Wisconsin Music Network, Inc. v. Muzak Ltd. Partnership, 93-1039

• Citation: 5 F.3d 218
• Decision Date: 14 September 1993
• Docket Number: No. 93-1039,93-1039
• Parties: 1993-2 Trade Cases 70,357 WISCONSIN MUSIC NETWORK, INC., Plaintiff-Appellant, v. MUZAK LIMITED PARTNERSHIP, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 218

5 F.3d 218

1993-2 Trade Cases 70,357

WISCONSIN MUSIC NETWORK, INC., Plaintiff-Appellant, v. MUZAK LIMITED PARTNERSHIP, Defendant-Appellee.

No. 93-1039.

United States Court of Appeals Seventh Circuit.

Argued May 10, 1993.

Decided Sept. 14, 1993.

Stuart Parsons (argued), James P. Brennan, Quarles & Brady, Milwaukee, WI, for plaintiff-appellant.

Andrew O. Riteris, Joshua L. Gimbel, Michael, Best & Friedrich, Milwaukee, WI, George E. Greer (argued), Heller, Ehrman, White & McAuliffe, Seattle, WA, for defendant-appellee.

Before POSNER and FLAUM, Circuit Judges, and WILL, Senior District Judge. ^*

FLAUM, Circuit Judge.

Wisconsin Music Network, Inc. (WMNI) sued Muzak Limited Partnership for federal antitrust violations and a violation of the Wisconsin Fair Dealership Law (WFDL). After an evidentiary hearing, the district court denied WMNI's motion for a preliminary injunction, 822 F.Supp. 1332, and WMNI appeals. We affirm.

I.

Muzak formats and sells a service called subscription programmed music, operating through 14 owned operations and 160 franchises. Each operation or franchise distributes the Muzak service in an exclusive territory. WMNI has been the only Muzak licensee (or franchisee or affiliate ¹) in the Milwaukee area for almost fifty years. The franchisees sell the Muzak program within their territories, and also install and service the equipment needed to receive and distribute the product. They pay Muzak a ten-percent royalty on the sale of the music program. Muzak's biggest competitors are AEI, 3M, and the radio. 3M and AEI do not operate through franchisees; the two companies are vertically integrated, operating through a network of company-owned distributorships.

The 1980 License Agreement between Muzak and WMNI expired by its terms on March 31, 1989, while Muzak was drafting a new system-wide franchise contract with the International Planned Music Association ("IPMA"), an association of Muzak affiliates. According to the 1980 agreement, Muzak was required to offer WMNI a new license agreement under the same terms as the agreement offered to similarly-situated licensees. In light of the ongoing negotiations, the parties agreed to operate on a month-to-month basis, according to the terms of their last contract, until the new agreement had been hammered out.

The most significant and only relevant change in the 1991 License Agreement is the inclusion of the Multi-Territory Accounts ("MTA") Program. The MTA program is a national marketing plan created to enable Muzak to compete for national accounts with 3M and AEI, the other two biggest providers of subscription programmed music. Under the MTA program, national customers with more than fifty outlets located in at least four different Muzak affiliates' territories can negotiate a single contract with one representative of Muzak for uniform music service and standard rates for their outlets across the country. An eligible customer can be placed on the MTA list after the franchisee in whose territory the customer is headquartered consents in writing. Then an "assigned person" is designated to conduct the negotiations for a multi-territory contract, with the customer's headquarters and the MTA committee. The MTA committee consists of six members, three chosen by IPMA and three chosen by Muzak. ² The franchisee in whose territory the headquarters is located decides whether it or Muzak itself will be the assigned person.

The placement of a business on the MTA list is not binding on the customer outlets; any customer may contact the local Muzak franchisee instead of negotiating with the assigned person. After a contract for system-wide service is executed by an MTA customer, each franchisee may choose whether to provide service under the contract to the national customer's outlets located in its territory. If a franchisee chooses to provide service, it must do so according to the terms and conditions set forth in the MTA contract. If the franchisee decides not to provide service, the neighboring franchisee may provide the service.

In September of 1990, the new license agreement received unanimous approval from the Board of the IPMA. The Wisconsin Department of Securities also approved the agreement on January 15, 1991. When Muzak first offered its new contract to WMNI on January 31, 1991, WMNI balked at many of its terms, including the MTA program. ³ The same agreement was offered to every other similarly-situated Muzak franchisee, i.e., those whose previous contracts had expired; all but one other signed. Muzak and WMNI negotiated for over a year, but they could not reach a satisfactory agreement. On June 23, 1992, Muzak sent WMNI a letter demanding signature on the new agreement within sixty days or it would terminate their relationship at the end of ninety days. In response, WMNI filed this action in Wisconsin Circuit Court and Muzak removed to federal court. Eight days later, WMNI sought a preliminary injunction to prevent the termination of its Muzak license.

