Antitrust Law Daily Wrap Up, ANTITRUST—NDIll: Antitrust Claims by Stereolithography Resins Maker Against Competing Manufacturer Fail, (Feb 1, 2013)

By E. Darius Sturmer, J.D.

A manufacturer of large-scale stereolithography machines, 3D Systems, Inc., did not engage in attempted monopolization or an unreasonable restraint of trade in the stereolithography machines or aftermarket resins markets through its contracting and licensing practices, the federal district court in Chicago has decided (DSM Desotech, Inc. v. 3D Systems Corp., January 31, 2013, Coleman, S.). Moreover, 3D did not unlawfully tie sales of its newest line of machines to customers' purchases of its resins. Summary judgment in 3D’s favor on a competing resin maker’s federal and Illinois antitrust and related claims was therefore granted.

Stereolithography is an additive process for producing parts, also known as rapid prototyping, in which a physical object such as a model is created layer by layer from liquid “resins” (actually ultraviolet-curable photopolymers) solidified into shape with a laser. 3M made not only the machines at issue in the case, but competed with plaintiff DSM Desotech and others in the aftermarket for the resins used in the machines. DSM had formerly produced resin under a 3D private label, prior to 3D’s entry into that aftermarket.

DSM asserted that, when 3D introduced a new line of stereolithography machines, it included a radio frequency identification (RFID) feature that, if activated by 3D, would prevent the machine from working should customers attempt to use competing brands of resin. 3D allegedly told customers that only licensed or approved resins could be used in the new machines, but did not disclose the purposes of the RFID feature until after they had purchased the machines and software upgrades. In addition, it was alleged that 3D stopped making other models that did not contain the RFID feature and systematically attempted to eliminate them from the market by offering substantial incentives to customers to trade-in old machines for the new model.

Relevant Market

DSM could maintain neither federal nor state antitrust claims against 3D because it failed to establish a relevant market in which competition was harmed by 3D’s alleged conduct. DSM asserted that 3D’s stereolithography machines comprised a relevant market of their own, and that there was a separate market for the resins used in those machines. However, there was no genuine dispute that other technologies were viable alternatives to stereolithography for customers, such as other firms’ 3D printing technologies, selective laser sintering, or even subtractive technologies like computer numerically controlled machining.

The court pointed to testimony by 3D sales staff that they had competed against other technologies and lost on price, as well as by customers who stated that for many applications there were several different technologies that met their needs. Even DSM’s own internal strategy documents and expert witness described other technologies as competitors for stereolithography, the court noted.

Given the existence of these substitutes, DSM could not show that 3D had the requisite market power, the power to raise prices without losing its business. The principal evidence of this proposition consisted of testimony by three or four of the 268 known resin customers that they would not switch away from 3D’s machines if faced with a 5-10% price increase. “[T]hree or four customers out of 268 are not a significant enough proportion to demonstrate the requisite degree of cross-elasticity of demand for stereolithography and its substitutes to establish market power,” the court said. The evidence fell far short of demonstrating that “a significant number of users” would not switch to alternative methods of part making.

DSM’s theory that the aftermarket stereolithography resins constituted a distinct relevant market did not save its antitrust claims. In order for an aftermarket to be the relevant market, the court explained, a manufacturer had to be able to “exert raw power in the aftermarket without regard for commercial consequences in the foremarket.” DSM asserted that 3D’s implementation of RFID and its qualification and licensing policy had coerced business away from DSM in the resin market. The relevant question, according to DSM, was whether stereolithography machine owners purchased the machines knowing that 3D would use RFID to consolidate a monopoly in the resin market and exploit the captivity of its customers by limiting resin variety, and to charge supracompetitive pricing for its resins. However, the court found, this argument was simply not borne out in the evidence DSM presented. 3D had not sought to limit resin variety, but had shown a willingness to license resin for use in its latest machines if the resin maker submitted the resin for qualification and licensing. Nor was there any factual basis presented for the claim of supracompetitive pricing.

Conduct Consistent with Competition

While the lack of a proven relevant market was fatal to the claims, DSM also failed to present sufficient evidence to exclude the possibility that 3D’s conduct was as consistent with competition as with illegal conduct, the court added. The implementation of the RFID resin detection functionality and qualifications of resins for use in 3D’s “Pro” line of machines could be seen as procompetitive in the sense that it appeared to constitute a new product that was useful to customers, in the court’s view. Notwithstanding an argument by DSM that 3D could have offered its machines without the RFID “lock-out” and customers still would have had the same benefits of tracking resin usage and performance statistics, the testing and licensing of resins for use on the machines increased automation on the Pro systems and allowed it to identify which resin a customer was using and to adjust parameters accordingly. “It makes no logical sense,” the court observed, “that the RFID functionality could perform any resin-specific adjustments without having information about each type of resin.”

State Unfair Trade Practice Claim

Also rejected was a claim by DSM that 3D engaged in deceptive trade practices in violation of Illinois’s Uniform Deceptive Trade Practices Act (UDTPA) by causing a likelihood of confusion as to the qualification of resins available for use in its Pro machines and by disparaging DSM’s resins. Whereas the UDTPA only provided for injunctive relief for ongoing or future practices, DSM offered allegations only of past conduct. It presented no evidence that the statements were false, disparaging, or ongoing.

3D was also granted summary judgment on DSM’s claim of tortious interference with prospective economic advantage.

The case is No. 08 cv 1531.

Attorneys: Jeffrey Brandon Burgan (Leydig, Voit & Mayer, Ltd.) for DSM Desotech, Inc. Michael Sennett (Jones Day) for 3D Systems Corp.

Companies: DSM Desotech, Inc.; 3D Systems Corp.; 3D Systems, Inc.

Cases: Antitrust IllinoisNews