of Pelaspan-Pac, a loose fill packaging material made of expanded polystyrene. Two days prior to the effective date of the notice of termination, plaintiff filed this suit and charged Dow with violating both sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2. On November 24, 1970, this Court granted a temporary restraining order which has the effect of suspending the termination and requiring the defendant to continue to deal with the plaintiff. Presently before the Court for determination is plaintiff's request for a preliminary injunction. Beginning January 4, 1971, evidence was presented on this matter in a ten-day hearing before Chief Judge John W. Lord, Jr.
Before a court will grant the extraordinary remedy of a preliminary injunction it is necessary for the moving party to demonstrate (1) that it will suffer irreparable injury if the motion is denied; and (2) that it stands a reasonable likelihood of prevailing at the trial on the merits. Kontes Glass Co. v. Lab Glass, Inc., 373 F.2d 319 (3rd Cir. 1967); Instant Delivery Corp. v. City Stores Co., 284 F. Supp. 941 (E.D. Pa. 1968). Plaintiff proffers three theories of liability under section 1 of the Sherman Act: (1) that Dow, the manufacturer, unilaterally attempted to control the distribution of their product through exclusive territorial distributorships; (2) that Dow conspired with other distributors of Pelaspan-Pac, the end product in question, to maintain the alleged exclusive territorial arrangements; and (3) that Dow conspired with the other distributors to prevent PPMI from acquiring Pelaspan-Pac after the termination. PPMI asserts that the termination of its distributorship and the trademark licensing agreements was made pursuant to and in furtherance of the illegal acts described above. Furthermore, PPMI asserts that expanded polystyrene like Pelaspan-Pac constitutes a relevant market separate and apart from other loose fill packaging material and as such Dow has a monopoly in this market and their refusal to deal with PPMI constitutes a violation of section 2 of the Sherman Act. Dow, on the other hand, contends that they terminated the distributorship for sound business reasons which did not involve any attempt on their part, either unilaterally or in concert with other distributors, to restrict the sales of PPMI to an exclusive territory.
The issue under section 1 which must be decided is whether plaintiff has shown that it has a reasonable likelihood of demonstrating at the trial that the termination was made in furtherance of Dow's attempt, either unilaterally or by means of a conspiracy, to restrict the sale of Pelaspan-Pac by their distributors to an exclusive territory. It may also be helpful to note that the issue is not whether this Court, given the facts and circumstances present in the instant case, would have reached the same decision that Dow did, that is, to terminate PPMI.
The law with regard to unilateral refusals to deal is quite clear in that a manufacturer of a product which has readily available competitive products in the market, absent an anticompetitive motive, has the right to select the parties with whom it will deal. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967); Cf. United States v. Colgate & Co., 250 U.S. 300, 63 L. Ed. 992, 39 S. Ct. 465 (1919); Carbon Steel Products Corp. v. Alan Wood Steel Co., 289 F. Supp. 584 (S.D.N.Y. 1968). However, once a manufacturer of a product chooses to deal with a distributor and relinquishes title, dominion, or risk of the product, it may not restrict the territories or persons to whom the distributor may resell the product without violating section 1 of the Sherman Act. Such activity has been held to constitute a per se violation of that section. United States v. Arnold, Schwinn & Co., supra. Mere references or descriptions of a primary area, like that found in the instant contract, however, do not necessarily imply a per se violation. See Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398 (2nd Cir.), cert. denied, 393 U.S. 938, 21 L. Ed. 2d 275, 89 S. Ct. 303 (1968).
In its discussion the Court does not propose to relate each fact relied on by the parties. However, the Court will highlight certain of the facts which the Court finds to be of particular significance. In support of their claim of unilateral action on the part of Dow to restrict their distributors to an exclusive territory, PPMI relies heavily on a series of events which took place in the late summer and early fall of 1967. Briefly stated the facts are that several New England distributors of Pelaspan-Pac had complained to Dow regarding the pirating of their accounts and the establishment of subdistributors by PPMI in their primary areas. It is clear that Mr. Garrett, the Dow salesman who serviced the account, did not approve of these extraterritorial activities, informed PPMI of his disapproval, and sought some understanding from PPMI that it would discontinue these practices. In late August Mr. Scott, the Market Manager for Pelaspan-Pac, wrote Mr. Hornsby, the Credit Manager for Molding and Extrusion Sales, which until January 1968 was in charge of distributing the product, and suggested a meeting with PPMI at which time they would "explicitly" state their reservations about continuing PPMI as a distributor and "implicitly" press for a withdrawal of personnel and marketing efforts from the upper New York and New England areas. In late October or early November such a meeting was arranged between PPMI and Mr. Lehman, Mr. Scott's successor, and Mr. Garrett. At this meeting Dow sought a commitment from PPMI that they would discontinue their marketing efforts in the upper New York area so that the new distributor would be able to establish itself. As a result of this pressure Mr. Stolper contacted Mr. Smith by phone and stated he would abide by Dow's "suggestions." If PPMI had refused and Dow had terminated at this point it seems likely that the Court would have granted the preliminary injunction. However, over three years elapsed before Dow terminated PPMI and during almost all of this period PPMI continued their practice of obtaining most of their business by severe price cutting and pirating of accounts in areas outside their primary territory, rather than the procurement of new end users. The Court finds that PPMI has not demonstrated a sufficient nexus between the 1967 events and the 1970 termination to warrant the granting of the requested relief. In reaching this conclusion the Court rejects plaintiff's proposition that the letter from Mr. Scott to Mr. Hornsby, including the notes which served as a rough draft, constituted a plan of action which was consistently pursued during the next three years and finally resulted in the termination of PPMI.
