*1 respect to either delay with was excusable QUEEN PIZZA, INC.;
order. CITY Thomas C. Bolger; Pizza, Inc.; Baughans, Scale Here, the government the learned Inc.; Buck; Pizza, Inc.; F. F.M. Charles progress report issuing judge, for whom Bigelow; Robert S. Blue Earth Enter- purpose sealing for the prepared been had Bores; prises, Inc.; Kevin Davis Pizza tapes, was out of town and would be the Enterprises, Inc.; Davis; Diane A. Fish- Friday, tapes on Au- unavailable to seal Pizza, Inc.; Fisher, Jr.; er James B. 1991, day the gust extension SEPCO, Inc.; Corp.; Pizza L S & S G & Therefore, Wednesday, expire. August on Co.; Stephen Gallup; Lugent Pizza D. judge to request was made for a substitute Pizza, Inc.; Joseph Lugent; J. Billio’s appointed, Judge Kate Ford Elliot Pizza, Inc.; Murtha; Spring J. William Thursday, assigned was to the case. On Pizza, Inc; Walker; Garden Brad L. attorney August the assistant district Pizza, Inc.; Wood, JRW James R. Indi- spoke Judge requested Elliot and with vidually Representatives and as Class tapes Saturday, August on 10. seal Consisting All Class Present and Monday, August Judge Elliot told him that Certain Former Domino’s Franchisees adequate tapes, 12 would be seal States; in the United International Monday, August tapes were on Advisory Council, Inc., Franchise sealed. tapes were sealed We conclude “immediately” purpose for the of the statu- Queen PIZZA, INC.; City DOMINO’S Piz- tory sealing requirement. Under the hold- za, Inc.; Bolger; Pizza, Thomas C. Scale Carson, ing where the surveillance ends Inc.; Baughans, Inc.; Buck; Charles F. Friday tapes and the are sealed on the Pizza, Inc.; Bigelow; F.M. Robert S. following Monday, sealing is immediate Enterprises, Inc.; Earth Blue Kevin light intervening weekend. Fur- Bores; Inc.; Enterprises, Davis Pizza thermore, Monday if sealing even Davis; Pizza, Inc.; Diane A. Fisher immediate, not deemed to be the assistant Fisher, Jr.; SEPCO, Inc.; James B. &S attorney’s judge’s district reliance on the de- Pizza, Inc.; Pizza, Inc.; S G & L Ste- Monday certainly cision to wait until was phen Gallup; Pizza, Inc.; Lugent D. Jo- reasonable, consequently delay seph Lugent; Pizza, Inc.; J. Billio’s Wil- attorney excusable. The assistant district Murtha; Spring Pizza, liam J. Garden previously arranged had for a substitute Inc.; Walker; Inc.; Brad L. JRW 2518(8)(a)
judge comply in order to Wood; James R. and International judge’s and had deferred to that decision to Advisory Council, Inc., Appel- Franchise tapes following Monday. seal We lants. expect believe it would be unreasonable to No. 96-1638. attorney judge to seek out a third tapes Judge seal the after Elliot had told Appeals, United States Court waiting Monday him that until suf- would be Third Circuit. ficient. Argued Feb. Aug.
X. Decided above, explained For the reasons we affirm judgments against the defendants. *3 Brown,
Sheryl Snyder, (Argued), Todd G. Louisville, KY, Hayburn, Appellants. & Kolb, (Argued), Og- F. Thomas P. Daniel Davis, Wardwell, den, Polk & New York Shiekman, City, Pepper, Z. Hamil- Laurence PA, Appel- of a Scheetz, Philadelphia, The essence successful nationwide &ton product uniformity fast-food chain is con- lee. sistency. Uniformity benefits franchisees LAY,* SCIRICA, ALITO Before: purchase pizza because customers can Judges. Circuit pizza Domino’s store and be certain the exactly pizza will taste like the Domino’s SCIRICA, Judge. Circuit which are familiar. This means that up not build individual franchisees need THE OF COURT OPINION good Uniformity own will. also benefits the whether appeal, we must decide brand name franchisor. It ensures the will support a tying restrictions certain franchise customers, in- continue to attract and hold of federal antitrust laws. claim for violation *4 royalties.1 creasing franchise fees and Pizza stores of Domino’s Eleven franchisees Advisory the International Franchise reasons, For these section 12.2 of the Council, Piz- against Domino’s Inc. filed suit agree- Domino’s Pizza franchise standard za, Inc., anti- alleging violations of federal pizza ingredients, that all requires ment contract, laws, and tortious trust breach of beverages, packaging by materials used contract. The district interference with a Domino’s franchisee conform to the stan- claims under the antitrust court dismissed Pizza, dards set Domino’s Inc. Section 12(b)(6) for failure to state a Fed.R.Civ.P. Pizza, provides 12.2 also that Domino’s Inc. granted, be- which relief can be claim for require in in- “may our sole discretion allege a valid cause the failed supplies gredients, and materials used market. The district court declined preparation, packaging, delivery supplemental jurisdiction over the to exercise pizza exclusively from purchased us remaining common law claims. approved suppliers from or distributors.” Pizza, Pizza, Queen Domino’s City Inc. v. right im- Domino’s Pizza reserves the “to (E.D.Pa.1996). F.Supp. 1055 We on the pose reasonable limitations number will affirm. approved suppliers or distributors of rights, product.” To enforce these Domi- History and Procedural I. Facts Pizza, inspect no’s Inc. retains franchisee stores and to test materials and A. subject ingredients. 12.2 is to a Section Pizza, a Inc. is fast-food service Domino’s providing that Domi- reasonableness clause through company pizza a national sells Pizza, Inc. must “exercise reasonable no’s 4200 stores. Domino’s Pizza network of over respect judgment with to all determinations operates approximately 700 of owns and us under the terms of this to be made Independent franchisees own these stores. Agreement.” remaining Domino’s operate the Pizza, largest pizza compa- Inc. is the second agreement, franchise the standard Under States, ny in the with revenues United Pizza, approximately Inc. 90% sells Domino’s per year. excess of billion $1.8 ingredients sup- million $500 by Domino’s franchisees.2 These ples used joins system by
