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R & G AFFILIATES, INC. v. KNOLL INTL.

June 1, 1984

R & G AFFILIATES, INC., Plaintiff,
v.
KNOLL INTERNATIONAL, INC., Defendant.



The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, D.J.

Defendant Knoll International, Inc. ("Knoll") moves for summary judgment, and plaintiff R & G Affiliates, Inc. ("R & G") cross-moves for partial summary judgment, on plaintiff's claims that defendant has imposed upon R & G a sales tying arrangement and a "preferential dealing" requirement, in violation of federal and New York antitrust laws. Defendant is a manufacturer and distributor of office furniture such as chairs, tables, desks and credenzas, and officer "systems", which defendant describes as "dividers, working surfaces, cabinets and shelving . . . integrated into comprehensive modular "work stations." *fn1" Defendant's product line originally consisted primarily of office furniture, which was used with "existing office set ups and custom designed interior layouts" and stressed "distinctiveness of design." *fn2" In the late 1970's, because the trend in office furnishings was toward office systems, which stress functional utility and enable a user to build a complete office arrangement from components, defendant departed from its previous emphasis on furniture and introudced an office system known as "Zapf." Knoll had not "established its reputation in the area of office systems", however, so it needed the help of its dealers to enter the systems market. *fn3" Accordingly, Knoll told its dealers that they had to concentrate their efforts on Knoll's new ventures in office systems products, and would be expected to generate sales with a product mix in keeping with Knoll's overall sales -- that is, Knoll wanted approximately 30 per cent of its dealers' sales of Knoll products to be sales of systems rather than furniture. *fn4"

 Plaintiff is a dealer in office furniture and office systems, and has been an authorized dealer in Knoll products for about eighteen years. Most of its sales are of "contract furniture" -- furnishings sold to the non-residential market such as offices and institutions, for a particular renovation or building project. *fn5" Usually, architects or designers are involved in selecting which product will be purchased for a particular project, and may specify a particular manufacturer's product when soliciting bids.Approximately 60 per cent of plaintiff's sales are of systems.

 In 1981, plaintiff's sales of Zapf began to fall, and defendant expressed increasing concern about plaintiff's product mix. In response, plaintiff submitted to defendant a written plan to stimulate plaintff's sales of defendant's systems, establishing a goal of $1 million in total sales, with the "direction of that business clearly . . . towards the Zapf systems buisness." *fn6" While plaintiff's total sales of Knoll products were $1 million or more in 1982, its sales of Zapf continued to fall that year. After some discussion of the problems between them, defendant informed plaintiff in December 1982 that plaintiff's dealership was being terminated because, at least in part, plaintiff's sales had not been in keeping with defendant's desired product mix. The parties agreed to stay the termination while these motions were pending.

 I. The Tying Claim

 Plaintiff charges that defendant has imposed a tying arrangement upon its dealers, in violation of Section 1 of the Sherman Act *fn7" and Section 3 of the Clayton Act. *fn8" A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product." *fn9" The "essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying market to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated." *fn10"

 To sustain a claim of tying, plaintiff must first show that it entered into a contract or combination with defendant -- that it agreed to the alleged tying arrangement. *fn11" Then, plaintiff must prove the five essential elements of a tying arrangement: 1) a tying and a tied product; 2) evidence of actual coercion by the seller that in fact forced the buyer to accept the tied product; 3) sufficient economic power in the tying product market to coerce purchaser acceptance of the tied product; 4) anticompetitive effects in the tied market; and 5) involvement of a "not insubstantial" amount of interstate commerce in the tied product market. *fn12"

 The parties agree that the defendant "requires its dealers to sell a certain mix of Knoll products" inorder to retain their dealerships. *fn13" According to the defendant, it is entitled to summary judgment on the tying claim because the undisputed facts indicate that plaintiff never consented to the requirement. Further, defendant argues that even if plaintiff had agreed to the requirement, the undisputed facts show that plaintiff never purchased systems unwillingly, as is necessary to satisfy the coercion element, and that the requirement had no anticompetitve effect on the market for office systems, as is necessary for the fourth element of tying. Plaintiff, on the other hand, asserts that it did acquiesce in the product mix requirement, even though its Zapf purchases did not amount to 30 per cent of its total purchases of Knoll products, and that the undisputed facts establish the acting in concert requirement and each of the five elements of tying, and entitle plaintiff to summary jdugment.

 A. The Concerted Action Requirement

 Defendant first argues that plaintiff has failed to show the concerted action necesary to constitute a violation of 15 U.S. C ยงยง 1 and 14. According to defendant, its termination of plaintiff's dealership was a unilateral refusal to deal protected by the doctrine of United States v. Colgate & Co., *fn14" rather than a concerted action or combination. In Colgate, the Supreme Court held:

 In the absence of any purpose to create or maintain a monopoly, the [Sherman] [A]ct does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And, of course, he may announce in advance the circumstances under which he will refuse to sell. *fn15"

 The Colgate doctrine has been narrowed considerably by recent decisions, *fn16" and the concerted action required by the Sherman and Clayton Acts may now be shown by "proof of 1) an express or implied agreement, or 2) the securing of actual adherence to [the policy at issue] by means beyond mere refusal to deal." *fn17" Threats of termination are "means beyond mere refusal to deal", and if they secure actual adherence to the policy, "trespass beyond the boundaries of Colgate." *fn18"

 Defendant acknowledges the current interpretation of Colgate, but argues that even if it did threaten plaintiff with termination, there was no concerted action, because the undisputed facts show that plaintiff never yielded to the alleged pressure to enter into a tying arrangement. Defendant points to plaintiff's admissions that its sales of the allegedly tied product fell, and its sales of competitors' products increased, in recent years, *fn19" as proof that any threats or pressue did not in fact secure adherence to the policy. Plaintiff has submitted evidence, however, that its sales people pushed Zapf over competitors' systems, and sold Zapf when they might otherwise have sold a competitive product, in acquiescence to the alleged policy. *fn20" That evidence raises an ...


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