Alcatel USA, Inc. v. DGI Technologies, Inc.

Alcatel USA, Inc., formerly DSC Communications Corporation (DSC) (plaintiff), was in the telephone-switch business. These switches enabled telephone companies to route long-distance calls. The switches required software to operate, over which DSC had a copyright. But the telephone companies would only purchase the switches themselves, not the software. Rather than purchasing the software, the companies would sign a licensing agreement with DSC agreeing to use the software only with DSC equipment and barring any copying of the software. The software was stored on microprocessor cards. If the switch had to be expanded to be able to handle additional callers, additional microprocessor cards would have to be purchased. At the time of purchasing an original switch, the phone companies were also aware that if the original switch needed to be expanded, they would have to obtain additional microprocessor cards, and only from DSC. Expanding a switch was common, and it was expected at the time of purchase that at some point the switch would have to be expanded. Nor was DSC the only manufacturer of switches—many other companies also made switches using different software. DGI Technologies, Inc. (DGI) (defendant) developed microchip cards having software derived from DSC’s own switch software, without DSC’s permission. DSC sued DGI in federal district court for copyright infringement, and DGI counterclaimed against DSC under § 2 of the Sherman Act, alleging that DSC had monopolized the aftermarket for DSC switches—that is, the market for purchasing expansion cards. The jury found in favor of DGI, but the district court vacated the jury’s verdict and entered judgment for DSC on the ground that DGI’s definition of the relevant market as the aftermarket for DSC switches was not the relevant market. DGI appealed.