Opinion ID: 327946
Heading Depth: 1
Heading Rank: 2

Heading: the dual nature of defendant's service and the relevant market

Text: 39 In our view, the district court's incorrect definition of the relevant market was an inevitable result of its misunderstanding of the dual nature of the service offered by Cass and NEAS. The district court saw Cass and NEAS as providing a single service publicizing a national advertiser's product or service to the college market. The inevitable result of this view of the service is that the national advertiser is the buyer or consumer of the service, and the district court so found. Since the court also found that college newspapers, most of which are represented by NEAS, are in competition with other methods of advertising, such as poster boards, television, direct mail, etc., it held that Cass had failed to prove that NEAS had the requisite market power in the relevant market consisting of all modes of competition used to present national advertising to college students. 40 Although the district court correctly described the service provided by Cass and NEAS for the college newspapers at the outset of its opinion (see quotation, supra at 1095), it ignored this service in making its relevant market determination. In exchange for a commission, Cass and NEAS offer to represent college newspapers in the solicitation of advertising from national companies. Thus the college newspapers are buyers or consumers of Cass' and NEAS' services. 41 NEAS and Cass are classic middlemen, providing services to both the sellers (the college newspapers) and to the buyers (the national advertisers) by representing each seller's wares (an ability to reach a discrete portion of the college market with advertisements) to the buyers. As the district court opinion notes, neither individual buyers nor individual sellers in this market would likely be financially able to seek the other out, absent the services of a middleman. Thus a middleman in this market can have an economically feasible business because it represents numerous sellers to numerous buyers, thereby saving each newspaper and each national company the expense of arranging on a one-to-one basis the placement of advertisements. In contracting with such a representative, a school newspaper arranges for its wares to be displayed to a large number of national advertisers without mounting a campaign to contact each of them. Likewise, a national advertiser who buys space through such a representative may pick and choose from a large number of mini-markets without the expense of dealing individually with each newspaper that it selects. 6 42 As the district court correctly observed, the relevant market may be determined by examining what products or services are reasonably interchangeable, from the purchaser's standpoint, with the product or service in question. See the discussion of Du Pont and Brown Shoe, supra at 1094. The district court held that national advertisers had significant alternatives to college newspapers for reaching the college market and, therefore, that NEAS was without the requisite market power in the relevant market. 43 In the context of a middleman market such as we have here, however, it may not be easy for a court to choose one of the end parties as the sole purchaser of the middleman's services. In this case, the national advertiser is the ultimate purchaser, that is, it buys page space from the college newspaper. This does not, however, directly control the determination of who is the purchaser of the middleman's services. For example, one can easily imagine a seller or group of sellers who provide a product at a fixed price to ultimate purchasers whether the purchasers are individually motivated to buy or are solicited by a sales representative to whom the seller pays a commission. In such a case, the ultimate purchaser, even though he buys through the solicitor, is clearly not the purchaser of the solicitor's services. 44 Technically at least, the services of Cass or NEAS are paid for by the college newspapers. The newspaper allows a certain portion of its charge for space to the advertisers to be retained by its sales representative as a commission on the sale. 7 In most middleman market cases, determining who actually pays the middleman will significantly aid the court in determining who is the actual purchaser of the middleman's services. 45 It is conceivable that both end parties in a middleman market could be purchasers of the middleman's services. In such cases, two relevant market determinations might be necessary. For example, if this case were viewed as a dual purchaser case, the district court's opinion would represent a finding that NEAS has no market power with respect to its national advertiser customers. The question would remain open whether NEAS has market power among the other purchasers of its services, college newspapers seeking national advertising. It would therefore be possible for a middleman to lack the requisite market power in one direction while achieving a complete stranglehold in the other direction. 