# Appendix — Continental TV, Inc. v. GTE Sylvania Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0242%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1977 - **Citation:** 433 U.S. 36 ## Text Supreme Court, y S. FiLRPp JOINT APPENDIX ~~ © 3% MICHAEL RODAK, JR., CLERK | Iu the Supreme Court OF THE Anited States —_—_—-— -——— - OcToBEeR TERM, 1976 No. 76-15 ConTINENTAL T.V., Inc., A & G Sa.es, SYLPAC, Inc. and S.A.M. Inpustries, Inc., Petitioners, vs. GTE Syivanta Incorporated, Respondent. Cea On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit Petition for Certiorari Filed July 8, 1976 Certiorari Granted October 18, 1976 PERNAU - WALSH PRINTING CO. - 562 MISSION STREET - SAN FRANCISCO, CA 04108 — Rees = JOINT APPENDIX In the Supreme Court OF THE Anited States OcToBER TERM, 1976 No. 76-15 ConTINENTAL T.V., INc., A & G Sates, Syupac, Inc. and 8.A.M. [npustrigs, INc., Petitioners, vs. GTE Sytvania INCORPORATED, Respondent. On Writ of Certiorari to the United States Court of Appeals for the Ninth Circuit Petition for Certiorari Filed July 8, 1976 Certiorari Granted October 18, 1976 Subject Index Page AE» 54 nbidadkcan ons weeds tate 6ekes ce08 vex 1 Sylvania’s Requested Jury Instructions .................. 5 I ee eo ecde oteceetes 18 ee ne TI, ie cidbc Ba ois cvcdoneedbecnecds 28 We I IED 64 coon scbatocccecesctcanns 28 Testimony of John T. Morgan ............-+--+000- 116 Testimony of Donald E. Carroll .................... 140 Testimony of Calvin Savage ...............0eeeeeees 209 Testimony of Kenneth C. Lopolito .................. 223 Testimony of James W. Hines ...................... 266 Temtamamy Gf Tratmee 6. BGR ....ccccccccaccaccccncs 287 Testimony of George N. Shahood .................... 293 Testimony of Richard N. Sanford ................... 358 BOM GE THUG Ge SUED owes tv cccccccccvestces 361 Testimony of Ray J. Steiner .:..........cccccccccees 362 Testimony of Donald E. Pedlow ..................... 378 Testimony of William E. Bows ...............eeeeee. 379 Testimony of Lee E. Preston, Jr. .............2+-00: 401 Testimony of Thomas D. Rivers ..................... 474 EY GE Te IED oc chs ccccncecdécecedcoess 476 Se Se ME iid ois sc bvndccccotccickséicas 478 BS TINUE NP I once cctcccccccdsccecescsces 480 Argument on Post-Trial Motions ....................000- 493 Verdict, Judgment and Notice of Appeal ................. 497 1 DOCKET ENTRIES Document , Entry Complaint filed by John P. Maguire & Co., Ine. v. Continental T. V., Ine.; A & G Sales, Inc.; SYL-PAC, Inc.; JOHN DOE CO.; George N. Shahood and Margaritha H. Shahood, defend- ants; summons issued; writ of attach- ment issued October 12, 1965 Answer filed by defendants Continental T. V., Inc, A & G Sales, Ince., Sylpac, Inc., S.A.M. Industries (sued as John Doe Co.), George N. Shahood and Margaritha H. Shahood; counter- claim and cross-claim filed by Con- tinental T. V., Inc. A & G Sales, Sylpac, Inc. and S.A.M. Industries against John P. Maguire & Co., Inc. and Sylvania Electrie Products, Ine. November 22, 1965 Order filed that Sylvania Electric Products, Inc. be made a defendant to the cross-claim and that summons be served December 6, 1965 Undertaking on Attachment (claim and delivery) filed in the sum of $155,- 138.66; return on executed attach- ments (claim and delivery) filed; undertaking for release of attach- ment in the sum of $95,000 filed by defendants January 11, 1966 Reply of J. P. Maguire & Co., Ine. to counter-claim filed January 25, 1966 Stipulation and Order filed dropping parties, adding a party and allowing the filing of an amended cross-claim March 4, 1966 Defendants and Cross-complainants’ de- mand for jury trial filed April 8, 1965 Document Answer of cross-defendants, John P. Maguire & Co., Inc. and Sylvania Electrie Products, Inc. to cross-claim filed Notice of Motion and Motion by John P. Maguire & Co., Ine. and Sylvania Electric Products, Inc. for Summary Judgment (or Partial Summary Judgment) filed Cross-claimants’ Memorandum of Points and Authorities in Opposition to Cross-defendants’ Motion for Sum- mary Judgment (or Partial Sum- mary Judgment) filed, with Exhibits attached Conference held before Justice Tom C. Clark, Case ordered for Pre-trial July 20, 1970 and for Jury Trial September 21, 1970 Pre-Trial Order No. 2 filed (Justice Tom C. Clark) Seconded Amended Cross-claim for re- straint of trade and damage to busi- ness and property filed by cross- claimants, Continental T. V., Inc., A & G Sales, Sylpae, Ine. and S.A.M. Industries, Ine. Pre-Trial Conference held and trial on cross-claims set for September 21, 1970 (Justice Tom C. Clark) Order filed denying Motion for Sum- mary Judgment (or Partial Sum- mary Judgment) by John P. Maguire & Co., Inc. and Sylvania Electric Products, Ine. April 22, 1966 April 30, 1970 June 1, 1970 June 23, 1970 Juiy 15, 1970 July 16, 1970 July 20, 1970 July 29, 1970 Document Answer filed by cross-defendants John P. Maguire & Co., Ine. and Sylvania Electric Products, Ine. to Second Amended Cross-claim Jury Verdict Returned and filed Cross-defendants’ Notice of Motion and Motion for Judgment notwithstand- ing the verdict, or in the alternative for a new trial filed Cross-claimants’ Notice of Motion and Motion for Findings of Fact and Conclusions of Law respecting equi- table relief claimed filed Judgment entered, filed December 11, 1970, pursuant to Jury Verdict, that cross-claimants have and recover from cross-defendant Sylvania Electric Products, Inc., the sum of $1,774,- 515.00; said sum being the verdict of the Jury trebled as a matter of law, plus $18,000 costs, together with interest on said sums at 7% per annum from date of entry of judg- ment Order filed denying cross-defendant’s motion for judgment notwithstanding the verdict and for a new trial; Find- ings of Fact and Conclusions of Law filed Notice of Appeal from designated por- tions of judgment filed by cross defendant Sylvania Electric Prod- ucts, Ine. Record on Appeal transmitted to the United States Court of Appeals for the Ninth Circuit August 28, 1970 November 6, 1970 November 16, 1970 November 24, 1970 December 18, 1970 February 16, 1971 March 2, 1971 April 9, 1971 Document Judgment of the United States Court of Appeals for the Ninth Circuit pursuant to Rule 36 of the Federal Rules of Appellate Procedure entered affirming the judgment of the United States District Court Opinion of the United States Court of Appeals for the Ninth Circuit filed Corrected order of the United States Court of Appeals for the Ninth Cir- euit