Donald B. Rice Tire v. Michelin Tire Corp., Civ. No. Y-78-209.

Citation483 F. Supp. 750
Decision Date30 January 1980
Docket NumberCiv. No. Y-78-209.
PartiesDONALD B. RICE TIRE COMPANY, INC. v. MICHELIN TIRE CORPORATION.
CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)

George W. Shaffer, William N. Rogers, Rockville, Md., Timothy J. Waters, and Robert H. Morse, Washington, D. C., for plaintiff.

James J. Bierbower, Bethesda, Md., Robert P. Knapp, Jr., and Raymond L. Herbert, New York City, for defendant.

JOSEPH H. YOUNG, District Judge.

Plaintiff Donald B. Rice Tire Company (Rice) sued the Michelin Tire Corporation (Michelin) for treble damages for alleged violations of 15 U.S.C. § 1 resulting from the termination of Rice's dealer relationship with Michelin. At trial, plaintiff sought to prove that defendant chose not to sign a new annual dealer sales agreement because Rice failed to comply with various restraints which Rice contended were unlawful. The defendant sought to demonstrate that its decision to terminate Rice constituted unilateral action not within the scope of § 1, that it did not, in fact, impose the restraints alleged by the plaintiff, and that, in any case, the restraints were legal.

The evidence presented to the Court indicates that defendant's decision does not constitute unilateral action escaping scrutiny under § 1. In addition, the evidence shows that the nonrenewal decision was motivated, at least in part, by defendant's desire to impose various restraints upon its authorized dealers. Plaintiff failed to establish, however, that the overall effect of the contested restraints was anti-competitive and thus that they were unreasonable under Continental T.V., Inc. v. GTE Sylvania, 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). Because this Court's decision turns in large part upon its assessment of the competitive effects of the nonrenewal decision, a brief review of the events leading up to the decision is in order.

Factual Background

The Donald B. Rice Tire Company is an independent tire dealer located in Frederick, Maryland, approximately forty miles from both Washington and Baltimore. The company was founded in 1955. During the late 1960's, Rice began to sell Michelin tires which it bought from an authorized dealer. In 1970, following discussions between Rice and Michelin, a dealer sales agreement (DSA) was signed. The DSA was for a period of a year and subsequent contracts were signed by the parties annually until 1977 when Rice was notified of the nonrenewal decision. During this seven-year period, plaintiff experienced very rapid growth. In 1970, Rice had sales of approximately $500,000, whereas by 1977, sales exceeded $10,000,000. A substantial part of this increase resulted from Rice's decision in 1973 to become a large-scale wholesaler of Michelin tires. The wholesale portion of plaintiff's business, which accounted for less than 25% of total sales in 1972, expanded to the point that in 1977 it represented 80% of Rice's business. Plaintiff was particularly successful in its efforts to wholesale Michelin tires; by 1977, its volume of Michelin sales exceeded $4,000,000, making it one of the largest Michelin dealers in the country.

Rice took full advantage of discounts offered by Michelin on a per order and annual basis for large volume sales. Employment of this strategy enabled Rice to purchase Michelin tires 15% more cheaply than buyers who were not entitled to any discounts. Rice then wholesaled to smaller authorized dealers and to unauthorized Michelin dealers. Rice's rapid growth was accompanied by a corresponding expansion in the geographical area in which it competed. Whereas in 1972, Rice competed almost exclusively in the geographical area within 150 miles of Frederick, by 1977, approximately 20% of plaintiff's sales were outside the area consisting of Maryland and the states contiguous to it.

Throughout these proceedings, the defendant was much more reticent than the plaintiff in voluntarily revealing information pertaining to corporate organization, strategy, and sales volume. Nevertheless, testimony at trial established Michelin's successful penetration of the American tire market. Although Michelin had developed the steel-belted radial tire during the 1940's and had widely distributed it in Europe during the 1950's, the radial tire, the only type manufactured by Michelin, was not actively promoted in the United States until the latter half of the 1960's. The first significant step in this direction occurred in 1964 when Sears, Roebuck and Company began selling Michelin tires under its private Allstate label.

