ABA Antitrust Section Spring Meeting Sherman Act Section 2 Committee Program April 25, 2002

1. ABA Antitrust SectionSpring MeetingSherman Act Section 2Committee ProgramApril 25, 2002 Daniel F. Attridge Kirkland & Ellis, Washington, DC daniel_attridge@kirkland.com

2. Motions to Dismiss Claims Under Section 2 of the Sherman Act • Statutory provisions • Sherman § 2, Clayton § 4 • Supreme Court precedents • Monopolization, attempted monopolization, relevant market, antitrust injury, pleading requirements • Recent district court cases • 18 decisions in the last 12 months • 10 motions granted • 6 motions denied • 2 denied in part, granted in part

3. Statutory Provisions • Section 2 of the Sherman Act, 15 U.S.C. § 2: • “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony ….” • Section 4 of the Clayton Act, 15 U.S.C.§ 15(a): • [A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court ….”

4. Supreme Court Precedents -- Monopolization • “The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” • U.S. v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). • “Monopoly power is the power to control prices or exclude competition.” • U.S. v. E.I. duPont de Nemours & Co., 351 U.S. 377, 391 (1956).

5. Supreme Court Precedents (cont.) • Attempted Monopolization -- “[A] plaintiff must prove (1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” • Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). • Relevant Product Market -- “The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” • Brown Shoe Co. v. U.S., 370 U.S. 294, 325 (1962).

6. Supreme Court Precedents (cont.2) • Antitrust Injury -- “Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” • Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).

7. Supreme Court Precedents (cont.3) • Pleading Requirements -- “We have held that ‘a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ … And in antitrust cases, where ‘the proof is largely in the hands of the alleged conspirators,’ … dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly.” • Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 746 (1976).

8. Recent District Court Decisions • Intellective, Inc. v. Massachusetts Mut. Life Ins. Co., 2002 WL 368445 (S.D.N.Y. Mar. 8, 2002) (Hellerstein, J.). • Agere Sys.Guardian Corp. v. Proxim, Inc., 2002 WL 356153 (D. Del. Mar. 6, 2002) (McKelvie, J.). • U.S. Info. Sys., Inc. v. Int’ l Bhd. of Elec. Workers, 2002 WL 91625 (S.D.N.Y. Jan. 23, 2002) (Berman, J.). • Jersey Dental Labs. v. Dentsply Int’l, Inc., 180 F. Supp. 2d 541 (D. Del. Dec. 19, 2001) (Robinson, J.).

9. Recent District Court Decisions (cont.) • A&E Prods. Group L.P. v. The Accessory Corp., 2001 U.S. Dist. LEXIS 20245 (S.D.N.Y. Dec. 6, 2001) (McKenna, J.). • Yellow Page Solutions, Inc. v. Bell Atl. Yellow Pages Co., 2001 U.S. Dist. LEXIS 18831 (S.D.N.Y. Nov. 19, 2001) (Mukasey, J.). • Andrx Pharms., Inc. v. Biovail Corp., 175 F. Supp.2d 1362 (S.D. Fla. Sept. 19, 2001) (Dimitrouleas, J.).

10. Recent District Court Decisions (cont.2) • Eon Labs Mfg., Inc. v. Watson Pharms., Inc., 164 F. Supp. 2d 350 (S.D.N.Y. Aug. 22, 2001) (Buchwald, J.). • Berlyn, Inc. v. The Gazette Newspapers, Inc., 157 F. Supp. 2d 609 (D. Md. Aug. 9, 2001) (Smalkin, J.). • Mathias v. Daily News, L.P., 152 F. Supp. 2d 465 (S.D.N.Y. Jul. 23, 2001) (Marrero, J.). • American Chiropractic Ass’n, Inc. v. Trigon Healthcare, Inc., 151 F. Supp. 2d 723 (W.D. Va. Jul. 19, 2001) (Jones, J.).

