Transamerica Computer Company, Inc., a Corporation v. International Business MacHines Corporation, a Corporation

698 F.2d 1377 1982-83 Trade Cases 65,218 TRANSAMERICA COMPUTER COMPANY, INC., a corporation, Appellant, v. INTERNATIONAL BUSINESS MACHINES CORPORATION, a corporation, Appellee. No. 80-4048. United States Court of Appeals, Ninth Circuit. Argued Oct. 14, 1981. Submitted Feb. 10, 1982. Decided Feb. 15, 1983. Richard J. Lucas, Orrick, Herrington & Sutcliffe, San Francisco, Cal., for appellant. William W. Vaughn, O'Melveny & Myers, Los Angeles, Cal., for appellee. Appeal from the United States District Court Northern District of California. Before PREGERSON and CANBY, Circuit Judges, and LUCAS, * District Judge. PREGERSON, Circuit Judge: 1 Appellant Transamerica Computer Company (Transamerica), a wholly owned subsidiary of Transamerica Corporation, alleges that Appellee International Business Machines (IBM) violated Section 2 of the Sherman Act, 15 U.S.C. Sec. 2 , when it took various actions to combat emerging competition in the "plug-compatible" peripherals market. The district court held that IBM's actions did not violate the antitrust laws. 2 On appeal, Transamerica challenges the district court's ruling that IBM's acts did not "unreasonably restrict" competition and, in…

Appellant Transamerica Computer Company (Transamerica), a wholly owned subsidiary of Transamerica Corporation, alleges that Appellee International Business Machines (IBM) violated Section 2 of the Sherman Act, 15 U.S.C. § 2 , when it took various actions to combat emerging competition in the “plug-compatible” peripherals market. The district court held that IBM’s actions did not violate the antitrust laws.

On appeal, Transamerica challenges the district court’s ruling that IBM’s acts did not “unreasonably restrict” competition and, in particular, challenges the court’s test for predatory pricing. We affirm the district court’s decision but modify its test for predatory pricing.

BACKGROUND

At the heart of a computer system is the central processing unit (CPU), which houses arithmetical and logical electronic circuits. Attached to the CPU are devices called “peripherals,” which perform input, output, storage, and control functions. IBM, long the dominant force in the computer industry, was, and remains, the major supplier of both CPUs and peripherals.

In 1967, a number of companies began offering plug-compatible peripherals — devices which could be attached to IBM’s CPUs. These…

concurring:

I agree that the judgment of the district court in favor of defendant should be affirmed. I disagree, however, with the court’s modification of the trial court’s test for predatory pricing.

Professors Areeda and Turner, in their article, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697 (1975), proposed an exhaustive per se rule for determining whether pricing conduct should be deemed predatory: (1) prices above reasonably anticipated average variable cost should be conclusively presumed lawful; and (2) prices below reasonably anticipated average variable cost should be conclusively presumed unlawful. 1 In the nearly seven years since this article appeared many courts have considered this suggestion. See Spivak, Monopolization Under Sherman Act, Section 2, 50 Antitrust Law Journal 285, 313-14 n. 132 (1982). Although it appears that no court has adopted this proposed rule without modification or qualification, many courts have agreed with Areeda and Turner that the relationship between prices and average variable cost is of significance in evaluating pricing behavior under the Sherman Act. Id. This court, in William Inglis…