Republic Tobacco Co v. North Atlantic Tradi

In the

United States Court of Appeals

For the Seventh Circuit

____________

Nos. 04-1098 & 04-1202

REPUBLIC TOBACCO CO.,

Plaintiff-Appellee/Cross-Appellant,

v.

NORTH ATLANTIC TRADING COMPANY, INC., et al.,

Defendants-Appellants/Cross-Appellees.

____________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 98 C 4011—John F. Grady, Judge.

____________

ARGUED JUNE 17, 2004—DECIDED SEPTEMBER 1, 2004

____________

Before FLAUM, Chief Judge, and MANION and WILLIAMS,

Circuit Judges.

FLAUM, Chief Judge. This appeal involves the claims that

two competing tobacco companies brought against one

another—one company suing for violation of antitrust laws,

the other for defamation. North Atlantic Trading Co., Inc.

(“North Atlantic”) was upset when its efforts to engage new

markets for its cigarette papers proved unsuccessful. It

blamed its difficulties in cultivating new customers on the

business practices of its competitor, Republic Tobacco

Company (“Republic”) and decided to sue. The hard feelings

2 Nos. 04-1098 & 04-1202

went both ways—Republic became upset with North Atlantic

after North Atlantic criticized Republic’s business practices

in two letters sent to customers. Claiming that it had been

defamed (among other things), Republic also decided to sue.

The parties’ dueling lawsuits were eventually consolidated

into one case before the United States District Court for the

Northern District of Illinois. At summary judgment, the

district court considered both parties’ multiple claims and

counterclaims—the only one to survive being Republic’s

defamation claim. Not only did it advance; it was successful

at summary judgment. Following this judgment, a jury trial

was held on the issue of damages, both presumed and

punitive, for the defamation claim. The jury returned a ver-

dict for $8.4 million in presumed damages and $10.2 million

in punitive damages. The trial court granted North Atlan-

tic’s subsequent motion for remittitur, reducing the awards

to $3.36 million and $4.08 million, respectively.

On appeal, North Atlantic seeks review of: (1) the district

court’s decision to grant summary judgment to Republic on

its defamation claim; (2) the remitted damage awards; and

(3) the district court’s decision to grant summary judgment to

Republic on North Atlantic’s antitrust claims. Republic

cross-appeals the district court’s refusal to entertain a pro-

cedure that might have enabled Republic to appeal the remit-

titur. For the reasons stated in this opinion, we affirm the

district court’s decisions with respect to Republic’s defama-

tion claim, North Atlantic’s antitrust claims, and Republic’s

cross-appeal. On the issue of damages, we vacate the dis-

trict court’s award of presumed and punitive damages, and

award to Republic $1 million in presumed damages and $2

million in punitive damages.

Nos. 04-1098 & 04-1202 3

I. Background

Republic and North Atlantic are competitors in the mar-

ket for premium roll-your-own (“RYO”) cigarette papers,

tobacco, and other tobacco-related products. Republic and

North Atlantic sell their RYO products to distributors and

wholesalers, who in turn resell the products to outlets such

as convenience stores, drugstores, gas stations, and mini-

marts. Republic’s products are marketed under several

brand names, including Job, Top, and Drum, while North

Atlantic’s products are marketed under the brand name Zig-

Zag. North Atlantic’s Zig-Zag has been the number-one

selling domestic RYO cigarette paper brand since its intro-

duction in the U.S. in 1938. North Atlantic estimates its

domestic market share of cigarette paper is 49 percent or

higher. Republic is the second largest supplier of cigarette

paper, with a market share of approximately 25 percent.

Robert Burton Associates (“RBA”) is the third major com-

petitor in the cigarette paper business.

In 1997, North Atlantic acquired an exclusive license to

market and distribute the Zig-Zag brand of RYO papers in

the United States. At this time, North Atlantic announced

that it sought to challenge Republic’s historic market dom-

inance in the “Southeastern” United States—a group of nine

states where Republic’s total market share is as much as 95

to 98 percent. Things did not go according to North Atlan-

tic’s plan and the company experienced some difficulty in

penetrating this market. Republic asserts that North

Atlantic’s disappointing sales growth in these states was the

product of simple market economics, principally Republic’s

lower pricing and superior marketing strategy.

In contrast, North Atlantic claims that its sales difficul-

ties were caused, in part, by Republic’s unfair and unlawful

business practices. North Atlantic believed Republic to be

violating antitrust and unfair competition laws by pursuing

4 Nos. 04-1098 & 04-1202

enhanced exclusivity agreements through its incentive

programs for distributors and retailers. North Atlantic also

claims that it believed Republic was violating trademark

and unfair competition laws by defacing Zig-Zag display

boxes.1

A. Disputed Statements

Naturally, in the course of business relations, North Atlantic

and Republic sent letters to their customers. Statements

contained in two letters sent from North Atlantic represen-

tatives to North Atlantic customers or potential customers

that were critical of Republic’s business practices form the

basis of Republic’s defamation suit. The first letter (the

“Czerewko Letter”) was sent to a potential customer in the

course of North Atlantic and Republic’s battle for retail out-

lets. The second letter (the “August 13 Letter”) was sent to

North Atlantic customers shortly after North Atlantic filed

its lawsuit against Republic.

1. Czerewko Letter

In January 1998, North Atlantic Regional Manager John

Czerewko sent a letter to a customer attacking the integrity

of Republic’s business conduct and accusing Republic of

engaging in inappropriate activity with respect to the

1

Plastic display boxes were used to package RYO papers sold by

North Atlantic in limited promotional runs. Customers received

the display boxes along with their purchase of the products inside.

Some of Republic’s customers wanted to use the boxes to display and

sell Republic’s cigarette papers. To meet this demand, Republic

obtained unused boxes from third-party distributors and then re-

labeled the boxes with its own labels, restocked the boxes with its

products, and made them available to customers upon request.

Nos. 04-1098 & 04-1202 5

plastic display boxes. In late 1997, Clark Oil, one of the

largest convenience store chains in the Midwest, elected to

stock and sell Republic’s products exclusively. Czerewko

was involved in a North Atlantic campaign to convince

Clark to drop its exclusivity with Republic. North Atlantic

offered $95,000 in promotional money to Clark if it agreed

to sell North Atlantic products, however this offer was less

lucrative than the $110,000 offer Clark received from

Republic.

In the course of courting this potential client, Czerewko

wrote a one-page letter to Clark buyer Sanjiv Jain discuss-

ing Republic’s competing proposal for exclusivity as well as

the modifications to the display boxes. Czerewko wrote,

“Frankly, I have some concerns not only with the Exclusivity

proposal, the rationale, the Cigarette Paper category, but also

for Clark in long term consequences.” Below this sentence,

are two boldface headings (“The Republic Proposal for

exclusivity” and “Similarity of Display Units”), each with

a series of bullet-points underneath. According to Republic

and the district court, the defamatory statements in the

Czerewko Letter consist of the following three sentences

located under the “Similarity of Display Units” heading:

• Recently, another Chain was positioned for exclusivity

and a modified, defaced Zig Zag unit was used. We own

the patent-trademark which has been violated.

• Our Attorneys initiated legal action regarding this

and had to include the Chain in the Trademark-

Patent violation.

Republic contends that these statements were false and

defamatory because North Atlantic held no patent or trade-

mark rights in the boxes and had not initiated litigation

against anyone in connection with the display boxes.

