Court Opinion

ID: 199645
Source: CourtListenerOpinion
Date Created: 2011-02-07 04:35:30+00
Date Added: 2024-06-11T15:10:20.752934
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 01-1269

                       AUGUSTA NEWS COMPANY,

                       Plaintiff, Appellant,

                                v.

                HUDSON NEWS CO., PORTLAND NEWS CO.,
                   and HUDSON-PORTLAND NEWS CO.,

                      Defendants, Appellees.

         APPEAL FROM THE UNITED STATES DISTRICT COURT

                     FOR THE DISTRICT OF MAINE

              [Hon. Gene Carter, U.S. District Judge]

                              Before

                        Boudin, Chief Judge,

               Torruella and Selya, Circuit Judges.

     William D. Robitzek with whom Berman & Simmons, P.A. was on
brief for appellant.
     John M.R. Paterson with whom Ronald W. Schneider, Jr. and
Bernstein, Shur, Sawyer & Nelson were on brief for appellees.

                         October 23, 2001
               BOUDIN,   Chief   Judge.     Augusta     News   brought   this

antitrust case in district court against Portland News, Hudson

News,    and    Hudson-Portland    News,   LLC   (the    "LLC").    Augusta

alleged violations of both section 2(c) of the Clayton Act, 15

U.S.C. § 13(c), as amended by the Robinson-Patman Act, Pub. L.

No. 74-692, 49 Stat. 1527 (1936), and section 1 of the Sherman

Act, 15 U.S.C. § 1.1       After discovery was complete, the district

court granted summary judgment on all counts for the defendants

and Augusta appealed to this court.           We begin with a statement

of background facts.

               Prior to 1995, publishers seeking to sell magazines and

newspapers in Maine sold them to local wholesale distributors

who then resold the publications to retailers at a discount off

the printed cover price.          Augusta News and Portland News were

two of five local wholesale distributors operating in Maine in

late 1995; the others were Magazines, Inc., Winebaum News and

Maine Periodical Distributors.             Each wholesaler served a de

facto exclusive territory and operated as the sole supplier of

periodicals to all retailers within that locale.

     1
     The Maine antitrust statute, 10 M.S.R.A. §§ 1101-09 was
also invoked in the complaint.       Augusta treats the Maine
antitrust claim as co-extensive with its federal claims so we do
not address it separately.

                                     -3-
             In late 1995, this system began to change in Maine (and

elsewhere) at the insistence of the large retail chains like

Wal-Mart,     which   comprised   much   of   the    distributors’   sales.

Rather than deal with numerous distributors, the large multi-

location     retailers   sought   to     consolidate    regionally    their

purchasing of publications and obtain from the chosen regional

distributor lower prices, centralized billing, and improved

service.     In response to such retailer demands, two distributor

entities began to compete for chain business on a regional basis

in New England in 1995.

             The first, Retail Product Marketing ("RPM"), was formed

in September 1995 by fifteen independent wholesale distributors

in New England, including two in Maine:         Portland and Magazines,

Inc.    Although Augusta was offered the opportunity to join RPM,

it declined to do so.         RPM members agreed to bid for large

retail chain contracts exclusively through RPM. When an RPM bid

was successful, RPM says that it would then determine which RPM

member or members would service the retailer’s various locations

throughout New England, based on retailer preference and other

considerations such as the location of individual RPM members.

             The second entity--which became the primary competitor

to     RPM   for   regional   business--was         Hudson,   a   wholesale

distributor based in New Jersey with operations in New York and

                                   -4-
parts   of   New    England.      In   November   1995,    Hudson    signed   a

contract     to    supply   all   Wal-Mart   stores   in    the     Northeast,

including four stores previously serviced by Augusta accounting

for about 10 percent of Augusta’s business.               In December 1995,

Hudson won a bid against RPM to supply all of Hannaford's 80

stores in the Northeast, including 11 stores previously serviced

by Augusta representing 40 percent of Augusta’s business.

