Opinion ID: 373838
Heading Depth: 1
Heading Rank: 3

Heading: CalComp's Claims as to IBM-Compatible Peripheral Equipment Manufacturers

Text: 15
16 As a general rule, the district court has the power to direct a verdict if the evidence permits only one reasonable conclusion as to the verdict. Fountila v. Carter, 571 F.2d 487, 489-90 (9th Cir. 1978), Quoting Kay v. Cessna Aircraft Co., 548 F.2d 1370, 1372 (9th Cir. 1977); See Syufy Enterprises v. National General Theatres, 575 F.2d 233, 235 (9th Cir. 1978). 2 The district court must consider all the evidence both favorable and unfavorable. But in order to avoid passing on the credibility of witnesses and weighing contradictory evidence, the court must resolve all inferences in favor of the party with the burden of persuasion, because 17 (i)t is the jury, not the judge, which weighs the contradictory evidence and inferences, judges the credibility of witnesses, . . . and draws the ultimate conclusion as to the facts . . . . 18 Fount-Wip, Inc. v. Reddi-Wip, Inc., 568 F.2d 1296, 1301 (9th Cir. 1978), Quoting Cockrum v. Whitney, 479 F.2d 84, 86 (9th Cir. 1973) and Tennant v. Peoria & Pekin Union Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520 (1944); See Marquis v. Chrysler Corp., 577 F.2d 624, 639 (9th Cir. 1978); Kay v. Cessna Aircraft Co., 548 F.2d at 1372. 3 19 Thus, this court in Maheu v. Hughes Tool Co., 569 F.2d 459, 464 (9th Cir. 1977), upholding the denial of a directed verdict against the party with the burden of persuasion, made it clear that application of the general standard of Fountila and Kay, supra, required it to view the evidence in the light most favorable to the party opposing the motion, and that it must examine All the evidence (emphasis added). See also id. at 481 (concurring and dissenting opinion); Wescott v. Impresas Armadoras, S.A., 564 F.2d 875, 882 (9th Cir. 1977); Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d 942, 944 (9th Cir. 1977); Kay v. Cessna Aircraft Co., 548 F.2d at 1372; Chisholm Brothers Farm Equipment Co. v. International Harvester Co., 498 F.2d 1137, 1140 (9th Cir.), Cert. denied, 419 U.S. 1023, 95 S.Ct. 500, 42 L.Ed.2d 298 (1974). 20 In order to benefit from the favorable inferences available under this standard, the party against whom the motion is made must present substantial evidence. As stated in Rutledge v. Electric Hose & Rubber Co., 511 F.2d 668 (9th Cir. 1975): 21 In considering a motion for a directed verdict, the court must give the party against whom the motion is made the benefit of all reasonable evidentiary inferences. (Cited authority omitted.) This is no less true in an antitrust case. However, if there is no substantial evidence to support the claim, the court must direct a verdict. 22 Id. at 677 (emphasis added), Quoting Cleary v. National Distillers & Chemical Corp., 505 F.2d 695, 696 (9th Cir. 1974). The sole issue in an appeal from a directed verdict against the party with the burden of persuasion is thus the sufficiency of the evidence of the appellant's claim. Cleary v. National Distillers & Chemical Corp., 505 F.2d at 696. As stated in Chisholm Brothers Farm Equipment Co. v. International Harvester Co., 498 F.2d at 1140, the correct standard is whether or not, viewing the evidence as a whole, there is substantial evidence present that could support a finding . . . for the nonmoving party. Accord, Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 853 & n.2 (9th Cir. 1977) (substantial evidence is more than a mere scintilla and consists of such relevant evidence as a reasonable mind might accept as adequate to support a conclusion), Cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978). 23 The standard for determining the propriety of a directed verdict identical to that for determining the propriety of a judgment n. o. v., Fountila v. Carter, 571 F.2d at 489; Cockrum v. Whitney, 479 F.2d at 85 is the same for district and appellate judges. Maheu v. Hughes Tool Co., 569 F.2d at 481 (concurring and dissenting opinion). 24 In its Amicus brief the Department of Justice argues that: 25 Because of the generally complex nature of antitrust litigation and the important role which motive and intent often play therein, the Supreme Court has generally disapproved of the use of summary procedures, such as motions for directed verdicts, in antitrust cases. Poller v. Columbia Broadcasting, 368 U.S. 464, 473 (, 82 S.Ct. 486, 7 L.Ed.2d 458) (1962); Hospital Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 746 (, 96 S.Ct. 1848, 48 L.Ed.2d 338) (1976); See also Chisholm Bros. Farm Equip. Co. v. International Harvester Co., supra, 498 F.2d at 1139. Complex Section 2 cases, such as this case, involve numerous factual issues such as market definition, whether the defendant possesses monopoly power in a relevant market and whether the defendant had the purpose or intent to exercise that monopoly power. These issues must be resolved by the jury after receiving appropriate instructions from the court. 