ORIGINAL

UNTED STATES OF AMERICA

BEFORE THE FEDERAL TRADE COMMSSION

In the Matter of )

)

)

) PUBLIC

Docket No. 9327

Polyp ore International, Inc.,

a corporation.

COMPLAINT COUNSEL'S RESPONSE TO

RESPONDENT'S MOTION TO DISMISS COUNTS II AND III

OF THE COMPLAINT FOR FAILUR TO STATE A CLAIM

The motion to dismiss fied by Respondent, Polypore International, Inc. ("Polypore"),

evinces a failure to understand the basic structure of the Federal Trade Commssion Act.

Congress has empowered the FTC to prosecute violations of Section 5 of the FTC Act, including

conduct constituting "unfair methods of competition." The FTC does not and cannot directly

enforce the Sherman Act. However, conduct that violates the Sherman Act (monopolization,

unreasonable restraints of trade) is generally deemed to constitute an unfair method of

competition, and hence a violation of Section 5 of the FTC Act as welL. It follows that if the

Commssion's Complaint against Polypore states a cause of action under Sherman Act standards

- and it certainly does - then the Complaint necessarly states a cause of action under Section 5

of the FTC Act.

Complaint Counsel's statement, in an earlier fiing, that the Complaint includes no claim

under the Sherman Act simply acknowledged that reality. The Commssion's claims against

Polypore must and do arse under the FTC Act and the Clayton Act. With this clarfied and

understood, Polypore's motion to dismiss is without substance.

i
The bulk of Polypore' s Memorandum is devoted to arguing that Section 5 does not

prohibit anticompetitive conduct except insofar as that conduct violates the Sherman Act. This

contention is erroneous, but also irrelevant. The Complaint properly alleges claims consistent

with Sherman Act liabilty standards that entitle Complaint Counsel to relief under Section 5.

Therefore it is not necessar for this Court to explore or delineate the outer bounds of Section 5.

Specifically, Count IT of the Complaint challenges: (i) an agreement between competitors

Polypore1 and Hollngsworth & Vose ("H & V") to allocate markets, and (ii) Polypore's

acquisition of Microporous Products, L.P. ("Microporous"). Each transaction constitutes an

unreasonable restraint of trade. Each and all of the elements of a standard Sherman Act

Section 1 violation are adequately alleged. Indeed, Polypore's Memorandum does not assert or

identify any pleading deficiency here.

Count il of the Complaint challenges conduct amounting to monopolization and attempted

monopolization. Again, each and all of the elements of a standard Sherman Act Section 2

violation are adequately alleged. Monopoly power is alleged in Paragraphs 21, 38(c), 39,42 and

43. Exclusionar conduct is alleged in Paragraphs 2, 4, 19-31,38-41, and 47. And specific

intent to monopolize is alleged in Paragraphs 26, 46 and 47.

Polypore's selective parsing of the Complaint is inconsistent with liberal pleading rules and

the standards governing a motion to dismiss.

The Complaint refers to "Daramc" in its specific allegations. Daramc is the

operating subsidiar of Polypore that manufactures battery separators. This Response wil refer

to Polypore throughout, including in connection with the Complaint.

2
I. THE RELATIONSHIP BETWEEN SECTION 5 OF THE FTC ACT

AND THE SHERMN ACT

The Commission is an independent regulatory agency established by Congress to

administer the Federal Trade Commssion Act, including the Section 5 prohibition on "unfair

methods of competition."z Congress deliberately left this phrase undefined "so that the

parameters of the Commssion's powers and the scope of its administrative and judicial functions

could be responsive to a wide varety of business practices.,,3

The FTC does not directly enforce the Sherman Act.4 (The Sherman Act is enforced by

the Deparment of Justice, by private claimants, and by state attorneys general.) However, the

Commssion's authority under Section 5 of the Sherman Act reaches conduct that violates the

Sherman Act. Stated somewhat differently, in applying Section 5, the Commssion employs

liability standards developed under the Sherman Act. Numerous Supreme CourtS and FTC cases6

confirm these simple propositions.

Z

15 U.S.C. § 45.

ABA SECTION OF ANTUST LAW, ANTUST LAW DEVELOPMENTS 643 (6th ed.

2007) (hereinafter ANTUST LAW DEVELOPMENTS).

