United States v. Mercedes-Benz of North America

• Decision Date: 29 May 1981
• Docket Number: No. C-79-2144-MHP.,C-79-2144-MHP.
• Citation: 517 F. Supp. 1369
• Parties: UNITED STATES of America, Plaintiff, v. MERCEDES-BENZ OF NORTH AMERICA, INC., Defendant.
• Court: U.S. District Court — Northern District of California

517 F. Supp. 1369

UNITED STATES of America, Plaintiff, v. MERCEDES-BENZ OF NORTH AMERICA, INC., Defendant.

No. C-79-2144-MHP.

United States District Court, N. D. California.

May 29, 1981.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Anthony E. Desmond, Antitrust Div., Dept. of Justice, San Francisco, Cal., for plaintiff.

Malcolm T. Dungan, George A. Cumming, Jr., Brobeck, Phleger & Harrison, James E. Ratcliff, Thatcher, Jones, Casey & Ratcliff, San Francisco, Cal., for defendant.

OPINION AND ORDER

PATEL, District Judge.

This action is before the court on cross-motions for summary judgment. The parties have generated a lengthy record consisting primarily of documentary and deposition evidence. The government brings suit for an alleged violation of § 1 of the Sherman Act under a theory of a per se tying violation based on the Dealer Agreement between Mercedes-Benz of North America, Inc. MBNA and each Mercedes-Benz franchised dealer. Defendant strenuously objects to the application of a per se rule and argues that a rule of reason should apply under which MBNA has demonstrated that in fact its Dealer Agreement and actual practice do not constitute a restraint of trade. Because the government has introduced no evidence showing that defendant engaged in a course of conduct involving coercion, threats or intimidation, MBNA urges this court to grant summary judgment on its behalf.

While summary judgment is to be used sparingly in antitrust litigation where motive and intent are crucial factors, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962), the use of summary procedures is not foreclosed, particularly in cases involving alleged per se violations where "the gist of the case turns on documentary evidence." White Motor Co. v. United States, 372 U.S. 253, 259, 83 S.Ct. 696, 700, 9 L.Ed.2d 738 (1963). The appropriate factors to be considered in a summary judgment motion recently have been set out in In re Data General Corp. Antitrust Litigation, 490 F.Supp. 1089, 1102 (N.D.Cal.1980) Data General and need not be repeated here.

After careful consideration of the lengthy record and all pleadings by counsel, the court finds it necessary to deny both motions for summary judgment. The parties must proceed to trial on the issue of defendant's economic power and, if that be established, whether defendant can demonstrate sufficient business justification for a tying arrangement.

I. BACKGROUND

Defendant MBNA has been the exclusive United States distributor of Mercedes-Benz automobiles since 1965. Its parent company, Daimler-Benz AG DBAG of Stuttgart, Germany, is one of the oldest automobile manufacturers in the world. It is conceded by both parties that the Mercedes-Benz passenger car is one of the world's finest automobiles and that the Mercedes-Benz trademark, a three-pointed star in a circle, is recognized worldwide for its representation of automotive luxury, performance and technology.

The parts distribution system for Mercedes-Benz passenger cars is of central concern to the allegations before the court. Daimler-Benz assembles Mercedes-Benz autos in its German factory¹ and ships them through its exclusive importer Daimler-Benz of North America DBNA to MBNA for resale to Mercedes-Benz dealers. Parts for these autos can come from several sources:

1. DBAG manufactures certain parts for use in the assembly process and to be used for replacement of used parts;

2. Original parts may come from independent automotive parts manufacturers, called "original equipment manufacturers" OEMs. Some of these OEMs manufacture parts for several automobile manufacturers.

3. Some automotive parts manufacturers produce parts only to be used as replacement parts rather than for use in the original assembly process. Such parts are known as "aftermarket" parts. Mercedes-Benz dealers are able to acquire replacement parts that are sold to MBNA by DBAG. These parts are either manufactured by DBAG or acquired by it from OEMs. Several OEMs distribute parts directly to MBNA with DBAG approval. Dealers can also acquire replacement parts directly from independent warehouse distributors who obtain the parts from various sources, including from DBAG's own suppliers.

There are approximately 400 Mercedes dealers in the United States. Once approved by MBNA, each dealer becomes party to a standardized written Dealer Agreement with MBNA to sell and service Mercedes passenger cars and parts. The Dealer Agreement remains in effect for a period of two years at which time it may be renewed.

