Opinion ID: 436172
Heading Depth: 4
Heading Rank: 3

Heading: Analyzing Ladsco's Proof

Text: 40 Ladsco has attempted to define two distinct geographic areas as relevant shot markets. Viewing Ladsco's evidence in a favorable light, as we must on review of a directed verdict, we address each proposed market and conclude that the proof was insufficient to support a jury finding that either market was economically significant. 41
42 The first of the markets Ladsco identifies as relevant is the four-state area consisting of Alabama, Tennessee, Georgia, and Mississippi. This is an area in which Ladsco had for twenty years served as the exclusive distributor of Whiffy shot and had captured 50% of the shot sales. Hessco now fulfills a similar function and has about the same market share. Ladsco also offered proof that would support an inference that consumers in the four-state area were loyal to the salesmen formerly employed by Ladsco and now working for Hessco, and preferred local warehousing for quick delivery--a factor also indicated by Hessco's establishment of local warehouses and operations identical to those used by Ladsco. Finally, Ladsco introduced evidence that shot is a heavy, low-cost item, where freight cost is a significant marketing consideration. 43 Notably absent from the record is any showing on how the four-state area functioned as a distinct or relevant geographic market. Ladsco offered no evidence on the location of shot manufacturers other than Whiffy and the ability of those manufacturers to sell in the four-state area. Compare Tampa Electric Co. v. Nashville Coal Co., 365 U.S. at 331, 81 S.Ct. at 630 (area of effective competition is area in which coal producers operated and were willing to compete for customers). Ladsco competed in the four-state area with eight to ten other distributors, but there is no evidence in the record on where those distributors obtained shot, sold shot (i.e., we do not know the sales patterns of Ladsco's competitors; they may sell shot outside the four-state area), or where their warehouse facilities were located. Most importantly, Ladsco offered no evidence on the relationship of prices within the four-state area to other parts of the country. There was simply no evidence that could support an inference that if prices increased in the four-state area, purchasers could not obtain shot from distributors located elsewhere. Compare, id. at 327, 81 S.Ct. at 628 (in order to find a market relevant, purchasers must, as a practical matter, be unable to turn to suppliers outside their own area); L. Sullivan, supra Sec. 19 at 68. 44 Ladsco did show that it, and Hessco, adopted the four-state area as their sales area. However, as noted, there was no evidence that competing distributors used a similar sales pattern. Furthermore, any number of irrelevant considerations could have caused Ladsco and Hessco to limit their operation to a four-state area. For example, both Ladsco and Hessco sell a mix of several different foundry supplies. The geographic market limitations and consumer preferences that led to Ladsco and Hessco's four-state distribution pattern could have been created by any one of the products, or some mix of all four. See United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 360-61, 83 S.Ct. 1715, 1739-40, 10 L.Ed.2d 915 (1963) (recognizing that banks, which offer a variety of services to a variety of customers, may face an area of effective competition that varies according to the service and customers). We are concerned here only with the geographic market for shot sales; and Ladsco's proof that it and Hessco served a four-state area with sales of various foundry supplies, unsupported by a showing that other shot sellers followed a similar sales pattern, is inconclusive on the sales pattern that prevailed in the shot market. 45 Even if Ladsco had shown that the four-state area was the predominant sales pattern for shot sales, that evidence without more would have been insufficient to present the issue to the jury. Although actual sales patterns can aid in the interpretation of ambiguous price data or otherwise illuminate the character of the market, we should be aware that actual patterns can also be virtually meaningless. II P. Areeda & D. Turner, supra p 522(b) at 357. The pattern of sales may only reflect established consumer preferences, but do not mean the customers would remain loyal if Ladsco or now Hessco would try to raise shot prices. For proof of sales patterns to support a geographic market definition, we would have to know that consumers could not realistically turn to outside distributors should prices rise within the four-state area. Id. See also Tampa Electric Co. v. Nashville Coal Co., 365 U.S. at 327, 81 S.Ct. at 628; RCM Supply Co. v. Hunter Douglas, Inc., 686 F.2d 1074 (4th Cir.1982) (plaintiff's proof that it sold only in metropolitan Washington, D.C. area was inconclusive on geographic market issue, in face of evidence that suppliers outside the market could and did make shipments into the area). 