Stephen Jay Photography, Ltd. v. Olan Mills, Inc.

• Decision Date: 21 June 1990
• Docket Number: No. 89-2401,89-2401
• Citation: 903 F.2d 988
• Parties: , 1990-1 Trade Cases 69,033, 60 Ed. Law Rep. 748 STEPHEN JAY PHOTOGRAPHY, LTD.; Larry Lemasters, Individually and t/a Classic Studios; Robert G. Holman and Kitty L. Pugh, d/b/a Holman's Photography Studio, a general partnership, Plaintiffs-Appellants, v. OLAN MILLS, INC.; Kinder-Care, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 988

903 F.2d 988

58 USLW 2708, 1990-1 Trade Cases 69,033,

60 Ed. Law Rep. 748

STEPHEN JAY PHOTOGRAPHY, LTD.; Larry Lemasters Individually and t/a Classic Studios; Robert G. Holman and Kitty L. Pugh, d/b/a Holman's Photography Studio, a general partnership, Plaintiffs-Appellants, v. OLAN MILLS, INC.; Kinder-Care, Inc., Defendants-Appellees.

No. 89-2401.

United States Court of Appeals Fourth Circuit.

Argued Dec. 8, 1989.

Decided May 15, 1990.

Rehearing and Rehearing In Banc Denied June 21, 1990.

William P. Williams, Evans, Williams & Levinson, Virginia Beach, Va., for plaintiffs-appellants.

Walter D. Kelley, Jr., Willcox & Savage, P.C., William T. Prince, Williams, Worrell, Kelly, Greer & Frank, P.C., Norfolk, Va., for defendants-appellees.

Conrad M. Shumadine, Gary A. Bryant, Willcox & Savage, P.C., Richard M. Swope, Williams, Worrell, Kelly, Greer & Frank, P.C., on brief, Norfolk, Va., for defendants-appellees.

Before HALL and WILKINS, Circuit Judges, and BUTZNER, Senior Circuit Judge.

WILKINS, Circuit Judge:

Stephen Jay Photography, Ltd., Larry LeMasters, Robert G. Holman, and Kitty L. Pugh (appellants) appeal the grant of summary judgment in favor of Olan Mills, Inc. and Kinder-Care, Inc. (appellees) on appellants' claims seeking damages and injunctive relief for alleged violations of the Virginia Antitrust Act, Va.Code Ann. Secs. 59.1-9.1, et seq. (1987 & Supp.1989), and various federal antitrust laws. Appellants alleged that appellees made "commercial bribes," established a tying arrangement, and conspired with each other and with local high schools to monopolize and restrain trade in the high school yearbook and portrait photography markets. We affirm.

I.

Appellants originally brought this action in Virginia state court alleging violations of Virginia antitrust laws. When appellees removed the action to federal district court pursuant to 28 U.S.C.A. Sec. 1441 (West 1973 & Supp.1989), appellants amended their complaint to include allegations of violations of federal antitrust laws.

Appellants are commercial photographers operating in cities in the Norfolk, Virginia, area. Appellees are also commercial photographers who operate in the Norfolk area, but are large national corporations with corporate headquarters in other states. Appellees contracted with all 22 high schools in the Norfolk area to photograph students for school yearbooks, Olan Mills contracting with 20 percent of the schools and Kinder-Care with 80 percent. Appellees obtained the contracts through competitive negotiation, a process whereby school officials contacted photographers (including photographers other than appellees) whom they believed would be interested in obtaining yearbook contracts. After negotiation, appellees contracted to take student yearbook pictures and pay the schools a percentage of the profits they earned from sales of optional portrait photographs (portraits) of the students. ¹ In exchange, the schools designated the contract photographer as the "official photographer," provided a location on school grounds where photographs could be taken, supplied a list of the students' names and addresses, and scheduled the students for their photographs.

While the students' yearbook pictures were being taken, appellees also took portraits. ² Both the schools and appellees sent letters to the students and their parents encouraging the purchase of a portrait from the "official photographer." The letters disclosed that an unspecified portion of the portrait photograph price would be given to the school to support various school activities. This marketing system of coordinating the yearbook pictures and portraits, coupled with the endorsement of the school, gave appellees a competitive advantage in selling portraits.

Appellants found it difficult to implement a similar marketing strategy. While acknowledging that they objected to sharing the profits with the schools, they complain that their occasional calls expressing an interest in entering the negotiation process were ignored by school officials. They also claim that several schools discouraged students from submitting yearbook photographs taken by anyone other than "official photographers" by charging those students a nominal fee not exceeding $5 and that other schools failed to supply appellants with requested yearbook photograph specifications.

