E-Briefs, News and Notes: July/August 2022

The Antitrust and Unfair Competition Law Section of the California Lawyers Association is pleased to honor Elizabeth C. Pritzker of Pritzker Levine LLP as the 2022 “Antitrust Lawyer of the Year.” The Section will honor Elizabeth on November 10, 2022, at our Antitrust Lawyer of the Year dinner following our Golden State Antitrust and Unfair Competition Law Institute.

Elizabeth has been a leading plaintiffs-side antitrust attorney for over two decades, establishing herself in key roles in the In re DRAM Antitrust Litigation, the In re SRAM Antitrust Litigation, and the California Natural Gas Antitrust Cases.

Read more about Elizabeth Pritzker.

The Antitrust & Unfair Competition Law Section’s brand new UCL Institute will feature leading UCL practitioners from across the private and public sector.  This multi-session conference will feature programs on government enforcement activity, recent developments in unfair competition law, and practical advice for litigating a UCL case.  Following these panels, all attendees are invited to stay for an outdoor reception featuring an open bar and hors d’oeuvres. Learn more about the program and register today.

Place:    Omni Los Angeles Hotel at California Plaza, 251 South Olive Street
Date:     Thursday, September 29, 2022
Time:     2:00 p.m. to 5:30 p.m. – Panels
                5:30 p.m. to 7:00 p.m. – Reception (Open Bar and Hors D’oeuvres)
CLE:        3.00 Hours
Price:     Only $25!

Featuring three panels of leading practitioners from the government and private bar:

Meet the UCL and FTC Act Enforcers

• Maricela Segura, Director, FTC Western Region Los Angeles
• Nicklas Akers, Senior Assistant Attorney General, Consumer Protection Section, California Department of Justice 
• Christina Tusan, Supervising Attorney, Consumer and Workplace Protection Unit, Los Angeles City Attorney’s Office

Emerging UCL Issues

• Michael L. Mallow, Los Angeles Managing Partner and Co-Chair of Class Action & Appellate Litigation Practice Group, Shook, Hardy & Bacon
• Roland Tellis, Head of Class Action Practice Group, Baron & Budd
• Thomas A. Papageorge, Head of Consumer Protection Unit, San Diego District Attorney’s Office

Strategies and Pitfalls in UCL Litigation

• Gayle I. Jenkins, Co-Chair for Class Actions, Winston & Strawn
• Hoon Chun, Head Deputy for Consumer Protection, Los Angeles County District Attorney’s Office
• Tracy Hughes, Attorney, Robinson Calcagnie

September 15-17, 2022 | REGISTER HERE

The CLA Annual Meeting is back in-person this year. Dust off your travel gear, pack your fanciest clothes, and join us in San Diego! As CLA’s biggest event of the year, this three-day conference is packed with quality connections, industry insights, and innovative business solutions. Fulfill CLE credits, enjoy keynote speakers, meet sponsors, and learn about the latest trends in the legal community. Sign up now.

Law students can join up to three sections of the California Lawyers’ Association (CLA) for free. We’d love to have you.

Meiran Yin, Associate at Latham & Watkins LLP, and Daniel Hemming, JD Candidate at Georgetown University Law Center

On July 5, 2022, the U.S. District Court for the District of Delaware dismissed a variety of claims in In re Seroquel XR Antitrust Litigation, No. 20-1076-CFC. The Plaintiffs are pharmaceutical wholesalers (the Direct Purchasers), union health and welfare funds and municipalities who operate employee and retiree health benefit plans (the End-Payors), as well as pharmaceutical retailers (the Retailers). Mem. Op., id. (D. Del. July 5, 2022), ECF No. 178, at 1, 15. The Defendants are AstraZeneca Pharmaceuticals, Handa Pharmaceuticals, Par Pharmaceuticals, and Accord Pharmaceuticals. Plaintiffs allege that AstraZeneca, which manufactures the anti-psychotic drug Seroquel XR®, entered into settlement agreements with and made large non-cash “reverse payments” to Handa, Par, and Accord, in order for the latter group to stop challenging the validity of AstraZeneca’s patent and to delay the market entry of generic versions of Seroquel XR®. Id. at 1–2, 9–13. Defendants moved to dismiss. The court dismissed all federal antitrust claims based on the Accord/AstraZeneca agreement and a selection of the End-Payor’s state law antitrust claims.

Factual Background

The settlement agreements at issue arose out of an Abbreviated New Drug Application (ANDA) litigation under the Hatch-Waxman Act. The Hatch-Waxman Act provides procedures for generic manufacturers to file ANDA to seek FDA approval for generic drugs shown to be bioequivalent to a drug previously approved, so long as certain procedures are followed. If the owner of the patent on the branded drug files suit within 45 days of the ANDA filing, then a 30-month stay of the FDA’s approval of the generic is triggered. The first ANDA filer also enjoys a 180-day exclusivity period in which other generic manufacturers may not enter the market.