6 Nos. 04-1098 & 04-1202

After receiving the Czerewko Letter, Clark forwarded it

to Clark’s supplier, Eby-Brown, which buys products directly

from Republic and distributes them to retailers. Thereafter,

Eby-Brown discontinued its participation in Republic’s in-

centive programs. Clark subsequently discontinued its par-

ticipation in Republic’s incentive program as well.

2. August 13 Letter

In June 1998, Republic filed this defamation action, a few

days after Clark cancelled its exclusive contract. Two weeks

later, North Atlantic filed a second suit in the U.S. District

Court for the Western District of Kentucky, alleging unfair

competition, deceptive trade practices, and antitrust

violations. On August 13, 1998, North Atlantic sent a letter

to all of its customers—many of whom were also customers

of Republic—explaining that North Atlantic had filed a

lawsuit against Republic, charging Republic with “unfair

competition, deceptive trade practices and antitrust viola-

tions.” The letter went on to describe the substance of these

allegations as follows:

The complaint alleges that Republic Tobacco’s exclusiv-

ity agreements, rebates, incentive programs, buybacks

and other activities violate federal and state antitrust

and unfair competition laws. The complaint charges

that Republic Tobacco entered into contracts, combina-

tions, and conspiracies in illegal restraint of trade and

has attempted to illegally monopolize, and has illegally

monopolized, the roll-your-own (“RYO”) cigarette paper

market in the southeast United States.

The complaint also alleges that Republic Tobacco has

defaced and directed others to deface North Atlantic’s

and National Tobacco’s vendor displays for ZIG-ZAG®

RYO cigarette papers. On many of these vendors, the

ZIG-ZAG® brand name has been covered up with an ad-

vertisement for JOB®, TOP®, and other Republic Tobacco

Nos. 04-1098 & 04-1202 7

RYO cigarette brands. The lawsuit alleges that these

activities violate North Atlantic’s and National Tobacco’s

rights and constitute unfair competition under federal

and state law.

Republic responded to the August 13 Letter with a letter

of its own, calling North Atlantic’s claims “frivolous,” and

asserting that they “were raised solely for the purpose of

fulfilling [North Atlantic’s] published business plan to in-

crease revenue of the Zig Zag products primarily through

price increases.” (internal quotations omitted).

B. Incentive Programs

North Atlantic’s antitrust claims, as described in the August

13 Letter, are premised on Republic’s alleged attempts to

foreclose competition in the nine-state “Southeast” region

through its incentive programs. The nine-state region, as

defined by North Atlantic’s economist, includes the states

east of the Mississippi River and south of the Ohio River:

Alabama, Florida, Georgia, Kentucky, Mississippi, North

Carolina, South Carolina, Tennessee, and Virginia (collec-

tively the “Southeast”). Historically, Republic’s brands have

been tremendously popular in each of these nine states.

Republic’s incentive programs allowed participating cus-

tomers to receive rebates, free products, and free travel in

exchange for stocking or promoting specified amounts of

Republic’s RYO products and meeting certain sales goals.2

2

The Republic Value-Added Rebate Incentive Program (“VRIP”)

provides incentives to distributors for stocking, promoting, and

selling Republic’s products to their retail accounts. Republic’s

Convenience Store Distribution Incentive Program (“CDIP”)

provides discounts to convenience stores to stock, promote, and

sell Republic’s products. The Republic Travel Plus Program, open

(continued...)

8 Nos. 04-1098 & 04-1202

Program participants could enhance rebate and travel ben-

efits by electing to sell Republic’s brands of cigarette paper

exclusively. These programs lasted for one year or less and

were all terminable at will.

North Atlantic contends that Republics’ incentive pro-

grams had the result of foreclosing North Atlantic products

from the shelves of 46 percent of convenience stores in the

Southeast, effectively eliminating choice in the region. Repub-

lic counters that its practices are not anticompetitive and its

success in these states is due to its procompetitive incen-

tive-based marketing strategy and its offering low, steady

prices on its products at a time when North Atlantic raised

its prices by more than 15 percent.

C. Proceedings Below

Once served with the complaint in this case, North

Atlantic sought to transfer this case to Kentucky, or to stay

proceedings pending resolution of its Kentucky lawsuit, but

the district court refused. North Atlantic then filed counter-

claims against Republic in the court below, including the

same antitrust claim presented in the Kentucky action.

Accordingly, the case proceeded below, and the Kentucky

court suspended the action.

Following extensive fact and expert discovery, the parties

filed cross-motions for summary judgment. In its summary

judgment order, the district court considered Republic’s six-

count Seconded Amended Complaint and North Atlantic’s ten-

count amended counterclaim. The district court granted

Republic’s motions with respect to all of North Atlantic’s

2

(...continued)

to both distributors and convenience stores, offers “points” to be

used toward trips, such as cruises.

Nos. 04-1098 & 04-1202 9

claims. With respect to the antitrust counterclaims, the

court held that a determination of the relevant market was

a necessary element of each count brought by North Atlantic.

Although the court acknowledged that the definition of a

relevant market is a question of fact and that the parties

disagreed on the relevant geographic market, the court

found that there was no evidence to support a definition of

the nine-state Southeast as the relevant geographic market.

The district court found that there was no doubt that Republic

and North Atlantic operated in a nationwide market and

that their purchasers, i.e., distributors and wholesalers, turn

to suppliers across the nation for RYO papers. As North

Atlantic did not argue that Republic monopolized, attempted

to monopolize, unreasonably restrained trade in, or fore-

closed competition in the national market for RYO papers,

the district court granted summary judgment on each of

North Atlantic’s antitrust counterclaims.

In the same order, the district court granted Republic’s

motion for summary judgment on its defamation claim, hold-

ing that North Atlantic was liable for defamation per se as

a matter of law in light of (1) the statements in the Czerewko

Letter that “[w]e own the patent-trademark which has been

violated,” and “[o]ur Attorneys initiated legal action regarding

this and had to include the Chain in Trademark-Patent

violation,” and (2) the statements in the August 13 Letter

describing North Atlantic’s Kentucky lawsuit allegations.

According to the court, these statements were false asser-

tions about Republic, were unprivileged, and were defama-

tory per se because they attacked the integrity of Republic’s

business conduct, prejudiced Republic in its business, and

with respect to the August 13 Letter, accused Republic of il-

legal conduct.

Following the court’s order, a jury trial was held to assess

presumed and punitive damages on Republic’s defamation

claim. At trial, Republic introduced evidence to show that

10 Nos. 04-1098 & 04-1202

its reputation had been harmed by North Atlantic’s state-

ments. Three witnesses testified that after the August 13

Letter was sent, Republic received phone calls from its sales-

men and from dozens of customers indicating that custom-

ers thought less of Republic, were concerned that they had

been “dragged [ ] into illegal conduct,” and were wary of

further participation in Republic’s incentive programs.

Republic’s President, Donald Levin, testified that reputation

is important in the small, closely regulated tobacco industry

and that Republic had built strong business relationships and

a good reputation over the years. Absent from Republic’s

presentation was evidence that any customer reduced pur-

chases or severed business relations with Republic as a

direct result of North Atlantic’s actions.

After a three-day trial, the jury returned a verdict in

Republic’s favor of $8.4 million in presumed damages and

$10.2 million in punitive damages. Upon North Atlantic’s

motion, the district court remitted these awards by 60 per-

cent, to $3.36 million and $4.08 million, respectively. The

court then gave Republic the option of accepting the remitti-

turs or facing a new trial. Republic accepted the remittiturs.

We now consider both parties’ appeals.

II. Analysis

A. Defamation

We review de novo the district court’s decision to grant

summary judgment in Republic’s favor, construing all the

facts and inferences in favor of North Atlantic. See Vision

Fin. Group, Inc. v. Midwest Family Mut. Ins. Co., 355 F.3d

640, 642 (7th Cir. 2004).

