Collins v. International Dairy Queen, Inc.

• Decision Date: 05 September 1996
• Docket Number: Civil Action No. 94-95-4-MAC(WDO).
• Citation: 939 F. Supp. 875
• Parties: Hugh COLLINS; Max Collins; Matt Mullis; Dairy Queen of Powder Springs, Inc.; T-Jazier, Inc.; and Dairy Queen and Brazier of Eastman, Inc., Plaintiffs, v. INTERNATIONAL DAIRY QUEEN, INC. and American Dairy Queen Corporation, Defendants.
• Court: U.S. District Court — Middle District of Georgia

939 F. Supp. 875

Hugh COLLINS; Max Collins; Matt Mullis; Dairy Queen of Powder Springs, Inc.; T-Jazier, Inc.; and Dairy Queen and Brazier of Eastman, Inc., Plaintiffs, v. INTERNATIONAL DAIRY QUEEN, INC. and American Dairy Queen Corporation, Defendants.

Civil Action No. 94-95-4-MAC(WDO).

United States District Court, M.D. Georgia, Macon Division.

September 5, 1996.

William Camp Harris, John Elvis James, Lisa Neill-Beckmann, Macon, GA, Diane Green Smith, Lee Abrams, Chicago, IL, Hugh Collins, Max Collins, Matt Mullis, Dairy Queen of Powder Springs, Inc.

William Camp Harris, John Elvis James, Lisa Neill-Beckmann, Macon, GA, Diane Green Smith, Chicago, IL, for T-Jazier, Inc., Dairy Queen and Brazier of Eastman, Inc.

Benjamin M. Garland, F. Kennedy Hall, Macon, GA, William L. Killion, Quentin R. Wittrock, Minneapolis, MN, for International Dairy Queen, Inc., American Dairy Queen Corporation.

ORDER DENYING PARTIAL SUMMARY JUDGMENT ON ANTITRUST TYING CLAIMS

OWENS, District Judge.

Plaintiffs filed this lawsuit against International Dairy Queen, Inc. ("IDQ") and American Dairy Queen Corporation ("ADQ") seeking injunctive and declaratory relief and monetary damages. By order entered August 30, 1996, the court certified a class action consisting of two classes and three subclasses of holders of Dairy Queen franchises.

In Count III of the eight counts set forth in the fourth amended complaint, plaintiffs allege that IDQ/ADQ have violated § 1 of the Sherman Act, 15 U.S.C. § 1, by engaging in an illegal tying arrangement. Defendants filed a motion for partial summary judgment on the antitrust tying issue, on which oral argument has been heard. After carefully considering those arguments, the relevant case law, and the record as a whole, the court now issues the following order.

I. Summary judgment standard

Federal Rule of Civil Procedure ("FED. R.CIV.P.") 56(c) provides that summary judgment may be entered in favor of the movant where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is (1) no genuine issue as to any material fact and that (2) the moving party is entitled to judgment as a matter of law." See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); Irby v. Bittick, 44 F.3d 949, 953 (11th Cir.1995).

Under the first element, the issue must be genuine, and the factual dispute must be material to the outcome of the litigation. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. "Materiality" is determined by reference to the substantive law that controls the case. Id.; Mulhall v. Advance Security, Inc., 19 F.3d 586, 590 (11th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 298, 130 L.Ed.2d 212 (1994). For a question of fact to be "genuine," the party opposing summary judgment "`must do more than simply show that there is some metaphysical doubt as to the material facts,'" Irby, 44 F.3d at 953 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986)) — the evidence must be of such a quality that "a reasonable jury could return a verdict for the nonmoving party. * * * If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 248, 249-50, 106 S.Ct. at 2510, 2510-11. Only those doubts about facts that are reasonable must be resolved in favor of the nonmovant. Irby, 44 F.3d at 953 (citing Browning v. Peyton, 918 F.2d 1516, 1520 (11th Cir.1990)).

The second requirement that the movant be entitled to judgment as a matter of law is satisfied where "the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Once a party has moved for summary judgment and properly supported its motion, the burden shifts to the nonmovant to create, through the evidentiary forms listed in FED.R.CIV.P. 56(c), genuine issues of material fact necessitating a trial. Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553.

II. Antitrust tying claims

Section 1 of the Sherman Act, 15 U.S.C. § 1, provides in relevant part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal.