26 However, in Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d at 944-45 n.1, this court dealt extensively and definitively with the meaning of Poller and Hospital Building Co. in the context of a directed antitrust verdict. That case, emphasizing that the Supreme Court's disapproval of summary proceedings dealt with Pre trial motions (emphasis original), concluded that the same circumspection is not required in the case of directed verdicts. Rather, the usual standard described above applies: 27 a directed verdict is proper, even in an antitrust case, when there is no substantial evidence to support the claim. 28 Id., quoting Rutledge v. Electric Hose & Rubber Co., 511 F.2d at 677, and Cleary v. National Distillers & Chemical Corp., 505 F.2d at 696. See Marquis v. Chrysler Corp., 577 F.2d at 639 & n.25. 4
29 CalComp contends that the evidence was sufficient to show that particular conduct on the part of IBM, detailed below, violated either or both the monopolization and attempt to monopolize clauses of § 2 of the Sherman Act. 5 In order to reverse the district court's judgment as to either of these claims, it must be that after viewing the evidence in the light most favorable to CalComp, there is substantial evidence of every essential element of that claim.
30 There are three essential elements to a successful claim of § 2 monopolization: 31
32
33
34 The first two elements are derived from § 2 itself, and were explicated in United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). See Greyhound Computer Corp. v. IBM, 559 F.2d 488, 492 (9th Cir. 1977); Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1218 (9th Cir. 1977). 35 As reiterated in Greyhound, monopoly power the first element is the power to control prices or exclude competition. 559 F.2d at 496, Quoting United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). The Du Pont definition of monopoly power has been applied principally with reference to the defendant's share of the relevant product and geographic markets. Greyhound, 559 F.2d at 496. See United States v. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. 1698; United States v. E. I. du Pont de Nemours & Co., 351 U.S. at 399, 404, 76 S.Ct. 994; American Tobacco Co. v. United States, 328 U.S. 781, 797, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1274 (9th Cir. 1975). But see Moore v. Jas. H. Matthews & Co., 550 F.2d at 1219 (the requisite power also can be demonstrated by evidence of the exercise of actual control over prices or exclusion of competitors). 36 The second element of a successful monopolization claim requires that the conceded monopolist have engaged in willful acts directed at establishing or retaining its monopoly, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. at 1704. 6 That case found the defendant's acts sufficient to meet the § 2 conduct requirement because they constituted unlawful and exclusionary practices. Id. at 576, 86 S.Ct. 1698. 37 The plaintiff need not show that the conceded monopolist's acts were of a kind that would be unlawful for an ordinary enterprise. Greyhound Computer Corp. v. IBM, 559 F.2d at 498. Rather, the plaintiff must show that the defendant's acts unnecessarily excluded competition from the relevant market. Id. Nor is it necessary to show a specific intent to eliminate a competitor. Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 284 F.2d 1, 26 (9th Cir. 1960), Modified, 289 F.2d 933 (1961), Rev'd on other grounds, 370 U.S. 19, 82 S.Ct. 1130, 8 L.Ed.2d 305 (1962). The defendant's acts are properly analyzed analogously to contracts, combinations and conspiracies under § 1 of the Sherman Act: the test is whether the defendant's acts, otherwise lawful, were Unreasonably restrictive of competition. 7 See Gough v. Rossmoor Corp., 487 F.2d 373, 376 (9th Cir. 1973). 8 While this in large measure has the effect of making acts of monopolization merely the end products of conduct which violates § 1, that is not always true. United States v. Griffith, 334 U.S. 100, 106, 68 S.Ct. 941, 92 L.Ed. 1236 (1948). Section 1 is limited to concerted activity and contractual restraints, while under § 2, individual activity may also give rise to liability. See Moore v. Jas. H. Matthews & Co., 473 F.2d at 332-33. 9 38 The third element plaintiff's resultant antitrust injury has already been discussed, Part II Supra.
