Court Opinion

ID: 9480433
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:48:02.633408+00
Date Added: 2024-06-11T17:47:41.405264
License: Public Domain

K.K. HALL, Circuit Judge,
dissenting:
The majority holds that a manufacturer may not increase its advertising budget, expend that budget as it sees fit, and include the increased cost in the price of its only product, without the risk of running afoul of the Sherman Act. Because the antitrust laws do not prohibit the conduct described in the complaint, I would affirm the district court’s dismissal under Fed.R. Civ.P. 12(b)(6). Accordingly, I dissent.
I.
Appellant Faulkner rests its argument that it has stated a Sherman Act tying claim on two paragraphs from its complaint:
12. Nissan dealers are now required by defendant to contribute funds to Nissan to support the regional advertising program by the payment of increased wholesale (dealer) prices for Nissan automobiles. Nissan (and not the Nissan dealers) designates the markets where such advertising will be conducted and does not allocate funds collected from the Nissan dealers to the local markets served by those dealers. Thus, dealer payments under the recently implemented advertising program are allocated by Nissan to any regional market it selects. Under the new program, Nissan receives a direct benefit by ordering the concentration of advertising expenditures in markets in which defendant has obtained poor penetration, while Nissan dealers in other markets are required to subsidize Nissan’s marketing efforts in markets selected by Nissan.
13. Since the new program is financed by increased wholesale prices paid by Nissan dealers for Nissan automobiles, Nissan dealers are forced to participate in the new program. Numerous Nissan dealers have objected to Nissan’s new advertising program.
*776In ruling on the motion to dismiss, the district court was of course bound to assume the truth of the factual allegations of the complaint. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).1 However, legal conclusions in a complaint do not immunize it from Rule 12(b)(6) dismissal, and the courts are clearly not required to accept the accuracy of such assertions of law. District 28, United Mine Workers v. Wellmore Coal Co., 609 F.2d 1083 (4th Cir.1979). Faulkner’s complaint abounds with legal conclusions and puffery (e.g., it characterizes the payment of the price of a car as a “contribut[ion of] funds to Nissan to support the regional advertising program”), and courts should disregard these allegations when ruling on a motion to dismiss for failure to state a cognizable claim for relief.
Stripped to the facts alleged, Faulkner’s complaint does not state a claim under the Sherman Act. Paragraphs 12 and 13 assert:
(1) Nissan has raised the wholesale prices of its automobiles in order to defray the cost of its increased advertising activities;
(2) Nissan dealers must pay the wholesale prices of automobiles;
(3) Nissan completely controls its own advertising expenditures;
(4) Dealers are not promised, and may not receive, any advertising in their particular market;
(5) The purpose of Nissan’s new program is to concentrate advertising where it has had poor market penetration; and
(6) Numerous Nissan dealers have objected to the new program.
These factual assertions are woefully inadequate to establish an illegal “tying” arrangement. In the first place, the dealers have only purchased a single product, automobiles. Faulkner alleges the legal conclusion that the purchase price of the automobiles includes a forced sale of advertising, but the facts it alleges belie its conclusion.
No dealer is promised a cent of advertising in its local market. Though this feature doubtless unnerves some dealers, the very opposite situation might conceivably implicate the antitrust laws — if a dealer were assured of receiving a certain amount of advertising from Nissan in proportion to the number of cars it purchases, a forced sale of advertising might occur. In this case, Nissan dealers purchase cars, and the price of each car reflects Nissan’s internal overhead. Thus, Faulkner alleges an illegal “tying” of the purchase of a car to the purchase of the overhead.
In a sense, the dealers (and ultimately the retail purchasers) have “bought” Nissan’s advertising, but in the same sense, they have bought the electricity that powers Nissan headquarters, the carpet on its floors, and the stapler in the CEO’s desk drawer. The incurrence of these expenses by manufacturers and their inclusion in product prices is not “tying"; it is commerce.
II.
Even if there were two separate products sold to the dealers in this case, and the purchase of one were conditioned on the purchase of the other, the arrangement would not necessarily be unlawful.
The answer to the question of whether petitioners have utilized a tying arrangement must be based on whether there is a possibility that the economic effect of the arrangement is that condemned by the rule against tying — that petitioners have foreclosed competition on the merits in a product market distinct from the market for the tying item.
*777Jefferson Parish Hospital District v. Hyde, 466 U.S. 2, 21, 104 S.Ct. 1551, 1563, 80 L.Ed.2d 2 (1984).
Therefore, to be illegal, Nissan’s program must foreclose competition on the merits in the market for advertising.2 The majority concludes that “there is little doubt” that the new program “has caused an adverse competitive impact in what was previously an independent market for advertising services.” I must disagree. Paragraph 12 of the complaint alleges that the purpose of Nissan’s new program is to concentrate advertising in markets where it has fared poorly. Nissan’s letter to the dealers announcing the program states that it will provide “a more consistent and concentrated retail level of advertising with a ‘buy Nissan now’ message.” In other words, Nissan was dissatisfied with the merit of local advertising in at least some markets, and concluded that it could better promote its product through the new program. To achieve its end, Nissan chose an advertising firm it felt could do the job. It did not choose Faulkner. I believe that these actions reflect competition on the merits in advertising.
On the other hand, Faulkner’s interpretation of the Sherman Act will cause the Act to stifle the competition it is intended to protect. If Nissan is precluded from expending funds for advertising of its choice within the dealers’ turf, then Faulkner (and other agencies serving the dealers) is shielded from competition, no matter how mediocre Nissan may consider Faulkner’s efforts.
In Jefferson Parish3, the Supreme Court was careful to remind us that “the Sherman Act does not prohibit ‘tying’; it prohibits ‘contract[s] ... in restraint of trade.’ Thus, in a sense the question whether this case involves ‘tying’ is beside the point. The legality of petitioners’ conduct depends on its competitive consequences, not on whether it can be labeled ‘tying.’” 466 U.S. at 21 n. 34, 104 S.Ct. at 1563 n. 34. Nissan has purchased advertising from a firm that it apparently considers capable; Faulkner does not allege that Nissan’s motivation was anything other than to obtain better advertising in markets where it sold few cars. I fail to see how these actions will restrain trade in the market for advertising.
III.
Nissan has always purchased “national” advertising, used it wherever appropriate, and passed the cost along to customers. Neither Faulkner nor anyone else has challenged the legality of this practice. Now Nissan has expanded its efforts, because it apparently believes that it will sell more cars if it becomes more involved in marketing its product on the local and regional levels. The majority holds that these actions state a claim under the Sherman Act, if a retailer’s advertiser has already staked out its territory, and Nissan’s advertiser intrudes.
The antitrust laws protect competition, not the status quo. Because I believe that Nissan’s program is not a “contract in re*778straint of trade,” I would affirm the district court’s dismissal of Faulkner’s claim.4
I respectfully dissent.

