Pace Electronics v. Canon Computer Sys., 99-5728

• Decision Date: 14 March 2000
• Docket Number: No. 99-5728,99-5728
• Citation: 213 F.3d 118
• Parties: (3rd Cir. 2000) PACE ELECTRONICS, INC. Appellant v. CANON COMPUTER SYSTEMS, INC. and LAGUNA CORPORATION Argued:
• Court: U.S. Court of Appeals — Third Circuit

Page 118

213 F.3d 118 (3rd Cir. 2000)

PACE ELECTRONICS, INC. Appellant v. CANON COMPUTER SYSTEMS, INC. and LAGUNA CORPORATION

No. 99-5728

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: March 14, 2000

Filed May 22, 2000

On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 98-cv-03132) District Judge: Honorable John C. Lifland

Elliott Joffe (Argued) Steven Robert Lehr, P.C. 33 Clinton Road Suite 100 West Caldwell, NJ 07006 Counsel for Appellant Pace Electronics, Inc.

Richard H. Silberberg (Argued) Robert G. Manson Dorsey & Whitney LLP 250 Park Avenue New York, New York 10177 Counsel for Appellee Canon Computer Systems, Inc.

Carl A. Rizzo Cole, Schotz, Meisel, Forman & Leonard 25 Main Street Hackensack, NJ 07601 Counsel for Appellee Laguna Corporation

Before: MCKEE, RENDELL and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

The issue in this appeal is whether the termination of a wholesale dealer's contract for its refusal to acquiesce in an alleged vertical minimum price fixing conspiracy constitutes an antitrust injury that will support an action for damages under section 4 of the Clayton Act. The United States District Court for the District of New Jersey reasoned that a dealer terminated under these circumstances does not suffer an antitrust injury unless it can demonstrate that its termination had an actual, adverse economic effect on a relevant market. After concluding that the plaintiff's complaint in the instant case failed to allege such an effect, the District Court dismissed the complaint for failure to state a claim upon which relief may be granted. Because we believe the court misconstrued the antitrust injury requirement, we will reverse.¹

I.

The plaintiff, Pace Electronics, Inc. ("Pace"), a New Jersey corporation, is engaged in the business of distributing various electronic products, including computer printers and related accessories. Pace purchases these products from manufacturers and wholesale distributors and then resells them to smaller retailers, who operate in the New Jersey and New York region.

In April of 1996, Pace entered into a nonexclusive dealer agreement with defendant Canon Computer Systems, Inc. ("Canon"), a California corporation. Under this agreement, Pace obtained the right to purchase Canon-brand ink-jet printers and related accessories from Canon at "dealer prices." In consideration for the right to purchase these products at "dealer prices," Pace agreed to purchase certain minimum quantities of the products.

The dealer agreement between Pace and Canon remained in effect for approximately one year and three months. Thereafter, on July 1, 1997, Canon terminated the agreement with Pace on the stated ground that Pace failed to purchase the minimum quantities of Canon-brand products required of it under the dealer agreement. Although Pace concedes that it did not purchase the amount of Canon-brand products called for under the dealer agreement, Pace contends that it was unable to do so because Canon ignored its purchase orders. Pace further contends that Canon ignored its purchase orders because Pace refused to acquiesce in a vertical minimum price fixing agreement designed and implemented by Canon and defendant Laguna Corporation ("Laguna"), Pace's direct competitor in the New Jersey and New York region.

In this connection, Pace alleges that, prior to the time it entered its dealer agreement with Canon, Laguna had entered into a similar dealer agreement with Canon. Additionally, Pace alleges that the agreement between Canon and Laguna contemplated the maintenance of a minimum resale price below which Laguna would not sell Canon-brand ink-jet printers. In support of its allegation, Pace asserts that after it entered into its dealer agreement with Canon, the president of Canon repeatedly instructed Pace's president not to sell to past or existing customers of Laguna and not to sell Canon brand ink-jet printers at prices less than those at which Laguna was selling its products.

Pace alleges that it has suffered financial losses as a result of its termination as an authorized Canon-brand dealer. Specifically, Pace avers that "[a]s a direct and proximate result of the actions of Defendants . . . Pace has suffered significant financial detriment, consisting of, but not necessarily limited to, lost profits. Pace's losses result directly and proximately from the efforts of Canon and Laguna to limit price competition in the market . . . for which both Laguna and Pace were competing." Appellant's App. at 77. Although these allegations of loss appear somewhat vague and conclusory, we accept them as true, as we must, for the purposes of this appeal.

