Opinion ID: 4076467
Heading Depth: 3
Heading Rank: 3

Heading: PDS Tying Claim

Text: Avaya also asks us to reverse the judgment against it for unlawfully tying PDS patches to maintenance, arguing that there was insufficient evidence to support any finding that there was a distinct aftermarket for patches. Before 51 Our reading of Kodak further bolsters our conclusion that the District Court’s judgment as a matter of law on Avaya’s common law claims necessarily prejudiced the antitrust verdict. Protecting itself from tortious forms of competition may well have been a valid business reason to engage in defensive exclusionary conduct, and that kind of affirmative defense was the crux of the Kodak opinion’s § 2 analysis. That Avaya was not able to make such an argument to the jury improperly hindered its defense against TLI’s § 2 claims. 102 October 2007, Avaya argues, it “made patches freely available to all Avaya PDS owners without requiring them to purchase Avaya maintenance.” (Opening Br. at 75.) The patches were available on Avaya’s website for any PDS owner to access, irrespective of who provided system maintenance. At trial, TLI’s CEO agreed with that, and a representative of SunTrust – the one customer that TLI put on as evidence for its PDS tying claim – testified that TLI was able to provide patches during the entire period that SunTrust hired TLI for maintenance. For PDS hardware sold from October 2007 onward, Avaya did restrict access to its PDS patches to users of Avaya’s own support services, but the requirement to purchase Avaya support with the PDS hardware was made clear at the time of sale. Indeed, the SunTrust representative testified that when the firm purchased a new Avaya PDS after October 2007, it was informed that it would be required to purchase Avaya support and, if it wished to receive patches, could not use an ISP. TLI does not challenge those basic facts, but it argues that the PDS verdict can nonetheless stand. As to the pre2007 period, it argues that “Avaya used the threat of withholding patches to coerce PDS owners into purchasing maintenance from Avaya” (Answering Br. at 64), so that, even though the patches were formally available for free, Avaya still effected a tie. TLI points, as an example, to a letter sent in 2005 to PDS customers telling them that they risked losing access to a host of services, including patches, if they “ch[o]se to engage an Unauthorized Service Provider for services,” and threatening that “Avaya will take all necessary legal action against violators in order to protect Avaya proprietary intellectual property.” (J.A. 6945.) As to the post-2007 period, TLI argues that “Avaya PDS owners were 103 not made aware of ... Avaya’s policies.” (Answering Br. at 67.) Moreover, even if the policy was transparent, TLI argues that there was nonetheless sufficient evidence that the “patches aftermarket ... was not disciplined by the primary PDS market.” (Id. at 66.) The 2005 letter to PDS customers, like the PBX FUD letters, was no doubt a frustration to TLI in its own efforts to build its business. Avaya was indeed intent on dominating its own intra-brand market. But that does not mean that Avaya fell afoul of the antitrust laws, which “were enacted for ‘the protection of competition not competitors.’” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). It is undisputed that Avaya’s patches were freely available to customers on its website without any strings attached before 2007, and the only witness put forward by TLI to prove the efficaciousness of Avaya’s threats acknowledged that his firm was freely able to receive patches through TLI. “[W]here the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price.” Northern Pacific, 356 U.S. at 6 n.4. Given that Avaya offered the patches freely to PDS customers, TLI needed to put forward compelling evidence that Avaya was somehow nevertheless effecting a de facto tie between patches and maintenance. Were TLI to prevail on vague allegations that a strongly-worded letter was as effective as a technological or contractual tie, that would dramatically expand the reach of tying liability. The Kodak standard demands more, and we accordingly agree that the evidence before the jury was insufficient as a matter of law to sustain a tying claim 104 pertaining to PDS systems sold before October 2007, while patches were still freely available. As for PDS systems sold after Avaya’s October 2007 policy went into effect, TLI’s tying claim runs into the same problems as did its claim for antitrust injury in the post-2008 PBX market – Avaya introduced clear contractual language in the primary market prohibiting ISP use. If new PDS customers considered the requirements to purchase Avaya software support and to refrain from using ISPs “overly burdensome ... at the time they were proposed, [the buyers] could have purchased a different [brand] of [PDS].” Queen City Pizza, 124 F.3d at 441. Where the primary market is indisputably competitive – and there is no dispute here that it was and is – a plaintiff must show special circumstances, such as Kodak-style lock-in, to overcome the inference that such competition will discipline any related