Electronics Communications Corp. v. Toshiba America Consumer Products, Inc.

• Decision Date: 28 October 1997
• Docket Number: D,No. 1772,1772
• Citation: 129 F.3d 240
• Parties: 1997-2 Trade Cases P 71,958 ELECTRONICS COMMUNICATIONS CORP., Plaintiff-Appellant, v. TOSHIBA AMERICA CONSUMER PRODUCTS, INC. and Audiovox Corporation, Defendants-Appellees. ocket 96-9209.
• Court: U.S. Court of Appeals — Second Circuit

Page 240

129 F.3d 240

1997-2 Trade Cases P 71,958

ELECTRONICS COMMUNICATIONS CORP., Plaintiff-Appellant, v. TOSHIBA AMERICA CONSUMER PRODUCTS, INC. and Audiovox Corporation, Defendants-Appellees.

No. 1772, Docket 96-9209.

United States Court of Appeals Second Circuit.

Argued May 22, 1997.

Decided Oct. 28, 1997.

Jeffrey L. Rosenberg, New York City (Rosenberg & Fein, New York City, of counsel), for Plaintiff-Appellant.

Thomas G. Gallatin, Jr., New York City (John J. Kirby, Jr., Michael K. Hertz, Maureen C. Shay, Latham & Watkins, New York City, of counsel), for Defendant-Appellee Toshiba America Consumer Products, Inc.

John Sullivan, New York City (Fried, Frank, Harris, Shriver & Jacobson, New York City, on the brief), for Defendant-Appellee Audiovox Corporation.

Before: WALKER, McLAUGHLIN and PARKER, Circuit Judges.

PARKER, Circuit Judge:

Electronics Communications Corp. ("ECC") appeals from a judgment entered in the United States District Court for the Southern District of New York (Robert P. Patterson, J.) dismissing ECC's claims under sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, for failure to state a claim, and dismissing ECC's pendent state law claims without prejudice. ECC alleges that Toshiba America Consumer Products, Inc. ("Toshiba") and Audiovox Corp. ("Audiovox") (collectively "Defendants") conspired to reduce the output of Toshiba cellular phone products in the United States and to boycott ECC. Audiovox, which sells Toshiba-manufactured phones in the United States under the Audiovox name, allegedly coerced Toshiba into ceasing independent distribution of Toshiba phones, including cancelling a distributorship agreement with ECC. We conclude, based on the allegations in the complaint, that the agreement cannot harm competition market-wide. We therefore affirm.

I. BACKGROUND

ECC alleges in its amended complaint that Toshiba and ECC entered into an agreement in 1994 whereby ECC became a distributor of Toshiba-brand cellular phones in the United States. ECC and Toshiba cooperated in this endeavor between July 1994 and October 1995. Prior to the alleged agreement, these cellular phones, manufactured in Japan by Toshiba's corporate parent, were sold in the United States exclusively by Audiovox under the Audiovox name.

ECC further alleges that when Audiovox learned of Toshiba's plan to distribute phones under the Toshiba brand name through independent channels, Audiovox threatened to use economic and political pressure to deter Toshiba. Specifically, ECC contends that Audiovox threatened to cancel orders and business with Toshiba if Toshiba continued its plan to market Toshiba phones under its own name. ECC further claims that it heard "ruminations [sic] ... in the market" that Audiovox boasted of "Congressional contacts" who would "do [Audiovox's] bidding" if Toshiba continued to compete against Audiovox. ECC even alleges that the executive vice president of Audiovox's cellular division physically attacked a Toshiba marketing manager at a trade show in a fit of rage. Through these alleged threats, apparently, Audiovox sought to prevent Toshiba from distributing cellular phones under the Toshiba name or, alternatively, to have itself appointed the exclusive distributor of Toshiba-brand cellular phones in the United States.

Due to these actions, ECC claims that Toshiba abruptly terminated its relationship with ECC in late 1995, despite repeated reassurances to ECC that the relationship would continue and substantial investment on ECC's part. ECC alleges that Audiovox's pressure, resulting in Toshiba agreeing with Audiovox that Toshiba would not introduce cellular phones under its own name, led to a reduction in the output of Toshiba-brand phones in the United States. Based on Audiovox's alleged market power, ECC claims that the agreement harms competition and constitutes an illegal restraint on trade. According to ECC, at the time Audiovox pressured Toshiba into ceasing distribution of Toshiba-brand phones, Audiovox had "very substantial market share and market power in one or more parts or segments of the cellular telephone equipment and accessories market, and maintain[ed] a monopoly, or a market share which approache[d] a monopoly" in alleged "parts or segments" of the market including certain cellular telephone stores and telephone companies that distribute Audiovox cellular phones. After Toshiba cancelled the alleged distributorship agreement with ECC, ECC brought this suit.

