Petition — Donovan Construction Co. v. Corp.

é Supreme Court, U. § >

| #ILeD

MAR 10 1978S

In THE L_MICHAEL RODAK, JR., CLERK

Supreme Court of the Anited States

October Term, 1977

No. #771252

DONOVAN CONSTRUCTION COMPANY

OF MINNESOTA,

Petitioner,

Vs.

FLORIDA TELEPHONE CORPORATION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

MAUN, HAZEL, GREEN,

HAYES, SIMON and ARETZ

Jerome B. Simon

James A. Gallagher

332 Hamm Building

Saint Paul, Minnesota 55102

(612) 221-1812

Attorneys for Petitioner

Donovan Construction

Company of Minnesota

224-7631 — Review Publishing Co., 257 E. 6th St.. St. Paul, Minn. 55101 — 224-7631

TABLE OF CONTENTS

PAGE

I. Citations to Opinions Below ................6.:- 2

a a a eae een eeeeabiiae 2

Io a a a 2

gs eS a ee oe ehaaedewaade 3

Nae ieeeneas aus 4

VI. Reasons for Granting the Writ .................. 10

I> | Se a 10

B. The Circuit Courts Apply Conflicting Criteria

For Determining Standing Under Section 4... 12

C. Present Confusion On The Standing Issue Frus-

trates The National Policy Of Effective Anti-

Cees EA THOS nccccccccccccecoescs 22

D. Issuance Of The Writ of Certiorari In This

Case Would Complement Other Efforts To Pro-

mote Competition In The Terminal Telephone

a. cg deccsasaehone enemas 25

eh, oe a cu ubs de keke cabusenasaen 28

Appendix A Opinion of Court of Appeals dated

ee eed ee eee eee ee ae ue A-1

Appendix B Opinion of District Court dated

i ae ea ad load aS A-20

Appendix C Judgment of Court of Appeals dated

ee ee eh eae eae eae Cee A-23

Appendix D Order of Court of Appeals denying

Petition for Rehearing dated January 27, 1978 ...... A-24

TABLE OF AUTHORITIES

PAGE

Cases:

Ash v. International Business Machines, Inc.,

353 F.2d 491 (8rd Cir. 1965), cert. denied,

ee ED on dc 6 co ca Whbubentubdcukodces 16

Association of Data Processing Service Organization,

Inc. v. Camp, 397 U.S. 150 (1970) ........... 19, 20, 25

Battle v. Liberty National Life Insurance Co.,

493 F.2d 39 at 49 (5th Cir. 1974), cert. denied,

et et EE EE Sc vcccceawbewnehsesieisess 13

Bogosian v. Gulf Oil Corp., 561 F.2d 434

ED Cn eee eke) Cee Se eas dle we 18

Bravman v. Bassett Furniture Industries,

GES F.2d OO (Grd Cir. 1977) 2... cc ccccccccces 18, 20, 21

Buckley Towers Condominium, Inc. v. Buchwald,

533 F.2d 934 (5th Cir. 1976), cert denied,

FO ree ee eer re ree 12

Burleigh House Condominium, Inc. v. Buchwald,

546 F.2d 57 (5th Cir.), cert. denied, 97 S.Ct.

SD <clld tas oe ued SEEK EO 6 U O464 6 12

Calderone Enterprises Corp. v. United Artists

Theater Circuit, Inc., 454 F.2d 1292 (2nd Cir.

1971) cert. denied, 406 U.S. 930 (1972) .......... 14

Congress Building Corp. v. Loew’s, Inc.,

ee a ee EE GS ED ce wncincvesscveccces 11

Cromar Co. v. Nuclear Materials & Equipment

Corp., 543 F.2d 501 (3rd Cir. 1976) ............ 16, 20

Daily v. Quality School Plan, Inc., 380 F.2d

484 at 487 (5th Cir. 1967)

Fields Productions, Inc. v. United Artists Corp.,

318 F.Supp. 87 (1969), aff’d., 482 F.2d 1010

(2nd Cir. 1970), cert. denied, 401 U.S. 949 (1971).. 11

ii

Fortner Enterprises, Inc. v. United States Steel

Corp., 394 U.S. 495, 502 (1969) .............5-- 23

Harrison v. Paramount Pictures, Inc., 115 F.Supp.

$12 (E.D.Pa. 1953), aff’d., 211 F.2d 405 (3rd

Cir.), cert. denied, 348 U.S. 828 (1954) .......... 11

Hennessey v. National Collegiate Athletic Ass’n.,

564 F.2d 1186 (5th Cir. 1977) .........ceeeeeee 12

Illinois Brick Co. v. Illinois, —— U.S. ——,

OF Be, Be Ge 6 ncckcccsebsscvecceoccscss 23, 24

In Re Multidistrict Vehicle Air Pollution, M.D.L.

No. 81, 481 F.2d 122, 127-128 (9th Cir. 1973),

cert. denied, 414 U.S. 1045 (1974) .......... 14, 15, 20

In Re Western Liquid Asphalt Cases, 487 F.2d 191

(9th Cir. 1973), cert. denied, 415 U.S. 919 (1974) ..11, 20

International Association of Heat and Frost Insulators

and Asbestos Workers, Etc. v. United Contractors

Ass’n., Inc. of Pittsburgh, Pa., 483 F.2d 384 (3rd

Cir. 1973), amended, 494 F.2d 1853 (8rd Cir.1974.. 15

Jeffrey v. Southwestern Bell, 518 F.2d 1129

CE Gi, BIGGS onc scree ics cceececcveccsecccces 11,12

Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358

SG, ED ob nebo. chub seenccescousscescces 14

Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727

(3rd Cir. 1970), cert. denied, 401 U.S. 974 (1971).. 16

Kestenbaum v. Falstaff Brewing Corp., 514 F.2d 690

(5th Cir. 1975), cert. denied, 424 U.S. 948 (1976).. 12

Loeb v. Eastman Kodak Co., 183 Fed. 704

PTT TTT Tee TE TTT LITT eTe 15

iii

PAGE

M. C. Manufacturing Co., Inc. v. Texas Foundries,

Inc., 517 F.2d 1059 (5th Cir. 1975), cert. denied,

Bee 8) ere 12

Malamud v. Sinclair Oil Corp, 521 F.2d 1142,

BOGS COED GER BRGUP cvcvcucccevess 10, 16, 19, 20, 21, 25

Manderville Island Farms, Inc. v. American Crystal

Sugar Co., 334 U.S. 219, 236 (1948) ............ 10

Melrose Realty Co. v. Loew’s, Inc., 234 F.2d 518

(3rd Cir.), cert. denied, 352 U.S. 890 (1956) ..... 11

Miley v. John Hancock Mutual Life Insurance Co.,

148 F.Supp. 299, 302 (D. Mass. 1957), aff'd.

per curiam, 242 F.2d 758 (1st Cir.), cert. denied,

eS OR ee ee 16

Mulvey v. Samuel Goldwyn Productions,

433 F.2d 1073 (9th Cir. 1970), cert. denied,

GOB USB. Gb CHOCE) oc ccccévdiveataceneeee 11

North Carolina Utilities Commission v. F.C.C.,

537 F.2d 787 (4th Cir.), cert. denied, 97 S.Ct. 651

CRBVGD cv ccucesccscevessweuseueen ee 27

North Carolina Utilities Commission, et al. v. F.C.C.,

552 F.2d 1086 (4th Cir. 1977) ........cccccccees 26, 27

Pessin v. Keeneland Association, 45 F.R. D. 10,

2 ett Be Pre 22

Pfizer, Inc. v. Government of India,

U.S. ——, 98 S.Ct. 584 (1978) .......... 10, 23, 24

Radovich v. National Football League,

SSB UB. G65 CURRED oc ccnstecececéesnunenel 23, 24

Reibert v. Atlantic Richfield Co., 471 F.2d 727, 729,

731 (10th Cir.), cert. denied, 411 U.S. 988 (1973).. 16

Sanitary Milk Producers v. Bergjans Farm Dairy,

Inc., 368 F.2d 679, 689 (8th Cir. 1966) .......... 15

iv

PAGE

Shumate & Co., Inc. v. National Association of

Securities Dealers, Inc., 509 F.2d 147 (5th Cir.

1975), cert. denied, 423 U.S. 868 (1976) ......... 12

South Carolina Council of Milk Producers, Inc. v.

Newton, 360 F.2d 414 (9th Cir.), cert. denied,

ace ce Gdp thas ceesecees 11,14

Southern Concrete Company v. United States Steel

Corporation, 535 F.2d 313 (5th Cir. 1976), cert.

ED.) 12

State of Illinois v. Ampress Brick Co., Inc.,

EE A LD cc ccc ccccececcccceces 20

Steiner v. 20th Century-Fox Film Corp.,

Se ee ED GU GEE. BODO) cc ccccccceccccccces 11

Twentieth Century Fox Film Corp. v. Goldwyn,

328 F.2d 190 (9th Cir. 1964), cert. denied,

EE oe)

Volasco Products Co. v. Lloyd A. Fry Roofing Co.,

308 F.2d 383 (6th Cir. 1962), cert. denied,

i ewes esceceeetcseececcces - 11, 16

Yoder Bros. Inc. v. California-Florida Plant Corp.,

537 F.2d 1347 (5th Cir. 1976), cert. denied, 97 S.Ct.

EES 12

Zenith Radio Corp. v. Hazeltine Research, Inc.,

$95 U.S. 100, 180-181 (1969) ..........ccceeeee 22

Statutes:

Dee cece cc ee cee ees couscoccces 3

es ce ae cee ebeseseccecese: ess 3

EEE 2

rE ME EE occ ccc decccscccccccces 25

PAGE

Other Authorities:

Antitrust Law Developments (1975) p. 260 ......... 11

Bean, Antitrust Standing and Passing On,

26 Baylor L. Rev. 331, at 383 (1974) ........... 16

F.C.C. Docket No. 19528, First Report and Order,

ee Ee CUED oh-00 esc ccdeeeseenenecses 26

F.C.C. Docket No. 19528, Second Report and Order,

Se ED GD GSE Shoe heddocesccéceeseseess i

In re Carterfone, 13 F.C.C.2d 420 (1968),

reconsideration denied, 14 F.C.C.2d 571

SD 6546500 bbetn kben bbb eeesndew ns eunke 5, 6, 21, 25

In the Matter of Telerant Leasing Corp.,

ee eee 27

IN THE

Supreme Court of the GAnited States

October Term, 1977

No.

DONOVAN CONSTRUCTION COMPANY

OF MINNESOTA,

Petitioner,

vs.

FLORIDA TELEPHONE CORPORATION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

The Petitioner Donovan Construction Company of Minne-

sota (““Donovan’’) respectfully prays that a Writ of Certiorari

issue to review the judgment and opinion of the United States

Court of Appeals for the Fifth Circuit entered on December

22, 1977.

I

CITATIONS TO OPINIONS BELOW

The opinion of the district court dated November 1, 1976 is

not reported. The opinion of the Court of Appeals is reported

at 564 F.2d 1191 (5th Cir. 1977). These opinions are set forth

as Appendices A and B. The judgment of the Fifth Circuit

Court of Appeals and that court’s order denying Donovan’s

petition for rehearing are set forth as Appendices C and D.

