Canon U.S.A., Inc. v. Cavin's Business Solutions, Inc.

Motion to Dismiss for Failure to State a Claim

E.D.N.Y.January 20, 2017

DORSEY & WHITNEY LLP Richard H. Silberberg Christopher G. Karagheuzoff Robert G. Manson Dai Wai Chin Feman 51 West 52nd Street New York, NY 10019 (212) 415-9200 Attorneys for Plaintiff/Counterclaim-Defendant Canon U.S.A., Inc. UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK CANON U.S.A., INC., Plaintiff, -against- CAVIN’S BUSINESS SOLUTIONS, INC., Defendant. Case No. 2:15-cv-05634-JFB-AKT CANON U.S.A., INC., Plaintiff, -against- THE LIOCE GROUP, INC., Defendant. Case No. 2:15-cv-05638-JFB-AKT NOTICE OF MOTION TO DISMISS PLEASE TAKE NOTICE that, upon the annexed Memorandum of Law, dated January 20, 2017, and all prior pleadings had herein, plaintiff/counterclaim-defendant Canon U.S.A., Inc. moves pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the counterclaims of defendants/counterclaim-plaintiffs Cavin’s Business Solutions, Inc. and The Lioce Group, Inc. Case 2:15-cv-05634-JFB-AKT Document 70 Filed 01/20/17 Page 1 of 2 PageID #: 903 PLEASE TAKE FURTHER NOTICE that the Court has established the following schedule for the briefing of this motion: 1. Filing of moving papers: January 20, 2017 2. Filing of opposition papers: February 17, 2017 3. Filing of reply papers: March 10, 2017 Dated: New York, New York January 20, 2017 DORSEY & WHITNEY LLP By: /s/ Richard H. Silberberg Richard H. Silberberg Christopher G. Karagheuzoff Robert G. Manson Dai Wai Chin Feman 51 West 52nd Street New York, NY 10019 (212) 415-9200 Attorneys for Plaintiff/Counterclaim- Defendant Canon U.S.A., Inc. TO: All Counsel of Record (via ECF) Case 2:15-cv-05634-JFB-AKT Document 70 Filed 01/20/17 Page 2 of 2 PageID #: 904 DORSEY & WHITNEY LLP Richard H. Silberberg Christopher G. Karagheuzoff Robert G. Manson Dai Wai Chin Feman 51 West 52nd Street New York, NY 10019 (212) 415-9200 Attorneys for Plaintiff/Counterclaim-Defendant Canon U.S.A., Inc. UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK CANON U.S.A., INC., Plaintiff, -against- CAVIN’S BUSINESS SOLUTIONS, INC., Defendant. Case No. 2:15-cv-05634-JFB-AKT CANON U.S.A., INC., Plaintiff, -against- THE LIOCE GROUP, INC., Defendant. Case No. 2:15-cv-05638-JFB-AKT MEMORANDUM OF LAW IN SUPPORT OF CANON U.S.A., INC.’S MOTION TO DISMISS COUNTERCLAIMS Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 1 of 29 PageID #: 905 TABLE OF CONTENTS PRELIMINARY STATEMENT .................................................................................................... ii RELEVANT FACTUAL ALLEGATIONS ................................................................................... 4 ARGUMENT .................................................................................................................................. 8 I. The Pleading Requirements that Cavin and Lioce Must Satisfy to Sustain Their Counterclaims ................................................................................................ 8 II. Cavin and Lioce Have Failed to Allege Facts Sufficient to State a Cognizable RPA Claim ......................................................................................... 11 A. Cavin and Lioce Have Failed to Allege Facts Sufficient to Show That Canon USA’s Alleged Conduct Had a Prohibited Effect on Competition............................................................................................... 13 B. Cavin and Lioce Have Failed to Allege Facts Sufficient to Establish That They Suffered Antitrust Injury .......................................... 18 C. Canon USA’s Anticipated Recovery on Its Claims Against Cavin and Lioce Does Not Constitute, and Cannot Constitute, an RPA Violation Because There Was No Discrimination in Price ...................... 21 CONCLUSION ............................................................................................................................. 24 Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 2 of 29 PageID #: 906 ii TABLE OF AUTHORITIES Page(s) Cases Ashcroft v. Iqbal, 556 U.S. 662 (2009) .................................................................................................................14 Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990) ...........................................................................................................19, 21 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ......................................................................................................... passim Boise Cascade Corp. v. FTC, 837 F.2d 1127 (D.C. Cir. 1988) ...............................................................................................15 Bruce’s Juices, Inc. v. American Can Co., 330 U.S. 743 (1947) .................................................................................................................11 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) .................................................................................................................12 Cash & Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202 (2d Cir. 2015)............................................................................................. passim Cinema Village Cinemart, Inc. v. Regal Entertainment Group, No. 15-cv-05488, 2016 U.S. Dist. LEXIS 135941 (S.D.N.Y. Sept. 29, 2016) .......................10 Coalition for a Level Playing Field, L.L.C. v. AutoZone, Inc., 737 F. Supp. 2d 194 (S.D.N.Y. 2010) ......................................................................................11 Erickson’s Flooring & Supply Co. v. Basic Coatings, No. 04-74990, 2007 U.S. Dist. LEXIS 76642 (E.D. Mich. Oct. 15, 2007) .............................16 FTC v. Morton Salt Co., 334 U.S. 37 (1948) .......................................................................................................19, 23, 24 Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (1979) ...................................................................................................................19 Kelly v. Kosuga, 358 U.S. 516 (1959) .................................................................................................................11 Leegin Creative Leather Products v. PSKS, Inc., 551 U.S. 877 (2007) .................................................................................................................18 Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 3 of 29 PageID #: 907 iii Marjam Supply Co. v. Firestone Building Products Co., No. 11-cv-7119, 2014 U.S. Dist. LEXIS 158217 (D.N.J. Nov. 7, 2014) ................................10 Pacific Bell Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438 (2009) .................................................................................................................20 Paycom Billing Services, Inc. v. Mastercard International, Inc., 467 F.3d 283 (2d Cir. 2006).....................................................................................................22 Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117 (2d Cir. 2007).....................................................................................................10 Rafiy v. County of Nassau, No. 15-CV-6497, 2017 U.S. Dist. LEXIS 1001 (E.D.N.Y. Jan. 4, 2017) .............................8, 9 Schiff v. Stevens, No. 15-CV-3598, 2017 U.S. Dist. LEXIS 2268 (E.D.N.Y. Jan. 6, 2017) .................................8 Texaco, Inc. v. Hasbrouck, 496 U.S. 543 (1990) .................................................................................................................18 Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006) ......................................................................................................... passim Statutes 15 U.S.C. § 13(a) ................................................................................................................... passim 