Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Tying counterclaims by Solaris third-party support service providers may proceed against Oracle, (Nov 10, 2014)

By Linda O’Brien, J.D., LL.M.

In an action by computer server provider Oracle against several third-party providers of aftermarket support services for copyright infringement of its Solaris operating system licenses, the third party providers’ tying counterclaims could proceed, the federal district court in San Jose, California has decided. However, the providers’ Lanham Act false advertising counterclaims were dismissed (Oracle America, Inc. v. Terix Computer Company, Inc., November 7, 2014, Grewal, P.).

In 1992, Sun Microsystems, a provider of the computer servers, released its first version of Solaris, a UNIX-based operating system used to operate server, blade, storage, and related hardware systems. Sun regularly made available updates and firmware for Solaris at no or low cost and permitted third parties to provide support services. After Sun was acquired by Oracle in 2011, customers who wanted updates and firmware had to sign annual contracts for technical support services to be performed by Oracle.

After Oracle sued third-party service providers Terix Computer Company, Maintech, Inc., and Volt Delta Resources for copyright infringement of its updates and firmware in violation of its licenses, the defendants filed counterclaims for unlawful tying under the Sherman Act and California’s Cartwright Act and for false advertising under the Lanham Act, among other claims. Oracle moved for dismissal.

Tying claims. Following, as binding precedent, the U.S. Supreme Court decision in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451(1992), the court determined that the defendants’ tying counterclaims could proceed. In evaluating a tying claim, (1) an antitrust claimant can restrict the relevant market to a single brand of a product; (2) the claimant is prohibited from resting on market power that arises solely from contractual rights that consumers knowingly gave to the defendant; and (3) the court can inquire as whether a consumer’s selection of a particular brand in a competitive market was the functional equivalent of a contractual commitment.

First, the defendants pleaded a relevant aftermarket for Solaris updates and firmware that is distinct from the initial market for computer servers. Second, the defendants did not rest on any market power that arose solely from contractual rights that customers, who purchased their server before the Oracle merger, knowingly gave since the restrictive aftermarket did not yet exist. Third, while Sun customers might be shown to have consented to a future restrictive aftermarket for Solaris updates, the defendants’ allegation did not resolve that issue in Oracle’s favor as a matter of law.

Furthermore, Oracle failed to show that the complaint’s “relevant market” definition was facially unsustainable. The defendants alleged that there were no economic substitutes for the updates and firms, since they were specific to Solaris software. While Oracle contended that it never ran an updates business separate from its other services, the defendants alleged that this was what Sun did before its acquisition, the court noted.

False advertising claims. The defendants failed to allege sufficient facts to sustain a Lanham Act false advertising counterclaim. To sustain their false advertising counterclaim, the defendants had to allege that Oracle made a false or misleading representation of fact about its or another’s product in a commercial advertisement or promotion. In this case, the defendants did not allege that Oracle made a specific misrepresentation as part of its commercial advertising, disseminated the misrepresentation to relevant customers, or alleged any facts about the commercial advertising in which the alleged misstatements appeared. Finally, the defendants did not identify any actual statements made by Oracle or provide sufficient information to infer that Oracle made actual statements that met the Lanham Act’s pleading requirements, the court concluded.

The case is No. 5:13-cv-03385-PSG.

Attorneys: Christopher Benjamin Campbell (Latham Watkins LLP), Geoffrey M. Howard (Bingham McCutchen LLP), and Jeffrey Scott Ross (Oracle Corp.) for Oracle America, Inc., and Oracle International Corp. Colin Geoffrey McCarthy (Robinson & Wood, Inc.) for Terix Computer Company, Inc. Valerie Margo Wagner (GCA Law Partners LLP) for Maintech Inc., and Volt Delta Resources LLC. John V. Picone, III (Hopkins & Carley) for Sevanna Financial, Inc., and West Coast Computer Exchange, Inc.

Companies: Oracle America, Inc.; Oracle International Corp.; Terix Computer Company, Inc.; Maintech Inc.; Volt Delta Resources LLC; Sevanna Financial, Inc.; West Coast Computer Exchange, Inc.

Cases: Antitrust Advertising CaliforniaNews