1975-1 Trade Cases 60,195
TWIN CITY SPORTSERVICE, INC., a Missouri Corporation, and
SPORTSERVICE CORPORATION, a New York Corporation, Appellants,
v.
CHARLES O. FINLEY & COMPANY, INC., an Illinois Corporation, Appellee.
Nos. 73-1126, 73-1585.
United States Court of Appeals,
Ninth Circuit.
Feb. 21, 1975.
John P. Frank, of Lewis & Roca (argued), Phoenix, Ariz., for appellants.
William G. Myers, of Rothschild, Barry & Myers, Chicago, Ill. (argued), for appellee.
OPINION
Before TRASK and SNEED, Circuit Judges, GRAY,* District Judge.
SNEED, Circuit Judge:
This is an appeal from a trial court judgment awarding treble damages, attorney's fees and costs to appellee-counterclaimant Charles O. Finley & Company, Inc. (Finley) on the ground that a 1950 contract between the then-owner of the Athletics baseball team and a predecessor in interest of appellant Twin City Sportservice, Inc. (Sportservice) violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. Sportservice initiated the suit against Finley in 1967, alleging breach of contract by the latter, and seeking declaratory, injunctive, and monetary relief. Finley filed a counterclaim, charging antitrust violations, and joinеd Sportservice Corporation, the parent of Sportservice. Jurisdiction was based, in the contract action, upon 28 U.S.C. § 1332 and, on the antitrust claims, upon 15 U.S.C. §§ 15 and 22.
The dispute which culminated in this litigation finds its origins in a concession franchise contract signed September 25, 1950, the parties to which were Penn Sportservice, Inc. (Penn), a predecessor in interest of Sportservice, and the American League Baseball Club of Philadelphia (the then-owner of the Philadelphia Athletics baseball club), which in turn was owned by Connie Mack. The latter also owned Shibe Park (Connie Mack Stadium) where the Athletics' home games were played. At the time the contraсt was negotiated the Athletics had just concluded the baseball season with a losing record and were experiencing financial problems. On August 28, 1950 Mack had arranged to borrow $1,750,000 from the Connecticut General Life Insurance Company and in return gave a first mortgage on the stadium and agreed to assign his share of concession receipts as security.
The 1950 contract with Penn produced an additional source of revenue for the Athletics. By its terms Penn obtained a fifteen-year exclusive concession franchise for all events at Shibe Park, which was to be "unaffected by change of ownership" for whatever reason. For its part, Penn advanсed the team the sum of $150,000 and agreed to pay them 29% of its gross concession receipts and 35% of its advertising receipts, guaranteeing certain minimum payments. Penn also purchased the existing concession equipment at the stadium for $100,000, subject to an obligation on the part of the team to repurchase it for a like sum under certain conditions, and agreed to loan the Athletics an additional $100,000 in the future.
The contract was amended on July 1, 1952 to terminate any obligation of the team to repay the $100,000 equipment purchase price and in return the franchise was extended by ten years. In 1953, in order to secure a loan from Penn, the Athletics confirmеd by letter that if the team should move, the concessionaire would "follow the franchise," i. e., the Sportservice franchise would continue both at Shibe Park and at any new location of the club.
The Athletics changed hands in 1954 and when Arnold Johnson, the new owner, moved the team to Kansas City shortly thereafter, Penn's concession franchise right travelled with it under the follow-the-franchise provision. Johnson also decided to sell Shibe Park to the Phillies ball club and in order to facilitate the transaction, arranged to reduce the remaining term of the Penn franchise at the stadium by eight years and in turn, to extend the duration of the concession agreement with the Athletics by the same period. At that time Penn assigned its franchise right under the contract-which now ran for 33 years-to Sportservice and the latter undertook the concessions operations in Kansas City.
In 1961 Charles O. Finley & Company acquired ownership of the Kansas City Athletics, and Sportservice continued its concessions operations through the end of the 1967 baseball season, when Finley moved the team to Oakland, California. Sportservice, on the basis of the follow-the-franchise provision, insisted that its concession franchise was not terminated by the move; Finley, however, countered that it was not bound by the 1950 agreement. In 1968 another concessionaire, Volume Service Company, commenced operations at the Athletics' home games pursuant to a 1966 contract with Coliseum, Inc., the Oakland stadium authorities.
