Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02776/USCOURTS-cand-3_04-cv-02776-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:1 Antitrust Litigation

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NEWCAL INDUSTRIES, INC., et al.,

Plaintiffs,

 v.

IKON OFFICE SOLUTIONS, INC., et al.,

Defendants. /

No. C 04-2776 FMS

ORDER ON IKON OFFICE

SOLUTIONS, INC.’S AND

GENERAL ELECTRIC CAPITAL

CORPORATION’S MOTIONS 

TO DISMISS PURSUANT TO FED.

R. CIV. P. 12(b)(6)

INTRODUCTION

Before the Court are two motions to dismiss pursuant to Federal Rule of Civil Procedure

12(b)(6) submitted by Defendants IKON Office Solutions, Inc. (“IKON”) and General Electric

Capital Corp. (“GE Capital” or “GE”). IKON and GE Capital argue that all claims asserted by

Plaintiff Newcal et al. (“Newcal”) in its First Amended Complaint should be dismissed for failure to

state a claim. Having considered the pleadings and papers filed by both sides, the Court GRANTS

defendants’ motions to dismiss with prejudice. 

BACKGROUND

The factual background of this case is contained in the Court’s December 23, 2004 Order

regarding defendants’ previous motion to dismiss, incorporated by reference (the “December

Order”). Newcal and its co-plaintiffs compete with Defendant IKON in the market to supply and

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service multiple brands of copiers, printers and facsimile equipment (“Copier Equipment”) to

businesses and other organizations. Defendant GE Capital is a successor-in-interest to IOS Capital,

which was a fully owned subsidiary of IKON that provided lease financing and administration

services for IKON. On March 30, 2004, IOS Capital was legally merged with IKON, and GE

Capital acquired certain assets and liabilities of IOS including its operation that administers the

leases at issue in this action. 

IKON often sells Copier Equipment through bundled cost-per-copy or other lease/rental

contracts (“IKON Contracts”). The IKON Contracts provide businesses with equipment financing,

bundled with supplies, parts and services for a fixed period, typically five (5) years. It has been the

practice of Newcal and other competitors to make bids to IKON customers in which they offer to

replace the IKON Copier Equipment and pay for the “buy-out” or “lease-end” charges due under the

IKON Contract. However, during the five year period of the IKON contract, IKON often secures

one or more amendments to the IKON Contracts that extend the period of time that customers are

under contract with IKON. Such amendments are usually secured at the same time that IKON

replaces or adds copier equipment or accessories or otherwise changes the terms the original

contract. The longer contract term reduces the ability of Newcal and other competitors to make

deals with IKON customers to replace IKON Copier Equipment. 

Newcal claims that IKON acquires both the original IKON Contracts and the amendments

that lengthen IKON Contracts through a pattern of “fraudulent, unfair, and otherwise unlawful

practices.” In terms of the original contract, for example, IKON allegedly falsely represents or

conceals its intent to extend the term of the IKON Contract beyond the original term of 60 months. 

In terms of the amendments, IKON allegedly uses a variety of tactics to conceal the fact that the

contract term is being extended when customers sign a contract amendment. For example, Newcal

claims that IKON uses “pretexts” such as representing that the customer is eligible for a “free”

machine or accessories in order to induce the customer to sign the amendment without calling the

customer’s attention to, or even misrepresenting, the fact that the amendment lengthens the contract

term. Newcal also alleges that IKON designed the amendment forms and trained its employees in

ways intended to misrepresent the contract extensions Newcal claims that these business practices

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allow IKON to obtain new customers at lower costs than other Copier Equipment dealers and make

supracompetitive profits from the amended contracts.

The present motions seek to dismiss Newcal’s First Amended Complaint (“FAC”). Newcal’s

original complaint in this action was filed on July 12, 2004. On December 23, 2004, the Court

issued an order granting defendants’ motions to dismiss and allowing Newcal an opportunity to

amend the complaint. On February 14, 2005, plaintiffs filed their FAC reasserting causes of action

under the Sherman Act, the Lanham Act and RICO. The FAC sets forth new allegations against

Defendant GE Capital. Defendants IKON and GE Capital moved to dismiss the First Amended

Complaint on March 10, 2005. 

DISCUSSION

The legal standards applicable to a motion to dismiss were set forth in this Court’s December

Order, and need not be repeated. 

