U.S. v. Lsl Biotechnologies

Citation379 F.3d 672
Decision Date11 August 2004
Docket NumberNo. 02-16472.,02-16472.
PartiesUNITED STATES of America, Plaintiff-Appellant, v. LSL BIOTECHNOLOGIES; Seminis Vegetable Seeds, Inc.; LSL Plantscience LCC, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Steven J. Mintz, U.S. Department of Justice, Antitrust Division, Washington, D.C., for the plaintiff-appellant.

Thomas F. Connell and Jeffrey D. Ayer, Wilmer, Cutler & Pickering, Washington, D.C., for defendants-appellees LSL Biotechnologies, Inc. and LSL Plantscience LLC.

Sabina Bhalla, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA, for defendant-appellee Seminis Vegetable Seeds, Inc.

Appeal from the United States District Court for the District of Arizona; Raner C. Collins, District Judge, Presiding. D.C. No. CV-00-00529-RCC.

Before ALDISERT,* TALLMAN, and RAWLINSON, Circuit Judges.

Opinion by Judge TALLMAN; Dissent by Judge ALDISERT.

TALLMAN, Circuit Judge:

We must decide whether the district court erred by determining that it lacked subject matter jurisdiction over this antitrust action. The United States alleged that an agreement between the defendants (collectively, "LSL") and an Israeli company, Hazera Quality Seeds, Inc., violates the Sherman Act. Because the challenged agreement does not have a direct, substantial, and reasonably foreseeable effect on United States commerce, we affirm the district court's dismissal.

I

This dispute grows out of a joint business venture — always a fertile ground for litigation — that sought to solve the dilemma of how to bring fresher, tastier tomatoes to Americans who live in the northern part of the nation and therefore suffer from a lack of fresh tomatoes in the winter months.

In the early 1980s, LSL Biotechnologies, Inc., an American corporation that develops and markets seeds, entered into a relationship with Hazera. LSL began working with Hazera in the hope of developing a genetically-altered tomato seed that would produce tomatoes with a longer shelf-life. LSL and Hazera wanted to create such a tomato because, until recently, tomatoes had a very short shelf-life if they were picked from the vine already ripened. This means that tomato growers can only sell their product in a limited geographic area. Because most of the American climate cannot produce tomatoes during the winter months, consumers are unable to access vine-ripened tomatoes for much of the year. Instead, most United States consumers are relegated to eating foreign tomatoes that are picked before they are ripe, so they will still be fresh after shipping. Tomatoes picked in this fashion have a poor flavor compared to vine-ripened tomatoes.

To solve this dilemma, LSL and Hazera sought to develop a tomato with enough shelf-life after reddening on the vine to travel from growing locations primarily in Mexico to the rest of the American market before spoiling. On January 1, 1983, LSL and Hazera signed a contract that regulated their relationship in this joint endeavor. The contract allocated to each party exclusive territories in which they could sell the seeds they developed together and seeds that each party developed on its own. The contract provided that LSL would have the exclusive rights to the North American market.

LSL and Hazera eventually bred a ripening-inhibitor ("RIN") gene into tomato seeds to be grown in open fields. The RIN gene caused tomatoes to remain fresh longer after being picked. LSL obtained a patent for tomatoes and seeds containing the RIN gene; Hazera obtained no rights to the patent. The RIN gene tomatoes proved to be exceptionally successful when grown in Mexican climates, but failed to take in cooler American climates. As a result, Mexican growers now dominate the fresh winter-tomato market. To date, Hazera has not developed a long shelf-life tomato seed.

