<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 23, 1999
Honeywell Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-971 41-0415010
---------------- ---------------- --------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Honeywell Plaza
Minneapolis, Minnesota 55408
---------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 951-1000
Not Applicable
------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. OTHER EVENTS.
As previously reported in its Forms 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission, Honeywell Inc. is a party to material
litigation involving Litton Systems, Inc.
On September 23, 1999, Judge Marianna Pfaelzer of the U.S. District
Court, Central District of California, Los Angeles (the "Trial Court"), issued
dispositive rulings in both the Litton Systems Inc. v. Honeywell Inc.
patent/tort and antitrust cases then before her.
PATENT/TORT CASE
The Trial Court granted Honeywell's Motion for Judgment as a Matter of Law and
Summary Judgment on the Patent claims on the various grounds; granted
Honeywell's Motion for Judgment as a Matter of Law on the State Law Claims on
the grounds of insufficient evidence; and denied Litton's Motion for Partial
Summary Judgment. Attached hereto as Exhibit 20(i) is the Civil Minutes-General
of the Trial Court reflecting these rulings.
ANTITRUST CASE
The Trial Court denied Honeywell's Motion for Judgment as a Matter of Law and
Motion for New Trial and Remittitur as they related to Litton Systems Inc.,
which had won a jury verdict of $220 million in compensatory damages before
trebling; but granted Honeywell's Motion for Judgment as a Matter of Law as it
relates to Litton Systems, Canada, Limited, which had previously won a $30
million jury verdict. The net effect should be the eventual reduction of the
existing judgment against Honeywell to $660 million, plus reasonable attorney
fees and costs, the amount of which is currently being contested by the parties.
Attached hereto as Exhibits 20(ii), 20(iii) and 20(iv) are the Civil
Minutes-General of the Trial Court and the Memorandum of Decision reflecting
these rulings.
Honeywell intends to seek its first appellate review of this, and earlier,
adverse rulings regarding liability and damages in the antitrust case. That
appeal will be directed to the Ninth Circuit Court of Appeals once the Trial
Court has entered its revised Judgment. It is expected that Litton will seek
appellate review of its adverse rulings in the patent/tort case. Those efforts
should be addressed to the Federal Circuit Court of Appeals which previously
reviewed the underlying case and remanded certain issues to Judge Pfaelzer for
disposition.
The parties will likely be opposing one another's appellate efforts vigorously
over the next several months and final rulings may well not be forthcoming from
either the Ninth or Federal Circuit Courts until the year 2001. Honeywell
expects that the Trial Court's latest rulings in the patent/tort case will
eventually be affirmed since they are consistent with the Federal Circuit's most
recent opinions in this case and others which deal with alleged patent
infringement under the doctrine of equivalence, and since, absent any patent
infringement, Litton has not proven any tortitious Honeywell behavior which
interfered with its contracts or business prospects. Honeywell also expects to
obtain substantial relief from the current adverse judgment in the
<PAGE>
antitrust case by an appeal to the Ninth Circuit, based upon sound
substantive and procedural legal grounds.
Honeywell issued a press release announcing this event on September 24,
1999, a copy of which is attached hereto as Exhibit 20(v).
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
20(i) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(ii) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(iii) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(iv) United States District Court, Central District of
California, Case No. 90-4823 MRP, Memorandum of
Decision.
20(v) Press Release dated September 24, 1999.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HONEYWELL INC.
By: /s/ Edward D. Grayson
-----------------------
Edward D. Grayson
Vice President and
General Counsel
Date: October 7, 1999
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
20(i) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(ii) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(iii) United States District Court, Central District of
California, Civil Minutes-General, dated 9/23/99.
20(iv) United States District Court, Central District of
California, Case No. 90-4823 MRP, Memorandum of
Decision.
20(v) Press Release dated September 24, 1999.
</TABLE>
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES--GENERAL
Case No. CV 90-93 MRP DATE: 9/23/99
Title: LITTON SYSTEMS, INC. V. HONEYWELL, INC.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PRESENT: HON. MARIANA R. PFAELZER, Judge
Robert J. Flores, Deputy Clerk
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
N/A N/A
PROCEEDINGS:
On July 26, 1999, the Court heard oral argument on the plaintiffs' Motion for
Partial Summary Judgment, defendant's Motion for Judgment as a Matter of Law
and Summary Judgment on the Patent Claims, and defendant's Motion for
Judgment as a Matter of Law on the State Law Claims (the "Motions"). The
Motions were taken under submission on that date.
