H.L. Hayden Co. of New York, Inc. v. Siemens Medical Systems, Inc.

Decision Date12 June 1989
Docket NumberNos. 1239,D,1297 and 1298,s. 1239
Parties1989-1 Trade Cases 68,622 H.L. HAYDEN CO. OF NEW YORK, INC. and Schein Dental Equipment Corp., Plaintiffs-Appellants, Cross-Appellees, v. SIEMENS MEDICAL SYSTEMS, INC., Healthco, Inc. and Patterson Dental Co., Defendants-Appellees, Siemens Medical Systems, Inc. and Healthco, Inc., Defendants-Appellees, Cross-Appellants. ockets 88-7109, 88-7113 and 88-7127.
CourtU.S. Court of Appeals — Second Circuit

John E. Daniel, New York City (Lawrence Kill, Ralph S. Spritzer, Anderson Russell Kill & Olick, P.C., of counsel), for plaintiffs-appellants-cross-appellees.

Michael D. Blechman, New York City (Robert B. Bernstein, Kaye, Scholer, Fierman, Hays & Handler, of counsel), for defendant-appellee-cross-appellant Siemens Medical Systems, Inc.

Michael H. Byowitz, New York City (Bertram M. Kantor, Wachtell, Lipton, Rosen & Katz, of counsel), for defendant-appellee-cross-appellant Healthco, Inc.

David S. Hammer, New York City (Michael Mills, Mayer, Brown & Platt, of counsel), for defendant-appellee Patterson Dental Co.

Before VAN GRAAFEILAND and MAHONEY, Circuit Judges, and METZNER, * District Judge.

MAHONEY, Circuit Judge:

In this opinion, we consider appeals and cross appeals from a summary judgment dismissing antitrust and related claims and commercial tort counterclaims arising from the termination of a distributor of dental x-ray equipment, and refusal to do business with that distributor and a related mail order vendor of such equipment. The district court opinion below, H.L. Hayden Co. of New York v. Siemens Medical Sys., 672 F.Supp. 724 (S.D.N.Y.1987), was rendered after extensive discovery concerning all the claims in litigation.

Plaintiffs-appellants-cross-appellees H.L. Hayden Co. of New York, Inc. ("Hayden") and Schein Dental Equipment Corp. ("Schein Dental") charged that, as a result of various conspiracies among defendants-appellees-cross-appellants Siemens Medical Systems, Inc. ("Siemens") and Healthco, Inc. ("Healthco"), together with defendant-appellee Patterson Dental Co. ("Patterson"), Siemens terminated Hayden as a Siemens dealer and refused to do business with Hayden or Schien Dental, in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1982). Hayden and Schein Dental also complained that Healthco and Patterson attempted and conspired 1 to monopolize the markets for the sale of dental equipment and dental x-ray equipment to dentists in the United States, in violation of section 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1982).

In addition, Hayden and Schien Dental complained that Siemens violated section 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Sec. 13 (1982), by providing discriminatory price advantages to Healthco, Patterson and other dealers which were denied to Hayden and Schein Dental in violation of subdivision (a) thereof, id. Sec. 13(a); discriminatory discounts in violation of subdivision (c), id. Sec. 13(c); and discriminatory services in violation of subdivision (e), id. Sec. 13(e). Healthco and Patterson were alleged to have induced these discriminations in violation of subdivision (f), id. Sec. 13(f). Hayden and Schein Dental also asserted various pendent state law claims. Summary judgment was entered dismissing all their claims, and they now appeal only the dismissal of their federal antitrust claims.

Siemens asserted a number of counterclaims. All but one 2 were dismissed by summary judgment. Siemens pursues on appeal only its second and fifth counterclaims, i.e., that Schein Dental's continuing, unauthorized sale of Siemens' x-ray equipment constitutes a violation of Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), and that Schein Dental's purchase for resale of Siemens equipment from authorized Siemens dealers, in knowing violation of their dealership agreement with Siemens, constitutes a tortious interference with contractual relationships in violation of New York law.

Healthco asserted, and pursues on appeal after dismissal by summary judgment below, a single counterclaim that Hayden and Schein Dental are "free riders", capitalizing upon presale, point-of-sale and postsale services provided by "full service" dealers such as Healthco, and that this constitutes common law unfair competition actionable under New York law. Patterson did not assert any counterclaims.

We affirm the judgment of the district court.

