Lead Opinion
Thе appeals and cross-appeals in this case present a potpourri of antitrust problems in the context of a newspaper distribution system before and after the publishers’ conversion of the system from independent dealer-distributors to employers of the newspaper publishers.
We first identify the dramatis personae : All the plaintiffs are independent distributors of the newspapers published by Daily Review, Inc. (“DRI”). Defendants are two corporations and individual officers or employees of those corporations. DRI pub
Plaintiffs allege that defendants entered into horizontal and vertical agreements in restraint of trade. They claim that the dealership contracts used by DRI/BAPCO fixed resale prices and imposed territorial restraints in violation of the Sherman Act, Section 1. (15 U.S.C. § 1.) They also claim that DRI’s termination of its independent dealer system violated Section 1. Finally, they argue that the defendants violated Section 2 of the Sherman Act (15 U.S.C. § 2) by attempting to monopolize the newspaper trade. The district court found for the plaintiffs on the price-fixing count, but awarded neither damages nor injunctive relief. The court found for the defendants on the remaining Section 1 counts and on the Section 2 claim. Defendants have not appealed the price-fixing holding. We affirm the district court on the other Section 1 counts, remand for a new trial on damages, and a limited remand on the Section 2 count.
In 1950 Sparks adopted an independent dealer system for the distribution of his newspapers to home subscribers. Under this system, distributors purchased newspapers from the publisher and resold them to carriers (newspaper boys/girls), who delivered/resold the papers to the subscribers. There were, therefore two independent units in the distribution system: the distributors and the carriers, both of which purchased the paper from the level above. From 1950 until 1969, relationships between the papers and the distributors were governed by a standard form Dealer’s Agreement which provided that the dеaler would sell newspapers to the subscribers within his route or territory at a fixed subscription price and that the subscription price, the price paid to the publisher by the dealer, and the size and boundaries of the territory were subject to change by the publisher in his sole discretion. The dealer could not assign, transfer or hypothecate rights arising under the agreement without the prior written consent of the publisher.
In 1969, a dispute arose before a state agency as to whether the BAPCO distributors were independent contractors or employees. With the assistance of a consulting firm, a new agreement was drawn up and used by DRI and its distributors. A similar agreement was used by BAPCO. The agreement fixed retail prices.
On May 14,1973, plaintiffs’ counsel wrote Sparks a letter stating that certain provisions of the dealer agreements used by DRI and BAPCO constituted unlawful restraints of tradе. In July 1973, DRI and BAPCO, pursuant to the 30-day termination provision, notified all distributors that they were terminating their entire independent dealer system for home delivery and converting to a system of employee-distributors. Under the internal system of distribution, employees of DRI and BAPCO sold the newspapers directly to the independent carriers. Each terminated dealer was offered employment as a salaried district manager within the new system.
On August 6, plaintiffs filed this action; defendants agreed to continue to sell newspapers to the plaintiffs and to hold open the offers of employment.
Plaintiffs allege that defendants entered into both horizontal and vertical contracts, combinations or conspiracies. They claim that the post-1969 agreements were unlawful contracts to fix resale prices and to impose territorial restraints on the distributors. They also claim that the termination provision and the actual terminations were violations of Section 1.
I
A. Intraenterprise Conspiracy.
Plaintiffs assert that DRI and BAPCO conspired to appropriate the distribution organizations without compensation by converting the entire distribution system. The district court found that there was no conspiracy in fact since the plaintiffs “presented no evidence other than Sparks’ decision, such as the active participation of other corporate officers or agents in this decision [to terminate], which would support a finding that DRI and BAPCO combined or conspired to violate § 1.” (
Section 1 prohibits conspiracies in restraint of trade between two or more people in economic entities. As a purely verbal matter, the officers or directors of a corporation can “conspire,” and any contract they make restrains trade. For antitrust purposes, if the Sherman Act forbids such activities it:
“ . . . would be socially inconvenient and historically surprising. So long as the business enterprise is regarded as an individual economic unit, it must be permitted to act.” (P. Areeda, Antitrust Analysis 319 (2d ed. 1974).)
