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H.L. Hayden Co. v. Siemens Medical Systems Inc.

decided: June 12, 1989.


Van Graafeiland and Mahoney, Circuit Judges, and Charles M. Metzner,*fn* District Judge.

Author: Mahoney

MAHONEY, Circuit Judge

Plaintiffs-appellants-cross-appellees H.L. Hayden Co. of New York, Inc. and Schein Dental Equipment Corp. appeal from a summary judgment entered in the United States District Court for the Southern District of New York, Gerard L. Goettel, Judge, dismissing their Sherman Act and Robinson-Patman Act antitrust claims against defendants-appellees-cross-appellants Siemens Medical Systems, Inc. and Healthco, Inc. and defendant-appellee Patterson Dental Company. Siemens and Healthco cross appeal from the dismissal by summary judgment of certain of their counterclaims against Hayden and Schein.


MAHONEY, Circuit Judge:

In this opinion, we consider appeals and cross appeals from a summary judgment dismissing antitrust and related claims and commercial tort counterclaims arising from the termination of a distributor of dental x-ray equipment, and refusal to do business with that distributor and a related mail order vendor of such equipment. The district court opinion below, H.L. Hayden Co. of New York v. Siemens Medical Sys., 672 F. Supp. 724 (S.D.N.Y. 1987), was rendered after extensive discovery concerning all the claims in litigation.

Plaintiffs-appellants-cross-appellees H.L. Hayden Co. of New York, Inc. ("Hayden") and Schein Dental Equipment Corp. ("Schein Dental") charged that, as a result of various conspiracies among defendants-appellees-cross-appellants Siemens Medical Systems, Inc. ("Siemens") and Healthco, Inc. ("Healthco"), together with defendant-appellee Patterson Dental Co. ("Patterson"), Siemens terminated Hayden as a Siemens dealer and refused to do business with Hayden or Schien Dental, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1982). Hayden and Schein Dental also complained that Healthco and Patterson attempted and conspired*fn1 to monopolize the markets for the sale of dental equipment and dental x-ray equipment to dentists in the United States, in violation of section 2 of the Sherman Act, 15 U.S.C. § 2 (1982).

In addition, Hayden and Schein Dental complained that Siemens violated Section 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13 (1982), by providing discriminatory price advantages to Healthco, Patterson and other dealers which were denied to Hayden and Schein Dental in violation of subdivision (a) thereof, id. § 13(a); discriminatory discounts in violation of subdivision (c), id. § 13(c); and discriminatory services in violation of subdivision (e), id. § 13(e). Healthco and Patterson were alleged to have induced these discriminations in violation of subdivision (f), id. § 13(f). Hayden and Schein Dental also asserted various pendent state law claims. Summary judgment was entered dismissing all their claims, and they now appeal only the dismissal of their federal antitrust claims.

Siemens asserted a number of counterclaims. All but one*fn2 were dismissed by summary judgment. Siemens pursues on appeal only its second and fifth counterclaims, i.e., that Schein Dental's continuing, unauthorized sale of Siemens' x-ray equipment constitutes a violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1982), and that Schein Dental's purchase for resale of Siemens equipment from authorized Siemens dealers, in knowing violation of their dealership agreement with Siemens, constitutes a tortious interference with contractual relationships in violation of New York law.

Healthco asserted, and pursues on appeal after dismissal by summary judgment below, a single counterclaim that Hayden and Schein Dental are "free riders", capitalizing upon presale, point-of-sale and postsale services provided by "full service" dealers such as Healthco, and that this constitutes common law unfair competition actionable under New York law. Patterson did not assert any counterclaims.

We affirm the judgment of the district court.


Siemens is a subsidiary of the West German corporation Siemens Aktiengesellschaft ("Siemens AG"), which manufactures the equipment that Siemens distributes in the United States. Siemens supplies dental x-ray equipment of two types: intraoral, which depicts quadrants of a patient's mouth, and panoramic, which depicts a patient's entire mouth and jaw. Siemens has significant competition in this industry. In 1981, for example, it was one of seven suppliers responsible for ninety-five percent of the dental x-ray sales in the United States, and there were at least nine other competing suppliers. See Hayden, 672 F. Supp. at 728 n. 1.

This relatively large number of dental x-ray suppliers generates considerable price competition. Siemens prides itself on selling the "Mercedes" of the dental x-ray market, and its equipment retails for considerably more than its competitors' equipment. In August, 1983, for example, the recommended retail price of Siemens' intraoral unit was $4,650, compared to $3,295 and $2,595 for two of its competitors' units. Id.

Healthco and Patterson are leading nationwide distributors of dental equipment to dentists. Both dealers carry all major brands of dental equipment. The dealer market is somewhat more concentrated than the supplier market. In the year ended September, 1982, for example, Healthco accounted for approximately thirty percent, and Patterson approximately twenty-two percent, of Siemens' sales to dealers.

Healthco and Patterson are both full service dealers of dental x-ray equipment, with fully equipped showrooms to present and demonstrate the equipment, sales personnel trained in its operation, and service personnel capable of assembling, installing, calibrating and servicing the equipment. Hayden is also a full service dental equipment dealer, and sold x-ray equipment from both Siemens and other suppliers.

