Opposition — Van Dyk Research Corp. v. Xerox Corp.

> Ee ea gs

2 Be a ae” eee Ng ee ee

No. 80-1353

IN THE

Supreme Court of the United States

Octoser TERM, 1980

VaN Dyk RESEARCH CORPORATION, — ,

Petitioner,

Vv.

XEROX CORPORATION,

Respondent.

ON PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

RESPONDENT'S BRIEF IN OPPOSITION

James R. MCALEE

ARNOLD & PORTER

1200 New Hampshire Ave., N.W.

Washington, D.C. 20036

(202) 872-6746

Of Counsel:

ARNOLD & PORTER

1200 New Hampshire Ave., N.W

Washington. D.C. 20036

PETER K. BLEAKLEY

J. BRapbway BUTLER

LAWRENCE C. MAISEL

James A. BEAT

Peter T. Grossi. Jr.

LEONARD B. SiMON

Curis R. OTTENWELLIR

ALFRED H. Hoppinotrt, Jr.

Xerox Corporation

800 Long Ridge Road

Stamford. Connecucut 06904

March 13. 1981

a ee

i

QUESTION PRESENTED

Did the Court of Appeals for the Third Circuit make a

“very obvious and exceptional” error in affirming the detailed

factual findings of the trial court, sitting without a jury, that the

petitioner, Van Dyk Research Corporation, had not been

injured in its financing or marketing efforts by either the

marketing practices or the patent holdings of the Xerox Corpo-

ration, which petitioner alleged were in violation of the antitrust

laws?*

* Pursuant to Supreme Court Rule 28.1, Xerox, a New York corporation,

States that it has no parent or affiliates. Xerox has one United States

subsidiary which is not wholly owned—Rank Xerox Business Equipment,

Inc., a Delaware corporation. Xerox also has other subsidiaries, as defined by

the Securities and Exchange Commission, in a number of foreign countries:

Xerox do Brasil, S.A.; Xerox de Mexico, S.A. de C.V.; Xerox del Peru, S.A.;

Xerox de Venezuela, C.A.; Xerox de Colombia, S.A.; Rank Xerox Limited;

Rank Xerox Holding B.V.; Rank Xerox Manufacturing (Nederland) B.V.;

Rank Xerox Fabrikations G.m.b.H.; Societe Industrielle Rank Xerox S.A.:

Fuji Xerox Co., Ltd.; Office de Transformation Papetiere S.A.; Rank Xerox

Espanola S.A.; Rank Xerox (N.Z.) Ltd.; and Rank Xerox (Australia) Pty.

Ltd.

#9

7s

‘3

TABLE OF CONTENTS

QUESTION PRESENTED ..................sccsccscsccsscesseceeceecenes

STATEMENT OF THE CASE. ...........:csceccessessesseeeneeneees

REASONS FOR DENYING THE WRIT..............000+00++

I.

I.

THE DISTRICT COURT AND COURT OF AP-

PEALS APPLIED THE PROPER LEGAL

STANDARD IN CONCLUDING THAT VAN

DYK HAD FAILED TO PROVE THAT

XEROX’ ALLEGEDLY UNLAWFUL CON-

DUCT WAS A “MATERIAL CAUSE” OF IN-

FRTICY TRP VAIN TO TR oc cccsecsorcccsssensoosesosccssssnacscsscosere

THE DISTRICT COURT AND COURT OF AP-

PEALS CORRECTLY CONCLUDED THAT

VAN DYK HAD NOT BEEN INJURED BY

ANY CONDUCT OF XEROX ...0......cccsccseeeeeseeeeeeee

ERG ARMIEERIIY sdsledlidthictapsamenccarsocesnsoinbaveocsesecnrccscccccsesouses

TABLE OF AUTHORITIES

CASES:

Berenyi v. District Director, 385 U.S. 630 (1967)........

Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d 183 (2d

Cir. 1970), cert. denied, 401 U.S. 923 (1971)..........

Branti v. Finkel, 445 U.S. 507 (1980) .....c.cecceccescssseesee.

Comstock v. Group of Institutional Investors, 335 US.

OE Pe Nicitenenbienascacae ee Pee te

E.I. duPont de Nemours & Co. v. Berkley & Co., 620

a6 toe Come. 9

Graver Tank & Mfg. Co. v. Linde Air Products Co.,

SIO ETA CI a cricicknitaiiethie ee

H&B Equipment Co., Inc. v. International Harvester

Co., 577 F.2d 239 (Sth Cir. 1978) oo..ccccccceccsccoeoeee.e.

Herman Schwabe, Inc. v. United Shoe Machinery

Corp., 297 F.2d 906 (2d Cir.), cert. denied, 369

ee La” | Re OE eae ee

Hudson Valley Asbestos Corp. v. Tougher Heating &

Plumbing Co., 510 F.2d 1140 (2d Cir. ), cert.

denied, 421 U.S. 1011 (1975) voocccccccccecccsesosseseeeseeses,

ILC Peripherals Leasing Corp. v. IBM Corp., 458 F.

Supp. 423 (N.D. Cal. 1978) ooo. cccccccccccecssseseseseeeoeose,

In re Sugar Industry Antitrust Litigation, 579 F.2d 13

CAP as SUPER cckcctiidinnedighiig emi ea

New Haven Inclusion Cases, 399 U.S. 392 (1970) ......

Reibert v. Atlantic Richfield Co., 471 F.2d 727 (10th

Cir. 1972), cert. denied, 411 U.S. 938 (1973)..........

SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056

(3d Cir.), cert. denied, 439 U.S. 838 (1978)............

United States ex rel. Bradshaw v. Allredge, 432 F.2d

tk es, RARER Seana ae aa

Walker Process i: ment, Inc. v. Food Machinery &

Chemical Corp., 382 U.S. 172 (1965) ...ccecceccecsosssee..

_ Zenith Radio Corp. v. Hazeltine Research, Inc., 395

Cie WME BONN Re cciisccicinstldcaetatdtiiinat Saeki ie as

MISCELLANEOUS:

er COT OUR

FY

9-10

No. 80-1353

IN THE

Supreme Court of the United States

OcTOBER TERM, 1980

VAN Dyk RESEARCH CORPORATION,

Petitioner,

Vv.

XEROX CORPORATION,

Respondent.

ON PETITION FOR A WRIT OF

CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE THIRD CIRCUIT

RESPONDENT’S BRIEF IN OPPOSITION

The respondent, Xerox Corporation (“Xerox”), respect-

fully requests that this Court deny the petition for certiorari

filed by Van Dyk Research Corporation (“Van Dyk”) which

seeks review of the decision by the United States Court of

Appeals for the Third Circuit affirming the factual findings in

this case of the United States District Court for the District of

New Jersey. The opinion of the court of appeals is reported at

631 F.2d 251; the findings and decision of the trial court are

reported at 478 F. Supp. 1268. ,

STATEMENT OF THE CASE

In this action, Van Dyk sought to obtain treble damages

from Xerox on the theory that it was injured by Xerox’ alleged

violation of the antitrust laws. After a lengthy bench trial, the

2

district court found in favor of Xerox on each of the critical

factual issues in the case. The trial court found that Van Dyk

had failed to show (i) that Xerox possessed monopoly power in

a relevant market, (ii) that Xerox willfully acquired or main-

tained its position by any exclusionary conduct, (iii) that Van

Dyk was injured as a result of any conduct by Xerox, or (iv)

that Van Dyk’s estimate of damages was anything other than

speculative.

The trial court’s judgment in favor of Xerox was affirmed

by a unanimous panel of the court of appeals. Focusing on

whether Xerox’ allegedly unlawful conduct had injured Van

Dyk, the court of appeals affirmed the trial court’s detailed

findings that Xerox’ practices had not been the cause of Van

Dyk’s financial difficulties. Since this conclusion was dispositive

of the appeal, the Third Circuit declined to discuss Van Dyk’s

other contentions. Van Dyk now challenges the decisions

below, asking this Court to reexamine the voluminous trial

record and to conclude that both the trial court and the court of

appeals were guilty of “very obvious and exceptional error” in

finding that Van Dyk had failed to meet its burden of proof on

the dispositive issue of “fact of damage.”

As found by both the trial court and the court of appeals,

the pertinent facts of this dispute span more than 30 years. In

1946 Xerox was a small, struggling business named the Haloid

Company (“Haloid”) when its president became interested in

an experimental process now known as “xerography”. (FF 4-

6; Pet. App. 3a.)’ Haloid was willing to assume the risk of

commercial development of the process even though it was

“sufficiently remote as to make impossible a reasonable esti-

mate as to [the] cost required.” (FF 14-15; A. 4975-76.)

‘In this response, “FF” refers to the trial court’s findings of fact as

reported at 478 F. Supp. 1268 and reprinted at pages 19a-118a of the

Appendix to Van Dyk’s petition; “Pet. App.” refers to the decision of the

court of appeals as reported at 631 F.2d 251 and reprinted at pages ia-15a of

the Appendix to Van Dyk’s petition; “A” refers to the appendix consisting of

the trial record which was lodged with the court of appeals.

3

By 1950 Haloid had managed to develop a machine which

operated on xerographic principles. That machine, however,

was slow, unautomated, and could not be marketed as a copier.

(FF 23; A. 1337-38, 1463, 1742-43, 1747-50.) It required an

additional decade of research and development before Haloid

was able to attain its objective of a feasible, automated general

Purpose copier. From 1954 through 1960, Haloid spent more

than its total profits in its attempt to develop such a marketable

copier. (A. 1464, 1465-66.) C. Peter McColough, now Xerox’

chairman, described this as a “sort of bet-your-company-all-or-

nothing project....” (A. 1468-69. )

This research effort spawned numerous inventions. Each

of the inventions solved some technical problem, and the

company obtained patents on them to protect against their

appropriation by others. (FF 216, 217; A. 1400, 1763a-64,

1871-72, 2041, 2117-20.) As the trial court found after exam-

ining numerous documents and hearing the testimony of six

witnesses directly responsible for Xerox’ patent efforts, “Xerox’

patents [came] into existence through the need to solve

technical problems inherent in the improvement of its products

and the development of new products... .” (FF 216.)

By the late 1950’s, Xerox’ development efforts began to

pay off. In 1958, the company produced prototypes of an

automated, general purpose copier—the Model 914—and a

smaller desk-top copier—the Model 813. Xerox showed both

of these models to IBM, in the hopes of interesting it in their

manufacture and marketing. (FF 37; A. 1469-75.) To the

dismay of Xerox’ management, IBM rejected the proposal.

(FF 40; Pet. App. 3a; A. 1418-19, 1486-87.) IBM had been

informed by its consultant, Arthur D. Little, Inc., that the 914

had “no future in the office-copying-equipment market” and

that the 813 “probably [was] not a good business risk... .”

(A. 5180, 5180b.)

