COFFIN, Chief Judge.
This appeal presents issues arising out of a private antitrust suit brought by George R. Whitten, Jr., Inc. (Whitten) against several associated companies (Paddock).
In a prior appeal, the issue was whether the district court properly granted summary judgment for Paddock on the ground that all efforts to induce governmental bodies to take action, notwithstanding the motives of the inducers, were immunized from antitrust liability. We held that the court erred in granting summary judgment. George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 424 F.2d 25 (1970) (Paddock I). Subsequently, the case was tried to the district court, sitting without a jury, and resulted in judgment for defendants. 376 F.Supp. 125 (D.Mass.1974).
We leave further delineation of facts to our discussion of particular issues. We shall examine the section 2 monopolization claim first, then the section 1 conspiracy claim, and the Clayton Act tying claim along with other miscellaneous issues where appropriate.
I. Attempt to Monopolize Under Sherman Act § 2
Whitten begins its section 2 argument by stating that "the single most important issue in this case bearing upon plaintiff's allegations that defendants' conduct constitutes an attempt to monopolize in violation of Section 2 of the Sherman Act involves the determination of the relevant product market." Paddock agrees. While such a consensus among the parties is not binding upon us, we also think that a section 2 attempt case, like a monopolization case, requires a definition of the relevant market. We are aware that some authority can be cited to the contrary, principally Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir.), reh'g denied, 327 F.2d 478, cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964), but note that most current cases do focus on market definition in attempt cases,
This brings us to the critical issue of market definition. Swimming pool recirculation systems operate to remove water from the pool for purification, either through a drain in the pool's bottom, or through a gutter which rims the pool at its top. Water enters the gutter either through openings in its side called skimming weirs or by overflowing the gutter lip, and then passes through a filter and chlorinator. In conventional recirculation systems, the water passes outside of the pool proper and the filtered chlorinated water is returned to
Whitten's argument centers on what it alleges are the realities of competition in the public swimming pool industry, specifically, the incentives to sell an architect or engineer on specifications indicating a particular recirculation system. The argument flows from the assumption that Whitten and Paddock are specialists in public pool recirculation systems, suppliers of patented prefabricated products. As such, they actively seek information, through contacts in the industry or Dodge Reports, a McGraw-Hill service, concerning projects in the design and planning stage. Their major sales effort is the active attempt to convince architects to specify their products. On the other hand, contractors who install conventional perimeter pipe recirculation systems, because they are not specialized suppliers of recirculation systems, have no incentive to expend resources encouraging the specification of a conventional system. This results from the fact that conventional perimeter pipes are not manufactured "products" in the same sense as are prefabricated pipeless systems, and any other contractor could bid and comply with the conventional specifications in a given contract. Thus, argues Whitten, "no conventional gutter manufacturers or suppliers conceivably can be hovering around architects . . seeking to get their `products' specified," and "there can be no competition without competitors."
We agree that conventional systems are not manufactured "products" in the same sense as pipeless systems.
Indeed, appellants explicitly recognize that "the choice for buyers is between pipeless recirculation systems and conventional recirculation systems which are constructed on site and which employ buried perimeter piping." (Emphasis added.) The evidence in this case overwhelmingly justifies that conclusion. Architects and engineers attested to an industry-wide buyers' perception of competition between pipeless and conventional systems.
In light of the functional and price interchangeability of pipeless and conventional systems, it appears that the elasticity of demand for pipeless systems is high indeed.
Moreover, even tunnel vision focused exclusively on the efforts of the suppliers of pipeless systems reveals competition to substitute their product for conventional gutter systems. The testimony of Whitten's president confirms the clear implication of Whitten's advertising and intraoffice memoranda, that sales efforts with architects and owners seek to demonstrate Uniflow's superiority to other gutter systems. We take note also of the fact that there are specialized pool contractors which have an interest in and do seek the specification by name of their swimming pool designs, and therefore of the conventional systems they incorporate.
