California Antitrust and Unfair Competition Law and Federal and State Procedural Law Developments

• Publication year: 2015
• Author: By Thomas Greene and Thomas A. Papageorge

CALIFORNIA ANTITRUST AND UNFAIR COMPETITION LAW AND FEDERAL AND STATE PROCEDURAL LAW DEVELOPMENTS

By Thomas Greene and Thomas A. Papageorge¹

I. INTRODUCTION

This article provides a selection of litigation developments that may be of particular importance to members of the Antitrust and Unfair Competition Section. The first part of this article presents cases that reflect recent California substantive law developments related to the Cartwright Act, covenants not to compete, the Consumer Legal Remedies Act, the Unfair Competition Law, and false advertising law. The second part of this article provides federal and California procedural law developments in the areas of forum, the Foreign Trade Antitrust Improvements Act, discovery, class actions, evidence, settlements, appeals, patent law, ethics, and developments abroad. This latter part also provides a selection of relevant new rules and other notable developments. Please consult other references for all of the developments that may be important to your practice.

II. CALIFORNIA DEVELOPMENTS: SUBSTANTIVE LAW

A. Cartwright Act²

There were some notable Cartwright Act developments in 2014. First, in a pending case, the California Supreme Court will join the U.S. Supreme Court in the high-stakes debate over "reverse payment" or "pay-for-delay" patent settlements and decide the proper standard for determining when such settlements violate the Cartwright Act. Second, the California Attorney General reached a $3.75 million settlement with eBay over an anticompetitive "no-poach" agreement with Intuit. Third, the Second District discussed continuing the per se status of resale price maintenance under the Cartwright Act. Fourth, the failure to exhaust judicial remedies dooms doctor's Cartwright Act and Unfair Competition Law ("UCL") claims. Finally, a California district court finds that a challenge to the Internet Corporation for Assigned Names and Numbers ("ICANN") naming authority fails to sufficiently plead antitrust conspiracy.

1. In re Cipro Cases I & II³

The California Supreme Court will decide the standard for Cartwright Act applicability to "pay-for-delay" patent settlements in In re Cipro Cases I and II. At issue

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are the interaction between federal patent rights and antitrust principles of competition, and the rule of reason/per se distinction in such matters.

The lengthy coordinated class action matter involves plaintiffs' antitrust claims concerning ciprofloxacin (branded as "Cipro"), an antibiotic patented by Bayer Corporation. Plaintiffs alleged that Bayer and several generic drug manufacturers violated the Cartwright Act, the Unfair Competition Law, and common law monopolization principles by entering into a patent infringement settlement in which Bayer agreed to make payments (ultimately totaling $398 million) in exchange for the generic manufacturers' agreement not to manufacture the generic version of Cipro until the patent expired. This arrangement is characterized by the plaintiffs as "pay-for-delay" monopolization and by the defendants as legitimate "reverse payments" to settle bona fide patent litigation.⁴

The trial court granted defendants' summary judgment motion, ruling the settlements were neither illegal per se under the Cartwright Act nor unreasonable under the rule of reason. It also found no triable issue as to whether the agreements produced "anticompetitive effects on competition beyond the exclusionary scope of the . . . patent itself."⁵

The California Fourth Appellate District affirmed summary judgment for defendants,⁶ adopting defendants' proposed legal standard, derived from In re Tamoxifen Citrate Antitrust Litigation,⁷ in which the Second Circuit held that "in the absence of any plausible allegation that [a] patent infringement lawsuit [is] baseless or that the Settlement Agreement otherwise restrained competition beyond the scope of the . . . patent," the plaintiff's antitrust complaint fails to state a claim on which relief can be granted.⁸

Reviewing the Tamoxifen rule and similar holdings, the Fourth Appellate District held those principles properly govern this issue under the Cartwright Act. Since "the Cipro agreements did not restrain competition outside the exclusionary zone of the . . . patent, we cannot view the Cipro agreements as lacking any redeeming virtue. Accordingly, we conclude they are not unlawful per se."⁹ And under the rule of reason, the court found reverse payment agreements to be consistent with federal and state policies favoring dispute resolution and a "natural byproduct of patent litigation" under then-current federal law.

