UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
June 29, 1973
Charles W. Bowen, Jr. d/b/a Suburbia News Delivery Service, Richard Cartabuke d/b/a R. Cartabuke News Del., Joseph Ditta and Joseph Failla, Della Davis, Sol L. Goldberg d/b/a Plainview News Delivery, Robert C. Harding d/b/a South Shore Home Delivery and as Assignee of Donald F. Harding, Theodore Markowitz d/b/a A.M.F. Newspaper Delivery Service, Frank Mirro and Emanual Mirro d/b/a Frandel News Service, Jack Poserow as Assignee of Valley Stream News Service, Inc., Benjamin and Florence Rosenblum d/b/a Stevans News Service, Howard B. Schulz and Margaret Schulz d/b/a Newsdealer, Kenneth Sweeney, John Kahrs d/b/a New York Newspaper Delivery, Floral Park News Delivery, Inc., Huntington News Delivery, Inc., Edward A. Shank d/b/a Floral Park News Service, Harry Fox d/b/a Merit News Company, Jack Gullo d/b/a F. & M. News Service, Harold Freilich and Hyman Blumberg d/b/a Tenakill News Agency, Walter Greenberg d/b/a Park News Service, Albert and Doris Marston d/b/a Plaza News Delivery, Sol Rosenblatt d/b/a Hillsdale Rivervale News Dealer, Abraham Silverstein d/b/a Crescent News Service, Jackson Theall d/b/a Hartsdale News Co., Salvin Sales Corp., Plainfield Home News Service, Inc., Giro Cestaro d/b/a Belmar News, Harold O. Rathsam d/b/a Arol Newspaper Service, Hugh Holman d/b/a Nassau Newspaper Delivery, Edward Perrot d/b/a Lincoln Home News and Paul M. Ellis d/b/a Harrison News Service
New York News, Inc., Jack Underwood, Robert O. Sullivan, Anthony Catanzaro, David Auerbach, Donald A. Nizen, Gabriel Lewander, F. M. Flynn, Winfred James, John Erwin also known as John Irwin, Sy Hecht, Ernest Smith, Joseph Conway, P. Pastorelli, J. Pastorelli, Bernard F. Smith, Howard Kent, E. De Bella, Mrs. Arthur C. Ellerman, Raymond Ledda, Michael Lepore, Victore Lepore, Arnold Blume, Waldo Rodriguez, E. Capazzi, Ronald Parkhurst, W. Joubert, C. Mc Nally, J. Raben, Charles Ashdown, J. Occhino, R. Carrell, B. Smith, and "John" Reilly (whose first name is presently unknown), and "John Doe", "Richard Roe" and "Jane Doe", being persons whose identities are presently unknown to plaintiffs
The opinion of the court was delivered by: BAUMAN
This is an action by thirty independent home delivery dealers
of The Daily News and the Sunday News against New York News, Inc. ("The News"), the publisher of those newspapers, and various of its employees and franchise dealers for treble damages and injunctive relief under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26. The request for relief is based upon alleged violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; Section 3 of the Clayton Act, 15 U.S.C. § 14; and Sections 2(a), 2(c), 2(d), 2(e) and 2(f) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (c), (d), (e) and (f). At issue is the effort of The News to change its home delivery system from one employing independent route dealers to one utilizing carrier boys operating in conjunction with "franchised dealers."
In order to understand the exact nature of the alleged antitrust violations set forth in the complaint, it is necessary to describe in some detail the parties to this action and their relationships with each other.
The News is a New York corporation engaged in the business of publishing and distributing the "Daily News" and "Sunday News", newspapers published in New York City and generally distributed in the New York metropolitan area and, to a lesser extent, in the United States and foreign countries. At the time of this lawsuit, its circulation was approximately 2,000,000 papers daily and 3,000,000 on Sunday, the largest of any newspaper in the United States.
The News concedes, as well it might, that it is engaged in interstate commerce within the meaning of the Sherman and Clayton Acts. It is undisputed that it carries local, state, national and international news, including sports, nationally known columnists, comics and other syndicated features. Its enormous advertising content includes the messages of industrial giants from every corner of the United States.
The remaining defendants are either present or former News employees or present or former franchise dealers.
The plaintiffs are, or were, independent route dealers dealing in a number of newspapers, periodicals and special interest publications. In general, they purchase these items from wholesalers and resell them to home delivery subscribers in defined territories.
Because each confines his activities to his own territory, the routes have become more or less valuable and salable.
Prior to 1965, The News was home delivered exclusively by such route dealers. However, owing to circumstances to be related, The News became dissatisfied with its growth of home delivery circulation and decided to test a new distribution system in certain areas of the suburban metropolitan area, principally in Nassau and Suffolk Counties, using carrier boys who would buy their papers from franchised dealers. At the same time, it continued to deal with many of the route dealers in the time honored way. For this reason, the plaintiffs in this action fall into four separate categories.
(1) Route dealers to whom The News terminated sales on or after January 10, 1966;
(2) Route dealers who continue to receive copies of The News and who operate in areas in which the franchise system has not been instituted;
(3) Route dealers who continue to receive copies of The News and who operate in areas in which the franchise system has been instituted;
(4) One route dealer who acquired his route from a terminated route dealer and who never sought to purchase from The News.
The application of the legal theories advanced by the plaintiffs vary with respect to each of these categories and this difference will be noted as each of the theories is discussed.
In the early 1960's, The News' circulation in New York City began to decline largely because of the fall off in sales of its evening edition which eventuated from the increasing popularity of television and the decreasing number of retail outlets remaining open in the evening. At the same time, the suburban explosion was creating a burgeoning market for newspaper sales which coincided with a similar shift of commercial enterprises from the city to the suburbs and their evolution as prime advertising markets. Since the bulk of The News' revenues comes from advertising, its appetite for its share was, quite naturally, whetted.
To this end, it attempted to compete with regional and local newspapers for circulation and advertising by publishing a number of suburban or zone sections, each of which was and is distributed as part of The News in a specific geographic area. These suburban sections, which carry area news, also carry local advertising at lower rates than are charged for the full run of the paper.
However, under the route dealer system, The News' campaign was something less than successful. While the population of Nassau and Suffolk Counties rose by approximately 350,000 between 1960 and 1966 (Defendants' Exhibit 7), The News' home delivered circulation in that area increased by only 2,383 copies (Defendants Exhibit F). At the same time, Newsday's home delivered circulation increased dramatically as did that of the Long Island Press.
The News decided that its failure resulted from the disinterest of route dealers and hired Jack Underwood to develop a new distribution system.
In 1965 he instituted a pilot franchise dealer program in an area of Nassau County not then being serviced by a route dealer. This was so successful that it became the model for The News' new distribution system which was then expanded into certain parts of New York City and almost throughout Long Island. The franchise dealers who participated in the program were signed to contracts, the relevant provisions of which are:
(1) that The News agrees to assign an exclusive territory to the dealer;
(2) that the dealer agrees to purchase all newspapers required by home delivery customers at prices fixed by the The News and supervise the delivery of them "at no more than the regularly assigned home delivery price";
(3) that the dealer agrees not to sell or distribute copies of any other newspaper, or any advertising material not authorized by The News;
(4) that the dealer agrees not to charge any carrier boy engaged in making deliveries and collections more than the price established therefor by The News;
(5) that the dealer does not have the right to return unsold copies of The News;
(6) that The News may terminate the agreement without advance notice if the dealer breaches any of its provisions, but that the dealer must give sixty days' notice in writing; and
(7) that the dealer "is and shall remain an independent contractor and not an employee or agent of The News."
In late 1965 and early 1966, a number of the plaintiffs were contacted by letter or telephone and offered the opportunity to become franchise dealers.
