Second Circuit Reinstates Music Industry Conspiracy Complaints

G THE B IN EN V C R H E

he U.S. Court of Appeals for the Second Starr v. Sony BMG Music Entertainment, No. Circuit ruled that claims of price fixing by 08-5637-CV (Jan. 13, 2010) music companies should not have been Comment: The extent to which conduct by dismissed and indicated that courts must By joint ventures is shielded from antitrust scrutiny look to the context surrounding parallel Elai was a subject of debate earlier this month Tconduct when determining the sufficiency and during the U.S. Supreme Court oral argument Katz plausibility of complaints alleging agreements of American Needle v. NFL, No. 08-661. in restraint of trade. The U.S. Court of Appeals Relevant Market—Experts for the Sixth Circuit dismissed a racetrack’s monopolization claims against NASCAR because The owner of a Kentucky racetrack alleged the plaintiff’s economist failed to show that The court explained that the context of the that the leading stock car racing association and premium stock car racing constituted its own alleged parallel acts raised a suggestion of a an affiliated company that owns many racetracks relevant market and neglected to consider other preceding agreement. Among the contextual violated antitrust law by refusing to sanction forms of entertainment. facts identified by the court were: The “major league” races at the plaintiff’s track and Other recent antitrust developments of defendants collectively held over 80 percent preventing plaintiff from buying other tracks that note included a decision by the U.S. Court of of the digital music market; the two joint already host such major league races. Appeals for the Eighth Circuit that cardiologists ventures formed by the defendants to sell music The plaintiff asserted that it built a first- complaining of exclusion from a health insurance online charged unreasonably high prices and class racetrack and obtained top ratings and network could not limit the relevant market imposed unpopular limitations on consumers; high attendance records, yet NASCAR, the definition in their antitrust suit to patients who the defendants attempted to hide their use of defendant association, would not sanction a had private insurance plans and a ruling by “most favored nation” clauses in their digital major league race at the track for the alleged the U.S. Court of Appeals for the Third Circuit music licenses; federal and state investigations purpose of shutting out competitive independent vacating a price discrimination judgment were pending; and the defendants increased racetracks and preventing any challenges to the for failure to satisfy the competitive injury prices even though costs had decreased association’s dominance in sanctioning races. requirement. substantially. A district court granted summary judgment Pleading to the defendants on the grounds that plaintiff’s expert opinions on the definition of the relevant A complaint alleging a conspiracy by major What does ‘Twombly’ require when market were unreliable and that the plaintiff did music companies to fix the prices and terms not establish antitrust injury. The Sixth Circuit of digital music sold online was dismissed by conspiracy claims rest on parallel affirmed. a district court for failure to assert a plausible conduct? The Sixth Circuit stated that the district claim under the pleading standards set out in court did not abuse its discretion in excluding Bell Atlantic Corp. v. Twombly, 550 U.S. 544 The Second Circuit added that when plaintiff’s economic expert’s testimony, which (2007). A Second Circuit panel reversed and conspiracy claims rest on parallel conduct, had determined that the defendant association reinstated the complaint. Twombly does not require identification of the was the sole supplier of the relevant product, In a decision authored by Judge Robert specific time, place or person involved in each premier stock-car races. The appellate court A. Katzmann, the appellate court stated that conspiracy allegation. noted that the expert should have considered although allegations of parallel conduct coupled The appellate court emphasized that, contrary evidence that stock-car races compete with with only a bare assertion of conspiracy do to the lower court’s opinion, the plaintiffs various forms of entertainment, including other not suffice to state a claim under §1 of the challenged the legality of the defendants’ joint auto races and different sports, for ticket sales, Sherman Act, the plaintiff is not required at ventures and that, unlike the joint venture corporate sponsorship and broadcast license the pleading stage to allege facts that tend to examined in Texaco Inc. v. Dagher, 547 U.S. fees. The Sixth Circuit rejected the plaintiff’s exclude independent self-interested conduct. 1 (2006), the music companies’ ventures had contention that the consumers in the stock- The Second Circuit found that the complaint not been expressly approved by antitrust car race sanctioning market are racetracks, pleaded specific facts sufficient to plausibly regulators. not fans, broadcasters and sponsors, because suggest that the parallel conduct alleged— In a concurring opinion, Judge Jon O. Newman plaintiff’s own expert testimony disputed that charging unreasonably high prices and setting wrote that the determination of the sufficiency of view. unpopular terms for digital music—was the a complaint depends on the context in which the The Sixth Circuit added that the district result of an agreement among the defendant alleged parallel conduct took place. He added court did not err in determining that plaintiff’s music companies. that the Supreme Court did not categorically expert did not properly perform the “small but reject the possibility that parallel conduct would significant non-transitory increase in price” form the basis for an inference of an unlawful (SSNIP) test, a well-established economic method Elai Katz is a partner of Cahill Gordon & Reindel. agreement. to define relevant markets by asking whether thursday, january 21, 2010 consumers would switch to other products when cafeterias, and sought to take business from 23(b)(3) of the Federal Rules of Civil Procedure faced with a price increase (typically around 5 each other by persuading those customers to was not satisfied and refused to approve percent). Instead of analyzing whether a price either self-operate and obtain food supplies the settlement class. The court noted that increase would lead to substitution, the expert from a distributor or outsource their food individualized inquiry would be required looked at ticket prices and attendance figures service functions, including purchasing, to a because of the wide variation in list prices over an eight-year period and concluded that management company. charged to farmers for bags of seed and stated both price and demand went up during that The Third Circuit disagreed