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KOLON INDUS. v. E.I. DUPONT, NO. 12-1587

Decided: April 3, 2014 

The Fourth Circuit held that the district court acted properly by denying Kolon Industries’ (Kolon) recusal motion because of timeliness under 28 U.S.C. § 455(b).  Further, the Fourth Circuit deferred to the district court’s discovery oversight, and agreed that Kolon failed to raise a triable issue of material fact to prove its claims that E.I. DuPont de Nemours & Co. (DuPont) either attempted, or actually had, a monopoly over the U.S. para-aramid market.  Thus, the Fourth Circuit affirmed the district court’s grant of summary judgment for DuPont.

Kolon alleged that DuPont held a monopoly over the para-aramid fiber market in violation of the Sherman Act (§ 2).  In the U.S., the three main producers of para-aramid are: DuPont, Teijin Aramid (Teijin), and Kolon.  Together, DuPont and Teijin account for 99% of the para-aramid sales in the U.S.  Moreover, there are high entry barriers into the para-aramid market.  Kolon claimed that it was unable to obtain more than a de minimis share of the market when it entered in 2005 because DuPont executed numerous supply agreements with high-volume customers.

DuPont argued that Kolon failed to penetrate the U.S. market because of its own shortcomings.  Specifically, Kolon used only seven sales agents that contacted a small percentage of potential customers, and inadequately invested in product offerings and supply capacity.  DuPont sued Kolon, alleging theft and misappropriation of trade secrets, and Kolon counterclaimed with its anti-trust claim.  DuPont moved to dismiss the counterclaim, which the district court granted with leave to amend.  Kolon filed amended counterclaims, which were also dismissed. Kolon appealed the dismissal, and the Fourth Circuit reversed, and stated that Kolon had adequately pleaded its monopoly claims and remanded for further proceedings.  On remand, the district court tried the trade secrets claim separately, resulting in a $919.9 million jury verdict for DuPont.  Ultimately, the district court granted summary judgment to DuPont on the anti-trust claims.  Kolon then filed an appeal.

On appeal, the Fourth Circuit reviewed Kolon’s argument that the district court judge should have recused himself from the anti-trust and trade secrets cases.  The district court judge was a partner at McGuire Woods, which had handled patent lawsuits relating to para-aramid, prior to his appointment to the bench, and represented DuPont in the current litigation.  Both parties received notice of the judge’s related financial interest. The parties were given twenty days to file a motion for disqualification, but neither party did. Instead, Kolon filed its motion for recusal after a $920 million dollar award against it—two days prior to the deadline for summary judgment motions in the anti-trust case against DuPont. The district court denied the recusal motion because Kolon filed its motion a year after the alleged conflict, finding that 28 U.S.C § 455, although silent on the matter, includes a timeliness requirement.  The Fourth Circuit found that Kolon failed to “raise the disqualification . . . [of the judge] at the earliest moment after [its] knowledge of the facts.” U.S. v. Owens, 902 F.2d 1154, 1156 (quoting Satterfield v. Edenton-Chowan Bd. of Educ., 530 F.2d 567, 574–75 (4th Cir. 1975)).

The Fourth Circuit found no abuse of discretion in the district court’s discovery rulings, and stated that the district court’s discovery denial was justified by its determination that the production of sales, pricing, and margin data would have been “unduly burdensome” on DuPont by requiring compilation of all this information onto one spreadsheet as requested by Kolon.   Kolon also appealed the district court’s grant of a protective order that barred a F.R.C.P. Rule 30(b)(6) deposition of DuPont’s use of the supply agreements.  The Fourth Circuit found that Kolon violated Local Civil Rule 30(H), which requires eleven days’ advanced notice of a deposition, and Federal Rule of Civil Procedure 30(b)(1), which requires “reasonable notice,” when it gave only five days’ notice for the replacement deposition notice.

Reviewing Kolon’s Sherman Act claim de novo, the Fourth Circuit found that DuPont lacked monopoly power in the U.S. para-aramid market from 2006 to 2009 because DuPont’s 60% market share fell significantly short of monopoly power under E.I. du Pont de Nemours & Co. v. Kolon Indus. (DuPont I), 637 F.3d 435.  Further, the Fourth Circuit found that DuPont lacked durable market power because of Teijin’s ascendancy in the market over the past several decades, which led to DuPont’s steady decline in market share.  The Fourth Circuit also found that DuPont did not engage in conduct that forecloses competition, gains a competitive advantage, or attempts to destroy a competitor.  See Eastman Kodak v. Image Technical Servs., Inc., 504 U.S. 451, 482–83 (1992).  Kolon argued that DuPont’s twenty-one supply agreements—out of 1,000 potential consumers in the U.S. para-aramid market—demonstrated that DuPont willfully maintained its monopoly power.  However, the Fourth Circuit determined that those agreements did not violate the willful maintenance prong set forth in DuPont I.

With regard to Kolon’s attempted monopolization claim, the Fourth Circuit stated that DuPont’s conduct was not prohibited by Sports, Inc. v. McQuillan, 506 U.S. 447 because its supply agreements did not foreclose a substantial share of the para-aramid market.  Furthermore, the Fourth Circuit found that there was no dangerous probability that DuPont would successfully monopolize the market in violation of McQuillan because of Teijin’s growth in market share.

Full Opinion

– Alysja S. Garansi