Antitrust Law Daily Wrap Up, ANTITRUST—DCol: Software Company’s Illegal Tying and Monopolization Claims Against Creator and Seller of Airport Terminal Charts Fail, (Mar 25, 2013)

By Peter Reap, J.D., LLM

Illegal tying and monopolization claims that a small software company, SolidFX, LLC, brought against Jeppesen Sanderson, Inc., a creator and seller of airport terminal charts, were without merit, and Jeppesen was entitled to summary judgment on those claims, the federal district court in Denver has decided (SolidFX, LLC v. Jeppesen Sanderson, Inc., March 22, 2012, Martinez, W.). However, SolidFX’s other claims—including breach of contract, fraud, and promissory estoppel—were not appropriate for summary judgment and must be determined by a jury.

Background. Jeppesen, a subsidiary of the Boeing Company, creates and sells Terminal Charts that graphically represent details of airports and their surroundings. The copyrighted charts are produced using publically-available information which Jeppesen compiles into a unique proprietary format that includes Jeppesen’s own symbology, colors, fonts, and distinctive layout.

SolidFX is a small software company that creates software applications to access, organize, and use critical data. In 2008, it began developing software to display Defendant’s Charts on an e-book viewer manufactured by iRex Technologies. In 2009, the parties entered into a licensing agreement.

In addition to the Terminal Charts, the agreement gave SolidFX a license to use Jeppesen’s copyrighted Jeppesen Integration Toolkits (“JIT”), proprietary products that allow the integration of the Terminal Charts in third party systems. Under the Agreement, Jeppesen was to provide SolidFX with the JIT and technical support for the development of the software necessary to display the Terminal Charts on an e-book viewer. SolidFX was not permitted to alter the Terminal Charts in any manner.

In January 2010, SolidFX requested the JIT from Jeppesen so that SolidFX could develop an app for the iPad. Jeppesen refused to provide SolidFX the JIT necessary to develop an iPad app because it was determining its own strategy for the iPad. On May 26, 2010, Jeppesen informed SolidFX that it would not allow others, including SolidFX, to have the JIT for the iPad.

Jeppesen announced its own iPad app on May 27, 2010. In July 2010, Jeppesen launched its “Mobile TC” app in the Apple Store for the iPad. Mobile TC is available for free download and, to use the app, a purchaser must have a corresponding subscription to Jeppesen’s Terminal Charts. In February 2011, Jeppesen released a second iPad app—Jeppesen Mobile FD—which includes en route charts and other features in addition to the capabilities included in the Mobile TC app. The Jeppesen Mobile FD app is also offered to subscribers for free in the Apple store.

Jeppesen does not attribute any revenue to its apps and has no plans to begin charging for their download. Moreover, the subscription price for Jeppesen’s terminal charts increased only nominally between 2010 and 20011 and did not increase in 2012. Jeppesen continues to offer its Terminal Charts in paper form, on Windows-based computers via its JeppViewsystem, by CD-ROM, via built-in panel systems in airplanes, or through SolidFX’s iRexproducts.

The parties’ Agreement also contemplates that Jeppesen will support SolidFX’s development of the iRex device for commercial customers using Defendant’s tailored terminal charts. The data set necessary for SolidFX to develop a workable iRex device marketable to commercial customers is called JIT 2.2.Jeppesen provided SolidFX with an “evaluation set” of JIT 2.2, but refused to develop the full version of JIT 2.2 and provide it to SolidFX unless and until SolidFX had a commercial customer committed to purchasing the iRex device.

SolidFX brought suit, alleging illegal tying and monopolization, in addition to several common law claims.

Antitrust Claims

SolidFX brings six Sherman Act claims: (1) Per Se Illegal Tying in violation of Section 1; (2) Illegal Tying under the Rule of Reason in violation of Section 1; (3) Monopolization in violation of Section 2; (4) Attempted Monopolization in violation of Section 2; (5) Monopolization of the Combined Market for Terminal Charts and Apps in violation of Section 2; and (6) Attempted Monopolization of the Combined Market for Terminal Charts and Apps in violation of Section 2.

Illegal tying. SolidFX’s Section 1 claims both involve allegations that Jeppesen “uses its monopoly power in the Terminal Charts Market to force consumers in the Apps Market to choose a product in that Downstream Market that those consumers would not choose in a competitive market.”

