WISDOM, Circuit Judge:
In this suit, Consolidated Metal Products, Inc., a manufacturer of oil well equipment, contends that the American Petroleum Institute ("API"), a trade association representing all sectors of the domestic petroleum industry, delayed trade standard certification to certain equipment manufactured by Consolidated and thereby excluded it from the market in violation of section 1 of the Sherman Act. 15 U.S.C. § 1. After a thorough review of the evidence, the district court granted summary judgment for API. Although Consolidated offered evidence that API had no basis to conclude that its equipment would not perform up to trade standards, the district court found this insufficient to raise a genuine issue of fact material to whether the delay was a conspiracy in restraint of trade. Consolidated appeals.
The principal question in this case is whether unjustified denial of a valuable product certification by a standard-setting body, without more, violates section 1 of the Sherman Act. We hold that it does not and affirm the judgment of the district court.
Sucker rods are part of the equipment used to pump oil from wells having low natural pressure. A pump jack at the surface imparts an up-and-down motion to a sucker rod string that extends through the tubing of the well to a pump submerged in the fluid of the well. Each sucker rod is 25 to 30 feet long, 1/2 to 1 1/8 inches in diameter, and has coupler heads on each end. The heads allow the rods to be strung together inside the tubing until they reach the submerged pump.
Conventional sucker rods are manufactured of a single piece of steel. First, steel is forged into a shaft. Then, the ends of the shaft are hot-forged into coupler heads, making a one-piece sucker rod.
In 1980, when domestic oil production and the demand for sucker rods were at record levels, Consolidated developed an innovative method for manufacturing the rods. Using its patented high-strength steel, Consolidated manufactured the rods in three individual pieces: the steel shaft and two threaded coupler heads. Consolidated then roll-threaded the coupler heads onto the steel shaft. Because this process eliminated the costly hot-forging required by the conventional design, Consolidated's rods were cheaper to produce than conventional rods. Consolidated began marketing its rods in 1981, and that year sold nearly 12 million feet of them — a substantial amount.
In addition to its various other activities, API is the only domestic body that sets standards for oil field equipment. Equipment manufacturers may apply to API for approval of their products and, if API finds that the equipment meets its standards, it will (for an annual fee) grant a license to display the API monogram on the equipment. The monogram is a registered trademark of API. By using it, the licensee warrants to purchasers that the monogrammed product complies with API specifications. The API monogram has commercial value in that its use enhances product sales.
API has been setting standards for, and approving, sucker rods since at least 1927. API approval of products is not, however, required by any law and oil field equipment, including sucker rods, is sold without it.
Consolidated had been selling sucker rods without the API monogram for some time when, after several initial inquiries, it formally applied to API for approval of its innovative rod design on June 1, 1981. Around the same time, other manufacturers who had been marketing unconventional sucker rods also applied for API approval. These other new rods included a three-piece
J.M. Spanhel of the API production department staff was authorized to grant or deny sucker rod manufacturers the license to use the API monogram.
The sucker rod standards committee referred the applications of Consolidated and the other three-piece rod manufacturers to the manufacturer subcommittee. After hearing presentations by the applicants, the manufacturer subcommittee deferred all action to the user subcommittee. The user subcommittee met on June 24, 1981 to consider the various applications and heard presentations by several sucker rod manufacturers, including Consolidated. Spanhel asked the user subcommittee to determine how the requirements of Spec. 11B should be applied to Consolidated's rod. The minutes of that meeting state:
At this point API and Consolidated began their long and heated dispute over whether Spec. 11B did or did not "cover" Consolidated's three-piece threaded design and whether the user subcommittee made any determination on the matter. API contends that the user subcommittee's interest in tensile strength in part reflects a concern with the strength of the threaded joint between the shaft and heads in Consolidated's design, a concern Spanhel also held. In any event, API contends, Spanhel understood the user subcommittee's ruling, reasonably, as either rejecting or tabling Consolidated's application for product approval. Accordingly, API contends, Spanhel's own judgment in the matter was confirmed and he justifiably refused to grant Consolidated's application for the monogram.
Consolidated, on the other hand, contends that Spec. 11B "covered" its design because it did not specifically exclude threaded-on coupler heads. Consolidated also insists that the user subcommittee's concern with tensile strength could be addressed merely by changing the type of steel in the rod and had nothing to do with the threaded joints. Spanhel, Consolidated contends, should have known this and could not reasonably have understood the user committee's statements as accepting any delay in API approval of Consolidated's rod.
On several occasions during the three months after the June 1981 standards meeting, Consolidated and API discussed the possible approval of Consolidated's rods. Consolidated continued to press for approval, insisting that Spec. 11B "did not exclude" its design, and Spanhel, for API, continued to insist upon more time to study the performance of the three-piece threaded
Seven days later, on April 22, 1983, Consolidated filed the complaint in this case, alleging a conspiracy between Continental Emsco, Inc., Dover Corporation (both established manufacturers of conventional sucker rods), API, and several unnamed co-conspirators. All were listed as defendants. Consolidated's complaint, the defendants' responses, and two years of discovery have focussed on whether it was "reasonable" for API to delay Consolidated a monogram license from June 1981 to April 1983. The district court granted summary judgment in favor of all the defendants. Consolidated appeals only the judgment for API.