Marvin Schein acquired fifty percent ownership of Hayden in 1979, and the balance the following year. He thereafter founded Schein Dental, which in early 1982 began selling dental equipment through mail order catalogs. Schein Dental was not a Siemens dealer, but received Siemens equipment via Hayden. The district court concluded, however, that Siemens either expressly approved the inclusion of its equipment in Schein Dental's catalog or, once aware of its inclusion, cooperated with Schein Dental by, for example, drop-shipping dental equipment directly to Schein Dental's customers outside Hayden's sales area, even though Hayden was technically the customer; and authorizing split commissions for such sales between Hayden and the Siemens representative in the local area. Hayden, 672 F. Supp. at 729.

Schein Dental had no sales force, service staff or showroom. Rather, it sold dental equipment through mail order catalogs containing pictures and descriptions of the merchandise, and a toll-free telephone number at which Schein Dental personnel provided further information and assistance to readers of its catalog. Schein Dental did not assemble, install, calibrate or service any of the equipment it sold, but provided dentists with the names of local independent service organizations for these support activities. As a result, Schein Dental sold dental equipment at a discount. Siemens' products, for example, were sold for between twenty to twenty-five percent less by Schein Dental than by Siemens' authorized, full service dealers. Id.

Schein Dental's mail order business grew rapidly, generating considerable price competition in the field. The success of Schein Dental's mail order business began to concern Healthco, Patterson and other full service distributors of dental equipment, resulting in complaints by these distributors to Siemens about Schein Dental's mail order operation.

On April 25, 1983, Siemens wrote to all its authorized dealers, including Hayden, stating:

You are and remain an authorized dealer for Siemens Dental Products because of your reputation as a full service dealer, capable of promoting, selling and installing Siemens Products, consistent with [the] quality associated with these Products and our trade name. Sales by you to third parties, including mail order houses, for redistribution are not allowed since Siemens has a legal obligation and a dedication to its good will to monitor sales and installation of its Products in a quality manner.

On the same date, Siemens wrote Schein Dental requesting that all Siemens products be removed from the Schein Dental catalog.

Over the succeeding months, efforts were made to salvage the Hayden-Siemens relationship. The district court determined, however, that despite repeated reassurances, Hayden continued to fill orders for Schein Dental, specifying that in 1983, Schein Dental sold $336,285.00 worth of Siemens' equipment while Hayden's sales were $13,365.00. Hayden, 672 F. Supp. at 730 n. 4. Hayden also declined to enter into an "Authorized Dealership Agreement" which Siemens sent to all its dealers on August 30, 1983. This agreement, which Siemens' other dealers signed with only minor changes, made no direct reference to mail order sales, but stressed the promotion, installation and servicing of Siemens' equipment. Hayden was terminated as a Siemens dealer in late November, 1983, and this action was instituted in January, 1984.

The substance of the legal claims made by the parties and under review here has been set forth in the introductory portion of this opinion. The gist of plaintiffs' case is that Siemens terminated Hayden, and thereby Schein Dental, as a result of a conspiracy between Siemens, Healthco and Patterson. Hayden and Schein Dental claim that Siemens was motivated to terminate them not only by pressure from its dominant full service dealers, Healthco and Patterson, but also in order, by reciprocation, to curb Healthco from promoting and selling its own Lumix line of x-ray equipment which was competing with, and under-selling, Siemens' intraoral equipment.

Siemens responded that although Healthco and Patterson had complained about Schein Dental's low prices, Siemens unilaterally terminated Hayden and Schein Dental, independent of any pressure from or concerted action with Healthco and Patterson, because Siemens was concerned that mail order distributors were "free riding" on the product promotion efforts of Siemens' full service dealers, that mail order was an ineffective marketing technique, and that Schein Dental's failure to install or service Siemens' equipment was harming Siemens' reputation for quality.

Siemens denied plaintiffs' other claims, and asserted the counterclaims previously described, inter alia. Healthco and Patterson also denied plaintiffs' various claims, and Healthco asserted the counterclaim previously described.

By opinion and order filed October 9, 1987 the district court granted summary judgment dismissing all claims and counterclaims except Siemens' first counterclaim.*fn3 With respect to plaintiffs' Sherman Act section one claim of conspiracies in restraint of trade, the district court concluded that under the standard established in Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1984), as elucidated in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), plaintiffs had not made a case for conspiracy adequate to survive a motion for summary judgment. Hayden, 672 F. Supp. at 731-40.

As to the Sherman Act section 2 claim of an attempt to monopolize, the court concluded that plaintiffs offered no substantive evidence that Healthco or Patterson had the requisite specific intent to monopolize. The court further determined that Healthco and Patterson did not have an adequate share of the national market for the retail sale of dental equipment to establish the "dangerous probability" of success required by the relevant cases, and that the market shares of Healthco and Patterson could not be aggregated for purposes of that determination. Id. at 740-41.