A defamatory statement is one that “tends to cause such

harm to the reputation of another that it lowers that person

in the eyes of the community or deters third persons from

associating with him.” Kolegas v. Heftel Broad. Corp., 607

Nos. 04-1098 & 04-1202 11

N.E.2d 201, 206 (Ill. 1992) (citing Restatement (Second) of

Torts § 599 (1977)). To make out a defamation claim under

Illinois law, the plaintiff must show “that the defendant[ ]

made a false statement concerning him, that there was an

unprivileged publication to a third party with fault by the

defendant, which caused damage to the plaintiff.” Krasinski

v. United Parcel Serv., Inc., 530 N.E.2d 468, 471 (Ill. 1988)

(citing Restatement (Second) of Torts § 588 (1977)).

Defamatory statements may be actionable per se or ac-

tionable per quod. Illinois courts have recognized four cate-

gories of statements that are considered defamatory per se:

(1) words that impute the commission of a crime; (2) words

that impute infection with a loathsome disease; (3) words

that impute an inability to perform or a want of integrity in

the discharge of duties of office or employment; or (4) words

that prejudice a party, or impute lack of ability, in his or

her trade, profession, or business. See Kolegas, 607 N.E.2d

at 206. If a statement qualifies as defamatory per se (the

theory upon which Republic solely relies), it is unnecessary

for a plaintiff to demonstrate actual damage to reputation.

Rather, statements that fall within these per se categories

are thought to be so obviously and materially harmful to

the plaintiff that injury to its reputation may be presumed.

See Owen v. Carr, 497 N.E.2d 1145, 1147 (Ill. 1986). In

contrast, with a per quod action, in order to recover the

plaintiff must plead and prove that it sustained actual

damage of a pecuniary nature (“special damages”). See

Dubinsky v. United Airlines, 708 N.E.2d 441, 447 (Ill. App.

Ct. 1999). For further discussion of per quod actions see

Bryson v. News America Publications, 672 N.E.2d 1207, 1221

(Ill. 1996).

Under the Illinois innocent construction rule, even a state-

ment that falls into one of the limited per se categories will

not be found defamatory per se if it is “reasonably capable

of an innocent construction.” Kolegas, 607 N.E.2d at 206.

12 Nos. 04-1098 & 04-1202

This rule “requires courts to consider a written or oral

statement in context, giving the words, and their implica-

tions, their natural and obvious meaning.” Bryson, 672 N.E.2d

at 1215. If a statement may reasonably be interpreted inno-

cently, it cannot be actionable per se. See id. However, the

Illinois courts have firmly emphasized that “[o]nly reasonable

innocent constructions will remove an allegedly defamatory

statement from the per se category.” Id. (emphasis in

original). Whether a statement is reasonably capable of an

innocent construction is a question of law for the court to

decide. See Kolegas, 607 N.E.2d at 207.

A number of common law privileges and defenses exist

that may shield a defendant from liability for making an

otherwise defamatory statement. Four of these defenses and

privileges, to varying degrees, are relevant to this appeal.

First, a statement that does not contain any verifiable facts

(as some call, “an opinion”) is not actionable under Illinois

law.3 In Illinois, “[a] statement of fact is not shielded from

an action for defamation by being prefaced with the words

‘in my opinion,’ but if it is plain that the speaker is ex-

pressing a subjective view, an interpretation, a theory, con-

jecture, or surmise, rather than claiming to be in possession

of objectively verifiable facts, the statement is not action-

able.” Haynes v. Alfred A. Knopf, Inc., 8 F.3d 1222, 1227 (7th

Cir. 1993); see also Wilkow v. Forbes, Inc., 241 F.3d 552, 555

3

This principle overlaps with the constitutional protection for

statements of on matters of public concern that are not provably

false. See Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990).

Milkovich, a federal constitutional law case, reflects the fact that

the First Amendment imposes limits on state defamation law.

However, we must first examine the threshold question of whether

the challenged statements are actionable under Illinois law; if they

are not, the First Amendment does not come into play. See Wilkow

v. Forbes, Inc., 241 F.3d 552, 555 (7th Cir. 2001); Stevens v. Tillman,

855 F.2d 394, 400 (7th Cir. 1988).

Nos. 04-1098 & 04-1202 13

(7th Cir. 2001) (Illinois law); Pope v. Chronicle Publ’g Co.,

95 F.3d 607, 614 (7th Cir. 1996) (Illinois law); Restatement

(Second) of Torts § 566 (1977) (“A defamatory communica-

tion may consist of a statement in the form of an opinion,

but a statement of this nature is actionable only if it implies

the allegation of undisclosed defamatory facts as the basis

for the opinion.”). Second, substantial truth is a complete

defense to an allegation of defamation. See Pope, 95 F.3d at

613. This rule derives from the “recognition that falsehoods

which do no incremental damage to the plaintiff’s reputation

do not injure the only interest the law of defamation pro-

tects.” Haynes, 8 F.3d at 1228 (emphasis in original). Third,

under Illinois law, publication of defamatory matters in a

report of an official proceeding that deals with a matter of

public concern is privileged as long as the report is accurate

and complete. See Restatement (Second) of Torts § 611

(1977); see also Catalano v. Pechous, 419 N.E.2d 350, 360 (Ill.

1980). Fourth, Illinois law confers a privilege upon “[s]tate-

ments made within a legitimate business context.” Larson

v. Decatur Mem’l Hosp., 602 N.E. 2d 864, 867 (Ill. App. Ct.

1992). Under this rule, “[a] statement is conditionally privi-

leged when the defendant makes it (1) in good faith; (2) with

an interest or duty to be upheld; (3) limited in scope to that

purpose; (4) on a proper occasion; and (5) published in a

proper manner only to proper parties.” Id. (citing Zeinfeld

v. Hayes Freight Lines, Inc., 243 N.E.2d 217, 221 (Ill.

1968)).

Federal constitutional law adds another layer of limita-

tions on the kind of defamatory statements for which a

defendant may be found liable. At common law, defamation

was a strict liability tort, but constitutional doctrine has

imposed culpability, or fault, requirements in most cases.

See New York Times v. Sullivan, 376 U.S. 254 (1964); Gertz v.

Robert Welch, Inc., 418 U.S. 323 (1974). The level of culpa-

bility is determined by whether the statement was of public

concern and whether the plaintiff is a public or private fig-

14 Nos. 04-1098 & 04-1202

ure. Moreover, overlapping with the common law rule, the

First Amendment protects statements on matters of public

concern that are not provably false. See Milkovich, 497 U.S.

1, 20 (1990). For further discussion of various First Amend-

ment limitations to defamation actions see Ronald D.

Rotunda & John E. Nowak, Treatise on Constitutional Law:

Substance and Procedure §§ 20.33-20.35 (2d. ed. 1992).

As important to this appeal as the principles of defamation

is the rule of waiver. “We have long refused to consider argu-

ments that were not presented to the district court in re-

sponse to summary judgment motions.” Arendt v. Vetta Sports,

Inc., 99 F.3d 231, 237 (7th Cir. 1996) (quoting Cooper v.

Lane, 969 F.2d 368, 371 (7th Cir. 1992)); see also Maust v.

Headley, 959 F.2d 644, 650 (7th Cir. 1992); DeValk Lincoln

Mercury v. Ford Motor Co., 811 F.2d 326, 338 (7th Cir. 1987).

