HyPoint Technology, Inc. v. Hewlett-Packard Co., HEWLETT-PACKARD

• Decision Date: 07 January 1992
• Docket Number: HEWLETT-PACKARD,No. 90-3526,90-3526
• Citation: 949 F.2d 874
• Parties: 1991-2 Trade Cases P 69,643 HyPOINT TECHNOLOGY, INC., Plaintiff-Appellee, v.CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 874

949 F.2d 874

1991-2 Trade Cases P 69,643

HyPOINT TECHNOLOGY, INC., Plaintiff-Appellee, v. HEWLETT-PACKARD CO., Defendant-Appellant.

No. 90-3526.

United States Court of Appeals Sixth Circuit.

Argued May 23, 1991.

Decided Nov. 21, 1991.

Rehearing and Rehearing En Banc

Denied Jan. 7, 1992.

John J. Eklund, Calfee, Halter & Griswold, Cleveland, Ohio, Ronald S. Katz (argued and briefed), Janet S. Arnold (briefed), and Victoria E. Brieant (briefed), Coudert Bros., San Francisco, Cal., for plaintiff-appellee.

Leslie W. Jacobs (argued), Mark A. Gamin, Thompson, Hine and Flory, Cleveland Ohio, Robert A. Skitol (briefed), C. Coleman Bird, James A. Meyers (briefed), Pepper, Hamilton & Scheetz, Washington, D.C., and S.T. Jack Brigham, III, and Marcia Howe Adams, Hewlett-Packard Co., Palo Alto, Cal., for defendant-appellant.

Evan R. Chesler (briefed), Cravath, Swaine & Moore, New York City, James W. Olson (briefed), Blue Bell, Pa., Ivor C. Armistead (briefed), Maynard, Mass. and Florinda Iascone (briefed), Lowell, Mass., for amici curiae.

Before JONES and NORRIS, Circuit Judges, and JOINER, Senior District Judge. ^*

JOINER, Senior District Judge.

Defendant Hewlett-Packard Co. (Hewlett-Packard) appeals from a judgment in favor of the plaintiff, HyPoint Technology, Inc. (HyPoint), in the amount of $1,500,000, treble the jury verdict. The complaint, filed on September 23, 1987, alleged in Counts I and II that the defendant unlawfully attained or maintained a monopoly in violation of section 2 of the Sherman Act. 15 U.S.C. § 2. Count III alleged a state law claim that Hewlett-Packard intentionally interfered with lawful contractual relations. The complaint sought both money damages and injunctive relief.

On February 24, 1988, the district court issued a preliminary injunction against the defendant, from which an appeal was taken. The injunction was vacated by this court on February 21, 1989, for insufficient findings of fact, the court reciting that "the record does not reveal that HyPoint has raised 'serious questions' for an antitrust violation." HyPoint Technology, Inc. v. Hewlett-Packard Co., No. 88-3237 [869 F.2d 1491 (table) ], slip op. at 4 (6th Cir. Feb. 21, 1989). The district court on remand refused to allow the defendant to present by summary judgment various issues going to legal deficiencies in plaintiff's theory. The case then proceeded to trial, in the course of which plaintiff conceded abandonment of the attempted monopolization ¹ and state law claims. On April 25, 1990, judgment was entered as set forth above. Defendant appeals, contending that the court erred in not directing a verdict and not granting judgment notwithstanding the verdict. We agree, and now reverse.

I.

Hewlett-Packard manufactures and sells computers. It also has a service organization for the repair and maintenance of its minicomputers. There was evidence that Hewlett-Packard's service organization accounted, during the period at issue, for approximately $800 million of an $806 million annual market in the service of Hewlett-Packard minicomputers. Only about one-seventh of Hewlett-Packard's income was derived from its service operations, however. Hewlett-Packard offered two service options for owners of its minicomputers: (1) a service contract covering repair and maintenance, for a set annual fee, or (2) repair for malfunctioning systems on a per-incident basis, for which the owner was charged the cost of the labor and materials involved--the "time-and-materials" (T & M) option.

HyPoint was initially a dealer in used minicomputers, including Hewlett-Packard minicomputers. In the course of this activity, HyPoint's employees had access to the service logs for Hewlett-Packard minicomputers which HyPoint was considering purchasing. HyPoint's principals became aware that Hewlett-Packard minicomputers were highly reliable and showed a diminished need for service as compared to other minicomputers. HyPoint's principals concluded that the annual costs of T & M service to owners of Hewlett-Packard minicomputers would be a great deal less than the cost of a service contract for the same period.

