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A district court in Illinois recently dismissed a disappointed bidder’s antitrust claim against the biddee and winning bidder for allegedly agreeing to circumvent a competitive bidding process. The case, Neptun Light, Inc. v. City of Chicago, serves as a stark reminder of well-established, but frequently overlooked antitrust principles. 

The Claim

Neptun Light, Inc., a Chicago-based lighting manufacturer, sued the city of Chicago, the nonprofit Chicago Infrastructure Trust (CIT), and a contractor named Ameresco, Inc. after Neptun’s lights were not selected for use in a citywide project. According to Neptun, the city developed a plan to update its streetlights with smart lighting, and coordinated with CIT to issue a request for proposals (RFP) to a number of contractors. Under the RFP, a bid had to include new LED luminaires – an energy efficient electric-lighting unit – that met certain specifications and offered the best overall value. Neptun’s luminaires supposedly met the specifications, but the luminaires made by its competitor, General Electric Lighting did not. Neptun alleged that, on the eve of announcing the winning bid, the city and CIT agreed to relax the RFP specification standards and award the contract to Ameresco, which offered GE Lighting luminaires, even though Neptun luminaires were more cost efficient and met all the original specifications under the RFP. This relaxation, Neptun claimed, violated Section 1 of the Sherman Act.

According to Neptun, the “Defendants “agreed to circumvent competitive bidding procedures and steer business toward a less efficient, more expensive competitor.” This agreement, Neptun complained, unreasonably restrained the market for “luminaire manufacturers” in Chicago, and harmed Neptun because “desiring and selecting a more expensive and poorly-performing product in advance of any bidding, and irrespective of the performance . . . is anticompetitive.” The defendants moved to dismiss the action for failure to state a claim. 

The Decision

To state a claim under Section 1, a party must allege:
  1. A contract, combination, or conspiracy (i.e., an agreement).
  2. A resultant unreasonable restraint of trade in a relevant market.
  3. An accompanying injury. 
To satisfy the second prong of this test in a claim governed by the rule of reason, a plaintiff must allege “that the defendants’ conduct had an anticompetitive effect in a relevant market, and that the defendants have market power in that market.” 

The court found that Neptun’s claim failed at every step of the analysis. As to the first prong of the test, it rejected the alleged conspiracy theory, labeling it “inherently implausible,” and explained that Neptun “provide[d] no reason whatsoever as to why Defendants would conspire to injure themselves.” Indeed, GE Lighting wasn’t even a defendant in the case, and the city obtained no discernable benefit from the allegedly anticompetitive arrangement.

Turning to the second prong, the court held that the complaint fell far short of showing that the defendants had market power. It reasoned that “luminaire manufacturers” do not constitute a product or service for purposes of establishing a relevant market, and that even if Neptun meant to define the market as “luminaires,” the result would be the same because Neptun failed to allege and argue “how that is a market independent of other lighting products.” As the court succinctly explained, “[A]lthough the ‘manipulat[ion]’ of a ‘bidding process’ by a purchaser may give rise to ‘a claim grounded in tort or contract,’ ‘the absence of any allegation of an anticompetitive effect prevents these claims from coming within the purview of the antitrust laws.”

And finally, as to the third prong, the court concluded that the alleged conduct, even if true, did not unreasonably restrain competition and, more importantly, was not unlawful. As the court bluntly stated, even if the defendants failed to hold a true competition, “[t]he Sherman Act does not require competitive bidding.”

Takeaways

Although Neptun Light does not push the boundaries of antitrust jurisprudence, it is a helpful reminder of several basic tenets. 
  1. Antitrust laws are designed to protect competition, not competitors. As the court explained, Neptun took issue with the “lack of competition with respect to one customer and one contract” rather than “a lack of competition in a market.’”
  2. Particularly given the potential complexity and expense of antitrust litigation, courts are relatively aggressive at weeding out meritless claims on the pleadings. Indeed, in Neptun Light, the court found it “hard to ignore the suspicion that the facts have been forced into an antitrust mold to achieve federal jurisdiction.”
  3. Twombly’s often-cited but infrequently applied plausibility standard is alive and well. 

DeAngelo LaVette, a law clerk at McDonald Hopkins, assisted with the writing of this blog
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