Appellate review is not designed to serve as an unsuccessful

party’s second bite at the apple—an opportunity to raise is-

sues and arguments that were not brought forth below. This

is so even when the issue is an element of a plaintiff’s prima

facie case. See Resolution Trust Corp. v. Juergens, 965 F.2d

149, 153 (7th Cir. 1992) (the law of summary judgment “does

not permit a nonmovant defendant to delay pointing out

claimed flaws in the plaintiff’s prima facie case until an ap-

peal is underway”). As we said of waiver in Boyers v. Texaco

Refining and Marketing, Inc.:

It is axiomatic that issues and arguments which were

not raised before the district court cannot be raised for

the first time on appeal . . . . The rule is essential in

order that parties may have the opportunity to offer all

the evidence they believe relevant to the issues . . . [and]

in order that litigants may not be surprised on appeal

by final decision there of issues upon which they have

had no opportunity to introduce evidence. To reverse

the district court on grounds not presented to it would

undermine the essential function of the district court.

Nos. 04-1098 & 04-1202 15

This rule is not meant to be harsh, overly formalistic, or

to punish careless litigators. Rather, the requirement that

parties may raise on appeal only issues which have

been presented to the district court maintains the effi-

ciency, fairness, and integrity of the judicial system for

all parties.

848 F.2d 809, 812 (7th Cir. 1988) (citations and quotations

omitted).

With these principles in mind, we now turn to the state-

ments at issue in this case.

1. Czerewko Letter

To review, the disputed statements in the Czerewko Letter

consist of the following three sentences:

• Recently, another Chain was positioned for exclusivity

and a modified, defaced Zig Zag unit was used. We own

the patent-trademark which has been violated.

• Our Attorneys initiated legal action regarding this

and had to include the Chain in the Trademark-

Patent violation.

Republic asserts that the Czerewko Letter was designed

to persuade Clark to abandon its exclusive deal with Republic,

in favor of a less profitable deal from North Atlantic. Republic

contends that to accomplish this task North Atlantic util-

ized a strategy of attacking Republic’s lower prices, rebates

and travel incentives with slander and threats.

North Atlantic responds that the Czerewko Letter was

sent by a regional sales director to a single customer to pro-

pose a business relationship and express “concerns” about

a competitor’s proposal. North Atlantic contends that the

letter’s statements cannot reasonably be construed as ob-

jectively false and defamatory. Although North Atlantic did

16 Nos. 04-1098 & 04-1202

not have patent rights in the display boxes, the company

did believe that it had rights in those boxes (and indeed, it

pursued a trademark claim below, albeit unsucessfully). Ac-

cording to North Atlantic, the Czerewko Letter simply ex-

pressed an opinion that the company’s legal rights had been

violated.

We disagree with North Atlantic’s characterization of the

Czerewko Letter and with its contention that the letter’s

organization as a list of “concerns” prevents the disputed

statements from being actionable as defamation. As explained

above, prefacing a defamatory statement with the phrase

“in my opinion” does not shield a defendant from liability,

and the same is true for presenting a defamatory statement

under a list of “concerns.” Prefatory language does not control

whether these statements are actionable as defamation;

what matters is whether the assertions included in the

three disputed sentences are verifiably false.

We conclude that they are. These statements cannot be

read as the expression of “a subjective view, an interpreta-

tion, a theory, conjecture, or surmise . . . .” Haynes, 8 F.3d

at 1227. Nor are they mere sales puffery as can be found

elsewhere in the letter (e.g., “Zig Zag is a magical name”).

Rather, Czerewko is claiming to be in possession of objec-

tively verifiable facts that could easily be evaluated in a

defamation suit. Did North Atlantic have trademark rights or

hold a patent in the display boxes? Was this patent or trade-

mark violated? Had legal action been pursed to enforce these

rights? Had another chain been included in the legal action?

A jury could readily answer all of these questions and

thereby verify the truthfulness of Czerewko’s statements.

What is more, the phrasing of these statements in the past

tense makes them all the easier to separate out from

statements expressing the speaker’s subjective view. The

reasonable reader would understand Czerewko to be

informing him of events that have already occurred. While

Nos. 04-1098 & 04-1202 17

it may be difficult in some circumstances to verify or refute

a prediction about the future, it is relatively easy to do so

when describing events that have allegedly occurred in the

past.

In this case, however, it is unnecessary for a jury to exam-

ine the truth of Czerewko’s statements as North Atlantic does

not dispute that the underlying facts are false. That is,

North Atlantic concedes that it had no trademark and held

no patent on the display boxes; and it follows that there was

no patent or trademark violation. Moreover, North Atlantic

admits that at the time that the Czerewko Letter was

written it had filed no lawsuit, so clearly then no other

“chain” had been included in a lawsuit.

Still, North Atlantic urges us to give an innocent construc-

tion to the disputed statements. North Atlantic argues that

we should interpret the sentence mentioning “legal action”

as either true (because the word “action” could mean “activ-

ity” and not just a lawsuit) or nondefamatory (because

simply saying that someone has been sued is not defama-

tory in this litigious day and age). To benefit from the

innocent construction rule, a statement must be reasonably

susceptible to an innocent interpretation. “When a defama-

tory meaning was clearly intended and conveyed, [Illinois

courts] will not strain to interpret allegedly defamatory

words in their mildest and most inoffensive sense in order

to hold them nonlibelous under the innocent construction

rule.” Bryson, 672 N.E.2d at 1217. If we interpret the words

according to the meaning that they were intended to convey

to the reasonable reader, it is clear that they are both false

and defamatory. First, the words “legal action” can only be

intended to mean some sort of lawsuit or official proceeding

and not mere discussion between parties (which is the

interpretation required to render the statement true). It

stretches reason to interpret “legal action” as “any activity

of a lawyer” when it is used in daily parlance to mean a

18 Nos. 04-1098 & 04-1202

lawsuit or legal proceeding. Second, we are unpersuaded by

North Atlantic’s argument that litigation is a fact of life and

that a statement that a corporation has been sued is not, of

itself, defamatory. Even if that were true, the statement

was not simply that Republic had been sued, but it provided

factual detail about Republic’s alleged inappropriate

activity. We also must bear in mind that the Czerewko

Letter was sent to a Republic customer in order to convince

the customer to establish an exclusive relationship with

North Atlantic.

North Atlantic further argues that the district court erred

by granting Republic summary judgment on its defamation

claim without requiring Republic to prove that it was

injured by the statements in the Czerewko Letter. However,

it was unnecessary for Republic to plead and prove special

damages as the allegations in the Czerewko Letter fit into

at least two per se categories—malfeasance or misfeasance

in the performance of an office or a job and unfitness for

one’s profession or trade. That is, the Czerewko Letter

suggests that Republic was involved in improperly defacing

its competitor’s merchandise and conducting its business in

violation of trademark and patent laws. North Atlantic

again contends that it is entitled to an innocent construc-

tion for these statements. However, as we noted in Haynes,

“Illinois courts (and federal courts when interpreting

Illinois law) have been quick to find implications of criminal

conduct or of employee or business misconduct in state-

ments that might have seemed susceptible of an interpreta-

tion that would have taken them out of the per se catego-

ries.” 8 F.3d at 1226. Again, considering the letter’s context

and the words’ natural and obvious meaning, we conclude

that an innocent construction of the Czerewko Letter would

be inappropriate.

Finally, with respect to the Czerewko Letter, North Atlantic

raises the following three issues that were not presented to

Nos. 04-1098 & 04-1202 19

the district court at summary judgment: (1) the Czerewko

Letter did not contain any defamatory statements “of and

concerning” Republic; (2) the district court made no inquiry

into fault; and (3) the Czerewko Letter is privileged as a

statement made within a legitimate business context.