3

4

15 U.s.c. §§ 1-7.

S California Dental Assn. v. FTC, 526 U.S. 756, 762 (1999); FTC v. Motion Picture

Adver. Servo Co., 344 U.S. 392,394-95 (1953); FTC v. Cement Inst., 333 U.S. 683, 694 (1948);

Fashion Originators' Guild v. FTC, 312 U.S. 457, 463-64 (1941). See also ANTUST LAW

DEVELOPMENTS 647 and n. 42.

6

In the Matter of Rambus, Inc., FTC Docket No. 9302, Opinion of the Commssion

at 27 and n. 5,30 n. 141 (Aug. 2, 2006), reversed on other grounds, Rambus, Inc. v. FTC, File

Nos. 07-1086 and 07-1124 (D.C. Cir., April 22, 2008); In the MatterofSchering Plough Corp.,

et al., FTC Docket No. 9297, Opinion of the Commssion at 4, 83 n. 107 (December 8, 2003),

vacated on other grounds by Schering Plough Corp. v. FTC, 402 F.3d 1056 (1 lth Cir. 2005); In

the Matter of California Dental Ass'n., 121 F.T.C. 190,297-99 (March 25, 1996); reversed on

other grounds, California Dental Ass'n, 526 U.S. at 781.

3
Complaint Counsel's earlier filng does not (as Polyp ore claims) "admit" to having

"failed to plead a viable Section 2 claim.,,7 Instead, Complaint Counsel stated that the claims in

this case arise under the FTC Act and the Clayton Act. 8

Polypore is apparently concerned that, in the present case, Complaint Counsel intends to

interpret Section 5 in a manner that sweeps broader than the prohibitions of the Sherman Act.

Polyp ore argues at length that this enforcement strategy, if pursued, would be improper. How

this abstract argument becomes the centerpiece of a motion to dismiss is somewhat mystifying.

Polypore's denunciation of a "pure" Section 5 case (what Polypore calls a "sub-Sherman Act"

claim) is both legally untenable and wholly irrelevant.

The argument is legally untenable because it conflcts with Supreme Court precedent.

Section 5 encompasses Sherman Act violations, and also reaches conduct that violates the

"spirit" or policies of the other antitrust laws - that is, conduct that is similar in its likely

competitive effect to other violations - but not technically within the letter of those statutes.9

In any event, this Court need not address whether Section 5 reaches beyond the Sherman Act.

The issue is irrelevant because each claim in the Commssion's Complaint states a cause of

action under traditional Sherman Act standards.

7

Polypore Memorandum at 7.

8

The complete text of Complaint Counsel's representation is as follows: ''There is

no claim under the Sherman Act in this complaint, which is brought solely under Sections 5

(FCA) and 7 (Clayton Act)." Complaint Counsel's Response to Respondent's Motion for a

More Definite Statement at 3 (Sept. 30, 2008).

9

See FTC v. Indiana Fedn of Dentists, 476 U.S. 447, 554; Motion Picture Adver.

Serv., 344 U.S. at 394-95; Yamaha Motor Co., Ltd. v. FTC, 657 F.2d 971,981 n. 14 (8th Cir.

1981) ("Section 5 is a general prohibition against unfair methods of competition. It includes but

is not limited to the specific acts and practices condemned by the Sherman and Clayton Acts.")

(emphasis supplied). See also ANUST LAW DEVELOPMENTS 648-656.

4
II. LEGAL STANDARD FOR A MOTION TO DISMISS

Section 3.11 (b )(2) of the FTC Rules of Practice requires that a complaint contain "a clear

and concise factual statement sufficient to inform each respondent with reasonable definiteness

ofthe type of acts or practices alleged to be in violation of the law." 16 C.F.R. § 3.11(b)(2). If a

fair reading of the complaint shows that its allegations, if proven, "are sufficient to make out the

violation," then denial of the motion to dismiss is proper. In re Evanston Northwestern

Healthcare Corp., FTC Docket No. 9315, Administrative Law Judge's Order Denying

Respondent's Motion to Dismiss Count IT of the Complaint (June 2, 2004) (located at

~ttp://www.ftc.gov/os/adjpro/d9315/040602orddenymodismiss.pdb).This standard does not

require "detailed factual allegations." Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964

(2007). Rather, the complaint must give the defendant fair notice of what the claim is and the

grounds upon which it rests. !d. See also Muir v. Navy Fedl Credit Union, 529 F.3d 1100, 1108

(D.C. Cir. 2008).

