Court Opinion

ID: 2996806
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:31:33.821556+00
Date Added: 2024-06-11T12:11:21.309100
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 03-1302
MENASHA CORPORATION,
                                            Plaintiff-Appellant,
                               v.

NEWS AMERICA MARKETING IN-STORE, INC.,
and NEWS AMERICA MARKETING IN-STORE
SERVICES, INC.,
                               Defendants-Appellees.
                  ____________
       Appeal from the United States District Court for the
         Northern District of Illinois, Eastern Division.
        No. 00 C 1895—Harry D. Leinenweber, Judge.
                         ____________
  ARGUED DECEMBER 4, 2003—DECIDED JANUARY 9, 2004
                   ____________

  Before BAUER, EASTERBROOK, and EVANS, Circuit Judges.
  EASTERBROOK, Circuit Judge. The principal question in
this antitrust suit is whether at-shelf coupon dispensers are
an economic market. The district court granted summary
judgment for the defendants (which the parties abbreviate
to NAMIS) after concluding that no reasonable juror could
find that producing a large share of at-shelf coupon dispens-
ers confers market power. 238 F. Supp. 2d 1024 (N.D. Ill.
2003).
2                                                No. 03-1302

  Coupons promote sales without lowering the price to
everyone (that is, holding a “sale”). Only customers who
hand over coupons at checkout receive the lower price.
Couponing is a form of price discrimination: customers who
are willing to track down, clip, and carry around coupons
probably have a lower value of time, and as a rule less
income, than those who disdain coupons. Supermarkets
offer these more price-sensitive customers lower net prices
for their products while avoiding price reductions across the
board. See Robert C. Blattberg & Scott A. Neslin, Sales
Promotion: Concepts, Methods, and Strategies 268, 277
(1990). Most coupons are distributed by mail or
in newspaper supplements. In 1991 ActMedia introduced a
new distribution method: dispensers attached to store
shelves next to the product to which the coupons pertain.
This makes discounts available to consumers who do not
take the time to locate coupons and carry them to the
stores, and thus undermines the price-discrimination effect,
but may be useful in introducing new or revised products:
at-shelf coupons may be substitutes for signs screaming
“NEW! IMPROVED!” and may be more successful in
inducing people to sample the product. The ActMedia
plastic dispenser uses flashing lights to attract consumers;
Menasha, the plaintiff in this case, entered the business
later with less flashy cardboard containers. (Menasha is
principally a paper-products manufacturer.) It uses
four-color graphics in lieu of shiny plastic and blinking
bulbs. Other firms have tried tear-off pads and ad-festooned
mats, among other means of getting consumers to take
notice once inside stores.
  Manufacturers rather than retail outlets choose cou-
poning and most other distribution strategies, so ActMedia
and all other firms in this business sell their dispensers to
the manufacturers, usually at a price per loaded dispenser
or pad (which is expected to last for a week or so). To attract
manufacturers, the coupon merchants sign up retailers; one
No. 03-1302                                                3

can think of firms such as ActMedia having an inventory of
retailers as well as a couponing strategy to sell manufac-
turers—and the retailers may want compensation in
exchange for their cooperation. ActMedia initially offered
retailers a cut of what the manufacturers paid; rivals were
free to compete by offering a larger cut or some other
inducement. The retailers most attractive to manufacturers
are those that have signed exclusive contracts, for then
when Nabisco places at-shelf dispensers for Oreo cookies it
knows that there will not be another dispenser on the
adjoining shelf promoting Procter & Gamble’s sandwich
cookies.
  NAMIS entered the at-shelf couponing business in 1996
and duplicated ActMedia’s strategy of signing retailers to
exclusive contracts in exchange for a percentage of what the
manufacturers paid. In 1997 NAMIS acquired ActMedia, and
the combined venture places more than half of all at-shelf
retail coupons. Menasha does not pursue exclusive contracts
or offer compensation—and thus by and large avoids
exclusivity clauses, which promise the manufacturers only
that there will be no other at-shelf coupon dispensers that
the retailer had been paid to allow. NAMIS has been more
successful in supermarkets and drug store chains, while
Menasha has had greater success in smaller food outlets
(such as convenience stores) and in dry-goods stores. But
some retailers do not use any point-of-sale promotional
device; Wal-Mart, for example, deems at-shelf coupons
incompatible with its approach of setting prices low all the
time and for all shoppers.
  Menasha believes that NAMIS has violated the federal
antitrust laws by signing retailers to exclusive contracts,
which it characterizes as excluding competition. When a
given contract does not forbid retailers to use at-shelf cou-
pons that the store is not paid to install, Menasha contends,
NAMIS’s route personnel (who install and service the
dispensers) sometimes rip any rival’s coupon devices off the
4                                                No. 03-1302

