343 F.3d 1000 (9th Cir. 2003), 01-56447, Glen Holly Entertainment, Inc. v. Tektronix Inc.

Docket Nº:01-56447
Citation:343 F.3d 1000
Party Name:Glen Holly Entertainment, Inc. v. Tektronix Inc.
Case Date:September 09, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1000

343 F.3d 1000 (9th Cir. 2003)

GLEN HOLLY ENTERTAINMENT INC., a California Corporation dba Digital Images, Plaintiff-Appellant,


TEKTRONIX INC., an Oregon Corporation; Avid Technology, Inc, a Delaware Corporation, Defendants-Appellees.

No. 01-56447.

United States Court of Appeals, Ninth Circuit

September 9, 2003

Argued and Submitted Oct. 9, 2002.

Page 1001

[Copyrighted Material Omitted]

Page 1002

[Copyrighted Material Omitted]

Page 1003

[Copyrighted Material Omitted]

Page 1004

Jeffrey T. Makoff, Makoffs LLP, San Francisco, CA, for the Plaintiff-Appellant.

Stanley M. Gorinson, Kilpatrick Stockton LLP, Washington, DC, for the Defendants-Appellees.

James C. Burling, Hale & Dorr, LLP, Boston, MA, for the Defendants-Appellees.

Appeal from the United States District Court for the Central District of California; Stephen V. Wilson, District Judge, Presiding. D.C. No. CV-99-02476-SVW.

Before: REINHARDT, TROTT and SILVERMAN, Circuit Judges.

TROTT, Circuit Judge.

Glen Holly Entertainment Inc. ("Digital Images") brought this private antitrust action, with supplemental state law claims, against Tektronix Inc. ("Tektronix") and Avid Technology, Inc. ("Avid"), collectively ("defendants"). Pursuant to defendants' Rule 12(b)(6) motion, the district court dismissed Digital Images' antitrust and promissory estoppel claims, as well as some of its fraud and negligent misrepresentation claims. The court concluded that Digital Images lacked "anti-trust standing" in that the injury alleged did not qualify as "antitrust injury." The district court subsequently granted summary judgment in favor of the defendants on Digital Images' remaining fraud and negligent misrepresentation claims. We have jurisdiction under 28 U.S.C. § 1291. We affirm in part, and reverse and remand in part.


We review de novo the district court's dismissal under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2001). All allegations of material fact in the complaint are regarded as true and construed in the light most favorable to Digital Images. Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F.3d 1096, 1101 (9th Cir. 1999) (citations omitted). Digital Images' second amended complaint was not subject to dismissal unless it appeared beyond doubt that Digital Images could prove no set of facts in support of its claims that would entitle it to relief. Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999) (citations omitted).

We review de novo the district court's grant of summary judgment. Balint v. Carson City, Nev., 180 F.3d 1047, 1050 (9th Cir. 1999) (en banc). We view the evidence in the light most favorable to Digital Images, the nonmoving party, and determine whether any genuine issues of material facts exist and whether the district court correctly applied the relevant substantive law. Id.

Page 1005

"Antitrust standing is a question of law reviewed de novo." American Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190 F.3d 1051, 1054 (9th Cir. 1999).


Digital Images alleges that most filmed entertainment product in the United States was edited during the 1990's on "non-linear editing systems," a digital technology based method of efficiently accessing and rearranging film images and audio tracks. Until September 1998, two competing manufacturers of non-linear editing systems existed in the United States' film market, Tektronix and Avid, the defendants in this case. According to plaintiff Digital Images' complaint, Tektronix and Avid were "powerful rivals" who engaged in "fierce" economic and innovative competition from which Digital Images and other consumer-purchaser end users of their respective products materially benefitted across the board. Tektronix called its system "Lightworks." Avid referred to its competing product by the company name, "Avid."

Digital Images was in the business of (1) leasing to film companies for their own use non-linear editing equipment which it purchased from the manufacturer, and (2) using these systems to perform professional editing services for customers in the film industry. Digital Images purchased its entire stock of non-linear editing equipment, i.e., Lightworks, from Tektronix and relied on the manufacturer for service, features, upgrades, and support. In antitrust terms, Digital Images was in the "purchase market" a customer-consumer who obtained goods and related services in the relevant market from the defendants. As counsel argued to the court, Digital Images was, among other things, a "buyer for [its] own use." [ER 0263.] Digital Images alleges also that it competed with the manufacturers Avid and Tektronix in the rental market as a rental equipment and service provider ("RESP"). The point of competition alleged was the decision by limited-purpose film production companies either to buy a machine from the manufacturer, or rent one from a RESP. It is in these capacities that we examine its standing to bring this action.

