Unilateral Conduct Committee E-Bulletin
Issue 25
December 06, 2004

The Section 2 Committee's monthly E-Bulletin is intended to offer the antitrust community updates and information on the latest developments relating to monopolization law and policy. If you have any comments or suggestions on the E-Bulletin, please e-mail Ankur Kapoor (akapoor@kayescholer.com) and Mark Popofsky (mpopofsky@kayescholer.com).

A.I.B. Express, Inc. v. FedEx Corp., No. 03 Civ. 8087 (SAS), 2004 U.S. Dist. LEXIS 22528 (S.D.N.Y. Nov. 8, 2004). According to AIB's complaint, it engaged in the business of facilitating gem and jewelry transport, primarily for merchants in New York City's Diamond District. Id. at *1. AIB employed armed couriers to pick-up valuables from the sender and deliver the package to FedEx distribution centers, from where FedEx shipped the package to its ultimate destination. Id. at *2. AIB also offered the sender insurance against all risk of loss. Id. Since 1998, FedEx had granted AIB a discount on transportation charges. Id. at **2-3. In early 2002, FedEx introduced its "Declared Value Exception (DVX)" service, which provided secure pick-up of valuable packages "in direct competition with AIB." Id. at *4. Although DVX did not provide the same level of loss coverage as did AIB, it did offer lower prices. Id. at **4-5. Nevertheless, FedEx was unable to make significant inroads into AIB's market. Id. Just before the holiday season in 2003, FedEx terminated its discounting arrangement with AIB, resulting in a 70% increase in AIB's shipping rates. Id. at *5. FedEx also stopped allowing AIB's customers to use AIB's account number on their FedEx labels. Id. At the same time, FedEx began contacting AIB's customers "in an effort to convince them to switch to the DVX service," allegedly utilizing AIB's confidential business information to do so. Id. at *6. Finally, FedEx allegedly offered these customers a greater discount on its shipping rates than it had previously offered AIB. Id.

AIB alleged counts of monopolization, attempted monopolization, and monopoly leveraging premised on FedEx's refusal to deal. The district court dismissed AIB's monopolization and attempted monopolization counts pursuant to FRCP 12(b)(6) because AIB alleged that FedEx had monopoly power only in the "transportation" market, not the "facilitation" market in which AIB and DVX competed and in which the alleged anticompetitive conduct occurred. Id. at **22, 24.

Regarding monopoly leveraging, the court held that after the Supreme Court's decision in Trinko, a monopoly leveraging claim requires that the defendant: "(1) possessed monopoly power in one market; (2) used that power to create a dangerous probability of monopolizing another market; and (3) caused injury by such anticompetitive conduct." Id. at *14. The court then held that AIB had sufficiently pleaded that "FedEx leveraged its power in the transportation market to take over the facilitation market," id. at *25, and that by doing so FedEx created a dangerous probability of monopolizing the facilitation market, id. at **28-29. Further, AIB's complaint satisfied Trinko's requirements for pleading a refusal to deal claim. It was "reasonable to infer" that FedEx's prior course of dealing with AIB "was profitable to FedEx and, thus, the decision to terminate revealed an anticompetitive bent." Id. at *27. In addition, AIB alleged that FedEx offered customers lower prices than FedEx offered AIB. Id.

Creative Copier Servs., Inc. v. Xerox Corp., Civ. A. No. 3:01cv155 (SRU), 2004 U.S. Dist. LEXIS 23048 (D. Conn. Nov. 15, 2004). The plaintiff ISO alleged that Xerox monopolized and attempted to monopolize the market for service of Xerox's high volume copiers by engaging in various anticompetitive acts. The court first held that the plaintiff's alleged relevant market passed muster under FRCP 12(b)(6) given the Supreme Court's opinion in Eastman Kodak Co. v. Image Tech. Servs. Inc., 504 U.S. 451 (1992). 2004 U.S. Dist. LEXIS 23048 at **9-10. "Admittedly, CCS will bear a heavy burden in proving the distinctness of the [service] aftermarket. Nevertheless, such proof is theoretically possible, and therefore, at the motion to dismiss stage, when all inferences must be drawn in CCS's favor, it cannot be said that CCS has not alleged a rational market from the perspective of demand interchangeability." Id. at *10.

