Augusta News Co v. Hudson News Co

Decision Date01 August 2001
Docket NumberHUDSON-PORTLAND,No. 01-1269,01-1269
Parties(1st Cir. 2001) AUGUSTA NEWS COMPANY, Plaintiff, Appellant, v. HUDSON NEWS CO., PORTLAND NEWS CO., andNEWS CO., Defendants, Appellees. Heard
CourtU.S. Court of Appeals — First Circuit

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE

[Hon. Gene Carter, U.S. District Judge] William D. Robitzek with whom Berman & Simmons, P.A. was on brief for appellant.

John M.R. Paterson with whom Ronald W. Schneider, Jr. and Bernstein, Shur, Sawyer & Nelson were on brief for appellees.

Before Boudin, Chief Judge, Torruella and Selya, Circuit Judges.

BOUDIN, Chief Judge.

Augusta News brought this antitrust case in district court against Portland News, Hudson News, and Hudson-Portland News, LLC (the "LLC"). Augusta alleged violations of both section 2(c) of the Clayton Act, 15 U.S.C. § 13(c), as amended by the Robinson-Patman Act, Pub. L. No. 74-692, 49 Stat. 1527 (1936), and section 1 of the Sherman Act, 15 U.S.C. § 1.1 After discovery was complete, the district court granted summary judgment on all counts for the defendants and Augusta appealed to this court. We begin with a statement of background facts.

Prior to 1995, publishers seeking to sell magazines and newspapers in Maine sold them to local wholesale distributors who then resold the publications to retailers at a discount off the printed cover price. Augusta News and Portland News were two of five local wholesale distributors operating in Maine in late 1995; the others were Magazines, Inc., Winebaum News and Maine Periodical Distributors. Each wholesaler served a de facto exclusive territory and operated as the sole supplier of periodicals to all retailers within that locale.

In late 1995, this system began to change in Maine (and elsewhere) at the insistence of the large retail chains like Wal-Mart, which comprised much of the distributors' sales. Rather than deal with numerous distributors, the large multi-location retailers sought to consolidate regionally their purchasing of publications and obtain from the chosen regional distributor lower prices, centralized billing and improved service. In response to such retailer demands, two distributor entities began to compete for chain business on a regional basis in New England in 1995.

The first, Retail Product Marketing ("RPM"), was formed in September 1995 by fifteen independent wholesale distributors in New England, including two in Maine: Portland and Magazines, Inc. Although Augusta was offered the opportunity to join RPM, it declined to do so. RPM members agreed to bid for large retail chain contracts exclusively through RPM. When an RPM bid was successful, RPM says that it would then determine which RPM member or members would service the retailer's various locations throughout New England, based on retailer preference and other considerations such as the location of individual RPM members.

The second entity--which became the primary competitor to RPM for regional business--was Hudson, a wholesale distributor based in New Jersey with operations in New York and parts of New England. In November 1995, Hudson signed a contract to supply all Wal-Mart stores in the Northeast, including four stores previously serviced by Augusta accounting for about 10 percent of Augusta's business. In December 1995, Hudson won a bid against RPM to supply all of Hannaford's 80 stores in the Northeast, including 11 stores previously serviced by Augusta representing 40 percent of Augusta's business.

In late December 1995, Hudson formed a joint venture with Portland (the Hudson-Portland LLC) under which Portland would service all of Hudson's customers in Maine, including customers acquired after the agreement. Thereafter, Hudson prevailed over RPM in bidding to supply K-Mart's Northeast stores (March 1996) and Cumberland Farms' New England stores (late July 1996); Portland serviced these accounts. However, Portland remained a member of RPM, eligible for any business RPM won in competition with Hudson.

Like Hudson, RPM was successful in obtaining region-wide business. In March 1996, it won a bid to supply 100 Shaw's Supermarkets locations throughout New England, two of which were in Augusta's formerly exclusive territory. In April, RPM won over all of Christy's stores in New England, including eight locations previously served by Augusta, and all of CVS's stores in Maine, four of which had been serviced by Augusta. In July, RPM secured the contract for Rite Aid stores in Maine, some of which had been serviced by Augusta.