39 There are four elements to a successful claim of § 2 attempt to monopolize: 40 (a) specific intent to control prices or destroy competition with respect to a part of commerce; 41 (b) predatory or anticompetitive conduct directed to accomplishing the unlawful purpose; 42 (c) a dangerous probability of success; and 43 (d) causal antitrust injury. 44 The first element was explained in Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 626, 73 S.Ct. 872, 97 L.Ed. 1277 (1953), wherein the Supreme Court differentiated the requisite levels of intent under the monopolization and attempt to monopolize clauses of the Sherman Act: 45 While the completed offense of monopolization under § 2 demands only a general intent to do the act . . . a specific intent to destroy competition or build monopoly is essential to guilt for the mere attempt . . . . 46 The intent to build monopoly, given the Du Pont definition of monopoly power, is logically synonymous with the intent to control prices or exclude competition in the relevant market. See Gough v. Rossmoor Corp., 585 F.2d 381, 390 (9th Cir. 1978); Marquis v. Chrysler Corp., 577 F.2d 624, 641 (9th Cir. 1978); Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 853 (9th Cir. 1977), Cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978); Greyhound Computer Corp. v. IBM Corp., 559 F.2d at 504; Knutson v. Daily Review, Inc., 548 F.2d at 813-14; Lessig v. Tidewater Oil Co., 327 F.2d 459, 474 (9th Cir.), Cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964). Direct evidence of specific intent to control prices or destroy competition, however, is not always necessary when the attempt claim is founded upon a substantial claim of restraint of trade i. e., a § 1 violation. In these circumstances the requisite specific intent may be inferred. Trixler Brokerage Co. v. Ralston Purina Co., 505 F.2d 1045, 1051-52 (9th Cir. 1974); See Gough v. Rossmoor Corp., 585 F.2d at 390; Janich Bros., Inc. v. American Distilling Co., 570 F.2d at 854; Knutson v. Daily Review, Inc., 548 F.2d at 814; Bushie v. Stenocord Corp., 460 F.2d 116, 120-21 (9th Cir. 1972). Market power is relevant to determining whether such an inference is proper; but where a § 1 violation clearly exists, proof of market power is unnecessary to support an inference of specific intent. 10 Janich Bros., Inc. v. American Distilling Co., 570 F.2d at 854 n.4; Hallmark Industry v. Reynolds Metals Co., 489 F.2d 8, 12-13 (9th Cir. 1973), Cert. denied, 417 U.S. 932, 94 S.Ct. 2643, 41 L.Ed.2d 235 (1974). 47 Conversely, even though the restraint effected may be reasonable under § 1, it may constitute an attempt to monopolize forbidden by § 2 if a specific intent to monopolize may be shown. United States v. Columbia Steel Co., 334 U.S. 495, 531-32, 68 S.Ct. 1107, 1126, 92 L.Ed. 1533 (1948). However, (o) rdinarily specific intent is difficult to prove, Hallmark Industry v. Reynolds Metals Co., 489 F.2d at 12; See, e. g., United States v. Columbia Steel Co., 334 U.S. at 532-34, 68 S.Ct. 1107, and thus more commonly it is shown indirectly by proof of illegal conduct and, where necessary, market power. 48 The predatory or anticompetitive conduct element of § 2 attempt, like the conduct element of monopolization, encompasses more than violations of § 1. See, e. g., Knutson v. Daily Review, Inc., 548 F.2d at 814 (attempt requires proof of some illegal (under Section 1) Or predatory activity) (emphasis added). The reason for this was stated in Moore v. Jas. H. Matthews & Co., 473 F.2d at 332: 49 (S)ection 2 is not limited to concerted activity. A jury, therefore, could find that individual actions . . . constituted monopolization or attempted monopolization violating section 2, even if it found no concerted activity. 50 Additionally, (s)ection 1 also prohibits 'contracts' that restrain trade, Id. at 333, and since individual actions may violate § 2, no contractual agreement is required. Nonetheless, under § 2 attempt as with § 1 monopolization individual conduct is measured against the same reasonableness standard governing concerted and contractual activity under § 1. See Note 7 Infra; Greyhound Computer Corp. v. IBM Corp., 559 F.2d at 505 n.37 ( § 2 was intended to prohibit Unreasonable restraints of trade that exclude competition even when they are imposed by a single trader) (emphasis added). 