Opinion ID: 403391
Heading Depth: 1
Heading Rank: 3

Heading: substantive liability

Text: 27 After the first trial in this case, Justice Clark concluded that Sportservice had committed four separate antitrust violations: (1) an unreasonable restraint of trade in violation of section 1 of the Sherman Act, 15 U.S.C. § 1; (2) an attempted monopoly of the relevant market in violation of section 2 of the Sherman Act, 15 U.S.C. § 2; (3) a per se violation of section 1 of the Sherman Act, 15 U.S.C. § 1, resulting from an illegal tying relationship between Sportservice and its franchisors; and (4) a market foreclosure constituting a monopoly in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. See, Twin City Sportservice v. Charles O. Finley Co., Inc., 365 F.Supp. 235, 252-54 (N.D.Cal.1972). 28 In Finley I, this court reversed all of the above legal conclusions of liability, and specifically held that no per se tying violation could be found from the facts presented in the record. 512 F.2d at 1275-76. The district court immediately below (per Judge Peckham) determined that Sportservice's share of the relevant market was not sufficient to support an actual monopolization claim. Finley does not appeal from this ruling. Thus, with the actual monopoly and the tying claims eliminated, this appeal focuses only upon the first two violations stated above; i.e., whether the trial court below erred in finding an unreasonable restraint of trade in violation of section 1 of the Sherman Act and an attempted monopoly in violation of section 2. 29
30 After redefining the relevant market, Judge Peckham below found that Sportservice's competitive position in the relevant market, brought about through Sportservice's ability to procure contracts similar to the one involved in the instant case, constituted an unreasonable restraint of trade in the relevant concession franchise market. Judge Peckham determined that an unreasonable restraint of trade had been evidenced not only by Sportservice's 24 percent share of the relevant market, but also from its continuing pattern of conduct that produced that market share. The district court pointed to evidence of Sportservice's consistent pattern of obtaining contracts of unreasonable duration, often coupled with the use of follow-the-franchise clauses and, in many cases, the predatory use of its financial strength to obtain its favorable concession franchise agreements. The district court concluded, (The long-term franchise contracts) represent classic examples of artificially created barriers to effective entry into and competition within the market. 31 With the district court's conclusion of section 1 liability, Sportservice raises the following issues: (1) that exclusive-dealing antitrust case law does not apply to this case, (2) that the district court improperly aggregated all of Sportservice's contracts in the relevant market in finding a section 1 violation, (3) that the district court did not perform a rule of reason analysis, and that the district court's determination of section 1 liability places this case in conflict with an alleged trend in the law of franchise contracts which promotes long-term contracts, and (4) that certain findings of the district court were either unsupported by the record or clearly erroneous. We disagree and affirm the district court's conclusion of section 1 liability for the reasons expressed below. 32
33 Sportservice argues that its contract with Finley is not a typical exclusive-dealing arrangement, thus questioning the district court's use of exclusive-dealing antitrust case law, specifically, Tampa Electric, supra, in evaluating its section 1 violations. It argues that the case law is inapposite because Tampa Electric and other exclusive-dealing cases involve questions of the propriety of the exclusivity per se of arrangements, while the exclusivity of the arrangement involved in Sportservice's concession franchises is not an issue in this case. The problem with using the exclusive-dealing cases, Sportservice continues, is that the district court in this case found a violation solely on the basis of the length of the contract with Finley, not its exclusivity. This argument is devoid of merit. 34 First, this court sanctioned the use of the tests started in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961), an exclusive-dealing case, to determine whether Sportservice's conduct evidenced a violation of section 1 of the Sherman Act. See 512 F.2d at 1275. Sportservice raised no contention on remand with this determination, and Sportservice's argument on this appeal does not persuade us to deviate from the instructions we gave the district court in Finley I. The focus of the tests in Tampa Electric is to first find a relevant market and then assess whether competition has been foreclosed in a substantial share of the relevant market. The purpose of the tests clearly is to determine the anticompetitive effects of exclusive-dealing arrangements. The tests are therefore applicable whether the specific issue involves exclusivity per se, or whether it involves, as in this case, the methods used to procure exclusive contracts and the nature and extent of the anticompetitive influence of these contracts on a substantial share of the relevant market. 35 Second, we do not confine our analysis to only the Finley-Sportservice contract, see section III.B2, infra, nor do we confine it to the finding of unreasonable contract length. As pointed out, the district court found a section 1 violation from Sportservice's market share and its conduct in achieving that share through the use of unreasonably long concession franchise agreements, follow-the-franchise clauses, and predatory cash loans and advances. Sportservice oversimplifies the district court's rulings by arguing that it simply holds contracts of greater than ten years' duration to be a violation of section 1. We affirm the district court's conclusion that a section 1 violation was presented by the evidence for all of the reasons expressed by the district court, not simply that the contracts were too long. For the above reasons, Sportservice's attempt to distinguish the facts of this case from the other exclusive-dealing cases fails.
