Town Sound and Custom Tops, Inc. v. Chrysler Motors Corp.

• Decision Date: 26 March 1992
• Docket Number: No. 90-1547,90-1547
• Citation: 959 F.2d 468
• Parties: , 1992-1 Trade Cases P 69,773 TOWN SOUND AND CUSTOM TOPS, INC., Suburban Auto Sound & Communications, Inc., Northeast Electronics Supply, Inc., Dominion Radio Supply, Inc., on behalf of themselves and all others similarly situated, Appellants, v. CHRYSLER MOTORS CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

Page 468

959 F.2d 468

60 USLW 2621, 1992-1 Trade Cases P 69,773

TOWN SOUND AND CUSTOM TOPS, INC., Suburban Auto Sound &amp Communications, Inc., Northeast Electronics Supply, Inc. Dominion Radio Supply, Inc., on behalf of themselves and all others similarly situated, Appellants, v. CHRYSLER MOTORS CORPORATION.

No. 90-1547.

United States Court of Appeals Third Circuit.

Argued Dec. 14, 1990.

Reargued In Banc Nov. 13, 1991.

Decided March 26, 1992.

Donald B. Lewis (argued), Ann Miller, Law Offices of Donald B. Lewis, Philadelphia, Pa., Sidney Dickstein, Peter J. Kadzik, Dickstein, Shapiro & Morin, Washington, D.C., for appellants.

Joseph Angland (argued), Robin D. Adelstein, Steven A. Klein, Dewey Ballantine, New York City, Lewis H. Goldfarb, Allan M. Huss, Paul R. Eichbauer, Chrysler Corp., Highland Park, Mich., for appellee.

Argued Dec. 14, 1990.

Before: SLOVITER, Chief Judge, ^* MANSMANN, Circuit Judge, and SAROKIN, District Judge ^**.

Reargued Nov. 13, 1991.

Before SLOVITER, Chief Judge, and BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, and ROTH, Circuit Judges.

OPINION OF THE COURT

BECKER, Circuit Judge.

Until the mid-1970s, Chrysler Motors Corporation ("Chrysler") and other leading American automobile manufacturers sold car radios as options that were priced separately from the rest of the cars' standard features. By the mid-1980s, however, Chrysler began to include factory-installed sound systems as a standard feature of its models. Today the price of a sound system is included in the base price of virtually all Chryslers, Plymouths, and Dodges ("Chrysler cars"). Whereas car buyers could formerly purchase Chrysler cars without sound systems and buy their own systems from independent autosound dealers, now they cannot even receive credit on a car's price for deleting the sound system. The independent autosound dealers have accordingly seen consumer demand for their products and services decline.

As a result, the plaintiffs, a group of independent autosound dealers, sued Chrysler in the district court for the Eastern District of Pennsylvania, claiming that Chrysler has illegally restrained commerce by conditioning the sale of Chrysler cars on the purchase of Chrysler-supplied autosound systems. Their complaint avers that Chrysler's actions force purchasers of Chrysler cars to accept inferior and overpriced Chrysler-supplied sound systems, resulting in harm to consumers as well as to the independent dealers themselves. Specifically, the plaintiffs claim that Chrysler has tied the sales of Chrysler cars and automobile sound systems for Chrysler cars in violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1988), and section 3 of the Clayton Act, 15 U.S.C. § 14 (1988). They seek certification as class representatives and, eventually, treble damages, injunctive relief, costs, and attorneys' fees.

Upon consideration of Chrysler's motion for summary judgment, the district court ruled that because Chrysler lacked market power in both the tying product market (all automobiles sold domestically) and the tied product market (all autosound systems sold domestically), the plaintiffs could not succeed under either "per se" or rule of reason theories of antitrust liability. It accordingly denied the plaintiffs' request for class certification and entered a final judgment for Chrysler. On appeal, a panel of this court unanimously affirmed the district court's ruling on the "per se" theory but reversed on the rule of reason theory. Chrysler sought and obtained an order granting rehearing in banc, which vacated the panel opinion.

We agree with the district court that Chrysler possesses insufficient tying market power to violate the Sherman Act on a "per se" theory. We also believe that in some cases a tying claim based on the rule of reason may survive summary judgment when the seller lacks power in the tying product market. We nevertheless hold that these plaintiffs' allegations, when combined with indisputable evidence of market structure, are insufficient to withstand Chrysler's motion for summary judgment. Although the plaintiffs have proffered some evidence of harm to themselves and to consumers from the tie-in, they do not offer any theory of how Chrysler caused them an injury cognizable under the antitrust laws, as the Supreme Court's jurisprudence requires. This reasoning applies equally to the plaintiffs' Clayton Act claim. Accordingly, we will affirm the district court's summary judgment for Chrysler in its entirety.

