General Business Systems v. North American Philips Corp.

• Decision Date: 28 January 1983
• Docket Number: Nos. 80-4566,81-4386 and 81-4391,s. 80-4566
• Citation: 699 F.2d 965
• Parties: 1982-83 Trade Cases 65,177 GENERAL BUSINESS SYSTEMS, a California corporation, Plaintiff-Appellant, v. NORTH AMERICAN PHILIPS CORPORATION, a Delaware corporation; Philips Business Systems, Inc., a Delaware corporation, and N.V. Philips Gloeilampenfabrieken, a Nederland corporation, Defendants-Appellees. NORTH AMERICAN PHILIPS CORPORATION, a Delaware corporation, et al., Counterclaim Plaintiffs-Appellants, v. GENERAL BUSINESS SYSTEMS, a California corporation; Shasta General Systems, a California corporation, Counterclaim Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 965

699 F.2d 965

1982-83 Trade Cases 65,177

GENERAL BUSINESS SYSTEMS, a California corporation, Plaintiff-Appellant, v. NORTH AMERICAN PHILIPS CORPORATION, a Delaware corporation;

Philips Business Systems, Inc., a Delaware corporation, and

N.V. Philips Gloeilampenfabrieken, a Nederland corporation,

Defendants-Appellees.

NORTH AMERICAN PHILIPS CORPORATION, a Delaware corporation,

et al., Counterclaim Plaintiffs-Appellants, v. GENERAL BUSINESS SYSTEMS, a California corporation; Shasta

General Systems, a California corporation,

Counterclaim Defendants-Appellees.

Nos. 80-4566, 81-4386 and 81-4391.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 12, 1982.

Decided Jan. 28, 1983.

Jon Michaelson, Hopkins, Mitchell & Carley, Palo Alto, Cal., for General Business.

Forrest Hainline, Cooper, Kirkham, Hainline & McKinney, San Francisco, Cal., argued, Paul M. Rose, Brobeck, Phleger & Harrison, San Francisco, Cal., on brief, for defendants-appellees.

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

Before SNEED, FARRIS, and NORRIS, Circuit Judges.

SNEED, Circuit Judge:

In 1977, General Business Systems (GBS) initiated a federal antitrust suit against N.V. Philips Gloeilampenfabrieken (NVP), a Netherlands corporation, and its American subsidiaries, North American Philips Corporation (NAP) and Philips Business Systems, Inc. (PBSI). The defendants cross-claimed against GBS and its sister corporation, Shasta General Systems (Shasta), alleging both federal antitrust and state law causes of action. GBS later sought sanctions against the Philips companies for alleged abuse of discovery. The district court refused to impose such sanctions and granted summary judgment against all parties. Both sides now appeal the denial of their respective complaints. We affirm the district court.

I. FACTS

This case arises out of the Philips companies' attempt to penetrate the small business computer market in the United States. Between 1969 and 1978 NVP marketed its computers in this country through PBSI, its marketing agent, MLC, Inc., or independent distributors. During this period, Philips' share of the small business computer market never exceeded five percent. GBS became the Philips distributor for Northern California in 1972. In return, GBS agreed that it would concentrate its "primary marketing efforts" on Philips computers and would not market "directly competitive hardware." In 1974 PBSI added St. Louis, Missouri, to GBS's market area. The agreement was renewed in 1977 to extend through August 1, 1980. In 1978, however, Philips exercised a buy-out option, terminating the agency relationship.

Philips' initial computer lines, the P300 and P350 series, stored memory on magnetic ledger cards (mlcs). Although a number of small business computers used mlcs at the time, mlcs generally were compatible with only one manufacturer's brand of computers. The mlcs for Philips computers were produced primarily by two German companies, Jollenbeck-Kasten (JK) and Magnetdruck (MD). Philips provided design specifications and production assistance to JK and MD in order to assure maximum card-machine reliability. In return, JK and MD signed supply contracts restricting their sales of Philips mlcs to distributors "recognized as [members of Philips distribution network] pursuant to a written communication given by Philips to the Vendor." Although it is disputed whether a binding exclusive dealing relationship was created by this language, JK and MD generally sold mlcs exclusively to Philips affiliates or designees. PBSI was the designated Philips distributor for the United States at all times relevant to this suit. ¹ PBSI, in turn, would sell the mlcs to GBS and other Philips computer distributors.

In 1974 GBS contacted JK and MD in an attempt to purchase mlcs directly. MD refused because of its exclusive dealing relationship with Philips. JK, however, had experienced negotiating difficulties with PBSI, and in 1975 inquired whether GBS would become an exclusive dealer of the JK-produced Philips mlcs. Although no exclusive dealing agreement was established, GBS did order and receive mlcs from JK during the latter half of 1976.

