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BRUNSON COMMUNICATIONS, INC. v. ARBITRON

December 31, 2002

BRUNSON COMMUNICATIONS, INC.
V.
ARBITRON, INC.



The opinion of the court was delivered by: Baylson, United States District Judge.

        MEMORANDUM

Plaintiff Brunson Communications, Inc., owner of Channel 48, WGTW-TV, a small television station serving the Philadelphia area, alleges that Defendant, in the business of measuring television viewing by the public, is liable under several causes of action: Sherman Act antitrust violations, unfair competition under the Lanham Act, disparagement of commercial products, tortious interference with prospective contractual relations, negligence and promissory estoppel. Defendant moves to dismiss the entirety of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be granted. For the reasons which follow, Defendant's Motion will be granted without leave to amend as to the antitrust and Lanham Act claims, and two of the common law claims. As to claims for negligence and disparagement, the Motion will be granted without prejudice to Plaintiff's right to file a Second Amended Complaint.

I. Procedural History

Plaintiff filed its original Complaint on May 24, 2002. After Defendant moved for dismissal, Plaintiff filed an Amended Complaint with factual materials attached. Defendant thereafter filed the present Motion to Dismiss the Amended Complaint and also attached factual materials. Following oral argument on Defendant's Motion, the Court allowed the parties a period of limited discovery to ascertain the nature and extent of Defendant's reports about its measurement of Plaintiff's penetration of the Philadelphia television market.

The parties then submitted affidavits and other evidentiary materials. While it appears that the contents of Defendant's surveys, discussed below, are largely undisputed, it is clear that Plaintiff and Defendant assert different views as to the nature of certain verbal statements made by Defendant or its representatives regarding those surveys. See infra Part III. Because the material submitted by the parties is not conclusive, it will not be considered in determining the legal sufficiency of the Amended Complaint.*fn1

II. Jurisdiction and Legal Standards

This Court has jurisdiction over Plaintiff's Sherman Act claims pursuant to 28 U.S.C. § 1331 and 1337, and over Plaintiff's Lanham Act claim, which arises under federal law. See 28 U.S.C. § 1331. With respect to Plaintiff's four common law claims, this Court has jurisdiction pursuant to 28 U.S.C. § 1332, in that Plaintiff has alleged diversity of citizenship and an amount in controversy in excess of $100,000. See Amended Complaint ¶ 1-3; Suber v. Chrysler Corp., 104 F.3d 578, 583 (3d Cir. 1997) ("Once a good faith pleading of the amount in controversy vests the district court with diversity jurisdiction, the court retains jurisdiction even if the plaintiff cannot ultimately prove all of the counts of the complaint or does not actually recover damages in excess of [the jurisdictional amount]").

All relevant events alleged in the Amended Complaint occurred in Pennsylvania. Accordingly, this Court will apply Pennsylvania law in determining the legal sufficiency of Plaintiff's four common law claims. See 28 U.S.C. § 1652.

When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1251, 1261 (3d Cir. 1994). The Court must accept as true all well pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir. 1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988).

III. Allegations of the Amended Complaint

Plaintiff alleges the following facts, which, for the purpose of deciding the instant motion, will be viewed in the light most favorable to Plaintiff. Channel 48, WGTW TV, is a television station owned by Plaintiff, broadcasting within the Philadelphia area. See Amended Complaint ¶ 6-7. WGTW is a "small corporation" and "independent of all networks and cable systems." Id.

Defendant Arbitron, Inc. is in the business of "constructing and operating measurement systems that monitor listeners and viewers for usage by radio, cable and more recently television stations, and purchasers of advertising time from television stations." Id. ¶ 9. Defendant has developed a new technology for measuring television viewership, known as the personal people meter ("PPM"). Id. ¶ 10. This PPM technology

operates by embedding an inaudible signal in the transmitter of the various stations. It then places a receiving device on the person of individuals to detect and record when he is watching television sets tuned to only those stations whose signals which [sic] have been imbedded by Arbitron.

Id. Plaintiff asserts that Arbitron's PPM technology "hereinafter will supplant any other system because of its superior accuracy and reliability." Id. ¶ 49.

According to the Amended Complaint, prior to Defendant's development of PPM, another entity, Nielsen Media Research ("Nielsen"), had the only television viewership measurement system. Id. ¶ 11. Plaintiff alleges that Nielsen and Arbitron have "entered into a corporate financial relationship by which Nielsen and Arbitron are related in regard to the new system, the details of which are not known to plaintiff." Id. Plaintiff claims that Nielsen is an owner or joint venturer in the PPM project. Id. Without specifying any details of the alleged relationship between Arbitron and Nielsen, Plaintiff asserts that together the two companies enjoy a monopoly in the TV viewership measurement market. Id. at ¶ 12.