15 U.S.C. § 13(f) ............................................................................................................................24 Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 4 of 29 PageID #: 908 Plaintiff and Counterclaim-Defendant Canon U.S.A., Inc. (“Canon USA”) submits this Memorandum of Law in support of its motion, pursuant to Fed. R. Civ. P. 12(b)(6), to dismiss the counterclaims (the “Counterclaims”) alleging violations of Section 2(a) of the Robinson- Patman Act, 15 U.S.C. § 13 (“RPA”), asserted by Defendants and Counterclaim-Plaintiffs Cavin’s Business Solutions, Inc. (“Cavin”) and The Lioce Group, Inc. (“Lioce”) in the actions styled Canon U.S.A., Inc. v. Cavin’s Business Solutions, Inc., No. 2:15-cv-05364 (JFB-AKT) and Canon U.S.A., Inc. v. The Lioce Group, Inc., No. 2:15-cv-05638 (JFB-AKT), respectively (collectively, the “Actions”). PRELIMINARY STATEMENT The negligible factual allegations pleaded by Cavin and Lioce in support of their Counterclaims come nowhere close to satisfying the applicable standards for pleading RPA claims. Indeed, it is readily apparent that the Counterclaims are nothing more than (1) a ploy intended to distract the Court’s attention from the admitted breaches of contract that gave rise to Canon USA’s claims against Cavin and Lioce, and (2) a gambit to exponentially expand the scope of discovery in the Actions for the purpose of dramatically increasing the expense to Canon USA of vindicating its contractual rights, and then using that expense as a hammer to convince Canon USA to drop its claims against them. The Counterclaims are fatally deficient as a matter of law for several independently sufficient reasons. First, Cavin and Lioce’s vague and generalized allegations of having lost business as a result of Canon USA’s purported wholesale price discrimination are insufficient as a matter of law to allege an actionable RPA claim. Those allegations are supported only by specific reference to two (2) (in the case of Cavin) or four (4) (in the case of Lioce) retail transactions in which Cavin and Lioce claim to have been outbid for business by the intrabrand competitors allegedly receiving favored wholesale pricing discounts from Canon USA. These Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 5 of 29 PageID #: 909 2 scant factual allegations do not begin to establish that Canon USA’s alleged price discrimination had a substantial effect on competition, as the law requires in order to state a cognizable RPA claim. Second, while admitting that they do business in a highly-competitive market featuring intense interbrand and intrabrand competition, Cavin and Lioce do not allege a single fact that plausibly demonstrates the counter-intuitive proposition that Canon USA discriminated against them with respect to its wholesale pricing. Instead, Cavin and Lioce ask the Court to infer such discrimination solely from allegations that, in a small handful of instances, their intrabrand competitors were able to outbid them for business by offering retail prices that were below those that Cavin and Lioce were able (or willing) to offer. In other words, Cavin and Lioce urge the Court to infer wholesale price discrimination solely from the allegation that a competitor, engaged in a bidding war in what they concede to be a highly-competitive marketplace, offered discounted retail prices in order to secure a customer’s business. Price-cutting under such circumstances is the very essence of competition, and is not proof of anti-competitive price discrimination in the absence of other factual allegations supporting the existence of such discrimination. Since Cavin and Lioce’s RPA claims are based solely upon allegations of facially pro-competitive conduct by their intrabrand competitors, they have failed, as a matter of law, to allege facts establishing that they suffered the requisite antitrust injury. Third, as an alternative to their bare-bones contention that Canon USA discriminated in the pricing discounts offered to them as compared to those offered to their intrabrand competitors, Cavin and Lioce assert the novel and palpably defective argument that, if Canon USA succeeds on its breach-of-contract claims against them for intentionally, flagrantly, and fraudulently violating the terms of Canon USA’s “CSMP” promotional program and obtaining Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 6 of 29 PageID #: 910 3 wholesale pricing discounts to which they were not entitled, any recovery of damages by Canon USA pursuant to the resulting judgments would itself violate the RPA. Cavin and Lioce are contending that (1) their principal intrabrand competitors likewise breached their contractual obligations to Canon USA by obtaining unearned wholesale pricing discounts pursuant to Canon USA’s “CSMP” promotional program, and (2) because Canon USA is not currently seeking a recovery against Cavin and Lioce’s competitors for such breaches, obtaining a recovery against Cavin and Lioce would be discriminatory and violate the RPA. Cavin and Lioce’s apparent frustration over Canon USA’s pursuit of them to recover unearned wholesale pricing discounts, while not currently pursuing two of their intrabrand competitors who they believe were similarly ineligible for such discounts, is not a basis for the assertion of a cognizable RPA claim against Canon USA. The retail prices that Cavin and Lioce offered to end-users in the past obviously cannot be affected by Canon USA’s future recovery of unearned discounts that were reflected in such prices. Cavin and Lioce may see their profits decline if Canon USA recovers the unearned discounts that they obtained, but that recovery cannot, and will not, affect the results of past competition between Cavin and Lioce and certain of their intrabrand competitors. Therefore, as a matter of law, any such recovery by Canon USA cannot, and will not, violate the RPA. Accordingly, because Cavin and Lioce have not alleged, and cannot legitimately allege, facts sufficient to support a cognizable RPA claim, their Counterclaims should be dismissed. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 7 of 29 PageID #: 911 4 RELEVANT FACTUAL ALLEGATIONS Canon USA is the exclusive wholesale distributor of Canon-brand business equipment (i.e., copiers, high-speed printers and the like) in the United States.1 Canon USA primarily markets such equipment by means of a nationwide network of independent, authorized retail dealers, which enter into written authorized retail dealer agreements with Canon USA.2 Cavin and Lioce are two such authorized retail dealers. In support of its breach of contract claims against Cavin and Lioce, Canon USA alleges that both participated in a marketing program offered by Canon USA to its authorized retail dealers known as the CSMP Program, which provides dealers with wholesale pricing discounts3 on Canon-brand business equipment in connection with their retailing of such equipment to certain end-user customers.4 Canon USA alleges that Cavin and Lioce breached their authorized retail dealer agreements with Canon USA by falsely and fraudulently claiming wholesale pricing discounts pursuant to the CSMP Program which, under the terms of the program, they did not 1 See Cavin’s Counterclaim [ECF No. 62] (“Cavin Counterclaim”) ¶ 5; Lioce’s Counterclaim [ECF No. 43] (“Lioce Counterclaim”) ¶ 5. 2 See Cavin Counterclaim ¶ 6; Lioce Counterclaim ¶ 6. 