Section 1 of the Sherman Act provides, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.” 15 U.S.C. § 1. A tying arrangement is an agreement by a party to sell one product—the “tying product”—only on condition that the buyer also purchase a second product—the “tied product”—or at least agree not to buy that product from another supplier. Eastman Kodak Co. v. ImageTechnical Servs., Inc., 504 U.S. 451, 461-62 (1992).

The elements of a Section 1 tying claim are (1) two separate products, (2) a tie—or conditioning of the sale of one product on the purchase of another, (3) sufficient economic power in the tying product market, and (4) a substantial volume of commerce affected in the tied product market. Because SolidFX failed to show a genuine dispute of fact as to the second prong, an essential element of a tying claim, the court addressed only this element.

While not dispositive, it was notable that Jeppesen gives its app away for free, the court observed. Jeppesen does not require anyone to purchase its app in order to utilize the app to view the Terminal Charts on an iPad or other similar device. There was also no evidence showing that Jeppesen raised the prices of its Terminal Charts subscription to reflect the cost of its app.

More significantly, however, SolidFX failed to show that Jeppesen requires a purchaser of its Terminal Charts subscription to also “purchase” its app. Instead, the record showed that any purchaser can obtain the Terminal Charts in hard copy/paper format, by CD-ROM, on a Windows-based tablet, laptop or desktop computer, or on an IRex device purchased from SolidFX. Only if the purchaser wants to view the Charts on an iPad is he or she required to download Jeppesen’s app.

Additionally, there was no evidence that Jeppesen disadvantaged its customers in any way if they chose to access the Terminal Charts in some format other than through its app. The evidence showed that a purchaser could download the Terminal Charts to up to four devices (such as a computer, avionic system, or an iPad) before having to pay any additional subscription rate.

The cases cited by SolidFX in support of its argument that there was a tying agreement in this case were inapposite, the court held. In all of these cases, the seller refused to sell the tying product without the tied product. In this case, Jeppesen continues to sell its Terminal Charts subscription to purchasers that do not have its app.

Because SolidFX failed to show that a purchaser was required to obtain the tied product—Jeppesen’s app—in order to be able to purchase the tying product—the Terminal Charts subscription—it failed to show that there was a tying arrangement, the court ruled.

Monopolization. Section 2 of the Sherman Act prohibits monopolization or attempted monopolization of any part of interstate trade or commerce. Monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

For purposes of summary judgment, the court assumed that Jeppesen had monopoly power in the relevant market and, therefore, that SolidFX has established the first element of its monopolization claim. Thus, the court focused solely on the second element—the use of monopoly power to foreclose competition, to gain a competitive advantage, or to destroy a competitor. This was generally referred to as anti-competitive or predatory behavior.

SolidFX alleged that Jeppesen engaged in anticompetitive behavior in two ways, by refusing to enter into an agreement with SolidFX to develop an app, and, by refusing to provide access to an essential facility.

Refusal to deal. SolidFX contended that Jeppesen’s refusal to license its Terminal Charts constitutes anti-competitive behavior. In determining whether a monopolist which has refused to deal with a competitor has acted lawfully or in violation of § 2, a two-part test applied: (1) the effects of the monopolist’s conduct; and (2) the monopolist’s motivation.

To prevail on this claim, SolidFX must show that Jeppesen’s conduct was intended to or did have some anti-competitive effect beyond the loss of its own business. Generally, a company could refuse to deal with its competitor, but such a right was not absolute; it existed only if there were legitimate competitive reasons for the refusal, the court noted.

Jeppesen argued that it had a legitimate basis for its refusal to license its Terminal Charts to SolidFX, i.e., it was properly exercising its right to refuse to license its copyrighted work.

The most sweeping analysis of the interplay between the rights conferred by the Copyright Act on a holder of a copyright and the prohibition on anticompetitive behavior established by the Sherman Act is Data General Corporation v. Grumman Systems Support Corporation, 36 F.3d 1147, 1182 (1st Cir. 1994), according to the court. In Data General, the First Circuit noted that the Copyright Act grants a copyright owner the exclusive right to distribute the protected work by “transfer of ownership, or by rental, lease, or lending.”

Because the Copyright Act does not purport to limit the Sherman Act, the First Circuit determined that they must be read harmoniously. Thus, the First Circuit held that “while exclusionary conduct can include a monopolist’s unilateral refusal to license a copyright, an author’s desire to exclude others from use of its copyrighted work is a presumptively valid business justification for any immediate harm to consumers.”