The problem has been to define an economic unit. In Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc. (1951)
Antitrust law is concerned with the concerted action of distinct economic entities. In any case, whether such action has occurred turns on the particular facts.
DRI and BAPCO form a single unified structure. The relationship between them far exceeds DRI’s mere ownership of the subsidiary’s stock, and therefore, this is not a case of parent and independent subsidiary, but of a single business unit separated only by the technicality of separate incorporation. The same individual, Sparks, is controlling shareholder of DRI, president of both corporations and publisher of all five newspapers. Both corporations have the same individuals in charge of important operations, such as circulation. The two alleged individual co-conspirators. Chilcote and Cleland, are employees and/оr officers of both firms. All three daily newspapers have the same sports page, financial page, T.V. log, “Night and Day Around the Bay,” editorial page (except for two editorials per week), and substantial amounts of news and advertising. All the composition work for the common features is done at one plant. Moreover, DRI and BAPCO do not compete or hold themselves out as competitors.
Arguably on these facts the two corporate units were incapable of conspiracy as a matter of law. It is unnecessary for us to decide that question, however, because the same facts prevent successful attack on the district court’s factual findings that there was no conspiracy.
II
A. Horizontal Restraints.
Even if the corporate units were capable of conspiring, plaintiffs have failed to show that the concerted action effected a horizontal restraint on trade. A termination is not unlawful because of some adverse effect on the distributor’s business, even if the effect is the elimination of the distributor from the market. The complaining distributor must show that the refusal to deal was intended to or did bring about some restraint of trade beyond the loss of business suffered by the distributor or the market’s loss of a distributor-competitor. (E. g., Bushie v. Stenocord Corp. (9th Cir. 1972)
Plaintiffs proved neither of the elements which might bring them within Industrial. Predatory tactics usually have little or no social or economic justification, and can potentially harm the economy by producing monopolies. (See Turner, “Antitrust Policy and the Cellophane Case,” (1956) 70 Harv.L.Rev. 281, 305.) The terminations here, however, were pursuant to a contract which gave either party the right to discontinue the relationship; there was no provision for compensation or for the sale of the distributorship and the exercise of the contractual right can hardly be deemed “unfair.” Moreover, if plaintiffs’ contention were accepted, a manufacturer could be prevented “from ever replacing a system of independent distributors with its own system of direct sales,” a result that even Industrial did not endorse. (
Plaintiffs also failed to prove that defendants’ acts had any actual horizontal anticompetitive effect. Plaintiffs would have had to show DRI/BAPCO’s dominant position in some relevant market
Finally, plaintiffs have been even less diligent in showing an actual restraint in that market. The district court found that no plaintiffs had ever carried a competing paper and two had declined aft opportunity to do so. Moreover, plaintiffs failed to show that internal distribution costs are a substantial barrier to entry in the newspaper business, or that a demand for distribution services could not be met by independent entrepreneurs not currently in the newspaper distribution trade.
Since the plaintiffs have only shown that the terminations might restrain trade, but not that they actually did, they are not entitled to reversal on this point.
B. Termination in Furtherance of the Price Fixing Conspiracy.
Plaintiffs claim that the terminations were made in order to eliminate the uncooperative dealers and permit DRI/BAPCO to continue to control the resale price of its newspapers. The price-fixing scheme involved two different resale prices: the distributor’s price to carriers (indirectly restrained) and the carriers’ price to subscribers (directly restrained).
In Knutson, however, there was no selective termination of miscreant dealers; the entire wholesale level of distribution was replaced by an employee system. Thus, the terminations did not further the restraint on the plaintiffs’ resale price. Sparks did not merely threaten to convert in an attempt to coerce adherence to his price; after the full conversion, no distributor was being restrained. There is, of course, no question that DRI/BAPCO now controls the price at which papers are sold to the carriers; such control results from the vertical integration. But that control is exercised by any firm (e. g., the other Bay Area newspapers) that performs its own distribution services.