and explained that plaintiffs did not demonstrate a common time, a methodology that the court stated had that the allegedly discriminating manufacturer method of proof of antitrust impact. not been subject to peer review or generally sold food products to the distributor and food Schoenbaum v. E.I. Dupont de Nemours & Co., accepted within the scientific community. management company only after the conclusion of 2009-2 CCH Trade Cases ¶76,837 (E.D. Mo.) The Sixth Circuit also questioned whether the any competition between the two firms to obtain a Acquisitions plaintiff’s failure to obtain a major league race or customer. buy another track constituted antitrust injuries Feesers Inc. v. Michael Foods Inc., Nos. The Federal Trade Commission (FTC) as there were legitimate business reasons for 09-2548, 09-2952, 09-2993 (Jan. 7, 2010) announced the closing of its investigation into these disappointments and the plaintiff’s track Anticompetitive Effects the consummated acquisition of a financially continued to derive significant revenue from troubled hospital by its sole rival in Temple, Tex. other races. The U.S. Court of Appeals for the Fifth The acquisition was not reportable under the Kentucky Speedway, LLC v. National Circuit, sitting en banc, held that a plaintiff Hart-Scott-Rodino Act’s premerger notification Association of Stock Car Auto Racing Inc., No. must demonstrate actual or likely injury to scheme. 08-5041 (Dec. 11, 2009) competition to properly assert violations of the The FTC’s investigation focused on whether Relevant Market—Form of Payment Packers and Stockyards Act, which among other the acquired hospital qualified for the “failing things prohibits “unfair, unjustly discriminatory firm” defense, in the sense that in the absence of In another case where market definition or deceptive” practices by meat packers, swine an acquisition it would have exited the market problems proved fatal, a cardiology practice contractors and live poultry dealers. and it could not have been acquired by a less group claimed that an operator of Arkansas In this case, chicken growers claimed anticompetitive purchaser. The FTC closed its hospitals and several insurers excluded the that another grower, who unlike plaintiffs investigation after a viable, alternative buyer group from health insurance network coverage bought chickens rather than raising them on decided not to acquire the deteriorating hospital. in violation of antitrust law. The Eighth Circuit consignment, received preferential contractual Scott & White Healthcare/King’s Daughters affirmed the trial court’s dismissal of the Hospital, File No. 091-0084, CCH Trade Reg. complaint for failure to properly define a relevant Rep. ¶16,402 (Dec. 23, 2009), also available at market. The practice group sought to limit the In ‘Kentucky Speedway,’ the Sixth www.ftc.gov relevant market to cardiology services obtained Private Merger Challenges by patients covered by private insurance. Circuit stated that the district court did The court stated that in an antitrust claim not abuse its discretion in excluding Pharmacies claimed that the combination of brought by a seller, the relevant product market two major pharmaceutical companies—which cannot be limited to a single method of payment plaintiff’s economic expert’s testimony, had been approved with conditions by the FTC when other methods of payment are acceptable. which had determined that the and the European Commission—was likely to The appellate court indicated that since the defendant association was the sole lessen competition in violation of §7 of the lawsuit was about excluding cardiologists, Clayton Act. the relevant inquiry was whether there are supplier of the relevant product, A district court dismissed the complaint alternative patients available to the cardiologists, premier stock-car races. because several of the plaintiffs’ product market not whether patients can reasonably substitute definitions—including all prescription drugs government insurance for private insurance. terms from a poultry integrator (processor/ and all brand name prescription drugs—were Little Rock Cardiology Clinic PA v. Baptist dealer) in violation of the act. A district not sufficiently pleaded. In addition, the court Health, 2009-2 CCH Trade Cases ¶76,849. court denied defendants’ summary judgment determined that the pharmacies did not have Comment: Even when the plaintiff is an motion, and a three-judge panel of the Fifth standing to seek relief for the lessening of excluded rival of the defendant, the ultimate Circuit affirmed, stating that a showing of competition in animal health markets that had focus of the antitrust inquiry remains the anticompetitive effects was not required. been identified by the FTC because they did not competitive effect on consumers in the market The en banc appellate court concluded buy or make animal health products. served by the foreclosed and foreclosing that an anticompetitive effect is necessary Golden Gate Pharmacy Services Inc. v. Pfizer, suppliers, rather than the impact on the in light of legislative history and judicial 2009-2 CCH Trade Cases ¶76,824 (N.D. Cal.) suppliers themselves. interpretation of the act. The court observed Price Discrimination that the act was passed in the 1920s when five meat-packing conglomerates dominated the A food distributor claimed that a manufacturer market and legislators were concerned about offered lower prices for its egg and potato anticompetitive, monopolistic conduct. products to the world’s largest food services Wheeler v. Pilgrim’s Pride Corp., 2009-2 CCH management company in violation of §2(a) of Trade Cases ¶76,846 the Robinson-Patman Act. After a three-week Class Actions bench trial, the district court ruled in favor of the plaintiff. Farmers alleged that an agricultural The Third Circuit reversed and stated that biotechnology firm along with two seed the complaining food distributor could not producers imposed anticompetitive restrictions satisfy the competitive injury requirement on the sale of genetically modified seeds in of a price discrimination claim. The district violation of antitrust laws. The plaintiffs court had stated that although the two firms reached a settlement with one of the seed performed different functions within the food producers and sought preliminary court services industry, the distributor and the food approval of the settlement agreement and the Reprinted with permission from the January 21, 2010 edition of the NEW management company competed with one settlement classes. YORK LAW JOURNAL © 2010. ALM Media Properties, LLC. All another as they had similar customers, such The district court decided that the rights reserved. Further duplication without permission is prohibited. For as hospitals and schools that run institutional predominance requirement set forth in Rule information, contact 877-257-3382 or [email protected]. # 070-01-10-24