American Professional Testing Service, Inc. v. Harcourt Brace Jovanovich Legal and Professional Publications, Inc.

• Decision Date: 11 March 1997
• Docket Number: 95-56523,Nos. 95-56513,s. 95-56513
• Citation: 108 F.3d 1147
• Parties: , 1997-1 Trade Cases P 71,741, 97 Cal. Daily Op. Serv. 1791, 97 Daily Journal D.A.R. 3389 AMERICAN PROFESSIONAL TESTING SERVICE, INC., Plaintiff-Appellant-Cross-Appellee, v. HARCOURT BRACE JOVANOVICH LEGAL AND PROFESSIONAL PUBLICATIONS, INC., Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1147

108 F.3d 1147

65 USLW 2631, 1997-1 Trade Cases P 71,741,

97 Cal. Daily Op. Serv. 1791,

97 Daily Journal D.A.R. 3389

AMERICAN PROFESSIONAL TESTING SERVICE, INC., Plaintiff-Appellant-Cross-Appellee, v. HARCOURT BRACE JOVANOVICH LEGAL AND PROFESSIONAL

PUBLICATIONS, INC., Defendant-Appellee-Cross-Appellant.

Nos. 95-56513, 95-56523.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 10, 1996.

Decided March 11, 1997.

John G. Roberts, Jr., Adam H. Charnes, Hogan & Hartson, Washington, D.C.; Thomas G. Jackson, Phillips Nizer Benjamin Krim & Ballon, New York City; Marc E. Golden, Riley & Reiner, Los Angeles, California, for the plaintiff-appellant-cross-appellee.

Richard R. Mainland, Fulbright & Jaworski, Los Angeles, California; George M. Borkowski, Mitchell, Silberberg & Knupp, Los Angeles, California; Stephen M. Axinn, Skadden, Arps, Slate, Meagher & Flom, New York City, for the defendant-appellee-cross-appellant.

Appeal from the United States District Court for the Central District of California, Harry L. Hupp, District Judge, Presiding. D.C. No. CV-92-03107-HLH.

Before: PREGERSON, D.W. NELSON, and O'SCANNLAIN, Circuit Judges.

OPINION

O'SCANNLAIN, Circuit Judge:

We must decide whether the sponsor of BAR/BRI, the nation's dominant bar review course, violated the Sherman Act by distributing disparaging fliers about, and hiring a faculty member away from, the sponsor of Barpassers, one of its competitors.

I

Bar review companies offer courses to recent law school graduates who are preparing to sit for a state bar examination. The bar examination of most states includes a "multistate" portion consisting of a standardized 200 question multiple-choice test (identical in all states), and a state-law component that tests the law of the particular state offering the examination. A full service bar review course prepares a student for both portions of a state's bar examination: multistate and state law. A supplemental bar review course prepares a student for only one portion of a state's bar examination.

Bar review course sponsors compete for potential customers on law school campuses through distribution of advertising fliers, sponsored student events, and advertisements in student newspapers. These businesses promote their courses directly to law students throughout their three years of law school. Some law students are employed as sales representatives to market courses to their classmates, and full-time sales personnel "table sit" at law schools to promote their firm's courses.

American Professional Testing Service, Inc. ("American") provides full service bar review courses under the name Barpassers, offers supplemental bar review courses under the name APTS Multistate Maximizer, and publishes legal study aids under the name Sum & Substance. Harcourt Brace Jovanovich Legal and Professional Publications, Inc. ("Harcourt") provides full service bar review courses under the name BAR/BRI, offers supplemental bar review courses under the name Gilbert Multistate Workshop, and publishes legal study aids under the name Gilbert Legal Summaries.

Harcourt offers its BAR/BRI course in 46 states and enrolls far more students than its nearest competitor. Harcourt owns and operates BAR/BRI bar review courses in 26 jurisdictions and has license agreements with licensees in another 20 states. ¹ Barpassers was first offered in California in preparation for the Winter 1986 bar examination. Barpassers has been offered continuously in California since that time, in Arizona since 1992, and in Nevada and Florida since 1993.

In September 1991, American became a wholly-owned subsidiary of College Bound, Inc. ("CBI"). Seven months later, a receiver was appointed for CBI in an action commenced by the U.S. Securities and Exchange Commission. CBI, under fire from federal regulators for overstating revenue and earnings by millions of dollars, filed for bankruptcy protection and was subsequently placed under the control of a Chapter 11 Trustee. In July 1992, CBI disposed of its entire interest in American.