In evaluating a motion to dismiss, "a judge must accept as true all of the factual

allegations contained in the complaint." Erickson v. Pardus, 127 S. Ct. 2197, 2200 (2007) (per

curam). In addition, all reasonable inferences from those allegations are rendered in favor of the

plaintiff. Cleveland v. Caplaw Industries, 448 F.3d 518,521 (2d Cir. 2006). See also Los

Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986); Broadcom Corp. v.

Qualcomm Inc., 501 F.3d 297,306 (3d Cir. 2007) ("'we accept all factual allegations as true,

construe the complaint in the light most favorable to the plaintiff, and determne whether, under

any reasonable reading of the complaint, the plaintiff may be entitled to relief"'); Evanston

Northrvestern Healthcare, supra, Order at 3.

5
III. COUNT II PROPERLY ALLEGES UNLAWFUL RESTRAINTS OF TRADE

According to Polypore, Count IT deficiently alleges violations of Sherman Act Section 2.

This reflects further confusion on the par of the respondent. Actually, Count IT properly alleges

the elements of two violations of the FTC Act, Section 5, patterned after Sherman Act Section 1.

Polygram Holding, Inc. v. FTC, 416 F.3d 29,33 (D.C.Cir. 2005) (Explaining that the analysis

under Section 5 for a Section 1 claim is the same). Specifically, Count IT charges that:

(i) Polypore's acquisition of Microporous is an unreasonable restraint of trade; 

10 and

(ii) Polypore's agreement with H & V to allocate markets is an unreasonable restraint oftrade.

The latter agreement, if proven, is a per se violation of the antitrust laws. E.g., Nynex Corp. v.

Discon, Inc., 525 U.S. 128, 134 (1998) (horizontal market division is "unlawful per se"); Palmer

v. BRG of Georgia, Inc., 498 U.S. 46, 49-50 (1990) (same); Blue Cross & Blue Shield United of

Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995); Blackburn v. Sweeney, 53

F.3d 825,827 (7th Cir. 1995); United States v. Brown, 936 F.2d 1042, 1045 (9th Cir. 1991);

General Leaseways, Inc. v. Natl Truck Leasing Ass'n, 744 F.2d 588,595 (7th Cir. 1984).11 The

Polypore Memorandum does not identify any deficiency with regard to the Sherman Act

Section 1 allegations in the Complaint.12

10 An acquisition constitutes concerted action, and may be challenged under

Section 1 of the Sherman Act. United States v. Rockford Memorial Corp., 898 F.2d 1278, 1281-

83 (7th Cir. 1990).

11 Where a complaint asserts a per se violation of Section 1, it is not necessar to

allege a relevant market or market power. Campfield v. State Farm Mutual Automobile Ins. Co.,

532 F.3d 11 11, 1119 (10th Cir. 2008); In re European Rail Pass Antitrust Litig., 166 F. Supp. 2d

836, 844 (S.D.N.Y. 2001). See also In the Matter of Kentucky Household Goods Carriers

Association, Inc., Dkt. No. 9309, 2005 FTC LEXIS 124, at *46-47 (June 21, 2005) (in per se

case, not necessar to prove a relevant market).

12

See Polyp ore Memorandum at 4 (arguing only that Count IT of the Complaint

6
iv. COUNT III PROPERLY ALLEGES MONOPOLIZATION

AND ATTEMPTED MONOPOLIZATION

Count il charges that Polypore has monopolized and/or attempted to monopolize each of

five relevant markets. 

13 This is clearly within the ambit of Section 5. Cement Inst., 333 U.S. at

694 (§ 5 reaches all 'conduct that violates § 2 of the Sherman Act). Attempted monopolization

claims typically allege an unsuccessful or unconsummated attempt to achieve monopoly power.

The primar liability theory advanced here is that Polyp ore attempted through anticompetitive

means to maintain monopoly power. Polypore suggests that this claim is somehow improper.14

The Supreme Court upheld an attempt to maintain monopoly claim in Lorain Journal Co.

v. United States, 342 U.S. 143, 154 (1951), concluding that: "fA) single newspaper, already

enjoying a substantial monopoly in its area, violates the 'attempt to monopolize' clause of § 2

when it uses its monopoly to destroy threatened competition." The Court of Appeals for the Fifth

Circuit endorsed the attempt to maintain monopoly theory in Multifex, Inc. v. Samuel Moore &

Co., 709 F.2d 980, 990-91 (5th Cir. 1983). See also United States v. Microsoft Corp., 253 F.3d

"must be dismissed as to claims of monopolization or attempted monopolization").

