O.S.C. Corp. v. Apple Computer, Inc.

• Citation: 792 F.2d 1464
• Decision Date: 30 June 1986
• Docket Number: Nos. 85-5684,85-5695,s. 85-5684
• Parties: , 1986-1 Trade Cases 67,159 O.S.C. CORPORATION, also known as Olympic Sales Company; Consumer Computers; Advanced Computer Products; Custom Computer; Computer Specialties; and Micro Business World, Inc., Plaintiffs/Counterclaim, Defendants-Appellants, v. APPLE COMPUTER, INC., Defendant/Counterclaim, Plaintiff-Appellee. ADVANCED COMPUTER PRODUCTS, Plaintiff/Counterclaim, Defendant-Appellant, v. APPLE COMPUTER, INC., Defendant/Counterclaim, Plaintiff-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1464

792 F.2d 1464

55 USLW 2050, 1986-1 Trade Cases 67,159

O.S.C. CORPORATION, also known as Olympic Sales Company;

Consumer Computers; Advanced Computer Products; Custom

Computer; Computer Specialties; and Micro Business World, Inc., Plaintiffs/Counterclaim, Defendants-Appellants, v. APPLE COMPUTER, INC., Defendant/Counterclaim, Plaintiff-Appellee.

ADVANCED COMPUTER PRODUCTS, Plaintiff/Counterclaim, Defendant-Appellant, v. APPLE COMPUTER, INC., Defendant/Counterclaim, Plaintiff-Appellee.

Nos. 85-5684, 85-5695.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 6, 1986.

Decided June 30, 1986.

Marc M. Seltzer, Corinblit, Shapero & Seltzer, Los Angeles, Cal., for plaintiffs/counterclaim, defendants-appellants.

Gary L. Reback, Fenwick, Stone, Davis & West, Palo Alto, Cal., for defendant/counterclaim, plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before KENNEDY, SKOPIL, and ALARCON, Circuit Judges.

SKOPIL, Circuit Judge:

These are antitrust actions brought against Apple Computer, Inc. ("Apple") by six retail dealers ("dealers") of personal computers. The dealers contend that Apple's ban on mail order sales violates section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1982). The district court rejected the dealers' arguments that the ban was per se unlawful as a product of a price-fixing conspiracy. The court also rejected the dealers' alternative theory that the restraint was unlawful under a rule of reason analysis. We affirm the well-reasoned decision of the district court.

FACTS AND PROCEEDINGS BELOW

Apple manufactures small computer systems that are marketed through a network of independent local retail outlets. Appellants are retail dealers of personal computers who specialize in mail order sales. These dealers contend that, as a result of their vigorous and aggressive mail order sales, other dealers complained to Apple of unfair price competition. Apple thereafter instituted a ban on mail order sales of its products. Dealers who continued to sell Apple products by mail were warned they would be terminated as authorized dealers.

Following discovery, Apple moved for summary judgment. The court initially denied the motion but on reconsideration granted the relief. O.S.C. Corp. v. Apple Computer, Inc., 601 F.Supp. 1274 (C.D.Cal.1985). The court held there was insufficient evidence to reasonably infer a price-fixing conspiracy. Id. at 1295. Further, the dealers failed to offer significantly probative evidence that Apple's mail order ban adversely affected competition. Id. at 1291 n. 8. Summary judgment was thus granted "on the ground that plaintiffs have not presented a record sufficient to support a reasonable finding in their favor." Id. at 1297.

DISCUSSION

Our review is de novo. Lojek v. Thomas, 716 F.2d 675, 677 (9th Cir.1983). We scrutinize the evidence and reasonable inferences to determine whether there is sufficient probative evidence to permit "a finding in favor of the opposing party based on more than mere speculation, conjecture, or fantasy." Barnes v. Arden Mayfair, Inc., 759 F.2d 676, 681 (9th Cir.1985). "[I]f there is no genuine issue of material fact, and if the resisting party does not present a record sufficient to support a reasonable finding in his favor, a district court has a duty to grant the motion for summary judgment." Filco v. Amana Refrigeration, Inc., 709 F.2d 1257, 1260 (9th Cir.), cert. dismissed, 464 U.S. 956, 104 S.Ct. 385, 78 L.Ed.2d 331 (1983).

Section 1 of the Sherman Act, 15 U.S.C. Sec. 1 (1982), prohibits every "contract, combination ... or conspiracy" in restraint of interstate trade or commerce. Independent activity does not violate section 1. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775 (1984). Only unreasonable or undue restraints are prohibited. Standard Oil of New Jersey v. United States, 221 U.S. 1, 58-60, 31 S.Ct. 502, 515-516, 55 L.Ed. 619 (1911). In Standard Oil, the Court applied a rule of reason in examining conduct of parties to determine section 1 violations. Id. at 60, 31 S.Ct. at 515. Unreasonableness is based on the nature of the contract or on the surrounding circumstances that give rise to an inference the parties intended to restrain trade or enhance prices. National Society of Professional Engineers v. United States, 435 U.S. 679, 690, 98 S.Ct. 1355, 1364, 55 L.Ed.2d 637 (1978) (footnote omitted).