46 Ladsco also offered evidence that consumers were loyal to familiar salesmen and distributors that maintained local warehousing for quick and reliable services. This evidence, in conjunction with proof of price differentials between the four-state area and other portions of the country, might have created a jury issue on the four-state area as a relevant market. See Brown Shoe Co. v. United States, 370 U.S. at 325, 82 S.Ct. at 1524 (practical indicia, such as consumer preference, can aid in defining an economically significant markets); II P. Areeda and D. Turner, supra p 524 at 367 & 370 (consumer convenience and preference ... can narrow the scope of a geographic market    [however], we are inclined to view the identification of such barriers to entry as consumer preferences or the need for local sales or servicing facilities as serving no useful purpose other than to support price relationship data that point to separate markets). 47 The record in the instant case, however, is insufficient to afford any weight to Ladsco's proof of consumer preference as it relates to relevant market definition. Ladsco, which bore the burden of proving that it had identified an economically significant market, had to show how the alleged consumer preferences translated into market power for the firms within the four-state area and contributed to making that area a relevant market. Crucial information on the location of distribution facilities, the availability or nonavailability of shot at competitive prices from outside the four-state area, and the existence of price differentials is lacking. Ladsco's evidence on consumer preferences was therefore inconclusive and insufficient to create a question for the jury. 48 Finally, Ladsco's evidence on freight costs also was insufficient to create a jury question. Areeda & Turner state: Two areas are ordinarily separate markets where there are no or only episodic sales between them and where transport costs exceed any price differentials between the two areas. II. P. Areeda & D. Turner, supra p 523 at 358. See also Hornsby Oil Co. v. Champion Sparkplug Co., 714 F.2d at 1393 (transport costs factor in determining relevant market); United States v. Columbia Steel, 334 U.S. 495, 510-11, 68 S.Ct. 1107, 1115-16, 92 L.Ed. 1533 (1947) (same). Transport costs, however, must be compared in order to support a given market definition. Ladsco had to present sufficient evidence for the factfinder to conclude that these costs foreclosed the market to shot suppliers outside the geographic area. Id. 49 In the instant case, Ladsco showed that transport costs into the four-state area from Whiffy's Virginia plant were a significant portion of the sales price of shot (15%). It failed to offer any proof on how Ladsco's cost related to other distributors or suppliers operating within or outside the four-state area. Because there was no proof of price differentials between the four-state area and other places where shot was sold, there was no indication that relative transport costs exceeded those differentials. Proof of the mere existence of significant transport costs from one plant into the four-state area could not support a conclusion that the four states were an economically significant, distinct, relevant market. 50 In short, the record is devoid of sufficient evidence on the operation of the four-state area as a relevant market to create a legitimate question of fact for the jury. 51
52 Ladsco also asserted that North and South Carolina were a second relevant market in which the alleged Whiffy-Hessco conspiracy imposed an unreasonable restraint on trade. This is an area in which Ladsco and Whiffy had competed directly for shot sales. 15 As with regard to the four-state area, Ladsco introduced no proof on the location of manufacturers and distributors competing for shot sales in the Carolinas. There was no evidence on the relationship of prices in the Carolinas to other areas. 16 53 For the reasons discussed with respect to the four-state area, we conclude that Ladsco did not offer sufficient proof to create a jury question on the definition of the Carolinas as a relevant market. 54 In affirming the district court's directed verdict on the antitrust claims, we are mindful of the principle that relevant market definition is generally a question of fact for the jury. See Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 979-81 (5th Cir.1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978). We are also aware that the definition of a relevant market should be pragmatic, not formal or legalistic. Brown Shoe Co. v. United States, 370 U.S. at 336-37, 82 S.Ct. at 1529-30. Nevertheless, we conclude that Ladsco failed to present sufficient evidence of the commercial realities within the industry to warrant a jury finding that either the four-state area or the Carolinas constitute an economically significant relevant market. 55 Without a well-defined relevant market upon which the defendant's alleged anticompetitive conduct might be judged, there was simply no way for the jury to conduct the rule of reason analysis required in this case. Accordingly, we must affirm the district court's directed verdict on the antitrust claims. 56