Petition — Northwest Power Products, Inc. v. Omark Industries, Inc.

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Supreme Court, U. ee

ee ee

NOV lL? 1978

TEDAK, JR., CLERK

Oy fda) a ‘

Supreme Court of the United States

OCTOBER TERM, 1978

NORTHWEST POWER PRODUCTS, INC.,

Plaintiff-Petitioner

OMARK INDUSTRIES, INC., BOB WOOTEN, and

BOSCO FASTENING SERVICE CENTER, INC.,

Defendants-Respondents

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIFTH CIRCUIT

JACK N. PRICE

PrIcE & WILLIAMS

306 E. 11th Street, Suite L-7

Austin, Texas 78701

VERNON TEOFAN

UNGERMAN, HILL, UNGERMAN,

ANGRIST, DOLGINOFF & TEOFAN

Room 820, 1025 Elm Street

Dallas, Texas 75201

Attorneys for Plaintiff-Petitioner

Northwest Power Products, Inc.

EAST EALERTS 24S ABD SECTS AT SESE! IPOS AD ESA EENSER IOAN)

Alpha Law Brief Co., One Main Plaza, No. 1 Main St., Houston, Texas 77002

TABLE OF CONTENTS

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Background and Relationship of Parties ............

The Market ........ eee eee tcee ns cee acai xivi

Pre-Conspiracy Competition by Omark and Bosco ....

RE shat neew sone dis cu asii codiecees

Addition of Bosco and Execution of the Conspiracy

I Cbiudbendes bes cden sasedehweaweede

Public Injury and Adverse Effect on Competition ....

Reasons for Granting the Writ ..................600.

The Fifth Circuit Court of Appeals improperly

repudiated the Pick-Barth doctrine and imposed

undue and unnecessary strictures upon the cause

of action for conspiracy to eliminate competition

i, 5 ant ac ns nine ARNE 08 O46 bp

(a) Pick-Barth and its progeny represent more

than forty-five years of authority ...........

(b) Neither the trial court nor the appellate court

has advanced a valid reason for distinguishing

or repudiating the Pick-Barth cause of action.

and time-tested reasoning. ................

The holding that the defendant must possess sub-

stantial market power approaching that of mo-

nopoly and gain an increment of monopoiy through

his unfair competition imposes undue and unneces-

sary restrictions on proof of an offense under rule

iia oa sw Wetirkchile ¢ Waitin SERS o's

Page

(a) The conclusion that in the absence of market

impact forbidden by the law of mergers,

interests protected by the antitrust laws never

arise is unsupportable. ...........eeeeeees 49

(b) Application of merger tests to rule of reason

cases is not justified by the illogical conclusion

that if a defendant can achieve the desired re-

sult by lawful merger, elimination of a com-

petitor by unfair competition will not give rise

Se. Pee pert eer yy Pree 50

petition are not in “general conflict”. ...... 51

3. An unreasonable restraint of trade in violation of

Sec. 1 of the Sherman Act was shown, under tra-

ditional rule of reason tests. ........+eseeeee- 52

CR viditinnas htede cinensen ewes EE dissed vewresuh 58

SS I is ena cac nace bende basocheewnesss 60

TABLE OF CASES

CASES Page

Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 42

American Tobacco Co. v. U.S., 147 F.2d 93 (6th Cir. 1944) 56

American Tobacco Co. v. U.S., 221 U.S. 106 ............ 53, 54

Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940) ...... 48

Appalachain Coals, Inc. v. U.S., 288 U.S. 344, 53 S.Ct.

(ee a Re er ere rere 56

Associated Radio Service Co. v. Page Airways, Inc., 414

fe meh RE rerererrrr rrr en 35, 38, 39

Atlantic Heel Co., Inc. v. Allied Heel Co., Inc., 284 F.2d

et Be | ST eT er ee ere

ES 22, 23, 24, 25, 26, 27, 29, 30, 32, 33, 34, 38, 39, 44

Bale v. Glasgow Tobacco Board of Trade, Inc., 339 F.2d

SUL (Oe Gai BEE b.o'0 bck cen vase ssahnn th padeedaws 56

Cherokee Laboratories, Inc. v. Rotary Drilling Services,

Inc., 383 F.2d 97 (Sth Cir. 1969), cert. den., 390

Cas WOO ous Ses ctbinvac csv abdus habs eli at teases 25, 26

Chicago Board of Trade v. U.S., 246 U.S. 231 ...... 47, 48, 54, 56

Cleaves v. Peterboro Basket Co., 54 F.2d 101 (D.N.H.

DOPED v:. auton sd tkauds Hebe bel sche esaeke aio eneeae 24

III

CASES Page

Fashion Originators Guild v. Federal Trade Commission,

52 a A TO ie A RAs 31, 41, 42, 43

William Filenes Sons Co. v. Fashion Originators Guild,

eS 3 er ee eee ee 47, 54

Fortner Enterprises, Inc. v. United States Steel Corp., [1969

Trade Cases, {| 72,575] 394 U.S. 495, 509 (1969) ..... 33, 34

Martin B. Glauser Dodge Co. v. Chrysler Corp., 418

Fame. 16000 (US DL. DAF. I9TO) ccisiccccs codes 47, 48,55

H & B Equipment Co. v. International Harvester,

F.2d Sou Sa MOU cd vevetcs Oranh aes cuties 48

Mr. Hanger, Inc. v. Rizzuto, 410 F.Supp. 1158 (S.D.N.Y.

PE A ha waaay LEW wha y hens at abe Bab EN's bales ane t 39

Interborough News Co. v. Curtis Publishing Co., 127

A WN feds lo chaos ieee wanes bhee theses cess ts 48

International Salt Co. v. U.S., 332 U.S. 392 (1947) 31,41, 42, 43, 46

Kestenbaum v. Falstaff, F.2d (Sth Cir. 1978) .. 48

Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207

SE ais CPS b eReC hes aCEs Lado at eas A ameead bcecds os 45

Lynch v. Magnovox, 94 F.2d 883 (9th Cir. 1938) ........ 48

Mar Food Corp. v. Doane, 405 F.Supp. 730 (N.D. III.

SOFEE iss as Cheeses oo HUSSARS Ob bE EES REL NOR Cde Sb ciees 39

Northern Pacific Railway v. U.S., 356 U.S. 1 (1958) 31, 40, 43, 45, 53

Package Closure Corp. v. Seal-Right [1944-45 Trade Cases,

57,277) 141 F.2d 972-978 (2nd Cir. 1944) .......... 24

Parmalee Transportation Co. v. Keeshin, 144 F.Supp. 480 48

Perryton Wholesale, Inc. v. Pioneer Distributing Co., 353

og Si. | are rere 24, 25, 26, 27, 29, 34, 38, 39

Albert Pick-Barth v. Mitchell Woodbury Corp., 57 F.2d 96

oR A. Rr eee ee ry ee ee 2, 19, 20,

21, 22, 23, 25, 26, 27, 29, 30, 31, 32, 33, 34, 38, 39, 40, 41, 51

Poller v. Columbia Broadcasting System, Inc., 368 US.

Se CEE Pa sacar eed th denved Maaree i a'edadiss 58

Quality Mercury Inc. v. Ford Motor Co., 542 F.2d 466 (8th

Lat En ta cca dove heoken’ hee ae ewe a Ooo OR ROS 55

Red Wing Carriers v. McKenzie Tank Lines, Inc., 443

PA ee Let ee SOTED siedenecavodewectisseas 39

Richfield Oil Corp. v. Karseal Corp., 271 F.2d 709........ 47

Rogers v. Douglas Tobacco Board, 266 F.Supp. 636 ...... 48

Sandidge v. Rogers, 167 F.Supp 553 (S.D. Ind. 1958) .... 47,55

C. Albert Sauter Co. v. Richard S. Sauter Co., 368 F.Supp.

See ME, DU BPPOD 6 evansdecvnncsisncne 22, 27, 28, 29, 38, 39

Snyder Champaign-Urban A Motor Lodge, Etc. v. Howard

Johnsons Motor Lodge, Inc., Howard Johnson Co., Etc.,

1976 Trade Cases, {[ 6,142 (U.S. D.C. S.D. Til. 1976) ...35, 36,39

Southland Reship, Inc. v. Leslie Flegel, et al, 401 F.Supp.

Pee Ct EE NE Gs GN a lcs Se ceeds us tevstass 34, 35, 38, 39

CASES Page

Standard Oil Co. v. U.S., 222 U.S. 1 (1911) ......... 28, 53, 54, 56

Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., 430

F Supp. 1234 (N.D. lows 1977) . cccoccvesvcsecseveds 39

Sugar Inatitute v.:US., 200 Tb. FES os ccccccsctcvccceces 53

Summers v. Abraham Lincoln Savings & Loan Association,

66 FAD. SS TK... Pe CRG ee soe ook bi0c cos do plenas 48

Times Picayune Pub. Co. v. U.S., 345 U.S. 594, 73 S.Ct.

O82, OF Tudeee BRET <0 knee éb40-0 secbind bien shane 56

Tower Tire & Auto Center v. Atlantic Richfield, 392 F.Supp.

S008 CRT TR FReee ns ckkedkecseosancurceseets 31, 35, 36, 39

U.S. v. American Linseed Oil Co., 262 U.S. 371 .......... 42

ie ee . SBE Pr rrr eee 48,54

U.S. v. E. I. duPont deNemours & Co., 353 U.S. 586 (1957) 49

U.S. v. First National Bank & Trust Co. of Lexington, [1964

Trade Cases, {] 71,072], 376 U.S. 665, 673 (1964) ...... 33,34

U.S. v. Maryland & Virginia Milk Producers, Association,

179 F.2d 426 (U.S. App. D.C. 1949), cert. den. 338 U.S.

OBE”... > naksoanccheenni oeane tee 31, 42, 43

US. v. Richfield Oil, 72 S.Ct. 665, 343 U.S. 922 92 L.Ed.

RODS: 0 s-0:0sddhinnss sonnet on bend sneees see 56

U.S. v. Standard Oil Co., 78 F.Supp. 850, aff’d 69 S.Ct.

1051, 337 US. 206, FB. LMG. ESTE. sos vcewnwede chvnds 49, 55, 56

Vogue Instruments Corp v. Lem Industries Corp., 40 F.R.D.

097-C3.D, FES. TORY as bess 603 o000s0c ean aaen ss 39

George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc.,

PBF Bes Re | eer eee re

Pee een eg ey ge 28, 29, 30, 31, 32, 33, 34, 36, 37, 38, 45

Winn Avenue Warehouse, Inc. v. Winchester Tobacco Co.,

ee CUA £3 ee eee 56

Woods Exploration & Producing Co. v. Aluminum Co. of

America, 438 F.2d 1286 (Sth Cir. 1971) .............. 37

CCH Trade Regulation Reporter, Vol. 1, | 650, p. 1291 ... 48

SOc. 1, TRO RE vg kona c0sceneccevasncabaueeeee

2,3, 19, 20, 22, 25, 26, 27, 29, 38, 44, 47, 49, 50, 52, 56, 58, 59

mee. 2, TR BE hac dnctcacadsdedasaecaeeen 26, 46, 47, 49, 50

Suc. 5, CRN BOE sin cic ce ve cescbideseeewh eben eee 49

ne. (4, COMORES BE ae kid's vn oni ssbics c wan anees one 3

SOG, 7, COO Be viceccdlivansveubeuksaeeneenee ae 49, 50

wee 15 UBA, See OB asec ccnks sécedsdweee tree 49

NO.

Supreme Court of the Tnited States

OcTOBER TERM, 1978

NORTHWEST POWER PRODUCTS, INC.,

Plaintiff-Petitioner

Vv.

OMARK INDUSTRIES, INC., BOB WOOTEN, and

BOSCO FASTENING SERVICE CENTER, INC.,

Defendants-Respondents

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIFTH CIRCUIT

To The Honorable Supreme Court Of The United States:

Petitioner, Northwest Power Products, Inc., respectfully

prays that a writ of certiorari issue to review the judgment

of the United States Court of Appeals for the Fifth Cir-

cuit entered in this proceeding on July 10, 1978.

OPINIONS BELOW

The opinion of the Court of Appeals is reported in

F.2d. , C.C.H. 1978-2 Trade Cases, 4 62,142.

The opinion of the district court is unreported.

JURISDICTION

The judgment of the Court of Appeals was entered on

July 10, 1978. A timely filed petition for rehearing and

petition for rehearing en banc was denied on August 24,

1978, and this petition is filed within ninety days of that

date. Jurisdiction is invoked under 28 U.S.C. 1245(1).

QUESTIONS PRESENTED

1. Should the doctrine of Albert Pick-Barth v. Mit-

chell Woodbury Corp., 57 F.2d 96 (1st Cir. 1932) and

its progeny, that a conspiracy to eliminate a competitor

by unfair means is a per se violation of Sec. 1 of the

Sherman Act, be repudiated even though it has been

followed by the First and Tenth Circuit Courts of Ap-

peals and other courts for over forty-five years and has

never been rejected previously by any appellate court?

2. Should the Pick-Barth doctrine be so restricted that

a conspiracy to eliminate a competitor by unfair means

will violate the antitrust laws only under rule of reason

concepts and only if a defendant firm has substantial

market power approaching that of monopoly and can

gain an increment of monopoly through its unfair com-

petition?

(a) Are such restrictions justified by reasoning that

absent market impact comparable to that forbid-

den by the law of mergers, the interests protected

by the antitrust laws never arise?

(b) Is there any validity to a conclusion that if a de-

fendant can achieve the desired result of eliminat-

ing a competitor by lawful merger, elimination

of that competitor by unfair competition will not

give rise to an antitrust violation?

in “general conflict?”

3. Do the facts in this case raise an issue of unreason-

able restraint of trade in violation of Sec. 1 of the Sher-

man Act?

