Sheet Metal Duct, Inc. v. Lindab, Inc., Civil Action No. 99-6299 (E.D. Pa. 7/18/2000)
| Decision Date | 18 July 2000 |
| Docket Number | Civil Action No. 99-6299. |
| Parties | SHEET METAL DUCT, INC., v. LINDAB, INC. and MIDSTATES SPIRAL. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Plaintiff Sheet Metal Duct, Inc. has sued defendants Lindab, Inc. and Midstates Spiral for alleged antitrust violations stemming from their practices regarding the sale and distribution of Lindab's patented "SpiroSafe" ductwork. Lindab and Midstates have moved to dismiss the Amended Complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6).
Sheet Metal manufactures and supplies sheet metal duct and related products, and Lindab manufactures and distributes ductwork products. Midstates manufactures and distributes ductwork products, including those Lindab makes.
Lindab manufactures round ductwork products called "SpiroSafe" which include a patented gasket on the end of each fitting. SpiroSafe ductwork is called for in the specifications that many engineers and architects develop for commercial projects in the Delaware Valley upon which Sheet Metal bids.
Lindab sells SpiroSafe products exclusively to Midstates and refuses to sell to other firms, including Sheet Metal. Therefore, "end users" of SpiroSafe such as Sheet Metal must purchase it from Midstates. Midstates is not only a wholesaler and retailer of ductwork products, but also2 bids on the same projects as Sheet Metal.
As a result of this exclusive distributorship arrangement between Lindab and Midstates, Sheet Metal and others similarly situated3 are said to be forced to pay prices for SpiroSafe that are "far in excess of those they would have paid had they been able to purchase [SpiroSafe] directly" from Lindab, Amend. Compl. ¶ 13. Because Sheet Metal and others are required to buy their SpiroSafe from Midstates, a firm with whom they are in competition in bidding for projects, Midstates has an advantage in such bidding contests, and therefore Sheet Metal and others are "precluded" from bidding on certain jobs, Amend. Compl. ¶ 13. Moreover, Lindab and Midstates are also said to have also refused to fill Sheet Metal's orders at the times and quantities requested.
Sheet Metal claims that Lindab and Midstates possess monopoly power over the sale of SpiroSafe in the Delaware Valley, a monopoly they achieved by refusing to sell SpiroSafe directly to other end users, and that they have unlawfully exploited this monopoly. Further, because SpiroSafe is specifically required in various projects, Sheet Metal claims that SpiroSafe itself constitutes the relevant product market, as there are no products that are interchangeable for it.
Specifically, Count I of the Amended Complaint (against Lindab alone) alleges that Lindab's conduct constitutes monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Count II of the Amended Complaint (against both Lindab and Midstates) alleges that the exclusive distributorship agreement was intentionally done as part of a conspiracy to fix, control, raise, and stabilize arbitrarily, unlawfully, unreasonably, and knowingly the price for SpiroSafe and to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Count III of the Amended Complaint (against both Lindab and Midstates) alleges that the exclusive distributorship agreement was intentionally undertaken to monopolize or attempt to monopolize the marketing and distribution of SpiroSafe in the Delaware Valley, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Count IV of the Amended Complaint (against both Lindab and Midstates) alleges that the defendants' actions directly discriminate in favor of Midstates in violation of 15 U.S.C. § 13(e).
After the Complaint was filed, both Lindab and Midstates filed motions to dismiss. In lieu of a response to these motions, Sheet Metal filed its Amended Complaint, which included added allegations evidently intended to meet arguments that the defendants had made in their motions. Subsequently, Lindab and Midstates filed the instant motions, to which Sheet Metal has responded.
When considering a motion to dismiss a complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6), we must Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990), see also H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50 (1989).
