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D ock e t 99-5728

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. e du/thir dc ir c uit_2000/106Filed May 22, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 99-5728

PACE ELECTRONICS, INC.

Appellant

v.

CANON COMPUTER SYSTEMS, INC. and

LAGUNA CORPORATION

On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 98-cv-03132) District Judge: Honorable John C. Lifland

Argued: March 14, 2000

Before: MCKEE, RENDELL and ROSENN, Circuit Judges.

(Filed: May 22, 2000)

Elliott Joffe (Argued) Steven Robert Lehr, P.C.

33 Clinton Road

Suite 100 West Caldwell, NJ 07006 Counsel for Appellant Pace Electronics, Inc.Richard H. Silberberg (Argued)

Robert G. Manson Dorsey & Whitney LLP

250 Park Avenue New York, New York 10177 Counsel for Appellee Canon Computer Systems, Inc.

Carl A. Rizzo Cole, Schotz, Meisel, Forman &

Leonard

25 Main Street Hackensack, NJ 07601 Counsel for Appellee Laguna Corporation

OPINION OF THE COURT

ROSENN, Circuit Judge.

The issue in this appeal is whether the termination of a wholesale dealer's contract for its refusal to acqu iesce in an alleged vertical minimum price fixing conspiracy co nstitutes an antitrust injury that will support an action for damages under section 4 of the Clayton Act. The United Stat es District Court for the District of New Jersey reaso ned that

a dealer terminated under these circumstances does not suffer an antitrust injury unless it can demonstrat e that its termination had an actual, adverse economic effect on a relevant market. After concluding that the plaintif f's complaint in the instant case failed to allege such an effect, the District Court dismissed the complaint for fail ure to state a claim upon which relief may be granted. Bec ause we believe the court misconstrued the antitrust injury requirement, we will reverse.1

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1. The District Court exercised jurisdiction under 28 U.S.C. S 1331. We have appellate jurisdiction under 28 U.S.C. S 1291 and undertake plenary review of the District Court's order dismis sing the plaintiff's complaint.

2I.

The plaintiff, Pace Electronics, Inc. ("Pace"), a N ew Jersey corporation, is engaged in the business of distribu ting various electronic products, including computer pri nters and related accessories. Pace purchases these produ cts
from manufacturers and wholesale distributors and t hen resells them to smaller retailers, who operate in t he New Jersey and New York region.

In April of 1996, Pace entered into a nonexclusive dealer agreement with defendant Canon Computer Systems, In c. ("Canon"), a California corporation. Under this agr eement, Pace obtained the right to purchase Canon-brand ink -jet printers and related accessories from Canon at "dea ler prices." In consideration for the right to purchase these products at "dealer prices," Pace agreed to purchas e certain minimum quantities of the products.

The dealer agreement between Pace and Canon remaine d in effect for approximately one year and three mont hs. Thereafter, on July 1, 1997, Canon terminated the agreement with Pace on the stated ground that Pace failed to purchase the minimum quantities of Canon-brand products required of it under the dealer agreement. Although Pace concedes that it did not purchase the amount of Canon-brand products called for under the dealer agreement, Pace contends that it was unable to do so because Canon ignored its purchase orders. Pace further contends that Canon ignored its purchase orders bec ause Pace refused to acquiesce in a vertical minimum pri ce fixing agreement designed and implemented by Canon and defendant Laguna Corporation ("Laguna"), Pace's dir ect competitor in the New Jersey and New York region.

In this connection, Pace alleges that, prior to the time it entered its dealer agreement with Canon, Laguna had entered into a similar dealer agreement with Canon. Additionally, Pace alleges that the agreement betwe en Canon and Laguna contemplated the maintenance of a minimum resale price below which Laguna would not s ell Canon-brand ink-jet printers. In support of its all egation,

Pace asserts that after it entered into its dealer agreement with Canon, the president of Canon repeatedly instr ucted

3Pace's president not to sell to past or existing cu stomers of

Laguna and not to sell Canon brand ink-jet printers at prices less than those at which Laguna was selling its products.