II

JURISDICTION

The district court entered its judgment on November 3,

1976. The judgment of the Court of Appeals was entered on

December 22, 1977. The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1). |

III

QUESTION PRESENTED

The question presented by this Petition is whether a sup-

plier of a utility monopolist has standing to sue for treble

damages when the monopolist arbitrarily terminates a long

standing business relationship with the supplier because the

supplier has become a potential competitor of the monopolist

with regard to some other aspect of the monopolist’s business.

3

IV

STATUTES INVOLVED

Section 2 of the Sherman Act, 15 U.S.C. §2, provides in per-

tinent part:

“Every person who shall monopolize, or attempt to

monopolize, or combine or conspire . . . to monopolize

any part of the trade or commerce among the several

States . . . shall be deemed guilty... .”

Section 4 of the Clayton Act, 15 U.S.C. §15 provides:

“Any person who shall be injured in his business or

property by reason of anything forbidden in the anti-

trust laws may sue therefor in any district court of the

United States in the district in which the defendant re-

sides or is found or has an agent, without respect to the

amount in controversy, and shall recover threefold the

damages by him sustained, and the cost of suit, including

a reasonable attorney’s fee.”

V

STATEMENT OF THE CASE

This action was commenced by Donovan against Florida

Telephone Corporation (“FTC’’) and General Telephone Com-

pany of Florida (“GTF’’) for alleged violations of Sections

1 and 2 of the Sherman Act in connection with their 1972 ter-

mination of long standing business relationships with Dono-

van due to Donovan’s entry into the interconnect business. In

February 1975, Donovan and GTF arrived at a settlement and

GTF was dismissed as a party. The case proceeded to trial on

the issues of liability against FTC.'

The District Court found that Donovan failed to prove a

conspiracy to restrain trade in violation of Section 1. Dono-

van did not contest that finding on appeal. The District Court

also held that Donovan could not recover on its Section 2

monopolization and attempt to monopolize claims because, in

the district court’s view, FTC’s termination of and refusal to

deal with Donovan had no effect on the relevant market. (A-

10, 19) The issues raised by the District Court’s rulings on Don-

ovan’s Section 2 claims (i.e. whether FTC committed a per

se violation of Section 2 and whether Donovan was injured

thereby) were not even addressed by the Court of Appeals.

Rather, the Court of Appeals summarily held that Donovan

lacked standing to sue because Donovan, as a potential com-

petitor of FTC, was not within the “target area,” the sector

of the economy threatened by a breakdown in competitive con-

ditions. (A-22)

The facts that gave rise to this controversy are quite simple.

FTC is the only telephone company that serves a central geo-

1 Damage issues were severed by a pretrial order dated March 14,

1975.

5

graphic region of Florida encompassing nine counties and ap-

proximately 6,000 square miles. FTC provides telephone ser-

vice in that area by virtue of a Certificate of Public Con-

venience and Necessity issued by the Florida Public Service

Commission. Within its geographic area, FTC provides local

and, through interconnection with the facilities of other tele-

phone companies, long distance telephone service.

For many years, FTC has employed contractors to provide

skilled craftsmen and equipment to assist it with the installa-

tion of underground telephone cable and other telephone equip-

ment. Donovan, in competition with other contractors, from

mid-1969 through mid-March 1972, provided FTC with skilled

craftsmen and equipment for this purpose. Donovan provided

similar services to GTF. (A-6) As the only operating tele-

phone company in its geographic region, FTC was the only

customer to whom Donovan could sell,telephone cable splicing

and installation services in that region.

As part of the provision of telephone services to its cus-

tomers, FTC leases terminal telephone equipment (PBX,

PABX, and key telephone systems) to its nonresidential cus-

tomers. FTC was able to completely dominate this aspect of

the telephone business in its region for many years by virtue

of tariffs filed by AT&T with the Federal Communications

Commission and tariffs filed by FTC with the Florida Public

Service Commission that flatly prohibited FTC’s customers

from using terminal telephone equipment provided by anyone

other than FTC. (A-3; R. 63-64, 158-160).

In In re Carterfone, 13 F.C.C.2d 420 (1968), reconsidera-

tion denied, 14 F.C.C.2d 571 (1968), the Federal Communica-

tions Commission held, inter alia, that such broad tariff pro-

hibitions against the use of privately owned telephone equip-

ment were unreasonable, discriminatory and unlawful. The

6

Carterfone decision, supra, and subsequent F.C.C. decisions

have enabled private companies to engage in the “intercon-

nect business” of selling or leasing terminal telephone equip-

ment in competition with telephone operating companies.

FTC, like other telephone companies, resisted competition

from private companies in the terminal equipment market.

Despite the Carterfone decision, as late as 1971 FTC was still

refusing to allow the use of privately owned terminal equip-

ment. In fact, FTC delayed revising its tariffs until late 1971,

until after ic had been sued and ordered to do so. FTC was one

of the last telephone companies in Florida to review its tariffs.

Even the revised tariff filed by FTC required the use.of un-

necessary and inordinately expensive equipment and imposed

exorbitant rates upon subscribers who elected to use private-

ly owned terminal telephone equipment. (Plaintiff’s Exhibit

24, p. 32). During March 1972, when FTC terminated Dono-

van, and through at least January 1975 (shortly before this

matter was first set for trial), FTC completely dominated the

terminal equipment market in its geographic region. (Plain-

tiff’s Exhibit 27 and 28).

In late 1971, Donovan decided to enter into the “inter-

connect business”. (A-7) In January 1972, Donovan opened

an office in Tampa, Florida under the trade name of Inde-

pendent Business Telephones (IBT) and began marketing ter-

minal telephone equipment in competition with GTF in the

Tampa, Florida area. During January and February 1972,

Donovan made preliminary arrangements to install its own

terminal telephone equipment in IBT offices in Tampa and

in the offices of affiliated companies in Clearwater and

Sarasota, Florida—within the area of Florida served by GTF.

(Plaintiff's Exhibits 41-46). As of March 1972, Donovan had

not attempted to market terminal telephone equipment in the

7

immediately adjacent geographic area served by FTC. (R. 280,

349). Donovan hoped to continue to provide FTC with skilled

craftsmen as it had done for the preceding 2-1/2 years and

hoped to sell FTC imported terminal telephone equipment. (R.

280, 349).

On February 18, 1972, shortly after GTF became aware of

Donovan’s entry into the interconnect business and without

advance warning or notice, GTF terminated all of Donovan’s

installation and splicing craftsmen. (R. 255). Two weeks later

on March 3, 1972, without advance warning or notice, FTC

began terminating Donovan’s craftsmen. By March 17, 1972,

FTC had terminated Donovan’s entire work force and

Donovan had been driven out of the installation and splicing

business in both GTF’s and FTC’s geographic regions with

the resulting loss of substautial :evenues. (R. 270, 282-283,

398, 405-406.)

During the trial, Donovar introduced evidence that FTC

terminated and refused to deal with Donovan because Donovan

had surfaced as a potential competitor into interconnect busi-

ness. For example:

(1) Donovan’s President, John Donovan, testified that

Claude Locke, FTC’s Vice President of Operations, (the per-

son who decided to terminate Donovan), told him that FTC

would not contract with competitors (R. 394-395);

(2) Donovan’s Vice President, S.V. Christenson, testified

that Claude Locke, during a meeting on March 24, 1972, told

him that Donovan had been terminated because of its entry

into the interconnect business (R. 349-351);

(3) Donovan’s Florida supervisor, Robert Berroyer, testi-

fied that James Davis, FTC’s outside plant superintendent

(the person who recommended and implemented FTC’s deci-

sion to terminate Donovan), told him that Donovan was no

8

friend of and was no longer welcome at FTC because Donovan

had entered the interconnect business (R. 274);

(4) A contemporaneous note made by Robert Berroyer

during that conversation states:

“We went into the interconnect business. Therefore, you

are not welcome at FTC.” (Plaintiff’s Exhibit 48, R. 274-

275).

(5) Jack Logan, a former Donovan supervisor, testified

that he was told by Keith Ellis, FTC’s construction super-

visor, that Donovan was going to be terminated because Dono-

van had entered the interconnect business. (R. 230-231).

FTC’s representatives testified in effect that Donovan’s

termination was due primarily to Donovan’s performance.

However, other evidence completely discredited this testimony.

For example, for the two months preceding Donovan’s termi-

nation, FTC had steadily increased the size of Donovan’s splic-

ing and installation crews. (R. 282-283). Upon Donovan’s

termination, the majority of Donovan’s supervisors and

craftsmen were employed by Donovan’s competitors and con-

tinued to provide the same services to FTC, but at higher rates

than were charged by Donovan.*

At the time of its termination by FTC, Donovan was a

viable potential competitor of FTC. The district court clearly

recognized this fact. For example, at page 6 of its Opinion (A-

7) the district court acknowledged that when Donovan made

the decision to enter the interconnect business in December

1971, Donovan became a potential competitor of FTC. Again

at page 13 of its Opinion (A-14), the district court observed

that Donovan was a “potential entrant” in the interconnect

business in FTC’s region.

* Plaintiff's Exhibits 30-34 and 49-51.

9

Donovan was both prepared and able to enter into the inter-

connect business in FTC’s region. Donovan is a subsidiary of

a publicly held, well financed corporation. It had extensive

experience in the installation of telephone equipment prior

to the time it decided to enter into the interconnect business.

It had provided trained personnel to instal] terminal telephone

equipment for GTF and FTC, as well as other telephone com-

panies, for a number of years prior to the time it decided

to enter the interconnect business. Donovan had actually en-

tered the interconnect business in January, 1972, in Tampa,

Florida and began its marketing efforts in that area.

In addition, shortly after FTC’s termination of Donovan,

Donovan did engage in the interconnect business in FTC’s

area. During 1972, commencing only a few months after its

termination, Donovan’s IBT division placed three interconnect

systems in FTC’s region. (Plaintiff’s Exhibit 28, p. 2) In

January 1974, Donovan also placed a fourth IBT telephone

system in FTC’s region. (Plaintiff’s Exhibit 28, p. 4).

Finally, FTC viewed Donovan as a potential competitor.

Mr. Berroyer, Donovan’s Florida supervisor, testified that

FTC’s Vice President of Operations specifically expressed

the view that although Donovan was not competing with FTC

prior to the termination, it was “... only a matter of

time. . .” until Donovan would be an active competitor in

FTC’s region. (R. 280)

In sum, Donovan’s interconnect business was a fledgling

business in its very formative stages when FTC summarily

severed its long standing business relationship with Donovan.

Donovan was prepared to compete, had the capacity to compete

and ultimately in fact competed with FTC. Moreover, FTC

viewed Donovan as a potential competitor unworthy, for that

reason, of maintaining a continuing business relationship with

10

FTC. FTC’s action drove Donovan out of the installation and

splicing business in FTC’s region and deprived Donovan of

substantial revenues.