A franchisee the Domino’s sales, per year, million form worth some $450 executing agreement a standard Pizza, Inc.’s significant part of Domino’s Pizza, a fran- Inc. Under the with Domino’s only purchase Franchisees 10% profits. agreement, chise the franchisee receives ingredients and from outside supplies their pizza the “Domino’s”name right to sell under dough, return, exception of fresh sources. With Domino’s Pizza re- and format. Pizza, Inc. does not manufacture royalties. Domino’s ceives franchise fees and * Pizza, sup- Lay, Inc. sells States Cir- 2. Domino’s The Honorable Donald P. United Circuit, division, sitting Judge Eighth cuit Judicial plies through Domino’s Distri- its Pizza by designation. Division, formerly "DPDD.” DPDD bution Pizza, analysis franchising subsidiary 1. See the of the economics of of Domino’s Inc. Grimes, in Warren S. When Do Franchisors Have Power?, L.J. 107-110 Market Antitrust Instead, developing cooperative purchasing it sells to franchisees. products plan participating under which franchisees products approved purchases
it these could obtain at re- suppliers then resells them to the fran- suppliers cost from than duced Domi- markup. chisees at a Pizza, no’s Inc. Plaintiffs contend when Pizza, Inc. became aware of these B. efforts, intentionally ingredient issued plaintiffs in this case are eleven Domi- supply specifications vague potential so the International no’s franchisees and Fran- suppliers provide could not FPC with mean- Council, (“IFAC”), Advisory chise Inc. ingful price quotations. corporation Michigan consisting approxi- allege Plaintiffs also Domino’s Pizza en- mately 40% the franchisees dealing arrangements tered into exclusive States, promote the United formed to deny with several franchisees in order to interests.3 The common contend pool potential buyers FPC access to Pizza, monopoly that Domino’s Inc. has a sufficiently large pur- to make the alternative “the million aftermarket for sales of $500 chasing economically scheme feasible. In ad- supplies to Domino’s franchisees” and has dition, plaintiffs contend Domino’s monopoly unreasonably its used *5 anti-competitive predatory pric- commenced trade, competition, limit restrain and extract ing shut to FPC out of the market. For profits. supra-competitive point Plaintiffs to Pizza, example, they maintain that Domino’s Pizza, by actions Domino’s Inc. several to prices many ingredients Inc. lowered and support their claims. supplies competitive to a level with FPC’s First, Pizza, plaintiffs allege that Domino’s prices recouped profits by and then lost rais- ability purchase has restricted their Inc. to price ing dough, on fresh which FPC competitively priced dough. Most franchi- Further, supply. plaintiffs could contend purchase dough sees all of their fresh from Pizza, Domino’s Inc. entered into exclusive Pizza, attempt- Domino’s Inc. Plaintiffs here dealing arrangements only approved with the by making pizza ed to lower costs fresh suppliers ready-made deep dish crusts and They dough on site. contend that in re- agreements, suppli- sauce. Under these Pizza, sponse, pro- Domino’s Inc. increased obligated ers were to deliver their entire cessing quality fees and altered standards Pizza, output to Domino’s Inc. Plaintiffs al- inspection practices store-produced lege purpose agreements of these was to dough, potential which eliminated all savings prevent purchasing FPC from these critical and financial incentives to make their own pizza components for to resale franchisees. dough. allege Pizza, also Finally, plaintiffs Pizza, allege Domino’s prohibited produce Inc. stores that dough dough Inc. to sell refused fresh to franchi- franchisees, selling dough from to other purchased sees unless the franchisees though even dough-producing stores ingredients supplies from Domino’s Piz- willing dough price to sell at a 25% to za, Inc. As a alleged result of these and other Pizza, price. 40% below Domino’s Ine.’s practices, plaintiffs maintain that each fran- Next, plaintiff's object pays to efforts Domi- chisee store now between $3000 $10,000 Pizza, per year to IF more attempt no’s Inc. block AC’s to supplies competitive than it buy expensive ingredients less mar- supplies allege passed ket. Plaintiffs these costs are from other sources. In June IFAC on to consumers. purchasing agreement entered into a Purchasing Cooperative, Foodservice Inc. C. (FPC). agreement, ap- Under the FPC was pointed purchasing agent noted, for IFAC-mem- As eleven Domino’s franchisees and ber Domino’s charged franchisees. FPC was an complaint IFAC filed amended in United Pizza, argued apparently 3. Domino’s Inc. unnecessary before the district trict court found it to standing court that IFAC is without in this case. light dismissing address this issue in of its order Pizza, Pizza, Inc., City Queen Inc. v. Domino's the case for failure to state a claim. (E.D.Pa.1996). F.Supp. The dis- plaintiffs purchase ingredi- Eastern District to force to for the District Court States Pizza, supplies them ents and from stemmed “not Pennsylvania against Domino’s from nature of the compen- declaratory, injunctive, and seeking from its market share in the fast fran- food §§ 1 of the Sher- satory relief under and 2 business, agree- chise but Act, plaintiffs §§ 1 2. The