Upcoming Seventh Circuit Ruling May Impact Standards for Refusal to Deal Claims


Upcoming Seventh Circuit Ruling May Impact Standards for Refusal to Deal Claims

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Jessica Sprovtsoff, Elise H. Yu

In Viamedia v. Comcast, the Seventh Circuit is currently reviewing a district court’s decision to dismiss a refusal to deal claim on a 12(b)(6) motion because plaintiff Viamedia failed to allege that Comcast’s refusal to deal had no rational competitive purpose. Most notably, the U.S. Department of Justice (DOJ) filed a position-neutral amicus brief and received five minutes of oral argument to address the standard for evaluating refusal to deal claims. The DOJ asked the Seventh Circuit to adopt the test for refusal to deal cl​aims articulated in Novell, Inc. v. Microsoft Corp., a 2013 Tenth Circuit opinion authored by then-Circuit Judge Gorsuch. The DOJ's intervention in Viamedia previews how the U.S. Supreme Court may continue to refine refusal to deal doctrine, including how such claims must be pled.

Refusal to Deal Claims Generally

Typically, refusals to deal are actionable under Section 2 of the Sherman Act particularly if there is a specific antitrust duty to deal with a competitor. Although there is no general duty to deal, the Supreme Court has recognized an exception where: (1) a preexisting, voluntary, and presumably profitable course of dealing exists between the monopolist and rival; (2) the termination of this course of dealing suggests a willingness to forsake short-term profits, and (3) the monopolist's refusal to deal is “irrational but for its anticompetitive effect.” There has not been much guidance on the type of conduct that should be deemed “irrational but for its anticompetitive effect.”

The District Court’s Analysis of Viamedia’s Refusal to Deal Claim

In Viamedia, the district court reasoned that plaintiff had, with its initial and amended complaints, failed to adequately plead that the refusal to deal was irrational but for its anticompetitive effect. There was no question that Viamedia had alleged a preexisting relationship and that Comcast's discontinuation of its business relationship had caused Comcast to suffer short-term losses. However, the district court found that Viamedia had failed to “raise a plausible inference that Comcast’s refusal lacked any rational, procompetitive purpose.” The plaintiff appealed this dismissal to the Seventh Circuit.

Then-Circuit Judge Gorsuch's Opinion Addressing Refusal to Deal Claims

The DOJ brief in that appeal is dedicated to then-Circuit Judge Gorsuch's Tenth Circuit opinion in Novell, Inc. v. Microsoft Corp., and the standard for actionable refusal to deal claims under Section 2. In that case, the Tenth Circuit concluded that Novell had not presented any evidence from which a reasonable jury could infer that Microsoft's refusal to deal was "irrational but for its tendency to harm competition" or that Microsoft's conduct made "no economic sense."

The Tenth Circuit’s analysis of the refusal to deal claim in Novell is both fact-intensive and fact-specific, based on nearly 17,000 pages of record evidence and eight weeks of trial testimony. The question in Novell was whether Novell had proven its refusal to deal claim. Viamedia, on the other hand, questions whether Viamedia sufficiently pled its refusal to deal claim. The DOJ brief did not identify this distinction and offers no recommendation how, if at all, the Novell approach should be tailored to apply at the pleading stage.

Heightened Pleading Standards for Refusal to Deal Claims Going Forward?

On February 7, 2019, the Seventh Circuit heard oral arguments on the Viamedia case. The DOJ argued that its “no economic sense” test is the very same test articulated in Novell, which is an objective threshold inquiry on the profitability of a refusal to deal to determine whether a defendant’s conduct was “irrational but for its anticompetitive effect.”

When the panel asked if the DOJ was advocating for a new pleading standard for refusal to deal claims, the DOJ responded it was not. DOJ attorneys also stated that they were not taking any position in the context of Viamedia whether the Matsushita standard for Section 1 claims should also apply to refusal to deal claims brought under Section 2. However, the DOJ did point out that it had filed amici objecting to this proposition in other antitrust cases.

It appears then that, despite the DOJ’s insistence that it was not advocating for any change to pleading requirements, the adoption of its “no economic sense” test as a bright-line rule would reflect the pleading requirements for refusal to deal claims. Regardless how, if at all, the Seventh Circuit incorporates the government’s argument in its Viamedia opinion, the DOJ has signaled that it is thinking about refusal to deal claims in the context of the Novell decision and Justice Gorsuch’s authorship of Novell provides good insight into how one Supreme Court Justice would rule if the Court chooses to hear a refusal to deal claim in the years to come.