Pace alleges that it has suffered financial losses as a result of its termination as an authorized Canon-br and dealer. Specifically, Pace avers that "[a]s a direc t and proximate result of the actions of Defendants . . . Pace has suffered significant financial detriment, consistin g of, but not necessarily limited to, lost profits. Pace's lo sses result directly and proximately from the efforts of Canon and Laguna to limit price competition in the market . . . for which both Laguna and Pace were competing." Appella nt's App. at 77. Although these allegations of loss appe ar somewhat vague and conclusory, we accept them as tr ue, as we must, for the purposes of this appeal.

Pace also alleges that its termination as an author ized dealer of Canon-brand products has harmed competiti on in two respects. First, it contends that its terminati on as a dealer has reduced price competition in the wholesa le market for Canon-brand ink-jet printers (an intrabr and market) because Laguna no longer faces price compet ition from Pace in selling these products to smaller reta ilers. Second, Pace asserts that its termination as a deal er has reduced price competition in the wholesale market f or all brands of ink-jet printers (an interbrand market). In this connection, Pace alleges that: (1) Canon-brand ink- jet printers enjoy an inherent competitive price advant age over the ink-jet printers of other manufacturers; (2) un til Canon permits its distributors to take advantage of this price advantage, other manufacturers will not attempt to reduce their production costs; and, (3) until an unrestrai ned free competitive market requires other manufacturers to reduce their production costs, the price of all brands of ink-jet printers will remain at an artificially high level.

II.

To state a claim for damages under section 4 of the Clayton Act, 15 U.S.C. S 15, a plaintiff must alleg e more than that it has suffered an injury causally linked to a

4violation of the antitrust laws. See Brunswick Corp . v.

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). In addition, it must allege antitrust injury, "which i s to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defend ants' acts unlawful." Id. This is so even where, as in th e instant case, the alleged acts of the defendants constitute a per se violation of the antitrust laws.2See also Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341 (1990). In applying the antitrust injury requirement, the Supr eme Court has inquired whether the injury alleged by th e plaintiff "resembles any of the potential dangers" which led the Court to label the defendants' alleged conduct violative

of the antitrust laws in the first instance. Id. at 336; see also II AREEDA & HOVENKAMP, ANTITRUST LAW, AN ANALY SIS OF

ANTITRUST PRINCIPLES AND THEIR APPLICATION P 362a. (Revised ed. 1995) [hereinafter AREEDA & HOVENKAMP] ("The [antit rust injury requirement] forces . . . courts to connect the alleged injury to the purposes of the antitrust laws. Compe nsation for that injury must be consistent with . . . the r ationale for condemning the particular defendant.").

For example, in Atlantic Richfield, the plaintiff, an independent retail marketer of gasoline, brought su it against ARCO, an integrated oil company which sold gasoline to consumers through its own stations and indirectly through ARCO-brand dealers, claiming tha t ARCO violated section 1 of the Sherman Act by consp iring with its dealers to fix the maximum resale price of gasoline at an artificially low level. Id. at 331. Although the plaintiff conceded that the fixed prices were not predatory, it

nevertheless maintained that it suffered antitrust injury, in the form of lost profits, as a result of the vertic al maximum price fixing agreement between ARCO and its dealers . See id. at 334-35. The Supreme Court disagreed, noting that the plaintiff's alleged injury did not resemble any of the dangers which caused the Court to label vertical ma ximum

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2. Vertical minimum price fixing is, of course, per se unlawful under section 1 of the Sherman Act, which outlaws "[e]ver y contract combination . . . or conspiracy in restraint of tra de or commerce among the several states." 15 U.S.C. S 1; see also Dr. Mi les Med. Co. v. John D. Park. & Sons Co., 220 U.S. 373 (1911).

5price fixing per se illegal in Albrecht v. Herald C o., 390 U.S.

145 (1968).3 See id. at 336.

