American Ad Management, Inc. v. GTE Corp.

• Decision Date: 26 July 1996
• Docket Number: No. 94-56207,94-56207
• Citation: 92 F.3d 781
• Parties: 1996-2 Trade Cases P 71,501, 96 Cal. Daily Op. Serv. 5506, 96 Daily Journal D.A.R. 9028 AMERICAN AD MANAGEMENT, INC.; O'Connor Agency, Plaintiffs-Appellants, v. GTE CORP., Defendant, and General Telephone Company of California; GTE Directories Publishing Corp.; GTE Directories Service Corp.; GTE National Marketing Service Corp.; GTE Directories Sales Corp., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 781

92 F.3d 781

1996-2 Trade Cases P 71,501, 96 Cal. Daily

Op. Serv. 5506,

96 Daily Journal D.A.R. 9028

AMERICAN AD MANAGEMENT, INC.; O'Connor Agency, Plaintiffs-Appellants, v. GTE CORP., Defendant, and General Telephone Company of California; GTE Directories

Publishing Corp.; GTE Directories Service Corp.;

GTE National Marketing Service Corp.;

GTE Directories Sales Corp.,

Defendants-Appellees.

No. 94-56207.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 4, 1996.

Decided July 26, 1996.

Maxwell M. Blecher, Blecher & Collins, Los Angeles, California, for plaintiffs-appellants.

Mark L. Callister, Callister, Nebeker & McCullough, Salt Lake City, Utah, for defendants-appellees.

Appeal from the United States District Court for the Central District of California, Lourdes G. Baird, District Judge, Presiding. D.C. Nos. CV-92-2810-LGB, CV-93-3650-LGB.

Before PREGERSON, T.G. NELSON, Circuit Judges, and LYNCH, ^* District Judge.

LYNCH, District Judge.

INTRODUCTION

Plaintiffs/appellants American Ad Management, Inc. and O'Connor Agency (collectively "American") originally filed separate complaints against defendants/appellees General Telephone Company of California and related companies (collectively "GTE"). These complaints alleged various federal anti-trust violations, as well as supplemental state claims. ¹ The two cases, which arose out of the same course of conduct by GTE, were consolidated by the district court and summary judgment was granted in favor of GTE in both cases. American timely filed its notice of appeal, and therefore jurisdiction in this Court is proper under 28 U.S.C. § 1291. We reverse and remand.

American is an Authorized Selling Representative ("ASR") which sells advertising in phone directories which are commonly known as "yellow pages." GTE is a publisher of yellow pages. Although the characterization of this relationship is the subject of much of the present dispute, at this point it will suffice to note that customers may purchase yellow pages advertising either directly from a publisher such as GTE, or through the use of an ASR such as American.

On March 15, 1994, the district court granted summary judgment against American Ad Management based on all three prongs of the rule of reason analysis under 15 U.S.C. § 1. On August 5, 1994, the district court granted summary judgment against the O'Connor Agency also based on all three prongs of the rule of reason analysis.

BACKGROUND

Although the parties disagree as to how they should be characterized, the actual facts of this case are largely undisputed. Publishers of yellow pages, such as GTE, have established a dual distribution system in which an advertisement can be purchased either directly from the publishers or from an ASR, such as American. After an advertiser places an order with an ASR, the ASR will purchase the requested space from the publisher at a lower price than is available to the general public. This price difference is referred to as the "ASR's commission." In practice, ASRs often charged their customers a price which was lower than the price the advertiser would have paid had they bought directly from the publisher. This practice GTE belongs to a trade association of yellow pages publishers known as the Yellow Pages Publishers Association ("YPPA"). Among other functions, YPPA provides uniform definitions of national and local accounts for its members. ² The present case was generated by American's allegation that in the summer of 1989, YPPA members, including GTE, agreed to change the definition of national accounts and to eliminate the practice of paying ASR commissions on local accounts. ³ American further alleges that the elimination of local account commissions had the purpose and effect of eliminating the ASRs' practice of discounting.

                was known as "discounting."   In effect, discounting was an attempt by the ASRs to exchange a portion of their profits per sale in the hopes of generating more sales
                

Although several antitrust laws were originally alleged, American has chosen to appeal only those issues which concern Section 1 of the Sherman Act, 15 U.S.C. § 1. ⁴ In order to prevail on a cause of action for violation of 15 U.S.C. § 1, a plaintiff must show (1) there was an agreement, conspiracy, or combination between two or more entities; (2) the agreement was an unreasonable restraint of trade under either a per se or rule of reason analysis; and (3) the restraint affected interstate commerce. Eichman v. Fotomat Corp., 880 F.2d 149, 161 (9th Cir.1989); T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626 (9th Cir.1987); see also NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 100, 104 S.Ct. 2948, 2959-60, 82 L.Ed.2d 70 (1984). In both of the underlying cases, the district court held that American had produced enough evidence to create a genuine issue of material fact regarding whether there was an agreement, combination, or conspiracy, which is the first of the three elements of a 15 U.S.C. § 1 cause of action. However, summary judgment in favor of GTE was granted on the basis of the second element, which is whether the agreement was an unreasonable restraint of trade.

