majority (5 out of 6) of the supermarket base players under contract. See Pl.s' Ex. 15, Montgomery Dep. Ex. 15. Moreover, the record demonstrates that when customers in the Advertising Circulars market are unhappy with one supplier they will seek and be able to acquire the services of a new supplier, even if, as in the case of CBA, this new supplier is not presently competing in the market. See, e.g., Def. Ex. 5, Gasparro Dep. pp. 60-62.
Entry into the Advertising Circulars market is comparatively easy. See Def. Ex. 1, pp. 29, 81; Def. Ex. 18, p. 114;
Def. Ex. 39, P 7.
Ten of PNI's twelve newspaper competitors have entered the market and obtained a 13.3 percent market share. Pl.'s Ex. 8, DiMartino Dep. Ex. 13, pp. 6 and 2-A; Pl.'s Ex. 31, Beyer Report Ex. 12. As CBA demonstrated by creating in five months a program that reached two million Philadelphia households,
the market can successfully be entered in well under a year with the support of a single base player.
See Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law § 518.3b (1993 Supp.) (one year standard for determining ease of entry into market); cf. Barr Lab. Inc. v. Abbott Lab., 978 F.2d 98, 113 (3d Cir. 1992) (six-month to two-year waiting period to enter pharmaceutical drug market is not significant barrier to entry). Moreover, with annual revenues in excess of $ 100,000,000, Pl.'s Ex. 31, Beyer Report Ex. 12, CBA's initial three million dollar investment required to enter the Advertising Circulars market is not significant.
Cf. International Distrib. Ctrs., Inc. v. Walsh Trucking, 812 F.2d 786, 792-93 (2d Cir.) (relatively large capital outlays for trucking industry do not constitute significant entry barriers), cert. denied, 482 U.S. 915, 96 L. Ed. 2d 676, 107 S. Ct. 3188 (1987). While plaintiff contends there are reputational barriers to entry, the record translates this notion into a lower level of abstraction, i.e., management and selling skills. Pl. Advo, Inc.'s Surreply to Def.'s Reply to Pl.'s Opp'n to Def.'s Mot. for Summ. J., Ex. 1 Matzner Dep. p. 54; Ex. 2 Schiro Dep. pp. 48-61, 73-75. Such competence is a prerequisite to enter any business, not a special or significant entry barrier to this one.
The plaintiff's basic complaint is that PNI engaged in unilateral price competition causing Advo to lose profits. See Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 205 (3d Cir. 1992) (the Sherman Act "does not proscribe anti-competitive unilateral conduct that falls shy of threatened monopolization"), cert. denied, 122 L. Ed. 2d 677, 113 S. Ct. 1285 (1993). Section 2 makes the conduct of a single firm unlawful only when it actually monopolizes or dangerously threatens to do so. Spectrum Sports, 113 S. Ct. at 890; Pastore, 1994 WL 189478 at 5. The antitrust laws protect competition, not competitors. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977). Consumers benefit from unilateral competition. See Brook Group, 113 S. Ct. at 2588. "To hold that the antitrust laws protect competitors from the loss of profits due to . . . price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share." Id.
Application of the antitrust laws to price competition requires caution to avoid costly, mistaken inferences. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986); A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1403-04 (7th Cir. 1989) ("courts should treat with great skepticism complaints by competitors who are injured by low prices that customers adore, when the customers are content."), cert. denied, 494 U.S. 1019, 108 L. Ed. 2d 501, 110 S. Ct. 1326 (1990).
A prerequisite to hold a competitor liable under the antitrust laws for charging low prices is a demonstration that the competitor had a dangerous probability of recouping its investment in below-cost prices. Brook Group, 113 S. Ct. at 2588. In other words, a successful monopolist must be able to sustain charging supracompetitive prices. Matsushita Elec. Indus. Co., 475 U.S. at 589 ("It is not enough simply to achieve monopoly power, as monopoly pricing may breed quick entry by new competitors eager to share in the excess profits."). Evidence of below-cost pricing is not alone sufficient to permit an inference of probable recoupment and injury to competition. Brook Group, 113 S. Ct. at 2589. "The success of any predatory scheme depends on maintaining monopoly power long enough to recoup the predator's losses and to harvest some additional gain." Id. at 2592.
Even if there is a genuine issue of material fact as to whether PNI operated its TMC program at a loss during the relevant time period,
the nature of the Advertising Circulars market suggests that recoupment is not a dangerous probability.
See Id. at 2589 ("plaintiff must demonstrate that there is a likelihood that the predatory scheme alleged would cause a rise in prices above a competitive level that would be sufficient to compensate for the amounts expended on the predation."); A.A. Poultry Farms, 881 F.2d at 1401 ("Only if market structures makes recoupment feasible need a court inquire into the relations between price and cost."). Advo did not buy protection against vigorous competition in the market when it acquired CBA, its former competitor.
See Spectrum Sports, 122 L. Ed. 2d 247, 113 S. Ct. 884 at 891-92 (The Sherman Act "is not to protect businesses from the working of the market; it is to protect the public from the failure of the market."); Brook Group, 113 S. Ct. at 2588 ("That below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured.").
This is not a case of tying abuses by a monopolist. Cf. Eastman Kodak Co. v. Image Technical Serv., Inc., 119 L. Ed. 2d 265, 112 S. Ct. 2072 (1992). A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least that he will not purchase that product from any other supplier." Id. at 2079. While evidence suggests that PNI offered ROP discounts to companies that participated in the TMC program, nothing suggests that PNI required advertisers to purchase ROP advertising in order to participate in its TMC program. Additionally, advertisers who purchased ROP advertising in the Inquirer and Daily News were free to, and did, place their advertising circular business with PNI, Advo, and other competing companies.
The plaintiff cannot maintain this action based upon a monopoly leveraging theory. In order for Advo to prevail upon a theory of monopoly leveraging, Advo must prove more than a mere "competitive advantage" by PNI in the advertising circulars market based on its monopoly position in the ROP market. See Fineman, 980 F.2d at 204. Advo would have to prove threatened or actual monopoly in the leveraged market (i.e., the advertising circulars market) by PNI to prevail.
Fineman, 980 F.2d at 206; see also Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 547 (9th Cir. 1991) (the Berkey Photo Inc. V. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert. denied, 444 U.S. 1093, 62 L. Ed. 2d 783, 100 S. Ct. 1061 (1980), monopoly leveraging doctrine rejected as an independent theory of liability under Section 2). For the reasons enumerated above, there is no dangerous probability that a monopoly will be created by PNI's alleged leveraging conduct.
C. Count Three
The state law claim for tortious interference is dismissed without prejudice because the court declines to exercise supplemental jurisdiction when the federal claims have been disposed of at this stage.
See Growth Horizons, Inc. v. Delaware County, 983 F.2d 1277, 1284 (3d Cir. 1993); 28 U.S.C. § 1367(c)(3).
The bottom line is that this is a case about price competition. The antitrust law does not protect competitors against even what may be perceived as unfair, unilateral price cutting below cost designed to drive those competitors out of business, absent a dangerous probability of achieving monopoly power. Because this result is harsh, a jury might reach a verdict which could not stand, based on sympathy, after an expensive trial. To avoid discouraging competition, courts are skeptical of antitrust claims where consumers and the public benefit from lower prices. Given the history of this market, its competitors and powerful buyers, it would be sheer speculation to posit a dangerous probability of defendant's achieving monopoly power in the Philadelphia area advertising circular distribution market.
BY THE COURT:
MARVIN KATZ, J.