STATUTE INVOLVED

The statutory provisions involved are Sec. 1 of the

Sherman Act, 15 U.S.C. Sec. 1, and Sec. 4 of the Clayton

Act, 15 U.S.C. Sec. 15, which provide in pertinent part:

“Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several states, or with foreign na-

tions, is hereby declared to be illegal.”

“Any person who shall be injured in his business or

property by reason of anything forbidden in the

antitrust laws may sue therefor in any district court

of the United States in the district in which the

defendant resides or is found or has an agent... .”

STATEMENT OF THE CASE

Background and Relationship of Parties

Raymond L. McElroy, sole owner and president of

Northwest,’ went to work for Omark,’ a manufacturer of

powder actuated tools and products, as an employee in

1961. He subsequently formed Northwest, which became

1. Plaintiff-Petitioner.

2. Defendant-Respondent.

the Omark distributor in the Dallas-Fort Worth area in

1967. Wooten’ was employed by both Omark and North-

west at pertinent times, and was sales manager for

Northwest immediately prior to its termination by Omark.

He became sales manager for Bosco’s* powder actuated

tool products sales shortly after being fired by Northwest

and prior to receipt of termination notice by Northwest.

Crowder, Whitaker and May°® were all employees of

Northwest at the time it was terminated, and immediately

became employees of Bosco. Bosco is a supply company

furnishing various products to the construction industry

in the Dallas-Fort Worth area. Prior to becoming the

Omark distributor, Bosco sold powder actuated tool

products “over the counter.” Afterwards, Bosco instituted

a “field sales” program using the former Northwest sales

force.

The Market

The case is concerned with the market for powder

actuated fastening tools and products in the Dallas-Fort

Worth metropolitan area. At various times, Nelson, Ram-

set, Speed Fasteners, Ammo Tools, Greenly, Diamond,

Uniset, Pyramid, Bostitch, and Hilti also have sold prod-

ucts in the “PAT” line of construction products in the

Dallas-Fort Worth market. (App. 165-168.) At the time

of its termination as an Omark distributor, McElroy con-

sidered Northwest to be the dominant factor in the Dallas-

Fort Worth market, with a market penetration of forty

(40%) percent. (App. 174.) Mr. George R. Witten,

3. Defendant-Respondent.

4. Defendant-Respondent.

5. Alleged co-conspirators.

marketing expert, attributed a somewhat smaller market

share, ie., 18-20% to Northwest. (App. 149, 433.)

There are nine national manufacturers of “PAT” products,

all of whom are represented in the Dallas-Fort Worth

market. Omark ranks number two nationally with about

25% of the market. (App. 337-346.) It also ranks number

two in the Dallas-Fort Worth market. Mr. Crispe, Omark

representative stated that Omark’s market study indicated

that Hilti led the Dallas-Fort Worth market with 35%,

and the balance of the market (after exclusion of Hilti’s

and Omark’s shares), i.e., less than 50%, was divided

among the remaining competitors. (App. 344-346.)

Prior to termination of Northwest, the only Omark

distributors in the Dallas-Fort Worth market were North-

west and Mac McLeroy Fasteners of Garland, Texas.

(Depo. McElroy, 110.) Northwest purchased about $4.00

of product to every $1.00 by McLeroy Fasteners. (App.

175-177.) Another estimate is that Northwest purchased

$20,000 a month in Omark products and McLeroy

Fasteners, $1,000 a month. (App. 370.) At the time of

the acts complained of by Northwest, about 2/3rds of

Omark’s total business in the Dallas-Fort Worth market

was in the powder actuated tool line. (App. 178.) Mc-

Leroy Fasteners was never a significant factor in the

Dallas-Fort Worth fastening market. (App. 179.)

Northwest has continued in the market since the at-

tempt to eliminate it, but on a considerably restricted

basis. It sells powder fastening products manufactured

by Ramset and Diamond, and handles a line of insula-

tion welding systems. Northwest also handles certain

“outside” lines of electric power tools. The products

Northwest handles are competitive with comparable

Omark products. (App. 180-183.) Northwest’s share of

the market, however, has been reduced drastically. It is

now less than 2% and decreasing. Northwest’s loss was

Bosco’s gain, for Bosco jumped to well over 10% of

the market almost immediately after the culmination of

the conspiracy. (App. 149, 433.) During 1973, North-

west’s sales of PAT products were $201,674.00. In 1974,

after being terminated by Omark in March, sales dropped

to $98,788.00. In 1975, sales declined to $41,141.00 and

in 1976, they dropped to $30,503.00.

Pre-Conspiracy Competition by Omark and Bosco

Shortly after Northwest became an Omark distributor,

Bill Wright, North America Sales Manager for Omark,

under the direction of Jerry Crispe, directed Omark

sales personnel to contact existing customers of North-

west for the purpose of selling to them on a direct basis.

Omark thus competed directly with Northwest, its ap-

pointed distributor. At various times Omark employed

Don Sullivan, Bob Wooten, Rich McKenzie, Dwayne

Higgins, and Pat Murphrey to sell Omark products

directly: to Northwest’s customers in competition with

Northwest. (App. 27-31.) This conduct continued un-

abated (and over the protest of Northwest) until North-

west was terminated as an Omark distributor. (App.

151, 184-189.)

Bosco was also a competitor in the market. Prior to

the efforts to eliminate Northwest as a competitor, Bosco

made “over-the-counter” sales of powder actuated tool

products from both its Dallas and Fort Worth branches,

though it contended that sales of the products were rela-

tively small in the year preceding March, 1974. (App.

38-39.) However, after becoming an Omark distributor,

Bosco instituted a “field” sales program (using the

Northwest sales force), and its share of the market

jumped to 11.5% in 1974. (App. 149.)

The Conspiracy

In the latter part of 1973, Wooten and Jack Crowder,

one of Northwest’s salesmen, met with Pat Murphrey,

Omark’s sales manager, at the North Park Inn in Dallas.

The three discussed Northwest’s financial condition.

Murphrey said he was seeking a new distributor for

Omark, and that one of the prospective candidates for

the distributorship was Bosco. (App. 263.) It was in-

dicated to Crowder that he would be connected with the

new distributor, the desire being to keep the same per-

sonnel in the same area with the same product. (App.

263.)

Later, approximately seven to ten days before February

14, 1974, Bill Wright, Omark’s North America Sales

Manager, telephoned Wooten at Northwest’s offices.

Wright said that he was coming down to talk to Wooten

about Northwest (or McElroy.) Wright said that “we

hear Ray (Raymond McElroy) can’t supply the mer-

chandise and we'll be down to see you.” (App. 382-

385.)°

Wooten did not tell Mr. McElroy about the call from

Wright. (App. 386-388).

6. In truth, Omark could not supply products ordered by North-

west. (App. 249), a fact admitted by Omark’s former warehouse

manager, Jack Toyer, who said Omark was deficient in its inventory

system. Until at least August, 1973, the warehouse in Dallas had

a 25% shortage of merchandise at all times, and even in 1974 Omark

had a shortage of its prime moving items. (App. 368-369).

Wooten later received a telephone call from Pat

Murphrey setting the date that Omark representatives

were to be in Dallas for the meeting.’ Murphrey called

Wooten a second time and said “we’re coming to talk

to you Bob”. Again, Mr. McElroy was not told of the

call, (App. 392-394), but the salesmen at Northwest and

the secretary, Brenda May, were told by Wooten of the

proposed meeting and the date it was going to be held.

(App. 396). The meeting was held in Dallas at the

North Park Inn early during the day of February 14,

1974, Present at the meeting were three Omark repre-

sentatives—Bill Wright, Bill English, and Pat Murphrey

—and Wooten, Northwest’s sales manager. English sug-

gested at this meeting that if Wooten did leave Northwest,

Omark could set him up as an “agent”. (App. 397).

Wooten testified that he understood from the conversation

that Omark was going to try to buy McElroy out or

secure an additional distributor. (App. 398-399). The col-

laborators discussed the fact that the three Omark repre-

sentatives intended to meet with Mr. McElroy, and

Wright told Wooten that he did not want Wooten present

at that time. (App. 400).

Later in the afternoon of February 14, 1974, the

Omark representatives visited the Northwest offices and

conferred with Mr. McElroy. However, despite Wright’s

admonition, Wooten was present. Wright demanded that

Mr. McElroy get out of business and turn Northwest

over to Wooten. (App. 248-249). One of the Omark

representatives stated “we’re here to put Bob Wooten in

charge and if you don’t Bob Wooten is going to leave,

7. Wooten and Murphrey talked frequently. Before this conver-

sation, numerous calls had been made by Wooten to Murphrey at

Murphrey’s home in East Texas. (App. 389-391).

and you’re going to lose your distributorship”. (App.

191). Mrs. McElroy was called into the meeting (be-

cause of her interest in Northwest) and the following

demands were made:

(a) that the McElroys dissolve the business (North-

west) and get out;

(b) that the McElroys allow Omark to rent the

Northwest location, hire the salesmen and pro-

cess the inventory that was salable;

and

(d) that Mrs. McElroy liquidate her personal assets

to fund the business but that Mr. McElroy sever

himself from the company and let Wooten run

the business with no interference by McElroy

other than periodic examination of the financial

statement of the company.

(App. 371). In connection with these demands, Wright

stated to McElroy: “If you don’t accept these recom-

mendations here and Bob does not get to run the com-

pany ... your salesmen are all going to leave and he

[Wooten] is going to leave you and you will be out of

business”. (App. 250). Wooten added emphasis to this

declaration by saying: “If I leave the salesmen are leav-

ing with me”. (App. 251).

During the meeting Wooten made statements to the

Omark representatives to the effect that McElroy owed

banks money and that he was bankrupting the company.

(App. 226). These statements prompted Bill Wright to

say to Mr. McElroy: “You're bankrupt, you’re busted”.

(App. 195). At the conclusion of the meeting, Wright

said to Mr. McElroy, “You will do this. You have heard

what we have had to say. You think about it and you

report to Pat Murphrey and let us know your decision”.

(App. 252). Wright added that in the event things could

not be worked out “I will probably be getting Pat

Murphrey to be looking for more distributorships . . .”.

(App. 253).

Wright wrote a confidential memorandum concerning

the February 14, 1974, meeting which was dated Feb-

ruary 18, 1974. In this memorandum (App. 371) Wright

made the following statements:

1. “Ray is mentally and physically distressed to the

point of paranoia . . . and not capable of ad-

ministering the needs of the business.

2. “I would like to investigate the legal aspects of

terminating Northwest Power as a distributor of

Omark products. It would also be necessary to

investigate the possible hiring of the two sales-

men as direct reps for Omark, and possibly

Wooten. Refer Bradley-Massachusetts potential

hiring of distributor salesmen.

3. “Pat Murphrey will be talking with the potential

distributors during the week of February 18,

1974,

4. “The legal implications are a pain but must be

investigated prior to any action that relates to

hiring of Northwest personnel.

5. “Ray McElroy is dead! Long live the queen

Diana!”

Despite these reprehensible tactics the McElroys re-

fused to capitulate, and exercised their right to stay in

business. Wooten was fired by Mr. McElroy on Monday,

February 18, 1974. (App. 255) On the same day, Mr.

McElroy talked with Pat Murphrey advising him that

instead of deciding to let Wooten run the company he

had decided to fire Wooten. Murphrey responded that

“You made the right decision under the circumstances

and I don’t blame you at all, you didn’t have any other

choice”. (App. 257). Murphrey apologized to McElroy

about “some of the things” that were said in the 14th

meeting stating “things got a little out of hand”. (App.

255). Murptuey then said to Mr. McElroy: “We will go

ahead and make up the orders that you need. If you need

the stuff we'll get things rolling. If you can put the mer-

chandise in, we should be able to get it all straightened

out with Bill (Wright). We can get things rolling now’.

In response to this statement, Mr. McElroy placed an

order for $30-$35,000 worth of Omark products. (App.

258). But after the order from Northwest was accepted

and billed, Omark terminated Northwest as a distributor

and refused to sell any of its products to the plaintiff.

(On one occasion, Wright returned an order to Mr.

McElroy on which he (Wright) had written “no” across

the order. (App. 217).

Addition of Bosco and Execution of the Conspiracy

Within less than two weeks after the abortive attempted

takeover of Northwest by Omark and Wooten, the De-

fendants secured the resignation of all of Northwest’s

sales and clerical personnel, appropriated Northwest's

customer list, and established Bosco as an Omark dis-

tributor, using Wooten and the conspirator sales and

clerical personnel and Northwest’s customer list to go

into direct competition with Northwest. (App. 27-31).

On February 18, 1974, Northwest salesmen Whitaker

and Crowder, and Secretary May, and sales manager

Wooten all knew that they were going to go to work

for Bosco. (App. 209). Wooten was responsible for

taking the company employees to Bosco. (App. 239).

While both were employed by Northwest, Wooten had

discussed with Crowder the proposition of Crowder join-

ing him in another distributorship to sell power fastening

products or Omark products (App. 264). After the

February 14th meeting, Whitaker, Crowder and Wooten

had meetings with Omark representatives and with repre-

sentatives of Bosco, as a result of which they all went

to work for Bosco. Crowder was offered a job with

Bosco while he was still in the employ of Northwest.

Crowder left Northwest’s payroll around the 13th of

March, and went to work for Bosco on the 15th of March.

Wooten, already employed by Bosco, made the offer of

employment to Crowder. (App. 269-270). Whitaker ter-

minated his employment with Northwest on March 23,

1974, and went to work for Bosco on the 26th of March.