Sportservice filed suit, claiming that Finley is bound by the 1950 contract. Finley denied this and argued that the terms of the contract violated §§ 1 and 2 of the Sherman Act. The case was bifurcated into contract and antitrust segments and trial on the latter claim awaited resolution of the former. At the conclusion of trial on the contract issue the court found that "there was an understanding that the concession contract would follow the franchise prior to Finley's purchase of the Athletics or, in any event, that Finley had rаtified such an understanding and was now estopped from denying it." Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc.,
We shall first discuss whether Finley's antitrust claims are barred by limitations. Next we shall discuss the trial court's holdings that Sportservice properly was guilty of actual monopоlization and restraint of trade pursuant to Sections 2 and 1, respectively, of the Sherman Act. Thereafter we shall consider the trial court's conclusion, which it considered unnecessary to its judgment, that Sportservice engaged in a tying arrangement constituting a per se violation of § 1 of the Sherman Act. To conclude this opinion, we shall consider the trial court's holding that Sportservice, contrary to § 2 of the Sherman Act, attempted to monopolize. Throughout this opinion, for convenience, all actions taken by Sportservice's predecessor in interest, Penn, are attributed to Sportservice.
I.
Limitations
Certain defenses to Finley's counterсlaim were raised in the Sportservice brief that were not pressed upon the trial court. In view of our disposition of this case we feel it necessary to deal only with the assertion by Sportservice that Finley's treble damage action is barred under 15 U.S.C. § 15b, which provides that such actions are "forever barred unless commenced within four years after the cause of action accrued." A civil cause of action under the Sherman Act arises at each time the plaintiff's interest is invaded to his damage, and the statute of limitations begins to run at that time. Suckow Borax Mines Consol., Inc. v. Borax Consol., Ltd.,
"We are not dealing with a violation which, if it occurs at all, must occur within some specific and limited time span. (Citation omitted.) Rather, we are dealing with conduct which constituted a continuing violation of the Sherman Act and which inflicted continuing and accumulating harm .."
Thus the fact that the final amendment to the contract was made in 1954 does not preclude Finley from bringing suit in 1968. To hold otherwise is to say that some damage that might have been sustained was barred before it accrued. Highland Supply Corp. v. Reynolds Metals Co.,
II.
Actual Monopolization
There are two prerequisites to a showing of actual monopolization under § 2 of the Sherman Act, "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp.,
Monopoly power is the power to cоntrol prices or exclude competition. United States v. E. I. du Pont de Nemours & Co.,
Therefore, to determine whether a party has monopoly power it is essential first to define the "relevant market." Case-Swayne Co., supra,
In the present case, the lower court held, and it was not disputed on appeal, that the relevant geographic market is a national one. Controversy arises, however, in connection with the definition of the relevant product market. The Supreme Court has recognized that "(t)he market as most concepts in law or economics, cannot be measured by metes and bounds .... For every product, substitutes exist. But a relevant market cannot meaningfully encompass that infinite range." Times Picayune Publishing Co. v. United States,
The proper point of departure in any discussion of the relevant product market must be the rule of "reasonable interchangeability," enunciated in United States v. E. I. du Pont de Nemours & Co.,
In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that "part of trade or commerce", monopolization of which may be illegal.
That is, where therе is a high degree of substitutability in the use of two commodities, it may be said that the cross-elasticity of demand between them is relatively high, and therefore the two should be considered in the same market.
A like analysis applies when the market is viewed from the production rather than the consumption standpoint; the degree of substitutability in production is measured by cross-elasticity of supply. Substitutability in production refers to the ability of firms in a given line of commerce to turn their productive facilities toward the production of commodities in another line because of similarities in technology between them. Where the degree of substitutability in production is high, cross-еlasticities of supply will also be high, and again the two commodities in question should be treated as part of the same market. While the majority of the decided cases in which the rule of reasonable interchangeability is employed deal with the "use" side of the market, the courts have not been unaware of the importance of substitutability on the "production" side as well. Brown Shoe Co. v. United States,
With these principles in mind, we turn to the district court's definition of the relevant market. Its definition is founded on the premise that the concessionaire is the seller of concession services and that the purchaser of these services is the baseball team or stadium owner. From this premise it derived the conclusion that the sale of concession services to major league baseball was the relevant market. In reaching this conclusion it relied heavily upon its characterization of major league concession contracts as uniquely desirable contracts from the standpoint of a concessionaire. The district court observed, "There is no evidence of any willingness of a concessionaire to trade a major league baseball concession for any other or for a cluster of others; nor is there evidence of a club owner trading his share for a non-basеball concession share." Twin City Sportservice, supra,
We begin by pointing out that a concessionaire sells hot dogs, beer, and other concession items to spectators at various types of events. The market in which the concessionaire sells is the сoncession products market. Payment for these products is made by the spectators to the concessionaire. The authority to enter the concession products market in a particular place, manner, and time is obtained by the concessionaire from the ball team or stadium owner. This authority constitutes a francise. In exchange for obtaining a franchise the concessionaire undertakes to make certain payments to the grantor of the franchise, at least a portion of which payments generally are determined by reference to the gross receipts of the concessionaire.
