Opinion ID: 155491
Heading Depth: 2
Heading Rank: 3

Heading: Standing with Regard to the Tying Claim

Text: 34 Count II of the complaint alleges that defendants entered into an agreement in restraint of trade in violation of Sherman Act § 1 and thereby inflated the prices of Spec Racer cars and parts. In response to defendants' summary judgment motion, plaintiffs further articulated their somewhat vague allegations and stated that the restraint of trade consisted of an illegal tying arrangement whereby defendants required all those who wanted to race Spec Racers in SCCA-sanctioned events to buy approved Spec Racer cars and parts sold through SCCA's wholly-owned subsidiary Enterprises. 13 35 A tying arrangement is 'an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.'  Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 461, 112 S.Ct. 2072, 2079, 119 L.Ed.2d 265 (1992) (quoting Northern Pac. Ry. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518-19, 2 L.Ed.2d 545 (1958)). Generally, a tying arrangement, is illegal under § 1 of the Sherman Act if it can be shown that: (1) two separate products or services are involved; (2) the sale or agreement to sell one product or service is conditioned on the purchase of another; (3) the seller has sufficient economic power in the tying product market to enable it to restrain trade in the tied product market; and (4) a not insubstantial amount of interstate commerce in the tied product is affected. See id. at 462, 112 S.Ct. at 2079-80; Fortner Enters., Inc. v. United States Steel Corp., 394 U.S. 495, 498-500, 89 S.Ct. 1252, 1256-57, 22 L.Ed.2d 495 (1969); Fox Motors, Inc. v. Mazda Distribs. (Gulf), Inc., 806 F.2d 953, 957 (10th Cir.1986). 14 36 Here, plaintiffs alleged that defendants tied the sale of Spec Racer cars and parts to the provision of racing services. They contend that by requiring anyone who purchased racing services (the tying product)--i.e. anyone who entered an SCCA race--to buy only cars and parts (the tied product) sold through Enterprises, defendants foreclosed competition in the sale of Spec Racer cars and parts and drove up the price of those tied products. The alleged tying arrangement is illustrated in the following graph:NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE 37 Relevant to plaintiffs' claim, two types of parties may have standing to challenge illegal tying arrangements--the purchasers who are forced to buy the tied product to obtain the tying product (the prototypical tying plaintiff), and the competitor who is restrained from entering the market for the tied product, see, e.g., Eastman Kodak, 504 U.S. at 462-63, 112 S.Ct. at 2079-80; Tic-X-Press, Inc. v. Omni Promotions Co., 815 F.2d 1407, 1415 n. 15 (11th Cir.1987). Both types of plaintiffs are present here; i.e., Freeman is the purchaser of both racing services and cars and parts, and SRS is the potential competitor in the sale of cars and parts. 38 Freeman, however, is not a direct purchaser from defendants of the tied product (the cars and parts). Defendants contend, and the district court held, that this fact is fatal to his claim. But this is not a typical tying situation. Defendants have structured their distribution arrangement such that Freeman, the direct purchaser of the tying product (racing services), is forced to purchase the tied product indirectly through a CSR supplied by Enterprises rather than through an independent source. 39 We do not think that the direct purchaser rule bars Freeman's claim in this situation.  '[T]he essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms.'  Eastman Kodak, 504 U.S. at 464 n. 9, 112 S.Ct. at 2081 n. 9 (quoting Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12, 104 S.Ct. 1551, 1558, 80 L.Ed.2d 2 (1984)). 40 Critical to a tying claim is the fact that the seller forced the buyer to purchase the tied product in order to get the tying product, but it is not critical that the buyer have purchased the tied product directly from the seller. An illegal tie may be found where the seller of the tying product does not itself sell the tied product but merely requires the purchaser of the tying product to buy the tied product from a designated third party rather than from any other competitive source that the buyer might prefer. See, e.g., Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 833-34 (7th Cir.1978) (finding illegal tying where licensor of mattress trademark required licensee-manufacturers to purchase mattress component from a particular source and where licensor received a financial reward from the approved sources for such sales); Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1570-72 (11th Cir.1991) (finding possible illegal tying where defendant multilisting service required real estate brokers wanting to use multilist system to join branch of realtor organization not necessarily related to defendant). 41 However, where a third party is involved in selling the tied product to the plaintiff, most courts have required that the tying product seller have a direct economic interest in the sale of the tied product before an illegal tying arrangement will be found. See, e.g., Beard v. Parkview Hosp., 912 F.2d 138, 140-44 (6th Cir.1990) (finding no illegal tying arrangement when hospital required its patients to purchase radiological services (tied product) from a single third party because hospital had no direct economic benefit from sale of tied product); White v. Rockingham Radiologists, Ltd., 820 F.2d 98, 104 (4th Cir.1987) (finding no tying arrangement where hospital required official interpretations of CT scans from particular radiological group because hospital is not a competitor in the market for the tied product [interpretations] ... [and] receives no part of the fee for interpreting the scans); Robert's Waikiki U-Drive, Inc. v. Budget