Avaya Inc v. Telecom Labs Inc , 838 F.3d 354 ( 2016 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCIT
_____________
Nos. 14-4174 & 14-4277
_____________
AVAYA INC., RP
Appellant in 14-4174
v.
TELECOM LABS, INC.; TEAMTLI.COM CORP.,
CONTINUANT, INC., SCOTT GRAHAM;
DOUGLAS GRAHAM; BRUCE SHELBY
Telecom Labs Inc., Continuant Inc.,
Appellants in 14-4277
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. Action No. 1:06-cv-02490)
District Judge: Hon. Joseph E. Irenas
_______________
Argued
January 19, 2016
Before: JORDAN, HARDIMAN, and GREENAWAY, JR.,
Circuit Judges.
(Filed: September 30, 2016)
_______________
Seth P. Waxman [ARGUED]
Leon B. Greenfield
Danielle M. Spinelli
Catherine M.A. Carroll
David L. Sluis
Jonathan A. Bressler
Thomas G. Sprankling
Wilmer Cutler Pickering Hale and Dorr LLP
1875 Pennsylvania Avenue, NW
Washington, DC 20006
Robert T. Egan
Mark J. Oberstaedt
Archer & Greiner P.C.
One Centennial Square
33 E. Euclid Avenue
Haddonfield, NJ 08033
Jacob A. Kramer
Bryan Cave LLP
1155 F Street, NW
Washington, DC 20004
Lawrence G. Scarborough
Bryan Cave LLP
Two North Central Avenue – Ste. 2200
Phoenix, AZ 85004
Counsel for Appellant/Cross-Appellee
2
Douglas F. Broder
K&L Gates LLP
599 Lexington Avenue
New York, NY 10022
Raymond A. Cardozo
Paul D. Fogel
Reed Smith LLP
101 Second Street – Ste. 1800
San Francisco, CA 94105
Kathy D. Helmer
Scott G. Kobil
Anthony P. LaRocco
John Marmora
Charles F. Rysavy
K&L Gates LLP
One Newark Center – 10th Fl.
Newark, NJ 07102
Richard L. Heppner, Jr.
James C. Martin [ARGUED]
Colin E. Wrabley
Reed Smith LLP
225 Fifth Avenue – Ste. 1200
Pittsburgh, PA 15222
Counsel for Appellees/Cross-Appellants
_______________
OPINION OF THE COURT
_______________
3
Table of Contents
I. Introduction ..................................................................... 6
II. Background ..................................................................... 8
A. Factual Background ................................................... 8
1. PBX Systems and Maintenance ............................. 9
2. PDS Systems and Maintenance ............................ 14
3. The Dispute between Avaya and TLI .................. 15
B. Procedural Background ........................................... 19
III. Avaya’s Appeals............................................................ 24
A. Judgment as a Matter of Law on Avaya’s
Common Law Claims .............................................. 24
1. Evidence Supporting Avaya’s Common
Law Claims........................................................... 26
2. Customer Contract Interpretation ......................... 36
3. Tortious Interference with Prospective
Business Advantage ............................................. 44
4. Unfair Competition............................................... 54
5. Fraud ..................................................................... 57
6. Breach of Contract................................................ 61
7. Conclusion ............................................................ 67
B. Prejudice on the Antitrust Verdict ........................... 68
1. General Prejudice to Avaya’s Antitrust Defense . 68
2. “Fear, Uncertainty, and Doubt” Letters ............... 74
3. Interference with Defense and Cross-
4
Examination.......................................................... 76
4. Harmless Error Analysis ...................................... 78
C. Antitrust Issues ........................................................ 80
1. Tying in Antitrust Law ......................................... 80
2. PBX Attempted Monopolization Claim ............... 96
3. PDS Tying Claim ............................................... 102
IV. TLI’s Cross-Appeals ................................................... 109
A. Summary Judgment on TLI’s Common Law
Claims .................................................................... 109
B. Summary Judgment on PBX Upgrade Tying
Claim ...................................................................... 113
C. Noerr-Pennington Ruling ...................................... 115
V. Conclusion ................................................................... 118
5
JORDAN, Circuit Judge.
I. Introduction
When asked why he was so intent on scaling Mount
Everest, the ill-fated mountaineer George Mallory famously
replied: “because it’s there.”1 The parties before us have put
a twist on that philosophy: they have created their own
mountain of issues and have argued, appealed, and cross-
appealed nearly all of them.2 Unfortunately, if there had been
a hope of bringing this matter to conclusion any time soon,
that was dashed when, in the middle of trial, the District
Court erroneously granted judgment as a matter of law
against one side, tainting the entire trial and the ultimate
verdict. We will therefore vacate the judgment of the District
Court and remand with instructions for further proceedings.
We do not take this step lightly, but the error of the District
Court here was of such magnitude that we seriously doubt the
correctness of the ultimate verdict.
This case arises from the fractured relationship
between a large communications equipment manufacturer,
1
Climbing Mount Everest Is Work for Supermen, N.Y.
Times, Mar. 18, 1923, at 11.
2
The District Court recognized the battle-every-issue
character of the litigation. To one request from counsel to
“make a record” of his objection, the Court responded: “Make
a record, go ahead. The circuit will love it. It will be the
5,927th error you have pointed out to them.” (J.A. 2397.)
6
Avaya Inc. (“Avaya”), and one of its dealers and service
providers, TLI.3 After they fell out, Avaya aggressively acted
to block TLI from providing independent maintenance
services for Avaya equipment. Meanwhile, the now-
independent TLI took a series of legally dubious actions to
gain access to Avaya communications systems used by clients
the parties once shared. Avaya filed suit, alleging several
business torts and breach of contract; TLI counter-sued for
antitrust violations. After years of pre-trial litigation, and in
the midst of a months-long trial, the District Court granted
TLI’s motion under Federal Rule of Civil Procedure 50 for
judgment as a matter of law against Avaya on all of Avaya’s
affirmative claims. The Court later instructed the jury that
none of TLI’s actions could be considered unlawful. With
that instruction guiding it, the jury found Avaya liable for two
antitrust violations and awarded substantial damages.
We conclude that the entry of judgment as a matter of
law was erroneous. Given how intertwined the two sides’
claims are – and given that Avaya’s antitrust defense relied in
large part on justifying Avaya’s conduct as a response to
TLI’s conduct – we also conclude that the erroneous Rule 50
3
We use “TLI” as shorthand for a group of small
service providers that are under common ownership and
control and are collectively the appellees/cross-appellants.
They include Telecom Labs, Inc. (“TLI”), TeamTLI.com
Corp., and Continuant, Inc., along with their common owners
and managers Douglas Graham, Scott Graham, and Bruce
Shelby. Although Continuant seemingly took over the
businesses’ continuing interests beginning in 2005, TLI was
the firm most involved in this dispute from the beginning, so
we use that name for simplicity.
7
judgment infected the jury’s verdict. We must therefore
vacate the judgment of the District Court. A tour of the
mountain follows.
II. Background
A. Factual Background
Avaya, the appellant and cross-appellee, “designs,
manufactures, sells, and maintains telecommunications
equipment.” (Opening Br. at 7.) Two of its products in
particular are the subject of this suit. The first is its private
branch exchange (“PBX”), which “is essentially a special-
purpose computer ... that functions as a telephone
switchboard” and is used by “[l]arge organizations needing an
internal telephone network.” (Id.) The second product is its
predictive dialing system (“PDS”), which is an “automated
telephone dialing system that uses a predictive algorithm to
anticipate when the user ... will be able to reach someone,
improving the chances a call will be answered.” (Id. at 7-8.)
The PBX technology was invented in the 1980s by AT&T
Co., which in 1996 spun its PBX business off to Lucent
Technologies, Inc., which in turn spun off Avaya in 2000.
TLI and three individuals who operated it are the
appellees and cross-appellants. TLI sold post-warranty
maintenance for Avaya PBXs and PDSs. At one point, TLI
was also part of Avaya’s Business Partner program, selling
communications systems on Avaya’s behalf. When Avaya
began downsizing from 1999 to 2001, it encouraged its
Business Partners to hire laid-off Avaya maintenance
technicians, even subsidizing that process. TLI made several
such hires and began to offer maintenance services in 2001.
8
Not long after, in 2003, TLI and Avaya acrimoniously
severed their relationship,4 but TLI continued to provide
maintenance services on Avaya products as an independent
service provider.
1. PBX Systems and Maintenance
Of the two types of systems at issue in this litigation,
the PBX has a substantially larger market. Avaya
characterizes PBX systems as durable goods with extended
longevity and high fixed costs. During much of the time
relevant to this suit, PBX systems had a useful lifespan of
about eight years, though some could remain in use for
decades.5 They have many capabilities but were sold in a
4
The reasons for the divorce are, of course, like
everything else in this case, hotly contested, and they are
elaborated in more detail below. Here is a thumbnail sketch:
Avaya contends that TLI violated its obligations as an Avaya
agent, whereas TLI alleges that Avaya imposed onerous
surprise conditions to prevent a partner firm like TLI from
recouping the investments it had made at Avaya’s request.
5
Those statistics are based on PBXs sold before 2000.
In the 2000s, traditional PBXs were replaced with systems
that use internet protocol telephony. Whereas with older
“refrigerator-box-type PBXs, it was ... easy to identify and
define what a ... life of a system was,” with the “IP PBXs ...
any one server might come out of service, perhaps as quickly
as after just a couple ... years.” (J.A. 4382.) Given the
constant replacement of equipment on those modern PBXs, it
is “very difficult to measure” what the lifetime of a system is.
(Id.)
9
default mode without most of them activated. Customers
could then license individual capabilities, depending on their
needs. As one Avaya systems engineer explained it at trial,
Avaya “provide[s] software to our customers that’s able to do
a vast number of things, but customers don’t want to pay for
all the things the software can do. ... They may not need all
the capabilities ... . So we allow customers to purchase the
right to use aspects of the software ... .” (J.A. 1886.)
One of those “aspects” is a set of maintenance
features6 that was and is licensed separately from the PBX
system itself. Those features are accessed via on-demand
maintenance commands (“ODMCs”). Users of the
maintenance features – whether Avaya technicians, non-
Avaya technicians, or customers themselves – access the
pertinent software using login credentials. Each login is
matched to the ODMCs that that specific user is authorized to
use. In addition to controlling those logins, Avaya has a
second way to regulate access to the ODMCs. The ODMCs
are only useable on a given PBX system if Avaya has
activated the corresponding maintenance software
permissions (“MSPs”). Avaya’s PBX systems come with the
MSPs disabled, but customers who execute a specific license
agreement can have the MSPs, and hence the ODMCs,
6
The use of the word “feature” to describe elements of
the software that enabled remote maintenance is legally
relevant to questions of contract interpretation in this case.
See infra Part II.A.2. We use the word here as a generic term,
without implying anything about how it should be read in the
specific context of Avaya’s contracts with its customers.
10
enabled. Later, when that license terminates, Avaya disables
the MSPs.
Avaya and its authorized Business Partners offer
maintenance service, which is a profitable line of business.
Avaya contends that the “margin on the initial sale of a PBX
is ‘thin,’” whereas the rate of profit on maintenance work is
much higher. (Opening Br. at 8.) It says that the profit the
company earns from maintenance is an important source of
funds for the improvement of PBX systems and the
development of new models, which are released roughly
every two years. According to Avaya, its major competitors
in this market – Cisco, Siemens, and Microsoft – follow a
similar business model of low-margin equipment and high-
margin maintenance, and those firms compete with each other
and with Avaya over the “total cost of ownership” of both
equipment and maintenance. (Opening Br. at 9.)
During the time period covered by this litigation,
Avaya offered three tiers of maintenance options for PBX
customers. The highest-end, most expensive option was to
buy maintenance from Avaya itself, whose technicians had
full access to ODMCs and certain other Avaya software
capabilities.
The second, intermediate, option was to purchase
maintenance from an authorized Avaya Business Partner.
Business Partners could access a customer’s maintenance
software through a login called “DADMIN,” once Avaya
activated it on a customer’s PBX. As participants in Avaya’s
maintenance program, Business Partners had to complete
special training and were given access to engineering support.
They also had to agree not to solicit maintenance contracts
11
from existing Avaya maintenance customers. Avaya
forthrightly admits that it thus imposed vertical restraints on
maintenance through the Business Partner program to
encourage the Business Partners to “expand sales of Avaya
PBXs in the competitive primary market, rather than simply
to cannibalize existing maintenance business.” (Opening Br.
at 13.)
Finally, Avaya offered a self-maintenance option to its
customers. Prior to 2008, customers who undertook to
maintain their own PBX systems would have to purchase a
license to gain access to the necessary MSPs. In 2005, out of
tens of thousands of Avaya PBX customers, about 270 of
Avaya’s largest customers used the self-maintenance option,
which allowed their in-house technology departments to
perform maintenance on their PBX systems. With its 2008
hardware release, Avaya began making MSPs part of the base
package for all PBX purchasers, so that they no longer had to
pay additional money for access to those maintenance
features. They were, however, then subject to heightened
contractual restrictions against using independent service
providers (“ISPs”).7
ISPs in fact became a fourth source of maintenance for
Avaya PBX systems, and – from Avaya’s perspective at least
– a very unwelcome one. Avaya has made no secret of its
7
The Avaya expert who testified about the change in
policy suggested that the reason for the change was that the
features available for purchase on the PBXs had become so
numerous that Avaya began including many of them by
default.
12
hostility to ISPs, and it acknowledges that it “has never given
third parties the logins necessary to access the ODMCs
needed to maintain PBXs.” (Opening Br. at 15.) As Avaya
characterizes it, prior to 2003, there were no significant ISPs
on the market, and they did not become noticeable market
players until 2005. At that point, Avaya released an internal
July 2005 bulletin affirming that “Avaya ... does not provide
maintenance support for clients of or directly to unauthorized
service providers” (J.A. 7043), and it recapitulated its policy
that MSPs and self-maintenance licensing would not be
available to customers who used ISPs. A 2006 federal court
opinion rejected an antitrust suit challenging Avaya’s policy
against giving ISPs maintenance software access.8
In its campaign against ISPs, Avaya updated its
customer agreements in 2008 to make explicit that PBX
purchasers agreed not to use unauthorized third parties for
8
See United Asset Coverage, Inc. v. Avaya Inc., 409 F.
Supp. 2d 1008, 1046 (N.D. Ill. 2006). That court’s analysis
was critical of the kind of monopolization and tying claims
now brought by TLI. Because “the software built into
Avaya’s PBXs to facilitate their maintenance and repair is
proprietary,” the court rejected the argument that maintenance
and hardware were separate antitrust markets. Id. at 1045-46.
It also rejected the claim that Avaya had surprised its
customers with a post-sale policy change, characterizing that
monopolization claim as “border[ing] on the absurd” because
“[n]o one has an unclouded crystal ball as to future events,
nor does anyone have a vested right in the expectation that the
future will remain the same as the present.” Id. at 1046.
13
any service that required MSPs. Specifically, one license
restriction stated that the
Customer agrees not to ... allow any service
provider or other third party, with the exception
of Avaya’s ... resellers and their designated
employees ... to use or execute any software
commands that cause the software to perform
functions that facilitate the maintenance or
repair of any Product except ... those software
commands that ... would operate if ... [MSPs]
were not enabled or activated.
(J.A. 7283.)
2. PDS Systems and Maintenance9
The other Avaya equipment at issue in this case is the
PDS system, the market for which is substantially smaller
than the PBX market. Avaya presented evidence at trial that
no more than 840 Avaya PDS systems were installed
nationwide (about 20% of the total PDS market), with Avaya
providing maintenance service to about 200 of those
customers.10 PDS systems tend to induce less long-term
9
The phrase “PDS system” is redundant (because the
“S” in PDS is “system”), but we use it for its colloquial ease,
as the District Court did.
10
Because of the relatively small size of the PDS
maintenance market, none of Avaya’s Business Partners has
become a PDS maintenance provider.
14
intra-brand reliance than PBXs because the cost of an entirely
new PDS is similar to the cost of upgrading an existing
system.
The PDS market is similar to the PBX market in at
least one important respect. In both, Avaya says, the profits
from maintenance contracts help fund the development of
new systems and the upgrades of existing systems. Avaya
regularly updates its PDS software with patches to “fix bugs
or adapt the product to changing circumstances.” (Opening
Br. at 14.) Prior to 2007, patches were available for free to
PDS customers on Avaya’s website; after 2007, customers
who purchased new PDS systems could only receive patches
if they purchased a minimum of one year of software support
from Avaya.
3. The Dispute between Avaya and TLI
The two sides in this case present dramatically
different stories of their dispute, which began in 2003.11
Avaya’s story is that it simply enforced long-standing policies
against a disloyal former contractor that was breaching
contractual duties and dishonestly undermining Avaya’s
relationships with its customers. TLI’s version is that Avaya
retroactively sprung an anticompetitive policy on its
customers that prevented them from using ISPs, in order to
11
Most issues before us are raised by Avaya, against
whom the District Court entered judgment as a matter of law
and against which a verdict was rendered. Nonetheless, both
sides have appealed a variety of issues, and we endeavor to
recount the facts neutrally.
15
vindictively force out of business a competitor who could
provide better maintenance service at a lower cost.
From 1996 to 2003, TLI was an Avaya Business
Partner and sold Avaya systems. Around 2000, Avaya
launched a program to encourage Business Partners to offer
maintenance services. TLI took the opportunity.12 It claims
it “invested millions in building its maintenance capabilities,”
while continuing to loyally sell Avaya PBX systems –
reaching roughly five million dollars in sales in 2002.
(Answering Br. at 5.)
The relationship between Avaya and TLI soured that
same year, over TLI’s efforts to compete for maintenance
contracts with other Business Partners and with Avaya
directly. Avaya had introduced a revised set of obligations
for its Business Partners, the new program being set forth in
what Avaya called the “Avaya One” agreement. The intent
was to limit intra-brand competition and instead promote
inter-brand competition by encouraging Business Partners to
expand the total Avaya market rather than compete with each
other. As TLI characterizes it, the Avaya One agreement was
a malicious surprise sprung on the Business Partners who had
invested in their maintenance business at Avaya’s
encouragement and were now restricted in their ability to
compete for customers to get a return on that investment.
12
Avaya had laid off many of its service technicians
and engineers, and it offered to subsidize their salaries if
Business Partners would employ them and begin to offer
maintenance services.
16
The formal relationship between Avaya and TLI ended
in 2003. TLI had refused to sign on to any agreement that
would limit its ability to compete for maintenance clients.
Instead, it negotiated a separate agreement with an Avaya
agent, under which TLI was exempted from most of the rules
against competing for existing maintenance business. When
higher-ups at Avaya learned of this non-conforming deal,
they invoked a termination provision of the contract in July
2003 that allowed them to end the deal on 60-days’ notice.13
The two sides’ accounts again diverge as to what happened
next.
According to TLI, Avaya jumped the gun on the 60-
day notice period and began prematurely terminating TLI’s
access to its clients’ systems, while notifying remaining
Business Partners that they should poach TLI’s clients. TLI
says that Avaya then went on the warpath to sweep away
ISPs, and that ODMC and MSP access restrictions were
created to prevent ISPs from competing in the maintenance
13
Formally, there were two Avaya One agreements in
place, one between Avaya and TLI and one between Avaya
and TeamTLI.com. For the TLI agreement, Avaya invoked
the termination clause on July 31, 2003, so that it terminated
on September 30. The TeamTLI.com agreement was
finalized on July 24, Avaya served notice it was cancelling on
September 24, and the termination was effective
November 24. Because the agreement with TLI was the
principal subject of Avaya’s breach of contract claims, and
because the District Court analyzed the two contracts in
tandem, for simplicity we do not address them separately
because there is no substantive difference that we are aware
of, and the difference in termination dates is irrelevant.
