STEPHEN H. ANDERSON, Circuit Judge.
The plaintiff in this antitrust action is Multistate Legal Studies, Inc. ("PMBR"), a commercial provider of bar examination preparation to would-be lawyers in Colorado and elsewhere. PMBR claims that anticompetitive actions by two other providers of bar review courses, defendants Harcourt Brace Jovanovich Legal and Professional Publications, Inc. ("HBJL") and its Colorado licensee, Colorado Professional Education, Inc. d/b/a Colorado Bar Refresher, Inc. ("CBR"), were the reason PMBR's Colorado market share dropped from 84 percent in 1991 to 23 percent in 1993.
PMBR accuses HBJL and CBR of the following antitrust law violations: engaging in an illegal tying arrangement and conspiring to fix predatory prices, in violation of section 1 of the Sherman Act; attempting and conspiring to monopolize the supplemental bar workshop market and monopolizing and conspiring to monopolize the full-service bar review course market, in violation of section 2 of the Sherman Act. PMBR appeals the district court's grant of summary judgment against it on all claims.
We hold that PMBR has shown a genuine issue of material fact with respect to the Sherman Act section 1 tying and predatory pricing claims, and the Sherman Act section 2 claims of attempt and conspiracy to monopolize the supplemental course market, but not with respect to the claims of monopolization of and conspiracy to monopolize the full-service course market.
PMBR also appeals the district court's order overruling PMBR's objections to a magistrate judge's order concerning confidential record information. Because we are remanding the case for trial of other issues, the court's order on this issue becomes interlocutory, and we decline to review it at this time.
A. BAR EXAM PREPARATION
The Colorado bar exam consists of four components: the Multistate Bar Exam
Two types of bar review courses are relevant to this litigation: "full-service" courses, designed to prepare students for all components of a jurisdiction's bar examination, and "supplemental multistate workshops," which prepare students for only the MBE portion of a jurisdiction's bar exam.
At the heart of this case is the 1992 decision by HBJL and CBR, who previously had offered their full-service course and their supplemental MBE course separately, to offer the full-service course only in a package with the supplemental workshop. HBJL is the country's largest provider of full-service bar review courses. Its exclusive Colorado licensee, CBR, is entitled to use HBJL's "BAR/BRI" course trade name, course materials and national lecturers. HBJL and CBR have stipulated for summary judgment purposes that they exercise monopoly power over the Colorado full-service course market; PMBR's evidence puts their market share at more than 80 percent. See Plaintiff-Appellant's App. at 191 (Summ. of Attach. to Pl.'s Mem. in Opp'n to Defs.' Mot.Summ.J. [hereinafter "Summary"]). Their only full-service competitor in Colorado is a company called SMH Bar Review.
The evidence indicates both sides have viewed PMBR as a potential competitor in the Colorado full-service course market. It invested three years and $1 million in an effort to enter the California full-service market, but ultimately abandoned that effort. In conjunction with a company called BRG, PMBR offers a full-service course in Georgia, Alabama, and Tennessee, and has expressed its plans to expand throughout the Southeast. PMBR claims that its plan to expand its full-service course from California to other states, including Colorado, has been stymied by the losses caused by the Defendants' alleged predatory acts. Id. at 360-61 (Feinberg Aff. ¶ 30).
PMBR is the largest provider of supplemental MBE workshops nationally, and in Colorado it currently offers only supplemental MBE workshops. PMBR controlled 84 percent of the Colorado supplemental MBE market in 1991 but claims to have dropped to 23 percent by 1993. As discussed infra, HBJL and CBR contest these figures, but we accept them as true for summary judgment purposes. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456, 112 S.Ct. 2072, 2076, 119 L.Ed.2d 265 (1992).
In addition to the full-service BAR/BRI course, HBJL and CBR also offer a supplemental MBE workshop that competes with PMBR's workshop. The Defendants' course was previously called the HBJ Multistate Workshop; now it is called "Gilbert." In 1991, the Defendants had 11 percent of the Colorado workshop market, but by 1993 their share had risen to 76 percent. Other actual or potential competitors in that market include a company called APTS, with 1 percent of the market in 1993; Reed Law Group, which planned a 1993 workshop but cancelled it; and SMH Bar Review, which historically has bundled its MBE training into its full-service course but also offered a separate workshop in 1991.
B. ANTICOMPETITIVE ACTS
PMBR claims that HBJL and CBR engaged in various anticompetitive acts directly targeted at PMBR in the supplemental MBE market. PMBR also claims that HBJL and CBR illegally acquired their monopoly power in the full-service market through a secret market allocation agreement, and their monopoly power made it possible for their acts in the MBE workshop market to harm PMBR.
