Faulkner Advertising Associates, Inc. v. Nissan Motor Corp. in U.S.A., 89-1548

• Decision Date: 12 June 1990
• Docket Number: No. 89-1548,89-1548
• Citation: 905 F.2d 769
• Parties: , 1990-1 Trade Cases 69,055 FAULKNER ADVERTISING ASSOCIATES, INC., Plaintiff-Appellant, v. NISSAN MOTOR CORPORATION IN U.S.A., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 769

905 F.2d 769

58 USLW 2737, 1990-1 Trade Cases 69,055

FAULKNER ADVERTISING ASSOCIATES, INC., Plaintiff-Appellant, v. NISSAN MOTOR CORPORATION IN U.S.A., Defendant-Appellee.

No. 89-1548.

United States Court of Appeals, Fourth Circuit.

Argued April 2, 1990.

Decided June 12, 1990.

Robert Gene Levy, Frank, Bernstein, Conaway & Goldman, Baltimore, Md., for plaintiff-appellant.

John J. Hanson, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendant-appellee.

Berryl A. Speert, Harry J. Katrichis, A. David Demiray, Frank, Bernstein, Conaway & Goldman, Baltimore, Md., on the brief, for plaintiff-appellant.

Peter Sullivan, Robert W. Denton, Gibson, Dunn & Crutcher, Los Angeles, Cal., Lewis A. Noonberg, H. Mark Stichel, Piper & Marbury, Baltimore, Md., on the brief, for defendant-appellee.

Before ERVIN, Chief Judge, HALL, Circuit Judge, and BUTZNER, Senior Circuit Judge.

ERVIN, Chief Judge:

Faulkner Advertising Associates, Inc. ("Faulkner") brought this action against Nissan Motor Corporation in U.S.A. ("Nissan"), alleging that Nissan was engaged in an illegal "tying" arrangement in violation of the Sherman Antitrust Act, 15 U.S.C. Secs. 1 et seq. The district court granted Nissan's motion to dismiss this case under Federal Rule of Civil Procedure 12(b)(6) because of Faulkner's failure to state a claim upon which relief could be granted. In particular, the district court held that Faulkner had failed to allege in its complaint all of the essential elements of a tying violation, especially Nissan's sale of a "tied" product. We believe that Faulkner's complaint stated a cause of action sufficient to withstand a motion to dismiss, and therefore reverse the decision of the district court and remand this case for trial.

I.

Faulkner is an advertising agency located in Baltimore, Maryland. Until October of 1988, Faulkner was engaged exclusively in the business of creating and placing print, radio and television advertising for local Nissan dealer associations. By that time, Faulkner earned approximately forty to fifty percent of the total amount spent on advertising each year by these independent dealer associations. ¹ Prior to 1988, advertising for Nissan trucks and cars was conducted at two distinct levels--national advertising and advertising in selected "spot" markets was developed, placed and paid for by Nissan, while regional and local advertising was obtained and paid for by the individual Nissan dealerships through their local dealer associations. ² Under this older system, the local dealer associations were free to procure advertising services from any advertising agency of their choosing.

On May 27, 1988, Nissan announced a new "local market advertising" plan that was implemented on October 1, 1988. Under this new approach, Nissan increased the wholesale prices of its cars and trucks in order to pay for both increased advertising at the national level, and new advertising to be developed by Nissan and its national advertising agency, Chiat/Day, Inc. ("Chiat/Day"), for use at the regional and local levels. ³ In addition, Nissan also ceased making its monetary distributions and contributions to the advertising efforts of the local dealer associations. Although the independent Nissan dealer associations were not precluded from developing and placing local advertising, these activities were no longer subsidized by Nissan or the sale of Nissan vehicles. As a consequence, the local Nissan dealer associations terminated, in many cases with considerable reluctance, their business relationships with Faulkner and the other advertising agencies which they previously had retained.

Faulkner sustained substantial and immediate economic losses as a result of Nissan's new program, which effectively centralized all aspects of Nissan advertising at the national and regional levels. ⁴ On October 6, 1988, Faulkner brought this action for injunctive and monetary relief in the United States District Court for the District of Maryland, contending that Nissan was engaged in an unlawful tying arrangement, and that Nissan had tortiously interfered with the business relationships between Faulkner and local Nissan dealer associations. On August 28, 1989, the district court granted Nissan's Rule 12(b)(6) motion to dismiss this case with prejudice, and Faulkner now appeals that decision.