Background

Siemens is a subsidiary of the West German corporation Siemens Aktiengesellschaft ("Siemens AG"), which manufactures the equipment that Siemens distributes in the United States. Siemens supplies dental x-ray equipment of two types: intraoral, which depicts quadrants of a patient's mouth, and panoramic, which depicts a patient's entire mouth and jaw. Siemens has significant competition in this industry. In 1981, for example, it was one of seven suppliers responsible for ninety-five percent of the dental x-ray sales in the United States, and there were at least nine other competing suppliers. See Hayden, 672 F.Supp. at 728 n. 1.

This relatively large number of dental x-ray suppliers generates considerable price competition. Siemens prides itself on selling the "Mercedes" of the dental x-ray market, and its equipment retails for considerably more than its competitors' equipment. In August, 1983, for example, the recommended retail price of Siemens' intraoral unit was $4,650, compared to $3,295 and $2,595 for two of its competitors' units. Id.

Healthco and Patterson are leading nationwide distributors of dental equipment to dentists. Both dealers carry all major brands of dental equipment. The dealer market is somewhat more concentrated than the supplier market. In the year ended September, 1982, for example, Healthco accounted for approximately thirty percent, and Patterson approximately twenty-two percent, of Siemens' sales to dealers.

Healthco and Patterson are both full service dealers of dental x-ray equipment, with fully equipped showrooms to present and demonstrate the equipment, sales personnel trained in its operation, and service personnel capable of assembling, installing, calibrating and servicing the equipment. Hayden is also a full service dental equipment dealer, and sold x-ray equipment from both Siemens and other suppliers.

Marvin Schein acquired fifty percent ownership of Hayden in 1979, and the balance the following year. He thereafter founded Schein Dental, which in early 1982 began selling dental equipment through mail order catalogs. Schein Dental was not a Siemens dealer, but received Siemens equipment via Hayden. The district court concluded, however, that Siemens either expressly approved the inclusion of its equipment in Schein Dental's catalog or, once aware of its inclusion, cooperated with Schein Dental by, for example, drop-shipping dental equipment directly to Schein Dental's customers outside Hayden's sales area, even though Hayden was technically the customer; and authorizing split commissions for such sales between Hayden and the Siemens representative in the local area. Hayden, 672 F.Supp. at 729.

Schein Dental had no sales force, service staff or showroom. Rather, it sold dental equipment through mail order catalogs containing pictures and descriptions of the merchandise, and a toll-free telephone number at which Schein Dental personnel provided further information and assistance to readers of its catalog. Schein Dental did not assemble, install, calibrate or service any of the equipment it sold, but provided dentists with the names of local independent service organizations for these support activities. As a result, Schein Dental sold dental equipment at a discount. Siemens' products, for example, were sold for between twenty to twenty-five percent less by Schein Dental than by Siemens' authorized, full service dealers. Id.

Schein Dental's mail order business grew rapidly, generating considerable price competition in the field. The success of Schein Dental's mail order business began to concern Healthco, Patterson and other full service distributors of dental equipment, resulting in complaints by these distributors to Siemens about Schein Dental's mail order operation.

On April 25, 1983, Siemens wrote to all its authorized dealers, including Hayden, stating:

You are and remain an authorized dealer for Siemens Dental Products because of your reputation as a full service dealer, capable of promoting, selling and installing Siemens Products, consistent with [the] quality associated with these Products and our trade name. Sales by you to third parties, including mail order houses, for redistribution are not allowed since Siemens has a legal obligation and a dedication to its good will to monitor sales and installation of its Products in a quality manner.

On the same date, Siemens wrote Schein Dental requesting that all Siemens products be removed from the Schein Dental catalog.

Over the succeeding months, efforts were made to salvage the Hayden-Siemens relationship. The district court determined, however, that despite repeated reassurances, Hayden continued to fill orders for Schein Dental, specifying that in 1983, Schein Dental sold $336,285.00 worth of Siemens' equipment while Hayden's sales were $13,365.00. Hayden, 672 F.Supp. at 730 n. 4. Hayden also declined to enter into an "Authorized Dealership Agreement" which Siemens sent to all its dealers on August 30, 1983. This agreement, which Siemens' other dealers signed with only minor changes, made no direct reference to mail order sales, but stressed the promotion, installation and servicing of Siemens' equipment. Hayden was terminated as a Siemens dealer in late November, 1983, and this action was instituted in January, 1984.

The substance of the legal claims made by the parties and under review here has been set forth in the introductory portion of this opinion. The gist of plaintiffs' case is that Siemens...

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