From: TOWN.CRIER@md-b.prime.com
Subject: (none)
Reply-To: Info-Prime@Blx-A.Prime.COM
Date: Tue, 13 Oct 1992 21:26:07 GMT

PRM - FEDERAL FILINGS (FF)

10/13 High Court Remands Prime Computer Antitrust Case-3

FORM TYPE: LEGAL
ISSUER: PRIME COMPUTER INC.
SYMBOL: CVN
          The Supreme Court today ordered that Virtual Maintenance, Inc. v.
Prime Computer, Inc. be remanded to a lower court.
          At issue in the case is whether Prime Computer is guilty of
antitrust violations even if the company does not possess market power in its
primary product.
          Prime Computer manufactures and sells computer systems for
industrial and commercial use.  The company also offers hardware maintenance
services, distributes software for its systems, and provides support services
for its software.
          Although the company holds only an 11% market share as a supplier of
CAD/CAM software for the automotive industry, it is the exclusive distributor
of design software, called PDGS, for Ford Motor Co.  At the relevant time,
PDGS ran only on Prime's 50 Series minicomputers, thus tying Ford's design
capabilities to Prime's computers.  As a consequence, updates in Ford's design
software necessarily correlated to updates in Prime's hardware, operating
system and communication's software.
          VMI contends that Prime has exploited this lock-in with Ford to gain
a 97% worldwide market share in the maintenance for its Prime 50 Series
computers.  Prime sells PDGS software support in conjunction with hardware
maintenance for $16,000 per year for each software installation, and the
company charges $80,000 for each semi-annual software update that is
purchased separately from hardware maintenance.  VMI says that Prime imposes
similar ties on support service for 108 of the 127 software packages it
distributes for its 50 Series line.
          VMI has attempted to compete with Prime in the Michigan-Ohio-Indiana
region for maintenance of the 50 Series computers.
          VMI sued Prime in the Eastern District of Michigan, alleging that
Prime's linking of software support with hardware maintenance constituted an
illegal tying arrangement under the Sherman Act.  The jury returned a verdict
in favor of VMI and accessing $8.45 million in compensatory damages,
reflecting an expert estimate of VMI's lost income from 1989 through 1993.
The district court trebled the damages to $25.36 million, enjoined Prime from
enforcing the contract provision that tied it services, and voided all Prime
contracts in that market that contained the tying provision.
          On appeal however, the Sixth Circuit reversed.  The appellate court
concluded that Prime's 11% share of the market for initial CAD/CAM software
applications in itself precluded any economic power in the general CAD/CAM
aftermarket.
          VMI argued that its case should be heard and the Sixth Circuit's
judgement reversed based on the Supreme Court's decision in Eastman Kodak Co.
v. Image Technical Services, Inc. last June.  The high court by a 6-3 vote
ruled that equipment manufacturers that also sell parts and service for their
products can be held liable under antitrust laws for trying to dominate the
parts and services market even if the companies do not possess market power in
their primary product market.  Kodak at the time accounted for 23% of high-
volume photocopier market and less than 20% of the micrographics equipment
market.  Justices Sandra Day O'Connor, Antonin Scalia and Clarence Thomas
dissented.
          The case could also have an effect on the efforts of many small
companies to block large manufacturers from locking them out of repair and
spare parts markets.  The auto parts market alone is valued at $135 billion.
10/13/92 10:23
Newsgroups: comp.sys.prime