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June 19, 2002


The opinion of the court was delivered by: Anita B. Brody, District Judge.


The litigation underlying this case began on June 25, 1998 when Bloomberg, L.P. ("Bloomberg") filed suit against InterVest Financial Services, Inc. ("plaintiff" or "InterVest") to recover approximately $100,000 in unpaid advertising fees. In addition to filing a counterclaim against Bloomberg on September 3, 1998, InterVest filed a second lawsuit on November 3, 1999, against S.G. Cowen Securities, Inc. ("defendant" or "Cowen"), Bloomberg, and eleven other defendants including Merrill Lynch & Co., Inc. ("Merrill Lynch"), J.P. Morgan Securities, Inc. ("Morgan"), Bear Stearns Co., Inc. ("Bear Stearns"), Cantor Fitzgerald Securities and several other Cantor Fitzgerald entities ("Cantor"), Deutche Bank Securities Corp. ("Deutche Bank"), Liberty Brokerage, Inc. and several other Liberty entities ("Liberty"), and Salomon Smith Barney, Inc. ("Salomon").*fn1 In their complaint, InterVest alleges that the defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, participated in a conspiracy in restraint of trade in violation of Pennsylvania law, and tortiously interfered with the contractual relationship between Bloomberg and InterVest. Only Cowen remains as a defendant in this case and it filed a motion for summary judgment on November 7, 2001. Plaintiff filed its opposition to that motion on December 21, 2001. On April 17, 2002, I held oral argument. After considering the arguments made by the parties and the relevant law, I will grant Cowen's motion for summary judgment.

Factual Background*fn2

The Bond Market

In this case, much of the relevant information centers on the structure of the existing market for corporate and municipal bonds. Unlike common stock, no open market exists for trading these bonds. Institutional investors who wish to purchase bonds must obtain them from a relatively exclusive group of dealers, including the broker-dealer defendants. These dealers obtain their supply of bonds by executing trades with other dealers, sometimes negotiated through "inter-dealer" brokers. While some inter-dealer brokers will sell to other dealers on a fixed commission basis, the dealers do not make similar arrangements available to institutional investors. Instead, each investor must negotiate the price of purchase on an individualized basis, enabling the broker-dealers to earn a profit through the "spread" — the difference between the price they paid for the bond and the price at which they resell it to the investor. Because no open system of trading exists, the institutional investor has little knowledge of what the spread is on a particular transaction. This lack of public reporting or marketing of the bonds, gives the trading a lack of "transparency."*fn3

The InterVest System

InterVest sought to change that opaque system when it entered the bond market in 1993, by providing an electronic trading system where buyers and sellers could anonymously trade corporate and municipal bonds. In addition to matching buyers and sellers, InterVest offered an end to undisclosed spreads by charging a fixed commission fee known to both parties. Operating as a modem based system, InterVest conducted 400 trades and by the end of 1993 had thirty subscribers. Larry Fondren ("Fondren"), the founder and chief executive of InterVest, still had loftier goals for his company. In 1993, InterVest approached a number of bond dealers with the concept of an "InterDealer" consortium — which would allow these dealers to use the InterVest system as their own trading platform. Though several dealers met with or spoke to Fondren about the project, eventually the dealers universally rebuffed the project. A vice president at Merrill told Fondren that he hoped the company "crashes and burns," noting that the shift to a transparent system would put an end to large spreads and large profits for the traditional dealers. (ACT Note, March 17, 1993.)*fn4 The following month, Fondren met with Ben Kuenemann of Bear Stearns who indicated that his company had no interest in dealing with InterVest and that he would "be discussing the intentions of IFS [InterVest] with other dealers." (ACT Note, April 6, 1993.) In May 1993, Fondren met with Joe Macchia of Liberty who echoed the sentiments of Merrill and Bear Stearns. Fondren also had a meeting with representatives of Cowen in June 1993. At that time Cowen also expressed concern about the InterVest system, in particular about the "equal and anonymous access" it gave to institutional investors. (ACT Note, June 11, 1993.)