13 The five product markets are: (1) deep-cycle battery separators; (2) motive battery

separators; (3) automotive battery separators; (4) UPS battery separators; and (5) all high

performance polyethylene ("PE") separators. The relevant geographic market is North America.

Monopolization and attempted monopolization claims may be pursued simultaneously.

See, e.g., Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768,782 (6th Cir. 2002), cert.

denied, U.S. Tobacco Co. v. Conwood Co., L.P. 537 U.S. 1148 (2003); see also P. Areeda &

H. Hovenkamp, Antitrust Law t-806f4 (3d ed. 2008) (hereinafter Areeda & Hovenkamp) (An

antitrust plaintiff "may plead both offenses and allow the court to base its disposition on either or

neither offense as the evidence emerges.").

14 Polypore Memorandum at 15.

7
34,58 (D.C. Cir. 2001) (A firm violates Section 2 "when it acquires or maintains, or attempts to

acquire or maintain, a monopoly by engaging in exclusionar conduct.").

Thus, the claims are legally sound. The remaining question is whether the essential

elements are adequately alleged. The offense of monopolization has two elements: (1) that the

defendant possesses monopoly power in a relevant market, and (2) the acquisition or

maintenance of that monopoly power through predatory or anticompetitive conduct. Aspen

Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 595-96 (1985); Spirit Airlines, Inc. v.

Northwest Airlines, Inc., 431 F.3d 917,932 (6th Cir. 2005).

The offense of attempted monopoly maintenance has four elements: (1) that the defendant

possesses monopoly power, and (2) has engaged in predatory or anticompetitive conduct with (3)

a specific intent to monopolize, and (4) a dangerous probability of maintaining monopoly power.

Cf Spectrum Sports, Inc. v. McQuilan, 506 U.S. 447, 456 (1993); Lorain Journal, 342 U.S.

at 154. The Complaint properly alleges each and every element.

A. Monopoly Power and Dangerous Probabilty of Maintaining Monopoly Power

As to four of the five markets, Polypore's monopoly power is alleged in Paragraph 42

("In automotive, motive, UPS, and all PE markets (Polypore) has historically maintained

monopoly power."). See also Paragraph 38(c) (alleging that acquisition of Microporous created a

monopoly in motive market); Paragraph 39 (alleging that, even prior to the acquisition of

Microporous, Polypore had monopoly power in motive, UPS, and all PE markets). Polypore

avers that this is insufficient because the date is unspecified. It is reasonable to infer, however,

that the time frame referenced here includes all times relevant to the Complaint, up to and

including the present day. This reading is confirmed by Paragraph 43, which indicates that entry

8
is not likely to dissipate Polypore's current monopoly position in the automotive, motive, UPS,

and all PE markets.

As to the fifth market, deep-cycle, monopoly power is alleged in Paragraph 21 ("There

are no other deep-cycle battery separator competitors in the world. . . . Post-acquisition (of

Microporous), (Polyp ore) has a monopoly in this market."). Polyp ore acknowledges that this

allegation is sufficient.1s

The varous allegations that Polypore possesses monopoly power, possessed monopoly

power, and has maintained such monopoly power over time are equivalent to, or support the

inference that, the company has a dangerous probability of maintaining monopoly power in all

five markets.16 Also, viewed in the light most favorable to the plaintiff, the allegations that in

each relevant market entry barers are high (Paragraphs 33-37,43), and that entry is unlikely

(Paragraphs 32, 36, 43), further support an inference that Polypore has a dangerous probabilty of

maintaining monopoly power. Finally, Paragraph 44 (read in conjunction with Paragraph 39)

alleges that Polypore's exclusionar conduct (described below) "cared the dangerous

probability" of maintaining monopoly power in all five markets.

B. Exclusionary Conduct

The Complaint alleges that Polyp ore engaged in three types of exclusionar conduct

designed to acquire or maintain monopoly power. First, Polyp ore acquired Microporous

is

Polyp ore Memorandum at 14.

16 See, e.g., Full Draw Productions v. Easton Sports, Inc., 182 F.3d 745, 756-57

(10th Cir. 1999) (complaint stating defendants' unlawful conduct drove only competitor from

market adequately alleged both "dangerous probability" element of attempt offense and

possession of monopoly power element of monopolization offense). Cf Conwood, 290 F.3d at

782-83 n.2 (evidence proving possession of monopoly power similarly supported attempt claim).