11. Recent District Court Decisions (cont.3) • In re Terazosin Hydrochloride Antitrust Litig., 160 F. Supp. 2d 1365 (S.D. Fla. Jul. 2, 2001) (Seitz, J.). • Griffiths v. Blue Cross & Blue Shield of Ala., 147 F. Supp. 2d 1203 (N.D. Ala. Jun. 15, 2001) (Buttram, J.). • United Magazine Co. v. Murdoch Magazines Distrib., Inc., 146 F. Supp.2d 385 (S.D.N.Y. May 31, 2001) (Schwartz, J.). • MGC Communications, Inc. v. BellSouth Telecomm., Inc., 146 F. Supp. 2d 1344 (S.D. Fla. May 17, 2001) (Gold, J.).

12. Recent District Court Decisions (cont.4) • Floors-N-More, Inc. v. Freight Liquidators, 142 F. Supp. 2d 496 (S.D.N.Y. May 16, 2001) (McMahon, J.). • In re America Online, Inc. Version 5.0 Software Litig., 168 F. Supp. 2d 1359 (S.D. Fla. Apr. 19, 2001) (Gold, J.). • Cool Wind Ventilation Corp. v. Sheet Metal Worker Int’l Ass’n, 139 F. Supp. 2d 319 (E.D.N.Y. Apr. 16, 2001) (Wexler, J.).

13. Intellective (S.D.N.Y.) • Alleged that 5 insurance companies and their vendors attempted and conspired to monopolize the market for studies of investment performance by life insurance companies in the U.S. • Judge Hellerstein denied the motion to dismiss as to the insurance companies, but granted it as to the other defendants who were not alleged to have engaged in anticompetitive conduct.

14. Intellective (cont.) • Allegations of relevant product market were sufficient: • Intellective advanced plausible reasons why this market is unique unto itself -- no “one brand” problem -- and discussed the lack of interchangeable products. • Allegations of antitrust injury were sufficient: • Defendants controlled the data needed to perform a competing study and thereby prevented others from competing in the relevant market.

15. Intellective (cont.2) • Allegations of attempting and conspiring to monopolize were sufficient: • Defendants engaged in anticompetitive conduct -- obtaining exclusive control over data needed to perform studies. • Defendants had a specific intent to monopolize. • Defendants had a dangerous probability of achieving monopoly power -- had done so.

16. Agere Systems (D. Del.) • Alleged in a proposed counterclaim that Agere monopolized the market for wireless LAN products by seeking to enforce a patent procured by fraud on the PTO. • Judge McKelvie allowed the proposed counterclaim. • Allegations of market power -- 30-40% of market and fraud on the PTO -- were sufficient. • Monopolization claim was stated under Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965).

17. U.S. Information (S.D.N.Y.) • Alleged that a labor union and contractors attempted and conspired to monopolize the market for the installation of telecommunications wiring in commercial buildings. • Judge Berman denied the motion to dismiss. • Attempted monopolization allegations were sufficient: • Defendants harmed competition by causing bidding exclusion, higher consumer prices, contract nullification and sabotage. • Defendants intended to monopolize by excluding plaintiff wiring companies from the market. • Defendants had the power to control prices and exclude competition.

18. U.S. Information (cont.) • Conspiracy allegations were sufficient: • Defendants engaged in concerted action. • Defendants committed overt acts, including 2 instances of bidding exclusion. • Defendants had the specific intent to monopolize the telecommunications installation market. • Monopoly leveraging allegations were sufficient: • Defendants have monopoly power in the electrical installation market. • Defendants have used it to gain a competitive advantage in the telecommunications installation market. • Defendants have injured plaintiffs by acts of deliberate vandalism.

19. Jersey Dental (D. Del.) • Alleged that a dental teeth manufacturer monopolized, and attempted and (with its dealers) conspired to monopolize, the market for premium artificial teeth. • Judge Robinson granted the motion to dismiss. • Plaintiffs were dental laboratories who purchased Dentsply’s products indirectly through dental dealers. • Indirect purchasers’ claims were barred by Illinois Brick Co. v. Illinois, 431 U.S.720 (1977). • Court declined to recognize a “co-conspirator” exception to Illinois Brick.

20. A&E Products (S.D.N.Y.) • Alleged in counterclaims that plaintiff A&E monopolized, attempted and conspired to monopolize the market for the sale of molded plastic garment hangers to clothing manufacturers that supply chain and department stores. • Judge McKenna denied the motion to dismiss the monopolization and attempt claims, but dismissed the conspiracy claim with leave to replead.

