Cass Student Advertising, Inc. v. National Educational Advertising Service, Inc.

• Decision Date: 08 July 1975
• Docket Number: No. 74-1518,74-1518
• Citation: 516 F.2d 1092
• Parties: 1975-1 Trade Cases 60,331 CASS STUDENT ADVERTISING, INCORPORATED, Plaintiff-Appellant, v. NATIONAL EDUCATIONAL ADVERTISING SERVICE, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1092

516 F.2d 1092

1975-1 Trade Cases 60,331

CASS STUDENT ADVERTISING, INCORPORATED, Plaintiff-Appellant, v. NATIONAL EDUCATIONAL ADVERTISING SERVICE, INCORPORATED Defendant-Appellee.

No. 74-1518.

United States Court of Appeals Seventh Circuit.

Argued Jan. 15, 1975.

Decided May 23, 1975.

Rehearing and Rehearing En Banc Denied July 8, 1975.

Jerald P. Esrick, Chicago, Ill., for plaintiff-appellant.

John T. Cusack and George M. Covington, Chicago, Ill., for defendant-appellee.

Before CLARK, Associate Justice (Retired), ^* and CUMMINGS and TONE, Circuit Judges.

CUMMINGS, Circuit Judge.

This appeal is from the dismissal of a treble damage suit by Cass Student Advertising, Inc. ("Cass") against National Educational Advertising Services, Inc. ("NEAS") alleging violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2).

Count I of the complaint asserted that NEAS exercised monopoly power in the relevant market in violation of Section 2 of the Sherman Act. The relevant market was defined as "the market for representing college newspapers throughout the United States in the placement of national advertising."

Count II charged that NEAS attempted to monopolize that market, also in violation of Section 2 of the Sherman Act.

Count III asserted that NEAS' agreements with college newspapers designating it as their exclusive agent were contracts in restraint of trade in violation of Section 1 of the Sherman Act. Count III also alleged that NEAS conspired with many college newspapers to restrain trade in plaintiff's business and prevented it from competing with defendant in the previously defined market.

In each count, plaintiff sought a judgment that defendant violated the Sherman Act, injunctive relief, treble damages, costs and attorneys' fees.

In a memorandum opinion reported in 374 F.Supp. 796 (N.D.Ill.1974), the district court held that the relevant line of commerce was not "the market for representing college newspapers for the placement of national advertising" but embraced other publications and media and their representatives. Thus the court determined that the relevant market included "all modes of competition used to present national advertising to college students." Since Cass was said to have offered no evidence to show NEAS' possession of monopoly power in that market, the district court concluded that NEAS had not violated the antitrust laws. 374 F.Supp. at 803. We reverse because of our disagreement with respect to the relevant market.

The evidence submitted below is largely uncontroverted. We deem it unnecessary to set aside the district court's findings of fact under the "clearly erroneous" standard embodied in Rule 52(a) of the Federal Rules of Civil Procedure. However, in concluding that the relevant market included all modes of competition used to present national advertising to college students, with all deference, the district court misapplied the appropriate legal standards, thus compelling reversal. See United States v. Connecticut National Bank, 418 U.S. 656, 666, 94 S.Ct. 2788, 41 L.Ed.2d 1016; Mullis v. Arco Petroleum Corp., 502 F.2d 290, 296-297 (7th Cir. 1974); ¹ Bendix Corp. v. Balax, Inc., 471 F.2d 149, 161 (7th Cir. 1972), certiorari denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51; American Aloe Corp. v. Aloe Creme Laboratories, Inc., 420 F.2d 1248 (7th Cir. 1970), certiorari denied, 398 U.S. 929, 90 S.Ct. 1820, 26 L.Ed.2d 91.

In this area, the classic principles were adumbrated in United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264, the so-called Cellophane case, and Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510. In the former, the Supreme Court laid down the "reasonable interchangeability" test for ascertaining a relevant market for commodities. In Brown Shoe, this test was refined by recognizing that submarkets may exist whose boundaries

"may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." 370 U.S. at 325, 82 S.Ct. at 1524.