Rent-A-Car Sys., Inc., 732 F.2d 1403, 1407-08 (9th Cir.1984) (holding no illegal tying arrangement where airline offered discount air fares--the tying product--only if the customer purchased car rental services from a designated third party because there was no showing the airline had a direct economic interest in the car rentals); Keener v. Sizzler Family Steak Houses, 597 F.2d 453, 456 (5th Cir.1979) (finding no illegal tie where defendant seller of franchise trademark (tying product) required franchisee to use particular contractor to construct building where defendant had no stake in that contractor's business, it derived no income from his sales, and it would receive no rental income from the building); Ohio-Sealy, 585 F.2d at 835; but see Gonzalez v. St. Margaret's House Hous. Dev. Fund Corp., 880 F.2d 1514, 1517 (2d Cir.1989) (declining to impose an economic interest requirement for the tied product, at least where the same party actually sold the tying and the tied product directly to the consumer). 42 Courts that have imposed the economic interest requirement when the tied and tying products are sold by different, unrelated sellers have done so generally on the grounds that if the tying product seller does not have an economic interest in the sale of the tied product, the seller is not attempting to invade the alleged tied product or service market in a manner proscribed by section 1 of the Sherman Act. Beard, 912 F.2d at 142; see also id. at 143 (noting rule is consistent with the fundamental antitrust policy opposing the use of market power in one part of the economy to acquire power in another part); Venzie Corp. v. United States Mineral Prods. Co., 521 F.2d 1309, 1317-18 (3d Cir.1975) (The absence of a direct interest in the tied product market leaves open the possibility of a nonpredatory justification for requiring sales only through [designated party] and distinguishes this situation from the solely anti-competitive arrangements which have been branded as per se antitrust violations.). Importantly, while most of these cases have found no illegal tie because of a lack of economic interest by the tying product seller in the sale of the tied product, none of them, or any others of which we are aware, rejected a tying claim on the basis that the plaintiff did not buy the tied product directly from the seller. 43 While the clear majority of courts require that the seller derive some economic benefit from sale of the tied product when the tied and tying products are sold by separate, unrelated sellers, we do not need to decide that question in this case. Here, defendants purchase cars and parts, apparently often on the open market, add markups to the prices they pay, and then resell the goods at the higher prices to the CSRs who, in turn, sell to Freeman and other racers. Thus, there is no doubt here that defendants have a direct financial interest in the sale of the tied product to Freeman. Enterprises' sales of cars and parts to the CSRs is totally dependent upon the ability of CSRs to resell their cars and parts to racers like Freeman. It appears clear that defendants are at least alleged to be using whatever power they have in the tying product market to limit competition in the tied product market for their own economic benefit. 44 An illegal tie is not consummated, and its anticompetitive effects are not realized, until the tied purchaser is forced to forego his free choice among competitors, and competitors are thereby denied free access to the market. Here, the alleged effect was not felt until Freeman was required to purchase the tied product from a designated source as a condition to being able to purchase the tying product--racing services. In contrast, when the indirect purchaser doctrine has been invoked to deny a plaintiff standing, there has always been an upstream purchaser who had been subjected to the anticompetitive conduct and experienced the antitrust injury. Illinois Brick itself and UtiliCorp were both price fixing cases in which direct purchasers had bought price-fixed products at inflated prices and then sold the products to the indirect purchasers who were denied standing. Hanover Shoe was a monopolization case in which the defendant monopolized the shoe machinery industry, resulting in overcharges to the plaintiff who leased the shoe-manufacturing equipment directly from the defendant. The Court would not allow the defendant to argue that the plaintiff/direct purchaser's damages should be reduced because the plaintiff might pass on its higher costs to its customers. 45 The common feature in these cases and others in which the Illinois Brick rule has been applied is that there has always been a direct purchaser who could bring an action to challenge the alleged anticompetitive activity. Thus, in vertical price fixing cases, courts apply the Illinois Brick rule to bar the indirect or secondary purchasers' claims because the intermediary direct purchaser is not precluded from bringing a similar claim. See, e.g., Link v. Mercedes-Benz of N. A., Inc., 788 F.2d 918, 931-32 & n. 12 (3d Cir.1986); Illinois v. Associated Milk Producers, Inc. (In re Midwest Milk Monopolization Litig.), 730 F.2d 528, 531-32 (8th Cir.1984); In re Beef Indus. Antitrust Litig., 600 F.2d 1148, 1163 (5th Cir.1979); Arizona v. Shamrock Foods Co., 729 F.2d 1208, 1211-14 (9th Cir.1984). 