Wooten contacted Northwest’s office manager, Brenda Sue

May, and told her that Bosco needed a girl for the Omark

line. Although May claims that she was not employed by

Northwest at the time she talked to -Vooten, she never-

theless had a job interview with Bosco the day she left

Northwest. (App. 423-428). She took a typed list of

Northwest’s customers to Bosco. (App. 219-220). The

customer list was unique to Northwest. Not everyone in

the construction trade had use for a power fastener. It is of

unique value to know who purchases the PAT line as

opposed to other fastening products. Information sources,

such as Dodge Reports, may list potential customers but

tell nothing about the customer’s special needs or pre-

ferences.

The situation is comparable to a milk route that covers

a residential area. It is easy to ascertain the potential

customers, but difficult to ascertain, and valuable to know,

which of the potential customers desire to have milk

delivered to the house. (App. 411-414).

After Wooten was fired, he met with Omark representa-

tives Ben Ball and Pat Murphrey at the North Park Inn.

Murphrey, when advised that Wooten had been fired, said

“Tl have to call Bill Wright”. (App. 403-406). On the

18th or 19th of March, Wooten received a call from

Ronald Gibbs of Bosco in which Wooten was asked to

discuss the organization of a construction fastening divi-

sion at Bosco. Gibbs said that Omark had contacted

Bosco with regard to taking on the Omark distributorship,

and had recommended Wooten. (App. 408-409). Wooten

then met with Jim Layden, Jack McCarthy, and Gibbs

at Bosco’s offices in Dallas. These gentlemen questioned

Wooten about how much sales he could produce for them

in the Omark line. They said they had been contacted

by Kallesen and Murphrey of Omark and were aware

that Wooten had been sales manager for Northwest. (App.

410). They also said that Northwest’s salesmen Crow-

der and Whitaker had been to talk to them (Bosco)

several days previously. The Bosco representatives asked

Wooten to name the customers to whom Northwest was

selling, and the dollar volume of sales that had been

produced for Northwest. Wooten agreed that “I'll tell you

to the best of my recollection”, (App. 411) and furnished

the information requested.

Northwest was notified by Omark in writing that its

Omark distributorship was terminated effective March 20,

1974. This notice was timed to coincide with the place-

ment of the initial order for Omark products by Bosco,

as agreed between Omark and Bosco. Bosco was ap-

pointed the Omark distributor on March 11, 1974. (App.

304-318; App. 323). Before becoming the Omark dis-

tributor, Bosco had marketed power fastening products

only as an over-the-counter item. Bosco had not tried to

market power fasteners in the field because the products

it handled (Diamond and Star) were purchased from

distributors. By purchasing from Omark, Bosco received

technical assistance from the factory and sales training for

its employees. (App. 301-303). But before making the

decision to take on the Omark distributorship, Bosco

representatives said they talked to a specialist in the field.

The specialist was Wooten. The fact that Wooten was

available for employment was involved in Bosco’s decision

to take on the Omark distributorship. (App. 324). Bosco

not only employed Wooten, it also employed Northwest's

sales force consisting of Crowder and Whitaker, and

Northwest's office manager Brenda Sue May on the same

day or within the span of a few days in mid-March, 1974.

(App. 223).

After Wooten, Whitaker and Crowder and May went

to work for Bosco, Omark and Bosco sent letters to all

of Northwest’s customers advising them that Bosco was

the new distributor. Brenda May typed the letters sent

out by Bosco. May denied that she used Northwest's

customer list for this purpose, but admitted that she

received the customer’s names and addresses from Wooten

and the former Northwest salesmen. (App. 429-430).

The former Northwest salesmen were successful in

securing established Northwest customers for Bosco. They

switched “numerous” accounts from Northwest to Bosco.

(App. 286-288). Some of the large accounts that Bosco

secured in this manner were Ling-Oliver-O’Dwyer Electric

Co., Schwarz-Jordan Acoustical, Acoustical Services, and

A-to-1 Rentals. (App. 265-266). Before Crowder left the

employment of Northwest, he stated to Wooten that he

could probably bring with him to Bosco at least half of

the Northwest customers “the day he came to work”.

It worked out just about that way. Fifty (50%) percent

of Northwest’s customers were switched to Bosco in a

short time after Northwest was terminated as an Omark

distributor. (App. 267-268).

Disparagement

To aid in securing Northwest’s customers and to dis-

credit Northwest, the following misrepresentations and

disparaging remarks were made by representatives of

Bosco and Omark:

1. In January, 1974, Mr. Bill Matthews of Strawn

Equipment Rental was advised by Mr. Pat Murphrey of

Omark that Northwest was not able to pay their bills

as they came due.

2. In February, 1974, Mr. Jerry Moody, general man-

ager of Moody-Day Company was told by Mr. Murphrey

that Murphrey was going to attempt to cancel the dis-

tributorship of Northwest because its president, Raymond

McElroy, was broke and the Northwest sales manager,

Wooten, had told Murphrey that McElroy did not have

funds sufficient to buy the Omark products that were

needed for sales. Murphrey also told Mr. Moody that

McElroy would be bankrupt by the end of the month

of February, 1974.

3. During the month of February, 1974, Mr. Carl

Hobart of Contractors Equipment & Supply Company

telephoned Mr. McElroy and advised that Murphrey had

told him that after talking with Wooten and Wright that

Mr. Raymond McElroy was bankrupt. Murphrey wanted

to know if Mr. Hobart would like the Omark distributor-

ship if Omark could put Northwest out of business.

4. During the month of February, 1974, Mr. Hank

Dannelly, of Pyramid Specialties, advised Mr. McElroy

that an Omark representative had told him that Mr.

McElroy was bankrupt.

5. In March, 1974, Mr. Mac McLeroy of McLeroy

Fasteners was told by Murphrey that Northwest was bank-

rupt. Bill Wright of Omark advised Mr. McLeroy that

Omark had to maintain the market no matter what Mr.

Wright had to do.

6. In April, 1974, Mr. Rex Scudder of Ling-Oliver-

O’Dwyer Electric was advised by Bob Wooten (who

was by this time in Bosco’s employ) that Northwest could

not supply Omark products in the future because Bosco

had taken over the distributorship and Northwest was

out of business and bankrupt.

7. During the month of May, 1974, Mr. J. T. Sims

of Sims Rental, Cleburne, Texas, was told by Whitaker

(of Bosco) that Northwest was no longer in business and

that Mr. Sims could no longer buy from Northwest. Also,

Whitaker advised Mr. Sims that Sims Rental would be

required to buy from Bosco in the future,

8. In June, 1974, Mr. Jack Law of Frank J. Rooney

Electric was told by Wooten, Whitaker, and Crowder

that Northwest was out of business and could no longer

sell to Mr. Law’s firm because Bosco had taken over

Northwest.

9. In July, 1974, Crowder (of Bosco) represented to

Mr. Joe E. Wells of Cadenhead Construction Company,

Inc. that Northwest and Bosco were one and the same

company.

10. In August, 1974, Mr. Phillip Harris of Harris

Acoustical, Fort Worth, was told by Whitaker that North-

west could no longer supply products in the powder

actuated tool line. (App. 31-33).

Public Injury and Adverse Effect on Competition

When Bosco was granted the Omark distributorship

(March 11, 1974) it was a sales rather than a service

oriented company. As a result, it did not inventory or

emphasize in its sales policy the full Omark construc-

tion line of products as had Northwest. For instance,

Bosco did not inventory or emphasize sale of the Nail-

King Systems, core drill systems, welding systems, ma-

sonry or concrete saws and blades. Bosco did not have

the service facilities, expertise, or parts inventory essential

to the performance of major service maintenance and re-

pairs on the full line of Omark construction products.

Bosco only had the capacity to make emergency field

repairs on the smaller and less mechanically complex

Omark powder actuated tools. This particular type of

equipment required infrequent maintenance.

As an Omark distributor, Northwest had maintained

a full maintenance program for the servicing and repair

of the full line of Omark construction products. North-

west had the service facilities, expertise, and a large in-

ventory of parts for both out of production as well

as current production PATs, as well as the other Omark

construction products. Northwest regularly performed

major maintenance and repairs, at its facilities, on the

full Omark line.

After Northwest was terminated as an Omark dis-

tributor, it continued to make major repairs for owners

and users of Omark construction products until its in-

ventory of Omark parts was depleted. Since Omark re-

fused to sell to Northwest after the termination, North-

west was unable to secure the necessary parts with which

to continue the full service program. Thereafter, the

owners and users of Omark construction products were

unable to secure timely, essential, maintenance services

and repairs on such products, many of which became

inefficient or inoperable for extended periods of time.

Thus, the owners and users of the products were in-

convenienced and construction projects where the prod-

ucts were employed were delayed while maintenance and

repair services were sought from other sources,

Many of the owners and users of Omark construction

products replaced such products with competitive prod-

ucts, which caused them increased and unnecessary ex-

penses.

When Bosco was granted the Omark distributorship, it

lowered prices on Omark construction prodyets. But

Northwest, in order to maintaia profitability on severely

decreased sales, was required to raise its prices to its

remaining customers. Because of brand loyalty and de-

mand in the replacement market, and because Bosco

failed to service the market adequately, a number of

Northwest’s customers continued to deal with Northwest

at higher prices. Thus, price, convenience, service, and

accessibility of product in the market was detrimentally

affected by the conspiratorial actions of the Defendants-

Respondents.

Northwest’s sales have dropped from over $200,000

(in 1973) to slightly over $30,000 in 1976, Its market

share has decreased from 18-20% to less than 2%, while

Bosco’s share has climbed to 11.5%. It is apparent that

there has been a substantially adverse effect on competi-

tion.

REASONS FOR GRANTING THE WRIT

1. The Fifth Circuit Court of Appeals improperly

repudiated the Pick-Barth doctrine and imposed

undue and unnecessary strictures upon the cause

of action for conspiracy to eliminate competition

by unfair means.

(a.) Pick-Barth and its progeny represent more

than forty-five years of authority.

The trial court granted summary judgment on De-

fendants-Respondents’ motions, noting in its order and

opinion (App. 96) that the Plaintiff-Petitioner, North-

west, relied upon the line of cases emanating from

Albert Pick-Barth Co. v. Mitchell Woodbury Corp., 57

F.2d 96 (1st Cir. 1932) which holds that a conspiracy

to eliminate competition (i.e., a competitor) by unfair

means, constitutes an offense under Sec. 1 of the Sher-

man Act. The trial court made a one sentence analysis

of the pertinent cases, saying:

“In the cases cited by Northwest, a fellow competi-

tor, a manufacturer, or a supplier, had forced an

existing competitor out of the total relevant market

through unfair practices.” (Emphasis supplied in

order to highlight the critical components of the

decision. )

The trial court then held that Northwest’s evidence

did not meet the requirements of the cases because

(1) there was no “substantial existing competitor,” and

(2) Northwest had not been excluded from the “total

relevant market.”

The Fifth Circuit Court of Appeals entirely repudiated

the “Pick-Barth” doctrine, arguing that the conduct pro-

scribed by Pick-Barth did not justify per se treatment.

The rejection of the Pick-Barth doctrine negates forty-

five years of judicial history in which the elements of the

offense have become well defined, and the basis for the

per se rule thoroughly tested.

In the Albert Pick-Barth case, the plaintiff alleged that

the defendant-corporation, one of a combination of cor-

porations controlled by allied interests which constituted

the largest and a dominating factor in the same trade

or business as the plaintiff (kitchen equipment) con-

spired with employees of the plaintiff to deprive plaintiff

of its business by pirating plaintiff's customer list, business

records and employees, and using their positions to solicit

plaintiff's customers for a new competitive business.

Though the defendant corporation was alleged to be one

of a combination which was a dominant factor in the

market, the interrogatories submitted to the jury made

only certain inquiries, which established the following

facts: (1) the defendants conspired to deprive plaintiff

of its business in kitchen equipment and furnishings;

(2) the defendants Albert Pick-Barth Co., Inc., George

A. Stuart and John J. McDonald were parties to the con-

spiracy;” (3) a substantial part of the plaintiff's business

affected by the conspiracy was of an interstate character;

(4) the amount of the interstate business was substantial;

(5) the defendants were actuated by a purpose or intent

to eliminate or restrict the competition of the plaintiff;

(6) the business of the plaintiff in the kitchen furnish-

ings and equipment was a substantial factor in the inter-

state trade in those commodities in New England; (7)

defendants’ acquisition of plaintiff's business did not effect

an unreasonable restraint of trade; and (8) the amount

of plaintiff's damages was $40,000.00.

Even though the jury did not find that the restraint

of trade was unreasonable, the court held that a violation

had occurred because a conspiracy to eliminate competi-

tion by unfair means constitutes a per se offense. This

hoiding was based upon a jury finding that the plaintiff

was a substantial factor in the market, but the court re-

quired no finding that a defendant was a substantial

factor in the market. Albert Pick-Barth was alleged to

be a member of a combination which was a dominating

factor in the market, but so far as legality is concerned,

the court attached no significance to this proposition

for the court stated (page 102):

“If a conspiracy is proven, the purpose or intent of

which is by unfair means to eliminate a competitor

in interstate trade and thereby suppress competition,

such a conspiracy, we think, is a violation of Sec. 1

of the Sherman Act. It is the intent and purpose

which determines the legality of the conspiracy or

combination. .. .

8. Stuart and McDonald were “trusted employees” of the plaintiff.

“. . . To constitute an offense under Sec. 1 of the

Sherman Act it is not necessary, if a conspiracy is

proven, the purpose and intent of which was to elimi-

nate by unfair means a competitor in interstate

trade, to show that the public was affected, and to

what extent.”

The court considered that the relevant inquiry from

the plaintiff's standpoint was whether the plaintiff was

a substantial factor in the market. The relevant inquiry

from the defendants’ standpoint was whether they had

the intent to eliminate competition.’ Whether the de-

fendant was an “existing” competitor, as opposed to a

new competitor, did not control the determination of

whether the per se violation was committed.’

Albert Pick-Barth thus established the principle that a

conspiracy to use unfair trade practices to destroy a com-

petitor’s business constitutes a per se violation of Sec. 1

of the Sherman Act. See “Unfair Competition under the

Sherman Act”; Albert Sauter Co. v. Richard S. Sauter

Co. and the Pick-Barth Rule, 59 Iowa Rev. 1194 (1974).

Twenty-eight years later the First Circuit again con-

sidered the issue.

The case of Atlantic Heel Co., Inc. v. Allied Heel Co.,

Inc., 284 F.2d 879 (1st Cir. 1960) involved the suf-

ficiency of a complaint which alleged a cause of action

similar to that in Albert Pick-Barth, Plaintiff, Atlantic

Heel Co., alleged that the defendants conspired to

destroy its interstate business by (1) establishing a busi-

9. This is pertinent to the trial court’s conclusion that the plain-

tiff must be totally eliminated from the relevant market, and that the

defendant must be a substantial, existing competitor.

10. In fact, a new company was formed to compete with plaintiff

as a result of the conspiracy.

ness competitive to that of plaintiff; (2) inducing the

superintendent of plaintiff's factory and other key em-

ployees to leave plaintiff and work for defendant; (3)

disparaging plaintiff and its products by intentionally

making false statements relative to plaintiff's financial

standing and other matters to established customers of

plaintiff with the result that plaintiff's relations with its

customers were damaged; (4) soliciting salesmen of

plaintiff to cease representing plaintiff and undertake the

representation of defendant Allied Heel with the result

that plaintiff lost valuable business in the market; (5)

falsely representing that a defendant was affiliated with

the plaintiff; and (6) acquiring plaintiff's trade secrets.”*

The defendants filed a motion to dismiss for failure of

the complaint to state a claim and the district court

granted the motion. On appeal, Judge Hartigan wrote an

opinion reversing the decision of the district court on

the basis of the Pick-Barth decision.

With respect to the “significant factor” element, plain-

tiff was alleged to be a leading concern in the supply

of leather and leather board heels, but it was charged

that the defendants who conspired to destroy plaintiff in

its business established a competitive business in further-

ance of the conspiracy. Thus, Atlantic Heel dealt with a

new competitor, a distinction (from Albert Pick-Barth)

which the court noted in the following quotation:

“The complaint there [in Albert Pick-Barth] al-

leged that the Defendant ‘was on» of a combination

of corporations of similar name and allied interests

engaged in the same business as the plaintiff, and

11. In the present case, the allegations, and proof, are very

similar.

constituted the largest and a dominating factor in

that trade throughout the United States; .. .’ At

149, Although this allegation is mentioned by the

court, it does not seem crucial to the court's analysis

of the gravamen of the alleged violation of the anti-

' trust laws.”

Accordingly, the court in Atlantic Heel concluded:

“Viewing the conspiracy alleged in the instant case,

we believe that the purpose of destroying a com-

petitor by means that are not within the area of

fair and honest competition is a purpose that clearly

subverts the goal of the Sherman Act. It constitutes

an interference with the natural flow of interstate

commerce which would exist under conditions of

fair and honest rivalry for the buyers’ trade. See

Package Closure Corp. v. Seal-Right [1944-45 Trade

Cases, Par. 57,277] 141 F.2d 972-78 (2nd Cir.

1944).

“. . . We believe the complaint in the instant case

alleges a conspiracy to destroy a competitor by

means so inimical to free and full flow of interstate

trade as to constitute a per se violation of the

Sherman Act. See also, Cleaves v. Peterboro Basket

Co., 54 F.2d 101 (D.N.H. 1931).”

In Perryton Wholesale, Inc. v. Pioneer Distributing Co.,

353 F.2d 618 (1965) the Tenth Circuit considered the

same issues. There, a long time, trusted employee with

full knowledge of the plaintiff's operations, routes and

customers, left the plaintiff and became sales manager

for the defendant. He had been a supervisor for plaintiff

in Western Kansas and Colorado, and directed ten sales-

men, Before and after leaving the plaintiff, he tried to

persuade other employees of plaintiff to leave the com-

pany and come over to defendant. He brought with him

as much of plaintiff's business as was possible. After

he left plaintiff's employ, an experienced route salesman

quit the plaintiff on a Saturday and began to work for the

defendant on the following Monday calling on the same

customers in the same territory which he had serviced

for the plaintiff. This caused the loss of many accounts

by the plaintiff. Two other salesmen also left the plaintiff

for defendant. Before leaving plaintiff, one of them told

his customers that he was terminating and asked that

their accounts be changed to his new employer. Against

the background of these facts, the trial court, after a

non-jury trial, found that a conspiracy existed to eliminate

plaintiff as a competitor by unfair means in violation of

Sec. 1 of the Sherman Act. The Tenth Circuit Court of

Appeals affirmed, relying on Atlantic Heel and Pick-

Barth, and ratified the principle that a conspiracy to

eliminate competition by unfair means is a per se vio-

lation.

In Perryton, the plaintiff and defendant were both rack-

jobbers. The plaintiff was a “significant factor” but the

relative rosition of the defendant in the market was not

examined. The point appears to have no significance for

the court stated:

“In the case at bar the intent of the conspiracy was

to eliminate the competitor predominant in the area

by the subversion of its employees. Such elimination

destroys rather than maintains competition, is an

unreasonable restraint of trade, and violates the

mse ...”. (Citing Albert Pick-Barth and Atlantic

Heel).

The Fifth Circuit considered the issue in Cherokee

Laboratories, Inc. v. Rotary Drilling Services, Inc., 383

F.2d 97 (Sth Cir. 1967), cert. den. 390 U.S. 904.

There the plaintiff Cherokee sought damages arising out

of violations of Secs. 1 and 2 of the Sherman Act. One

of the allegations in the complaint included a charge

of conspiracy between Bartlett, the sole stockholder of

defendant Rotary, and Fisher, the former president of

plaintiff, the purpose and eventual result of which was to

induce plaintiff's sales force to leave plaintiff and join the

defendant. At the trial, plaintiff presented evidence that

in 1963 Fisher, president of plaintiff, and four of plain-

tiffs salesmen left plaintiff and joined the defendant and

began selling directly to plaintiff's customers. At the con-

clusion of the evidence, the trial court directed a verdict

for the defendants. The Fifth Circuit reversed and re-

manded, noting in the course of the opinion:

“We have thought it necessary to discuss at any

length only the agreements between the two corpora-

tions, Cherokee and Rotary, for the evidence clearly

developed a case for the jury’s determination as to

whether Fisher agreed with Rotary and its sole stock-

holder Bartlett that Fisher and four salesmen would

leave Cherokee and join Rotary to promote Rotary’s

sale of Lytron and to exclude Cherokee from the

market,

“We hold that lack of proof of public injury, the

reason relied on by the district court, did not justify

its direction of a verdict for defendants.” (Emphasis

supplied).

Though the Court did not cite them, Cherokee’s argu-

ment on this point was based on Pick-Barth, Atlantic

Heel, and Perryton. (See Appellant’s Brief). In holding as

it did, the Fifth Circuit accepted, without qualification,

Cherokee’s argument that the conduct of defendants con-

stituted a Pick-Barth per se violation of Sec. 1 of the

Sherman Act.

The next case to consider the per se violation was

C. Albert Sauter Co. v. Richard S. Sauter Co., 368 F.

Supp. 501 (E.D. Pa. i973). The evidence there revealed

that in 1971 the defendants, who were employees of

plaintiff, conspired to leave the plaintiff to open a

competing business and to eliminate plaintiff as a com-

petitor by hiring its key employees. To this end, one

of the defendants submitted his resignation effective in

one week, and, with another defendant, established the

defendant company that was to be directly competitive

with plaintiff. While one of the defendants was still in

plaintiffs employ, he solicited plaintiff's production co-

ordinator and other employees to join him in the new

competitive business. After the plans for the formation

of the competing company were announced, plaintiff's

former employees intensified efforts to hire away plain-

tiff's key management, supervisory, production and sales

personnel. The effect of such efforts was a loss of a large

number of employees within a relatively short period of

time. The loss of key personel and solicitation-of plain-

tiff's customers by former employees caused an immediate

and drastic reduction in plaintiff's sales. The trial court

found that the evidence was sufficient for the jury to find

that defendants solicited, hired, or frightened away plain-

tiffs key employees for the purpose of eliminating plain-

tiff as a competitor. The defendants argued that the Sher-

man Act does not apply to a conspiracy to eliminate

competition unless an unreasonable restraint can be

shown. The court rejected this contention on the authority

of Perryton, Pick-Barth, and Atlantic Heel.

The Sauter case dealt with a new entrant in the market.

The defendants were not in competition when the con-

spiracy originated or when many of the conspiratorial acts

were performed. This had no effect upon proof of the

per se offense, for the court stated:

“This case falls clearly within the per se unreason-

able category. The jury found by their answer to

interrogatory 1(a) that the defendants ‘conspired,

agreed or had an understanding to engage in acts of

unfair competition with the intent to injure the

plaintiff as a competitor by impairing plaintiff's

ability to compete in interstate commerce. Jn our

opinion, nothing is more inimical to free competi-

tion. See Standard Oil v. U.S., 222 U.S. 1 (1911).

Where a restraint on trade is per se unreasonable,

it is unnecessarily for the court to charge on the

rule of reason’. . .”. (Emphasis supplied).

Thus, in two of the four principal cases to be decided

before Whitten v. Paddock Pool Builders, Inc., 508 F.2d

547 (1st Cir. 1974), defendants were not existing com-

petitors when the conspiracy was conceived and/or when

conspiratorial acts were performed. In the other two cases,

the fact that the defendants were existing competitors

was not a component element of the cause of action.

Therefore, if it were not for certain language in Whitten

and subsequent district court cases discussing Whitten

it would appear that in order to establish the per se of-

fense, a showing that plaintiff is a significant factor in

the market is necessary, but defendants’ market position

is immaterial. However, this proposition was never clearly

articulated, and examination of succeeding cases demon-

Strates the existence of a broader rule.

In George R. Whitten, Jr., Inc. v. Paddock Pool Build-

ers, Inc., 508 F.2d 547 (1st Cir. 1974) the plaintiff

Whitten complained of several associated companies com-

peting in the business of manufacturing and merchandis-

ing prefabricated metal circulation systems for swimming

pools. The defendants, Whitten claimed, had attempted

to gain competitive advantages by a variety of unfair

means, including false representations. After noting that

Atlantic Heel and Pick-Barth held that efforts of former

employees of the plaintiffs to drive the latter out of

business by unfair means were illegal per se under Sec. 1

of the Sherman Act, the court found the rationale of the

cases to be inapplicable to the facts at hand:

“These were instances, as was Perryton and Sauter

of a sharply focused effort to drain off from a plain-

tiff his key personnel, confidential information, cus-

tomer lists and reputation. In the instant case the

focus is not on crippling the organization of a com-

petitor but on beating it in the marketplace. Perhaps

the difference is only that between going for the

jugular and going to one of the lesser arteries. But

the difference, we feel, is enough.

“Paddock is leaving Whitten as an organization

alone; it is concentrating on winning customers. Each

customer is his target . . . We cannot say that such

attempts, even though unfair and reprehensible,

amount to a per se violation of tc antitrust laws.”’”

(Emphasis supplied).

The court in Whitten noted all four of the cases previ-

ously reviewed without criticizing the results but declined

to extend a per se antitrust result to what it termed

12. It should be noted that the court only found that necessary

elements of the per se offense were absent. The opinion does not

suggest “rule of reason” requirements,

“garden-variety business torts”, i.e., Ordinary unfair com-

petition. This holding is summarized in the following

quotation:

“Insofar as Pick-Barth and Atlantic Heel may be

said to stand for the broad proposition that unfair

competitive practices accompanied by an intent to

hurt a competitor constitutes a per se violation of

the antitrust laws, we do not now accept their

teachings. We do not feel it necessary to criticize

the results on the fact situations there presented—

an effort by a defendant which was a significant

factor in the market to eliminate a competitor.”

(Emphasis supplied).

The principles laid down in the preceding cases were

not eroded. The court simply made it clear that for the

per se violation of conspiracy to eliminate competition

by unfair means to exist, the elements of (1) intent or

purpose to eliminate a competitor and (2) “significant

factor in the market” must be established. The interesting

aspect is that the court speaks in terms of an effort “by

a defendant which was a significant factor in the market”.

The language appears to be inadvertent, for it represents

an effort to synthesize “the results on the fact situations

there presented [in Pick-Barth and Atlantic Heel]. Pick-

Barth did not require a finding as to defendants’ market

position. Atlantic Heel, which dealt with a new com-

petitor-defendant rather than an existing competitor-

defendant, places no importance on defendants’ market

position. Therefore, precise analysis of the meaning of this

language in Whitten is difficult. It cannot be said that

Whitten changes Pick-Barth or Atlantic Heel (which were

concerned with plaintiff's market position) for it ex-

pressly ratifies them. The definite implication is that a

finding that a defendant is a substantial or significant

factor in a market is also sufficient to satisfy this element

of the test for the per se violation. This is entirely logical.

The suppression of a new or relatively insignificant com-

petitor (plaintiff) by an existing competitor (defendant)

which is a significant factor in the market is indistinguish-

able from a situation where a plaintiff which is a signi-

ficant factor in the market is injured by a new com-

petitor (defendant), which conspires to eliminate the

plaintiff. Suppression of competition is just as inimical

to free trade as its elimination.'® As pointed out in the

Albert-Pick-Barth case “. . . it must be held that any com-

bination the intent of which is to suppress competition

in interstate commerce is unreasonable, and, if put into

effect, may be said unduly to obstruct trade.”

The Pick-Barth doctrine is reaffirmed and the conclu-

sion that “significant factor” may be either plaintiff or

defendant is supported by four district court cases de-

cided since Whitten.