             In late December 1995, Hudson formed a joint venture

with Portland (the Hudson-Portland LLC) under which Portland

would service all of Hudson's customers in Maine, including

customers acquired after the agreement.               Thereafter, Hudson

prevailed over RPM in bidding to supply K-Mart’s Northeast

stores (March 1996) and Cumberland Farms' New England stores

(late July 1996); Portland serviced these accounts.                  However,

Portland remained a member of RPM, eligible for any business RPM

won in competition with Hudson.

             Like Hudson, RPM      was successful in obtaining region-

wide business.       In March 1996, it won a bid to supply 100 Shaw’s

Supermarkets locations throughout New England, two of which were

in Augusta's formerly exclusive territory.                In April, RPM won

over all of Christy's stores in New England, including eight

locations previously served by Augusta, and all of CVS’s stores

in Maine, four of which had been serviced by Augusta.                 In July,

                                       -5-
RPM secured the contract for Rite Aid stores in Maine, some of

which had been serviced by Augusta.

            RPM and Hudson each offered large up-front per-store

fees to the chain retailers.   For example, Hudson paid Hannaford

$1,000 per store and K-Mart between $1,000 and $5,000 per store

to secure    exclusive contracts.     RPM paid from $667 per-store

for each existing CVS location to $15,000 per-store for each

Rite Aid location.    The amounts were sometimes paid annually and

sometimes spread over the life of the contract.     Some retailers

demanded the fees; one, Wal-Mart, declined to accept them.

Under the RPM charter, the fees were paid by the member which

serviced the store.     Under the Hudson-Portland LLC agreement,

Portland agreed to pay the fees for every store it serviced.

            Augusta, which refused to offer retailers up-front

fees, rapidly lost its chain store customers.    Augusta says that

it thought such payments were illegal and unprofitable.    Augusta

also chose not to service customers on a regional level, bidding

only for the local or state-wide business of the chains.        In

July 1996, concluding that it could not stay in business without

the retail chain stores that it had lost to Hudson and RPM,

Augusta closed its doors.

            In June 1999, Augusta filed this suit in the federal

district court in Maine.     Augusta's complaint claimed that up-

                                -6-
front fees paid by Hudson and Portland violated section 2(c) of

the Clayton Act, as amended by the Robinson-Patman Act, and

section 1 of the Sherman Act.        In addition, Augusta charged that

Hudson and Portland (and possibly RPM’s other members) had

agreed to divide the Maine market, in violation of section 1 of

the Sherman Act.

            Soon after the present suit was brought, Hudson merged

operations with RPM to form Hudson-RPM.              Allegedly, it is now

the only regional distributor servicing large retail chains in

Maine.   The new entity also stopped offering up-front fees to

retailers on new contracts.

            After discovery was complete, Hudson and Portland moved

for summary judgment.        In a careful opinion, the magistrate

judge recommended granting the motion, finding that the up-front

fees were price concessions, rather than brokerage payments, and

therefore    not   covered   by   section    2(c),    and   that    Augusta’s

section 1 claim lacked merit because Augusta had failed to show

injury to competition.        In a brief order, the district court

affirmed the recommendation and entered judgment for defendants.

This appeal followed.

            We begin with Augusta's claims under the Robinson-

Patman   Act:   one,   set   forth   in    the   complaint    and    resolved

adversely to Augusta in the district court, is that the up-front

                                     -7-
fees paid by Hudson and Portland were brokerage fees or other

concessions forbidden by section 2(c); the other is a claim that

these payments violated section 2(a)'s restriction on price

discrimination,    a   claim   that   Augusta   belatedly   sought    to

introduce into the case after the magistrate judge's recommended

decision.     The relationship between the two Robinson-Patman

provisions is relevant.

            As adopted in 1914, the original section 2 of the

Clayton Act simply prohibited sellers from discriminating in

price among purchasers of commodities "where the effect of such

discrimination may be to substantially lessen competition or

tend to create a monopoly"--subject to a cost defense and a

meeting competition defense.     Pub. Law No. 63-212, 38 Stat. 730-

31 (1914).    When section 2 was revised in 1936 by the Robinson-

Patman Act, this anti-discrimination ban was re-designated as

section 2(a) (with a portion re-located into section 2(b) and

elaborated in certain respects not pertinent here).