3 During argument of the motion to dismiss Canon USA’s complaint, much was made by Cavin and Lioce regarding whether the favorable pricing that they received when they made false written submissions to Canon USA to obtain such pricing, for which they did not otherwise qualify, should be called “discounts” or “credits.” Whether they are called discounts, credits, or something else, the end result is exactly the same – Cavin and Lioce were ultimately charged millions less for Canon- brand equipment by Canon USA than, under applicable CSMP rules, they were entitled to have been charged. Because whatever semantical distinction Cavin and Lioce seek to draw is one that is without a difference, Canon USA notes that its use of the term “discounts” throughout this memorandum is not intended to imbue the term with any contextual significance or meaning that differs from that which would attach to “credits,” or any other words, used to describe the manner of Cavin and Lioce’s receipt of favorable pricing for which they did not qualify. 4 See Complaint in Canon U.S.A., Inc. v. Cavin’s Business Solutions, Inc. [ECF No. 1] (“Cavin Complaint”) ¶ 23; Complaint in Canon U.S.A., Inc. v. The Lioce Group, Inc. [ECF No. 1] (“Lioce Complaint”) ¶ 23. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 8 of 29 PageID #: 912 5 earn.5 Both Cavin and Lioce have admitted in writing to having violated the terms of the CSMP Program by claiming unearned wholesale pricing discounts.6 In support of their Counterclaims, Cavin and Lioce expressly admit that the business equipment marketplace in which they compete (which includes retailers of numerous competing brands of equipment such as Xerox, Ricoh, Konica Minolta, Sharp, Toshiba, and many others) is “highly competitive,” and that the solicitation by end-user customers of competing bids from multiple retail dealers in connection with their acquisition of new equipment is commonplace.7 Cavin, which does business in North Carolina, alleges that its principal intrabrand competitor is an independent, authorized Canon retail dealer named Coeco Office Systems, Inc. (“Coeco”).8 Lioce, which does business in Alabama, alleges that its principal intrabrand competitor is an independent, authorized Canon retail dealer named RJ Young Company (“Young”).9 Cavin and Lioce both contend, albeit in entirely conclusory fashion, that for years Canon USA discriminated against them by providing more favorable wholesale pricing discounts to Coeco and Young, respectively, than those that were provided to Cavin and Lioce. Cavin alleges on information and belief that, over the course of more than four (4) years, Canon USA was providing larger discounts to Coeco pursuant to the CSMP Program than those that were available to Cavin. Lioce similarly alleges on information and belief that, over the course of 5 See Cavin Complaint ¶ 25; Lioce Complaint ¶ 24. 6 See Cavin Complaint ¶ 25; Lioce Complaint ¶ 23. 7 See Cavin Counterclaim ¶ 7; Lioce Complaint ¶ 9. 8 See Cavin Counterclaim ¶ 8. 9 See Lioce Counterclaim ¶ 12. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 9 of 29 PageID #: 913 6 many years,10 Young was provided with larger CSMP Program discounts than those that were available to Lioce.11 The only factual allegations asserted by Cavin supporting its contention, however, concern two (2) retail transactions in which, Cavin contends, Coeco prevailed over Cavin in a competitive bidding process to obtain a given customer’s business. Cavin alleges that, with respect to the business equipment eventually acquired by the customers in those transactions, Canon USA provided CSMP Program discounts to Coeco “that [were] more than the [discounts that Canon USA] made available to [Cavin] for the same equipment.”12 Cavin’s allegations reflect that it bases this contention not on proof of the actual wholesale prices paid by Coeco, but instead upon Coeco’s “written bids obtained from [the] potential customers over whom Coeco and [Cavin] competed.”13 In other words, Cavin posits, without any supporting factual allegations, that the discounted retail prices offered by Coeco to such customers were equivalent in size to the CSMP Program discounts that Canon USA provided to Coeco for the equipment at issue. Similarly, the only factual allegations asserted by Lioce to support its contention that Young received preferential CSMP Program discounts from Canon USA concern four (4) retail transactions in which, following a competitive bidding process, Young obtained the customer’s 10 The time period during which Lioce contends Canon USA discriminated against it is not specified in Lioce’s Counterclaim, but allegations in Lioce’s Counterclaim suggest that it is contending that such discrimination dated back to 2008. See Lioce Counterclaims ¶¶ 21-26. 11 See Cavin Counterclaim ¶ 17; Lioce Counterclaim ¶ 32. For purposes of this motion to dismiss, Canon USA, as it and the Court are required to do, accepts as true the bare allegation that Coeco and Young received CSMP discounts for which they did not qualify. 12 See Cavin Counterclaim ¶ 18. 13 Id. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 10 of 29 PageID #: 914 7 business purportedly by offering discounted retail prices that Lioce could not match.14 Unlike Cavin, Lioce does not specify the alleged basis for its assertion that Young obtained higher CSMP Program discounts than did Lioce. However, it appears that such assertion (like Cavin’s similar assertion regarding alleged wholesale pricing discounts provided to Coeco) is based solely upon the discounted retail prices bid by Young in those transactions, coupled with the inference that the amount of those discounts was equal in size to the CSMP Program discounts that Young received from Canon USA for the equipment at issue. In addition to claiming in conclusory fashion that Canon USA discriminated against them with respect to the CSMP Program discounts provided to their intrabrand competitors, Cavin and Lioce further appear to base their Counterclaims on the novel theory that Canon USA’s prosecution of the Actions to recover improperly obtained and unearned CSMP Program discounts obtained by Cavin and Lioce in and of itself constitutes an RPA violation. Although their pleadings are less than clear on this point, Cavin and Lioce appear to contend that, like Cavin and Lioce themselves, Coeco and Young also obtained CSMP Program discounts from Canon USA that they did not earn.15 Cavin and Lioce’s theory, in a nutshell, appears to be that because Canon USA has commenced legal action against them seeking recovery of unearned CSMP Program discounts, but has not as yet pursued Coeco and Young for the recovery of what Cavin and Lioce believe were unearned CSMP program discounts received by Coeco and Young, Canon USA’s prosecution of the Actions constitutes an RPA violation, because the successful prosecution of such Actions would result in “effectively charging two different, discriminatory prices for the 14 See Lioce Counterclaim ¶ 28. 15 See Cavin Counterclaim ¶¶ 20, 23, 24, 30; Lioce Counterclaim ¶¶ 35, 36, 39, 42. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 11 of 29 PageID #: 915 8 same products.”16 In other words, if it is proven that that Canon USA and Lioce breached their contracts with Canon USA, and if they are required to pay damages to Canon USA arising from their wrongful receipt of unearned CSMP Program discounts, such a result, according to Cavin and Lioce, would violate the RPA unless Canon USA also seeks and obtains similar judgments against Coeco and Young. It is clear that Cavin and Lioce intend to utilize their Counterclaims as a basis for seeking to significantly expand the scope of discovery in the Actions. In view of the fatal deficiencies of the Counterclaims, and Cavin’s and Lioce’s attempt to use the Counterclaims to make Canon USA’s continued prosecution of the Actions and the defense of the Counterclaims prohibitively expensive, Cavin and Lioce’s attempt to transform straightforward breach of contract actions into expensive antitrust disputes should not be countenanced. ARGUMENT I. THE PLEADING REQUIREMENTS THAT CAVIN AND LIOCE MUST SATISFY TO SUSTAIN THEIR COUNTERCLAIMS As is the case for all Fed. R. Civ. P. 12(b)(6) motions, the Court must, in deciding this motion, “accept the factual allegations set forth in [the Counterclaims] as true and draw all reasonable inferences in favor of [Cavin and Lioce].” Schiff v. Stevens, No. 15-CV-3598, 2017 U.S. Dist. LEXIS 2268 at *6 (E.D.N.Y. Jan. 6, 2017) (Bianco, J.). However, in order for the Counterclaims to survive the instant motion, their pleadings “must allege a plausible set of facts sufficient ‘to raise a right to relief above the speculative level.’” Rafiy v. County of Nassau, No. 15-CV-6497, 2017 U.S. Dist. LEXIS 1001 at *6 (E.D.N.Y. Jan. 4, 2017) (Bianco, J.) (quoting Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Management, LLC, 595 F.3d 86, 91 (2d Cir. 2010) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). If the Court 16 See Lioce Counterclaim ¶ 36; Cavin Counterclaim ¶ 24. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 12 of 29 PageID #: 916 9 determines that Cavin and Lioce have alleged “no more than conclusions” that are not “supported by factual allegations,” such conclusions “are not entitled to the assumption of truth,” and Cavin and Lioce’s counterclaims must accordingly be dismissed. Rafiy, 2017 U.S. Dist. LEXIS at *6-7 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Moreover, because the Counterclaims allege antitrust violations, it is particularly critical that the Court closely scrutinize whether Cavin and Lioce have alleged sufficient facts to sustain such claims. In Twombly, the Supreme Court emphasized the importance of rigorous enforcement of the “plausibility” standard as applied to complex civil claims asserted under the federal antitrust laws. Twombly involved an alleged illegal conspiracy to restrain trade which purportedly violated Section 1 of the Sherman Act, 15 U.S.C. § 1. The plaintiff alleged facts substantiating certain parallel conduct by the defendants, but no facts establishing that such conduct was the product of a conspiracy, rather than the result of other plausible (and legal) explanations. The Supreme Court held that the absence of such facts from the plaintiff’s pleading mandated dismissal, because the facts actually alleged were as consistent with legal, competitive behavior as they were with anti-competitive, conspiratorial behavior. 550 U.S. at 553-69. The Court held that, in order to survive a motion to dismiss, an antitrust plaintiff must allege sufficient facts “plausibly suggesting” that the antitrust laws were violated, and not just facts “merely consistent with” such a violation. Id. at 557.17 Further, the Court instructed that it was particularly concerned with weeding out unmeritorious antitrust claims at the pleading stage because of “the 17 As noted in Twombly, the Supreme Court has consistently held that complex and expensive antitrust litigation shall not proceed absent a sufficient factual foundation. Thus, the Court has repeatedly held, in the context of summary judgment, that evidence sufficient to exclude the possibility of lawful conduct, rather than evidence merely consistent with illegal behavior, must be presented by an antitrust plaintiff before its claims can proceed. 550 U.S. at 554 (citing Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984)). Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 13 of 29 PageID #: 917 10 potentially enormous expense of discovery in such cases,” and the consequent possibility that “the threat of discovery expense will push cost-conscious defendants to settle even anemic cases” in order to avoid such expense. 550 U.S. at 559. Accordingly, the Court ruled that, unless an antitrust plaintiff manages to allege facts sufficient to “nudge[] their claims across the line from conceivable to plausible,” a motion to dismiss should be granted. Id. at 570. Federal courts consistently have cited Twombly in dismissing antitrust claims featuring factual allegations “merely consistent with” an alleged violation without “plausibly suggesting” illegality, and where the threat of expensive discovery militated in favor of dismissal. See, e.g., Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117, 121 (2d Cir. 2007) (holding that plaintiff failed to allege facts sufficient to meet Twombly “plausibility” standard in affirming dismissal of Sherman Act monopolization claim, and stating that the Twombly standard requires “that a complaint must allege facts that are not merely consistent with the conclusion that the defendant violated the law, but which actively and plausibly suggest that conclusion”); Cinema Village Cinemart, Inc. v. Regal Entertainment Group, No. 15-cv-05488, 2016 U.S. Dist. LEXIS 135941 at *12 (S.D.N.Y. Sept. 29, 2016) (granting motion to dismiss Sherman Act claim based upon alleged conspiracy to unlawfully restrain trade where court determined that plaintiff’s pleading “alleges nothing more than conduct that is merely consistent with concerted action, and no facts suggesting that the parties actually reached an agreement”). Furthermore, the courts have held that the Twombly standard, and the concerns articulated by the Supreme Court in adopting that standard, are equally as applicable in RPA actions as they are in any other type of antitrust lawsuit. See, e.g., Marjam Supply Co. v. Firestone Building Products Co., No. 11-cv-7119, 2014 U.S. Dist. LEXIS 158217 at *9-16 (D.N.J. Nov. 7, 2014) (dismissing RPA claim for failing to meet Twombly “plausibility” standard, and citing concerns Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 14 of 29 PageID #: 918 11 regarding the expense of antitrust discovery); Coalition for a Level Playing Field, L.L.C. v. AutoZone, Inc., 737 F. Supp. 2d 194, 215-19 (S.D.N.Y. 2010) (dismissing RPA claim for failing to meet Twombly standard where facts alleged were as consistent with legal conduct as they were with purported RPA violation). Accordingly, Twombly and its progeny mandate that the Court closely scrutinize Cavin and Lioce’s allegations to determine whether they plead sufficient facts that plausibly establish, and are not merely consistent with, illegal price discrimination. Because Cavin and Lioce are seeking to greatly expand the scope of discovery in the Actions by asserting their unrelated Counterclaims, and because of the concomitant threat of significantly higher expense to Canon USA in seeking to vindicate the contractual rights that were admittedly breached by Cavin and Lioce, such close scrutiny is especially warranted. As set forth below, the Counterclaims cannot, and do not, withstand such scrutiny. II. CAVIN AND LIOCE HAVE FAILED TO ALLEGE FACTS SUFFICIENT TO STATE A COGNIZABLE RPA CLAIM Cavin and Lioce both assert “secondary line” price discrimination claims against Canon USA under the RPA, meaning that their claims are based upon the contention that they were injured by reason of Canon USA’s provision of more favorable wholesale pricing to their direct intrabrand competitors, as compared to the pricing that Canon USA provided to them.18 In order to allege and prove a secondary line price discrimination claim under the RPA, Cavin and Lioce must sufficiently plead, and then prove, the following requisite elements: “(1) that [Canon 18 Cavin and Lioce also appear to assert affirmative defenses to Canon USA’s breach of contract claims against them that purport to be based upon Canon USA’s alleged violation of the RPA. See Cavin Counterclaim, Ninth Defense; Lioce Counterclaim, Fourth Affirmative Defense. However, it is well- established that assertion of an RPA violation (or any other federal antitrust violation) is not an affirmative defense to a breach of contract claim based upon the failure to pay for goods sold and delivered. See Bruce’s Juices, Inc. v. American Can Co., 330 U.S. 743, 750-51 (1947); Kelly v. Kosuga, 358 U.S. 516, 520-21 (1959). Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 15 of 29 PageID #: 919 12 USA’s] sales were made in interstate commerce; (2) that [Canon USA] discriminated in price as between the two purchasers; (3) that the product or commodity sold to the competing purchasers was of the same grade and quality; and (4) that the price discrimination had a prohibited effect on competition.” Cash & Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202, 209-10 (2d Cir. 2015). There is also an additional prerequisite. As is the case with any private antitrust claim, Cavin and Lioce must sufficiently allege and prove that the harm they claim they suffered at Canon USA’s hands constitutes “antitrust injury,” meaning “injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts illegal.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977); see Cash & Henderson, 799 F.3d at 214. Cavin and Lioce have failed, as a matter of law, to sufficiently allege three (3) of the five (5) prerequisites for sustaining their Counterclaims. First, with respect to both of the two theories upon which their claims are predicated – (1) price discrimination at the “front end” through Canon USA’s alleged provision of lower wholesale pricing to Cavin and Lioce’s intrabrand competitors, Coeco and Young, respectively, and (2) discriminatory pricing on an ex-post facto basis by virtue of Canon USA not yet having pursued Coeco and Young to seek recovery of any unearned CSMP Program discounts that Cavin and Lioce believe Coeco and Young may have received – both Cavin and Lioce have failed to allege the requisite “prohibited effect on competition” because their sparse allegations fall woefully short of establishing that Canon USA’s alleged conduct had a substantial effect on competition. Second, with respect to their “front end” discriminatory pricing theory, Cavin and Lioce have failed to allege the requisite “antitrust injury,” because the conduct upon which their claims are based (i.e., their competitors’ bidding of low retail prices in order to prevail in a competitive Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 16 of 29 PageID #: 920 13 bidding process) is, at best, as consistent with pro-competitive conduct as with anti-competitive conduct. Third, with respect to Cavin and Lioce’s theory based upon Canon USA’s current prosecution of the Actions to recover the unearned CSMP Program discounts issued to them, but not yet against other authorized retail dealers, such prosecution cannot, and will not, result in the requisite “discrimination in price” under the RPA. A. Cavin and Lioce Have Failed to Allege Facts Sufficient to Show That Canon USA’s Alleged Conduct Had a Prohibited Effect on Competition There are two ways for an RPA plaintiff to allege and prove that purported secondary line price discrimination had the requisite “prohibited effect on competition.” First, a plaintiff may allege facts, and submit evidence, demonstrating that “a favored competitor received a significant price reduction over a substantial period of time.” Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 177 (2006) (citing FTC v. Morton Salt Co., 334 U.S. 37 (1948)). Cavin and Lioce both conclusorily assert, “upon information and belief,” that, over the course of a number of years, Canon USA provided steeper CSMP Program discounts to their competitors, Coeco and Young, than those that were provided to Cavin and Lioce.19 However, neither Cavin nor Lioce allege a single fact substantiating that Coeco or Young actually received greater CSMP Program discounts than did Cavin and Lioce during the period at issue. The absence from their pleadings of any such factual allegations precludes Cavin and Lioce from claiming that they have sufficiently alleged the requisite “prohibited effect on competition.” Cavin and Lioce cannot meet their pleading burden merely by asserting, upon information and 19 See Cavin Counterclaim ¶ 20; Lioce Counterclaim ¶ 32. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 17 of 29 PageID #: 921 14 belief, the conclusory contention that they were the victims of price discrimination over the course of a number of years. Moreover, their bare allegation that on a handful of occasions they lost deals to Coeco and Young, and that their inability to land such deals must have been attributable to discriminatory pricing discounts provided by Canon USA to Coeco and Young, is utterly insufficient to sustain their Counterclaims. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (“conclusions” in a pleading that are not “supported by factual allegations” are “not entitled to the assumption of truth”). Second, an RPA plaintiff may alternatively allege and prove the requisite “prohibited effect on competition” by alleging facts, and presenting evidence, establishing that there was a “diversion of sales or profits from a disfavored purchaser to a favored purchaser.” Volvo Trucks, 546 U.S. at 177. However, as reflected in the language of the RPA itself as well as its interpretation by the courts, such “diversion” cannot be de minimis, but instead must reflect that a substantial amount of competition was adversely affected by the alleged price discrimination. See 15 U.S.C. § 13(a) (to be actionable under the RPA, purported price discrimination must “substantially . . . lessen competition”). In Volvo Trucks, the Supreme Court held that evidence of a handful of retail transactions where the “favored purchaser” managed to outbid the “disfavored purchaser” on price to obtain a customer’s business was insufficient, as a matter of law, to establish the requisite “prohibited effect on competition” necessary to sustain an RPA secondary line price discrimination claim. The plaintiff, a retail truck dealer, alleged that it received less favorable wholesale pricing from the defendant truck manufacturer, as compared with the pricing provided to certain of its intrabrand competitors. However, when called upon to substantiate that such pricing had a prohibited effect on competition, the plaintiff dealer could only point to two retail transactions in Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 18 of 29 PageID #: 922 15 which it had bid against a purportedly “favored” dealer in a competitive bidding process, and only one of those transactions resulted in the “favored” dealer obtaining the business from the customer. The Supreme Court held that, even if the plaintiff dealer could prove that it had lost that single transaction because of price discrimination (which was unclear), such price discrimination “was not of such magnitude as to affect substantially competition between [the plaintiff dealer] and the ‘favored’ Volvo dealer.” 546 U.S. at 180. Similarly, in Cash & Henderson, a group of retail pharmacies asserted RPA claims against several drug manufacturers, contending that the manufacturers discriminated against them in favor of certain retail competitors with respect to wholesale pricing for certain drugs. In affirming the dismissal of such claims because plaintiffs had failed to demonstrate the requisite “prohibited effect on competition” (which the court also referred to as “competitive injury”), the Second Circuit cited Volvo Trucks as establishing that “any [actionable] ‘price discrimination’ must ‘affect substantially’ competition between the favored purchaser and the plaintiff.” 799 F.3d at 210. The Court further described the holding in Volvo as follows: [The Supreme] Court inquired into the number of instances in which plaintiff and a favored purchaser competed head-to-head, and sought instances where sales had been diverted from the former to the latter. The Court concluded that the small number of instances in which the plaintiff and a favored purchaser competed directly for customers could not support a finding of competitive injury. It follows from Volvo that if the loss attributable to impaired competition is de minimis, then the challenged practice cannot be said to have had a “substantial” effect on competition. [Id. (citations omitted)] Noting that the plaintiffs could not establish that “they lost more than a de minimis number of customers to the favored purchasers,” the court held that the absence of evidence of a significant volume of sales lost to favored purchasers established “that competition was not substantially harmed or threatened by the price difference in question.” 