In Tower Tire & Auto Center v. Atlantic Richfield,

392 F.Supp. 1098 (S.D.Tex. 1975) the plaintiff asserted

that a key employee resigned and became owner and

president of a new competitor. It was alleged that the

new competitor conspired with the manufacturer which

franchised the plaintiff to hire away plaintiffs key em-

ployees and used discriminatory practices to favor the

new competitor. In its memorandum opinion denying

13. In fact, suppression or elimination of competition from a

market is illegal, for it is unreasonabie per se to foreclose competitors

from any substantial market. U.S. v. Maryland & Virginia Milk Pro-

ducers Ass’n, 179 F.2d 426 (U.S. App. D.C. 1949), cert. den., 338

U.S. 831; Northern Pacific Railway v. U.S., 356 US. 1 (1958);

Fashion Originators Guild v. Federal Trade Commission, 312 US.

457 (1941); and /nternational Salt Co. v. U.S., 332 US. 392 (1947).

32 | 33

defendant’s motion for summary judgment the court rati- |

statement by the Court of Appeals prompted this

fied the principles of Pick-Barth as explained'* by Whitten:

Court to request the parties now before it to state

“Accordingly, this court will follow the lead of the

Court of Appeals for the First Circuit. The Pick-

Barth rule must henceforth be applied with great

circumspection.

“It will not suffice for plaintiff Tower Tire to show

that the defendants agreed merely to harm plaintiff's

business nor will it suffice for plaintiff to show that

the alleged conspiracy was calculated to cause a

substantial decline in the ability of the existing com-

petitor to compete as plaintiff has urged. To succeed

in its alleged cause of action, plaintiff must obtain

a fact finding that the intent of the defendant was

effectively to eliminate plaintiff from the relevant

”

market... .”.

whether plaintiff's cause of action did not include

an additional element. Not surprisingly, the defen-

dants agreed that the above quoted comment indi-

cated that a fourth element concerning the market

power of the defendants must be included. Plaintiff

disagreed but contended that this element could be

established easily in this case.

“Plaintiff's basic objection to adding a fourth ele-

ment to its cause of action is that in only one case

in this field—Pick-Barth—was the defendant a

significant factor in the market.’® Plaintiff protests

the illogic of requiring proof that the plaintiff in a

Pick-Barth case was a significant factor in the rele-

vant market. Tower Tire contends that the monopo-

listic tendency of a conspiracy to employ unfair

trade practices to destroy a competitor conceivably

could vary according to the market power of the

| conspirators, but never according to the market

power of the ‘victim’.

In the section of the opinion entitled “The Fourth

Element: Market Power” the court made an astute

analysis of the “significant factor” element:

“Whitten not only contributed to the conclusion that

the requisite intent under Pick-Barth must be one

presenting a strong threat to competition without

any meaningful possibility of being reasonable un-

der the circumstances. The opinion in Whitten also

distinguished Pick-Barth and Atlantic Heel in a way

which encouraged this court to inquire whether a

fourth essential element must be added to plaintiff

Tower Tire’s cause of action. The Whitten court indi-

cated that each of its earlier decisions involved ‘a

defendant which was a significant factor in the

market’. Whitten, supra, 508 F.2d at 562. This

14. Whitten actually constitutes an explanation of Pick-Barth and

“The difficulties which surround the employment of

a market power or market share test in other areas

of per se violations caution against any unnecessary

decisions or even comments on the subject at this

time. c.f. Fortner Enterprises, Inc. v. United States

Steel Corp., [1969 Trade Cases, Par. 72,757], 394

U.S. 495, 509 (1969) (dissenting opinion of White,

Justice); United States v. First National Bank &

Trust Co. of Lexington, [1964 Trade Cases, Par.

71,072] 376 U.S. 665, 673 (1964) (dissenting opin-

ion of Harlan, Justice). It may be that the facts

of this case will require no refinement of the stan-

dard identified by the Whitten court. This court

15. “In so contending, plaintiff directly contradicts the

crucial statement in Whitten, In fact, it is only by implication

that the opinion in Atlantic Heel anywhere reveals that the

defendant was a significant factor in the market.”

Atlantic Heel rather than a modification of those decisions; when

carefully analyzed, it does not appear that Whitten made any change

in or added any new requirement to the Pick-Barth principles.

notes simply that the participation of defendant

Arco in the alleged conspiracy may, by itself, put

an end to any doubt as to the significance of the de-

fedants in the market. Arco’s role in the TBA

distribution in question may be the functional equiv-

alent of the ‘unique attractiveness’ of the tying

product in Fortner, supra, 394 U.S, at 499, or the

market shares of the merging banks in Lexington,

supra, 376 U.S. at 668-69.”

Thus, the court recognizes that either plaintiff or de-

fendant may be the significant factor, but shies away from

any more definite qualification of market power.""

In Southland Reship Inc. v. Leslie Flegel, et al, 401

F, Supp. 339 (N.D. Ga. 1975) the court concluded that

a per se analysis is applicable when there exists a con-

spiracy among those who have purpose, power or effect

of completely eliminating a competitor. Southland dealt

with a new competitor, i.e., former employees of a whole-

sale distributor of paperback books, magazines, and peri-

odicals who established a new company financed by a

competitor of the former employer. However, the court’s

analysis does nothing to resolve any confusion arising

from the dictum in Whitten characterizing Pick-Barth and

Atlantic Heel as dealing with efforts by defendants who

were significant factors in the respective markets. At one

point, the court states:

“In short, the evidence in this case will not support

either of the two predicates necessary to set the

Perryton principles in operation (1) a significant

16. The Court does inject a new dimension by suggesting that

Arco, the supplier, may be the sifinificant factor in the market.

Arco’s position in this regard is the same as Omark’s, a point

examined infra,

existing competitor on the one hand seeking (2) to

completely eliminate the complaining plaintiff on

the other.”

At another point, the court says that there must be a

conspiracy the purpose or effect or both being to com-

pletely eliminate a competitor, and:

. As pointed out above, the First Circuit has

bed ‘additionally, that one of the competitors must

be a ‘significant factor in the market’.” (Emphasis

supplied).

Thus, the court in Southland Reship confuses the issue

(as did the trial court in the present case) by shifting the

required “significant factor” from “one of the competi-

tors” to the “competitor seeking to eliminate the plain-

tiff”.

In Associated Radio Service Co. v. Page Airways, Inc.,

414 F. Supp. 1088 (N.D. Tex. 1976), Judge Porter re-

affirmed Pick-Barth-Whitten principles, but erroneously

concluded that Judge Noel, in Tower Tire, “required

that the defendant be shown to be a significant factor in

the market”. As noted above, Judge Noel came to no

definite conclusion, but indicated that the significant

factor might be the plaintiff, or a competitor-defendant, or

a franchisor-supplier.

Snyder Champaign-Urban A Motor Lodge, Etc. v.

Howard Johnsons Motor Lodge, Inc., Howard Johnson

Co., Etc., 1976 Trade Cases, 46,142 (U.S.D.C, §.D.

Ill. 1976) also recognizes the basic cause of action here

asserted in the context of direct competition by a fran-

chisor (Howard Johnsons) against a franchisee (Snyder).

The court overruled the motion for summary judgment

stating that although plaintiff's case appeared weak on

the element of intent to eliminate competition, intent is

a question of fact and plaintiff was entitled to his day

in court. The court also characterized Whitten as adding

a “rule of reason” “with a consideration of the effect of

a defendant’s conduct on some significant part of the

market.” Though the “rule of reason” observation is |

inapt,'' it is an accurate observation that the effect of

the defendants’ conduct on some significant part of the

market is the proper focus of inquiry.*®

In summary, the elements of the per se violation of

conspiracy to eliminate a competitor by unfair means are:

(1) an agreement, combination or conspiracy;"

(2) the use of unfair methods of competition as a

part thereof;

(3) the specific intent to eliminate the plaintiff as

a competitor; and

17. This appears to be “loose” language for the matter under

consideration was the proper elements of the per se offense.

18. The court also says that Tower Tire discusses a fourth ele-

ment of the per se offense, i.e., market power of the defendant. This,

of course, is not accurately descriptive of Tower Tire, as noted above.

The point was of no particular importance in Snyder v. Howard

Johnsons, because the court, in effect, took judicial notice that

Howard Johnsons (like Arco in Tower Tire) is a significant factor

in the market.

19. Since the per se offense is the conspiracy to eliminate com-

petition by unfair means, obviously one of the conspirators must be

a “competitor.” But the competitor-defendant need not have been an

existing or pre-existing competitor, for, as the cases hold, he may be

, “new competitor”, i.e, a competitor born of the conspiratorial

esign.

(4) at least one of the competitors (parties) is a

significant factor in the market.*°

(b) Neither the trial court nor the appellate

court has advanced a valid reason for dis-

tinguishing or repudiating the Pick-Barth

cause of action.

The basis for the trial court’s granting of summary

judgment disintegrates in the light of analysis of the

cases. The conclusion that plaintiff's cause of action

failed because a defendant was not a “substantial existing

competitor” is erroneous. As noted, several of the perti-

nent cases did not even deal with defendants who were

competitors when the conspiracy was conceived and/or

when conspiratorial acts were performed. In the cases

preceding Whitten the market position of the plaintiff as

a “significant factor” appeared to be of importance, but

no significance was attached to the market position of

the defendants. Obviously, the significant factor may be

either the plaintiff or the defendant (or a conspirator).

It was observed in Woods Exploration and Producing

Co. v. Aluminum Co. of America, 438 F.2d 1286 (Sth

Cir. 1971) that “relevant market” is simply a shorthand

phrase used to describe “the arena within which the

strength of competitive forces is measured.” The logic

of this observation is applicable to the present case.

What is truly in issue is a market share at the center of

the controversy which is substantial enough to be sig-

nificant-whether it be the share enjoyed by the plaintiff

20. As demonstrated by the discussion above, either one of the

defendants (or conspirators) or the plaintiff, may be the “substantial”

or “significant” factor.

which the defendants seek to appropriate through unfair

means, or the share which gives the defendants a base

from which to conduct efforts to eliminate or suppress

a competitor.

It is also unnecessary to prove that Northwest was

totally eliminated from the relevant market. There is no

indication in the Pick-Barth case that Plaintiff was elimi-

nated from the market. The indication is to the contrary

in Atlantic-Heel and Perryton. Neither Whitten, South-

land Reship or Associated Radio contain any indication

that the plaintiff must be eliminated from the market.

The Sauter case should put the issue to rest. There it is

stated:

“Where the jury finds an intent ‘to injure the plain-

tiff as a competitor by impairing plaintiff's ability

to compete in interstate commerce’ as it did in this

case, it can hardly be argued that the conspiracy

is not within the purview of Section 1 of the Sher-

man Act because the conspiracy was not a complete

success, as there are now two companies where there

once was one. To hold otherwise would preclude the

use of the Act to await the demise of the plaintiff,

a result which would clearly be contrary to the intent

of Congress.”

Northwest and Omark were substantial existing com-

petitors when the conspiracy was conceived and executed,

and Bosco became such upon culmination of the con-

spiracy. It is not necessary to prove that Northwest was

totally eliminated from the relevant market. All the

elements of the cause of action were demonstrated, and a

case was clearly made out under Pick-Barth, Whitten,

etc. standards.

The rejection of Pick-Barth by the Fifth Circuit was

based upon equally untenable grounds. The court’s

opinion (which contains a reasonably complete bibli-

ography of the cases dealing with Pick-Barth principles )*'

advances arguments for rejecting Pick-Barth which are

limited in scope and substance, and based on dubious

reasoning.

The Fifth Circuit first observed that the definition of

“unfair means” is “so vague that the Pick-Barth cases

fail to draw the bright line of illegality which is essential

if a per se rule is to achieve its purpose as a guide to

business planning.” This argument is particularly hollow.

The elements of the Pick-Barth offense include both the

use of unfair methods of competition and the specific

intent to eliminate the plaintiff as a competitor. The

suggestion that a defendant needs a more definite “busi-

ness planning guide” to caution him to avoid this type of

conduct indicates an overly permissive tolerance of the

“morals of the market place,” and misconceives the policy

and purpose of the Sherman Act. The policy “unequi-

21. The cases cited adhering to Pick-Barth principles are Atlantic

Heel Co, v, Allied Heel Co., supra; Perryton Wholesale, Inc. v.

Pioneer Distributing Co., supra; Albert Sauter Co. v. Richard S.

Sauter Co., supra; Snyder v. Howard Johnsons Motor Lodges, Inc.,

412 F.Supp. 724, 729 (S.D. Ill. 1976); Tower Tire & Auto Center,

Inc. v. Atlantic Richfield Co., supra; Mr. Hanger, Inc. v. Rizzuto,

410 F.Supp. 1158 (S.D.N.Y. 1975); and Vogue Instruments Corp

v. Lem Instruments Corp., 40 F.R.D. 497 (S.D.N.Y. 1966). The

cases which the court characterized as rejecting Pick-Barth per se rule

altogether, are all district court cases and include Red Wing

Carriers v. McKenzie Tank Lines, Inc., 443 F.Supp. 639 (N.D.Fla.

1977); Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., 430

F.Supp. 1234 (N.D.Iowa 1977); Associated Radio Service Co. v.

Page Airways, supra; Mar Food Corp. v. Doane, 405 F.Supp. 730

(N.D.IIl. 1975); Southland Reship, Inc. v. Flegel, supra. As shown

by the discussion above, it is questionable whether Associated Radio

and Southland Reship should be included in the latter category.

vocally is competition” and the purpose is “preserving

free and unfettered competition as the rule of trade.”

Northern Pacific, supra. Per se rules are designed to

accomplish the objectives of the Act, not to serve as

“checklists.”