36 Sportservice argues that it was improper for the district court to have aggregated other contracts in the relevant market with the Finley-Sportservice contract to determine Sportservice's antitrust liability; that the district court should be limited to looking only to the one contract between Finley and Sportservice; and if such were done, the evidence shows that Sportservice controlled less than one percent of the relevant market. To support its argument, Sportservice cites to a number of cases which hold that various private antitrust plaintiffs in various factual contexts do not have standing to assert antitrust violations that affect them only indirectly. 37 Reliance on these cases is misplaced; indeed, reliance on a standing argument misconceives the issues in this case. The issue here is not whether Finley has standing to complain of Sportservice's antitrust violations; there is no question that Finley suffered a direct injury from Sportservice's conduct. Instead, the issue is whether a district court, in assessing the antitrust liability of a defendant, may look to the overall effects of a defendant's conduct in the relevant market, or is limited to looking at the market implications of the one contract between the antitrust plaintiff and defendant. At least in the factual context of the instant litigation, we think the district court correctly assessed Sportservice's aggregate pattern of conduct in the relevant market. 38 In Fortner Enterprises v. U. S. Steel Corp. 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969), the Supreme Court sanctioned the use of aggregation analysis in a case involving an alleged tying violation, stating: 39 (A) narrow focus on the volume of commerce foreclosed by the particular contract or contracts in suit would not be appropriate in this context. As the special provision awarding treble damages to successful plaintiffs illustrates, Congress has encouraged private antitrust litigation not merely to compensate those who have been directly injured but also to vindicate the important public interest in free competition. 40 Id., 394 U.S. at 502, 89 S.Ct. at 1258, 22 L.Ed.2d at 504. We feel that the policy for allowing aggregation as expressed in Fortner equally applies to the instant case. 41 Sportservice admits that the government may sue on aggregate anticompetitive conduct, see, e.g., Standard Oil Co. of California and Standard Stations, Inc., v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371 (1949) (Standard Stations), but offers little justification for us to adopt a limitation on private antitrust plaintiffs. We decline to formulate any distinction between public and private antitrust plaintiffs here for the same reasons expressed by the district court below. Creating such a distinction would require courts to enforce arguably innocuous single contracts that belong to a pattern of contractual relations that significantly restrain trade in a relevant market. Moreover, we support the district court's citation to other case authority allowing private plaintiffs to litigate antitrust defendants' aggregate pattern of allegedly illegal behavior. 8 42 Sportservice also asserts that the law of this case supports its no aggregation argument. On prior appeal, we said that it was necessary to establish the proper relevant market before it can be determined whether a particular exclusive-dealing arrangement unreasonably restrained competition in a substantial share of that market. 512 F.2d at 1274-75. Sportservice would emphasize the word particular to reinforce its one contract argument. We read that language differently. It is consistent with Finley I to look at Sportservice's total arrangement of entering into concession contracts with the facilities owners on an aggregate basis in order to determine Sportservice's antitrust liability. Nothing in our prior opinion suggested that aggregation of Sportservice's contracts in the relevant market was prohibited, and we find no compelling reasons to adopt such a principle at this juncture. We therefore hold that it was proper for the district court to have aggregated Sportservice's contracts in the relevant market in order to assess the Sherman Act violations resulting from these contracts.
