A.I. Root Co. v. Computer/Dynamics, Inc.

• Decision Date: 02 December 1986
• Docket Number: No. 85-3519,85-3519
• Parties: , 1986-2 Trade Cases 67,363, 1987 Copr.L.Dec. P 26,061 A.I. ROOT COMPANY, Plaintiff-Appellant, v. COMPUTER/DYNAMICS, INC. and Management Assistance, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 673

806 F.2d 673

55 USLW 2341, 1986-2 Trade Cases 67,363,

1987 Copr.L.Dec. P 26,061

A.I. ROOT COMPANY, Plaintiff-Appellant, v. COMPUTER/DYNAMICS, INC. and Management Assistance, Inc.,

Defendants-Appellees.

No. 85-3519.

United States Court of Appeals,

Sixth Circuit.

Argued April 4, 1986.

Decided Dec. 2, 1986.

Alan C. Witten (argued) McShane, Breitfeller & Witten, Columbus, Ohio, for plaintiff-appellant.

David Schaefer (argued), Cleveland, Ohio, Donald J. Mooney, Jr. (argued), Cincinnati, Ohio, for defendants-appellees.

Before KEITH, NELSON and BOGGS, Circuit Judges.

KEITH, Circuit Judge.

Plaintiff, A.I. Root Company appeals a summary judgment rendered for Computer Dynamics, Inc. (CDI) and Management Assistance, Inc. (MAI), in this anti-trust case alleging an illegal tying arrangement and group boycott. A.I. Root alleged that CDI and MAI engaged in anti-competitive activity in violation of the Sherman Antitrust Act, 15 U.S.C. Sec. 1 (1982). The case was heard in the United States District Court for the Northern District of Ohio, Eastern Division. Defendants filed a motion for summary judgment May 22, 1984, primarily contending they lacked the requisite market power for an illegal tying arrangement. Judge John Manos issued a Memorandum Opinion May 31, 1985, granting summary judgment for defendants. This opinion can be found in the official reporter as A.I. Root Company v. Computer Dynamics, Inc., 615 F.Supp. 727 (N.D. Ohio 1985). We affirm.

I. FACTUAL BACKGROUND

A.I. Root Company is an Ohio corporation, manufacturing beekeeper's supplies, ecclesiastical candles, and other products in Medina, Ohio. MAI is a New York corporation which manufactures Basic Four computer equipment and operating software for that equipment. CDI is an Ohio corporation and MAI's authorized dealer in Medina, Ohio. Since 1977, A.I. Root Company had purchased small business computers from MAI dealers, including CDI. In 1982, Root decided to upgrade its computer capabilities by computerizing its inventory and manufacturing processes. CDI offered Root a new MAI Model 710 computer. However, Root purchased a used Basic Four computer from Assured Systems Development, Inc. (ASD)--a dealer in used computers in Cleveland, Ohio.

Root had been using a set of computer programs known as the Basic Operating Software System (BOSS), to operate its earlier machines. These programs constitute operating software necessary to operate This licensing agreement would have required Root to:

the computer generally and to support applications software; applications software consists of programs performing specific data-processing tasks. Root approached CDI for reconfigured BOSS software which was necessary to operate properly its newly-purchased Basic Four Model 730B. Root alleged that CDI offered to sell the reconfigured BOSS software only if Root signed licensing agreements concerning applications software. ¹

(1) Use only computer hardware manufactured by MAI with Root's applications software; and

(2) Purchase for a "transfer fee" CDI's programming services each time Root acquired an updated or different Basic Four computer.

Root contends that these terms constitute an unlawful tying arrangement by conditioning the sale of a reconfigured BOSS software (the tying product) on Root's signing the application software license (the tied product). Rather than accede to the above arrangement, Root purchased new IBM equipment and software.

II. DISCUSSION

We uphold the summary judgment for defendants, finding no illegal tying arrangement. In so doing, we are not unmindful that motions for summary judgment are generally disfavored in antitrust litigation. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). However, this circuit has held that summary judgment may be appropriate where trial would merely result in delay and expense. See Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1324 (6th Cir.1983). A trial in the present case would not be appropriate. There is no legal theory under the asserted version of facts which can support an illegal tie; summary judgment is therefore appropriate.