Having read and considered all the files and records of the proceedings in
the case, including the papers filed in support of and in opposition to the
Motions, and having considered the oral arguments of counsel, the Court:
1. Denies the plaintiffs' Motion for Partial Summary Judgment;
2. Grants the defendant's Motion for Judgment as a Matter of Law and
Summary Judgment on the Patent Claims based on the following conclusions:
a. Prosecution history estoppel precludes infringement under the
doctrine of equivalents with respect to the accused process with a hollow
cathode ion beam source. The differences between the hollow cathode source in
the Harper chapter cited in the file history and the hollow cathode source in
the accused process are trivial. However, prosecution history estoppel does
not preclude infringement under the doctrine of equivalents with respect to
the accused process with a radio frequency ion beam source. The differences
between the radio frequency source in the Lane and Anderson article in the
file history and the radio frequency source in the accused process are not
trivial.
Page 1 of 2
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES--GENERAL
Case No. CV 90-93 MRP DATE: 9/23/99
Title: LITTON SYSTEMS, INC. V. HONEYWELL, INC.
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
b. Under the reasoning of WARNER-JENKINSON CO. V. HILTON DAVIS
CHEMICAL CO., 520 U.S. 17, 117 S. Ct. 1040, 137 L. Ed. 2d 46 (1997), the
doctrine of equivalents cannot be applied to either the accused process with
a hollow cathode ion beam source or the accused process with a radio
frequency ion beam source if application of the doctrine to those processes
would "effectively eliminate [an] element [of the '849 Reissue] in its
entirety." WARNER-JENKINSON, 520 U.S. 29, 117 S. Ct. at 1049. The element of a
"Kaufman-type ion beam source" would be effectively eliminated if the
doctrine of equivalents were applied so expansively as to include either or
both of the accused processes. Application of the doctrine of equivalents is
precluded as to each of the accused processes.
c. Application of the doctrine of equivalents cannot embrace a
range of equivalents that would extend to the accused process with a radio
frequency ion beam source because that ion beam source has a different
structure that works in a substantially different way than the "Kaufman type
ion beam source." AUGUSTINE MEDICAL, INC. V. GAYMAR INDUSTRIES, INC., 181
F.3d 1291, 50 U.S.P.Q.2d 1900 (Fed. Cir. 1999).
d. With respect to the accused process with a hollow cathode ion
beam source, prior art precludes infringement under the doctrine of
equivalents. WILSON SPORTING GOODS CO. V. DAVID GEOFFREY & ASSOCS., 904 F.2d
677, 684, 14 U.S.P.Q.2d 1942, 1948 (Fed. Cir. 1990). Prior art does not
preclude infringement under the doctrine of equivalents with respect to the
accused process with a radio frequency ion beam source.
3. Grants the defendant's Motion for Judgment as a Matter of Law on
the State Law Claims on the ground that there is insufficient evidence to
permit recovery on the state law claims. Litton has wholly failed to
establish the elements required for their state law claims.
The Court believes that the proceedings in this matter should be expedited.
For that reason, it has not prepared a written opinion. Rather, it has
reexamined the voluminous record in light of the arguments of the parties and
answered the inquiries put to it by the Federal Circuit. The Court has also
considered the Statement of Uncontroverted Facts and Conclusions of Law in
Support of the Motions submitted by Honeywell and orders Honeywell to prepare
and file a revised statement as to all of the motions and a form of judgment
on or before October 11, 1999. Litton shall have to and including October 26,
1999 to object to Honeywell's proposed statement and form of judgment. The
Court will then read and consider the submissions of the parties and sign a
final statement and judgment. No further filings will be accepted or
considered.
Page 2 of 2
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES--GENERAL
Case No. CV 90-4823 MRP DATE: 9/23/99
Title: LITTON SYSTEMS, INC., ET AL. V. HONEYWELL, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRESENT: HON. MARIANA R. PFAELZER, Judge
Robert J. Flores, Deputy Clerk
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
N/A N/A
PROCEEDINGS:
On May 20, 1999, the Court heard oral argument with respect to Defendant
Honeywell's Motion for New Trial and Remittitur and Defendant Honeywell's
Motion for Judgment as a Matter of Law ("Motions") and took the Motions under
submission.
Having considered the files and records in this matter and the arguments of
the parties, both in support of and in opposition to the Motions, the Motions
are denied as they relate to the plaintiff Litton Systems, Inc. The Motion
for Judgment as a Matter of Law is granted as it relates to the plaintiff
Litton Systems, Canada, Limited, on the grounds set forth in the separate
Memorandum of Decision filed by the Court.
Plaintiffs' counsel shall submit a proposed order and judgment reflecting
the decision of the Court on or before October 11, 1999.
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. CV 90-4823 MRP DATE: 9/23/99
Title: LITTON SYSTEMS, INC., ET AL. V. HONEYWELL, INC.
===============================================================================
PRESENT: HON. MARIANA R. PFAELZER, Judge
Robert J. Flores, Deputy Clerk
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR
DEFENDANTS:
N/A N/A
PROCEEDINGS:
On May 20, 1999, the Court heard oral argument with respect to Defendant
Honeywell's Motion to Strike or Disregard Evidence Cited in Litton's JMOL
Opposition Which Was Not Admitted at Trial ("Motion") and took the Motion
under submission.