The other major evidence submitted in support of the position that Dow unilaterally attempted to enforce a system of exclusive territories was the 1969 Government Services Administration (GSA) contract. The Court has made it quite clear in its findings of fact that the method of distribution by Dow, with the distributor closest to the purchasing agency supplying the Pelaspan-Pac, was a result of the Government's natural demand that the freight costs be kept at a minimum, and not by any effort on their part to maintain territorial exclusivity among its distributors. By finding that Dow has not acted unilaterally in such a way as to violate section 1 of the Sherman Act, the Court wishes to reiterate that it is only determining that plaintiff has not persuaded the Court that they stand a reasonable likelihood of proving this allegation at the trial on the merits.
PPMI further alleges that Dow conspired with the other distributors of Pelaspan-Pac to maintain exclusive territories. There is no dispute that such activity would violate section 1 of the Sherman Act. Moreover, it is clear that direct proof of a conspiracy is seldom available and therefore most often must be proved by circumstantial evidence. Girardi v. Gates Rubber Co. Sales Division, Inc., 325 F.2d 196, 200, fn 9 (9th Cir. 1963) quoting Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S. 600, 612, 58 L. Ed. 1490, 34 S. Ct. 951 (1914).
Plaintiff relies to some extent on the fact that during 1968 Dow contacted or sent technical representatives to several of their accounts, Memphis Supply Co., Worthington Controls and Bulova Watch Co., as a result of complaints regarding the quality of Pelaspan-Pac from distributors who had serviced the account prior to PPMI acquiring the business. Plaintiff would have the Court draw the inference that the purpose for which Dow sent these representatives was to reacquire the account for the original distributor, and thereby enforce the territorial integrity of each distributor. However, the Court does not find this to be the case. Rather we find that regardless of the origin of the complaints, Dow, as the holder of the trademark license, had an interest in the marketing of Pelaspan-Pac and the right to investigate reports of inferior quality material being sold under that trademark. See Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir.), cert. denied, 396 U.S. 1062, 90 S. Ct. 752, 24 L. Ed. 2d 755 (1969). Moreover, these service calls revealed that there were some quality problems regarding the shipment by PPMI of partially foamed material. The fact that a particular end user of the product was satisfied even though the product was not conforming to the contract specifications does not, in the Court's opinion run counter to such a finding.
Plaintiff's main support for the conspiracy charge is the meeting of eight other distributors of Pelaspan-Pac in Chicago in early September, 1970. While no Dow representative was present at the meeting, Mr. Smith had been invited to attend. Several days after this meeting Mr. Smith and Mr. Marcus from the Technical Service and Development Department met with Mr. Hines who had organized the meeting. Plaintiff asserts that the principal purpose of the meeting was to take steps to curb PPMI's extraterritorial activity. However, the Court finds that the primary purpose was an attempt on the part of Mr. Hines to interest other distributors in purchasing a machine from his company which would compete with PPMI's mini-expander. Mr. Hines, in addition to being a Dow distributor, was a machine representative for the Takashima Co. of Japan. While it is undoubtedly true that once convened some of the distributors discussed PPMI as the proverbial "thorn in the side" this does not, in the opinion of the Court, constitute a sufficient basis for characterizing this as a "clandestine meeting of the Chicago 8" designed to bring about the termination of PPMI, with Dow as a silent but active partner. The fact that PPMI was not invited is not remarkable because the primary topic of the meeting was the introduction of a compact expander which would compete with the mini-expander over which PPMI had exclusive rights.
