Directory Sales Management Corp. v. Ohio Bell Telephone Co.

• Decision Date: 18 November 1987
• Docket Number: No. 86-3773,86-3773
• Citation: 833 F.2d 606
• Parties: 1987-2 Trade Cases 67,764 DIRECTORY SALES MANAGEMENT CORPORATION, Plaintiff-Appellant, v. OHIO BELL TELEPHONE COMPANY; American Information Technologies Corporation; and Ameritech Publishing, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 606

833 F.2d 606

1987-2 Trade Cases 67,764

DIRECTORY SALES MANAGEMENT CORPORATION, Plaintiff-Appellant, v. OHIO BELL TELEPHONE COMPANY; American Information

Technologies Corporation; and Ameritech

Publishing, Inc., Defendants-Appellees.

No. 86-3773.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 21, 1987.

Decided Nov. 18, 1987.

Mark B. Cohn (argued), Cleveland, Ohio, for plaintiff-appellant.

John S. Searles, Ohio Bell Telephone Co., Cleveland, Ohio, Nathaniel Hawthorne, for Ohio Bell Telephone Co.

David M. Bernick (argued), Kirkland & Ellis, Chicago, Ill., David T. Erie, for defendants-appellees.

Before KENNEDY and KRUPANSKY, Circuit Judges, and BROWN, Senior circuit judge.

CORNELIA G. KENNEDY, Circuit Judge.

Plaintiff-Appellant Directory Sales Management Corporation ("DSM") appeals the District Court's judgment granting the motion for summary judgment of Defendants-Appellees, Ohio Bell Telephone Company ("Ohio Bell"), Ameritech Publishing, Inc. ("API"), and American Information Technologies Corporation ("Ameritech"), (collectively "Defendants"). On appeal DSM claims that there are material issues of fact as to whether the Defendants engaged in a per se illegal tying arrangement, leveraged their monopoly in the telephone business to restrain competition in the yellow pages business, and monopolized the business of yellow pages. We agree with the District Court that Defendants were entitled to summary judgment, and affirm.

Prior to the 1984 reorganization of American Telephone and Telegraph Co. ("AT & T"), Ohio Bell was a subsidiary of AT & T. Ohio Bell conducted the yellow pages directory business through one of its departments. Following the reorganization, Ameritech was formed as one of seven new regional telephone companies, covering the Midwest area of the United States. Ohio Bell became a wholly-owned subsidiary of Ameritech. Another wholly-owned subsidiary, API, became responsible for publishing the yellow pages. Prior to the reorganization, Ohio Bell and API entered into a Publishing Services Contract ("PSC") to govern the publishing services by API to Ohio Bell and intracorporate payments between the two companies. Ohio Bell and API designed the PSC to continue the historical subsidy that ran from the yellow pages business to the business telephone rates. The PSC requires API to pay an annual fee to Ohio Bell for the "exclusive rights to publish Yellow Pages Directories bearing [Ohio Bell's] name ..., to co-bind the Yellow Pages Directories with [Ohio Bell's] White Pages Directories, to solicit advertising in Yellow Pages Directories in [Ohio Bell's] name, and for the services performed by [Ohio Bell]." Joint Appendix at 418-19. Ohio Bell pays the direct costs that API incurs in printing the white pages, but it is not responsible for any other cost or expense incurred by API in performing the PSC. The PSC also requires that API offer one yellow page listing free to each business telephone subscriber. The PSC also allows for simultaneous delivery of white pages and yellow pages to the subscriber, and provides that Ohio Bell will bill and collect API's yellow page advertising charges and will supply API with listing information, including preliminary yellow page business classification information.

On March 8, 1984, DSM, a publisher of yellow pages, filed this action in the United States District Court for the Northern District of Ohio. The complaint's first count alleged that the Defendants tie the sale of business telephone service to the free yellow pages listing in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1 ("section 1") ¹. The second count alleged that the services that Ohio Bell provides to API violate section 1 under the Rule of Reason. The third count alleged that the Defendants have conspired to monopolize and in fact monopolize the yellow pages market in violation of section 2 of the Sherman Act, 15 U.S.C. Sec. 2 ("section 2").

The District Court granted the Defendants' motion for summary judgment on all three counts, finding that they had demonstrated that no tying arrangement existed, that DSM's second count failed to state a claim, and that the Defendants had shown that they did not use anticompetitive or exclusionary means to compete and consequently did not violate section 2.

