Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

WENDKOS v. ABC CONSOL. CORP.

July 12, 1974

BURTON S. WENDKOS, t/a POP CORN SEZ CO., et al.
v.
ABC CONSOLIDATED CORPORATION, et al. VEND-A-SNAK, INC. v. ABC CONSOLIDATED, et al.



The opinion of the court was delivered by: LUONGO

 This is an antitrust case. Plaintiff Burton S. Wendkos, trading as Pop Corn Sez Co., is a manufacturer of popcorn. Plaintiff Vend-a-Snak, Inc. owns 100 popcorn machines which it stocks with Wendkos' popcorn. Wendkos and Vend-a-Snak *fn1" allege that defendants ABC Consolidated Corporation (ABC) and Berlo Vending Company, *fn2" a fully owned subsidiary of ABC, have unlawfully attempted to monopolize and have monopolized the business of supplying and operating concessions and vending machines for indoor and outdoor motion picture theatres throughout the United States and, more particularly, in the Philadelphia and New York film exchange area, which includes Pennsylvania, New York, New Jersey and Delaware. Presently before the court is defendant's request for rulings on certain points of law.

 I.

 Throughout the preliminary stages of this case, plaintiff rested his claims on ABC's alleged violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and § 7 of the Clayton Act, 15 U.S.C. § 18. In proposing provisions for a final pretrial order, plaintiff set forth for the first time an allegation of illegal tying practices in violation of § 3 of the Clayton Act, 15 U.S.C. § 14. "Rules governing tying arrangements are designed to strike . . . at the use of a dominant desired product to compel the purchase of a second, distinct commodity. In effect, the forced purchase of the second, tied product is a price exacted for the purchase of the dominant, tying product." Siegel v. Chicken Delight, Inc., 448 F.2d 43, 47 (9th Cir. 1971); Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 614, 97 L. Ed. 1277, 73 S. Ct. 872 (1953). The crux of plaintiff's tying complaint is that ABC achieved competitive dominance in the area of concession services and products by conditioning its willingness to make sizeable loans without interest to movie theatres on the theatres' willingness to purchase its products and services. ABC contends that Clayton § 3 is inapplicable to this case as a matter of law and that regardless of the substantive merits of the claim, plaintiff waived it by waiting eight years before setting it forth.

 Section 3 of the Clayton Act, 15 U.S.C. § 14 provides in pertinent part:

 
"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, . . . for use, consumption, or resale within the United States . . . or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce."

 ABC argues (1) that money is not a "commodity" for Clayton § 3 purposes, and (2) that it is in the business of selling a service, which is not covered by Clayton § 3, rather than a product or a line of products, which would be.

 Since it is axiomatic that both the "tying" and the "tied" products must be covered by Clayton § 3, either of ABC's arguments, if accepted, would doom plaintiff's claim under this section. I find that ABC is correct on both points. It seems clear that the term "commodities" for Clayton § 3 purposes does not include money in the form of loans. Plaintiff has acknowledged that there is no meaningful difference between this case and United States v. Investors Diversified Services, Inc., 102 F. Supp. 645 (D. Minn. 1951), in which the court held that loans made on the condition that recipients take out hazard insurance with the lender were not tying products under Clayton § 3. The court's review of the legislative history convinced it that Congress intended that the phrase "other commodities" relate back to the terms "goods, wares, merchandise, machinery, supplies," and that if these words were given their ordinary meaning they would "not include money which . . . is a medium of exchange." 102 F. Supp. at 648. There is no support for plaintiff's assertion that the terms of Clayton § 3 have been interpreted with increasing liberality in recent years. Bichel Optical Laboratories, Inc. v. Marquette Nat'l Bank of Minneapolis, 336 F. Supp. 1368 (D. Minn. 1971), is a clear recent statement of the continuing view that lending money and charging interest is not a "commodity or sale" within the ambit of the Clayton Act. More generally, several recent cases have underscored the principle that the term "commodities" is construed strictly, and does not include, e.g., entertainment tickets which are revocable licenses rather than commodities, Kennedy Theater Ticket Service v. Ticketron, Inc., 342 F. Supp. 922 (E.D. Pa. 1972); mutual fund shares, Baum v. Investors Diversified Services, Inc., 409 F.2d 872 (7th Cir. 1969); or a news report service, Tri-State Broadcasting Co. v. United Press Int'l, Inc., 369 F.2d 268 (5th Cir. 1966). *fn3" I conclude then, as a matter of law, that Clayton § 3 is inapplicable since the alleged tying product is money and, therefore, is not a "commodity" for Clayton § 3 purposes.