The dealership agreements permitted termination by either party after proper notice; there was no restriction on the reason for termination. If one party believed, as Sparks did, that the relationship was no longer advantageous to him, he had complete freedom to terminate it, as long as the terminations did not perpetuate the violation. In Germon v. Times Mirror Corp. (9th Cir. 1975)
As to the second price restraint, that on the retail price to subscribers, plaintiffs claim that the terminations were used to foster an anticompetitive scheme. They argue that Sparks eliminated the distributors so that his newspapers could influence directly the prices charged by the carriers and the remaining adult independents (motor route, retail account, and street sale dealers). Since the anti-competitive goal of the price-fixing scheme was to place a ceiling on the subscription price, the terminations could be in furtherance of the scheme if Sparks continued to unlawfully restrain the
While the uncontested facts demonstrate Sparks’ unalloyed intent to establish uniform prices for his newspapers, the totality of his actions does not amount to the requisite quantum of coercion: no “meaningful event depend[ed] on сompliance or non-compliance” with his requests of the carriers. (Butera v. Sun Oil Co. (1st Cir. 1974)
The remainder of plaintiffs’ evidence of a continuing restraint is based on a theory of coercion-by-example. The terminations, the treatment of plaintiff-employees, and the decision not to employ most of the plaintiffs are said to be disciplinary measures that carry an ominous threat to independents who might be tempted to sell above the suggested price. Plaintiffs are suggesting that Sparks’ treatment of the distributors satisfies the Schwinn coercion standard of a “communicated danger of termination.” (United States v. Arnold, Schwinn & Co. (1967)
Plaintiffs have thus failed to show coercion of the remaining independents and have, therefore, not proven that the terminations were in furtherance of a retail price-fixing scheme. Nevertheless, the events prior to, during, and after the trial have generated a substantial amount of confusion concerning the independents and the legitimate courses of action open to Sparks. While this potentially coercive “fallout” does not justify an award to plaintiffs for the terminations, it might warrant the district court, it it chose to do so, to require Sparks to inform each independent of his or her right freely to resell the newspapers аt prices other than the suggested price. This would assure that there is no residual anticompetitive effect from the terminations without penalizing Sparks for his lawful actions.
Ill
Territorial Restrictions.
The distributors cite three factors to support their claim of an unlawful restriction on areas of resale. First, they argue that the territorial reference in the dealers’ agreement was a contractual restraint of trade. Second, they point to four instances in which a plaintiff-distributor’s territory was realigned (a “split”), pursuant to the contractual provision for renegotiation. In at least one case they claim that the split was foisted on the distributor against his will. Finally, they contend that the wholesale newspaper price was manipulated to discourage sales outside a distributor’s assigned territory. The wholesale prices to distributors varied, depending upon what the publisher and distributor believed was a reasonable income for a route. Once an income figure was decided upon, a dual rate was used, with one price per subscriber up to a certain number of subscribers, and a higher rate for each subscriber beyond that. If a contract expressly prohibits sales outside a designated territory, it is unlawful whether or not coercive devices have been employed to enforсe it. In the absence of an express contractual agreement, proof of coercion that the manufacturer is “firm and resolute” in insisting on compliance with any ambiguous or implicit limitations on dealer freedom is necessary to show unlawful restraint. (See United States v. Arnold, Schwinn & Co., supra,
The contracts in Knutson do not expressly prohibit extraterritorial sales.
On its face, the dual price structure appears to be a device for confining a distributor to his assigned area. When a dealer took over a territory his wholesale price was calculated by the following method:
1. The number of subscribers in the area is multiplied by the subscription rate, giving the gross income produced by the area.16
2. The carriers’ total income is subtracted from this amount, giving the remaining income to be divided between the newspapеr and the dealer.
3. The newspaper and the dealer agree on a reasonable income from the area, taking into consideration the size, density, and difficulty of the area.
4. The remaining amount (the newspaper’s income) is divided by the number of subscribers, giving the first wholesale rate to the dealer, i. e., the “base rate.”
