Antitrust Law Daily Wrap Up, TOP STORY—DCol: Forcing of Non-Disparagement Clause in Settlement Agreement Did Not Create Antitrust Liability, (Jan 29, 2013)

By E. Darius Sturmer, J.D.

A software company, its corporate parent, and an executive of the software company would not have violated Sherman Act, Sec. 2’s prohibition on attempted monopolization by attempting to force a non-profit umbrella organization of investment clubs to enter into a litigation settlement agreement that had anticompetitive terms, the federal district court in Denver, Colorado, has ruled (National Association of Investors Corp. v. Bivio, Inc., January 28, 2013, Martinez, W.).

While the organization sufficiently alleged anticompetitive conduct, for purposes of a federal antitrust claim, it failed to show any facts indicating that the defendants had a specific intent to monopolize or a dangerous probability of success at such an endeavor, the court found.

The settlement agreement at issue was intended to resolve breach of contract claims that stemmed from a Strategic Alliance Agreement between ICLUB—a subsidiary of the organization, National Association of Investors Corp. (NAIC)—and defendant Bivio, Inc. The settlement agreement was never executed, due to the parties’ disagreement over whether Bivio’s construction of a non-disparagement clause within it was unlawful under federal antitrust law. Specifically, the plaintiff took issue with Bivio’s insistence on including language suggesting that the clause “prohibits truthful disparagement.”

Attempted Monopolization

The court agreed with NAIC that the non-disparagement clause could unduly limit competition by restricting the organization from making truthful disparaging statements about Bivio to its members in the service of honest and fair competition. NAIC alleged that the clause restrained competition “because NAIC’s position in the market was such that its ability to influence [its members]…[had] a direct [effect] on the level of competition in the Relevant Market.” Moreover, the organization averred, the dispute had already caused a chill in competition. Lending plausibility to these allegations, in the court’s view, was an FTC policy statement indicating that non-disparagement clause “may operate as a restriction on comparative advertising.”

However, specific intent to monopolize—a requisite element of a Sherman Act attempted monopolization claim—could not be inferred from the alleged inclusion of the non-disparagement clause in the settlement agreement. Nowhere did NAIC’s complaint or amended complaint contain an assertion that the defendants acted with an intention to form or maintain a monopoly—that is, both to control prices and exclude competition. Rather, the organization contended only that the defendants aimed to form a contract that would have anticompetitive effects in the relevant market.

Though this shortcoming was fatal to the Sec. 2 claim, the court added that NAIC had failed to adequately plead that the defendants had a dangerous probability of successfully establishing or maintaining a monopoly. NAIC’s charge that monopolization could occur from the purported anticompetitive agreement because ICLUB and Bivio together possessed over 80% of the relevant market was based on a joint monopolization theory that had been judicially discredited. The theory has been disapproved by other courts and has not been adopted by the controlling Tenth Circuit, the court explained.

In the case at hand, a joint monopolization theory was self-contradictory, as it unmade the allegations of harm that ICLUB (which would under the theory constitute a co-monopolist) raised in pleading the anticompetitive conduct element of its claim. The plaintiff “could not have it both ways,” the court said. “Either [it] has properly pleaded dangerous probability of success but failed to plead anti-competitive, or [it] pleaded anti-competitive conduct but failed to plead the probability of success.”

Sec. 1 Claim

The amended complaint stated no claim under Sec. 1 of the Sherman Act either, the court determined. No violation of Sec. 1 could be inferred solely from the charge that Bivio’s construction of the anti-disparagement clause was anti-competitive. Because a literal reading of Sec. 1 had been rejected by the Supreme Court, anticompetitive conduct did not necessarily violate the statute, the court observed. Essential to a Sec. 1 claim was a showing of concerted action, and the amended complaint no longer contained any reference to conspiracy beyond a single passing mention of an “attempted conspiracy” between the software company and its president. The fact that the conspiracy was only “attempted” signified that there was no actual concerted action.

Leave to Amend

The court refused to grant NAIC leave to amend its claims, noting that the organization had already had two attempts at properly alleging its claims. Following dismissal of the antitrust claims with prejudice, the court declined to exercise jurisdiction over NAIC’s state law contract claims, citing the abstention doctrine established by the U.S. Supreme Court in Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976).

The case is Civil Action No. 11-cv-02435-WJM.

Attorneys: Perry J. Narancic (Lexanalytica, P.C.) for National Association of Investors Corp. Richard Len Bland (Bland Law Offices, P.C.) for Bivio, Inc.

Companies: Bivio, Inc.; National Association of Investors Corp.

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