Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Cal.: Scientific instrument repair provider unable to show manufacturer's actions injured competition, (Apr 1, 2016)

By Edward L. Puzzo, J.D.

An independent provider of repair services for owners of scientific instruments did not demonstrate antitrust injury as a result of the manufacturer implementing repair parts policies that disadvantaged it, because it was unable to show injury to customers or competition, the federal district court in San Diego has ruled (Zef Scientific, Inc. v. Shimadzu Scientific Instruments, Inc., March 31, 2016, Houston, J.).

Defendant Shimadzu Scientific Instruments is a manufacturer of analytical instrumentation and laboratory equipment, consisting mainly of liquid chromatography and mass spectrometer equipment. As this sophisticated technology is expensive to replace, there is a market for service and repair of Shimadzu equipment. Shimadzu itself holds an estimated 80 percent of the U.S. market for service and repair services for its equipment.

Plaintiff Zef Scientific, an independent service organization, is a direct competitor to Shimadzu in the servicing and repairing Shimadzu equipment. Zef alleges that Shimadzu had direct knowledge of the service contracts Zef had with customers because Shimadzu is the sole source of original equipment, parts, and consumables that Zef must purchase in order to fulfill its service contracts.

Zef alleges that Shimadzu previously sold it parts at list price, but after July 2010, increased prices by 40 percent for parts destined for Zef. Shimadzu also imposed a repair parts policy that in 2014 prevented ThermoFischer, a distributor, from selling Shimadzu parts to third party service providers such as Zef. Zef alleges that these policies were anticompetitive and monopolistic, in violation of the Sherman Act and California's Cartwright Act.

Antitrust injury. Antitrust laws, the court explained, were enacted in order to protect competition, not individual competitors. Shimadzu argued that Zef's complaint failed to demonstrate how consumers or competition were harmed by its actions in the form of a decrease in service providers or an increase in prices to consumers. It moved to dismiss.

Zef alleged a number of negative consequences to itself and other independent service organization as a result of Shimadzu's repair parts policy, including the cancellation of service contracts. Zef, the court noted, construed any potential contract loss as an injury to competition that would reduce customer choice and increase prices to consumers.

The court found that no injury to consumers had resulted from Shimadzu's repair parts policy because most buyers continued to be able to purchase Shimadzu parts at list price. The court further stated that the antitrust allegations were speculative and lacked factual detail as to how customers and competition were adversely impacted by Shimadzu's policy. To allege an injury to competition, the claimant must at least sketch the outline of the antitrust violation with allegations of supporting factual detail. Consequently, the court dismissed plaintiff's complaint, but did grant it leave to amend the complaint in order to provide further factual detail in support of antitrust injury.

The case is Civil Action No. 3:14-cv-01758-JAH-RBB.

Attorneys: Minda R. Schechter (Novak Druce Connolly Bove + Quigg LLP) for Zef Scientific, Inc. April A. Wimberg (Bingham Greenebaum Doll LLP) for Shimadzu Scientific Instruments, Inc.

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

Cases: Antitrust CaliforniaNews