17
market. It claims that Avaya would keep customers in the
dark about restrictions on ISP service until after the customers
had already purchased an expensive system and were “locked
in,” at which point Avaya would deliberately misconstrue the
license contracts to assert that ISP maintenance was
prohibited. TLI also accuses Avaya of other supposedly
anticompetitive conduct, including shortening the PBX
warranty period in an attempt to force customers to sign up
for Avaya maintenance contracts and ending a program that
allowed customers to gain MSP access without using an
Avaya-authorized provider. TLI argues that it was the target
of particularly hostile action by Avaya. First and foremost,
TLI alleges that Avaya “sent threatening and misleading
letters” to TLI’s “current and potential customers,
discouraging them from doing business” with TLI based on a
claim that “unauthorized access to the PDS/PBX system
[was] a violation of federal and state laws,” a claim that TLI
considers to be “without legal basis.” (Answering Br. at 9-10
(internal quotation and editorial marks omitted).) Throughout
this litigation, TLI has styled those letters as sowing “fear,
uncertainty, and doubt” among its customers, and it has
dubbed that correspondence the “FUD letters” for short.
Additionally, TLI accuses Avaya of “trespassing on [TLI’s]
customers’ systems and disabling their access to critical
maintenance software” (Answering Br. at 10), as well as
punitively instituting this lawsuit against TLI.
In Avaya’s much different narrative, TLI engaged in
underhanded tactics to peel off Avaya customers in ways that
violated both tort law and the contractual obligations of TLI
and its customers. According to Avaya, that unlawful
conduct began when TLI, then still a Business Partner,
improperly developed a disloyal commercial strategy based
18
on poaching Avaya customers. After TLI was terminated as a
Business Partner, it continued to provide maintenance by
using improperly acquired login credentials – either
DADMIN logins gleaned from co-opted Business Partners or
logins from customers who had MSP license agreements. To
gain those logins, TLI convinced complicit Avaya Business
Partners deceptively to submit login credential requests for
certain TLI customers. TLI would then disconnect PBX
systems from phone lines to prevent Avaya from changing the
login passwords or from deactivating MSPs. Avaya also
argues that TLI hired two former Avaya technicians to assist
in tortious activity, one to “crack” Avaya login passwords and
one to circumvent security systems in the software. All told,
Avaya suggests that TLI made $20-34 million in profit from
PBX maintenance using unlawfully-acquired access. This
lawsuit was initiated as part of Avaya’s efforts to halt TLI’s
allegedly illicit conduct.
B. Procedural Background
Avaya filed suit on June 2, 2006, alleging a host of
common law business torts, breach of contract, and violations
of federal statutes, specifically the Digital Millennium
Copyright Act and the Lanham Act. It sought both money
damages and injunctive relief to halt TLI’s practices. Those
claims were refined over the following four years, eventually
resulting in the Fourth Amended Complaint (the
“Complaint”), filed in February 2010, which presented the
claims as they went to trial.14 TLI filed counterclaims,
14
By the time of that Complaint, Avaya’s claims
against TLI were, in full, the following: misappropriation of
trade secrets, tortious interference with contractual relations,
19
alleging numerous common law and federal antitrust
violations and seeking both money damages and injunctive
relief against what it considered Avaya’s anticompetitive
conduct.15
tortious interference with prospective economic advantage,
fraud/ misrepresentation, violations of the Digital Millennium
Copyright Act, false advertising and violations of the Lanham
Act, trade libel and commercial disparagement, breach of
contract, unfair competition, unjust enrichment, breach of the
duty of loyalty, aiding and abetting former Avaya employees’
misuse of proprietary information, and conspiracy
15
Specifically, TLI alleged the following antitrust
violations: monopolization and attempted monopolization of
the PBX maintenance market in violation of § 2 of the
Sherman Act, tying PBX maintenance and software patches
in violation of § 1 of the Sherman Act, tying PBX upgrades
and maintenance in violation of § 1 of the Sherman Act,
monopolization and attempted monopolization of the PDS
maintenance market in violation of § 2 of the Sherman Act,
tying PDS maintenance and software patches in violation of
§ 1 of the Sherman Act, tying PDS maintenance and upgrades
in violation of § 1 of the Sherman Act, and conspiracy in
violation of § 1 of the Sherman Act. TLI also asserted
common law counterclaims: tortious interference with
business/contractual relations, tortious interference with
prospective business or economic advantage, injurious
falsehood and trade libel/slander, and breach of the implied
covenant of good faith and fair dealing.
20
Pretrial proceedings lasted for seven years, comprising
extensive discovery and motions practice, during which many
of the claims were resolved. In 2012, TLI’s common law
claims were all dismissed by summary judgment. The
District Court also dismissed TLI’s antitrust claims that
alleged illegal tying between PBX system upgrades and
maintenance. In addition, Avaya voluntarily dismissed its
federal statutory claims and several of its common law claims
before trial.16
Some of the issues on appeal concern litigation
conduct. TLI accuses Avaya of malicious litigation behavior,
which allegedly cost TLI “millions of dollars in excess
litigation costs and delayed resolution of the case for several
years.” (Answering Br. at 13.) Specifically, TLI accuses
Avaya of abusing the discovery process by making copious
and unnecessary requests for documents and admissions and
delivering an excessive number of documents to TLI late in
the proceedings. TLI suggests that Avaya knowingly pursued
meritless claims, namely those that it voluntarily dismissed on
the eve of trial. And TLI further alleges that Avaya
“routinely produced inadequately-prepared corporate
designees for deposition” (id. at 15), served excessively long
expert reports, and litigated complex Daubert motions to be
able to present experts, only to drop the experts and
“substantial portions” of the expert reports at trial (id.
(quoting J.A. 352)). Avaya denies any allegations of bad
16
Those claims included misappropriation of trade
secrets, tortious interference with contractual relations,
violations of the Digital Millennium Copyright Act,
violations of the Lanham Act, trade libel and commercial
disparagement, and breach of the duty of loyalty.
21
faith conduct and defends its actions as nothing more than
vigorous litigation in a complex case.
The trial began on September 9, 2013, opening with
Avaya’s remaining affirmative claims against TLI – for
breach of contract, tortious interference with prospective
economic gain, fraud, unfair competition, unjust enrichment,
aiding and abetting former Avaya employees’ misuse of
confidential information, and civil conspiracy. As the District
Court described it, Avaya’s “jury presentation [] lasted two
months, involved 35 witnesses, and spanned over 6,000 pages
of transcript.” (J.A. 190.)
TLI then moved for, and the District Court granted,
judgment as a matter of law as to all of Avaya’s affirmative
claims. The gist of the Court’s analysis was that TLI’s
customers were authorized to use the maintenance commands
and to give them to TLI, so that TLI could not have breached
contractual or tort duties by gaining access to those
commands.
With Avaya’s affirmative case thrown out, TLI then
proceeded to present its antitrust counterclaims to the jury,
with that portion of the trial spanning nearly four months.
When the presentation of evidence concluded, the Court held
a fifteen-hour conference with the parties to reconcile their
voluminous proposed jury instructions, eventually settling on
a set of instructions that ran for 80 pages. Eight distinct
antitrust claims ultimately went to the jury.
On March 27, 2014, the jury returned a verdict, finding
Avaya liable on two of the eight claims: (1) attempted
monopolization of the PBX maintenance market, in violation
22
of § 2 of the Sherman Act, and (2) unlawfully tying PDS
software patches to maintenance, in violation of § 1 of the
Sherman Act. The jury awarded TLI $20 million in damages
in a general verdict, which the Court trebled to $60 million in
accordance with 15 U.S.C. § 15(a).
After trial, both sides filed post-trial motions, seeking
either judgment as a matter of law or a new trial on the claims
now appealed to us, and the District Court denied those
motions. TLI also requested an injunction ordering Avaya to
allow its PBX customers to give ODMC access to ISPs. The
Court granted that injunction, but it limited it to PBXs sold
before May 2008 because Avaya had by then included in its
sales contracts language to put customers on clear notice that
they could not use ISPs for maintenance. Finally, the Court
granted TLI’s motion for prejudgment interest under the
Clayton Act, agreeing with TLI on several of its allegations
that Avaya pursued non-meritorious claims in bad faith to
prolong litigation. Ultimately, the District Court entered final
judgment on September 16, 2014, awarding TLI
$62,613,052.10. Avaya timely appealed, and TLI
conditionally cross-appealed.17
17
The District Court had jurisdiction under 28 U.S.C.
§§ 1331, 1332, and 1367. We exercise jurisdiction pursuant
to 28 U.S.C. § 1291.
23
III. Avaya’s Appeals
A. Judgment as a Matter of Law on Avaya’s
Common Law Claims
We first take up Avaya’s appeal of the District Court’s
grant of judgment as a matter of law on its common law
claims against TLI for tortious interference with prospective
business advantage, unfair competition, fraud, and breach of
contract.18 Because all four claims are based on the same
allegedly illicit conduct by TLI, we begin by providing a
summary of the evidence of that conduct, as developed at
trial. We then apply the state law relevant to each of the four
causes of action. For each claim, we conclude that judgment
as a matter of law was inappropriate.
A motion for judgment as a matter of law under
Federal Rule of Civil Procedure 50(a) “should be granted
only if, viewing the evidence in the light most favorable to
the nonmovant and giving it the advantage of every fair and
reasonable inference, there is insufficient evidence from
which a jury reasonably could find liability.” Lightning Lube,
Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993)
(citation omitted).
Credibility determinations, the weighing of the
evidence, and the drawing of legitimate
inferences from the facts are jury functions, not
those of a judge. Thus, although the court
18
Avaya does not appeal the grant of judgment as a
matter of law against its claims for civil conspiracy, aiding
and abetting a breach of loyalty, and unjust enrichment.
24
should review the record as a whole, it must
disregard all evidence favorable to the moving
party that the jury is not required to believe.
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133,
150-51 (2000) (internal quotation marks and citations
omitted). Given that the District Court heard two months of
testimony on Avaya’s common law claims, judgment as a
matter of law could only have been appropriate in the
extraordinary circumstance that none of that evidence could
lead a reasonable jury to find that TLI was liable on any one
of the common law claims.
We exercise plenary review over the order granting the
motion for judgment as a matter of law, and we apply the
same standard as the District Court should have. Lightning
Lube, 4 F.3d at 1166. Though the District Court ably
supervised the introduction of volumes of evidence and was
attentive in managing this complex case, we cannot help but
conclude that its decision to grant TLI’s motion for judgment
as a matter of law was irretrievably flawed. Avaya provided
ample proof of conduct that could support its common law
claims, much of which was uncontroverted and came directly
from the testimony of TLI executives themselves. While we
have high regard for the fine jurist who was at the helm in the
District Court, this case is a reminder that “judgment as a
matter of law should be granted sparingly.” Goodman v. Pa.
Tpk. Comm’n, 293 F.3d 655, 665 (3d Cir. 2002).
25
1. Evidence Supporting Avaya’s
Common Law Claims
Avaya presented evidence that TLI engaged in conduct
that was at best ethically dubious, and quite possibly
unlawful. To summarize the conduct at issue, it is undisputed
that TLI enlisted former Avaya employees to “hack” and
“crack” Avaya systems, that it submitted deceptive requests
for login access, and that it used Avaya’s proprietary
knowledge – gained while still Avaya’s Business Partner – to
compete directly against Avaya. As a result, TLI was able to
lure a significant amount of business away from Avaya and
its Business Partners. TLI’s surreptitious business dealings
and its executives’ own admissions of secrecy belie any claim
that it thought its own conduct was fair and proper.
a. Evidence of Unlawful Activity
i. Hacking and Cracking
The first method TLI used to hack into its clients’
Avaya systems was hiring former Avaya employee Dave
Creswick to crack logins and passwords. Creswick knew that
TLI needed the passwords “[t]o do their maintenance” in
competition with Avaya. (J.A. 2277.) He would hack into
systems and activate MSPs on TLI’s clients’ systems, and he
also activated DADMIN login access several times.
The evidence introduced at trial of the Creswick
hacking scheme was copious, and came mostly from the
testimony of TLI executives themselves. Chief Technology
Officer Scott Graham acknowledged that TLI paid Creswick
to “enable some logins and MSPs” (J.A. 2292) and that it
26
began paying Creswick for this service while TLI was still
under contract as an Avaya Business Partner. CEO Douglas
Graham acknowledged using Creswick as an “ex-Avaya
employee [to] create a new password for the system[s].”
(J.A. 2747.) Avaya introduced an email in which Douglas
Graham offered Creswick “a flat rate of $300 a password for
single situations and $200 a password if you do more [than]
one password at a time.” (J.A. 6117.) In another email,
Creswick bragged to Douglas Graham that “there has not
been [an Avaya PBX] system created that I cannot get into.”
(J.A. 6059.) TLI eventually developed additional means to
access Avaya PBXs, and by 2008, it had begun to “read []
passwords” for itself, using a method similar to (but simpler
than) Creswick’s. (J.A. 2361.)
TLI also hacked Avaya systems by hiring another
former Avaya employee, Harold Hall, who used software
“provided by Avaya” during his time as an Avaya employee
to “beat” Avaya’s security systems. (J.A. 2293). Hall had
taken the software, called an “ASG key,” with him when he
left Avaya’s employment. He acknowledged at trial that he
did not receive permission from Avaya to do so. Scott
Graham admitted that Hall’s method was necessary to
overcome “an additional security method that was
implemented by Avaya on certain releases of the ... PBX
software.” (J.A. 2365.) He conceded that he knew “Hall had
[software] provided to him by Avaya” and that he “believe[d]
[Hall] used it through most of his career at Avaya” before
using that software “subsequently as a contractor.” (J.A.
2366.) In his own testimony, Hall estimated that he had used
the ASG key for TLI “40 [to] 60” times. (J.A. 3057.)
27
ii. Deceptive Access
Requests
The second way that TLI gained access to Avaya’s
PBX systems was to cajole Avaya Business Partners into
submitting deceptive requests for login access. As Scott
Graham characterized it, TLI would “work[] with several
Business Partners” to have them “submit[] a DADMIN form
at the customer’s request” – but, unbeknownst to Avaya, TLI
would be the ultimate user. (J.A. 2293.) Graham
acknowledged that, if Avaya had known that TLI was behind
the request, it would not have enabled the DADMINs because
Avaya was “doing everything [it] could to put [TLI] out of
the maintenance business.” (J.A. 2338.) Therefore, as
Graham put it, the submissions “did not identify [TLI] on
there” and “did not have [TLI’s] name on there to identify to
Avaya that [the customer] was also a customer of [TLI’s].”
(J.A. 2338.) In response to an interrogatory, TLI identified
seven Business Partners who cooperated in the scheme to
send access requests “that resulted in the activation of
DADMIN logins” that were used by TLI. (J.A. 3041.)
iii. Disloyal Use of
Knowledge Gained As
Avaya Business Partner
TLI’s third method for surreptitiously gaining access
to Avaya systems was to rely on proprietary information
learned when it was under contract as an Avaya Business
Partner. Scott Graham testified that “108 locations or about 8
percent” of the PBX systems that TLI serviced “were systems
for which TLI provided maintenance using a login that it had
obtained from Avaya when TLI was a Business Partner.”
28
(J.A. 2423.) An additional “17 percent” of TLI’s
maintenance business was for “systems that were ... using a
default login or password.” (J.A. 2424.) TLI “did indeed
learn of [those default passwords] during the time that [TLI
was] a Business Partner.” (J.A. 2332.)
iv. Subjective Knowledge of
Wrongful Conduct
Avaya also presented evidence that TLI knew that
Avaya considered maintenance access to be proprietary and
that TLI deliberately acted in secret to gain system access,
from which a jury could infer malice or bad faith. Scott
Graham admitted in his testimony that TLI “hid [its] activities
from Avaya” and that the information about how TLI gained
access was “carefully guarded” when dealing with customers
– though he denied providing customers with affirmatively
false information. (J.A. 2293-94.)
TLI actually went to great lengths to conceal its
activities from Avaya. Scott Graham acknowledged that if
Avaya knew that TLI was behind the vicarious DADMIN
login requests, it would not have provided them.
Accordingly, TLI would have customers sign blank request
forms and would not disclose to them the identity of the
Business Partner that would actually submit the form, because
“if the Business Partner was identified to the customer, that
could get back to Avaya.” (J.A. 2345.) TLI believed (no
doubt rightly) that if Avaya learned of that practice, it would
have intervened to stop the unauthorized access.
As for the hacking schemes, Douglas Graham
acknowledged that “it was very important to [TLI] that Avaya
29
didn’t know about Mr. Creswick.” (J.A. 2748.) In an email,
Graham wrote that one way TLI got “access to [Avaya]
systems” was “having an ex-Avaya employee create a new
password for the system,” and he suggested that “[i]f [Avaya]
knew of” the manner in which TLI was getting access, it
“would probably be raising it” in litigation. (J.A. 6363-64.)
TLI executive Bruce Shelby testified that TLI would make
customers sign non-disclosure agreements before revealing
who its subcontractors were, for fear that Avaya would find
out and “put pressure on all the Business Partners that were
on our subcontractor list not to work with us.” (J.A. 2986.)
He also testified that TLI did not want Avaya “to find out ...
how TLI was gaining access to the on-demand maintenance
commands.” (J.A. 2997-98.)
Testimony also established that TLI acted to obfuscate
its practices when dealing with its own customers. For
example, when Avaya changed its customer contract
language regarding DADMIN access, Scott Graham sent an
email to TLI leadership suggesting a tactic to conceal the
firm’s methods:
In light of Avaya’s recent changes in
contract language regarding [DADMIN]
specifically, we want to eliminate that word
from our vocabulary when talking to customers.
When we refer to logins - we want to
simply refer to them as “service logins[.”] ...
Obviously, some customers will ask
pointed enough questions, that we will need to
30
be more descriptive, but as a default we want to
change our message.
(J.A. 5817.) The obfuscation apparently worked; in fact, two
of TLI’s customers testified that they did not know that TLI
was not an authorized maintenance provider when they hired
the firm.
TLI also took preemptive actions to prevent Avaya
from interrupting its activities. According to Scott Graham’s
testimony, TLI knew that the MSPs were licensed by Avaya
to each customer and that the licenses “all implied” that
“Avaya could shut [the MSPs] off” at the end of a customer’s
contractual relationship with Avaya. (J.A. 2382.) Therefore,
as Douglas Graham put it in an email, TLI would “tak[e] over
the system” of a customer it had successfully solicited,
“before Avaya ha[d] time to turn the [MSPs] off, or change
the passwords,” which was “simply done by disconnecting
the phone line that links Avaya to the customer’s system.”
(J.A. 6363.) Similarly, Harold Hall testified that he would
access the Avaya systems using the DADMIN logins he had
cracked with the software he had walked away with when he
quit Avaya, and then he would change the DADMIN
password. He testified that the practice was a “routine thing”
that TLI did, and that it ensured that “nobody other than [TLI
could] access that [system] using the DADMIN login.” (J.A.
3055.) One TLI employee testified that she was instructed to
tell customers who were cancelling a contract with Avaya to
“change the line that they had in place” and to “change a
password,” all “so that Avaya couldn’t access the system.”
(J.A. 2463.)
31
b. Harm to Avaya
All of the common law claims at issue have as an
element that Avaya establish actual damages resulting from
TLI’s unlawful activity. At trial, Avaya presented evidence
of several avenues through which TLI’s alleged
misappropriation of maintenance access caused it financial
harm.