1. Acts Allegedly Directed at PMBR
PMBR claims that starting in 1992, HBJL and CBR began bundling together their supplemental MBE workshop, Gilbert, with their full-service BAR/BRI course and pricing the bundled Gilbert workshop below cost. PMBR also presents evidence of a substantial increase nationwide in the number of scheduling conflicts between the BAR/BRI course and the PMBR workshop starting in 1991. PMBR identifies three specific conflicts in Colorado, in the summer 1991, winter
PMBR contends that these acts had a twofold purpose: to achieve a monopoly in the supplemental MBE workshop market, and thereby to so weaken PMBR that it would be forced to abandon its efforts as a full-service competitor. PMBR alleges that the Defendants adopted this strategy after a prior attempt to avoid competition had failed. PMBR's president, Robert Feinberg, stated that in 1989, HBJL's chief executive officer, Richard Conviser, proposed an illegal market allocation agreement whereby HBJL would abandon the supplemental MBE workshop market nationwide if PMBR would refrain from pursuing future entry into the full-service market outside California. See Plaintiff-Appellant's App. at 193-94 (Summary); id. at 359 (Feinberg Aff. ¶ 23). Mr. Feinberg said that when he refused, Mr. Conviser threatened to make him "sorry," and the bundling, predatory pricing, increase in scheduling conflicts, and false advertising then ensued.
2. Defendants' Acquisition of Monopoly Power
PMBR also argues that when HBJL and CBR, or their predecessors, signed their first licensing agreement, they secretly entered into an illegal agreement dividing up the Colorado, Wyoming, and other markets between them, and they have secretly renewed their noncompetition pact ever since. The companies were competitors in the Colorado full-service market before signing their first license agreement in 1974. Since then, although their original written agreement and subsequent written extensions have not prohibited competition, the two companies have not competed against each other. HBJL and CBR deny any secret agreement and say it simply would make no sense to compete and undermine the BAR/BRI trademark. The companies' latest written agreement, signed in 1989, was to expire in 1991 but remains in effect by oral extension.
To support its allegation that a secret agreement existed, PMBR offers evidence that HBJL officials previously proposed market allocation agreements to two other competitors, id. at 195-96 (Summary), as well as to PMBR itself, and that in one state HBJL entered an explicit market allocation agreement that was declared illegal per se by the Supreme Court. See Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49-50, 111 S.Ct. 401, 402-03, 112 L.Ed.2d 349 (1990) (per curiam). PMBR also points to evidence that CBR's founder, Jerry Kopel, once threatened to offer competing bar review courses outside Colorado if HBJL did not give him more favorable license terms, but he ultimately did not carry out his threat.
We review the grant of summary judgment de novo, applying the same legal standard used by the district court under Fed.R.Civ.P. 56(c). Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). Because PMBR is the nonmoving party, its evidence is to be believed; all justifiable inferences are to be drawn in its favor; its nonconclusory version of any disputed issue of fact is assumed to be correct. See Kodak, 504 U.S. at 456, 112 S.Ct. at 2076.
A. ANTITRUST CLAIMS
PMBR claims violations of both section 1 and section 2 of the Sherman Act. Section 1 of the Act focuses on the anticompetitive behavior of joint actors, prohibiting "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce." 15 U.S.C. § 1. Section 2 applies to unilateral as well as joint action, making it illegal for a person to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of ... trade or commerce." 15 U.S.C. § 2.
1. Section 1 Tying Arrangement Claim
PMBR claims that HBJL and CBR created an unlawful tying arrangement in violation of Sherman Act section 1, by bundling the Gilbert workshop together with the BAR/
Since Colorado began requiring the MBE as part of its bar exam, the Defendants' full-service BAR/BRI course has included some level of MBE preparation. Since the 1970s, BAR/BRI's MBE component has included an in-class practice MBE exam with written answers that could be reviewed at home. In 1989, the label "HarBrace" was attached to this test and associated lectures and practice drills. The separately sold MBE workshop, now known as Gilbert, has consisted of another exam with written answers, plus two days of in-class answer review.
Starting in the 1980s, PMBR and the Defendants' full-service competitor, SMH, began pointing to the Defendants' dual course offerings in their advertising and saying that by selling a separate MBE workshop, the Defendants were admitting that BAR/BRI's internal MBE component was inadequate. At the same time that the ads denigrating the full-service course were appearing, enrollment in Gilbert (or the Defendants' supplemental MBE workshop under a previous name) was dropping precipitously, from 78 people in the winter 1986 course and 238 in the summer 1986 course to a single student in the winter of 1992.
The Defendants added one day of in-class review of the practice MBE exam to their BAR/BRI course in their winter 1992 session, then added a second day of review in the summer 1992 course, so that the full-service course contained the same three-day workshop format as the separate Gilbert course. They then advertised that students signing up for BAR/BRI would receive Gilbert "for free" or "at no extra charge."