Those who responded were told that if they did not agree to adhere to all of the provisions of the franchise agreement their supplies of The News would be cut off. None of them was willing to bow to its restrictive terms and, within time, each was notified by letter or otherwise that The News would no longer deal with him.
In all, sixteen plaintiffs were cut off.
In the meantime, The News continued to recruit franchise dealers who were subsidized to help them through the early organizational phase of their operation and were charged less for The News than the route dealers who had not been terminated.
The eliminated route dealers attempted to buy copies of the paper from local newsdealers, but, with rare exception, found no one in Nassau or Suffolk willing to cooperate with them. As a result, they were forced to travel great distances and pay close to cover price to obtain its early editions. However, when franchise dealers complained that they were still facing competition from the "cut off" route dealers, defendants O'Sullivan and Cantanzaro directed them to ascertain the sources of the route dealers' supplies and promised that they would be eliminated. This precipitated a relentless campaign by the franchise dealers to learn the route dealers' sources of supply in which News employees enlisted and, as a result of which, the route dealers were under constant surveillance by franchise dealers, employees of The News and off-duty policemen recruited for this purpose. In some instances, the policing activities of the defendants turned into sheer harassment. Thus, when plaintiff Markowitz was observed removing papers from a drug store, The News had him arrested despite the fact that he claimed he had a written contract with the owner, one Max Seltzer, which authorized him to do so. When Seltzer was asked by defendant Auerbach to prosecute Markowitz, he confirmed Markowitz' story. He was told that if he did not agree to press charges The News would no longer supply him with papers. Seltzer refused and was cut off the next day.
Plaintiffs contend that (1) The News' franchise agreement is an illegal price fixing agreement and that sales to them were discontinued in furtherance thereof; (2) the defendants have combined, in violation of Section 1 of the Sherman Act, to exclude them from access to copies of The News; (3) the franchise agreement contains illegal territorial and customer restrictions; (4) The News has attempted to monopolize the newspaper home delivery market; (5) the defendants have conspired to monopolize a part of the newspaper home delivery market; (6) the exclusive dealing provision of the franchise agreement violates Section 3 of the Clayton Act; and (7) The News violated the Robinson-Patman Act by discriminating in prices between different purchasers of The News.
The News' Retail Price Maintenance Agreements Are Not Exempted from the Antitrust Laws by the Fair Trade Acts.
The News relies heavily in its defense on para. 2 of the McGuire Act, 15 U.S.C. § 45(a) (2)
and the New York Feld-Crawford Act, N.Y. Gen. Bus L. § 369-a et seq.
It contends that these provisions permit it to fix the maximum resale price of its papers without violating the antitrust laws. Plaintiffs, on the other hand, vigorously oppose this reading of these two statutes and have advanced four reasons for the proposition that they do not exempt the defendants' conduct from § 1 of the Sherman Act.
In order properly to evaluate these competing positions, some preliminary, perhaps elementary, observations are necessary. The Sherman Act, as originally drawn, forbade resale price maintenance contracts whether horizontal or vertical, see e.g., United States v. Bausch & Lomb Co., 321 U.S. 707, 88 L. Ed. 1024, 64 S. Ct. 805 (1943); United States v. Trenton Potteries Co., 273 U.S. 392, 71 L. Ed. 700, 47 S. Ct. 377 (1927); United States v. Socony-Vacuum Co., 310 U.S. 150, 84 L. Ed. 1129, 60 S. Ct. 811 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951); Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911).
The Miller-Tydings Act,
passed in 1937, amended the Sherman Act to permit such contracts where they were legal under state law, provided that they were not contracts ". . . between manufacturers, or between wholesalers, or . . . between persons, firms or corporations in competition with each other." In 1951 the Supreme Court held that it did not apply to pricefixing agreements made binding by state law on "non-signers" of such agreements. Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 95 L. Ed. 1035, 71 S. Ct. 745 (1951).
Responding to that decision, Congress passed the McGuire Act Amendment to Section 5(a) of the Federal Trade Commission Act.
The McGuire Act not only reaffirmed the policy of the Miller-Tydings Amendment,
but also eliminated the restrictive effect of the Supreme Court's decision in Schwegmann by permitting states to enact laws for the enforcement of fair trade contracts against non-signers.
However, like the Miller-Tydings Amendment, it legalizes only vertical price maintenance contracts which are lawful in the state where the resale is made. Consequently, any analysis of The News' resale price maintenance system must begin with an examination of the New York Fair Trade Law.
The Feld-Crawford Act, as the New York Fair Trade Law
is commonly referred to, was modeled after the California Fair Trade Act of 1933.
Section 369-a permits vertical price fixing by authorizing the producer or owner of any brand-name commodity "which is in fair and open competition with commodities of the same general class" to fix by contract, a stipulated resale price and to require any dealer who may resell it to agree not to do so at other than the stipulated price. Section 369-b characterizes deviation from the agreement as unfair competition actionable by any person damaged, whether or not the violator is a party to the contract. Section 369-c completes the statutory scheme by excluding horizontal resale price maintenance agreements from the operation of the statute.
The News' franchise agreement provides, among other things, that the franchise dealer shall purchase from The News on each day of publication a sufficient number of copies of the newspaper to supply "all single copy home delivery subscribers within his territory" and shall supervise the delivery and resale of the newspapers to such regular subscribers at "no more than" the regular home delivery price established by The News.
Plaintiffs claim this provision is not within the protection of the Feld-Crawford and McGuire Acts and violates Section 1 of the Sherman Act. They allege that:
(1) The News is not in fair and open competition with commodities of the same general class;
(2) The News is controlling not merely the resale prices, but also the home delivery service charge;
(3) The Feld-Crawford and McGuire Acts only permit minimum resale prices to be fixed, not maximum resale prices; and
(4) The franchise agreement is an illegal horizontal agreement between wholesalers.
Plaintiffs' contention that The News is not in "free and open competition with commodities of the same general class" can be disposed of briefly.
The existence of "free and open competition" is a condition precedent to the legality of any resale price maintenance system.
See 1 Callman, Unfair Competition Trademarks and Monopolies § 23.3(a) (3rd Ed. 1971). This requirement is designed to assure that fair trade is limited to products which face sufficient inter-brand competition to prevent them from eliminating horizontal price competition.
See Eastman Kodak Co. v. FTC, 158 F.2d 592, 594 (2d Cir. 1946), cert. denied, 330 U.S. 828, 91 L. Ed. 1277, 67 S. Ct. 869 (1947); Herman, Free and Open Competition, 9 Stan. L. Rev. 323 (1957); Note, 105 U. Pa. L. Rev. 415, 417 (1957).
Though the case law in this area is sparse, the decisions on point establish that a product is in "free and open competition" when there are other products which are purchased by consumers for the same purpose.
See Columbia Records v. Goody, 278 App. Div. 401, 105 N.Y.S. 2d 659 (1st Dept. 1951); General Electric Co. v. S. Klein-on-the-Square, 121 N.Y.S. 2d 37, 49-50 (Sup. 1953). See also Glen Raven Knitting Mills v. Sanson Hosiery Mills, 189 F.2d 845, 854 (4th Cir. 1951); Fulda, Resale Price Maintenance, 21 U. Chi. L. Rev. 175, 198 (1954).
Applying this test to the case at bar it becomes clear that The News is in free and open competition with the New York Times and a number of local newspapers in the suburban areas. Indeed, to meet this competition The News has been forced to embark on an aggressive home delivery system and to publish a number of suburban or zone sections.
Plaintiffs' second contention is that The News is "not merely controlling resale prices, but . . . is actually controlling the home delivery service charge." This, they maintain, is not permitted by the Feld-Crawford Act. The only authority cited is a brief passage from Bristol-Myers Co. v. Picker, 302 N.Y. 61, 96 N.E.2d 177 (1950).
