "all natural" on grounds that an analysis of their ingredients shows violations of the standards set by the Court in Kwikset. Challenges to product labeling have also included deceptive or false descriptive labels. The legal claims involve alleged violations of the Unfair Competition Law (UCL), False Advertising Law (FAL) and the state Sherman Law. This brief surveys a sampling of recent cases under California law to analyze when "all natural" or similar claims may be successfully disputed and when they may be sustained.

Sufficiency of Complaints -- Definition of Claims -- Standing

Balser v. Hain Celestial Group, No. 2:13-cv-05604 (C.D. Cal., December 18, 2013). Motion to Dismiss Granted. False Advertising class action against Alba Botanica for misuse of words "all natural" and "100% vegetarian." Plaintiffs argued that "natural" meant "existing in or produced by nature, not artificial." Defendant maintained a website which defined the terms: "we don't use parabens, sulfates or phthalates" and "vegetarian" means "without animal products," not "only from vegetable matter." The product labels defined what products are natural and what ingredients are excluded, amid a complete list of all ingredients maintained. In dismissing the complaint with prejudice, Judge Real found plaintiffs' theory of the case flawed as shampoos or lotions are not natural to begin with, ("they do not exist in nature nor do they grow on trees") and thus plaintiffs knew that the products were manufactured and could not have been deceived by a broad definition of "natural."

Judge Illston granted a similar motion to dismiss, albeit with leave to amend, in the case ofFigy v. Amy's Kitchen, No. 3:13-cv-03816 (N.D. Cal., November 25, 2013). Amy's Kitchen sells a number of products containing "evaporated cane juice." Plaintiffs sued under the unlawful prong of the UCL, arguing that "evaporated cane juice" must be listed under its common and usual name, which is "sugar." The listing, they further alleged, violates Federal labeling laws and deceives the plaintiff class who, it is alleged, believe that omitting the words "sugar" or "syrup" in favor of the term "juice" both downplays the inclusion of "sugar" as an ingredient and misleads plaintiffs into believing that "juice" is a healthier ingredient than sugar or sugar syrup. In dismissing the initial complaint for lack of standing, Judge Illston ruled that the plaintiff must show actual reliance on the misrepresented ingredient and that the "misrepresentation was an immediate cause of the injury-causing conduct." She interpreted that to mean that plaintiff needed to allege he would not have bought the product but for the misrepresentation and that he saw the misrepresentation prior to purchasing the product, as analyzed in Kwikset. Plaintiffs filed an amended complaint in December, 2013, which is now subject to further motion to dismiss.

Swearingen et al. v. Yucatan Foods, L.P., No. 3:13-cv-03544 (N.D. Cal., February 7, 2014).Order Denying Motion to Dismiss. Judge Seeborg denied defendants' motion to dismiss UCL, Sherman Law, and FAL claims again involving "evaporated cane juice" in guacamole products. Judge Seeborg analyzed plaintiff's standing under the UCL. In particular, plaintiff relied on the "unlawful" prong of the UCL by referring to FDA regulations and draft guidance letters in 2009 that the term evaporated cane juice "falsely suggests that the sweeteners are juice." Plaintiff argued that this term misleadingly suggests that the product is healthier than it is, as "juice" connotes a healthful product. The court did not find that the plaintiff needed to plead actual reliance on the mislabeled product's representations in order to have standing to challenge them.

Kane v. Chobani, Inc., No. 12-cv-02425 (N.D. Cal., February 20, 2014) Order Granting Motion to Dismiss With Prejudice. Judge Koh took the opposite approach in granting defendant's motion to dismiss claims that the yogurt manufacturer misrepresented both its "all natural" ingredients and its disclosure about "evaporated cane juice." After Plaintiff had re-pled the complaint three times and there were several hearings before the court, Judge Koh found that Kwikset required plaintiff's reliance on the misrepresentation to be pled to a standard of particularity under FRCP 9(b). Plaintiff did plead that she read the product ingredients and her understandings of the terms. As the judge analyzed plaintiff's claims, she found them "implausible" because they contradicted other statements made in the complaint or before the court on plaintiff's understanding of the meaning of "evaporated cane juice" and the quality in the "all natural" claims of color added to the product. In sum, plaintiff had not articulated a theory of how defendant's labels misrepresented the ingredients so that plaintiff was injured.

