Full opinion text
OPINION LACEY, District Judge. Van Dyk Corporation (Van Dyk) charged Xerox Corporation (Xerox) with violations of the antitrust laws. The case was tried before this court, sitting without a jury. A brief description of the contentions of the parties is appropriate. Plaintiff’s Contentions Van Dyk’s amended complaint charged that Xerox had violated Section 2 of the Sherman Act (15 U.S.C. § 2) by monopolizing, by attempting to monopolize, and by conspiring to monopolize an alleged “office copier” market, an alleged “plain paper copier” submarket, and an alleged market in toner and developer. The Section 1 Sherman Act claim (15 U.S.C. § 1) was based on agreements entered into by Xerox with Battelle Memorial Institute (Battelle), Horizons, Inc. (Horizons), The Rank Organisation, Ltd., of Great Britain (Rank), Rank Xerox Ltd. (Rank Xerox), Fuji Photo Film Inc., of Japan (Fuji), and Fuji Xerox Co. Ltd. (Fuji Xerox); and an alleged refusal by Xerox to sell or rent its copier/duplicators to customers unless they also agreed to purchase Xerox toner and developer. This alleged refusal to deal was also the basis for the claim that Xerox had violated Section 3 of the Clayton Act (15 U.S.C. § 14). Shortly before the commencement of trial, Van Dyk abandoned all of its claims relating to toner and developer. Accordingly, the case was tried only with respect to Van Dyk’s monopoly claims and its claim that Xerox’ arrangements with Battelle, Horizons, Rank, Rank Xerox, Fuji and Fuji Xerox were in unreasonable restraint of trade. As to the monopoly claim, Van Dyk alleged that Xerox has monopolized a plain paper copier market or submarket by (1) erecting a “patent wall” to foreclose competition in plain paper copiers; (2) participating in an international cartel which illegally divided world markets and illegally pooled the cartel members’ patents; (3) creating a “rental only” market environment to frustrate competition; and (4) engaging in exclusionary marketing practices. In attempting to show that it was injured by this alleged misconduct, Van Dyk contended that it entered a marketplace in 1973 that had been so conditioned by Xerox to rent, rather than purchase, xerographic plain paper copier/duplicators that it was impossible for Van Dyk to market its machines by means of outright sale, which it allegedly desired to do. Accordingly to Van Dyk, this “rental only” environment made it necessary for it to obtain vast amounts of capital to finance its entry into the marketplace. However, Van Dyk asserted, its efforts to obtain capital were frustrated by the sheer magnitude of the capital needed, by Xerox’ alleged illegally established patent structure, and by Xerox’ alleged dominant market position. While Van Dyk also claimed that it was injured by Xerox’ marketing practices, including certain pricing plans, its post-trial submissions underscore that the fundamental predicate of its claim for damages is the injury allegedly arising from the supposed “rental only” environment, Xerox’ patents and Xerox’ market position, and what it claims were Van Dyk’s resultant financial problems. Defendant’s Contentions Xerox denied that it violated either Section 2 or Section 1 of the Sherman Act and that Van Dyk, as a result of Xerox’ conduct, suffered damages. Xerox contended that xerographic plain paper copiers alone do not constitute a separate and distinct economic market; and argued that xerographic plain paper copier/duplicators compete and have competed with, and are reasonably interchangeable with, both coated paper copiers and offset duplicators used for office copying/duplicating. Additionally, Xerox denied that it ever has possessed monopoly power, i. e., the power to control prices or exclude competition in an economically relevant market. Instead, it asserted, new companies flooded the copier/duplicator market in the 1970’s and throughout the 1960’s and 1970’s, Xerox was forced by competition to reduce its prices and consistently improve its products. Addressing Van Dyk’s contention that Xerox has achieved and maintained monopoly power by engaging in various exclusionary practices, Xerox contended that it achieved prominence in the copier/duplicator industry through its foresight, risk-taking and innovation; that it has marketed its products lawfully; and that it did not condition the market to prefer “rental only” over the outright purchase of copier/duplicators. In this connection, Xerox argued that it was customer preference that dictated Xerox’ marketing strategy; and it contradicted Van Dyk’s claim that it was forced to rent rather than sell its machines, stating that Van Dyk consciously elected to rent because a rental program best suited its own purposes and objectives. Next, responding to Van Dyk’s claim that Xerox has attempted to monopolize a relevant market, defined to include both coated paper and xerographic plain paper equipment, Xerox contended that Van Dyk failed to establish either a specific intent to monopolize or a dangerous probability of success, prerequisites to a finding of an unlawful attempt to monopolize. As to damages, Xerox denied that any conduct on its part caused injury to Van Dyk. Finally, it should be noted that many of the claims made and defenses raised in this trial were also asserted in SCM Corp. v. Xerox Corp., 76 F.R.D. 214 (D. Conn. 1977), tried before United States District Judge Newman and a jury between June 20, 1977 and August 16, 1978. The parties’ analysis of this case indicates the following: the jury rejected certain of SCM’s claims but awarded SCM damages on other claims in the amount of $37.1 million. Judge Newman entered final judgment on the verdict as to those claims where the verdict was in favor of Xerox, setting aside the verdict to the extent it awarded SCM money damages. He deferred action on SCM’s equitable claims. He certified appeal pursuant to 28 U.S.C. § 1292(b). On May 10,1979 the Second Circuit Court of Appeals returned the matter to the district court, directing it to formulate what it regarded as the controlling question of law. Judge Newman has responded in a supplemental opinion, setting forth the controlling question of law, and the matter is presently before the Court of Appeals. While Van Dyk had at one time sought to have this court apply the doctrine of collateral estoppel to resolve here issues decided in SCM, leading to a delay in the filing of this decision, that motion has now been withdrawn. FINDINGS OF FACT 1. Van Dyk is a corporation organized and existing under the laws of the State of New Jersey. Its principal office is in Whippany, New Jersey. 2. Xerox is a corporation organized and existing under the laws of the State of New York. Its executive offices are in Stamford, Connecticut. 3. Van Dyk’s complaint against Xerox charged.it with violations of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. Subsequently, Van Dyk filed an amended complaint, which Xerox answered denying liability. The case was tried before this court, sitting without a jury, between July 12,1978 and August 17, 1978. 4. The original name of the Xerox Corporation was Haloid Company (Haloid). In 1946 Haloid was based in Rochester, New York and was primarily engaged in the business of manufacturing photographic paper and photostatic copying machines called Rectigraph machines. A small company, for the year ended December 81, 1946 Haloid’s net income before taxes was $101,393. 