filed withdrawing the majority and dissenting opinions filed on May 9, 1974 and setting the case for rehearing en bane Opinion of the United States Court of Appeals for the Ninth Cireuit filed, after rehearing en bane, reversing the judgment of the United States Dis- trict Court and remanding for a new trial Mandate of the United States Court of Appeals for the Ninth Circuit revers- ing the judgment entered in the United States District Court and remanding for new trial filed Petition for Certiorari to the United States Court of Appeals for the Ninth _Cireuit filed in the Supreme Court of the United States by petitioners, Continental T. V., Inc., A & G Sales, Sylpac, Ine. and S.A.M. Industries, Ine. Petition for Writ of Certiorari to the United States Court of Appeals for the Ninth Cireuit granted by the Supreme Court of the United States May 9, 1974 May 10, 1974 December 19, 1974 April 9, 1976 May 4, 1976 July 8, 1976 October 18, 1976 5 SYLVANIA’S REQUESTED JURY INSTRUCTIONS (Citations Are To Clerk’s Transcript (CT) ) [1157] Sytvanta AND MaGutmre’s REQUESTED JuRY INSTRUCTION No. 29 (REVISED) If you find that any action taken by Sylvania with respect to new locations or territories was not pur- suant to any contract, combination or conspiracy as I have defined those terms, but was simply the uni- lateral exercise by Sylvania of its own policies with respect to franchising of dealer locations, then you must find that there has been no violation of the antitrust laws and you must bring in your verdict for Sylvania and Maguire with respect to Continen- tal’s antitrust claims. If, on the other hand, you determine, in accordance with my previous instruc- tions, that there was a contract, combination or con- spiracy between Sylvania and some other party designed to achieve or enforce sales distribution re- strictions on dealer locations, you should then proceed to consider whether such locations practice is lawful or unlawful under the instruction I will now give you. If, in accordance with my previous instructions, you find that Sylvania and some other person or per- sons engaged in a contract, combination or conspiracy to establish or enforce sales distribution restrictions on locav.ons of Sylvania dealers, then you must con- sider whether or not such restrictions constitute an unreasonable restraint of competition and trade in the Northern California or Sacramento market for television products. If they do constitute such an unreasonable restraint of competition, then the prac- 6 tice would be unlawful; if not, then whatever your finding on the contract, combination or conspiracy [1158] issue, you must find that the practices are not unlawful. In this connection you should understand once again that the purpose of the antitrust laws is to promote competition, but not to strike down every conceivable contract or joint enterprise which might have some restraining effect on competition or trade. Every agreement concerning trade to some extent restrains. But the true test of legality is whether the restraint imposed is such as really regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To de- termine that question you must consider the facts peculiar to the business to which the restraint is applied, its condition before and after the restraint was imposed, the nature of the restraint and its effect, actual or probable, the history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, and the purpose or end sought to be obtained. Thus, it is that the antitrust laws pro- hibit only those restraints of trade which unreason- ably restrict or suppress competition. Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918) (Brandeis, J.) Standard Oil Co. v. United States, 221 U.S. 1 59-62 (1911) Given: a GE Ae erie Pe STE OA Lap a Le Given as Modified : United States District Judge 7 [1159] Syivanta AND MaGuIRE’s RequesteD Jury Insrruction No. 30 (REVISED) In determining the question of the reasonableness or the unreasonableness of the challenged location practice, you should understand that the antitrust laws specifically recognize the right of a manufac- turer, such as Sylvania, which does not dominate a particular market, to actually agree with a particular dealer not to authorize sales of the manufacturer’s products by another dealer from locations within the territory served by the first dealer. Therefore, with- out in any way intimating whether such an agreement exists in this case, I instruct you that if you were to find that Sylvania did agree, whether explicitly or tacitly, with a dealer, such as Handy Andy, not to franchise or permit the sale of television products vy another dealer, such as Continental, in the area served by the first dealer, ie., Sacramento, such an agreement would be a reasonable restraint of trade, and Sylvania would also be entitled to take any steps reasonably uccessary to fulfill the commitment that it had made pursuant to such an agreement, if any, even if this meant keeping Continental out of the Sacramento market. Therefore, if the evidence shows nothing more than such an agreement between Sylvania and Handy Andy and steps taken by Syl- vania to fulfill its commitments under that agreement, you must find that the challenged locations practice [1160] does not violate the antitrust laws. Re ARAB Rh Oe UES ARS Refused: Given as Modified : United States District Judge 8 Joseph E. Seagram & Sons, Inc. v. Hawatian Oke and Liquors, 416 F.2d 71 (9th Cir. 1969) Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418 (D.C. Cir. 1957) U.S. v. Arnold Schwinn & Co., 388 U.S. 365 (1967) Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir. 1963) Top-All Varieties, Inc. v. Hallmark Cards, Inc., 1969 Trade Cas. 172,850 (S.D. N.Y. 1969) [1269] SyLvAaNnra AND MAGuIRE’s REQUESTED J URY INstRUCTION No. 30C [ RepLaces 30B] Furthermore, in evaluating the question of whether or not the challenged location practice unreasonably restrains competition, you should also understand that under the antitrust laws it is lawful for a manufac- turer, in franchising a particular dealer or dealers to be retail dealers in the manufacturer’s products, to designate the location or locations of the place or places of business for which said dealer or dealers are franchised. It is also lawful for the manufacturer to decline or refuse to grant a dealer’s request for a franchise at a different location. Given: Refused : ae Given as Modified: United States District Judge — U.S. v. Arnold, Schwinn & Co., 291 F.Supp. 564, 565-66 (N.D. Ill. 1967) 9 [1161] Syivania AND MAGUIRE’s REQUESTED JurRY INstTRUCTION No. 31 (REVISED) Therefore, if you find a contract, combination or conspiracy to establish or enforce sales distribution restrictions on locations at which Continental and/or other dealers may sell products, you must further resolve the question of whether such contract, com- bination or conspiracy, if any, unreasonably or un- duly restrained or suppressed competition or the free flow of commerce in the Northern California or Sac- ramento markets for television products. In resolving this question, it is proper for you to consider, to the extent justified by the evidence, various factors re- lating to the purpose, operation and effects of such practices. Thus, if such restrictions on locations, if any, had the effect of eliminating all competition among Sylvania dealers so that a potential Sylvania customer would have no choice of dealers from which to purchase television products, this fact would tend to show that the practice unreasonably restrained competition unless such suppression of intrabrand competition were, in your judgment, outweighed by benefits, if any, to interbrand competition. On the other hand, if the practices merely had the effect of reducing, but not eliminating, competition between Sylvania dealers without prohibiting such dealers from selling in territoxies more proximate to other dealers aud thereby allowing customers reasonable alternatives between Sylvania dealers, this factor would tend to show that the practice did not unrea- sonably restrain or injure competition, particularly if such practice was adopted for the legitimate pur- 10 pose [1162] of increasing Sylvania’s competitive strength against other manufacturers of television products. Other factors which would tend to support a find- ing of an unreasonable restraint on competition would be a showing that in the general markets for tele- vision products in Northern California or Sacra- mento the restrictions on location of Sylvania’s deal- ers resulted in a subsiantial lessening of the number of television outlets and brands available to cus- tomers in such markets, or in a materially significant lessening of competition among retail television deal- ers in such markets, or in a substantial foreclosure of the number of retail outlets available to other manufacturers, or in a substantial lessening of the number of television sets available to customers in such markets, or in a deterioration in quality of tele- vision products available in such markets, or in an artificially high price level for television products in such markets. Further facts might be a showing that the practice was part of an effort to drive out products of competing television manufacturers from such markets, or a showing that Sylvania’s adoption of such practices was not motivated by any legitimate business purposes; or a showing that the practices were initiated, not by Sylvania, but by dealers and that dealers participated in Sylvania’s decisions con- cerning franchising of locations of other dealers; or a showing that Sylvania was adominant manufacturer in the sale of television products in said markets and that the purpose or effect of such practice was to increase such market domination. 11 On the other hand, factors which would tend to [1163] support a finding that Continental had not proved an unreasonable restraint on competition would include a showing that the practice was adopted to serve legitimate business purposes, and particularly to increase Sylvania’s strength as a competitor in such markets against other manufacturers of tele- vision products; a showing that Sylvania alone adopted any such locations restrictions and at all times acted unilaterally and without dealer consul- tation or participation with a dealer in deciding whether to franchise additional locations; and a show- ing that Sylvania did not have a dominant share of any of the markets involved. Further facts might be the failure of Continental to show that such prac- tice was adopted or resulted in the driving out of competitors or resulted in a substantial foreclosure of retail outlets for television manufacturers, or a failure to show a substantially restricted number of television brands and outlets available toe customers in the market or the number of television sets avail- ablt to such customers, or a failure to show materially reduced existing competition among retail dealers in such areas, or a failure to show a resulting deteriora- tion in quality of television products on such market or an artificially high price in such market. No single one of the above factors is necessarily conclusive. You may properly consider all of them, to the extent justified by the evidence, in resolving the ultimate question of, assuming joint implementa- tion under previous instructions, whether Sylvania’s 12 locations practice unreasonably and unduly restrained competition in the free flow of commerce in the mar- kets involved. You should understand, [1164] how- ever, that in resolving this question, it is not enough for Continental to show simply a substantial restric- tion, if any there be, in competition solely in the sale of Sylvania television products. Rather, since Sylvania’s television products were readily inter- changeable with other television products in the area, you should apply the factors I have previously men- tioned to the general market for television products as a whole (that is to say, all brands) in the particu- lar areas I have mentioned to you and you should decide whether such general competition in those markets has been unreasonably restrained as a result of the challenged practices. eee ee ee Refused: Given as Modified: 00. United States District Judge [1270] SyLVANIA AND MaGuire’s REQUESTED Jury INstrRucTION No. 31C Therefore, if you find a contract, combination or conspiracy to establish or enforce sales distribution restrictions on locations at which Continental and/or other dealers may sell products, you must further resolve the question of whether such contract, com- 13 bination or conspiracy, if any, unreasonably restrained or suppressed competition or the free flow of com- merce in 1964 and 1965 in the Northern California or Sacramento markets for television products. You should consider such factors as whether or not the practice eliminated or unreasonably impaired com- petition among Sylvania dealers, whether or not any limitation on competition among Sylvania dealers, had a substantial