Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Monopoly and restraint of trade claims against diamond producers dismissed, (Jan 7, 2014)

By Linda O’Brien, J.D., LL.M.

A diamond supplier failed to state federal antitrust law claims against a group of diamond producers for allegedly conspiring to monopolize and unreasonably restrain trade in the rough diamond market, the federal district court in New York City has held (Tese-Milner v. Diamond Trading Company, Ltd., January 6, 2014, Wood, K.). Thus, the complaint was dismissed with prejudice.

The Diamond Trading Company is a member of a group of companies known as the De Beers Group that produces and sells rough diamonds. De Beers sold rough diamonds to selected companies called “sightholders” at events called “sights,” during which the sightholders were shown boxes of diamonds and given the opportunity to purchase them. The diamonds were pre-selected and presented to each sightholder, who was told the approximate price in advance and generally required to accept to entire box. W.B. David & Co., Inc. purchased and sold rough diamonds and was one of De Beers’ sightholders.

W.B. David, through its Chapter 7 bankruptcy trustee, filed suit against De Beers, alleging that the sightholder sales process was an unlawful vertical restraint of trade. Specifically, W.B. David claimed that De Beer obtained detailed information about the sightholders’ marketing efforts, finances, customer base, and distribution plans at the sights. Through its brokers, De Beers conspired to control sightholder purchases and business practices, and disguised payments for marketing and advertising in the United States in violation of Sections 1 and 2 of the Sherman Act and state antitrust statutes. W.B. David incurred damages by purchasing rough diamonds at artificially inflated prices. De Beers moved to dismiss the complaint for failure to state a claim.

Conspiracy. The court found that W.B. David’s allegation of a conspiracy was conclusory and did not state evidence of an unreasonable restraint of trade. The diamond producers were permitted to control how their products were sold, and the mere use of brokers to facilitate the advertising, marketing, and sale of one’s products was not anti-competitive conduct.

Monopolization. To state a claim for monopolization under the Sherman Act, the plaintiff must show (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth and development as a result of a superior product, business acumen, or a historic event. Even if De Beers possessed monopoly power in the diamond market, W.B. David failed to show that the sight system was anti-competitive, according to the court. De Beers was free to choose the parties with which they would deal as well as the prices, conditions, and terms of the dealing, and its decision to distribute its products through the sight system was not anti-competitive absent any alleged purpose to create or maintain a monopoly.

Finally, W.B. David’s request for leave to replead the complaint was denied. Given the plaintiff’s previous opportunities to amend the complaint, further amendments to cure deficiencies would be futile, the court concluded.

The case is No. 04 Civ. 5203 (KMW).

Attorneys: Jacob W. Heller (Heller, Horowitz & Feit, PC) for W.B. David & Co., Inc. John Christopher Crow (Bowles, Cohn & Crow LLP) for Angela Tese-Milner. Bradley J. Demuth (Skadden, Arps, Slate, Meagher & Flom LLP) for De Beers Centenary AG and Diamond Trading Company, Ltd.

Companies: W.B. David & Co., Inc.; Diamond Trading Company, Ltd.

Cases: Antitrust NewYorkNews