Snow v. Align Technology, Inc.
3:21-cv-03269
N.D. Cal.Feb 16, 2022Background
- Align historically sold Invisalign exclusively through dentists; SmileDirectClub (SDC) launched a lower-cost direct-to-consumer model (online/SmileShops) for limited cases.
- Align sued SDC for patent infringement in 2015; the parties settled via a Supply Agreement (Align supplies aligners to SDC) and an Operating Agreement (Align bought 17% of SDC for $46.7M).
- The agreements contained mirror restrictive covenants: SDC agreed not to compete in the dentist-directed market; Align agreed not to sell directly to consumers.
- Plaintiffs are consumers who bought SDC aligners and allege the covenants unlawfully allocated markets and inflated prices (Sherman Act §1 claim on behalf of DTC purchasers), and that Align monopolized the dentist-directed market (state-law claims, including the Cartwright Act).
- District court treated the SDC-related Section 1 claim separately from the dentist-directed monopolization/state-law claims: it denied dismissal of the Section 1 claim concerning Align’s restraint on entering the direct-to-consumer market, but dismissed the Cartwright Act claim for failure to allege concerted action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Align–SDC covenant barring Align from DTC sales is an unlawful horizontal market-allocation (Sherman Act §1) | The covenant is a naked market-allocation among potential competitors; per se unlawful and inflated DTC prices | The restraint is vertical/ancillary to a procompetitive patent-license/cooperation; subject to rule of reason | Court: Agreement is between potential competitors (horizontal). Plaintiffs plausibly alleged Align’s self-restraint was not reasonably necessary to the cooperation → §1 claim survives (motion to dismiss denied) |
| Whether SDC’s covenant not to enter dentist-directed market is anticompetitive / supports monopolization/cartwright claims | That restraint helped solidify Align’s monopolization of the dentist-directed market | The restraint flowed from Align’s patent exclusion and was ancillary to the procompetitive settlement; not independently anticompetitive | Court: Restraint on SDC is ancillary and within the patent-driven cooperative purpose; plaintiffs failed to allege substantial anticompetitive effect → related state-law claim(s) fail |
| Timeliness of the §1 claim | Ongoing sales continued to injure purchasers; named DTC purchaser bought within limitations period | Defendant argued claims may be time-barred | Court: Each sale is a new overt act; named plaintiff’s June 2020 purchase fell within limitations → claim timely |
| Whether Cartwright Act claim pleads concerted action based on (a) Align–SDC agreement, (b) termination of interoperability (tying), and (c) DSO exclusives | The three practices together show concerted action to exclude rivals and coerce dentists | (a) SDC restraint is ancillary to patent settlement; (b) termination was unilateral and named plaintiff lacks standing; (c) DSO deals alone are insufficient | Court: Plaintiffs failed to allege concerted action. Cartwright Act claim dismissed with leave to amend |
Key Cases Cited
- State Oil Co. v. Khan, 522 U.S. 3 (1997) (Section 1 forbids unreasonable restraints rather than all restraints)
- Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) (distinction between concerted and unilateral action)
- Northern Pacific Ry. Co. v. United States, 356 U.S. 1 (1958) (per se rule for certain restraints)
- Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990) (market division among competitors is a horizontal restraint)
- Polk Bros., Inc. v. Forest City Enters., 776 F.2d 185 (7th Cir. 1985) (ancillary-restraint analysis: distinguish naked vs. ancillary restraints)
- Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., 9 F.4th 1102 (9th Cir. 2021) (ancillarity and the "reasonably necessary" test)
- FTC v. Actavis, 570 U.S. 136 (2013) (patent-settlement contexts can raise antitrust concerns, but distinct contours apply)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: allegations must plausibly state a claim)
- Simon & Simon, PC v. Align Tech., Inc., 533 F. Supp. 3d 904 (N.D. Cal. 2021) (related dentist plaintiffs' suit; addressed interoperability, Fusion program, and DSO contracts)