California Computer Products, Inc. And Century Data Systems, Inc., Plaintiffs v. International Business MacHines Corporation

California Computer Products, Inc. (“Cal-Comp”) appeals from the judgment entered on a directed verdict in favor of appellee International Business Machines Corp. (“IBM”) as to all counts of its complaint charging IBM with violations of § 2 of thé Sherman Act, 15 U.S.C. § 2. We affirm.

I. Background and Proceedings Below

IBM is one of the largest industrial corporations in the world. It achieved technical leadership in the computer industry over other early entrants, such as Sperry Rand, in the mid-1950’s and thereafter pioneered the development of many electronic data processing products, including the disk products involved in this litigation.

Disk products are part of a broader category of what is known as peripheral equipment, such as disks, tapes, printers, and terminals, which is connected to the central processing unit (“CPU”) to enable the data processing system to perform particular functions. Included in the reference to disk products are disk drives, devices using magnetic disks similar in appearance to phonograph records to store information, and controllers, used for communication between disk drives and the CPU. Occasionally these devices are built into the CPU; alternatively, they exist as external components that may be “plugged into” the CPU. As a general purpose computer systems manufacturer, IBM sells both CPUs and peripherals, including disk products.

CalComp began manufacturing computer products in 1960, when it made plotting devices — peripheral equipment that provides graphic, printed or pictorial output. CalComp claims no injury with respect to these products. With the acquisition of Century Data Systems in 1969, CalComp entered the disk products market, manufacturing disk drives and controllers that were “plug compatible” with IBM’s and other suppliers’ CPUs. CalComp’s business strategy with respect to IBM-compatible disk products was straightforward: copy and, where possible, improve upon an IBM design, and undersell IBM to its own customers. By the “reverse engineering” of simply buying a device from IBM, taking it apart, and building a similar one, CalComp was able to avoid IBM’s expenditures for research and development and pass the savings on through lower prices.

CalComp commenced this lawsuit on October 3, 1973. The complaint alleged that IBM’s introduction of new CPUs and disk products, its price cuts on existing disk products, its leasing policies, and other marketing practices prevented CalComp from effectively competing with IBM for disk product sales and thus violated § 1 and § 2 of the Sherman Act. 1 CalComp alleged and attempted to prove that these acts by IBM took place within a ten year span, from late 1963 to 1972, resulting in treble damages of $306 million. Following over three years of discovery and pretrial, trial to a jury began on November 15,1976. At the conclusion of fifty-four days of trial covering three months, the district court granted IBM’s motion for directed verdict on February 11, 1977.

The records and transcript on this appeal comprise 132 volumes. Voluminous briefs *732 and supplemental briefs by the parties and amicus briefs were permitted. We have considered all of the arguments advanced and scrutinized pertinent parts of the record, particularly in view of the nature of the appellate task on review of a directed verdict.

II. Antitrust Standing

CalComp has asserted that IBM’s actions created anticompetitive effects on three classes of IBM competitors: (1) general purpose computer systems manufacturers, (2) leasing companies and (3) IBM-compatible peripheral equipment manufacturers. We believe that CalComp, an IBM-compatible peripheral equipment manufacturer, lacks antitrust standing as to the first two categories of claims.

Section 4 of the Clayton Act, 15 U.S.C. § 15, authorizing private antitrust suits for damages, provides in part:

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor .

This statute confers standing to sue only upon those persons causally injured by antitrust violations. Kapp v. National Football League, 586 F.2d 644, 648-49 (9th Cir. 1978); John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 498-99 (9th Cir. 1977). Moreover, in order to prevail the plaintiff must prove not only injury causally linked to the asserted violation, but also that the injury is of the type the antitrust laws were intended to prevent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977); John Lenore & Co. v. Olympia Brewing Co., 550 F.2d at 498-99; In re Multidistrict Vehicle Air Pollution M.D.L. No. 31, 481 F.2d 122, 125 (9th Cir. 1973), cert. denied, 414 U.S. 1045, 94 S.Ct. 551, 38 L.Ed.2d 336 (1975). The plaintiff’s burden of proving the former is satisfied by proof of some damage flowing from the antitrust violation. Zenith Radio Corp. v. Hazeltine Research Inc., 395 U.S. 100, 114 n.9, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). Satisfying the latter burden is dependent on a showing that the injury was caused by a reduction, rather than an increase, in competition flowing from the defendant’s acts, since “[t]he antitrust laws . . . were enacted for ‘the protection of competition not competitors,’ ” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. at 488, 97 S.Ct. at 697, quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). See Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 133 (2d Cir. 1978). Accordingly, the plaintiff must demonstrate that the defendant’s conduct was intended to or did have some anticompetitive effect beyond his own loss of business or the market’s loss of a competitor. See Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir. 1976). Moreover, it is not sufficient for an antitrust plaintiff to allege an indirect ripple effect. As this court wrote in John Lenore & Co.:

It is not enough to confer standing that plaintiff just prove some injury and show that this injury is within the affected area of the economy. Antitrust violations admittedly create many foreseeable ripples of injury to individuals, but the law has not allowed all of those merely affected by the ripples to sue for treble damages.