Pace also alleges that its termination as an authorized dealer of Canon-brand products has harmed competition in two respects. First, it contends that its termination as a dealer has reduced price competition in the wholesale market for Canon-brand ink-jet printers (an intrabrand market) because Laguna no longer faces price competition from Pace in selling these products to smaller retailers. Second, Pace asserts that its termination as a dealer has reduced price competition in the wholesale market for all brands of ink-jet printers (an interbrand market). In this connection, Pace alleges that: (1) Canon-brand ink-jet printers enjoy an inherent competitive price advantage over the ink-jet printers of other manufacturers; (2) until Canon permits its distributors to take advantage of this price advantage, other manufacturers will not attempt to reduce their production costs; and, (3) until an unrestrained free competitive market requires other manufacturers to reduce their production costs, the price of all brands of ink-jet printers will remain at an artificially high level.

II.

To state a claim for damages under section 4 of the Clayton Act, 15 U.S.C. S 15, a plaintiff must allege more than that it has suffered an injury causally linked to a violation of the antitrust laws. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In addition, it must allege antitrust injury, "which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Id. This is so even where, as in the instant case, the alleged acts of the defendants constitute a per se violation of the antitrust laws.²See also Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341 (1990). In applying the antitrust injury requirement, the Supreme Court has inquired whether the injury alleged by the plaintiff "resembles any of the potential dangers" which led the Court to label the defendants' alleged conduct violative of the antitrust laws in the first instance. Id. at 336; see also II AREEDA & HOVENKAMP, ANTITRUST LAW, AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION P 362a. (Revised ed. 1995) [hereinafter AREEDA & HOVENKAMP] ("The [antitrust injury requirement] forces . . . courts to connect the alleged injury to the purposes of the antitrust laws. Compensation for that injury must be consistent with . . . the rationale for condemning the particular defendant.").

For example, in Atlantic Richfield, the plaintiff, an independent retail marketer of gasoline, brought suit against ARCO, an integrated oil company which sold gasoline to consumers through its own stations and indirectly through ARCO-brand dealers, claiming that ARCO violated section 1 of the Sherman Act by conspiring with its dealers to fix the maximum resale price of gasoline at an artificially low level. Id. at 331. Although the plaintiff conceded that the fixed prices were not predatory, it nevertheless maintained that it suffered antitrust injury, in the form of lost profits, as a result of the vertical maximum price fixing agreement between ARCO and its dealers. See id. at 334-35. The Supreme Court disagreed, noting that the plaintiff's alleged injury did not resemble any of the dangers which caused the Court to label vertical maximum price fixing per se illegal in Albrecht v. Herald Co., 390 U.S. 145 (1968).³ See id. at 336.

In this connection, the Court identified four potential adverse effects of vertical maximum price fixing agreements which led it to label those agreements per se illegal in the Albrecht decision. First, it noted that a vertical maximum price fixing agreement might intrude on the ability of dealers to compete and survive " `by substituting the perhaps erroneous judgment of a [supplier] for the forces of the competitive market.' " Id. at 335 (quoting Albrecht, 390 U.S. at 152). Additionally, the Court observed that " `[m]aximum prices may be fixed too low for the dealer to furnish services essential to the value which goods have for the consumer or to furnish services and conveniences which consumers desire and for which they are willing to pay.' " Id. at 335-36. Next, the Court explained that "[b]y limiting the ability of small dealers to engage in nonprice competition, a maximum-price-fixing agreement might `channel distribution through a few large or specifically advantaged dealers.' " Id. at 336. Finally, the Court noted that " `if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, which is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acquire all the attributes of an arrangement fixing minimum prices.' " Id.

Having identified the potential dangers which led it to condemn categorically vertical maximum price fixing agreements, the Supreme Court had little difficulty determining that the plaintiff in Atlantic Richfield had not suffered an antitrust injury. The Court noted that the dangers identified in the Albrecht decision focused on the potential adverse effects of vertical maximum price fixing agreements on dealers and consumers, not competitors of dealers subject to such agreements....