Xerox nevertheless decided to go it alone. It introduced

the Model 914 in 1960 and the desk-top Model 813 in 1963.

(FF 87; A. 1537.) These were followed by a succession of

4

improved models characterized by progressively higher copying

speeds and by such special features as the ability to make

reduced copies and copy on both sides of a piece of paper.

(FF 53, 55; A. 1511, 1578-81, 1610, 1614-19.) This continuing

research and development effort was costly both in terms of

time and money. For example, the introduction of Xerox’

highly sophisticated Model 9200 in 1974, a machine which

produced copies at the rate of 120 copies per minute, was the

result of seven years of research and development which cost

Xerox approximately $300 million. (FF 55; A. 1667-76. )?

During this period of rapid Xerox product development,

Xerox’ competitors did not remain idle. As the trial court

found, they developed new and improved products of their own

including:

(a) coated paper machines which produced copies on

paper virtually indistinguishable from plain paper;

(b) offset devices which were designed to compete

with xerographic plain paper copier/duplicators in the

office environment;? and

(c) competing plain paper copier/duplicator from

IBM, Kodak and a host of Japanese manufacturers. (FF

123-47, 174-77.)

This was the highly competitive and rapidly changing

market that Van Dyk entered in 1973 with its Van Dyk

4000—a copier/duplicator which Van Dyk’s founder, Dr. Max-

well Pollack, for the most part had faithfully patterned after

Xerox’ Model 3600, a machine Xerox had introduced four years

2 The figures quoted by Van Dyk in its petition concerning the “assigned

cost” of various Xerox machines omit these huge research and development

costs. Not surprisingly, the sales prices set by Xerox to recover part of those

R&D costs are much higher.

3 At one point in its petition, Van Dyk exclaims that: “Even Xerox

conceded that it did not compete significantly with offset presses.” (Pet. at

17.) This, of course, is not true. Xerox has consistently urged, as found by the

trial court, that it competed intensively with manufacturers of offset cop-

ier/duplicators and that such equipment was properly part of the relevant

market. (FF 121-122, 136-144, 174-179, 189-190.)

5

earlier. (FF 53, 63; Pet. App. 5a; A. 1129-37, 2402-05, 2410-

51.) As described below, far from being excluded from the

market, Van Dyk successfully raised nearly $6 million through

public offerings in 1969 and 1972 to develop and commence

production of the 4000. (FF 59, 61; Pet. App. 5a; A. 1029-33,

1039. )

A number of business machine companies were interested

in financing and marketing the Van Dyk 4000. Indeed, in early

1973, Apeco Corporation, a manufacturer of coated paper

copiers and other office equipment, agreed to merge with Van

Dyk. (FF 66; Pet. App. 5a-6a; A. 1042-43, 1071, 1089-92,

1167-68, 3089-90, 3101.) Since Apeco was to market the Van

Dyk machines, Van Dyk abandoned its own efforts to develop a

marketing organization and instead concentrated on expanding

its manufacturing program. Apeco advanced Van Dyk

$5 million for that purpose. That loan, together with another

$3 million line of credit, was more than sufficient to finance Van

Dyk’s expansion. (FF 65, 67; A. 708-10, 1166-68, 1185-86. )

Unfortunately for Van Dyk, the Apeco merger subse-

quently collapsed when Apeco defaulted on certain of its loan

agreements. (FF 68; Pet. App. 6a; A. 1175-77.) As a result,

Van Dyk, which had geared up its production in anticipation of

the merger, found itself with “machines that were coming off

the production line,” but with no cash to Pay its suppliers, no

direct sales force, and virtually no dealer organization to market

its machines. Nevertheless, Van Dyk decided that there was

“no turning back” and embarked on “a rush program to

provide for the distribution of the machines.” (FF 69; A. 708-

10, 1047, 1185-86, 1194-96. )

“As the district court found, the Van Dyk 4000 “xerographic engine”

was virtually identical to that of the Xerox 3600. ( FF 63.) On the other hand,

the Van Dyk 4000 lacked many of the features that customers demand such

as reduction, automatic document handling, two-sided copying, and the

ability to copy on sheets of paper rather than a roll. ( FF 63, 112, 367-70.) By

the time Van Dyk introduced its Model 4000, Xerox and other competitors

such as IBM and Kodak were already working on a new generation of

machines—most notably, Xerox’ sophisticated Model 9200—which were far

faster and had all of the features Van Dyk’s machine lacked.

6

In December 1973, Van Dyk reached an agreement with

SCM Corporation under which SCM would purchase 2200 Van

Dyk machines to market under SCM’s trademark. (FF 71; Pet.

App. 6a; A. 3134-85.) The SCM agreement, however, was

cancellable by SCM at any time. (FF 71; A. 3161-62, 3169-

85.) In January 1975, SCM terminated the contract, again

leaving Van Dyk with machines pouring off its production line

but with no channels of distribution. (FF 73, 76; Pet. App. 6a;

A. 1203, 1221-23.) Again, Van Dyk was committed to pay its

parts suppliers but had failed to develop a sufficient cash flow

to do so. (FF 76; Pet. App. 6a-7a; A. 714-15.)

In late 1973 Van Dyk explored the possibility of another

public offering to raise funds for its expansion. That effort,

however, was frustrated when the SEC began an investigation

of Van Dyk’s underwriter, Mayflower Securities. (FF 70; Pet.

App. 6a.) In the straitened financial market of 1974, Van Dyk

unsuccessfully tried to raise $10 million in a private placement.

