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SUM OF SQUARES, INC. v. MARKET RESEARCH CORP. OF A

May 14, 1975

Sum of Squares, Inc., Plaintiff
v.
Market Research Corp. of America, David B. Learner, and Catallactics Corp


Weinfeld, D. J.


The opinion of the court was delivered by: WEINFELD

WEINFELD, D. J.

Plaintiff, Sum of Squares, Inc., moves for a preliminary injunction to enjoin defendants from (1) refusing to supply plaintiff with certain data necessary for plaintiff to function in its business; (2) conspiring with others not to do business with plaintiff; and (3) interfering in any way with the free exercise by plaintiff of its business. Defendants are Market Research Corporation of America ("MRCA"), its president, David B. Learner, and its major stockholder, Catallactics Corporation.

 The controversy concerns what to the average lay person may be a somewhat esoteric subject, marketing research, specifically (1) the collecting of data concerning the purchasing habits of a panel of consumers of various products in specified regions of the country who are demographically representative of a much larger number of consumers on a nationwide basis, and (2) the processing of such data to analyze the basic trends in consumer purchasing habits, and reporting this to a client, usually a manufacturer, or retail distributor of food products. The data, known in the trade as "national purchase diary panel data," is obtained from a panel of household consumers who record their purchases of different products in a diary and forward it weekly to a data collecting agency. The raw data contained in the diaries is transcribed onto tapes and coded into numerical information suited for computer processing and is then analyzed to provide consumer behavior information.

 There are three types of companies engaged in market research activities. A company may serve both functions of "data collection" and its analysis and evaluation, referred to as "data processing." The defendant MRCA is engaged in both. A second type is a company engaged only in "data collection" which it supplies to a client, who either processes the data itself or contracts the processing to an outside company. The third type is engaged only in the business of "data processing." Until recently, plaintiff was engaged only in data processing. Two of it clients are General Foods and Kraft Foods, which companies engaged MRCA for "data collection" purposes. MRCA, at the direction of General Foods and Kraft Foods, turned over its national diary panel tapes to plaintiff, who thereafter processed the data for General Foods and Kraft Foods.

 The instant action is the result of plaintiff's engaging in "data collection" activities when it prepared a diary panel for Dupont Corporation, with the prospect of an expansion in that area of activity. Thereupon MRCA notified General Foods and Kraft Foods that it would no longer supply its data to plaintiff for processing and analysis. It also advised plaintiff to the same effect. MRCA's notice to General Foods and Kraft Foods referred to a nondisclosure clause in their contracts, similar to one included in all MRCA contracts, whereby the clients agreed not to disclose MRCA data to third parties without MRCA's prior consent. General Foods advised plaintiff that it considers the nondisclosure clause with MRCA binding.

 The plaintiff charges that MRCA has embarked upon a campaign to eliminate it from not only the data collection business, but also the data processing business. Plaintiff's complaint alleges that the defendants have combined and conspired with General Foods, Kraft and others (not named as defendants), or have coerced the latter to engage in activities to eliminate plaintiff as a competitor (1) in the market for processing diary panel data, and (2) in the sub market for processing such data collected by MRCA, all in violation of the Sherman Act. Plaintiff asserts that some thirty per cent of its gross revenues are derived from processing data gathered by MRCA and that unless the latter continues to supply it with data for processing, it faces the loss of revenues and customers, which could well lead to its extinction. Thus, it argues that preliminary injunctive relief is warranted.

 MRCA denies that it is engaged in any combination or conspiracy as alleged by plaintiff and contends that its conduct is simply a unilateral refusal to deal with plaintiff or anyone who would not agree to its nondisclosure provision. Essentially its position is that it will not supply its data tapes to any data processor who is also a data collector, since to do so would make its confidential proprietary technology involving special know-how and expertise available to a competitor. Further, it contends that even if the inference that a conspiracy exists is warranted, its conduct does not violate the Sherman Act because the nondisclosure clause in its contract with clients is reasonable in order to protect it against a competitor's appropriation and use of its trade secrets and expertise.

 I

 Contract, Combination or Conspiracy.

 In United States v. Colgate & Co., *fn1" the Supreme Court held that the Sherman Act "does not restrict the long recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal." *fn2" So long as "other means" beyond a "mere announcement of his policy and the simple refusal to deal" are not employed, no combination exists. *fn3" Here, however, MRCA has employed "other means" to prevent plaintiff from access to its data: the nondisclosure clause in its contracts with its clients. As the General Foods' letter to plaintiff of April 14, 1975 indicates, it is the nondisclosure clause, not MRCA's mere announcement of its policy not to supply its data tapes to plaintiff or any processor who is also a data collector, that results in the alleged restraint of trade. Whether MRCA's clients willingly or unwillingly comply with the nondisclosure provision, this would not prevent the court from concluding that a contract exists for purposes of Sherman Act analysis. *fn4"

 II

 Restraint of Trade.

 The Supreme Court long ago announced that section 1 of the Sherman Act proscribes only an "undue" or "unreasonable" restraint of trade -- in short that a "rule of reason" approach should be followed in interpreting the Act. *fn5" As Mr. Justice Brandeis later explainted:

 
"Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy ...

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