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ROLITE, INC. v. WHEELABRATOR ENVTL. SYS.

March 24, 1997

ROLITE, INC., Plaintiff,
v.
WHEELABRATOR ENVIRONMENTAL SYSTEMS, INC., and WMX TECHNOLOGIES, INC., Defendant.



The opinion of the court was delivered by: BRODY

 Anita B. Brody, J.

 March 24, 1997

 On September 27, 1994, Plaintiff Rolite, Inc. filed a five-count complaint against Defendants Wheelabrator Environmental Systems, Inc. and its corporate parent, WMX Technologies, Inc., seeking a declaratory judgment of non-infringement of Wheelabrator's patent and alleging various unfair trade practices. On November 6, 1995, I granted Rolite summary judgment with regard to the patent claim (Count I of the Complaint), finding that, based upon my interpretation of the patent, Rolite could not be held to have infringed upon the patent in question. After a number of deadline extensions due to the complexity of the case, Rolite filed an Amended Complaint on July 10, 1996, which sought the following: (1) injunctive relief and treble damages for Defendants' alleged violation of Section 2 of the Sherman Act (Count II) ; (2) injunctive relief and treble damages for Defendants' alleged violation of Section 1 of the Sherman Act (Count III); (3) injunctive relief and treble damages for Defendants' alleged violation of Section 43(a) of the Lanham Act (Count IV); and (5) damages for alleged violations of state laws against unfair competition, defamation, commercial disparagement, and tortious interference with prospective business advantage (Count V). Defendants have moved to dismiss Counts II and III and parts of Count V pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons that follow, I will grant their motion in part and deny it in part.

 I. SUMMARY OF FACTS AS ALLEGED IN THE AMENDED COMPLAINT

 For the purpose of this dismissal motion, I must take to be true all facts alleged by Rolite in its Amended Complaint. I will briefly review those facts. All parties are involved in municipal waste management, and both Rolite and Wheelabrator operate systems for the conversion and recycling of ash residue ("Ash Residue Waste" or "ARW") from waste incinerators. Wheelabrator holds a patent, United States Patent No. 4,804,147, for its recycling procedure. This patent lapsed on August 14, 1992 due to Wheelabrator's failure to pay a maintenance fee, but was reinstated on February 14, 1994, after Wheelabrator petitioned for reinstatement and payed the maintenance fee and late fees.

 Rolite claims that on several occasions Wheelabrator has accused Rolite of infringing upon its patent through Rolite's process for making ash residue into "Rolite Aggregate," and that Wheelabrator threatened litigation if the alleged infringement did not cease. Additionally, Rolite alleges that representatives of one or both Defendants have stated to Rolite's customers or potential customers that Rolite's process infringes Wheelabrator's patent, and have misrepresented to customers and potential customers the nature, characteristics, and qualities of Rolite Aggregate. Furthermore, Rolite has been compelled to disclose the infringement claim and threats of suit as material facts to existing and potential investors. Rolite claims that the effect of the statements and misrepresentations by Defendants and the disclosure by Rolite has been to discourage customers and potential customers from dealing with Rolite.

 II. DISMISSAL STANDARD

 In moving to dismiss Rolite's antitrust and state tort claims at the pleading stage, Defendants must meet a very high standard. Addressing summary dismissal generally, the Supreme Court has stated: "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 103, 2 L. Ed. 2d 80 (1957); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232, 81 L. Ed. 2d 59 (1984). "The Federal Rules of Civil Procedure do not require a claimant to set out in detail the facts upon which he bases his claim. To the contrary, all the Rules require is 'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests....Such simplified 'notice pleading' is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules to disclose more precisely the basis of both claims and defense and to define more narrowly the disputed facts and issues." Conley, at 47-48, 78 S. Ct. at 103 (footnotes omitted).

 The dismissal standard is even higher in antitrust cases than it is generally: "Summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot." Poller v. Columbia Broadcasting Sys., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962); see also Hospital Bldg. Co. v. Trustees, 425 U.S. 738, 746, 96 S. Ct. 1848, 1853, 48 L. Ed. 2d 338 (1976) ("In antitrust cases,...dismissal prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly."); Commonwealth of Pennsylvania ex rel. Zimmerman v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir. 1988)("We should be extremely liberal in construing antitrust complaints." Quoting Knuth v. Erie-Crawford Dairy Co-op. Ass'n, 395 F.2d 420, 423 (3d Cir. 1968), cert. denied, 410 U.S. 913, 93 S. Ct. 966, 35 L. Ed. 2d 278 (1973)); Abbott Laboratories v. Brennan, 952 F.2d 1346 (Fed. Cir. 1991), cert. denied, 505 U.S. 1205, 112 S. Ct. 2993, 120 L. Ed. 2d 870 (1992) ("In an antitrust action, the complaint need only allege sufficient facts from which the court can discern the elements of an injury resulting from an act forbidden by the antitrust laws." (Internal quotations and citations omitted)).