These facts lead us to conclude that the trial court erred in treating Sportservice as a seller of concession services to major league baseball teams. Such services are sold to spectators who directly and immediately pay therefor-not to the major league baseball teams. The relationship between the major league baseball team or stadium owner and the concessionaire is one in which a franchise is sold by the ball team or stadium owner to the purchasing concessionaire. The market in which the franchise is sold is the franchise market-a market quite distinct from the concession products market. It follows thаt the relevant market with which we are concerned here is one in which the articles of commerce are franchises, not concession services. Ample testimony to support this conclusion of law was offered in the proceedings below.
We must hold, therefore, that the district court erred in its designation of the relevant market. We do not believe, however, that the present record permits us to fix the relevant franchise market. At trial, Sportservice argued that the relevant market should be defined in terms of "the exchange of concession franchises, for the sale of a limited menu of concession items, to spectatоrs in a closed area, either by vendors, by stands or both, where the preparation requires at most a grill and not a kitchen." So defined the market would encompass franchises at 1,250 arena-auditoriums, 850 stadiums, 623 horse racing tracks, and 35 dog racing tracks. Sportservice on appeal appears to have narrowed its definition to include only major sports stadiums and arenas. In view of the fact that the district court erroneously focused its attention on the sale of concession services, the present record does not enable us to determine the precise outlines of the relevant franchise market. We must, therefore, remаnd this case to the district court to determine the scope of the relevant franchise market.
In determining the proper relevant franchise market the district court should be guided by the following observations. We have already indicated that a concessionaire is a buyer in the franchise market and a seller in the concession products market. The willingness of a concessionaire to bid for a concession franchise depends upon his ability to move from selling concession items to spectators at one type of event or facility to those at the event or facility for which the franchise is offered. Only when his resources easily can be devoted to the concession products market for which the franchise is offered can the concessionaire make effective use of the franchise. Put in the technical terms of antitrust law, the cross-elasticity of supply in the concession products market limits the cross-elasticity of demand in the franchise market.
The evidence before the trial court strongly suggests that there is a high degree of "substitutability in production." That is, the evidence was sufficient to support a finding that many aspects of the concession operations at the various facilities presenting leisure time events other than major league basеball are the same or similar enough to each other and to those existing at major league baseball parks to be considered substitutable or transferable. Moreover, some concessionaires utilize the same employees, stands and equipment to sell concession items at different events in a given facility and, at the higher managerial level, also employ the same purchasing agents and supervisorial personnel. There exists evidence of inter-facility transferability as well. Stadium and ball club owners testified that in choosing a concessionaire, previous baseball experience is not a sine qua non for seleсtion. It is only necessary that the prospective concessionaire have engaged in a concession operation of a comparable magnitude so as to demonstrate an ability to perform satisfactorily.
It follows that the relevant franchise market cannot be limited to those offered for sale by major league baseball teams. The mere fact that, as the trial court found, major league baseball, because of its long season, frequency of games, and pace of play, produces the highest total concession revenues and profits of all sports does not alter this conclusion. The major league baseball team concession is a coveted franchise for this reason and, as a consequence, commands a high price on the franchise market. There are, however, other leisure time activities that offer for sale other concession franchises for which there are bids by concessionaires capable of serving both that for which they bid as well as major league baseball.
The authorities involving "submarkets" cited by the trial court to support its conclusion of law that the sale of concession services to major league baseball teams constituted the relevant "submarket" or "part" of commеrce included International Boxing Club v. United States,
Moreover, the scope of the relevant market is not governed by the presence of a price differential between competing products. In du Pont, for example, the Supreme Court included cellophane in the flexible wrapping market, along with glassine and grease-proof papers, its chief competitors, despite the fact that its cost was two or three times as great.
The relevant franchise market, however, does not embrace franchises offered in connection with leisure time activities that require the maintenance of a full kitchen. The requisite substitutability in production is lacking in this instance. The franchise market with which the trial court should be concerned on remand of this case is that which envisions the sale by the concessionaire of a limited range of concession items to spectators in a closed area, either by vendors, stands, or both, where the preparation requires at most a grill and not a kitchen. The leisure time activities with respect to which franchises within the relevant market are available are undoubtedly numerous. They may include all or a substantial number of the following: viz., football, basketball, hockey, soccer, boxing, racing, track and field, rodeos, circuses, and music festivals. Likewise the sellers of such franchises may include professional teams, sports organizations, and public and private operators of stadiums, arenas, race tracks, convention centers and amusement parks.