11 51 The third element of § 2 attempt, the requirement that a defendant's demonstrated specific intent to control prices or destroy competition have a dangerous probability of success, may be satisfied either by direct proof of market power, See Janich Bros., Inc. v. American Distilling Co., 570 F.2d at 853, or by inference from the proven specific intent itself, See Greyhound Computer Corp. v. IBM Corp., 559 F.2d at 504. Because this element may be inferred from the existence of a specific intent in proper cases, it is not an essential element of an attempt claim, Lessig v. Tidewater Oil Co., 327 F.2d at 474. For the same reason, neither is proof of any particular degree of market power necessarily an independent element of such a claim. Hallmark Industry v. Reynolds Metals Co., 489 F.2d at 12 n.3. 12 52 In addition to the first three elements necessary to establish a prima facie case of attempt, the fourth element causal antitrust injury is as necessary to confer standing to sue and to support a claim for damages under § 2 attempt as it is under § 2 monopolization. 15 U.S.C. § 15; See Greyhound Computer Corp. v. IBM Corp., 559 F.2d at 505 & n.38; Part II supra.
53 The foregoing analysis of the elements of § 2 monopolization and attempt to monopolize demonstrates that if CalComp presented sufficient evidence to go to the jury on the issue of IBM's monopoly power in a relevant market, both of its § 2 claims may be analyzed together. The only remaining elements necessary to establish the monopolization offense in this case would be monopolizing conduct and causal antitrust injury. If CalComp failed to show either of these, its attempt claim must necessarily also fail: first, because as discussed Supra, 13 conduct lawful for a monopolist must, a fortiori, be excluded as a basis for the attempt offense, 14 and second, because the requirement of causal antitrust injury is common to both.
54 Earlier it was noted that CalComp sought to define three relevant product markets: (a) a general purpose computer systems market; (b) an all disk drive and associated controller market; and (c) a plug-compatible disk drive and associated controller market (which excluded disk products for use with the CPU's of other manufacturers). 15 Several experts and industry executives testified, and a great deal of documentary evidence was admitted, in an effort to support each of these market definitions. Not only did the evidence concerning the various market definitions often conflict, but also the testimony and documents purportedly supporting a single market were sometimes internally inconsistent. Still, we assume Arguendo that the third category is an appropriately defined product market. As noted earlier, it is the only market about which CalComp has standing to sue. See Part II Supra. 55 The evidence of IBM's share of the product markets was similarly irresolute. For example, CalComp introduced the testimony of employees of IBM and other industry members concerning IBM's share of the loosely defined general purpose computer systems market; their estimates ranged from as low as 60% To as high as 80%, while IBM's proof was designed to show that none of these figures was even based on the particular market alleged. CalComp offered expert testimony that in 1970, 1971 and 1972, IBM's share of the all disk drive and associated controller market was 79.4%, 70.1% And 67.6% Respectively, while IBM's evidence was that its share was under 30% During these years: CalComp's figures reflected cumulative shipments of disk products, while IBM's data was based on annual shipments. IBM contended that because its share of market was rapidly declining (from 100% When it invented disk products in 1960 to 25% In 1975), cumulative measures were misleading. In the plug-compatible market, IBM again, because it invented these products began with a 100% Share; here too, CalComp's own evidence showed that IBM's share of market declined steadily. 56 While the district judge expressly made no finding on the adequacy of proof of share of a relevant market, he noted in passing that he was not inclined to direct a verdict solely on that ground. Because we conclude that there was no substantial evidence that any of IBM's alleged acts both constituted unreasonable conduct for a monopolist and produced causal antitrust injury to CalComp, we need not become enmeshed in the hundreds of pages of conflicting and complex evidence on this element of CalComp's claim. For purposes of this decision, we assume that IBM possessed monopoly power in the third purported market during the period 1963 to 1972. 57 We may therefore accept, with one important addition, CalComp's statement in its brief that the main issue of this appeal is whether the Acts and Practices of IBM . . . constitute a violation of either the monopolization or attempt to monopolize clauses of Section 2 of the Sherman Act, or both. Should we decide this question in the affirmative, the additional question we must answer would be whether any loss CalComp suffered actually resulted from the asserted § 2 violation (as opposed to lawful competitive practices).
