Antitrust Law Daily Wrap Up, ANTITRUST—D. Del.: Headset manufacturer’s antitrust challenge to competitor’s exclusive agreements with distributors proceeds, (Sep 25, 2013)

By Tobias J. Gillett, J.D., LL.M.

Headset manufacturer GN Netcom, Inc. sufficiently alleged antitrust claims against its competitor Plantronics, Inc. over exclusive distributorship arrangements Plantronics formed with specialized independent distributors (SIDs) that sold headsets to contact centers, the federal district court in Wilmington, Delaware has ruled (GN Netcom, Inc. v. Plantronics, Inc., September 23, 2013, Stark, L.).

GN’s complaint alleged a specialized market for headsets sold to contact centers in the United States, with the “vast majority” of those headsets sold to contact centers through approximately 20 SIDs. In response to GN’s entry into the market in 1997, Plantronics allegedly instituted the Plantronics Only Distributor program, under which SIDs agreed to refrain from “(1) marketing, advertising, or promoting competitive products; (2) purchasing competitive products directly from competing manufacturers; and (3) accepting sales incentives from competing manufacturers.” Approximately 80 percent of SIDs have allegedly become Plantronics Only Distributors.

GN filed suit against Plantronics, asserting claims for monopolization, attempted monopolization, restraint of trade, and tortious interference with business relations. Plantronics filed a motion to dismiss.

Antitrust injury. GN sufficiently alleged antitrust injury by charging that the POD agreements prevented entry of new competitors into the market, decreased consumer options and information about competing products, and artificially inflated prices, according to the court. Even if the exclusive agreements had some benefits, they could still result in an antitrust injury by “preventing GN and other competitors from building a viable distribution network and competing with Plantronics’ monopoly.” Moreover, the exclusive agreements were not imposed by the demands of the marketplace, but rather introduced “in response to GN’s entry into the marketplace, creating a barrier to the market that did not previously exist.”

GN also sufficiently pled an injury to itself “that flows from that which makes the defendant’s acts unlawful” by alleging that it was a direct competitor of Plantronics in the relevant market.

Product market. The court concluded that GN adequately pled its definition of the product market, rejecting Plantronics’ contention that the market should have included headsets sold to customers other than just contact centers. According to GN’s complaint, headsets were sold to contact centers through a limited network of SIDs, which provided a variety of services to contact centers, including “ordering and restocking of inventory, new product demonstrations, returns and exchanges, technical know-how, and delivery services.” Moreover, Plantronics and GN had “specialized sales and marketing strategies for purchases by contact centers,” and Plantronics own documents referred to the “contact center market.”

Geographic market. The court also found that GN sufficiently pled a geographic market of the United States, rejecting Plantronics’ argument that the proper geographic market was worldwide. GN’s complaint asserted that “warranty differences,” “voltage differences,” and “shipping costs” made it “impracticable for contact centers to purchase headsets from suppliers outside the United States,” and the court could not conclude that GN’s limitation of the market to the United States made “no economic sense under any set of facts.”

The case is Civil Action No. 12-1318-LPS.

Attorneys: Joseph J. Farnan, Jr. (Farnan LLP) and Christopher S. Finnerty (Nelson Mullins Riley & Scarborough, LLP) for GN Netcom, Inc. Richard L. Horwitz (Potter Anderson & Corroon LLP) and Jonathan M. Jacobson (Wilson Sonsini Goodrich & Rosati PC) for Plantronics, Inc.

Companies: GN Netcom, Inc.; Plantronics, Inc.

Cases: Antitrust DelawareNews