First, Avaya lost license revenue when TLI provided
the misappropriated access to its customers, who would
otherwise have had to license access from Avaya. Scott
Graham testified that TLI provided customers with logins that
went beyond the base customer logins. Douglas Graham
testified to a specific instance in which TLI provided a high-
level password to a client so that the client would “not have to
pay Avaya for MSPs.” (J.A. 2720.) Shelby testified that TLI
would “tell prospective customers that they did not need to
pay for MSPs if they were to become a TLI maintenance
customer,” “because [TLI] had another method to gain
access.” (J.A. 3033.)
Second, TLI would itself sell passwords to customers,
as was established by Douglas Graham’s testimony. He
described how TLI charged “setup fees” for customers who
needed a new password. (J.A. 2750.) Also, “[t]here was a
time where [TLI] would charge customers if [TLI] had to get
a second password.” (J.A. 2750.) That TLI revenue gained
by selling Avaya’s proprietary information could be a basis
for disgorgement damages.
Third, and most importantly, the allegedly
misappropriated access enabled TLI to compete directly with
32
Avaya for maintenance customers, costing Avaya profit in its
high-margin maintenance business. Scott Graham testified
that, from 2001 on, TLI competed with Avaya for
maintenance dollars. Douglas Graham acknowledged that,
since that time, TLI “marketed ... its own maintenance, to
existing Avaya maintenance customers,” and he identified
one customer in particular that TLI “took over” from Avaya.
(J.A. 2704-05.) Shelby acknowledged that TLI “targeted
PBX owners with existing maintenance contracts because
they were the ones ... who were most likely to spend money
on PBX maintenance.” (J.A. 2983.) He also stated that, of
those existing maintenance contracts, “[t]he vast majority
were with Avaya.” (J.A. 2983.)
Avaya presented evidence that TLI’s ability to
compete for that business depended on the maintenance
access that Avaya contends was misappropriated. Scott
Graham agreed that “unless [TLI] could access the
maintenance commands built into the software, [it] couldn’t
... do the maintenance.” (J.A. 2385.) He also stated that
“[s]ome of the services” offered by TLI for the PBX
maintenance at issue “do require the maintenance
commands.” (J.A. 2294.) And he acknowledged that
“generally” the commands at issue “can’t be executed by a
customer level login with no MSPs,” hence requiring a
higher-level login of the type that was gained by the various
means just described. (J.A. 2294.)19
19
Avaya presented a specific example through the
testimony of one maintenance client who was courted by TLI.
That witness testified that his firm had traditionally used
Avaya maintenance (either directly or through Business
Partners), switched to TLI under the mistaken belief that it
33
The competition for business was especially costly to
Avaya because maintenance was a major driver of the profits
from its PBX and PDS systems.20 Avaya’s profit margin on
the sale of PBX systems was substantially lower than its
profit margin on the whole range of maintenance products.
was a Business Partner, then terminated that arrangement
upon discovering that TLI was not “able to provide [them]
with the proper login credentials to support and administer the
system” and thereafter “went back to Avaya for support.”
(J.A. 2510.) Avaya therefore presented not only generalized
evidence that TLI’s maintenance contracts were at Avaya’s
expense, but a concrete example of how that substitution
worked.
20
Indeed, Douglas Graham noted in an email that
Avaya would frequently take losses in order to retain its
extant maintenance contracts, another facet of TLI’s
competitive strategy:
TLI continues to have significant success in
taking over existing Avaya maintenance
contracts. Even when TLI loses, in most cases
Avaya has to take a significant loss to win the
deal. For example, TLI just lost International
Paper. At the time of TLI’s proposal,
International Paper was paying Avaya over
$4,000,000 a year. TLI’s proposal was for
$2,800,000 a year. I have not gotten all the
details, but I am confident that Avaya had to
partner with a Business Partner and take a
significant loss to keep TLI from winning this
deal.
(J.A. 6363.)
34
Even if Avaya did not retain the customer as a direct service
client, the two other authorized routes for customers to obtain
maintenance service – purchasing service from a Business
Partner or purchasing licenses for self-maintenance – would
also have benefited Avaya financially. As an Avaya
executive testified, when a customer signs on with a Business
Partner, it becomes a “customer ... that [Avaya] can look to
sell additional products to.” (J.A. 2065) In some cases, the
Business Partner would in turn sell Avaya maintenance
service, providing direct revenue to Avaya. Even if the
Business Partner sold its own branded maintenance, any such
service was “going to ... include[] ... some Avaya content,”
hence yielding business for Avaya. (J.A. 2569.) 21
Moreover, if the jury credited Avaya’s case, it would
have been able to apportion damages to different conduct,
because it had evidence of TLI’s total maintenance earnings
and the proportion of maintenance attributable to each form
of allegedly unlawful access. Avaya’s accounting expert
testified that, depending on which profit model was believed
(the plaintiff’s or the defendant’s), TLI made between
$20,260,092 and $31,160,190 from its maintenance of Avaya
PBX systems between 2003 and 2010. TLI’s own analysis
concluded that its maintenance services were based on logins
procured in the following proportions: 8% was “obtained
21
Not incidentally, a maintenance relationship either
directly with Avaya or with an authorized Business Partner
also allowed Avaya to assert quality control over
maintenance, which helped protect the value of Avaya’s
brand reputation. When it came to independent providers,
Avaya was “concerned about the quality of maintenance
service that the customer receives.” (J.A. 2065.)
35
from Avaya when TLI was a Business Partner” (J.A. 2423);
1% was using “a well-known Business Partner password”
(id.); 5% was based on deceptive requests from other
Business Partners; 24% was “obtained through Mr.
Creswick” (J.A. 2424); 28% was “using a login that the
customer had provided it access to” (id.); 17% was obtained
through a “default login or password” (id.); and 16% was
“obtained internally,” including “through use of the known
key with Mr. Hall” and TLI’s internally-developed cracking
method (id.). If the jury found each of those courses of
conduct to be unlawful, the total would account for 99% of
the profit that TLI garnered from its Avaya PBX maintenance
business. Even limiting the analysis to just the more
obviously problematic conduct – deceptive log-in requests,
hacking and cracking, and using passwords TLI gained as a
Business Partner – it accounts for 53% of TLI’s business.
With all the foregoing considerations taken together,
we conclude that Avaya presented substantial evidence that,
but for TLI’s competition, made possible only by its alleged
theft of proprietary information, Avaya would have received a
significant portion of the money TLI’s clients spent on
maintenance. Further, it would have been feasible for the
jury to attribute particular losses to particular conduct.
2. Customer Contract Interpretation
In granting judgment as a matter of law to TLI on
Avaya’s common law claims, the District Court largely relied
on its ruling that Avaya’s contracts with its equipment
customers entitled those customers to give TLI access to their
systems to perform maintenance. The District Court ruled
that, as a matter of law, “Avaya failed to prove the software
36
licensing agreements entered into by TLI’s 470 customers
upon purchasing their PBXs prohibited them from allowing
TLI[] to access the ODMCs on their systems.” (J.A. 201.)
Because that threshold legal determination was so central to
the rest of the District Court’s analysis, we turn to considering
whether it was correct.
There is no dispute that New Jersey law governs this
issue, according to the choice of law provision in the
customer contracts, and under New Jersey law, “discerning
contractual intent is a question of fact unless the provisions of
a contract are wholly unambiguous.” Jaasma v. Shell Oil
Co., 412 F.3d 501, 507 (3d Cir. 2005) (interpreting New
Jersey law) (internal quotation marks and modifications
omitted) (quoting In re Barclay Indus., Inc., 736 F.2d 75, 78
n.3 (3d Cir. 1984)). “An ambiguity in a contract exists if the
terms of the contract are susceptible to at least two reasonable
alternative interpretations.” M.J. Paquet, Inc. v. N.J. Dep’t of
Transp., 794 A.2d 141, 152 (N.J. 2002) (quoting Nester v.
O’Donnell, 693 A.2d 1214, 1220 (N.J. Super. Ct. App. Div.
1997)). When that is so, it is permissible to look to evidence
outside the contract “as an aid to interpretation.” Chubb
Custom Ins. Co. v. Prudential Ins. Co. of Am., 948 A.2d 1285,
1289 (N.J. 2008) (citation omitted).
Two sets of license agreements are in dispute, those
before and those after 2007. Each is the subject of a distinct
question. For the pre-2007 agreements, the question is
whether it was ambiguous that they permitted licensees – i.e.,
Avaya customers – to provide access to ISPs. The post-2007
agreements unambiguously barred giving such access, but it
is disputed whether Avaya’s customers actually entered into
those agreements. We conclude that, for both sets of
37
agreements, Avaya presented sufficient evidence to at least
create disputes of material fact, so that those questions should
have been answered by the jury, not the Court.
In ruling that PBX license agreements unambiguously
gave purchasers a right to use maintenance commands and to
provide access to third parties, the District Court relied on
language from the “Purchase/Service Agreement.” The
Court’s conclusion was based on a provision in “[l]icensing
agreements used from 1990 to 2003,” which “granted the
purchaser ‘a personal, non-transferable and non-exclusive
right to use ... all software and related documentation
furnished under this agreement.’” (J.A. 204 (quoting license
agreement, an example of which is at J.A. 5856).) In the
District Court’s reading, that language gave Avaya PBX
customers a “personal ... right” to use MSPs, which the Court
viewed as “software ... furnished under this agreement.” In
the Court’s view, that right to use MSPs extended to the
customer’s maintenance provider, whether an employee or an
independent contractor such as TLI.22
22
In 2003, Avaya updated the agreements. It left the
quoted language in place but added a new clause stating that
the “[c]ustomer will make the Software available only to
employees, contractors, or consultants with a need to know,
who are obligated to comply with all license restrictions
contained in the Agreement and to maintain the secrecy of the
Software.” (E.g., J.A. 5241.) The District Court interpreted
the language about “contractors[] or consultants” to be
“consistent with the ... construction of licensing agreements
that allow third-party use for the licensee’s benefit.” (J.A.
205 n.26.) It therefore considered that contract term to be
evidence that PBX owners were permitted to use independent
38
Avaya challenges the District Court’s interpretation of
those agreements, arguing that the MSPs required to perform
maintenance were not in fact “furnished under” the
Purchase/Service Agreement, so that customers did not have a
“right to use” them. (Opening Br. at 30.) Instead, MSPs
were “licensed separately through an MSP Addendum ... or
Maintenance Assist agreement.” (Id.) “Avaya delivered new
equipment with MSPs turned off, enabled them only if
customers signed a separate ... agreement, and disabled them
if that agreement expired.” (Id.) Although customers could
maintain their PBX systems without MSPs, it was “just not as
efficient” to do so without the remote access that MSPs
allowed (J.A. 1995) – hence the value of executing an
agreement to activate MSPs.
We do not need to answer who has the better reading
of the contracts because, at a minimum, they are ambiguous,
and the District Court erred in ruling that Avaya’s reading is
untenable. MSPs may have been embedded in the software
given to customers, but customers’ ability to access them
required a separate purchase from Avaya. If the District
Court’s interpretation were correct, then any time a customer
downloaded a piece of software that had components
requiring additional payment and permissions, courts would
treat the entire software and all its components as having been
“furnished” to the customer in the original purchase. That is
questionable, and the contrary interpretation is, at the very
least, plausible. Moreover, given that Avaya’s business
model was dependent on selling base equipment and then
licensing and enabling additional features such as MSPs, the
contractors for maintenance and to provide them with system
access.
39
conclusion that those features were unambiguously meant to
be “furnished” in the base purchase is far from clear. As
Avaya points out, “[h]undreds of self-maintenance customers
paid Avaya for ... access commands,” which would “make no
sense if the Purchase/Service Agreements already entitled
customers” to them. (Opening Br. at 32.) Avaya, its
customers, and even TLI did not read the agreements that way
before the lawsuit, and the District Court erred in declaring
that the terms were unambiguously contrary to all the parties’
understandings.
Avaya also notes that in 1999, the agreements were
modified to include a provision that a customer “will not
enable or attempt to permit any third party to enable software
features or capacity (e.g. additional storage hours, ports, or
mailboxes) which Avaya licenses as separate products
without Avaya’s prior written consent.” (J.A. 205 n.24.)
Based on that language, Avaya argues that customers were
barred from allowing an ISP to enable features, such as
MSPs, without Avaya’s consent. The District Court,
however, did not consider that provision to apply to MSPs. It
read the list of enumerated examples – “storage hours, ports
..., and voice mailboxes” – to be “clearly incongruous” with
MSPs. (Id.) Accordingly, the Court ruled that MSPs were
unambiguously not a “feature[] or capacity” subject to the
provision’s restrictions.
For much the same reasons that we disagree with the
District Court’s construction of the “furnished under”
language, we also conclude that it was improper to determine
that terms “features or capacit[ies]” were unambiguous and
did not apply to MSPs. Storage hours, additional ports, and
mailboxes are some examples of the add-ons that Avaya
40
licensed separately, but MSPs and ODMCs that provided
remote maintenance access might rationally be viewed by a
jury as being just as much “features” that enhance a
customer’s use of a PBX system.23 Not only did customers’
behavior provide some corroboration of Avaya’s
interpretation of the contract, TLI’s did as well. If the
agreements unambiguously permitted customers to give TLI
access to MSPs, there would have been little reason for its
secretive efforts to gain maintenance access. Indeed, Scott
Graham was asked at trial whether he “knew that MSPs were
not part of the original sale of the PBX to the customers,” and
he responded: “Yes, and that was one of the big problems.”
(J.A. 2303.) In light of the imprecision of the words
“features” and “capacity” and the extrinsic evidence
23
TLI argues that, in Avaya’s “detailed ‘feature’
manuals,” Avaya “did not once identify MSPs as a ‘feature.’”
(Answering Br. at 84 (citing J.A. 2407).) We agree that
testimony about those features manuals, and the absence of
any mention of MSPs in them, would be relevant for the jury
to consider in interpreting the meaning of the 1999
modifications. But, as an Avaya system engineer put it at
trial, the PBX software is “able to do a vast number of
things,” and customers could pick and choose which “aspects
of the software” to purchase. (J.A. 1886.) That Avaya chose
to highlight more glamorous capacities in its features manuals
– instead of intermediate commands and functions that
allowed remote-access maintenance – does not foreclose a
jury determination that such access was indeed a feature of
the product. Given that so few customers performed their
own maintenance, that lack of emphasis may make perfect
sense to a jury.
41
supporting Avaya’s interpretation of the contract, we
conclude that the District Court erred in ruling as a matter of
law that the 1999 additions to Avaya’s PBX contracts
unambiguously did not apply to MSPs.
Having resolved that the District Court erred in
construing the pre-2007 customer contracts to be
unambiguously contrary to Avaya’s interpretation, we turn to
the post-2007 agreements.24 The District Court
acknowledged that the 2007 version of the licensing
agreement clearly “obligated the purchaser to refrain from
using a third-party maintenance provider,”25 but it ruled that
“Avaya did not introduce any evidence indicating that [TLI’s]
24
The District Court made note of the fact that only
“eight out of [TLI’s] 470 customers purchased their PBXs in
2007 or after,” and that the 2007 contract modification “came
into existence well after Avaya initiated the instant suit in
June of 2006.” (J.A. 206-07 n.27.) Although allegedly
unlawful access to post-2007 systems may not have been a
large contributor of TLI’s business or the motivation for
Avaya’s suit, that goes to the question of damages, not
liability.
25
The agreement provided that the “[c]ustomer agrees
not to ... allow any service provider or third party, with the
exception of Avaya’s authorized channel resellers and their
designated employees ... to use or execute any software
commands that cause the software to perform functions that
facilitate the maintenance or repair of any Product except that
a service provider ... may execute those software commands
that ... would operate if ... [MSPs] were not enabled or
activated.” (J.A. 7283.)
42
customers signed such a licensing agreement, and
consequently this iteration of the agreement cannot be used to
prove that [TLI’s] customers were prohibited from granting
TLI[] access to the ODMCs on their PBXs.” (J.A. 206.)
Again, the Court was wrong.
Avaya did present sufficient evidence to establish a
dispute of material fact, which should have gone to the jury.
The form agreement itself was in evidence, and an Avaya
employee testified that the standard form agreements as of
2008 included the specific reference restricting use of MSPs.
That employee also explained that the forms were crafted by
a “forms committee” that ensured that uniform terms and
conditions were “incorporated into the templates,” which
were then incorporated into “procedures under which [Avaya]
used form agreement[s]” for PBX equipment, software, and
maintenance sales. (J.A. 2615.) Given the evidence of
Avaya’s centralized form-drafting procedure, an example of
an actual prototypical form, and examples of earlier
generations of forms that were in fact signed by customers, a
jury could have reasonably found that the post-2007 form
agreements were in fact reflective of PBX purchasers’ license
obligations. It was thus improper for the District Court to
resolve the question as a matter of law rather than leave it to
the jury.
43
3. Tortious Interference with Prospective
Business Advantage
We now turn to the specific claims that Avaya asks us
to revive. We first consider count three of its Complaint, in
which Avaya set forth a claim for tortious interference with
prospective economic advantage.
As a federal court sitting in diversity, and as is
undisputed by the parties, we are obligated to apply New
Jersey’s law to the tort claims. See Lorenzo v. Pub. Serv.
Coordinated Transp., 283 F.2d 947, 948 (3d Cir. 1960) (per
curiam). In Printing Mart-Morristown v. Sharp Electronics
Corp., the Supreme Court of New Jersey held that, in a claim
of tortious interference with prospective business advantage,
“[w]hat is actionable is ‘[t]he luring away, by devious,
improper and unrighteous means, of the customer of
another.’” 563 A.2d 31, 36 (N.J. 1989) (quoting Louis
Kamm, Inc. v. Flink, 175 A. 62, 66 (N.J. 1934)). To prevail
on such a claim, Avaya “was required to show [1] that it had
a reasonable expectation of economic advantage, [2] which
was lost as a direct result of [TLI’C’s] malicious interference,
and [3] that it suffered losses thereby.” Ideal Dairy Farms,
Inc. v. Farmland Dairy Farms, Inc., 659 A.2d 904, 932 (N.J.
Super. Ct. App. Div. 1995) (citation omitted).26
26
We earlier parsed New Jersey law to further
subdivide the tort, essentially by breaking out the second part
of the Ideal Dairy Farms formulation into three elements. As
we put it then, the tort comprised five elements:
1) a plaintiff’s reasonable expectation of
economic benefit or advantage, (2) the
defendant’s knowledge of that expectancy, (3)
44
In terms of the first element – protectable economic
expectations – the Supreme Court of New Jersey has held that
“[i]t is not necessary that the prospective relation be expected
to be reduced to a formal, binding contract,” and that such
prospective relations include “the opportunity of selling or
buying land or chattels or services, and any other relations
leading to potentially profitable contracts.” Printing Mart,
563 A.2d at 39 (quoting Restatement (Second) of Torts
§ 766B cmt. c (1979)). Courts have found “a reasonable
expectation of economic gain in as slight an interest as
prospective public sales.” Id. at 38 (collecting cases).
Protectable economic expectations can arise from both
existing and potential customers. “Tortious interference
developed under common law to protect parties to an existing
or prospective contractual relationship from outside
interference.” Id. at 38 (emphasis added) (citation omitted).
Satisfaction of the first element does not turn on whether the
customer is characterized as current or prospective, but rather
whether the facts of the case “giv[e] rise to some ‘reasonable
the defendant’s wrongful, intentional
interference with that expectancy, (4) in the
absence of interference, the reasonable
probability that the plaintiff would have
received the anticipated economic benefit, and
(5) damages resulting from the defendant’s
interference.
Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 186
(3d Cir. 1992) (citing Printing Mart, 563 A.2d at 37;
Restatement (Second) of Torts § 766B)).