Motion for Class Certification

In an Order Denying Motion for Class Certification, Astiana v. Ben & Jerry's Homemade, Inc., No. 4:10-cv-04387 (N.D. Cal., January 7, 2014), Judge Hamilton denied certification to a class of purchasers of ice cream, frozen yogurt and popsicles which contained "alkalized cocoa" but were labeled "all natural." Plaintiffs claimed it was deceptive to package and advertise products as "all natural" when the ingredient cocoa was manufactured with a synthetic alkalizing product. The evidence showed that Ben & Jerry's used several different suppliers of cocoa, only one of which produced a product with a synthetic alkalizing agent. The others used natural agents in the production of cocoa. The Court questioned whether plaintiffs had met the standards of ascertainability (because it was impossible to determine which products contained the synthetic alkali), standing (because the evidence was inconclusive as to whether plaintiff relied on the "all natural" label and premium pricing prior to her purchase) and commonality (because "all natural" did not have a common meaning and plaintiffs had not produced any evidence that use of the term was evidence of intent to deceive.) Ultimately, while the court was willing to find some evidence toward each of the Rule 23 (a) criteria, she found predominance of common issues over individual issues lacking. Plaintiffs had submitted no expert evidence to show a common meaning of a consumer's valuation of the term "all natural;" no evidence toward damages as defendant sold wholesale only and all products were priced the same, regardless of the "all natural" label; and plaintiff has submitted no evidence showing FDA policy requirements of ingredients were violated. Further, the court noted that injury and damages is a component of every claim raised by plaintiffs and the lack of expert evidence establishing either was fatal to certification as there was no evidence submitted to show class-wide relief was available.

Similarly, Judge Fischer in the Central District denied class certification to a putative class of customers of Chipotle Grill who maintained they were deceived by Chipotle's practice of touting "naturally raised" meats, but substituting conventionally raised meat when the other was not available without changing its signage or menus. Order Denying Motion for Class Certification, Hernandez v. Chipotle Mexican Grill, Inc., No. 2:12-cv-05543 (C.D. Cal., December 2, 2013). Chipotle defined "naturally raised" meats as "coming from animals that are fed a pure vegetarian diet, never given antibiotics or hormones, and raised in a human environment." Chipotle had a practice of substituting the conventional product when naturally raised product was not available. Certification was denied on predominance grounds because the switch to conventionally raised meats took place as to varying products at varying places within a limited time frame. Even Chipotle would have a difficult time of delineating when the substitution occurred and for which products. Moreover, class members would not have retained sufficient records of these purchases nor could they be obtained from the stores. It proved near impossible to identify which meat was purchased in which transaction from stores that switched back and forth between "naturally raised" and conventionally raised meats. While Chipotle sometimes posted notices of the substitution at the point of purchase, the court determined that individual inquiry was necessary to determine whether a class member had seen the sign, or relied on the usual advertising or menu. The court further held that the class action mechanism was not fair or efficient as it would be near impossible to determine who was in the class and how any settlement could be distributed fairly.