The base rate was initially charged for the number of subscribers in the territory at the time the territory was acquired. A higher rate was charged for each additional paper. Cleland testified that the reason for this was (1) to give a reasonable income to each dealer for his territory (the base rate calculations) and (2) to help the newspaper
Whatever the newspapers’ justification for the dual rates, charging a higher rate for newspapers above the amount needed for the territory inhibits extraterritorial sales. Not only does the dealer pay a higher price for additional papers, but he is also likely to incur greater costs in acquiring and serving customers outside his territory. This profit squeeze, resulting from the dual rates, inhibits dealer sales beyond his assigned area.
Nevertheless, the dual rate structure is not, by itself adequate to meet the restraint standard of making “a meaningful event depend upon compliance or non-compliance with the restriction.” A similar situation arose in Butera, supra. There, the oil company used a dual pricing system for sales to its dealers: the “tankwagon price” was the base rate, but a competitive allowance (i. e., a price reduction) was given on gasoline sold in areas and at times when the local competitive situation required retail sales at a lower price. (
In Knutson, the dual price applied to all additional newspapers, whether sold within or without the territory. Of course, the initial determination of the break-point for the base rate was made on the basis of the number of subscribers within the territory, but the higher rate applied regardless of whether additional cusi ners came from the territory or outside it.
The interаction between the splits and the dual prices is more problematic. As pointed out by the district court, the mere fact of a split does not show that territorial restrictions were imposed on the dealers. (
Plaintiffs have not provided any substantial evidence of blatant coercion, such as a termination threat, to accept a split. Even in the one instance where the dealer actively resisted the split (1970, Knutson), plaintiffs do not seriously claim that Knutson succumbed becausе of threats. But defendants admit and the district court found that “whenever a split resulted in a loss of circulation, the dealer’s rate was adjusted to avoid any loss of income of the dealer.” After Knutson’s 1970 split, his rates were favorably adjusted. (
This is a very close case. It is undeniable that newspapers and dealers were operating under a system of territories; there is no evidence that any dealer attempted to sell outside his area prior to the suit. (
IV
Damages.
Plaintiffs claim damage due to lost profits.
The district court found that the data for the “after” period was so “inherently suspect and patently artificial” as to destroy the probative value of the evidence. (
Two Argus dealers raised their prices on April 1, 1974, two weeks before the damage trial. Subsequent to the damage trial they'
Two of the remaining three Argus dealers made no price changes. The third increased his price on February 1, 1974. These three plaintiffs claimed damages based on a comparative study using the data of the Daily Review dealers and the Argus dealers’ assertion that the price in the “before” period would have been 25$ higher had they been free of restraint. The ratio of 25$ to the actual Daily Review price increases was multiplied by the average monthly damages of the Daily Review dealers to calculate the damage per subscriber month of these three Argus dealers. This figure was multiplied by the dealer’s number of subscriber months prior to March 1, 1973, to arrive at a total damage figure.
Different standards govern proof of the fact and proof of the amount of damages. (Story Parchment Co. v. Patterson Parchment Paper Co. (1931)
The Supreme Court has also established a relaxed standard for proving the amount of damages in an antitrust case once the fact of damage has been shown. In Story Parchment, the Court noted that where the violation makes difficult a certain determination of damages “it will be enough if the evidence show the extent of the damages as a matter of just and reasonable inference, although the result be only approximate.” (
“A study of the adjudicated cases in this area readily dispels any impression that this question of damages is governed by*812 an application of the common law rule of reasonable certainty. The cases have long since departed from this rule in antitrust litigation.
“Preliminarily, it should be observed that the reasons underlying the evolutionary trend toward liberality in proving damages are grounded in logic and sound policy. Two principal factors have influenced the courts. First, the self-evident intangible nature of the subject matter. To ascertain what would have been is as difficult as trying to determine what should be.
“Second, the legal maxim that a wrongdoer should not profit by his wrong. In light of the intrinsic uncertainty surrounding this problem, the responsibility for which lies in large measure with the defendant found liable, it has long been felt that this presents an ideal situation for application of that doctrine.” (246 F.2d at 391 .)