AstraZeneca owns U.S. Patent No. 5,948,437 (the ’437 patent) covering Seroquel XR®. In 2008, Handa filed its ANDA for generic Seroquel XR® in four dosages. Earlier in the year, Accord also filed its ANDA for generic Seroquel XR® in one dosage. Pursuant to Hatch-Waxman procedures, Handa and Accord filed paragraph IV certifications, asserting that the ’437 patent was “invalid, unenforceable, or would not be infringed by their respective generic products.” Id. at 10. In response, AstraZeneca filed infringement suits against Handa and Accord.

During the Handa litigation, it became clear that Handa’s generic would not infringe the ’437 patent. In turn, the FDA tentatively approved Handa’s ANDA but did not give final approval due to the 30-month stay triggered upon AstraZeneca filing suit. In response, AstraZeneca entered into a non-cash “reverse payment” agreement with Handa. Id. at 11. AstraZeneca promised not to sell its authorized generics during Handa’s 180-day exclusivity period and to allow Handa to purchase AstraZeneca’s product during the exclusivity period in exchange for Handa dropping its challenge of the ’437 patent as invalid and delaying its generic’s entry into the market. The Plaintiffs alleged the agreement was worth around $200 million. Id. at 12. Par later acquired Handa’s ANDA and was assigned the Handa/AstraZeneca settlement agreement.

Similarly, Accord received tentative approval of its ANDA in 2010. But Accord conceded in litigation that its generic product infringed the ’437 patent and its invalidity challenges proved unsuccessful in court. Id. at 13. Accord then entered into a similar settlement agreement with AstraZeneca. Plaintiffs asserted the agreement was worth about $100 million.

Plaintiffs allege that without the settlement agreements, Handa and Accord would have received final FDA approval and sold their generic products before November 1, 2016. Accordingly, brand Seroquel XR® would have faced competition in the market before November 1, 2016 and AstraZeneca would have sold authorized generic Seroquel XR® “contemporaneously with the market entry by Handa/Par and Accord.” Id. at 14–15. As a result, Plaintiffs claim that they paid supracompetitive prices for Seroquel XR®.

Direct Purchaser Plaintiffs’ Federal Antitrust Claims

Defendants argued dismissal of the Direct Purchasers’ complaint was required for two reasons. First, the federal antitrust claims were barred by the applicable statute of limitations. Second, Plaintiffs failed to plead antitrust standing.

Statute of Limitations

The parties agreed the statute of limitations for the federal antitrust claims was four years, but disputed when the Direct Purchasers’ claims accrued. Defendants argued the claims accrued in October 2011, when the settlement agreements were executed and publicly announced. Defendants do not believe that each of their continuing sales of Seroquel XR® restarted the limitations period because those sales were not “new overt acts,” but rather, were merely “a manifestation of the prior overt act of entering into [the settlement agreements].” Id. at 20 (emphasis in original). The court rejected this argument, holding the statute of limitations begins to run from the commission of an act that injures the plaintiff—i.e., here each sale of Seroquel XR® at supracompetitive prices. And, on policy grounds, the court reasoned that agreeing with Defendants would allow parties to enter into agreements which “divvy up a market for the purpose of raising prices” but escape liability by waiting four years to actually raise the prices. Id. at 25.

Antitrust Standing

Defendants argued the Direct Purchaser Plaintiffs failed to allege facts plausibly supporting an antitrust injury.

As to the settlement agreement entered into between Handa/Par and AstraZeneca, Defendants argued the settlement agreement did not injure the Plaintiffs, because the FDA did not give final approval for the Handa generics until May 2017, after the period in which Plaintiffs claim they should have been able to purchase the product. But the court found the complaint plausibly alleged facts showing the FDA might have delayed the approval in light of the settlement agreements. Id. at 28–29. Viewed in the light most favorable to the Plaintiffs, absent the settlement agreement, the FDA would have approved the Handa/Par generics by November 1, 2016, thus satisfying antitrust standing requirements. Id. at 32–33.

Turning to the Accord/AstraZeneca agreement, the court reached a different conclusion. Defendants argued patent laws blocked the market entry of Accord’s generics because the products infringed AstraZeneca’s patent and Accord’s invalidity theories were unsuccessful in court. Plaintiffs argued the $107 million value of the reverse payment was sufficiently large as to imply the ’437 patent was of dubious validity. The court rejected Plaintiff’s argument because “multi-billion dollar jury awards are not uncommon” in pharmaceutical patent cases, and in light of that, a $107 million reverse payment settlement was not sufficiently large to support the inference of patent invalidity. Id. at 36­–37. The court agreed with Defendants and dismissed all claims based on the Accord/AstraZeneca agreement. Id. at 40.

Since the Retailers’ complaint alleged claims identical to the Direct Purchasers, Defendants asserted it should be dismissed for the same reasons. Accordingly, the court dismissed all claims based on the Accord/AstraZeneca agreement and allowed the rest.

The End-Payor Plaintiffs conceded their state law claims should be dismissed if the Direct Purchaser’s federal antitrust claims were dismissed. Accordingly, the court dismissed the End-Payor’s claims that were based on the Accord/AstraZeneca agreement. Id. at 41.

 End-payor Plaintiffs’ State Law Antitrust claims

The End-Payor Plaintiffs were indirect purchasers since they reimbursed others who made direct purchases. Defendants argued that these indirect purchasers cannot bring federal antitrust claims because the Supreme Court has previously held indirect purchasers cannot satisfy antitrust standing requirements in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). But indirect purchasers can assert certain state law antitrust claims. Defendants asserted that claims under state law in several states should be dismissed for lack of antitrust standing, and claims under state law in a few other states should be dismissed for failure to allege effects on intra-state commerce.

Illinois: Defendants argued the state antitrust law prohibited indirect purchasers from maintaining a class action, and such prohibition was a substantive state law which must be applied in federal court. The court deemed the first argument waived because Defendants barely briefed the issue. On the second point, the court hesitated to wade into Erie’s murky waters, stating only that courts were divided on the state law’s import in federal court. The court accordingly allowed the claims to stand. Mem. Op., In re Seroquel XR Antitrust Litigation, No. 20-1076-CFC (D. Del. July 5, 2022), ECF No. 178, at 50.

Maryland: Maryland amended its Antitrust Act to allow claims by indirect purchasers. But Defendants argued the amendment had no retroactive effect, so indirect purchaser claims accruing prior to the amendment were barred. The court agreed, but noted the pre-amendment act still allowed claims by political subdivisions, which include End-Payor Plaintiffs the Mayor and City Council of Baltimore. The court therefore dismissed the claims asserted by non-political subdivision Plaintiffs on purchases made prior to the statutory amendment. Id. at 51.

Massachusetts: The state antitrust laws prohibited indirect purchasers from bringing suit and the court dismissed the End-Payors’ claims on this basis. Id. at 53.

Utah: The Utah Antitrust Act authorizes suits only by citizens or residents of Utah. Defendants asserted no named Plaintiff was a citizen or resident of Utah. The court agreed, dismissing the End-Payor’s claims under Utah law. Id. at 54.

Intra-State Effects: Defendants argued four state antitrust laws required effects on intra-state commerce to bring suit and there were no such allegations in the complaint. But the court found Plaintiff’s allegations that brand and generic Seroquel XR® were shipped into each state and sold to or paid for by the End-Payors sufficiently pleaded intra-state effects. Id. at 54–55.

Thomas H. Burt and Rourke Donahue, Wolf Haldenstein

In Vasquez v. Indiana Univ. Health, Inc., the Seventh Circuit reversed the lower court’s decision granting a motion to dismiss against an Indiana doctor who alleged monopolistic behavior by a regional health network. No. 21‐3109, 2022 U.S. App. LEXIS 18857 (7th Cir. July 8, 2022). The opinion is an instructive application of the “hypothetical monopolist test” to plead a geographic market. It stands primarily as a caution to district courts in the limits of scrutinizing geographic market allegations on mere pleadings.

Facts: Dr. Ricardo Vasquez is an independent vascular surgeon in Bloomington, Indiana. Indiana University Health (“IU Health”) entered his regional market when it acquired Bloomington Hospital in 2010 and Premier Healthcare in 2017, also in Bloomington. After the Premier acquisition, IU Health employed 97% of primary care physicians (“PCPs”) in Bloomington and 80% of PCPs in the wider region. Id. at *3.

Vasquez alleged that IU Health amassed monopolistic market power in the region’s medical industry and initiated a “systematic and targeted scheme” against him in 2018. Id. at *3-4.He claimed IU Health wanted to tarnish his reputation and practice because he was committed to independent practice, whereas IU Health prefers to employ its doctors directly. To further this alleged scheme, IU Health revoked his admitting privileges to Bloomington Hospital in 2019 and IU Health employees allegedly spread lies that he has been sued with unusual frequency. Id.

Vasquez sued IU Health, claiming antitrust violations under the Sherman Act, 15 U.S.C. §§ 1–7, and the Clayton Act, id. §§ 12–27. IU Health moved to dismiss, arguing that neither the Sherman Act nor Clayton Act claims were premised on a plausible geographic market and that the Clayton Act claims also were time‐barred. The district court agreed on both points and dismissed the suit. Id. at *4.

