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From Antitrust Law Daily, April 2, 2019

Telescope supplier’s market allocation, monopoly claims go forward

By Nicole D. Prysby, J.D.

A telescope supplier’s antitrust claims against a manufacturer/distributor go forward, because the plaintiff adequately alleged that the defendant conspired with its largest competitor to split the market for telescopes and to block an acquisition that would have created another large competitor.

Claims against a telescope manufacturer were permitted to proceed by the federal district court in San Jose, California, because a complaining supplier plausibly alleged that the defendant manufacturer agreed with its largest competitor to divide the market and to prevent a third competing manufacturer from expanding through the acquisition of a telescope manufacturer and distributor. The complaint plausibly alleged a conspiracy because it included allegations that the defendants shared information with the competitor that they would not have shared, absent a conspiracy (such as acquisition plans). For purposes of a monopoly claim, the plaintiff also sufficiently pleaded barriers to entry for potential competitors and barriers to expansion for existing competitors, because it detailed the barriers that have prevented any new manufacturer from joining the market (for example, the high capital investment cost in software that would be required). Therefore, the federal district court denied a motion to dismiss the plaintiff’s Sherman Act Section 1 and 2 claims (Optronic Technologies, Inc. v. Ningbo Sunny Electronic Co., Ltd., March 29, 2019, Davila, E.).

Defendant Ningbo Sunny Electronic Co., Ltd. is one of two companies that dominant the supply market for telescopes in the United States. The other company settled with the plaintiff prior to the litigation (Settling Manufacturer). The plaintiff, Optronic Technologies, Inc. (Orion), operates in the market for low to medium-end telescopes—generally used by beginner to intermediate recreational astronomers. Orion alleged that Ningbo and the Settling Manufacturer agreed to divide the broader market so that Ningbo controls the market for low and medium-end telescopes and the Settling Manufacturer controls the market for high-end telescopes. Orion also alleged that the two companies conspired to fix prices and that the conspired to block another company (JOC) from acquiring a telescope manufacturer (Meade). Had that deal gone through, the manufacturing market would have been diversified, the plaintiff alleged.

Conspiracy claim. Orion brought a Sherman Act Section 1 claim, which the defendants argued should fail because of an improbable timeline of events and because Orion failed to sufficiently allege unlawful conduct. On the timeline point, the court found that the first amended complaint (FAC) filed by Orion cured the timeline issue. Orion’s original allegations suggested that Ningbo had monopoly power before the conspiracy with the Settling Manufacturer, thus making an agreement between the two implausible. But in the FAC, Orion alleged that the monopoly came about because of and after the alleged conspiracy. Before the alleged conspiracy, the Settling Manufacturer produced low-end model telescopes, but with the agreement, transferred those specifications to Ningbo. The court also found that Orion’s FAC adequately pleaded unlawful conduct. The FAC included documents (provided by the defendants) showing when Ningbo began considering an acquisition of Meade, which was only after competitor JOC announced its intention to acquire the company. And on the same day Ningbo learned of the potential deal, the Settling Manufacturer learned of it as well. The FAC alleged that Ningbo shared information with the Settling Manufacturer that it would not have shared, absent a conspiracy (for example, the plan to acquire Meade and how much money Ningbo invested in Meade). These allegations support an inference that Ningbo and the Settling Manufacturer, despite being competitors, worked together to prevent a competing manufacturer from expanding.

Monopoly claim. The defendants argued that the court should dismiss Orion’s Section 2 claim because Orion failed to sufficiently plead barriers to entry for potential competitors and barriers to expansion for existing competitors. But the court rejected that argument, because the FAC contained allegations detailing the barriers that have prevented any new manufacturer from joining the market for low to medium-end telescopes for the past ten years. These included a specific intellectual property right held by Ningbo and the Settling Manufacturer, and high capital investment costs in software and the specialized physical components of telescopes. The allegations that Ningbo prevented a competitor from acquiring Meade served as an allegation of barriers to expansion. Orion’s pleading that Ningbo obtained its monopoly through an allegedly unlawful conspiracy to restrict competition and allocate the market was sufficient to plead anticompetitive conduct.

Other issues. The court also found that Orion’s FAC adequately alleged an injury to support a Clayton Act, Sec. 7 claim—that it was forced to pay supracompetitive prices to Ningbo for its supply. Orion alleged state law violations which the court found could go forward for the same reasons as the federal antirust claims.

The case is No. 5:16-cv-06370-EJD.

Attorneys: Matthew Brooks Borden (Braunhagey & Borden LLP) for Optronic Technologies, Inc. d/b/a Orion Telescopes & Binoculars. David Raymond Garcia (Sheppard Mullin Richter & Hampton LLP) for Ningbo Sunny Electronic Co., Ltd., Sunny Optics, Inc. and Meade Instruments Corp.

Companies: Optronic Technologies, Inc. d/b/a Orion Telescopes & Binoculars; Ningbo Sunny Electronic Co., Ltd.; Sunny Optics, Inc.; Meade Instruments Corp.

MainStory: TopStory Antitrust CaliforniaNews

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