II.

Courts reviewing dismissals under Rule 12(b)(6) are guided by the long-established rule that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), quoted in Thompson v. Brotherhood of Sleeping Car Porters, 316 F.2d 191, 199 (4th Cir.1963); see also District 28, United Mine Workers of America, Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085 (4th Cir.1979). In reviewing the dismissal of a private antitrust action, this court has concluded: "We cannot sustain a complaint which does not allege with reasonable definiteness facts from which the court may infer conduct in restraint of trade of the kind prohibited by the antitrust laws, and from which an inference of public injury may reasonably be extracted." Nelligan v. Ford Motor Co., 262 F.2d 556, 559 (4th Cir.1959). Most importantly, dismissals are reviewed de novo on appeal. Revene v. Charles County Comm'rs, 882 F.2d 870, 872 (4th Cir.1989).

III.

A tying arrangement is an agreement whereby a seller conditions the sale of one product or service (the tying product) upon the buyer's purchase of a second product or service (the tied product). Northern Pacific R.R. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958); White v. Rockingham Radiologists, Ltd., 820 F.2d 98, 103 (4th Cir.1987). A tying arrangement which poses an unacceptable risk of stifling competition in the sale and purchase of a tied product or service constitutes a violation of our country's antitrust laws. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 9 & n. 13, 104 S.Ct. 1551, 1556 & n. 13, 80 L.Ed.2d 2 (1984); 15 U.S.C. Sec. 1 ("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."). In Jefferson Parish, the Supreme Court explained:

Our cases have concluded 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. When such "forcing" is present, competition on the merits in the market for the tied item is restrained and the Sherman Act is violated.

* * * * * *

Accordingly, we have condemned tying arrangements when the seller has some special ability--usually called "market power"--to force a purchaser to do something that he would not do in a competitive market. When "forcing" occurs, our cases have found the tying arrangement to be unlawful.

466 U.S. at 12-14, 104 S.Ct. at 1558-59 (citations omitted).

In order to establish an illegal tying arrangement, a plaintiff must show that two separate and distinct product markets have been linked together, that the defendant used its market power to force its customers to accept the tying arrangement, and that the tying arrangement unreasonably foreclosed or restrained market competition in the tied product. Jefferson Parish, 466 U.S. at 18, 21, 104 S.Ct. at 1561, 1562; Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 506-08, 89 S.Ct. 1252, 1260-61, 22 L.Ed.2d 495 (1969). ⁵

In the instant case, the sole issue in dispute is whether Faulkner properly alleged in its complaint that Nissan had linked together two distinct product or service markets in order to sell a tied product or service. ⁶ Nissan argues that it is engaged exclusively in selling cars and trucks, that its wholesale prices for those vehicles include a premium to pay for the company's own product advertising, that it is a purchaser rather than a provider of advertising services, that independent Nissan dealers and their associations are not precluded from buying additional advertising services from firms such as Faulkner, and that its new local market advertising program does not constitute an unreasonable restraint of trade. In contrast, Faulkner contends that Nissan has linked the sale of its vehicles with a comprehensive package of advertising services, that prior to the implementation of this new marketing program Nissan dealers obtained their advertising services from independent agencies such as Faulkner, that under Nissan's new plan Nissan dealers are effectively compelled to buy local advertising from Nissan and Chiat/Day, that many Nissan dealers would prefer to purchase their advertising services from Faulkner rather than from Nissan and Chiat/Day, that this new program is therefore an unreasonable constraint upon the market for advertising services, and that Nissan's new program constitutes an unlawful tying arrangement. In Faulkner's view, the tying products are Nissan's cars and trucks, the tied services include Nissan's new advertising efforts, and the tying arrangement is embodied in Nissan's local market advertising program. Summarizing the parties' respective positions, Nissan maintains that it is active in selling a single product (vehicles), while Faulkner insists that Nissan is selling two linked products (vehicles and advertising).

IV.

The identification of two distinct products or services is often the greatest stumbling block for antitrust plaintiffs who have alleged a tying violation. See, e.g., Southern Pines Chrysler-Plymouth, Inc. v. Chrysler Corp., 826 F.2d 1360, 1362-63 (4th Cir.1987); Washington Gas Light Co. v....