Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., Ltd.: Plaintiffs’ First Amended Complaint Changes Court’s Mind on Dismissal for Failure to State A Claim

Robert Connolly
Law Office of Robert Connolly

Plaintiff Orion Telescopes & Binoculars [Orion] designs beginner to intermediate market telescopes, contracts with a manufacturer to build them and then sells them.  Two manufacturers dominate the supply for telescopes in the United States.  Defendant Ningbo Sunny Elect Co. Ltd. [Ningbo] is a telescope manufacturer that also owns its own distributors.  Orion sued Ningbo under both Sections 1 and 2 of the Sherman Act for conspiring with the other principal manufacturer [Settling Defendant] to fix prices and monopolize the market for telescopes. Orion alleged that the defendants agreed that Ningbo would control the market for low to medium-end telescopes and cede the high end market to Settling Defendant. Orion further alleged that as part of this schemes, Ningbo and the Settling Defendant conspired to block JOC (a minor telescope manufacturer) from expanding by acquiring Meade, a distributor.  Instead, Ningbo acquired Meade in 2013.

Judge Davila dismissed Orion’s original complaint two years ago with leave to amend.  Orion filed an amended complaint and the Court has found the First Amended Complaint (FAC) sufficient on both the Section 1 and Section 2 Sherman Act counts and denied defendants’ motion to dismiss.

Section 1 of the Sherman Act

Orion’s FAC added a factual allegation that changed the court’s mind on the plausibility of a conspiracy.  Orion alleged and provided documentation showing that the Settling Manufacturer had knowledge of Ningbo’s plans to acquire Meade before any information was public.  Orion’s Exhibit 1 showed that JOC (the minor manufacturer) announced its intention to acquire distributor Meade on May 17, 2013.  On May 23, 2013 Ningbo began considering acquiring Meade and that same day the President of the Settling Manufacturer learned of Ningbo’s plan to acquire Meade. This new evidence, along with other allegations of the defendants sharing sensitive information not typically shared between competitors absent  a common interest, “considered together, support an inference that the leadership of Ningbo and of the Settling parties, despite being competitors, sought to prevent a competing manufacturer from expanding” id. at *8, and “support the conclusion that Ningbo and the Settling manufacturers conspired to divide the market.” Id. at *9.

 Section Two of the Sherman Act

The court had previously dismissed the Section 2 allegation because Orion failed to sufficiently plead barriers to entry for potential competitors and barriers to expansion for existing competitors.  Judge Davila found the FAC cured these deficiencies.  The court cited these new allegations that buttressed the barriers to entry element:

• A specific intellectual property right held by the Defendants and settling Parties;
• High capital investment costs to enter the market;
• The relative absence of independent distributors to market the product of a new entrant; and
• The anticompetitive conduct by the Defendants and Settling Parties to prevent JOC from acquiring the distributor Meade.

The court found that “Orion had adequately pled that Ningbo obtained its monopoly power through an allegedly unlawful conspiracy to restrict competition and to allocate the market.” Id. at *12.

The court concluded that Orion suffered antitrust injury from the alleged violations because it has been forced to pay Ningbo supracompetitive prices for its supply. Id. at *13.  Judge Davila concluded: “The court finds that new allegations and Exhibit 1 provide Orion with the fuel that it needed to achieve lift off.”  Id.