The opinion of the court was delivered by: GAGLIARDI
A.G.S. Electronics, Ltd. ("AGS") has commenced this action for treble damages under the federal antitrust laws and for breach of contract under state law. As to the federal causes of action contained in Counts I-III of the amended complaint, jurisdiction is asserted pursuant to 28 U.S.C. § 1331. As to the state law claims set forth in Counts IV and V, AGS invokes this court's diversity jurisdiction, 28 U.S.C. § 1332, and principles of pendent jurisdiction. Defendant B.S.R. (U.S.A.), Ltd. ("BSR-USA") has moved to dismiss Counts I-III of the amended complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., on the grounds that they fail to state claims upon which relief may be granted and that AGS lacks standing to sue.
As explained more fully below, defendant's motion is granted.
For the purposes of this motion, the allegations of the amended complaint must be deemed true. All parties to this lawsuit engage in the sale and manufacture of audio equipment and the component parts thereof. This equipment includes: 1) "record changers", I. e., motorized metal platters and tone arms affixed to a metal base, which are sold to original equipment manufacturers for incorporation into record players or full audio systems; 2) "record players", I. e., assembled modules comprised of record changers, line cords, phono sockets, dust covers and wooden bases, which are sold to ultimate consumers; and 3) "full audio systems", consisting of record players, receivers, amplifiers, speakers and, in some cases, tape players, which are also sold to ultimate consumers.
Defendant BSR-USA, a New York corporation, is the wholly-owned subsidiary of defendant B.S.R., Ltd., a British corporation. Defendants manufacture, sell and distribute record changers and record players of various qualities, including inexpensive or "low-end" record players. By March 1975, the defendants controlled in excess of 70% Of the United States market in "low-end" equipment. Two affiliated corporations, Glenburn Corporation of New Jersey and Glenburn/McDonald, Inc. ("Glenburn") controlled most of the remainder of this market.
In October 1973, plaintiff AGS, a Canadian corporation, became Glenburn's exclusive distributor for Canada and the Far East. AGS purchased Glenburn changers at prices ranging from $ 10.37 to $ 13.40 per unit both for use in the manufacture of audio systems and record players under its own name and for resale to other original equipment manufacturers. Defendants' price for comparable changers were approximately $ 1.00 per unit higher, but Glenburn held its prices at the lower level in an effort to increase its market share.
In March 1975, the defendants acquired either all of Glenburn's assets or all of its capital stock. Since that date, the defendants have continued to sell the Glenburn line of low-end record changers and record players through a Glenburn division or subsidiary. As a direct result of this acquisition, defendants control virtually 100% Of the market for low-end record changers and record players in the United States.
Prior to their acquisition of Glenburn, defendants had sold their own line of record changers to Keron Trading Ltd. ("Keron") for resale and distribution to original equipment manufacturers in Canada and the Far East, the same geographic area served by plaintiff for Glenburn. In June 1975, just three months after the Glenburn acquisition, the defendants informed AGS that it would no longer be a distributor of the Glenburn line for that area and that it would no longer be able to purchase Glenburn changers from the defendants. AGS was further advised that the Canada and Far East distributorship would henceforth be handled by Keron and that any purchases of changers which AGS sought to make would have to be made through Keron.
At about the same time, defendants increased the price of Glenburn changers to equal the prices they charged for their comparable changers. Thereafter, the prices for both the Glenburn line and for defendants' comparable line were further increased by approximately 30%. Defendants have been able to impose these price increases because of the almost complete lack of competition in the sale and distribution of changers in the United States.