Appellant argues that if competition between pipeless and conventional recirculation systems suggests, as it does, a market definition encompassing both types of systems, the peculiar characteristics of commerce in pipeless systems render it a recognizable submarket within the meaning of Brown Shoe, supra:
Of course, mere physical differences between one product and others will not alone isolate that product in a separate submarket. There is "no barrier to combining in a single market a number of different products or services where that combination reflects commercial realities." Grinnell, supra, 384 U.S. at 572, 86 S.Ct. at 1704. But a real and outstanding product superiority will define a separate submarket for antitrust purposes.
An example of such superiority was found in Grinnell, supra, where the Supreme Court held that insurance company accredited central station fire and burglar protection services which receive automatic alarm signals and take protective action constitute a separate submarket far superior to nonaccredited systems utilizing watchmen, audible alarms, or similar devices. 384 U.S. at 573-575, 86 S.Ct. 1698. And professional world championship boxing contests attract such extraordinary attention and revenues as to achieve a quality sufficiently different from other boxing matches to constitute a separate market. International Boxing Club of New York v. United States, 358 U.S. 242, 249-251, 79 S.Ct. 245, 3 L.Ed.2d 270 (1959). Cf. duPont, supra, 353 U.S. at 594, 77 S.Ct. 872; Bethlehem, supra, 168 F.Supp. at 589. Admittedly, these are distinctions in degree, not in kind. No objective criterion tells us that Rolls Royce competes with Mercedes but not with Volkswagen. Cf. United States v. Grinnell Corp., 236 F.Supp. 244, 253 (D.R.I.1964), decree modified, 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); Cooper, 72 Mich.L. Rev. 375, 381 n. 25 (1974). But that recognition shows only the difficulty of our task, not its impropriety.
Appellant points out that pipeless systems, by eliminating buried perimeter piping, save excavation and maintenance costs, permit greater design flexibility, and outlast conventional systems two to three times. Yet despite these features, over ninety-seven per cent
Moreover, we note that the product superiority standard is not a discrete criterion of market definition. Rather, it is one indication that a product may enjoy a specialized clientele and thus inelastic demand.
We therefore cannot say that the district court erred in holding that Whitten and Paddock compete for a share of the public swimming pool market. We believe this conclusion dispositive of Whitten's claim under section 2 of the Sherman Act. To sustain its charge that Paddock has attempted to monopolize the market for recirculation systems, Whitten must succeed in linking Paddock with both an intent to monopolize and a pattern of activity creating a dangerous probability of monopolization. See Cellophane case, 351 U.S. at 393, 76 S.Ct. 994; American Tobacco Co. v. United States, 328 U.S. 781, 785, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 49 L.Ed. 518 (1905). An intent to monopolize may be shown by direct evidence. Cf. United States v. Corn
II. Conspiracy in Restraint of Trade Under Sherman Act § 1
Even though the Paddock activities do not rise to the point of constituting a dangerous probability of monopoly in the relevant market, they must also be assessed against the standard of 15 U.S.C. § 1. Did they amount to a combination or conspiracy in restraint trade?
The conduct alleged was of four general types. The first was concerted activity by the Paddock companies and their franchised dealers to "get specified", i. e., to influence buyers of public swimming pools to draw up gutter specifications for bidding purposes that only Paddock could meet. The second was a series of misrepresentations, some unfairly presenting a favorable picture of the Paddock organization and gutter system, and others unfairly presenting an unfavorable picture of the Whitten organization and gutter system. A third variety of conduct was the making of threats of patent litigation to various potential customers of Whitten. Finally, there were several efforts made by Paddock using gifts and pressure, to influence prospective buyers and a provider
The district court made a number of specific findings.
The specific findings of the court relating to the various alleged efforts of Paddock to interfere with Whitten's receipt of contracts and services were more ambivalent. While the SUCF report contained no specific misrepresentations, the court found that two persons associated with the preparation of the report were "encouraged" by a Paddock official, that they did influence the report, that the report treated Whitten unfairly, and that Paddock distributed 800 copies before SUCF revoked Paddock's permission to distribute. Again, although the court found that specifications favoring Paddock and hostile to Whitten excluded Whitten from bidding in the first two or three series of pools planned by the Massachusetts Department of Public Works, it also found that the specifications were the product of the judgment, not unduly influenced by Paddock, of the pool consultant—who had helped develop Paddock's design prior to its obtaining a license from the inventor. Nevertheless, the court also found that Paddock's official, Ellis, had attempted to give a set of golf clubs to an employee of the Massachusetts Department of Public Works connected with the program.