 At least two circuits, however, have declined to adhere strictly to the high standard seemingly set by Conley and Hishon. In Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101 (7th Cir. 1984), cert. denied, 470 U.S. 1054, 105 S. Ct. 1758, 84 L. Ed. 2d 821 (1985), the Court of Appeals for the Seventh Circuit said the following:

 
As this court has recognized, Conley has never been interpreted literally. Sutliff, Inc. v. Donovan Cos., 727 F.2d 648, 654 (7th Cir. 1984). In practice, "a complaint...must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Id. at 654 (quoting In re Plywood Antitrust Litig., 655 F.2d 627, 641 (5th Cir. 1981), cert. dismissed, [462] U.S. [1125], 462 U.S. 1125, 103 S. Ct. 3100, 77 L. Ed. 2d 1358 (1983)).

 Id. at 1106.

 In this Circuit, it has been held that, "even given the teachings of Conley,...the plaintiff must allege sufficient facts in the complaint to survive a Rule 12(b)(6) motion." Commonwealth of Pennsylvania v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir. 1988). "The court must review the allegations of fact contained in the complaint; for this purpose the court does not consider conclusory recitations of law." Id. The Court of Appeals quoted the Supreme Court in Associated Gen. Contractors of Cal. v. California State Counsel of Carpenters, 459 U.S. 519, 526, 103 S. Ct. 897, 902, 74 L. Ed. 2d 723 (1983), which said that "as the case comes to us, we must assume that the [plaintiff] can prove the facts alleged in its amended complaint. It is not, however, proper to assume that the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged." 836 F.2d at 180.

 It should be noted, however, that the Court of Appeals, in dismissing the complaint in Pepsico, pointed out that this case came under the Soft Drink Act, and stated that "because the soft drink industry is involved, [the plaintiff] has a pleading burden much higher than that in a mine-run antitrust complaint." Id. at 181. This is so because "the Soft Drink Act was enacted to remove certain soft drink industry practices from the reach of the antitrust laws...." Id. at 175. "Congress decided that the distribution practices of the soft drink industry merited special protection on the theory that territorial restraints foster the competitive spirit by encouraging each bottler to invest and promote in its own territory." Id. at 179.

 III. MOTION TO DISMISS COUNTS II AND III

 A. Failure to Allege Relevant Product Market

 Defendants contend that Rolite's monopolization, attempted monopolization and conspiracy to monopolize claims (Count II) under Section 2 of the Sherman Act should be dismissed for failure to allege a relevant product market. They further contend that Rolite's conspiracy to restrain trade claim (Count III) under Section 1 of the Sherman Act should be dismissed for the same reason.

 To state a claim of monopolization under Section 2 of the Sherman Act, a plaintiff must allege (1) possession of monopoly power in the relevant product and geographic market, and (2) willful acquisition or maintenance of that power as distinguished from justifiable business decision. U.S. v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). Thus, a plaintiff must allege a relevant product market to plead a monopolization claim under Section 2. The same is true of attempted monopolization and conspiracy to monopolize claims under that section. Scher, Irving, Antitrust Adviser, 4th Ed., ┬ž 1.22, at 1-40 and 1-41. Finally, conspiracies to restrain trade under Section 1 of the Sherman Act that are not per se violations of the Act are analyzed under the "rule of reason," and involve an inquiry into "market structure designed to assess the combination's actual effect." Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S. Ct. 2731, 2740, 81 L. Ed. 2d 628 (1984). *fn1" Therefore, relevant market must be pled with regard to Section 1 conspiracy claims as well. Defendants maintain that Rolite has failed to adequately plead the relevant product market, and that dismissal of these claims is therefore warranted.

 Defendants state that Rolite's description of the relevant product market in its Amended Complaint is "confined to but a single paragraph." Paragraph 178 alleges: "There are two service markets relevant hereto: (i) the landfill disposal of Ash Residue Waste and Ash (the 'Disposal Market'), and (ii) the recycling or treatment of Ash (the 'Recycling Market'). Alternatively, the Recycling Market and the Disposal Market may be viewed as separate submarkets within a larger market encompassing both."

 These "skimpy and conclusory allegations," Defendants say, are patently insufficient to plead a relevant product market because:

 
(1) they fail to provide any guidance as to precisely what products are in the Recycling Market;
 
(2) they fail to provide any guidance as to what reasonably interchangeable products are in the Recycling Market; and
 
(3) they fail to provide any guidance as to the identities of the companies that compete in the Recycling Market.

