APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 90-03617).
Before: Stapleton, Roth and Lewis, Circuit Judges.
For over a decade, retailers who market wallpaper by providing sample books and showroom displays have feuded with dealers who sell at a discount through toll-free "1-800" telephone numbers. In this case, ten 800-number dealers have accused the retailers' trade association and one of the leading wallpaper manufacturers of violating antitrust laws in an attempt to force them out of business. The district court granted summary judgment to the defendants on these and certain state-law claims. We will affirm.
Our review of a grant of summary judgment is plenary; we evaluate the evidence using the same standard the district court was to have applied in reaching its decision. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1362 (3d Cir. 1992); J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1530 (3d Cir. 1990); Erie Telecommunications, Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir. 1988). Plaintiffs have alleged three theories of antitrust liability under the Sherman Act, 15 U.S.C. § 1 (the "Act"). A brief review of the Act and its purposes informs our determination of the standard to be applied on summary judgment.
Section 1 of the Sherman Act provides:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal[.]
15 U.S.C. § 1. The very essence of a section 1 claim, of course, is the existence of an agreement. Indeed, section 1 liability is predicated upon some form of concerted action.*fn1 Fisher v. Berkeley, 475 U.S. 260, 266, 89 L. Ed. 2d 206, 106 S. Ct. 1045 (1986); Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-69, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984); United States v. Colgate & Co., 250 U.S. 300, 63 L. Ed. 992, 39 S. Ct. 465 (1919); Big Apple BMW, 974 F.2d at 1364. See also Weiss v. York Hospital, 745 F.2d 786, 812 (3d Cir. 1984) (section 1 claim requires proof of three elements, the first of which is "a contract, combination or conspiracy"); Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 110 (3d Cir. 1980) ("unilateral action, no matter what its motivation, cannot violate [section] 1"). A "'unity of purpose or a common design and understanding or a meeting of minds in an unlawful arrangement[,]'" must exist to trigger section 1 liability. Copperweld, 467 U.S. at 771, quoting American Tobacco Co. v. United States, 328 U.S. 781, 810, 90 L. Ed. 1575, 66 S. Ct. 1125 (1946). See also Fisher, 475 U.S. at 267; Sweeney, 637 F.2d at 111.
The requirement is an important one, for it emphasizes the distinction between section 1 liability, which is imposed for concerted action in restraint of trade, and liability imposed under section 2 of the Sherman Act for monopolization. See Copperweld, 467 U.S. at 767. Activity which is alleged to have been in violation of section 1 may be subject to a per se standard and engender liability without inquiry into the harm it has actually caused. See Copperweld, 467 U.S. at 768. See generally Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 723, 99 L. Ed. 2d 808, 108 S. Ct. 1515 (1988). Alternatively, section 1 liability might be imposed for concerted action which violates the "rule of reason" standard without proof that it threatened monopolization. Copperweld, 467 U.S. at 768.
Congress treated concerted action more strictly than unilateral behavior because,
Concerted activity inherently is fraught with anticompetitive risk. It deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands. In any conspiracy, two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit. This not only reduces the diverse directions in which economic power is aimed but suddenly increases the economic power moving in one particular direction. Of course, such mergings of resources may well lead to efficiencies that benefit consumers, but their anticompetitive potential is sufficient to warrant scrutiny even in the absence of incipient monopoly.
Id. at 768-69. For this reason, when we examine an alleged violation of section 1 of the Sherman Act, we look for an agreement that "brings together economic power that was previously pursuing divergent goals." Id. at 769. A lack of such divergent goals precludes officers of a single company from conspiring. Neither internally coordinated conduct of a corporation and its unincorporated division, nor activity undertaken jointly by a parent corporation and its wholly owned subsidiary, can form the bases of section 1 violations. Id. at 769-71.
