Sun Microsystems Inc. v. Hynix Semiconductor Inc.

• Decision Date: 31 March 2009
• Docket Number: No. C 06-1665 PJH.,C 06-1665 PJH.
• Citation: 608 F.Supp.2d 1166
• Court: U.S. District Court — Northern District of California
• Parties: SUN MICROSYSTEMS INC., Plaintiff, v. HYNIX SEMICONDUCTOR INC., et al., Defendants.

608 F.Supp.2d 1166

SUN MICROSYSTEMS INC., Plaintiff, v. HYNIX SEMICONDUCTOR INC., et al., Defendants.

No. C 06-1665 PJH.

United States District Court, N.D. California.

March 31, 2009.

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Christine Elaine Cwiertny, Daniel Allen Sasse, Theresa C. Lopez, Crowell & Moring LLP, Irvine, CA, David Daniel Cross, Jerome A. Murphy, Kathryn D. Kirmayer, Kent A. Gardiner, Matthew J. McBurney, Jeffrey H. Howard, Crowell & Moring LLP, Washington, DC, for Plaintiff.

Kenneth Ryan O'Rourke, Steven H. Bergman, Paul Benedict Salvaty, O'Melveny & Myers LLP, Los Angeles, CA, Cathy Yunshan Lui, Howard Mark Ullman, Orrick, Herrington & Sutcliffe LLP, San Francisco, CA, Na'il Benjamin, Robert E. Freitas, Orrick Herrington & Sutcliffe LLP, Menlo Park, CA, for Defendants.

ORDER GRANTING MOTION TO DISMISS; DENYING MOTION TO EXCLUDE; AND GRANTING SUMMARY JUDGMENT IN PART AND DENYING SUMMARY JUDGMENT IN PART

PHYLLIS J. HAMILTON, District Judge.

Defendants' motion to dismiss, motion to exclude expert testimony, and motions for summary judgment came on for hearing on December 17, 2008 and January 21, 2009 before this court. Plaintiff Sun Microsystems, Inc. ("Sun" or "plaintiff"), appeared through its counsel, Kathryn D. Kirmayer, Jerome A. Murphy, David D. Cross, and Jeffrey Howard. Defendants¹ appeared through their counsel, Paul Salvaty, Steven H. Bergman, Kenneth O'Rourke, Michael Tubach, Tim Martin, Julian Brew, Harrison Frahn, Howard Ullman, Catherine Lui, Jonathan Swartz, Robert Pringle, Joel Sanders, Joshua Hess, and Robert E. Freitas. Having read all the papers submitted and carefully considered the relevant legal authority, the court hereby GRANTS defendants' motion to dismiss, DENIES defendants' motion to exclude, and GRANTS the motions for summary judgment in part and DENIES the motions for summary judgment in part, for the reasons stated at the hearing, and as follows.

BACKGROUND

Plaintiff is part of the general opt-out category of cases that is related to In re Dynamic Random Access Memory (DRAM) Antitrust Litigation, Case No. M 02-1486 PJH—a multidistrict litigation ("MDL") action currently pending before the court. Both the MDL action and the opt-out cases generally allege a horizontal price-fixing conspiracy carried out by numerous DRAM manufacturer defendants, in violation of federal and state antitrust laws. While there are a total of six different individual cases that form a part of the opt-out category of cases, only Sun Microsystems, Inc. v. Hynix Semiconductor, et. al. is currently at issue.

A. General Background

Sun is an original equipment manufacturer ("OEM") involved in the technology field. It is a leading maker of computer servers and workstations, among other items. In the operative amended consolidated complaint ("ACC"), Sun alleges that from 1997 through 2002 several manufacturer defendants ("defendants") engaged in a conspiracy to control DRAM production capacity, raise DRAM prices, allocate customers, and otherwise unlawfully overcharge their DRAM customers. See, e.g., ACC ¶¶ 21, 23, 25, 27, 29, 31, & 34 (alleging that foreign defendants "manipulated the price of DRAM charged around the globe"). As a result, plaintiff alleges that, as a large purchaser of defendants' DRAM, it suffered injury in that it paid more for DRAM than it otherwise would have in the absence of defendants' conspiracy.

To that end, Sun asserts three causes of action against defendants: (1) violation of the Sherman Act pursuant to 15 U.S.C. § 1; (2) violation of California's Cartwright Act pursuant to §§ 16700 et seq. of the Cal. Bus. & Prof.Code; and (3) violation of California's Unfair Competition Act pursuant to §§ 17200 et seq. of the Cal. Bus. & Prof.Code. See ACC, ¶¶ 79-106. Sun seeks damages as a result of the artificially inflated prices it allegedly paid for DRAM as a consequence of defendants' alleged price-fixing activity.

B. Facts Regarding Sun's DRAM Procurement

Sun manufactures and sells its servers and workstations both domestically and abroad. To aid in this process, Sun outsources a portion of its server and workstation assembly to a network of domestic and foreign entities comprised of (1) third-party external manufacturers and (2) Sun's corporate subsidiaries. Of particular relevance here is Sun's relationship with these two entity groups vis-a-vis a critical component of the manufacturing process—the purchase of DRAM on Sun's behalf, for incorporation into final Sun products.