5. In 1946 Haloid’s management was unsure about its future. Its president, Joseph C. Wilson, was searching for a new enterprise for Haloid. Against this background, Dr. John H. Dessauer, Haloid’s Vice-president of Research and Development, read about a new process called “electrophotography” in a monthly abstract bulletin published by the Eastman Kodak Company (Kodak). The article indicated that the Battelle Memorial Institute of Columbus, Ohio might wish to negotiate with companies interested in exploiting this new process or entering into license agreements with respect to it. Dessauer brought the article to Mr. Wilson’s attention. 6. The process which was then called electrophotography had been invented by Chester F. Carlson, a graduate of the California Institute of Technology in 1930, with a background in physical chemistry, and later a registered patent attorney. From 1934 through the end of 1945, he was employed in the patent department of the P. R. Mallory Company, and in his spare time tried to develop a machine capable of office copying. 7. Carlson’s work on the development of electrophotography began in 1935. By 1937 Carlson had conceptualized the six-step process of electrophotography. This consisted of charging a photo-conductive plate with electricity in the dark; exposing the charged plate to the lighted image of a document so as to leave on the plate a latent pattern of electric charges which corresponded to the dark areas of the document; developing the latent pattern with powder that would be attracted to the charged areas; transferring the powdered image to paper; fusing the powder to the paper; and cleaning the photo-conductive plate for reuse. 8. Carlson’s first successful experiment was conducted with the aid of a German physicist, Otto Kornei, in 1938. 9. Carlson continued to work on the process and on improving the photo-conductor and trying to obtain a more effective developing powder. He obtained the basic xerographic patents on November 19, 1940, March 17, 1942, October 6, 1942 and September 12, 1944. 10. For a substantial period of time, Carlson was unable to interest anyone in his invention. 11. In early 1944 Carlson came in contact with the Battelle Memorial Institute. The Institute (with its wholly-owned subsidiary, Battelle Development Corporation, together “Battelle”) was a nonprofit research institute located in Columbus, Ohio. Carlson told Battelle about his ideas on electrophotography and was subsequently invited to Columbus to demonstrate the process and explain its physical principles. Battelle was interested in the process and entered into what Carlson described as a royalty sharing agreement in which Battelle would put up some of its own money for research to improve the invention in its own laboratories. 12. The agreement between Carlson and Battelle was dated October 6,1944. It provided that, at its own expense, Battelle would sponsor research and development work directed toward improving and perfecting the inventions covered by Carlson’s basic xerographic patents, as well as those covered by certain pending patent applications (“the inventions”). Carlson appointed Battelle his exclusive agent for the purpose of negotiating and granting licenses to use the inventions, together with all improvements, reissues, divisions, or betterments thereof. Subject to certain qualifications, the agreement provided that royalties received under such licenses would be allocated 60% to Battelle and 40% to Carlson. 13. After entering into the 1944 agreement with Carlson, Battelle began to seek a company which would assist it in the development of electrophotography. Accordingly, it welcomed inquiries by Haloid. Representatives of Haloid made a number of visits to Columbus to discuss the process of electrophotography with Battelle. Sol M. Linowitz, Esq., who in 1946 was a lawyer practicing in Rochester, was invited by Mr. Wilson to accompany him on one such visit. 14. Mr. Wilson believed that the process of electrophotography which he had witnessed in Columbus “might perhaps have the seed of something” but he regarded it as “very chancy.” In his own words, in a memorandum dated June 10, 1946, he concluded that the “[cjommercial usefulness of this process in the photographic or photocopying field is sufficiently remote to make impossible a reasonable estimate” as to the time or the money required for successful commercial development. That memorandum listed many positive aspects of electrophotography justifying an arrangement with Battelle, such as the fact that electrophotography was “a dry process” and was “an extremely fast process and mechanically quite simple.” 15. Despite his reservations, Wilson concluded that Haloid should try to work out an agreement with Battelle with respect to the development of electrophotography. 16. Haloid and Battelle in fact entered into an agreement on January 19, 1947. With certain exceptions, it provided that Haloid should receive a license throughout the United States and its possessions to make, use, lease, or sell products comprising any of the inventions covered by the Carlson-Battelle agreement or any inventions relating to electrophotography which Battelle might subsequently acquire. While the granting clause purported to convey only a nonexclusive license, Battelle agreed that it would not make or sell, or grant licenses to others with respect to the products licensed to Haloid, such agreement to last until ten years from the time that Haloid attained specified levels of net sales and rental fees or from the time that Haloid’s research expenditures on electrophotography at Battelle were reduced below specified levels, whichever occurred first. In effect, the agreement thus granted an exclusive license. Exceptions were carved out for equipment designed to reproduce more than twenty copies, toy and model kits, and a limited number of other products. The agreement provided for an initial payment of $10,000 to Battelle and a royal- ■ ty of 8% of the net sales and rental fees of licensed products. Article Fourth of the 1947 agreement further provided that Haloid would promote the development of the Carlson patents. Moreover, Haloid agreed to use “due diligence in prosecuting the manufacture, use, license and/or sales of said supplies, materials and equipment” at its sole expense. Battelle had announced a general policy as a nonprofit organization that any discoveries should be “licensed to corporations and all interested parties. It is not their intention to license this patent exclusively to any one company or any industry but to make it available to as many industries in as many applications as possible.” 17. As part of the 1947 agreement, Battelle agreed to provide to Haloid all information which it possessed relating to electrophotography. For its part, Haloid agreed to advise Battelle of research developments which it might make and to grant to Battelle royalty-free licenses which were exclusive (except as to Haloid) with a right to sublicense. For a three-year period, Haloid and Battelle agreed to spend at least $25,000 and $12,500 per year, respectively, on research into electrophotography. Haloid’s agreement to spend at least $25,000 annually on research was in consideration for certain exclusivity rights granted to Haloid under Article Seventh of the 1947 agreement. 