The Bristol-Myers case involved a drug store and other retail establishments which, as members of the "Lynbrook Dividend Club", issued "cash register receipts" to their customers with all sales. These receipts were redeemable in merchandise for 2 1/2% of the sale at any store in the club. Bristol-Myers contended that this amounted to an illegal reduction of its fair trade price and sued for an injunction.
The New York Court of Appeals held that this practice constituted price cutting within the meaning of the Feld-Crawford Act and that Bristol-Myers was entitled to the relief requested, noting that:
"The challenged scheme must be differentiated from types of service such as free parking, self-service, care of infants, entertainment, free delivery and the like . . . These other types of service . . . [are] too remote from the pricing element to come within the statute's prohibition." 302 N.Y. at 68.
Thus, rather than supporting plaintiffs' position, Bristol-Myers would seem to indicate that nothing in the Feld-Crawford Act prevents The News from fixing the home delivery price of its paper.
Plaintiffs' third contention is that the Feld-Crawford Act does not authorize the fixing of maximum resale prices. Here, they argue that the New York decisions discussing the purposes for which the statute was enacted
and the statute read as a whole
require the conclusion that the sole legislative purpose was to permit the setting of minimum resale prices.
Although there is a dearth of decisional law in this area, and no square holding on point, what few cases there are lend support to the view that the terms "minimum" and "stipulated" are not synonymous, and that both the McGuire Act
and the Feld-Crawford Act authorize the setting of either a minimum or a stipulated (absolute) price. See Schwegmann Bros. v. Calvert Corp., 341 U.S. 384, 388, 95 L. Ed. 1035, 71 S. Ct. 745 (1951); Graham v. Triangle Publications, Inc., 233 F. Supp. 825, 830-831 (E.D. Pa. 1964), aff'd per curiam, 344 F.2d 775 (3d Cir. 1965); Mead Johnson & Co. v. West Chester Discount, Health & Vitamin Center, Inc., 212 F. Supp. 310 (E.D. Pa. 1962). See also General Electric Co. v. S. Klein-on-the-Square, Inc., 121 N.Y.S. 2d 37 (Sup. Ct. 1953).
Thus, in Schwegmann, supra, the Supreme Court considered a provision in the Louisiana Fair Trade Law which prevented a buyer from reselling "except at the price stipulated by the vendor." After contrasting it with the provision in the Miller-Tydings Act which provides for contracts or agreements prescribing "minimum prices", the Court concluded that ". . . Louisiana law sanctions the fixing of maximum as well as minimum prices . . ." 341 U.S. at 388.
Similarly, in Mead Johnson & Co. v. West Chester Discount Health & Vitamin Center, Inc., supra, the court construed § 1 of the Pennsylvania Fair Trade Act which provides "that the buyer will not resell such commodity except at the price stipulated by the vendor." It found ". . . that the fixing of a minimum retail price is an exercise of some, but not all, of the authority conferred by the statutory right to set a stipulated price." 212 F. Supp. at 313. This language was quoted with approval in Graham v. Triangle Publications, Inc., supra.
Moreover, despite plaintiffs' characterization of the New York decisions on this question, not one holds or states by way of dicta that the sole purpose of the New York legislature in enacting the Feld-Crawford Act was to allow for the maintenance of minimum resale prices.
Furthermore, contrary to plaintiffs' assertion, at least one New York decision, General Electric Co. v. S. Klein-on-the-Square, Inc., supra, clearly holds that it authorizes agreements whereby "the buyer agrees to sell neither above nor below" a stipulated price.
"There of course is a difference between preventing under-selling or price-cutting and preventing price gouging by selling above a designated price, and it may be that some fair trade laws forbid both while others forbid only one or the other. It is unnecessary to go into that. The N.Y. statute forbids selling at less than the price stipulated in a contract, and a price is stipulated in a contract by which the buyer agrees not to sell below a stated price as well as in a contract by which the buyer agrees to sell neither above nor below that price.
* * *
". . . a price is stipulated or prescribed in a contract by which the buyer agrees not to sell below a stated price as well as in a contract by which the buyer agrees to sell neither above nor below that price, or, in the phrase defendant likes 'at that price'." 121 N.Y.S. 2d at 46, 47.
In the absence of any square holding to the contrary, I find the reasoning of the General Electric case persuasive. Accordingly, I reject plaintiffs' contention that the Feld-Crawford Act permits only the fixing of minimum prices.
Plaintiffs' final argument is that the franchise agreement is one between wholesalers and, therefore, is not protected by the McGuire Act. They contend that The News is a wholesaler in that it sells its newspapers directly to newsstand and franchise dealers and that the franchise dealers are also wholesalers because they, in turn, sell, at wholesale, to the carrier boys.
The News, on the other hand, denies that such direct sales make it a wholesaler. It contends that it is on a different functional level than its franchise dealers and argues that any agreement between them is vertical. It asserts that nothing in the Feld-Crawford Act prohibits an integrated manufacturer-wholesaler from making fair trade contracts with independent wholesalers.
I am prepared to accept this construction of the New York Fair Trade Laws. See Eastman Kodak Co. v. Schwartz, 133 N.Y.S. 2d 908 (Sup. Ct. 1954); Gillette Safety Razor Co. v. Green, 167 Misc. 251, 3 N.Y.S. 2d 822 (Sup. Ct.), aff'd, 258 App. Div. 723, 15 N.Y.S.2d 142 (1938). However, whatever reach the New York courts might give the New York Fair Trade Laws is subject to McGuire Act limitations. See Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398, 401 (2d Cir.), cert. denied, 393 U.S. 938, 21 L. Ed. 2d 275, 89 S. Ct. 303 (1968); Sunbeam Corp. v. Masters, Inc., 157 F. Supp. 689, 691 (S.D.N.Y. 1957).
That Act expressly condemns "horizontal" price fixing agreements. Paragraph (a) (5) provides that:
"Nothing contained in paragraph (2) of this subsection shall make lawful contracts or agreements providing for the establishment of minimum or stipulated resale prices on any commodity referred to in paragraph (2) of this subsection between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other." 15 U.S.C. § 45(a) (5).
See generally, Callman, Unfair Competition, Trademarks & Monopolies § 23.3(c).
In United States v. McKesson & Robbins, 351 U.S. 305, 100 L. Ed. 1209, 76 S. Ct. 937 (1956), the Supreme Court held that a manufacturer-wholesaler could not enter into fair trade agreements with independent wholesalers who competed with its wholesale division on the ground that both the Miller-Tydings and McGuire Acts specifically exclude from their antitrust exemption all agreements ". . . between wholesalers . . . in competition with each other." In reaching this result, the Court rejected McKesson's argument that in contracting with independent wholesalers it acted solely as a manufacturer selling to buyers rather than as a competing wholesaler. It refused to compartmentalize McKesson's business and stated that "the statutes provide no basis for sanctioning the fiction of McKesson . . . acting only as a manufacturer when it concludes 'fair trade' agreements with competing wholesalers. These were agreements between wholesalers." 351 U.S. at 312.
