David Marts v. Xerox ( 1996 )

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95-2887
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David Marts, doing business
* Lasertech,*
as
*
Plaintiff/Appellant, *
*
v. * Appeal from the United States
* District Court for the
Xerox, Inc., * Western District of Arkansas
*
Defendant/Appellee. *
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Submitted: January 8, 1996
Filed: March 11, 1996
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Before WOLLMAN, CAMPBELL,* and MURPHY, Circuit Judge.
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MURPHY, Circuit Judge.
David Marts, doing business as Lasertech, brought this action
alleging that Xerox, Inc. violated federal antitrust and Arkansas law by
conditioning certain photocopier warranties on the use of Xerox replacement
copy cartridges. After both sides moved for summary judgment, the district
1
court granted the motion of Xerox and ordered judgment entered in its
favor. Marts appeals from that judgment, and we affirm for the following
reasons.
*
The HONORABLE LEVIN H. CAMPBELL, United States Circuit
Judge for the First Circuit, sitting by designation.
1
The Honorable Jimm Larry Hendren, United States District
Judge for the Western District of Arkansas.
Xerox manufactures several models of photocopiers in the twelve to
thirty page per minute category, referred to as convenience copiers. Xerox
includes a three year warranty with these copiers at no additional charge.
The warranty covers all parts and service necessary during that period.
Xerox also offers one year extended warranties which can be purchased after
the initial warranty expires at a cost between roughly $200 and $500 per
year. Both the initial and extended warranties require that the customer
use only Xerox copy cartridges.2 The cartridges contain a number of
critical components with limited lives and produce approximately 20,000
copies. Users can replace spent cartridges easily.
2
The relevant warranty provisions read:
D. VOIDING OF WARRANTY
IF, DURING THE WARRANTY PERIOD, CUSTOMER USES A COPY
CARTRIDGE OTHER THAN AN UNMODIFIED NEW OR RECYCLED
CARTRIDGE PURCHASED FROM XEROX AND/OR THE COPY
CARTRIDGE BEING USED IS MODIFIED FROM ITS ORIGINAL
CONFIGURATION, THIS WARRANTY WILL BE VOID. If the
warranty becomes void, Customer may purchase from
Xerox, if available, a Service Agreement or service at
the then current time and materials rates.
E. Warranty Procedure
The customer must telephone the Xerox Customer Service
Support Center . . . with the copier serial number, a
description of the problem and any status codes
displayed on the control panel. The Xerox Service
Representative will attempt to diagnose and solve the
problem on the telephone, and when necessary, schedule
a Xerox service call to repair the Equipment. IF THE
CUSTOMER IS USING A CARTRIDGE THAT RESULTS IN A VOIDED
WARRANTY AND A XEROX REPRESENTATIVE TRAVELS TO THE
INSTALLATION ADDRESS TO PERFORM WARRANTY SERVICE, THE
SERVICE REPRESENTATIVE WILL ADVISE CUSTOMER THE
WARRANTY IS VOID. SUCH SERVICE CALL WILL BE BILLED TO
CUSTOMER AT XEROX' THEN APPLICABLE TIME AND MATERIALS
RATES. CUSTOMER MAY INITIATE A SERVICE AGREEMENT
WITHOUT CARTRIDGE COVERAGE.
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Xerox will service its copiers that are not under warranty. Service
is available on a time and materials basis, in which case the customer pays
for parts and labor ($155 for the first half hour and $120 per hour
thereafter.) Xerox also offers a maintenance agreement which requires that
customers pay an annual charge of roughly $150 and then a fixed price for
each service call, also roughly $150. Parts are included in that charge.
Lasertech is an Arkansas proprietorship owned by David Marts. In
addition to servicing photocopiers and computer printers, Lasertech
reconditions and sells toner and copy cartridges used by various printers
and copiers. In late 1993, Lasertech began reconditioning cartridges for
Xerox convenience copiers. It sold twelve remanufactured Xerox cartridges
to two clients in Fort Smith, Arkansas over a period of several months.
Lasertech presented evidence that at least one client stopped purchasing
Lasertech cartridges when Xerox personnel informed him that continued use
of non-Xerox cartridges would void the warranties on the copiers. The
evidence suggests that Lasertech contacted several other prospective
clients, at least one of whom expressed interest in purchasing Lasertech
products before learning from Xerox that the new copier warranty would be
voided. Lasertech made no further sales of remanufactured Xerox cartridges
since early 1994.
