IN RE DYNAMIC RANDOM ACCESS MEMORY (DRAM) INDIRECT PURCHASER ANTITRUST LITIGATION, INDIRECT PURCHASER PLAINTIFFS v. SAMSUNG ELECTRONICS CO., LTD.; SAMSUNG SEMICONDUCTOR, INC.; MICRON TECHNOLOGY, INC.; MICRON SEMICONDUCTOR PRODUCTS, INC.; SK HYNIX, INC.; SK HYNIX AMERICA, INC.
No. 21-15125
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
March 7, 2022
Jeffrey S. White, District Judge, Presiding
D.C. No. 4:18-cv-02518-JSW; Argued and Submitted December 7, 2021 Pasadena, California
Appeal from the United States District Court for the Northern District of California
Opinion by Judge Bencivengo
SUMMARY**
Antitrust
The panel affirmed the district court‘s dismissal of an action alleging an antitrust conspiracy under Section 1 of the Sherman Act by manufacturers of dynamic random access memory, a type of semiconductor memory used to store data in digital electronic devices.
The panel held that to state a plausible claim, plaintiffs bringing a Section 1 claim, particularly those relying on evidence of parallel business conduct to establish a conspiracy, must plead “some further factual enhancement” that places their allegations of parallel conduct in a context suggesting a preceding agreement. Plaintiffs based their conspiracy theory on defendants’ parallel business conduct of contemporaneously reducing their DRAM production, as well as various “plus factor” allegations that they claimed further suggested a preceding agreement. Considering eight plus factors identified by plaintiffs, both in turn and
COUNSEL
Steve Berman (argued), Hagens Berman, Seattle, Washington; Benjamin J. Siegel and Rio Pierce, Hagens Berman, Berkeley, California; for Plaintiff-Appellant.
Ian Simmons (argued), O‘Melveny & Myers LLP, Washington, D.C.; Stephen McIntyre and Kurt C. Brown, O‘Melveny & Myers LLP, Los Angeles, California; Brian P. Quinn, O‘Melveny & Myers LLP, Washington; for Defendants-Appellees Samsung Electronics Co., Ltd.; and Samsung Semiconductor, Inc.
Harrison (Buzz) Frahn, Simpson Thacher & Bartlett LLP, Palo Alto, California; Abram Ellis and Jonathan D. Porter, Simpson Thacher & Bartlett LLP, Washington, D.C.; for Defendants-Appellees Micron Technology, Inc.; and Micron Semiconductor Products, Inc.
Nathan P. Eimer, Vanessa G. Jacobsen, and Brian Y. Chang, Eimer Stahl LLP, Chicago, Illinois, for Defendants-Appellees SK Hynix, Inc.; and SK Hynix America, Inc.
BENCIVENGO, District Judge:
The standard for surviving a motion to dismiss under Rule 12(b)(6) is a familiar one: a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). However, for plaintiffs bringing a claim under Section 1 of the Sherman Act—particularly those relying on evidence of parallel business conduct to establish a conspiracy—stating a plausible claim requires something more. Such plaintiffs must plead “some further factual enhancement” that places their allegations of parallel conduct in a context suggesting a preceding agreement. See Twombly, 550 U.S. at 557.
Plaintiffs ask us to infer that Defendants, three of the largest global manufacturers of dynamic random access memory (“DRAM“), conspired to coordinate their actions when they contemporaneously reduced their DRAM production in 2016. Plaintiffs base their theory on Defendants’ parallel business conduct and various “plus factor” allegations that they claim further suggest a preceding agreement. While both parties’ explanations for Defendants’ actions are conceivable, Plaintiffs do not allege additional facts that push their theory over “the line between possibility and plausibility.” Id. Because Plaintiffs’ allegations do not amount to the “something more” required by our precedent to make their claims plausible, we affirm the judgment of the district court dismissing Plaintiffs’ amended complaint.