            At the same time, Congress added section 2(c) as a new

and more rigid ban on certain brokerage or other payments.           The

full text of section 2(c) is as follows:

                         It shall be unlawful for any
            person engaged in commerce, in the course of
            such commerce, to pay or grant, or to
            receive or accept, anything of value as a
            commission,      brokerage,     or    other
            compensation, or any allowance or discount

                                  -8-
          in  lieu    thereof,   except   for  services
          rendered in connection with the sale or
          purchase of goods, wares, or merchandise,
          either   to    the   other   party  to   such
          transaction or to an agent, representative,
          or other intermediary therein where such
          intermediary is acting in fact for or in
          behalf, or is subject to the direct or
          indirect control, of any party to such
          transaction other than the person by whom
          such compensation is so granted or paid.

15 U.S.C. § 13(c).

          This convoluted paragraph has bewildered lawyers and

judges ever since, but its history provides some enlightenment.

The Robinson-Patman Act, unlike the ordinary antitrust laws, was

designed less to protect competition than (in the midst of the

Great Depression) to protect small businesses against chain

stores.      A   particular     target    were   the   discounts     that

manufacturers furnished to large chain stores.            The revamped

section   2(a)   directly     addresses   such   discounts;    and    the

protective   purpose   accounts     for    certain     anti-competitive

rigidities in judicial interpretation of what might otherwise

appear to be a conventional antitrust statute.2

    2The most notable departure from standard antitrust analysis
is the treatment of any economic loss to the customer of a
discriminating seller as injury to competition (so-called
"secondary line" injury). FTC v. Morton Salt Co., 334 U.S. 37,
46 (1948).    By contrast, where a competing seller is the
plaintiff (a so-called "primary line" injury case), evidence of
an actual threat to competition--not just economic loss to the
disadvantaged seller--is required. Brooke Group Ltd. v. Brown
& Williamson Tobacco Corp., 509 U.S. 209, 223 (1993).

                                  -9-
           Section 2(c) was intended to close firmly a potential

loophole in the new regime.         Sellers often employ brokers, who

are paid a commission, to seek out and arrange sales; one of the

ways that chains obtained discounts was through the seller's

payments   to   the   buyer,   or   to   an   agent   of   the   buyer,   for

brokerage services not actually furnished or through a reduction

in the selling price purportedly furnished in lieu of brokerage.

With certain qualifications, section 2(c) sought to ban outright

both such brokerage payments from seller to buyer and reductions

in the selling price in lieu of brokerage; the ban covers other

variations as well but "the seller to buyer" payment ban is the

one pertinent here.3

           If section 2(c) were limited to brokerage payments or

reductions in lieu of brokerage, then Augusta's claim would be

facially silly.       The up-front payments in question have no

relationship to traditional brokerage services at all: they do

not purport to be for the sellers' performance of brokerage

services nor are they even claimed to correspond to amounts

    3 On an initial reading, one might think that section 2(c)
banned such brokerage payments only where they were shams, i.e.,
where they were not "for [brokerage] services rendered . . . ."
Case law, possibly based on a misreading of what the quoted
phrase modifies, has been less forgiving. See Quality Bakers of
America v. FTC, 114 F.2d 393, 398-99 (1st Cir. 1940). Compare
14 Hovenkamp, Antitrust Law § 2362(d) (1999). This issue is not
presented in this case.

                                    -10-
previously paid by the sellers to independent brokers to secure

sales for the publishers.             Robinson v. Stanley Home Prods.,

Inc., 272 F.2d 601, 604 (1st Cir. 1959).                         The payments are

simply price reductions offered to the buyers for the exclusive

right to supply a set of stores under multi-year contracts.

              Augusta makes no effort to identify any link between

the up-front payment and brokerage.                 Nor does it say that it

will       offer   evidence   that   such    a    link   exists     but    has   been

concealed.         Rather, at least in this court, it relies on the

fact that section 2(c) itself speaks not solely of brokerage but

of "commission, brokerage, or other compensation." Ambitiously,

Augusta suggests that any payment from seller to buyer is within

the ban.

