M & H Tire Co., Inc. v. Hoosier Racing Tire Corp.

• Decision Date: 03 May 1984
• Docket Number: No. 83-1379,83-1379
• Citation: 733 F.2d 973
• Parties: 1984-1 Trade Cases 65,975 M & H TIRE COMPANY, INC., Plaintiff, Appellee, v. HOOSIER RACING TIRE CORPORATION, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 973

733 F.2d 973

1984-1 Trade Cases 65,975

M & H TIRE COMPANY, INC., Plaintiff, Appellee, v. HOOSIER RACING TIRE CORPORATION, et al., Defendants, Appellants.

No. 83-1379.

United States Court of Appeals First Circuit.

Argued Nov. 7, 1983.

Decided May 3, 1984.

John R. Hally, P.C., Boston, Mass., with whom William H. Baker, Neil P. Motenko, and Nutter, McClennen & Fish, Boston, Mass., were on brief, for appellants.

William F. Baxter, Asst. Atty. Gen., Wayne D. Collins, Deputy Asst. Atty. Gen., Barry Grossman, Atty., Dept. of Justice, and William J. Roberts, Atty., Dept. of Justice, Washington, D.C., on brief for the United States of America, amicus curiae.

Timothy J. Dacey, with whom Gael Mahony, Richard S. Boskey, and Hill & Barlow, Boston, Mass., were on brief, for appellee.

Before CAMPBELL, Chief Judge, ROSENN, ^* Senior Circuit Judge, and BOWNES, Circuit Judge.

LEVIN H. CAMPBELL, Chief Judge.

This appeal arises from a determination by the district court that Hoosier Racing Tire Corporation ("Hoosier"), acting in concert with four race tracks and several driving clubs, ¹ violated Section 1 of the Sherman Act. M & H Tire Co. v. Hoosier Racing Tire Corp., 560 F.Supp. 591 (D.Mass.1983). We reverse. The facts are set forth extensively in that opinion, and we repeat here only the more essential ones.

I.

The plaintiff, M & H Tire Co., Inc. ("M & H"), produces and sells racing tires. M & H filed suit after the defendant tracks and drivers had selected Hoosier, a rival, from among several producers including M & H, to be the sole tire supplier under a "single tire rule" for the "modified" class of auto racing at four tracks in the Northeast during the 1982 season. Initiated by certain promoters, the rule was proposed by the New England Drivers and Owners' Club ("NEDOC") and adopted at a meeting between NEDOC and the four tracks. NEDOC thereafter invited tire companies to submit sample low cost tires for testing and ran tests which resulted in the selection of a particular model of Hoosier as the sanctioned tire.

NEDOC is an unincorporated association composed primarily of drivers and car owners who race at Stafford, Seekonk, Riverside and Thompson speedways, the four tracks which initially adopted the rule. Because NEDOC members raced primarily (although not exclusively) at these four tracks, they sought acceptance of the tire rule there. NEDOC hoped to have the tracks adopt a single consistent rule rather than have its members confront different rules at each track at which they raced. However, while Riverside and Thompson initially agreed to implement the rule, they withdrew their support soon after, on advice of counsel, and are not defendants to this suit.

In addition to these four tracks, the record reveals at least 15 other tracks on the East Coast that conduct "modified" class auto racing on short oval tracks, and as many as 800 short oval tracks nationwide (though the record is not clear as to how many of these tracks conduct modified racing).

In auto racing there is no formal league as is found in sports such as football or baseball. However, there is a national racing organization, the National Association of Stock Car Auto Racing, Inc. ("NASCAR"), which had no connection with the challenged tire rule and is not a party to this lawsuit. As the district court found, NASCAR promulgates certain technical standards for modified race cars; it also sanctions and administers races at tracks that follow its rules; and it conducts a point fund for drivers who compile the best records in NASCAR sanctioned events. NASCAR sanctions the races at Stafford, Riverside and Thompson but not at Seekonk (although Seekonk follows NASCAR rules). The district court found that NASCAR "is not a recognized sanctioning organization" and that its rules "do not embody a complete regulatory scheme over the tracks as a whole, or even over all modified races at the tracks." Significantly, the NASCAR rules leave the tracks "free to promulgate regulations regarding the equipment used by competitors." There are no NASCAR regulations as to tire brands or compounds.

