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Chrysler Motors Corp. v. Schneiderman


filed: August 9, 1991.


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


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.


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.


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 the tied item is restrained and the Sherman Act is violated.

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984).

The Court also noted the adverse effects to the competitors of the seller from such arrangements, because the tying seller may be working toward a monopoly position in the tied product. "Even if he is not, the practice of tying forecloses other sellers of the tied product and makes it more difficult for new firms to enter that market." Id. at 13 n.19 (quoting from Justice White's dissent in Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 513 (1969)). These new competitors must not only compete on price and quality but they must "offset the attraction of the tying product itself," which the Court noted was difficult because simultaneous entry into both markets is significantly more expensive than entry into the tied market alone. Id. The Court further noted the adverse effect on consumers, stating:

And from the standpoint of the consumer--whose interests the [Sherman Act] was especially intended to serve--the freedom to select the best bargain in the second market is impaired by his need to purchase the tying product, and perhaps by his inability to evaluate the true cost of either product when they are available only as a package.

Id. at 15.

For these reasons, those tying arrangements that pose an unacceptable risk of stifling competition are deemed unreasonable per se. That categorization is reserved for those "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958); see Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 50 (1977).

A per se tying offense is established when the plaintiff proves three elements: (1) the existence of a tie; (2) that the defendant has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and (3) that a not insubstantial amount of interstate commerce is affected. Bogosian v. Gulf Oil Corp., 561 F.2d at 449; Ungar v. Dunkin' Donuts of America, Inc., 531 F.2d 1211, 1223-24 (3d Cir.), cert. denied, 429 U.S. 823 (1976). For purposes of the district court's summary judgment determination, Chrysler conceded the presence of the first and third elements. With respect to the plaintiffs' per se claim, then, we need only decide whether the district court properly ruled that Chrysler lacked sufficient economic power in the tying product market as a matter of law.

In Jefferson Parish, 466 U.S. at 16-17, the Supreme Court described three conditions under which courts have typically found sufficient economic power in the tying product market to justify per se condemnation. The seller may possess such economic power (1) if the government has granted it a patent or similar monopoly over a product; (2) if its share of the market is high enough so that it occupies a dominant market position; or (3) by offering a unique product or by having some market advantage not shared by its competitors.*fn1

Plaintiffs do not argue that Chrysler's ownership of patents on some of its automobile parts confers any market power on Chrysler. Instead, they argue that the relevant tying market consists only of Chrysler automobiles, and contend that Chrysler has a dominant market position. Obviously, if we were to accept that definition of the relevant market, then plaintiffs' claim that Chrysler possessed economic power within the relevant market could not be dismissed on summary judgment.

The district court, however, defined the tying product market to include all automobiles manufactured for sale in the United States. Plaintiffs contend that by doing so the district court improperly engaged in fact finding because the scope of the relevant market is a question of fact for jury resolution and a reasonable jury could have concluded that the relevant market consisted solely of Chrysler automobiles.

A market is composed of those products that are reasonably interchangeable for the purposes for which they are produced, considering price, use and qualities. See United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 404 (1956); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1062-63 (3d Cir.), cert. denied, 439 U.S. 838 (1978). Market definition is indeed a question of fact dependent upon the special characteristics of the industry involved. Weiss v. York Hosp., 745 F.2d 786, 825 (3d Cir. 1984), cert. denied, 470 U.S. 1060 (1985); Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 28 (3d Cir.), cert. denied, 439 U.S. 876 (1978). Nevertheless, the relevant market may be properly determined on summary judgment in some cases, assuming no material factual dispute. See In re Air Passenger Computer Reservations Systems Antitrust Litigation, 694 F. Supp. 1443, 1459 (C.D. Cal. 1988).

With respect to the plaintiffs' per se theory, summary judgment may be particularly appropriate here because plaintiffs' contention that a properly defined market includes only Chrysler automobiles has been flatly rejected by several courts. See Kingsport Motors, Inc. v. Chrysler Motors Corp., 644 F.2d 566, 571 (6th Cir. 1981) (relevant market consists of sum total of medium-priced automobiles manufactured by Chrysler and all other automobile manufacturers and sold in the United States); Merit Motors, Inc. v. Chrysler Corp., 417 F. Supp. 263, 269 (D.D.C. 1976) ("Automobiles are more or less interchangeable items, and the price of one brand affects the demand for other brands. . . . Hence, it is clear that the relevant market . . . cannot be limited to the sale of one brand of automobile, but must include the fleet market for all brands of automobiles."), aff'd, 569 F.2d 666 (D.C. Cir. 1977); see also R.D. Imports Ryno Indus., Inc. v. Mazda Distrib. (Gulf), Inc., 807 F.2d 1222, 1225 n.2 (5th Cir.) (market not limited to Mazdas because "Mazda vehicles had a variety of domestic and foreign substitutes"), cert. denied, 484 U.S. 818 (1987); Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418, 420 (D.C. Cir.) (other cars are "reasonably interchangeable by consumers for the same purposes" as Packard cars and are therefore in competition with Packard cars), cert. denied, 355 U.S. 822 (1957); Mogul v. General Motors Corp., 391 F. Supp. 1305, 1313 (E.D. Pa. 1975) (market not limited to Cadillacs), aff'd, 527 F.2d 645 (3d Cir. 1976).