shelves. But it is not just dirty tricks and exclusive terms
that upset Menasha. It is particularly exercised by the fact
that NAMIS has negotiated some contracts that bar “free”
competing dispensers and has adopted a policy of staggering
its contracts’ expiration dates—so that, for example, its
contract with Safeway may expire in 2004 and its contract
with Walgreen in 2005. One might think that staggered
expiration dates make entry easier; Menasha (or any other
rival) can sign up chains as their exclusives expire, without
having to enroll the entire retail industry at one go. But, as
Menasha sees things, the different expiration dates make
it harder for a rival to sign up the whole retail industry at
one time. (Menasha does not notice the irony that under its
reasoning this sign-up-everyone strategy would create an
unlawful monopoly. Perhaps Menasha should thank NAMIS
for keeping it on the straight and narrow.)
  In the district court Menasha argued that these contrac-
tual devices, which it deems exclusionary, are unlawful per
se. That argument has been abandoned on appeal—sensibly
so, as competition for the contract is a vital form of rivalry,
and often the most powerful one, which the antitrust laws
encourage rather than suppress. See, e.g., Paddock Publica-
tions, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir.
1996). Both NAMIS and Menasha sell to manufacturers (and
secondarily to retailers). Why would these entities shoot
themselves in the feet by signing (retailers) or favoring
(manufacturers) exclusive contracts that entrench NAMIS as
a monopolist that then can apply the squeeze? (Menasha
does not contend that they are trapped in a collective-action
bind, each fearing the worst if it holds out while others
sign.) That retailers and manufacturers like exclusive deals
implies that they serve the interests of these, the consum-
ers of couponing services. When the consumers favor a
product or practice, and only rivals squawk, the most
natural inference is that the complained-of practice pro-
No. 03-1302                                                5

motes rather than undermines competition, for what helps
consumers often harms other producers such as Menasha.
   These considerations show that NAMIS’s practices could
not be condemned without detailed analysis under the Rule
of Reason. The first requirement in every suit based on the
Rule of Reason is market power, without which the practice
cannot cause those injuries (lower output and the associated
welfare losses) that matter under the federal antitrust laws.
See, e.g., Jefferson Parish Hospital District No. 2 v. Hyde,
466 U.S. 2 (1984); Elliott v. United Center, 126 F.3d 1003
(7th Cir. 1997); Digital Equipment Corp. v. Uniq Digital
Technologies, Inc., 73 F.3d 756 (7th Cir. 1996); Chicago
Professional Sports Limited Partnership v. National
Basketball Ass’n, 95 F.3d 593 (7th Cir. 1996); Ball Memorial
Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d
1325 (7th Cir. 1986); Polk Bros., Inc. v. Forest City Enter-
prises, Inc., 776 F.2d 185 (7th Cir. 1985). Any given firm
may cut its own output, but rivals will increase production
in response. And that was the district court’s conclusion: if
NAMIS cuts output of at-shelf coupon dispensers, manufac-
turers can add more newspaper or on- package coupons, or
stores could hold more sales, or Floor Graphics (another
firm in the promotions business) could supply more mats
that draw attention to products, or stores could conduct
more demonstrations and offer samples (with or without
coupons handed out live). The number of ways to promote
a product is large, and even a stranglehold over at-shelf
coupon dispensers would affect only a tiny portion of these
means.
  Menasha had an uphill battle to show that at-
shelf coupon dispensers are a distinct market, in the sense
that a reduction in output of at-shelf coupons will create
higher prices for promotional devices. These dispensers may
be physically distinct from newspaper coupons or
stuck-to-the-product-box coupons, but that differs from
6                                                No. 03-1302