DRAM is a type of semiconductor memory widely used to store data in digital electronic devices. Defendants Micron Technology, Inc. and Micron Semiconductor Products, Inc. (together, “Micron“), Samsung Electronics Co., Ltd. and Samsung Semiconductor, Inc. (together, “Samsung“), and SK Hynix, Inc. and SK Hynix America, Inc. (together, “SK Hynix“) (collectively, “Defendants“) manufacture and sell DRAM to original equipment manufacturers (“OEMs“), who then incorporate that DRAM into various electronic devices. At all relevant times, Defendants collectively controlled approximately 96% of the global DRAM market, with Samsung holding approximately one-half market share and Micron and SK Hynix each holding approximately one quarter.
Prior to 2016, Defendants competed vigorously to grow their DRAM supply and capture market share, which led to oversupply in the market and declining DRAM prices. In late 2015, Samsung unilaterally attempted to stop this price erosion by stockpiling DRAM to reduce market supply, but its new strategy was unsuccessful and DRAM prices continued to decline. In the third quarter of 2016, Samsung again unilaterally reduced its DRAM output. However, this time Micron and SK Hynix followed suit by cutting their own DRAM production rates the following quarter.
Between June 2016 and December 2017, Defendants continued to increase their DRAM production, but at a rate lower than the increase in demand during that period. Defendants also made various public statements reiterating that they would restrict their DRAM supply growth in line with other industry participants. As a result of Defendants’ constraints on supply, DRAM prices soared and Defendants earned record-high revenues.
Appellants Indirect Purchaser Plaintiffs (“Plaintiffs“) are a putative class of consumers who purchased electronic devices containing DRAM (“DRAM Devices“) from OEMs or resellers between June 1, 2016 and February 1, 2018. Plaintiffs allege that they overpaid for their DRAM Devices because Defendants’ anticompetitive conduct resulted in supracompetitive DRAM pricing, which was passed on through the distribution chain to consumers.
Plaintiffs’ amended class action complaint asserts claims under Section 1 of the Sherman Act, California‘s Cartwright Act, and the laws of six states relating to antitrust, consumer protection, and unfair competition. Defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a conspiracy claim. The district court dismissed Plaintiffs’ claims brought under the Sherman Act, the Cartwright Act, and California‘s and Florida‘s unfair competition laws with prejudice, finding that Plaintiffs’ allegations failed to raise a reasonable inference of conspiracy. The district court allowed Plaintiffs’ remaining state law claims for antitrust violations to proceed.
II. Discussion
We exercise appellate jurisdiction under
Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.”
Plaintiffs relying on allegations of parallel conduct to establish a Section 1 claim face an additional burden when defending against Rule 12(b)(6) motions. Generally, when a plaintiff alleges facts consistent with both the plaintiff‘s and the defendant‘s explanation, and both explanations are plausible, the plaintiff survives a motion to dismiss under Rule 12(b)(6). See Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). However, in the antitrust context, allegations of conspiracy often arise from parallel conduct among business competitors “that could just as well be [lawful] independent action.” Twombly, 550 U.S. at 557. Therefore, to state a plausible Section 1 claim, plaintiffs must include additional factual allegations that place that parallel conduct in a context suggesting a preceding agreement. Id. In other words, plaintiffs must allege something more than conduct merely consistent with agreement in order to “nudge[] their claims across the line from conceivable to plausible.” Id. at 570. This higher standard is warranted by practical considerations in antitrust cases, where proceeding to discovery “frequently causes substantial expenditures and gives the plaintiff the opportunity to extort large settlements even where he does not have much of a case.” Kendall, 518 F.3d at 1047.
A. Parallel Conduct
Plaintiffs purport to establish an unlawful conspiracy by alleging parallel business conduct among Defendants and additional plus factors discussed below. The district court found that Plaintiffs adequately established parallel conduct by alleging that Defendants contemporaneously restricted their DRAM production during the class period, and neither party disputes this finding on appeal. Rather, the parties
B. Plus Factors
In the absence of direct evidence of an agreement, certain plus factors may elevate allegations of parallel conduct to plausibly suggest the existence of a conspiracy. See In re Musical Instr. and Equip. Antitrust Litig., 798 F.3d 1186, 1194 (9th Cir. 2015). Plus factors are often “economic actions and outcomes that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action.” Id. Under the Twombly standard, plus factors serve as the “something more” to place parallel conduct “in a context that raises a suggestion of a preceding agreement.” Twombly, 550 U.S. at 557.