The district court found two major flaws in the plaintiffs’ proof. First, it said that they did not show a reasonable probability that, absent the restraints, they would have raised their prices during the “before” period. While recognizing that the plaintiffs need not “prove that they actually engaged in the potentially futile act of violating a price-fixing agreement,” the court characterized plaintiffs’ proof as “conjectural hindsight.” Second, the distriсt court rejected the fact-of-damage proof on the ground that the plaintiffs did not meet the Story-Flintkote criteria. We agree with the district court in respect of the Argus plaintiffs, but we disagree as to the other plaintiffs.
The fundamental difficulty with the district court’s reasoning is that it creates a nearly insurmountable barrier to recovery in maximum price-fixing cases. A determination of what a dealer would have done is bound to involve speculation and “second-guessing.” Even if plaintiffs had supplied the corroborating circumstantial evidence apparently sought by the trial judge, assertions of their past intentions would still entail “conjectural hindsight.”
Rather than imposing the nearly impossible burden of proving what each dealer would have done if he had been free to make his own pricing decision, we assume that, absent evidence to the contrary, a dealer would have raised his prices had it been profitable to do so; that is, dealers are profit maximizers.
With respect to the non-Argus plaintiffs, Knutson is easily distinguishable from Story-Flintkote. The distributors were operating the same businesses in both time periods and there was substantially less uncertainty as to the comparability of the two periods. The only question is the effect of a price increase on circulation and these plaintiffs have provided data on the degree of circulation drop. The district court implicitly recognized the differences between Flintkote and the Knutson in that it did not address the comparability of the two periods, but focused on the reliability of the data from the “after” period. Yet, the factors upon which the court relied in finding unreliability, at least as to the Daily Review plaintiffs, are relevant to the
In respect of the Argus plaintiffs, we agree with the district court that these plaintiffs did not meet the-fact-of-damage Flintkote test. Both groups of Argus dealers relied on average Daily Review figures to compute their prices, and two of the Argus plaintiffs never raised their prices. Thus, the Argus dealers produced no independent data, and they did not offer any proof of the comparability of the Daily Review and Argus dealerships and markets. Unlike other plaintiffs, the Argus plaintiffs had a complete failure of proof of damages, not simply some deficiencies in the proof of amount of damages.
On remand of the amount of damages issue as to the non-Argus plaintiffs, the district court is not asked to accept unreliable evidence.
V
Section 2 Attempt to Monopolize.
“The phrase ‘attempt to monopolize’ means the employment of methods, means and practices which would, if successful, accomplish monopolization, and which, though falling short, nevertheless approach so close as to create a dangerous probability of it.” (American Tobacco Co. v. United States (1946)
In Lessig v. Tidewater Oil Co. (9th Cir. 1964)
“We reject the premise that probability of actual monopolization is an essential element of proof of attempt to monopolize. Of course, such a probability may be relevant circumstantial evidence of intent, but the specific intent itself is the only evidence of dangerous probability the statute requires .
“When the charge is attempt (or conspiracy) to monopolize, rather than monopolization, the relevant market is ‘not-in issue.’ ” (327 F.2d at 474 .) (Footnotes omitted.)
“. . . dangerous probability may also be shown through proof of specific intent to set prices or exclude competition in a portion of the market without legitimate business purpose. This specific intent must be accompanied by predatory conduct directed to accomplishing the unlawful purpose. Ordinarily specific intent is difficult to prove and will be inferred from such anticompetitive conduct.” (Hallmark Indus, v. Reynolds Metals Co. (9th Cir. 1973)489 F.2d 8 , 12.)