550 F.2d at 499.

In the present case CalComp has alleged that IBM’s actions injured general purpose computer systems manufacturers and leasing companies. But CalComp does not include itself among these two classes of IBM competitors. Nor does CalComp’s evidence demonstrate a direct causal injury which would afford it standing. Rather, at best CalComp argues that injury to these two groups has had an indirect ripple effect upon it. As John Lenore & Co. indicates, such an indirect ripple effect is not sufficient to allow CalComp to sue for treble damages on its first two categories of claims.

III. CalComp’s Claims as to IBM-Compatible Peripheral Equipment Manufacturers

A. Standard of Review on Appeal from Directed Verdict

As a general rule, the district court has the power to direct a verdict if *733 “the evidence permits only one reasonable conclusion as to the verdict.” Fountila v. Carter, 571 F.2d 487, 489-90 (9th Cir. 1978), quoting Kay v. Cessna Aircraft Co., 548 F.2d 1370, 1372 (9th Cir. 1977); see Syufy Enterprises v. National General Theatres, 575 F.2d 233, 235 (9th Cir. 1978). 2 The district court must consider all the evidence — both favorable and unfavorable. But in order to avoid passing on the credibility of witnesses and weighing contradictory evidence, the court must resolve all inferences in favor of the party with the burden of persuasion, because

[i]t is the jury, not the judge, which “weighs the contradictory evidence and inferences, judges the credibility of witnesses, . . . and draws the ultimate conclusion as to the facts . . . .”

Fount-Wip, Inc. v. Reddi-Wip, Inc., 568 F.2d 1296, 1301 (9th Cir. 1978), quoting Cockrum v. Whitney, 479 F.2d 84, 86 (9th Cir. 1973) and Tennant v. Peoria & Pekin Union. Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520 (1944); see Marquis v. Chrysler Corp., 577 F.2d 624, 639 (9th Cir. 1978); Kay v. Cessna Aircraft Co., 548 F.2d at 1372. 3

Thus, this court in Maheu v. Hughes Tool Co., 569 F.2d 459, 464 (9th Cir. 1977), upholding the denial of a directed verdict against the party with the burden of persuasion, made it clear that application of the general standard of Fountila and Kay, supra, required it to view the evidence “in the light most favorable to the party opposing the motion,” and that it “must examine all the evidence” (emphasis added). See also id. at 481 (concurring and dissenting opinion); Wescott v. Impresas Armadoras, S.A., 564 F.2d 875, 882 (9th Cir. 1977); Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d 942, 944 (9th Cir. 1977); Kay v. Cessna Aircraft Co., 548 F.2d at 1372; Chisholm Brothers Farm Equipment Co. v. International Harvester Co., 498 F.2d 1137, 1140 (9th Cir.), cert. denied, 419 U.S. 1023, 95 S.Ct. 500, 42 L.Ed.2d 298 (1974).

In order to benefit from the favorable inferences available under this standard, the party against whom the motion is made must present “substantial evidence.” As stated in Rutledge v. Electric Hose & Rubber Co., 511 F.2d 668 (9th Cir. 1975):

In considering a motion for a directed verdict, the court must give the party against whom the motion is made the benefit of all reasonable evidentiary inferences. [Cited authority omitted.] This is no less true in an antitrust case. *734 However, if there is no substantial evidence to support the claim, the court must direct a verdict.

Id. at 677 (emphasis added), quoting Cleary v. National Distillers & Chemical Corp., 505 F.2d 695, 696 (9th Cir. 1974). The “sole issue” in an appeal from a directed verdict against the party with the burden of persuasion is thus the sufficiency of the evidence of the appellant’s claim. Cleary v. National Distillers & Chemical Corp., 505 F.2d at 696. As stated in Chisholm Brothers Farm Equipment Co. v. International Harvester Co., 498 F.2d at 1140, “the correct standard is whether or not, viewing the evidence as a whole, there is substantial evidence present that could support a finding . . . for the nonmoving party.” Accord, Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 853 & n.2 (9th Cir. 1977) (substantial evidence is “more than a mere scintilla” and consists of “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion”), ce rt. denied, 439 U.S. 829, 99 S.Ct.. 103, 58 L.Ed.2d 122 (1978).

