Ruling may aid ISO in Siemens case

July 1, 1992

A June Supreme Court ruling making it easier for independent serviceorganizations to sue equipment vendors could prove helpful inlitigation filed against Siemens Medical Systems by a MichiganISO.Siemens recently asked a federal court judge to dismiss the

A June Supreme Court ruling making it easier for independent serviceorganizations to sue equipment vendors could prove helpful inlitigation filed against Siemens Medical Systems by a MichiganISO.

Siemens recently asked a federal court judge to dismiss the lawsuit,which was filed against the German multimodality vendor by DiagnosticX-Ray Services (DXS) of Grand Blanc, MI. The suit charges thatSiemens violated antitrust laws by allegedly interfering withDXS's maintenance and repair service of x-ray equipment in Michigan.

The Supreme Court ruling last month shuts down one avenue of defensefor manufacturers like Siemens that are accused of antitrust violationsby third-party service organizations.

The high court decision upheld the reinstatement of a suit broughtby a group of photocopier ISOs against Eastman Kodak. The ISOsallege that Kodak refused to sell spare parts for its photocopiersto third-party companies in order to prevent them from servicingKodak equipment (SCAN 6/17/92).

A trial judge had thrown out the suit, agreeing with Kodak's argumentthat because the company did not control the photocopier market,it could not hold a monopoly position in supplying parts for itsown products.

The Supreme Court, however, upheld an appeals court decision thatoverturned the lower court ruling and allowed the suit to go forward.The high court ruled that Kodak's monopoly position in supplyingparts for Kodak copiers constituted a market in itself, to whichantitrust laws apply.

The ruling won't affect Siemens' request for dismissal of itscase, according to Neill Peters, an attorney for DXS. That requestwas based on the statute of limitations for antitrust cases.

"I don't think it applies directly to our case right now,because Siemens hasn't brought it up yet," Peters told SCAN.

But the ruling could block one of Siemens' defenses against antitrustif the suit proceeds, he said.

"If they were planning to use (the Kodak defense), they can'tnow," Peters said. "The Kodak ruling makes much moreeconomic sense by establishing that there are two markets--anequipment market and a service market."

In the Siemens case, DXS has accused the vendor of refusing tosell parts to the third-party company and of tying the sale ofparts to Siemens maintenance contracts. DXS also alleges thatSiemens refused to warrant parts installed by third-party companies.

The parent company of DXS, Flint X-Ray, had a distribution, salesand maintenance agreement with Siemens that was terminated in1985 when Siemens established its own service and repair organizationin Flint's geographic area.

Flint, and later DXS, continued to service Siemens equipment andto purchase warranted spare parts from Siemens until 1987. Atthat time, according to a complaint filed by DXS attorneys, Siemensinformed DXS that it would no longer sell parts to third-partycompanies.

That action was part of an industry-wide policy Siemens developedbut never implemented. The policy was devised to ensure properinstallation and safety of Siemens equipment, according to Siemensspokesperson Ted Pensiero. It was scrapped in favor of an alternatepolicy that allowed the sale of parts to third-party companies.

DXS alleges that it was never informed of the withdrawal of thepolicy. DXS also charges that Siemens still will not sell partsto DXS, and will not warrant Siemens parts unless they are servicedby Siemens personnel.

DXS is asking for an injunction preventing Siemens from tyingthe sale of parts to service, as well as unspecified monetarydamages. The suit was filed in U.S. District Court, Eastern Districtof Michigan, Southern Division.

Siemens denies the charges, according to Pensiero.

"We're confident of our position and we're confident of victory,"he said.

In an interesting twist, Siemens is represented in the trial byRonald Katz of Coudert Brothers in San Francisco. Katz has defendedthird-party companies in past cases against manufacturers.

"Mr. Katz is an expert in the field," Pensiero said."He has investigated the facts of the case and is comfortabledefending Siemens."