Graphic Products Distributors, Inc. v. Itek Corp.

• Decision Date: 07 October 1983
• Docket Number: No. 81-7977,81-7977
• Citation: 717 F.2d 1560
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: 1983-2 Trade Cases 65,670 GRAPHIC PRODUCTS DISTRIBUTORS, INC., Plaintiff-Appellee, v. ITEK CORPORATION, individually and d/b/a Itek Graphic Products, Defendants- Appellants.

Page 1560

717 F.2d 1560

1983-2 Trade Cases 65,670

GRAPHIC PRODUCTS DISTRIBUTORS, INC., Plaintiff-Appellee, v. ITEK CORPORATION, individually and d/b/a Itek Graphic

Products, Defendants- Appellants.

No. 81-7977.

United States Court of Appeals, Eleventh Circuit.

Oct. 7, 1983.

Powell, Goldstein, Frazer & Murphy, Eugene G. Partain, Atlanta, Ga., Powell, Goldstein, Frazer & Murphy, Thomas D. Harper, Atlanta, Ga., Cleary, Gottlieb, Steen & Hamilton, Louis B. Kimmelman, George Weisz, New York City, for defendants-appellants.

John W. Chambers, Chambers, Chambers & Chambers, John W. Chambers, Jr., Atlanta, Ga., for plaintiff-appellee.

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

Before TJOFLAT and HATCHETT, Circuit Judges, and MORGAN, Senior Circuit Judge.

TJOFLAT, Circuit Judge:

This is an antitrust case involving nonprice, vertical restraints on trade. The defendant, Itek Corporation (Itek), appeals from a jury verdict in favor of plaintiff Graphic Products Distributors, Inc., (GPD) in a suit brought under, inter alia, Section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1976), and Section 4 of the Clayton Act, 15 U.S.C. Sec. 15 (1976 & Supp. V 1981). Itek contends on appeal that the district court should have granted it a directed verdict or judgment notwithstanding the verdict (n.o.v.) because (1) the evidence was insufficient to establish that its distribution system was an unreasonable restraint of trade; and (2) the evidence was insufficient to establish the amount of GPD's damages. It also contends that the district court should have granted it a new trial because the jury instructions misstated the applicable law. We affirm.

I.

Although we conclude that the evidence was sufficient to create jury questions regarding both liability and damages, we do so not without some reluctance. The evidentiary record is neither as extensive nor as precise as one would expect in a well-tried antitrust case. Most important, the history of Itek and evidence of its need to utilize the challenged vertical restraints to compete in the marketplace were not fully presented to the district court.

Itek's Graphic Products Division manufactures graphic equipment and supplies for the national graphic arts market. Its product line includes offset platemaking machines (platemakers), duplicators, camera processors, and microfilm equipment. ¹ Itek sells supplies to accompany these products, and provides the needed servicing as well. It had annual revenues of some $85,000,000 in 1977, the only year for which we have this data. Approximately one-third of those sales were in equipment, the rest in service and supplies. The record does not indicate what percentage of this revenue derived from each of Itek's product lines.

Prior to 1975, Itek distributed its equipment and supplies exclusively through its own sales organization. It had twenty-two direct sales or branch offices, concentrated in major urban areas with large potential markets. In order to increase sales in the areas outside those major urban centers already relatively well-covered by the branch offices, Itek decided to switch to a dual distribution system in the period 1975-76.

Under this dual system, Itek confined its branch offices' direct sales activity to within a 50-mile radius of the cities in which they were located. Using marketing areas designated by the Business Equipment Manufacturers Association (BEMA), Itek divided up the rest of the country and sought independent distributors for these remaining areas. BEMA areas assigned to a distributor did not overlap with those of any other distributor or any branch office. At the time of this litigation, there were approximately 30 such independent distributors.

We emphasize that the record does not indicate the extent of Itek's sales activities in the areas outside the major urban centers before or after the institution of the dual distribution system. The only evidence bearing on this point indicates that, prior to the implementation of the distributorship program, the branch office personnel would make infrequent trips to these areas. Nor does the record reveal the extent to which Itek's competitors were selling in these secondary markets. We do know, however, that all of Itek's previous efforts to appoint distributors had been with outside graphic equipment dealers. We do not know precisely what these existing graphic equipment dealers were selling, i.e., whether they were selling Itek-type products.