The "conspiracy to monopolize" claim was dismissed because the section one and section two conspiracies were not deemed "reciprocally distinguishable from and independent of each other," as required by American Tobacco Co. v. United States, 328 U.S. 781, 788, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946); and because of failure, once again, to establish a jury issue as to conspiracy. Id. at 741-43. The various Robinson-Patman Act claims advanced by Hayden and Schein Dental were dismissed for failure to establish a material issue of fact concerning antitrust injury. Id. at 743-45.

Siemens' second counterclaim was dismissed on the basis that the unauthorized sale of a genuine trademark product does not in itself constitute trademark infringement. Id. at 748-49. Siemens' fifth counterclaim was deemed defective for failure to establish any injury to Siemens resulting from Schein Dental's purchase of Siemens' equipment from authorized Siemens dealers in violation of Siemens' Authorized Dealership Agreement. Id. at 749-50. Healthco's counterclaim was dismissed because Schein Dental's "free rider" activities, the proof for which the district court deemed suspect, were considered in any event not to violate the common law of unfair competition.

A vast array of factual contentions have been advanced by the parties. In considering a motion for summary judgment, however, "the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

It will therefore be more helpful to discuss the factual contentions of the parties in the context of the legal issues to which they relate, and we accordingly turn to the consideration of those issues without further preliminary development of the factual background of the case.


A. Summary Judgment.

The district court disposed of all claims in this action by summary judgment. Our review, therefore, is limited to determining whether the district court properly concluded as to each claim that there was "no genuine issue as to any material fact," thus entitling the moving party to "judgment as a matter of law." Fed. R. Civ. P. 56(c). Further, as indicated above, we must determine whether the substantive law was correctly applied, for the identification of material facts for summary judgment purposes "rests on the substantive law." Anderson, 477 U.S. at 248; Kronfeld v. Trans World Airlines, 832 F.2d 726, 731 (2d Cir. 1987), cert. denied, 485 U.S. 1007, 108 S. Ct. 1470, 99 L. Ed. 2d 700 (1988). Summary judgment is appropriate when, after drawing all reasonable inferences in favor of the party against whom summary judgment is sought, no reasonable trier of fact could find in favor of the nonmoving party. See Anderson, 477 U.S. at 248-49; Murray v. National Broadcasting Co., 844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S. Ct. 391, 102 L. Ed. 2d 380 (1988). This same standard is applied by a reviewing court upon appeal from a grant of summary judgment. See Kronfeld, 832 F.2d at 731, and authorities there cited; O.S.C. Corp. v. Apple Computer, Inc., 792 F.2d 1464, 1466 (9th Cir. 1986) (circuit court review of grant of summary judgment is de novo); see generally Lund's Inc. v. Chemical Bank, 870 F.2d 840, 844 (2d Cir. 1989).

Both the Supreme Court and this court have encouraged the use of summary judgment in complex cases to avoid unnecessary trials. See Apex Oil Co. v. DiMauro, 822 F.2d 246, 252 (2d. Cir.) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 326, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)), cert. denied, 108 S. Ct. 1489 (1987); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986), cert. denied, 480 U.S. 932, 94 L. Ed. 2d 762, 107 S. Ct. 1570 (1987). Nevertheless, summary judgment is not a substitute for trial. Apex, 822 F.2d at 252. Thus, although only reasonable inferences can be drawn from the evidence in favor of the nonmoving party, id. at 252-53, and immaterial factual disputes cannot block summary judgment, Reborn Enters. v. Fine Child, Inc., 590 F. Supp. 1423, 1436 (S.D.N.Y. 1984) (citing SEC v. Research Automation Corp., 585 F.2d 31, 35 (2d Cir. 1978)), aff'd, 754 F.2d 1072 (2d Cir. 1985) (per curiam) (adopting district court opinion), "the question of what weight should be assigned to competing permissible inferences remains within the province of a factfinder at a trial," Apex, 822 F.2d at 253. But "[where] the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348, (1986) (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968)).

Summary judgment has traditionally been granted sparingly in antitrust cases, however, because the claims "so integrally involve motive and intent to conspire and injure." George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 555 (2d Cir. 1977) (citing Poller v. CBS, 368 U.S. 464, 473, 7 L. Ed. 2d 458, 82 S. Ct. 486 (1962)); Reborn Enters., 590 F. Supp. at 1435 (citing Poller and Frey). Indeed, antitrust conspiracies "are rarely evidenced by explicit agreements, but must almost always be proven by "inferences that may be fairly drawn from the behavior of the alleged conspirators.'" Schwimmer v. Sony Corp. of Am., 677 F.2d 946, 953 (2d Cir.) (quoting Michelman v. Clark-Schwebel Fiber Glass Corp., 534 F.2d 1036, 1043 (2d Cir.), cert. denied, 429 U.S. 885, 50 L. Ed. 2d 166, 97 S. Ct. 236 (1976)), cert. denied, "the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each." Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699, 8 L. Ed. 2d 777, 82 S. Ct. 1404 (1962).

On the other hand, the Supreme Court has articulated specific rules which make summary judgment a good deal more easily available to dismiss claims of antitrust conspiracy in violation of Sherman Act § 1, 15 U.S.C. 1 (1982). We shall consider those rules in our discussion of plaintiff's ...

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