On May 19, 2008, the Federal District Court for the Eastern District of Pennsylvania denied motions to dismiss two antitrust suits brought against Babies “R” Us (and its parent Toys “R” Us) and certain baby-product manufacturers alleging a conspiracy to quash internet rivals and maintain high retail prices. Babyage.com, Inc. v. Toys “R” Us, Inc., d/b/a Babies “R” Us, and McDonough v. Toys “R” Us, Inc., d/b/a Babies “R” Us., Civil Action Nos. 05-6792, 06-242, 2008 U.S. Dist. Lexis 40476 (E.D. Pa. May 19, 2008). The suits, one brought by internet retailers and the other by consumers, alleged violations of Sections 1 and 2 of the Sherman Act, i.e., restraint of trade, monopolization, attempted monopolization, and conspiracy to monopolize. The Court held that the suits adequately allege the elements of a restraint of trade claim, including (i) relevant market, (ii) concerted action, and (iii) anticompetitive nature of the action. The Court also held that the plaintiffs’ complaints stated monopoly claims including: (i) relevant market, (ii) monopoly power, which is maintained by improper means, (iii) intent to acquire monopoly power through anticompetitive conduct, and (iv) probability of actually acquiring monopoly power. In particular, the Court rejected defendants’ argument that plaintiffs’ “concerted action” allegations failed to meet the Supreme Court standard set out in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965, 167 L. Ed. 2d 929 (2007) – plaintiffs alleged conduct that was beyond mere “parallel” conduct and contained widely recognized “plus factors” evidencing concerted action. The Court also rejected defendants’ argument that the complaints fail to adequately allege harm caused by defendants’ minimum resale price maintenance (“RPM”) policies – the complaints contained numerous allegations that dealt with the Supreme Court’s decision in Leegin Creative Leather Products Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2717, 2719-2720, 168 L. Ed. 2d 623 (2007) that requires plaintiffs to confront potential pro-competitive aspect of minimum RPM practices. The decision is important because it gives further guidance to practitioners and businesses regarding the lower courts’ application of the Supreme Court’s decisions in Twombly and Leegin.
Background. Babies “R” Us is a large retailer carrying baby and juvenile products including strollers, high chairs, breast pumps, bedding, car seats, and infant carriers. It carries products manufactured by Britax, Peg Perego, Medela, Maclaren, Kids Line, Regal Lager, and Baby Bjorn, among others. Smaller Internet retailers like Baby Age and Baby Club competed with Babies “R” Us by undercutting Babies “R” Us’ prices in order to increase their sales volume. This undercutting stopped when the manufacturers began to require the retailers to sell their goods at or above a certain price, i.e., at a minimum resale price or “RPM.” The retailers, and certain consumers who alleged to have paid more for baby products than they would have absent these pricing policies, claim that Babies “R” Us orchestrated these arrangements in order to drive the plaintiff competitors out of business.
Plaintiffs (the retailers and the consumers) brought a lawsuit against Babies “R” Us and the manufacturers, alleging that this scheme constitutes a combination in restraint of trade under Section 1 of the Sherman Act; monopolization under Section 2 of the Sherman Act; attempted monopolization under Section 2 of the Sherman Act; and a conspiracy to monopolize under Sections 1 and 2 of the Sherman Act.3 Babies “R” Us and the manufacturers moved to dismiss the complaints pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. [footnotes and some citations omitted]