Continental T.V., Inc. v. G.T.E. Sylvania Inc.

Decision Date30 December 1982
Docket NumberNo. 79-4131,79-4131
Citation694 F.2d 1132
Parties1982-2 Trade Cases 64,962, 1982-83 Trade Cases 65,150 CONTINENTAL T.V., INC., et al., Plaintiffs-Appellants, v. G.T.E. SYLVANIA INCORPORATED and John P. Maguire & Co., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Glenn E. Miller, Johnston, Miller & Giannini, San Jose, Cal., for plaintiffs-appellants.

M. Laurence Popofsky, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before FLETCHER and BOOCHEVER, Circuit Judges, and EAST, * District Judge.

FLETCHER, Circuit Judge:

Continental T.V., Inc. (Continental) appeals from a summary judgment in favor of G.T.E. Sylvania Incorporated (Sylvania) and John P. Maguire & Co. (Maguire). Continental challenges Sylvania's requirement that its dealers sell Sylvania products only from approved locations. The district court found, as a matter of law, that the restriction was not unreasonable. We affirm.

I FACTUAL BACKGROUND

This appeal involves the legality of a vertical restriction imposed by Sylvania, a manufacturer of television sets, on its retailers. The restriction requires Sylvania retailers to sell Sylvania products from authorized locations only. Sylvania imposed such a location restriction on Continental, a retailer.

Continental was the only approved dealer for Sylvania televisions in San Francisco until Sylvania, dissatisfied with sales in the area, authorized a second dealer for a location within a mile of one of Continental's San Francisco stores. Shortly thereafter Continental attempted to market Sylvania televisions from an outlet in Sacramento, California. Sylvania had authorized another retailer, Handy Andy, to sell its televisions from a Sacramento location, but refused to allow Continental to do so. Relations between Continental and Sylvania deteriorated generally, and Continental's credit line from Maguire, the company that provided financing to dealers for Sylvania products, was reduced drastically. Continental withheld payments owed Maguire, and shortly afterwards Sylvania terminated Continental's dealership.

II PROCEDURAL HISTORY 1

On October 12, 1965, Maguire sued Continental for the amounts owed it. Continental cross-claimed against Maguire and joined Sylvania as a defendant, suing both for damages caused by their alleged violations of section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1976), and on other counts not relevant to this appeal. The trial to a jury lasted several weeks. Continental was allowed to present whatever evidence it chose in support of its section 1 claim. At the conclusion of the trial, the court, relying on United States v. Arnold Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), 2 instructed the jury that an agreement to restrict the location of a retailer's outlets was a per se violation of section 1 of the Sherman Act. The jury returned a verdict for Continental on its claim that Sylvania had engaged in a contract, combination, or conspiracy in restraint of trade Sylvania, on appeal to this court, challenged the per se theory on which the case was submitted to the jury. We reversed, holding that the location restriction was factually distinguishable from the restrictions involved in Schwinn, making instruction on a per se theory incorrect. GTE Sylvania, Inc. v. Continental T.V., Inc., 537 F.2d 980 (9th Cir. 1976) (en banc). The Supreme Court, although affirming this court, found Sylvania's restrictions on its dealers indistinguishable in principle from the restrictions challenged in Schwinn. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 46, 97 S.Ct. 2549, 2555, 53 L.Ed.2d 568 (1977). The Court reconsidered Schwinn and overruled its prior decision that vertical nonprice 4 restrictions are a per se violation of the antitrust laws. Id. at 57, 97 S.Ct. at 2561.

                with respect to location restrictions. 3   Judgment was entered accordingly
                

The Supreme Court remanded the case to the trial court for further proceedings on the issue of whether, applying a rule-of-reason analysis, Sylvania's location clause violated section 1 of the Sherman Act. Sylvania moved for summary judgment in the district court, contending that the undisputed facts in the entire trial record proved its policies were reasonable as a matter of law. The district court agreed and granted Sylvania's motion. Continental T.V., Inc. v. GTE Sylvania, Inc., 461 F.Supp. 1046 (N.D. Cal. 1978).

III SUMMARY JUDGMENT

Continental appeals, arguing that summary judgment was inappropriate in this case. It argues that neither the Supreme Court nor this court found that Sylvania was entitled to judgment as a matter of law, but, to the contrary, found that Sylvania's "location practice" should be tested for legality under a rule-of-reason analysis. With this we agree. However, it does not follow necessarily that there must be a new trial. Although reasonableness is a question of fact, Betaseed, Inc. v. U & I Inc., 681 F.2d 1203, 1228-29 (9th Cir.1982), it is perfectly appropriate for the district court to deny a new trial and to grant summary judgment based on the record before it provided: 1) The traditional tests for summary judgment are met; 5 and, (2) Continental has not been precluded from introducing We avoid many of Continental's contentions that the facts are in dispute and that the district court inappropriately relied on stylized summaries from the appellate decisions, by relying entirely on Continental's version of disputed facts (except facts found by the jury from which no appeal was taken). We dismiss Continental's argument that it could and should be allowed to adduce on retrial additional evidence to support its claim under a rule-of-reason analysis that was not introduced at the first trial because of the theory under which the case was tried. Continental was not limited by the trial court as to the evidence it adduced and, on remand, failed to make any showing of additional evidence it could present when confronted with Sylvania's summary judgment motion.

evidence that would be admissible upon retrial to support its section 1 claim under a rule-of-reason analysis. 6

We proceed then to an analysis of whether the facts support a judgment for Sylvania as a matter of law. As an initial proposition we note that Continental, as plaintiff, bears the burden of proving that Sylvania's location clause was an unreasonable restraint on trade. Continental is wrong in its assertion that once it had proved the existence of a vertical restraint on trade--the location restriction in Sylvania's dealer contracts--the burden shifted to Sylvania to prove the restriction reasonable. The burden was Continental's to prove it unreasonable as part of its case-in-chief. Cowley v. Braden Industries, Inc., 613 F.2d 751, 755 (9th Cir.), cert. denied, 446 U.S. 965, 100 S.Ct. 2942, 64 L.Ed.2d 824 (1980). See Lektro Vend Corp. v. Vendo Corp., 660 F.2d 255, 269 n. 15 (7th Cir. 1981); Gough v. Rossmoor Corp., 585 F.2d 381, 385 (9th Cir. 1978), cert. denied, 440 U.S. 936, 99 S.Ct. 1280, 59 L.Ed.2d 494 (1979).

IV RULE-OF-REASON ANALYSIS

The Supreme Court's opinion in Sylvania directs that Sylvania's vertical restraint be tested under the rule of reason. The traditional formulation of the rule was long ago set forth in Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed. 683 (1918):

The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.

The Supreme Court's opinion in Sylvania does nothing to alter this traditional analysis. First Beverages, Inc. v. Royal Crown Cola Co., 612 F.2d 1164, 1170-71 (9th Cir.), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). The inquiry remains "whether the restraint in question 'is one that promotes competition or one that suppresses competition.' " Cowley v. Braden Industries, Inc., 613 F.2d at 754 (quoting National Society of Professional Engineers v. United States, 435 U.S. 679, 691, 98 S.Ct. 1355, 1365, 55 L.Ed.2d 637 (1978)).

The Court recognized that vertical restraints can promote competition and may be reasonable. Sylvania, 433 U.S. at 54-55,

                97 S.Ct. at 2559-2560. 7   It noted that promotion of interbrand competition "is the primary concern of antitrust law."    Id. at 52 n. 19, 97 S.Ct. at 2558 n. 19.  A vertical restraint may be reasonable if it is likely to promote interbrand competition without overly restricting intrabrand competition.   See Rice Tire Co. v. Michelin Tire Corp., 638 F.2d 15, 16 (4th Cir. 1981);  Daniels v. All Steel Equipment, Inc., 590 F.2d 111, 113 (5th Cir. 1979);  see also Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292, 297-98 (5th Cir. 1981).  We turn to a consideration of the effect of Sylvania's restraint on both intrabrand and interbrand competition
                
A. Effect on Intrabrand Competition

Sylvania's location clause, to the extent that it prevented Continental from establishing a retail outlet in Sacramento, would tend to harm intrabrand competition. As a result of the...

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