The McKesson decision cast substantial doubt on the legality of fair trade agreements between vertically integrated manufacturers and independent wholesalers and retailers; Herman, Fair Trade and McKesson & Robbins, 44 Cal. L. Rev. 853, 857 (1956); Note, 46 Georgetown L.J. 166, 175 (1957); Note, 24 Univ. of Chi. L. Rev. 533, 538 (1957); see also Weston, Resale Price Maintenance and Market Integration: Fair Trade or Foul Play?, 22 Geo. Wash. L. Rev. 658 (1954), but did not completely clarify the meaning of paragraph 5. As recently as 1967 it was unclear whether the final phrase of the section, "in competition with each other", modifies only the immediately preceding phrase, "between persons, firms, or corporations", or also modifies the other preceding phrases, such as "between manufacturers", "between retailers" and "between wholesalers". Compare Johnson & Johnson v. Avenue Merchandise Corp., 193 F. Supp. 282, 287 (S.D.N.Y. 1961), with Upjohn Company v. Charles Labs, Inc., 277 F. Supp. 445 (S.D.N.Y. 1967) and Parke, Davis & Co. v. Rocket Drugs, Inc., 214 F. Supp. 937, 938 (S.D.N.Y. 1963). See also, Esso Standard Oil Co. v. Secatore's Inc., 246 F.2d 17, 21 (1st Cir.), cert. denied, 355 U.S. 834, 2 L. Ed. 2d 46, 78 S. Ct. 54 (1957).
In Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398 (2d Cir.), cert. denied, 393 U.S. 938, 21 L. Ed. 2d 275, 89 S. Ct. 303 (1968), the Second Circuit considered this specific question and concluded that "the legislative history [indicates] that it is immaterial whether a manufacturer-retailer and a signing retailer are in actual competition." 396 F.2d at 403. Accord, Ar-Ex Products Co. v. Capital Vitamin & Cosmetic Corp., 351 F.2d 938 (1st Cir. 1965).
In Janel, the defendant was a widely known manufacturer of perfumes and other toiletries which sold its products directly to retail outlets pursuant to a fair trade agreement. The plaintiff, Janel Sales Corp., operated a chain of discount drug stores in New York City, but was not a direct account of Lanvin. It acquired Lanvin's products from other retail stores for less than the stipulated resale price and sold them at a discount. Lanvin successfully sued in the state court to enjoin Janel from selling Lanvin perfumes below the fair trade price. Janel countered with a federal action against Lanvin attacking the legality of the fair trade contract underlying the state injunction.
It charged that certain "promotional" and "accommodation" sales made by Lanvin were retail sales which, as a matter of law, deprived Lanvin's fair trade agreements of the protection of the McGuire Act. Lanvin, on the other hand, contended that its "promotional" and "accommodation" sales did not render it a "retailer" or a "competitor". The Court of Appeals held that these assertions raised triable issues of fact.
Though it did not supply a precise standard for determining whether a party is a "retailer" or a "competitor" within the terms of the McGuire Act, it followed McKesson's teaching that the words of the statute are to be read "in their normal and customary reading." United States v. McKesson & Robbins, supra, at 312; see also, Schwegmann Bros. v. Calvert Corp., 341 U.S. 384, 388, 95 L. Ed. 1035, 71 S. Ct. 745 (1951).
More importantly, the Court of Appeals held that any manufacturer or producer who maintains retail or wholesale outlets of his own ((one who engages in any direct selling aside from "promotional" or "accommodation" sales) is a "retailer" or "wholesaler" and is therefore not permitted to establish fair trade agreements with any other retailer or wholesaler.
Applying these principles to the case at bar, the conclusion is inescapable that The News is a wholesaler, Cf. Dahl v. Hearst Corp., 1972 TRADE CASES para. 74,196 (C.D. Cal.), within the normal and customary definition of "wholesaler" as one whose business is the selling of goods in gross to retail dealers. See Harris v. Hammond, 51 F. Supp. 91, 94 (S.D. Ga. 1943), aff'd, 145 F.2d 333 (5th Cir. 1944); Zehring v. Brown Materials, 48 F. Supp. 740, 743 (S.D. Cal. 1943); Veazey Drug Co. v. Bruza, 169 Okl. 418, 37 P. 2d 294 (1934); Monoco Oil Co. v. Town of Pittsford, Co. of Monroe, 59 Misc. 2d 750, 300 N.Y.S. 2d 488, 493 (1969).
The News distributes its newspapers to retailers through mixed channels. It acts as a wholesaler by making direct sales to retailers (e.g., street sale dealers) and also sells through independent wholesalers. In so doing, its status as a producer or manufacturer is changed into that of a manufacturer-wholesaler. Janel Sales Corp. v. Lanvin Parfums, Inc., supra; Ar-Ex Products Co. v. Capital Vitamin & Cosmetic Corp., supra, at 940; Dahl v. Hearst Corp., supra. Cf. United States v. McKesson & Robbins, supra. Since The News' franchise dealers also function as wholesalers in selling to their carrier boys, it follows that their relationship with The News is horizontal and not vertical. Therefore, The News and its franchise dealers are both wholesalers within the meaning of the McGuire Act and they are not free to enter into price fixing agreements which affect "interstate commerce" as that term is used in the Sherman Act. United States v. McKesson & Robbins, supra; Janel Sales Corp. v. Lanvin Parfums, Inc., supra.
Accordingly, I hold that The News' franchise agreement is not immunized from the Sherman Act by the McGuire Act and that it entered into illegal price maintenance agreements with its dealers. See United States v. Socony-Vacuum Oil Co., supra; Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., supra.
This result is a harsh one. Nonetheless, it is the result dictated by the Supreme Court's admonition that the exemption accorded by Congress in the Miller-Tydings and McGuire Acts be narrowly construed.
Plaintiffs also contend that The News is a retailer within the meaning of the McGuire Act because it distributes its newspaper through the mails. Relying on Janel Sales Corp. supra, they maintain that these "retail" sales place it on the same functional level as its carrier boys and therefore bar it from fixing the prices at which they sell The News. This contention can be disposed of briefly.
In the six month period ending September 30, 1971, The News had only 391 mail subscribers in the entire metropolitan area.
These subscribers received the paper a day or more after the issue date and paid a higher price than the newsstand or home delivery price. Generally, only clipping services, libraries, or persons without access to newspapers subscribe by mail.
In my view, these sales must be classified as "legitimate accommodation sales" and common sense requires their exclusion in determining whether The News is functionally a retailer. See Janel Sales Corp. v. Lanvin Parfums, Inc., supra, at 403; General Electric Co. v. Hess Brothers, Inc., 155 F. Supp. 57, 62 (E.D. Pa. 1957).
In any event, these sales are de minimus. See Janel Sales Corp. v. Lanvin Parfums, Inc., supra; Johnson & Johnson v. Avenue Merchandise Corp., supra, at 289-290.
The News' Refusal to Deal with Plaintiffs Was Pursuant to an Illegal Price Fixing Agreement and Therefore Constitutes a Per Se Violation of Section 1 of the Sherman Act.
The News contends that its refusal to deal with plaintiffs
is totally unrelated to any of the provisions of the franchise agreement and is merely an exercise of its right to choose its customers and its methods of distribution. It claims that its decision to discontinue selling to plaintiffs was a business judgment that the institution of a franchise system would increase its circulation and provide better and more efficient service to its home delivery subscribers. Accordingly, it argues that this case is controlled by United States v. Colgate, 250 U.S. 300, 63 L. Ed. 992, 39 S. Ct. 465 (1919), and other cases holding that a unilateral decision by a producer to substitute one distributor for another is not actionable under the antitrust laws.
Plaintiffs, on the other hand, contend that The News' decision to terminate sales to them was part of an effort to enforce an illegal price maintenance scheme.
They allege that The News combined with its franchise dealers and others to prevent them from acquiring copies of The News in order to protect the franchise dealers from intrabrand competition and to allow The News to control the home delivered price of its paper.
In Colgate, supra, the Supreme Court recognized the general right of a businessman to select his customers and refuse to deal.
However, in successive decisions, the teaching of that case has been considerably narrowed. See e.g., Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968); United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967); United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960).