Plaintiffs identify eight plus factors that they contend place Defendants’ parallel conduct in a context suggesting conspiracy: (1) price signaling; (2) complex, simultaneous, and historically unprecedented decreases in capital investment; (3) supply cuts against Defendants’ self-interest; (4) public statements encouraging supply cuts; (5) changed conduct between the start and end of the class period; (6) information exchanges between Defendants regarding future supply and demand; (7) high market concentration; and (8) prior criminal convictions for price fixing.1 The district court found that these allegations suggest Defendants’ conduct arose not from agreement, but rather
1. Price Signaling
Plaintiffs allege that in early 2016, Samsung attempted to signal to the other Defendants that it was raising its prices on DRAM. Plaintiffs claim that a Samsung executive instructed another executive to leak that Samsung was raising DRAM prices, intending that Samsung‘s competitors would learn of its plan and follow suit. Plaintiffs allege that the information was leaked to an industry analyst, and DRAM prices began to rise shortly thereafter.
Plaintiffs’ price signaling allegations do not support a plausible inference of conspiracy. Plaintiffs claim that Defendants conspired to restrict their DRAM supply growth (with the eventual effect of higher DRAM prices), not to increase DRAM prices. Leaked information about raising prices does not reasonably signal to competitors to reduce DRAM production. Moreover, Plaintiffs do not allege that Micron or SK Hynix saw Samsung‘s leaked information and acted on it. Only concerted activity is actionable under Section 1.
“[C]omplex and historically unprecedented changes in pricing structure made at the very same time by multiple competitors, and made for no other discernible reason . . . support a plausible inference of conspiracy.” Twombly, 550 U.S. at 556 n.4. Plaintiffs contend that this plus factor is met because Defendants reduced their capital expenditures (“capex“) toward DRAM supply growth within a few months of each other, which was unprecedented amidst high profitability in the industry. Specifically, Plaintiffs allege that in April 2016, first Samsung and then SK Hynix stated on quarterly earnings calls that industry capex would decline that year. The following month, Micron‘s CEO stated that news of competitors’ decreased capex was “relatively encouraging” and that he expected “slowing bit growth” in the industry, implying that Micron, too, would decrease its DRAM capex.
Defendants’ alleged actions are more consistent with conscious parallelism than with the plus factor recognized by the Twombly court. SK Hynix and Micron‘s capex cuts following Samsung‘s announcement align with a “follow the leader” theory of conscious parallelism,3 as they could have independently and rationally reached the same decision to follow market leader Samsung. We have recognized that “[e]ven assuming that the progressive adoption of similar policies across an industry constitutes simultaneity, that fact
Nor have Plaintiffs plausibly alleged that Defendants’ capex changes were “complex” or “historically unprecedented.” See id. Plaintiffs provide no evidence showing that capex reductions were complex for Defendants to implement. The amended complaint only includes statements from Samsung and SK Hynix indicating that increasing DRAM supply would be difficult. Further, while Plaintiffs contend that Samsung and SK Hynix‘s capex cuts were unprecedented because the industry was highly profitable at the time, this argument is contradicted by their allegation that DRAM prices “declined steadily and precipitously” until May 2016.
Plaintiffs’ allegations reflect that Defendants reduced their capex toward DRAM supply growth independently in response to market pressures, and Plaintiffs point to nothing about these reductions suggesting a preceding agreement. This purported plus factor is more suggestive of lawful conscious parallelism than conspiracy.
3. Supply Cuts Against Self Interest
Next, Plaintiffs allege that Defendants’ supply cuts were “so perilous in the absence of advance agreement that no reasonable firm would make the challenged move without such an agreement,” which we have previously recognized as a plus factor. Musical Instr., 798 F.3d at 1195. Plaintiffs claim that Samsung‘s unilateral production cuts in the third quarter of 2016 “would have been irrational without
The plausibility of Plaintiffs’ theory is undercut by other allegations in the amended complaint. First, Plaintiffs allege that Samsung unilaterally—without prior agreement—first restricted its market supply in late 2015. Although this attempt to stop price erosion was unsuccessful, Samsung still remained the DRAM market leader, showing that restraining supply without an agreement was not as perilous as Plaintiffs claim. Second, Plaintiffs allege that Samsung again unilaterally restricted supply growth in the third quarter of 2016, but Micron and SK Hynix did not follow suit until the next quarter. The timing of Micron and SK Hynix‘s actions are more indicative of the “follow the leader” theory than an advance agreement to restrain production simultaneously. See Musical Instr., 798 F.3d at 1195. Micron‘s CEO‘s comment that it would be “foolish [for Micron] to be the first ones to take capacity off” further reflects that as a non-leader in the industry, it would be economically wise for Micron to follow the market leader‘s actions.