Having considered the files and records of the proceedings in this matter and
the arguments of the parties, both in support of and in opposition to the
Motion, the Motion is denied as superfluous and unnecessary. In all of its
rulings, the Court has only considered what is actually in the record.
<PAGE>
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
LITTON SYSTEMS, INC., a Delaware )
corporation, and LITTON SYSTEMS )
CANADA, LIMITED, a Canadian ) CASE No. CV 90-4823 MRP
corporation )
) MEMORANDUM OF DECISION
Plaintiffs, )
)
v. )
)
HONEYWELL, INC., a Delaware )
corporation, )
)
Defendant. )
- -----------------------------------
BACKGROUND
Litton Systems, Inc. ("Litton Systems") was originally the sole
plaintiff in this antitrust action against Honeywell, Inc. ("Honeywell").
Litton Systems and Honeywell are competitors in the market for ring laser
gyroscope inertial reference systems ("RLG-IRSs"); both companies sell
RLG-IRSs to airplane manufacturers and airlines and provide repair and
maintenance services for these systems. In 1990, Litton Systems brought suit
alleging that Honeywell had monopolized and attempted to monopolize the market
for the RLG-IRS product. At the 1996 trial, Litton Systems claimed damages
not only for its own losses, but also for losses suffered by Litton Systems
Canada, Ltd. ("LSL"), the manufacturer of the RLG-IRSs sold by Litton
<PAGE>
Systems. Both Litton Systems and LSL are subsidiaries of Litton Industries,
Inc. ("Litton Industries"). Litton Industries and Litton Systems are
incorporated in the United States ("U.S."), whereas LSL is a Canadian
company. At the conlcusion of the 1996 trial, the jury awarded Litton Systems
$234 million in damages on the claim of monopolization. The jury failed to
reach a verdict on the question of damages for the attempted monopolization
claim, and the Court declared a mistrial on this claim.
Honeywell contested Litton Systems' standing to recover damages for
LSL's losses in its Motion for Judgment as a Matter of Law following the 1996
trial. However, the Court did not reach the standing issue at that time,
because it granted Honeywell's Motion for a New Trial on the issue of damages
for the monopolization claim. Honeywell raised the issue of Litton Systems'
standing again in a Motion in Limine prior to the 1998 damages re-trial.
Litton Systems countered by filing a Motion to Amend Complaint, seeking to
add LSL as a party in order to conform to the proof offered at the 1996
trial. The Court permitted Litton Systems to amend its complaint to add LSL.
The Second Amended Complaint alleges that LSL is a Canadian corporation
and a wholly owned subsidiary of Litton Industries, Inc., that LSL is a
manufacturer and servicer of gyroscopes and other RLG-IRS components, and
that these components are incorporated in RLG-IRS systems that are "designed,
manufactured, marketed, sold and serviced within the relevant market" in
which Honeywell also engages. SEE Second Amended Complaint, PARA 5. The
complaint's allegations thereafter refer to both plaintiffs collectively as
"Litton," and the harms suffered by LSL are not distinguished from those
suffered by Litton Systems. SEE ID., PARAS 20-57. Indeed, the complaint
treats the two plaintiffs as a single entity, referring to the existence of
"only two suppliers, Litton and Honeywell, worldwide," ID., PARA 18, and to
the
2
<PAGE>
collective "Litton" as being "the only competitor offering alternative
RLG-IRS systems," ID., PARA 16.
Throughout the course of this litigation, the evidence has been
consistent with respect to LSL. It operated primarily as a supplier to Litton
Systems, manufacturing the RLG-IRSs and selling them to Litton Systems at
prices determined by arms-length negotiations. Litton Systems then resold the
product to its customers in competition with Honeywell.(1) LSL also had a
secondary and distinct role as a competitor in the RLG-IRS market: it made a
small number of direct sales to Canadian customers in the relevant market.(2)
Plaintiffs did not offer any evidence to suggest that these Canadian sales
were interrelated in any way with LSL's sales to Litton Systems.
The vast majority of LSL's claimed damages relate to its sales to Litton
Systems. LSL claimed $5,884,601 in actual losses, of which only $885,764 was
due to sales to customers other than Litton Systems. SEE Table 57, Final
Expert Report of Dr. John C. Beyer. LSL's claim for an additional $32 million
in but-for profits was based solely on profits from additional sales to
Litton Systems; LSL did not offer
- -----------------
(1) In the 1996 trial, Trevor Ratcliffe, LSL employee, testified: "Since
we were a manufacturer of [Litton Systems'] product, we were not selling to
airlines. We were selling entirely to Aero Products [a division of Litton
Systems]." SEE Declaration of John R. Denny in Support of Litton's Motion to
Amend Complaint, Ex. B, at 74 (filed 10/27/98) (at 3199 of 1996 trial
transcript). Similarly, Joseph Caligiuri testified in his deposition that LSL
sold gyroscopes to Litton Systems in an arms-length transaction: LSL "was a
manufacturer for [Litton Systems]." SEE Declaration of Robert H. Wright in
Support of Honeywell's Memorandum Regarding Dr. Beyer's "Decomposition
Procedures" and LSL Share of Total Lost Profits, Ex. G, at 49 (filed 11/6/98)
(at 64 of Caligiuri deposition).