In United States v. Parke, Davis & Co., supra, the defendant sought to maintain resale prices by refusing to sell its products to retailers who resold below its suggested prices. A similar policy was enunciated with respect to its wholesalers who were informed that it would refuse to sell them if they cut prices or sold to price-cutting retailers. When certain retailers persisted in cutting prices, the company and the wholesalers stopped supplying them. Subsequently, it informed the price-cutter that their source of supply would be reopened if they would indicate a willingness to cooperate; when the retailers agreed, sales were resumed. The government sought an injunction against these practices and the company defended on the ground that its conduct was legal under the Colgate doctrine.
Looking at this series of allegedly unilateral acts, the Supreme Court found that Parke, Davis had embarked upon a program to promote compliance with its suggested resale prices which "plainly exceeded the limitations of the Colgate doctrine" and which constituted an unlawful combination in restraint of trade. The Court stated that:
". . . an unlawful combination is not just such as arises from a price maintenance agreement, express or implied; such a combination is also organized if the producer secures adherence to his suggested prices by means which go beyond his mere declination to sell to a customer who will not observe his announced policy . . .
When the manufacturer's actions, as here, go beyond mere announcement of his policy and the simple refusal to deal, and he employs other means which effect adherence to his resale prices . . . he has put together a combination in violation of the Sherman Act." 362 U.S. at 43, 44.
The scope of Parke, Davis was somewhat clarified in Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964). There, the plaintiff, a retail service station lessee, signed a consignment agreement for a term concurrent with his lease under which Union set the prices at which he would sell gasoline to the public.
When he sold gasoline below the fixed price to meet competition, Union refused to renew his lease.
The Court found that Union had used the threat of termination of the lease as the means of enforcing its pricing scheme and held Union's consignment system illegal. In rejecting the claim that its termination of the plaintiff's dealership was a mere refusal to deal within the meaning of Colgate, the Court said:
"We made clear in United States v. Parke, Davis & Co., 362 U.S. 29, [4 L. Ed. 2d 505, 80 S. Ct. 503], that a supplier may not use coercion on its retail outlets to achieve resale price maintenance. We reiterate that view, adding that it matters not what the coercive device is. United States v. Colgate, 250 U.S. 300, [63 L. Ed. 992, 39 S. Ct. 465], as explained in Parke, Davis, 362 U.S. at 37, was a case where there was assumed to be no agreement to maintain retail prices. Here we have such an agreement ; it is used coercively, and it promises to be equally if not more effective in maintaining gasoline prices than were the Parke, Davis techniques in fixing monopoly prices on drugs." 377 U.S. at 17.
Union Oil was followed by United States v. General Motors, 384 U.S. 127, 16 L. Ed. 2d 415, 86 S. Ct. 1321 (1966),
in which the Court reiterated its view that agreements or combinations to maintain prices are unlawful per se no matter what form they take.
"The protection of price competition from conspiratorial restraint is an object of special solicitude under the antitrust laws. We cannot respect that solicitude by closing our eyes to the effect upon price competition of the removal from the market, by combination or conspiracy, of a class of traders. Nor do we propose to construe the Sherman Act to prohibit conspiracies to fix prices at which competitors may sell, but to allow conspiracies or combinations to put competitors out of business entirely." 384 U.S. at 148.
The most recent case interpreting Colgate is Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968). A newspaper publisher announced that it would compete with or refuse to deal with any distributor who refused to abide by its suggested resale price. When Albrecht raised its price over the suggested maximum, it hired an independent sales solicitation firm (Milne) to contact his customers and offer delivery at a lower rate. As a result, some of Albrecht's customers switched to direct delivery by the publisher, and it subsequently turned these customers over to another dealer (Kroner) with the understanding that he might have to return them to Albrecht if he accepted the maximum price ceiling.
In holding that the publisher had put together a combination to fix resale prices which was per se illegal under the Sherman Act, the Court rejected the defendant's contention that its conduct was wholly unilateral.
"§ 1 of the Sherman Act . . . covers combinations in addition to contracts and conspiracies, express or implied. The Court made this quite clear in United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960), where it held that an illegal combination to fix prices results if a seller suggests resale prices and secures compliance by means in addition to the 'mere announcement of his policy and the simple refusal to deal . . . .'
If a combination arose when Parke, Davis threatened its wholesalers with termination unless they put pressure on their retail customers, then there can be no doubt that a combination arose between respondent, Milne, and Kroner to force petitioner to conform to the advertised retail price." 390 U.S. at 149.
Thus, the controlling decisions have distinguished between situations on the one hand, in which the manufacturer simply announced a suggested resale price and refused to sell to dealers who would not adhere to it,
and on the other, those in which the manufacturer took further steps to effectuate compliance. If, above and beyond a mere unilateral announcement and refusal to deal steps are taken in order to secure compliance with price maintenance policies, the arrangement constitutes a combination to maintain prices, and is a per se violation of the Sherman Act. Albrecht v. Herald Co., supra; Simpson v. Union Oil Co., supra; United States v. Parke, Davis & Co., supra.
Applying this test to the facts of the instant case, it becomes clear that The News' reliance on Colgate is totally misplaced. The record clearly demonstrates that The News terminated sales to most of the plaintiffs only after they refused to participate in its resale price maintenance scheme. When this failed, it enlisted the aid of its franchise dealers and third parties to "detect the route dealers 'unauthorized ' sources . . . . " of supply, which, according to O'Sullivan and Catanzaro, would be terminated. (Tr. 1087; 1106; 1323-24). As a result, the route dealers were under constant surveillance by franchise dealers, employees of The News, and off-duty policemen recruited for this purpose. (Tr. 127-28; 631-33; 704; 779-80; 795-97; 826; 869-70; 1087-88; 1090-91; 1099-1100; 1106-1107). The News even went so far as to have two-way radios installed in four of its cars so that it could coordinate its surveillance activities. (Tr. 1098-1101; 1104). When sources of supply were located, The News terminated (or threatened to terminate) all sales to that source or reduced the number of copies it received so that it could no longer supply the cut off route dealers. (Tr. 711-12; 727; 763; 906-907).
The News also instructed its franchise dealers to tell potential home delivery subscribers that the route dealers were no longer in business and that they could obtain home delivery of The News only through authorized franchise dealers. (Tr. 1114-15; 1334-35).
Cf., Albrecht v. Herald Co., supra, 390 U.S. at 150, n. 6.
These anticompetitive practices cannot be considered as isolated incidents, unrelated to The News' illegal price maintenance system. Rather, the record indicates that this concerted activity was designed and executed so as to prevent plaintiffs from dealing in The News and to allow it to control the home delivered price of its paper.
Accordingly, I find that The News' refusal to deal with the plaintiffs is part of an aggregation of trade restraints and predatory practices designed to fix prices in violation of § 1 of the Sherman Act. Cf. United States v. General Motors, supra; Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711, 723 (S.D.N.Y.), aff'd, 417 F.2d 621 (2d Cir. 1969). It follows that the route dealers who were cut off by The News on or after January 10, 1966 have established all of the necessary elements of a § 1 Sherman Act violation. The same is true for plaintiff Rathsam against whom The News and its franchise dealers conspired to prevent from obtaining papers.
Plaintiffs also contend that the territorial
restrictions in the franchise agreement violate Section 1 of the Sherman Act. These contentions do not require extended discussion.
In United States v. Arnold, Schwinn, 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967) the Supreme Court considered such restrictions and found them to be per se violations of the Sherman Act.
The Schwinn distribution network consisted of 22 wholesale distributors who were permitted to resell Schwinn products only to franchise dealers in assigned territories. Schwinn would ship its bicycles to the distributors on a sale or consignment basis, or alternatively would ship directly to the franchise dealers pursuant to an order placed through the distributor. The recipients of the bicycles could transfer them only to ultimate consumers or franchised dealers. Schwinn did not, however, control the resale prices of either the wholesalers or the retailers, except in the case of a few fair traded models.
The Court held that even in the absence of price fixing, it is "unreasonable without more for a manufacturer to seek to restrict and confine areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it." 388 U.S. at 379. The Court ordered entry of a decree enjoining Schwinn from imposing any limitations on the distributors' and retailers' rights to dispose of purchased Schwinn products "where and to whomever they choose."
The News' franchise agreement, therefore, falls squarely within the proscription of Schwinn because it parts with title, dominion and risk of loss when it sells its newspapers to its franchise dealers.
Moreover, these restrictions are unlawful even under pre- Schwinn authority. It has long been established that vertical restraints as to territory or customers are per se violations of the Sherman Act if they are ancillary to price fixing as they clearly are here. See White Motor Co. v. United States, 372 U.S. 253, 260, 9 L. Ed. 2d 738, 83 S. Ct. 696 (1963); United States v. Bausch & Lomb Opitical Co., 321 U.S. 707, 720, 88 L. Ed. 1024, 64 S. Ct. 805 (1944). See also, United States v. Arnold, Schwinn & Co., 388 U.S. 365, 373, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967); United States v. Sealy, Inc., 388 U.S. 350, 357, 18 L. Ed. 2d 1238, 87 S. Ct. 1847 (1967).
The Institution of the Franchise Delivery System Was Not an Attempt to Monopolize
Plaintiffs further claim that defendants "attempted to monopolize and combined and conspired to monopolize, a part of the newspaper trade", by driving them out of business. They do not, however, argue that defendants actually monopolized
any market or submarket.
The Supreme Court has succinctly defined "attempt to monopolize" as the "employment of methods, means and practices which would, if successful, accomplish monopolization, and which though falling short nevertheless approach so close as to create a dangerous probability of it." American Tobacco Co. v. United States, 328 U.S. 781, 785, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946). See also, Lorain Journal v. United States, 342 U.S. 143, 153, 96 L. Ed. 162, 72 S. Ct. 181 (1951); Swift & Co. v. United States, 196 U.S. 375, 396, 402, 49 L. Ed. 518, 25 S. Ct. 276 (1905). The necessary elements of an attempt to monopolize are (1) a specific intent to effect a consequence definable as monopolizing
and (2) conduct imminently threatening accomplishment of that consequence.
See Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 626, 97 L. Ed. 1277, 73 S. Ct. 872 (1953); Lorain Journal v. United States, supra, at 153; Swift & Co. v. United States, supra, at 396; United States v. Consolidated Laundries Corp., 291 F.2d 563, 573 (2d Cir. 1961). See also, Note, 27 Geo. Wash. L. Rev. 227, 244 (1958). This definition is consistent with the general criminal rule that an attempt is not made out unless the conduct, if successful, would constitute the crime.
See Holmes, The Common Law 65-70 (1881); Hall, Criminal Attempt -- A Study of Criminal Liability, 49 Yale L.J. 789 (1940); Arnold, Criminal Attempts -- The Rise and Fall of an Abstraction, 40 Yale L.J. 53 (1930). See also, Diamond International Corp. v. Walterhoefer, 289 F. Supp. 550, 577 (D. Md. 1968). Obviously, proof of a relevant market is essential to a claim of attempted monopolization in that one cannot determine whether the defendant's conduct, if successful, would amount to monopolization without definition of the market sought to be dominated.
Walker Process Equipment, Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S. Ct. 347, 15 L. Ed. 2d 247 (1965); Diamond International Corp. v. Walterhoefer, 289 F. Supp. 550, 577 (D. Md. 1968); United States v. Chas. Pfizer & Co., 245 F. Supp. 737, 739 (E.D.N.Y. 1965). But see Lessig v. Tidewater Oil Co., 327 F.2d 459, 474 (9th Cir.), cert. denied, 377 U.S. 993, 84 S. Ct. 1920, 12 L. Ed. 2d 1046 (1964).
The relevant market is the "area of effective competition" in which the defendant operates. Standard Oil of Cal. v. United States, 337 U.S. 293, 299, 93 L. Ed. 1371, 69 S. Ct. 1051 n. 5 (1949). It consists of both a product market and a geographic market. United States v. Grinnell Corp., 384 U.S. 563, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). To delineate the relevant market, attention must be focused on the products which compete with The News in the home delivery market; that is, the spectrum of products in which there is such a cross elasticity of demand that consumers will turn to them if The News' home delivery price or other conditions of sale render it undesirable. See United States v. Du Pont De Nemours & Co., 351 U.S. 377, 395-400, 100 L. Ed. 1264, 76 S. Ct. 994 (1956). Likewise, the market must be carved out geographically, by determining the area in which The News' home delivery program faces meaningful competition. See Indiana Farmer's Guide Publishing Co. v. Prairie Farmer Publishing Co., 293 U.S. 268, 279, 79 L. Ed. 356, 55 S. Ct. 182 (1934).
In this case, it is clear that the relevant geographic market is the New York City Metropolitan area.
The identification of the relevant product market, however, is more complex.
The leading case outlining the criteria for determining the relevant product market is United States v. E.I. Du Pont De Nemours & Co., 351 U.S. 377, 100 L. Ed. 1264, 76 S. Ct. 994 (1956). In that case, the government charged Du Pont with monopolizing interstate commerce in cellophane. Du Pont acknowledged that it was the leading cellophane manufacturer, but argued that there was intense price and quality competition between cellophane and other wrapping materials and that it therefore lacked monopoly power over the market in which cellophane was sold. The case turned on whether the relevant market was cellophane (of which Du Pont had a predominant 75% share) or all "flexible packaging material" (of which Du Pont's share was less than 20%).
The Court held that the relevant market was "composed of products that have reasonable interchangeability for the purpose for which they are produced -- price, use and qualities considered." 351 U.S. at 404.
It therefore focused on whether there were substitutes for cellophane and held that the identity of the relevant market depended on whether there was a cross-elasticity of demand between cellophane and other wrappings.
"If a slight decrease in the price of cellophane causes a considerable number of customers of other flexible wrappings to switch to cellophane, it would indicate that a high cross-elasticity of demand exists between them; that the products compete in the same market." 351 U.S. at 400.
Applying this test, the Court concluded that the competition between cellophane and other flexible packaging materials was sufficient to prevent cellophane from constituting a separate relevant market and that the relevant market for determining the extent of Du Pont's market control was the market for flexible packaging materials. On this basis, the Court upheld the lower court's conclusion that Du Pont lacked monopoly power.
In determining the relevant product market in this case, therefore, it is necessary to determine the products which compete with The News in the home delivery market. Plaintiffs argue that there are none, and that The News is so unique that it occupies a product market of its own. The News, on the other hand, contends that it competes with some 37 newspapers, as well as television and other media. Though I reject The News' attempt to define the product market in terms which include other media,
I accept its contention that it competes with numerous other newspapers because plaintiffs have failed to adduce any evidence in the record to justify any other product market selection.
See Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612, 97 L. Ed. 1277, 73 S. Ct. 872 (1953); United States v. Chas. Pfizer & Co., 246 F. Supp. 464, 470 (E.D.N.Y. 1965). Plaintiffs have simply not shown that a person contemplating home delivery of The News would not consider as an alternative, home delivery of the New York Times, Newsday, the Long Island Press or any one of a number of other newspapers. This was clearly their burden and failure to do so is fatal to this aspect of their case. United States v. Chas. Pfizer & Co., 246 F. Supp. 464 (E.D.N.Y. 1965). Cf. Times-Picayune Publishing Co. v. United States, supra, at 626.
In any event, plaintiffs have failed to prove that The News had the requisite specific intent to monopolize. Notwithstanding the predatory nature of many of its acts, I am convinced that its primary concern was not the elimination of its competitors.