45
expectation of economic advantage.’” Id. at 37 (quoting
Harris v. Perl, 197 A.2d 359, 363 (N.J. 1964)).27
The second element – malicious interference – requires
only “the intentional doing of a wrongful act without
justification or excuse.” Id. at 39 (quoting Louis Schlesinger
Co. v. Rice, 72 A.2d 197, 203 (N.J. 1950)). Wrongful
conduct, always viewed in the specific context of the case
presented, is generally defined by reference to custom in the
industry. It is conduct that “would not be sanctioned by ‘the
rules of the game.’” Id. at 40. “[T]he line must be drawn
where one competitor interferes with another’s economic
advantage through conduct which is fraudulent, dishonest, or
illegal.” Ideal Dairy Farms, 659 A.2d at 936 (citation
omitted). A benign, or pro-competitive, motive does not
absolve misconduct. “While competition may constitute
justification, a defendant-competitor claiming a business-
27
Printing Mart illustrates how broad a protectable
prospective economic advantage may be. The corporate
plaintiff had performed printing services for Sharp
Electronics for several years. When Printing Mart submitted
a bid on the latest Sharp project, there was evidence that
Sharp employees rigged the bidding process to enable a
Printing Mart competitor to win the contract. Printing Mart
sued Sharp, three of its employees, and three competitors for
intentional interference with prospective economic relations.
The trial court dismissed the complaint on the basis that no
contract obligated Sharp to do business with Printing Mart.
The Supreme Court of New Jersey reversed, holding that,
although a complaint based on tortious interference must
allege facts that show a protectable right, the right “need not
equate with that found in an enforceable contract.” Printing
Mart, 563 A.2d at 37.
46
related excuse must justify not only its motive and purpose
but also the means used.” Id. at 933 (citation omitted).
In Lamorte Burns & Co. v. Walters, the Supreme
Court of New Jersey held that the “taking of plaintiff’s
confidential and proprietary property and then using it
effectively to target plaintiff[’s] clients, is contrary to the
notion of free competition that is fair.” 770 A.2d 1158, 1172
(N.J. 2001). In that case, two of Lamorte’s employees
collected information on its clients with the purpose of using
it to start their own business in direct competition with
Lamorte. Id. at 1162. The court held that such conduct was
sufficient to make out a claim of tortious interference, so that
the targeting of a company’s current clients was sufficient to
ground a tortious interference claim. Id. at 1172.
For a plaintiff to establish the third element, loss and
causation, there must be “proof that if there had been no
interference there was a reasonable probability that the victim
of the interference would have received the anticipated
economic benefits.” Printing Mart, 563 A.2d at 41 (quoting
Leslie Blau Co. v. Alfieri, 384 A.2d 859, 865 (N.J. Super. Ct.
App. Div. 1978)). As the Appellate Division of the New
Jersey Superior Court has explained, “[i]t is sufficient that
plaintiff prove facts which, in themselves or by the inferences
which may be legitimately drawn therefrom, would support a
finding that, except for the tortious interference by the
defendant with the plaintiff’s business relationship with
[another party], plaintiff would have consummated the sale
and made a profit.” McCue v. Deppert, 91 A.2d 503, 505-06
(N.J. Super. Ct. App. Div. 1952).
The District Court here decided that TLI’s access was
not itself wrongful and that, therefore, Avaya’s tortious
47
interference claim must fail. That conclusion rested on two
propositions: first, that Avaya had previously allowed TLI to
provide maintenance, and, second, that “customers’ licensing
agreements specifically allow[ed] for third-party service
providers.” (J.A. 226.) Both those propositions are
problematic in ways that undermine the District Court’s
decision.
As to the first point, the District Court was wrong to
conclude that TLI was entitled to access ODMCs merely
because it had been allowed to do so while it was an Avaya
Business Partner. Of course TLI was permitted access when
it was a contractual partner of Avaya’s, but the District Court
provided no rationale to explain why that access survived the
termination of that relationship. By close analogy, former
employees in Lamorte were entitled to use their employer’s
proprietary customer information while they were working
for that employer, but they were not entitled to use that
information when they left to become competitors. 770 A.2d
at 1172. Likewise, TLI was entitled to access ODMCs when
it was an authorized Avaya Business Partner, but there is no
reason it could expect that its access to proprietary software
and logins would survive when it struck out on its own to
compete directly against Avaya.
As to the second point, we have already explained in
detail why the District Court erred in concluding that Avaya
customers were unambiguously entitled to give TLI remote
access to perform maintenance. Even if the District Court
were correct, however, that would not immunize TLI from a
tortious interference claim when it comes to stealing away
customers who had service contracts with Avaya. In Wear-
Ever Aluminum, Inc. v. Townecraft Industries, Inc., the
48
Chancery Division of the New Jersey Superior Court
emphasized that, even though the plaintiff company’s
contracts with its employees were terminable at will, that did
not permit a third party to interfere with the employment
relationship. 182 A.2d 387, 393 (N.J. Super. Ct. Ch. Div.
1962). Even if the contract in question permits an act
eventually taken by a customer, “a stranger to the contract
may not exercise his will in substitution for the will of either
of the parties to the contract.” Id. Moreover, even if TLI
could have lawfully obtained access to MSPs and ODMCs
from Avaya’s customers, that did not insulate it from tort
liability for the methods it actually used to access the
maintenance commands. If a homeowner gives a neighbor
permission to borrow tools, the neighbor is not thereby
insulated from a trespass suit if he chooses to break into the
garage to get them.
Having rejected the District Court’s assessment of
those two threshold matters, we turn next to its application of
a multifactor test for tortious interference from the
Restatement (Second) of Torts § 767 (1979).28 Assuming for
the moment that the Court was applying the right test – and
28
The District Court cited Printing Mart, 563 A.2d at
752, for the proposition that New Jersey courts have adopted
the multi-factor test from the Restatement. In fact, Printing
Mart adopted § 766B, but subsequent case law from the
Supreme Court of New Jersey suggests that § 767 is also
persuasive. See Nostrame v. Santiago, 61 A.3d 893, 901 (N.J.
2013) (“In determining whether the conduct complained of is
improper, the Restatement offers general guidance,
identifying a variety of relevant considerations.” (citing
Restatement (Second) of Torts § 767)).
49
we think looking to the case law may have been more
productive – the District Court nonetheless misstepped in its
legal ruling. Section 767 lists the following factors for
consideration:
(a) the nature of the actor’s conduct,
(b) the actor’s motive,
(c) the interests of the other with which the
actor’s conduct interferes,
(d) the interests sought to be advanced by the
actor,
(e) the social interests in protecting the freedom
of action of the actor and the contractual
interests of the other,
(f) the proximity or remoteness of the actor’s
conduct to the interference and
(g) the relations between the parties.
The factors in that test are laden with subjective value
judgments that will rarely be answerable as a matter of law.
Nonetheless, and in the face of the already-recounted
unflattering evidence against TLI, the District Court
concluded that “[e]very single factor strongly indicates that
[TLI’s] conduct d[id] not rise to the level ... the law
proscribes.” (J.A. 227.) We disagree.
First, the District Court stated that TLI acted with
proper competitive motive and interest.29 But, even assuming
29
Although the District Court was not explicit in
enumerating which factors of the Restatement’s seven-factor
test it was considering, we infer from its argument that it here
considered factors (a), (b), and (d) together – respectively, the
50
that were true, a pro-competitive motive or interest does not
absolve misconduct that falls afoul of the first factor’s
consideration of the nature of the conduct. Again, “[w]hile
competition may constitute justification, a defendant-
competitor claiming a business-related excuse must justify
not only its motive and purpose but also the means used.”
Ideal Dairy Farms, 659 A.2d at 933.
Second, the Court considered the nature of the
protected interest, and it observed – without further comment
or citation to authority – that “the law does not protect as
forcefully a firm’s economic interest in possible, future
customers as it does interests in contracting parties.” (J.A.
228.) Whether or not that is true, TLI was in fact interfering
with Avaya’s relationships with then-existing maintenance
customers. There was nothing speculative, or
underwhelming, about that economic interest.
Third, in considering society’s interest, the District
Court found that TLI’s conduct “brought greater competition
to the market and challenged widespread and vexatious
threats of litigation.” (J.A. 228.) We do not believe the
District Court was in a position to weigh the relative social
merits of TLI’s conduct with Avaya’s proprietary interests in
its software and its legitimate business expectations with its
maintenance customers. That is exactly the kind of factual
and ethical determination meant for the jury rather than the
Court.
nature of TLI’s conduct, its motive, and the interests it sought
to advance.
51
Fourth, in considering the proximity of TLI’s conduct
to the interference, the District Court emphasized that TLI’s
“interference was far removed from their allegedly improper
conduct” because it only accessed the ODMCs after the
customer in question had left Avaya. (J.A. 229.) But the
customers never would have left Avaya if TLI had not been
able to promise ODMC access. The allegedly tortious
conduct that enabled that access was therefore the sine qua
non of TLI’s business.
Finally, in considering the relations of the parties, the
District Court determined that that factor “counsels for a
finding of lawful conduct, as a mere four months after it
signed the modified Avaya One agreement, and not long after
originally encouraging TLI to invest in its maintenance
business, Avaya cancelled the contract, thereby jeopardizing
[TLI’s] monetary investment and business model.” (J.A. 229-
30.) That TLI chose to compete against Avaya rather than
accept the standard Business Partner arrangement – and
therefore prompted Avaya to terminate their relationship –
cannot insulate TLI’s allegedly tortious conduct. Avaya’s
supposed bad acts and predatory conduct may end up
supporting TLI’s antitrust counterclaims, but the District
Court provided no authority to suggest that those acts
permitted TLI to engage in hacking or fraud in retaliation for
its termination as a Business Partner.
A straightforward application of New Jersey’s test for
tortious interference with prospective economic advantage
leads, we believe, to the conclusion that Avaya presented
sufficient evidence from which a reasonable jury could
conclude that TLI tortiously interfered with Avaya’s
prospective business advantage. Avaya had a reasonable
52
expectation of ongoing business with its own customers, who
are the targets of TLI’s sales efforts. As to the “malicious
interference” element, we hold that a jury could reasonably
have concluded that TLI’s methods – including, as examples,
its hacking, dishonest login requests, and use of proprietary
information learned while an Avaya Business Partner – were
fraudulent, dishonest, or otherwise contrary to the ethical
standards of the industry. TLI presented no evidence that its
actions were consistent with industry norms, and we would be
loath to hold that there was no jury question here, even if it
had. That leaves only the loss and causation element. The
evidence could support a conclusion that TLI’s interference
resulted in Avaya losing direct maintenance contracts with
customers. Moreover, even if customers independently
terminated their direct service contracts with Avaya, if they
had turned to other authorized maintenance methods instead
of using TLI – whether using a Business Partner or self-
maintaining – Avaya would still have profited because, as
earlier noted, those methods also produced revenue for
Avaya. Avaya thus presented sufficient evidence from which
a jury could conclude that Avaya suffered damages, given
that any money earned by TLI must have come from Avaya’s
pockets to at least some extent.
In sum, the District Court improperly made inferences
in favor of the moving party, TLI, as to both contract
interpretation and tortious interference with prospective
economic advantage, and it failed to recognize the sufficiency
of the evidence Avaya had adduced. If the jury had been
allowed to draw its own inferences from the evidence, it may
have agreed with the District Court that TLI’s conduct was
somehow permitted by Avaya’s customer contracts. But the
jury may very well have determined that TLI’s actions were
53
not shielded by the customer contracts and were instead
unethical, against the public interest, and ultimately tortious.
We express no opinion on the correct answer in this dispute,
holding only that the matter was for the jury to decide.
4. Unfair Competition
Next, we consider Avaya’s unfair competition claim.
New Jersey law is not precise about what constitutes unfair
competition. But while “[t]he amorphous nature of unfair
competition makes for an unevenly developed and difficult
area of jurisprudence,” at heart it “seeks to espouse some
baseline level of business fairness.” Coast Cities Truck Sales,
Inc. v. Navistar Int’l Transp. Co., 912 F. Supp. 747, 786
(D.N.J. 1995) (interpreting New Jersey law) (citations
omitted).30 New Jersey courts have deliberately kept the
standard of liability somewhat adaptable, so that it may fit
changing circumstances: “the purpose of the law regarding
unfair competition is to promote higher ethical standards in
the business world. Accordingly, the concept is deemed as
flexible and elastic as the evolving standards of commercial
morality demand.” Ryan v. Carmona Bolen Home for
Funerals, 775 A.2d 92, 95 (N.J. Super. Ct. App. Div. 2001)
(internal quotation marks and citations omitted) (quoting N.J.
30
Other business torts – including tortious interference
– can themselves support an unfair competition claim. Coast
Cities, 912 F. Supp. at 786. Our conclusion that the tortious
interference claim should have proceeded to the jury is itself
sufficient to overturn the judgment as a matter of law on the
unfair competition claim. Our analysis here focuses on those
aspects of unfair competition that are distinct from tortious
interference.
54
Optometric Ass’n v. Hillman-Kohan, 365 A.2d 956 (N.J.
Super. Ct. Ch. Div. 1976)).
In New Jersey, unfair competition is commonly
invoked for claims similar to misappropriation of trade
secrets or commercial identity. An unfair competition claim,
however, protects more information than a traditional trade
secret claim. See Torsiello v. Strobeck, 955 F. Supp. 2d 300,
314 (D.N.J. 2013) (“Under New Jersey law, to be judicially
protected, misappropriated information need not rise to the
level of the usual trade secret, and indeed, may otherwise be
publicly available.” (quoting Platinum Mgmt., Inc. v. Dahms,
666 A.2d 1028, 1038 (N.J. Sup. Ct. Law Div. 1995))). For
example, in the Lamorte case, the Supreme Court of New
Jersey reinstated summary judgment against the plaintiff’s ex-
employees who took their former employer’s “client names,
addresses, phone and fax numbers, file numbers, claim
incident dates, claim contact information, and names of the
injured persons.” 770 A.2d at 1162. The court endorsed the
statement “that an agent must not take ‘unfair advantage of
his position in the use of information or things acquired by
him because of his position as agent or because of the
opportunities which his position affords.’” Id. at 1167
(quoting Restatement (Second) of Agency § 387 cmt. b
(1958)). The court emphasized that “the [client-specific]
information was available to defendants for their use in
servicing clients on behalf of Lamorte only,” and that
“defendants also knew that Lamorte had an interest in
protecting that information.” Id. at 1167. Collectively, those
facts established that the “information taken by defendants
was confidential and proprietary information belonging to
plaintiff.” Id. at 1168.
55
What constitutes misappropriation is somewhat vague.
“It is not possible to formulate a comprehensive list of the
conduct that constitutes ‘improper’ means of acquiring a trade
secret.” Restatement (Third) of Unfair Competition § 43 cmt
c. (1995). Generally, however, “‘[i]mproper’ means ...
include theft, fraud, unauthorized interception of
communications, inducement of or knowing participation in a
breach of confidence, and other means either wrongful in
themselves or wrongful under the circumstances of the case.”
Id. § 43. Even a legitimate business purpose will not excuse
otherwise tortious conduct if the means used are improper.
See Lamorte, 770 A.2d at 1171. As another court has put it,
[t]he key to determining the misuse of the
information is the relationship of the parties at
the time of disclosure, and its intended use.
This tort tends to arise where an ex-employee
uses confidential information to assist a
competitor. A court may look to whether the
information is public, whether it was provided
in the course of employment for the sole
purpose of servicing clients, how detailed the
information is, and whether the party using the
information is aware of the information holder’s
interest in protecting the information ... .
Torsiello, 955 F. Supp. 2d at 314 (internal quotation marks
and citations omitted).
For a plaintiff to establish damages, New Jersey law
allows recovery under a disgorgement theory in cases of
unfair competition. See Castrol, Inc. v. Pennzoil Quaker
State Co., 169 F. Supp. 2d 332, 345-46 (D.N.J. 2001) (ruling
56
that the plaintiff in that case was “entitled to disgorgement of
[the defendant’s] profits” for its “claims under the New Jersey
Common Law of Unfair Competition ... .”).31 Therefore, in
place of proving specific damages, Avaya could properly seek
disgorgement of TLI’s profits from any conduct the jury
found tortious.
We hold that Avaya presented sufficient evidence that
a reasonable jury could have concluded that there was unfair
competition under a misappropriation theory. The District
Court’s grant of judgment as a matter of law was thus
erroneous. TLI gained access to proprietary information –
namely ODMC login passwords – using hacking, the
solicitation of disloyal former Avaya employees, and
information learned during TLI’s own time as an Avaya
Business Partner. A jury could have determined that TLI’s
methods of gaining Avaya’s proprietary information
constituted misappropriation. Likewise, Avaya could show
damages under either a lost profit theory or a disgorgement
theory. Given that such a large proportion of TLI’s well-
accounted profits resulted from conduct that Avaya alleges
was rooted in the misappropriation or proprietary
information, the disgorgement theory may have been simple
for the jury to apply to determine damages.
5. Fraud
31
See also Restatement (Third) of Unfair Competition
§ 45 (1995) (“One who is liable to another for an
appropriation of the other’s trade secret ... is liable for the
pecuniary loss to the other caused by the appropriation or for
the actor’s own pecuniary gain resulting from the
appropriation, whichever is greater ... .”).
57
We next consider Avaya’s common law fraud claim.
Under New Jersey law,
proof of common law fraud requires the
satisfaction of five elements: [1] a material
misrepresentation by the defendant of a
presently existing fact or past fact; [2]
knowledge or belief by the defendant of its
falsity; [3] an intent that the plaintiff rely on the
statement; [4] reasonable reliance by the
plaintiff; [5] and resulting damages to the
plaintiff.
Liberty Mut. Ins. Co. v. Land, 892 A.2d 1240, 1247 (N.J.
2006). A jury must find fraud by clear and convincing
evidence, a standard which demands “evidence so clear,
direct and weighty and convincing as to enable the factfinder
to come to a clear conviction, without hesitancy, of the
precise facts in issue.” N.J. Div. of Youth & Family Servs. v.
I.S., 996 A.2d 986, 1000 (N.J. 2010) (quoting In re Seaman,
627 A.2d 106, 100 (N.J. 1993)).Proof of damages can be
supported by a jury inference that a defendant’s actions
“reduced the plaintiff’s profits, although by an uncertain
amount.” Nappe v. Anschelewitz, Barr, Ansell & Bonello,
477 A.2d 1224, 1233 (N.J. 1984).
Based on the trial record, there was ample evidence
from which a reasonable jury could have found for Avaya on
the fraud claim. The evidence for the first element –
fraudulent conduct – is straightforward. TLI had its
customers fill out forms requesting login permissions but
instructed those customers to leave the “Business Partner”
58
component of the form blank, to be filled in later by TLI. TLI
would then insert the name of an authorized Business Partner
so that Avaya would provide the requested login information.
TLI therefore willfully misrepresented who was making the
request for the login credentials and acknowledged the
materiality of that misrepresentation by confirming that it did
not want Avaya to find out what they were doing, because
Avaya would otherwise not provide the logins.
The evidence also satisfies the second element,
knowledge, in that it supports a conclusion that TLI knew it
was operating under false pretenses. The form at issue, by its
very language, is a request from a customer to Avaya for
delivery of information to a specifically named Business
Partner. The form provided that the login Avaya furnished
would allow “the Business Partner listed above ... to perform
additions, changes, moves and/or upgrades.” (J.A. 5313.)
Yet TLI submitted the form knowing full well that the
“Business Partner listed above” would not be performing
those tasks, because TLI would be.
As to the third element, the reasonableness of relying
on the representation, TLI filled out the form with the name
and information of an existing, authorized Business Partner.
A jury could find that Avaya acted reasonably by providing
access information when it believed such access was being
delivered to a provider with whom it had an existing contract.