43
44 Sportservice argues that Judge Peckham did not apply or that he incorrectly applied the rule of reason when he concluded that Sportservice had violated section 1 of the Sherman Act. The record fails to support this contention. 45 We recognize that an exclusive-dealing arrangement does not constitute a per se violation of section 1, Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961); 9 Brown v. Hansen Publications, Inc., 556 F.2d 969, 970 (9th Cir. 1977). Therefore, any particular exclusive-dealing arrangement does not violate section 1 unless it is found to be unreasonable. Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911); Ron Tonkin Gran Turismo v. Fiat Distributors, 637 F.2d 1376, 1381 (9th Cir.), cert. denied, --- U.S. ----, 102 S.Ct. 128, 70 L.Ed.2d 109 (1981). The reasonableness inquiry asks whether the restraint in question is one that promotes competition or one that suppresses competition. National Society of Professional Engineers v. United States, 435 U.S. 679, 691, 98 S.Ct. 1355, 1365, 55 L.Ed.2d 637, 650 (1978), quoting, Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed. 683, 687 (1918). 46 First, it deserves mention that Judge Peckham below expressly applied the rule of reason. After concluding that Sportservice's contracts demonstrated anticompetitive effects, the district court considered whether the contracts nonetheless were justifiable or reasonable. Employing the tests in Standard Stations, supra, Judge Peckham concluded that the Sportservice concession franchise contracts in the relevant market created entry barriers into that market which foreclosed competition in an unjustifiable manner. 47 Sportservice feebly argues that the record does not demonstrate a foreclosure of competition, and insists that competition has flourished during the period in which it has controlled a quarter of the relevant market. To the contrary, the record suggests that both franchisors and concessionaires have been foreclosed from competition in the relevant market. It is difficult to see how Sportservice's pattern of capturing lengthy concession franchises (many of them in the lucrative major league baseball market) has promoted competition in the concession franchise market. The magnitude of Sportservice's concession franchise contracts, coupled with their considerable length, have had the opposite effect: they have locked up a large portion of the concession franchise market for many years, placing a significant amount of potential concession business beyond the grasp of any competitors. This much both district courts recognized. 48 The district court below also disputed Sportservice's proffered justifications for the length of the contracts. The evidence indicates that the length of the contracts is not necessary to recapture investments made in the contracts, see 365 F.Supp. at 250. Also, the district court could find no justification for the manner in which Sportservice used the follow-the-franchise clauses. The district court concluded that the frequent use (of follow-the-franchise clauses) by Sportservice in tandem with long contract terms has served to bind many teams and facilities that were not primary parties to such transactions. Suffice it to say that the record is virtually silent as to any pro-competitive effects of Sportservice's conduct with respect to these concession contracts. 49 Sportservice cites to American Motor Inns v. Holiday Inns, Inc., 521 F.2d 1230 (3d Cir. 1975), asserting that the district court did not properly follow the rule of reason. Sportservice apparently argues that a restraint of trade under the circumstances of this case should not be judged under the least restrictive alternative test, see Siegel v. Chicken Delight, Inc., 448 F.2d 43, 51 (9th Cir. 1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972), but under the less burdensome fairly necessary under the circumstances test as directed in American Motor Inns, supra. We need not decide which of the tests should apply here, or even whether this court recognizes the difference, since the evidence in this case does not even show that the contract terms were fairly necessary under the circumstances; they were unreasonably long and unreasonably restrictive in preventing franchisors from dealing with other concessionaires and in preventing other concessionaires from dealing with the franchisors party to the agreements. 50 Finally, Sportservice argues that it should not suffer for contracts which are common in the industry. There is insufficient evidence in the record to verify Sportservice's claim here (it can only point to four such contracts of competitors with terms that approximate the prevailing term of Sportservice's contracts), and even if there were such evidence, an industry-wide practice would not justify what has clearly been shown to be unjustifiably anticompetitive. We therefore find no problem with the district court's adherence to and application of the rule of reason in making its determination below. 51
52 As further evidence of the district court's noncompliance with the rule of reason, Sportservice contends that the district court's finding of a section 1 liability puts the Sherman Act into novel conflict with the law of franchises. In particular, Sportservice directs our attention to a trend in the law of franchises where courts have upheld long-term franchise agreements in the face of terminations or non-renewals of agreements by franchisors. 