The Tenth Circuit has neither explicitly adopted nor rejected the First Circuit’s reasoning. However, in an opinion in which the Federal Circuit was predicting how the Tenth Circuit would rule, it adopted the reasoning in Data General, the court noted.

Based on this case law, Jeppesen’s assertion of its copyright was a presumptively valid justification for refusing to license its Terminal Charts and/or JIT to SolidFX, the court ruled. An antitrust defendant’s business justification must be legitimate to protect it from an antitrust violation, however, the case law holds that assertion of one’s copyright interests was per se legitimate.

The only exception to the presumption recognized by the Federal Circuit was if the holder of the copyright protection had come into such right in an unlawful manner. Here, there was no allegation that Jeppesen obtained its copyright in its Terminal Charts in any unlawful manner.

SolidFX also argued that Jeppesen’s copyright in its Terminal Charts was not implicated at all in this case because SolidFX’s app was separately copyrightable software that did not fall within the copyright for the Charts. However, because Jeppesen has the right to control the display of its copyrighted Terminal Charts, as well as the right to control the use of its copyrighted JIT, SolidFX’s argument that its app did not implicate Jeppesen’s copyrights was not persuasive, the court reasoned.

Moreover, even if the refusal to deal did not invoke Jeppesen’s copyright, the outcome would be the same. Typically, unilateral refusals to deal were lawful.

SolidFX also argued that Jeppesen’s refusal to enter into a licensing agreement fell under the ambit of unlawful conduct created by Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). Specifically, SolidFX contended that, because the parties were previously engaged in a cooperative and profitable venture, from which Jeppesen unilaterally withdrew, Jeppesen’s conduct was anti-competitive. This argument was unpersuasive, the court decided. The Supreme Court recognized that Aspen Skiing was an exceptional case that lay “ator near the outer boundary of § 2 liability.”

Refusal to provide access to an essential facility. Specifically, SolidFX contended that access to the JIT was “essential for a software developer to compete in the apps market because it enables apps to read the language of Jeppesen’s worldwide terminal charts.” The viability of the “essential facilities” theory of anticompetitive conduct has been questioned by both the Supreme Court and the Tenth Circuit, the court observed. However, even assuming the doctrine applied in the Tenth Circuit, SolidFX did not show that it applied in this case.

None of the cases cited by SolidFX in support of its essential facility theory involved intellectual property. As one court has noted: “To find a patent an ‘essential facility’ to which [the patentee] must provide access would subvert the plain meaning and purpose of the Patent Act.” Applera Corp. v. MJ Research, Inc., 349 F. Supp. 2d338, 348 (D. Conn. 2004). The same reasoning would apply to the rights granted a copyright holder by the Copyright Act, the court explained.

Moreover, the court agreed with Jeppesen’s contention that its JIT and/or Terminal Charts were not an essential facility because there were other companies that produce similar products.

In sum, SolidFX did not show that Jeppesen’s refusal to deal with SolidFX was anticompetitive conduct or that the essential facility doctrine applied. Further, SolidFX has failed to show that Jeppesen engaged in any predatory or anticompetitive conduct with the intent to monopolize. Thus, Jeppesen was granted summary judgment on the monopolization and attempted monopolization claims.

Other claims. Because the terms of the Agreement are ambiguous, a jury must determine whether Jeppesen’s actions constituted a breach of contract, according to the court. Motions by both parties for summary judgment on the breach of contract claim were denied. Additionally, there was sufficient evidence in the record to permit a reasonable juror to conclude that Jeppesen’s actions caused SolidFX damages.

SolidFX’s other claims for: (1) promissory estoppel; (2) negligent misrepresentation; (3) fraud; and (4) intentional interferences with prospective business relations would require resolution by a jury and Jeppesen’s motion for summary judgment on these claims was denied.

The case is Civil Action No. 11-cv-01468-WJM-BNB.

Attorneys: Dale R. Harris (Davis Graham & Stubbs, LLP) for SolidFX, LLC. Craig S. Primis (Kirkland & Ellis, LLP) for Jeppesen Sanderson, Inc.

Companies: SolidFX, LLC; Jeppesen Sanderson, Inc.

Cases: Antitrust ColoradoNews