. The Supreme Court has expressed some dissatisfaction with the breadth of the Conley rule in antitrust cases.
In making [the assumption that plaintiff can prove some set of facts in support of its claim], we are perhaps stretching the rule of [Conley] too far. Certainly in a case of this magnitude, a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.
Associated General Contractors of California v. California State Council of Carpenters, 459 U.S. 519, 528 n. 17, 103 S.Ct. 897, 903 n. 17, 74 L.Ed.2d 723 (1983).

. Faulkner defines the "tied” market as "the advertising of Nissan automobiles.” I suppose that similar such narrow "markets” exist for the "factory rustproofing of Nissan automobiles” or the "cafeteria for Nissan headquarters employees.” The Sherman Act is generally not concerned with such finite commerce. Cf. Jefferson Parish, 466 U.S. at 16, 104 S.Ct. at 1560 ("[W]e have refused to condemn tying arrangements unless a substantial volume of commerce is foreclosed thereby.”). Moreover, it strikes me as odd that Nissan might somehow be required to maintain a "free market” in the advertising of its own product. Must it request bids for each new television commercial or magazine spread? Surely Nissan has the power to purchase all of its advertising from the single firm of its choice.

. Jefferson Parish was a challenge to an exclusive contract between a hospital and a firm of anesthesiologists whereby all patients needing anesthesiological services at the hospital were required to use the firm, and no anesthesiologists not associated with the firm would be admitted to the hospital staff. The Supreme Court held that this arrangement did not violate the Sherman Act. Jefferson Parish illustrates the broad latitude a business has to structure and package its products and services without violating the antitrust laws. Nissan’s advertising program, even if it is deemed "sold” to dealers, fits well within the permissible latitude.

. For the same reasons, I would affirm the district court’s dismissal of Faulkner’s state-law tortious interference claim.