(FF 77; A. 1052, 1279-80, 2726, 2729, 2750-51.) And in the

still-tight money market of 1975, Van Dyk, now suffering from

the effects of the SCM contract termination, was again

unsuccessful in raising new capital to finance its over-extended

operations. (FF 79; A. 1228, 2726, 2729, 2753-54.) Unable to

pay its suppliers, Van Dyk filed a petition for an arrangement

under Chapter XI of the Bankruptcy Act and lawsuits against

Apece, SCM, and Xerox.

Following extensive pretrial discovery, this case was tried

before the Honorable Frederick B. Lacey, sitting without a jury.

The trial, which consumed 24 trial days, involved the testimony

of 39 witnesses and more than 1400 exhibits. On August 20,

1979, the trial court issued a 98-page opinion—over 88 pages of

which were devoted to detailed findings of fact—and entered

judgment in favor of Xerox.

In rejecting Van Dyk’s allegations that Xerox had violated

the antitrust laws, the trial court found that:

“Xerox’ success in the field of copying/duplicating

was attributable to its position as a pioneer in devel-

oping the xerographic process; to its intensive re-

search and development efforts in xerography; to the

7

lawful patent protection which it was able to obtain

for its inventions in xerography; to its ability to

develop lawful innovative pricing and marketing

methods for its products; and to its continuing will-

ingness to take risks in developing and marketing

new xerographic technology.” (FF 56.) 5

The trial court further found that, assuming arguendo that

Xerox had engaged in the conduct alleged by Van Dyk and that

that conduct violated the antitrust laws, Van Dyk had simply

not been injured by Xerox’ practices. Specifically, the trial court

rejected Van Dyk’s contention that its financing and marketing

efforts had been frustrated by Xerox’ patent position and rental

policies. (FF 78, 320-24.) To the contrary, the trial court found

that Van Dyk’s financial difficulties were the result of its own

failure to coordinate its manufacturing and marketing capabil-

ities during a national economic recession. (FF 69-79. )

_ The court of appeals limited its decision to the trial court’s

findings that Van Dyk had not been injured by any conduct of

Xerox. Like the trial court, the court of appeals concluded that

Van Dyk had failed to establish any causal connection between

Xerox’ allegedly unlawful practices and Van Dyk’s financial

difficulties. The court of appeals affirmed the trial court’s

5 Although Van Dyk rests its petition for certiorari primarily on its

contention that the courts below were wrong in finding that Xerox’ patent

position did not injure Van Dyk, Van Dyk also asserts that the trial court

committed “clear error” in its independent findings that Xerox did not possess

monopoly power in any relevant market and that Xerox’ practice of renting its

machines on a month-to-month basis was not unlawful.

The record, however, amply demonstrates the validity of the trial court’s

findings that the relevant copier/duplicator market includes coated paper and

offset machines as well as the plain paper copiers manufactured by Xerox and

Van Dyk (FF 81-93, 102-122, 131-145, 151-169, 174-176, 185-193); and that

Xerox had no ability to exclude competition from, or control prices in, that

market (FF 190-193).

The record also supports the trial court’s findings that, contrary to Van

Dyk’s charge that Xerox rented its machines on a short-term basis for

anticompetitive purposes, Xerox’ rental policies were a response to the

demands of its customers. (FF 313-316.) The record further establishes that

Van Dyk chose to rent rather than sell its machines for its own business

reasons, including its desire to have “faster market penetration” and “contin-

uing income in years to come.” ( FF 322.)

8

findings that Van Dyk was the victim of its own management

decisions and the recession of 1974-75:

“It is to be expected, even in the absence of antitrust

violations, that every fledgling enterprise will ex-

perience difficulties in entering a market against well

established and knowledgeable competitors, and Van

Dyk had more than its share. The disastrous failure

of the Apeco merger, the SEC investigation that

disabled Mayflower [Van Dyk’s underwriter], and

the cancellation of the SCM contract, all occurring

during a period of tight money, were simply more

than Van Dyk could endure....

“We conclude that Van Dyk failed to establish a

right to recovery, and, accordingly, the judgment of

the district court will be affirmed.” (Pet. App. | la-

12a.)

Van Dyk’s petition for rehearing en banc was denied

without further comment. (Pet. App. 129a.)

REASONS FOR DENYING THE WRIT

Van Dyk’s petition does not raise any legal issue. Rather,

Van Dyk merely challenges the factual findings of the trial

court, affirmed by a unanimous court of appeals, that, even if

Xerox’ patent and rental practices violated the antitrust laws,

Van Dyk was not injured by Xerox’ actions. Van Dyk thus

reargues the facts to this Court in the same way it unsuccessfully

reargued the facts to the court of appeals. It presents this Court

with an amalgam of facts torn from context, material outside

the record, and allegations devoid of any support whatsoever.

In attempting to impeach the factual findings of the trial

court, Van Dyk disregards the basic principle of appellate

review that de novo factfinding cannot properly take place at

the appellate level. SmithKline Corp. v. Eli Lilly & Co., 575

F.2d 1056, 1064 (3rd Cir.), cert. denied, 439 U.S. 838 (1978).

More importantly, Van Dyk has ignored this Court’s “repeated

9

pronouncements” that it “cannot undertake to review con-

current findings of fact by two courts below in the absence of a

very obvious and exceptional showing of error.” Berenyi v.

District Director, 385 U.S. 630, 635 (1967); Graver Tank &

Mfg. Co. v. Linde Air Products Co., 336 U.S. 271, 275 (1949).

Accord, Branti v. Finkel, 445 U.S. 507, 512 n.6 (1980).

