ID Security Systems Canada, Inc. v. Checkpoint Systems, Inc., CIVIL ACTION NO. 99-577 (E.D. Pa. 3/__/2003)
| Decision Date | 01 March 2003 |
| Docket Number | CIVIL ACTION NO. 99-577. |
| Parties | ID SECURITY SYSTEMS CANADA, INC., Plaintiff, v. CHECKPOINT SYSTEMS, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Plaintiff, ID Security Systems Canada, Inc. ("ID Security"), brought this federal antitrust and state law action against Checkpoint Systems, Inc. ("Checkpoint") in connection with Checkpoint's alleged interference in a supply agreement between ID Security and Tokai Electronics, Ltd. ("Tokai"). According to ID Security, Checkpoint, a manufacturer of electronic article surveillance systems ("EAS systems"), violated the federal antitrust laws through illegal monopolization, attempted monopolization and conspiracy to monopolize with respect to the radiofrequency tags ("RF tags"), products that are used in conjunction with EAS systems. In particular, ID Security alleged that Checkpoint interfered with its existing contract with Tokai in order to block ID Security's efforts to enter the RF tag market as a second supplier of tags to Checkpoint customers and as the future producer of a unique and superior tag compatible with Checkpoint's EAS systems. The contract interference in question also gave rise to ID Security's state law claims of tortious interference with contractual relations and unfair competition.
After a trial, the jury found in favor of Checkpoint on ID Security's claim of monopolization of commerce, but against Checkpoint on ID Security's claims of attempted monopolization and conspiracy to monopolize. It awarded ID Security compensatory damages of $28.5 million. Under federal antitrust law, the court trebled that amount to $85.5 million. The jury also found against Checkpoint on the state law tort claims, and awarded damages in the amount of $19 million, for a combined total of $104.5 million for both the antitrust and the state law claims. Checkpoint has since filed a motion for post-trial relief seeking judgment as a matter of law or, alternatively, a new trial with respect to each of the four claims as to which the jury found in favor against Checkpoint. Checkpoint further challenges the award of damages in this case as unduly speculative, against the great weight of evidence, and a product of erroneous evidentiary rulings by the court.
With respect to the antitrust issues in this case, the court's threshold inquiry, before it may address whether there is sufficient evidence to sustain either of the antitrust verdicts against Checkpoint, is what constitutes the relevant market in this case, given the particular dynamics between the foremarket for EAS systems, in which Checkpoint competed strenuously with its rival Sensormatic, and the aftermarket for RF tags used with Checkpoint's system, i.e., the market which ID Security attempted to enter as a second source tag supplier. A related question is whether, given the burden of proof and the evidence in this case, the relevant market may be determined as a matter of law. As explained in more detail below, the court has determined that it can, and that a proper application of Kodak and its progeny dictate, as a matter of law, that EAS systems alone constitute the relevant market that Checkpoint could be accused of attempting or conspiring to monopolize.
The next question presented by Checkpoint's motion for post-trial relief is whether, given a relevant market for EAS systems, there was legally sufficient evidence to support a jury finding that Checkpoint indeed attempted to monopolize, i.e., had a dangerous probability of succeeding in monopolizing, the EAS systems market. In addition, the court must determine whether there was legally sufficient evidence to support a finding that Checkpoint conspired to monopolize the EAS market in violation of § 2 of the Sherman Act, i.e., whether, even given that Checkpoint had the specific intent to monopolize the EAS market, Tokai Electronics, the object of its acquisition efforts, shared that intent. Having addressed the difficult antitrust questions that characterize this case, the court turns to an examination of the proofs, instructions, and rulings concerning ID Security's state law claims, as well to a determination of whether a new trial is warranted with respect to the damages awarded by the jury.
For the reasons that follow, the court concludes that ID Security failed to produce sufficient evidence that the RF tag market is the relevant market in this case. Instead, the court finds that the relevant market in this case is the market for EAS systems. Given this market and the proofs at trial, the court concludes that there was no legally sufficient evidence to support a jury finding that Checkpoint is liable either for attempted monopolization or for conspiracy to monopolize in violation of § 2 of the Sherman Act. Thus, the court will grant judgment as a matter of law in Checkpoint's favor on ID Security's federal antitrust claims, and will vacate the verdict in favor of ID Security on the antitrust claims. The court also discerns no error in its treatment warranting either judgment or a new trial with respect to either of the state law claims in this case. However, as set forth in detail below, the court determines, given the speculative nature of the expert testimony offered by ID Security in support of certain items of damages sustained, the court will reduce the state claims award to $13 million.
