AI Root Co. v. Computer Dynamics, Inc.

• Decision Date: 31 May 1985
• Docket Number: No. C84-1348.,C84-1348.
• Parties: A.I. ROOT COMPANY, Plaintiff, v. COMPUTER DYNAMICS, INC., and Management Assistance, Inc., Defendants.
• Court: U.S. District Court — Northern District of Ohio

615 F. Supp. 727

A.I. ROOT COMPANY, Plaintiff, v. COMPUTER DYNAMICS, INC., and Management Assistance, Inc., Defendants.

No. C84-1348.

United States District Court, N.D. Ohio, E.D.

May 31, 1985.

Eugene McShane, Ralph Breitfeller, Alan Witten, Columbus, Ohio, for plaintiff.

David A. Schaefer, Cleveland, Ohio, for Computer/Dynamics, Inc.

Donald J. Mooney, Jacob K. Stein, Cincinnati, Ohio, for Management Assistance, Inc.

MEMORANDUM OF OPINION

MANOS, District Judge.

On October 28, 1983, plaintiff, the A.I. Root Company (Root), filed the above-captioned case¹ against the defendants, Computer Dynamics, Inc. (CDI) and Management Assistance, Inc. (MAI). It alleges that CDI and MAI engaged in anti-competitive activity in violation of the Sherman Antitrust Act, 15 U.S.C. § 1.² Jurisdiction is invoked pursuant to 15 U.S.C. § 15.³ The case is currently before the court on CDI's and MAI's motions for summary judgment. For the following reasons, their motions are granted.

I.

Root is an Ohio corporation that manufactures beekeeper's supplies, ecclesiastical candles and other products in Medina, Ohio. It has two (2) subsidiaries located in San Antonio, Texas and Council Bluffs, Iowa. MAI is a New York corporation which manufactures Basic Four computer equipment and operating software for that equipment. CDI is an Ohio corporation and MAI's authorized dealer in Medina, Ohio.

Since 1977, Root has purchased from MAI dealers, including CDI, small business computers for payroll and other administrative purposes. In the fall of 1982, it decided to computerize its inventory and manufacturing processes. To do so, it had to upgrade its computer capabilities. CDI offered Root a new MAI Model 710 computer. However, Root purchased a used MAI Model 730B computer from Assured Systems Development, Inc. (ASD) — a dealer in used computers in Cleveland, Ohio. To operate the Model 730B, Root needed properly configured "BOSS"⁴ operating software.⁵ It obtained a BOSS software package through ASD;⁶ however, Root was not satisfied with this software since it did not have an "imput buffering" feature.⁷ Root's efforts to have the software reconfigured by MAI dealers outside the Cleveland area were unsuccessful and thus it contacted CDI. A dispute arose between Root and CDI over the cost of the proposed reconfiguration services and, also, Root's failure to sign license agreements⁸ for software it purchased previously from CDI. See MAI's Exhibit C. The parties negotiated for approximately eight (8) months. As of September 2, 1983, CDI offered Root reconfigured BOSS software under the following terms:

1) That Root sign the appropriate license agreements for the BOSS software and other software it already purchased from CDI; and

2) That Root agree to pay a $2,500 transfer fee for any subsequent reconfigurations it should need.

MAI's Exhibit C.

Root elected not to accept these terms.⁹ Rather, it purchased new IBM equipment and software. This suit followed with Root alleging that CDI's and MAI's concerted refusal to reconfigure its BOSS software constituted a tying arrangement and group boycott in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. See supra note 2.

II.

Root alleges that CDI and MAI imposed an unlawful tying arrangement by conditioning the sale of reconfigured BOSS software (the tying product) on its purchase of computer hardware (the tied product). Complaint at ¶ 18. A tying arrangement exists when a seller sells a product (the tying product) only if the buyer will purchase another product (the tied product). Accord Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, ___, 104 S.Ct. 1551, 1558, 80 L.Ed.2d 2 (1984); Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 508-09, 89 S.Ct. 1252, 1261, 22 L.Ed.2d 495 (1969); Atlantic Refining Co. v. FTC, 381 U.S. 357, 369-71, 85 S.Ct. 1498, 1506-07, 14 L.Ed.2d 443 (1965); United States v. Loew's Inc., 371 U.S. 38, 44-45, 83 S.Ct. 97, 102, 9 L.Ed.2d 11 (1962); Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958); Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 605, 73 S.Ct. 872, 878, 97 L.Ed. 1277 (1953). Under section 1 of the Sherman Antitrust Act, such arrangements are unlawful per se if the seller has "sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a `not insubstantial' amount of interstate commerce is affected." Bender v. Southland Corp., 749 F.2d 1205, 1215 (6th Cir.1984) (citing Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1329-30 (6th Cir.1983); Bell v. Cherokee Aviation Corp., 660 F.2d 1123, 1127 (6th Cir.1981)). See Jefferson Parish Hospital District No. 2, supra, 466 U.S. at ___, 104 S.Ct. at 1559-60; Fortner Enterprises, Inc., supra, 394 U.S. at 49, 89 S.Ct. at 1256; Northern Pacific Ry. Co., supra, 356 U.S. at 6, 78 S.Ct. at 518. It bears emphasis that in order to have a per se unlawful tying arrangement, the seller must possess sufficient economic power in the tying product market so that competition in the market is appreciably restrained. See United States Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 97 S.Ct. 861, 51 L.Ed.2d 80 (1977); Fortner Enterprises, Inc., supra, 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495.

