market for anti-trust considerations should be limited to those customers "locked-in" to the S/390 system.
Plaintiff further argues that "the examination of Mr. Reed on [the topic of lock-in] covers many pages of his deposition." Id. But as defendant correctly notes, deposition testimony on a topic does not cure a failure to provide Rule 26 disclosure. See e.g., Ferriso v. Conway Org. 1995 WL 580197, at *2-3 (S.D.N.Y. Oct. 3, 1995) Moreover, Mr. Reed's deposition testimony about "lock-in" is very general, and is not couched in the form of opinions about how any lock-in arose or what caused it. He assumes that there is a lock-in effect for the purposes of calculating damages. Whether or not these opinions were "implicitly" part of Mr. Reed's analysis, he never explicitly discussed them in his Rule 26 Report or at his deposition. The topics of damages and lock-in/switching costs are certainly interrelated in some respects, but they are not "coextensive."
However, failure to comply with Rule 26(a) does not always provide a basis for sanctions under Rule 37(c)(1). As noted above, the text of Rule 37(c)(1) provides that the evidence should be precluded only if the party that failed to disclose the information is "without substantial justification" and if the failure is not "harmless." Fed.R.Civ.Pro. 37(c)(1). in addition, courts in this Circuit have considered imposition of sanctions under Rule 37 a "drastic remedy" that should only be applied "in those rare cases where a party's conduct represents flagrant bad faith and callous disregard" of the Federal Rules. See e.g., Johnson Elec. N. Am. v. Mabuchi Motor Am. Corp., 77 F. Supp.2d 446, 458 (S.D.N.Y. 1999); Sterling v. Interlake Industries, Inc., 154 F.R.D. 579, 587 (E.D.N.Y. 1994).
Here the failure is harmless, because Mr. Reed's Affidavit does not create a genuine issue of material fact that prevents me from granting IBM's motion. Therefore, the better part of valor is to consider it rather than strike it.
Defendant also argues that the Alepin and Reed affidavits consist of "speculative and unsubstantiated assertions" that are not properly supported by "underlying bases or citation" and thus do not satisfy Rule 26(a)(2)(B). Defendant urges the court to conclude that these expert opinions do not create any genuine issues of material fact, and thus should not be considered on summary judgment, citing Raskin, 125 F.3d at 66-68 and Virgin Atlantic Airways, Ltd. v. British Airways, PLC, 69 F. Supp.2d 571, 579-80 (S.D.N.Y. 1999). Rather than doing that, I have chosen to consider them—and having done so, I conclude that they do not create any genuine issue of material fact.
II. Summary Judgment Standard
Defendant has moved for summary judgment pursuant to Fed.R.Civ.P. 56(c), which allows the court to grant judgment in a movant's favor when there is no genuine issue of material fact. In considering any summary judgment motion, the court draw all reasonable inferences in the nonmovant's favor, but in an antitrust case, "those inferences must be reasonable in light of competing inferences of acceptable conduct." Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90, 95 (2d Cir. 1998) citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) "By avoiding wasteful trials and preventing lengthy litigation that may have a chilling effect on pro-competitive market forces, summary judgment serves a vital function in the area of antitrust law." Id. citing Matsushita Elec., 475 U.S. at 593-94, 106 S.Ct. 1348 (additional citations omitted). Where the nonmoving party has the burden of proof at trial, "it must go beyond the pleadings to demonstrate the existence of some specific facts that create a genuine issues as to those matters for which it has the burden of proof." Id. citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
III. The Relevant Product Market
CDS alleges that defendant violated the Sherman Act and the Clayton Act, federal antitrust laws, and the Donnelly Act, a New York state antitrust law that mirrors the Clayton Act. The threshold issue in considering each of these antitrust claims is determining the relevant market. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 268 (2d Cir. 1979)("[T]he first step in a court's analysis must be a definition of the relevant market.")(citing United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391-93, 76 S.Ct. 994, 100 L.Ed. 1264 (1956)).
CDS alleges that the relevant market for purposes of this litigation includes only "low-end IBM mainframe S/390 computers with processing power of 10 MIPS, or less;." (Plaintiff's Sec. Amd. Cmplt. ¶ 74.) CDS's clarifies that not all users of "10 MIPS, or less" S/390 computers belong in the relevant market. (Reed Aff., ¶ 12.) Rather, CDS claims that the market includes only some sub-set of users who "are locked-in to the IBM platform" due to the high costs of switching to a non-IBM platform. Id. Plaintiff argues that these IBM customers had invested so much time and money in S/390 equipment and software applications written for the S/390 system that they faced prohibitively high switching costs, and were thus "lock[ed]-in" to the S/390 system. Id. at 74-75.
