Mozart Co. v. Mercedes-Benz of North America

• Decision Date: 18 September 1984
• Docket Number: No. C-81-0531-MHP.,C-81-0531-MHP.
• Citation: 593 F. Supp. 1506
• Court: U.S. District Court — Northern District of California
• Parties: The MOZART COMPANY, a corporation, Plaintiff, v. MERCEDES-BENZ OF NORTH AMERICA, INC., a corporation, Defendant.

593 F. Supp. 1506

The MOZART COMPANY, a corporation, Plaintiff, v. MERCEDES-BENZ OF NORTH AMERICA, INC., a corporation, Defendant.

No. C-81-0531-MHP.

United States District Court, N.D. California.

September 18, 1984.

COPYRIGHT MATERIAL OMITTED

Moses Lasky, Lasky, Haas, Cohler & Munter, San Francisco, Cal., for plaintiff.

Malcolm T. Dungan, George A. Cumming, Jr., Michael B. Flesch, Brobeck, Phleger & Harrison, San Francisco, Cal., for defendant.

OPINION AND ORDER

PATEL, District Judge.

This is an antitrust action, presently before the court on cross-motions for summary judgment. Plaintiff The Mozart Company, successor in interest to Eurasian Automotive Products, Inc., a wholesale automotive parts distributor, brought suit against defendant Mercedes-Benz of North America ("MBNA") alleging violations of §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act, 15 U.S.C. §§ 1, 2, and 14. Mozart contends that provisions of the Dealer Agreement between MBNA and each Mercedes-Benz franchised dealer constitute a per se tying violation of 15 U.S.C. §§ 1 and 14. Plaintiff alleges additionally that MBNA conspired with the franchised dealers to boycott independent replacement parts distributors, such as Eurasian, in further violation of § 1, and also attempted to monopolize the sale in the United States of replacement parts usable in Mercedes automobiles in violation of § 2. Defendant objects to the use of a per se rule and argues that a rule of reason standard should apply in this case. Since, according to defendant, the evidence Mozart has introduced concerning MBNA's alleged conduct involving threats, coercion and intimidation would be insufficient to permit plaintiff to prevail under a rule of reason standard, defendant's motion for summary judgment should be granted.

This court has had previous occasion to deal with most of the issues raised in this litigation. In United States v. Mercedes-Benz of North America, Inc., 517 F.Supp. 1369 (N.D.Cal.1981) ("MBNA"), after detailed consideration of the arguments raised by both parties, the court held that the per se standard applied. It then proceeded to deny both the government's and MBNA's motions for summary judgment and ordered the case to proceed to trial on "the issue of defendant's economic power and, if that be established, whether defendant can demonstrate sufficient business justification for a tying arrangement." Id. at 1373. At the same time, the court held that no factual dispute existed as to whether the Mercedes-Benz automobile and Mercedes replacement parts were two separate products tied together by the MBNA Dealer Agreement, or whether the agreement affected a not insubstantial amount of interstate commerce. Id. at 1391.

Other courts have also considered tying arrangement claims brought against MBNA. In IAP, Inc. v. Mercedes-Benz of North America, Inc., 571 F.Supp. 262 (D.N.J.1983) ("IAP"), the court went on at some length about the history of automobile production in general and the manufacture of replacement parts in particular. Id. at 265-67. It then cited Pick Mfg. Co. v. General Motors Corp., 80 F.2d 641 (7th Cir.), aff'd per curiam, 299 U.S. 3, 57 S.Ct. 1, 81 L.Ed. 4 (1936), which held that since "the preservation of the good will of the public is directly involved," General Motors did not violate § 3 of the Clayton Act by requiring Chevrolet and Buick dealerships to sell only genuine GM replacement parts or parts authorized by GM. 80 F.2d at 643-44. According to the IAP court, Pick created an automobile replacement parts "exception" to antitrust law that, in essence, forecloses any tying claim of this sort against any automobile manufacturer. 571 F.Supp. at 167-68.¹

In another action against Mercedes, Metrix Warehouse, Inc. v. Daimler-Benz A.G., 1982-2 Trade Cas. (CCH) ¶ 64,861 (D.Md.1982) ("Metrix I"), the court denied both parties' motions for summary judgment for substantially the same reasons as this court did in MBNA. Id. at 72,280. Following the decision in IAP, however, the Metrix court reconsidered its earlier opinion, concluded that Pick was controlling precedent, and granted summary judgment in favor of Daimler-Benz and MBNA. Metrix Warehouse, Inc. v. Daimler-Benz A.G., 1984-1 Trade Cas. (CCH) ¶ 65,766 (D.Md.1982) ("Metrix II"). Then, following the opinion of the Supreme Court in Jefferson Parish Hospital Dist. No. 2 v. Hyde, ___ U.S. ___, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984) ("Hyde"), the court determined that its second opinion in the case had been "premature," concluded that Hyde showed the notion of a Pick exception to be untenable, vacated Metrix II, and reinstated Metrix I. Metrix Warehouse, Inc. v. Daimler-Benz A.G., No. N 79-2066 (D.Md. June 11, 1984) ("Metrix III").

