Packaging Systems, Inc. v. PRC-Desoto International, Inc.
268 F. Supp. 3d 1071
C.D. Cal.2017Background
- PPG manufactures ~90% of U.S. QPL-certified aerospace sealants; resellers buy bulk sealant, repackage into disposable injection kits, and sell to end-users.
- Packaging Systems, Inc. (Plaintiff) repackages PPG sealant into pre-filled injection kits and competes with PPG in retail distribution; it alleges ~$10M annual revenue from these sales.
- In August 2016 PPG announced a policy forbidding third‑party repackaging and warned it would refuse sales to resellers who repackaged; PPG’s stated rationale was quality control.
- Plaintiff alleges the quality rationale is pretextual and that the policy was designed to eliminate competition in retail distribution by forcing buyers to purchase pre-filled kits only from PPG (or its ASCs).
- Plaintiff sued asserting monopolization and attempted monopolization (Sherman Act §2), tying (Sherman Act §1/Cartwright Act), secret unearned discounts (Cal. Bus. & Prof. Code §17045), intentional interference with prospective economic advantage, and unfair competition (Cal. UCL).
- The court granted in part and denied in part PPG’s motion to dismiss; allowed monopolization and attempted monopolization claims to proceed, dismissed tying and some other claims with leave to amend, and allowed certain state claims to proceed in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Monopolization / Attempted monopolization (§2) | PPG ended a long‑standing, profitable course of dealing by refusing to sell repackagable sealant to resellers to exclude competition in retail distribution. | No duty to deal; refusal to sell is generally lawful absent special circumstances; Plaintiff cannot force favorable dealing. | Denied dismissal: pleadings plausibly fit the limited Aspen Skiing exception — prior voluntary course of dealing ended, refusal to sell even at retail to rival, and PPG sells same product to others. Claims survive. |
| Tying (Sherman Act §1 / Cartwright Act) | PPG ties sealant (tying product) to end‑user packaging (injection kits) by making external repackaging effectively impossible, coercing buyers to purchase kits from PPG. | No distinct tied‑product market defined; sealant always requires packaging so products are not distinct; no showing of harm to competition in the tied product market. | Dismissed with leave to amend: tied product market not adequately defined and complaint fails to allege harm to competition in the injection kit market. |
| Secret unearthed discounts (Cal. Bus. & Prof. Code §17045) | PPG secretly gave larger discounts to select customers (examples in exhibits) harming Plaintiff by enabling competitors and luring Plaintiff’s customers. | Alleged discounts are not secret, or involve intra‑company transfers (wholly owned subsidiaries) so §17045 doesn't apply. | Survives in part: Plaintiff plausibly alleged secrecy and injury for some examples (e.g., invoice noting “special pricing”); one invoice reflecting transactions among affiliates dismissed without leave to amend; other challenges were waived or rejected. |
| Intentional interference with prospective economic advantage / UCL | PPG intentionally implemented the anti‑repackaging policy to disrupt Plaintiff’s customer relationships and monopolize retail distribution; this conduct is independently wrongful and harms Plaintiff. | Plaintiff fails to identify specific third‑party relationships or show intent to disrupt; conduct not independently wrongful absent other violations. | Dismissal in part with leave to amend: plaintiff must identify specific prospective customers; intent sufficiently pleaded; wrongful‑conduct element survives as related antitrust claims survived. UCL claim survives to the extent underlying antitrust claims remain. |
Key Cases Cited
- Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1975) (limited exception to no‑duty‑to‑deal where prior profitable course of dealing is terminated to exclude rivals)
- Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) (refusal‑to‑deal rule; Aspen Skiing is a narrow exception)
- Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997) (antitrust liability requires predatory or anticompetitive conduct beyond mere monopoly power)
- Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) (requirements for showing coercion/market power in tying claims)
- Cascade Health Sols. v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (definition of anticompetitive conduct and tying analysis)
- Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038 (9th Cir. 2008) (standards for pleading relevant product market)
- Diesel Elec. Sales & Serv., Inc. v. Marco Marine San Diego, Inc., 16 Cal.App.4th 202 (1993) (interpreting §17045 — secret unearned discounts tend to destroy competition)