Pepsico, Inc. v. Coca-Cola Co.

• Decision Date: 24 December 2002
• Docket Number: Docket No. 00-9342.
• Citation: 315 F.3d 101
• Parties: PEPSICO, INC., Plaintiff-Appellant, v. The COCA-COLA COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

315 F.3d 101

PEPSICO, INC., Plaintiff-Appellant, v. The COCA-COLA COMPANY, Defendant-Appellee.

Docket No. 00-9342.

United States Court of Appeals, Second Circuit.

Argued: October 11, 2001.

Decided: December 24, 2002.

COPYRIGHT MATERIAL OMITTED

Thomas F. Cullen, Jr., Washington, DC (Robert H. Rawson, Jr., Jones, Day, Reavis & Pogue, Washington, DC; Richard C. Weisberg, Merion, Pa.; Randolph S. Sherman, Richard M. Steuer, Kaye Scholer LLP, New York, NY; Gerard W. Casey, PepsiCo, Inc., Purchase, NY, on the brief), for Plaintiff-Appellant.

Jonathan M. Jacobson, New York, N.Y. (Daniel F. McInnis, Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York, NY; James M. Koelemay, Jr., Joel M. Neuman, Kenneth L. Glazer, The Coca-Cola Company, Atlanta, GA; Michael C. Russ, Jeffrey S. Cashdan, King & Spalding, Atlanta, GA, on the brief), for Defendant-Appellee.

Before: NEWMAN and KEARSE, Circuit Judges.^*

PER CURIAM:

Plaintiff-appellant PepsiCo, Inc. ("PepsiCo") appeals from the judgment of the United States District Court for the Southern District of New York (Loretta A. Preska, District Judge), entered September 25, 2000, granting summary judgment in favor of defendant-appellee The Coca-Cola Company ("Coca-Cola") on PepsiCo's claims that (1) Coca-Cola's enforcement of loyalty provisions in its distributorship agreements with independent food service distributors ("IFDs") that prohibit the IFDs from delivering PepsiCo products to any of their customers constitutes monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; and (2) the inclusion and enforcement of the loyalty provisions in Coca-Cola's agreements amounts to concerted action by Coca-Cola and the IFDs in restraint of trade, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Having thoroughly reviewed the record and the parties' arguments, we affirm the district court's grant of summary judgment in favor of Coca-Cola and, except where noted, adopt the district court's reasoning set forth in its thorough and persuasive opinion. See PepsiCo, Inc. v. Coca-Cola Co., 114 F.Supp.2d 243 (S.D.N.Y.2000).

Background

Coca-Cola and PepsiCo, in addition to selling their famous beverages in bottles and cans, sell fountain syrup to numerous customers, including large restaurant chains, movie theater chains, and other "on-premise" accounts. PepsiCo and Coca-Cola bid for agreements to supply fountain syrup and negotiate a price directly with the customer, and then pay a fee to a distributor to deliver the product. Historically, PepsiCo delivered fountain syrup primarily through bottler distributors; Coca-Cola delivered fountain syrup through bottler distributors as well as IFDs, who can offer customers one-stop shopping for all of their restaurant supplies. In the late 1990s, PepsiCo decided it wanted to start delivering fountain syrup via IFDs, but when it sought to do so, Coca-Cola began to enforce the so-called "loyalty" or "conflict of interest" policy contained in its agreements with IFDs, which provides that distributors who supply customers with Coca-Cola may not "handle[] the soft drink products of [PepsiCo]." PepsiCo, 114 F.Supp.2d at 245. IFDs who breach the loyalty policy risk termination by Coca-Cola. As the district court observed, "a distributor subject to the loyalty policy can supply all its customers with either Pepsi or Coke, not both. Because distributors are given an all or nothing choice, a customer of a distributor subject to Coca-Cola's loyalty policy who wants Pepsi will have to go elsewhere to get it." Id. at 245-46.

PepsiCo filed this antitrust complaint alleging that the loyalty provisions constituted an illegal monopolization and attempted monopolization under Section 2 of the Sherman Act. PepsiCo later amended its complaint to add a claim that Coca-Cola and the IFDs had entered into an illegal horizontal conspiracy to restrain trade, in violation of Section 1 of the Sherman Act.

