Plaintiff Océ North America, Inc.
("Océ") brought an action against a service market
supplier for copyright infringement. Defendant MCS Services,
Inc. ("MCS") filed a Kodak-style
"aftermarket" monopolization counterclaim, in addition to
a series of common law torts, including tortuous interference with
contractual relations, and prospective advantage. Finding the
antitrust allegations of the counterclaim to be
"implausible", the district court for the District of
Maryland dismissed that claim, while allowing the tortuous
interference claims to continue. Océ North America, Inc.
v. MCS Services, Inc., D.Md., No. 1:10-CV-984-WMN,
6/14/11.
Océ manufactures high speed continuous form printers.
Such printers utilize large spools of perforated paper. Continuous
form printers are capable of printing hundreds, or even thousands,
of pages per minute. They range in price from a mere $100,000 to in
excess of $1 million, with a lifespan of approximately 20 years.
MCS does not manufacture printers. However, both Océ and MCS
are competitors in the business of providing maintenance services
and replacement toner for high-speed printers. Océ filed a
complaint alleging that MCS had misappropriated its trade secrets.
MCS retaliated by filing counterclaims alleging monopolization and
attempted monopolization, and several species of state tort claims,
including tortuous interference with contractual and prospective
advantage.
In dismissing the antitrust counts, the court noted that the
monopolization and attempted monopolization claims were based upon
the "aftermarket relevant market theory" of Eastman
Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451
(1992) (Kodak-I). In Kodak, the Supreme Court
sustained a reversal of summary judgment dismissing claims that
Kodak had imposed an illegal tying arrangement and had
monopolized and attempted to monopolize the aftermarket for sales
and service of its own original equipment sales. On the facts of
Kodak-I, the Court found sufficient allegations of market
power where there was an "asymmetry of information" about
"product life cycles," and where competing suppliers of
sales and service in the original equipment aftermarket had been
the victims of exclusionary conduct. In a change in position by the
OEM, it required that its purchasers utilize Kodak parts and
services for repair and maintenance. This change in position,
coupled with the lack of information on the product life cycle,
"locked-in" uses of the Kodak OEM machines at
supracompetitive prices for parts and services. This form of
"post-sale opportunism" excluded competitors and/or
entrants from providing substitutable choices to OEM purchasers, by
which they could avoid supracompetitive pricing opportunities from
Kodak. However, most courts have limited Kodak-I type
cases to situations where there has been an after the fact tie of
the parts and services to the original equipment sales, thus
"locking-in" the purchasers, and "locking-out"
competitors and/or new potential entrants. See, e.g., D.
Goldfine & K. Vorrasi, "The Fall of the Kodak Aftermarket
Doctrine: Dying A Slow Death In The Lower Courts," 72
ANTITRUST L.J. 209 (2004); B. Klein & L. Saft, " The
Law and Economics of Franchise Tying Contracts, 28 J. LAW
& ECON. 345 (1985) (franchisor lacks market power where
competitive information concerning competing franchises is
reasonably available prior to the issuance of the franchise.)
After discussing the ritualistic application of Iqbal and
Twombly, the court dismissed the antitrust claims. MCS
defined two relevant aftermarkets. The first was the market within
the United States for maintenance services and parts replacement
for Océ high speed continuous form printers. The second was
for a special toner that was recommended for use in the Océ
printers. The complaint alleged that the printers required
maintenance services that were "unique" from services
required by other competing printers. Thus, MCS alleged that the
market for the servicing of Océ printers was the relevant
"service aftermarket". Proper servicing of the Océ
printers required access to proprietary service technology, only
available from Océ. While Océ had generally allowed
MCS to utilize much of its proprietary technology in the past, it
changed course, and brought an action for injunctive relief against
further misappropriation and/or infringement. MCS argued that this
was a Kodak-I change of position. The court held that it
was not. Océ was free to allow use of its aftermarket
technology, or to assert its proprietary rights, within its
discretion. The court held that there was no estoppel on the part
of Océ. Thus, this was not a Kodak-I "change
of position".
In its attempted antitrust counterclaim, MCS was careful to allege
all of the Kodak-I "buzz words", including
"life cycle cost information asymmetry", "high
switching costs", and "lock-in". The court was
receptive to Océ's argument, however, that the fact that
the printers were so expensive and of high technology, implied or
permitted an inference that the customers were large, highly
sophisticated, and knowledgeable purchasers who would have taken
the necessary steps to ascertain the necessary life cycle
information, in order to make an intelligent appraisal of switching
costs. In an athletic leap of logic, the court then concluded that
there were no "plausible" Twombly-type
allegations that the OEM purchasers were "locked-in" and
vulnerable to anticompetitive behavior and supra competitive
aftermarket opportunism exploitation. As to the aftermarket for
toner, the court noted that the use of the Océ approved
toner was an improvement of the state of art, and was thus
procompetitive. The development and use of the toner was efficient,
and so promoted customer and consumer welfare. The court also noted
that there were no allegations that Océ had refused to allow
its customers to seek maintenance services from non-Océ
providers, or that it had taken any steps to "tie" its
OEM sales to the aftermarket parts and servicing of its printers.
Océ is certainly free, the court noted, to compete with
independent companies by leveraging its own intellectual property.
As to its equipment purchasers, there were no allegations of a
change in position relative to aftermarket servicing that could
have "locked-in" its customer base or allowed Océ
to engage in "aftermarket opportunism".
The Kodak-I aftermarket doctrine thus continues its death
spiral in the lower courts.
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