Rule 56(c) of the Federal Rules of Civil Procedure permits summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that the moving party is entitled to a judgment as a matter of law". Rule 56(e) provides:
Only disputes over material facts, facts that might affect the outcome of the lawsuit under the governing substantive law, will preclude summary judgment.
It is true that summary judgment is less common in antitrust cases than in other cases, but this is not because different rules apply to those cases.
In Matsushita Electric Industrial Co. v. Zenith Radio Corp., the Supreme Court upheld a summary judgment against the
Thus, when defending its antitrust claim against summary judgment, Consolidated faces the same hurdle as the plaintiff in any other cause of action: it "must come forward with `specific facts showing that there is a genuine issue for trial'".
As required when reviewing a grant of summary judgment, we view the written record in the light most favorable to Consolidated, the party opposing the motion, when deciding if a genuine issue of material fact exists.
Section 1 of the Sherman Act states: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is declared to be illegal". But as the Supreme Court observed in Northwest Wholesale Stationers, Inc. v. Pacific Stationary and Printing Co.,
To prove an "unreasonable" restraint, Consolidated may proceed along two avenues of proof. "The rule of reason" requires Consolidated to show that API's product approval program is a conspiracy to produce an anticompetitive effect on the relevant market. "The per se rule" requires Consolidated to show that API's product approval program is conduct presumed to have such an anticompetitive effect.
We address first the per se rule and its scope. In Northwest Wholesale Stationers, the Supreme Court stated that section
The Court termed this, mildly, "an area of antitrust law that has not been free of confusion".
There must be principled limits on the per se rule. The Supreme Court has long recognized that "concerted refusals to deal or group boycotts" should be condemned as per se violations.
Recently, in FTC v. Indiana Federation of Dentists, the Court again cautioned against resolving section 1 cases "by forcing the [defendant's] policy into the `boycott' pigeonhole", especially when it would "extend per se analysis to restraints imposed in the context of business relationships where the economic impact ... is not immediately obvious".
Similarly, in E.A. McQuade Tours, Inc. v. Consolidated Air Tour Manual Committee, this court engaged in a lengthy analysis of the same cases and concluded that the per se rule applied only "[w]here exclusionary or coercive conduct has been present."
Consolidated offers no evidence, when viewed in the light of these cases, that merits treating API's product approval program as a "group boycott", per se illegal under section 1.
We hold that a trade association that evaluates products and issues opinions, without constraining others to follow its recommendations, does not per se violate section 1 when, for whatever reason, it fails to evaluate a product favorably to the manufacturer.
Neither does Consolidated present a factual dispute material to proving a section 1 violation under the rule of reason. As this court said in Northwest Power Products v. Omark Industries, "[t]o prove an antitrust violation under the rule of reason ... [a plaintiff] must show the defendant's conduct adversely affected competition".
Accordingly, a showing that the defendants harmed the plaintiffs is not enough to prove a violation of section 1 under the rule of reason. It is a natural part of a competitive market that products, firms, and — sometimes — entire sectors of the economy fail. A plaintiff does not have a claim under the rule of reason simply because others refuse to promote, approve, or buy its products.
The plaintiff's contentions in this case, however, amount to little more than this. It is undisputed that API approval has commercial value and that API took two years to approve Consolidated's product. What is more important in this case is what Consolidated fails to assert. It does not allege that API somehow coerces users to buy only monogrammed rods, it provides little concrete information about "the sucker rod market", and it no longer contends that there was an anticompetitive conspiracy between its competitors and API. Consolidated asserts only that because API is a trade association, it is a "walking conspiracy" and then contends, at bottom, that because the monogram has great value, Consolidated is entitled to a trial on the question whether API was justified in taking two years to approve its product.
We disagree. Under the rule of reason, the plaintiff must establish two elements basic to an anticompetitive conspiracy: (1) that the defendant engaged in some form of joint action and (2) that this joint action amounted to an unreasonable restraint of trade.
1. Proof of a conspiracy. Consolidated offers no evidence tending to show a conspiracy. API, the sole defendant on appeal, concedes that it is a trade association and is the only domestic standard-setting body for oil well equipment. A trade association by its nature involves collective action by competitors. Nonetheless, a trade association is not by its nature a
To survive summary judgment on the issue of conspiracy, the plaintiff must present evidence that tends to exclude both the possibility of conduct consistent with permissible competition and the possibility that the alleged conspirators acted independently.
Consolidated offers no evidence that API's product approval program is merely a ploy to obscure a conspiracy against competing producers. On its face, Spec. 11B is, in the language of Radiant Burners, both "reasonable" and "objective".
