POLYTECHNIC DATA CORPORATION v. Xerox Corporation

• Decision Date: 20 July 1973
• Docket Number: No. 70 C 3027.,70 C 3027.
• Citation: 362 F. Supp. 1
• Parties: POLYTECHNIC DATA CORPORATION, a Delaware corporation, Plaintiff, v. XEROX CORPORATION, a New York corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

362 F. Supp. 1

POLYTECHNIC DATA CORPORATION, a Delaware corporation, Plaintiff, v. XEROX CORPORATION, a New York corporation, Defendant.

No. 70 C 3027.

United States District Court, N. D. Illinois.

July 20, 1973.

Luther C. McKinney, David Aufderstrasse, Alan I. Greene of Chadwell, Kayser, Ruggles, McGee, Hastings & McKinney, Chicago, Ill., for plaintiff.

Max Wildman, Thomas D. Allen, Jerald P. Esrick, John J. Arado of Wildman, Harrold, Allen & Dixon, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

BAUER, District Judge.

This cause comes on defendant's motion for Summary Judgment.

This suit is basically an Anti-Trust action brought under Sections 4, 12, and 16 of the Clayton Act, 15 U.S.C. §§ 15, 22, and 26 in order to prevent and restrain the violation by the defendant of Section 1 of the Sherman Act, 15 U.S.C. § 1 and to compensate the plaintiff for damages arising out of such violations. The plaintiff also brings this suit as a diversity action against the defendant for the willful violation of common law principles of unfair competition and tortious interference with plaintiff's advantageous business relationships.

The plaintiff, Polytechnic Data Corporation ("Polytechnic") is a Delaware corporation with its principal place of business located in Chicago, Illinois. The plaintiff is engaged principally in the business of manufacturing and selling and/or leasing, throughout the United States and elsewhere, the "Copy Controller-Key", a device which controls and measures work being performed on all types of copying machines.¹

The defendant, Xerox Corporation ("Xerox"), is a New York corporation transacting business in Illinois. It is alleged to be the dominant manufacturer and marketer of copying machines in the world.

The plaintiff in the Complaint has alleged, inter alia, the following facts:

1. Plaintiff's Copy Controller-Key is of no value to the user unless and until it is installed on a copying machine. Installation consists of attaching several wires from the master unit controller key to the internal wiring of the copying machine by means of clip-on type devices. The installation of a Copy Controller-Key on a copying machine has no harmful effect upon the machine or upon the quality of the copies that the machine delivers.

2. Plaintiff believes that Xerox has an arrangement to purchase for resale a metering device known as "Auditron", which controls and measures the work performed by Xerox's copying machines. Plaintiff also believes that Xerox consciously refrains from actively selling, leasing or otherwise marketing its metering device because the use of any such metering device upon its machines allows the user to exercise control over the number of copies being made on the copy machine and to prevent the making of unauthorized and unnecessary copies on the machine.

3. Xerox has engaged in a nationwide combination with lessees of its machines to restrict the sale or lease of plaintiff's Copy Controller-Key device. This course of action has been initiated and carried out by Xerox, and many of the lessees of Xerox's machines have acquiesced in this course of conduct.

4. About October 1969, Xerox implemented an unlawful and malicious policy and course of conduct designed to prevent, and which has had the effect of preventing the plaintiff from marketing its Copy Controller-Key device to lessees of Xerox machines. This course of conduct was carried out in combination with lessees of Xerox's machines and includes, but is in no way limited to, the following:

a. If a lessee of a Xerox copy machine requested permission to have the plaintiff's Copy Controller-Keys installed on its copying machine, permission was denied despite the fact that the installation expense would be borne by the lessee of the copying machine, and the installation itself would be performed by either plaintiff's salesmen or the lessee.

b. If a lessee purchased or leased and installed a Copy Controller-Key, Xerox informed the lessee that Xerox did not allow the installation of the Copy Controller-Key on any Xerox copy machine and ordered the lessee to remove the device from any or all of its Xerox copy machines.

c. In other instances, the Xerox service personnel unlawfully, and without the authorization of the lessee, disconnected the Copy Controller-Key and refused to reconnect it after the service call was completed.

d. In other instances, the Xerox service personnel refused to service the copying machine further until the Copy Controller-Key was removed by the lessee.

e. In still other instances, Xerox threatened to remove its machine from the premises of the lessee if the lessee did not remove the Copy Controller-Key.

