Court Finds No Inference of Conspiracy Arising From Members of Standard Setting Organization Pursuing Self Interest In Refusing To Approve Plaintiff's Competing Technology

by Sheppard Mullin Richter & Hampton LLP

The Massachusetts United States District Court granted a Rule 12(b)(6) motion dismissing antitrust claims brought under Section 1 of the Sherman Act by a company that had invented a new technology for testing metallic materials. Plaintiff alleged that defendant horizontal competitors, whose technology allegedly was inferior, had conspired to “stack the vote” and take other steps to prevent plaintiff’s product from gaining approval by a standard setting organization (“SSO”) and an International Standards Organization (“ISO”) of which they were voting members. The Court found that plaintiff had failed to plead a plausible conspiracy because each defendant unilaterally would choose to “decline[] to support a standard that would promote another competitor’s technology.” Advanced Technology Corp. v. Instron, Inc., Civil Action No. 12-10171-JLT, slip op. at 12 (D. Mass. Feb. 26, 2013) (“Instron”). In the Court’s view, there was no reason, therefore, to believe that a conspiracy had taken place.

The Court held that plaintiff had pleaded nothing more than parallel behavior in an oligopolistic market, and so plaintiff’s Section 1 claim failed. The Court relied primarily on Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), in reaching that result. Instron, slip op. at 10 (“parallel conduct, even conscious parallelism, ‘could just as well be independent action.’”), citing Twombly, 550 U.S. at 553 quoting Theatre Enters., Inc. v. Paramount Film Distr. Corp., 346 U.S. 537, 540 (1954).[1]

Plaintiff alleged that it had developed a new and innovative patented technique for measuring the tensile properties of metallic materials, such as in pipelines and bridges. Plaintiff asserted that its product was superior to defendants’ equipment, which employed a conventional destructive testing technique, because plaintiff’s method was non-destructive and allowed testing of in-service pipelines, and because the testing was faster.

The relevant SSO’s regulations allowed “a single negative vote [to] stop the progress of any draft standard.” Slip op. at 4. All three defendants voted against SSO approval of plaintiff’s product, and then variously engaged subsequently in a number of asserted “procedural irregularities” to ensure non-approval by the SSO. Slip op. at 15. Plaintiff also went to the ISO for approval, where one defendant assertedly employed procedural irregularities to manipulate the ISO into refusing to approve plaintiff’s product. Id. at 6-7.

Plaintiff relied on allegations of parallel conduct together with “plus factors” and “a market conducive to collusion.” Slip op. at 11. Defendants allegedly comprised 70 percent of the relevant market for this type of testing. The test employed by the Court for determining whether there were plus factors that revealed the existence of a conspiracy was “(1) evidence that the defendant had a motive to enter into a [] conspiracy; (2) evidence that the defendant acted contrary to its interests; and (3) evidence implying a traditional conspiracy.” Instron, slip op. at 11 (citations omitted).

As to motive to enter into a conspiracy, the Court stated that each defendant:

had its own economic incentive to independently oppose [plaintiff] and promote is own products. Nothing in the complaint indicates that opposition to [plaintiff] “was anything more than the natural, unilateral reaction of each defendant intent on keeping its dominance.” [Citation.] “There is no reason to infer that the companies had agreed among themselves to do what was only natural anyway.”

Instron, slip op. at 13, quoting Twombly, 550 U.S. at 566. In the Court’s view, this eliminated any need or motive for defendants to conspire. Instron at 14 (defendants “had no apparent need to conspire”).

Nor did the Court consider the defendants’ conduct to be against their self interests. Instead, preventing SSO and ISO approval of plaintiff’s product was “fully consistent with Defendants’ individual stakes in the mechanical testing equipment market.” Instron, slip op. at 14. Preventing approval of plaintiff’s product “was nothing more than the natural, unilateral reaction of each [defendant] intent on keeping its market dominance.” Id. at 13 (citation omitted). They were doing “what was only natural anyway.” Id., quoting Twombly, 550 U.S. at 566.

The Court also stated that there was no traditional evidence of a conspiracy. Parallel conduct in an oligopoly is not evidence of a conspiracy. Instron, slip op. at 16. Nor did the Court believe that meetings and conversations among defendants supported an inference of conspiracy because they had not resulted in “unprecedented or anomalous conduct.” Id. at 17.

Plaintiff’s Section 1 claims, therefore, failed. The Court granted defendants’ Rule 12(b)(6) motion to dismiss the Sherman Act claims without leave to amend.

[1] The Court did not address whatever effect Twombly and Iqbal may have on Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), and American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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