Motion for Summary Judgment

Order Granting in Part and Denying in Part Defendants' Motion for Summary Judgment,Ogden v. Bumble Bee Foods, LLC, No. 5:12-cv-01828 (N.D. Cal., January 2, 2014). The case involved the false advertising and misrepresentations in claims of "Omega -3" nutrient content in tuna products. The claims were that the tuna was an "excellent source" and "rich" in "Omega-3," while no more specific nutrient content was provided. Various health claims were also challenged, as was a heart symbol, connoting health, which appeared on the packaging. Judge Koh granted in part and denied in part defendants' motion for summary judgment, evaluating the plaintiff's evidence produced in support of her claims. Actual reliance on the misrepresentation was required and, at the summary judgment stage, the party seeking summary judgment must produce evidence demonstrating an absence of an issue of general material fact to prevail. Here the court reviewed plaintiff's deposition and other uncontradicted statements and found that plaintiff had sufficiently proved antitrust injury and therefore standing, to challenge the "Omega-3" misrepresentations because she testified she was aware of statements on the packaging before she purchased. However, her acknowledgement that she had not read health claims on the defendant's website meant that those claims were dismissed for lack of standing. The court also found that the UCL and FAL provided a private right of action for consumers to challenge violations of the FDCA and the Sherman Law.

Motion for Settlement

Judge Orrick preliminarily approved a class action settlement with Trader Joe's that alleged that several products advertised and sold by Trader Joe's contained synthetic products, despite being labeled "all natural." Larsen et al v. Trader Joe's Co., No. 3:11-cv-05188 (N.D. Cal., February 7, 2013). The products (cookies and juices) variously contained alkali processed cocoa; ascorbic acid, a synthetic form of Vitamin C; sodium acid pyrophosphate; xanthan gum and vegetable monoglycerides, all of which were alleged to be synthetic ingredients. The lawsuit alleged violation of FDA standards that products are not natural if they contain color additives, artificial flavors, or synthetic substances. The class consists of tens of thousands of consumers nationwide who purchased the products from October 2007 to the present. The settlement established a class fund of $3.375 million from which claims will be paid. Consumers with proof of purchase will receive the average price of goods purchased while those without proof will be eligible for a flat reimbursement amount.

Susan Kupfer is a partner at Glancy Binkow & Goldberg, LLP, San Francisco.

2013 Items

August 14, 2013

On August 13, 2013, the U.S. Department of Justice along with the Attorneys General of six states (not including California), filed suit to block the merger of US Airways and American Airlines. In its press release announcing the suit, the DOJ contended that “[i]f this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers," and also noted that "[b]oth airlines have stated they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.” Press release and complaint are available at the Antitrust Division’s website.

June 24, 2013

On June 20, 2013, the U.S. Supreme Court handed down its opinion in American Express Co. v. Italian Colors Restaurant.  The opinion considered “whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the recovery.”  Slip op. at 1.  The federal statutory claim in question was a Sherman Act claim, and the Court held that the arbitration clause was enforceable. 

June 18, 2013

On June 25, 2013 at noon, join the Antitrust Sections of the State and Los Angeles County Bars for a presentation on the intersection of patent law and antitrust. Panelists include: Bret Bocchieri of Novak Bruce Connolly Bove + Quigg; Sean Royall of Gibson, Dunn & Crutcher; and moderator Doug Lichtman, UCLA Law School. The panelists will discuss recent developments in this area and key unsettled issues facing antitrust and intellectual property practitioners in the coming months and years. The presentation will include a question-and-answer discussion with panel attendees.

MCLE credit available and lunch will be provided. Register today at the Section’s discounted rate of $40.00.

June 17, 2013

On June 17, 2013, the U.S. Supreme Court issued its opinion in FTC v. Actavis, Inc., holding that “reverse payment” settlement agreements between a patent holder pharmaceutical and potential generic competitors were subject to a rule of reason analysis and were not immune from antitrust scrutiny.

June 3, 2013

Quid Novi? – Join the Section for a CLE Webinar on June 12, 2013 at 12-1 p.m. (PDT) for a review of recent developments in Antitrust and UCL in California. The program will discuss recent competition trials and key takeaways. Highlights include Bazaarvoice, Higbee, makeup tattooists and Cartwright’s relationship to pre-merger activity. Register now for CLE!

