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BURNS v. COVER STUDIOS

February 17, 1993

EDWARD C. BURNS, an individual d/b/a ED BURNS PHOTOGRAPHY, Plaintiff
v.
COVER STUDIOS, INC., a Pennsylvania Corporation, and WINDBER AREA SCHOOL DISTRICT, a Pennsylvania municipal corporation, Defendants


D. BROOKS SMITH


The opinion of the court was delivered by: BY THE COURT; D. BROOKS SMITH

SMITH, District J.

 Plaintiff Edward C. Burns, a commercial photographer in Cambria County, filed a complaint alleging that the defendants, a competitor and two school districts, were violating federal antitrust laws and Pennsylvania common law. The defendants, Cover Studios, Inc., Windber Area School District, and Forest Hills School District, filed motions to dismiss the complaint for failure to state a claim. Fed.R.Civ.P. 12(b)(6). Argument on the motions was held on January 29, 1993. Because it does not appear that plaintiff states a claim for violation of the federal antitrust laws or of state common law, the complaint is dismissed.

 The dispute centers on the way yearbook photographs are produced in the Forest Hills and Windber Area high schools. The production of the yearbook is typically an extra-curricular school activity accomplished by students with the assistance and oversight of faculty and administrative personnel, and with professional photographic and printing services obtained for the final product from sources outside the school's physical plant. The defendant school districts, Forest Hills and Windber Area, have obtained photographic services by entering into single year, three-year, or five-year contracts with the defendant photographer, Cover Studios. The contracts provide that Cover Studios will be the sole supplier *fn1" of yearbook photographs: if a student wishes to appear in the yearbook, the student must be photographed by Cover Studios. In exchange for this exclusivity, Cover Studios provides at no charge photographs of student activities such as sports events and club activities for inclusion in the yearbook. *fn2" Sometimes a sitting fee is charged to the student by the photographer, but this is for an amount less than the production cost of the yearbook photo. *fn3"

 The value of the exclusive contract to the photographer is the opportunity to sell additional graduation portrait photographs to the student. Historically, the profitability of this market has enabled school districts to keep the costs of yearbook photography, both activity photos and student portraits, lower than they otherwise would be.

 Plaintiff does not allege that students are required by the school districts to purchase yearbook photographs, or, if they sit for yearbook photographs, any additional photographs from Cover Studios. At argument, plaintiff's counsel asserted that the exclusive opportunity given Cover Studios to photograph the high school student was coercive because the student was face to face with only Cover Studios, whether at the photographer's studio or in a school-based photographic session. It is also reasonable to believe, and none of counsel disputes, that a given student may even be unaware of the distinction between the yearbook photograph and other graduation photographs, or even unaware that the student is not required to buy his or her other graduation photographs from Cover Studios.

 Finally, the contracts between Forest Hills and Cover Studios, and between Windber Area and Cover Studios, were not awarded after competitive bidding. *fn4" Plaintiff's counsel asserted that plaintiff had contacted some faculty yearbook advisors--but not school administrators--about providing yearbook photography services and had been told that the unspecified school district was under contract to Cover Studios. Plaintiff does not allege that he has been denied the opportunity to bid on providing photographic services in the future, but at argument asserted that he effectively has been shut out because Cover Studios has "cornered the market," both as to these school districts *fn5" and as to other unnamed, non-party school districts.

 Plaintiff asserted at argument two general ways in which the facts alleged in his complaint violate federal law: (1) by offering and agreeing that Cover Studios would provide activity photos at no extra charge in exchange for the exclusive opportunity to provide yearbook photographs, Cover Studios and the school districts were restraining trade; and (2) by having exclusive opportunity to photograph students for the yearbook, Cover Studios was able to "coerce" them into buying additional graduation photographs. *fn6" Plaintiff's complaint asserts that the actions of each school district in entering into a contract with Cover Studios violate Section 1 of the Sherman Act, 15 U.S.C. § 1, because they constitute a conspiracy in restraint of trade, price fixing, and a refusal to deal with the plaintiff. Based on the coercion theory advanced at argument, plaintiff also alleges that these contracts constitute illegal tying of yearbook photographs to the purchase of additional photographs. Plaintiff further claims that Cover Studios has violated Section 2 of the Sherman Act, 15 U.S.C. § 2, by attempting to monopolize the market for photography services to high schools and technical schools in Johnstown. *fn7"

 In determining whether to dismiss an antitrust claim pursuant to Fed.R.Civ.P. 12(b)(6), the district court must accept as true all of the factual allegations of the complaint, but may disregard allegations of legal conclusions without supporting facts. Dismissal is appropriate only if it is clear that from the facts alleged and inferences fairly derived therefrom no claim is stated of an injury resulting from an act forbidden by the antitrust laws. See Abbott Laboratories v. Brennan, 952 F.2d 1346, 1354-55 (Fed.Cir.1991). In considering the inferences which are fairly derived from the allegations of fact, two principles must be kept in mind: first, because the antitrust laws protect competition and not competitors, Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 488, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977), courts must "carefully scrutinize[] enforcement efforts by competitors because their interests are not necessarily congruent with the consumer's stake in competition." Barr Laboratories, Inc. v. Abbott Laboratories, 978 F.2d 98, 109 (3d Cir.1992) quoting Alberta Gas Chems. Ltd. v. E.I. duPont de Nemours & Co., 826 F.2d 1235, 1239 (3d Cir.1987), cert. denied, 486 U.S. 1059, 100 L. Ed. 2d 930, 108 S. Ct. 2830 (1988); second, the lack of any conceivable motivation by the defendant school districts to engage in alleged conduct which is directly adverse to their own interests calls for a careful examination of plaintiff's claims. See generally Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 903 F.2d 988, 994 (4th Cir.1990) (quoting Matsushita Electric Indust. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986)).

 Section 2 attempted monopoly claim

 Cover Studios' *fn8" conduct can violate Section 2 of the Sherman Act only if it has: (1) engaged in predatory pricing or similar anticompetitive conduct; (2) a specific intent to monopolize; and (3) a dangerous probability of achieving monopoly power. Spectrum Sports, Inc. v. McQuillan, 122 L. Ed. 2d 247, 113 S. Ct. 884, 61 U.S.L.W. 4123 (January 25, 1993). See also Barr Laboratories, 978 F.2d 98, 112; Harold Friedman, Inc. v. Kroger Co., 581 F.2d 1068 (3d Cir.1978). Under that legal standard, plaintiff's allegations against Cover Studios are fatally deficient because: (1) contracts with two local school districts cannot as a matter of law constitute a dangerous probability of monopoly power; (2) plaintiff does not allege a specific intent to monopolize; and (3) Cover Studios is not alleged to have engaged in any predatory pricing, commercial bribery, or other anticompetitive conduct.

 Anticompetitive conduct

 Plaintiff suggested at argument that all exclusive contracts for provision of yearbook services are per se anticompetitive. That position flies in the face of commercial reality: school districts, and businesses generally, typically enter into exclusive contracts for the provision of all kinds of services, including legal, accounting, security, plumbing, and maintenance services. Plaintiff does not allege that Cover Studios engaged in predatory pricing, see Irvin Industries, Inc. v. Goodyear Aerospace Corp., 974 F.2d 241, 244 (2d Cir.1992), bribery, or other conduct that has no business justification. It must be emphasized that anticompetitive ...


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