No Injunction on Rite Aid’s Fujifilm Contract

(CN) - A federal judge refused to halt a deal between Fujifilm and Rite Aide over phone support for minilab photo-developing equipment.

Fujifilm's alleged conduct is merely typical behavior of a trying to compete in the marketplace, U.S. District Judge Michael Simon said Monday from Portland, Ore.

Prior to suing Fujifilm, Retail Imaging Management Group (RIMG) had for years provided repair services to retailers that bought or leased Fujifilm's minilabs, self-contained machines that convert images, stored either digitally or on film, into finished prints or similar products.

Over the course of about nine years, beginning in 2001, RIMG relied on Fujifilm to sell it replacement parts for the labs, and also had the ability to call on it for technical support.

Apart from this contractual relationship, Fujifilm competed with RIMG and other independent service organizations for repair work and allegedly controls about 70 percent of the current market.

Meanwhile, RIMG grew during the intervening years and successfully outbid Fujifilm for a service contract with Sam's Club, the bulk sale subsidiary of Wal-Mart.

RIMG says its success led Fujifilm to kill their service contract and then refuse to supply essential parts for minilab repair. In many cases, RIMG allegedly had to hire Fujifilm as a subcontractor at exorbitant rates.

As an example, it points to the repair and replacement of defective print heads. When Fujifilm provides service directly to the customer, it provides the replacement print head and service without charge; but when it serves as subcontractor for RIMG, it allegedly charges the company $16,000 each for the print heads.

To date, Fujifilm has billed RIMG more than $500,000 for such services.

The last straw, however was when Fujifilm took over a contract RIMG had with Rite Aid drug stores. RIMG charges that Fujifilm wrongly secured the contract by offering Rite Aid service at below cost.

In a federal complaint, RIMG says the loss of revenue from the Rite Aid contract will adversely affect its cash flow and by extension, its ability to compete for service contracts of Fuji-brand minilabs.

Just last month, Fujifilm allegedly began to encroach on another aspect of RIMG's business - its photo call center support for Rite Aid locations nationwide.

RIMG cited this conduct in a third amended complaint last week. The company's CEO Brad Eamon has said the conduct represents a loss in excess of 30 percent of its total sales and would cause the company to lay off nearly 100 employees in the Portland area. The company asked the court to enjoin Fujifilm from acting on its Rite Aid service contract.

Judge Simon refused, however, finding that the basis for the injunction falls outside the claims made in RIMG's underlying lawsuit.

For instance, while RIMG had complained that Fujifilm has a continuing duty to make replacement parts for the minilab available to it at a reasonable price, it also argued that Fujifilm should be required to "unbundle" its service for its print heads, something that would result in a lower, fairer cost for its competitor.

Yet none of these complaints were the focus of a request for preliminary relief pending a final decision on the merits. Instead, RIMG sought to block Fujifilm from performing Rite Aid's photo call center business - something not even mentioned before the third amended complaint, which was filed after the injunction motion.

"Even if the court ignores, however, the unorthodox timing of RIMG's motion and pleadings (moving for a preliminary injunction first based on a theory that is not contained in the then-most current complaint and alter moving to file a further amended complaint that attempts to link the substantive allegations to the preliminary relief requested), merely alleging a fact does not make it so," Simon wrote.

"Neither in RIMG's declarations submitted in support of its motion for a preliminary injunction nor in its submissions at the evidentiary hearing did RIMG offer any admissible evidence tending to show that 'Fuji has engaged in exclusory pricing of a bundle product' by offering to perform call center service work below its average variable cost."

"At this stage of the litigation, only one fact appears to be reasonably well established: RIMG and Fuji are currently engaged in significant and vigorous competition with ach other to provide various services (consisting of at least on-site minilab repair service, bench work service, and call center service) to businesses that lease or purchase Fuji-brand minilabs," he added. "As stated above, in 2010 RIMG took from Fuji the on-site repair service for Sam's Club locations nationwide. In 2011, Fuji took from RIMG the 'bench work' business at Rite Aid. And in 2012, it appears that Fuji now may be taking from RIMG the call center service business for Right Aid. Insufficient evidence has been presented to the court to determine whether this is anything more than simply the competitive forces of the marketplace at work."

Gordon Osaka represents RIMG. Fujifim is represented by Philip S. Van Der Weele of K&L Gates and Bruce Schneider with Stroock & Stroock & Lavan of New York.

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