Dolphin Tours, Inc. v. Pacifico Creative Service, Inc.

• Decision Date: 07 November 1985
• Docket Number: No. 84-2217,84-2217
• Citation: 773 F.2d 1506
• Parties: 1985-2 Trade Cases 66,810 DOLPHIN TOURS, INC., et al., Plaintiffs-Appellants, v. PACIFICO CREATIVE SERVICE, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1506

773 F.2d 1506

1985-2 Trade Cases 66,810

DOLPHIN TOURS, INC., et al., Plaintiffs-Appellants, v. PACIFICO CREATIVE SERVICE, INC., et al., Defendants-Appellees.

No. 84-2217.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 11, 1985.

Decided Oct. 11, 1985.

As Amended Nov. 7, 1985.

Peter J. Donnici, San Francisco, Cal., for plaintiffs-appellants.

Coblentz, Cahen, McCabe & Breyer, Charles R. Breyer, Jonathan R. Bass, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court Northern District of California.

Before HALL, WIGGINS, Circuit Judges, and JAMESON ^*, District Judge.

CYNTHIA HOLCOMB HALL, Circuit Judge:

By this appeal Dolphin Tours, Inc. (Dolphin) challenges the district court's grant of summary judgment in favor of various tour operators ¹ which conducted Japanese language tours of northern California. We reverse the grant of summary judgment and remand to the district court for further proceedings.

BACKGROUND

Dolphin brought this action for alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. Secs. 1 and 2. Dolphin seeks treble damages under section 4 of the Clayton Act, 15 U.S.C. Sec. 15, and injunctive relief under Sec. 16 of the Clayton Act, 15 U.S.C. Sec. 26. Dolphin claims that the defendants formed a cartel to keep the price of Japanese language tours artificially high, formulated a plan by which various gift shops which were made part of the defendants' tours paid kickbacks to the defendants, and conspired to eliminate Dolphin from the Japanese language tour market (the "market").

In order to establish its damages Dolphin engaged the services of a tourism expert and economist, Dr. James Mak, a survey research firm, SMS Research Corporation (SMS), and an accountant, Dr. David Weiner. A survey was prepared by Dr. Mak and SMS, and administered by SMS. The results of this survey were then used as the basis of Dr. Mak's report (the "Report") on the market share Dolphin could have attained in the market and as base figures by Dr. Weiner to project the net profit Dolphin could have made at the projected market shares.

The survey was designed to test whether Japanese tourists preferred tours given by Japanese tour operators or American tour operators, and whether their choice would be affected by price differences. The survey approach was roughly as follows. Two samples of Japanese tourists were interviewed in Hawaii. Only the responses of Japanese tourists traveling on pre-paid package tours were considered. The tourists interviewed were given a choice between two tour companies, A or B. A was given characteristics associated with a Japanese tour operator, including ease of access and greater certainty in booking. B was given characteristics associated with an American tour operator, including use of native American tour guides who spoke Japanese. The tourist was asked which tour operator he would choose if the tour prices were the same. He was then asked whether his choice would be the same if the tour he did not choose was five, ten, or fifteen dollars cheaper. Tourists were also asked questions on their age, sex, and occupation so that the samples could be weighted according to the characteristics of the total population of Japanese visitors to San Francisco. ² Some Japanese tourists preferred the American tour operator even when the prices were the same, and a substantial number of tourists which preferred the Japanese tour operator changed their preference as the price differential increased in favor of the American tour operator.

Dr. Mak reached the following conclusions based on his evaluation of the survey results:

Even at the same price, some visitors prefer to purchase the same tour from the San Francisco firm (i.e., B) [rather] than the Japanese firms (A).

On any given tour, as B's price falls relative to A's, B's market share rises, indicating that substantial number [sic] of Japanese visitors will be induced to switch from the Japanese Co. to the San Francisco Co. The number switching grows larger as the price difference grows larger.

The report also indicates that roughly twenty to twenty-four percent of Japanese tourists would prefer the American tour company even if the American tour and the Japanese tour were offered at the same price.

Dr. Mak also addressed other market concerns relevant to antitrust damages in his report. Starting from evidence provided by Dolphin that defendants had: (1) acted as a cartel in setting prices; (2) successfully co-opted San Francisco Bay Tours (SFBT), another American tour operator offering Japanese language tours, into its pricing scheme; and (3) attempted to co-opt Dolphin into its pricing scheme, Dr. Mak concluded that defendants would most likely respond to attempted entries into the market by attempting to eliminate the new competition or co-opt the new competition into the cartel. From evidence that SFBT was already a part of the alleged cartel, and evidence that future entrants in the market would be co-opted into the cartel, Dr. Mak also concluded that Dolphin would be the "sole benefactor of the visitor traffic diversion" caused by Dolphin's entry into the market at lower prices.

