United States: Refusal To Approve Competitor’s Resin For Use In 3D Printers Does Not Amount To Antitrust Violation

In DSM Desotech Inc. v. 3D Systems Corp., No. 13-1298 (Fed. Cir. Apr. 18, 2014), the Federal Circuit affirmed the grant of SJ against three categories of claims brought by plaintiff-appellant DSM Desotech Inc. ("Desotech") against defendants-appellees 3D Systems Corp. and 3D Systems, Inc. (collectively "3DS").  The Federal Circuit held that Desotech failed to show genuine issues of material fact that (1) stereolithography ("SL") machines or resins form a distinct product market, an element necessary to its antitrust claims; (2) 3DS's refusal to approve Desotech's resin was done out of spite or ill will, an element necessary to Desotech's tortious interference claim; or (3) 3DS engaged in deceptive trade practice under the Illinois Uniform Deceptive Trade Practices Act by telling customers that Desotech's resin was not approved for use in 3DS machines. 

Desotech makes resins for use in SL machines, a type of 3D printer used for rapid prototyping.  3DS makes SL machines as well as its own resins.  Around 2005, 3DS began equipping some of its machines with radio frequency identification ("RFID") capability, which allowed the machines to recognize resin bottles and lock out the machine if an unapproved resin bottle is detected.  3DS approved two of Desotech's resins for use in 3DS machines.  Desotech and 3DS entered into negotiations to approve additional Desotech resins.  When those negotiations broke down, Desotech brought suit against 3DS, including various antitrust violations, state law claims, and a claim of patent infringement.  At the close of fact discovery, the district court granted 3DS's motions for SJ regarding the antitrust claims and the state law claims.  The district court entered final judgment after the parties stipulated dismissal of the remaining claims, including the patent infringement claim.  Desotech appealed.  The Federal Circuit retained jurisdiction over the appeal under 28 U.S.C. § 1295(a)(1) despite the dismissal with prejudice of the patent claim.

"Because we conclude that Desotech failed to prove an independent market for SL machines or resins—as it acknowledged it must do—we affirm the district court's grant of summary judgment on Desotech's antitrust claims."  Slip op. at 23-24.

On appeal, the Federal Circuit affirmed the district court's grant of SJ on Desotech's antitrust claims, holding that Desotech failed to prove an independent product market for SL machines or resins.  The Court applied the law of the Seventh Circuit, which requires economic evidence to prove the existence of a distinct market, and looked to the sufficiency of Desotech's data and analysis.  The Court found, however, that "[r]ather than analyze economic data, Desotech and its expert relied on four of the Brown Shoe practical indicia:  (1) distinct prices; (2) the product's peculiar characteristics and uses; (3) industry or public recognition of the submarket as a separate economic entity; and (4) sensitivity to price changes."  Slip op. at 14-15.  The Court nevertheless weighed Desotech's proffered evidence regarding the four factors. 

With regard to distinct prices, the Court noted that Desotech inflated the price distinction by "compar[ing] SL machines to some of the cheapest possible substitutes—3D printing machines," and "ignore[d] the evidence showing that 3DS offers a range of SL machines with a broad range of prices comparable to those of other rapid-prototyping technologies."  Id. at 15.  With regard to peculiar characteristics and uses, the Court found that Desotech's arguments that 3DS's machines are more accurate and can produce larger parts than other technologies "are tenuous at best."  Id. at 16.  But because the appeal came from grant of SJ, the Court viewed this evidence in the light most favorable to Desotech: "Accordingly, we consider this factor as evidence of a potential distinct market for SL machines."  Id.  With regard to "industry or public recognition of the [SL machine] submarket as a separate economic entity," the Court noted that the district court had dismissed customer testimony favorable to Desotech because, "although customers were asked about substitutes, none was asked about reasonable substitutes."  Id.  (alteration in original) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962)).  The Court nevertheless found the testimony "insufficient to establish that SL machines constitute a separate market."  Id. at 17. 

With regard to the final factor, "sensitivity to price changes," Desotech relied on the testimony of four customers, which it argued made up 12% of the market for SL resin.  The Court found, however, that this evidence failed to address the more pertinent question of what percentage of the SL machine market the customers comprised.  The Court further discounted this evidence because Desotech did not justify the conclusion that these purchasers were representative of purchasers at different price points.  In sum, the Court found that only two out of the four Brown Shoe factors favored Desotech, and that "[g]iven the limited and tenuous nature of the evidence, . . . a reasonable jury could not find an independent market for SL machines."  Id. at 19.  The Court similarly held that SL resins also did not constitute an independent market.  

The Court next addressed Desotech's state law claims.  The Court found that 3DS implemented its RFID and unapproved resin lockout features for the legitimate purposes of increasing sales and maintaining quality control, and that Desotech did not provide evidence to demonstrate that 3DS "acted out of spite or ill will."  Id. at 25.  Finally, the Court found that "[t]he allegedly wrongful statements about Desotech's resins not being authorized, approved, licensed, qualified, or tested all relate to 3DS's licensing and approval policy."  Id. at 28.  As a result, the Court held that the alleged wrongful statements did not violate relevant state laws regarding deceptive trade practices, and Desotech failed to raise a genuine issue of material fact that the statements were false. 

Accordingly, the Court affirmed the district court's grant of SJ on Desotech's seven claims.

This article previously appeared in Last Month at the Federal Circuit, May 2014.

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