Antitrust and Unfair Competition Law

Northern District of California Grants Summary Judgment for Optical Disk Drive Manufacturers in Indirect Purchaser Antitrust MDL

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Elizabeth C. Pritzker
Pritzker Levine LLP

On December 18, 2017, Judge Richard Seeborg of the Northern District of California issued simultaneous orders granting summary judgment in favor of the defendant manufacturers of optical disk drives in the indirect purchaser class proceedings in theOptical Disk Drive MDL, In re Optical Disk Drive Antitrust Litig ., No. 10-md-02143-RS, 2017 WL 6503743 (N.D. Cal. Dec. 18, 2017) (“ ODD”).  The court found that plaintiffs failed to demonstrate evidence of injury and causation, as required to proceed on their antitrust claims. Samsung, Toshiba, BenQ Corporation, Philips and Lite-On IT Corporation were among the prevailing defendants.

Background

The indirect purchasers were a class of customers who purchased products containing optical disk drives, or ODDs, from 2003 to 2008.  At issue were ODDs that were purchased by plaintiffs as stand-alone products for internal use in a computer, as devices attached externally to a computer, or as a component of a computer purchase. Plaintiffs alleged that defendants illegally agreed to fix prices for ODDs in violation of the Sherman Act, as well as California antitrust and consumer protection laws. 

The indirect purchaser plaintiff class claims were part of a coordinated multi-district proceeding that included direct purchaser class claims, and individual opt-out or direct action claims by Acer, an original equipment manufacturer (OEM), and its subsidiaries and retailers Circuit City and Radio Shack. 

Defendants filed motions for summary judgment in the various plaintiff cases related to Foreign Trade Antitrust Improvements Act (FTAIA), vicarious liability for corporate parents and the regarding causation, injury and damages. ODD, 2017 WL 6503743, at *1. Summary judgment is proper where there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A material fact is one that may affect the case’s outcome.  Anderson v. Liberty Lobby, Inc., 477 US 242, 248 (1986).  Id.

Foreign Trade Antitrust Improvements Act (“FTAIA”)

Judge Seeborg separately issued an omnibus order addressing the applicability of the FTAIA and vicarious liability for corporate parents—issues common to several of the defendants’ motions for summary judgment.  ODD, 2017 WL 6503743, at *1; see also In re Optical Disk Drive Antitrust Litig ., Case No.10-md-02143-RS, Dkt. No. 2706 (Slip Opn.), at p.1.  Because of its relevance to the court’s order granting summary judgment of the indirect purchaser case, the court’s FTAIA analysis as set forth in its omnibus order is summarized below. 

The FTAIA excludes from the antitrust laws conduct that has no domestic effects or does not affect import commerce.  US v. Hui Hsiung, 778 F.3d 738, 751 (9th Cir. 2015).  In the omnibus motion, defendants argued that certain ODD sales were excluded from federal and state antitrust laws under the FTAIA because they involved foreign commerce. The court analyzed defendants’ arguments with respect to three categories of sales: (1) ODDs sold abroad to customers abroad for incorporation into computers ultimately sold abroad; (2) ODDs sold abroad to foreign subsidiaries for incorporation into computers that were subsequently sold in the United States; and (3) domestic sales in the United States. Only category 1 and category 2 sales were at issue in the court’s omnibus order.  Dkt. NO. 2706, at pp.2-3.  

With respect to the category 1 sales, the court found that the FTAIA precluded plaintiffs’ claims for these sales. The court reasoned that although these sales involved the same alleged price-fixing activity by US employees, the effects were foreign sales of ODD to foreign customers, because the finished products were sold outside the United States and there was not a “direct, substantial, and reasonably foreseeable effect” on US commerce. The court further reasoned that collusive conduct allegedly aimed at fixing ODD prices around the world was insufficient to directly affect US commerce.  Dkt. 2706, at pp. 8, 10-11.

With respect to the category 2 sales, the court found that the plaintiffs raised a genuine issue of material fact as to whether the sales constituted import commerce and that the FTAIA did not bar the sales under the domestic effects exception. The court reasoned that because the price-fixed ODDs lacked any use other than as components in the finished computers, it was sufficient that the finished computers containing allegedly price-fixed ODDs were imported into the United States. The court also explained that the defendants “acted with the knowledge that their products would arrive in the US,” including that the defendants had account managers based in the United States and knew that ODDs sold abroad would be incorporated into computers sold in the United States. This knowing and intentional sale of components to US-based procurement teams also constituted direct, substantial and reasonably foreseeable effect on US commerce under the domestic effects exception. The court, therefore, declined to grant the defendants’ motions for summary judgment on the category 2 sales.  Dkt. 2706, at pp. 8, 10-11.

