SCM Corporation v. Xerox Corporation

• Decision Date: 19 May 1975
• Docket Number: Civ. No. 15807.
• Citation: SCM Corporation v. Xerox Corporation, 394 F.Supp. 384 (D. Conn. 1975)
• Court: U.S. District Court — District of Connecticut
• Parties: SCM CORPORATION v. XEROX CORPORATION.

394 F. Supp. 384

SCM CORPORATION v.XEROX CORPORATION.

Civ. No. 15807.

United States District Court, D. Connecticut.

May 19, 1975.

Stephen Rackow Kaye, New York City, for plaintiff.

Stanley Robinson, New York City, for defendant.

PRE-TRIAL ORDERNO. 9

NEWMAN, District Judge

In this complex antitrust action involving claims of anticompetitive practices concerning plain paper copiers, the parties have joined issue on the almost metaphysical question of whether a Xerox customer, who leases a copying machine and pays charges based upon the number of copies the machine makes, is leasing the machine or purchasing the copies.The issue arises in the context of a motion by SCM to amend its complaint in several respects, including an allegation that Xerox has engaged in price discrimination in violation of § 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a).Xerox opposes the motion only to the extent that Robinson-Patman violations are sought to be added.Xerox contends that its customers are not "purchasers of commodities" within the meaning of the Act.

While courts have divided over the appropriateness of considering legal sufficiency in deciding whether to permit amendment of a complaint, see cases collectedat 3 Moore's Federal Practice ¶ 15.08(4) n. 14, the practice has been approved in this Circuit, Friedman v. Chesapeake and Ohio Ry. Co., 395 F.2d 663(2d Cir.1968), affirming261 F. Supp. 728(S.D.N.Y.1966), and seems especially appropriate in complex cases, seePhiladelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 309 F.Supp. 1057, 1063-64(E.D. Pa.1969).Less clear is whether the sufficiency of SCM's Robinson-Patman allegations can be tested on the proposed pleading, or whether the sale or lease determination can be made only after trial, or perhaps on a motion for summary judgment after the factual record has been further developed.That choice requires some examination of the parties' contentions.

Xerox's argument proceeds from the undisputed premise that the Robinson-Patman Act does not apply to leases.See, e. g., Gaylord Shops, Inc. v. Pittsburgh Miracle Mile Town & Country Shopping Center, Inc., 219 F.Supp. 400, 403(W.D. Pa.1963);Rowe, Price Discrimination Under the Robinson-Patman Act 45, 51 (1962).Xerox asserts, and SCM does not dispute, that the plain paper copier machine supplied by Xerox to its customers is not sold to them; rather the customer acquires the right to use the machine for a charge based upon the number of copies he makes.Xerox contends it is leasing the machine.

SCM contends that the price-per-copy method of charging makes the "economic reality" or "dominant nature" of the transaction a sale of copies rather than a lease of a machine.(SCM brief, p. 5).

To some extent virtually all leases paid for on the basis of usage could be considered a purchase of the benefit acquired by the user.Thus, the person who rents a car and pays by the miles driven could be said to have purchased a quantity of transportation, and the person who rents a television set and pays by the hours it is on could be said to have purchased a quantity of television viewing.SCM does not claim Robinson-Patman coverage of all such cost-per-usage leases, apparently recognizing that examples such as those given do not involve a "commodity" within the meaning of the Act, even if they could be thought to involve a purchase.SeeRowe, op. cit. supra, 59-62.But SCM presses its claim here on the theory that the user of a Xerox machine purchases a copy, something sufficiently tangible to satisfy the commodity requirement.Cf.Columbia Broadcasting System, Inc. v. Amana Refrigeration, Inc., 295 F.2d 375, 378(7th Cir.1961).What does the Xerox customer really acquire from Xerox?He does not purchase the piece of paper on which the copied images appear.This paper he acquires independently of his right to use the machine.What he obtains from Xerox is the process that transforms the plain piece of paper into one bearing images of the item to be copied.Surely that process is not a commodity within the meaning of the Act.Even if the user could be thought of as acquiring the copied images, it is exceedingly doubtful that these images,...