46 The esteemed district judge erred by considering the national advertisers as the sole consumers or purchasers of NEAS' services upon whose alternatives the relevant market determination was focused. As the district court found, a college newspaper representative begins its business by acquiring a relationship for representation with college newspapers. Apparently NEAS does not ask national advertisers to sign contracts designating it as their exclusive purchasing representative as to college newspaper advertising. Rather, it seeks to acquire exclusive arrangements with the newspapers as the base from which it operates. Moreover, NEAS is actually paid on commission from the college newspapers for finding advertisers, rather than paid commissions by the advertisers over the offering price of the newspaper space purchased for finding college newspapers. The newspapers, therefore, are the actual purchasers of NEAS' and Cass' services. NEAS and Cass are sales representatives paid commissions by the newspapers for successfully soliciting advertisements from national companies. 47 Kansas City Star Co. v. United States, 240 F.2d 643 (8th Cir. 1957), certiorari denied, 354 U.S. 923, 77 S.Ct. 1381, 1 L.Ed.2d 1438, and Huron Valley Publishing Co. v. Booth Newspapers, Inc., 336 F.Supp. 659 (E.D.Mich.1972), upon which the district court relied, are not applicable to the situation in this case. Both cases involve alleged monopolies of advertising media in a local market. They are therefore not factually analogous to a case like this one, involving the alleged possession of monopoly power in a service market, i. e., the service of sales representative for college newspapers. The district court's reliance thereon was premised upon its view of the customers of the service in this case as the advertisers. 48 Having redefined the nature of the service in question in this appeal, it remains for this Court to ascertain if Cass adequately proved its definition of the relevant market. By applying the indicia set forth in Brown Shoe to the facts of this case, it becomes clear that the relevant market is the market for representing college newspapers throughout the United States in the placement of national advertising. 49 One of the Brown Shoe indicia for a submarket is whether it has specialized vendors. This record shows that national advertising representatives specialize by medium. For example, it appears that commercial newspaper representatives do not handle college newspapers and vice versa. As the district court itself noted, each of the parties is a single, specialized company in performing its functions for college newspapers (374 F.Supp. at 798). 50 Another Brown Shoe test is whether there are distinct customers. The customers of these parties are the college newspapers that accept national advertising. The court below understood that such newspapers constitute a distinct communications medium (374 F.Supp. at 801). Additionally only national advertisers selling products with a high appeal to the college market will advertise in college newspapers. 51 Still another Brown Shoe submarket criterion is industry or public recognition of the submarket as a separate economic entity. The court found that Cass' and NEAS' business permits advertisers to deal with a single, specialized company in placing their advertisements (374 F.Supp. at 798). They use Cass and NEAS because it is inefficient to deal with each school. Similarly, the college newspapers must rely on these parties to solicit national advertising on their behalf. Indeed, the advertising industry recognizes the representation of college newspapers as a specialized and distinct business. 52 Brown Shoe also adverts to distinct prices, sensitivity to price changes. There is evidence that in the past, NEAS has raised its commission charge to the college newspapers from 20% to 25%. NEAS told the newspapers that they could raise their prices to offset this rise in its commission without fear of loss of revenue and it appears that this was done. Thus, as the district court noted, the market in the direction of national advertisers may be price- inelastic. 374 F.Supp. at 802. It also may be inferred from this unilateral raise in commission that the purchase price to the newspapers of NEAS' services is price-inelastic as well. As the pricing activity related above may show, since the college newspapers cannot practically assume the solicitation of national advertisers themselves and since other advertising representatives specialize by medium, college newspapers have little alternative to Cass or NEAS if they wish to secure national advertising. Cf. Telex Corp. v. International Business Machines Corp., 510 F.2d 894 at 914-919 (10th Cir. 1975). 53 The foregoing facts, all reflecting salient Brown Shoe criteria, show that the district court erred as a matter of law in not concluding that the service of representing college newspapers in the placement of national advertising was the relevant market. 54 Cass also contends on appeal that the district court's finding that NEAS lacked market power in the relevant market is not dispositive of its allegations that NEAS' exclusive agreements and alleged anti-competitive activities were independent violations of Section 1 of the Sherman Act. Because the district court on remand will reexamine NEAS' status in light of the relevant market as defined herein, this Court need not decide this issue. It will again be before the district court on remand. 55 Because of the error in delineating the relevant market, this case must be returned to the district court for further proceedings consistent herewith. 8 56 Reversed and remanded.