In Bell v. Cherokee Aviation Corp., 660 F.2d 1123, 1127 (6th Cir.1981) quoting Fortner Enterprises v. U.S. Steel, 394 U.S. 495, 499, 89 S.Ct. 1252, 1256, 22 L.Ed.2d 495 (1969)), this court stated the requisites of an illegal tie-in as follows:

1. There must be a tying arrangement between two distinct products or services;

2. The defendant must have sufficient economic power in the tying market to appreciably restrain competition in the tied product market.

3. The amount of commerce affected must be "not insubstantial."

We conclude that MAI did not possess the requisite "economic power" for an illegal tie. Significantly, MAI controlled only 2-4% of the small computer market. This market share is insufficient as a matter of law to infer market dominance. Accord Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 26, 104 S.Ct. 1551, 1566, 80 L.Ed.2d 2 (1984) (30% market share insufficient to infer market power).

Appellant Root would have us circumvent the above finding in a number of ways. Root argues that the relevant market is not small business computers, but rather equipment using BOSS software as a unique product market. We disagree. The relevant market in this case is small business computers. In White & White, Inc. v. American Hospital Supply Corp., 723 F.2d 495, 500 (6th Cir.1983) this court held that:

The essential test for ascertaining the relevant product market involves the identification of those products or services that are either (1) identical to or (2) available substitutes for the defendants' product or service.... This comparative analysis has been characterized as the "reasonable interchangeability" standard.

The court below found, and we agree, that competitors of CDI and MAI, including IBM, NCR and Seiko, could produce computer hardware and software equivalent to that manufactured by MAI. 615 F.Supp. at 732. Accordingly, the equipment using BOSS software did not compose a separate and distinct submarket within the computer industry as to which we should measure "market share."

Root would also have us confer the requisite "economic power" for a tie on BOSS, relying on United States v. Loew's, Inc., 371 U.S. 38, 44, 83 S.Ct. 97, 101, 9 L.Ed.2d 11 (1962), which states "[t]he requisite economic power is presumed when the tying product is patented or copyrighted." It is uncontested that the BOSS product is copyrighted. Nonetheless, we find the pronouncement in Loew's to be overbroad and inapposite to the instant case. Accordingly, we reject any absolute presumption of market power for copyright or patented product, based on the cogent reasoning in Note, The Presumption of Economic Power for Patented and Copyrighted Products in Tying Arrangements, 85 Colum.L.Rev. 1140 (1985). The article notes that the evil of tie-ins exists only when the tying product can force consumers to buy an unwanted tied product. This exists only when the tying product confers great market power, evidenced by an exceptional demand for the tying product. However, such a presumption is not warranted merely by existence of a copyright or patent. ² "More often than not, however, a patent or copyright provides little, if any, market power." Id. at 1156.

The above analysis is reflected in Justice O'Connor's concurrence in Jefferson Parish Hospital. Although the majority cites Loew's for the proposition that "a patent or similar monopoly" confers market power, 466 U.S. at 16, 104 S.Ct. at 1560, Justice O'Connor, in a footnote, states a more realistic view of the significane of a copyright or patent in tying cases:

A common misconception has been that a patent or copyright, a high market share, or an unique product that competitors are not able to offer suffice to demonstrate market power. While each of these factors might help to give market power.... a patent holder has no market power in any relevant sense if there are close substitutes for the patented product.

466 U.S. at 37 n. 7, 104 S.Ct. at 1572 n. 7.

To reiterate, the equipment using BOSS software in the instant case had "close substitutes." Therefore, the fact that BOSS is copyrighted is not determinative of "market power."

Lower court opinions, cited by the court below, have also adopted this more realistic analysis of copyright as a presumption of market power. The Loew's holding was discussed and distinguished in In Re Data General Corp. Antitrust Litigation, 490 F.Supp. 1089, 1112 (N.D.Cal.198...