PMBR offers evidence that the bundling of Gilbert was intended as a temporary move only. In a September 11, 1992, letter written by CBR's president, Stephen P. Davis, to an HBJL official, Mike Connors, Mr. Davis referred to a future time when the Gilbert course would again be offered only for added tuition, as it was before the summer of 1992. Plaintiff-Appellant's App. at 199 (Summary); id. at 346 (Baseman Aff.Ex. 6). PMBR also offers evidence that the administration of the BAR/BRI course and the administration of the Gilbert course have never been combined; the courses have separate national administrators, campus representatives, registration forms and addresses, suggesting that administrative streamlining was not the reason for the bundling.
A tying arrangement is an agreement by a party to sell one product — the "tying product" — only on condition that the buyer also purchase a second product — the "tied product" — or at least agree not to buy that product from another supplier. Kodak, 504 U.S. at 461-62, 112 S.Ct. at 2079-80 (citing Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518-19, 2 L.Ed.2d 545 (1958)). A tie-in constitutes a per se section 1 violation if the seller has appreciable economic power in the tying product market and if the arrangement affects a substantial volume of commerce in the tied product market. Id. 504 U.S. at 462, 112 S.Ct. at 2079-80.
The elements, then, of a per se violation, are (1) two separate products, (2) a tie — or conditioning of the sale of one product on the purchase of another, (3) sufficient economic power in the tying product market, and (4) a substantial volume of commerce affected in the tied product market. Here, the parties stipulate to the third requirement, that HBJL and CBR have monopoly power in the full-service course market, and the Defendants have not raised the issue of
a. The Two-Product Requirement
HBJL and CBR have stipulated that full-service courses and supplemental MBE workshops are in separate product markets for antitrust law purposes. They do not concede, however, that the existence of separate markets means separate products were involved here. They argue that their actions involved nothing more than the improvement of a single product — their full-service course.
PMBR argues on appeal that the district court failed to apply the proper test to determine whether two products exist. We agree. The court focused on PMBR's stipulation that the purpose of a full-service course includes preparing bar applicants for the MBE as well as for the other parts of the bar exam. From this, the court appears to have concluded that any effort to improve the full-service course by adding elements to it could not possibly constitute the bundling of a second product, at least where those added elements related to the MBE. In this the court erred.
The Supreme Court has made clear that the test for determining whether two components are separate products turns not on their function, but on the nature of any consumer demand for them.
The Defendants argue that a different analysis is required in this case because it involves "overlap markets." They define "overlap markets" as a multicomponent package being sold in one market and one of those components being sold in a second market, and they contend that in such situations, courts have universally held that the package was a single product. We disagree that courts universally have so held. See, e.g., Parts & Elec. Motors, Inc. v. Sterling Elec., Inc., 826 F.2d 712, 720 (7th Cir.1987); Mozart Co. v. Mercedes-Benz of N. Am., Inc., 593 F.Supp. 1506, 1515 (N.D.Cal.1984), aff'd, 833 F.2d 1342 (9th Cir.1987), cert. denied, 488 U.S. 870, 109 S.Ct. 179, 102 L.Ed.2d 148 (1988); Metrix Warehouse, Inc. v. Daimler-Benz Aktiengesellschaft, No. N-79-2066, 1982 WL 1870, at *6-9 (D.Md. June 4, 1982), reinstated, No. Civ. A.N. 79-2066, 1984 WL 1105 (D.Md. June 11, 1984). Moreover, we are not persuaded either that the "overlap markets" characterization does anything more than restate the problem, or that, if it does, the Supreme Court's Kodak/Jefferson Parish test is somehow less controlling in such cases than in any others.
PMBR maintains that by incorporating BAR/BRI and Gilbert into a package, the Defendants have "link[ed] two distinct markets for products that were distinguishable in the eyes of buyers." Jefferson Parish, 466 U.S. at 19, 104 S.Ct. at 1562.
PMBR's evidence includes the following:
1) Defendants stipulated that full-service courses and supplemental MBE workshops are in separate product markets.
2) Defendants have marketed their full-service course and their supplemental workshop as separate products, for separate fees, for over a decade and still offer Gilbert separately.
4) Prior to Defendants' bundling, not every full-service course customer chose to purchase a supplemental workshop; in Colorado, only one-third to one-half did so.
5) In the past, HBJL officials worked to keep their external Gilbert workshop separate and distinct in customers' minds from the HarBrace workshop within the full-service course, because many customers preferred to buy from two different companies to get multiple providers' perspectives on the MBE.
6) Defendants have not consolidated the operation of the full-service and supplemental courses; Gilbert continues to be administered and marketed separately.
7) One or more of Defendants' officers contemplated that the inclusion of the Gilbert workshop in the full-service course at no added charge would be only temporary.
8) Other bar review industry participants view full-service and supplemental MBE courses as separate products.