That “seasoned and wise rule” has “particular force” in a

case such as this where the “resolution of disputed factual issues

turns largely on an assessment of the relative credibility of

witnesses whose testimonial demeanor was observed only by

the trial court....” Comstock v. Group of Institutional In-

vestors, 335 U.S. 211, 213-14 (1948); Berenyi, supra, 385 US.

at 636. In this case, the trial court heard 39 witnesses over 24

trial days and reviewed a record of more than 7000 pages of

testimony and 1400 exhibits. Following its own thorough

review of that voluminous record, the unanimous panel of the

court of appeals affirmed the trial court’s detailed findings that

Van Dyk had not been injured by any conduct of Xerox.

As we shall now demonstrate, Van Dyk has not made the

“very obvious and exceptional showing of error” required to

justify any further review by this Court of those decisive factual

findings. Indeed, Van Dyk has not shown any error at all.

I. THE DISTRICT COURT AND COURT OF APPEALS

APPLIED THE PROPER LEGAL STANDARD IN

CONCLUDING THAT VAN DYK HAD FAILED TO

PROVE THAT XEROX’ ALLEGEDLY UNLAWFUL

CONDUCT WAS A “MATERIAL CAUSE” OF IN-

JURY TO VAN DYK.

In its petition, Van Dyk baldly asserts that the decision of

the court of appeals below “effectively nullifies the fact of

damage standard enunciated by this Court in Zenith Radio

Corp. v. Hazeltine Research, Inc., 395 U. S. 100 (1969)... .”

Van Dyk, however, omits the fact that the court of appeals

began its legal analysis by citing that very standard:

“The plaintiff has the burden of proving that the

established illegality was a material cause of the

10

injury. Zenith Radio Corp. v. Hazeltine Research,

Inc., 395 U.S. 100, 114 n.9 (1969).” (Pet. App. 8a.)

Van Dyk does not cite any authority indicating that the

Third Circuit erroneously applied the “material cause” stan-

dard announced in Zenith. It is, in fact, clear that the Third

Circuit’s decision that Van Dyk was obligated to demonstrate

that Xerox’ allegedly unlawful conduct was a “material” and

“substantial” cause of Van Dyk’s financial difficulties was in

accord with the decisions of every other court of appeals after

Zenith. See, e.g., Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d

183, 187 (2d Cir. 1970), cert. denied, 401 U.S. 923 (1971);

Reibert v. Atlantic Richfield Co., 471 F.2d 727, 731 (10th Cir.

1972), cert. denied, 411 U.S. 938 (1973); H&B Equipment Co.,

Inc. v. International Harvester Co., 577 F.2d 239, 246 (Sth Cir.

1978).

Van Dyk simply refuses to recognize that, as this Court

held in Zenith, a private antitrust plaintiff cannot leap from an

alleged antitrust violation to the calculation of treble damages.

Rather, the private plaintiff must first prove that it was directly

and materially injured by the allegedly unlawful conduct:

“Failure to prove that it was injured ‘by reason of’ the

defendants’ alleged antitrust violations is of course sufficient to

defeat [the plaintiffs] claims.” Hudson Valley Asbestos Corp. v.

Tougher Heating & Plumbing Co., 510 F.2d 1140, 1142 (2d

Cir.), cert. denied, 421 U.S. 1011 (1975).

The Third Circuit’s affirmance of the trial court’s detailed

findings that Van Dyk was not injured by any conduct of Xerox

was thus dispositive of Van Dyk’s claims. As a matter of

judicial economy, there was no need for the court of appeals to

review the other issues in the case once it had determined that

Van Dyk had failed to meet its burden of proof on the critical

question of impact.® Accordingly, there is no merit whatsoever

© H&B Equipment Co., supra, 577 F.2d at 246 (since plaintiff “failed to

satisfy crucial elements of proof concerning causation and damages,” it was

not necessary for the court to address the legality of the alleged antitrust

violations); Reibert, supra, 471 F.2d at 729 (since the finding that plaintiff

was not injured was “dispositive,” the court need not consider the legality of

the alleged antitrust violations ).

in Van Dyk’s supposition, based solely on an unsupported

comment in an investment house newsletter (Pet. at 25 n.20),

that the court of appeals limited its review to the absence of any

proof of “impact” because it agreed with Van Dyk on the issues

of market definition, alleged monopolistic practices, the amount

of alleged damage, and the other factual questions resolved in

each and every instance by the trial court against Van Dyk.

In a last-ditch effort to inject some pretense of a legal issue

into its petition, Van Dyk argues to this Court—as it argued to

the court of appeals—that certain decisions by first-level exam-

iners of the United States Patent and Trademark Office ren-

dered after the trial court’s decision demonstrate that the trial

court was “misled” in deciding the patent issues in this case.

Van Dyk further contends that the trial court’s allegedly

erroneous factual findings on those patent issues “undoubtedly

influenced its view of all other issues” (Pet. at 11), and thus

require a remand for reconsideration of Van Dyk’s damage

claims. This argument was properly rejected by the court of

appeals both on the initial appeal and on Van Dyk’s request foi

rehearing en banc.

The preliminary decisions in question arose in the context

of a patent infringement suit filed by Xerox against SCM in

which SCM filed a third-party complaint against Van Dyk, the

supplier of the allegedly infringing copier/duplicators. Both

SCM and Van Dyk asserted, as is typical in such cases, that the

nine patents at issue were “obvious” in light of the prior art.

