Lead Opinion
This appeal concerns the 1972 purchase by defendant Chicago Professional Sports Corporation (“CPSC”) of the Chicago Bulls professional basketball team. Plaintiffs Illinois Basketball, Inc. (“IBI”) and Marvin Fishman, who had also sought to purchase the Bulls, brought suit alleging that the Bulls had been acquired through violations of the Sherman Act and Illinois common law. The district court found that IBI and CPSC had been competing to control a natural monopoly market in the presentation of live professional basketball in Chicago. In the court’s view, the plaintiffs had “won” when they executed a contract with the Bulls’ former owners. The sale was, however, contingent upon the approval of the National Basketball Association (“NBA”), and the court found that the defendants had set out to destroy the plaintiffs’ victory through anticompetitive acts. It ruled that they had violated sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 (1982), by refusing the plaintiffs a lease at the Chicago Stadium and by participating, with certain NBA members, in a group boycott of IBI, and it awarded plaintiff IBI treble damages for these violations. The court also ruled that the defendants had interfered with IBI’s contract rights and prospective advantage in violation of Illinois law and entered an alternative judgment for actual and punitive damages.
We agree with the district court that the refusal to lease the Chicago Stadium violated sections 1 and 2 and constituted tortious interference with prospective advantage, and we affirm its judgment as to liability on these bases. We do not agree that the judgment can be sustained on the NBA boycott claim or on the claim based on tortious interference with contract. We also believe that the district court erred in its award of damages and that the case must be remanded on that account.
I. LIABILITY ISSUES
A. Facts
The facts as found by the district court are set out at length in the district court opinion. Fishman v. Wirtz,
1. Negotiations to Purchase the Bulls. In 1971 the Chicago Professional Basketball Corporation (“Chicago Basketball”) decided to sell the Chicago Bulls. Plaintiff Fishman formed an investors’ group (which included defendants Albert Adelman, Lester Crown, Philip Klutznick and James Cook and non-defendants Edward Ginsberg and George Steinbrenner III) to investigate purchasing the Bulls. By January 1972 this group had reached an agreement in principle with Chicago Basketball to acquire the Bulls for $3.3 million. Several members of the Fishman group thought it unwise to buy the team without a lease commitment from a local arena, and Chicago Basketball president Elmer Rich arranged a meeting between the group and Arthur Wirtz, who with his son William, controlled defendant Chicago Stadium Corporation (“CSC”). The Bulls had been playing at the Chicago Stadium under a series of short-term leases.
Fishman then formed a new investors’ group, later incorporated as IBI,
On June 9, CPSC sent Chicago Basketball an executed stock purchase agreement and a cashier’s check for $3.3 million. This time, CPSC also agreed to pay the entire purchase price in cash at the closing. On June 12, Ginsberg telephoned Rich and increased the CPSC offer by $50,000 in order to top IBI’s offer. Finally, on June 13, CPSC again modified the stock purchase agreement in hopes of winning Rich’s approval.
Nevertheless, on June 14, 1972, Chicago Basketball formally accepted and executed IBI’s contract. The contract provided that any sale was subject to approval by the NBA and obligated Chicago Basketball to use its best efforts to secure NBA approval. The district court found:
IBI’s contract and offer was [sic] perceived by the Bulls to be preferable to CPSC’s offer for several reasons, among them was the fact that various ambiguities and problems in the CPSC offer would require additional negotiations, with what was viewed as, the somewhat difficult CPSC group, and it was unlikely, as a consequence, that the agreement would be ready for presentation at the June 15-16 NBA meeting.
Liability Opinion,
2. The June NBA Meeting. The NBA Constitution provides that all business and policy decisions of the NBA are to be made by its Board of Governors, which is comprised of one representative from each NBA franchise. Any transfer or sale of ten percent or more of any franchise must be approved by three-quarters of the Board of Governors. Thus, the contract between IBI and Chicago Basketball needed the affirmative vote of thirteen out of seventeen governors for the sale to become final. The NBA Board of Governors met in White Sulphur Springs, West Virginia on June 15-16, 1972. By that time, the NBA Commissioner and NBA Finance Committee had investigated and approved IBI’s financial and moral fitness to be the owner of an NBA franchise, and the proposed sale was
Prior to the execution of the IBI-Chicago Basketball contract, several CPSC shareholders had sent telegrams to the NBA Commissioner and the Board of Governors advising them that CPSC’s cash offer for the Bulls was larger than IBI’s and that “[w]e have reached an agreement with Arthur Wirtz owner of the Chicago Stadium for a ten year lease which insures the availability of the best arena with the largest seating capacity in Chicago at which the Chicago Bowls [sic] can play.” CPSC also sent its president, James Cook, and its attorney to White Sulphur Springs, although CPSC had no scheduled business before the NBA. On the evening of June 14, Cook discussed CPSC’s position with several NBA members; he later admitted that “his purpose was to secure nonappro-val of the transfer to IBI as this would be the only possible way his group could possibly acquire the Bulls.” Id. at 74,749.
On June 15, Rich presented the proposed sale of the Bulls to the Board of Governors. Only ten of the seventeen governors voted to approve the transfer.
3. IBI’s Efforts to Acquire a Stadium Lease. After being informed that a stadium lease was the prerequisite to NBA approval, Rich and Fishman decided to each approach Wirtz separately to discuss acquiring a lease at the Chicago Stadium. From June 19 to June 29, 1972, Fishman attempted to arrange a meeting with Wirtz, but Wirtz would not see him or return his telephone calls. Wirtz did, however, meet with Rich on June 21. At this meeting, Wirtz told Rich that he would not discuss a lease with Fishman because IBI did not own the Bulls. He told Rich that he would consider giving Chicago Basketball (Rich’s organization) a ten-year lease, which would be assignable only if Chicago Basketball “guaranteed” the assignee’s performance, including rent payments, for the entire ten-year term. Wirtz explained that he needed a ten-year guarantee because of his concern about IBI’s financial responsibility. The district court found, however, that “Wirtz never met with Fishman to learn about IBI’s financial stability. Moreover, the rent for the Chicago Stadium was often taken ‘off the top’ of the office receipts and, accordingly, the ‘guarantee’ concept appears to have been unrelated to any business needs of the Chicago Stadium.” Id. at 74,751.
At the same June 21 meeting, Wirtz asked Rich to sell the Bulls to his group or, in the alternative, to present both offers to the NBA and let the Board of Governors choose between them. Rich stated that he would discuss all matters raised by Wirtz with Chicago Basketball and asked Wirtz to put his ten-year lease proposal in writing, which Wirtz said he would do. Speaking on his own behalf, Rich stated that Chicago Basketball would only consider a lease that it could freely sublease to any buyer without the Stadium’s consent and without remaining financially liable. He also stated that he would not consider a sale to CPSC because Chicago Basketball had already executed a contract with IBI.
After this meeting, Rich contacted Wirtz several times, asking for the promised lease proposal. On June 27, Wirtz wrote Rich, again stating his position that the
Rich and Wirtz met again on June 29. Wirtz attempted to raise the issue of effecting a sale to CPSC and not IBI, but Rich interjected that he was there only to discuss a lease for IBI and that his attorney had advised him not to discuss any other disposition of the Bulls. On July 10, Wirtz wrote Rich stating that he would not lease the Chicago Stadium to IBI and that he intended to attempt to obtain the Bulls for CPSC.
Since mid-May 1972, when IBI learned that Wirtz was allied with the competition, IBI had been investigating alternative sites for the Bulls’ home arena. On July 5, after Wirtz had refused to make any sort of lease at the Chicago Stadium available to IBI and six days before the July NBA meeting, IBI executed a lease at the International Amphitheatre.
A The July NBA Meeting. The NBA Board of Governors met in New York City on July 11, 1972 and, once again, the Chicago Basketball-IBI sale was on the agenda. Prior to the meeting, CPSC continued its efforts to effect a rejection of IBI’s application and obtain the franchise for itself. Telegrams were sent to the NBA Commissioner and several NBA members, stating that CPSC still wanted to purchase the Bulls and had a commitment for a ten-year lease at the Chicago Stadium. William Wirtz wrote Abe Pollin, NBA President and owner of the Washington Bullets, setting forth the seating capacity of the International Amphitheatre; Ginsberg sent a copy of the letter and telegram to Ned Irish, owner of the New York Knicks; other individual defendants also communicated with individual members of the NBA.
At the July 11 meeting, Rich again requested the NBA Board of Governors to approve the transfer of the Bulls to IBI. Rich told the Board that Wirtz would not make a lease at the Stadium available to IBI and that, as a result, IBI had arranged a lease at the International Amphitheatre. There was some discussion prior to the vote. Certain NBA governors, including Alan Rothenberg (Los Angeles Lakers) and Joel Axelson (Kansas City Kings), openly expressed their desire to have the team sold to CPSC and not IBI. After the discussion and upon a vote, the proposed transfer was defeated. Ten members voted to approve the transfer and seven voted not to. Those opposed to the transfer were
According to the district court:
There were two primary reasons for the votes cast against IBI by each of at least six, and perhaps seven, members who so voted: (1) The Chicago Stadium, which was withheld from IBI, but available to the Crown-Wirtz group, was vastly superior to any other arena in Chicago and was in their opinion the only adequate facility in Chicago for NBA basketball; and/or, (2) The Crown-Wirtz group was considered the more preferable group to acquire the Bulls and in order to make their acquisition of the Bulls possible the sale to IBI had to be prevented.
Specifically, each “no” vote, with the exception of Phoenix, admitted that they so voted because IBI had a lease at the International Amphitheatre, which they deemed entirely inadequate and unacceptable. The Phoenix governor, Robert [sic] Bloch, testified that he “had no present recollection” of why Phoenix voted against the transfer to IBI.
Further, the following NBA members admitted that a substantial contributing factor in their decision to vote against the transfer to IBI was the request and invitation of the Crown-Wirtz group, and others on its behalf, to aid the efforts of the Crown-Wirtz group to acquire the Bulls: Los Angeles by Alan Rothenberg and at the direction of Jack Kent Cooke; Kansas City by Joel Axelson; Atlanta by Bill Putnam; Houston by James Foley at the direction of Ray Patterson. In addition, Rich received phone calls from Abe Pollin and Ned Irish asking what it would take to favor the Crown-Wirtz group. Consequently, an inference can be drawn from all the circumstances that a substantial contributing factor in the decision of NBA members Abe Pollin (Washington) and Ned Irish (New York), who voted against the transfer, was for the same reason.
Id. at 74,753-54 (footnotes omitted).
On July 19, 1972, IBI’s contract was terminated, pursuant to a provision which permitted the purchaser to do so if NBA approval could not be obtained. Shortly thereafter, Chicago Basketball renewed negotiations with CPSC. A contract was executed on July 28, 1972, and the NBA approved the transfer of the Bulls to CPSC on August 10, 1972.
5. The Litigation. IBI and Fishman filed two complaints in the Northern District of Illinois, Fishman v. Wirtz, No. 74-C-2814, and Fishman v. Adelman, No. 78-03621. These two suits were consolidated on January 25,1979. A consolidated complaint was filed, naming as defendants Arthur Wirtz, William Wirtz, Lester Crown, Philip Klutznick, James Cook, Albert Adelman, CPSC, CSC, Emprise Corporation, Chicago Blackhawk Hockey Team, Inc., and Atlanta Hockey, Inc.
The consolidated complaint alleged various violations of sections 1 and 2 of the Sherman Act and of Illinois law. Plaintiffs
A bench trial was held in March and April of 1979. On April 9,1979, the district court bifurcated the case into separate liability and damages trials. On October 28, 1981, it rendered its decision on the liability issues, finding that the plaintiffs had proven all of the above allegations.
In reaching this conclusion, the district court found that the relevant market was competition for the presentation of live professional basketball in Chicago. It also found that this was a natural monopoly market and rejected the defendants’ contention that a bidding competition to acquire a natural monopoly was not within the purview of the antitrust laws. On the merits, the court found that, in 1972, the Chicago Stadium was an “essential facility” for the presentation of live professional basketball and that the Wirtzes had used their “strategic dominance” of the market in suitable arenas to exclude IBI from the Chicago professional basketball market. It ruled that the Wirtzes had engaged in an unlawful refusal to deal with IBI, with the purpose and effect of excluding IBI from the market and for the further purpose of monopolizing that market on behalf of CPSC, in violation of section 2 of the Sherman Act. It further found that Arthur and William Wirtz, CPSC, CSC, Crown, Klutz-nick, Cook and Adelman had conspired to prevent IBI from obtaining a stadium lease, which constituted a conspiracy to monopolize, an attempt to monopolize, monopolization and an unreasonable restraint of trade in violation of sections 1 and 2.
The court also found that the defendant CPSC shareholders had personal friendships and business associations with owners of at least five of the NBA franchises, that they had contacted their friends in the NBA for support, and that these friends had as a result voted against the transfer to IBI. It ruled that these communications, together with the resulting “no” votes, established an unlawful group boycott of IBI, subjecting all defendants to
The defendants have appealed
B. The Relevant Market
Claims of monopolization under section 2 of the Sherman Act, as well as section 1 claims analyzed under the Rule of Reason, require the trier of fact to delineate the “relevant market.” A relevant market is comprised of those “commodities reasonably interchangeable by consumers for the same purposes____” United States v. E.I. Du Pont de Nemours & Co.,
Such a finding as to the area of effective competition is subject to the “clearly erroneous” standard of review. Blanton v. Mobil Oil Corp.,
Defendants assert that the relevant market is actually the nationwide market for the purchase of professional sports franchises. They reason that “[i]n the context of this case, the seller was the Rich group; the potential buyers were IBI, CPSC and Peter Graham (at the outset); and the product was the Bulls franchise.” Appellants’ Brief at 65. They contend that the market as found by the district court must be wrong because “CPSC and IBI never met or intended to meet in competition in that market.” Id. at 64. We do not see why this matters. The defendants are alleged to have unlawfully precluded the plaintiffs from entering the market for the presentation of live basketball in Chicago, thus ensuring the monopoly for themselves. We know of no rule that states that the parties must be in head-to-head competition in the relevant market (as opposed to head-to-head competition for the relevant market) before the antitrust laws will apply.
In this case, the competitors were bidding to acquire a franchise, but they were also bidding to acquire access to a market. It is not clearly erroneous to define the relevant market in these circumstances as the market to which access is sought. In fact, this is how the market has been defined in such cases as Otter Tail Power Co. v. United States,
C. Natural Monopoly and Consumer Interest
The district court found that the market for the presentation of live professional basketball in Chicago was a natural monopoly market because “[t]he Chicago metropolitan area, like virtually all of the cities in which the NBA has franchises, cannot as a practical matter support two professional basketball franchises.” Liability Opinion, 1981-2 Trade Gas. at 74,757. Further, the NBA, the more powerful of the two professional basketball leagues in existence in 1972, granted its franchisees exclusive territorial rights in their home cities. The district court thus found that if one wanted to put on professional basketball games in Chicago in 1972, one had to buy the Bulls. Id.
