Opinion
CIVIL NO. SA-07-CA-673-OG.
June 26, 2008
ORDER
Pending before the Court is Defendant Monsanto Company's Motion to Dismiss for Failure to State a Claim (Dkt. # 76). Plaintiff filed a response (Dkt. # 82) and Defendant filed a reply (Dkt. # 88). After reviewing the parties' arguments and the applicable law, the Court finds that Defendant's motion should be granted in part and denied in part.
I. Legal standard under rule 12(b)(6)
Rule 12(b)(6) allows dismissal if a plaintiff fails "to state a claim upon which relief may be granted." Fed.R.Civ.P. 12(b)(6). The Supreme Court recently overruled the longstanding rule announced in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1968-69 (2007). Under Twombly, a court must not dismiss a complaint for failure to state a claim unless the plaintiff has failed to plead "enough facts to state a claim for relief that is plausible on its face." Twombly, 127 S.Ct. at 1974; Sonnier v. State Farm Mut. Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007). "[A] plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964-65 (internal quotations omitted). The complaint must contain enough factual allegations that, when viewed in the light most favorable to plaintiff and assumed to be true, "raise a right to relief above the speculative level." Twombly, 127 S.Ct. at 1965; see also Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200 (2007). "[W]hen the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court."Twombly, 127 S.Ct. at 1966.
II. Allegations in the operative pleading
This is an antitrust action brought by Texas Grain Storage, Inc., d/b/a West Chemical Fertilizer, on behalf of itself and others who have been direct purchasers of ROUNDUP brand non-selective herbicides from Monsanto Company at "artificially inflated" prices resulting from an "anticompetitive scheme that Monsanto started in the mid-1990's." (Dkt. # 1, ¶ 1). Monsanto has been manufacturing and selling ROUNDUP since 1974. However, because ROUNDUP is a non-selective herbicide, it kills both valuable crops and weeds. (Dkt. # 1, ¶ 50). Thus, Monsanto began investigating the development of genetically modified crops that would be resistant to glyphosate, the active ingredient in ROUNDUP. By 1997, Monsanto had successfully developed these seeds, and began introducing them into the market. (Dkt. # 1, ¶ 51-52). Monsanto also developed pest-resistant seed traits, and it has patents on all of its genetically modified seed traits. (Dkt. # 1, ¶ 53-54).
Plaintiff claims that Monsanto, as early as 1995, began entering into exclusive licensing agreements with seed companies "to block rivals that were seeking to develop herbicide-tolerant seed traits and seeds from gaining access to critical development and distribution facilities." (Dkt. # 1, ¶ 57-58). These agreements allegedly contain certain incentives relating to the production and sale of Monsanto seed traits, while penalizing the seed companies for producing and selling the seed traits of rival companies. (Dkt. # 1, ¶ 59). Plaintiff alleges that Monsanto has "used its monopoly power in pest-resistant and herbicide-tolerant [seed] traits to exclude competition in the relevant herbicide market, and obtain and maintain monopoly power in that market." (Dkt. # 1, ¶ 60-62). Plaintiff contends that Monsanto's licensing agreements required the seed companies to use and promote only ROUNDUP herbicides in connection with the seed they were producing and selling. (Dkt. # 1, ¶ 72-73).
Plaintiff further asserts that Monsanto, starting in 1996, acquired an interest in other companies (e.g., DeKalb and Asgrow) and gained enough control to shut down research and development of other herbicide tolerant seed traits. (Dkt. # 1, 63-69, 74). With these exclusionary agreements and acquisitions, Monsanto has "ensured its long-term domination of the market for genetically modified herbicide-tolerant seed traits and ROUNDUP herbicide." (Dkt. # 1, ¶ 70).
Plaintiff also contends that Monsanto took steps in the late 1990's to maintain its superior market position after its ROUNDUP patent expired by entering into supply contracts with chemical companies for the production of glyphosate herbicides. Plaintiff claims these arrangements ensured that competitors would not have the infrastructure to compete in the production of herbicides. (Dkt. # 1, ¶ 77).
Further, to the extent that generic herbicides were being produced, Monsanto allegedly began to coerce or pressure dealers and distributors to restrict the amount of generic herbicides they sold to growers and persuade growers to use ROUNDUP rather than a competitor's generic brand. (Dkt. # 1, ¶ 78-81). More specifically, Plaintiff contends the dealers and distributors were pressured to sell Monsanto's genetically modified seeds and herbicide products through rebate programs that either rewarded or penalized them based on their sales of Monsanto products versus competing generic products. (Dkt. # 1, ¶ 82-84).
