Shearman & Sterling LLP | Antitrust Blog | United States District Court For The District Of Minnesota Rejects Sherman Act Section 2 Suit Against Food Packaging Company Predicated On Sham Litigation And Discount Bundling Claims<br >  
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  • United States District Court For The District Of Minnesota Rejects Sherman Act Section 2 Suit Against Food Packaging Company Predicated On Sham Litigation And Discount Bundling Claims

    On September 5, 2018, Judge Ann D. Montgomery of the U.S. District Court for the District of Minnesota issued a decision ruling rejecting a food packaging company’s allegations that the largest company in the market maintained its dominant position through unlawful discount bundling and sham intellectual property claims.  Inline Packaging, LLC v. Graphic Packaging International, LLC, No. 0:15-cv-03183-ADM-LIB (D. Minn. Sept. 5, 2018).

    Inline Packaging, LLC (“Inline”) and Graphic Packaging International, LLC (“Graphic”) are competitors in the susceptor food packaging industry, competing to provide consumer packaged goods food companies—such as Nestlé and Heinz—with active food packaging that converts microwave energy to high surface temperatures that crisp and brown foods.  Inline’s antitrust lawsuit against Graphic, which controls approximately 95% of the susceptor market, alleged that Graphic used threats of sham patent litigation and predatory discount bundling to maintain a monopoly in the susceptor market.  Specifically, Inline alleged that Graphic fraudulently procured patents, which it used to institute a patent infringement suit against Inline to maintain its monopoly, and engaged in anticompetitive discount bundling of its susceptor product with other paperboard food packaging.

    Judge Montgomery considered Inline’s sham litigation claims alleging that Graphic fraudulently procured the patents at issue by not disclosing to the U.S. Patent and Trademark Office (“PTO”) the existence of joint inventors and prior sales of certain susceptor designs.  The court determined that such non-disclosure failed to satisfy the requisite showing that the patents were obtained as the result of a specific intent by Graphic to deceive the PTO, and granted summary judgment to Graphic on the sham litigation claim on that basis.

    The Court next considered Inline’s discount bundling claim, which first required evidence that Graphic conditioned discounts and incentives on bundled sales of susceptor products and paperboard food packaging.  Finding sufficient evidence of this first requirement to raise a fact issue, Judge Montgomery next considered whether “Graphic had the necessary market power in the paperboard market to economically coerce a buyer into accepting the bundle” such as to constitute anticompetitive conduct.  This issue proved fatal to Inline’s bundling claim because Inline failed to show that Graphic had market power in the market for paperboard food packaging, where it faced “vigorous competition” such that “buyers are not coerced to take Graphic’s bundle.”
    The Court also admonished the incorrect application of the “discount attribution” standard employed by Inline’s expert to determine whether bundled discounts have the potential to exclude an equally efficient rival from the market.  Specifically, the discount attribution test allocates the full amount of discounts given on the bundle to the competitive products (here, the susceptors), and deems that a bundle has the potential to exclude equally efficient rivals if the resulting discounted price of those  products is below the average variable cost of production.  Inline’s expert allocated the full amount of the discounts on the bundle to only a fraction (20%) of the susceptors in the bundle, and therefore incorrectly applied the test in such a way that risked condemning an overly broad category of procompetitive bundled discounts.

    Based upon the above reasoning, Judge Montgomery granted summary judgment to Graphic.
    CATEGORY: Sherman Act § 2