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A federal jury’s $104.5 million verdict in an antitrust suit has been slashed down to $13 million by a federal judge in a 167-page opinion that says the plaintiff failed to prove the existence of the “relevant market” that was central to its theory of the case. In the suit, ID Security Systems Canada Inc. v. Checkpoint Systems Inc., the plaintiff claimed that it was driven out of the market for supplying the tags used in a shoplifter detection system manufactured by the defendant. In May 2002, a jury rejected ID Security’s monopolization claim, but found in its favor on claims of attempted monopolization and conspiracy to monopolize. The jury’s award of $28.5 million on those claims was automatically trebled to $85.5 million. Now U.S. District Judge Eduardo C. Robreno, who presided over the trial in Philadelphia, has rejected the plaintiff’s theory of the case, saying it failed to prove the existence of a market for a radio frequency tags used with Checkpoint’s electronic article surveillance systems. Instead, Robreno said, the only market that Checkpoint can legally be accused of trying to monopolize is the larger market for electronic article surveillance systems. As a result, Robreno overturned the jury’s findings of attempted monopolization and conspiracy to monopolize. That ruling subtracted $85.5 million from the verdict. Of the remaining $19 million, which was awarded on two claims for tortious interference, Robreno subtracted another $6 million due to “the speculative nature of the expert testimony” on the issue of damages. The ruling is a victory for Checkpoint’s lawyers — John DeQ. Briggs, James F. Rill, James G. Kress and Kenneth W. Donnelly of Howrey Simon Arnold & White in Washington, D.C., who were hired after the verdict to argue post-trial motions. Handling the trial for Checkpoint were attorneys C. Clark Hodgson Jr., Patricia Casperson, Michael C. Chase and Keith R. Duthill of Stradley Ronon Stevens & Young in Philadelphia. In the suit, ID Security Systems, a Canadian company, claimed that Checkpoint, which is based in Thorofare, N.J., had attempted to monopolize the market for the tags used in its shoplifter-detection system. There are currently two leading technologies used in the market for shoplifter-detection systems. Checkpoint markets a system that uses radio frequency technology, and its main competitor, Sensormatic Corp., employs an acoustomagnetic technology. Both systems rely on the use of tags affixed to products that must either be removed or desensitized by a cashier to prevent an alarm from sounding when the product leaves the store. Checkpoint’s system uses radio frequency tags that are desensitized by a cashier, while Sensormatic’s system uses larger, acoustomagnetic tags that must be removed from the product. At trial, ID Security Systems’ lawyers — Rudolph Garcia, William A. DeStefano and Kara H. Goodchild of Saul Ewing — said their client had attempted to enter the burgeoning market for supplying retailers with the radio-frequency tags that could be used with Checkpoint’s systems. But when ID Security Systems struck a deal with Tokai Electronics — in which the Japanese company promised to manufacture the tags that ID Security Systems would market — the suit alleged that Checkpoint set out to protect its monopoly by inducing Tokai to breach the contract. Checkpoint later bought out Tokai’s assets, the suit said. And when ID Security Systems began developing a new generation of improved radio-frequency tags, the suit alleged, Checkpoint used unfair practices to delay the product’s debut by nearly four years. In a ruling handed down on Friday, Judge Robreno found that his first task was to determine the proper “relevant market” — an inquiry that begins with the U.S. Supreme Court’s 1992 seminal decision in Eastman Kodak Co. v. Image Technical Services Inc. In Kodak, the justices had to decide whether Kodak — a manufacturer of complex business machines whose parts were incompatible with those of other manufacturers — had illegally monopolized and attempted to monopolize the sale of service for Kodak machines when it implemented a policy of selling replacement parts only to buyers of Kodak equipment who used Kodak service or repaired their own machines. The practical effect of Kodak’s policy was that it became more difficult, if not impossible, for independent service organizations to sell service for Kodak machines, because they were unable to obtain Kodak parts. Although the justices found that the “aftermarket” for parts was a true relevant market in Kodak, Judge Robreno found that the high court also instructed judges to analyze such questions on a case-by-case basis. Robreno found guidance in a 1997 decision from the 6th U.S. Circuit Court of Appeals in PSI Repair Services Inc. v. Honeywell Inc. The 6th Circuit explained that “the change in policy in Kodak was the crucial factor in the [Supreme] Court’s decision. By changing its policy after customers were locked in, Kodak took advantage of the fact that its customers lacked the information to anticipate this change. Therefore, it was Kodak’s own actions that increased its customers’ information costs.” Such a policy change, the PSI court said, “was the evil condemned by the [ Kodak] court.” As a result, the 6th Circuit held that “an antitrust plaintiff cannot succeed on a Kodak-type theory when the defendant has not changed its policy after locking-in some of its customers, and the defendant has been otherwise forthcoming about its pricing structure and service policies.” Robreno said he found the PSI court’s logic persuasive. “That a defendant is unable to change the prices of its goods in the aftermarket, even with respect to its most vulnerable customers, i.e., those who are already locked-in to its particular system, strongly suggests, if it does not compel, an absence of market power in the aftermarket,” Robreno wrote. “This inability to raise prices in the aftermarket, in turn, indicates that the aftermarket is not the relevant market in which a court should assess the defendant’s market power,” Robreno wrote. Applying that logic to ID Security’s case against Checkpoint, Robreno found that the evidence presented at trial “provided no legally sufficient evidentiary basis for a reasonable juror to conclude that the relevant market in this case was the market for [radio-frequency] tags.” Robreno found that radio-frequency tags are “undisputedly a unique product,” and that the costs of switching between Checkpoint’s and Sensormatic’s systems are high. But since there was also evidence of “low information costs” — meaning that customers could easily learn of the relative merits of the two systems — and no evidence of any “post lock-in exploitation” by Checkpoint, Robreno found that the aftermarket for radio-frequency tags did not qualify as a true relevant market for antitrust purposes. Robreno noted that the plaintiff’s own expert testified that retailers interested in purchasing shoplifter detection systems are aware that buying a radio-frequency-based system “will necessitate their buying tags throughout the long life of their … system, and, most likely, from Checkpoint, the major supplier.” The expert also conceded that retailers are “sophisticated customers,” Robreno noted, “whose analysis of the return on investment expected from the purchase of a security system is facilitated by the fact that both Checkpoint and Sensormatic present them with return detailed projections based on the customers’ products, number of items passing through the store, the number of tags that the customer will need in the future, and as well as industry trends.” Evidence at the trial showed that Checkpoint and Sensormatic provide information to customers “who then try to play the two off against each other in an effort to obtain a reduced price for the entire system,” Robreno said. A typical customer receives proposals from both Checkpoint and Sensormatic, and then “engages in multiple rounds of negotiations with the two, with the result that the total price of the … systems decreases during the course of the negotiations.” In light of those “market realities,” Robreno concluded that “the low information costs, despite the high cost of switching … militate strongly against a finding that [radio-frequency] tags alone constitute the relevant market for antitrust purposes.” Robreno also found no evidence of a change in policy by Checkpoint. “The unequivocal evidence offered at trial further reveals that Checkpoint did not change the price of [its] tags even after its customers were locked-in,” Robreno wrote. Instead, he said, the evidence showed that “once customers were locked-in, Checkpoint continued to charge 3.5 cents per tag.” Robreno agreed with Checkpoint’s lawyers who argued that “consistent pricing” of its tags showed that the competition it engaged in with Sensormatic in the “foremarket” for shoplifter detection systems had deprived it of “actual market power” in the radio-frequency-tag aftermarket, and showed that Checkpoint was unable to exploit even its locked-in customers, despite its 90 percent share of the aftermarket.

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