Computer Place, Inc. v. Hewlett-Packard Co.

• Decision Date: 22 October 1984
• Docket Number: No. C-82-4176 WHO.,C-82-4176 WHO.
• Parties: COMPUTER PLACE, INC., a California corporation, Plaintiff, v. HEWLETT-PACKARD COMPANY, a Corporation; and Computerland, Inc., a Corporation, Defendants.
• Court: U.S. District Court — Northern District of California

607 F. Supp. 822

COMPUTER PLACE, INC., a California corporation, Plaintiff, v. HEWLETT-PACKARD COMPANY, a Corporation; and Computerland, Inc., a Corporation, Defendants.

No. C-82-4176 WHO.

United States District Court, N.D. California.

October 22, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Shayle P. Fox, Fox & Grove, Chartered, Chicago, Ill., for plaintiff.

J. Thomas Rosch, Robert L. Ebe, McCutchen, Doyle, Brown & Enerson, San Francisco, Cal., for Hewlett-Packard.

Timothy E. Carr, San Francisco, Cal., Michael J. Walter, Hayward, Cal., for Computerland.

MEMORANDUM AND ORDER

ORRICK, District Judge.

Plaintiff, Computer Place, Inc. ("CPI"), has sold personal computers, calculators, and computer accessories by mail order and through a retail store in Carmel, California, since 1979. Defendant Hewlett-Packard ("HP") manufactures, sells, and distributes to dealers a wide range of computers, computer accessories, calculators, supplies, and parts for those machines. Defendant Computerland, Inc. ("CL") is a franchisor whose franchisees operate retail stores that sell those items to the public.

On June 3, 1982, HP announced a change in marketing strategy that significantly impacted its mail-order retailers. HP stated to all dealers that it had developed a program that emphasized face-to-face selling and local dealer support, as opposed to mail-order selling. The new program contained incentives to stimulate local dealer retailing. It also included a provision denying mail-order sellers the new personal computer models it developed. CPI alleges various federal antitrust and state law violations based on this change in distribution policy and the contract negotiations HP and CL were conducting at the same time.

Specifically, CPI alleges that defendants and various unidentified parties conspired to engage in acts that unreasonably restrained trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, and conspired or attempted to monopolize the "business and scientific computer" market in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. HP is also alleged to have violated § 2(a) of the Clayton Act, 15 U.S.C. § 13(a), by agreeing to sell products to CL at a lower price than it sold products to CPI. In addition, CPI alleges pendent state law claims, including breach of an oral promise by HP under a theory of promissory or equitable estoppel, tortious interference by HP with CPI's business relationship with its clients, and tortious interference by CL with CPI's contractual relationship with HP.

Defendants have moved for summary judgment on all claims. For the reasons herein stated, the motion is granted.

I. Sherman Act §§ 1 and 2

The Court will deal with the Sherman Act claims, the Robinson-Patman Act claims, and the pendent state claims in that order, but first it is appropriate to comment briefly on the application of the drastic method of summary judgment to the facts as they have been presented to the Court by numerous exhibits, depositions, affidavits, declarations, and the like, and interpreted by voluminous briefs and memoranda as well as by excellent oral argument. It is but a truism to note that the roads to and from appellate courts are strewn with the wreck of complex antitrust cases. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962). But this does not mean that Poller and its progeny has read Federal Rule of Civil Procedure 56 out of the law and in particular cases where, under appropriate circumstances, it is proper to apply summary judgment. This is such a case where the pleadings and evidence present no genuine material issue of fact. The evidence must be viewed in a light most favorable to the party opposing summary judgment. But this party must also produce "significant probative evidence tending to support the complaint" that is relevant to the disputed factual issues and truly material to the litigation. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968). "A lawfully displaced competitor cannot construct a justiciable controversy from artful pleading alone." General Business Systems v. North American Philips Corp., 699 F.2d 965, 971 (9th Cir.1983).

A. Sherman Act § 1: Conspiracy.

Section One of the Sherman Act proscribes concerted conduct rather than independent action. Monsanto v. Spray-Rite Service Corp., ___ U.S. ___, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775 (1984).¹ The plaintiff must allege "sufficient facts to raise a reasonable inference of an illegal combination or conspiracy." Filco v. Amana Refrigeration, Inc., 709 F.2d 1257, 1261 (9th Cir.1983), cert. dismissed, ___ U.S. ___, 104 S.Ct. 385, 78 L.Ed.2d 331 (1984). CPI has alleged a price-fixing scheme by defendants. It may not infer an agreement from highly ambiguous evidence to support this allegation. Rather, it must produce evidence that tends to exclude the possibility of independent action by the manufacturer and distributor. Monsanto, supra, 104 S.Ct. at 1471.