5. Xerox has attempted to justify its unlawful course of conduct by representing to lessees of its machines that it cannot permit installation of plaintiff's Copy Controller-Key upon its machines because plaintiff's device has not been approved for use by Underwriter's Laboratories, Inc. ("U.L." as an accessory to Xerox's machines. This representation has been made despite the fact that plaintiff's device itself has been approved by U.L. Xerox has further represented to lessees of its machines that if plaintiff were to secure U.L. approval of the device as an accessory to its machines, Xerox would have no further objection, provided that it could be shown that installation of plaintiff's device would in no way damage the Xerox machine. Xerox has made these representations despite knowledge that plaintiff has requested Xerox to permit U.L. to test plaintiff's device upon Xerox's machines, that Xerox has refused to grant such permission and that U.L. will not conduct such tests without the permission of Xerox.

6. This combination carried out by Xerox and lessees of its machines has restrained and will continue to restrain the marketing of plaintiff's products and constitutes a combination in restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. This unlawful course of conduct carried out by Xerox individually and in combination with its lessees is a willful violation of common law principles of unfair competition and tortious interference with plaintiff's advantageous business relationship.

Xerox in support of its motion for Summary Judgment contends that there is no genuine issue of material fact and as a matter of law the plaintiff's Complaint is without merit. The defendant Xerox bases its position on the fact that Polytechnic's device has been tested and listed by U.L. for use in combination with all Xerox model copying machines pursuant to a method of attachment devised by Xerox,² and Xerox has indicated that Polytechnic is free to make installations by means of this method of attachment. The defendant thus conceives the only issue in the instant action to be a legal question of whether Xerox has violated the law by unilaterally implementing reasonable conditions to protect its property and the users thereof.

The plaintiff in opposition to the instant motion contends that there exists a genuine issue of material fact which precludes summary judgment because: (1) Xerox adopted a "new" policy with respect to attachments; (2) its "old" policy was unreasonable; (3) the charge for Xerox interface equipment (a universal surface plug system for devices such as the plaintiffs) inhibits Polytechnic's ability to market its device in competition with the Auditron; and (4) Xerox's refusal to permit others to install interfact equipment of their own manufacture by their own employees is a tie-in arrangement.

It is important to the proper disposition of the instant motion to consider the following facts disclosed by pre-trial discovery and hearings:

1. The salient events in this case began in January of 1969, when Nicholas Flevaris, who was to become President of Polytechnic upon its formation in February of 1969, first put together his own key device, although he did not have a prototype of said device until March or April, 1969 (Flevaris PI 65).³ During most of 1969, Polytechnic offered the device for sale through direct mail to copying machine users, including Xerox lessees (Flevaris PI 66-68) and by advertisement in an office management trade journal offering a 30-day free trial coupon (Linne Dep. 709-711; Linne Dep. Ex. 16). Polytechnic encouraged purchasers to install the device themselves on the copying machines.⁴ Although the device was being installed during the fall of 1969 on Xerox copying machines known by Polytechnic to be owned by Xerox, no effort was made to notify Xerox or to furnish it with a wiring diagram (Flevaris PI 70).

2. In the Xerox Service Agreement, the Xerox lessee promises to "make no alteration in equipment". In part, this provision relates to the requirement of U.L. that the failure of a manufacturer to secure U.L.'s approval for changes in a listed product "shall result in discontinuance of listing of the product". (PIDX 78). In November 1967 before either Polytechnic or its devices were in existence and three years prior to this lawsuit, Xerox announced a uniform policy defining the three conditions under which it would permit the attachment of third party accessories to copying machines owned and leased by it (Finein PI 246-247; Trompter PI 253; PIPX 28-29). First, Xerox designated a standard which it had previously set for itself, namely that the accessory be tested by U.L. in combination with the copying machine and be recognized as safe. Second, Xerox required that the third party attachment not damage the copying machine. Third, Xerox required that the third party attachment not interfere with the normal operation and servicing of the copying machine. The Court will note in passing that Polytechnic has failed to make any allegation that it has complied with these seemingly legitimate conditions.

3. At the time of filing the instant lawsuit, Polytechnic only had a general listing from U.L. solely for the Copy Controller-Key device and not

...