Eastern Dental Corp. v. Isaac Masel Co., Inc.

• Decision Date: 22 December 1980
• Docket Number: Civ. A. No. 78-3790.
• Citation: 502 F. Supp. 1354
• Parties: EASTERN DENTAL CORPORATION v. ISAAC MASEL CO., INC.
• Court: U.S. District Court — Eastern District of Pennsylvania

502 F. Supp. 1354

EASTERN DENTAL CORPORATION v. ISAAC MASEL CO., INC.

Civ. A. No. 78-3790.

United States District Court, E. D. Pennsylvania.

December 22, 1980.

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COPYRIGHT MATERIAL OMITTED

Robert Costigan, Philadelphia, Pa., for plaintiff.

G. David Rosenblum, Philadelphia, Pa., for defendant.

OPINION

LUONGO, District Judge.

Plaintiff, Eastern Dental Corporation (EDC), is a distributor and manufacturer of products used exclusively in the practice of orthodontics. Defendant, Isaac Masel Co., Inc. (Masel), is a manufacturer and distributor of dental products and instruments. From the time of EDC's incorporation, Masel supplied it with certain of the products Masel manufactured. On August 10, 1978, Masel informed EDC that it would no longer supply its products to EDC. Contending that this refusal to continue to supply constituted a violation of § 2 of the Sherman Act, 15 U.S.C. § 2, EDC brought suit seeking treble damages and injunctive relief under the Clayton Act. See 15 U.S.C. §§ 15 & 26. EDC asserts additional claims (1) that the termination of the business relationship between the parties was in breach of a requirements contract and (2) that defendant had supplied defective merchandise in breach of a warranty of merchantability. On all three counts plaintiff claims damages to its business, including a claim for loss of goodwill.

Jurisdiction is based, as to the antitrust claim, on 28 U.S.C. § 1337, and, as to the breach of contract and breach of warranty claims, on diversity of citizenship. 28 U.S.C. § 1332(a).

Before me is defendant's motion for partial summary judgment on the antitrust claims, the breach of contract claim and on the issue of whether or not damages for loss of goodwill are recoverable if plaintiff is successful on any one of the three counts of the complaint.

I. BACKGROUND

EDC was incorporated in December of 1973 for the purpose of distributing products used exclusively in the practice of orthodontics, in particular, disposable orthodontic products, "the braces and the wires and the auxilliary items that go around the fixed appliances."¹ Masel is a manufacturer and distributor of dental products and instruments including those considered to be disposable orthodontic products and instruments. Masel markets its products wholesale through sales to distributors, and retail through direct sales to dentists and orthodontists.

Around the time of EDC's incorporation, its President, Vincent Santulli, and its Vice-President and Secretary-Treasurer, H. Neil Miller, began a series of discussions with Jacob J. Masel, the President of defendant, Isaac Masel Co., Inc., concerning the sale of Masel's disposable orthodontic products and instruments to EDC for resale to retail purchasers. As a result of these discussions Masel began to sell a product known as facebows to EDC. Eventually, Masel added what are known as elastics, lingual buttons, cleats, and metal bases to the line of products that it sold to EDC. Pursuant to their negotiations, Masel manufactured and sold to EDC at a wholesale price (the price which Masel charged distributors) products which were resold under EDC's label.² In addition, since EDC was a new company, Masel granted it advantageous credit terms. During the course of the four year relationship, the parties operated without a written agreement, doing business solely through invoices and statements.

Beginning in late 1976, EDC began to receive many customer complaints concerning breakage of the facebows manufactured by Masel. These complaints of defective facebows are the basis for EDC's breach of warranty count in which EDC seeks to be compensated for loss of customers and goodwill.

In July of 1977, EDC began to manufacture elastics, a product it had theretofore purchased from Masel. Later, in September of 1977, Miller informed Masel that a firm known as Star Dental Company had expressed an interest in acquiring EDC. A meeting took place between Jacob Masel, his son Robert, and Miller and Santulli, concerning the possibility of Masel acquiring EDC.³ Although Jacob Masel made a proposal to Miller and Santulli, no written offer was ever made. In any event, the possibility of a Masel takeover never left the preliminary negotiation stages as the EDC shareholders rejected the entire concept of the Masel proposal.⁴

In March of 1978 EDC submitted a purchase order which was not filled. Eventually, on August 10, 1978, Masel sent a letter to EDC advising that Masel was too busy to handle accounts like EDC's profitably, and that it was therefore terminating their relationship.

