Wednesday, September 10, 2003
Ninth Circuit Revives Antitrust Action Against Avid, Former Competitor
By DAVID WATSON, Staff Writer
A private antitrust lawsuit against the dominant U.S. professional film editing equipment manufacturer and a former competitor was revived yesterday by the Ninth U.S. Circuit Court of Appeals.
The suit by Glen Holly Entertainment Inc., which did business as Digital Images, against Avid Technology, Inc. and Tektronix Inc. should not have been dismissed by U.S. District Judge Stephen V. Wilson of the Central District of California, the three-judge panel ruled.
Wilson erred, the appellate panel said, in finding that Digital could not state a claim under the Sherman and Clayton Acts because the company could not establish an antitrust injury. The Clayton Act permits private party antitrust litigation, but a plaintiff is required to show it suffered an injury of the type antitrust law is intended to prevent.
Digital claimed it was forced out of business when Tektronix and Avid agreed in late 1998 that Tektronix would stop marketing and supporting its Lightworks film editing system, leaving Avid—which already controlled 85 percent of the “non-linear” film editing equipment market—as virtually the sole provider. Digital’s business had consisted partly of leasing Lightworks systems to film companies and partly of performing editing for them on Lightworks equipment.
Wilson ruled that while Digital had adequately alleged that the Tektronix-Avid agreement violated antitrust law, the company lacked standing to sue. He reasoned that Digital’s injury was not the type of harm antitrust law is intended to prevent, since the Tektronix-Avid agreement, under which the two firms were to jointly market Avid’s system, was likely to produce a better product and should not be actionable under antitrust laws.
Writing for the appeals court, Judge Stephen S. Trott said Wilson’s “first error” was to view Digital as a distributor of Lightworks and apply case law holding that terminated distributors do not suffer an antitrust injury.
“[T]he court’s decision fatally to pigeon hole Digital Images as a distributor is simply wrong,” Trott declared. “Digital Images disclaims any such relationship with Tektronix, and there is nothing sufficient in the pleadings to impeach this assertion. Thus, for standing purposes, Digital Images alleged enough to establish factually that it is both a customer and a competitor in a slightly different market.”
Trott said Wilson also adopted a “too restrictive” view of antitrust law in holding that a purchaser or consumer can allege an actionable antitrust injury only in situations where it has made or intends to make purchases in a market which, as the result of antitrust activity, suffers either from artificially increased prices or from artificially less innovative products.
Citing Amarel v. Connell, 102 F.3d 1494 (9th Cir. 1997), the appellate jurist wrote:
“The Avid/Tektronix agreement detrimentally changed the market make-up and limited consumers’ choice to one source of output. One form of antitrust injury is ‘[c]oercive activity that prevents its victims from making free choices between market alternatives.’…The injury alleged flowed from the discontinuation of the only competing product on the market by agreement between the only two competitors in the market. Digital Images and its customers no longer had a viable choice between market alternatives.”
Trott said Wilson should have looked to Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), a case in which the Supreme Court ruled a Blue Shield subscriber could state an antitrust cause of action against the insurer for conspiring to exclude non-physician psychologists from coverage.
“The parallels here to McCready are apparent,” Trott reasoned. “In each case, a customer was directly damaged by an act alleged to be in violation of the antitrust laws. The customer was not required to show that the reduced competition increased the basic market cost of the service involved, only that she was directly and economically hurt by the alleged violation.”
“Given that customers are the intended beneficiaries of competition, and that customers are presumptively those injured by its unlawful elimination, for pleading purposes we conclude that Digital Images has satisfied the requirement that it adequately allege antitrust injury to its business.”
Trott said Wilson also erred in granting summary judgment on Digital’s state-law fraud and negligent misrepresentation claims against Tektronix. While the district judge properly found that most of the Tektronix statements cited by Digital were too vague and general for Digital to have been justified in relying on them, the same was not true of a 1996 statement by the company that a new version of its software would be available within months, Trott explained.
The fact that Tektronix eventually did release the new version, in 1998, did not mean Digital could not have been harmed by relying on the 1996 representation, and Digital was not required to prove that it stayed with the Lightworks system, instead of switching to Avid, solely because of that representation, Trott said.
Judges Stephen Reinhardt and Barry G. Silverman concurred.
The case is Glen Holly Entertainment Inc. v. Tektronix Inc., 01-56447.
Copyright 2003, Metropolitan News Company