Telecom Technical Services Inc. v. Rolm Co.

Decision Date21 October 2004
Docket NumberNo. 02-14131.,02-14131.
Citation388 F.3d 820
PartiesTELECOM TECHNICAL SERVICES INC., a Texas Corporation, Plaintiff-Counter Defendant, Realcomm Office Communication, Inc., a Georgia Corporation, Nova USA Telecommunications Co., a Virginia Corporation, American Telecom Corp., DD Hawkins Communications, Inc., a Texas Corporation Headquartered in Denison, Texas, Sharecom Division of Start Technologies Corporation, a Division of the Delaware Corporation, CMS Communications, Inc., a Missouri Corporation Headquartered in St. Louis, Missouri with Offices in Houston and Dallas, Texas, Olde York Valley Inn, a Pennsylvania Proprietorship Headquartered in York, Pennsylvania, Plaintiffs-Counter Defendants-Appellants, v. ROLM COMPANY, Defendant-Counter Claimant, Siemens Rolm Communications, Inc., Defendant-Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

J. Daniel Leftwich, Robert Stephen Berry, Gregory Baruch, Berry & Leftwich, Mark C. Hansen, Michael K. Kellogg, Steven F. Benz, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC, for Appellants.

Charles E. Campbell, McKenna, Long & Aldridge, Atlanta, GA, Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Washington, DC, Jeffery W. Cavender, Long, Aldridge & Norman, LLP, Atlanta, GA, Michael A. O'Shea, Jon R. Roellke, Leiv H. Blad, Patricia C. Crowley, Clifford, Chance, Rogers & Wells, LLP, Bret A. Campbell, Cadwalader, Wickersham

& Taft, Washington, DC, for Appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before BLACK and KRAVITCH, Circuit Judges, and STROM*, District Judge.

KRAVITCH, Circuit Judge.

The appellants, a group of independent telephone service companies and telephone system customers, appeal the dismissal on summary judgment of their antitrust claim against Siemens Rolm Communications ("Siemens"). The issue is whether Siemens's refusal to sell or license patented or copyrighted goods to the appellants is an illegal use of monopoly power in a secondary market. The appellants also appeal the jury verdicts on Siemens's cross-claims against them stemming from copyright and patent infringement.

I. Facts

Siemens produces private branch exchanges ("PBXs"), also referred to as "switches," which are computers that direct telephone calls and data transmissions through a network of private extensions. Businesses that have multiple telephone lines use PBXs to send and receive calls. The PBXs include hardware (the physical parts making up the switch) and software components (the telephone system program). Siemens possesses intellectual property rights over some of the hardware and all of the software used in its PBXs. Siemens does not sell the software, but sells licenses to use the system. Depending on what type of system the customers want and the price they wish to pay, the software can be activated to provide more or fewer features.

In addition to selling licenses to use its PBXs, Siemens also sells PBX servicing for its products. Siemens has a patent on many of its parts and does not sell parts to third parties for resale. A customer can service its PBX in one of three ways. First, it can hire Siemens to service the PBX. Second, it can order the parts directly from Siemens (or an authorized distributor) and make arrangements to service the machine themselves. Third, it can hire an independent service organization ("ISO") to service the machine, although Siemens requires that the customer furnish the ISO with a letter of agency authorizing it to order the part on the customer's behalf before Siemens sells the part.

The appellants, primarily a group of ISOs that specialize in servicing PBX systems, allege that Siemens has created a monopoly in the market for servicing Siemens's PBXs.1 They claim that Siemens's refusal to sell parts to third parties is designed to prevent competition in the service market. The district court initially denied Siemens's motion for summary judgment on the antitrust claim, but later reversed that ruling based on the Court of Appeals for the Federal Circuit's holding that an antitrust claim could not be brought based on a refusal to sell patented parts or license copyrighted software.2 See In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322 (Fed.Cir.2000) ("In re ISO"). The ISOs now appeal.

