Opinion
CIVIL ACTION NUMBER 04-840, SECTION "L" (4).
June 30, 2004
ORDER REASONS
Pending before the Court is the Defendant's Motion to Dismiss Counts I and II of the Plaintiff's Complaint for Declaratory Judgment. For the following reasons, the Motion to Dismiss is GRANTED.
BACKGROUND
Plaintiff Intralox, LLC, is a Louisiana company that designs, manufactures and sells plastic modular conveyor belts and accessories. Intralox is the largest seller of plastic modular conveyor belts and accessories and has a 70 percent share of the American market. Defendant Habasit Belting, Inc., is a Delaware corporation that has its principal place of business in Georgia. Like Intralox, Habasit also designs and manufactures conveyor belts and related accessories for use in various commercial and industrial settings to transport people and materials. Habasit is a relative newcomer to the plastic modular conveyor belt market, and supplies plastic modular conveyor belt systems to approximately 5 percent of the total American market.
Intralox works with original equipment manufacturers (OEMs) to develop conveyor belt systems to suit their needs. The company rarely charges clients for the design and intellectual property expended in consultations with these manufacturers. The Plaintiff asserts that some of Intralox's competitors have taken advantage of Intralox's free consultations by attempting to sell conveyor belts to customers with whom Intralox has shared its intellectual property and system designs. Intralox asserts that it has lost sales to competitors who have relied on the benefit of Intralox's intellectual property and consulting work.
Intralox avers that it has taken steps to allow it to more systematically maintain its high level of service, reward repeat customers with better discounts on products, and better protect its intellectual property from competitors. One technique Intralox uses to retain customers is to offer preferred supplier agreements (PSAs) to customers who select Intralox as their preferred supplier. The preferred supplier agreements lock customers who use Intralox's consulting and design services into contracts for the sale of Intralox's modular conveyor systems. Intralox asserts that the preferred supplier agreements generally contain no legal sanction for violating the terms of the agreement, and no customer ever has suffered a legal penalty for violation of the agreement. The Plaintiff asserts that the agreements simply allow Intralox to offer its products, and its intellectual property, at a better price. Intralox states that it continues to sell its products to customers who wish to purchase products from competing manufacturers on an individual sale, lowest price only, basis. Intralox does not condition these job-by-job sales on the use of Intralox's consulting services.
In March 2004, Intralox's President received a letter from Defendant Habasit's counsel demanding that Intralox cease and desist from false advertising and unfair competition in the market for the sale of modular plastic belting. Habasit's letter indicated that Habasit perceived statements made by Intralox to its customers to be "false and misleading" as they related to both Intralox and Habasit. Habistat also indicated that it was concerned with what it perceived to be Intralox's anticompetitive conduct:
Intralox is also engaging in other forms of unfair competition which have injured and continue to injure Habasit. Intralox is insisting upon exclusive dealing relationships with its customers for the purpose of stifling competition from Habasit and other suppliers. Such exclusive dealing relationships constitute an improper exercise and maintenance of Intralox's market power with respect to the sale of plastic modular belting products and services, and serve no legitimate pro-competitive business purpose.
The letter expressed Habasit's belief that Intralox's conduct violated numerous federal and state laws, including the Lanham Act, various trade libel laws, state tort law, unfair competition laws, tortious interference with business relationships, and deceptive trade practices acts. Habasit claimed to have been injured by Intralox's conduct and demanded that Intralox cease and desist from making representations to its customers about both Intralox's and Habasit's products. The letter warned that if Intralox did not cease its conduct, Habasit would consider its legal rights and seek redress for Intralox's improper and anticompetitive conduct.
Shortly after receiving the letter, Intralox initiated a declaratory judgment action pursuant to 28 U.S.C. § 2201. Intralox sought a declaration that its conduct did not violate the Clayton Act, the Sherman Act, the Lanham Act, did not constitute trade libel, did not constitute intentional interference with contractual relations, and did not constitute deceptive trade practices or violate "little FTC Acts."
Defendant Habasit answered the complaint seeking the declaration, denying the allegations. In its answer, the Defendant asserts counterclaims for false advertising, violations of the Louisiana Unfair Trade Practices Act, trade libel and product disparagement, slander, tortious interference with business relations, and tortious unfair competition.
LAW AND ANALYSIS
a. Habasit's Motion to Dismiss
Habasit moves to dismiss Count I of Intralox's complaint, which seeks a declaration that Intralox's conduct does not violate § 3 of the Clayton Act, and Count II, which seeks a declaration that Intralox's conduct does not violate § 1 or any other provision of the Sherman Act. Habasit asserts that no antitrust case or controversy exists and that the declaratory judgment action relating to the antitrust claims is not ripe for adjudication.
