In re Data General Corp. Antitrust Litigation, M.D.L. No. 369 WHO.
| Citation | 490 F. Supp. 1089 |
| Decision Date | 07 March 1980 |
| Docket Number | M.D.L. No. 369 WHO. |
| Parties | In re DATA GENERAL CORPORATION ANTITRUST LITIGATION. |
| Court | U.S. District Court — Northern District of California |
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Miller, Starr & Regalia, Jack C. Provine, M. Janice Smith, Oakland, Cal., for plaintiff Digidyne Corp.
Powell, Goldstein, Frazer & Murphy, David R. Aufdenspring, R. Carl Cannon, Atlanta, Ga., Steinhart, Goldberg, Feigenbaum & Ladar, James T. Fousekis, Rocky N. Unruh, San Francisco, Cal., for plaintiff SCI Systems, Inc.
Pillsbury, Madison & Sutro, John B. Bates, John A. Sutro, Jr., Andrew J. Ogilvie, San Francisco, Cal., Brown & Bain, P.A., Jack E. Brown, Paul F. Eckstein, Eugene D. Cohen, Jennifer B. Beaver, Phoenix, Ariz., Bernard Petrie, San Francisco, Cal., for plaintiff Fairchild Camera and Instrument Corp.
Ballard, Wimer, Baker & Brockett, Warren B. Wimer, Fullerton, Cal., for plaintiff Bytronix Corp.
Mark F. Anderson, San Francisco, Cal., for plaintiff Data Compass Corp.
McCutchen, Doyle, Brown & Emersen, John N. Hauser, Lynn H. Pasahow, William Bates, III, Stanton R. Koppel, Andrew J. Wistrich, San Francisco, Cal., Paul, Weiss, Rifkind, Wharton & Garrison, Jay Greenfield, Colleen McMahon, Anne Louise Oates, New York City, for plaintiff Ampex Corp.
Heller, Ehrman, White & McAuliffe, Weyman I. Lundquist, Richard L. Goff, Douglas M. Schwab, San Francisco, Cal., Thelen, Marrin, Johnson & Bridges, Max Thelen, Jr., Frank D. MacDowell, Robert B. Pringle, San Francisco, Cal., Ream, Train, Horning, Maxwell, Ellison & Roskoph, David H. Ellison, Richard A. Horning, Palo Alto, Cal., Reavis & McGrath, Stephen R. Steinberg, Lawrence W. Boes, John A. Lowe, New York City, Reavis & McGrath, Marshall G. Mintz, Los Angeles, Cal., for defendant Data General Corp.
Before the Court are seven actions challenging the manner in which Data General Corporation ("Data General") markets its computer equipment. Three of the actions were originally filed in this district1 and four were transferred here by the Judicial Panel on Multidistrict Litigation ("the Panel") for consolidated or coordinated pretrial proceedings.2 Plaintiffs3 claim that, among other things, Data General ties the licensing of its software to the sale of its central processing units in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (hereinafter cited as "Sherman § 1") and § 3 of the Clayton Act, 15 U.S.C. § 14 (hereinafter cited as "Clayton § 3"). In addition, plaintiff Ampex Corporation ("Ampex") claims that Data General unlawfully ties the sale of its central processing units to the sale of its memory boards.
Following more than a year of discovery encompassing the production of over 600,000 documents, the taking of nearly 150 depositions and the exchange of hundreds of interrogatories and requests for admission, the parties filed cross-motions for summary judgment in accordance with the briefing procedures outlined in § 3.30 of the Manual for Complex Litigation ("the Manual").4 Plaintiffs contend that Data General's tying arrangements possess each of the elements of per se tying violations. Data General argues that it lacks the requisite economic power in the tying product markets and therefore no tying violation can be shown. The Court has painstakingly reviewed the voluminous record and finds, for reasons set forth below, that there exist genuine issues of material fact sufficient to preclude summary judgment in favor of either plaintiffs or defendant. The parties must proceed to trial limited to the question whether Data General possesses sufficient economic power in the tying product markets appreciably to restrain competition in the tied product markets.