man U.S.C. reason, plain- ment.” Id. at 1062. For that contract, sought damages for breach “implicate contract, principles tiffs’ claims good faith and implied covenants of breach of and are not the of the antitrust concern interference with dealing, fair and tortious plain- laws.” Id. The district court also held contractual relations.4 adequately allege tiffs failed harm to had Inc. moved to dismiss competition, premise “a bedrock of antitrust claim, claims for failure to state antitrust law.” Id. at 1063. Because failed allege contending failed cognizable to assert a antitrust claim and market,” pleading require- “relevant a basic diversity among par- there was neither § 2 ment for claims under both special nor justifying ties circumstances exer- They act. maintained Sherman supplemental jurisdiction, cise the court in the com- that the relevant defined prejudice plaintiffs’ dismissed com- without Domino’s-approved plaint “market” —the subject mon law claims for lack of matter by Domino’s used jurisdiction. Id. 1063-64. Pizza franchisees —was invalid as a matter granted plaintiffs The district court leave- law because boundaries complaint file an cure the amended defined contractual relevant market were jurisdictional pleading deficiencies then- agreement, contained in the franchise terms state claims. Plaintiffs decided not to law by cross-elasticity of de- not measured Instead, replead their state law claims. *6 product interchangeability. mand or sought complaint to amend their for a second mo- granted court defendant’s The district attempt time in an to state a valid federal prejudice plaintiffs’ fed- tion to dismiss with antitrust claim. The district court denied court ob- eral antitrust claims. The district motion, plain- noting though their Act that “in order to state Sherman served complaint tiffs’ second amended § § plaintiff 1 or claim under either plead would cure the failure to harm to com- identify product geo- relevant and must petition, the failure to it would not cure allege that graphic markets and the defen- allege a relevant market. The court valid power within those dant exercises market pur- stated: “Plaintiffs do not and cannot Pizza, Queen City Inc. v. Domi- markets.” supplies from chase alterna- Pizza, Inc., F.Supp. 922 1060 no’s suppliers Domino’s domi- tive because (E.D.Pa.1996). Noting that did supply ingredient nates the market or explicitly identify the relevant “not only sup- market’s because Defendant is the in amended geographic markets franchisee-plaintiffs plier, but because the complaint,” the court said that “it is clear contractually purchase only bound to context, in their from the and confirmed suppliers approved by It is Defendant. opposition memorandum in to the instant power resulting economic from the motion, the relevant therefore, that Plaintiffs consider power, agreement, and not market ingredi- for product market to be the market market’ Plaintiffs that defines the ‘relevant franchi- supplies among ents Domino’s allege support of their antitrust claims.” concept of Rejecting rejected plaintiffs’ argu- Id. at 1061. sees.” court The district market, “an- required the court held that was ment that a different result predicated upon Supreme a ‘relevant decision East- titrust claims under the Court’s Services, Image by the bounds of a franchise man Kodak Technical market’ defined Co. at 1063. 112 S.Ct. 119 agreement cognizable.” are not Id. 504 U.S. (1992). Pizza, appeal This followed. L.Ed.2d 265 The court that Domino’s Inc.’s noted complaint complaint aban- plaintiffs originally United States. amended 4. filed the Their The represent fran- purported claim to all Domino's and a class of all doned their behalf of themselves present chisees. Domino’s franchisees in the future 436 § and Standard of Review U.S.C. 2. This last claim was not
II. raised Jurisdiction before district court. jurisdiction district had noted, As we have the district court held counts under 15 over the antitrust U.S.C. that none of the antitrust claims §§ §§ 28 26 and U.S.C. 1331 and cognizable under federal law. We will supplemental It to exercise declined analyze each claim in turn. jurisdiction over the common law counts. jurisdiction § We have under U.S.C. A. court’s Our review of the district dismissal matter, plaintiffs As a threshold ar 12(b)(1) 12(b)(6) under Fed.R.Civ.P. gue that “relevant market determinations are (3d plenary. Stehney Perry, inherently intensive, fact and therefore are Cir.1996). inappropriate disposition on a Rule 12(b)(6) 16). (Appellant’s motion.” brief at
III. Discussion eases, It is that in proper true most only definition can be determined after a distinct Plaintiffs assert six inquiry factual into the commercial realities First, appeal. plaintiffs allege claims on faced consumers. See Eastman Kodak Pizza, monopolized Domino’s Inc. has Services, Inc., Image Co. v. Technical pizza supplies 451, 482, 2072, 2090, stores, in violation of use Domino’s err, however, L.Ed.2d 265 Act, § 2. support Sherman 15 U.S.C. they try general when to turn this rule into a contention, plaintiffs allege of this Domino’s prohibition per against se dismissal of anti Pizza, Inc. has sufficient market trust plead claims for failure to a relevant prices competition control and exclude 12(b)(6). market under Fed.R.Civ.P. Second, plaintiffs this market. contend Pizza, attempted mo- Plaintiffs have the burden of defin nopolize pizza sup- ing the market for Domino’s the relevant market. Pastore v. Bell plies § 2 ingredients, Telephone Pennsylvania, in violation of Co. 24 F.3d Third, (3d Cir.1994); plaintiffs allege