Siemens filed counterclaims against certain individual appellants stemming from their alleged infringement on Siemens's patents and copyrights. Siemens claimed that all of the ISOs had infringed on its copyrights and patents by copying and distributing software covered by Siemens's intellectual property rights. Siemens further claimed that by distributing protected software, the ISOs tortiously interfered with Siemens's contractual relations with its customers. Finally, Siemens claimed that three ISOs (ATC, TTSI, and RealCom) misappropriated trade secrets by stealing passwords that allowed the ISOs to activate features that customers had not licensed from Siemens.

The district court, before dismissing the antitrust claim altogether, bifurcated the antitrust claim and the counterclaims into separate trials. A trial was held on the counterclaims and the jury returned a verdict for Siemens on all claims. The district court, however, limited the damage award because awards for the different claims were duplicative. The court upheld only the damage award for copyright infringement within the three-year statute of limitations period because all of the other claims were derivative of the copyright infringement. The ISOs appeal the jury verdict on a number of grounds. Siemens does not appeal the reduction in damages.

II. The Antitrust Claim

The issue here is whether Siemens's refusal to sell parts for its PBX systems, some of which are protected by patent or copyright, is a use of monopoly power in the service market in violation of antitrust laws.

1. Procedural Background

The district court, relying on the Supreme Court's decision in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) ("Kodak I"), initially determined that the plaintiffs presented sufficient evidence to withstand a motion for summary judgment on their antitrust claim. In Kodak I, as in this case, ISOs brought suit against Kodak for failure to sell parts required to service Kodak machines. Kodak had a policy of refusing to sell parts to any ISO and would only ship parts to customers who planned to service the machines themselves. The ISOs argued, and the Supreme Court agreed, that they should be able to proceed to trial on two antitrust claims. The ISOs' first claim was that Kodak "tied" the parts and service markets in violation of § 1 of the Sherman Act. In short, the plaintiffs claimed that Kodak was using its market power in the parts market to require that customers also buy from Kodak in the service market. By making access to Kodak parts contingent on buying Kodak service, Kodak was illegally using its market power in one market (parts) to limit competition in another market (service).

The ISOs second claim was that Kodak was attempting to maintain a monopoly in violation of § 2 of the Sherman Act. To demonstrate a violation of § 2, the plaintiffs must show "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident." Id. at 480, 112 S.Ct. 2072. The Supreme Court held that the ISOs presented sufficient evidence to withstand summary judgment for both elements by demonstrating that Kodak controlled 100% of the parts market and used this power to dominate 80% to 95% of the service market.

Here, the district court considered whether Siemens used illegal means to dominate the service market.3 The ISOs alleged that Siemens violated § 2 of the Sherman Act by using its control of the parts market to establish and maintain a monopoly in the service market.4 Siemens responded with two arguments. First, Siemens disputed whether the purchase of the PBX system and the servicing of the system were two separate markets. Siemens maintained that the existence of a competitive market for the purchase of PBX systems prevented the company from undertaking anti-competitive action in the service market.5 If only one market existed, then Siemens could not illegally tie or leverage its dominance in one market into another market. Second, Siemens argued that its intellectual property rights in its PBX parts and software granted it the right to refuse to sell to competitors and, thereby, insulated it from antitrust liability under § 2 of the Sherman Act. The district court initially rejected both of these arguments. The court found that there was sufficient evidence for a jury to determine whether two markets existed and held that Siemens's intellectual property rights in the parts market did not immunize it from antitrust liability in the service market.

The district court reversed its original summary judgment ruling, however, after the Court of Appeals for the Federal Circuit issued its decision in In re ISO, 203 F.3d at 1322. There, a group of ISOs, relying on Kodak, argued that Xerox was establishing a monopoly in the servicing of its machines by refusing to sell parts to independent service companies. In re ISO, 203 F.3d at 1326-27. The Court of Appeals for the Federal Circuit rejected that argument, finding that Xerox could refuse to sell patented parts and not run afoul of antitrust law. Id. If Xerox's policy with regards to its patented products happened to create a monopoly in the service market, this was simply an outgrowth of Xerox's statutory patent rights in the parts market and not an antitrust violation. Id. at 1328-30.

The district court applied Federal Circuit law because it believed (correctly at the time) that the patent issues...

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