In January 2011, Sprint entered into a contract with Cellustar under which Cellustar agreed to become a distributor of Sprint’s prepaid mobile phone service and product brand, Boost Mobile, in Puerto Rico and the U.S. Virgin Islands. Cellustar is not the exclusive distributor of Boost Mobile products and services; Sprint also has a contract with Actify LLC (Actify) under which Actify is a Boost Mobile distributor in Puerto Rico and the U.S. Virgin Islands.
Cellustar alleges that, in spite of Cellustar’s success as a distributor of Boost Mobile products and services, Sprint has carried out “acts of impairment in the existing distributor relationship” with the intention of pushing Cellustar out of the prepaid cell phone market in Puerto Rico in order to “take advantage of the development of the Boost Mobile brand that Cellustar had achieved since 2011.” Cellustar alleges that Sprint furthered this goal by restricting Cellustar’s inventory; refusing to allow Cellustar to be master agent of any Open Mobile retailers (the former name of Co-Defendant PR Wireless before it was bought by Sprint in 2017); prohibiting Cellustar’s retailers from opening new stores and requesting them to relocate; adding shipping costs or eliminating credit terms while not doing the same to Actify; attempting to cancel or rescind the contract between Sprint and Cellustar; performing promotional activities almost exclusively with Actify; planning with Actify the termination and assignment of Cellustar’s business; and agreeing on subsidies, benefits, and incentives with Actify and not with Cellustar. Cellustar alleges that the above actions by Sprint and/or PR Wireless constitute violations of the Sherman Act.
JUDGE CARREÑO-COLL A. Sherman Act Claims 1. Section 1 Cellustar alleges that Sprint conspired with Actify to unreasonably restrict trade in violation of § 1 of the Sherman. That section makes illegal any “contract, combination … or conspiracy, in restraint of trade of trade or commerce….” Generally, § 1 claims are examined through the “rule of reason” analysis, “under which antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful.” Yet there exists a very narrow category of per se violations, i.e., “challenged conduct [that] falls within a small set of acts regarded by courts as sufficiently dangerous, and so clearly without redeeming value, that they are condemned out of hand—that is without a showing of wrongful purpose, power or effect.”
Cellustar seemingly alleges that Sprint and Actify conspired to fix prices and limit product output, constituting a per se violation of § 1. However, the type of prohibited price-fixing or output restriction contemplated by the Sherman Act occurs as a result of horizontal agreements between competitors as to competing products or services. Sprint and Actify are not competitors that produce competing products or services; they are two businesses in a vertical relationship working at two different levels of the market—one a seller and one a distributor of the goods and services sold by the other. Therefore, the alleged conduct by Sprint cannot fall into the per se category and must be evaluated under the rule of reason.
However, as a threshold matter, § 1 by its plain terms reaches only “agreements”—whether tacit or express, and not simply independent decisions. An agreement may be found when “the conspirators had a unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.” The only “agreement” to which Cellustar points is a contract to do business between Sprint and Actify that was allegedly more advantageous that the contract between Sprint and Cellustar. This hardly amounts to a “meeting of the minds” with the end goal of achieving an unlawful objective, but rather indicates an independent business decision by Cellustar to contract with its distributors in a way it sees fit. Cellustar provides no facts to reasonably suggest that Sprint and Actify in any way conspired to damage Cellustar’s position in the prepaid mobile phone market in Puerto Rico or achieve any other anticompetitive end goal. Thus, even viewing the Amended Complaint in the light most favorable to Cellustar, its failure to plead any facts that plausibly suggest that an illegal agreement existed is fatal to its § 1 claim under Rule 12(b)(6) (and, by extension, under Rule 12(c)).
2. Section 2 Section 2 of the Sherman Act prohibits efforts to “monopolize, or attempt to monopolize … any part of the trade or commerce among the several States….” Monopolization claims require a plaintiff to establish that the defendant (1) has monopoly power and (2) “has engaged in impermissible ‘exclusionary’
practices with the design or effect of protecting or enhancing its monopoly position.” Attempted monopolization occurs when a person (1) “has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” In order to establish these elements, it is necessary for a plaintiff to define the relevant market and “the defendant’s ability to lessen or destroy competition in that market.”
Defendants first argue that Cellustar has failed to define the relevant market, a threshold requirement of a § 2 claim. The relevant market is comprised of two elements: a product market and a geographic market. [Codefendant] argues that “Cellustar cannot ignore the commercial realities of the cellular phone industry and fashion a narrow product market based solely upon a ‘single-brand’ (e.g., ‘Boost Mobile phones’)….” However, Cellustar’s definition of the relevant market is not so narrow as Defendants suggest; it clarified that “there is no room for doubt that the product market is the prepaid mobile phone market in Puerto Rico.”
Moreover, many of the cases that Defendants rely on are either cases at the summary judgment stage or from other jurisdictions, and we do not find them persuasive. At this early stage, with only the initial pleadings before us, we find that Cellustar’s definition of the relevant market is sufficient for purposes of alleging a § 2 claim.
While Cellustar has adequately defined the relevant market for purposes of surviving a 12(b)(6) motion, its § 2 claims fall short of sufficiently alleging that Sprint had any market power within that market. The Amended Complaint is devoid of any facts indicating that Sprint had any significant share of the prepaid mobile phone market in Puerto Rico, much less that it had the “ability to less or destroy competition” in that market. Cellustar has thus neither alleged that Sprint had monopoly power nor that it had “a dangerous probability of achieving monopoly power.” While Cellustar is not required to provide in-depth data of Sprint’s market share in order to survive a motion under Rule 12(b)(6), Cellustar gives no indication as to how much of the relevant market Sprint occupied such that it has “a claim to relief [under § 2] that is plausible on its face.” Consequently, Cellustar’s claims under § 2 of the Sherman Act are dismissed.
CRITICAL THINKING:
How does the ambiguity of “competition” play a significant role in the reasoning in this case?
ETHICAL DECISION MAKING:
Ethics is very much about assessing the impact on others. Who are the relevant stakeholders affected by this decision?