The defendants challenged Dolphin's damage evidence by a motion for summary judgment. For purposes of the motion for summary judgment the district court assumed that the survey and the Report which Dolphin relied on were valid, and that Dolphin could establish the anticompetitive activity which it alleged. The district court found that Dolphin's survey evidence and the deposition testimony of Dolphin's owner, J. Mark Lavelle, failed to account for the defendants' potential competitive reaction to a loss in their volume of customers. Because of this failure the court concluded that Dolphin had not presented evidence from which the jury could arrive at a reasoned damage award. The district court also noted that Dolphin's evidence failed to account for the potential entry of new competitors into the market.

JURISDICTION AND STANDARD OF REVIEW

The district court had jurisdiction over this matter pursuant to 28 U.S.C. Sec. 1331. We have jurisdiction over this appeal pursuant to 28 U.S.C. Sec. 1291. We review the grant of summary judgment de novo, viewing the evidence in the light most favorable to the non-moving party. Taylor v. Sentry Life Insurance Co., 729 F.2d 652, 654 (9th Cir.1984).

DISCUSSION

In order to recover under section 4 of the Clayton Act, Dolphin must establish that its injuries were caused "by reason of" the defendants' anticompetitive activities. 15 U.S.C. Sec. 15. The "by reason of" language is the starting point for analyzing causation and damages, the two aspects of Dolphin's prima facie case which are at issue here. Dolphins' evidence linking the alleged violation of the antitrust laws to its injury must be more precise than the evidence establishing the amount of injury which it has suffered. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562-63, 51 S.Ct. 248, 250-51, 75 L.Ed. 544 (1931); Van Dyk Research Corp. v. Zerox Corp., 631 F.2d 251, 255 (3d Cir.1980), cert. denied, 452 U.S. 905, 101 S.Ct. 3029, 69 L.Ed.2d 405 (1981); Flintkote Co. v. Lysfjord, 246 F.2d 368, 392 (9th Cir.), cert. denied, 355 U.S. 835, 78 S.Ct. 54, 2 L.Ed.2d 46 (1957). In order to establish causation under section 4, Dolphin must demonstrate that the anticompetitive activity was "a material cause of [its] injury." Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 & n. 9, 89 S.Ct. 1562, 1571 & n. 9, 23 L.Ed.2d 129 (1969). Dolphin need not rule out "all possible alternative sources of injury." Id; see also Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073, 1075 n. 3 (9th Cir.1970), cert. denied, 402 U.S. 923, 91 S.Ct. 1377, 28 L.Ed.2d 662 (1971) (antitrust violation need not be the "sole" cause of the injury for causation to exist). To establish the amount of its injury Dolphin must provide evidence such that the jury is not left to "speculation or guesswork" in determining the amount of damages to award. Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 263-65, 66 S.Ct. 574, 579-80, 90 L.Ed. 652 (1946). See also Zenith Radio, 395 U.S. at 123-24, 89 S.Ct. at 1576-77.

Defendants argue that, given Dolphin's failure to account for: (1) defendants' potential legal competitive response to a loss in their market share; or (2) the entry of other competitors into the market, the district court correctly awarded summary judgment in their favor. Dolphin counters that Dr. Mak's conclusions account for defendants' potential competitive responses and the potential entry of third parties into the market. Under the facts of this case, we find that Dolphin has presented evidence from which a jury could determine that Dolphin had been injured by the defendants' anticompetitive activity, and determine the amount of Dolphin's injury without engaging in speculation.

I. CAUSATION.

Causation evidence under section 4 must establish that the injury which the plaintiff claims is attributable to the conspiracy, and not to other factors. See, e.g., Van Dyk Research Corp., 631 F.2d at 254-56 (plaintiff not entitled to recovery where injury was caused by cash flow problems, inability to raise money through new stock offerings, and failure of marketing arrangement); R.S.E., Inc. v. Pennsy Supply, Inc., 523 F.Supp. 954, 966 (M.D.Pa.1981) (plaintiff's damage evidence was inadequate because of its failure to consider, among other things, twenty-five percent reduction in relevant market). Once the plaintiff has established that the anticompetitive activities were a material cause of some of its injury, the remainder of the damage inquiry is judged under the amount of damage standard. Zenith Radio, 395 U.S. at 114 n. 9, 89 S.Ct. at 1571 n. 9. For purposes of this appeal we assume, as did the district court, that Dolphin will be able to substantiate the alleged conspiracy...