Class Action Defense Cases–Lorenzo v. Qualcomm: California Federal Court Dismisses Class Action Finding Plaintiff Lacked Standing To Prosecute Class Action’s Antitrust Claims But Gives Plaintiff Leave To Amend

Apr 20, 2009 | By: Michael J. Hassen

Class Action Challenging Qualcomm’s Licensing Practices as Anticompetitive Dismissed for Lack of Standing because Plaintiff’s Injury was Too Remote and because California does not Recognize Claim for Common Law Monopoly or for Unjust Enrichment California Federal Court Holds

Plaintiff filed a putative class action against Qualcomm alleging labor law violations; the class action complaint asserted that Qualcomm “is the second-biggest maker of mobile-phone chips and holds more than 1,400 patents which it licenses to more than 130 companies, including chip makers and cell phone manufacturers,” that Qualcomm exercises “monopoly power” over cell phones using CDMA technology, and that Qualcomm engages in various acts that decrease competition and increase costs to consumers. Lorenzo v. Qualcomm Inc., ___ F.Supp.2d ___ (S.D.Cal. March 3, 2009) [Slip Opn., at 1-3]. According to the allegations underlying the class action, plaintiff was harmed by Qualcomm’s “anticompetitive CDMA licensing practices” because he purchased a Palm Treo and a Blackberry Curve from Verizon, and receives cellular service from Verizon. Id., at 3-4. The class action also alleged that “CDMA chipset manufacturers suffer direct anticompetitive harm from Qualcomm’s CDMA licensing practices,” including “‘supracompetitive prices and impaired non-price competition in innovation of CDMA functionality.’” Id., at 4. The higher costs encountered by the manufacturers are passed along to consumers, id. The class action asserted causes of action for violations of (1) California’s Cartwright Act (the state counterpart of the federal Sherman Antitrust Act), (2) California’s Unfair Competition Law (UCL), (3) violations of the Clayton Act (the vehicle for private enforcement of alleged Sherman Act violations), (4) common law monopoly, and (5) unjust enrichment. Id., at 4-6. Defense attorneys moved to dismiss the class action, id., at 6; primarily Qualcomm argued that plaintiff lacked status to pursue the antitrust claims in the class action complaint, see, e.g., id., at 7-8. The district court granted Qualcomm’s motion, but gave plaintiff 30 days leave to amend.

Plaintiff argued that he had standing to prosecute the class action’s antitrust claims because “Plaintiff contends that he need not be a direct consumer or competitor to bring these claims because indirect purchasers have standing to bring an injunctive antitrust claim under both the federal and state antitrust laws” and further “that difficulties in tracing ‘overcharges for components through a distribution chain’ does not preclude standing.” Lorenzo, at 8. According to plaintiff, increased consumer prices for CDMA-capable cellular handset devices were “a direct and foreseeable result of Qualcomm’s anticompetitive licensing practices.” Id., at 8-9. In other words, “even though he was not a participant in the CDMA patent technology market or the CDMA chipset market,” plaintiff claims he suffered an antitrust injury because “the impact on the prices of cellular handsets paid for by the ultimate consumers is clearly foreseeable” and “injury in the form of higher prices to consumers is within the type of injury that the antitrust laws are designed to prevent.” Id., at 9. The district court disagreed, noting that the class action complaint centered on Qualcomm’s alleged anticompetitive CDMA licensing practices. Id., at 10. The district court held that plaintiff’s status as an indirect purchaser, impacted by tracing his alleged injury “through three levels of the supply chain – chipset manufacturers, device manufactures, and vendors,” was “too remote from Qualcomm’s alleged antitrust violations to support standing under the Clayton Act.” Id., at 11. Accordingly, plaintiff lacked standing under the Clayton Act, id., at 12. And while standing under California’s Cartwright Act is broader than under the Clayton Act, see id., at 12-13, the federal court concluded that plaintiff lacked standing under the Cartwright Act as well, id., at 13. And the court further concluded that plaintiff lacked standing to prosecute the class action’s UCL claim, see id., at 14-15.

With respect to plaintiff’s claim that Qualcomm was giving “secret” discounts to certain purchasers, the court agreed with defense attorneys that the challenged conduct was a matter of public knowledge. See Lorenzo, at 15-17. And the federal court found further that California does not recognize claims for common law monopolization, see id., at 17-19, or for “unjust enrichment,” see id., at 19-20. However, the federal court granted plaintiff’s request for leave to file an amended class action complaint, in an effort to redress the deficiencies in the original complaint, id., at 20. Accordingly, the federal court granted the motion to dismiss but with leave to amend. Id., at 21.

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