              Admittedly, some courts have read the statute to apply

to   outright       commercial   bribery         whereby    one    party    to    the

transaction corrupts an agent of the other.4                     This view builds

on, but obviously goes somewhat beyond, a statement by the

Supreme Court that congressional debates on section 2(c) show it

to   proscribe       "other   practices     such    as     the    'bribing'      of   a

seller's broker by a buyer."          FTC v. Henry Broch & Co., 363 U.S.
4
     Bridges v. MacLean-Stevens Studios, Inc., 201 F.3d 6, 11
(1st Cir. 2000) (collecting cases).    This circuit has never
decided whether a claim for commercial bribery is actionable
under section 2(c). Id.

                                      -11-
166, 169 n.6 (1960).      Yet, a buyer might perform numerous

legitimate services for a seller--advertising, special shelf

space, warranty repairs--and the courts have never read section

2(c) as a general ban on seller-to-buyer payments without regard

to purpose.

         In this case, there is no link to brokerage payments,

nothing was disguised, and Augusta does not claim that any agent

was bribed or corrupted.      All that we have is a payment--

effectively a price reduction to the buyer--that was openly made

for the exclusive right to supply specific buyer stores for a

specific period.     The antitrust laws are not automatically

hostile to price reductions or to exclusive dealing.     Section

2(c) remains a ban directed to a particular evil; it is not a

mechanical prohibition on all price reductions cast in the form

of one-time payments.    See Zeller Corp. v. Federal-Mogul, 173
F.3d 858 (6th Cir. 1999) (unpublished opinion).

         A reduction in price to less than all customers may,

of course, violate section 2(a), if the required effect on or

threat to competition can be shown by the plaintiff and if the

defendant cannot make out one or more of the defenses allowed by

the statute.   Augusta did not allege a violation of section 2(a)

in its complaint.     Discovery was conducted, and the summary

judgment motions were filed and contested, on the assumption

                               -12-
that    section      2(a)   was   not   part   of   the    case.     After    the

magistrate judge's recommended decision, Augusta for the first

time sought to proffer a claim under section 2(a).

           It did so by suggesting, in its objections to the

magistrate judge's recommended decision, that the district court

should allow an amendment to the complaint.                The district court

did not comment on the suggestion.              In this court, Augusta says

again   that    an    amendment    to   the    complaint    should   have    been

allowed.    Appellees respond that Augusta did not properly raise

the issue in the district court by filing a motion to amend and

that no claim of error can be based on the failure to grant a

motion that was never made.             In any event, say appellees, the

refusal of the suggestion was not error.

           We will assume arguendo that Augusta's desire to amend

was made clear to the district court even if no formal motion

was ever filed.       But a plaintiff's request to add a new claim to

the case after full discovery and after the grant of summary

judgment to the defendants on all existing claims would require

remarkable justification.           See Hayes v. New England Millwork

Distr., Inc., 602 F.2d 15, 19-20 (1st Cir. 1979).                      Nothing

remotely close to a good excuse for failure to make the motion

earlier    is   provided     by   Augusta.      Augusta's    suggestion      that

                                        -13-
defendants would not be prejudiced by the need now to try the

section 2(a) claim is not sufficient.5

          Independent of the Robinson-Patman Act claims, Augusta

charged   in   its    complaint   that        the    defendants     had   violated

section   1    of    the   Sherman     Act,     which    in    essence     forbids

agreements     in    restraint    of    trade.         The    magistrate     judge

recommended dismissal of this claim as well on the ground that

Augusta's evidence did not establish a triable issue as to

injury to consumer welfare, e.g., through higher prices or

reduced consumer choice among publications stocked in retail

stores.

          On appeal, Augusta's principal argument is that no such

evidence of injury to consumer welfare was required because the

facts made out, or at least provided a basis for trial on, two

different "per se" theories.            Specifically, Augusta says that

"the agreements to pay up-front fees" were illegal and that the

defendants,     although     competitors,           agreed    to   "a   horizontal

    5Because the suggestion came too late and without any
justification, we need not consider whether it also may be
barred because not first presented to the magistrate judge prior
to the recommended decision. This court has previously warned
against efforts to treat the magistrate judge proceeding as
"mere dress rehearsal," reserving critical claims "for the
second round" before the district judge. See Paterson-Leitch
Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 991 (1st
Cir. 1988).

