Spectrofuge Corp. v. Beckman Instruments, Inc.

• Decision Date: 16 June 1978
• Docket Number: No. 75-2016,75-2016
• Citation: 575 F.2d 256
• Parties: 1978-1 Trade Cases 62,109 SPECTROFUGE CORPORATION, a Florida Corporation, Plaintiff-Appellee Cross Appellant, v. BECKMAN INSTRUMENTS, INC., a California Corporation, Defendant-Appellant Cross Appellee, v. Reinaldo del VALLE and William David Dawson, Counterdefendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 256

575 F.2d 256

1978-1 Trade Cases 62,109

SPECTROFUGE CORPORATION, a Florida Corporation, Plaintiff-Appellee Cross Appellant, v. BECKMAN INSTRUMENTS, INC., a California Corporation, Defendant-Appellant Cross Appellee, v. Reinaldo del VALLE and William David Dawson,

Counterdefendants-Appellees.

No. 75-2016.

United States Court of Appeals,

Fifth Circuit.

June 16, 1978.

Sheldon Karon and Richard L. Horn, Chicago, Ill., Robert J. Steinmeyer, Fullerton, Cal., for Beckman Instruments, Inc.

Kenny, Nachwalter & Seymour, P.A., Geo. Michael Nachwalter, Miami, Fla., for Spectrofuge Corp.

Appeals from the United States District Court for the Southern District of Florida.

Before BROWN, Chief Judge, AINSWORTH, Circuit Judge, and JAMESON ^*, District Judge.

JOHN R. BROWN, Chief Judge:

This antitrust case presents, among others, an interesting relevant market problem.

Spectrofuge Corporation, an independent service organization, brought suit against Beckman Instruments, Inc., a manufacturer of scientific instruments, alleging that Beckman had restrained trade and had monopolized or attempted to monopolize the servicing of its instruments, one in particular in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2. It also charged Beckman with common law unfair competition. Beckman, counterclaiming for violation of § 1 and for unfair competition, alleged that Spectrofuge had pirated its employees and misappropriated its confidential information. After a two-week trial, the jury returned a general verdict ^** in favor of Spectrofuge on its claims and against Beckman on its counterclaims.

After the trial court entered judgment on the verdict, Beckman moved for judgment n.o.v. or, in the alternative, for a new trial. The Trial Judge ordered a "remittitur" of a portion of the damages awarded Spectrofuge but otherwise denied Beckman's motion. Spectrofuge unsuccessfully moved for a permanent injunction. It subsequently moved to modify the judgment with respect to the award of attorneys' fees and the denial of injunctive relief. These motions were denied. All are unhappy and both parties appeal.

We reverse the judgment entered for Spectrofuge on its antitrust claims and the attorneys' fee award. The judgment on the common law count is affirmed. This result disposes of the issues raised on Spectrofuge's cross-appeal.

We have mapped out the following course for explaining our Monopoly game. With our first roll of the dice, we introduce the players. Second, we detail, to the extent necessary, the players' conduct which formed the bases of the complaint and counterclaim. Third, after discussing the verdict, final judgment, and issues raised on appeal, we reach the Sherman Act claims. Finally without passing Go or collecting $200 we take care of odds and ends.

I. Background

Beckman

Beckman is a California corporation engaged, among other things, in the manufacture and sale throughout the United States of a wide variety of scientific instruments and accessories, including, for example, liquid scintillation counters, amino acid analyzers, spectrophotometers, and ultracentrifuges. Of particular importance here are Beckman's ultracentrifuges (UCs) which analyze samples of various materials. The instrument spins the sample at high rates of speed (60,000 to 70,000 rpm) until the material separates into its various components. Its applications in the biomedical field are many. For instance, the UC played a major role in the development of flu and polio vaccines due to its ability to purify flu and polio viruses. ¹

Beckman manufactures its products through four unincorporated producing divisions. The Spinco Division manufactures the UC. The other three are the Scientific Instruments (SID), Clinical Instruments (CID), and Electronic Instruments (EID) Divisions. The Analytical Instrument Sales and Service Division (AISSD) performs the sales and servicing functions for the four producing divisions.

Incidental to the sale of its instruments, Beckman provides servicing and maintenance free during the one-year warranty period. Thereafter, service is provided on a contract ² or a call-by-call basis by approximately 275 Beckman field service representatives stationed throughout the United States. These representatives receive formal training courses conducted by Beckman in California and on-the-job training in the field when they first join the company.