18. The limitation to twenty copies was adopted since it seemed to be closest to the kind of business in which Haloid was then engaged. However, it became quite obvious that to make a machine which would make twenty copies and then stop was not feasible. A new Haloid-Battelle agreement was entered into in 1948 which eliminated this exception. The 1948 agreement was an exclusive license which, unless sooner terminated according to the provisions of the agreement, was to continue until the expiration date of the last patent covered thereby. The agreement also provided Haloid with the right to sublicense others, but Battelle retained the ultimate right to sublicense firms other than Haloid to manufacture equipment specifically designed to reproduce more than twenty copies of any single document. 19. The 1948 agreement continued the exception for toy kits and certain other items. In this connection, Mr. Linowitz was told by Battelle that the exception was intended to preserve for Battelle “the one application which they were sure would work,” and that “[t]hey thought that the rest was speculative . . . .” Even this exception was eliminated by a new Haloid-Battelle agreement in 1951. The primary purpose of the 1951 agreement, however, was to provide Haloid with worldwide license rights on all Battelle patents. While Xerox claims that the modification was prompted by the fact that, in attempting to obtain sublicensees, Haloid had found that there was considerable interest on the part of potential licensees in rights outside the United States, Haloid and Xerox did not thereafter grant a license covering plain paper technology outside the United States to anyone other than Fuji-Xerox and Rank-Xerox. It was not until 1955 that Xerox took any steps with respect to the international rights when it commenced to seek a foreign partner. Under the 1951 agreement Battelle still retained the right to sublicense others with respect to machines specifically designed to reproduce more than twenty copies. 20. Haloid and Battelle first publicly demonstrated the process of electrophotography at the annual meeting of the Optical Society of America on October 22, 1948. Prior to the meeting, Haloid and Battelle determined to develop a more “memorable” name for the process than electrophotography. The new name was based on the idea of a professor from Ohio State University, who coined “xerography,” combining the Greek words “xeros,” meaning “dry,” and “graphein,” denoting “writing.” The trade name “Xerox” was developed later. Mr. Wilson wanted a name like “Kodak,” a short name in which the same letter would occur at both the beginning and end of the word. 21. Until 1948, the bulk of the research and development work on xerography was sponsored at Battelle by Haloid. Beginning in 1948, Haloid began to do some work on xerography in its own laboratories, a research effort which eventually outstripped the efforts at Battelle. Between 1949 and 1962, Haloid (later Xerox) and Battelle worked closely on research and development work. The general direction of research at both Haloid and Battelle was the responsibility of Dr. Dessauer. Through the late 1950’s Haloid and Xerox’ research facilities were operated with difficulty. The dominant patents through the mid-1960’s covered inventions by either Carlson or Battelle scientists, not by Xerox employees. In 1966, of the seven dominant patents owned by Xerox, two were Carlson patents and the remaining five were patents obtained by Battelle scientists. 22. Carlson moved to Rochester about 1948 and served as a consultant to Haloid. He saw immense potential in xerography. He was concerned that inventions were “piling up” but that corresponding patent applications were not being prepared, inducing Haloid to take steps to insure that it acquired adequate patent protection for its inventions. 23. By the end of the 1940’s, Haloid managed to develop a machine which operated on xerographic principles, the so-called flat plate machine. While it embodied substantial advances in the process of xerography, the flat plate equipment was not automated. It required the operator to walk from one machine component to another, first charging a selenium coated plate, then carrying the plate to a camera, inserting the plate in the camera and exposing the plate to the document to be copied, and then proceeding manually through the steps of developing the latent electrostatic image, transferring it to a sheet of paper, and, finally, fusing the image to the paper by inserting the paper in a heat fuser or what was referred to in the company as the “pizza oven.” The flat plate equipment was slow and required a great deal of dexterity. 24. Haloid assumed that the slow unautomated flat plate might be marketed as a copier, but this proved unrealistic. The flat plate could not be sold as a copier, but it was found that it could create “masters” for offset equipment. 25. By 1955, Haloid developed a machine called the “Copyflo.” As originally designed, the Copyflo machine produced a continuous flow of xerographic copies from microfilm. It weighed several tons and was over seven feet long as well as over six feet in height. Later, a document copying feature was added to the Copyflo. However, the machine could not be employed as a general purpose copying/duplicating machine. It was effective only in copying a continuous flow of documents and was designed for users such as insurance companies which had a stream of documents which would flow through the machine at a rate of thousands per day. 26. The engineering advances in the Copyflo make it significant in the history of the Haloid Company. Even though the market for the Copyflo did not prove to be major, the Copyflo made a significant contribution to Xerox’ sales. 27. In 1956, Haloid and Battelle again changed the arrangements between them. By an agreement effective January 1,1956, Battelle assigned the four basic xerographic patents to Haloid in return for 50,000 shares of Haloid stock. Battelle received another 5,000 shares of stock for agreeing that the exclusive license under the 1951 agreement should be regarded as “fully paid-up” until December 31, 1958. As of January 1, 1959, Battelle agreed to assign to Haloid all of its remaining xerographic patents. In return, Haloid agreed to make certain payments to Battelle in each of the years 1959 through 1965, 50% of which (subject to certain limitations) were to be in the common stock of Haloid. Battelle further agreed to convey to Haloid any patents, inventions, know-how, etc., which it might have in the future, relating to xerography, but only so long as Haloid maintained a research program in xerography at Battelle funded in the sum of at least $25,000 per year. As a result of the 1956 agreement, Battelle lost its sublicensing rights with respect to machines specifically designed to reproduce more than twenty copies of any single document which it had retained since 1947. 28. Xerox claims, and I find, that a purpose in entering into the 1956 agreement was avoidance of the cash drain on the company posed by the royalty obligations. Also, since the patents acquired from Battelle became assets of Haloid which could be amortized, the 1956 agreement served to reduce taxes and thus increased Haloid’s cash flow. Also in 1956 Xerox entered into an arrangement with Horizons. This arrangement was not in restraint of trade. 29. Under their 1947 agreement, Haloid and Battelle initiated research into, and development of, the process of xerography. Their venture, which was expanded by the 1948 and 1951 agreements, pioneered the successful commercial development of the xerographic process. 