Co., Act. the Sherman Tunis Bros. Inc. v. Co., (3d dealing Inc.’s exclusive ar- Ford Motor 952 F.2d Cir. 1991). rangements unreasonably have restrained “The outer boundaries of a *7 Act, § in violation of 1 of the by trade Sherman market are determined the reasonable Fourth, plaintiffs § allege interchangeability 15 U.S.C. 1. Domi- of or use the cross-elastici Pizza, imposed tying ty no’s Inc. an unlawful of product demand between the itself and by arrangement5 requiring U.S., franchisees to substitutes for it.” Brown Shoe Co. v. buy 294, 325, 1502, 1523, from them as a 370 U.S. 82 S.Ct. 8 obtaining dough, (1962); in Brothers, condition of fresh viola- 510 L.Ed.2d Tunis 952 1, (same). § § tion of Act 15 1. the Sherman U.S.C. F.2d at 722 plaintiff Where the fails Fifth, Pizza, plaintiffs allege Domino’s proposed Inc. to define its relevant market with imposed tying arrangement by an unlawful reference to the rule of reasonable inter buy requiring demand, franchisees to changeability cross-elasticity of supplies “as a of their alleges proposed condition continued or a relevant market enjoyment rights clearly of and services encompass interchangea under does not all Agreement,” Franchise products Standard violation ble substitute even when all factual Act, § § favor, 1 of the Sherman 15 granted U.S.C. inferences are Sixth, Pizza, plaintiffs allege Domino’s legally Inc. relevant market is insufficient a monopoly See, has in a relevant “market may granted. motion to dismiss e.g., be reasonably Network, interchangeable op- for TV Communications Inc. v. Tur franchisees,” Television, portunities facing prospective Inc., 1022, ner Network 964 F.2d (10th Cir.1992) Act, 2 violation of the Sherman 15 1025 (affirming district tying arrangement, product.” Allen-Myland, "In a the seller sells one known as the tied Inc. item, tying product, known as the the condi- v. Corp., International Business Machines 33 F.3d item, 194, Cir.1994). buyer (3d purchases tion that the another 200
437 585, 19,105 2847, Corp., 472 n. plead for failure U.S. 596 S.Ct. court’s dismissal claim market; (1985) 19, n. proposed (quoting a 2854 L.Ed.2d relevant 86 467 only specific consisting of one television Corp., United States v. Grinnell 384 U.S. Air, narrowly); 563, too Tower 570-71, 1698, 1703-04, channel defined S.Ct. 16 86 Exp. Corp., F.Supp. (1966)). 956 270 v. Federal Inc. Dairy L.Ed.2d 778 See also Ideal (E.D.N.Y.1996) (“Because a relevant market Farms, Labatt, Ltd., Inc. v. John 90 F.3d products reasonably in all that are (3d Cir.1996) includes 737, (same); Bonjomo 749 v. plaintiff’s terchangeable, failure define its Kaiser Corp., Aluminum & Chemical 752 by rule of reference to the reasonable market 802, (3d Cir.1984) (same). F.2d 808 alone, is, standing valid interchangeability dismissal.”); Optische grounds In for B.V. The district dismissed Inc., Hologic, De Oude v. 909 dustrie § 2 plead Delft claims for monopoly failure to (S.D.N.Y.1995) (dismissal F.Supp. 162 for valid market. suggest relevant Plaintiffs market; plead a relevant failure to valid materials, “ingredients, supplies, and distri plaintiffs failed to market terms of define operation bution services used and in the explain or interchangeability ra reasonable pizza stores” a rele constitutes underlying proposed tionale narrow market purposes. vant for antitrust dis market We Industries, definition); Re-Alco Inc. v. Nat’l agree. Inc., Educ., F.Supp. 812 Health Center for noted, As we have outer boundaries (S.D.N.Y.1993) (dismissal for failure to relevant are determined reason market; plead plaintiff a valid relevant failed interchangeability able Eastman Ko use. allege specific prod health education Services, Inc., Image dak Co. v. Technical explain why uct was 2072, 2090, S.Ct. for part larger health U.S., (1992); L.Ed.2d 265 Brown Co. Shoe materials); E. education & G. Gabriel 1502, 1523, 370 U.S. Bros., Gabriel No. 93 Civ. (1962); Co., L.Ed.2d Tunis Inc. (S.D.N.Y.1994)(dismissal Brothers fail WL 369147 (3d Co., v. Ford Motor market; plead ure to valid relevant Cir.1991). implies “Interchangeability legally insufficient because it roughly equivalent one to another no clearly contained varied items with cross- demand). put; for the to which it is while there use elasticity of degree preference some
B.
other,
one over
either
effec
would work
tively.
person needing transportation to
A
allege
accordingly
buy
work
a Ford or
could
willfully acquired
maintained a mo
automobile,
Chevrolet
elect to ride
could
ingredients, sup
nopoly
the market for
options
bicycle, assuming
horse or
those
plies,
materials
distribution services used
*8
Allen-Myland,
Inc. v. Inter
feasible.”
stores,
operation
in the
of Domino’s
in viola
Corp.,
national Business Machines
33 F.3d
Act,
§ 2 of the
15
tion of
Sherman
U.S.C.
Cir.1994) (internal
194,
(3d
quotations
206
2
2. Section
sanctions those “who shall
omitted).
assessing
inter
When
reasonable
monopolize,
attempt
monopolize,
or
or
“[fjactors
in
changeability,
to be considered
conspire
person
or
other
or
combine
with
use,
price,
Tunis
qualities.”
clude
persons, monopolize
any part
the trade
Brothers,
722.
inter
F.2d at
Reasonable
952
states,
or
or
among
commerce
the several
by
changeability is also
“cross-elas
indicated
foreign
“The offense mo
with
nations.”
ticity
product
between the
itself
demand
§ 2
nopoly under
has
of the Sherman Act
(1)
it.”
v.
and substitutes for
Brown Shoe Co.
possession monopoly
two elements:
U.S.,
1502, 1523,
294, 325,
(2)
8
power in
U.S.
the relevant market
explained in
L.Ed.2d
As
we
acquisition
willful
or maintenance of that
Co.,
Co.,
v.
distinguished
Tunis
Inc.
