4th Circuit judges debate boycott conspiracies in new antitrust decision

September 15, 2015

(Reuters) – In August 2000, a company called SawStop began showing table saw manufacturers a prototype of its technology to stop the saws when they come in contact with a hand or finger. A few companies were interested enough to open talks with SawStop, which wanted a royalty fee of as much as 8 percent of the wholesale price. Others worried about the cost and reliability of the safety feature, or wondered about the product liability implications if some but not all manufacturers included SawStop technology.

In October 2001, at an annual meeting of the Power Tool Institute, a trade group, table-saw manufacturers held a breakaway session attended by at least eight companies from the U.S. and Japan. After that meeting, SawStop’s prospects quickly faded. It failed to make headway with any manufacturer it wasn’t already negotiating with. Its near deal with the Japanese company Ryobi fell apart after SawStop queried a minor technical point and Ryobi stopped returning its calls and emails. Emerson halted talks. Black & Decker U.S. offered a 1 percent royalty fee. SawStop could not get its safety technology to the market via a single manufacturer. Ultimately, it had to begin selling its own table saws to implement the feature.

How do you read those facts? As an antitrust conspiracy among table-saw makers to boycott SawStop or as innocent and unrelated events reflecting the market’s consideration of an untested device? A three-judge panel at the 4th U.S. Circuit Court of Appeals, in a 98-page (!) opinion released Tuesday, split sharply over the answer to that question – and even more decisively over how the U.S. Supreme Court directed judges to analyze early-state antitrust litigation in the famous 2007 decision Bell Atlantic v. Twombly.

The 4th Circuit majority, Judges Steven Agee and James Wynn, said that under Twombly, SawStop and its lawyers at Cuneo Gilbert & LaDuca had plausibly alleged an antitrust conspiracy among more than a dozen table-saw defendants to boycott SawStop’s safety feature. The standard of review on a motion to dismiss, the majority emphasized, is plausibility, not probability. Courts weighing a motion to dismiss an antitrust suit are not supposed to decide whether an alternative explanation of the alleged facts is more likely to be true, the majority said, but simply whether the facts as alleged by the plaintiff, (viewed, of course, in the light most favorable to the plaintiff) give a plausible account of an antitrust violation.

Here, the majority said, SawStop plausibly alleged specifics about the supposed hatching of the boycott conspiracy at the trade group meeting in October 2001 and the implementation of the plan through defendants’ various supposed ploys to avoid or cut off negotiations with SawStop. “All of these actions could be consistent with the boycott’s ultimate alleged objective, exclusion from the marketplace,” the majority said, in an opinion written by Judge Agee. He and Judge Wynn ruled that SawStop can move forward with discovery from the defendants to find out more about the supposed boycott scheme.

4th Circuit Judge Harvie Wilkinson said that’s precisely the kind of discovery the Supreme Court was trying to curtail in Twombly. “The court understood what the majority does not: that an antitrust complaint is often too tempting to pass up,” he wrote. “It provides a tantalizing weapon for parties whose business endeavors are going badly. The term ‘conspiracy’ is bound to stoke paranoia, and to kindle an effort to pin on others the blame for business failures of one’s own. The treble damages awards of antitrust actions are a further temptation for floundering companies armed with the knowledge that defendants would rather settle than face the prospect of such damages, especially with the attendant high litigation costs.”

Judge Wilkinson said that under the majority’s reasoning, every breakout session at an industry conference should be accompanied by a warning: “Holding or attending this trade association meeting will increase your exposure to antitrust suits.” (He put the WARNING in all caps, along with another one he proposed to accompany industrywide skepticism about pitches for new features: “Failure to adopt this product for whatever reason will increase your exposure to antitrust suits.”) According to Judge Wilkinson, it is ludicrously implausible to suppose that a big group of manufacturers would have orchestrated a boycott so sophisticated that several of the conspirators would have continued negotiations after the scheme was supposedly hatched.

“The majority thus sets a nifty trap: if defendants engage in similar means, it’s collusion; if they engage in dissimilar means, it’s deceit,” he wrote. “Given those options, businesses should either keep to themselves or close up shop.” The majority’s “isolationist” decision is all the more unfortunate, according to Judge Wilkinson, in an age of global industry because “it raises the risk that antitrust law will render American companies comparatively incommunicative and thus at a competitive disadvantage.”

In a concurrence, Judge Wynn called Judge Wilkinson’s gloomy policy prediction “nonsense.” In Judge Wynn’s reading, Wilkinson – and not he or Judge Agee – is the panel member who has abandoned proper legal analysis and engaged “in breathtaking judicial activism.”

“Because the majority opinion sticks to its limited role, it steers clear of considering things like different ‘approaches’ in a ‘globalized marketplace,’ whether the word ‘conspiracy’ is bound to stoke paranoia,” or the appropriate amount of ‘lag time’ in ‘product development,'” Judge Wynn wrote. “The dissenting opinion sees itself in no way so bound.”

This is about as heated as appellate opinions get (unless Justice Antonin Scalia is involved). Considering that all of the opinions cross-reference one another, it’s kind of amazing that it’s only been four months since the oral argument. I guess these judges write fast when they’re impassioned.

I left messages for SawStop counsel Joel Davidow of Cuneo and Emerson Electric counsel Scott Ballenger of Latham & Watkins, who argued for all of the defendants before the 4th Circuit. Neither got back to me.

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