Appellants also claim that Olan Mills and Kinder-Care shared price information and charged similar prices for their portrait packages. In opposition to the motion for summary judgment, they submitted a letter written by an Olan Mills local representative to his home office which contained an enclosure listing the prices charged by Kinder-Care. Additionally, they established that a Kinder-Care price list was found in the confidential files of Olan Mills.

The four primary issues raised on appeal are whether the district court erred by granting summary judgment in favor of appellees on appellants' claims that (1) appellees established a tying arrangement in violation of section 1 of the Sherman Act, 15 U.S.C.A. Sec. 1 (West Supp.1990); (2) appellees engaged in "commercial bribery" in violation of section 2(c) of the Robinson-Patman Act, 15 U.S.C.A. Sec. 13(c) (West 1973); (3) appellees conspired with the high school officials and with each other to restrain trade in violation of section 1 of the Sherman Act, 15 U.S.C.A. Sec. 1; and (4) appellees conspired with each other to monopolize the high school portrait and yearbook photography market in violation of section 2 of the Sherman Act, 15 U.S.C.A. Sec. 2 (West Supp.1990). ³

II.

A tying arrangement constitutes a per se violation of the antitrust laws and occurs when one party agrees "to sell one product but only on the condition that the buyer also purchases a different (or tied) product...." Northern Pac. Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Additionally, "two distinct markets for products that were distinguishable in the eyes of buyers" must be linked. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 19, 104 S.Ct. 1551, 1561, 80 L.Ed.2d 2 (1984). Appellants argue that appellees engineered an illegal tying arrangement by linking the sale of portraits (tied product) to the school yearbook photographs (tying product). They argue that the yearbook photographs and the portraits are separate and distinct products, that appellees possessed economic power in the high school yearbook photography market, and that appellees and the schools coerced the students into buying portraits through their solicitation letters.

The district court, relying on an affidavit which stated that in all cases the yearbook photographs were provided at no charge to the students, dismissed the claim holding that a "tying arrangement cannot exist when the tying product is not sold to the consumer, but is provided free of charge." See Northern Pac. Ry., 356 U.S. at 5, 78 S.Ct. at 518; Jefferson Parish, 466 U.S. at 12, 104 S.Ct. at 1558. Although the record is unclear, we accept the contention that it can be read to indicate that a nominal fee was charged by Kinder-Care to some senior students. We nevertheless agree with the result reached by the district court. For a tying arrangement violative of the antitrust laws to exist, the seller must coerce the buyer into purchasing the tied product. Jefferson Parish, 466 U.S. at 12, 104 S.Ct. at 1558. Typically, the coercion occurs when a monopolist seller "condition[s] [the] sale of one commodity on the purchase of another." Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 605, 73 S.Ct. 872, 878, 97 L.Ed. 1277 (1953). Here, unlike the typical tying arrangement, appellees did not condition the taking of yearbook photographs on the purchase of portraits. It was abundantly clear from the solicitation letters that the parents and students were under no obligation to purchase portraits. Because the students had the option to purchase portraits and their decision whether to purchase had no effect on their yearbook photographs, the relationship here did not constitute a tying arrangement.

III.

Appellants contend that the payment of the profits from the portrait sales by appellees to the schools constitutes commercial bribery in violation of section 2(c) of the Robinson-Patman Act. ⁴ The issue of whether commercial bribery violates this section has not yet been addressed by this circuit.

The Robinson-Patman Act was enacted in 1936 to prohibit tactics used by large buyers or sellers to circumvent the discriminatory price prohibitions of the Clayton Act. ⁵ Congress determined that rather than forcing direct price concessions, which violated the Clayton Act, monopolists were insisting on indirect price concessions. One method employed to circumvent the Clayton Act was through the use of "dummy brokerages." For example, a large buyer with economic clout might insist that in order to do business sellers must pay a fee to a designated "broker." The broker would then turn the money over to the large buyer.

Although dummy brokerages were the chief target of section 2(c), it also covers other means by which brokerages could be used to effect price discrimination. See FTC v. Henry Broch & Co., 363 U.S. 166, 168-69, 80 S.Ct. 1158, 1160-61, 4 L.Ed.2d 1124 (1960). In Henry Broch & Co. the Court noted, in dicta, that the legislative history of the Robinson-Patman Act supports the proposition that section 2(c) might also "proscribe other practices such as the 'bribing' of a seller's broker by the buyer." Henry Broch & Co., 363 U.S. at 169-70 n. 6, 80 S.Ct. at 1160-61 n. 6. See also California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 513, 92 S.Ct. 609, 613, 30 L.Ed.2d 642 (1972) ("bribery of a public purchasing agent" could violate section 2(c)) (dictum). The Senate Report discussing section 2(c) states in part:

The relation of the broker to his client is a fiduciary one. To collect from a client...