Opinion ID: 785703
Heading Depth: 2
Heading Rank: 2

Heading: Whether the District Court Erred in Applying the Per Se Analysis.

Text: 47 We review the district court's determination that the alleged agreement between Ford and American Coach constituted a per se antitrust violation de novo. In re Cardizem CD Antitrust Litigation, 332 F.3d 896, 905-06 (6th Cir.2003); United States v. Brown, 936 F.2d 1042, 1045 (9th Cir.1991); Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 1909b (1998) (although a court's determination that the per se rule applies might involve many fact questions, the selection of a mode [of analysis] is entirely a question of law.). 48 Section 1 of the Sherman Act provides that [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. 15 U.S.C. § 1. Despite its broad language, Section 1 has long been interpreted to outlaw only those restraints that are unreasonable. Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 343, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982). The United States Supreme Court has set forth three methods for analyzing the reasonableness of a restraint on trade: rule of reason analysis, per se analysis, and quick look analysis. 49 The rule of reason is the prevailing standard for determining a restraint's effect upon competition in a relevant market. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). See also Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 726, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988) (there is a presumption in favor of a rule-of-reason standard); State Oil Co. v. Khan, 522 U.S. 3, 22, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997) ([T]he majority of commercial arrangements subject to the antitrust laws[] should be evaluated under the rule of reason). Under this approach, the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect. State Oil Co., 522 U.S. at 10, 118 S.Ct. 275. 50 When a restraint's negative impact on competition is immediately discernable and the restraint has no redeeming virtue, the per se mode of analysis applies. Continental T.V., Inc., 433 U.S. at 50, 97 S.Ct. 2549; State Oil Co., 522 U.S. at 10, 118 S.Ct. 275 (Some types of restraints ... have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se. ). Unlike the rule of reason analysis, per se analysis does not allow inquiry into the intent behind the restraint, its pro-competitive justifications, or its actual effect on competition. Cardizem, 332 F.3d at 906-07 (citing National Collegiate Athletic Ass'n. v. Board of Regents, 468 U.S. 85, 100, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984)). Instead, the per se mode of analysis applies a `conclusive presumption' of illegality. Id. (quoting Maricopa County, 457 U.S. at 344, 102 S.Ct. 2466). Because of the strength of this presumption, the per se analysis is appropriate only where experience with a particular kind of restraint enables the court to predict with confidence that the rule of reason will condemn it. Maricopa County, 457 U.S. at 344, 102 S.Ct. 2466. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, division of markets, group boycotts, and tying arrangements. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958) (internal citations omitted). 51 In cases where the repercussions of a suspicious restraint are unclear, courts may make a truncated inquiry into the restraint's output or price effects before deciding which mode of analysis to apply. See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) (applying quick look approach to a horizontal agreement among dentists to withhold from their customers a particular service); Chicago Prof'l Sports Ltd. P'ship v. NBA, 961 F.2d 667, 676 (7th Cir.1992) cert. denied, 506 U.S. 954, 113 S.Ct. 409, 121 L.Ed.2d 334 (1992) (finding that district court did not err in application of quick look analysis). This quick look approach is reserved for circumstances in which the restraint is sufficiently threatening to place it presumptively in the per se class, but lack of judicial experience requires at least some consideration of proffered defenses or justifications. Areeda & Hovenkamp at ¶ 1911a. After taking a quick look at the defendant's proffered reasons for the restraint, a district court has three options: 52 First, it may reject that evidence and condemn the restraint with little or no inquiry into power (as unlawful  per se ); second, it may find the evidence essentially unconvincing, but still have a few doubts about whether the restraint itself is appropriate for per se condemnation, thus making at least a quick look at market power appropriate; or third, it may find the evidence plausible, in which case the restraint is subjected to general rule of reason analysis requiring full consideration of power and anticompetitive effects. Areeda & Hovenkamp at ¶ 1911c (emphasis added). 