In sum, we require (1) only specific intent and (2) some illegal (under Section 1) or predatory activity from which specific intent can be inferred. Where the conduct is justified by legitimate business reasons or merely exemplifies a healthy spirit of competition, an intent to monopolize is more difficult to support. The court below refused to find the requisite specific intent. The question, therefore, is whether the acts of the corporate and individual defendants require an inference of specific intent. We discuss each form of conduct separately, but it should be noted that all of the acts should be viewed together in determining whether there was an attempt to monopolize. (Morning Pioneer, Inc. v. Bismarck Tribune Co. (8th Cir. 1974)
The district court held that the papers had violated Section 1 by fixing resale prices in their contracts with the distributors. Lessig, Bushie, and Moore all endorse the proposition that a Section 1 violation itself can support an inference of specific intent. The district court, however, refused to make the inference because there was no evidence of “predatory or knowingly unlawful activity” in the fixing of prices. The court characterized the illegal contracts as a “technical violation” and noted that the defendants took prompt action to comply with the law when notified by plaintiffs’ counsel that the practices were unlawful. Assuming arguendo, that there is a requirement of “knowingly unlawful” conduct, there is no question that the defendants engaged in it. Price fixing has been illegal since the appearance of the Sherman Act in the nineteenth century; resale price fixing contracts were held to be illegal as early as 1911 in Dr. Miles; maximum resale price fixing was clearly outlawed in Kiefer-Stewart in 1951; and maximum resale price fixing specifically in the newspaper industry was found to violate Section 1 in Albrecht in 1968, the year before DRI/BAP-CO adopted its illegal contracts. In the light of these cases beginning with the definition of the general offense of price fixing and culminating in the specific offense in the specific industry at issue in Knutson, the district court’s determination that there had been no knowingly unlawful activity cannot stand. Even in the absence of predatory acts, the contracts themselves are unlawful and they accomplished the unlawful purpose of maintaining a maximum resale price.
During the period from 1944, when he bought the Daily Review, until 1972, Sparks
The Audit Bureau of Circulation (“ABC”) is a non-profit corporation which issues statements on its members’ circulation and distributes the statements to advertisers and publishers who rely on the data for the sale and purchase of advertising space. Prior to the periodic determinations of circulation by the ABC, DRI would sponsor promotional contests in which dealers purchasing additional copies of newspapers for a specified time would be rewarded with trips or cash. The additional purchases would be recorded as paid circulation even if the dealers were unable to acquire new subscribers to purchase the papers. The “prizes” awarded for these contests were not reflected on the dealer’s monthly statements as credits, nor were the ABC auditors informed of the contests. Plaintiffs also alleged that employees of DRI had set up a system of phony start orders whereby dealers would write (for a fee) start orders for nonexistent subscribers. Professional solicitors were also alleged to have participated in this scheme.
These uncommendable tactics might have anticompetitive effect because new entrants might be discouraged by the false impression that market strength of DRI would prevent successful entry. But an inference is also permissible that high circulation would actually attract competition into what was falsely presented as an especially juicy market. This factor thus becomes a neutral element in the search for the requisite specific intent.
In short, the Section 1 violation alone, or in conjunction with Sparks’ newspaper acquisitions, the questionable promotional practices, and the padding of circulation figures would have supported a district court finding of specific intent, but that finding was not compelled and we cannot say that the district court’s contrary determination was clearly erroneous.
The injunction is ordered dissolved upon issuance of mandate. Affirmed in part, reversed in part, and remanded for further proceedings consistent with the views herein expressed. The parties shall bear their own costs on appeal.
Notes
. The defendants have cross-appealed from the partial award of costs and attorneys’ fees. We do not reach this issue since there will be a partial new trial on damages. They have also cross-appealed the district court’s continuation of injunctive relief; the court ordered DRI to keep open its employment offers to former distributors and not to discharge any plaintiffs unless approved by an arbitrator. We perceive no abuse of discretion in the district court’s continuing its injunction pending appeal; we also dissolve the injunction as part of our remand.
. Since the dealers sold to carriers, the district court found that the agreement established not a resale price, but a “resale-resale price,” the price at which the product is actually sold to the consumer at a carrier level. (
. After trial, the district court relieved DRI of its employment obligations because of its precarious financial condition.
. Some courts have decided that there was in fact no conspiracy between people even where the corporate units might have conspired. For example, one person may be the sole decision-maker in two separate corporations so that there can be no conspiracy in the meeting-of-the-minds sense. (Windsor Theater Co. v. Walbrook Amusement Co. (D.Md.1950)
. The Court’s suggestion in Kiefer-Stewart that commonly-owned firms who pretend to be competitors must act like competitors has created some confusion in the lower courts. The Fifth and Eighth Circuits have held that competition between the corporate units is not necessary for a finding of intraenterprise conspiracy. (Battle v. Liberty Nat’l Life Ins. Co. (5th Cir. 1974)
. Lessig v. Tidewater Oil Co. (9th Cir. 1964)
. All of these questions relate to the sales of the newspapers. Similar factors would be important to the sale of advertising space — the other product market in which newspapers compete.
. In their complaint plaintiffs alleged two vertical restraints on trade: (1) the dealership agreements in effect from 1969 until the terminations, and (2) the carrier agreements used after the terminations. On appeal, they raise also the “combinations” between the publisher and (a) the street sale dealers and/or (b) the motor route distributors. We may not consider the new claims; they were not raised below and unlike Perma Life Mufflers, supra, note 5, where the Supreme Court permitted such a “shotgun” approach, this is not an appeal from a summary judgment but from a full-fledged trial and the district court’s detailed findings of fact and conclusions of law. Moreover, these agreements and the carrier agreements go to Sparks’ alleged continuation of the retail price fix after the illegal contracts were terminated. If they were in furtherance of the scheme, no additional “contract combination or conspiracy” need be shown. The dealership agreements were not raised on appeal.
. Trixler Brokerage Co. v. Ralston Purina Co. (9th Cir. 1974)
. The general legality of internal distribution creates the paradox of the case law on intrabrand restraints. The opinions in this area are often cast in terms of price competition in the sales of a single brand. Thus, a manufacturer cannot confine its independent distributors to a certain territory or fix their resale price, because these restraints determine the price at which the brand is sold. Yet, a manufacturer can assume full control over the price of his product, if he integrates forward into distribution and eliminates any possibility of intrabrand competition.
The reason for this “double standard” goes all the way back to Dr. Miles Medical Co. v. Park & Sons Co. (1911)
. The Germon court also implied that terminations in retaliation for the antitrust action might be prohibited. (
. Because the issue is unlawful control vel non, the extended discussion by the district court (
. “NOTICE OF RATE INCREASE
“Effective August 1, 1975 the Publisher will increase the wholesale rate charged Argus carriers to $2.92 per month. At the same time, the suggested subscription rate will be increased to $3.75 per month.
“To prevent the loss of circulation and of carrier profits, the Publisher plans a massive promotion campaign based on the cooperafive efforts of carriers, the circulation department and professional solicitors. -The success of that campaign, and the ability df the office and the professional solicitors to help you build circulation on your route, depend on a uniform subscription price. We, therefore, strongly recommend that you charge your subscribers the suggestеd rate of $3.75 per month.
“Last November when Mr. Benham became an employee at the Argus, the company reduced your monthly wholesale rate from $2.54 to $2.32 per subscriber, giving you a large increase in profit margin. We want you to continue earning those increased profits, so we plan to give you a bonus each month on every subscription you deliver. An employee of the company will contact you and your parents to explain the details of this program. Receipt of the bonus does not depend on your charging the suggested subscription rate, but — the more subscribers you have — the more bonuses you will earn.
“REMEMBER: Increased circulation is good for everybody and means more profits for you!”
. This analysis of the issue has been accepted with some variations by four Circuits. The Second Circuit, in a pre-Schwinn price-fixing case applied it and held that in the absence of an express contract provision, there must be a course of conduct showing a restraint of the dealer’s freedom. (Susser v. Carvel Corp. (2d Cir. 1964)
. See note 1, supra.
. Because the subscription rate was unlawfully fixed by the publisher, plaintiffs claim that the territorial set-up was ancillary to the price-fixing scheme, and thus per se unlawful. In Schwinn, the Court stated in dicta that territorial restrictions that are “part of a scheme of unlawful price fixing” are per se violations. (
. Moreover, the system seems to be contrary to the publisher’s interests. Since the volume of circulation is of critical importance to the newspapers’ prime revenue source, advertising, one would expect incentives rather than disincentives to increased subscriptions. The inferences that can be drawn from this fact are limited, however, since distributors were not relied upon to generate new subscriptions. The profits of professional solicitors and carriers were not affected by the higher rate; these two groups (in conjunction with newspaper employees) were responsible for nearly all new subscriptions.
. They also claimed loss of the going concern value of their dealerships and sought an injunction to enable them to continue in business. Since, as the district court found (
. In another case we employed another corollary of the assumption of profit-maximizing behavior. In Gray v. Shell Oil Co. (9th Cir. 1972)
. If the court does not believe that all plaintiffs would have immediately raised their prices in the same amount had the contractual restraint been removed, then it should draw reasonable inferences as to when and how much each plaintiff would have altered his or her price. If some plaintiffs’ claimed monthly profit increases are excessive, then the damage award should be reduced to an account reasonably supported by the evidence. If the court is dissatisfied with plaintiffs’ summaries of their operations, it may require that the supporting documents be submitted.
. Moreover, the specific offense of maximum resale price fixing could be used to destroy (or exclude) competition or build a monopoly. If the fixed maximum price is higher than cost but lower than a price that would permit new entrants or smaller scale competitors to operate (i.e., a “limit price”), then, although not predatory, it could support other efforts to acquire a monopoly.
. The list of Sparks’ acquisitions is as follows:
1944 —Sparks purchases Daily Review ("DR”)
1945 —Sparks purchases San Lorenzo Sun Journal and converts it to a weekly insert in the DR
1950’s — Sparks purchases the Castro Valley Reporter and converts to weekly insert in DR
1962 —DRI purchases the A rgus
1965 —DRI purchases BAPCO and thus acquires the Livermore Herald and News (now Tri-Valley Herald)
1970 —BAPCO purchases Village Pioneer (now Tri-Valley News)
1972 —DRI purchases Freemont News Register and San Leandro Morning News. Both papers eliminated, subscribers now served by cither DR or Argus
1972 —DRI acquires three free weekly newspapers, publication discontinued and replaced by the Daily Review Shopping News.
Concurrence Opinion
(concurring and dissenting):
I would affirm.
Because of the paucity and doubtful credibility of the evidence on this question, plaintiffs have not satisfied their burden of proof on the first element of the fact of damage . . . . Knutson v. Daily Review, Inc., supra note 1, as 1381.
Absent believable witnesses, the plaintiffs who did have the burden failed unless their burden of proof was satisfied by the operation of some rule of law.
Perhaps that rule of law is stated by the majority in these words:
Rather than imposing the nearly impossible burden of proving what each dealer would have done if he had been free to make his own pricing decision, we assume2 that, absent evidence to the contrary, a dealer would have raised his prices had it been profitable to do so; that is, dealers are profit maximizers. This assumption merely amounts to a recognition that a “restraint” in fact restrains . . . (Footnote 19 of the majority opinion is deleted, and footnote 2 of this dissent is added.)
I am not aware of any rule of law which permits appellate courts to make assumptions of fact. An appellate court may create presumptions, even the mandatory kind which bind the trier of fact in the absence to the contrary. Although the opinion does not say so, that seems to be what the majority has done here. If so, then I disagree. I think it could be said that it is the universal intention of dealers to make a profit but that there is an intent to profit does not warrant the conclusion that all dealers are in fact “profit maximizers,” i.e., that they will do all things necessary to make a maximum profit. Here the effect of the presumption is that the dealers, if free, would have considered raising prices as a means of increasing profits, would have taken the trouble to do so, would have risked the effect of a raise in prices in a competitive market, and the possibility that the publishers might have retaliated by raising their prices to the dealers.
The fact is that some dealers do not do all things necessary to maximize profits. That is why some dealers profit much less than others, and some go broke. Between the intent to profit and the production of a maximum profit lie the factors of energy, imagination, intelligence, and the willingness to take a risk. If the presumption created here goes as far as it must go to support the conclusion-, then, in my opinion, it is artificial. I think the testimony in this case discloses the artificiality of it.
To sum it up: I think the trial court did not believe plaintiffs’ witnesses. I think that, in the absence of credible evidence, there was no rule of law compelling the trial court to find that the loss of profits had been proved.
. Knutson v. Daily Review, Inc.,
. The use of the word “assume” is new in the nomenclature of the law relating to the onus probandi.
. See Knutson v. Daily Review, Inc., supra note 1, at 1379-81.