Economic power in the tying product market may be established in one of three ways. First, it may be shown that the defendant occupies a dominant position in the tying product market. See United States Steel Corp., supra, 429 U.S. at 620, 97 S.Ct. at 867; Fortner Enterprises, Inc., supra, 394 U.S. at 502-03, 89 S.Ct. at 1258; Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1215 (9th Cir.1977). Second, it may be shown that the seller's product is sufficiently unique in that he has "some advantage not shared by his competitors in the market for the tying product." United States Steel Corp., supra, 429 U.S. at 620, 97 S.Ct. at 868. See Fortner Enterprises, Inc., supra, 394 U.S. at 502-03, 89 S.Ct. at 1258; Moore, supra, 550 F.2d at 1215. Lastly, economic power may be demonstrated when a substantial number of customers have accepted the tie-in and there are no explanations other than the seller's economic power for their willingness to do so. United States Steel Corp., supra, 429 U.S. at 618 n. 10, 97 S.Ct. at 866 n. 10; Moore, supra, 550 F.2d at 1216.

Because CDI and MAI do not have the required economic power to impose the alleged tie-in, the court holds that Root has not established a per se tying arrangement.

A. Dominant Market Position

It is uncontroverted that MAI's share of the relevant product market¹⁰ in 1982-83 was only 2%-4%. See Murawski Affidavit at ¶¶ 13-17.¹¹ This market share is insufficient as a matter of law to infer market dominance. Accord Jefferson Parish Hospital District No. 2, supra, 466 U.S. at ___, 104 S.Ct. at 1566 (30% market share insufficient to infer market power); JBL Enterprises Inc. v. Jhirmack Enterprises, Inc., 698 F.2d 1011, 1017 (9th Cir.) (seller lacked economic power in tying product market since its share of the relevant market did not exceed 5%), cert. denied, ___ U.S. ___, 104 S.Ct. 106, 78 L.Ed.2d 109 (1983); Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors, Inc., 637 F.2d 1376, 1379 (9th Cir.1981) (market share of 1.87%-5.2% too small to establish market dominance), cert. denied, 454 U.S. 831, 102 S.Ct. 128, 70 L.Ed.2d 109 (1981); Blackwell v. Power Test Corp., 540 F.Supp. 802, 816 (D.N.J.1981) (market share of 6% is insufficient to establish economic power in the tying product market), aff'd without opinion, 688 F.2d 818 (3d Cir.1982). Accordingly, the court holds that CDI and MAI did not have a dominant position in the market during 1982-83.

B. Uniqueness of Tying Product

Root asserts that BOSS operating software is unique and thus CDI and MAI possessed sufficient market power. "Uniqueness confers economic power only when other competitors are in some way prevented from offering the distinctive product themselves." United States Steel Corp., supra, 429 U.S. at 621, 97 S.Ct. at 868. To prevail, Root must prove that no competitor of CDI and MAI produced or could have produced a comparable product. Id., 97 S.Ct. at 868; II E. Kintner, Federal Antitrust Law 238 (1980). In 3 P.M., Inc. v. Basic Four Corp., 591 F.Supp. 1350 (E.D.Mich.1984), Judge Phillip Pratt held that Basic Four's software products are not unique as MAI's competitors produce comparable products. In so holding, the court stated:

Plaintiff's burden, rather, is to prove that none of defendants' competitors could have produced products which would perform the functions performed by defendants' products, because defendants possessed some advantage not shared by their competitors. Plaintiff has not even attempted to make such a showing. In fact, the only evidence on this record which is relevant to this issue suggests that defendants' competitors could have produced similar products, and had actually begun to produce such products subsequently. Robert Yanover, plaintiff's president testified at his deposition that plaintiff now sells equipment manufactured by one of B/4's competitors which is the "functional equivalent" of the B/4 equipment which it earlier sold. Yanover Deposition at 70. In addition, William Bittick, a programmer for plaintiff, has stated in an affidavit that "other computer manufacturers are now offering new business basic programming languages patterned after the Basic/Four Business Basic Language." Plaintiff has produced no evidence which tends to show that none of defendants' competitors could have offered similar products during the period at issue.

591 F.Supp. at 1358-59.

In this case, Root concedes that competitors of CDI and MAI, including IBM, NCR and Seiko, produce computer hardware and software equivalent to that manufactured by MAI. See Root Deposition at 93-94; Burke Deposition at 18-19. See also Benjamin...