 Defendants then cite a number of cases in which they say monopolization claims have been dismissed because the plaintiff has failed to adequately plead the relevant market.

 Rolite claims that it needs to show neither what products and reasonably interchangeable products are in the Recycling Market (which it says are actually one issue), nor what companies compete in the market, in pleading its claim. It cites for the proposition a case from the Northern District of Illinois, A.G. Fur Industrielle Elektronik AGIE v. Sodick Co., Ltd., 748 F. Supp. 1305 (N.D. Ill. 1990). It also attempts to distinguish those cases cited by Defendants from the present one.

 None of the cases cited by Defendants say exactly what Defendants interpret them as saying, and none support a dismissal here. Several of the cases dismiss not for a general failure to adequately plead a relevant market, but rather for a failure to plead facts that would be necessary for the court to determine that the relevant market should be defined as narrowly as the plaintiffs attempt to, which narrowness is necessary for their claims of monopolization. For instance, in B.V. Optische Industrie De Oude Delft v. Hologic, Inc., 909 F. Supp. 162 (S.D.N.Y. 1995), plaintiff defined the relevant market as that for chest equalization radiography technology, a new technology used for chest X-rays. However, the court found that "Plaintiffs' pleadings do not refer to any reasonably interchangeable alternatives, nor do they offer an explanation for why they are defining the relevant product market in such narrow terms." Id. at 172. "Indeed, without pleadings from Plaintiff asserting otherwise, it appears to the Court that chest equalization radiography is not an independent product market, but rather part of the overall X-ray market." Id. "Unless plaintiffs can show that chest equalization radiography is the relevant market, proof that defendants obtained their patents fraudulently does not translate into a showing of successful monopolization." Id.

 Another case cited by Defendants, Re-Alco Industries, Inc. v. Nat'l Center for Health Education, Inc., 812 F. Supp. 387 (S.D.N.Y. 1993), contained a similar holding. Plaintiff had not failed to define the relevant market, but rather had defined the market very narrowly, here for a particular brand of school health manual. The court said: "The complaint in an antitrust case must allege a basis for finding that commodities which are in some way unique, such as the educational materials in question here, are a market unto themselves. Plaintiff must explain why the market it alleges is in fact the relevant, economically significant product market." Id. at 391. "Plaintiff has made no showing why Growing Healthy materials should be considered a market unto themselves, as distinguished from the market suggested by defendants -- all health education materials for elementary schools." Id. at 392. See also Gianna Enterprises v. Miss World (Jersey) Ltd., 551 F. Supp. 1348 (S.D.N.Y. 1982) (cited by Defendants in their Reply, at 6)(Plaintiff defined the relevant market as the market only for international beauty pageants. "The Court cannot accept the market boundaries offered by plaintiff without at least a theoretically rational explanation for excluding the publicity potential offered by lesser pageants or different media." Id. at 1354); Ford Piano Supply Co. v. Steinway and Sons, 1988 U.S. Dist. LEXIS 523, 1988 WL 3488 (S.D.N.Y.) (cited in Defendants' Reply at 6) (Market for a particular brand of piano parts is not a market capable of competitive structure).

 Other cases cited by Defendants had anti-trust claims that were dismissed not because plaintiffs failed to properly plead a definition for a relevant market, but rather because the relevant market definition which they did plead was not of a market that was an economically "viable" or "plausible" one. See E. & G. Gabriel v. Gabriel Brothers, Inc., 1994 U.S. Dist. LEXIS 9455, 1994 WL 369147, at *3 (S.D.N.Y.) ("The court finds plaintiff's alleged market to be implausible[, because, among other reasons,] Plaintiff's proposed market is comprised of products as varied as household hardwares and children's sleepwear."); Theatre Party Assoc., Inc. v. Shubert Organization, Inc., 695 F. Supp. 150 (S.D.N.Y. 1988) (cited in Defendants' Reply, at 6)("Plaintiff's proposed market--advance sales of selected tickets to the early run of Phantom [of the Opera]--does not comprise a viable antitrust market." Id. at 154). Defendants do not contend that either the Recycling Market or the alternative combined Recycling and Disposal Market alleged by Rolite are not economically viable markets or are otherwise implausible.

 Defendants also cite Queen City Pizza, Inc. v. Domino's Pizza, Inc., 922 F. Supp. 1055 (E.D.Pa. 1996). However, they misread the opinion of the Honorable J. Curtis Joyner. Judge Joyner did not dismiss, as Defendants contend, because the plaintiff failed to allege any, or to allege sufficiently, relevant market. Rather, he said the following:

 
Antitrust claims predicated upon a "relevant market" defined by the bounds of a franchise agreement are not cognizable. Thus, the amended complaint fails not because the purported relevant market arises from a single brand of product, but because the "market" was created by virtue of the franchise agreements Plaintiffs freely entered.