53 At trial, the district court found that Ford had transformed itself into a horizontal competitor through its action and influence with the QVM manufacturers. (Tr. 1431.) Without further analysis, the district court held that the per se rule was applicable. On appeal, Ford argues that it is not a horizontal competitor of Craftsmen, because Ford does not manufacture limousines. Ford therefore contends that the alleged agreements between Ford and American Coach were vertical restraints subject to the rule of reason analysis. See NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135, 119 S.Ct. 493, 142 L.Ed.2d 510 (1998) (holding that the per se rule does not apply to a vertical agreement between a buyer and supplier, and noting that precedent limits the per se rule in the boycott context to cases involving horizontal agreements among direct competitors); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959) (applying the per se rule to a boycott arranged by a single competitor of the plaintiff, but carried out by a wide combination consisting of manufacturers and distributors, as well as the competing retailer). We need not determine whether Ford transformed itself into a horizontal competitor. Even assuming Ford and American Coach were direct competitors of Craftsmen, the per se rule should not have been applied in this case. 14 54 Through its QVM program, Ford established voluntary safety standards for the manufacture of limousines. Although most coachbuilders joined the QVM program and agreed to build within QVM guidelines, some coachbuilders, like Craftsmen, chose not to join or abide by QVM restrictions. Craftsmen alleged that defendants effectively shut them out of the market by pressuring the limousine industry's trade publications to exclude non-QVM coachbuilder from advertising and attending trade shows. In essence, defendants' alleged restraint was an attempt to force Craftsmen to either comply with QVM guidelines or stop selling limousines. The question is whether Ford's insistence on QVM compliance was arguably rooted in safety concerns, and if so, whether this should remove the alleged agreement from the per se rule's realm. We believe it does. 55 As Areeda & Hovenkamp note, Exclusion by the joint setting and enforcement of standards is ordinarily evaluated under the rule of reason. ¶ 2232b. This is so because the creation and enforcement of standards, including safety standards, often has pro-competitive effects. For example, having unsafe limousines in the market could tend to undercut consumer confidence in all limousines, and thereby decrease overall limousine sales. On the other hand, When consumer confidence in a market is increased, consumers enter the market or are willing to purchase more. Areeda & Hovenkamp at ¶ 2230b. Because the economic impact of safety standards is not immediately discernable, something more than a cursory per se analysis is required to determine whether the restraint was unreasonable. 56 The Seventh Circuit recognized these principles in Moore v. Boating Indus. Ass'ns, 819 F.2d 693 (7th Cir.1987). There, an association of boat trailer manufacturers was concerned that a boat trailer lamp manufacturer's products did not meet federal safety standards. Id. at 700-02. After the association received tests from an independent laboratory indicating that the lamps indeed failed to meet federal standards, the association decided it could no longer certify boat trailers that used the non-complying lamps. Id. at 702. The lamp manufacturer filed suit claiming that the association violated antitrust laws by engaging in a group boycott with the purpose of eliminating competition in trailer lights. Id. The Seventh Circuit held that plaintiff's claim should have been analyzed under the rule of reason. Id. at 710. First, the Court found that there was not a horizontal group boycott, as the boat trailer manufacturers and the boat trailer lamp manufacturers were not competitors. Id. at 700. Second, the Court found that per se analysis was inappropriate because the anticompetitive affects of the restraint were not immediately apparent. Id. at 710-11. The Court stated, 57 To promote compliance with the [National Traffic and Motor Vehicle Safety Act] and the standards under it, admittedly the purpose of defendants in their compliance program, is not an activity which is characteristically ... likely to result in predominantly anticompetitive effects, [ Northwest Wholesale Stationers, Inc., v. Pacific Stationery & Printing Co., ] 472 U.S. at 296, 105 S.Ct. 2613. There is no justification, therefore, for applying a per se analysis to such activity. Id. 58 Admittedly, the case at bar presents a closer question than Moore. Many of the limousine manufacturers with whom Ford allegedly conspired were direct competitors of Craftsmen. In addition, there is no evidence that Craftsmen's products failed to meet federal safety standards at the time defendants allegedly pressured the trade publications to exclude non-QVM products. Nevertheless, the record reveals that the National Highway Traffic Safety Administration encouraged Ford to develop product safety testing, because it was concerned that many coachbuilders were either ignorant of or not abiding by the Federal Motor Vehicle Safety Standards. Ford responded to the call. It spent millions of dollars researching and developing base vehicles, and it determined how to convert those vehicles in compliance with federal safety standards. Through its QVM program, Ford made all coachbuilders aware of the federal safety standards and taught all coachbuilders how to comply with them. Ford disseminated the engineering designs, instruction manuals and test data it developed to QVM and non-QVM coachbuilders alike. 