The defendants and the dissent do not dispute this finding. They both, however, do argue that this competition between IBI and CPSC to acquire a natural monopoly was not protected by the antitrust laws because substitution of one competitor for another would not injure competition: Whether CPSC or IBI ultimately managed to acquire the Bulls was a matter of indifference. to the Chicago fans, who would face a monopolist in any event. Thus, the only parties injured by the defendants’ shenanigans were IBI and its organizers, who had lost an opportunity to own a monopoly. “[T]he antitrust laws ... were enacted ‘for the protection of competition, not competitors.’ ” Brunswick Corp. v. Pueblo Bowl-O-Mat,
1. Antitrust Injury. The concept of “antitrust injury,” as introduced in Bowl-O-Mat, is akin to a standing requirement. The plaintiff’s injury must be related to the sorts of concerns that underlie the Sherman Act. In Bowl-O-Mat the plaintiffs brought an action under § 7 of the Clayton Act, alleging that defendant Brunswick’s acquisition of several rival bowling alleys (which otherwise would have gone out of business) tended to lessen competition because Brunswick was already the “giant”
plaintiffs ... must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful. The injury should reflect the anticompeti-tive effect either of the violation or of anticompetitive acts made possible by the violation.
The case before us is different from these cases. The refusal to lease the Chicago Stadium effectively cut off all competition for the acquisition of the Bulls franchise and injured plaintiffs as a result. Plaintiffs alleged that they were deprived of a fair shot at winning a legal monopoly. There is no reason why this injury is not an antitrust injury unless the Sherman Act does not protect competition to acquire a natural monopoly — which is precisely what the defendants assert.
Defendants seek to extend Bowl-O-Mat into a general rule that “aggressive and even tortious competition to acquire a natural monopoly is not a violation of the Sherman Act.” Appellants’ Brief at 56. They claim that “[i]t is well settled that the substitution of one competitor for another does not injure competition.” Id. at 57. The case law, however, does not support such a broad contention. Indeed, the Supreme Court’s decision in Otter Tail,
In Otter Tail, a major electric power company (“Otter Tail”) sought to acquire retail franchises to distribute and sell electricity in certain municipalities. Each municipality could “accommodate only one distribution system, making each town a natural monopoly for the distribution and sale of electric power at retail.”
One of the arguments made by the dissenters in Otter Tail is the same as that made by the defendants and by the dissent in the case before us. Thus, the Otter Tail dissenters argued that:
The theory of [Lorain Journal Co. v. United States,342 U.S. 143 ,72 S.Ct. 181 ,96 L.Ed. 162 (1951)] was that competition in the communications business was being foreclosed by the newspaper’s exercise of monopoly power. Here, by contrast, a monopoly is sure to result either way.
The dissent attempts to distinguish Otter Tail by arguing that Otter Tail, through its monopoly power over transmission, could preclude consumers in the affected municipalities from receiving the benefits of competition at the level of electric generation. We agree with the dissent that a potential for economies in generation may have existed in Otter Tail, apparently because the affected municipalities might have been able to wheel cheaper power from government hydroelectric dams. The Supreme Court, however, did not rely on the municipalities’ potential access to cheaper generation as a basis for its decision. In fact, the majority in Otter Tail did not feel compelled even to respond to the dissenters’ point that “a [retail] monopoly is sure to result either way.” Thus, whatever the economic distinctions, we think it is difficult to avoid the impact of Otter Tail as a controlling authority.
In Mishawaka,
Id. at 986, quoting Sargent-Welch Scientific Co. v. Ventron Corp.,
We do not quarrel with the dissent’s efforts to show that Mishawaka, Union Leader and Hecht were different from the case before us in some economic respects. But the dissent is engaging in post hoc analysis. There is nothing in any of these opinions to suggest that the economic phenomena identified by the dissent were important considerations to the courts which found antitrust violations in these cases. For example, in Mishawaka there is no reason to believe that American Electric Power’s price squeeze was designed (as the dissent asserts infra p. 572) to deprive consumers of the benefits of competition in generation and no reason to think that this was a significant factor in this court’s analysis. Rather, American Electric Power’s ostensible purpose was to replace the town as sole supplier in the retail market. Similarly, in Union Leader there is little to suggest that the First Circuit had in mind in deciding the case the distinctions offered by the dissent. The court applied the antitrust laws in Union Leader to protect competition for a natural monopoly; the court did not believe the market could sustain competition over an extended period of time.
2. The Consumer Interest. The defendants further argue that, even if some natural monopoly cases are within the purview of the Sherman Act, this one is not because the plaintiffs have failed to articulate just how the ultimate consumers— Chicago fans — will be hurt by this violation. They assert that “the antitrust laws do not apply where there is no consumer interest to protect.” Appellants’ Reply Brief at 11. The dissent makes the same argument about consumer effect: “Antitrust law condemns results harmful to con-sumers____ Bad means that injure only business rivals — that is to say business torts — are outside the scope of antitrust law.” Infra p. 564 (emphasis in original).
We agree that the enhancement of consumer welfare is an important policy— probably the paramount policy — informing the antitrust laws. See MCI Communications Corp. v. American Telephone & Telegraph Co.,
Here the defendants, through the economic leverage provided by their stadium monopoly, succeeded in driving out all competition for ownership of the Bulls. They used a monopoly in one market to foreclose competition in another — a classic violation of the antitrust laws. The actual competition confronting the. defendants consisted of Peter Graham, who dropped out early (before CPSC was involved), and later IBI. The potential competition, see United States v. El Paso Natural Gas Co.,
A rule that made the legality of arguably predatory conduct at the level of entry into the consumer market depend on whether post hoc analysis could clearly identify adverse impacts on ultimate consumers would be capricious, as well as unjust. Following this approach would mean that if two teams were presumed to survive, see Hecht,
On the other hand, and viewing the matter from a different perspective, we agree that identifying consumer effect, to the extent this is feasible, may allow us in some cases invoking the Rule of Reason to better evaluate the impact of a purported violation on the competitive process. For instance, the Court has countenanced some restrictions on competition that would actually enhance the overall competitive process, see, e.g., NCAA v. Board of Regents,
In any event, we should not be so quick to assume that there is no consumer interest in this case. Except in those cases involving restraints that maximize economic well-being in some demonstrable way, notably involving professional associations, see, e.g., Professional Engineers,
The cases cited by the defendants concerning the termination of exclusive distributors and suppliers of goods and services are not on point. These cases involve no more than “plaintiffs’ commercial disappointment at losing ... patronage — the recurrent case of the jilted customer, dealer or supplier who loses a ... franchise and accuses the [franchisor] and the new suitor of attempting to monopolize something.” Dunn & Mavis, Inc. v. Nu-Car Driveaway, Inc.,
This, too, is why we do not find Brunswick Corp. v. Riegel Textile Corp.,
The fact that the precise impact of defendants’ conduct on the broad consuming public has remained unfocused here does not prevent a finding that the antitrust laws have been violated.
The district court found that the Wirtzes and CSC had refused to give IBI a lease at the Chicago Stadium “as a purposeful means of excluding a competitor (IBI) and monopolizing a relevant market.” Liability Opinion,
The so-called “essential facilities doctrine” imposes upon a firm controlling an essential facility — that is, a facility that cannot reasonably be duplicated and to which access is necessary if one wishes to compete — the obligation to make that facility available to competitors on nondiscriminatory terms. A refusal to deal in the context of an essential facility violates section 2 because control of an essential facility can “extend monopoly power from one stage of production to another, and from one market into another.” MCI Communications Corp. v. American Telephone & Telegraph Co.,
The trial court found that the Chicago Stadium was an essential facility and that the defendants had refused to deal by withholding a lease, although they had no legitimate business reason for the refusal. The defendants do not dispute that these facts, if true, make out a section 2 violation. Defendants do, however, dispute the necessary findings of fact, namely, that the Stadium was an essential facility and that there was any refusal to deal, concerted or otherwise, at all.
To be essential, “a facility need not be indispensable; it is sufficient if duplication of the facility would be economically infeasible and if denial of its use inflicts a severe handicap on potential market entrants.” Hecht,
First, the district court stressed the “natural advantages” that the Chicago Stadium had over other sites in 1972. These included a seating capacity of 17,000, 6500 more than the Amphitheatre. It also noted that “the locker rooms, the lighting for color television, and the overall physical plant at the Stadium were significantly superior to that available at the Amphitheatre or any other arena in Chicago.” Id. at 74,755. Conceding that a facility is not essential merely because it is better than or preferable to another, the court concluded that the Stadium was not just better — it was “unique.” It found that the Stadium had a strategic dominance over the market for indoor team sports arenas in Chicago, not ing that it could charge much higher prices than the other arenas without causing its patrons to switch. Id. It also noted in this regard that all groups interested in owning the Bulls wanted a lease at the Chicago Stadium notwithstanding the higher rent. Finally, the district court gave weight to the preferences of the NBA: “It was essential in order to obtain NBA approval, to acquire the Bulls, and to enter the market for the presentation of professional basket
The Chicago Stadium was not duplicable without an expenditure that would have been unreasonable in light of the size of the transaction such duplication would have facilitated. There was testimony that a new arena would cost $19 million to build, an economically unrealistic sum where a substantially less expensive basketball team was the real goal. Defendants argue that IBI could have built a stadium, noting that a new indoor arena, the Rosemont Horizon, did go up in Chicago a few years later. But the test is not whether it would be impossible to duplicate the facility. Not every essential facility need be as'extensive and complicated as the local distribution facilities of AT & T’s operating companies. Cf MCI,
It is also clear that lack of access to the Chicago Stadium “inflicted a severe handicap” bn IBI as a competitor. The defendants do not appear to contest the district court’s finding that lack of access to the Stadium was a major factor in IBI’s failure to acquire the Bulls; rather, they argue that it is improper to look at the “personal preferences” of the NBA governors in determining whether a facility is essential. Such a finding, they argue, can only be based upon “objective economic reality.” Appellants’ Brief at 74. But “objective economic reality” is often a function of personal preferences. Appellants concede that “economic tests established for cross-elasticity of supply and demand” suitably measure economic reality, id., but the Stadium’s proven ability to raise its rent without losing patronage to the Amphithea-tre — in short, its market power — is itself a result of the “personal preferences” of basketball patrons. Thus, the mere existence of the Amphitheatre does not make the district court’s finding clearly erroneous. “[A] monopolized resource seldom lacks substitutes; alternatives will not excuse monopolization.” Gamco,
Nor did the district court err when it found that there had been a refusal to lease the Chicago Stadium and a conspiracy to refuse to lease. Thé record supports the finding that the Wirtzes and CSC had no legitimate business reason not to negotiate with IBI regarding a lease. Defendants argue that the ten-year lease offered Rich by Wirtz is evidence that Wirtz did not refuse to deal with IBI. We agree with the district court that this offer did not show that Wirtz was willing to deal with IBI on non-discriminatory terms: (1) Wirtz was
There is also sufficient evidence in the defendants’ correspondence, both with each other and with the NBA, to support the conclusion that the Wirtzes and CSC agreed with CPSC and the individual defendants to withhold the Chicago Stadium from the plaintiffs and grant a lease only to CPSC. Defendants argue that there is no evidence of their state of mind at the time that CPSC entered into a contingent contract with CSC in April 1972. They argue that their later lobbying of the NBA shed no light on that earlier state of mind. Assuming arguendo that the defendants had no exclusionary intent in April of 1972, that does not absolve them of liability if they decided at any later time that IBI should be excluded from access to the Chicago Stadium.
We also approve the district court’s ruling that the concerted scheme to withhold a lease from IBI was a per se violation of section 1. “Per se rules are invoked when surrounding circumstances make the likelihood of anticompetitive conduct so great as to render unjustified further examination of the challenged conduct.” NCAA,
In Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co.,
The district court also ruled that the NBA’s refusal to approve the transfer of the Bulls to IBI was a “concerted refusal to deal” or “group boycott” agreed to and carried out by CPSC, its individual members, the NBA no-votes, Chicago Black-hawks Hockey Team, Inc., Atlanta Hockey, Inc.,
The Crown-Wirtz group (or others acting in their behalf) specifically invited and requested the NBA members to deny approval to plaintiff in order that the Crown-Wirtz group subsequently could acquire the Chicago Bulls. Among other things, the telegram from the Crown-Wirtz group to each NBA member before the meeting of June 15, 1972, and the subsequent telegram, of July 6, 1972, were clearly an invitation to deny IBI league approval so that the Crown-Wirtz group could acquire the team and perpet
Liability Opinion,
A group boycott occurs when the plaintiff’s competitors are in a position to deal with the plaintiff but agree not to. See, e.g., Klor’s, Inc. v. Broadway-Hale Stores, Inc.,
We approved the district court’s finding of liability for the concerted refusal to lease the Chicago Stadium because it was motivated by anticompetitive concerns — destruction of competition for the Bulls franchise — and because it had exactly that anti-competitive effect. Here, it cannot be gainsaid that the defendants approached their friends in the NBA and asked to have IBI rejected because they wished to own the Bulls themselves. But the issue is whether in lobbying the NBA (ignoring for the moment that they came armed with the results of the refusal to deal in stadium leases) defendants intended to compete vigorously or destroy competition. This is a distinction particularly important to make in natural monopoly cases such as this one, where “winning” by necessity means driving all of one’s competitors from the market. See Hamilton & Caulfield, The Defense of Natural Monopoly in Sherman Act Monopolization Cases, 33 DePaul L.Rev. 465, 470-71 (1984) (control of a natural monopoly market must be distinguished from the methods used to obtain that monopoly).
The district court decided that the intent was to destroy competition. This conclusion was in large part influenced by its finding that “there was not, nor could there be, ‘competition’ between plaintiff and the Crown-Wirtz group ‘at the NBA
The “conspiracy” to withhold NBA approval had two main parts. First, the defendants “lobbied” the NBA to reject IBI as a potential co-venturer. Second, the NBA no-votes voted to reject the transfer. It is clear that the second step — the act of voting the rejection — cannot by itself give rise to an antitrust violation. This is demonstrated by another lawsuit that arose from the activities of the NBA Board of Governors at their June 1972 White Sulphur Springs meeting. At that meeting, the Board of Governors was also asked to approve the transfer of the Boston Celtics to certain new owners. The proposed transfer was rejected and those proposed owners brought suit, alleging that their ownership was defeated by an illegal group boycott, motivated by the Governors’ antipathy for one “maverick” governor who supported the transfer. The court ruled:
While it is true that the antitrust laws apply to a professional athletic league, and that joint action by members of a league can have antitrust implications this is not such a case. Here the plaintiffs wanted to join with those unwilling to accept them, not to compete with them, but to be partners in the operation of a sports league for plaintiffs’ profit.
Levin v. National Basketball Association,
The alleged exclusionary conduct here was that the defendants lobbied the NBA and persuaded a minority of the governors to vote against IBI. Since only one competitor could win NBA approval, it was not in itself anticompetitive for CPSC to suggest to the NBA that it should be the lucky one. Nor was it anticompetitive to contact NBA members to discuss CPSC’s supposedly superior qualifications. Leaving to one side the stadium lease violations, there was no injury to competition and hence no antitrust violation. Both IBI and CPSC were free to vigorously compete for NBA approval. Indeed, as we noted in an earlier case involving lobbying alleged to be “an absolute bar to competition,” “[wjhile one competitor succeeded and necessarily the other failed, unmistakably there was very strenuous competition. This unavoidable fact undermines the plaintiff’s charges under §§ 1 and 2 of the Sherman Act.” Parmelee Transportation Co. v. Keeshin,
F. State Law Claims
The plaintiffs also brought pendent claims under Illinois law charging all defendants with tortious interference with contractual relations and tortious interference with prospective advantage. The district court ruled that the plaintiffs had
Here, plaintiffs’ contract with the Bulls’ owners, a contract which entitled plaintiffs to own and operate the Bulls should the NBA approve the proposed transfer of the Bulls set forth in that contract, was rendered valueless and impracticable, if not impossible, to perform by defendants’ intentional and unlawful conduct directed toward obtaining the rejection of the transfer by the NBA and various NBA members.