The Dealer Agreement consists of three parts. The first, "Purposes of Agreement," sets forth general provisions relating to Daimler-Benz' continued commitment to maintaining its standard of excellence. The second part, "Standard Provisions," forms the heart of the agreement and contains twenty parts and sixty-five subparts relating to all phases of service, business operations, standards and Dealer Agreement procedures. Part three, "Dealer Operating Requirements Agreement," is concerned with display and personnel and is tailored to the capacity of each separate business.

The government rests its claim of a per se illegal tying arrangement on "Standard Provisions" subpart 9C of the Dealer Agreement.² Part 9 sets out various requirements relating to customer service. Subpart 9C reads:

Dealer shall neither sell or offer to sell for use in connection with MB passenger cars nor use in the repair or servicing of MB passenger cars any parts other than genuine MB parts or parts expressly approved by DBAG if such parts are necessary to the mechanical operation of such MB passenger cars.

"MB parts" are defined in part one of the Dealer Agreement as "parts, accessories, components, assemblies, and optional equipment for MB passenger cars supplied by MBNA, DBAG, or by DBNA."

II. THE APPLICABLE STANDARD

Defendant's Motion for Summary Judgment and opposition to plaintiff's motion are based largely on its argument that because of the nature of its franchise, per se tying standards are inapplicable and that a rule of reason is the appropriate standard for determining restraint of trade. However, the authority relied on by defendant does not support its position. In most of the cases cited, the franchise agreement between the parties did not contain express tying language, the procedural issues are distinguishable or the holding supports only the theory that Mercedes-Benz as franchisor may condition the sale of the passenger car on use of the Mercedes-Benz trademark.³

In In re 7-Eleven Franchise Antitrust Litigation, 16 Fed.R.Serv.2d 537 (N.D.Cal. 1972), plaintiffs were required in writing to purchase defendant's advertising, fixtures and bookkeeping services for a single payment measured as a percentage of gross sales, as part of the 7-Eleven franchise. In ruling against class certification, the court expressed the opinion that the arrangement was not an illegal tie, characterizing the services as an integral part of an overall franchise package. It expressly relied on the absence of a requirement that plaintiff make any further purchase of products or services.

Defendant is not assisted by Grunin v. International House of Pancakes, 513 F.2d 114 (8th Cir. 1975). The Grunin court was called upon to review the lower court's acceptance of an antitrust class action settlement. By the terms of the agreement, plaintiffs were required to purchase pancake mix, coffee, furniture and services from the franchisor. The court expressly declined to decide whether this was an illegal tying arrangement but only ruled that the settlement terms were not invalid on their face because defendant might have a business justification for what appeared to be a per se illegal tie.

In Kugler v. AAMCO Automatic Transmissions, Inc., 460 F.2d 1214 (8th Cir. 1972), plaintiff was required by written agreement to contribute to an AAMCO-selected publicity campaign as a requirement for obtaining an AAMCO transmission repair franchise. (Plaintiff also was required to purchase most repair parts from AAMCO but does not challenge that provision. However this provision was successfully challenged as a per se tying violation in AAMCO Automatic Transmissions, Inc. v. Tayloe, 407 F.Supp. 430 (E.D.Pa.1976)). Plaintiff argued that the prescribed advertising materials were separate products illegally tied to the right to use AAMCO's trade name. The court rejected this argument holding that advertising was an integral aspect of the operation of a transmission repair shop. Id. at 1215. In exchange for plaintiff's initial franchise fees and a percent of gross receipts, AAMCO provided training in business management, sales techniques and transmission repair procedures. Unlike that of the present defendant, the AAMCO franchise represented primarily a method of providing a service through an integrated business system. The essence of the franchise was not to sell specific trademarked products. Additionally, the Mercedes-Benz Dealer Agreement also requires dealers to contribute to an advertising fund (Dealer Agreement ¶¶ G, H, I and J) but plaintiff does not challenge these provisions.

See also Mid-America ICEE, Inc. v. John E. Mitchell Co., 1973-2 Trade Cas. (CCH) ¶ 74,681 (D.Or.1973).

Although restraint of trade tying arrangements have been considered by numerous courts, few have had to consider application of the various standards to the automotive industry. Defendant cites several such automotive cases including Pick Manufacturing Co. v. General Motors Corp., 80 F.2d 641 (7th Cir. 1935), aff'd per curiam, 299 U.S. 3, 57 S.Ct. 1, 81 L.Ed. 4 (1936), a case with a close factual situation.⁴

In Pick, plaintiff auto parts manufacturer brought suit under section 3 of the Clayton Act challenging GM's written dealer contract requiring that all replacement parts be manufactured or authorized by GM Company, a division of GM...