Opinion ID: 747558
Heading Depth: 4
Heading Rank: 4

Heading: Probable Effect of the Exclusive Dealing

Text: 145 The majority accords considerable weight to its determination that Omega failed to prove that Gilbarco's exclusive dealing arrangements actually deterred entry into the market for retail petroleum dispensers. See Jefferson Parish, 466 U.S. at 29, 104 S.Ct. at 1567 (stating that to prove an unreasonable restraint of competition under the Sherman Act necessarily involves an inquiry into the actual effect of the exclusive contract on competition). Although an inquiry into actual effect is necessary, Tampa makes clear that a Clayton Act § 3 claim only requires proof of the probable effect of the contract on the relevant area of effective competition. Tampa, 365 U.S. at 329, 81 S.Ct. at 629 (emphasis added). There is no requirement that actual deterrence be proved. 146 The majority states that the jury could not reasonably infer probable injury to competition where the undisputed evidence shows increasing output, decreasing prices, and significantly fluctuating market shares among the major manufacturers. Majority Opinion at 1164-65. The majority's reasoning is not persuasive. Even assuming that the evidence at trial showed increasing output, the jury reasonably could have inferred probable injury to competition due to the substantial evidence of price distortion and entry barriers created by Gilbarco's exclusive dealing arrangements. 147
148 Omega presented evidence to show that Gilbarco's exclusive dealing arrangements prevented the prices of retail petroleum dispensers from falling as much as they would have without the exclusive dealing arrangements. The exclusive dealing arrangements for retail petroleum dispensers allowed manufacturers of retail petroleum dispensers to avoid intense price competition among themselves. Moreover, despite some decrease in prices, the prices of retail petroleum dispensers did not change much over time suggesting price stagnation. 149 Professor Leffler testified that under certain circumstances, exclusive dealing may have pro-competitive effects, e.g., preventing free-riding and focusing a distributor's attention on a particular product. Professor Leffler concluded, however, that the exclusive dealing arrangements in the retail petroleum dispenser industry have no such pro-competitive effects. 150
151 Omega also presented substantial evidence that Gilbarco's exclusive dealing arrangements caused actual as well as probable injury by shutting out potential competitors. To understand how this antitrust injury occurs, one must understand the retail petroleum dispenser market. 152 Small independent buyers purchase retail petroleum dispensers from a single distributor and develop long-term relationships with that distributor. Small independent buyers stay with a particular distributor in part because they need a single reliable source of products and services. 153 The majority contends that manufacturers may sell retail petroleum dispensers in two ways in addition to using distributors: (1) direct sales, and (2) creating new distributors from the group of six hundred contracting and service companies in the United States that work to build, install, and service equipment related to gas stations and fleet fueling or airport fueling systems. 154 For reasons already stated, direct sales of retail petroleum dispensers to small independent buyers is not a realistic possibility. Unlike major oil companies or large convenience store chains, the small independent buyer needs to buy retail petroleum dispensers from distributors in order to have a reliable source of products and services. 155 With regard to the majority's speculation that a manufacturer could enter the retail petroleum dispenser market by converting members of the group of six hundred contracting and servicing companies into distributors, the majority fails to consider Professor Leffler's testimony that the six hundred contracting and servicing companies were not a serious alternative to the existing group of five hundred distributors. Professor Leffler explained that this was so because the six hundred contracting and servicing companies were smaller firms that did not carry a full line of products and did not have established relationships with small independent buyers. Although the majority might prefer to believe the evidence to the contrary, this court is not free to revisit the conclusions reached by the jury where substantial evidence exists to support the jury's verdict. 156 Therefore, the only effective means of selling retail petroleum distributors to small independent buyers is through an existing distributor. There are only five hundred established distributors of retail petroleum dispensers in the United States. New entrants into the retail petroleum dispenser market need to gain access to this closed group of five hundred established distributors in order to sell to small independent buyers. 157 In order to gain access to this group of five hundred distributors, a new entrant theoretically has two options: (1) have existing distributors carry the new entrant's brand in addition to the brand of retail petroleum dispenser they already carry or (2) have distributors switch from their old brand of retail petroleum dispenser to the new entrant's brand. For the reasons stated below, neither of these options is a practical possibility. 158 i) Carrying More Than One Brand 159 Exclusive dealing eliminates the possibility of distributors carrying more than a single brand of retail petroleum dispenser. Gilbarco effectively enforced exclusive dealing. If a Gilbarco distributor violated its exclusive dealing arrangement with Gilbarco, Gilbarco would then terminate its distributorship leaving the former distributor at least temporarily without any retail petroleum dispensers to sell to its small independent buyers. For example, after Kelley-Omega and ATS joined Omega, Gilbarco terminated its relationship with them. 160 ii) Switching Brands 161 It is also difficult for existing distributors to switch brands. Although a Gilbarco distributor has the contractual right to terminate his exclusive dealing arrangement with Gilbarco on sixty days notice and switch to a new manufacturer, this contractual right means little. Professor Leffler explained: 162 [A distributor's] business value, because of the absence of [its] ability to build up a relationship with any other supplier in this particular instance, is dependent on continuing a relationship with Gilbarco. That is something that is very unlike [other] distributors except in the situation of manufacture[r]-owned distribution in other industries.... 163 [T]he distributor because of the exclusive dealing has, in effect, been locked into a particular brand ... the value of his business is closely tied [to] a continuing relationship with that single supplier. 164 One Gilbarco official acknowledged that it was very difficult for the distributor to switch from one line of pumps to another line of pumps and convince its customers that it knows what it's doing. Under these circumstances, the short term and easy terminability provisions of the exclusive dealing arrangements are irrelevant. No distributor would ever terminate voluntarily for fear of losing its customers and ultimately its business. 165 The fates of Kelley-Omega and ATS illustrate the dangers that distributors face when they switch manufacturers. After KelleyOmega and ATS joined Omega, and Gilbarco terminated their distributorships, Kelley-Omega and ATS lost customers. As Professor Leffler explained, exclusive dealing in the retail petroleum dispenser industry caused distributorships to be closely tied to a particular brand. When a small independent buyer sees that its distributor no longer has a relationship with that particular brand, the small independent buyer loses confidence and takes its business elsewhere. ATS saw its earnings drop from two million dollars a month to only fifty thousand dollars a month. Gilbarco's termination of ATS and Kelley-Omega caused other Gilbarco distributors to refuse to be acquired by Omega. 166 As the above discussion demonstrates, Omega presented substantial evidence at trial that Gilbarco's exclusive dealing arrangements prevented distributors from carrying more than one brand of retail petroleum dispenser or from switching brands. Thus, Gilbarco's exclusive dealing arrangements had the anticompetitive effect of preventing movement of distributors between manufacturers. 167 In summary, Omega presented substantial evidence showing that (1) the line of commerce is retail petroleum dispensers; (2) the relevant market is the sale of retail petroleum dispensers to small independent buyers; (3) Gilbarco dominated the relevant market; (4) exclusive dealing is widely practiced in the relevant market; (5) the proportion of the relevant market affected by Gilbarco's exclusive dealing arrangements is very significant; and (6) Gilbarco's use of exclusive dealing arrangements in the relevant market causes serious anticompetitive effects by keeping the price of retail petroleum dispensers artificially high and creating entry barriers to the relevant market for new entrants. 168 Looking at the totality of the circumstances as we are required to do under Tampa, Jefferson Parish, and Twin City, I believe that the record contains substantial evidence to support the jury's conclusion that Gilbarco's use of exclusive dealing arrangements tends to suppress competition in the relevant market and therefore violates the Rule of Reason.