This evidence is sufficient to create a material factual dispute over whether there is enough consumer demand in Colorado for full-service courses without supplemental MBE workshops to make it efficient to sell the two separately. If there is, then the BAR/BRI-Gilbert package should be viewed as two products.
b. The Conditioning Requirement
The final element of an illegal tying arrangement is conditioning. For an illegal tie-in to exist, "`purchases of the tying product must be conditioned upon purchases of a distinct tied product.'" Continental Trend Resources, Inc. v. Oxy USA, Inc., 44 F.3d 1465, 1481 (10th Cir.1995) (quoting Fox Motors, Inc. v. Mazda Distribs. (Gulf), Inc., 806 F.2d 953, 957 (10th Cir.1986)), petition for cert. filed, 63 USLW 3819 (U.S. May 8, 1995) (No. 94-1838). HBJL and CBR argue that this element requires a showing of coercion, and that by adding Gilbert to BAR/BRI in the summer of 1992 they did not force or coerce any BAR/BRI students to forgo PMBR's supplemental workshop; since they did not raise BAR/BRI tuition, the economic incentives remained the same as before.
The Defendants are correct with respect to the summer 1992 course, when the bundled BAR/BRI-Gilbert course cost the same as the separate BAR/BRI course had cost previously. It appears that Gilbert truly was free to BAR/BRI customers during that summer's session, so that no separate, tied purchase was involved.
HBJL and CBR do not address, however, the evidence that in the winter 1993 course they raised the tuition of the bundled course by $50, in part to cover some of the costs of providing Gilbert. Where the price of a bundled product reflects any of the cost of the tied product, customers are purchasing the tied product, even if it is touted as being free. See Directory Sales Management Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 610 (6th Cir.1987); 3 Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 733a (1978) ("[T]he tie may be obvious as in the classic form, or somewhat more subtle, as when a machine is sold or leased at a price that covers `free' servicing.").
PMBR has presented enough evidence to create a triable issue as to whether the tuition for the bundled BAR/BRI course covered some portion of the Gilbert costs in 1993, and therefore whether the conditioning element was satisfied. See Plaintiff-Appellant's App. at 207-08 (Summary). Summary judgment on the tie-in claim therefore was premature.
2. Section 1 Predatory Pricing Claim
PMBR has alleged that by packaging Gilbert with BAR/BRI for a nominal or no charge, HBJL and CBR engaged in predatory pricing, in violation of both section 1 and section 2 of the Sherman Act.
To establish a section 1 violation, PMBR must show a conspiracy to engage in short-term price cutting to secure long-term monopoly profits. Instructional Sys. Dev. Corp. v. Aetna Casualty & Sur. Co., 817 F.2d 639, 649 (10th Cir.1987). To be predatory, prices must be set below "an appropriate
The district court dismissed PMBR's predatory pricing claim because it found that the bundled BAR/BRI-Gilbert course was a single product, and PMBR had not alleged that the package was priced below cost. As noted above, however, we find that a factual dispute remains as to the existence of two products.
The parties do not appear to dispute for summary judgment purposes the joint action element of the conspiracy claim. Nor do Defendants disagree that in the summer 1992 course, they included Gilbert for free, a level below any measure of Gilbert's costs.
HBJL and CBR argue that PMBR has failed to show any evidence that they are likely to be able to recoup, with interest, their losses from any alleged predatory pricing. As discussed infra in our review of the section 2 claims, we find that PMBR has adduced enough evidence of high entry barriers and other structural factors in the supplemental market to create a triable issue as to this element. We therefore conclude that summary judgment on the section 1 predatory pricing claim was premature.
3. Section 2 Attempted Monopolization of Supplemental MBE Course Market
PMBR alleges that HBJL and CBR attempted to monopolize the supplemental MBE workshop market by means of tying, predatory pricing, false advertising, and the creation of schedule conflicts. The district court dismissed the attempt claim after deciding that tying and predatory pricing could not have occurred because only a single product was involved, that any reasonable
PMBR argues on appeal that summary judgment was inappropriate as to each type of anticompetitive act alleged. HBJL and CBR argue that the district court's reasoning was sound, and that, in addition, PMBR has failed to show the requisite dangerous probability that the Defendants will succeed in monopolizing the supplemental MBE workshop market.
To succeed on an attempted monopolization claim, PMBR must show: (1) relevant geographic and product markets; (2) specific intent to monopolize; (3) anticompetitive conduct in furtherance of an attempt to monopolize; and (4) a dangerous probability of success. See TV Communications Network, Inc. v. Turner Network Tel., Inc., 964 F.2d 1022, 1025 (10th Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 601, 121 L.Ed.2d 537 (1992). The parties do not appear to contest the first and second elements for summary judgment purposes. We proceed, therefore, to examine the evidence with respect to conduct and probability of success.
a. Anticompetitive Conduct
Anticompetitive or exclusionary conduct under section 2 is "conduct constituting an abnormal response to market opportunities. Predatory practices are illegal if they impair opportunities of rivals and are not competition on the merits or are more restrictive than reasonably necessary for such competition," if the conduct appears "reasonably capable of contributing significantly to creating or maintaining monopoly power." Instructional Sys., 817 F.2d at 649 (citations omitted). A defendant may avoid liability by showing a legitimate business justification for the conduct. See Kodak, 504 U.S. at 483, 112 S.Ct. at 2090-91.
