George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc.

Decision Date17 December 1974
Docket NumberNo. 74-1169,74-1169
Citation508 F.2d 547
Parties1974-2 Trade Cases 75,424 GEORGE R. WHITTEN, JR., INC., d/b/a Whitten Corporation, Plaintiff-Appellant, v. PADDOCK POOL BUILDERS, INC., et al., Defendants-Appellees.
CourtU.S. Court of Appeals — First Circuit

John E. Lecomte, Boston, Mass., with whom Frank T. Barber, III, Peter A. Donovan, Newton, Mass., and Lecomte, Shea & Dangora, Boston, Mass., were on brief, for plaintiff-appellant.

John D. Hawke, Jr., Washington, D.C., with whom Jack Lipson, Kenneth A. Letzler, and Arnold & Porter, Washington, D.C., for defendants-appellees.

Before COFFIN, Chief Judge, McENTEE, Circuit Judge, and CLARY, * Senior District Judge.

COFFIN, Chief Judge.

This appeal presents issues arising out of a private antitrust suit brought by George R. Whitten, Jr., Inc. (Whitten) against several associated companies (Paddock). 1 Both Whitten and Paddock manufacture and merchandize prefabricated metal recirculation systems for swimming pools constructed by public agencies. The complaint arises out of Paddock's efforts to persuade architects and engineers to use its proprietary specifications before competitive bidding procedures are undertaken. Whitten's complaint charges that these efforts exceed permissible bounds in that they include false representations, threats of litigation, and tying of accessory products, and that these in combination with an objective of excluding competitors constitute violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. 1, 2, and 3 of the Clayton Act, 15 U.S.C. 14.

In a prior appeal, the issue was whether the district court properly granted summary judgment for Paddock on the ground that all efforts to induce governmental bodies to take action, notwithstanding the motives of the inducers, were immunized from antitrust liability. We held that the court erred in granting summary judgment. George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 424 F.2d 25 (1970) (Paddock I). Subsequently, the case was tried to the district court, sitting without a jury, and resulted in judgment for defendants. 376 F.Supp. 125 (D.Mass.1974).

We leave further delineation of facts to our discussion of particular issues. we shall examine the section 2 monopolization claim first, then the section 1 conspiracy claim, and the Clayton Act tying claim along with other miscellaneous issues where appropriate.

I. Attempt to Monopolize Under Sherman Act 2

Whitten begins its section 2 argument by stating that 'the single most important issue in this case bearing upon plaintiff's allegations that defendants' conduct constitutes an attempt to monopolize in violation of Section 2 of the Sherman Act involves the determination of the relevant product market.' Paddock agrees. While such a consensus among the parties is not binding upon us, we also think that a section 2 attempt case, like a monopolization case, requires a definition of the relevant market. We are aware that some authority can be cited to the contrary, principally Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir.), reh'g denied, 327 F.2d 478 cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964), but note that most current cases do focus on market definition in attempt cases, 2 and that the status of Tidewater, even in the Ninth Circuit, is subject to some uncertainty. 3 The rationale supporting the majority rule appears to us persuasive. To be successful, an attempt case must establish both an intent to monopolize and a dangerous probability of successful monopolization, see, e.g., Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 49 L.Ed. 518 (1905) and American Tobacco Co. v. United States, 328 U.S. 781, 785, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); these elements take on meaning only with reference to an actual or potential exercise of power, which in turn must be assessed in the context of a relevant market. The contrary policy argument-- that market definition should be eliminated in order to permit the application of sanctions to anti-competitive behavior by a single firm which does not approach monopolization-- seems unpersuasive. See Generally Cooper, supra, at 408, 414, 435-454.