Each representative carries a personal inventory of replacement and exchange ³ parts for Beckman instruments which is valued at about $5,000 per man. This private stock is referred to as "service inventory." Additional service inventory is carried at depots, district offices, a central warehouse in Fullerton, California, and at the producing divisions. This inventory is available exclusively for the use of service representatives. ⁴ Beckman also maintains a "sales inventory" of parts available for sale to instrument owners, independent service organizations, etc. located at depots and at the producing divisions. Inventory control is monitored by computer.

Spectrofuge

Two Beckman service representatives, Reinaldo del Valle and William Dawson, resigned their jobs and, in May 1972, formed Spectrofuge Corporation. ⁵ Dawson, its first president, subsequently sold his stock to del Valle who then became president and sole stockholder. During Dawson's tenure with Beckman, he had repaired and serviced pH meters, spectrophotometers, liquid scintillation counters, gas chromatographs, and UCs; del Valle ⁶ had serviced amino acid analyzers and UCs.

One of Spectrofuge's goals, as stated in a promotional letter, was:

. . . to provide local service at lower rates than major companies. This is accomplished by limiting the service specialist to a thirty mile radius of operation in his assigned location. This cuts cost involved in traveling and permits faster service, since the specialist is not over-extended or out of town when needed. ⁷

Another such letter ⁸ outlines in the first paragraph the services offered:

Spectrofuge Corporation provides maintenance contracts and reimbursable repair service for laboratory and industrial instruments. We have grown rapidly as a result of efficient service of consistently high quality at a competitive price. Our personnel average twelve years of experience per man and are qualified to work on almost all types of instruments. Analytical and preparative ultracentrifuges, liquid scintillation counters, amino acid analyzers, and spectrophotometers are our major business. Hence the name Spectrofuge. ⁹

Del Valle lived in Miami, Dawson in Gainesville. Their initial efforts to obtain service contracts ¹⁰ focused on institutions owning instruments which they had serviced as Beckman and in del Valle's case, Cary employees; e. g., the University of Miami and the University of Florida. According to del Valle, in order to expand business, it was necessary for Spectrofuge to hire qualified service people. ¹¹ On September 30, 1972, Larry Autry, a Beckman service representative stationed in North Carolina, ¹² resigned and joined Spectrofuge on October 1. Autry began to service for Spectrofuge some of the same institutions which he had previously serviced while working for Beckman. ¹³

In early 1973 Spectrofuge submitted a bid to Union Carbide at Oak Ridge, Tennessee, covering service of Beckman UCs, amino acid analyzers, sequencers, and recording spectrophotometers for the period April 1, 1973 to March 31, 1974. Beckman, who then held a service contract on its instruments at Union Carbide, rebid for the new year. In October or November 1972, when Spectrofuge was contemplating the bid submission, George Farnham, the Beckman representative stationed in Tennessee who serviced Beckman's instruments at Carbide, agreed to join Spectrofuge if its bid was accepted. Sometime thereafter Farnham so informed Beckman. In March 1973 when the contract was awarded to Spectrofuge, Beckman fired Farnham who immediately became a Spectrofuge employee servicing Beckman equipment at the Oak Ridge facility. ¹⁴

On June 13, 1973, Jose Sacerio, who had been the supervisor of the Electronics Section of the Medical Instrumentation Laboratory, joined Spectrofuge. Sacerio was hired for the purpose of servicing Packard liquid scintillation counters and designing instruments. Sacerio became Spectrofuge's Vice President for Custom Design and devoted about 45% Of his time to design work. He spent the remainder on servicing instruments, spectrophotometers and UCs, although he performed only routine service on the latter. Sacerio never traveled outside Florida to service instruments and "probably" would have objected to moving. He left Spectrofuge on July 8, 1974.

The next employee acquired by Spectrofuge (in July 1973) was John Jackson who had been employed by Beckman as a service representative in the Research Triangle area. ¹⁵ Over 95% Of his work for Spectrofuge was devoted to servicing Beckman UCs. Jackson worked for Spectrofuge for about one year. In August 1973 Spectrofuge hired a "jack of all trades" named Gonzales who, according to Sacerio, helped with brute force work, such as lifting instruments, and ran various errands. Gonzales was located in Florida. He left Spectrofuge in November 1973.

Del Valle and Dawson approached others to work for Spectrofuge ¹⁶ with a view toward increasing service capability: and gaining new contracts. These efforts to expand are succinctly summarized in chart form.

II. A Centrifugal Honeymoon: Beginning And End

From its beginning in May 1972, Spectrofuge went into direct competition with Beckman for service contracts on Beckman instruments as to which the one-year warranty period had expired. By offering service at a price between 15-20% Below Beckman's, Spectrofuge was initially successful in each instance when the two companies were in direct bidding competition. Thus, Spectrofuge's growth was rapid. In its first fiscal year ending April 30, 1973,...