Digidyne Corp. v. Data General Corp.

734 F.2d 1336
CourtCourt of Appeals for the Ninth Circuit
DecidedJune 7, 1984
DocketNos. 81-4628, 81-4667, 81-4671 and 82-4162
StatusPublished
Cited by42 cases

This text of 734 F.2d 1336 (Digidyne Corp. v. Data General Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Digidyne Corp. v. Data General Corp., 734 F.2d 1336 (9th Cir. 1984).

Opinion

BROWNING, Chief Judge:

The issue presented for review is whether Data General’s refusal to license its NOVA operating system software except to purchasers of its NOVA central processing units (CPUs) is an unlawful tying arrangement under section 1 of the Sherman Act, 15 U.S.C. § 1 (1976) and section 3 of the Clayton Act, 15 U.S.C. § 14 (1976). We conclude that it is.

I.

Defendant Data General manufactures a computer system known as NOVA. The system consists of a NOVA CPU designed to perform a particular “instruction set” or group of tasks, and a copyrighted NOVA operating system called RDOS containing the basic commands for operation of the system. Not all operating systems work with all CPUs. Plaintiffs produce emulator NOVA CPUs designed to perform the NOVA instruction set and thus to make use of defendant’s RDOS.

Data General refuses to license its RDOS to anyone who does not also purchase its NOVA CPU. Plaintiffs allege that this constitutes an unlawful tying arrangement; the defendant’s RDOS being the tying product, the NOVA instruction set CPU being the tied product.

Plaintiffs filed a number of actions alleging violations of section 1 of the Sherman Act and section 3 of the Clayton Act. The actions were consolidated. The issues of liability and damages were segregated for trial. This appeal is from a judgment on liability.

After extensive discovery, the parties filed cross-motions for summary judgment. The district court denied the motions, but found certain facts to be uncontroverted under Fed.R.Civ.P. 56(d). Trial, limited to the issue of defendant’s economic power, resulted in a jury verdict for plaintiffs. Defendant’s motion for judgment n.o.v. or for a new trial was granted. Plaintiffs appealed.

II.

A tying arrangement is illegal if it is shown to restrain competition unreasonably or is illegal per se, without such a showing, if certain prerequisites are met. Fortner Enterprises v. U.S. Steel Corp., 394 U.S. 495, 498-500, 89 S.Ct. 1252, 1256-1257, 22 L.Ed.2d 495 (1969) (Fortner I). The prerequisites of per se illegality are: (1) separate products, the purchase of one (tying product) being conditioned on purchase of the other (tied product); (2) sufficient economic power with respect to the tying product to restrain competition appreciably in the tied product; and (3) an effect upon a substantial amount of commerce in the tied product. Fortner I, 394 U.S. at 499, 89 S.Ct. at 1256, Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1212 (9th Cir.1977). These prerequisites were satisfied in this case. We therefore do not consider whether competition was in fact unreasonably restrained.

The district court properly granted summary judgment on the first and third of the required elements of a per se violation, holding that on the undisputed facts [1339]*1339the NOVA instruction set CPU and defendant’s RDOS are separate products and the volume of commerce in NOVA instruction set CPUs tied to the purchase of defendant’s RDOS is substantial. In re Data General Corp. Antitrust Litigation, 490 F.Supp. 1089, 1104-07, 1116-17 (N.D.Cal.1980).

We adopt the district court’s reasoning on these issues, adding that the court’s analysis of defendant’s “single product” claim is supported by the Supreme Court’s recent discussion in Jefferson Parish Hospital District No. 2 v. Hyde, — U.S. -, 104 S.Ct. 1551, 1561-65, 80 L.Ed.2d 2 (1984). The undisputed facts summarized in the district court’s opinion establish that a demand existed for NOVA instruction set CPUs separate from defendant’s RDOS, and that each element of the NOVA computer system could have been provided separately and selected separately by customers if defendant had not compelled purchasers to take both. See also Klamath-Lake Pharmaceutical Association v. Klamath Medical Service Bureau, 701 F.2d 1276, 1289 (9th Cir.1983).1

The remaining element necessary to establish a per se violation — defendant’s possession of sufficient economic power with respect to the tying product, defendant’s RDOS — was tried to a jury and resolved in plaintiffs’ favor. The district court erred in setting aside this verdict or, alternatively, ordering a new trial.

III.

One of the purposes of a per se rule is to avoid an “incredibly complicated and prolonged economic investigation ... to determine at large whether a particular restraint has been unreasonable.” Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). See also Jefferson Parish Hospital, 104 S.Ct. at 1560 n. 25. Although not requiring as extensive an inquiry as would be necessary to determine whether the tie-in violated the general standard of reasonableness, the district court held that plaintiffs “could not recover on the alleged tie-ins unless they identified and proved the relevant market for the tying and tied products.” In re Data General Corp. Antitrust Litigation, 529 F.Supp. 801, 809 (N.D.Cal.1981). The trial that followed “focused upon the definition of the relevant markets” for the two products, which the Court characterized as the “critical issue,” (id. at 806) and consumed forty-five days. Id. at 804.

The district court recognized that detailed market analysis was not required in a per se tying case prior to United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 97 S.Ct. 861, 51 L.Ed.2d 80 (1977) (Fortner II), but read that opinion as rejecting this approach in favor of a requirement of “some degree of market analysis even in a per se case.” 529 F.Supp. at 808. The court relied particularly upon language in Fortner II, which states the question to be:

whether the seller has the power, within the market for the tying product, to raise prices or to require purchasers to accept burdensome terms that could not be exacted in a completely competitive market. In short, the question is whether the seller has some advantage not shared by his competitors in the market for the tying product.

429 U.S. at 620, 97 S.Ct. at 867.

From the district court’s analysis of the asserted deficiencies in plaintiffs’ proof, it appears the court read this statement as requiring proof of power to fix the price of the tying product in the whole of the relevant market as defined by the inquiry described in United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956), a monopolization case. In this the district court erred.

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734 F.2d 1336, Counsel Stack Legal Research, https://law.counselstack.com/opinion/digidyne-corp-v-data-general-corp-ca9-1984.