Moreover, while Plaintiffs claim that it would have been in Micron and SK Hynix‘s best interest to capture Samsung‘s lost market share, it was also economically rational for the two smaller manufacturers to follow
The amended complaint also includes statements from industry analysts that reflect the economic rationality of production cuts. For example, in March 2016, an analyst asked Micron‘s CEO: “Pricing is going to continue to be weak until Micron and the DRAM industry overall cuts production. So . . . what will it take for that to happen?” Similarly, in June 2016, an analyst from Deutsche Bank reported that they were “encouraged” by Defendants’ strategy of decreasing DRAM capex and emphasizing the “importance of profitability.”
Plaintiffs have not established that Defendants’ supply cuts were the “extreme action against self-interest” contemplated by this circuit as a plus factor. See Musical Instr., 798 F.3d at 1195. Rather, Plaintiffs’ allegations demonstrate that it was economically rational for Samsung to reduce its supply growth below demand levels and for Micron and SK Hynix to maintain production commensurate with the market leader. Without some further factual allegations to suggest a preceding agreement, this purported plus factor does not plausibly support a conspiracy claim.
Plaintiffs next allege that Defendants made various public statements throughout the class period encouraging each other to restrain DRAM supply and reassuring each other following supply cuts. Plaintiffs first characterize Micron‘s statement on March 30, 2016, that it would “be foolish [for Micron] to be the first ones to take capacity off” as inviting the other Defendants to cut production, coupled with a “clear reassurance that Micron would not try to take DRAM market share” if they did. Plaintiffs allege that both Samsung and SK Hynix responded to this invitation within a month when they publicly stated that they would decrease their DRAM capex in 2016. Plaintiffs also point to various other statements made by Defendants—mostly during investor calls, presentations to industry groups, and/or in response to investor and analyst questions—regarding market predictions and strategies as support for this claimed plus factor.
Defendants’ statements reproduced in the amended complaint are largely consistent with unilateral conduct in an interdependent market. If no conspiracy existed, Defendants would likely make the same public statements about their observations, predictions, and strategies for the future, particularly in response to investor and analyst questions. For example, Micron‘s March 2016 statement that it would “be foolish [for Micron] to be the first ones to take capacity off” was made in response to an analyst‘s question about the possibility of supply cuts in the DRAM industry.4
Defendants’ public statements are largely consistent with independent business conduct in a concentrated market,
and the DRAM industry overall cuts production. So . . . what will it take for that to happen?”
5. Changed Conduct from Start to End of Conspiracy Period
Plaintiffs’ fifth purported plus factor claims that Defendants’ conduct changed between the start and end of the alleged conspiracy. Plaintiffs allege that before the class period, Defendants engaged in “vigorous supply and price competition,” but during the class period they began coordinating their actions and limiting market supply. Plaintiffs also assert that Micron repeatedly predicted that DRAM supply and growth rates would be about equal in 2015, but began forecasting lower supply than demand in 2016. Finally, Plaintiffs claim that DRAM prices drastically increased once Defendants began coordinating their supply decisions, but increases “abruptly stopped in early 2018” after the NDRC announced that it reached an agreement with Samsung.
Plaintiffs’ allegations regarding Defendants’ behavior at the start of the class period are consistent with conscious parallelism in an interdependent market. Samsung unilaterally announced its intent to stop competing on market share and begin focusing on profitability prior to the class period. Samsung then publicly reaffirmed its intent to focus on profitability over supply growth throughout the next two years. The other Defendants, as smaller players in the DRAM market, followed Samsung‘s lead and stopped competing on market share. Micron‘s comments regarding DRAM market conditions only reflect this industry-wide change in strategy.
