Case Information
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS WESTERN DIVISION
IN RE: DEERE & COMPANY REPAIR Case No. 3:22-cv-50188 SERVICE ANTITRUST LITIGATION MDL No. 3030
Honorable Iain D. Johnston MEMORANDUM OPINION AND ORDER
Table of Contents
INTRODUCTION .......................................................................................................... 3 ALLEGATIONS ............................................................................................................. 3 STANDARD ON A RULE 12(c) MOTION .................................................................... 8 ANALYSIS ..................................................................................................................... 9
Plaintiffs Possess Article III Standing Under the Allegations ............................... 10 Illinois Brick ’s Direct Purchaser Rule Doesn’t Bar Plaintiffs’ Antitrust Standing 13
Illinois Brick Is Inapplicable under the Complaint’s Allegations ....................... 16 If Illinois Brick Were Applicable, the Co-Conspirator Exception Would Apply . 23 Under These Allegations, Co-Conspirators Need Not Be Joined ........................ 26 Plaintiffs Plausibly Allege Relevant Markets ......................................................... 39
Plaintiffs Have Plausibly Alleged a Primary Market .......................................... 40 Plaintiffs Have Plausibly Alleged an Aftermarket .............................................. 43 Policy Change ........................................................................................................ 49 Lack of Knowledge Because of Unavailability of Information ............................ 53 The Importance of Market Power in the Primary Market ............................... 55 Case Law Has Not Eliminated Lack of Information as a Basis for Kodak -type Claims ................................................................................................................. 58 The Individual Counts are Plausibly Pleaded ......................................................... 61
Counts I – III ......................................................................................................... 64 Count I ................................................................................................................ 66 Count II .............................................................................................................. 78 Count III ............................................................................................................. 79 Counts IV – VII ..................................................................................................... 84 CONCLUSION ............................................................................................................. 89
INTRODUCTION
Less than an hour’s drive from the Stanley J. Roszkowski U.S. Courthouse down Illinois Route 2 between Oregon and Dixon, Illinois is the John Deere Historic Site. Free of charge, visitors can learn much about John Deere, the man. The takeaway from a visit to this historic site is that John Deere was an innovative farmer and blacksmith who— with his own hands —fundamentally changed the agricultural industry.
This multi-district litigation concerns allegations of non-competitive behavior by Deere & Co., a multi-billion-dollar international corporation. If—and that’s a big if—the claims against Deere & Co. are meritorious, then the Court assumes the man lionized at the historic site would be deeply disappointed in his namesake corporation.
The ultimate determination of the claims will likely be a long and expensive process, despite this Court’s goal of bringing this litigation to a just, speedy, and inexpensive resolution. This order is the first major step on that journey.
ALLEGATIONS [1]
Deere’s Tractors [2] have come a long way from their humble origins. See Dkt. 85, at 3. Today’s Tractors are “complex” amalgamations of computers, sensors, firmware, and, of course, machinery. Id. at 20-22. This technology is “intertwined” with the “basic operations” of the Tractors. Each Tractor has as many as 40 computer-like devices known as electronic control units (“ECUs”) onboard. Id. at 20. The ECUs “determine how—and if—the Tractor functions.” Id. The ECUs constantly monitor “numerous sensors” throughout the Tractor and communicate to one another via the “Controller Area Network” bus electrical system (“CAN bus”). Id. at 21-22. The Tractors also run “firmware,” or “software code,” which is “as vital a part of a Tractor as a steering wheel or an engine.” Id. at 20. The code is “effectively part of the machine.” Id.
Despite—or maybe because of—these marked technological advancements, Deere’s Tractors occasionally malfunction. See id. at 3-4. “A Tractor requires a substantial amount of maintenance and repair work over the course of its useful life.” Id. Historically, farmers could repair their own equipment or, if needed, bring the equipment to a local mechanic to perform the necessary repairs. Id. For Deere Tractors, however, these options are no longer available. Id.
According to Plaintiffs, a group of agricultural crop farms and farmers, Deere “deliberately designed its Tractors so that both the diagnosis and the completion of a repair frequently requires” software tools and resources (“Repair Tools”) that Deere keeps under tight lock. Id. at 22-23. Plaintiffs allege that Deere restricts access to the Repair Tools to preserve “supracompetitive monopoly profits.” See id. at 49. Repair parts and services are “far more profitable than sales of the original equipment.” at 55. The repair parts and services segments of Deere’s business have been “growing far faster than original equipment sales.” Id. So, Plaintiffs allege, if Deere and its affiliated dealerships (“Dealerships”) lose their control over Repair Tools, their profitability will suffer. See id. at 55-58.
Deere relies on its Dealerships to provide repair and maintenance services (“Repair Services”) for its Tractors. See id. at 4-5. Deere, itself, does not repair the Tractors. Dealerships are “independently-owned businesses that work in close collaboration with Deere.” Id. Despite their independent status, Deere “maintains significant and active oversight, support, and direction for the Dealerships’ operation.” Id. Critically, Deere provides the Dealerships and the Dealerships’ authorized technicians with the Repair Tools that are needed to perform “certain maintenance and repairs” of the Tractors. Id. at 4. Only Deere and Dealer- authorized technicians have access to the Repair Tools, and Deere withholds these resources from farmers and independent repair shops. Id. at 4, 52. Dealerships themselves have stated that they do not sell and are “not allowed to sell” the Repair Tools. Id. at 8. Deere, “in concert and agreement with its Dealerships, withholds repair software and other informational repair resources” from “any person or entity that is a competitor of Deere or a Dealership.” Id. at 5-6.
For example, troubleshooting malfunctions “frequently requires informational resources that Deere refuses to make available to farmers or independent mechanics.” Id. 24. One such resource is the Dealer Service ADVISOR computer program, which allows the Dealerships’ technicians to connect to the Tractor’s “electrical system to read the communications between the ECUs to determine where the problem is located and how it can be fixed.” at 21 (cleaned up). Dealer Service Advisor allows technicians to “view data related to past performance of the Tractor, clear error codes, communicate and pair newly-installed parts so that the Tractor recognizes them, and program ECUs.” Id. at 6. Even if a farmer can independently find and replace a faulty part, the farmer still needs a “Dealer to come out and use Dealer Service Advisor to authorize the part.” See id. at 22, 24-25.
Dealerships also have access to the Dealer Technical Assistance Center (“DTAC”), a “central service with informational resources controlled and operated by Deere,” that provides a “searchable troubleshooting database, with a library of information” that is “not otherwise available in any format to non-Dealers.” Id. at 6. If technicians need assistance while in the field, they can review the resources on DTAC and, if they are still unable to determine how to complete the repair, they can email or call DTAC for live assistance. Id. Deere has never provided access to Dealer Service Advisor or DTAC to anyone “but its authorized Dealerships.” Id. at 7.
Similarly, Dealerships have access to Product Improvement Programs (“PIPs”), which provide “instructions on how to troubleshoot and repair more complex problems that impact large numbers of Deere Tractors.” Id. at 6-7. Although some PIPs are public, Deere and its Dealerships also have “secret” PIPs that are “known only to Deere and the Dealerships.” Id. What’s more, “[e]ven when a PIP is ‘public’, the troubleshooting steps and repair information are not independently accessible.”
Deere does make its “Customer Service Advisor” program available to farmers and independent mechanics, but it is a “stripped-down” and “inferior” version of Dealer Service Advisor. See id. at 46-48. Customer Service Advisor cannot connect to DTAC, provides “ambiguously described ‘diagnostics and readings,’” and cannot be used to “replace a sensor and perform all necessary calibrations a Tractor requires.” Id. at 48. It also costs thousands of dollars per year to use. See id. at 47- 48.
So, when a Tractor malfunctions, the farmer is effectively left to the “mercy” of Deere and the Dealerships. See id. at 22-23, 29, 38. Farmers are “prevented from using trusted, less expensive, and more conveniently-located skilled mechanics who are not affiliated with Deere.” Id. at 30. Independent mechanics “cannot effectively work on modern equipment due to [the] lack of access to the Repair Tools.” Id. at 29.
To make matters worse, Repair Services are both untimely and expensive. See id. at 28-29, 37. Dealerships could be “far away” and are frequently “understaffed.” Id. Farmers “may have equipment sitting at the Dealership for months untouched by any technicians or may be waiting for days or weeks to have a technician travel to their farm.” at 37. [3] Farmers are also responsible for not only the cost of new parts and Repair Services, but also for the cost of the technician’s travel. Id. at 28-29. As of 2022, the cost of Repair Services was $150-$180 per hour. Id.
Although securing Repair Services is an untimely and expensive endeavor, farmers are still reluctant to leave Deere for a competitor. See id. at 30. A Tractor can cost nearly a million dollars, making it difficult for farmers to simply walk away from their sizeable investments. See id. What’s more, Deere’s “main competitors” similarly restrict access to their repair services, so farmers “cannot simply purchase new equipment from another manufacturer to avoid these issues.” Id. at 11. Not surprisingly, Deere’s equipment is not interchangeable with its competitors. at 18-19.
STANDARD ON A RULE 12(c) MOTION
Although some courts believe the answer is the most inconsequential pleading in a case, this Court begs to differ—at least to some extent. See The Hon. Amy St. Eve & Michael A. Zuckerman, The Forgotten Pleading , 7 Fed. Cts. L. Rev. 149 (2014). So, the Court cajoled Deere into filing an answer and a motion for judgment on the pleadings under Rule 12(c), rather than a Rule 12(b)(6) motion. Dkt. 78, at 8. Deere humored the Court and complied, which the Court appreciates.
A major difference between a Rule 12(b)(6) and Rule 12(c) motion is timing.
Federated Mut. Ins. Co. v. Coyle Mech. Supply Inc.
,
ANALYSIS
In its motion for judgment on the pleadings, [4] Deere argues that Plaintiffs lack Article III standing and antitrust standing. Deere also contends that Plaintiffs fail to plausibly allege relevant markets and that every single count in the Complaint is defective. Of course, Plaintiffs disagree. As discussed in the following 80 pages, the Court finds that Plaintiffs possess Article III standing, that Illinois Brick ’s direct-purchaser rule doesn’t bar Plaintiffs’ claims, and that Plaintiffs have plausibly alleged the relevant markets. As to the Complaint’s individual counts, the Court finds that they all survive the motion.
