Opinion ID: 761260
Heading Depth: 2
Heading Rank: 1

Heading: DGI's Antitrust Claim

Text: 18 The jury found DSC liable under § 2 of the Sherman Act for monopolization of the expansion and enhancement market for DSC-manufactured switches and awarded DGI $750,000 in lost profits and $1.5 million in future lost profits on that claim. The district court overturned this verdict, however, holding that (1) there was insufficient evidence to establish that expansion cards are the relevant market for antitrust purposes, and (2) DGI's damage model was hopelessly flawed.
19 We review the district court's grant of a JML de novo, applying the same standards as those employed by the district court. 9 The district court may grant a motion for a JML only if there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue. 10
20 As a preliminary matter, DGI asserts that DSC waived its right to challenge the sufficiency of DGI's antitrust evidence. Although DSC submitted a Rule 50 motion at the close of DGI's case-in-chief, it did not renew this motion after the rebuttal evidence. 21 [I]t is well established that a party waives the right to challenge the sufficiency of the evidence with a JNOV unless a motion for directed verdict is made or renewed at the close of all evidence. 11 We have approached this requirement with a liberal spirit, 12 however, and in some circumstances, we have excused technical noncompliance with Rule 50(b) if the deviation is de minimis. 13 Whether technical noncompliance with Rule 50(b) precludes a challenge to the sufficiency of the evidence on appeal 'should be examined in the light of the accomplishment of its particular purposes as well as in the general context of securing a fair trial for all concerned in the quest for truth.'  14 We have articulated two purposes for this rule: to enable the trial court to re-examine the sufficiency of the evidence as a matter of law if, after verdict, the court must address a motion for judgment as a matter of law, and to alert the opposing party to the insufficiency of his case before being submitted to the jury. 15 Circumstances which have led us to deem a technical violation of Rule 50(b) de minimis include, inter alia, (1) the trial court's having reserved a ruling on an earlier motion for a JML made at the close of plaintiff's evidence; (2) the defendant's calling no more than two witnesses before closing; (3) the elapse of only a small amount of time between the motion for a JML and the conclusion of all evidence; and (4) the plaintiff's introducing no rebuttal evidence. 16 22 In this case, we perceive no prejudice that would result from waiving technical compliance with Rule 50(b). DSC moved for a JML on DGI's antitrust claim on a Friday afternoon, at the close of DGI's evidence, and the district court specifically reserved ruling on the motion. That same afternoon, DSC called only its antitrust expert witness, Dr. Teece, whose testimony was, of course, favorable to DSC. The parties had the weekend and Monday off, and before resting their cases on Tuesday DSC and DGI called but one additional witness each--neither of whom testified on antitrust issues. Thus, although three calendar days elapsed between DSC's motion and the close of all evidence, this period was attributable only to the intervening weekend and the district court's need to tend to its criminal docket on Monday. As DGI presented no evidence to shore up its antitrust case after DSC made its JML motion, that motion sufficed under these circumstances to alert DGI to the insufficiency of its case. Furthermore, the district court did not dismiss the antitrust claim until the passage of more than nine months after the end of trial, only then concluding on its own that the evidence was not sufficient to support the jury's verdict. 23 We hold that DSC did not waive its challenge to the sufficiency of DGI's antitrust evidence by failing to reassert its motion for JML at the close of all the evidence. Having so determined, we now consider DSC's substantive challenges to DGI's case.
24  'The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'  17 Thus, to prove a monopolization claim, the plaintiff must first establish the relevant product market. 18 DGI disputes the district court's conclusion that it failed to prove that the capacity enhancement and expansion products market for DSC-manufactured switches is the relevant market for antitrust purposes. 25 As DGI stresses, in determining the relevant product market, the reality of the marketplace must serve as the lodestar. 19 DGI advances that market realities dictate that the relevant market in this case is the capacity expansion market. For instance, it asserts that the evidence shows that DSC's officers, employees, customers, and internal documents, as well as DGI's officers, salesmen, and economic experts, defined the relevant market as the market for expansion products. 20 DGI insists that users of DSC switches are locked-in to DSC in the aftermarket. This assertion is strengthened, it maintains, by the fact that DSC's software license allows its customers to use its copyrighted software only in conjunction with the unpatented DSC hardware. 26 DGI adds that the district court's reference to Kodak is not apt, and in fact urges that Kodak supports DGI's claim by establishing that aftermarket monopolization is actionable under the Sherman Act. In that case, defendant Kodak sold plain paper copiers in a market with several rivals. The Court assumed that, at the time of sale, Kodak sold replacement parts, giving users the option either to repair their copiers or to hire independent service organizations (ISOs) to do so. Later, Kodak changed its policy and refused to sell parts to ISOs. The ISOs alleged that, as Kodak's equipment was unique and its competitors' parts incompatible with Kodak machines, this altered practice allowed Kodak to capture the repair business for itself, at supra-competitive prices. 21 Kodak argued that, either presumptively or as a matter of law, vigorous competition in the copier market would prevent Kodak from raising its parts and servicing contract prices above competitive levels, because any such price increases in these 'derivative aftermarkets' would become known to copier-equipment consumers, and eventually cause Kodak to lose ground to its competitors in copier sales. 