Page 354
838 F.3d 354 (3rd Cir. 2016)
AVAYA INC., RP, Appellant in 14-4174
v.
TELECOM LABS, INC.; TEAMTLI.COM CORP., CONTINUANT, INC., SCOTT GRAHAM; DOUGLAS GRAHAM; BRUCE SHELBY
Nos. 14-4174, 14-4277
United States Court of Appeals, Third Circuit
September 30, 2016
Argued
January 19, 2016
Page 355
[Copyrighted Material Omitted]
Page 356
[Copyrighted Material Omitted]
Page 357
[Copyrighted Material Omitted]
Page 358
[Copyrighted Material Omitted]
Page 359
[Copyrighted Material Omitted]
Page 360
[Copyrighted Material Omitted]
Page 361
[Copyrighted Material Omitted]
Page 362
[Copyrighted Material Omitted]
Page 363
On
Appeal from the United States District Court for the District
of New Jersey. (D.C. Civ. Action No. 1:06-cv-02490). District
Judge: Hon. Joseph E. Irenas.
Seth P.
Waxman [ARGUED], Leon B. Greenfield, Danielle M. Spinelli,
Catherine M.A. Carroll, David L. Sluis, Jonathan A. Bressler,
Thomas G. Sprankling, Wilmer Cutler Pickering Hale and Dorr
LLP, Washington, DC; Robert T. Egan, Mark J. Oberstaedt,
Archer & Greiner P.C., Haddonfield, NJ; Jacob A. Kramer,
Bryan Cave LLP, Washington, DC; Lawrence G. Scarborough,
Bryan Cave LLP, Phoenix, AZ, Counsel for
Appellant/Cross-Appellee.
Douglas
F. Broder, K& L Gates LLP, New York, NY; Raymond A. Cardozo,
Paul D. Fogel, Reed Smith LLP, San Francisco, CA; Kathy D.
Helmer, Scott G. Kobil, Anthony P. LaRocco, John Marmora,
Charles F. Rysavy, K& L Gates LLP, Newark, NJ; Richard L.
Heppner, Jr., James C. Martin [ARGUED], Colin E. Wrabley,
Reed Smith LLP, Pittsburgh, PA, Counsel for
Appellees/Cross-Appellants.
Before:
JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges.
HARDIMAN, Circuit Judge, concurring in part and dissenting in
part.
OPINION
JORDAN,
Circuit Judge.
Page 364
Table
of Contents
|
I. Introduction
|
|
II. Background
|
|
A. Factual Background
|
|
1. PBX Systems and Maintenance
|
|
2. PDS Systems and Maintenance
|
|
3. The Dispute between Avaya and TLI
|
|
B. Procedural Background
|
|
III. Avaya's Appeals
|
|
A. Judgment as a Matter of Law on Avaya's
|
|
Common Law Claims
|
|
1. Evidence Supporting Avaya's Common
|
|
Law Claims
|
Page 365
|
2. Customer Contract Interpretation
|
|
3. Tortious Interference with Prospective
|
|
Business Advantage
|
|
4. Unfair Competition
|
|
5. Fraud
|
|
6. Breach of Contract
|
|
7. Conclusion
|
|
B. Prejudice on the Antitrust Verdict
|
|
1. General Prejudice to Avaya's Antitrust Defense
|
|
2. " Fear, Uncertainty, and Doubt" Letters
|
|
3. Interference with Defense and Cross5
|
|
Examination
|
|
4. Harmless Error Analysis
|
|
C. Antitrust Issues
|
|
1. Tying in Antitrust Law |
|
2. PBX Attempted Monopolization Claim
|
|
3. PDS Tying Claim
|
|
IV. TLI's Cross-Appeals
|
|
A. Summary Judgment on TLI's Common Law
|
|
Claims
|
|
B. Summary Judgment on PBX Upgrade Tying
|
|
Claim
|
|
C. Noerr-Pennington Ruling
|
|
V. Conclusion
|
I.
Introduction
When
asked why he was so intent on scaling Mount Everest, the
ill-fated mountaineer George Mallory famously replied: "
because it's there." The parties before us
have put a twist on that philosophy: they have created their
own mountain of issues and have argued, appealed, and
cross-appealed nearly all of them. Unfortunately, if there
had been a hope of bringing this matter to conclusion any
time soon, that was dashed when, in the middle of trial, the
District Court erroneously granted judgment as a matter of
law against one side, tainting the entire trial and the
ultimate verdict. We will therefore vacate the judgment of
the District Court and remand with instructions for further
proceedings. We do not take this step lightly, but the error
of the District Court here was of such magnitude that we
seriously doubt the correctness of the ultimate verdict.