When it was cut off, EDC attempted to find alternative sources of supply for Masel products. It was unable to find a source for either facebows or metal bases at wholesale prices. While it did find an alternative source of buttons and cleats, it made the business decision not to purchase those items because the price was prohibitive. As of the date of the filing of the complaint, EDC was no longer selling metal bases, cleats, or buttons. It did, however, sell facebows, a product which it has been manufacturing itself since January, 1979.

II. THE ANTITRUST CLAIMS

Section 2 of the Sherman Act provides that it is unlawful for any person to "monopolize or attempt to monopolize ... any part of the trade or commerce among the several States...." 15 U.S.C. § 2. As the statute makes clear, monopolization and attempts to monopolize are two distinct offenses under the Act. Buckeye Powder Co. v. E. I. DuPont de Nemours & Co., 166 F. 514 (D.N.J.1912) aff'd 248 U.S. 55, 39 S.Ct. 38, 63 L.Ed. 123 (1918). Although not absolutely clear from the complaint, EDC is contending that Masel has committed both of these offenses.

Plaintiff claims that Masel refused to sell its products to EDC in retaliation for EDC's decision to manufacture elastics, and that Masel's decision was motivated by its desire to create or extend a monopoly in the business of manufacturing dental products/instruments and in an attempt to monopolize the business of manufacturing dental products/instruments. In addition, EDC asserts that Masel intended to substantially lessen competition in both the retail and manufacturing markets by eliminating plaintiff as a competitor. Masel, on the other hand, contends that it terminated its relationship with EDC because of problems concerning the defective facebows and EDC's failure to live up to its financial obligations.

I will consider each of the purported antitrust claims separately. At the outset, it should be noted that although summary judgment should be granted sparingly in antitrust cases, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1961), to avoid the entry of summary judgment the nonmoving party must still "come forward with affidavits setting forth specific facts showing that there is a genuine issue for trial." Harold Friedman, Inc. v. Kroger Company, 581 F.2d 1068, 1080 (3d Cir. 1978), quoting, Tripoli Company v. Wella Corp., 425 F.2d 932, 935-36 (3d Cir.) (en banc), cert. denied, 400 U.S. 831, 91 S.Ct. 62, 27 L.Ed.2d 62 (1970). See F.R.Civ.P. 56.

A. Monopolization

The offense of monopolization requires that the plaintiff establish that the defendant (1) possesses monopoly power in the relevant market, and (2) has "willfully acquired or maintained that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinell Corporation, 384 U.S. 563, 571, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966); United States v. Griffith, 334 U.S. 100, 106-07, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1946). Defendant asserts that EDC has failed to come forward with facts showing that there is a genuine issue as to whether either of the above elements is present in this case. It contends, therefore, that it is entitled to summary judgment on the monopolization claim.

1) Monopoly Power

Monopoly power exists when the defendant has "the power to control prices or exclude competition" in the relevant market. United States v. DuPont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1004, 100 L.Ed. 1264 (1956); Columbia Metal Company, Inc. v. Kaiser Aluminum & Chemical Corporation, 579 F.2d 20, 26 (3d Cir.), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190 (1978). The threshold determination which must be made before monopoly power is assessed, therefore, is the definition of the relevant product and geographic markets. United States v. Grinell, supra, at 571, 86 S.Ct. at 1704; United States v. Columbia Steel Co., 334 U.S. 495, 527, 68 S.Ct. 1107, 1124, 92 L.Ed. 1533, rehearing denied, 334 U.S. 862, 68 S.Ct. 1525, 92 L.Ed. 1781 (1948). This determination is often crucial as the presence of monopoly power can be inferred if the defendant is in possession of a predominant share of the relevant market. United States v. Grinell, supra, at 571, 86 S.Ct. at 1704.

In the instant case the parties agree that the relevant geographic market is the United States. As to the relevant product market, however, the parties are in complete disagreement.

There are approximately four major and eight minor manufacturers of disposable orthodontic products in the United States. Masel and EDC are considered to be among the minor manufacturers in this industry. In addition to the twelve firms in the United States there are three foreign firms, two German and one Japanese, which manufacture orthodontic products.

Of all the firms mentioned above, only the four major domestic firms carry a complete line of disposable orthodontic products for sale. No firm manufactures every disposable orthodontic product itself; every firm in the industry carries products manufactured by other firms. It is undisputed that, at the time this action was commenced, Masel had less than 1% of the entire market and less than 1% of the market for any individual product in the entire disposable...