`
`
`
`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 1 of 22
`
`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF WASHINGTON
`AT SEATTLE
`
`
`PHILIPS NORTH AMERICA, LLC,
`et al.,
`
`v.
`
`Plaintiffs,
`
`
`
`
`SUMMIT IMAGING INC., et al.,
`
`CASE NO. C19-1745JLR
`
`ORDER GRANTING IN PART
`AND DENYING IN PART
`PLAINTIFFS’ MOTION TO
`DISMISS COUNTERCLAIMS
`
`
`
`Defendants.
`
`Before the court is Plaintiffs Philips North America, LLC, Koninklijke Philips
`
`N.V., and Philips India, Ltd.’s (collectively, “Philips”) motion to dismiss Defendants
`
`Summit Imaging Inc. and Lawrence R. Nguyen’s (collectively, “Summit”) counterclaims
`
`pursuant to Federal Rule of Civil Procedure 12(b)(6). (Mot. (Dkt. # 50).) Summit
`
`opposes Philips’s motion. (Resp. (Dkt. # 53).) Philips filed a reply. (Reply (Dkt. # 54).)
`
`The court granted Summit’s motion to file a surreply. (Order Granting Surreply (Dkt.
`
`# 65); Surreply (Dkt. # 70).) Having considered the motion, the parties’ submissions
`
`ORDER - 1
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 2 of 22
`
`
`
`regarding the motion, the relevant portions of the record, and the applicable law,1 the
`
`court GRANTS in part and DENIES in part Philips’s motion to dismiss.
`
`I.
`
`BACKGROUND
`
`A.
`
`Factual Background
`
`
`
`Summit “provides maintenance, repair and related services for medical equipment,
`
`including ultrasound and mammography equipment.” (Counterclaims (Dkt. # 41 at
`
`30-48) ¶ 11.) Summit is an “independent service organization,” or “ISO,” that specializes
`
`in servicing medical equipment manufactured and sold by other companies. (Id. ¶ 12.)
`
`Summit’s customers include healthcare facilities (such as hospitals) and other entities in
`
`the United States and Canada that own and operate medical equipment, including
`
`ultrasound equipment. (Id. ¶ 14.) Summit alleges that its customers “highly value and
`
`prefer” Summit because of its “ability to minimize costly downtimes of vital medical
`
`equipment,” its “top-quality customer service and diagnostic and repair services,” and
`
`“the lower cost of Summit’s services relative to its original equipment manufacturer
`
`(‘OEM’) competitors in the service market.” (Id. ¶¶15-17.)
`
`One type of medical equipment that Summit services is ultrasound machines
`
`manufactured by Philips. (Id. ¶ 18.) Philips’s ultrasound machines are “expensive and
`
`complex equipment that include both mechanical and computer software components.”
`
`(Id. ¶ 19.) Although Philips’s ultrasound machines have a long lifespan, they require
`
`
`1 The parties have requested oral argument. (See Mot. at 1, Resp. at 1.) The court finds
`oral argument would not be helpful to the disposition of this motion, and therefore declines to
`hold oral argument. See Local Rules W.D. Wash. LCR 7(b)(4).
`
`ORDER - 2
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 3 of 22
`
`
`
`frequent maintenance, repair, and other servicing. (Id.) In addition to manufacturing and
`
`selling its ultrasound machines, Philips provides maintenance and repair services for the
`
`machines. (Id. ¶ 23.) As a result, Philips competes with Summit and other ISOs for
`
`business in the market for maintenance and repair services for Philips’s ultrasound
`
`machines. (Id. ¶ 24.)
`
`Summit alleges that the software included on Philips’s ultrasound machines “is
`
`necessary for both operating the equipment and for properly diagnosing, troubleshooting,
`
`and correcting” technical issues with the machines. (Id. ¶ 20.) Summit further alleges
`
`that Philips “regulates and restricts access to and operation of” this software by
`
`individuals and entities outside of Philips, including the purchasers of the machines and
`
`ISOs such as Summit that provide maintenance and repair services. (Id. ¶ 21.)
