Antitrust and Unfair Competition Law Section: E-Briefs, News and Notes—March, 2022

By Thomas H. Burt and Betsy C. Manifold

United States v. DaVita Inc. et al., Criminal Case No. 1:21-cr-00229-RBJ (D. Colo. January 28, 2022) is remarkable in that it squarely holds that the alleged naked no-poach agreement between competing employers is a per se violation of Section 1 of the Sherman Act.  It does so not by generally applying per se treatment to agreements not to solicit or hire employees of competitors, but by clarifying that when such agreements fall within the traditional boundaries of per se agreements, they will receive the same treatment. 

DaVita is the first of now four criminal prosecutions for no-hire or no-solicit or no-poach agreements to be litigated to a ruling on per se treatment.  The import is twofold: criminal enforcement against participants in no-poach agreements that fit within traditional per se categories is possible; and per se treatment in public and private civil enforcement, where and only where plaintiffs can plead that the no-solicit or no-hire agreement, constitutes a market allocation.

Facts: The Government alleged three violations.  The first was a conspiracy between competing outpatient medical facilities not to hire each other’s high-level personnel, and the second a similar agreement not to hire any of each other’s personnel.  Finally, the government alleged a third count substantially matching the second, but with an additional competing firm.  Defendants allegedly enforced these agreements, among other methods, by instructing their employees not to hire from the co-conspirator firms, and by imposing a duty on their own employees to inform them of an intent to seek employment with any of the co-conspirators. 

Analysis: DaVita’s holding ends the drought of cases that squarely apply per se treatment to employers’ labor market cartels.  The Court’s explanation is that it is doing nothing at all new: “anticompetitive practices in the labor market are equally pernicious – and are treated the same – as anticompetitive practices in markets for goods and services.”  Slip Op. at p. 5.  To the DaVita Court, the no-poach agreement is no different than a product or geographic market division between sellers of goods.  Id. 

The Court first addressed arguments away from the core question. Defendants contended that, by using the terminology of an agreement “not to solicit each other’s” employees, the indictment had failed to make out a horizontal market allocation.  But the counts described the agreements by saying that the firms party to the agreement “would allocate employees ….”  The Court held that this language was clearly a horizontal market allocation.  Slip Op. at pp. 6-7.  The Court likewise turned aside the contention that the factual allegations did not support the claims.  The agreement as alleged and the techniques for enforcement, taken as true, the Court held, both supported the claim that the agreement was to allocate the market for this labor, and that employees were hampered in moving.  Slip Op. at p. 8.

The remainder of the opinion addresses the central issue, whether as a matter of law an agreement of this kind could be subject to per se treatment.  The Court did so under a three-part framework: (1) is the conduct within a traditional per se category; (2) if not, is the creation of a new per se category warranted; and (3) is the restraint naked, warranting per se treatment in this instance, or is it ancillary to a broader agreement that must be analyzed under the rule of reason.

Absent a perfectly analogous case, the Court selected a close precedent in United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir. 1988) (agreement not to solicit customers rather than workers).  Cartel members were booking agents for movie theaters and had agreed that none would attempt to become the booking agent for a theater that was already the customer of another conspirator.  On appeal the defendant booking agents argued that their agreement was based on non-solicitation which was different from market allocation. The Sixth Circuit held that the agreement was a horizontal allocation, and a naked restraint on trade.  Id. at 1372. 

Defendants raised proposed pro-competitive benefits.  But pro-competitive benefits apply in the second and third parts of the analysis framework: creation of a new per se category and determining whether the restraint is naked or ancillary.  They do not affect the first, which is determining whether the conduct is within a traditional per se category.  For this proposition, the Court cited United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 220-21 (1940).  The Court declined to create a new per se category, citing the lack of long judicial experience with non-solicitation.  Where the non-solicitation was of a kind that fell within the bounds of market allocation, a traditional per se category, the Court held that the first prong of the framework was satisfied and a new category was unnecessary; where the non-solicitation did not amount to an allocation of the market, it was not warranted.  Slip Op. at pg. 15.  The Court held that this distinction explained the lack of uniformity in precedents concerning no-hire agreements: they are not a category of per se unlawful agreement unto themselves, but instead are per se unreasonable when and only when they constitute a horizontal market allocation, collecting cases.  Slip Op. at p. 16.

