The opinion of the court was delivered by: SAND
Defendants Home Box Office Inc. ("HBO") and Showtime Entertainment Corporation ("Showtime") move to dismiss the claims of plaintiff Crimpers Promotions Inc. ("Crimpers") pursuant to Fed. R. Civ. P. 12(b) (6) for failure to state a claim upon which relief can be granted. Crimpers alleges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 3 of the Clayton Act, 15 U.S.C. § 14, as well as a number of violations of New York tort and unfair competition law. We find that plaintiff's complaint states a valid cause of action for conspiracy to restrain trade and attempted monopolization under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act, and therefore deny defendants' motion with respect to Counts I and II of the complaint. We find, however, that plaintiff fails to plead adequately a tying claim under Section 1 of the Sherman Act and Section 3 of the Clayton Act and therefore grant defendants' motion with respect to this claim without prejudice to the filing of an amended complaint. With respect to the state claims, we find that plaintiff has stated valid causes of action for tortious interference with prospective business advantage and contractual relations. We dismiss plaintiff's unfair competition and prima facie tort claims.
Plaintiff is a New York corporation organized in 1980 for the initial purpose of producing, managing and operating a cable television trade show known as Catel Expo-Programming Sources '81 ("Catel") that was to take place in Las Vegas, Nevada in September, 1981. The purpose of the Catel show, as set forth in plaintiff's complaint, was to provide a forum in which independent producers and suppliers of cable television programming could meet and transact business with prospective purchasers of such programming, such as cable television networks.
The defendants, HBO and Showtime, are two of the leading companies in the cable television industry. Both HBO and Showtime purchase programming from independent producers and suppliers and package this programming into a complete network format for sale to cable system operators. The cable operators, in turn, transmit the HBO and Showtime network programming to their home television subscribers. (HBO and Showtime also produce some of their own programming.) Plaintiff alleges that HBO and Showtime are the dominant forces in the cable pay-television industry, with thousands of affiliate networks and over ten million subscribers throughout the United States. Complaint para. 7(c)-(f); 8(c)-(e); 9(c).
The essence of plaintiff's complaint is that HBO and Showtime have monopolized or attempted to monopolize the cable television industry, and have used this monopoly power to cause plaintiff's trade show to be a financial failure. The complaint alleges that HBO and Showtime conspired to boycott plaintiff's trade show, and exerted their monopoly power in the cable industry to coerce other independent programmers, suppliers, and potential purchasers of programming to do likewise.
According to Crimpers, HBO and Showtime boycotted and attempted to ruin the Catel show for fear that its success would provide a forum in which independent buyers and sellers of cable programming could transact business face-to-face, reducing or eliminating much of defendants' economic power in the cable industry. HBO and Showtime are alleged to act as middlemen in the cable industry, purchasing large amounts of programming from independent producers at artificially low prices, arranging the programming into a network format, and then reselling it as a package to cable networks for transmission to subscribers. Plaintiff alleges that independent buyers and sellers of programming are kept from trading on a "stand-alone" basis (see fn. 1, supra) because of defendants' power as middlemen. Complaint paras. 9(d); 19; 24(g).
More specifically, plaintiff alleges that HBO and Showtime, after expressing initial interest in the Catel show, decided to withdraw from participation. According to the complaint, the defendants informed independent suppliers and systems operators that plaintiff's show was a "rip-off" and a "fraud on the public," and that they should not attend. More importantly for our purposes, Crimpers alleges that the defendants conspired together and exerted their individual monopoly power to coerce independent suppliers of programming not to appear at Catel by threatening that were they to do so, defendants would no longer purchase their programming. Complaint para. 13, 14, 19-22.
Plaintiff contends that, as a result of these actions, defendants have reduced competition in the markets for the sale and purchase of programming for cable television, and have prevented independent producers and suppliers from transacting business with potential purchasers on a stand-alone basis at trade shows like the one organized by the plaintiff. Prior to defendants' alleged conspiracy, Crimpers anticipated that more than 250 companies would participate in its trade show. Plaintiff contends that as a result of defendants' actions, only 200 people attended and only 55 companies participated, occupying fewer than one hundred booths. Plaintiff was unable to obtain sufficient exhibitors and attendees for its trade show, continues to be unable to do so, and has been forced to cease business. Plaintiff seeks injunctive relief and treble damages.