Certain restraints are so clearly anticompetitive they have been held to be unlawful per se. See, e.g., United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150, 218, 60 S.Ct. 811, 841, 84 L.Ed. 1129 (1940) (price-fixing). Per se unlawful activities include "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958).

A. Per Se Violation.

Although unilateral action by a manufacturer in terminating a distributor is not usually subject to per se analysis, such action when taken in response to a competing distributor's complaint and with intent to restrain price competition may be a per se violation. Zidell Explorations, Inc. v. Conval International, Ltd., 719 F.2d 1465, 1470-71 (9th Cir.1983). If a manufacturer deliberately withdraws its product from a price-cutting dealer at the request of a competing dealer as part of a conspiracy to price-fix, the manufacturer has joined in an unlawful restraint. Id. at 1469. It is appropriate to apply the per se rule when the manufacturer's primary motivation for its action is anticompetitive. Id. at 1471.

Mere competitors' complaints plus termination of a noncomplying dealer are insufficient to raise an inference of unlawful conspiracy or combination. Filco, 709 F.2d at 1263. Rather, there must be evidence that tends to exclude the possibility of independent action by the manufacturer and distributor. Monsanto, 465 U.S. at 768, 104 S.Ct. at 1472. "That is, there must be direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others had a conscious commitment to a common scheme designed to achieve an unlawful objective." Id.

We agree with the district court that the dealers' proffered evidence is insufficient to survive Apple's motion for summary judgment. Once allegations of conspiracy made in the complaint are rebutted by probative evidence supporting an alternative interpretation of a defendant's conduct, the plaintiff must come forward with specific factual support of its allegations of conspiracy. Barnes, 759 F.2d at 680; Landmark Development Corp. v Chambers Corp., 752 F.2d 369, 371-72 (9th Cir.1985) (per curiam).

Apple met its burden by proffering "an entirely plausible and justifiable explanation of [its] conduct" that is "consistent with proper business practice." Barnes, 759 F.2d at 680 (quoting Blair Foods, Inc. v. Ranchers Cotton Oil, 610 F.2d 665, 672 (9th Cir.1980)). Apple contended and the district court agreed that the mail order prohibition was imposed to ensure Apple's products were sold only by face-to-face transactions. O.S.C., 601 F.Supp. at 1281. Apple's marketing strategy requires sales support such as assessing the needs of prospective purchasers, assembling the particular package to meet those needs, hands-on instruction, education and training, and follow-up servicing. Mail order sales inherently cannot supply that necessary support.

The district court found that Apple's only concern with prices pertained to its dealers' capacity to withstand erosion of profit margins caused by having to carry "free riding" mail order dealers. Id. at 1287. Such a concern is both legitimate and lawful. See Monsanto, 465 U.S. at 762-63, 104 S.Ct. at 1470 (manufacturer may lawfully ensure that distributors earn sufficient profits to pay for product service programs and to "see that 'free riders' do not interfere"); Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 54-59, 97 S.Ct. 2549, 2559-2562, 53 L.Ed.2d 568 (1977) (manufacturer can impose service and repair responsibilities on retailers, which because of "free rider" effect, retailers might not otherwise perform); JBL Enterprises, Inc. v. Jhirmack Enterprises, Inc., 698 F.2d 1011, 1015 (9th Cir.) (dealers more likely to promote or service product if not worried about other dealers taking a "free ride" on their efforts), cert. denied, 464 U.S. 829, 104 S.Ct. 106, 78 L.Ed.2d 109 (1983); Computer Place, Inc. v. Hewlett-Packard Co., 607 F.Supp. 822, 830-31 (C.D.Cal.1984) (manufacturer's ban on mail order sale of computers was held justified by the manufacturer's concern over free riding by mail order dealers).

The dealers' evidence of a price-fixing conspiracy consisted of (1) complaints to Apple about mail order dealers' price discounts; (2) the outright and sudden elimination of mail order sales and termination of those dealers who continued such sales; (3) several meetings involving dealer and manufacturer representatives in which mail order discounting was allegedly raised; (4) a conversational statement by Apple's president that while he could not legally discuss pricing, something was going to be done about price erosion; (5) an incident in which Apple allegedly coerced mail order dealers to "get their prices up;" (6) Apple's alleged conditioning of new locations for mail order dealers upon their agreement to cease discounting; and (7) Apple's alleged agreement with one of the plaintiffs to not advertise prices. The district court reviewed all of these allegations, O.S.C., 601 F.Supp. at 1287-89, and concluded there was insufficient evidence to support an inference of concerted action between Apple and its dealers, id. at 1295. We agree.

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