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From Antitrust Law Daily, January 29, 2014

New antitrust claims permitted against SanDisk over conduct in SD memory card market

By Jeffrey May, J.D.

In an antitrust action against SanDisk Corporation—the dominant player in the flash memory industry—for engaging in anticompetitive conduct in the market for USB flash memory drives, a complaining manufacturer/supplier of flash memory cards—PNY Technologies, Inc.—was entitled to amend its complaint to allege two new causes of action charging attempted monopolization and exclusive dealing in the market for Secure Digital (SD) flash memory cards, the federal district court in San Francisco has decided (PNY Technologies, Inc. v SanDisk Corp., January 27, 2014, Orrick, W.).

The new claims were sufficiently similar to the claims already alleged, amendment would not unduly prejudice SanDisk, and PNY did not engage in undue delay or exhibit bad faith in seeking amendment, the court held.

In earlier pleadings, PNY alleged that SanDisk had used threats of patent infringement lawsuits, licenses with punitive royalties, and exclusive dealing arrangements with key retailers to eliminate competition. Although these claims related to USB flash memory drives, PNY had sought discovery on SD cards but only for purposes of creating a “benchmark” for measuring antitrust impact in the USB flash drive market.

On the last day to amend pleadings, PNY moved to add two new claims. PNY claimed that it had found sufficient factual support to assert allegations of attempted monopolization and exclusive dealing in the market for SD flash memory cards.

The court rejected SanDisk’s assertion that amendment should be denied because the proposed claims were separate, distinct, and new causes of action. The new claims merely had to have some relation to the claim set forth in the original pleading, the court explained. The SD card market and the USB flash drive market were closely related. The products were apparently similar enough that the parties wanted to use one market as a benchmark for assessing any anticompetitive effects in the other. In addition, the new claims involved similar allegedly anticompetitive conduct, such as exclusive dealing arrangements. Denying PNY leave to supplement its pleading would not “promote judicial efficiency,” the court also noted.

There was no undue delay, prejudice, or bad faith to warrant denying amendment, it was decided. PNY sought leave to amend its pleading within the timeframe for doing so. As a result, SanDisk had a heavy burden of showing prejudice if the claims were allowed. SanDisk did not meet its burden. PNY did not anticipate that the discovery schedule would need to be altered to accommodate its additional claims or that there would be a significant broadening of the scope of discovery. Although there might be a need for additional discovery, SanDisk would have ample opportunity to conduct discovery within the case management schedule. Trial had been set for January 2015.

Lastly, SanDisk made an insufficient showing of bad faith, if there was any, to warrant the denial of leave to amend and supplement. SanDisk argued that PNY’s SD card-related claims were based on discovery obtained under a false pretense. Assuming SanDisk represented that it only sought discovery on SD cards for purposes of creating a benchmark, the fact that PNY later brought claims related to SD cards did not clearly show bad faith, according to the court. PNY contended that the new claims were based on alleged exclusive agreements SanDisk and retailers that were not entered until shortly before it moved to amend.

Attorneys: Daniel B. Asimow (Arnold & Porter LLP) for PNY Technologies, Inc. David W. Hansen (Skadden Arps Slate Meagher & Flom, LLP) for SanDisk Corp.

Companies: PNY Technologies, Inc.; SanDisk Corp.

MainStory: TopStory Antitrust CaliforniaNews

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