Heatransfer Corp. v. Volkswagenwerk, A. G.
| Decision Date | 13 June 1977 |
| Docket Number | No. 75-2779,75-2779 |
| Parties | 1977-1 Trade Cases 61,473 HEATRANSFER CORPORATION, Plaintiff-Appellee, v. VOLKSWAGENWERK, A. G., et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Charles T. Newton, Jr., Houston, Tex., Cicero C. Sessions, New Orleans, La., Herbert Rubin, Cecelia H. Goetz, New York City, Richard A. Posner, Chicago, Ill., for defendants-appellants.
John L. Jeffers, Jr., Ralph S. Carrigan, Alan S. Gover, Houston, Tex., for plaintiff-appellee.
Bennie Bock, II, New Braunfels, Tex., for other interested party.
Appeal from the United States District Court for the Southern District of Texas.
Before GOLDBERG, SIMPSON and FAY, Circuit Judges.
I. PRELIMINARY STATEMENT
This appeal has generated a record of giant proportions. We are presented with 37 volumes of transcript, nine appendix volumes of abbreviated transcript, six briefs totalling 409 pages (with 83 pages of appendices), over 1600 exhibits, and considerable correspondence to this Court from the parties. We have done our best to pare down the issues and arguments presented on appeal, and the discussion and disposition of those issues and arguments, to the greatest extent possible consistent with reasoned resolution of the controlling questions presented. The result is an opinion still regrettably overlong.
II. NATURE AND DISPOSITION OF THE CASE
Plaintiff-appellee Heatransfer Corporation filed a private antitrust suit, pursuant to Section 4 of the Clayton Act, 15 U.S.Code, Section 15, against defendants-appellants Volkswagenwerk Aktiengesellschaft (VWAG); its wholly-owned subsidiary, Volkswagen of America, Inc. (VWoA); and two wholly-owned subsidiaries of VWoA, Volkswagen South Central Distributor, Inc. (VWSC) and Volkswagen Products Corporation (VPC). Heatransfer's complaint alleged multiple violations of Sections 1 and 2 of the Sherman Act, 15 U.S.Code, Sections 1-2, and Section 7 of the Clayton Act, 15 U.S.Code, Section 18.
The case was tried before a six-person jury, and was submitted for special verdict under Rule 49(a), Federal Rules of Civil Procedure, with 15 written Questions to be answered by the jury. 1
The jury's findings, in response to the written questions submitted may be summarized as follows:
(1) The provisions of the Volkswagen dealer and distributor franchise agreements constitute tying agreements, in violation of Section 1 of the Sherman Act.
(2) VWAG, VWoA (or VWSC), and VPC each (a) engaged in a conspiracy, combination, or agreement to restrain trade unreasonably, in violation of Section 1 of the
Sherman Act; and (b) conspired or attempted to monopolize, or monopolized, the sale of air-conditioners for Volkswagen, Porsche, and Audi automobiles throughout the world, in violation of Section 2 of the Sherman Act.
(3) The acquisition by VWoA of Inter Continental Motors Corp. may substantially lessen competition in the sale of air-conditioners for Volkswagen, Porsche, and Audi automobiles, in violation of Section 7 of the Clayton Act.
(4) Delanair Engineering Co. was not a failing company, and VWoA's acquisition of Delanair may substantially lessen competition in the sale of air-conditioners for Volkswagen, Porsche, and Audi automobiles, in violation of Section 7 of the Clayton Act.
(5) Heatransfer sustained injury to its business or property that was directly and proximately caused by one or more of the violations found, and its damages were $5 million.
The damage award was trebled pursuant to 15 U.S.C., Section 15, 2 and an attorney's fee of $350,000 was added to the judgment, making a total judgment of $15,350,000.
III. THE FACTS
The facts as we state them were largely uncontroverted at trial, although sometimes subject to contrary inferences. As to facts in dispute, we state them in a manner consistent with the jury's Special Verdict, and as supported thereby.