30. In 1956 Haloid concluded an agreement with Rank of England. Under that agreement, Haloid and Rank each became a 50% owner of a joint-venture company, Rank Xerox, which was given an exclusive license under Haloid’s xerographic patents to manufacture and sell outside the United States and Canada. Subsequently, in 1960, Rank Xerox entered into an agreement with Fuji to create Fuji Xerox, a jointly-held company operating in Japan. Under this arrangement, Rank Xerox granted Fuji Xerox an exclusive license for ten years to manufacture and sell in Japan under Rank Xerox’ xerographic patents and granted a nonexclusive license to Fuji Xerox with respect to other Far Eastern countries. 31. In the middle and late 1950’s, Haloid pursued extensive research and development efforts in xerography and other areas. During the period 1950-1960, there were yearly increases in sales and net income. The 1960 Annual Report stated: Sales and rentals and net income before taxes reached new highs in 1960, the eleventh consecutive year in which new records have been set. Expenditures for research include payments made by Haloid and Xerox to Battelle and others for xerographic research. Throughout this period, others, primarily United States government agencies, financed research in xerography at Xerox. 32. While pursuing its research and development work, Haloid and Xerox offered licenses for coated paper technology (electrofax), but not with respect to plain paper technology. Xerox’s policy was not to license patents covering plain paper copier technology, a policy which continued through the 1960’s and into the 1970’s. Haloid’s early licensing efforts met with little success because of the speculative nature of the process, although in the 1950’s it licensed IBM, RCA, General Electric, General Dynamics and Bell & Howell. In 1957, Haloid made license offers to some 126 companies which it considered might be interested in xerography. New companies responded, and only one sublicense was granted as a result of the effort. 33. Haloid reserved for its own development the application of xerography to copying/duplicating on plain paper. During the 1950’s and 1960’s the company granted no licenses or sublicenses for this application. As Mr. Linowitz put it, “we would not issue a license to make the same machine that Xerox was trying to make ... we had invested millions of dollars, endless years of work and research . . . and [we felt] we ought to be able to take a small part of this whole field and make that our own. . . . ” 34. Haloid’s name was changed to Haloid-Xerox, Inc., in 1958 and to Xerox Corporation in 1961. 35. The long-term objective of the research and development efforts at Haloid and Haloid-Xerox was an automated general purpose copier. In 1956 the company started to draw up the specifications for such a machine. 36. This project, described in 35, supra, resulted in the development of the Model 914 copier, which was introduced in 1960. 37. Haloid-Xerox considered the possibility of having IBM manufacture and market the 914 because of concern that its existing sales and service organization would be inadequate if the 914 project were successful. In the early part of 1958, IBM representatives were shown a prototype model of the 914, together with an experimental machine stage of the more compact Model 813, which was about two years behind the 914 in terms of development. While indicating an interest in manufacturing and marketing the two machines, the IBM representatives stated that they wished to study the matter further. Subsequently, Haloid-Xerox learned that IBM had retained the firm of Arthur D. Little, Inc. (Little), a well-known consulting firm, to make a marketing research study to determine the potential market for the 914 and the 813. 38. While Little was pursuing its study, Mr. Wilson appointed a committee to determine whether, if IBM advanced a proposal to manufacture and distribute the 914 and 813, Haloid-Xerox should respond affirmatively. Mr. McColough prepared a portion of this committee’s report in which he highlighted the “Risks and Disadvantages to Haloid Xerox” if it were to manufacture and market these machines by itself. These risks included the fact that the company simply had no manufacturing facility capable of manufacturing the 914; that the current sales and service organizations were inadequate to take on a major new product line; and that, because it was envisaged that the bulk of the machines would probably be rented, the company would require large amounts of capital to provide for the rental inventory. 39. Mr. McColough felt strongly that, “despite the disadvantages, despite the risks,” Haloid-Xerox should undertake the manufacturing and marketing of both the 914 and 813. He pointed out in his part of the report that: “[W]hile there may be less risk of loss, there will also be decreased possibility of gaining substantial long-range profits than if we do the job ourselves.” He also stated that: In addition, and of great importance, we would end up with a very powerful manufacturing and marketing organization ready and anxious for new opportunities for growth and profit. This view was the consensus set forth in the committee’s report. 40. Before Mr. Wilson had occasion to determine whether he would accept or reject the recommendation of the committee, he was informed that IBM had decided that it was not interested in manufacturing and marketing either the 914 or the 813. This rejection came as a shock to Wilson and others at Xerox. 41. Xerox had also received a negative report on the 914, this time from a technical point of view, from representatives of Bell & Howell. Xerox had demonstrated the 914 for Bell & Howell in the latter part of 1958, subsequent to the IBM demonstration but prior to the IBM turndown. Bell & Howell engineers were critical of the 914’s moving lens design, and Bell & Howell subsequently expressed lack of interest in the machine. 42. On the other hand, the same report also said: We do not know of any equipment under development which would be directly competitive in performance with the Model 914. It would appear, therefore, that the Model 914 would occupy a unique position at the time of its proposed market entry. 43. The marketing pattern at this time was seen as limiting the market even for the 813. Concern was felt too over the emergence of electrofax competitors. IBM believed the 813 was not a good business risk. 44. After the IBM turndown the management of Haloid-Xerox determined that the company should proceed forward and market the 914 and 813 on its own. The Xerox 914-813 Study Committee had recommended that Xerox proceed on its own prior to the time IBM had notified Xerox of its decision. 45. It was important for Haloid-Xerox to succeed in marketing the 914. 46. The 914 was highly successful. The success of the machine was attributable not only to the fact that, as a plain paper copier, it represented a “technical breakthrough” in duplicating, but also to HaloidXerox’ marketing and pricing. In the year of the 914’s introduction, Xerox reported: The 914 Copier, a completely automatic printer, offers a versatility unmatched in the market today for high-quality, convenient copying of documents. 