Systemcare, Inc. v. Wang Laboratories Corp.

• Citation: 117 F.3d 1137
• Decision Date: 24 June 1997
• Docket Number: No. 95-1032,95-1032
• Parties: 1997-1 Trade Cases P 71,843, 97 CJ C.A.R. 1048 SYSTEMCARE, INC., Plaintiff-Counter-Defendant-Appellant, v. WANG LABORATORIES CORPORATION, Defendant-Counter-Claimant-Appellee, v. Michael WRIGHT, Counter-Defendant, United States of America, Amicus Curiae.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1137

117 F.3d 1137

1997-1 Trade Cases P 71,843, 97 CJ C.A.R. 1048

SYSTEMCARE, INC., Plaintiff-Counter-Defendant-Appellant, v. WANG LABORATORIES CORPORATION, Defendant-Counter-Claimant-Appellee, v. Michael WRIGHT, Counter-Defendant, United States of America, Amicus Curiae.

No. 95-1032.

United States Court of Appeals, Tenth Circuit.

June 24, 1997.

Ronald Katz, Coudert Brothers, San Francisco, CA (Janet Arnold Hart and Paul S. Schmidtberger with him on the briefs), for Plaintiff-Counter-Defendant-Appellant.

Jerrold J. Ganzfried, Howrey & Simon, Washington, DC (Thomas E. Gilbertsen and Timothy K. Armstrong, Howrey & Simon, Washington, DC, Michael J. Cook, Faegre & Benson, Denver, CO, and Florinda J. Iascone, Wang Laboratories, Inc., Billerica, MA, with him on the brief), for Defendant-Counter-Claimant-Appelee.

David Seidman, Attorney, U.S. Department of Justice, Washington, DC (Anne K. Bingaman, Assistant Attorney General, Joel I. Klein, Deputy Assistant Attorney General, and Catherine G. O'Sullivan, Attorney, with him on the brief), for Amicus Curiae.

Before SEYMOUR, Chief Judge, HOLLOWAY, PORFILIO, ANDERSON, TACHA, BALDOCK, BRORBY, EBEL, KELLY, HENRY, BRISCOE, and MURPHY, Circuit Judges.

ON REHEARING EN BANC

TACHA, Circuit Judge.

On May 29, 1996, a panel of this court held that a tying arrangement between a buyer and a seller does not satisfy the concerted action requirement of section 1 of the Sherman Act, 15 U.S.C. § 1. Systemcare, Inc. v. Wang Labs. Corp., 85 F.3d 465 (10th Cir.1996). The panel held that to bring a claim under section 1, a plaintiff must establish a conspiracy between a seller and a third party to force a tying arrangement on a buyer. The panel therefore affirmed the entry of summary judgment against plaintiff Systemcare, Inc. ("Systemcare") and in favor of defendant Wang Laboratories, Inc. ("Wang").

On September 6, 1996, we granted Systemcare's request for rehearing en banc to consider "whether a contract between a buyer and seller satisfies the concerted action element of section 1 of the Sherman Act, 15 U.S.C. § 1, or whether satisfaction of that element requires evidence of a contract, combination, or conspiracy involving a third party to force agreement on a buyer." Today we hold that a contract between a buyer and seller satisfies the concerted action element of section 1 of the Sherman Act where the seller coerces a buyer's acquiescence in a tying arrangement. Accordingly, we overrule City of Chanute v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir.1992), and McKenzie v. Mercy Hospital, 854 F.2d 365 (10th Cir.1988), to the extent that these cases are inconsistent with today's holding.

BACKGROUND

When this case commenced in 1989, Wang manufactured "VS" minicomputers and created copyrighted software for use with them. By 1992, Wang became a service-oriented company, offering both hardware and software support services for its computers. Hardware support services involve maintenance and repair of computer equipment. Software support services include software maintenance, upgrades, and technical assistance. Because Wang's software support services may require copying Wang's proprietary software, Wang alone provides those services to Wang computer customers.

Systemcare, an independent service organization, services computer equipment that it does not manufacture. Systemcare services Wang computer hardware in Colorado and Beginning in 1985, Wang offered its minicomputer users a package of hardware and software support services called Wang Software Services ("WSS"). For the purposes of this opinion, we expressly assume, but do not decide, that under the WSS contract, a customer must subscribe to Wang's hardware support program in order to obtain Wang's software support services.

competes with Wang in providing hardware support services.

In 1989, Systemcare brought this action under section 1 of the Sherman Act, 15 U.S.C. § 1, alleging that Wang illegally tied the sale of its software support services (the tying service) to the purchase of its hardware support services (the tied service) through the WSS contracts. In late 1991, Wang moved for summary judgment. Wang argued that (1) it did not condition the purchase of software support on the purchase of hardware maintenance, and (2) it lacked sufficient market power to appreciably restrain competition in the market for the allegedly tied product.

