U.S. Philips Corp. v. Windmere Corp.

Citation861 F.2d 695,8 USPQ2d 1885
Decision Date14 November 1988
Docket NumberNo. 87-1476,87-1476
Parties, 1988-2 Trade Cases 68,334, 8 U.S.P.Q.2d 1885 U.S. PHILIPS CORP. and North American Philips Corp., Plaintiffs-Appellees, v. WINDMERE CORPORATION, Defendant-Appellant, Izumi Seimitsu Kogyo Kabushiki Kaisha, Defendant. Appeal
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Forrest Hainline, Swidler & Berlin, Chartered, Washington, D.C., argued for plaintiffs-appellees Philips and N.A.P. With him on the brief was Timothy A. Ngau.

William E. Willis, Sullivan & Cromwell, New York City, argued for plaintiffs-appellees N.V. Philips. With him on the brief were John L. Hardiman, Garrard R. Beeney and Veselin M. Scekic.

Edward Foote, Winston & Strawn, Chicago, Ill., argued for defendant-appellant Windmere. With him on the brief was R. Mark McCareins. Also on the brief were Cyrus H. Hornsby and Gary R. Jones, Hornsby & Whisenand, Miami, Fla., of counsel.

Before MARKEY, Chief Judge, FRIEDMAN, SMITH, NEWMAN and MAYER, Circuit Judges.

FRIEDMAN, Circuit Judge.

This case involves electric shavers. Windmere Corporation (Windmere) appeals from a final order of the United States District Court for the Southern District of Florida directing a verdict in favor of U.S. Philips Corp. and North American Philips (collectively Philips) on Windmere's antitrust counterclaims, 680 F.Supp. 361. Because we hold that there was sufficient evidence to submit the antitrust claims to the jury, we reverse and remand for a new trial on those claims.

I
A. The Proceedings in the District Court.

In October 1984, Philips filed suit in the district court against Windmere and Izumi Seimitsu Kogyo Kabushiki Kaisha (hereinafter Izumi) (a Japanese corporation) for infringement of Philips' electric shaver patent and against Windmere for unfair competition. Windmere filed a counterclaim alleging that Philips had monopolized and attempted to monopolize the electric rotary shaver market, in violation of Section 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1982), and that Philips and Dutch Philips (N.V. Philips Gloeilampenfabrieken) had conspired to restrain trade in that market, in violation of Section 1 of that Act, 15 U.S.C. Sec. 1 (1982). Windmere apparently has abandoned its Section 1 claim.

Both the antitrust and the patent issues were tried to a jury. At the close of Windmere's antitrust case, the district court granted Philips' motion for a directed verdict on those issues. The court submitted the patent and unfair competition issues to the jury, which ruled for Philips on the patent claim and for Windmere on the unfair competition claim. Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, the court certified its order directing a verdict on the antitrust counterclaim as final and therefore appealable.

B. The Evidence Relating to the Antitrust Counterclaim.

1. The product involved. Philips sells, among other things, electric shavers under the NORELCO and the SCHICK brand names. There are two styles of electric shavers: rotary and foil. Rotary shavers use high-speed rotating cutters under a circular comb. Foil shavers use vibrating blades under an etched metal foil. Rotary shavers are either cordless rechargeable models or less expensive corded models.

Philips introduced its Norelco rotary shaver in 1948. The first model contained a single head. This was followed by a double- and then a triple-headed shaver; Philips introduced the latter in 1966. The Norelco triple-headed rotary shaver accounts for at least 75 to 80 percent of Philips' total shaver sales. In 1981, Philips purchased the rights to the SCHICK trademark and used it to market its foil shaver.

2. The rotary shaver market.

a. The relevant market. Philips does not dispute that there was sufficient evidence upon which the jury could have concluded that for antitrust purposes electric rotary shavers constituted a separate market from electric foil shavers. There also was evidence that shavers priced above $30 constituted a separate market from those priced below that amount. Philips has tended to concentrate on the higher priced models, which generally are the cordless or rechargeable shavers. In 1983, the year before Windmere entered the electric shaver market with its Ronson shaver, Philips had 72.8 percent of the sales of above-$30 shavers.

