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From Antitrust Law Daily, April 4, 2014

DuPont’s exclusive supply agreements did not amount to monopolization

By Jeffrey May, J.D.

E.I. Du Pont de Nemours & Co. (DuPont) did not engage in the unlawful monopolization or attempted monopolization of the U.S. para-aramid market with its “Kevlar” fiber through long-term, exclusive supply agreements, as a foreign rival—Kolon Industries, Inc.—alleged, a divided U.S. Court of Appeals in Richmond, Virginia, has ruled. A district court’s grant of summary judgment in favor of DuPont (2012-1 Trade Cases ¶77,857) was affirmed (Kolon Industries, Inc. v. E.I. Du Pont de Nemours & Co., April 3, 2014, Diaz, A.).

Kolon’s antitrust claims were raised in DuPont’s action against it for the theft and misappropriation of its Kevlar trade secrets. The antitrust and trade secrets claims were severed. For purposes of the antitrust case, Kolon alleged that DuPont had illegally monopolized and attempted to monopolize the U.S. para-aramid market through its supply agreements with high-volume para-aramid customers.

DuPont in 1965 invented para-aramid fiber, which is a strong, complex synthetic fiber used in body armor, tires, fiber optic cables, and a variety of other industrial products. Teijin Aramid (formerly a division of the Dutch company Akzo N.V.) introduced its competing “Twaronname” fiber to the U.S. market in 1987 and has since chipped away at DuPont’s share of that market. Dupont and Teijin together account for 99% of U.S. sales in the market. Kolon of South Korea entered the U.S. para-aramid market in 2005 with its “Heracron” fiber.

According to Kolon, in response to its entry, DuPont undertook a strategy of executing multi-year supply agreements with high-volume customers in “key commercially sustainable entry segments … that Kolon sought to enter.” These agreements required customers to purchase most or all of their para-aramid requirements from DuPont.

DuPont contended that myriad self-inflicted failures—not DuPont’s supply agreements—frustrated Kolon’s U.S. market penetration. In addition, DuPont defended its supply agreements as a competitive response to Teijin’s use of such practices, and as driven by consumer demands.

Summary judgment on the monopoly claim was appropriate because DuPont neither possessed monopoly power during the relevant period between 2006 and 2009 nor engaged in willful maintenance of such power, the appellate court concluded.

Market Power. DuPont’s market share of less than 60% “falls significantly short of where we have previously drawn the line for monopoly power,” the appellate court explained. Moreover, while DuPont had strength in the market, based on high barriers to entry, its ability to price discriminate, and its high profit margins, a showing of DuPont’s “market power” was not sufficient to prove “monopoly power.” DuPont also lacked durable market power in view of its decades-long loss in significant market share to Teijin.

Willful Maintenance. Even if Kolon had presented a triable issue on the monopoly power element, the alleged anticompetitive conduct—DuPont’s customer suppy agreements—did not violate the willful maintenance prong of the Sherman Act, Section 2 monopolization inquiry, the court also ruled. Kolon failed to show what “proportionate volume of commerce” in the entire relevant market was foreclosed by DuPont’s supply agreements. While foreclosure of a few important customers could substantially foreclose access to a market, DuPont’s 21 supply agreements (out of approximately 1,000 potential commercial U.S. para-aramid customers) would not have substantially foreclosed the entire relevant market by blocking Kolon from crossing a “critical bridge” to “high volume” customers, in the court’s view.

Attempted Monopolization. Kolon failed to raise a triable issue of material fact sufficient to sustain its attempted monopolization claims, the court ruled. The supply agreements did not have the probable effect of foreclosing competition. Moreover, the agreements were not shown to be anticompetitive, as without business justification, or against DuPont’s own interest. Rather, DuPont introduced unrebutted evidence that it entered the supply agreements as a competitive response to Teijin’s use of that same practice, and because customers requested them, the court noted. Kolon also failed to raise a genuine issue that DuPont had a “dangerous probability” of successfully achieving monopoly power or that it would “sooner or later regain its former market dominance.”

Discovery. The appellate court did not disturb the district court’s discovery rulings. The denial of Kolon’s request for DuPont’s transaction-level data regarding customers, geographic location, dates, products, amounts, price, cost, margins, and profits was sufficiently justified because production would have been unduly burdensome. Also rejected was Kolon’s challenge to the district court’s grant of a protective order barring a Federal Rule of Civil Procedure 30(b)(6) deposition of DuPont on its strategic use of supply agreements. Reasonable advance notice of the deposition was not provided, according to the district court.

Recusal. The appellate court refused to reverse the summary judgment order on the ground that the district court judge was required to recuse himself due to a potential conflict. The district court denied Kolon’s motion for recusal as untimely because Kolon had delayed in filing its recusal motion for almost a year after it learned of the alleged conflict. The majority agreed and rejected Kolon’s argument on appeal that there was no timely-filing requirement for such a motion.

A dissenting opinion, written by Judge Dennis W. Shedd, would have vacated summary judgment and remanded for new proceedings before a different district judge. The dissenter “disagree[d] with the majority’s unwarranted imposition of a timeliness requirement that shifts the burden of bringing forward recusal grounds … from the judge to the litigants” and disagreed that Kolon acted in an untimely manner. Further, recusal was mandatory in the antitrust case, in the dissenter’s view.

Trade Secrets. In a separate unpublished opinion, the appellate court overturned a jury verdict in the related trade secrets case brought by DuPont because the trial court excluded relevant evidence material to Kolon’s defense. In that matter, after a seven-week trial, the jury returned a verdict finding that Kolon willfully and maliciously misappropriated 149 DuPont trade secrets and awarded DuPont $919.9 million in damages.

The appellate court rejected Kolon’s contention that it should be awarded judgment as a matter of law. However, it instructed that all further proceedings on remand should be conducted before a different district judge.

These are cases No. 12-1587 and No. 12-1260.

Attorneys: Stephen Blake Kinnaird (Paul Hastings LLP) for Kolon Industries, Inc. Kent A. Gardiner (Crowell & Moring, LLP) for E.I. Du Pont de Nemours & Co. Paul D. Clement (Bancroft, PLLC) for Kolon Industries, Inc. Adam Howard Charnes (Kilpatrick Townsend & Stockton LLP) for E.I. Du Pont de Nemours & Co.

Companies: E.I. Du Pont de Nemours & Co.; Kolon Industries, Inc.

MainStory: TopStory Antitrust MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews

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