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A wholesale dealer that refuses to go along with a manufacturer’s illegal minimum price-fixing scheme and as a result is terminated has suffered an “antitrust injury” and can therefore sue for damages under the Clayton Act, a federal appeals court has ruled. In its unanimous opinion in Pace Electronics Inc. v. Canon Computer Systems Inc. et al., the 3rd U.S. Circuit Court of Appeals revived a case that was dismissed by U.S. District Judge John C. Lifland of the District of New Jersey. Lifland had ruled that a dealer terminated under such circumstances does not suffer an antitrust injury unless it can demonstrate that its termination also had an actual, adverse economic effect on a relevant market. But the 3rd Circuit found that Lifland “misconstrued the antitrust injury requirement” and that Pace’s claim should have been allowed to proceed even without evidence of a negative effect on the market since a vertical minimum price-fixing scheme is a “per se” antitrust violation and since the harm Pace itself suffered was the sort of injury Congress wanted to prevent with antitrust laws. “We think that a maverick dealer, such as Pace, which is terminated for charging prices less than those set under a vertical minimum price-fixing agreement, suffers the type of injury that the antitrust laws are designed to prevent and may recover damages,” Senior U.S. Circuit Judge Max Rosenn wrote. The plaintiff, Pace Electronics, is an electronics distributor that purchases from manufacturers and wholesale distributors and then resells to smaller retailers in the New Jersey and New York region. In April 1996, Pace entered into a non-exclusive dealer agreement with Canon Computer Systems for the right to purchase Canon-brand ink-jet printers and related accessories from Canon at “dealer prices.” Pace agreed to purchase certain minimum quantities of the products and claims that it met its quotas for 15 months. But in July 1997, Canon terminated the contract, claiming that Pace had failed to purchase the minimum quantities. Pace filed suit, claiming that Canon had ignored its purchase orders because Pace refused to acquiesce in a vertical minimum price-fixing agreement designed and implemented by Canon and another wholesaler, the Laguna Corp., which happened to be Pace’s direct competitor. The suit alleged that Canon and Laguna had illegally agreed to maintain minimum resale prices. Pace claimed that the president of Canon repeatedly instructed Pace’s president not to sell to past or existing customers of Laguna and not to sell Canon-brand ink-jet printers at prices less than those at which Laguna was selling its products. Pace also alleges that its termination as an authorized Canon dealer has harmed competition in two ways — first by reducing price competition in the wholesale market for Canon-brand ink-jet printers because Laguna no longer faced price competition from Pace; and second by stifling competition in the wholesale market for all brands of ink-jet printers. Attorney Elliott Joffe of Steven Robert Lehr PC in West Caldwell, N.J., argued that Canon-brand ink-jet printers enjoy an inherent competitive price advantage over the ink-jet printers of other manufacturers. As a result, he said, until Canon permits its distributors to take advantage of this price advantage, other manufacturers won’t even try to reduce their production costs. The marketplace suffers in the meantime, Joffe said, because until an unrestrained free competitive market requires other manufacturers to reduce their production costs, the price of all brands of ink-jet printers will remain artificially high. Judge Rosenn, in an opinion joined by U.S. Circuit Judges Marjorie O. Rendell and Theodore A. McKee, found that a plaintiff suing under Section 4 of the Clayton Act must allege more than simply an injury causally linked to an antitrust violation. Even if the defendants’ alleged conduct is a “per se” violation, he said, the plaintiff must also show “antitrust injury,” or “injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Rosenn found that the U.S. Supreme Court explained in ARCO v. USA Petroleum Co., a 1990 case, that courts should decide whether the alleged injury “resembles any of the potential dangers” which led the court to label the conduct per se illegal in the first place. The plaintiff in ARCO was an independent retail marketer of gasoline who brought suit against ARCO, an integrated oil company which sold gasoline to consumers through its own stations and indirectly through ARCO-brand dealers, claiming that ARCO violated Section 1 of the Sherman Act by conspiring with its dealers to fix the maximum resale price of gasoline at an artificially low level. Although the plaintiff conceded that the fixed prices were not predatory, it insisted that it suffered antitrust injury in the form of lost profits. The Supreme Court disagreed, noting that the plaintiff’s alleged injury did not resemble any of the dangers which caused the court to label vertical maximum price fixing per se illegal in its 1968 decision in Albrecht v. Herald Co. (Albrecht’s holding – that vertical maximum price fixing is per se illegal – has since been overruled in the 1997 decision in State Oil Co. v. Khan. But Rosenn found that the ARCO court’s approach – discerning the reasons that led the Supreme Court to label certain conduct a per se violation and then determining whether the harm suffered by the plaintiff is consistent with the rationale for labeling the defendant’s conduct per se illegitimate – remains valid.) Applying the logic of ARCO to Pace’s case against Canon, Rosenn said the lower court should have inquired into whether Pace’s alleged injury resembles any of the dangers which led the Supreme Court to condemn vertical minimum price-fixing agreements under the antitrust laws. Rosenn found that they did. “Pace alleges that it has suffered antitrust injury because it was terminated as a wholesale dealer after it sold Canon-brand products at prices below the minimum resale price allegedly fixed by Canon and Laguna,” Rosenn wrote. “Pace further alleges that its termination as a wholesale dealer has caused it to suffer lost profits because it may no longer obtain profits from selling Canon-brand products at ‘dealer prices.’ Under the Supreme Court’s jurisprudence, these allegations suffice to establish antitrust injury,” he wrote. The Supreme Court upheld a similar claim in the 1964 decision in Simpson v. Union Oil, in which the plaintiff claimed it was terminated from a “consignment agreement” for selling gasoline below the minimum retail price. The lower court had dismissed the case, holding that the plaintiff failed to establish a violation of Section 1 of the Sherman Act, but the Supreme Court reversed, saying the plaintiff had shown that the price-fixing scheme harmed its ability to make independent, competitive pricing decisions. The high court said: “The evil of the resale price maintenance program … is its inexorable potentiality for and even certainty in destroying competition in retail sales of gasoline by these nominal ‘consignees’ who are in reality small struggling competitors seeking retail gas customers.” In that quote, Rosenn found support for Pace’s claim, saying “the Supreme Court considered a restriction on dealer independence with respect to pricing decisions to be an anticompetitive aspect of vertical minimum price-fixing agreements, and one that the antitrust laws have an interest in forestalling.” Canon’s lawyers, Richard H. Silberberg and Robert G. Manson of Dorsey & Whitney in New York, argued that Simpson is no longer good law in light of ARCO. They argued that ARCO now requires that a terminated dealer seeking to establish that it has suffered antitrust injury must allege facts demonstrating that its termination as an authorized dealer resulted in an actual, adverse economic effect on competition in a relevant interbrand market. Rosenn disagreed, saying, “We believe that requiring a plaintiff to demonstrate that an injury stemming from a per se violation of the antitrust laws caused an actual, adverse effect on a relevant market in order to satisfy the antitrust injury requirement comes dangerously close to transforming a per se violation into a case to be judged under the rule of reason.” The per se standard, Rosenn said, “is reserved for certain categories of conduct which experience has shown to be manifestly anticompetitive.” If the courts were to accept Canon’s reading of the antitrust injury requirement, Rosenn said, “we would, in substance, be removing the presumption of anticompetitive effect implicit in the per se standard under the guise of the antitrust injury requirement.”

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