The group also raised certain questions regarding Dow policy, including their concern that while they were required to purchase their material from Dow there was no corresponding duty on Dow to help maintain the integrity of their territory. These questions were communicated to Mr. Smith at the meeting with Mr. Hines a few days after the distributors meeting. Mr. Smith responded to this inquiry "we can in no way limit their (other distributors) selling efforts to any specific territory." Plaintiff contends that since this reply was not made until shortly after the notice of termination was sent the real answer to this inquiry was the termination of PPMI. We cannot agree with this conclusion. Mr. Smith testified that the press of other work, the fact that distributor complaints were commonplace, and the fact that Mr. Hines was in Japan till the early part of November, all contributed to the delay in his answering the inquiries.
Plaintiff has cited to the Court the case of Girardi v. Gates Rubber Co. Sales Division, Inc., 325 F.2d 196 (9th Cir. 1963). In this case the circuit court, in reversing the district court's dismissal of plaintiff's action, stated that a conspiracy could be inferred from the facts that other distributors complained to the manufacturer about plaintiff's activities and there was an internal memorandum commenting on them.
It should be noted that the Girardi case involved price fixing, not the establishment of exclusive territories. However, the Court need not decide whether, as plaintiff contends, this case is applicable, since even if the Court applied it we would not grant the preliminary injunction based on a theory of conspiracy to restrict territories. As this Court noted, the procedural posture of the Girardi case was that the district court had, after the plaintiff's presentation of his evidence granted defendant's motion to dismiss. The circuit court specifically noted that in considering whether or not the evidence was sufficient to go to the jury they were required to view the evidence in the light most favorable to the plaintiff and give the plaintiff the benefit of all inferences which the record could support. This is far from the standard which this Court is called upon to utilize in deciding this motion for preliminary injunction. In this case the Court is deciding whether plaintiff has demonstrated that it has a reasonable likelihood of prevailing at the trial on the merits. There is a great disparity between the quantity of proof required to succeed in a motion for a preliminary injunction and that needed to overcome a motion for a directed verdict. We do not find that plaintiff has met this more stringent burden.
Furthermore, complaints by distributors about competing distributors are normal in the course of business, and are by themselves not sufficient to imply a conspiracy. The spector of a conspiracy arises when the manufacturer contacts the distributor complained of and "advises" him regarding his course of conduct. The manufacturer must go beyond the mere announcement of a policy and supplement it by some means designed to enforce the policy. Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711 (S.D.N.Y.), aff'd, 417 F.2d 621 (2nd Cir. 1969); Carbon Steel Products Corp. v. Alan Wood Steel Co., 289 F. Supp. 584 (S.D.N.Y. 1968). We find that Dow had an announced policy of allocating to their distributors of Pelaspan-Pac primary areas, not exclusive areas, and that the termination of PPMI was not an attempt by Dow to enforce territorial exclusivity.
Plaintiff's third theory in support of their contention that Dow violated section 1 of the Sherman Act is that Dow, in combination with its other distributors, engaged in a group boycott which prevented them from acquiring Pelaspan-Pac from any source. It is clear that group boycotts or concerted refusals to deal constitute a violation of section 1. In Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959), the Supreme Court held that the requisite injury to the public might be found in denying one merchant access to goods which would preclude him from competing.
Plaintiff's support for this contention is limited to the testimony of Mr. Stolper, Mr. Smith, and Mr. Roberts, whose deposition was read into the record. Except for the testimony of Mr. Roberts who is a distributor, there is no evidence which explains the reason why the other distributors refused to sell Pelaspan-Pac to PPMI. The Court will not review what it has found to be the facts (see finding of fact 49). It is sufficient to state that in the opinion of the Court, Mr. Roberts' testimony, which is the only evidence which supports PPMI's claim, is not a sufficient basis from which to conclude that all of the distributors acted in concert, at Dow's urging, to deny PPMI access to Pelaspan-Pac. This is particularly true in light of the personal benefit Mr. Roberts stood to gain by avoiding the individual responsibility for not selling to PPMI and the specific denial by Mr. Smith that he told Mr. Roberts not to sell to PPMI.
In order for the plaintiff to prevail on the theory that Dow has violated section 2 of the Sherman Act, PPMI must show that they have a reasonable likelihood of proving (1) that Dow possesses monopoly power in a relevant market; and (2) that Dow willfully obtained or maintained the power rather than it having developed as a result of a superior product, business acumen or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966). In determining the relevant market it is necessary to identify it both in terms of product affect and geographic area. In the instant case there is no doubt that the relevant geographic market is national. The identification of the relevant product market is more complex. The relevant market is generally defined as that market in which the product competes; that is the market is composed of products that have reasonable interchangeability for the purposes for which they are produced. United States v. E.I. duPont de Nemours & Co., 351 U.S. 377, 100 L. Ed. 1264, 76 S. Ct. 994 (1956). To meet the test of reasonable interchangeability it is clear that the product need not be fungible but it must be something narrower than the infinite range of possible substitutes.