An agreement need not be explicit to result in section 1 liability, Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 59-60, 55 L. Ed. 619, 31 S. Ct. 502 (1911), quoted in Copperweld, 467 U.S. at 785 (Stevens, J., Dissenting), and may instead be inferred from circumstantial evidence. Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 540-41, 98 L. Ed. 273, 74 S. Ct. 257 (1954); Sweeney, 673 F.2d at 111; Milgram v. Loew's, Inc., 192 F.2d 579, 583 (3d Cir. 1951). Therefore, direct evidence of concerted action is not required.
In this case, the parties contest the propriety of summary judgment on the issue of concerted action in each of three different alleged fact patterns. Before addressing each fact pattern, we turn to a review of the summary judgment standard applicable to antitrust cases.
A district court may enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The substantive law determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
A party moving for summary judgment need not produce evidence to disprove its opponent's claim, Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986), but it does bear the burden of demonstrating the absence of any genuine issues of material fact. Big Apple BMW, 974 F.2d at 1362. As in this case, when the nonmoving party will bear the burden of proof at trial, the moving party may meet its burden by showing that the nonmoving party has failed to produce evidence sufficient to establish the existence of an element essential to its case. Celotex, 477 U.S. at 322.
In reviewing the evidence, facts and inferences must be viewed in the light most favorable to the party opposing summary judgment. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). When the moving party has pointed to material facts tending to show there is no genuine issue for trial, however, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts. . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 586-87.
This traditional summary judgment standard applies with equal force in antitrust cases, Eastman Kodak Co. v. Image Technical Services, Inc., 119 L. Ed. 2d 265, 285, 112 S. Ct. 2072 (1992); Big Apple BMW, 974 F.2d at 1362-63; however, the meaning we ascribe to circumstantial evidence will vary depending upon the challenged conduct.
For example, evidence of conduct which is "as consistent with permissible competition as with illegal conspiracy," without more, does not support an inference of conspiracy. Matsushita, 475 U.S. at 597 n.21, citing Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 763-64, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1984); Big Apple BMW, 974 F.2d at 1363. See generally Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 186-87 (3d Cir. 1992). This is because mistaken inferences in such a context "are especially costly[;] they chill the very conduct the antitrust laws are designed to protect." Matsushita, 475 U.S. at 594; Monsanto, 465 U.S. at 763-64. In such cases, the Supreme Court has required plaintiffs to submit "evidence tending to exclude the possibility" of independent action, i.e., "direct or circumstantial evidence that reasonably tends to prove that [the alleged conspirators] 'had a conscious commitment to a common scheme designed to achieve an unlawful objective.'" Monsanto, 465 U.S. at 764, quoting Sweeney, 637 F.2d at 111.
Conversely, if the alleged conduct is "facially anticompetitive and exactly the harm the antitrust laws aim to prevent," no special care need be taken in assigning inferences to circumstantial evidence. Eastman Kodak, 119 L. Ed. 2d at 291; Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc., 826 F.2d 1335, 1339 (3d Cir. 1987) (Monsanto and Matsushita do not apply when challenged action is overtly anticompetitive); Tunis Brothers Co., Inc. v. Ford Motor Co., Inc., 823 F.2d 49, 50 (3d Cir. 1987) (implying that Matsushita requires evidence tending to exclude the possibility of independent action only when the challenged conduct is as consistent with permissible competition as with illegal conspiracy). See also In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 906 F.2d 432, 438-39 (9th Cir. 1990) ("the key to proper interpretation of Matsushita lies in the danger of permitting inferences from certain types of ambiguous evidence").*fn2
With these standards in mind, we will review the evidence, granting reasonable inferences to the plaintiffs.*fn3
Persons interested in decorating or redecorating their homes or offices typically view samples of wallpaper before purchasing. Recognizing this, retailers traditionally have made available to consumers the wallpaper sample books they purchase from manufacturers. They have also provided consumers with information through the use of promotional materials and showroom displays. The purchase of sample books, establishment of a showroom and hiring of knowledgeable sales personnel are costly endeavors and, as one might expect, these costs are reflected in higher prices to consumers. Manufacturers have encouraged retailers to incur these costs, however, because of a prevailing notion that their products sell better when marketed thus.
