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From Antitrust Law Daily, January 23, 2014

Price fixing claims against battery makers require additional support to proceed

By Jeffrey May, J.D.

Manufacturers of lithium ion battery cells were entitled to dismissal of price fixing claims brought on behalf of putative classes of direct and indirect purchasers, the federal district court in Oakland, California, has decided. Although the court concluded that the pleadings were generally adequate, certain deficiencies justified granting the defendants’ motions to dismiss the complaints, but with leave to amend (In Re: Lithium Ion Batteries Antitrust Litigation, January 21, 2014, Rogers, Y.).

The plaintiffs alleged a conspiracy among Japanese and Korean battery manufacturers, as well as their American subsidiaries, to fix prices for lithium ion battery cells. According to the plaintiffs, the manufacturers carried out the conspiracy by exchanging business-sensitive information, limiting output and supply, setting price floors, agreeing on industry-wide pricing formulas tied to the price of battery inputs, and bid rigging.

Lithium ion battery cells are components of lithium ion batteries. These batteries reach the consumer market either as components of consumer products or as standalone products, such as replacement batteries.

Two of the defendants—Sanyo Electric Co., Ltd., and LG Chem, Ltd., had pleaded guilty to Department of Justice charges that they conspired to fix the prices of one type of lithium ion battery during 2007 and 2008. Based documents produced to a grand jury, as well as other evidence, the plaintiffs described in their pleadings a conspiracy extending from 2000 to May 2011, covering every type of lithium ion battery, and implicating all of the 18 named defendants.

The court found that the pleadings generally were plausible—in their allegations of a conspiracy spanning most of the time period and all of the products alleged. However, the plaintiffs needed to amend their respective complaints to resolve some deficiencies identified by the court.

Standing.

The so-called Direct Purchaser Plaintiffs or DPPs purchased only batteries and/or products. They did not purchase a lithium ion battery cell itself. Thus, they were technically indirect purchasers under the doctrine of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), which holds generally that indirect purchasers of price-fixed products lack standing to sue for damages under federal antitrust law.

The DPPs contended that their claims fit within the “ownership or control” exception to the Illinois Brick doctrine. That exception permits indirect purchasers to sue when “customers of the direct purchaser own or control the direct purchaser … or when a conspiring seller owns or controls the direct purchaser ….”

To avail themselves of the ownership or control exception, the DPPs had to allege facts leading to a plausible inference that they suffered an antitrust injury traceable to a purchase from an entity owned or controlled by an alleged conspirator, the court explained. Further, the DPPs had to articulate a cognizable theory of ownership or control, coupled with plausible, non-conclusory evidentiary facts supporting that theory. They failed to accomplish either task.

The DPPs could not establish standing under the ownership or control exception by merely stating that they purchased lithium ion batteries or products “from one or more named Defendants, their divisions, subsidiaries or affiliates, or their co-conspirators,” and by alleging “parent/subsidiary relationships for each of the defendant families.” Even if purchases made through a chain of distribution linked entirely by parent-subsidiary relationships could support standing under the exception, it was impossible to ascertain whether their purchases constituted an antitrust injury, according to the court.

Not all battery cells manufactured by the defendants were sold through the “parent/subsidiary relationships” that the DPPs invoked. The DPPs might have purchased batteries assembled by three Taiwanese “packers,” entities in the business of turning raw battery cells into batteries by placing them in the necessary casing. An assertion that the defendants used the packers as agents where the batteries assembled by the packers were sold under the defendant’s name was not sufficient to overcome the pleading deficiencies.

The court rejected the defendants’ argument that permitting amendment would be futile. The DPPs could allege standing based on the purchase of a price-fixed component as part of a finished product, provided the plaintiffs bought the finished product from an entity owned or controlled by a conspirator.

Conspiracy.

The plaintiffs alleged a conspiracy of at least some scope involving at least some defendants and covering all three accused battery cell formats, the court concluded. However, the complaints defined an overly long class period and failed to allege an agreement to conspire by the defending U.S. subsidiaries of the defendant Korean and Japanese parent corporations. Both defects warranted dismissal with leave to amend.

The complaints contained ample specific allegations covering the years 2002 through 2008, according to the court. While sparse, the allegations concerning the years 2009 through 2011 also sufficed to survive the pleading stage. Thus, the court granted the defendants’ motions to the extent they sought to limit the class periods alleged in the complaints to the period January 1, 2002, to May 31, 2011. The court granted the plaintiffs leave to amend their class allegations accordingly.

The court then turned to the inclusion of the U.S. subsidiaries. While the conspiracy appeared to have been undertaken in Korea and Japan by the executives of Korean and Japanese corporations, the plaintiffs attempted to include the U.S. subsidiaries in the challenged conduct. The court rejected the inclusion of the defendant subsidiaries based on “generic, conclusory terms that defendant subsidiaries participated in the conspiracy by acting as agent for their defendant Korean or Japanese parent company.” The boilerplate assertions of an agency relationship did not suffice to demonstrate that the American subsidiaries themselves made a conscious decision to conspire with their Korean or Japanese parent companies.

Fraudulent concealment.

The court rejected the defendants’ contentions that the plaintiffs’ claims for damages from the period before October 2008 were time-barred. While the defendants could later bring motions based on the statute of limitations periods, upon a more complete evidentiary record, the plaintiffs adequately alleged at the pleading stage that the limitations period was subject to tolling by fraudulent concealment. The complaints alleged public, putatively false statements by various defendants affirming their compliance with applicable antitrust laws, as well as the existence of vigorous price competition in the lithium ion battery market, the court noted.

Rejected was the defendants’ contention that the plaintiffs should have undertaken an inquiry sufficient to overcome the defendants’ various methods of alleged subterfuge in light of economic data and market characteristics, such as price curves or the high degree of concentration in the lithium ion battery industry. It was not unreasonable for the plaintiffs to take the defendants’ public statements at face value prior to the May 2011 disclosure of the Justice Department’s investigation into alleged price-fixing in Defendants’ industry, the court explained.

The case is No. 13-MD-2420-YGR, MDL No. 2420.

Attorneys: Jeff D. Friedman (Hagens Berman Sobol Shapiro LLP) for Kevin Young. Lindsey A. Davis (Zelle Hofmann Voelbel & Mason LLP) for The Stereo Shop. Nicole M. Acchione (Trujillo Rodriguez & Richards, LLP) for A-1 Computers Inc. Beth Targan Seltzer (Barrack Rodos and Bacine) for First Choice Marketing Inc. Allan Steyer (Steyer Lowenthal Boodrookas Alvarez & Smith LLP) for Automation Engineering, LLC. Todd Anthony Seaver (Berman DeValerio) for Univision-Crimson Holding, Inc. Kenneth P. Ewing (Steptoe & Johnson LLP) for LG Chem Ltd. Jeffrey L. Kessler (Winston & Strawn LLP) for Panasonic Corp. and Sanyo Electric Co, Ltd. John C. Dwyer (Cooley LLP) for Sony Corp.

Companies: Sanyo Electric Co., Ltd., and LG Chem, Ltd.

MainStory: TopStory Antitrust CaliforniaNews

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