799 F.3d at 210. See also, e.g., Boise Cascade Corp. v. FTC, 837 F.2d 1127, 1145 (D.C. Cir. 1988) (finding of Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 19 of 29 PageID #: 923 16 “competitive injury” reversed where evidence reflected that “only a handful of accounts were shown to have switched” away from disfavored dealers); Erickson’s Flooring & Supply Co. v. Basic Coatings, No. 04-74990, 2007 U.S. Dist. LEXIS 76642 at *21-22 (E.D. Mich. Oct. 15, 2007) (citing Volvo Trucks to hold that plaintiff failed to prove that alleged price discrimination “‘substantially’ affected competition,” because plaintiff could identify only one retail transaction as having been affected by the purported price discrimination). Cavin and Lioce’s sole factual allegations purporting to substantiate the requisite “prohibited effect on competition” cite a handful of retail transactions in which Cavin and Lioce claim to have lost a competitive bidding process for a particular customer’s business, supposedly because of superior CSMP Program wholesale price discounts provided by Canon USA to Cavin and Lioce’s intrabrand competitors, Coeco and Young. Despite claiming that it was victimized by Canon USA’s price discrimination from 2011 to 2015, Cavin identifies only two transactions during those four years (one of which occurred in April 2015, and the other in November 2013) in which it purportedly was outbid on retail price by Coeco, and thereby lost a customer’s business. See Cavin Counterclaim ¶ 18. Lioce, which appears to contend that it has been discriminated against by Canon USA since 2008, identifies only four transactions during all of those years (one in 2012, two in 2013, and one in 2015) in which it purportedly was outbid on retail price by Young, and thereby lost a customer’s business. See Lioce Counterclaim ¶ 28. As established in Volvo Trucks and Cash & Henderson, this small handful of transactions, representing only a de minimis portion of Cavin and Lioce’s overall business, fails to plausibly demonstrate that Canon USA’s alleged price discrimination had a “substantial effect on competition.” Accordingly, to the extent that Cavin and Lioce’s RPA claims are based upon Coeco and Young’s purported receipt of more favorable CSMP Program wholesale pricing Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 20 of 29 PageID #: 924 17 discounts, Cavin and Lioce have failed, as a matter of law, to allege facts sufficient to establish the requisite “prohibited effect on competition.”20 Cavin and Lioce have failed even more starkly to plead facts establishing a “prohibited effect on competition” with respect to their novel theory that Canon USA’s potential recovery of damages against them in the Actions will constitute an RPA violation. Should Canon USA obtain such a recovery, there could not possibly be any effect on competition, let alone the requisite substantial effect. Cavin and Lioce posit that any such recovery, which would essentially reflect the return of unearned CSMP Program wholesale pricing discounts previously received by Cavin and Lioce for business equipment previously purchased from Canon USA, would result, retroactively, in higher wholesale prices having been charged to Cavin and Lioce for such business equipment. But such higher prices could not possibly affect long-ago retail transactions in which Cavin and Lioce offered such equipment for sale to customers. Those transactions were completed at retail pricing levels reflecting the original, discounted wholesale pricing that Cavin and Lioce obtained by cheating Canon USA in order to receive unearned CSMP Program discounts. 20 Cavin and Lioce no doubt will argue that discovery is necessary for them to compile evidence reflecting that Canon USA’s alleged price discrimination had a substantial effect on competition. However, such an argument would be both a red herring and a transparent effort by Cavin and Lioce to use the threat of prohibitively expensive discovery as a hammer to dissuade Canon USA from further pursuing the litigation against them. The facts relied upon by Cavin and Lioce to substantiate the requisite prohibited effect on competition consist of descriptions of competitive bidding transactions in which Cavin and Lioce were outbid by Coeco and Young, respectively. Cavin and Lioce must already be well aware, without the benefit of discovery, of (1) all competitive bidding transactions in which they placed a bid during the relevant time period, (2) whether Coeco or Young also bid for such business, and (3) whether they, Coeco or Young, or a third retail dealer ultimately won the bid. If there are any such transactions not already referenced in their pleadings in which Coeco or Young prevailed in a bidding war over Cavin or Lioce (and possibly others), Cavin and Lioce must be aware of those transactions, and had the ability to determine whether they could plausibly claim that the winning bids reflected wholesale price discrimination and to allege facts in support of such contention. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 21 of 29 PageID #: 925 18 No recovery that Canon USA can obtain in these Actions will enable anyone to go back in time to change the retail prices (reflecting unearned CSMP Program credits) that Cavin and Lioce offered in the past to end-users. Consequently, any recovery by Canon USA in these Actions will have absolutely no impact on any past retail transactions, and, therefore, cannot possibly be deemed to have caused Cavin or Lioce to lose any past sales by reason of the purported retroactive difference in wholesale pricing discounts provided to Cavin and Lioce, as compared to those provided to Coeco and Young. Thus, any recovery by Canon USA in these Actions cannot, and will not, have any effect on past competition, let alone a prohibited effect on such competition. Accordingly, because Cavin and Lioce have failed, as a matter of law, to plead facts sufficient to plausibly establish the requisite prohibited effect on competition, their RPA claims must be dismissed. B. Cavin and Lioce Have Failed to Allege Facts Sufficient to Establish That They Suffered Antitrust Injury In addition to “competitive injury,” an RPA plaintiff must also sufficiently allege and prove “antitrust injury.” See Cash & Henderson, 799 F.3d at 214. “[A] plaintiff may not recover damages merely by showing a violation of [the RPA]; rather, the plaintiff must also ‘make some showing of actual injury attributable to something the antitrust laws were designed to prevent.’” Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 572 (1990) (quoting Perkins v. Standard Oil Co., 395 U.S. 642, 648 (1969)). Given that “[t]he purpose of the antitrust laws . . . is “the protection of competition, not competitors,” Leegin Creative Leather Products v. PSKS, Inc., 551 U.S. 877, 906 (2007), the courts must “resist interpretation [of the RPA] geared more to the protection of existing Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 22 of 29 PageID #: 926 19 competitors than to the stimulation of competition.” Volvo Trucks, 546 U.S. at 181.21 Thus, an RPA plaintiff, like any other civil antitrust plaintiff, must allege and prove antitrust injury by demonstrating not merely that it suffered harm caused by the defendant, but also that such harm was the product of a “competition-reducing aspect or effect” of the defendant’s behavior. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990) (emphasis supplied). The sum total of Cavin and Lioce’s factual allegations purporting to substantiate that Canon USA violated the RPA by providing preferential CSMP Program discounts to Coeco and Young consists of allegations concerning a handful of retail transactions.22 Cavin and Lioce contend that, pursuant to a competitive bidding process, Coeco and Young prevailed in those transactions over Cavin and Lioce (and likely other retail dealers selling competing brands of business equipment) by bidding retail prices lower than those that Cavin and Lioce claim they could offer. 23 In other words, Cavin and Lioce allege nothing more than that Coeco and Young, operating in a “highly competitive” marketplace, managed to secure certain business by cutting their retail prices below those that their competitors were able (or willing) to offer. Cavin and Lioce would have the Court hold that a bare allegation of such price-cutting alone is sufficient to plausibly infer that Coeco and Young were the recipients of preferential CSMP Program wholesale price discounts from Canon USA. But cutting prices below those offered by competitors in order to prevail in a bidding war in what Cavin and Lioce themselves assert is a “highly competitive” marketplace is facially pro-competitive, not anti-competitive. 21 “[T]he Robinson-Patman Act should be construed consistently with the broader policies of the antitrust laws.” Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69, 80 n.13 (1979). 22 For the same reasons that Cavin’s and Lioce’s “information and belief” allegations concerning Canon USA’s alleged provision of a “significant price reduction” to Coeco and Young “over a substantial period of time” (see Volvo Trucks, 546 U.S. at 177 and Morton Salt, 334 U.S. 37) are insufficient to establish the requisite “prohibited effect on competition” (see Section II(A), supra), those allegations also are insufficient, as a matter of law, to establish the requisite antitrust injury. 23 See Cavin Counterclaim ¶ 18; Lioce Counterclaim ¶ 28. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 23 of 29 PageID #: 927 20 “Cutting prices in order to increase business often is the very essence of competition.” Pacific Bell Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438, 451 (2009). The Supreme Court further cautioned in Linkline that “[i]n cases seeking to impose antitrust liability for prices that are too low, mistaken inferences [concerning price-cutting] are ‘especially costly, because they chill the very conduct the antitrust laws are designed to protect.’” 555 U.S. at 451 (quoting Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993)). Not a single factual allegation asserted by Cavin or Lioce is inconsistent with the possibility that Coeco and Young did nothing more than bid steep retail discounts to a handful of customers in order to secure such customers’ business. If that is indeed all that occurred, then Coeco’s and Young’s conduct was pro-competitive, not anti-competitive, and Cavin and Lioce are precluded from demonstrating that they suffered antitrust injury because they were allegedly “harmed” (i.e., lost sales) by competition-increasing, rather than competition-reducing, behavior. In order to satisfy the Twombly plausibility standard for alleging the requisite antitrust injury, Cavin and Lioce must allege facts “plausibly suggesting” that Coeco and Young’s price- cutting in the handful of transactions referenced in their Counterclaims resulted from CSMP Program discounts provided to them by Canon USA that were not otherwise available to Cavin and Lioce, rather than from any other (i.e., pro-competitive, legal) reason. Twombly, 550 U.S. at 557. But, no such facts are alleged in Cavin and Lioce’s pleadings. Instead, Cavin and Lioce’s factual allegations are “merely consistent with” the possibility that Coeco and Young received preferential wholesale pricing discounts. Id. Again, those factual allegations also happen to be consistent with the possibility that Coeco’s and Young’s price-cutting was nothing more than purely pro-competitive conduct in a highly competitive marketplace. Accordingly, Cavin and Lioce have failed to allege facts sufficient to plausibly Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 24 of 29 PageID #: 928 21 establish that they were the victims of competition-reducing conduct,24 and, therefore, have failed, as a matter of law, to allege that they suffered the requisite antitrust injury. C. Canon USA’s Anticipated Recovery on Its Claims Against Cavin and Lioce Does Not Constitute, and Cannot Constitute, an RPA Violation Because There Was No Discrimination in Price Cavin and Lioce appear to base their Counterclaims, at least in part, on a novel, if rather incoherent, argument. They contend that if Canon USA successfully prosecutes its breach of contract claims against them, the resulting recovery would constitute an RPA violation. Essentially, Cavin and Lioce posit that any recovery by Canon USA of damages comprised of unearned CSMP Program credits previously issued to them would effectively raise the wholesale prices that they previously paid to Canon USA for business equipment. Cavin and Lioce contend that, unless Canon USA commences legal action seeking an equivalent recovery from Coeco and Young for unearned CSMP Program discounts, unlawful “price discrimination” will result because Cavin and Lioce’s past business equipment wholesale purchases will no longer be discounted by unearned CSMP Program credits, while Coeco’s and Young’s past purchases will continue to reflect such discounts.25 Putting aside the broad and perverse implications of such a theory (i.e., that any supplier would have to pursue litigation, simultaneously, against all similarly-situated violators of its sales contracts in order to avoid being tagged with RPA liability), it manifestly fails to state a 24 As was the case with respect to allegations of a “prohibited effect on competition,” Cavin’s and Lioce’s allegations of antitrust injury are even more deficient to the extent that the Counterclaims are based upon the novel contention that any recovery by Canon USA in these Actions will constitute an RPA violation. As set forth above, it is beyond legitimate dispute that any such recovery will not, and cannot, have any impact on past retail transactions, let alone an anti-competitive impact. Accordingly, there is no legitimate basis upon which Cavin and Lioce can claim that any recovery achieved by Canon USA in these Actions is competition-reducing (see Atlantic Richfield, 495 U.S. at 344), and, therefore, no basis upon which Cavin and Lioce can claim that they will suffer the requisite antitrust injury if Canon USA obtains any such recovery. 25 See Cavin Counterclaim ¶¶ 24, 30; Lioce Counterclaim ¶¶ 36, 42. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 25 of 29 PageID #: 929 22 claim under the RPA because no actionable “price discrimination” can, or will, result from Canon USA’s anticipated recoveries against Cavin and Lioce.26 While such recoveries will, in fact, retroactively produce a technical increase in the wholesale prices that Cavin and Lioce previously paid for business equipment, that increase threatens no harm to Cavin and Lioce that is recoverable under the RPA. In order for “price discrimination” to be actionable under the RPA, a plaintiff must demonstrate that “the effect of such discrimination may be substantially to lessen competition . . . or to injure, destroy or prevent competition with any person who . . . knowingly receives the benefit of such discrimination.” 