b. The concentration of that market. Prior to the entry of Windmere and Sears Roebuck into the rotary shaver market, Philips' Norelco shaver was the only product there. Mr. Gould, Windmere's economist expert, who had worked for the Census Bureau and the Department of Justice, estimated that "in 1985 the Norelco share of the rotary market was of [sic] the order of ninety percent." Gould, who had studied the concentration ratios of more than 400 industries, testified that Norelco's share of the rotary market was "the highest figure I have encountered in all of my studies.... Going back thirty years."

c. Barriers to entry. There was evidence that a recognized brand name was critical to successful entry into the electric shaver market. In 1977, Windmere first attempted to market a foil shaver and used the manufacturer's name (Payer). The name was not well-known, and the shaver line was discontinued. The president of Windmere testified that Windmere's customers advised them "that there was no way we could be in the electric shaver industry without a brand. Windmere doesn't qualify as a national brand that was known in the electric shaver business which is what they told us what [sic] we Philips became aware in February 1980 that Windmere had reached "an understanding" to acquire the SCHICK brand name. Philips subsequently predicted that if anyone bought the SCHICK name and used it to market Izumi rotary shavers, as Windmere was attempting to do, Philips would lose $15 million in sales and $2 million in profit during a three-year period, as well as five points in market share. Philips then bought the rights to the SCHICK brand name and used it to begin marketing a line of foil shavers. A Philips memorandum titled "FOIL SHAVER MARKETING OPPORTUNITY" noted that one "of the factors which have influenced our decision not to market this line [foil shavers] in the past" was because

                needed."    Although this testimony was admitted with a limiting instruction that it was allowed to show only "state of mind" and not the "truth of the answer," the fact that Windmere believed that it needed a brand name to succeed in the market is evidence that such a name was necessary
                

we [Philips] have been unwilling to commit the tens of millions of dollars required to establish an entirely new shaver brand in the U.S. market.

Now, however, we are faced with a unique opportunity which may never come our way again. An established brand name is available for a relatively small investment. Virtually all roadblocks which have stood in the way of the foil line are eliminated by the availability of the brand name--SCHICK.

Philips' own economist expert testified that entry into Windmere's proposed markets was relatively easy. Philips also relied on the fact that following Windmere's entry into the rotary shaver market in 1984, Windmere obtained 3 to 5 percent of the total electric shaver market.

d. Windmere's entry into the rotary shaver market and Philips' response. As noted, in 1977 Windmere unsuccessfully had attempted to enter the foil shaver market. In the spring of 1984, Windmere again entered the electric shaver market with both foil and rotary shavers manufactured in Japan, which Windmere sold under the RONSON trademark.

Windmere introduced a cordless rotary (model RR-1) shaver for $34.99 and a corded rotary (model RR-2) shaver for $22. Windmere projected that, during its first six months in the shaver business, it would sell 125,000 razors for total dollar sales of more than $3 million. In the last nine months of 1984, Windmere actually sold more than 300,000 units for approximately $6 million. Windmere's 1984 annual report, prepared after it had filed its antitrust counterclaim, stated that "[d]espite a substantial loss of sales and revenues resulting from Philips, i.e., Norelco's business tactics, the Ronson electric shavers represent the most successful new product line introduction in the history of the Company."

Philips had described Windmere as "a financially extremely healthy enterprise which is capable of making life very difficult for us." A Philips "report of decision taken at a management policy meeting" on January 5, 1984, stated: "If Windmere launches rotary shavers on the U.S. market, Mr. Beasley [vice president of marketing for North American Philips Consumer Product Division] proposes to kill this stone dead by introducing old models at very low prices...."

After Windmere introduced its Ronson shavers at a price lower than Philips' shavers, an April 20, 1984 Philips weekly report, for the week ending April 21, 1984, stated: "Ronson is getting a solid foothold and apparently is willing and able to pay a high price to get into our business. Let's pound them into the sand." The report suggested that Philips introduce the model "1320" cordless rotary shaver. The model 1320 was Philips' old model 1312, which had an expected retail price of $44 during 1979 to 1980.

The model 1320, however, was introduced at a distributor price of $27.08, which was approximately 31 percent less than the $39 price at which the same razor had been sold as the model 1312 four years earlier, and approximately 23 percent less than the comparable Ronson model. The Philips discussed the 1320 shaver in a March 1984 memorandum:

introduction of the model 1320 was not mentioned in Philips' 1984 business plan, dated December 1983. Until the 1320, Philips had never introduced a new product at a lower price point.

Until later in the year, Norelco has decided on an absolute embargo on...

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