The final element, damages, is what most concerned
the District Court. As established above, however, Avaya
presented strong evidence – sufficient for the clear and
convincing standard – that every dollar made by TLI in its
maintenance of Avaya products was necessarily to some
59
degree at Avaya’s expense. A jury could have reasonably
concluded that each time TLI used a fraudulently obtained
login to win or keep a maintenance contract, that cost Avaya
profit. As the Supreme Court of New Jersey confirmed in
Nappe, such an inference is enough to sustain a finding of
damages, even where the exact amount may be uncertain.
477 A.2d at 1233.
Avaya thus presented sufficient evidence to send the
fraud claim to the jury, based on TLI’s deceptive login
requests.
60
6. Breach of Contract
Finally, we turn to Avaya’s breach of contract claims
against TLI. As developed at trial, Avaya contended that TLI
breached two contracts: the 1998 dealer agreement between
Lucent and TLI, and the 2003 Avaya One agreement that was
effective until TLI’s participation as a Business Partner was
terminated.32 In both cases, the District Court did not contest
the existence of the contract or damages, but instead granted
judgment as a matter of law on the ground that “Avaya ha[d]
failed to introduce evidence from which a reasonable jury
could find that TLI breached either of the contracts.” (J.A.
210.) Once again, there is not a sound basis for that holding.
a. 1998 Dealer Agreement
The 1998 contract’s choice of law provision provides
that it is governed by Delaware law. In Delaware, the
elements of a breach of contract claim are: “[1] the existence
of the contract, whether express or implied; [2] the breach of
an obligation imposed by that contract; and [3] the resultant
damage to the plaintiff.” VLIW Tech., LLC v. Hewlett-
Packard Co., 840 A.2d 606, 612 (Del. 2003).
32
Whereas the customer contracts referenced above in
Part II.A.2 were for PBX systems, the dealer agreements
between Avaya and TLI are worded broadly enough to reach
both the PBX and PDS markets. Insofar as Avaya’s breach of
contract allegations rely primarily on improper access to
ODMCs and MSPs, however, the breach of contract claim is
principally focused on the larger PBX market.
61
The signature page of the 1998 agreement evidences a
contract between Lucent (Avaya’s predecessor) and TLI
(referred to in the contract as the “Dealer”), satisfying the first
element of the cause of action. Section 2.8 of the 1998
agreement provides, in part, as follows:
Dealer may not market or sell Lucent Products
to any Lucent BCS Global Account, or … the
United States Government, and will use its best
efforts to ensure that Dealer does not market to
present direct customers of Lucent who are
under warranty or with existing maintenance
contracts for Lucent products or to any entity
that is considering a proposal from Lucent for
products or maintenance services, except that
Dealer may respond to a request for competitive
bids, proposals, or quotations even if Lucent is
also responding.
(J.A. 5905 (emphases added).)
Avaya claims that TLI breached that “best efforts”
clause by marketing and selling maintenance services to
existing Lucent/Avaya customers. At trial, Douglas Graham
admitted that TLI “marketed … to existing Avaya
maintenance customers” in 2001, while the firm “was
operating under the terms of the 1998 Lucent dealer
agreement.” (J.A. 2704.) He also acknowledged a particular
client to whom TLI had “marketed ... maintenance to replace
existing Avaya maintenance.” (J.A. 2705.)
In spite of what is arguably a clear violation of § 2.8 of
the agreement, the District Court concluded that TLI’s
62
conduct “does not constitute a breach” because the Court
interpreted § 2.8 to prohibit only the marketing of “Lucent
Products,” a defined term that did not include maintenance.
(J.A. 212.) That, however, is an overly cramped
interpretation of the provision. Although a jury could perhaps
import the “Lucent Products” language into the “best efforts”
clause, that clause could just as easily support an
interpretation that generally bars the marketing of
maintenance to Lucent/Avaya customers. Indeed, the best
efforts clause specifically prohibits marketing to
Lucent/Avaya customers “with existing maintenance
contracts ... or to any entity that is considering a proposal
from Lucent for … maintenance services,” which strongly
suggests that maintenance was part of the prohibition. (J.A.
5905.) The District Court therefore erred in assuming that
“no reasonable jury” could have found a breach of § 2.8.
(J.A. 213.)
As to the final element, damages, we conclude that the
same analysis for the earlier causes of action would have
supported a jury finding that any profit that TLI gained by its
breach of contract must have come, at least in part, at Avaya’s
expense. Therefore, we conclude that a jury could reasonably
have found all three elements of a breach of contract, and
judgment as a matter of law was not proper.
b. 2003 Avaya One Agreement
The choice of law clause in the Avaya One agreement,
§ 18.1, provides that New York law governs. Under New
York law, the elements of a breach of contract claim are
similar to Delaware’s: “[1] the existence of a contract, [2] the
plaintiff’s performance pursuant to the contract, [3] the
63
defendant’s breach of his or her contractual obligations, and
[4] damages resulting from the breach.” Neckles Builders,
Inc. v. Turner, 986 N.Y.S.2d 494, 496 (N.Y. App. Div.
2014).
The signature page of the Avaya One agreement
evidences a contract between Avaya and TLI, satisfying the
first element. Section 7.3 of the Avaya One agreement
provides, in part, as follows:
[TLI] agrees not to reverse engineer, decompile
or disassemble software furnished to it in object
code form or permit any third party to do so.
For any software included as part of the
Licensed Materials which inherently includes
the capability of being remotely enabled, [TLI]
expressly agrees that it shall not enable, or
permit or assist any third party to enable, such
features or capabilities without Avaya’s express
written permission.33
(J.A. 6953.) That obligation was clearly intended to survive
the termination of the Avaya One agreement.34 Both an
33
As an Avaya executive testified at trial, the purpose
of that provision was “to protect [Avaya’s] software assets
going forward if there is information that a Business Partner
gets, [and] also to make sure that nothing gets turned on
subsequent[ to] termination.” (J.A. 2116.)
34
Section 17.6 of the agreement provided that “the
termination of the Agreement shall not prejudice or otherwise
affect ... any ... obligations of the parties, such as those arising
64
Avaya executive and a systems engineer testified that MSPs
and the DADMIN logins were capable of being remotely
enabled.
The agreement also included, at § 4.1, a general
morality clause that bound TLI for the duration of the
agreement:
[TLI] shall: (a) conduct its business in a manner
that reflects favorably on the Products and on
the good name, goodwill and reputation of
Avaya; (b) avoid deception, misleading or
unethical practices; and (c) use best efforts to
promote, market, and further the interest of
Avaya, its name and Products.
(J.A. 6951 (emphases added).)
Although Avaya’s performance – the second element
of a breach of contract claim – was not part of the District
Court’s analysis, the record provides sufficient evidence for a
jury to conclude that Avaya did perform. TLI was operating
as a Business Partner under the Avaya One agreement from
its execution until the business relationship between the
parties was terminated. Douglas Graham acknowledged that
the relationship was “mutually beneficial” and that, “[a]s an
Avaya Business Partner ... TLI was authorized by Avaya to
resell certain Avaya products and services.” (J.A. 2699.)
under [Section 7], which by their nature continue beyond
termination of the Agreement and which shall survive such
termination.” (J.A. 6959.)
65
Indeed, Avaya equipment was “by far [the] leading
manufacturer product that [TLI] sold.” (J.A. 2700.)
The District Court’s analysis focused on the third
element – the actual breach of a contractual obligation.
Avaya’s claim for breach of § 7.3 is straightforward. Insofar
as MSPs and DADMINs were “licensed Materials which
inherently include[d] the capability of being remotely
enabled,” a jury could find that TLI breached its contractual
obligations when it “enable[d] ... or assist[ed] any third party
to enable, such features or capabilities without Avaya’s
express written permission.” (J.A. 6953.) Even though the
District Court acknowledged that the meaning of those terms
was “less than perfectly clear,” it nonetheless concluded that
the term “features and capabilities” unambiguously excluded
MSPs and DADMIN logins. (J.A. 218-19.) Yet the
activation of MSPs and use of DADMIN logins allowed
customers to perform remote maintenance, for which
customers were willing to pay additional licensing fees,
suggesting that the customers considered them to be features
or capabilities. Even if a reasonable jury could have agreed
with the District Court’s reading of the contract, there was at
least sufficient ambiguity in the Avaya One agreement that
the jury could have seen it the other way and agreed with
Avaya that MSPs and DADMIN logins are “features and
capabilities,” the unauthorized activation of which by TLI
amounted to a breach of contractual obligations.
As to the morality clause in § 4.1, Avaya contended
that TLI breached its obligations when it began its allegedly
unethical business practices during the term of the contract, in
preparation for soliciting maintenance customers away from
Avaya. Those activities included hacking logins and enlisting
66
Business Partners to obtain ODMC access. As early as May
2003, while still bound by the Avaya One agreement, TLI
solicited Creswick to “pull ... password[s].” (J.A. 2281.) In
September, during the contract term, TLI began to seek a
“discreet Avaya Business Partner ... [to] submit DADMIN
request forms on our behalf.” (J.A. 5813.) A reasonable jury
could have concluded that, by engaging Creswick and
recruiting Business Partners to submit deceptive DADMIN
login request forms, TLI was violating its contractual
obligations to “avoid deception [and] misleading or unethical
practices” and to “use best efforts to promote, market, and
further the interest of Avaya.” (J.A. 6951.)
Analysis of damages – the final element of the cause
of action – was not central to the District Court’s grant of
judgment as a matter of law. However, the analysis for
damages is as straightforward as for the tort claims, because
PBX and PDS maintenance business gained by TLI as a result
of its breach must have come, to some extent, at Avaya’s
expense.
7. Conclusion
Based on the foregoing analysis, we conclude that the
District Court’s grant of judgment as a matter of law was
erroneous for the four affirmative common law claims that
Avaya addresses in this appeal.35 We will therefore vacate
35
Although our dissenting colleague’s “assessment of
Avaya’s case-in-chief is the same as the District Court’s”
(Dissenting Op. at 3-4), he has sufficient “doubt about the
propriety of the District Court’s decision” that he focuses his
opinion on other issues (id. at 4). We therefore let our
67
the District Court’s judgment and remand for further
proceedings on those four claims. That does not, however,
end our inquiry. Given the District Court’s instruction to the
jury that all of TLI’s conduct was lawful, we must also
consider whether the several errors associated with the
District Court’s handling of the common law claims also
infected the remainder of the trial.
B. Prejudice on the Antitrust Verdict
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.
1. General Prejudice to Avaya’s
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. Trans-
Missouri 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
2. “Fear, Uncertainty, and Doubt”
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
3. Interference with Defense and Cross-
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
4. Harmless Error Analysis
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
C. Antitrust Issues
Avaya does not simply seek vacatur, however. It
argues that we should reverse the judgment and hold that it is
entitled to judgment on the antitrust counterclaims because
TLI adduced insufficient evidence to support them. We begin
our analysis of that argument by reviewing how the antitrust
laws treat product tying. We then turn to Avaya’s claim-
specific contentions and conclude that the PBX attempted
monopolization counterclaim is legally invalid for PBXs sold
after 2008 and that the PDS tying counterclaim must fail as a
matter of law.
1. Tying in Antitrust Law
TLI’s antitrust counterclaims against Avaya are based
on an allegedly unlawful use of tying to restrain and
monopolize the market for PBX and PDS maintenance
services. “[A] tying arrangement may be defined as an
agreement by a party to sell one product [or service] but only
44
The parties also dispute the propriety of the
injunctive relief ordered by the District Court. Because we
will vacate the verdict and judgment of liability, we must also
vacate the resulting injunction.
80
on the condition that the buyer also purchases a different (or
tied) product [or service], or at least agrees that he will not
purchase that product [or service] from any other supplier.”
Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6
(1958). For a pair of products or services to be distinct, and
therefore capable of being tied together, “there must be
sufficient consumer demand so that it is efficient for a firm to
provide [them] separately.” Kodak, 504 U.S. at 462. Tying
can support a Sherman Act claim either under § 1, as an
unlawful restraint on trade, or under § 2, as an unlawful act of
monopolization or attempted monopolization. See Phillip E.
Areeda & Herbert Hovenkamp, Fundamentals of Antitrust
Law (“Fundamentals”) § 17.01, at 17-13 (4th ed. Supp.
2015); see also 15 U.S.C. §§ 1-2.45 Under the antitrust
theories presented by TLI, Avaya unlawfully tied its PBX and
PDS systems to maintenance services by conditioning access
to equipment and software on the purchase of such services
from Avaya or its Business Partners.
Not all ties are illegal, however. To declare otherwise
would risk making practically every product the subject of an
antitrust suit, because, in theory at least, most any product can
be deconstructed into component parts that could be sold
separately. For that reason, “[i]t is clear ... that every refusal
to sell two products separately cannot be said to restrain
45
TLI secured verdicts against Avaya under both §§ 1
and 2 of the Sherman Act. Section 1 declares illegal “[e]very
contract, combination ..., or conspiracy, in restraint of trade or
commerce.” 15 U.S.C. § 1. Section 2 makes unlawful any
act to “monopolize, or attempt to monopolize, or combine or
conspire ... to monopolize any part of the trade or commerce.”
15 U.S.C. § 2.
81
competition.” Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466
U.S. 2, 11 (1984) partially abrogated on other grounds by Ill.
Tool Works Inc. v. Indep. Ink, Inc., 544 U.S. 28 (2006).
Instead,
the essential characteristic of an invalid tying
arrangement lies in the seller’s exploitation of
its control over the tying product to force the
buyer into the purchase of a tied product that
the buyer either did not want at all, or might
have preferred to purchase elsewhere on
different terms. When such “forcing” is present,
competition on the merits in the market for the
tied item is restrained and the Sherman Act is
violated.
Id. at 12. Therefore, “[w]hen ... the seller does not have ... the
kind of market power that enables him to force customers to
purchase a second, unwanted product in order to obtain the
tying product, an antitrust violation can be established only
by evidence of an unreasonable restraint on competition in the
relevant market.” Id. at 17-18.
In this case, nobody contends that the primary market
for PBX and PDS systems is anything other than competitive,
or that Avaya’s main competitors in that market – large firms
such as Cisco, Siemens, and Microsoft – cannot use prices to
discipline Avaya in that primary market. As to the primary
market, then, TLI’s position is not that Avaya’s “share of the
market is high” or that it “offers a unique product that
competitors are not able to offer.” Id. at 17. Rather, TLI has
proceeded under a specialized theory of tying developed in a
Supreme Court case called Eastman Kodak Company v.
82
Image Technical Services, Inc., 504 U.S. 451 (1992). Review
of the Kodak opinion and our Court’s elaboration of its
principles is essential, then, because TLI’s counterclaims rise
or fall based on whether they comport with a Kodak theory of
antitrust liability.
a. The Kodak Theory of Antitrust
Tying Liability
Kodak presented the Supreme Court with a situation
similar to the one before us, consisting of a primary market
for complex durable goods and an aftermarket for
maintenance service. Kodak sold photocopier equipment, as
well as maintenance service and replacement parts. Id. at
455. The parts were of proprietary design and were not
interchangeable with other manufacturers’ parts. Id. at 456-
57. Kodak sold both parts and service, using different
contract arrangements to charge different prices to different
customers. Id. at 457. When Kodak attempted to prevent the
sale of its parts to independent maintenance service providers
– thereby restricting their ability to service Kodak machines –
a group of those independent providers filed suit, alleging
unlawful tying of parts and service in violation of §§ 1 and 2
of the Sherman Act. Id. at 458-59.
On ultimate appeal from the district court’s grant of
summary judgment for Kodak, the Supreme Court ruled that
the plaintiffs had put forward a strong enough case to proceed
to trial. The Court accepted Kodak’s argument that the
primary equipment market was competitive, id. at 465 n.10,
but it nonetheless ruled that the plaintiffs could proceed under
a § 1 tying theory of antitrust liability. It refused to endorse
Kodak’s assertion that competition in the primary market
83
would necessarily discipline the maintenance aftermarket,
preferring not to adopt “[l]egal presumptions that rest on
formalistic distinctions rather than actual market realities.”
Id. at 466. Instead, the Court insisted on a context-specific
factual analysis of whether “the equipment market does
discipline the aftermarkets so that [both] are priced
competitively overall, or that any anti-competitive effects of
Kodak’s behavior are outweighed by its competitive effects.”
Id. at 486. “The fact that the equipment market imposes a
restraint on prices in the aftermarkets” does not, on its own,
“disprove[] the existence of power in those markets.” Id. at
471 (citation omitted).
In explaining how a seller facing a competitive
primary equipment market could nonetheless exercise market
power in the parts and maintenance aftermarkets, the Court
expounded a theory whereby high information and switching
costs would allow the seller to exploit customers who had
already purchased the equipment and were then “locked in” to
the aftermarkets. Id. at 476. It explained that “[l]ifecycle
pricing of complex, durable equipment is difficult and
costly,” and that the information needed for such lifecycle
pricing “is difficult – some of it impossible – to acquire at the
time of purchase.” Id. at 473. Because “[a]cquiring the
information is expensive[, i]f the costs of service are small
relative to the equipment price, ... [consumers] may not find it
cost efficient to compile the information.” Id. at 474-75.
Additionally, competitors may not provide that information,
either because they do not have it themselves or because they
may wish to collusively engage in the same behavior with
their own customers so that “their interests would [not] be
advanced by providing such information to consumers.” Id.
84
at 474 & n.21 (citation omitted). Customers’ information
limitations could be paired with high switching costs so that
consumers who already have purchased the
equipment, and are thus “locked in,” will
tolerate some level of service-price increases
before changing equipment brands. Under this
scenario, a seller profitably could maintain
supracompetitive prices in the aftermarket if the
switching costs were high relative to the
increase in service prices, and the number of
locked-in customers were high relative to the
number of new purchasers.
Id. at 476. In other words, tying liability may exist in an
aftermarket where the seller can exploit customers who have
already purchased the equipment and cannot easily shift to
another brand.
The Supreme Court also posited that the threat of
anticompetitive exploitation of aftermarkets in light of high
information and switching costs would be particularly severe
in cases where the seller could engage in price discrimination,
i.e., charging different prices to different types of consumers.
With respect to information costs, “if a company is able to
price discriminate between sophisticated and unsophisticated
consumers, the sophisticated will be unable to prevent the
exploitation of the uninformed.” Id. at 475. With respect to
switching costs, “if the seller can price discriminate between
its locked-in customers and potential new customers,” it can
exploit locked-in customers with supracompetitive
aftermarket prices while simultaneously charging low prices
to new customers. Id. at 476. Those forms of price
85
discrimination could allow a savvy monopolistic seller to
create a market tiered like a pyramid. While charging lower
lifecycle prices to sophisticated customers in the primary
market, the seller could dupe low-information customers into
paying a deceptively low upfront cost for the equipment, to
lock them in due to high switching costs and set them up for
supracompetitive prices in the aftermarkets for parts and
service. In the meantime, it could continue to make a normal
competitive profit from sales to sophisticated new customers
by charging them lower lifecycle prices through lower-priced
long-term contracts. Price discrimination thus allows a seller
to run a multi-tier market dividing more sophisticated
consumers from less sophisticated ones, while lock-in snares
the unsophisticated customers once the proverbial trap has
been sprung.
Not only was that theory sufficient to support § 1
liability, the Court also held that it could support § 2 liability
for unlawful monopolization. In that analysis, the Court
incorporated the § 1 analysis for whether the equipment
market and the service and parts aftermarkets were distinct
for antitrust purposes. Id. at 481. It was comfortable with
defining a single-brand market as relevant for antitrust
purposes as long as such a market was justified by “the
choices available to ... equipment owners,” as “determined ...
after a factual inquiry into the ‘commercial realities’ faced by
consumers.” Id. at 482 (quoting United States v. Grinnell
Corp., 384 U.S. 563, 572 (1966)). A successful plaintiff had
to prove more, however, to succeed on a § 2 claim, because
simply proving monopoly power in the aftermarket was not
enough. A § 2 claim additionally requires showing the use of
that monopoly power “to foreclose competition, to gain a
competitive advantage, or to destroy a competitor.” Id. at
86
482-83 (quoting United States v. Griffith, 334 U.S. 100, 107
(1948)). Therefore, in defending against a § 2 claim, the
seller has the opportunity to justify its actions so that
“[l]iability turns ... on whether ‘valid business reasons’ can
explain [its] actions.” Id. at 483 (quoting Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985)).