`
`Summit alleges that access to the diagnostic software is “vital to competition” in
`
`the market for servicing Philips’s ultrasound machines because it provides access to tools
`
`that “are essential for diagnosing, troubleshooting, and correcting technical problems or
`
`issues with” the machines. (Id. ¶ 34; id. ¶¶ 35-37 (describing alleged features of Philips’s
`
`diagnostic software that are unavailable to competitors, such as the ability to translate
`
`error codes, correct errors, and display temperature sensor data).) Philips “does not and
`
`will not provide access to the Diagnostic Software” to its competitors in the Philips
`
`ultrasound machine service market, including Summit. (Id. ¶ 40.) Indeed, Philips has
`
`never granted access to the diagnostic software to Summit. (Id. ¶ 41.) Summit asserts
`
`that Philips’s refusal to provide access to the diagnostic software has impaired or
`
`ORDER - 3
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 4 of 22
`
`
`
`prevented Summit and Philips’s other competitors from performing certain maintenance
`
`and repair services for their customers. (Id. ¶¶ 42-43.)
`
`In an effort to “find ways to work around its lack of access to the Philips
`
`Diagnostic Software,” Summit developed its own “proprietary software” to enable it to
`
`service Philips’s ultrasound machines. (Id. ¶ 44.) Summit states that its software has a
`
`“commercially significant, useful and lawful purpose” and “does not circumvent any
`
`purported technological measure that Philips might include in its software, falsify or
`
`remove any purported copyright information, or otherwise violate the DMCA or infringe”
`
`Philips’s copyrights in any way. (Id. ¶¶ 44, 57.)
`
`Summit alleges that Philips has engaged in anticompetitive conduct in order to
`
`increase its share of the market for repair and maintenance of its ultrasound machines,
`
`control prices, and exclude competitors from the market. (Id. ¶ 25.) This anticompetitive
`
`conduct includes Philips’s refusal to provide its competitors access to diagnostic software
`
`installed on its ultrasound machines and Philips’s efforts to enforce its copyrights on that
`
`software. (See, e.g., id. ¶¶ 33-34, 40, 47, 49, 51, 57, 74-75.) Summit also alleges that
`
`Philips’s refusal to license its copyrights in the diagnostic software, and its enforcement
`
`or threatened enforcement of those copyrights (as in this lawsuit, which seeks to prevent
`
`Summit from using its proprietary software) is anticompetitive conduct. (See, e.g., id.
`
`¶¶ 54, 57-58.) Summit asserts that Philips’s refusal to license its copyrights and its
`
`enforcement actions are motivated not by a legitimate desire to protect its copyrights but
`
`rather by Philips’s goal to exclude competition in the market for repair and servicing of
`
`its ultrasound machines. (Id. ¶¶ 51-57.)
`
`ORDER - 4
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 5 of 22
`
`
`
`B.
`
`Procedural Background
`
`
`
`Philips filed its initial complaint in this action on October 29, 2019. (Compl. (Dkt.
`
`# 1).) It filed an amended complaint on December 20, 2019. (Am. Compl. (Dkt. # 23).)
`
`Philips’s claims against Summit arise from its allegation that Summit hacks into Philips’s
`
`ultrasound systems using a program Summit developed in order to enable features or
`
`options in the ultrasound systems for which Philips’s customers have not paid. (Am.
`
`Compl. ¶¶ 4-6.) Philips also alleges that Summit wrongfully advertises that its software
`
`is a “legal solution” or “legal alternative” to working with Philips in order to enable
`
`features and options in the ultrasound systems. (See id. ¶ 8.)
