Judge Stearns: No Market Power, No Illegal Tying
U.S. District Court Judge Richard Stearns has issued a summary judgment decision dismissing AVX Corp.’s claims of an an antitrust violation by Cabot Corporation, based on allegations of illegal tying by Cabot.
A tying arrangement is where a seller says, “I’ll sell you product A, but only if you also buy product B.” Product B is said to be “tied” to product A, the “tying product.” A little thought and common sense would cause even an economist to conclude that if the seller doesn’t have market power in product A, rather than be forced to buy product B a rationale buyer will look around for another seller, who can sell it product A without the “tie.” In fact, this is just the conclusion the Supreme Court reached in the Illinois Tool case in 2006.
In the AVX v. Cabot case Judge Stearns noted that “AVX offers no evidence that Cabot had a sufficiently dominant market position to ‘force’ it into a multi-year purchase agreement for a product that it did not want.” The fact that AVX was unable to satisfy this element of an illegal tying arrangement doomed its antitrust claim.
If this wasn’t enough, Judge Stearns also found that AVX was unable to produce reliable evidence of damages, another essential element of its claim.
Based on Judge Stearns’ opinion, it appears that AVX missed the mark in this case by a large margin. While the case doesn’t break new ground, it is a good reminder of the burden a plaintiff faces when it claims illegal tying, especially following the Supreme Court’s 2006 decision in Illinois Tool.
Here is a link to the case, AVX Corporation v. Cabot Corporation.
Not Every Great Idea Is a Trade Secret
You have a brainstorm: there is a market for dumpster rentals, and what better place to make the rentals than The Home Depot? You go to Home Depot and have it sign a non-disclosure agreement before you disclose this idea to it. You disclose the dumpster idea to Home Depot executives, but after much discussion and a great deal of back and forth over several years with many Home Depot employees, Home Depot turns you down. The next thing you know, Home Depot is renting dumpsters, using a business model not too different from the one you proposed.
You cry foul. You sue Home Depot in Massachusetts state court for misappropriation of trade secrets. Home Depot removes the case to Massachusetts federal district court where it grinds through a couple of years of discovery. During that process you claim that the damages you’ve suffered are between $19 and $60 million.
Home Depot files a motion for summary judgment. U.S. District Court Judge Douglas Woodlock grants summary judgment. Judge Woodlock observes that the idea of renting dumpsters through Home Depot is not a trade secret.
(1) the idea of Home Depot renting and (2) the idea of renting dumpsters [was not a trade secret] . . . anyone even vaguely familiar with the home improvement industry could have put these two concepts together easily based upon information in the public domain.
Essentially, the court relied on the hoary Massachusetts trade secret doctrine which state that a confidentiality agreement cannot make secret that which is not secret. Case dismissed.
Here is a link to the decision.
By the way, most large companies will not sign an NDA in advance of receiving business ideas for this very reason – if they reject the idea and adopt it later, they are vulnerable to suit. They then have to show that either the idea is not a “secret” (as Home Depot did here) or that it was already under consideration somewhere within their company prior to disclosure. Most companies conclude that rather than take that risk, it’s better to just refuse to sign NDAs. Without the NDA, this case would never have been filed or, it would have been dismissed much earlier. Home Depot learned that lesson the hard way.
Key Legal Issues Involving Downsizing and Corporate Officers in Troubled Companies
While I shy away from posting PowerPoint outlines on this blog, the materials from two talks that my partner Sean Gilligan recently gave to attorneys in our firm are sufficiently comprehensive as to be an exception. Both outlines are on scribd.com, and are embedded below:
Issues Facing Officers and Directors in Financially Troubled Companies
Key Issues for Corporations Facing Downsizing, Insolvency or Liquidation
Schumpeter, Creative Destruction and the Golden Age of Capitalism
In the late 1970s and early 1980s, the American economy was in crisis after years of stagflation. Mortgage rates were 17%, business loans carried 20% interest rates and productivity had collapsed. On April 21, 1980, Time magazine ran a cover story that asked the question: “Is Capitalism Working?” Today, the crisis that the American economic system faces is greater than that during the darkest days of stagflation. In this opinion piece, George M. Taber, former business editor of Time magazine and author of the 1980 cover story, asks and answers the same question — 29 years later. [Continue reading at Knowledge@Wharton]
Taber still agrees with the final sentence of his 1980 article in Time:
For all its obvious blemishes and needed reforms, capitalism alone holds out the most creative and dynamic force that any civilization has ever discovered: the power of the free, ambitious individual.
And, he warns that despite the pain inflicted by the boom and bust business cycle that is the downside of unfettered capitalism — pain that we are suffering from now –
well-intentioned, but unwise, changes in the nature of American capitalism could do damage that will be felt for decades . . . The American brand of capitalism rests on creative destruction, innovation and, ultimately, entrepreneurs. It is impossible to rebuild the superstructure of U.S. prosperity by destroying its foundation.
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