The opinion of the court was delivered by: OWEN
Plaintiff Copy-Data brought this action in March, 1975, alleging violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and pendent claims based on New York law for unfair competition and breach of Contract. Following trial on liability on June 8, 1979, I made findings of fact, here incorporated by reference, on the basis of which I concluded that defendant's conduct constituted a per se violation of the Sherman Act.As plaintiff conceded in its proposed findings of fact, with the award of treble damages on the Sherman Act claim it was unnecessary to resolve the state law claims. I therefore made no determination as to plaintiff's allegations of breach of contract and unfair competition.
Following a further trial on the issue of damages, on September 30, 1980, I made further findings also here incorporated, and awarded treble damages based on the value of Copy-Data before defendnat's conduct forced it into bankruptcy.
On appeal, the Second Circuit reversed, rejecting the application of the per se rule to plaintiff's claim under the Sherman Act, but remanded for a determination as to plaintiff's claims that defendant's conduct was a violation of the New York law of contracts and unfair competition.
Since the action was originally tried with these claims in issue, I took no new evidence, but received additional briefing on these issues.
As observed in my opinion of June 8, 1979, Copy-Data began to establish a network of dealers for the then unknown Toshiba line of copying machines in New England, New York and New Jersey ("the Northeast") in 1970. This involved sponsoring demonstrations, soliciting dealers, training dealers' service representatives and all other aspects of developing a Toshiba dealer network. All costs associated with this undertaking were paid by Copy-Data. In 1972, Copy-Data began to expand its Toshiba sales into the "Middle Atlantic States," consisting of Maryland, Virginia, Pennsylvania, Delaware, West Virginia and the District of Columbia. Thereafter, at Toshiba's request, Copy-Data began to develop the Chicago, Illinois market.
Approximately nine months after it began to sell Toshiba machines in Chicago, Copy-Data was advised that Toshiba would begin distributing directly in Chicago and the Copy-Data was to turn over its accounts and all information regarding the dealers Copy-Data had developed in that city. This began a pattern of coercion by which Toshiba wrested from Copy-Data its customer lists and then its customers. In early 1973, Toshiba demanded and received a list of all Copy-Data dealers on the representation that it was only to be used to keep Copy-Data's dealers apprised of new products and other changes in the Toshiba line. Later that year, the network Copy- Data had developed for Toshiba in the mid-Atlantic states was taken over by Toshiba with threats that a refusal to cooperate would result in the termination of Copy-Data's more valuable distributorship in the northeast. Ultimately, Toshiba also attempted to take over Copy-Data's dealer network in the northeast and restrict plaintiff's sales ot New Jersey, only backing away from that effort when the instant complaint was filed. The trial record was clear that throughout 1973 and 1974, Toshiba was pleased with Copy-Data's performance on its behalf. See Fn.2 below.
A second area of coercive conduct, and the one which ultimately led to Copy-Data's bankruptcy, involved the unusual circumstances surrounding the marketing of Toshiba's BD-702 copier. The prospect of selling the BD-702, Toshiba's first plain-paper copier, in the Northeast was a major inducement for Copy-Data not to "rock the boat" when its Chicago and mid-Atlantic markets were taken away. However, in the fall of 1974, when Toshiba began its efforts to limit plaintiff's sales to the state of New Jersey, it also took several steps to impede Copy-Data's ability to compete effectively in its remaining territory. First, Toshiba induce Copy-Data to purchase $50,000 worth of unneeded coated-paper copiers with the assurance that these purchases would not be charged to Copy-Data's credit line. This assurance proved false and the charges for these coated-paper copiers, purchased on the eve of the introduction of the BD-702 plain paper copier, destroyed its credit line and resulted in Copy-Data having to pay for its initial orderr of BD-702's in advance. Thereafter, Copy-Data was required to pay cash for all BD-702 orders.
Thereafter as it became obvious that, contrary to Toshiba's wishes, Copy-Data was continuing to distribute to dealers outside New Jersey, Toshiba compounded Copy-Data's cash flow problem by refusing to accept any returns of defective Bd-702's, contrary to its normal practice. This selective refusal to accept returns was intended to drive Copy-Data out of the northeast, and thus out of business, and, in combination with the loss of many of its dealerships and its credit line, this final, discriminatory tactic did eventually force Copy-Data out of business.
Plaintiff now advances two separate theories under which defendant may be held liable for the destruction of its business - a tort theory of unfair competition, and breach of contract. As discussed below, I find that plaintiff has sustained its claims on both theories.
It is is clear, as I found in my original findings of fact and conclusions of law, that Toshiba's conduct toward Copy-Data "unquestionably damaged the plaintiff, making it impossible for the plaintiff to succeed financially." Damage alone is not, of course, enough to establish liability for the tort of unfair competition. Unfair competition must involve damage by some unfair or improper means. The essense of the tort is the effort by a defendant to misappropriate the fruits of another's efforts or "reap where it has not sown." Internation News Service v. Associated Press, 248 U.S. 215, 239, 63 L. Ed. 211, 39 S. Ct. 68, (1918).
In International News Service, the Supreme Court enjoined the pirating of news, writing:
Stripped of all disguises, the process amounts to an unauthorized interference with the normal operation of complainant's legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the ...