`
`The court granted in part and denied in part Summit’s subsequent motion to
`
`dismiss Philips’s claims. (3/30/2020 Order (Dkt. # 35).) Specifically, the court
`
`dismissed, without prejudice and with leave to amend, Philips’s claims against Summit
`
`for modifying copyright management information in violation of the Digital Millennium
`
`Copyright Act (“DMCA”), 17 U.S.C. § 1202; false advertising in violation of the
`
`Lanham Act, 15 U.S.C. § 1125(a); and unfair competition in violation of Washington’s
`
`Consumer Protection Act (“CPA”), ch. 19.86 RCW. (3/30/2020 Order at 20-21.) The
`
`court denied Summit’s motion to dismiss Philips’s claims for circumventing a
`
`technological measure in violation of the DMCA; trade secret misappropriation in
`
`violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836, and Uniform Trade Secrets
`
`Act, ch. 19.108 RCW; and for contributory copyright infringement in violation of the
`
`Copyright Act, 17 U.S.C. §§ 101, 501. (3/30/2020 Order at 20-21.)
`
`ORDER - 5
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 6 of 22
`
`
`
`On April 20, 2020, Philips filed its second amended complaint. (2d Am. Compl.
`
`(Dkt. # 36).) Summit answered the second amended complaint on May 18, 2020 and
`
`asserted counterclaims. (See generally Ans. & Counterclaims (Dkt. # 41).) In its
`
`counterclaims, Summit alleges that Philips has engaged in monopolization and attempted
`
`monopolization in violation of Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2.
`
`(Counterclaims ¶¶ 26-64 (monopolization), 65-68 (attempted monopolization).) Summit
`
`also seeks a declaratory judgment that Philips’s copyrights on the diagnostic software
`
`installed on its ultrasound machines are unenforceable due to Philips’s misuse of those
`
`copyrights. (Id. ¶¶ 69-82.) Philips now moves to dismiss all of Summit’s counterclaims.
`
`(See generally Mot.)
`
`A.
`
`Standard on Motions to Dismiss
`
`II.
`
`ANALYSIS
`
`Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for “failure to
`
`state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When
`
`considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in
`
`the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith
`
`Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded
`
`facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit
`
`P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court,
`
`however, is not required “to accept as true allegations that are merely conclusory,
`
`unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State
`
`Warriors, 266 F.3d 979, 988 (9th Cir. 2001). “To survive a motion to dismiss, a
`
`ORDER - 6
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 7 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
`
`relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v.
`
`Power, 623 F.3d 998, 1003 (9th Cir. 2010). “A claim has facial plausibility when the
`
`plaintiff pleads factual content that allows the court to draw the reasonable inference that
`
`the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 677-78. Dismissal
`
`under Rule 12(b)(6) can be based on the lack of a cognizable legal theory or the absence
`
`of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police
`
`Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).
`
`10
`
`B. Monopolization Claims
`
`11
`
`
`
`Section 2 of the Sherman Antitrust Act makes it illegal to “monopolize . . . any
`
`12
`
`part of the trade or commerce among the several states.” 15 U.S.C. § 2. The
`
`13
`
`requirements for monopolization and attempted monopolization claims “are similar,
`
`14
`
`differing primarily in the requisite intent and the necessary level of monopoly power.”
`
`15
`
`Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997). To state
`
`16
`
`a claim for monopolization under § 2, the plaintiff must allege facts that, if true, will
`
`17
`
`prove the defendant (1) possesses monopoly power and (2) uses that power to “foreclose
`
`18
`
`competition, to gain a competitive advantage, or to destroy a competitor.” Aerotec Int’l,
`
`19
`
`Inc. v. Honeywell Int’l., Inc., 836 F.2d 1171, 1183 (9th Cir. 2016) (quoting Eastman
`
`20
`
`Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 482-83 (1992) (“Kodak”)). To state a
`
`21
`
`claim for attempted monopolization, the plaintiff must allege facts that, if true, will prove
`
`22
`
`“(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a
`
`
`
`ORDER - 7
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 8 of 22
`
`
`
`specific intent to monopolize and (3) a dangerous probability of achieving monopoly
`
`power.” Kaiser Found. Health Plan, Inc. v. Abbott Labs., Inc., 552 F.3d 1033, 1043–44
`
`(9th Cir. 2009) (quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993)).
