Paschall v. Kansas City Star Co., s. 81-1963

• Citation: 727 F.2d 692
• Decision Date: 06 February 1984
• Docket Number: 82-1390,Nos. 81-1963,s. 81-1963
• Parties: 1984-1 Trade Cases 65,841, 10 Media L. Rep. 1369 Gweldon Lee PASCHALL and All Intervenors, Appellees, v. The KANSAS CITY STAR COMPANY, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 692

727 F.2d 692

1984-1 Trade Cases 65,841, 10 Media L. Rep. 1369

Gweldon Lee PASCHALL and All Intervenors, Appellees, v. The KANSAS CITY STAR COMPANY, Appellant.

Nos. 81-1963, 82-1390.

United States Court of Appeals,

Eighth Circuit.

Submitted March 14, 1983.

Decided Feb. 6, 1984.

Sheridan Morgan, Kansas City, Mo., for appellees.

Daniel K. Mayers, Washington, D.C., for appellant.

Before LAY, Chief Judge, HEANEY, BRIGHT and ROSS, Circuit Judges, HENLEY, Senior Circuit Judge, McMILLIAN, ARNOLD, JOHN R. GIBSON and FAGG, Circuit Judges, en banc.

McMILLIAN, Circuit Judge.

The Kansas City Star Company (Star Co.) appeals from a final order entered in the United States District Court for the Western District of Missouri which permanently enjoined Star Co. from refusing to sell its newspapers to appellees at wholesale. For reversal Star Co. argues that its proposed change in distribution from the use of independent contract carriers to reliance on delivery agents does not violate the Sherman Act's prohibition against monopolization or attempts to monopolize interstate commerce. 15 U.S.C. Sec. 2 (1976). Star Co. also argues that appellees have suffered no cognizable antitrust injury and that, even if there were such an injury, the permanent injunction is unnecessarily broad to remedy it. In a separate appeal, Star Co. argues that the district court erred and abused its discretion in awarding attorney fees to appellees. For the following reasons, we overrule en banc the panel opinion and vacate the permanent injunction as well as the award of attorney fees.

I. FACTUAL BACKGROUND

The facts are set forth in the panel opinions. Paschall v. Kansas City Star Co., 695 F.2d 322, 325-26 (8th Cir.1982). Star Co. owns the two major daily newspapers in Kansas City, Missouri--The Kansas City Star and The Kansas City Times. Star Co.'s road to dominance in the Kansas City market, however, was marred by a conviction for attempted and actual monopolization in violation of Sec. 2 of the Sherman Act. Kansas City Star Co. v. United States, 240 F.2d 643 (8th Cir.1957). Both newspapers historically were distributed by independent contract carriers who bought the newspapers at wholesale from Star Co. and then resold them to the public at varying retail prices. The retail prices for the newspapers are set by these contract carriers, although in the past Star Co. had some control over the retail prices charged by the contract carriers. The wholesale price is set by Star Co. Originally the wholesale price was a set sum per delivered copy. Later, the wholesale price was calculated as a certain percentage of the retail price charged by the carrier. The percentage charged varied for each contract carrier based upon, among other things, the retail price that the contract carrier proposed to charge its customers.

Each contract carrier held a contract from the Star Co. which gave it the exclusive right to sell Star Co.'s newspapers along established routes. No contract carrier competed against any other contract carrier for retail business in any significant way. Instead, each contract carrier sold its newspapers only within its own territory or along its own route. Star Co., however, did reserve by contract the right to sell directly to subscribers if it felt that the contract carrier was not providing proper service. This right was exercised on at least one occasion and all of the contract carriers were acutely aware of the existence of Star Co.'s contractual right to compete at the retail level. However, Star Co. seldom delivered newspapers directly to subscribers. Contract carriers considered their Star Co. routes to be their "property," even though the routes existed only because of the exclusive but terminable distribution contracts entered into by each contract carrier and Star Co. When a contract carrier decided to leave the business, the contract carrier would "sell" its route to its successor. If Star Co. approved, the route purchaser would then enter into a new contract with Star Co. and become that route's new contract carrier. Prices for routes sold in this manner ranged into the hundreds of thousands of dollars for the largest routes.

