Court Opinion

ID: 3173617
Source: CourtListenerOpinion
Date Created: 2016-01-29 20:02:12.980024+00
Date Added: 2024-06-11T11:56:47.886693
License: Public Domain

Filed 1/29/16 Basic Your Best Buy v. DirectTV CA2/3
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION THREE

BASIC YOUR BEST BUY, INC.,                                               B258061

         Plaintiff and Appellant,                                        (Los Angeles County
                                                                         Super. Ct. No. BC467034)
         v.

DIRECTV, INC.,

         Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of Los Angeles County,
Richard E. Rico, Judge. Affirmed.
         Kesselman Brantly Stockinger, David Wayne Kesselman; Crowell & Moring,
Gregory D. Call, Michael Y. Kao, and Daniel A. Sasse for Plaintiff and Appellant.
         Quinn Emanuel Urquhart & Sullivan, Michael E. Williams and Justin C. Griffin
for Defendant and Respondent.

                                        _________________________
       Plaintiff and appellant Basic Your Best Buy, Inc. (Basic) appeals a judgment
following a grant of summary judgment in favor of defendant and respondent
DirecTV, Inc. (DirecTV).
       Basic was an authorized retailer for DirecTV. After DirecTV terminated Basic’s
contract, DirecTV allegedly precluded other retailers from bidding for Basic’s sales
leads, and then purchased Basic’s sales leads at a depressed price.
       The essential issue presented is whether there exists a triable issue of material fact
with respect to Basic’s cause of action against DirecTV for violation of the Cartwright
Act (Bus. & Prof. Code, § 16700 et seq.).1 We conclude that Basic failed to raise a
triable issue of material fact as to either a horizontal or vertical restraint. Basic’s
horizontal restraint fails because Basic failed to present evidence of an agreement among
horizontal competitors not to bid for Basic’s sales leads. Basic’s vertical restraint theory
fails because Basic failed to meet its burden to define the relevant market. Therefore, the
judgment is affirmed.
                  FACTUAL AND PROCEDURAL BACKGROUND2

       1. The parties.
       DirecTV provides satellite entertainment programming to over 20 million
customers throughout the United States, in competition with cable providers, other
satellite providers, and telecommunications companies. DirecTV markets its
programming directly to consumers. It also sells programming to consumers through a
network of authorized retailers, including stores such as Best Buy and Costco,
telecommunications companies and authorized independent retailers such as Basic.

1
      All further statutory references are to the Business and Professions Code, unless
otherwise specified.
2
        This matter was the subject of a prior decision by this court, Basic Your Best Buy,
Inc. v. DirecTV, Inc. (Oct. 5, 2012, B236383 [nonpub. opn.]), which affirmed an order
denying DirecTV’s special motion to strike Basic’s complaint.