`
`“To safeguard the incentive to innovate, the possession of monopoly power will not be
`
`found unlawful [under § 2] unless it is accompanied by an element of anticompetitive
`
`conduct.” Verizon Comm’cns Inc. v. Law Offices of Curtis V. Trinko (“Trinko”), LLP,
`
`540 U.S. 398, 407 (2004).
`
`1.
`
`Noerr-Pennington Immunity
`
`
`
`Summit alleges that Philips has engaged in anticompetitive conduct prohibited by
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`Section 2 of the Sherman Act by filing its lawsuit seeking to enforce its copyrights in the
`
`11
`
`software installed on its ultrasound machines. (See, e.g., Counterclaims ¶¶ 57-58.)
`
`12
`
`Philips contends that Summit’s claims based on Philips’s efforts to enforce its copyrights
`
`13
`
`are barred by the Noerr-Pennington doctrine. “That doctrine provides a party immunity
`
`14
`
`from antitrust liability for petitioning the government for redress, in light of the First
`
`15
`
`Amendment right to petition the government. And it is clear that the petitioning activity
`
`16
`
`includes enforcing one’s intellectual property rights in court.” United Food and
`
`17
`
`Commercial Workers Unions and Emp’rs v. Novartis Pharmaceuticals Corp., 902 F.3d 1,
`
`18
`
`4-5 (1st Cir. 2018) (citing Prof’l Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc.
`
`19
`
`(“PREI”), 508 U.S. 49, 63-65 (1993)) (applying Noerr-Pennington and affirming the
`
`20
`
`dismissal of plaintiff’s antitrust claims arising from Novartis’s efforts to enforce its
`
`21
`
`patents on a prescription drug). An entity loses Noerr–Pennington immunity from anti-
`
`22
`
`trust liability, however, if its conduct falls within the “sham” exception to the doctrine.
`
`
`
`ORDER - 8
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 9 of 22
`
`
`
`Kaiser Found. Health Plan, Inc., 552 F.3d at 1044. A “sham” lawsuit is one where the
`
`suit is both “objectively baseless in the sense that no reasonable litigant could realistically
`
`expect success on the merits” and “an attempt to interfere directly with the business
`
`relationship of a competitor through the use of the governmental process—as opposed to
`
`the outcome of that process.” Rock River Commc’ns, Inc. v. Universal Music Grp., Inc.,
`
`745 F.3d 343, 351-52 (9th Cir. 2014) (quoting PREI, 508 U.S. at 60–61) (emphasis in
`
`original)).
`
`Summit does not allege that Philips has engaged in sham litigation to enforce its
`
`copyrights. (Resp. at 13.) Rather, it argues that the Noerr-Pennington doctrine does not
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`bar its claims because they are not based “solely” on Philips’s non-sham litigation.
`
`11
`
`(Resp. at 11-12 (emphasis in original).) Relying primarily on Clipper Exxpress v. Rocky
`
`12
`
`Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1265 (9th Cir. 1982), Summit argues
`
`13
`
`that Noerr-Pennington does not apply here because “Plaintiffs’ litigation activity is part
`
`14
`
`of a broader scheme of anticompetitive conduct.” (Resp. at 13.)2
`
`15
`
`In Clipper Exxpress, the plaintiff, a freight forwarding company, alleged that the
`
`16
`
`defendant trucking company had engaged in sham rate protests and had provided
`
`17
`
`fraudulent information to a regulatory agency as part of a larger scheme to stifle
`
`18
`
`competition that included price-fixing and customer allocation. Id. at 1246-63. The
`
`19
`
`Clipper Exxpress court recognized that “[g]enuine efforts to induce governmental action
`
`20
`
`are shielded by Noerr even if their express and sole purpose is to stifle or eliminate
`
`21
`
`22
`
`
`
`
`2 Philips does not respond to Summit’s arguments regarding Clipper Exxpress. (See
`generally Reply.)