intra-brand aftermarkets. Given that post-2007 PDS customers were required to purchase an Avaya service plan with their PDS, the link of PDS and maintenance service was fully transparent in the primary market. That undermines any argument for Kodak-style lock-in or aftermarket surprise that TLI could make. Having no alternative theory, its PDS tying claim also fails as a matter of law for the post-October 2007 period. We therefore reverse the jury’s entire PDS tying verdict and remand with instructions for the District Court to enter judgment for Avaya on that claim. Given that result, we pause briefly to note that our reversal of the PDS verdict would endanger the validity of the damages award, even if we were not otherwise vacating it because of the District Court’s errors regarding the common law claims. “Where a jury has returned a general verdict and one theory of liability is not 105 sustained by the evidence or legally sound, the verdict cannot stand because the court cannot determine whether the jury based its verdict on an improper ground.” Wilburn v. Maritrans GP Inc., 139 F.3d 350, 361 (3d Cir. 1998) (citations omitted); see also Avins v. White, 627 F.2d 637, 646 (3d Cir. 1980) (Where “[i]t is ... impossible to determine if the jury based its verdict on all” the allegedly unlawful acts “or ... on only one,” then “there is the distinct possibility that if we affirm the jury’s verdict, we may do so on the basis of” lawful acts.); Albergo v. Reading Co., 372 F.2d 83, 86 (3d Cir. 1966) (“Where, as here, a general verdict may rest on either of two claims – one supported by the evidence and the other not – a judgment thereon must be reversed.”). In this case, the verdict form merely asked the jury to name “the total amount of damages, if any, that ... TLI[] has proven ... were caused by Avaya’s violation(s) of the antitrust laws.” (J.A. 640.) There is therefore no way to discern which portion of the damages the jury attributed to the PDS tying claim, and which to the PBX attempted monopolization claim. It is true that the PBX market is substantially larger, but if we affirmed the damages verdict on the basis of the pre2008 PBX claim alone, we would nonetheless risk the “distinct possibility that ... we may do so on the basis of” damages attributable to a liability theory that is invalid. Avins, 627 F.3d at 646. Moreover, the jury lacked a cogent way to disaggregate the PBX and PDS damages in the first place because TLI’s expert offered testimony based on combined damages.52 We therefore have no way to know 52 Moreover, the damages expert’s two models projected damages of between $133 million and $147 million, a far cry from the jury’s finding of $20 million in damages. 106 what portion of the damages verdict is attributable to the invalid PDS tying liability theory, which independently requires vacatur of the damages award.53 In trying to figure out what portion of that award was attributable to which systems, we would have a hard time reasoning how the jury came to its number in the first place, much less how much is attributable to a liability theory that survives this appeal. 53 The parties also fight over the jury instructions, but those are arguments we need not resolve because we are vacating the verdict on other grounds. Some comment is nevertheless in order. Avaya complains that the District Court simply gave the jury a list of factors to consider in an “uncabined” manner to determine whether the primary market was dissociated from the maintenance aftermarket. (Opening Br. at 52.) Although there is some merit to that complaint, there is also much to applaud in the District Court’s efforts to distill and describe this complex area of law for the jury. In particular, we appreciate that the Court properly identified from Kodak and our precedents relevant factors for the jury’s consideration. We agree, however, that – if there is a retrial – the Court should consider describing to the jury a logical path for it to follow in evaluating whether the primary market is dissociated from the aftermarket. For example, with respect to the PBX attempted monopolization claim, a theory of dissociation by aftermarket surprise in this case might run as follows: 1. If you find that customers could not have predicted that Avaya would condition their use of MSPs and ODMCs on customers’ refusal to use ISPs, you may 107 conclude that Avaya enacted a surprise aftermarket policy change. 2. If you determine that Avaya enacted such an aftermarket policy change, you must then evaluate whether Avaya had the ability to exercise market power in the aftermarket. To reach such a conclusion, you must conclude that Avaya and its Business Partners were able to exclude competitors in the aftermarket, and that switching costs in the primary market locked in customers. 3. If you determine that Avaya enacted a surprise aftermarket policy change and that it had market power in the aftermarket, you may then decide whether it was possible for Avaya to use that market power to exploit customers. To find the possibility of exploitation, you must conclude that Avaya had the ability to charge supracompetitive prices in the aftermarket.