2000 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-22-2000

Pace Electr. Inc. v. Canon Comp. Systems

Precedential or Non-Precedential:

Docket 99-5728

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Recommended Citation

"Pace Electr. Inc. v. Canon Comp. Systems" (2000). 2000 Decisions. Paper 106.

http://digitalcommons.law.villanova.edu/thirdcircuit_2000/106
Filed May 22, 2000 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 99-5728 

PACE ELECTRONICS, INC. 

Appellant 

v. 

CANON COMPUTER SYSTEMS, INC. and 

LAGUNA CORPORATION 

On Appeal From the United States District Court 

For the District of New Jersey 

(D.C. Civ. No. 98-cv-03132) 

District Judge: Honorable John C. Lifland 

Argued: March 14, 2000 

Before: MCKEE, RENDELL and ROSENN, 

Circuit Judges. 

(Filed: May 22, 2000) 

 Elliott Joffe (Argued) 

 Steven Robert Lehr, P.C. 

 33 Clinton Road 

 Suite 100 

 West Caldwell, NJ 07006 

 Counsel for Appellant Pace 

 Electronics, Inc. 
 Richard H. Silberberg (Argued) 

 Robert G. Manson 

 Dorsey & Whitney LLP 

 250 Park Avenue 

 New York, New York 10177 

 Counsel for Appellee Canon 

 Computer Systems, Inc. 

 Carl A. Rizzo 

 Cole, Schotz, Meisel, Forman & 

 Leonard 

 25 Main Street 

 Hackensack, NJ 07601 

 Counsel for Appellee Laguna 

 Corporation 

OPINION OF THE COURT 

ROSENN, Circuit Judge. 

The issue in this appeal is whether the termination of a 

wholesale dealer's contract for its refusal to acquiesce in an 

alleged vertical minimum price fixing conspiracy constitutes 

an antitrust injury that will support an action for damages 

under section 4 of the Clayton Act. The United States 

District Court for the District of New Jersey reasoned that 

a dealer terminated under these circumstances does not 

suffer an antitrust injury unless it can demonstrate that its 

termination had an actual, adverse economic effect on a 

relevant market. After concluding that the plaintiff's 

complaint in the instant case failed to allege such an effect, 

the District Court dismissed the complaint for failure to 

state a claim upon which relief may be granted. Because we 

believe the court misconstrued the antitrust injury

requirement, we will reverse.1 

_________________________________________________________________ 

1. The District Court exercised jurisdiction under 28 U.S.C. S 1331. We 

have appellate jurisdiction under 28 U.S.C. S 1291 and undertake 

plenary review of the District Court's order dismissing the plaintiff's 

complaint. 

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I. 

The plaintiff, Pace Electronics, Inc. ("Pace"), a New Jersey 

corporation, is engaged in the business of distributing 

various electronic products, including computer printers 

and related accessories. Pace purchases these products 

from manufacturers and wholesale distributors and then 

resells them to smaller retailers, who operate in the New 

Jersey and New York region. 

In April of 1996, Pace entered into a nonexclusive dealer 

agreement with defendant Canon Computer Systems, Inc. 

("Canon"), a California corporation. Under this agreement, 

Pace obtained the right to purchase Canon-brand ink-jet 

printers and related accessories from Canon at "dealer 

prices." In consideration for the right to purchase these 

products at "dealer prices," Pace agreed to purchase certain 

minimum quantities of the products. 

The dealer agreement between Pace and Canon remained 

in effect for approximately one year and three months. 

Thereafter, on July 1, 1997, Canon terminated the 

agreement with Pace on the stated ground that Pace failed 

to purchase the minimum quantities of Canon-brand 

products required of it under the dealer agreement.

Although Pace concedes that it did not purchase the

amount of Canon-brand products called for under the

dealer agreement, Pace contends that it was unable to do 

so because Canon ignored its purchase orders. Pace further 

contends that Canon ignored its purchase orders because 

Pace refused to acquiesce in a vertical minimum price fixing 

agreement designed and implemented by Canon and 

defendant Laguna Corporation ("Laguna"), Pace's direct 

competitor in the New Jersey and New York region. 

In this connection, Pace alleges that, prior to the time it 

entered its dealer agreement with Canon, Laguna had

entered into a similar dealer agreement with Canon.

