Axis, S.p.A. v. Micafil, Inc.

• Decision Date: 24 March 1989
• Docket Number: Nos. 88-3113,88-3245,s. 88-3113
• Citation: 10 USPQ2d 1849,870 F.2d 1105
• Parties: , 1989-1 Trade Cases 68,495, 10 U.S.P.Q.2d 1849 AXIS, S.p.A., Plaintiff-Appellant, v. MICAFIL, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1105

870 F.2d 1105

57 USLW 2593, 1989-1 Trade Cases 68,495,

10 U.S.P.Q.2d 1849

AXIS, S.p.A., Plaintiff-Appellant, v. MICAFIL, INC., Defendant-Appellee.

Nos. 88-3113, 88-3245.

United States Court of Appeals Sixth Circuit.

Argued Nov. 17, 1988.

Decided March 24, 1989.

Stanley M. Fisher, Walter M. Bates, Arter & Hadden, Cleveland, Ohio, William Rand, David H. Marks (argued), Robert E. Williams, New York City, for plaintiff-appellant.

Richard E. Guster, Roetzel & Andress, Akron, Ohio, Michael J. Levin (argued), Boyle, Vogeler & Haimes, New York City, for defendant-appellee.

Before WELLFORD, Circuit Judge, and PECK and LIVELY, ^* Senior Circuit Judges.

LIVELY, Senior Circuit Judge.

This is an appeal from dismissal of an antitrust action pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted, 681 F.Supp. 1271. The question for decision is whether the injury claimed by the plaintiff in its complaint constitutes an "antitrust injury," a requirement for recovery of treble damages under Sec. 4 of the Clayton Act, 15 U.S.C. Sec. 15, and for injunctive relief under Sec. 16 of the Clayton Act, 15 U.S.C. Sec. 26. We conclude that the district court properly determined that the complaint failed to

allege an antitrust injury, and affirm the judgment.

I.

A.

Since the district court rendered judgment at the pleading stage, we must accept as true the facts alleged in the complaint. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). Applying this standard, we treat the following facts as true.

Armatures are necessary components of fractional power commutator motors used in most small household appliances. To manufacture armatures efficiently the manufacturer must use an armature winding machine. The plaintiff, Axis, is an Italian corporation that manufactures armature winding machines and sells them to electrical appliance manufacturers throughout Europe. The defendant, Micafil, is a United States corporation that has manufactured and sold armature winding machines in the United States since 1985. Micafil is a wholly-owned subsidiary of Micafil, A.G., a Swiss corporation that manufactures and sells armature winding machines throughout Europe.

An armature winding machine winds copper wire around an armature arm to form a coil. The machine attaches the wire to a commutator and then cuts the wire. In the 1970s Globe Tool & Engineering Co. (Globe) and Possis Corporation (Possis) obtained United States patents on the only two wire cutting methods used in armature winding machines. In 1975 Globe and Possis granted each other a non-exclusive license "to make, have made, use, lease and sell" devices and methods falling within the scope of their patents. Sometime later Possis granted similar licenses to Ott-A-Matic, Inc. (Ott) and Mechaneer, Inc. (Mechaneer). In 1985, prior to Micafil's entry into the market, four companies manufactured and sold armature winding machines in the United States: Possis, Globe, Ott and Mechaneer. Three companies engaged in the same activities outside the United States: Axis, Micafil and Odawara, a Japanese corporation.

Prior to 1985 Possis refused to grant a license to any of the foreign armature winding machine manufacturers though all three sought such licenses. In July 1985, however, Possis sold its assets, including the patents and licenses covering armature winding machines, to Micafil. Micafil then entered the U.S. market. Shortly thereafter Axis learned that Micafil was attempting to purchase Mechaneer. When the president of Axis approached Mechaneer to determine whether Mechaneer was for sale, that company's principals refused to discuss the possibility of selling to Axis because Mechaneer's negotiations with Micafil were almost complete. Micafil bought Mechaneer in September 1985. Axis was ready, willing and able to purchase Mechaneer for the same price that Micafil paid. The two purchases enabled Micafil to control approximately 50% of the U.S. armature winding machine market (Possis had about 40% and Mechaneer about 10%).

At some unspecified time Odawara purchased Ott. As a result of the various acquisitions, the number of armature winding machine manufacturers in the United States shrunk from four to three. These three competitors, Globe, Micafil and Odawara, now own all the patents and licenses governing the manufacture of armature winding machines in the United States.

