Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Memory chip supplier’s antitrust, RICO claims against competitor over lost contract fail, (Apr 21, 2014)

By Linda O’Brien, J.D., LL.M.

A memory chip supplier failed to state plausible antitrust claims against a competitor and memory chip design company for interfering with the supplier’s acquisition of a memory chip supply contract with a network service provider, the federal district court in San Jose, California, has decided. The supplier also failed to state RICO claims against the defendant companies. However, the supplier’s California’s Unfair Competition Law (UCL) and misappropriation of trade secrets claims survived the motion to dismiss (GSI Technology v. United Memories, Inc., April 18, 2014, Grewal, P.).

Industrial printer and memory chip supplier GSI Technology (GSI) entered into an agreement in 2007 with United Memories, Inc. (UMI) for the design and development of a memory chip. While the memory chip was under development, GSI agreed to supply a more advanced memory chip to Cisco, a network service provider, which UMI would also develop. Before the two projects were completed, GSI received information that UMI’s parent company was in financial difficulty and UMI could not proceed with the agreements. After completion of the development of the initial memory chip, the agreement between GSI and UMI terminated. Because GSI could not deliver the design for the second memory chip, GSI was terminated as a supplier to Cisco. In 2012, Cisco solicited bids for a second supply of the advanced memory chip. Only GSI and a competitor, Integrated Silicon Solution, Inc. (ISSI) submitted bids. To secure the bid with Cisco, ISSI partnered with UMI. During the bidding process, GSI met with a Cisco employee and provided information about its bid. Shortly after the meeting, the employee left Cisco and went to work for ISSI to lead ISSI’s bidding negotiations. At that time, ISSI contacted GSI and expressed interest in acquiring the company. Ultimately, Cisco awarded the contract to ISSI and GSI rejected ISSI’s attempts to acquire it.

GSI filed suit against UMI, asserting causes of action for misappropriation of trade secrets and damages under California’s Unfair Competition Law (UCL). After discovery, GSI amended its complaint, adding ISSI as a defendant and alleging violations of the Sherman and RICO Acts. UMI and ISSI moved to dismiss the complaint in its entirety.

The court found that GSI failed to allege antitrust injury. GSI contended that the defendants’ conduct substantially impeded its entry as a potential competitor into a highly concentrated market with high entry barriers. In rejecting GSI’s argument that the loss of a single bid for a single contract for a single customer establishes antitrust injury, the court noted that GSI had already entered the market as a primary competitor in the high performance memory chip market and had been awarded various contracts to design and supply the memory chips since 2008. Moreover, there were no allegations that other competitors were impacted by the defendants’ conduct or the defendants were cooperating on all products in the memory chip market. Since GSI’s injury could have occurred absent the alleged anticompetitive conduct, the court determined that GSI did not have standing to assert an antitrust claim.

RICO claim. GSI failed to show a pattern of racketeering activity to support its RICO claims, according to the court. To maintain a RICO claim, a plaintiff must show conduct of an enterprise through a pattern of racketeering activity. While GSI’s complaint alleged numerous instances of mail and wire fraud, any fraudulent acts by the defendants served the single goal of the acquisition of the Cisco contract rather than a series of separate but related criminal aims. GSI also failed to satisfy the continuity requirement since the complaint contained no allegations of a threat of continued criminal activity.

UCL claim. However, the court determined that GSI sufficiently stated a claim under the UCL. GSI alleged misappropriation of business opportunities by the use of information gained through the ISSI and UMI partnership and hiring of the former Cisco employee. The alleged conduct “constituted precisely the type of behavior that the UCL was aimed at,” the court noted. GSI also sufficiently stated a claim for misappropriation of a trade secret. GSI’s allegations that the design and layout for the memory chips were secrets and ISSI improperly acquired the secrets when it partnered with UMI to acquire the Cisco contract was sufficient to overcome a motion to dismiss, the court concluded.

The case is No. 5:13-cv-01081-PSG.

Attorneys: Jeffrey M. Shohet (DLA Piper LLP) for GSI Technology, Inc. Korula T. Cherian (Hogan Lovells US LLP) for United Memories, Inc. Anthony J. Weibell (Wilson Sonsino Goodrich & Rosati) for Integrated Silicon Solution, Inc.

Companies: GSI Technology; United Memories, Inc.; Integrated Silicon Solution, Inc.

Cases: Antitrust RICO StateUnfairTradePractices CaliforniaNews