Court Opinion

ID: 9470027
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:55:27.044207+00
Date Added: 2024-06-11T17:41:41.623845
License: Public Domain

HENLEY, Senior Circuit Judge,
dissenting.
Because I am convinced that the Star’s decision to change its distribution system was based on legitimate business justifiea*340tions and produced no unreasonable anti-competitive effects, I respectfully dissent.
Although I am not in basic disagreement with much of the majority’s statement of the law, I think it is important to remember that monopolies are not prohibited from making legitimate business decisions,1 and that it is only those decisions which result in unreasonable anticompetitive effects that are condemned. Byars v. Bluff City News Co., Inc., 609 F.2d 843, 860 (6th Cir.1980); Mid-Texas Communications Systems, Inc. v. American Telephone and Telegraph Co., 615 F.2d 1372, 1388-89 (5th Cir.), cert. denied, 449 U.S. 912, 101 S.Ct. 286, 66 L.Ed.2d 140 (1980). The district court found, and the majority agrees, that the change from an independent carrier to an agency distribution system was based on legitimate business reasons. Nevertheless, the district court concluded that defendant was in violation of § 2 of the Sherman Act based on the following findings: that the Star was a potential competitor of the independent carriers; that the resulting competitive tension had a retardant effect on retail prices; and that the elimination of that retardant effect by the Star’s vertical integration had an anticompetitive effect on the relevant metropolitan daily newspaper market.
I have some doubt as to the validity of characterizing defendant as a potential competitor, cf. Universal Life Distributors, Inc. v. Northwest Industries, Inc., 452 F.Supp. 1206, 1219-24 (D.Md.1978), aff’d in pertinent part, 602 F.2d 1173 (4th Cir.1979) (manufacturer that made isolated de minimis sales in exclusive territory of distributor was not a competitor), and as to the significance of any retardant effect on prices resulting from defendant’s “hovering presence” on the fringe of the retail market,2 cf. United States v. Falstaff Brewing Corp., 410 U.S. 526, 531-32, 93 S.Ct. 1096, 1100, 35 L.Ed.2d 475 (1973) (“Suspect also is acquisition by a company ... so situated as to be a potential competitor and likely to exercise substantial influence on market behavior.” (emphasis added)), but I will accept these findings for present purposes. I am more troubled with the district court’s finding that the elimination of this possible retardant effect had an unreasonable anti-competitive impact on the market.
The district court’s concern with the loss of this negligible price retardant influence might have been alleviated had it given weight to the recognized retardant effect of the economic theory of optimum monopoly price, as described by the majority, supra at 328. I realize, however, as does the majority, that vertical integration by a monopoly can have anticompetitive effects.3 Three situations have been identified as counteracting the theory of optimum monopoly price, thus making it potentially profitable for a monopolist to integrate forward even if it is less efficient than those it replaces: (1) where integration allows price discrimination, (2) where integration erects barriers to first-level entry, and (3) where integration permits evasion of regulation of first-level monopoly profits. Byars v. Bluff City News Co., Inc., 609 F.2d at 861.
*341The majority found no record support for the contention by the Star and amicus that none of these anticompetitive situations exist in the present case. It is to be noted, however, that the burden is not on defendant to prove the absence of anticompetitive effects, but rather it is plaintiff’s responsibility to prove all the elements of an antitrust violation, as the majority seems to acknowledge, supra at 327. See Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 858 (9th Cir.1977), cert. denied, 439 U.S. 829, 99 S.Ct. 103, 58 L.Ed.2d 122 (1978). I do not think this burden has been met. Furthermore, with respect to the Star’s contention, I interpret the record somewhat differently than do my brothers. First, there is little danger that a change to an agency distribution system will result in price discrimination because one of the primary purposes of the new system is to permit the establishment and advertisement of uniform prices.4 As for barriers to first-level entry, the district court found that the new distribution system “would not be likely to make a difference to . .. future daily metropolitan newspapers.”5 Finally, it is not suggested that the Star is attempting to evade governmental price regulation.