                                               2
       Basic was a DirecTV authorized retailer from 1996 until December 2008. Basic
specialized in signing up customers through advertisements in telephone directories.
Because consumers often retain telephone directories for years, Basic’s ads would
continue to generate sales leads for DirecTV several years after they were placed.
       2. The agreements governing the relationship between DirecTV and Basic.
       The relationship between DirecTV and Basic was governed by DirecTV’s
standard Independent Retailer Agreement and Customer Referral Agreement.
       Pursuant to the agreements, Basic was required to use marketing tactics, channels
and methods designated by DirecTV, which retained “sole and absolute discretion” to
withhold approval of the use by retailer of “any marketing tactic, channel or method that
DIRECTV reasonably believes does not fit within its marketing strategy.”
       The agreements prohibited the sharing of compensation among retailers, stating:
“Company shall not rebate or share any Compensation with another contractor/retailer of
DIRECTV, or any other party (whether or not an authorized contractor/retailer of DIRECTV.”
       The agreements included a termination clause which provided “that due to the
relatively unpredictable nature of the multi-channel video/entertainment service
business, . . . either party may terminate this Agreement at any time for any or no cause,
reason or justification, upon at least thirty (30) days’ prior written notice to the other
stating its intention to terminate. THE PARTIES ACKNOWLEDGE AND ACCEPT
THE RISK INHERENT IN THE FOREGOING PROVISION.”
       Further, upon termination, a retailer must “immediately discontinue all
advertising, marketing, solicitation of lease and promotion [of DIRECTV services] and
shall cease to identify itself as an authorized [retailer] for DIRECTV or otherwise affiliated
in any manner with DIRECTV.”
       The agreements also addressed what would occur after termination. Both parties
were subject to a mutual “Waiver of Claims” provision that stated: “EACH PARTY
WAIVES ANY RIGHT TO COMPENSATION AND DAMAGES IN CONNECTION WITH
THE TERMINATION [including] PAYMENT FROM DIRECTV FOR LOST BUSINESS,
FUTURE PROFITS, LOSS OF GOODWILL, REIMBURSEMENT OF EXPENDITURES OR
                                               3
INVESTMENTS MADE OR COMMITMENTS ENTERED INTO, ADVERTISING COSTS,
OVERHEAD OR OTHER COSTS . . . .”
       3. Basic’s termination as an authorized retailer.
       DirecTV recognized that directory listings by numerous retailers resulted in
multiple listings for DirecTV that were duplicative and caused customer confusion. As a
result, in March 2007, DirecTV issued a policy prohibiting retailers from placing new ads
in telephone directories without DirecTV’s prior approval.
       Basic was exempted from the limitation and was approved to continue placing
new directory advertisements. One other retailer, Direct Sat TV, also was approved to
place directory ads. In addition, DirecTV set up a central buying desk, through which
other authorized retailers could place directory listings.
       Basic continued as an authorized retailer for another year. Then, on November 4,
2008, DirecTV notified Basic that it was exercising its right to terminate Basic’s sales
agency agreement and customer referral agreement on 30 days written notice, and that the
agreements would be terminated effective December 4, 2008.
       Following termination, Basic allegedly spent an additional $2.7 million for ads to
which it had already committed before its termination. Basic wanted to recoup that
outlay. Basic also wanted to monetize the value of its directory ads, which would
continue to generate consumer inquiries and new sales for a period of time.
       DirecTV advised Basic that it was interested in purchasing Basic’s sales leads.
Other authorized retailers, such as Satex, Cannon Satellite, and Expert Satellite, also
expressed an interest in buying Basic’s sales leads, but did not bid, mindful that they
were not authorized to sell in this channel without DirecTV’s approval. At least two
authorized retailers, Expert Satellite and Satex, requested DirecTV’s approval to bid on
Basic’s assets, which DirecTV refused. However, the only company in the same
distribution channel as Basic was Direct Sat TV, and it did not seek DirecTV’s approval
to bid on Basic’s sales leads.

                                              4
       Without any other potential buyers, on December 3, 2008, Basic entered into an
agreement to sell its sales leads to DirecTV, for compensation of $157.50 for each new
DirecTV subscriber referred through Basic’s toll free numbers between December 16,
2008 and September 30, 2010. DirecTV paid Basic more than $3 million pursuant to the
post-termination agreement.
       4. Proceedings.
              a. Pleadings.
       On August 5, 2011, Basic brought suit against DirecTV, alleging a single cause of
action for conspiracy in restraint of trade in violation of the Cartwright Act (§ 16700 et
seq.). Basic alleged that DirecTV conspired in restraint of trade to restrict competition in
bidding for its sales leads. Basic pled that DirecTV “told its [authorized dealers] that
they could not bid for another [authorized dealer’s] assets without first receiving express
permission from DirecTV.” Basic alleged that DirecTV “strongly suggested” to its
dealers that they would be terminated if they bid for such assets without DirecTV’s
approval. Basic further alleged that the authorized dealers “knew that they should not bid
for other [dealers’] assets if DirecTV was bidding for those same assets.” As a result,
Basic alleged, competition for its assets was improperly restricted, causing Basic to
receive nearly $30 million less than it would have but for DirecTV’s restraint of trade.
              b. DirecTV’s motion for summary judgment.
              On March 26, 2014, DirecTV filed a motion for summary judgment,
contending Basic could not establish that DirecTV’s contractual restrictions on its retailer
network were an unlawful restraint of trade, as vertical restraints on intrabrand
competition are permissible under the Cartwright Act unless a plaintiff can prove they
have an anticompetitive purpose and a harmful effect on interbrand competition, and
Basic lacked evidence of either element. Further, Basic could not establish antitrust
injury, which requires a showing of injury to competition, not just competitors. Basic
could not establish that DirecTV’s reminder to its retailers of their contractual restrictions
constituted an unlawful conspiracy under the Cartwright Act. In addition, Basic failed to

