Moore v. Jas. H. Matthews & Co.

• Citation: 550 F.2d 1207
• Decision Date: 29 March 1977
• Docket Number: No. 75-3106,75-3106
• Parties: , 1977-1 Trade Cases 61,376 Arlie Mack MOORE, Evanell E. Moore, Alfred L. Paulson, and Mary E. Paulson, doing business as Eugene Granite & Marble Works, Plaintiffs-Appellants, v. JAS. H. MATTHEWS & CO., Rest Haven Memorial Association, West Lawn Memorial Park, Lane Memorial Gardens, Eugene Memorial Gardens, Inc., Rest Lawn Memorial Park, Inc., Mt. Vernon Cemetery Association, Fir Grove Cemeteries Co., and Rhoden, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1207

550 F.2d 1207

46 A.L.R.Fed. 497, 1977-1 Trade Cases 61,376

Arlie Mack MOORE, Evanell E. Moore, Alfred L. Paulson, and Mary E. Paulson, doing business as Eugene Granite & Marble Works, Plaintiffs-Appellants, v. JAS. H. MATTHEWS & CO., Rest Haven Memorial Association West Lawn Memorial Park, Lane Memorial Gardens, Eugene Memorial Gardens, Inc., Rest Lawn Memorial Park, Inc., Mt Vernon Cemetery Association, Fir Grove Cemeteries Co., and Rhoden, Inc., Defendants-Appellees.

No. 75-3106.

United States Court of Appeals Ninth Circuit.

March 29, 1977.

As Amended on Denial of Rehearing and Rehearing En Banc June 24, 1977.

Edward Ray Fechtel, Husband, Johnson & Fechtel, Eugene, Or., Roger Tilbury, Norman J. Wiener, Portland, Or., argued, for plaintiffs-appellants.

Jeffrey M. Batchelor, John G. Gearin, Gearin, Cheney, Landis, Aebi & Kelley, Joseph T. Hagen, Portland, Or., argued, for defendants-appellees.

Appeal from the United States District Court for the District of Oregon.

Before WRIGHT and KILKENNY, Circuit Judges, and HARRIS, Senior District Judge. ^*

EUGENE A. WRIGHT, Circuit Judge:

The plaintiffs in this private antitrust action alleged violations of sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1, 2) ¹ and section 3 of the Clayton Act (15 U.S.C. § 14). ² The issues on appeal involve: (1) tie-ins; (2) monopolization; (3) attempt to monopolize; and (4) concerted refusals to deal.

Suit was brought in 1969 and the first trial began in 1971. After Moore's opening statement and while the plaintiffs' first witness was testifying, the court invited defendants to move for summary judgment and a directed verdict. Once the motion was made, the district court dismissed all counts against them.

We reversed and remanded for a new trial and one was held, without a jury, on the issue of liability only. At its conclusion the trial court entered judgment for all defendants on all counts.

FACTS

Appellants operate the Eugene Granite and Marble Works (EGM) as a partnership. It is in the retail grave memorial business and also operates an installation service for grave markers in Lane County, Oregon. It is the franchised dealer for two national cemetery memorial manufacturers and offers a full line of memorials including granite, bronze, flat and raised markers.

The eight appellee cemeteries, the principal ones in the Lane County area, accounted for 78% of all interments in Lane County between 1965 and 1974.

Appellee Jas. H. Matthews & Co. (Matthews) is a domestic manufacturer of bronze grave markers who makes approximately 65-70% of all domestically manufactured bronze grave markers.

I. TIE-INS

Tie-ins involve a seller's refusal to sell one product (the tying product) unless the buyer also purchases another (the tied product). Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613-14, 73 S.Ct. 872, 97 L.Ed. 1277 (1953).

Such arrangements are presumptively illegal if certain elements exist and, once those are demonstrated, no specific showing of unreasonable anti-competitive effect is needed. ³ Northern Pacific Ry. Co., supra, 356 U.S. at 5-6, 78 S.Ct. 514.

Three criteria must be found to establish the illegality of a tying arrangement. First, there must in fact be a tying arrangement between two distinct products or services. Second, the defendant must have sufficient economic power in the tying market to impose significant restrictions in the tied product market. Third, the amount of commerce in the tied product market must not be insubstantial. Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 499, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969) (Fortner I), quoting Northern Pacific Ry. Co., supra, 356 U.S. at 5-6, 78 S.Ct. 514.

Appellants argue that two unlawful tie-ins have been demonstrated. First, they contend that it is illegal to tie the purchase of a cemetery lot (tying) with the requirement that purchasers of markers buy the memorial from or through the cemetery (tied). The record reveals that, contrary to the district court's finding, five cemeteries (Fir Grove, West Lawn, Springfield (Rhoden), Rest Haven and Rest Lawn) had such restrictions.

Second, appellants assert that it is impermissible to tie the purchase of the lot (tying) with the requirement that the buyer use the installation service of the cemetery (tied). All eight cemeteries required this condition.