VI

REASONS FOR GRANTING THE WRIT

A. Introduction —

Section 4 of the Clayton Act allows any person “injured”

in his business or property “by reason of” anything forbidden

by the antitirust laws to sue for treble damages. This statute

is a broad remedial statuie that was intended by Congress to

deter violators and to compensate victims for their injuries.

Pfizer, Inc. v. Government of India, U.S. , 98 S. Ct.

584, (1978) The Section has been repeatedly described as“. . .

comprehensive in its terms and coverage, protecting all who

are made victims of the forbidden practices by whomever they

may be perpetrated.” Pfizer, Inc., supra, 98 S. Ct. at 587;

Manderville Island Farms, Inc. v. American Crystal Sugar

Co., 334 U.S. 219, 236 (1948).

Yet the lower federal courts, under the rubric of “standing

to sue”, and encouraged by this Court’s repeated refusal to

curb their activities, have imposed confusing and conflicting

limitations upon the express provisions of Section 4. As recent-

ly stated by the Court of Appeals for the Sixth Circuit, the

question of a private plaintiff’s standing to sue under Section

4“. . . has been and continues to be troublesome to the courts

... Malamud v. Sinclair Oil Corp., 521 F.2d 1142, 1146

(6th Cir. 1975). The precedents are difficult to reconcile and

there simply is no rule of general application for determining

when an injury was caused “by reason of” something forbid-

11

den by the antitrust laws. Antitrust Law Developments (1975)

p. 260.

In the Petitioner’s view, it is time for this Court in this case

to define the criteria if any, a private plaintiff must meet in

order to satisfy the “by reason of” provision of Section 4 and

have standing to sue for treble damages. This Court should

finally eliminate the confusion that exists between and among

the various Circuit Courts and the resulting disparity of treat-

ment afforded private litigants. At present, a plaintiff’s stand-

ing to sue depends as much upon venuing the action in a favor-

able forum as upon any other factor.* A private plaintiff who

must sue within the Fifth Circuit is particularly unfortunate.

That Circuit Court harshly applies the so-called “target area”

standing test in a manner that narrowly restricts the scope

of Section 4, deprives private plaintiffs of their antitrust

3Compare: In Re Western Liquid Asphalt Cases, 487 F.2d 191 (9th

Cir. 1973), cert. denied, 415 U.S. 919 (1974) with Jeffrey v. Southwest-

ern Bell, 518 F.2d 1129 (5th Cir. 1975), for conflicting holdings with

regard to indirect purchases standing to sue; Mulvey v. Samuel Gold-

wyn Productions, 433 F.2d 1073 (9th Cir. 1970), cert. denied 402 U.S.

923 (1971), with Fields Productions, Inc. v. United Artists Corp., 318

F.Supp. 87 (1969), aff'd, 432 F.2d 1010 (2nd Cir. 1970), cert. denied

401 U.S. 949 (1971), for conflicting holdings with regard to a seller’s

standing to challenge block booking arrangements; Steiner v. 20th

Century-Fox Film Corp., 232 F.2d 190 (9th Cir. 1956), and Congress

Building Corp. v. Loew’s, Inc., 246 F.2d 587 (7th Cir. 1957), with

Harrison v. Paramount Pictures, Inc., 115 F.Supp. 312 (E.D.Pa.

1953), aff’d., 211 F.2d 405 (3rd Cir.), cert. denied, 348 U.S. 828

(1954), and Melrose Realty Co. v. Loew’s, Inc., 234 F.2d 518 (3rd

Cir.), cert. denied, 352 U.S. 890 (1956), for conflicting holdings with

regard to a theater lessor’s standing to sue; Volasco Products Co. v.

Lloyd A. Fry Roofing Co., 308 F.2d 383 (6th Cir. 1962), cert. denied,

372 U.S. 907 (1963), with South Carolina Council of Milk Producers,

Inc. v. Newton, 360 F.2d 414 (9th Cir.), cert. denied, 385 U.S. 934

(1966), for conflicting holdings with regard to the standing of

suppliers to sue.

12

claims, and completely frustrates the broad remedial purposes

of the antitrust laws.‘

It is particularly appropriate for this Court to review the

Court of Appeals decision in this case. Here the Court of Ap-

peals summarily applied the “target area” standing test to

sanction predatory, blatantly anticompetitive conduct of a

monopolist that was aimed directly at Donovan and that com-

pletely destroyed a substantial segment of Donovan’s business

solely because Donovan was a potential competitor, rather

than an actual competitor, when the predatory act was com-

mitted. Here, the company that dealt directly with the

monopolist, that was the target of the predatory conduct and

that felt its full impact has been denied the right to sue.

B. The Circuit Courts Apply Conflicting Criteria For Deter-

mining Standing Under Section 4.

The “troublesome nature” of the question of standing to sue

under Section 4 has resulted in the articulation and application

by the various Circuit Courts of at least four diverse tests for

*For example, since April 1974, the Fifth Circuit Court of Appeais

decided ten cases under the “target area” test. In eight cases, in-

cluding this case, the plaintiffs have been denied standing. See,

Burleigh House Condominium, Inc. v. Buchwald, 546 F.2d 57 (5th

Cir.), cert. denied, 97 S.Ct. 2975 (1977); Southern Concrete Com-

pany v. United States Steel Corporation, 535 F.2d 313 (Sth Cir. 1976),

cert. denied, 97 S.Ct. 1113 (1977); Buckley Towers Condominium,

Inc. v. Buchwald, 533 F.2d 934 (5th Cir. 1976), cert. denied, 97 S.Ct.

1157 (1977); Jeffrey v. Southwestern Bell, 518 F.2d 1129 (5th Cir.

1975); M. C. Manufacturing Co., Inc. v. Texas Foundries, Inc., 517

F.2d 1059 (5th Cir. 1975), cert. denied, 424 U.S. 968 (1976); Kesten-

baum v. Falstaff Brewing Corp., 514 F.2d 690 (5th Cir. 1975), cert.

denied, 424 U.S. 943 (1976); Shumate & Co., Inc. v. National Asso-

ciation of Securities Dealers, Inc., 509 F.2d 147 (5th Cir. 1975), cert.

denied, 423 U.S. 868 (1976). The only two cases where standing has

been found are Yoder Bros., Inc. v. California-Florida Plant Corp.,

537 F.2d 1347 (Sth Cir. 1976), cert. denied, 97 S.Ct. 1109 (1977), and

Hennessey v. National Collegiate Athletic Ass’n., 564 F.2d 1136 (5th

Cir. 1977).

13

determining whether a plaintiff has been injured by reason

of conduct prohibited by the antitrust laws. They have been

labeled as the “direct injury” test, the “target area” test, the

“zone of interests” test, and the “entire factual matrix” test.

The “target area’ test has prevailed in the Fifth Circuit

for a number of years. Under the Fifth Circuit’s version of

the “target area” test, as articulated by the Court in this case,

a plaintiff must show, in addition to injury, that he is within

the area of the economy that is threatened or endangered by

a breakdown in competitive conditions. (A-22) This test of

standing has often been endorsed by the Fifth Circuit. For

example, in Daily v. Quality School Plan, Inc., 380 F.2d 484,

at 487 (5th Cir. 1967), the Court stated:

“If a plaintiff can show himself within the sector of the

economy in which the violation threatened a breakdown

of competitive conditions and that he was proximately

injured thereby, then he has standing to sue under sec-

tion 4... .”

Similarily, in Battle v. Liberty National Life Insurance Co.,

493 F.2d 39, at 49 (5th Cir .1974), cert. denied, 419 U.S. 1110

(1975), the Fifth Circuit Court of Appeals stated:

“Without attempting to carefully categorize all the cases

in which this problem has been presented, the courts in

articulating such limitations have relied on phrases like

‘direct’ injury, or whether the plaintiffs’ business falls

within the ‘target area’ of defendants’ supposedly illegal

commercial activity. In this circuit, the limitation of this

principle has been stated as requiring the plaintiff to

show that he is ‘within the sector of the economy in which

the violation threatened a breakdown of competitive con-

14

ditions and that he was proximately injured thereby.

’ 99

.

See the additional Fifth Circuit cases cited in note 4, page 12,

infra.

The Ninth Circuit Court of Appeals has also applied the

“target area” test for purposes of determining standing. See

Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358 (9th Cir.

1955); Twentieth Century Fox Film Corp. v. Goldwyn, 328

F.2d 190 (9th Cir. 1964), cert. denied, 379 U.S. 880 (1965) ; In

Re Multidistrict Vehicle Air Pollution, M.D.L. No. 31, 481 F.2d

122, 127-128 (9th Cir. 1973), cert. denied, 414 U.S. 1045

(1974). As stated in Karseal, supra, “. . . the rule is that one

who is only incidentally injured by a violation of the anti-

trust laws,—the bystander who was hit but not aimed at,—-

cannot recover against the violator. ...”’ 221 F.2d at 363

(Citations omitted.) In the Twentieth Century case, supra,

the Ninth Circuit explained:

“. . . [I]n using the words ‘aimed at’ this court did not

mean to imply that it must have been a purpose of the con-

spirators to injure the particular individual claiming

damages. Rather, it was intended to express the view that

the plaintiff must show that, whether or not then known

to the conspirators, plaintiff’s affected operation was ac-

tually in the area which it could reasonably be foreseen

would be affected by the conspiracy.” 328 F.2d at 220.

Other circuits that apparently apply the “target area’ test

or some version thereof are the Second Circuit, the Fourth

Circuit and the Eighth Ciricuit. See Calderone Enterprises

Corp. v. United Artists Theater Circuit, Inc., 454 F.2d 1292

(2nd Cir. 1971), cert. denied, 406 U.S. 930 (1972); South

15

Carolina Council of Milk Producers, Inc. v. Newton, 360 F.2d

414, 418 (4th Cir.), cert. denied, 385 U.S. 934 (1966) ; Sani-

tary Milk Producers v. Bergjans Farm Dairy, Inc., 368 F.2d

679, 689 (8th Cir. 1966).

The “target area” test has also on occasion, but not con-

sistently, been applied by the Third Circuit Court of Appeals,

See International Association of Heat and Frost Insulators

and Asbestos Workers, Etc. v. United Contractors Ass’n., Inc.

of Pittsburgh, Pa., 483 F.2d 384 (3rd Cir. 1973), amended,

494 F.2d 1353 (3rd Cir. 1974). However, prior to the decision

in International, supra, the Third Ciricuit had consistently ap-

plied the “direct injury” test for determining standing. The

“direct injury” test was first articulated by the Third Circuit

in Loeb v. Eastman Kodak Co., 183 Fed. 704 (3rd Cir. 1910).

In that case, the court denied standing to a shareholder of an

injured corporation, stating:

“. . . it is manifest that the plaintiff did not receive any

direct injury from the alleged illegal acts of tie defen-

dant. No conspiracy or combination against him as a

stockholder or creditor is alleged. The injury complained

of was directed at the corporation, and not the individual

stockholder. Hence any injury which he, as a stockholder,

received was indirect, remote, and consequential.” 183

Fed. at 709.