Ford Motor
growth
or
Brothers
devel
(3d Cir.1991),
715,
“products in
consequence
superior
952 F.2d
opment
prod
as a
of a
uct,
acumen,
by a
[are]
business
or historic
a relevant market
characterized
accident.”
words,
demand,
Aspen Skiing
Aspen Highlands Skiing
cross-elasticity
in other
Co.
price
good
mining
product
interchangeable,
of a
within a
whether a
in the
rise
put by
but to the uses to which the
product market would tend to create
Thus,
general.
consumers in
the relevant
greater
goods
for other like
a
demand
Brothers,
inquiry here is not
fran
whether Domino’s
441
availability
of
quality
agreement
insufficient
to maintain
the
alternative
sub-standard
prod-
opportunities.
reputational value of the franchise
franchise
Plaintiffs need not
the
benefitting
quality
control
If
while
from
have become Domino’s franchisees.
uct
sys-
in the franchise
in
efforts of
actors
contractual
restrictions
section 12.2 of the
Ameri-
Franchising is a bedrock of the
general
agreement
tem.12
franchise
were viewed
economy.
than one
of all
More
third
overly
risky
they
can
or
burdensome
the time
retailing
in
in the
spent
transactions
proposed, plaintiffs
pur-
dollars
could have
paid to franchise outlets.13
restaurant,
States are
United
chased
different
form of
not
the antitrust
laws were
We do
believe
They
made some alternative
investment.15
to this
designed to erect a serious barrier
chose not to do
in
so. Unlike
organization.14
form of business
Kodak, plaintiffs
purchase prod-
must
here
ucts from Domino’s Pizza not
of
because
the Sherman Act “is
purpose
The
of
prod-
over a unique
Domino’s market
protect
working
from
not to
businesses
uct,
but because
are bound
contract
market;
protect
public
it
is to
If
un-
to do so.
Inc. acted
Spectrum Sports,
market.”
the failure
reasonably when,
agree-
under the franchise
447, 458,
McQuillan,
113
v.
U.S.
506
ment,
plaintiffs’ ability
pur-
it
restricted
(1993).
884, 891,
C.
trade
nations,
states,
several
foreign
or with
attempt
claim for
Plaintiffs’
§
illegal.”
declared to be
15
1.
U.S.C.
same
monopolize fails for the
reasons. To
monopolization
prevail
attempted
claim
on an
a
1
To establish
section violation
Act,
plaintiff
§
under
2 of the
“a
Sherman
trade,
plaintiff
of
unreasonable restraint
(1) engaged
prove
must
that the
in
defendant
(1)
prove
by
must
de
concerted action
the
(2)
predatory
anticompetitive
conduct with
fendants; (2)
produced anti-competitive
(3)
specific
monopolize
intent to
and with
product
effects within
relevant
geo
dangerous
achieving
of
probability
monopoly
(3)
markets;
graphic
ac
that the concerted
McQuil
Spectrum Sports, Inc. v.
power.”
(4)
illegal;
plaintiff
tion was
was
lan,
447, 456, 113
884, 890,122
506 U.S.
S.Ct.
injured
proximate
as a
result of the concert
Farms,
Dairy
L.Ed.2d 247
Ideal
v.
ed action. Mathews
Lancaster General
Ltd.,
Labatt,
v.
Inc.
John
90 F.3d
750
(3d
Cir.1996);
Hospital, 87
639
F.3d
(3d Cir.1996); Advo, Inc.
Philadelphia
Corp.,
Orson Inc. v. Miramax Film
79 F.3d
(3d
Inc.,
Newspapers,
51 F.3d
1197
(3d
1358,1366
Cir.1996); Petruzzi’s
Su
IGA
Cir.1995).
In
to determine
order
whether
Co.,
permarkets,
Darling-Delaware
Inc. v.
dangerous probability monopoli
there
(3d
Cir.1993).
1224, 1229
998 F.2d
zation,
inquire
a court
“into
must
the rele
allege
Plaintiffs
defendant’s actions caused
product
vant
geographic
market and the
anticompetitive effects within the
in that
power
defendant’s economic
market.”
supplies
by
used
Domino’s
McQuillan,
Spectrum Sports,
506
Inc.
pizza
Again,
stores.
this claim fails because
447, 459,
884, 892, 122
113
247
S.Ct.
L.Ed.2d
products
proposed
within
(1993);
750;
Dairy
at
Ideal
Farms
Pastore
products
interchangeable with
outside
Telephone
Pennsylvania,
v. Bell
24
Co. of
proposed market.18
Cir.1994).
(3d
F.3d
512
attempted monopoly
Plaintiffs’
claim is
E.
predicated
proposed
on the identical
Pizza,
allege
Plaintiffs
Domino’s
monopoly
market underlying its
claim: a
imposed
tying arrangement
an unlawful
ingredients, supplies,
market in the
and ma-
by requiring
buy ingredients
franchisees to
by
pizza
terials used
Domino’s
stores. Be-
from them as a
condition
products
proposed
cause the
within
mar-
obtaining
Pizza
dough,
fresh
in vio
interchangeable
products
ket are
with other
Act,
§
lation of
1 of
Sherman
15 U.S.C.
market,
outside of the
the claim
§
arrangement,
1. “In a tying
the seller sells
properly
dismissed.
item,
tying product,
one
known
on the
buyer
purchases
condition that
an
D.
item,
product.”
known as the
Al-
tied
lertr-Myland,
allege
dealing
exclusive
ar
Inc. v. International Business
(3d
rangements
into
Corp.,
entered
Machines
F.3d
Cir.
