Antitrust Law Daily Wrap Up, ANTITRUST—NDCal: Foreign Trade Antitrust Improvements Act Bars Florida Wireless Products Distributor’s Antitrust Claims over Manufacturer’s Argentinian Boycott, (Jan 31, 2013)

By Tobias J. Gillett, J.D., LLM.

A Florida-based distributor of wireless networking products in Argentina failed to allege antitrust violations of the Sherman Act and California’s Cartwright Act against a manufacturer of those products over the manufacturer’s purported campaign to pressure its other distributors into boycotting the distributor because the Foreign Trade Antitrust Improvements Act (FTAIA) barred the distributor’s claim and because the distributor had failed to allege a cognizable antitrust injury, the federal district court in Oakland, California has ruled (Ubiquiti Networks, Inc. v. Kozumi USA Corp., January 29, 2013, Wilken, C.).

Ubiquiti Networks, Inc. produces wireless communications devices. Ubiquiti entered into a distribution agreement with Kozumi USA Corp., under which Kozumi would have the right to distribute Ubiquiti’s products in “all Latin American countries.” Kozumi proceeded to distribute Ubiquit’s products, concentrating on the Argentinian market. Ubiquiti later ended this agreement, but Kozumi continued to purchase Ubiquiti’s products through official and unofficial distributors of them. Kozumi alleged that Ubiquiti began putting pressure on distributors to “boycott” Kozumi.

Ubiquiti then sued Kozumi, alleging that Kozumi committed trademark infringement, counterfeiting, computer fraud, copyright infringement, unfair competition, false advertising, and libel in the course of contracting with a foreign manufacturer to produce counterfeit Ubiquiti products. Kozumi filed various counterclaims, including violations of the Sherman Act and California’s Cartwright Act. Ubiquiti moved to dismiss the counterclaims.

Sherman Act

Kozumi claimed Ubiquiti violated the Sherman Act through its attempts to prevent its distributors from selling its products to Kozumi. Ubiquti raised two defenses, (1) that the FTAIA, which limits the Sherman Act’s application to conduct that impacts domestic commerce, barred the claim; and (2) that Kozumi had failed to allege a cognizable antitrust injury.

FTAIA bar. The court concluded that the FTAIA barred Kozumi’s claim. The court explained that FTAIA case law established a two-part test that asked “whether the alleged antitrust conduct (1) has a direct, substantial, and reasonably foreseeable effect on domestic commerce, and (2) such effect gives rise to a Sherman Act claim.” The court cited the Ninth Circuit’s 1988 decision in McGlinchy v. Shell Chemical Co., 845 F.2d 802, 1988-1 Trade Cases ¶67,973, for the proposition that the FTAIA exempted conduct without the necessary substantial effect on domestic commerce, “even where such conduct originates in the United States or involves American-owned entities operating abroad.”

Here, Kozumi’s counter-complaint had stated that “the relevant geographic market is Argentina, as virtually all of Kozumi’s resells of [Ubiquiti’s] products were sent to Argentina.” Kozumi’s allegations that Ubiquiti had engaged in anticompetitive conduct in the United States by asking distributors there not to sell to Kozumi did not permit Kozumi to avoid the FTAIA bar, since the conduct did not affect competition in the United States. Kozumi’s claims that it was injured in Florida, where it had its principal place of business, were “too narrow” to satisfy the domestic effect requirement.

Cognizable Antitrust Injury. Moreover, the court concluded that even if the FTAIA did not bar Kozumi’s claim, Kozumi had failed to satisfy the Sherman Act requirement of an injury to competition. Kozumi had identified the relevant market as the “market for wireless equipment” in Argentina, but also stated that “the impact of [Ubiquiti’s] boycott was felt primarily or exclusively at Kozumi’s principal place of business in Miami, Florida.” Kozumi also alleged that distributors who wanted to sell to Kozumi were prevented from doing so by Ubiquiti’s actions, but did not suggest that those distributors participated in the Argentinian market for wireless networking products, or that Ubiquiti prevented those distributors from selling any products to Kozumi other than Ubiqitui’s own products.

Furthermore, Kozumi had not alleged that Ubiquiti intended “to achieve some specific anticompetitive purpose.” Kozumi had not asserted that Ubiquiti had attempted “to benefit one of Kozumi’s competitors or even to expand its own market share.” As Kozumi had not demonstrated how Ubiquiti’s conduct “affected the relevant market or accomplished some anticompetitive purpose,” the court dismissed Kozumi’s Sherman Act counterclaim.

Cartwright Act

The court also concluded that its disposition of Kozumi’s Sherman Act claims necessitated dismissal of Kozumi’s claims based on California’s Cartwright Act. The court observed that California case precedent had established that “a claimant’s failure to state a Sherman Act claim will likewise condemn its claims under the Cartwright Act.” Since Kozumi had not shown how Ubiquiti had affected competition in domestic markets, Kozumi had also failed to demonstrate how Ubiquiti had affected competition in a California market. Therefore, the court dismissed Kozumi’s Cartwright Act counterclaim.

The court also dismissed Kozumi’s counterclaims for breach of the implied covenant of good faith and fair dealing, defamation, intentional interference with prospective economic advantage, and violations of California’s Unfair Competition Law. The court denied the motion to dismiss as to a claim for breach of contract.

The case is No. C 12-2582 CW.

Attorneys: Colette R. Verkuil (Morrison & Foerster LLP) for Ubiquiti Networks, Inc. Robert Michael Harkins, Jr. (Sedgwick LLP) for Kozumi USA Corp.

Companies: Ubiquiti Networks, Inc.; Kozumi USA Corp.

Cases: Antitrust CaliforniaNews