Summarizing the court's version of the Tamoxifen rule, the court "conclude[d] that unless a patent was procured by fraud, or a suit for its enforcement was objectively baseless, a settlement of the enforcement suit does not violate the Cartwright Act if the settlement restrains competition only within the scope of the patent."¹⁰

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The California Supreme Court granted plaintiffs' petition for review on February 15, 2012,¹¹ and extensive amici participation followed. Briefing was stayed in September 2012 pending the United States Supreme Court's consideration of these issues in FTC v. Actavis, Inc.,¹² which ultimately held that the Federal Trade Commission Act's § 5 unfair competition allegations in the AndroGel reverse payment matter were not forestalled by federal patent law principles.

In November 2013, plaintiffs and defendant Bayer reached a settlement of Bayer's portion of the matter, agreeing to a settlement pool of $74 million.¹³ The covered class was consistent with the 2004 formulation eliminating those purchasers of Cipro who had paid only a flat co-payment amount.¹⁴ On October 1, 2014, the supreme court dismissed the settling Bayer defendants from the pending review.¹⁵

Deputy Attorney General Cheryl Johnson reports that the supplemental round of briefing addressing the impact of the Actavis opinion has now been completed, with all parties and numerous amici curiae briefing the matter. The California Attorney General has asserted that the per se standard should govern the Cartwright Act claim and has also argued for application of the non-competition covenant principles of Business and Professions Code section 16600 et seq.¹⁶ The court has not yet set oral argument in the matter.

2. California v. eBay, Inc.¹⁷

On August 29, 2014, in California v. eBay, Inc., San Jose U.S. District Court Judge Edward J. Davila signed an order approving the settlement of the California Attorney General's Cartwright Act and UCL action against eBay alleging an anticompetitive "no-poach, no-hire" personnel agreement between eBay and Intuit.

In November 2012, the Attorney General's Antitrust Section filed its Cartwright Act and UCL complaint against online giant eBay, naming fellow high-tech firm Intuit as a co-conspirator. The suit alleged that from 2006 to 2009 senior executives at both companies entered into a "no-poach, no-hire" agreement that neither company would hire the other's employees, thus blocking the career progress of their employees and depriving the marketplace of the benefits of competition for qualified high-tech personnel.¹⁸ The U.S. Department of Justice filed parallel charges under the Sherman Act.¹⁹

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Defendant eBay's motions to dismiss both actions were resolved in related decisions on September 27, 2013. Judge Davila denied eBay's motion to dismiss the U.S. action, finding the Department of Justice had adequately pleaded a Sherman Act section 1 market division case. Judge Davila dismissed California's complaint with leave to amend, and California filed its amended complaint in October 2013.²⁰ Before further motions could be heard, the U.S. and California agencies filed motions for approval of separate settlements with eBay.

The California settlement approved by Judge Davila includes injunctive relief barring eBay from entering into similar agreements and prohibiting the enforcement of the existing provisions.²¹ The judgment calls for $2.375 million in restitution payments to natural persons, with any unclaimed portion used to fund cy pres beneficiaries, including a charitable organization that supports employment mobility, and $1.375 million to the State of California, including $250,000 in civil penalties. Significantly, the court approved $300,000 of that amount as payment for the harm the anticompetitive conduct caused to the state's economy, reportedly the first time a state antitrust settlement has explicitly recovered additional funds for general harm to the economy.

3. Alsheikh v. Superior Court²²

In an unpublished (noncitable) opinion, Alsheikh v. Superior Court, a panel of the Second Appellate District recently discussed its assessment of the continuing per se illegality of vertical price fixing under California's Cartwright Act, notwithstanding the United States Supreme Court's Leegin Creative Leather Products, Inc. v. PSKS, Inc.²³ opinion.

Plaintiff Sylvia Ingoglia sued bakery company Sara Lee and others alleging she was denied wage and hour benefits, and asserting that if she were an independent contractor, as defendants claimed, defendants violated the Cartwright Act and the UCL by imposing resale prices on her, a practice unlawful per se under the California Supreme Court's standard for such conduct in Mailand v. Burckle.²⁴ Defendants countered that Mailand should no longer be controlling after the United States Supreme Court's abandonment of the per se rule in Leegin. The Second Appellate District ultimately found plaintiff's pleadings inadequate and remanded with leave to amend.

However, in describing the legal standard to be applied by the trial court on remand, the Second Appellate District added: "Had the distribution agreements . . . operated in such a way as to 'limit[] the distributor's freedom to sell the supplier's product at a price independently selected by the distributor . . .', then a Cartwright Act violation might be stated. We also note that if...