The district court denied Coca-Cola's motion to dismiss, finding that PepsiCo's allegations, if supported by evidence, could make out a monopolization claim. Following eighteen months of aggressive discovery, however, the district court granted Coca-Cola's motion for summary judgment, largely on the basis that PepsiCo had failed to introduce sufficient evidence on any of its claims to raise a triable issue. Id. at 245, 258 n. 7. This appeal followed.

Discussion

I. Legal Standard

We review the district court's grant of summary judgment de novo. Beckford v. Portuondo, 234 F.3d 128, 130 (2d Cir.2000) (per curiam). Summary judgment is appropriate only where, "[e]xamining the evidence in the light most favorable to the nonmoving party," Adjustrite Sys., Inc. v. Gab Bus. Servs., Inc., 145 F.3d 543, 547 (2d Cir.1998), the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law," Fed.R.Civ.P. 56(c). In the context of antitrust cases, however, summary judgment is particularly favored because of the concern that protracted litigation will chill pro-competitive market forces. See Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 95 (2d Cir.1998). Although all reasonable inferences will be drawn in favor of the non-movant, those inferences "must be reasonable in light of competing inferences of acceptable conduct." Id.

Moreover, as noted by the district court, "`the burden on the moving party may be discharged by "showing" — that is pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case.'" PepsiCo, 114 F.Supp.2d at 247 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); see also Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir.1995) ("In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim."). When the moving party meets this burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e).

II. Section 2 of the Sherman Act

As noted by the district court, in order to state a claim for monopolization under Section 2 of the Sherman Act, a plaintiff must establish "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); see Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 61 (2d Cir.1997). To state an attempted monopolization claim, a plaintiff must establish "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993); Tops Mkts., 142 F.3d at 99-100.

A. The Relevant Market

As an initial matter, it is necessary to define the relevant product and geographic market Coca-Cola is alleged to be monopolizing. See AD/SAT v. Associated Press, 181 F.3d 216, 226 (2d Cir.1999); cf. Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). The parties do not dispute that the relevant geographic market is the United States. A relevant product market consists of "products that have reasonable interchangeability for the purposes for which they are produced — price, use and qualities considered." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 404, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) ("du Pont"). Products will be considered to be reasonably interchangeable if consumers treat them as "acceptable substitutes." FTC v. Cardinal Health, Inc., 12 F.Supp.2d 34, 46 (D.D.C.1998) ("[T]he relevant market consists of all of the products that the Defendants' customers view as substitutes to those supplied by the Defendants.").

In its complaint, PepsiCo defined the relevant market as the "market for fountain-dispensed soft drinks distributed through [IFDs] throughout the United States." Pepsico sought to narrow this market definition on summary judgment by confining it to customers with certain characteristics, specifically "large restaurant chain accounts that are not `heavily franchised' with low fountain `volume per outlet.'" PepsiCo, 114 F.Supp.2d at 246. The district court rejected this definition on the grounds that 1) it was not substantiated by the evidence; and 2) it was not supported by the practical indicia enunciated in Brown Shoe.

Reviewing the evidence submitted on summary judgment, the district court held that fountain syrup delivered by bottler distributors was an "acceptable substitute" for fountain syrup delivered by IFDs — and thus had to be included in the relevant product market — because none of the numerous customers who were deposed or submitted affidavits for the summary judgment motion said that the availability of delivery via IFDs was determinative of its choice of fountain syrup. See id. at 250. Tellingly, in PepsiCo's own survey of 99 major customers, the availability of one-stop-shopping IFDs was ranked 35 out of 38 in importance among various factors they considered in choosing a fountain syrup. See id. at 252. PepsiCo's internal strategy documents, moreover, repeatedly explain that Coca-Cola has several advantages over PepsiCo in the fountain syrup business, only some of which relate to flexible delivery methods.

The district court also rejected PepsiCo's argument that the relevant market should be confined to certain customers, an argument the district court characterized as "PepsiCo['s attempt] to...