Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Tire manufacturer allegedly used patent infringement suits to boycott competitor, (Sep 15, 2014)

By Linda O’Brien, J.D., LL.M.

Japanese tire manufacturer Toyo Tire has allegedly misused a certain U.S. design patent to compel settlement agreements with domestic tire distributors in order to boycott a competitor’s tires, foreclose competition from the U.S. tire market, and maintain high profit margins and increase prices of its tires, according to a complaint filed in the federal district court of Santa Ana, California (Sentaida International, Inc. v. Toyo Tire and Rubber Co., Ltd., September 9, 2014).

Toyo Tire and Rubber Co., Ltd. and its subsidiaries manufacture, sell, and export tires to the United States. Sentaida International, doing business as Sentury Tire Americas, imports and sells its Landsail brand tires and purchases its tires from its Chinese parent company, Qingdao Sentury Tire Co.

The complaint alleges that, in 1975, Toyo entered the U.S. tire market and was active in fostering a market for high performance sporting tires which appealed to younger drivers. Because Toyo did not experience significant competition in this new market, the company was not price sensitive or did not reflect the evolving tastes of young U.S. drivers. In 2011, Sentury began selling its Landsail tires as an affordable performance tire for light trucks, SUVs, and cars.

According to the complaint, the aggressive entrance by Sentury and other foreign tire manufacturers into the U.S. high performance sporting tire market caused Toyo to pursue methods to thwart such entry. In September 2013, Toyo filed complaints with the U.S. International Trade Commission (ITC) and in the federal district court against numerous domestic and foreign tire manufacturers for alleged infringement of a certain Toyo design patent, U.S. Design Patent No. 675,150 (the ‘150 patent). In response to these claims, 15 of the respondents entered into confidential settlement agreements, which included a list of tires that the respondents were required to cease dealing. Toyo listed the Sentury tire when the company knew that Sentury was not a party to the ITC complaint or the federal district court complaint.

The inclusion of the Sentury tire in the settlement agreements allegedly caused domestic tire distributors to cancel any orders with Sentury for its tire and made it impossible for Sentury to offer its tire to U.S. consumers. As a result of Toyo’s unlawful scheme to boycott Sentury tires, Sentury was forced to incur new molding charges for the Sentury tire and suffered substantial losses in new tire sales, the complaint charges.

By foreclosing the Sentury tire from the domestic tire industry, Toyo’s conduct had the effect of impairing the sale of an alternate, price-sensitive tire to U.S. consumers and caused other foreign tire manufacturers to avoid competing directly with Toyo, the plaintiff claimed. In the absence of the Sentury tire, Toyo allegedly was able to maintain its high profit margin and increase the price of its tires. Moreover, Toyo intentionally utilized the settlement agreements as a mechanism to defend the validity of the ‘150 patent by preventing the settling respondents from challenging the validity of its patent. Sentury denies the claim that its tire infringes the ‘150 patent and states that if Toyo believed that Sentury infringed the ‘150 patent, Toyo would have added Sentury to the ITC complaint instead of surreptitiously adding the Sentury tire to the list of tires in the settlement agreements in the ITC complaint, which required the respondents to cease selling.

The plaintiff asserts claims for unfair competition and violations of Section 1 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 8:14-cv-01457.

Attorneys: Rory J. Radding, Jinshu Zhang, and Stephen P. Murphy (Edwards Wildman Palmer LLP) for Sentaida International, Inc.

Companies: Sentaida International, Inc.; Toyo Tire and Rubber Co., Ltd.

News: Antitrust CaliforniaNews