The court then held that most of the plaintiff's allegations of anticompetitive conduct sufficed. Id. at *17. Specifically, the plaintiff alleged that Xerox, having once provided replacement parts to the plaintiff, stopped doing so for no legitimate business purpose, delayed shipping or raised prices on other parts, and refused to sell copiers to customers that wished to use the plaintiff to service their machines. Id. The court rejected Xerox's argument that, under Trinko, a refusal to deal claim must allege that "the defendant could not possibly make a short-term profit from the challenged conduct." Id. at **15-16. The court also held that any of Xerox's business justifications for its conduct were "not appropriately raised" on a motion to dismiss. Id. at *18. The plaintiff "is not required to allege the negative of every possible justification Xerox may offer for its conduct." Id.

The court did dismiss three allegations of Xerox's conduct. First, Xerox's sale of refurbished copiers as new could not injure the plaintiff's ability to compete in the service market. Id. at *19. Second, the court dismissed the plaintiff's predatory pricing allegations for failure to allege a dangerous probability of recoupment. Id. at **19-20. Third, the court dismissed the plaintiff's allegations that it was anticompetitive for Xerox to charge for its diagnostic software. "There is no dispute that it is more profitable for Xerox to charge some price for its software, than it is for Xerox to charge nothing. CCS's only explanation for why this conduct is anticompetitive is that, at one time, Xerox offered the software for free. But it cannot be that any time an owner of intellectual property offers a free license of that property, the antitrust laws preclude the owner from ever charging for a license in the future." Id. at **20-21.

Defiance Hosp., Inc. v. Fauster-Cameron, Inc., No. 3:01CV7578, 2004 U.S. Dist. LEXIS 23175 (N.D. Ohio Nov. 17, 2004). The plaintiffs, a hospital and a medical provider, claimed that the defendants, who operated a clinic that employed Certified Registered Nurse Anesthetists (CRNAs), monopolized the market for anesthesia services within a 20-minute radius of the hospital by denying physicians and their patients access to the CRNAs if the physician refused to use the clinic's CRNAs as their "primary source" for anesthetist services. Id. at **5-8. The clinic further prohibited its former CRNAs from providing anesthesia services within twenty-five miles of the clinic for one year following the end of their employment. Id. at *5.

The court granted the plaintiffs summary judgment on the issue of whether the clinic possessed monopoly power in a relevant market, because the clinic controlled approximately two-thirds of all surgical procedures requiring anesthesia and because the remaining one-third performed by the hospital's own anesthesia services department was insufficient to sustain the department financially. Id. at **30-34.

The court held, however, that there was a genuine issue of material fact as to whether the clinic willfully maintained its monopoly power. "Plaintiffs have set forth sufficient facts for a jury to . . . conclude that defendants intended to exclude competition by refusing to work with Dr. Gardner [the hospital's anesthesiologist], seeking primary source agreements with independent physicians, and not providing services for physicians who did not enter the primary source arrangements." Id. at *36. Although the clinic offered legitimate business reasons for its conduct -- such as ensuring adequate medical malpractice insurance coverage and supervision of CRNAs, and controlling the CRNAs' on-call schedule -- the court held that the clinic's business reasons for the restrictions, and "whether defendants possessed the general intent to exclude competition," were questions of fact for the jury. Id. at **36-37.

The court held that the same acts constituted predatory conduct as a matter of law for an attempt to monopolize. See id. at *40. The court, however, held that there was a genuine issue as to whether the defendant had the "specific intent" to monopolize, for the same reasons that there was an issue of general intent under the monopolization claim. Id. Because the court found that the defendant possessed monopoly power as a matter of law, it held that the conduct created a dangerous probability of monopolization. Id. at *43-44.

Martorano v. PP&L Energy Plus, 334 F. Supp. 2d 796 (E.D. Pa. Sept. 7, 2004). The court held that the plaintiff broker, Enerco, lacked antitrust standing to pursue its Sherman Act §§ 1 and 2 claims because it was neither a competitor nor a consumer in the relevant market, which the court held to be the market for sale of capacity to retail providers of electricity (known as "load serving entities" or "LSEs"). Rather, the plaintiff brokered the sale of electricity from LSEs to end-users. Thus, the defendant utility's alleged manipulation of the price of electricity sold to LSEs more directly affected the LSEs that had to pay the higher prices and the end-users to whom the higher prices allegedly were passed-on. Given that the Supreme Court held in Illinois Brick that indirect end-users lack antitrust standing, Enerco must also lack standing because its injuries were derivative of the end-users' decisions not to renew their contracts with Enerco.

Ankur Kapoor
Constantine | Cannon
450 Lexington Avenue
New York, N.Y. 10017
(212) 350-2748
akapoor@constantinecannon.com