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From Antitrust Law Daily, September 22, 2014

SanDisk to face allegations that it monopolized markets for “raw” and finished memory chips

By Jeffrey May, J.D.

In a putative class action against SanDisk Corporation—the self-described “global leader in flash storage solutions”—for engaging in monopolization through its alleged use of fraudulently-obtained patents, the federal district court in Oakland, California, will allow the plaintiffs to add an additional class representative and to divide the proposed class into a class of direct purchasers of “raw” flash chips and a class of direct purchasers of final or finished flash products. The plaintiffs' motion for leave to file a fourth amended complaint was granted, and the defendant's motion to dismiss was denied (Giuliano v. SanDisk Corp., September 19, 2014, Armstrong, S.).

The action was brought by Ritz Camera & Image, LLC in 2010 on behalf of itself and a putative class of entities that purchased NAND flash memory products directly from SanDisk or from its joint venture with Toshiba Corporation. Subsequently, the complaint was amended to substitute the trustee of the Ritz bankruptcy estate as the named plaintiff and then to add two additional firms—CPM Electronics Inc. and E.S.E. Electronics, Inc.—as plaintiffs. The plaintiffs allege that SanDisk has maintained a monopoly over raw and finished NAND flash memory products that can be imported into or sold in the United States. NAND flash memory is a form of non-volatile erasable memory.

Amended complaint. In opposing the plaintiffs' request to file a fourth amended complaint, SanDisk argued that the plaintiffs were attempting to “radically alter and expand this case” and that the motion should be denied for bad faith, undue delay, prejudice, and futility. The court rejected these arguments.

The plaintiffs did not unduly delay in seeking to assert two relevant markets—one for raw flash chips and one for final flash memory products—instead of a single antitrust market on behalf of separate classes of purchasers. The court also rejected SanDisk's assertion that the plaintiffs unduly delayed in seeking to add an attempted monopolization claim. It appeared that the plaintiffs were simply seeking leave to amend their pleading in light of what they learned through discovery.

SanDisk also failed to sustain its burden to demonstrate that it would suffer substantial prejudice if the plaintiffs were granted leave to amend their pleading. SanDisk did not show that the amended complaint significantly altered the nature of the litigation. The proposed new claim for attempted monopolization overlapped with the monopolization claim. Moreover, the proposed new plaintiff—MFLASH, Inc.—asserted the same injury as the named plaintiffs arising out of the same conduct alleged in the previous versions of the complaint.

Although SanDisk contended that amendment would be futile because the plaintiffs failed to allege sufficient facts establishing monopoly power in the relevant market, this argument was more appropriately raised in a motion to dismiss or other dispositive motion, according to the court. SanDisk had not clearly demonstrated that the fourth amended complaint would be subject to immediate dismissal.

Lastly, it did not appear that the plaintiffs acted in bad faith in seeking leave to amend. SanDisk contended that the plaintiffs should have amended their pleading earlier. SanDisk did not assert that the amendment was an effort to obtain a tactical advantage.

Standing. The court also denied SanDisk's motion to dismiss on the ground that Ritz did not have standing at the outset of the litigation to represent a class of direct purchasers of both raw and finished NAND flash memory products. Ritz alleged that it purchased tens of millions of dollars of flash memory products from SanDisk, and that, it was overcharged due to SanDisk’s monopolization of the relevant market for flash memory products. It was undisputed that Ritz did not purchase any raw NAND flash memory products from SanDisk. However, raw and finished NAND flash memory products were related, and any concerns about the material differences between the products would be better addressed at the class certification stage. The court noted that the asserted injury to both purported groups of purchasers was predicated on the same alleged wrongful conduct, i.e., SanDisk’s conduct in maintaining a monopoly in the relevant market by engaging in various anticompetitive practices, including using fraudulently obtained patents to disadvantage and exclude competition by asserting infringement of such patents.

The court gave the plaintiffs seven days to file the proposed fourth amended complaint. A trial in the matter is set for June 2015.

This is Case 4:10-cv-02787-SBA.

Attorneys: Colleen Duffy-Smith (Morgan Duffy-Smith & Tidalgo, LLP) for Alfred T. Giuliano, CPM Electronics, Inc., and E.S.E. Electronics. Raoul Dion Kennedy (Skadden Arps Slate Meagher & Flom LLP) for SanDisk Corp.

Companies: Ritz Camera & Image, LLC; CPM Electronics, Inc.; E.S.E. Electronics; MFLASH, Inc.; SanDisk Corp.

MainStory: TopStory Antitrust CaliforniaNews

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