21. A&E Products (cont.) • Allegations of monopolization were sufficient: • A&E controls 80% of the market, which it acquired by purchasing competing manufacturers. • A&E maintained monopoly power by incentivizing Federated to purchase A&E hangers and through defamatory statements about Accessory’s hangers. • Allegations of attempted monopolization were sufficient: • “A&E’s alleged false statements and disparagement of Accessory and its products suggest predatory conduct and a specific intent to monopolize.”

22. A&E Products (cont.2) • Allegations of conspiracy were insufficient: • Only specific allegation was that two stores have an arrangement under which one purchases all of the other’s used hangers. • Because the economic significance of this hanger repurchase arrangement was not alleged, the claim was dismissed with leave to replead.

23. Yellow Page Solutions (S.D.N.Y.) • Alleged that defendants monopolized, attempted and conspired to monopolize regional markets for Yellow Pages publishing and advertising therein. • Plaintiffs were 8 companies that sell advertising in Yellow Pages directories as CMRs or on their behalf. • Defendants were 8 regional publishers of YP directories and a trade association. • Defendants sold national advertising to CMRs at reduced rates, and local advertising at reduced rates only to their internal sales forces. • Judge Mukasey granted the motion to dismiss.

24. Yellow Page Solutions (cont.) • Plaintiffs failed to allege antitrust injury: • “The crux of plaintiffs’ complaint is that they are being harmed by [defendants’] refusal to grant them the same levels of discount on advertising or the same terms as those granted to in-house sales representatives or other CMRs ....” • No allegation that defendants’ pricing is predatory. • No allegation that consumers were charged higher prices.

25. Yellow Page Solutions (cont.2) • Plaintiffs failed to adequately define the relevant market: • “Where a complaint fails to allege facts regarding substitute products, or to allege other pertinent facts relating to cross-elasticity of demand, ... a court may grant a Rule 12(b)(6) motion.” • Plaintiffs failed to properly plead a conspiracy: • Conspiracy claim is not “factually based nor intuitively apparent.”

26. Andrx Pharmaceuticals (S.D. Fla.) • Alleged that Biovail, brand name manufacturer of the hypertension drug diltiazem, conspired and attempted to monopolize the calcium channel blocker market. • Judge Dimitrouleas denied the motion to dismiss. • Conspiracy allegations were sufficient: • Biovail entered into a licensing agreement with the specific intent of keeping Andrx out of the relevant market. • Attempt allegations were sufficient: • Biovail did not have patent immunity, and had a dangerous probability of obtaining monopoly power over at least the diltiazem portion of the market.

27. Eon Labs (S.D.N.Y.) • Alleged that defendants monopolized and attempted to monopolize the market for doxycycline prescription drugs and a submarket of doxycycline generic drugs. • Watson produced a branded doxycyline drug (used to treat skin infections) and bought out the rights to produce a generic from a competitor called Halsey. • After Eon received FDA approval to produce another generic, Watson quickly began producing one. • Judge Buchwald granted the motion to dismiss.

28. Eon Labs (cont.) • Eon failed to adequately plead monopoly power: • Watson was granted a patent monopoly as to doxycyline. • No allegation that Eon sought to compete in the branded doxycyline market, or that Watson maintained monopoly power in the generic doxycyline market after Eon entered. • Eon failed to adequately plead willful acquisition or maintenance of monopoly power.

29. Berlyn (D. Md.) • Alleged that defendants attempted and conspired to monopolize the community newspaper business in suburban Maryland. Gazette and its parent: • cut advertising rates below marginal costs and offered free advertising to drive out competitors; • conspired with affiliate to offer bundled rates to discourage advertising in plaintiff’s newspapers; and • acquired numerous competitors to dominant the market. • Judge Smalkin denied the motion to dismiss, except as to the affiliate not in the relevant market.

30. Berlyn (cont.) • Allegations of attempted monopolization were sufficient: • Relevant market: alleged as weekly community newspapers in the Maryland suburbs of Washington. • Specific intent and dangerous probability: allegations regarding Gazette’s rate cutting practices and its acquisition of numerous community newspapers. • Allegations of conspiracy were sufficient, but court noted that after discovery the Copperweld intracorporate conspiracy doctrine might require dismissal.

