Janich Bros., Inc. v. American Distilling Co.

• Decision Date: 14 December 1977
• Docket Number: No. 74-3167,74-3167
• Citation: 570 F.2d 848
• Parties: 1978-1 Trade Cases 61,826 JANICH BROS., INC., Plaintiff-Appellant, v. The AMERICAN DISTILLING CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 848

570 F.2d 848

1978-1 Trade Cases 61,826

JANICH BROS., INC., Plaintiff-Appellant, v. The AMERICAN DISTILLING CO., Defendant-Appellee.

No. 74-3167.

United States Court of Appeals Ninth Circuit.

Dec. 14, 1977.

As Amended on Denial of Rehearing and Rehearing En Banc March 1, 1978.

Joseph M. Alioto (argued), San Francisco, Cal., for plaintiff-appellant.

Philip B. Bass (argued), of Titchell, Maltzman & Mark, San Francisco, Cal., for defendant-appellee.

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

Before BARNES, CHOY and WALLACE, Circuit Judges.

WALLACE, Circuit Judge:

This is a private antitrust action for treble damages and injunctive relief pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26. Plaintiff and appellant Janich Bros., Inc. (Janich) is a rectifier of alcoholic beverages. It processes, bottles, and distributes its product for sale in California. Defendant and appellee The American Distilling Company (American) is a distiller. It manufactures alcoholic beverages and markets its product throughout the United States.

In an action initiated in 1967, Janich claimed that since 1963 American, through its pricing policies, had attempted to monopolize the sale of private label ¹ gin and vodka in California in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. In addition, Janich claimed that American had sold gin and vodka of like grade and quality at discriminatory prices in violation of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). Janich also claimed that as a result of these activities, it was precluded from making sales of private label gin and vodka to large chain store retailers and also suffered a loss of customers and reduced sales to its existing customers. No specific dollar figure was attached to these losses.

American counterclaimed, alleging that Janich, at least since 1962, had engaged in price discrimination in violation of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). In addition, American charged that Janich, since 1961, had engaged in a conspiracy to set prices in violation of section 1 of the Sherman Act, 15 U.S.C. § 1.

A jury was selected and after the close of Janich's case, the district judge directed a verdict dismissing the attempt to monopolize claim. At the end of the entire case, the jury returned its verdict in favor of American on Janich's Robinson-Patman claim. Subsequent to the jury verdict, American moved for and the district court ordered a dismissal of the counterclaim.

The first assigned error in Janich's appeal is that the district judge improperly directed a verdict on the section 2 claim. Janich also asserts numerous errors in the trial judge's admission or exclusion of evidence, his instructions to the jury on the Robinson-Patman claim, and his comments on the evidence. We affirm.

I. Predatory Conduct

Janich's primary argument on appeal is that the district court erred in directing a verdict on the attempt claim. In resolving this issue, our task is to determine whether a reasonable jury could have found that American attempted to monopolize. Calnetics Corp. v. Volkswagen of America Inc., 532 F.2d 674, 683-84 (9th Cir.), cert. denied,429 U.S. 940, 97 S.Ct. 355, 50 L.Ed.2d 309 (1976). If there is substantial evidence that would support a finding for Janich by reasonable jurors, the directed verdict must be reversed. ² Chisholm Bros. Farm Equip. Co. v. International Harvester Co., 498 F.2d 1137, 1140 (9th Cir.), cert. denied,419 U.S. 1023, 95 S.Ct. 500, 42 L.Ed.2d 298 (1974). In making this determination, we must consider all the evidence and all reasonable inferences which may be drawn from the evidence in a light most favorable to Janich, the party against whom the motion for a directed verdict was made. Continental Ore Co. v. Union Carbide & Carbon Co., 370 U.S. 690, 696, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962); Calnetics Corp. v. Volkswagen of America, Inc., supra, 532 F.2d at 684.