This
case arises from the fractured relationship between a large
communications equipment manufacturer, Avaya Inc. ("
Avaya" ), and one of its dealers and service providers,
TLI. After they fell out, Avaya
aggressively acted to block TLI from providing independent
maintenance services for Avaya equipment. Meanwhile, the
now-independent TLI took a series of legally dubious actions
to gain access to Avaya communications systems used by
Page 366
clients the parties once shared. Avaya filed suit, alleging
several business torts and breach of contract; TLI
counter-sued for antitrust violations. After years of
pre-trial litigation, and in the midst of a months-long
trial, the District Court granted TLI's motion under
Federal Rule of Civil Procedure 50 for judgment as a matter
of law against Avaya on all of Avaya's affirmative
claims. The Court later instructed the jury that none of
TLI's actions could be considered unlawful. With that
instruction guiding it, the jury found Avaya liable for two
antitrust violations and awarded substantial damages.
We
conclude that the entry of judgment as a matter of law was
erroneous. Given how intertwined the two sides' claims
are -- and given that Avaya's antitrust defense relied in
large part on justifying Avaya's conduct as a response to
TLI's conduct -- we also conclude that the erroneous Rule
50 judgment infected the jury's verdict. We must
therefore vacate the judgment of the District Court. A tour
of the mountain follows.
II.
Background
A.
Factual Background
Avaya,
the appellant and cross-appellee, " designs,
manufactures, sells, and maintains telecommunications
equipment." (Opening Br. at 7.) Two of its products in
particular are the subject of this suit. The first is its
private branch exchange (" PBX" ), which " is
essentially a special-purpose computer ... that functions as
a telephone switchboard" and is used by " [l]arge
organizations needing an internal telephone network." (
Id. ) The second product is its predictive dialing
system (" PDS" ), which is an " automated
telephone dialing system that uses a predictive algorithm to
anticipate when the user ... will be able to reach someone,
improving the chances a call will be answered." (
Id. at 7-8.) The PBX technology was invented in the
1980s by AT& T Co., which in 1996 spun its PBX business off
to Lucent Technologies, Inc., which in turn spun off Avaya in
2000.
TLI and
three individuals who operated it are the appellees and
cross-appellants. TLI sold post-warranty maintenance for
Avaya PBXs and PDSs. At one point, TLI was also part of
Avaya's Business Partner program, selling communications
systems on Avaya's behalf. When Avaya began downsizing
from 1999 to 2001, it encouraged its Business Partners to
hire laid-off Avaya maintenance technicians, even subsidizing
that process. TLI made several such hires and began to offer
maintenance services in 2001. Not long after, in 2003, TLI
and Avaya acrimoniously severed their
relationship, but TLI continued to provide
maintenance services on Avaya products as an independent
service provider.
1.
PBX Systems and Maintenance
Of the
two types of systems at issue in this litigation, the PBX has
a substantially larger market. Avaya characterizes PBX
systems as durable goods with extended longevity and high
fixed costs. During much of the time relevant to this suit,
PBX systems had a useful lifespan of about eight years,
though some could remain in use for decades.
[5] They have
many capabilities
Page 367
but were sold in a default mode without most of them
activated. Customers could then license individual
capabilities, depending on their needs. As one Avaya systems
engineer explained it at trial, Avaya " provide[s]
software to our customers that's able to do a vast number
of things, but customers don't want to pay for all the
things the software can do. ... They may not need all the
capabilities ... . So we allow customers to purchase the
right to use aspects of the software ... ." (J.A. 1886.)
One of
those " aspects" is a set of maintenance
features that was and is licensed separately
from the PBX system itself. Those features are accessed via
on-demand maintenance commands (" ODMCs" ). Users
of the maintenance features -- whether Avaya technicians,
non-Avaya technicians, or customers themselves -- access the
pertinent software using login credentials. Each login is
matched to the ODMCs that that specific user is authorized to
use. In addition to controlling those logins, Avaya has a
second way to regulate access to the ODMCs. The ODMCs are
only useable on a given PBX system if Avaya has activated the
corresponding maintenance software permissions ("
MSPs" ). Avaya's PBX systems come with the MSPs
disabled, but customers who execute a specific license
agreement can have the MSPs, and hence the ODMCs, enabled.
Later, when that license terminates, Avaya disables the MSPs.
Avaya
and its authorized Business Partners offer maintenance
service, which is a profitable line of business. Avaya
contends that the " margin on the initial sale of a PBX
is 'thin,'" whereas the rate of profit on
maintenance work is much higher. (Opening Br. at 8.) It says
that the profit the company earns from maintenance is an
important source of funds for the improvement of PBX systems
and the development of new models, which are released roughly
every two years. According to Avaya, its major competitors in
this market -- Cisco, Siemens, and Microsoft -- follow a
similar business model of low-margin equipment and
high-margin maintenance, and those firms compete with each
other and with Avaya over the " total cost of
ownership" of both equipment and maintenance. (Opening
Br. at 9.)
During
the time period covered by this litigation, Avaya offered
three tiers of maintenance options for PBX customers. The
highest-end, most...
