In re Indepen. Serv. Organiz. Antitrust Litigation

• Decision Date: 19 March 1997
• Docket Number: Civ.A. No. MDL-1021.
• Citation: 964 F.Supp. 1454
• Parties: In re INDEPENDENT SERVICE ORGANIZATIONS ANTITRUST LITIGATION. This Document Applies To: CSU Holdings, Inc., et al., v. Xerox Corp. (D.Kan. No. 94-2102-EEO)
• Court: U.S. District Court — District of Kansas

964 F.Supp. 1454

In re INDEPENDENT SERVICE ORGANIZATIONS ANTITRUST LITIGATION.

This Document Applies To: CSU Holdings, Inc., et al., v. Xerox Corp. (D.Kan. No. 94-2102-EEO)

Civ.A. No. MDL-1021.

United States District Court, D. Kansas.

March 19, 1997.

Eric D. Braverman, Employers Reinsurance Corporation, Overland Park, KS, P. John Owen, Lori R. Schultz, Morrison & Hecker, Kansas City, MO, Michael C. Manning Morrison & Hecker, Phoenix, AZ, for CSU Holdings Inc. and Copier Services Unlimited, Inc.

James A. Hennefer, San Francisco, CA, Maxwell M. Blecher, for Acquisition Specialists, Inc., Tecspec, Inc., Consolidated Photo Copy, Inc., Copier Rebuild Center, Inc., CPO Ltd., Creative Copier Services, Inc., Gradwell Company, Inc., Graphic Corporation of Alabama, International Business Equipment, Inc., Laser Resources Inc., Laser Resources of Minnesota, Inc., Laser Solutions, Inc., Laser Support and Engineering, Inc., Nationwide Technologies, Inc., Reprographics Resources Systems, Inc., Resources Systems, Inc., Suntone Industries, Inc., Technical Duplication Services, Inc., X-Tech Systems Inc., XER-DOX Inc., and Xerographic Copies Services, Inc.

Peter K. Bleakley, Arnold & Porter, Washington, DC, Peter W. Marshall, Xerox Corporation, Stamford, CT, Michael G. Norris, Norris, Keplinger & Logan, L.L.C., Overland Park, KS, C. Larry O'Rourke, E. Robert Yoches, Vincent P. Kovalick, Leslie I. Bookoff, Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, DC, for Xerox Corporation.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Senior District Judge.

This matter is before the court on defendant's motion for summary judgment on its willful patent infringement counterclaims (Doc. # 362) and defendant's motion for summary judgment on plaintiffs' antitrust claims (Doc. # 410). After careful consideration of the parties' briefs and oral argument on defendant's motion for summary judgment on plaintiffs' antitrust claims, the court is prepared to rule. For the reasons set forth below, both motions are denied.

Summary Judgment Standards

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d 1535, 1538-39 (10th Cir.1993). A factual dispute is "material" only if it "might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

The moving party bears the initial burden of showing that there is an absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986); Hicks v. City of Watonga, 942 F.2d 737, 743 (10th Cir.1991). Essentially, the inquiry as to whether an issue is genuine is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. at 2512. An issue of fact is genuine if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. at 2510. This inquiry necessarily implicates the substantive evidentiary standard of proof that would apply at trial. Id. at 252, 106 S.Ct. at 2512.

Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues remain for trial "as to those dispositive matters for which it carries the burden of proof." Applied Genetics Int'l, Inc. v. First Affiliated Securities, Inc., 912 F.2d 1238, 1241 (10th Cir.1990); see also Matsushita Elec. Indus., Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir.1991). The nonmoving party may not rest on his pleadings but must set forth specific facts. Applied Genetics, 912 F.2d at 1241.

"[W]e must view the record in the light most favorable to the parties opposing the motion for summary judgment." Deepwater Invs., Ltd. v. Jackson Hole Ski Corp., 938 F.2d 1105, 1110 (10th Cir.1991). "In a response to a motion for summary judgment, a party cannot rely on ignorance of facts, on speculation, or on suspicion, and may not escape summary judgment in the mere hope that something will turn up at trial." Conaway v. Smith, 853 F.2d 789, 793 (10th Cir. 1988). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514. Where the nonmoving party fails to properly respond to the motion for summary judgment, the facts as set forth by the moving party are deemed admitted for purposes of the summary judgment motion. D. Kan. Rule 56.1.

Analysis

I. Defendant's Patent Infringement Counterclaims.

Defendant contends that it is entitled to summary judgment on its willful patent infringement counterclaims because (1) plaintiff has infringed on Xerox's patents for certain copier and printer replacement parts and (2) plaintiff's affirmative defenses to defendant's patent infringement counterclaims are invalid as a matter of law.

A. Factual Background.

Among the patents asserted by Xerox in its patent infringement counterclaim against CSU are several key copier and printer replacement parts, including fuser heat and pressure rolls, dicorotrons, and document handler belts. CSU often replaces these parts during the service and refurbishment of copiers and printers. In discovery, Xerox sought the production by CSU of representative copier and printer parts that CSU purchased from vendors other than Xerox. CSU produced seven parts, which are the subject of this motion. Each of the parts produced by CSU infringes Xerox's patents either literally or under the doctrine of equivalents.

The remaining facts presented in this section are uncontroverted by Xerox for purposes of this motion only.¹ In 1984, Xerox developed its first "parts policy," in which it declared it would not sell "parts which are unique to the `10' Series products in memory writers" to any Independent Service Organization ("ISO") unless the ISO also was an end-user of the product. In January 1987, the parts policy was expanded to apply to newer "9" Series models and all "10" Series copiers, plus all new Xerox products introduced after the effective date of the policy.

Xerox did not enforce its parts policy until early 1989. At that time, Xerox representatives decided that the only way to stop the competitive threat posed by ISOs, such as CSU, was to cut off the parts availability to these parties. In January 1989, Xerox tightened enforcement of its existing policies and cut off CSU's direct purchase of restricted parts from Xerox. Xerox also implemented an "on-site end-user verification" procedure when certain ISOs or their customers ordered parts from Xerox. The policy, which was implemented in June 1989, initially applied solely to the six most successful ISOs, including CSU.

As a result of Xerox's parts policies, CSU did not have an assured source of supply of parts necessary to service Xerox copiers and printers. CSU used parts cannibalized from used Xerox equipment, parts obtained from other ISOs, and parts purchased through a limited number of customers. CSU also obtained parts from Rank Xerox, a majorityowned European affiliate of Xerox, for approximately one year until Xerox forced Rank Xerox to stop selling parts to CSU and other ISOs.

CSU claims that Xerox also decided to use its intellectual property rights as a weapon to defeat ISO competition. Xerox made its legal counsel an integral part of this corporate strategy. CSU claims that Xerox used its legal counsel to threaten and/or bring patent and copyright infringement suits against ISO competitors.

In 1994, Xerox settled an antitrust lawsuit brought by a class of ISOs in the United States District Court for the Eastern District of Texas (the "R & D Litigation"). CSU opted out of the R & D settlement on the same day it filed the instant action against Xerox. Pursuant to the R & D settlement, Xerox agreed to suspend its restrictive parts policy for a period of six and one-half years. The settlement also compelled Xerox to license diagnostic software, an essential component for service, for four and one-half years.

After the R & D settlement, Xerox intensified its efforts to use price as a weapon to defeat ISO competition in the service market. Xerox knew that if it must sell parts and licensed software to ISOs, it could achieve the same effect as not selling the product by charging exorbitant prices for those products. Xerox intentionally set the prices of its patented parts at high levels to act as a weapon against ISOs and to maintain Xerox's monopoly of the service market.

Xerox charges ISOs markups of as much as 2,000% or more on its parts. Xerox does not charge its customers who also service their own machines ("self-servicers") the same parts prices it charges ISOs. For example, ISOs are charged approximately four times as much as self-servicers for some parts.

Xerox explicitly set the price of its patented parts, not to recoup its development costs, but to force ISOs to raise the prices they charge customers. Xerox's goal of its pricing strategy was to eliminate ISO competition and capture 100% of the service market. Xerox used its control over the prices of parts and diagnostic software to exclude ISOs in the service market or to maintain its supra-competitive prices over its parts.

B. Xerox's Affirmative Case of Patent Infringement.

As noted above, Xerox has presented evidence that CSU has infringed Xerox's patents either literally or...