The Court concluded by addressing the defendants’ argument that they were surprised and deprived of due process by having their agreements deemed per se unreasonable.  The Court noted that market allocation has long been unlawful, and non-solicitation will only receive per se treatment when it is market allocation.  Slip Op. at p. 17.  Looking ahead to the trial, the government will have to prove the defendants acted for the purpose of allocating the markets, variously for senior employees and for all workers.  Though per se treatment streamlines the Government’s path, it must still prove the elements beyond a reasonable doubt.    

Kerry C. Klein, Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP

The Ninth Circuit Court of Appeals reversed the district court’s dismissal of plaintiff’s Sherman Act Section 2 claims in Ellis v. Salt River Project Agric. Improvement and Power Dist., Nos. 20-15301, 20-15476, 2022 WL 276031 (9^th Cir. Jan. 31 2022), in a case at the intersection of antitrust and regulatory law.

Factual and Procedural Background

Salt River Project Agricultural Improvement and Power District (SRP) is a power and water utility that services most of the Phoenix metropolitan area. SRP is a political subdivision of the state of Arizona. It controls the electrical grid and has authority to set prices for the sale and distribution of electricity to its approximately one million customers. It supplies more than 95% of the electricity used by those customers.

Some of SRP’s customers have chosen to install solar energy systems, such as rooftop solar panels, thereby reducing the amount of electricity they need to purchase from SRP. Solar energy is not always available, however, so customers with solar installations must still rely on SRP to supply power when their solar installations are insufficient to fulfill their electricity needs. SRP has encouraged the use of solar energy systems.

In 2015, SRP increased prices on the E-27 price plan for customers who generate their own electricity through solar installations, pursuant to which these customers could be charged up to 65% more than previous rates. At the same time, SRP adopted a rate increase for its non-solar customers of only about 3.9%.

Ellis, a customer subject to the E-27 price plan, sued SRP in federal court on behalf of a putative class of similarly situated customers, asserting claims for monopolization and attempted monopolization under Section 2 of the Sherman Act; various Arizona consumer protection, antitrust and price discrimination laws; and the equal protection clauses of the United States and Arizona constitutions.

The district court dismissed the case in its entirety. With respect to the Section 2 claims, although it held the filed-rate and state action immunity doctrines inapplicable, the district court dismissed the federal antitrust claims for failure to allege antitrust injury. Ellis appealed to the Ninth Circuit.

Ninth’s Circuit’s Opinion on Section 2 Claims

The district court dismissed the Section 2 claims for failure to allege antitrust injury. Along the way, the district court also concluded that the filed-rate doctrine and state action immunity do not bar Ellis’s claims. The Ninth Circuit reversed the district court’s holding on antitrust injury and affirmed its other rulings.

Antitrust Injury

The court restated the general rule that a private antitrust plaintiff must plead and prove antitrust injury, which is an injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendant’s conduct unlawful. The court then itemized the four requirements for antitrust injury: (1) unlawful conduct; (2) causing an injury to the plaintiff; (3) that flows from that which makes the conduct unlawful; and (4) that is of the type the antitrust laws were intended to prevent.

The district court found that Ellis did not adequately allege antitrust injury because, in its view, the E-27 price plan actually encourages competition in alternative energy investment by allowing for new market entrants with its higher prices. The Ninth Circuit disagreed, finding that Ellis adequately alleged exclusionary conduct designed to (1) deter the competitive threat of solar energy systems; (2) penalize solar energy investments to fortify SRP’s monopoly; and (3) force consumers to exclusively purchase from electricity from SRP by making solar installations uneconomical.

