High Technology Careers v. San Jose Mercury News, 91-16526

Decision Date24 June 1993
Docket NumberNo. 91-16526,91-16526
Citation996 F.2d 987
Parties1993-1 Trade Cases P 70,279, 21 Media L. Rep. 1600 HIGH TECHNOLOGY CAREERS, a California partnership, Plaintiff-Appellant, v. SAN JOSE MERCURY NEWS, a California corporation, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

John I. Alioto, Michael J. Bettinger, Alioto & Alioto, San Francisco, CA, for plaintiff-appellant.

John E. Sparks, Antje J. Johnson, and Ronald S. Wynn, Brobeck, Phleger & Harrison, San Francisco, CA, for defendant-appellee.

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

Before: FARRIS, POOLE and WIGGINS, Circuit Judges.

FARRIS, Circuit Judge:

High Technology Careers appeals the district court's summary judgment in favor of the San Jose Mercury News in HTC's antitrust action alleging that Mercury News violated the Sherman Act, 15 U.S.C. § 2, by refusing to continue to publish HTC's advertising insert. We have jurisdiction of the timely appeal pursuant to 28 U.S.C. § 1291. We reverse.

FACTS

The San Jose Mercury News is a daily newspaper published in San Jose, California. Mercury News possesses 85% of the market for daily newspapers in Santa Clara County, America's leading county in high-tech employment and the heart of Silicon Valley. In 1990, Mercury News carried more than sixteen million lines of recruitment advertising, significantly more than any other newspaper in the country. Mercury News proclaims that it is "the world's leading recruitment advertising newspaper" and "America's # 1 newspaper in classified employment advertising."

In 1982, Rodney Lake and Fred Faltersack formed Westech Expocorp, which sponsored high-technology job fairs in Silicon Valley. The next year, Lake, Faltersack, Gregory Bahue, and Paul Burrowes formed High Technology Careers to advertise Westech's job fairs.

In 1984, HTC proposed that Mercury News accept a preprinted, presorted advertising insert that would be placed in the Sunday edition of the Mercury News preceding the Monday-Tuesday job fairs. Mercury News normally does not carry locally brokered preprint advertising, which is solicited by a third party rather than directly by the newspaper's classified advertisements department.

Mercury News nevertheless decided to accept the HTC insert because it would generate substantial net revenue in the form of insert fees, and Mercury News could avoid the potential threat of direct mail.

Mercury News carried the insert three times a year in 1984 and 1985 and six times a year between 1986 and 1990. The insert generated advertising revenue for Mercury News of more than $940,000. HTC never missed a payment despite rate increases of as much as fifty-six percent in 1989.

In 1986, Mercury News contacted the Equal Employment Opportunity Commission and the Fair Employment Practices Commission to determine whether direct mailing of newspaper recruitment advertising would serve as a practical and legal alternative to a newspaper insert. Mercury News took this unusual action to discover potentially damaging information to use against HTC in a future lawsuit.

In July 1990, Mercury News informed HTC that it would no longer accept the insert, and declined to give HTC any reason or explanation for the decision. In a one sentence letter to HTC, Mercury News stated that "The San Jose Mercury News has decided not to accept Westech's printed inserts for distribution in 1991." Mercury News instructed its employees that "notification was given without explanation to Westech and it is extremely important that no one at the Mercury News be drawn into a conversation about why we are refusing to accept these preprints." In a later document, Mercury News expressed the "[n]eed to come up with answers why we're not accepting insert. (All use same reason)." Eventually, Mercury News gave no official reason to inquiring advertisers. It merely refused to explain.

HTC brought this action, alleging that Mercury News's conduct was anticompetitive, in violation of section 2 of the Sherman Act. Following discovery, Mercury News moved for summary judgment, arguing that its decision to terminate HTC was not predatory because there were legitimate business justifications for refusing to carry the insert.

Mercury News argues that is has three valid business justifications for its decision to terminate the insert: 1) to control the editorial content of its own paper; 2) to eliminate lost revenue potential; and 3) to prevent HTC from free riding on Mercury News's reputation. The district court found that there was credible evidence that the first business reason, editorial control, was pretextual and therefore did not grant summary judgment on this basis. The court never addressed the third reason, elimination of free riding, as it is raised now for the first time on appeal. It found that Mercury News's claim of lost revenue was a legitimate business justification precluding antitrust liability, and granted Mercury News's motion for summary judgment.

