Ninth Circuit Affirms Dismissal Of Antitrust Allegations In DRAM Pricing Case
03/15/2022On March 7, 2022, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of claims that the three largest manufacturers of dynamic random-access memory (“DRAM”) conspired to artificially inflate prices by restricting supply. In re DRAM Indirect Purchaser Antitrust Litigation, 21-15125 (9th Cir. Mar. 7, 2022). Plaintiffs alleged that defendants conspired to simultaneously reduce the production of DRAM in order to drive up prices. The United States District Court for the Northern District of California dismissed the claims because plaintiffs’ allegations did not rise to the level of plausibility required under Rule 12(b)(6). The Ninth Circuit affirmed, holding that the facts as alleged were not sufficient to establish that defendants’ alleged conduct was the result of a “preceding agreement,” rather than conscious parallel behavior.
DRAM is a type of semiconductor memory used to store digital data on electronic devices. Defendants manufacture DRAM and sell it to electronics manufacturers, who incorporate it into their devices. According to plaintiffs, who sought to represent a putative class of indirect DRAM purchasers, defendants controlled approximately 96% of the DRAM market during the relevant time period. Up until 2016, defendants competed to increase their DRAM supply to capture greater shares of the market. But this led to decreased DRAM prices because of the abundant supply. The Complaint alleged that, in an attempt to stop the price decreases, the largest of the three manufacturers began stockpiling DRAM in late 2015 in order to reduce supply. This, however, did not stop the DRAM price erosion. The same defendant tried again in 2016 and reduced its DRAM production further. A few months later, the other two manufacturers reduced their DRAM production. All three defendants continued with restricted output through 2017. Consequently, DRAM prices shot up.
Plaintiffs claimed that defendants had violated Section 1 of the Sherman Act (as well as various state laws) by conspiring to drive DRAM prices up through restricting supply. The district court dismissed plaintiffs’ antitrust claims and entered judgment against plaintiffs on their state claims. Plaintiffs appealed the dismissal of their federal claims.
On appeal, the Ninth Circuit affirmed, holding that plaintiffs had failed to plausibly allege a conspiracy. Where, as here, a plaintiff relies on allegations of parallel conduct to support the allegation of conspiracy, plaintiff must also allege additional facts suggesting that defendants’ behavior arose from a conspiracy rather than lawful, parallel conduct. The “plus factors” alleged here, the Court found, were not enough to “nudge [plaintiffs’] claims across the line from conceivable to plausible.”
On appeal, plaintiffs argued that there were eight plus factors suggesting that defendants had entered a conspiracy rather than acting in parallel: (1) price signaling; (2) complex, simultaneous, and historically unprecedented decreases in capital investment; (3) supply cuts against defendants’ self-interest; (4) public statements encouraging supply cuts; (5) changed conduct between the start and end of the class period; (6) information exchanges between defendants regarding future supply and demand; (7) high market concentration; and (8) prior criminal convictions for price fixing. But most of the factual allegations underlying the alleged plus factors the Ninth Circuit found were consistent with “conscious parallelism in an interdependent market” and with independent decision-making in response to the alleged oversupply and declining prices in the DRAM market. This included a series of actions by the two smaller defendants that were consistent with adopting a “follow-the-leader” strategy in response to pricing and supply actions by the industry leader. Further, allegations about trade association meetings merely showed an opportunity to conspire, not that defendants did exchange information in furtherance of a conspiracy. Similarly, while allegations that the industry was highly concentrated showed that collusion was possible, market concentration also makes conscious parallel behavior more likely because firms “are cognizant of—and reacting to—similar market pressures.” Ultimately, the Ninth Circuit concluded that only one of those eight factors—defendants’ prior criminal conviction for fixing DRAM prices in 2005—even slightly suggested a conspiracy.
After examining each alleged plus factor individually, the Ninth Circuit turned to a “holistic” examination of the alleged plus factors and concluded that the “totality” of plaintiffs’ allegations did not suggest “anything more than conscious parallelism.” The Court noted that complaints in conspiracy cases often must rely on circumstantial evidence but emphasized that something more than allegations that “weakly tip” in plaintiffs’ favor are required “to open the floodgates to discovery in antitrust cases.” Accordingly, the Ninth Circuit affirmed the district court’s dismissal of plaintiffs’ antitrust claims.