A few months ago, we took note of a dispute in the Southern District of New York between two foreign makers of Universal Serial Bus (USB) products — Lotes and Hon Hai/Foxconn. You can read our prior post for more background on the dispute, but in summary, Lotes accused Foxconn of reneging on licensing commitments that it made to the USB Implementers Forum (USB-IF), and filed a complaint in the S.D.N.Y. alleging Sherman Act antitrust violations, as well as several claims related to Foxconn’s alleged breach of RAND obligations — breach of contract, waiver, promissory estoppel, tortious interference, and declaratory judgment claims.
The court had previously denied without prejudice Foxconn’s attempts to dismiss the claims, allowing Lotes to amend its original complaint. But earlier this week, the court granted Foxconn’s motion to dismiss all of the antitrust and RAND-related claims.
The court first addressed the Sherman Act claims, and found that the alleged anti-competitive conduct — all of which is alleged to have occurred outside of the United States — does not present a cognizable claim under the antitrust laws. The court cited the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), which excludes from the Sherman Act’s reach much anti-competitive conduct that causes only foreign injury — but provides an exception where the foreign activity has a “direct, substantial, and reasonably foreseeable effect” on domestic commerce. The court found that the effects of the alleged anti-competitive conduct were “too attentuated” to the alleged harm to the domestic USB market. As such, the court dismissed the Sherman Act claims.
The court then dismissed all of the remainder of Lotes’s claims, because the Sherman Act claims were the only claims keeping the case in federal court. (**WARNING – CIVIL PROCEDURE DISCUSSION AHEAD**). The court explained that it has the duty to sua sponte (on its own) examine its subject matter jurisdiction over the case. Originally, the court had jurisdiction over the Sherman Act claims under “federal question” jurisdiction (28 U.S.C. §§ 1331, 1337). It had jurisdiction over the breach of contract, promissory estoppel, waiver, and tortious interference claims — which are normally state law claims — under supplemental jurisdiction (28 U.S.C. § 1367, as these claims were closely related to the antitrust claims. (Note that this is unlike the Microsoft-Motorola case, where the court had “diversity jurisdiction” over the breach of contract claims under 28 U.S.C. § 1332, because the parties were “citizens” of different states — here, the parties were all foreign entites). Finally, the court had jurisdiction over the declaratory judgment claims under the Declaratory Judgment Act (28 U.S.C. §§ 2201, 2202).
But once the Sherman Act claims were dismissed, this all changed. Under Section 1367(b)(3), a court can decline to exercise supplemental jurisdiction over a claim if it dismisses all claims over which is has “original jurisdiction.” Likewise, jurisdiction under the declaratory judgment act is permissive, not mandatory. Having dismissed the Sherman Act claims — the only claims over which it had original jurisdiction — the court decided to get rid of the whole case altogether.
In a parting shot, the court also scolded Lotes for what it deemed a “transparent attempt to create diversity jurisdiction” by trying to add a U.S. subsidiary as a plaintiff. The court noted that even according to the allegations in the proposed amended complaint, the subsidiary would “have no real interest” in the litigation. Therefore, the court rejected Lotes’s request to be allowed to further amend its complaint, calling it a “blatant attempt to manufacture jurisdiction.”