Antitrust Law Daily Wrap Up, ANTITRUST—D.N.J.: Limited injunction imposed on Avaya in PBX dispute, (Jul 1, 2014)

By Jeffrey May, J.D.

Despite a jury's finding last April that Avaya Inc. engaged in attempted monopolization and illegal tying, the federal district court in Camden, New Jersey, has now refused to grant extensive permanent injunctive relief requested by complaining independent service provider Continuant, Inc. (formerly Telecom Labs, Inc.). While injunctive relief was appropriate to avoid irreparable injury, the balance of hardships between the parties favored a narrower injunction than what was requested by Continuant (Avaya Inc. v. Telecom Labs, Inc., June 30, 2014, Irenas, J.).

After a seven-week trial, the jury found Avaya—a manufacturer, seller, and servicer of private branch exchange systems or “PBX” systems—liable on two of the eight causes of action asserted by Continuant. Avaya was found to have: (1) attempted to monopolize the post-warranty maintenance market for Avaya-brand PBX systems; and (2) unlawfully tied software patches for Avaya-brand predictive dialer systems (PDSs) to (i) the purchaser of Avaya-brand post-warranty maintenance or (ii) an agreement not to use the complaining ISP for such maintenance.

In light of a determination that Continuant was harmed by Avaya’s efforts to prevent ISPs from providing maintenance for its products, the jury awarded Continuant $20 million in compensatory damages. Continuant later moved for a permanent injunction, cancelling the vast majority of the licensing agreements that Avaya had with its customers and voiding all contracts that the company had with its “Business Partners” for maintenance services. Continuant also sought the implementation of internal and external compliance monitors.

Traditional principles of equity required the court to apply a four-factor test to determine the scope of a permanent injunction under Section 16 of the Clayton Act. The four factors were: (1) an irreparable injury existed; (2) remedies at law, such as monetary damages, were inadequate to compensate for that injury; (3) a remedy in equity was warranted when considering the balance of hardships between the parties; and (4) the public interest would not be disserved by a permanent injunction.

The court rejected Continuant's argument that the court need only look at the existence of a threatened injury. A “threatened injury” was the preliminary showing necessary to authorize injunctive relief, the court noted. The four-factor test was the appropriate standard for the issuance of the injunction sought.

The court concluded that Continuant suffered an injury and did not have an adequate remedy at law. After balancing the hardships, the court decided, however, not to cancel any current maintenance agreements between Avaya and its Business Partners. Instead, it ordered Avaya to grant PBX customers who purchased their machines between 1990 and 2008 the right to access on-demand maintenance commands (ODMCs) on their own systems, free of charge, for maintenance and administrative tasks. The right extended to purchasers' agents, such as ISPs, who accessed the ODMCs for the customers' benefits.

By issuing such relief, the court would prevent Avaya from blocking access to ODMCs for pre-2008 system purchasers who did not pay an additional fee. Avaya had indicated that it did not consider such conduct wrongful. However, Avaya's interference with customers' ODMC access constituted the bulwark of Continuant's attempted monopolization claim, according to the court.

Purchasers of pre-2008 systems represented a particularly important market for Continuant, as its Avaya-brand PBX maintenance business depended upon serving legacy systems, the court explained. Failure to allow Continuant to compete for these customers might severely limit its ability to compete in the Avaya-brand maintenance market.

The public would not be better served by imposing internal and external compliance monitors on Avaya or rendering all contracts between Avaya and its Business Partners invalid. The requested compliance obligations would add little additional security at great costs. “These increased costs would undoubtedly trickle down to consumers, most likely increasing the maintenance costs [Continuant] vehemently complained of,” the court explained. As for the request to cancel contracts, Continuant failed to convince the court that such disruption would benefit consumers.

The case is No. 06-2490(JEI)(KMW).

Attorneys: Robert T. Egan (Archer & Greiner, PC) and Lawrence Scarborough (Bryan Cave LLP) for Avaya Inc. Anthony P. Larocco (K&L Gates LLP) for Telecom Labs, Inc.

Companies: Avaya Inc.; Continuant, Inc.; Telecom Labs, Inc.

Cases: Antitrust NewJerseyNews