Caller-Times Pub. Co., Inc. v. Triad Communications, Inc.

Decision Date26 February 1992
Docket NumberNo. C-9979,CALLER-TIMES,C-9979
Citation826 S.W.2d 576
Parties1992-1 Trade Cases P 69,746 PUBLISHING COMPANY, INC., Petitioner, v. TRIAD COMMUNICATIONS, INC., d/b/a Wheels & Keels, Respondent.
CourtTexas Supreme Court

Jorge C. Rangel, Corpus Christi, Mike Hatchell, Tyler, for petitioner.

Arnold Anderson Vickery, E. Landers Vickery, Houston, for respondent.

OPINION ON MOTION FOR REHEARING

COOK, Justice.

Our opinion and judgment of November 13, 1991 are withdrawn. The motion for rehearing is granted in part and overruled in part. We grant the portion of the motion for rehearing requesting a remand to the trial court for a new trial on the antitrust claims.

This case presents a question of first impression requiring us to determine what constitutes predatory pricing for purposes of the Texas Free Enterprise and Antitrust Act of 1983. Tex.Bus. & Com.Code §§ 15.01-15.51 (the "Texas Antitrust Act"). We hold that based on the record in the case, the Caller-Times did not engage in predatory pricing. Therefore, we reverse the portion of the court of appeals' judgment holding that the Caller-Times violated the Texas Antitrust Act, 1 791 S.W.2d 163, and remand to the court of appeals for consideration of the Caller-Times' points of error on Triad's alternative ground of recovery. Following consideration in the court of appeals, the court of appeals shall, if requested by Triad, remand to the trial court for a new trial on Triad's antitrust claims.

I.

The Caller-Times Publishing Company's market area is Corpus Christi and the surrounding eleven counties. The company publishes two daily newspapers (The Corpus Christi Caller and The Corpus Christi Times), an advertising circular called the "Pennysaver," and other supplemental publications. The Caller-Times has a combined circulation rate of 82,000 for its daily newspapers.

In mid-1984, Triad Communications, Inc. purchased an advertising circular called "Wheels and Keels" for $10,000.00. Wheels and Keels was a circular which featured display and classified advertising primarily for automobiles and boats. Its market area was Corpus Christi and the surrounding cities, which placed it in direct competition with the Caller-Times over most of the Caller-Times' market area.

In 1986, Triad filed suit in state court against the Caller-Times under the Texas Antitrust Act. Triad alleged the Caller-Times engaged in monopolistic activity and predatory pricing practices. Triad also alleged tortious interference with Triad's contractual relationships. 2 Triad based its The jury found that the Caller-Times had targeted Triad's customers for special deals and that such targeting had proximately caused Triad damages of $364,416.00. Pursuant to jury findings that require the court to treble damages under the Texas Antitrust Act, the trial court rendered judgment for Triad in the amount of $1,096,248.00, and ordered the payment of prejudgment interest and attorney's fees. The trial court also rendered an order granting Triad injunctive relief.

claims on the allegation that the Caller-Times "targeted" Wheels and Keels' customers, offering them special deals and advertising rates if they would advertise in the Caller-Times' publications. Triad alleged that these actions caused damages from lost sales, and eventually drove Wheels and Keels out of business.

The Caller-Times appealed the trial court's judgment, arguing first that the trial court erred in overruling its motion for judgment non obstante veredicto. The Caller-Times contended that Triad failed to prove the Caller-Times' advertising rates were set below its average variable cost. This failure, argued the Caller-Times, was fatal to a claim of predatory pricing. The Caller-Times also argued that the evidence was both legally and factually insufficient to support Triad's tortious interference with contract claims. On rehearing, the court of appeals dissolved the injunction on the ground that it was overbroad and vague but affirmed the trial court's judgment on the basis of a test the court of appeals promulgated for proving predatory pricing. 791 S.W.2d 163.

The test set out by the court of appeals, which is a hybrid test taken from opinions of the United States Courts of Appeals for the Ninth and Eleventh Circuits, mixes subjective and objective proof of predatory pricing. The test requires that to recover under a claim of predatory pricing, a plaintiff must prove that the defendant (1) set its prices below its average total costs, and (2) exhibited some subjective or objective characteristics of predatory conduct. The court of appeals found that the evidence was replete with proof of subjective intent of predatory conduct because the evidence showed that the Caller-Times had called on Wheels and Keels' customers and offered them special deals.