10 Throughout its brief, Sportservice maintains that it is no different from the typical franchisee of the many fast food franchises operating in this country, 11 and apparently would have us believe that affirming the district court's finding of section 1 liability would seriously impair the contracting abilities of some of the major fast food franchisors by restricting franchise contract length. This novel argument concerning the novel conflict with the law of franchises does not impress us. 53 First, we fail to see the analogy between a major national entertainment events concessionaire like Sportservice and the typical small businessman who owns the exclusive right to use a fast food trademark under a franchise agreement with a major national franchisor. The typical franchised fast food operation bears little resemblance to Sportservice's operations in either product line or competitive market conditions. While the fast food franchisee competes in an open market among many operators (including intra-brand competitors) who sell items for which there exists recognized cross-elasticity of demand for many different types of food products, Sportservice's operations, by comparison, constitute monopolies for the sale of a limited menu of items of its choosing to a closed, contained market with no sales competition from others (either inter- or intra-brand). Although the exclusive nature of Sportservice's right to sell concession items at a particular event or facility is not the subject of the antitrust inquiry in this case, 12 the monopolistic feature of a typical Sportservice concession franchise and others included in the relevant market in this case cannot be ignored in defining differences between Sportservice and the franchisees it seeks to be associated with in its argument here. 54 Even were we to accept Sportservice's proffered analogy, the policies promoted in the state law cases cited by Sportservice for the proposition that courts are protecting the length of franchise agreements do not apply to Sportservice. The equitable policies expressed in the cases cited which protect small business franchisees against contract termination by large franchising companies simply do not transfer to the facts of this case. If there were any disparity in bargaining power between Sportservice and its franchisors in the relevant market, the record indicates that Sportservice, as franchisee, most often possessed the superior bargaining position. 55 Moreover, Sportservice once again overemphasizes the district court's conclusion of unnecessary contract length in the Sportservice franchise agreements with its argument that courts are protecting franchise contract length. We reiterate that the district court below considered a number of factors in finding a section 1 violation in this litigation. As evidence that Sportservice's anticompetitive conduct was unreasonable, the district court also focused upon the suspect use of Sportservice's vast financial resources and the customary inclusion of follow-the-franchise provisions in its agreements. Contract length is but one of many considerations figuring into the district court's conclusion. We are inclined, as was the district court, to avoid a concentration only upon the unreasonable length of Sportservice's contracts. 56 Finally, no party in the franchise law cases cited by Sportservice raised any claim that the amassing of a number of franchises foreclosed competition in a relevant market as Finley raises in the present litigation. In order for the Sportservice's franchise law cases to be even remotely analogous to the facts of this case, those cases would have to involve claims that a particular defendant owned or controlled such a large number of lengthy franchises in a relevant market that such defendant threatened to restrain competition in violation of antitrust law. The cases cited by Sportservice focus instead upon the narrow issue of whether one particular franchise agreement should be terminated with cause or otherwise. Based on the foregoing, we emphatically reject any notion that our affirmance of the district court's conclusion of section 1 liability will disturb present agreements or impair prospective dealings between fast food franchisees and franchisors.
57 Sportservice asserts that certain findings of fact made by Judge Peckham regarding the section 1 violation were either erroneous or unsupported by the record. 13 The record contains sufficient support for the findings, and we are bound to uphold them unless clearly erroneous. Fed.R.Civ.P. 52(a); Krehl v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348, 1351 (9th Cir. 1982). 58 Sportservice first attacks the district court's finding that without significant exception, Sportservice's exclusive concession franchise contracts run for 10 years or more. This is a frivolous contention as the evidence clearly supports Judge Peckham's finding on this matter. 59 Second, Sportservice asserts that there is some contradiction in the district court's findings that the lengths of Sportservice's contracts do not vary in relation to the size of initial investment and that the experience of other concessionaires proves that adequate recoupment of investment may be made over much shorter periods. There is nothing inherently contradictory about the two findings, both are supported by the evidence, and neither can be considered clearly erroneous. Nor do we feel, as Sportservice suggests, that our affirmance will dictate that concession franchise contract length cannot exceed ten years. Such a conclusion is once again a simplistic view of the district court's ruling. The district court did not set out to announce an upper limit to franchise contract length and the effect of its ruling does not accomplish that purpose. The district court did hold, and we affirm, that Sportservice's pattern of conduct in the relevant concession franchise market imposed anticompetitive restraints. As previously discussed, our decision as it relates to Sportservice's conduct does not impose any general constraints upon the formation or enforcement of franchise agreements, 14 and it certainly does not establish that under all circumstances a concession franchise agreement with a term exceeding ten years is automatically a violation of the Sherman Act. 60 Third, Sportservice takes issue with the district court's conclusion that almost no other concession contracts in the relevant market run for more than ten years. For this finding, Judge Peckham referenced two exhibits representing concession industry profiles that were admitted into evidence. These industrial surveys, assuming their accuracy, more than adequately support the conclusion that concession contracts for greater than ten years' duration are rare. Of those that do exceed ten years, the largest number are controlled by Sportservice. Sportservice asserts that the average contract length of various concession operations in or near the relevant market substantially exceed 10 years. The record sources cited by Judge Peckham contradict this assertion, and without benefit of record sources for Sportservice's averages, we cannot find Judge Peckham's conclusion to be clearly erroneous. 