                                              5
meet its burden of establishing a relevant market because its expert admittedly did not
conduct the necessary market analysis. Also, Basic’s “monopsony” theory of liability
that DirecTV paid a below market price to Basic only to sign up fewer customers was
illogical and legally unsupported. Finally, DirecTV’s conduct in protecting its
trademarks is immune from antitrust liability.
       In opposition, Basic argued the conduct at issue here was unlawful per se under
the Cartwright Act because it was a horizontal conspiracy among competitors (DirecTV
and other authorized retailers) that prevented other retailers from bidding on Basic’s sales
leads. However, even assuming this restraint was subject to the rule of reason, summary
judgment was inappropriate because the anticompetitive harm resulting from DirecTV’s
coerced agreement greatly outweighed any alleged procompetitive effects.
              c. Basic’s motion for summary adjudication.
       Basic concurrently filed a motion for summary adjudication directed at five of
DirecTV’s affirmative defenses, wherein DirecTV pled: its conduct was a lawful and
justified means to accomplish legitimate business objectives (4th affirmative defense);
constituted fair competition (21st affirmative defense); was a valid exercise of its
trademark rights and obligations (22nd affirmative defense); was not taken for purpose of
restraining trade (25th affirmative defense); and Basic had no right to engage in the
unlawful conduct that DirecTV allegedly prevented it from engaging in (24th affirmative
defense).
              d. Trial court’s ruling.
       On May 16, 2014, after having heard the matter and having taken it under
submission, the trial court issued a 13-page ruling granting DirecTV’s motion for
summary judgment and denying Basic’s motion for summary adjudication.
       The trial court ruled, inter alia: “A horizontal restraint is an agreement imposed
by competitors at the same level of the market to minimize or eliminate competition.
Here, defendant [DirecTV] was not in competition with independent retailers that
defendant contracted with to market and promote defendant’s products and services on

                                             6
defendant’s behalf. Simply because defendant also engaged in such activities on its own
behalf does not transform the parties into competitors.”
       The trial court also rejected Basic’s contention that even if DirecTV’s conduct
were considered to be vertical, it was nevertheless per se illegal under the Cartwright Act.
“Plaintiff appears to be arguing that the ‘rule of reason’ does not apply here and that
because ‘naked price-fixing’ is at issue here, the per se rule applies.” The trial court
found, “It is clear that [a] vertical price-fixing agreement is not at issue in this case. At
issue are defendant’s contractual restrictions regarding the use of approved marketing
tactics and trademarks. Plaintiff did not allege that defendant and its retailers conspired
to set any price or solicit any agreement with anyone regarding the price it paid to
plaintiff. [¶] From the foregoing, it is clear that defendant’s conduct is not per se illegal
under the Cartwright Act.”
       Further, under the rule of reason, Basic had the burden to make a showing of a
substantially adverse effect on competition in the relevant market. “In this case,
plaintiff’s expert failed to establish a relevant market. Plaintiff’s expert did no analysis to
determine what market definition should be applied in this case. (SSUF 45-47.) . . . .
While it is true that there is generally a greater reluctance to uphold a grant of summary
judgment when the rule of reason is the appropriate standard[,] . . . it is also true that
where there exists no tenable per se boycott theory appellants must evince a substantially
adverse effect on competition in the relevant market to support a viable legal theory . . .
and consequently to survive a summary judgment motion.” (Internal quotations omitted.)
       Basic filed a timely notice of appeal from the judgment.
                                      CONTENTIONS
       Basic contends: it suffered antitrust injury and thus has standing to pursue a claim
under the Cartwright Act; the coerced agreement is a horizontal restraint in the market for
sales leads that is per se unlawful; even if the rule of reason applies, summary judgment
in favor of DirecTV was improper; and the trial court abused its discretion in excluding
competent and relevant evidence.

