This week, the Ninth Circuit revisits the pleading standard for stating a plausible conspiracy claim under the Sherman Act and examines the proper remedy for instructional error in a suit for disgorgement under the Lanham Act.
IN RE DRAM INDIRECT PURCHASER ANTITRUST LITIGATION
The Court holds that plaintiffs failed to plead facts showing that parallel business conduct suggested an antitrust conspiracy.
Panel: Judges Fletcher, Rawlinson, and Bencivengo (S.D. Cal.), with Judge Bencivengo writing the opinion.
Key Highlight: “While the factual overlap between Defendants’ prior criminal conduct and the present allegations supports Plaintiffs’ theory, the totality of Plaintiffs’ allegations does not suggest anything more than conscious parallelism. The four plus factors that Plaintiffs contend are most indicative of conspiracy . . . are all consistent with Defendants, as competitors in a highly concentrated market, reacting to the same market pressures and taking parallel action to serve their interests.”
Background: Defendants Samsung, Micron, and SK Hynix (“Defendants”) are three of the largest global manufacturers of dynamic random access memory (“DRAM”), which is a semiconductor used to store data in digital electronic devices. Together, the three companies control virtually all of the global DRAM market. After excessive supply led to declining prices, Defendants decided in 2016 to reduce their DRAM production output. Even when demand increased later that year, Defendants kept their DRAM production relatively low, which led to record revenues. After China’s antitrust enforcement agency intervened in December 2017, Defendants began to increase DRAM production, and prices declined.
Plaintiffs—a putative class of consumers who purchased devices containing DRAM between 2016 and 2018—sued, alleging that Defendants violated Section 1 of the Sherman Act, which prohibits agreements in restraint of trade. Plaintiffs also alleged violations of various state laws involving antitrust, consumer protection, and unfair competition. The district court dismissed all of these claims under Rule 12(b)(6).
Result: The Ninth Circuit affirmed. The Court explained that under Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), a complaint alleging a Section 1 claim “must contain sufficient factual matter . . . to plausibly suggest that an illegal agreement was made.” And for allegations regarding parallel conduct, “plaintiffs must allege something more than conduct merely consistent with agreement[.]” When plaintiffs do not have direct evidence of an agreement, they can still suggest a conspiracy through certain “plus factors.”
Here, Plaintiffs identified eight purported “plus factors” that, they claimed, suggest a conspiracy: (1) price signaling; (2) complex, simultaneous, and historically unprecedented decreases in capital investment; (3) supply cuts against Defendants’ self-interest; (4) public statements encouraging supply cuts; (5) changed conduct between the start and end of the class period; (6) information exchanges between Defendants regarding future supply and demand; (7) high market concentration; and (8) Defendants’ prior criminal convictions for price fixing in the DRAM market. The panel addressed each of these “plus factors” in turn. It concluded that the first seven did not support a plausible inference of a conspiracy to reduce DRAM production, as the pleaded facts were generally consistent with (permissible) conscious parallelism. And although Defendants’ prior convictions for price fixing circumstantially supported Plaintiffs’ theory, the Court held that “a single plausible plus factor allegation that weakly tips in the plaintiffs’ favor, without some further factual support, is not enough to open the floodgates to discovery in antitrust cases.” Taking a "holistic" view of the facts, the panel concluded that Plaintiffs failed to state a plausible Section 1 claim.
HARBOR BREEZE CORPORATION v. NEWPORT LANDING SPORTFISHING INC.
The panel: Judges Higginson (CA5), Hurwitz, and Collins, with Judge Collins writing the opinion.
Key highlight: “By its terms, Rule 39(c)(2) requires only that the actual ‘verdict’ that was rendered by the jury be given ‘the same effect as if a jury trial had been a matter of right,’ and that command has no further force when, as here, that verdict has been set aside as fundamentally flawed. See FED. R. CIV. P. 39(c)(2). Were we to order a jury trial on remand, we would not be giving ‘effect’ to the jury’s earlier ‘verdict.’ Instead, we would be granting Plaintiffs a free-floating right to a jury trial, as to a concededly equitable issue, that is untethered to that now-vacated verdict.”
Background: Plaintiffs Harbor Breeze sued Newport Landing Sportfishing, a competing whale-watching business, under the Lanham Act for false advertising. The district court instructed the jury that in order to award Newport’s profits to Harbor Breeze, it had to find that Newport acted willfully. While the jury found for Harbor Breeze on liability, it awarded $0 in damages and disgorgement.
Result: The Ninth Circuit reversed. As the Court explained, while the district court’s instructions had been consistent with then-existing precedent, the Supreme Court had since held that a showing of willfulness is not an “inflexible precondition to recovery” of a defendant’s profits in Lanham Act case, but is merely an important consideration. Romag Fasteners, Inc. v. Fossil, Inc., 140 S. Ct. 1492, 1497 (2020). The Court rejected Newport’s argument that, because the district court had ultimately decided whether to award disgorgement, the erroneous jury instructions were harmless. As the Ninth Circuit explained, the district court had said that it would reach the same conclusion as the jury because Harbor Breeze had not shown willfulness—analysis that was inconsistent with Romag.
The Court declined, however, to remand for a new jury trial. While Harbor Breeze acknowledged that disgorgement is ordinarily an equitable issue decided by a court, it argued that because the issue had been submitted to the jury here, that verdict became binding under Rule 39(c)(2), and a jury retrial was required. On the issue of whether the jury verdict was binding rather than advisory, both Harbor Breeze and Newport had reversed the positions they pressed below. The Ninth Circuit declined to apply judicial estoppel to either side, reasoning that it had already set aside the prior verdict and that neither side had gained an unfair advantage from their apparently inconsistent positions. And, the Court continued, whether or not the prior jury verdict had been binding, Rule 39(c) did not require that the retrial be before a jury given that the prior jury’s entire verdict on the disgorgement issue had been set aside.
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