InterVest and Bloomberg

Despite these early setbacks, InterVest made a significant breakthrough in 1995 when it entered into an arrangement with Bloomberg, whereby Bloomberg would carry the InterVest system on its electronic network. The Bloomberg electronic network was a vital source of information on financial markets and transactions and during the 1990s had between sixty and seventy thousand terminals placed with financial companies on both the buy and sell sides of the financial world. Though Bloomberg was considered the market leader as a provider of financial information, prior to the introduction of InterVest on the network, the system, consistent with the opaque market, did not carry any actual price information for corporate bonds. Excited about this new relationship, InterVest directed the majority of its resources to making it successful, and its investors viewed the relationship as one essential to InterVest's future success. (Dep. of Guy Naggar at 40.)

From its outset, the relationship between Bloomberg and InterVest gave rise to disagreements about the nature of their mutual obligations.*fn5 Though the companies had entered into a lease agreement on July 15, 1995 and a rider agreement on August 31, 1995, on December 27, 1995, Charles Garcia ("Garcia"), the manager of the InterVest account for Bloomberg, contacted Fondren and indicated that troubles had arisen. According to Fondren, Garcia reported that after seeing the advertisements for the InterVest system, some other customers had complained to Bloomberg. In response to those complaints, Bloomberg had placed a moratorium on the development of the InterVest system on their network but would reimburse InterVest for its advertising expenses.*fn6 (Dep. of Fondren at 287-294.) Bloomberg itself had previously expressed concern over the content of the ads and on October 18, 1995 one dealer, not named as a defendant in this suit, sent an e-mail to Bloomberg stating their discomfort with the InterVest concept. The sender, an employee of ABN Amro Securities, also questioned Bloomberg's support of something that directly competes with its current subscribers and concluded, "I am sure that I am not the only one that feels that way." (E-mail from Bob Mann of ABN Amro Securities to Stephanie Seward, October 18, 1995 at 8:57 A.M.)

InterVest challenged the moratorium and threatened to take legal action against Bloomberg. On January 30, 1996, after an exchange of correspondence between counsel, Bloomberg agreed to reinstitute the InterVest project. Bloomberg followed this verbal assurance with a letter on February 14, 1996, agreeing to support the InterVest product for one year from the announcement of the release. (Letter of February 14, 1996 from Garcia to Fondren.) In a second letter, on June 25, 1996, Bloomberg provided InterVest with further assurances of a commitment to establishing a corporate and municipal bond trading system. (Letter of June 25, 1996 from Mason Power to Fondren.) Despite these direct assurances, InterVest points to a series of internal e-mails at Bloomberg that demonstrate Bloomberg's hesitation about taking the InterVest system live. Nonetheless, on December 9, 1996, Bloomberg held a press conference at its New York headquarters and announced that the InterVest system would go live for the trading of government and corporate bonds by the end of that year and municipal bonds would follow shortly thereafter. (Dep. of Fondren at 318-320.) A significant amount of publicity accompanied this announcement. The New York Times ran an article in its financial section noting that the InterVest system would attempt to change the traditional bond trading system. See Floyd Norris, A Bond Trader Will Put Quotes and Trades Online, N.Y. Times, December 9, 1996, at D4. Bloomberg also posted one of its reporter's interview with Fondren on the "Bloomberg Forum." (Dep. of Fondren at 318-320.)

The following morning, on December 10, 1996, Fondren received a phone call from Garcia indicating that Bloomberg was placing another moratorium on the development of a municipal trading platform. When pressed for a reason, Fondren claims that Garcia told him that inter-dealer brokers had placed "tremendous heat" on Bloomberg and specifically cited pressure from defendant Cowen. Though less confident of this aspect of the conversation, Fondren also believes that Garcia began to mention another firm, Tull in Tokyo, but stopped himself.*fn7 (Dep. of Fondren at 324-25.)

