Opinion ID: 1372453
Heading Depth: 4
Heading Rank: 2

Heading: The Second ElementWhen Aggregated, the Exchange Agreements Unreasonably Restrain Trade.

Text: Under the second element of a § 1 claim, a plaintiff must show the challenged agreement unreasonably restrains trade by establishing anti-competitive effects. Bhan, 929 F.2d at 1410. To make this showing under the rule of reason analysis, a plaintiff generally must establish market power. Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947, 951 (9th Cir.1998). Market power is the ability to raise prices above those that would be charged in a competitive market. NCAA v. Bd. of Regents, 468 U.S. 85, 109 n. 38, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). Because each of the exchange agreements arguably affects only a small amount of CARB gas, Plaintiffs pleaded the cumulative effect of a single Defendant's exchange agreements to show market power and anti-competitive effect. Plaintiffs argue correctly that the district court erred in not allowing them to allege the cumulative effects of a single Defendant's exchange agreements. They find support in Ninth Circuit and United States Supreme Court precedent, which has allowed the aggregation of multiple contracts when evaluating the legality of an individual contract. Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291 (9th Cir.1982); Fortner Enters. v. United States Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969); Standard Oil Co. of Cal. & Standard Stations, Inc., v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371 (1949); cf. 2 AREEDA & HOVENKAMP ¶ 310c1, p. 201 (An aggregation of claims may produce sufficient proof of violation or injury where violation requires that a certain legal threshold be met and no claim standing alone is sufficient to meet the threshold.). In Twin City, we were presented with the issue of whether a district court, in assessing the antitrust liability of a defendant, may look to the overall effects of a defendant's conduct in the relevant market, or is limited to looking at the market implications of the one contract between the antitrust plaintiff and defendant. 676 F.2d at 1302. We allowed aggregation, reasoning that a defendant who restrains trade by an obvious pattern and practice of entering into individual contracts should not be allowed to do piecemeal what he would be prohibited from doing all at once. Id. We held that, [c]reating such a distinction would require courts to enforce arguably innocuous single contracts that belong to a pattern of contractual relations that significantly restrain trade in a relevant market. Id. at 1303. The district court and Defendants concede that aggregation of agreements is appropriate in some cases. Both, however, contend that aggregation should be allowed only in the context of exclusive dealing and tying cases because of the predictably anti-competitive effect of those practices  market foreclosure to competitors. The district court reasoned that only those types of contracts can be aggregated because they have a clear purpose and an identifiable effect and because [d]etermining the cumulative effect of such contracts can be done with relative ease. We disagree, as no general rule requires that only the easiest cases may be aggregated. As noted by the California Supreme Court, plaintiffs have a viable legal theory. See Aguilar, 107 Cal.Rptr.2d 841, 24 P.3d at 521 n. 35 (noting an alternative theory, which [is] also legally sound, that the assertedly unlawful conspiracy consisted of the various exchange agreements entered into by the various petroleum companies, and was unlawful because of its effects) (citation omitted). At the stage of a motion to dismiss for failure to state a claim, it is not our role to determine the soundness of Plaintiffs' economic theory. Even if we, as a savvy court, view actual proof of the facts pleaded in the SAC as improbable and conclude that a recovery is remote and unlikely, the complaint should still proceed. Bell Atl. Corp., 127 S.Ct. at 1965. The analysis we would have to undertake to dismiss the complaint here is not appropriate at the Rule 12 stage. [4] Defendants also argue that bilateral exchange agreements, in general, are an efficiency-enhancing distribution practice that promotes, not hinders, competition. The allegations contained in the SAC, however, are that these exchange agreements have anti-competitive effects. That exchange agreements like exclusive dealing and tying arrangements, may be efficiency-enhancing and thus procompetitive does not necessarily mean that the anti-competitive effects of those types of arrangements or agreements are always outweighed by procompetitive justifications. See Brown v. Hansen Publ'ns, Inc., 556 F.2d 969, 971 (9th Cir.1977) (noting that exclusive dealing contracts may be procompetitive); NCAA, 468 U.S. at 104 n. 26, 104 S.Ct. 2948 (noting that tying arrangements may be procompetitive). This loggerhead is precisely what a rule of reason analysis would address. The formulation of the dispute at issue was long ago laid out. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. Bd. of Trade of Chicago v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918). This point of contention is yet another reason to allow the complaint to proceed. Defendants offer a number of other arguments against aggregation. None of the arguments, however, can sidestep our precedent. Defendants argue that Plaintiffs waived the aggregation argument by not challenging the district court's Order Granting Leave to Amend in their first appeal to the Ninth Circuit. That order reads, The court GRANTS leave to amend plaintiff's complaint only to the extent that it alleges that each of the bilateral agreements, entered into independently between various defendant gasoline companies, have unreasonable anti-competitive effects and therefore violate the Sherman Act. The purpose behind the district court's decision to grant leave to amend was so Plaintiffs could plead a claim different than the per se violation pled in Aguilar. Plaintiffs complied by pleading a rule of reason claim based on the aggregate effects of the exchange agreements. Defendants also argue also that Dickson v. Microsoft Corp., 309 F.3d 193 (4th Cir. 2002), forecloses aggregation of the bilateral exchange agreements to establish a violation of § 1. In that case the plaintiff alleged discrete conspiracies between Microsoft and two original equipment manufactures (OEMs): Dell and Compaq. Id. at 210. The Fourth Circuit affirmed the district court's determination that it could not consider the cumulative harm of Microsoft's agreements with all OEMs but instead was required to consider  individually  Microsoft's agreements with Compaq and Dell because the complaint did not allege a conspiracy among Microsoft and all OEMs; it alleged discrete conspiracies between Microsoft and Compaq and Microsoft and Dell. Id. (emphases added). In other words, because the plaintiff did not allege the cumulative effect of Microsoft's agreements with all OEMs in the complaint, the Fourth Circuit declined considering their aggregate effects. Dickson is distinguishable from the present case, as the plaintiffs here do expressly allege that each Defendant's agreements considered in the aggregate have anticompetitive effects. Defendants also contend that aggregation would subject firms to unwarranted liability and great uncertainty regarding the validity of independent business dealings that do not carry inherent anticompetitive potential. Section 1 liability, however, is directed not only at inherent anticompetitive conduct, but also at conduct that has anticompetitive effects. Khan, 522 U.S. at 10, 118 S.Ct. 275. Furthermore, aggregation of the agreements does not lessen a plaintiff's burden of demonstrating anticompetitive effects of a given agreement. Because the district court's application of the law was incorrect, and because we reject Defendants' arguments against aggregation, we conclude that the district court erred in not allowing Plaintiffs to aggregate the agreements to demonstrate their anticompetitive effects.