Defendants moved to dismiss the case, arguing that ECC does not have standing, as the complaint alleges that Toshiba, not ECC, was the victim of Audiovox's anticompetitive activity. According to Defendants, any harm to ECC was merely incidental to the unlawful conduct directed at deterring Toshiba from competing against Audiovox. Defendants also argued that ECC failed to state a claim under sections 1 and 2 of the antitrust laws.

The district court rejected Defendants' standing argument but dismissed the case for failure to state a claim. Regarding ECC's claim under section 1, which prohibits agreements in restraint of trade, the district court determined that ECC failed to allege how the agreement reduced competition in the market for cellular phone products. The court noted that Toshiba products, those allegedly forced out of the market by the agreement, are in fact still in the market, only under the Audiovox brand name. The court determined that the complaint does not allege a reduction in the output of phones manufactured by Toshiba, only of phones sold under the Toshiba brand name. In addition, after determining that the agreement does not restrict the output of cellular phones, the court rejected ECC's claim under section 2, under which ECC alleged that Audiovox is illegally maintaining or threatening to obtain a monopoly in certain narrowly defined cellular telephone submarkets. The court also rejected ECC's section 2 claim because the court determined that ECC's allegations regarding the relevant markets under section 2 are flawed as a matter of law. ECC then brought this appeal.

II. DISCUSSION

We first address ECC's argument that the district court improperly dismissed ECC's section 1 claim, in which ECC alleges that the agreement between Audiovox and Toshiba unreasonably restrains trade. We hold that the court properly dismissed this claim because ECC alleges only that the agreement resulted in the elimination of the Toshiba brand name from the cellular telephone market, not that it had an effect on competition market-wide. We next address ECC's argument that the district court erroneously dismissed ECC's monopolization claim under section 2. Because the agreement cannot affect market-wide competition, we hold that the court properly dismissed ECC's section 2 claim as well. We therefore need not reach Defendants' argument that ECC does not have standing.

A. Standard of Review

We review de novo the district court's decision to dismiss ECC's complaint under Fed.R.Civ.P. 12(b)(6). See Valley Disposal, Inc. v. Central Vt. Solid Waste Mgt. Dist., 31 F.3d 89, 93 (2d Cir.1994). We will uphold the dismissal only if it appears that ECC can prove no set of facts, consistent with its complaint, that would entitle it to relief. See Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 1832-33, 104 L.Ed.2d 338 (1989) ("[I]f as a matter of law 'it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations' a claim must be dismissed.") (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)); McLain v. Real Estate Bd., 444 U.S. 232, 246, 100 S.Ct. 502, 511, 62 L.Ed.2d 441 (1980) (stating that the holding of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), that "a complaint should not be dismissed unless 'it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief ... applies with no less force to a Sherman Act claim' "). While "Conley permits a pleader to enjoy all favorable inference from facts that have been pleaded, [it] does not permit conclusory statements to substitute for minimally sufficient factual allegations." Furlong, M.D. v. Long Island College Hosp., 710 F.2d 922, 928 (2d Cir.1983). As the Supreme Court has stated, "[i]t is not ... proper to assume that the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged." Associated General Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 902, 74 L.Ed.2d 723 (1983). We evaluate ECC's complaint according to these well-established standards.

B. Agreement in Restraint of Trade: Sherman Act Section 1

Section 1 of the Sherman Act prohibits "[e]very 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." 15 U.S.C. § 1. A complaint pleading a violation of section 1 must allege a contract, combination or conspiracy that unreasonably restrains trade. See Discon, Inc. v. NYNEX Corp., 93 F.3d 1055, 1059 (2d Cir.1996), petition for cert. filed, 65 U.S.L.W. 3694 (U.S. Apr. 3, 1997) (No. 96-1570), and petition for cert. filed, 65 U.S.L.W. 3767 (U.S. May 5, 1997) (No. 96-1785). ECC argues that the complaint properly alleges that the agreement between Audiovox and Toshiba, whereby Toshiba ceased efforts to distribute Toshiba cellular phones independently under its own brand name, violates section 1. We disagree.

ECC's complaint alleges that Audiovox sells Toshiba-manufactured cellular phones under the Audiovox name and that Audiovox applied pressure to prevent Toshiba from selling identical phones independently under the Toshiba name. These allegations, if true, establish nothing more than that Audiovox sought to preserve...