Analysis: The Seventh Circuit devoted most of its discussion to explaining that Vasquez had sufficiently pleaded a geographic market under the “hypothetical monopolist test” for his Sherman and Clayton Act claims. This test asks,

[W]hat would happen if a single firm became the only seller in a candidate geographic region. If that hypothetical monopolist could profitably raise prices above competitive levels, the region is a relevant geographic market. But if customers would defeat the attempted price increase by buying from outside the region, it is not a relevant market; the test should be rerun using a larger candidate region.

FTC v. Advocate Health Care Network, 841 F.3d 460, 468 (7th Cir. 2016) (citations omitted).

In establishing Bloomington as the geographic market under this test, Vasquez first argued that the vascular surgery market in Bloomington is inherently local because vascular surgery patients need ongoing or even lifetime care. Accordingly, insurers face pressure to provide vascular surgery in or near Bloomington, allowing a hypothetical monopolist over vascular surgery to abuse its market power by jacking up payor prices and freezing out potential competitors. Vasquez, 2022 U.S. App. LEXIS 18857, at *6-7.

Next, Vasquez argued that vascular surgeons’ reliance on referrals makes Bloomington an appropriate geographic market because a hypothetical monopolist would control not only that market, but also the flow of patients to vascular surgeons. Id. at *7-8.

The Court clarified that the pleading stage is not the place for a detailed analysis of geographic market, which is typically analyzed using survey data performed by an expert. At the pleading stage, the Seventh Circuit held, only a “plausible story” was necessary. Here, Vasquez had pleaded plausible accounts of how IU Health could control prices within an identified geographic market. In fact, the Court held, Vasquez went even further and pleaded that IU Health already dominates the Bloomington market in reality, not just hypothetically. He reasoned that IU Health employs 97% of the PCPs in Bloomington and controls the hospital with the most advanced equipment and all the vascular surgeons, other than Vasquez. Id. at *8-9.

The district court had found Vasquez’s geographic market theory to be contradictory because he stated that patients prefer to receive care close by and that many patients at Bloomington Hospital arrive from rural areas far away. The Seventh Circuit brushed this aside, first pointing out that Federal Rule of Civil Procedure 8(d)(3) specifically permits contradictory pleadings. Id. at *10-11. Next, the Seventh Circuit reasoned that Vasquez’s claims were not in fact contradictory because urban patients can and prefer to receive care close by, whereas rural patients expect to and often must travel to neighboring cities to receive care. Id.

Additionally, the district court found that Bloomington could not be the appropriate geographic market if a significant portion of IU Health’s patients regularly travel substantial distances to get to Bloomington. The Seventh Circuit explained that this confused two different kinds of market. The geographic market for an antitrust claim need not correspond to the comprehensive market that the alleged monopolist serves. See United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593 (1957).

Finally, the Seventh Circuit held that Vasquez’s Clayton Act claims could not be dismissed for untimeliness at the pleading stage. Vasquez filed suit four years and one month after IU Health acquired Premier, and Clayton Act claims have a four-year statute of limitations (15 U.S.C. § 15b). Importantly, the limitations period is qualified by the discovery rule. In re Copper Antitrust Litig., 436 F.3d 782, 789 (7th Cir. 2006).

The court reasoned that, at the pleading stage, it could not ascertain when Vasquez discovered his injury and, thus, when the clock started ticking. Vasquez’s discovery date could have been when IU Health acquired Premier in 2017, when its employees started spreading alleged lies about him in 2018, or when IU Health revoked his admitting privileges in 2019. Accordingly, this fact-intensive question could not be ironed out without engaging in discovery at a later litigation stage. Vasquez, 2022 U.S. App. LEXIS 18857, at *14-16.

Ultimately, the Vasquez court identified the error in the district court’s resolution at the pleading stage of questions that required discovery for resolution. Geographic market requires only a plausible account at the pleading stage, to later be resolved on a full record. Likewise, the timeliness issue turned on the close factual inquiry of when plaintiff’s clock began ticking, which could not be resolved on pleadings. Defendants seeking dismissal on assertedly flawed geographic market pleadings will need to show that the pleadings are significantly more implausible than those presented in Vasquez.