`
`ORDER - 9
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 10 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`competition.” Id. at 1254. Nevertheless, the court also observed that “when . . . the
`
`petitioning activity is but part of a larger overall scheme to restrain trade, there is no
`
`overall immunity.” Id. at 1263-64 (emphasis added). Rather, Noerr-Pennington
`
`“provides immunity only for the narrow petitioning activity, if done with the requisite
`
`intent to influence government action.” Id. at 1265.
`
`Here, Summit challenges Philips’s entire course of conduct—not just Philips’s
`
`efforts to enforce its copyrights in court. Although Noerr-Pennington provides Philips
`
`immunity from antitrust liability against Summit’s claims based on Philips’s legitimate,
`
`non-sham litigation activity, that immunity does not extend to Summit’s other allegations
`
`10
`
`of anticompetitive conduct. See Clipper Exxpress, 690 F.3d at 1263-64. Therefore, the
`
`11
`
`court DISMISSES with prejudice Summit’s antitrust claims under the Noerr-Pennington
`
`12
`
`doctrine only to the extent they are premised on Philips’s litigation activity. See Lopez v.
`
`13
`
`Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (where claims are dismissed under Rule
`
`14
`
`12(b)(6), the court “should grant leave to amend . . . unless it determines that the pleading
`
`15
`
`could not possibly be cured by the allegation of other facts.”).
`
`16
`
`17
`
`Relevant Market
`
`2.
`
`“A threshold step in any antitrust case is to accurately define the relevant market,
`
`18
`
`which refers to ‘the area of effective competition.’” Federal Trade Comm’n v.
`
`19
`
`Qualcomm, Inc., 969 F.3d 974, 992 (9th Cir. 2020) (quoting Ohio v. Am. Express Co.,
`
`20
`
`138 S. Ct. 2274, 2285 (2018)). The plaintiff must allege both that a legally cognizable
`
`21
`
`‘relevant market’ exists and that the defendant has power within that market. Newcal
`
`22
`
`Indus., Inc. v. Ikon Office Solutions, 513 F.3d 1038, 1044 (9th Cir. 2008). “There is no
`
`
`
`ORDER - 10
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 11 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`requirement that these elements of the antitrust claim be pled with specificity.” Id. at
`
`1045. Although the validity of the “relevant market” is typically a factual element rather
`
`than a legal element, a complaint may be dismissed if the complaint’s “relevant market”
`
`definition is “facially unsustainable.” Id.
`
`Summit alleges that the relevant market for its antitrust claims is the market for
`
`“provision of . . . maintenance and repair services on Philips Ultrasound Machines in the
`
`United States” (the “Philips Ultrasound Machine Service Market”). (Counterclaims
`
`¶ 27.) Summit asserts that Philips’s market power is demonstrated by its dominant share
`
`in the market, which Summit estimates is at least 76% of the market based on 2018 data
`
`10
`
`showing that OEMs “typically account for greater than 76% of the revenue generated in
`
`11
`
`service aftermarkets for specialized medical equipment, including ultrasound machines.”
`
`12
`
`(Id. ¶ 28.) Summit also alleges that there are barriers to entry in the market arising from
`
`13
`
`high costs to enter and participate in the market, the high level of technical skill and
`
`14
`
`knowledge of Philips’s ultrasound machines required to participate in the market, and
`
`15
`
`Philips’s own actions in controlling and restricting access to the software on the
`
`16
`
`ultrasound machines. (Id. ¶¶ 31-32.)
