Antitrust Law Daily Wrap Up, TOP STORY—4th Cir.: Boycott claims rejuvenated in table saw safety technology suit, (Sep 16, 2015)

By Greg Hammond, J.D.

The federal district court in Alexandria, Virginia, partially erred in dismissing a safety technology developer’s antitrust claims against tool manufacturers. In vacating in part and remanding the case to the lower court, the U.S. Court of Appeals in Richmond determined that the developer adequately alleged that certain tool manufacturers engaged in a group boycott of the developer’s “active injury mitigation technology” that allegedly prevents some hand and finger injuries caused by table saws (SD3, LLC v. Black & Decker U.S. Inc., September 15, 2015, Agee, G.).

In 2003, SD3, LLC approached a number of tool companies, including Black & Decker, to license SawStop—“active injury mitigation technology” designed to significantly reduce the risks of table-saw accidents. After various licensing negotiations fell through and the Underwriters Laboratories, Inc. (UL) table-saw standards-setting committee voted to not mandate the use of SawStop on all table saws, SD3 filed suit. It claimed that the tool companies violated the Sherman Act by (1) engaging in a group boycott of the SawStop technology and (2) conspiring to corrupt UL table-saw standards to prevent SawStop from becoming an industry standard. The lower court granted the manufacturers’ motion to dismiss, and SD3 timely appealed.

Corporate parents, affiliates. The appellate court first determined that SD3 failed to make a factual showing that each defendant conspired in violation of the antitrust laws. Specifically, SD3 nakedly alleged that all of the corporate subsidiaries were dominated by, and were alter egos of, certain corporate parents. The court concluded that SD3 merely offered a legal conclusion, and there were no facts suggesting the kind of unity of interests that are typically required to set forth an alter ego theory. The complaint also failed to allege that certain subsidiaries did anything at all, the court determined, noting that antitrust law does not recognize guilt by mere association. Lastly, Stanley Black & Decker, Inc. and Delta Power Equipment, Inc. entered the table-saw industry well after the conspiracies allegedly began. The lower court therefore correctly dismissed Hitachi, Makita, Chang Type Industrial, OWT Industries, Pentair, Black & Decker, Delta Power, and Techtronic Industries from the suit.

Group boycott claims. The appellate court next concluded that the lower court made two errors in finding the boycott claims inadequately alleged. First, the lower court confused the motion to dismiss standard with the standard for summary judgment by: (1) dismissing certain claims because the facts alleged did not tend to exclude independent action; (2) requiring SD3 to definitively show an agreement, rather than asking whether the allegations plausibly suggested such an agreement; and (3) erroneously looking to summary judgment cases to define the relevant standards. Second, the lower court erred by applying a heightened pleading standard that was closer to probability than plausibility.

Instead, the court determined that SD3 sufficiently alleged a group boycott by adequately alleging parallel conduct. The uniform actions were obvious—none of the defendants ultimately took a license or otherwise implemented the SawStop technology. As a result, SD3 could purportedly not pursue its initial business strategy of entering the market through a license agreement with a major table-saw manufacturer. These alleged actions were “classically anticompetitive” because “parallel action that excludes new entrants both facilitates price elevation and can slow innovation.”

SD3 also adequately alleged the “more” necessary to move its allegations of parallel conduct into the realm of plausibility, the court concluded. Specifically, SD3 identified the particular time, place, and manner in which the boycott initially formed, describing a separate meeting held for that purpose during the Power Tool Institute’s October 2001 annual meeting. The complaint also identified six specific individuals who took part in forming the boycott, noting which defendant each individual represented; alleging the means by which the agreement was reached—a majority vote; and explaining how the boycott was implemented—by refusing to respond to entreaties from SD3, going silent after long negotiations, or offering bad-faith terms that were intended to be rejected. The court found that SD3 alleged the “who, what, when, and where” in its complaint, in addition to the “why”—that the manufacturers were motivated to conspire out of a fear of product-liability exposure.

With regard to a showing that the alleged conspiracy produced adverse, anticompetitive effects within the relevant product and geographic markets, SD3 claimed that the group boycott violated the Sherman Act per se, such that no separate allegations of harm were required. Noting that the district court did not directly address SD3’s allegations of competitive harm, the appellate court could not decide that issue. The dismissal order was therefore vacated and remanded with regard to the boycott claim.

Standard-setting conspiracy claims. SD3 also alleged two separate but related conspiracies with regard to private standard-setting—the standard-rejection conspiracy and the contrived-standards conspiracy. The appellate court found that the complaint failed to plausibly establish either conspiracy. Specifically, the court noted that the facts alleged implied nothing beyond ordinary participation in lawful standard-setting processes, because SD3: (1) never alleged that UL’s normal procedures were thwarted, or that the manufacturers engaged in some form of external misconduct; (2) never identified any fact other than consistent votes against SD3’s proposal to establish the alleged illegal agreements; and (3) never alleged the sort of anticompetitive objectives that are ordinarily seen in standard-setting cases, such as products that are effectively excluded from the market by adopted safety standards. SD3 therefore failed to allege the “more” necessary to raise an inference of agreement, rendering the lower court’s dismissal proper with regard to the standard-setting conspiracy claims.

Judge James A. Wynn, Jr. wrote a separate concurring opinion, and Judge J. Harvie Wilkinson III wrote an opinion concurring in part and dissenting in part.

The case is No. 14-1746.

Attorneys: Joel Davidow (Cuneo Gilbert & Laduca, LLP) for Appellants. James S. Ballenger (Latham & Watkins, LLP) for Appellees.

Companies: SD3, LLC; SawStop LLC; Black & Decker U.S. Inc.; Black & Decker Corp.; Chang Type Industrial Co., Ltd.; Delta Power Equipment Corp.; Hitachi Koki Co., Ltd.; Hitachi Koki USA Ltd.; Makita Corp.; Makita U.S.A., Inc.; Milwaukee Electric Tool Corp.; One World Technologies, Inc.; OWT Industries, Inc.; Robert Bosch GmbH; Robert Bosch Tool Corp.; Ryobi Technologies, Inc.; Stanley Black & Decker, Inc.; Techtronic Industries, Co., Ltd.; Techtronic Industries North America, Inc.; Pentair Water Group, Inc.; Emerson Electric Co.; Pentair, Inc.

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