Cheryl Johnson, johnsoncher@gmail.com

In Marion Healthcare v. Southern Illinois Hospital, Case No. 21-cv-00873-SPM, 2022 WL 2317303 (S.D. Ill. 6/28/2022), Marion, a surgery center in southern Illinois, challenged the acquisition by Southern Illinois Hospital System (SIH) of another Harrisburg-based hospital system, alleging that it would “enhance SIH’s already existing monopoly power in the market for acute care . . . and ambulatory surgery services,” and thus “substantially reduce competition in those markets . . . potentially raising costs to patients, reducing choice of institutional providers . . . and, further, causing antitrust injury . . . .” 2022 WL 2317303, at *2. SIH moved to dismiss, asserting that Marion lacked standing and failed to allege plausible antitrust injury and proximate causation. Id., at *1.

Standing. The court deemed Marion’s allegations that the merger would give rise to “increased prices to patients, a reduction of choice of institutional providers and physicians, reduced referrals suppressing Marion’s ability to compete, and the like” as “conclusory and hypothetical.” Id. at *3. While noting it was “possible, and arguably probable” that the merger would impact Marion’s business, Article III standing required pleading a concrete injury to the plaintiff that was not satisfied by allegations of “predictive” or “probabilistic injury.” Id., at *2-3.

Antitrust Injury. “Antitrust standing” is “called ‘proximate cause’ in the Seventh Circuit” and requires pleading antitrust injury beyond economic injury to one plaintiff and the type of injury that antitrust laws target. Id., at *3-4. Marion argued that under Seventh, Ninth and District of Columbia Circuit law, it could use the increase in the Herfindahl-Hirschman Index (“HHI”) to show that the merger might substantially lessen competition, providing an appraisal of the immediate impact of the merger, as well as a prediction of its impact upon competitive conditions in the future. Id., at *4. The court disagreed, stating that the cases all involved federal government enforcement actions in which the government, unlike private plaintiffs, need not demonstrate proximate cause. Id., at *4-5. While agreeing that a loss of physician referrals by Marion “can be antitrust injury,” it cited SIH’s statement that it had “no plans to change referral plans” as negating injury though SIH’s statement fell short of any guarantee. Id., at *4.

The court remarked that enforcement in this case was better left to the FTC and DOJ “especially as the current administration takes a heavier hand against hospital mergers” that increase consumer prices. Id., at *5. However, recognizing that it was “conceivable that consolidation of healthcare facilities could cause economic harm,” the court dismissed the complaint without prejudice. Id.

David M. Goldstein and Marc Siegel, Famer Brownstein Jaeger Goldstein Klein & Siegel LLP

In Deslandes v. McDonald’s USA, LLC, Judge Jorge L. Alonso granted McDonald’s motion for judgment on the pleadings against a Sherman Act Section 1 claim based on a no-solicitation and no-hire provision (collectively, “no-hire provision”) in McDonald’s franchise agreements. The court applied the rule of reason–rather than the per se rule or quick look analysis–and concluded plaintiffs’ amended complaints did not state a claim. The court denied plaintiffs’ request for leave to amend, terminating the case in McDonald’s favor. No. 17 C 4857, 2022 WL 2316187 (N.D. Ill. June 28, 2022).

Some McDonald’s restaurants are owned and operated by subsidiaries of McDonald’s, but many are owned and operated by franchisees. Plaintiffs alleged that a no-hire provision in McDonald’s franchise agreements violates Section 1. The challenged no-hire provision provided as follows:

Franchisee shall not employ or seek to employ any person who is at the time employed by McDonald’s, any of its subsidiaries, or by any person who is at the time operating a McDonald’s restaurant or otherwise induce, directly or indirectly, such person to leave such employment. This paragraph [ ] shall not be violated if such person has left the employ of any of the foregoing parties for a period in excess of six (6) months. (Am. Complt. ¶ 87). Id., *1.

Plaintiffs alleged that the no-hire provision violated Section 1 under the per se rule or quick look analysis. Defendants argued that the provision is subject to the rule of reason.

The court previously ruled on defendants’ motion to dismiss that the provision is not subject to the per se rule because it is ancillary to an output-enhancing agreement—the franchise agreement itself increased output of burger and fries. Deslandes v. McDonald’s USA, LLC, 2018 WL 3105955, *8 (N.D. Ill. June 25, 2018) (“Deslandes I”). The court also ruled, however, that the restraint might be unlawful under quick look analysis because the McDonald’s-owned restaurants competed with the franchised restaurants, and this adequately alleged a horizontal restraint. The court allowed plaintiff Deslandes to amend her complaint to add allegations to support a rule of reason claim, but she chose not to do so. 2022 WL 2316187, *2. Plaintiff Turner had filed her own complaint, which was consolidated with Deslandes’s complaint.