58 CalComp argues that IBM directly injured it in three ways. Principally, CalComp contends that IBM engaged in predatory pricing by cutting its peripheral equipment prices in response to competition from CalComp and other manufacturers. CalComp also attempts to show that IBM made design changes on certain of its CPUs, disk drives and controllers of no technological advantage and solely for the purpose of frustrating competition from plug-compatible manufacturers. Finally, it urges that IBM raised CPU prices in an effort to offset revenue losses caused by its price reductions on peripheral equipment, and that these price increases constituted impermissible conduct for a monopolist. 16 59
60 When IBM introduced its new System 370 Model 145 in September, 1970, it designated as the standard disk drive for use with this CPU a reworked version of earlier disk drives that had been replaced by competitive equipment and returned to IBM. The monthly rental for this three-drive disk product, the 2319A, was 30% Below that for IBM's other four-, two-, and single-drive disk products on a per-drive basis in part because the reuse of earlier disk drives permitted reduced development and manufacturing costs. The integrated control function in the Model 145-2319A system was also priced 60% Lower than earlier stand-alone controllers, also due at least in part to cost-saving design changes. As opposed to the System 370 Models 155 and 165, which were high-end processors using the newly-designed 3300 high-speed disk product, the Model 145 was to be the lower-priced mainstay of System 370 for commercial applications. Viewing all of the relevant evidence in the light most favorable to CalComp, IBM's purpose in offering the lower-priced 2319A disk drive in conjunction with its Model 145 was twofold: primarily, to regain market share from peripheral equipment manufacturers who were flourishing under IBM's high price umbrella; 17 and secondarily, to reduce the overall price of the 145 system, thereby providing the lower-priced alternative to the higher-performance, higher priced models using the 3300 disk product that was to be the 145's market niche. 18 CalComp introduced no evidence that the lower-priced 2319A was not substantially profitable, as IBM asserted. 19 61 Three months after the announcement of the 2319A, IBM introduced the 2319B disk drive for use with all System 360 models. Like the 2319A, this was also a retread manufactured from older IBM disk drives that had been replaced with other equipment and returned by customers. IBM similarly priced the three- drive 2319B more than 30% Below its other disk drives on a per-drive basis. Also, it made no additional use charges (for use above a fixed number of hours per month) for the 2319B as it did with its other disk drives, in effect a further reduction in price Vis-a-vis these other products. 20 The 2319B, viewing all of the evidence in the light most favorable to CalComp, was introduced for the express purpose of abating competitive inroads by other peripheral manufacturers. 21 CalComp introduced no evidence that the 2319B, like the 2319A, was not substantially profitable. 22 62 Following IBM's 2319B announcement, virtually all of the plug compatible manufacturers reduced their own prices below the 2319B. 23 As a further response to this competition, 24 IBM reduced its prices on peripheral products in still another way with the introduction of its Fixed Term Plan (FTP) on May 27, 1971, described by CalComp as the single most important act in the CalComp litigation and the principal basis for its damage claim. Prior to the introduction of FTP, IBM offered its products only for sale or 30-day lease, although virtually all of its competitors offered reduced prices for longer leases ranging from one to eight years. Under FTP, IBM customers were given the additional option of an 8% Discount for signing a one-year lease and a 16% Discount for a two-year lease on certain peripheral equipment, principally disk drives, tapes and printers. Additional use charges were also eliminated on FTP leases, consistent with the practice of most of IBM's competitors. Customers but not IBM could cancel the leases in return for a termination charge. Purchase prices on FTP products were also reduced by 15%. The evidence at trial was uncontroverted that FTP price reductions were expected to return a profit of 30% Of revenue before taxes. Lease revenues would be reduced through 1972, but through 1975, FTP was expected to generate $165 million more profit than would have been the case without FTP lease options. This increased profitability due to FTP stemmed not only from an expected increase in market share, but also from longer average lease lives and reduced sales, reconditioning and reinstallation costs. 