California Computer Products, Inc. v. International Business Machines Corp.

• Decision Date: 21 June 1979
• Docket Number: No. 77-1563,77-1563
• Citation: 613 F.2d 727
• Parties: , 1979-1 Trade Cases 62,713 CALIFORNIA COMPUTER PRODUCTS, INC. and Century Data Systems, Inc., Plaintiffs- Appellants, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 727

613 F.2d 727

52 A.L.R.Fed. 702, 1979-1 Trade Cases 62,713

CALIFORNIA COMPUTER PRODUCTS, INC. and Century Data Systems Inc., Plaintiffs- Appellants, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, Defendant-Appellee.

No. 77-1563.

United States Court of Appeals Ninth Circuit.

June 21, 1979.

Rehearing Denied Nov. 16, 1979.

Maxwell M. Blecher, Harold R. Collins, Jr., Daphne M. Stegman, of Blecher, Collins & Hoecker, Los Angeles, Cal., for plaintiffs-appellants.

David Boies, Ronald S. Rolfe, Stuart W. Gold, Cravath, Swaine & Moore, New York City, Ernest J. Getto, Kadison, Pfaelzer, Woodward, Quinn & Rossi, Los Angeles, Cal., David Boies, Scarsdale, N. Y., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before CHOY and KENNEDY, Circuit Judges, and PALMIERI, ^* District Judge.

CHOY, Circuit Judge:

California Computer Products, Inc. ("CalComp") appeals from the judgment entered on a directed verdict in favor of appellee International Business Machines Corp. ("IBM") as to all counts of its complaint charging IBM with violations of § 2 of the Sherman Act, 15 U.S.C. § 2. We affirm.

I. Background and Proceedings Below

IBM is one of the largest industrial corporations in the world. It achieved technical leadership in the computer industry over other early entrants, such as Sperry Rand, in the mid-1950's and thereafter pioneered the development of many electronic data processing products, including the disk products involved in this litigation.

Disk products are part of a broader category of what is known as peripheral equipment, such as disks, tapes, printers, and terminals, which is connected to the central processing unit ("CPU") to enable the data processing system to perform particular functions. Included in the reference to disk products are disk drives, devices using magnetic disks similar in appearance to phonograph records to store information, and controllers, used for communication between disk drives and the CPU. Occasionally these devices are built into the CPU; alternatively, they exist as external components that may be "plugged into" the CPU. As a general purpose computer systems manufacturer, IBM sells both CPUs and peripherals, including disk products.

CalComp began manufacturing computer products in 1960, when it made plotting devices peripheral equipment that provides graphic, printed or pictorial output. CalComp claims no injury with respect to these products. With the acquisition of Century Data Systems in 1969, CalComp entered the disk products market, manufacturing disk drives and controllers that were "plug compatible" with IBM's and other suppliers' CPUs. CalComp's business strategy with respect to IBM-compatible disk products was straightforward: copy and, where possible, improve upon an IBM design, and undersell IBM to its own customers. By the "reverse engineering" of simply buying a device from IBM, taking it apart, and building a similar one, CalComp was able to avoid IBM's expenditures for research and development and pass the savings on through lower prices.

CalComp commenced this lawsuit on October 3, 1973. The complaint alleged that IBM's introduction of new CPUs and disk products, its price cuts on existing disk products, its leasing policies, and other marketing practices prevented CalComp from effectively competing with IBM for disk product sales and thus violated § 1 and § 2 of the Sherman Act. ¹ CalComp alleged and attempted to prove that these acts by IBM took place within a ten year span, from late 1963 to 1972, resulting in treble damages of $306 million. Following over three years of discovery and pretrial, trial to a jury began on November 15, 1976. At the conclusion of fifty-four days of trial covering three months, the district court granted IBM's motion for directed verdict on February 11, 1977.

The records and transcript on this appeal comprise 132 volumes. Voluminous briefs and supplemental briefs by the parties and Amicus briefs were permitted. We have considered all of the arguments advanced and scrutinized pertinent parts of the record, particularly in view of the nature of the appellate task on review of a directed verdict.

II. Antitrust Standing

CalComp has asserted that IBM's actions created anticompetitive effects on three classes of IBM competitors: (1) general purpose computer systems manufacturers, (2) leasing companies and (3) IBM-compatible peripheral equipment manufacturers. We believe that CalComp, an IBM-compatible peripheral equipment manufacturer, lacks antitrust standing as to the first two categories of claims.

Section 4 of the Clayton Act, 15 U.S.C. § 15, authorizing private antitrust suits for damages, provides in part:

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . .

This statute confers standing to sue only upon those persons causally injured by antitrust violations. Kapp v. National Football League, 586 F.2d 644, 648-49 (9th Cir. 1978); John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 498-99 (9th Cir. 1977). Moreover, in order to prevail the plaintiff must prove not only injury causally linked to the asserted violation, but also that the injury is of the type the antitrust laws were intended to prevent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977); John Lenore & Co. v. Olympia Brewing Co., 550 F.2d at 498-99; In re Multidistrict Vehicle Air Pollution M.D.L. No. 31, 481 F.2d 122, 125 (9th Cir. 1973), Cert. denied, 414 U.S. 1045, 94 S.Ct. 551, 38 L.Ed.2d 336 (1975). The plaintiff's burden of proving the former is satisfied by proof of Some damage flowing from the antitrust violation. Zenith Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 114 n.9, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). Satisfying the latter burden is dependent on a showing that the injury was caused by a reduction, rather than an increase, in competition flowing from the defendant's acts, since "(t)he antitrust laws . . . were enacted for 'the protection of Competition not Competitors,' " Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. at 488, 97 S.Ct. at 697, Quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). See Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 133 (2d Cir. 1978). Accordingly, the plaintiff must demonstrate that the defendant's conduct was intended to or did have some anticompetitive effect beyond his own loss of business or the market's loss of a competitor. See Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir. 1976). Moreover, it is not sufficient for an antitrust plaintiff to allege an indirect ripple effect. As this court wrote in John Lenore & Co.:

It is not enough to confer standing that plaintiff just prove some injury and show that this injury is within the affected area of the economy. Antitrust violations admittedly create many foreseeable ripples of injury to individuals, but the law has not allowed all of those merely affected by the ripples to sue for treble damages.

550 F.2d at 499.

In the present case CalComp has alleged that IBM's actions injured general purpose computer systems manufacturers and leasing companies. But CalComp does not include itself among these two classes of IBM competitors. Nor does CalComp's evidence demonstrate a direct causal injury which would afford it standing. Rather, at best CalComp argues that injury to these two groups has had an indirect ripple effect upon it. As John Lenore & Co. indicates, such an indirect ripple effect is not sufficient to allow CalComp to sue for treble damages on its first two categories of claims.

III. CalComp's Claims as to IBM-Compatible Peripheral Equipment Manufacturers

A. Standard of Review on Appeal from Directed Verdict

As a general rule, the district court has the power to direct a verdict if "the evidence permits only one reasonable conclusion as to the verdict." Fountila v. Carter, 571 F.2d 487, 489-90 (9th Cir. 1978), Quoting Kay v. Cessna Aircraft Co., 548 F.2d 1370, 1372 (9th Cir. 1977); See Syufy Enterprises v. National General Theatres, 575 F.2d 233, 235 (9th Cir. 1978). ² The district court must consider all the evidence both favorable and unfavorable. But in order to avoid passing on the credibility of witnesses and weighing contradictory evidence, the court must resolve all inferences in favor of the party with the burden of persuasion, because

(i)t is the jury, not the judge, which "weighs the contradictory evidence and inferences, judges the credibility of witnesses, . . . and draws the ultimate conclusion as to the facts . . . ."

Fount-Wip, Inc. v. Reddi-Wip, Inc., 568 F.2d 1296, 1301 (9th Cir. 1978), Quoting Cockrum v. Whitney, 479 F.2d 84, 86 (9th Cir. 1973) and Tennant v. Peoria & Pekin Union Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520 (1944); See Marquis v. Chrysler Corp., 577 F.2d 624, 639 (9th Cir. 1978); Kay v. Cessna Aircraft Co., 548 F.2d at 1372. ³

Thus, this court in Maheu v. Hughes Tool Co., 569 F.2d 459, 464 (9th Cir. 1977), upholding the denial of a directed verdict against the party with the burden of persuasion, made it clear that application of the general standard of Fountila and Kay, supra, required it to view the evidence "in the light most favorable to the party opposing the motion," and that it "must examine All the evidence" (emphasis added). See also id. at 481 (concurring and dissenting opinion); Wescott v. Impresas Armadoras, S.A., 564 F.2d 875, 882 (9th Cir. 1977); Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d 942, 944 (9th Cir. 1977); Kay v. Cessna Aircraft Co., 548 F.2d at 1372; Chisholm Brothers Farm Equipment Co. v. International Harvester Co., 498 F.2d 1137, 1140 (9th Cir.), Cert. denied, 419 U.S. 1023, 95 S.Ct. 500, 42 L.Ed.2d 298 (1974).

In order to benefit from the favorable inferences available under this...