(1) Tying and Predatory Pricing
As discussed above, PMBR has shown enough evidence to create triable issues as to the existence of a predatory pricing conspiracy in 1992 and a tying arrangement in 1993 in violation of section 1. Illegal tie-ins and predatory pricing under section 1 may also qualify as anticompetitive conduct for section 2 purposes. See, e.g., Directory Sales, 833 F.2d at 613; Great Escape, Inc. v. Union City Body Co., 791 F.2d 532, 541 (7th Cir.1986); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 981 (5th Cir.1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978); see also Areeda & Turner, supra ¶ 733c.
HBJL and CBR offer three justifications, however, which they say made the inclusion of Gilbert "for free" as part of the BAR/BRI course permissible competitive activity. First, they argue that since supplemental MBE workshops were being offered "for free" as part of full-service courses in Colorado by SMH and outside Colorado by PMBR, SMH, and other providers, they (HBJL and CBR) were entitled to meet their competitors' prices, even if those prices were predatory. Second, they contend, they were entitled to use legal and ordinary marketing methods such as bundling to respond to PMBR's and SMH's "attack" advertisements, which criticized Defendants for charging "extra" for their MBE workshop. Third, they argue, the bundling of Gilbert with BAR/BRI was a procompetitive improvement of their full-service course.
(a) Meeting competition
Determining when the meeting-competition defense properly applies to a predatory pricing claim can require substantial analysis. See Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 717' (Supp. 1994). But Defendants have not shown, at any rate, why they should be allowed to price Gilbert below cost in Colorado in order to meet PMBR's prices in California, Alabama, Tennessee, and Georgia. And PMBR has offered enough evidence to create a triable issue regarding whether HBJL and CBR were truly concerned about and responding to competition from SMH. See Plaintiff-Appellant's App. at 203 (Summary).
(b) Ordinary marketing methods
HBJL and CBR say their "free" inclusion of Gilbert in the BAR/BRI course was nothing more than one of the "legal and ordinary marketing methods already used by others in the market" that we have previously said even monopolists are free to use. See Telex, 510 F.2d at 927. We do not necessarily read Telex to mean that absolutely every marketing method available to any nonmonopolist is equally proper when used by a monopolist, since such a reading might eliminate the law on tying arrangements. But in the supplemental MBE market, where HBJL and CBR were not monopolists, they may have been at liberty to temporarily engage in promotional pricing — even giving Gilbert away free — to try to boost the sales of a product that consumers were rejecting. A problem in this case, however, is that they did not offer Gilbert free to every prospective Gilbert customer. Instead, they offered it free only to purchasers of their monopolized BAR/BRI course. Although, as we noted above, this could not have constituted an illegal tying arrangement in 1992 because the allegedly tied Gilbert product was not purchased, neither can we find this linking of a product giveaway to monopoly power in a separate market to be a legal and ordinary marketing method, absent some showing of legitimate business reasons for distinguishing the BAR/BRI customers from other purchasers of Gilbert.
(c) Product improvement
Product improvement can sometimes be a defense to a section 2 claim.
Both the purpose and results of a product change, including customers' reception of the change, are relevant to whether a claimed product improvement is pro- or anticompetitive.
1) Purpose of product change
PMBR has offered evidence that the bundling was a response to PMBR's refusal to take part in a proposed market allocation agreement, see Plaintiff-Appellant's App. at 193-94 (Summary); that Defendants' executives never have believed that bar applicants need Gilbert to pass the bar, id. at 201 (Summary); that Defendants intended the bundling to be only temporary, id. at 199 (Summary); and that bundling cannot reasonably be explained as a response to competitive market conditions where, prior to the bundling of Gilbert, Defendants' course already had more MBE workshop hours than SMH's full-service course, and where SMH's then-partner, Kaplan, went bankrupt around the time the Gilbert bundling began in Colorado. Id. at 203 (Summary).
2) Customer reception of product change
PMBR also cites evaluations from bar applicants in California and elsewhere outside of Colorado, in the summer of 1992, who described the "free" Gilbert sessions as "horrible," "a waste of time," "awful" and "a joke." See id. at 201-02 (Summary).
3) Results of product change
PMBR further argues that if the addition of Gilbert had actually improved the product, one would expect Defendants' share of the full-service market and the pass rate of its course enrollees to have increased, but in fact they declined. The Defendants' market share — as measured by the percentage of first-time Colorado bar exam takers taking the BAR/BRI course — dropped from 76 percent in 1991 to 72 percent in 1993, see id. at 336-37 (Baseman Aff.Ex. 2), and BAR/BRI customers' pass rate declined from 5 percentage points above the Colorado average in July 1990 to 1 percentage point above the state average in July 1992. See id. at 413-14 (Sullivan Aff.Exs. 12, 13).
