Whether commencing a lawsuit or planning for the defence of one, the potential for counterclaims is an important strategic consideration. US civil procedure rules permit, and sometimes require, that parties pursue counterclaims in response to being sued. Antitrust counterclaims can be pursued in a variety of types of cases, but are most prevalent in intellectual property litigation. The assertion of antitrust counterclaims can increase the cost of litigation, add risk for the party bringing the lawsuit, and alter the relative positions of the parties to the case. Given the possible impact on litigation, potential counterclaims should be given careful consideration.
What are counterclaims?
Counterclaims are simply demands for relief made by defendants in civil cases against plaintiffs that brought the lawsuits. Counterclaims are based on the rationale that dealing with all the issues that may come in the same case saves time, money, and effort for the parties involved, including the courts.1 Due to this perceived efficiency, courts tend to be flexible in permitting counterclaims whenever possible.
In practice, there are two forms of counterclaims: Compulsory and permissive. As a general rule, counterclaims that are related to the same event or transaction as the original claim in the lawsuit are considered 'compulsory,'2 while all counterclaims that are not related to the original lawsuit's claims are considered 'permissive.'3 The distinction between the two is more than academic, as claims that are deemed compulsory but were not timely brought as counterclaims may be barred from being asserted in future lawsuits.4
Courts have not uniformly determined whether antitrust counterclaims are compulsory or permissive. For example, the Fifth and Ninth Circuits hold that antitrust claims are not compulsory in patent infringement cases.5 But most other circuit courts hold the opposite.6 Absent uniform standards across the courts, each potential antitrust counterclaim should be scrutinised to determine whether it is compulsory under the civil rules, based on whether it 'arises out of the transaction or occurrence that is the subject matter of the opposing party's claim' and 'does not require adding another party over whom the court cannot acquire jurisdiction.'7
Why consider counterclaims?
There are a number of significant reasons for parties to consider potential antitrust counterclaims.
For parties bringing lawsuits, antitrust counterclaims should be considered as early as the formulation of the types of claims to be brought. Some claims by their nature invite antitrust counterclaims. Lawsuits to enforce patents or non-compete provisions, for instance, often draw antitrust counterclaims since such suits typically involve exclusion of competitors. It may be advantageous for parties not to bring claims conducive to antitrust counterclaims, particularly if the claims add little to the overall relief being sought. Parties bringing litigation also should be mindful of the burden and inconvenience that potential antitrust counterclaims, if asserted, can impose. Antitrust claims are notoriously expensive to defend.8 Beyond costs, parties defending counterclaims may be compelled to produce voluminous information on pricing, strategies, business plans, and other sensitive information. Finally, parties should not disregard the risk of a potential antitrust counterclaim succeeding. With awarded antitrust damages trebled by law,9 antitrust counterclaims can add sizeable damages exposure. The importance of these considerations is illustrated in Avaya, Inc v Telecom Labs, Inc.10 There, Avaya initiated the lawsuit, making trade secret and similar claims. Defendants countered with antitrust claims. After Avaya's claims eventually were dismissed, the antitrust counterclaims still proceeded to trial, and a jury awarded US$60 million, after trebling, based on the antitrust counterclaims.
Consideration of antitrust counterclaims can be equally important for parties planning defences against lawsuits. Claims that may be deemed compulsory should be identified and considered when responding to litigation because they could be waived if not asserted as counterclaims. Potential permissive counterclaims also should be considered since asserting them could be strategically advantageous for defendants. Antitrust counterclaims can impact the course of litigation by, for example, increasing the expense and burden for the parties that brought the litigation, as well as adding risk of exposure to litigation with treble damages. Pursuing counterclaims, however, can be as expensive and burdensome for the party asserting them. Further, there is a risk that the expense and burden will be for naught, as shown in Kolon Industries v E.I. Du Pont de Nemours & Company.11 This litigation was initiated by DuPont making trade secret claims, and Kolon responded with antitrust counterclaims. After years of litigation, the counterclaims were dismissed but the trade secret claims continued through trial, with a jury ultimately awarding more than US$900 million in damages for DuPont.
Types of potential antitrust counterclaims
The US antitrust laws are flexible by design,12 and an array of antitrust counterclaims may be possible in response to any given claim. Notwithstanding, a few types of counterclaims in response to certain categories of claims have developed in the courts. These counterclaims can be the starting point for parties considering commencement of a lawsuit or planning a response to litigation.
Any antitrust counterclaim must satisfy the usual elements for the underlying antitrust cause of action. This means counterclaims based on Sherman Act section 2 monopolisation generally must show '(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'13 Similarly, counterclaims based on Sherman Act section 1 restraint of trade generally must show '(1) the existence of a contract, combination, or conspiracy among two or more separate entities that (2) unreasonably restrains trade and (3) affects interstates or foreign commerce.'14 In addition to showing the usual elements, a counterclaim must show antitrust injury, which is 'injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.'15
Footnotes
1 See, e.g., Southern Constr. Co. v Pickard, 371 U.S. 57, 60 (1962) (explaining FED. R. CIV. PRO. 13(a) counterclaims were 'designed to prevent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters').
2 See, e.g., 3-13 Moore's Federal Practice – Civil at section 13.10 (Matthew Bender 3d ed.).
3 See, e.g., id. at section 13.30.
4 See Baker v Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974) ('A counterclaim which is compulsory but is not brought is thereafter barred.'); see also 3-13 Moore's Federal Practice, note 3, supra, at section 13.14.
5 See, e.g., Destiny Tool v SGS Tools Co., 344 F. App'x 320, 323 (9th Cir. 2009).
6 See, e.g., Nobelpharma AB v Implant Innovations, Inc., 141 F. 3d 1059, 1067, n.4 (Fed. Cir. 1998) (en banc) (citing cases).
7 FED. R. CIV. PRO. 13(a).
8 See, e.g., Bell Atl. Corp. v Twombly, 127 S. Ct. 1955, 1975 (2007) ('Private antitrust litigation can be enormously expensive').
9 See 15 U.S.C. section 15.
10 2014 U.S. Dist. LEXIS 88815 (D.N.J. June 30, 2014); see also Avaya, Inc. v Telecom Labs, Inc., 2014 U.S. Dist. LEXIS 135669 (D.N.J. Aug. 19, 2014).
11 748 F. 3d 160, 164 (4th Cir. 2014).
12 See, e.g., Leegin Creative Leather Prods. v PSKS, Inc., 127 S. Ct. 2705, 2724 (2007) (explaining that antitrust laws inherently are flexible so they can 'evolv[e] with new circumstances and new wisdom').
13 United States v Grinnell Corp., 384 U.S. 570-71 (1966).
14 ABA section of Antitrust Law, Antitrust Law Devs. at 2 (7th ed. 2012).
15 Brunswick Corp. v Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
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