33
200
1994).
unreasonably
Inc. have
restrained trade in
tying
“[T]he antitrust concern over
Act,
§
violation of
1
arrangements
of the Sherman
is limited to those situations
§
U.S.C.
1.
1 of the
which
exploit
Section
Sherman Act
the seller
can
its
contract,
provides: “Every
combination in market
tying
buyers
for the
to force
otherwise,
the form
conspiracy,
purchase
of trust or
when
tied
oth-
Monopoly power
requires
§
consistently
under
“some-
and lower courts have
held that rele-
thing greater”
§
than market
under
vant
both
markets under
sections are defined
504 U.S. at
at
interchangea-
2089 This
same two factors:
reasonable
however,
imply,
analyses
bility
does not
that the
em-
of use and cross-elasticities of demand.
See,
ployed
types
e.g., Allen-Myland,
the two
cases to define rele-
201 and
n.
past,
vant
(applying
markets differ.
we
intimated
Brown
Shoe
test
analysis required
interchangeability
cross-elasticity
the relevant market
under
reasonable
case).
§
case,
§
tying
Sherman Act was “instructive”
we
demand in
In this
cases, though perhaps
analyses
not identical. See
see no
the relevant
Tunis
difference in
Bros.,
Supreme
required
provisions.
particular theory. This is particularly complex true in a case like this I. one, plaintiffs bring multiple where district court declined to exer on multiple claims alternative rele based jurisdiction supplemental plain cise over the vant market theories. See Pastare v. Bell *14 remaining tiffs’ state law contract claims. 508, Telephone Pennsylvania, 24 F.3d Co. of This is decision committed to sound dis (3d Cir.1994) (plaintiff 513 bound relevant Stehney cretion of district court. v. Per court); theory market raised before district (3d Cir.1996); ry, 101 939 F.3d Growth TV Communications Network. Inc. v. Tur Horizons, Pa., County, Inc. Delaware 983 Television, Inc., ner Network F.2d (3d Cir.1993). F.2d 1284-85 (10th Cir.1992) Because (same); Edward J. all correctly federal claims were Sons, Texaco, dismissed Inc., Sweeney & Inc. v. (3d remaining and dismissal of the Cir.1980) (same). contract F.2d We do litigants claims not be unfair to fleeting proposed not believe a in a reference judicial resources, result in waste we see complaint second amended facts that no abuse of discretion. might support relevant market is sufficient, own, preserve on its that rele theory
vant
appellate
for
review.
IY.
Industries,
See Frank v. Colt
910 F.2d
reasons,
foregoing
For the
we will affirm
90, 100 (3d Cir.1990) (issues not raised before
the judgment of the district court.
appeal;
district court are
fleeting
waived on
reference
issue
before district court insuf
LAY,
Judge, dissenting.
Circuit
review).
preserve
appellate
ficient to
it for
“Particularly
important
complex
where
and
I respectfully dissent.
presented,
issues of law are
a far more de
court,
The
pleading stage,
district
at the
exposition
argument
required
tailed
is
plaintiffs’ complaint alleging
dismissed
viola
preserve an issue.”
Id.
100. Because this
§
tions
under
of the Sherman
properly
claim
not
was
raised before the
holding
Antitrust Act
that
failed to
us,
district
properly
court and is not
before
allege a relevant market. The issue is com
we decline to
it.
generally
address
See
Sal
plex. Judge
opinion
logically
Scirica’s
rea
Army Department
vation
Community
soned.
interpreta
Our differences lie in the
(3d
of N.J.,
183, 196
State
Affairs of
application
Supreme
tion and
Court’s
Cir.1990) (“The
questions
matter of what
opinion
recent
in Eastman
Co. v.
Kodak
Im
up
be taken
resolved
the first
Servs., Inc.,
age
Technical
appeal
time on
primarily
one left
to the
An important
Court’s
can,
power
franchisor has market
if
with
Kodak
plaintiffs present-
decision in
that the
sales,
out losing
price
substantial
raise the
ed a
claim was
“there
ques-
triable
that
is a
good
or service sold to a franchisee
tion of
whether information
above
fact
costs and
the level at which an
simple
equivalent good
switching
assumption
costs foil the
service
suppliers.”);
that
is available from
equipment
the
and service markets
other
act
Lande,
see
pure complements
Chicago
as
H.
to one another.”
Robert
Takes
Ko-
It
dak,
Imperfect
On The
at
at
Chin:
2087. In
Could
Information
fact,
Play
circuit
A
other
courts have held that
Crucial Role
the
In The Posi-Kodak
presence
World,
(“An
imperfections
(1993)
193, 195
of these
was
Antitrust L.J.
Kodak,
the
factor in
important
crucial
and that
had
lesson of
is that
Kodak
im
policy
perfect
Kodak’s
been known at the time busi-
information can be a crucial
factor
”,
power’
at
152-55 he
that
states
"under
even clear that Professor
Meese
find the
may
power
current law" franchisors
have market
plaintiffs' allegations insufficient as a matter of
over derivative
aftermarkets due
"lock-in" of
they allege
law
charged supra-
because
that DPI
franchisees,
proposes
the
this he
because of
competitive prices
sup-
for the
analyzing
a new framework for
such claims. He
plies. See id. at 155.
argues
"the
focus on market
and less
alternatives,
though perfectly
restrictive
natural
quite
This conclusion seems
If
sensible.
