Court Opinion

ID: 9471519
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:34:34.698217+00
Date Added: 2024-06-11T17:42:26.995709
License: Public Domain

HEANEY, Circuit Judge,
concurring and dissenting.
I concur in the majority opinion only insofar as it sustains the jury verdicts for breach of contract and fraud. I would affirm the $25 million punitive damage award. I would moreover hold that the plaintiffs had standing to bring an action for antitrust violations and that while insufficient evidence was presented to find a violation of Section 2 of the Sherman Act, sufficient evidence was presented to permit the jury to find that the defendants had violated Section 1 of the Sherman Act under a rule of reason. I would remand to the district court for a new trial on the section 1 violation under a rule of reason standard.
I.
SECTION 1 OF THE SHERMAN ACT
A. Standing
The standing requirements are correctly set forth in the majority opinion. It is their application to this case that is questionable. In my view, the plaintiffs had standing to bring an action under Section 1 of the Sherman Act under the six standards of Associated General Contractors of California v. California State Council of Carpenters, U.S. -, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).
(1) There was a causal connection between the alleged antitrust violation and the harm to the plaintiffs. The violation consisted of J &. J’s suppression of the TENS device. The plaintiffs were harmed by this violation. Had J & J made the payments required by the contract, and suppressed the devices the plaintiffs could still recover for any injuries that the jury found to have occurred because of the suppression.
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), is not on point. The facts may be briefly stated: Brunswick, one of the nation’s largest manufacturers of bowling equipment, acquired a number of defaulting bowling centers, some of which were in competition with the plaintiffs’ recreation centers. Plaintiffs brought suit under Section 7 of the Clayton Act on the theory that, because of Brunswick’s size, it had the capacity to drive smaller competitors out of the market. Plaintiffs claimed damages for the lost profits they would have made had Brunswick not acquired the defaulting centers and continued their operations. The jury returned a verdict for the plaintiffs. On appeal, the Third Circuit adopted the plaintiffs’ legal theory, although remanding for a new trial. NBO Industries Treadway, Cos. v. Brunswick Corp., 523 F.2d 262, 268-273 (3d Cir.1975): On petition for a writ of certiorari, a unanimous Supreme Court reversed. Justice Marshall, writing for the Court, observed that not only was the injury unrelated to the substantive basis for Brunswick’s liability, but an award of damages based on such injury would be “inimical to the purposes” of the antitrust laws. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., supra, 429 U.S. at 488, 97 S.Ct. at 697. The lost profits claimed by the Brunswick plaintiffs were profits they would have earned if the acquired bowling centers had been permitted to drop out of the market. “In other words, they were profits that would have been earned as the result of a reduction in competition.” Note, Antitrust Injury and Standing: A Question of Legal Cause, 67 Minn.L.Rev. 1011, 1023 (1983).
In the instant case, plaintiffs claim an injury directly related to the substantive basis of J & J’s antitrust liability. They claim the “profits” lost as a result of J & J’s suppression of the TENS devices. They did *1384not seek to restrict competition or to withdraw from it; they sought rather to expand the competition. They sought to profit by having the TENS devices developed by a company with adequate capital and an in-place international distribution system. When J & J instead suppressed the TENS devices, both competition and the plaintiffs were harmed.
(2) J & J’s motives were improper, i.e., the suppression of the TENS devices to maximize their profits in prescription and nonprescription pain killers, and to retard the development of TENS devices in the pain killing industry.
(3) The injury was clearly of the type that Congress intended to protect against. Plaintiffs’ injuries flowed from the anti-competitive aspects of J & J’s acts. The fact that the anticompetitive acts were also breaches of contract and acts of fraud is immaterial.
(4) The anticompetitive injury to the plaintiffs flowed directly from J & J’s suppression of the TENS devices.
(5) The damages are reasonably susceptible of measurement.
(6) There is little risk of duplicate recoveries. The district court should limit recovery to the larger of the verdicts recovered under the fraud plus punitive damages or the antitrust verdict trebled. Unless the plaintiffs are permitted to recover antitrust damages, the reality is that no one will have a sufficient stake to justify bringing an antitrust action and the practice of buying products or processes for the purpose of suppressing them will continue.
I have carefully read the cases cited by the majority for the proposition that a person who voluntarily withdraws from the market does not have standing to bring an antitrust action. In each of them the plaintiff intended to withdraw from the market. Here, the plaintiffs did not intend to withdraw. They intended to combine their knowledge, skills and resources with those of J & J and continue to participate in the market. Indeed, they believed that the product would be marketed vigorously and they would share along with the pain-ridden in the benefits of that vigorous marketing.
