Warner Management Consultants v. Data General Corp.

• Decision Date: 16 August 1982
• Docket Number: No. 80 C 4697.,80 C 4697.
• Citation: 545 F. Supp. 956
• Parties: WARNER MANAGEMENT CONSULTANTS, INC., an Illinois corporation, Plaintiff, v. DATA GENERAL CORPORATION, a Delaware corporation, and Centennial Systems, Inc., a Maryland corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

545 F. Supp. 956

WARNER MANAGEMENT CONSULTANTS, INC., an Illinois corporation, Plaintiff, v. DATA GENERAL CORPORATION, a Delaware corporation, and Centennial Systems, Inc., a Maryland corporation, Defendants.

No. 80 C 4697.

United States District Court, N. D. Illinois, E. D.

August 16, 1982.

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Peter Connor, Gareth Morris, James K. Gardner, Donald J. Kreger, Robert J. Rubin, Rowe W. Snider, Friedman & Koven, Chicago, Ill., William M. Goldstein, Urbana, Ill., for plaintiff.

Thomas Johnson, Juris Kins, Chicago, Ill., Robert H. Koehler, Garret G. Rasmussen, Patton, Boggs & Blow, Washington, D. C., Donald E. Tolva, Martin, Craig, Chester & Sonneschein, Chicago, Ill., for defendants.

MEMORANDUM OPINION

PRENTICE H. MARSHALL, District Judge.

Plaintiff, Warner Management Consultants, Inc., ("Warner") was in the business of distributing computer systems and providing computer consulting services to those in the market for computers and computer-related services. The computer systems Warner provided its customers consisted of "hardware," the central processing unit and peripheral units, such as printers and card punches, and "software," the computer programs. First Amended Complaint ¶ 4. Warner was a "middleman;" it purchased computer systems and related services from various suppliers, and resold them to the ultimate consumers.

Defendant, Data General Corp., ("Data General") was one of Warner's suppliers. Data General had entered a number of Original Equipment Manufacture ("OEM") agreements with Warner in which Data General contracted to sell hardware to Warner for resale to ultimate consumers. Id. ¶ 5. Warner found its relationship with Data General to be highly satisfactory, and continued to purchase hardware from Data General. Over time, Warner developed an extensive collection of software suited to Data General's central processing units, expertise regarding the costs, capabilities and programming of Data General's products and a substantial amount of goodwill in the market as consumers learned of its growing reputation for being able to supply reliable Data General products. As a result, Data General's hardware became "uniquely desirable" as far as Warner was concerned. Id. ¶¶ 14-18.

In late 1978, Warner learned that certain peripheral hardware, such as printers and card punches, could be purchased more cheaply from Data General's competitors than from Data General itself. Id. ¶ 19. In order to prepare the least expensive and hence most attractive package for its customers, Warner prepared bids based on the prices of non-Data General peripheral components to be matched with Data General central processing units. Warner's bids also factored in the cost of obtaining financing for the sale from a computer leasing company. Id. ¶¶ 21-22.¹ In particular, Warner bid on a contract for a series of computer packages for the United States government utilizing these cost factors and was told, based on the government's satisfaction with its initial bid, that Warner was eligible to submit a "best and final bid." Id. ¶¶ 20, 23.

The complaint alleges that at some point no later than early 1979 Data General decided to condition the sale of its hardware upon the agreement by the purchaser of the hardware (a) to obtain financing from defendant. Centennial Systems, Inc. ("Centennial"), a computer leasing company, (b) to purchase computer maintenance services from Data General and (c) to purchase certain peripheral hardware distributed by Data General, but not manufactured by Data General. Data General allegedly combined, conspired and contracted with Centennial to impose this scheme of conditional sales upon purchasers of its hardware. Id. ¶ 12. When Data General learned that Warner's bids did not include financing from Centennial and peripheral hardware and maintenance services purchased from Data General, it engaged in a course of conduct designed to compel Warner to purchase maintenance services and peripheral hardware from Data General and to obtain financing from Centennial.

Specifically, Data General refused to perform its contractual obligation to deliver central processing units to Warner, and Centennial refused to provide financing to Warner. See id. ¶¶ 24-27. Eventually, Warner capitulated and agreed to Data General's demands. Since the financing provided by Centennial and the maintenance services and peripheral hardware provided by Data General were more expensive than that which Warner could have obtained elsewhere, Warner's prices went up substantially. Once its prices went up, Warner found that it was no longer able to compete in the market for computer systems. It lost numerous contracts, including the lucrative government contract, and eventually was driven out of business. Warner then filed this lawsuit against Data General and Centennial. This court's jurisdiction rests on 28 U.S.C. §§ 1331, 1332, 1337 (1976 and Supp. IV 1980) and 15 U.S.C. § 15 (1976).