                                               7
                                       DISCUSSION
       1. No merit to Basic’s contention the alleged coerced agreement to suppress
competition to buy Basic’s sales leads was a horizontal restraint in the market for sales
leads that is per se unlawful; the alleged restraint was vertical, not horizontal.
              a. General principles.
       “The Cartwright Act (Bus. & Prof. Code, § 16700 et seq.), like the Sherman
Antitrust Act (15 U.S.C. § 1 et seq.), was enacted to promote free market competition and
to prevent conspiracies or agreements in restraint or monopolization of trade. Restraint
of trade may be horizontal or vertical. ‘Contracts, combinations and conspiracies in
restraint of trade covered by Section 1 of the Sherman Act are of two types, horizontal or
vertical. Horizontal combinations are cartels or agreements among competitors which
restrain competition among enterprises at the same level of distribution. They are
ordinarily illegal per se. [Citations.] Vertical restraints are imposed by persons or firms
further up the chain of distribution of a specific product (or in rare cases, further down
the chain) than the enterprise restrained. Vertical non-price restraints are tested under the
rule of reason; that is, the plaintiff must prove that the restraint had an anticompetitive
effect in the relevant market in order to prevail. [Citations.]” (Exxon Corp. v. Superior
Court (1997) 51 Cal. App. 4th 1672, 1680-1681, fn. omitted (Exxon); see State of
California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal. 3d 1147, 1164 [judicial
interpretation of Sherman Act helpful but not directly probative of Cartwright drafters’
intent].)
              b. Basic’s horizontal restraint theory.
       Basic’s theory in this regard is that there existed a coerced agreement between
DirecTV and authorized retailers not to bid on Basic’s sales leads which was a horizontal
agreement in restraint of trade, and therefore constituted a per se violation of the
Cartwright Act. According to Basic, DirecTV and the other authorized retailers were
horizontal competitors in the market for the purchase of DirecTV sales leads, and

                                              8
competed with each other to acquire sales leads generated by third parties, including the
sales leads generated by Basic’s directory ads.
       In opposition, DirecTV argues that its restrictions on its retailers were clearly
vertical, as they are imposed by DirecTV, an enterprise further up the chain of
distribution. (Exxon, supra, 51 Cal.App.4th at p. 1680.)
       The trial court rejected Basic’s horizontal restraint theory, stating: “A horizontal
restraint is an agreement imposed by competitors at the same level of the market to
minimize or eliminate competition. Here, defendant was not in competition with
independent retailers that defendant contracted with to market and promote defendant’s
products and services on defendant’s behalf. Simply because defendant also engaged in
such activities on its own behalf does not transform the parties into competitors.”
              c. Standard of review.
       “Whether a plaintiff’s alleged facts comprise a per se claim is normally a question
of legal characterization that can often be resolved by the judge on a motion to dismiss or
for summary judgment. [Citation.]” (Stop & Shop Supermarket Co. v. Blue Cross &
Blue Shield of R.I. (1st Cir. 2004) 373 F.3d 57, 61.)3
              d. Relevant case law supports trial court’s characterization of the alleged
       restraint as vertical, not horizontal.
       In a horizontal group boycott, “entities at the same level combin[e] to deny a
competitor at their level the benefits enjoyed by the members of the group,” jointly
disadvantaging the competitor. (Freeman v. San Diego Assn. of Realtors (1999) 77
Cal. App. 4th 171, 195, fn. 26, italics added.) Here, DirecTV was not at the same level as
the other authorized retailers who were potential bidders for Basic’s sales leads. DirecTV
is an entity at the manufacturer level. Therefore, this is not a case in which horizontal
competitors combined to undermine a competitor.

3
        At oral argument, Basic acknowledged that this court can decide as a matter of law
that the per se rule applies.

                                                9
       Nonetheless, Basic contends the fact that pressure is applied vertically does not
transform an otherwise horizontal restraint into a vertical one. Basic argues that
irrespective of the fact that DirecTV used vertical leverage, the antitrust violation at issue
is a horizontal restraint – a coerced agreement between DirecTV and DirecTV’s
competitors for Basic’s sales leads that they would not bid for Basic’s sales leads – which
was achieved through vertical coercion.
       Per se “violations have been found in several cases involving ostensibly ‘vertical’
restrictions that were determined to be ‘primarily horizontal in nature.’ Thus, in Cernuto,
Inc. v. United Cabinet Corp. [(3d Cir. 1979)] 595 F.2d 164, where a manufacturer
terminated a price cutting retailer at the behest of the retailer’s competitor, allegedly
because of price considerations, the Court of Appeals stated that ‘[i]f the action of a
manufacturer . . . is taken at the direction of its customer, the restraint becomes primarily
horizontal in nature in that one customer is seeking to suppress its competition . . . .’
(Id., at p. 168.) The [Cernuto] court ruled that sufficient facts had been alleged to support
a per se violation. The Cernuto court emphasized that the motivating factor in the alleged
conspiracy was price, i.e., the conspiracy sought to protect the existing retailer from price
competition of a discounter. [Citations.]” (Bert G. Gianelli Distributing Co. v. Beck &
Co. (1985) 172 Cal. App. 3d 1020, 1045-1046, italics added (Gianelli), disapproved on
another point in Dore v. Arnold Worldwide, Inc. (2006) 39 Cal. 4th 384, 394, fn. 2.)
       Similarly, “in Com-Tel, Inc. v. DuKane Corp. (6th Cir. 1982) 669 F.2d 404, the
plaintiff was effectively rendered unable to perform a work project for which it had
successfully bid because a combination initiated by a competitor and involving the
manufacturer of equipment specified in the bid specifications prevented it from obtaining
the necessary equipment. Although the coercive pressure was applied vertically, by the
manufacturer, the court concluded ‘that the stifling of competition in this instance was
predominantly horizontal, warranting application of the per se rule of illegality as a group
boycott.’ (Id., at p. 409.)” (Gianelli, supra, 172 Cal.App.3d at p. 1046, italics added.)