DISCUSSION

I. DISTRICT COURT PROPERLY APPLIED RULE OF REASON ANALYSIS

In this appeal, American argues that the district court erred in analyzing the alleged anti-competitive effect of the agreement by using a "rule of reason," rather than a "per se" analysis.

A. LEGAL STANDARDS

"A per se rule is applied when 'the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output.' " NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 100, 104 S.Ct. 2948, 2959, 82 L.Ed.2d 70 (1984) (quoting Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20, 99 S.Ct. 1551, 1562-63, 60 L.Ed.2d 1 (1979)).

Over the years, certain categories of agreements or practices have been held to be within the per se category. For instance, horizontal price fixing, division of markets, group boycotts, tying arrangements, and output limitations are ordinarily held to be unreasonable restraints on trade under the per se approach. Northern Pacific Railroad Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958); see also NCAA v. Board of Regents, 468 U.S. at 100, 104 S.Ct. at 2959-60. The Supreme Court has repeatedly explained that the per se approach is not to be readily expanded to new arrangements or to business relationships with which the courts are inexperienced. Federal Trade Commission v. Indiana Federation of Dentists, 476 U.S. 447, 458-59, 106 S.Ct. 2009, 2017-18, 90 L.Ed.2d 445 (1986); NCAA v. Board of Regents, 468 U.S. at 100, 104 S.Ct.

                at 2959-60;   Broadcast Music, Inc., 441 U.S. at 9-10, 99 S.Ct. at 1556-58
                

In the present case, American argues that the district court should have applied the per se approach because the publishers' agreement to eliminate commissions on local accounts, which eliminated the practice of discounting, should have been classified as horizontal price fixing. American primarily relies on United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940) (arrangements with the purpose and effect of fixing prices are to be analyzed under the per se approach) and Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980) (wholesalers' agreement to eliminate short-term trade credit for retailers constitutes price fixing and therefore requires the per se approach).

B. ANALYSIS

As stated earlier, the issue of whether the agreement to eliminate ASR commissions on local accounts constitutes price fixing, thereby requiring application of the per se approach is largely determined by the true nature of the publisher/ASR relationship. In an attempt to fall under the per se approach in Catalano, American characterizes the ASRs as "sellers" or "retailers" who purchase advertising space from the yellow pages publishers with "price discounts" and then resell it to the end consumer. In contrast, GTE argues that the ASRs are "agents" who simply receive a "commission" for acting as salespersons for the yellow pages.

For the reasons stated below, this Court believes that the district court did not err in choosing to apply the rule of reason analysis. Under the facts of this case, the decision to eliminate the commissions paid to the ASRs on local accounts does not constitute traditional price fixing because the relationship is one of agency, not wholesale/retail. Accordingly, the present case does not fall under the per se approach under Socony-Vacuum and Catalano.

1. PUBLISHER/ASR RELATIONSHIP IS GENUINE AGENCY

As stated earlier, the true nature of the publisher/ASR relationship is highly determinative of the issue of whether the per se or rule of reason approach should apply. Turning to the specifics of the relationship, the Court concludes that the relationship is one of genuine agency, not wholesale/retail. First, ASRs do not purchase advertising space in bulk or hold inventories as traditional retailers do. Second, ASRs must submit a request for a specific advertisement to the publisher which ultimately determines whether the advertisement will be accepted. And finally, the publishers bear the risk that an insufficient number of advertisements will be sold to make a directory profitable. In short, American's wholesale/retail arguments must fail because there is no product that is produced by a wholesaler and then distributed by a retailer. The relationship is one of agency.

These same factors were relied upon by the Eleventh Circuit in rejecting a wholesale/retail characterization of the publisher/ASR relationship in Ad-Vantage Telephone Directory Consultants, Inc. v. GTE Directories Corp., 849 F.2d 1336, 1345-48 (11th Cir.1987). Although this case technically involved Section 2 of the Sherman Act, 15 U.S.C....