Antitrust – Civil Practice – Counterclaim Allegations – Geographic Market – Body Armor Fibers

E.I. DuPont de Nemours & Co. v. Kolon Industries Inc. (Lawyers Weekly No. 001-052-11, 29 pp.) (Wynn, J.) No. 10-1103, March 11, 2011; USDC at Richmond, Va. (Payne, J.) 4th Cir. Click here for the full text of the opinion.

Holding: Saying “this case is no Twombly,” the 4th Circuit reverses a district court’s dismissal of a company’s antitrust counterclaim against DuPont, which dominates the U.S. market for para-aramid fibers used in body armor, and rejects the district court view that the company did not adequately plead the relevant geographic market for the antitrust claim.

Under the Sherman Act, a plaintiff making monopoly and attempted monopoly claims must allege a relevant geographic market to help the court determine whether the defendant has monopoly power. In this case, the district court held that Supreme Court precedent required including in the relevant geographic market definition all locations where product suppliers are headquartered.

Yet the Supreme Court case on which the district court relied, Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961), requires no such thing. Rather, it requires that courts consider, in defining the relevant geographic market, where sellers operate and where purchasers can predictably turn for suppliers. If U.S. consumers can predictably turn to suppliers only in the U.S., then the U.S. is the relevant market. Because that is what defendant Kolon Industries alleged here, the district court erred in dismissing its counterclaim for failure to sufficiently plead a relevant geographic market.

DuPont currently sells over 70 percent of the para-aramid fibers purchased in the U.S. Para-aramid fibers are used to make body armor, tires and fiber optic cables. Three producers sell their fibers to U.S. consumers.

In February 2009, DuPont brought a trade secrets suit against Kolon, a relative newcomer to para-aramid production. Kolon counterclaimed that DuPont had monopolized and had attempted to monopolize the para-aramid market in violation of § 2 of the Sherman Act. Kolon alleges DuPont illegally used multi-year supply agreements with high-volume para-aramid fiber customers. Those agreements required high-volume customers to purchase 80 to 100 percent of their para-aramid requirements from DuPont.

The district court granted DuPont’s motion to dismiss Kolon’s counterclaim, holding that Kolon inadequately pled the relevant geographic market within which competition for para-aramid fibers takes place and that Kolon failed to plead adequately unlawful exclusionary conduct on the part of DuPont.

In this case, Kolon pled that the U.S. functions as a distinct market for para-aramid fibers, and that market realities could have led to the U.S. being a distinct market – that is, technical, legal and other barriers to entry, as well as DuPont’s anticompetitive contracts with key para-aramid consumers. Kolon therefore pled a plausible, distinct relevant geographic market.

No federal appellate court has held that supplier headquarter sites must, as a matter of law, be included in the relevant geographic market definition in Sherman Act cases. The district court relied instead on a 1981 law review article. Regardless of the authors’ construct in the law review article, in RCM Supply, our paraphrasing of Tampa Electric‘s standard makes plain that this circuit does not interpret Tampa Electric to require suppliers headquarters locations to be included in relevant market definition without regard to whether consumers can actually turn to those places for supplies.

Here, Kolon pled a relevant geographic market: the U.S. Kolon pled plausible reasons for limiting the geographic market for the U.S. Kolon therefore cleared the hurdle of pleading a plausible relevant geographic market. Whether the proffered relevant geographic market definition will hold up upon a fact-intensive inquiry remains to be seen. But dismissing Kolon’s counterclaim on its face was error. This case is no Twombly.

Kolon’s plausible relevant geographic market was sufficient to withstand a Rule 12(b)(6) motion to dismiss, and the district court erred in holding otherwise.

Further, we agree with Kolon that the district court’s determination that Kolon failed to adequately plead anticompetitive conduct rested on information inappropriately considered on a motion to dismiss and on inferences in DuPont’s, instead of Kolon’s, favor. Because Kolon adequately pled all elements of its attempted monopolization claim, we have no basis on which to affirm the district court’s dismissal; therefore, it is reversed.

In sum, the district court erred both in holding that Tampa Electric required the Netherlands and Korea to be included in Kolon’s geographic market definition and in considering facts beyond the pleadings and construing them against Kolon to dismiss Kolon’s counterclaim.

Reversed.