Samsung Electronics Co., Ltd. v. Panasonic Corporation

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SAMSUNG ELECTRONICS CO., LTD., a No. 12-15185
Korean corporation,
Plaintiff-Appellant, D.C. No.
3:10-cv-03098-
v. JSW
PANASONIC CORPORATION, a
Japanese corporation; PANASONIC OPINION
CORPORATION OF NORTH AMERICA,
a Delaware corporation; SD-3C
LLC, a Delaware limited liability
company,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Jeffrey S. White, District Judge, Presiding
Argued and Submitted
December 5, 2013—San Francisco, California
Filed April 4, 2014
Before: Ronald M. Gould and Richard A. Paez, Circuit
Judges, and David A. Ezra, District Judge.*
Opinion by Judge Gould
*
The Honorable David A. Ezra, District Judge for the U.S. District
Court for the Western District of Texas, sitting by designation.
2 SAMSUNG ELECTRONICS V. PANASONIC CORP.
SUMMARY**
Antitrust
The panel reversed the district court’s dismissal, as barred
by the four-year statute of limitations, of a private action to
enforce the antitrust laws.
The plaintiff alleged that the defendants’ licenses for SD
cards were an anti-competitive agreement in restraint of trade
and a monopolization of the relevant markets. The panel held
that to state a continuing violation of the antitrust laws, and
thus plead an exception to the statute of limitations, a plaintiff
must allege that a defendant completed an overt act during the
limitations period that meets two criteria: 1) It must be a new
and independent act that is not merely a reaffirmation of a
previous act; and 2) it must inflict new and accumulating
injury on the plaintiff. The panel held that the plaintiff
sufficiently alleged that the defendants committed two overt
acts within the limitations period when they adopted a new
license and attempted to enforce either the original or the new
license by collecting royalty payments from the plaintiff.
The panel held that the case also fell within the statute-of-
limitations exception for speculative damages because the
existence of the harm was not determinable at the time of the
adoption of the original license.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
SAMSUNG ELECTRONICS V. PANASONIC CORP. 3
The panel reversed the district court’s order of dismissal
and remanded for further proceedings on the federal antitrust
law claims and on supplemental state law claims.
COUNSEL
Robert A. Long, Jr. and Timothy C. Hester, Covington &
Burling LLP, Washington, D.C.; Kathleen M. Sullivan
(argued) and Kevin P.B. Johnson, Quinn Emanuel Urquhart
& Sullivan, LLP, New York, New York, for Plaintiff-
Appellant.
Jeffrey L. Kessler (argued), Aldo A. Badini, James F. Lerner,
and Susannah P. Torpey, Winston & Strawn LLP, New York,
New York; Ian L Papendick, Winston & Strawn LLP, San
Francisco, California, for Defendants-Appellees Panasonic
Corporation and Panasonic Corporation of North America.
Christopher B. Hockett, Neal A. Potischman, and Samantha
H. Knox, Davis Polk & Wardwell LLP, Menlo Park,
California, for Defendant-Appellee SD-3C, LLC.
OPINION
GOULD, Circuit Judge:
We must determine the scope of the continuing violation
exception to the four-year statute of limitations on private
actions to enforce the antitrust laws. 15 U.S.C. § 15b.
Plaintiff-Appellant Samsung Electronics Company
(“Samsung”) appeals the district court’s dismissal under
Federal Rule of Civil Procedure 12(b)(6) of its claim against
4 SAMSUNG ELECTRONICS V. PANASONIC CORP.
Defendants-Appellees Panasonic Corporation, Panasonic
Corporation of North America, and SD-3C, LLC (“SD
Defendants”). We review de novo a district court’s dismissal
for failure to state a claim. Von Saher v. Norton Simon
Museum of Art, 592 F.3d 954, 960 (9th Cir. 2010). We have
jurisdiction under 28 U.S.C. § 1291, and we reverse.
I
SD cards are the dominant form of flash memory card on
the market, and are widely used in cellular phones, digital
cameras, audio players, and other forms of mobile
electronics.1 In 1999, Panasonic and its allies developed SD
cards as a modified proprietary format of the flash memory
cards then available, created the SD Group to promote their
use, and created SD-3C to license the format to
manufacturers. In 2003, the SD Defendants created a
standard license (the “2003 license”) that contained a clause
imposing a 6 percent royalty on SD cards sold by
manufacturers who were not members of the SD Group.
Samsung signed this license agreement, although it did not at
once begin producing SD cards because it was then
manufacturing a competing version of flash memory cards.