The following facts were established at trial and are viewed in the light most favorable to ID Security, the winner of the jury verdict challenged in this motion.
This case involves the relationship between Checkpoint, a manufacturer of anti-shoplifting devices known as electronic article surveillance systems ("EAS systems), and ID Security Systems Canada, Inc., a company that unsuccessfully attempted to compete with Checkpoint in the aftermarket for sale of RF tags, devices compatible with Checkpoint's EAS hardware. Tokai is a supplier of tags to Checkpoint and was later acquired by Checkpoint. At the time of the acquisition, ID Security claimed that it had a contract with Tokai under which Tokai was to supply ID Security with tags.
Stores using EAS technology affix to their products a tag that, unless deactivated with the proper equipment, emits a radio frequency (RF) or acoustomagnetic (AM) signal that is detectable by a sensor that is placed near the store's exit. See T.T. 4/29/02 (doc. no. 159) at 46-48. The sensor will alert when a shopper attempts to leave the store's premises with a good bearing an active tag, i.e., a good that the shopper has not presented to the cashier for deactivation at the time of payment. T.T. 4/29/02 (doc. no. 159) at 48. Thus, an EAS system is comprised of sensors and deactivators, as well as of a continuing supply of tags compatible with both pieces of hardware. T.T. 5/9/02 (doc. no. 176) at 28-29.
In the market for EAS systems, the two major competitors are Checkpoint, which sells EAS systems based on RF technology and is the defendant in this case, and Sensormatic, which sells EAS systems based on AM technology. T.T. 5/9/02 (doc. no. 176) at 29-30. Given that RF and AM technologies are incompatible with each other, T.T. 5/8/02 (doc. no. 177) at 10; T.T. 5/9/02 (doc. no. 176) at 57-58, the choice of one technology over another is a significant decision, because a customer dissatisfied with a system based on one technology could only switch to a system based on the other at the great expense of replacing its entire existing system and retraining its employees. T.T. 5/15/02 (doc. no. 192) at 67-68. Such measures are both uneconomic, T.T., 5/9/02 (doc. no. 176) at 58, and rarely undertaken. T.T. 5/15/02 (doc. no. 192) at 67. As of 1997, the relevant period in this litigation, Checkpoint held a 25 percent share of the market for EAS systems, while Sensormatic enjoyed a 59 percent share. T.T. 5/9/02 (doc. no. 176) at 31.
The initial purchase of an EAS system creates an aftermarket for tags compatible with that system. Because RF tags deactivated at the point of sale leave the store with the good that has been purchased, retail stores must buy replacement tags on a continual basis to affix to new inventory. T.T. 4/29/02 (doc. no. 159) at 43. In addition, because RF and AM technologies are incompatible with each other, such that AM tags cannot be used with RF systems, and vice versa, the owner of an RF system, for example, can only buy usable tags from an RF supplier. T.T. 5/8/02 (doc. no. 177) at 10; T.T. 5/9/02 (doc. no. 176) at 57-58. In this aftermarket for RF tags, Checkpoint held at least a 90 percent share of the market for replacement RF tags during the relevant period. T.T. 5/7/02 (doc. no. 172) at 66. Sensormatic, on the other hand, sold 100 percent of the tags compatible with its system. T.T. 5/9/02 (doc. no. 176) at 41.
The sophisticated customers who purchase EAS systems are well aware of the attendant necessity of purchasing compatible replacement tags on an ongoing basis. T.T. 5/9/02 (doc. no. 176) at 40-42. Indeed, Checkpoint and Sensormatic present prospective customers with projections detailing return on investment, based on the nature of the customers' products, the volume of items to be tagged, the customers' estimated future tag needs, and industry trends. T.T. 5/9/02 (doc. no. 176) at 40-44. Such projections also explain to prospective customers the cost of the EAS system, and its component parts, including tags, over time. T.T. 5/15/02 (doc. no. 192) at 78-81.
Prospective EAS system purchasers typically receive competing proposals from Checkpoint and Sensormatic, T.T. 5/15/02 (doc. no. 192) at 81, and then attempt to play the two competitors off against each other in multiple rounds of negotiations in the hope of obtaining a reduced EAS system price as Checkpoint and Sensormatic attempt to undercut each other on price. T.T. 5/9/02 (doc. no. 176) at 45; T.T. 5/15/02 (doc. no. 192) at 81-83. The total price...
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