United States: Divided Fourth Circuit Panel Slices Up Twombly Iin Table Saw Boycott Suit

Last Updated: September 30 2015
Article by J. Taylor Kirklin and Deirdre A. McEvoy

Last week, a divided three-judge panel of the Fourth Circuit issued a significant decision in a boycott conspiracy case, SD3, LLC v. Black & Decker, No. 14-1746 (4th Cir. Sept. 15, 2015). The suit, at its heart, turns on the interpretation of the Twombly plausibility standard and the application of the Supreme Court's precedent on pleading standards to antitrust actions at early stages of litigation.

The suit involves allegations of a group boycott by a table saw manufacturer, SawStop. SawStop developed a safety feature for a table saw, called "active injury mitigation technology," that retracts the saw's blade when it detects contact between the blade and the user. In August 2000, SawStop began showing the prototype to table saw manufacturers, including Black & Decker and Emerson Electric Company, in an effort to get its technology incorporated into these manufacturers' products, and requested royalties of 8% of wholesale prices in any licensing agreement. SawStop alleges that, while several of the companies were intrigued by the product, some expressed concern about the cost and reliability of the safety feature. Additionally, certain companies worried that, if some but not all of the competitors in the market adopted the SawStop technology, competitors who did not adopt it might incur product liability exposure for producing an inherently unsafe product.

In its complaint, SawStop alleged that, at a trade association annual meeting in October 2001, the table-saw manufacturers held a breakaway session that was attended by at least eight companies. SawStop claimed that the competitors conspired during this meeting to engage in a group boycott against SawStop. According to SawStop, the boycott was a success: shortly after the meeting, the companies that had been engaged in negotiations with SawStop aborted those negotiations, and companies who had not yet negotiated with SawStop declined to do so. With no manufacturers willing to deal with it, SawStop floundered in the marketplace before eventually resorting to manufacturing its own table saws to incorporate its injury mitigation technology.

SawStop brought suit against dozens of the competitors. The Eastern District of Virginia dismissed SawStop's complaint, concluding that the company had failed to adequately allege a boycott by the defendants.

On appeal, a two-judge majority disagreed and concluded that the allegations were sufficient to meet the Twombly pleading standard. The majority opinion, written by Judge Agee, emphasizes that Twombly does not impose a probability standard on the plaintiff at the motion to dismiss stage, but only requires that the complaint's allegations be plausible. The Circuit held that in deciding a motion to dismiss in an antitrust suit, a court need not decide whether an alternative explanation for the alleged facts is more likely to be true; the court should only determine whether the facts, viewed in the light most favorable to the plaintiff, plausibly allege an antitrust violation.

In this case, the majority concludes, SawStop plausibly alleged that the defendants concocted the group boycott during the 2001 trade group meeting and implemented it through the plan to cut off SawStop from negotiations with manufacturers, a theory consistent with the boycott's objective of excluding SawStop from the marketplace. Because the complaint passes muster under this plausibility test, the majority writes, SawStop should be entitled to discovery to determine whether its theory of group boycott is borne out by the evidence.

In a sharply worded dissent, however, Judge Wilkinson argues that the majority's stance runs afoul of the Supreme Court's directive in Twombly. According to the dissent, Twombly recognized that markets play a significant role in governing commercial conduct and instructed that courts should not infer an anticompetitive purpose from conduct likely motivated by legitimate business considerations. Judge Wilkinson notes that by incentivizing companies to bring antitrust claims alleging a conspiracy by industry participants, the majority's opinion will chill communications among companies, thus hindering product development, joint ventures, and useful trade association meetings—precisely what Twombly was trying to prevent.

In a concurrence, however, Judge Wynn criticizes the dissent for viewing the facts of the complaint in "a light least favorable to SawStop, viewing the facts and reasonable inferences in the light most favorable to the Defendants." Judge Wynn argues that the dissent—in an act of "breathtaking judicial activism"—elevates its own policy preferences over the task of adjudicating the case at hand. But, the concurrence notes, in deciding a Rule 12(b)(6) motion, "[i]t is simply not our job . . . to assess which party's conduct we deem more pro-competitive."

The three opinions reveal the deep-seated disputes and inconsistent applications by courts of the standard set forth in Twombly. As some studies have shown, the percentage of cases dismissed at the pleading stage under Twombly and its progeny varies considerably from circuit to circuit. The starkly different interpretations in the SawStop majority, concurrence, and dissent suggest that the debate isn't going away anytime soon.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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