Contrary to plaintiffs' contention, our decision in Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338 (3d Cir. 1975), does not provide support for their proffered market definition. In Coleman, we set aside a jury verdict on the ground that the district court had improperly instructed the jury at least implicitly that the relevant market consisted of retail trade of Dodge automobiles alone. Id. at 1349. Because there was some evidence that Dodge automobiles compete with all other automobiles, the district court erred in limiting the relevant market in its interrogatory. Nowhere in Coleman did this court encourage inclusion of a single brand of automobile in the product market definition.

In any event, the evidence in the present case overwhelmingly supports Chrysler's contention that the relevant market includes all automobiles manufactured for sale in the United States. The summary judgment record contains affidavits submitted by Chrysler as well as reports of Chrysler dealer meetings supporting Chrysler's position that Chrysler dealers perceive themselves as competing with dealers handling other cars with respect to price, features, quality, comfort, warranties, financing and other terms. Furthermore, the consumers compare these terms across different manufacturers' automobiles.

In contrast, the evidence relied upon by plaintiffs, the affidavit submitted by their expert witness, Dr. Adams, does not support their narrow market definition because Dr. Adams states his opinion only with respect to the proper definition of the tied product market. He never attempts a proper definition of the tying product market. Moreover, the affidavit does nothing more than state a conclusion, and we deem it inadequate to raise a factual issue which will withstand summary judgment. Absent any evidence that Chrysler does not compete with other automobile manufacturers, we conclude that the district court properly defined the relevant market on summary judgment to include all automobiles sold in the United States.

During the time period in question, ten to twelve percent of the cars sold in the United States were Chrysler automobiles. According to controlling Supreme Court precedent, Chrysler's market share is not large enough to justify per se condemnation of its tying practices. In Jefferson Parish, for example, the Supreme Court held that because the defendant hospital serviced only thirty percent of the patients in the geographic area, it lacked the "kind of dominant market position that obviates the need for further inquiry into actual competitive conditions." 466 U.S. at 26-27; see also Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612-13 (1953) (publishing company which owns newspapers with thirty-three to forty percent share of advertising market not in a position of market dominance); Allen-Myland, Inc. v. International Business Machines Corp., 693 F. Supp. 262, 277-78 (E.D. Pa. 1988) (twenty to thirty-two percent market share not enough to constitute market power under per se test). Chrysler's market share is substantially smaller than the market shares of the defendants in both Jefferson Parish and Times-Picayune, and thus the district court did not err in determining that Chrysler did not possess the requisite market share in the tying product market as a matter of law.

Nor are Chrysler automobiles sufficiently unique to warrant application of the per se rule to Chrysler's radio practices. Uniqueness for per se purposes "presupposes that competitors are in some way foreclosed from offering the distinctive product." Carpa, Inc. v. Ward Foods, Inc., 536 F.2d 39, 48 (5th Cir. 1976). The plaintiffs assert that Chrysler is a popular trademark, but "a prestigious trademark is not itself persuasive evidence of economic power." See, e.g., Mozart Co. v. Mercedes-Benz of North America, Inc., 833 F.2d 1342, 1346 (9th Cir. 1987), cert. denied, 488 U.S. 870 (1988); Carpa, Inc. v. Ward Foods, Inc., 536 F.2d at 48 (trademark provides evidence of market leverage, but it cannot alone demand presumption of economic power); Tominaga v. Shepherd, 682 F. Supp. 1489, 1494 (C.D. Cal. 1988). Nor is intense brand loyalty sufficient to presume market power. Disenos Artisticos E Industriales, S.A. v. Work, 714 F. Supp. 46, 48 (E.D.N.Y. 1989); see also Grappone, Inc, v, Subaru of New England, Inc., 858 F.2d 792, 797 (1st Cir. 1988) ("Virtually every seller of a branded product has some customers who especially prefer its product. But to permit that fact alone to show market power is to condemn ties that are bound to be harmless, including some that may serve some useful social purpose."). Of course, these factors may prove relevant in a rule of reason inquiry, the subject to which we now turn. For purposes of per se illegality, however, we conclude that the district court properly rejected the plaintiffs' theory.