The standard for determining the propriety of a directed verdict — identical to that for determining the propriety of a judgment n. o. v., Fountila v. Carter, 571 F.2d at 489; Cockrum v. Whitney, 479 F.2d at 85—is the same for district and appellate judges. Maheu v. Hughes Tool Co., 569 F.2d at 481 (concurring and dissenting opinion).

In its amicus brief the Department of Justice argues that:

Because of the generally complex nature of antitrust litigation and the important role which motive and intent often play therein, the Supreme Court has generally disapproved of the use of summary procedures, such as motions for directed verdicts, in antitrust cases. Poller v. Columbia Broadcasting, 368 U.S. 464, 473 [, 82 S.Ct. 486, 7 L.Ed.2d 458] (1962); Hospital Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 746 [, 96 S.Ct. 1848, 48 L.Ed.2d 338] (1976); see also Chisholm Bros. Farm Equip. Co. v. International Harvester Co., supra, 498 F.2d at 1139. Complex Section 2 cases, such as this case, involve numerous factual issues such as market definition, whether the defendant possesses monopoly power in a relevant market and whether the defendant had the purpose or intent to exercise that monopoly power. These issues must be resolved by the jury after receiving appropriate instructions from the court.

However, in Santa Clara Valley Distributing Co. v. Pabst Brewing Co., 556 F.2d at 944-45 n.1, this court dealt extensively and definitively with the meaning of Poller and Hospital Building Co. in the context of a directed antitrust verdict. That case, emphasizing that the Supreme Court’s disapproval of “summary proceedings” dealt with “pre trial motions” (emphasis original), concluded that “the same circumspection is not required in the case of directed verdicts.” Rather, the usual standard described above applies:

a directed verdict is proper, even in an antitrust case, when “there is no substantial evidence to support the claim.”

Id., quoting Rutledge v. Electric Hose & Rubber Co., 511 F.2d at 677, and Cleary v. National Distillers & Chemical Corp., 505 F.2d at 696. See Marquis v. Chrysler Corp., 577 F.2d at 639 & n.25 4

B. General § 2 Doctrine

CalComp contends that the evidence was sufficient to show that particular conduct *735 on the part of IBM, detailed below, violated either or both the monopolization and attempt to monopolize clauses of § 2 of the Sherman Act. 5 In order to reverse the district court’s judgment as to either of these claims, it must be that after viewing the evidence in the light most favorable to Cal-Comp, there is substantial evidence of every essential element of that claim.

1. Monopolization

There are three essential elements to a successful claim of § 2 monopolization:

(a) the possession of monopoly power in the relevant market;

(b) the willful acquisition or maintenance of that power; and

(c) causal “antitrust” injury.

The first two elements are derived from § 2 itself, and were explicated in United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). See Greyhound Computer Corp. v. IBM, 559 F.2d 488, 492 (9th Cir. 1977); Moore v. Jas. H. Matthews & Co., 550 F.2d 1207, 1218 (9th Cir. 1977).

As reiterated in Greyhound, monopoly power — the first element — “is the power to control prices or exclude competition.” 559 F.2d at 496, quoting United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). The du Pont definition of monopoly power has been applied principally with reference to the defendant’s share of the relevant product and geographic markets. Greyhound, 559 F.2d at 496. See United States v. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. 1698; United States v. E. I. du Pont de Nemours & Co., 351 U.S. at 399, 404, 76 S.Ct. 994; American Tobacco Co. v. United States, 328 U.S. 781, 797, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1274 (9th Cir. 1975). But see Moore v. Jas. H. Matthews & Co., 550 F.2d at 1219 (“the requisite power also can be demonstrated by evidence of the exercise of actual control over prices or exclusion of competitors”).

The second element of a successful monopolization claim requires that the conceded monopolist have engaged in “willful” acts directed at establishing or retaining its monopoly, “as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. at 1704. 6 That case found the defendant’s acts sufficient to meet the § 2 conduct requirement because they constituted “unlawful and exclusionary practices.” Id. at 576, 86 S.Ct. 1698.

The plaintiff need not show that the conceded monopolist’s acts were of a kind that would be unlawful for an ordinary enterprise. Greyhound Computer Corp. v. IBM, 559 F.2d at 498. Rather, the plaintiff must show that the defendant’s acts “unnecessarily excluded competition” from the relevant market. Id. Nor is it necessary to show a specific intent to eliminate a competitor. Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 284 F.2d 1, 26 (9th Cir. 1960), modified, 289 F.2d 933 (1961), rev’d on other grounds, 370 U.S. 19, 82 S.Ct. 1130, 8 L.Ed.2d 305 (1962). The defendant’s acts are properly analyzed analogously to contracts, combinations and conspiracies under § 1 of the Sherman Act: the test is whether the defendant’s acts, otherwise lawful, were *736 unreasonably restrictive of competition. 7 See Gough v. Rossmoor Corp., 487 F.2d 373, 376 (9th Cir. 1973). 8 While this “in large measure” has the effect of making acts of monopolization “merely the end products of conduct which violates § 1,” “that is not always true.” United States v. Griffith, 334 U.S. 100, 106, 68 S.Ct. 941, 92 L.Ed. 1236 (1948). Section 1 is limited to concerted activity and contractual restraints, while under § 2, individual activity may also give rise to liability. See Moore v. Jas. H. Matthews & Co., 473 F.2d at 332-33. 9

The third element — plaintiff’s resultant “antitrust” injury — has already been discussed, Part II supra.

