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Copy-Data Systems Inc. v. Toshiba America Inc.

decided: November 2, 1981; As Amended November 30, 1981.


Before Oakes and Meskill, Circuit Judges, and Blumenfeld, District Judge.*fn*

Author: Meskill

Toshiba America, Inc. ("TAI"), a New York corporation and a wholly-owned subsidiary of Toshiba Corporation, a Japanese corporation, appeals from a judgment of the United States District Court for the Southern District of New York, Owen, J., awarding $1,320,000 in treble antitrust damages to Copy-Data Systems, Inc., a New Jersey corporation.*fn1 Judge Owen found that TAI employed "varied tactics" to "eliminate competition between itself and Copy-Data" in various geographical markets for Toshiba brand copying equipment. The court concluded that TAI's actions constituted a per se violation of Section 1 of the Sherman Act, 15 U.S.C. ยง 1, and resulted in the destruction of Copy-Data's business, valued by the court at $440,000. TAI challenges Judge Owen's findings of fact and determination of damages, but asserts that even if these findings are correct, they do not constitute a per se violation of the Sherman Act. Because we agree that the facts as found by the district court do not establish a per se violation, we reverse.*fn2


TAI markets office copying equipment, parts and supplies manufactured by TAI's Japanese parent, Toshiba Corporation, under the brand name "Toshiba." In 1970 Copy-Data, a company engaged in the wholesale distribution of office copying equipment and supplies, negotiated with TAI for an exclusive right to distribute Toshiba copying machines for the states of New York, New Jersey, Connecticut, Rhode Island and Massachusetts (the Northeast), and a non-exclusive right to distribute Toshiba copiers in Maine, New Hampshire and Vermont. At its own expense Copy-Data undertook to establish the name of Toshiba in the northeastern market for copiers. Copy-Data identified potential retail dealers and solicited them through public and private showings and demonstrations. Later, TAI made Copy-Data its exclusive distributor in Maryland, Virginia, Pennsylvania, Delaware, West Virginia and the District of Columbia (the Middle Atlantic), and Copy-Data began to develop dealers in these areas. Still later, Copy-Data's territory was extended to the Chicago area.

Shortly after Copy-Data began to develop the Chicago market, TAI informed Copy-Data that it intended to distribute directly in that area and asked Copy-Data to turn over its Chicago customer information. Not wishing to offend TAI, Copy-Data complied with this request.

In early 1973 TAI asked Copy-Data for a complete list of Copy-Data's dealer-customers. Copy-Data initially resisted this request, but complied after TAI promised to limit its use of the list to informing Copy-Data's dealer-customers of new Toshiba products, marketing techniques and price changes.

In November 1973, despite expressed satisfaction with Copy-Data's service, TAI's marketing manager informed Copy-Data that TAI was going to distribute directly in the Middle Atlantic and that Copy-Data should cease selling in that area. TAI told Copy-Data that a refusal to exit the Middle Atlantic would jeopardize Copy-Data's exclusive Northeast distributorship. Fearing loss of its right to distribute in the sizeable Northeast market and hoping to take advantage of the anticipated success of Toshiba's forthcoming plain paper copier, the BD-702, Copy-Data reluctantly gave TAI its Middle Atlantic customer records. Copy-Data suffered a loss of $20-$25,000 per month in revenues as a result of losing its right to distribute Toshiba copiers in the Middle Atlantic.

In April 1974 TAI informed Copy-Data of its plan to take over distribution of Toshiba copiers in the Northeast and in the Southeast, replacing Copy-Data and TAI's southeastern distributor, Atlantic Dictating & Business Equipment Company. In August 1974 TAI began to implement this plan and told Copy-Data that it was no longer authorized to hold itself out as the exclusive distributor of Toshiba copiers in the Northeast.

In September 1974 TAI persuaded Copy-Data to accept unneeded equipment on the representation that the purchase would not be charged to Copy-Data's credit line. This representation was either false when made or was dishonored shortly thereafter when TAI announced that Copy-Data's credit line had been reduced and that Copy-Data would be required to pay in advance by certified check for any new machines.

In October 1974 TAI told Copy-Data that its "primary area of responsibility" would be limited to New Jersey.*fn3 Later, TAI told Copy-Data that it would be required to pay down its entire credit line.

Despite the restrictions imposed on TAI, Copy-Data continued to distribute Toshiba equipment in the Northeast and in New Jersey. Unfortunately, serious technical problems with Toshiba's plain paper copier developed shortly after its introduction. Copy-Data was forced to accept returns of BD-702s from its customers and to credit the customers' accounts. Contrary to accepted industry practice and to TAI's own practice with other distributors, TAI refused to accept returns of faulty BD-702s from Copy-Data or to give Copy-Data credit for the defective machines. Because Copy-Data was paying in advance for these BD-702s but was unable to resell them, a serious cash flow problem developed which eventually drove Copy-Data into bankruptcy.

Copy-Data's position in the district court was that TAI's tactics along with Copy-Data's coerced withdrawal from the Middle Atlantic constituted a horizontal market division which was per se illegal under Section 1 of the Sherman Act. See, e.g., United States v. Topco Associates, Inc., 405 U.S. 596, 608, 92 S. Ct. 1126, 1133, 31 L. Ed. 2d 515 (1972); White Motor Co. v. United States, 372 U.S. 253, 263, 83 S. Ct. 696, 702, 9 L. Ed. 2d 738 (1963). Copy-Data elected to proceed on a per se violation theory alone, stipulating that if its classification of the conduct as horizontal failed, Copy-Data was "prepared to abandon ship," not wishing to proceed under the rule of reason. J.App. at 101 & 661.

After hearing argument from both parties, Judge Owen ruled that TAI had imposed a territorial restriction on Copy-Data which resulted in an allocation of geographical markets between Copy-Data and TAI. He labeled this allocation "horizontal" and illegal per se. Judge Owen reasoned that while Continental T.V., Inc., v. GTE Sylvania Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977), allows a manufacturer or supplier to impose territorial restrictions on independent distributors to further the manufacturer's marketing strategy, Sylvania does not protect a manufacturer that employs similar territorial allocations among independent distributors and its own direct distribution arm. In the latter situation, the district court stated, the manufacturer is not ...

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