Nemours v. Kolon Indus.

• Decision Date: 11 March 2011
• Docket Number: Nos. 10–1103,10–1275.,s. 10–1103
• Citation: 637 F.3d 435
• Parties: E.I. DU PONT DE NEMOURS AND COMPANY, Plaintiff–Appellee,v.KOLON INDUSTRIES, INCORPORATED, Defendant–Appellant,andKolon USA, Incorporated, Defendant,v.Michael D. Mitchell; Aramid Fiber Systems, LLC, Third Party Defendants.United States of America; Federal Trade Commission, Amici Supporting Appellant.E.I. Du Pont de Nemours and Company, Plaintiff–Appellee,v.Kolon Industries, Incorporated, Defendant–Appellant,andKolon USA, Incorporated, Defendant,v.Michael D. Mitchell; Aramid Fiber Systems, LLC, Third Party Defendants.United States of America; Federal Trade Commission, Amici Supporting Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

637 F.3d 435

2011-1 Trade Cases P 77,380

98 U.S.P.Q.2d 1020

E.I. DU PONT DE NEMOURS AND COMPANY, Plaintiff–Appellee,

v.KOLON INDUSTRIES, INCORPORATED, Defendant–Appellant,andKolon USA, Incorporated, Defendant,

v.Michael D. Mitchell; Aramid Fiber Systems, LLC, Third Party Defendants.United States of America; Federal Trade Commission, Amici SupportingAppellant.E.I. Du Pont de Nemours and Company, Plaintiff–Appellee,

v.Kolon Industries, Incorporated, Defendant–Appellant,andKolon USA, Incorporated, Defendant,

v.Michael D. Mitchell; Aramid Fiber Systems, LLC, Third Party Defendants.United States of America; Federal Trade Commission, Amici SupportingAppellant.

Nos. 10–1103

10–1275.

United States Court of Appeals, Fourth Circuit.

Argued: Oct. 26, 2010.Decided: March 11, 2011.

ARGUED:Stephen Blake Kinnaird, Paul Hastings Janofsky & Walker, LLP, Washington, D.C., for Appellant.Nickolai Gilford Levin, United States Department of Justice, Washington, D.C., for Amici Supporting Appellant.Howard Feller, McGuirewoods, LLP, Richmond, Virginia, for Appellee.ON BRIEF:Michael P.A. Cohen, Paul Hastings Janofsky & Walker, LLP, Washington, D.C.; Dana J. Finberg, Leclairryan, Richmond, Virginia, for Appellant.Willard K. Tom, General Counsel, Federal Trade Commission, Washington, D.C.; Christine A. Varney, Assistant Attorney General, Catherine G. O'Sullivan, United States Department of Justice, Washington, D.C., for Amici Supporting Appellant.Kristen M. Calleja, McGuirewoods, LLP, Richmond, Virginia; Shari Ross Lahlou, Crowell & Moring, LLP, Washington, D.C., for Appellee.Before KEENAN and WYNN, Circuit Judges, and BOBBY R. BALDOCK, Senior Circuit Judge of the United States Court of Appeals for the Tenth Circuit, sitting by designation.Reversed by published opinion.Judge WYNN wrote the opinion, in which Judge KEENAN and Senior Judge BALDOCK joined.

OPINION

WYNN, Circuit Judge:

Under the Sherman Act, a plaintiff making monopoly and attempted monopoly claims must allege a relevant geographic market to help the court determine whether the defendant has monopoly power.In this case, the district court held that Supreme Court precedent required including in the relevant geographic market definition all locations where product suppliers are headquartered.Yet the Supreme Court case upon which the district court relied, Tampa Electric Co. v. Nashville Coal Co.,365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580(1961), requires no such thing.Rather, it requires that courts consider, in defining the relevant geographic market, where sellers operate and where purchasers can predictably turn for supplies.If U.S. consumers can predictably turn to supplies only in the United States, then the United States is the relevant geographic market.Because that is what Kolon Industries Incorporated alleged here, the district court erred in dismissing its counterclaim for failure to sufficiently plead a relevant geographic market.

I.

This is a case about whether E.I. du Pont de Nemours and Company(“DuPont”) attempted to wield, and did wield, monopoly power over the U.S. para-aramid fiber market in violation of Section 2 of the Sherman Act.Para-aramid fibers are strong, complex synthetic fibers used to make, among other things, body armor, tires, and fiber optic cables.Three para-aramid producers—American DuPont, Dutch Teijin, and Korean Kolon—sell their para-aramid fibers to U.S. consumers.Other para-aramid producers exist but do not sell into the U.S. market.DuPont is the unquestioned industry leader in the U.S. para-aramid market.Indeed, for many years, DuPont was the only para-aramid producer in the U.S. market, and it currently sells over 70 percent of the para-aramid fibers purchased in the United States.

In February 2009, DuPont brought a trade secrets suit against Kolon, a relative newcomer to para-aramid production.Kolon counterclaimed that DuPont had monopolized and had attempted to monopolize the para-aramid market in violation of Section 2 of the Sherman Act,15 U.S.C. § 2.¹The primary thrust of Kolon's second amended counterclaim (“Counterclaim”) is that DuPont illegally used multi-year supply agreements with high-volume para-aramid fiber customers.Those agreements required high-volume customers to purchase 80 to 100 percent of their para-aramid requirements from DuPont.Kolon alleged that those agreements removed substantial commercial opportunities from competition and limited other para-aramid fiber producers' ability to compete.