All of the parties to this litigation are corporations engaged in the design, manufacture and/or marketing of computer equipment. The items in issue are central processing units ("CPUs"), peripheral products, including memory devices, and operating systems software. CPUs process data. Peripheral products translate data from human-readable to machine-readable form, and vice versa, in conjunction with CPUs' data processing activities. Memory devices receive, store, and supply data. CPUs, peripheral products, and memory devices are "hardware" items and each is separately plugged into the computer chassis. Computer programs, known generally as "software," tell the hardware items which tasks to perform. Operating systems software provides the basic instructions for the operation of a computer in any practical application. Applications software is designed to perform specific data processing tasks. Operating systems software essentially serves as the liaison between the applications software and the hardware.5
Data General manufacturers and markets all of the items in issue here: CPUs, peripheral products, memory devices, and software. Data General's CPUs bear the trademark "NOVA." All of the plaintiffs, except Data Compass Corporation ("Data Compass"), manufacture CPUs and market them in competition with Data General's NOVA CPUs. Most of the plaintiffs do not manufacture all of the other hardware and software items which together comprise a complete computer system.6 Plaintiffs' CPUs are designed to be capable of functioning (whether as is or as modified) with the software which Data General makes available for use with its NOVA CPUs; they are sometimes referred to as "NOVA emulators."7 The obvious object of plaintiffs' marketing strategy is to offer consumers the option of assembling a multibrand computer system composed of CPUs manufactured by plaintiffs and memory devices, peripheral products, and software provided by Data General or other computer companies. In addition, plaintiff Ampex competes with Data General in the sale of memory devices as well as CPUs. Ampex aims to sell its memory boards to customers who buy their CPUs from Data General, from Ampex or from third parties.
This litigation focuses on three of Data General's marketing practices. First, Data General makes its software available pursuant to a Program License Agreement which precludes the licensee from using Data General's software with any CPUs not designated by Data General. With two exceptions not relevant here, Data General has only designated its own CPUs for use with its licensed software.8 Second, Data General requires its software licensees to purchase a minimum amount of Data General's hardware (i. e., a "minimum equipment configuration" of memory devices and peripheral products) or to pay a license charge. Third, Data General requires initial purchasers of its CPUs to purchase a minimum amount of memory equipment.9
This Court's involvement in what is now complex, multi-party litigation began with the filing here of a simple, two-party, trade secrets case in June, 1978. Digidyne Corporation ("Digidyne") sued Data General alleging that Data General was misrepresenting that Digidyne had appropriated its trade secrets and proprietary information. Digidyne sought a declaratory judgment that it had not done so, as well as substantial compensatory and punitive damages. Data General responded with a counterclaim alleging misappropriation of trade secrets, copyright infringement, inducement of breach of contract, unfair competition, and interference with prospective advantage. When Digidyne amended its complaint to allege antitrust violations (unlawful tying arrangements in violation of Sherman § 1 and Clayton § 3, and attempt to monopolize in violation of § 2 of the Sherman Act, 15 U.S.C. § 2), the framework within which the larger litigation eventually developed was thereby established. In broad outline: Data General has separately charged Digidyne, Fairchild Camera and Instrument Corporation ("Fairchild"), SCI Systems, Inc. ("SCI"), and Ampex with misappropriation of trade secrets and related state law violations; each of these companies as well as Bytronix Corp. ("Bytronix"), claims that Data General is liable for antitrust violations, notably unlawful tying practices. The action involving Data Compass differs somewhat from the others insofar as Data General's counterclaims focus on alleged breaches of contract rather than misappropriation of trade secrets.
Once it appeared that the simple trade secrets case had become neither simple nor primarily a trade secrets case, the Court assumed the supervisory role recommended by the Manual. The case was first broken into its two major substantive components. Discovery and pretrial preparation have proceeded solely on the antitrust issues, while discovery regarding the trade secrets and related issues has been temporarily stayed. The antitrust part of the case was further bifurcated for pretrial and trial purposes into separate determinations of liability and damages.
Antitrust law treats tying arrangements harshly. Proof that a tying arrangement possesses certain critical elements will render it illegal per se under Sherman § 1, Clayton § 3, or both. The Supreme Court initially applied the per se rule to tying arrangements in 1947, International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947), and has repeatedly reaffirmed that holding. See, e. g., United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 612 n.1, 97 S.Ct. 861, 863 n.1, 51 L.Ed.2d 80 (1977) (hereinafter cited as "Fortner II"); Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 498-99, 89 S.Ct. 1252, 1256, 22 L.Ed.2d 495 (1969) (hereinafter cited as "Fortner I"); Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 8, 78 S.Ct. 514, 519, 2 L.Ed.2d 545 (1958). The oftquoted rationale for subjecting tying arrangements to the per se rule is as follows:
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