Additionally, Pace alleges that the agreement between 

Canon and Laguna contemplated the maintenance of a 

minimum resale price below which Laguna would not sell 

Canon-brand ink-jet printers. In support of its allegation, 

Pace asserts that after it entered into its dealer agreement 

with Canon, the president of Canon repeatedly instructed 

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Pace's president not to sell to past or existing customers of 

Laguna and not to sell Canon brand ink-jet printers at 

prices less than those at which Laguna was selling its 

products. 

Pace alleges that it has suffered financial losses as a 

result of its termination as an authorized Canon-brand 

dealer. Specifically, Pace avers that "[a]s a direct and 

proximate result of the actions of Defendants . . . Pace has 

suffered significant financial detriment, consisting of, but 

not necessarily limited to, lost profits. Pace's losses result 

directly and proximately from the efforts of Canon and 

Laguna to limit price competition in the market . . . for 

which both Laguna and Pace were competing." Appellant's 

App. at 77. Although these allegations of loss appear 

somewhat vague and conclusory, we accept them as true, 

as we must, for the purposes of this appeal. 

Pace also alleges that its termination as an authorized 

dealer of Canon-brand products has harmed competition in 

two respects. First, it contends that its termination as a 

dealer has reduced price competition in the wholesale 

market for Canon-brand ink-jet printers (an intrabrand 

market) because Laguna no longer faces price competition 

from Pace in selling these products to smaller retailers. 

Second, Pace asserts that its termination as a dealer has 

reduced price competition in the wholesale market for all 

brands of ink-jet printers (an interbrand market). In this 

connection, Pace alleges that: (1) Canon-brand ink-jet 

printers enjoy an inherent competitive price advantage over 

the ink-jet printers of other manufacturers; (2) until Canon 

permits its distributors to take advantage of this price 

advantage, other manufacturers will not attempt to reduce 

their production costs; and, (3) until an unrestrained free 

competitive market requires other manufacturers to reduce 

their production costs, the price of all brands of ink-jet 

printers will remain at an artificially high level.

II. 

To state a claim for damages under section 4 of the

Clayton Act, 15 U.S.C. S 15, a plaintiff must allege more 

than that it has suffered an injury causally linked to a 

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violation of the antitrust laws. See Brunswick Corp. v. 

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In 

addition, it must allege antitrust injury, "which is to say 

injury of the type the antitrust laws were intended to 

prevent and that flows from that which makes defendants' 

acts unlawful." Id. This is so even where, as in the instant 

case, the alleged acts of the defendants constitute a per se 

violation of the antitrust laws.2See also Atlantic Richfield 

Co. v. USA Petroleum Co., 495 U.S. 328, 341 (1990). In 

applying the antitrust injury requirement, the Supreme 

Court has inquired whether the injury alleged by the 

plaintiff "resembles any of the potential dangers" which led 

the Court to label the defendants' alleged conduct violative 

of the antitrust laws in the first instance. Id. at 336; see 

also II AREEDA & HOVENKAMP, ANTITRUST LAW, AN ANALYSIS OF 

ANTITRUST PRINCIPLES AND THEIR APPLICATION P 362a. (Revised ed. 

1995) [hereinafter AREEDA & HOVENKAMP] ("The [antitrust 

injury requirement] forces . . . courts to connect the alleged 

injury to the purposes of the antitrust laws. Compensation 

for that injury must be consistent with . . . the rationale for 

condemning the particular defendant."). 

For example, in Atlantic Richfield, the plaintiff, an 

independent retail marketer of gasoline, brought suit 

against ARCO, an integrated oil company which sold 

gasoline to consumers through its own stations and 

indirectly through ARCO-brand dealers, claiming that 

ARCO violated section 1 of the Sherman Act by conspiring 

with its dealers to fix the maximum resale price of gasoline 

at an artificially low level. Id. at 331. Although the plaintiff 

conceded that the fixed prices were not predatory, it 

nevertheless maintained that it suffered antitrust injury, in 

the form of lost profits, as a result of the vertical maximum 

price fixing agreement between ARCO and its dealers. See 

id. at 334-35. The Supreme Court disagreed, noting that 

the plaintiff's alleged injury did not resemble any of the 

dangers which caused the Court to label vertical maximum 

_________________________________________________________________ 

2. Vertical minimum price fixing is, of course, per se unlawful under 

section 1 of the Sherman Act, which outlaws "[e]very contract 

combination . . . or conspiracy in restraint of trade or commerce among 

the several states." 15 U.S.C. S 1; see also Dr. Miles Med. Co. v. John D. 