DuPont moved, under Federal Civil Procedure Rule 12(b)(6), to dismiss Kolon's Counterclaim.The district court granted that motion on December 18, 2009, on the bases that: (a) Kolon inadequately pled the relevant geographic market within which competition for para-aramid fibers takes place; and (b) Kolon failed to plead adequately unlawful exclusionary conduct on the part of DuPont.E.I. Du Pont De Nemours & Co. v. Kolon Indus., Inc.,683 F.Supp.2d 401(E.D.Va.2009).The district court allowed Kolon to amend, but Kolon declined in favor of an immediate appeal.The district court therefore entered a final judgment against Kolon under Civil Procedure Rule 54(b).

II.

We review de novo the district court's grant of DuPont's motion to dismiss.Sucampo Pharm., Inc. v. Astellas Pharma, Inc.,471 F.3d 544, 550(4th Cir.2006).When ruling on a Rule 12(b)(6) motion to dismiss, “a judge must accept as true all of the factual allegations contained in the complaint.”Erickson v. Pardus,551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081(2007).To survive the motion, a complaint (or counterclaim, as is the case here) must contain sufficient facts to state a claim that is “plausible on its face.”Bell Atlantic Corp. v. Twombly,550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929(2007).Nevertheless, a complaint “need only give the defendant fair notice of what the claim is and the grounds upon which it rests.”Coleman v. Md. Ct. of Apps.,626 F.3d 187, 190(4th Cir.2010)(internal quotation marks omitted).Further, “like the district court, [we] draw all reasonable inferences in favor of the plaintiff.”Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc.,591 F.3d 250, 253(4th Cir.2009).

III.

Kolon contends that DuPont violated Section 2 of the Sherman Act through its use of exclusive contracts with high-volume para-aramid customers.Under Section 2, “[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person ... to monopolize any part of the trade” is guilty of an offense and subject to penalties.15 U.S.C. § 2.To prove a Section 2 monopolization offense, a plaintiff must establish two elements: (1) the possession of monopoly power; and (2) willful acquisition or maintenance of that power—as opposed to simply superior products or historic accidents.Eastman Kodak Co. v. Image Technical Servs., Inc.,504 U.S. 451, 480, 112 S.Ct. 2072, 119 L.Ed.2d 265(1992);Cavalier Tel., LLC v. Verizon Va., Inc.,330 F.3d 176, 183(4th Cir.2003).An attempted monopolization offense consists of: (1) the use of anticompetitive conduct; (2) with specific intent to monopolize; and (3) a dangerous probability of success.Spectrum Sports, Inc. v. McQuillan,506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247(1993);Advanced Health–Care Servs., Inc. v. Radford Cmty. Hosp.,910 F.2d 139, 147(4th Cir.1990).

To run afoul of Section 2, a defendant must be guilty of illegal conduct “to foreclose competition, to gain a competitive advantage, or to destroy a competitor.”Eastman Kodak,504 U.S. at 482–83, 112 S.Ct. 2072(internal quotation marks omitted).Conduct that might otherwise be lawful may be impermissibly exclusionary under antitrust law when practiced by a monopolist.Indeed, “a monopolist is not free to take certain actions that a company in a competitive ... market may take, because there is no market constraint on a monopolist's behavior.”LePage's, Inc. v. 3M,324 F.3d 141, 151–52(3d Cir.2003)(citingAspen Skiing Co. v. Aspen Highlands Skiing Corp.,472 U.S. 585, 601–04, 105 S.Ct. 2847, 86 L.Ed.2d 467(1985)).And although not per se illegal, exclusive dealing arrangements can constitute an improper means of acquiring or maintaining a monopoly.See, e.g., United States v. Grinnell Corp.,384 U.S. 563, 576, 86 S.Ct. 1698, 16 L.Ed.2d 778(1966);Tampa Electric,365 U.S. at 324, 327, 81 S.Ct. 623;United States v. Microsoft Corp.,253 F.3d 34, 70–71(D.C.Cir.2001);Advanced Health–Care Servs.,910 F.2d at 142, 148–49.

In analyzing Sherman Act Section 2 claims such as the ones Kolon makes here, courts begin with a preliminary inquiry into market definition, which serves as a tool to determine the defendant's market power.SeeConsul, Ltd. v. Transco Energy Co.,805 F.2d 490, 493–95(4th Cir.1986).The market definition has two components—the relevant product market and the relevant geographic market.Id. at 493;RCM Supply Co., Inc. v. Hunter Douglas, Inc.,686 F.2d 1074, 1076(4th Cir.1982).Generally, in a Section 2 case, a plaintiff must allege both as a threshold matter.Id.;Consul,805 F.2d at 493–95.Here, the parties do not dispute the relevant product market, which is the para-aramid fiber market.The disagreement here centers on the relevant geographic market.

The relevant geographic market inquiry focuses on that geographic area within which the defendant's customers who are affected by the challenged practice can practicably turn to alternative supplies if the defendant were to raise its prices or restrict its output.William C. Holmes, Antitrust Law Handbook§ 3:4(West 2009);see alsoHerbert Hovenkamp, Federal Antitrust Policy§ 3.6(West 2005)(“The relevant geographic area for antitrust purposes is some geographic area in which a firm can increase its price without 1) large numbers of its customers quickly turning to alternative supply sources outside the area; or 2) producers outside the area quickly flooding the area with substitute products.”).C...