3D Systems wins Federal Circuit appeal affirming summary judgment dismissing all antitrust and state law claims
Clients 3D Systems, Inc.
On April 18, 2014, the Federal Circuit affirmed summary judgment dismissing all antitrust and state law claims against Jones Day client 3D Systems, Inc., holding that the plaintiff failed to present evidence sufficient to support a jury finding in favor of plaintiff on the issue of the definition of the relevant market. The case illustrates the risk of attempting to rely on anecdotal customer testimony to prove a relevant market.
3D Systems manufactures stereolithography and other systems that build three dimensional models and prototypes from CAD/CAM images, as well as the materials used in the 3D systems. Its newest generation systems introduced automated recognition of the type of material used in the system to enable the machine to verify that the correct build software was used and to provide other benefits. 3D Systems imposed a licensing fee on material suppliers to recoup its expenses in enabling the machine to detect other suppliers' materials as well as its own. Although other suppliers accepted the licensing scheme without complaint, in March 2008 materials competitor DSM Desotech Inc. ("Desotech") filed six antitrust counts in the Northern District of Illinois, including monopolization, attempted monopolization, tying, and restraint of trade, challenging the imposition of the licensing scheme. It also asserted tort claims and unrelated patent infringement claims.
Desotech asserted that 3D Systems' stereolithography systems were in a relevant market of their own and that 3D Systems was monopolizing that market and using its market power in that market to monopolize the downstream materials market. After four years of discovery, 3D Systems moved for summary judgment in part on the basis that the evidence showed that the relevant market included many systems in addition to stereolithography, precluding 3D Systems from being able to monopolize either a relevant systems or materials market, and the district court agreed.
The Federal Circuit affirmed. The court observed that "[f]or products to be substitutes for one another, they need not be identical or fungible," and that in determining whether products are in the same market, Seventh Circuit law (applicable here) requires economic evidence. The court observed, however, that instead of offering economic evidence, Desotech attempted to rely instead solely on the market indicia set forth in Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962). This alone led the court to conclude that summary judgment had been properly granted. It went on, however, to hold that Desotech's evidence was also insufficient to show that the Brown Shoe indicia supported a finding that the market was limited to stereolithography machines. The court observed that a key question was whether a small but significant nontransitory increase in price would cause enough customers to switch from stereolithography to other technologies to make the price increase unprofitable. Desotech, however, offered testimony of only four customers who said that they would not switch in response to such a price increase. The court also observed that Desotech offered no evidence or argument about how many customers would constitute a sufficient number. In addition, the court held that four customers out of an undisputed 268 was insufficient, especially where the customers did not appear to be representative of all customers. Thus, although some Brown Shoe indicia might weigh in favor of Desotech's proposed market definition, this was insufficient to permit a reasonable jury to make such a finding. The court also held that competition in the market for machines prevented 3D Systems from monopolizing the market for materials, because all but a handful of customers purchased their machines knowing that they would be so restricted.
DSM Desotech Inc. v. 3D Systems, Inc., No. 008-1531 (N.D. Ill.), aff’d, No. 13-1298 (Fed. Cir.)