(2) Trevor Ratcliffe also testified in the 1996 trial that LSL "did
have some small Canadian domestic orders for the product." SEE Denny
Declaration at 82 (at p. 3210 of 1996 trial transcript).
3
<PAGE>
evidence to suggest that it would have made additional direct sales in the
RLG-IRS market.(3) LSL also did not claim any damages for actual losses or
but-for profits on the repair of RLG-IRSs. SEE Note, Table 57, Final Expert
Report of Dr. John C. Beyer. Therefore, of LSL's $37.9 million in claimed
losses,(4) only $885,764 related to direct sales in the RLG-IRS market in
Canada. The remainder of the damages
- ------------------------
(3) In his charts decomposing his damage estimate for the jury, Dr.
Beyer attributed all but-for sales to Canadian airlines to Litton Systems,
not LSL. In fact, Dr. Beyer did not include any sales by LSL to any customer
in his chart of additional sales in the but-for world. SEE Plaintiffs Exhibit
8401. Had Dr. Beyer attributed other, independent sales to LSL, the Court's
ruling that he must decompose his damage estimate would have required him to
identify those sales for the jury and to explain to them how LSL's damages
could be reduced if they did not believe the evidence indicated that LSL
would have made those additional sales in the but-for world. Instead, Dr.
Beyer's exhibit demonstrating how to reduce LSL's damages permitted
reductions solely in direct relation to the jury's deletion of but-for sales
by Litton Systems, indicating that LSL's but-for profits were driven solely
by Litton Systems' additional sales in the but-for world. SEE Plaintiff's
Exhibit 8402.
Dr. Beyer's trial testimony is internally inconsistent on this point. He
indicated during his direct examination that LSL's additional but-for profits
were derived from additional sales to Litton Systems, stating that he had
computed but-for profits by figuring LSL's costs in the but-for world and
applying the 5% profit margin that "Litton uses as its guideline for sales
that are made between different divisions within the Litton family of
companies." 11/13/98 trial transcript at 2092. Under cross-examination, Dr.
Beyer first asserted that LSL would have some additional Canadian sales in
the but-for world, but then stated that none of the additional but-for
Canadian sales listed in his charts should be attributed to LSL rather than
Litton Systems. SEE 11/17/98 trial transcript at 2366-67. Since Dr. Beyer did
not identify specific additional sales that LSL would have made to
independent customers in the but-for world at any point during his testimony
or in his report, nor did his decomposition method indicate any additional
sales by LSL to anyone but Litton Systems, the Court does not place any
credence in Dr. Beyer's bald statement under cross-examination that LSL would
have had additional Canadian but-for sales.
(4) The more precise amounts cited earlier were rounded up to this
figure in presentation to the jury. Dr. Beyer also presented a second, higher
estimate of $42.7 million in damages to LSL. SEE 4/13/98 transcript, at 2093;
Plaintiff's Exhibit 9086.
4
<PAGE>
were based on LSL's sales to Litton Systems. The jury found Honeywell liable
for $220 million in damages to Litton Systems and $30 million in damages to
LSL.
In its Motion for Judgment as a Matter of Law, Honeywell contends that
the Court lacks subject matter jursidiction over LSL's claims. The Court
finds that LSL does not have standing to raise claims regarding its sales to
Litton Systems because it was acting as a supplier and did not participate in
the relevant market. The Court also finds that there is no subject matter
jurisdiction over LSL's claims based on its sales in Canada because those
losses were unrelated to the effect of Honeywell's conduct on U.S. commerce.
ANALYSIS
I. SUPPLIER STANDING
This section addresses only LSL's standing to bring its claims regarding
sales to Litton Systems, since Honeywell does not challenge LSL's standing to
bring its claims for sales to customers in the relevant market.
A. LSL DOES NOT HAVE STANDING UNDER THE ASSOCIATED GENERAL CONTRACTORS
TEST.
The Supreme Court has specified five factors to be weighed in determining
whether a plaintiff has antitrust standing: 1) the nature of the plaintiff's
injury; 2) the directness of the injury, or its causal connection to the
violation; 3) the speculative measure of the harm; 4) the risk of duplicative
recovery and difficulty of apportioning damages; and 5) the existence of more
direct victims.(5)
- ---------------------------
(5) The list of ASSOCIATED GENERAL CONTRACTORS factors has varied somewhat
in the Ninth Circuit case law; however, the variations are minor. Sometimes
the fourth factor listed here is treated as two separate factors, and
sometimes the existence of more direct victims is discussed under another
factor rather than being addressed separately. SEE, E.G., AMAREL V. CONNELL,
102 F.3d 1494, 1507 (9th Cir. 1997); LUCAS V. BECHTEL CORP., 800 F.2d 839,
844 (9th Cir.