Kodak
given
partial equilibrium
framework that do-
subsequent
about
parts-
customers knew
Kodak’s
premises
minates antitrust
law and the
that un-
policy
they bought
copiers,
and-service
when
jurisprudence,”
tying
derlie
properly
does not
economically
or were not
restricted from switch-
apply
tying
to the franchise
context.
Id. at ing
dissent,
copiers,
to other
then Justice Scalia’s
argues
tying
Professor Meese
contracts that
perfect competition/perfect
which
assumes
in-
riding,
opportunistic
reduce free
a form of
be-
world,
right.
formation
should be
Kodak is
expense
havior
taken at
of the franchise
merely a concession to fact
system,
that markets do not
prima
legal.
be
should
facie
Whatever
sometimes,
always
perfectly,
argument,
work
pre-
but not
value of Professor Meese’s
he
supposes
always,
imperfections
that “under current
law” from the
these
can create
Su-
sufficient
preme
justify possible
Court the
district court in this
case
antitrust
liabili-
addition,
have
ty-
erred.
Id. at 152.
In
it is not
markets.”).
important
to be
unique
But
Alan
465.5The term
seems
see
defining relevant
describing
Silberman,
purposes only
antitrust
Myths
Franchise “Market
The
Power”,
L.J.
which has no reasonable substitutes.6
65 Antitrust
parts
unique
The fact that
were
was
Kodak
Uniqueness
important only
it limited the
because
choices
equipment
available to Kodak
owners seek
theory
plaintiffs’
that the
rejecting the
In
ing
replace
parts.
out
The Court
worn
switching
they face
costs
information
“The
stated:
alleged
market under
justify the
relevant
purposes is determined
the choices avail
majority
does not
states: “Kodak
equipment
able to Kodak
owners.” 504 U.S.
the existence of information
hold
Here,
481-82.
choices
at
are
alone,
switching
those faced
costs
such
sup
DPI-approved ingredients
limited to
franchisees,
an other-
renders
mar
plies,
alleged
therefore the
Ante
invalid relevant market valid.”
wise
is
in kind
that involved in
ket
identical
omitted).
(footnotes
Both
district
Kodak.
majority make a more difficult
court and the
necessary
factor Kodak
argument, that
Corp.,
F.Supp.
v. Mobil Oil
Wilson
repair
“unique.”
parts
(E.D.La.1996),
analyzed
the district court
uniqueness
gave
is what
They
that this
state
opinion
of the Kodak
to the
the relevance
power,
the lack of
and that
Kodak
argued
The
franchise context.
defendants
rejecting the
factor herein warrants
apply
that Kodak does not
to the franchi-
The ba-
plaintiffs’ alleged relevant market.
relationship and cited the dis-
sor/franchisee
this case lies
applying
sis for not
Kodak
opinion
support.
case for
trict court
from this
(1)
arguments:
ingredi-
aftermarket
two
Wilson,
The
re-
F.Supp.
at 951.
(2)
unique,
ents and
jected
argument that the lack of
policy
knew of
because it was
franchisees
parts,
Kodak
products,
like Kodak
makes
agreement.
in the franchise
contained
relationship:
inapplicable to the franchise
matter
law.
argument
first
fails as a
princi-
that a
This
not convinced
Court
unique was not the
Whether the
as a matter
*17
pled distinction can
drawn
opinion.
component of
Kodak
Even
key
the
of law between the franchise context and
preoccupied
if
was somehow
with
the Court
in
equipment
the durable
market involved
replacement
“uniqueness” of the Kodak
the
No facts have been adduced to
Kodak.
parts,
opinion
the
as economic
itself well
that a business format franchise
indicate
theory suggest
uniqueness
that
aftermarket for
cannot create a derivative
of
qua
finding
a triable claim
sine
non
products
purchase
sale of
that
the
power.
Justice Blackmun describes
market
operation by
used in the franchise
must be
allegations regarding
mar-
the
the
Nor have facts
the franchise network.
realities,
that
including the facts
Kodak
ket
that such an aftermarket
been adduced
independent parts distributors
excluded
had
subject to
same economic
could not be
the
competition
then boosted
and service
power
permitted market
this
dislocations that
prices
prior
above
After
discus-
levels.
possible in Kodak. The Kodak court
sion,
to be
Blackmun
“Under our
Justice
states:
power
its market
purport
suf-
did not
to base
prior precedents, this evidence would be
analysis solely
the fact that Kodak’s
on
on
respondents
to entitle
to
trial
ficient
unique,
did it limit the
power.”
at
machines were
nor
claim of
504 U.S.
market
example,
patented
if
a new mate-
For
someone
5.
Power in
Antitrust Poli-
6.
In Market
Aftermarkets:
Case,
drinks,
cy
certainly
the
40 U.C.L.A. L.Rev. 1447
bottling
Kodak
soft
it
rial
(1993),
Hovenkamp argues that wheth-
Professor
just like
true that there were no other materials
replacement
requires
“unique”
er a
But,
plastic
provided glass
were still
it.
absolutely
parts
to whether
man-
is
irrelevant
the
substitutes,
"unique”
description
the
reasonable
power.
He
of that
has market
ufacturer
analysis.
meaningful
for antitrust
would not be
portion
opinion
of
Kodak
states that
the
the
parts
wrong,
unique
that
the evi-
about
is
but
prices was
to
dence cited of increased
relevant
question
power.
at
the
of market
Id.