31. Mathias (S.D.N.Y.) • Alleged by newspaper carriers that Daily News monopolized, and attempted and conspired to monopolize, the market for that newspaper. • Judge Marrero granted the motion to dismiss. • Plaintiffs failed to adequately plead antitrust injury -- no harm alleged to competition. • Plaintiffs failed to adequately plead a relevant market -- alleged only single brand name product and no precise geographic market. • Plaintiffs failed to allege conspiracy facts with specificity -- no overt acts alleged.

32. American Chiropractic (W.D. Va.) • Alleged that Trigon, a health insurer, attempted to monopolize the market for the treatment of neuromuskuloskeletal conditions. • Judge Jones denied the motion to dismiss. • Trigon was deemed to compete in the market because its Provider Policy Committee, which approved of its policy to restrict coverage of chiropractic services, consisted of doctors in the market. • But court held that plaintiff chiropractic associations lacked standing to bring claims. Only plaintiff doctors and patients could sue.

33. Terazosin Hydrochloride (S.D. Fla.) • Alleged that Abbott unlawfully extended its patent monopoly over the drug terazosin hydrochloride and conspired with generic manufacturers to maintain its monopoly. • Judge Seitz granted the motion to dismiss. • Plaintiffs at issue were indirect purchasers -- individuals, corporations and employee health plans that purchased the drug. • Indirect purchasers’ federal antitrust claims were barred by Illinois Brick Co. v. Illinois, 431 U.S.720 (1977).

34. Griffiths (N.D. Ala.) • Alleged that Blue Cross monopolized or attempted to monopolize the market for health care reimbursement services in Alabama. • Judge Buttram granted the motion to dismiss. • “Blue Cross’s alleged use of market power to obtain discounts for its customers from health care providers does not constitute willful acquisition or maintenance of monopoly power.” • “[N]othing in Blue Cross’s alleged unfavorable treatment of chiropractors ... could possibly be seen as excluding competition in the relevant market.”

35. United Magazine (S.D.N.Y.) • Alleged that a rival wholesaler, Levy, and its distributors conspired to charge certain retailers predatory prices in order to drive the plaintiff wholesalers out of business. • Judge Schwartz granted the motion to dismiss. • Market definition -- sales of magazines to and by major retailers -- was deficient. • Alleged predatory pricing conspiracy made no economic sense. • Rival wholesaler admittedly lacked monopoly power.

36. MGC Communications (S.D. Fla.) • Alleged that BellSouth monopolized and attempted to monopolize the market for high-speed Internet access. • Judge Gold granted the motion to dismiss. • Court found that plaintiff’s claims were all based on alleged violations of the Telecommunications Act of 1996 or FCC orders implementing the Act. • Court followed Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 2000), in ruling that such claims do not state a Sherman Act violation.

37. Floors-N-More (S.D.N.Y.) • Alleged that a home furnishings retailer’s agreements with its suppliers not to sell their products to the plaintiff retailers violated § 2. • Judge McMahon granted the motion to dismiss. • Plaintiffs failed to allege the defendants’ monopoly power. • Plaintiffs failed to allege how any of the challenged agreements harmed competition or furthered a monopolization scheme.

38. America Online (S.D. Fla.) • Alleged that AOL attempted to monopolize the Internet service market. • Judge Gold granted the motion to dismiss. • “Galaxy’s failure to allege either the product or geographic market in the complaint is fatal to its claims.” • “Galaxy has failed to allege that there exists a dangerous probability of actual monopolization by AOL.”

39. Cool Wind Ventilation (E.D.N.Y.) • Alleged that labor union, 2 contractors and others monopolized and attempted to monopolize the market for sheet metal and duct work on large construction projects in the New York City area. • Judge Wexler denied the motion to dismiss. • Allegations of relevant market were sufficient -- “court rejects any attack based upon an improperly drawn relevant market.” • Allegations of each defendant’s role in market were suffiicient -- “court is in no position ... to properly characterize the role played by each party.”