                                       -14-
division of markets."       Augusta also says that it made a showing

of injury to consumer welfare even though this is unnecessary

for a per se violation.

           The premise from which Augusta departs is correct, but

only the premise.      Almost any agreement that affects or has the

potential to affect interstate commerce is potentially within

the reach of section 1; but the legality of most kinds of

agreements    (e.g.,       R&D      projects,       information       sharing,

distribution contracts) is tested by the rule of reason.                 Under

that rule, adverse effects on consumer welfare are an important

part of the equation.        U.S. Healthcare, Inc. v. Healthsource,

Inc., 986 F.2d 589, 595 (1st Cir. 1993); California Dental Ass'n

v. FTC, 224 F.3d 942, 958 (9th Cir. 2000).                The evaluation is

not wholly ad hoc--there is a good deal of doctrine as to

specific practices--but it is hard to imagine a rule of reason

violation absent a potential threat to the public.

           By contrast, a few agreements are deemed so pernicious

that they are condemned "per se" and without regard to the power

of   the   parties   to    accomplish       their    aims,      regardless    of

justification,   and      without    any    need    to   show   an   actual   or

potential adverse effect on consumer welfare.                United States v.

Socony-Vacuum Oil Co., 310 U.S. 150 (1940).                The classic cases

are agreements to set prices, fix output or engage in horizontal

                                     -15-
market division.   Minimum resale price maintenance remains a per

se violation.   See Addamax Corp. v. Open Software Found., Inc.,

152 F.3d 48, 51 (1st Cir. 1998).   Concerted refusals to deal may

or may not be so classed depending on various circumstances.

U.S. Healthcare, 986 F.2d at 593.

          The categorical descriptions of per se offenses are

quite misleading for anyone not well versed in antitrust.    For

example, price-fixing in its literal sense is not condemned per

se:   virtually every sale is an agreement on price.    The only

price-fixing agreements that are condemned     per se, with one

narrow exception (minimum resale price-fixing), are agreements

(1) between competitors (2) as to competing products or services

(3) where, in addition, the agreement is not part of a larger,

legitimate economic venture.   Broadcast Music, Inc. v. Columbia

Broadcasting Sys., Inc., 441 U.S. 1 (1979) (joint purchase of

surplus gasoline intended to boost prices).    In short, the lay

use of terms like price-fixing are a poor guide to antitrust

rules.

          Here, Augusta's first claim--that "the agreements to

pay up-front fees" were unlawful--reflects confusion by Augusta

on several levels.    Insofar as the agreements were between a

legitimate selling entity and a buyer (e.g., between Hudson and

K-Mart), the up-front fees were discounts on vertical prices of

                               -16-
the kind that are "fixed"--and quite lawfully so--every time a

buyer    buys    something    from    a    seller.    An     agreement   between

competing distributors to offer such up-front fees to retailers,

unconnected to any joint venture, might be a per se violation;

but there is no clear claim by Augusta that this happened, no

evidence for it, and no reason why competitors would make such

an agreement.

                Sellers do need to cooperate to raise or stabilize

prices at a supra-competitive level because otherwise a hold-out

seller could undercut and defeat an increase.                      But to   lower

prices, sellers have no reason to agree; each can implement a

decrease    independently       and        the   objective    is   normally     to

undersell       the   competitor's     undiscounted     price      and   win   the

customer.       Of course, a competing seller will in the future

likely be forced to meet the lower price--which is why RPM and

Hudson each made such reductions in the same time frame--and a

seller who will not compete (like Augusta) will lose business.

But this is not an agreement to restrain trade; it is just

competition at work.

            Both the existence of RPM and the Hudson-Portland

distribution arrangement present more complex situations.                       In

forming RPM, local distributors who were at least potential

rivals    (until      then   they    had    served   exclusive     territories)

                                       -17-
combined to seek region-wide customers; and incident to such

offers, they might be viewed as acting through RPM to "agree" on

up-front payments to the buyers.      But it is a standard form of

joint venture for local firms to combine to provide offerings--

here, one stop service for large buyers--that none could as

easily provide by itself, and a joint venture often entails

setting a single price for the joint offering.        See Rothery

Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 229

(D.C. Cir.), cert. denied, 479 U.S. 1033 (1986).

