Rural Telephone Service Co. v. Feist Publications

• Decision Date: 05 April 1990
• Docket Number: No. 83-4086-R.,83-4086-R.
• Citation: 737 F. Supp. 610
• Parties: RURAL TELEPHONE SERVICE COMPANY, INC., Plaintiff, v. FEIST PUBLICATIONS, INC., Defendant.
• Court: U.S. District Court — District of Kansas

737 F. Supp. 610

RURAL TELEPHONE SERVICE COMPANY, INC., Plaintiff, v. FEIST PUBLICATIONS, INC., Defendant.

No. 83-4086-R.

United States District Court, D. Kansas.

April 5, 1990.

James M. Caplinger, Jr., Topeka, Kan., for plaintiff.

Kyler Knobbe, Ridenour and Knobbe, Cimarron, Kan., for defendant.

MEMORANDUM AND ORDER

ROGERS, District Judge.

This is an antitrust action brought by way of a counterclaim. Feist Publications, Inc. (FP) contends that Rural Telephone Service Company, Inc.'s (RTSC) refusal to license white page telephone listings to it is an antitrust violation under the "essential facility" theory and/or "intent to monopolize" theory of section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2. A trial to the court has been concluded. The court is now prepared to issue findings of fact and conclusions of law.

FINDINGS OF FACT

1. RTSC is a cooperative telephone company providing service to various communities in northwest Kansas. All of the telephone subscribers in the RTSC service area are member owners. RTSC is a nonprofit business with all revenues exceeding the cost of doing business returned to members under a refund plan called capital credits. RTSC is a certified public utility and, as such, is regulated by the Kansas Corporation Commission (KCC). The service area of RTSC consists of the area colored in yellow on the map attached to this memorandum and order as Attachment No. 1. RTSC has approximately 4,700 telephone subscribers.

2. In the course of its business, RTSC compiles, publishes and distributes telephone directories covering the geographical area in which it provides telephone service. The KCC requires all telephone companies operating in Kansas to issue at least annually a dated telephone directory. The telephone directories published by RTSC contain white pages and yellow pages. The white pages list in alphabetical order the names, addresses and telephone numbers of RTSC's telephone subscribers. The yellow pages list RTSC's business subscribers alphabetically under the appropriate business classifications and contain classified advertisements of various sizes purchased by RTSC's business subscribers.

3. On August 1, 1974, RTSC entered into a "Telephone Directory Publishing Contract" with Leland Mast Directory Company to publish its annual telephone directory until December 31, 1985. Pursuant to the contract, RTSC granted Leland Mast Directory Company the exclusive rights to compile, print and sell advertising in RTSC's annual telephone directory during that period of time. On July 29, 1985, RTSC entered into an agreement with the Gronseth Directory Service Corporation to publish its annual telephone directory until October 31, 1990.

4. FP is a Kansas corporation that publishes and distributes telephone directories in Kansas and other states. FP publishes and distributes regional telephone directories. These directories are designed to cover certain trade areas and to allow telephone subscribers to have access to telephone numbers in nearby communities. FP first produced a directory for southwest Kansas in 1977. FP produced a directory for northwest Kansas in 1978. The northwest directory covered fifteen counties. The directories produced by FP contained the same white pages and yellow pages similar to the RTSC directory. The advertising contained in the directories, especially the advertising contained in the yellow pages, provides the revenue for FP.

5. The inclusion of white pages listings is necessary for the production of a successful independent telephone directory. Independent directories containing only yellow pages have not been successful. In order to obtain the white pages listings for its directory, FP contacted the telephone companies providing service in the areas of its regional directory. FP sought to obtain the white pages listings by paying the telephone companies for the listings. Some of the companies refused to license their white pages listings initially, but ultimately most have agreed to license the listings. All of the telephone companies in northwest Kansas agreed to provide the listings except RTSC. Each agreement also provides that the telephone company will provide FP with updated listings. The cost for the listings ranged from $ .01 to $ .49 for each listing.