Before considering the facts of his case, it is necessary to determine what evidence a plaintiff must introduce to avoid a directed verdict. This is not a simple chore. Even within our circuit we have not provided a clear and meaningful test, although at first glance the requirements established by our cases appear relatively straightforward. To establish a prima facie case, a plaintiff must prove three elements. The first two are specific intent to control prices or destroy competition with respect to a part of commerce (element 1) and predatory conduct directed to accomplishing the unlawful purpose (element 2). Hallmark Industry v. Reynolds Metals Co., 489 F.2d 8, 12-13 (9th Cir. 1973), cert. denied, 417 U.S. 932, 94 S.Ct. 2643, 41 L.Ed.2d 235 (1974) (hereinafter referred to as Hallmark ); Lessig v. Tidewater Oil Co., 327 F.2d 459, 474 (9th Cir.), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964); see Industrial Bldg. Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1344 (9th Cir. 1970). The third is a "dangerous probability of success" (element 3). Hallmark, supra, 489 F.2d at 12; Moore v. Jas. H. Matthews & Co., 473 F.2d 328, 332 (9th Cir. 1973); see Bushie v. Stenocord Corp., 460 F.2d 116, 121 (9th Cir. 1972).

While these three elements seem clear, they have not always been interpreted with ordinary meaning. For example, a dangerous probability of success (element 3) does not necessarily require direct proof of market power such that the defendant's actions, if unchecked, would result in actual monopoly. While direct proof of market power is one means of establishing this element, it is not always essential. Hallmark, supra, 489 F.2d at 12; Moore v. Jas. H. Matthews & Co., supra, 473 F.2d at 332; see Industrial Bldg. Materials, Inc. v. Interchemical Corp., supra, 437 F.2d at 1344. We have held that the trier-of-fact may infer dangerous probability of success from proof of specific intent to control prices or destroy competition in a portion of the market without legitimate business purpose (element 1), accompanied by predatory conduct toward that end (element 2). Hallmark, supra, 489 F.2d at 12; Lessig v. Tidewater Oil Co., supra, 327 F.2d at 474 & n.46. ³

The interrelation between the three elements does not necessarily end here, however. In some cases we have also held that the trier-of-fact may infer the first element, specific intent, from proof of the second, predatory or anticompetitive conduct directed to accomplishing the unlawful purpose. Hallmark, supra, 489 F.2d at 12; see Lessig v. Tidewater Oil Co., supra, 327 F.2d at 475, so long as this conduct can serve as the basis for a substantial claim of restraint of trade. ⁴ Hallmark, supra, 489 F.2d at 12-13; Bushie v. Stenocord Corp., supra, 460 F.2d at 121.

While there is great wisdom in requiring proof of each of these three elements separately, we cannot question that at least in the factual situations encompassed by certain of our cases, our circuit has allowed a short-cut method of establishing liability. Thus, while a plaintiff must present substantial evidence on all three elements of attempted monopolization to avoid a directed verdict, proof of predatory or anti-competitive conduct which can serve as the basis for a substantial claim of restraint of trade will, in some circumstances, permit an inference of specific intent and then in turn of dangerous probability. Thus, we may limit our initial task to a determination of whether a reasonable jury could conclude that American engaged in such conduct.

Leaving aside the issue of whether the specified acts could form the basis of a substantial claim of restraint of trade, in this case Janich alleges two separate instances of predatory conduct. It asserts primarily that American maintained a two-tiered system of pricing, with one set of prices for sales outside California and another for sales within California. In addition, it asserts that American carried out a program of below-cost pricing. We deal first with the charge of the two-tiered pricing system.

A. Discriminatory pricing.

Janich alleged that American engaged in price discrimination, charging a lower price for goods sold in California than for goods of like grade and quality sold outside of California. Geographical price differentiation presents a different problem from across-the-board price cuts. A firm which cuts its price in a single geographical area and maintains high prices outside of that area may be able to maintain a satisfactory revenue position. Consequently, it may have considerably more staying power than a competing firm which is limited to a single geographical area.

Under these circumstances, it may be possible for a geographically broad-based firm pricing at a cost in a single area to drive out a more efficient competitor which operates only in that area. However, it is unnecessary for us to consider in detail whether the charge of discriminatory pricing in this case lays a basis for recovery. All we need do is look at the overall circumstances to determine if American's geographical price differentiation was sufficient as a matter of law to sustain a charge of attempted monopolization. See L. Sullivan, Antitrust, 108-13 (1977).

As a first step, we conclude that a geographical price differential cannot sustain a charge of attempted monopolization unless it is shown to have a substantial effect on competition. In this regard, we take guidance from the Congressional treatment of price differentiation in section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). ⁵This section prohibits price discrimination between different purchasers of commodities of like grade and quality "where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition." ⁶

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