In re Independent Serv. Organ. Antitrust Lit.

• Decision Date: 08 April 1997
• Docket Number: Civil Action No. MDL-1021.
• Citation: 964 F.Supp. 1479
• 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. 1479

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)

Civil Action No. MDL-1021.

United States District Court, D. Kansas.

April 8, 1997.

COPYRIGHT MATERIAL OMITTED

Eric D. Braverman, Employers Reinsurance Corp., 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., Copier Services Unlimited, Inc., Copier Services Unlimited of St. Louis, Inc.

James A. Hennefer, San Francisco, CA, Maxwell M. Blecher, Los Angeles, CA, for Acquisition Specialists, Inc., Tecspec, Inc., Consolidated Photo Copy, Inc., Copier Rebuild Center, Inc., CPO Ltd., Creative Copier Services, Inc., Gradwell Co., Inc., Graphic Corp. of Alabama, Intern. Bus. Equip., Inc., Laser Resources Inc., Laser Resources of Minn., Inc., Laser Solutions, Inc., Laser Support and Engineering, Inc., Marathon Copier Services, Inc., Nationwide Technologies, Inc., Reprographics Resources Systems, Inc., Resources Systems, Inc., Suntone Indus., Inc., Technical Duplication Services, Inc., X-Tech

Systems Inc., Xer-Dox Inc., Xerographic Copies Services, Inc.

Peter K. Bleakley, Arnold & Porter, Washington, DC, Peter W. Marshall, Xerox Corp., 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 Corp.

MEMORANDUM AND ORDER

Earl E. O'CONNOR, Senior District Judge.

This matter is before the court on defendant's motion for reconsideration of the order denying summary judgment on copyright infringement (Doc. # 581) and defendant's motion for reconsideration or certification pursuant to 28 U.S.C. § 1292(b) of the order denying summary judgment on patent infringement and antitrust claims (Doc. # 583). After careful consideration of the parties' briefs and evidentiary materials and oral argument on the motions, the court is prepared to rule. For the reasons set forth below, both motions are granted in part and denied in part.

Defendant has included a supplemental statement of facts with its motion for reconsideration of the court's order regarding patent infringement and antitrust claims. Given the additional factual issues raised in the motion, as well as some legal arguments that were not briefed specifically in the previous summary judgment motion, the court will construe defendant's motion as a renewed motion for summary judgment on patent infringement and antitrust claims or in the alternative certification of the court's March 19, 1997, order. The standards relating to summary judgment motions previously were set forth in the court's March 19, 1997, memorandum & order, 964 F.Supp. 1454. The court incorporates that discussion by reference here.

I. Xerox's Renewed Motion For Summary Judgment On Its Patent Infringement Counterclaim.

A. Factual Background.

For purposes of this opinion, the following is a brief summary of the material facts that are uncontroverted or deemed admitted, pursuant to Federal Rule of Civil Procedure 56 and District of Kansas Rule 56.1.

This court previously found that CSU infringed Xerox's lawful patents either literally or under the doctrine of equivalents by CSU's use of the 97X0 fuser pressure roll, 97X0(w/ MOD V) fuser heat roll, 97X0(w/o MOD V) fuser heat roll, 1090 family fuser heat roll, 1090 family dicorotron w/ dag coating, 1090 family dicorotron w/o dag coating, and 1065 document handler belt. Mar. 19, 1997, Mem. & Order at 1458.

Xerox seeks damages for CSU's infringement of patents since 1994 when Xerox filed its counterclaim. CSU has submitted an expert report with respect to its antitrust claims which identifies parts overcharge damages for the twenty-six most frequently purchased parts by CSU. Four of the twenty-six parts are among the patented parts at issue in Xerox's motion for summary judgment on its patent infringement counterclaims. From 1993 through 1997, the total overcharge calculated by CSU for these four parts is negative $43,429. The other three patented parts at issue in Xerox's patent infringement counterclaim are not included as part of CSU's damage calculation and CSU has offered no evidence to establish that it was overcharged for these parts.