Despite North Atlantic’s vigorous efforts to convince us that

these issues command reversal of the district court’s

judgment, we are unable to consider the arguments related

to any of them because North Atlantic waived them by not

raising them prior to appeal.

2. August 13 Letter

Turning to the August 13 Letter, North Atlantic’s main

contention is that the description of its antitrust claims is

not a statement of fact concerning Republic; rather, it is a

statement of opinion regarding the legality of Republic’s

practices. According to North Atlantic, every lawsuit ex-

presses the plaintiff’s opinion that the defendant’s conduct

has violated the law. An expression of that opinion, North

Atlantic contends, is not actionable as a false and defama-

tory factual statement, regardless of how a court ultimately

resolves the plaintiff’s claims on the merits. North Atlantic

warns of dire consequences if the district court’s ruling is

upheld—suggesting that unsuccessful plaintiffs will become

per se liable for defamation for having alleged incorrectly

that the defendant violated the law and that judicial

proceeding will have to be conducted in secret.

Republic responds that North Atlantic waived this argu-

ment by failing to raise it below. North Atlantic counters

that it “consistently argued that the August 13 letter did

not contain a false statement of fact, and hence was not

actionable, because it accurately summarized the allega-

tions of the Kentucky lawsuit.” Looking to record, we see

that North Atlantic did argue below that the August 13

20 Nos. 04-1098 & 04-1202

Letter did not raise a false statement of fact. However, it did

so by making an argument based on truth. See Memorandum

of Law in Support of Defendant’s Motion for Summary

Judgment at 17-18 (“The statements allegedly attributable

to . . . the August 13 letter accurately summarize the claims

set forth in North Atlantic’s legal pleadings. Accordingly,

the statements are true and non-actionable.”). North

Atlantic is therefore attempting on appeal to recast its

truth defense as an opinion defense. But under Illinois law

truth and opinion are two separate defenses. See Pope, 95

F.3d at 613-14 (listing “substantial truth” and “statement

of opinion” as two separate defenses). We, therefore, agree

with Republic that North Atlantic waived the opinion defense

by failing to raise it below. In any event, North Atlantic’s

position seems akin to a rule that filing a lawsuit provides

blanket protection for one seeking to publicize false facts.

This is a proposition that we, of course, find unsettling.

Moreover, we are unimpressed by North Atlantic’s in

terrorem argument that finding liability here will have the

effect of muzzling litigants, as North Atlantic’s argument

fails to take into account common law and constitutional

defenses that protect parties speaking on matters of

common interest or public concern.

Next, North Atlantic contends that the August 13 Letter

is protected by common law privilege as a description of an

official proceeding. In Illinois, this privilege protects publi-

cations that fairly and accurately report an official action or

proceeding. See Catalano v. Pechous, 419 N.E.2d 350, 360-

61 (Ill. 1980). The district court held this privilege inappli-

cable to the August 13 Letter for two reasons: (1) North

Atlantic made the underlying allegations in the Kentucky

lawsuit, and could not “confer the privilege upon itself”, and

(2) the basis of this privilege is the public’s interest in official

proceedings, and North Atlantic disseminated the information

to its own customers, not the public. In response to the first

Nos. 04-1098 & 04-1202 21

reason, North Atlantic argues that as long as the underly-

ing lawsuit itself is not objectively baseless (designed solely

to immunize otherwise defamatory statements), there is no

reason in law or logic to strip the plaintiff of the privilege.

This is an argument for the modification or extension of

Illinois law, and as a federal court sitting in diversity, we

are obligated to apply Illinois law as announced by the

Illinois Supreme Court. In circumstances where a state

supreme court has not issued a ruling on the issue pre-

sented, “the rulings of the intermediate court control,

unless there is a persuasive indication that the highest

court would decide the issue differently.” Allstate Ins. Co. v.

Keca, 368 F.3d 793, 800 (7th Cir. 2004).

While the Illinois Supreme Court has not directly addressed

whether this privilege may be “self-conferred”—i.e., by filing

a pleading and then reporting on it, we are confident that if

presented with the issue, the Illinois Supreme Court would

determine that the privilege may not be self-conferred. It is

significant in our view that the Illinois Supreme Court has

adopted the official proceeding privilege as expressed in the

Second Restatement § 611. See Catalano, 419 N.E.2d at 360-

61 (abandoning § 611 of the Restatement (First) of Torts and

adopting § 611 of the Restatement (Second) of Torts). The

commentary to the Second Restatement of Torts states:

A person cannot confer this privilege upon himself by

making the original defamatory publication himself and

then reporting to other people what he had stated. This is

true whether the original publication was privileged or

not.

Restatement (Second) of Torts, § 611, comment c (1977).

Given that the Illinois Supreme Court has adopted § 611,

we think it likely that they would follow this commentary

as well. Moreover, our conclusion is bolstered by a ruling

from an Illinois appellate court holding that this privilege

22 Nos. 04-1098 & 04-1202

may not be self-conferred. See Kurczaba v. Pollock, 742

N.E.2d 425, 443 (Ill. App. Ct. 2000) (finding the fair report

privilege not available to defendant who circulated his own

complaint to third parties).

We are unpersuaded by North Atlantic’s arguments that

the Illinois Supreme Court would decide the issue differ-

ently. North Atlantic relies primarily on ADT Co. v. Brink’s

Inc., 380 F.2d 131 (7th Cir. 1967), a case in which this Court

(applying Illinois law) held that a defamation defendant

was entitled to invoke the privilege with respect to state-

ment made in a press release describing a lawsuit against

its competitor. Putting aside any factual differences between

that case and the one before us now, Brink’s was based on

the First Restatement, which did not have language anal-

ogous to comment c of the Second Restatement.4

Next, we address North Atlantic’s contention that the dis-

trict court erred in failing to require Republic to prove fault.

Under Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974),

North Atlantic argues that Republic was obligated to show

at least negligence, and to the extent that this case involves

a matter of public concern, Republic was required to show

actual malice. Republic responds that North Atlantic

waived this argument by not raising it before the district

court. We agree that by failing to point out this alleged

deficiency in Republic’s case prior to appeal North Atlantic

waived this argument.

Finally, North Atlantic contends that the district court

erred by granting summary judgment to Republic without

requiring Republic to prove that it was injured by the

August 13 Letter. As with the Czerewko Letter, the state-

4

The rule against self-conferral renders this privilege inapplica-

ble to the August 13 Letter, and it is therefore unnecessary for us

to address the alternate ground upon which the district court sup-

plied for its decision.

Nos. 04-1098 & 04-1202 23

ments of the August 13 Letter fit comfortably within several

per se categories. North Atlantic accuses Republic of defacing

property and operating its business in violation of federal

and state law. North Atlantic argues that under the inno-

cent construction rule, the August 13 Letter can reasonably

be construed as describing North Atlantic’s good-faith

allegations about the legality of Republic’s conduct. North

Atlantic’s position is beside the point, though, because regard-

less of North Atlantic’s professed intentions, the letter sub-

stantively conveys objectively verifiable facts which can

only be read one way. North Atlantic’s position seeks to

turn the innocent construction rule into a subjective test.

The test is objective: it asks whether there is an objectively

reasonable innocent interpretation of the allegedly defama-

tory statements. In this case, we conclude that there is not.

