Collusion In Telescope Market Was Clear To See, Finds Ninth Circuit
12/21/2021On December 6, 2021, Judge Ronald M. Gould of the Ninth Circuit Court of Appeals affirmed jury verdicts against defendant-telescope manufacturers and distributors. Optronic Technologies, Inc. v. Ningbo Sunny Electronic Co., Ltd., et al., No. 2:20-cv-15940 (9th Cir. 2021). Plaintiff alleged that defendants conspired to fix prices on telescopes and monopolize the market in violation of the Sherman Act, the Clayton Act, and California antitrust and competition laws. The Court largely affirmed the district court jury’s decisions, vacating and remanding only as to the amount of the settlement set-off.
Plaintiff is a telescope distributor supplied primarily by defendant-manufacturers. Defendants are telescope manufacturers and distributors. Defendant-manufacturers – which historically accounted for over 80% of telescopes imported into the US – allegedly colluded with defendant-distributors (plaintiff’s competitors) to the detriment of competition in the telescope and telescope accessory market.
Defendants’ appeal challenged multiple lower court decisions regarding the Sherman and Clayton Acts, among others. Regarding Sherman Act § 1, defendants appealed the jury’s three § 1 findings, each of which the Court rejected, siding with jury and plaintiff on each argument. First, the Court found sufficient evidence at trial that defendant-manufacturers, to protect their market share, conspired to outbid a smaller competitor to acquire Meade, a company that both manufactures and distributes telescopes. Evidence included records of defendants’ executives providing millions of dollars in financial favors between their companies to finance the acquisition. The Court also pointed to defendants’ emails discussing the need to prevent the competitor from acquiring Meade and to create a united “vision” of four defendant-companies “cooperat[ing]” to “dominate the telescope industry.” The jury’s second finding was also adequately supported, according to the Court. It found sufficient evidence that defendants conspired to fix prices and credit terms, with defendants coordinating telescope part prices using a “shell” subsidiary entity with only one employee, as well as coordinating to simultaneously withdraw plaintiff’s lines of credit to prevent plaintiff from acquiring a third-party assets (assets include the website telescopes.com). On the third finding, the Court agreed there was substantial documentary and expert testimonial evidence that defendants conspired to split the telescope market between themselves.
Defendants further appealed the jury’s Sherman Act § 2 monopolization findings, arguing that plaintiff’s theory and market definition were improper, but the Court disagreed. It instead found that the jury’s decisions were based on sound expert testimony. Specifically, plaintiff’s expert properly used a barriers-to-entry analysis over the relevant market and did not need to perform further cross-elasticity of demand analysis on any particular product (with the Court commenting on the broad and distinct product category that telescopes represented). The Court rejected defendants’ argument that they lacked sufficient monopoly power, since one defendant’s market share of approximately 50% exceeded the 44% threshold that the Ninth Circuit has previously recognized to be sufficient to establish “dangerous proximity to market power.” This – taken together with the fact that no new market participants entered the telescope manufacturing market for ten years; the expert had opined on high barriers to entry in the market; and defendant had recently acquired a large competitor – all presented sufficient evidence supporting the jury’s finding. Pointing again to the email record, the Court also agreed with the jury that defendants had demonstrated specific intent to gain monopoly power.
The Court similarly sided with jury and plaintiff on Clayton Act findings. On Clayton Act § 7, it found that defendants’ conduct to acquire Meade would substantially reduce competition or create a monopoly, based on Herfindahl-Hirschman Index (HHI) calculations showing market concentration of five times the amount courts generally accept as presumptively anticompetitive. Moreover, the Court opined that the injunctive relief under Clayton Act § 16 (ordering defendant-manufacturer to supply plaintiff and Meade on non-discriminatory terms) was not “overbroad”, because the Clayton Act authorizes broad relief to terminate the illegal monopoly, deny defendants’ their gains, and ensure no further improper conduct. According to the Court, the scope of the injunction is discretionary. As such, the lower court properly prescribed its injunction as to only two market competitors (plaintiff and Meade, which defendants argued could create a new oligopoly) based on its finding that this would enhance competition.
Finally, the Court declined to limit damages to the end of the conspiracy, because antitrust plaintiffs who continue to suffer antitrust injuries from conspiracy – even after that conspiracy has already ended – should recover damages for its continuing effects.
This case presents a detailed example of appellate courts’ treatment of jury antitrust verdicts, with deference granted to findings of fact over detailed and often highly technical information presented in an antitrust setting.