In this connection, the Court identified four poten tial adverse effects of vertical maximum price fixing ag reements which led it to label those agreements per se illeg al in the Albrecht decision. First, it noted that a vertical maximum price fixing agreement might intrude on the ability of dealers to compete and survive " `by substituting t he perhaps erroneous judgment of a [supplier] for the forces of the competitive market.' " Id. at 335 (quoting Albr echt, 390 U.S. at 152). Additionally, the Court observed that " `[m]aximum prices may be fixed too low for the de aler to furnish services essential to the value which goods have for

the consumer or to furnish services and convenience s which consumers desire and for which they are willi ng to pay.' " Id. at 335-36. Next, the Court explained th at "[b]y limiting the ability of small dealers to engage in nonprice competition, a maximum-price-fixing agreement might `channel distribution through a few large or specif ically advantaged dealers.' " Id. at 336. Finally, the Cou rt noted that " `if the actual price charged under a maximum price scheme is nearly always the fixed maximum price, wh ich is increasingly likely as the maximum price approaches the actual cost of the dealer, the scheme tends to acqu ire all the attributes of an arrangement fixing minimum pri ces.' "

Id.

Having identified the potential dangers which led i t to condemn categorically vertical maximum price fixing agreements, the Supreme Court had little difficulty determining that the plaintiff in Atlantic Richfiel d had not suffered an antitrust injury. The Court noted that the dangers identified in the Albrecht decision focused on the potential adverse effects of vertical maximum price fixing

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3. Albrecht's specific holding -- that vertical max imum price fixing is

per se illegal -- has since been overruled. See State O il Co. v. Khan, 522

U.S. 3, 7 (1997). However, Atlantic Richfield's approach -- i.e. discerning the reasons that led the Supreme Court to label certain conduct a per se violation, and determining whether the harm suffere d by the plaintiff is consistent with the rationale for labeling the defe ndant's conduct per se illegitimate -- remains valid and is clearly applic able to the case before

us.

6agreements on dealers and consumers, not competitor s of

dealers subject to such agreements. See id. The Cou rt explained: "[i]ndeed, the gravamen of [the plaintif f's] complaint--that the price fixing scheme between[the defendant] and its dealers enabled those dealers to increase their sales--amounts to an assertion that the dange rs with

which we were concerned in Albrecht have not materi alized in the instant case." Id. at 337. In sum, the Court concluded that the plaintiff had not suffered antit rust injury because its losses did not flow from those a spects of vertical maximum pricing that rendered it illegal. Id. at 337.

Turning now to the instant case, we think it approp riate to ask whether Pace's alleged injury resembles any of the dangers which have led the Supreme Court to condemn vertical minimum price fixing agreements under the antitrust laws. Pace alleges that it has suffered a ntitrust injury because it was terminated as a wholesale dea ler after it sold Canon-brand products at prices below the mi nimum resale price allegedly fixed by Canon and Laguna. P ace further alleges that its termination as a wholesale dealer has caused it to suffer lost profits because it may no longer obtain profits from selling Canon-brand products at "dealer prices." Under the Supreme Court's jurisprudence, t hese allegations suffice to establish antitrust injury.

On this point, Simpson v. Union Oil, 377 U.S. 13 (1 964) is instructive. In Simpson, the plaintiff entered i nto a yearto-year "consignment" agreement with Union Oil. See id. at 14. Under the agreement, which was terminable by ei ther party at the end of any one-year term, Union Oil re quired the plaintiff to charge a minimum retail price for gasoline. See id. Contrary to the terms of the agreement with Union Oil, the plaintiff sold gasoline below the minimum retail price. See id. at 15. Because he did so, Union Oil terminated its "consignment" agreement with the pla intiff at the end of the first one-year term. See id.

Sometime thereafter, the plaintiff brought suit aga inst Union Oil seeking damages under section 4 of the Cl ayton Act. See id. After two pretrial hearings, the Distr ict Court granted summary judgment in favor of Union Oil, hol ding that the plaintiff failed to establish a violation of section 1 of the Sherman Act and that, even assuming the plai ntiff

7had established a violation, the plaintiff suffered no

actionable damage. See id. at 15-16. The Court of A ppeals affirmed on the ground that the plaintiff suffered no actionable wrong or damage. See id. at 16. The Supr eme Court granted certiorari and reversed.