A. Antitrust Claims

In its FAC, Newcal realleges six violations of Sections 1 and 2 of the Sherman Antitrust Act. 

In the Court’s December Order, the Court dismissed these claims because Newcal failed to allege a

valid relevant market. While Newcal has made some changes to the proposed relevant markets, the

Court finds that Newcal has failed to correct the material deficiencies identified in its previous order. 

 In the FAC, Newcal proposes two “principal relevant markets”: the markets for (1)

replacement Copier Equipment for IKON and GE customers with Flexed IKON Contracts and (2)

Copier Service for IKON and GE customers with Flexed IKON Contracts. Newcal also proposes

two “additional, broader, relevant markets”: the markets for (3) the sale of Copier Service for Canon

and Ricoh brand Copier Equipment and (4) the sale of Copier Equipment. 

The first two proposed relevant markets are again rejected because they are defined solely in

terms of IKON customers that have contracts with IKON. As stated in the December Order, the

existence of power under a contract does not create market power in the antitrust sense, absent

market power over a product or service. See Queen City Pizza v. Domino's Pizza, 124 F.3d 430, 438

(3d Cir., 1997); Forsyth v. Humana, Inc., 114 F.3d 1467 (9th Cir., 1997); Hack v. President &

Fellows of Yale College, 237 F.3d 81 (2d Cir., 2000). Newcal’s references to Eastman Kodak Co. v.

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Image Tech. Servs., 504 U.S. 451 (U.S., 1992), do not save these proposed relevant markets. In that

case, the essential core of the relevant product market was not defined in terms of consumers who

had contracts with Kodak, but rather in terms of the service and replacement parts required by

Kodak equipment owners and controlled by Kodak. As this Court stated in its December order, in

the instant case, “[i]t is the contract itself that requires them to be customers of IKON rather than the

market power of IKON over any product or service. This is the critical distinction between Eastman

Kodak and the present case.” Newcal’s third and fourth relevant markets also fail as Newcal is

again unable to allege that IKON has market power in them. In contrast to the situation in Eastman

Kodak where Kodak produced the copier equipment and wielded market power over the availability

of service and replacement parts, IKON is merely a distributor of copier equipment and has no such

market power. 

In sum, Newcal’s FAC has failed to cure the deficiencies in the original complaint. Any

hypothetical claims that might arise from the alleged injuries of IKON customers in this case would

be problems of contract law and negotiation, not antitrust problems. This Court is being called to

apply antitrust law, and in order to do that, a valid relevant market and market power must be

alleged. Because Newcal cannot do so, the Court must dismiss. 

B. Lanham Act Claim

In its seventh claim for relief, Newcal alleges that IKON violated the Lanham Act, 15 U.S.C.

§ 1125(a)(1)(B), which prohibits false and misleading statements in commercial advertising or

promotion. In the Court’s December Order, Newcal’s Lanham Act claims were dismissed because

the alleged statements were either true when stated or constituted “puffery” not actionable under the

Lanham Act.

In its FAC, Newcal claims that the following false and misleading statements were made: (a)

that IKON and GE would deliver flexibility in their cost-per-copy contracts and that they would

lower costs for consumers; (b) that IKON and GE would deliver 95% up-time service; (c) that

original IKON contracts were intended by IKON to be for a fixed term of sixty (60) months and

would expire at the end of that term; (d) that IKON amendments for sixty (60) months applied only

\\\

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to the changes on the Amendment rather than to the entire fleet of IKON or GE equipment; and (e)

that IKON’s flexing practices had been declared legal by this Court in its December Order. 

For similar reasons given in the December Order, Newcal again fails to state a claim under

the Lanham Act. The first statement alleged by Newcal to be violative of the Lanham act constitutes

“puffing” and is not actionable under the Lanham Act. See, e.g., Cook, Perkiss, and Liehe, Inc. v. N.

Cal. Collection Service, Inc., 911 F.2d 242, 245-247 (9th Cir. 2000). The second and third

statements cannot be considered to have been “false or misleading representations of fact” at the

time they were made, and thus are not actionable under the Lanham Act. See Coastal Abstract Serv.,

Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 730 (9th Cir., 1999). The fourth and fifth allegedly

false statement cannot reasonably be said to have been made in “a commercial advertisement or

promotion” as is required under the Lanham Act. Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304

F.3d 829, 835 n.4 (9th Cir. 2002). 