On appeal, SRP argued that Ellis did not adequately allege antitrust injury because he paid the higher rate before SRP could fully succeed in displacing competition. SRP further argued that Ellis cannot claim to have been injured by exclusionary conduct because he attempted to use the market alternative that he claims SRP tried to make uneconomical. The Ninth Circuit found both of these theories flawed because “[c]oercive activity that prevents its victims from making free choices between market alternatives” gives rise to antitrust injury. To adequately plead antitrust injury, a plaintiff need not allege that the exclusionary conduct has succeeded in displacing all competition. The Ninth Circuit concluded that the increased prices that SRP imposed on solar customers are the means of SRP’s allegedly unlawful scheme to reduce solar energy competition.

Filed Rate Doctrine and State Action Immunity Defenses

SRP asserted the filed rate doctrine and state action immunity as defenses to Ellis’s claims. The filed rate doctrine is a judicially created rule that prohibits individuals from asserting antitrust challenges to an entity’s agency-approved rates. The Ninth Circuit found that the problem for SRP is that it does not file its rates with anyone other than itself. Rather, SRP’s board sets rates unilaterally. Unlike other Arizona utilities, SRP is not regulated by the Arizona Corporation Commission. The Ninth Circuit requires that some agency be engaged in sufficient regulation in order for the filed rate doctrine to apply. The Ninth Circuit rejected SRP’s attempt to compare its authority to that of the Federal Energy Regulatory Commission (FERC) because FERC regulates the rates charged by market participants, while SRP is the market participant. The court concluded that, “[w]e have never extended the filed-rate doctrine to unilateral, unsupervised rate-setting by a market participant.”

The Ninth Circuit also rejected SRP’s claim that it was entitled to state action immunity. State action immunity recognizes that the Sherman Act does not restrict the sovereign power of states to regulate their economies by imposing market restraints as an act of government.  The doctrine is disfavored and applies only when it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that is the state’s own. The Ninth Circuit held that state action immunity was inapplicable in this case because the state of Arizona has not articulated a policy to displace competition. Rather, Arizona’s statutes signal a shift by the legislature to promote competition in the retail electricity market, not curtail it.

The Ninth Circuit remanded the Sherman Act claims to the district court.

By Anthony Léon, in-house counsel in San Francisco, CA

In two separate orders, dated February 7^th and February 11^th, Judge Dana M. Sabraw, Chief United States District Judge of the United States District Court for the Southern District of California denied two motions for partial summary judgment on statute of limitation grounds brought by StarKist, Bumble Bee, and other defendants in the seafood’s multidistrict antitrust litigation. In Re: Packaged Seafood Products Antitrust Litigation, 15-MD-2670 DMS (MDD).

In 2015, the United States Department of Justice uncovered the canned tuna business’s fishy side. Chicken of the Sea and Bumble Bee, two of the three biggest canned tuna brands, proposed a merger, leaving StarKist as a remaining big competitor. The US DOJ, reviewing the merger, unveiled a greater scheme: the three companies behind these brands were, in fact, conspiring to fix and maintain canned fish prices.

The US DOJ brought charges against the conspirators. In August 2017, Bumble Bee Foods LLC pled guilty to participating in the conspiracy and was fined $25 million. In November 2018, the StarKist Company also pled guilty to the same charges and was fined $100 million. Chicken of the Sea International (COSI), which cooperated with the government from the beginning of the investigation, benefited from the DOJ leniency program and avoided charges and penalties.

Simultaneously, various tuna purchasers, including consumers, retailers, wholesalers, and commercial food preparers, filed lawsuits against the coconspirators and their parent companies, claiming violations of federal and state antitrust and consumer protection laws. Most cases have been consolidated in the multidistrict litigation (MDL) presented here.  

