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Sunshine Books v. Temple University

decided: December 28, 1982.

SUNSHINE BOOKS, LTD., APPELLANT
v.
TEMPLE UNIVERSITY, OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION APPELLEE



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil Action No. 80-4546)

Adams, Hunter, and Becker, Circuit Judges.

Author: Becker

BECKER, Circuit Judge.

Price competition in the retail sale of undergraduate textbooks at Temple University prompted this antitrust suit by appellant Sunshine Books, Ltd. ("Sunshine"), against appellee Temple University ("Temple"). Temple has long operated a student bookstore (the "Bookstore"); Sunshine sells student textbooks from a truck or trailer parked on the street near the Bookstore. Complaining that the Bookstore's one-week "manager's special" on fifty undergraduate textbook titles (offered at fifteen percent off suggested retail price) represented an attempt by Temple to monopolize the sale of undergraduate course textbooks to students at the University by means of predatory pricing, Sunshine brought this action against Temple under Section 2 of the Sherman Act,*fn1 15 U.S.C. ยง 2 (1976).*fn2

Temple moved for summary judgment on the ground that its discounted prices were above average variable cost and, therefore, were presumptively not predatory. The district court allowed a brief period of discovery limited to issues raised by the motion. Then, relying exclusively on the Areeda-Turner definition of predatory pricing,*fn3 the court concluded that there were no genuine issues of material fact and that Temple had not priced the books sold during the "manager's special" below marginal or average variable cost; it therefore granted summary judgment for Temple. Sunshine Books, Ltd. v. Temple University, 524 F. Supp. 479, slip op. at 5, 10-11 (E.D. Pa. 1981).

Although this Court has reserved the question whether the Areeda-Turner standard represents the appropriate definition of predatory pricing, O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 352 (3d Cir. 1981), cert. denied, 455 U.S. 1017, 102 S. Ct. 1711, 72 L. Ed. 2d 134 (1982), we need not reach that question here, for we find the existence of a genuine issue of material fact even within the Areeda-Turner framework. We therefore will vacate the decision below and remand for further proceedings.

I. FACTUAL AND PROCEDURAL BACKGROUND

Temple University operates five bookstores; the one whose practices are at issue here is located at the University's main campus in North Philadelphia.*fn4 That store carries each of the approximately 3,800 textbook titles used each semester in Temple's undergraduate and graduate courses and also stocks clothing, gifts, greeting cards, newspapers, magazines, and other publications of general interest.

In January 1979, Sunshine began to sell various school supplies and some graduate and undergraduate textbooks, at approximately ten percent off suggested retail prices, from a truck or trailer parked near Temple's Bookstore.*fn5 This enterprise, which continued only for the first two or three weeks of the semester, was repeated at the beginning of subsequent semesters.

The events that triggered the present suit began on the first day of Temple's Fall 1980 term, when the Bookstore ran a one-week "manager's special," offering fifty undergraduate textbook titles at fifteen percent below their suggested retail prices. The only titles discounted, with two or three exceptions, were those also sold by Sunshine. Upon hearing of the "manager's special," Sunshine posted the Bookstore's prices on its trailer and undercut those prices by an additional twenty-five cents. Sunshine then brought this action, alleging that Temple had attempted to monopolize the sale of undergraduate textbooks to students at the University by means of predatory pricing. Sunshine predicated its Sherman-Act claim essentially on the allegation that Temple had priced the books sold during the "manager's special" below cost, thereby forcing Sunshine to sell its own books below cost in order to compete.*fn6

Temple moved to dismiss or, in the alternative, for summary judgment, relying solely on its assertion that it had not sold the textbooks below cost and therefore could not have violated the Sherman Act. The district court allowed discovery on the cost issue and then granted Temple's motion.*fn7

II. APPLICABLE LEGAL PRINCIPLES

This Court hardly needs to reiterate that the purpose of the Sherman Act always has been to promote vigorous competition. Gordon v. New York Stock Exchange, Inc., 422 U.S. 659, 689, 45 L. Ed. 2d 463, 95 S. Ct. 2598 (1975). Congress envisioned that rival sellers, seeking to enlarge their market shares, would lower prices in order to woo buyers from competing merchants. Such price competition undeniably would injure some sellers but also would improve the lot of consumers. Thus, "the antitrust laws . . . protect competition, not competitors; and stiff competition is encouraged, not condemned." Travelers Insurance Co. v. Blue Cross of Western Pennsylvania, 481 F.2d 80, 84 (3d Cir.), cert. denied, 414 U.S. 1093, 38 L. Ed. 2d 550, 94 S. Ct. 724 (1973).

At the same time, prices that are calculated to destroy, rather than reflect, competition do not comport with the Act's purposes. "A firm which drives out or excludes rivals by selling at unremunerative prices is not competing on the merits, but engaging in behavior that may properly be called predatory." 3 P. Areeda & D. Turner, Antitrust Law para. 711, at 150 (1978). Firms engage in such conduct with the intent of "'foregoing present profits in order to create a market position in which [they] could charge enough to obtain supra-normal profits and recoup [their] present losses.'" O. Hommel Co. v. Ferro Corp., supra, 659 F.2d at 348 (quoting Hanson v. Shell Oil Co., 541 F.2d 1352, 1358 (9th Cir. 1976), cert. denied, 429 U.S. 1074, 50 L. Ed. 2d 792, 97 S. Ct. 813 ...


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