The court of appeals determined that the testimony of Stephen Sullivan, the Caller-Times' publisher, proved the Caller-Times set prices below its average total costs. Sullivan testified that the profit margin on both the Caller-Times and the Pennysaver was twelve percent, plus or minus five percent. Using this general figure, the court of appeals determined that the Caller-Times' total costs were between eighty-three and ninety-three percent of its revenues. At trial, evidence was offered that the Caller-Times offered deals to Wheels and Keels' customers of up to fifty percent off the Caller-Times' regular advertising rates. The court of appeals determined that at fifty percent off its advertising prices, the Caller-Times was pricing its advertising thirty-three percent below its lowest break-even point of eighty-three percent. This, the court of appeals determined, was evidence that the Caller-Times set its advertising rates below its total costs; thus, the jury finding that the Caller-Times engaged in predatory pricing had support in the evidence.

II.

On appeal, the Caller-Times complains of the court of appeals' judgment in several respects, most notably in regard to the predatory pricing test the court of appeals devised under the Texas Antitrust Act. That statute was a sweeping reform of the former Texas antitrust act originally passed in 1889, one year before Congress passed the Sherman Antitrust Act. Baron, Increasing Importance of State Antitrust Enforcement: The Texas Free Enterprise The current Texas Antitrust Act is modeled on both the Sherman Antitrust Act and the Clayton Act. Comment, supra, at 1183 n. 9. Consistent with its foundation in federal law, the Texas Antitrust Act provides that it is to be interpreted in harmony with federal judicial interpretations of comparable federal laws. Tex.Bus. & Com.Code § 15.04.

and Antitrust Act, in State Bar of Texas Institute: Antitrust in the 80's C-1 (1985); Comment, The Texas Free Enterprise and Antitrust Act--Analysis and Implications, 22 Hous.L.Rev. 1181, 1181-83 (1985). The 1983 Texas Antitrust Act was specifically designed to update Texas antitrust law and afford courts broader powers of protection than that provided by the "laundry list" of particular violations set out in the 1889 Texas antitrust act. See Baron, supra, at C-1; Comment, supra, at 1182-83. The powers of protection provided by the 1983 Texas Antitrust Act were considered broader because it provides the courts the flexibility to adapt legislative intent to evolving economic and business conditions. Comment, supra, at 1190-91.

Triad sued the Caller-Times for damages caused by its allegedly monopolistic conduct, seeking to invoke the protection of section 15.05(b) of the Texas Antitrust Act. That section provides: "It is unlawful for any person to monopolize, attempt to monopolize or conspire to monopolize any part of trade or commerce." Tex.Bus. & Com.Code § 15.05(b). Section 2 of the Sherman Antitrust Act provides in relevant part: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several States ... shall be deemed guilty of a felony...." 15 U.S.C. § 2 (1988). Because section 15.05(b) of the Texas Antitrust Act is comparable to section 2 of the Sherman Antitrust Act, we look to federal law interpreting section 2 of the Sherman Act for guidance in interpreting section 15.05(b) of the Texas Antitrust Act.

Initially, we note that both the Sherman Act and the Texas Antitrust Act cover monopoly and attempted monopoly. Triad alleges monopoly, which is established if two elements are proven: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident." United States v. I.T.T. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). The first element, which is not an issue on appeal, was resolved in favor of Triad when the jury found that the Caller-Times had monopoly power in the relevant market. A plaintiff may establish the second element with a showing that the monopolist charged predatory prices. 3 The second element was resolved in favor of Triad when the trial court found predatory pricing based on evidence of subjective intent. Triad presented no evidence on cost data. 791 S.W.2d at 167. The court of appeals held that Triad must show that the Caller-Times was charging below its average total cost and that a statement by the Caller-Times' publisher on the profit margin of the Caller-Times was sufficient to show below average-total-cost pricing.

The issue on appeal is what constitutes proof of predatory pricing. This is a question of first impression under the Texas Antitrust Act. Federal courts, however, have addressed the question of predatory pricing on a number of occasions.

Section 15.04 of the Texas Antitrust Act allows Texas courts...

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