B.

While alleging in its complaint that "the acquisition of Mechaneer by Micafil raised substantially the barriers to entry into the U.S. market for manufacture and sale of armature winding machines for all potential manufacturers, particularly Axis, and indeed, has prevented Axis' entry into the market," Axis also stated that "the Possis patents now owned by Micafil" are "[t]he only thing[s] preventing" Axis' entry into the market. The complaint charged Micafil with violating the antitrust laws by acquiring Mechaneer because the acquisition brought about a substantial reduction of competition in the market. Axis also alleged that by reason of the acquisitions it In granting Micafil's motion to dismiss, the district court assumed that the Mechaneer acquisition violated both Sec. 1 of the Sherman Act and Sec. 7 of the Clayton Act, as Axis claimed. Nevertheless, the court found that the complaint failed to state a claim because it did not allege an "antitrust injury." The court concluded that Axis would have suffered the same injury--exclusion from the U.S. market--if Micafil had not purchased Mechaneer. The Possis and Globe patents, not the purchase of Mechaneer, foreclosed Axis' entry into the market. Thus, the anticompetitive act of purchasing Mechaneer did not cause the plaintiff's alleged injury. The patents were an impenetrable barrier to the plaintiff's entry before Micafil purchased Mechaneer, and they remained as great a barrier afterwards. The district court also recognized that Odawara had been able to enter the U.S. market by purchasing Ott, an effort Axis apparently never made. This acquisition could have caused Axis' alleged injury. Thus, the court concluded, any injury that Axis may have suffered did not flow directly from Micafil's presumably unlawful act.

had suffered lost sales and lost profits from winding machines that it would have sold in the United States had Micafil not purchased Mechaneer. In addition to treble damages under Sec. 4, Axis sought an injunction under Sec. 16 of the Clayton Act requiring Micafil either to divest itself of Mechaneer or to grant Axis express licenses to the Possis patents.

II.

The Clayton Act uses very broad language to describe who may bring private actions for antitrust violations. Section 4 states that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue ... and shall recover threefold the damages by him sustained." Section 16 provides that "[a]ny person, firm, corporation, or association shall be entitled to sue for and have injunctive relief ... against threatened loss or damage by a violation of the antitrust laws."

Despite the statute's all-encompassing language, the Supreme Court has determined that claims of injury by reason of antitrust violations are compensable only when the injury flows directly from the unlawful act. The Court noted in Hawaii v. Standard Oil Co., 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972), that "[t]he lower [federal] courts have been virtually unanimous in concluding that Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Id. at 263, n. 14, 92 S.Ct. at 891-92 n. 14. In Associated General Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), after quoting Hawaii v. Standard Oil Co., the Court stated that the question of whether a given plaintiff may recover for injury claimed to have been caused by an antitrust violation requires consideration of common law requirements for recovery of damages, such as causation, as well as the specific language of the antitrust laws. 459 U.S. at 535, 103 S.Ct. at 907.

The Supreme Court subjected a Sec. 4 claim for treble damages to this analysis in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). That case involved the acquisition of failing bowling alleys by Brunswick, the giant in the bowling industry. Competitors of the acquired operations sued for treble damages, claiming that if Brunswick had not purchased the failing bowling alleys the alleys would have gone bankrupt. The plaintiffs claimed that as a result their business and profits would have increased. The Court assumed that acquisition of the alleys by the dominant actor in the industry violated Sec. 7 of the Clayton Act by reducing competition, but determined that the acquisitions did not cause the plaintiffs' alleged losses. If any other solvent purchaser had acquired the alleys, or if the alleys had been able to obtain financing sufficient to stay in business, the result would have been the same--the plaintiffs would have been denied the profits they anticipated from the alleys' failure. As the Court stated: "while respondents' loss occurred 'by The Court defined this limitation on the right to recover treble damages for Sec. 7 violations [acquisitions whose effect "may be substantially to lessen competition, or to tend to create a monopoly"] as follows:

                reason of the unlawful acquisitions, it did not occur 'by reason of' that which made the acquisitions unlawful."    Id. at 488, 97 S.Ct. at 697
                

We therefore hold that for plaintiffs to recover treble damages on account of Sec. 7 violations, they must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust...