Subaru of New England, Inc. (SNE), a regional Subaru distributor, appeals an antitrust treble damage award-totalling $51,729.59,
I
The basic facts are as follows: In 1973, SNE’s supplier, Subaru of America (SOA), was worried that Subaru dealers had not had, and in 1974 might not have, enough spare parts to make repairs to recently purchased Subaru cars. After a review of past buyers’ needs and consultation with Subaru headquarters in Japan, SOA made up a list of spare parts kits that it wished both regional distributors and local dealers to have on hand. In particular, it wanted each local dealer to have several “dealer’s kits,” each with 88 parts for the 1974 cars (plus a few parts for previous models) and also to have “supplemental kits,” each with 44 spare parts, out of a total of approximately 4,000 to 5,000 different Subaru parts. SOA said that readily available spare parts would help Subaru sell its cars, which at that time (1973/74) accounted for a very small share of American, New England, and New Hampshire auto sales. In fact, in 1974, Subaru accounted for 3.4 percent of all auto imports in New Hampshire, 2.8 percent in New England, and 1.5 percent in the United States. (Our own research indicates that in 1974, imports accounted for 15.9 percent of all auto sales, which means that Subarus likely accounted for about one-quarter of one percent of auto sales in that year in the United States, and apparently under one percent of all auto sales in New England and New Hampshire. U.S. Dept. of Commerce, Statistical Abstract of the United States 1988, Chart No 992.)
As part of the “replacement part availability” effort, SNE (the regional distributor) told Grappone, Inc. (the local dealer) that it must have on hand, in 1974, two dealer kits and two supplemental kits. Grappone objected on the ground that the parts kits were overly inclusive. Grappone believed the combined kits should contain fewer parts and sell for about $2,000, instead of about $3,300, leaving it free to obtain the extra parts elsewhere. SNE insisted that Grappone take the kits, and it told Grappone that it could not have its allocation of Subaru cars in 1974 unless it did so. Although Grappone sold AMC, Pontiac, and Jeep cars, and (from another site) Toyotas and Peugeots (indeed the full name on the stationary is “Grappone Pontiac, Inc.”), it wanted the Subarus as well. *794 Grappone went 10 months without the new 1974 Subarus; it then agreed to take the kits; SNE accepted Grappone’s July 1974 car order; and Grappone brought this lawsuit. After many legal events, which we need not recount, Grappone eventually won the verdict mentioned, on the basis of its tying claim. In our view, however, even that small victory was without adequate legal basis.
II
The case law has long indicated, regardless of whether a plaintiff charges a violation of Sherman Act § 1 or Clayton Act § 3, that a “tying arrangement” is unlawful where (1) the seller has “market power” in the tying product,
Jefferson Parish,
1. We have reached our conclusions after examining with care the Supreme Court’s recent analysis of tying arrangements in Jefferson Parish, supra. Although the Court divided 5-4 over whether courts should treat tying as unlawful per se, we read both majority and concurring opinions as accepting the following basic propositions.
First, in
Jefferson Parish,
as in previous cases, the Court recognizes that the antitrust laws exist to protect the competitive process itself, not individual firms.
Brown Shoe Co. v. United States,
Second, the Court recognized that, typically, the way in which tying may hurt the competitive process itself is by helping to maintain or to augment pre-existing market power, defined by the Court as the power to “raise[] [price] above the levels that would be charged in a competitive market.”
Jefferson Parish,
Third, both the majority and minority opinions in
Jefferson Parish
recognized that tying’s anticompetitive mechanism is not obvious.
Compare Jefferson Parish,
The
Jefferson Parish
Court provides that more refined analysis. The majority and concurrence recognized that a Seller, possessing significant market power with respect to Product A, may cause anticompeti-tive harm by tying as follows: by reducing the price of Product A slightly (or by otherwise not fully exploiting its power with respect to Product A), the Seller may induce the Buyer to accept the tie; by doing so, the Seller may build a strong market position in Product B; and
that position
in Product B, in turn, may increase its power to charge high prices in respect to Product A. If a monopolist of patented can-closing machinery, for example, insists, as a condition of selling his machines, that their purchasers buy his cans, he will likely soon have a monopoly in cans as well as machines. And, that fact — the fact that he controls
both
cans and machines — may make his monopoly safer from competitive attack when his patent on the can-closing machinery expires. A new competitor would then have to enter
both
levels of the business (cans and machines) to deprive him of monopoly profits. And, this added security may enable the machinery monopolist to charge higher prices. The tie, by permitting the Seller to extend its market power from one level to two, may thereby
*796
raise entry barriers, providing security that helps a monopolist-seller further harm the consumer. This point is made both by the
Jefferson Parish
majority,
Of course, in such circumstances, tying would hurt the Buyer or consumer only when it first hurts firms seeking to sell the
tied
product. Only if the tie significantly reduces the opportunities to sell Product B, can the tie significantly increase the Seller’s power in respect to Product B, and thereby (i.e., by raising entry barriers) increase the Seller’s power in respect to Product A.
See Jefferson Parish,
The majority and minority opinions in
Jefferson Parish
disagree, not in respect to the nature of the link between tie and potential competitive harm, but in respect to the legal conclusions they would draw from the nature of this linkage. The minority would abandon the
per se
anti-tying rules and analyze tying under a “rule of reason”; it would prohibit tying only when, according to its “demonstrated economic effects[,] ... [tying’s] anticompetitive impact outweighs its contribution to efficiency.”
Jefferson Parish,
That the “market power” hurdle is moderately high — that it cannot ordinarily be surmounted simply by pointing to the fact of the tie itself or to a handful of objecting customers — makes sense in light of the harms the anti-tying rules seek to avoid. After all, sellers typically set fairly uniform prices designed to attract a large number of buyers, not simply a handful of buyers who have some unusual and special preference for its products; a seller who has the power to raise prices only in respect to that special handful is a seller who cannot easily cause harm in
tied
product
*797
markets; and therefore one who cannot easily harm consumers. Of course, virtually every seller of a branded product has
some
customers who especially prefer its product. But to permit that fact alone to show market power is to condemn ties that are bound to be harmless, including some that may serve some useful social purpose.
See, e.g., United States v. Jerrold Electronics Corp.,
2. The plaintiffs here cannot meet the significant “market power” requirement of
Jefferson Parish.
They have not provided evidence that SNE could raise prices significantly above the competitive level; in fact, the evidence in the record indicates the contrary. For one thing, Subaru’s market share, whether measured in terms of sales of all autos or of imports or in any other reasonable way, is miniscule.
See Kenworth of Boston, Inc. v. Paccar Financial Corp.,
For another thing, Grappone concedes that out of 64 Subaru dealers who accepted the parts kits, only three seriously protested SNE’s efforts to require purchase of the kits. As far as the record is concerned, the remaining 61 may well have believed SNE’s explanation, presented at a meeting where even a protesting dealer admitted that SNE “drummed up” interest in the kits, that the kits would help maintain customer satisfaction; the dealers then would have wished to obtain both cars and kits. Supp.App. at 70. And given the plausible business rea
*798
son for accepting both products, their having done so without protest makes that acceptance virtually worthless as evidence of SNE’s market power.
See Fortner II, supra
(acceptance of competitive deal is not evidence of coerced tie). Those few instances in which protests suggest that SNE took advantage of a special preference for its product cannot by themselves demonstrate significant SNE market power — the power to coerce an “appreciable” number of buyers.
See Fortner II,
Further, the amount of money that best measures the extent to which SNE may have coerced Grappone — the extra amount of charge for the kits — was small. It amounted to the $1,000 worth of “unnecessary” parts in each of two combined kits supplied for one year. Given the fact that Grappone could expect to sell about 24 Subarus in 1974 according to the district court’s findings, SNE’s ability to extract so small an amount of “extra” money by itself shows very little power, even in respect to Grappone, particularly given the fact that Grappone distributed many other cars as well. Given Subaru’s tiny market share, why, if SNE or Subaru sought to raise prices significantly or to impose other serious barriers, would Grappone (which calls itself “Grappone Pontiac”) not simply have allocated more time, space, and effort to selling its AMC, Pontiac, Jeep, Toyota, and Peugeot cars instead of Subarus?
Finally, plaintiff has made no showing that Subarus had any special or unique features, such as patents or copyrights, that might demonstrate market power.
See Digidyne Corp. v. Data General Corp.,
*799 III
Without the use of
per se
rules the plaintiff cannot show a violation of the antitrust laws, for the “tie’s” anticompetitive effects do not outweigh its legitimate (here proeompetitive) business justifications.
Jefferson Parish
at 31,
For another thing, the record contains evidence of legitimate, proeompetitive, business justifications for the tie. The parties refer to portions of the record that indicate that SOA, the American Subaru importer, developed its spare parts package only after dealers complained of part supply shortages that made it more difficult to build a market for Subarus. An executive from one of Subaru’s oldest distributors also testified without contradiction that such parts supply problems had cut Renault’s sales of 100,000 per year in the 1960’s to 5,000 to 6,000 by 1977. And, the district court found the availability of sufficient spare parts “basic” to the successful marketing of automobiles. SOA determined which particular spare parts customers had needed in the first year after purchase, and which spare parts had not been readily available. It used this list to develop its spare parts kits. SNE insisted that kits be available only for the first year after the cars were sold. In other words, the record indicates that Subaru was a small firm attempting to break into the industry; it shows that the tie plausibly served the proeompetitive purpose of helping the firm develop or maintain sales. Given the absence of serious anticompeti-tive impact, this evidence of justification is sufficient to qualify the agreement as lawful under a rule of reason (a question that the district court did not directly consider). Indeed, it is conceivable (though we need not decide), that the “tie” was “efficient” enough a way to do business that the agreement could have escaped
per se
condemnation under the lines of cases that have created certain exceptions to the
per se
rule where economic, or proeompetitive justifications are particularly strong.
See, e.g., Jerrold Electronics Corp., supra; Will,
For these reasons, we conclude that the plaintiff has failed to prove that the per se anti-tying rules apply in this case; nor has the plaintiff shown a trade practice, the anticompetitive effects of which outweigh its legitimate business justifications. The judgment of the district court is
REVERSED.
