Source: https://m.openjurist.org/714/f2d/1384
Timestamp: 2020-04-02 01:23:57
Document Index: 552844542

Matched Legal Cases: ['§ 16', '§ 8', '§ 19', '§ 6', '§ 14', '§ 3', '§ 18']

714 F2d 1384 Hornsby Oil Company Inc v. Champion Spark Plug Company Inc | OpenJurist
714 F. 2d 1384 - Hornsby Oil Company Inc v. Champion Spark Plug Company Inc
714 F2d 1384 Hornsby Oil Company Inc v. Champion Spark Plug Company Inc
714 F.2d 1384
1983-2 Trade Cases P 65,633
HORNSBY OIL COMPANY, INC., Plaintiff-Appellee Cross-Appellant,
CHAMPION SPARK PLUG COMPANY, INC., Defendant-Appellant Cross-Appellee.
Rehearing Denied Oct. 19, 1983.
Hornsby then filed the instant suit, contending that termination of its distributorship was precipitated by its nonadherence to geographic and exclusive dealing restrictions, and was hence violative of section 1 of the Sherman Act. This conduct was also challenged under section 2 of the Act as constituting a monopoly of, and an attempt and conspiracy to monopolize, the automotive replacement spark plug market. By way of response to plaintiff's allegations, Champion denied engaging in the exclusionary practices charged, averred that Hornsby's termination was predicated on its false reporting rather than any anticompetitive motive on the part of the manufacturer, and counterclaimed for the purchase price of the February 1976 shipment of spark plugs. At the close of the evidence, the court submitted the case to the jury pursuant to the special verdict procedure of Fed.R.Civ.P. 49(a).4 In answer to special interrogatories, the jury rejected all of plaintiff's antitrust theories except the claim that Champion had combined with Hornsby to form an unlawful exclusive dealing arrangement, and that Hornsby's distributorship had been cancelled because of its decision to withdraw from the arrangement. The jury further determined that the cancellation was a proximate cause of injury to Hornsby's business or property. While finding for Champion on its counterclaim, the jury pared its recovery by $4,669.45 in discounts and allowances due and owing to Hornsby.
A. Rule of Reason and the Relevant Market
Section 1 of the Sherman Act, which literally proscribes "[e]very contract, combination ..., or conspiracy in restraint of trade," has been judicially tempered to dictate the application of a "rule of reason" analysis to all but a narrow category of business practices adjudged per se violative of the Act. National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). Vertical non-price restraints are tested by the rule of reason. Continental T.V.; Multiplex, Inc. v. Samuel Moore & Co., 709 F.2d 980 (5th Cir.1983); Mendelovitz v. Adolph Coors Co., 693 F.2d 570 (5th Cir.1982). Since the agreement to abide by an exclusivity policy originated with the defendant manufacturer, and was purportedly imposed on entities operating at a different level of distribution, this agreement is vertical in character. See Mendelovitz; Sports Center, Inc. v. Riddell, Inc., 673 F.2d 786 (5th Cir.1982); Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292 (5th Cir.1981); Red Diamond Supply, Inc. v. Liquid Carbonic Corp., 637 F.2d 1001 (5th Cir.), cert. denied, 454 U.S. 827, 102 S.Ct. 119, 70 L.Ed.2d 102 (1981). We must therefore assess the legality of the restraint complained of under the guidon of the rule of reason.6
The rule of reason inquiry focuses on the competitive significance of a particular restraint, to be measured by reference to "the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed," as well as the actual impact of this restraint on competition. National Society of Professional Engineers, 435 U.S. at 692, 98 S.Ct. at 1365. See Continental T.V., Inc.7 Under the rule, the anticompetitive evils of a restrictive practice must be balanced against any procompetitive benefits or justifications within the confines of the relevant market. See Kestenbaum v. Falstaff Brewing Corp., 575 F.2d 564 (5th Cir.1978), cert. denied, 440 U.S. 909, 99 S.Ct. 1218, 59 L.Ed.2d 457 (1979). Proof that the defendant's activities, on balance, adversely affected competition in the appropriate product and geographic markets is essential to recovery under the rule of reason. Mendelovitz; Sports Center; Muenster Butane; Dougherty v. Continental Oil Co., 579 F.2d 954 (5th Cir.1978), judgment vacated by stipulation, 591 F.2d 1206 (5th Cir.1979). See also Associated Radio Serv. Co. v. Page Airways, Inc., 624 F.2d 1342 (5th Cir.1980), cert. denied, 450 U.S. 1030, 101 S.Ct. 1740, 68 L.Ed.2d 226 (1981); II E. Kintner, Federal Antitrust Law, § 16.4 (1980).8
Market considerations thus provide the "objective benchmarks" for ascertaining the existence of a section 1 violation. Continental T.V., 433 U.S. at 53 n. 21, 97 S.Ct. at 2559 n. 21. See Indiana Farmer's Guide Publishing Co. v. Prairie Farmer Publishing Co., 293 U.S. 268, 55 S.Ct. 182, 79 L.Ed. 356 (1934). Relevant market is defined in terms of product differentiation and geographical boundaries. As we opined in Dougherty, "[t]he relevant product market is composed of products that have reasonable interchangeability for the purposes for which they were produced--price, use and qualities considered." 579 F.2d at 963 n. 4. See United States v. E.I. duPont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) (section 2 case).9 The outer boundaries of the product market are drawn in terms of the presence of substitutes to which consumers will turn in response to price changes (cross-elasticity of demand), and the ability of other existing producers or new entrants to expand output from their present facilities or to build new capacity (elasticity of supply). See Spectrofuge Corp. v. Beckman Instruments, Inc., 575 F.2d 256 (5th Cir.1978), cert. denied, 440 U.S. 939, 99 S.Ct. 1289, 59 L.Ed.2d 499 (1979); Kaplan v. Burroughs Corp., 611 F.2d 286 (9th Cir.1979), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). See generally II P. Areeda & D. Turner, Antitrust Law pp 525 & 526 (1978). Within a broad product market, economically significant submarkets may exist which in themselves constitute product markets. Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir.1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978). In determining the limits of a submarket, the trier of fact may
... examin[e] such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized venders.