Just as “no monopolist monopolizes unconscious of

what he is doing,” every businessman who undertakes

the use of unfair means of competition with the specific

intent to eliminate a competitor is well aware of what he

is doing. There is certainly a “bright line” between what

is right and what is wrong. The attempt to eliminate a

competitor by unfair means is wrong, and no businessmen

could be so unaware of its wrongfulness as to be misled

in his “business planning.”

The fact that state law may poorly define unfair com-

petitive torts is argument for Pick-Barth application

rather than against it. Disparagement, theft of proprietary

information, employee “raiding” to cripple an employer’s

operations, and similar acts are obviously “unfair,”

whether or not the acts constitute compensable torts

under local law. But under the lower court’s opinion

a plaintiff victimized by a conspiracy to eliminate him

as a competitor would be without a remedy if local

law proved inadequate.

In the accomplishment of the policy of the antitrust

laws, predictable application of the term “unfair com-

petition” does not require that it identify a complete

“laundry list” of unfair competitive acts, no more than

the antitrust laws are required to identify all possible

violations.** The antitrust laws are designed to reach

22. Agreements or combinations in restraint of trade may take

any form. See discussion, infra.

every 1estraint of trade a businessman’s ingenuity might

devise, and the term “unfair competition” is flexible

enough to include those actions traditionally regarded as

unfair, as well as acts hitherto not labeled “unfair” by

local law but which are palpably unfair when used with

the specific intent to drive a competitor from the market.**

sound and time-tested reasoning.

The Fifth Circuit states that Pick-Barth jurisprudence

reverses the order of development of a per se rule which

ordinarily grows out of a history of rule of reason cases

all arriving at the same verdict. This observation fails

to perceive that the per se offense of elimination of

competition by unfair means is simply a specie of one of

the two per se violations first recognized by the United

States Supreme Court. /nternational Salt Company, Inc.

v. U.S., 332 U.S. 392, 1946-47 Trade Cases, 957,634

(1947) points out that not only is price fixing un-

reasonable per se, “but also it is unreasonable, per se,

to foreclose competitors from any substantial market,”

citing Fashion Originators Guild v. Federal Trade Com-

mission, 114 F.2d 80, affirmed, 312 U.S. 457. Fashion

23. The contention that “unfair” is too vague and ill-defined to

provide a business planning guide is the only substantive attack made

on the Pick-Barth rule. On a more theoretical, abstract plane the

lower court argued that (1) absent market impact comparable to

that forbidden by mergers the interests of the antitrust laws never

arise; (2) if a defendant can achieve the desired result of eliminating

a competitor by lawful merger, elimination of that competitor by

unfair competition will not give rise to an antitrust violation; and

(3) the antitrust laws and unfair competition laws are in general

conflict. These points were advanced in support of the restrictions

imposed upon the establishment of a violation in Pick-Barth situations

under rule of reason concepts, and are discussed infra.

Originators, citing the earlier cases of United States v.

American Linseed Oil Co., 262 U.S. 371 and Addyston

Pipe and Steel Co. v. United States, 175 U.S. 211, held

that a combination which declined to sell products to

retailers who followed a policy of selling garments copied

by other manufacturers from designs put out by the

combination members was illegal, per se, because it had

both as its necessary tendency and its purpose and effect

the direct suppression of competition from the sale of

unregistered textiles and copied designs. This variety of

the basic per se violation of suppression and elimination

of competition from a substantial market became known

as the “group boycott” or “concerted refusal to deal”

per se offense. In the International Salt case competition

was suppressed or eliminated through a requirement that

lessees of International Salt’s patented “lixators” and

“saltomats” use only International’s unpatented salt in

the machines. This variety of the basic per se offense

became known as “tying.”

United States v. Maryland & Virginia Milk Producers

Association, Inc., 179 F.2d 426, 1948-1949 Trade Cases,

§ 62,452 (D.C. App. 1949) involved an indictment of

an association, its secretary-treasurer, and seven milk dis-

tributor corporations for conspiracy to eliminate and

suppress competition. The proof revealed that the de-

fendants agreed that the association would not supply

milk to any distributor not agreeing to buy his full

supply from the association, and to prevent and eliminate

competition from distributors not parties to the con-

spiracy by inducing them not to cut prices, attempting

to deprive price cutters of adequate supplies of milk,

interfering with the transportation of milk to them,

—--—-

furnishing milk to the conspirator distributors at reduced

rates for use in taking away contract business from price

cutters, and driving them out of business, Just as the

court in Fashion Originators said that fixing or regulat-

ing prices, parceling out or limiting production, or bring-

ing about a deterioration in quality does not exhaust the

types of conduct banned by the Sherman and Clayton

Acts, the court in U.S. v. Maryland & Virginia stated

that full supply contracts, however legal they may be

in other circumstances, are illegal when made for the

purpose of eliminating and suppressing competition. The

court also said: “Complete monopoly is of course un-

necessary; ‘the amount of interstate trade . . . affected

by the conspiracy is immaterial in determining whether

a violation of the Sherman Act has been charged . . .’.”

Northern Pacific Railway Company v. U. S., 356 U.S.

1, 1958 Trade Cases, 4 68,961 (1958) dealt with the

practice of imposing “preferential routing” requirements

embodied in clauses contained in leases of railroad prop-

erty. The Supreme Court pointed out that in the Jnter-

national Salt case the court ruled that it was “ ‘unreason-

able, per se, to foreclose competitors from any substantial

market’ by tying arrangements.” The court also enunci-

ated the basic test for a per se violation:

“... There are certain agreements or practices which

because of their pernicious effect on competition

and lack of any redeeming virtue are conclusively

presumed to be unreasonable and therefore illegal

without elaborate inquiry as to the precise harm

they have caused or the business excuse for their

use. This principle of per se unreasonableness not

only makes the type of restraints which are pro-

scribed by the Sherman Act more certain to the

benefit of everyone concerned, but it also avoids

the necessity for an incredibly complicated and

prolonged economic investigation into the entire

history of the industry involved as well as related

industries, in an effort to determine at large whether

a particular restraint has been unreasonable—an

inquiry so often wholly fruitless when undertaken.

Among the practices which the courts have hereto-

fore deemed to be unlawful in and of themselves

are price fixing, . . . division of markets, . . . group

boycotts, .. . and tying arrangements. . .”

It has already been seen that two of the specified

per se violations—tying and group boycotts—are simply

different types of the basic per se violation of suppression

or elimination of competition from a substantial market.

A conspiracy to eliminate competition by unfair means

is another type of the same basic per se violation, for its

tendency, purpose, and effect is to eliminate competition.

This is implicitly recognized in the following language

contained in the Atlantic Heel case:

“|. . We believe that the purpose of destroying a

competitor by means that are not within the area

of fair and honest competition is a purpose that

fairly subverts the goal of the Sherman Act. It con-

stitutes an interference with the natural flow of

interstate commerce which would exist under con-

ditions of fair and honest rivalry for the buyer’s

trade.

“ . . The complaint in the instant case alleges a

conspiracy to destroy a competitor by means so

inimical to free and full flow of interstate trade

as to constitute a per se violation of the Sherman

Act.”

A conspiracy to eliminate competition by unfair means

clearly comes within the category of per se violations

defined by Northern Pacific. It has an obvious “pernicious

effect on competition,” and lacks any redeeming virtue

or conceivable business excuse. Therefore, elaborate in-

quiry as to the precise harm caused is unnecessary.

The Whitten case draws the essential distinction be-

tween an ordinary unfair competition case and the per se

offense of elimination of a competitor by unfair means

in graphic language:

“In the instant case the focus is not on cripplirig

the organization of a competitor but on beating it

in the marketplace. Perhaps the difference is only

between going for the jugular and one of the lesser

arteries. But the difference, we feel is enough.”

Thus, the per se offense is differentiated from an unfair

competition tort by unfair acts designed to cripple a busi-

ness organization with the specific intent of eliminating that

organization from the market, i.e., from “competition.”

The inevitable result is obstruction to commerce and an

“adverse effect” on competition—the suppression or elimi-

nation of competition.

The fact that the object of the conspiratorial design

involved in the particular case is only one competitor

does not remove the offense from the per se “suppression

or elimination of competition” category. It was held in.

Klor’s, Inc. v. Broadway-Hale Stores, 359 U.S. 207

(1959) that a practice which interferes with the natural

flow of interstate commerce and has a monopolistic tend-

ency should not be tolerated merely because the victim

is just one merchant whose business is so small that his

destruction makes little difference to the economy. “Mo-

nopoly can assuredly thrive from the elimination of such

small businessmen, one at a time, as it can by driving

them out in large groups.” And, in International Salt

the court said:

“Under the law, agreements are forbidden which

‘tend to create a monopoly,’ and it is immaterial

that the tendency is a creeping one rather than one

that proceeds at full gallop; nor does the law await

arrival at the goal before condemning the direction

of the movement.”

Obviously, if conspiratorial defendants can do what

was done to Northwest in this case with impunity, the

same can be done to one, or all, of the remaining com-

petitors. The opinion of the Fifth Circuit would require

the law to wait until the number of competitors sup-

pressed or eliminated afforded the conspirators a Section

2 monopolistic position before “condemning the direction

of the movement.”

» The cut throat crippling of a business for the specific

purpose of eliminating it from competition is wrong and

inevitably tends to restrain trade and foster monopoly

everytime it occurs. The cases holding the practice illegal

without regard to varying and sometimes illusory stand-

ards of “rule of reason” should be upheld.

2. The holding that the defendant must possess

substantial market power approaching that of

monopoly and gain an increment of monopoly

through his unfair competition imposes undue

and unnecessary restrictions yn proof of an of-

fense under rule of reason standards.

In its efforts to redefine the law so as to make it

assume “Sherman Act proportions” the Fifth Circuit con-

structed artificial, arbitrary and unrealistic requirements

for proof of the offense of elimination of competition by

unfair means under the “rule of reason.” The court sug-

gests that a violation might exist, but only where a firm

with substantial market power, approaching that of a

monopoly, uses unfair competition to augment its posi-

tion by eliminating a rival concern from the market.

This reasoning mixes concepts of Sections 1 and 2

Sherman Act violations. Obviously, if an offending firm

has market power approaching that of a monopoly, its

actions are properly tested under the “attempt to mo-

nopolize” portion of Sec. 2 of the Sherman Act. To

read this sort of “market power” requirement into the

proof of the Sec. 1 violation makes the two sections

largely redundant. A plaintiff could not hope to prevail

under Sec. 1, unless he was prepared to prove a Sec. 2

violation. Thus, Sec. 1 is substantially eviscerated.

There is absolutely no support for equating proof of

an unreasonable restraint with monopoly or near mo-

nopoly power. Likewise, there is no support for a hold-

ing that an increment of monopoly power must be gained

through the offense in order for an unreasonable restraint

to occur.

The most famous language concerning the definition

of an unreasonable restraint of trade is to be found in

Justice Brandeis’ opinion in Chicago Board of Trade

v. U. S., 246 U.S. 231. Various cases have attempted

to give practical dimensions to the Chicago Board of

Trade opinion. See William Filenes Sons, Co. v. Fashion

Originators Guild, 90 F.2d 556; Sandidge v. Rogers, 167

F.Supp. 553 (S.D. Ind. 1958); Richfield Oil Corp. v.

Karseal Corp., 271 F.2d 709; Martin B. Glauser Dodge

Co. v. Chrysler Corp., 418 F.Supp. 1009 (U.S.D.C.

D.N.J. 1976); Rogers v. Douglas Tobacco Board, 266

F.Supp. 636; Parmalee Transportation Co. v. Keeshin,

144 F.Supp. 480; Interborough News Co, v. Curtis Pub-

lishing Co., 127 F.Supp. 286; and Apex Hosiery Co. v.

Leader, 310 U.S. 469 (1940). The “public injury” con-

cept has been introduced to confound what U. S. v.

duPont, 351 U.S. 377, termed the “imprecise rule” (and,

according to some authorities, later abandoned.) Certain

authorities have indicated that “unreasonable restraint”

and the principle that the public rights must be violated

before an offense is committed are merely different ways

of saying the same thing. Lynch v. Magnovox, 94 F.2d

883 (9th Cir. 1938) and Kestenbaum v. Falstaff, —_—

F.2d. (5th Cir. 1978). Several types of “public in-

jury” have been defined, see discussion CCH Trade

Regulation Reporter, Vol. 1, 4 650, p. 1291, et seq., and

various factors bearing on the determination of “un-

reasonableness” have been discussed. See Chicago Board

of Trade v. U. S., supra, and Summers v. Abraham Lin-

coln Savings and Loan Association, 66 F.R.D. 58 (D.C.

Pa. 1975). But until now no case has ever suggested

that a monopolistic share of the relevant market must

be possessed or attained by the defendant before an

unreasonable restraint can be established, and that in-

cludes the Fifth Circuit’s most recent pronouncement

on the subject. See, Kestenbaum v. Falstaff, supra, and

H & B Equipment Co. v. International Harvester, ——

F.2d___. (Sth Cir. 1978).

There is no justification for treating the offense of

elimination of competition by unfair means any differ-

ently than any other “unreasonable” restraint (if it must

be judged by rule of reason concepts.) The reasons

advanced by the Fifth Circuit for this unprecedented

action do not afford such a basis.

(a) The conclusion that in the absence of market

impact forbidden by the law of mergers, in-

terests protected by the antitrust laws never

arise is unsupportable.