The trial court in the patent case stayed its proceedings until the

Patent and Trademark Office could make an assessment of this

claim pursuant to that office’s reissue procedures. 37 C.F.R.

§$1.171 et seg. On a preliminary basis, and subject to appeal to

the Chief Examiners, the first-level examiners have now con-

cluded that seven of the nine patents were “obvious” in light of

prior art.

12

Even if Van Dyk were entitled to rely on matters of this

type which were not before the trial court,” the preliminary

findings on “obviousness” are hardly a vindication of Van

Dyk’s contention that Xerox misused its patents to foreclose

competition. Contrary to Van Dyk’s repeated misstatements,

the issue before the patent examiners was the existence of prior

art and not any failure by Xerox to disclose that prior art to the

patent office. As the court of appeals was quick to point out, a

determination of obviousness shows nothing about a patent

applicant’s good faith, and it certainly does not constitute a

violation of the antitrust laws.® Walker Process Equipment, Inc.

v. Food Machinery & Chemical Corp., 382 U.S. 172, 179 (1965)

(Harlan, J., concurring); E.J. duPont de Nemours & Co. v.

Berkley & Co., 620 F.2d 1247, 1273-75 (8th Cir. 1980).

Nor do the preliminary patent decisions support another

argument Van Dyk advanced at trial—that Xerox had threat-

ened a patent infringement action against Van Dyk in bad

faith. In order to rebut that charge (and not as Van Dyk

suggests as part of some wicked strategy to denigrate Van

Dyk), Xerox presented evidence with respect to the patents in

7 It is in fact clear that under the packer wae decisions of both this Court

and the Third Circuit the preliminary decisions of the patent examiners

cannot be considered for the first time on appeal. See New Haven Inclusion

Cases, 399 U.S. 392, 450 n.66 (1970); Jn re Sugar Industry Antitrust

Litigation., 579 F.2d 13, 19 (3d Cir. 1978); United States ex rel. Bradshaw v.

Allredge, 432 F.2d 1248, 1250 (3d Cir. 1970).

® Van Dyk asserted before the court of appeals, as it asserts here, that the

examiners’ preliminary determination of obviousness with respect to some of

Xerox’ patents supports Van Dyk’s theory that Xerox was involved in a bad

faith effort to “repatent” inventions on which patents were expiring. But at

oral argument before the court of appeals even Van Dyk’s counsel was forced

to admit the fallacy of that proposition:

“Tue Court: And the Patent Office didn’t find misuse of the

patents, did they?

; “Mr. Levy: They found the prior art rendered them invalid.

“THE Court: All right. But that’s not, of course, the same as

misuse.

“Mr. Levy: No, it is not the same.” (Oral Argument Tr.

10.)

13

question as well as the xerographic features of the Van Dyk

4000. The trial court concluded that “based on [the court’s]

own viewing of the subject matter involved, including the nine

patents and the Van Dyk equipment, . . . an infringement suit

would not have been frivolous.” (FF 231.)

Finally, and most importantly for present purposes, the

preliminary patent office decisions that some of Xerox’ patents

were “obvious” have no effect on the findings of both courts

below that Van Dyk simply was not injured by Xerox’ patent

position. (FF 78, 324.) It is Van Dyk’s quarrel with those

independent findings on the absence of any “fact of damage”,

and not the legal standards or decisional approach of the courts

below, that is the nub of Van Dyk’s petition to this Court.

Il. THE DISTRICT COURT AND COURT OF APPEALS

CORRECTLY CONCLUDED THAT VAN DYK HAD

NOT BEEN INJURED BY ANY CONDUCT OF

XEROX.

As discussed above, absent a demonstration of some “very

obvious and exceptional” error, this Court should not review

the factual findings of the trial court, affirmed by the court of

appeals, that Van Dyk was not injured by any conduct of

Xerox. Van Dyk has not cited any such error, and hence the

concurrent findings below should end the matter.

But should the Court choose to review those factual

findings, it will find that Van Dyk’s version of the facts, which it

artfully but erroneously labels as “uncontradicted evidence”

(Pet. at 19), ignores the full trial record. That record amply

supports the trial court’s findings that Van Dyk’s financial

difficulties were not the result of any actions by Xerox, but on

the contrary were the outcome of Van Dyk’s own business

decisions and the economic recession which plagued the entire

nation in 1974 and 1975.

The record establishes that, through the end of 1973, Van

Dyk was able to secure more than sufficient financing despite

Xerox’ allegedly anticompetitive policies. In 1969 and 1972,

Van Dyk raised nearly $6 million in two successful public

14

offerings despite the substantial disclaimers quoted at length in

Van Dyk’s petition concerning Xerox’ patent position. (Pet. at

19 n.16.) Indeed, both of those offerings were oversubscribed.

(FF 59, 62; A. 581-82, 610-11.)

In 1972, Van Dyk secured an additional $3 million line of

credit from the American National Bank of Morristown (New

Jersey )—a line of credit that it never used. (FF 65; Pet. App.

5a; A. 1156, 1170.) And in 1973, Van Dyk obtained a $5

million loan from Apeco, an established manufacturer of coated

paper copiers.® (Pet. App. 6a; A. 1085, 1170, 1278, 6106.) As

both the trial court and court of appeals found, Van Dyk

secured all of this financing despite a full disclosure of Xerox’

patent position and Van Dyk’s announced intention to rent

rather than sell its machines. (FF 58-62, 65-68; Pet. App. 5a;

A. 1154, 3059-60, 3078. ) 1°

In May 1973, Van Dyk and Apeco agreed to merge. (FF

66; Pet. App. 6a; A. 1042-43, 1047, 1174-75.) As the district

court found, Apeco agreed to the merger with full knowledge of

Xerox’ patent position and Van Dyk’s intention to rent its

machines. (FF 66-67; A. 3119.) The proposed merger, how-

ever, collapsed in September 1973—not because of any conduct

® Van Dyk’s suggestion that its financing arrangements with Apeco were

frustrated by the concern of one of Apeco’s banks, Harris Trust, over Xerox’

patent position ignores the fact that other banks provided Apeco with all of

the funds Apeco requested. (A. 4749-50; 5948-50.)