By successfully interfering with, and destroying, plaintiff’s contractual rights to purchase the Bulls, defendants also succeeded in intentionally interfering with plaintiffs’ prospective business advantage of owning and operating the Bulls.
Liability Opinion,
Tortious interference with contract requires proof of (1) a valid and enforceable contract between plaintiff and a third party; (2) defendant’s knowledge of the existence of this contract; (3) inducement by defendant to the third party to breach the contract; (4) a breach; and (5) resulting damages. E.g., Zamouski v. Gerrard,
Similarly, in the case before us, IBI executed a valid contract with Chicago Basketball, and there is no indication that Rich did not perform his obligations under the contract (using his best efforts to win the NBA’s approval and transferring ownership of the Bulls in the event of NBA approval) as expected. IBI had an enforceable right in the performance of these obligations, but prior to NBA approval it had no more than an expectancy, however reasonable, in owning the Bulls. Thus, there could be no claim for tortious interference with the IBI-Chicago Basketball contract because that contract had not been breached.
An individual with a prospective business relationship has a mere expectancy of future economic gain; a party to a contract has a certain and enforceable expectation of receiving the benefits of the contract. When a business relationship affords the parties no enforceable expectations, but only the hope of ... benefits, the parties must allow for the rights of others. They therefore have no cause of action against a bona fide competitor unless the circumstances indicate unfair competition, that is, an unprivileged interference with prospective advantage. In sum, as the degree of enforceability of a business relationship decreases, the extent of permissible interference by an outsider increases.
Belden,
Thus, there could not be a claim for tortious interference with prospective advantage in this case if CPSC did not lose its “competitor’s privilege” through some sort
of “unfair competition.” Cf. Belden,
The district court here ruled that the competitor’s privilege was not available to defendants because no competition was possible after the contract was signed. We have explained why we think this is clearly erroneous. Lawful competition before the NBA was a distinct possibility in this case. However, as we have noted, defendants competed unlawfully when they withheld the Chicago Stadium from IBI, and the district court also found that CPSC’s competition was not privileged because the acts by which it interfered with IBI’s expectancy were independently violations of federal antitrust law. Liability Opinion,
(1) One who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor ... does not interfere improperly with the other’s relation if (a) the relation concerns a matter involved in the competition between the actor and the other and
(b) the actor does not employ wrongful means and
(c) his action does not create or continue in an unlawful restraint of trade and
(d) his purpose is at least in part to advance his interest in competing with the other.
See also Candalaus Chicago, Inc. v. Evans Mill Supply Co.,
IBI had a reasonable expectation of entering a valid business relationship with Rich. Defendants knew of this expectancy. Defendants intentionally interfered with this expectancy, through an unfair and anticompetitive act — the concerted refusal to lease the Stadium — that lost them their competitors’ privilege.
II. DAMAGES ISSUES
A. The District Court’s Calculation of Damages
The district court found:
By their unlawful conduct, defendants precluded plaintiff IBI from acquiring the Chicago NBA franchise in the summer of 1972 and from enjoying the anticipated economic benefits of owning and operating that business. Rather, certain of the defendants have had the opportunity to enjoy and exploit the very same business over the past ten years. Fishman v. Estate of Wirtz,
The district court started with the proposition:
The financial benefits specifically realized by CPSC flowed (i) from the increasing going concern value of the business and (ii) from the cash generated from operation. These are the same sources that NBA owners generally attempt to exploit and are the sources IBI specifically intended to exploit.
Id. at 861.
The first and most difficult step was to determine the fair market value of the Chicago Bulls franchise in 1982. This was accomplished by looking at recent sales prices of “comparable” NBA franchises.
The problem with plaintiffs’ approach is not in their inclusion of deferred compensation in assessing the sale price of the assets of the comparable teams. Rather, it is an assumption that those asset values can be used directly to compute the value of the assets of the Bulls. The Bulls have their own unique structure of player contracts. Those player contracts undoubtedly will be of shorter duration and for lower dollar amounts than those of some NBA teams and will be of longer duration and for higher dollar amounts than other teams. The player contract assets of the teams, therefore, are not comparable.
The problem arising out of the incom-parability of player contracts of otherwise reasonably comparable teams can be solved by simply eliminating deferred compensation entirely from all computations of the sales price of the compara-bles. In addition, the Bulls’ actual deferred compensation will not be deducted
Id. at 863-64 (emphasis in original). Central to this “hybrid” method of valuation was the district court’s assumption that the relative length or brevity of a team’s player contracts does not influence the fair market value of a team:
Team ownership does not become more attractive the more player contracts a team has and the more it is obligated to pay for them. The accounting worth of a team is not enhanced by simply adding equal amounts of assets and liabilities to its balance sheet. Teams with longer term, higher dollar player contracts will , have a higher value on their balance sheets for their basketball assets, but not a higher net worth.
A team can, of course, either increase or decrease its market worth by entering into player contracts. It increases its net worth by making good deals, i.e., negotiating contracts which set player compensation low relative to their incremental contribution to the team[’]s revenue so that the contracts add to the team’s profitability. Conversely, a franchise can decrease its market worth by making bad deals.
Id. at 863 n. 9. Since the district court would later in the damages calculation subtract CPSC’s actual liabilities (since IBI, in fact, assumed no liabilities at all), it elected to omit liabilities for deferred compensation assumed by the buyers in the comparable NBA transactions from the “comparable” fair market value and then not subtract those actual liabilities for deferred compensation. The district court thus found an approximate fair market value (not including liabilities assumed for deferred compensation) for five NBA franchise transactions that it deemed comparable to a 1982 sale of the Bulls.
Armed with this indicator of a comparable fair market value, the district court then examined a number of other factors “[bjecause of the limited number of transactions, the less than perfect comparability of [other] clubs to the Bulls, and the advent of developments subsequent to some of the comparable transactions,” id. at 873, and ultimately adjusted the Bulls’ value upward to account for developments in pay television and the construction of the Rose-mont Horizon (which gave the Bulls greater choice in arena sites than many other teams). It adjusted the Bulls’ value downward to account for changes in the tax laws applicable to professional sports franchises and for changes in the NBA free agency rules. At this point, the district court had an approximate fair market value of $11.5 million for CPSC’s “basketball” assets {i.e., the Bulls franchise) as of May 31, 1982. To this it added the undisputed value of CPSC’s “non-basketball” assets for a total CPSC asset value of $12,667,602.
The court then subtracted all of CPSC’s liabilities (with, for the reasons stated above, the exception of its liabilities for deferred compensation) in order to account for the fact that IBI never in fact assumed any liabilities. This left it with a net value of $10,812,090 for CPSC’s assets. To determine the total gain realized by CPSC as a result of its ownership of the Bulls, the court next deducted the $4,310,000 that CPSC’s shareholders had invested in the franchise; thus, the total gain realized by CPSC was $6,502,090. Finally, this figure was adjusted to reflect predictable differences between IBI’s hypothetical costs in owning and operating the Bulls and those of CPSC. This included the $1,190,281 that CPSC had incurred in defending this and related lawsuits and the $50,000 difference between CPSC’s and IBI’s offers for the franchise. It declined to adjust the total gain to reflect the purportedly higher interest rate that defendants argued IBI would have had to pay on funds borrowed to purchase the Bulls and operate the team from 1972 to 1982. The district court did, however, deduct $3.6 million from the total gain to reflect the “opportunity cost” associated with IBI’s hypothetical equity contributions, that is, that part of the purchase price and initial working capital that IBI would have funded by equity instead of debt. The rationale behind this opportunity cost deduction was that
Id. at 879. This opportunity cost was computed by multiplying the amount of equity invested annually by IBI or its shareholders by the period of time invested, and applying an applicable “opportunity cost” compound interest rate. Here, the district court used the rate of return on “the most nearly riskfree security on the market,” id., the three-month treasury bill.
Following these adjustments, the court concluded that IBI’s hypothetical gain from ten years of Bulls ownership — thus, also IBI’s actual damages from having been deprived of the Bulls — was $4,142,371. Upon a motion to amend,
Pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15 (1982), these actual damages were trebled and the $750,000 that IBI had received in settlement from the NBA defendants, see supra note 6, was deducted after trebling. Judgment on the antitrust counts was entered in the amount of $13,-326,734, with all defendants jointly and severally liable. IBI was also awarded costs and attorneys’ fees, under section 4, and post-judgment interest.
The district court also found that defendants’ violation of Illinois law injured IBI in the amount of $4,692,238. It entered judgment against all defendants, jointly and severally, in the amount of $3,942,238 ($4,692,238 less the $750,000 NBA settlement). It also entered judgment for punitive damages, $2 million against the estate of Arthur Wirtz (who had died during the litigation), $2 million against Lester Crown and $500,000 against William Wirtz.
The antitrust and tort judgments were expressly entered in the alternative. IBI could only execute on one award of damages or the other, but not both. Further, the district court declined to exercise its discretion under Illinois law to award the Bulls franchise to IBI as restitution in lieu of money damages.
B. Appropriateness of the Yardstick Measure of Damages
We note at the outset that our review of the district court’s damages calculation must be deferential. An antitrust plaintiff does not bear as onerous a burden in proving the dollar amount of his damages as he does in showing the fact of his antitrust injury. MCI,
It is well settled that an antitrust plaintiff is entitled to recover “in full for the preventable and established loss sustained by reason of tortious or proscribed acts.” Albrecht v. Herald Co.,
In this connection, defendants first object to the district court’s approach by arguing that damages must be computed as of the date of the injury — in this case, as of July 1972. While this rule may generally govern simple contract damages, it is not necessarily controlling in cases such as the one before us where the injury is continuing or where damages from the injury continue to accrue. The defendants’ wrongful conduct deprived IBI of the benefits derived from operating the Bulls for ten years. For example, in Farmington Dowel Products Co. v. Forster Manufacturing Co.,
Defendants argue that the going-concern value of the Bulls in July 1972 represents a full recovery for IBI because that going-concern value — that is, what a willing buyer given all available information would have paid for the team in 1972 — is by definition a future income stream discounted to present value. The district court’s valuation, on the other hand, is based on actual gain experienced by the Bulls over ten years. (The 1972 going-concern value was affected by a number of ex ante predictions, which were proved either true or false and were reflected in the 1982 value). We do not understand defendants’ objection to using this adjusted value (which is not speculative, cf. Farmington Dowel Products,
We know of no requirement that damages must always be computed as of the time of the injury or, if not, reduced by some appropriate discount rate to produce a value as of that date. Cf. Zenith Radio Corp. v. Hazeltine Research, Inc.,
Finally, there is an important reason for not limiting a plaintiff’s damages to the presumed present value of a future loss as of the date of the injury. Defendants argue that IBI’s loss is the difference between the fair market value of the Bulls in July 1972 (which they peg at CPSC’s offer, $3.35 million)
Like the defendants, the dissent argues that the plaintiffs should be limited to the difference between the price at which the plaintiffs contracted to buy the Bulls and the price paid for the franchise by CPSC; the dissent’s analysis, however, differs in form, if not in fundamental substance, from that of the defendants. Essentially, the dissent argues that IBI could have “covered” once it was foreclosed from buying the Bulls by the defendants’ illegal conduct. While IBI lost one business opportunity, it could go out and invest in the next best business opportunity. IBI should thus be awarded only the bargain element of its contract with Rich, i.e., the amount at which IBI would have been able to buy the Bulls below their “market” price. Infra p. 579.
We find the dissent’s analysis unpersuasive insofar as it may suggest that IBI should have invested promptly in another basketball team. Infra pp. 579-80. The dissent seems to treat basketball teams as fungible commodities. But the record does not disclose that there is anything like an auction market in basketball teams. As far as we know, the law imposes no duty on a buyer who has been unlawfully done out of a purchase of the Bulls to cover immediately with the Bucks, the Celtics or the Lak-ers. The record does not disclose that these teams were either fungible or available.
Defendants also assail the district court’s “assets-based” method of valuing the Bulls, arguing that it is inaccurate because: (1) different franchises own different assets; and (2) different franchises treat their assets differently for accounting purposes. As for the first objection, defendants mention only two instances of “different assets” — pay television interests and arena rights. The district court dealt adequately with both. Damages Opinion,
Many NBA franchises list their player contracts as an asset on their balance
Because the trial court did not distinguish between earned and unearned deferred compensation, the “comparable” sales from which it derived the value of CPSC’s basketball assets were not at all comparable. Some included an asset valuing the future services of the team’s players, others did not. The calculation was further distorted when the court refused to deduct CPSC’s actual liability for deferred compensation when no offsetting asset for player services existed. Appellants’ Brief at 86.
We do not believe that the district court’s method was clearly erroneous; rather, we think that the defendants have mischaracterized it. The district court correctly held that an accurate sales price or fair market value would be equal to what a willing buyer would pay for the entire package, assets and liabilities. Assumed liabilities of any sort, earned or unearned, are part of that fair market value because the total of cash, notes and assumed liabilities represents the financial obligation a buyer would undertake to own a particular team.
Further, the fact that the Bulls list no “asset” in their books for player contracts or liabilities for unearned deferred compensation is in itself irrelevant. The district court was not valuing the teams according to how they appear on a balance sheet; rather, it was assessing how the market valued the teams’ “assets,” in the layman’s sense of that term. No one suggests that the Bulls had no player contracts in 1982. Conversely, if the Bulls had player contracts, they had incurred a liability to pay the athletes in the future, whether or not this was listed as a liability on the balance sheet. A prospective purchaser of any franchise — including the Bulls — would decide how much cash to offer by looking at the quality of the player contracts and the amount they were already “paying” for those contracts by assuming the owners’ obligations to the players. Thus, the defendants are wrong to suggest that the Bulls’ choice of accounting procedures somehow affects their “comparability” with other NBA franchises. The district court’s method of computing a 1982 fair market value for the Bulls was reasonably accurate and not clearly erroneous.
As noted above, the district court saw a potential problem with its valuation method, and it adjusted the calculation to account for this. Based on its finding (not clearly erroneous) that the lengths of a team’s player contracts leave the value of the team unaffected,
C. Cost of Capital
The district court derived its yardstick measure of IBI’s hypothetical gain from ownership of the Bulls by assuming that IBI would have funded the purchase and working capital needs of the franchise through debt and equity contributions in the same proportions as did CPSC. It further found that IBI would have borrowed funds at the same rate as did CPSC and so declined to adjust the yardstick gain figure for the assertedly higher interest rate that CPSC argued IBI would pay. But, for the hypothetical equity contributions, the district court reduced IBI’s damages by its “opportunity cost,” or the return it could have made on an alternative investment with those funds.
