SCM Corp. v. Xerox Corp., Civ. No. 15807.

• Decision Date: 29 December 1978
• Docket Number: Civ. No. 15807.
• Court: U.S. District Court — District of Connecticut
• Parties: SCM CORPORATION v. XEROX CORPORATION.

463 F. Supp. 983

SCM CORPORATION v. XEROX CORPORATION.

Civ. No. 15807.

United States District Court, D. Connecticut.

December 29, 1978.

COPYRIGHT MATERIAL OMITTED

Stephen Rackow Kaye, Ronald S. Rauchberg, Proskauer, Rose, Goetz & Mendelsohn, New York City, Jerome Gotkin, Widett, Widett, Slater & Goldman, P.C., Boston, Mass., Ira B. Grudberg, David Belt, Jacobs, Jacobs & Grudberg, New Haven, Conn., Bernard J. Nussbaum, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., Edwin Silverstone, SCM Corp., New York City, for plaintiff.

Stanley D. Robinson, Allen Kezsbom, Gerald Sobel, Fredric W. Yerman, Kaye, Scholer, Fierman, Hays & Handler, New York City, Cummings & Lockwood, Harvey M. Brownrout, Xerox Corp., Stamford, Conn., for defendant.

MEMORANDUM OF DECISION

NEWMAN, District Judge.

This case presents important issues concerning the relationship between the patent laws and the antitrust laws. The issues arise in the procedural context of a private treble damage action brought pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, and tried to a jury. The factual context is the manufacturing and marketing of office photocopy machines—machines capable of automatically creating copies of an original document.

Plaintiff is SCM Corporation,¹ a conglomerate with annual revenues in excess of $1 billion. During the 1960's SCM was among the world's leading producers of coated paper copiers—machines capable of automatically creating copies of an original document on specially treated paper coated with zinc oxide. In the mid 1970's SCM marketed a plain paper copier, the 6740, which it purchased from the Van Dyk Corporation, and currently markets two models of a plain paper copier manufactured by a Japanese company.

Defendant is Xerox Corporation,² a business machines company with annual revenues in excess of $4 billion. In 1960 Xerox brought to market the world's first automatic plain paper copier, the Xerox 914. For the next ten years Xerox and its family of companies were the world's only producers of plain paper copiers. While a competitive plain paper copier was introduced by IBM in 1970 and by numerous manufacturers thereafter, Xerox continues today to be the world leader in plain paper copiers.

The complaint, filed July 31, 1973, alleged that Xerox, acting unilaterally and in concert with other companies, excluded SCM from the field of plain paper copying, causing damages claimed at trial to exceed $500 million. The complaint alleged violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and § 7 of the Clayton Act, 15 U.S.C. § 18. An amended complaint added allegations of injury to SCM's copier business by Xerox marketing practices in violation of § 2 of the Sherman Act and § 3 of the Clayton Act, 15 U.S.C. § 14. In addition to trebled damages, far-reaching equitable relief was sought.³ A preliminary injunction was sought and denied. Pre-trial Ruling No. 6, aff'd, SCM Corp. v. Xerox Corp., 507 F.2d 358 (2d Cir. 1974).

After extensive pre-trial preparations, see SCM Corp. v. Xerox Corp., 77 F.R.D. 10 (D.Conn.1977), jury trial⁴ began on June 20, 1977. Fourteen months later, on August 16, 1978, the jury was discharged after returning the last of 54 verdicts. Evidence was presented during 215 days, summations consumed 4½ days, and the jury deliberated for 38 days. The trial transcript totals 46,802 pages.

I. Basic Claims and Verdicts

SCM Damage Claims.

SCM presented damage claims in five broad categories: excluding SCM from plain paper copying beginning in 1964; excluding SCM from plain paper copying beginning in 1969; denying SCM the opportunity to market in the United States the Fuji-Xerox 2200 copier manufactured in Japan; impairing SCM's marketing of coated paper copiers by use of two pricing plans known as MUP and XCP; and impairing SCM's marketing of 6740 plain paper copiers by various practices.

The 1964 and 1969 exclusion claims were the heart of SCM's case. SCM alleged, alternatively, that beginning in 1964 or 1969 and continuing until the present, Xerox monopolized the plain paper copier industry and excluded SCM from entering the field. SCM sought the damages it would have avoided if Xerox had not refused SCM's requests in 1964 and 1969 for plain paper copier patent licenses. The 1964 and 1969 exclusion claims each contained three elements of damages: (a) the financial benefits SCM would have achieved, which included net profits through 1976 and net going concern value as of the end of 1976; (b) the actual losses SCM incurred in the placement of coated paper copiers; and (c) the actual losses SCM incurred in the placement of the 6740 plain paper copiers. It was SCM's theory that had it not been excluded from entering into plain paper copying in 1964 and 1969, it would not only have made money, but would have avoided the losses it suffered in its coated paper copier business and in the placement of 6740's.