`
`17
`
`Philips argues that Summit has failed to sufficiently plead “a plausible single-
`
`18
`
`modality, single-brand relevant market.” (Reply at 9.) First, it contends that Summit
`
`19
`
`fails to allege facts regarding why other imaging systems are not reasonably
`
`20
`
`interchangeable with ultrasound systems for purposes of providing maintenance, repair
`
`21
`
`and related services or why the market does not encompass manufacturers other than
`
`22
`
`Phillips. (Reply at 8-9.) Second, it argues that Summit has failed to allege “a change in
`
`
`
`ORDER - 11
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 12 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`policy or other deceptive conduct that ‘locks in’ customers” in order to demonstrate
`
`market power. (Id. at 10 (citing Newcal, 513 F.3d at 1045, 1051, and POURfect Prod. v.
`
`KitchenAid, No. CV-09-2660PHXGMS, 2010 WL 1769413, at *3-4 (D. Ariz. May 3,
`
`2010)).) Finally, Philips argues that Summit’s allegation of Philips’s market share
`
`“cannot stand” because it depends on an “unidentified” study regarding OEMs’ share of
`
`the revenue generated in service aftermarkets for specialized medical equipment and is
`
`not specific to Philips or ultrasound machines. (Id. at 10-11 (citing Rebel Oil, 51 F.3d at
`
`1434 (9th Cir. 1995).)
`
`The court finds that Summit has sufficiently alleged a relevant market in which
`
`10
`
`Philips has market power. It is clear that an antitrust plaintiff may base its claims on a
`
`11
`
`single-product relevant market. See Kodak, 504 U.S. at 456-59 (markets for Kodak parts
`
`12
`
`and service); Newcal, 513 F.3d at 1048 (markets for IKON and GE copier equipment and
`
`13
`
`copier service). Because the relevant market for aftermarket service must be determined
`
`14
`
`based on the choices available to the owners of Philips ultrasound machines, see Kodak,
`
`15
`
`504 U.S. at 482, Summit need not plead facts regarding other imaging systems or
`
`16
`
`ultrasound systems made by manufacturers other than Philips in order to sufficiently
`
`17
`
`allege a single-brand relevant market.
`
`18
`
`The court also concludes that Summit has plausibly alleged that Philips possesses
`
`19
`
`market power in the relevant market. The existence of an antitrust defendant’s market
`
`20
`
`power “ordinarily is inferred from the seller’s possession of a predominant share of the
`
`21
`
`market.” Kodak, 504 U.S. at 464 (internal citations omitted). The Supreme Court has
`
`22
`
`concluded that market shares similar to the 76% market share that Summit alleges Philips
`
`
`
`ORDER - 12
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 13 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`possesses are sufficient to demonstrate monopoly power under Section 2. See United
`
`States v. Grinnell Corp., 384 U.S. 563, 571 (1966) (87% of market constitutes a
`
`monopoly); American Tobacco Co. v. United States, 328 U.S. 781, 797 (1946) (over two-
`
`thirds of market constitutes a monopoly). Whether Philips’s market share is actually 76%
`
`percent is a factual issue that must be tested through discovery.
`
`Philips argues that Summit must allege that Philips initiated a change in policy
`
`that would “lock-in” customers in order to survive a motion to dismiss. (See Mot. at 9-
`
`10.) The court disagrees. Rather, the court concludes that the lesson from Kodak and
`
`Newcal is that an aftermarket shift in policy is one example of a way in which a firm may
`
`10
`
`exercise its market power. See Kodak, 504 U.S. at 458 (discussing “lock-ins” in the
`
`11
`
`context of a Sherman Act § 1 tying claim); Newcal, 513 F.3d at 1051 (same); see also
`
`12
`
`PSI Repair Servs., Inc. v. Honeywell, Inc., 104 F.3d 811, 820 (6th Cir. 1997) (same).3
`
`13
`
`For these reasons, the court DENIES Philips’s motion to dismiss to the extent it alleges
`
`14
`
`that Summit’s case should be dismissed for failure to plausibly allege a “relevant market”
`
`15
`
`in which Philips possesses market power.