Brown Shoe, 370 U.S. at 325, 82 S.Ct. at 1524 (footnote omitted). See also Associated Radio Serv. Co., 624 F.2d at 1349 & n. 12 (citing with approval district court's instruction on relevant market for purposes of section 1 and section 2 claims which incorporated Brown factors); 2 von Kalinowski, Antitrust Laws and Trade Regulation, § 8.02 (1982).
The geographic dimension of the relevant market encompasses " 'the area of effective competition' " in which the particular product or its reasonably interchangeable substitutes are traded. Hecht v. Pro-Football, Inc., 570 F.2d 982, 988 (D.C.Cir.1977), cert. denied, 436 U.S. 956, 98 S.Ct. 3069, 57 L.Ed.2d 1121 (1978) ( quoting from Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 321, 328, 81 S.Ct. 623, 625, 628, 5 L.Ed.2d 580 (1961)). Accord, L. Sullivan, Handbook of the Law of Antitrust § 19 (1977). Areeda and Turner point out that the geographic market is a measure of the capacity of competing firms to sell beyond their immediate location, and "determines whether a particular product market is national, regional or even narrower." II P. Areeda & D. Turner, 522 at 355.10 Several discrete submarkets may be integrated within a larger geographic market. Kaplan v. Burroughs Corp. See Brown Shoe Co.; United States v. Dairymen, Inc., 660 F.2d 192 (6th Cir.1981); Superturf, Inc. v. Monsanto Co., 660 F.2d 1275 (8th Cir.1981). Whether ascertaining the scope of a geographic market or submarket, however, such economic and physical barriers to expansion as transportation costs, delivery limitations and customer convenience and preference must be considered.
B. Anticompetitive Effect
Not only must the plaintiff establish the parameters of the relevant market, it must also prove that the defendant's conduct adversely affected competition within that market. After Continental T.V., the courts must balance the competitive repercussions of a vertical restraint on the intrabrand and interbrand components of the relevant market.11 A reduction in intrabrand competition will not suffice to demonstrate the requisite market impact, so long as interbrand competition continues to function as a "significant check on the exploitation of intrabrand market power because of the ability of consumers to substitute a different brand of the same product." Continental T.V., Inc., 433 U.S. at 53 n. 19, 97 S.Ct. at 2558 n. 19. See Mendelovitz; Muenster; Red Diamond Supply, Inc.; Aladdin Oil Co. v. Texaco, 603 F.2d 1107 (5th Cir.1979). But see von Kalinowski, § 6E.05[a]. Reasoning that while a manufacturer's territorial allocation plan might suppress competition among dealers of the same product within a specific locale, and that might also serve to stimulate competition among different manufacturers of comparable products, the Supreme Court upheld a manufacturer's termination of the plaintiff's distributorship based on its refusal to adhere to this plan. 433 U.S. at 56-58, 97 S.Ct. at 2560-2561. Absent proof of a diminution in interbrand market power, therefore, a manufacturer's termination of a single distributor does not contravene the antitrust laws. See e.g., Muenster Butane, Inc.; Red Diamond Supply, Inc.; Aladdin Oil Co.; Daniels.
Applying these principles to the present case, we conclude that the trial judge erroneously failed to instruct the jury that any foreclosure of competition must be evaluated in the context of the product and geographic markets affected. Albeit charged on plaintiff's theory of market definition with respect to the section 2 claim, the jury was given no guidance in assessing the operation of the challenged restraint "in relationship to a clearly defined market." Dougherty, 579 F.2d at 963.12 Even assuming the court could have reserved the right to formulate the necessary market findings, despite Champion's request for submission of the question of market definition to the jury, Fed.R.Civ.P. 49(a), it should have informed the jurors of these findings in order to afford them a legal predicate for their deliberations on submitted issues.