In reversing, the Court placed primary focus on the consignment agreement's restriction on the ability of dealers such as the plaintiff to make independent, competitive pricing decisions. For example, the Cou rt explained:

We disagree with the Court of Appeals that t here is no actionable wrong or damage if a Sherman A ct violation is assumed. If the "consignment" a greement achieves resale price maintenance in violati on of the Sherman Act, it and the lease are being used to injure interstate commerce by depriving independent dealers of the exercise of free judgment whether to become consignees at all, or remain consignees, and , in any event, to sell at competitive prices.

Id. (emphasis added).

The Court also stated:

Dealers, like [the plaintiff], are independe nt businessmen; and they have all or most of th e indicia of entrepreneurs, except for price fixing. . . . Their return is affected by the rise and fall in t he market price, their commissions declining as retail prices drop. Practically the only power they have to be w holly independent businessmen, whose service depen ds on their own initiative and enterprise, is take n from them by the proviso that they must sell their gas oline at prices fixed by Union Oil. . . . The evil of the re sale price maintenance program . . . is its inexorable potentiality for and even certainty in destroying competi tion in retail sales of gasoline by these nominal `c onsignees' who are in reality small struggling competit ors seeking retail gas customers.

Id. at 21 (emphasis added) (footnote and citations omitted).

Thus, the Supreme Court considered a restriction on dealer independence with respect to pricing decisio ns to be

8an anticompetitive aspect of vertical minimum price fixing

agreements, and one that the antitrust laws have an interest in forestalling. See Richard A. Posner, An titrust Policy and the Supreme Court: An Analysis of the Re stricted Distribution, Horizontal Merger and Potential Compe tition Decisions, 75 Colum. L. Rev. 281, 289-90 [hereinaft er Antitrust Policy] ("According to the Court in Simps on, resale price maintenance is bad because it benefits the manufacturer and oppresses the dealer by taking fro m the latter the power to price competitively."). Accordi ngly, we think that a maverick dealer, such as Pace, which i s terminated for charging prices less than those set under a vertical minimum price fixing agreement, suffers th e type of injury which the antitrust laws are designed to pre vent and may recover damages, such as lost profits, whichflo w from that termination. See generally AREEDA & HOVENKAMP , supra, PP 382a. and 382c. (discussing dealer standing to c hallenge various vertical restraints and noting that a termi nated dealer which "can reasonably show that he would hav e been able to profit in a market free of the illegal arrangements has presumably suffered both injury-in -fact and antitrust injury."); see also Simpson, 377 U.S. at 16 ("There is an actionable wrong whenever the restrai nt of trade has an impact on the market; and it matters n ot that the complainant may be only one merchant.").

Naturally, the defendants argue that the above anal ysis misses the mark. In essence, they contend that Simp son is no longer good law in light of the Supreme Court's decision in Atlantic Richfield. Furthermore, they urge, and the district court agreed, that a terminated dealer see king to establish that it has suffered antitrust injury mus t allege facts demonstrating that its termination as an auth orized dealer resulted in an actual, adverse economic effe ct on competition in a relevant interbrand market. In sup port of their position, the defendants primarily rely on th e Supreme Court's statement in Atlantic Richfield tha t a plaintiff can recover damages under section 4 of th e Clayton Act "only if [its] loss[es] stem[ ] from a competitionreducing aspect or effect of the defendant's behavi or." Atlantic Richfield, 495 U.S. at 344. On the basis o f this brief statement, the defendants then argue that to be "competition-reducing" a defendant's challenged con duct

9must have had an actual adverse effect on a relevan t

interbrand market. Although the defendants' syllogi sm may have some allure, we decline to construe the antitr ust injury requirement as suggested by the defendants f or the following reasons.