B. Damages

With respect to the damage awards, North Atlantic argues

that the district court erred in the following three ways: (1)

by allowing the jury to award presumed damages and punitive

damages absent a predicate determination of actual malice;

(2) by refusing to consider whether $3.36 million in pre-

sumed damages is impermissibly “substantial,” and by

allowing Republic to recover that amount; and (3) by permit-

ting Republic to recover punitive damages at all, much less

an award of $4.08 million. We address each argument in

turn.

First, we review de novo North Atlantic’s contention that

the district court committed legal error by allowing Republic

to recover damages without making a predicate determina-

tion of fault. North Atlantic contends that Illinois law requires

a plaintiff to prove actual malice, i.e., knowledge of falsity

or reckless disregard for truth or falsity, to recover either pre-

sumed or punitive damages. North Atlantic’s position has

merit. Indeed, the Illinois Supreme Court has never approved

24 Nos. 04-1098 & 04-1202

the recovery of punitive or presumed damages on less than

actual malice. See, e.g., Babb v. Minder, 806 F.2d 749, 758

(7th Cir. 1986) (“Under Illinois law, . . . only upon a showing

of actual malice may damages be presumed and punitive

damages be awarded.”); Troman v. Wood, 340 N.E.2d 292,

296 (Ill. 1975) (“Only if liability was predicated on actual

malice could punitive damages be awarded or actual damages

be presumed.”). And while the United States Supreme Court

has held that the federal Constitution does not prohibit a

private individual from recovering punitive or presumed

damages upon a showing of less than actual malice when

the statements in question do not involve a matter of public

concern, see Dun & Bradstreet, Inc. v. Greenmoss Builders,

Inc., 472 U.S. 749, 773-74 (1985), the Illinois Supreme Court

has yet to decide, as a matter of state law, whether this

lower threshold of recovery will be permitted.

However, none of this aids North Atlantic. First of all,

North Atlantic waived this argument by failing to propose

a jury instruction requiring a predicate finding of actual

malice for general damages or to object to the court’s in-

struction on that ground. See Fed. R. Civ. P. 51; Gordon v.

Degelman, 29 F.3d 295, 298 (7th Cir. 1994). Furthermore,

while there was no actual malice instruction given for pre-

sumed damages, the court instructed the jury that it could

award punitive damages only if it found that North Atlantic

“knew [its] statements were untrue” or “made the statements

with conscious disregard as to whether they were true or

not.” This standard is at least as strict as the actual malice

standard of knowledge or reckless disregard. Following this

instruction, the jury awarded punitive damages to Republic.

Thus, the jury necessarily found that North Atlantic acted

with “knowledge or conscious disregard” of the statements’

falsity and, a fortiori, that the actual malice standard had

been met.

Second, we consider North Atlantic’s argument that the

district court abused its discretion by allowing Republic to

Nos. 04-1098 & 04-1202 25

recover $3.36 million in presumed damages. Because this is

a case of defamation per se, proof of actual damage was un-

necessary and Republic was entitled to presumed damages.

After a trial on damages, the jury awarded Republic $8.4

million is presumed damages, which the district court later

reduced to $3.36 million. In remitting the award, the district

court explained that it agreed with North Atlantic’s “most

basic argument: $8.4 million is simply excessive given the

evidence of harm in this case.” Republic Tobacco L.P. v.

North Atlantic Trading Co., Inc., No. 98-C-4011, 2003 WL

22794561, at *7 (N.D. Ill. Nov. 23, 2003). We review the dis-

trict court’s remittitur decision for an abuse of discretion.

See McNabola v. Chicago Transit Authority, 10 F.3d 501,

516 (7th Cir. 1993).

North Atlantic contends that under Illinois law an award

of presumed damages may not be “substantial,” see Brown

& Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119,

1142 (7th Cir. 1987); Bloomfield v. Retail Credit Co., 302

N.E.2d 88, 97 (Ill. App. Ct. 1973) (“Substantial damages are

not presumed.”), and that $3.36 million falls into this

impermissible category. By definition, presumed damages

are speculative in nature, and this limitation on presumed

damages protects a defamation defendant from being sub-

jected to an astronomical award based upon a jury’s guess

about the plaintiff’s unproven harm. In Brown & Williamson,

this Court explained Illinois law as requiring, “an appellate

court to give some deference to the jury’s determination of

presumed damages while also considering whether it con-

siders the jury award of presumed damages excessive. If it

finds the award excessive, the court may exercise discretion

and reduce the award to what it considers a more appropri-

ate figure.” 827 F.2d at 1141.

Following this principle, we hold that the district abused

its discretion in allowing $3.36 million in presumed damages.

We conclude that a presumed damages award of $1 million

is more appropriate in this case. Republic failed to identify

any presumed damages award in the history of Illinois law

26 Nos. 04-1098 & 04-1202

remotely in the vicinity of $3.36 million. (In fact, the most

sizeable award identified was the award of $1 million, re-

mitted from $3 million, in Brown & Williamson.) In a case

lacking proof of economic injury5 and where the defamatory

statements were publicized to a relatively limited audience

(North Atlantic’s customers and potential customers), it

would be inappropriate to award presumed damages that

are exponentially greater than have been awarded in past

cases. While we are mindful that under the doctrine of

presumed damages a party is not required to show specific

loss, there must be some meaningful limit on the magnitude

of a jury award when it is arrived at by pure speculation.

Presumed damages serve a compensatory function— when

such an award is given in a substantial amount to a party

who has not demonstrated evidence of concrete loss, it

becomes questionable whether the award is serving a dif-

ferent purpose. An award of $1 million is sizeable enough to

compensate Republic for the damage that we presume was

caused to its reputation in the tobacco industry and the

harm that we presume was done to the business rela-

tionships it cultivated over the years, yet not so substantial

as to be out of line with other presumed damages awards

allowed under Illinois law.

Third, North Atlantic requests that the award of punitive

damages be reversed, arguing that they should not have

been allowed at all, or in the alternative, that the award

should be substantially remitted. We will consider these

arguments separately.

North Atlantic argues that the conduct at issue in this

case does not meet the demanding standard for awarding

punitive damages under Illinois law. In a diversity proceeding,

5

Indeed, the failure to prove economic injury prompted the dis-

trict court to grant North Atlantic summary judgment on Republic’s

tortious-interference claim—a ruling from which Republic has not

cross-appealed, but a cause of action in which this case seems to

most comfortably fit, putting the actual injury requirement aside.

Nos. 04-1098 & 04-1202 27

state law governs whether punitive damages are appropri-

ate. See Ross v. Black & Decker, Inc., 977 F.2d 1178, 1187 (7th

Cir. 1992). Punitive damages are available under Illinois law

upon proof of actual malice. See Brown & Williamson, 827

F.2d at 1142; see also J.I. Case Co. v. McCartin-McAuliffe

Plumbing & Heating, Inc., 516 N.E.2d 260, 263 (Ill. 1987)

(explaining that punitive damages may be awarded when

the defendant acts “with fraud, actual malice, deliberate

violence or oppression, or when the defendant acts willfully,

or with such gross negligence as to indicate a wanton

disregard for the rights of others”). As explained above, the

jury was instructed that in order to award punitive damages

it must find that the defendant acted with “knowledge or

conscious disregard”—a standard stricter than actual malice.

Since this is essentially a sufficiency of the evidence argu-

ment, we ask only whether a rational jury could conclude

that North Atlantic’s statements were made with knowl-

edge or reckless (or conscious) disregard of their falsity. A

rational jury could so conclude. Evidence was presented

that in order to gain a business advantage over its competi-

tor, North Atlantic made statements without regard to their

truth. The nature and timing of the events are probative of

North Atlantic’s willful intent—the combination of the

cutthroat competition that existed between the companies,

the substance of the letters, and the identity of the recipients

supports the conclusion that North Atlantic deliberately

used the letters to harm Republic’s business.