Plaintiffs Possess Article III Standing Under the Allegations
From the jump, Deere asserts that Plaintiffs lack Article III standing to sue
under the allegations of the Complaint. Raising Constitutional standing early
makes sense and is best practices, which the Court appreciates. Not only are federal
courts duty bound to address Article III standing at the outset of any case (and
anytime thereafter),
Steel Co. v. Citizens for a Better Env’t
,
Three requirements for Article III standing exist: first, the plaintiff must
have an injury in fact—an invasion of a legally protected interest that is (a) concrete
and particularized and (b) actual or imminent, not conjectural or hypothetical;
second, there must be a causal connection between the injury and the conduct
and extremely helpful. All counsel were outstanding advocates for their clients. The Court
commends them for their presentations and responses to the Court’s admittedly sometimes
oddball questions. Additionally, all the filings relating to the motion were excellent.
[5]
Technically, Deere has made a facial—not factual—challenge to jurisdiction. Regardless of
the rule that is applied to a
facial
challenge, the Seventh Circuit has held that the standard
in
Twombly-Iqbal
applies.
Silha v. ACT, Inc.
,
Deere focuses on the “traceability” requirement. Dkt. 105, at 5. [6] For Article III standing purposes, Deere argues that Plaintiffs have failed to explicitly allege that they “purchased Repair Services from a Deere dealership involved in the alleged conspiracy.” Id.
But for each named Plaintiff, the Complaint alleges that it “owns at least one Deere Tractor with an ECU and purchased Deere Repair Services from at least one Deere-affiliated Dealership during the Class Period.” Dkt. 85, at 13-16. Plaintiffs also allege that the co-conspirators include all the Dealerships. Dkt. 85, at 16. [7] Deere argues that these allegations are insufficient to meet the pleading requirements for showing Article III standing. The Court disagrees.
Indubitably, the party asserting jurisdiction has the burden to establish
jurisdiction.
Lujan
,
Plaintiffs’ allegations overcome this pleading hurdle by alleging that (1) they own a Tractor and purchased Deere Repair Services from a Dealership and (2) the co-conspirators “include independently-owned Dealerships with agreements with Deere giving them the right to sell new Deere Tractors, parts, and Deere Repair Services,” Dkt. 85, at 16, and (3) all the Dealerships are co-conspirators.
Deere’s Article III standing argument relies on
Marion Diagnostic Ctr., LLC
v. Becton Dickinson & Co.
,
In this motion, the Court must construe the allegations in the light most
favorable to the nonmovant—not the movant.
Silha v. ACT, Inc.
,
Construing the allegations in the light most favorable to Plaintiffs and drawing all reasonable [8] inferences in Plaintiffs’ favor, the Court finds that Plaintiffs have adequately pleaded standing to meet Article III requirements.
Illinois Brick ’s Direct Purchaser Rule Doesn’t Bar Plaintiffs’ Antitrust Standing
Deere argues that the Complaint fails under the general rubric of “antitrust standing.” [9] Under this category, Deere raises three interrelated but distinct issues. Deere argues that the Complaint’s allegations “run headlong into antitrust’s direct purchaser rule.” Dkt. 105, at 6. From there, Deere branches into two separate sub- arguments. First, according to Deere, the Complaint fails to plausibly plead a conspiracy based on the direct purchaser rule under Illinois Brick . Dkt. 105, at 7-11. Second, in the alternative, even if the direct purchaser rule doesn’t bar the claim and the Complaint plausibly pleaded a proper conspiracy (whether vertical or hub- and-spoke), the Complaint fails because Plaintiffs failed to join the co-conspirator Dealerships as party defendants. Dkt. 105, at 11-14. The Court disagrees with Deere on both fronts. The Court has no trouble rejecting the first argument for two related reasons: first, Illinois Brick ’s direct purchaser rule does not apply under the circumstances alleged here, in which there is no pass on and Plaintiffs are the type of party best suited to bring the claims; and second, Illinois Brick ’s direct purchaser rule does not apply when, as here, the plaintiffs are the first purchasers into the conspiracy when they purchased from co-conspirators. But, assuming the direct- purchaser rule of Illinois Brick applied, Deere’s contention that co-conspirators— the Dealerships—must be joined as defendants is booth review close.
As to Deere’s contention that Plaintiffs have failed to plausibly plead a conspiracy, there are (1) explicit allegations, (2) a lack of other allegations, and (3) 469, 480 (7th Cir. 2002); see also Insulate SB, Inc. v. Advanced Finishing Sys., Inc. , 797 F.3d 538, 542 (8th Cir. 2015). The Court understands why Deere used this moniker. Although the Court wishes it had more time to delve into the nuance (a word the Court is not comfortable with), it will simply tackle Deere’s arguments as labeled.
reasonable inferences the Court can and should draw. [10] First, the Complaint specifically alleges that Plaintiffs purchased Repair Services from the Dealerships. Second, the Complaint fails to allege that there are any agreements between the various Dealerships, that Plaintiffs purchased Repair Services from Deere, or that Deere even provides Repair Services. Third, the reasonable inference is that Deere is running the show. Indeed, that is the only reasonable way to read the 73-page Complaint. See also Dkt. 113, at 21 n.23. From these, Deere goes on to argue Plaintiffs’ hub-and-spoke conspiracy fails because no agreement is alleged between the Dealerships (the rim)—after all, Deere is running the show through independent vertical agreements—and because Plaintiffs purchased the Repair Services from the Dealerships—not Deere—Plaintiffs are not direct purchasers, resulting in a fatally flawed antitrust damages claim. Dkt. 105, at 7-11.
To some extent, Plaintiffs’ response to these arguments is “Ah yeah, so
what?” Instead, Plaintiffs address an underlying principle of the direct purchaser
rule. Dkt. 113, at 9-11. Plaintiffs respond on two fronts. First,
Illinois Brick
is not
applicable. Second, even if it were, their claims fall into “an exception.” In a mashup
of these two arguments, according to Plaintiffs, the “direct purchaser rule” does not
require privity with Deere because Plaintiffs alleged that they purchased from the
Dealerships, which are in a conspiracy with Deere, so they purchased Repair
Services directly from a conspirator, not an entity simply passing on.
See Paper Sys.
v. Nippon Paper Co.
,
Although, from Plaintiffs’ point of view, both of their arguments may lead to Rome, the distinction is important. If Illinois Brick does not apply, the thorny questions concerning its “exceptions” are moot—or at least much less important. The inverse is also true. If Illinois Brick is applicable, then the Court must determine if Plaintiffs’ claims fall under an “exception.”
Illinois Brick Is Inapplicable under the Complaint’s Allegations Both the paradigmatic strictures and the rationale behind Illinois Brick show that it is not applicable to this case.
“The facts of
Illinois Brick
illustrate the rule.”
Apple Inc. v. Pepper
, 139 S. Ct.
1514, 1521 (2019). Illinois Brick Company manufactured concrete blocks and sold
the blocks to masonry contractors.
Ill. Brick Co. v. Illinois
,
The State sued Illinois Brick Co., alleging that it had engaged in a conspiracy
to fix the price of its concrete blocks.
Id.
at 726-27. As a result, according to the
State, it had paid more than it would have absent the conspiracy. “The monopoly
overcharge allegedly flowed all the way down the distribution chain to the ultimate
consumer”—the State.
Apple Inc.
,
But the Supreme Court put the State’s claim on ice.
See Illinois Brick Co.
,
The limitations espoused in
Illinois Brick
address three concerns
. See Apple
Inc.
,
Without the chain of distribution paradigm where some charge is being
passed on from a direct purchaser to an indirect purchaser, the rationales
underpinning
Illinois Brick
—especially the concern over duplicative recoveries—
lose their bite.
See, e.g., McCready
,
Evidently, these facts are a far cry from the paradigm presented in
Illinois
Brick
, where there was a manufacturer, multiple middlemen, and an ultimate
consumer.
See Illinois Brick Co.
,
Twenty years after
McCready
, the Seventh Circuit considered how
Illinois
Brick
applied to an alleged conspiracy to fix copper futures at “artificially high
levels in the international exchange markets.”
Loeb Indus. Inc. v. Sumitomo Corp.
The reason the plaintiffs' suit in Illinois Brick failed was not because the defendants did not sell to them. Rather, it was because the defendants did sell to a third party who . . . could recover for any injury they claimed. The same paradigm applies in all of the cases cited by the defendants: Party A, the antitrust violator, sells to Party B, and then Party C, a down-stream purchaser from B, seeks to recover the implicit overcharges that B passed on to C.
Id. at 482. The defendants “did not sell cathode to integrated producers who in turn sold to any of the plaintiffs.” Rather, “the alleged conspiracy operated in the separate but related futures market, through which it sought directly to manipulate the price of copper the plaintiffs were buying.” Id. That’s a long way around the barn of saying that this type of paradigm—one where there is no pass on—is less likely to raise Illinois Brick concerns. See id.
Take, for example,
In re Disposable Contact Lens Antitrust
,
And that’s exactly what we have here. Under the Complaint’s allegations, Deere is not passing on price increases—or anything really—downstream. Deere itself does not provide Repair Services. Dkt. 85, at 5. Those are only provided by the Dealerships. Id. [11] Rather, as Plaintiffs’ counsel explained during oral argument, Deere and its Dealerships created an “ecosystem” that raised the price for Repair Services. Dkt. 144, at 36; see Dkt. 85, at 11, 30, 56-57, 60-61. The Dealerships then implement the inflated price for Repair Services in the “first instance.” Dkt. 144, at 36; see Dkt. 85, at 5, 23. Thus, the “overcharge,” or, the inflated price of Repair Services, starts with the Dealerships and ends with Plaintiffs. In short, a “direct purchase” was made.
Paradigmatically, this case is distinguishable from
Illinois Brick
in that there
is no middleman.
See Illinois Brick Co.
,
Similarly, the plaintiffs in
Loeb
were not “indirect purchasers along a supply
chain.”
So, Plaintiffs are in a wholly different position than those that are barred by
Illinois Brick
.
See Loeb
,
If Illinois Brick Were Applicable, the Co-Conspirator Exception Would Apply
The Court could stop the analysis here. But the Court will consider an “exception” to Illinois Brick for two reasons. First, a higher court may disagree with the previous analysis, which has been known to happen. Second, the parties have rightfully devoted substantial energy to addressing this Illinois Brick exception.
If, however, the facts of this case were considered to fall under the
Illinois
Brick
paradigm, Plaintiffs contend that because they purchased from Dealerships—
all of which are allegedly conspiring with Deere—
Illinois Brick
doesn’t apply. Some
courts refer to this concept as the “conspiracy exception.”
Marion II
, 29 F.4th at
342.
[12]
Plaintiffs’ argument rests on solid footing. Multiple cases, including several
Seventh Circuit cases, recognize this “exception.”