RPM and Hudson each offered large up-front per-store fees to the chain retailers. For example, Hudson paid Hannaford $1,000 per store and K-Mart between $1,000 and $5,000 per store to secure exclusive contracts. RPM paid from $667 per-store for each existing CVS location to $15,000 per-store for each Rite Aid location. The amounts were sometimes paid annually and sometimes spread over the life of the contract. Some retailers demanded the fees; one, Wal-Mart, declined to accept them. Under the RPM charter, the fees were paid by the member which serviced the store. Under the Hudson-Portland LLC agreement, Portland agreed to pay the fees for every store it serviced.

Augusta, which refused to offer retailers up-front fees, rapidly lost its chain store customers. Augusta says that it thought such payments were illegal and unprofitable. Augusta also chose not to service customers on a regional level, bidding only for the local or state-wide business of the chains. In July 1996, concluding that it could not stay in business without the retail chain stores that it had lost to Hudson and RPM, Augusta closed its doors.

In June 1999, Augusta filed this suit in the federal district court in Maine. Augusta's complaint claimed that up-front fees paid by Hudson and Portland violated section 2(c) of the Clayton Act, as amended by the Robinson-Patman Act, and section 1 of the Sherman Act. In addition, Augusta charged that Hudson and Portland (and possibly RPM's other members) had agreed to divide the Maine market, in violation of section 1 of the Sherman Act.

Soon after the present suit was brought, Hudson merged operations with RPM to form Hudson-RPM. Allegedly, it is now the only regional distributor servicing large retail chains in Maine. The new entity also stopped offering up-front fees to retailers on new contracts.

After discovery was complete, Hudson and Portland moved for summary judgment. In a careful opinion, the magistrate judge recommended granting the motion, finding that the up-front fees were price concessions, rather than brokerage payments, and therefore not covered by section 2(c), and that Augusta's section 1 claim lacked merit because Augusta had failed to show injury to competition. In a brief order, the district court affirmed the recommendation and entered judgment for defendants. This appeal followed.

We begin with Augusta's claims under the Robinson-Patman Act: one, set forth in the complaint and resolved adversely to Augusta in the district court, is that the up-front fees paid by Hudson and Portland were brokerage fees or other concessions forbidden by section 2(c); the other is a claim that these payments violated section 2(a)'s restriction on price discrimination, a claim that Augusta belatedly sought to introduce into the case after the magistrate judge's recommended decision. The relationship between the two Robinson-Patman provisions is relevant.

As adopted in 1914, the original section 2 of the Clayton Act simply prohibited sellers from discriminating in price among purchasers of commodities "where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly"--subject to a cost defense and a meeting competition defense. Pub. Law No. 63-212, 38 Stat. 730-31 (1914). When section 2 was revised in 1936 by the Robinson-Patman Act, this anti-discrimination ban was re-designated as section 2(a) (with a portion re-located into section 2(b) and elaborated in certain respects not pertinent here).

At the same time, Congress added section 2(c) as a new and more rigid ban on certain brokerage or other payments. The full text of section 2(c) is as follows:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

15 U.S.C. § 13(c).

This convoluted paragraph has bewildered lawyers and judges ever since, but its history provides some enlightenment. The Robinson-Patman Act, unlike the ordinary antitrust laws, was designed less to protect competition than (in the midst of the Great Depression) to protect small businesses against chain stores. A particular target were the discounts that manufacturers furnished to large chain stores. The revamped section 2(a) directly addresses such discounts; and the protective purpose accounts for certain anti-competitive rigidities in judicial interpretation of what might otherwise appear to be a conventional antitrust statute.2

Section 2(c) was intended to close firmly a potential loophole in the new regime. Sellers often employ brokers, who are paid a commission, to seek out and arrange sales; one of the ways that chains obtained discounts was through the seller's payments to the buyer, or to an agent of the buyer, for brokerage services not actually furnished or...

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