creating separate economic markets. See United States v.
Continental Can Co., 378 U.S. 441 (1964) (metal and glass
containers are in same market). Otherwise NAMIS’s electro-
mechanical dispensers and Menasha’s cardboard boxes
would be in different markets and Menasha’s case would
collapse. Menasha’s problem instead is that, as customer
attractants, at-shelf coupons compete against signs and
placards, end caps (product racks at the end of aisles), sales,
coupons included on (or in) the product’s package, coupons
distributed at the checkout counter, and against the
traditional coupons distributed by mail or newspaper. What
would lead a reasonable person to think that the leading
supplier of one form of coupon has the power to drive up
price, given the plethora of substitutes?
  Economics, like the other social sciences, has its share of
counterintuitive findings, so observing things that to the
untutored eye seem to be substitutes need not mean that
they are good substitutes. One way to approach the ques-
tion would have been to inquire whether there is a relation
between output of at-shelf coupons and the price of pro-
motional services. See William M. Landes & Richard A.
Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev.
937 (1981). Menasha did not offer any evidence along these
lines. Another approach would have been to inquire
whether the prices of different promotional devices move
together. If the prices of at-shelf coupon dispensers rise
when the process of other couponing systems rise, then they
are probably in the same market; but if the price of one
couponing system varies while others stay the same, then
they probably are in different markets. See George
J. Stigler & Robert A. Sherwin, The Extent of the Market, 28
J.L. & Econ. 555 (1985). Yet Menasha did not analyze the
covariance of prices. Indeed, Menasha introduced no eco-
nometric evidence of any kind, even though it engaged a
group of specialists in industrial organization (Microeco-
No. 03-1302                                                 7

nomic Consulting & Research Associates, Inc.) and pre-
sented a lengthy expert report signed by Frederick War-
ren-Boulton, an economist well situated to provide such
evidence if any existed (and were favorable to Menasha).
   Instead of econometric analysis, Menasha offered a
potpourri of survey research and armchair economics. It of-
fered, for example, a survey by a James Tenser, a journalist
who asked friends and acquaintances whether they like
at-shelf coupons better than other kinds of coupons. He
reported that they do. The district judge found that Tenser’s
“survey” used none of the devices essential to survey
research, and it was rejected under Fed. R. Evid. 702 as
unscientific. 238 F. Supp. 2d at 1030-31. The report of
James Langenfeld, Menasha’s marketing expert, was heav-
ily dependent on Tenser’s survey and collapsed when
Tenser’s “data” were pitched out. The Tenser–Langenfeld
emphasis on consumer preference is economically irrelevant
anyway. Suppose that a well-conducted survey shows that
vanilla is people’s favorite flavor of ice cream, and by a
large margin. It would not follow that vanilla ice cream is
a separate market, because if its price rises any other ice
cream producer could make more vanilla and less chocolate
or pistachio. For a closely related reason, Langenfeld’s
conclusion that at-shelf coupons uniquely appeal to “im-
pulse shoppers” (that is, shoppers who do not prepare in
advance by clipping coupons from the Sunday supplements)
does not identify an economic market. Attributes of shop-
pers do not identify markets. An example from United
States v. Rockford Memorial Corp., 888 F.2d 1278, 1284 (7th
Cir. 1990), shows why. Suppose that diabetics must drink
low-calorie soft drinks, if any at all. Could producers of
artificially sweetened soft drinks raise prices as a result of
these “locked in” customers? No, they could not. A price
increase not only would drive non- diabetic customers to
other products but also would induce rivals to switch some
8                                              No. 03-1302