The relative burdens to be carried on a summary judgment motion are stated in ALW, Inc. v. United Air Lines, Inc., 510 F.2d 52, 55 (9th Cir.1975):

"Once the allegations of conspiracy made in the complaint are rebutted by probative evidence supporting an alternative interpretation of a defendant's conduct, if the plaintiff then fails to come forward with specific factual support of its allegations of conspiracy, summary judgment for the defendant becomes proper."

1. Evidence of Independent Action.

CPI alleges that HP, CL, and their co-conspirators engaged in a price-fixing scheme which included eliminating CPI as a mail order-seller because it offered price discounts to purchasers of HP products. Complaint at ¶ 13. HP allegedly initiated this conduct in response to complaints from CL and other co-conspirators. Complaint at ¶ 14.

To rebut these allegations, HP asserts its actions were unilateral, and taken to further a general marketing strategy initiated in November 1981. The strategy deemphasized mail order distribution in favor of local dealers who could provide full service support for unsophisticated buyers of a new generation of personal computers.

In support of this assertion, HP submits evidence and testimony. The new HP-125 personal computer, introduced in the fall of 1981, was designed for neophyte users, such as businessmen and professionals; whereas the HP-85, sold by CPI and other mail-order dealers had been targeted for engineers and scientists. Stihler Depo. at 153-155; Rogers Decl. at ¶ 10. By November 12, 1981, HP's Marketing Council had developed "Distribution Objectives" that sought to emphasize dealers, such as computer stores and major retail chains, who would sell and support the full product line. Ebe Decl., Exhs. 12 & 13.

HP's competitors were also changing their distribution strategies. A November 2, 1981, letter from Apple Computer, Inc. to CPI states that Apple would no longer supply mail-order dealers because such sellers do not educate or support the consumer. Ebe Decl., Exh. 14. On November 4, 1981, CPI agreed to a modification of its Apple Dealer Sales Agreement prohibiting CPI from making mail order or telephone sales of Apple products because "customers purchasing Apple products can be properly served only if they have the benefit of pre- and post-sale education, orientation and support." Id. The modification emphasized that each customer's needs must be properly assessed and the features, operation and application of Apple products must be demonstrated and fully explained because of their "technical nature." Id. David Stihler, President of CPI, also acknowledged that Osborne and Sony discouraged mail order sales of personal computers. Stihler Depo. at 752, 768. In February and March of 1982, independent market data confirmed that mail-order computer sales would not be viable in the future. Ebe Decl. Exhs. 21 and 22.

HP asserts it was concerned about "free-riding" by mail order dealers on the sales efforts of local dealers. Mail order dealers used advertising allowances to finance national campaigns designed to attract customers who had been "presold" by a local dealer, and who would buy through mail-order dealers to get a lower price. Rogers Decl. at ¶¶ 17-21. Volume discounts offered by HP exacerbated this problem. Local dealers rarely were able to purchase in the quantity required to qualify for these discounts; whereas mail-order dealers invariably could.² These programs made HP promotion very unattractive to local dealers, precisely the type of distributors HP wanted to attract. Both the rate at which HP was acquiring new dealers and its sales were down in the face of an overall market upswing. Rogers Decl. at ¶ 24.

In the Fall of 1981, HP began a thorough evaluation of its marketing strategy. The results of a November 1981 dealer survey were presented to the Marketing Council in December 1981. These results confirmed local dealer dissatisfaction with HP's mail-order favoritism and prompted the Council to gather additional data. In March 1982, after confirming market trends and the adverse effect of policies favoring mail-order dealers,³ the Council appointed a Task Force to evaluate solutions. In May 1982 the Task Force recommended a "Five Point Program." This proposal advocated elimination of advertising allowances and volume discounts, both of which favored mail-order dealers. HP also decided to exercise its contractual right and distribute new computer models only through dealers who would provide face-to-face end user support.⁴ Dealers were notified of these changes in distribution strategy in the June 3, 1982, letter.

This evidence is sufficient to rebut the allegations of conspiracy in the complaint. It supports the conclusion that the decision to curtail mail-order distribution was part of a unilaterally imposed system of nonprice restrictions. CPI must provide specific factual support for...