First, we believe that requiring a plaintiff to dem onstrate that an injury stemming from a per se violation of the antitrust laws caused an actual, adverse effect on a relevant market in order to satisfy the antitrust i njury requirement comes dangerously close to transforming a per se violation into a case to be judged under the rul e of reason. The per se standard is reserved for certain categories of conduct which experience has shown to be "manifestly anticompetitive." Continental T.V., Inc . v. GTE Sylvania Inc., 433 U.S. 36, 39 (1977). That standar d, which is based on considerations of "business certainty a nd litigation efficiency," Arizona v. Maricopa County Med. Society, 457 U.S. 332, 344 (1982), allows a court t o presume that certain limited classes of conduct hav e an anticompetitive effect without engaging in the type of involved, market-specific analysis ordinarily neces sary to
reach such a conclusion. See Business Electronics C orp. v. Sharp Electronics Corp., 485 U.S. 717, 723 (1988) ( "Certain categories of agreements, however, have been held t o be per se illegal, dispensing with the need for case-by-ca se evaluation."). Were we to accept the defendants' construction of the antitrust injury requirement, w e would, in substance, be removing the presumption of anticompetitive effect implicit in the per se stan dard under the guise of the antitrust injury requirement.4

Second, we do not believe that the Supreme Court's statement in Altlantic Richfield that a plaintiff c an recover for losses only if they stem "from a competition-re ducing aspect or effect of the defendant's behavior," Atla ntic

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4. We recognize that various scholars have taken is sue with the Supreme Court's per se treatment of vertical minimum price fixing agreements and argued that these agreements may have significa nt, procompetitive attributes. See, e.g., Antitrust Policy, 75 Colum. L. Rev. at 283. But, academic commentary, even if persuasive, does not p ermit us to expand the antitrust injury requirement to a point which u ndermines the Court's categorical disapproval of vertical minimum price fixing.

10Richfield, 495 U.S. at 344, when viewed in the cont ext of

the Court's entire opinion, can be fairly read to r equire a terminated dealer to prove that its termination cau sed an actual, adverse economic effect on a relevant marke t. In this connection, we note that in determining that t he plaintiff in Atlantic Richfield failed to satisfy t he antitrust injury requirement, the Supreme Court simply did no t focus on whether the challenged conduct of the defe ndant had an actual, adverse economic effect on a relevan t market. Rather, as outlined above, the Court focuse d on whether the plaintiff's injury stemmed from any of the potential anticompetitive dangers which led the Cou rt to label vertical maximum price fixing unlawful in the first instance. Implicit in the Court's approach is that a plaintiff who had suffered loss as a result of an anticompeti tive aspect of a per se restraint of trade agreement wou ld have suffered antitrust injury, without demonstrating th at the challenged practice had an actual, adverse economic effect on a relevant market. See generally Daniel C. Richm an, Note, Antitrust Standing, Antitrust Injury, and the Per Se Standard, 93 Yale. L.J. 1309, 1312-14 (arguing that courts should recognize that "each per se rule presumes a particular practice harms particular markets" and t hat courts should permit "only plaintiffs within those markets to pursue per se claims"). The issue, thus, is not whether the plaintiff's alleged injury produced an anticomp etitive result, but, rather, whether the injury claimed res ulted from the anticompetitive aspect of the challenged c onduct.

Finally, we point out that our holding -- that a de aler terminated for its refusal to abide by a vertical m inimum price fixing agreement suffers antitrust injury and may recover losses flowing from that termination -- is consistent with the decisions of those courts which have explo red the issue thus far. See, e.g., Sterling Interiors Group , Inc. v. Haworth, Inc., No. 94-9216, 1996 WL 426379 at *18-* 19 (S.D.N.Y. July 30, 1996) ("The anti-competitive dan gers of minimum price arrangements flow to both customers w ho purchase at prices set higher than competitive leve ls, and to dealers who are effectively foreclosed from comp eting in the marketplace.").

11III.

For the reasons set forth above, the district court 's order dismissing Pace's complaint will be reversed and th e case remanded to the district court for further proceedi ngs consistent with this opinion. Costs taxed against t he appellees.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

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