Thereafter, the court denied plaintiffs’ class certification motion because under the rule of reason individual issues would predominate. The court reached this conclusion because (1) restraints of trade presumptively call for rule of reason analysis (citing NCAA v. Alston, __ U.S. __, 141 S.Ct. 2141 (2021); (2) vertical restraints, such as those between McDonald’s and its franchisees where McDonald’s did not own restaurants, are subject to the rule of reason (citing Leegin Creative Leather Products, Inc. v. PSKS, Inc., 51 U.S. 877 (2007); and (3) McDonald’s provided evidence of procompetitive effects sufficient to warrant rule of reason analysis. Deslandes v. McDonald’s USA, LLC, 2021 WL 3187668 (N.D. Ill. July 28, 2021) (“Deslandes II”). The case proceeded on behalf of the two named plaintiffs rather than as a class action.

Defendants’ motion for judgment on the pleadings argued that the court had already ruled that the no-hire provision is subject to the rule of reason, but plaintiffs failed to plead a rule of reason claim. The court agreed. In again rejecting quick look analysis, the court relied upon NCAA v. Alston to explain that the no-hire provision “falls in ‘the great in-between’ of restraints that require rule-of-reason analysis. This Court cannot say that it has enough experience with no-hire provisions of franchise agreements to predict with confidence that they must always be condemned, which means, under Alston, that the Court must apply rule-of-reason analysis to this case.” 2022 WL 2316187, *4. The court also rejected per se analysis, finding the no-hire provision is an ancillary restraint subject to the rule of reason (rather than a naked restraint subject to the perse rule). As the court explained, even though the restraint has “horizontal elements (in that the franchisees competed with the franchisor for labor), the restraint is not per se unlawful because it ‘may contribute to the success of a cooperative joint venture that promises greater productivity and output.’” Id., *5 (citing Polk Bros., Inc. v. Forest City Enterprises, Inc., 776 F.2d 185, 189 (7th Cir. 1985)).

The court also rejected plaintiffs’ request to proceed with a rule of reason claim based on the allegations in the amended complaints even though they did not expressly allege a rule of reason claim. The court had previously noted that there were 517 quick-service restaurants within 10 miles of plaintiff Deslandes’s home, and 253 quick-service restaurants within 10 miles of plaintiff Turner’s home. Id. *3. The court concluded that—putting  aside whether the complaint expressly alleged a “rule of reason” claim—the court could dismiss any rule of reason claim “for failure to include allegations of market power in a relevant market, because those are the facts necessary to render plausible a claim that a restraint is unlawful under rule-of-reason analysis. Deslandes and Turner failed to include such facts.” 2022 WL 2316187, *5-6. The court also rejected plaintiffs’ argument that “McDonald’s restaurants constitutes a market all its own, separate from the market for employment by other quick-serve restaurants.” Id. The court concluded that plaintiffs failed to allege “a relevant market or that [McDonald’s] had market power in that relevant market.” Id., *6.

The court also denied plaintiffs’ request for leave to amend their complaints. It explained that plaintiffs had multiple opportunities to amend their complaints and had failed to do so. In addition, the court concluded any rule of reason claim would be futile because the relevant local markets had many other quick serve restaurants, and plaintiffs could not plausibly allege that McDonald’s had market power in those markets. Id.

The court granted McDonald’s motion for judgment on the pleadings and terminated the case. Plaintiffs filed a notice of appeal on July 27.

The Deslandes opinion likely will encourage defendants to rely on last year’s U.S. Supreme Court’s decision in NCAA v. Alston to argue that a full rule of reason analysis—and not a quick look analysis or the per se rule—is  the appropriate standard for evaluating no-solicitation and no-hire provisions in franchise cases. But even outside of the franchise context, defendants are likely to cite the opinion for the broader proposition that no-hire provisions ancillary to legitimate business collaborations should be evaluated under full rule of reason analysis.      

Bob Connolly, Law Office of Robert Connolly

In District of Columbia v. Amazon, Case # 2021 CA 001775B, (Sup. Ct. Dist. Col. August 1, 2022), the Court rejected the Plaintiff’s Motion for Reconsideration, including a request for leave to amend the Complaint. The original Complaint was filed on March 25, 2021. A First Amended Complaint (“FAC”) raised claims of Agreements in Restraint of Trade (by virtue of Most Favored Nation agreements (“MFN”) and Minimum Margin Agreements (“MMA”). The FAC also alleged Illegal Maintenance of Monopoly and Attempted Monopolization in Violation. On March 18, 2022, after a hearing, Defendant’s Motion to Dismiss was granted without a written opinion.  Plaintiff moved the Court to reconsider the dismissal and grant Plaintiff leave to file a Second Amended Complaint, or to issue a written order of decision to memorialize the Court’s March 18, 2022 ruling.

