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Chrysler Motors Corp. v. Schneiderman

filed: August 9, 1991.

TOWN SOUND AND CUSTOM TOPS, INC. SUBURBAN AUTO SOUND & COMMUNICATIONS, INC. NORTHEAST ELECTRONICS SUPPLY, INC. DOMINION RADIO SUPPLY, INC., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, APPELLANTS
v.
CHRYSLER MOTORS CORPORATION



On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil No. 88-00083.

Dolores K. Sloviter, Chief Judge*fn* and Mansmann, Circuit Judges, and H. Lee Sarokin, District Judge.*fn**

Author: Sloviter

Opinion OF THE COURT

As increased numbers of automobile manufacturers include high quality radios as standard features, the demand for such radios from independent sources dwindles and the businesses of those who distribute, sell and install such equipment suffer. The plaintiffs, a group of distributors, retailers, and installers of car radios, brought suit in the United States District Court for the Eastern District of Pennsylvania, claiming that the inclusion of Chrysler radios as a standard feature in Chrysler automobiles constitutes illegal tying in violation of both section 1 of the Sherman Act, 15 U.S.C. § 1 (1988), and section 3 of the Clayton Act, 15 U.S.C. § 14 (1988). They sought injunctive relief and treble damages. The district court granted Chrysler's motion for summary judgment, holding that plaintiffs had failed to show that Chrysler possessed the requisite market power to control the tying product needed to show a prohibited tying arrangement. We must consider the evidence of market power that a plaintiff must produce in order to survive a summary judgment motion under both the per se and rule of reason theories of antitrust liability.

I.

Background Facts and Procedural History

We construe the facts in the light most favorable to the plaintiffs because the district court disposed of this case pursuant to a motion for summary judgment. See Brenner v. Local 514, United Bhd. of Carpenters, 927 F.2d 1283, 1286 (3d Cir. 1991). Chrysler Motors Corporation, which manufactures ten to twelve percent of all model automobiles sold in the United States, is the third largest manufacturer of motor vehicles in the United States. Chrysler sells its automobiles to its dealers throughout the United States pursuant to franchise agreements. Chrysler is also engaged in the manufacture and installation of automotive sound equipment, which it sells to Chrysler dealers and others in competition with the plaintiffs. Plaintiffs define automotive sound equipment, the "tied product," as AM/FM stereo radios and radios with cassette or compact disc players. When we refer in this opinion to "car radios," the term is intended to encompass the broader group of autosound equipment products.

Until sometime in the mid-1970's, car radios were sold by Chrysler and other automobile manufacturers as optional features for new vehicles, which were separately priced. A customer could order a new car without a radio through a Chrysler dealer, and would not be charged for a radio. Customers also were able to choose from many car models on a dealer's lot which had no factory installed radio. As a result, the customer could then either order a different car radio from the Chrysler dealer or purchase one from an independent retailer.

By 1978 many of the domestic automobile manufacturers automatically installed a standard model radio in each new automobile and included its price in the base price of the vehicle. For the model years 1980 to 1983 Chrysler offered a "delete option." This enabled customers and dealers to order an automobile that did not have a factory installed radio and, if they did so, they would receive a credit in the purchase price.

Beginning with the 1984 model year, Chrysler began to eliminate the delete option on its models; by 1988 it eliminated the delete option on essentially all of its vehicles, and the Chryslers were delivered to the dealers with factory installed radios. Chrysler gave its dealers a credit for radios removed by the dealers only if the customer purchased an upgraded Chrysler radio instead. It gave no credit to a dealer who replaced the Chrysler equipment with a non-Chrysler radio. It is thus not surprising that today over ninety-seven percent of the new Chrysler models have factory installed radios.

The four named plaintiffs each distribute and install car radios and, in addition, sell their equipment to automobile dealers for installation in new cars. With the exception of Northeast Electronics Supply, each of the plaintiffs also operates at least one retail store dealing in car radios. Plaintiffs sought to represent a class which they define as "all persons (excluding franchised dealers of Chrysler vehicles) who compete or who since January 1, 1984 competed with Chrysler in the sale of automotive sound equipment for installation in Chrysler vehicles sold in the United States." App. at 489.

In this suit, plaintiffs attack Chrysler's radio sales practices as illegal tying arrangements. More specifically, they challenge the following Chrysler practices: (1) the standardization of some form of automotive sound equipment on virtually all Chrysler cars; (2) the standardization of high quality car radios on many new Chryslers so that the price of the equipment is "hidden" in the price of the car; and (3) the elimination of the delete option whereby the purchaser previously received a credit when s/he opted to have the radio removed from the car.

Chrysler moved for summary judgment on July 15, 1988. For purposes of the motion, Chrysler conceded both that it has conditioned the sale of new Chrysler automobiles on the purchase and installation of Chrysler car radios and that this tying arrangement affects a not insubstantial amount of interstate commerce. Chrysler sought summary judgment on the ground that the plaintiffs could not show the requisite market power in a properly defined relevant market for the tying product.

The district court defined the relevant tying product market to include all cars manufactured for sale in the United States. It concluded that Chrysler's ten to twelve percent market share could not constitute market power as a matter of law and that therefore the plaintiffs could not recover under their per se theory of liability. The district court then defined the tied product market to include all automotive sound equipment sold in the United States for installation in automobiles. Because Chrysler's share of sales in this market ranged from three to seven percent during the time period in question, the district court found that Chrysler could neither restrain trade nor foreclose competition in the market as a matter of law. With no market power in the tying product market and Chrysler's inability to restrain trade in the tied product market, the district court concluded that the plaintiffs could not prevail under a rule of reason theory of liability. Finally, the district court rejected the plaintiffs' contention that a showing of market power over the tying product is not required under section 3 of the Clayton Act. On the same day, the district court denied the plaintiffs' pending motions, inter alia, for class action certification and to compel answers to interrogatories and production of documents regarding cost and profit information on Chrysler's radio sales.

The district court had jurisdiction pursuant to 28 U.S.C. § 1337 (1988). This court has jurisdiction pursuant to 28 U.S.C. § 1291 (1988). Our standard of review of the grant of a summary judgment motion is plenary. Waldorf v. Shuta, 896 F.2d 723, 728 (3d Cir. 1990). Summary judgment can be granted only if there is no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the evidence is such that a reasonable jury could return a verdict for the nonmoving party, then summary judgment must be denied. Id. We turn to that issue.

II.

Per Se Antitrust Liability

A tying arrangement is effected when a seller conditions the sale of one product (the tying product) on the purchase of another product (the tied product). Bogosian v. Gulf Oil Corp., 561 F.2d 434, 449 (3d Cir. 1977), cert. denied, 434 U.S. 1086 (1978). Not every refusal to sell two products separately violates the antitrust laws. Instead, as the Supreme Court has explained, a tying arrangement is invalid when the seller exploits its control over the tying product

to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. When such "forcing" is present, competition on the merits in the market for ...


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