Rlh Industries v. Sbc Communications

Citation133 Cal.App.4th 1277,35 Cal.Rptr.3d 469
Decision Date03 November 2005
Docket NumberNo. G034640.,G034640.
CourtCalifornia Court of Appeals
PartiesRLH INDUSTRIES, INC., Plaintiff and Appellant, v. SBC COMMUNICATIONS, INC., et al., Defendants and Respondents.
OPINION

IKOLA, J.

RLH Industries, Inc. (RLH), appeals from summary judgment granted to defendants SBC Communications Inc. (SBC), and Pacific Bell Telephone Company (PacBell). RLH alleged the defendants violated California antitrust law by requiring their local telephone service customers to obtain high voltage protection (HVP) from the defendants or, in PacBell's case, from approved HVP device makers other than RLH. RLH contended the defendants' HVP policies constituted an illegal tying arrangement impairing its ability to compete in the HVP market.

We conclude the court correctly granted summary judgment to PacBell. RLH failed to raise a triable issue as to whether PacBell illegally tied its HVP service to its local telephone service, because the undisputed evidence showed PacBell offered its customers a choice between leasing PacBell's HVP services or buying their own HVP devices from two independent suppliers. Since PacBell's HVP policy does not threaten competition, the court correctly granted summary judgment to PacBell.

On the other hand, we conclude the court erred in granting summary judgment to SBC. A triable issue exists as to whether SBC perpetrated an illegal tying arrangement; the evidence tended to show SBC's Midwest subsidiary required its customers to lease its HVP services in order to receive local telephone service and prohibited customers from buying their own HVP devices. We cannot say, on the existing record and as a matter of law, this policy does not constitute an illegal tying arrangement.

We reject the only two grounds SBC asserts for affirming its judgment. First, SBC contends it is not liable for its subsidiaries' HVP policies, but SBC failed to show the nonexistence of triable issues as to whether it is liable under an alter ego or agency theory. Second, SBC contends the commerce clause of the United States Constitution limits California law to regulating in-state conduct. We conclude the commerce clause does not bar application of California antitrust law to out-of-state anti-competitive conduct that causes injury in California. Accordingly, we affirm the summary judgment in favor of PacBell, and reverse summary judgment in favor of SBC.

FACTS

In reviewing summary judgment in favor of SBC and PacBell, we "view the evidence in a light favorable to [RLH] as the losing party [citation], liberally construing [its] evidentiary submission while strictly scrutinizing defendants' own showing, and resolving any evidentiary doubts or ambiguities in [RLH's] favor." (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768, 107 Cal.Rptr.2d 617, 23 P.3d 1143 (Saelzler).)

SBC's subsidiaries provide local telephone service. SBC subsidiary PacBell provides local telephone service in California. SBC subsidiary Ameritech Corporation (Ameritech) provides local telephone service in Illinois, Ohio, Michigan, Wisconsin, and Indiana (the Midwest region). Other SBC subsidiaries provide local telephone service in seven other states.

RLH is a California company with its principal place of business in Orange, California. It makes HVP devices, which protect telephone lines against hazardous voltages arising from ground potential rise (GPR) caused by lightning or voltage surges. Only three other North American companies manufacture HVP devices: Positron Industries (Positron), SNC Manufacturing Co. (SNC), and Westell Technologies, Inc.

PacBell and Ameritech require their local telephone service customers at sites exceeding 1,000 GPR, like utility companies, to use HVP devices. The two companies have different HVP policies.

PacBell offers its customers a choice between leasing HVP services from PacBell, or buying and installing their own HVP devices. Customers who lease HVP protection from PacBell sign 20-year leases containing "mixed use" provisions, which require customers who later want to install their own HVP devices to pay a termination fee and replace any existing PacBell-installed HVP devices. Customers who install their own HVP devices must buy them from PacBell-approved suppliers. PacBell generally approves Positron and SNC devices for use throughout the state. PacBell generally approves RLH devices for use by Northern California customers, but only sporadically approves RLH devices in certain Southern California areas. PacBell requires all its customers at locations with GPR exceeding 20,000 to use RLH devices.

Ameritech requires its customers to lease its HVP service. Customers cannot install their own HVP devices. Ameritech installs only Positron's devices, except it uses RLH's devices at sites where GPR exceeds 20,000.