The decision introduced the notion of privity to the analysis

of a person’s standing to sue under the antitrust laws. Jn re

Multidistrict Vehicle Air Pollution, M.D.L. No. 31, supra, 487

F.2d at 127. Thus, the “direct injury” test has been said to re-

quire

“. . . an analysis of the relationship between the claim-

ant and the alleged antitrust violator; if the victim and

16

the perpetrator are separated by an intermediary party,

standing usually is denied.” Bean, Antitrust Standing

and Passing On, 26 Baylor L. Rev. 331, at 333 (1974).

Additional Third Circuit cases where the direct injury test

has been applied include Ash v. International Business Ma-

chines, Inc., 353 F.2d 491 (3rd Cir. 1965), cert. denied, 384

U.S. 927 (1966), and hauffman v. Dreyfus Fund, Inc., 434

F.2d 727 (3rd Cir. 1970), cert. denied, 401 U.S. 974 (1971).

Like the Third Circuit, the Sixth Circuit has usually been

regarded as having adopted the “direct injury” test for pur-

poses of determining standing under section 4 of the Clayton

Act. Volasco Products Company v. Lloyd A. Fry Roofing Com-

pany, 308 F.2d 383 (6th Cir. 1962), cert. denied, 372 U.S. 907

(1963) ; but see Malamud, supra, 521 F.2d at 1151. The Tenth

Circuit and the First Circuit have also applied the “direct in-

jury” standing test. See Reibert v. Atlantic Richfield Co., 471

F.2d 727, 729, 731 (10th Cir.), cert. denied, 411 U.S. 938 (1973) ;

Miley v. John Hancock Mutual Life Insurance Co., 148 F.Supp.

299, 302 (D. Mass. 1957), aff’d. per curiam, 242 F.2d 758 (1st

Cir.) cert. denied, 355 U.S. 828 (1957).

However, in recent years both the Third Circuit and the

Sixth Circuit appear to have abandoned the direct injury

standing test. The Third Circuit did so in Cromanr Co. v.

Nuclear Materials & Equipment Corp., 543 F.2d 501 (3rd Cir.

1976), where that Court adopted the “entire factual matrix”

approach to resolving standing questions. There, the third Cir-

cuit stated:

“Determining in each case whether a plaintiff suing

under § 4 of the Clayton Act is one ‘whose protection is

the fundamental purpose of the antitrust laws’ and there-

fore has standing is fraught with difficulty. By too nar-

17

rowly limiting that class of plaintiffs the judiciary would

be weakening the enforcement remedy created by Con-

gress for ensuring ‘strong competition.’ On the other

hand, allowing the words of § 4 to be applied literally

might ‘result in an overkill . . . for exceeding that con-

templated by Congress.’

Each case therefore, must be carefully analyzed in

terms of the particular factual matrix presented. In mak-

ing this factual determination courts must look to, among

other factors, the nature of the industry in which the al-

leged antitrust violation exists, the relationship of the

plaintiff to the alleged violator, and the alleged effect of

the antitrust violation upon the plaintiff. Then, while

recognizing that breaches of the antitrust laws have ef-

fects throughout society, a court must decide whether this

plaintiff is one ‘whose protection is the fundamental pur-

poses of the antitrust laws.’

* * .

Thus, we do not believe that the issue of Cromar’s stand-

ing to assert its §2 Sherman Act claim may be resolved,

as the parties urge, upon our application of either one test

or another. Rather, as we understand the law of this Cir-

cuit, a detailed analysis on a case by case basis of the fac-

tual context presented is required so as to preserve the

effectiveness of the treble damage remedy without over-

extending its availability. The plaintiffs’ relationship to

the alleged violator of the antitrust laws—the directness

or indirectress of the injury—as well as the plaintiffs’

position in the area of the economy threatened by the al-

leged anticompetitive acts are among the factors to be

considered in resolving standing. No single formula cap-

tures the many considerations involved in determining

18

whether the plaintiff is one ‘whose protection is the fun-

damental purpose of the antitrust laws.’” (Emphasis

added, citations omitted.) 543 F.2d at 506 and 508.

The Third Circuit recently reaffirmed its decision to resolve

standing questions on a case by case basis in Bravman v. Bas-

sett Furniture Industries, 552 F.2d 90 (3rd Cir. 1977). There,

the Third Circuit stated that labels should be avoided:

“ .. in favor of examination of the factual matrix

presented by each case in light of the policies underlying

the antitrust laws. . . . that approach recognizes that §4

standing analysis is essentially a balancing test comprised

of many constant and variable factors and that there is

no talismanic test capable of resolving all §4 standing

problems.” 552 F.2d at 99.

However, another recent Third Circuit decision may cast

some doubt on that Court’s approach resolving questions of

standing. In Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3rd Cir.

1977), the Third Circuit held that service station operators

who did not directly deal with oil companies had standing to

sue oil companies for restraining price competition at the

wholesale level of distribution. According to the Court, the

dealers’ injury was “immediate, direct and proximate conse-

quence of defendants’ actions” and “[sJince the unlawful

practices of which plaintiffs complain were imposed directly

upon them, they are the logical suitors to vindicate the anti-

trust laws.” 561 F.2d at 448. In a footnote to its opinion, the

Third Circuit equated standing under Section 4 with the con-

cept of proximate cause, stating:

“The policy of limiting liability implicit in $4 which has

evolved under the rubric of ‘standing,’ however, is a con-

19

cept of personal stake necessary to establish article III

jurisdiction. Our discussion here deals only with the

former concept which has been misnamed ‘standing.’ ”’

561 F.2d at 447 n. 6.

The Sixth Circuit has also now abandoned the direct in-

jury test. In Malamud v. Sinclair Oil Corp., supra, the Sixth

Circuit stated that it believed it was appropriate to resolve

Section 4 standing questions in accordance with the “zone of

interest” standing test recognized in a non-antitrust context

by this Court in Association of Data Processing Service Or-

ganization, Inc. v. Camp, 397 U.S. 150 (1970), stating:

“We believe that the test to be applied in an antitrust ac-

tion is the one expressed by the Supreme Court in Asso-

ciation of Data Processing Service Organizations, Inc.

v. Camp, [887 U.S. 150]... .

The First prong of the Data Processing test is that the

plaintiff alleged that the defendant caused him injury in

fact. ... The second criterion, according to Data

Processing, is ‘whether the interest sought to be pro-

tected by the complainant is arguably within the zone of

interests to be protected or regulated by the statute or

constitutional guarantee in question.’ ” 521 F.2d at 1151.

Thus, in Malamud, supra, the Sixth Circuit held that real

estate investment companies had standing to assert that an

oil company had violated the antitrust laws by refusing to

financially assist them to acquire and develop service station

sites. The investment companies alleged that Sinclair sought

to maintain the status quo for the marketing of petroleum

products and, to that end, breached their financial agreement

with the investment companies. According to the Court, the

interest sought to be protected by the real estate firms was

the expansion of their business by the acquisition and develop-

20

ment of additional service station sites and the denial of fi-

nancing arguably came within the zone of interest sought to

be protected by the Sherman and Clayton Acts.

The present position of the Seventh Circuit on the stand-

ing issue is difficult to ascertain. The most recent case in that

Circuit appears to be State of Illinois v. Ampress Brick Co.,

Inc., 536 F.2d 1163 (7th Cir.), reversed sub nom on other

grounds, 96 S.Ct. 2061 (1976). There the Seventh Circuit cited

Association of Data Processing and Malamud, supra, and

stated that to establish standing a plaintiff must show injury

in fact that is “ ‘arguably within the zone of interests to be

regulated by the statute.’” 536 F.2d at 1164. Yet in holding

that indirect purchasers had standing to sue, the Seventh Cir-

cuit relied upon the Ninth Circuit’s decision in Jn Re Western

Liquid Asphalt Cases, 487 F.2d 191 (9th Cir. 1973), cert.

denied, 415 U.S. 919 (1974), stating:

“The plaintiffs here have alleged an injury in fact and

are within the target area. . . . [t]hey have shown that

they were ‘within the area of the economy which [de-

fendants] reasonably could have or did foresee would be

endangered by the breakdown of competitive condi-

tions.’ ” 536 F.2d at 1167.

There can be no doubt that various approaches taken by the

Circuit Courts to the matter of standing have resulted in con-

fusion and conflicting decisions. See Jn Re Multidistrict Vehi-

cle Air Pollution, M.D.L. 31, supra, 481 F.2d at 126, and note

6, supra. Indeed, had this case arisen in the Third Circuit or

in the Sixth Circuit, Donovan’s standing to sue would not

have been in doubt. Under the principles of Cromar and Brav-

21

man,® supra, the Third Circuit would have examined the na-

ture of the industry involved, the relationship between Dono-

van and FTC and the impact of FTC’s conduct upon Donovan.

In addition, both the Third Circuit under these cases and the

Sixth Circuit under Malamud, supra, would have ascertained

whether Donovan was one whose protection was fundamental

to the purposes of the antitrust laws.

The telephone industry, and particularly the terminal equip-

ment segment of the industry, has been monopolized for de-

cades by operating telephone companies. Since the Carter-

fone decision in 1968, however, it has been clear that con-

tinued monopolization of the terminal equipment segment of

that industry is contrary to express national policy. Open, fair

competition in that industry is to be encouraged; not dis-

couraged by predatory acts of the monopolists. Thus, the emerg-

ing nature of the industry would favor awarding standing to

a potential competitor. Secondly, Donovan had a firsthand

relationship with FTC prior to its termination. Donovan then

dealt directly with FTC and after its termination, Donovan

competed directly with FTC. Finally, as a potential competi-

tor and later as an actual competitor of FTC in an area of the

economy that FTC dominated, Donovan is clearly entitled to

the protection of the antitrust laws. What better way could

exist for FTC to preserve its monopoly than to be able to

5 The standing issue in this case is closely akin to the standing is-

sue as presented in the Bravman case, supra. There, the Third Cir-

cuit held that a former agent-employee of Bassett Furniture who

became a competitor of Bassett after he was terminated because he

refused to handle Bassett Furniture products exclusively had stand-

ing, under the “target area” test as well as under the “competitors

only” standing test, to sue Bassett for its anticompetitive activities.

Bravman, supra, 552 F.2d at 100-101. Similarly, Donovan, first as a

potential competitor and later as an actual competitor of FTC, has

standing to challenge FTC’s predatory conduct.

22

freely attempt to discourage potential competition as it did

in this case. As pointed out in Pessin v. Keeneland Association,

45 F.R.D. 10, at 15 (E.D.Ky. 1969):

“To argue that no one other than an active competitor

in a given business could attack a monopoly would be to

deny the whole purpose and spirit of the antitrust laws.

Such reasoning is entirely untenable. All monopolies

would be secure in their monopoly if they could only be

attacked by competitors.”