Defendants argue on appeal that the finding that IBI would have had no greater a cost of debt capital than CPSC was clearly erroneous. Both parties are dissatisfied with the result regarding opportunity cost, the plaintiffs arguing that it was inappropriate to deduct it at all and the defendants arguing that the interest rate chosen by the district court was too low.
1. Interest Rate on Debt. The district court concluded that, although there was conflicting testimony, the evidence supported plaintiffs’ position that IBI would have paid interest at the same rate as CPSC (prime plus lh%) on funds borrowed over the ten years from 1972 to 1982:
[T]he court gives great weight to the substantial and rapid appreciation in value of the franchise. In addition, plaintiffs would have been operating the very same going concern that defendants operated. These are factors which, over virtually the entire 10 year period[,] would have been most important to a lending institution considering an extension of credit to IBI.
Damages Opinion,
The matter is not without doubt and this court, had it been the trier of fact, might have been inclined to give greater weight to the lending institution’s assessment of the (initial, at least) relative creditworthiness of the two ventures. But, although the question seems close, we cannot say that the district court’s finding was clearly erroneous. It noted that the defendants’ evidence mainly involved only 1972, when the two groups were starting up, and that Continental Bank released all personal guarantees of CPSC shareholders by 1975. The bank elected to concentrate its analysis on the financing of working capital needs in the later years of ownership. One of the benefits of the “yardstick” method of computing damages is that once the plaintiff shows relative comparability between his hypothetical firm
2. Opportunity Cost of Equity. IBI, in its cross-appeal, argues that the district court erred when it deducted from its yardstick measure of damages an amount representing the return IBI would have earned on an alternative, risk-free investment funded by the equity that it did not, as a result of defendants’ conduct, actually invest in purchasing and running the Bulls. First, it argues that the courts have never recognized “opportunity cost” as a limiting element in the calculation of antitrust damages. Second, it asserts that there is no opportunity cost involved in a hypothetical purchase of the Bulls by IBI because IBI, which was never funded, was not able to realize the benefits of the use of that equity in any alternative investment. Defendants appeal the opportunity cost setoff as well, arguing that the interest rate applied was too low.
The economic concept of “opportunity cost” has been used in a variety of cases as a loose label for any of a number of adjustments to value involving the idea that for every use of one’s resources there is an alternative use, with its own return, foregone. See, e.g., Afram Export Corp. v. Metallurgiki Halyps, S.A.,
The opportunity cost theory advanced by defendants here is different from those employed in the cases we have cited. In one sense, “cost” is not being measured here at all; rather, defendants are attempting to isolate a benefit that has accrued to IBI or (strictly speaking) to IBI’s investors. That benefit is the investors’ use of money over a ten-year period that they otherwise would have used to subscribe to stock in IBI. The defendants assert that the proper way to measure that benefit, so as to deduct it from the yardstick measure of damages, is to find the opportunity cost of acquiring the Bulls, i.e., the return from the IBI investors’ next-best investment.
We agree with both the defendants and the district court that, under facts like the ones in this case, antitrust damages may be offset by a figure that accounts for the fact that the plaintiffs actually had use of money that, but for the violation, would have been tied up in the lost business opportunity. This figure can be labeled the “plaintiffs’ opportunity cost” in the context of this case. Under the unique facts here, we think this “plaintiffs’ opportunity cost” is, for all practical purposes, equivalent to mitigation,
We reject plaintiffs’ contention that opportunity cost should be zero. Plaintiffs argue that IBI had no opportunity cost (or, to state it another way, could not mitigate its damages) because without an NBA-approved contract to purchase the Bulls, IBI had no equity to place in an alternative investment. IBI was “formed for the sole purpose of acquiring the Bulls. Absent that acquisition, it had no obligation, ability or right to obtain any funds from its shareholders for other investments.” Damages Opinion,
Technically, of course, the plaintiffs’ position is correct: IBI is the plaintiff; yet the district court imposed a duty to mitigate damages upon IBI’s organizers and would-be shareholders. In this connection, we have in this case a peculiar fact-pattern: the corporate plaintiff was not funded and has never been more than an empty shell. It is clear that the district court considered it inequitable to conclude this ease with a measure of damages that would make the potential investors better off than if IBI had actually owned and operated the Bulls for ten years. The IBI organizers were able to keep, as a result of the antitrust violation, what would have been their equity contributions to IBI. Presumably, they invested, or could have invested, this money in some other way and received a return on it between 1972 and 1982. Accordingly, the district court “pierced” the corporate veil at least so far as to account for the “passive” retention by the IBI investors of their contribution over ten years. In view of the very unusual facts presented here, we see nothing wrong with this exercise of
While we agree with the district court that the plaintiffs’ opportunity cost should be deducted from the damage award, we disagree with the way in which the trial court calculated this amount; we think that the method employed by the district court substantially overstated the amount of damages. We thus turn our attention to determining acceptable ways of calculating opportunity cost under the unusual facts of this case.
The principle of mitigation of damages, which as we have noted is in this case only opportunity cost by another name, requires a plaintiff to use his best efforts to minimize the damages caused by a defendant’s wrongful conduct. In most cases, a court can determine the amount by which a plaintiff’s damages should be reduced by looking to the actual experience of the plaintiff and determining whether the plaintiff’s mitigation efforts were reasonable. Lehr-man,
Nonetheless, we agree with the district court that some reasonable amount must be charged against plaintiffs’ recovery as the opportunity cost of equity to represent the returns which may reasonably be imputed to IBI or its shareholders from investments made as alternatives to investment in the Bulls.
The district court chose to hypothesize that IBI decided to put its money in the most riskless of all investments, three-month treasury bills. The district court’s
The district court decided in effect that IBI had no duty to invest its money in anything riskier than treasury bills for a period of about ten years. While we recognize the policy of limiting risk in carrying out the duty to mitigate damages, we think that under the particular circumstances of this case it would be error to use the treasury bill rate indefinitely in calculating IBI’s opportunity cost. Such an approach could encourage the immobilization of capital for a long period while antitrust damages were being sought. At some point, IBI might be expected to make an alternative investment yielding an equity return— albeit not necessarily the highest and riskiest one available.
For one thing, time is a factor. IBI cannot be expected to make an alternative equity investment instantaneously.
The question remains what alternative equity return should be assumed as an opportunity cost (or investment by way of mitigation) given a preliminary period of several years during which the funds are left in treasury bills. We believe that this estimate should, if anything, err on the side of conservatism since the alternative may be to force undue risks on a victim of wrongdoing. The district court has found, and we have accepted, a cost of debt for IBI as the owner of the Bulls of the prime rate plus lh%. Damages Opinion,
The defendants have also argued that since the IBI investors had contracted with Continental Bank to borrow their equity contributions at prime plus 3% and since (in their view) IBI would have borrowed at that rate, they would expect at least that return on their equity. Therefore, the defendants argue that prime plus 3% is an appropriate opportunity cost. It is conceivable that at some point in time a return at this general level might be supportable, but we have no basis at this juncture to express any opinion on the matter. (And we have, of course, sustained prime plus xk% as an acceptable cost of debt to IBI.) The district court has made no finding on the interest rate at which the investors could have borrowed their equity contributions. On remand the district court is at liberty to bear this factor in mind to the extent it may deem it relevant and appropriate.
We believe therefore that it is necessary to vacate the damage award and remand this case to the district court to reconsider the question of an appropriate opportunity cost. The district court should bear in mind that, while undue risk may not be forced on a victim of wrongdoing, leaving equity funds indefinitely in treasury bills
D. Punitive Damages
The district court assessed punitive damages for the state law violations against the estate of Arthur Wirtz and against William Wirtz and Lester Crown. Defendants argue that: (1) the facts of this case do not warrant an award of punitive damages; (2) the amounts awarded plaintiff IBI were “grossly excessive”; and (3) punitive damages should not have been awarded against Arthur Wirtz’s estate. We need only reach the first of these issues.
We have in the liability portion of this opinion substantially narrowed the bases of liability upon which punitive damages may be awarded. We declined to approve the district court’s conclusion that the defendants interfered with IBI’s rights under the IBI-Chicago Basketball sales contract and its finding that it was an anticompetitive act to have lobbied the NBA for rejection of IBI’s application for approval. The tort that remains following these modifications is the withholding of the Chicago Stadium: The defendants knew that IBI had signed a contract with Chicago Basketball and thus had a reasonable expectation of acquiring the Bulls franchise. Wanting the Bulls for themselves, defendants set out to ensure that that expectation would not be realized. They withheld the Stadium lease from IBI, knowing that IBI needed the lease to compete effectively before the NBA. The “stadium lease boycott” was, however, an illegal act, and defendants therefore lost their “competitor’s privilege” to try to wrest the Bulls from IBI’s grasp.
Under Illinois law, “punitive damages should not be awarded if the defendant’s misconduct is not above and beyond the conduct needed for the basis of the action.” O’Brien v. State Street Bank & Trust Co.,
E. Treble Damages Against The Estate of Arthur Wirtz
Defendants also argue that the trial court erred in trebling the antitrust damages assessed against Arthur Wirtz’s estate. The district court noted that there were cases in other jurisdictions to the effect that the death of a defendant abated a plaintiff’s claim for treble damages, but the court declined to follow them. Those cases, mostly quite old, are based on the notion that treble damages are exclusively penal in character and should not be assessed when the malefactor is no longer around to learn his lesson. However, as the district court noted, Damages Opinion,
P. Other Cross-Appeal Issues
Plaintiff IBI makes two further arguments on appeal, the first of which presents a question of some difficulty.
1. Prejudgment Interest. The district court declined to award prejudgment interest in this case relying on our decision in Locklin v. Day-Glo Color Corp.,
The rule in this circuit has been that prejudgment interest is not available on judgments for treble damages in federal antitrust cases. Locklin,
It is true that this circuit’s most recent cases have moved away from the position that congressional silence is dispositive on this subject, see, e.g., Myron v. Chicoine,
2. Equitable Relief. Finally, the plaintiffs contend that the district court abused its discretion when it refused to order the defendants to divest the Bulls franchise as an equitable remedy for their illegal conduct. The court properly weighed the potential benefits to IBI against the harm defendants, third parties and the court would experience and decided not to make the award. It found that the expectations of third parties would be hurt, that judicial administration would be too difficult and that the plaintiffs had an adequate remedy in money damages. This determination was not outside the district court’s discretion.
III. CONCLUSION
Because we agree with the district court that the “stadium lease boycott” violated sections 1 and 2 of the Sherman Act, we affirm the judgment with respect to liability only against CPSC, CSC, the estate of Arthur Wirtz, William Wirtz, Albert Adel-man, Lester Crown, Philip Klutznick and James Cook with respect to Counts I and II of the Consolidated Complaint. Because we do not believe that the NBA lobbying formed the basis for any antitrust violation, these activities cannot form the basis of a judgment against these eight defendants with respect to Count VIII.
Because the district court, in its liability opinion, found that Emprise Corporation, Chicago Blackhawks Hockey Team, Inc. and Atlanta Hockey, Inc. were involved in the alleged NBA boycott only and not in the refusal to lease the Chicago Stadium, we reverse the judgment against these three defendants on all counts. For the same reason, the judgment against these three defendants on state law grounds must also be reversed.
The judgment against the estate of Arthur Wirtz and against William Wirtz and Lester Crown insofar as it assesses punitive damages is reversed. The judgment with respect to damages on the antitrust counts and actual damages awarded pursuant to the state law claim is vacated, and the cause remanded for reassessment of these damages in a manner consistent with the principles set forth in this opinion. Circuit Rule 18 shall not apply. The parties shall bear their own costs.
Notes
. In 1966, the NBA awarded an expansion franchise for Chicago to Chicago Basketball. After considering both the Chicago Stadium and the International Amphitheatre, at that time Chicago’s two indoor sports arenas, Chicago Basketball selected the Amphitheatre as the Bulls’ home arena for the 1966-67 season. In January 1967, McCormick Place, Chicago’s convention and exposition facility, burned down. The Am-phitheatre was selected as the replacement site for McCormick’s scheduled events. To facilitate this switch, Arthur Wirtz, at Mayor Daley’s request, took the Bulls as a tenant at the Chicago Stadium. In June 1967, Chicago Basketball and CSC executed a three-year lease agreement. When McCormick Place was not rebuilt by either the 1970-71 or 1971-72 seasons, additional one-year leases were executed.
. IBI was incorporated on June 13, 1972. Its shareholders were to have included Marvin Fishman, Robert Block, A.E. Stanley III, Lloyd Levin, Thomas Nadler, Robert Paliofito, Harold Paliofito and Jonathan Kovler. See infra note 35.
. CPSC was incorporated on May 18, 1972. Its original shareholders were defendants Lester Crown, Philip Klutznick, Arthur Wirtz, James Cook and Albert Adelman and non-defendants Edward Ginsberg, George Steinbrenner III, Arnold Meyer, Lamar Hunt and Jonathan Kovler.
. The governors representing the New York Knicks, Los Angeles Lakers, Washington Bullets, Kansas City Kings and Detroit Pistons voted against the transfer. The Portland Trailblazers were not represented at the meeting. There is some question as to how William Putnam of the Atlanta Hawks voted. Putnam recalled that he voted not to approve but notes from the meeting indicate the opposite.
. Ginsberg spoke with Pollin several times about his group’s interest in acquiring the Bulls. Arthur Wirtz provided NBA Commissioner Kennedy and Pollin with copies of his correspondence with Rich. William Wirtz did the same for Jack Kent Cooke (oWner of the Los Angeles Lakers) and invited Cooke to call him and discuss the matter. William Wirtz also called William Putnam (Atlanta Hawks) and told him that CPSC could obtain a lease at the Chicago Stadium, whereas IBI could not. Arthur Wirtz called Ray Patterson (Houston Rockets) to deliver the same message.
Some of the NBA governors took the initiative. Irish (New York Knicks) and Pollin telephoned Rich and asked what could be done to cause a sale to CPSC. Alan Rothenberg (Los Angeles Lakers) spoke to fellow NBA members to persuade them not to approve the transfer to IBI.
. Defendant Emprise Corporation operates the food and beverage concessions at various arenas throughout the country, including the Chicago Stadium. Defendant Chicago Blackhawk Hockey Team, Inc. owns and operates the Chicago Blackhawks, a National Hockey League ("NHL") franchise; Arthur Wirtz owns a controlling interest in this corporation. As of 1972, defendant Atlanta Hockey, Inc. owned the Atlanta Flames, also an NHL franchise.
Prior to 1979, other defendants in this suit included the NBA; Madison Square Garden Center, Inc.; California Sports, Inc.; Missouri Valley Professional Sports; Texas Sports Investment, Inc.; Atlanta Hawks Basketball, Inc.; Phoenix Professional Basketball; and Capital Bullets, Inc. The last seven were the owners of the seven teams that voted against the transfer of the Bulls to IBI. The claims against these eight “NBA defendants” were the same as those against the defendants here. In December 1978, these defendants settled with the plaintiffs for $750,000 and the claims against them were dismissed.
Finally, Washington Hockey, Ltd. was named as a defendant but was dismissed on its motion for summary judgment in May 1977.