47. Xerox considered the alternatives of selling the 914, renting it on a flat monthly or yearly basis, or renting it on a usage basis. Most competing machines were small and relatively inexpensive to manufacture and sold for a few hundred dollars each. Since the direct manufacturing costs of the 914 (apart from research and development costs) would be over $2,000 per unit, any selling price that it would put on the machine would look so high, compared to what the market was used to with a new product from an unknown company, that the 914 would not have any real receptivity whatever in the marketplace. Xerox also reached similar conclusions with respect to a flat rate rental. It determined that a rate that would be reasonably profitable would be considered so high by many customers that it would dramatically limit the market. 48. The marketing strategy ultimately adopted by Haloid-Xerox was to lease the machines at a low monthly minimum and essentially charge the customer on the basis of usage, that is, on the basis of the number of copies which the customer made. 49. The machines were rented under leases which the customer could terminate on fifteen days’ notice. While at the outset this posed a risk for Xerox in that its entire population of copiers was exposed to cancellation because of competition or customer dissatisfaction, it was quickly apparent that the 914 would be successful. Xerox’ 1959 Annual Report described the “enthusiastic reception” given to the 914 and stated: [O]ur experience in the few locations where the [914 has] been in use during 1959 leads us to be optimistic about the reaction of the market to the 914 copying machine. Within a few months after its introduction, the Xerox 914 demonstrated its potential. In its 1960 Annual Report, Xerox stated: [T]his year’s effort to enter the office copier market met with great success. The Xerox 914 Copier has been exceptionally well received by the market. . . . [T]he number of orders taken during the first nine months of the Xerox 914’s commercial life was substantially more than we had thought possible. Perhaps of equal consequence, the average use for the machines installed has been much higher than our projections. For 1961 Xerox reported: The 914 Copier Is A Success The success of the 914 Copier was the most important reason for our record year. The effectiveness of this first entry into the competitive field of office copying can be shown by the depth of our penetration into the market. We believe that the 914 Copier has become one of the more significant copying machines of North America. This machine has been received very enthusiastically — more than we dared hope. The average use of these machines was greater than we expected and the number of orders received was above our forecast. We enter 1962 with a higher backlog than we anticipated. 50. When the Model 914 was first shipped to customers on March 1. 1960,\the marketplace consisted of coated paper copying equipment employing such processes as dye transfer, thermal activation, diffusion transfer and diazo. Thus, when the Model 914 was introduced, Minnesota Mining and Manufacturing Company (3M) had the Thermofax machine (thermal-activated), and Kodak had its Verifax machine (dye transfer). There were, however, no plain paper copiers. Thus, by 1965 Xerox had captured approximately 80% of the United States market defined to include both plain and coated paper copiers. 51. Shortly after the introduction of the 914, two new copying processes came on the market, the electrofax and dual spectrum technologies. Electrofax machines employ a xerographic process in which the paper itself, coated with a photoconductive material such as zinc oxide, serves as the photo-conductor. In the electrofax process, electrostatic images are developed directly on coated paper rather than, as in the case of Xerox equipment, first being developed on a drum or plate and then being transferred to plain paper. Xerox had worked in the development of the electrofax process and had granted electrofax licenses to competitors during the 1950’s and 1960’s, while requiring, in addition to royalties, a grant-back of all inventions of the licensee including plain paper copier technology. 52. The Model 914 was designed for short-run duplicating work, as well as copying, so that it might compete with mimeograph equipment, equipment using spirit masters, and offset duplicators. In the offset process, an inked image is transferred from a “master” to a rotary blanket and then to plain paper. Typically, offset duplicators operate at a high rate of speed and produce very high quality prints. 53. The Model 2400, introduced in 1965, operated at the rate of 40 copies per minute, as against 7 copies per minute of the 914. In 1969, Xerox introduced an even faster machine, the Model 3600, which copied at a rate of 60 copies per minute. Both the 2400 and 3600 were marketed on the basis of “modal” price plans, in which the price per copy drops after a prescribed number of copies are made from an original, e.g., four cents for each of the first five copies from an original, and then two cents for each additional copy from the same original. Xerox also introduced the Model 7000 in September 1969. The 7000 operated at the same speed as the 3600 but featured a reduction capability. These products were designed to compete with offset as well as with coated paper copiers. 54. Xerox confronted plain paper copier competition as it entered the 1970’s, starting with IBM’s Copier I in 1970. As to the Copier I, and its impact, in 1972 Xerox Chief Executive Officer McColough stated: [W]e had the first plain paper copier, as we call it, and to date the only real competition we have had with some minor exceptions in Japan is from IBM. They’ve been in the market since April 1970 and while I’d say they are rough competitors, impact on our revenue and profits has been very, very small. Xerox instituted patent litigation against IBM immediately after introduction of its Copier I in 1970. The Copier I was followed by Japanese models. These Japanese plain paper copiers were primarily low volume machines. In the mid-1970’s came high-speed copier/duplicators such as the IBM Copier III and Kodak’s Ektaprint 150, which has an automatic document feeder, reduction capability, superb copy quality, and stacking and stapling capability. These entered the market in 1976; difficulties were later experienced by both companies causing Kodak to “go slowly” and IBM to cease making new placements of the Copier III. Coated paper technology continued to improve as did fully automatic offset duplicators. 55. Xerox introduced new copiers in the 1970’s. In 1971 Xerox introduced its Model 4000, a compact machine which was nevertheless able to operate at the rate of 45 copies per minute, and which possessed duplexing capability, i.e., the ability to make copies on both sides of a sheet of paper. Further, in 1974, it introduced its Model 9200, which operated at the rate of 120 copies per minute, possessed reduction capability, was equipped with a fully automatic document feeder, and featured a computerized job recovery system and what is referred to as “limitless sorting.” It took Xerox seven years to develop this machine and just under $160 million in research and development costs. Xerox’ best estimate of the cost of developing and producing the 9200, including capital outlays for specialized production facilities, is about $300 million. 56. Xerox’ success in the field of copying/duplicating was attributable to its position as a pioneer in developing the xerographic process; to its intensive research and development efforts in xerography; to the lawful patent protection which it was able to obtain for its inventions in xerography; to its ability to develop lawful innovative pricing and marketing methods for its products; and to its continuing willingness to take risks in developing and marketing new xerographic technology. Having perceived the possibility of revolutionizing the office copier/duplicating industry, it pursued its goal with dedication, and the expenditure of millions of dollars. Success was not preordained. Indeed, IBM had seen no future in the process. 57. Van Dyk was founded in 1964 by Dr. Maxwell A. Pollack and Mr. Andrew M. Erchak. The name “Van Dyk” was chosen because it was an established name in the consulting field in which Dr. Pollack and Mr. Erchak initially intended to engage. In 1965, Van Dyk began to manufacture toners for use in Xerox copier/duplicators. Thereafter, in approximately 1966, aware of Xerox’ progress, Dr. Pollack, on behalf of Van Dyk, decided to enter into the manufacture and marketing of xerographic plain paper copier/duplicators and in 1968 acquired a small facility in Hackettstown, New Jersey, in which Van Dyk commenced the development of a prototype machine. Dr. Pollack was and is very knowledgeable in the field of office copiers. More particularly, he was and is very knowledgeable as to the plain paper copier field and Xerox’ position in it. 58. In 1969, Van Dyk was approached by Mayflower Securities, Inc. (Mayflower), a small investment banking firm, which proposed that Van Dyk “go public” through the sale of common stock. Van Dyk agreed and also entered into an arrangement with Mayflower pursuant to which Mayflower was given the right of first refusal for a period of five years to underwrite Van Dyk’s efforts to obtain public financing. Neither Mayflower nor Van Dyk was deterred by Xerox’ presence in the plain paper copier field. 59. Van Dyk completed a primitive prototype of a copier/duplicator in mid-1969 and, at Mayflower’s suggestion, demonstrated that prototype to a group of potential underwriters in September 1969, the year in which Xerox introduced its Models 3600 and 7000. Shortly after this public showing, Van Dyk successfully completed, through Mayflower, a public offering of its common stock from which it obtained over $2.1 million. The offering was oversubscribed, notwithstanding the following admonition by Van Dyk to potential investors: [T]he investor should understand that Xerox has over 1,000 patents on the xerographic process and devices employing that process. Although the company believes that its proposed office copier does not infringe any of these patents, there can be no assurance thereof. In view of the number of Xerox patents, the underwriter has conducted no independent investigation into patentability of the company’s proposed copier or into the question of whether it infringes upon any of the Xerox patents. In the event that Xerox should institute a successful patent infringement action against the company, the company may be precluded from manufacturing its copier. In any event, the diversion of funds to defend against a suit for patent infringement could impair the company’s ability to finance the development, manufacture, and sale of its copier, and the initiation of such a lawsuit could substantially impede the marketability of its copier because of doubt on the part of dealers and customers that the company would prevail in the lawsuit, or because of reluctance to risk possible involvement in such patent infringement suit. Thus it is clear that approximately four years before the Van Dyk 4000 came on the market, the plaintiff, aware of the market influence exerted by Xerox, had made the firm decision to enter into competition with Xerox and was successful in raising a considerable sum of money to aid it in its endeavor. The alleged exclusionary practices which plaintiff charges Xerox with committing during the years pertinent to this suit were, it appears, being committed by Xerox, to Van Dyk’s knowledge, well before Van Dyk came on the market in 1973. Nonetheless, it was not deterred from entering the marketplace. 60. After the 1969 public offering and, indeed, through 1971, Van Dyk had ample funds for the development of the Van Dyk 4000. It carried in excess of a million dollars of marketable securities on its books throughout this period, out of total assets ranging from $3 to $5 million. Dr. Pollack, in an August 1971 letter to shareholders, stated: “Our finances remain strong and ample for our current requirements.” Richard Wellbrock, one of the company’s directors at that time, testified that the company’s funds were sufficient to accomplish the goals outlined in the 1969 public offering prospectus. In the period 1970-1972, Van Dyk claims, it sought to raise funds from financial institutions and other sources, and some large financial institutions refused to lend funds to Van Dyk owing to concern about Xerox. I find that any such concern as existed was not based upon the alleged exclusionary practices of Xerox, but rather upon the fact that Xerox had become highly successful, well known and firmly established. It is significant that by 1972, three years after it took a positive step to enter the office copier market, Van Dyk, undiscouraged by banker pessimism, remained firm on course to compete with Xerox. Meantime, IBM had come on the market with its Copier I in 1970, followed by low volume Japanese machines. 61. The proceeds of the 1969 public offering were used by Van Dyk to develop “a pre-production model” of its copier/duplicator, which was completed and publicly demonstrated as the “Van Dyk 4000” in February 1971 to a group of underwriters, the financial press and others. Thereafter, in 1972, Van Dyk made a second public offering of its common stock, again through Mayflower, through which it raised an additional $3.6 million. This second public offering was also oversubscribed, even though the prospectus for the offering again noted that the Van Dyk 4000 might infringe certain of Xerox’ patents and that a patent infringement action by Xerox might “impair the company’s ability to market its copier/duplicator and obtain further financing.” Again, I find that the alleged exclusionary practices of Xerox had no impact upon Van Dyk’s ability to raise money. 62. The $3.6 million in capital raised through the 1972 public offering was used by Van Dyk to acquire a 90,000-square-foot facility in Parsippany, New Jersey, from which the company commenced the assembly of a production line for the Van Dyk 4000. Parts were ordered, personnel were hired, and commercial production was begun. Once again it is noted that Van Dyk does not claim that Xerox’ alleged exclusionary practices began only after the Van Dyk 4000 was marketed nor does it claim that when it first embarked on its program for manufacturing and marketing a plain paper copier it was unaware of Xerox’ alleged exclusionary practices. Indeed, it could not do so, given Dr. Pollack’s knowledge of the marketplace. There is absolutely no evidence that Dr. Pollack ever contemplated turning back on his course to put Van Dyk in the plain paper copier manufacturing business or that he ever warned potential stockholders that Xerox’ alleged exclusionary practices presented a grave threat to Van Dyk’s success (other than the aforesaid alert about patents). 