Taken together, the preceding evidence is enough to create a triable issue regarding the validity of the Defendants' product improvement justification for the alleged tying and predatory pricing behavior. In sum, PMBR has sufficiently controverted for summary judgment purposes the arguments that the Defendants were only responding to competition, that they used nothing more than legal and ordinary marketing methods, and that the bundled course was a procompetitive product improvement.
(2) Schedule Conflicts
PMBR also claims the Defendants deliberately created scheduling conflicts between the BAR/BRI course and PMBR's workshop in furtherance of their attempt to monopolize the workshop market. PMBR offers evidence of increased numbers of schedule conflicts nationwide, e.g., 23 conflicts in the summer of 1990, 2 of them major, versus 37 conflicts in the summer of 1992, 17 of them major, see Plaintiff-Appellant's App. at 206 (Summary); id. at 370-71 (Feinberg Aff.); and three specific conflicts in Colorado, in the summer 1991, winter 1991 and summer 1992 courses. Id. at 366-68.
PMBR contends that the increased conflicts were intended to discourage people from taking PMBR's workshop. The district
PMBR argues on appeal that the court erred in concluding that to be actionable, the schedule conflicts had to make it impossible, rather than merely inconvenient, for BAR/BRI students to take PMBR's workshop. We agree. The relevant inquiry is whether the Defendants' scheduling patterns were anticompetitive, i.e., "an abnormal response to market opportunities ... impair[ing] opportunities of rivals and ... not competition on the merits or ... more restrictive than reasonably necessary for such competition." Instructional Sys., 817 F.2d at 649. What matters is not so much whether the classes actually overlapped as whether the scheduling pattern was reasonably capable of contributing significantly to a monopolization attempt by discouraging BAR/BRI customers from taking PMBR's course, and, if so, whether it was nevertheless justified.
PMBR presented enough evidence to create a triable issue as to whether this same-day scheduling could significantly discourage BAR/BRI students from taking its workshop. See Plaintiff-Appellant's App. at 365-72 (Feinberg Aff. ¶¶ 41-63).
PMBR offers circumstantial evidence that the three schedule conflicts it has identified in Colorado were not accidental or inevitable, but instead deliberate and unjustified. PMBR points to a substantial increase nationwide in the number of conflicts after HBJL's Mr. Conviser allegedly proposed the illegal market allocation agreement in 1989 and PMBR's Mr. Feinberg rejected it in the spring of 1990. Mr. Feinberg stated by affidavit that there have always been conflicts between PMBR's course and that of BAR/BRI and its licensees, including CBR, but the vast majority were minor or inconsequential until 1991 and thereafter. See Plaintiff-Appellant's App. at 366-72 (Feinberg Aff. ¶¶ 47-63). This sequence of events is enough to create a jury question as to whether the disputed schedule conflicts in Colorado were deliberate or the "inevitable result" of crowded curricula and short time frames.
(3) False Advertising
PMBR contends that Defendants advertised falsely when they advertised that their BAR/BRI course included the Gilbert workshop "for free." In 1993, PMBR points out, Defendants raised the price of the BAR/BRI course by $50, and an HBJL official testified that the added cost of Gilbert was one of the reasons for the tuition increase. See id. at 207-08 (Summary). The district
We affirm for a different reason. Even assuming the advertising was false, PMBR has not shown how it could have contributed to an attempt to monopolize the supplemental MBE market, rather than just to maintenance of Defendants' full-service course monopoly. PMBR has not adduced any evidence that had BAR/BRI enrollees known the alleged "truth" — that they were not getting Gilbert for free but were being forced to pay for it in order to get the desired BAR/BRI course — they would have been more likely to spend another $300 or so to take PMBR or another MBE workshop in addition to the BAR/BRI-Gilbert course. We therefore affirm the district court's rejection of false advertising as an anticompetitive act in furtherance of the attempted monopolization claim.
b. Dangerous Probability of Success
As an alternative basis for affirming the district court's dismissal of the attempted monopolization claim, HBJL and CBR argue that PMBR has failed to demonstrate a dangerous probability that their alleged attempt will succeed. PMBR contends that it has provided ample evidence.