We conclude these guides to the trial court by observing that in establishing the relevant franchise market the trial court (1) should apply the test of reasonable interchangeability and (2) should trеat the leisure time activity or facility manager as the seller of the franchise and the concessionaire as the purchaser.
Our decision to remand this case makes it unnecessary to determine whether a 50% share of a major league baseball concession market amounts to a sufficient showing of monopoly power. We do, however, wish to remind the trial court when considering this case on remand of Judge Learned Hand's famous dictum that while 90% of the market "is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four per cent would be enough; and certainly thirty-three per cent is not." United States v. Aluminum Co. of America,
III.
Restraint of Trade
Our reversal and remand to determine the relevant franchise market also requires that we reverse and remand the trial court's finding that the 1950's contract between Sportservice and the Athletics was "unreasonably long in its original form and highly anti-competitive upon the addition of the ten and eight-year provisions ..." Twin City Sportservice, supra,
The test announced in Tampa Electric is as follows: "In practical application, even though a contract is found to be an exclusive-dealing arrangement, it does not violate the section (§ 3, Clayton Act) unless the cоurt believes it probable that performance of the contract will foreclose competition in a substantial share of the line of commerce affected." Id. at 327,
Nonetheless, we should not close this discussion without making two observations. The first is that a greater showing of anti-competitive effect is required to establish a Sherman Act violation than a § 3 Clayton Act violation in exclusive-dealing or requirements contracts cases. See E. Kitner, An Antitrust Primer, 58 (2d ed. 1973). The existence of this heavier burden is rooted in the languаge of the two statutes; the Sherman Act speaks of actual restraints of trade while § 3 of the Clayton Act speaks of effects of arrangements which may substantially lessen competition or tend to create a monopoly. The heavier burden required by the Sherman Act was recognized in connection with "tying" cases in Times Picayune v. United States,
Our second comment relates to the follow-the-franchise provision in the Sportservice-Athletics agreement which the trial court found acted as a restraint of trade as well as a mechanism to enforce the long term contract. We are inclined to doubt that this provision has independent anti-competitive effects apart from those springing from the length of the contract. Our doubt rests on the belief that in these days of highly mobile professional sports franchises follow-the-franchise provisions are needed even when the duration of the concession franchise is relatively short.
IV.
Tying
Our decision to reverse and remand the judgment of the trial court for the purpose of fixing the relevant franchise market makes it necessary that we consider the trial court's conclusion that Sportservice is guilty of a per se violation of § 1 of the Sherman Act under the reasoning of Fortner Entеrprises, Inc. v. United States Steel Corp.,
Fortner held that to offer loans on favorable terms on condition that the borrower purchase prefabricated houses constituted "a tying arrangement of the traditional kind,"
Our holding with respect to the relevant franchise market dictates our disapproval of this conclusion of the trial court. We view Sportservice as a purchaser of a concession franchise from the Athletics, the seller, in exchange for payments consisting of (1) certain loans and advances and (2) a percentage of gross receipts, payable throughout the life of the contract. Viewed in this manner, the sine qua non of a tying case, viz. two separate products, is lacking. See Siegel v. Chicken Delight, Inc.,
The absence of two separate products, the presence of which must exist in order to justify invoking Fortner,
V.
Attempt to Monopolize
The trial court's finding that Sportservice is guilty of an attempt to monopolize under § 2 of the Sherman Act must also be reversed. Although it is well established in this circuit that the "probability of actual monopolization" is not an essential element of proof of intent to monopolize, Lessig v. Tidewater Oil Co.,
Reversed and remanded.
Notes
Honorable William P. Gray, United States District Judge, Central District of California, sitting by designation
Even if we agreed with the trial court's basic premise, that the provision of concession services to major league baseball was the relevаnt market, its failure to include as participants in that market baseball clubs which supply their own concessions very likely would compel reversal on that ground. The considerations which, in the view of the trial court, make the opportunity to provide concession services to a major league baseball club a uniquely desirable and profitable one in the eyes of a professional concessionaire must also appeal to the stadium or team owner-cum-entrepreneur. Thus, the exclusion from the relevant market of baseball teams which run their own concessions operations-a pro-competitive influence in that market-could not be supported even under the trial court's conceptualization