The distribution system of Volkswagen products in the United States is essentially VWoA. VWoA buys automobiles and parts from VWAG for resale in this country. During the relevant time period, VWoA sold four basic types of Volkswagen vehicles: Type I the "Beetle"; Type II the "VW bus", a large station wagon, which is also available as a camper; Type III a squareback, which is also available as a small station wagon; and Type IV a larger, more powerful, version of the Type III. All of the above models have air-cooled engines mounted in the rear of the car, although in 1973, the Type III was replaced by the Dasher, which has a front-mounted, water-cooled engine.
Since 1969, VWoA has also imported the Porsche 911 an expensive sports car manufactured by Porsche; and the Porsche 914, an economy sports car manufactured jointly by VWAG and Porsche. 3 Both Porsche models have air-cooled engines. In 1970, VWoA began importing the Audi, a medium-sized car with a front-mounted, liquid cooled engine.
From its inception in 1956 until the early 1960s VWoA distributed the products it imported to 14 independent Volkswagen distributors in the continental United States. 4 These distributors were independently owned wholesale operations which purchased Volkswagen, Porsche, and Audi cars, parts, and accessories from VWoA, and purchased some parts and accessories from other suppliers as well. The distributors resold these products to the automobile dealers. 5 Beginning in the 1960s, VWoA began purchasing these distributorship operations, and by the time of trial of this case it had acquired 8 of the original 14 distributorships.
By 1968, VWoA was selling more than a half million new Volkswagens per year in the United States, which amounted to just over 55% of all imported car sales, and 5.5% of the total United States car market. By 1970, Volkswagen sales mounted to 6.8% of total automobile sales in the United States, with approximately 570,000 Volkswagens sold that year. Its percentage of the foreign car market for 1970 was 46.2%. By 1973, due to much stronger competition from other importers, VWoA (Volkswagen, Porsche and Audi) maintained 31.3% of the imported car market, and the Volkswagen percentage of the total car market had fallen to 4.1%. These figures were still very impressive considering the increase of sales among domestic and foreign manufacturers of cars in direct competition with VWoA imports.
None of these cars imported by VWoA had factory-installed air-conditioners. Since air-conditioning was becoming almost a standard item in the United States by the end of the 1960s, there appeared to be a waiting market for an air-conditioner that would function satisfactorily in the VWoA imports. 6
VWAG first attempted in 1973 to install factory air-conditioning in automobiles for export to the United States. One thousand Audi cars were equipped with factory installed air-conditioners before being shipped to the United States. The results were not impressive. T.R., pp. 3674-3676.
The basic components of an automobile air-conditioner are: the compressor; a pump, powered by the automobile engine, which circulates the coolant; the condenser, which uses the car's airflow, supplied principally by the car's movement and the radiator fan, to condense the coolant gas into liquid form; and the evaporator, where the liquid evaporates and is blown as cold air into the car.
In water-cooled cars, the condenser is placed in front of the radiator, so that outside air, "ramming" through the front of the car, can help to supply the condenser with its need for a flow of air coming over it. The main airflow, however, is supplied by the radiator fan.
In the air cooled, rear engine Beetle Volkswagen, this technique was not practicable. Ramming of outside air over the condenser would be impossible with the condenser in the rear with the engine. And, of course there was no radiator fan to provide the necessary constant airflow.
To overcome these problems, Don P. Dixon, founder of the DPD Manufacturing Company, designed a condenser that would fit behind the spare tire in the front compartment of the Beetle, and a separate fan that would provide independent airflow for the condenser. He also designed a compressor to fit in the rear engine compartment next to the engine, and an evaporator to fit partially in the front end of the car and partially under the dashboard in the passenger compartment. Because of the scattered placement of the component parts of the air-conditioning unit, it was necessary to run hoses and electrical wires underneath the floorboard to make the component parts function as a working unit.