The Court was willing to consider as valid business reasons
both controlling inventory costs and ensuring high quality
maintenance service, but it did not consider the record in
Kodak as sufficient to warrant summary judgment. Id. at
483-86.
b. Third Circuit Elaboration of
Kodak
Since Kodak, our Court has had the opportunity to
develop that case’s theory of antitrust liability, most notably
in a pair of cases called Queen City Pizza, Inc. v. Domino’s
Pizza, Inc., 124 F.3d 430 (3d Cir. 1997), and Harrison Aire,
Inc. v. Aerostar International, Inc., 423 F.3d 374 (3d Cir.
2005).
In Queen City Pizza, we considered a Kodak-style
claim by a group of franchisees against Domino’s Pizza,
alleging that Domino’s had used its monopoly power over the
market for franchise rights and proprietary pizza dough to
restrain trade in the market for approved pizza supplies. 124
F.3d at 434. We affirmed the district court’s dismissal of the
claims under Federal Rule of Civil Procedure 12(b)(6)
because we did not consider the contractual requirement for
franchisees to purchase pizza ingredients from Domino’s to
implicate the concerns raised in Kodak. Id. at 444. We
observed “that Domino’s approved supplies and ingredients
87
are fully interchangeable in all relevant respects with other
pizza supplies” so that they were not unique in the way that
Kodak parts were. Id. at 440. The plaintiffs were not,
therefore, forced to purchase approved supplies because of
the uniqueness of any Domino’s goods, but instead only
“because they [were] bound by contract to do so.” Id. at 441.
In distinguishing that contractual obligation from the Kodak
situation, we explained that, where the defendant’s forcing
power “stems not from the market, but from plaintiffs’
contractual agreement ..., no claim will lie.”46 Id. at 443. “If
46
In Queen City Pizza, we talked, in part, of the
defendant forcing “plaintiffs to purchase the ... tying
product.” 124 F.3d at 443 (emphasis added). That language
was a result of the idiosyncratic nature of one of the tying
theories alleged in that case. Under that theory, the primary
market was for restaurant franchise agreements, which in turn
contractually bound franchisees to purchase the alleged
“tying” product, fresh dough. The franchisees contended that
Domino’s “refused to sell fresh dough to [them] unless [they]
purchased other ingredients and supplies from Domino’s,” id.
at 434, so that the “other ingredients and supplies” were the
“tied” product.
The analogy here would be an argument that the
primary market was for PBX systems, which “forced” the
purchase of ODMCs and MSPs as the “tying” products,
which were in turn allegedly used to force purchase of
maintenance as the “tied” service. No matter how many
intermediate steps are alleged, however, in the end our
concern is whether the defendant forced purchases of a tied
product using power in some distinct market. Jefferson
Parish, 466 U.S. at 12. Queen City Pizza stands for the
proposition that if the supposed forcing is entirely the result
88
Domino’s ... acted unreasonably when ... it restricted
plaintiffs’ ability to purchase supplies from other sources,
plaintiffs’ remedy, if any, is in contract, not under the
antitrust laws.” Id. at 441.
We also emphasized in Queen City Pizza that “[t]he
Kodak case arose out of concerns about unilateral changes in
Kodak’s parts and repairs policies.” Id. at 440. Because
Kodak’s change in policy against independent maintenance
providers “was not foreseen at the time of sale, buyers had no
ability to calculate these higher costs at the time of purchase
and incorporate them into their purchase decision.” Id. The
Domino’s franchisees, on the other hand, “knew that
Domino’s Pizza retained significant power over their ability
to purchase cheaper supplies from alternative sources because
that authority was spelled out in ... the ... franchise
agreement,” so the “franchisees could assess the potential
costs and economic risks at the time they signed the franchise
agreement.” Id. If the franchisees found the contractual
requirements “overly burdensome or risky at the time they
were proposed, [they] could have purchased a different form
of restaurant, or made some alternative investment,” id. at
441, so that the transaction was “subjected to competition at
the pre-contract stage,” id. at 440. We thus characterized
Kodak as concerned largely with the threat of unfair surprise
for customers in the aftermarket, a threat ameliorated if the
aftermarket terms were made clear in a primary market
contract.
of a transparent contractual agreement, then that is not the
concern of the antitrust laws. A plaintiff cannot avoid that
outcome merely by crafting a complaint to allege
intermediate steps.
89
In Harrison Aire, our Court’s second major case
elaborating Kodak, we affirmed summary judgment against
the Kodak-style claims of a hot air balloon operator that
alleged that the balloon manufacturer had monopolized the
aftermarket for replacement balloon fabric by tying the
purchase of its own branded fabric to its balloons. 423 F.3d
at 379, 386. We explained that, in general, “[i]f the primary
market is competitive, a firm exploiting its aftermarket
customers ordinarily is engaged in a short-run game – for
when buyers evaluate the ‘lifecycle’ cost of the product, the
cost of the product over its full service life, they will shop
elsewhere.” Id. at 382. The Kodak case is an exception to
that general rule, based on a “market failure” in which
“lifecycle pricing information is particularly difficult or
impossible for primary market customers to acquire, as in the
case of a unilateral change in aftermarket policy targeting
‘locked in’ customers.” Id. We emphasized that “Kodak
does not transform every firm with a dominant share of the
relevant aftermarket into a monopolist,” and that a Kodak-
style “plaintiff must produce ‘hard evidence dissociating the
competitive situation in the aftermarket from activities
occurring in the primary market.’” Id. at 383 (quoting SMS
Sys. Maint. Servs., Inc. v. Digital Equip. Corp., 188 F.3d 11,
17 (1st Cir. 1999)).
In evaluating the evidence in Harrison Aire, we
cautioned that, although “[o]ne important consideration is
whether a unilateral change in aftermarket policy exploits
locked-in customers,” id. at 383, “an ‘aftermarket policy
change’ is not the sine qua non of a Kodak claim,” id. at 384.
Other factors to consider include “evidence of (1)
supracompetitive pricing, (2) [the seller’s] dominant share of
the relevant aftermarket, (3) significant information costs that
90
prevent[] lifecycle pricing, and (4) high ‘switching costs’ that
serve[] to ‘lock in’ [the seller’s] aftermarket customers.” Id.
Applying those factors to the specific circumstances of the
Harrison Aire case, we concluded that “[n]either information
costs nor a unilateral change in aftermarket policy prevented
[the plaintiff] from shopping for competitive lifecycle balloon
prices when it purchased the ... balloon at issue.” Id. at 384-
85. Without “other evidence dissociating competitive
conditions in the primary balloon market from conditions in
the aftermarket for replacement fabric,” it was “clear that [the
plaintiff] got precisely the balloon and the aftermarket fabric
that it bargained for in the competitive primary market.” Id.
at 385. Therefore, summary judgment against the
monopolization claim was appropriate.47
c. Synthesizing the Kodak Case
Law
Kodak makes clear that, in certain limited
circumstances, a competitive primary market will not insulate
a defendant from antitrust liability. But neither that case nor
our subsequent case law overturns the more general principle
that a plaintiff’s theory of antitrust liability must be
economically plausible. Thus, in the summary judgment
context, “‘antitrust law limits the range of permissible
47
We also affirmed summary judgment against the § 1
tying claim raised in Harrison Aire because “[t]ying requires
appreciable economic power in the tying product market,”
and the plaintiff “fail[ed] to produce any evidence of
appreciable market power in the tying product market” for hot
air balloons. 423 F.3d at 385 (citations and internal quotation
marks omitted).
91
inferences’ that can be drawn ‘from ambiguous evidence.’”
Harrison Aire, 423 F.3d at 380 (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986)).
That “higher threshold” for summary judgment “is
imposed in antitrust cases to avoid deterring innocent conduct
that reflects enhanced, rather than restrained, competition.”
In re Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir.
2004). As the Supreme Court put it plainly in Kodak itself,
“[i]f [a] plaintiff’s theory is economically senseless, no
reasonable jury could find in its favor, and summary
judgment should be granted.” 504 U.S. at 468-69. The
requirement that a plaintiff make out an economically
coherent theory of antitrust liability applies just as much to
the pleading stage, where, to “make a § 1 claim,” a plaintiff
must “identify[] facts that are suggestive enough to render a
§ 1 [violation] plausible,” with sufficient “context” to “raise[]
a suggestion” of unlawful anticompetitive conduct. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556-57 (2007). The
requirement that a plaintiff provide an economically plausible
theory for its antitrust claims applies no less at trial than when
a case is resolved by summary judgment or on the pleadings.
With that in mind, we do not read – and have never
read – Kodak to modify the requirement that a plaintiff in a
tying case prove that the defendant has market power
sufficient “to force a purchaser to do something that he would
not do in a competitive market.” Jefferson Parish, 466 U.S.
at 14. In general, we expect a vibrant and competitive
primary market to discipline and restrain power in related
aftermarkets. What Kodak stands for is the principle that
there can be some exceptions to that expectation, when a
plaintiff can produce a plausible economic theory of market
92
failure, supported by sufficient evidence. In evaluating the
issues in this case, we must consider just how broadly that
Kodak exception should be read.
A leading antitrust treatise seems to suggest that
Kodak should be read as confined to the lock-in situation that
was that opinion’s focus. As that treatise distills the Kodak
analysis: “Kodak could exploit locked-in customers with
supracompetitive prices only if it could profitably (1)
dispense with sophisticated new customers or (2) could
discriminatorily overcharge only those existing customers
whose exploitation would not affect new sales.” Areeda &
Hovenkamp, Fundamentals, supra, § 5.12, at 5-102 (Supp.
2016).48 Those conditions will rarely obtain, and “[m]uch
48
As that treatise explains those two elements in
greater detail:
when a defendant has no power in the [primary]
market, it cannot profitably charge
supracompetitive prices for unique [aftermarket
products] to “locked in” users unless:
1. it can profitably abandon selling new
machines to sophisticated new
customers who would understand that
the machine’s cost is the sum of its
nominal price plus the excess
[maintenance] charges later ...; or
2. it can price discriminate by
identifying and overcharging only
unsophisticated users and thus
assuring competitive ... prices for
new, sophisticated customers.
93
more typically, high aftermarket prices are explained as an
offset to more intense competition in the foremarket good.”
Id. at 5-103. In that scholarly view, then, Kodak identified a
pair of possible conditions in which primary market
competition will not discipline aftermarket prices, but it
should not be read as embracing any broader economic theory
of tying liability.
We have not read Kodak quite so narrowly. The
Supreme Court emphasized that “[l]egal presumptions that
rest on formalistic distinctions rather than actual market
realities are generally disfavored in antitrust law” and that
Unless one of these conditions is satisfied, the
defendant without power in the [primary]
market also lacks the power to charge
supracompetitive prices for unique [aftermarket
products].
Areeda & Hovenkamp, Fundamentals, supra, § 5.12, at 5-102
to 103.
In a companion treatise, those scholars suggest going
even further to limit the reach of Kodak in circumstances of
competitive primary markets:
Kodak does not foreclose a rebuttable
presumption that lack of power in the relevant
primary market (such as equipment) implies a
lack of substantial power in derivative markets
(such as parts or service). Indeed, Kodak may
even allow a conclusive presumption to this
effect in order to simplify administration of the
antitrust laws.
Phillip E. Areeda & Herbert Hovenkamp, 10 Antitrust Law
¶ 1740, at 133 (3d ed. 2011).
94
antitrust claims should be resolved “on a case-by-case basis,
focusing on the particular facts disclosed by the record.”
Kodak, 504 U.S. at 466-67 (citations and internal quotation
marks omitted) (quoting Maple Flooring Mfrs. Ass’n v.
United States, 268 U.S. 563, 579 (1925)). In Harrison Aire,
we declined to read Kodak as applying narrowly to only cases
involving “[a]n aftermarket policy change,” because Kodak
mandated that courts look at “several relevant factors.”
Harrison Aire, 423 F.3d at 384. The test is more broad: a
plaintiff pursuing a Kodak-style claim must present evidence
to support a plausible economic explanation that competition
in the primary market is “dissociat[ed] ... from conditions in
the aftermarket.” Id.
Showing exploitation of locked-in customers, as
detailed in Kodak, is one way to satisfy that burden, but our
own case law prevents us from concluding in the abstract that
it is the only way to do so. Therefore, we interpret Kodak as
standing for two propositions: (1) that firms operating in a
competitive primary market are not thereby categorically
insulated from antitrust liability for their conduct in related
aftermarkets; and (2) that exploitation of locked-in customers
is one theory that courts will recognize to justify such
liability. Kodak identified factors to evaluate alleged
anticompetitive aftermarket behavior, and it is possible that
those factors may support a theory of antitrust liability that is
not necessarily predicated on lock-in exploitation. But any
such alternative theory must satisfy the more general rule that
an antitrust theory needs to “make[] ... economic sense” and
be supported by the evidence. Matsushita, 475 U.S. at 587.
Having laid out the applicable principles of law for
Kodak-style tying and monopolization claims, we turn to their
95
application in the two surviving antitrust counterclaims in this
case.49
2. PBX Attempted Monopolization
Claim
Avaya argues that we should reverse the PBX
attempted monopolization judgment on two grounds. First, it
says that, once it introduced contract language in 2008 that
made clear to customers that they would not be able to use
ISPs, no Kodak claim could lie as a matter of law. Second, it
asserts that, as a matter of law, TLI’s evidence of predatory
conduct is insufficient to support a § 2 attempted
monopolization claim. We agree that Avaya cannot be liable
for PBX systems sold after the 2008 contracts were
introduced, but we cannot conclude that there was insufficient
evidence to support a verdict of liability for the pre-2008
period.
49
As a reminder, those surviving antitrust
counterclaims are for attempted monopolization in the PBX
maintenance services market, in violation of § 2 of the
Sherman Act; and tying PDS software patches to maintenance
services, in violation of §1 of the Sherman Act. Given the
arguments before us, ours is not to reason why the jury found
those particular counterclaims compelling while rejecting the
rest.
“We exercise plenary review” over a district court’s
decision on whether to grant judgment as a matter of law
against a jury verdict, but we “must not weigh evidence,
engage in credibility determinations, or substitute [our]
version of the facts for the jury’s.” Pitts v. Delaware, 646
F.3d 151, 155 (3d Cir. 2011).
96
a. Post-2008 Sales Contracts
According to Avaya, by May 2008, all purchasers of
new PBX systems were on notice that they were contractually
barred from using ISPs, so that there could be no antitrust
aftermarket for maintenance. It points out that the sales
agreement that accompanied PBX systems at that point
expressly provided for “[l]icense [r]estrictions” that made it
clear to purchasers – sophisticated and unsophisticated alike –
that they could not use ISPs for maintenance. (J.A. 7283.)
Specifically, § 6.2 of the sales agreement provided that the
Customer agrees not to ... allow any service
provider or other third party, with the exception
of Avaya’s ... resellers and their designated
employees ... to use or execute any software
commands that cause the software to perform
functions that facilitate the maintenance or
repair of any Product except ... those software
commands that ... would operate if ... [MSPs]
were not enabled or activated[.]
(Id.) Even TLI’s CEO, Douglas Graham, testified that when
Avaya introduced that version of the sales contract for its new
PBX systems, it was “making it clear that ... part of buying [a
PBX] is the customer giving up the ability to access an
[ISP].” (J.A. 2746.)
In its post-trial opinion granting TLI’s request for an
injunction, the District Court endorsed that view, even
quoting Graham’s language. Accordingly, it limited the
97
injunction against Avaya’s restraints on ISPs to cover only
those PBX systems purchased prior to May 2008.50
We agree that no antitrust liability for a Kodak-style
attempted monopolization claim could lie after May 2008
when customers were put on clear notice that purchasing an
Avaya PBX precluded use of ISP maintenance. As we
explained in Queen City Pizza, when the defendant’s power
“stems not from the market, but from plaintiffs’ contractual
agreement,” then “no claim will lie.” 124 F.3d at 443. By
May 2008, PBX customers were on clear notice that Avaya
“retained significant power over their ability to purchase
cheaper [maintenance] from alternative sources because that
authority was spelled out in detail in section [6.2] of the
standard [customer] agreement.” Id. at 440. If the customers
viewed those terms as “overly burdensome ... at the time they
were proposed, [they] could have purchased a different
[brand] of [PBX].” Id. at 441. Avaya was therefore
“subjected to competition at the pre-contract stage” in the
primary market, id. at 440, which was undeniably
competitive. Absent a new and compelling economic theory
to justify antitrust liability that reaches beyond Kodak –
50
TLI seeks to downplay the effect of the post-2008
customer agreements by arguing that they were “boilerplate”
and “ambiguous” (Answering Br. at 36), and by arguing that
there was “no evidence that any post-May 2008 Avaya PBX
purchasers signed the form contracts” (id. at 38). We
conclude that there is no reason to disturb the District Court’s
factual findings or legal conclusion on this point. The
contractual language is unambiguous, and TLI’s own CEO
acknowledged the language’s clarity and its use beginning
with the new PBX systems introduced in 2008.
98
which TLI has not provided – Avaya cannot be liable under
the antitrust laws for enforcing a transparent contract freely
agreed to in a competitive market.
“The purpose of the [Sherman] Act is not to protect
businesses from the working of the market; it is to protect the
public from the failure of the market.” Spectrum Sports, Inc.
v. McQuillan, 506 U.S. 447, 458 (1993). For PBX systems
sold after May 2008, TLI could not credibly claim that Avaya
was abusing its market power over locked-in customers.
Instead, TLI’s complaint was with its potential customers,
who had agreed to Avaya’s terms forbidding ISP maintenance
in a competitive market. TLI may wish that the PBX
customers had demanded access to ISPs when negotiating
with Avaya, but that is not a complaint cognizable under the
antitrust laws. Therefore, any PBX systems sold during and
after May 2008 cannot be a basis for holding Avaya liable for
attempted monopolization.
b. Sufficiency of Evidence of
Predatory Conduct
The Supreme Court has established that
[t]he 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.
99
Grinnell, 384 U.S. at 570-71. The purpose of that two-
element test for monopolization is to avoid imposing liability
when a firm has come to possess a dominant market position
in procompetitive fashion by simply out-competing its rivals
with a superior product or service. Therefore, even a firm
with dominant market share will be liable only when its
actions are predatory or anticompetitive in nature. More
specifically, a § 2 claim will lie only when “(1) ... the
defendant has engaged in predatory or anticompetitive
conduct with (2) a specific intent to monopolize and (3) a
dangerous probability of achieving monopoly power.”
Spectrum Sports, 506 U.S. at 456. Phrased another way, the
would-be monopolist must make “use of monopoly power ‘to
foreclose competition, to gain a competitive advantage, or to
destroy a competitor.’” Kodak, 504 U.S. at 482-83 (quoting
Griffith, 334 U.S. at 107).
Avaya argues that, as a matter of law, there was
insufficient evidence of predatory conduct to sustain the
conclusion that the second element of a § 2 claim had been
proven. According to Avaya, the allegedly predatory acts –
e.g., terminating dealings with TLI; sending “fear, doubt, and
uncertainty” letters to TLI’s maintenance customers; and
trespassing and spying on TLI’s customers – cannot support a
verdict of antitrust liability. We find some merit to Avaya’s
arguments that those individual acts may be justifiable and
not anticompetitive, but we need not resolve this particular
argument because it misses the forest for the trees.