While the FAC was based on District of Columbia Code, the dismissal was grounded in the Court’s application of federal pleading standards. In its request for reconsideration, Plaintiff argued that the Court misapplied the plausibility standard articulated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); and Ashcroft v. Iqbal, 556 U.S. 662 (2009). District of Columbia v. Amazon, at *4-5. The Court acknowledged that it was to apply a plausibility, not probability standard, citing, Penn Allegheny Health Sys. v. UPMC, 627 F.3d 85 (3rd Cir. 2010). In that case, the Third Circuit reviewed a decision where the trial court “opined that judges presiding over antitrust and other complex cases must act as gatekeepers and must subject pleadings in such cases to heightened scrutiny.” Id., 627 F.3d at 98 (internal quotations omitted). District of Columbia v. Amazon, at *6. The Court also acknowledged that “because the proof is largely in the hands of the alleged conspirators, dismissal procedures should be used sparingly in complex antitrust litigation until the plaintiff is given ample opportunity for discovery.” (citing WAKA, LLC v. DC Kickball, 517 F.Supp.2d 245,249 (D.D.C. 2007).  Still, the Court dismissed Plaintiff’s’ Complaint. District of Columbia v. Amazon, at *6-7.

The Court supplemented its Order with justifications for the dismissal.

Count 1 Agreement in Restraint of Trade (Price Parity Provision/Fair Pricing Policy)

The Court knocked out this allegation because Amazon’s Price Parity Provision and Fair Pricing Policy at issue clearly states that “[s]ellers are responsible for setting their own prices.” Id. at *8. The Court explained that “based on what the policy says, sellers are free to set prices within the marketplace … the only limit is that they cannot set a price that is significantly higher than recent prices offered on or off Amazon.” Id.  Plaintiff argued that the factual allegations “are indistinguishable from those found to pass muster in the substantively identical private case against Amazon in federal court, citing Frame-Wilson v. Amazon, Inc., No. 2:20-CV-00424-RAJ, 2022 WL 741878, at *10 (W.D. Wash. Mar. 11, 2022) (“Frame-Wilson”).”  The Court disagreed, noting that the allegations in the Frame­ Wilson Amended Complaint directly quote language from a policy allegedly stating that “any single product or multiple products packages must have a price that is equal to or lower than the price of the same item being sold by the seller on other sites or virtual marketplaces.”  The Court contrasted that with the Amazon Fair Pricing which “makes no mention of setting a pricing floor.”  District of Columbia v. Amazon, at *11. The Court, therefore held, that “the allegations in Count I do not satisfy the plausibility standard required to survive a motion to dismiss under Twombly and Iqbal.” Id.

Count II  Allegation That Minimum Margin Agreement Was A Restraint of Trade

The Court knocked out Count II for failure to provide any facts in support of its conclusory allegations:

Although Plaintiff’s previous oral arguments and instant motion repeatedly assert that the First Amended Complaint is replete with “detailed factual allegations,” the Court could not find (1) the name of any TPS or FPS; (2) the name of any TPS or FPS sale item: (3) the price point for any TPS or PFS item, on either Defendant’s marketplace or another online marketplace; or (4) any language of warning from Defendant to a TPS or FPS mentioned in, or appended to, the complaint. Id. at *12. 

The Court found Plaintiff’s effort fell short of the Twombly standard, in contrast to the Frame-Wilson Amended Complaint which provided numerous examples of the detailed factual allegations.

Counts III and IV  (Monopolization)

Counts III and IV were both defeated by the Court’s finding, and Plaintiff’s acknowledgment, of competitive online marketplaces from strong corporate entities such as Walmart, Target and eBay. While Amazon had a dominant share,

“merely controlling a dominant share of the market does not satisfy pleading requirements for anti-trust actions, particularly in pandemic times when online delivery sales have increased. In any event, sellers are free to migrate to other online platforms as market dynamics continue to unfold. This possibility undercuts arguments that probable allegations satisfy the plausibility standard for pleading purposes. Id. at *15.

As to Amazon’s dangerous probability of “achieving its goal of monopoly power” the court noted that thirty to fifty percent of the market was beyond Amazon’s reach (Walmart, Target other online sellers) which “undercuts the plausible conclusion that Amazon is liable for monopolistic practices.” Id. at *16.

Finally the Court denied Plaintiff’s Motion for Leave to Amend. Id. at *16-17.

Access to all Antitrust Division, DOJ press releases here.

Justice Department and National Labor Relations Board Announce Partnership to Protect Workers
Agencies Will Enhance Enforcement Efforts Through Greater Coordination and Information Sharing, Cross-Agency Training and Outreach

July 26, 2022

“The Justice Department’s Antitrust Division and the National Labor Relations Board (NLRB) signed a memorandum of understanding (MOU) today to strengthen the partnership between the two agencies to better protect competitive labor markets and ensure that workers are able to freely exercise their rights under the labor laws. By strengthening their partnership, the agencies also achieve the objectives of the President’s Executive Order on Promoting Competition in the American Economy just days after the Order’s one-year anniversary.”