Rule of Reason Inquiry

When, as here, a seller does not possess the market power that enables it to force customers to purchase a second product as a condition to obtaining the tying product, an antitrust violation for tying can nonetheless be established by evidence that the tie is an unreasonable restraint on competition in the relevant market. Jefferson Parish, 466 U.S. at 18. "The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition, or whether it is such as may suppress or even destroy competition." Hand v. Central Transport, Inc., 779 F.2d 8, 10 (6th Cir. 1985) (per curiam) (quoting Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1196 (6th Cir. 1982), and Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918)). The rule of reason focuses directly on the challenged restraint's impact on competitive conditions and requires the court to examine the purposes and effects of an allegedly anticompetitive practice to determine whether the general standards of the antitrust laws have been violated. See Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 500 (1969); Carl Sandburg Village Condo. Ass'n v. First Condo. Dev. Co., 758 F.2d 203, 210 (7th Cir. 1985); Allen-Myland, 693 F. Supp. at 293.

The district court granted summary judgment in favor of Chrysler on plaintiffs' rule of reason theory because it interpreted Jefferson Parish to require a plaintiff to prove that the defendant has market power in both the tying and tied product markets. The court stated that "the majority opinion [in Jefferson Parish ] nowhere states or implies that market power over the tying product is not required under the rule of reason." Typescript Memorandum Opinion at 15. Inasmuch as the court had already ruled in connection with the plaintiffs' per se claim that Chrysler's ten to twelve percent share of a market defined as all automobiles sold in the United States was insufficient as a matter of law to constitute market power, it followed that plaintiffs failed to show the market power the court deemed necessary in the tying product market for the rule of reason analysis.

The court defined the tied product market as all automotive sound equipment sold in the United States for installation in automobiles. Because Chrysler was unable to restrain competition in the tied product market in light of its three to seven percent share of that market, the district court ruled that plaintiffs had not shown that Chrysler's tying practices failed under the rule of reason analysis.

It is apparent that if the district court correctly analyzed the requirements for showing an unreasonable restraint of trade, the rule of reason analysis would be collapsed into the per se test. If both tests have identical market power requirements, then a tying practice that failed to withstand the rule of reason analysis would ipso facto constitute a violation under the per se test. Indeed, it would be much harder to establish a violation under the rule of reason test because of the need to make an extensive inquiry into the purpose and actual anticompetitive effects of the practice. Although the four concurring Justices in Jefferson Parish advocated only a single analysis in tying cases, even they did not suggest accomplishing that by abrogating the rule of reason analysis; rather they sought to abolish the per se test. The district court's reasoning is anomalous because in effect it would do precisely the opposite.

In any event, the majority in Jefferson Parish plainly held that both tests continue to be applicable. The district court's holding that plaintiffs must show that Chrysler has market power in the tying product market sufficient to force a tie, even when determining whether the tying practice is an unreasonable restraint, cannot be reconciled with Jefferson Parish. There the Court stated that even when "the seller does not have either the degree or kind of market power that enables him to force customers to purchase a second, unwanted product in order to obtain the tying product," an antitrust violation can be established if there is an unreasonable restraint on competition. 466 U.S. at 17-18; see also Note, Market Power And Monopoly Power In Antitrust Analysis, 75 Cornell L. Rev. 190, 194-95 nn.12 & 15 (1989) (after Jefferson Parish, plaintiffs can still proceed under a rule of reason analysis even though there is no showing of market power).

The analysis used by the Court in Jefferson Parish to determine whether there was an unreasonable restraint on trade is instructive: the Court focused only on whether plaintiff had shown that the hospital's requirement that patients use only the anesthesiological services provided by the doctors' group with which it had an exclusive contract actually affected competition among anesthesiologists. In other words, rather than performing a simplistic market share analysis, the dispositive issue for the majority was the effect of the challenged practice, whether viewed as a tie or exclusive dealing contract, on price or quality of the tied item. 466 U.S. at 30 n.49; cf. FTC v. Indiana Federation of Dentists, 476 U.S. 447, 460-61 (1986) ("Since the purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition, proof of actual detrimental effects . . . can obviate the need for an inquiry into market power, which is but a surrogate for detrimental effects.").