May 17, 2013

From the Antitrust and Unfair Competition Law Section: Save the date of October 24, 2013 for the 23rd Annual Golden State Antitrust and Unfair Competition Law Institute and Antitrust Lawyer of the Year Award Dinner, taking place this year a...t the Julia Morgan Ballroom in San Francisco. Congratulations to Senior Assistant Attorney General Kathleen E. Foote, who will be honored at the event as the 2013 Antitrust Lawyer of the Year. Please join us for an exciting day of panels. Among other distinguished speakers, we will hear from keynote luncheon speaker Justice Goodwin Liu of the California Supreme Court. More details will be posted on the Section website as the date approaches. See Golden State Institute for more information.

May 7, 2013

On May 13, 2013 at 9 a.m. - 10:30 a.m. (Pacific), join the State Bar of California’s and the ABA’s Antitrust Sections for an audio presentation on “Antitrust and the First Amendment.”  The panel will explore the inter-relationship between the First Amendment and antitrust such as:  “Can the ranking of search engine results be challenged under antitrust or is that ranking an opinion?”  or “Can the antitrust laws bar firms subject to a FRAND commitment on a standard essential patent from seeking an injunction?”  If the First Amendment applies in these contexts, what standard of scrutiny applies?   Register now for this event on the ABA website.

April 22, 2013

GET PUBLISHED!  The Section's journal, Competition, is looking for authors for an exciting issue we are developing entitled "The California Difference."  The focus of each article will be on the differences between California antitrust and unfair competition law and federal antitrust and FTC Section 5 law.  The deadline is June 15, 2013.  Please contact Tom Dahdouh if you are interested in writing on any of the following areas - or any other issues worth discussion:  1) Antitrust Injury; 2) Standing; 3)  Standard for predatory pricing and geographic price differentials (Brooke Group versus the Unfair Practices Act); 4) Differences between the UCL and the FTC Act jurisprudence (for example, the difference between the FTC's "reasonable consumer" standard and the UCL standard); 5) Exploiting differences at trial (a. Fifth Amendment; b. Use of Experts; c. Procedural differences); 6) The Impact of CAFA; 7) Merger enforcement; 8) Use of "Quick Look" analysis in antitrust cases; and  9) Vertical price-fixing.

April 15, 2013

On April 16, 2013 from noon to 1:30 Pacific, the Antitrust and Unfair Competition Law Section will present a webinar on Comcast Corp. v. Behrend, the latest word from the United States Supreme Court on class certification. Hear the attorneys who argued the case before the Supreme Court discuss the opinion – and the impact it will have on class action litigation. Register here.

April 4, 2013

Ethics and UCL claims – practicing lawyers and legal corporations may be subject to UCL claims.  Check out the recent article by Diane Karpman, legal ethics expert, in the April 2013 edition of the California Bar Journal.

March 28, 2013

On March 27, 2013 the U.S. Supreme Court issued its opinion in Comcast v. Behrend, reversing the Third Circuit’s affirmation of class certification in an antitrust case, and holding that the plaintiff’s expert report was insufficient in light of the legal theory supporting class certification.  The slip opinion is available HERE.

March 22, 2013

On March 14, 2013, the California Court of Appeal handed down a new opinion construing the Unfair Competition Law in the context of actions between business competitors.  In the opinion, the Court of Appeal reversed the judgment sustaining the defendant’s demurrer and reinstated the action, holding that the competitor plaintiff had standing to bring the claim.  Read the full opinion at this link:

March 18, 2013

On March 20, 2013 at noon, join the Antitrust Sections of the State Bar of California and Los Angeles County Bar for a presentation on the Capper Volstead Act, a federal law providing antitrust law exemptions for qualifying agricultural cooperatives. Once an obscure law, it has recently become the centerpiece of several major nationwide class action litigations. Beyond providing an overview on the basics of the Act, the program will discuss strategic and procedural considerations when advising clients in the agricultural sector on antitrust issues. 

MCLE credit available and lunch will be provided. Register today [opens in a new window] at the Section’s discounted rate of $45.00.