American Passage Media Corp. v. Cass Communications, Inc.

• Decision Date: 11 January 1985
• Docket Number: No. 84-3688,84-3688
• Citation: 750 F.2d 1470
• Parties: 1985-1 Trade Cases 66,358 AMERICAN PASSAGE MEDIA CORPORATION, Plaintiff-Appellee, v. CASS COMMUNICATIONS, INC., d/b/a Cass Student Advertising Services, Inc., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1470

750 F.2d 1470

1985-1 Trade Cases 66,358

AMERICAN PASSAGE MEDIA CORPORATION, Plaintiff-Appellee, v. CASS COMMUNICATIONS, INC., d/b/a Cass Student Advertising

Services, Inc., Defendant-Appellant.

No. 84-3688.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 7, 1984.

Decided Jan. 11, 1985.

Richard J. Wallis, Bogle & Gates, Seattle, Wash., for plaintiff-appellee.

Jerald P. Esrick, Wildman, Harrold, Allen & Dixon, Chicago, Ill., for defendant-appellant.

Appeal from the United States District Court for the Western District of Washington.

Before WRIGHT, SNEED, and ALARCON, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

American Passage Media Corp. (AP) sued Cass Communications, Inc. (Cass), alleging violations of sections 1 and 2 of the Sherman Act. 15 U.S.C. Secs. 1, 2. The district court issued a preliminary injunction, enjoining Cass from enforcing certain exclusive dealing contracts.

The issues on appeal: (1) did the district court apply the proper standard in granting the preliminary injunction; (2) was there sufficient evidence of irreparable injury; and (3) is AP likely to succeed on the merits?

FACTS:

National advertisers use advertising agencies and multi-media means to reach their targeted audience. Approximately 1,300 college newspapers accept national advertising and their representatives serve as middlemen between the advertisers or their agencies and the newspapers. ¹

National Educational Advertising Service, Inc. (NEAS) was the only company representing college newspapers in 1969 when Cass entered the business. NEAS had 1,103 agreements to represent college papers, of which 87% were exclusive. Cass brought an antitrust action against NEAS in 1973. The trial court originally denied injunctive relief. Cass v. NEAS, 374 F.Supp. at 803. The Seventh Circuit reversed. Cass v. NEAS, 516 F.2d 1092 (7th Cir.), cert. denied, 423 U.S. 986, 96 S.Ct. 394, 46 L.Ed.2d 303 (1975). On remand, NEAS was enjoined from enforcing its exclusive dealing contracts. Cass v. NEAS, 407 F.Supp. 520 (N.D.Ill.), aff'd, 537 F.2d 282 (7th Cir.1976). Cass eventually bought out NEAS in a court approved settlement.

Between 1978 and 1980, Cass was alone in the market. College Media Placement Service entered in 1980 and Major College Newspapers, Inc. (MCN) entered in 1981. In April 1982, AP entered the market under an agreement with MCN. MCN ceased operations in late 1982.

Most college papers have nonexclusive agreements with each of the three college representative firms. The cost per line of advertising remains constant for each publication. There is price competition in the varying percent commission each representative deducts from revenues collected from advertisers. The representatives compete also on the basis of the nature and quality of their work.

Most competition for the advertiser's business is on the basis of service. Price competition is limited.

Cass has between 20 and 25 special services agreements with selected college newspapers. These agreements make Cass the papers' sole representative. In return, Cass guarantees prompt payment and charges the lowest commission rate. It also provides confidential information about its sales efforts, membership on a consulting committee, and a half page credit toward an ad in Cass's rate book.

AP challenged the exclusive contracts as illegal restraints of trade in violation of section 1 and as an abuse of monopoly power and an illegal tying arrangement in violation of section 2 of the Sherman Act. AP also alleged that Cass made false and disparaging statements about AP, attempted to hire AP sales employees and engaged in a group refusal to deal with AP.

The district court granted the injunction solely on the basis of a section 2 violation. It found: (1) the relevant market is the market for representing college newspapers in the placement of national advertising, (2) Cass has monopoly power in that market because it places over 80% of the national advertising, (3) the contracts are not per se illegal, and (4) the contracts are being used in an attempt to monopolize in violation of section 2 of the Sherman Act.

Preliminary Injunction

The grant of a preliminary injunction is within the discretion of the district court. Sports Form, Inc. v. United Press International, Inc., 686 F.2d 750, 752 (9th Cir.1982). We reverse for abuse of discretion or if the decision is premised on an erroneous legal standard or clearly erroneous finding of fact. Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir.1984). We reverse also if the court misapplies the law on the underlying issues. Wilson v. Watt, 703 F.2d 395, 398 (9th Cir.1983).

The Clayton Act provides injunctive relief under the same principles as generally applied by courts of equity. 15 U.S.C. Sec. 26; Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1200 (9th Cir.1980). Traditional equitable criteria for granting preliminary injunctions include "(1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases)." Los Angeles Memorial Coliseum, 634 F.2d at 1200.

This circuit has articulated numerous tests by which a moving party can meet its burden. Regents of the University of California v. ABC, Inc., 747 F.2d 511 at 514-15 (1984). Simply stated, the movant must show a combination of either (1) probable success on the merits and irreparable injury or (2) serious questions are raised and the balance of hardships tips sharply in its favor. Sierra On-Line, Inc., 739 F.2d at 1421. These are not separate tests, but rather extremes of a continuum. Benda v. Grand Lodge of the Int'l Ass'n of Machinists, 584 F.2d 308, 315 (9th Cir.1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065, 60 L.Ed.2d 667 (1979).

The district court found that AP has a strong likelihood of success on the merits and that the balance of irreparable harm favors AP. Cass argues that the district court erred in (1) finding irreparable injury, (2) applying the underlying antitrust law and (3) basing this injunction on clearly erroneous findings that Cass had market power and engaged in anticompetitive conduct and that the exclusive agreements harm the newspapers. We reach only the issue of irreparable injury.

A. Irreparable Injury

Regardless of how the test for a preliminary injunction is phrased, the moving party must demonstrate irreparable harm. Flynt Distributing Co. v. Harvey, 734 F.2d 1389, 1394 (9th Cir.1984) (quoting Los Angeles Memorial Coliseum, 634 F.2d at 1202). Reasonable apprehension of threatened injury will suffice. 15 U.S.C. Sec. 26; Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130, 89 S.Ct. 1562, 1580, 23 L.Ed.2d 129 (1969).

Review of the trial court's determination of hardships is limited to whether the court considered the proper factors and whether there has been a clear error of judgment. Sports Form, 686 F.2d at 752, citing Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). We can think of a myriad of examples of the type of evidence necessary to bolster a finding of irreparable harm under these circumstances. We search the record in vain for that evidence.

A sufficient showing of injury to competition could support a finding of irreparable harm. AP alleges it has been harmed because it cannot compete in the market in which Cass has special service agreements. It supported this with affidavits from its own executives delineating the disruptive effect of these contracts on AP's business. These affidavits are conclusory and without sufficient support in facts.

Four advertisers say that they prefer dealing with one company, find it costly and inefficient to deal with college newspapers directly, and that the exclusives will affect their decision to continue to do business with AP. These affidavits are from current clients of AP. None of the advertisers says that it will discontinue business with AP as a result of the contracts. Even if the evidence showed that four advertisers were unwilling to do business with AP because Cass had exclusives with desirable schools, this would be insufficient evidence of...