adverse effect on competition among retail television dealers in general or among manufac- turers of television products, whether or not the prac- tice significantly impaired or restricted the amount, variety or quality of television outlets or television products available to consumers in these markets. You should also consider any benefits to competition which may result from the challenged practice, and also whether or not the practice was adopted as a reasonable means of achieving any legitimate business purposes. In this connection you should understand that if, in view of all the circum- stances, it is found that a practice unreasonably re- strains competition in the market place, such a practice would be unlawful even if there were good business reasons to adopt it. However, the presence or absence of legitimate business purposes is one of the factors you should consider, along with all other relevant factors, in determining whether the practice does constitute an [1271] unreasonable restraint on competition. No single one of the above factors is necessarily conclusive. You may properly consider all of them, to the extent justified by the evidence, in resolving the 14 ultimate question of, assuming joint implementation under previous instructions, whether Sylvania’s loca- tions practice unreasonably and unduly restrained competition in the free flow of commerce in the mar- kets involved. Given: Refused: Given as Modified: United States District Judge See Boro Hall Corp. v. General Motors Corp., 124 F.2d 822 (2nd Cir. 1942); Packard Motor Car Co. v. Webster Motor Car Co., 243 F2d 418 (D.C. Cir. 1957); Schwing Motor Co, v. Hudson Sales Corp., 138 F.Supp. 899 (D. Maryland), aff’d. per curiam, 239 F.2d 176 (4th Cir. 1956); Top-All Varieties, Inc. v. Hallmark Cards, Inc., 5 CCH 1969 Trade Cases 172,850 (S.D.N.Y. 1969); Potter’s Photographic Ap- plications Co., Inc, v. Ealing Corp., 292 F.Supp. 92, 102% (E.D.N.Y. 1968) ; L.S. Good & Co. v. H. Daroff & Sons, Inc., 279 F.Supp. 925 (D.W.Va. 1968) ; Peer- less Dental Supply Co. Inc. v. Weber Dental Manu- facturing Co., 283 F.Supp. 288 (E.D.Pa. 1968). [1272] SyLvania AND MaGuIRe’s ~ Requestep Jury Instruction No. 31D You should understand that in resolving the ques- tion of whether (assuming there is a contract, com- bination or conspiracy) Sylvania’s locations practice unreasonably restrained competition, it is not enough 15 for Continental to show simply a substantial restric- tion, if any there be, on competition solely in the sale of Sylvania television products. Rather, since Syl- vania’s television products were readily interchange- able with other television products in the area, you should apply the factors 1 have previously mentioned to the general market for television products as a whole (that is to say, ali brands) in the particular areas I have mentioned to you, and you should decide whether in 1964 and 1965 such general competition in those markets was unreasonably restrained as a result of the challenged practices, Ee SE Are Pee Refused: mm" Given as Modified: WW. —....... United States District Judge Packard Motor Car Co. v. Wedster Motor Car Co., 243 F.2d 418 (D.C. Cir. 1957); Top-All Varieties, Inc. v. Hallmark Cards, Inc., 5 CCH 1969 Trade Cases 172,859 (S.D.N.Y. 1969); Beckman v. Walter Kidde & Co., Inc., 1970 CCH Trade Cases 173,347 (E.D.N.Y. September 22, 1970) [1299] SyLvania AND MaaquiRre’s Requestep Jury Instruction No. 61 Note. This instruction is tendered for use only if the Court decides to instruct the jury on the theory that a restriction on the locations at which merchandise may be sold falls within the rule 16 of per se illegality enunciated in U.S. v. Arnold, Schwinn & Co., 388 U.S. 365 (1967) and is not governed by the “rule of reason.” If you find by a preponderance of the evidence that Sylvania entered into a contract, combination or con- spiracy to establish or enforce sales distribution re- strictions which prevented dealers from selling mer- chandise, owned by them, at any store or location in which they chose to sell it, unless you find that such practice was justified under the instructions I am about to give you, you must find that Sylvania vio- lated §1 of the Sherman Act. However, you should understand that under the antitrust laws it is lawful for a manufacturer, in franchising a particular dealer or dealers to be retail dealers in the manufacturer’s products, to designate the location or locations of the place or places of business for which said dealer or dealers are fran- chised. It is also lawful for the manufacturer to de- cline or refuse to grant a dealer’s request for a fran- chise at different or additional locations. Therefore, in order to find that Sylvania has violated the anti- trust laws it is not enough to find a contract, combi- nation or conspiracy under which Sylvania restricted the locations at which dealers were franchised to act and hold themselves out as authorized dealers in Sylvania products. In order to find for Continental, you must find that Sylvania engaged in a contract, combination or conspiracy to establish or enforce sales distribution restrictions which [1300] prevented deal- ers from moving merchandise, owned by them, to 17 non-franchised locations, or from selling such mer- chandise at non-franchised locations. If you find such a contract, combination or con- spiracy to restrain movement or sale of merchandise, such a practice would be presumptively unlawful. However, before you can find it to be a violation of the antitrust laws, you must consider whether it was justified, In this case, such a restriction would be justified if Sylvania has proved by a preponderance of the evidence that the adoption of such a restriction was reasonably necessary to enable Sylvania to re- main in the television business or to enable it to in- crease the strength and effectiveness of its competitive efforts in the television industry. If you find that such justification has been shown, you should find that Sylvania and Maguire have not violated the antitrust laws. If you find that Sylvania has not proved such a justification by a preponderance of the evidence, and if you find the existence of a con- tract, combination or conspiracy to restrict movement or sale of merchandise, as I have defined it above, then you should find that Sylvania has violated the antitrust laws. (aE Say Ee ere Given as Modified: .... . United States District Judge U.S. v. Arnold, Schwinn & Co., 388 U.S. 365 (1967) 18 [1301] Federal Trade