To further aid in analyzing the antitrust implications of a monopoly’s vertical integration, the Sixth Circuit, in Byars v. Bluff City News Co., Inc., supra, listed several factors to consider. The first two factors, efficiency and the existence of legitimate business reasons, weigh in favor of defendant. The independent carrier system was described in the statements of Capital Cities’ officials, quoted by the majority supra at 331, as “unwieldy” and “cumbersome.” The district court found, and the majority does not disagree, that the Star had legitimate business reasons for its decision which included such efficiency considerations as the assurance of more rapid “starts” for new subscribers, and the establishment of uniform policies regarding collection, payments, and customer complaints, all of which were recognized by the district court as problems under the independent dealer system. See majority opinion supra at 331 n. 12.
The court in Byars placed special emphasis on the third factor, a showing of predatory acts. 609 F.2d at 863. There is no evidence of “dirty tricks” in the present case. See Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir.1976), cert. denied, 433 U.S. 910, 97 S.Ct. 2977, 53 L.Ed.2d 1094 (1977) (exercise of contractual right of termination “can hardly be deemed ‘unfair’ ”). On the contrary, it seems that the Star acted in good faith by offering the independent carriers the opportunity to negotiate non-exclusive agency contracts providing a comparable income.
The majority attempts to bolster the district court’s finding of anticompetitive effects by referring to specific evidence in the record which, it is asserted, indicates that the implementation of the new system will result in higher prices and fewer subscription alternatives. We are not told to what extent, if any, higher prices might be necessitated by general economic conditions, regardless of the distribution method. Moreover, the record indicates that the majority of subscribers paid between $5.00 and $6.00 for a full subscription and between $4.00 and $6.00 for a split subscription, with rates on some routes ranging as high as $6.75 for a full and more than $6.00 for a split sub*342scription. Thus, the Star’s rates of $6.00 for a full and $5.00 for a split subscription appear to be well within the range of rates charged by the independent carriers. As for the number of subscription options, the majority refers to evidence that the independent carriers collectively offer ten alternatives, but it is not clear how many options are available to the customers on various individual routes or how many options are offered by the Star.
I do not disagree that some customers may pay a somewhat higher price and that some customers might have fewer options. On the other hand, it appears that some customers will pay lower rates and might have more alternatives from which to choose. The imposition of a slightly higher price and the possible diminution of options for some customers are outweighed, in my view, by the benefits to the customers of uniform prices and services, and do not amount to unreasonable anticompetitive effects.
Although to some extent each case must be judged on its facts, Auburn News Co., Inc. v. Providence Journal Co., 659 F.2d 273, 278 (1st Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982), a survey of relevant cases indicates that the decision of the Star to terminate the contracts of the independent carriers is not in violation of antitrust law. It has been observed that “[cjourts have uniformly refused to enjoin newspaper publishers from changing, for valid business reasons, their systems of distribution from that of independent distributors to direct sales.”6 Hardin v. Houston Chronicle Publishing Co., 434 F.Supp. 54, 57 (S.D.Tex.1977), aff’d, 572 F.2d 1106 (1978), and cases cited therein. This appears to be true whether or not the newspaper in question is a monopoly. See, e.g., Auburn News Co., Inc. v. Providence Journal Co., supra; Newberry v. Washington Post Co., 438 F.Supp. 470 (D.D.C. 1977); Grill v. Reno Newspapers, 6 Media L.Rep. (BNA) 1818 (D.Nev.1980).7
No inference that a business decision to modify distribution enjoys an absolute immunity from antitrust ramifications should be drawn. However, the application of the well-reasoned analysis in Byars v. Bluff City News Co., Inc., supra, leads to the conclusion that the Star’s decision was justified by legitimate business reasons, produced no unreasonable anticompetitive effects, and therefore was not in violation of § 2 of the Sherman Act.8 The effect of invoking *343the Sherman Act in this case serves not to protect competition, which was found to be de minimis, nor to protect the consumers, but to protect the market value of the independent carrier routes by prohibiting the Star from exercising its bargained-for contractual right of termination, a result which, in my opinion, is not contemplated by the Act. Cf. Auburn News Co. v. Providence Journal Co., 659 F.2d at 278 (Sherman Act not violated by vertical integration even though distributors could not remain in business).
I would therefore reverse the district court’s finding of an antitrust violation and refuse to award costs or attorney fees.9

. “[S]ince we tolerate the existence of some monopolists, we must give them some leeway in making business decisions.” Byars v. Bluff City News Co., Inc., 609 F.2d 843, 862 (6th Cir.1980).

. These findings are based in part on evidence that the Star reserved the rights to sell directly to customers and to cancel independent carrier contracts on four days notice. As noted by the district court, however, the evidence suggests that in one year the Star sold directly to only about 200 customers out of a total circulation of about 330,000. It was also observed that the Star “exercised the right to sell direct, .. . only once, probably, against the wishes of the carriers.”

. It has been suggested that one of the factors to consider in determining the consequences of vertical integration is the degree of competition between the two levels. Note, Refusals to Deal by Vertically Integrated Monopolists, 87 Harv. L.Rev. 1720, 1726 (1974). That is, the higher the degree of competition between the two levels, the lesser the benefit to be anticipated by vertical integration. Given the minimum degree of competition, or potential competition, between the Star and the independent carriers, one might expect little by way of adverse effect of forward integration.

. The fact that the Star would have control over the price is not by itself a violation of antitrust law. Hardin v. Houston Chronicle Publishing Co., 434 F.Supp. 54, 57 (S.D.Tex. 1977), aff’d, 572 F.2d 1106 (5th Cir.1978).

. A survey of cases reveals the emphasis placed on finding a barrier to first-level entry. See, e.g., Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973) (monopoly power company not only refused to sell wholesale to some municipalities but also refused access to other wholesale sources); Eastman Kodak Co. of New York v. Southern Photo Materials Co., 273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684 (1927) (monopolist manufacturer prohibited dealers from handling competitive goods); Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir.1976), cert. denied, 433 U.S. 910, 97 S.Ct. 2977, 53 L.Ed.2d 1094 (1977) (elimination of competitor unreasonable where manufacturer’s market power enhanced and ability of other manufacturers to compete diminished).

. Industry practice may be considered when analyzing a monopolist’s conduct. See Mid-Texas Communications Systems, Inc. v. American Telephone and Telegraph Co., 615 F.2d at 1388-89, citing Union Leader Corp. v. Newspapers of New England, Inc., 180 F.Supp. 125 (D.Mass.1959), modified, 284 F.2d 582 (1st Cir. 1960).

. The majority correctly notes, supra at 327 n. 8, that the court in Auburn News found no antitrust violation because there was no reduction of competition in the delivery market. The court’s conclusion was based on the finding that independent dealers operated in exclusive territories, as in this case, and did not compete with one another. It is not clear from the opinion in Auburn News whether the newspaper publisher retained the right, under its independent dealer distribution system, to sell directly to consumers. Common sense suggests, however, that such a reservation would be advisable to protect the publisher by allowing direct sales in certain circumstances, for example at the request of an independent dealer or when a dealer fails to deliver to its subscribers.
The majority also finds Newberry inapposite as not involving an alleged refusal to deal. See supra at 333. The court in that case, however, discussed the antitrust ramifications of the change in distribution system and, in finding no violation, stated “[a] dealer system imposed by this Court would amount to undue interference with the seller’s right to fashion the manner in which he chooses to sell his own product.” 438 F.Supp. at 485.

. The present case can be distinguished from the following cases in which antitrust violations were found. In Otter Tail Power Co. v. United States, supra, a monopoly power company’s refusal to sell wholesale to certain municipalities or to “wheel” power from other wholesalers resulted in evasion of first-level profit regulation and erected barriers to first-level entry by other wholesalers. In addition, the company apparently initiated a program of harassing litigation to protect its monopoly position. In Eastman Kodak Co. of New York v. Southern Photo Materials Co., supra, the Court, although focusing on the issue of monopolistic intent, noted the absence of business justifications for defendant’s refusal to deal. *343273 U.S. at 375, 47 S.Ct. at 404. Similarly, in Poster Exchange, Inc. v. National Screen Service Corp., 431 F.2d 334 (5th Cir.1970), cert. denied, 401 U.S. 912, 91 S.Ct. 880, 27 L.Ed.2d 811 (1971), a monopoly producer and national distributor of motion picture advertising accessories refused to deal with a local distributor. The district court’s finding of an antitrust violation was held to be supported by the absence of sound business reasons and defendant’s “grossly predatory practices.” Id. at 340-41.

. Given the overall result reached by the majority the award of attorney fees is appropriate. However, 1 would adhere to the traditional American rule, supra at 338, and disallow expert witness fees over and above the statutory allowances provided in 28 U.S.C. § 1821.