The next stage in Michelin's drive to penetrate the American market, according to the testimony of dealers and former Michelin employees, consisted of signing large, established dealers who assumed responsibility for introducing and distributing Michelin tires in their geographical areas. These large dealers retailed Michelin tires and also wholesaled them to "associate dealers." This method of distribution was in part a result of a shortage of trained Michelin sales personnel.

Michelin followed this distribution method until the mid-1970's when it increased the number of authorized Michelin dealers and assumed a greater portion of the wholesaling function. Thus, the number of authorized dealers increased from 300 in 1969 to 2500 in 1977. The change in policy was also reflected in the DSA employed by Michelin. The DSA signed by the parties in 1973 provided that "Dealer may appoint one or more Associate Dealers . . . of good financial standing, business reputation and service capabilities . . . and shall notify Seller of every Associate Dealer appointment on a form specified and furnished by Seller." By 1975, this provision had been replaced by the following language: "It is understood that the right to appoint dealers in Michelin brand products is reserved to Seller and the privilege to deal in Michelin brand products is non-exclusive."

As plaintiff's success in wholesaling Michelin tires from 1973 through 1977 indicates, the defendant's attempts to integrate vertically were not entirely successful. Unauthorized dealers, as well as smaller Michelin dealers who could not qualify for the maximum quantity discounts, continued to buy from Rice and other dealers who wholesaled. In addition, even large dealers would buy Michelin tires from Rice when they were unavailable from Michelin. Finally, in late 1977 and early 1978, Michelin decided not to renew Rice and other authorized dealers who extensively and aggressively wholesaled Michelin tires. Although those nonrenewal decisions are not at issue in this case, the fact remains that they cast light upon the defendant's rationale in the instant dispute. The conclusion that the nonrenewal decision in this case was motivated in large part by Michelin's desire to assume primary responsibility for the wholesaling function is further bolstered by the deposition testimony of Gerard W. Boyle, the President of Englewood Tire Distributors, who stated that the defendant's decision not to renew his dealership agreement was revoked when he offered to terminate his wholesaling activities.

At trial, plaintiff presented evidence of two other forms of restraint imposed by Michelin upon its authorized dealers. First, the DSA contains a location clause limiting the effect of the agreement to the locations specified. This provision was enforced by Michelin's policy of shipping goods to designated locations. In addition, the evidence establishes, and defendant did not contest, that although dealers could pick up tires from the warehouse located in their geographical area, and thereby earn a rebate, they were not permitted to pick up tires from warehouses located elsewhere, even though Michelin would ship tires from non-local warehouses in the event of shortages. Plaintiff contended that these policies operated to impede its efforts to compete on a national scale. The economic rationales underlying these restraints as well as the evidence presented concerning the actual competitive consequences of the nonrenewal decision will be examined herein. This analysis is mandated by the Supreme Court's decision in Sylvania, which recognized that vertical restrictions might simultaneously suppress intrabrand competition while promoting interbrand competition. See generally, ABA Antitrust Section, Monograph No. 2, Vertical Restrictions Limiting Intrabrand Competition (1977).

The Rice Nonrenewal Decision-Unilateral Action or Contract, Combination or Conspiracy in Restraint of Trade

It is necessary to assess defendant's argument that the nonrenewal decision was a unilateral action not subject to scrutiny under 15 U.S.C. § 1 which proscribes "every contract, combination . . . or conspiracy . . . in restraint of trade . . .," before proceeding to an evaluation of the reasonableness of the restraints imposed by Michelin on its dealers. While a seller "may announce in advance the circumstances under which he will refuse to sell," United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919), it is not necessary for this Court to find an express or implied contract to conclude that defendant's conduct cannot be characterized as purely unilateral. United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960). Testimony at trial reveals the requisite degree of involvement of other parties.

Jean Pierre Duleyrie, the Vice-President in charge of sales, and the individual primarily responsible for the nonrenewal decision conceded that complaints from Michelin sales personnel in other areas and from other tire dealers about plaintiff's geographically extensive and large-scale wholesaling activities contributed to the decision. While Michelin sales personnel do not qualify as economically distinct entities with whom defendant could conspire or contract, Fuchs Sugars & Syrups, Inc. v. Amstar Corp., 602 F.2d 1025 (2d Cir. 1979), other Michelin tire dealers do qualify. Numerous other witnesses testified...

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