Commission Staff Re- port on Franchising, at 30 (December, 1969) (See discussion in Sylvania and Maguire’s Memorandum at pages 16-17) ; U.S. v. Arnold Schwinn & Co., 291 F.Supp. 064, 565-66 (N.D. Ill. 1967) DOCUMENTARY EVIDENCE Pltfs. Ex. 3 SyLvaAnra Evectric Propucts Inc. Home & CoMMeERcIAL ELEcTRONICS DrtvisIon This Agreement made the 19 day of March, 1964 between Sylvania Electric Products Inec., Home & Commercial Electronics Division, 700 Ellicott Street, Batavia, New York, a corporation organized and ex- isting under the laws of the State of Delaware (here- inafter referred to as “Sylvania”), and Continental TV, Inc. (Hereinafter referred to as “Dealer”), WITNESSETH: In consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. Sylvania is pleased to appoint Dealer as an authorized Sylvania dealer of television receivers, stereo high fidelity reproducers and radios bearing the trademark “Sylvania” offered for sale by Sylvania from time to time during the term hereof and in- tended for home entertainment uses (hereinafter “merchandise”). 2. Sylvania will endeavor at all times to: (a) provide the finest merchandise which will of- fer dealer a fair profit opportunity ; 19 (b) present strong and energetic merchandising programs ; (c) provide franchised Dealers maximum sales potential. 3. Dealer agrees to maintain an adequate stock and representative display of merchandise. Dealer fur- ther agrees to maintain an adequate inventory of mer- chandise and to promote vigorously and effectively the sale of merchandise. 4. Dealer agrees to maintain and render at Deal- er’s expense proper installation and service on mer- chandise in accordance with the installation standards and service policies established by Sylvania from time to time, 5. Dealer agrees to abide by advertising and pro- motional policies as from time to time established by Sylvania. 6. Sylvania shall not be liable for failure to ship any merchandise in any accepted order becaus of reasons beyond its control including but not limiud to strikes, differences with workmen, accidents, fires, shutdown of its manufacturing plants or plants sup- plying it, governmental orders, riots, floods, acts of God, embargoes, inability to secure transportation facilities or contingencies arising out of or due to national defense activities, war or emergency con- ditions. Delivery of part of an order does not obligate Sylvania to make further deliveries, and Sylvania 20 reserves the right to reject any order in whole or in part. Sylvania also reserves the right to allocate its inventories and current production in any way deemed by it to be desirable. 7. Dealer agrees to mail and render to Cylvania on and in accord with forms and instructions provided by Sylvania, all such reports, periodical or otherwise, of stocks, sales, and such other pertinent information relative to Dealer’s inventory of merchandise pur- chased from Sylvania as Sylvania may from time to time request. 8. Dealer agrees to use trademarks or trade names of Sylvania in advertisements, letterheads, or other- wise only as may be approved by Sylvania from time to time in writing, but Dealer shall acquire no rights under this agreement in any such trademarks or trade names, and Dealer, upon termination of this agree ment further agrees simultaneously therewith to dis- continue all uses of such trademarks and trade names. Dealer, for the duration of this agreement and thereafter will do nothing that will in any way in- fringe, impeach or lessen the value of the patents, trademarks or trade names under which any of such merchandise is sold, or do anything that will tend to prejudice the reputation or sale of any such mer- chandise. 9. During the term hereof the relationship be- tween Sylvania and Dealer is solely that of vendor and vendee ; the Dealer, its agents and employees shall, under no circumstances be deemed agents or repre- 21 sentatives of Sylvania for any purpose whatsoever and Dealer shall have no right to enter into any contracts or commitments in the name of, or on behalf of, Sylvania, or bind Sylvania in any respect whatsoever. 10. This agreement is executed in and shall be in- terpreted according to the laws of the State of New York. 11. This agreement contains the full agreement between the parties, and Dealer and Sylvania declare and agree that there are no other terms or conditions, representations or understandings except those set forth in this agreement. 12. Terms of sale are net thirty (30) days. The Dealer agrees to mail to Sylvania’s Credit De- partment, financial statements and information from time to time as required by the latter. Sylvania re- serves the right at all times, either generally or with respect to any specific order by the Dealer, to vary, change or limit the amount or duration of credit to be allowed the Deaier. 13. This agreement shall continue in force from the date hereof until terminated for any reason what- soever by either party hereto upon ten (10) days written notice to the other. In the event of cancella- tion of this agreement, Sylvania is hereby granted the option to repurchase any unsold merchandise in Dealer’s inventory at Dealer’s invoice price. 14. With respect to all merchandise purchased by the Dealer from Sylvania hereunder, the Dealer agrees that, upon the release thereof, it will deliver 22 23 therewith such printed warranties or guarantees with Deft. Exhibit C respect to such merchandise as shall be furnished by D.STRICT SECTION I Sylvania to the Dealer for that purpose. The Dealer Tore on Sawxtee Naw Accounts further agrees that Sylvania’s obligations to the Deal- Ix SLD. M er with respect to all snerchandise purchased by the es 7h ; Dealer from Sylvania hereunder shall be as set forth L..-- Determine the size of each prospective ac- in the aforesaid printed warranties or guarantees fur- count in the market. nished by Sylvania and that the Dealer will not — Re Rate each Dealer on the basis listed below. purport to obligate Sylvania by issuing any other Basis: TV Units—Annual Total Store Sales: warranties or guarantees with respect to such mer- lassi «sT'V' Units TV Units Annual TV $ Avg. Units chandise. ja Annual Rate Weekly Rate ($133 Avg.) Per Class In Witness Whereof these presents have been exe- C 0- 25 (0)-1*EOW x 0/$ 3,325 15 cuted as of the day and year first above written. B 26-129 (1) EOW-24wk $ 3,458/$17,157 65 Sy.vanta Exectric Prop ; A 130-389 2.5 wk-7.4 wk $17,290/$51,737 195 DIvI3I0n *EOW—(Every Other Week) By: R. J. Theis The types of accounts we want for our District Pro- CONTINENTAL TV, Inc. gram are: Types “AA” and “A”, By : Geo. N. Shahood To determine the potential of the account, ask these two questions: | ee How many TV do you sell a year? or Bees How many TV do you average per week? From either of the two answers, arrive at your classi- fication (per above). Note: In some cases, Type “B” accounts may be added to our SLD Program—but, primary emphasis should be directed to “AA” and “A”, We Must Get a Minimum of Three (3) Sets per Week From Each Account! 