According to American, Harcourt seized on CBI's troubles to "launch a campaign to forestall competition from American" through the distribution on law school campuses of anonymous advertising fliers that suggested that American was implicated in the SEC investigation and might not be able to continue to offer its bar review courses because of CBI's bankruptcy. However, American and its officers were never the subject of the SEC investigation or even accused of fraud or securities violations. Nonetheless, American allegedly suffered "a tremendous drop in enrollments and concomitant loss of profits." American claims Harcourt offered its courses at below-cost prices, provided gratuities to law school administrators to obtain preferential treatment, and ripped down American's advertising materials. American also maintains that Harcourt's alleged predatory hiring of American Professor Robert Jarvis, who also taught at BAR/BRI, "crippled American's effort to compete in the Florida market."

In May 1992, American filed this action alleging that Harcourt engaged in actual and attempted monopolization under Section 2 of the Sherman Act, 15 U.S.C. § 2; unlawful mergers and acquisitions in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18; price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 13; false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); unfair competition; tortious interference with contractual relations; trade libel; and violations of California's Unfair Practices Act. Harcourt filed counterclaims alleging violation of the Lanham Act and various state-law torts.

In April and May 1994, the case was tried before a jury, which returned special verdicts for American on its claims under § 2, the Lanham Act, tortious interference and unfair competition, but against American and for Harcourt on its claims that American had violated the Lanham Act and had engaged in tortious interference and unfair competition. Trial testimony lasted 11 days, during which the jury heard 29 witnesses and the court admitted over 140 exhibits into evidence. The jury was given a detailed 37-page special verdict form to guide its deliberations. After finding injury proximately caused by Harcourt's exclusionary conduct, the jury awarded American damages (before trebling) of $784,753 for injury in California, $121,000 for injury in Florida, and $110,000 for injury in New York.

The district court subsequently granted Harcourt's motion for judgment as a matter of law ("JMOL") on the Sherman Act claim concluding that there was insufficient evidence that Harcourt either (i) engaged in exclusionary conduct in violation of the Sherman Act or (ii) possessed monopoly power or a dangerous probability of obtaining monopoly power in any market. The district court also denied a motion for a new trial. American and Harcourt each filed timely notices of appeal.

After the jury verdicts, the parties settled all claims except for American's § 2 allegation and court costs which are the subject of these appeals.

II

Considering first the Sherman Act claim, we must determine whether the district court erred in overturning the jury's factual findings that: (a) Harcourt's disparagement of American constituted exclusionary conduct in California; (b) Harcourt's predatory hiring of American's faculty member constituted exclusionary conduct in Florida; and (c) Harcourt's anti-competitive conduct in the relevant markets resulted in a dangerous probability of monopolization.

While the disparagement of a rival or compromising a rival's employee may be unethical and even impair the opportunities of a rival, its harmful effects on competitors are ordinarily not significant enough to warrant recognition under § 2 of the Sherman Act. See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225, 113 S.Ct. 2578, 2589, 125 L.Ed.2d 168 (1993) ("Even an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or 'purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.' ") (citation omitted); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458, 113 S.Ct. 884, 892, 122 L.Ed.2d 247 (1993) ("The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.... Thus, this Court and other courts have been careful to avoid constructions of § 2 which might chill competition, rather than foster it."); Oahu Gas Service, Inc. v. Pacific Resources Inc., 838 F.2d 360, 370 (9th Cir.), cert. denied, 488 U.S. 870, 109 S.Ct. 180, 102 L.Ed.2d 149 (1988) ("The goal of the antitrust laws, ... unlike that of business tort or unfair competition laws, is to safeguard general competitive conditions, rather than to protect specific competitors.") We therefore insist on a "preliminary showing of significant and more-than-temporary harmful effects on competition (and not merely upon a competitor or customer)" before these practices can rise to the level of exclusionary conduct. 3 P. Areeda & D. Turner, Antitrust Law p 737b at 278 (1978).

To succeed on its claim for actual monopolization under § 2, American must prove Harcourt: (i) possessed monopoly power in the relevant markets; (ii) willfully acquired or maintained its monopoly power through exclusionary conduct; and (iii) caused antitrust injury. Movie 1 & 2 v. United Artists, 909 F.2d 1245, 1254 (9th Cir.1990), cert. denied, 501 U.S. 1230, 111 S.Ct. 2852, 115 L.Ed.2d 1020 (1991). American urges that it has made a preliminary showing of two grounds of exclusionary conduct and a dangerous probability of monopolization. ²

A

American first argues that the district court erred...