9th Cir. Upholds Antitrust Jury Verdict Against Chinese Telescope Company (podcast) – Antitrust / Competition Law

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The Court upholds the evidentiary rulings on market definition and additional costs. Accept that the evidence supports the verdict of collusion and attempted monopolization.

HBLC · Ninth Circuit Opinion in the Telescope Case by J Rubin and T LaComb 12 – 13 – 2021

The Ninth Circuit Court of Appeals this month upheld the ruling in favor of Optronic Technologies, Inc., ruling that there was sufficient evidence that Chinese telescope maker Ningbo Sunny Electronic (“Sunny”) , had conspired with a competitor in the U.S. consumer telescope market to allocate customers, fix prices, and monopolize the telescope market in violation of federal antitrust laws (Optronic Technologies, Inc., v Ningbo Sunny Electronic Co., Ltd., No. 20-15837, 9th Cir. 2021). Ninth Circuit Judge Ronald M. Gould wrote the opinion.

California-based Optronic, known commercially as Orion Telescopes & Binoculars, sued Sunny in November 2014. Orion alleged that Sunny violated Sections 1 and 2 of the Sherman Act by conspiring to assign customers to the marketplace. telescopes and conspiring to fix prices or credit terms for Optronics in collusion with Suzhou Synta’s optical technology. Orion further alleged that Sunny’s 2014 acquisition of independent manufacturer Meade violated Section 7 of the Clayton Act. Orion alleged that Sunny engaged in these anti-competitive acts to force Orion out and further monopolize the telescope market.

California jury ruled in favor of Orion on all counts and awarded the company $ 16.8 million in damages, which the district court tripled to $ 50.4 million . The district court also ordered an injunction, ordering Sunny to supply Orion and Synta’s Meade on non-discriminatory terms for five years, and not to communicate with Synta about competitively sensitive information.

Decisions on key elements of applicant’s economic evidence confirmed.

Sunny appealed on several grounds, two of which challenged key elements of the plaintiff’s expert economic evidence. The jury found Sunny responsible for attempting to monopolize and conspiring to monopolize in violation of section 2, which prohibits anyone from monopolizing or attempting or conspiring to monopolize a relevant market. Sunny argued on appeal that the evidence could not support a Section 2 verdict because the Orion economist had failed to define a relevant market. In particular, Sunny claimed that the expert did not examine the cross-elasticity between substitute products in the market or perform an SSNIP test, the standard analysis used to delineate the outer limits of a relevant market.

The court of appeal ruled that these allegations were unfounded. The Applicant’s economist testified that the relevant product market was the market for telescope manufacturing services. The objective of the SSNIP test is to determine if the relevant market is too small and should be expanded to include potential substitutes. But since no other manufacturing capability can replace telescope manufacturing services, wholesale telescope buyers cannot look to other manufacturers to fill orders. Without substitutable manufacturers, an SSNIP test boils down to whether new manufacturers would enter the market quickly enough to make a price increase unprofitable for a hypothetical monopolist, which they couldn’t. As a result, the court ruled that the economist could reasonably dispense with performing an SSNIP analysis.

Sunny also took issue with the economist’s estimate of anti-competitive overbills that could not be directly observed. Neither “baseline” nor “before and after” estimation methods were available. Therefore, in order to develop a measure of damage, the applicant’s expert presented two different methods of estimating the additional costs. In the first method, the expert collected data on cartel overbilling from economic literature on markets with structures and conditions similar to the manufacture of telescopes. The average of these overcharges was then used as an estimate of the overcharging resulting from the collusion of the defendants. To verify this estimate, the economist also submitted a theoretical Cournot equilibrium model of market prices based on assumptions drawn from the case record. The two methods gave similar and consistent results. Affirming the admissibility of the expert’s estimate of damages, the appeals court held that the expert’s report and testimony “were sufficiently related to the facts of this case for the district court to properly admit this proof ”.

In rebuttal, the Respondent’s economist testified to the great sensitivity of the assumptions used in the Applicant’s theoretical model. Interestingly, the defendants were not allowed to submit their own estimate of damages for the first time during the rebuttal, so the defendants’ expert had to limit his testimony to the sensitivity of the model without be able to show the jury any other estimate resulting from the anti-competitive surcharge. The court of appeal confirmed the limitation of the court of first instance on the expert rebuttal of the defendants.

Pricing and broader scheme.

Sunny also argued that Orion failed to present sufficient evidence to support Orion’s claims under Section 1. Section 1 prohibits unreasonable restrictions on trade. Horizontal pricing and market sharing are in itself unreasonable and uphold section 1 liability regardless of any alleged justification or defense. The Ninth Circuit noted that Orion provided evidence that Synta executives encouraged Sunny’s purchase of Meade, an acquisition that was part of a larger plan by Sunny and Synta to jointly control the manufacturing market. telescopes, even though federal regulators had previously banned such a combination. The court also declined to overturn the jury’s finding that Sunny had conspired with a subsidiary of Synta to fix prices and credit terms for Orion, a in itself violation of Article 1.

“If you break it, you buy it.”

Finally, it should be noted that the appeals court upheld the award of damages accrued after September 2016, when the defendant and Synta took their final steps to eliminate Meade, and Synta reached a settlement agreement and d supply with Orion. The court ruled that, even if the conspiratorial acts of Sunny and Synta ended in 2016, Orion could still recover the post-2016 damages “because it continued to suffer economic damage from the prejudice to competition. caused by the illegal concerted activity ”. So when collusion causes a lasting change in the structure of the market or sets the pattern for continued collusive practice, it is not a defense that the conspirators may have ceased to engage in concerted action.

The rule adopted by the Ninth Circuit in Optronics is clear: “[W]Here, an antitrust complainant suffers from continuing antitrust damage due to anti-competitive changes in market structure that arise from a proven antitrust violation, we consider that the violation may be a significant cause of that harm, and therefore the recovery of damages- interest is allowed even after the last proven date of the violating behavior. This rule is in keeping with the common sense principle that “if you break it, you buy it.” “

Clarity welcome.

The opinion of the Ninth Circuit brings welcome clarity on several points. He demonstrated that complainants do not need to perform an SSNIP test when specific market circumstances define the outer limits of a market. For claimants faced with the need to estimate unobservable anticompetitive additional costs, he asserts an ingenious method to arrive at a reasonable and reliable estimate. And, for past conspiracies with lingering anti-competitive effects, the ruling announces the common sense principle that a defendant “remains liable for the continuing damage suffered by claimants as a result of structural damage to competition that his illegal scheme has caused.” Put simply, this is a well-articulated decision by a knowledgeable panel that adds precision and certainty to antitrust.

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