In 1974, Star Co. informed the contract carriers by letter that in the future Star Co. might have to alter the way it distributed its two newspapers. This announcement so upset the contract carriers, all of whom had invested substantial sums in their routes, that it led one of them to bring this antitrust lawsuit. Then, in 1977, Capital Cities Communications, Inc. (Capital Cities) acquired control over Star Co. through a stock tender offer. Shortly thereafter, Capital Cities announced that it would terminate all contract carriers and replace them with Star Co.'s own delivery agents, thereby enabling Star Co. to sell its two newspapers directly to readers. It was also announced that once the delivery agent system was in place, Star Co. would no longer sell its two newspapers at wholesale to anyone. According to Star Co., the delivery agent system would be a significant improvement over the contract carrier system because Star Co. could set an area-wide uniform price for its newspapers and provide readers with better, more responsive service. Star Co. welcomed the current contract carriers to apply for positions as delivery agents. As an inducement, Star Co. promised that delivery agents would earn approximately the same income as the contract carriers had earned.

In response to these announcements, plaintiff-appellee Gweldon Paschall, along with approximately 250 other contract carriers, moved for and obtained a preliminary injunction against Star Co. barring it from implementing the delivery agent system. After a non-jury trial on the merits, the district court found that Star Co.'s planned vertical integration into delivery, coupled with its refusal to deal with the contract carriers, would violate Sec. 2 of the Sherman Act, 15 U.S.C. Sec. 2, because it would permit Star Co. to extend its monopoly in newspaper publishing into the retail newspaper market. The district court, therefore, permanently enjoined Star Co. from refusing to deal with the contract carriers or dealing with them in a discriminatory or predatory manner. ¹ On appeal a divided panel of this court affirmed the permanent injunction but reduced the district court's award of attorney fees to appellees to $2.5 million. Paschall v. Kansas City Star Co., 695 F.2d at 333-34, 338. On Star Co.'s petition, this court agreed to reconsider the case en banc.

II. Sec. 2 OF THE SHERMAN ACT--MONOPOLIZATION

There are two basic elements of a Sec. 2 Sherman Act violation. The first is the "possession of monopoly power ² in the relevant market" and the second is the "willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). The first element is easily disposed of in this case. The district court found that Star Co. had a monopoly in the wholesale metropolitan daily newspaper market. We adopt the district court's finding of monopoly power because it is not clearly erroneous. See Poster Exchange, Inc. v. National Screen Service Corp., 431 F.2d 334, 338 (5th Cir.1970), cert. denied, 401 U.S. 912, 91 S.Ct. 880, 27 L.Ed.2d 811 (1971). The second element, as it applies to the facts of this case, is more difficult to ascertain.

A. Specific Intent or Purpose

Generally, cases following the Supreme Court's landmark Sec. 2 Sherman Act decisions rendered during its 1947 Term have imposed liability for unlawful monopolization upon proof of either (1) the specific intent to monopolize or (2) anticompetitive effects that result from the monopolist's actions. See United States v. Columbia Steel Co., 334 U.S. 495, 531-32, 68 S.Ct. 1107, 1126-1127, 92 L.Ed. 1533 (1948) (Columbia Steel ); United States v. Griffith, 334 U.S. 100, 106, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1948) (Griffith ). One need not prove both specific intent and anticompetitive effects; either alone is a sufficient basis for the imposition of liability upon a business entity wielding monopoly power. Griffith, 334 U.S. at 105, 68 S.Ct. at 944-945; Columbia Steel, 334 U.S. at 531-32, 68 S.Ct. at 1126-1127. This rule proceeds from the premise that although monopolies are tolerated, they are not cherished. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 274 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980). Thus, a business entity that possesses monopoly power cannot lawfully exercise it with the specific intent of restraining competition because such actions entail a "dangerous probability" that the consequences prohibited by the Sherman Act may result. Griffith, 334 U.S. at 105-06, 68 S.Ct. at 944-945, citing Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 279, 49 L.Ed. 518 (1905). Similarly, a monopolist acting with a "pure heart" may not engage in activities which would directly and necessarily result in the unreasonable restraint of competition because that result is the specific evil which the Sherman Act was passed to prevent. Id.; Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d at 271-75.

As the Supreme Court made plain in Griffith, 334 U.S. at 107-08, 68 S.Ct. at 945-946,

[i]t follows a fortiori that the use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor, is unlawful.

....

... If monopoly power can be used to beget monopoly, the Act becomes a feeble instrument indeed.... [An action by a monopolist] may yield price or other lawful advantages to the buyer. It may not, however, be used to monopolize or to attempt to monopolize interstate trade or commerce. Nor, as we hold in United States v. Paramount Pictures, Inc., [334 U.S. 131,...