In recent years, a new breed of retailer has emerged. Some companies now accept orders from consumers all over the United States who call toll-free telephone numbers to order wallpaper after having availed themselves of the sample books, displays and assistance offered by conventional retailers. Today, purchasers may visit a conventional retailer's showroom, peruse the sample books, note the brands and product numbers of the patterns they like, and then go home and order wallpaper at a discount from an 800-number dealer. This informed decision has, of course, been funded in part by retailers who will realize no return on their investment. The 800-number dealer will arrange a "drop shipment" directly from the manufacturer to the purchasers' homes.*fn4
Both conventional retailers and 800-number dealers are members of the National Decorating Products Association (the "NDPA"), a trade association comprised of independent retailers who sell a variety of decorating products. The NDPA has about 3,300 members who operate approximately 8,500 retail locations. Its policy is established and its business conducted by an 18-member board of directors. It sponsors a number of trade shows and educational programs for its members each year. It also publishes a monthly industry news journal titled Decorating Retailer, and it formerly published a similar newsletter called Wallcovering Industry News.
In the late 1970's and early 1980's, conventional retailers in the NDPA threatened to cease purchasing products from manufacturers who continued to do business with the 800-number dealers, whom they referred to as "pirates." The NDPA itself actively campaigned against 800-number dealers by lobbying manufacturers to recognize the advantages of conventional retailing and by encouraging them to "level the playing field" between 800-number dealers and conventional retailers.
For example, Robert Petit, NDPA's executive vice president and chief executive officer, spoke to manufacturers, including Michael Landau, president of F. Schumacher & Co. ("FSC") on this subject. Appendix ("App.") at 190-97, 202. In February, 1983, Petit sent a letter on NDPA letterhead urging retailers to request from manufacturers sample books that did not reveal retail prices. Depriving consumers of this information, Petit argued, would make it more difficult for them to avail themselves of an 800-number dealer's discount. App. at 523. The NDPA also marketed a "sales piracy kit" for conventional retailers to use in disguising or concealing pattern numbers and price information on sample books so that consumers could not so easily acquire the information and then order elsewhere. App. at 271-73, 407.
In 1985, the Federal Trade Commission ("FTC") issued a complaint against NDPA because of these activities. In 1986, the parties entered into a consent decree which provided in part:
NDPA . . . shall cease and desist from:
A. Conduct having the purpose or effect of:
Expressly or impliedly advocating, suggesting, advising, or recommending that any of NDPA's . . . members refuse to deal with any seller of wallcoverings on account of, or that any of NDPA's . . . members engage in any other act to affect, or to attempt to affect, the prices, terms or conditions of sale, or distribution methods or choice of customers of any seller of wallcoverings.
App. at 412. The consent decree also provided:
IT IS FURTHER ORDERED that this Order shall not be construed to prevent NDPA . . . from publishing written materials or sponsoring seminars, or otherwise providing information or its members' views on topics including but not limited to cost accounting principles, and suggested prices and product identification numbers in wallcovering sample books to other sellers of wallcoverings, provided, however, that the information or views are not presented in a manner constituting a violation of any provision contained in Part II of this Order.
In the aftermath of this settlement, as required by the consent decree, NDPA circulated a summary of the consent order in which it informed members that NDPA, as a group of competitors, was "already considered to be an 'agreement.'" App. at 430. The NDPA guidelines for conducting meetings, drafted shortly before entry of the consent decree, also acknowledge that "a trade association is, by definition, a combination of competitors." App. at 740. The guidelines further provide that before a chapter officer delivers a speech or makes a presentation at a meeting, he or she should state that the views expressed are his or her own and not those of the NDPA or any chapter. App. at 743.
