Court Opinion

ID: 8914051
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:15:12.551005+00
Date Added: 2024-06-11T17:08:48.437987
License: Public Domain

MERRITT, Circuit Judge,
dissenting.
I disagree with the Court that the record in this antitrust case supports the conclusion that Cherokee had sufficient economic “leverage” or “market power” to give it the power to set a price for the tying products different from the price that would obtain in a fully competitive market. I also disagree with the Court that “there is no need to inquire into coercion” because “coercion” is not “an element of an illegal tying arrangement.”
MARKET POWER
The Court concludes that the relevant market in the tying products is limited to space and FBO licenses to operate at the main airport in Knoxville. There are three suppliers in that market, the city of Knoxville, which owns the airport, Cherokee, and its competitor, ¿Smoky Mountain Aero, both of which leased from the city and could sublease to Executive. If the market were defined nationally or regionally, all would agree that Cherokee does not have any significant market power. It is simply one of many small FBO’s competing for customers in the national or regional general aviation market.
Assuming, however, that the Court’s narrow definition of the market is correct, still it is not at all clear from the record that Cherokee had significant market power in the tying products. The record does not *1134contain evidence concerning the available supply of FBO licenses and land at the airport or evidence concerning the nature, strength or elasticity of the demand for these items. The city of Knoxville, not Cherokee, is the main supplier of land and FBO licenses at the airport. It granted Cherokee its land and license in the first instance and approved the sub-license Cherokee gave to Executive. There is no showing in this record that Executive could not have purchased its license and space directly from the city. Thus, the record does not show what market power Cherokee had to set prices for licenses and space at the airport. Moreover, it does not appear from the record that Cherokee made large profits or that its power to charge a monopoly price, if it had such power, was used. For example, it is clear from the record that Cherokee lost money on its fuel and maintenance operations. (Rec. for 12-12-78, pp. 241 — 47.) The Court allows a substantial treble damage award to stand without any showing that the market for land and FBO licenses at the Knoxville airport was less than competitive and without a showing that Cherokee had the power to set prices in the market.
COERCION
The Court’s analysis of the coercion issue is even less satisfactory because the record clearly outlines the bargaining history of the parties concerning the tying arrangement. It affirmatively demonstrates the absence of any element of coercion. For several years prior to executing the formal, written contract with Cherokee, Executive Airways and its predecessor operated and kept its airplanes on an informal, month-to-month basis at Cherokee. During this time, Executive was under no contractual or express obligation to purchase its fuel from Cherokee. Yet it purchased all of its needed fuel, maintenance and parts from Cherokee, according to Richard Hash, the president and owner of Executive, who was also a law student at the University of Tennessee. He testified that the custom in the industry was “you bought fuel where you parked your airplanes.” (Rec. for 12-12-78, pp. 84-85.) The General Manager of Cherokee testified that Hash approached him with the terms of the proposed, formal written contract. (Rec. for 12-12-78, pp. 188-90.) The proposed contract contained the agreement to purchase all fuel and routine maintenance from Cherokee. Hash did not deny that he proposed these terms of the contract. His explanation was that he “may have proposed the general terms ...” with the idea that “that is the only way I would be able to operate from there.” (Rec. for 12-12-78, pp. 34-35.)
The record also demonstrates that exclusive purchasing practices are customary in the general aviation industry and represent market preferences in the absence of written contracts. An aircraft owner normally selects an FBO on the basis of location, cost, convenience and the quality of service, and pays a monthly rental fee in order to tie down or hangar his airplane. Various engine, air worthiness and avionics inspections required by the Federal Aviation Administration are normally performed by the FBO repair stations. See 14 C.F.R. Parts 23, 33, 39, 43, 135, 145 (1980). The owner buys his fuel and routine maintenance services from the FBO except, as may frequently be the case, when the need arises when the aircraft is out of town.
These practices and expectations arise from certain assumptions of the industry concerning efficiency and safety. It is obviously more convenient for the FBO who provides tie down or hangar space to fuel the airplane. Ground operations at busy airports require advance communications with tower operators. See 14 C.F.R. § 91.87 (1980). Starting and taxiing aircraft across busy runways to another FBO for these services is costly in terms of pilot and controller time and aviation fuel consumption as well as increasing the possibility of accidents. According to the proof, liability, safety and efficiency considerations normally prevent fuel trucks from “running all over the airport” to fuel the customers of other FBO’s. (Rec. for 12-11-78, p. 99.)
Thus the record shows that it is customary in the industry for aircraft owners to buy their fuel and maintenance services *1135from the FBO where they keep their airplanes. The record also shows that Executive followed this practice prior to the written contract and then proposed the written contract containing the tying arrangement. Executive did not object to the fuel arrangement during the life of the written agreement.