. The complaint also alleged that defendants had monopolized, attempted to monopolize, and conspired to monopolize the market for indoor sports arenas in Chicago and had conspired to restrain trade with respect to indoor sports arenas in Chicago. Consolidated Complaint, Counts III, IV. The district court ruled that plaintiffs lacked standing to bring this claim because there was insufficient evidence that they planned to acquire or build an indoor sports arena in Chicago. Liability Opinion,
. Defendant Atlanta Hockey, Inc. has not appealed to this court.
. The national sports franchise market could be a relevant market under the facts of this case, but this would change the theory of the suit as pleaded by the plaintiffs. If the relevant market were the market for franchises, the charge would be monopsony, that is, that CPSC had made itself the only buyer of basketball franchises in Chicago. But, given the case that the plaintiffs brought, the trial court correctly defined the relevant market.
. As defendants point out, the Court also stated that "[t]he aggregate of towns in Otter Tail’s service area is the geographic market in which Otter Tail competes for the right to serve the towns at retail."
. The dissent states that the “generation of power is highly competitive____" Infra p. 571. The struggle for access to generation owned by third parties other than the local serving utility has been going on for many years with varying degrees of success. A provision for mandatory "wheeling" was rejected in the Federal Power Act amendments of 1935 (S.Rep. 621, 74th Cong., 1st Sess. 19, cited in City of Paris v. Kentucky Utilities Co., 41 FPC 45 (1969)) but was incorporated in a somewhat limited form in the Public Utility Regulatory Policies Act of 1978, Pub.L. No. 95-617, § 203 (codified at 16 U.S.C. 824j (1982)). The regulated structure of the electric utility industry makes it questionable how much generation in adjacent utility serving areas really “competes," although there has certainly been an effort in recent years to further competition.
. As the dissent indicates, infra p. 577, Joseph Schumpeter said that the capitalist process creates a "gale of creative destruction.” J. Schumpeter, Capitalism, Socialism and Democracy 84 (2d ed. 1947). Schumpeter also said, among other things, "... the capitalist process unavoidably attacks the standing ground of the small producer and trader,” id. at 140, and “[t]he capitalist process not only destroys its own institutional framework, but it also creates the conditions for another,” id. at 162.
. The defendants rely heavily on the Court’s approving quotation from R. Bork, The Antitrust Paradox (1978) — that Congress designed the Sherman Act as a “consumer welfare prescription" — in Reiter v. Sonotone Corp.,
. As a matter of fact, the concept that ultimate consumer loss is an essential element of an antitrust claim may have puzzling implications for the application of antitrust principles to industries where prices are pervasively regulated. Retail electric rates, for example, are regulated in most jurisdictions to be "just and reasonable." The law presumes that rate regulation has denied monopoly profits to the electric utility and has precluded any injurious impact on consumers. Yet antitrust principles have been broadly applied to all aspects of the electric utility industry. See Otter Tail,
. The dissent does argue that a merger of two successive monopolists might result in lower consumer prices than would be the case if the monopolies were independently operated. Infra pp. 563-64. Under this theory, which is surely not in the mainstream of the antitrust laws, consumers might be better off if the Bulls and the Stadium were in the same hands. This argument was not brought to the attention of the district court nor was it argued to this court. It was therefore waived. But we will nonetheless attempt to briefly address it. While we do not have the benefit of briefing on the point, we believe that the dissent fails to take into account potential anticompetitive effects which might result if the Bulls and the Stadium were under common control. See IV P. Areeda & D.F. Turner, Antitrust Law If 1011b (1980). Also, even if integration of the successive monopolies in this case would result in lower prices to consumers, the purchase of the Bulls by CPSC did not result in the merger of two monopolists. Instead, after the sale of the franchise to CPSC, the Bulls were in the hands of a group of investors, one of whom was Arthur Wirtz, and the Stadium was controlled by William and Arthur Wirtz. While there was some overlap in the shareholders of CSC and CPSC, it is unrealistic to assume that these two corporations would act as a single monopolist since they were controlled by different sets of investors. Thus, we think the successive monopoly objection is not so simple as it might appear and can be addressed only if it is argued, and a record made on it, in the trial court.
. A patent is not a natural monopoly in the same sense as is a franchise for the provision of electric power at retail — or even a professional sports franchise. The market could accommodate two or more producers of antistatic yarn but — to advance policies wholly divorced from those informing the antitrust laws — an administrative decision is made to confer a temporary monopoly on one producer. A patent monopoly is acquired in an ex parte administrative proceeding without consideration of those factors that might lead a different producer to dominance in the marketplace. Market and competitive concerns are sufficiently foreign to the world of patents that we would consider it ill-advised to recreate the law of antitrust in reliance upon a decision addressing patent fraud.
. The objective economic reality argument is also at odds with the stress the defendants place on Fishman’s asserted belief that the Amphi-theatre was in fact the better site for Bulls games. See Appellants’ Brief at 11-13, 70-73. If the preferences of individuals with the power to grant an NBA franchise are not relevant to this discussion, we do not see how Fishman’s could be.
Whatever Fishman's views at various points (and the evidence was conflicting, with the district court characterizing the defendants’ testimony at points as "lack[ing] in credibility" and "astoundingly unbelieveable”), they were not consensus views and do not seem dispositive of whether the stadium was an "essential facility.” Fishman became very interested in the Chicago Stadium when it became apparent that it was the key to NBA approval. Further, his statements to the NBA about the Amphitheatre after he signed a lease there were an understandable attempt to salvage his position.
. The district court also briefly discussed the § 2 offense of “monopoly leveraging,” although it is unclear whether it intended to distinguish this from the withholding of an essential facility. Defendants argue on appeal that this violation had not been proven because there was no proof that CSC possessed monopoly power in the adjacent arena market. However, the district court did make such a finding, Liability Opinion,
. Contrary to the dissent’s assertion, infra pp. 575-76, this opinion does not reinstitute the Pick-Barth doctrine under which business torts are per se violations of the Sherman Act. We would agree with the dissent that any such result would be uncalled for. Thus, we do not hold here that a conspiracy to commit a business tort results in a per se violation of the antitrust laws. We have affirmed the district court’s finding of a per se violation in this case
Even if we were to agree with the dissent that the § 1 claim in this case should be analyzed under the Rule of Reason, we would still conclude that the defendants' refusal to deal constituted a violation of that section. In applying the Rule of Reason, "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Continental T.V., Inc. v. GTE Sylvania, Inc.,
The dissent also contends that we lack the plurality of actors necessary to find a contract or conspiracy in restraint of trade in violation of § 1. Infra pp. 576-77. While this argument was not raised by the defendants on appeal or, apparently, anywhere else, we will nevertheless address it here. The district court found a conspiracy between CSC and CPSC (which is also referred to by the district court in its opinion as the "Crown-Wirtz group”). Liability Opinion,
And, viewing matters more broadly, a multiplicity of antitrust actors is supported by the disparity of economic interests between the stadium owners and the team owners. Further, this is a case where CPSC is a corporation virtually "in formation,” where the various investors can be seen as actors independent of the corporation itself. This is not some legal fiction of shareholders forming a conspiracy with their corporation; here the corporation was barely emerging from the interactions of the investors, who were certainly real economic actors in their own right. Copperweld eliminated the legal fiction of parent-subsidiary conspiracy as a basis of antitrust liability. It should not .be extended to shelter independent actors having diverse economic interests acting jointly.
. Atlanta Hockey, Inc. did not appeal, and accordingly this opinion does not affect the entry of judgment against it.
. As plaintiffs point out, some cases do not require that the contract in question actually be breached but rather require only, for instance, that performance be rendered impossible, see Bailey v. Meister Brau,
. The dissent takes issue with our conclusion that the defendants’ violation of the federal antitrust laws eliminates their competitors’ privilege. Infra pp. 577-78. While we recognize that there are no Illinois cases which have used the Sherman Act as the basis of tort liability, we do not believe that Illinois case law precludes this result. We have found no cases which indicate that the illegality or wrongfulness of the conduct of a competitor. is to be judged solely by reference to state law.
Also, the defendants’ conduct in this case might well be unlawful under the Illinois antitrust law. IIl.Ann.Stat. ch. 38, para. 60-1 et seq. (Smith-Hurd Supp.1986). This statute contains provisions similar to §§ 1 and 2 of the Sherman Act. See Ill.Ann.Stat. ch. 38, para. 60-3 (Smith-Hurd Supp.1986). While we have found no essential facilities cases decided under the Illinois antitrust law, Illinois courts are required by this statute to “use the construction of the federal [antitrust] law by the federal courts as a guide in construing” the state act “[w]hen the wording of [the state act] is identical or similar to that of a federal antitrust law____” 111.Ann. Stat. ch. 38, para. 60-11 (Smith-Hurd Supp. 1986). This puts a reverse twist on the Erie doctrine. An Illinois court might find that the conduct of the defendants in this case violates the state antitrust law and that the defendants, therefore, are not shielded by the competitor’s privilege. Thus, contrary to the dissent’s assertion, there might be tort liability in this case even without the Sherman Act.
. This section addresses only the damages of plaintiff IBI. Plaintiff Fishman had also sought $318,000 in damages representing his lost salary as IBI’s chief executive officer. Since Fishman, would have had to stop working full-time in real estate to become IBI's chief executive officer and since he had earned more than $318,000 in real estate, the district court ruled that Fishman could collect no damages on his lost salary claim. Fishman has not appealed this ruling.
. The district court decided to count only those benefits directly accruing to CPSC (and thus, hypothetically, to IBI) in its damages calculation. It noted that the individual defendants had enjoyed substantial benefits from: (1) the "ego" satisfaction and publicity inherent in owning a professional sports team; and (2) the significant tax losses that can be passed through to the shareholders of a subchapter S corporation like either CPSC or Chicago Basketball. Neither of these benefits are enjoyed by the corporation itself. See infra note 36.
. Factors making franchises “comparable” included: (1) the size of the home city; (2) the degree of population growth in the home city; (3) the city’s interest in basketball; and (4) whether the franchise was an "expansion" franchise. Damages Opinion,
. Defendants had proposed a method of valuation variously called "stock value” or “cash to seller." Basically, this method would look only at the cash paid for comparable teams, ignoring any assumed liabilities. See Appellants' Brief at 83-86; Appellants’ Reply Brief at 45-47.
. In a motion to amend, plaintiff IBI had challenged the $3.6 million figure for opportunity cost. The district court had assumed that IBI would have used the same pattern of using equity to fund operating losses as CP-SC. Damages Opinion,
. Neither of the other two cases relied upon by the defendants squarely address the issue before us.
. It is not indisputable that CPSC's offer should establish the market value of the Bulls in 1972. CPSC’s control of the Stadium effectively gave it the power to exclude other bidders; therefore, one may not necessarily conclude that the $3.35 million paid by CPSC represents the price which the Bulls could have commanded under the conditions of an unfettered market.
. Cf. Sinclair Refining,
Value for exchange is not the only value known to the law of damages. There are times when heed must be given to value for use, if reparation is to be adequate, [citations omitted]. An imaginary bid by an imaginary buyer, acting upon the information available at the moment of the breach, is not the limit of recovery where the subject of the bargain is an undeveloped patent. Information at such a time might be so scanty and imperfect that the offer would be nominal. The promisee of the patent has less than fair compensation if the criterion of value is the price that he would have received if he had disposed of it at once, irrespective of the value that would have been uncovered if he had kept it as his own.
. The dissent criticizes the yardstick measure because it ostensibly does not recognize distinctions between price gain in basketball teams in general and price gains unique to the Bulls. Infra pp. 579-80. But these distinctions (while perhaps academically defensible) were not argued to us, and we think it unnecessary to address them. In any event, gains in value from price inflation are at least partially offset (and perhaps fully offset) by the higher opportunity costs attributable to inflation which should be offset against the gain in value of the Bulls. See infra section C. 2 at p. 556.
Similarly, the dissent argues that the district . court has ignored any discrepancies due to transfer prices between the Stadium and CPSC. Infra p. 580. This point has not been argued as a ground for error on appeal, and we see no need to address a "problem" which does not appear of record.
The dissent also suggests that the damage award should be adjusted to take into account the increase in value of the Bulls that is due to the entrepreneurial skills possessed by CPSC but not by IBI. Infra p. 580. Again, the defendants did not raise this possible criticism of the damage award before this court, and as the dissent itself suggests, there is no evidence that any of the increased value was due to "extraordinary entrepreneurial gains.”
. While the district court computed the 1982 value of the Bulls by examining the purchase price of "comparable" teams, the use of this method is not incompatible with saying that these teams are not fungible. To compute damages one must use the most comparable figures available and other basketball teams provide such baseline figures, which may be adjusted to take into account, to the extent practicable, the actual experience of the Bulls.
. This is the problem with the defendants’ "stock value” methodology. Taken alone, the cash component of these franchise purchases is as unenlightening as everyone agrees looking only at liabilities assumed would be.
. Unlike liabilities for unearned deferred compensation, differing liabilities for earned deferred compensation can change the value of a franchise. Thus, if the "comparable” five NBA teams had had very small liabilities for earned deferred compensation and if the Bulls had had quite large ones, the district court’s methodology would have led to an overstatement of the Bulls’ net value in 1982. The district court has not addressed this specific problem (and it is questionable whether the defendants raised it there). Since, the determination of damages
. Defendants are at great pains to explain that opportunity cost is entirely different from mitigation of damages. They contend that opportunity cost "is an economic concept which must be utilized to accurately measure gain.” Appellants’ Reply Brief at 51. They are only half right — opportunity cost is a concept that is used to measure relative gain. If someone has earned $100, he does not have only $10 because the next-best investment would have earned him $90: he has $100. And if he loses $100 but could have salvaged his position and lost only $90, it is still true that he has lost $100. Opportunity cost is a "real” but not an "out of pocket" cost. Afram Export Corp.,
The dissent contends that we should consider CPSC’s opportunity cost as critical and not IBI's mitigation efforts. Rather than deducting the profits which IBI could have made in an alternative investment, the dissent argues that we should instead reduce the increase in value of the Bulls, which is the starting point of the district court’s damage calculation, by the imputed cost of CPSC’s equity capital. Essentially, the dissent appears to contend that since IBI did not take the risk associated with an investment in the Bulls, it should not be awarded as damages the return associated with that risk. This approach may not be economically incorrect, but it seems to us to ignore the crucial distinction in law between the wrong-doer and the wronged.
IBI wanted to buy the Bulls and assume the attendant risks, but the defendants’ illegal conduct precluded IBI from taking this particular risk and from reaping the corresponding return. Instead, as the dissent points out, CPSC put its capital at risk and received a return commensurate with the risk-bearing service it supplied. If we were to accept the dissent’s approach and reduce the damages by the value of the risk assumed by CPSC (z.e., the imputed cost of CPSC’s equity investment), IBI’s potential recovery would be drastically reduced or eliminated. Infra p. 581. This result, according to the dissent, would be appropriate because IBI could have invested in some alternative opportunity, as risky as the Bulls, which would have returned a profit in line with that risk. Infra p. 582. Thus, under the dissent’s approach, IBI would really recover no damages but would have instead the profits from its alternative and equivalently risky investment. Under this analysis, in being pushed from an investment it wanted (the Bulls) to a theoretically equivalent investment it may not have wanted, IBI would have suffered no damage. It would be kept whole by another investment as risky as the Bulls. While the dissent’s economic approach is understandable, it seems not to take account of the well-accepted legal concept that undue risk may not be forced on the wronged party, see infra p. 558. While that party may have been willing to accept a particular (and perhaps unique) business risk and opportunity, it may not be required, when wrongfully done out of that investment, to invest immediately in another line of business with its own unique configuration of risks.