63. The machine that Van Dyk began producing commercially in 1973 was essentially a slightly faster and, in some respects, a slightly improved version of the Xerox 3600, a machine which had by that time already been taken out of production. As has been noted, in 1971 Xerox introduced its Model 4000 and, in 1974, was to introduce its Model 9200. The unit manufacturing cost of the Van Dyk 4000 was over twice the manufacturing cost of the Xerox 3600, although Van Dyk’s pricing was substantially below the lowest 3600 pricing. The “xerographic engine” of the Van Dyk 4000 was virtually identical to that of the Xerox 3600 and incorporated no significant advances in the state of the art of xerography. However, the Van Dyk 4000 did possess certain technological innovations and improvements not found in the Xerox 3600. The Van Dyk 4000 lacked an automatic or semi-automatic document feed system and lacked both reduction and duplexing capability, features that had by 1973 already been incorporated in one or more machines being marketed by Xerox or other competitors and were in substantial demand in the marketplace. 64. The Van Dyk 4000 was designed, marketed and priced to compete at the higher end of the copier/duplicator market. Dr. Pollack, whose familiarity with the copier market has already been noted, designed the Van Dyk 4000 to be competitive with offset duplicators as well as coated paper and plain paper copiers. 65. During 1971 and 1972, Van Dyk had discussions with numerous foreign and domestic firms which were interested in marketing the 4000. These included such American firms as Litton Industries, 3M Corporation and SCM Corporation and a large Japanese trading company, Konishiroku, which in early 1973 expressed an interest in distributing the Van Dyk 4000 in the Far East and which offered to lend Van Dyk $5 million. As would be expected, certain companies expressed concern about Van Dyk’s ability as a market newcomer to compete with Xerox. Van Dyk has failed to establish that any alleged exclusionary practice of Xerox gave rise to such concern. During this period, Van Dyk also considered marketing the Van Dyk 4000 on its own, principally on the basis of rental rather than outright sale. It recognized that a rental program would increase the company’s initial requirements for outside funds and accordingly arranged a $3 million standby line of credit with American National Bank and Trust Co. of New Jersey which could be drawn upon as machines were placed on rental with customers. This line of credit was never drawn down. 66. Early in 1973, Van Dyk was approached by Apeco Corporation (Apeco), a Chicago-based company engaged in, among other things, the sale of coated paper copiers. Initially, Apeco was interested only in marketing the Van Dyk 4000, but in March 1973, after lengthy negotiations, the two companies agreed in principle to merge. Thereafter, on May 10, 1973, Van Dyk and Apeco entered into a formal merger agreement which called for the exchange of shares of Apeco common stock for each share of Van Dyk common stock, or a total value of $28 million based on the then current market value of the Apeco stock. Again it must be noted that, while Apeco was aware of Xerox’ position in the copier field, it was not dissuaded from entering into the merger agreement; and it does not appear that at any time either Apeco or Van Dyk stockholders were advised that any of Xerox’ alleged exclusionary practices was having or would have an adverse impact upon either Van Dyk or Apeco. Had the merger been completed, Van Dyk stockholders would have fared well in the stock for stock exchange, based upon the then market price of Apeco’s stock. 67. Under the terms of the merger agreement, Apeco was to be the surviving corporation. The Van Dyk 4000 would be manufactured at Van Dyk’s facility in New Jersey and marketed by Apeco’s existing sales force. Apeco was also to be responsible for obtaining financing and, indeed, represented that it would be able to obtain ample financing for the continuing development and marketing of the Van Dyk 4000. As a part of the merger agreement, Apeco also agreed to and did lend Van Dyk $5 million, which was to be used in completing the Van Dyk manufacturing facility at Parsippany, where the Van Dyk 4000 was and would be manufactured. Parenthetically, it is noted that Apeco’s questions about Xerox’ patents were answered by Van Dyk’s assurances that it did not infringe said patents, as well as by its own study. That this is so is of significance in view of Van Dyk’s .claim here that Xerox’ patent structure was so complex that competition was stifled because potential competitors were unable to analyze that structure and thus were unable to ascertain whether they could enter the plain paper copying field without infringing Xerox’ patents. Also significant, in view of the Van Dyk charge of injury because of the exclusionary nature of Xerox rental policy, is the fact that the Apeco-Van Dyk merger was agreed upon notwithstanding that Apeco and Van Dyk had determined that they would rent the 4000 equipment. Moreover, Apeco was able to get financing for the $5 million loan to Van Dyk and to arrange preliminary lease financing. 68. In September 1973, after the stockholders of both Van Dyk and Apeco had approved the merger but before the merger could be consummated, Van Dyk learned that Apeco was in default under its loan agreement with its banks, in that its balance sheet was in violation of the liability to net worth test prescribed by a covenant of the agreement, and that it would be necessary for Apeco to prepare a new prospectus and resolicit its stockholders’ approval of the merger. At the same time, Van Dyk learned for the first time that Apeco’s financial condition was precarious. Apeco sought an extension of the date on which the merger was to be closed, but Van Dyk refused unless Apeco agreed to lend Van Dyk additional funds. When Apeco declined to make an additional loan, Van Dyk terminated the negotiations and the merger was called off. Van Dyk later alleged in a lawsuit between the two firms that Apeco had materially misrepresented its financial condition to Van Dyk and that these fraudulent acts had induced Van Dyk to make “substantial financial commitments” as a result of which Van Dyk allegedly suffered damages in the amount of several million dollars. This event diminished Van Dyk’s ability to compete with Xerox. Xerox had nothing to do with the merger’s failure. 69. Upon termination of the Apeco merger agreement, Van Dyk found itself with “machines that were coming off the production line” but with impairment of its cash with which to pay its suppliers, with a diminished direct sales force, and with a weakened dealer organization to market the machines. Mr. Sherman, Van Dyk’s Administrative Vice President, described the situation as one of “urgent financial necessity.” Nevertheless, and in the face of what Van Dyk claims was Xerox’ continued exclusionary practices, we well as enhanced competition from others, Van Dyk decided that there was “no turning back” and initiated what Dr. Pollack described as “a rush program ... to provide for the distribution of the machines.” Financially strapped, Van Dyk continued to search for capital after the Apeco merger was terminated and believed its best course of action was to sell to a company which had the funds to purchase and market its equipment. Thus, in 1973 Van Dyk contacted SCM and 3M and began negotiations with those firms looking toward the distribution by one of them of a substantial portion of Van Dyk’s production. 