Plaintiffs' claim that The News and its franchise dealers "combined and conspired to monopolize a part of the newspaper trade" requires a separate analysis because the elements of attempted monopolization and conspiracy to monopolize differ. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 709, 8 L. Ed. 2d 777, 82 S. Ct. 1404 (1962); United States v. Consolidated Laundries Corp., 291 F.2d 563, 573 (2d Cir. 1961); United States v. Chas. Pfizer & Co., 245 F. Supp. 737, 738 (E.D.N.Y. 1965). See also, Note 27 Geo. Wash. L. Rev. 227, 241 (1958). While attempted monopolization requires conduct imminently threatening monopolization, all that is needed to establish a conspiracy to monopolize is the act of conspiring. See Nash v. United States, 229 U.S. 373, 378, 57 L. Ed. 1232, 33 S. Ct. 780 (1913). Cf. Hyde and Schneider v. United States, 225 U.S. 347, 387-88, 56 L. Ed. 1114, 32 S. Ct. 793 (1912) (dissenting opinion). Thus, Section 2 prohibits any combination or conspiracy to monopolize whether it be "wholly nascent or abortive on the one hand, or successful on the other." See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 225-26 n. 59, 60 S. Ct. 811, 84 L. Ed. 1129 (1940). See also, American Tobacco Co. v. United States, 328 U.S. 781, 809-811, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946).
For this reason, there is no necessity to consider market power in § 2 conspiracy cases. See United States v. Yellow Cab Co., 332 U.S. 218, 225-26, 91 L. Ed. 2010, 67 S. Ct. 1560 (1947); United States v. Consolidated Laundries Corporation, supra, at 573. Cf. United States v. du Pont de Nemours & Co., 351 U.S. 377, 395, n. 23, 100 L. Ed. 1264, 76 S. Ct. 994, (1956). The only inquiry is whether there has been a combination or conspiracy "to monopolize any part of the trade or commerce among the several States." See American Tobacco Co. v. United States, supra, at 789.
Since Section 2 makes it unlawful to conspire to monopolize "any part" of commerce,
a violation is made out if any appreciable part of interstate commerce
is the subject of the conspiracy. United States v. Yellow Cab Co., supra, at 225-26; United States v. Consolidated Laundries Corporation, supra, at 573; Turner, Antitrust Policy and the Cellophane Case, 70 Harv. L. Rev. 281, 294, 304-305 (1956). The home delivery market for The News obviously qualifies. Cf. Mt. Lebanon Motors, Inc. v. Chrysler Corporation, 283 F. Supp. 453, 460 (W.D. Pa. 1968), aff'd, 417 F.2d 622 (3rd Cir. 1969). In April, 1973 some 352,000 copies of The News were home delivered daily and some 451,000 copies were home delivered on Sundays.
These deliveries constituted almost 20% of The News' total net sales.
Since plaintiffs have conclusively demonstrated that The News and its franchise dealers conspired to eliminate intrabrand competition in the home delivery market by monopolizing trade in The News,
they have established a conspiracy to monopolize "a part" of interstate commerce.
Plaintiffs allege that the exclusive dealing arrangement between The News and its franchise dealers violates § 3 of the Clayton Act, 15 U.S.C. § 14.
The defendants, on the other hand, deny this allegation and contend that the plaintiffs have no standing to challenge this provision.
The test in this Circuit for determining standing to sue in antitrust actions is whether plaintiff is able to allege and prove damage to himself resulting from the defendant's illegal act. See e.g., Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d 183 (2d Cir. 1970), cert. denied, 401 U.S. 923, 27 L. Ed. 2d 826, 91 S. Ct. 877 (1971), reh. denied, 401 U.S. 1014, 91 S. Ct. 1250, 28 L. Ed. 2d 553; SCM Corp v. Radio Corp. of America, 407 F.2d 166 (2d Cir.), cert. denied, 395 U.S. 943, 23 L. Ed. 2d 461, 89 S. Ct. 2014 (1969); Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678 (2d Cir. 1955), cert. denied, 350 U.S. 936, 100 L. Ed. 818, 76 S. Ct. 301 (1956).
This requirement is entirely consistent with the public interest in vigilant enforcement of the antitrust laws through the instrumentality of the private treble damage action. Where there exists a plaintiff directly injured who can sue, if he desires, the public policy can be vindicated by him and it is neither necessary nor proper to extend the right to sue to those who have not actually sustained injury.
In evaluating plaintiffs' § 3 claim, the threshold question is not whether defendants violated § 3, but whether plaintiffs have been injured "by reason of" the alleged violation. GAF Corporation v. Circle Floor Co., Inc., 463 F.2d 752, 758 (2d Cir. 1972), petition for cert. filed 41 U.S.L.W. 3410 (U.S. Jan. 12, 1973 (No. 72-984)); Billy Baxter, Inc. v. Coca-Cola Co., supra; Carswell Trucks, Inc. v. International Harvester Co., 334 F. Supp. 1238, 1239 (S.D.N.Y. 1971).
Though plaintiffs state that the merits of their § 3 claim is "too obvious to document", I find it difficult to see how any economic loss suffered by them can be attributed to the exclusive dealing clause. If the franchise dealers were authorized to handle other newspapers, the route dealers would face additional competition. However, the franchise agreement forecloses this possibility and leaves The News' competitors little choice as a practical matter but to employ plaintiffs to distribute their papers. The net effect of the clause is to limit plaintiffs' competition in the home delivery market. Therefore, whatever impact the exclusive dealing provision has upon the franchise dealers, competing newspapers or potential competitors of The News, it can only benefit plaintiffs. Accordingly, I find as a matter of law that the provision does not injure plaintiffs in their business or property and that they have no standing to contest its validity.
However, even if they had standing to sue they would be unable to make out a violation of § 3 on this record.
Exclusive dealing contracts are not illegal per se., Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 333, 5 L. Ed. 2d 580, 81 S. Ct. 623 (1961). The Court must examine the relevant facts and circumstances surrounding the challenged conduct to determine whether they have a prohibited effect i.e., to substantially lessen competition or a tendency to create a monopoly. See Chicago Bd. of Trade v. United States, 246 U.S. 231, 62 L. Ed. 683, 38 S. Ct. 242 (1918); Standard Oil Co. v. United States, 221 U.S. 1, 55 L. Ed. 619, 31 S. Ct. 502 (1911).
This normally requires consideration of (1) the product market or line of commerce and the geographic market or area of effective competition, and (2) the impact of the arrangement on competition. Tampa Electric Co. v. Nashville Coal Co., supra, at 327; United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 593, 1 L. Ed. 2d 1057, 77 S. Ct. 872 (1957). Standard Oil of California v. United States, 337 U.S. 293, 299, 93 L. Ed. 1371, 69 S. Ct. 1051, n. 5 (1949).
In Tampa, supra, the Court held that for purposes of analyzing an exclusive dealing agreement under § 3, the relevant market is not the supplier's own market, but the broader area in which his competitors operate. This plaintiffs have completely failed to identify, a shortcoming which would in itself require dismissal. See United States v. E.I. du Pont de Nemours Co., supra, at 593; United States v. Chas. Pfizer & Co., 246 F. Supp. 464 (E.D.N.Y. 1965). However, since it is clear that the relevant market here encompasses at least the newspaper home delivery market in the New York City Metropolitan area,
Mytinger & Casselberry, Inc. v. F.T.C., 112 U.S. App. D.C. 210, 301 F.2d 534 (D.D.C. 1962); Cf. United States v. Columbia Steel Co., 334 U.S. 495, 68 S. Ct. 1107, 92 L. Ed. 1533 (1948), I have decided to overlook this defect.