1454-55.
ever,
facts;
reasoning
application
prod-
of its
to durable
this
the
Prime’s
misstates
If
equipment
anything,
markets.
Kodak
fact,
unique.
plaintiffs
uct was not
In
the
against making
assump-
economic
cautions
products
Virtual Maintenance made
a blank factual
Ko-
tions on
record. See
reasonably interchangeable
were
with that of
466-67,
dak,
U.S. at
S.Ct. at 2081-
Thus,
analysis slights
signifi-
Prime.
the
cance of Prime’s distribution license from
requirement
suppliers
analysis
Ford
Ford’s
compelling
Id. at 951-52. This
incorporates
it
the understanding
product.
because
use the latest
of Prime’s
version
unique product
does not itself confer
analyzed
Sixth
The
Circuit
market reali-
the
analyzes
work-
and then
ties,
manipulation
including
price
of
evidence
ings
in question.7
of the market
lock-in,
an
economic
and concluded that
alleged
Kodak
under
relevant
majority
distinguishes
Virtual
was valid.
Maintenance,
Computer,
Inc. v. Prime
(6th Cir.1993),
F.3d 660
the basis
importance
product.
of a
In Virtual
Agreement
The Franchise
Maintenance,
Circuit
Sixth
was directed
Supreme Court,
opinion
light
its
argument,
alleged
The second
that the
rel-
Kodak,
reconsider
Sixth Circuits’
evant market fails because franchisees knew
rejection
earlier
policy,
fails as a matter of fact.
Upon
light
claims.
reconsideration
Ko- Adopting
position,
the district court’s
dak,
upheld the alleged
majority
states that
franchisees knew the
for “the
sale
software revisions
potential costs and economic risks of DPI
necessary
support
software
to do busi-
forcing
buy ingredients
them
Company.”
ness
Ford Motor
at
Id.
664 only from
supraeompetitive prices
DPI at
(citation omitted).
upholding
deriva-
agreement gave
because the franchise
DPI
market,
tive aftermarket as a relevant
so. Ante
do
This
court held: “Like
Prime is able to
illusory
First,
statement
for two reasons.
exercise control over the sale of software
ignores
Offering
the information in the
support because of its exclusive distribution
supposed
Circulars: the
are
to have
Ford,
Ford’s requirement
license
anticipated
despite
these actions
the fact that
design suppliers
that its automotive
use the
they
directly contrary
DPI
to what
told
most
current version
Prime’s software
plaintiffs argue
them. The
that the Offering
support.”
majority
Id. at 666. The
in the
DPI presented
Circulars
when
present
rejects application
case
of Virtual
considering a DPI
franchise stated
there
“But
Maintenance
this case:
Prime had a
*18
suppliers
would be
ingre-
alternative
for the
possessed
monopoly
unique
because it
Second,
supplies.
dients and
it would be
no
one else sold. Since the
illogical for
expect
the franchisees to
that the
unique,
interchangeable
not
right
franchisor’s
sell ingredients
sup-
to
any
products,
other
it constituted its
plies coupled
approval
with its
power
own
purposes.
relevant market for antitrust
contrast,
By
agreement,
not sell
very
does
included for the
product or service.” Ante at 440-41. How-
legitimate purpose
quality
of franchise
con-
majority
However,
7. The
Agents
proceeded
cities
United Farmers
236-7.
the court
to ex-
(5th
Exchange,
pressly
Farmers Ins.
ingredients and fran- reselling then them to the
prices, and
chisees.9
Conclusion possible expressed about the Concern AND EXCHANGE SECURITIES adopt- industry impact on the franchise COMMISSION theory defi- ing plaintiffs’ of relevant market However, prove nition. still have present alleged for arguments they CORPORATION; HUGHES CAPITAL Securities, Inc.; market, discovery in and seek more F.D. Roberts Howard Ackerman; Beall; Dominick defenses, Gilbert many There are order to do so. Fiorese; Galiardo; Frederick Sheldon may argued, not which be which have been Kanoff; Knoblauch; G. John Susan La ease other applicable franchisor/ chance; Lieb; Mascolo; Alan Frederic disputes. My main con- franchisee antitrust Perfetti; Reifler; Lionel Ira John Vic opin- affirming the court’s cern with district tor, rejection ion is broad basis by against franchisees fran- antitrust claims Reifler, Lachance, Lionel Susan aftermarkets. See chisors in derivative Ackerman, Appellants. Howard (describ- Grimes, L.J. at 125-26 65 Antitrust No. 96-5401. types post-contract franchisor ing several opportunism may which lead to antitrust Appeals, Court of United States power). claims if the franchisor has market Third Circuit. problems, which There Rule Under Third Circuit Submitted court, plaintiffs’ allega- with the before 34.1(a) LAR monopolization illegal tying tions of 13,1997. June franchisor, by a aftermarkets the derivative July Decided Supreme clear but the Court’s direction switching costs Kodak that information and determination of
are relevant the ultimate honored the district reality of only in breach. The
aftermarket according to plaintiffs,
faced these *19 suppliers
pleadings, is alternative do not ability price,
restrain DPI’s increase switching costs lock-in the
information and preventing competi- thereby
franchisees price response
tive to the increases
DPI. Moreover, analysis, repre- majority’s that what the Offering alleged It the DPI’s Circular prospective franchisees that DPI would sented to approve entered the franchise knew when suppliers factor, en- sufficient number important distinguishing agreement is an competitive sure a aftermarket imperfect ais crucial information concedes only supplies, it would utilize its determining definition. factor quality approval power to maintain control.