In view of the fact that I would find that the plaintiffs had standing, it is necessary to discuss the remaining contentions raised by appellants.
B. The Section 1 Violation
To establish a claim under Section 1 of the Sherman Act, a plaintiff must show (1) that two or more persons entered into a “contract, combination * * * or conspiracy,” and (2) that it was in restraint of trade. Oreck Corp. v. Whirlpool Corp., 639 F.2d 75, 78 (2d Cir.1980), cert. denied, 454 U.S. 1083, 102 S.Ct. 639, 70 L.Ed.2d 618 (1981). Here, the jury properly found and the district court properly held that the requisite concerted action was present. The court’s reasons are set forth in detail in its post trial opinion and are fully supported in the record. First, J & J entered into a series of agreements with the subsidiaries Devices, PCD, and McNeil to suppress the TENS devices. See. Perma Life Mufflers, Inc. v. International Parts Co., 392 U.S. 134, 141-142, 88 S.Ct. 1981, 1985-86, 20 L.Ed.2d 982 (1968); Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 215, 71 S.Ct. 259, 261, 95 L.Ed. 219 (1951). Second, J & J used employment and noncompete agreements in tandem with the sales agreement. As for the “restraint of trade” element, section 1 clearly prohibits persons from engaging in acts to suppress or destroy a competitor in order to protect or enlarge their market position or to foreclose competition in a market. See 2 Von Kalinowski, Antitrust Laws and Trade Regulation § 6.01 (1982) (collected cases).
The key issue in this case, then, is whether plaintiffs’ suppression claim should be analyzed under a per se or a rule of reason test. Under a per se approach, acts in restraint of trade, if proven, are conclusively presumed illegal without inquiry into the competitive harm they may have caused or the business reasons for their use. Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Under the rule of reason test, *1385the plaintiff must demonstrate that under “all the circumstances of a case * * * [the challenged practice] impos[es] an unreasonable restraint on competition.” Continental TV, Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 50, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977) (footnote omitted). Such unreasonableness is generally established by showing that the restraint has an adverse impact on competition which is not offset by other procompetitive consequences. See Rosebrough Monument Co. v. Memorial Park Cemetery Association, 666 F.2d 1130, 1138 (8th Cir.1981), cert. denied, 457 U.S. 1111, 102 S.Ct. 2915, 73 L.Ed.2d 1321 (1982). Plaintiffs’ section 1 claim here was tried on a per se theory.
1. Per Se Rule
No case law or secondary authority recognizes a per se rule against suppression of! competition of the kind the jury found to exist in this case. Plaintiffs rely on cases which state that it is per se illegal “to foreclose competitors from any substantial , market.” E.g., United States v. Griffith, 334 U.S. 100, 107, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1948); International Salt Co. v. United States, 332 U.S. 392, 396, 68 S.Ct. 12, 15, 92 L.Ed. 20 (1947). Although the “fore-clos[ure]” language can be stretched to cover the facts here, the cases cited by plaintiff are distinguishable because they involve price fixing, tying arrangements, horizontal market divisions, and group boycotts — activities against which per se rules traditionally have been applied. See 2 Von Kalinowski, Antitrust Laws and Trade Regulation § 6.02 (1982).
Thus, the question becomes whether we should create a new per se category for intentional acts of suppression of the type found here. The Supreme Court has frequently cautioned that “[i]t is only after considerable business experience with certain business relationships that courts classify them as per se violations.” Broadcast Music, Inc. v. CBS, 441 U.S. 1, 9, 99 S.Ct. 1551, 1557, 60 L.Ed.2d 1 (1979), quoting United States v. Topco Associates, 405 U.S. 596, 607-608, 92 S.Ct. 1126, 1133-1134, 31 L.Ed.2d 515 (1972). See 2 Von Kalinowski, Antitrust Laws and Trade Regulation § 6.02 (1982).