. IBI issued its first stock in 1974, when Fish-man caused IBI to issue three shares to himself in preparation for this lawsuit. See Damages Opinion,
. Plaintiffs argue that IBI shareholders were going to put equity into the Bulls, not because they were expecting a great return (3% over prime according to the defendants), but rather because they planned to use the Bulls as a tax shelter. Plaintiffs note that between 1972 and 1975 tax benefits had returned to CPSC’s shareholders almost 70% of their equity investment. They assert that it is unfair to "pierce" the corporate veil to deduct a return on the investors’ uninvested capital yet to ignore the tax benefits those investors lost when they were unable to buy the Bulls. We do not think that this analysis is inequitable. The value of the tax benefits to each of the investors depends on so many factors personal to each investor that we think that it would obviously be very difficult to try to ascertain their "value.” In any event, the district court did not ignore this aspect of the damage problem in its calculations since the value of these tax benefits to an NBA owner is certainly reflected in the market prices of the comparable NBA franchises, which are the bases for the district court’s damages award. A recognized tax shelter will be valued, at least in part, to reflect the tax benefits it makes available.
. We are assuming for the purpose of calculating opportunity cost that IBI’s organizers did in fact invest in that corporation and that IBI then placed these funds in an alternative investment.
. Anent the dissent’s contention that IBI should "cover" its lost purchase, infra pp. 579-80, finding a new investment opportunity for equity investors is certainly not as simple or routine a task as the dissent seems to imply.
. IBI also appealed the district court’s refusal to adopt its proposed judgment order, which would have allowed IBI to execute upon both the federal antitrust treble damages and the Illinois common law punitive damages in such a way that no one defendant would have to pay both types of damages. Because we have reversed the district court’s judgment on punitive damages, we do not have to reach this issue.
. Antitrust Procedural Improvements Act, Pub.L. No. 96-349 (1980) (effective Sept. 12, 1980).
. The plaintiffs make no claim for interest on any amounts prior to May 31, 1982. The need for interest to compensate the plaintiffs fully in this case is not so great as if the damages all occurred as of July 1972 when IBI’s contract to purchase the Bulls was terminated.
. Congress also amended the Clayton Act to permit the government to recover prejudgment interest when it prevails in antitrust suits. 15 U.S.C. § 15a (1982). In contrast to section 15(a), a court can award the government prejudgment interest, not only when the other party engages in delaying tactics, but also when it is necessary to “compensate the United States adequately for the injury sustained____" 15 U.S.C. § 15a(4) (1982). Therefore, although Congress was well aware of the policy of allowing prejudgment interest to make a plaintiff whole, it chose not to give courts the authority to consider this policy in the context of awarding prejudgment interest to the private antitrust plaintiff.
. We agree with the defendants and the dissent that the Supreme Court suggested in General Motors Corp. v. Devex,
. The district court also entered judgment in favor of plaintiffs and against all defendants on Count III (restraint of trade in indoor sports arena market) and Counts V and VI (monopolization of market for professional winter sports in Chicago and restraint of trade in that market). We must reverse these as not consistent with the district court’s findings of liability. It found that plaintiffs lacked standing to allege antitrust violations in the arena market (Count III) and never mentioned Counts V and VI at all.
Dissenting Opinion
In 1972 Chicago had one professional basketball team, playing at the Stadium. In 1973 Chicago had one professional basketball team, playing at the Stadium. The district court found the team to be a natural monopoly and the Stadium to be an “essential facility”, so no matter who owned the Bulls, Chicago was doomed to have one professional basketball team, playing at the Stadium. The change of ownership in July 1972 did not alter the structure of the market or the potential for new entry. It did not reduce the quantity produced, increase the price charged, or affect the quality supplied. There is no claim of consumers’ injury, actual or potential, now or in the future. For their role in this non-event, the defendants have been ordered to pay more than $12 million under the Sherman Act.
I
Although consumers, the beneficiaries of the antitrust laws, did not lose from the transfer to CPSC rather than IBI, they may have gained. On the district court’s findings, the Bulls and the Stadium are monopolies. One is a supplier to the other. (The Bulls supply fans to the Stadium or the Stadium supplies an arena to the Bulls; it doesn’t matter which.) When two monopolists stand in succession on the way to the final product, each may try to charge a monopoly price. If each does so, the final price to the consumers will exceed even the price a single, rational monopolist would charge. The first monopoly price in the chain will present the other firm with a higher cost of doing business. The second firm then will try to monopolize the market, but because his cost of doing business is higher, his monopoly price to the consumer also will be higher. The final price to the consumer is higher, and output lower, than it would be if a single firm operated both stages of production. A merger of the two monopolists therefore makes consumers better off. See IV Philip Areeda & Donald F. Turner, Antitrust Law ¶ 1012b (1980); Roger D. Blair & David L. Kaserman, Law and Economics of Vertical Integration and Control 31-36 (1983); Robert H. Bork, The Antitrust Paradox 230 n.* (1978); F.M. Scherer, Industrial Market Structure and Economic Performance 300-02 (2d ed. 1981); Frederick R. Warren-Boulton, Vertical Control of Markets 51-63, 80-82 n. 1 (1978). Propositions about the economics of mergers often are filled with ifs and maybes; competing schools of thought produce different prescriptions. That successive monopolies injure consumers is a proposition on which there is unanimous agreement.
The two monopolists might be able to work things out by contract so that they do not try to collect two monopoly profits. But such contracts may be hard to negotiate and enforce as conditions of demand change. Any change will create opportunities for one party to take advantage of the other, and in the process injure consumers. Vertical integration is an especially durable and flexible long-term contract, and it takes care of the problem of successive monopolies. Cf. Oliver E. Williamson, Markets and Hierarchies 104-05 (1975) (integration is beneficial when parties have long-term relations that create opportunities for exploitation); Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & Econ. 297 (1978).
So long as the Stadium was in a position to charge the Bulls a monopoly price, the consumers might have been injured not only by double monopoly pricing but also by receiving lower quality. The owner of the Bulls had less reason to improve the team’s standing if the Stadium could capture the benefits through higher rent.
Ownership by CPSC rather than IBI also made the NBA happy, which implies benefits to the league as a whole (and thus consumers of basketball throughout the nation). The source of benefits to the league
II
Let us now suppose, however, that consumers are indifferent between IBI and CPSC as owners of the Bulls. That is the assumption most favorable to IBI. It may be forced on us by the defendants’ failure to articulate in the district court, or here, the potential efficiencies I have discussed. Still, IBI did not argue, and the district court did not find, that there is any potential injury to consumers. This silence all around marks the case for what it is — a spat among business rivals, in which consumers have no real interest. Litigation isn’t basketball. There is no overtime, and ties go to the defendant.
If Rich had accepted CPSC’s offer of June 13,1972, everything would have come out the same way it did — CPSC would have had the team, IBI would have lost profits, the Bulls and the Stadium would have been in common control. My brethren think this would have been lawful. So, too, if the NBA had turned down IBI on its own and CPSC had prevailed by default, this would have been lawful. Their objection is to CPSC’s tactics in corralling the Bulls. Yet the choice of tactics had no effect on consumers. Antitrust law condemns results harmful to consumers; it condemns bad means to the extent they have a tendency to bad results. Bad means that injure only business rivals — that is to say, business torts — are outside the scope of antitrust law. The Sherman Act “does not purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.” Hunt v. Crumboch,
The Supreme Court has dealt with business torts several times, and in each the possibility that the wrong might injure consumers was a linchpin. For example, in Lorain Journal Co. v. United States,
Antitrust is about competition, and the majority concludes that CPSC “succeeded in driving out all competition for ownership of the Bulls” (maj. op. 536). At the end of the bidding, only CPSC was in the running. But at the end of any bidding only one contestant remains. Should we say that Rich’s contract with IBI on June 14 “[drove] out all competition for the Bulls”? Or should we say that the contract was a result of competition, and that CPSC’s sin was that when Rich wanted to end the competition CPSC wouldn’t say die? How did CPSC’s strategy cut off competition, when the problem (as IBI perceived it) was that competition continued uncomfortably long? At the end of the process in July 1972, Rich got an extra $50,000, the NBA got an owner it preferred, and the fans of the Bulls had the same basketball team.
The problem is one of characterization. Almost any contract can be characterized either as the outcome of competition or as a reduction in competition. Tampa Electric Co. signs a 20-year exclusive contract for coal. Does this “drive off all competition” from excluded suppliers for the next 20 years, or is the contract the outcome of a competitive process? GTE Sylvania gives its dealer an exclusive territory, forbidding competition from other dealers. Is this a competitive move against Zenith or is it an extinguishment of competition among dealers? Ford Motor Co. signs a long-term contract for shipment of its cars to dealers, and then replaces one motor carrier with another. Is the contract (and the replacement) the extinguishment or the outcome of competition? We held in Car Carriers, Inc. v. Ford Motor Co.,
“[T]he legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence.” Chicago Board of Trade v. United States,
Does the “suppression” at hand create the sort of injury about which antitrust laws are concerned? Suppose IBI and
The majority’s answer is that injury (at least a potential for injury) to consumers is not an essential ingredient of an antitrust case. The Supreme Court and this court have said that it is, however. E.g., Associated General Contractors v. Carpenters,
squabble does not threaten consumers’ welfare even remotely. If [the plaintiff] thinks he is wronged he must look to state law for his remedy.”); Havoco of America, Ltd. v. Shell Oil Co.,
Granted, each case is a little different from ours. One involved standing (Reit
1. Zenith Radio Corp. complained that it was being oppressed by a conspiracy to charge low prices, which would drive it out of the market. The Supreme Court held that injury to Zenith was irrelevant unless Zenith could show that it was harmed by something that also harmed consumers. Because Zenith could not show this, the Court strongly suggested the grant of summary judgment against Zenith. Mat-sushita Electric Industrial Co. v. Zenith Radio Corp., — U.S.-,
2. Pacific Stationery and Printing Co. was expelled from a cooperative buying group. The boycott injured Pacific, which lost access to discounts. The expulsion “was certainly a restraint of trade”. Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co.,
3. Edwin G. Hyde was not allowed to provide anesthesia to his patients at East Jefferson General Hospital, because the Hospital had given an exclusive contract to competing anesthesiologists. The Court ignored the injury to Hyde and asked whether the arrangement could injure consumers, “whose interests the statute was especially designed to serve”, by tying anesthesia to other medical services. Jefferson Parish Hospital District No. 2 v. Hyde,
4. Pueblo Bowl-O-Mat, Inc., lost business because Brunswick Corp. acquired bowling emporia. The district court found that Pueblo suffered substantial injury in fact when business was diverted to Brunswick, apparently at lower prices. The Supreme Court assumed that this injury flowed directly from a violation of the Clayton Act — Brunswick should not have acquired the lanes, because the market was already concentrated, and Brunswick held a substantial market share. It held Pueblo’s injury irrelevant, because if Pueblo suffered consumers gained. Unless Pueblo could show that it was injured by something that was also deleterious to consumers, it could not recover. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
5. The principle behind these cases is that to know whether a given restraint is an antitrust problem we must identify the potential effects of that restraint on consumers’ welfare and allocative efficiency. So whether the NCAA may dominate the televising of college football depends on whether the exclusive contract potentially injures viewers of football, not on whether it injures colleges that want to telecast their games. NCAA v. Board of Regents,
The majority claims that no case requires “a plaintiff to isolate and demonstrate the consumer impact of a particular purported antitrust violation not directed at the consumer level.” Maj. op. at 536, note omitted. The cases I have discussed so far fill the bill. The defendants in Hyde restricted the opportunities of anesthesiologists; the Court required the plaintiff to show how his exclusion injured consumers. The defendant in GTE Sylvania cut off plaintiff from an opportunity to compete; the Court required the plaintiff to show how his exclusion injured consumers. The other cases follow the same pattern. These many cases also show the error of the majority’s proposition, maj. op. at 537, that “the Court has never given us to believe that anything save unfettered competition is the key to consumer well-being.” What is GTE Sylvania, BMI, Hyde, or any merger case about? See also Rothery Storage,
6. Liability in antitrust law almost always requires proof of market power. This is because market power is an essential ingredient of injury to consumers. Market power means the ability to injure consumers by curtailing output and raising price; no possible injury, no market power; no market power, no violation; injury to consumers is therefore an essential ingredient of liability. The Supreme Court, this court, and commentators all agree that market power must be identified from the perspective of consumers. This is what the Court did in NCAA,
The market definition in this case shows why you can’t pick a market without knowing the purpose of the choice. The court has defined a market of professional basketball in Chicago. This is a plausible market, if the question is whether anything injured consumers. It looks at demand elasticity (can fans travel to Milwaukee? switch allegiance from basketball to hockey or opera?) and at supply elasticity (can new teams sell their product if the Bulls cut back output? can TV pipe other NBA games into Chicago?). Defining the market in this way shows that if the Stadium had contrived to prevent the startup of a second basketball team — as the stadium in Hecht v. Pro-Football, Inc.,
If, instead, we seek to learn whether CPSC harmed competition for a sports
7. This court has held, in a case identical to ours in every material way, that when one entrepreneur wrests a monopoly from another by foul means, the antitrust laws do not supply a remedy. It held this, moreover, on the ground my brethren reject: that only injury to consumers violates the antitrust laws. In Brunswick Corp. v. Riegel Textile Corp.,
The majority distinguishes Brunswick v. Riegel on two grounds: that it involved patents and that Brunswick and Riegel were not “competing” for the patent monopoly. The former is irrelevant to the theory of decision in the case. The patent was the source of the market power, as here a natural monopoly is said to be the source of the market power. The source matters not to the question whether the antitrust laws govern the process by which market power passes from Firm A to Firm B.