Lasertech sued Xerox in the district court, alleging violations of
§ 1 of the Sherman Act, 15 U.S.C. § 1,3 and § 3 of
3
Section 1 of the Sherman Act, 15 U.S.C. § 1, reads:
Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or
commerce among the several States, or with foreign
nations, is declared to be illegal. Every person who
shall make any contract or engage in any combination or
conspiracy hereby declared to be illegal shall be
deemed guilty of a felony, and, on conviction thereof,
shall be punished by fine not exceeding $10,000,000 if
a
corporation, or, if any other person, $350,000, or by
imprisonment not exceeding three years, or by both said
punishments, in the discretion of the court.
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the Clayton Act, 15 U.S.C. § 14.4 Lasertech claimed that Xerox improperly
tied the availability of warranty service to the purchase of Xerox
cartridges. The complaint also alleged that Xerox had tortiously
interfered with Lasertech's contract rights and business expectations.5
Xerox responded with a number of defenses, including that it lacked the
market power necessary to produce anticompetetive effects, that it made
service available to copier owners in economically viable ways other than
the warranties, and that Lasertech had not proven antitrust damages.
The district court concluded that Xerox lacked sufficient market
power to make any tying arrangement a violation of federal antitrust law.
Based on this conclusion and a stipulation by
4
Section 3 of the Clayton Act, 15 U.S.C. § 14, reads:
It shall be unlawful for any person engaged in
commerce, in the course of such commerce, to lease or
make a sale or contract for sale of goods, wares,
merchandise, machinery, supplies, or other commodities,
whether patented or unpatented, for use, consumption,
or resale within the United States or any Territory
thereof or the District of Columbia or any insular
possession or other place under the jurisdiction of the
United States, or fix a price charged therefor, or
discount from, or rebate upon, such price, on the
condition, agreement, or understanding that the lessee
or purchaser thereof shall not use or deal in the
goods, wares, merchandise, machinery, supplies, or
other commodities of a competitor or competitors of the
lessor or seller, where the effect of such lease, sale,
or contract for sale or such condition, agreement, or
understanding may be to substantially lessen
competition or tend to create a monopoly in any line of
commerce.
5
The complaint also alleged that Xerox had damaged
Lasertech's business reputation and had used deceptive trade
practices under Ark. Code Ann. §§ 4-88-101 et seq. These claims
were dismissed by stipulation of the parties before the district
court ruled on the motions for summary judgment.
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Lasertech that no state law violation could be shown if there was no
violation of federal law, the district court granted summary judgment in
favor of Xerox.
We review a grant of summary judgment de novo; like the district
court, we must construe the evidence in the light most favorable to the
nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). Summary judgment is appropriate where there is no genuine issue
of material fact for trial and the moving party is entitled to judgment as
a matter of law. Id. at 247-48, 250. The nonmoving party must show that
there is some genuine issue requiring trial. Id. at 250.
A tying arrangement is "the sale or lease of one item (the tying
product) on the condition that the buyer or lessee purchase a second item
(the tied product) from the same source." Amerinet, Inc. v. Xerox Corp.,
972 F.2d 1483, 1498 (8th Cir. 1992) (citations omitted), cert. denied, 506
U.S. 1080 (1993). When a party can use its market power in the tying
product to force customers to buy the tied product, competition may be
harmed and the market upset. See Jefferson Parish Hosp. Dist. No. 2 v.
Hyde, 466 U.S. 2, 10 n.14 (1984).
A plaintiff may prove a per se tying violation under the Sherman Act
by demonstrating that two distinct products are tied, that the defendant
has sufficient power in the tying product market to restrain competition
in the tied product market, and that the tied product involves a "not
insubstantial" amount of interstate commerce. Amerinet, 972 F.2d at 1498-
99 (citations omitted). The Supreme Court stated in Jefferson Parish that:
Our cases have concluded that 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
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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.
466 U.S. at 12. Lasertech argues that Xerox forced customers to buy Xerox
cartridges by illegally tying both the initial and extended warranties to
the purchase of its copy cartridges. We address each type of warranty in
turn.
