Opinion ID: 409686
Heading Depth: 1
Heading Rank: 3

Heading: The Intra-Enterprise Conspiracy Doctrine

Text: 30
31 It is elementary that a conspiracy in violation of Section 1 of the Sherman Act, like any other kind of conspiracy, requires an agreement by two or more parties. When this case went to the jury, it could have been a garden-variety antitrust conspiracy case-Copperweld and Regal on the one hand agreeing with Yoder on the other to keep Independence out of the steel tube business. But the jury exonerated Yoder (except on the breach of contract Count III against Yoder) and instead found a conspiracy between Copperweld and its wholly-owned subsidiary Regal. As a result, it set the stage for appellants' broadly based attack on the intra-enterprise conspiracy doctrine in the abstract and as applied to these facts. 32 We may begin with antithetical truisms. Two independent corporations can engage in concerted activity that violates Section 1 of the Sherman Act. A corporation and its officers, or a corporation and one of its fully integrated divisions cannot, because the requisite plurality of actors is missing. The hard case lies between these opposites: can a corporation conspire with its wholly-owned subsidiary? In a purely formal sense, the answer should be yes: there are two corporations and hence two actors. But as a practical matter there may be little difference between a wholly-owned subsidiary and a fully integrated division, and where the differences are trivial Section 1 liability should not turn on them. 33 Academic discussion of the intra-enterprise conspiracy 2 doctrine is almost uniformly critical. 3 The commentators generally note at the outset that the Supreme Court has never actually relied on the doctrine without qualification to decide a Sherman Act case, and therefore the broad language of some Supreme Court opinions must be taken at less than face value. 4 They also point out that government enforcement agencies do not use the doctrine. 5 Rather it surfaces in private suits-where plaintiffs rely on it to plead their way around basically unilateral action taken by an entity that lacks the market power to be sued under Section 2's monopolization standards. So used, the intra-enterprise conspiracy doctrine fills a gap between Section 1 and Section 2-a gap that should either remain entirely unfilled or be left to state-law remedies. 6 Otherwise, the commentators argue, the real efficiencies achievable by separately incorporated but closely related corporations will be sacrificed, 7 and the antitrust laws will be used perversely to achieve either more independence or more integration than is optimal. 34 Judicial attitudes toward the intra-enterprise conspiracy doctrine are more constrained. For a federal judge at the trial or appellate level, the salient factor is that the Supreme Court's decisions, while they need not be read with complete literalism, of course they cannot be ignored. 8 It is no accident that every Court of Appeals to consider the question has concluded that a parent and its subsidiary have the capacity to conspire, whether or not they can be found to have done so in a particular case. 9 Among the circuits there have been various limiting approaches-but no move to abolish the doctrine root and branch. 35 This Circuit's position has recently been articulated in Photovest Corp., supra, 606 F.2d 704, 725-727. Like the Eighth and the Ninth Circuits, 10 we focus on the practical relationship between the parent and the subsidiary, using a variety of factors to decide when there is enough separation between the two entities to make treating them as two independent actors sensible. The test is admittedly in an early and unsettled stage of development, as is inevitable with: (a) any test that involves the presence or absence of various unranked factors, (b) the possibility that the list will expand or contract, and (c) as yet limited application. Nonetheless, we think it focuses on the proper question-namely, when the distinction between affiliation and integration is trivial and when it is significant. And it seeks the answer to the question in terms of evidence that is empirical, readily furnished, and amenable to development at trial-as more arcane economic calculations are not. Its flexibility means that it can mediate between the corner positions of academic critics on the one hand and sweeping Supreme Court dicta on the other. And the uncertainties that necessarily exist now will be obviated as the test is applied and refined. 36 In short, Photovest represents a reasonable and pragmatic approach to the intra-enterprise conspiracy problem, and we intend in what follows to adhere to it.
37 Copperweld and Regal have two quarrels with the application of the Photovest criteria to this case. One centers on the instructions which the trial judge gave, and their failure to correspond exactly to the Photovest language. The second involves the sufficiency of the evidence, assuming that the instructions were substantially correct. 38 There is some dispute about whether the instruction issue has been preserved on appeal, 11 but we conclude that it is properly before us. 12 The defendants first criticize the instructions for failing to duplicate the Photovest factors verbatim (Br. 32-33). Yet Photovest itself, as Judge Will noted (App. 242), does not make its factors canonical. 39 (W)e must decide each case on its particular facts. Some relevant factors to consider include the extent of the integration of ownership, whether the two corporations have separate managerial staffs, ... the extent to which significant efficiencies would be sacrificed if they were required to act as two firms, their history, whether they functioned as separate firms before being partially integrated, and finally, the extent to which they may, acting as one, wield market power which they would not possess if viewed as separate firms. 40 606 F.2d at 726, quoting L. Sullivan, Handbook of the Law of Antitrust 328 (1977). There can be no claim, based on the language of Photovest, that this Court's ipsissima verba are necessary. 41 The more substantial issue is whether the instructions Judge Will did give (set out at App. 240-241) are consistent with the analysis undertaken in Photovest. That they are is convincingly shown in the Appendix to this opinion, where the instructions and the critical paragraphs of the Photovest opinion are juxtaposed. Moreover the judge's charge emphasized to the jury that they were looking for real, rather than merely formal, distinctness: 42 The rule is that a parent like Copperweld and a subsidiary like Regal are capable of combining or conspiring together unless they are operated in such a way as to, in effect, constitute just one company. 43 If you find from the evidence that Regal Tube Company is not sufficiently distinct from Copperweld as an economic entity, then you must consider them as a single person   . 44 (App. 156, 158; these statements immediately precede and follow the 9 specific capacity instructions.) 45 Despite this congruence with Photovest's approach, the defendants claim to have been prejudiced by particular instructions or phrases within instructions. 13 In view of the overall emphasis, there is no realistic possibility that the jury could have singled out any one factor-or part of a factor-to the exclusion of all the others. Furthermore, the defendants exhibit some confusion about how a balancing test works. Photovest took a variety of considerations and weighed them, and the balance in Photovest tipped in one direction. That does not mean that in all future cases the factors on the lighter side of the scale must be excluded. They may again turn out not to be probative, but it is not legal error to consider them. Of course, once a body of law accumulates, a court may redefine its balancing test or substitute a bright-line rule, based on its experience. We are not yet in a position to do that. 46 Our holdings so far-that Photovest governs this Circuit's treatment of intra-enterprise conspiracy and that Judge Will's instructions comport with Photovest -are virtually dispositive of the defendants' challenge to the jury's finding of capacity to conspire. Jury factfinding, unlike judicial factfinding, is not subject to direct attack as clearly erroneous. In view of the Seventh Amendment's prohibition (no fact tried by a jury shall be otherwise re-examined in any Court of the United States than according to the rules of the common law), a jury verdict can only be set aside if the evidence (viewed) in the light most favorable to the plaintiff and    (the) facts and inferences reasonably drawn from the facts    lead to but one conclusion-that there is a total failure of evidence to prove the plaintiff's case. Fact Concerts, Inc. v. City of Newport, 626 F.2d 1060, 1064 (1st Cir. 1980), vacated on other grounds, 453 U.S. 247, 101 S.Ct. 2748, 69 L.Ed.2d 616 (1981). 14 It is particularly appropriate togive (the plaintiff) the benefit of all inferences which the evidence fairly supports, even though contrary inferences might reasonably be drawn, Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 696 (82 S.Ct. 1404, 1409, 8 L.Ed.2d 777)   , in complex antitrust cases    where motive and intent play leading roles, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473 (82 S.Ct. 486, 491, 7 L.Ed.2d 458)   , because (f)indings as to the design, motive and intent with which men act depend peculiarly upon the credit given to witnesses by the trier of fact. United States v. Yellow Cab Co., 338 U.S. 338, 341 (70 S.Ct. 177, 179, 94 L.Ed. 150)   . 