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`
`3 To the extent Philips relies on POURfect Products, 2010 WL 1769413, at *3-4, the
`court finds that Summit has sufficiently alleged facts that make the factors listed in that case
`plausible: the existence of high “switching costs,” high “information costs,” and a “substantial”
`ability to exploit “ignorant” customers. (See, e.g., Counterclaims ¶ 19 (alleging that Philips
`ultrasound machines are “expensive and complex” equipment with a “relatively long lifespan”
`and that purchasers “are not able to accurately predict required maintenance or estimate long-
`term maintenance costs at the time of purchase.”)
`
`ORDER - 13
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 14 of 22
`
`
`
`3.
`
`Refusal to Deal
`
`“As the Supreme Court has repeatedly emphasized, there is ‘no duty to deal under
`
`the terms and conditions preferred by [a competitor’s] rivals[.]” Aerotec Int’l, 836 F.3d
`
`at 1184 (quoting Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 457
`
`(2009)). “The Sherman Act does not restrict the long recognized right of a trader or
`
`manufacturer engaged in an entirely private business, freely to exercise his own
`
`independent discretion as to parties with whom he will deal.” Trinko, 540 U.S. at 408
`
`(internal citations and alterations omitted).
`
`“The one, limited exception to the general rule that there is no antitrust duty to
`
`deal comes under the Supreme Court’s decision in Aspen Skiing Co. v. Aspen Highlands
`
`Skiing Corp., 472 U.S. 585 (1985).” Qualcomm, 969 F.3d at 993. Under the Aspen
`
`Skiing exception, a company engages in prohibited, anticompetitive conduct when “(1) it
`
`unilaterally terminates a voluntary and profitable course of dealing; (2) the only
`
`conceivable rationale or purpose is to sacrifice short-term benefits in order to obtain
`
`higher profits in the long run from the exclusion of competition; and (3) the refusal to
`
`deal involves products that the defendant already sells in the existing market to other
`
`similarly situated customers.” Id. at 993-94 (quoting Aerotec Int’l, 836 F.3d at 1184, and
`
`MetroNet Servs. Corp. v. Qwest Corp., 383 F.3d 1124, 1132-33 (9th Cir. 2004)) (internal
`
`citations and quotation marks omitted). Because the Aspen Skiing exception is “at or near
`
`the outer boundary of § 2 liability,” it should be applied only in rare circumstances.
`
`Qualcomm, 969 F.3d at 994 (quoting Trinko, 540 U.S. at 409).
`
`ORDER - 14
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 15 of 22
`
`
`
`
`
`Here, Summit alleges that Philips engaged in anticompetitive conduct under
`
`Section 2 of the Sherman Act by refusing to give access to its diagnostic software to
`
`Summit and other competitors. (Counterclaims ¶ 49.) Summit does not, however, allege
`
`that Philips has “unilaterally terminate[d] a voluntary and profitable course of dealing.”
`
`Qualcomm, 969 F.3d at 994. Indeed, according to Summit, “Philips has never granted
`
`access to the Philips Diagnostic Software to Summit.” (Counterclaims ¶ 41 (emphasis
`
`added).) Summit’s allegation that Philips has never granted it access to the diagnostic
`
`software directly contradicts the requirement that it plead a unilateral termination of a
`
`voluntary course of dealing. That allegation is therefore fatal to Summit’s argument that
`
`the court should apply the Aspen Skiing exception to the general rule that there is no duty
`
`to deal. See Qualcomm, 969 F.3d at 994-95 (reversing the district court’s holding that
`
`Qualcomm was under an antitrust duty to deal where the district court’s conclusion that
`
`Qualcomm had terminated a voluntary and profitable course of dealing with respect to its
`
`previous licensing practices was in error).