Finally, Plaintiff claims that from 1998 to 2000, Monsanto required growers to use ROUNDUP branded herbicide over the top of ROUNDUP Ready crops, as provided in Growers' Agreements. (Dkt. # 1, ¶ 85). As part of its crop protection program, Monsanto also waived the Tech Fee that farmers would normally pay for replacements seeds if their crop failed within the first 60 days after planting, but only if ROUNDUP was used. If a generic herbicide was used, the grower had to pay the full Tech Fee for replacement seed. (Dkt. # 1, ¶ 86-88).
In general, Plaintiff contends that Monsanto has been able to limit demand for generic glyphosate herbicides at the grower level, limit supply on the distributer and dealer shelves, and limit competition from generic glyphosate product makers, all of which has resulted in "inflated, supra-competitive prices for ROUNDUP." (Dkt. # 1, ¶ 90-92). Plaintiff asserts causes of action under sections 1 and 2 of the Sherman Act, based on Defendant's alleged anticompetitive and monopolistic conduct, and claims that Texas Grain and the putative class members have been injured as a result of paying more for ROUNDUP herbicide than they would have paid in a competitive market. (Dkt. # 1, pp. 36-39, Counts I-III).
III. Standing to assert antitrust claim
Defendant asserts two principle legal arguments in its motion. The first argument is based on standing. Defendant claims that Plaintiff, who admits that it is neither a consumer nor competitor in the transgenic seed or seed trait market, has no standing to bring an antitrust claim based on alleged tying or bundling of products. In other words, Plaintiff cannot claim that it was coerced into buying ROUNDUP herbicide (the tied product) in order to purchase genetically modified seed or seed trait (the tying product).In response, Plaintiff contends it is "not bringing a specific tying claim." (Dkt. # 82, p. 7 n. 4). Instead, Plaintiff is claiming that Monsanto engaged in a multifaceted scheme to eliminate competition and maintain a monopoly, which included tying, and that Monsanto's cumulative conduct "had the purpose and effect of raising or maintaining inflated ROUNDUP prices." (Dkt. # 82, p. 7). Plaintiff believes that its direct purchase of ROUNDUP at an "artificially inflated price" is enough to confer antitrust standing. (Dkt. # 82, pp. 6-7). Defendant disagrees, and states that "remote consequences" or ripple effects in the market are not enough to establish standing under the Sherman Act; rather, Plaintiff must allege and show that its injuries are directly and proximately caused by the anticompetitive conduct in question. (Dkt. # 77, 10-13; Dkt. # 88, pp. 3-4).
The Supreme Court has clearly limited the scope of persons or entities who may sue under the antitrust laws. Not every consumer who pays an inflated price for a product has standing to sue under section 4 of the Clayton Act. The Act provides that "[a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore . . .". 15 U.S.C. § 15 (emphasis added). While this may appear to be a broad definition, its application has been narrowed. See Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 906-07 (1983). As the Supreme Court explained inAssociated General Contractors:
An antitrust violation may be expected to cause ripples of harm to flow through the Nation's economy, but despite the broad wording of § 4 there is a point beyond which the wrongdoer should not be held liable. It is reasonable to assume that Congress did not intend to allow every person tangentially affected by an antitrust violation to maintain an action to recover threefold damages for the injury to his business or property.Id. at 907 (quoting Blue Shield of Virginia v. McCready, 457 U.S. 465, 476-77, 102 S.Ct. 2540, 2547 (1982) (internal quotes and citation omitted)). The Supreme Court further explained that the question of whether a plaintiff may recover for the injury it allegedly suffered by reason of the defendants' coercion against certain third parties "cannot be answered simply by reference to the broad language of § 4." Id. Instead, "the question requires us to evaluate the plaintiff's harm, the alleged wrongdoing by the defendant, and the relationship between them." Id. at 907. A direct "causal link" between the plaintiff's injury and the defendant's violation of antitrust laws is a fundamental requirement for standing. State of Alabama v. Blue Bird Body Co., Inc., 573 F.2d 309, 317 (5th Cir. 1978); Sports Racing Services, Inc. v. Sports Car Club of America, Inc., 131 F.3d 874, 882 (10th Cir. 1997).
In Associated General Contractors, the Supreme Court concluded that the "vaguely defined links" between the coercion defendant applied against third parties and the plaintiff's injury was not enough. 103 S.Ct. at 910. The plaintiff's injury was only an indirect result of whatever harm may have been suffered by others so restrained or coerced. Id.