The Fifth Circuit Court reached the conclusion that

in the absence of market impact comparable to that which

would be forbidden by the law of mergers, a defendant

is free to follow a course designed to eliminate competi-

tion through unfair actions without running afoul of

the antitrust laws. This further confuses and commingles

different antitrust principles. Title 15 U.S.C.A. Sec. 18

prevents mergers where, in any line of commerce, the

effect may be to substantially lessen competition or tend

to create a monopoly. The wording is thus comparable

to that used to define Clayton Act, Sec. 3 “incipient” viola-

tions. The implication in the Fifth Circuit opinion that a

Sec. 1 rule of reason test is used to determine validity of

mergers is not warranted. The courts have applied

“Section 7” tests which have been judicially developed,

and at least one case has predictably suggested a coal-

esence of Sec. 3 and Sec. 7 tests. See United States v.

E. I. duPont de Nemours & Co., 353 U.S. 586 (1957)

relying on Standard Oil, Co. v. United States, 337 U.S.

293 (1949). The Fifth Circuit’s approach injects con-

fusion into rule of reason which may pose endless

problems, by, in effect, superimposing Sec. 7 and Sec.

3 tests on Sec. 1 tests (which were none too clear at

the starting point.) To multiply the confusion, Sec. 2

tests are injected, for the court also argued that only if

the defendant can gain an increment of monopoly

through his unfair competition would the additional

sanctions of the Sherman Act be appropriately used to

deter him. After the significant deviation by way of

Sec. 7, this returns the reasoning to its starting point,

ie., that market power of the proportion of Sec. 2

monopoly or attempted monopoly raust be vested in the

defendant before the defendant’s conspiratorial actions

designed to eliminate a competitor through unfair com-

petitive means will constitute a violation of Sec. 1.

Clearly, Congress never intended such an amalgamated

result, and Sec. 1 does not comprehend such a confused

burden of proof.

(b) Application of merger tests to rule of reason

cases is not justified by the illogical conclu-

sion that if a defendant can achieve the de-

sired result by lawful merger, elimination of

a competitor by unfair competition will not

give rise to a violation.

To support its monopoly power conclusion, the lower

court stated that if a defendant can achieve a desired

result either by lawful merger or by engaging in unfair

competition, the choice of the unfair competition route

alone should not give rise to an antitrust violation.

The “desired result” is the elimination of competition

or a “competitor.” The fact that this might be done in a

legal manner, without injury to the eliminated firm, is

hardly an argument in support of sanctioning the elimi-

nation of competition by unfair means. There is no

logical comparison between the two. This argument is

no more valid than an argument that a horizontal re-

striction or a group boycott, which eliminates a competi-

tor, is permissible if the absorption of the eliminated

firm by a defendant firm would not have been prohibited

by the law of mergers. The fact that the end result of a

trade restraint might have been accomplished lawfully,

i.e., in another manner not involving the trade restraint,

does not legalize the trade restraint.

competition are not in “general conflict.”

The Fifth Circuit opinion states that the Pick-Barth

doctrine “fails to perceive that the purposes of antitrust

law and unfair competition law generally conflict.” The:

court argued that the thrust of antitrust law is to prevent

restraints on competition, and makes the remarkable

statement that “unfair competition is still competition

and the purpose of the law of unfair competition is to

impose restraints on that competition.” To illustrate, the

court argued that the law of unfair competition tends to

protect a business in the monopoly over the loyalty of

its employees and its customer list, while the general

purpose of the antitrust law is to promote competition

by freeing from monopoly a firm’s sources of labor

and markets for its products. It is obvious, however, that

a firm’s “sources of labor” are not the same as the loyalty

of a firm’s employees, and “markets for its products” is

not the same as a firm’s customer list. There is no “gen-

eral conflict” between the purposes of antitrust law and

unfair competition law. Both forms of tort grew out of

the same basic common law. The law of unfair com-

petition is designed to prevent one merchant from ob-

taining an unconscionable advantage that might accrue

from the performance of an unfair act. Effective enforce-

ment of unfair competition law is no more likely to im-

pose restraints on competition than is effective enforce-

ment of antitrust law. For example, predatory pricing and

group boycotts are clearly “unfair” methods of com-

petition which are proscribed by antitrust laws. Policing

of these practices has the same basic purpose as pro-

scribing the theft of proprietary information and trade

disparagement. Proscription of the latter practices does

not impose restraints on competition, as the Fifth Circuit

suggests, but instead preserves and promotes competition

by preventing unconscionable practices designed to injure

a competitor.

In sum, none of the reasons suggested by the Fifth

Circuit justify the adoption of the peculiar “rule of rea-

son” rules formulated by the court for special application

to the offense of elimination of competition by unfair

means.

3. An unreasonable restraint of trade in violation

of Sec. 1 of the Sherman Act was shown, under

traditional rule of reason tests.

The circumstances surrounding the elimination of

Northwest as a distributor and the substitution of Bosco,

and the manner in which it was accomplished, are dis-

cussed above. The scope of the conspiracy is much

broader than a simple dealer substitution. The elimina-

tion of Northwest, and the appointment of Bosco was

for the purpose of eliminating Northwest as a competitor

in the market. The conspiratorial design was accom-

plished by actions of the type long regarded as legally

reprehensible. The jury may well find an unreasonable

restraint of trade resulting from these acts, which, for all

practical purposes, eliminated Northwest as a competitor

and had an adverse effect on both competition and the

consumer. Thus, Northwest is entitled to recovery, even

if the proof falls short of meeting the per se requirements.

Agreements or combinations in restraint of trade may

take any form. Chief Justice Hughes in the case of Sugar

Institute v. United States, 297 U.S. 553, characterized the

Sherman Act as follows:

“We have said that the Sherman Act as a charter

of freedom has a generality and adaptability com-

parable to that found to be desirable in constitutional

provisions. It does not go into detailed definitions.

Thus—in applying its broad prohibitions, each case

demands a close scrutiny of its own facts.”

Again, in Northern Pacific Railway v. United States,

356 U.S. 1 (1958), the Supreme Court said:

“The Sherman Act is designed to be a comprehensive

charter of economic liberty aimed at preserving free

and unfettered competition as the rule of trade. It

rests on the premise that the unrestrained interaction

of competitive forces will yield the best allocation

of our economic resources, the lowest prices, the

highest quality, and the greatest material progress,

while at the same time providing an environment

conducive to the preservation of our democratic,

political, and social institutions. But even were that

premise open to question, the policy unequivocally

laid down by the act is competition, and to this end

it prohibits ‘every contract, combination . . . or

conspiracy, in restraint of trade or commerce among

the several states’.”

The famous Standard Oil (221 U.S. 1) and American

Tobacco (221 U.S. 106) cases injected the “rule of

reason” into the law in 1911. The “bedrock” language

relating to “unreasonable” restraints is to be found in

the 1918 decision of Chicago Board of Trade v. United

States, 246 U.S. 231, 238, 38 S.Ct. 242, 244, 62 L.Ed.

683. There Justice Bradeis stated:

“ .. The true test of legality is whether the restraint

imposed is such as merely regulates and perhaps

thereby promotes competition or whether it is such

as may suppress or even destroy competition. To

determine the question the court must ordinarily

consider the facts peculiar to the business to which

the restraint is applied; its condition before and

after the restraint was imposed; the nature of the

restraint and its effects, actual or probable. The

history of the restraint, the evil believed to exist,

the reason for adopting the particular remedy, the

purpose or end sought to be attained, are all relevant

facts. This is not because a good intention will save

an otherwise objectionable regulation or the reverse;

but because knowledge of intent may help the court

to interpret facts and predict consequences.” (Em-

phasis supplied).

The “rule of reason” has been termed the “imprecise

rule.” U.S. v. E. I. Dupont De Nemours & Company,

351 U.S. 377. Expansion of the concept originated by

Standard Oil and American Tobacco to include the ele-

ment of “public injury” confounded this “impreciseness”.

(The “public injury” test for determining unreasonable-

ness of a restraint has now been abandoned by certain

jurisdictions). At best, the factual elements of a showing

of “public injury” have only been hazily defined. In

William Filene’s Sons Co. v. Fashion Originators Guild,

90 F.2d 556, it is indicated that (1) price control, (2)

production control, or (3) deterioration in quality must

be shown, the fundamental test being a detriment to the

public.

In the often cited district court case of Sandidge v.

Rogers, 167 F.Supp. 553 (S.D. Indiana 1958) the court

stated that whether a conspiracy is unreasonable depends

on testing the facts “to ascertain whether the defendant’s

conduct had detrimental effect on the public”. This, the

court held, is to be tested by whether such factors as

price, quality, quantity, service, convenience, or access-

ibility are adversely affected.

Illustrating application of the rule of reason in juris-

dictions which no longer employ the “public injury” test

is Martin B. Glauser Dodge Co. v. Chrysler Corp., 418

F.Supp. 1009 (U.S. D.C., D. N.J. 1976), where the court,

after review of the authorities, concluded that “. . . in

a private antitrust action the plaintiff is not required to

prove an injury to the public as a material element in

his case”. (Page 1017). The court then stated:

“It is essential, however, that plaintiff show that

the challenged practices adversely affected ‘competi-

tion in the marketplace’. (Citing authorities ).”

The court then held this burden to be satisfied by proof

of elimination of intrabrand competition (and cited several

authorities in support of the proposition). In this regard,

see also Quality Mercury, Inc. v. Ford Motor Co., 542

F.2d 466 (8th Cir. 1976).

In jurisdictions retaining the public injury concept, it

is apparent that proof of injury to the consumer demon-

strates adverse effect on “competition in the marketplace”.

Under the Sherman Act the reasonableness or unreason-

ableness of a restraint on interstate trade or commerce

is a question of fact the solution of which rests upon

the conditions obtaining in the particular «ase. U. S. v.

Standard Oil Co., 78 F.Supp. 850, affd 69 S.Ct. 1051,

337 U.S. 293, 93 L.Ed. 1371, followed in Richfield Oil

v, U.S., 72 S.Ct. 665, 343 U.S. 922, 92 L.Ed. 1334.

In the case of Winn Avenue Warehouse, Inc. v. Win-

chester Tobacco Co., 339 F.2d 277 (6th Cir. 1964) the

court states at page 280:

“Under the rule of reason announced by the Su-

preme Court in Standard Oil of New Jersey v. U.S.,

221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619, only an

unreasonable restraint of trade is a violation of Sec-

tion 1 of the Sherman Act. Whether a restraint is

unreasonable or whether there is any restraint is a

question of fact. Board of Trade of City of Chicago

v. U.S., 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683;

Appalachian Coals, Inc. v. U.S., 288 U.S. 344, 53

S.Ct. 471, 77 L.Ed. 825; Times Picayune Pub. Co.

v. U.S., 345 U.S. 594, 73 S.Ct. 972, 97 L.Ed. 1277.”

Accordingly, in Bale v. Glasgow Tobacco Board of

Trade, Inc., 339 F.2d 281 (6th Cir. 1964) a district

judge’s factual determination that a restrictive practice

was an unreasonable restraint of trade was upheld, the

court saying:

“The function of the courts is not to formulate

reasonable restraints of trade, but to enjoin the en-

forcement of those restraints that unreasonably re-

strain trade. The scope of this court’s review is

limited to determining whether the trial judge's

findings, including the inferences drawn from un-

disputed facts, are clearly erroneous.”

In American Tobacco Co. v. United States, 147 F.2d

93 (6th Cir. 1944) the court pointed out that the

Sherman Act condemns every means, no matter how

novel, to accomplish the objective of restraining trade.

It is not the form of the combination or particular means

used, but the results achieved that the statute condemns.

The court stated that the effect of a combination or a

conspiracy is not to be judged by dismembering it and

viewing its separate parts, but only by looking at it as a

whole; acts which, considered singly, may be entirely

innocent and absolutely lawful in themselves, may be

steps in a (crinminal) conspiracy.

When these tests are applied to the present case, it is

clear that the reprehensible actions of the defendants

were such as “may tend to supress or destroy competi-

tion” (witness the effect upon Northwest) and adversely

affected competition to the injury of the consumer.

Northwest’s business has been rendered unprofitable,

its sales have been drastically reduced, it is no longer

a significant factor in the market, and for all practical

purposes, it has been eliminated from the market. This

has been tantamount to the elimination of a service

organization, for Bosco provides only limited service.

The Fifth Circuit court said that “structurally” competi-

tion has been increased because there are now two

competitors (Bosco and Northwest) where there was just

Northwest. But it is apparent that Northwest is no longer

a viable competitor, and the reduction in market share

from 20% by Northwest to 13% by Bosco and Northwest

combined illustrates the deterioration in service and in-

jury to the large number of customers “stuck” with un-

serviced Omark products. The affidavit of Raymond L.

McElroy, App. 151, and the discussion of “public injury

and adverse effect on competition” above, demonstrate

that as a result of the combined actions of the de

fendants, customers in the market have been adversely

affected from the standpoint of price, convenience, ser-

vice and accessibility of product. Accordingly, it is clear,

that in all events, Northwest is entitled to have submitted

to a jury the question of whether there has been an un-

reasonable restraint of trade resulting from the con-

spiratorial actions of the defendants.

Sec. 1 of the Sherman Act says that any contract or

combination or conspiracy in (unreasonable) restraint

of trade is a violation. This language cannot be ignored.

Where the evidence raises an issue of unreasonable re-

straint, the case must be submitted to the jury.

CONCLUSION

The general standards regarding granting of summary

judgment are applied most strictly in the antitrust con-

text. As the court observed in Poller v. Columbia Broad-

casting System, Inc., 368 U.S. 464 (1962).

“ ... We believe that summary procedures should

be used sparingly in complex antitrust litigation

where motive and intent play leading roles, the

proof is largely in the hands of the alleged con-

spirators, and hostile witnesses thicken the plot.

. . . It is only when the witnesses are present

and subject to cross-examination that their credi-

bility and the weight to be given their testimony

can be appraised. Trial by affidavit is no substitute

for trial by jury which so long has been the hall-

mark of even handed justice.” 386 U.S. at 473.