We do not understand the four concurring Justices in Jefferson Parish to have taken a contrary position. Although they would have required some showing of market power in the tying product market, the concern of those Justices seems to have been over whether the defendant possessed at least enough leverage in the tying product market to effect a tie. In the present case, Chrysler has already conceded the presence of a tie. Moreover, it appears that the concurring Justices are likely to suspend this market power requirement in those cases where an effect on the tied product market is shown. See 466 U.S. at 35 ("the purpose of tying law has been to identify and control those tie-ins that have a demonstrable exclusionary impact in the tied product market . . . or that abet the harmful exercise of market power that the seller possesses in the tying product market"). Thus, the appropriate tying analysis is not accomplished by a mechanical market share inquiry under either the majority or concurring opinions but rather entails a realistic appraisal of the effect of the arrangement on the relevant market.

We do not dwell on the purpose of Chrysler's tie because it seems almost self-evident that the tie was deliberate. Its prior practice had been to sell the car and the radio independently.*fn2 However, an internal Chrysler memorandum in 1983 by a departmental specialist to the manager of Options and Mix Merchandising stated, "we will support product planning's proposal to make radios standard on everything. . . . Our field force should have ample reason to force our radios in place of aftermarket installations." App. at 301 (emphasis supplied). Thus, we focus on the effects of the tying practice.

Before reviewing the evidence of the effect on the market allegedly restrained, we must consider plaintiffs' challenge to the court's definition of the tied product market. The district court defined that market to include not only car radios sold by independents but also those sold by other car manufacturers. We consider the inclusion of each separately.

Chrysler introduced evidence that most of the radios made by independent manufacturers are built in a standard size, known as DIN (Deutsche Industrie Norm). The DIN size is slightly smaller than most systems built by automobile manufacturers themselves, but it can be matched to the open space in a vehicle's dashboard by means of an inexpensive face plate. DIN units can therefore be installed in most, if not all, domestically produced automobiles as well as in most imports and can consequently compete with Chrysler radios for installation in its automobiles. Thus, they are effectively in competition with radios sold and installed by Chrysler.

In contrast, Chrysler apparently introduced no evidence indicating that the radios produced by other car manufacturers can fit into Chrysler automobiles or that they are installed in other cars. If the radios supplied by, for example, Ford and General Motors cannot be used in Chrysler vehicles, then they cannot realistically be deemed part of the tied market because they do not compete with Chrysler's radios. See Weiss v. York Hosp., 745 F.2d 786, 826 (3d Cir. 1984) (in defining a market in an antitrust case, the fact finder must take into account the realities of competition). We do not suggest that in fact the radios supplied by other car manufacturers could not be deemed to be functionally competitive with Chrysler radios installed in Chrysler automobiles. This would depend, in part, on whether a Chrysler owner could realistically obtain a Ford radio if the owner preferred. We note merely that the record on summary judgment contained insufficient evidence to support the district court's broad market definition, and it follows that the district court could not discount the effect of the tie on the tied product market merely on the basis of Chrysler's small share of the market defined by the court.

Regardless of the proper tied product market definition, however, plaintiffs proffered sufficient evidence to raise at least a genuine issue of fact regarding adverse effects of the tie on competition in the market for sales of car radios. The plaintiff in Jefferson Parish failed to prove an unreasonable restraint on trade because, even after a full trial, he produced no evidence of any effect of the tying arrangement on either the price or the quality of the anesthesiologists who worked at the hospital. 466 U.S. at 31 n.52. In addition, there was no evidence of any complaints concerning the quality of the hospital's anesthesiological services.

In contrast, the plaintiffs in this case have presented abundant evidence that Chrysler dealers often complained to the company, both before and after Chrysler imposed the tie, that the radios Chrysler supplied were of poor quality and were overpriced. For example, dealers at a council meeting in Cincinnati in September 1987 complained that "radios are extremely overpriced," App. at 298, and it was commented in an internal Chrysler memorandum dated May 6, 1987 that the dealers "are convinced that the higher the cost of a Chrysler radio, the lower the quality of the radio." App. at 295. Similarly, it was stated in a Chrysler-Plymouth Dealer Council Synopsis of the 1985 Spring Meeting that:

Council wishes to advise the Corporation that the quality of our radios is below industry standards. The dealer body is receiving constant complaints on reception of local stations, even after repairs have been attempted. Council requests that the Corporation research the situation and make necessary changes to improve radio quality. Our poor radio quality destroys our current image of 'Being the Best.'

