By Eric Schweibenz and John Presper
On November 14, 2016, ALJ Dee Lord issued Order No. 38 containing her Initial Determination (“ID”) granting Respondents’ motion to terminate Complainant U.S. Steel Corporation’s (“U.S. Steel”) antitrust claim in Certain Carbon and Alloy Steel Products (Inv. No. 337-TA-1002).

By way of background, this investigation was instituted based on a complaint filed by U.S. Steel alleging a violation of section 337 by numerous Chinese steel producers and distributors—as well as certain Hong Kong and U.S. affiliates—by reason of: (1) a conspiracy to fix prices and control output and export volumes, the threat or effect of which is to restrain or monopolize trade and commerce in the U.S.; (2) misappropriation and use of trade secrets, the threat or effect of which is to destroy or substantially injure an industry in the U.S.; and (3) false designation of origin of manufacturer, the threat or effect of which is to destroy or substantially injure an industry in the U.S.  See our April 26, 2016, June 7, 2016, and August 30, 2016 posts for more details on this investigation.

According to the ID, Respondents filed a motion to terminate U.S. Steel’s antitrust claim on the grounds that it does not satisfy antitrust pleading requirements, i.e., there is no per se antitrust violation based on the facts alleged in the complaint.  Respondents argued that a complaint alleging a violation under section 1 of the Sherman Act must plead “both (1) an agreement that harms competition, and (2) injury to the plaintiff that flows from that harm to competition.”  Respondents asserted that the courts require “that a plaintiff plead and demonstrate below cost pricing and a dangerous probability of recoupment” as the “substantive harm to competition.”  Respondents also asserted that the failure to plead antitrust injury would be grounds for dismissal in a district court and should be treated the same way under Section 337.

In particular, Respondents argued that the complaint contains no allegations of: (1) below-cost pricing; (2) probability of later recoupment of losses; or (3) “antitrust injury.” With respect to item (1), Respondents asserted that a “less than fair value” price found by the Commerce Department under the antidumping laws does not satisfy the requirement to show “below cost” pricing under the antitrust laws.  Regarding item (2), Respondents argued that the complaint fails to allege that any Respondent has the ability to recoup alleged investments in below-cost prices because of the glut of steel in the global markets.  As to item (3), Respondents asserted that U.S. Steel does not allege predatory pricing, i.e., “an injury that the antitrust laws were designed to remedy.”

U.S. Steel countered that the Commission’s decision to institute this investigation precludes any inquiry under Commission Rule 210.21(a) as to the sufficiency of the complaint without “discovery” or some “intervening events or information,” and that Respondents are attempting to re-litigate the merits of the Commission’s decision to institute the investigation.  U.S. Steel also argued that price fixing is per se illegal under section 1 of the Sherman Act, and that a complainant does not need to show antitrust injury to prevail under that provision (unlike section 4 of the Clayton Act).  U.S. Steel further asserted that predatory pricing does not need to be alleged under section 1 of the Sherman Act.  In addition, U.S. Steel contended that it can bring this action because Section 337 is a “trade statute,” and since U.S. Steel is not seeking “general antitrust damages,” the requirements of section 4 of the Clayton Act do not apply.  According to U.S. Steel, Section 337 does not contain “the relevant phrase in Section 4 of the Clayton Act (‘injured ... by reason of anything forbidden in the antitrust laws’) interpreted by the Supreme Court under the rubric ‘antitrust injury.’”  Rather, U.S. Steel claims that “[t]he only ‘injury’ required to prevail under Section 337 is the threat, actual destruction, or ‘substantial injur[y]’ to an industry in the United States.”  U.S. Steel argued that Section 337 is akin to section 5 of the FTC Act, citing the FTC’s power “to define and proscribe an unfair competitive practice, even though the practice does not infringe either the letter or the spirit of the antitrust laws” (citing FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 239 (1972)).