15 U.S.C. § 13(a); see also Cash & Henderson, 799 F.3d at 210 (to state a cognizable secondary line price discrimination claim, plaintiff must allege and prove, inter alia, that the purported price discrimination had a “prohibited effect on competition”). An RPA plaintiff demonstrates that purported secondary line price discrimination “lessened,” “injured” or “destroyed” competition by alleging and proving that it lost retail sales to a favored competitor because of such price discrimination. See, e.g., Volvo Trucks, 546 U.S. at 177 (requisite injury to competition necessary to state a cognizable secondary line price discrimination claim is proven by “the diversion of sales or profits from a disfavored purchaser to a favored purchaser”). 26 Among the many fatal flaws of Cavin’s and Lioce’s theory is that the theory would only apply in the event that Cavin and Lioce are held liable to Canon USA for breaching their authorized retail dealer agreements by falsely and fraudulently obtaining CSMP Program discounts they did not earn. Cavin and Lioce contend that, if they are held liable to Canon USA for breach of contract, Canon USA is ipso facto liable to them under the RPA if it enforces its judgment. But it is well-established under the antitrust laws that, even if a party suffers antitrust injury caused by an antitrust violation, it still may lack standing to sue for that injury, because such standing is reserved for what is known as “efficient enforcers,” who are private parties capable of appropriately taking on the role of “private attorney general” to “vindicate the public interest in antitrust enforcement.” Paycom Billing Services, Inc. v. Mastercard International, Inc., 467 F.3d 283, 294 (2d Cir. 2006). Given that Cavin and Lioce could only claim to act as private attorneys general in the event that they are found to have falsely and fraudulently obtained unearned price discounts from Canon USA, they hardly can claim to be appropriate “efficient enforcers” worthy of antitrust standing. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 26 of 29 PageID #: 930 23 Cavin and Lioce’s novel theory of recovery is fatally defective because it is impossible for Cavin and Lioce to demonstrate that the retroactive “price discrimination” they posit caused them to lose retail sales to Coeco and Young. No matter what portion of the previously-issued but unearned CSMP Program credits is ultimately recovered by Canon USA from Cavin and Lioce as damages in these Actions, such recoveries cannot have any effect upon the retail prices that were actually offered to customers at some point in the past by Cavin and Lioce. Nor can such recoveries, of course, have any impact upon past purchasing decisions that were made by retail customers in those instances where Cavin and Coeco, or Lioce and Young, were competing with each other. The retail prices for business equipment offered by Cavin and Lioce in the past will always remain the same, and customers’ decisions regarding whether to accept those offers, or competing offers by Coeco and Young, likewise will always remain the same, regardless of whether or not Canon USA successfully recovers damages in these Actions. Thus, any recovery by Canon USA in these Actions cannot, and will not, have any effect on past competition with respect to the retail sale of the business equipment, the wholesale prices of which are the subject of Cavin and Lioce’s Counterclaims. Therefore, as a matter of law, such recovery cannot constitute actionable “price discrimination,” and cannot give rise to a cognizable RPA claim. Canon USA’s potential recovery based upon Cavin and Lioce’s breach of contract in obtaining unearned CSMP Program discounts ultimately may reduce the amount of the profits earned by Cavin and Lioce on the retail sale of the business equipment at issue, but that “loss” is not the product of prohibited “price discrimination,” and thus is not recoverable under the RPA.27 27 Cavin and Lioce’s letters to the Court, both dated December 20, 2016, responding to Canon USA’s December 14, 2016 pre-motion conference letter, hint that Cavin and Lioce may cite FTC v. Morton Salt Co., 334 U.S. 37 (1948), to attempt an end run around the indisputable fact that any recovery Canon USA may achieve in these Actions cannot impact their past retail pricing for business equipment, or the results of past instances in which Cavin and Coeco, or Lioce and Young, competed with each other for business. Morton Salt merely establishes that “a permissible inference of Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 27 of 29 PageID #: 931 24 CONCLUSION Cavin and Lioce’s transparent goal in asserting their Counterclaims is to make it more expensive, more difficult, and less appealing for Canon USA to continue to prosecute its breach of contract claims against Cavin and Lioce for admitted violations of the terms of the CSMP Program which resulted in wholesale pricing discounts that they concededly did not earn. Indeed, the notion that Canon USA would violate the RPA by recovering wholesale pricing discounts that Cavin and Lioce are found by this Court not to have been entitled to receive underscores the frivolity of the Counterclaims and that their assertion is an exercise in “chutzpah.” Cavin has admitted in writing that it was not entitled to receive any of the CSMP Program wholesale pricing discounts that it received under the CSMP program, and Lioce has never argued that it properly qualified for discounts that it received. Instead, Cavin and Lioce have made the startling claim in these Actions that they were instructed by a Canon USA sales representative how they could violate the CSMP Program rules to obtain discounts for which they were not otherwise eligible. (If that were true, Cavin and Lioce would be guilty of violating the RPA because they would have knowingly obtained and received wholesale pricing discounts from Canon USA that other authorized Canon retail dealers did not. See 15 U.S.C. § 13(f).) Cavin and Lioce aim to significantly expand the scope of discovery by contending that their Counterclaims provide them with reason to engage in expansive discovery covering years of transactions between Canon USA and Cavin and Lioce’s principal intrabrand competitors, competitive injury may arise from evidence that a favored competitor received a significant price reduction over a substantial period of time.” Volvo Trucks, 546 U.S. at 177. However, the “inference” of competitive injury recognized in Morton Salt arises from the assumption that the “significant price reduction” granted to the “favored competitor” actually affected the resale prices that the “favored competitor” actually charged during the “substantial period of time.” See Morton Salt, 334 U.S. at 47. No such inference is possible here, because any recovery by Canon USA in these Actions cannot have, and will not have, any effect upon the past retail prices for business equipment offered by any of Cavin, Lioce, Coeco, or Young. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 28 of 29 PageID #: 932 25 Coeco and Young. They clearly perceive the threat of such discovery as militating against Canon USA’s willingness to persevere in seeking to fully vindicate its contractual rights. This misguided strategy can only succeed if the Court fails to rigorously and properly apply the Twombly standard to their Counterclaims. If the appropriate scrutiny is applied to the scant factual allegations made by Cavin and Lioce, their Counterclaims cannot survive. Accordingly, for all of the reasons set forth in this Memorandum, Canon USA respectfully requests that the Court grant Canon USA’s motion to dismiss in all respects. Dated: January 20, 2017 DORSEY & WHITNEY LLP By: /s/ Richard H. Silberberg Richard H. Silberberg Christopher G. Karagheuzoff Robert G. Manson Dai Wai Chin Feman 51 West 52nd Street New York, NY 10019 (212) 415-9200 Attorneys for Plaintiff/Counterclaim- Defendant Canon U.S.A., Inc. Case 2:15-cv-05634-JFB-AKT Document 70-1 Filed 01/20/17 Page 29 of 29 PageID #: 933