Since the entry of the consent decree, NDPA has informed its members that it may no longer assist them in urging manufacturers to act against 800-number dealers. One poll showed that some members have resigned because the NDPA is "not doing anything in regard to the sales piracy issue." App. at 200. Petit, however, has continued to impart to manufacturers, including Landau, his view of the advantages of conventional retailing over other methods of marketing wallcovering, such as 800-number sales. App. at 198.
The sentiment against 800-number dealers continued to escalate even after the consent decree was entered. Decorating Retailer published several letters from NDPA members, including some retailers who were former or current NDPA officers, urging action against the 800-number dealers. Its editor, John Rogers, often solicited comment for the letters column by sending a variety of articles from a forthcoming issue to a number of people in the industry. In each issue of Decorating Retailer, a standard statement appeared in the letters column apprising the reader that: "The editor reserves the right to edit to fit space limitations or publishing policies. Opinions expressed are those of the writer and not necessarily those of the editor." E.g., app. at 496.
Decorating Retailer and Wallcovering Industry News also printed several news articles about 800-number dealers, most of which used the term "pirates" among other characterizations to describe them. In May, 1988, one editorial -- a Perspective column in Decorating Retailer -- stated that "there are increasing signs that the retailer's voice crying in the wallcovering wilderness is being heard," and cited many developments in the industry, such as "a sudden advent of bar coding kits for retailer protection of sample book pattern numbers," as signs that wallpaper suppliers were responding to retailers' needs. App. at 758.
Undoubtedly, FSC, a leading manufacturer which had always promoted the traditional method of marketing wallcoverings, heard the complaints. In July, 1988, it announced a drop shipment surcharge on wallcovering deliveries directly to consumers, to take effect in September, 1988. App. at 298-99. Under this new policy, FSC would impose a 7 percent surcharge on every order requesting drop shipment. Obviously, this would have the effect of increasing the 800-number dealers' costs while decreasing their ability to compete on the basis of price with conventional retailers.
The minutes from FSC's management committee meeting in April, 1988, state that it considered the policy to be a signal to conventional retailers that FSC was trying to help them. App. at 290. A draft press release, later revised, identified the protection of dealers from piracy as one reason for the surcharge. Compare app. at 298-99 with app. at 1364-65. Minutes from September, 1989, reveal that the management committee viewed the drop shipment surcharge as "a good first step" against 800-number dealers. App. at 304.
Beyond merely responding to dealer complaints, FSC also claimed that the surcharge was, in part, intended to recoup increased costs of drop shipments. It did not, however, employ any particular formula or calculations to arrive at its surcharge figure or to determine its basis for recoupment. Nor did it consult any source regarding or otherwise study such costs, although the record contains statements by another manufacturer indicating that his costs for drop shipments were no higher than for shipments to stores. App. at 148-49, 622.
Predictably, retailers responded favorably to the imposition of the surcharge. For example, in September, 1988, a Decorating Retailer editor's note responding to a letter about 800-number dealers' advertisements stated that "there are signs that telling your troubles to suppliers eventually will be heard and some remedy may result." App. at 485.
Yet the retailers were not entirely satisfied. In January, 1989, at a convention in Halifax, Nova Scotia, Petit revisited the issue of 800-number dealers and the problems they posed for the industry. An August, 1989 memo shows that Petit spoke to at least one manufacturer about "the anger felt by the retailers in lack of support from the wallcovering industry." App. at 185-86. During this period, NDPA officer Clyde Morgan also expressed "concern about the 800-number and the effect it was having on me" at a meeting of industry leaders. App. at 183.
The fall 1989 planning session at FSC also reflected continuing concerns about 800-number dealers. In September, 1989, soon after an NDPA meeting, Landau stated at a management committee meeting that the surcharge was a good first step but that other measures were necessary. App. at 304. An October, 1989 memo asked whether "we [should] make another anti-pirate move? If so, what?" App. at 793. In November, 1989, Landau reported to the management committee what he had learned at an NDPA trade show: "retailers squeezed by mass market & 800 #'s." App. at 307. The minutes ...