Clearly, at least part of Plaintiff's complaint is based on alleged tying of the herbicide ROUNDUP to the purchase of Monsanto seed or seed trait. A plaintiff in a tying case must show that the purchaser was actually coerced into purchasing an unwanted product. United Farmers Agents Association, Inc. v. Farmers Ins. Exchange, 892 F.Supp. 890, 903 (W.D. Tex. 1995),aff'd, 89 F.3d 233 (5th Cir. 1996), cert. denied, 519 U.S. 1116 (1997). For example, in Barber Ross v. Lifetime Doors, Inc., 810 F.2d 1276, 1278-79 (4th Cir.), cert. denied, 484 U.S. 823 (1987), Lifetime instituted a tying arrangement in which purchasers were forced to buy a certain number of flush doors (the tied product) if they bought six-panel doors (the tying product). Barber Ross ("B R") was forced to purchase flush doors that it did not need, while it ran short of six-panel doors. Id. at 1278. B R complained about the tying arrangement, and Lifetime terminated its contractual relationship with B R.Id. B R sued, and Lifetime challenged standing. The Fourth Circuit determined that B R had standing under the antitrust laws because it was forced to buy unwanted supplies of flush doors as a direct result of the illegal tie. Id. at 1279. Such is not the case here. Plaintiff does not allege that it has ever been a consumer in the seed or seed trait market, or that it was coerced into buying ROUNDUP herbicide in order to buy Monsanto's genetically modified seed or seed trait. Thus, even assuming arguendo that Monsanto engaged in some sort of tying arrangement, Plaintiff does not have standing to assert a claim for damages as a result of such conduct.
Substantially similar claims were asserted and rejected inMonsanto Company v. Scruggs, 342 F.Supp.2d 568 (N.D. Miss. 2004),aff'd, 459 F.3d 1328 (Fed. Cir. 2006). The district court inScruggs reached the merits of the tying claim, but concluded that the evidence on tying practices failed "manifestly" to demonstrate an unreasonable restraint on trade. Id. at 580 n. 6. The Federal Circuit affirmed, finding that Monsanto did not illegally tie the purchase of ROUNDUP to the purchase of its seed. Monsanto v. Scruggs, 459 F.3d 1328, 1340 (Fed. Cir. 2006).
Defendant searched its records and confirmed that Plaintiff has not purchased transgenic seed from Monsanto. (Dkt. # 77, attach. B).
A tying claim is not the only type of claim that can be asserted under the Sherman Act, however. Plaintiff has also asserted a monopolization claim. See Sports Racing, 131 F.3d at 884-890 (Section 1 tying claim and Section 2 monopolization claim analyzed separately for purposes of determining standing). Standing to assert a monopolization claim requires only that Plaintiff, as a direct purchaser, was illegally overcharged as the result of Defendant's willful assertion of monopoly power in the relevant market. See Sports Racing, 131 F.3d at 884-85 (as direct purchaser, SRS had standing to sue for illegal overcharges); see also In re eBay Seller Antitrust Litigation, 545 F.Supp.2d 1027, 1033 (N.D. Cal. 2008) (consumer of eBay services satisfied antitrust injury pleading requirement (i.e. standing) for monopolization claim under Section 2 of the Sherman Act). In its complaint, Texas Grain clearly asserts that it has been illegally overcharged as the result of Monsanto's willful acquisition and maintenance of monopoly power in the glyphosate herbicide market. This is enough to establish standing as a direct purchaser. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 2075 (1977); Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 2229 (1968).
IV. Statute of limitations
Defendant further asserts that Plaintiff's complaint is barred by the statute of limitations because the alleged wrongful conduct occurred well before August 10, 2003. Plaintiff filed its complaint on August 10, 2007. (Dkt. # 1). The Clayton Act provides a four year limitations period. 15 U.S.C. § 15b. Plaintiff has defined the class as those individuals who purchased ROUNDUP herbicides from Monsanto "at any time from August 10, 2003 to the present." (Dkt. # 1, p. 9). The only question is whether the factual allegations in the complaint reflect when the cause of action accrued and, if so, whether it accrued within the applicable four year limitations period.