Id
. at 342 n.5 (citing
Insulate SB,
Inc. v. Advanced Finishing Sys., Inc.
,
In reply, Deere takes issue with this well-recognized principle, going so far as
to question the validity of the Seventh Circuit’s decision in
Loeb Indus. v. Sumitomo
Corp.
, holding that privity is not required. Dkt. 123, at 5 (arguing that “what
matters is who paid whom”), 6-7 (“Of course, to the extent
Loeb
is inconsistent with
Apple
, the former must give way.”).
[14]
In doing so, Deere relies on
Apple
. But the
cases don’t conflict, as previously shown. Indeed, if the Supreme Court’s decision in
Apple
up-ended the “conspiracy exception,” then post-
Apple
cases such as
Marion I
and
Marion II
—cases Deere relies upon, Dkt. 123; Dkt. 105, at 4-6—got it all wrong.
Instead, the conspiracy exception cases and
Apple
can be easily reconciled without
this Court questioning the validity of
Loeb
and the host of other Seventh Circuit
cases. First, in
Apple
, the plaintiff was admittedly a direct purchaser from Apple.
Apple Inc.
,
Because Plaintiffs have adequately alleged a conspiracy by alleging that the Dealerships conspired with Deere and that Plaintiffs could only purchase Repair Services from the Dealerships, the “direct purchaser rule” does not bar Plaintiffs’ damage claims.
Under These Allegations, Co-Conspirators Need Not Be Joined As a fallback, Deere argues that if the conspiracy exception applies, then Plaintiffs must name and join the Dealerships as defendants. Deere’s argument has much merit, particularly outside of the Seventh Circuit. As discussed in detail, the critical issue is whether the Seventh Circuit “requires” co-conspirators to be named and joined as defendants.
As Deere correctly notes, the Complaint fails to name and join the alleged co-
conspirators—the Dealerships—as defendants. And multiple cases require that
when a plaintiff invokes the “conspiracy exception” to
Illinois Brick
, the plaintiff
must name and join as defendants the alleged co-conspirators.
See, e.g.
,
Howard
Hess Dental Lab’ys Inc. v. Dentsply Int’l.
,
Plaintiffs rely on
Fontana Aviation
to argue that they need
not
name and join
the Dealerships as defendants. The Department of Justice agrees with Plaintiffs on
this point.
Fontana Aviation
was the Seventh Circuit’s early entry into the
conspiracy exception to
Illinois Brick
. Critically, in
Fontana Aviation
, the co-
conspirators were
not
joined as defendants.
Fontana Aviation
,
This phenomenon occasionally happens and it can be vexing to attorneys and
courts alike. Fortunately, the Supreme Court has given direction under these
circumstances. Specifically, in
United States v. L.A. Tucker Truck Lines, Inc.
, 344
U.S. 33, 38 (1952), the Supreme Court held that if an issue is not raised in the briefs
or arguments nor discussed in a court’s opinion, the result of a decision—as opposed
to the holding—is not binding precedent. So, an issue that is not questioned and
passes
sub silentio
is not binding.
Id
. The Seventh Circuit consistently follows this
rule.
See, e.g
,
Hughes v. United Air Lines, Inc.
,
Deere relies on In re Brand Name Prescription Drugs Antitrust Litigation . In this Court’s view, however, that Seventh Circuit decision does not require co- conspirators to be named and joined as defendants. To reach this conclusion, a fulsome analysis of In re Brand Name Prescription Drugs Antitrust Litigation is required.
In that multidistrict litigation, Judge Charles Kocoras thoroughly wrestled with the issue of whether co-conspirators must be named and joined as defendants so as to avoid the direct purchaser rule of Illinois Brick . In that litigation, two sets of pharmacy plaintiffs and two sets of defendants existed: the class plaintiffs, the individual plaintiffs, the wholesaler defendants, and the manufacturer defendants. The class plaintiffs named and joined the wholesalers as defendants as well as the manufacturers. But the individual plaintiffs initially did not name the wholesalers as defendants; instead, the individual plaintiffs only named the manufacturers as defendants.
In
In re Brand Name Prescription Drugs
, Judge Kocoras initially tackled the
issue of the conspiracy exception. Because he lacked a time machine, when he ruled,
Judge Kocoras did not have the benefit of the cornucopia of Seventh Circuit
authority on the topic.
See, e.g.
,
Marion II
,
Judge Kocoras’ journey began on October 24, 1994, when he first determined
(correctly, as we now know) that the Seventh Circuit recognized the conspiracy
exception.
In re Brand Name Prescription Drugs Antitrust Litig.
,
The court recognizes that at least two circuits have expressly rejected the vertical conspiracy theory. . . In each of these cases, the plaintiffs’ allegations of vertical conspiracy succumbed to Illinois Brick because the plaintiffs had failed to join all of the intermediate co-conspirators, thereby increasing the risk of multiple liability. We refrain, however, from granting the Manufacturer Defendants’ motion on these grounds. In the present case, the plaintiffs have named a large percentage of all possible Wholesaler Defendants. In light of that, we do not believe the plaintiffs should be so severely penalized for the failure to join every single Wholesaler Defendant. We conclude that Illinois Brick does not apply to the situation as alleged by the plaintiffs. As such, the Manufacturer Defendants’ motion is denied. at 1346 (internal citations omitted).
But, like a stray cat that has been fed, the issue repeatedly returned. In re Brand Name Prescription Drugs Antitrust Litig. , No. 94 C 897, 1998 U.S. Dist. LEXIS 18133, at *14 (N.D. Ill. Nov. 17, 1998).
Only a few months later, on January 1, 1995, again relying on Fontana Aviation , Judge Kocoras reaffirmed that the conspiracy exception existed in the Seventh Circuit and denied the manufacturer defendants’ motion to certify an interlocutory appeal. In re Brand Name Prescription Drugs Antitrust Litig. , 878 F. Supp. 1078, 1082 (N.D. Ill. 1995).
Nevertheless, by August 15, 1997, the Seventh Circuit issued a decision on
the appeal from rulings on dispositive motions as well as a certified question.
In re
Brand Name Prescription Drugs Antitrust Litig.
,
The indirect-purchaser issue . . . is separate from the issue of the wholesalers’ participation in the manufacturers’ alleged conspiracy. It is true that if we reversed the judge’s ruling on the latter issue and so reinstated the wholesalers as defendants, and if the plaintiff went on to obtain a judgment against the wholesalers and manufacturers, any indirect-purchaser defense would go by the board, since the pharmacies would then be direct purchasers from the conspirators. Fontana Aviation, Inc. v. Cessna Aircraft Co. ,617 F.2d 478 , 481 (7th Cir. 1980); Arizona v. Shamrock Foods Co. ,729 F.2d 1208 , 1212-13 (9th Cir. 1984); see also In re Beef Industry Antitrust Litigation , 600 F.2d 1148, 1163 (5th Cir. 1979) (requiring that the direct sellers, here the wholesalers, be joined as defendants—but that requirement is satisfied). But even if we do reinstate the wholesalers as defendants . . . the plaintiffs may fail at trial to establish their liability, in which event the indirect-purchaser issue will be decisive.
In re Brand Name Prescription Drugs Antitrust Litig.
,
What this paragraph means is subject to reasonable debate. The lack of
clarity has troubled more than one district judge in the Seventh Circuit.
See, e.g.
,
Paper Sys. Inc. v. Mitsubishi Corp.
, Nos. 96-C-959, 97-C-412, 97-C-508, 2000 U.S.
Dist. LEXIS 4535, at *13 (E.D. Wis. Mar. 30, 2000),
rev’d
This passage is confusing for several reasons, including but not limited to, these. First, it is important to remember the context of the ruling. Remember that at this point in the litigation the class plaintiffs had named the wholesalers as defendants (but the individual plaintiffs had not). So, the Seventh Circuit was analyzing the issues based on those facts. Second, because of the context, it is important to note what the Seventh Circuit did not state. The Seventh Circuit never stated that if it were to affirm Judge Kocoras, without the wholesalers, the class plaintiffs could not prevail against the manufacturers. Third, this discussion focuses on “direct purchases from the conspirators ”—not “from the defendants.” Fourth, the citation to In re Beef Industry Antitrust Litigation —signaled with a “see also” followed with a parenthetical that raises more questions than provides answers, including whether “here” meant In re Beef or In re Brand Name Prescription Drug Antitrust Litigation —is very odd. Critically, the holding of In re Beef is inconsistent with the result of Fontana Aviation . And if the Seventh Circuit intended to hold contrary to the result in Fontana Aviation , one would expect the Seventh Circuit to explicitly say so, particularly when Fontana Aviation was the first case cited. [16]
On remand, whether
all
of the co-conspirators must be named and joined as
defendants arose yet again. Because of the Seventh Circuit’s decision, the individual
plaintiffs sought to amend their complaint to now add the wholesalers as
defendants in their case. Obviously, they felt as though they were now required to
do so. Once again, relying on
Fontana Aviation
, Judge Kocoras reaffirmed that the
conspiracy exception existed in the Seventh Circuit.
In re Brand Name Prescription
Drugs Antitrust Litig.
,
The recent decision by Seventh Circuit in this case, however, has cast new light on the importance of formally naming the Wholesalers as defendants in Plaintiffs’ Sherman Act claims. First, the Seventh Circuit explicitly rejected the notion that Illinois Brick is inapplicable to the conspiracy alleged in this case; overruling our analysis on this issue, the Court expressly held that the Plaintiffs’ indirect purchaser claims against the Manufacturer Defendants were “just the kind of complaint that Illinois Brick bars.” In re Brand Name Prescription Drugs Antitrust Litigation ,123 F.3d 599 , 606 (7th Cir. 1997). Furthermore, the Seventh Circuit also cited with approval case law from other jurisdictions which required that alleged vertical co-conspirators be named as defendants in order to avoid an Illinois Brick bar to recovery. Id. at 605. Thus, it would seem that the Seventh Circuit now adheres to the legal position that, to qualify for the co-conspirator exception to Illinois Brick , intermediaries in an alleged vertical conspiracy must be formally joined as defendants and not merely named as co-conspirators.
In re Brand Name Prescription Drugs Antitrust Litig.