The Commission Investigative Staff (“OUII”) took the position that Commission Rule 210.21 does not permit termination based on a legally insufficient pleading, and that a motion for summary determination under Commission Rule 210.18 is required.  The OUII asserted that Commission decisions “have sometimes” relied upon that rule “to terminate certain claims that cannot succeed as a matter of law,” but questioned whether termination can be ordered in this instance.  The OUII also asserted that when interpreting Section 337(a)(l)(A), “the Commission looks for guidance to antitrust principles applied in federal courts, although it does not necessarily adopt all analogous caselaw.”  Further, the OUII argued that dismissal of the complaint is not warranted because the complaint alleges a per se violation of the Sherman Act, and that predatory pricing is not necessarily required to show violation of the Sherman Act, “although predatory pricing may be required to show antitrust injury under certain circumstances.” The OUII also urged the Commission to adopt an antitrust injury requirement for private complainants as a matter of policy.  The OUII concluded, however, that the failure to
plead antitrust injury, even if antitrust injury were required, would not warrant dismissal here because Respondents have not eliminated the possibility that U.S. Steel could allege facts that would establish predatory pricing and/or recoupment “in the future.”

ALJ Lord determined that requiring U.S. Steel to show antitrust standing in order to state a claim under Section 337(a)(1)(A) is consistent not only with applicable law but also federal antitrust policy.  Observing that federal antitrust law required U.S. Steel to show antitrust injury to establish standing, the ALJ found that the complaint “does not allege predatory pricing or the facts necessary to show predatory pricing,” and that the complaint therefore is “fatally deficient” as a matter of law.  ALJ Lord also determined that the requirement to show antitrust injury applies regardless of whether a complaint is brought under section 1 or 2 of the Sherman Act or section 4 of the Clayton Act. Further, the ALJ rejected U.S. Steel’s argument that standing is not required since horizontal price-fixing is a per se violation of section 1 of the Sherman Act, finding that this argument “misconstrues the nature of per se rules and conflicts with established law requiring standing whether or not a per se violation of the antitrust laws is alleged.”  ALJ Lord also noted that failure to properly plead antitrust injury “is grounds for dismissal at the earliest possible stage of the litigation,” that “U.S. Steel has had ample opportunity to amend its complaint in a timely fashion and has not done so,” and that “[i]t would be prejudicial to Respondents to allow U.S. Steel to attempt to amend its complaint at this juncture.”

ALJ Lord disagreed with the procedural arguments raised by U.S. Steel and the OUII that under Section 337 there is no analogous procedure to Fed. R. Civ. P. 12(b)(6) and the decision to institute an investigation renders a complaint “unreviewable” absent discovery or “intervening events.”  First, the ALJ noted that the Commission directed Respondents to raise their objections to the complaint to the ALJ in “a motion to dismiss for failure to state a claim,” and that the Commission would not have done so if motions akin to those made under Rule 12(b)(6) were unavailable under Section 337.  Second, ALJ Lord observed that the Commission’s rules—particularly 210.21—provide for termination of an investigation at any time.  Third, the ALJ determined that Commission’s rules regarding the sufficiency of the complaint—particularly 210.9 (which permits “informal investigatory activity”), 210.10 (which sets forth the timing and procedure for institution), and 210.12 (which sets forth technical requirements for the contents of a complaint)—do not insulate a complaint from a challenge based on failure to state a claim as a matter of law.  Fourth, ALJ Lord found that Commission Rule 210.18 permits dismissal on the pleadings, noting that the rule’s reference to any necessary supporting affidavits for a motion for summary determination does not mean that affidavits are necessary to grant summary determination.  Fifth, the ALJ explained that a “serious problem” would arise if U.S. Steel and the OUII were correct that (1) institution of the complaint amounted to a determination by the Commission that antitrust standing is not required to plead a violation under Section 337, and (2) this determination is not subject to review by the ALJ—that is, “institution would sweep away all challenges, at any stage of the adjudication, based on the legal sufficiency of the complaint.”  Thus, “Respondents would be unable to raise the defense of lack of standing in any phase of the investigation.”  Moreover, “[p]utting aside possible due process implications,” ALJ Lord found that granting preclusive effect to the decision to institute would not only violate Section 337, but also the Administrative Procedure Act (“APA”) because agency personnel would be making binding decisions on the legal merits that would “encroach[] on the function of the ALJ” in contradiction to the APA’s requirement that an ALJ be insulated from agency “supervision or direction.”

Accordingly, ALJ Lord granted Respondents’ motion.  Because the decision “substantially reduces the number of issues in this investigation,” the ALJ shortened the evidentiary hearing to one week.