When addressing antitrust claims, the standard for dismissal is somewhat higher, since "[s]ummary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot," Poller v. Columbia Broad. Sys., 368 U.S. 464, 473, 82 S.Ct. 486, 491 (1962), see also Mitel Corp. v. A & A Connections, Inc., No. 97-4205, 1998 WL 136529 at *2 (E.D.Pa. Mar. 20, 1998), Rolite, Inc. v. Wheelabrator Envtl. Sys., Inc., 958 F. Supp. 992, 995 (E.D.Pa. 1997). On the other hand, in an antitrust context the plaintiff must still allege facts sufficient to overcome a motion under Rule 12(b)(6), see Commonwealth of Pa. v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir. 1988), and we need not accept as true "unsupported conclusions and unwarranted inferences," Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light, 113 F.3d 405, 417 (3d Cir. 1997).
As an initial matter, we must take note of the crucial fact that SpiroSafe, which is the sole product and market with respect to which antitrust claims are made here, is patented, see Amend. Compl. ¶ 6.4 Significantly, the Amended Complaint contains no allegations that the patent is invalid or that it was acquired improperly and, instead, Sheet Metal here challenges Lindab's and Midstates's behavior with respect to that valid patent.
The presence of a patent informs our entire analysis here, because patent laws and antitrust laws exist in tension, as the patent laws protect monopoly power while antitrust laws seek to restrain it, see, e.g., E. Bement & Sons v. National Harrow Co., 186 U.S. 70, 91, 22 S.Ct. 747, 755 (1902), Discovision Assocs. v. Disc. Mfg., Inc., Nos. 95-21-SLR, 95-345-SLR, 1997 WL 309499 at *7 (D.Del. Apr. 3, 1997). Thus, any allegation of antitrust resulting from a patent must extend beyond the rights granted in the patent, see, e.g., Discovision, 1997 WL 309499 at *7, and conduct permissible under the patent laws cannot trigger antitrust liability, see SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1206 (2d Cir. 1981).
On the other hand, a patent holder may be liable under antitrust laws if it seeks to expand the monopoly the patent grants, see, e.g., Discovision, 1997 WL 309499 at *8 (citing United States v. Westinghouse Elec. Corp., 648 F.2d 642, 647 (9th Cir. 1981)). Similarly, a patent cannot be used to restrain competition with a patentee's sale of an unpatented product, see Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 493, 62 S.Ct. 402, 404 (1942), patent owners cannot use court action to recover emoluments resulting from misuse of the patent, see United States Gypsum Co. v. National Gypsum Co., 352 U.S. 457, 465, 77 S.Ct. 490, 494 (1957), and a patentee using the patent in violation of the antitrust laws cannot maintain an action against alleged infringers, see Hartford-Empire Co. v. United States, 323 U.S. 386, 415, 65 S.Ct. 373, 388 (1945)5.
With this general background, we now examine the motions to dismiss.
We begin with defendants' argument that Sheet Metal has failed to plead a relevant product market upon which antitrust claims can be predicated. The allegation of a relevant market is necessary for claims under Sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1 & 2, see Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 437 (3d Cir. 1997) (), id. at 442 (), as well as under the Robinson-Patman Act, see, e.g., J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531-32 (3d Cir. 1990), McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1493 (11th Cir. 1988). Thus, we consider the pleading of the relevant product market as a threshold issue, since if Sheet Metal has failed to plead a relevant product market, then all its claims in Counts I through IV fail.
Plaintiffs have the burden of establishing the relevant market, and although the determination of such a market is fact-intensive, failure to plead a relevant market may still be the basis of a dismissal under Rule 12(b)(6). See, e.g., Queen City Pizza, 124 F.3d at 436. "The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1523-24 (1962). As the Queen City Pizza panel noted,
Where the plaintiff fails to define its proposed relevant market with reference to the rule of reasonable interchangeability and cross-elasticity of demand, or alleges a proposed relevant market that clearly does not encompass all interchangeable substitute products even when all factual inferences are granted in plaintiff's favor, the relevant market is legally insufficient and a motion to dismiss may be granted.
Queen City Pizza, 124 F.3d at 436.6
Here, Sheet Metal's claims regarding the alleged...
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