InterVest and Cowen

Just one week prior to the announcement of the InterVest launch, Fondren had met with Bill Matthews ("Matthews") and Joseph Cohen, Cowen's chairman, about the possibility of Cowen trading with InterVest. Notes from, or in preparation for the meeting, which appear to be commenting on a written proposal, indicate that "Dealers want present structure not price disclosure," and asked "What about Cowen brokers and spreads." (Notes dated December 2 (author unknown, produced by Cowen during discovery.)) At that meeting, Cowen again refused to partner with InterVest, and indicated that showing clients prices was "not in our best interest." Further, they tried to dissuade Fondren from altering the market and advised him he would make more money if he did not try to "break the spreads," and instead played by the rules. (Dep. of Fondren at 836-839; ACT Note, December 2, 1996.) This meeting echoed the sentiments expressed at a meeting between Cowen and InterVest that took place in April 1996. While it would not trade or partner with InterVest as currently organized, Cowen did indicate that if InterVest changed the system to make it available to broker-dealers only, they would certainly participate and perhaps invest in the company. (ACT Note, April 10, 1996.)*fn8

While both of these meetings were cordial, several exchanges allegedly took place in between April and December, which were less polite. On May 20, 1996, a Cowen employee named Larry Scheer replied to an InterVest e-mail ad by stating "Fuck you. . . . Enough people squeezing us . . . we don't need another." (E-mail of May 20, 1996 from Larry Scheer to Fondren.) On October 23, 1996, an "irate" salesman at Cowen's corporate bond desk phoned InterVest and refused to give his name, but expressed outrage that InterVest was going to "let the Buy-side in" and InterVest was "taking food from the mouths of his kids." (ACT Note of March 21, 1997 (documenting phone call of October 23, 1996).) Despite these hostile responses from Cowen employees and three previously unfruitful meetings, Cowen and InterVest met again in May 1997. Tom Evans of Cowen initiated the contact, and wished to discuss the possibility of using InterVest to develop Cowen's own internet product. The meeting, however, was unproductive as Matthews also attended and expressed his continuing dissatisfaction with InterVest's buy side business model. Matthews allegedly stated that InterVest was a direct competitor of Cowen and that "doing business with InterVest was viewed by the street as `unhealthy.'" When Fondren intimated that keeping InterVest out of the market might give rise to a lawsuit, Matthews allegedly laughed and stated, "`it will take you a long time to collect and even if we paid you $10M or $20M, it would be just a cost of doing business," indicating it was worth the price to "kill something like InterVest." (ACT Note of May 29, 1997.)

Termination of the Bloomberg Agreement

Just as InterVest's relationship with defendant Cowen deteriorated steadily, from the time of Bloomberg's InterVest announcement forward, the relationship between the companies entered into a downward spiral. Bloomberg took the unusual step of pulling the Fondren interview from its network and excluded InterVest from its listing of available trading networks. (Dep. of Jacoby at 213.) Eventually, on February 5, 1998, Bloomberg terminated its agreement with InterVest. (Letter of February 5, 1998, from Louis Eccleston to Fondren.) The reasons for the termination of the agreement are the subject of significant dispute between the parties. For the duration of its involvement in this lawsuit, Bloomberg asserted that it terminated its relationship with InterVest because of a lack of interest in its product among Bloomberg users. Bloomberg invested significant time and financial resources in preparing the system to go live, but during the time InterVest was available on Bloomberg, users completed only ten trades on the system and all of these had been prearranged by telephone. (Dep. of Fondren at 117, 119, 136.) InterVest's 1997 losses exceeded $2.5 million, no active subscriber signed onto the system, and the company had laid off all employees, leaving only a skeleton staff.*fn9 (Rapp Report at Exhibit 8; Fondren Dep. at 1714, 1729-30; McGuinn Dep. at 253-55.) Because InterVest never obtained the liquidity needed to become a successful marketplace for the buying and selling of bonds, it made no sense for Bloomberg to continue its relationship with the failing company.*fn10

While InterVest does not dispute its lack of success on the Bloomberg system, it takes a different view of the termination and attributes that failure not to a genuine lack of interest in its product, but to the illicit actions of Cowen and other former defendants in this case.*fn11 In short, InterVest contends that as a participant in a conspiracy to maintain an opaque market and high spreads in the bond trading market, Bloomberg failed to provide the promised and necessary support to make the InterVest system a successful one. More importantly for purposes of this motion, InterVest maintains that the broker-dealers in the bond market, defendant Cowen among them, also joined in this conspiracy and not only refused to deal with InterVest, but pressured Bloomberg to do the same. The influence of this illicit conspiracy effectively doomed InterVest to failure by denying it both liquidity and a vital trading platform.