It is true that, in a traditional § 2 claim, a plaintiff
would have to point to specific, egregious conduct that
evinced a predatory motivation and a specific intent to
monopolize. See Spectrum Sports, 506 U.S. at 456. But in
100
the context of a Kodak claim, any proof that the primary
market and the aftermarket are separate for antitrust purposes
will necessarily include substantial evidence of predatory
conduct. The basis of a prototypical Kodak claim is that
through some combination of price discrimination and post-
sale surprise in the aftermarket, the defendant has managed to
dissociate a competitive primary market from an aftermarket
that the defendant dominates. In Kodak, that domination was
through control over proprietary parts; here, it is alleged to
exist through control of proprietary software. If a Kodak
defendant has managed to create a relevant antitrust
aftermarket, then, it has necessarily acted to “foreclose
competition,” Griffith, 334 U.S. at 107, or to achieve the
“willful acquisition ... of monopoly power,” Kodak, 504 U.S.
at 483. In this case, there is no question that Avaya
dominates the market for maintenance services on its system,
or that control over the maintenance market was the express
intent of its efforts to exclude ISPs. Its every action giving
rise to this litigation evinces an intent to dominate the
maintenance market. The central antitrust question, then, is
whether that market is dissociated from the primary PBX
market in a way that makes such domination anticompetitive.
Without itself resolving whether a Kodak claim will
necessarily include significant evidence of predation, the
Supreme Court’s analysis in Kodak suggested that our
approach is the right one. In considering the predation prong
of § 2 claims, the Court in Kodak merely incorporated its
prior analysis of market separation to conclude that the
plaintiffs had “presented evidence that Kodak took
exclusionary action to maintain its parts monopoly and used
its control over parts to strengthen its monopoly share of the
Kodak service market.” Id. If we substitute “Avaya” for
101
“Kodak” and “ODMCs/MSPs” for “parts,” we can write the
same sentence in this case. Rather than requiring some proof
of additional predatory conduct in the maintenance market,
that portion of the Kodak opinion focused instead on Kodak’s
affirmative defense that “‘valid business reasons’ [could]
explain [its] actions.” Id. (quoting Aspen Skiing, 472 U.S. at
605).
We apply the same analysis here. The evidence that
convinced the jury that Avaya has dissociated the primary
market from the aftermarket is sufficient to show
exclusionary conduct for purposes of § 2. For that reason, we
reject Avaya’s request for judgment as a matter of law
because it asks for proof of additional predatory conduct that
is unnecessary in a case like this.51
3. PDS Tying Claim
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 pre-
2007 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 pre-
2008 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.
4. If, and only if, you reach all three of the prior
conclusions, may you find that the PBX maintenance
market was a relevant antitrust aftermarket.
The foregoing example is not meant as a directive that the
District Court must follow, but rather as one proposed
approach to “channel” – as Avaya puts it – the jury’s
consideration of the factors identified in Kodak. (Opening Br.
at 53.)
Avaya also appealed the District Court’s decision to
grant TLI prejudgment interest on the basis of what it
determined to be Avaya’s vexatious litigation strategy.
Because we vacate the verdict and the corresponding
damages award, the issue of prejudgment interest is moot, and
108
IV. TLI’s Cross-Appeals
Having resolved Avaya’s appeals, we turn now to
TLI’s cross-appeals. It challenges the District Court’s grant
of summary judgment against two of its tort counterclaims
and against one of its antitrust counterclaims. It also
challenges the District Court’s decision under the Noerr-
Pennington doctrine that TLI could not use Avaya’s litigation
conduct as evidence of anticompetitive behavior. All of those
rulings are sound, and TLI’s arguments are not.54
A. Summary Judgment on TLI’s Common Law
Claims
We begin with the District Court’s grant of summary
judgment against TLI’s counterclaims for trade libel and for
tortious interference with prospective economic advantage.
Both claims were based on the so-called FUD letters that
Avaya sent to existing and prospective TLI customers. The
tortious interference claim was also based on Avaya’s
we decline to address it. The question may be considered
afresh, if necessary, following retrial.
54
Our review of a district court’s grant of summary
judgment is plenary. Boyle v. Cty. of Allegheny Pa., 139 F.3d
386, 393 (3d Cir. 1998). “[S]ummary judgment may be
granted if the movant shows that there exists no genuine issue
of material fact that would permit a reasonable jury to find for
the nonmoving party. All facts and inferences are construed
in the light most favorable to the non[]moving party.” Id.
(internal citation and quotation marks omitted).
109
deactivation of TLI customers’ MSPs. The District Court
granted summary judgment against TLI on those claims on
the ground that TLI did not present sufficient evidence to
create a dispute of material fact over whether Avaya’s
conduct actually caused TLI any loss in business.55
55
The parties dispute whether the District Court
applied the correct legal standards for the tort claims. For
tortious interference, “New Jersey law requires that a plaintiff
... present proof that but for the acts of the defendant, the
plaintiff would have received the anticipated economic
benefits.” Lightning Lube, 4 F.3d at 1168 (internal quotation
marks omitted). TLI disputes whether the District Court
actually applied that “but for” test, suggesting that it
improperly demanded that TLI prove that Avaya’s actions
were the sole cause of injury. Despite some potentially
confusing language, the District Court’s opinion did apply the
“but for” test as explicated in Lightning Lube. TLI also
argues that the District Court should have instead applied a
test evaluating whether Avaya’s conduct was a “substantial
factor” in causing TLI’s injury. See Verdicchio v. Ricca, 843
A.2d 1042, 1056 (N.J. 2004) (applying the “substantial
factor” test in a medical malpractice case). Because a
“substantial factor” causation test would not have altered the
result, we need not consider whether it was more appropriate.
With regard to the legal standard for trade libel, both
parties agree that TLI had to prove special damages. TLI
wanted the Court to apply a “material and substantial part”
test for causation of those damage, see Patel v. Soriano, 848
A.2d 803, 835 (N.J. Super. Ct. App. Div. 2004), whereas
Avaya supports the “natural and direct result” standard that
the District Court did apply, see Mayflower Transit, LLC v.
Prince, 314 F. Supp. 2d 362, 378 (D.N.J. 2004). Again, we
110
The District Court provided a detailed explanation of
the deficiency of the evidence before it. As to the MSP
deactivations, the Court observed that MSP access was not
required to provide maintenance, citing TLI’s own
interrogatory responses about alternative methods that it in
fact used to provide service to customers. As the Court
explained, TLI “used ... default passwords or hired a third
party to determine active passwords,” so that “whether MSPs
were activated had little bearing on whether [TLI] could
provide maintenance to customers.” (J.A. 105.)56 Those
alternative methods were sufficiently successful, in fact, that
they led Avaya to bring suit against TLI, alleging that they
were unlawful and resulted in the loss to Avaya of significant
business.
As to the FUD letters, the District Court decided that
TLI had not “come forth with sufficient evidence that the
Avaya letters were the de facto cause of the loss of current
and prospective maintenance contracts.” (J.A. 105.) TLI’s
examples of lost contracts were not at all persuasive. For
instance, TLI suggested that the State of Michigan was one
such lost contract, but an employee of that state testified that
there were “numerous reasons” not to use TLI – unrelated to
need not resolve which standard is correct because the
outcome is the same under either.
56
At trial, Scott Graham validated the District Court’s
conclusion when he testified that he was “[n]ot ... aware of” a
case in which TLI was not able to get “into the maintenance
software” of a prospective customer. (J.A. 2443.) In fact, it
is “[c]orrect” that TLI was “always successful.” (Id.)
111
Avaya, and some directly caused by TLI – and that she was
not under any “impression that Avaya would sue the State of
Michigan if it awarded the contract to [TLI].” (J.A. 106.)57
The only specific example TLI provided of a customer who
declined its services because of a FUD letter was
substantiated only by an email – inadmissible as hearsay –
sent by a TLI employee complaining about the lost contract.
Finally, the Court refused to draw any inferences from the
report of TLI’s damages expert on the grounds that it was
“not supported ... by affidavits or any other evidence that
would be admissible at trial.” (J.A. 108.)
In this appeal, TLI relies principally upon that expert
report and contests the District Court’s characterization of it,
arguing vaguely that the report was based on “business
records [and] excerpts from depositions of customers and
TLI[] employees.” (Answering Br. at 93.) In support of that
contention, TLI cites the expert’s certification, in which he
declared that he “relied upon facts, data and work typically
relied upon by experts in the economic/accounting industry.”
(Suppl. App. 10.) TLI also cites 93 pages of inscrutable
spreadsheets in which the expert – without explanation –
assigned various damages to contracts that TLI allegedly lost
due to Avaya’s conduct.
57
Other examples provided by TLI were similarly
unimpressive. For instance, TLI relied on a cease and desist
letter that it sent to Avaya in 2010. The District Court
concluded that the mere existence of such a letter “is no more
helpful to the Court on summary judgment than ... pleadings,”
without additional “evidence sufficient to prove that the
allegations made in the ... letter are in fact true.” (J.A. 107.)
112
The District Court’s rejection of TLI’s argument was
thoroughly justified. The evidence TLI offered in opposing
summary judgment consisted of naked accusations that
Avaya’s conduct cost it business. That the allegations were
recited by an expert witness or by TLI employees does not
bolster them.58 See Advo, Inc. v. Phila. Newspapers, Inc., 51
F.3d 1191, 1198 (3d Cir. 1995) (“[E]xpert testimony without
... a factual foundation cannot defeat a motion for summary
judgment.”). Even now on appeal, after a decade of
litigation, TLI cannot point to one specific example where it
has credible evidence that Avaya’s allegedly tortious conduct
harmed its business. We therefore agree with the District
Court that TLI failed to present sufficient evidence to create a
material dispute of fact about whether Avaya’s MSP
deactivations or FUD letters caused injury to TLI. Summary
judgment was appropriate on both the tortious interference
and the trade libel claims.
B. Summary Judgment on PBX Upgrade Tying
Claim
The jury rejected TLI’s § 1 tying claim for the PBX
market and found that there was no relevant antitrust
aftermarket for PBX patches, but TLI nonetheless asks us to
revive a separate § 1 tying claim. It appeals the District
58
The expert’s credibility is further undermined by the
fact that at a subsequent Daubert hearing, the District Court
determined that he was “‘[c]learly ... not competent’ to testify
about an individual customer’s motivations.” (Third Step Br.
at 62 (alteration and omission in original) (quoting J.A.
4071).)
113
Court’s grant of summary judgment against its claim that
Avaya unlawfully tied PBX upgrades and maintenance.
Before addressing the reasoning of the District Court,
we note that, in light of our already-set-forth explanation of
Kodak-style tying claims, we are skeptical of the tying claim
regarding PBX upgrades, especially given the jury’s rejection
of the tying claim related to PBX software patches.
Upgrading a PBX system requires a customer to step back
into the competitive primary PBX market, thereby at least
partially ameliorating any lock-in concern and making it less
likely that Avaya could dissociate the primary market from an
aftermarket. We acknowledge that in the PBX upgrade
market there may still be some reliance on past investments in
an old Avaya system, but if the jury rejected the notion that
PBX patches satisfied the Kodak theory – when patches are
strictly aftermarket products – we doubt that it would have
been more sympathetic to an argument that upgrades were
unlawfully used as a tie.
Antitrust theory aside, the District Court granted
summary judgment for the simple reason that TLI had failed
to present any substantial evidence that Avaya’s alleged
threats to withhold upgrades had actually affected “a
substantial amount of interstate commerce,” as required to
make out a § 1 claim. (J.A. 165.) It characterized TLI’s
proffered evidence as consisting of “little more than
assertions,” which the “Court [found] insufficient.” (Id.)
That evidence – which TLI presses upon us anew on appeal –
again consists of expert reports arguing that Avaya used
upgrades as part of a scheme to foreclose competition in the
maintenance market. Avaya defends the District Court by
114
arguing that that “evidence” was merely unsupported
assertions filtered through TLI’s experts.
Reviewing the record ourselves, and drawing all
reasonable inferences in favor of TLI, we find ourselves in
agreement with Avaya and the District Court. In opposing
summary judgment, TLI presented no evidence to raise an
issue of material fact about whether Avaya was able to harm
TLI by using PBX upgrades to restrain competition in the
maintenance market. We will therefore also affirm that aspect
of the District Court’s summary judgment order. 59
C. Noerr-Pennington Ruling
The final issue we consider is TLI’s cross-appeal of
the District Court’s ruling, under the Noerr-Pennington
doctrine, that TLI could not present evidence at trial of
Avaya’s litigation conduct as a basis for the accusation of
monopolistic conduct. “Under the Noerr-Pennington doctrine
– established by Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961), and United
Mine Workers v. Pennington, 381 U.S. 657 (1965) –
defendants are immune from antitrust liability for engaging in
conduct (including litigation) aimed at influencing
59
We note, however, that insofar as TLI may have
later developed more evidence on the use of upgrades to tie,
that evidence remains relevant to TLI’s attempted
monopolization claim. There is nothing to prevent TLI from
presenting the upgrade tying theory to the jury as part of its
surviving § 2 claim on remand, but that does not ameliorate
the fact that its evidence at the summary judgment stage was
so scant.
115
decisionmaking by the government.” Octane Fitness, LLC v.
ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1757 (2014)
(citation omitted). In Professional Real Estate Investors, Inc.
v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993), the
Supreme Court explained that “sham” litigation – unlike
ordinary litigation – is not off limits as a source of antitrust
liability. The Court gave a two-part test for identifying a
lawsuit as a sham: “First, the lawsuit must be objectively
baseless in the sense that no reasonable litigant could
realistically expect success on the merits. ... [S]econd[,] ...
the baseless lawsuit conceals ‘an attempt to interfere directly
with the business relationships of a competitor,’” id. at 60-61
(emphasis removed) (quoting Noerr, 365 U.S. at 144),
“through the ‘use of the governmental process – as opposed
to the outcome of that process – as an anticompetitive
weapon,’” id. at 61 (alteration and emphases removed)
(quoting City of Columbia v. Omni Outdoor Advert., Inc., 499
U.S. 365, 380 (1991)).
TLI challenges the District Court’s contention that “the
whole case has to be a sham” for the sham exception to apply.
(Suppl. App. 190.) Instead, TLI argues, the sham exception
should be applied on a claim-by-claim basis. Avaya responds
by citing the language in Professional Real Estate that refers
to a “lawsuit” rather than a claim, and which references the
“governmental process” rather than any specific action in a
suit. It also argues that, as a policy matter, adopting a claim-
by-claim “approach would introduce extraordinary
complexity into jury deliberations” by forcing juries to not
only decide the merits of each claim but also decide which are
objectively reasonable or not. (Third Step Br. at 66.) As the
District Court noted when ruling on the issue, cases often
involve claims of varying degrees of merit, many of which
116
are weeded out pre-trial, and it would be impractical to run a
litigation system that made those kinds of claims subject to
antitrust suits.
We agree with that conclusion. True, one might
imagine a situation where a single claim, separated from an
otherwise arguably meritorious suit, is so harmful and costly
to a defendant that it might impose anticompetitive harm on
the defendant in a way that triggers the sham litigation
exception to Noerr-Pennington. But the Supreme Court’s
elaboration of the “sham” exception suggests that we should
not go hunting for that example, and this case is not it. Some
of Avaya’s claims that were dismissed before trial may have
been weak, but they were part and parcel of a course of
litigation that proceeded to two months of substantial
evidence and argument to a jury. We do not consider
Avaya’s affirmative claims to be frivolous or unsubstantiated;
in fact, we are vacating the Rule 50 judgment that was
entered against them. TLI may consider Avaya’s litigation
conduct vexatious – as the District Court did in awarding
prejudgment interest – but its suit against TLI was not a
“sham.”60 We therefore affirm the District Court’s ruling that
Avaya’s litigation conduct was protected from antitrust
liability by the Noerr-Pennington doctrine.
60
Which is not to say that we endorse the District
Court’s determination that the award of prejudgment interest
was appropriate in this case. Again, Avaya’s present
challenge to that award has been mooted by our disposition
with respect to the other claims presented.
117
V. Conclusion
For the foregoing reasons, we will vacate the judgment
of the District Court and remand for further proceedings
consistent with this opinion. We will also reverse the
judgment of liability on the entire PDS tying claim and on the
PBX attempted monopolization claim as to the post-2008
time period and will remand with instructions to enter
judgment as a matter of law for Avaya on those claims. We
will affirm the orders of the District Court as to all issues
raised by TLI’s cross-appeal.
118
Avaya, Inc. v. Telecom Labs, Inc.; TeamTLI.com Corp.;
Continuant, Inc.; Scott Graham; Douglas Graham; Bruce
Shelby, Nos. 14-4174, 14-4277
HARDIMAN, Circuit Judge, concurring in part and
dissenting in part.
For litigation that has lasted some fifteen years, this
appeal involves remarkably few disputed facts. The trouble
began soon after Plaintiff Avaya (the Goliath of this saga)
laid off many of its workers because of a downturn in the
telecommunications market in 2000. Those layoffs gave rise
to independent companies that offered aftermarket
maintenance on the Private Branch Exchanges (PBXs) sold
by Avaya. In fact, Avaya provided training and subsidies to
companies that hired its former employees, and some
companies became authorized Avaya dealers or business
partners. Defendant TLI (the David of the saga) became one
of those official business partners.
TLI obtained its first customer in 2001 and invested
millions in its maintenance business. For whatever reason,
Avaya reversed course in 2002 and began limiting the ability
of its business partners, customers, and independent
(unauthorized) providers to perform PBX maintenance. This
change in strategy resulted in the creation of the Avaya One
contract, which required Avaya business partners to promise
not to solicit maintenance business from selected Avaya
customers. Some 300 Avaya One contracts were signed and
TLI signed its contract on March 21, 2003. Unlike all of
Avaya’s other business partners, however, TLI negotiated a
handwritten modification to its covenant not to compete that
expressly authorized TLI to solicit maintenance business from
certain Avaya customers. This modification was the spark
1
that ignited the forest fire that continues to rage twelve years
later.
When Avaya’s Head of Global Sales, Linda
Schumacher, learned of the carve-out TLI had negotiated, she
was “shocked” and quickly took steps to cancel TLI’s
contract just four months after it was signed. On July 31,
2003, Avaya gave the required 60 days’ notice that it was
terminating the contract and spent the months of August and
September notifying TLI’s customers that it soon would no
longer be an Avaya business partner. Claiming antitrust
violations, TLI went to federal court seeking an injunction
requiring Avaya to allow TLI access to the codes necessary to
maintain its customers’ machines. The court denied the
injunction and TLI dropped the case.
Undeterred, TLI used a variety of methods to access its
customers’ PBXs in order to perform maintenance. TLI
accessed some machines by using passwords and logins it had
received previously and it obtained others from the internet.
Some of TLI’s customers had purchased permissions for the
life of their machines, which enabled TLI to provide
maintenance by using those logins. Other methods used by
TLI were deceitful and/or unethical. For example, some
Avaya business partners acted as conduits for TLI by posing
as the maintenance provider, only to pass along the
credentials to TLI. TLI also employed two former Avaya
employees, David Creswick and Harold Hall, who used what
they had learned to “hack and crack” the PBXs of TLI’s
customers to obtain the credentials necessary to service them.
In short, even after TLI was terminated as an Avaya business
partner, TLI used various methods to provide aftermarket
maintenance—a service that purchasers of Avaya’s PBXs
2
were expressly authorized by contract to provide for
themselves or to hire third parties like TLI to provide.
