Recently, in E.I. Du Pont de Nemours v. Kolon Industries, Inc., the Fourth Circuit reversed the dismissal of Kolon Industries’s counterclaims alleging that DuPont monopolized and attempted to monopolize the market for certain synthetic fibers. 2011 U.S. App. Lexis 4752 (4th Cir. Mar. 11, 2011). Kolon and DuPont compete in the sale of synthetic fibers that are used to make products such as body armor, tires, and fiber optic cables. The antitrust counterclaims arose in a trade secrets case filed by DuPont against Kolon. The district court dismissed the counterclaims, holding that Kolon had not sufficiently pled (1) the relevant geographic market, and (2) unlawful exclusionary conduct.
The Fourth Circuit reversed on both points. The relevant geographic market is the area where customers affected by anticompetitive behavior will turn if the offending party raises prices or restricts output. Kolon alleged that the geographic market for the fibers was the United States and described why the U.S. market was distinct from other markets. The Fourth Circuit rejected DuPont’s argument that the geographic market must include the location of the competitors’ headquarters (Korea for Kolon and the Netherlands for a third competitor).
As to exclusionary conduct, Kolon alleged that DuPont had used multi-year supply agreements with high-volume customers to monopolize the market. Relying on DuPont’s representation at oral argument that Kolon had access to the necessary supply agreements, the district court concluded that allegations only related to a small number of supply agreements did not support Kolon’s allegation that DuPont's conduct foreclosed a substantial portion of the market. The Fourth Circuit, however, held that it was error to rely on statements outside of the pleadings when considering a motion to dismiss and that Kolon sufficiently pled the elements of monopolization and attempted monopolization.
Counseling a firm that is arguably dominant not only requires a fundamental understanding of the industry, the client’s goals, business and risk tolerance level, but also requires an explanation of the challenges inherent in motions to dismiss. Even assuming that the client’s conduct does not substantially foreclose the market, counselors also need to take into account the fact that putative plaintiffs often do not see the market the same way, and, therefore any potential complaint may very well not contain the information that the dominant firm would need to show that its conduct should not be treated as exclusionary. This potential outcome would raise the costs of the proposed practice and could be a factor in the firm’s decision whether to adopt the practice.