Philips did not ignore this interference with its distribution network. It repaired its relationship with JK by agreeing to split its orders for mlcs between JK and MD. JK reciprocated by ceasing to deal directly with GBS.

In the mid-1970's the P300 and P350 faced increasing competition from more sophisticated computers using disk memories and cathode ray tube (CRT) displays. These computers threatened the Philips computers with obsolescence. Both Philips and GBS were concerned with the problem. Philips' solution was to develop the P330, a disk/CRT unit. GBS, however, feared that the P330 represented too little, too late. GBS's interest focused on a more viable product, the Diablo disk/CRT computer. In 1976 Diablo's manufacturers inquired whether GBS would be interested in marketing the Diablo computer. GBS referred the opportunity to PBSI, which was uninterested. On September 3, 1976, GBS agreed to become Diablo's exclusive U.S. distributor. Pursuant to this agreement, GBS's two top management officials incorporated a sister corporation, Shasta, which shared office space and staff with GBS. A separate president, however, was designated to run Shasta. GBS assigned its exclusive Diablo dealership to Shasta, remaining liable should Shasta fail to perform.

Meanwhile, Philips continued to develop the P330. However, it was never able to market the new disk/CRT model successfully. GBS argues that Philips never made a production model available to U.S. distributors. Philips claims that GBS's devotion of time and resources to the Diablo doomed the P330 from the start. In any event, Philips became dissatisfied with its import sales and, in November, 1978, withdrew from the computer import market. Philips sold its residual supply and service functions to Pertec Computer Corporation, which marketed its own small business computers.

II. PROCEEDINGS BELOW

GBS alleged the following antitrust violations by the Philips companies:

(1) monopolization or attempted monopolization of a market or submarket for Philips-compatible mlcs, in violation of section 2 of the Sherman Act, 15 U.S.C. Sec. 2;

(2) conspiracy to fix prices and allocate markets and concerted refusal to deal, in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1;

(3) product tying, in violation of section 3 of the Clayton Act, 15 U.S.C. Sec. 14.

GBS also sought to suppress the deposition testimony of certain witnesses because opposing counsel's misconduct allegedly prevented it from adequately cross-examining those witnesses.

In their counter-claim against GBS and Shasta, the Philips companies alleged the following:

(1) conspiracy to eliminate Philips computers from the domestic computer market, in violation of section 1 of the Sherman Act; (2) attempt to monopolize, in violation of section 2 of the Sherman act;

(3) breach of GBS's distributorship contract with PBSI;

(4) tortious interference by Shasta with GBS's obligations under the distributorship contract;

(5) tortious interference with the Philips companies' business relationships with JK, MD, and others;

(6) abuse of process.

The district court, following the recommendation of a magistrate, denied GBS's abuse of discovery motion. The court rejected GBS's monopolization claim, primarily for failure to substantiate GBS's market definition. From this it followed that evidence supporting the charges of attempted monopoly, conspiracy, and product tying was lacking, and the district court so held.

As to the Philips companies' counter-claims, the district court concluded that GBS and Shasta were a single entity and were thus incapable of conspiring together in violation of the antitrust laws. The court dismissed the attempted monopolization claim because the Philips companies had failed to establish the requisite intent to monopolize or facts from which such intent could be inferred. The breach of contract claim fell in the absence of credible evidence of "direct competition" between the Philips and Diablo computers. Since GBS had not breached its contract with PBSI, the contractual interference claim against Shasta was rejected. The court also found no substantial evidence of improper interference with Philips' business relationships. Finally, it rejected the abuse of process claim because no causal connection between the alleged antitrust conspiracy and GBS's filing of this suit was shown, nor was any evidence introduced of improper use of trade secrets acquired through discovery. Summary judgment was accordingly granted against all claims.

III. STANDARD OF REVIEW

Summary judgment should be granted only when, in light of the evidence and pleadings, a court is convinced that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is disfavored in complex antitrust cases involving elusive issues of intent or motive. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). Nevertheless, this general reluctance does not preclude the use of summary judgment in antitrust litigation. Continental T.V., Inc. v. GTE Sylvania Inc., 694 F.2d 1132, 1135 & n. 5 (9th Cir.1982). A party opposing summary judgment must present some "significant probative evidence tending to support the complaint." First National Bank v. Cities Service Co., 391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968); see, e.g., Betaseed, Inc. v. U & I Inc., 681 F.2d 1203, 1207 (9th Cir.1982); Thomsen v. Western Electric Co., 680 F.2d 1263, 1265 (9th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 348, 74 L.Ed.2d 387 (1982); Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors, Inc., 637 F.2d 1376, 1381 (9th Cir.), ...