Opinion ID: 4076467
Heading Depth: 2
Heading Rank: 2

Heading: Prejudice on the Antitrust Verdict

Text: Avaya, of course, argues that the error did spill over into the antitrust verdict. It presents three bases for concluding that the judgment as a matter of law prejudiced the jury’s consideration of the antitrust counterclaims: first, it undermined Avaya’s defense that its responses to TLI’s conduct were reasonable and pro-competitive; second, it lent false credence to TLI’s assertion that Avaya knew there was no truth to its letters (the so-called “FUD” letters described above) telling customers that using ISPs would be unlawful; and third, it led the District Court to wrongly restrict Avaya’s cross-examinations of TLI witnesses. We agree that those problems, all resulting from the erroneous grant of judgment as a matter of law, did indeed likely affect the antitrust verdict.
Antitrust Defense All of the antitrust counterclaims against Avaya were presented under the “rule of reason,” which gives effect to the analysis of the District Court’s error speak for itself as a response to that portion of the Dissent. 68 Supreme Court’s instruction that the Sherman Act “only means to declare illegal any [restraint] which is in unreasonable restraint of trade.” United States v. TransMissouri Freight Ass’n, 166 U.S. 290, 327 (1897) (emphasis added). “Under this rule, the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Cont’l T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977). Therefore, limitations on Avaya’s ability to explain the reasonableness of its actions had the potential to harm its defense. For the Sherman Act § 2 monopolization claims, for example, TLI had to establish that Avaya’s allegedly predatory conduct was performed with monopolistic intent. “To prevail on an attempted monopolization claim under § 2 of the Sherman Act, a plaintiff must prove that the defendant (1) engaged in predatory or anticompetitive conduct with (2) specific intent to monopolize and with (3) a dangerous probability of achieving monopoly power.” Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 442 (3d Cir. 1997) (emphasis added) (internal quotation marks omitted). “Liability turns ... on whether valid business reasons can explain [a defendant’s] actions.” Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 483 (1992) (internal quotation marks omitted). As the District Court instructed the jury, “acts or practices that result in the acquisition or maintenance of monopoly power must represent something more than the conduct of business that is part of the normal competitive process” and must be actions that are “taken for no legitimate business reasons.” (J.A. 621.) Insofar as Avaya was limited in explaining why its 69 actions were not predatory or lacked a monopolistic intent, those limitations would of course harm its defense.36 The District Court’s instructions in light of its erroneous Rule 50 decision on the common law claims may well have affected the jury’s assessment of the reasonableness and purpose of Avaya’s actions. The jury was prevented from deciding the antitrust claims and the common law claims in concert and from evaluating whether TLI’s allegedly tortious conduct provided a legitimate business justification for the things Avaya’s did. Specifically, the Court instructed the jury that Avaya’s claim[s] against TLI[] ... have been resolved and are no longer before you. ... In Avaya’s direct claims against all the defendants, Avaya asserted that [TLI’s] use of 36 Moreover, as we explain in more detail below, under the specific theory of antitrust liability pressed by TLI, if Avaya’s sales contracts had established that using independent service providers was prohibited, then any remedy to infirmities in that arrangement would lie “in contract, not under the antitrust laws.” Queen City Pizza, 124 F.3d at 441. Therefore, to the extent that Avaya’s interpretation of its customer contracts was correct, that would have added a very potent weapon to Avaya’s arsenal to combat the specific theory of antitrust liability argued by TLI. But Avaya was precluded from making that argument because the District Court erroneously adopted a definitive construction of those contracts, as a matter of law, in service of its Rule 50 decision. 