STANDARD OF REVIEW

We review the district court's grant of summary judgment de novo. City of Vernon v. Southern Cal. Edison Co., 955 F.2d 1361, 1365 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 305, 121 L.Ed.2d 228 (1992). We must determine, viewing the evidence in the light most favorable to HTC, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. See Thurman Indus., Inc. v. Pay 'N Pak Stores, Inc., 875 F.2d 1369, 1373 (9th Cir.1989). Summary judgment is disfavored in antitrust cases. Christofferson Dairy, Inc. v. MMM Sales, Inc., 849 F.2d 1168, 1171 (9th Cir.1988).

DISCUSSION

I. Sherman Act, Section 2

HTC claims that it has presented genuine issues of material fact as to whether Mercury News has monopolized the recruitment advertising market in Silicon Valley in violation of Section 2 of the Sherman Act. The offense of monopolization under Section 2 of the Sherman Act has two elements: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen,

or historical accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966).

A. Monopoly Power in the Relevant Market

Monopoly power is the "power to control prices or exclude competition" in the relevant market, United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 1005, 100 L.Ed. 1264 (1956), and exists whenever prices can be raised above the competitive market levels. Jefferson Parish Hosp. v. Hyde, 466 U.S. 2, 27 n. 46, 104 S.Ct. 1551, 1566 n. 46, 80 L.Ed.2d 2 (1984). In order to determine whether Mercury News possesses monopoly power, the trier of fact must first determine the relevant market. Los Angeles Memorial Coliseum Comm'n v. National Football League, 726 F.2d 1381, 1392 (9th Cir.), cert. denied, 469 U.S. 990, 105 S.Ct. 397, 83 L.Ed.2d 331 (1984). Defining the relevant market requires identifying those competitors who have the actual or potential ability to deprive each other of significant levels of business. Pay 'N Pak, 875 F.2d at 1374.

HTC claims that the relevant market includes all high technology employment advertising in Santa Clara County daily newspapers. Using this definition, Mercury News possesses an 85% market share. Mercury News claims that the relevant market includes all newspapers, scientific journals, computer magazines, direct mail, radio and television in the ten-county area surrounding Santa Clara County. Using this definition, Mercury News possesses less than 30% of the market.

The process of defining the relevant market is a factual inquiry for the jury. Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 363 (9th Cir.), cert. denied, 488 U.S. 870, 109 S.Ct. 180, 102 L.Ed.2d 149 (1988). The court may not weigh evidence or judge witness credibility. Syufy Enter. v. American Multicinema Inc., 793 F.2d 990, 994 (9th Cir.1986), cert. denied, 479 U.S. 1031, 107 S.Ct. 876, 93 L.Ed.2d 830 (1987).

HTC and Mercury News have each presented strong evidence and compelling arguments to support their respective definitions of the relevant market. "The proper market definition in this case can be determined only after a factual inquiry into the 'commercial realities' faced by consumers." Eastman Kodak Co. v. Image Technical Servs., Inc., --- U.S. ----, ----, 112 S.Ct. 2072, 2090, 119 L.Ed.2d 265 (1992) (quoting Grinnell, 384 U.S. at 572, 86 S.Ct. at 1704). The district court properly found that it could not determine the relevant market on a motion for summary judgment.

B. Willful Maintenance or Acquisition of Monopoly Power

The second element of a Section 2 claim is the willful acquisition or maintenance of monopoly power. Grinnell, 384 U.S. at 570, 86 S.Ct. at 1703. A monopolist cannot use its power "to foreclose competition, to gain a competitive advantage, or to destroy a competitor." Eastman Kodak, --- U.S. at ----, 112 S.Ct. at 2090; United States v. Griffith, 334 U.S. 100, 107, 68 S.Ct. 941, 945, 92 L.Ed. 1236 (1948).

As a general rule, a monopolist has no duty to deal with its competitors. Eastman Kodak, --- U.S. at ---- n. 32, 112 S.Ct. at 2091 n. 32. This rule is not absolute, however. A monopolist can refuse to deal with its competitors only if there are legitimate competitive reasons for the refusal. Id.; See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 602-605, 105 S.Ct. 2847, 2857-2859, 86 L.Ed.2d 467 (1985); Oahu Gas, 838 F.2d at 368 (rejecting "broad contention that the antitrust laws may never impose duties on a monopolist to aid its competitors").

Liability turns, then, on whether "valid business reasons" support Mercury News's decision to terminate the insert. Aspen Skiing Co., 472 U.S. at 605, ...

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