The antitrust counts of the amended complaint attack the defendants' conduct on three distinct legal theories. Count I alleges that the manufacture, sale and distribution of low-end record changers and record players in the United States is a "line of commerce among the several states" within the meaning of § 7 of the Clayton Act, 15 U.S.C. § 18,
and that defendants' acquisition of Glenburn violated § 7 in that it tended substantially to lessen competition and to create a monopoly in that line of commerce. Count II is premised upon § 1 of the Sherman Act, 15 U.S.C. § 1,
and alleges that the defendants' refusal to sell to AGS resulted from a contract, combination or conspiracy with Keron to exclude plaintiff from the market for defendants' changers and is motivated by defendants' desire to maintain prices at an artificially high level and to cause the public to pay higher prices than if competitive practices were followed. Finally, Count III of the amended complaint states that defendants' acts were taken for the purpose of monopolizing, and constituted an attempt to monopolize or a conspiracy to monopolize the market for the sale and distribution of record changers or low-end record players in the United States and North America in violation of § 2 of the Sherman Act, 15 U.S.C. § 2.
Plaintiff has repeated the same basic allegation of injury under each of these counts the inability to act as a Glenburn distributor and the consequent loss of profits, promotional expenses and capital expenditures.
Defendants assert that AGS lacks standing to assert any of these claims because it has failed to allege any nexus between the injury it has suffered and any lessening of competition in the United States. Defendants also contend that AGS is beyond the "target area" of any alleged violation.
Section 4 of the Clayton Act, the source of the private treble damage remedy under the antitrust laws, states that: "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained." 15 U.S.C. § 15. Recognizing the uniqueness of the treble damage remedy, the courts have narrowed this broad statutory grant of the right to sue. The guiding principles are as follows:
There must be a causal connection between an antitrust violation and an injury sufficient . . . to establish that the violation was a "material cause" or a "substantial factor" in the occurrence of damage. And this connection must also link a specific form of illegal act to a plaintiff engaged in the sort of legitimate activities which the prohibition of this type of violation was clearly intended to protect.
Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d 183, 187 (2d Cir. 1970), Cert. denied, 401 U.S. 923, 91 S. Ct. 877, 27 L. Ed. 2d 826 (1971). See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S. Ct. 690, 697, 50 L. Ed. 2d 701 (1977). Thus, the plaintiff must show that it is within the "target area" of the alleged antitrust violation, i. e., "a person or business against whom competitive aim (has been) taken." Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292, 1296 n.2 (2d Cir. 1971), Cert. denied, 406 U.S. 930, 92 S. Ct. 1776, 32 L. Ed. 2d 132 (1972). Accord, Long Island Lighting Co. v. Standard Oil Co. of Cal., 521 F.2d 1269, 1274 (2d Cir. 1975), Cert. denied, 423 U.S. 1073, 96 S. Ct. 855, 47 L. Ed. 2d 83 (1976); GAF Corp. v. Circle Floor Co., 463 F.2d 752, 757-58 (2d Cir. 1972), Cert. dismissed, 413 U.S. 901, 93 S. Ct. 3058, 37 L. Ed. 2d 1045 (1973). The "target area" test is not a talismanic guide to decision; this court must "examine the form of violation alleged and the nature of its effect on a plaintiff's own business activities." Billy Baxter, Inc. v. Coca-Cola Co., Supra, 431 F.2d at 187.
AGS complains of two distinct antitrust violations by the defendants: 1) the acquisition of Glenburn which has given them virtually 100% of the United States market for record changes and low-end record payers; and 2) the termination of AGS's exclusive Canadian and Far Eastern distributorship of such changers, allegedly resulting from a conspiratorial refusal to deal. However, the only injuries of which AGS complains the loss of profits, promotional expenses and capital expenditures all flow from the termination of its distributorship rather than any anticompetitive effects of the defendants' acquisition of Glenburn. As such, AGS has failed to allege a causal connection between its injury and the allegedly unlawful acquisition. Accordingly, Count I of the amended complaint must be dismissed.
The significant facts of John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495 (9th Cir. 1977) are virtually identical to those of the instant case. Plaintiffs, former distributors of Hamm's beer, sued a manufacturer-supplier who had decided to terminate them as distributors shortly after acquiring the Hamm's label. The plaintiffs alleged that this acquisition violated § 7 of the Clayton Act. Affirming the district ...