                                              10
       Gianelli explained, “In order to sustain a group boycott theory of per se illegality
with respect to restraints that are vertically imposed, there must be a showing that the
restraint imposed by the manufacturer was not only conceived of and initiated by those in
direct competition with the plaintiff, but that those competitors used their economic
power or position to influence the manufacturer to act, not for its own advantage, but
solely for the advantage of those competitors.” (Gianelli, supra, 172 Cal.App.3d at
p. 1047, italics added.)
       Gianelli found no such showing on the facts presented. There, Beck’s, a beer
manufacturer, was sued by various local beer wholesalers who were terminated as
distributors. (Id. at p. 1030.) Rejecting a group boycott theory, Gianelli explained,
“[e]ven indulging the assumption that the restraint imposed by Beck’s was prompted by
complaints from plaintiffs’ competitors, there is no evidence that Beck’s was compelled
to act on those complaints because of an exertion of economic power. Nor is there
evidence that Beck’s acted solely or even primarily for the benefit of plaintiffs'
competitors rather than for its own benefit. Finally, and perhaps most significantly, there
is no evidence that the challenged restraint had any “pernicious effect on competition and
lacked any redeeming virtue.” (Gianelli, supra, 172 Cal.App.3d at p. 1047, italics
added.)
       Other cases illustrate the nature of a group boycott. “In [United States v. General
Motors Corp. (1966) 384 U.S. 127 (General Motors)] the Supreme Court found a group
boycott where a group of automobile dealers had joined together to force their
manufacturer, General Motors, to assist them in ending the practice of some dealers that
were reselling their automobiles to discounters. See id. at 143-44, 147. Other cases fit
this mold as well. See, e.g., Big Apple BMW [Inc. v. BMW of N. Am. Inc. (3rd Cir. 1992)]
974 F.2d [1358,] 1376 (analyzing an alleged agreement among supplier BMW North
America and several of its dealers to prevent a potential price-cutting competitor from
receiving a franchise as a horizontal group boycott); [Edward J. Sweeney & Sons, Inc. v.
Texaco, Inc. (3rd Cir. 1980)] 637 F.2d [105,] 114 (holding that when a manufacturer

                                             11
terminates a distributor’s supply pursuant to an agreement with several distributors, these
actions make out a horizontal § 1 claim); cf. Klor’s, Inc. v. Broadway–Hale Stores, Inc.,
359 U.S. 207, 212-13 (1959) (applying a similar horizontal analysis under § 2 of the
Sherman Act where manufacturers and distributors had conspired among themselves and
with a major retailer to deprive another retailer access to product lines). [¶] The
common principle we glean from these cases is that a conspiracy is horizontal in nature
when a number of competitor firms agree with each other and at least one of their
common suppliers or manufacturers to eliminate their price-cutting competition by
cutting his access to supplies. ” (Rossi v. Standard Roofing, Inc. (3rd Cir. 1998) 156 F.3d
452, 462, italics added.)
       In the instant case, we are dealing with alleged coercion by DirecTV, which
directed other retailers not to bid on Basic’s sales leads. The above cases are instructive.
DirecTV allegedly precluded other potential bidders from purchasing Basic’s sales leads
in order to suppress the price it would have to pay to acquire those leads. However, “[i]n
order to sustain a group boycott theory of per se illegality with respect to restraints that
are vertically imposed, there must be a showing that the restraint imposed by the
manufacturer [i.e. DirecTV] was not only conceived of and initiated by those in direct
competition with the plaintiff, but that those competitors used their economic power or
position to influence the manufacturer to act, not for its own advantage, but solely for the
advantage of those competitors.” (Gianelli, supra, 172 Cal.App.3d at p. 1047, italics
added.)
       Here, the alleged restraint was not conceived of and initiated by those in direct
competition with Basic; rather, the alleged restraint was vertical in nature in that it was
conceived of and imposed by DirecTV, at the manufacturer level, for DirecTV’s own
benefit.
       In reliance on Guild Wineries & Distilleries v. J. Sosnick & Son (1980)
102 Cal. App. 3d 627 (Guild), Basic contends that a price fixing restraint imposed by a
dual distributor such as DirecTV, that advantages it against other distributors with whom

