Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Acer joins price fixing actions against optical disk drive manufacturers, (Oct 31, 2013)

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

Acer Inc. and several of its affiliates have filed a complaint in the federal district court in San Francisco, alleging that manufacturers of optical disk drives (ODDs) engaged in a conspiracy to fix the prices for ODDs and to rig bids submitted to Acer (Acer Inc. v. Lite-On IT Corp., October 31, 2013). The complaint joins others alleging similar Sherman Act Section 1 price fixing claims against ODD manufacturers that have been joined for pretrial purposes in that court.

Acer Inc. is a Taiwan-based computer and electronics manufacturer. Gateway, Inc., another computer manufacturer, is now an indirect subsidiary of Acer. In turn, Gateway U.S. Retail, Inc. is a wholly-owned subsidiary of Gateway, and the successor-in-interest to eMachines, Inc. ODDs are internal or external drives that read optical discs, such as CDs, DVDs, Blu-ray discs, or HD-DVDs, by means of a laser. According to the complaint, Acer and its affiliates purchased ODDs from ODD manufacturers to incorporate into their products.

The complaint describes the history of ODD development, from the development of the CD by Sony Corporation and Royal Philips, to the development by a consortium of manufacturers of the DVD, and finally to the development of HD-DVD and Blu-ray formats by Toshiba Corporation and Sony, with Blu-ray winning out. According to Acer, the market thus developed is dominated by a small group of manufacturers, and is conducive to collusion.

Acer describes the ODD market as “highly concentrated,” with the defendants and their co-conspirators controlling more than 90% of the market in 2008. The defendants allegedly formed various strategic alliances and joint ventures with each other to mitigate the costs of royalty payments, permitting the defendants to force second-tier manufacturers, which would have had lower labor costs, out of the market.

Moreover, the complaint notes the barriers to entry presented by the costs of building efficient manufacturing plants and overcoming technological hurdles, and by the intellectual property assets possessed by the defendants and their co-conspirators. The defendants belong to patent pools that allegedly deter entry into the market by charging high licensing costs for patent rights on technology required to produce ODDs. The defendants also allegedly discussed and exchanged information about the pricing and production of ODDs at various trade association meetings. Further, ODDs are a standardized product, with a high degree of substitutability among suppliers and purchase decisions made largely on price.

Acer alleges that the defendants and their co-conspirators engaged in numerous acts of collusion throughout the relevant period. These included reaching agreements on prices to charge customers for ODD products and how participants would bid on contracts for ODD products, including prices charged and bids submitted to Acer; regular exchanges of confidential business information for the purpose of fixing prices; rigging bids at auctions for the supply of ODD products; rigging bids and fixing prices for procurement of ODD products; and creating joint ventures and patent pools among the defendants that facilitated price fixing.

The complaint also describes recent government investigations of the ODD industry. In October 2009, the U.S. Department of Justice announced an investigation into anticompetitive conduct in the ODD industry. The complaint notes that the targeted companies acknowledged that they were the subjects of the investigation, but did not deny that they had engaged in anticompetitive conduct. The DOJ has instituted a criminal grand jury investigation, and has obtained a guilty plea from ODD manufacturer Hitachi-LG Data Storage, Inc. and four executives.

The complaint observes that the ODD market did not behave as would be expected for a consumer electronics market, with “unnatural price stability and certain periods of upward pricing trends” replacing the expected downward pricing trends. The complaint also cites the alleged “long history of collusion” by many of the defendants in other technology-related markets, including the markets for magnetic videotapes, optical discs, gas insulated switchgears, DRAM, SRAM, cathode ray tubes, and thin-film transistor-liquid crystal displays (TFT-LCDs).

Acer alleges that the defendants’ fraudulent concealment of their conspiracy prevented Acer from discovering the conspiracy earlier, and would toll the statute of limitations on the defendants’ anticompetitive conduct.

The complaint asserts claims for violations of Section 1 of the Sherman Act, the California Cartwright Act, and the California Unfair Competition Law. It seeks (1) a declaration that the defendants’ conduct violated the relevant laws; (2) damages and treble damages; (3) permanent injunctive relief against further continuance of the conspiracy; (4) pre- and post-judgment interest, costs of suit, and attorneys’ fees; and (5) any other just and proper relief.

The case is No. 5:13-cv-04991-HRL.

Attorneys: Kaiwen Tseng (Freitas Tseng & Kaufman LLP), Hsiang H. Lin (TechKnowledge Law Group LLP), and James B. Baldinger (Carlton Fields) for Acer Inc.

Companies: Acer Inc.; Gateway, Inc.; Lite-On IT Corp.; NEC Corp.; Koninklijke Philips Electronics N.V.; Philips & Lite-On Digital Solutions Corp.; Pioneer Corp.; Samsung Electronics Co., Ltd.; Sony Corp.; Toshiba Corp.; Toshiba Samsung Storage Technology Corp.

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