63 Finally, following its adoption of FTP, IBM introduced two other new products: the Integrated Storage Controller (ISC) and the Integrated File Adaptor (IFA). ISC and IFA were options available for use with certain System 370 models, allowing direct attachment of disk products to the CPU. Customers choosing one of these inboard storage control units could save money by avoiding purchase or lease of a separate controller for some of their disk products, because the price of the ISC and IFA options were lower. Thus, ISC and IFA represented price cuts Vis-a-vis IBM's outboard controllers. 25 However, there is little evidence in the record that the ISC and IFA inboard storage control units were priced in response to competition. Rather, the evidence indicates that these products were less expensive to produce. CalComp's chairman, for example, testified that IFA enabled the CPU to perform functions which had been performed in the standalone controller, at a much cheaper cost of design and manufacture. For purposes of analysis, however, we will assume that the IFA and ISC options, like the 2319A, 2319B and FTP products, were priced primarily in response to competition from the plug compatible manufacturers. 64 The test of the reasonableness of the foregoing pricing actions, and the principal question facing us in this case, is whether IBM which was the inventor and dominant supplier of the disk products in question had the right to respond to the lower prices of its competitors with reduced, but still substantially profitable, prices on its own products. We conclude that it did. 65 CalComp's principal damages claim is for lost revenues as a result of price reductions it made following IBM's 2319B and FTP announcements. 26 But since these price reductions admittedly resulted from competition by IBM and since, as both CalComp's and IBM's evidence clearly demonstrates, IBM's stimulus to price competition was in turn competition from peripheral equipment manufacturers such as CalComp it is impossible to say that CalComp's losses represent compensable injury from acts of IBM unnecessarily Excluding or Restricting competition. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. at 488, 97 S.Ct. 690. Rather, IBM's price cuts were a part of the very competitive process the Sherman Act was designed to promote. To accept CalComp's position would be to hold that IBM could not compete if competition would result in injury to its competitors, an ill-advised reversal of the Supreme Court's pronouncement that the Sherman Act is meant to protect the competitive process, not competitors. See id. 66 In Grinnell, as noted Supra, the Supreme Court excepted from monopolizing conduct those actions directed toward establishing growth by means of a superior product, business acumen, or historic accident. 384 U.S. at 571, 86 S.Ct. at 1704. IBM's dominance in disk products, of course, was not due to historic accident. CalComp witnesses repeatedly testified that IBM's position and success were due to its capable management, technological leadership, market orientation and superior products. Particularly relevant is the fact that IBM invented the disk products that CalComp and other manufacturers copied. As one of CalComp's witnesses, a former chairman of Scientific Data Systems, acknowledged, IBM pioneered in the use of moveable head disk technology . . . . More bluntly, according to CalComp's Chairman: 67 (I)f they (IBM) weren't there and hadn't created the market and hadn't made installations, we wouldn't have any market at all. So it's hard to call the guy who's created your opportunity a competitor although certainly IBM doesn't give up easily on any particular order. 68 Granted that IBM's technological innovations resulted in growth as a consequence of a superior product, it was entitled to maintain its consequent dominant position in the market it created through business acumen, which we take to include shrewdness in profitable price competition. The Sherman Act does not draw a distinction between competition on the bases of price and of performance: the two are inseparable parts of any competitive offering. Where the opportunity exists to increase or protect market share profitably by offering equivalent or superior performance at a lower price, even a virtual monopolist may do so. Cf. United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 612 n.1, 97 S.Ct. 861, 864, n.1, 51 L.Ed.2d 80 (1977) (in attempt context, purposes of  'increasing sales' and 'increasing market share' are normal business goals, not forbidden by § 2 without more). As Judge Aldrich observed in Dehydrating Process Co. v. A. O. Smith Corp., 292 F.2d 653, 657 (1st Cir. 1961), the antitrust laws do not require a business to cut its own throat. 