                                              12
it competes, is regarded as horizontal, and thus a per se violation of the Cartwright Act.
Guild is unavailing to Basic. In Guild, a wine cooperative terminated a wholesaler’s
distributorship contract after the wholesaler refused to turn over a lucrative account to it.
(Id. at pp. 630-631.) Thus, in Guild, the impetus for the restraint came from a dual
distributor that was in direct competition with the terminated distributor at the horizontal
level. In contrast, in the instant case, DirecTV was not a competitor of Basic in the
market for sales leads -- rather, DirecTV was an enterprise further up the chain of
distribution imposing a restraint which was vertical in nature.
       Further, although DirecTV was a dual distributor of satellite entertainment
programming, there was no evidence of any agreement between DirecTV and any direct
competitor of Basic with respect to Basic’s sales leads. The evidence showed that Direct
Sat TV was the sole company in the same distribution channel as Basic -- Direct Sat TV
was the only other authorized retailer which had been approved by DirecTV to place
directory ads. However, Basic did not present any evidence of an agreement between
Direct Sat TV and DirecTV that Direct Sat TV would not bid on Basic’s sales leads.
Direct Sat TV was not even one of the retailers which approached DirecTV for approval
to buy Basic’s sales leads. Therefore, there is no evidence of a horizontal agreement
conceived of by Direct Sat TV, Basic’s sole direct competitor.
       Basic views the class of competitors for its sales leads more broadly. Basic
recognizes that the agreements with DirecTV restricted retailers to specified marketing
channels, but it contends the agreements did not place any limitation on the handling of
sales leads once they were generated. According to Basic, the agreements did not restrict
a retailer’s right to sell or transfer its leads to other retailers, including after termination
of the retailer’s contract, and as a result, a market developed in which retailers bought
and sold leads from each other, former retailers and affiliates. Thus, under Basic’s
theory, the potential bidders for its sales leads were not limited to a company in the same
marketing channel as Basic.

                                                13
       Basic’s attempt to enlarge the class of horizontal competitors beyond Direct Sat
TV is unpersuasive. As indicated, DirecTV’s March 2007 notification of its policy
reminded its authorized retailers that DirecTV “may withhold approval in its sole and
absolute discretion of the use by a DIRECTV retailer of any marketing tactic, channel or
method that DIRECTV reasonably believes does not fit within its marketing strategy,” and
that DirecTV was exercising its rights, “effective as of March 1, 2007,” to prohibit other
retailers from “utiliz[ing] a directory listing (whether in print, on-line or otherwise) in
connection with [their] activities as a DIRECTV retailer.” Thus, the March 2007 notice
reiterated DirecTV’s right to control the marketing channel in which its retailers would
operate, and prohibited those other retailers from “utilizing” directory listings. The word
“utilize” means “to put to use; turn to profitable account.”
(http://dictionary.reference.com/browse/utilize?s=t) Accordingly, this advisement by
DirecTV negates Basic’s argument that there was no restriction on other retailers
receiving calls generated by directory ads. Moreover, Basic’s argument disregards the
express language in the agreements barring the sharing of compensation among retailers.
Given the contractual prohibition on sharing of compensation among retailers, Basic’s
theory the agreements did not restrict its right to sell or transfer leads to other retailers is
clearly without merit. Basic has not shown that DirecTV had any obligation to permit
other retailers to enter the marketing channel of telephone directories so as to enable them
to bid on Basic’s sales leads.
       The fact that retailers had bought and sold sales leads from each other in the past is
insufficient to raise a triable issue in this regard. Further, although Basic asserts that
terminated dealers routinely sold their leads to other retailers, Basic has not shown that
other retailers were allowed to sell outside their authorized distribution channels
following the March 2007 directory listings policy. Moreover, as for retailers who
bought and sold sales leads among themselves, Basic has not shown the content of the
agreements governing those retailers, or whether those retailers needed and obtained
DirecTV’s approval for those transactions. Basic’s showing, without more, that sales