At a series of meetings between April and October 1996, Tektronix representatives met with Lightworks' customers, including Digital Images. During these meetings, Tektronix representatives asserted that Tektronix would continue to improve and aggressively to market Lightworks. Between 1996 and August 1998, the representatives discussed Tektronix's forward-looking business plans during one-on-one meetings with Digital Images, and at industry conventions and trade shows. Based on Tektronix's presentations, Digital Images alleges it chose to remain with Lightworks instead of switching to Tektronix's competitor, Avid.

By September 1998, Avid had succeeded in controlling 85% of the non-linear film editing machine market. On September 3, 1998, abruptly, without warning, and contrary to previous representations, Avid and Tektronix entered into an "alliance" whereby Tektronix agreed to cease manufacturing and selling its Lightworks system, and to become a distributor for its previous competitor Avid's non-linear film editing products. To quote Digital Images' second amended complaint,

(b) Avid and Tektronix agreed "jointly" to market Avid's current and future non-linear editing products to the broadcast market, and Tektronix was prohibited from selling the Avid non-linear editing product to film market RESPS [i.e., rental equipment and service providers,] (such as Digital Images). When the parties agreed to end competition, which they recognized would be viewed as anti competitive conduct, they colluded

Page 1006

to conceal the true facts from the public. This was done through a variety of maneuvers, including false S.E.C. filings concerning Lightworks, false statements at press conferences, and an incentive system under which Tektronix would effectively be precluded from competing with Avid--even though the "joint venture" agreements did not contain an express non-compete clause; and (c) Avid and Tektronix agreed to stop competing in markets for the sale of editing equipment to the broadcast industry, and instead to combine their products into a single product that would eliminate the non-linear news editing equipment markets--which set the stage for Avid and Tektronix to split the profits that would be realized from the elimination of competition in these markets. Further to that scheme, Avid and Tektronix formed a jointly-owned corporation called "Avstar Systems LLC." The agreement between Tektronix and Avid was an egregious act of unlawful market division. . . .

[ER 0188-0189.] (Emphasis added.)

Digital Images alleges that this joint venture was purposefully anti-competitive and caused its film producer customers to refuse to have their films edited with Lightworks technology after they discovered that the system had been discontinued. Unable to switch products because of costs and allegedly insurmountable change-over complications, this competition-ending agreement between Avid and Tektronix effectively ruined Digital Images' Lightworks reliant business, and forced Digital Images out of business. As the district court noted, as a result of this joint venture "plaintiff's business was abruptly destroyed."

Notwithstanding a string of prior consistent representations to the industry to the contrary, on October 9, 1998, Tektronix claimed to the Security and Exchange Commission ("S.E.C.") in justification of its decision to collaborate with Avid that it had entered into the alliance because Lightworks was near the end of its product life cycle. Whatever the reason, the alliance allegedly had the effect of eliminating all competition in the relevant market wherein Digital Images was both a customer-purchaser-owner-end-user and a purchaser-owner-lessor. Digital Images asserts that the agreement gave Avid a monopoly in the relevant market. Interbrand competition was dead.

Digital Images filed this private antitrust lawsuit on March 10, 1999, alleging that the Avid/Tektronix agreement violated antitrust laws--the Sherman Act (15 U.S.C. §§ 1-2), the Clayton Act (15 U.S.C. § 18), and the Cartwright Act (Cal. Bus. & Prof.Code § 16726). Digital Images alleged also state law claims against Tektronix for fraud, negligent misrepresentation, and promissory estoppel, and a claim against Avid for interference with prospective business advantage.

Digital Images alleged in its complaint that Tektronix's representations regarding its intentions were both material and false, and that Digital Images relied on these statements in two principal ways: (1) Digital Images repeated Tektronix's misrepresentations to its customers which caused it to lose business and credibility when the representations turned out to be false; and (2) Digital Images remained an exclusive Lightworks vendor (which included substantial capital investments in Lightworks equipment), which caused Digital Images to suffer unrecoverable losses when Tektronix...

To continue reading