70 and access to the maintenance software embedded in the Avaya PBXs and PDSs, such as the on-demand maintenance commands, was, for a variety of reasons, unlawful. I now instruct you that [TLI’s] use of and access to such maintenance software may not be considered by you as unlawful when deciding [TLI’s] claims against Avaya asserted in the counterclaim. To the extent Avaya has alleged that TLI[] engaged in illegal or unlawful conduct, in connection with its business operations, such allegations should be disregarded. (J.A. 4739 (emphasis added).) Not only did the District Court so instruct the jury, but TLI itself repeatedly emphasized that instruction in its closing argument in order to undercut Avaya’s defense that there was a reasonable business justification for its actions. Consider this passage from TLI’s summation: When TLI started to compete with Avaya, it had the right to do so; and, yes, [the District Court] will instruct you tomorrow, you should not consider TLI’s ... use of and access to the maintenance software that’s embedded in these Avaya PBX systems and dialers, do not consider it in any way unlawful. And this is critically important for you to understand. You are not to consider TLI’s actions in that regard unlawful. 71 (J.A. 4732.)37 The District Court’s erroneous instruction, combined with TLI’s repeated hammering of the point, highlights how important the lawfulness or unlawfulness of TLI’s actions could have been to the jury’s deliberations. Avaya’s entire affirmative case alleged that TLI’s conduct was tortious and in breach of contractual obligations. If true, Avaya’s defensive response could be seen as substantially more reasonable, and its intentions substantially less predatory. By instructing the jury that it could not consider TLI’s conduct to be unlawful – an instruction premised on the flawed grant of judgment as a matter of law – the District Court improperly prevented the jury from weighing Avaya’s defenses in light of the rule of reason standard for both the § 1 and § 2 Sherman Act claims.38 37 At least twice more, TLI strongly emphasized the importance of the District Court’s jury instructions. For instance, it told the jury that “[w]hen TLI started to compete with Avaya, it had every right to do so. TLI’s use and access to maintenance software that’s embedded in these systems, you should not consider to be unlawful. You will hear that instruction from the judge tomorrow.” (J.A. 4733.) Later, it reminded the jury: “Again, you will be instructed by the Court tomorrow, that you are not to consider TLI’s access to or use of the maintenance software, including MSPs and ODMs, called ODMCs and maintenance software permissions, as in any way unlawful use of that maintenance software.” (J.A. 4734.) 38 As we read the Dissent, its objection to our conclusion comes down to its premise that “Avaya had ample 72 opportunity to present the jury with legitimate and procompetitive defenses for its actions.” (Dissenting Op. at 10.) To be sure, Avaya mounted a vigorous defense notwithstanding the limitations it faced as a result of the Rule 50 ruling, but we lack the Dissent’s confidence that it is “highly probable that the error did not affect the outcome of the case.” Glass v. Phila. Elec. Co., 34 F.3d 188, 191 (3d Cir. 1994) (quotation marks and citation omitted). A jury may well have evaluated Avaya’s conduct differently if Avaya were simply enforcing its contractual rights or combating tortious activity, as TLI itself recognized by its repeated emphasis in its summation that its actions could not be considered unlawful. The Dissent betrays the importance of the lawfulness determination when it says that Avaya’s “defenses did not depend on whether TLI’s conduct was so egregious as to be against the law.” (Id.) The special egregiousness of unlawful conduct is precisely the argument that Avaya wanted to make – and was deprived from making – to the jury. This is also where the Dissent’s “David and Goliath” analogy breaks down. Avaya was certainly the bigger competitor, but TLI was no plucky little company armed only with the business equivalent of a sling and a few stones. It was a sophisticated and aggressive company, which, at least according to Avaya and a great deal of the evidence at trial, was prepared to, and did, engage in what even the Dissent acknowledges were “deceitful and/or unethical” business methods. (Id. at 2.) Since those methods were such that the jury could have found them unlawful, the Rule 50 error was not harmless. 73