In Du Pont and Brown Shoe, relatively expansive markets were found to be appropriate. However, subsequent Supreme Court cases have recognized the propriety of narrower markets depending on the facts of the individual case. Thus in United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778, defendants unsuccessfully wanted protective services other than those of the central station variety to be included in the market definition. In rejecting that position, the Court observed:

"What defendants overlook is that the high degree of differentiation between central station protection and the other forms means that for many customers, only central station protection will do. Though some customers may be willing to accept higher insurance rates in favor of cheaper forms of protection, others will not be willing or able to risk serious interruption to their businesses, even though covered by insurance, and will thus be unwilling to consider anything but central station protection." 384 U.S. at 574, 86 S.Ct. at 1706.

Similarly, in International Boxing Club, Inc. v. United States, 358 U.S. 242, 79 S.Ct. 245, 3 L.Ed.2d 270, the Court held that the relevant market was the promotion of championship boxing contests in contrast to all professional boxing events, despite the claimed physical identity of the products involved. One of the reasons supporting this conclusion was testimony of representatives of the various media that there was a special demand for the rights to broadcast, telecast and film championship contests as compared to non-championship contests. 358 U.S. at 252, 79 S.Ct. at 245.

The most recent Supreme Court consideration of a relevant market occurred in United States v. The Connecticut National Bank, 418 U.S. 656, 94 S.Ct. 2788, 41 L.Ed.2d 978. There the district court had concluded that both savings and commercial banks were in the same product market for Clayton Act purposes. While acknowledging that savings banks and commercial banks in Connecticut are fierce competitors as to certain services, a unanimous Court concluded that the business of commercial banking was sufficiently distinct from other credit institutions to warrant separate treatment. ² Commercial banking was held to be a distinct line of commerce even though there was a large measure of similarity between the services provided by savings banks and commercial banks in Connecticut.

Our own decisions also uphold submarkets in appropriate cases. Thus in L. G. Balfour Co. v. Federal Trade Commission, 442 F.2d 1, 11 (7th Cir. 1971), we rejected an argument that the suppliers of all emblematic jewelry, rather than fraternity products, should be included in the product market, stating that any market definition "which ignores the buyers (here the college newspapers) and focuses on what the sellers do, or theoretically can do, is not meaningful." ³

Similarly in Avnet, Inc. v. Federal Trade Commission, 511 F.2d 70, at 77-79 (7th Cir. 1975), involving manufacturers of parts which are sold to rebuilders of automotive electrical units, we held that the relevant market should exclude sales of used and rebuilt parts because they were sold 25% to 50% below comparable new items, with no substantial interaction in price between the two lines. We also excluded sales to custom rebuilders because they and production-line rebuilders "perform significantly different functions and operate at significantly different levels of distribution within the overall market * * * " (511 F.2d at 78).

The teaching of these cases leads us to conclude that the district court erred in its perception of the service offered by defendant and thus erroneously determined the relevant market. Concededly, college students are exposed to national advertising in various media, but the critical question is whether the service of representing college newspapers in the placement of national advertising is a line of commerce or submarket within the scope of the antitrust laws. The district court never properly addressed this issue; therefore, we reverse and remand.

I. THE DISTRICT COURT'S FINDINGS

A. Description of the Business

Both parties support the district court's description of their business in the opinion below. 374 F.Supp. at 797-798. Briefly, the description is as follows:

"The plaintiff and the defendant are both engaged in the business of representing college newspapers for the placement of national advertising. So far as the evidence indicates, the parties are, in effect, the only serious contenders in this field. The operation of this business can best be viewed as comprised of two aspects.

"At the first stage, the company seeking to establish itself in the business solicits college newspapers to receive authorization to represent them to national advertisers. Because of a lack of staff, financial and other resources with which to solicit national advertisers on their own, most college newspapers which run national advertisements accept the services of a representative.

"Upon acceptance by a newspaper, the second aspect of the representative's operation comes into play the representative becomes an advertising space salesman for the college papers. * * * (T)he representative solicits national advertisers, either directly or through their agencies, in an attempt to sell them on the college newspaper medium, or, at least the papers it represents, as a viable mode of publicizing their products or services." 374 F.Supp. at 797.

Eventually, the advertiser receives one bill from the representative covering the total amount due the various college newspapers with which its advertising has been placed.

B. The Parties

As the district court found, in 1970...