With respect to the three year new copier warranty, Lasertech's claim
does not fit easily into the existing structure of antitrust law. The
warranty is given to customers at no additional charge when they purchase
a copier and is therefore neither sold nor leased. As a practical matter,
however, the warranty is included in the sale price. Warranties are
similar to service agreements but may differ in some ways. Moreover,
customers expect at least some warranty period on most products. For all
of these reasons, the identity of the tying product is somewhat unclear and
assessing any anticompetitive effects of a warranty may be difficult.
We need not decide these issues here, however, since we conclude that
Lasertech has in any event not presented sufficient evidence of an illegal
tying arrangement to create a genuine issue for trial. Although the
warranty does condition its continuation on the use of Xerox cartridges,
a warranty is only one way of receiving service for a new Xerox copier.
"[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 Ry. Co. v. United States, 356 U.S.
1, 6 n.4 (1958). An owner of a new Xerox copier could forego the benefits
of the warranty, buy service from Xerox or an independent provider, and
purchase cartridges from the vendor of its choice. The end result is the
same: customers receive both service and cartridges for their copiers.
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Even if the products are available separately, an illegal tying
arrangement can exist if purchasing the items together is the "only viable
economic option." Amerinet, 972 F.2d at 1500. Lasertech has failed to
introduce evidence that purchasing service from Xerox through the service
maintenance agreement or on a time and materials basis is not viable. The
record contains no information regarding the frequency of required repairs
on Xerox copiers. Without that data, it is impossible to know whether the
other service and cartridge options are materially more expensive, and if
so by how much. Because we cannot conclude that the other service options
were prohibitively expensive, id. at 1500-01, any tying arrangement was not
illegal and summary judgment was appropriate as to the initial warranty.6
The issues regarding extended warranties are more straightforward
because they are simply a type of service contract. After the initial
warranty expires, a Xerox copier owner may choose from several options.
A series of one year extensions of the warranty may be purchased from Xerox
for a flat fee, in which case
6
Regardless of how the tying product market is defined,
Lasertech also cannot prevail under the Clayton Act. If the
tying product market is service on new Xerox copiers, the Clayton
Act is inapplicable because warranties are services. The Clayton
Act applies only when both the tying and tied products are goods.
15 U.S.C. § 14; see Advance Business Systems & Supply Co. v. SCM
Corp., 415 F.2d 55, 61 (4th Cir. 1969).
If the tying product market is new convenience copiers with
warranties, Xerox lacks sufficient market power in the copier
market to support per se liability under the Clayton Act. See,
e.g., Town Sound and Custom Tops, Inc. v. Chrysler Motors Corp.,
959 F.2d 468, 477 (3d Cir.), cert. denied, 506 U.S. 868 (1992).
Lasertech concedes that Xerox has less than eighteen percent of
the convenience copier market, which is insufficient under the
circumstances. See., e.g., Jefferson Parish, 466 U.S. at 26-27
(thirty percent insufficient); Morgenstern v. Wilson, 29 F.3d
1291, 1296 n.3 (8th Cir. 1994)(thirty percent insufficient in § 2
monopolization claim), cert. denied, 115 S. Ct. 1100 (1995);
Baxley-DeLamar Monuments, Inc. v. American Cemetery Ass'n, 938
F.2d 846, 852 (8th Cir. 1991)(twenty-nine to thirty-one percent
insufficient to support tying claim).
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Xerox cartridges must be used. See supra note 2. Xerox service may be
purchased on a time and materials basis or through the standard maintenance
agreement, or an independent service operator may be used. Any brand of
cartridge may be used under the latter arrangements.
Again Lasertech has failed to show that the other service options
offered by Xerox are prohibitively expensive. Amerinet, 972 F.2d at 1500-
01. Without evidence of the frequency and severity of required repairs,
the relative costs of the various service options cannot be established.
Because Lasertech has failed to show that the tie-in included in the
extended warranty is the only economically viable option, there is no
illegal tying arrangement under the Sherman Act.7 Id. Because of this
determination it is not necessary to discuss Lasertech's other arguments
and Xerox's other defenses.
Since Lasertech has conceded that the remaining state law claim
should be dismissed if it is unsuccessful under the Sherman and Clayton
Acts, summary judgment was properly granted on the tortious interference
claim.
Accordingly, the judgment is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
7
We need not consider the application of the Clayton Act to
the Xerox extended warranties because they are services rather
than goods. 15 U.S.C. § 14; see supra note 6.
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