The relationship between LSL and Hazera soon withered. Litigation ensued. In 1987, Hazera sued LSL in an Israeli court. This foreign litigation led to mediation in Israel that produced the renegotiation of and addendum to the contract. The addendum included a Restrictive Clause, which is the device the United States now claims violates the Sherman Act. The Restrictive Clause originally stated:

Subsequent to the termination of the Agreement hereunder, Hazera shall not engage, directly or indirectly, alone, with others and/or through third parties, in the development, production, marketing or other activities involving tomatoes having any long shelf life qualities. However, in the event that Hazera shall be requested by any third party to produce seeds of tomatoes having long shelf life qualities, Hazera may engage in such activities only if all of the following conditions are met: (A) the subject tomatoes do not have or involve long shelf life qualities which are included in LSL's proprietary rights; (B) Hazera shall not engage in such production prior to the year 2000 or prior to the expiration of 5 years following the termination of the Agreement, whichever occurs later, and (C) Hazera has obtained LSL's advanced written consent, which shall not be unreasonably withheld.... LSL shall determine whether or not the proposed cooperation may involve any of its proprietary rights and shall not unreasonably withhold its consents to such production.

LSL and Hazera continued working together after adopting the Restrictive Clause, despite frequent returns to the legal system. In 1992, the parties modified the contract a final time and requested that an Israeli arbitrator "incorporate their final contract modifications into a stipulated arbitration order." The arbitration settlement affirmed the Restrictive Clause's ban on Hazera selling long shelf-life tomato seeds in North America. But the Restrictive Clause was amended to allow Hazera to sell other seeds (e.g., tomato seeds for growing in greenhouses) to North American consumers, provided that Hazera disclose the details of such sales to LSL.

The contract between Hazera and LSL expired on January 1, 1996, and the Restrictive Clause became effective. On September 15, 2000, the United States filed its antitrust complaint. The government alleged that the Restrictive Clause is "so overbroad as to scope and unlimited as to time as to constitute a naked restraint of trade in violation of Section 1 of the Sherman Act." The government also alleged that the Restrictive Clause is illegal because "it has harmed and will continue to harm American consumers by unreasonably reducing competition to develop better seeds for fresh-market, long shelf-life tomatoes for sale in the United States."

The government alleged that "[b]ut for the[Restrictive Clause], Hazera would likely be a significant competitor of [LSL] in North America." The Complaint stated that the defendants1 collectively held more than 70 percent of the market for "fresh market tomato seeds." Nonetheless, LSL's competitors control a significant percentage of the market for "fresh market tomato seeds": Novartis and Monsanto together possess around twenty percent of the market, while several other companies together account for the remaining ten percent.

The portion of the Complaint titled "Anticompetitive Effects" alleged that the exclusion of Hazera from the North American market eliminated "one of the few firms with the experience, track record and know-how likely to develop seeds that will allow United States and other North American farmers to grow better fresh-market tomatoes for United States consumers during winter months." The government also alleged that the "Restrictive Clause may also allow defendants to charge more for their seeds (or more for a license to use seeds with the RIN gene) than they otherwise would."

LSL filed a motion to dismiss the Complaint, arguing that the government failed to state a cause of action and that the district court lacked subject matter jurisdiction. In support of their positions regarding subject matter jurisdiction, the parties submitted declarations and other evidence. After hearing oral argument, the district court granted LSL's motion.

The district court's approach was to divide the Complaint into separate domestic and foreign components, because the area of restraint (North America) covered both domestic and foreign markets.

The district court first concluded that the Complaint failed to state a cause of action regarding conduct in the United States and dismissed that aspect of the action without prejudice under Federal Rule of Civil Procedure 12(b)(6). The court concluded that the Complaint's market definition was so poor that the Complaint failed to establish anti-competitive effects. The United States chose not to amend its defective complaint.

The district court then held that it lacked jurisdiction over the claim that the restriction on the sale of seeds to Mexico violated the Sherman Act and dismissed that aspect of the Complaint with prejudice under Rule 12(b)(1). In order to seek immediate appellate review, the government, rather than replead the domestic conduct aspect of the Complaint, requested that the district court dismiss the entire action with prejudice. The request was granted and the government perfected its appeal to this court under 28 U.S.C. § 1291.

II

As an initial structural matter we must decide whether it was proper for the district court to divide the consideration of the Complaint into domestic and foreign components.