PPMI asserts that the relevant market for Pelaspan-Pac is expanded polystyrene loose fill cushioning material. Dow claims a much broader market which includes at least all types of loose fill packaging material. It is sufficient for the purpose of deciding the instant motion that the Court finds that the plaintiff has not, and we feel by a substantial degree, met its burden of showing that the relevant market is the one that they claim. See United States v. Chas. Pfizer & Co., 246 F. Supp. 464 (E.D.N.Y. 1965) where the court dismissed the action because the government failed to meet its burden of showing the relevant market. Mr. Bader, who was Product Manager for Pelaspan-Pac from 1968 to May of 1970, was the only witness who testified at any length regarding the relevant market. Mr. Bader testified on direct examination that in 1968 Dow estimated the market consisted of about 100 million pounds of cushioning material of which 50 million was loose fill and 50 million mold or foam. He further enumerated several kinds of loose fill cushioning material which are available on the market such as cut paper straw, excelsior or shredded wood, cellulose wadding, and rubberized hair. Moreover, Mr. Bader testified that there are probably 6 or 7 manufacturers other than Dow who now produce expanded polystyrene loose fill packaging which have the precise type of end use application as Pelaspan-Pac. The plaintiff's evidence on this subject really amounted to no more than the cross-examination of Mr. Bader, the effect of which was to show that the figures which he utilized were, as he had testified, estimates and not the result of a formal market study.
While we need not decide the issue, it would appear to the Court from the testimony presented during the hearing that the relevant market is loose fill packaging or cushioning material. Mr. Bader stated "We addressed ourselves to all of the cushioning market that I described the expanded polystyrene as well as excelsior, rubber hair, etc. . . . because our product, in truth, did compete. Many times we replaced or supplanted excelsior or shredded news, let's say. At other times we were competing against flowable-type products. Cushion wraps, we replaced cushion wraps. They replaced us. These were all different choices of manufacturers in terms of cushion value, degree of protection a product can afford, its appearance, its ease of use, its density, its weight, its basic cost, the economics. There are so many factors that are involved in the case of cushioning packaging material that we were head-to-head against all of these people in a whole spectrum of industry markets day in and day out." N.T. 9-160.
The Court will not belabor this issue anymore except to state that we also find that plaintiff has not met its burden of showing that even if we accept their statement of relevant market, that Dow has monopoly power within it or the additional necessary element of deliberateness. United Banana Co. v. United Fruit Co., 245 F. Supp. 161 (D. Conn. 1965), aff'd per curiam, 362 F.2d 849 (2nd Cir. 1966); Union Leader Corp. v. Newspapers of New England, Inc., 180 F. Supp. 125 (D. Mass. 1959), rev'd in part and aff'd in part, 284 F.2d 582 (1st Cir. 1960), cert. denied, 365 U.S. 833, 81 S. Ct. 747, 5 L. Ed. 2d 744 (1961).
PPMI also asserts that EPS constitutes a separate, relevant market over which Dow has 100% control, and that this monopoly, coupled with the territorial restrictions alleged in violation of section 1, constitute a violation of section 2. Without pausing to comment on the somewhat questionable merits that EPS constitutes a separate and distinct relevant market from Pelaspan-Pac, the Court, by its earlier finding that plaintiff has not demonstrated a reasonable likelihood of proving that Dow violated section 1, renders plaintiff's argument unmeritorious.
Conclusions of Law
1. The Court has jurisdiction over the subject matter of the complaint as well as jurisdiction over the parties.
2. Plaintiff, PPMI, has not shown that it has a reasonable likelihood that it will be able to prove at the trial on the merits that the termination of PPMI as a distributor by Dow was made pursuant to a unilateral effort on the part of Dow to enforce territorial exclusivity.
3. PPMI has not demonstrated a reasonable likelihood of prevailing on their contention that Dow's decision to terminate was influenced by the complaints or requests of other distributors and was made pursuant to or in furtherance of a conspiracy with these distributors to enforce exclusive territories.
4. Plaintiff has not shown that it has a reasonable likelihood of proving at the trial that the other distributors, at the insistence of Dow, boycotted or collectively refused to sell Pelaspan-Pac to PPMI.
5. PPMI has not demonstrated that the relevant market for Pelaspan-Pac is limited to expanded polystyrene loose fill packaging.
6. Since the Court has found that plaintiff has not shown a reasonable likelihood of prevailing on the merits at the trial, the Court does not reach the issue of irreparable harm.
7. Plaintiff is not entitled to the issuance of a preliminary injunction.