The court considered evidence of an alleged attempt by Paddock to "tamper" with the type of job specifications service provided by the Scan Microfilm Service for Whitten, limited to "metal gutters only". It found the evidence inconclusive "as to what precipitated [the] exchange between Paddock and Scan" and observed that no action was taken to affect the services rendered to Whitten. As to the Forts Dix and Devens jobs, the court found that although Paddock had seen Whitten's plans prior to the bid opening for the Devens job, it had a right to protest the award to Whitten. The delay in processing this protest— which proved to be unsuccessful—led to Whitten's insurer refusing to issue a bond for the Dix project; but the court
The court concluded its section 1 findings by noting its distaste for Paddock's efforts to influence the SUCF report, Ellis' aborted effort to give golf clubs to the Massachusetts Department of Public Works employee, and Paddock's sneak preview of Whitten's bid plans for the Devens project. It added, however, that while such acts "do not amount to conduct violative of 15 U.S.C. § 1.[,] [t]his is not to say that there may not be a remedy available to the plaintiff. I find only that the plaintiff has not met its burden under the antitrust statutes." 376 F.Supp. at 136.
We begin our analysis with an issue which was not specifically addressed by the district court: whether or not there was a combination or conspiracy within the meaning of the Sherman Act, among the three Paddock companies and their franchised dealers. The district court seems to have assumed the point as proven, for it devoted its analysis to the question whether the actions engaged in did or did not amount to a restraint of trade. Indeed, appellees have not briefed the issue, but have argued that even if sufficient proof of conspiracy is assumed, Paddock's conduct did not violate section 1.
While the doctrine recognizing what we might call "thin" conspiracies among corporations associated in one business enterprise has not been free of criticism,
We are satisfied that under the Yellow Cab doctrine, the evidence is sufficient to portray a plurality of actors concerting their efforts toward a common end. In addition to the facts set forth at the outset of this opinion, see n. 1, bearing on the intercorporate relationships, we note the omnipresence in the evidence of Mr. Ellis. Mr. Ellis is president of Paddock Builders (Builders) and on the Board at Paddock Equipment. On behalf of Builders, Ellis seeks to get the Paddock system specified and installed, using among other things, brochures which he helped to prepare, printed by Paddock Equipment and at least one brochure printed by Paddock of California. Builders also holds sales meetings to train its own salesmen and sometimes those of other dealers; one of the instructors is vice president of Paddock Equipment. Ellis and his salesmen sometimes show a film prepared by Paddock Equipment. It is clear that the three Paddock companies are not competitors, but rather vertically affiliated for the purpose of marketing the Paddock system.
In determining whether the combination on the part of the Paddock companies and their dealers was one in restraint of trade, we confront the findings of the district court. Whitten acknowledges that our standard of review is limited to discovering "clearly erroneous" findings of fact and legal error in the district court's conclusions. At the same time it charges the district court with having "dismembered" and "fragmentized" Whitten's proof and asks us to focus on Paddock's overall scheme, stating that we are "in the same position as the district court to discern the truth from the unmistakably clear facts." While we shall have more to say about Paddock's overall scheme in the sense of motive, we are conscious of not being in the same position as the district court. Our review of the facts is, as we have
With this as our standard, we have little difficulty in dealing with the court's findings as to most of the conduct charged to Paddock. The attempt to gain adoption by architects of a supplier's proprietary specifications was found to be a common practice, a "matter of salesmanship". Indeed, Whitten does not dispute this, but argues at length that there is a significant difference between A's promoting a specification that calls for features which A's product has and his promoting one that adds "and no product which does the job differently."
