Re-Alco v. National Center for Health Educ.

• Decision Date: 29 January 1993
• Docket Number: No. 92 Civ. 1186 (MBM).,92 Civ. 1186 (MBM).
• Citation: 812 F. Supp. 387
• Parties: RE-ALCO INDUSTRIES, INC., A Florida Corporation, Plaintiff, v. NATIONAL CENTER FOR HEALTH EDUCATION, INC., A New York Not-For-Profit Corporation, Professional Book Distributors, Inc., A Georgia Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

812 F. Supp. 387

RE-ALCO INDUSTRIES, INC., A Florida Corporation, Plaintiff, v. NATIONAL CENTER FOR HEALTH EDUCATION, INC., A New York Not-For-Profit Corporation, Professional Book Distributors, Inc., A Georgia Corporation, Defendants.

No. 92 Civ. 1186 (MBM).

United States District Court, S.D. New York.

January 29, 1993.

COPYRIGHT MATERIAL OMITTED

Jay B. Grossman, N. Miami Beach, FL, for plaintiff.

Benito Romano, Lawrence O. Kamin, Wilkie Farr & Gallagher, New York City, for defendant Nat. Center for Health Educ., Inc.

OPINION AND ORDER

MUKASEY, District Judge.

Plaintiff brings this action alleging violation of federal and New York State antitrust laws, specifically Sections One and Two of the Sherman Act and New York's Donnelly Act. Plaintiff also seeks a declaratory judgment of noninfringement of defendant NCHE's copyright and invalidation of that copyright. In addition, plaintiff brings claims under New York common law for breach of a constructive trust¹ and promissory estoppel.² The case is before me now on defendants' motion to dismiss the Amended Complaint in its entirety pursuant to Rules 12(b)(1) and 12(b)(6), Fed. R.Civ.P. For the reasons set forth below, defendants' motion is granted and the Amended Complaint is dismissed in its entirety.

I.

Defendant National Center for Health Education ("NCHE") is a nonprofit corporation in the business of disseminating a trademarked health education program called "Growing Healthy." Growing Healthy focuses on elementary school students. It was developed initially in the 1960's under the auspices of the federal government. (Amd Complt ¶ 9(a)) NCHE ultimately packaged the curriculum, trademarked the program under the name Growing Healthy, and copyrighted the manuals.³ NCHE apparently sought copyright protection to prevent commercial textbook companies from taking over the program. (Amd Complt ¶ 42) Defendant obtained copyright and trademark protection for the program materials in 1986. (Amd Complt ¶ 43)

The Growing Healthy curriculum consists of teacher manuals, student workbooks, and items called "peripherals" packaged for each grade level. (Amd Complt ¶ 48) The peripherals include, for example, videos, posters, and models. (Amd Complt ¶ 48(c)) School districts have flexibility in choosing which elements of the program to purchase and use, depending, presumably, on the health education needs of a particular community and on the community's financial resources. (Amd Complt ¶ 26) Defendant Professional Book Distributors ("PBD") is a textbook distributor which has an exclusive agreement with defendant NCHE to distribute the Growing Healthy manuals. (Amd Complt ¶ 60)

Plaintiff Re-Alco is a for-profit corporation in the business of selling peripherals for the program, including certain so-called "Realia Kits" that it developed and packaged to accompany the program at each grade level. (Amd Complt ¶ 57) Plaintiff entered the business of supplying materials for the Growing Healthy program in 1988, two years after defendant NCHE copyrighted the program. (Amd Complt ¶ 57) Plaintiff claims that it now wants to enter the market as a producer and distributor of the manuals as well. (Amd Complt ¶¶ 53, 107) For that reason, plaintiff seeks a declaration that defendant's copyright on the manuals is invalid.

Plaintiff claims that defendants, by copyrighting the manuals and entering into an exclusive distributorship agreement, are conspiring to restrain trade and attempting to monopolize the Growing Healthy market. Plaintiff further claims that the Growing Healthy⁴ materials existed in the public domain, as a result of years of collective effort by educators and administrators, and that NCHE merely played a coordinating role in the latest copyrighted incarnation of the program. (Amd Complt ¶ 41) Plaintiff paints a scenario in which NCHE, a nonprofit company, decided to squeeze out legitimate competitors such as Re-Alco. NCHE allegedly accomplished this by obtaining an invalid copyright and entering into an exclusive distribution agreement with a distributor other than plaintiff. That portrayal omits the fact that plaintiff did not enter the market as a peripherals supplier until 1988, two years after NCHE copyrighted the program materials, and has yet to enter the market as a distributor of manuals.

II.