Once the area of effective competition has been defined, an analysis must be made to determine if the effect of the arrangement "may be to substantially lessen competition or to create a monopoly" in this market. Brown Shoe Co. v. United States, 370 U.S. 294, 328, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962); Tampa Electric Co. v. Nashville Coal Co., supra, at 328 (1961). The crucial inquiry is whether the opportunity for other competitors to enter or remain in the market has been significantly limited, Tampa Electric Co. v. Nashville Coal Co., supra, at 328; Standard Oil Co. of California v. United States, supra; see also, Att'y Gen. Nat'l Comm. Antitrust Rep. 146 (1955) taking into account: "the relative strength of the parties, the proportionate volume of commerce in the relevant market area, and the probable immediate and future effects which preemption of that share of the market might have on effective competition." Tampa Electric Co. v. Nashville Coal Co., supra at 329.
Plaintiffs adduced little to indicate the probable anti-competitive effects of the exclusive dealing arrangement. This, assuming standing, is clearly their burden, and unless it is met, the court cannot give appropriate scrutiny to the economic ramifications, including possible justification. Susser v. Carvel Corp., 332 F.2d 505, 516 (2d Cir. 1964), cert. granted, 379 U.S. 885, 85 S. Ct. 158, 13 L. Ed. 2d 91 (1964) cert. dismissed as improvidently granted, 381 U.S. 125, 85 S. Ct. 1364, 14 L. Ed. 2d 284 (1965).
Here, there has been no showing that interbrand competition has been significantly limited or that entrance into the newspaper publishing market has been foreclosed. Instead, the record indicates that existing newspapers have remained in the market and successfully competed with The News.
Plaintiffs rely exclusively on Standard Oil Co. of Calif. v. United States, supra. There, the Supreme Court held illegal Standard's exclusive dealing contracts with sixteen percent of the independent dealers in a seven-state area involving 6.7 percent of the total gallonage sold in the area. In concluding that the contracts foreclosed competition in a substantial share of the relevant market, the Court applied what has become known as the "quantitative substantiality" test and refused to consider whether the contracts had in fact harmed competition or whether they were justified on economic grounds. The Court held that "the qualifying clause of § 3 is satisfied by proof that competition has been foreclosed in a substantial share of the line of commerce affected" and that it is not necessary to demonstrate "that competitive activity has actually diminished or probably will diminish." 337 U.S. at 314, 299.
However, in Tampa Electric Co. v. Nashville Coal Co., supra, the Court departed from the rigorous and inflexible rule it had established in Standard Oil and erected criteria which demand close scrutiny of the economic ramifications of an exclusive dealing arrangement in order to determine its probable anti-competitive effects.
See Susser v. Carvel Corporation, supra, at 516; United States v. Chas. Pfizer & Co., supra, at 471; Curly's Dairy, Inc. v. Dairy Cooperative Association, 202 F. Supp. 481, 484-485 (D. Ore. 1962); Bok, The Tampa Electric Case and the Problem of Exclusive Arrangements Under the Clayton Act, 1961 Sup. Ct. Rev. 281-285. Neither comparative quantitative substantiality (i.e., the market share foreclosed) nor absolute quantitative substantiality (i.e., the dollar volume foreclosed) is controlling. Curly's Dairy, Inc. v. Dairy Cooperative Association, supra. Instead, the test is whether the system of challenged exclusive arrangements in fact forecloses competitors from a substantial market. Att'y Gen. Nat'l Comm. Antitrust Rep. 146 (1955).
Any new newspaper can readily enter the market through the independent route dealers who do not have exclusive dealing arrangements or via a carrier boy system as did Newsday, The Long Island Press and The Suffolk Sun. The News' competitors have ready access to a sufficient number of outlets to permit the effective marketing of their products.
It follows, therefore, that The News' exclusive dealing arrangements do not foreclose The News' competitors from a substantial portion of the market and that plaintiffs' Section 3 claim must be dismissed.
Plaintiffs finally contend that The News discriminated "between different purchasers of commodities of like grade and quality" in violation of §§ 2(a), 2(c), 2(d) and 2(e) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), 13(c), 13(d) and 13(e), and that the franchise dealers violated § 2(f) of the Act, 15 U.S.C. § 13(f), by receiving and accepting preferential treatment from The News.
Section 2 of the Clayton Act, as amended by the Robinson-Patman Act, is directed at preventing certain types of discrimination by sellers in interstate commerce. See generally, Rowe, Price Discrimination Under the Robinson-Patman Act.
However, its jurisdictional requirements are far narrower than the "effect on commerce" test of the Sherman Act.
See Lehrman v. Gulf Oil Corp., 464 F.2d 26, 37 (5th Cir. 1972), cert. denied, 409 U.S. 1077, 34 L. Ed. 2d 665, 93 S. Ct. 687 (1972); Cliff Food Stores, Inc. v. Kroger, 417 F.2d 203, 208 (5th Cir. 1969); Willard Dairy Corp. v. National Dairy Prods. Corp., 309 F.2d 943, 946 (6th Cir. 1962), cert. denied, 373 U.S. 934, 10 L. Ed. 2d 691, 83 S. Ct. 1534 (1963); Central Ice Cream Co. v. Golden Rod Ice Cream Co., 287 F.2d 265, 267 (7th Cir. 1961). It specifically requires that the discriminator be "engaged in commerce", that the discrimination be "in the course of such commerce", and that "either or any of the purchases involved in such discrimination are in commerce . . ."
See Rowe, Price Discrimination Under the Robinson-Patman Act 3-23 (1962); Note 86 Harv. L. Rev. 765, 769 (1973).
The requirement that "either or any of the purchases involved in commerce" has consistently been interpreted to mean that the Act is applicable only where "at least one of the two transactions . . . cross a state line."
Walker Oil Co. v. Hudson Oil Co., 414 F.2d 588, 589-90 (5th Cir. 1969), cert. denied, 396 U.S. 1042, 24 L. Ed. 2d 686, 90 S. Ct. 684 (1970). See also, Anaya v. Las Cruces Sun News, 455 F.2d 670 (10th Cir. 1972); Belliston v. Texaco, Inc., 455 F.2d 175 (10th Cir.), cert. denied, 408 U.S. 928, 33 L. Ed. 2d 341, 92 S. Ct. 2494 (1972); Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4 (5th Cir.), cert. denied, 396 U.S. 901, 24 L. Ed. 2d 177, 90 S. Ct. 212 (1969); Willard Dairy Corp. v. National Dairy Products Corp., 309 F.2d 943 (6th Cir. 1962), cert. denied, 373 U.S. 934, 10 L. Ed. 2d 691, 83 S. Ct. 1534 (1963). But see Littlejohn v. Shell Oil Co., 456 F.2d 225 (5th Cir. 1972), petition for rehearing en banc granted, 470 F.2d 997 (1973).
To prevail on their Robinson-Patman claims, plaintiffs must demonstrate, inter alia: (1) that The News is engaged in commerce; (2) that, in the course of such commerce, it has discriminated between different purchasers of The News; and (3) that the discriminatory transactions took place "in commerce" (i.e., crossed state lines). This is an insurmountable burden on the proof in this case. Plaintiffs Hand, Shank, Fox, Greenberg and Holman are the only plaintiffs who compete with franchise dealers and purchase from The News. Therefore, they are the only "purchasers" who have been denied equal treatment. See Callman, Unfair Competition, Trademarks and Monopolies § 28.1(a) (3rd Ed. 1971). Since all of their routes are in New York where The News is published, sold at wholesale to their competitors and resold to home delivery subscribers, they have failed to prove that any discriminatory transactions took place "in commerce". Accordingly, plaintiffs' Robinson-Patman claims are dismissed.
The above shall constitute my findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.
The parties are directed to prepare a judgment incorporating these findings of fact and conclusions of law and specifying an appropriate form of injunctive relief.