United States District Court For The District Of Delaware Dismisses Allegations Of Anticompetitive Drone Pricing
03/26/2019On March 18, 2019, Judge Leonard P. Stark of the U.S. District Court for the District of Delaware dismissed allegations of predatory pricing in the “prosumer” drones market by DJI Technology Co., Ltd. and DJI Europe B.V. (collectively “DJI”). SZ DJI Technology Co., Ltd. v. Autel Robotics USA LLC, No. 16-706-LPS (D. Del. Mar. 18, 2019). The Court ruled in favor of the DJI plaintiffs, who were defendants in the antitrust counterclaims in the suit, finding that defendants Autel Robotics USA LLC and Autel Aerial Technology Co., Ltd. (collectively “Autel”) did not allege sufficient facts for a plausible predatory pricing claim. In particular, the Court found that Autel failed to show that DJI’s prices were below cost.
Plaintiffs’ antitrust claims concerned alleged monopolization in violation of Section 2 of the Sherman Act by a key player in the American market for “prosumer” drones—that is, “easy to use” drones equipped with certain professional features such as cameras and navigation software. On August 11, 2016, DJI initially filed a suit alleging patent infringement against Autel. Autel thereafter filed counterclaims alleging monopolization in violation of the Sherman Act and predatory pricing in violation of certain state antitrust laws. Autel claimed that DJI used its substantial market share in the drone industry to “tactically lower” the price of its drone units below cost in order to “drive out each new competitor that enter[ed]” the market.
DJI countered that Autel’s allegations were speculative. A predatory pricing claim under the Sherman Act requires plaintiffs to show: (1) that the competitor’s low prices are below an appropriate measure of its costs, and (2) that the competitor is reasonably able to recoup, or has a dangerous probability of recouping, “its investment in below-cost prices.” Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-24 (1993). In finding that Autel did not sufficiently and plausibly plead pricing below cost, the Court criticized Autel’s calculation method of “merely” dividing “revenue by quantity” to determine DJI’s alleged prices. The Court found that Autel’s pricing calculations failed to account for DJI’s advertised prices, resale price offers, and the prices actually paid by purchasers, and therefore did not represent DJI’s actual prices. The Court concluded that Autel’s allegations were speculative and conclusory.
Further, the Court cautioned that “conclusory” claims like the one in this case have the potential to “chill” competitive business behavior. The Court found that, “[e]ven if DJI’s pricing drove out competitors, this does not constitute a plausible allegation that it was DJI’s below-cost predatory pricing that caused others to fail.” The Court therefore granted DJI’s motion to dismiss and found it unnecessary to address issues related to market definition, intent to monopolize, and likelihood of recoupment.
This case demonstrates that, even at the initial pleading stage, courts will closely scrutinize allegations of below cost pricing necessary to bring predatory pricing claims and will dismiss claims based on conclusory allegations.