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Alarmax Distributors, Inc. v. Tyco Safety Products Canada Ltd.

June 27, 2008

ALARMAX DISTRIBUTORS, INC., PLAINTIFF,
v.
TYCO SAFETY PRODUCTS CANADA LTD., DEFENDANTS.



The opinion of the court was delivered by: Ambrose, Chief District Judge

OPINION and ORDER OF COURT

Plaintiff AlarMax Distributors, Inc. ("AlarMax")is a wholesale distributor of electronic security products for residential and commercial settings. AlarMax sells products such as burglar alarms, fire alarms and other electronic security products for new installation as well as for maintenance and repair, to installers, alarm contractors and electricians. AlarMax buys from three manufacturers:*fn1 Napco, Sentrol GE and Defendant Digital Security Controls - which subsequently became a division of Tyco Canada (hereinafter referred to as "Tyco").

In 2000, AlarMax sued Tyco for, among other things, breach of an oral distribution agreement. In June of 2002, the parties reached a settlement agreement ("the Agreement"). AlarMax contends that the Agreement was renewed on June 28, 2007 with an expiration date of June 27, 2009. The present suit arises out of what AlarMax contends is a breach of that Agreement and a leveraging of Tyco's position in that respect. According to AlarMax, Tyco attempted to force it, and other independent distributors, into accepting a new Distribution Agreement (the "Distribution Agreement"). The new Distribution Agreement would require AlarMax, and the other independent distributors, to become exclusive dealers - to carry only Tyco products.

AlarMax refused to sign the new Distribution Agreement and instead initiated this suit. According to the allegations in the Complaint, were the independent distributors to accede to Tyco's demands in this respect, Sentrol GE and Napco would effectively be shut out of the market. AlarMax explains that both Tyco and Sentrol GE previously attempted to adopt Honeywell's model of distributing their product directly, but ultimately had to abandon this approach. If Tyco succeeds in forcing the independent distributors to become exclusive Tyco distributors, AlarMax reasons, the other manufacturers will have no means of reaching the market. Given that the barriers to entry to the market are high and that the business itself is not in a growth mode, AlarMax contends that Tyco's actions will result in the reduction of competition in the marketplace. On a more specific level, AlarMax also alleges that Tyco has injured AlarMax directly by delaying shipment, by making false claims of credit unworthiness, and by eliminating credit to AlarMax. Consequently AlarMax asserts claims for breach of contract, violation of Count I of the Sherman Act (restraint of trade), violation of Count 3 of the Clayton Act (exclusive dealing), violation of Count 2 of the Sherman Act (attempted monopolization), and violation of Pennsylvania's common law prohibition on restraint of trade.

Tyco has filed a Motion to Dismiss. See Docket No. [26]. Though Tyco does not challenge the breach of contract claim at this juncture, Tyco does challenge the antitrust claims asserted in Counts II, III, and IV as well as the Pennsylvania common law restraint of trade claim. Essentially, Tyco contends that the federal antitrust claims all fail because AlarMax's product market definition is legally invalid; because AlarMax has failed to plead a cognizable antitrust injury; and because AlarMax has failed to plead an actual agreement. Tyco also urges that the Pennsylvania restraint of trade claim be dismissed because such a claim is not cognizable under Pennsylvania common law.

After careful consideration, and for the reasons set forth below, the Motion is denied.

Standard of Review

In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, I must construe all allegations of the complaint in the light most favorable to the plaintiff. I must also accept as true all well-pleaded facts and allegations, and must draw all reasonable inferences therefrom in favor of the plaintiff. Worldcom, Inc. v. Graphnet, Inc., 343 F.3d 651, 653 (3d Cir. 2003). However, as the Supreme Court made clear in Bell Atlantic v. Twombly, __ U.S. __, 127 S.Ct. 1955, 1965 (2007), the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Thus, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (citations omitted).

Analysis

I. Counts II, III and IV - "Relevant Product Market"*fn2 As plaintiff, AlarMax bears the burden of establishing the relevant market

Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 436 (3d Cir. 1997). The relevant market consists of both a product market and a geographic market. Tyco has not challenged AlarMax's pleadings with respect to the geographic market.*fn3 Rather, the focus of Tyco's challenge is the product market.

I recognize that dismissal of antitrust claims may be appropriate in certain cases. See Queen City Pizza, 124 F.3d at 436. Yet it is also true "that in most cases, proper market definition can be determined only after a factual inquiry into the commercial realities faced by consumers." Id., citing, Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 482, 112 S.Ct. 2072, 2090 (1992) (emphasis added). I find further factual inquiry is necessary here to determine the identity of the consumer.

Briefly, as the Third Circuit court has explained, "defining a relevant product market is a process of describing those groups of producers which, because of the similarity of their products, have the ability actual or potential to take significant amounts of business away from eachother." SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1063 (3d Cir.), cert. denied, 439 U.S. 838 (1978). AlarMax defines the relevant product market as "the sale of burglar alarm products to independent distributors for resale to installers and contractors for residential and commercial settings." See Complaint, ¶ 70. Tyco counters that the relevant product market must also include sales by Honeywell, which sells directly through independent distributors. Both parties advance sound arguments in support of their respective position.

As the Supreme Court has observed, "[t]he outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Brown Shoe Co. v. U.S., 370 ...


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