Stearns v. Genrad, Inc.

• Decision Date: 28 January 1985
• Docket Number: No. 83-1611,83-1611
• Citation: 752 F.2d 942
• Parties: 1984-2 Trade Cases 66,294 Richard M. STEARNS, Trustee in Bankruptcy for Carolina Acoustics Co., Inc., Appellant, v. GENRAD, INC., Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 942

752 F.2d 942

1984-2 Trade Cases 66,294

Richard M. STEARNS, Trustee in Bankruptcy for Carolina Acoustics Co., Inc., Appellant, v. GENRAD, INC., Appellee.

No. 83-1611.

United States Court of Appeals Fourth Circuit.

Argued March 7, 1984.

Decided Nov. 20, 1984.

As Amended on Denial of Rehearing and Rehearing En Banc

Denied Jan. 28, 1985.

Noel Lee Allen, Raleigh, N.C. (William D. Harazin, R. Bradley Miller, Frank M. Parker, Jr., Barringer, Allen & Pinnix, Raleigh, N.C., on brief), for appellant.

George L. Little, Jr., Winston-Salem, N.C. (F. Joseph Treacy, Jr., Petree, Stockton, Robinson, Vaughn, Glaze & Maready, Winston-Salem, N.C., on brief), for appellee.

Before HALL and MURNAGHAN, Circuit Judges, and HAYNSWORTH, Senior Circuit Judge.

HAYNSWORTH, Senior Circuit Judge.

This is primarily an antitrust case commenced by Carolina Acoustics Company, a former regional distributor of sound-measurement devices manufactured by the defendant Genrad, Inc. Prosecution of the case was continued by Carolina's trustee in bankruptcy.

Until 1979, Genrad utilized regional distributors who, collectively, were responsible for approximately 30% of Genrad's sales. The distribution agreement permitted Genrad to compete with its distributors, and approximately 70% of its sales were direct sales. In that year, however, a decision was made by Genrad's officials to terminate all of their distributors and, thereafter, to sell only directly.

In its complaint, Carolina alleged (1) restraints of trade in violation of Sec. 1 of the Sherman Act, 15 U.S.C. Sec. 1, and Sec. 3 of the Clayton Act, 15 U.S.C. Sec. 14; (2) attempted monopoly in violation of Sec. 2 of the Sherman Act, 15 U.S.C. Sec. 2; (3) breach of the distributorship agreement; and (4) unfair or deceptive trade practices in violation of N.C.Gen.Stat. Sec. 75-1.1(a).

In response to the complaint, Genrad counterclaimed for $48,448.31 due it upon a promissory note executed and delivered by Carolina.

The district court granted summary judgment for Genrad on all claims, including its counterclaim. ¹ 564 F.Supp. 1309. We conclude that summary judgment was properly entered for Genrad on all of Carolina's claims and on its counterclaim.

I.

In answer to an interrogatory, Genrad identified twenty-one documents that it had withheld from production on the basis of a claim of attorney-client privilege. Carolina asked the district court to inspect the documents in camera, but the motion was denied after argument. Carolina then filed a motion to reconsider as to only two of the original nineteen documents. Genrad submitted those two documents to the court. After an in camera inspection of those two documents, Genrad's claim of privilege was upheld, and the defendant's motion to compel was denied.

On appeal, Carolina complains of the failure to compel production of the two documents reviewed in camera and other documents as well. None of them were made a part of the record, however, and Carolina sought no order placing them under seal and making them part of the record. All we have is Genrad's very general description consisting principally of identification of the author, addressee and recipients of copies. We do know that the district court, after inspecting two of them, upheld the claimed privilege, but we cannot examine any of the documents and thus are unable to review the rulings of the district court which kept them from being seen by Carolina.

II.

In its trade restraint claims, Carolina contended that Genrad unlawfully fixed prices, imposed unreasonable territorial and customer restrictions and required Carolina to deal exclusively in Genrad products.

Whatever other infirmities there may be in those claims, recovery upon any of them is foreclosed by the absence of any evidence of injury to Carolina. A violation of the antitrust laws is not compensible unless the violation has occasioned an antitrust injury. J.T. Gibbons, Inc. v. Crawford Fitting Co., 704 F.2d 787, 792 (5th Cir.1982); Windham v. American Brands, Inc., 565 F.2d 59, 65 (4th Cir.1977); see also Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977).

A.

