In Collins Inkjet Corp. v. Eastman Kodak Co., the Sixth Circuit recently held that differential pricing—charging more for a product when the customer fails to buy a second “tied” product—constitutes unlawful tying only when the second product is effectively being sold for below-cost. In adopting this “discount attribution” standard, the court sided with the Ninth Circuit in a circuit split, finding the Ninth Circuit’s analysis “more compelling than that of the Third Circuit” on the issue. We previously posted on the case here.
Although the court found the district court’s analysis “unduly favored” the plaintiff, it ultimately found that, even under its stricter standard, the preliminary injunction was warranted. The district court’s test for unlawful tying was based on Virtual Maintenance v. Prime Computer, 957 F.2d 1318 (6th Cir. 1992) (en banc), in which the court had said:
A tying arrangement clearly exists here because the large price differential between software support alone and the software support/hardware maintenance package induces all rational buyers of Prime’s software support to accept its hardware maintenance.
Thus, the district court’s test for whether differential pricing created an unlawful tie was whether the difference would induce “all rational buyers” to buy the products together. In the instant case, however, the Sixth Circuit held that this portion of Virtual Maintenance was “dicta, unnecessary to determining the outcome of the appeal” and criticized it as “a single sentence with no supporting authority.” The court pointed out that the pricing policy in Virtual Maintenance “would self-evidently fail” the discount attribution standard, and thus there was “little need to determine exactly” where to draw the line.
Judge Daughtrey concurred in the judgment, but not in “the majority’s formulation of a decisional framework applicable to all tying arrangements.” Judge Daughtrey’s preferred holding would have been much narrower: “where a defendant . . . has a 100-percent monopolistic share of the market for a tying product, it may not price a tied product, for which it does not control the relevant market, below its costs.”
With a 2-1 circuit split, this case may be a viable contender for Supreme Court review. In the meantime, it will be interesting to see whether subsequent panels will read this decision broadly, to apply to “all tying arrangements,” or pare it back (as the majority did to Virtual Maintenance) on the grounds that determining the outcome did not require choosing a test (because the panel affirmed the injunction even under the stricter discount attribution standard).