This brings us to the critical issue of market definition. swimming pool recirculation systems operate to remove water from the pool for purification, either through a drain in the pool's bottom, or through a gutter which rims the pool at its top. Water enters the gutter either through openings in its aide called skimming weirs or by overflowing the gutter lip, and then passes through a filter and chlorinator. In conventional recirculation systems, the water passes outside of the pool proper and the filtered chlorinated water is returned to the pool through pipes built into the pool wall. The Whitten and Paddock systems, however, return the purified water through conduits built into the gutter itself, and thus eliminate the need for buried perimeter piping. Whitten argues strenuously that the relevant market is limited to public swimming pool pipeless recirculation systems, in which both Whitten and Paddock are substantial factors, not the entire market for recirculation systems in the public swimming pool industry, in which even Paddock is a minor figure. 4

Whitten's argument centers on what it alleges are the realities of competition in the public swimming pool industry, specifically, the incentives to sell an architect or engineer on specifications indicating a particular recirculation system. The argument flows from the assumption that Whitten and Paddock are specialists in public pool recirculation systems, suppliers of patented prefabricated products. As such, they actively seek information, through contacts in the industry or Dodge Reports, a McGraw-Hill service, concerning projects in the design and planning stage. Their major sales effort is the active attempt to convince architects to specify their products. On the other hand, contractors who install conventional perimeter pipe recirculation systems, because they are not specialized suppliers of recirculation systems, have no incentive to expend resources encouraging the specification of a conventional system. This results from the fact that conventional perimeter pipes are not manufactured 'products' in the same sense as are prefabricated pipeless systems, and any other contractor could bid and comply with the conventional specifications in a given contract. Thus, argues Whitten, 'no conventional gutter manufacturers or suppliers conceivably can be hovering around architects . . . seeking to get their 'products' specified,' and 'there can be no competition without competitors.'

We agree that conventional systems are not manufactured 'products' in the same sense as pipeless systems. 5 It may also be true that most suppliers of perimeter pipe systems do not lobby architects and engineers to specify such conventional systems. Before we address this argument directly, we note that Whitten is on weak ground in so concentrating on competition among sellers. A market definition which is confined to the seller's perspective is not meaningful. United States v. Bethlehem Steel Corp., 168 F.Supp. 576, 592 (S.D.N.Y.1958); cf. United States v. E. I. duPont de Nemours & Co., 351 U.S. 377, 392-393, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) (Cellophane case). By necessity, definition of 'market' must also focus on attitudes and reactions of consumers.

Indeed, appellants explicitly recognize that 'the choice for buyers is between pipeless recirculation systems and conventional recirculation systems which are constructed on site and which employ buried perimeter piping.' The evidence in this case overwhelmingly justifies that conclusion. Architects and engineers attested to an industry-wide buyers' perception of competition between pipeless and conventional systems. 6 This perception finds substance in the facts, conceded by Whitten, that conventional and pipeless systems are priced comparably, and that there are no constant or predictable price distinctions between the two systems. Significant differences in quality between pipeless and conventional systems are also missing as we explain below. As for differences in use by consumers, Whitten again concedes that the two types of systems are functionally interchangeable, that either can be used in any public pool in the country. The final choice of a pipeless or conventional system is determined by the peculiar needs and desires of owners, architects and engineers, and not by any fixed structural requirements. The market for a product must be defined not by focusing on a single factor alone but by evaluating the reasonable limits of that product's effective competition with other products. See Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 326, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); United States v. E. I. duPont de Nemours & Co., 353 U.S. 586, 593, 77 S.Ct. 872, 1 L.Ed.2d 1057 (1957); Standard Oil Co. v. United States, 337 U.S. 293, 299 n. 5, 69 S.Ct. 1051, 93 L.Ed.2d 1371 (1949). 7 Such limits are drawn according to the cross-elasticity of demand for the product in question-- the extent to which purchasers will accept substitute products in instances of price fluctuation and other changes.

'In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that 'part of the trade or commerce', monopolization of which may be illegal. 'The market is composed of products that have reasonable interchangeability for the purposes for which they are produced-- price, use and qualities considered.' Cellophane case, supra 351 U.S. at 394, 404, 76 S.Ct. at 1007, 1012.

In light of the functional and price interchangeability of pipeless and conventional systems, it appears that the elasticity of demand for pipeless...

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