We are more receptive to North Atlantic’s claim that the

amount of punitive damages awarded was excessive. The

jury awarded Republic $10.2 million in punitive damages,

which the trial court remitted to $4.08 million. In a diversity

action, state law governs the factors a jury may consider in

determining the amount of punitive damages, while federal

law governs the district court’s review of the jury award and

appellate review of the district court’s decision. See Black &

Decker, 977 F.2d at 1189. We review the district court’s

determination on the size of the jury verdict for an abuse of

28 Nos. 04-1098 & 04-1202

discretion. Id. Under Illinois law, three factors are particu-

larly relevant in analyzing the amount of a punitive

damages award: “(1) the nature and enormity of the wrong,

(2) the financial status of the defendant, and (3) the potential

liability of the defendant resulting from multiple claims.”

Hardin, Rodriguez & Boivin Anesthesiologists, Ltd. v.

Paradigm Ins. Co., 962 F.2d 628, 640 (7th Cir. 1992) (citing

Hazelwood v. Illinois Central Gulf. Railroad, 450 N.E.2d

1199, 1207 (Ill. 1983)).

We concentrate on the first factor. We generally agree

with the district court’s comprehensive analysis supporting

its decision to remit the jury’s punitive damage award, but,

in view of our discussion of presumed damages above, we

conclude that the district court did not go far enough in re-

mitting the punitive damage award. While evidence supports

the jury’s determination that North Atlantic acted with the

requisite malice to justify punitive damages, the “nature

and enormity of [North Atlantic’s] wrong” does not justify

a $10.2 million award, or even a $4.08 million award. We

therefore further reduce the punitive damage award to $2

million.

C. Antitrust

North Atlantic argues that the district court erred by

concluding that North Atlantic’s antitrust claims had to fail

on the ground that North Atlantic did not establish the

existence of a distinct geographic market. This Court’s re-

view of summary judgment is de novo. See Vision Fin. Group,

Inc. v. Midwest Family Mut. Ins. Co., 355 F.3d 640, 642 (7th

Cir. 2004).

North Atlantic’s antitrust claims included that Republic

(1) entered into unlawful agreements in unreasonable re-

straint of trade in violation of Section 1 of the Sherman Act,

see 15 U.S.C. § 1; (2) acted unlawfully to attempt to monop-

olize and monopolize in violation of Section 2 of the

Sherman Act, see 15 U.S.C. § 2; and (3) entered into unlawful

Nos. 04-1098 & 04-1202 29

exclusive dealing agreements that substantially lessen com-

petition in violation of Section 3 of the Clayton Act, see 15

U.S.C. § 14.

A determination of the relevant market is ordinarily re-

quired for all of North Atlantic’s claims. However, as North

Atlantic argues, there are some circumstances where to

establish a violation of antitrust laws it is unnecessary to

prove that defendant wielded market power in a properly

defined product and geographic market, and may rely in-

stead on direct evidence of anticompetitive effects. See FTC v.

Indiana Fed’n of Dentists, 476 U.S. 447, 460-61 (1986).

Relying on our decision in Toys “R” Us, Inc. v. FTC, 221

F.3d 928 (7th Cir. 2000), North Atlantic argues that this is

such a case. In Toys “R” Us, this Court upheld an Federal

Trade Commission finding that a powerful chain store

owner had coordinated a horizontal agreement among toy

manufacturers to restrict distribution to warehouse clubs.

221 F.3d at 940. Because the FTC had demonstrated that

the boycott organized by Toys “R” Us was having an effect

in the market, the Court held that the FTC did not need to

prove the contours of a distinct geographic market to state

an antitrust claim. See id. at 937; see also Indiana Fed’n of

Dentists, 476 U.S. at 460-61 (holding that, in light of direct

evidence of anticompetitive effects, the FTC did not need to

prove the contours of a distinct geographic market in order

to prove that a group of dentists had violated the antitrust

laws by agreeing not to provide insurers with x-rays when

submitting claims).

North Atlantic’s reliance on Toys “R” Us is misplaced.

Toys “R” Us made very clear that despite the vertical agree-

ments between Toys “R” Us and individual manufacturers,

the conspiracy at issue was horizontal. Horizontal agree-

ments, which have not been alleged in this case, are illegal

per se. Unlike horizontal agreements between competitors,

vertical exclusive distributorships (like in this case) are pre-

sumptively legal. See CDC Techs., Inc. v. IDEXX Labs., Inc.,

186 F.3d 74, 80-81 (2d Cir. 1999). Rather than condemning

30 Nos. 04-1098 & 04-1202

exclusive dealing, courts often approve them because of their

procompetitive benefits. See, e.g., Roland Mach. Co. v. Dresser

Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984) (exclusive deal-

ing eliminates divided loyalties and reduces free riding). In

fact, emphasizing the existence of a horizontal conspiracy,

Toys “R” Us contrasted the situation in that case with the

“typical story of a legitimate vertical transaction” in which

the manufacturer sought exclusivity in exchange for what

it hoped would be more effective promotion of its goods. 221

F.3d at 936. As horizontal agreements are generally more

suspect than vertical agreements, we must be cautious about

importing relaxed standards of proof from horizontal

agreement cases into vertical agreement cases. To do so

might harm competition and frustrate the very goals that

antitrust law seeks to achieve. Cf., e.g., Monsanto Co. v.

Spray-Rite Serv. Corp., 465 U.S. 752, 763-64 (1984) (noting

the dangers of imposing too low a standard of proof in anti-

trust cases); InterVest, Inc. v. Bloomberg, L.P., 340 F.3d 144

(3d Cir. 2003) (citing the “chilling effect on lawful conduct

that would result from the unreasonable interpretation of

evidence”).

Nonetheless, the fact that “direct evidence of anticompe-

titive effects” has not been used outside the context of horizon-

tal agreements does not entirely dispose of North Atlantic’s

argument. It may be that, in a proper case alleging vertical

restraints, a direct anticompetitive effects analysis could be

used to show market power. But this is not that case. North

Atlantic fails to recognize that neither Toys “R” Us nor

Indiana Federation of Dentists allows an antitrust plaintiff

to dispense entirely with market definition. Rather, these

cases stand for the proposition that if a plaintiff can show

the rough contours of a relevant market, and show that the

defendant commands a substantial share of the market,

then direct evidence of anticompetitive effects can establish

Nos. 04-1098 & 04-1202 31

the defendant’s market power6—in lieu of the usual show-

ing of a precisely defined relevant market and a monopoly

market share.

For example, in Indiana Federation of Dentists, there was

no dispute that the product market was, roughly speaking,

dental services; all seemed to agree to “the reality that mar-

kets for dental services tend to be relatively localized”; and

the FTC found “adverse effects on competition in those areas

where IFD dentists predominated.” Ind. Fed’n of Dentists, 476

U.S. at 461 (emphasis added). In other words, there was no

significant dispute about the rough contours of the relevant

market, and the FTC’s findings only applied where the IFD

dentists commanded a substantial market share. Likewise

in Toys “R” Us, the product market (the wholesale toy mar-

ket) was not contested; the geographic market was assumed

to be national; and Toys “R” Us had “20% of the national

wholesale market and up to 49% of some local wholesale

markets.” Toys “R” Us, 221 F.3d at 937. These circumstances

were enough, we held, to allow an inference of market power

from direct evidence of anticompetitive effects.