8. Other cases in this circuit almost without exception say that the purpose of antitrust is to protect consumers’ welfare and its close relative economic efficiency. E. g., Morrison v. Murray Biscuit Co.,
9. The foremost scholars of antitrust agree that the laws are designed for the benefit of consumers and should not be used to advance any other interest. I Ar-eeda & Turner at 1ÍU 103-13; Bork at 50-89; Richard A. Posner, Antitrust Law: An Economic Perspective 18-20 (1976). The appropriate goals of antitrust law have been subject to great debate. But the competing approach identifies political goals such as preventing a great increase in aggregate concentration. E.g., Robert Pi-tofsky, The Political Content of Antitrust, 127 U.Pa.L.Rev. 1051 (1979). These additional objectives do not require fetching humdrum business torts within the reach of antitrust, as my colleagues would do. And other circuits, following the Supreme Court, have embraced the economic approach to antitrust. See the cases cited at 566. Take, for example, the many cases holding that injury to a business competitor is irrelevant in the absence of injury to the market (which means market structure or consumers’ welfare). E.g., Ralph C. Wilson Industries, Inc. v. Chronicle Broadcasting Co.,
Ill
These nine items are but a quick tour through the structure of antitrust. A constellation of doctrines shows that consumers’ welfare is the point of antitrust, and that we ask whether a given arrangement is the “suppression of competition” — as op
I confine my attention to five essential facility cases, which show the nature and limits of the doctrine: Otter Tail Power Co. v. United States,
In Otter Tail a firm with a monopoly of the nearby facilities for the long-distance transmission of electricity refused to wheel power over its lines. “Wheeling” is the receipt of power from Generator A, transmission over the lines of Firm B, for delivery to Consumer C. Otter Tail generated power and also sold power at retail in 465 towns. Four towns, including Elbow Lake, wanted to get into the retailing business. Elbow Lake tried to buy electricity from other firms, which were willing to sell if Otter Tail would wheel the power to Elbow Lake. Otter Tail refused to wheel; it also refused to sell its own power to Elbow Lake. The Court held this violated the Sherman Act, and it is easy to see why. There were three markets: the market in generation of power, the market in transmission, and the market in retail distribution (like manufacturing, wholesaling, and retailing). Otter Tail held a monopoly of transmission (wholesaling). But generation of power is highly competitive, and many generating firms put their power on the nationwide grid of transmission lines owned by the many electric utilities. Elbow Lake wanted to shop among the generating firms for the best price. Elbow Lake also may have been hoping that it could distribute power at retail for less than Otter Tail’s costs. Otter Tail’s refusal to wheel power prevented Elbow Lake from shopping, and thereby had the potential to raise the prices to Elbow Lake’s consumers. Otter Tail is not a case in which a violation was found despite the absence of injury to consumers; injury was very likely. Otter Tail’s transmission prices were regulated; to make a monopoly profit it needed to seize control of an unregulated market, which it did. Otter Tail used its bottleneck to prevent Elbow Lake from receiving the benefit of ongoing competition at the generating level. So in Olympia, 797 F’2d at 376-77, in summarizing the point of the essential facility cases, we said it would be a violation for Western Union to cut off telex service to customers that buy from rival vendors of equipment: the equipment market is competitive, unless a firm uses its bottleneck to stamp out that competition. In our case, however, neither the stadium business nor the pro basketball business in Chicago would be competitive but for the denial of access to the Stadium.
Mishawaka is almost the reverse of Otter Tail. Mishawaka was in the distribution business, buying power from American Electric, another regulated firm searching for an unregulated monopoly. As a retailer, Mishawaka was in a position to shop
The effect on consumers in Hecht is even clearer. Washington, D.C., had one pro football team, playing at Kennedy Stadium. A new pro football league proposed to operate a second team in D.C. The existing team and the stadium authority froze the new team out. The result: a city that had an opportunity to have two teams ended up with one. This is a suppression of horizontal competition. Consumers lost out. So too if IBI had wanted to lease the Stadium for a team of the American Basketball Association or the World Hockey League, in either event doubling the number of competitors. Nothing remotely like this happened in Chicago. There was and will be only one professional basketball team, the district court found. Fishman and IBI didn’t want to break up a monopoly (as the plaintiffs did in Hecht); they wanted to be the monopoly.
Omega is a different animal altogether. It involved cable TV, and the court assumed that the operation of a cable system is a natural monopoly in any area. The question was whether (the state action doctrine to one side) a city in cahoots with potential rivals could stifle any competition among operators of a cable system. The opinion, written by the author of Brunswick v. Riegel, contains a line on which the majority relies: “the antitrust laws protect competition not only in, but for, the market — that is, competition to be the firm to enjoy a natural monopoly”.
Finally there is Union Leader. Two newspapers were slugging it out for what the court assumed was the inevitable survival of one. It is not really an essential facilities case. Some language in the opinion suggests that in battling for survival firms may use only “honestly industrial” practices. This hoary notion, taken from Learned Hand’s opinion in United States v. Aluminum Co. of America,
There is, of course, another possibility: that a market with two firms is not a natural monopoly. The only way to tell whether a market is a natural monopoly is to see whether two firms can survive in it. Judges cannot readily compute cost functions. As a result, they ought not to abrogate antitrust rules just because one party cries “natural monopoly.” In Union Leader the market had two newspapers, and it is a good idea to use antitrust to protect that market structure, which aids consumers. Maybe the market could sustain competition over the long haul. This was also a possibility in Omega; the excluded competitor wanted to use a technology that required less wiring, and two technologies may coexist (or the excluded technology may prove to be superior). Application of the antitrust laws will let the customers choose. Here, however, there was and is only one pro basketball team; there was no rivalry to preserve for consumers’ benefit.
The cases I have examined, and the rest of the essential facility cases, fall into one of two categories: use of antitrust to preserve horizontal competition at a level other than the bottleneck (Otter Tail and Hecht) or the use of antitrust to preserve competition for the market (Omega and Union Leader). In each category, consumers’ interests are at stake. Here they are not. It is as if Rich and CPSC had blocking patents. CPSC could buy from Rich without offering its patent to IBI, although that would “exclude” IBI and make CPSC’s acquisition inevitable. So here; the essential facility doctrine is irrelevant.
My colleagues respond to this treatment of Otter Tail and the other essential facility cases that the opinions did not themselves draw the distinctions I have emphasized. True enough, but not important. A study of the majority opinion for four Justices in Otter Tail will not reveal the Court’s reason; it gave only a result. As my brethren emphasize, the majority did not reply to the dissent.
As for Union Leader and the other appellate cases, I am as guilty of trying to rationalize them as I am of rationalizing Otter Tail. But I had supposed that this is one of a judge’s principal jobs. The holdings of decisions are more important than their language, especially for decisions such as Union Leader. When that case was decided in 1960, the premises being articulated by the Supreme Court were different from those in use today. “Opinion about the offense of monopolization has undergone an evolution.” Olympia,
For what it is worth, I doubt that the Stadium was an essential facility in 1972. All of the essential facility cases involve natural monopolies. The least-cost way to serve all demand was with a single stadium (Hecht) or transmission grid {Otter Tail, Mishawaka, and Omega). If the antitrust laws allowed the owner of the facility to turn away users, there would be an incentive to wasteful duplication. Monopoly profits serve as a lure; the result would be inefficient. See Hecht,
We know that the market for large indoor arenas in Chicago is not a natural monopoly. The Rosemont Horizon, built after 1972, is packed with basketball and hockey games (including college and high school), concerts, circuses, rodeos, ice shows, tennis tournaments, track meets, indoor soccer, and other events. Fishman could have built the Horizon or contracted to be its prime tenant. The majority’s observation (maj. op. at 540) that $19 million is a lot of money, more than the initial cost of the Bulls (though certainly not more than the ongoing cost of running the Bulls) is irrelevant; a new arena would have had more tenants than the Bulls. The observation is like saying that if DeLorean wants to build only 1,000 cars a year, it is “uneconomic” to build a new plant, and therefore General Motors must build DeLorean’s cars for him. Antitrust law requires nothing of the sort. A stadium is the place in
Too, in 1972 the Stadium was in competition with the International Amphitheatre. The Amphitheatre was IBI’s first choice. That is where the Bulls played until forced (by the burning of McCormick Place) to move to the Stadium. Fishman testified that he thought the Amphitheatre “as good a place or better” than the Stadium. Fish-man leased the Amphitheatre without asking the Stadium for terms. Had CPSC crawled into a hole as soon as IBI and Rich signed the contract, IBI would have acquired the Bulls and played the 1972-73 season at the Amphitheatre. The Stadium became “essential” only after CPSC convinced six or seven owners of NBA teams, a minority, that the Stadium was preferable. According to the district court, the Stadium became “essential” as soon as a blocking minority within the NBA insisted on it. CPSC’s strategy backfired; their lobbying to get the team — lawful lobbying, my colleagues say — turned the Stadium into an essential facility. This is not an economic definition of “essential”; it does not even show that the Stadium was preferable (a majority of the NBA’s owners voted to take IBI and the Amphitheatre). This is a political rather than an economic definition, which undermines the court’s own holding that lobbying to a league is permissible.
IV
The majority concludes that there is a per se violation of § 1 as well as a violation of § 2. If the conduct really is illegal per se, the court’s discussion about market power and anticompetitive consequences becomes a sidelight, for a per se theory dispenses with such things. On a per se approach, a whole category of conduct— here, failure to help one’s rival — becomes illegal. The § 1 claim in the district court was based on a conspiracy among NBA owners, as well as a conspiracy between CPSC and the NBA. The court today holds that the NBA’s acts were lawful. That should doom the § 1 theory.
My colleagues say that the failure to lease the Stadium is a per se violation because “there was no arguable procom-petitive justification” (maj. op. 541) for the failure to lease the Stadium. The defendants did not articulate a justification, but Part I of this opinion establishes one. This justification is more than “arguable”; it has the unanimous support of scholars. My colleagues’ position amounts to saying that whenever a plaintiff brings an antitrust suit, defendants who cannot justify their conduct automatically lose. Quite the contrary, the plaintiff has the burden of showing that the conduct is harmful. In the event of equipoise the defendant wins. The per se rule, in contrast, is reserved for activities that “always or almost always tend to restrict competition and decrease output”, BMI v. CBS,
The per se holding in this case is a throwback to the Pick-Barth doctrine. See Albert Pick-Barth Co. v. Mitchell Woodbury Co.,
The majority’s implicit answer is that ours is a “conspiracy” to commit a business tort. It is not clear why the “conspiracy” should change the analysis here any more than in Indiana Federation of Dentists and Northwest Wholesale Stationers, both of which involved horizontal agreements. My colleagues do not view the agreement among several actors as the reason why the withholding of the lease became anti-competitive; in the majority’s view, the acts would be equally anticompetitive if CPSC were the only actor. So the majority’s approach amounts to saying that whenever a plurality of actors do something that is evaluated under the Rule of Reason if done by one actor, then per se analysis applies. The court does not cite any case for this proposition, and in light of Indiana Federation of Dentists, Northwest Wholesale Stationers, and other recent cases it is untenable. E.g., Marrese v. American Academy of Orthopaedic Surgeons,
There is a further problem, independently dispositive. A § 1 conspiracy requires a plurality of actors. My colleagues conclude that CPSC and the Chicago Stadium Corp. (CSC) are the conspirators. Slip op. 35 n. 19. Yet the substantive theory of liability is that these two are “the same”— that they have a single interest, which is why CSC had to offer the Stadium to IBI. If CPSC and CSC were distinct, there could be no objection to CSC’s choice of lessee. This case therefore comes within the principle of Copperweld Corp. v. Independence Tube Corp.,
Copperweld holds that a firm cannot conspire with its subsidiary. CPSC is not a subsidiary of CSC, but they have common investors and are under common control. Copperweld dealt with a wholly-owned subsidiary, but its rationale is that § 1 should be applied only to those agreements that bring formerly independent economic actors into a common plan.
Ultimately this case is about the definition of competition. Does competition mean moment-to-moment rivalry, or is competition instead a process that produces benefits for consumers? See Bork at 58-61. My colleagues fix on competition as rivalry to buy the team, without asking whether this rivalry has anything to do with price and output in an appropriate market. The market the court defines is pro basketball in Chicago; price and output there are unaffected.
My brethren want rivalry to be “fair”. CPSC should have taken no for an answer on June 14. Who says that competition is supposed to be fair, that we judge the behavior of the marketplace by the ethics of the courtroom? Real competition is bruising rivalry, in which people go out of business under intense pressure. See Mat-sushita,
Claims that competition should be “fair” are the staples of trade associations, which plead with their members not to harm (meaning, compete against) their fellow businessmen. Everyone has a family to support; let us be peaceful rivals. This is the siren song of the cartel. Real competition is dastardly. “Unfair” competition is still competition, too ruthless for someone’s sensibilities. When economic pressure must give way to fair conduct, as the court today holds it must, rivals will trim their sails. Fair competition is tempered competition. To say that conduct is unlawful because it bruised a rival producer — even though it did not hurt and probably helped consumers — is to put the Blue Eagle of the National Recovery Administration on the banner of the Sherman Act. It is to turn antitrust law on its head.
V
The court reverses most of the awards based on state law, and it eliminates punitive damages. I concur with these decisions. What remain are awards of actual damages against the non-NBA defendants under the tort of interference with prospective economic advantage. My colleagues recognize that competition is privileged, which is why low prices are not tortious. But it concludes that a violation of the antitrust laws eliminates the competitive privilege. Thus the violation of the Sherman Act is the basis of the award of damages under state law.
Usually things work the other way ’round. Courts take business torts as the fount of antitrust liability. Here, in contrast, my colleagues conclude that but for the violation of the Sherman Act there would be no tort. I have not found a case in Illinois or any other state that used the Sherman Act as a basis of tort liability. Piggybacking in this fashion serves no purpose. Damages are trebled under the Sherman Act, and the tort award is not cumulative. From one perspective, who cares? From another, why would we expect Illinois law to provide duplicative awards of Vs of the federal award?
More, the antitrust violation here is a failure to lease the Stadium to IBI. In Illinois, as in other states, each firm is privileged to refuse to help its rivals. Liability on account of failure to assist a business rival is unheard of, yet that is the foundation of liability here, and it is a bad idea for the reasons explored in Olympia,
VI
When an antitrust violation knocks a firm out of a market, its remedy is the profit it lost. E.g., Zenith Radio Corp. v. Hazeltine Research, Inc.,
When an antitrust violation forces a going concern out of the market, there are at least three kinds of loss. The entrepreneur loses the opportunity to make the best use of his skills. The firm loses the value of its sunk assets — the difference between the value of the assets to a going business and their value if put to some new employment. The firm also loses the full value of its assets for the time it takes to get into the new line of business. If the calculation is done right, these will sum up to the lost profit the firm experiences. There may be other losses, such as the lost opportunity to earn monopoly profits, but these are not compensable. See Brunswick v. Pueblo and Local Beauty v. LaMaur.
A firm that is prevented from purchasing productive assets has none of the usual losses. The entrepreneur can go on to other things. If these are equally remunerative, he loses nothing. The district court found that Fishman made more money running a real estate business than he would have made as president of the Bulls. He therefore suffered no loss and did not appeal on this score. IBI had neither sunk assets nor a period in which assets stood idle.