In the instant case the Fifth Circuit summarily held that

Donovan lacked standing to sue under the “target area” stand-

ing test because Donovan did not deal in the interconnect busi-

ness, or intend to do so,® in FTC’s region at the time of its

termination. (A-22) In doing so, the Court of Appeals com-

pletely ignored the following critical facts: FTC viewed Dono-

van as a potential competitor and terminated Donovan for

that reason; Donovan was in fact a potential competitor by

virtue of its business acumen, resources and interconnect ac-

tivities in GTF’s adjoining region; and that Donovan actually

entered that market following its termination to attempt to

compete with FTC. There is certainly no one more qualified

than Donovan to challenge FTC’s anticompetitive activities.

C. Present Confusion On The Standing Issue Frustrates The

National Policy Of Effective Antitrust Law Enforcement.

The decision of the Court of Appeals in this case is flatly

contrary to the national antitrust policy anticulated by this

Court on many occasions. In Zenith Radio Corp. v. Hazeltine

6 The Court's finding in this regard and the district court’s observa-

tions below to the same effect are contrary to the record. (Peti-

tion For Rehearing, pages 6-10).

23

Research, Inc., 395 U.S. 100, 130-131 (1969), this Court stated

that “. . . the purpose of giving private parties treble-dam-

ages and injunctive remedies was not merely to provide private

relief, but was to serve as well the high purpose of enforcing

the antitrust laws.” In Fortner Enterprises, Inc. v. United

States Steel Corp., 394 U.S. 495, 502 (1969), this Court em-

phasized that “. . . Congress has encouraged private anti-

trust litigation not merely to compensate those who have been

directly injured but also to vindicate the important public

interest in free competition.’”’ Very recently, in Pfizer, Inc.,

supra, in holding that foreign governments are “persons”

within the ambit of Section 4, this Court reemphasized that

Section 4 has an “expansive remedial purpose” and that

(““[{t]he Act is comprehensive in its terms and coverage, pro-

tecting all who are made victims of the forbidden practices by

whomever they may be perpetrated.”) 98 S.Ct. at 587. Even in

Illinois Brick Co. v. Illinois, U.S. ——, 97 S.Ct. 2061

(1977), where this Court held that indirect purchasers could

not rely on a pass-on theory to establish injury under Section

4, this Court recognized that effective enforcement of the anti-

trust laws can best be accomplished by allowing full recovery

by those plaintiffs who have dealt directly with the defendant.

This Court has also repeatedly cautioned against restrictive

interpretations of Section 4 that would defeat the two fold

purpose of Section 4. Pfizer, Inc. supra, 98 S.Ct. at 588. In

this regard, in Radovich v. National Football League, 352 U.S.

445 (1957), this Court held that a professional football player

who allegedly was denied employment because of a black-

listing agreement which was the result of conspiracy to mo-

nopolize commerce in professional football could sue. In doing

so, this Court reasoned:

24

“Petitioner’s claim need only be ‘tested under the Sher-

man Act’s general prohibition on unreasonable restraints

of trade,’ . .. and meet the requirement that petitioner has

thereby suffered injury. Congress has, by legislative fiat,

determined that such prohibited activities are injurious

to the public and has provided sanctions allowing private

enforcement of the antitrust laws by an aggrieved party.

These laws protect the victims of the forbidden practices

as well as the public. ... Furthermore, Congress itself has

placed the private antitrust litigant in a most favorable

position through the enactment of $5 of the Clayton Act.

. . . In the face of such a policy this Court should not

add requirements to burden the private litigant beyond

what is specifically set forth by Congress in those laws.”

352 U.S. at 453-454. (Emphasis added, citation omitted.)

The application of the “target area” standing test in this

case is directly contrary to the liberal interpretation of Sec-

tion 4 of the Clayton Act mandated by Radovich, supra, and

emphasized in Pfizer, Inc., supra. Moreover, it completely

frustrates the policy of effective enforcement of the antitrust

laws reiterated in Jllinois Brick, supra, by denying any right

of recovery to the one who dealt directly with the monopolist

and who felt the full impact of the monopolist’s predatory act.

In this case Donovan proved an antitrust violation by a

monopolist—a deliberate predatory anticompetitive act, and

direct injury to Donovan’s business or property—the destruc-

tion of its installation and splicing business in FTC’s region—

by reason of that violation. Nothing more should be required

under Section 4, and additional obstacles to standing embodied

in the “target area” test as applied in this case should not

25

be endorsed by this Court. As stated in Malamud and Camp,

supra, as long as the challenged injury caused injury in fact,

and as long as the interest sought to be protected is within

the zone of interests to be protected under this statute, ade-

quate standing exists to pursue the claim. 521 F.2d at 1151-

1152; 397 U.S. at 152-153.

D. Issuance Of The Writ Of Certiorari In This Case Would

Complement Other Efforts To Promote Competition In

The Terminal Telephone Equipment Market.

Review of the decision of the Fifth Circuit Court of Appeals

in this case is particularly appropriate. This case involves an

attempt by a private company to become an active, competi-

tive force in an area of the economy that has been monopolized

for decades by operating telephone companies. Prior to the

Carterfone decision, supra, by the Federal Communications

Commission in 1968 operating telephone companies controlled

the sale, lease and use of all telephone equipment in their re-

spective areas. Those companies, including FTC, did so by

virtue of tariffs that they prepared and filed with the F.C.C.

and state regulatory bodies that absolutely prohibited the

interconnection of privately ownea telephone equipment to

telephone operating company facilities. The F.C.C. in Carter-

fone, supra, squarely determined that such tariff provisions

were unreasonable, unjustly discriminatory and in violation

of Sections 201 and 202 of the Communications Act (47 U.S.C.

§201 and §202).

In subsequent decisions, the F.C.C. has continued to at-

tempt to remove obstacles to free and open competition in the

terminal telephone equipment market. For example, tariffs

filed by operating companies including FTC following Carter-

26

fone, supra, required the use of telephone company supplied

connecting arrangements and network control signals units.?

The F.C.C., in Docket No. 19528, undertook to study the tech-

nical justification for requiring the use of this equipment. On

November 7, 1975, the F.C.C. issued its First Report and

Order in that proceeding. The F.C.C. found in most instances

requiring the use of such devices was unwarranted and the

F.C.C. established a program whereby registered terminal

equipment could be interconnected without the use of such

devices. 56 F.C.C.2d 593 (1975).

In a Second Report and Order in that proceeding dated

March 18, 1976, the F.C.C. further found that the tariff re-

quirements of connecting main telephones, PBX and key tele-

phone equipment solely through telephone company-provided

connecting arrangements are also unlawfully restrictive of the

customer’s right to use the telephone network in a manner

which is privately beneficial without being publicly harmful.

The F.C.C. further concluded that no valid legal or technical

basis supports the exclusion of main telephones, PBX and key

telephone equipment from the terminal equipment registra-

tion program authorized in its First Report. 58 F.C.C.2d 736

(1976). Pursuant to the Second Report and Order registered

PBX and key system equipment could be connected to the

telephone network effective August 1, 1976 and January 1,

1977, respectively, without the necessity of telephone company-

supplied connecting arrangements. Both the First and Sec-

ond F.C.C. reports and related orders were recently affirmed

by the Fourth Circuit Court of Appeals in North Carolina

Utilities Commission, et al v. F.C.C., 552 F.2d 1036 (4th Cir.

1977). An appeal to this Court is presently pending.

7 F.T.C.’s General Exchange Tariff Section 38, Original Sheet 4(w),

Paragraphs B, D, E, and F requires the use of such devices. Plain-

tiff's Exhibits 24, pp. 11-14, 19-27; Plaintiff's Exhibit 25, pp. 5-8, 13-

21; R. 158-161

27

The F.C.C. has also been confronted with attempts by state

regulatory agencies to prohibit interconnection of privately

supplied terminal equipment unless that equipment is used

exclusively for interstate communication. Since complete sep-

aration of the use of equipment between intra and inter-state

communication is a practical and economic impossibility, these

proposed state rules would have completely scuttled federal in-

terconnection policy. In Jn the Matter of Telerant Leasing

Corp., 45 F.C.C.2d 204 (1974), the F.C.C. held that state regu-

tory commissions were precluded from regulating or restrict-

ing interconnection in a manner that conflicted with F.C.C.

regulations governing the same equipment. The F.C.C.’s action

in this regard was affirmed in North Carolina Utilities Com-

mission v. F.C.C., 587 F.2d 787 (4th Cir.), cert. denied, 97

S.Ct. 651 (1976).

In short, it is absolutely clear that the federal communica-

tions policy, expressed by the F.C.C. and sustained by the

Circuit Court, is jo eliminate the operating telephone company

monopoly over terminal telephone equipment market and to

encourage competition in this sector of the economy. Yet by

terminating Donovan, FTC effectively served notice on other

potential competitors that FTC, despite this express national

policy, still regards the terminal equipment market in its

region as its private domain. It simply flies in the face of

express federal communications and antitrust policy to con-

clude, as the lower courts have done in this case, that Dono-

van—as both a potential and actual competitor of FTC—lacks

standing to sue FTC for predatory conduct directed at Dono-

van and designed and intended to discourage competition in

the terminal equipment market. Thus, this case presents this

Court with a unique opportunity to assist in effectuating na-

28

tional policy in this area of the economy as well as to eliminate

the confusion and uncertainty that exists with regard to stand-

ing to sue under Section 4 of the Clayton Act.

VII

CONCLUSION

The Fifth Circuit’s decision in this case, if left unreviewed,

announces to the world that a monopolist is free to destroy

the established business of a potential competitor for the

purpose of discouraging competition and completely escape

antitrust liability. This case presents this Court with an op-

portunity to condemn such conduct and to clarify and strength-

en the nation’s antitrust policy by eliminating the confusion

with regard to standing to sue that has plagued the courts

and litigants for years.

The Petitioner requests that the Writ of Certiorari issue.

Dated: March 7, 1978

JEROME B. SIMON

JAMES A. GALLAGHER

Attorneys for Petitioner

Donovan Construction

Company of Minnesota

MAUN, HAZEL, GREEN,

HAYES, SIMON and ARETZ

332 Hamm Building

Saint Paul, Minnesota 55102

(612) 221-1812

A-1

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

Civil Action No. 72-733 T-K

DONOVAN CONSTRUCTION COMPANY

OF MINNESOTA, a Corporation,

Plaintiff .

v.

FLORIDA TELEPHONE CORPORATION,

Defendant.

OPINION

MILLER, J.

Sitting by Assignment.

Donovan Construction Company (Donovan) brings this ac-

tion against the Florida Telephone Corporation (FTC)! con-

tending that the latter’s termination of business dealings with

the former violates sections 1 and 2 of the Sherman Anti-

trust Act. The suit, being bifurcated by order of March 14,

1975, was tried non-jury as to liability. After thorough re-

view of the record and the law applicable to this case, it is

our opinion that judgment should be entered for defendant.

FACTS

Donovan, a Minnesota Corporation and subsidiary of Dono-

van Companies, Inc., is a multi-business entity which engages

1 General Telephone Company of Florida was also originally named

a defendant but has since been dismissed as a party.

A-2

in yarious types of construction work. Two of Donovan’s busi-

ness endeavors, which involve electrical construction and sell-

ing telephone equipment and service, are germane to this liti-

gation.