HyPoint took advantage of this disparity by entering into the business of selling service contracts to Hewlett-Packard minicomputer owners in 1984, at a substantial discount from Hewlett-Packard's price. Instead of performing the repair services with its own customer engineers, however, as Hewlett-Packard did, HyPoint utilized Hewlett-Packard's T & M service to carry out the repairs. HyPoint's customers contacted Hewlett-Packard directly in order to request service, and HyPoint either paid the T & M invoices generated by Hewlett-Packard, or reimbursed the customer. HyPoint sold its contracts for three years without incident, and made greater net profits from the venture in each year, from $37,000 in the 1984-85 fiscal year to $347,000 in the 1986-87 fiscal year.

It is not apparent from the record exactly when Hewlett-Packard became aware of HyPoint's activities, but it appears that it was not long after HyPoint began offering the contracts. This litigation arises from a decision announced by Hewlett-Packard in August 1987. Prior to that time, a customer engineer was guaranteed to be on site within four hours of the call for service. This four-hour guarantee was standard for contractual customers, and available for a fee to T & M customers, under the "Premium Response Time Option." HyPoint utilized this option as a matter of course. On August 1, 1987, Hewlett-Packard announced that the Premium Response Time Option would no longer be offered. After that time, a customer engineer was only guaranteed on-site within four hours for Hewlett-Packard contractual customers. Because HyPoint used Hewlett-Packard's T & M service to carry out its contracts, the business of HyPoint was affected.

The effect of the decision on HyPoint's business was immediate. There was testimony at trial from numerous customers of HyPoint's, or firms which had been considering HyPoint's contracts, indicating the customers' extreme sensitivity to the speed of response when their computers are down, a proposition which can easily be believed. HyPoint made inquiry into having third-party maintenance organizations perform the repair services on their contracts, but the evidence reflects that these are few and scattered, and HyPoint was unable to locate such third-party firms for its customers in many areas. HyPoint lost virtually all of its service customers within a short time after Hewlett-Packard's decision was announced.

HyPoint's theory at trial was that Hewlett-Packard's decision was calculated to eliminate HyPoint and similarly situated competitors from the market, without legitimate business justification. The relevant market asserted by HyPoint was the service of Hewlett-Packard minicomputers, and HyPoint presented evidence showing that Hewlett-Packard had monopoly power in that market.

Hewlett-Packard argued at trial that the relevant market was the sale of minicomputers, in which Hewlett-Packard does not have market power, and that service is simply a part of the sales market. Hewlett-Packard also argued that it had various legitimate business justifications for the decision to terminate four-hour response time to T & M customers. In moving for a directed verdict or judgment notwithstanding the verdict, Hewlett-Packard also argued as a matter of law that no antitrust violation was shown by the facts of this case, and that HyPoint lacked antitrust standing.

II.

In light of the articulation by the Supreme Court of the antitrust standing requirement for suits under the antitrust laws, beginning in 1977 with Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), and developed in the next several years in, e.g., Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990); Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983); and Blue Shield v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982), it is appropriate to turn first to the issue of antitrust standing before weighing the issues of relevant market, market share, etc. In other words, before discussing the claims made in this case regarding relevant market and market power we must determine if HyPoint has antitrust standing to assert claims under the Supreme Court's precedents. Although we have serious doubts that the relevant market is the service industry, believing instead that service in this case is so integral to sales that the relevant market is sales, we will for the purpose of discussing antitrust standing accept the service industry as the relevant market.

Antitrust standing to sue is at the center of all antitrust law and policy. It is not a mere technicality. It is the glue that cements each suit with the purposes of the antitrust laws, and prevents abuses of those laws. The requirement of antitrust standing ensures that antitrust litigants use the laws to prevent anticompetitive action and makes certain that they will not be able to recover under the antitrust laws when the action challenged would tend to promote competition in the economic sense. Antitrust laws reflect considered policies regulating economic matters. The antitrust standing requirement makes certain that the laws are used only to deal with the economic problems whose solutions these policies were intended to effect.

Standing is conferred upon private antitrust plaintiffs by section 4 of the Clayton Act, which provides, in pertinent part:

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the...