Kolon Indus. Inc. v. E.I. Dupont De Nemours & Co.

• Citation: 748 F.3d 160
• Decision Date: 03 April 2014
• Docket Number: No. 12–1587.,12–1587.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)
• Parties: KOLON INDUSTRIES INCORPORATED, Plaintiff–Appellant, v. E.I. DUPONT DE NEMOURS & COMPANY, Defendant–Appellee.

748 F.3d 160

KOLON INDUSTRIES INCORPORATED, Plaintiff–Appellant,

v.E.I. DUPONT DE NEMOURS & COMPANY, Defendant–Appellee.

No. 12–1587.

United States Court of Appeals,Fourth Circuit.

Argued: May 17, 2013.

Decided: April 3, 2014.

ARGUED:Stephen Blake Kinnaird, Paul Hastings LLP, Washington, D.C., for Appellant. Kent A. Gardiner, Crowell & Moring, LLP, Washington, D.C., for Appellee. ON BRIEF:Daniel B. Goldman, Paul Hastings LLP, New York, New York; Jeff G. Randall, Igor V. Timofeyev, Samer M. Musallam, Paul Hastings LLP, Washington, D.C., for Appellant. David D. Cross, Jeffrey L. Poston, Crowell & Moring, LLP, Washington, D.C.; Adam H. Charnes, Kilpatrick Townsend & Stockton LLP, Winston–Salem, North Carolina, for Appellee.

Before SHEDD and DIAZ, Circuit Judges, and DAVIS, Senior Circuit Judge.

Affirmed by published opinion. Judge DIAZ wrote the opinion, in which Senior Judge DAVIS joined. Judge SHEDD wrote a dissenting opinion.

DIAZ, Circuit Judge:

In this Sherman Act case, we review the district court's grant of summary judgment in favor of Defendant–Appellee E.I. Du Pont de Nemours and Company (“DuPont”). We also consider challenges by Plaintiff–Appellant Kolon Industries Incorporated (“Kolon”) to certain of the district court's discovery rulings and its denial of Kolon's recusal motion. Finding no reversible error, we affirm.

I.

A.

The merits of this case concern Kolon's claim that DuPont attempted to wield, or did wield, monopoly power over the U.S. para-aramid fiber market in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.¹ Para-aramid is a strong, complex synthetic fiber used in body armor, tires, fiber optic cables, and a variety of other industrial products. Three para-aramid producers—DuPont, Teijin Aramid (formerly a division of the Dutch company Akzo N.V.), and Kolon—sell their para-aramid fibers to U.S. consumers.

DuPont invented para-aramid fiber in 1965, and for a period controlled the entire U.S. para-aramid market with its Kevlar© fiber. Teijin introduced its competing Twaron© fiber to the U.S. market in 1987 and has chipped away at DuPont's share of that market every year since 1990. According to one of Kolon's expert witnesses, during 2006–2009 (the relevant time period), DuPont's share of the U.S. para-aramid market (the relevant geographic and product markets) fell from a high of 59% in 2006 to 55% in 2009, with most of this loss going to Teijin.

The U.S. para-aramid market is highly concentrated between DuPont and Teijin, which together account for 99% of U.S. sales. This extreme market concentration owes at least in part to the industry's high entry barriers. As Kolon showed, para-aramid production is time-intensive and expensive, and potential customers test and “qualify” each para-aramid product to ensure it meets their particular needs, a process that typically takes six months to three years. In addition to this evidence of market concentration and high barriers to entry, Kolon adduced evidence that DuPont, despite Teijin's encroachment, earned profit margins of as high as 75% between 1997 and 2005 and had the ability to price discriminate among its customers.

Kolon made its foray into the U.S. para-aramid market in 2005 with its Heracron© fiber. Kolon's evidence showed that DuPont considered Kolon's market entry to be a threat. Anticipating Kolon's potential encroachment, DuPont began identifying segments of the market that it viewed as hospitable to entry, including auto short fibers (pulp for brakes and gaskets), tires, manufactured rubber goods, and fiber optic cables. According to Kolon, DuPont then undertook a strategy of executing multi-year supply agreements with high-volume customers in each identified segment, requiring these customers to purchase most or all of their para-aramid requirements from DuPont during the relevant time period.

These supply contracts contained restrictions, such as volume purchase commitments and “meet and release” clauses, that required any competing para-aramid seller to propose a bid at a designated lower amount than DuPont's existing price, prohibited the customer from informing the competing seller of DuPont's price, and gave DuPont a right to match any competing offer. As a result of these allegedly anticompetitive practices, Kolon insists, it never achieved more than a de minimis market share during the relevant time period. By contrast, Kolon was able to penetrate other comparable para-aramid markets, such as Europe.