15 59 Ford also may have had profit-making motives in mind when it created the QVM standards and allegedly pressured the trade publications not to advertise non-QVM vehicles. However, the fact remains that safety concerns were arguably a motivating factor behind Ford's actions. On this point, we find it significant that the trade magazines did not exclude all non-QVM products; Limousine & Chauffeured Magazine allowed non-QVM coachbuilders to advertise upon submission of independent crash-testing data, and Limousine Digest allowed non-QVM advertisements so long as the coachbuilder certified, through some independent means, that its vehicles met federal safety regulations. (Tr. 1185.) We acknowledge that the National Highway Traffic Safety Administration did not require Craftsmen to crash-test its vehicles to prove they were safe. However, the fact that at least one of the trade publications required Craftsmen to take measures beyond what the National Highway Traffic Safety Administration required does not convince us that the per se rule should be applied. Whether the crash-testing requirement was disproportionate to the harm it sought to remedy is a question that is appropriately analyzed under the rule of reason. See State Oil Co., 522 U.S. at 10, 118 S.Ct. 275 (when applying the rule of reason, the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect). 60 At this juncture, we cannot and need not determine whether defendants' alleged restraint actually had procompetitive effects. As the Supreme Court held in California Dental Ass'n v. FTC, 526 U.S. 756, 119 S.Ct. 1604, 143 L.Ed.2d 935 (1999), when determining whether to apply the rule of reason analysis to non-price advertising restrictions related to product safety, the issue is not whether the restrictions were procompetitive, but whether they could be. Id. at 778, 119 S.Ct. 1604 ([T]he plausibility of competing claims about the effects of the professional advertising restrictions rules out the indulgently abbreviated review to which the Commission's order was treated.). See also Areeda & Hovenkamp at ¶ 1911b (stating that courts must consider the plausibility of procompetitive effects when determining which mode of analysis to apply). Because the alleged restraints were arguably based, at least in part, on safety concerns, they may have had some procompetitive effects. It follows that an abbreviated per se analysis was inappropriate. See California Dental, 526 U.S. at 770-781, 119 S.Ct. 1604 (holding that a quick look analysis was inappropriate for restrictions imposed by professional association of dentists on member advertising where the likelihood of noncompetitive effects of restrictions were not obvious, and restrictions could plausibly be thought to have procompetitive effect on competition). 61 C. Whether the Testimony of David Cole Satisfied the Requirements for the Admissibility of Expert Testimony. 62 The Court of Appeals reviews the district court's decision regarding the admissibility of expert witness testimony for an abuse of discretion. White v. Ford Motor Co., 312 F.3d 998, 1007 (9th Cir.2002). 63 Federal Rule of Evidence 702 governs the admission of expert testimony. The rule provides: 64 If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, or experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. 65 A district court has great latitude in determining whether expert testimony meets the reliability requisites of Rule 702. In making that determination, the district court is free to evaluate one or all of the following factors: (1) whether the theory or technique can be or has been tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) whether the theory or technique has a known or potential error rate and standards controlling the technique's operation; and (4) whether the theory or technique is generally accepted in the scientific community. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 592-95, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) (stating that many factors will bear on the inquiry and that the above-listed factors do not constitute a definitive checklist or test). See Blue Dane Simmental Corp. v. American Simmental Ass'n, 178 F.3d 1035, 1039-1040 (8th Cir.1999) (applying Daubert analysis to expert witness testimony in an antitrust case). 66 We agree with the district court that Craftsmen's expert, David Cole, had sufficient education and experience to testify as an expert regarding plaintiffs' damages. However, Cole's testimony did not sufficiently aid the jury in determining whether there was an unreasonable restraint on trade in violation of the Sherman Act. Cole assumed that Craftsmen's alleged lost growth from 1995 through 1998 was caused by defendants' alleged conspiracy. He did not determine whether other factors, including the emergence of two direct competitors, may have affected Craftsmen's growth rate. Under the rule of reason analysis, which should have been applied in this case, such an analysis was required. Because Cole's expert opinion failed to incorporate all aspects of the economic reality, Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1057 (8th Cir.2000), it should not have been admitted. 16