Second Circuit Finds No Anti-Competitive Conduct in Eatoni v. RIM, Applies “Manifest Disregard of the Law,” Post-Hall Street

In a summary order issued on June 21, 2012, the Second Circuit in Eatoni Ergonomics, Inc. v. Research in Motion Corp., affirmed the Rule 12(b)(6) dismissal of Eatoni’s monopolization complaint against BlackBerry maker RIM for failure adequately to plead anti-competitive conduct. Significantly, the Court held that individual instances of alleged misconduct that are not anti-competitive on their own do not state a claim under Section 2 of the Sherman Act when considered together.

As part of an agreement to settle a prior patent infringement suit, Eatoni and RIM agreed to work together to develop a new predictive texting technology that RIM could integrate into future “QWERTY” keyboard smartphones. Under the terms of the agreement, Eatoni granted RIM a license in its patents and released RIM from any patent-related claims that could have been brought in the prior litigation. When the joint effort fizzled after RIM concluded that the technology under development was not commercially viable, this lawsuit followed. Eatoni alleged that RIM acted anti-competitively to maintain its purported monopoly power in the market for QWERTY smartphone products by refusing to deal with Eatoni, depriving Eatoni of access to an essential facility, and infringing Eatoni’s patent. Eatoni also complained that the cumulative effect of this conduct itself constituted a Section 2 violation.

The Second Circuit, like the District Court, disagreed. The Court assumed, without deciding, that RIM had monopoly power in the relevant market but held that Eatoni failed to allege that RIM engaged in anti-competitive conduct to maintain that monopoly. First, Eatoni’s refusal-to-deal allegations fell short because, unlike the Supreme Court’s decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., the parties did not have a preexisting product that they collaborated on and profited from, and RIM’s decision to pull out of the joint effort was not for predatory gain. Instead, Eatoni and RIM agreed only to collaborate prospectively, and RIM determined, in good faith and in the legitimate exercise of its business judgment, that the parties’ proposed technology could not be marketed successfully. Second, the Court rejected the essential facility claim because Eatoni did not plausibly assert that RIM was the only smartphone maker with whom it could do business; nor, even if it was, was RIM obligated to make its smartphones available to Eatoni under Section 2. Third, to the extent a claim of patent infringement can give rise to an actionable Section 2 violation (the Court did not reach this issue), the terms of the parties’ settlement agreement negated that claim. Having found none of the foregoing acts to be independently anti-competitive, the Court refused to credit Eatoni’s final assertion that RIM’s overall course of conduct violated Section 2.

Also of note is the Second Circuit’s rejection of Eatoni’s additional claim that an arbitral award for RIM should have been vacated. The Court affirmed the District Court’s refusal to vacate the arbitral award but, in doing so, considered whether the arbitrator had manifestly disregarded the law. Eatoni is thus one of several Second Circuit opinions which have continued to apply the judge-made manifest disregard standard of review to arbitral awards despite the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., which sought to limit review of arbitral awards to the specific grounds set forth in Sections 10 and 11 of the Federal Arbitration Act.

Kevin R. Reich is an Associate in the Gibbons Business & Commercial Litigation Department.
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