Sometime in 2001, Arbitron began a "test" program to introduce its PPM technology into the Philadelphia market. Id. at ¶ 14-15. Plaintiff alleges that Defendant embedded its PPM signal only in the transmitters of Plaintiff's competitors — the larger networks and cable systems — omitting Plaintiff's station from the PPM survey data. Id. at ¶ 17. According to Plaintiff, Arbitron then began to release periodic PPM survey data to advertising agencies, advertisers, television stations and other media sources. Id. at ¶ 25. At the time of its PPM test, in the fourth quarter of 2001, Defendant "announced" that the PPM data would "accurately and creditably measure the performance of the entire market." Id. at ¶ 15. Moreover, according to the Amended Complaint, on May 20, 2002, at a meeting of the Pennsylvania Association of Broadcasters, Kevin Smith, a Senior Vice President of Arbitron, represented that the PPM survey was fair, accurate and complete. Id. at ¶ 32. Plaintiff suggests that these statements were false and malicious. Id. at ¶ 17, 32.

Further, Plaintiff alleges, without specifying any details, that the exclusion of Plaintiff from the PPM test was a "boycott imposed at the request of plaintiffs competitors." Id. at ¶ 19. Plaintiff claims that Defendant's omission of WGTW from the survey impaired Plaintiff's ability to compete in the market for sales of advertising time, in that advertising agencies would be unable to confirm from the survey that WGTW had a measurable viewership. Id. at ¶ 20, 26.

The Amended Complaint asserts that Arbitron had "many meetings" with the larger stations "while designing and pre-testing the system," without inviting Plaintiff. ¶ 34. As a result, Arbitron failed to inform Plaintiff, prior to the test, that inclusion in the survey required the embedding of a signal into WGTW's transmitter. Id. at ¶ 21. Allegedly, Defendant only informed Plaintiff's competitors of this requirement, causing Plaintiff to believe that no action on its part was necessary. Id. Plaintiff did not learn of the embedding requirement until April 2002, at which time Arbitron visited WGTW to install a PPM encoder. Id. ¶ 23, 68. By then the initial PPM survey was substantially completed. Id. Plaintiff suggests that, despite its full knowledge of the detrimental effects the omission would have on WGTW, Arbitron refused to reconstruct the PPM survey to include WGTW. Id. at ¶ 29. Nor would Arbitron "prominently" inform the public that WGTW had improperly been omitted. Id. at ¶ 34. Plaintiff claims that Defendant's motive in omitting Plaintiff was

to obtain the benefits of working with the larger networks, plaintiffs competitors, who have most of the outlets in the markets. Therefore its pursuit of profits caused it to knowingly give preferential treatment to plaintiffs competitors and exclude an independent non-network station that did not have the market power of the competitors.

Id. at ¶ 35. Though a PPM signal was eventually embedded in WGTW's transmitter in April 2002, id. at ¶ 24, the Amended Complaint asserts that Defendant "intentionally and/or negligently" caused defective encoding of the signal. Id. at ¶ 36. This resulted in the continued omission of WGTW from the PPM surveys until at least June 2002, and further injured Plaintiff's ability to compete. Id.

IV. Counts I and II of the Amended Complaint Do Not State a Claim under the Antitrust Laws upon which Relief Can Be Granted

A. Count I — Sherman Act. Section One

Plaintiffs Amended Complaint substantially expanded upon the original Complaint. Not only did Plaintiff add to its Amended Complaint new counts of negligence and promissory estoppel, but Plaintiff also broadened its antitrust allegations. Whereas the original Complaint contained only a single antitrust count under Sherman Act Sections One and Two, the Amended Complaint broke down the two Sherman Act sections into two separate counts, and substantially expanded the antitrust claim.

The two antitrust counts of the Amended Complaint contain a panoply of antitrust theories that are so broadly described, as to make it difficult to understand how Plaintiff has been injured by anything forbidden by the antitrust laws. Plaintiff has made allegations of monopolization, refusal to deal, group boycott, "combining and coordinating" and exclusion of Plaintiff The breadth of the Section One charging paragraphs with some factual content about Plaintiff or Defendant can be seen from these verbatim quotes:

45. Arbitron (with Nielsen) enjoys monopoly powers in the providing of viewer measurement in the relevant market, i.e, Philadelphia area television viewing market, which is a well recognized market for television viewers and advertisers. It is defined by the reach of signals of stations, and the service areas of the cable systems. It includes a radius of about sixty miles from City Hall, Philadelphia.
48. Through their monopoly over viewer measurement, in the Philadelphia market, Arbitron/Nielsen exercise market control over competitors in the viewing market.
49. Though [sic] its proprietary imbedded system which herein after will supplant any other system because of its superior accuracy and reliability (when employed fairly) Arbitron has monopoly power over the Philadelphia viewer measurement market.
50. By combining and coordinating with plaintiffs competitors to exclude plaintiff from the survey, and through falsely representing it as complete defendant sponsored, and practiced a group boycott, and participated with plaintiffs competitors in a program to exclude plaintiff from the Philadelphia television advertising sales market, injuring competition for the sale of advertising and delivery of programming, contrary to Section 1, antitrust injury. [sic]

Section One of the Sherman Act, prohibits "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." 15 U.S.C. § 1.*fn2 Defendant asserts that Count I must be dismissed because Plaintiff fails to sufficiently allege a conspiracy, a plausible market, a cognizable antitrust injury, or a factual basis to support its claim of an antitrust violation by Defendant.

1. Concerted Action

The "very essence" of a Section 1 claim is "the existence of an agreement." Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 999 (3d Cir. 1994). Unilateral activity by a single person or entity will not suffice. See Fisher v. Berkeley, 475 U.S. 260, 266 (1986). The Supreme Court has explained that even if a single company's conduct has "the same economic effect as concerted action might have, there can be no liability under Section One in the absence of agreement." Id.

The Third Circuit has long held that a Section 1 plaintiff "must plead the facts constituting the conspiracy, its object and accomplishment." Black & Yates v. Mahogany Ass'n, 129 F.2d 227, 231 (3d Cir. 1942). Moreover, a "general allegation of conspiracy without a statement of the facts is an allegation of a legal conclusion and insufficient of itself to constitute a cause of action." Id. Accordingly, only "allegations of conspiracy which are particularized. . . will be deemed sufficient." Commonwealth of Pa. ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d Cir. 1988). See cases collected in ABA Section of Antitrust Law, Antitrust Law Developments (5th Ed. 2002), Vol. 1, p. 3, n. 14.

To adequately allege the element of concerted activity, a plaintiff must do more than insert the word "conspiracy" into his pleading. As the Third Circuit has stated, the "allegation of unspecified contracts with unnamed other entities to achieve unidentified anticompetitive effects does not meet the minimum standards for pleading a conspiracy in violation of the Sherman Act." Garshman v. Universal Resources Holding Inc., 824 F.2d 223, 230 (3d Cir. 1987).

In Garshman, plaintiffs were partners in an entity engaged in oil and gas exploration. Defendant Universal Resources Holding, Inc. was a producer of natural gas. Plaintiffs and Universal had entered into an agreement whereby plaintiffs would drill wells in return for payment and assignment of certain rights. The drilling was to take place on land owned by Columbia Gas Transmission Corporation ("Transmission"). Transmission had also contracted to purchase, through Universal, 75 percent of the gas produced from the wells.

Subsequently the demand for natural gas declined. As a result, Transmission found itself contractually obligated to purchase more gas through Universal than it could resell. Under pressure to renegotiate, Universal agreed to change the price provisions in its contracts with Transmission. This resulted in a decreased return from the wells, harming plaintiffs' economic interests under the drilling contract. See Garshman, 824 F.2d at 225-27.

Plaintiffs sued on antitrust, tort and contract grounds. Universal filed a crossclaim against Transmission and its parent corporation, Columbia Gas System ("System"), also raising antitrust grounds. In its Sherman Act, Section One claim, Universal alleged that System and Transmission had "entered into one or more agreements, contracts or conspiracies, and have engaged in concerted action with other entities, which agreements are in restraint of trade and are unreasonable, to achieve the anti-competitive and unlawful actions and effects as alleged in this crossclaim." Id. at 230. The district court dismissed Universal's Section One count for failure to state a claim.

The Court of Appeals affirmed, observing that Universal had identified neither the "contracts," nor the "other entities," nor the "anti-competitive and unlawful actions and effects" involved. Id. The court held that the "allegation of unspecified contracts with unnamed other entities to achieve unidentified anticompetitive effects does not meet the minimum standards for pleading a conspiracy in violation of the Sherman Act." Id. Moreover, the price-renegotiation contracts undertaken by Transmission did not result in price increases to consumers or in the market generally. Universal's allegations failed to suggest an adverse effect upon competition in any relevant market. Therefore the claim was properly dismissed. See Garshman, 824 F.2d at 231.

The Circuit's affirmation of the dismissal of the antitrust claims in Garshman (without leave to amend) is precedent for the dismissal here. The Section 1 claim in this case is similarly deficient of the necessary facts.

In the PepsiCo case, the Commonwealth of Pennsylvania brought a parens patriae antitrust action, alleging that a soft drink maker and two of its bottlers had conspired to eliminate horizontal competition between resellers of the soft drink product. See PepsiCo, 836 F.2d at 175. The state alleged that the three defendants purposefully withheld the product from certain resellers so that the resellers could not compete with the bottlers. According to the Commonwealth's amended complaint, defendants had engaged in the following practices in furtherance of this conspiracy:

using a coding identification system to trace and monitor soft drink sales; fining bottlers when their product is shipped out of their territory; refusing to deal with resellers who engage in transshipping; refusing to deal with resellers who buy from or sell to other resellers; threatening termination of resellers who engage in such sales; and limiting sales to resellers to the amount the reseller needs solely for its own retail sales, in order to prevent that reseller from wholesaling.

Id. The district court dismissed the Section One count for failure to state a claim, and the Third Circuit affirmed.

The Court of Appeals noted that under the Soft Drink Interbrand Competition Act, because only a horizontal conspiracy was actionable, the state's pleading burden was higher than in a typical antitrust case. Id. at 181. As to the sufficiency of the amended complaint, the court first observed that the state's allegations "consistently refer to conduct by "defendants and their co-conspirators' — not otherwise identified." Id. The court continued:

Equally significant is the fact that Pennsylvania did not allege any meetings between [the defendant bottlers], any communications between them, or any other means by which their alleged conspiracy came about. This notwithstanding that in this circuit, "[o]nly allegations of conspiracy which are particularized. . . will be deemed sufficient." Garshman v. Universal Resources Holding, Inc., 641 F. Supp. 1359, 1370 (D.N.J. 1986), aff;d 824 F.2d 223 (3d Cir. 1987) (quoting Kalmanovitz v. C. Heileman Brewing Co., 595 F. Supp. 1385, 1400 (D.Del. 1984), aff'd, 769 F.2d 152 (3d Cir. 1985)). Instead, all that appellant was apparently prepared to plead was a naked conclusion dropped into the amended complaint, reciting a bare-bones assertion that there had been a "horizontal" conspiracy.

Id.

The PepsiCo court found that the Commonwealth's allegations "did not come close to adequately pleading conduct amounting to" a price fixing agreement, a horizontal*fn3 restraint of trade, or a group boycott.*fn4 The court therefore affirmed the dismissal with prejudice in that the Commonwealth had already amended its complaint once, with leave of court. See id. at 180.

a. Group Boycott

Although Plaintiff does allege a group boycott, here again the conclusory allegation is devoid of details. A horizontal group boycott involves entities at the same level of the market structure conspiring amongst themselves, with "a purpose either to exclude a person or group from the market, or to accomplish some other anti-competitive objective, or both." PepsiCo Inc., supra 836 F.2d at 183 (quoting DeFilippo v. Ford Motor Co., 516 F.2d 1313, 1318 (3d Cir. 1975)). Group boycott cases usually involve joint efforts at persuading suppliers or customers to refuse to deal with a certain competitor. See, e.g., Northwest Wholesale Stationers Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284, 294 (1985). Aside from the conclusory phrase "group boycott," the Court concludes that Plaintiff has not adequately plead Defendant participated in an illegal group boycott.

b. "Hub-and-Spoke"

Courts have refused to find a horizontal conspiracy, where a single entity or person engages in separate vertical conspiracies with multiple parties, who do not conspire amongst themselves horizontally. See, e.g., Dickson v. Microsoft Corp., 309 F.3d 193, 2002 U.S. App. LEXIS 22466, at *17-24 (4th Cir. 2002); Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc., 824 F.2d 582, 590 (8th Cir. 1987). Cf. Kotteakos v. United States, 328 U.S. 750, 752, 769 (1946) (holding, in non-antitrust criminal conspiracy case, that jury instruction should have explained "vital difference" between one conspiracy, in which all defendants conspired amongst each other, and numerous separate conspiracies between each defendant and one "common key figure"). Courts analyze such "hub-and-spoke" scenarios under the rule of reason. See Dickson, 2002 U.S. App. LEXIS 22466, at *17-24 (finding plaintiff alleged merely "separate vertical conspiracies" or "a wheel without a rim," rather than single horizontal conspiracy; applying rule of reason because anticompetitive effect "not obvious"); Lomar, 824 F.2d at 590 (refusing to apply per se rule where plaintiff did not allege suppliers conspired "among themselves," but rather that one distributor "separately coerced each of the suppliers into boycotting" plaintiff, thus forming "a rimless, spoked wheel"). Plaintiff's allegations that Arbitron met with and agreed with most of the larger television stations to exclude Plaintiff from its viewer measurement studies more resembles a "hub-and-spoke" style of conspiracy than a horizontal group boycott. As noted in Antitrust Law Developments, supra, pp. 24-5:

Some conspiracies have elements of both horizontal and vertical agreements. An example of such a hybrid is the "hub-and-spoke" conspiracy.
Although some of the earlier hub-and-spoke cases have suggested at least the theoretical possibility that an actionable conspiracy might be found where there were hub and spokes but no rim, more recent cases require that a plaintiff must present evidence sufficient to allow the inference of an agreement constituting the rim of the conspiracy. (Footnotes omitted).

As explained above, under any theory, Plaintiff has not alleged the essential statutory element of concerted activity.

With these precedents as guideposts, we review the antitrust allegations in the Amended Complaint. In the instant case, Plaintiff has identified none of the entities which allegedly conspired with Defendant. While Plaintiff need not necessarily supply names of all alleged conspirators, the cases cited above require an antitrust plaintiff to supply more detail to make out a Section One claim. The facts alleged in the Amended Complaint are extremely vague and do not sufficiently describe any contract, combination or conspiracy between Arbitron and the larger TV stations.

The Amended Complaint never answers the common-sense question as to why Plaintiff's competitors, who allegedly already dominate the market, would seek the exclusion of a single, small, independently-owned station from Arbitron's test-runs of the new PPM technology. Further, though the Amended Complaint alleges a "boycott imposed at the request of plaintiffs competitors," id. ¶ 19, Plaintiff has not provided a single detail as to when, why, or how the conspirators decided upon this alleged boycott. The most that Plaintiff alleges is that Arbitron had "many meetings" with the larger stations "while designing and pre-testing the system." Id. ¶ 34. Thus, while Plaintiff's Amended Complaint is extremely broad in charging Section One antitrust liability, it falls far short on the facts.

Aside from the dearth of specific allegations, the Court also concludes that the Amended Complaint fails to sufficiently allege concerted activity for the simple reason that the supposed conspiracy "makes no economic sense." Matsushita Elec. Indus. Co., Ltd v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The Supreme Court has found that "antitrust law limits the range of permissible inferences from ambiguous evidence in a Section One case." Id. at 588. Where a defendant had no rational motive to join a conspiracy, and defendant's conduct is as consistent with permissible competition as with illegal conspiracy, the plaintiffs unspecific allegations do not support an inference of antitrust conspiracy. See Antitrust Law Developments, supra, p. 8. Thus, as the court in Matsushita explained, if the defendants "had no rational economic motive to conspire, and if their conduct is consistent with other, equally plausible explanations, the conduct does not give rise to an inference of conspiracy." 475 U.S. at 596-97. In such a case, where an inference of conspiracy is "implausible," the court should dispose of the Section One claim without submitting the conspiracy issue to a jury. Id. at 594. Accordingly, in Matsushita, upon finding that the alleged conspiracy would have been "economically senseless," the Court found summary judgment proper. Id. at 598.

Though Matsushita was decided in the context of a motion for summary judgment, its reasoning, nevertheless, has been used to decide motions to dismiss and suggests that Plaintiff's Section One claim should be dismissed.*fn5 The sparse facts set forth in the Amended Complaint are not sufficient to support an inference that defendants acted conspiratorially. Accepting all of the facts of the Amended Complaint as true, the conspiracy theorized by Plaintiff is, for several reasons, economically implausible. Plaintiff, a television station, suggests no logical reason why Defendant, which is allegedly dominant in the viewer measurement market, would conspire with Plaintiff's competitors, the larger stations, in order to exclude Plaintiff from Defendant's PPM tests. if Defendant is, in fact, dominant in the viewer measurement market, to exclude Plaintiff's data would absolutely contradict Defendant's business purpose and jeopardize the credibility of its measurements. At oral argument, Plaintiff's counsel suggested that Arbitron's motive in excluding WGTW was "to accommodate [WGTW's] competitors." Transcript of Motion to Dismiss Hearing (Oct. 8, 2002) at 35. Counsel added that WGTW is "small potatoes in th[e] market. We are the classic kind of competitor who the standard competitors would just as soon not have in the market." Id. at 36. Plaintiffs argument makes a gigantic leap from omission of Plaintiff's data in a market survey, to exclusion of Plaintiff from the television market. However, the other deficiencies in Plaintiff's Amended Complaint do not require the Court to decide whether Plaintiff's allegation that merely omitting Plaintiff's data from Defendant's viewer measurement reports could result in liability under the ...


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