Delanair Engineering Company, 7 which became VWoA's approved supplier in 1963, had also designed a compressor to fit in the rear engine compartment next to the engine. The condenser system designed by Delanair, however, was markedly different from the DPD front-located condenser system. Delanair designed two condensers which were to be placed under the rear of the car. They were connected by tubing with a propeller fan blowing air over one of the condensers. The evaporator was placed entirely under the dash in the passenger compartment. The main defect with the Delanair unit was that the condensers were constantly exposed to damage because of their proximity to the road surface. 8 Aside from the difficulties associated with the DPD and the Delanair units, both offered at least some solution to the Beetle's lack of a radiator fan by providing independent airflow within the condenser system.
In 1963, Henry Willard Lende, Jr., formed a company, Heatransfer Corporation, for the purpose of selling the DPD units to Volkswagen dealers. Lende testified at trial that the main obstacle to his sales efforts were the problems encountered installing the unit:
"Those fellows (working for the dealers) didn't know how to install an air conditioner, because it was a new product, and it was an involved complicated product. You had mechanics putting mechanical things in a...
To continue reading
Request your trial
-
Lockheed Martin Corp. v. Boeing Co.
...hospitals with more than 200 beds and the paper sold to "smaller hospitals, clinics, and doctors' offices." Id. at 825. In Heatransfer Corp. v. Volkswagenwerk, A.G., by contrast, the Fifth Circuit Court of Appeals held that the relevant market for automobile air conditioners was legitimatel......
-
Domed Stadium Hotel, Inc. v. Holiday Inns, Inc.
...8 L.Ed.2d 510; Hornsby Oil Company, Inc. v. Champion Spark Plug Co., 714 F.2d 1384, 1393 (5th Cir.1983); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir.1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978). The fact finder may determine a submarket exist......
-
Town Sound & Custom Tops v. Chrysler Motor Corp.
...100 L.Ed.2d 215 (1988); Mozart Co. v. Mercedes-Benz of North America, Inc. 833 F.2d 1342 (9th Cir.1987); Heatransfer Corp. v. Volkswagenwerk, A.G. 553 F.2d 964 (5th Cir.1977), cert denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978). In such cases, courts have adopted a one-manufact......
-
Storer Cable Communications v. MONTGOMERY, ALA.
...market for antitrust purposes may be limited to the sale of that product to those purchasers. See, e.g., Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 980-81 (5th Cir.1977) (relevant market consisted of sale of air conditioners for only Volkswagen, Porsche, and Audi automobiles, ......
-
What Companies Dont Know Can Hurt Them: Monopolization Offenses
...(explaining that market shares of 70%, 78% and 89% sufficiently supported monopoly power); Heattransfer Corp. vs. Volkswagenwerk, A.G., 553 F.2d 964, 981 (5th Cir. 1977) (citing United States v. E. I. DuPont de Nemours & Co., 351 U.S. 377 (1956)) (explaining 71%-76% market share was suf......
-
Judicial Relief and Remedies
...30507 (E.D. Cal. 1986). 216 . See 15 U.S.C. § 15. 217 . 429 U.S. 477 (1977). 218 . But see Heatransfer Corp. v. Volkswagonwerk, A.G., 553 F.2d 964 (5th Cir. 1977) (affirming a $5 million damage award stemming from an illegal vertical acquisition that precluded competition in the downstream ......
-
Section 2 of The Sherman Act
...of dollar volume, though presenting a closer issue, was sufficient to show monopoly power); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 981 (5th Cir. 1977) (71 to 76 percent market share is sufficient to establish monopoly power); Greyhound Computer Corp. v. IBM, 559 F.2d 488, ......
-
Table of Cases
...U.S. 251 (1972), 14, 486 Hayden Publ’g Co. v. Cox Broad. Corp., 730 F.2d 64 (2d Cir. 1984), 95 Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir. 1977), 369, 542 Hecht v. Pro Football, Inc., 570 F.2d 982 (D.C. Cir. 1977), 489 Heerwagen v. Clear Channel Commc’ns, 435 F.3d 219 ......
-
Relevance
...that it is better practice to omit any reference to treble damages from the jury instructions); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 989 n.21 (5th Cir. 1977) (holding that a jury instruction on trebling was properly refused because the role of the jury is simply to compu......