5
<PAGE>
SEE ASSOCIATED GENERAL CONTRACTORS, INC. V. CALIFORNIA STATE COUNCIL OF
CARPENTERS, 459 U.S. 519, 537-44 (1983). Courts have generally found that
suppliers do not have standing to bring claims under the Sherman Act for
damages they suffered as a secondary result of antitrust injury to their
customers. SEE SAS OF PUERTO RICO V. PUERTO RICO TEL. CO., 48 F.3d 39, 44
(1st Cir. 1995); 2 Areeda & Hovenkamp, Antitrust Law PARA 375d, at 302.
Suppliers have, however, succeeded in establishing standing when they could
show that they were competitors and targets of the defendants, because they
have thereby demonstrated a direct relationship to the antitrust violation.
SEE AMAREL V. CONNELL, 102 F.3d 1494, 1510 (9th Cir. 1996). In this case,
consideration of the relevant factors reveals that LSL's losses in its sales
to Litton Systems are a secondary result of antitrust injury to Litton
Systems and are not directly related to Honeywell's antitrust violations.
The first three factors address the relationship between the harm to the
plaintiff and the alleged antitrust violation. A plaintiff suffers antitrust
injury when it experiences losses because its ability to participate in the
relevant market has been impaired by the defendant's anti-competitive
conduct. SEE BRUNSWICK CORP. V. PUEBLO BOWL-O-MAT, INC., 429 U.S. 477, 487-88
(1977). The nexus between the harm to competition and the harm to the
plaintiff is central to this analysis. SEE ID. Competition in the RLG-IRS
market allegedly was stifled by Honeywell's monopolization, and it was the
monopolistic aspect of Honeywell's conduct that prevented Litton Systems from
successfully competing in that market and caused its losses; Honeywell used
its market power to make long-term exclusive arrangements with
- --------------------
1986); EXHIBITORS' SERVICE, INC. V. AMERICAN MULTI-CINEMA, INC., 788 F.2d 574,
578 (9th Cir. 1986). Since all of the factors are interrelated and are to be
balanced, these slight differences do not affect the analysis here.
6
<PAGE>
customers and bar Litton Systems from making sales. But the nature of LSL's
injury was a reduction in orders from a customer, Litton Systems, as a
secondary result of the monopoly in Litton Systems' sales market. LSL did not
suffer any impairment of its ability to compete for these sales; rather, it
was harmed by Litton Systems' attempts to mitigate its own losses. Any cause
that impelled Litton Systems to try to contain lost profits by reducing
production, whether anti-competitive or not, would have caused the same harm
to LSL. A reduction in orders from customers who have themselves suffered
antitrust injury, and the consequences to a company's production and profit
levels, is not the kind of injury the antitrust laws were intended to prevent.
Similarly, LSL's decreased sales to Litton Systems are an indirect
result of the antitrust violation. There are several links in the causal
chain between Honeywell's conduct and LSL's losses. Honeywell's conduct
affected Litton Systems' ability to compete in its sales market. Litton
Systems then made independent decisions about how to react to this problem,
including decisions about which contracts to pursue and what sort of product
it wished to market. It was only after the effect of Honeywell's conduct was
filtered through this decision-making process that LSL's profits were
affected.
LSL's damages are not particularly speculative. Although LSL's damages
from its sales to Litton Systems are indirect, they are linked to and driven
by Litton System's losses, because LSL was Litton Systems' sole outside
RLG-IRS manufacturer. Therefore, although the losses are indirect, they are
fairly certain.
The fourth and fifth factors, duplicative recovery/apportionment of
recovery and existence of a more direct victim, focus on the concern that
there may be a more appropriate plaintiff to bring the action. It is
duplicative for companies at different points in the chain of distribution to
receive damages for their losses on what was
7
<PAGE>
ultimately the same transaction in the relevant market. SEE ASSOCIATED
GENERAL CONTRACTORS, 459 U.S. at 544. Therefore, in this case, it is
duplicative for both Litton Systems and LSL to receive damages for losses on
Litton Systems' actual and but-for sales to customers. Apportionment of
recovery is not difficult in this case, however, because there are only two
parties at issue.
Finally, Litton Systems is the most direct victim for losses on sales it
made to customers in the relevant market. Furthermore, Litton Systems has
actually brought its claim and has been compensated for its losses,
eliminating any justification for permitting LSL, as an indirect victim, to
bring a claim in pursuit of the public interest in protecting competition
through antitrust enforcement. SEE ID. at 542.
Weighing these factors, it is apparent that LSL does not have standing
to bring its claims for losses in sales as a supplier to Litton Systems.