1. Third-party External Manufacturers

The ACC alleges that approximately 34% of the DRAM purchases at issue here were made by third-party external manufacturers ("EMs").² See ACC ¶ 13b. The EMs were and are independent business entities located both domestically and abroad. See id. Sun does not share common ownership with any of the EMs; it does not own any controlling share of any EM, has none of the same board of directors or officers as any EM, and does not commingle funds or share corporate books and records with any EM. See Declaration of Angela M. Moore ISO MSJ re External Manuf. Purch. ("Moore Decl. Re EMs"), Ex. 5 at 10; Bergman Decl., Ex. 2 at Response 5, Ex. 3 at Response 50, Ex. 4 at Responses 42-45. The EMs at issue in this case include, for example, Celestica, Solectron Corporation, MiTac International Corporation, Smart Modular Technologies, Inc., Benchmark Electronics, Inc., and Expansion Electronics, Inc. See, e.g., Declaration of Steven Bergman ISO Mot. Dismiss ("Bergman Decl."), Exs. 18-21. Sun charged the EMs, in part, with purchasing DRAM directly from defendants and other suppliers, in order to incorporate that DRAM into the manufacture of Sun-designed and Sun-branded products that were to be sold back to Sun (for retail sale by Sun).

Sun's relationship with the relevant EMS was formalized in Master External Manufacturing Agreements ("MEMAs"). All the MEMAs at issue here have effective dates that post-date 1997. See Declaration of Jason M. Bussey ("Bussey Decl. Re. EMs"), Ex. A; Moore Decl. Re EMs, Exs. 24-26; see also Bergman Decl., Exs. 18-21. Pursuant to the terms of the MEMAs, the EMs were considered "independent contractors" and were expressly prohibited from "act[ing] in a manner which expresses or implies a relationship other than that of independent contractor, [or] bind[s] the other party." Moore Decl. Re EMs, Exs. 24, ¶ 8.5; Ex. 25, ¶ 8.5; Ex. 26, ¶ 26.3; Bussey Decl. Re. EMs, Ex. A, ¶ 28.4.

Sun's relationship with its EMs was multi-tiered. As an initial matter, once an EM executed a MEMA with Sun, Sun's practice was to issue an award letter to the EM. See Moore Decl. Re EMs, Ex. 7 at 61, 76-77. The award letter set the price at which Sun would buy a particular DRAM-containing product from the EM, and identified quality standards for the product. See id. Subsequently, Sun also communicated its supply plan to the EM, informing the EM how much demand for DRAM-containing products Sun forecasted in the coming quarters. See Moore Decl. Re EMs, Ex. 7 at 76. Notably, however, Sun's forecast was fluid and was frequently updated. Sun also did not commit to actually purchasing a set quantity of DRAM-containing products in its forecasts, nor did it always end up purchasing all products forecasted. See id. at 82-83.

After receiving Sun's supply forecasts, EMs then purchased DRAM from suppliers in order to meet the demand forecasted in the supply plan. Id. at 76-77. As part of this process, Sun would preliminarily generally determine which DRAM suppliers were qualified to sell DRAM to the EMs for use in Sun products, and would furthermore generally negotiate DRAM pricing between the EMs and DRAM suppliers. See Declaration of David C. Cross ISO EM Opp. ("Cross EM Opp. Decl."), Ex. 26 at 160; Ex. 27 at 128-29; Ex. 22 at 82-83, 613; Ex. 28 at 62-64; Ex. 29 at 119-122, 124 (generally discussing Sun's creation of an approved vendor list for use by the EMs). Sun's global memory procurement team in California, for example, dictated a single worldwide price at which the EMs were permitted to order DRAM from DRAM suppliers for incorporation into Sun products, and further awarded a specific share of business to each DRAM supplier. See Cross EM Opp. Decl., Ex 29 at 28-29, 134-35; Ex. 30 at 125-26; Ex. 28 at 71-72; Ex. 31 at 57-58. Each EM would then be told from whom, at what price, and at which percentage of business they should issue purchase orders for the DRAM to be used in Sun products. See, e.g., Cross EM Opp. Decl., Ex. 32 at 45-50; Ex. 29 at 28-29, 134-45; Ex. 30 at 125-26. In some instances, Sun even required the EMs to purchase DRAM from Sun's own inventory. See Cross EM Opp. Decl., Exs. 37-39. Either way, however, the EMs were expected to, and generally did, execute purchase orders for DRAM pursuant to the directions provided by Sun. See, e.g., id. at Ex. 24 at 61; Ex. 53; Ex. 54 at 111-112.

Nonetheless, there is evidence that at times, some of the EMs independently selected DRAM suppliers from whom to purchase DRAM, and independently negotiated DRAM pricing with those DRAM suppliers. See, e.g., Moore Decl. Re EMs, Ex. 7 at 206-09 (MiTac); Ex. 13 at 116-18 (Celestica); Ex. 21 (MiTac); see also Bergman Decl., Ex. 9 at 216-21; Ex. 21 at SUN001236; Ex. 31.

After DRAM pricing and suppliers were determined—either by Sun, or the EMs acting independently—the EMs procured the DRAM. The EMs did so by: issuing purchase orders; receiving invoices issued by the DRAM suppliers; paying the invoices sent to them by the DRAM suppliers; and taking receipt of the actual DRAM purchased from the suppliers. See Moore Decl. Re EMs, Ex. 7 at 87; Ex. 13 at 45-46; Ex. 8 at 60-62; Ex. 5 at 10:22-13:1. After accepting delivery of the DRAM from the defendant suppliers, the EMs took title to it. See id. at Ex. 9 at 610-11; Ex. 8 at 66, 72; Ex. 13 at 47; Ex. 14 at 114; Ex. 12 at 32-33, 55-56. The EMs generally retained title until Sun accepted an assembled DRAM-containing product...