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From Antitrust Law Daily, February 24, 2016

Food packaging manufacturer’s bundled discounts, sham litigation claims proceed

By Linda O’Brien, J.D., LL.M.

A small food packaging manufacturer sufficiently pleaded claims that a leading manufacturer of food packaging for microwaveable foods engaged in anticompetitive conduct to foreclose smaller competitors from the food packaging market by offering discounted packaging bundles to food company customers and aggressively pursuing patent litigation, the federal district court in Minneapolis has decided. Thus, the defendant manufacturer’s motion to dismiss was denied (Inline Packaging, LLC v. Graphic Packaging International, Inc., February 23, 2016, Montgomery, A.).

Inline Packaging manufactures susceptor food packaging, a type of active packaging that converts energy in microwave ovens to high-surface temperatures that crisp and brown food. Graphic Packaging, one of the largest paperboard packaging companies in the United States, competes with Inline in the susceptor food packaging industry for supply contracts with major food companies.

In August 2015, Inline filed suit against Graphic, alleging that the food packaging manufacturer had engaged in anticompetitive conduct by offering discounted packaging bundles to food company customers and aggressively pursuing patent litigation, in violation of the Sherman Act and state antitrust laws. Graphic moved to dismiss the complaint.

Relevant product and geographic markets. The court found that Inline sufficiently alleged both the product and geographic components of a relevant market. The relevant product market should include “products that have reasonable interchangeability for the purpose for which they are produced,” the court explained. The complaint alleged that susceptor food packaging serves the specialized purpose of crisping and browning foods when microwaved and is not necessarily interchangeable. Further, the complaint alleged with specificity that factors such as transportation costs, currency exchange rates, and developing packaging designs were hurdles to consumers looking for alternative susceptor packaging.

Discount bundling. Inline sufficiently alleged a discount bundling claim, charging that Graphic offered significant discounts if customers purchased large quantities of bundled paperboard and susceptor packaging and, due to the discounts, food company buyers were discouraged from purchasing separate susceptor packaging from Graphic’s competitors. Inline also alleged that, although it was more efficient than Graphic in making susceptor packaging, it could not profitably offer its packaging at a price sufficiently low to compete with Graphic’s bundles. In the court’s view, those allegations led to the logical interference that Graphic was selling below its cost.

Sham litigation. The court also determined that Inline adequately pleaded its antitrust claim based on sham litigation. Inline alleged that Graphic communicated with Inline’s customers and threatened patent litigation against Inline if those customers continued to do business with Inline. Graphic’s argument that Inline’s patent litigation theory was barred by the Noerr-Pennington doctrine was rejected, since the doctrine did not extend to communications to third parties that were not directly threatened with litigation, the court noted.

Injury. Finally, Inline pleaded sufficient facts to demonstrate that it was injured by Graphic’s anticompetitive behavior. Specifically, Inline alleged that it lost profits from sales not completed due to Graphic’s sham litigation and from unrealized sales due to Graphic’s bundled discounts. This was sufficient alleged injury to competition to withstand a motion to dismiss at the current stage of the litigation, the court concluded.

The case is No. 0:15-cv-03183-ADM-LIB.

Attorneys: Brent Lorentz, Robert Weinstine, and Justice Lindell (Winthrop & Weinstine, PA) for Inline Packaging, LLC. Amanda Ames, David Hamilton, and Jason Hicks (Womble Carlyle Sandridge & Rice, LLP) and Felicia Boyd (Barnes & Thornburg LLP) for Graphic Packaging International, Inc.

Companies: Inline Packaging, LLC; Graphic Packaging International, Inc.

MainStory: TopStory Antitrust MinnesotaNews

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