In count I of the complaint, Warner alleges that Data General and Centennial's scheme of conditional sales constitutes a tying arrangement, wherein the sale of hardware (the tying product) was tied to the purchase of credit, maintenance services and peripheral hardware (the tied products). The arrangement, Warner alleges, is per se unlawful under § 1 of the Sherman Act² and § 3 of the Clayton Act.³ In count II, Warner alleges that tying arrangement, even if not per se unlawful, nevertheless is an unlawful restraint of trade under § 1. In count III, Warner alleges that the restraint of trade also violates the Illinois Antitrust Act, Ill.Rev.Stat. ch. 38, § 60-3 (1979). In count IV, plaintiff alleges that Data General's conduct in attempting to persuade Warner to accede to the tying arrangement included defamatory statements regarding Warner made to Warner's customers in an attempt to coerce Warner to agree to the tie. These statements, it is alleged, are actionable under the common law of commercial defamation. Count V alleges that, as part of its coercive scheme, Data General maliciously interfered with Warner's contractual relations with its customers. Finally, in count VI, Warner alleges that Data General breached its contract to deliver computer systems to Warner. Data General has moved to dismiss counts I, II and III on the ground that Warner lacks standing to raise antitrust claims since it never actually bought the tied or tying products from Data General. Centennial has also moved to dismiss the antitrust claims, which are the only claims involving Centennial, on standing grounds, and also on the ground that Centennial was not involved in the tying alleged in the complaint.

Private parties have been accorded the right to bring an action for damages under the antitrust laws by § 4 of the Clayton Act, which provides,

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of the suit, including a reasonable attorney's fee.

15 U.S.C. § 15 (1976). The antitrust standing issues raised by the parties require a determination whether Warner qualifies as a person entitled to sue under § 4.⁴

The law of antitrust standing is something less than a seamless web. In fact, as we have had occasion to observe previously, this area of the law is rife with "doctrinal confusion." In re Uranium Antitrust Litigation, 473 F.Supp. 393, 401 (N.D. Ill.1979).⁵ However, our analysis is aided by the Supreme Court's recent opinion in Blue Shield of Virginia v. McCready, ___ U.S. ___, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982), which clarifies somewhat the analysis required under the rubric of antitrust standing. The Court identified two types of limitations on the ability of private parties to sue under the antitrust laws which are embodied in the law of antitrust standing. A party seeking to recover damages must demonstrate first that it is an appropriate party to bring suit and second that it has suffered a direct injury of the type that antitrust laws were intended to recompense. See 102 S.Ct. at 2545-48.

The first limitation identified by the Court attempts to filter out claims which, if permitted, would lead to unfair or unworkable results. For example, this doctrine prevents indirect purchasers of goods from recovering higher prices which they have been forced to pay because of antitrust violations, since allowing the indirect purchasers a right of recovery in addition to the recovery already permitted direct purchasers under § 4 would create an intolerable risk of duplicative recoveries, see McCready, 102 S.Ct. at 2546; Illinois Brick Co. v. Illinois, 431 U.S. 720, 730-31, 97 S.Ct. 2061, 2066-2067, 52 L.Ed.2d 707; and because it would be difficult if not impossible to determine the amount of damages due to the difficulty of tracing the higher prices charged by the original seller through to the price paid by the indirect purchaser, see id. at 731-32, 741-45, 97 S.Ct. at 2067, 2072-2074. Similarly, a state cannot sue to recover damages to its economy caused by antitrust violations because of the difficulty of measuring those damages and the risk of double recovery such actions would create, see McCready, 102 S.Ct. at 2546; Reiter v. Sonotone Corp., 442 U.S. 330, 342, 99 S.Ct. 2326, 2332, 60 L.Ed.2d 931 (1979); Hawaii v. Standard Oil Co., 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972).

Defendants argue that these considerations support a denial of standing to Warner, since Warner never purchased either the tied or the tying product. They argue that it would be unfair and unworkable to permit every person who "attempted" to purchase or "considered" purchasing a tied product to sue under the antitrust laws....