of their production from standard drinks to artificially
sweetened ones. The healthy customers, and the producers,
combine to protect the diabetic customers. Just so with
coupons. Careful shoppers and other producers protect the
impulse buyers (or, to be accurate, protect the manufactur-
ers that want to sell to impulse buyers). See also Warren G.
Lavey, A Close Analysis of Buyers and Antitrust Markets, 61
Wash. L.Q. 745, 763-64 (1983).
  Warren-Boulton’s report relies on Langenfeld’s and
suffers derivatively. He also opined that events during
1996, when ActMedia and NAMIS were competing head-to-
head, show that at-shelf coupons are a distinct market.
According to Warren-Boulton, the number of at-shelf dis-
pensers placed during 1996 rose, demonstrating that this
product is its own market. Competition increased output
and also increased the slice of manufacturers’ revenues
offered to retailers. (We omit details about these and many
other matters; the parties have agreed that prices and
precise output figures of the producers should be held in
confidence.)
   Menasha’s approach assumes what is to be established:
that at-shelf dispensers are a market. To know whether
“output” rose, we would need to learn what happened to
other forms of coupons. If at-shelf coupons became more
common and other forms of coupons less common, this
would show substitution and the absence of a market
limited to at-shelf coupons; yet Warren-Boulton did not
inquire what happened to the output of other promotional
devices during this period. The statement “sales of X rose,
therefore X is a market” does not hold water. Consider
a parallel: General Motors has a plant near Rockford,
Illinois. Now suppose Ford opens an assembly plant close
by, doubling the output of cars in northern Illinois. Would
this show that “auto assembly in northern Illinois” is an
economic market? Surely not. Most output of those plants
No. 03-1302                                                 9

is exported to other states; and most cars purchased in
northern Illinois would be imported from other states and
nations. Nor would it follow, if Ford later sold this plant to
GM, that there had been a “merger to monopoly” even
though GM then had a “northern Illinois share” of 100%. It
is substitution in both production and consumption that
prevents the existence of a northern-Illinois market in auto
manufacture or a Pittsburgh market in steel production.
  Only by assuming that at-shelf coupons are a market
(that is, that consumers do not substitute between these
and other devices) could one find significance in the “ex-
pansion of output” during 1996; but then it is the assump-
tion, and not the events under study, that ends up “defin-
ing” the market. Garbage in, garbage out. The competing
explanation of what happened in 1996 is that NAMIS tried to
enter by reducing price (equivalent to higher payments to
retailers) in order to secure a presence, but discovered that
all it was doing was moving business toward at-shelf
dispensers away from other couponing devices, and thus
was not accomplishing much for either consumers (which,
recall, are the product manufacturers) or itself, and gave
up. Substitutability implies the lack of a market. It is
possible to test whether at-shelf coupons and other pro-
motional devices are substitutes—and thus to discriminate
between the hypothesis that extra revenue sharing during
1996 was a discount to facilitate entry and the hypothesis
that lower revenue sharing after 1996 was a monopolis-
tic price increase—but nothing in Langenfeld’s or
Warren-Boulton’s analysis does so.
  Menasha contends that a jury could infer market power
from the fact that NAMIS’s prices have risen with its share
of at-shelf coupons and that NAMIS consistently is able to
sell its dispensers for more than marginal cost. Menasha
calls these facts evidence of market power. And that might
well be right—if they were facts, which as far as we can tell
10                                               No. 03-1302

they are not. What Menasha calls “price” is the list price of
the dispensers, and it is undisputed that few if
any dispensers sell for list price. NAMIS offers evidence that
transaction prices have fallen, and Menasha has no effec-
tive counter. What Menasha calls “cost” is not the marginal
cost of deploying the dispensers—a measure of cost that
includes the wages and commissions of large sales and
service staffs, which are variable rather than fixed
costs—but the cost of manufacturing the dispensers. Well,
of course NAMIS’s price exceeds that measure of cost, and by
a lot. How else could it pay for the staff that places dispens-
ers and removes outdated ones, let alone for the other
expenses of doing business? The record does not suggest
that NAMIS obtains an unusually high return on the capital
invested in this business.
  Menasha added a business-tort claim (interference with
contract) to its antitrust theory, but this was soundly
handled by the district court. It does not require separate
discussion here.
                                                   AFFIRMED

A true Copy:
       Teste:

                         ________________________________
                         Clerk of the United States Court of
                           Appeals for the Seventh Circuit

                    USCA-02-C-0072—1-9-04