Litton Systems is the party who was directly injured by Honeywell's conduct.
LSL's losses stem primarily from its contractual and corporate relationship
with Litton Systems and only indirectly from Honeywell's anti-competitive
acts. Furthermore, this conclusion is proper in light of the rule that
companies linked by the chain of distribution to competitors in the relevant
market should not be permitted to recover antitrust damages on that basis.
SEE ASSOCIATED GENERAL CONTRACTORS, 459 U.S. at 544; SAS, 48 F.3d at 44. If
LSL were permitted to recover damages on these transactions in which it
served solely as a supplier to Litton Systems, it is difficult to imagine why
LSL's suppliers could not recover for their losses as well. The logical
stopping point for the recovery of damages by companies in the chain of
distribution is with the parties who directly participate in the relevant
market.
B. LSL'S TIES TO LITTON SYSTEMS AND CANADIAN SALES DO NOT ESTABLISH
STANDING FOR ITS SUPPLIER CLAIMS.
8
<PAGE>
LSL argues that its corporate relationship to Litton Systems and its
participation in the relevant market through its Canadian sales demonstrate
that it was a competitor and target of Honeywell and establish its antitrust
standing. However, the existence of a corporate relationship between Litton
Systems and LSL does not itself make Litton Systems' sales in the IRS market
a basis for antitrust damages for LSL. In order to be considered a competitor
in the IRS marketplace by virtue of its sales to Litton Systems, LSL would
have to demonstrate some of the hallmarks of a market participant, such as a
contractual share in Litton Systems' profits in the relevant market. SEE
AMAREL, 102 F.3d at 1509. But rather than sharing in Litton Systems' profits
in the RLG-IRS market, LSL negotiated independent prices for its IRS sales to
Litton Systems. Nor did LSL, by virtue of its corporate relationship to
Litton Systems, play any part in Litton Systems' competition in the IRS
market.
LSL points to the Supreme Court decision in BLUE SHIELD OF VIRGINIA V.
MCCREADY to support the proposition that a non-competitor whose injury is
closely tied to the antitrust violation has standing to bring a claim based
on that violation. SEE 457 U.S. 465 (1982). However, in BLUE SHIELD, the
plaintiff was directly involved in the relevant market, albeit as a consumer
rather than a competitor. SEE ID. at 480. Furthermore, the Supreme Court's
description of the BLUE SHIELD plaintiff's injury as "inextricably
interwined" with the violation referred to a relationship far closer than
LSL's tie to Honeywell's conduct. The injury to the BLUE SHIELD plaintiff was
the very means used by the defendants to effect their anti-competitive goals,
and the plaintiff and certain other customers bore the initial, direct injury
from the violation. SEE ID. at 479. In contrast, except for its Canadian
sales, LSL is only circumstantially connected to the antitrust violation
because of its contractual relationship to Litton Systems. To extend the
"inextricably intertwined" language to
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every party whose profits depend on the success of contracts with a company
that is a directly injured competitor in the relevant market would sweep in
vast categories of plaintiffs who have consistently been barred from bringing
suit. SEE SAS, 48 F.3d at 46; SEE ALSO BRIAN CLEWER, INC. V. PAN AMERICAN
WORLD AIRWAYS, INC., 674 F. Supp 782, 787 (C.D. Cal. 1986). Because LSL's
actual function was merely that of a supplier to Litton Systems, its
corporate tie does not serve to establish it as a market competitor.
LSL did participate directly in the RLG-IRS market in its Canadian
sales. However, that direct market participation does not extend standing to
LSL for all losses, however unrelated. In the Ninth Circuit case relied on
by LSL, the supplier was also a competitor and target in all the transactions
at issue. SEE AMAREL, 102 F.3d at 1508-10. In contrast, LSL acted in two
distinct roles: in its sales as a supplier to Litton Systems it did not play
any role in the relevant market, and its direct sales as a competitor in the
relevant market in Canada had no connection to its sales to Litton Systems.
The federal courts have limited suppliers' antitrust standing in keeping with
the rule that plaintiffs can assert only those injuries that are directly
related to antitrust violations, and not those that are merely passed on to
them by direct participants in the market. SEE 2 Areeda & Hovenkamp,
Antitrust Law PARA 375. LSL's participation in the market in other RLG-IRS
sales does not change the nature of its injuries from its sales to Litton; it
does not make these injuries any more direct. Therefore, LSL cannot parlay
its small role as market participant in Canada into claims of injury in its
distinct and primary role as a supplier. LSL does not have standing to claim
damages due to lost sales to Litton Systems.
II. FOREIGN SALES
In 1982, Congress passed the Foreign Trade Antitrust Improvements Act
("FTAIA"), amending the antitrust laws to limit subject matter
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jurisdiction over claims arising from trade or commerce with foreign nations.