On February 5, 1992, the district court requested supplemental briefing on the effect of City of Chanute v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir.1992), on Systemcare's section 1 claim. After considering the supplemental briefing, the district court granted summary judgment in favor of Wang because Systemcare failed to "establish a conspiracy between at least two parties" to impose a tying arrangement on Wang's customers as required by Chanute. Systemcare, Inc. v. Wang Labs., Inc., 787 F.Supp. 179, 181-82 (D.Colo.1992). Relying on Chanute, a panel of this court affirmed the judgment of the district court. Systemcare, Inc., 85 F.3d at 471. We granted Systemcare's motion for a rehearing en banc to consider whether as a matter of law a contract between a buyer and seller satisfies the concerted action requirement of section 1 of the Sherman Act.

DISCUSSION

A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). "[W]here the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price." Northern Pac. Ry Co., 356 U.S. at 6 n. 4, 78 S.Ct. at 518 n. 4.

Section 1 of the Sherman Act prohibits "every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce." 15 U.S.C. § 1. A plaintiff who alleges a violation of section 1 must establish: (1) concerted action in the form of a contract, combination, or conspiracy, and (2) an unreasonable restraint of trade.

The Supreme Court has long held that some tying arrangements constitute unreasonable restraints of trade, and therefore violate section 1 of the Sherman Act. See International Salt Co. v. United States, 332 U.S. 392, 396, 68 S.Ct. 12, 15, 92 L.Ed. 20 (1947) (tying violates section 1 of the Sherman Act and section 3 of the Clayton Act); Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 608-09, 73 S.Ct. 872, 97 L.Ed. 1277 (1953) (tying violates section 1 of the Sherman Act); Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 4-5, 78 S.Ct. 514, 517-18, 2 L.Ed.2d 545 (1958) (tying violates section 1 of the Sherman Act). A tying arrangement constitutes an unreasonable restraint of trade if "the seller has 'appreciable economic power' in the tying product market and if the arrangement affects a substantial volume of commerce in the tied market." Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 462, 112 S.Ct. 2072, 2079, 119 L.Ed.2d 265 (1992) (quoting Fortner Enters., Inc. v. United States Steel Corp., 394 U.S. 495, 503, 89 S.Ct. 1252, 1259, 22 L.Ed.2d 495 (1969)). Although a tying arrangement may constitute an unreasonable restraint of trade, the Sherman Act also requires proof of concerted action. The issue before the court today concerns the concerted action requirement of section 1.

Section 1 of the Sherman Act requires proof of concerted action in the form of a contract, combination, or conspiracy in restraint of trade. 15 U.S.C. § 1. Section 1 does not proscribe purely unilateral activity by a single entity. See United States v. Colgate, 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919). Wang argues that tying arrangements that consist solely of a single seller imposing a tie on a buyer constitute unilateral activity, which falls outside the scope of section 1. On the other hand, Systemcare asserts that a tying agreement between a buyer and a seller satisfies the contract, combination, or conspiracy requirement of section 1. Consistent with Systemcare's position, the United States as amicus curiae urges us to conclude that the literal language of section 1 includes buyer-seller contracts in restraint of trade. Because the parties rely upon different lines of Tenth Circuit authority to justify their positions, we begin our resolution of this issue by reviewing the relevant Tenth Circuit case law.

A. Tenth Circuit Precedent

We first addressed concerted action in the tying context in Black Gold, Ltd. v. Rockwool Industries, Inc., 729 F.2d 676 (10th Cir.1984) [hereinafter Black Gold I ]. In that case, a home insulation installer brought suit against an insulation manufacturer under section 1. Id. at 679. The installer contended that the manufacturer refused to sell it blown wool (the tying product) unless the installer also bought rolls of insulation known as batts (the tied product). Id. The district court directed a verdict in favor of the manufacturer because there was no evidence of a contract, combination, or conspiracy in restraint of trade. Id. at 685.

Two resale price maintenance cases framed our discussion of the concerted action requirement in Black Gold I. Id. at 685-86 (citing Colgate, 250 U.S. at 307, 39 S.Ct. at 468, and United States v. Parke, Davis & Co., 362 U.S. 29, 43, 80 S.Ct. 503, 511, 4 L.Ed.2d 505 (1960)). In these cases, the Supreme Court concluded that although a unilateral refusal to deal without more does not satisfy the concerted action requirement, Colgate, 250 U.S. at 307, 39 S.Ct. at 468, the requirement is satisfied "if the producer secures adherence to his suggested prices by means which go beyond his mere declination to sell to a customer who will not observe his announced policy." Parke, Davis & Co., 362 U.S. at 43, 80 S.Ct. at 511. Applying...