App. at 238 (emphasis in original). Furthermore, a survey of Chrysler dealers dated January 1984 conducted during the period when the delete option was still available showed that fifty-two percent of those dealers surveyed would have ordered more Chrysler factory radios if they were more price competitive. App. at 303.

Moreover, plaintiffs also presented a consumer survey which reported that 13.4 percent of Chrysler buyers would have preferred to choose a different brand or type of radio than that supplied with their cars and that 20.8 percent would have preferred to have had the option to purchase a car without its accompanying automotive sound equipment. This evidence, if credited by a jury, could show that Chrysler was in a position to foist an inferior product on some portion of buyers of the tied product.

Plaintiffs also proffered deposition testimony stating that they, as independent suppliers, retailers and installers, were suffering from decreased profit margins and sales volumes as a result of the tie. There is evidence that the profit margin on the sale and installation of car radios by independents was as high as eighty-five percent. App. at 141. Chrysler's inclusion of the radio as a standard feature of its automobiles enabled it to reap high profits on the sale of more radios as a result of its insulation from competition with independent retailers and installers on the basis of price, service, or quality.*fn3 This evidence, if credited by a jury, would tend to show that Chrysler's tie of radios to the purchase of Chrysler cars caused the two principal effects which the Supreme Court identified in Times-Picayune as the harms from tying arrangements, i.e., the inhibition of buyers from making their preferred purchase choice on the merits and the exclusion of competing sellers in the tied product market from the market. See Times-Picayune, 345 U.S. at 605.

In evaluating the effect of the tying practice at issue on the autosound retail and installation market we deem it significant that there was evidence that the other car manufacturers are also making radios a standard feature in their automobiles. This spreading practice, which was not referred to in the district court's opinion, has been admitted by Chrysler. Thus, we do not encounter a market condition analogous to the frequently cited single neighborhood grocer who ties the sale of flour to the sale of sugar. See Jefferson Parish, 466 U.S. at 12 (quoting Northern Pacific, 356 U.S. at 7) ("If one of a dozen food stores in a community were to refuse to sell flour unless the buyer also took sugar it would hardly tend to restrain competition in sugar if its competitors were ready and able to sell flour by itself."). Rather, if indeed many of Chrysler's competitors are engaging in a similar tie, the barriers to entry into the tied market will be raised immeasurably, and possibly permanently. This is particularly relevant in light of the Supreme Court's statements that the antitrust laws are designed to prevent such barriers to entry in the tied product market. See, e.g., Jefferson Parish, 466 U.S. at 13 n.19, 14.

Chrysler argues that we should rely on competition among car manufacturers with respect to the price of automobiles as a whole to prevent consumer exploitation. However, because the radio is a very small component of the car purchase and is relatively inexpensive compared to the price of the automobile, competition at the automobile level is not likely to insure competition in the car radio product market.*fn4 That is the market to which our inquiry must be directed in this case, and Chrysler has not shown why the effect of the tie on that market will be any less anticompetitive just because the car manufacturers may be engaged in fierce competition at another level.

Of course, even if it is determined that Chrysler's tie of car radios does have an anticompetitive effect in the car radio market, that tie would not necessarily violate the antitrust laws. Under the rule of reason analysis, the economic harms must be weighed against any procompetitive benefits resulting from the tie. In the present case, for example, Chrysler presented some evidence that a company it hired to perform a market research study advised Chrysler that it could improve order stability and reduce manufacturing costs by clustering the options it offered on its cars. In addition, it may be that there is no economic reason for independent dealers to exist solely to install radios manufactured by others into new cars. The detailed and careful balance required under the rule of reason may very well favor Chrysler's tying practices in the end. Nevertheless, the rule of reason inquiry should not have been determined in summary fashion on the record that was before the district court, and we will remand for further proceedings.


The Clayton Act

The district court held that the standard for antitrust liability under section 3 of the Clayton Act is the same as it is under section 1 of the Sherman Act. Because it believed that market power over the tying product was a necessary element of even an unreasonable restraint of trade analysis under the Sherman Act, it granted Chrysler summary judgment on plaintiffs' Clayton Act claim. Because we have restored the plaintiffs' Sherman Act claim under a rule of reason theory, the Clayton Act claim should survive even if the market power requirement is the same as that which must be shown under section 1 of the Sherman Act.



For the foregoing reasons, the district court's order granting summary judgment over plaintiffs' per se claim will be affirmed; the order granting summary judgment over the claim alleging that the tie effected an unreasonable restraint of trade under the Sherman Act and violated the Clayton Act will be reversed and the matter remanded to the district court for further proceedings in light of the foregoing opinion. Each party to bear its own costs.

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