Nonetheless, the Supreme Court has not held that the per se categories are limited to those listed above. It has stated the test for finding per se categories in various ways. In Broadcast Music, Inc. v. CBS, supra, 441 U.S. at 19-20, 99 S.Ct. at 1562-63, quoting United States v. United States Gypsum Co., 438 U.S. 422, 441 n. 16, 98 S.Ct. 2864, 2875 n. 16, 57 L.Ed.2d 854 (1978), it said that the test for determining whether to apply a rule of per se illegality to a restraint of trade is “whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output * * * or instead one designed to ‘increase economic efficiency and render markets more, rather than less, competitive.’ ” In Northern Pacific Railway Co. v. United States, supra, 356 U.S. at 5, 78 S.Ct. at 518, it stated that to be illegal per se a practice must have a “pernicious effect on competition and lack any redeeming virtue.”
In the light of these standards we should not consider the conduct of J & J in the present case a per se violation for the following reasons.
First, a per se rule against “suppression” of the kind of conduct involved here has no case law support. Nor are these acts of suppression closely analogous to any of the per se categories that courts previously have recognized. Moreover, the Supreme Court has advised courts to move cautiously in finding new per se offenses.
Second, plaintiffs’ suppression theory is not well defined. Suppression is the essence of every violation of section 1, which prohibits concerted action “in restraint of trade.” If we find that J & J’s acts of suppression here constituted a per se section 1 violation, where should the line be drawn to determine which suppressive acts are per se illegal? Obviously not all combinations in restraint of trade are per se illegal. Standard Oil Co. v. United States, 221 U.S. 1, 63-70, 31 S.Ct. 502, 517-519, 55 L.Ed. 619 (1911).
*1386The conduct involved here will not always be egregious. The act of purchasing a company for the purpose of suppressing it is indeed pernicious, and it is difficult to conceive of any benefit that could result from such an act. It is important to remember, however, that in this case, the use of the phrase “intentional suppression” is a shorthand way of saying that the jury inferred from circumstantial evidence — in essence J & J’s failure to adequately fund and promote StimTech — that the defendant intended to suppress the TENS devices. A decision not to fully fund and promote a new product like TENS is not always bad for society. It may be bad because it is an intentional suppression of competition, or it may be a valid business decision because the product is not a worthwhile one.
Where, as here, the conduct that forms the basis of an alleged unlawful restraint of trade may be either good or bad for competition, depending on the particular factual setting, a per se rule against such conduct is inappropriate. This is particularly true since per se antitrust rules are intended to apply to categories of conduct, not single acts. See Broadcast Music, Inc. v. CBS, supra, 441 U.S. at 9, 99 S.Ct. at 1557.
Finally, this case is not a unique one because of J & J’s size or market position. While J & J holds a dominant position in the market, it is not a monopolist. Discouraging all acquisitions does not promote competition. Individuals or small companies frequently are better innovators than large corporations, but they need the resources of a large corporation to market the product. An inappropriate per se rule here in order to punish J & J for intentionally suppressing plaintiffs’ product may be more harmful to competition in the long run.
2. Rule of Reason
On the other hand, there is clearly sufficient evidence in the record to find a violation of Section 1 of the Sherman Act under a rule of reason, e.g.:
A.Prohibition of sales of TENS devices by StimTech in the United Kingdom and Europe, except through companies who had only one salesman and could not provide adequate sales coverage — December, 1974.
B. Refusal to permit StimTech to develop an improved TENS device — December, 1974.
C. Refusal to permit expansion of Stim-Tech’s United States business, and imposition of a “concentrated effort program” restricting StimTech’s sales efforts to three or four already successful territories — January, 1975.
D. Refusal to permit StimTech to expand its successful and unique nurse liaison program for the sale of TENS devices— January, 1975.
E. Prohibition of construction of foreign factories and assembly plants for Stim-Tech’s products, known as “mini plants,” useful to avoid tariff barriers, to receive favorable government treatment, and to reduce cost of production — January, 1975.
F. Continuing refusal to permit Stim-Tech to engage in international marketing of the TENS devices, including entering a coercive arrangement with Devices prohibiting StimTech from selling in the United Kingdom and Europe, firing of international salesmen, failing to follow up on international sales leads, refusing to permit Stim-Tech to establish its own distribution in Sweden in competition with Devices’ distributor, and failing to use J & J international connections to assist StimTech.
G. Refusal in 1977 to accept large purchase orders for TENS devices from Pain Control Centers International.
H. Limiting and diluting StimTech’s advertising campaign in 1977-1978. This advertising would have stressed the advantages of TENS devices over drugs used to kill pain.
I. Misappropriating StimTech’s TENS electrode technology, refusing to assist StimTech in the development of a new TENS electrode, failing to supply StimTech with a TENS electrode developed by J & J’s Patient Care Division for approximately three years, and attempting to coerce Stim-Tech into price fixing and customer and market allocation agreements as a condition to supplying TENS electrodes to StimTech.