Under the FTAIA, the Sherman Act applies to conduct that occurs in
international commerce only if 1) the conduct has a direct, substantial, and
reasonably foreseeable effect on either U.S. domestic, import, or export
trade and 2) that effect creates a claim under another provision of the
Sherman Act. Furthermore, if the effect is on export trade only, the Sherman
Act regulations will apply only to injuries to the U.S. export business.
Conduct in U.S. import trade or commerce, however, is always subject to the
Sherman Act. SEE 15 U.S.C. Section 6a (the Foreign Trade Antitrust
Improvements Act, "FTAIA"). Therefore, in order to establish subject matter
jurisdiction, a plaintiff making a claim that arises from conduct in foreign
commerce must allege that the conduct had the required effect on U.S.
markets. Courts have consistently found that jurisdiction does not exist if
the plaintiff has failed to plead any U.S. effect. SEE MCGLINCHY v. SHELL
CHEM. CO., 845 F.2d 802, 813-15 (9th Cir. 1988); EURIM-PHARM v. PFIZER, INC.,
593 F.Supp 1102, 1105-07 (S.D.N.Y. 1984); LIAMUIGA TOURS v. TRAVEL
IMPRESSIONS, LTD., 517 F.Supp 920 (E.D.N.Y. 1985). Conversely, it is clear
that jurisdiction exists if the plaintiff itself has experienced both U.S.
and foreign effects from the anti-competitive conduct. SEE COORS BREWING CO.
v. MILLER BREWING CO., 889 F.Supp 1394 (D. Colo. 1995); UNITED PHOSPHORUS,
LTD. v. ANGUS CHEMICAL CO., 1994 WL 577246, at *8-10 (N.D. Ill. 1994).
In this case, there is no doubt that Honeywell acted in international
commerce, that its acts had a direct, substantial, and reasonably foreseeable
effect on U.S. domestic and export commerce, and that this effect gave rise
to a claim under the Sherman Act. However, the claim to which this domestic
effect gave rise was Litton Systems' claim, not LSL's. LSL's only cognizable
claim for damages, its losses in its Canadian sales, is based solely on the
foreign effects of Honeywell's conduct. Therefore, the Court is presented
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with the question of whether LSL can establish subject matter jurisdiction
over its claim for foreign losses by pleading the existence of unrelated
domestic anti-competitive effects also caused by Honeywell's course of
conduct, but otherwise unrelated to LSL's claims.
The case law does not offer the Court an easy answer with respect to
this issue. In assessing the claims of a foreign plaintiff who had been
injured abroad, the D.C. Circuit considered the connection between the
plaintiff's injury and the domestic effect, finding that jurisdiction existed
in a case in which the foreign antitrust injury to the plaintiff was actually
the means causing the harm to U.S. consumers. SEE CARIBBEAN BROADCASTING
SYSTEM v. CABLE & WIRELESS PLC, 148 F.3d 1080, 1087 (D.C. Cir. 1998). A
Northern District of California court found an allegation of a domestic
effect that was unrelated to the plaintiff's injury to be sufficient to
establish jurisdiction at the pleading stage. SEE GALAVAN SUPPLEMENTS, LTD.
v. ARTHUR DANIELS MIDLAND CO., 1997 WL 732498 (N.D. Cal. 1997).(6)
The legislative history does not provide any real guidance in
establishing the limits of jurisdiction under the FTAIA. The Supreme Court
has noted, without interpreting the statute, that it is not clear how the
FTAIA is to be applied, nor whether Congress intended it to codify existing
case law or to repudiate it and establish a new standard. SEE HARTFORD FIRE
INS. CO. v. CALIFORNIA, 509 U.S. 764, 796-97 n.23 (1993). The legislative
history does indicate that
- ----------------------------
(6)Although several courts have expressly held that foreign companies
cannot "piggy-back" their foreign claims onto the unrelated domestic claims
of U.S. exporters, these holdings were made in the context of the FTAIA's
additional limitations on jurisdiction when the sole harm to a U.S. market
was to U.S. export businesses. SEE THE 'IN' PORTERS, S.A., v. HANES
PRINTABLES, INC., 663 F. Supp 494 (M.D.N.C. 1987); OPTIMUM, S.A. v. LEGENT
CORP., 926 F.Supp 530 (W.D. Pa. 1996). In this case, however, both export
and U.S. domestic markets were affected, so this additional limitation on
jurisdiction does not apply.
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Congress's general intent was to clarify and limit subject matter
jurisdiction over primarily foreign antitrust claims, but the exact scope of
that limitation is not apparent. The House Judiciary Committee's report makes
some statements that could be interpreted to permit jurisdiction for all
plaintiffs once a showing has been made of some substantial impact on U.S.
markets, while other statements suggest that Congress intended to extend
jurisdiction to foreign plaintiffs only when their injuries bore some
relationship to the domestic injury that established jurisdiction. SEE House
Report No. 97-686, 97th Cong., 2nd Sess. 1982, 1982 U.S.C.C.A.N. 2487, 1982 WL
25066 (Leg. Hist.) (Aug. 2, 1982). The report states that the FTAIA is
intended to "require that the `EFFECT' providing the jurisdictional nexus
must also be the basis for the injury alleged under the antitrust laws." ID.