Defendants Bumble Bee, StarKist, and their parent companies requested summary judgment on Plaintiffs’ claims. They argue that Plaintiffs’ claims are time-barred because they were filed outside the relevant statute of limitations—four years for federal antitrust claims and one to six years for state antitrust and consumer protection claims. Plaintiffs oppose, arguing that there are triable questions of fact regarding whether the doctrine of fraudulent concealment applies to Defendants and tolls the limitation periods.

In a first order related to the direct action plaintiffs’ claims, the Court denied summary judgment, arguing that Plaintiffs are raising genuine issues of material fact regarding whether Defendants engaged in fraudulent concealment of their anticompetitive activity, thus tolling the statutes of limitation. Four days later, the Court used a similar reasoning in denying summary judgment in an order related to the claims of direct purchaser plaintiffs, indirect purchaser plaintiffs, and commercial food preparer plaintiffs.

Doctrine of fraudulent concealment tolls statute for federal and state claims brought by direct action plaintiffs (DAP)

To rule on the request for partial summary judgment against direct action plaintiffs (DAP) on statute of limitation grounds, the Court first addressed DAPs federal claims before turning to state law claims. Specifically, the Court had to find sufficient triable issues of fact in each element of the doctrine of fraudulent concealment, a defense used by the DAPs to toll the statute of limitations. In Re: Packaged Seafood Products Antitrust Litigation, February 7^th, 2022, 15-MD-2670 DMS (MDD) (ECF No. 2007).

The Court reminded that a plaintiff arguing the doctrine of fraudulent concealment must establish that “(1) the defendant took affirmative acts to mislead the plaintiff; (2) the plaintiff did not have ‘actual or constructive knowledge of the facts giving rise to its claim’; and (3) the plaintiff acted diligently in trying to uncover the facts giving rise to its claim.” In re Animation Workers Antitrust Litig., 123 F. Supp. 3d 1175, 1194 (N.D. Cal. 2015) (quoting Hexcel Corp. v. Ineos Polymers, Inc., 681 F.3d 1055, 1060 (9th Cir. 2012)).

Concerning the Federal claims, the Court first found sufficient triable issues of fact that Class Defendants have taken affirmative acts to mislead the plaintiffs. Class Defendants exchanged proprietary business information, which included presentation materials to retailers. Id. at 8. They also used a ‘smoke and mirrors’ method by publishing justifications for the can downsizing and tuna price increase in a similar fashion. Id. at 8. They also actively altered and destroyed documents not to draw attention to their practices. Id. at 9. Further, in addition to organizing clandestine meetings using coded language, they also used private and family members’ emails to actively exchange information so that their conversations would not be detected. Id. at 10.

The second element of the doctrine was the most discussed by Class Defendants, which considered that DAPs must have had active or constructive knowledge of the facts giving rise to their claim. Though the Court noted that, in a summary judgment motion, Class Defendants should have brought irrefutable evidence of DAPs’ knowledge to show the absence of triable issues of fact—which they did not. Id. at 11. Class Defendants attempted to rely on an allegation in DAPs complaint where they asserted that cans downsizing would have made economic sense to the Class Defendants only if they had conspired with one another. However, this allegation, presented by Class Defendants as a judicial admission of knowledge, was only added after the grand jury proceedings to allege that the cans downsizing resulted from the collusion and was not to infer they had knowledge of the collusion. Id. at 15. In addition, the mere fact that DAPs had access to supply and demand information through the length of the conspiracy could not be sufficient on its own to show DAPs had constructive knowledge of the collusion. Id. at 16. Thus, the Court found sufficient triable issues of fact as to whether DAPs had actual or constructive knowledge.

