American Academic Suppliers, Inc. v. Beckley-Cardy, Inc., BECKLEY-CARD

• Decision Date: 17 January 1991
• Docket Number: INCORPORATE,No. 90-2273,BECKLEY-CARD,D,90-2273
• Citation: 922 F.2d 1317
• Parties: 1991-1 Trade Cases 69,296, 65 Ed. Law Rep. 92 AMERICAN ACADEMIC SUPPLIERS, INCORPORATED, Plaintiff-Appellant, v.efendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1317

922 F.2d 1317

1991-1 Trade Cases 69,296, 65 Ed. Law Rep. 92

AMERICAN ACADEMIC SUPPLIERS, INCORPORATED, Plaintiff-Appellant, v. BECKLEY-CARDY, INCORPORATED, Defendant-Appellee.

No. 90-2273.

United States Court of Appeals Seventh Circuit.

Argued Dec. 7, 1990.

Decided Jan. 17, 1991.

Richard P. Campbell, Anthony S. DiVincenzo, Chicago, Ill., for plaintiff-appellant.

Lee A. Freeman, Jr., Scott R. Williamson, Freeman, Freeman & Salzman, Chicago, Ill., Lewis R. Clayton, Robert L. Ernst, Aidan Synnott, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendant-appellee.

Before POSNER and RIPPLE, Circuit Judges, and GRANT, Senior District Judge. ^*

POSNER, Circuit Judge.

This is a suit, primarily under federal antitrust law, seeking damages and an injunction. The plaintiff, American Academic Suppliers, a distributor of educational supplies to schools, charges that one of its competitors, Beckley-Cardy, is attempting to monopolize the market for such supplies in Ohio and Illinois, in violation of section 2 of the Sherman Act, by charging discriminatory below-cost prices, thereby violating section 2(a) of the Clayton Act (as amended by the Robinson-Patman Act) as well. 15 U.S.C. Sec. 13(a). There are pendent claims (also supported by the diversity jurisdiction) under Illinois and Ohio law, charging Beckley-Cardy with a variety of unfair and deceptive practices. For the most part these claims duplicate the federal antitrust claims, but they include a charge that Beckley-Cardy disparaged American Academic Suppliers in a letter that it sent to customers. The district judge granted summary judgment for Beckley-Cardy on all counts and dismissed the suit.

The modern conception of the Sherman Act is of a statute that seeks to protect consumers from monopolistic practices rather than competitors from competitive practices. A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1401 (7th Cir.1989), and cases cited there. To establish an attempt to monopolize in violation of the Act, therefore, the plaintiff must show that there is a substantial danger that the defendant's conduct, if allowed to continue, will harm consumers. Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413-16 (7th Cir.1989). That is a difficult showing to make in a case such as this where the conduct in question consists primarily of charging lower prices. Consumers like lower prices. The plaintiff must therefore show that the defendant's lower prices today presage higher, monopolistic prices tomorrow. Id. at 1414-16; A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., supra, 881 F.2d at 1401. If undisputed facts make this sequence highly unlikely, the defendant is entitled to summary judgment. Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587-95, 106 S.Ct. 1348, 1356-61, 89 L.Ed.2d 538 (1986).

The sequence is highly unlikely unless the defendant already has monopoly power--the power to charge a price higher than the competitive price without inducing so rapid and great an expansion of output from competing firms as to make the supercompetitive price untenable. If he does not have such power, he will not be able to recoup the losses sustained in pricing below cost by later raising his price above the competitive level. Id. at 589, 106 S.Ct. at 1357. In that event the below-cost pricing will only benefit, and not harm, consumers, either in the long run or in the short run.

To say that to be guilty of attempted monopolization a defendant must have monopoly power (because otherwise his attempt does not have a dangerous probability of succeeding) may seem to collapse the two offenses of monopolization and attempted monopolization into one. Not so. To have a monopoly and to monopolize are two separate things. The offense of monopolization is the acquisition of monopoly by improper methods or, more commonly--as in United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.1945), and most of the other famous monopolization cases--the abuse of monopoly, the latter occurring for example when a monopolist by pricing below cost succeeds in repelling or intimidating new entrants or extending his monopoly into new markets. Firms found guilty of attempting to monopolize are typically, and in predatory pricing cases must always be, monopolists.

The smaller the defendant is in his market and the less time and money it takes for a new firm to enter that market, the less plausible is an inference that the defendant has monopoly power. Beckley-Cardy buys from manufacturers a vast array of educational supplies, ranging from school desks to maps to crayons and excluding only food and textbooks, lists them in its catalog, and resells them to public and private schools throughout the country. It employs a sales force to call on school purchasing agents; the salesmen are empowered to negotiate discounts from the catalog prices. Beckley-Cardy has hundreds of competitors, and its share of the entire educational supplies market (as defined above), nationwide, does not exceed 3 percent although there are categories of supplies in which it has a regional "market" share in excess of 25 percent. Not only has Beckley-Cardy a horde of existing competitors, but new entry is exceedingly easy, as the facts of this lawsuit show. In 1984 the then president of Beckley-Cardy left to form his own firm--American Academic Suppliers. The original capital, contributed by him and others, was slightly less than $500,000. His strategy for gaining a foothold in the market was to hire salesmen whom he had known at Beckley-Cardy. It was a strategy easily implemented, because Beckley-Cardy had failed to negotiate for noncompete clauses in its contracts with the salesmen.

In 1987, Beckley-Cardy raised the prices listed in its catalogs. Whether as a consequence of the price increase, or of the accelerating "theft" of Beckley-Cardy's salesmen by American Academic Suppliers, or both, American Academic Suppliers' sales soared that year and Beckley-Cardy's plummeted. Beckley-Cardy responded the following year by reducing its catalog prices nationwide by 5 to 12 percent and by offering a discount of 25 to 40 percent off the catalog prices on approximately 30 percent of its line in those parts of Ohio and other states in which American Academic Suppliers was making heavy inroads. The discount was in effect for eleven months. It was terminated when this suit was brought, although the causal relation between these events is in question. It was in a letter announcing the discount to some of its customers that Beckley-Cardy allegedly disparaged American Academic Suppliers. The letter did not refer to any firm by name but did note that the salesman who had serviced the customers' accounts for Beckley-Cardy had "resigned to accept new employment," and it went on to warn the customer that "you will probably be approached by firms offering you outlandish promises of service and prices. In most cases, because of lack of facilities, they will not be in a position to fill your order completely or on time."

The price cutting and the letter did not drive American Academic Suppliers out of any area. In fact its sales continued to grow during the period in which the discount was in force.

It is difficult, to say the least, to see how the discount, steep as it was, contained a hidden menace to the consumers who lapped it up. Suppose the discount had been continued until American Academic Suppliers cried "uncle" and left the business. The discount probably could not have done this no matter how long continued. It was on only a fraction of the total product line of both Beckley-Cardy and American Academic Suppliers. So at most it would have driven the latter from a portion of its business, leaving it free to reenter that part of the market as soon as Beckley-Cardy raised prices in an attempt to recoup the losses sustained by it during the period when it was discounting. But forget this point and the cognate point that the discount was not in force in all the geographical areas in which American Academic Suppliers sold, and assume that American Academic Suppliers would have folded under the blast by the end of two years. Had Beckley-Cardy then tried to raise its prices, a few, at least, of the more enterprising of its hundreds of other competitors would have jumped at the opportunity to increase their sales by not raising their prices, or by raising them...