In 2005 and 2006, the SD Defendants developed two new
forms of SD cards: the high capacity SD card (“SDHC”) was
the same physical size as the first-generation product, but
used distinct software to give it a substantially higher storage
capacity than the original; the microSD card, designed for use
in mobile phones, was much smaller than the first-generation
1
Because this case is an appeal of a motion to dismiss under Fed. R.
Civ. P. 12(b)(6), the facts are taken from the complaint and viewed in the
light most favorable to Samsung.
SAMSUNG ELECTRONICS V. PANASONIC CORP. 5
product. By its terms, the 2003 license did not cover these
new formats. The SD Group met in the fall of 2006 and
adopted an “Amended and Restated SD Memory Card
License Agreement” (the “2006 license”), which contained
the same 6 percent royalty terms for non-SD Group
manufacturers of the two new formats as the 2003 license had
required for the original cards.
Samsung started to make both of these new formats in late
2006 as microSD and SDHC cards became the dominant
form of flash memory on the market. The SD Defendants
requested that Samsung sign the 2006 license, and told
Samsung that the executed 2003 license agreement did not
include the right to manufacture the new formats. Samsung
refused to sign the 2006 license. But as it began
manufacturing the new formats, Samsung made the requested
royalty payments on a quarterly basis beginning in November
2006.
Samsung filed suit in June 2010, alleging that the SD
Defendant’s licenses were an anti-competitive agreement in
restraint of trade in violation of Sherman Act section 1, a
monopolization of the relevant markets in violation of
Sherman Act section 2, and also violated parallel state laws.2
The district court granted the SD Defendants’ motion to
dismiss the suit on the grounds that Samsung’s claims were
time-barred. The district court held that all events that took
place within the four years before Samsung’s suit were a
mere continuation of the prior actions, and that they did not
2
The SD Defendants argue that their behavior was a pro-competitive
patent pool. The district court did not reach the merits of Samsung’s
claims. We also express no position on the substance of the complaint.
6 SAMSUNG ELECTRONICS V. PANASONIC CORP.
restart the statute of limitations to allow the filing of the
claims. Samsung filed a timely notice of appeal.
II
The governing statute, 15 U.S.C. § 15b, sets a four year
statute of limitations on private antitrust actions. But an
exception to this time limit exists for continuing violations.
See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S.
321, 338 (1971) (“In the context of a continuing conspiracy
to violate the antitrust laws, . . . each time a plaintiff is injured
by an act of the defendants a cause of action accrues to him
to recover the damages caused by that act and that, as to those
damages, the statute of limitations runs from the commission
of the act.”)
To state a continuing violation of the antitrust laws in the
Ninth Circuit, a plaintiff must allege that a defendant
completed an overt act during the limitations period that
meets two criteria: “1) It must be a new and independent act
that is not merely a reaffirmation of a previous act; and 2) it
must inflict new and accumulating injury on the plaintiff.”
Pace Industries, Inc. v. Three Phoenix Co., 813 F.2d 234, 238
(9th Cir. 1987).3 This standard is meant to differentiate those
cases where a continuing violation is ongoing—and an
antitrust suit can therefore be maintained—from those where
all of the harm occurred at the time of the initial violation.
3
Other circuits have adopted similar standards. See, e.g., Varner v.
Peterson Farms, 371 F.3d 1011, 1019 (8th Cir. 2004) (adopting the Pace
standard); Al George, Inc. v. Envirotech Corp., 939 F.2d 1271, 1275 (5th
Cir. 1991) (same); Peck v. Gen. Motors Corp., 894 F.2d 844, 849 (6th Cir.
1990) (“Since the Supreme Court decided Zenith, federal courts have
uniformly” recognized the continuing violation exception (citing Pace,
813 F.2d at 237)).
SAMSUNG ELECTRONICS V. PANASONIC CORP. 7
The prime example in our circuit of the latter type of case
is AMF, Inc. v. General Motors Corp. (In re Multidistrict
Vehicle Air Pollution), 591 F.2d 68 (9th Cir. 1979). There we
held that a suit by an automobile parts manufacturer
challenging the decision of a group of automakers not to
include parts from the manufacturer in future models of their
vehicles was not timely, because the unique nature of the
automobile business meant that the initial refusal to deal was
an “irrevocable, immutable, permanent and final” decision
and any damages that occurred during the limitations period
“necessarily resulted from” and “were but unabated inertial
consequences of some pre-limitations action.” 591 F.2d at 72(internal quotation marks omitted).
AMF is the exception, not the rule. More common are
cases such as Pace, where we held that a lawsuit constituted
an overt act even though the suit was filed to enforce a non-
compete agreement in the contract for a sale of a business,
and that the contract had been made outside the limitations
period. 813 F.2d at 239. The antitrust action was ultimately
dismissed as untimely because the lawsuit challenging the
non-compete agreement was also filed outside the limitations
period, and the continued prosecution of the case “relate[d]
back” to the filing of the case. Id. Even though the suit was
dismissed, we held that certain actions taken to enforce
contracts made in violation of the antitrust laws were
sufficient to restart the statute of limitations. Id. at 237.
Along the same lines, non-legal actions taken pursuant to
a pre-limitations period contract can lead a new cause of
action to accrue. For example, in Hennegan v. Pacifico
Creative Service, Inc., 787 F.2d 1299 (9th Cir. 1986), we
faced an arrangement in which a tourism company agreed to
steer customers to preferred souvenir shops. We held that a
8 SAMSUNG ELECTRONICS V. PANASONIC CORP.
cause of action accrued each and every time that a tourist was
shepherded away from the plaintiff’s non-preferred shop
because even though the agreement predated the limitations
period, the agreement itself did not “immediately and
permanently destroy” plaintiff’s business nor did it cause
“irrevocable, immutable, permanent, and final” injury.
787 F.2d at 1301. Similarly, in Columbia Steel Casting Co.,
Inc. v. Portland General Electric Co., 111 F.3d 1427 (9th Cir.
1996), we held that a power producer’s refusal to wheel
electricity in accordance with a pre-limitations contract
constituted an overt act that restarted the statute of
limitations. Id. at 1444–45. Even though the anti-
competitive agreement to divide the market between
producers dated back to 1972, the anti-competitive acts of the
parties to that agreement, taken pursuant to its terms, were
sufficient to support an antitrust action 18 years later. Id. In
both of these cases, an action taken under a pre-limitations
contract was sufficient to restart the statute of limitations so
long as the defendant had the ability not to take the
challenged action, even if that would have required breaching
the allegedly anti-competitive contract.
III
Samsung here alleges that the SD Defendants committed
two overt acts within the limitations period: the adoption of
the 2006 license, which extended the license to cover the
second-generation SD cards, and the attempt to enforce either
license by collecting royalty payments from Samsung. We
agree that both acts caused Samsung’s cause of action to
accrue within the limitations period.
SAMSUNG ELECTRONICS V. PANASONIC CORP. 9
A
The adoption of the 2006 license was a “new and
independent act” that caused “new and accumulating injury”
within the meaning of Pace because the 2003 license neither
covered second-generation SD cards, nor did it cover
expansion to future technological developments. Rather, the
2003 license applied only to the production of first-generation
SD cards, a fact that the SD Defendants recognized when
they sought to have Samsung sign the new licensing
agreement. The 2003 license did not contemplate future
expansion, nor did it foreclose future agreements on different
terms. Cf. AMF, 591 F.2d at 72 (noting the unique
characteristics of the automobile manufacturing market,
which require the integration of multiple parts, substantial
planning, and lead time).
That the 2006 license imposed the same 6 percent royalty
rate on the new SD cards as the 2003 license did on the old
ones is not evidence that the new license was a reiteration or
extension of the prior agreement. As our sister circuits have
said, “[t]he typical antitrust continuing violation occurs . . .
when conspirators continue to meet to fine-tune their cartel
agreement.” Midwestern Mach. Co. v. Nw. Airlines, Inc.,
392 F.3d 265, 269 (8th Cir. 2004) (citing Pa. Dental Ass’n v.
Med. Serv. Ass’n of Pa., 815 F.2d 270, 278 (3rd Cir. 1987).
That is what is alleged here, and Samsung’s suit is timely.
B
We further hold that, even if the 2006 license was merely
a restatement of the 2003 license, the application of the
licenses to Samsung when it began to make SD cards in the
fall of 2006 was also an overt act that restarted the limitations
10 SAMSUNG ELECTRONICS V. PANASONIC CORP.
period. We have repeatedly held that acts taken to enforce a
contract were overt acts that restarted the statute of
limitations. Columbia Steel, 111 F.3d at 1444–45; Pace,
813 F.2d at 237; Hennegan, 787 F.2d at 1300–01. When the
SD Defendants approached Samsung and required it to make
license payments—whether under a new 2006 license or
under the 2003 license—those acts caused independent harm
and accumulating injury. Like the agreement among the tour
operators in Hennegan and among the power companies in
Columbia Steel, the license itself did not permanently and
finally control the acts of the SD Defendants. Their decision
to enforce the contract caused a new anti-competitive harm,
and the statute of limitations ran anew from the time that
defendants began enforcement.
C
Our decision rests not only on the continuing violation
exception, but also on the exception for speculative damages.
As the Supreme Court has held, private antitrust actions are
intended to let parties recover “future damages that could not
be proved within four years of the conduct from which they
flowed” so that they are not “forever incapable of recovery,
contrary to the congressional purpose.” Zenith, 401 U.S. at
340. Thus, if harm is “uncertain” or “speculative” at the time
of the antitrust violation, the statute of limitations period
begins on the date that the plaintiff’s damages first “accrued
and became ascertainable.” AMF, 591 F.2d at 71, 73 (citing
Zenith, 401 U.S. at 339; quoting Hanson v. Shell Oil Co.,
541 F.2d 1352, 1361 (9th Cir. 1976)). As we have explained,
the key question in determining whether damages were overly
speculative such that recovery would be unavailable at the
time of the initial act is whether the existence of the harm is
determinable, not the specific dollar value of that harm.
SAMSUNG ELECTRONICS V. PANASONIC CORP. 11
Pace, 813 F.2d at 240 (“Thus, uncertain damages, which
prevent recovery, are distinguishable from uncertain extent of
damage, which does not prevent recovery.”).
At the time of the adoption of the 2003 license, Samsung
was not in the SD card market, and neither Samsung nor the
SD Defendants could have known for certain whether
Samsung would enter that market. SD cards proved more
popular than Samsung’s alternative flash memory format,
particularly for use in the rapidly growing markets for mobile
phones and portable media players. The law does not require
a potential plaintiff to foresee the kind of dramatic and rapid
technological changes that took place over the last decade to
recover damages for antitrust harms. Because the harm to
Samsung challenged in this suit was speculative at the time of
the initial wrong, the law of limitations in federal antitrust
actions allowed Samsung to file suit once the harm
crystallized in 2006. Zenith, 401 U.S. at 340; Pace, 813 F.2d
at 240.
IV
The district court dismissed Samsung’s claims under the
California Unfair Competition Law (“UCL”) and California
state antitrust law, known as the Cartwright Act, as well as a
claim for equitable relief. The district court concluded that
dismissal of these claims was controlled by the untimeliness
of the federal antitrust claims. But because we have
concluded that the federal antitrust claims were timely, we
12 SAMSUNG ELECTRONICS V. PANASONIC CORP.
vacate the district court’s dismissal of the state law claims
and remand.4
Finally, the district court did not address Samsung’s
equitable claim in its order dismissing the case as untimely.
We have held that the deadline for suits for equitable relief
under the antitrust laws is governed by laches, and that the
four-year statute of limitations in 15 U.S.C. § 15b “furnishes
a guideline for computation of the laches period.” Int. Tel. &
Tel. Corp. v. Gen. Tel. & Elec. Corp., 518 F.2d 913, 926 (9th
Cir. 1975), disapproved of on other grounds, California v.
Am. Stores Co., 495 U.S. 271 (1990). Construing the district
court’s order as an implicit dismissal of the equitable claim,
we vacate that dismissal and remand for a determination of
whether the equitable claim was timely as well.
4
California’s UCL incorporates violations of substantive statutes and
makes them punishable as unfair business practices. Cal. Bus. & Prof.
Code § 17200. While the district court permissibly dismissed the UCL
claim once it had decided that Samsung no longer had any other
substantive legal claims on which to rest its UCL arguments, that
underlying decision is no longer accurate and the UCL claim must be
reinstated.
The Cartwright Act claim was dismissed based on a holding that the
interpretation of California’s antitrust statute was coextensive with the
Sherman Act. This is no longer the law in California. Aryeh v. Canon
Business Solutions, Inc., 55 Cal. 4th 1185, 1195 (2013) (“Interpretations
of federal antitrust law are at most instructive, not conclusive, when
construing the Cartwright Act, given that the Cartwright Act was modeled
not on federal antitrust statutes but instead on statutes enacted by
California’s sister states around the turn of the 20th century.” (citing State
of California ex rel. Van de Kamp v. Texaco, Inc., 46 Cal. 3d 1147(1988))). This claim is remanded to the district court for a determination
in the first instance of whether California law permits a Cartwright Act
claim under the circumstances alleged in Samsung’s complaint.
SAMSUNG ELECTRONICS V. PANASONIC CORP. 13
V
The district court’s order dismissing the case is reversed
and the case is remanded for further proceedings on the
federal antitrust law claims and on the supplemental state law
claims, consistent with this opinion.
REVERSED AND REMANDED.