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`
`
`In its surreply, Summit argues that “any interpretation [of Aspen Skiing] that
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`requires every refusal to deal case to meet the exact factual elements present in Aspen
`
`Skiing is contrary to existing Ninth Circuit precedent.” (Surreply at 2.) Summit relies on
`
`Image Technical Services, 125 F.3d at 1211, for the proposition that a plaintiff need not
`
`allege a prior course of dealing to plead a refusal to deal claim. (See id.) Summit asserts
`
`in a footnote that Trinko, which recognized the significance of “the unilateral termination
`
`of a voluntary course of dealing” in Aspen Skiing, see Trinko, 540 U.S. at 409, did not
`
`“alter Aspen Skiing’s general rule that the presence of ‘valid business reasons’ is the
`
`ORDER - 15
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 16 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`touchstone for determining whether or not a refusal to deal is anticompetitive.” (Surreply
`
`at 3 n.3.) Although the court is sympathetic to Summit’s argument, the Ninth Circuit has
`
`instructed that there is but “one, limited exception to the general rule that there is no
`
`antitrust duty to deal,” and that proof of that exception requires a showing that the
`
`defendant “unilaterally terminate[d] a voluntary and profitable course of dealing.”
`
`Qualcomm, 969 F.3d at 993 (emphasis added), 995 (observing that a unilateral
`
`termination of a voluntary course of dealing is a “required element[] for the Aspen Skiing
`
`exception”). This court is bound to follow Ninth Circuit precedent.4 Because Summit’s
`
`allegation that “Philips has never granted access to the Philips Diagnostic Software to
`
`10
`
`Summit” establishes that Summit cannot prove a claim for refusal to deal under the
`
`11
`
`12
`
`13
`
`14
`
`limited Aspen Skiing exception, the court GRANTS Philips’s motion to dismiss Summit’s
`
`Sherman Act § 2 claims for monopolization and attempted monopolization based on its
`
`refusal to deal theory with prejudice. See Lopez v. Smith, 203 F.3d at 1127.
`
`4.
`
`Essential Facility
`
`15
`
`
`
`Summit also alleges that Philips violated Section 2 of the Sherman Act under an
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`
`
`essential facilities theory. The essential facilities doctrine is a “variation on a refusal to
`
`deal claim.” Aerotec Int’l, 936 F.3d at 1184. It “imposes liability where competitors are
`
`denied access to an input that is deemed essential, or critical, to competition.” Id. To
`
`establish a violation of the essential facilities doctrine, Summit must show (1) that Philips
`
`
`4 The Qualcomm panel that set forth the elements of the Aspen Skiing exception was
`aware of Image Technical Services. See Qualcomm, at 969 F.3d at 992 (quoting Image
`Technical Services, 125 F.3d at 1202, for its definition of “relevant market”).
`
`ORDER - 16
`
`

`

`Case 2:19-cv-01745-JLR Document 73 Filed 11/16/20 Page 17 of 22
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`is a monopolist in control of an essential facility, (2) that Summit, as Philips’s
`
`competitor, is unable reasonably or practically to duplicate the facility, (3) that Philips
`
`has refused to provide Summit access to the facility, and (4) that it is feasible for Philips
`
`to provide such access. Id. at 1185 (citing MetroNet Servs., 383 F.3d at 1128-29).
`
`Because mandating access shares the same concerns as mandating dealing with a
`
`competitor, a facility is essential “only if control of the facility carries with it the power
`
`to eliminate competition in the downstream market.” Id. (quoting Alaska Airlines, Inc. v.
`
`United Airlines, Inc., 948 F.2d 536, 546 (9th Cir. 1991) (emphasis in original)).
`
`Summit alleges that the diagnostic software that runs on Philips’s ultrasound
`
`10
`
`machines is an essential facility that is necessary for competition in the Philips
`
`11
`
`Ultrasound Machine Service Market. (Counterclaims ¶ 34.) Summit alleges that
`
`12
`
`“[c]ertain aspects of the software are vital to competition” in that market “because they
`
`13
`
`provide access to tools that are essential for diagnosing, troubleshooting and correcting
`
`14
`
`technical problems or issues,” such as identifying error codes, providing tools that allow
`
`15
`
`the machi