69 The boundaries of reasonable price competition have recently been defined in this circuit. In Hanson v. Shell Oil Co., 541 F.2d 1352, 1359 (9th Cir. 1976), Cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977), we affirmed a directed verdict for a defendant charged with attempted monopolization, holding that the plaintiff's failure to show that the defendant's prices were below its marginal or average variable costs 27 was a failure as a matter of law to present a prima facie case under § 2. More recently in Janich Brothers, also an attempt case, we stated that  'pricing at marginal cost is the competitive and socially optimal result'  of § 2 enforcement. 570 F.2d at 857, Quoting Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697, 711 (1975). The analysis in Hanson and Janich Brothers is precisely apposite in the monopolization context. Indeed, the preceding passage quoted in Janich Brothers dealt specifically with pricing by a monopolist. The thrust of this analysis is that price reductions up to the point of marginal cost are consistent with competition on the merits, since in this case only less efficient firms will be disadvantaged, while a firm pricing below marginal cost by definition incurs losses, so that competition on the basis of efficiency in this situation is frustrated. 70 We recognize that refinement of the marginal or average variable cost test will be necessary as future cases arise. For instance, limit pricing by a monopolist might, on a record which presented the issue, be held an impermissible predatory practice. See, e. g., P. Areeda & D. Turner, Antitrust Law P P 711-722 (1978); Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87 Yale L.J. 284 (1977); Areeda & Turner, Williamson on Predatory Pricing, 87 Yale L.J. 1337 (1978); Williamson, A Preliminary Response, 87 Yale L.J. 1353 (1978); Scherer, Predatory Pricing and the Sherman Act: A Comment, 89 Harv.L.Rev. 868 (1976); Areeda & Turner, Scherer on Predatory Pricing: A Reply, 89 Harv.L.Rev. 891 (1976); Scherer, Some Last Words on Predatory Pricing, 89 Harv.L.Rev. 901 (1976). And we do not foreclose the possibility that a monopolist who reduces prices to some point above marginal or average variable costs might still be held to have engaged in a predatory act because of other aspects of its conduct. On this record, however, IBM's pricing policies were not predatory. 71 The case before us presents an A fortiori situation as compared to Hanson and Janich Brothers. CalComp has not only failed to produce evidence of pricing below marginal or average variable cost, but it has also failed as well to introduce any evidence to controvert IBM's substantial proof that its price cuts were highly profitable. Moreover, the evidence of both parties established that IBM's disk price reductions were a response to lower-priced competition to which IBM was rapidly losing its disk business. Were § 2 interpreted not to exempt price cuts from attack under these circumstances, there could be no adequate guidelines for a jury to decide the issue of whether the prices at issue were reasonable. The directed verdict as to CalComp's claims based on IBM's price competition was therefore proper. 72
73 As noted above, when IBM introduced its System 370 Model 145 in September, 1970, it announced the 2319A as the standard disk product for use with the 145. The control function for the 2319A disk drive was integrated into the Model 145 CPU, and thus the interface between the disk drive and its control function was different from earlier models. 28 CalComp claimed that it was competitively disadvantaged as a result of these design changes, because it could not legally begin to copy the 2319A until IBM shipped the first of these disk drives, thereby disclosing the design requirements. 74 In February, 1971, IBM introduced its optional Integrated Storage Controller for use with its System 370 Models 158 and 168 which integrated the disk control function into the CPU. CalComp claimed it was injured by the introduction of ISC and the similar IFA, described above, because it was thereby precluded from replacing the control functions on CPUs with these options. 29 75 CalComp characterized these design changes as technological manipulation which did not improve performance. It also complained of the fact that the newly integrated functions were priced below their non-integrated counterparts. But as we have stated, price and performance are inseparable parts of any competitive offering; and equivalent function at lower cost certainly represents a superior product from the buyer's point of view. The evidence at trial was uncontroverted that integration was a cost-saving step, consistent with industry trends, which enabled IBM effectively to reduce prices for equivalent functions. Moreover, there was substantial evidence as well that in the case of Models 145, 158 and 168 the integration of control and memory functions also represented a performance improvement. 