In support of its claim, InterVest points to the relationship between Bloomberg and another real-time bond trading system, BondNet, and its parallels with its own relationship with Bloomberg. Bloomberg and BondNet entered into a lease agreement in 1996. Though it functioned similarly to InterVest, the companies differed in one significant respect — BondNet operated solely as an inter-dealer broker, and therefore did not make information about pricing generally available to the investing public. As a sell side firm, BondNet conformed to the existing structure of the bond market. However, after being acquired by the Bank of New York in 1997, BondNet began considering serving buy side customers as well, moving their business model closer to InterVest's. At this point, Bloomberg became less comfortable with its connection to BondNet. In an e-mail exchange dated August 18, 1997, two Bloomberg employees discussed the situation. Referring to the manager meeting notes part on "Mike saying no to firms like InterVest," the writer indicated that BondNet was considering moving to the buy side and questioned whether Bloomberg wanted to renew the contract.*fn12 In reply, Lou Eccleston of Bloomberg ("Eccleston") indicated he saw no reason to renew, but asked if the platform had much activity. (E-mail of August 18, 1997, from Ken Wagner to Eccleston.)

At the same time Bloomberg began considering the future of its relationship with BondNet, its relationship with InterVest remained precarious. In September 1997, Eccleston barred Bloomberg employees from speaking to a reporter about InterVest. (E-mail of September 17, 1997, from Patti Harris to Christine Taylor.) BondNet confirmed Bloomberg's suspicions of its plan to shift to include buy side customers in November. At a meeting between Bloomberg and BondNet, Bloomberg indicated that while it was considering other options, its inclination was not to permit BondNet to function in this buy side capacity at all. (E-mail of November 21, 1997, from Kevin Foley of Bloomberg to Eccleston. BondNet apparently accepted this restriction, but expressed dissatisfaction that InterVest continued to publicize its own buy side system as available over the Bloomberg network. On December 11, 1997, Kevin Foley, a Bloomberg employee, contacted Eccleston, his superior, and asked "when does our contract with InterVest let us throw them off the system . . . it would be nice to just close ITV [InterVest] down." In response Eccleston indicated that Bloomberg should treat BondNet and InterVest consistently. Foley, however, expressed concern about limiting InterVest to sell side accessibility on the Bloomberg system because unlike BondNet (and its owners, Bank of New York), it had invested significant resources in developing its buy side system, InterVest had "nothing left to lose," and Bloomberg could not really trust it to honor any agreement it made. (E-mail of December 11, 1997, from Kevin Foley to Eccleston.) Bloomberg alleges that therefore, left with what it perceived as little choice, it terminated its agreement with InterVest effective February 6, 1998. (E-mail of February 9, 1998, from Eccleston to Fondren.) Just weeks before this termination, Thomas Price of Bank of New York wrote a memo concerning BondNet. In his memo, he expressed concerns similar to those of InterVest, namely dissatisfaction with Bloomberg and the restrictions it placed upon the platform's functionality. He also noted that in mid-December, Bloomberg had barred them from adding buy side customers "because of pressure from Wall Street." (Memorandum of Thomas Price, January 22, 1998.)

Legal Standard

Although there are differences which will be explained later, generally, in an antitrust case, the court applies the traditional summary judgment standard. See Rossi v. Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir. 1998). Pursuant to Federal Rule of Civil Procedure 56, a court may grant 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 trial court must determine whether there are issues with regard to material facts that warrant a trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In making its ruling, the district court must consider the facts of the case in the light most favorable to the nonmoving party and give that party the benefit of any reasonable inference that a finder of fact might draw. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Sempier v. Johnson and Higgins, 45 F.3d 724, 727 (3d Cir. 1995) (en banc). Summary judgment is appropriate where the court finds that the record "could not lead a rational trier of fact to find for the nonmoving party, [and] there is no `genuine issue for trial.'" Matsushita 475 U.S. at 587 (citation omitted).

The Sherman Act Claim*fn13

A. Per se versus rule of reason ...

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