70. At the same time that it was conducting negotiations with SCM and 3M, Van Dky explored with its exclusive underwriter, Mayflower, the possibility of a third public offering. Mayflower, because of an S.E.C. investigation, was unable to undertake a public offering, thus frustrating Van Dyk’s efforts to obtain additional capital in late 1973. Van Dyk alleged in a lawsuit filed against Mayflower in 1974 that Mayflower’s fraudulent concealment of certain S.E.C. proceedings from Van Dyk “resulted in substantial damages to Van Dyk both as a result of expenses incurred in the anticipation of the proposed offering and as a result of the delay in obtaining operating capital necessary to continue profitably its operations.” Xerox was blameless for the diminished ability of Van Dyk to compete as a result of the financial injury sustained. 71. Van Dyk’s negotiations with SCM and 3M continued through the fall and winter of 1973. In December 1973, Van Dyk concluded a marketing arrangement with SCM. The arrangement provided for the sale to SCM of 2,200 Van Dyk 4000’s over a period of 24 months. Initially, these were to be delivered to SCM at the rate of 75 per month, with deliveries subsequently to be increased to 100 per month. However, the agreement also provided that SCM had the right to cancel it at any time within the first six months. If SCM chose to exercise its cancellation right, it was required to purchase an additional three months’ worth of Van Dyk 4000’s. The machines were to be marketed by SCM under its own trademark (SCM 6740) to end users, and it was understood that Van Dyk and SCM would be competing with one another in the placement of machines. Van Dyk sacrificed to a degree the development of its own marketing organization and devoted much of its energies to meeting the demands of the SCM contract. 72. In May 1974, prior to the expiration of the cancellation privilege, SCM requested and received from Van Dyk an extension of the cancellation privilege until the end of June 1974. A second extension, this one for an additional six-month period, was granted in June and extended SCM’s cancellation rights to the end of December 1974. Finally, in November 1974, Van Dyk agreed to still another six-month extension of the cancellation privilege. Van Dyk agreed to these extensions because, in effect, SCM had advised it that unless the cancellation privilege was extended, SCM would cancel the contract. 73. On January 31, 1975 SCM exercised its cancellation privilege and terminated the Purchase Agreement. At the time of the cancellation, SCM had purchased approximately 1225 copier/duplicators from Van Dyk. 74. Because of its placement problems, which were made known to Van Dyk, SCM was not able to place machines at the rate that they were being delivered by Van Dyk. SCM’s marketing efforts were also hampered by the lack of sorters during the first six months of the contract. The first sorters were not delivered to SCM until the spring of 1974. Because of its excess inventory of unplaced machines, SCM had sought to reduce the number of machines it was receiving every month from Van Dyk. Thus, in the spring of 1974, SCM requested that Van Dyk reduce the required deliveries from 75 machines per month to 50 machines. Van Dyk refused to accept this reduction, although the parties eventually did agree to maintain the delivery schedule of 75 copiers per month — instead of accelerating to 100 per month as required by the Purchase Agreement. 75. Cancellation of the SCM contract in January 1975 left Van Dyk with a large number of machines coming off its production line but with no means of distribution, yet only small cutbacks in production were deemed feasible. Van Dyk had begun to expand its dealer organization in late 1974 and had also proceeded to develop a small direct sales force. Van Dyk experienced no difficulty in placing machines in 1975; however, it was committed to pay large sums of money to its parts vendors but had not developed a cash flow sufficient to do so. As Dr. Pollack put it, with the cancellation of the SCM contract, Van Dyk literally was “running out of money.” Xerox had nothing to do with the cancellation of the SCM-Van Dyk agreement. It is reasonable to conclude that a large part of Van Dyk’s financial difficulties, leading to Chapter XI, was attributable to Mayflower, Apeco and SCM. 76. In the meantime, in 1974, Van Dyk had obtained a $1.5 million line of credit from Midlantie National Bank of Newark, a $500,000 line of credit from First National State Bank of New Jersey and, later, a $500,000 loan commitment from the First Pennsylvania Bank. In addition, a financing effort was made on behalf of Van Dyk in 1974 by Merrill Lynch, Hubbard, Inc. (Merrill Lynch), a subsidiary of Merrill Lynch, Pierce, Fenner & Smith, engaged in the business of making private placements. Merrill Lynch proposed a $10 million convertible debenture offering and actually circulated an offering brochure to a number of potential investors before abandoning the effort in mid-1974. This effort failed, in part because of the deteriorating condition of the money markets in the United States. There was as well the uncertainty engendered by the SCM arrangement entered into in December 1973, and Van Dyk’s diminished ability to compete as a result of the failure of the Apeco merger. 77. Van Dyk claims that Xerox’ patent position discouraged potential inventors from dealing with Van Dyk in the period 1973-1975, but its proofs in this regard fall short of establishing that proposition. Certain contacts which seemingly aborted did so because Van Dyk entered into arrangements with Apeco and SCM. Neither of these companies was frightened away by the Xerox patent structure. Moreover, given Van Dyk’s ability to raise cash, obtain lines of credit, and interest Apeco and SCM, it is difficult to believe that Van Dyk would not have been able to persuade others, had it been interested in doing so, that it did not infringe Xerox’ patents. This is particularly so after Apeco’s own patent study became available as a reference. Finally, by 1975, Van Dyk’s financial picture had become unattractive by virtue of losses in recent years, the $5 million Apeco loan and the SCM termination. 78. In mid-1975, after the cancellation of the SCM agreement, Van Dyk once again attempted a public offering, this time of convertible debentures and warrants, through the investment banking firm of Faherty & Swartwood. Van Dyk was in financial difficulty as a result of the cancellation of the SCM contract. For this reason, because of the continued tightness of the money markets, and to a degree because of investor apprehension about Van Dyk’s ability to compete with well established companies in the market, this offering did not succeed. Unable to pay its parts suppliers, Van Dyk in October 1975 filed a petition for a plan of arrangement under Chapter XI of the federal bankruptcy laws, where it remains today. 79. From its introduction of the 914 in 1960 until 1970, when IBM introduced its competing plain paper copier, Xerox was the only manufacturer of plain paper copiers in the United States. Even after 1970, and as of 1975, it continued to be the dominant plain paper copier manufacturer, although from 1970 on many other companies, undeterred by this dominance, entered the field. Van Dyk contends that at all relevant times, Xerox possessed monopoly power in a relevant