Park. & Sons Co., 220 U.S. 373 (1911). 

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price fixing per se illegal in Albrecht v. Herald Co., 390 U.S. 

145 (1968).3 See id. at 336. 

In this connection, the Court identified four potential 

adverse effects of vertical maximum price fixing agreements 

which led it to label those agreements per se illegal in the 

Albrecht decision. First, it noted that a vertical maximum 

price fixing agreement might intrude on the ability of 

dealers to compete and survive " `by substituting the 

perhaps erroneous judgment of a [supplier] for the forces of 

the competitive market.' " Id. at 335 (quoting Albrecht, 390 

U.S. at 152). Additionally, the Court observed that

" `[m]aximum prices may be fixed too low for the dealer to 

furnish services essential to the value which goods have for 

the consumer or to furnish services and conveniences 

which consumers desire and for which they are willing to 

pay.' " Id. at 335-36. Next, the Court explained that "[b]y 

limiting the ability of small dealers to engage in nonprice 

competition, a maximum-price-fixing agreement might

`channel distribution through a few large or specifically 

advantaged dealers.' " Id. at 336. Finally, the Court noted 

that " `if the actual price charged under a maximum price 

scheme is nearly always the fixed maximum price, which is 

increasingly likely as the maximum price approaches the 

actual cost of the dealer, the scheme tends to acquire all 

the attributes of an arrangement fixing minimum prices.' " 

Id. 

Having identified the potential dangers which led it to 

condemn categorically vertical maximum price fixing

agreements, the Supreme Court had little difficulty

determining that the plaintiff in Atlantic Richfield had not 

suffered an antitrust injury. The Court noted that the 

dangers identified in the Albrecht decision focused on the 

potential adverse effects of vertical maximum pricefixing 

_________________________________________________________________ 

3. Albrecht's specific holding -- that vertical maximum price fixing is 

per 

se illegal -- has since been overruled. See State Oil Co. v. Khan, 522 

U.S. 

3, 7 (1997). However, Atlantic Richfield's approach -- i.e. discerning the 

reasons that led the Supreme Court to label certain conduct a per se 

violation, and determining whether the harm suffered by the plaintiff is 

consistent with the rationale for labeling the defendant's conduct per se 

illegitimate -- remains valid and is clearly applicable to the case before 

us. 

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agreements on dealers and consumers, not competitors of 

dealers subject to such agreements. See id. The Court 

explained: "[i]ndeed, the gravamen of [the plaintiff's] 

complaint--that the price fixing scheme between[the

defendant] and its dealers enabled those dealers to increase 

their sales--amounts to an assertion that the dangers with 

which we were concerned in Albrecht have not materialized 

in the instant case." Id. at 337. In sum, the Court

concluded that the plaintiff had not suffered antitrust 

injury because its losses did not flow from those aspects of 

vertical maximum pricing that rendered it illegal. Id. at 337. 

Turning now to the instant case, we think it appropriate 

to ask whether Pace's alleged injury resembles any of the 

dangers which have led the Supreme Court to condemn

vertical minimum price fixing agreements under the 

antitrust laws. Pace alleges that it has suffered antitrust 

injury because it was terminated as a wholesale dealer after 

it sold Canon-brand products at prices below the minimum 

resale price allegedly fixed by Canon and Laguna. Pace 

further alleges that its termination as a wholesale dealer 

has caused it to suffer lost profits because it may no longer 

obtain profits from selling Canon-brand products at "dealer 

prices." Under the Supreme Court's jurisprudence, these 

allegations suffice to establish antitrust injury. 

On this point, Simpson v. Union Oil, 377 U.S. 13 (1964) 

is instructive. In Simpson, the plaintiff entered into a yearto-year "consignment" agreement with Union Oil. See id. at 

14. Under the agreement, which was terminable by either 

party at the end of any one-year term, Union Oil required 

the plaintiff to charge a minimum retail price for gasoline. 

See id. Contrary to the terms of the agreement with Union 

Oil, the plaintiff sold gasoline below the minimum retail 

price. See id. at 15. Because he did so, Union Oil 

terminated its "consignment" agreement with the plaintiff at 

the end of the first one-year term. See id. 