The situation before us now is entirely different because

of the dispute about the relevant geographic market. Toys

“R” Us and Indiana Federation of Dentists do not excuse

North Atlantic from providing evidentiary support for its

putative Southeast geographic market. Economic analysis

is virtually meaningless if it is entirely unmoored from at

least a rough definition of a product and geographic market.

As we explain below, there is no evidentiary support for the

putative Southeast geographic market. Therefore, North

Atlantic cannot even cross the threshold into a Toys “R” Us-

6

Indeed, even the references to “plaintiff” and “defendant” are ques-

tionable, as both Toys “R” Us and Indiana Federation of Dentists

originated not as private-party civil litigation, but as agency pro-

ceedings before the Federal Trade Commission.

32 Nos. 04-1098 & 04-1202

style proof of market power through direct evidence of

anticompetitive effects.

Thus, because North Atlantic can draw no support from

Toys “R” Us or Indiana Fed’n of Dentists, and exclusive deal-

ing arrangements violate antitrust laws only when they

foreclose competition in a substantial share of the line of

commerce at issue, see Tampa Electric Co. v. Nashville Coal

Co., 365 U.S. 320, 320-27 (1961), North Atlantic must pre-

cisely establish a relevant market. The relevant market has

both a product and a geographic dimension. See Brown Shoe

Co. v. United States, 370 U.S. 294, 324 (1962). The parties

agree that the relevant product market is the market for

premium RYO cigarette papers. The relevant geographic

market, however, is disputed. North Atlantic contends that

the market is limited to the Southeast region of the United

States, which it defines as Alabama, Florida, Georgia,

Kentucky, Mississippi, North Carolina, South Carolina,

Tennessee, and Virginia. Republic counters that the relevant

market is nationwide and that North Atlantic has failed to

establish sufficient facts to demonstrate that the nine states

that make up the so-called Southeast are in fact a relevant

market.

Identifying a geographic market requires both, “careful

selection of the market area in which the seller operates,

and to which the purchaser can practicably turn for sup-

plies.” Tampa Electric, 365 U.S. at 327. Applying the two-

part test to this case, the district court concluded that the

only possible market supported by the evidence is national,

and that it was therefore unnecessary to present the ques-

tion to a jury. We agree.

With respect to the first prong, it is undisputed that North

Atlantic, Republic, and their competitors operate nationally

and sell to wholesale customers all over the United States.

All three of the top suppliers (North Atlantic, Republic and

RBA) publish national price lists.

Nos. 04-1098 & 04-1202 33

With respect to the second prong, Republic presented

unrebutted evidence that distributors and wholesalers can

practicably (and in fact do) turn to suppliers across the

nation for RYO cigarette paper. Before the district court,

North Atlantic argued that the relevant purchasers were

indirect customers (i.e., retailers and consumers) rather

than the direct customers (i.e., distributors and wholesal-

ers)—a position the district court rejected and that North

Atlantic does not explicitly now reassert. Rather, North

Atlantic contends on appeal that Republic’s sales contracts

(which included restrictions on buying or selling Republic’s

product to or from other wholesalers) made it impossible for

wholesalers to turn to outside suppliers for Republic’s

products outside of their region. This argument puts the

cart before the horse—contracts represent transactions that

have occurred within the market. The question of what

transactions have occurred in the market is subsequent to

and therefore irrelevant to the definition of the market

itself.

Additionally, North Atlantic argues that as a result of

barriers to entry caused by “transportation costs and the

realities of the market,” wholesalers outside the Southeast

are not well-positioned to enter the region to sell competing

product. Even if this convenience-based argument could

meet the Tampa Electric standard of practicability, this

argument (and to some extent the argument previously

discussed) reverts to the position advanced at the district

court that consumers and retailers are the “purchasers” for

purposes of the geographic analysis. This is wrong because

Republic and North Atlantic do not sell cigarette papers to

retailers and consumers. They sell to distributors and

wholesalers. Accordingly, the evidence presented regarding

where wholesalers can practicably sell their products (or in

other words, where customers and retailers practicably turn

for alternative sources of RYO paper) is beside the point

when it comes to market definition. Thus, the primary defect

34 Nos. 04-1098 & 04-1202

in North Atlantic’s geographic argument remains— North

Atlantic has not identified any evidence presented at trial

indicating that wholesalers and distributors in the South-

east because of market forces were only able to turn to

suppliers in that region.

This conclusion is hardly surprising, as tobacco products

generally have been found to have national markets. See,

e.g., FTC v. Swedish Match, 131 F. Supp. 2d 151, 166 (D.D.C.

2000) (loose leaf chewing tobacco); R.J. Reynolds Tobacco Co.

v. Philip Morris Inc., 60 F. Supp. 2d 502, 504 (M.D.N.C.

1999) (cigarettes).

As there is no genuine issue that the relevant geographic

market in this case is a national market, and North Atlantic

does not argue that Republic has a monopoly or has attempted

to monopolize in the national market, summary judgment

was appropriately granted on all of North Atlantic’s anti-

trust claims.

D. Cross-Appeal

On cross-appeal, Republic challenges “the longstanding

rule that a plaintiff in a federal court . . . may not appeal

from a remittitur order he has accepted.” Donovan v. Penn

Shipping Co., Inc., 429 U.S. 648, 650 (1977). An order that

offers a choice between a remitted award and a new trial is

not a final decision, and if a plaintiff agrees to accept the

reduced judgment in the trial court, that plaintiff may not

later argue that the jury’s verdict should be reinstated on

appeal. Id. However, if the plaintiff declines to accept the

reduced award, no appeal may be taken until after a new

trial. See Ash v. Georgia-Pacific Corp., 957 F.2d 432, 437 (7th

Cir. 1992). Because Republic accepted the remittitur here,

instead of facing a second trial, it cannot challenge the

remittitur. See id. at 437-38.

Nos. 04-1098 & 04-1202 35

However, Republic contends that Ash allows for a third

option for successful plaintiffs facing remittitur—stipulat-

ing that a second trial would result in entry of judgment in

the amount equal to the remitted award and appeal the

remittitur based on that stipulation—and the district court

erred in refusing to allow Republic to pursue this course.

Republic argues that absent this option, in order to obtain

appellate review of a remittitur, a successful plaintiff must

undertake a seemingly endless series of new trials—until

one jury produces a verdict that squares with the trial judge’s

view of an appropriate verdict. We disagree with Republic’s

reading of Ash. Ash suggests that a plaintiff may expedite

appeal by taking “a pratfall” on a new trial, meaning that

the plaintiff can accept defeat in the second trial by failing

to put up a real fight and then appeal seeking reinstate-

ment of the first jury’s verdict. Ash explained that if a

plaintiff “cannot afford the same elaborate presentation it

mustered the first time, or if the absence of witnesses . . .

undermines the case, then [the plaintiff] may do poorly—

but it has the first verdict to fall back on. A party electing

the new-trial branch of the remittitur option may take a prat-

fall as quickly as it pleases, and thus expedite the appeal.”

Id. at 438. Nowhere does Ash suggest that the Donovan

may be completely circumvented by simply stipulating that

a second trial would result in a judgment equal to the re-

mitted award. We therefore reject Republic’s invitation to

sanction such a procedure.

III. Conclusion

For the reasons given in this opinion, we AFFIRM the dis-

trict court’s grant of summary judgment to Republic on its

defamation claim and North Atlantic’s antitrust claims. We

AFFIRM the district court’s decision with respect to Repub-

lic’s cross-appeal. We VACATE the district court’s remitted

36 Nos. 04-1098 & 04-1202

damages award and order entry of judgment for $1 million

in presumed damages and $2 million in punitive damages.

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—9-1-04