47 Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 825 (7th Cir. 1978). 48 The issue here-how much separation Regal and Copperweld in fact maintained in the conduct of their business-is similarly fact-bound and inferential. 49 The plaintiffs presented evidence from which the jury could have found that 50 (1) Regal had existed as a division of C. E. Robinson Company and of Lear Siegler before its acquisition by Copperweld, and that Copperweld intended Regal to keep its ongoing business and keep serving the market and customers it was already serving (testimony of Smith, Tr. 3031). 51 (2) The acquisition of Regal did not have the practical effect of enabling Copperweld to handle additional steps in its own manufacturing process (comparable to the forward integration found in Photovest ), but established Copperweld in an entirely new line (testimony of Smith, Tr. 3029). 52 (3) Regal management had real autonomy in both day-to-day and policy decisions (Smith testimony, App. 708-710; Foster affidavit, App. 647). 53 (4) Not only were Regal's expenses and revenues segregated (Smith testimony, App. 708-710) but Regal's operating manager's compensation was based primarily on Regal profitability (Breedlove, Tr. 4934-35, 4937, 4958). 54 (5) Regal had a separate sales force and clientele (until the 1979 reorganization of Copperweld's subsidiaries) and made its own arrangements with suppliers of equipment and raw materials (App. 361-376 (sales); App. 305-308, 1054-1056 (suppliers))-a fact relevant to the ability of the defendants to bring pressure to bear on more people if they worked together than either could alone or than both could if Regal were a full-fledged division (Indep. Br. 31-32). 55 Taken together this information creates a much fuller and more consistent picture than did the two isolated (distinct entity) statement(s) in Photovest, 606 F.2d at 727, the same record on which a jury verdict of conspiracy was overturned in Ogilvie v. Fotomat, 641 F.2d 581, 589-590 and n. 27 (8th Cir. 1981). The jury here was entitled to conclude that Regal was not merely a service arm of (its parent), more like a corporate division than a separate corporate entity, Photovest, 606 F.2d at 727. 56
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58 The defendants argue that even if the capacity hurdle was overcome, no conspiracy was proven. Their initial objection, that the proof was circumstantial rather than direct (Br. 36), is meritless: conspiracies are by their nature not subject to direct proof. Furthermore, Weit v. Continental Illinois National Bank & Trust Co., 641 F.2d 457, 463 (7th Cir. 1981), certiorari denied, --- U.S. ----, 102 S.Ct. 1610, 71 L.Ed.2d 847, does not state a proof requirement for all conspiracies, but a method of dealing with those in which an agreement is inferred on the basis of conscious parallelism among the co-conspirators. This is not a conscious parallelism case. 59 The defendants also argue that the evidence of Foster's and Smith's conduct up until February 19, 1973 (the date on which the letter to Yoder was mailed) was insufficient, and that evidence of their later activities-which tended to cast a more sinister light on their doings-was improperly admitted. This argument rests on a fundamental misunderstanding about the conspiracy alleged: Independence's contention was that Copperweld Chairman Smith and Regal General Manager Foster had engaged in a continuing course of anticompetitive conduct, but the only actual harm they had been able to cause was Yoder's cancellation of the tubing mill contract. 15 The other recipients of the warning letters-including Abbey-Etna, Continental Illinois National Bank, First National Bank of Chicago, C. E. Robinson, various real estate firms, and major steel suppliers (App. 84, 239)-did nothing that was productive from Copperweld's and Regal's perspective, or detrimental from Independence's. The only other instance of tangible harm to Independence-the defamatory remarks to Deere-was unrelated to the letter-writing campaign. We find that the evidence of a conspiracy (pre- and post-February 1973) was properly admitted and the jury's inferences from it are unassailable. 