The district court held an evidentiary hearing on October 28, 1992. It also considered pre-hearing and post-hearing briefs and exhibits submitted by the parties. In its opinion, the court found that Muzak had not violated the WFDL by failing to renew WMNI as a licensee because WMNI had refused to comply with new requirements which were essential, reasonable, and non-discriminatory. It also determined that the new Muzak license agreement did not violate the federal antitrust laws. Because it found that WMNI had not demonstrated any likelihood of success on the merits, the district court denied WMNI's motion for a preliminary injunction. ⁴

II.

We review a district court's denial of a preliminary injunction for an abuse of discretion. More specifically, we review factual determinations for clear error and legal conclusions de novo, but the "ultimate evaluation ... is a highly discretionary decision ... to which [we] give substantial deference." Lawson Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1437 (7th Cir.1986). "The question for us is whether the judge exceeded the bounds of permissible choice in the circumstances, not what we would have done if we had been in his shoes." Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 390 (7th Cir.1984). The movant must show 1) a reasonable likelihood of success on the merits; 2) the inadequacy of a remedy at law; and 3) the existence of irreparable harm without the injunction, as a threshold burden. If the movant can demonstrate these three elements, the court weighs the relative harms to the parties and the probability of the movant's success on the merits. Kellas v. Lane, 923 F.2d 492, 493 (7th Cir.1990). "If it is plain that the party seeking the preliminary injunction has no case on the merits, the injunction should be refused regardless of the balance of harms." Green River Bottling Co. v. Green River Corp., 997 F.2d 359, 361 (7th Cir.1993).

A. The MTA Program and Federal Antitrust Laws.

Section 1 of the Sherman Act prohibits "[e]very contract, combination, ..., or conspiracy, in restraint of trade or commerce." 15 U.S.C. Sec. 1. Section 3 of the Clayton Act specifically prohibits price-fixing to the detriment of competition. 15 U.S.C. Sec. 14. WMNI argues that Muzak's inclusion of the MTA program in its license agreements should be analyzed as a per se antitrust violation. As the Supreme Court held in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49-50, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977), "[p]er se rules of illegality are appropriate only when they relate to conduct that is manifestly anticompetitive." According to the rule of reason, the "prevailing standard of analysis," the factfinder must determine from all of the circumstances of a case whether a practice unreasonably restrains competition. Id.; see also Business Electronics v. Sharp Electronics, 485 U.S. 717, 723, 108 S.Ct. 1515, 1519, 99 L.Ed.2d 808 (1988) ("Since the earliest decisions of this Court interpreting [section 1 of the Sherman Act], we have recognized that it was intended to prohibit only unreasonable restraints of trade."). Vertically-imposed, fixed resale prices, however, remain a per se violation. Id.

The district court employed the appropriate analysis under the rule of reason because the MTA program does not impose fixed resale prices. The evidence demonstrated that MTA contract prices vary among national customers and that the prices are determined through negotiations among the customer, Muzak representatives, and several franchisees, including the assigned person and MTA committee members. The program is not manifestly anti-competitive. In fact, after examining the program and its effect on the market, the district court concluded that the MTA program enhances competition by increasing the available choices for music service customers.

WMNI's problem with the MTA program lies in the restriction on the contractual terms, particularly the price term, it must offer to an MTA-listed customer who has chosen to negotiate with the assigned person for all of its outlets. While the local outlet of the MTA national customer may opt to abide by the national terms or to negotiate with the local franchisee, the Muzak franchisee must either abide by the MTA contract in dealing with the local outlet or give up that customer. In other words, the franchisee may not independently approach a local outlet which has chosen to use the national contract, in order to negotiate different terms. Muzak Multi-Territory Accounts Program, Ex. G Sec. 2. ⁵ WMNI claims that Muzak's insistence on franchisee acceptance of the MTA program violates the antitrust laws by requiring the franchisees to follow the national contract terms, including the price term, or to give up the local outlet to a neighboring franchisee which is willing to provide the service according to the national terms. WMNI competes primarily with the 3M and AEI distributors in its...