6. Information Exchanges Regarding Supply and Demand
Plaintiffs next allege that Defendants had two opportunities to exchange information regarding their supply plans: first through their participation in the same trade associations, and second through communications with third-party research firms that produced industry trend reports. Plaintiffs claim that Defendants each sent leadership teams to trade organization meetings several times a year, which “provided an ideal setting for Defendants to discuss future business plans.” Plaintiffs also allege that third-party research firms interviewed Defendants’ employees to prepare their industry reports, which were read by SK Hynix and presumably the other Defendants.
7. High Market Concentration
Next, Plaintiffs claim that the structure of the DRAM market makes it conducive to conspiracy. Plaintiffs assert that the DRAM market is highly concentrated with high barriers to entry, which makes collusive agreements “easier to implement and sustain when there are only a few firms controlling a large portion of the market.”
Extreme market concentration may suggest conspiracy, particularly when accompanied by other plausible plus factor allegations. See Musical Instr., 798 F.3d at 1197 n.14 (noting that conspiracy was plausible where top players in highly concentrated market implemented identical and complex pricing structures simultaneously). However, extreme market concentration also makes conscious parallel behavior more likely, as firms are “cognizant of—and reacting to—similar market pressures.” Id. at 1193. On balance, this factual allegation is consistent with both parties’ explanations. Because “allegations that are merely consistent with conspiracy are not enough,” Plaintiffs must
8. Historic Price Fixing Behavior
Finally, Plaintiffs point to Defendants’ prior criminal convictions for price fixing as “context that raises a suggestion of a preceding agreement.” Twombly, 550 U.S. at 557. Plaintiffs allege that Defendants and other DRAM manufacturers held a meeting in fall 2001 where they each agreed to reduce their DRAM production in order to raise prices. In 2005, the Department of Justice brought criminal charges against Defendants for participating in the price fixing conspiracy, resulting in guilty pleas, custodial time, and large criminal fines for Samsung and SK Hynix. Plaintiffs also claim that “many of the same executives involved in the prior conspiracy continue to hold senior positions” at Defendants’ companies.6
District courts in this circuit have found prior conspiracy convictions to support an inference of subsequent conspiracy, particularly when the prior conspiracy and the alleged subsequent conspiracy have factual overlap or involve the same actors. See In re Flash Memory Antitrust Litig., 643 F. Supp. 2d 1133, 1149 (N.D. Cal. 2009); see also In re SRAM Antitrust Litig., 580 F. Supp. 2d 896, 903 (N.D. Cal. 2008). While the prior conspiracy among Defendants occurred approximately twenty years ago, the present allegations involve the same alleged coordination and actors.
C. Holistic Analysis of Plaintiffs’ Allegations
Plaintiffs’ proffered plus factors must be evaluated holistically to determine whether they state a conspiracy claim. See Cont‘l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962) (“The character and effect of a conspiracy are not to be judged by dismembering it and viewing its separate parts, but only by looking at it as a whole.“). While the factual overlap between Defendants’ prior criminal conduct and the present allegations supports Plaintiffs’ theory, the totality of Plaintiffs’ allegations does not suggest anything more than conscious parallelism. The four plus factors that Plaintiffs contend are most indicative of conspiracy—simultaneous capex decreases, “perilous” supply cuts, public statements about the market forecast, and changed conduct between 2016 and 2018—are all consistent with Defendants, as competitors in a highly concentrated market, reacting to the same market pressures and taking parallel action to serve their interests. Plaintiffs’ remaining allegations regarding price signaling, information exchanges, and the DRAM market structure do not provide convincing support for their claims for the reasons discussed above.
Plaintiffs’ allegations of parallel conduct that could just as well be independent action, combined with Defendants’ criminal history from twenty years ago, do not provide a context suggesting unlawful agreement. See id. at 557. Rather, Defendants’ actions are “more likely explained by lawful, unchoreographed free-market behavior” in a concentrated industry. Iqbal, 556 U.S. at 680 (citing Twombly, 550 U.S. at 567). Accordingly, Plaintiffs fail to state a plausible claim under Section 1 based on a conspiracy to coordinate DRAM supply decisions.
III. Conclusion
Plaintiffs’ factual allegations do not amount to the “something more” required to support a plausible inference of conspiracy. Dismissal of Plaintiffs’ claims premised on
AFFIRMED.