61 Finally, Sportservice contests Judge Peckham's rejection of Sportservice's explanation that clubs and sellers of concession franchises had actively sought long contract terms. Judge Peckham concluded that this proffered justification was without support in the record. Sportservice contends that the clubs and franchisors would often dictate the terms. To the contrary, the record shows that in many instances the long-term contracts were procured by Sportservice's cash payment loans or other financial inducements, and that without these financial inducements, the contract terms are comparatively short. Justice Clark also rejected this justification argument concerning Sportservice's baseball concessions and noted: 62 Where the Clubs seek enormous sums of money by way of advances, loans, et cetera, they know that such financial arrangements require long terms. However, the record shows the Clubs do not want long terms. Absent the loans, advances, et cetera, all of the terms are comparatively short. 63 365 F.Supp. at 250. As mentioned, Judge Peckham was in complete agreement with Justice Clark's findings, and these findings relating to Sportservice's baseball concessions provided Judge Peckham with a legitimate source of evidence in which to assess Sportservice's conduct in the reassessed, post-remand market. 64 Having reviewed the record in regard to the challenged findings, we are not left with a definite and firm conviction that a mistake has been committed. See United States v. United States Gypsum Co., 333 U.S. 364, 394-95, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948), and Arrington v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 651 F.2d 615, 619 (9th Cir. 1981). 65
66 A section 2 attempt to monopolize claim requires proof of three elements: (1) specific intent to control prices or destroy competition in some part of commerce; (2) predatory or anticompetitive conduct directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014 (9th Cir. 1962); Portland Retail, etc. v. Kaiser Foundation, etc., 662 F.2d 641, 647 (9th Cir. 1981). In numerous cases, this court has noted that while the three elements are discrete, they are often interdependent; i.e., proof of one of the three elements may provide circumstantial evidence or permissible inferences of the other elements. For example, in Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848 (9th Cir. 1977), cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978), we held that proof of predatory or anticompetitive conduct which can serve as the basis for a substantial claim of restraint of trade will, in some circumstances, permit an inference of specific intent and then, in turn, of dangerous probability. Id. at 854. Thus, an attempted monopoly violation can be found with evidence of conduct alone. Where this analysis is used, our most recent pronouncements indicate that all three elements may be proved with evidence of conduct that is either: (1) conduct forming the basis for a substantial claim of restraint of trade, or (2) conduct that is clearly threatening to competition or clearly exclusionary. Inglis, supra, 668 F.2d at 1029 n.11; Portland Retail, supra, 662 F.2d at 648. 67 The district court below found that the evidence proved not only a substantial restraint of trade (the section 1 violation), but also was clearly threatening to competition and clearly exclusionary. The district court elaborated: 68 Sportservice's use of excessively long contract terms in its purchases of concession rights has completely excluded competitors from those portions of commerce. This practice has established Sportservice as the leading power in this market, and, if enforced, it promises to preserve that impregnable competitive position for years to come. This conduct clearly supports an inference of a specific intent to destroy competition, and, in turn, an inference of a dangerous probability of success under Janich Brothers. 69 Excerpt of Record at 80. 70 As further evidence of Sportservice's specific intent to monopolize, the district court's additional comments deserve repeating: 71 Sportservice's inclusion of follow-the-franchise clauses in its long-term contracts served to ensnare additional teams and facilities and so to multiply its concession franchise holdings. But perhaps the most blatant indication of Sportservice's intention is its repeated use of lavish loans, advances, and cash payments specifically to secure long-term contracts and contract extensions. While such financial arrangements do not amount to independently illegal restraints, Sportservice's unabashed willingness to enter into and its frequent involvement in such cash-for-long-term-commitment deals is further evidence of its intent to monopolize. 72 Excerpt of Record at 81. 73 Our review of the record finds sufficient evidence to support the district court's findings regarding Sportservice's conduct. We are therefore satisfied that Sportservice's conduct, as evidenced by this record, was sufficient for a conclusion that such conduct formed the basis for a substantial restraint of trade, was clearly exclusionary, and clearly threatening to competition in the relevant concession-franchise market. It was thus conduct sufficient in itself to provide proof of all three elements of a section 2 attempted monopoly violation, Janich Brothers, supra; Inglis, supra. We therefore affirm the district court's ruling that Sportservice violated section 2 of the Sherman Act, 15 U.S.C. § 2.