The function of the regional NEDOC group (not to be confused with the nationwide NASCAR just mentioned) is to negotiate with promoters on behalf of its member drivers and owners. It has also been a source of proposals for rules to be adopted by the tracks where its members race. The court found,

Among the rules proposed were those regulating equipment such as gear and carburetor rules, as well as bans on the use of fuel injection and aluminum block engines. Rules such as these regulating equipment had the avowed purpose of enhancing participant equality.

The single tire rule at issue here was adopted in a meeting between the NEDOC rules committee and the promoters of Stafford, Seekonk, Riverside and Thompson race tracks held at the Howard Johnson's in Warwick, Rhode Island, on December 17, 1981. The NEDOC officials and the track promoters unanimously agreed that all cars in the modified division should use the Hoosier 13-inch budget tire for the 1982 season. Soon thereafter, as already noted, two of the tracks withdrew on advice of counsel; and their withdrawal was followed by withdrawal of a third track (Stafford) six months later due to problems with the selected Hoosier tire. Only Seekonk continued to enforce the rule through the 1982 season.

Racing tires constitute a distinct market in interstate commerce--they are different from ordinary passenger tires. In 1982, besides M & H and Hoosier, there were only two, or possibly three, regular producers of such tires. Traditionally, racing tires are sold directly to drivers and racers at trackside, from trucks, on the day of races, with one or another brand finding favor on the basis of its success in recent races, and with considerable competition taking place, to the extent that producers would constantly make improvements and would even introduce new tires during each season to improve sales.

In the early days of modified racing, the cars resembled stock passenger cars and used tires similar to street tires. But in recent times the costs of racing have escalated as the result of more complex engines, chassis, frames, and tires. Tires and the compounds from which they are made, have become exceedingly sophisticated, calling for tire changes from race to race. Tire sizes among the faster tires have increased to a 15-inch tread, and they are softer, faster, less durable, and costlier. The cost of a single 15-inch modified tire in 1981 was $140 and by 1982 had risen to $170. To control these escalating costs, proposals were made by some of the tracks and promoters connected with this suit as well as others, from the early 1970's on, to require all competitors at a particular track to race for an entire season with a particular brand of tire. In 1978 Stafford promoter Yarrington tried to induce 20 Northeastern tracks to adopt such a rule, but was unsuccessful in persuading, among others, NEDOC's membership. There is evidence, however, that in the period 1979-1982 a number of Northeastern tracks other than defendants had single tire rules in effect.

The tracks and drivers here assert that they adopted a single tire rule for two purposes. First, to control the steadily increasing cost of auto racing, which threatened to reduce the field of (mostly amateur) participants, and second to promote greater parity among the competing cars. The cost savings goal was to be achieved by specifying a low cost 13-inch "budget" tire in the $90-$100 range, and the parity goal was to be achieved by designating a single permissible tire brand to insure, to the maximum extent possible, that all drivers were racing on a single rubber compound. One driver explained his reasons for wanting to race on a single compound as follows:

Well, it took a lot of weight off your shoulders, you might say, wondering during the week, making phone calls as to which compound is going to be the best, or was it a hot setup, and trying to track down the tires. You could concentrate on racing, having fun, which is what the sport is all about, I think.

So the competition, you could go there with a track tire, you knew everybody was on the same tire, which we were very competitive, and we were having a good time and enjoying racing. When you get tire compound to worry about it is just an added thing, added expense. Who needs it?

The district court did not dispute these assertions. It made no finding that the rule was adopted for other, perhaps ulterior, reasons. It found that there was no evidence of collusion between the drivers and tracks and the selected tire producer, Hoosier.

Nonetheless, the district court ruled that the defendants, by adopting and implementing a single tire rule, had conducted a group boycott of M & H, which was unlawful per se. The court additionally found that the purpose of the tire rule was "unmistakably" to fix maximum prices for racing tires. And even assuming the single tire rule was not illegal per se, the district court held that the rule was invalid under a rule of reason analysis. The court permanently enjoined the tracks and drivers from passing or enforcing a "single brand tire rule which designates one compound, one manufacturer, and one tire price." See Section 16 of the Clayton Act, 15 U.S.C. Sec. 26 (1982). The court also found that "M & H would have obtained approximately 45 percent of those Hoosier sales [made under the single tire rule], at a gross profit of $30 per tire equalling $24,597." After trebling the damages, the court awarded M & H $73,791.

On appeal, Hoosier and the tracks and drivers contend that the district court erred in finding a per se violation of the Sherman Act. And looking at the single tire rule under the rule of reason, they contend that no anticompetitive effect in a defined relevant market was established. Rather, the rule is justified in their view as a reasonable form of sports...