                                               14
leads were transferred among retailers, is insufficient to raise a triable issue with respect
to a horizontal conspiracy involving DirecTV and other retailers, such as Expert Satellite
and Satex, entities which were outside the marketing channel of telephone directories.
       Based on the uncontroverted evidence, the conduct in issue is properly
characterized as a vertical, rather than a horizontal, restraint. Having determined the
alleged restraint is vertical, we now address whether Basic raised a triable issue of
material fact with respect to a vertical restraint of trade.
       2. Basic failed to present evidence of a relevant market and therefore failed to
raise a triable issue of material fact under the rule of reason governing vertical
restraints.
       A plaintiff alleging a vertical restraint of trade under the Cartwright Act has the
initial burden “ ‘to delineate a relevant market and show that the defendant plays enough
of a role in that market to impair competition significantly.’ [Citation.]” (Roth v. Rhodes
(1994) 25 Cal. App. 4th 530, 542.)
              a. Basic’s definition of the relevant market.
       Basic defines the relevant market as the market for DirecTV sales leads. The
declaration of its economist, Ronald Schmidt, stated: “In this particular case, I consider
the relevant market to be the market for DirecTV sales leads. Participants in this market
on the seller side are people or entities who place advertisements and engage in
marketing to produce sales leads (inquiries from potential DirecTV customers).
Authorized DirecTV retailers, along with DirecTV itself, are the participants on the buyer
side. DirecTV and its authorized retailers purchase such sales leads for the purpose of
converting them into activations of DirecTV service.”
       Based on our review of pertinent case law, below, we conclude the trial court
properly found that Schmidt failed to articulate a cognizable relevant market.

                                               15
              b. Basic’s proposed definition of the relevant market was deficient because
it did not address interchangeability of DirecTV sales leads with other sales leads, or
explain why DirecTV sales leads are not part of the larger market for sales leads.
       The law in this area is well settled. “Plaintiffs have the burden of defining the
relevant market. [Citations.] ‘The outer boundaries of a product market are determined
by the reasonable interchangeability of use or the cross-elasticity of demand between the
product itself and substitutes for it.’ [Citations.] Where the plaintiff fails to define its
proposed relevant market with reference to the rule of reasonable interchangeability and
cross-elasticity of demand, or alleges a proposed relevant market that clearly does not
encompass all interchangeable substitute products even when all factual inferences are
granted in plaintiff’s favor, the relevant market is legally insufficient and a motion to
dismiss may be granted. See, e.g., TV Communications Network, Inc. v. Turner Network
Television, Inc., 964 F.2d 1022, 1025 (10th Cir.1992) (affirming district court’s dismissal
of claim for failure to plead a relevant market; proposed relevant market consisting of
only one specific television channel defined too narrowly); Tower Air, Inc. v. Federal
Exp. Corp., 956 F. Supp. 270 (E.D.N.Y.1996) (‘Because a relevant market includes all
products that are reasonably interchangeable, plaintiff’s failure to define its market by
reference to the rule of reasonable interchangeability is, standing alone, valid grounds for
dismissal.’); B.V. Optische Industrie De Oude Delft v. Hologic, Inc., 909 F. Supp. 162
(S.D.N.Y.1995) (dismissal for failure to plead a valid relevant market; plaintiffs failed to
define market in terms of reasonable interchangeability or explain rationale underlying
narrow proposed market definition); Re-Alco Industries, Inc. v. Nat’l Center for Health
Educ., Inc., 812 F. Supp. 387 (S.D.N.Y.1993) (dismissal for failure to plead a valid
relevant market; plaintiff failed to allege that specific health education product was
unique or explain why product was not part of the larger market for health education
materials); E. & G. Gabriel v. Gabriel Bros., Inc., No. 93 Civ. 0894, 1994 WL 369147
(S.D.N.Y.1994) (dismissal for failure to plead valid relevant market; proposed relevant
market legally insufficient because it clearly contained varied items with no cross-

                                              16
elasticity of demand).” (Queen City Pizza, Inc. v. Domino’s Pizza, Inc. (3rd Cir. 1997)
124 F.3d 430, 436-437 (Queen City).)
       Thus, for example, in Exxon, supra, 51 Cal. App. 4th 1672, a suit brought by
franchisee gasoline service station dealers against the franchisor, the relevant market was
held to be all gasoline, not the wholesale market for Exxon brand gasoline. (Id. at
p. 1682.) Although Exxon had a “natural monopoly over its own product,” it lacked a
dominating share of the petroleum market and was not in a position to monopolize or
dominate that market. (Id. at p. 1677, italics added.)
       That is not to say that “a single brand of a product can never be a relevant market.”
(Exxon, supra, 51 Cal.App.4th at p. 1685.) In Eastman Kodak Co. v. Image Technical
Services, Inc. (1992) 504 U.S. 451 [119 L. Ed. 2d 265] (Kodak), the Supreme Court
observed that a market is defined with reference to reasonable interchangeability. (Id. at
p. 482.) The Court held that the market for repair parts and services for Kodak photo-
copiers was a valid relevant market because repair parts and services for Kodak machines
are not interchangeable with the service and parts used to repair other copiers. (Ibid.)
“The Kodak case arose out of concerns about unilateral changes in Kodak’s parts and
repairs policies. When the copiers were first sold, Kodak relied on purchasers to obtain
service from independent service providers. Later, it chose to use its power over the
market in unique replacement parts to squeeze the independent service providers out of
the repair market and to force copier purchasers to obtain service directly from Kodak, at
higher cost. Because this change in policy was not foreseen at the time of sale, buyers
had no ability to calculate these higher costs at the time of purchase and incorporate
them into their purchase decision.” (Queen City, supra, 124 F.3d at p. 440, italics
added.)
       Kodak is clearly distinguishable from the instant case. Here, by entering into the
written agency agreements with DirecTV, Basic was duly advised that DirecTV had “sole
and absolute discretion” with respect to Basic’s use of any marketing tactic, channel or
method, that Basic could be terminated with or without cause on 30 days’ notice, that it

                                             17
waived any right to compensation or damages in connection with termination (such as
recoupment of advertising costs), and that it was prohibited from sharing compensation
with any other retailers. Given these disclosures, Basic had the ability to weigh the
contractual restrictions at the time it made the decision to become a retailer for DirecTV.
Accordingly, Kodak’s concern that consumers were not informed at the time of purchase
that they would be locked into Kodak’s repair service is not implicated here.
       Guided by these authorities, we conclude Basic’s proposed single brand relevant
market, consisting of the “market for DirecTV sales leads,” was legally insufficient.
Basic failed to show that DirecTV sales leads are unique and not interchangeable with
other sales leads. There is no analysis to show why DirecTV sales leads are not part of
the larger market for cable and satellite sales leads, or entertainment sales leads, or sales
leads generally. Without a proper definition of the relevant market, there is no triable
issue of material fact with respect to Basic’s claim of a vertical restraint.
       3. Remaining issues not reached.
       Having determined that the trial court properly granted summary judgment in
favor of DirecTV because Basic failed to raise a triable issue with respect to either a
horizontal or vertical restraint, it is unnecessary to address Basic’s contention that it
suffered antitrust injury and has standing to bring a Cartwright Act claim.
       It is also unnecessary to address Basic’s contentions that the trial court erred with
respect to its evidentiary rulings, which sustained DirecTV’s objections to portions of the
declarations of Ronald Schmidt and Shane Cannon.
       The excluded portion of the Cannon declaration stated that after DirecTV
implemented a policy which prohibited Cannon Satellite from placing new directory ads,
Cannon Satellite continued to generate new activations from the ads it had previously
placed. However, the relevant issue for our purposes is not whether Cannon Satellite
continued to make sales from old directory ads, but whether Cannon Satellite had the
ability to sell its sales leads to other retailers. The excluded portion of the Cannon
declaration has no bearing on that question.

                                               18
       As for the excluded portion of the Schmidt declaration, it sought to address the
economic conditions in the market for sales leads and the impact of the allegedly coerced
agreement in suppressing competition in that market. Schmidt opined the depression of
the price for sales leads created a disincentive for retailers to invest in marketing tactics
to generate sales leads, and would lead to fewer activations and fewer new DirecTV
customers in the long run. Although Schmidt opined regarding the impact of DirecTV’s
exercise of monopsony power in the relevant market, given Schmidt’s failure to properly
define a relevant market, as set forth above, this evidentiary ruling requires no discussion.
                                       DISPOSITION
       The judgment is affirmed. DirecTV shall recover its costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                   EDMON, P. J.

We concur:

                      LAVIN, J.

                      JONES, J.*

*
        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

                                              19