To say that these facts are irrelevant simply discards the economic theory on which the legal theory of tying arrangements is based. Some tying arrangements violate the ideal of a free, competitive market system because they wrongfully foreclose otherwise free markets from competitors and potential new entrants and injure customers by allowing a seller with leverage in one less-than-fully competitive market to abuse that power by forcing the consumer to deal only with him in another, more competitive market. Thus, it is said that an unlawful tie “coerces the abdication of buyers’ independent judgment” concerning the tied product; its “common core . . . is the forced purchase of a second distinct commodity . . . resulting in economic harm to competition in the ‘tied’ market.” Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 605, 615, 73 S.Ct. 872, 878, 884, 97 L.Ed. 1277 (1953) (emphasis added). See also Associated Press v. Taft-Ingalls. Corp., 340 F.2d 753, 762 (6th Cir.), cert. denied, 382 U.S. 820, 86 S.Ct. 47, 15 L.Ed.2d 66 (1965) (ties force buyer to give up “independent judgment” as to whether, or where, to purchase tied product). The assumption is that economic actors must be able to make rational decisions based on their own self interests in the purchase and sale of products in order for the competitive, free market system to work. D. Bell, “Models and Reality in Economic Discourse,” The Public Interest 46 (Special Issue, 1980). If, as a result of economic leverage, they are forced over time into exclusive tying arrangements, they cannot make such decisions and the conditions for workable competition are undermined. The assumption is that if we legalize such arrangements we will end up allowing one with economic leverage to engage in unjustified price discrimination. United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 617, 97 S.Ct. 861, 866, 51 L.Ed.2d 80 (1977) (Fortner II), or to extend his monopoly power in the tying product to another market, Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 518, 37 S.Ct. 416, 421, 61 L.Ed. 871 (1917), thereby further curtailing the supply of goods, raising prices, defeating consumer desires and unfairly increasing disparities of wealth and income.
But if there clearly are “other explanations for the willingness of buyers to purchase the package” than the seller’s use of economic leverage, Fortner II, 429 U.S. at 618 n.10, 97 S.Ct. at 867 n.10, then the arrangement is not illegal. The economic leverage must not only exist but must be used to induce the tie. The wrong in tying cases is the use of monopoly power in the tying product to make the seller take an unwanted product.
Tying arrangement cases are, therefore, somewhat analogous to cases in which a seller wrongfully induces a transaction by striking or imprisoning another or threatening to do so. As in these duress and coercion cases, the wrong must cause the transaction. See Restatement of Contracts, Ch. 16 Duress and Undue Influence (1932); Restatement of Restitution, Ch. 3, Coercion (1937). There is no illegal tying arrangement if the buyer, in the absence of any compulsion, would have bought both products at the same price from the same seller anyway because he wanted a package. There must be “a manifestation of apparent assent by another to a transaction without his volition,” a coercive element. Restatement of Contracts § 492.
In order for the legal standard and the underlying economic theory to be applied rationally, we must separate coercion from free choice, “forced abdication of independent judgment” from consumer preference. Although the kind of written contract that we have in the instant case obligating a buyer to purchase two or more products from the same seller raises a strong suspicion of coercion based on market power and warrants close scrutiny, our analysis should not end there when other factors suggest— indeed, demonstrate — the absence of coer*1136cion. See Photovest Corp. v. Fotomat Corp., 606 F.2d 704 (7th Cir. 1979), cert. denied, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601 (1980) (express language of agreement constitutes prima facie case of illegal tie that may be rebutted by fact that franchisee desired a complete package). In such situations, before we assume the existence of coercion and automatically find per se illegality, we should investigate not only the seller’s market power but also the buyer’s preferences. If the buyer proposed the economic arrangement, we should determine why. If the buying and selling arrangement in question follows common, everyday uncoercive patterns of buyers and sellers in the industry, we should determine whether the written arrangement is merely a reflection of the customary preferences of self-interested consumers or is a “forced purchase” arising from the seller’s market power.
The record here shows that the customary and established pattern in the industry is for aircraft owners, in the absence of compulsion, to buy their maintenance service and fuel from the FBO where they rent space and house their airplanes. The plaintiff and the defendant both so testified. Aircraft owners normally do so for reasons of convenience, efficiency and safety. Prior to any contract, the plaintiff, without a tying arrangement or any form of compulsion, uniformly followed these buying practices for several years at the same FBO. During this time Executive bought its fuel and maintenance service from Cherokee. It did not shop around. Executive then proposed a written contract embodying its prior purchasing habits. Cherokee did not propose the tie. Executive proposed it. Executive never objected during the term of the contract to the requirement that it purchase fuel from Cherokee. When Executive proposed to do its own maintenance and repair work during the term of the contract, using Cherokee’s facilities, Cherokee consented, but the arrangement turned out to be unsatisfactory. Based on this record, there is nothing to indicate that Cherokee used market power to force an inefficient unwanted market arrangement or to force “the abdication of buyers’ independent judgment” concerning the purchase of fuel and maintenance services. Accordingly, the judgment of the District Court for the plaintiff should be reversed. Far from being irrelevant, the element of coercion is an element of the wrong. It is absent here.