Private antitrust actions generally accrue when the defendant commits an act that injures the plaintiff's business or property.Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 806 (1971). When a plaintiff alleges a continuous antitrust violation, suit may be brought more than four years after the initiating event, as long as the action is commenced within four years after the defendant "commits an additional overt act in furtherance of the antitrust conspiracy or commits an act that by its very nature is a continuing antitrust violation." Kaiser Aluminum Chemical Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1051 (5th Cir. 1982), cert. denied, 459 U.S. 1105 (1983). To invoke the continuing violation theory, however, the Plaintiff must allege some injurious act during the limitations period, and "not merely the abatable but unabated inertial consequences of some pre-limitations action."Farmers Ins. Exchange, 892 F.Supp. at 912.
As noted by Defendant, there are many allegations in Plaintiff's complaint that refer to pre-limitations misconduct by Monsanto, beginning in the mid 1990's. (Dkt. # 1; Dkt. # 77, pp. 6-7). However, there are also some references to alleged misconduct during the limitations period, including the following:
6. Monsanto has improperly and illegally maintained its herbicide monopoly prior to, and during, the class period via a comprehensive anticompetitive and exclusionary scheme . . .
13. Monsanto entered into supply agreements in the late 1990's and early 2000's with DuPont, Dow, Novartis, Nufarma, Cyanamid, BASF and other chemical companies, and again in later years with additional competitors as well as with companies in foreign countries . . . the terms of many of these agreements prevented the other party from effectively competing with Monsanto for glyphosate sales . . .
17. Monsanto's anticompetitive conduct has distorted and continues to affect competition and the glyphosate herbicide market during the class period. But for Monsanto's misconduct, competing generic glyphosate products would have achieved greater market acceptance and increased market penetration in the earlier years and during the Class period, which would have supported increasing penetration and acceptance over time in the market.
21. Texas Grain purchased thousands of gallons of Roundup from Monsanto during the class period . . . at noncompetitive and artificially inflated prices . . . and was injured as a result.
36. [B]ecause of the bundling, tying and other exclusionary practices alleged herein, prior to, and during, the Class Period, farmers who wanted to grow herbicide-resistant crops had few choices other than to plant glyphosate-tolerant crops, and spray glyphosate herbicide on such crops. Consequently, because Monsanto impeded the development, commercialization and market acceptance of seeds that could tolerate non-glyphosate herbicides (a) during the Class Period, non-glyphosate herbicides have not significantly constrained the price for glyphosate herbicides; and (b) the only potential constraint on the prices for Monsanto's glyphosate products is lower-priced generic glyphosate. As alleged herein, Monsanto effectively impeded competition from generic glyphosate herbicides during the period following the expiration of its Roundup patent in 2000.
69. Recently, Monsanto has moved forward with an acquisition of Delta and Pine Land Company . . .
82. Because prior to and during the Class Period, the seed-trait technology fees constituted as much as 70% of the cost for certain genetically modified seeds, (a) the rebates related to seed-trait fees were a substantial portion of the rebates that Monsanto paid to dealers; and (b) Monsanto's ability to withhold seed-trait related rebates constituted a significant threat that Monsanto has used to penalize dealers and distributors who sold more than a de minimus amount of a rival's product in the separate herbicide market.
94. Beginning in or around 1999, and continuing to date, Monsanto has engaged in unlawful contracts, combinations, and/or conspiracies in unreasonable restraint of trade, by limiting supply and markets for glyphosate herbicides, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
(Dkt. # 1, ¶ 6, 13, 17, 21, 36, 69, 82, 94). These allegations are not a model of clarity, but when viewed in the light most favorable to Plaintiff and assumed to be true, they do raise at least a plausible argument that Monsanto continued to engage in "anticompetitive" or "monopolistic" conduct during the limitations period. While Defendant may argue that the alleged misconduct during the limitations period is nothing more than the "unabated inertial consequences of some pre-limitations action," the Court is unable to make that determination from the pleadings. This question is better left for another day, after some discovery and proof beyond the pleadings can be produced.
V. Sufficiency of allegations under Twombly standard
Defendant further asserts that Plaintiff's factual allegations are simply insufficient to meet the Twombly standard. The Court agrees that Plaintiff's allegations of tying must fail, as discussed above. However, the Court cannot conclude, at this juncture, that Plaintiff has failed to allege enough facts regarding other anticompetitive or monopolistic acts to state a plausible claim under the Sherman Act.It is therefore ORDERED that Defendant Monsanto Company's Motion to Dismiss for Failure to State a Claim (Dkt. # 76) is GRANTED to the extent that Plaintiff is alleging a tying claim, but otherwise DENIED without prejudice to re-urging the same or similar arguments at the summary judgment stage of these proceedings.