Sometime thereafter, the plaintiff brought suit against 

Union Oil seeking damages under section 4 of the Clayton 

Act. See id. After two pretrial hearings, the District Court 

granted summary judgment in favor of Union Oil, holding 

that the plaintiff failed to establish a violation of section 1 

of the Sherman Act and that, even assuming the plaintiff 

 7 
had established a violation, the plaintiff suffered no 

actionable damage. See id. at 15-16. The Court of Appeals 

affirmed on the ground that the plaintiff suffered no 

actionable wrong or damage. See id. at 16. The Supreme 

Court granted certiorari and reversed. 

In reversing, the Court placed primary focus on the

consignment agreement's restriction on the ability of 

dealers such as the plaintiff to make independent, 

competitive pricing decisions. For example, the Court 

explained: 

 We disagree with the Court of Appeals that there is 

 no actionable wrong or damage if a Sherman Act 

 violation is assumed. If the "consignment" agreement 

 achieves resale price maintenance in violation of the 

 Sherman Act, it and the lease are being used to injure 

 interstate commerce by depriving independent dealers 

 of the exercise of free judgment whether to become 

 consignees at all, or remain consignees, and, in any 

 event, to sell at competitive prices. 

Id. (emphasis added). 

The Court also stated: 

 Dealers, like [the plaintiff], are independent 

 businessmen; and they have all or most of the indicia 

 of entrepreneurs, except for price fixing. . . . Their 

 return is affected by the rise and fall in the market 

 price, their commissions declining as retail prices drop. 

 Practically the only power they have to be wholly 

 independent businessmen, whose service depends on 

 their own initiative and enterprise, is taken from them 

 by the proviso that they must sell their gasoline at prices 

 fixed by Union Oil. . . . The evil of the resale price 

 maintenance program . . . is its inexorable potentiality 

 for and even certainty in destroying competition in 

 retail sales of gasoline by these nominal `consignees' 

 who are in reality small struggling competitors seeking 

 retail gas customers. 

Id. at 21 (emphasis added) (footnote and citations omitted). 

Thus, the Supreme Court considered a restriction on

dealer independence with respect to pricing decisions to be 

 8 
an anticompetitive aspect of vertical minimum pricefixing 

agreements, and one that the antitrust laws have an

interest in forestalling. See Richard A. Posner, Antitrust 

Policy and the Supreme Court: An Analysis of the Restricted 

Distribution, Horizontal Merger and Potential Competition 

Decisions, 75 Colum. L. Rev. 281, 289-90 [hereinafter 

Antitrust Policy] ("According to the Court in Simpson, resale 

price maintenance is bad because it benefits the 

manufacturer and oppresses the dealer by taking from the 

latter the power to price competitively."). Accordingly, we 

think that a maverick dealer, such as Pace, which is 

terminated for charging prices less than those set under a 

vertical minimum price fixing agreement, suffers the type of 

injury which the antitrust laws are designed to prevent and 

may recover damages, such as lost profits, whichflow from 

that termination. See generally AREEDA & HOVENKAMP, supra, 

PP 382a. and 382c. (discussing dealer standing to challenge 

various vertical restraints and noting that a terminated 

dealer which "can reasonably show that he would have 

been able to profit in a market free of the illegal

arrangements has presumably suffered both injury-in-fact 

and antitrust injury."); see also Simpson, 377 U.S. at 16 

("There is an actionable wrong whenever the restraint of 

trade has an impact on the market; and it matters not that 

the complainant may be only one merchant."). 

Naturally, the defendants argue that the above analysis 

misses the mark. In essence, they contend that Simpson is 

no longer good law in light of the Supreme Court's decision 

in Atlantic Richfield. Furthermore, they urge, and the 

district court agreed, that a terminated dealer seeking to 

establish that it has suffered antitrust injury must allege 

facts demonstrating that its termination as an authorized 

dealer resulted in an actual, adverse economic effect on 

competition in a relevant interbrand market. In support of 

their position, the defendants primarily rely on the 

Supreme Court's statement in Atlantic Richfield that a 

plaintiff can recover damages under section 4 of the 

Clayton Act "only if [its] loss[es] stem[ ] from a competitionreducing aspect or effect of the defendant's behavior." 

Atlantic Richfield, 495 U.S. at 344. On the basis of this brief 

statement, the defendants then argue that to be 

"competition-reducing" a defendant's challenged conduct 

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must have had an actual adverse effect on a relevant 

interbrand market. Although the defendants' syllogism may 

have some allure, we decline to construe the antitrust 

injury requirement as suggested by the defendants for the 

following reasons. 