,
As noted, this uncertainty caused the individual plaintiffs to seek to amend the complaint to name and join all the wholesalers as defendants in their case. Id . at 418-19. After stating that he previously found that there was no requirement to name and join co-conspirators as defendants, Judge Kocoras indicated that the Seventh Circuit’s decision “seriously undermine[d]” his previous interpretation. Id. at 420. In particular, Judge Kocoras noted the Seventh Circuit’s citation to In re Beef and the parenthetical that co-conspirators must be named and joined “cast[] serious doubt” on his previous decision. So, after addressing Rule 15 and the Foman factors, Judge Kocoras granted the individual plaintiffs’ motion to amend the complaint to add the wholesalers as defendants in the individual plaintiffs’ case. Id . at 424.
Less than a year later, on August 6, 1998, Judge Kocoras again addressed the
issue—apparently this time with a cheerier outlook and a fresh set of eyes.
In re
Brand Name Prescription Drugs Antitrust Litig.
,
[T]his Court believes that the Seventh Circuit has endorsed, and continues to recognize, a co-conspirator exception to Illinois Brick . The effect of this ruling is to allow the indirect purchaser claims against the Manufacturer Defendants to go forward, without regard to whether a specific purchase was made from a Wholesaler who is a defendant or not. Nothing the Court of Appeals has said would indicate that this position is in error . . . .
Id. at *50-51.
Only three months later, on November 17, 1998, Judge Kocoras addressed
the manufacturer defendants’ motion to certify the issue for interlocutory appeal.
The proposed question was “must the plaintiffs join the Wholesalers as defendants
and obtain judgments against them to avoid the bar of
Illinois Brick
.”
In re Brand
Name Prescription Drugs Antitrust Litig.
,
Unfortunately for this Court, the Seventh Circuit refused to certify the
question.
See Paper Sys. Inc.
,
“Having reached the end of what seems like a long front walk,”
Steel Co.
, 523
U.S. at 102, where does this lengthy discussion leave this Court? On one side of the
ledger are several circuit courts requiring that co-conspirators be named and joined
as defendants.
See In re New Motor Vehicles Canadian Exp. Antitrust Litig.
, 307 F.
Supp. 2d at 141 (collecting cases). On the other side of the ledger is (1) a likely
overruled out-of-circuit district court opinion holding that co-conspirators need not
be joined,
Reiter
,
The Court believes it is writing on a clean slate. It is not bound by any controlling authority under these circumstances. So, to the extent the Court needs to determine this issue, it will.
Under the allegations of the Complaint, the Court finds that the Dealerships need not be joined as defendants. The Court recognizes that Deere has correctly cited numerous circuit court cases requiring that co-conspirators be joined as defendants. [18] But all of those cases involved claims in which a charge was being passed on. [19] Unsurprisingly, in cases where no pass on is alleged and Illinois Brick is inapplicable, the concerns of Illinois Brick are dramatically less compelling—if they exist at all.
None of the three rationales of
Illinois Brick
apply under the allegations and
claims in the Complaint. First, there’s no risk of double recovery.
McCready
, 457
U.S. at 474-75. Any injury—to the extent there is any—to Dealerships would be
separate and distinct from the injury to Plaintiffs. Second, the Dealerships’ absence
as parties does not complicate damage calculations.
Illinois Brick
,
* * *
The Court finds that Plaintiffs possess Article III standing and antitrust standing. Plaintiffs have sufficiently pleaded a traceable injury to Deere. And Illinois Brick ’s direct-purchaser rule is no bar to Plaintiffs’ antitrust standing.
Plaintiffs Plausibly Allege Relevant Markets Deere argues that Plaintiffs’ Complaint fails to plausibly plead both a relevant primary market and a relevant aftermarket. Dkt. 105, at 16-21. Deere’s main argument focuses on the aftermarket. This is also the focus of the Statement of Interest of the United States. Dkt. 120. Like the parties, the Court will focus on the aftermarket but also addresses the primary market. [20]
Initially, it is important to note that resolution of Deere’s motion is difficult
because—as both sides recognize—claims based on single brand aftermarket repair
restrictions are rare.
See Authenticom, Inc. v. CDK Global, LLC
, 313 F. Supp. 3d
931, 961 (N.D. Ill. 2018) (
citing PSKS, Inc. v. Leegin Creative Leather Prods., Inc.
,
Plaintiffs Have Plausibly Alleged a Primary Market In the Court’s view, the parties talk past each other on the “primary market” issue. Deere argues that there must be an adequately defined primary market for there to be an aftermarket. Dkt. 105, at 16. Plaintiffs don’t squarely address this issue. In fact, finding Plaintiffs’ response was a challenge. Plaintiffs seem to contend that this Court need only consider the primary market in relation (a) to their tying claim, and (b) to establish “the viability of the derivative single-brand aftermarket for Deere Repair Services.” Dkt. 113, at 36.
At this juncture, the Court will focus on the primary market in the context of Plaintiffs’ aftermarket claim. The Court will address the primary market in the context of the tying claim later in this opinion.
Plaintiffs’ Complaint alleges that the primary market is the Tractor Market. The Complaint defines the Tractor Market as the product market for agricultural equipment in the United States. Dkt. 113, at 36. This definition is broad, indeed.
Understandably, Deere argues that Plaintiffs’ reliance on the Tractor Market
is too broad and indefinite. Deere raises the valid concern that the Complaint’s
description of “Tractors” includes all manner of agricultural machinery. But Deere
has not cited to a case holding that a primary market must be properly defined
when a claim is based on a single-brand aftermarket. For example, Deere relies on
Sharif Pharmacy
. But, as explained previously, that case is not a single-brand
aftermarket case. Indeed, Deere does not reply to Plaintiffs’ point that “[n]one of the
cases cited by Deere discusses the adequacy of a primary market’s definition in the
context of an antitrust claim alleging competitive harm in a relevant single-brand
aftermarket.” Dkt. 113, at 37. (And remember that Deere bears the burden of proof
on its motion.
Marcure
,
In a case cited by Plaintiffs but not addressed in Deere’s reply, the Seventh
Circuit stated, “if plaintiff can show the rough contours of a relevant market, and
show that the defendant commands a substantial share of the market, then direct
evidence of anticompetitive effects can establish the defendant’s market power—in
lieu of the usual showing of a precisely defined relevant market and a monopoly
market share.”
Republic Tobacco Co. v. N. Atl. Trading Co.
,
Applying this standard, to the extent a primary market needs to be plausibly
pleaded for a single-brand aftermarket claim, the Complaint adequately and
plausibly does so. Just as the rough contours of the primary equipment market were
provided in
Kodak
, the Complaint provides the rough contours of the Tractor
Market, which, according to the Complaint, is consistent with the agricultural
industry’s and Deere’s own definitions. The Complaint also shows that Deere
commands a substantial share of the Tractor Market. Dkt. 85, at 18-19. According
to the Complaint, “Deere is indisputably the biggest player in the market for
Tractors in the United States. Deere wields significant economic power in the
market for Tractors in North America . . . and . . . has a larger market share than
that of its next two largest competitors, Case New Holland and Kubota Corp.,
combined.”
Id.
at 19. In contrast, in
Kodak
, Kodak lacked market power in the
primary equipment market; after all, that was the premise of the question
presented to the Supreme Court.
Kodak
,
Plaintiffs Have Plausibly Alleged an Aftermarket
Because Plaintiffs’ case is based on a single brand aftermarket repair claim,
the Court must start its analysis with
Eastman Kodak Co. v. Image Tech. Servs.
,
Factually, the allegations in
Kodak
are similar and helpful to the analysis in
this case. In that case, Kodak sold photocopiers as well as service and replacement
parts for its equipment.
Kodak
,
Legally, the issue presented to the Supreme Court was “whether a
defendant’s
lack of market power
in the primary equipment market precludes—as a
matter of law—the possibility of market power in derivative aftermarkets.”
Id.
at
454 (emphasis added). In the process of deciding that issue, Kodak pitched the idea
that as a matter of law “competition in the equipment market necessarily
prevent[ed] market power in the aftermarkets.”
Id.
at 470. Kodak had no evidence
to support this proposition. at 466. Instead, Kodak relied upon a presumption
derived from its economic theory that competition in the primary market
“preclude[d] any finding of monopoly power in derivative markets.”
Id.
[22]
Despite
being “intuitively appealing”—even to this Court—the Supreme Court wasn’t
buying the argument, stating, “Legal presumptions that rest on formalistic
distinctions rather than actual market realities are generally disfavored in
antitrust law.”
Kodak
,
In rejecting Kodak’s argument, importantly for purposes of this case, the Supreme Court focused on three points. First, the Supreme Court found that many customers had been “locked in” to their purchases of the large and expensive copiers before Kodak changed its policy, allowing it to dominate the parts and service aftermarkets. at 475. Next, the Supreme Court also found that the relevant antitrust market was determined by the choices that were available to Kodak customers, and because Kodak’s parts were not interchangeable with other manufacturers’, it determined that the relevant market was composed of only those companies that serviced Kodak machines. Id. at 482. Finally, the Supreme Court highlighted that the customers could not calculate the machines’ life-cycle costs because of a lack of information. Id. at 473-74. As a result, the customers had unknowingly and involuntarily signed on to Kodak’s aftermarket power. at 473- 75.
So, at first blush, Plaintiffs’ claim fits neatly within the
Kodak
framework. As
in
Kodak
, Plaintiffs purchased large, expensive pieces of equipment. During the
purchasing process, Plaintiffs lacked knowledge as to the life-cycle cost of the
Tractors not only because information was difficult to obtain but also because Deere
inconsistently represented the availability of self- and independent repairs. As
farmers, Plaintiffs often repair their own equipment themselves or use
“independent repair shops,” both of which are allegedly cheaper, quicker, and better
than repairs performed by the Dealerships.
[25]
But, like Kodak, Deere restricts
repairs to only authorized Dealerships. And, not surprisingly, Deere’s Tractors and
Repair Tools are not interchangeable with its competitors’ tractors and repair tools.
But the Supreme Court’s decision in
Kodak
is not the last word on these
types of claims. “The Seventh Circuit has since elucidated
Eastman Kodak
’s
holding.”
Authenticom
,
The Ninth Circuit aptly summarized the post-
Eastman Kodak
world
this way: ‘[T]he law permits an antitrust claimant to restrict the
relevant market to a single brand of the product at issue (as in
Eastman
Kodak
),’ but ‘the law prohibits an antitrust claimant from resting on
market
power
that arises solely from contractual rights that consumers
knowingly and voluntarily
gave to the defendant.’