Intralox responds that it filed suit after receiving Habasit's cease and desist letter in order to bring the issues to a head. Intralox asserts that the antitrust issues are ripe for resolution and should be addressed by the Court at this time. In support of its position, Intralox cites language in Habasit's counterclaim that details facts necessary to state an antitrust claim under the Clayton Act for exclusive dealing. Habasit's counterclaim disputes Intralox's description of the relevant product market, instead contending that the relevant market is for plastic modular belt systems (PMBs). Habasit's counterclaim also asserts that Intralox's exclusive dealing arrangements foreclosed competition in a substantial share of the PMB market. Intralox also cites Habasit's language alleging that Intralox's anticompetitive behavior lacked any procompetitive benefits or justifications within the relevant market. Intralox asserts that Habasit's detailed allegations of anticompetitive behavior chill Intralox's ability to conduct business using preferred service agreements (PSAs).
b. The Declaratory Judgment Act
The Declaratory Judgment Act provides a party involved in an actual controversy with a remedy to establish its rights and legal relations. 28 U.S.C. § 2201 (2000). The Act affords a party that is threatened with liability to adjudicate his or her rights at an early stage without waiting until an adversary sees fit to bring action after the damage has occurred.
The Fifth Circuit has set forth a three-step inquiry guiding consideration of a declaratory action. See Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000). First, the Court must decide whether the declaratory action is justiciable. Second, if the Court has jurisdiction, it must then decide whether it has the "authority" to review the merits of the case. Id. at 895. Third, the Court has to determine how to exercise its broad discretion to decide or dismiss a declaratory judgment action. Id.
The instant motion centers on the applicability of the first step of that inquiry, whether a declaratory judgment relating to the antitrust claims is justiciable. Any declaratory judgment action must satisfy the case or controversy requirement of Article III, Section 2 of the Constitution of the United States. Declaratory judgments present justiciable controversies only where the facts alleged show a "substantial controversy" between "adverse legal interests" that is both real and immediate. Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270 (1941).
The parties dispute whether Habasit's one cease and desist letter presented a sufficiently real threat of antitrust litigation, such that a declaratory judgment related to antitrust claims is ripe for adjudication. "The federal declaratory judgment statute aims at resolving potential disputes, often commercial in character, that can reasonably be feared by a potential target in light of the other side's conduct." PHC, Inc. v. Pioneer Healthcare, Inc., 75 F.3d 75, 79 (1st Cir. 1996). Under certain, limited circumstances, a declaratory judgment action may proceed based on a cease and desist letter where "no competent lawyer . . . could fail to tell [the declaratory judgment plaintiff] that, based on the threatening letters and the surrounding circumstances . . . suit was a likely outcome." Id. Nevertheless, the controversy must be such that it can presently be litigated; it cannot be conjectural or based upon the possibility of a factual situation that may never develop. Brown Root v. Big Rock Corp., 383 F.2d 662, 665 (5th Cir. 1967).
"A case is generally ripe if any remaining questions are purely legal ones; conversely, a case is not ripe if further factual development is required." New Orleans Public Service, Inc. v. Counsel of New Orleans, 833 F.2d 583, 587 (5th Cir. 1987) (quoting Abbott Labs v. Gardner, 387 U.S. 136, 148-49 (1967)). Under Fifth Circuit precedent, "[t]he threat of litigation, if specific and concrete can establish a controversy upon which declaratory judgment can be based." Orix, 212 F.3d at 897. The specificity and immediacy of the threat of litigation is a factual determination, and at least one district court has held that "one cease and desist letter does not a case or controversy make where, as here, that letter invites negotiation, but does not explicitly threaten litigation, and was the defendant's sole act directed at plaintiff." Dunn Computer Corp. v. Loudcloud, Inc., 133 F. Supp.2d 823, 827 (E.D. Va. 2001).
Here, the Court must decide whether the threat of private antitrust litigation was specific and concrete enough to establish an actual controversy that is ripe for adjudication. Though a declaratory judgment action may be used to adjudicate rights in face of a threatened antitrust action, a defendant's general references to anticompetitive conduct and monopolization do not portend the substantial threat of private antitrust litigation necessary to establish ripeness. Bell Atlantic Corp. v. MFS Communications Co., 901 F. Supp. 835, 844 (D. Del. 1995). In Bell Atlantic, the Defendant's rhetoric condemning monopolies and anticompetitive conduct did not demonstrate a real or substantial probability of a future antitrust suit. Id. at 847. "[The defendant] never mentioned or implied that an antitrust lawsuit loomed on the horizon." Id. at 845.
Habasit's cease and desist letter demanded that Intralox refrain from conduct that Habasit deemed to be "improper and anti-competitive." Intralox asserts that though the letter did not threaten to file suit on a date certain, the letter did indicate that Intralox's failure to cease its conduct would force Habasit "to consider its legal rights and options to seek redress for Intralox's improper and anti-competitive conduct." Moreover, Intralox asserts that private antitrust litigation was likely because the demand letter used the legal lexicon of antitrust, referring to "exclusive dealing relationships . . . for the purpose of stifling competition," the "improper exercise and maintenance of Intralox's market power" and the fact that Habasit believed the conduct to serve "no legitimate, pro-competitive business purpose."
From Habasit's letter, and the parties' pleadings, the Court must decide whether an actual antitrust controversy exists between adverse litigants, such that the matter is ripe for adjudication. Intralox seeks a declaration that its past and future use of preferred service arrangements does not constitute an illegal exclusive dealing arrangement in violation of federal antitrust law. The allegedly anticompetitive conduct that spawned the letter relates to Intralox's historical and continuing practice of entering into preferred service agreements with customers. The Court concludes that Habasit's letter did not establish a concrete threat of immediate antitrust litigation, and the antitrust claims are not ripe for consideration as part of this declaratory judgment.
The very nature of business competition places competitors in positions that are adverse to each other. Not all disputes that arise from this competition present legal controversies that are ripe for adjudication. Even opposing legal views on the existence of an antitrust violation does not create adversity adequate to establish ripeness. Bell Atlantic, 901 F. Supp. at 846. Some conflicts are mere saber rattling that are insufficiently mature to warrant the Court's intervention See Shields v. Norton, 289 F.3d 832, 837 (5th Cir. 2002).
Habasit's cease and desist letter does not present a justiciable antitrust case or controversy ripe for the Court's intervention. "[O]ne cease and desist letter does not a case or controversy make where, as here, that letter invites negotiation, but does not explicitly threaten litigation, and was the defendant's sole act directed at the plaintiff." Dun Computer Corp., 133 F. Supp.2d at 827. Habasit's letter did not specifically threaten suit. Instead, it invited Intralox to respond within 10 days and indicated that Intralox's failure to cease its conduct would force Habasit "to consider its legal rights and options to seek redress for Intralox's improper and anti-competitive conduct."
The Court concludes that Habasit's letter did not establish a concrete threat of immediate antitrust litigation, and the antitrust claims are not ripe for consideration as part of this declaratory judgment. Intralox initiated this litigation in response to Habasit's one and only demand letter, a letter that did not expressly threaten an antitrust suit and did invite a response. The meager allegations presented in the letter are insufficient to create the reasonable apprehension of an imminent antitrust suit necessary to establish ripeness.
Even if the antitrust claims did rise to the level of actual controversy adequate to establish ripeness in this declaratory judgment action, the Court exercises its discretion and declines to consider the § 3 Clayton Act and § 1 Sherman Act claims. Unlike a declaratory judgment action to establish or clarify rights to a patent or obligations under a contract, resolution of Counts I and II of Intralox's declaratory judgment complaint requires the Court to speculate on multiple issues of law and fact in a complicated business environment. Consideration of the antitrust claims would amount to the Court's hypotheses on the relevant product and geographic markets, the presence or absence of market power, the share of commerce affected by any unlawful conduct, and whether or not any procompetitive explanation existed for the challenged business practices.
Habasit has not specifically accused Intralox of violating the Clayton or Sherman Acts and Habasit appears unprepared and unwilling to pursue an antitrust claim. Nonetheless, Intralox asks the Court to find that its use of preferred service agreements does not violate American competition law. Without adverse evidence, it would be impossible for the Court to determine whether Intralox's conduct was proscribed by antitrust law, and any attempt to do so would merely be speculative. Given the complicated market analysis necessary to resolve such a dispute and the ever-changing realities of any product market, this Court cannot make such a determination without the thorough presentation of evidence afforded by a traditional, adverse antitrust action. The Court will not issue an advisory opinion either condemning or condoning Intralox's business practice, and the Court respectfully declines Intralox's invitation to attack that straw man.
CONCLUSION
For the foregoing reasons, Defendant Habasit's Partial Motion to Dismiss Counts I and II is GRANTED.