First, we believe that requiring a plaintiff to demonstrate 

that an injury stemming from a per se violation of the 

antitrust laws caused an actual, adverse effect on a 

relevant market in order to satisfy the antitrust injury 

requirement comes dangerously close to transforming a per 

se violation into a case to be judged under the rule of 

reason. The per se standard is reserved for certain

categories of conduct which experience has shown to be 

"manifestly anticompetitive." Continental T.V., Inc. v. GTE 

Sylvania Inc., 433 U.S. 36, 39 (1977). That standard, which 

is based on considerations of "business certainty and 

litigation efficiency," Arizona v. Maricopa County Med. 

Society, 457 U.S. 332, 344 (1982), allows a court to 

presume that certain limited classes of conduct have an 

anticompetitive effect without engaging in the type of 

involved, market-specific analysis ordinarily necessary to 

reach such a conclusion. See Business Electronics Corp. v. 

Sharp Electronics Corp., 485 U.S. 717, 723 (1988) ("Certain 

categories of agreements, however, have been held to be per 

se illegal, dispensing with the need for case-by-case 

evaluation."). Were we to accept the defendants' 

construction of the antitrust injury requirement, we would, 

in substance, be removing the presumption of 

anticompetitive effect implicit in the per se standard under 

the guise of the antitrust injury requirement.4 

Second, we do not believe that the Supreme Court's 

statement in Altlantic Richfield that a plaintiff can recover 

for losses only if they stem "from a competition-reducing 

aspect or effect of the defendant's behavior," Atlantic 

_________________________________________________________________ 

4. We recognize that various scholars have taken issue with the Supreme 

Court's per se treatment of vertical minimum price fixing agreements 

and argued that these agreements may have significant, procompetitive 

attributes. See, e.g., Antitrust Policy, 75 Colum. L. Rev. at 283. But, 

academic commentary, even if persuasive, does not permit us to expand 

the antitrust injury requirement to a point which undermines the 

Court's categorical disapproval of vertical minimum price fixing. 

 10 
Richfield, 495 U.S. at 344, when viewed in the context of 

the Court's entire opinion, can be fairly read to require a 

terminated dealer to prove that its termination caused an 

actual, adverse economic effect on a relevant market. In 

this connection, we note that in determining that the 

plaintiff in Atlantic Richfield failed to satisfy the antitrust 

injury requirement, the Supreme Court simply did not 

focus on whether the challenged conduct of the defendant 

had an actual, adverse economic effect on a relevant 

market. Rather, as outlined above, the Court focused on 

whether the plaintiff's injury stemmed from any of the 

potential anticompetitive dangers which led the Court to 

label vertical maximum price fixing unlawful in the first 

instance. Implicit in the Court's approach is that a plaintiff 

who had suffered loss as a result of an anticompetitive 

aspect of a per se restraint of trade agreement would have 

suffered antitrust injury, without demonstrating that the 

challenged practice had an actual, adverse economic effect 

on a relevant market. See generally Daniel C. Richman, 

Note, Antitrust Standing, Antitrust Injury, and the Per Se 

Standard, 93 Yale. L.J. 1309, 1312-14 (arguing that courts 

should recognize that "each per se rule presumes a 

particular practice harms particular markets" and that 

courts should permit "only plaintiffs within those markets 

to pursue per se claims"). The issue, thus, is not whether 

the plaintiff's alleged injury produced an anticompetitive 

result, but, rather, whether the injury claimed resulted 

from the anticompetitive aspect of the challenged conduct. 

Finally, we point out that our holding -- that a dealer 

terminated for its refusal to abide by a vertical minimum 

price fixing agreement suffers antitrust injury and may 

recover losses flowing from that termination -- is consistent 

with the decisions of those courts which have explored the 

issue thus far. See, e.g., Sterling Interiors Group, Inc. v. 

Haworth, Inc., No. 94-9216, 1996 WL 426379 at *18-*19 

(S.D.N.Y. July 30, 1996) ("The anti-competitive dangers of 

minimum price arrangements flow to both customers who 

purchase at prices set higher than competitive levels, and 

to dealers who are effectively foreclosed from competing in 

the marketplace."). 

 11 
III. 

For the reasons set forth above, the district court's order 

dismissing Pace's complaint will be reversed and the case 

remanded to the district court for further proceedings 

consistent with this opinion. Costs taxed against the 

appellees. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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