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PHILIPS BUS. SYS. v. EXECUTIVE BUS. SYS.

September 15, 1983

PHILIPS BUSINESS SYSTEMS, INC., Plaintiff,
v.
EXECUTIVE BUSINESS SYSTEMS, INC. d/b/a Executive Communication Systems, Charles McGuire and Cornelius Fitzsimons, Defendants; PHILIPS BUSINESS SYSTEMS, INC., Plaintiff, v. Don A. CARLOS, d/b/a D & S Business Systems, D & S Word Processing Systems, and Diskriter, Defendants.



The opinion of the court was delivered by: BRAMWELL

DECISION AND ORDER

BRAMWELL, District Judge.

 Defendants in these two antitrust actions move to dismiss the complaints pursuant to Rules 11 and 12(b)(6) of the Fed.R.Civ.Pro. as well as Section 4 of the Clayton Act, 15 U.S.C. § 15, and Section 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f). Plaintiff sues in both cases alleging that defendants have induced and are receiving discriminatory prices in violation of foregoing antitrust statutes. *fn1" For reasons the court shall now set forth both motions are granted pursuant to Rule 12(b)(6). *fn2"

 BACKGROUND *fn3"

 Until July of 1981 plaintiff Philips Business Systems, Inc. (PBSI) marketed the Norelco line of office products in the United States via a marketing organization comprised of 55 exclusive distributors and 90 Independent Retail Outlets (IROs). *fn4" Each distributor was assigned a certain geographically defined Primary Area of Responsibility (PAR). In exchange for a distributor's pledge to meet a specified sales quota within its PAR, PBSI agreed not to compete with the distributor within its PAR directly and to refrain from appointing any other distributors within that area. Distributors assigned other PARs, however, could come in and compete in any PAR they wished. An IRO was appointed by PBSI for market coverage in an area where a distributor, for one reason or another, was no longer doing the job.

 With the exception of provision of customer services, IRO's performed much the same function as PBSI's exclusive distributors and functioned under the same conditions. That function was essentially that of a market intermediary who sold products to both customer dealers on a wholesale basis and retail to final consumers or end users. To reflect their failure to provide customer service, however, the IRO's were charged higher prices for inventory purchased from PBSI.Specifically, exclusive distributors were uniformly given a 16.6% price advantage over IROs on the inventory they purchased from PBSI. In addition, distributors were given more favorable payment terms and advertising allowances than IROs. Thus, under the two-tiered system, the 55 exclusive distributors enjoyed certain distinct advantages over the 90 IROs. Chief among them, and important for our purposes today, was the better discount at which they purchased their inventory from PBSI for it gave them a significant competitive edge over IROs when it came to selling the wholesale and retail markets.

 Faced with business reversals during 1979-1981 PBSI, on July 1, 1981, implemented the "National Dealer Price List" which was designed, in plaintiff's words, to "address the market place as it exist[ed]" at the time. Under it the distinctions between distributors, IRO's, and customer dealers were abrogated. In short, PBSI abandoned the two-tiered IRO/Exclusive Distributor structure in favor of one under which customer dealers, exclusive distributors and IROs all purchased from PBSI and received the same discounts, terms, and advertising allowances.In PBSI's estimation this move was designed to streamline its marketing organization in the hope of turning the business around. In response to the proposed changes, defendants Executive Business Systems and Don Carlos, both exclusive distributors of PBSI, sued to enjoin what they perceived to be attempted terminations of their businesses.

 In Executive v. PBSI, CV-81-2075, plaintiff was successful in obtaining a preliminary injunction on July 30, 1981 pursuant to the provisons of the New Jersey Franchise Practices Act. N.J.Stat.Ann. § 56:10-10 (West Supp.1982-83). The injunction provided for PBSI's continuance of Executive as an exclusive distributor with all the benefits included exclusivity within its PAR and price advantage over the IROs. On Novmeber 27, 1981 entry of the injunction was affirmed by the United States Court of Appeals for the Second Circuit.

 In Carlos plaintiff succeed in obtaining injunctive relief identical to that granted in Executive on February 16, 1983 under the same New Jersey statute as well as the provisions of the Connecticut Franchise Act. Conn.Gen.Stat. § 42-133(e) et seq. (West Supp.1982). See Carlos v. Philips Business Systems Inc., 556 F. Supp. 769 (E.D.N.Y.1983). Unlike Executive, which did business exclusively in New Jersey, Mr. Carlos did business in New Jersey, Connecticut and Ohio. *fn5"

 On November 24, 1981 pliantiff in Executive brought on an application for contempt of the July 39, 1981 injunction pointing to PBSI's refusal to accord it distributor price, terms, and advertising. On December 3, 1981 a hearing was held. On January 14, 1982, after receiving proposed findings of fact and conclusions of law, the court found defendant to be in contempt of the injunction to the extent it had failed to continue to give Executive its distributor discount and terms, had failed to continue the co-op advertising program, had failed to accept returns of unsold equipment per arrangements existing prior to July 1, 1981, and had made unauthorized contact to certain of Executive's customers in violation of section 2 of the injunction. As a consequence of its contempt PBSI was ordered to pay to Executive $49,100 representing a portion of the business losses and attorneys fees plaintiff had incurred as a result of defendant's contempt. See Executive Business Systems v. Philips Business Systems, 539 F. Supp. 76 (E.D.N.Y.1982). *fn6"

 With respect to the distributor prices, this court, in contempt decision, made reference to the 16.6% discount advantage vis-a-vis IROs exclusive distributors enjoyed prior to July 1, 1981 and the consequences to a distributor of losing this advantage. 539 F. Supp. 81-83. It found that making the same discount available to IROs and distributors alike would have the effect of stripping the latter of a competitive edge they had enjoyed all along both within and without their PARs. Accordingly, it found that in order to preserve the status quo ante July 1, 1981 and maintain plaintiff's competitive edge within the PBSI's distribution network Executive would have to be given the benefit of the 16.6% advantage it enjoyed over IROs prior to July 1, 1981 -- as would Carlos in his litigation. This is a conclusion which defendant PBSI had repeatedly and unsuccessfully attacked in the franchise litigations.

 Seizing on this price differential once again PBSI commenced the instant suits alleging that Executive and Carlos have illegally induced more favorable prices than the competition in violaiton of the Robinson-Patman Act. Specifically, PBSI alleges that Executive and Carlos now enjoy and unauthorized 16.6% discount advantage over all other distributors and IROs in the PBSI network. PBSI seeks injunctive relief as well as an award of treble damages on account of this. In this court's opinion, however, these suits represent nothing more than elaborate attempts to obtain redress for being compelled to act in accordance with the court's injunctions in the franchise litigations. As such the court is of the opinion that they should proceed no further than they have already.

 STATUS QUO PRIOR TO JULY 1, 1981

 The court begins by looking to the status of Executive and Carlos in the PBSI network prior to July 1, 1981. Under the July 1978 exclusive distributorship agreement they were each given PAR's within which PBSI agreed to appoint no other distributor or IROs and within which it agreed not to compete. As a result these distributors competed only with other distributors or IROs from around the nation that wished to come in and compete.Other such distributors could come in and compete on the basis of identical prices paid to PBSI for inventory. IROs, however, were at a distinct competitive disadvantage since they did not receive as favorable a discount on inventory from PBSI. Significantly for our purposes today PBSI does not, nor could it, allege that this arrangement was in any way discriminatory or ran ...


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