Digital Equipment Corp. (DEC) manufactures computer hardware. In April 1994, DEC introduced its Alpha line of mid-range servers. It offered a three year warranty on the servers, even though the industry standard at the time was to offer a one-year warranty. DEC offered the longer warranty as part of its strategy to compete with its industry rivals, such as IBM, Sun Microsystems, and Hewlett- Packard.
SMS Systems Maintenance Services, Inc., an independent service organization (ISO) that operates nationally and specializes in servicing DEC equipment, accused DEC of violating Section 2 of the Sherman Act, alleging that longer warranties unfairly constrained consumers’ ability to choose their preferred service providers and thus paved the way for a monopoly in the services aftermarket for DEC computers. There is a strong aftermarket for servicing computers, and many ISOs compete vigorously with manufacturers for this business. SMS argued that a purchaser with a warranty will not use an ISO because the purchaser will not want to pay twice for the same service. In framing its argument, SMS alleged that the relevant market was the aftermarket for repair services for DEC computers. Has SMS defined the relevant market correctly? How should the court rule on its claim?