Other than for the territory ultimately assigned to GPD, the record does not disclose the extent of the potential market in these outlying areas for Itek's (or its competitors') products; nor does it reveal the extent to which that potential had been exploited. With respect to GPD's assigned territory, the record indicates that Itek had realized only 10-13 percent of the potential market for platemakers, and only 1-2 percent of the potential market for other graphic products. ²

Pursuant to this distributorship program, in 1975 an Itek representative approached Anthony Zatzos, a long-time Itek salesman, and asked if he would be interested in a distributorship. After several months of negotiation, Zatzos formed GPD, and in July 1975 it received a distributorship covering seven BEMA areas in Georgia and South Carolina. The distributorship agreement between Itek and GPD provided as follows:

1. GRANT OF DISTRIBUTORSHIP

[Itek] hereby grants to [GPD] and [GPD] accepts, a non-exclusive, non-transferrable Distributorship to purchase for resale and to service the [Itek] products and equipment specified in the attached Schedule "A" hereinafter referred to as "Products" in the area hereinafter referred to as the "Territory." [GPD] represents that [it] is actively engaged in the business of Graphic Equipment and supplies, Sales & Services and maintains 2 outside fulltime salesmen who regularly call on prospects and customers in the Territory hereinafter defined and maintains 2 outside fulltime Technical Service personnel in the same area.

GPD began operations in September 1975, with Zatzos as its president and two other former Itek employees as the other principals; it distributed the full line of previously described Itek products in the seven BEMA areas.

GPD made 90% of its sales within its assigned area, but 10% of its sales occurred within the territory of Itek's Atlanta branch office. The Atlanta branch manager complained to Itek's management about these sales, as well as a sale GPD made in Columbus, Georgia, to a customer within the territory of an Alabama-based distributor. Pursuant to a clause of the distributorship agreement providing for termination at will by either party upon 90 days written notice, Itek notified GPD on June 10, 1976 of its intent to terminate the agreement.

GPD brought this suit in May 1977, alleging violations of federal and state antitrust law. The complaint alleged that pursuant to a contract, combination or conspiracy to restrain trade, Itek compelled its distributors, as a condition of doing business with them, to enter into agreements restricting them to reselling its products only within a designated geographical territory, and only to customers within that territory. The complaint further alleged that Itek terminated GPD pursuant to its conspiracy to maintain these territorial and customer restrictions. GPD also asserted that these trade restraints were for the purpose of fixing prices.

In narrowing the issues for trial, the district court granted Itek's motion for summary judgment on GPD's price-fixing claim and on Itek's permissive counterclaim for a debt. Neither of these rulings are presented to us for review. The court also rejected GPD's claim that Itek's dual distribution system was a horizontal restraint of trade ³ and should be considered under the per se rule. Again, this finding is not before us for review.

The case was tried before a jury in May 1981. Much, if not most, of the testimony at trial was devoted to a dispute about the reasons for GPD's termination. At the close of GPD's case and at the close of all the evidence, Itek moved for a directed verdict. The court denied these motions. The jury returned a special verdict pursuant to Fed.R.Civ.P. 49(a). The jury specifically found: (1) Itek entered into a conspiracy, contract or combination with individuals or companies other than GPD the purpose of which was to restrain interstate trade or commerce; (2) the territorial restraints placed upon GPD by Itek were unreasonable and without valid business justification; (3) the motivating reason for the termination of GPD was GPD's violation of the territorial restrictions; (4) GPD was injured in fact as the direct and proximate result of the restraint placed upon it by Itek; (5) GPD suffered actual damage as a sole consequence of such injury. The jury awarded GPD $200,000 in damages. ⁴

Itek moved for judgment n.o.v. and, alternatively, for a new trial on the grounds that: (1) GPD failed to show the challenged restraint had an anticompetitive impact in the relevant market; and (2) GPD failed to prove the amount of its damages. ⁵ The district court summarily denied the motion and, pursuant to Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, tripled the jury's damages award and granted reasonable attorney's fees.

II.

At the outset, we must emphasize the limited character of our review. Itek's challenge to the court's failure to grant it a directed verdict or judgment n.o.v. is based on the insufficiency of the evidence to establish: (1) that the alleged restraints were unreasonable; and (2) the amount of GPD's net economic loss. In this posture, we consider all of the evidence in the light and with all reasonable inferences most favorable to the party opposed to the motion. "If the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary...