United States District Court For The Northern District Of California Focuses On Information Sharing To Magnify Anticompetitive Conspiracy In Antitrust Suit Against Telescope Manufacturers
04/09/2019On March 29, 2019, Judge Edward J. Davila of the U.S. District Court for the Northern District of California denied a motion to dismiss, finding that plaintiff Orion Telescopes & Binoculars (“Orion”) had sufficiently pled that defendants Ningbo Sunny Electronic Co., Ltd. (“Ningbo”) and Celestron, LLC (“Celestron”) had conspired to divide the market for low- to medium-end telescopes and block a competing manufacturer’s acquisition that would have enabled expansion and broader supply-side competition. Optronic Technologies, Inc., v. Ningbo Sunny Electronic Co., Ltd., No. 16-CV-6370 (N.D. Cal. Mar. 29, 2019). Judge Davila cited plaintiff’s specific allegations of: (a) a division among competitors of the low-end (to Ningbo) and high-end (to Celestron) telescope markets (facilitated in part by a transfer of intellectual property to Ningbo); and (b) Celestron’s advance knowledge of Ningbo’s interest in the merger. Celestron settled prior to the litigation, but Orion and Ningbo will continue into discovery.
The underlying Sherman Act Section 1 conspiracy and Section 2 monopolization claims are based on Ningbo’s acquisition of Meade Instruments, Inc. (“Meade”), which plaintiff claims eliminated a major independent distributor and manufacturer from the telescopes market. After a competing telescope manufacturer announced it was acquiring Meade for its manufacturing and distributing capabilities, executives at Ningbo spoke with executives at Celestron about Ningbo’s interest in Meade. Ningbo then submitted an unsolicited, and ultimately successful, bid for Meade. In addition, Ningbo allegedly shared sensitive competitive information with Celestron that allowed them to coordinate and divide the market for telescopes after the Meade transaction.
The Court had previously dismissed the action for failure to sufficiently allege a pre-merger monopoly or unlawful conduct. However, the Court now found that the amended complaint showed that Celestron had previously produced low-end and high-end telescopes, but, after the conspiracy began, “transferred the specifications, dies, and molds used for at least some low-end telescopes to Ningbo,” ceased production of low-end telescopes, and only marketed high-end telescopes. Id. at 3. Absent the conspiracy, plaintiff claimed, Ningbo would have lacked monopoly power. Second, the amended complaint added Financial Industry Regulatory Authority documents from Ningbo that demonstrate that they first considered purchasing Meade only after the competing deal was announced. The Court found these documents indicated advance knowledge of the plan and bolstered the conspiracy allegations.
Judge Davila also allowed plaintiff’s monopolization claims to proceed to discovery because plaintiff corrected the flaw in its initial complaint and now detailed barriers to entry that prevented new manufacturer entry and expansion, including the intellectual property required for astronomical software to more easily find stars and constellations, high capital investment costs, the specialized components. These inherent industry barriers, coupled with Ningbo’s deflection of the competitor’s acquisition of Meade, created a further barrier to manufacturer expansion and competition.
Though Judge Davila recognized that simply possessing monopoly power and charging monopoly prices were not enough to plead a monopolization claim, he found the claims survived dismissal due to these articulated barriers to entry and the related allegations that Ningbo’s monopoly was not natural but rather a by-product of its conspiracy with Celestron to exclude new or expanding manufacturers and to allocate the high and low ends of the telescope market. Id. at 7.
The result here underscores that information sharing—although not per se illegal—and the appearance of communications between competitors in a concentrated industry may be sufficient to allege a potential antitrust conspiracy. It also suggests that, at least for purposes of a motion to dismiss, courts may be willing to embrace antitrust conspiracy allegations as the type of “anticompetitive conduct” required to show monopolization rather than mere possession of a monopoly. In each instance, this counsels toward curing the underlying issues with information sharing to avoid discussions (and the appearance of discussions) of price, output, strategic acquisitions, and forward-looking or other competitively sensitive information that a company “would not share unless there was a conspiracy.” Id. at 4