46 These vertical restraint cases for price fixing are informative because they recognize standing in the first innocent purchaser in the chain of distribution--the direct victim of the anticompetitive activity and the first person with a cause of action--and deny standing to the indirect purchaser whose claim is derivative of the direct purchaser's. 47 The Illinois Brick rule selects the better plaintiff between two possible types of plaintiffs--direct purchasers and indirect purchasers. The Court chose the direct purchaser primarily to simplify damages determinations and limit the possibility of multiple recovery against the defendant. But it also concluded that allowing the direct purchaser to bring the claim supported the longstanding policy of encouraging vigorous private enforcement of the antitrust laws. 431 U.S. at 745, 97 S.Ct. at 2074. Clearly, the rule was not intended to immunize anticompetitive tactics or to eliminate a private cause of action challenging those tactics. Cf. Associated Gen. Contractors, 459 U.S. at 542, 103 S.Ct. at 910-11 (holding that denying standing to remote victim of alleged antitrust violation when more direct victims would have right to maintain own actions is not likely to leave a significant antitrust violation undetected or unremedied); Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265-66, 66 S.Ct. 574, 580-81, 90 L.Ed. 652 (1946) (The constant tendency of the courts is to find some way in which damages can be awarded where a wrong has been done. Difficulty of ascertainment is no longer confused with right of recovery for a proven invasion of the plaintiff's rights.) (quotations omitted). Applying the Illinois Brick rule in this situation to bar Freeman's claim at this point would do just that because there is no other person who could assert a claim for illegal tying as a purchaser (as opposed to a competitor). 15 Thus, we conclude that Freeman's tying claim is not barred by the direct purchaser rule. 48 Nevertheless, there does appear to be a possibility of duplicative recoveries here. The type of damages Freeman seeks to recover in the tying claim is similar to the type of damages SRS seeks to recover under its monopolization claim--overcharges in the prices of cars and parts. The damage calculations for both types of claims may be similar. Compare, e.g., Hanover Shoe, 392 U.S. at 489-91, 88 S.Ct. at 2228-31 (damages for overcharges in monopolization case represented by difference in price plaintiff paid and price plaintiff would have paid absent the anticompetitive conduct, which may be evidenced by market price); with Crossland v. Canteen Corp., 711 F.2d 714, 722 (5th Cir.1983) (damages in tying case are difference between amount paid for tied product and fair market price for tied product); and Kypta v. McDonald's Corp., 671 F.2d 1282, 1285 (11th Cir.1982) (damages in tying case are amount by which payments for both tied and tying products exceed their combined fair market value). Thus, were SRS to succeed on its monopolization claim and recover damages for defendants' overcharges, then allowing Freeman to recover the overcharges under his tying claim that were passed on by SRS might subject defendants to multiple liability for the same activity. 49 We will not attempt to sort any of this out at this time because it is premature, given that this matter is before us only on summary judgment. We raise the issue only to point out that it would be inappropriate to bar Freeman's claim at this point because of the possibility of multiple liability in this case. The evidence required to support the monopolization claim differs considerably from that required to make the tying claim. For example, to prevail on its monopolization claim, SRS must first prove that defendants had monopoly power, the power to control prices or exclude competition. Grinnell Corp., 384 U.S. at 571, 86 S.Ct. at 1704 (quotation omitted). Here, the market relevant to SRS's monopolization claim is that for cars and parts. Freeman has the considerably lower burden of proving that defendants possessed sufficient economic power in the tying product market to enable it to restrain trade in the tied product market. See Eastman Kodak, 504 U.S. at 462, 112 S.Ct. at 2079-80. The standard of 'sufficient economic power' does not ... require that the defendant have a monopoly or even a dominant position throughout the market for the tying product. Our tie-in cases have made unmistakably clear that the economic power over the tying product can be sufficient even though the power falls far short of dominance and even though the power exists only with respect to some of the buyers in the market. Fortner Enters., 394 U.S. at 502-03, 89 S.Ct. at 1258. Moreover, the market subject to direct economic power is the tying product market, rather than the tied product market. 50 Thus, it is possible that SRS could be unable to show that defendants maintained sufficient economic power to support its monopolization claim, but that Freeman could make the required showing for his tying claim. Were this the case, and were we to bar Freeman's claim at this point for fear of possible duplicative liability, defendants' antitrust violations would go unchallenged. Moreover, the fact that SRS is a party to this action reduces the chance of duplicative recoveries and should allow the district court the opportunity to minimize the risk of duplicative recoveries. We offer no specific direction on this issue; the parties have not briefed the possible duplicative nature of damages, and we do not want to tie the parties' or district court's hands on remand, assuming the case even gets to a damages phase. We thus remand both claims to the district court because it was improper to rule on summary judgment that SRS and Freeman lacked standing or justiciable antitrust injury, with the caveat that our ruling does not preclude the district court from guarding against duplicative recoveries in the event this case ever gets that far. 51 With regard to SRS, it alleges that the illegal tying arrangement, like defendants' monopolization, prevented it from entering the market as a potential competitor. As with SRS's monopolization claim, we conclude that the district court needs to address this claim on remand.