2. Unlawful purpose as proof of unreasonable restraint. Even if Consolidated could show a conspiracy, it fails to offer any evidence of an unreasonable restraint of trade. Under section 1, an unreasonable restraint of trade "may be established by proof of either an unlawful purpose or an anticompetitive effect".
Other than the possible lack of justification for the delay, Consolidated offers scant evidence suggesting an unlawful purpose behind API actions. The evidence suggests that in processing Consolidated's application for the monogram, API followed its normal procedure for analysis of a new product. Although the user subcommittee's initial verdict on Consolidated's application does not make clear how the three-piece threaded rod could be made to comply with API standards, it did not foreclose the possibility.
Moreover, API's user committee, which found that Consolidated's rod design did not meet Spec. 11B, is composed not of Consolidated's competitors but of buyers of sucker rods — businesses who could have no motive for driving Consolidated from the market.
3. Anticompetitive effect as proof of unreasonable restraint. Neither does Consolidated offer evidence that could show that API's actions had an anticompetitive effect. There is no dispute that the API monogram is very important to buyer acceptance of sucker rods.
Although there is some danger that API could use its influence to reduce competition, this danger is small so long as users rely voluntarily upon the API monogram.
Here, however, Consolidated had no trouble gaining acceptance of its product even in the short run; it was able to sell substantial amounts of its rods as soon as
In sum, it is not enough to meet the plaintiff's burden under the rule of reason that the plaintiff was harmed because the defendant refused without justification to promote, approve, or buy the plaintiff's product. Neither anticompetitive animus nor the other elements of a section 1 claim can be inferred solely from the incorrectness of a single business decision by a standard-setting trade association. The "reasonableness" of a restraint is judged by its general effect on the market, not by the circumstances of a particular application. An individual business decision that is negligent or based on insufficient facts or illogical conclusions is not a sound basis for antitrust liability.
Were this not so, the federal courts would become boards of automatic review for trade association standards committees, product testing services, and countless other business transactions. Not only would this tax the abilities of the federal courts, but fear of treble damages and judicial second-guessing would discourage the establishment of useful industry standards.
Because Consolidated presents no genuine dispute of facts material to its section 1 claim under either the rule of reason or the per se rule, the judgment of the district court is AFFIRMED.
368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). See also Industrial Investment Development Corp. v. Mitsui & Co., 671 F.2d 876, 884 (5th Cir.1982), vacated on other grounds, 460 U.S. 1007, 103 S.Ct. 1244, 75 L.Ed.2d 475 (1983), concluding that summary judgment is inappropriate against antitrust plaintiffs "where there is ample evidence of a conspiracy" and when "plaintiffs have not had an opportunity to depose one of the conspirators on the effect and intent of their efforts". Cf. Croley v. Matson Navigation Co., 434 F.2d 73, 77 (5th Cir.1970), stating that summary judgment should be used cautiously "when resolution of the dispositive issue requires a determination of state of mind".
391 U.S. 253, 290, 88 S.Ct. 1575, 1593, 20 L.Ed.2d 569 (1968), cited in Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355-56, 106 S.Ct. at 2509-10.
Turner, 75 Calif.L.Rev. at 802.
In Associated Press, 362 U.S. at 4, 65 S.Ct. at 1417, AP's bylaws forbade member news associations from doing business with non-members: an explicit boycott. Also, the per se holding in Associated Press may be based more on the territorial division imposed by AP than by any boycott. Id. at 24-25, 65 S.Ct. at 1426-27 (Douglas, J., concurring). See also Realty Multi-List, 629 F.2d at 1366-67 n. 30, arguing that Associated Press is not a "boycott" case.
In American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp. ["ASME"], 456 U.S. 556, 570-71, 102 S.Ct. 1935, 1944-45, 72 L.Ed.2d 330 (1982), a case Consolidated contends is dispositive of this one, the Court discusses discriminatory application of trade standards in conjunction with cases of per se violations. Although this suggests that the challenged practice in ASME could have been per se illegal, we note that the later case of Northwest Wholesale Stationers does not include ASME in its extensive discussion of cases of per se violations. See 472 U.S. at 293-94, 105 S.Ct. at 2619. In any event, ASME involved both regulations that have the force of law and a direct conspiracy between the ASME staff and the plaintiff's competitors. 456 U.S. at 559, 561-62, 102 S.Ct. at 1939-41. These factors are absent here.
In its response, API denies this "to the extent that during the 1980-82 ... shortage of production equipment including sucker rods, due to the explosive growth in domestic petroleum exploration, ... plaintiff and other producers ... sold large quantities of rods which did not bear the API monogram".
456 U.S. at 559, 102 S.Ct. at 1938-39. Similarly, the violation in Silver, 373 U.S. 341, 83 S.Ct. 1246, was based upon the power granted by law to the New York Stock Exchange to act as a gatekeeper for the financial markets. See Northwest Wholesale Stationers, 472 U.S. at 293, 105 S.Ct. at 2619. Here, API's codes have no such legal force.
Appellant's Brief at 12 (emphasis added). This plainly suggests that the lack of the API monogram was far from the principal source of Consolidated's business problems.