 The cases cited above make it clear that Clayton § 3 does not apply to tying arrangements where services are involved. Although it is unnecessary to determine the issue, in my view the alleged "tied" product here, ABC's actual concession business, also falls outside the ambit of the coverage of Clayton § 3. ABC does not supply only the merchandise which is sold in theatres; it furnishes an entire package which includes merchandise, vending machines, and personnel to run concession stands and to service and supply the vending machines. As the Fifth Circuit observed in Tri-State Broadcasting, supra, 369 F.2d at 270, "virtually no transfer of an intangible in the nature of a service, right, or privilege can be accomplished without the incidental involvement of tangibles . . . the dominant nature of the transaction must control whether it falls within the provisions of the Act." In this case, "service" is really the only word which effectively describes the concession package which ABC sells to contracting theatres. That being so, neither the tying nor the tied product comes within Clayton § 3, making the provision doubly inoperative.

 Despite this conclusion, the "tying" claim can continue to play a central part in plaintiff's case against ABC. The tying of a service to a product, or in this case, of money to a service, while not proscribed by Clayton § 3, can constitute a restraint of trade in violation of § 1 of the Sherman Act. See, e.g., Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958); Fortner Enterprises v. U.S. Steel, 394 U.S. 495, 22 L. Ed. 2d 495, 89 S. Ct. 1252 (1969). Where tying agreements are exacted, competition on the merits with respect to the tied product will inevitably be curbed. Indeed, "tying agreements serve hardly any purpose beyond the suppression of competition." Standard Oil Co. of California v. United States, 337 U.S. 293, 305-306, 93 L. Ed. 1371, 69 S. Ct. 1051 (1949). "They deny competitors free access to the market for the tied product, not because the party imposing the tying requirements has a better product or a lower price but because of his power or leverage in another market." Northern Pacific Ry. Co., supra, 356 U.S. at 5-6. For these reasons, tying arrangements are in fact per se violations of Sherman § 1, if plaintiff can prove the substance of his allegations and show that ABC "has sufficient economic power to appreciably restrain free competition in the market for the tied product and a 'not insubstantial ' amount of interstate commerce is affected." Northern Pacific Ry. Co., supra ; International Salt Co., Inc. v. United States, 332 U.S. 392, 92 L. Ed. 20, 68 S. Ct. 12 (1947).

 This analysis is premised, of course, on the assumption that allowing plaintiff to state a claim for "tying" at this point would not unduly prejudice ABC. Despite ABC's protests, it is my view that no prejudice results from this "tying claim." It is true that allegations of tying were not set forth with precision in the complaint. However, "it is too late in the day and entirely contrary to the spirit of the Federal Rules of Civil Procedure for decisions on the merits to be avoided on the basis of such mere technicalities." Foman v. Davis, 371 U.S. 178, 181, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). "The Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits." Conley v. Gibson, 355 U.S. 41, 48, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). The complaint *fn4" and even the pretrial order *fn5" can be amended where the court believes that justice on the merits requires it.

 The substance of the tying allegation has been part of this case since its inception. Paragraph 25 of the complaint alleges that ABC "offered and made preclusive and unwarranted advances of funds, loans or periodic commission payments to motion picture theatre owners and operators in such substantial amounts as to foreclose competition . . . ." Since the relevant line of commerce in this case was at all times the supplying of refreshments and services to movie theatres, the natural interpretation of this paragraph is that illegal tying was being alleged. If for some reason ABC resisted this obvious inference, it knew from the complaint that its policy of granting advances to movie theatres was under attack. "Thus, the only surprise which the defendants could properly claim would result from introduction of different legal issues. All litigation stands in the shadow of such a contingency." Castlegate v. Nat'l Tea Co., 34 F.R.D. 221, 226 (D. Col. 1963). The cases cited by ABC in which the right to amend or inject new issues was denied were extreme cases in which either real prejudice would have resulted from last minute surprise or extensive further pretrial discovery would have been required. *fn6" Those cases cannot be meaningfully equated with the situation here. I conclude that while Clayton § 3 is inapplicable, plaintiff can try to prove illegal tying arrangements under Sherman § 1.

 II.

 The second point of contention between the parties concerns the effect of a 1964 FTC consent decree on this case. On November 4, 1959, the FTC issued a complaint against ABC, charging that the acquisitions by ABC of Confection Cabinet Corp. and Charles Sweet Co. violated § 7 of the Clayton Act, and that certain of ABC's practices and purchasing activities and the two acquisitions violated § 5 of the FTC Act. A hearing examiner conducted an extensive hearing and on April 15, 1964 concluded that the acquisitions both jointly and separately were violative of § 7. The hearing examiner recommended that the FTC order ABC to divest both the acquired companies. On October 22, 1964, the FTC and ABC entered into a consent decree ordering divestiture of "motion picture theatre concessions and contract rights for the operation of motion picture theatre concessions . . . having aggregate concessionary sales of not less than ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.