Taking the allegations of the Amended Complaint as true, which I must in deciding a Rule 12(b)(6) motion, Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984), it does not appear that there is any set of facts plaintiff could prove in support of its complaint that would entitle Re-Alco to relief, Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-103, 2 L.Ed.2d 80 (1957), because plaintiff has failed adequately to define the relevant product market, to allege antitrust injury, or to allege conduct in violation of the antitrust laws.

A complaint must allege a relevant product market in which the anticompetitive effects of the challenged activity can be assessed. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 29, 104 S.Ct. 1551, 1567, 80 L.Ed.2d 2 (1984); Nifty Foods Corp. v. Great Atlantic & Pac. Tea Co., 614 F.2d 832, 840 (2d Cir.1980). The relevant product market includes all products reasonably interchangeable, determination of which requires consideration of cross-elasticity of demand. See United States v. E.I. Du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956).

Plaintiff has defined the relevant market solely as the market for the Growing Healthy program. Plaintiff further subdivides that market into a market for manuals and workbooks, a peripherals market, and the "full line market," a combination of the first two. (Amd Complt ¶ 49) This narrowly tailored market definition is inadequate under antitrust law.

One can theorize that we have monopolistic competition in every nonstandardized commodity with each manufacturer having power over the price and production of his own product. However, this power that, let us say, automobile or soft-drink manufacturers have over their trademarked products is not the power that makes an illegal monopoly. Illegal power must be appraised in terms of the competitive market for the product.

Du Pont, 351 U.S. at 392-393, 76 S.Ct. at 1006. "The law is clear that the distribution of a single brand, like the manufacture of a single brand, does not constitute a legally cognizable market." Deep South Pepsi-Cola Bottling Co. v. PepsiCo, Inc., 1989-1 Trade Cas. (CCH) ¶ 68,560, 1989 WL 48400 (S.D.N.Y.1989). The Du Pont test asks whether there are substitutes reasonably available to buyers, not whether plaintiff has been prevented from selling a particular copyrighted or trademarked product. See PepsiCo, 1989-1 Trade Cas. ¶ 68,560. Plaintiff has failed to make allegations addressing this dispositive issue.

The complaint in an antitrust case must allege a basis for finding that commodities which are in some way unique, such as the educational materials in question here, are a market unto themselves. Plaintiff must explain why the market it alleges is in fact the relevant, economically significant product market. If a complaint fails to allege facts regarding substitute products, to distinguish among apparently comparable products, or to allege other pertinent facts relating to cross-elasticity of demand, as the complaint here fails to do, a court may grant a Rule 12(b)(6) motion. See e.g., Ford Piano Supply Co. v. Steinway & Sons, 1987-2 Trade Cas. (CCH) ¶ 67,828 at 59,503, 1988 WL 3488 (S.D.N.Y.1988) (holding market defined as one for particular piano parts insufficient to state a claim where complaint failed to allege facts regarding substitutes and cross-elasticity of demand); Theatre Party Associates, Inc. v. Shubert Organization, Inc., 695 F.Supp. 150, 154 (S.D.N.Y.1988) (requiring "a theoretically rational explanation to support plaintiff's proposed relevant product market" of tickets for one particular Broadway show on 12(b)(6) motion); Gianna Enterprises v. Miss World (Jersey) Ltd., 551 F.Supp. 1348, 1354 (S.D.N.Y.1982) (requiring that plaintiff provide at least a theoretically rational explanation for excluding other similar products to beauty pageant at issue on 12(b)(6) motion).

Absent an adequate market definition, it is impossible for a court to assess the anticompetitive effect of challenged practices. Id. Plaintiff has made no showing why Growing Healthy materials should be considered a market unto themselves, as distinguished from the market suggested by defendants — all health education materials for elementary schools. Plaintiff's Amended Complaint fails to discuss the existence or nonexistence of other health education materials and any relevant differences in demand, and therefore fails to state a claim.

I will take plaintiff at its word that it is not simply a disappointed NCHE distributor (Pl.Mem. at 14), and is a legitimate competitor. However, "the fact that plaintiff chose to operate in a single market ... does not make it a relevant market for antitrust purposes." Shubert, 695 F.Supp. at 155. Plaintiff made a business decision to enter the Growing Healthy market after defendant NCHE already had a copyright on the materials and already distributed the manuals through an exclusive arrangement with another company, Temco. Plaintiff sued only after NCHE terminated its agreement with Temco and entered into an exclusive arrangement with PBD. Plaintiff's choice to compete in the narrow market for Growing Healthy materials does not, absent other factually based allegations, support the contention that Growing Healthy is a relevant product market for antitrust purposes.

NCHE's monopoly over the Growing Healthy manuals and its exclusive distribution agreement with PBD does not give rise to an inference of an antitrust violation. A manufacturer has a natural monopoly in the sale and distribution of its own products. PepsiCo, 1989-1 Trade Cas. ¶...