FTC is a telephone company which conducts business pur-

suant to a Certificate of Public Convenience and Necessity

issued by the Florida Public Service Commission (FPSC)?

FTC serves a central geographic region of Florida covering

some nine counties and 6,000 square miles.* It is headquartered

in Ocala and has additional offices in Leesburg, Florida. FTC

provides local service within its operating territory and long

distance service outside its territory through its interconnec-

tion with the facilities of other telephone companies through-

out the United States.

General Telephone Company of Florida (GTF) is a tele-

phone company operating under a Certificate of Public Con-

venience and Necessity. It too serves a central but different

geographic region of Florida‘ and provides both local and

long distance (through interconnection) service to its cus-

tomers.

To properly understand Donovan’s theories of liability it

is necessary to summarize certain background information

pertinent to the telecommunications industry.

Industry Change

American Telephone and Telegraph Company (A T & T),

through its many holdings, provides the largest network of

telecommunications in the country. Either directly or through

the use of interconnection, A T & T provides long distance

2 See Plaintiff’s Exhibit (PX) No. 1.

3 See PX No. 2.

4 Jd.

A-3

service in the United States and throughout the world. Do-

mestic telephone service is of course supplemented by many

independent telephone companies (non-A T & T affiliated)

such as GTF and FTC and the entire network is statutorily

regulated by the Federal Communications Commission (FCC).°

Under statutory mandate telephone companies are required to

file tariffs with the FCC showing service charges and the

classifications, practices, and regulations justifying those

charges.

Over the years telephone companies—whether A T & T

controlled, Bell System operated or independent—have re-

fused to connec’ privately-owned telephone equipment with

their facilities, the reasons for which are many and diverse.

As noted by an FCC Hearing Examiner:

The telephone companies historically have opposed in-

terconnection. They have contended that they are now

solely responsible for the quality of telephone service,

and, if interconnection were to place a portion of the com-

munications path beyond their authority, they could no

longer accept responsibility for the quality of communi-

cation. They have further contended that such divided

control would hamper innovation and increase the cost

to the public of basic telephone service. For these rea-

sons the telephone companies have opposed the use of

interconnection devices, including the Carterphone.®

At any rate, for reasons not here particularly pertinent, the

death knell for this industry-wide resistance was sounded on

5 See 47 U.S.C. §151 et seq.

6 In re Use of the Carterphone Service in Message Toll Telephone

Service, 13 F.C.C. 2d 430, 439 (Aug. 30, 1967). A copy of this deci-

sion, which found existing tariff regulations that allowed phone

companies to resist interconnection to be unlawful, has been in-

troduced in evidence as PX No. 6.

A-4

June 26, 1968 when the FCC, in sustaining the Hearing Ex-

aminer, held that the tariff regulations which prohibited use

of interconnection devices were unlawful.’

Accordingly, a new branch of the telecommunications in-

dustry had been created and private companies were soon to

assume a new competitive stance in this field. That is, through

interconnection with the equipment operated by the already

established telephone companies, they began to sell and lease

their own telephone equipment. In short, the stage was set for

private concerns to compete with the telephone “establish-

ment”.

Resistance

The FPSC regulates the telephone industry in Florida. Be-

ing comparable to the FCC insofar as setting requirements for

members of the industry within its jurisdiction, the FPSC

likewise required telephone companies to file tariffs which

show rates, charges, contracts and regulations that apply to

services rendered and equipment supplied by them. We do

not believe it is necessary to detail the relevant events sub-

sequent to the Carterphone decision which bear on FTC’s re-

action to it. Suffice it to say that FTC was aware of and,

like most of the established telephone companies, hostile to it.

Moreover, FTC was one of the last Florida companies to

modify its tariffs to allow for interconnection of privately

owned equipment, this being done in December of 1971.8

Because of the certificate issued by the FPSC, FTC had

a lawful monopoly on the telephone service within its operat-

7In re Use of the Carterphone Device in Message Toll Telephone

Service, 13 F.C.C. 2d 420 (June 26, 1968) (PX No. 7), petition for

reconsideration denied, 14 F.C.C. 2d 571 (September 11, 1968).

8 Actually such revision was prompted by a hotel association’s fil-

ing a petition with the FPSC which charged that FTC’s extant

tariff was deficient for not reasonably accommodating intercon-

nection of privately owned or leased equipment.

A-5

ing territory. Subsequent to the Carterphone decision it con-

tinued to dominate the terminal telephone equipment market

in its geographic region at times pertinent to the events

which fostered this controversy. Before describing those events

we believe a brief look at the parties’ organizational structure

is in order.

Corporate Background

FTC, which was founded by Otto Wettstein, Jr. during the

twenties, has been over the years a phone company of modest

dimension. Operating for the most part in rural areas the

company underwent no significant changes, except for steady

growth, until Max E. Wettstein replaced his founding father

as President. Mr. Wettstein is presently Chairman of the

Board. The most important man, however, as respects this

litigation is Mr. Claude E. Locke, FTC’s Vice President of

Operations. Mr. Locke had responsibility for all operations

relating to commercial service; ie., construction, installation

and maintenance of all outside facilities including cables, poles,

wire and all telephone and other terminal equipment owned

by FTC. Donovan provided skilled contract labor to FTC for

this phase of defendant’s operations.

While the outside plant superintendent (O.P.S.) played an

important role in FTC’s dealings with independent contractors

—e.g. retaining their services, negotiating rates, etc.—it was

Locke who possessed ultimate authority in approving the

O.P.S.’s recommendations. In short it was Locke from whom

company policy could be fashioned.

While many of Donovan’s diversified business interests

were controlled by its President, Mr. John Donovan, direct

supervision over telephone construction work rested with Mr.

S. V. Christenson, Vice President. Accounting to him was Mr.

Robert Berroyer, who managed this particular phase in the

SEE amr aa Cramer ta On

A-6

Florida area; actually, Berroyer was the local representative

with authority. In turn he was assisted by a field superin-

tendent for the FTC area. This superintendent’s principal job

was to coordinate the supply of Donovan personnel with FTC’s

demand on a daily basis.

Electrical Construction Market

As noted earlier only two aspects of Donovan’s many di-

versified business operations pertain to this lawsuit: (1) the

telephone terminal service business (terminal equipment mar-

ket) spawned by Carterphone which we shall discuss later,

and (2) electrical construction (construction market) as it

pertains to telephone installation and maintenance on a sys-

tem-wide scale. The latter enterprise consisted of providing

skilled services necessary for the installation of telephone

service to customers of the various telephone companies that

contracted with Donovan. It is this end of the Donovan busi-

ness which was terminated by FTC.

Between June of 1969 and March of 1972—the date of

termination—Donovan supplied FTC with craftsmen, ie.,

splicers and installers, and equipment. Similar contract labor

was also supplied to GTF. Much of the work involved setting

up telephone switching equipment and installing of cable.*

With the sharp upsurge of FTC’s business, given monumental

impetus by the Walt Disney World complex then under con-

struction near Orlando, it was just not possible for FTC’s

work force to handle the necessary construction. Thus, FTC

sought independent contractors such as Donovan, Hoyt-Ed-

wards Company, and Burnup & Simms Company, to supple-

ment its regular labor force, as did other telephone companies

®For a detailed account of what services and supplies Donovan’s

craftsmen provided, see Tr. 44-6, 457.

A-7

experiencing similar business demands. In hiring such con-

tractors it appears to have been the established practice of

FTC to execute a letter agreement which was modified from

time to time as FTC’s demands fluctuated and/or Donovan’s

service charges changed.'”® Under this agreement Donovan

provided FTC with construction service until March of 1972

when the termination was effected.

Telephone Terminal Equipment Market

Donovan made the decision to enter the telephone service

business, and thus become a potential competitor of FTC, in

December of 1971. This new venture operated under the name

Independent Business Telephones but provided its services

solely in the Tampa area which is beyond FTC’s operating

territory; thus, it had not entered FTC’s geographic market.

In fact, as will be discussed later, Donovan had no intention

of competing with FTC. This part of plaintiff’s business con-

sisted of selling and leasing telephone equipment which in-

cluded, inter alia, automatic branch exchange and key tele-

phone systems sold by FTC and GTF.

The Termination

For reasons that will be stated, we believe the parties

placed undue importance on this part of the case. Donovan

contends that its construction services were terminated be-

cause of its decision to enter the telephone business which

made it a potential competitor in FTC’s terminal equipment

market. FTC maintains that Donovan was let go for business

reasons.

On March 3, 1972 FTC began to terminate Donovan’s con-

struction service when twenty men were let go. On March 10

twenty-six had been similarly notified and those remaining

(twenty-eight) were discharged on March 17. In much the

10 See e.g., PX Nos. 10-14.

A-8

same fashion—summarily, that is—GTF terminated Donovan

on February 18, 1972. Berroyer first contacted the O.P.S.

on March 7 to inquire about the termination and, subse-

quently, notified Christenson of this development who in turn

apprised Mr. Donovan.

A series of telephone conversations and a meeting (on

March 24) between Berroyer, Christenson and Locke fol-

lowed. What exactly was said during these events is in dis-

pute'' and, not suprisingly, is crucial to determining why

FTC ceased doing business with Donovan. However, after

careful consideration of all the facts presented and in view

of the law we believe controlling in this matter, the Court

need not decide this disputed issue of fact. Under undis-

puted facts on the record plaintiff cannot recover as a matter

of law.

DISCUSSION

Donovan proceeds under the conspiracy and monopoly sec-

tions of the Sherman Act.'? We shall discuss each theory of

liability separately.

Conspiracy

Conspiracies or combinations in restraint of trade clearly

are illegal under $1 so long as there is shown to be a plurality

of actors who acted in concert for an unlawful purpose.

Theater Enterprises, Inc. v. Paramount Film Distributing

11 The testimony of Wettstein and Locke significantly differs from

that of Donovan, Christenson and Berroyer.

1215 U.S.C. §1 provides in pertinent part:

Every contract, combination * * * or conspiracy, in restraint

of trade or commerce among the several States, or with foreign

nations, is declared to be illegal .. .

15 U.S.C. §2 provides in pertinent part:

Every person who shall monopolize, or attempt to monopolize,

or combine or conspire with any other person or persons, to

monopolize any part of the trade or commerce among the sev-

eral States * * * shall be deemed guilty. . .

A-9

Corp. 346 U.S. 537 (1954); Kiefer-Stewart Co. v. Joseph E.

Seagram & Sons, Inc., 340 U.S. 211 (1951). Within the con-

text of this case we note that concerted refusals to deal have

been deemed violations of $1 when their objectives have been

to keep new competition out of a market, Radiant Burners,

Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656 (1961);

to create a monopoly in a relevant product market, Poller v.

Columbia Broadcasting System, 368 U.S. 464 (1962); or to

maintain extant market control, Eastman Kodak Co. v. South-

ern Photo Materials Co., 273 U.S. 359 (1927).

