Antitrust Law Daily Monopoly counterclaims in ultrasound servicing dispute fail
Friday, November 20, 2020

Monopoly counterclaims in ultrasound servicing dispute fail

By Robert B. Barnett Jr., J.D.

Servicer’s counterclaims for antitrust violations were mostly dismissed with prejudice, leaving only a counterclaim for a declaratory judgment based on copyright misuse. An essential facilities claim can be amended.

Although a defending medical equipment servicer’s counterclaim for a declaratory judgment that ultrasound manufacturer Philips misused its copyright survived a motion to dismiss because the servicer, Summit Imaging Inc., adequately pleaded that Philips used its copyright to illegally exclude competition for ultrasound servicing, the federal district court in Seattle dismissed Summit’s monopoly counterclaims. To the extent the Sherman Act, Section 2 claims arose from Philips’ effort to enforce its copyright in court, they were rejected under the Noerr-Pennington doctrine. With respect to other allegations of anticompetitive conduct, claims based on a refusal to deal theory failed because the Aspen Skiing limited exception to the general rule that companies are free to deal with whomever they like did not apply. These claims also were dismissed with prejudice. The court dismissed without prejudice Summit’s counterclaim based on an essential facilities theory because Summit’s own pleadings indicated that Philips lacked the power to eliminate competition. The servicer was permitted to amend that claim (Philips North America, LLC v. Summit Imaging Inc., November 16, 2020, Robart, J.).

Summit Imaging Inc. repairs and maintains medical equipment, including ultrasound machines manufactured by Philips North America, LLC. Philips’ ultrasound contains copyrighted diagnostic software. Summit believes that access to that diagnostic software is essential to servicing the ultrasound machines, and it has repeatedly failed to obtain a license to access it. In fact, Philips has assiduously refused to give licenses to the diagnostic software to anyone. Philips is also in the business of servicing its ultrasounds, so it is Summit’s direct competitor in the market for servicing Philips ultrasound machines. Ultimately, Summit developed its own proprietary software to service Philips’ ultrasound machines.

Philips sued Summit, alleging numerous claims, including that Summit’s software illegally hacked into Philips’ diagnostic software in violation of its copyright. The complaint also alleged that Summit falsely advertised that its software was a "legal alternative" to using the Philips diagnostic software. The court dismissed several claims without prejudice, but it allowed claims for circumventing technological measures in violation of the Digital Millennium Copyright Act, trade secret misappropriation in violation of the Defend Trade Secrets Act and the Uniform Trade Secrets Act, and contributory copyright infringement in violation of the Copyright Act.

After Philips amended its complaint, Summit filed counterclaims for monopolization and attempted monopolization under 2 of the Sherman Act. It also sought a declaratory judgment that Philips’ copyright was unenforceable due to misuse of the copyright. Philips moved to dismiss the counterclaims.

Immunity. The court began by limiting any counterclaim that was based on the manufacturer’s decision to sue to enforce its copyright, because of the Noerr-Pennington doctrine, which provides immunity from antitrust liability from efforts to enforce rights by seeking redress from the government. Because the "sham" lawsuit exception did not apply, the Noerr-Pennington doctrine applied. Thus, the court dismissed with prejudice any part of the servicer’s counterclaims that was based on the manufacturer’s lawsuit to protect its copyrights.

Antitrust elements. To support its Sherman Act claims, the servicer alleged that the relevant market was the market for the provisions of "maintenance and repair services on Philips Ultrasound Machines in the United States." The court concluded that this was a relevant market and that the servicer had satisfied its pleading obligation. The court also agreed that the servicer had adequately pleaded that the manufacturer had market power in the relevant market. The servicer alleged that the manufacturer had a 76% share of the market, which has been deemed by other courts to be sufficient. The manufacturer contested the number, but the true number can be fleshed out in discovery. For pleading purposes, the servicer satisfied its pleading obligations by pleading 76%, which it based on a legitimate report.

Refusal to deal. The servicer hung its monopolization and attempted monopolization claims on two theories. The first was refusal to deal, which are difficult claims to win because companies are generally free to pick with whom they want to do business. The Supreme Court has carved out a single exception: Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)). One of the requirements that Aspen Skiing established was that a prior profitable course of dealing exist. In this case, no such course of dealing existed because the manufacturer had always denied access to its diagnostic software. As a result, the court concluded, the Aspen Skiing exception did not apply. The court also rejected the servicer’s argument that the Supreme Court did not intend that the exception would apply only if all of the requirements from Aspen Skiing were literally satisfied. But that’s exactly what the Supreme Court meant, the court concluded, when the Court carved out this single exception to the general rule that companies can choose to deal with whom they want.

Essential facilities. The second theory was that the servicer’s antitrust claim should survive because the manufacturer’s diagnostic software constituted an essential facility that was necessary for competition. In other words, the diagnostic software was so crucial to servicing the ultrasound machines that the manufacturer had no right to restrict access. The court noted, however, that the servicer’s own counterclaim asserted that it had developed work-around software. As a result, the court concluded that the servicer had failed to establish that the manufacturer had the power to eliminate competition by restricting access. The court, therefore, agreed to dismiss Sherman Act claims based on the essential facility theory, but it, unlike with the other claims, dismissed these claims without prejudice.

Copyright misuse. The final issue was the request for a declaratory judgment based on copyright misuse. The theory of copyright misuse, a judicially created affirmative defense, forbids a copyright holder from using the copyright to obtain a monopoly that the Copyright Office did not intend. Thus, the copyright holder is forbidden from leveraging its copyright to control areas outside of the copyright. Copyright holders are permitted to control use of the copyrighted materials but not to use those materials to stifle competition. The servicer’s counterclaim asserted that the manufacturer sought to enforce its copyright to exclude competition in the market for servicing the manufacturer’s ultrasound machine (the manufacturer is also in the market for servicing the machines). By alleging that the manufacturer improperly attempted to extend its limited monopoly into the servicing market, the servicer adequately pleaded a claim for copyright misuse.

The court, therefore, granted the motion to dismiss all counterclaims (some with prejudice, some without) except for the counterclaim for a declaratory judgment based on copyright misuse.

The case is No. 2:19-cv-01745-JLR.

Attorneys: Carla M. Wirtschafter (Reed Smith LLP) for Philips North America LLC, Koninklijke Philips NV and Philips India, Ltd. E. Russell Tarleton (Seed Intellectual Property Law Group PLLC) for Summit Imaging Inc.

Companies: Philips North America LLC; Koninklijke Philips NV; Summit Imaging Inc.

MainStory: TopStory Antitrust WashingtonNews GCNNews

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