B. CSU's Patent Misuse Defense.

1. Nexus Between Patents At Issue And Misuse.

To prevail on a defense of patent misuse, an alleged infringer must establish a sufficient nexus between the patent holder's alleged misconduct and the patents at issue in the litigation. See Riker Laboratories, Inc., v. Gist-Brocades N.V., 636 F.2d 772, 777 (D.C.Cir.1980); Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d 77, 84-85 (6th Cir.), cert. denied, 404 U.S. 886, 92 S.Ct. 203, 30 L.Ed.2d 169 (1971); McCullough Tool Co. v. Well Surveys, Inc., 395 F.2d 230, 238-39 (10th Cir.), cert. denied, 393 U.S. 925, 89 S.Ct. 257, 21 L.Ed.2d 261 (1968). Xerox has offered additional factual support for its contention that CSU has failed to establish this requisite nexus. This additional evidence is properly considered with respect to Xerox's renewed motion for summary judgment on its patent infringement counterclaims.

Xerox sues only for infringement of its patents after it changed its parts policy in 1994 as a result of the R & D settlement. CSU claims that Xerox continued to misuse its patents after the R & D settlement by charging exorbitant prices for those products in an effort to eliminate ISO competition in the service market. CSU has failed to come forward with any evidence to substantiate this allegation with respect to the seven patented parts at issue.

As part of its antitrust case, CSU claims parts overcharge damages for only four of the seven patented parts at issue. According to CSU's expert, the total "overcharge" from 1993 through 1997 for these four parts is negative $43,429. For two of the four parts, CSU pays less today than it claims is a "reasonable" price. For three of the four parts, CSU paid less than a reasonable price at some point in time between 1993 and 1997. For the remaining part, CSU pays approximately $46 for the part while it claims that the reasonable price is approximately $27. CSU has failed to prove that this price differential is sufficient to constitute misuse. Thus, with respect to the record evidence of the patented parts at issue, CSU actually paid near or less than a reasonable price for the parts.¹

CSU claims that the omission of the other three patented parts from its damage calculation does not mean that the parts were not priced intentionally by Xerox to exclude competition. Yet, CSU has not offered any evidence of the actual price it paid for the three patented parts not included in its damage calculation.

Xerox is not precluded from recovery on its patent infringement counterclaims based on CSU's general evidence of "misuse in the air." Kolene, 440 F.2d at 84. CSU bears the burden of establishing the requisite nexus between the patents at issue and the alleged misuse. Despite two opportunities, CSU has failed to come forward with any evidence to establish that Xerox's pricing of the seven patented parts at issue constitutes misuse. CSU argues that its damage calculation is conservative and that what it characterizes as a "reasonable price from Xerox" is often higher than the prices charged by third parties. CSU simply attempts to blur the fact that it has not offered any evidence that Xerox charged (or CSU paid) exorbitant prices for the seven patented parts at issue. The only record evidence on this point is the report of CSU's expert, which establishes that three of the seven parts are not included in CSU's parts overcharge calculation and that CSU paid less than what it characterizes as a reasonable price for the other four parts combined over the relevant time period. As for Xerox's prices, the evidence establishes that for all infringing parts as a whole, Xerox's prices are on average only 3% higher than the price CSU claims to be reasonable. The court finds that this evidence is insufficient as a matter of law to sustain CSU's patent misuse defense.

The parties have argued in their briefs whether the seven patented parts were included in Xerox's pre-1994 parts policy. To the extent any of the seven patented parts were included in Xerox's prior parts policy and arguably could constitute misuse, such misuse has been purged by the availability of patented parts since 1994 and CSU's ability to purchase the various parts at prices near or below what it characterizes as a "reasonable" price. CSU has failed to establish that Xerox misused its patents under the standard of misuse that the court articulated in its March 19, 1997, memorandum and order.

Even if CSU could establish the requisite nexus between the patents at issue and the alleged misuse, the court finds below that Xerox's unilateral refusal to sell or license its patented parts (or pricing the products at "unreasonable" prices) cannot constitute misuse. See infra part II.

2. Filing Of Infringement Action As Misuse.

CSU also claims that Xerox's filing of its counterclaims in the instant action constitutes patent misuse. The court previously held that CSU's defense was not precluded as a matter of law because (1) the Noerr-Pennington² doctrine provides antitrust immunity, not patent or copyright misuse immunity, and (2) evidence of Xerox's intent in prosecuting its infringement counterclaims when viewed together with CSU's other evidence may constitute misuse. Mar. 19, 1997, Mem. & Order at 1462. Based on the parties' supplemental briefing and further consideration of the parties' original briefing, the court finds that the filing of Xerox's patent infringement counterclaims cannot constitute misuse as a matter of law.

The patent statute precludes a finding of...