*1387J. Withholding from StimTech a conductive adhesive gel for TENS electrodes developed by J & J’s Patient Care Division.
K. Continuing refusal to permit Stim-Tech to market its TENS devices in Japan or enter into licensing or other distribution arrangements with Japanese companies.
A jury could find from the evidence outlined above and similar evidence presented at trial that J & J’s actions not only affected the market for TENS devices but that the actions were taken to protect J & J’s stake in the over-the-counter and prescription analgesic drug markets. The TENS devices directly compete with analgesic drugs in virtually all areas of pain control. J & J is the dominant firm in both the prescription and over-the-counter analgesic markets, and its share in both these markets increased rapidly in recent years and continues to grow.
A defendant’s intent in adopting a challenged practice is relevant to determining whether that practice is reasonable. See Continental T.V., Inc. v. GTE Sylvania, Inc., supra, 433 U.S. at 50 n. 15, 97 S.Ct. at 2557 n. 15; Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed. 683 (1918). Here, the jury found that J & J intentionally suppressed Stim-Tech to prevent it from competing with J & J.
In sum, since it appears that there is sufficient evidence in the record to sustain a finding that J & J’s actions were motivated by an anticompetitive intent and they had an anticompetitive impact, a jury might properly conclude that J & J’s conduct constituted an unreasonable restraint of trade in violation of section 1. A remand for a jury determination on that issue is therefore appropriate. See generally Applying the Rule of Reason: A Survey of Recent Cases and Comment, 18 San Diego L. Rev.‘ 335 (1980).
II.
SECTION 2 OF THE SHERMAN ACT
To establish a claim of attempt to monopolize the plaintiffs were required to prove (1) a relevant market, (2) a specific intent to obtain a monopoly within that market, (3) steps to obtain monopoly power, and (4) a dangerous probability of success in obtaining a monopoly. United States v. Empire Gas Corp., 537 F.2d 296, 298-307 (8th Cir.1976), cert. denied, 429 U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d 572 (1977). Here, plaintiffs did not, as a matter of law, prove a dangerous probability of success in any of the four markets considered by the jury below. J & J’s share in any of the relevant markets was significantly less than that required to indicate a dangerous probability of success.
III.
PUNITIVE DAMAGES
In my view, the jury was correctly instructed as to punitive damages and that award should be permitted to stand. The fraud on the part of J & J was entering into the agreement with plaintiffs with the intent to suppress the TENS devices. J & J’s conduct was a breach of contract, an act of fraud, and an act of suppression prohibited by the Sherman Act. If J & J had not acted out their intent to suppress, there would be no damages. But, they acted on their intent and the plaintiffs and the public were harmed. As one authority has noted, “[I]t is not so much the particular tort committed as the defendant’s motives and conduct in committing it which will be important as the basis of the award [of punitive damages].” W. Prosser, Law of Torts § 2, at 11 (4th ed. 1971) (footnote omitted). The plaintiffs should be able to recover punitive damages to deter J & J or any other company from engaging in similar intentional conduct in the future. See City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 266-267, 101 S.Ct. 2748, 2759-2760, 69 L.Ed.2d 616 (1981); Nye v. Blyth Eastman Dillion & Co., 588 F.2d 1189, 1200 (8th Cir.1978).
The majority correctly notes that treble damages in an antitrust action embodies both punitive and compensatory elements. Thus, the plaintiffs’ recovery would in any event be limited to the larger of the sums allowed for the antitrust violation or the fraud claim with punitive damages. No duplicative damages would be permitted.
*1388IV.
CONCLUSION
We cannot continue to dilute our antitrust laws. They should be vigorously enforced to insure a competitive economy in which new products are freely and fully developed. While we should not discourage large companies from acquiring smaller ones for the purpose of developing the products of the smaller company, we cannot permit a company that is dominant in a relevant market to acquire a smaller company that has perfected a competing product with an intent to suppress that product and then carry out that intent. Such conduct is clearly in violation of the antitrust laws. If the seller makes the sale with knowledge of the intended suppression or without regard to whether the product will be developed, he or she obviously does not have standing to bring an action for the antitrust violation. But if the sale is made with the understanding that the product will be freely and fully developed and that the seller will participate in the benefits of the development, he or she has standing. Unless we so hold, the probabilities are that the conduct will go unpunished.