Authenticom
,
This Court’s takeaway is that the focus in aftermarket repair cases should be on two interrelated circumstances. The first involves a change in policy after the consumer has made a significant expenditure in the product. But that doesn’t mean a lack of knowledge and availability of information regarding repairs after the consumer has made a significant expenditure in the product is irrelevant. Indeed, this is the second circumstance that a court should consider. See Authenticom , 313 F. Supp. 3d at 964 (denying motion to dismiss). The first is similar to a bait-and- switch; whereas, the second involves the inability of the customer to determine “all in cost” or “life-cycle cost” for the product. This focus makes sense because as the Supreme Court noted in Kodak , “The relevant market for antitrust purposes is determined by the choices available to Kodak equipment owners.” Kodak , 504 U.S. at 481-82 (emphasis added). Because the Kodak equipment was not interchangeable with its competitors—just as Deere’s equipment is not interchangeable with its competitors, Dkt. 85, at 18-19—a change in policy or lack of knowledge as to repairs limits Plaintiffs’ choices. The Court addresses these two circumstances in the context of this case in order.
Policy Change As to the change in policy, the Court believes the parties, the United States, and it agree on the fundamental legal principle. Deere contends that a claim for a single brand aftermarket requires that the consumer be “locked-in” in one of two ways. One of the ways that Deere properly concedes is when a company “changes its post-sale policies on the back-end.” Dkt. 105, at 15; Dkt. 123, at 18. This characterization is fair and tracks the Court’s analysis of the case law. Instead, the issue is whether Plaintiffs’ Complaint plausibly alleges facts sufficient to meet this requirement.
Plaintiffs’ Complaint contains almost eight pages of allegations related to the relevant aftermarket, setting forth Deere’s alleged history of making various representations that purchasers could repair their own Tractors but in reality thwarting the purchasers’ efforts. Dkt. 85, at 38-46. According to the Complaint, for years, Deere insisted that Repair Tools and information needed to perform repairs were readily available, “despite all evidence to the contrary, while emphatically paying lip service to farmers’ right to repair their own equipment.” at 42. The allegations are supported by purported examples of this behavior. Here are a few. In an effort to stave off “right to repair” legislation, Deere—through a trade association and lobbying group—“committed to make comprehensive repair tools, Software, and diagnostics available to the public by January 1, 2021.” Id. at 40 (emphasis in original). These representations came in the form of a “Statement of Principles,” web sites, and press releases. After those representations, however, “farmers were struggling to get what was promised.” Id. at 41. Indeed, the inability to obtain Repair Tools was evidenced by journalists who attempted to obtain the promised software but were informed that it was not available. After a representation “that comprehensive repair and diagnostic equipment was available,” when questioned where and how these were available, no response was provided. Id. at 44. And allegedly even when farmers could make their own repairs to Tractors, they still needed diagnostic equipment to complete the process, but the equipment was unavailable. A telling example of this included a farmer who was able to replace exhaust filters and particulate traps for his Tractor after the code was thrown, only to still need the “Dealer-level software” to clear the code for the Tractor to operate. Id. So, Deere’s representations that it “supports a customer’s right to safely maintain, diagnose and repair their own equipment” were not true in the field. Compare id. at 45, with id. at 46 (describing the need for a dealer to come to the farm with a laptop to “push[] some buttons on the console” to get the machine operating).
The Complaint also contains four pages of allegations that, to the extent Deere has made Repair Tools available, those particular Repair Tools are ineffective and insufficient to allow purchasers to either repair their own Tractors or have “independent repair shops” fix the Tractors. at 46-50. For example, the Customer Service ADVISOR—an allegedly inferior diagnostic product—was allegedly available. But, when farmers attempted to obtain the Customer Service ADVISOR, they were told it didn’t exist and were rebuffed or told that farmers were not allowed to possess it. Id. at 47. Then, after facing backlash for not living up to its representations to make Repair Tools available, Deere created a website. But access to the website was expensive and the website had limited capabilities. Id . One particularly important bug was that the Customer Service ADVISOR possessed no ability to connect to a Tractor to run diagnostics or clear codes.
Based on these allegations, Plaintiffs contend that “[o]bstructing the availability of repair tools to farmers and independent repair shops” “is about preserving supracompetitive monopoly profits.” at 49.
The reasonable inference from these allegations is that Deere—by itself or through its agents—repeatedly made public statements that purchasers could make repairs to their own Tractors but the reality was that they couldn’t. The Complaint contains sufficient allegations to support Plaintiffs’ claim under Kodak and even the subsequent circuit court decisions that elucidate it. The Complaint contains plenty of allegations of “market imperfections” that would prohibit farmers from knowing that their ability to repair their own Tractors or to use “independent repair shops” was illusory. The Complaint’s allegations outline Deere’s representations that farmers could repair their own Tractors or use “independent repair shops” to induce farmers to purchase a Tractor costing upwards of $1 million—the bait—but then a real-world practice that prohibits them from doing so and forcing them to use Dealerships after the significant financial outlay—the switch.
Deere’s contention that “everybody knew” repairs were limited is flawed for
three reasons. Dkt. 105, at 18-19. First, the contention is premised on construing
inferences in its favor, which this Court cannot do on a Rule 12(c) motion.
See TL of
Fla., Inc. v. Terex Corp.
,
Lack of Knowledge Because of Unavailability of Information Plaintiffs also contend that the Complaint meets the second circumstance allowing for a Kodak -style claim. According to Plaintiffs, they have adequately alleged a single brand aftermarket repair claim based on a lack of knowledge because of the unavailability of information. Deere disagrees.
Unlike a consumer being locked in because of a policy change after the purchase—which the parties, the United States, and the Court agree is sufficient— Deere disagrees with Plaintiffs’ and the Court’s view as to whether a single brand aftermarket claim can be based on a lack of knowledge because of the unavailability of information to determine a product’s life cycle costs. In Deere’s view, besides a policy change, a claim can only occur when the consumer is locked in because “a company hides its post-sale policies on the front-end.” Dkt. 105, at 15 (emphasis added); see also Dkt. 123, at 18. [28] Deere’s position excludes—or at least substantially minimizes—information costs to the consumer. Note Deere’s position is that it must “hide” its policies. Dkt. 105, at 15; Dkt. 123, at 18. “Hide” requires intent and motive. Under Deere’s position, a claimant can’t prevail under this method to establish a Kodak -like claim if the consumer merely doesn’t know about the life cycle costs of a product because of its lack of sophistication and access to information. Instead, there must be an affirmative effort by the company to prevent the consumer from obtaining the information. Dkt. 120, at 70-72.
This contention may be an understandable reading of
Kodak
, particularly for
Deere. And, to be fair to Deere, support for this position exists.
E.g.
,
PSI Repair
Servs.
,
The Court has already found the Plaintiffs have stated a single brand aftermarket repair claim under the change of policy/bait-and-switch theory. But even if Plaintiffs had not, the Court believes that Plaintiff’s allegations taken in totality and in conjunction with the lack of knowledge based on unavailability of information sufficiently states a Kodak -like claim.
The Importance of Market Power in the Primary Market
The concern about using the lack of knowledge as a basis to state a single
brand aftermarket claim rises from the interplay between
Kodak
and
Jefferson
Parish Hosp. Dist. No. 2 v. Hyde
,
But in both
Kodak
and
Jefferson Parish
no market power in the primary
market existed. In
Kodak
, it was agreed Kodak had no market power in the primary
market.
Kodak
,
In
Jefferson Parish
, the Supreme Court likewise focused on the market share
in the primary market. In that case, one exclusive contract at one hospital was at
issue but more than 20 hospitals existed in the metropolitan area and about 70% of
patients in the particular parish went to hospitals other than the one with the
exclusive contract.
Jefferson Parish
,
The same strict rule is appropriate in other situations in which the
existence of market power is probable. When the seller’s share of the
market is high or when the seller offers a unique product that
competitors are not able to offer, the Court has held that the likelihood
that market power exists and is being used to restrain competition in a
separate market is sufficient to make
per se
condemnation appropriate.
at 17 (cleaned up).
[31]
It was this lack of market power in the primary market that caused the
Supreme Court to reject the “market imperfections”—including, “the lack of
adequate information”—approach.
Jefferson Parish
,
In contrast, in this case, the Complaint details Deere’s significant market
share in the primary market. Deere is the “biggest player.” Dkt, 85, at 19. Deere’s
market power in the primary market combined with significant financial outlays,
lack of interchangeability, and lack of information make this case different from the
Supreme Court’s concerns in
Jefferson Parish
about market imperfections providing
market power in the tied market.
Jefferson Parish
,
Case Law Has Not Eliminated Lack of Information as a Basis for Kodak -type Claims
Although there is certainly support for Deere’s position, the complete rejection of a Kodak -type claim based on a lack of information is not uniformly followed. Case law exists focusing on the lack of information, among other considerations, to support a Kodak -type claim. For example, in this district, then- District Court Judge St. Eve explained that a change in aftermarket practices was just one concern in Kodak and lack of information was another:
But a change in aftermarket practices is not the sole worry of Eastman Kodak and its progeny. Rather . . . the Supreme Court expressed more general concerns about customers that unknowingly and involuntarily sign on for the defendant’s aftermarket power. Included in that group, according to the Supreme Court, are those unable to undertake lifecycle- cost analyses (at least at some, reasonable level) before purchasing the primary product because the requisite “information is difficult—some of it impossible—to acquire at the time of purchase.” Indeed, the Seventh Circuit recognized as much in explaining that “[c]ompetition among manufacturers fully protects buyers who accurately calculate life-cycle costs,” but where customers cannot do so, a supplier-defendant . . . can charge supracompetitive prices in the aftermarket.
Authenticom
,
Judge St. Eve is not alone and she even found support in the Seventh Circuit.
at 965 (citing
Digit. Equip.
,
In this case, the Complaint’s allegations are sufficient to show that there was
an absence of information that would allow a farmer to know of Deere’s
monopolistic repair policies.
See Authenticom
,
Again, the Court finds that Plaintiffs have adequately pleaded a Kodak -type of single brand aftermarket claim based on a bait-and-switch theory. To the extent such a claim can be based on the lack of information preventing the consumer from determining the life cycle cost of the product, based on the Complaint’s allegations—particularly Deere’s market power—the Court finds Plaintiffs have stated a claim under this theory as well.
* * *
Plaintiffs have plausibly, sufficiently pleaded both the primary market and aftermarket to support Kodak -type claims.