10 Van Dyk’s ability to secure more than adequate financing is further

demonstrated by the fact that, during the early 1970's, Van Dyk rejected a

number of inquiries from other potential investors—such as A.B. Dick, Saxon,

and GAF—which could have more than met Van Dyk’s financing needs. (A.

6348, 6364, 6369. )

Unable to respond to these facts from the relevant period, Van Dyk

reaches far back into its history to argue that an inquiry by GAF in 1966

concerning Xerox’ patents demonstrates that Xerox’ patent position prevented

GAF and Van Dyk from coming to terms at that time. Van Dyk, however,

fails to note that in 1966 Van Dyk did not even have a prototype copier to

show GAF. And, of course, Van Dyk omits the fact that in 1971, the time at

issue in this case, GAF made overtures to invest in Van Dyk—overtures that

Van Dyk, which by then had more than ample financial backing, rejected. (A.

1243-44, 6348.)

15

by Xerox, but rather because Apeco had defaulted on a loan

agreement with its banks. (FF 68; A. 1185-88.)

In anticipation of the Apeco merger, Van Dyk had vastly

increased its production of machines but had failed to develop

its own marketing force. (FF 69; A. 681-82, 712, 1166-67,

1185-86, 1195-96.) The aborted merger thus left Van Dyk with

a cash-flow problem. Rather than curtailing production or

developing its own marketing staff, Van Dyk’s management

decided to distribute its machines through some other company.

(FF 69; A. 1047, 1194-96.) In December 1973, Van Dyk

reached an agreement with SCM which called for SCM’s

purchase of 2200 Van Dyk machines over the next two years.

(FF 71; A. 1047, 1196-98, 1202-03, 3134-85.)

The SCM contract once again placed Van Dyk on a sound

financial footing. Nevertheless, Van Dyk, wishing to expand

even more rapidly, decided to seek further outside financing by

privately placing $10 million in securities through Merrill

Lynch. (A. 538.) By 1974, however, the nation was in the

depths of its worst recession in 20 years. (A. 6317-37.) Van

Dyk itself has acknowledged that any public offering it might

Van Dyk’s suggestion in its petition that Xerox was somehow in-

directly responsible for the failure of the Apeco merger is refuted by both the

specific findings of the trial court and the testimony of Van Dyk’s president,

Dr. Pollack, who conceded that any such suggestion would be “speculation.”

(FF 68; A. 1172-73.)

There is similarly no merit in Van Dyk’s conjecture that Xerox’ patent

position deterred another firm, Agfa-Gevaert, from investing in Van Dyk in

1973. To be sure, Agfa-Gevaert requested some information concerning

Xerox’ patents. But the last communication in the record. again omitted by

Van Dyk, indicates that, after reviewing Xerox’ patent position, Agfa-Gevaert

~ continued to be “very much interested in long term cooperation” with Van

Dyk and was “prepared to invest the necessary means which such a

cooperation would imply.” (A. 3089.) As Van Dyk conceded in a proposed

finding to the district court, “The Apeco merger then intervened,” and Van

Dyk therefore lost any interest in a financial arrangement with Agfa-Gevaert.

Van Dyk’s Proposed Findings of Fact 1X, F, 2.

16

have made in 1974 “would have been unsuccessful . . . due to

the deteriorating condition of the securities market.” (A.

6153.) 1

In its brief, Van Dyk blithely ignores the trial record

demonstrating the depressed condition of the money markets

and other factors unrelated to Xerox which both the district

court and court of appeals found were directly responsible for

the failure of Van Dyk’s 1974 offering. (FF 77; Pet. App. 6a.)

Van Dyk also ignores the fact that it failed to call a single

potential investor to testify to his reasons for not participating in

the 1974 offering.

The most reliable evidence offered by Van Dyk concerning

the failure of its 1974 private placement—the contemporaneous

notes of the Merrill Lynch underwriter, Mr. Bennett, summa-

rizing the comments of potential investors—demonstrates that

the offering failed because of the depressed condition of the

securities markets, Van Dyk’s lack of management depth, Van

Dyk’s prior public offerings, and other factors which had

nothing to do with Xerox. (A. 3083-85.) According to Mr.

Bennett’s notes, eleven of the 49 potential investors contacted

stated that they were not accepting any private placements

during the 1974 recession. Another eight indicated that they

had decided not to purchase Van Dyk’s securities because

Van Dyk was “too far along” and “not venturesome

enough”—references to the fact that Van Dyk had previously

made public offerings and thus was unattractive for a private

placement. Four more firms told Mr. Bennett that they had

decided not to invest in Van Dyk because they felt its manage-

ment was not sufficiently deep. Finally, eighteen other firms

told Mr. Bennett that they had decided not to invest for various

other reasons having nothing to do with Xerox. (A. 3083-85.)

12Van Dyk’s bleak assessment of the 1974 securities market was

confirmed by the trial testimony of securities experts. (FF 77; A. 540, 2724-

40.) It is, in fact, noteworthy that the Van Dyk offering was the only private

placement that Merrill Lynch even attempted during 1974. (A. 542-43.)