6. Tom Feist of FP contacted Henry Austerman, the manager for RTSC, in 1978 about obtaining the white pages listings. Austerman invited Feist to appear at the next board meeting and make a presentation to the RTSC board of directors. Feist agreed and made a presentation at the April 28, 1978 meeting of the RTSC board of directors. Feist offered to pay $ .10 for each of RTSC's listings. The issue was left unresolved at that meeting. The minutes from the meeting reflect the following:

Representative from area-wide telephone directory was admitted to the meeting at this time, a Mr. Tom Feist from Spearville, Kansas. His main objective was to purchase from us our directory listings so as to establish a wide area directory for western Kansas. After much discussion on this request the board, upon a motion duly made, seconded, and unanimously approved, voted to table the request indefinitely.

7. Feist eventually learned that it was unlikely that FP would receive the listings from RTSC. RTSC refused to provide the white pages listings to FP in order to extend its monopoly in telephone service into yellow pages advertising. The refusal to deal was not motivated by a legitimate business reason, but by an intent to exclude competition in the yellow pages advertising market in the RTSC service area. Feist made no further direct efforts to obtain the listings from the RTSC, but he did make several indirect attempts through other individuals. These efforts were unsuccessful.

8. RTSC later licensed its white pages listings to other telephone companies for inclusion in their directories. RTSC provided its listings from Olmitz, Kansas to H & B Communications, Inc. and the Wilson Telephone Company for its 1986-1987 and 1987-1988 telephone directories. These telephone companies did not sell yellow pages advertising in the RTSC service area. RTSC was paid $ .50 per listing for the Olmitz listings.

9. The directory produced by RTSC in 1977-1978 contained only white pages listings for the communities within its service area. In the following year, RTSC expanded its directory to include listings for towns outside its service area. In order to include white pages listings from communities outside its service area, RTSC licensed these listings from the local telephone companies. RTSC paid from $ .01 to $ .49 for these listings. RTSC also sold yellow pages advertising in areas outside of its service area. RTSC, however, did not distribute its directory outside of its service area. RTSC continued these practices in subsequent years.

10. The 1978 northwest Kansas directory produced by FP did include the RTSC white pages listings. FP obtained a copy of the RTSC directory and used the listings without RTSC's knowledge. FP hired verifiers to confirm as many names and telephone numbers as possible. FP did not include any RTSC subscriber in its directory that was not independently verified. This policy meant that many of the RTSC subscribers would not be included in the FP directory because of the problems of verification. FP continued the practice of using the RTSC directory through 1983 for each of its annual northwest Kansas directories. Feist believed that it was necessary to include the communities in the RTSC service area because such an omission would have created "enormous holes" in the FP northwest directory. Feist thought that a lack of complete coverage would have rendered the FP directory ineffective. During the period from 1978 to 1983, FP continued to pay for listings from the other telephone companies in the northwest Kansas area.

11. In 1983, RTSC filed the instant action for copyright infringement after finding fictitious listings in FP's directory. RTSC alleged that FP had infringed the copyright on RTSC's 1982-1983 telephone directory. FP responded with the instant counterclaims. FP alleged that its yellow pages advertising had declined because it had incomplete RTSC white pages listings due to RTSC's refusal to enter into a license agreement with FP.

12. On January 5, 1987, the court granted summary judgment to RTSC in its copyright infringement claim. 663 F.Supp. 214. The court subsequently awarded damages to RTSC in the amount of $6,000. The court also awarded attorney's fees to RTSC. These decisions were affirmed by the Tenth Circuit Court of Appeals on March 9, 1990.

13. Each telephone company publishes its directory at a different time of the year. RTSC has generally published its directory in October of each year. FP has generally published its northwest directory in January of each year.

14. The white pages listings in a telephone directory change substantially each year. Feist estimated that the listings change 30 to 35 percent every year.

15. Due to RTSC's failure to license its white pages listings, the FP northwest directory over the years was only 70 percent complete in the RTSC service area. The FP northwest directory, however, also had listings that were not in the RTSC directory. This was apparently due to FP's later publication date and to FP's verification process.

16. FP was unable to identify anyone who had refused to purchase yellow pages advertising in its directory because the FP northwest directory did not contain complete listings from the RTSC service area. FP was also unable to identify anyone who had complained that the FP northwest directory was incomplete.

17. The financial success of any telephone directory is dependent upon advertisers and potential advertisers perceiving that the directory is used by the consumers to whom it is distributed. Customer usage depends on the accuracy, completeness and timeliness of the information contained in the directory....