RLH sued SBC and PacBell over their HVP policies, alleging the defendants illegally used their market power in the local telephone service market to "tie" customers into leasing HVP services from them. In the operative second amended complaint, RLH asserted causes of action for Cartwright Act violations, unfair competition, and intentional interference with prospective economic advantage. The court granted summary judgment to the defendants, holding the HVP policies did not constitute tying arrangements.

DISCUSSION

To obtain summary judgment, the defendants must show an element of each of RLH's causes of action cannot be established, or show a complete defense thereto. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24 P.3d 493 (Aguilar).) They bear the burden to "make a prima facie showing of the nonexistence of any triable issue of material fact." (Ibid.) If they do so, RLH must show some triable issue of material fact does exist. (Ibid.) On appeal, "we must independently examine the record to determine whether triable issues of material fact exist." (Saelzler, supra, 25 Cal.4th at p. 767, 107 Cal.Rptr.2d 617, 23 P.3d 1143.)

No Evidence Suggests PacBell Unlawfully Tied HVP Protection to Its Telephone Service

RLH alleges PacBell's HVP policy violates California's antitrust law, the Cartwright Act (Bus. & Prof.Code, § 16720, subd. (a)), by constituting a tying arrangement. "A tying arrangement is `a requirement that a buyer purchase one product or service as a condition of the purchase of another. [Citation.] Traditionally the product which is the inducement for the arrangement is called the "tying product" and the product or service that the buyer is required to purchase is the "tied product."'" (Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 540-541, 78 Cal.Rptr.2d 133 (Morrison).)

"The elements of a per se tying arrangement violative of [Business and Professions Code] section 16720 are: `(1) a tying agreement, arrangement or condition existed whereby the sale of the tying product was linked to the sale of the tied product or service; (2) the party had sufficient economic power in the tying market to coerce the purchase of the tied product; (3) a substantial amount of sale was affected in the tied product; and (4) the complaining party sustained pecuniary loss as a consequence of the unlawful act.'" (Morrison, supra, 66 Cal.App.4th at pp. 541-542, 78 Cal.Rptr.2d 133.)

Although the parties dispute each element, RLH's lack of evidence tending to show the first element—a tying arrangement—is dispositive. The undisputed evidence showed PacBell does not "link" its telephone service to its HVP service. Rather, its customers have a choice among competitors. They can choose to lease PacBell's HVP service, or buy and install their own HVP devices from Positron or SNC. PacBell does not "tie" its HVP service to its telephone service merely by packaging them together, because its customers can choose to buy telephone service and HVP service separately, from different parties. (See Northern Pacific Railway Company v. United States (1958) 356 U.S. 1, 6, fn. 4, 78 S.Ct. 514, 2 L.Ed.2d 545 (Northern Pacific) ["Of course where the buyer is free to take either product by itself there is no tying problem even though the seller may also offer the two items as a unit at a single price"]; see also Jefferson Parish Hosp. Dist. No. 2 v. Hyde (1984) 466 U.S. 2, 12, 104 S.Ct. 1551, 80 L.Ed.2d 2 ["Buyers often find package sales attractive; a seller's decision to offer such packages can merely be an attempt to compete effectively —conduct that is entirely consistent with" antitrust law].)1

For PacBell's HVP policy to constitute an illegal tie, RLH must show PacBell had a direct financial interest in the other HVP providers. (See Suburban Mobile Homes, Inc. v. AMFAC Communities, Inc. (1980) 101 Cal.App.3d 532, 543, 161 Cal.Rptr. 811 [mobile home park illegally tied home sales to home sites by requiring customers to purchase homes from suppliers who paid commissions to the park]; Carl Sandburg Village Condo. Ass'n. v. First Condo. (7th Cir.1985) 758 F.2d 203, 207 (Carl Sandburg) ["an illegal tying arrangement will not be found where the alleged tying company has absolutely no economic interest in the sales of the tied seller, whose products are favored by the tie-in"].) But no evidence suggests PacBell has any such direct financial interest in Positron or SNC. Positron did give free training for its HVP devices to PacBell, but it is undisputed that Positron offers the same free training to all its current and potential customers, whether they buy its HVP devices or not. The free training is not a direct financial interest in Positron.

As an alternative theory, RLH asserts PacBell need not have...

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