22 27 The Court rejected Kodak's argument, concluding that summary judgment was not appropriate. It reasoned that, at the time of their original copier purchases, some consumers might not have cost-efficient access to pricing information needed to evaluate the total life-cycle cost of the entire Kodak package, i.e., the price of the copier, likely replacement parts, and product-lifetime servicing. 23 Likewise, the Court explained that, inasmuch as Kodak's customers found it prohibitively expensive to replace their equipment with another manufacturer's product, they might tolerate some level of aftermarket price increase before changing brands. 24 The Court thus decided that the undetermined information costs and switching costs represented material issues of fact that precluded summary judgment. DGI argues here that, in a similar manner, DSC could substantially raise its aftermarket card prices before DSC switch owners would consider replacing DSC switches, and that DSC was thus able to maintain supra-competitive prices in the expansion products aftermarket. 28 DGI's reliance on Kodak is misplaced. As we previously noted in United Farmers Agents Association v. Farmers Insurance Exchange, 25 [t]he Supreme Court's decision in Kodak was a rejection of Kodak's assertion that market power could never exist over repair parts in any case where the defendant did not have market power over earlier-purchased machines needing those parts. 26 We pointed out that, [c]ritically, the plaintiffs in Kodak produced evidence that Kodak was charging above market prices for its service and was engaging in price discrimination in favor of the knowledgeable customers who could most easily obtain information or switch companies. 27 Indeed, the Court in Kodak concluded that [i]t may be that [Kodak's] parts, service, and equipment are components of one unified market, or that the equipment market does discipline the aftermarkets so that all three are priced competitively overall, or that any anti-competitive effects of Kodak's behavior are outweighed by its competitive effects. 28 The Court simply was not prepared to permit this factual determination to be made at the summary judgment stage. 29 In contrast to Kodak, the instant case comes to us after a full-blown jury trial. Also unlike Kodak, here there is no evidence that DSC has a superior or unique product that allows it to charge supra-competitive prices. Indeed, although DGI presented testimony that DSC's cards are extremely expensive, it never compared DSC's prices to its competitors' prices. And unlike the plaintiffs in Kodak, DGI did not prove that DSC's customers face substantial information and switching costs. To the contrary, the evidence shows that many DSC switch owners engage in life-cycle pricing, that is, they factor in not only the purchase price of the equipment, but also the post-acquisition costs of operation, maintenance, and expansion at the time of purchase. By engaging in life-cycle pricing, a customer links together the primary equipment market and any aftermarket for parts and service for the equipment of particular manufacturers. 30 And, as noted, DGI did not prove that a change in any of DSC's pricing, warranty, or other policies served to subject DSC switch owners to substantial additional information or switching costs. From the beginning, DSC's licensing agreement for its operating system software authorized its customers to use the software only in conjunction with equipment manufactured by DSC. This was a long-standing policy, not a response to DGI's entry into the market. True, there was some evidence that DSC threatened to cancel its warranties on switches that used equipment not manufactured by DSC. The evidence also shows, however, that despite referring to DGI by name, the letter threatening to void the warranties was sent before DGI ever offered its first product for sale. As DSC was the sole manufacturer of expansion products for DSC switches before DGI entered the market, this alleged change in policy could not substantially increase the information costs for DSC customers; when they purchased the DSC switches, they could not have reasonably expected suppliers of expansion products other than DSC to enter the aftermarket. Several circuits have held that such a change in policy is a crucial factor in establishing an aftermarket monopoly claim. As the Sixth Circuit held, an antitrust plaintiff cannot succeed on a Kodak-type theory when the defendant has not changed its policy after locking-in some of its customers, and the defendant has been otherwise forthcoming about its pricing structure and service policies. 29 31 We agree with the district court's determination that DGI's characterization of the expansion products market as the relevant market is at odds with market realities. The record shows that the prices for two-thirds of all of DSC's cards are set at the time a telephone company purchases a switch, either because the customer purchases the one frame that the switch must have to operate, or through a future or life-cycle pricing scheme negotiated at the time of purchase. DGI's model excludes all these cards from its relevant market, not an insignificant flaw in the model. 32 Furthermore, DGI's proposed market does not acknowledge that the purchase of a new frame with cards is only one of several ways a telephone company can expand its call-handling capacity. For instance, a company can purchase a new switch from DSC or from another switch manufacturer, purchase a used switch from DSC or a broker, or trade for or lease capacity in another company's network. In addition, as many of DSC's customers, such as MCI, are dual-sourced--that is, they own switches built by more than one manufacturer--they can purchase a new frame for one of their non-DSC switches. All of these capacity handling options are also omitted from DGI's relevant market. 33 We are convinced that DGI, like the plaintiff in United Farmers, is trying to define the market as narrowly as possible (in order to make it look as if [defendant] had market power). 30 Because (1) DGI did not present legally sufficient evidence that DSC's customers faced significant information and switching costs, and (2) DGI's proffered relevant market does not comport with market realities, its aftermarket monopoly claim fails as a matter of law. As such, the district court did not err in granting DSC's motion for a JML dismissing DGI's antitrust claim.