The price fixing claim arose from the fact that Genrad limited discounts to state agencies to 5% below retail. However, Carolina conceded that Genrad never quoted less than list prices to state agencies. In price competition Genrad was always higher than its distributors in sales to state agencies. There was testimony that another of Genrad's distributors once underbid Carolina, but this suggests only that Genrad was not aggressively enforcing the discount limitation. There was also testimony that one state agency made one purchase directly from Genrad because of considerations other than price, but that agency returned to Carolina for its subsequent purchases. There was nothing else to indicate any injury from the alleged resale price maintenance scheme.

B.

In the original distributorship agreement, Genrad agreed to provide Carolina with support personnel and sales assistance in a territory consisting of North Carolina, South Carolina, Georgia, Alabama and eastern Tennessee. The 1976 revision contains no reference to Carolina's territory, and both distributorship agreements expressly conferred upon Carolina a right to sell Genrad products outside of its designated territory. Nevertheless, Carolina claimed that it had been informally told not to sell outside its territory, and the right of cancellation was an effective enforcement tool.

Carolina's salesman, Tenpenny, testified that he was not aware of any territorial restriction, and there was evidence of sales by Carolina outside its territory aggregating approximately $100,000. The only suggestion of a lost sale is the loss of a sale in California to a competing Genrad distributor. It was unexplained, however, how Carolina might effectively compete with west coast distributors in making sales in California. Nor is that lost sale related to the alleged territorial restriction.

C.

Without corroboration, Carolina's former president testified that it was forbidden to bid against Genrad for sales to the General Services Administration of the United States. GSA was the largest single customer for sound-measurement products in the country.

There was no evidence, however, that Carolina could have effectively competed with Genrad in making sales to GSA. There was evidence that GSA insisted that bidders offer to it their lowest prices only, which, for Genrad, were the prices at which it sold to its distributors. If there were an informal restriction upon bidding, it occasioned a loss of no sale upon which a profit might have been made.

D.

There was testimony that Carolina was required to deal exclusively in Genrad products. The evidence is equivocal, however, for there is evidence that Carolina dealt rather extensively in the products of another manufacturer, Columbia. Nevertheless, if there were such a restriction, there is no evidence of any injury to Carolina. There was no evidence of any opportunity to represent any other manufacturer which was declined because of the restriction. Carolina's economist seems to have believed that the exclusivity requirement enhanced Genrad's monopoly position, impairing Carolina's ability to compete effectively against Genrad. However, any injury occasioned by monopolization is not the kind of injury contemplated by Sec. 3 of the Clayton Act.

III.

The district court rejected Carolina's attempt to monopolize claim under Sec. 2 of the Sherman Act upon the ground that Carolina had not sufficiently defined the relevant market because it had submitted no evidence of the absence of cross elasticity of demand.

If there is cross elasticity of demand or interchangeability of products, as in United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956), one must deal with a much larger market than if there is none. In this case, however, there is no suggestion of the presence of cross elasticity of demand or interchangeability of products. However, Carolina's definition of the relevant market is fatally deficient for another reason.

Carolina defined the relevant product market as "portable acoustic measurement and analysis equipment and accessories ..." It never specifically said that the market as thus defined was the manufacture of such products, but in discussing Genrad's market share, it consistently referred to Genrad's share of the manufacturing market. Of course, Carolina did not compete in that market. It competed with Genrad and other manufacturers and distributors of such products in the distribution market.

"It has generally been recognized that every manufacturer has a 'natural monopoly' in the sale and distribution of its own products, especially when sold under a trademark." Spectrofuge Corp. v. Beckman Instruments, Inc., 575 F.2d 256 (5th Cir.1978). See also Bushie v. Stenocord Corp., 460 F.2d 116 (9th Cir.1972); A.L.W., Inc. v. United Air Lines, Inc., 510 F.2d 52 (9th Cir.1975). The behavior of Genrad within the distribution market was not the kind of conduct to give rise to a charge of attempted monopoly. It simply moved to control the distribution of its own products.

There is another reason this claim must fail. There was no showing of a dangerous probability of monopolization.

An attempt to monopolize within the prohibition of the statute is not made out unless it is shown that there was a dangerous probability that the conduct would have achieved a monopoly had it been successful. White Bag v. International Paper Co., 579 F.2d 1384 (4th Cir.1974); McElhenney Co. v. Western Auto Supply Co., 269 F.2d 332 (4th Cir.1959). See also ABA Antitrust Section Antitrust Law Developments 140-44 (2 ed. 1985). "[A]n attempt is not made out unless the conduct, if successful, would constitute the crime." Bowen v. New York News, Inc., 366 F.Supp. 651, 673 (S.D.N.Y.1973) aff'd in part and...