Justice Department Files Lawsuit and Proposed Consent Decrees to End Long-Running Conspiracy to Suppress Worker Pay at Poultry Processing Plants and Address Deceptive Abuses Against Poultry Growers
Decree Provisions Would Stop the Exchange of Compensation Information, Ban President of Data Consulting Firm from Industry, Subject Settling Poultry Processors to 10-Year Antitrust Compliance Monitor; Decree Would also Prohibit Deceptive Conduct Towards Chicken Growers that Lowers Their Compensation

July 25, 2022

“The Department of Justice filed a civil antitrust lawsuit in the U.S. District Court for the District of Maryland against a data consulting firm and its president, as well as three poultry processors, to end a long-running conspiracy to exchange information about wages and benefits for poultry processing plant workers and collaborate with their competitors on compensation decisions in violation of the Sherman Act.”

Justice Department Celebrates the One-Year Anniversary of the Executive Order on Competition

July 11, 2022

“Today, the Justice Department recognized the first anniversary of the President’s Executive Order on Promoting Competition in the American Economy, and celebrated the Antitrust Division’s most productive year of interagency competition policy engagement in recent history. The Executive Order underscored that competition is a cornerstone of the American economy, and called for a whole-of-government response to “excessive market concentration threaten[ing] basic economic liberties [and] democratic accountability.”’

Justice Department Sues to Block Booz Allen Hamilton’s Proposed Acquisition of EverWatch
Acquisition Would Eliminate Competition Between the Only Two Competitors for Critical National Security Support Services

June 29, 2022

The Department of Justice filed a civil antitrust lawsuit today to block Booz Allen Hamilton Holding Corporation’s (Booz Allen) proposed acquisition of EverWatch Corp. (EverWatch), a subsidiary of EC Defense Holdings LLC. The complaint, filed in the U.S. District Court for the District of Maryland, alleges that the merger agreement threatens imminent competition for a government contract to provide operational modeling and simulation services to the National Security Agency (NSA). Unless enjoined, the transaction would eliminate competition for this defense contract, leaving NSA to face a monopoly bidder.

Access all FTC press release here.

FTC Seeks to Block Virtual Reality Giant Meta’s Acquisition of Popular App Creator Within
Agency Alleges that Meta and CEO Mark Zuckerberg are Attempting Illegal Acquisition to Expand Virtual Reality Empire

July 27, 2022

“Instead of competing on the merits, Meta is trying to buy its way to the top,” said FTC Bureau of Competition Deputy Director John Newman. “Meta already owns a best-selling virtual reality fitness app, and it had the capabilities to compete even more closely with Within’s popular Supernatural app. But Meta chose to buy market position instead of earning it on the merits. This is an illegal acquisition, and we will pursue all appropriate relief.”

Federal Trade Commission, National Labor Relations Board Forge New Partnership to Protect Workers from Anticompetitive, Unfair, and Deceptive Practices
New Agreement Will Strengthen Collaboration Between the Two Agencies

July 19, 2022

The Federal Trade Commission is joining with the National Labor Relations Board (NLRB) in a new agreement that will bolster the FTC’s efforts to protect workers by promoting competitive U.S. labor markets and putting an end to unfair practices that harm workers. The new memorandum of understanding between the two agencies outlines ways in which the Commission and the Board will work together moving forward on key issues such as labor market concentration, one-sided contract terms, and labor developments in the “gig economy.”

FTC Marks One-Year Anniversary of Government-Wide initiative to Promote Competition in the American Economy

July 11, 2022

“The Federal Trade Commission marked the one-year anniversary of a government-wide effort to implement President Biden’s Executive Order on Promoting Competition in the American Economy. Over the past year, the FTC has been working with agencies around the federal government and taking aggressive steps to bolster competition that is hobbled by consolidation, concentration, and other roadblocks, resulting in higher prices, lower wages, declining entrepreneurship, growing inequality, and a less vibrant democracy.”

Access all California Department of Justice press releases here.

Attorney General Bonta Warns Against Illegal Price Gouging Following State of Emergency Declaration in Siskiyou County Due to McKinney and Other Fires

July 31, 2022

“As wildfire season ramps up here in California, I want to be crystal clear: price gouging during a state of emergency is illegal,” said Attorney General Bonta. “California’s price gouging law prevents businesses from overcharging Californians for essential services and supplies during their moment of need. As Attorney General, I will use the full powers of my office to protect vulnerable Californians from those who would take advantage. I strongly encourage anyone who believes they have been the victim of price gouging to report it to my office at oag.ca.gov/report or to your local authorities.”