The Individual Counts are Plausibly Pleaded The Complaint seemingly contains seven counts: three are based on Section 1 of the Sherman Act; four are based on Section 2 of the Sherman Act; and one unlabeled count seeks declaratory and injunctive relief under both Section 1 and Section 2 of the Sherman Act. Counts I through III are based on Section 1 of the Sherman Act. Count I alleges a conspiracy in restraint of trade as a per se violation or in the alternative under a quick look. Dkt. 85, at 60-62. Count II alleges a group boycott as a per se violation. Id. at 62-63. Count III alleges unlawful tying as a per se violation or in the alternative as a rule of reason. Id. at 63-64. Counts IV through VII are based on Section 2 of the Sherman Act. Count IV alleges monopolization. Id. at 64-65. Count V alleges monopoly leveraging. at 65-66. Count VI alleges attempted monopolization in the alternative. Id. at 67. Count VII alleges conspiracy to monopolize. at 67-68.
Deere moves to dismiss each count, which Plaintiffs obviously oppose. The Court will address each count in turn. [33] But before launching into the analyses of each count, the Court must take a relatively brief detour to discuss the pleading standard for antitrust claims after Twombly .
The federal pleading world changed after
Bell Atlantic Corp. v. Twombly
, 550
U.S. 544 (2007) and
Ashcroft v. Iqbal
,
But, in addressing a § 1 Sherman Act claim, in
Twombly
, the Supreme Court
found that allegations showing parallel conduct were insufficient.
Twombly
, 550
U.S. at 557. According to the Supreme Court, allegations of parallel conduct merely
showed that illegality through an agreement may have occurred but other innocent
explanations were just as likely.
Id
. There needed to be more. There needed to be
“further factual enhancement.”
Id
. This factual enhancement was required to meet
the plausibility standard. And, according to the Seventh Circuit, “plausibility”
exists as a probability somewhere south of probable but north of conceivable or
negligible.
In re Text Messaging Antitrust Litig.
,
So, at this point, the question becomes this: Have Plaintiffs plausibly pleaded an agreement sufficient to support their § 1 Sherman Act claims based upon a per se theory?
Counts I – III Deere moves to dismiss Counts I – III—all of which are based, at least in part, on per se violations. Deere contends Plaintiffs have not plausibly pleaded horizontal restraints. Dkt. 105, at 9, 23; Dkt. 123, at 10. Throughout Deere’s filings, it contends that not only have Plaintiffs failed to allege an agreement between the Dealerships, but also that Plaintiffs’ allegations don’t allow a reasonable inference that there are agreements between the Dealerships. See, e.g. , Dkt. 105, at 9. Deere’s argument is straightforward: If there are no horizontal agreements, then there are no per se violations, so Counts I – III must be dismissed. [34]
In opposition to this straightforward argument, Plaintiffs make a bold move
by not responding directly. Instead, citing
Monsanto Co. v. Spray-Rite Serv. Corp.
,
The plausibility of the alleged conspiracy does not hinge on whether Plaintiffs allege facts relating to specific, express, and communicated agreements between each of the Dealership “spokes.” The necessary agreement, or common commitment to a mutual objective, between the Dealers is created by the facts plead in the Complaint, which are fairly read at this preliminary pleading stage as demonstrating a shared understanding between and among the Dealerships and Deere to keep the Repair Services market to itself.
Dkt. 113, at 15 (emphasis added).
Plaintiffs then spend twelve pages explaining several reasons—each containing supporting allegations—why a common commitment to a mutual objective exists between and among Deere and the Dealerships. Dkt. 113, at 15- 27. [36]
The Court will address these reasons in determining whether Plaintiffs have plausibly alleged per se violations in Counts I – III.
Count I
As to Count I, Deere argues that no horizontal agreement between the
Dealerships has been sufficiently alleged to support a
per se
violation. Dkt. 105, at
7-11, 23. The horizontal agreements between the Dealerships would be the rim on a
hub-and-spoke conspiracy. at 23;
see In re Musical Instruments & Equip.
Antitrust Litig.
,
As to the first part, Deere reads Plaintiffs’ Complaint so that
all
the
Dealerships are
not
alleged to be part of the conspiracy. Dkt. 105, at 8-9, 23. To be
fair to Deere, as previously mentioned, this is not an unreasonable reading of the
Complaint. The Complaint’s main allegation is not entirely clear: “Co-conspirators
include independently-owned Dealerships with agreements with Deere giving them
the right to sell new Deere Tractors, parts, and Deere Repair Services . . . .” Dkt. 85,
at 16. Note the word “includes” as well as the absence of the word “all” or any
synonym for that word. But, although Deere’s interpretation of the Complaint may
be reasonable, it is not an interpretation most favorable to Plaintiffs, which is how
this Court must interpret the Complaint.
Silha
,
The more difficult issue is whether the Complaint sufficiently and plausibly
pleads horizontal agreements between the Dealerships. There could be vertical
agreements between Deere and all Dealerships but no horizontal agreements
between the Dealerships so that the vertical agreements alone may not be illegal.
See Collins v. Associated Pathologists
,
Deere’s position is not without merit, but conflicts with two interrelated
concepts. First, labels and antitrust law don’t mix.
See, e.g.
,
Jefferson Parish
, 460
U.S. at 21 n.34 (“The legality of petitioner’s conduct depends on its competitive
consequences, not on whether it can be labeled ‘tying.’ If the competitive
consequences of the arrangement are not those to which the
per se
rule is addressed,
then it should not be condemned irrespective of its label.”). “In antitrust law, ‘easy
labels do not always supply ready answers.’”
Siva v. Am. Bd. of Radiology
, 38 F.4th
569, 572 (7th Cir. 2022) (citing
Broadcast Music, Inc. v. Columbia Broad. Sys., Inc.
,
Relatedly, because labels only go so far, the alleged anticompetitive behavior
must be considered as a whole.
SD3
,
To show a conspiracy generally involving all the Dealerships and Deere as well as specifically Dealership agreements establishing the rim of the hub-and- spoke conspiracy, Plaintiffs rely on several indicia. Together, Plaintiffs contend that the allegations supporting these indicia establish that the Dealerships made a conscious commitment to a common scheme. Deere does an excellent job of picking off each of these individually. But the Court needs to analyze the Complaint’s allegations as a whole. At this time and stage, Plaintiffs have alleged enough circumstantial evidence [38] for the Court to find a “a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto Co. , 465 U.S. at 768.
Plaintiffs focus on the several indicia of a conspiracy between and among
Deere and the Dealerships. First, Plaintiffs note that they have alleged that the
dealership agreements prohibit the disclosure of manuals, service bulletins,
catalogs, and service manuals. Dkt. 113, at 15; Dkt. 85, at 5, 8. And importantly,
Plaintiffs allege that each Dealership was aware the other Dealerships joined “in
covenants” to withhold repair tools from farmers and independent repair shops. ;
see LePage’s
,
Deere contests each. Obviously, Deere does not contest the truthfulness of the
allegations—because it can’t with a Rule 12 motion—but it contests the legal
significance of the allegations. First, as to engaging in exclusive contracts, Deere
notes exclusive agreements are presumptively legal, citing
Republic Tobacco Co.
,
Plaintiffs’ two other indicia of an overarching conspiracy that includes
horizontal conspiracies between the Dealerships overlap. These are the multiple
vertical agreements between Deere and the individual Dealerships, Dkt. 113, at 23-
25, and the parallel anti-competitive conduct by which Deere and the Dealerships
profited—especially when the Dealerships’ concerted conduct is profitable only if all
the Dealerships agree to the conduct. at 19. There is no doubt that vertical
agreements exist between Deere and the Dealerships. Dkt. 85, at 5;
Miles Distribs.
,
As to each set of allegations Plaintiffs assert as evidence of an overall
conspiracy as defined by
Monsanto
—that would include horizonal agreements
between the Dealerships—Deere offers an innocent interpretation supported by
case law. However, this series of “yeah, but”s conflict with both the prohibition
against crediting alternative, innocent interpretations of allegations at the motion
to dismiss stage,
Authenticom
,
Deere additionally argues that Plaintiffs’ alleged conspiracy doesn’t make
much economic sense. Dkt. 105, at 13-14 (“[T]he Complaint’s economic story
involving Deere makes little sense.”). In support of this argument, Deere relies on
Matsushita Elec. Indus. Co. v. Zenith Corp.
,
Plaintiffs’
per se
§ 1 Sherman Act claims are consistent with many cases,
including a Seventh Circuit case. For example, in
Wallach v. Easton Corp.
, 814 F.
Supp. 2d 428 (D. Del. 2011), a transmission manufacturer was competing with
another transmission manufacturer. The first manufacturer entered into exclusive
vertical agreements with class 8 truck manufacturers that contained rebates that
pushed the second manufacturer out of business. The court found an “overarching
conspiracy” including an inference that horizontal agreements existed between the
class 8 truck manufacturers in part because the truck manufacturers’ parallel
action was contrary to their self-interest unless they all agreed to participate.
Wallach
,
The Seventh Circuit has weighed in on this scenario, too. Indeed,
Toys “R” Us
v. FTC
,
The antitrust laws, which aim to preserve and protect competition in economically sensible markets, have long drawn a sharp distinction between contractual restrictions that occur up and down a distribution chain—so-called vertical restraints—and restrictions that come about as a result of agreements among competitors, or horizontal restraints. Sometimes, however, it can be hard as a matter of fact to be sure what kind of agreement is at issue.
Id. at 930.
In Toys “R” Us , as in this case, there was no dispute that a series of vertical agreements existed. In that case, Toys “R” Us entered into numerous vertical agreements with toy manufacturers/suppliers. These vertical agreements prevented Toys “R” Us’ main competitor—wholesale clubs—from selling the same types of toys at the same time as Toys “R” Us, “forcing the clubs’ customers to buy products they did not want, and frustrating customers’ ability to make direct price comparisons of club prices and [Toys “R” Us] prices.” at 932. Key to this scheme was Toys “R” Us’ role in monitoring the vertical agreements with the manufacturers/suppliers. Toys “R” Us acted as a “ringmaster” to ensure that all the manufacturers/suppliers remained true to their vertical agreements. Id. at 934. This “ringmaster” function was critical because it gave assurances to the manufacturers/suppliers that they were all participating because if one “broke ranks” that manufacturer/supplier would gain sales at the others’ expense. Id. at 932.
As in this case, one of the issues in
Toys “R” Us
was whether the Federal
Trade Commission’s finding that a horizontal conspiracy—agreements between the
manufacturers/suppliers—existed was “contrary to the facts and impermissibly
confuse[d] the law of vertical restraints with the law of horizontal restraints.”
Id.
at
934. The Seventh Circuit upheld the finding that a horizontal conspiracy existed
between the manufacturers/suppliers, resulting in a
per se
violation.
Id.
at 935-36.
