Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Lab equipment manufacturer allegedly imposed anticompetitive policies on sale of replacement parts to third-party service providers, (Jul 29, 2014)

By Linda O’Brien, J.D., LL.M.

A laboratory equipment manufacturer has engaged in anticompetitive conduct by imposing overcharges and other restrictive policies on the sale of replacement parts for its equipment to independent third-party service and repair providers, according to a complaint filed in the federal district court of San Diego (Zef Scientific, Inc. v. Shimadzu Scientific Instruments, Inc., July 28, 2014).

Shimadzu Scientific Instruments manufactures high quality analytical instrumentation consisting primarily of liquid chromatography and mass spectrometer equipment (LC/MS/MS) for laboratory uses. Shimadzu also is engaged in the service and repair of its equipment and is the sole source for genuine replacement parts for its equipment. Zef Scientific is an independent service organization (ISO) and is a direct competitor of Shimadzu in the market for service and repair of Shimadzu equipment.

The complaint claims that, prior to 2010, Shimadzu supplied Zef and other ISOs with Shimadzu parts at list prices—the same prices offered to customers and other buyers. In reliance on Shimadzu’s sales policies, Zef allegedly purchased parts for Shimadzu equipment, hired highly skilled technicians in servicing Shimadzu equipment, developed customer bases, bid for and received many service contracts to service and repair Shimadzu equipment, and developed goodwill in the industry.

According to the complaint, Shimadzu altered its sales policies and imposed a repair parts policy on Zef’s account, consisting of various anticompetitive acts designed to injure competition and take away Zef’s customers. The repair parts policy entails “flagging” the orders placed by Zef solely because it competes with Shimadzu in service and repair and increasing the prices on parts to Zef by 40 percent above the list prices. The purpose of the policy is to increase Zef’s costs and enhance Shimadzu’s monopoly power, Zef charged. The repair parts policy also requires Zef to provide the serial number of the instrument to be serviced. The requirement of the serial number (1) allows Shimadzu to identify and contact the customer of Zef; (2) causes delays in processing orders; and (3) prevents Zef from maintaining inventory needed to effectuate a quick turnaround on service and repair orders.

In addition, Shimadzu has procured an agreement with a major distributor to refuse to sell Shimadzu consumables to Zef and other ISOs, according to Zef. There allegedly are no legitimate business justifications for the anticompetitive practices other than to lessen competition, interfere with contractual and prospective business advantage, and monopolize the market for service and repair of Shimadzu equipment. Zef has suffered and continues to suffer anticompetitive treatment in the purchase of Shimadzu parts that are critical to competing in the relevant market, the complaint charged.

The market is highly concentrated and Shimadzu has a market share of about 80 percent of the market for service and repair of its equipment. Service and repair of Shimadzu equipment requires highly trained technicians to handle the service and repair which has created barriers to entry into the relevant market. Also, Shimadzu is the only single source for Shimadzu parts which increases the barriers to entry into the service and repair market.

The plaintiff asserts claims for monopolization, attempt to monopolize, restraint of trade, tortious interference with contractual relations, tortious interference with prospective business advantage, unfair competition, and violations of Section 1 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks injunctive relief, damages, prejudgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 3:14-cv-01758-JAH-JLB.

Attorneys: Minda R. Schechter and Marcus T. Hall (Novak Druce Connolly Bove & Quigg LLP) for Zef Scientific, Inc.

Companies: Zef Scientific, Inc. and Shimadzu Scientific Instruments, Inc.

News: Antitrust CaliforniaNews