Champion's proposed instruction on its false reporting defense was rejected by the magistrate. Aside from a one-line allusion to this defense, the charge was silent with regard to the manufacturer's prerogative to refuse to deal with a customer for business reasons independent of the conspiracy. There was ample evidence that Ms. Hornsby's falsification of monthly sales reports afforded a legitimate ground for termination of its distributorship. A fact issue having thus been raised, defendant was entitled to the submission of an appropriate instruction on its theory of defense. See Coughlin v. Capitol Cement Co., 571 F.2d 290 (5th Cir.1978). The magistrate erred in declining to so charge.
By the same token, we do not regard as erroneous the magistrate's refusal to instruct the jury on the lawfulness of Champion's promotion of single-line selling. Borrowing from Clayton Act jurisprudence, 15 U.S.C. § 14, a proscribed exclusionary agreement is established if the buyer is not free to deal in competitive goods. Dillon Materials Handling, Inc. v. Albion Indus., 567 F.2d 1299, 1302 (5th Cir.1978) (a § 3 complainant must prove (1) that "its purchases as a distributor were made 'on the condition, agreement, or understanding' that it would not sell" competing goods, and (2) a substantial lessening of competition). Considered as a whole, the charge fairly allows the jury to distinguish permissible "hard sell" tactics from the unlawful preclusion of Hornsby's ability to purchase from competing sellers.
Since the existence of an illegal exclusivity policy has not been established, we do not reach Hornsby's contention that the illegality of the distributorship contract relieves it of any obligation to reimburse Champion for merchandise procured in February 1976. We do conclude, however, that Fed.R.Civ.P. 41(b) does not bar Champion from relitigating its common law counterclaim because of a Texas court's dismissal of Hornsby's prior state court action against Champion for want of prosecution. In that action Champion counterclaimed. Hornsby argues that because the state ruling is silent as to the nature of the dismissal, it perforce operates as a judgment on the merits, thereby pretermitting, on res judicata grounds, Champion's assertion of a federal counterclaim which is patterned on an identical counterclaim filed in the state action.
By tendering instructions and special interrogatories on the issues raised on appeal, and by objecting to the court's proposed charge and interrogatories before the jury retired, Champion properly reserved its claims of error. Chemetron Corp. v. Business Funds, Inc., 682 F.2d 1149 (5th Cir.1982), cert. denied, --- U.S. ----, 103 S.Ct. 1254, 75 L.Ed.2d 483 (1983). Our review of defendant's challenge to the adequacy of the interrogatories is governed by the following standards:
Dreiling v. General Electric Co., 511 F.2d 768, 774 (5th Cir.1975) (citations omitted). Accord, Chemetron Corp.; Central Progressive Bank v. Fireman's Fund Insurance Co., 658 F.2d 377 (5th Cir.1981). As we observed in Miley v. Oppenheimer & Co. Inc., 637 F.2d 318 (5th Cir.1981):
"[T]he test is not whether the charge was faultless in every particular but whether the jury was misled in any way and whether it had understanding of the issues and its duty to determine those issues." Our jurisprudence mandates that we consider the charge as a whole, viewing it in the light of the allegations of the complaint, the evidence, and the arguments of counsel.
Smith v. Borg-Warner Corp., 626 F.2d 384, 386 (5th Cir.1980) (citations omitted) ( quoting from Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076, 1100 (5th Cir.1973), cert. denied, 419 U.S. 869, 95 S.Ct. 127, 42 L.Ed.2d 107 (1974)). See Farace v. Independent Fire Insurance Co., 699 F.2d 204 (5th Cir.1983); Robert v. Conti Carriers & Terminals, Inc., 692 F.2d 22 (5th Cir.1982); Chemetron Corp. The court is not obliged to adopt the precise language and form urged by the parties. Coughlin v. Capitol Cement Co., 571 F.2d 290 (5th Cir.1978).
Exclusive dealing arrangements have not received the more stringent per se treatment. Bravman v. Bassett Furniture Indus., Inc., 552 F.2d 90 (3d Cir.1977), cert. denied, 434 U.S. 823, 98 S.Ct. 69, 54 L.Ed.2d 80 (1978) (exclusive dealing requirement to be examined under rule of reason). According to one commentator:
Barber, Refusals to Deal Under the Federal Antitrust Laws, 103 U.Pa.L.Rev. 847, 876-77 (1955).
Mr. Justice Brandeis articulated the now-classic formulation of the rule of reason in Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918):
We have declared repeatedly that " '[t]he first step in establishing an unreasonable restraint of trade is to show anti-competitive effect' " in the relevant market. Daniels v. All Steel Equipment, Inc., 590 F.2d 111, 113 (5th Cir.1979) ( quoting from H & B Equipment Co., Inc. v. International Harvester Co., 577 F.2d 239, 246 (5th Cir.1978). See generally Zelek, Stern and Dunfee, A Rule of Reason Decision Model After Sylvania, 68 Calif.L.Rev. 13, 31 (1980)
Basic principles governing definition of the relevant product and geographic markets in section 2 cases may be applied in actions arising under section 1 of the Sherman Act, and section 7 of the Clayton Act, 15 U.S.C. § 18. Kaplan v. Burroughs Corp., 611 F.2d 286, 292 (9th Cir.1979), cert. denied 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980)
433 U.S. at 52 n. 19, 97 S.Ct. at 2558 n. 19.