Examination of the evidence leads this Court to conclude

that the §1 claims must fail because Donovan failed to prove

either of two alleged conspiracies. Plaintiff theorizes that

FTC conspired with GTF to restrain trade in (and monopo-

lize) one line of commerce (the terminal equipment market)

while FTC combined with Hoyt Williams to restrain trade in

another line of commerce (the construction market). While

plaintiff admitted, during oral argument, that the proof on

either score was rather weak the assertion nevertheless sur-

faces that inferences can be drawn from the evidence—all of

it circumstantial—to support a finding favorable to it on a

conspiracy theory.

Except for the fact that both GTF and FTC terminated

plaintiff within one month, there is not any proof on this

record that they acted in concert. Similarly the facts with re-

gard to Hoyt Edwards are skimpy. A mere showing that many

of Donovan’s workers almost immediately found the same

kind of employment with Hoyt Edwards is insufficient for this

Court to infer that it conspired with FTC to eliminate plain-

A-10

tiff, a supplier of cable splicers and installers, as a competi-

tor of Hoyt Edwards.'®

Reliance for plaintiff’s position is placed on Interstate Cir-

cuit, Inc., v. United States, 306 U.S. 208 (1939). While a con-

spiracy can be inferred from a similar and compatible course

of conduct we nonetheless believe plaintiff’s proof falls short

of the mark. We note that in /nterstate Circuit the defendant

did not deny complicity in the illegal agreement. Here FTC

denies any mutual involvement with GTC or Hoyt Edwards in

deciding to terminate Donovan. Moreover, since conscious

parallel business behavior does not conclusively establish an

illegal agreement under §1, it is for the fact finder to deter-

mine the existence of a conspiracy. See Theater Enterprises,

Inc. v. Paramount Film Distributing Corp., supra at 541. Judg-

ment shall therefore be granted for defendant on the §1 con-

spiracy claims.

Monopoly'*

We now come to the delicate legal issue raised by this pro-

ceeding, to wit: Does a monopolist, in terminating business

dealings with a potential competitor, for whatever reasons,

violate $2 of the Sherman Act when the refusal to deal has

no effect on the relevant market? The answer to this question

is no.

We believe part of Donovan’s difficulty lies in its designa-

tion of what market is relevant to the §2 claims being ad-

13 Moreover, the Court fails to see how such an agreement would

benefit FTC since it would be to defendant’s economic advantage

to deal with three independent contractors instead of two. This

observation is illuminated by the fact that Hoyt Edwards’ rates

increased after Donovan was discharged as a supplier of construc-

tion labor.

14 For the reasons stated eariier we shall not address the “conspiracy

to monopolize claim” being asserted by Donovan under §2.

A-11

vanced here.'® Any plaintiff, of course, must establish the

relevant product and geographic markets in a §2 monopoliza-

tion case. The product market circumscribes the commodity or

service in which the parties compete (potentially here) while

the geographic market merely delimits the territory in which

such competition exists. United States v. du Pont & Co., 351

U.S. 377 (1956). In this case we know that the relevant prod-

uct market involves terminal business telephone equipment.

The relevant geographic market is confined to FTC’s fran-

chised operating area.

Monopoly power is also a necessary predicate to sustaining

a charge of monopolization. United States v. Grinnell Corp.,

384 U.S. 563 (1966). FTC, being a public utility and regulated

by the FPSC, has a legally-sanctioned monopoly on market-

ing terminal business telephone equipment in its territory.

This is not to say, however, that FTC wields monopoly power.

Admittedly, the record indicates that FTC possessed over

a 90% share of this market at times material to this litiga-

tion and such an amount is sufficient to infer monopoly power,

see e.g., United States v. Grinnell Corp., supra; United States

v. Aluminum Co. of America, 148 F. 2d 416 (2 Cir. 1945),

in an appropriate case. Such numerical determinations are

only reliable when the facts do not provide us with informa-

tion to reconcile one’s position in the relevant market with

the more basic definition of monopoly power, ie., “the power

15Qn brief Donovan seems to attach importance to the “construc-

tion” market in which it competed with two other labor contrac-

tors. However, foreclosing plaintiff from participation in that

market, while it does show harm in the form of lost revenue

[every refusal to deal will arguably cause pecuniary loss, see e.g.,

Burdett Sound, Inc. v. Altec Corp., 515 F. 2d 1245 (5 Cir. 1975).]

was not the reason claimed nor proved to be responsible for the

termination. The damaging resuits or potential results must be

linked to the market in which the monopolist seeks to preserve.

See discussion at pp. 13-17, infra.

a

A-12

to control prices or exclude competition.” du Pont, supra at

391.

While an unfriendly motive coupled with ostensible market

power more often than not results in anticompetitive conduct,

those factors cannot be perfunctorily read to mean a §2 vio-

lation has been committed. We believe a close look at the facts

and law is necessary to reach the correct result. Our concern

for detail is sharpened by the following Supreme Court pas-

sage found in United States v. Griffith, 334 U.S. 100, 106-07

(1948) :

Section 2 is not restricted to conspiracies or combina-

tions to monopolize but also makes it a crime for any

person to monopolize or to attempt to monopolize any

part of interstate or foreign trade or commerce. So it is

that monopoly power, whether lawfully or unlawfully ac-

quired, may itself constitute an evil and stand condemned

under §2 even though it remains unexercised. For §2 of

the Act is aimed, inter alia, at the acquisition or retention

of effective market control. * * * Hence the existence

of power “to exclude competition when it is desired to

do so” is itself a violation of §2, provided it is coupled

with the purpose or intent to exercise that power. * * *

It is indeed “unreasonable, per se, to foreclose competi-

tors from any substantial market.” * * * The anti-trust

laws are as much violated by the prevention of competi-

tion as by its destruction. * * * It follows a fortiori

that the use of monopoly power, however lawfully ac-

quired, to foreclose competition, to gain a competitive ad-

vantage, or to destroy a competitor, is unlawful. (Em-

phasis added.) (Citations omitted.) (Footnotes omitted.)

We also must view FTC’s actions in the context of an “at-

tempt to monopolize” charge under $2 Sherman. That is to

A-13

say, if FTC’s refusal to deal with Donovan did not actually

constitute an act in furtherance of monopoly extant, did such

conduct amount to an attempt to achieve monopoly in the rele-

vant terminal equipment market. In American Tobacco Co. v.

United States, 328 U.S. 781, 785 (1946) the Supreme Court

stated:

The phrase “attempt to monopolize” means the employ-

ment of methods, means and practices which would, if

successful, accomplish monopolization, and which, though

falling short, nevertheless approach so close as to create

a dangerous probability of it... .

Thus, it would seem that for a violation of this provision of

§2, one must show that the “attempt” results in monopoly

achievement or comes precariously close to succeeding. Since

FTC had a natural monopoly on the relevant market before

Donovan’s termination one might suggest that an “attempt’’

claim is inapplicable here. However, if specific intent is pres-

ent certain conduct can be violatory where the primary ob-

jective is to build monopoly or destroy competition. See Times-

Picayune Publishing Co. v. United States, 345 U.S. 594

(1953); Lorain Journal Co. v. United States, 342 U.S. 148

(1951).

In our analysis of this case plaintiff has not established

a violation under either provision of §2.

First of all we are dealing with a defendant that provides

a regulated service. Much if not all of what FTC could do was

dictated by the regulating agency. While FTC certainly had a

monopoly on providing terminal equipment in its authorized

operating territory, it could not unilaterally or in discretion-

ary fashion control prices. And under the facts as they per-

tain to Donovan,'® it could not be said in vacuo that FTC had

16 Every antitrust case must turn vpon its own facts. Maple Floor-

ing Mfg. Ass’n. v. United States, 268 U.S. 563 (1925).

i

A-14

the power to exclude competition in its terminal equipment

market. Theoretically Carterphone, in mandating the use of

interconnection as the means by which private newcomers

to the industry ‘ould gain access to the establishment-inte-

grated network— and thus be put in a position to compete in

the equipment n:«-kets—, compels this conclusion. Realisti-

cally, of course, one can envision ways in which FTC might

use its monopolistic position to foreclose or impede such com-

petition ; however, such uses of monopoly power have not been

shown here. To be sure it is the use of monopoly power that

triggers a $2 charge and we fail to perceive how that pre-

requisite to recovery can be equated with the refusal to deal

sub judice. In other words Donovan has not shown that FTC’s

rejection of its electrical construction services caused Donovan

to be hindered in competing with defendant in its terminal

equipment market.

Since a unilateral refusal to deal with anyone is legitimate

activity so long as such refusal is not made to create or main-

tain a monopoly, see United States v. Colgate & Co., 250 U.S.

300 (1919), it only seems logical to ascertain the results of the

action taken by the monopolist.

As will shortly be seen the inquiry here is directly related

to the prior discussion of monopoly power. And again we are

troubled by the fact that FTC’s assailed conduct did not have

any discernible anticompetitive effect on the relevant market

in which Donovan had become a potential entrant. Except for

the testimony of plaintiff’s President which indicates Donovan

lost “substantial” income from the termination,'’ there is

nothing in the record to suggest that plaintiff was “destroyed”,

“precluded”, or even hampered in an effort to enter the termi-

17 Tr. 398.

A-15

nal business telephone market in FTC’s territory: on the con-

trary, Donovan makes no such claim and in fact had no in-

tention of competing with FTC. We place a great deal of im-

portance on this revelation because examination of cases factu-

ally similar to the one at issue supports our belief that plain-

tiff must be harmed in relation to the market entered or po-

tentially entered—ie., the market the monopolist considers to

be threatened. We now turn to three cases that speak for this

view.

In Otter Tail Power Co. v. United States, 410 U.S. 366

(1973), a regulated utility company had a virtual monopoly on

the retailing of electric power to 465 towns in a three state

area. Some of these towns were permitted to establish their.

own “municipal systems” for direct power distribution to

local consumers. Each of these towns would then become a

competitor of Otter Tail inasmuch as each municipal system

would retail the electricity to its own citizenry. To become

power retailers each town had to purchase electricity at whole-

sale which necessitated the interconnection of their respective

systems with existing transmission lines. Otter Tail was the

only party with existing transmission lines and it refused to

sell energy to the municipal systems at wholesale. It also re-

fused to “wheel” (deliver) power from other wholesale sup-

pliers.

After ruling that Otter Tail was not immune from anti-

trust regulation the Court stated:

The record makes abundantly clear that Otter Tail

used its monopoly power in the towns in its service area

to foreclose competition or gain a competitive advantage,

or to destroy a competitor, all in violation of the anti-

trust laws. See United States v. Griffith, 334 U.S. 100,

107. * * * Use of monopoly power “to destroy threat-

>

>

7

2

A-16

ened competition” is a violation of the “attempt to

monopolize” clause of §2 of the Sherman Act. Lorain

Journal v. United States, 342 U.S. 143, 154; Eastman

Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359,

375.

Otter Tail, supra at 377. (Emphasis added.) Clearly Otter

Tail’s use of monopoly power had an anticompetitive effect

on the relevant market it monopolized.