9
(affecting all five markets).17 Acquisition of a competitor is a type of exclusionar conduct that

may be challenged under Section 2.18 Second, Polypore entered into a market allocation

agreement with H & V (affecting the automotive, motive, UPS and all PE markets) and

attempted to enter into a market allocation agreement with Microporous (potentially affecting all

five markets).19 This too is exclusionar conduct that may be challenged under Section 2?0

Finally, Polyp ore bullied its customers and pressured them to enter into exclusive supply

agreements (affecting the automotive, motive, UPS and all PE markets)?l These coercive

bargaining tactics are a type of exclusionar conduct that may be challenged under Section 2.22

c. Specific Intent

With regard to the Microporous acquisition, Polypore's specific intent to maintain

monopoly power is alleged in Paragraph 26 ("fundamental purpose" of Microporous acquisition

"was to restrain competition unreasonably"). With regard to the market allocation agreements,

Polypore's specific intent to maintain monopoly power is alleged in Paragraph 47 (intent to

17 Paragraphs 2, 4, 19,20,21-31, 38(a)-(h).

Standard Oil Co. v. United States, 221 U.S. 1 (1911); United States v. American

Tobacco Co., 221 U.S. 106 (1911); see generally Areeda & Hovenkamp, llll701a-d.

18

19 Paragraphs 38(a), 41, 47.

Unitéd States v. Grinnell Corp., 384 U.S. 563, 576 (1966); United States v.

American Airlines, 743 F.2d 11 14, 11 18 (5th Cir. 1984).

20

21

Paragraphs 39-40.

22 Lorain Journal, 342 U.S. at 152-53: Microsoft, 253 F.3d at 70 (exclusionar

contracts with OEMs relegated rival to inferior distribution opportunities); United States v.

Dentsply International, Inc., 399 F.3d 181, 190 (3d Cir. 2005) (defendant liable for

monopolization where it had "threatened to sever access" of dealers to multiple products and

otherwise "pressure(d)" them to enter exclusive dealership agreements.).

10
"prevent them (H & V) from entering the PE separator market"). With regard to the coercive

bargaining tactics, Polypore's specific intent to maintain monopoly power is alleged in

Paragraph 46 (intent to "destroy competition").

In addition, specific intent to monopolize may be inferred from allegations of

exclusionar conduct (see Point IV.B., above). M & M Med. Supplies & Servo v. Pleasant Valley

Hosp., 981 F.2d 160, 166 (4th Cir. 1992) (en banc) ("Specific intent may be inferred from the

defendant's anticompetitive practices."); General Indus. Corp. v. Hartz Mountain Corp., 810

F.2d 795,801 (8th Cir. 1987) ("specific intent need not be proven by direct evidence but can be

inferred from the defendant's anticompetitive practices or other proof of unlawful conduct.").

CONCLUSION

For the foregoing reasons, Respondent's motion to dismiss Counts IT and il of the

Complaint for failure to state a claim should be denied.

Dated: October 27, 2008 Respectfully submitted,

-j(io..l ~~ J. Robert Robertson

Complaint Counsel

Bureau of Competition

Federal Trade Commssion

600 Pennsylvania Avenue, N.W. (H-374)

Washington, DC 20580

Telephone: (202) 326-2641

Facsimile: (202) 326-2884

11
CERTIFICATE OF SERVICE

I hereby certify that on October 27,2008, I fied via hand and electronic mail delivery an

original and two copies of the foregoing Complaint Counsel's Response to Respondent's Motion

to Dismiss Counts IT and III of the Complaint for Failure to State a Claim with:

Donald S. Clark, Secretary

Office of the Secretary

Federal Trade Commssion

600 Pennsylvania Avenue, NW, Rm. H-135

Washington, DC 20580

I hereby certify that on October 27,2008, I served via hand and electronic mail delivery

three copies of the foregoing Complaint Counsel's Response to Respondent's Motion to Dismiss

Counts II and III of the Complaint for Failure to State a Claim with:

The Honorable D. Michael Chappell

Administrative Law Judge

Federal Trade Commssion

600 Pennsylvania Avenue, NW

Washington, DC 20580

I hereby certify that on October 27,2008, I served via electronic mail delivery a copy of

the foregoing Complaint Counsel's Response to Respondent's Motion to Dismiss Counts IT and

II of the Complaint for Failure to State a Claim with:

Wiliam L. Rikard, Jr.

Parker, Poe, Adams & Bernstein, LLP

401 South Tryon Street, Suite 3000

Charlotte, North Carolina 28202

willamrkard (ßparkerpoe.com