60 The defendants finally argue that Judge Will made inconsistent legal rulings when he found that Regal could not be held liable as a joint-tortfeasor with Copperweld for inducing Yoder's breach of contract, but did not also rule that Regal could not be Copperweld's co-conspirator. (Br. 40-42). This argument overlooks important substantive differences between tort and conspiracy liability, as Judge Will pointed out (App. 234-235). To be liable for tortious interference with contract, Regal would have had to know that the Independence-Yoder contract existed, and would have had to do a specific act to cause the breach of contract. Hannigan v. Sears, Roebuck & Co., 410 F.2d 285, 291 (7th Cir. 1969), certiorari denied, 396 U.S. 902, 90 S.Ct. 214, 24 L.Ed.2d 17. In other words, to be a joint tortfeasor, Regal had to have causal responsibility for the breach. To be liable for damages caused by the breach under the anti-trust conspiracy theory, Regal had only to have entered into an agreement to hamper Independence's entry into the market and have taken some step toward that end. Once that showing was made, Regal could be liable for any actions of Copperweld in furtherance of the conspiracy, on the theory that for the duration of the conspiracy conspirators are accountable for each other's actions. T.V. Signal Co. of Aberdeen v. American Telephone & Telegraph, 462 F.2d 1256 (8th Cir. 1972). Section 1 of the Sherman Act casts a wider net than do principles of common-law tort liability. 61
62 Defendants argue that Independence has failed to make out antitrust injury, as that term is used in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977) (Br. 44). 16 Brunswick defines antitrust injury as 63 injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be the type of loss that the claimed violations ... would be likely to cause. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. (100) at 125 (89 S.Ct. 1562 at 1577, 23 L.Ed.2d 129). 64 If antitrust injury inquires into causation, the injury Independence claimed flowed directly from the defendants' conspiracy to keep it from going into business as their competitor, a clear violation of Section 1 of the Sherman Act. If antitrust injury also states a limitation on damages, as is argued in Page, Antitrust Injury and Economic Efficiency: An Approach to Antitrust Injury, 47 U.Chi.L.Rev. 467 (1980), it equally supports Independence's recovery here: 65 The traditional measures of damages for the total exclusion 17 of a competitor from the market accurately reflect antitrust injury. (If) a potential competitor is denied entry to a market because of the existing competitors' control of a necessary facility or resource 18    damages (should reflect) returns on the output that the market would have supported but for the collective impediment to new entry. Page, op. cit., supra, 485-486. 66 Defendants also argue that the district court should have required Independence to show anticompetitive harm by demonstrating that Regal's market share increased after the allegedly anticompetitive conduct. This showing, they argue, is mandated by our decision in Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 558 (7th Cir. 1980) (Br. 45-50). 67 Defendants misread Havoco. Its main message is that outside the limited category of per se violations of the antitrust laws, 19 actual harm to competition must be demonstrated under the Rule of Reason analysis before an offense against the antitrust laws will be made out. That proposition was recognized by the district judge here, and he so instructed the jury (App. 162-164): 20 68 Independence must establish by a preponderance of the evidence that the delay in its entering into business resulted in a decreased supply or higher prevailing prices in the market or otherwise adversely affected competition in the relevant market (App. 164). 69 Havoco does not say that harm in the relevant market is demonstrable only by market share evidence, but rather that the relevant market must be defined with enough generality to ensure that harm to competition is not assumed where no more than harm to a person engaged in interstate commerce is shown. 626 F.2d at 558. Here the jury was instructed that the relevant market was the area in which (Independence) and the defendant Regal operate and to which purchasers can practicably turn for supplies of structural steel tubing or any substitutable products. This definition precludes any facile equation of harm to Independence and harm to competition. 70 Defendants also seem to cite Havoco for the proposition that Independence must fail under a Rule of Reason analysis unless it can demonstrate that Regal's market share increased as a result of Independence's foreclosure from the market (Br. 48-49). However true that proposition may be when an actual competitor is harmed or driven out of business, 21 it makes no sense in a foreclosure case. Here by contrast it would be an anticompetitive sign if Regal could maintain its market share so long as Independence was kept out of the steel tubing business, but lost ground to Independence once the latter began production. That was, as defendants concede (Br. 49), exactly what the evidence suggested. 22