A. THE RATIONALE FOR PRESUMPTIVE ILLEGALITY.

The rationale for proscribing the practice of tie-ins rests on the leverage theory. As we observed in Siegel v. Chicken Delight, Inc., 448 F.2d 43, 47 (9th Cir. 1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972):

The hallmark of a tie-in is that it denies competitors free access to the tied product market, not because the party imposing the arrangement has a superior product in that market, but because of the power or leverage exerted by the tying product.

Competitors in the tied product market are injured if they cannot offer their products on an equal basis with the distributor of the tying product. United States v. Loew's, Inc., 371 U.S. 38, 44-45, 83 S.Ct. 97, 9 L.Ed.2d 11 (1962); Times-Picayune Publishing Co., supra, 345 U.S. at 605, 73 S.Ct. 872. Buyers are injured because they forego choices among products and services, see, e. g., Fortner I, supra, 394 U.S. at 503-04, 89 S.Ct. 1252; Northern Pacific Ry. Co., supra, 356 U.S. at 6, 78 S.Ct. 514, and the public is harmed by the adverse effect on the market for the tied product. ⁴

These reasons for the presumptive illegality of tie-ins have been questioned persuasively by commentators and economists. See, e. g., Posner, Exclusionary Practices and the Antitrust Laws, 41 U.Chi.L.Rev. 506 (1974); Bowman, Tying Arrangements and the Leverage Problem, 67 Yale L.J. 19 (1957). Underlying their criticism is the belief that enforcement and interpretation of the antitrust laws should be governed by economic principles for maximizing consumer welfare. The effect of this premise would be to shift our focus from the traditional interests in avoiding "coerced sacrifice(s) of alternatives" to an analysis of the tie-in's effect on economic efficiency. Compare Turner, The Validity of Tying Arrangements under the Antitrust Laws, 72 Harv.L.Rev. 50, 60 (1958), with Posner, supra, at 509.

From either vantage point, but particularly that of economic efficiency, the logic of some tie-in opinions leaves something to be desired. They have failed to recognize the importance of tie-ins as a means of price discrimination. But cf. United States Steel Corp. v. Fortner Enterprises, Inc., --- U.S. ----, 97 S.Ct. 861, 51 L.Ed.2d 80 (Feb. 22, 1977) (Fortner II).

If the price for the tied item exceeds the price the purchaser otherwise would have to pay, absent the tying arrangement, then the purchaser will tend to regard this difference not as an increase in the price of the tied item, but rather as an increase in the price of the tying product. He is interested in the end price for the product or service here, the total cost of burial. As a result, increases in the price of the installation service, for example, should decrease the demand for the tying product, the cemetery lot. ⁵ Only when the tying arrangement permits price discrimination does our traditional concern with the seller's economic position in the tied product market become realistic.

The clear implication from a purely economic standpoint is that tie-ins should be considered on a case-by-case basis because they are not inherently detrimental. They can in fact be beneficial.

The difficulty with adopting such an approach is well-recognized and it derives from the nature of courts and the costs of judicial enforcement. The problem stems from the unwillingness, if not the inability, of courts to undertake complex economic decision making in the face of economic indeterminacy and over-crowded court calendars.

As courts, we engage in our own balancing of notions about efficiency and have concluded that rules of presumptive illegality serve two vital functions. First, the per se rule:

avoids the necessity for an incredibly complicated and prolonged economic investigation . . . in an effort to determine at large whether a particular restraint has been unreasonable an inquiry so often wholly fruitless . . . .

Northern Pacific Ry. Co., supra, 356 U.S. at 5, 78 S.Ct. at 518.

Second, the Court's steadfast refusal to heed arguments premised solely on the theory of consumer welfare recognizes the fact that enforcement of the antitrust laws requires rules which are both predictable and workable. The test of presumptive illegality is such a mechanism. It protects competition "on the merits," Northern Pacific Ry. Co., supra, 356 U.S. at 6, 78 S.Ct. 514, by identifying situations which diminish equality of opportunity in competitive markets and proscribing them.

B. LEGAL STANDARDS.

Appellants raise the tie-in issues under both § 1 of the Sherman Act and § 3 of the Clayton Act. Although the literal terms of Under a § 3 theory, the plaintiff must establish that the effect of the tie-in "may be to substantially lessen competition." This standard is met either if the seller enjoys sufficient economic power in the tying product market to appreciably restrain competition in the tied product market or if a not insubstantial volume of commerce in the tied product market is restrained. The § 1 standard requires that both conditions be met. Fortner I, supra 394 U.S. at 499, 89 S.Ct. 1252, quoting Northern Pacific Ry. Co., supra, 356 U.S. at 6, 78 S.Ct. 514.

§ 3 refer to exclusive dealing contracts, the Supreme Court has extended its application to tying arrangements. International Business Machines Corp. v. United States, 293 U.S. 131, 135, 56 S.Ct. 701, 80 L.Ed. 1085 (1936); United Shoe Machinery Corp. v. United States, 258 U.S. 451, 42 S.Ct. 363, 66 L.Ed. 708 (1922).

The...