C. RICO Claim 

In its eighth claim for relief, Newcal alleges that IKON violated RICO, 18 U.S.C. § 1961 et

seq., by engaging in a pattern of racketeering activity that consisted of repeated acts of mail fraud

relating to the amendment of IKON contracts. In the December Order, the Court dismissed

Newcal’s RICO claim for failing to meet Federal Rule of Civil Procedure 9(b)’s heightened pleading

standard for fraud. 

Although Newcal’s FAC now pleads its RICO claim with greater specificity, it must be

dismissed on other grounds. To establish standing to pursue a RICO claim, a plaintiff must allege a

cognizable injury proximately caused by the alleged RICO violation. Holmes v. Securities Investor

Protection Corp., 503 U.S. 258, 268 (1992). Section 1964(c) provides that "any person injured in

his business or property by reason of a violation of section 1962 of this chapter may sue therefor in

any appropriate United States district court." 18 U.S.C. § 1964(c). Although RICO is to be "liberally

construed," Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497-98 (1985), case law in the Ninth

circuit limits the injuries compensable under RICO. Imagineering, Inc. v. Kiewit Pacific Co., 976

F.2d 1303, 1309-1310 (9th Cir., 1992), Oscar v. University Students Co-operative Ass'n, 965 F.2d

783, 785 (9th Cir. 1992) (en banc), petition for cert. filed, 61 U.S.L.W. 3171 (U.S. Sept. 1, 1992)

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(No. 92-385). A showing of "injury" requires proof of concrete financial loss. Imagineering at 1309;

Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir. 1990) (Actual injury, that is financial loss or

injury, is required to recover under RICO.).

A RICO plaintiff must also show that his injury was proximately caused by the defendant's

wrong. Imagineering at 1311 (citing Holmes v. Securities Investor Protection Corp., 503 U.S. 258). 

This requires that there must be a direct relationship between the injury asserted and the injurious

conduct alleged. Holmes at 268-69. (“[A] plaintiff who complains of harm flowing merely from the

misfortunes visited upon a third person by the defendant's acts [is] generally said to stand at too

remote a distance to recover.”) See also Imagineering at 1312 (holding that minority-and womenowned subcontractors could not sue general contractors under RICO for an illegal scheme to evade

federally required quotas); Oregon Laborers-Employers Health & Welfare Trust Fund v. Philip

Morris, Inc., 185 F.3d 957, 963-67 (9th Cir. 1999) (holding that health care trust funds could not

sue tobacco companies under RICO because their injury derived from the smokers' injury); Ass'n of

Wash. Pub. Hosp. Dists. v. Philip Morris, Inc., 241 F.3d 696, 703 (9th Cir. 2001) (holding that

providers of health care services could not sue tobacco companies under RICO because their injury

derived from the smokers' injury).

In the instant case, Newcal is unable to show a concrete injury that was proximately caused

by the defendants’ wrongs. Newcal alleges that it was “foreclosed from specific [customer]

accounts,” but this is a speculative injury that is insufficient to confer standing under RICO. See

Imagineering at 1311-12, Lancaster Cnty. Hosp. v Antelope Valley Hosp., 940 F.2d 397, 406 (9th

Cir. 1991). Newcal also alleges direct injury on the basis that it made buy-out payments to IKON

and GE to enable customers to terminate their flexed contracts. Newcal, however, voluntarily

assumed the obligation to pay the contract termination fees in order to obtain the customers’

business. Courts regularly dismiss fraud-based RICO claims in which the alleged

misrepresentations were directed at third parties rather than at the plaintiff. See, e.g., Byrne v.

Nezhat, 261 F.3d 1075, 1110 (11th Cir., 2001), Israel Travel Advisory Service, Inc. v. Israel Identity

Tours, Inc., 61 F.3d 1250, 1258 (7th Cir. 1995). As defendants argue, Newcal is not the proper party

to assert this RICO claim. 

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CONCLUSION

For the reasons stated above, Newcal has failed to state a claim under the Sherman Act, the

Lanham Act, or RICO against either IKON or GE Capital. IKON and GE Capital’s motions to

dismiss are therefore GRANTED. Because Newcal has offered no basis for the Court to believe that

further amendments would not be futile, Newcal’s FAC is DISMISSED with prejudice. The clerk

shall close the file.

IT IS SO ORDERED.

Dated: May 16, 2005

 ___/s/____ 

FERN M. SMITH

UNITED STATES DISTRICT JUDGE

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