By Eric Benedict
On September 15, 2015, the Fourth Circuit issued a published opinion in the civil case SD3, LLC v. Black & Decker. SD3, LLC and its subsidiary, SawStop, LLC (together, “SawStop”) sought relief under section 1 of the Sherman Antitrust Act (15 U.S.C. § 1). The Circuit Court quickly affirmed the dismissal of SawStop’s standard-setting claims as well as claims made against several parent and affiliate companies named in the complaint. The court did, however, reverse the district court’s dismissal of SawStop’s group-boycott claim, allowing it to move forward. Judge Agee wrote for the majority, explaining that the district court had applied too high of a standard for the pleading stage as to the group-boycott claim.
The United States District Court for the Eastern District of Virginia dismissed this case because it found that the plaintiff had not plead sufficient facts to support its Sherman Antitrust claims against any of the defendants. SawStop appealed to the Fourth Circuit, which decided the appeal after argument.
SawStop’s Unsuccessful Attempt to Enter the Table-Saw Market
SawStop developed a technology to help limit human injury in table-saw accidents that it called “active injury mitigation technology” or “AIMT.” Shortly thereafter, it sought licensing agreements with a number of table-saw manufacturers. Several manufacturers ran safety and production tests which yielded favorable results. However, the manufacturers had reservations about adopting the product due to product liability issues, engineering, and other costs. Ultimately, SawStop’s attempts to secure a licensing agreement were unsuccessful. SawStop alleges that the table-saw industry engaged in anti-competitive practices together to prevent AIMT from entering the market.
The Sherman Anti-Trust Act Does Not Allow “Guilt by Mere Association”
The Fourth Circuit was quick to affirm the dismissal of the complaint as to several of the corporate parents and subsidiaries mentioned in the complaint. Citing the complete absence of allegations against a number of the defendants, the Fourth Circuit explained, “Antitrust law doesn’t recognize guilt by mere association…” Relying heavily on the precedent from Bell Atlantic Corp. v. Twombly, the court rejected the plaintiff’s claims against a handful of the defendants.
SawStop Adequately Alleged a “Group-Boycott”
As to the group-boycotting claims, the court found that the district court erred in two ways. First, the district court confused the standard for a motion to dismiss with the standard for a motion for summary judgment. Second, the lower court applied too high of a pleading standard against SawStop. The court reiterated that a plaintiff who seeks relief under the first section of the Sherman Antitrust act must plead factual allegations that show an agreement to restrain trade, which is something more than simple parallel activity.
The court held that SawStop had alleged sufficient activity by defendants in part because none of the defendants ultimately licensed SawStop’s product and SawStop had specific factual allegations to support its theory of the case. The plaintiff alleged that the industry made a decision to avoid the new technology for fear of creating product liability issues for non-adapters. The defendants attempted to argue that each actor decided not to pursue an agreement with SawStop at different times and in different ways. Importantly, the court noted that dissimilarities during the beginning stages of an alleged conspiracy are not enough to “render the existence of a conspiracy implausible.” While discussing the important distinction between a “probable” and a “plausible” standard, Judge Agee also expressed caution, “We must be careful not to rely on our own subjective disbelief here, as even the acts that the manufacturers and the dissent say are dissimilar might also be read to suggest deception.”
The majority opinion found that SawStop had not only alleged parallel activity, but also “something more.” SawStop was able to articulate a “detailed story” about just how the group-boycott occurred. The complaint identified specific people, times, and instrumentalities of the group-boycott. The court also found special importance in the complaint’s allegation of motive.
SawStop Failed to Adequately Allege a Standard-Setting Conspiracy
While the court was willing to let SawStop move forward on its group-boycotting claim, it applied its view of the proper pleading standard to the standard-setting claims and found that the complaint did not plausibly establish a conspiracy, but rather only pointed out involvement in lawful standard-setting panels. Even an “incorrect” decision by such a panel does not create a presumption of wrong-doing under section one. If it did, the court argued, “…courts would be cast into the role of standard-setting appellate bodies.”
The case has been remanded to the lower court for proceedings on the group-boycotting claim against the remaining defendants.