797 F.2d 370 (7th Cir. 1986), 85-3150, Olympia Equipment Leasing Co. v. Western Union Telegraph Co.

Docket Nº:85-3150.
Citation:797 F.2d 370
Party Name:OLYMPIA EQUIPMENT LEASING COMPANY, ALFCO Telecommunications Company, and Paula Jeanne Feldman, personal representative of the estate of Abraham Feldman, Plaintiffs-Appellees, v. WESTERN UNION TELEGRAPH COMPANY, Defendant-Appellant.
Case Date:July 18, 1986
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Page 370

797 F.2d 370 (7th Cir. 1986)


Company, and Paula Jeanne Feldman, personal

representative of the estate of Abraham

Feldman, Plaintiffs-Appellees,



No. 85-3150.

United States Court of Appeals, Seventh Circuit

July 18, 1986

Argued May 5, 1986.

Rehearing and Rehearing En Banc Denied Oct. 6, 1986.

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Andrew Hartzell, Jr., Debevoise & Plimpton, New York City, for defendant-appellant.

Paul E. Slater, Sperling Slater & Spitz, Chicago, Ill., for plaintiffs-appellees.

Before BAUER, POSNER and FLAUM, Circuit Judges.

POSNER, Circuit Judge.

The plaintiffs, affiliated companies (now defunct) and their assignee--we shall refer to the plaintiffs collectively as "Olympia"--brought this suit in 1977 against Western Union Telegraph Company, seeking damages for monopolization and attempted monopolization under section 2 of the Sherman Act, 15 U.S.C. Sec. 2, and for breach of contract under state law. The complaint also contained a count under section 1 of the Sherman Act, charging a conspiracy between the defendant and its parent corporation, but this count was dropped before trial, presumably because of the Supreme Court's decision abolishing the doctrine of intra-enterprise conspiracy. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984).

Trial was to a jury, which awarded (after remittitur) $12 million in antitrust damages and alternatively $12 million for breach of contract. The antitrust damages were trebled as required by law, making the total judgment $36 million plus a reasonable attorney's fee. Western Union appeals. Its principal argument is that the judge should have granted its motion for judgment notwithstanding the verdict (a motion renewing Western Union's motions for directed verdict made and denied at the close of the plaintiff's case in chief and again at the close of all the evidence) on both the antitrust and the contract counts; in other words, the case should never have gone to the jury, because on the evidence presented at trial no rational finder of facts could have found either an antitrust violation or a breach of contract. Western Union also argues that the award of damages was in any event grossly excessive.

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Although the trial lasted more than six weeks and produced the usual mountain of testimony and exhibits, the facts relevant to this appeal are simple. We state them as favorably to Olympia as the record permits, in view of the jury's verdict. As a natural evolution from its historic telegraph service, Western Union created "Telex," a switched message transmission service provided over communications lines owned or leased by Western Union and routed through exchanges owned by it. Western Union runs an access line from its local exchange to the subscriber's premises, where the line is hooked up to a terminal. The subscriber to the service can dial any other subscriber and, when connection is made, can transmit messages from his terminal to the other subscriber's terminal. Thus telex service is like telephone service except that the communications transmitted are messages rather than voice communications. Until the 1970s Western Union required its subscribers to lease their telex terminals from it. It bought these terminals from the Teletype Corporation; indeed the earliest and still a common type of telex terminal is the familiar teletypewriter. The price of telex service--a price regulated by the Federal Communications Commission--was a "bundled" price, meaning that it covered both telex service and the telex terminal. In 1971 Western Union bought from AT & T a service similar to and competitive with telex--TWX. We shall refer to the two services jointly as "telex." For background and approval of the acquisition see Western Union Telegraph Co., 24 F.C.C.2d 664 (1970).