I. FACTS, PROCEDURAL HISTORY, AND THE PARTIES' THEORIES OF THE CASE

From the early days of the automotive industry until the mid-1970s, automobile manufacturers produced and sold virtually all of the sound systems for use in their cars. During that era, each company's car radios were separately priced, add-on options for its new cars. Around the mid-1970s, however, perhaps as a result of the increasing sophistication of stereophonic equipment and of consumer tastes, independent companies began to manufacture, distribute, and sell various autosound products, including AM and FM car radios, cassette decks, and, eventually, compact disc systems. Some of these independently produced sound systems were sold to auto manufacturers which installed them at the factory; others were sold and installed in a vigorous "aftermarket," either directly to the retail public or indirectly through local car dealerships.

The plaintiffs seek to be representatives of a class of independent (non-Chrysler-franchisee) autosound dealers who have competed since 1984 with Chrysler in the sale of automotive sound equipment for installation into Chrysler cars sold in the United States. All four of the named plaintiffs distribute autosound equipment to and install that equipment for local automobile dealerships; three also sell autosound systems directly to the public. Chrysler is the third largest American manufacturer of automobiles, accounting for between 10 and 12 percent of the total American market for cars between 1983 and 1987 (the market consisting of domestic sales of cars of either foreign or domestic manufacture). Chrysler both manufactures its own autosound equipment and purchases autosound equipment from the independent manufacturers, which also supply the plaintiffs.

The parties agree on the basic facts about Chrysler's autosound sales practices. Until the mid- to late 1970s, Chrysler customers could purchase cars with or without sound systems. They could easily purchase a Chrysler car with a factory-installed sound system, with a dealer-installed sound system (of either Chrysler or independent manufacture), or with no sound system at all. If they chose a Chrysler car without a sound system, they would not be charged for one and therefore could purchase a different sound system on the retail aftermarket with no financial penalty.

By 1978, however, Chrysler, along with other auto manufacturers, began to standardize autosound equipment--that is, it included what had been a separately priced sound system option into the base price of the vehicle. When a feature is standard, no credit for deleting it is permitted. The 1979 settlement of litigation brought by aftermarket autosound dealers against other automobile manufacturers resulted in Chrysler's agreement that it would either make autosound systems entirely optional or offer a "delete option" for sound systems on many of its models. ¹ The delete option, however, by its nature had no effect on those buyers who were unaware of it, or on the sizeable percentage of less patient buyers who preferred to purchase out of dealer inventories rather than to special-order their cars.

Chrysler's arrangement with aftermarket representatives expired in 1983, and, starting with the 1984 model year, it steadily began to eliminate the sound system delete option on virtually all of its models and to upgrade the standard sound equipment on many models. According to the plaintiffs, by 1986, 95.9 percent of Chrysler cars were delivered to dealers with factory-installed sound systems, in comparison to 88.5 percent in 1979 (before the agreement with the aftermarket) and 67.2 percent in 1981 (during the agreement). Under Chrysler's revised sound system sales practices, dealers do not receive a credit for sound systems that they remove unless the customer upgrades to another sound system supplied by Chrysler. As a result, although a Chrysler buyer may still remove the factory-installed sound system and purchase a different one on the aftermarket, he or she will then have paid for two sound systems.

In this suit, filed on January 7, 1988, the plaintiffs challenge Chrysler's autosound sales practices dating from January 1, 1984 as a tie-in arrangement that is illegal under the antitrust laws. They allege, in essence, that automobiles and autosound equipment are separate products, and that by tying the two, Chrysler has insulated itself from competition with respect to autosound systems for its cars, thereby depriving consumers of choice and inhibiting technological innovation. In the plaintiffs' view, Chrysler is foisting inferior and overpriced sound systems on the Chrysler-buying public and seriously threatening the viability of its aftermarket competitors. According to the plaintiffs, because the value of the sound system is so small relative to that of the entire car, many consumers do not consider autosound systems at all. Many car buyers decide on the car first and only consider the sound system later, and therefore may tolerate or be ignorant of Chrysler's inferior product. Moreover, the plaintiffs suggest, buyers who do care about their sound systems are unable to determine how good a deal they are getting because Chrysler's inclusion of the sound system in the base price of the whole car hides the price of the autosound system.

In legal terms, the plaintiffs' claims rest on section 1 of the Sherman Act, 15 U.S.C. § 1, which...