76 One of CalComp's witnesses stated: I think in general the manufacturer will try and minimize his costs and where he integrates the control unit the assumption must be that he is achieving a lower cost solution. 30 Other of CalComp's evidence showed that among the reasons a separate control unit is more expensive than integrated control circuitry are that the former requires its own cabinet, frames, power supply, additional cabling and electronics. According to an IBM witness, the monolithic systems technology that preceded the 145-2319A system required a large standalone controller, whereas the new generation technology represented by the 145-2319A system produced a comparable control function which was in the area of ten times smaller . . . . (Y)ou could now put that into the 145 system, utilizing its frames and its covers and then passing on the advantages of that to the customer in a price reduction. CalComp's Chairman stated that as a result of integration, the customer uses less floor space which tends to be relatively expensive in a computer room. 31 77 IBM, assuming it was a monopolist, had the right to redesign its products to make them more attractive to buyers whether by reason of lower manufacturing cost and price or improved performance. It was under no duty to help CalComp or other peripheral equipment manufacturers survive or expand. IBM need not have provided its rivals with disk products to examine and copy, See 3 P. Areeda & D. Turner, Antitrust Law P 738, at 286 (1978), nor have constricted its product development so as to facilitate sales of rival products. The reasonableness of IBM's conduct in this regard did not present a jury issue. 78
79 In July, 1971, IBM announced price increases on certain of its CPUs of up to 8%. The weighted average price increase of all CPUs was 1.5%. CalComp argued that these price increases, instituted two months after FTP was announced, were designed to offset the short-term revenue losses expected from FTP price cuts. After FTP users were locked into IBM peripherals for one or two year lease terms, according to CalComp, they would be unable to change CPUs, thus enabling IBM to raise CPU prices without appreciably affecting demand or profitability. 80 However, CalComp's own evidence indicated that the net effect of FTP and the CPU price increases was not expected to be a wash with respect to either CPU demand or overall profitability. CalComp introduced an IBM memo written after the CPU price increases went into effect stating that the net effects of the Fixed Term Plan and (CPU) price change will probably be a wash insofar as Business volumes are concerned. (Emphasis added). The author of this memo went on to explain that FTP would have the effect of increasing peripheral volume, while the CPU price increases would probably induce adverse reaction on the part of some customers . . . . In terms of overall business volume, the author concluded, (a)ny decrease in system acceptances which occurs will probably be offset by . . . the Fixed Term Plan. In other words, there was not a single demand function for CPUs and peripherals; IBM did not expect to raise CPU prices with impunity, as CalComp asserts, by virtue of the effects of FTP. 81 Moreover, there was no evidence that CPU price increases actually offset the FTP price cuts. According to CalComp's amended complaint, (p)eripheral devices . . . account for between 50% And 75% Of the total value of a system configuration. The trial testimony of Richard Whitcomb, Director of Product Planning at Itel and a former IBM employee, and Edwin McCollister, Director of Market Development at Burroughs, confirmed this. Since, as discussed Supra, the FTP price cuts amounted to 8% And 16%, a jury would be hard pressed to conclude from CalComp's evidence that the CPU price increases in fact offset FTP losses i. e., that a weighted average price increase of 1.5% On CPUs made up for price cuts of 8% And 16% On peripheral products of equal or greater value. 82 Other evidence portrayed IBM's decision to raise CPU prices as motivated by inflation and cost concerns. IBM had not raised its mainframe prices in over four years; its 1971 increases were approved as cost-justified by the newly-formed Price Commission under the Economic Stabilization Program then in effect. 83 Viewed in the light most favorable to CalComp, this evidence does not provide support for its offset theory. Especially since we have already determined that the FTP price cuts allegedly facilitated by the CPU price increases were themselves profitable and reasonable even for a monopolist in any event, 32 it was proper to take the case from the jury on this issue.