"To establish the dangerous probability of success element of an attempted monopolization claim, `the plaintiff must show that there was a dangerous probability the defendant would achieve monopoly status as the result of the predatory conduct alleged by the plaintiff.'" Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 894 (10th Cir.1991) (quoting Colorado Interstate Gas Co. v. Natural Gas Pipeline Co. of America, 885 F.2d 683, 693 (10th Cir.1989), cert. denied, 498 U.S. 972, 111 S.Ct. 441, 112 L.Ed.2d 424 (1990)). Factors relevant to determining dangerous probability include, but are not limited to, a defendant's market share, whether the defendant is a multimarket firm, the number and strength of other competitors, market trends, and entry barriers. See id.; Shoppin' Bag of Pueblo, Inc. v. Dillon Cos., 783 F.2d 159, 162 (10th Cir. 1986). Where predatory pricing is alleged, the defendants' financial strength and ability to absorb losses are also relevant. See Brooke Group, ___ U.S. at ___, 113 S.Ct. at 2589; Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 119 n. 15, 107 S.Ct. 484, 494 n. 15, 93 L.Ed.2d 427 (1986). Because we are talking about probabilities, it is not necessary for a defendant to already possess monopoly power in the target market; indeed, if it did, the offense would be monopolization, not attempt. Of course, "[t]he higher the firm's initial market share, the greater the likelihood that it will eventually gain monopolistic control over the market." Colorado Interstate Gas, 885 F.2d at 694.
(1) Defendants' Market Share/Multiple Markets
"The [market] share that is relevant for determining whether the defendant can satisfy the `dangerous probability of success' requirement of attempted monopolization should be either that which he possesses at the time of litigation or the largest share he possessed during the period of the alleged offense." Areeda & Hovenkamp, supra ¶¶ 711.2d, 835.2b.
(2) Defendants' Resources
PMBR has presented evidence that Defendants have access to substantial money with which to sustain a predatory campaign. HBJL's parent company, General Cinema, had total assets of over $5.5 billion as of Jan. 31, 1993, compared with PMBR's assets of less than $1.042 million as of June 30, 1993. See Plaintiff-Appellant's App. at 200 (Summary).
(3) Number and Strength of Competitors
PMBR's market structure evidence suggests that if PMBR is seriously damaged or eliminated, remaining competitors in the supplemental market may not be able to compete effectively against Gilbert. The Colorado supplemental MBE market is highly concentrated, dominated by PMBR and the Defendants. The other two competitors — APTS and Reed Law Group — have been relatively weak in Colorado. In 1993, Defendants had 76.2 percent of the market; PMBR had 22.6 percent, and APTS had 1.2 percent. Id. at 339 (Baseman Aff. Ex. 3). Reed cancelled its 1993 workshops. Id. at 361 (Feinberg Aff.). SMH offered a workshop in 1991, but it is unclear to us whether they still compete in the supplemental market.
(4) Market Trends
The trends in the supplemental MBE market, as reflected in PMBR's evidence, provide additional support for PMBR's claim. PMBR's market share increased from 71 percent to 84 percent between 1989 and 1991, but dropped to 25 percent in 1992 and to 23 percent in 1993. The Defendants' market share showed an opposite trend, dropping from 29 percent to 11 percent between 1989 and 1991, then increasing to 72 percent by the end of 1992 and 76 percent in 1993. Figures for the third competitor, APTS, available for 1991-93, showed a steady decline from 4 percent in 1991 to 1 percent over that period.
(5) Entry Barriers
PMBR has also offered evidence that if PMBR is eliminated, new market entrants may not be able to establish a competitive MBE workshop market. PMBR's economic expert testified that entry barriers exist in both the full-service and the supplemental MBE markets in Colorado, because of Defendants' high degree of name recognition and accumulated goodwill, HBJL's large size nationwide, HBJL's economies of scope and scale in the full-service market, and the widespread discounting practices of the bar review industry. See id. at 323-24 (Baseman Aff.). PMBR has presented further evidence of entry barriers in that there have been only three attempted entries in the Colorado supplemental MBE market since 1972, two of them largely unsuccessful. Id. at 192 (Summary), 361 (Feinberg Aff.).
The preceding evidence of the Defendants' market share and resources, the nature of the competition they face, and the barriers to
4. Section 2 Conspiracy to Monopolize Supplemental MBE Market
PMBR next contends that the district court erred in dismissing its section 2 claim of conspiracy to monopolize the supplemental MBE market, because all of its elements except one — the existence of a conspiracy — are subsumed in the attempt claim, and it has provided evidence of the conspiracy element as well.
To succeed on a claim of conspiracy to monopolize, PMBR must show: "(1) `the existence of a combination or conspiracy to monopolize'; (2) `overt acts done in furtherance of the combination or conspiracy'; (3) `an effect upon an appreciable amount of interstate commerce'; and (4) `a specific intent to monopolize.'" TV Communications, 964 F.2d at 1026 (quoting Olsen v. Progressive Music Supply, Inc., 703 F.2d 432, 438 (10th Cir.), cert. denied, 464 U.S. 866, 104 S.Ct. 197, 78 L.Ed.2d 172 (1983)).
As to the conspiracy element, PMBR has presented evidence that major decisions regarding the Colorado course, such as pricing and course content, required the approval of HBJL as well as CBR. See Plaintiff-Appellant's App. at 206-07 (Summary); id. at 455 (Davis Dep.). We agree that this evidence, when combined with the evidence supporting the attempt claim, creates a triable issue and precludes summary judgment on the conspiracy claim.