There is thus no merit in Van Dyk’s assertion that it was unable to interest any

major investment house in marketing its securities.

ee

17

Indeed, what is most significant about Mr. Bennett’s notes

is the relative absence of references to Xerox. Although Mr.

Bennett advised each of the 49 investors he contacted that Van

Dyk would be in direct competition with Xerox, only seven

made any mention of “Xerox” as even a partial reason for their

decision not to invest. (A. 545, 3083-85.)

Moreover, the fact that seven of 49 potential investors may

have mentioned “Xerox” as one reason for their decision not to

invest proves nothing, for Van Dyk never attempted to show

that any of those investors were concerned by anything more

than the /awful competition of the leader in the industry. Thus,

one of the firms which mentioned “Xerox” told Mr. Bennett

that it had decided not to invest in Van Dyk because Xerox was

“technologically too far ahead with the 9200,” Xerox’ new,

highly sophisticated copier. (A. 3083.) This recognition of

Xerox as a company with a superior product clearly cannot be

the basis for any antitrust liability. Herman Schwabe, Inc. v.

United Shoe Machinery Corp., 297 F.2d 906, 911 (2d Cir.),

cert. denied, 369 U.S. 865 (1962); ILC Peripherals Leasing

Corp. v. IBM Corp., 458 F. Supp. 423, 435-36 (N.D. Cal.

1978).

Mr. Bennett’s contemporaneous notes are especially devas-

tating to Van Dyk’s speculation that it was denied adequate

financing because investors were deterred by Xerox’ short-term

rentals or patent portfolio. Not one of the 49 firms contacted by

Mr. Bennett referred to the fact that Van Dyk intended to rent

its machines as Xerox had done. Similarly, only two of the 49

potential investors expressed any concern over Xerox’ patent

position, and those two did so as only one of a number of

reasons for declining to invest. (A. 3083-85.)13 Mr. Bennett’s

notes—together with the other evidence cited above—thus

more than justify the findings of both courts below that Van

Dyk’s 1974 private placement was not frustrated in a “mate-

rial” way by any conduct of Xerox. (FF 77-78; Pet. App. 6a.)

‘8 The United States Steel Pension Fund commented, “One man show:

Xerox patents; reliance on SCM; cancellation possible; won’t lead.” The Ford

Foundation stated, “Xerox too strong; IBM; Kodak; Xerox patents.” (A.

3083-85. )

The courts below were also correct in rejecting Van Dyk’s

contention that its efforts to raise additional capital in 1975

failed because of Xerox. Again, the trial record fully supports

the concurrent findings below that Van Dyk’s difficulties were

the direct result of its own refusal to balance its production and

marketing activities during a national business recession. (FF

74-79; Pet. App. 7a.)

As noted above, in December 1973 SCM agreed to

distribute 2200 Van Dyk machines over the next two years. (A.

3134-85.) Shortly thereafter, however, SCM asked Van Dyk to

reduce the rate at which SCM was committed to distribute the

machines. Van Dyk refused to curtail its production signifi-

cantly. As a result, in January 1975 SCM cancelled the dis-

tribution agreement. ( FF 74; A. 1203-05.) Van Dyk, which had

still not developed its own marketing force, was thus again

forced to seek outside financing for its over-extended oper-

ations.

Unfortunately for Van Dyk, the nation was still in the

throes of the 1974-75 recession. Without the SCM contract to

lend it credibility, Van Dyk now found itself in a highly

unfavorable position. (FF 79; Pet. App. 7a.) Moreover, Van

Dyk had made no arrangements to repay the $5 million loan

from Apeco which was coming due in 1976. (FF 78; A. 518-19,

6232, 6248-49.) According to Van Dyk’s own underwriters, the

1975 public offering—Van Dyk’s principal financing ef-

fort—failed because of the poor condition of the financial

markets. (FF 79; A. 1228.)

In sm, given the tight money markets of 1974-1975, the

collapse «/ both the Apeco and SCM arrangements, Van Dyk’s

thin management, its lack of a marketing organization, the

obsolescent nature of its product, and competition not only

from Xerox but also from IBM, Kodak and a host of other

manufacturers, it is little wonder that Van Dyk failed to obtain

financing for its over-extended operations. As both the trial

court and court of appeals concluded, the record simply does

not support Van Dyk’s speculation that its attempts to raise

additional capital in 1974 and 1975 were frustrated by any

conduct of Xerox.

ae |

7s

19

CONCLUSION

Van Dyk has not come close to making the requisite

showing of “very obvious and exceptional error” to justify any

further review by this Court of the concurrent and dispositive

factual findings of the courts below. Accordingly, Van Dyk’s

petition for certiorari should be denied.

Respectfully submitted,

JAMES R. MCALEE

ARNOLD & PORTER

1200 New Hampshire Ave., N.W.

Washington, D.C. 20036

(202) 872-6746

Of Counsel:

ARNOLD & PORTER

1200 New Hampshire Ave., N.W.

Washington, D.C. 20036

PETER K. BLEAKLEY

J. BRADWAY BUTLER

LAWRENCE C. MAISEL

JAMES A. BEAT

PeTer T. Grossi, Jr.

LEONARD B. SIMON

Curis R. OTTENWELLER

ALFRED H. HODDINOTT, Jr.

XEROX CORPORATION

800 Long Ridge Road

Stamford, Connecticut 06904

March 13, 1981