The second case, Lorain Journal Co. v. United States, 342

U.S. 148 (1951), is different in two respects. Here it was de-

termined that 1) the defendant refused to deal with third par-

ties and 2) such conduct did not preclude but seriously under-

mined competition. A newspaper publisher owning the only

daily newspaper in Lorain, Ohio had a monopoly on merchant

advertising in that city. Quite naturally the publisher became

miffed when a local concern was granted FCC permission to

establish a radio station which, in addition to broadcasting

news, disseminated advertisements similar to those published

by the Journal. Thus, when many of the Journal’s customers

also began to advertise over the radio station, the publisher

reacted by refusing to accept local advertising from any party

using the radio station for local advertising. Significantly the

High Court notes that—

[b]ecause of the Journal’s complete daily newspaper

monopoly of local advertising in Lorain and its practically

indispensable coverage of 99% of the Lorain families, this

practice forced numerous advertisers to refrain from us-

ing WEOL [the station] for local advertising. That result

not only reduced the number of customers available to

WEOL in the field of local Lorain advertising and

strengthened the Journal’s monopoly in that field, but

wo own

A-17

more significantly tended to destroy and eliminate WEOL

altogether.

Lorain Journal, supra at 149-50. (Emphasis added.) The

Court held that such conduct constituted a violation of the

“monopolization” and “attempt” provisions of §2. Note that

while the publisher refused to deal, not with the station but

with the competitors’ mutual customers, such conduct did

amount to action which at least severely lessened the agency’s

ability to compete with the publisher.'* See Eastman Kodak

Co. v. Southern Photo Materials Co., supra, where the same

effect obtained when the monopolist refused to deal with the

competitor reasonably.

The Fifth Circuit’s most enlightening refusal to deal case

is Six Twenty-Nine Productions, Inc. v. Rollins Telecasting,

Inc., 365 F. 2d 478 (5 Cir. 1966). This case involved a tele-

vision station which broadcasted commercial advertising in

certain parts of Florida and Alabama. Being the only TV sta-

tion in Pensacola, Florida it had a natural monopoly on all ad-

vertising desired for transmission over video airwaves within

its broadcast limits. Prior to plaintiff’s entering the advertis-

ing business defendant aired commercials prepared either by

it or the three licensed advertising agencies it recognized in

Pensacola. For those commercial slots handled, but not directly

prepared and sold, by the station a 15% commission was paid

to the referral agency making the placement.

After piaintiff commenced operation a local mobile home

business, which had previously advertised directly through

the station, employed the plaintiff as its advertising agency.

The station, in refusing to recognize the plaintiff as a quali-

fied agency, foreclosed the attempt to have a commercial aired

18 This was due to the fact that WEOL derived almost all of its in-

come from advertising. Lorain Journal, supra at 148.

A-18

by agency placement. In reversing the district court’s granting

of summary judgment for the station the appellate court held

that the complaint did state a claim under §2. In reviewing

what the plaintiff had alleged the court added a paragraph

that, again, we feel has particular importance with respect

to refusals to deal in the context of a §2 charge:

The complaint further alleged that the standards set

up by the defendant were for the express purpose of

preventing the plaintiff from engaging in the business

of an advertising agency and served to destroy competi-

tion by plaintiff and in fact rendered transaction of busi-

ness by plaintiff impossible.

Six Twenty-Nine Productions, supra at 481. (Emphasis

added.) Thus the Court held that a $2 claim was made out

where the refusal to deal prevented the plaintiff agency from

competing with the TV station in the commercial prepara-

tion market.

As can be seen by comparison with these cases, what Dono-

van has proven does not measure up to a violation under §2.

In all three cases each refusal to deal was determined to be

a use of monopoly power. Here the refusal to deal was not a

use of monopoly power simply because it did not—and could

not—have the effect of excluding competition. Significantly,

in all three cases the defendants’ refusal to deal resulted either

in the target competitor’s being rendered unable to compete

(Otter Tail and Six Twenty-Nine) or seriously weakened in

its ability to compete (Lorain Journal)'*® with the respective

defendants in the relevant markets. Here Donovan was not—

and could not be—precluded from competing with FTC.

19In the case before us electrical construction was but one enter-

prise from which Donovan derived revenues the diminishing of

which we find did not impair its ability to enter FTC’s terminal

equipment market.

A-19

Our assessment of this case is also compatible with estab-

lished law which distinguishes between conduct that arguably

fits within the statutory language and that which is truly ac-

tionable. Cf. Credit Bureau Reports, Inc. v. Retail Credit Co.,

476 F.2d 989, 992, petition for rehearing denied, 478 F. 2d

1402 (5 Cir. 1973) (en banc). It must be realized that we are

dealing with a private plaintiff proceeding under §4 of the

Clayton Act, 15 U.S.C. §15, for treble damages; thus, the anti-

competitive effect wrought by the challenged conduct must

cause harm to the litigant for which compensation is war-

ranted. See Credit Bureau Reports, supra at 992. Plaintiff

simply did not demonstrate that FTC’s refusal to deal pro-

duced an anticompetitive impact which is redressable under

§2 of the Sherman Act.

Accordingly, judgment shall be entered for defendant on

the monopolization claims.

Findings of fact and conclusions of law have not been sepa-

rately stated but are included in the body of the foregoing

opinion as specifically authorized by 52(a) of the Federal

Rules of Civil Procedure.

An appropriate order shall be entered.

Dated: November Ist, 1976.

A-20

APPENDIX B

DONOVAN CONSTRUCTION COMPANY OF

MINNESOTA, a corporation,

Plaintif f-Apnellant,

vs.

FLORIDA TELEPHONE CORPORATION,

a corporation,

Defendant-A ppellee.

No. 76-4428.

United States Court of Appeals,

Fifth Circuit.

Dec. 22, 1977.

Antitrust action was brought charging chat corporate de-

fendant had monopolized or attempted to monopolize inter-

connect business. The United States District Court for the

Middle District of Florida, John L. Miller, J., entered a judg-

ment in favor of defendant, and plaintiff appealed. The Court

of Appeals held that plaintiff which did not deal in market

where alleged antitrust violation occurred or intend to enter

such market did not have standing to sue under antitrust laws.

Affirmed.

1. Monopolies—28 (1.6)

To have standing to sue for treble damages under Clayton

Act, plaintiff must have suffered an injury of type antitrust

laws were intended to prevent. Sherman Anti-Trust Act, § 2,

15 U.S.C.A. § 2; Clayton Act, § 4, 15 U.S.C.A. § 15.

2. Monopolies—28 (1.6)

To have standing to sue for treble damages under Clayton

Act for antitrust violation plaintiff must be within sector of

ne ee a

A-21

economy threatened by breakdown in competitive conditions.

Sherman Anti-Trust Act, § 2, 15 U.S.C.A. § 2; Clayton Act,

§ 4, 15 U.S.C.A, § 15.

3. Monopolies—28(1.6)

Plaintiff which did not deal in market where alleged anti-

trust violation occurred or intend to enter such market did not

have standing to sue under antitrust laws for damages for

alleged antitrust violation Sherman Anti-Trust Act, § 2, 15

U.S.C.A. § 2; Clayton Act, § 4, 15 U.S.C.A. § 15.

Appeal from the United States District Court for the Middle

District of Florida.

Before JONES, GODBOLD and GEE, Circuit Judges.

PER CURIAM:

In this antitrust case, the defendant, Florida Telephone Cor-

poration (FTC), provides telephone service to a central

Florida region. FTC also sells terminal telephone equipment

in its region. This is sometimes called the “interconnect busi-

ness.” The plaintiff, Donovan Construction Company engages

in many businesses. For 2 1/2 years Donovan provided FTC

with electrical construction services, bui shortly after Dono-

van decided to enter the interconnect business in another

region of Florida FTC terminated their relationship. Donovan

sued under the antitrust laws for the damage it suffered in

its electrical construction business, arguing among other

things that FTC had monopolized or attempted to monopolize

the interconnect business. 15 U.S.C. § 2.! The parties stipu-

lated that FTC’s region was a relevant market for the inter-

connect business, and the district court found that Donovan

1 Donovan has limited its appeal of the district court’s judgment in

favor of FTC to the claims of monopolization or attempted monop-

olization.

A-22

did not intend to enter that market. We hold that Donovan

lacks standing to sue under the antitrust laws.

[1-3] To have standing to sue for treble damages under

Clayton Act § 4, 15 U.S.C. § 15, a plaintiff must have suffered

an injury of the type the antitrust laws were intended to pre-

vent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.

477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). We have required

that the plaintiff must be within the target area. That is, the

plaintiff must be within the sector of the economy threatened

by a breakdown in competitive conditions. Tugboat, Inc. v.

Mobile Transportation Co., 534 F.2d 1172 (CA5, 1976);

Southern Concrete Co. v. U. S. Steel Corp., 535 F.2d 313 (CA5,

1976); Jeffrey v. Southwestern Bell, 518 F.2d 1129 (CA5,

1975) ; Battle v. Liberty National Life Insurance Co., 493 F.2d

39 (CA5, 1974) ; Dailey v. Quality School Plan, Inc., 380 F.2d

484 (CA5, 1967). The alleged antitrust violation threatened

the interconnect business in FTC’s region. Because Donovan

did not in any way deal in that market, or intend to do so,

Donovan was not within the sector of the economy threatened

by the alleged violation.

The judgment of the the district court is AFFIRMED.

ee ee Perey

A-23

APPENDIX C

UNITED STATES COUR?’ OF APPEALS

FOR THE FIFTH CIRCUIT

No. 76-4428

D. C. Docket No. CA-72-733-T-K

DONOVAN CONSTRUCTION COMPANY

OF MINNESOTA, A Corporation,

Plaintiff-Appellant,

vs.

FLORIDA TELEPHONE CORPORATION,

A Corporation,

Defendant-A ppellee.

Appeal from the United States District Court for the

Middle District of Florida

Before JONES, GODBOLD and GEE, Circuit Judges.

JUDGMENT

This cause came on to be heard on the transcript of the

record from the United States District Court for the Middle

District of Florida, and was argued by counsel;

ON CONSIDERATION WHEREOPF, It is now here ordered

and adjudged by this Court that the judgment of the said Dis-

trict Court in this cause be, and the same is hereby, affirmed;

It is further ordered that plaintiff-appellant pay to defen-

dant-appellee, the costs on appeal to be taxed by the Clerk of

this Court.

December 22, 1977

Issued As Mandate:

A-24

APPENDIX D

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 76-4428

DONOVAN CONSTRUCTION COMPANY OF

MINNESOTA, A Corporation,

Plaintiff-Appellant,

vs.

FLORIDA TELEPHONE CORPORATION,

A Corporation,

Defendant-A ppellee.

Appeal from the United States District Court for the

Middle District of Florida

ON PETITION FOR REHEARING

(January 27, 1978)

Before JONES, GODBOLD and GEE, Circuit Judges.

PER CURIAM:

IT IS ORDERED that the petition for rehearing filed in

the above entitled and numbered cause be and the same is here-

by DENIED.

Entered for the Court:

JAMES BOLAND

United States Circuit Judge

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