Opinion ID: 2981417
Heading Depth: 4
Heading Rank: 1

Heading: Prebate Program

Text: Static Control alleges that the Prebate Program, through its lower prices and misleading statements that the end user committed to a license agreement when no such license existed, cajoled end users into purchasing fewer remanufactured cartridges and thereafter returning them primarily to Lexmark. As a result, Static Control was also harmed because it lost profits from the decline in sales of microchips and components for Lexmark-compatible cartridges following the decline in sales of remanufactured cartridges. First Appellant Br. at 16. As alleged, the Prebate Program targets only the market for remanufactured cartridges. No part of the Prebate Program relates to the market for microchips or components, even though the allegations support the Prebate Program’s incidental effects in the other markets. Static Control itself states that “Lexmark specifically launched its Prebate program to intimidate and to exclude competition from remanufacturers.” 02R. 172 (2d Am. Answer & Countercl. at ¶ 33) (emphasis added). And as discussed above, although Static Control’s allegations often refer to the “relevant markets,” the specific factual allegations explain only Prebate’s impact on the market 6 Specifically, Static Control complains that Lexmark engaged in anticompetitive conduct by creating two classes of otherwise identical cartridges, Prebate and non-Prebate, selling the non-Prebate cartridges at artificially inflated prices, falsely invoking patent rights to prevent remanufacturers from repairing Prebate cartridges, and engaging in other threatening behavior. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 16 for remanufactured cartridges. For example, when Static Control alleges that Lexmark used Prebate to “effect[] its deliberate, unlawful, anticompetitive intent to raise prices and exclude competition,” id., we can conclude only that this allegation relates to the market for toner cartridges because of the lack of any allegations that the prices were raised in other markets. Having identified the proper market, we easily conclude that all five of the AGC factors are lacking with respect to the Prebate program. Although causation in the traditional sense appears properly alleged—the implementation of the Prebate program decreased the number of remanufactured Lexmark cartridges, which in turn decreased Static Control’s sales—Static Control fails to allege plausibly that the Prebate program was intended to harm Static Control. As the district court correctly held, the intended targets of Lexmark’s Prebate Program were the end users and the remanufacturers, not Static Control. R. 392 (D. Ct. Order 9/28/06 at 9). Static Control asserts that these conclusions erroneously rely on factual averments and that the district court failed to accept its facts as alleged, but Static Control itself alleges this: “Lexmark specifically launched its Prebate program to intimidate and to exclude competition from remanufacturers.” 02R. 172 (2d Am. Answer & Countercl. at ¶ 33); see also id. at ¶ 42 (“Lexmark’s sole purpose for deceiving end-users to believe they are contractually bound by [the Prebate Program] is to preserve, maintain, and enhance its unlawful monopoly power in the relevant markets.”). Static Control also fails sufficiently to identify its role in the relevant market for remanufactured cartridges. Traditionally, only claimants who are competitors or consumers within the injured market have standing to sue. Southaven, 715 F.2d at 1086. However, claimants who are not direct players in the relevant market may nonetheless have standing if their injury is “‘inextricably intertwined’ with the injury sought to be inflicted upon the relevant market or participants therein.” Id. The “inextricably intertwined” exception, however, is narrow. See Blue Shield of Va. v. McCready, 457 U.S. 465, 483-84 (1982). This exception was not designed to give standing to claimants whose injuries are a tangential byproduct of monopolistic conduct in a related market. Southaven, 715 F.2d at 1086. To succeed, the claimant must show that the Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 17 defendants “manipulated or utilized [the claimant] as a fulcrum, conduit or market force to injure competitors or participants in the relevant product and geographical markets.” Id. Static Control must therefore have alleged that an injury in Lexmark’s market—the market for replacement toner cartridges—is inextricably intertwined with the injuries Static Control claims to be suffering in the market for component parts and microchips. The district court rejected Static Control’s argument, because Static Control failed adequately to allege that it was “manipulated or utilized by the defendant as a fulcrum, conduit or market force to injure competitors or participants in the relevant product and geographical market.” R. 392 (D. Ct. Order 9/28/06 at 10) (quoting Province v. Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir. 1986) (internal quotation marks and brackets omitted)). “If anyone is being manipulated according to [Static Control’s] allegations, it is the end consumer.” Id. at 10-11. We agree. Static Control’s counterclaim makes no mention of being used by Lexmark as a fulcrum, and Static Control does not allege that it was harmed because it was manipulated into harming the remanufacturers. Static Control on appeal argues that Lexmark used Static Control as a fulcrum to injure the remanufacturers by (1) falsely telling remanufacturers that using Static Control’s products would constitute infringement; (2) redesigning its microchips, thus forcing Static Control to redesign its microchips to remain compatible; (3) threatening legal action against Static Control; (4) and suing Static Control for baseless copyright claims. First Appellant Br. at 39. But, although these specific allegations are sprinkled in various sections of the counterclaim to support other arguments, we can find no allegations in the counterclaim that Lexmark manipulated Static Control in any way to carry out its anticompetitive Prebate Program in the market for remanufactured cartridges. “An inextricably intertwined injury is one that results from the manipulation of the injured party as a means to carry out the restraint of trade in the product market.” Province, 787 F.2d at 1052. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 18 Static Control’s allegations establish that it was negatively affected by Lexmark’s manipulation of the end users into buying Prebate cartridges, but that Static Control itself was not used as a conduit to achieve the alleged anticompetitive effect in the remanufactured cartridge market. See Southaven, 715 F.2d at1086 (harm from tangential effects of anticompetitive conduct not enough to convey standing). Indeed, the allegations make very clear that Lexmark is using the end users to obtain the desired anticompetitive effects, rather than using Static Control. Static Control specifically alleges that Lexmark “fraudulently induces customers’ use of Prebate cartridges” and “exploit[s] consumers’ lack of information about choices in replacement cartridges” to reduce the number of non-Prebate cartridges on the market. 02R. 172 (2d Am. Answer & Countercl. at ¶ 37); see also id. at ¶ 38 (“Lexmark’s anticompetitive exploitation of consumers’ and end-users’ lack of adequate information increases prices and reduces output in the relevant markets.”) (emphasis added). No such allegations of exploitation or manipulation exist with respect to Static Control. The level of manipulation of the claimant—and the necessity of the success of such manipulation to achieve the anticompetitive conduct—is simply not present in this case with respect to Static Control. See Peck, 894 F.2d at 847. Even if we were to consider Static Control’s injury in the market for components and microchips sufficiently related to the harm caused by the Prebate Program in the remanufactured cartridges market, Static Control still lacks standing due to its failure to satisfy the remaining AGC factors. See Fallis v. Pendleton Woolen Mills, Inc., 866 F.2d 209, 211 (6th Cir. 1989) (holding no antitrust standing despite assuming claimant was used as a fulcrum in relevant market), abrogated on other grounds by Humphreys v. Bellaire Corp., 966 F.2d 1037 (6th Cir. 1992). Antitrust causation is much more limited than Article III standing. Here, Static Control’s injury is too attenuated to qualify. “[Static Control’s] injury is derivative; it is simply a side effect of [Lexmark’s] alleged antitrust violations.” Fallis, 866 F.2d at 210. Static Control also fails to establish the final three AGC factors, which all relate to the directness of Static Control’s injuries relative to potentially more-direct victims. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 19 Static Control’s injuries as a result of the Prebate program are clearly a “byproduct” of the alleged antitrust violation. Province, 787 F.2d at 1053; Fallis, 866 F.2d at 211. The more-direct victims are the end users, who according to the allegations had to pay more for their cartridges as a result of the allegedly anticompetitive conduct, and the remanufacturers, who were unable to compete in the market for Lexmark-compatible toner cartridges after Lexmark’s Prebate program undercut their prices and reduced supply. Although the end users may have little incentive to sue, two of the remanufacturers raised (and ultimately settled) antitrust claims against Lexmark in the same action. R. 392 (D. Ct. Order 9/28/06 at 12). Where there are more-direct victims of the anticompetitive conduct, those victims have the standing to sue, rather than those affected indirectly. Southaven, 715 F.2d at 1087; Province, 787 F.2d at 1053-54. The existence of this clear class of direct victims increases the danger of duplicative recovery should Static Control be given antitrust standing to pursue the Prebate Program and receive treble damages.7 Static Control may seek only the damages from its own losses, but the concern of duplicative recovery relates more broadly to the issue of requiring a defendant to pay treble damages to parties both directly and indirectly injured from the same antitrust violation. See Ill. Brick Co. v. Illinois, 431 U.S. 720, 731 n.11 (1977) (discussing risk of duplicative recovery between direct and indirect purchasers). Finally, we agree with the district court that Static Control’s calculation of over $18 million in damages is speculative. R. 392 (D. Ct. Order 9/28/06 at 11). Static Control’s argument for directness of its injury relies heavily on the Second Circuit case Crimpers Promotions, Inc. v. Home Box Office, Inc., 724 F.2d 290, 294-95 (2d Cir. 1983), cert. denied, 467 U.S. 1252 (1984), as does much of its argument on standing. The plaintiff in Crimpers had standing because HBO and Showtime colluded to prevent his tradeshow from serving as a middleman between television show producers and cable operators, which was the only alternative forum for them to communicate. Crimpers had standing because “[i]njury to Crimpers was the precisely 7 The district court did not explicitly discuss the potential for duplicative recovery. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 20 intended consequence of defendants’ boycott,” even more than the resulting injury to the tradeshow participants. Id. at 294. Here, the allegations of both intent and injury are less direct. The Prebate program reduced the number of cartridges available for remanufacture, which in turn reduced the number of microchips sold by Static Control to the remanufacturers. Static Control’s allegations resemble a classic case of a supplier seeking standing to recover for indirect damages following anticompetitive conduct directed at its customers’ market. Crimpers is simply inapposite. We agree that Static Control lacks standing to pursue its antitrust claims as they relate to the Prebate program. 2. Restraints on Microchips in Lexmark Printers and Cartridges Static Control also argues that the existence of microchips in the cartridges in the first place and Lexmark’s exclusive distribution agreement with its own microchip supplier are anticompetitive acts. These acts differ from the Prebate program because they directly target the microchip market in which Static Control is a competitor. Although Lexmark does not compete in the market for microchips, the allegations suggest that Lexmark uses its influence to restrain trade in the microchip market in order to restrain trade in the remanufactured cartridge market. Here, however, Static Control again lacks standing because it has failed to allege how Lexmark’s actions caused any antitrust injury. Static Control objects to the initial creation of the “anticompetitive microchips,” but fails to allege how the existence of a microchip requirement alone caused Static Control any injury. See 02R. 172 (2d Am. Answer & Countercl. at ¶ 44). Static Control makes no allegations at all relating to the change in prices for components and microchips as a result of Lexmark’s use of microchips in its toner cartridges, and Static Control makes no allegations regarding how a microchip requirement affected Static Control’s share of the market for components and microchips. Indeed, Static Control fails to allege plausibly how the creation of a microchip requirement hurt Static Control’s share of the microchip market, because without the requirement that market would not exist. It is possible that, without the microchips, Static Control would be able to sell more component parts, but Static Control does not make this allegation. Static Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 21 Control has failed to allege how the existence of a microchip requirement injured Static Control or otherwise gave Lexmark a monopoly in the related market for Lexmark component parts. Static Control’s allegations relating to Lexmark’s microchip supplier’s refusal to compete with third parties fares no better. As a self-proclaimed “leading supplier to toner cartridge remanufacturers,” id. at ¶ 30, Static Control fails to allege how the removal of one of its direct competitors from the components and microchips market following an exclusive distributorship agreement with a single customer caused any damage to Static Control’s position within those markets or profits. See New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1052 (6th Cir. 2011) (“Merely demonstrating the existence of an exclusive distributorship in a market area does not violate Robinson–Patman—or any other antitrust provision.”). In general, the removal of a competitor increases (not decreases) the remaining suppliers’ market share, and Static Control has not alleged that Lexmark was a former customer or that absent the exclusive agreement Lexmark would have purchased from Static Control. “Antitrust injury does not arise for purposes of § 4 of the Clayton Act until a private party is adversely affected by an anticompetitive aspect of the defendant’s conduct.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990) (citation and emphasis omitted). Cases have routinely rejected claims of antitrust violations that may very well be violations when the claimants stood to gain from the anticompetitive conduct. Therefore, “[Static Control] cannot recover for a conspiracy to impose nonprice restraints that have the effect of either raising market price or limiting output.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 583 (1986); Datagate, Inc. v. Hewlett-Packard Co., 941 F.2d 864, 868-69 (9th Cir. 1991) (“As an existing competitor, [claimant] would have benefitted from any chilling of new entry into the market. Therefore, [claimant] can claim no injury as a result of such chilling.”) (citation omitted), cert. denied, 503 U.S. 984 (1992). Static Control has failed plausibly to allege any antitrust injury stemming from Lexmark’s decision to use microchips in its cartridges and to remove its own supplier from the market for microchips. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 22 3. Redesigning Microchips to Circumvent Static Control’s product Once the market for microchips was created, however, the issue becomes whether Lexmark can engage in a conspiracy to eliminate that market or stifle competition within that market. If Lexmark were able to maintain a monopoly on remanufactured toner cartridges by making cartridge parts wholly unavailable, Static Control might have standing to pursue an antitrust violation. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 463-64 (1992). The allegations, however, do not sufficiently allege such behavior. Static Control does not specifically allege a tying scheme under § 1 of the Sherman Act, as was the case in Eastman Kodak, nor does Static Control allege any facts to suggest that the prices for parts increased as a result of being illegally tied to the market for cartridges. Static Control alleges that Lexmark continuously redesigned its microchips “to exclude competitors from the relevant markets, restrict output, and increase end-user prices.” 02R. 172 (2d Am. Answer & Countercl. at ¶ 45). But Static Control does not allege how Lexmark’s redesign decreased competition in the markets in which Static Control competes, the market for microchips or parts. Static Control does not even identify in its pleading who competes in the microchip or parts markets, what their market share is, whether they are controlled by Lexmark, what their prices were, or how their prices were affected by Lexmark’s redesign (or any of Lexmark’s conduct for that matter). See CBC Companies, Inc. v. Equifax, Inc., 561 F.3d 569, 572 (6th Cir. 2009) (holding allegations insufficient to establish antitrust injury in part due to failure to identify other market players). The counterclaim lacks other supporting allegations such as the nature and frequency of Lexmark’s redesigns and how quickly replacement products were able to adapt to the changes. Nor does Static Control make any non-conclusory allegations to refute the possible business explanation that Lexmark, like most companies, continuously updates its products over the years for legitimate competitive reasons. Twombly, 550 U.S. at 553. Static Control’s allegations with respect to the microchip redesign therefore also fail to establish antitrust standing for any cognizable antitrust injury. Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 23 4. Filing Suit Lexmark further correctly observes that the act of filing suit generally does not constitute an antitrust injury under the Noerr-Pennington doctrine.8 Second Appellee Br. at 47; see E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). Although exceptions are made when the filing is a sham for interfering with competition, the first inquiry for identifying sham litigation is objective reasonableness: “Only if challenged litigation is objectively meritless may a court examine the litigant’s subjective motivation.” Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993). We cannot say that Static Control has plausibly alleged that the 02 Action was “objectively meritless.” See 02R. 172 (2d Am. Answer & Countercl. at ¶ 56). Static Control’s allegations focus solely on Lexmark’s intent behind bringing the copyright action; Static Control does not offer any allegations upon which we can plausibly conclude that the copyright action was “objectively meritless.” The Sixth Circuit’s ultimate conclusion that Lexmark lacked a valid copyright claim is not determinative of whether the initial suit was reasonable. Prof’l Real Estate, 508 U.S. at 60 n.5. We agree with Lexmark that its efforts in federal court, as alleged, should be immune from antitrust suit. C. Antitrust Standing for Counterclaims Seeking Injunctive Relief The Clayton Act also permits a private party to obtain injunctive relief “against threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. The district court did not distinguish between Static Control’s request for injunctive relief and its request for monetary damages when dismissing the counterclaim for lack of standing. See R. 392 (D. Ct. Order 9/28/06 at 12). Static Control argues that the district court separately erred in dismissing its claim for equitable relief because the last three AGC factors are inapplicable to whether a claimant has standing to seek injunctive relief. 8 Static Control claims Lexmark’s Noerr-Pennington argument is waived as it was not raised below and was raised on appeal only in a footnote. Third Appellant Br. at 7 n.3. However, “standing is a jurisdictional requirement that cannot be waived, and such may be brought up at any time in the proceeding.” Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002). Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 24 First Appellant Br. at 51. Lexmark argues that the standing requirements for obtaining injunctive relief are no different from the standing requirements for obtaining monetary relief when, as here, Static Control also seeks money damages. Second Appellant Br. at 56 (“The requirements for antitrust standing are the same whether the antitrust plaintiff seeks damages only or damages and injunctive relief.”). The Clayton Act does not “authorize a private plaintiff to secure an injunction against a threatened injury for which he would not be entitled to compensation if the injury actually occurred.” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 112 (1986). The only difference between a claim for equitable relief and one for damages is that equitable relief is available at the mere threat of antitrust injury. Because we have held that Static Control has failed to plead an antitrust injury, we affirm the dismissal of Static Control’s claim for equitable relief. See Valley Prods. Co. v. Landmark, 128 F.3d 398, 402 (6th Cir. 1997).