Defendants argue that, even if we assume plaintiff's allegations to be true as we must on this motion to dismiss, Crimpers is not a proper party to bring these antitrust claims because it lacks standing. To sue under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act plaintiff must meet the requirements of Section 4 of the Clayton Act, 15 U.S.C. § 15. Section 4 provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws" shall have a cause of action for treble damages. Despite this sweeping language, the courts have been unwilling to grant relief to all plaintiffs alleging injury resulting from an antitrust violation. Rather, the courts have grafted a doctrine of standing onto the statute that requires that the defendant's violations have been the proximate or legal cause of plaintiff's injury.
Although the language employed to describe the standing requirement differs among the Courts of Appeals, compare, e.g., Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971) ("target area" test), with Bravman v. Bassett Furniture Industries, Inc., 552 F.2d 90 (3d Cir. 1977) ("totality of the facts" test), and remains somewhat in flux, see generally Berger & Bernstein, An Analytic Framework for Antitrust Standing, 86 Yale L.J. 809 (1977), the Second Circuit utilizes the so-called "target area" test. Under this test, the plaintiff must either be the "direct target" of the antitrust violation or fall within the "target area" of the alleged antitrust violation -- that sector of the economy which is endangered by a breakdown of competitive conditions in the particular industry. Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971), cert. denied, 406 U.S. 930, 32 L. Ed. 2d 132, 92 S. Ct. 1776 (1972); 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). That is, the causal connection between the plaintiff and the alleged antitrust violation must be such as to "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, 431 F.2d at 187. Defendants rely on the leading cases of Calderone, supra, and Billy Baxter, supra, to support their argument that Crimpers was neither the "direct target" nor within the "target area" of the alleged conspiracy.
The plaintiff in Billy Baxter was the franchisor of a line of carbonated beverages marketed under the "Billy Baxter" trademark. Plaintiff also licensed information and supplied ingredients necessary for the manufacture of Billy Baxter beverages, but was not involved in its actual production or distribution. Billy Baxter sued Coca-Cola and Canada Dry, alleging that they had restrained competition in the "nonalcoholic carbonated beverage industry" in violation of the antitrust laws by inducing beverage retailers and distributors to cease purchasing Billy Baxter products from plaintiff's franchised bottlers. 431 F.2d at 184-87. The Second Circuit held that plaintiff was without standing to bring its Sherman Act claim because it was neither the direct target nor within the target area of the violation. Plaintiff did not engage in or compete with the defendants in the marketing of carbonated beverages, and therefore was not within that sector of the economy threatened by the breakdown in competition -- the so-called target area. Moreover, the harm plaintiff incurred was indirect and incidental -- a reduction in franchise royalties due to its franchisee's decreased sales. Plaintiff was not the direct target of the defendants' alleged violation. The court concluded that "an interference with the marketing of beverages may interrupt profitable relationships and thereby harm a party which in effect 'markets' franchises and ingredients, but the connection is not sufficiently compelling to support a treble damage suit." Id. at 189.
The Second Circuit employed a similar analysis in Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971), cert. denied, 406 U.S. 930, 32 L. Ed. 2d 132, 92 S. Ct. 1776 (1972). In that case, the plaintiff leased motion picture theatres to exhibitors in return for a fixed rent plus a percentage of the gross receipts from the exhibition of movies. Plaintiff alleged that the defendant motion picture exhibitors and distributors had engaged in a conspiracy to reduce competition by agreeing to divide local movie theatres into separate "tracks", and then allocating first-run movies among these tracks, thereby eliminating competition among theatres. Were it not for this conspiracy, the plaintiff argued, the theatres it owned would book a larger number of first-run movies and its rent, based on a percentage of gross receipts of its lessee, would have increased. In denying standing to the plaintiff, the court observed:
"In a series of decisions over the last 15 years, in all of which certiorari was denied by the Supreme Court, this court has committed itself to the principle that in order to have 'standing' to sue for treble damages under § 4 of the Clayton Act, a person must be within the 'target area' of the alleged antitrust conspiracy, i.e., a person against whom the conspiracy was aimed, such as a competitor of the persons sued. Accordingly we have drawn a line excluding those who have suffered economic damage by virtue of their relationships with 'targets' or with participants in an alleged antitrust conspiracy, rather than by being 'targets' themselves."
454 F.2d at 1295. The conspiracy alleged in Calderone was aimed at competing movie distributors and exhibitors, not at the plaintiff theatre owner. Plaintiff was not, therefore, within the relevant "target area." Those who competed with the defendants in the exhibition and distribution of movies had standing ...