Lack of Evidence of Causation and Pass-Through Damages

While the indirect purchaser plaintiffs achieved some success on the FTAIA commerce issues, they fared less well on summary judgment.  The primary issues for summary judgment in the indirect purchaser action were: (1) the sufficiency of evidence supporting the alleged conspiracy, and (2) the sufficiency of evidence regarding causation, injury and damages.

As to the first issue, the court found that plaintiffs had presented sufficient evidence to create a genuine issue of material fact as to the existence of a conspiracy targeting certain OEM customers.  While acknowledging that the plaintiffs did not have direct evidence of a meeting among conspirators, “such as the ‘crystal meetings’ in the TFT-LCD (Flat Panel) case” (ODD, at 2017 WL 6503743, at *4), the court found that plaintiffs had presented a “coherent narrative, suggesting a culture of collusion and longstanding relationships” between both low-level employees and senior executives and managers. Id, at *6.  The court ruled, however, that this evidence was sufficient only to support an alleged conspiracy targeting certain OEM customers (Dell and HP), but did not support plaintiffs’ theory as to an industry-wide conspiracy.  Id, at *5-6.  Thus, while summary judgment could not be granted in defendants’ favor to the extent it is based on insufficiency of the evidence of a conspiracy,” the court held that any indirect purchaser “recovery [must] be limited to downstream purchasers of only Dell and HP products.”  Id, at *6.   

The court then turned to the second issue—the sufficiency of evidence of causation, injury and damages.  “As purchasers of the allegedly price-fixed goods, ‘indirect-purchaser plaintiffs must demonstrate that defendants overcharged their direct purchasers for [ ] products and that those direct purchasers passed on the overcharges to the plaintiffs.’”  ODD, 2017 WL 6503743, at *8 (citing In re Graphics Processing Units Antitrust Litig ., 233 F.R.D. 478, 499 (N.D. Cal. July 18, 2008). 

Plaintiffs presented a damages methodology that posited “100% pass-through of inflated pricing from direct action purchasers down to retail customers” (the indirect purchaser plaintiffs themselves). ODD, 2017 WL 6503743, at *8.  This damages theory, the court held, required the indirect purchaser plaintiffs to account for the decision-making of resellers, distributors and manufacturers at every stage of the supply chain. Id.  Plaintiffs “must proffer evidence not only as to the calculation of the overcharge on ODDs,” the court found, but also “that this overcharge resulted in offsetting with other lower quality component parts, and that the offsetting would have occurred at 100% of the value of the overcharge, meaning that no link in the supply chain would have swallowed any portion of the overcharge.”  Id, at *9.  “This theory is of pass-through is not only crucial to the elements of injury and damages,” the court held, “but also to causation, as it establishes the necessary link between Defendants’ conduct and IPPs injury as alleged.”  Id.

The indirect purchasers’ damages theory posited that the alleged conspiracy slowed the otherwise natural decline in prices in the industry and that the overcharge was passed on in the form of lower quality finished products or component parts rather than higher prices for the finished goods.  See ODD, 2017 WL 6503743, at *8-9. Although the court certified a class of indirect purchasers on this theory ( id, at *8), the court found that the indirect purchasers’ theory was not supported by the record evidence at summary judgment.

Notably, according to the court, the plaintiffs could not produce any evidence showing that a manufacturer had ever reduced the quality of a finished product to offset higher ODD prices. To the contrary, the court credited declarations from Dell and HP representatives (the only OEMs for whom plaintiffs had produced evidence of a plausible conspiracy) that indicated that these OEMs “in fact did not pass on” ODD prices “with any consistency or uniformity.” ODD, 2017 WL 6503743, at *10. 

Therefore, without actual evidence of decision-making that demonstrated that the alleged higher prices were 100% passed on to downstream customers, Judge Seeborg concluded the indirect purchaser class plaintiffs “were unable to meet their burden of showing a genuine issue of material fact as to pass-through, which underlies their theory of causation, injury and damages.”  ODD, 2017 WL 6503743, at *10.  The court granted summary judgment to Samsung, Toshiba and others, ending the indirect purchaser plaintiff class case.

Plaintiffs filed an appeal with the Ninth Circuit Court of Appeals on January 5, 2018.   


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