Marts v. Xerox, Inc., 95-2887

• Decision Date: 11 March 1996
• Docket Number: No. 95-2887,95-2887
• Citation: 77 F.3d 1109
• Parties: 1996-1 Trade Cases P 71,324 David MARTS, doing business as Lasertech, Plaintiff/Appellant, v. XEROX, INC., Defendant/Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1109

77 F.3d 1109

1996-1 Trade Cases P 71,324

David MARTS, doing business as Lasertech, Plaintiff/Appellant, v. XEROX, INC., Defendant/Appellee.

No. 95-2887.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 8, 1996.

Decided March 11, 1996.

Appeal from the United States District Court for the Western District of Arkansas.

Oscar Amos Stilley, Fort Smith, Arkansas, argued, for appellant.

Charles L. Schlumberger, Little Rock, Arkansas, argued, for appellee.

Before WOLLMAN, CAMPBELL, ^* and MURPHY, Circuit Judge.

DIANA E. MURPHY, Circuit Judge.

David Marts, doing business as Lasertech, brought this action alleging that Xerox, Inc. violated federal antitrust and Arkansas law by conditioning certain photocopier warranties on the use of Xerox replacement copy cartridges. After both sides moved for summary judgment, the district court ¹ granted the motion of Xerox and ordered judgment entered in its favor. Marts appeals from that judgment, and we affirm for the following reasons.

Xerox manufactures several models of photocopiers in the twelve to thirty page per minute category, referred to as convenience copiers. Xerox includes a three year warranty with these copiers at no additional charge. The warranty covers all parts and service necessary during that period. Xerox also offers one year extended warranties which can be purchased after the initial warranty expires at a cost between roughly $200 and $500 per year. Both the initial and extended warranties require that the customer use only Xerox copy cartridges. ² The cartridges contain a number of critical components with limited lives and produce approximately 20,000 copies. Users can replace spent cartridges easily.

Xerox will service its copiers that are not under warranty. Service is available on a time and materials basis, in which case the customer pays for parts and labor ($155 for the first half hour and $120 per hour thereafter.) Xerox also offers a maintenance agreement which requires that customers pay an annual charge of roughly $150 and then a fixed price for each service call, also roughly $150. Parts are included in that charge.

Lasertech is an Arkansas proprietorship owned by David Marts. In addition to servicing photocopiers and computer printers, Lasertech reconditions and sells toner and copy cartridges used by various printers and copiers. In late 1993, Lasertech began reconditioning cartridges for Xerox convenience copiers. It sold twelve remanufactured Xerox cartridges to two clients in Fort Smith, Arkansas over a period of several months. Lasertech presented evidence that at least one client stopped purchasing Lasertech cartridges when Xerox personnel informed him that continued use of non-Xerox cartridges would void the warranties on the copiers. The evidence suggests that Lasertech contacted several other prospective clients, at least one of whom expressed interest in purchasing Lasertech products before learning from Xerox that the new copier warranty would be voided. Lasertech made no further sales of remanufactured Xerox cartridges since early 1994.

Lasertech sued Xerox in the district court, alleging violations of § 1 of the Sherman Act, 15 U.S.C. § 1, ³ and § 3 of the Clayton Act, 15 U.S.C. § 14. ⁴ Lasertech claimed that Xerox improperly tied the availability of warranty service to the purchase of Xerox cartridges. The complaint also alleged that Xerox had tortiously interfered with Lasertech's contract rights and business expectations. ⁵ Xerox responded with a number of defenses, including that it lacked the market power necessary to produce anticompetetive effects, that it made service available to copier owners in economically viable ways other than the warranties, and that Lasertech had not proven antitrust damages.

The district court concluded that Xerox lacked sufficient market power to make any tying arrangement a violation of federal antitrust law. Based on this conclusion and a stipulation by Lasertech that no state law violation could be shown if there was no violation of federal law, the district court granted summary judgment in favor of Xerox.

We review a grant of summary judgment de novo; like the district court, we must construe the evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986). Summary judgment is appropriate where there is no genuine issue of material fact for trial and the moving party is entitled to judgment as a matter of law. Id. at 247-48, 250, 106 S.Ct. at 2509-10. The nonmoving party must show that there is some genuine issue requiring trial. Id. at 250, 106 S.Ct. at 2511.

A tying arrangement is "the sale or lease of one item (the tying product) on the condition that the buyer or lessee purchase a second item (the tied product) from the same source." Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1498 (8th Cir.1992) (citations omitted), cert. denied, 506 U.S. 1080, 113 S.Ct. 1048, 122 L.Ed.2d 356 (1993). When a party can use its market power in the tying product to force customers to buy the tied product, competition may be harmed and the market upset. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 10 n. 14, 104 S.Ct. 1551, 1557 n. 14, 80 L.Ed.2d 2 (1984).

A plaintiff may prove a per se tying violation under the Sherman Act by demonstrating that two distinct products are tied, that the defendant has sufficient power in the tying product market to restrain competition in the tied product market, and that the tied product involves a "not insubstantial" amount of interstate commerce. Amerinet, 972 F.2d at 1498-99 (citations omitted). The Supreme Court stated in Jefferson Parish that:

Our cases have concluded that the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated.

466 U.S. at 12, 104 S.Ct. at 1558. Lasertech argues that Xerox forced customers to buy Xerox cartridges by illegally tying both the initial and extended warranties to the purchase of its copy cartridges. We address each type of warranty in turn.

With respect to the three year new copier warranty, Lasertech's claim does not fit easily into the existing structure of antitrust law. The warranty is given to customers at no additional charge when they purchase a copier and is therefore neither sold nor leased. As a practical matter, however, the warranty is included in the sale price. Warranties are similar to service agreements but may differ in some ways. Moreover, customers expect at least some warranty period on most products. For all of these reasons, the identity of the tying product is somewhat unclear and assessing any anticompetitive effects of a warranty may be difficult.

We need not decide these issues here, however, since we conclude that Lasertech has in any event not presented sufficient evidence of an illegal tying arrangement to create a genuine issue for trial. Although the warranty does condition its continuation on the use of Xerox cartridges, a warranty is only one way of receiving service for a new Xerox copier. "[W]here the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price." Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 6 n. 4, 78 S.Ct. 514, 518 n. 4, 2 L.Ed.2d 545 (1958). An owner of a new Xerox copier could forego the benefits of the warranty, buy service from Xerox or an independent provider, and purchase cartridges from the vendor of its choice. The end result is the same: customers receive both service and cartridges for their copiers.

Even if the products are available separately, an illegal tying arrangement can exist if purchasing the items together is the "only viable economic option." Amerinet, 972 F.2d at 1500. Lasertech has failed to introduce evidence that purchasing service from Xerox through the service maintenance agreement or on a time and materials basis is not viable. The record contains no information regarding the frequency of required repairs on Xerox copiers. Without that data, it is impossible to know whether the other service and cartridge options are materially more expensive, and if so by how much. Because we cannot conclude that the other service options were...