DuPont, for its part, attributes Kolon's failure to penetrate the U.S. market to Kolon's own shortcomings. According to DuPont, Kolon undertook only a “feeble effort” to establish a U.S. foothold, using only seven sales agents, inadequately investing in product offerings and supply capacity, and contacting only a small percentage of potential customers as of October 2009. Meanwhile, DuPont defends its supply agreements as a competitive response to Teijin's use of such practices, and as driven by consumer demands.

DuPont also attempts to diminish the reach of its supply agreements, noting that it entered into only twenty-five agreements with twenty-one U.S. customers, collectively accounting for only a small percentage of its U.S. revenue. Of those agreements, DuPont says, only a portion obligated the customer to purchase some amount of Kevlar, and these had typical durations of two years or shorter. Meanwhile, none of DuPont's supply agreements precluded competitors from qualifying their products with the customer while the DuPont agreement was in effect. And of the group of “key” customers Kolon identified as necessary to establish a foothold for effective competition, DuPont notes that the majority had no supply agreement with DuPont during the relevant period. Appellee's Br. at 38. In short, DuPont submits that myriad self-inflicted failures—not DuPont's supply agreements—frustrated Kolon's U.S. market penetration.

B.

DuPont brought suit against Kolon alleging the theft and misappropriation of its Kevlar trade secrets (the “trade secrets case”). Kolon's answer included the instant counterclaim (the “antitrust case”), alleging that DuPont had illegally monopolized and attempted to monopolize the U.S. para-aramid market through its supply agreements with high-volume para-aramid customers. DuPont moved, under Federal Rule of Civil Procedure 12(b)(6), to dismiss Kolon's counterclaim. The district court granted that motion, with leave to amend. Kolon filed an amended counterclaim, followed by a second amended counterclaim, which was also dismissed for failure to state a claim, again with leave to amend. Kolon declined to further amend the counterclaim, opting instead to appeal the dismissal. We reversed, holding that Kolon had adequately pleaded both its actual and attempted monopoly claims, and remanded the matter to the district court for further proceedings. E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc. (DuPont I), 637 F.3d 435 (4th Cir.2011).

On remand, the district court tried the trade secrets claim separately, culminating in a $919.9 million jury verdict for DuPont on September 14, 2011. The court then formally severed the two claims. The court also issued several rulings adverse to Kolon in the antitrust case. First, the district court denied Kolon's motions to compel DuPont's production of transaction-level sales and cost data, concluding that this discovery would significantly burden DuPont and would not be any more useful than the aggregate sales and cost data DuPont had already produced. The district court also denied Kolon's motions—filed on grounds described below—for recusal and disqualification in both the antitrust and trade secrets cases. The district court further denied Kolon's request to depose a DuPont corporate representative concerning its strategic use of supply agreements. Finally, the district court granted summary judgment to DuPont on both Sherman Act claims, dismissing them with prejudice. Kolon timely noted this appeal.

II.

Before turning to the merits of the antitrust claims, we first consider Kolon's argument that the district court judge was required to recuse himself in both the instant antitrust case and the trade secrets case, which is also now before us on appeal. See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., No. 12–1260 (argued May 17, 2013).

A.

Kolon's recusal motion is based on the district court judge's involvement, while in private practice, in litigation that, according to Kolon, presents a matter in controversy in the instant dispute. In the 1980s, DuPont and Akzo N.V., Teijin's predecessor, became embroiled in several patent lawsuits relating to the manufacture and sale of para-aramid fibers. In one such dispute, Akzo sued DuPont in the United States District Court for the Eastern District of Virginia for infringement of an Akzo para-aramid patent.

In the Akzo case, DuPont was defended by the law firms Fitzpatrick, Cella, Harper & Scinto (“Fitzpatrick Cella”) and McGuire Woods & Battle (now “McGuireWoods”). In the 1980s and at the time of the Akzo case, the district court judge was a partner at McGuireWoods. As a result, he was a limited partner in an affiliated entity, and continued to receive small payments from McGuireWoods of rent for furnishings. Because McGuireWoods also served as counsel to DuPont in the present litigation, in May 2009 the clerk of court issued a notice informing the parties of the judge's related financial interest. The judge noted then that he did not believe grounds for disqualification existed, but he instructed the parties to file a motion within 20 days if they believed otherwise. Neither party filed a motion or otherwise objected to the judge's continued participation in the case.

Kolon believed the Akzo matter was central to both its defense of the trade secrets case and its maintenance of the antitrust case. In the antitrust case, Kolon began seeking discovery of the Akzo case files in August 2009. It contended...