Plaintiffs allege that defendants have engaged in an illegal tying arrangement in violation of Section 1, whereby the right to buy a Dairy Queen franchise is conditioned upon the requirement that franchisees also purchase products in which defendants have a financial interest. A tying arrangement is an agreement by one party to sell a product (the "tying product"), but only on the condition that the buyer also purchase a different product (the "tied product") or at least agrees that he will not purchase the product from another supplier. Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958). The essential wrong of a tying arrangement exists in a seller's misuse of his control over the tying product in order to force the buyer to purchase products that the buyer "either did not want at all, or would have preferred to purchase elsewhere on different terms." Jefferson Parish Hospital District No. 2. v. Hyde, 466 U.S. 2, 12, 104 S.Ct. 1551, 1558, 80 L.Ed.2d 2, 13 (1984).

A seller is engaged in an invalid tying arrangement when it uses its market power over one product to coerce a consumer to purchase a second product. Id. Not all such tying arrangements are illegal, however. In order to violate Section 1, the following elements must be shown:

(1) A tying and a tied product;

(2) Evidence of actual coercion by the seller that in fact forced the buyer to purchase the tied product;

(3) That the seller had sufficient market power in the tying product market to force the buyer to accept the tied product;

(4) Anticompetitive effects in the tied market; and

(5) Involvement of a "not insubstantial" amount of interstate commerce in the tied product market.

Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1503 (11th Cir.1985), cert. denied, 475 U.S. 1107, 106 S.Ct. 1513, 89 L.Ed.2d 912 (1986), quoting Yentsch v. Texaco, Inc., 630 F.2d 46, 56-57 (2d Cir.1980).

If a tying arrangement is deemed illegal per se, plaintiffs need not show an actual anti-competitive effect. A "per se" analysis, however, is confined to "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific Railway Co. v. United States, 356 U.S. at 5, 78 S.Ct. at 518, 2 L.Ed.2d at 549; see Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1573 (11th Cir.1991). The legality of tying arrangements which is not illegal per se are governed by a "rule of reason" analysis. Amey, 758 F.2d at 1503, citing Jefferson Parish, 466 U.S. at 29, 104 S.Ct. at 1568, 80 L.Ed.2d at 23.

A. Defining the relevant market

Plaintiffs allege that IDQ/ADQ required their franchisees, in order to continue to conduct business in the Dairy Queen system using defendants' trademarks and business methods, also to purchase from IDQ/ADQ certain food products and supplies on which IDQ/ADQ realized substantial profits. They allege that defendants' actions violated Section 1 by the use of coercion in order illegally to tie the purchase and/or continued holding of a Dairy Queen franchise (the tying product) to the purchase of supplies and products (the tied products) which franchisees are required to use in their restaurants. Plaintiffs also allege that IDQ/ADQ have sufficient power in the market for Dairy Queen products to enable them to restrain trade and that as a major franchisor with a nationwide franchise system, defendants' tying arrangement involves a not insubstantial amount of interstate commerce.

The first hurdle which plaintiffs must overcome in defeating defendants' motion for summary judgment is the production of evidence that defendants possess sufficient market power within a properly defined product market and geographic market to affect competition. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 611, 73 S.Ct. 872, 881-82, 97 L.Ed. 1277 (1953). In order to be capable of engaging in an illegal tying arrangement defendants must be found to have "appreciable economic power in the tying product market." Eastman Kodak v. Image Technical Services, Inc., 504 U.S. 451, 464, 112 S.Ct. 2072, 2080, 119 L.Ed.2d 265 (1992). Market power can be inferred if defendants have a predominant share of the relevant market. Id. at 464, 112 S.Ct. at 2080-81. In determining whether a defendant possesses market power the factfinder may also consider "the strength of competition, probable development of the industry, the barriers to entry, the nature of the anti-competitive conduct, and the elasticity of consumer demand." Advo, Inc. v. Philadelphia Newspapers, Inc., 854 F.Supp. 367, 374 n. 25 (E.D.Pa.1994).

In order to determine whether IDQ/ADQ have sufficient market power to support a claim under the Sherman Act, it is essential first to define the relevant market. Allen-Myland, Inc. v. International Business Machines Corp., 33 F.3d 194, 200 (3rd Cir.1994); U.S. Anchor Manufacturing, Inc. v. Rule Industries, Inc., 7 F.3d 986, 994 (11th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 2710, 129 L.Ed.2d 837 (1994). Tying arrangements are illegal only if a seller is able to "exploit his dominant position in one market to expand his empire into the next." Times-Picayune, 345 U.S. at 611, 73 S.Ct. at 882. Defendants contend that the relevant market for antitrust analysis consists of...