Relying on
Interstate Circuit, Inc. v. United States
,
Under the Complaint’s allegations in this case, Deere would be Toys “R” Us—
acting as ringmaster—and the Dealerships would be the manufacturers/suppliers.
Deere could plausibly benefit from this arrangement. Dkt. 85, at 9-10. For example,
first, Deere could inflate the prices of Repair Parts that the Dealerships could then
charge the farmers. Second, Deere could serve as the only practical option for repair
financing. Third, Deere could hide latent defects—and thus help avoid liability
under the warranty—by tightly controlling information learned during the repair
process. By engaging in these activities, which are facilitated by horizontal
agreements among the Dealerships, Deere benefits. And, importantly, the inference
that a horizontal “agreement”—a shared understanding of a common goal—exists
among and between the Dealerships is supported by the fact that going it alone is
against their individual self-interest. Just as “[n]o single reasonable manufacturer
would drastically increase its prices and restrict its available sales without
assurances that others would follow suit,”
In re Disposable Contact Lenses Antitrust
Litig.
,
Plaintiffs’ Complaint sufficiently and plausibly pleads allegations to support this type of “overall” or “overarching” conspiracy by which horizontal agreements can be inferred, which could lead to a finding of a per se violation of § 1 of the Sherman Act, based on a conspiracy in restraint of trade. Deere’s motion is denied as to Count I.
Count II Deere’s basis for dismissal of Count II is that the Complaint fails to plausibly plead a per se violation of 1 of the Sherman Act. Because the Court has found that the Complaint sufficiently and plausibly pleads a per se violation based on an inference of a horizontal conspiracy, Deere’s motion is denied as to Count II.
Count III
Count III is Plaintiffs’ tying claim under § 1 of the Sherman Act, which seems
to be the heart of the case—at least in the Court’s view. In addition to arguing that
a
per se
claim cannot exist, Deere also argues that Count III fails to sufficiently
allege appreciable/sufficient economic power in an appropriately defined market.
Dkt. 105, at 25-26. Again, Plaintiffs don’t address this argument head on in a
cohesive manner. Dkt. 113 at 27, 35-39. But Deere bears the burden to establish it
is entitled to judgment on this count and the issue is a matter of law for this Court
to independently address.
Marcure
,
A § 1 tying claim has four elements: (1) the tying arrangement is between two
distinct products or services; (2) the defendant has sufficient economic power in the
tying market to appreciably restrain free competition in the market for the tied
product; (3) a not insubstantial amount of interstate commerce is affected; and (4)
the tying seller has an economic interest in the sales of the tied product or service.
Siva
,
So what’s “sufficient/appreciable economic power”? The Supreme Court has
stated what it isn’t: “The standard of ‘sufficient economic power’ does not . . . require
that the defendant have a monopoly or even a dominant position throughout the
market for the tying product. Our tie-in cases have made unmistakably clear that
the economic power over the tying product can be sufficient even though the power
falls far short of dominance and even though the power exists only with respect to
some of the buyers in the market.”
Fortner Enter., Inc. v. U.S. Steel Corp.
, 394 U.S.
495, 502-03 (1969). After
Illinois Tool Works Inc. v. Independent Ink, Inc.
, 547 U.S.
28 (2006), it appears “sufficient/appreciable economic power” was shorthanded to
“market power.” ABA Section of Antitrust L.,
Antitrust Law Developments
189-93
(8th ed. 2017). This is true in the Seventh Circuit, too.
Sheridan v. Marathon
Petroleum Co.
,
Plaintiffs’ Complaint contains the following allegations about the tying market, which is the same as the previously discussed “primary market.” Dkt. 85, at 19. “The ‘Tractor Market’ includes the United States product market for agricultural equipment (described as ‘Tractors’ in this Complaint), which include “tractors, application equipment, tillage, planters, air seeders, self-propelled forage harvesters, balers, windrowers, combines, cotton harvesters, and sugar cane harvesters.” Dkt. 85, at 19. In other words, the market is the durable farm equipment market. The Complaint goes on to allege that, “Deere is indisputably the biggest player in the market for Tractors in the United States. Deere wields significant economic power in the market for Tractors in North America.” The Complaint then references an article in a trade publication conveniently called Farm Equipment , which states that Deere has “become the world’s largest producer and seller of farm and industrial tractors and equipment.” Jennifer Reibel, Manufacturer Consolidation Reshaping the Farm Equipment Marketplace , Farm Equip. (August 29, 2018). According to this referenced article, Deere possesses 53% of the large farm tractor market and “Deere’s lead is even more commanding in the combine market, with 60% of the market.” Id. Under Count III, Plaintiffs incorporate and re-allege these allegations and further contend, among other things, that “Defendant has appreciable economic power in the relevant Tractor Markets, i.e. the ‘tying’ markets.” Dkt. 85, at 64. The Complaint further alleges that Deere “has a larger market share than that of its next two largest competitors, Case New Holland and Kubota Corp., combined.” Id. at 19. Like the representations in the referenced article, the Complaint alleges that “Deere has appreciable economic power in the U.S. Tractor Markets, controlling approximately 55% and 63% of the large tractor and combine markets, respectively.” Id. What’s more, according to the Complaint, “Deere’s share of its US sales in the Tractor markets are high, but even that may understate its true market power.” And another article from 2020 referenced in the Complaint states, “Deere’s metallic-green-and-yellow farm vehicles dominate the world’s $68 billion market for agricultural equipment, accounting for more than half of all farm machinery sales in the U.S.” Peter Waldman & Lydia Mulvany, Farmers Fight John Deere Over Who Gets to Fix an $800,000 Tractor , Bloomberg Businessweek (March 5, 2020).
Plaintiffs’ Complaint sufficiently alleges that Deere has sufficient/appreciable economic power by its market share well above 30% in the Tractor Market, which is essentially the farm equipment market. And the Complaint’s allegations that Deere has been able to tie the Repair Services, despite its customers’ desire not to purchase the Repair Services, and restrict competition in the aftermarket likewise allow the Court to infer sufficient/appreciable economic power. The Complaint’s allegations are sufficiently pleaded and state a plausible tying claim.
Two other points inform the Court’s decision in this regard. First, thankfully,
the Court is not required to throw out common sense and judicial experience when
determining whether a complaint has plausibly stated a claim.
Iqbal
, 556 U.S. at
679. Deere’s argument that it does not possess appreciable economic power in the
Tractor Market—which is basically the farm equipment market described in the
articles—tests this Court’s common sense and judicial experience. It would blink
reality to find that Deere does not possess appreciable power in the farm equipment
market. Second, even after
Iqbal
and
Twombly
, the purpose of a complaint is to put
the defendant on notice of the claims against it, not to prove its case.
Bausch v.
Stryker Corp.
,
As to Deere’s argument that the tying market is not appropriately defined,
the Court has previously addressed that issue. Again, the cases Deere cites for the
specificity of the primary market are not single-brand aftermarket cases. Moreover,
the specificity of the market definition is a highly fact-intensive analysis.
See, e.g.
,
Forsyth v. Humana, Inc.
,
Deere’s motion with respect to Count III is denied.
Counts IV – VII Deere argues that the Complaint fails to state any claim under § 2 of the Sherman Act. Dkt. 105, at 26-28. Deere makes four assertions to support its argument. First, Deere asserts that the Complaint fails to allege it has monopoly power in the Repair Services Market because the Dealerships—not it—perform the repairs to the Tractors. Second, Deere further asserts that the Complaint fails to plausibly allege any anticompetitive conduct. Third, Deere asserts that its conduct promotes competition. Fourth, Deere perfunctorily asserts that no other § 2 claim exists, presumably meaning the attempted monopolization claim and leveraging claim. Plaintiffs disagree. Dkt. 113, at 28-29. The parties blast through these arguments in less than two pages each. The Court will address the arguments as framed but will further elaborate on these issues in the interest of completeness.
As to the first contention, the issue is not whether Deere is a seller of Repair
Services. Instead, the issue is whether Deere has monopoly power in the relevant
market. This is determined by showing that Deere could control prices or exclude
competition.
United States v. Grinnell Corp.
,
Deere’s second argument is based upon a reasonable interpretation of the
Complaint, but not an interpretation that is most favorable to Plaintiffs. Dkt. 105,
at 27. Again, Deere reads the complaint in a way that
some
Dealerships are
provided with Repair Tools and others are not, which coincides with its view that
the Complaint alleges only
some
Dealerships are part of the conspiracy. But, again,
that interpretation is inconsistent with a reasonable interpretation of the
Complaint in the light most favorable to Plaintiffs; specifically,
all
Dealerships are
part of the conspiracy among and between themselves and Deere. This Court must
construe the allegations and all reasonable inferences drawn from those allegations
and interpret the Complaint in the light most favorable to Plaintiffs.
Bennett
, 520
U.S. at 168;
Silha
,
Deere’s remaining perfunctory arguments, including those raised in a footnote, are waived. Evergreen Square v. Wis. Hous. & Econ. Dev. Auth. , 848 F.3d 822, 829 (7th Cir. 2017); 330 W. Hubbard Restaurant Corp. v. United States , 203 F.3d 990, 997 (7th Cir. 2000).
For purposes of completeness, the Court will further explain why the
Complaint’s allegations sufficiently plead a § 2 Sherman Act claim. At the outset, it
is important to remember that Plaintiffs’ Complaint is a
Kodak
-type single brand
aftermarket claim. And the Complaint’s allegations fit squarely within many of the
issues the Court addressed in
Kodak
. Indeed, like this case,
Kodak
was both a tying
claim brought under § 1 and a monopolization claim under § 2 of the Sherman Act.
Kodak
, 504 at 459, 480-86 (addressing § 2 claim). This is not surprising: “Tying
arrangements are more frequently challenged under Section 1 of the Sherman Act,
but unlawful tying also can satisfy the exclusionary conduct requirements of Section
2.”
Antitrust Law Developments
,
supra
, at 255;
see also Avaya
,
A § 2 claim requires monopoly power and anticompetitive conduct.
Kodak
,
The Complaint’s allegations adequately plead a § 2 claim for a Kodak -type single brand after-market claim, particularly because it sufficiently and plausibly alleges Deere has market power in the primary market. The Complaint contains allegations showing that Deere has monopoly power—which exists because of Deere’s lack of forthrightness and/or the lack of consumer information to calculate life-cycle costs—in the relevant aftermarket. No other competitors exist, which is monopoly power. And Deere’s alleged conduct excludes competitors at the cost of Deere’s customers’ choices to perform their own repairs or have a local repair shop perform the repairs, even when they could perform the repairs faster, better, and cheaper, which is anticompetitive conduct. So, the Complaint alleges a monopoly and anticompetitive conduct, which is what § 2 requires even when the defendant does not possess market power in the primary market. Xerox , 660 F. Supp. 2d at 546.
CONCLUSION
Plaintiffs have sufficiently and plausibly alleged claims based on § 1 and § 2 of the Sherman Act under Kodak . Plaintiffs’ Complaint alleges both constitutional and antitrust standing, relevant markets, and all the necessary requirements for each count in the Complaint. Deere’s motion for judgment on the pleadings is denied.
Entered: November 27, 2023 By:______________________
Iain D. Johnston U.S. District Judge
Notes
[1] The allegations are taken from the consolidated complaint, which for purposes of this motion the Court accepts as true if plausible and not conclusory.
[2] “Tractors” are Deere brand agricultural equipment, such as tractors, combines, and other large agricultural machinery that have ECUs. Dkt. 85, at 3.
[3] The Court is not entirely sure if it can take judicial notice that equipment downtime can be devastating for a farmer. But, at the very least, the Court can draw this reasonable inference from the pleadings. Dkt. 85, at 43-44. Just imagine farmers desperately waiting for their equipment to be repaired while precious days or weeks pass and winter inevitably arrives.
[4] The Court’s general practice is not to hold argument on dispositive motions. The parties and the Department of Justice requested argument in this case. The Court granted the request. And the Court is glad it did. The presentations were stellar in form and substance
[6] The identified page numbers are the actual page numbers of the filings, not the CM/ECF numbers.
[7] The Court was unsure whether the Complaint meant to include
all
the Dealerships as co-
conspirators. But Plaintiffs’ counsel judicially admitted that their Complaint should be
interpreted to mean that all of the Dealerships are co-conspirators.
See Moran v. Calumet
City
,
[8] See Iain Johnston, The Case for Drawing Reasonable—and Only Reasonable—Factual Inferences in Analyzing Rule 12(b)(6) Motions to Dismiss , The Circuit Rider 14 (May 2022).
[9] The concepts of “antitrust standing,” Article III standing, and “antitrust injury” are
related but distinct.
Marion II
,
[10] Consistent with Deere’s Article III standing argument, Deere reads at least one allegation in the light most favorable to it , not Plaintiffs. Namely, Deere asserts that the Complaint alleges that Deere provides “Repair Tools to only certain dealerships.” Dkt. 105, at 8, 9. The Court understands why Deere takes this position. But the Court rejects it for the same reasons. This inference benefits Deere, not Plaintiffs. Moreover, at oral argument, Plaintiffs’ counsel judicially admitted that all Dealerships were co-conspirators.
[11] And, for what it’s worth, the Dealerships certainly do not provide Repair Tools to Plaintiffs. See id. at 9, 23.
[12] This is probably not really an “exception” to
Illinois Brick
. Instead, the concept behind the
“conspiracy exception” is simply an accurate understanding of the rationale and holding of
Illinois Brick
.
Marion I
,
[13] Whether other circuits recognize this exception and if so, to what extent, is irrelevant to
this Court.
See, e.g., Dickson v. Microsoft Corp.
,
[14] This district court is duty bound to follow the appellate court.
Greeno v. Daley
, 414 F.3d
645, 656 (7th Cir. 2005). To the extent this Court can still refuse to follow the Seventh
Circuit,
compare Hohn v. United States
,
[15] Foreshadowing the upcoming analysis, Judge Kocoras described the result of Fontana Aviation as “ seemingly set[ting] forth” no requirement that co-conspirators need be named and joined. In re Brand Name Prescription Drugs Antitrust Litig. , No. 94 C 897, 1998 U.S. Dist. LEXIS 12534, at *46 (N.D. Ill. Aug. 6, 1998) (emphasis added).
[16] This Court is not saying the Seventh Circuit never issues inconsistent opinions. Even the
Seventh Circuit has commendably recognized that it has done so in the past.
See, e.g.
,
Runkel v. City of Springfield
,
[17] Because the class plaintiffs had always joined the co-conspirators, it was not necessary
for the Seventh Circuit to address the issue of
requiring
co-conspirators to be joined. And
because the issue was not before the Seventh Circuit, then it can reasonably be argued that
the Seventh Circuit did not rule on the issue.
L.A. Tucker
,
[18] The Court takes no position as to how it would rule in cases involving the pass on of a charge through the distribution chain of co-conspirators.
[19] At the argument, Deere’s counsel understandably expressed Deere’s frustration that Plaintiffs’ claim was outside the norm. Like patients who hear their doctors say “Hmmm” during an examination, defendants don’t want to be a party in an unusual case.
[20] Deere also contends that, assuming Plaintiffs’ Complaint plausibly alleges both markets,
its motion should be granted because the markets conflict with the current proposed class
definition. Dkt. 105, at 21. On the merits, this argument is colorable. But this argument is
best suited for resolution during class certification, when class definitions can be modified
as the case proceeds, even on the court’s own initiative.
In re Disposable Contact Lens
Antitrust
,
[21] The Department of Justice advocated for a similar standard at oral argument. Dkt. 144, at 93-94.
[22] In its motion, Deere asserts that, “The presumption is thus that ‘competition in the [Tractor Market will] suffice[] to discipline anticompetitive practices in the aftermarkets.’” Dkt. 105, at 18. In keeping with the Supreme Court’s admonishment, this Court rejects finding this presumption, particularly when—unlike Kodak—Deere has substantial market power in the primary market.
[23] The belief that the argument is “intuitively appealing” has legs.
See Xerox Corp. v. Media
Scis., Inc.
,
[24] Aware that economists seem to like “Goldilocks and the Three Bears” analogies, this Court views this as a “Goldilocks just right price.”
[25] Deere understandably notes a disconnect here. Allegedly, Plaintiffs were repairing their
equipment or believed they would be allowed to repair their equipment. And if they and the
independent repair shops did so quicker and cheaper, then they must have been able to do
so to allow for the comparison when Deere put the kibosh on this practice and forced
Plaintiffs to the Dealerships. So, the timing of purchases and the alleged representations
will be critical as the case proceeds.
See Digital Equip. Corp. v. Uniq Digital Technologies
,
[26] This Court is bound by
Digital Equipment
and
Schor
because these cases don’t “directly
conflict” with
Kodak
. Instead, the Seventh Circuit explained its view of
Kodak
’s holding in
these cases.
Alvarez v. City of Brownsville
,
[27] At the argument, the Department of Justice attempted to distinguish both Digital Equipment and Schor based on the existence of complimentary goods, among other things. Dkt. 144, at 90-93.
[28] Unstated in Deere’s position as to the two ways in which a consumer can be locked in are
other
Kodak
considerations, including the significant financial outlay for the product and
the lack of interchangeability of the aftermarket product and service.
See Kodak
, 504 U.S.
at 475, 482. The Court is unsure whether Deere really means to assert those considerations
are irrelevant or, alternatively, whether they are implicit in the concept of “locked in.” To
the extent Deere’s position is the former, the Court disagrees. But if it is the latter, the
Court agrees. Not only were these factors important to the Supreme Court in
Kodak
but
other courts also focus on them, too.
Kodak
,
[29] The Court recognizes that “market share” and “market power” are not synonymous.
Ind.
Grocery, Inc. v. Super Valu Stores, Inc.
,
[30] The policy concern about allowing a
Kodak
-type single brand aftermarket claim to be
based on a lack of information to determine life cycle costs of a product is that a deluge of
litigation would result.
See PSI Repair Servs.
,
[31] The Supreme Court highlighted this issue more than once. Previously, in the opinion, the
Supreme Court elaborated on the importance of market share in the primary market.
Jefferson Parish
,
[32] Even an academic who thinks that
Kodak
was wrongly decided has stated that a
Kodak
claim can be based upon the lack of information that affected the purchaser’s ability to
know the life-cycle cost. Herbert Hovenkamp,
Book Review: The Rationalization of
Antitrust
, 116 Harv. L. Rev. 917, 933-34 (2003) (reviewing Richard A. Posner,
Antitrust
Law
(2d ed. 2001)). (“In its
Kodak
decision, the Supreme Court held that a nonmonopolist
producer of a durable good – such as a photocopier – with unique replacement parts could
be held to have significant market power in those aftermarket parts if (1) customers who
already owned the product were ‘locked-in’ by this previous commitment to purchase the
parts; and (2) this lock-in permitted these customers to be exploited because
either (a) some
limitation on information undermined their ability to know, at the time they purchased the
copier, that the aftermarket parts were being sold at high prices, or
(b) the defendant
changed its part prices after the lock-in occurred.”) (emphasis added);
see also Xerox Corp.
,
[33] Again, the parties’ briefs are excellent and very well written. Clearly, counsel know their stuff. And the Court recognizes and appreciates that parties can frame their arguments as they deem most persuasive. But the Court counsels counsel that one of the first rules of writing is to make it easy on the reader. In this regard, as to the challenges to the individual claims, the briefs talk past each other. The process was not easy on the Court. The Court sincerely hopes that it has fully addressed all of the parties’ various arguments.
[34] The Court sets aside the issue that Plaintiffs need not have pleaded theories, and even if
they pleaded the wrong theories, that would not be fatal if they simply pleaded a claim.
Alioto v. Town of Lisbon
,
[35] The Monsanto standard applies to both vertical and horizontal conspiracies. Wilk v. Am. Med. Ass’n. ,895 F.2d 352 , 375 (7th Cir. 1990); Valley Liquors, Inc. v. Renfield Importers, Ltd. ,822 F.2d 656 , 660 n.5 (7th Cir. 1987).
[36] Deere contends that the Complaint fails to plead plus factors. Dkt. 105, at 10. Plus factors
are a big deal.
See Anderson News LLC v. Am. Media, Inc.
,
[37] To the extent a rimless hub-and-spoke conspiracy is viable,
see Dickson v. Microsoft Corp.
,
[38]
Per se
violations can be shown through circumstantial evidence.
Toys “R” Us v. FTC
, 221
F.3d 928, 934 (7th Cir. 2000);
Text Messaging
,
[39] This assumes the single Dealership isn’t a “cheater.” The economic incentives to cheat in
a cartel are great, so an enforcer or enforcement mechanism, such as a ringmaster, must
exist.
Petruzzi’s IGA Supermarket v. Darling-Delaware Co.
, 998 F.2 1224, 1233 (3d Cir.
1993). Members can’t go rogue or the whole scheme falls apart. Members who breach the
agreement are, thus, “cheating.”
Blomkest Fertilizer, Inc. v. Potash Corp.
,