The presentation of both a 1964 and a 1969 exclusion claim stemmed from a dispute concerning application of the statute of limitations. SCM initially sought patent licenses from Xerox in 1964⁵ and annually thereafter at least through 1969. The complaint was filed July 31, 1973. Normally the applicable four-year statute of limitations would apply to bar any cause of action accruing prior to July 31, 1969. 15 U.S.C. § 15b. However, SCM alleged, and Xerox did not dispute, that the limitations period was extended back to January 16, 1969, because (1) on that date the Federal Trade Commission filed a complaint against Xerox alleging monopolization of the plain paper copying field, and (2) the institution of proceedings by the United States suspends the running of the statute of limitations "in respect of every private right of action . . based in whole or in part on any matter complained of in said proceeding . . . ." 15 U.S.C. § 16(b). Actions initiated by the FTC toll the four-year limitations period. Minnesota Mining & Manufacturing Co. v. New Jersey, 381 U.S. 311, 85 S.Ct. 1473, 14 L.Ed.2d 405 (1965). Xerox also raised no issue concerning the first two weeks of January, 1969; so the parties were in agreement that SCM's 1973 complaint was timely as to causes of action accruing on or after January 1, 1969.⁶ The 1969 exclusion claim therefore sought damages SCM alleged it had suffered by being denied patent licenses on or about January 1, 1969.

As an alternative to the 1969 exclusion claim, SCM presented a 1964 exclusion claim for damages allegedly suffered by being denied patent licenses on or about January 1, 1964. SCM contended that the four-year limitations period, as extended back to January 16, 1969, by the FTC complaint, did not bar this claim because, under the principles of Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 1247, 28 L.Ed.2d 552 (1971), the damages flowing from the 1964 license denial were not ascertainable until after January 16, 1969, and the cause of action based on the 1964 license denial had therefore not accrued until after January 16, 1969.⁷

With respect to both the 1964 and 1969 exclusion claims, SCM estimated its lost profits by presenting elaborate economic models as to what would have happened if it had secured from Xerox plain paper copier licenses on or about January 1 of 1964 and 1969.⁸ SCM estimated the types of machines it would have manufactured, the revenues it would have realized, and the costs it would have incurred. Since the 1964 exclusion claim estimated placements and profits over a longer period of time than the period estimated for the 1969 claim, the 1964 damage claim was considerably higher. SCM sought $507 million for the 1964 exclusion claim and $100 million for the 1969 exclusion claim. SCM also sought $12 million for the Fuji-Xerox 2200 claim, $15 million for the MUP and XCP marketing claims, and $4 million for the 6740 marketing claim. SCM also sought trebling of all sums recovered.

Structure of the Trial.

The presentation of evidence was divided into three stages. The first stage, which consumed the bulk of the trial, concerned all issues of antitrust violation and the lost profits component of the 1964 and 1969 exclusion damage claims.⁹ The second stage, consuming three days of evidence, concerned the actual loss components (for both coated and plain paper) of the 1969 exclusion damage claim,¹⁰ plus the damage claims based on marketing practices.¹¹ The third stage, requiring only one day of evidence, concerned the net going concern value component of the 1969 exclusion damage claim.¹²

The Court elected to submit to the jury a large number of interrogatories. This was done, over the plaintiff's objection, for two reasons. First, the sheer volume and complexity of the evidence necessitated focusing the jury's attention on specific issues to be sure that orderly decision-making occurred. Second, the use of numerous interrogatories seemed to offer some prospect of minimizing the risk of retrial. That objective assumed special importance in this case because of the extraordinary length of the trial and the presence of numerous novel or at least unsettled issues of law.¹³ Maximizing jury decision-making remained a principal objective of the Court throughout the trial in order to provide opportunity for particularized appellate review. The interrogatories answered by the jury are set forth in full in Appendix A. Since the 1964 and 1969 exclusion claims raised numerous pairs of identical issues, differing only as to years, many of the questions concerning the 1964 claim were repeated for the 1969 claim, and given the same number but with the addition of an "a."

As with the evidence, the jury's decision-making was divided into stages, but, for reasons detailed in the margin,¹⁴ the division of jury decision-making differed slightly from the division of evidence. Initially 76 questions were submitted to the jury at the conclusion of the first stage of evidence. The jury was instructed first to answer the...