(emphasis supplied). This seems to suggest that the plaintiff's injury must
be related to the domestic effect. But the report goes on to state that "it
is sufficient that the CONDUCT providing the basis of the claim has had the
requisite impact on the domestic or import commerce of the United States. . .
or on an export opportunity of a person doing business in the United
States." ID. (emphasis supplied).
Since the language of the FTAIA is vague, and Congress's intent
regarding the scope of subject matter jursidiction is not clear, the Court
must interpret the statute in light of the purpose of the antitrust laws to
protect competition in U.S. markets, and in light of Congress's general
intent in enacting the FTAIA to clarify and limit the scope of antitrust
jurisdiction over foreign transactions and losses. The FTAIA expressly
requires that the effect on U.S. markets give rise to a claim for subject
matter jurisdiction to exist. SEE [illegible] U.S.C.A. Section 6a(2). The
most reasonable way to understand this statement is that it requires that the
domestic effect have given rise to the claim that is before the court;
otherwise, the court would have
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to assess the injuries of parties not before the court to determine the
existence of subject matter jurisdiction. If Congress had not intended to
require that the foreign claim have some nexus to the effect on U.S. markets,
it would have repeated the language of the first provision of Section 6a and
required that the conduct, rather than the effect, give rise to an antitrust
claim.
Furthermore, Congress's goal of focusing the antitrust law on protection
of American markets and consumers will be effectively achieved by permitting
adjudication of foreign claims when the injury to the foreign plaintiff has
itself harmed U.S. markets. In such cases, protecting the foreign plaintiff
will also protect U.S. markets. SEE CARIBBEAN BROADCASTING SYSTEM, 148 F.3d
at 1087. In contrast, Congress's goal of protecting U.S. markets and
achieving reasonable legal certainty for companies operating abroad would not
be achieved by having the courts adjudicate foreign claims in which a
domestic effect is pled merely as a prerequisite to the merits of the claim.
Such a rule would open the floodgates to any and all plaintiffs, whatever the
basis of their claims, once conduct affecting the U.S. had been demonstrated.
Therefore, the Court interprets the FTAIA to require that a plaintiff who
suffered injury abroad demonstrate that its claim arose in connection with
the anti-competitive conduct's effect on U.S. markets. LSL has not made such
a showing, and therefore the Court does not have subject matter jurisdiction
over LSL's claims for its losses on sales in Canada.
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Having found that LSL does not have antitrust standing to bring its
claims regarding its sales to Litton Systems and that no subject matter
jurisdiction exists with respect to LSL's sales in Canada, the Court grants
Honeywell's Motion for Judgment as a Matter of Law as to LSL.
IT IS SO ORDERED.
DATED: September 23, 1999 /s/ Mariana R. Pfaelzer
----------------------- -------------------------------------
Hon. Mariana R. Pfaelzer
United States District Judge
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TRIAL COURT THROWS OUT LITTON PATENT CASE AGAINST HONEYWELL,
REDUCES ANTITRUST JUDGMENT AND SETS UP APPEAL
SEPT. 24, 1999 - Late yesterday in Los Angeles, the U.S. District Court
effectively threw out the patent infringement lawsuit filed against Honeywell by
Litton Systems in 1990, one of a series of rulings in both the patent and
antitrust litigation.
After remand from the U.S. Court of Appeals for the Federal Circuit and the U.S.
Supreme Court, the trial court ruled that Honeywell's ring laser gyro mirror
coating processes did not infringe Litton's patent under the doctrine of
equivalents, and that Litton "wholly failed" to prove its state tort claims. In
the antitrust case, the court reduced the earlier judgment against Honeywell by
$90 million from $750 million to $660 million, but which otherwise left the most
recent jury verdict intact. Both cases will most likely be appealed.
"Although this litigation still has several years to go, yesterday provided
important victories for Honeywell," said Edward Grayson, vice president and
general counsel of Honeywell. "We believe the patent / tort case is essentially
over. Litton will likely appeal again, but the trial court, after lengthy
appellate review, simply answered the questions remanded to it by the Court of
Appeals for the Federal Circuit and ruled for Honeywell. We believe this
decision will stand.
"While we are pleased that the court reduced the antitrust judgment, we are
disappointed that the whole judgment was not thrown out at the trial court
level. We believe that the underlying liability findings, and Litton's highly
speculative damage study, which are for the first time subject to appeal, will
be overturned. Also, the market place has changed dramatically, which will
affect Litton's antitrust claims. Litton's antitrust case should not stand up on
appeal any more than its patent case did," Grayson said.