24 What happens to the total territory, based on this minimum of three (3) TV units per week per ac- count ? B a since Sylvania does not franchise chains, it was necessary for Mr. Shahood on behalf of Continen- tal T.V. to seek Sylvania approval for that location 60 before he could merchandise Sylvania from it, right ? A. Yes, sir. : Q. And since that location in Oakland was not within your territory, you weren’t authorized to fran- chise it for him, were you? A. That’s right. Q. So he would have to talk to either Mr. Hallday whose area it was or to Mr. Carroll who supervised the territories in general, correct? A. Right. Q@. And as a matter of fact, after you learned about the location proposed by Continental in Oak- land, did you discuss it with Mr. Carroll? A. Yes, sir. Q. And did Mr. Carroll have any concern with the location of other Sylvania dealers around the area? A. He didn’t express any to me. [167] Q. He only wanted to know one thing, and that was, where was that store going to be located ? A. Yes, sir. Q. He didn’t ask you about anything else, did he? A. No. Q. And you told Mr. Shahood after talking to Mr. Carroll—strike that. Mr. Carroll didn’t have any ob- jection either, did he? A. He didn’t express any objection. Q. Do you understand, or did you understand at that time that Mr. Carroll had approved that loca- tion for Continental in Oakland? A. That was my understanding. * * * [170] * * * Q. All right. Mr. French, we have talked for about a day now about franchisers. What 61 did it mean to the dealer after you told him that he was franchised as a Sylvania dealer? What did that mean to him? A. That he was franchised as a Syl- vania dealer. It meant basically that he could sell Sylvania products from that location. [171] * * * Q. I will withdraw the question. Is it not a fact, Mr. French, that other than entitling the dealer to sell your product from that .ocation, the franchise doesn’t mean one other thing to him? A. As far as I know. Q. As far as you know, that is correct, is it not? A. That is correct. cis2] ** * Q. All right, sir. Let me put it this way: In 1964 did your company grant exclusive fran- chises as a policy? A. No sir. Q. And they did not in 1965 either, did they? A. Not to my knowledge. Q. And to your knowledge that was their policy in your territory, in Mr. Hines’ territory, Mr. Hall- day’s territory, as far as you know and all the rest of the territories? A. As far as I know there was no policy against—for or against exclusive franchises. I know of no policy. Q. It was not a policy of your company to grai ' them? A. Yes. No, I don’t know. There is no pol- icy as far as exclusive franchising. Q. You say there was no policy. Do you mean there was no policy one way or the other; that some- times you granted them and sometimes you did not? A. T don’t know of any policies that were granted. 62 I don’t know of anyone that was refused one. I don’t know of any such instances. Q. Let’s talk about that a minute, Mr. French. Since January of 1963 did you ever tell a dealer he had an exclusive franchise in any given territory ? [183] A. No sir. Q. To your knowledge has Mr. Hines ever told anyone that he had an exclusive franchise in his territory? A. Not to my knowledge. Q. Has Mr. Hallday ever told that to any dealer, to your knowledge? A. Not to my knowledge. Q. And has Mr. Carroll ever granted, as your im- mediate superior, an exclusive franchise to any dealer in any territory that you knew about? A. Not that I know of. Q. What do you mean by an exclusive franchise as we have been using the term? A. As an exclu- sive franchise I am guessing it would be that there would be no other dealer ever solicited in that area, that you have an exclusive franchise to sell a prod- uct. Q. In other words, that you would promise that dealer not to put on another dealer in that territory, would that be correct as a definition of exclusive franchise? A. As a broad statement I would say yes. Q. That is what we are talking about, is it not? A. Yes. * + * [236] * * * Q. Now, did you solicit further or- ders from Continental T.V. after that last telephone conversation? - view article something about price maintenance, sir? A. Perhaps you better quote or cite it. Q. Excuse me, At Page 50, I’m reading from “Law [2901] and Contemporary Problems,” Volume 30, 1965, School of Law, Duke University, and specifi- cally in this volume an article entitled “Restrictive Distribution Arrangements, Economie Analysis and Public Policy Standards,” by Lee E, Preston. That is the article you referred to in your direct? A. Yes, that’s correct. Q. Page 520, the second full paragraph, you state, sir: “On the contrary, one of the classic motives for resale price control is to insulate the supplier from the forces of price competition among dis- tributors”—— And used in this context, by the way, that would include retailers, correct? A. Oh, yes, definitely. me \ Q. “——and indeed to enlist them as partners in the pursuit of monopoly profits.” A. This says one of the classic, is that the way the sentence begins? “On the contrary one of the classic...” Q. Yes, “... one of the classic motives for resale price control.’’ A. One of the classic motives. Q. Yes. A. Yes. It doesn’t say one of the classic effects of resale price maintenance, Q. All right, But I understand from your testi- mony, [2902] sir, that you did not take into consid- eration the motive or the purpose for which the dis- tribution policy of Sylvania was installed, is that correct? A. No, I have the impression that the pol- icy of selective distribution was developed in order to assure Sylvania of representation across the markets that they were interested in, trying to make their sales in, and to assure that this representation would be of a character that they thought was most bene- ficial to making sales as well as possible, that is, in terms of location, display, inventory, the appearance of the retail store, advertising, and so forth, That is my understanding. Q. Exhibit F, as I understand it, from their oper- ational sales manual, Prof, Preston, says this about the policy as it existed in 1965. You have heard the term “straight line distribution”? A. Yes, I heard it, Q. To help explain this particular olicy. A. Yes, Q. “S.L.D’—I am quoting from the second page of the Exhibit b: 425 “S$.L.D. also eliminates same brand competi- tion. Sylvania wants fewer dealers and quality rather than quantity by not over-franchising. Straight line distribution eliminates vicious price- cutting and [2903] establishes suggested prices that enables each dealer to make a fair profit an | each consumer to receive an outstanding value.’’ It goes on to say: “Elbow room gives every Sylvania dealer a geographic area in which to sell our Sylvania products.” Were you given this information as part of your assumption, sir, in making your theoretical analysis? A. I was, and when I read it I said I thought those were very unfortunate statements, since they were not true. Q. Now, Prof, Preston, as I understand your tes- timony, in your analysis it doesn’t seem to make any difference whether Sylvania itself decides where deal- ers ought to be placed or the forces of competition make that decision; is that what you’re saying, sir? A. I think that Sylvania is in competition and will try to get dealers in locations which will make it as effectively competitive as it can possible be. If they don’t do that, I don’t know what they are doing. Q. Now, let me ask you again, in a given market, not necessarily only the television industry, but in any other given industry where we are concerned about fairly high-priced units, is it not true that the forces of competition at the retail level to a great extent 426 control the movement of locations and the places where dealers stores are [2904] actually located within major markets? A. I don’t mean to be unrespon- sive, Mr. Miller, I don’t quite get the thought. Would you try again? Q. Let me try again. Is it not a fact that the number and spread of locations of outlets in a given industry, in a given market, are a function of the competition at that level? A. Broadly speaking, yes. Q. And your analysis, sir, you didn’t assume, did you, that part of Sylvania’s policies were to respond to a dealer’s complaint about another dealer’s loca- tion and to control location in that manner? A. No, I did not assume that. Q. You didn’t hear anything about that, did you? A. No, not specifically. Q. So if in fact, Sylvania set up their location or outlet patterns and markets in response to other Syl- vania dealer requests or demands, that would cer- tainly change your conclusion somewhat, wouldn’t it? A. Oh, yes, it would. It would. However, I would wonder how they got the pattern they have, if that’s the case. Q. All right. As a matter of fact, that would be highly anticompetitive in impact, would it not? A. Well, again, we have to assume what other [2905] characteristics of the market might be, but it would certainly demand a new analysis. Q. And it certainly could be anticompetitive, could it not? A. It could be. 427 Q. And certainly your analysis and your conclu- sion would not necessarily under that set of facts, right? (Sic) A. Not necessarily. We would have to make a new analysis. Q. Now also did you assume that Sylvania co- erced, that is, used coercive means in any way to achieve’ dealers to locate in any particular way or pattern? A. No, I have no notions about coercion in this analysis, Q. And if there were, of course, these elements involved in the enforcement of any of these policies that Sylvania had, that in and of itself could alter the conclusions about the competitive impact, could it not? Mr. Popofsky: Your Honor, I understand the words “coercive element” when someone twists my arm, but I don’t know what “coercive element” means in this context. It seems to me this is just a phrase which counsel is using, asking in the abstract about. I do not think it is self-defining. If he means agree- ments, that’s one thing. Object to the question on those grounds. [2906] The Court: More or less abstract; it is also cross-examination. Mr. Miller: I didn’t mean to confuse you, Pro- fessor. Do you understand what I am getting at? The Witness: Well, I guess we could think about some kind of personal coercion, you know, physical threat, or something like that. I certainly don’t have any idea of that sort. 428 Mr. Miller: Q. Business coercion? A. Business coercion is usually associated with some sort of mo- nopoly power and I don’t see that Sylvania has any monopoly power. Q. All right, sir. A. So the answer to your question is: If there were a situation where there could be a business coercion, you know, all mght, a new analysis would be required. I don’t see either the assumed or the actual situation in the television man- ufacturing industry as one involving monopoly power on the part of Sylvania, and therefore I don’t under- stand what its basis for business coercion would be. Q. All right, sir. If Sylvania practiced coercive techniques to prohibit a dealer in one territory from selling its products in another territory, would you call that business coercion? A. Your quote “if” contains the answer yes. [2907] Q. And—— A. If it is business coer- cion, then it is business coercion, Q. All right, but that is a form of coercion if Sylvania would tell a dealer I am going to cut your credit line, I’m going to sue you, I’m going to lock up your stores, I’m going-to do everything I can to put you down the drain if you try to sell your products in another territory, that’s business coercion, right? A. All right. All right, yes, All right. Q. All right. You didn’t assume anything like that conduct in making your analyses? A. No. Q. Now, is it not true that your conclusion would also or may also be changed if you had assumed that any given Sylvania dealer became to rely on Sylvania to a greater extent than one would normally see in 429 this relationship between dealers and manufacturers in the marketplace, that is, if there are any unusual reliances on behalf of a dealer, this would change the analysis also, would it not? A. If the dealer gave up all other options? Is that your thought? Q. No. sir. A. The dealer is not able to do any- thing but carry Sylvania products for some reason? [2908] [Q.] Let me quote to you from your article here, sir. I am quoting from Page 509, second para- graph. ‘*Finally, there is a distinction to be drawn be- tween the balance of eompetitive forces