5. Monopolization of and Conspiracy to Monopolize Full-Service Bar Review Market
PMBR alleges that HBJL and CBR were guilty of Sherman Act section 2 monopolization of and conspiracy to monopolize the full-service bar review market by means of a geographic market allocation agreement, which is illegal per se under section 1.
HBJL and CBR reply that PMBR lacks standing, that a 1990 release agreement and the statute of limitations bar this claim, and that PMBR has not presented evidence that an illegal market allocation agreement ever existed. The district court appears to have relied on the 1990 release agreement in dismissing this claim. Although the court also mentioned the statute of limitations, it does not appear to have made a specific finding based on it. We conclude that PMBR has failed to establish a triable issue regarding the existence of an illegal agreement.
Defendants correctly argue that ambiguous conduct that is as consistent with permissible competition as with illegal conspiracy does not by itself support an inference of antitrust conspiracy under Sherman Act section 1. Matsushita, 475 U.S. at 588, 106 S.Ct. at 1356-57. A plaintiff must offer evidence tending to exclude the possibility that the alleged conspirators either acted independently or colluded in a way that could not have harmed the plaintiff. Id.; Gibson v. Greater Park City Co., 818 F.2d 722, 724 (10th Cir.1987).
We agree with the Defendants that the mere fact that they were competitors before their licensing arrangement and stopped competing afterward is not enough to show that they secretly and illegally divided the market between them. Their written agreements contained no noncompete clauses, but once they entered their licensing arrangement, both companies had legitimate business reasons not to compete and undermine the BAR/BRI trademark's value.
Also ambiguous is the evidence that CBR's founder, Jerry Kopel, once threatened to offer competing bar review courses outside Colorado if HBJL did not give him more
Nor do we consider that the balance is tipped by the evidence that HBJL entered into an explicit market allocation agreement with a former competitor in Georgia in 1980, see Palmer, 498 U.S. at 49-50, 111 S.Ct. at 402-03, and that it proposed market allocation agreements to Josephson's Bar Review in 1969, to SMH Bar Review in 1976 and 1980, and to PMBR in 1989-90. The timing of these various offers permits two opposite inferences to be drawn. Although PMBR insists that this evidence shows a consistent pattern of behavior, all of the alleged offers were made before November 1990. In that month, the Supreme Court ruled in Palmer that HBJL's market allocation agreement with BRG was "unlawful on its face." Id. at 50, 111 S.Ct. at 403. It is clearly possible to infer that in 1991, when HBJL and CBR orally renewed their Colorado licensing agreement, they were aware of the illegality of any market allocation agreement and did not pursue or renew any such agreement.
Since all of PMBR's evidence relative to the existence of a secret market allocation agreement is ambiguous, it cannot support an inference of conspiracy to monopolize the full-service course market, and we affirm the district court's dismissal.
B. CONFIDENTIALITY ISSUES
PMBR appeals the district court's refusal to set aside under Fed.R.Civ.P. 72(A) a magistrate judge's orders concerning disclosure of confidential information in the record. The basis for the court's ruling is not clear, but because we are remanding the case, this order becomes interlocutory and subject to reexamination upon renewed motion by PMBR. We therefore decline to address it at this juncture.
For the reasons discussed above, the district court's judgment is REVERSED IN PART, AFFIRMED IN PART, and REMANDED.
Here, where PMBR has presented evidence that it was probably the most likely challenger to the Defendants' monopoly in the Colorado full-service market, we cannot say as a matter of law that Defendants would find it economically irrational to price below cost in the MBE market for the summer 1992 course as part of a larger scheme, employing tie-ins and schedule conflicts, to monopolize the supplemental market, in order to discipline PMBR for refusing to allocate markets and to deprive PMBR of the resources necessary to continue its full-service market incursions.
We are sensitive to both the difficulties and the dangers of these inquiries. Where, as here, however, the claimed product improvement takes the form of a marketing change, rather than some complex technological integration of previously separate functions, our degree of deference to product designers is reduced.
PMBR's complaint goes beyond merely alleging that Defendants refused requests to affirmatively accommodate PMBR's course. PMBR alleges that the Defendants deliberately created schedule conflicts to avoid helping PMBR, and in fact, to harm PMBR. Since the Defendants naturally would not create conflicts between their BAR/BRI full-service course and their own MBE workshop, Gilbert, see Plaintiff-Appellant's App. at 370 (Feinberg Aff. ¶ 58), there is a triable issue as to whether schedule conflicts between BAR/BRI and PMBR's MBE workshop would disproportionately raise PMBR's costs. See Premier Elec. Constr. Co. v. National Elec. Contractors Ass'n, Inc., 814 F.2d 358, 368 (7th Cir.1987) (citing Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power Over Price, 96 Yale L.J. 209 (1986)). This would qualify as anticompetitive conduct unless HBJL and CBR could demonstrate a legitimate business justification for it.