          In particular cases, such joint ventures may well be

unlawful under the rule of reason on any of numerous grounds;

for example, the venturers may impermissibly collaborate beyond

the necessary scope of the venture, see Addamax, 152 F.3d at 52

n.5, or impermissibly exclude competitors from joining in the

venture, see Northwest Wholesale Stationers, Inc. v.       Pacific

Stationery & Printing Co., 472 U.S. 284, 295-96 (1985).        But

Augusta makes no effort to analyze the venture under the rule of

reason.   Indeed, after asserting that there was a combination to

set up-front fees, it scarcely mentions the subject again,

turning instead to the charge that the defendants engaged in

horizontal market division.

          The charge of horizontal market division is equally

devoid of support insofar as it claims a per se violation.     The

                               -18-
basic    notion       underlying    this      per   se       offense    is    that    two

competitors may not agree not to compete for customers whether

identified individually or by class--for example, that one will

serve only customers in Massachusetts while the other will serve

only those in Maine.              Despite unguardedly broad language in

United States v. Topco Associates, Inc., 405 U.S. 596 (1972), it

is commonly understood today that per se condemnation is limited

to "naked" market division agreements, that is, to those that

are    not     part    of   a   larger     pro-competitive            joint   venture.

Addamax, 152 F.3d at 52 n.5; Rothery, 792 F.2d at 229.

              In all events, Augusta points to nothing to suggest

that    there    was    any     agreement     among      the    defendants      or    the

defendants       and    others    to   divide       markets      in    the    sense    of

promising not to compete.              It is not a per se violation for

local competitors to join in providing region-wide service that

none alone provided before; nor is it unlawful                          per se for a

local competitor to agree to act as a local distributor for an

out-of-state competitor who won the contract to serve a local

store.        Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990),

cited    by    Augusta,     was   more   or     less     a    sham    transaction      to

disguise a naked market division arrangement and did not involve

a bona fide joint venture.

                                         -19-
          It is worth stressing that the RPM joint venture, the

Hudson-Portland arrangements, and the final merger of RPM and

Hudson may all have been subject to antitrust attack under

section 1's rule of reason or, at least in the last instance,

possibly under section 7 of the Clayton Act.    Furthermore, the

up-front payments were part of multi-year exclusive dealing

contracts that might in principle be attacked under the rule of

reason.   Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320,

327 (1961).      But Augusta ignores or fails to develop these

possibilities.

          There is no reason for us to consider Augusta's attacks

on the finding by the magistrate judge that consumer welfare was

not threatened or injured.    The per se claims made by Augusta

are without basis and, in this court, Augusta does not even

attempt to make out a rule of reason case in which competitive

effects would be relevant.   At most, Augusta suggests that there

were or may have been some negative effects on consumer price or

choice; its most specific claim is that what were once local de

facto monopolies in Maine, capable of fringe competition, have

now been replaced by a larger state-wide monopoly.

          The short answer is that in a rule of reason case,

negative effects or threatened effects on consumer welfare are

almost always a necessary element but they are not sufficient.

                               -20-
One still has to identify a specific agreement, locate it within

some   doctrinal framework or body of precedent, and assess the

competitive benefits and disadvantages of the agreement (along

with   the   possibility   of   achieving   the   former   through   less

restrictive means).      See U.S. Healthcare, 986 F.2d at 596-97.

This sounds like a difficult task and it usually is, which is

why antitrust plaintiffs try to make out per se violations and,

in default of them, rely heavily upon experts.

             Nothing in Augusta's appellate briefs develops a rule

of reason case.      It may well be that somewhere in the record

there are facts and expert testimony that could have been used

to construct such a case; but it is not the job of appeals

courts to rummage unaided through the record, nor can the other

side respond to a claim not seriously asserted on appeal.             See

U.S. Healthcare, 986 F.2d at 595.        Absent an organized rule of

reason case, it does not matter whether the magistrate judge got

right each of the factual points that Augusta disputes.

             Affirmed.

                                  -21-