On the third element, the Court restated that to show a plaintiff diligently tried to uncover facts giving rise to its claim, they should show facts that would excite the inquiry of a reasonable person. Id. at 16 (citing Conmar Corp. v. Mitsui & Co. (U.S.A.), 858 F.2d 499, at 504 (9th Cir. 1988)). The Court noted that, although it did not need to address this factor based on what has already been discussed, two points here were worth a discussion. First, Class Defendants argued DAPs have managers expert in their field that should have been more diligent in verifying the reasons behind the tuna industry’s parallel price increase, but the Court found that a defendant’s public offering of a legitimate explanation for parallel pricing can be enough to show a dispute of material fact as to fraudulent concealment. Id. at 17. Also, the Court found that because Class Defendants used so much sophistication and commercial power to communicate with their competitors clandestinely, category managers should not have been expected to detect the parallel pricing. Id. at 17.

All in all, the Court found sufficient triable issues of fact to deny Class Defendants’ motion for partial summary judgment on the federal claims. Id. at 18.

Concerning the state law—specifically here on the Kansas Restraint of Trade Act, and the South Carolina Antitrust Act—the Court had to look at how sister courts apply the doctrine of fraudulent concealment to these types of claims, if ever. Because the United States District Court for the District of Columbia held that the doctrine could be extended to toll the three-year statute of limitations governing a Kansas antitrust claim, the Court aligned and denied partial summary judgment on the Kansas antitrust law claims. Id. at 18. On the South Carolina antitrust law claims, the Court could not find a similar application. However, the Court noted that South Carolina courts have consistently relied on federal precedents in deciding cases about the South Carolina Antitrust Act. In the Court’s words, “as the federal statutory frameworks provide, and South Carolina statutory frameworks do not contradict, that statutes of limitation are universally tolled until the plaintiff knew, or reasonably should have known, the facts giving rise to a cause of action,” the doctrine of fraudulent concealment should then be extended to toll the statute of limitations of the South Carolina Antitrust Act. Id. at 19. Thus, the Court denies partial summary judgment on the South Carolina claims as well.

A similar outcome for the claims brought by direct and indirect purchasers as well as commercial food preparers

In the February 11^th order, the Court followed the same reasoning as above to rule on the request for partial summary judgment brought under similar ground against the direct purchaser plaintiffs (DPP), indirect purchaser end payer plaintiffs (EPP), and consumer food preparer (CFP) plaintiffs. Class Plaintiffs have again asserted as a defense the doctrine of fraudulent concealment, for which each element was found by the Court to have sufficient triable issues of facts. In Re: Packaged Seafood Products Antitrust Litigation, February 11^th, 2022, 15-MD-2670 DMS (MDD) (ECF No. 2007).

Class Defendants were in this situation trying to get summary judgment only on a portion of class periods. For example, Class Defendants argued CFPs and EFPs are time-barred from June 1, 2011, to August 24, 2014, for a State claim with a 1-year statute of limitations. In total, Class Defendants contended that 1,181 days of the class period are barred for claims with a one-year statute of limitations, 816 days for claims with a two-year statute of limitations, 451 days for claims with a three-year statute of limitations, and 85 days for claims with a four-year statute of limitations. Class Plaintiffs disagreed, arguing the doctrine of fraudulent concealment would toll the statute of limitations. Id. at 4.

Having already found triable issues of fact on the first element of the fraudulent concealment doctrine in the February 7^th order, the Court did not have to discuss this element again. Id. at 5. The Court also found that its reasoning in discussing the second element of the doctrine applied in this situation too, but still cared to further discuss some of Class Defendants’ arguments. Specifically, Class Defendants alleged Class Plaintiffs had actual knowledge of the facts giving rise to the antitrust claims as early as July 2008, because class representatives have confirmed in depositions they noticed the changes in can sizing in 2008. Id. at 5. The Court found this argument to be a stretch, because EPPs—who are ordinary consumers—cannot be expected to be on notice that they should investigate the possibility of a tuna cartel based on observing cans downsizing. Id. at 7. Finally, the Court also found triable issues of fact on the third element. Id. at 8.