Now this court must decide once again whether summary judgment should be in favor of or against MBNA. After thorough consideration of the extensive documentary evidence, memoranda, and oral argument presented by both parties, the court has concluded that it must deny both motions for summary judgment. The court has found no reason to disturb its previous determination that a per se standard should be used to test the alleged tying violation at issue here. It also remains clear that Mercedes-Benz automobiles and Mercedes replacement parts are two separate products tied together by the MBNA Dealer Agreement, and that this arrangement affects a not insubstantial amount of interstate commerce. Substantial factual disputes exist regarding whether MBNA had sufficient economic power to coerce its dealers into the tying arrangement and a conspiracy to boycott, and, if that is demonstrated, whether MBNA had sufficient business justification for its conduct. There is also dispute regarding the issue of MBNA's attempt to monopolize the sale of Mercedes replacement parts.

I. Factual Background²

Defendant MBNA, since 1965 the exclusive United States distributor of Mercedes-Benz automobiles, markets its passenger cars and genuine and approved replacement parts through approximately 400 franchised dealerships.³ Each dealer becomes party to a standard written Dealer Agreement, the second part of which contains numerous "Standard Provisions." Paragraph 9C of that part of the agreement provides:

Dealer shall neither sell or offer to sell for use in connection with MB passenger cars nor use in the repair or servicing of MB passenger cars any parts other than genuine MB parts or parts expressly approved by DBAG if such parts are necessary to the mechanical operation of such MB passenger cars.

Part one of the Dealer Agreement defines "MB parts" as "parts, accessories, components, assemblies, and optional equipment for MB passenger cars supplied by MBNA, DBAG,⁴ or DBNA."⁵

Plaintiff rests its claim of a per se illegal tying arrangement on Paragraph 9C quoted above. Mozart contends further that in connection with this arrangement MBNA coerced its dealers into a conspiracy to boycott all independent replacement parts distributors, such as Eurasian Automotive Products, and also attempted to monopolize the sale of Mercedes replacement parts in the United States.

II. The Applicable Standard

In MBNA, defendant's primary arguments in favor of its own motion for summary judgment were that "because of the nature of its franchise arrangements, per se tying standards are inapplicable and that a rule of reason is the appropriate standard for determining restraint of trade." 517 F.Supp. at 1374. Even though this court determined in that action that a per se tying standard did indeed apply, MBNA repeats the same argument in this proceeding, contending that the cases of Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977) and Jefferson Parish Hospital Dist. v. Hyde, supra, plus a series of franchise/trademark cases decided by the Court of Appeals for the Ninth Circuit, compel a different result. According to Mercedes, these cases, taken together, stand for the proposition that tying arrangements are not per se illegal unless they are imposed upon the ultimate consumer. This means, contends defendant, that the law of tying essentially has no application to exclusive dealing arrangements between franchisors and franchisees. These remarkable conclusions do not find support in the authority MBNA cites. Neither GTE Sylvania nor Hyde provides a basis for the argument that a per se standard should not apply in this case, and the Ninth Circuit cases relied upon only support the theory that MBNA "may condition the sale of the passenger car on use of the Mercedes-Benz trademark." MBNA, 517 F.Supp. at 1374 (emphasis in original).⁶

As this court pointed out in MBNA, GTE Sylvania essentially overruled United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967) and criticized the Schwinn court for departing from a long line of authority treating vertical restrictions as subject to the rule of reason and for adopting the per se rule without performing the analysis required by Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). While some may have believed GTE Sylvania argued the Supreme Court's abandonment of the per se rule, Hyde certainly has dispelled that notion insofar as tying arrangements are concerned. Unlike its observation in GTE Sylvania that some vertical restrictions have an economic benefit, the court in Hyde, using a Northern Pacific analysis, announced its continuing belief that most tying arrangements are inherently anticompetitive.⁷ Furthermore, application of the per se rule to tying arrangements has a thirty-seven year history. By contrast the per se rule was short-lived in vertical restriction cases. Moreover, the reasoning of the GTE Sylvania opinion gives no hint that the per se rule "long ... applied to tying arrangements because of `their pernicious effect on competition and lack of any redeeming virtue'" was no longer to be applied to those cases. MBNA, 517...