I.

DSM raises a preliminary issue as to whether the District Court improperly granted summary judgment in light of DSM's lack of full discovery. In response to DSM's Fed.R.Civ.P. 30(b)(6) discovery request the Defendants produced three witnesses: David Clemons, General Sales Manager for API; Theodore Kukla, Division Manager of Financial Analysis and Regulatory Matters for Ohio Bell; and John McDougald, District Manager, Budgets, in the Comptroller's Organization of Ohio Bell. DSM claims that these three deponents are insufficient, arguing that 1) the Defendants refused to say to which of the 26 categories listed in DSM's Fed.R.Civ.P. 30(b)(6) motion the three witnesses could testify; 2) the Defendants failed to give DSM the necessary discovery with respect to a study of the business of yellow pages; 3) Defendants' witnesses were unable to explain the current practices of Ohio Bell service representatives who accept orders for new business telephone service; and 4) none of the witnesses were able to explain the effect of Ameritech's formation on the rates that Ohio Bell charges.

A district court has broad discretion over the scope of discovery. Misco, Inc. v. United States Steel Corp., 784 F.2d 198, 206 (6th Cir.1986). DSM was able to depose three knowledgeable witnesses and had access to the PSC, which by its terms contains all the arrangements between Ohio Bell and API. Furthermore, DSM did not move to compel discovery after it had deposed the witnesses. The evidence supports the District Court's findings that as to each of the areas DSM sought to inquire, DSM had either obtained sufficient discovery or the further requested discovery was not relevant to the summary judgment issues.

II.

Turning to the substantive issues, DSM first argues that the District Court improperly granted the Defendants' motion for summary judgment with respect to the first count of the complaint, which alleged that the Defendants tied a free first telephone yellow pages listing to the subscription of new business telephone service resulting in a per se violation of section 1 of the Sherman Act. Section 1 provides in pertinent part that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal." 15 U.S.C. Sec. 1.

DSM contends that Ohio Bell requires business telephone subscribers to accept a free yellow pages listing. Although DSM concedes that the customer may refuse the listing, DSM argues that since the price of telephone service is not reduced if the customer refuses the listing, the customer always has to pay for the listing whether listed or not.

Defendants argue that no tying arrangement exists because the customer does not purchase the free listing. In response to DSM's "hidden charge" argument, the Defendants point out that the evidence shows that the only expenses of API that Ohio Bell pays for are the costs of printing the white pages.

The District Court held that there was no genuine issue of material fact as to whether a tying arrangement existed. The Defendants had put forth evidence showing that Ohio Bell has never sold a first listing or derived revenue from it; DSM failed to respond with contradictory evidence. Consequently, the District Court granted Defendants' motion for summary judgment as to the first count.

We recently set forth the elements of an illegal tying arrangement in Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319 (6th Cir.1983): "1) There must be a tying arrangement between two distinct products or services; 2) The seller must have sufficient economic power in the tying market to restrain appreciably competition in the tied product market; and 3) The amount of commerce affect[ed] must be 'not insubstantial.' " Id. at 1330. In Jefferson Parish Hospital v. Hyde, 466 U.S. 2, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984) the Supreme Court stated that "the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms." Id. at 12, 104 S.Ct. at 1558 (emphasis added). The Court added that per se prohibition of a tying arrangement is appropriate where antitrust forcing is likely, for example where the seller has a monopoly in the market of the tying product. Id. at 16, 104 S.Ct. at 1560. In this case Ohio Bell appears to have a monopoly in the market of the tying product, business telephone service. The question is whether purchasers of business telephone service are forced to purchase a first listing in API's yellow pages. It is clear that they do not pay for it directly, and that they do not have to be listed if they do not wish to be. An illegal tying arrangement may exist, however, if Ohio Bell in some way charges for the first listing in its bill for telephone service whether or not the customer accepts the listing.

The Defendants have put forth evidence that Ohio Bell does not charge for the listing, and that it does not pay API for the costs API incurs in supplying the customers with the first listing. The PSC clearly requires API to "[m]ake every reasonable effort to provide without charge in at least one of the Yellow Pages Directories each year, one light-face or regular listing representing the primary Yellow Pages listing of each [business telephone] subscriber." Joint Appendix at 412 (emphasis added). Furthermore, the PSC states that, other than the costs API incurs in association with the white pages, "[Ohio Bell] will not be responsible for...