The court's findings as to alleged misrepresentations, both as to Paddock's superiority and as to Whitten's inferiority are not clearly erroneous. These were, in the main, representations which are capable of two interpretations, one of them in accord with the truth. Whitten's arguments as to some of these diminish to the trivial. As for the threats of patent litigation, the evidence is far from sufficient to demonstrate clear error in the district court's findings.
This leaves us with the findings, which we have termed ambivalent, concerning Paddock's efforts to interfere with Whitten's business prospects or services. Clearly the court found that distasteful efforts had been made to slant the SUCF report, to influence by improper means the Massachusetts Department of
The question posed, after reviewing and accepting the specific findings of the district court, is whether this aggregation of dirty tricks, played by those with little market power, which were not demonstrably successful, if aimed at eliminating other parties from competition (or, as some of the evidence indicates, principally Whitten), constituted a violation of 15 U.S.C. § 1. This raises, as appellant recognizes, the question whether such a combination of conduct and motive amounts to conduct which is illegal per se. If so, the proper course for us is to remand for further findings as to motivation. If not, our course is to apply the "Rule of Reason" to the findings of the district court.
At this point, we are struck by the difficulty of analysis. Section 1 is a broad charter, stemming from a common law heritage, but taking shape from eight decades of interpretation by the Supreme Court and other tribunals. Most generalized anti-competitive conduct is subjected to a "rule of reason" analysis, involving, among other factors, a study of the consequences of the conduct on the affected market. Board of Trade of the City of Chicago v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918); United States v. Topco Associated, Inc., 405 U.S. 596, 610, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972). But the landmark cases often concern giants in an industry which have been charged with now classic forms of distorting market conditions—price fixing,
The argument presented here is that the same standard of judgment applicable in the price fixing situation should apply in the instant case where several allied corporations, accounting for a small portion of sales in the public swimming pool market are alleged to have engaged in a variety of unfair business practices, arguably aimed at taking business away from all others. But the major allegations do not charge and Whitten has not established actions amounting to attempted price-fixing or any other
We are not willing to say that the Sherman Act is not applicable to the range of unfair competitive methods evidenced here. As the legislative history of the Sherman Act reveals, the draftsmen recognized that there was no finite catalogue of unfair practices which could be the devices of a conspiracy to restrain trade. Cooper at 430. At the same time we see no license to proclaim unethical efforts to influence buyers, advisors to buyers, or suppliers of competitors to be illegal per se under the antitrust laws. Such actions have long existed, but have not as yet joined the per se pantheon recognized by the Supreme Court.
The actions carried on by Paddock do not involve the complex systematic influences on production, price formation, and market allocation which a court feels ill equipped to assess. The nexus between the practice and a tendency to monopoly is not so close and likely that the certainty of a clear and absolute standard is preferred to a case-by-case analysis. And, to the extent that the lessening of the volume of litigation is a factor in adopting a per se classification, the extension of such to what Judge Frankel has termed a "garden variety" competitive business tort. Vogue Instrument Corp. v. Lem Instruments Corp., 40 F.R.D. 497, 499 (S.D.N.Y.1966), would not only be a powerful stimulus to federal antitrust litigation, but would be so in a field of law traditionally dealt with by state courts.
We are also concerned over the implications of what has been termed "judicial crime making". Cooper at 457. Were we to declare the conduct and intent arguably evidenced in this case a per se violation of section 1, we would confront initially the problem of formulating a neutral definition. If we said that the range of practices engaged in here amounted to such a violation, this would be an ad hoc judgment, carrying little precedential value but spawning future efforts in similar but somewhat varied circumstances to pin the same label. Even if we were to identify one or several particular practices, we would be elevating to a federal crime what has previously been attacked on the basis of state law or civil penalty. In so doing, we would run the risk of overbreadth, encompassing conduct which fosters competition; of weakening, through making available sanctions which may in practice be avoided, the deterrent effect of the antitrust laws; of subjecting defendants to captious resort to treble damage suits, with evaluation of subjective intent being the chief determinant, and varying from jury to jury.
Appellant seeks added support from four cases involving "unusual fact situations, generally not present in antitrust conspiracy cases."