 Id. at 1063 (emphasis added). Based upon this reasoning (and not, significantly, because their claims were not premised upon any pleaded relevant market), he concluded that "the relevant market on which Plaintiffs' antitrust claims are premised...cannot support those claims as a matter of law." Id. at 1064.

 Those cases which Defendants cite which do appear to dismiss antitrust claims for failure to adequately plead any relevant market at all make no allegations whatsoever as to what the relevant market is. See Ajax/Acorn Manufacturing, Inc. v. Berman Sales Co., Inc., 1991 U.S. Dist. LEXIS 15569, 1991 WL 224997, at *3 (E.D.Pa.) ("Plaintiff's Complaint is deficient because it has failed to plead facts which would establish the relevant market threatened by the alleged price discrimination."); Curvcraft, Inc. v. Chromcraft, Inc., 193 U.S.P.Q. 371, 373 (E.D.Pa. 1976) ("Defendant has not alleged in its counterclaim what the relevant market is.").

 In the one case cited by Rolite, AG Fur, supra, the district court for the Eastern District of Illinois denied a motion to dismiss an antitrust claim which contained the following cursory pleading defining a narrow relevant market: "The relevant market for purposes of this counterclaim is the United States market for the sale of CNC wire EDM machines....The United States CNC wire EDM market is heavily concentrated, highly capital intensive and presents significant barriers to entry. It constitutes a distinct and identifiable product market." 748 F. Supp. at 1316.

 In sum, the cases cited by Defendants fall into four categories: (1) cases where the plaintiffs failed to plead facts that would support the extremely narrow relevant market definitions which were essential to their monopolization claims; (2) cases where the plaintiffs alleged a relevant market definition, but for a market which was implausible or not viable; (3) one case in which the "relevant market" defined was one which was created by a franchise agreement which the plaintiffs had voluntarily signed; and (4) cases in which no attempt whatsoever was made in the pleadings to define the relevant market.

 The cases in category (1) do not compel a dismissal here for the reasons discussed above. While Rolite's claim may depend upon the narrow relevant market definition (i.e. "Recycling Market" as opposed to market for all ash residue disposal), Rolite may be able to make out a monopolization claim without this narrow definition, and in any event has pled facts sufficient to support such a definition. The facts as extensively pled by Rolite also support its contention that the Recycling Market, or at least the "larger" Disposal and Recycling Market, are economically viable and plausible markets; therefore, Defendants' cited cases that fall in category (2) are also inapposite.

 The Queen City Pizza case of category (3) does not apply here: in that case dismissal was explicitly dependent upon the existence of a franchise agreement. Finally, unlike the cases I have designated as being in category (4), Rolite has made some pleading defining what it believes to be the relevant market.

 Thus, none of the cases cited by Defendants convince me that Rolite has failed to meet its pleading requirement. All either are inapposite or grant dismissal on the basis of inadequacy of pleadings where plaintiffs offer far less than what Rolite offers here.

 In Paragraph 178 of its Amended Complaint, Rolite explicitly sets out what it believes the relevant markets to be. When this paragraph is looked at in conjunction with the 177 that precede it, many of which describe elements of the product and the market, there can be little confusion as to the market in which Rolite alleges that anti-competitive conduct has taken place, and Defendants therefore have adequate notice of this portion of Rolite's claim, as per Conley's "notice pleading" requirement. Defendants cannot convincingly argue that they are not aware from Rolite's pleadings what the relevant market is. Rolite has adequately pled the relevant market under the standards set forth by the Supreme Court in Conley and Hishon and by the Third Circuit in Pepsico.

 For the reasons stated above, I will deny Defendants' motion to dismiss Rolite's Section 2 monopolization, attempted monopolization and conspiracy to monopolize claims and Section 1 conspiracy to restrain trade claim on the basis of failure to allege a relevant market.

 B. Failure to Allege Market Power

 Defendants next move to dismiss Rolite's Section 2 claim for failure to allege Defendants' market power. As set forth above, to state a claim of monopolization under Section 2 of the Sherman Act, a plaintiff must allege (1) possession of monopoly power in the relevant product and geographic market, and (2) willful acquisition or maintenance of that power as distinguished from justifiable business decision. U.S. v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S. Ct. 1698, 1704, 16 L. Ed. 2d 778 (1966). To demonstrate attempted monopolization, which is also prohibited by Section 2, a plaintiff must prove "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 890-91, 122 L. Ed. 2d 247 (1993).

 Defendants claim that Rolite has alleged no facts which show that Wheelabrator actually possesses monopoly power, or that Wheelabrator possesses sufficient market power to present a dangerous probability of achieving monopoly power. Specifically, Defendants say, Rolite has not alleged any facts showing that Wheelabrator has the power to ...


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