The most one can say is that IBI lost an opportunity to buy an asset. That imposes loss only if the price of the asset was a bargain. It is a bargain if the discounted expected cash flows from owning the team, after paying all costs, exceed the capital value of $3.3 million in 1972. It should not make any difference whether we look directly for a bargain or compute (and discount) the cash flows; the result is the same, and the process is identical to the one used to generate awards in tort cases. See Jones & Laughlin Steel Corp. v. Pfeifer,
The problem is that IBI isn’t an ordinary entrant. In most frustrated-entry cases, the putative entrant planned to buy some widely-sold items at their market price and go into business. A would-be maker of widgets rents a plant, buys the parts, hires labor, and sets to work. IBI, however, did not plan to make or build a basketball team. It wanted to buy an existing team. To buy, IBI had to compensate Rich for the expected profits Rich was giving up. Un
Rich put the Bulls up for bid. He attracted three bids around $3.3 million. The value of a thing is what people will pay for it. There is no hint that IBI viewed the Bulls as a bargain at $3.3 million. If IBI could have turned around and sold the Bulls in 1972 for $5 million, then its damages would have been $1.7 million, tripled, plus interest (see Part VII below). But there was no visible bargain element, no reason why Rich would have sold the team for less than it was worth. This was not an “unusually successful investment” (maj. op. at 553). The surprise is that the team fetched $3.3 million. If the Stadium was really an essential facility, then it had the power to extract all the profits in the market by charging a monopoly rent, leaving the owner of the Bulls with little or nothing. A legal monopolist may charge what the traffic will bear. Berkey Photo, Inc. v. Eastman Kodak Co.,
My brethren reply that recoveries ought to be based on actual rather than hypothetical calculations (maj. op. at 552). Now actual calculations are much better than hypothetical ones, but a calculation based on actual bids is an actual number. Bids on the table establish the value of a lost business opportunity. As in condemnation cases proof of offers by willing buyers trumps calculations based on cash flows, cf. In re Chicago, M. St.P. & P. R.R.,
The award of lost profits here is based on the proposition that CPSC’s gain is IBI’s loss. All the “profits” refer to CPSC’s operating results. There would be an identity of gain and loss if CPSC’s costs of doing business were computed accurately and subtracted from the cash flows, and if all elements of value attributable to CPSC’s efforts were stripped from the computation. They have not been, however, and there lies the difference in the valuations produced by the two processes. There are several principal sources of differences.
1. Suppose the whole NBA did better than people expected in 1972. Then the owner of the Bulls would realize profits; the price of $3.3 million would turn out to be a bargain. There is some evidence of this in the prices of comparable franchises, which increased through the decade of the 1970s. This, however, is a gain to CPSC
2. Suppose the Bulls did better than the rest of the league. In that event we must determine why. If the difference is random, or caused by factors peculiar to Chicago, then CPSC’s gain does match IBI’s loss. But if the abnormal team-specific gain came from entrepreneurial efforts of CPSC, then there is no match. IBI might not have produced these gains. CPSC, its owners and employees are entitled to compensation for their efforts; this includes compensation for extraordinary entrepreneurial gains, just as it includes hourly wages for floor sweepers. CPSC is entitled to keep any gains of this sort (although there do not appear to be any).
3. Suppose the Bulls appeared profitable because of bookkeeping transfers. Because CPSC and the Stadium were under common control, the Stadium had no incentive to drive hard bargains for rental. It made no difference whether the money appeared on CPSC’s books or the Stadium’s. (This is not quite right because the ownership of the two differed somewhat, but the principle holds nonetheless.) A lower rent means higher "profits” for the Bulls. But again CPSC’s gain is not IBI’s loss. If IBI had owned the team, the Stadium would have bargained with it at arms’ length. CPSC or the Stadium is entitled to keep any “profit” that appeared on CPSC’s books because of a rent lower than the maximum the Stadium could have negotiated.
4. Suppose the accounting profit on the Bulls’ books includes items that are real costs of doing business — costs IBI also would have borne. This is what the “opportunity cost” and interest rate calculations are about. Capital must be hired, just like labor or any other input. It may be hired on the market (borrowed) or hired out of other uses the investors have (diverted). If CPSC had hired capital at 15% interest from a bank, the interest would have been an explicit cost of doing business. So if in 1975 CPSC had $10 million of a bank’s money in use, it would have paid $1.5 million in return. This would have been subtracted from its income before a computation of profits.
What actually happened is that CPSC’s investors supplied most of the money. They want to pay themselves for this money at the rate lenders charged for risky, arms’ length investments. This is how “opportunity cost” has been used — the amount of the Bulls’ income that is assigned as the “cost of capital” and subtracted from profits. If the investors had $10 million in the Bulls in 1975, they say, they are entitled to 15 or 20% return. The district court, on the other hand, allowed them only the rate of interest the United States was paying on Treasury Bills at the time. This risk-free rate was much lower than the rate paid to investors in high-risk businesses. So to keep the figures simple, in 1975 the district court allowed only $500,000 as the cost of capital, while CPSC says the allowance should have been $1.5 million. The differ
The district court’s choice of rate was mistaken. The rate allowed to CPSC’s investors should be almost the same rate that a bank would have charged to CPSC. Any supplier of capital is entitled to compensation, and the Bulls’ full cost of capital must appear in the damages calculations as a subtraction.
If CPSC had hired all of its capital from banks or outside investors, the rate would have been very high. CPSC suggests a rate of prime plus 3%, which seems favorable to the plaintiffs. Sports teams are risky ventures. Part of their value lies in publicity for the owners and tax advantages. These elements of value cannot be used to secure the loan, so the outside investors must charge a higher rate to compensate. Banks might accept lower rates if the investors guarantee the loan with their other assets (as investors in both groups did), but the guarantee has opportunity costs of its own because assets used to secure this loan cannot be used to finance some other venture. Because the use of personal assets creates an opportunity cost that offsets the reduction in the rate of interest, the correct rate is the one the bank will charge without personal guarantees.
To put this somewhat differently, CPSC’s owners supplied a service, much as labor is a service: risk-bearing. They are entitled to be paid for this service, which means that the value of the risk-bearing must be subtracted from CPSC’s accounting profits. Gains resulting from defendants’ efforts always are subtracted in computing lost profits. Siebel v. Scott, 725 F.2d 995, 1002 (5th Cir.), cert. denied,
Had IBI owned the Bulls, it would have supplied the risk-bearing service for itself. It did not, and it did not lose anything as a result. Payment for bearing risk is not a profit of any sort. It is simply a cost of
My colleagues say that the district court on remand should “err on the side of conservatism” (maj. op. 559) because it is not appropriate to demand that IBI take substantial risks to mitigate its damages. This is where the choice between capital as a cost to CPSC and as an opportunity for IBI to reinvest has its bite. I agree with my colleagues that if this is a problem in “mitigation” the district court should be conservative. A disappointed bidder need not mitigate by taking risks greater than those it had planned to take if it purchased the assets. But it is not a problem in mitigation. We are simply trying to calculate CPSC’s true “profits,” net of its full costs of doing business. IBI gets the profits, trebled. The opportunity cost is a real cost. It is the largest difference between CPSC’s gain and IBI’s loss.
To sum up: The right way to compute damages is to determine the bargain element, if there was one, of which IBI was deprived in 1972. There was none, so there should be no damages. If damages are to be computed from discounting cash flows, however, the calculation of the flows should use as the cost the interest CPSC would have paid, without guarantees, for all of its capital.
VII
The principle that we should compute damages to take account of the opportunity cost of money cuts both ways. It helps CPSC by requiring the use of a risky rate. It helps IBI by requiring the award of prejudgment interest. IBI was injured in 1972 (if we use a capitalization method) or throughout 1972-82 (if we use the district court’s method of computing profits lost year by year). In either event, a dollar paid in 1986 does not make up for a dollar lost in 1972 or 1982. “In the typical case an award of prejudgment interest is necessary to ensure that the [victim] is placed in as good a position as he would have been in” had the defendant complied with the law. General Motors Corp. v. Devex Corp.,
Sixteen years ago we analyzed the problem as follows: “Interest is not enumerated as a recoverable item in the statute, 15 U.S.C. § 15. Recovery of it is therefore precluded.” Locklin v. Day-Glo Color Corp.,
The majority’s principal response relies on an amendment to the Clayton Act effective for cases filed after September 12, 1980. Section 4(a), 15 U.S.C. § 15(a), now provides that a district court should award interest on actual damages when the award is “just in the circumstances” and lists three things that the judge must consider to decide whether an award is “just”. This case was filed in 1974, so the statute does not apply. I appreciate my colleagues’ point that we could not sensibly award interest exceeding that allowed under § 4(a). Congress decided to withhold interest on amounts exceeding actual damages, interest that accrued before the complaint was filed, and interest that is not “just in the circumstances” (as defined by the criteria listed in the statute). A court construing a silent statute ought not read into the law a rule of decision that Congress has rejected. We therefore cannot accept IBI’s argument that it is entitled to interest on the whole sum from the beginning.
Section 4(a) does not preclude an award on actual damages starting in 1974, however, or on treble damages starting in 1982, when the district court made its decision on the merits. My colleagues’ reading of the 1980 amendment as forbidding an award of interest in cases filed before September 12, 1980, has no support. Certainly some members of Congress assumed that interest was unavailable; that assumption reflects an accurate reading of existing cases and is one reason why Congress passed a statute to provide for interest. Legislators’ assumptions about the meaning of antitrust law do not govern, however. An assumption by one Congress about the work of an earlier Congress is not the same as law. So Illinois Brick Co. v. Illinois,
We should bring the law for pre-1980 cases into line with the rule that applies to cases filed later. All but one of the cases denying interest in antitrust actions predate this legislation, Devex, or both. The exception is Affiliated Capital Corp. v. City of Houston,
Neither a count of judicial noses nor the observation that the Sherman Act was silent should obscure the fact that the time value of money works in defendants’ favor. Antitrust cases can be long-lived affairs. This one has lasted 14 years, 2V2 of which passed between the finding of liability and the award of damages. During all of the time, the defendants held the stakes and earned interest. If IBI had owned the
Is this small beer, to be made up by the trebling of the damages? Hardly. Any erosion of the trebling on account of a denial of interest undermines the deterrent force of the antitrust law. Trebling makes up for the fact that antitrust violations are hard to detect and prove. The acts of the defendants were easy to detect, but the court’s rule presumably applies in a cartel case as well. These may be detected only belatedly, and the denial of interest will make trebling much less useful in increasing the damages defendants expect to pay. The expected damages are the deterrent. Today’s decision reduces that deterrent. Suppose IBI was denied a “bargain” in 1972 worth, say, $1 million in the discounted present value of the flow of profits. The damages should be $1 million (or on the majority’s view, the profit flow worth $1 million when discounted to 1972 dollars, which is the same thing). One million dollars invested at 10% rate of return in 1972 would be worth $3.8 million in 1986 — more than $1 million trebled. If the cost of capital in the stock market is 15%, a plausible figure meaning that money invested (with dividends reinvested) grows at this rate, than $1 million in hand in 1972 would grow to $7.08 million in 1986. The trebling keeps pace with interest only when the rate is 8.16% per annum or less. (For example, at a rate of 5% the million grows to $1.98 million in 1986 and is exceeded by the $3 million trebled damages.) To turn this around, if the rate of return on investment is 10%, an award of a dollar today gives the plaintiffs only 26.3% of the damages they actually suffered; a trebled award gives them only 79% of their actual damages.
Of course, the way the district court computed damages, some were suffered as late as 1982. The effects of compound interest are less spectacular when the injury is so recent. But 10% compound interest for four years is substantial nonetheless. A million lost in 1982 would be worth $1.46 million in 1986, and if the rate is 15% (more realistic for available investments, considering that regulated utilities are allowed more than 10%) it would be worth $1.75 million. The denial of prejudgment interest systematically undercompen-sates victims and underdeters putative offenders. We should allow, indeed require, such awards.
VIII
I concur in the following portions of the opinion and the judgment: Part I.B (defining the, or at least a, market as professional basketball in Chicago); Part I.E (holding that the NBA’s rejection of IBI, and the lobbying that produced the rejection, did not violate the antitrust laws); Part I.F (to the extent it holds that the defendants did not commit the tort of interference with contractual relations and that the NBA defendants did not commit the tort of interference with prospective economic advantage); Part II.C.2 (to the extent it holds that the district court must recompute damages using a more appropriate measure of opportunity cost, although I do not entirely agree with the majority’s preferred measure); Part II.D (reversing the award of punitive damages under state law); Part II.E (holding the Estate of Arthur Wirtz liable for any treble damages appropriately awarded); and Part II.F.2 (affirming the district court’s denial of equitable relief). I remain dubitante about the finding of tort liability based on interference with prospective economic advantage. I dissent from the remainder of the decision. I would hold that the defendants did not violate the Sherman Act; that if they did, IBI has not established that it lost any profits; and that if IBI has shown lost profits, it is entitled to interest on its actual damages from the filing of the complaint to 1982, and to interest on the whole award from 1982 to date.
ORDER
The parties have advised us that they have settled this case and they jointly move for an order “vacating the appeal and cross-appeal” and remanding for the entry of orders effectuating their settlement. To the extent that the parties might be asking us to vacate our opinion of November 21,1987, supra p. 520, we decline to do so. Vacation of prior orders is appropriate when mootness bars the opportunity for complete review, United States v. Munsingwear, Inc.,
In all other respects, the joint motion is granted. The petition for rehearing is DISMISSED, and this case is REMANDED to the district court for implementation of the settlement including dismissal of these lawsuits if appropriate. Each side shall bear its own costs in this court. The mandate shall issue seven days from the date hereof.
. Although the majority is right to point out that a patent does not always create a monopoly, or even market power, the court in Riegel assumed that the patent in question created an absolute monopoly.
. Whether it would work is an open question. See Richard Schmalensee, The Control of Natural Monopolies 68-73 (1979); Oliver E. Williamson, Franchise Bidding for Natural Monopolies— In General and with Respect to CATV, 7 Bell J.Econ. 73 (1976).
. The majority writes as if I were making the dissent’s points in Otter Tail, so that the majority’s failure to respond somehow refutes me. The dissenting Justices were arguing that Otter Tail should not be held liable. I am trying to find out why Otter Tail was held liable. My
. Part of the value of a team is publicity for the owner and tax advantages for the investors. Part of the $3.3 million price compensated Rich for surrendering these benefits of ownership. The district court said that it was awarding Fishman and IBI nothing for the lost publicity and tax benefits. The implication is that the value of the profit stream expected from the Bulls was less than $3.3 million. The price was therefore not a bargain; it was a premium.
. There is a related problem of selection bias. Plaintiffs sue only when the price rises. If defendants must pay the full value when the price goes up, but swallow their losses when the price falls, then on average they expect to pay more than their gains: sometimes they pay the plaintiffs, sometimes they pay through business losses. Then defendants as a group are penalized more than their expected profits from the violation; there is too much deterrence.
. To put this a little differently, banks lent to CPSC, with guarantees, for prime plus one-half percent because if CPSC had gone belly up the guarantees would have made the banks whole. If CPSC had failed no one was going to make its investors whole; their risk (and the appropriate rate of interest) was therefore the same as the banks would have demanded without the guarantees.
. The majority observes that by 1975 CPSC’s lenders released the guarantees. But by 1975 CPSC’s investors had a great deal of equity in the venture. This equity was the debt investors’ "cushion”, enabling them to charge lower rates. (Releasing a guarantee is one way to lower the rate.) CPSC’s cost of capital includes the cost of all of its capital, debt and equity alike, just as a utility’s cost of capital looks at all sources of capital. "Opportunity cost” refers to the implicit cost of the equity investment in CPSC. That cost always exceeds the price the banks charged for their safer debt investments. (The interest actually paid to banks is subtracted as an actual expense of the corporation and plays no role in the opportunity cost adjustment.)
. A plaintiff is effectively investing his antitrust damages with the defendant, so the right rate of interest is the one defendant pays to banks for its own capital. This rate compensates for the possibility of nonpayment plus the value of delay. The risk may be less than the risk of a single venture, because the defendants are diversified, so the rate appropriately would be somewhat less than the opportunity cost of CPSC's money.