Conclusion

In both orders, the Court denied the motions for partial summary judgment because it found sufficient triable issues of fact on each element of the doctrine of fraudulent concealment, used as a defense by Class Plaintiffs to toll the statute of limitations on their state and federal antitrust law claims. It is important to underline that the Court did not decide whether the statute of limitations is effectively tolled. It will be relevant to follow future proceedings on this matter to consider whether Class Defendants were or not right in their assertion that the doctrine should not apply.

Sean Kolkey, University of California, Berkley School of Law, J.D. Candidate 2022

In re: Inductors Antitrust Litigation, Case No., 5:18-cv-00198-EJD (N.D. Cal. Feb 3, 2022) involved a putative class action by Dependable Component Supply Corporation on behalf of electronic component distributors against a variety of Japanese electronics manufacturers. Brought under sections 15 and 26 of the Clayton Act and sections 1 and 3 of the Sherman Act, the lawsuit alleged that Defendants had conspired to fix the price of circuit board inductors, a component with a variety of uses in consumer and industrial electronics. Flextronics International opted out of the class action and instead brought a substantially similar individual claim against the manufacturers. Plaintiffs contended that the manufacturers had fixed prices in response to increased international competition brought on by the Information Technology Agreement, a 1997 international treaty that removed tariff protections on the disputed components, as well as a decline in demand following the 2001 recession. After rejecting several previous complaints and allowing ample time to sufficiently plead a case that would survive a Motion to Dismiss, Judge Davila dismissed the complaints with prejudice.

Initially, the litigation encompassed two distinct but related conspiracy allegations. The first theory alleged a broad conspiracy between a vast assortment of manufacturers, while the second was limited to only three of the manufacturer Defendants. Plaintiffs’ direct evidence of the alleged conspiracies centered around a leniency application filed by one of the Defendants, TDK, with the U.S. Department of Justice. This application contained admissions of bid rigging with regards to certain customers, and it implicated two other manufacturers, Murata and Taiyo Yuden, in the scheme. Plaintiffs also argued that confidential pricing information shared between the Defendants at meetings of the Japan Electronics and Information Technology Industries Association (“JEITA”) suggested a broader conspiracy to control prices. Plaintiffs further advanced a variety of circumstantial evidence showing that the market for inductors was conducive to a conspiracy and showed signs of coordinated parallel pricing. Plaintiffs also noted that several of the Defendants had admitted to participating in prior unrelated price-fixing conspiracies.

On January 13, 2021, Judge Davila of the Northern District of California dismissed the class action, with leave for Dependable to amend. The court reasoned that TDK’s admissions in its leniency application did not evince a larger conspiracy and were at most “circumstantial evidence of a much narrower conspiracy.” Judge Davila, citing the Ninth Circuit’s opinion in In re Musical Instruments, 798 F.3d 1186 (9th Cir. 2015),further concluded that Defendants’ “mere participation in trade-organization meetings where information is exchanged and strategies are advocated does not suggest an illegal agreement.” The court similarly found that the other circumstantial evidence put forward by Dependable did not sufficiently support its broad allegation.

In response, the Dependable amended its complaint to advance only the more refined conspiracy between the TDK, Murata, and Taiyo Yuden Defendants. Simultaneously, opt-out Plaintiff Flextronics continued to allege both the wide and narrow conspiracy. However, on February 3, 2022, the court dismissed both amended complaints. Judge Davila concluded that Dependable lacked standing because it had not sufficiently alleged that it was injured by the narrower conspiracy. Similarly, Flextronics complaint was dismissed because it still failed to sufficiently plead parallel pricing. The court concluded: “This Court has previously dismissed two other complaints and has provided Flextronics and Dependable ample opportunity to cure the deficiencies identified in those Orders. Because Plaintiffs have not remedied those deficiencies, the Court finds that amendment would be futile, and Plaintiffs’ claims are dismissed without leave to amend.”