2. Attempt to Monopolize

There are four elements to a successful claim of § 2 attempt to monopolize:

(a) specific intent to control prices or destroy competition with respect to a part of commerce;

(b) predatory or anticompetitive conduct directed to accomplishing the unlawful purpose;

(c) a dangerous probability of success; and

(d) causal “antitrust” injury.

The first element was explained in Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 626, 73 S.Ct. 872, 97 L.Ed. 1277 (1953), wherein the Supreme Court differentiated the requisite levels of intent under the monopolization and attempt to monopolize clauses of the Sherman Act:

While the completed offense of monopolization under § 2 demands only a general intent to do the act ... a specific intent to destroy competition or build monopoly is* essential to guilt for the mere attempt .

The intent to “build monopoly,” given the du Pont definition of monopoly power, is logically synonymous with the intent to control prices or exclude competition in the relevant market. See Gough v. Rossmoor Corp., 585 F.2d 381, 390 (9th Cir. 1978); Marquis v. Chrysler Corp., 577 F.2d 624, 641 (9th Cir. 1978); Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 853 (9th Cir. 1977), cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978); Greyhound Computer Corp. v. IBM Corp., 559 F.2d at 504; Knutson v. Daily Review, Inc., 548 F.2d at 813-14; Lessig v. Tidewater Oil Co., 327 F.2d 459, 474 (9th Cir.), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964). “Direct evidence” of specific intent to control prices or destroy competition, however, is not always necessary when the attempt claim is “founded upon a substantial claim of restraint of trade” — i. e., a § 1 violation. In these circumstances the requisite specific intent may be inferred. Trixler Brokerage Co. v. Ralston Purina Co., 505 F.2d 1045, 1051-52 (9th Cir. 1974); see *737 Gough v. Rossmoor Corp., 585 F.2d at 390; Janich Bros., Inc. v. American Distilling Co., 570 F.2d at 854; Knutson v. Daily Review, Inc., 548 F.2d at 814; Bushie v. Stenocord Corp., 460 F.2d 116, 120-21 (9th Cir. 1972). Market power is relevant to determining whether such an inference is proper; but where a § 1 violation “clearly” exists, proof of market power is unnecessary to support an inference of specific intent. 10 Janich Bros., Inc. v. American Distilling Co., 570 F.2d at 854 n.4; Hallmark Industry v. Reynolds Metals Co., 489 F.2d 8, 12-13 (9th Cir. 1973), cert. denied, 417 U.S. 932, 94 S.Ct. 2643, 41 L.Ed.2d 235 (1974).

Conversely, “even though the restraint effected may be reasonable under § 1, it may constitute an attempt to monopolize forbidden by § 2 if a specific intent to monopolize may be shown.” United States v. Columbia Steel Co., 334 U.S. 495, 531-32, 68 S.Ct. 1107, 1126, 92 L.Ed. 1533 (1948). However, “[o]rdinarily specific intent is difficult to prove,” Hallmark Industry v. Reynolds Metals Co., 489 F.2d at 12; see, e. g., United States v. Columbia Steel Co., 334 U.S. at 532-34, 68 S.Ct. 1107, and thus more commonly it is shown indirectly by proof of illegal conduct and, where necessary, market power.

The “predatory or anticompetitive conduct” element of § 2 attempt, like the conduct element of monopolization, encompasses more than violations of § 1. See,. e. g., Knutson v. Daily Review, Inc., 548 F.2d at 814 (attempt requires proof of “some illegal [under Section 1] or predatory activity”) (emphasis added). The reason for this was stated in Moore v. Jas. H. Matthews & Co., 473 F.2d at 332:

[S]ection 2 is not limited to concerted activity. A jury, therefore, could find that individual actions . . . constituted monopolization or attempted monopolization violating section 2, even if it found no concerted activity.

Additionally, “[s]ection 1 also prohibits ‘contracts’ that restrain trade,” id. at 333, and since individual actions may violate § 2, no contractual agreement is required. Nonetheless, under § 2 attempt — as with § 1 monopolization — individual conduct is measured against the same “reasonableness” standard governing concerted and contractual activity under § 1. See note 7 infra; Greyhound Computer Corp. v. IBM Corp.,