through- out a broad market and strength or weakness of bargaining positions of particular buyers vis-a- vis particular sellers. For example, when eitner party to a transaction has come to rely upon the other for more than the normal provision of mer- chandise and service available elsewhere in the market, the dependent party’s bargaining position becomes weakened and the dominant party may attain a power of coercion over this particular trading partner in no way paralleled in its deal- ings with other enterprises.” Now, you wrote that in your article, you recall that? A. Yes, I do. Yes, and I believe that’s true. Q. You’re talking about that kind of a situation that I was trying to deserihe to you, right? A. You want me to talk about that kind of situation. Q. I just want you to answer the question, Profes- sor, as to whether or not, first, you took that set of circumstances into account in your analysis in this 430 case? A. Yes, but read the first of that sentence, if you would, Mr. Miller, because it draws the distinc- tion between the state of competition in a market and particular [2909] bargaining arrangements between particular parties. You see, one of the points there, if I may suggest, one of the points I was trying to make in that particular point in that paper was that par- ticular individuals may have favorable or unfavorable trading relationships in their own personal viewpoint without it having any effect at all on the strength of competition in a market, because there may be many otner individuals effectively competing throughout the market, the strength of competition in the market may be very great, but some particular pair of trad- ing parties, one may be a a great disadvantage witi: respect to other. These are two different matters. And just because it happened that some one trading party was at a disadvantage with respect to some one other trading party, would not imply at all that competition in the market wasn’t as strong as it could possibly be. Q. The question, Professor, was, did you take that set of circumstances into account in making your analysis? A. Maybe the answer is like the price question, the relationship between individual parties do not matter in terms of strength of the competi- tion in the market as a whole. They do not matter. Only if everybody is excluded, you see. Only if every- body is coerced, only if everybody is involved do we have a market wide of that. It’s back to whether I” buy the blue tie ‘or the red tie, vou see. This [2910] competition is in my ability to choose. 431 Q. Now, Professor, you touched on territorial re- strictions. Now, in making your analysis did you assume that Sylvania prevented its dealers from sell- ing its brand outside a certain defined geographic territory? A. I explicitly assumed the contrary, I believe. I explicitly assumed that the dealers were not restricted with respect to their choice of: customers. Q. And that means also that they were not re- stricted as to the geographic territory in which they were allowed to resell? A. That’s correct. (Continued on the next page; nothing omitted.) [2911] Q. And if it is a fact that this poliey, Syl- vania’s policy, was to the contrary, that might also change some of your conclusions, right? A. It would change the whole analysis. Q. As I understand this, one of the effects of this is that—I think you called it—it is a selected distribu- tion system. A. That is the term I would use to describe it. Q. One of the effects of the selected distribution system is to limit the number of same brands in ahy given market area. A. I think its effect is to deter- mine the number. Q. That is, Sylvania in this case would be deter- mining the number that it thought proper in any given market, correct? A. That would be my understand- ing; the number, the location, what they did. Q. Right. If Sylvania retained their prerogative in dealing with its dealers? A. That is my under- standing. Q. Let me show you a chart that we have in evi- dence, which is Exhibit F-X. and for the purpose of 432 my question I want you to assume the correctness of some of [2912] this information, if you would. It purports to show the Sylvania franchise dealer structure in Sacramento? A. May I say I have never seen this chart before so I will have to take a minute to look carefully at it. I don’t kne 7 whether the jury has seen it or not. They probably have. Q. In Sacramento, 1961 to 1967. A. All right. Q. i might tell you further this information was received from Sylvania in the form of interrogatories under oath and assume for that reason to be accurate. Mr. Popofsky: We have one adjustment. That is Sherman and Clay in 1965 and 66. With that adjustment your representation would be sensible to me. Mr. Miller: All I am saying is that regardless of Sherman and Clay’s existence or non-existence as a dealer, this is the information that was given to Continental TV under oath in the interrogatories and for that reason we are making that representation. Q. I found in 1965 apparently Sherman and Clay, which is not shown on a chart, did in fact carry about $10,000 worth of Sylvania products on the floor in their Sacramento store, but that in 1966 Sherman and Clay [2913] terminated the franchise with Syl- vania. With that type of additional information you can see that in 1961, sir, there were something like 19 dealers which handled the Sylvania brand in Sacra- mento. Do you know whether or not the elbow room policy of distribution was in effect in 1961? A. My understanding is that it was not. 433 Q. In 1962 the number of dealers are still about 19. A. I believe that is right. Q. And do you know whether in 1961 [sic] the elbow room policies were in effect? A. My recollec- tion is that that was the beginning date, but again this is recollection. Q. In 1963 the market structure for Sylvania dealers dropped. This is one of the selective systems, that it reduces the number of dealers handling that particular brand in a particular market. A. I don’t know anything specific about the discontinuation of those dealers handling Sylvania products. I should emphasize that. I don’t know in any one individual case or anything general about the whole group of eases about who made the decisions, about who de- cided to add or [2914] drop. That is a piece of factual information that I just don’t know. Q. The question was: Is it not a fact that the impact of what you call selective distribution systems on any given market is to reduce the number of same brand dealers?