Beginning with the Carterfone decision in 1968, the Federal Communications Commission opened the telephone terminal equipment market, historically dominated by AT & T (which like Western Union required its subscribers to lease their terminal equipment from it), to competition from independent providers of such equipment. See Use of the Carterfone Device for Message Toll Telephone Service, 13 F.C.C.2d 420 (1968); Illinois Bell Tel. Co. v. FCC, 740 F.2d 465, 468 (7th Cir.1984). Required to do the same in the telex terminal equipment market as a condition of being allowed to acquire TWX (see Western Union Telegraph Co., supra, 24 F.C.C.2d at 676; Western Union Telegraph Co., 39 F.C.C.2d 977, 978 (1973)), and in any event wanting to sell its terminals in order to raise capital to buy communications satellites for the transmission leg of its telex and other services, Western Union in 1973 announced that it was opening the telex terminal market to competition. It unbundled its pricing of service and equipment, told its subscribers they could cancel their existing leases of terminal equipment on 30 days notice and lease or buy such equipment from anyone they pleased, and told prospective vendors of such equipment that it would put them on a list which its salesmen would give new subscribers to telex service who were seeking terminals. Western Union even held a seminar for prospective vendors to encourage entry into the equipment market. Finally, it told its salesmen to try to sell its "installed base" of terminals--the 90,000 odd terminals that it owned and had leased to subscribers--to the lessees.

Since Western Union did not plan to buy additional telex terminals, the effect of this series of steps was to put Western Union on the road to withdrawing from the telex terminal market, the withdrawal to be completed when its last terminal was sold to the lessee of the terminal. Although the FCC had insisted that Western Union open the telex terminal market to competition as a condition of being allowed to buy TWX from AT & T, it never suggested that Western Union should leave the market, whether quickly or slowly. Western Union's decision to leave was voluntary.

Olympia, formed in 1975 to take advantage of the opportunity that Western Union had opened up for independent providers of telex terminals, bought terminals from Teletype Corporation just as Western Union had done. To obtain customers for its terminals Olympia relied on referrals from Western Union's salesmen--for Olympia had no sales force of its own, being a skeletal enterprise created largely for tax

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reasons. And yet for a period of several months in 1975, when Western Union's schedule of sales commissions encouraged its salesmen to push independently supplied terminals and when these salesmen were routinely showing the list of independent vendors to new telex subscribers, Olympia throve, installing 1,800 terminals--20 percent of all the telex terminals installed during this period.

Then the roof caved in. Western Union decided that it was liquidating its own inventory of telex terminals too slowly. It changed the schedule of commissions to encourage its salesmen to sell more Western Union terminals, and there is evidence that it also told the salesmen to stop showing the list of vendors to its subscribers. Between August and October 1975, sales and leases of terminals by Western Union to new customers rose from about 500 a month to 1,300 while Olympia's new leases fell from 425 to zero and sales and leases by other vendors fell from 1,300 to 500. Vendors who had their own sales forces were able to hang on, as these figures show. Olympia, which previously had depended entirely on referrals by Western Union's salesmen, tried to survive by hiring its own salesmen to solicit lessees of Western Union terminals. It hoped to persuade some of the lessees to cancel their leases. This effort to compete against Western Union's installed base enraged Western Union, which in the most dramatic document in the case announced that "these turkeys ... ought to be flushed." But nothing was done, or had to be done. Olympia's effort failed without any additional measures by Western Union, and Olympia went out of business in 1976.

On these facts, could a rational trier of fact find that Olympia was a victim of monopolization? The offense of monopolization under section 2 of the Sherman Act requires proof of monopoly power (the power to raise prices without losing so much business that the price increase is unprofitable, see, e.g., Ball Memorial Hospital, Inc. v. Mutual Hospital Ins., Inc., 784 F.2d 1325, 1335 (7th Cir.1986)) plus conduct designed to maintain or enhance that power improperly. See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., --- U.S. ----, 105 S.Ct. 2847, 2854 n. 19, 86 L.Ed.2d 467 (1985). Olympia's complaint also charges attempted monopolization, but in a case such as this where the plaintiff presents (as we shall see) adequate evidence of monopoly power, he can get no mileage out of charging attempted as well as completed monopolization. Conduct lawful for a monopolist is lawful for a firm attempting to become a monopolist. 3 Areeda & Turner, Antitrust Law p 828a (1978).

So far as terminal equipment is concerned, viewed separately from telex service, it seems inconceivable that Western Union could have had monopoly power in 1975. Then as now a vast array of terminals was available to telex subscribers, of which the 90,000 terminals owned by Western Union were only a tiny fraction. Western Union was not even a manufacturer of terminals. It was a jobber for Teletype Corporation; and but for Western Union's position as sole provider of telex service--an essential qualification, as we are about to...

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