Letters Beyond the general infection of the jury’s consideration of the reasonableness of Avaya’s actions, the District Court’s grant of judgment as a matter of law also undercut a specific portion of Avaya’s antitrust defense. Among the evidence put forward by TLI to prove predatory conduct were the FUD letters. Those letters told customers that MSPs “are not available to customers of Unauthorized Service Providers,” that “Unauthorized Maintenance Service Providers do not have rights to receive [MSP] benefits, nor do they have rights to use Avaya logins,” and that “[u]se of MSPs, or any Avaya Login ... without a license from Avaya, is an infringement of Avaya’s intellectual property rights.” (J.A. 7303-04.) Whether those letters could constitute monopolistic conduct turned on whether they were true. As the District Court instructed the jury, “the law does not allow [TLI’s] injury to be based on ... Avaya’s dissemination of truthful statements.” (J.A. 621.) The jury’s assessment of the letters’ truthfulness was surely influenced by the District Court’s instruction that TLI’s “use of and access to such maintenance software may not be considered by you as unlawful” and that “[t]o the extent Avaya has alleged that TLI[] engaged in illegal or unlawful conduct, in connection with its business operations, such allegations should be disregarded.” (J.A. 615.) That instruction all but told the jury that the letters were false in their allegation that TLI’s access was unlawful. 74 TLI’s trial counsel then connected those closely adjacent dots when he took advantage of the instruction to argue to the jury that Avaya’s FUD letters were untruthful and therefore monopolistic: Even though it acknowledged that it had no legal basis to do so,[39] Avaya sent FUD letters to TLI’s customers ... . As the Court will instruct you tomorrow, you are not to consider ... TLI’s access to the maintenance commands or the maintenance software as unlawful, but Avaya’s FUD campaign simply did not convey truthful information. (J.A. 4736.)40 39 We have been shown nothing in the record suggesting that Avaya acknowledged that it had “no legal basis” to send the so-called FUD letters. To the contrary, Avaya’s entire affirmative case relied in large part on a belief that TLI’s unauthorized provision of maintenance services did lead customers to breach their contracts with Avaya. On appeal, Avaya continues to argue that the FUD letters were truthful. 40 The Dissent contends that “[e]ven if the jury had not been instructed that unauthorized access to Avaya software was not illegal, it is unlikely that it would have reached a different verdict.” (Dissenting Op. at 13.) The Dissent says that Avaya seemed to concede that the FUD letters included some “over-the-top” prose (id.), but be that as it may, the 75
Examination Avaya also contends that the District Court’s grant of judgment as a matter of law hindered its ability to present evidence in its defense against the antitrust claims. It points to two examples in particular. First, during Avaya’s cross-examination of TLI’s CEO, Avaya’s counsel asked about how TLI got access to Avaya brand PBX systems. At a sidebar, the District Court told counsel that, “[i]f you’re trying to tell the jury they’re illegal, I have a problem with that.” (J.A. 4440.) The Court did allow the line of questions but under the restriction that counsel could not imply that TLI’s actions were unlawful. Second, when Avaya was examining its own economics expert, it presented evidence that restrictions it placed on its Business Partners actually ended up “clearing the field” in a way that advantaged TLI competitively.41 degree to which those letters were legitimate surely depended on the truth of the legal assertions in them. If Avaya was correct in its assertions that unauthorized access was unlawful – a question taken away from the jury by virtue of the Rule 50 decision – then the letters arguably contain defensible statements of law. That could make a world of difference to a jury in evaluating the truthfulness and competitive legitimacy of the letters. 41 The basis for the field-clearing argument was that because Avaya restricted its Business Partners from competing with it for maintenance business, when TLI sought 76 Before the Rule 50 decision, the expert was planning to include analysis predicated on the illegality of TLI’s conduct, but – after the judgment as a matter of law – the District Court reminded counsel in a sidebar to “[s]tay away from trying to ... contradict anything I’ve already decided,” in reference to the Rule 50 decision. (J.A. 4587.) Those specific examples speak to a broader point. They highlight that, if Avaya had been able to argue that TLI’s conduct was unlawful, that argument would likely have been a key and repeated part of its defense to the antitrust claims. Each argument by TLI’s counsel to the contrary could have been met with a forceful response. Avaya’s claim that it was “hamstrung in its ability to justify its supposedly anticompetitive conduct” is therefore a fair and accurate one. (Third Step Br. at 19.)42 to lure customers from Avaya, it did not have to compete with any of those Business Partners, who were precluded from seeking that business. In that way, the expert opined, TLI benefited from much of the allegedly anticompetitive conduct over which it filed suit because that conduct restricted TLI’s competition as much as it did Avaya’s. 42 The Dissent suggests that any limitations placed on Avaya’s defense as a result of the Rule 50 ruling were merely “rhetorical,” and that being able to argue the illegality of TLI’s conduct “would not have changed the substance of Avaya’s procompetitive-justification argument.” (Dissenting Op. at 12.) We disagree. It is one thing to explain to a jury that sharp-elbowed tactics were taken to retaliate against aggressive but completely lawful activities of a competitor. It is altogether different to be able to argue that the restraints of 77
Having concluded that the judgment as a matter of law on Avaya’s common law claims was an error, and that that error likely affected the jury’s consideration of the antitrust claims, we must now consider whether that effect was harmless. “An error will be deemed harmless only if it is highly probable that the error did not affect the outcome of the case,” and, in that same vein, an error cannot be said to be harmless unless there is a high probability “that the result would have been the same had the jury been correctly instructed.” Hill v. Reederei F. Laeisz G.M.B.H., Rostock, 435 F.3d 404, 411 (3d Cir. 2006) (internal quotation marks omitted). We have held, when interpreting this “highly probable” standard, that an error is not harmless if it could have “reasonably ... affected the outcome of the trial,” id. at 411, or if the jury “quite possibly” relied on an erroneous instruction, see Hirst v. Inverness Hotel Corp., 544 F.3d 221, 228 (3d Cir. 2008). In this case, we cannot say that it was “highly probable” that the District Court’s erroneous Rule 50 decision and resulting erroneous jury instruction about the lawfulness of TLI’s conduct did not affect the outcome of the antitrust claims.43 On the contrary: we think it probable that they did trade at issue were necessary to enforce Avaya’s contractual rights and to deter fraudulent and tortious interference with Avaya’s legitimate business interests. 43 The Dissent would not even reach the question of whether the District Court’s erroneous Rule 50 order infected the antitrust verdict, on the ground that Avaya forfeited any 78 affect the outcome. The judgment as a matter of law, the concordant limitations on Avaya’s antitrust defense, and the ultimate jury instruction about lawfulness all seriously hampered Avaya’s ability to argue that its conduct was a argument of spill-over prejudice. That position seems to us to result from the Dissent’s separate (and, in our estimation, incorrect) view that any prejudicial effect on the jury’s consideration of the antitrust counterclaims was tangential and minor. We agree with our dissenting colleague that, “[i]f a claim of error is unaccompanied by developed argument, it is forfeited.” (Dissenting Op. at 6 (internal quotation marks and citation omitted).) In this case, however, the claim of error – that the District Court’s Rule 50 decision was improper – was indisputably fully briefed and argued. Avaya’s position that the erroneous Rule 50 ruling tainted the antitrust verdict was made as a request for a particular form of relief to correct that error. The request was brief but the brevity is unsurprising, given how inextricably linked Avaya’s rule of reason antitrust defense was to its claims that TLI’s actions were unlawful. Avaya could reasonably have expected TLI’s answer simply to contest Avaya’s claim of error as to the Rule 50 ruling, as TLI in fact did contest at length. As it happened, however, TLI also raised a separate argument, as an alternative basis to affirm, that any error was harmless as to the antitrust verdict. Avaya then provided a rebuttal to that assertion of harmlessness with exactly the kind of responsive argumentation we would expect in a reply brief. Cf. Becker v. ARCO Chem. Co., 207 F.3d 176, 205 (3d Cir. 2000) (considering and rejecting a harmless error argument raised for the first time by the appellee at oral argument and only then countered by the appellant). 79 justifiable and reasonable response to TLI’s underhanded methods of acquiring Avaya’s proprietary business information. That TLI used the District Court’s errors to pound home its own case only compounded the problem and further undermines our confidence in the verdict. Because the errors “quite possibly” affected the judgment, we must vacate it. Hirst, 544 F.3d at 228.44