LSL moved to dismiss the Complaint, arguing primarily that the district court lacked subject matter jurisdiction. The motion very briefly urged that the whole Complaint — not just the domestic aspect — also failed to state a cause of action. LSL's attack on the Complaint is not split into distinct "domestic" and "foreign" aspects. Likewise, the government's opposition to LSL's motion does not defend the Complaint in this fashion. The government concentrated the bulk of...

To continue reading

Request your trial
80 cases
  • In re Immune Response Securities Litigation
    • United States
    • U.S. District Court — Southern District of California
    • June 7, 2005
    ...allegations of the [C]omplaint to be true and draw all reasonable inferences in favor of the non-moving party"the Plaintiffs. LSL Biotechnologies, 379 F.3d at 698. Regarding the unopposed documents, the Court will refer to them as it finds Factual Background For purposes of these Motions, t......
  • Schneider v. Chertoff
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • June 7, 2006
    ...of the Nursing Relief Act extraneous. "[W]e strive to avoid constructions that render words meaningless." United States v. LSL Biotechnologies, 379 F.3d 672, 679 (9th Cir. 2004) (citation omitted). Congress specified that nothing in the medical practice requirement should be construed to pr......
  • Animal Science Products v. China Nat. Metals
    • United States
    • U.S. District Court — District of New Jersey
    • December 30, 2008
    ...a causal link between the wrongful conduct and the anticompetitive effect suffered in the United States. See United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir. 2004) ("[A]n effect is `direct' if it follows as an immediate consequence of defendant's activity"); Info. Res. Inc.......
  • Lotes Co. v. Hon Hai Precision Indus. Co.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • June 4, 2014
    ...and the effect. We thus reject the interpretation of “direct ... effect” advanced by the Ninth Circuit in United States v. LSL Biotechnologies, 379 F.3d 672, 680 (9th Cir.2004), which the district court followed below, in favor of the interpretation advocated by amici curiae the United Stat......
  • Request a trial to view additional results
14 firm's commentaries
15 books & journal articles
  • Table of cases
    • United States
    • ABA Antitrust Library Market Power Handbook. Competition Law and Economic Foundations. Second Edition
    • December 6, 2012
    ...aff’d per curiam , 385 U.S. 37 (1966), 70 United States v. Koppers Co., 652 F.2d 290 (2d Cir. 1981), 14 United States v. LSL Biotech., 379 F.3d 672 (9th Cir. 2004), 10 United States v. LTV Corp., No. 84-884, 1984 WL 21973 (D.D.C. 1984), appeal dismissed , 746 F.2d 51 (D.C. Cir. 1984), 80 Un......
  • Table of Cases
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...Ctr., 983 F. Supp. 121 (E.D.N.Y. 1997), 1, 9, 10, 15, 91, 103, 126, 127, 253, 254, 305, 481, 512 United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004), 426, 428 United States v. Mahle GmbH, 1997 WL 599393 (D.D.C. 1997), 441 United States v. Manulife Fin. Corp., 2004 WL 1944847 ......
  • Section 1 of the Sherman Act and the Per Se Rule
    • United States
    • ABA Antitrust Library International Antitrust Cartel Handbook
    • December 6, 2019
    ...charged for potash sold outside the United States. 101 Although there were no allegations that 92. 15 U.S.C. § 6a. 93. Id . 94. Id. 95. 379 F.3d 672 (9th Cir. 2004). 96. Id . at 674. 97. Id . at 683. 98. Id . at 680. 99. Id . at 683. 100. 683 F.3d 845 (7th Cir. 2012) (en banc). 101. Id. at ......
  • Application of Merger Laws to Multinational Transactions
    • United States
    • ABA Antitrust Library Mergers and Acquisitions. Understanding the Antitrust Issues. Fourth Edition
    • December 6, 2015
    ...banc). 18 . United Phosphorus v. Angus Chem. Co., 322 F.3d 942, 951 (7th Cir. 2003) (en banc). 19 . United States v. LSL Biotechnologies, 379 F.3d 672, 680 n.5 (9th Cir. 2004). But see In re TFT-LCD (Flat Panel) Antitrust Litig., 822 F. Supp. 2d 953, 958-59 (N.D. Cal. 2011) (concluding FTAI......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT