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From Antitrust Law Daily, November 17, 2017

Maker of electronic keypad locks could have monopolized through exclusive deals with locker OEMs

By E. Darius Sturmer, J.D.

A designer/manufacturer of high-performance electronic locks and locker security solutions ("Digilock") could have engaged in monopolization or attempted monopolization in violation of federal law or a conspiracy to monopolize in violation of California law through its exclusive dealing arrangements with original equipment manufacturers and other anticompetitive conduct, the federal district court in Oakland has ruled. Although the relevant product market the complaining competitor alleged—"electronic keypad operated locks with electrically actuated bolts for shared-use lockers ("EKLs")"—was not a sufficiently plausible product market, it could constitute a valid submarket within the broader locker lock market, the court found. Additionally, the second amended complaint stated sufficient facts to plausibly show antitrust injury. The court therefore denied Digilock’s motion to dismiss (Ojmar U.S., LLC v. Security People, Inc., November 16, 2017, Gilliam H.).

Relevant market. In pleading relevant market, plaintiff Ojmar U.S., LLC (Ojmar) contended that EKLs were distinct from other lock systems, including shared-use mechanical locks, shared-use mechanical locks with electronic keypads, and electronic radio-frequency identification locks with no keypads at all. According to Ojmar, EKLs were not substitutable with these other locks because EKLs possessed "significant additional capabilities and a premium image.

However, the court stated, such allegations of desirable traits and features "fail[ed] as a matter of law to demonstrate the absence of economic substitutability, the benchmark for a facially sustainable product market." The allegations failed to show that lock purchasers would forgo other types of shared-use lock systems if EKLs experienced a small but significant nontransitory price increase. The complaint’s detailed description of different lock technologies related only to the respective systems’ peculiar features; they did not show that purchasers "would eschew less expensive lock systems equally capable of accomplishing an EKL’s same basic purpose of securing property, the court said. The alleged EKL product market was not a natural market, but one "contorted to meet [Plaintiff’s] litigation needs," the court remarked.

Despite Ojmar’s failure to define a plausible product market, a cognizable antitrust claim could still be premised on an economically distinct submarket—and Ojmar’s pleadings successfully averred one. The second amended complaint contains several allegations to show that EKLs were economically distinct from other lock types in the general market for locker locks, detailing features that high-end lock consumers allegedly value. It was conceivable that lock purchasers could see the particular attributes as differentiating, or perceive some combined value-add when shopping for EKLs, in the court’s view.

Antitrust injury. The court also rejected an argument by Digilock that Ojmar failed to allege antitrust injury for purposes of its Cartwright Act claim. According to Digilock, the complaint lacked non-conclusory allegations suggesting that it foreclosed a substantial share of the EKL market through its exclusive dealings with EOMs or caused injury to competition as a whole. The court disagreed, pointing to charges that Digilock commanded around 90% of the EKL market, "in which OEMs played a critical purchasing role," and that the company wielded its anticompetitive power by coercing at least five OEMs to sign exclusive agreements. The complaint further asserted that this practice artificially inflated the prices for EKLs, harming competition and consumers, and explained how the agreements imposed market and opportunity costs by constraining choices, the court noted. Thus, Ojmar’s allegations that the exclusive dealings consequently foreclosed a substantial share of the competition in the alleged submarket sufficed to sustain claims for anticompetitive behavior.

Finally, the court refused to allow the defendants to renew their attack on the plaintiff’s Lanham Act, Sec. 43(a) false advertising and other non-antitrust claims, which had survived an initial dismissal motion in August.

The case is No. 16-cv-04948-HSG.

Attorneys: Daniel Chilton Callaway (Farella Braun + Martel LLP) and Douglas Arthur Donnell (Mika Meyers PLC) for Ojmar US, LLC. Forrest Arthur Hainline (Goodwin Procter LLP) for Security People, Inc. d/b/a Digilock.

Companies: Ojmar US, LLC; Security People, Inc. d/b/a Digilock

MainStory: TopStory Antitrust CaliforniaNews

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