Avaya sued TLI in federal court in 2006, alleging
numerous causes of action under federal and state law. After
seven years of scorched-earth litigation, Avaya withdrew six
claims just days before the trial began. For almost two
months, Avaya put on evidence in support of its seven
remaining claims. At the conclusion of Avaya’s case-in-chief,
TLI moved for judgment as a matter of law under Rule 50 of
the Federal Rules of Civil Procedure. The District Court
granted TLI’s motions, throwing out Avaya’s case in its
entirety.
My colleagues on the panel, both experienced former
trial lawyers and trial judges, conclude that the District Court
committed legal error when it granted TLI’s Rule 50 motions.
Although I had far less experience as a trial lawyer and trial
judge than my distinguished colleagues, my visceral reaction
to the Court’s Rule 50 decision is consistent with theirs. The
question looms large: Why, after seven years of discovery
and two months of trial, did a jurist with 22 years of
experience not allow any of Avaya’s claims go to the jury?
To ask the question implies the imprudence of the decision, at
least on an instinctual level. But visceral reactions aren’t
always correct, and I must say that after reading the entire
transcript of the trial, I agree with Judge Irenas’s 52-page
opinion explaining his reasons for throwing out Avaya’s case.
After seven years, Avaya finally withdrew almost all of its
federal claims. The seven state-law claims that remained—
which involved breach of contract, fraud, and unfair
competition—simply were not proven at trial. At the end of
the day, my assessment of Avaya’s case-in-chief is the same
3
as the District Court’s: full of sturm und drang, but
insubstantial.
Having expressed my opinion on that score, I confess
enough doubt about the propriety of the District Court’s
decision to grant the Rule 50 motion that the focus of my
partial dissent presumes the correctness of my colleagues’
opinion on that point. Instead, I take issue with the decision to
vacate the judgment TLI earned on two of its counterclaims
arising under the antitrust laws. Even assuming, arguendo,
that the District Court erred when it granted TLI’s Rule 50
motions, I remain convinced that any error had little or no
impact on the verdicts in favor of TLI. In my estimation,
David struck Goliath right between the eyes and should not
be deprived of his hard-earned victory on the counterclaims.
The crux of my partial dissent is that I cannot agree
that the District Court’s rejection of Avaya’s claims “taint[ed]
the entire trial and the ultimate verdict.” Majority Op. 6.
Perhaps I would find greater assurance in the Majority’s taint
analysis if Avaya had adequately raised it. I have serious
doubts that it did. Even still—without the benefit of
developed adversarial briefing on the issue—I do not believe
the District Court’s judgment as a matter of law so impaired
Avaya’s ability to defend itself against TLI’s allegations of
anticompetitive conduct that we cannot have confidence in
the jury verdict as a whole. For that reason, I would affirm the
verdict with respect to Avaya’s pre-2008 attempted
monopolization of the PBX maintenance aftermarket and I
4
respectfully dissent from the Majority’s holding to the
contrary.1
1
Although I believe the jury was properly instructed as
to the factors for finding a relevant antitrust aftermarket for
Avaya PBX system maintenance and could have reasonably
found Avaya liable for attempted monopolization of that
aftermarket prior to its introduction of transparent sales
contracts in May 2008, I agree with the Majority that Avaya
cannot be held liable for PBX systems sold after that time. I
also agree that the jury could not have reasonably found
Avaya liable for tying PDS patches to maintenance either
before 2007 (the patches were free, so there was no coercion)
or after (the conditions were clear upfront, so there was no
relevant antitrust aftermarket). Moreover, because the general
verdict did not dissociate damages stemming from attempted
monopolization of the PBX maintenance aftermarket from
those attributable to the alleged PDS tying, I agree that the
damages award must be vacated and that we therefore need
not reach the issue whether the District Court abused its
discretion in granting TLI’s motion for prejudgment interest
under the Clayton Act. I also join the Majority’s rejection of
TLI’s cross-appeals.
Finally, I commend Judge Jordan for his rigorous
synthesis of the Eastman Kodak Company v. Image Technical
Services Inc. branch of antitrust law, which has bedeviled
litigants and courts alike. I agree with his analysis
wholeheartedly. Because the District Court’s jury instructions
comport with the principles outlined by Judge Jordan, I would
hold that they were sufficient to “properly apprise[] the jury
of the issues and the applicable law.” Smith v. Borough of
Wilkinsburg, 147 F.3d 272, 275 (3d Cir. 1998) (quotation
5
I
Under both the Federal Rules of Appellate Procedure
and our Local Rules, “appellants are required to set forth the
issues raised on appeal and to present an argument in support
of those issues in their opening brief.” Kost v. Kozakiewicz, 1
F.3d 176, 182 (3d Cir. 1993). A “passing reference to an
issue . . . will not suffice to bring that issue before this court.”
Laborers’ Int’l Union of N. Am. v. Foster Wheeler Energy
Corp., 26 F.3d 375, 398 (3d Cir. 1994) (omission in original)
(quotation marks omitted) (quoting Simmons v. City of
Philadelphia, 947 F.2d 1042, 1066 (3d Cir. 1991)). And the
argument must include the “appellant’s contentions and the
reasons for them, with citations to the authorities and parts of
the record on which the appellant relies.” F.R.A.P.
28(a)(8)(A); see also Simmons, 947 F.2d at 1065 (explaining
that “briefs must contain statements of all issues presented for
appeal, together with supporting arguments and citations”).
Casual assertions supported only by “cursory treatment” do
not suffice. Kost, 1 F.3d at 182. If a claim of error is
“unaccompanied by developed argument,” it is forfeited.
Rodriguez v. Municipality of San Juan, 659 F.3d 168, 175
(1st Cir. 2011); Kost, 1 F.3d at 182. 2
marks omitted) (quoting Limbach Co. v. Sheet Metal Workers
Int’l Ass’n, AFL-CIO, 949 F.2d 1241, 1259 n.15 (3d Cir.
1991) (en banc)).
2
“Forfeiture” and “waiver” are often treated as
interchangeable terms. As I have explained elsewhere, they
are not. See Tri-M Grp., LLC v. Sharp, 638 F.3d 406, 432 n.1
(3d Cir. 2011) (Hardiman, J., concurring) (“Whereas
forfeiture is the failure to make the timely assertion of a right,
6
This requirement is not a mere formality. As my
esteemed colleague recently wrote: “[t]here is good reason for
this [rule]. Brief, casual references to arguments do not put
the opposing party on adequate notice of the issue, nor do
they develop it sufficiently to aid our review.” NLRB v.
FedEx Freight, Inc., 2016 WL 4191498, at *11 (3d Cir. Aug.
9, 2016) (Jordan, J., concurring).3 Indeed, this “is particularly
true ‘where important and complex issues of law are
presented, [making] a far more detailed exposition of [an]
argument’” necessary to avoid forfeiting it. Id. (second
alteration in original) (quoting Frank v. Colt Indus., Inc., 910
F.2d 90, 100 (3d Cir. 1990)). This appeal presents just such a
situation.
Avaya’s opening brief mentioned the taint issue only
in passing. The matter received no mention in Avaya’s issues
section of the brief, which I find significant because the
question of whether the District Court erred in granting
judgment as a matter of law against Avaya’s common law
claims is an issue distinct from whether such error tainted the
verdict on TLI’s antitrust claims—something the structure of
the Majority opinion rightly makes clear. See United States v.
Joseph, 730 F.3d 336, 341–42 (3d Cir. 2013) (distinguishing
between “issues” and “arguments”). Then, on the three
occasions Avaya did mention tainting in its brief, its
waiver is the intentional relinquishment or abandonment of a
known right.”) (quoting United States v. Olano, 507 U.S. 725,
733 (1993) (internal quotation marks omitted)).
3
See also Rodriguez, 659 F.3d at 175 (“Judges are not
mind-readers, so parties must spell out their issues clearly,
highlighting the relevant facts and analyzing on-point
authority.”).
7
argumentation was skeletal at best.4 This was not lost on TLI,
which—in Avaya’s words—“crie[d] waiver” in its response
brief. Avaya Reply Br. 18 n.4 (citing TLI Br. 87). Rightly so.
As TLI put it, Avaya failed to “advance [its] conclusory
4
Two of these instances were little more than ipse
dixits. See Avaya Br. 4 (“The erroneous dismissal of Avaya’s
claims and the court’s instruction that TLI[’s] conduct was
not unlawful also tainted the jury’s consideration of TLI[’s]
antitrust counterclaims.”); id. at 72 (“In any event, the
erroneous instructions that tainted the jury’s consideration of
TLI[’s] “FUD” allegations require a new trial.”). Neither of
these assertions was supported by any reasoning or citation to
legal authority or record evidence. The third mention of
tainting offered a few sentences of additional bluster—
accusing the trial judge of “discredit[ing] Avaya in the jury’s
eyes” and “crippl[ing] Avaya’s ability to respond to TLI[’s]
antitrust claims by showing that it had legitimate and
procompetitive business reasons” for its actions—but was
purely skeletal. Id. at 43 (introductory paragraph to antitrust
argument section). Avaya again offered no development of its
theory or citation to case law or the trial record. Passing
references like these should be deemed forfeited. See Bryant
v. Gates, 532 F.3d 888, 898 (D.C. Cir. 2008) (holding that a
claim was forfeited where it was made only in a “conclusory”
manner because “[i]t is not enough merely to mention a
possible argument in the most skeletal way, leaving the court
to do counsel’s work” (quoting N.Y. Rehab. Care Mgmt., LLC
v. NLRB, 506 F.3d 1070, 1076 (D.C. Cir. 2007))); Donahue v.
City of Boston, 304 F.3d 110, 122 (1st Cir. 2002)
(determining that an argument was forfeited where the “main
brief devote[d] only three sentences to the issue” that were
“half-hearted” and “poorly developed”).
8
‘taint’ contention in a freestanding and developed argument.”
TLI Br. 86. Because Avaya merely floated the taint idea
“without squarely arguing it,” FedEx Freight, 2016 WL
4191498, at *11 (Jordan, J., concurring), I would deem it
forfeited.
The three-point tainting theory on which the Majority
bases its decision comes not from Avaya’s opening brief but
from its reply brief. See Avaya Reply Br. 18–19; Majority
Op. 67–79. But the black-letter rule is that “[w]e will not
revive a forfeited argument simply because” an appellant
finally develops “it in its reply brief.” Republic of Argentina
v. NML Capital, Ltd., 134 S. Ct. 2250, 2255 n.2 (2014); see
also In re Surrick, 338 F.3d 224, 237 (3d Cir. 2003). This
dooms at least two taint-related arguments developed only on
reply: (1) that judgment as a matter of law against Avaya’s
common law claims undermined Avaya’s ability to present
pro-competitive justifications for its conduct, and (2) the
related point that the District Court erroneously limited
witness testimony to that effect.
Avaya did not couch its argument regarding the effects
of the District Court’s instructions about the lawfulness of
TLI’s access to maintenance commands on the jury’s
consideration of the “fear, uncertainty, and doubt” (FUD)
letters in terms of tainting until its reply brief. It did, however,
raise this alleged instructional error in its separate argument
that the jury could not have properly found that Avaya
engaged in anticompetitive conduct in the PBX maintenance
aftermarket. I address this argument below. As for the other
grounds on which the Majority deems the antitrust verdict
improper, I would hold them forfeited.
II
9
Even had Avaya adequately developed all three prongs
of its taint argument, I would not conclude that the District
Court’s errors constituted reversible error. First, the Majority
concludes that the District Court’s instructions after its
dismissal of Avaya’s common law claims undermined the
jury’s ability to assess the reasonableness of Avaya’s actions
in light of TLI’s allegedly unlawful conduct. It highlights the
trial judge’s instruction that TLI’s “use of and access to
[Avaya’s] maintenance software may not be considered by
you as unlawful when deciding TLI[’s] claims against Avaya
asserted in the counterclaim.” App. 4739.
Despite this instruction, Avaya had ample opportunity
to present the jury with legitimate and procompetitive
defenses for its actions, and those defenses did not depend on
whether TLI’s conduct was so egregious as to be against the
law. Indeed, Avaya’s persistent refrain to the jury was that the
actions Avaya took against TLI were reasonable because TLI
was an “unauthorized” PBX servicer undermining Avaya’s
“procompetitive” Business Partners program. App. 4569–71.5
5
In its closing argument, after explaining to the jury
that it would be instructed that “TLI’s use of and access to
Avaya’s maintenance software may not be considered by you
to have been unlawful” Avaya explained that “what remains
is a series of decisions by you, as to whether Avaya’s conduct
was a reasonable competitive reaction to the events Avaya
confronted in the marketplace.” Trial Transcript (“Tr.”)
3/19/14, 15752. It then proceeded to make the case that
Avaya’s actions were nothing more than “legitimate efforts to
protect its software and its business model,” id. at 15756; that
the law “allows for fierce, fierce competition,” id. at 15757;
that Avaya’s practices were consistent with industry practices
10
Avaya made a thorough, sustained case for the legitimacy and
procompetitiveness of its actions and did not pull any punches
in lambasting TLI’s conduct. Accordingly, I think it quite
unlikely that labeling TLI’s conduct “unlawful” on top of all
this would have changed the result.
In a similar vein, the Majority finds taint in the
constraints the District Court imposed on the evidence Avaya
presented at trial. The Majority notes that Avaya “points to
two examples in particular” of how the District Court’s
judgment as a matter of law “hindered its ability to present
evidence in its defense against the antitrust claims.”6 Majority
Op. 75. The first is the District Court’s warning that Avaya
could not “tell the jury” that TLI’s means of accessing Avaya
PBX systems was “illegal” during its cross-examination of
TLI’s CEO. App. 4440. My colleagues concede that “the
Court did allow the line of questions,” Majority Op. 75,
which was not directed toward criticizing TLI’s access
practices, but rather, was offered to demonstrate that Avaya’s
policy toward unauthorized service providers was consistent
and business realities and that the Business Partner program
enhanced competition in the marketplace; that its concerns
about unauthorized PBX maintenance providers with no
relationship to Avaya were legitimate because poor-quality
servicing of Avaya PBX’s could damage the Avaya brand;
and that TLI was the party with questionable practices given
its choice to pursue Avaya maintenance customers without
authorization rather than “play” by the “rules,” id. at 15767.
6
In doing so, it fails to mention that these two
examples are drawn exclusively from Avaya’s reply brief—
the first time Avaya mentioned them in this appeal. Compare
Majority Op. 75, with Avaya Reply Br. 19.
11
with industry practice and did not cause TLI any
anticompetitive harm. Second, the Majority is troubled by the
trial judge’s rather innocuous caveat to Avaya when
examining its economics expert to “[s]tay away from trying
to, in effect, contradict anything I’ve already decided.” App.
4587. The Court again allowed Avaya’s line of questioning,
deeming it “fair game” and unrelated to any allegations of
illegality. App. 4586. This is unsurprising, given that the
expert’s testimony was directed toward showing that TLI had
in fact benefited from Avaya’s allegedly anticompetitive
conduct because its Business Partners program made TLI the
only independent game in town. I am at a loss to see how the
ability to call TLI’s conduct “illegal” would have
meaningfully advantaged Avaya in these lines of inquiry. And
even if there were instances in which this characterization
would have been of rhetorical benefit to Avaya, it would not
have changed the substance of Avaya’s procompetitive-
justification argument.
Finally, I am not persuaded that the District Court’s
instruction that it was not “unlawful,” App. 615, for TLI to
access Avaya’s maintenance software tainted the jury’s
consideration of whether the FUD letters constituted
anticompetitive conduct. Among other things, these letters
told Avaya customers that accessing PBX and PDS systems
through unauthorized service providers “is a violation of
federal and state laws and could result in civil and criminal
liability and penalties” and that Avaya would “take all
necessary legal action against violators.” App. 6945; see also
App. 3904–05, 3940, 4057–58, 7307. And with respect to
these letters, the Court instructed the jury that “the law does
not allow [TLI’s] injury to be based on . . . Avaya’s
dissemination of truthful statements.” App. 621.
12
Even 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.
Avaya’s own witnesses admitted that they had no idea
whether there was any legal basis for the letters Avaya sent to
its PBX customers stating that unauthorized use of
maintenance service permissions and logins “violat[es] . . .
federal and state laws” and “could result in civil and criminal
penalties.” And they conceded that Avaya did not actually
plan to sue its customers. App. 3904–05, 3940, 4057–58.
Even if some of the threats Avaya issued in its FUD letters
might have been rooted in truth (the fact that use of an
unauthorized service provider could result in the loss of
certain services only provided by Avaya and its Business
Partners certainly was), the jury’s inescapable conclusion was
that at least some of these threats were not true. Indeed, in
defending the letters, Avaya focused on the obvious truths
(Avaya-exclusive benefits, TLI’s unauthorized status, etc.)
yet conceded “the fact that a private party can’t possibly
pursue criminal liability,” which is “for the public
authorities.” Tr. 15871. Avaya characterized this
misstatement of law as “unfortunate language,” id.; the jury
surely recognized this as a euphemism for “not true.” Simply
put, it was obvious to any fair-minded reader that the FUD
letters were over-the-top, at least partially baseless, and
threats that couldn’t fairly be described as “legal opinion.”
Avaya Br. 66. I do not perceive a high probability that the
jury would have found them kosher had it known that a
customer’s hiring an unauthorized service provider might
amount to a breach of contract. After all, it was instructed that
even if “a truthful statement is coupled or limited with an
13
untruthful statement, the truthful statement loses its protection
and can underlie an injury.” App. 621.7
7
Avaya’s primary attack on the FUD issue is that the
jury instructions misstated the law by failing to inform the
jury of “a presumption” assigning de minimis competitive
effect to false statements that antitrust plaintiffs “must
overcome” by meeting a six-factor test if they are to show a
FUD practice to be anticompetitive. Avaya Br. 64 (citing
American Prof’l Testing Serv. v. Harcourt Brace Jovanovich
Legal & Prof’l Publ’ns, 108 F.3d 1147, 1152 (9th Cir. 1997)).
Because our Court is not among those that have adopted this
presumption and six requirements, see, e.g., Maurice E.
Stucke, How Do (and Should) Competition Authorities Treat
A Dominant Firm’s Deception?, 63 SMU L. Rev. 1069, 1086
(2010), I would hold that the instructions were fine. I would
also conclude that there was sufficient evidence for the jury to
find the FUD letters anticompetitive, especially given that
such a finding has stronger foundation “when . . . combined
with other anticompetitive acts” by Avaya. W. Penn
Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 109 n.14
(3d Cir. 2010).
To the extent that sufficient evidence also needed to
support TLI’s other theory of liability (anticompetitive refusal
to deal) given that the general verdict form does not indicate
which of Avaya’s allegedly anticompetitive acts formed the
basis for the verdict, I would hold—with some reservation—
that it does. The District Court’s instructions were consistent
with the Supreme Court’s precedents setting forth the
“limited circumstances in which a firm’s unilateral refusal to
deal with its rivals can give rise to antitrust liability,” Pac.
Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448
14
* * *
The Majority upends a sound verdict—reached after a
decade of litigation and seven months of trial—based on a
few snippets mentioned only in passing in Avaya’s opening
brief. The Majority picks up the dropped ball and runs with it,
imbuing Avaya’s taint argument with force it never pressed in
its opening brief. And even had it done so, I would not hold
that any error the District Court may have committed in the
second month of the trial was fatal to the whole enterprise.
Accordingly, I respectfully dissent from the decision to vacate
the judgment in favor of TLI on its counterclaim for Avaya’s
pre-2008 attempted monopolization of the PBX maintenance
aftermarket.
(2009), and my review of the record leads me to conclude that
TLI provided that “minimum quantum of evidence from
which a jury might reasonably afford relief.” Starceski v.
Westinghouse Elec. Corp., 54 F.3d 1089, 1095 (3d Cir. 1995)
(quoting Rotondo v. Keene Corp., 956 F.2d 436, 438 (3d Cir.
1992)).
15