At the motion to dismiss stage, this Court found that plaintiff properly alleged that switching costs associated with changing platforms were prohibitive, which gave rise to a theoretically rational explanation for a distinct market at the "low-end." CDS III, 2002 WL 1205740 at *6-7. Thus, the Court concluded that plaintiff's market definition was "plausible on its face." But I also noted, "whether plaintiff will succeed in proving the alleged market is a question for a later date." Id citing Todd v. Exxon Corp., 275 F.3d 191, 204-205 (2d Cir. 2001).
That "later date" has arrived. And while plaintiff's definition of the relevant market was sufficient as an allegation, plaintiff has failed to advance evidence that creates a genuine issue of material fact concerning the relevant market.
A. Standard for Relevant Product Market Definition
The relevant product market is "the area of effective competition" within which a firm's products compete.*fn5 AD/SAT v. Assoc. Press, 181 F.3d 216, 227 (2d Cir. 1999) quoting Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961). The market must include all products "that have reasonable interchangeability for the purposes for which they are produced—price, use and qualities considered". United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 404, 76 S.Ct. 994, 1012, 100 L.Ed. 1264 (1956); see AD/SAT, 181 F.3d at 227. Products are "reasonably interchangeable" where there is sufficient cross-elasticity of demand, i.e., where consumers would respond to an increase in the price of one product by purchasing another product. See AD/SAT, 181 F.3d at 227. Products need not be identical, however, to be included in the same market, complete functional overlap is not required. See United States v. Grinnell Corp., 384 U.S. 563, 572-73, 86 S.Ct. 1698, 1704-05, 16 L.Ed.2d 778 (1966); E.I. du Pont de Nemours, 351 U.S. at 393, 76 S.Ct. at 1006 ("one can theorize that we have monopolistic competition in every nonstandardized commodity with each manufacturer having power over the price and production of his own product. However, this power . . . is not the power that makes an illegal monopoly. Illegal power must be obtained in terms of the competitive market for the product." (footnote omitted)).
B. A Reasonable Trier of Fact Would Have to Conclude that S/390 Platform Computers Are Reasonably Interchangeable with UNIX and Windows NT Platform Computers.
IBM argues that the record includes evidence of vigorous competition, based on reasonable interchangeability and cross-elasticity of demand, between S/390-compatible computers and alternative platform computers, primarily those compatible with the UNIX or Windows NT operating systems.
IBM documents acknowledge the competitive impact that alternate platform computers, particularly those incorporating UNIX or Windows NT operating systems, had on the sale of S/390 platform computers. (See e.g., "S/390 Strategy" Document, p. 5, September 1995, Ex. 41 to Burke Dec. ("Fierce competition from alternate platforms has eaten into the potential growth of the S/390 workload."); "Alternate Platform Market Model Survey Data, U.S. and Europe," January, 1995, Ex. 42 to Burke Dec. (finding that S/390 customers were projecting movement of "significantly more" workload off the S/390 platform over the next few years); "S/390 Strategy Document, p. 1, July, 1996, Ex. 47 to Burke Dec." (noting accelerating competitive pressures, predicting that UNIX vendors will "continue their strategy" to replace S/390 solutions and predicting that "in the future, the greatest threat will come from NT,").) CDS itself alleges that IBM's favorable entry server level ("ESL") pricing for S/390 products was offered in response to the price competition faced from UNIX and Windows, though it does so while alleging that IBM was seeking to "lock-in" new customers by enticing software developers to write S/390 software applications. (Plaintiffs Second Amd. Cmplt. ¶ 20.)
CDS's own sales and marketing documents identified UNIX and Windows NT based systems as "Substitutes" for CDS's own S/390-compatible products ("CDS Systems"). ("Commercial Data Servers Marketing Strategy and Implementation Plan," Ex. 30 to Burke Dec.; "Commercial Data Servers Sales Strategy and Implementation Plan," Ex. 31 to Burke Dec.) These documents state that S/390-compatible manufacturers were "under severe competitive pressures from UNIX and in the near future this competition will also come from NT". (Id.) In addition, CDS's marketing material and private placement memoranda acknowledged cross-platform competition faced by the CDS Systems. (CDS Executive Summary, Ex. 29 to Burke Dec.; CDS Private Placement Memorandum, July 1998, Ex. 32 to Burke Dec.; CDS Private Placement Memorandum, September 1995, Ex. 33 to Burke Dec.; CDS Private Placement Memorandum, September, 1998, Ex. 34 to Burke Dec.)
Both CDS and IBM witnesses attested to the existence of vigorous competition between S/390 platform computers and UNIX and Windows platform computers. For example, Ron Hankison, CDS's corporate designee, testified:
We would, no matter where we went, find customers
that had an intention or desire to move away from 390
other architecture, and we'd run into UNIX and NT as
(Hankinson Dep., 30:9-13, Ex. 10A to Burke Dec. accord Holstrom Dep., 67:8-22, Ex. 11A to Burke Dec.; Smarling Dep., 35:22-36:2, Ex. 22A to Burke Dec.) Similarly, Robert Port, IBM Manager of S/390 Sales Support, testified: