GREAT WESTERN DIRECTORIES, INC., Plaintiff-Appellee-Cross Appellant, v. SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Defendants-Appellants-Cross Appellees. CANYON DIRECTORIES, INC., Plaintiff-Appellee-Cross Appellant, v. SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Defendants-Appellants-Cross Appellees.
No. 93-1715.
United States Court of Appeals, Fifth Circuit.
Sept. 20, 1995.
Before WISDOM, REYNALDO G. GARZA and GARWOOD, Circuit Judges.
REYNALDO G. GARZA, Circuit Judge:
I. Summary and Procedural History
Plaintiffs-Appellees, Great Western Directories, Inc. (Great Western) and Canyon Directories, Inc. (Canyon), filed suit alleging that Defendants-Appellants, Southwestern Bell Telephone Company, et al. (collectively, “SWB“), violated Sections 1 and 2 of the Sherman Act, violated the Texas Free Enterprise and Antitrust Act, violated the Texas Deceptive Trade Practices Act, and tortiously interfered with business relations. Appellants allegedly orchestrated an “affiliation wide concerted action” to extend the SWB monopoly of the yellow pages market and to eliminate competition by raising the costs of doing business as an independent directory and by reducing
A jury returned a verdict in favor of Great Western and Canyon. The jury found damages of $5 million on Great Western‘s antitrust claims, $50,000 in actual and $50,000 in additional damages on its DTPA claims, and $50,000 in actual and $50,000 in punitive damages for its tortious interference claims. The jury found damages of $9,400 on Canyon‘s antitrust claims, $10,000 in actual and $10,000 in additional damages under its DTPA claims, and $10,000 in actual and $10,000 in punitive damages on its tortious interference claims. Both plaintiffs were awarded attorneys’ fees.
Following the verdict, Appellants moved for JNOV and for a new trial. On July 27, 1990, the district court entered judgment on the verdict, awarding Great Western $15 million and Canyon $28,200 in trebled antitrust damages and awarding both plaintiffs attorneys’ fees; no damage award was made on the state law claims. On May 8, 1992, the district court held a hearing on Appellees’ motion for injunctive relief and on Appellants’ motions for judgment as a matter of law and new trial. On July 2, 1993, the district court entered a final judgment granting a permanent injunction and denying Appellants’ post-trial motions.
On July 9, 1993, Appellants filed a motion to stay the injunction pending appeal. On July 29, 1993, Appellants filed its notice of appeal. On December 7, 1993, the district court entered its final judgment, denied Appellants’ motion for stay, and refused to extend its injunction beyond the parties.
Southwestern Bell Corporation (SWB) is a holding company; Southwestern Bell Telephone Company (Telephone), SWB‘s wholly owned subsidiary, provides telephone service to its customers in Arkansas, Kansas, Missouri, Oklahoma, and Texas. Telephone publishes and provides the “white pages” to its telephone customers. In order to publish the white pages Telephone must compile and maintain a database of names, addresses, and telephone numbers of all its customers. This compilation is known in the telecommunications world as directory listing information (DLI).
Southwestern Bell Yellow Pages (Yellow Pages), another wholly owned subsidiary of SWB, licenses DLI1 from Telephone for use in publishing its classified, or yellow pages, directory. Telephone licenses DLI to independent publishers, such as Great Western and Canyon. Great Western is based in Amarillo, Texas and publishes a competing yellow pages (classified) directory in eleven cities in Texas and Oklahoma. Canyon publishes a single directory in Canyon, Texas (near Amarillo). Canyon is a “niche” publisher whose directory caters to local advertisers who do not need to advertise outside of their immediate geographic area.
III. Facts
Appellants and Appellees paint distinctly different pictures of the facts in this case. However, some facts are uncontested. In June 1988 Yellow Pages improved its classified directories in certain markets and instituted a rate reduction in Amarillo. The rate reduction consisted of a 40% across-the-board reduction in advertising rates as well as various incentives enabling advertisers who maintained existing expenditure levels to receive additional advertising. Effective January 1, 1989, Telephone increased its DLI prices from $0.30 to $0.50 for the initial load, and the update to $1.00.
The incidents leading up to the rate reduction and the DLI price increase are hotly contested as are the effects. Appellants and Appellees each give their own economic explanation of the causes and effects of the changes instituted by SWB. Briefly, Appellees contend SWB adopted a strategy to eliminate the competition and slow their declining market share. This was accomplished by a two-prong attack-raising the prices and imposing restrictive conditions on the sale of the DLI, while at the same time improving the quality of telephone directories published by Yellow Pages and reducing the prices charged for the advertisements. Because Great Western operates at a low marginal profit of two percent of its sales, reflecting its emphasis on expansion, the change in DLI prices forced Great Western out of its Richardson market and prevented it from entering its Little Rock market.
Appellants, on the other hand, contend that Yellow Pages’
IV. Summary of the Law
Standard of Review
This Court reviews a district court‘s refusal to grant a judgment as a matter of law de novo, applying the same standards as the district court. The trial court, in entertaining a directed verdict, views the evidence in the light most favorable to the party against whom the motion is made. On appeal, this Court must consider the evidence in its strongest light in favor of the party against whom the motion is made, and must give him the advantage of every fair and reasonable intendment that the evidence can justify.2 A judgment notwithstanding the verdict (JNOV) should be granted by the trial court only when the facts and inferences point so strongly and overwhelmingly in favor of the moving party that a reasonable juror could not arrive at a contrary verdict, [while] viewing the facts in the light most favorable to the nonmovant and giving that party the advantage of every fair and reasonable
Antitrust Law
Appellees raised two Section 2 claims: monopoly and attempted monopoly. They contend that Appellants violated Section 2 under both of these theories by abusing an essential facility and through market leveraging. The jury returned a verdict in favor of Appellees finding that:
- defendants monopolized and attempted to monopolize the alleged relevant markets for telephone directory advertising by denying reasonable access to an essential facility, that is, Telephone‘s DLI;
- defendants monopolized the same alleged markets by leveraging monopoly power over DLI in an illegal restraint of competition in the telephone directory advertising markets; and
- defendants attempted to monopolize the alleged telephone directory advertising markets by increasing the price of DLI to Yellow Pages and its competitors while at the same time substantially reducing Yellow Pages’ rates for telephone directory advertising and substantially enhancing its directories.
The offense of monopoly under Section 2 consists of two elements: (1) possession of monopoly power in the relevant market, and (2) willful acquisition or maintenance of that power as opposed to acquiring market dominance through competitively desirable means or through events beyond its control.4 Monopoly power is the power to control prices or exclude competition.5 Several factors are
In addition to establishing the existence of monopoly power, it must be demonstrated that the defendant “willfully” acquired or maintained its monopoly power. This involves an inquiry as to whether the defendant has acquired or exploited its monopoly power through competitively undesirable means. What are undesirable means? The responses of the courts were to distinguish between those exclusionary effects that are inherent in the forces of free competition and those that are substantially enhanced or made possible by the possession and exploitation of monopoly power. Specific intent to maintain a monopoly power is not required; however, it is relevant in determining whether the challenged conduct is exclusionary or anticompetitive.
An attempted monopoly in violation of Section 2 consists of
V. Discussion
Exclusionary Conduct
Appellants argue that under both a monopoly or attempted monopoly theory, Appellees must show that Appellants’ conduct was improperly exclusionary, that is, that the conduct caused injury to
Appellants contend that in order for Appellees to succeed under a Section 2 antitrust claim, they must present evidence of injury to competition. This is not entirely true. Section 2, under both a claim of monopoly and a claim of attempted monopoly, proscribes exclusionary conduct. Injury to competition is NOT an element of Section 2. “[P]roving an injury to competition is not an element of a monopolization-based antitrust claim.”11 However, as a practical matter, evidence of an injury must exist if Appellees are to obtain damages.12 Additionally, evidence of injury to competition supports a finding of exclusionary conduct. Nevertheless, the proper inquiry is whether Appellants engaged in exclusionary, anticompetitive, or predatory conduct.
Exclusionary conduct is conduct that tends to exclude or restrict competition and is not supported by a valid business
Appellants’ argument, that the DLI price increase had no adverse effect on competition and was not exclusionary, is not supported by the evidence taken in the light most favorable to Appellees. Appellees identify extensive evidence, if believed by the jury, that precludes a judgment as a matter of law. First, a jury could find that SWB‘s purpose in raising the DLI price and imposing more restrictive terms was to recapture its market share,
In Lehrman v. Gulf Oil Corp., 464 F.2d 26, 38 n. 9 (5th Cir. 1972), this Court discussed the difficulty of determining whether a business‘s practices are anticompetitive:
Few business practices are anticompetitive on their face.... The circumstances surrounding the use of a particular business practice give strong clues as to what those who employ the practice hope to accomplish by it, and what those individuals hope to accomplish may shed light on whether the practice does in fact have the hoped for ... anticompetitive effect. In short, when a firm displays an anticompetitive animus in the operation of an otherwise ambiguous business practice, what the firm seeks to accomplish provides as sure an indicator of the actual effect of the practice on competition as can be found in the shifting sands of antitrust litigation.
There is some evidence, from studies undertaken by SWB and comments made by Kaufman, that the price increase was intended to restrict the competition. Appellants argue correctly that this is not a substitute for exclusionary conduct or injury to competition. Nevertheless, it is one more “indicator” of SWB‘s exclusionary conduct the jury can take into account.
Second, there is evidence that other Companies’ DLI prices were only one-third of the price Telephone was charging, and that the terms at which SWB offered the listings were restrictive. For small independents, like Canyon, SWB‘s required purchase of the entire directory even if the publisher only wanted small portions
Third, the evidence supports a finding that Appellants’ conduct had an anti-competitive effect on the market. Both the number of publishers’ licensing listings and the number of competitive directories sharply declined. The price increase threatened to put Canyon out of business, forced it to increase prices to advertisers-adversely affecting the consumer, and reduced its number of customers. The change contributed to Great Western‘s decline in profit margin, forced its withdrawal from Richardson, forced it to abandon its plans to enter Little Rock, and halted its historical pattern of entering two to three markets per year. Canyon‘s and Great Western‘s continued survival does not preclude them of a remedy.
The crux of Appellants’ argument is the contention that Appellees failed to show an antitrust injury. Appellants contend that Great Western not only profited after the DLI price increase, but its profits increased over the previous year. Appellees
Pierce v. Ramsey Winch Co., 753 F.2d 416, 436 (5th Cir. 1985) is helpful in shedding light upon this issue. In Pierce the plaintiff was a distributor of, among other things, Ramsey cranes. Because Pierce bought the cranes at a substantial discount, due to large purchases made in cash, Pierce was able to sell them individually at a lower price than the manufacturer Ramsey. Therefore, Ramsey refused to supply them to Pierce. Pierce proceeded to buy them from another manufacturer and also focused on other products. After the supply termination, Pierce was able to operate at a profit level even higher than when selling Ramsey cranes. This Court held that despite the increase in profit, Pierce could still establish an antitrust injury by showing it would have earned an even higher profit selling Ramsey cranes but for the actions of Ramsey. Appellees argue analogously that they suffered a similar injury; but for SWB‘s DLI price increase, Great Western and Canyon would have earned an even higher profit.
The issue before this Court is whether Great Western and
Opportunity Lost
Appellants contend the district court erred in denying its motion for directed verdict against Great Western for two reasons. First, Great Western‘s fear of future price increases is too speculative to support a damage award for abandoning the Richardson market and failing to enter the Little Rock market. Second, Great Western has no standing to sue for its failure to enter Little Rock. We will discuss each in turn.
There is no evidence, Appellants argue, that Great Western could not compete in Little Rock and Richardson at the existing DLI prices. In fact, the district court acknowledged that it was the fear of future price increases, not present DLI prices, that forced Great Western to abandon Richardson and Little Rock. Great Western‘s claims are not ripe. Appellants contend if Telephone raised DLI prices to exclusionary levels in the future, then Great Western would be entitled to relief.
The court instructed the jury not to award damages unless they were in fact attributable to the alleged wrongful conduct. The jury could find and the court did find that the enhanced investment
Appellant cites several old non-Fifth Circuit cases for the proposition that a plaintiff cannot obtain damages that are to be suffered in the future.24 These cases are distinguishable. The
Appellants’ second argument is based on standing. Appellants contend Great Western has no standing to sue for abandoning its plans to enter the Little Rock market unless it can establish a business or property interest protected by Section 4.25 To establish this interest, Great Western must show that it intended and was prepared to enter the market. Jayco Systems, Inc. v. Savin Business Machines Corp., 777 F.2d 306, 313-314 (5th Cir. 1985), cert. denied, 479 U.S. 816 (1986). Ample evidence exists in the record of Great Western‘s intent to enter the Little Rock market. Appellee had begun investigations into the market, and had set a 1989 date for publication of a Little Rock directory. However, there is not substantial evidence that Great Western was prepared to enter the Little Rock market.
In assessing a company‘s preparedness to expand, courts have
This Circuit has typically found lack of standing where a plaintiff lacked evidence on all the preparedness factors. Id. at 315-316 (plaintiff showed no ability to obtain financing); Hayes v. Solomon, 597 F.2d 958, 974-975 (5th Cir. 1979) (plaintiff failed to prove ability to finance or contracts made); Martin v. Phillips Petroleum Corp., 365 F.2d 629, 634 (5th Cir. 1966) (plaintiff failed to prove any of the four factors).27 While we do not hold that every plaintiff in every case must show all four of the factors to merit standing, we find Great Western‘s showing to be insubstantial.
While Great Western has experience, there is no evidence of affirmative steps taken, contracts made or financing arranged in preparation to enter the Little Rock market. The sum total of Great Western‘s preparation was review of pricing information, two
Great Western urges us to find its situation analogous to that of the plaintiff in Heatransfer Corp. v. Volkswagenwerk A.G., 553 F.2d 964 (5th Cir. 1977) where we found standing in absence of all four of the factors of preparedness for a plaintiff who intended to expand production, not move into a new market. Id. at 988 n. 20.28 The plaintiff in Heatransfer had standing in absence of all four factors of preparedness because little preparation was needed. No significant modification of plaintiff‘s production facilities was necessary for its expansion. Nor did plaintiff need to obtain new contract rights or additional sources of financing. Id.
In contrast, for a plaintiff moving into a new market, such as Great Western, the showing of preparedness is fundamental. We stated that,
“even though an antitrust plaintiff operates a going concern, he must demonstrate his preparedness and intent to expand that business into a new market if he claims that the expansion of that business into a new market has been foreclosed to him by the monopolistic activities of the defendant.” Id.
Great Western was not in the position of the plaintiff in Heatransfer. There were significant barriers to entry to the Little Rock market. Costs to enter the market were estimated at $1.6 million. Additionally, Great Western would have had to
Great Western argues that “its plans to enter Little Rock were kept secret” to prevent entrenchment in the market by SWB. However, this Court‘s eyes are open only to what is in the record. We will not attempt to divine Great Western‘s machinations but will look to what the company actually did in preparation. Preparation is an element for standing under Section 4 and Great Western did little. Because Great Western was not prepared to enter the Little Rock market, it had no standing to protect an alleged interest in that market. We reverse and remand to the District Court with instructions to dismiss the Little Rock claim.
Injunction
We review the propriety of a district court‘s decision to issue a permanent injunction for an abuse of discretion.29 The factual underpinnings are reviewed for clear error, while the application of legal principles is reviewed de novo.30 For the
Appellants contend that the district court erred in granting Appellees’ injunctive relief because (a) Appellee failed to show the requisite threatened loss or damage, (b) the evidence was insufficient to support Appellees’ claim that the updates were essential and the update prices prohibited new entry, and (3) there is no basis for the 13.5 cent amount.
On cross-appeal, Great Western and Canyon argue that the injunction should apply across the five state market and not merely where the plaintiffs are located. Broader relief embraces the public interest served by private antitrust lawsuits,34 while narrow relief places the plaintiffs in a preferred status over its competitors.35 Furthermore, Appellees contend that if Great Western could not expand, neither could any other independent.
The district court narrowed its injunction because it found that the evidence in this case did not justify injunctive relief in markets other than where the plaintiffs compete. No evidence of direct harm in these markets was provided. Also, the district court recognized that it can grant injunctive relief to non-parties but only if necessary to give the named plaintiffs the continuing
We AFFIRM the court below in every respect with the exception that we REVERSE the claim of Great Western with regard to its entering the Little Rock market. The court below will make the necessary changes in its judgment because of the dismissal by us of the Little Rock claim of Great Western.