The two oldest progenitors of this small family were our own decisions. In Albert Pick-Barth v. Mitchell Woodbury Corp., 57 F.2d 96 (1st Cir.), cert. denied, 286 U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932), dealing with a case where the defendant was allied with other corporations, collectively a dominating factor in the trade in which plaintiff was engaged, we said that, "intent . . . to eliminate a competitor . . . and thereby suppress competition . . . is a violation of section 1 . . . ." Id. at 102. In Atlantic Heel Co. v. Allied Heel Co., 284 F.2d 879 (1st Cir. 1960), dealing with allegations of similar but more extreme conduct by a leading concern in the trade, we reversed a judgment of dismissal for failure to state a claim, and held the allegation of intent sufficient to state a per se claim under the circumstances. While the writer of the opinion, Judge Hartigan, discounted the significance of the size and influence of the defendant in Pick-Barth, id. at 881. Judges Woodbury and Aldrich concurred but declined to do so on the basis of the Pick-Barth rule. Id. at 885.
Perryton Wholesale, Inc. v. Pioneer Distributing Co., 353 F.2d 618 (10th Cir. 1965), cert. denied, 383 U.S. 945, 86 S.Ct. 1202, 16 L.Ed.2d 208 (1966), relied largely on Pick-Barth and Atlantic Heel. The most recent case, C. Albert Sauter Co. v. Richard S. Sauter Co., 368 F.Supp. 501 (E.D.Pa.1973), appeal dismissed pursuant to Rule 42(b) of F.R.A.P., No. 73-2003 (3d Cir. Apr. 4, 1974), relied on all three.
Thus if the instant case is of the genre of this family of four, we are the chief authority for appellant's contention that Paddock's actions and motivation constitute a per se violation, without considering any impact on competition. We acknowledge, forty-two and fourteen years later, that we have some doubts about our pronouncements. It is, first of all, clear that we have only two lineal descendants in all these years and we cannot believe that sharp practice has been so rare. More substantively, we share the doubts of Judge Frankel in Vogue Instruments, supra, that this kind of conduct does not feel to lawyers like the stuff of antitrust. We have in mind also the criticism voiced not only of the conspiracy analysis in Pick-Barth and Atlantic Heel, not relevant here, but of our failure to define with any precision the practices held to be a per se violation. See, Boone, Single Corporation Competitive Torts and the Sherman Act, 2 Ga.L. Rev. 372, 387-389 (1968). More generally, we are impressed by reflecting on the carefully selected considerations which have gone into the declaring of a few practices as per se violations, the danger of casual extension of the category, the value of prior case experience, the availability of the law of torts to deal with such issues as interference with contractual relations and interference with prospective advantage, not to forget the availability of the Federal Trade Commission Act. We have been influenced in our consideration of this issue by a perceptive student case note, analyzing Sauter and its predecessors, in 42 Fordham L.Rev. 909 (1973-1974).
Insofar as Pick-Barth and Atlantic Heel may be said to stand for the broad proposition that unfair competitive practices accompanied by an intent to hurt a competitor constitute per se violations of the antitrust laws, we do not now accept their teaching. We do not feel it necessary to criticize their results on the fact
This conclusion leaves us with the question whether, Paddock's conduct not being a per se violation of section 1, the rule of reason has been satisfied by the district court's findings. We think it has. The dispositive element seems to us to be the effect of Paddock's actions on competition in the affected market.
Were this fact not dispositive, the claim here would nonetheless have been defeated by the district court's factual finding that no tying agreement existed. Given that the major competition takes place before the specifications are adopted, the existence in Paddock's specifications of requirements for its own accessory products is not probative. The key facts are, as the district court found, that Paddock does not refuse sale of its recirculating system if others' accessory parts are specified nor does it condition sale upon specification of its accessory parts. 367 F.Supp. at 134. The district court's factual findings were supported by the evidence and require affirmance of the holding that there was no tying because there was no "agreement [to] sell one product . . . only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier", Northern Pacific R. Co., supra at 5-6, 78 S.Ct. at 518.