For the reasons cited above, Petitioner respectfully sub-

mits that the evidence demonstrates a cause of action for

_— —_——

(a) the per se violation of conspiracy to eliminate

a competitor by unfair means, and

(b) unreasonable restraint of trade in violation of

Sec. 1 of the Sherman Act.

Accordingly, the judgment of the trial court granting

summary judgment and the judgment of affirmance by

the Fifth Circuit Court of Appeals should be reversed and

the cause remanded for trial.

Respectfully submitted,

Prick & WILLIAMS

306 E. 11th Street, Suite L-7

Austin, Texas 78701

UNGERMAN, HILL, UNGERMAN,

ANGRIST, DOLGINOFF & TEOFAN

Room 820, 1025 Elm Street

Dallas, Texas 75201

By: Cask ».¥ :

CERTIFICATE OF SERVICE

I hereby certify a true and correct copy of the above

and foregoing document has been forwarded to the fol-

lowing: Mr. Jerry Buchmeyer, 2300 Republic National

Bank Building, Dallas, Texas 75201, attorney for Omark

Industries, Inc.; Phillip N. Smith, Mercantile Dallas Build-

ing, Dallas, Texas 75201, attorney for Bob Wooten; and

Marvin S. Sloman, 3000 One Main Place, Dallas, Texas

_ 75250, attorney for Bosco Fastening Service Center, Inc.,

by U. S. Mail on this the _@ _ day of November,

1978.

Chin Ww. ae

Jack N. PRICE

APPENDIX

NORTHWEST POWER PRODUCTS, INC.,

Plaintiff-Appellant,

OMARK INDUSTRIES, INC., Bob Wooten, and

Bosco Fastening Service Center, Inc.,

Defendants-Appellees.

No. 77-1976.

UNITED STATES COURT OF APPEALS

Fifth Circuit.

July 10, 1978.

Former distributor of powder-actuated tools and sup-

plies brought treble damage action under Sherman Act

against supplier, new distributor and its former sales

manager. The United States District Court for the North-

ern District of Texas, Robert M. Hill, J., granted sum-

mary judgment for defendants, and plaintiff appealed.

The Court of Appeals, Roney, Circuit Judge, held that:

(1) a conspiracy to eliminate a competitor by unfair

means is not, per se, a violation of the Sherman Act and

(2) former distributor which held 20% share of market

and which was substituted by supplier with another dis-

tributor with 11.5% share of market, which failed to

show that either supplier or new distributor earned ex-

cess profits on business or that market as a whole lacked

full service and which was forced to raise prices to com-

pensate for overhead on lower volume failed to show

anticompetitive effect of the substitution and so did not

establish an antitrust violation under rule of reason.

Affirmed.

Appeal from the United States District Court for the

Northern District of Texas.

Before THORNBERRY, RONEY and HILL, Circuit

Judges.

RONEY, Circuit Judge:

Omark Industries, Inc. terminated Northwest Power

Products, Inc. as a distributor of Omark powder actuated

tools (PAT) and supplies. Northwest brought this treble

damage action under the Sherman Act, 15 U.S.C.A. § 1,

against Omark; the new distributor, Bosco Fastening

Service Center, Inc.; and Northwest’s former sales mana-

ger, Bob Wooten, who led a contingent of Northwest

employees who defected to Bosco. Northwest alleges the

defendants conspired both to strip it of its distributorship

and to deprive it of its customers by tortious and unfair

means. The district court granted summary judgment for

the defendants.

The plaintiff rests its case on a slender line of decisions

beginning with Albert Pick-Barth Co. v. Mitchell Wood-

bury Corp., 57 F.2d 96 (lst Cir.), cert. denied, 286

U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932), which

held somewhat similar conduct to be a per se violation

of the antitrust laws. Because we reject the Pick-Rarth

teaching and agree with defendants that the holding of

Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245

(5th Cir. 1975), largely controls this case, we affirm

the judgment of the district court.

. I. Facts

[1] On appeal from a grant of summary judgment,

the facts are to be viewed in the light most favorable

to the nonmoving party. Poller v. Columbia Broadcasting

System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d

458 (1962); Gauck v. Meleski, 346 F.2d 433, 436 (Sth

Cir. 1965).

The markt teva here is the distribution and serv-

icing of powder actuated tools and supplies for the con-

struction industry in the Dallas-Fort Worth area. The

tools fire nail-type fasteners for holding objects to

masonry. In that market, Northwest was number two,

with an 18-20 percent share, and ranked ahead of eight

smaller distributors. Another Omark distributor, McLeroy

Fasteners, accounted for two percent. Bosco, a sizeable

retailer of construction supplies, sold some powder actu-

ated tool products, but did not act as a distributor. Its

sales at retail amounted to less than one-tenth of one

percent of the market. Omark, ranking number two in the

nation in the manufacture of PATs with a 25 percent

market share, had engaged in some local distribution,

and, at the time of the termination, still sold to national

construction firms operating in Dallas. None of the de-

— or affidavits offered in response to the motion

for’summary judgment, however, quantify those sales.

Omark grew dissatisfied with Northwest, thought its

financial footing was unsound, and refused to supply it on

other than a C.O.D. basis. Perceiving the problem to be

Northwest’s president, Raymond McElroy, Omark secretly

began negotiations with sales manager Wooten in an

attempt to channel its business through an organization

Wooten would head. Three Omark representatives then

confronted McElroy, and told him that if he did not turn

the management of Northwest over to Wooten then

Wooten would leave and Omark would terminate North-

west. McElroy refused to comply. He fired Wooten. At

Omark’s suggestion, Bosco then hired Wooten to open

a new PAT distributorship. Omark refused to supply

Northwest further, and entered into a distributorship

arrangement with Bosco. Bosco hired away Northwest’s

two other salesmen and a Northwest secretary, who took

with her a valuable customer list.

Northwest, relying on Omark inventory and new PAT

supplies furnished by Ramset and Diamond, continued

in business. To eliminate Northwest from the market,

agents of Omark and Bosco made false and disparaging

remarks to Northwest customers. These remarks included

statements that Northwest did not have the funds to buy

Omark products, that Northwest would shortly be bank-

rupt, and later that Northwest was out of business, could

not supply PAT products, and was not one and the same

as Bosco.

At the time of summary judgment, Bosco had gained

11.5 percent of the local market, while Northwest’s share

had plummeted to two percent.

II. Pick-Barth

[2] A supplier may switch dealers and conspire with

a new dealer to take the place of an established one.

Without more, the antitrust laws do not stand in their

way. Burdett Sound, Inc., 515 F.2d at 1248-1249.

Plaintiff argues that Northwest distributed brands of

PAT other than Omark, that the defendants conspired

to use unfair means to eliminate Northwest as a com-

petitor, and this action brings the defendants’ conduct

within the prohibition of the Sherman Act. The types of

unfair competition assertedly employed by the defendants

include (1) employee disloyalty, (2) misappropriation of

—s

ee a et ee

“

a “trade secret” customer list, and (3) trade disparage-

ment.

The first court to hold that a conspiracy to eliminate

a competitor by unfair means violates the Sherman Act

was the First Circuit in Albert Pick-Barth Co. v. Mitchell

Woodbury Corp., 57 F.2d 96 (1st Cir.), cert denied, 286

U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932). The

defendant, Pick-Barth, was a dominant factor in the

national market for kitchen equipment and utentils. Pick-

Barth’s trade in the New England states, however, was

limited. To break into that market, Pick-Barth hired away

the plaintiff's employees and wrongfully obtained its cus-

tomer list. The First Circuit, reversing a jury verdict that

no unreasonable restraint of trade resulted, held that the

intent to eliminate a competitor by unlawful or unfair

competition violated the Act. A later case before the same

court characterized the offense as per se. Atlantic Heel

Co. v. Allied Heel Co., 284 F.2d 879 (ist Cir. 1960)

(two judges concurring in result only). In its most recent

consideration, the First Circuit limited Pick-Barth and

Ailied Heel to what it perceived to be their facts, but

did not overrule them. George R. Whitten, Jr., Inc. v.

Paddock Pool Builders, Inc., 508 F.2d 547 (ist Cir.

1974).

One other circuit court has recognized a Pick-Barth

cause of action under the Sherman Act, Perryton Whole-

sale, Inc. v. Pioneer Distributing Co., 353 F.2d 618 (10th

Cir. 1965), cert. denied, 383 U.S. 945, 86 S.Ct. 1202,

16 L.Ed.2d 208 (1966). That decision did not use per se

language. One district court, however, has expressly

applied a per se test, holding no anticompetitive effect

need be shown. Albert Sauter Co. v. Richard S. Sauter

Co., 368 F.Supp. 501, 512-514 (E.D.Pa. 1973) (verdict

for plaintiff). Other courts have allowed trial of issues

framed along the lines of the Pick-Barth theory of

liability. See Snyder v. Howard Johnson’s Motor Lodges,

Inc., 412 F.Supp. 724, 729 (S.D. Ill. 1976) (denied

summary judgment); Tower Tire & Auto Center, Inc. v.

Atlantic Richfield Co., 392 F.Supp. 1098 (S.D. Tex.

1975) (denied summary judgment); Mr. Hanger, Inc.

v. Rizzuto, 410 F.Supp. 1158 (S.D. N.Y. 1975) (denied

motion to dismiss for lack of jurisdiction); Vogue Instru-

ment Corp. v. Lem Instruments Corp., 40 F.R.D. 497

(S.D. N.Y. 1966) (denied summary judgment).

Our own decisions have never expressly considered

Pick-Barth. See Southland Reship, Inc. v. Flegel, 534

F.2d 639, 643 (Sth Cir. 1973). In Cherokee Labora-

tories, Inc. v. Rotary Drilling Services, Inc., 383 F.2d

97 (Sth Cir. 1967), cert. denied, 390 U.S. 904, 88 S.Ct.

816, 19 L.Ed.2d 870 (1968), we concluded that a case

for the jury existed when a supplier enticed plaintiff dis-

tributor’s employees into forming a new distribution

organization for the supplier who then raised his prices

to the plaintiff. In Burdett Sound, Inc., however, without

mentioning Cherokee, we rejected the theory that an alle-

gation of unfair trade practices in the distributor substi-

tution context could resist a motion for summary judg-

ment, reasoning that “attempts to drive another com-

petitor out of business” did not apply to substitutions.

515 F.2d at 1248. See also Craig v. Sun Oil Co., 515

F.2d 221 (10th Cir. 1975), cert. denied, 429 U.S. 829

97 S.Ct. 88, 50 L.Ed2d 92 (1976); Ace Beer Distribu-

tors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert.

denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166

(1963). By examination of the original Cherokee Labor-

atories, Inc. and Burdett Sound, Inc. briefs, we have

ascertained that in both cases the plaintiff relied on cases

from the Pick-Barth line, but neither published opinion

cites them.

This case is different from Burdett Sound, Inc. in

some respects. Here the acts of unfair competition were

not only designed to switch customers from one dist’ ” ™1-

tor to another, but they were also calculated to prutect

Omark from the new Ramset and Diamond brands

carried by Northwest. Burdett Sound, Inc. only addressed

conduct designed to lessen intrabrand competition. Here

interbrand competition is also at stake, and interbrand

competition is the “primary concern of antitrust law.”

Continental T.V., Inc. v. G.T.E. Sylvania, Inc., 433

U.S. 36, 52 n.19, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).

Cherokee Laboratories, Inc. was also an interbrand

case. While that provides some basis for distinguishing the

two cases, in view of this Court’s prior failure to ad-

dress squarely the per se issue raised by the plaintiff, we

will confront that question first, and then, rejecting the

per se rule, turn to consideration of whether the facts

here can establish an antitrust violation under the rule

of reason.

Ill. A Per Se Rule?

The brief language of the Sherman Act prohibits

“[e]very contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign nations.

...” 15 U.S.C.A. § 1. The courts have looked to the

“rule of reason” in giving substance to that terse wording,

and examined the purpose, market power, and anticom-

petitive effect of the restraints before them. Chicago Board

of Trade vy. United States, 246 U.S. 231, 238, 38 S.Ct.

242, 62 L.Ed. 683 (1918); Union Circulation Co v.

FTC, 241 F.2d 652, 656 (2d Cir. 1957). Rule of rea-

son analysis, however, is time-consuming and gives little

guidance to businessmen engaged in planning a new

transaction. To overcome those difficulties, the Supreme

Court has preferred to map out areas of “per se” illegality,

business practices which have such a “pernicious effect on

competition and lack . . . any redeeming virtue” that

they are condemned without inquiry into the nature of

their impact on a particular market. Northern Pacific Ry.

v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2

L.Ed.2d 545 (1958); see Continental T.V., Inc., 433

U.S. at 50, 97 S.Ct. 2549 (1977).

The decisions applying the Pick-Barth rule as a per

se offense have not closely analyzed the question of

whether a conspiracy to eliminate a competitor by un-

fair means is the kind of conduct so contrary to the pur-

poses of the Sherman Act that it deserves per se treat-

ment. See Atlantic Heel Co., 284 F.2d at 884, The con-

clusion is stated rather than reached. The usual assump-

tion is that a per se rule would grow out of a history of

rule of reason cases all arriving at the same verdict.

United States v. Topco Associates, Inc., 405 U.S. 596,

607-608, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972). Ken-

tucky Fried Chicken, Inc. v. Diversified Packaging, Inc.,

549 F.2d 368, 379 (Sth Cir. 1977). The Pick-Barth

jurisprudence reverses the order. The early cases apply

a per se test, but the later cases resort to an approach

which more closely resembles the rule of reason. Signifi-

cantly, several of the most recent cases reject the Pick-

Barth per se rule altogether. Redwing Carriers v. Mc-

nel

Kenzie Tank Lines, Inc., 443 F.Supp. 639 (N.D. Fla.

1977) (notice of appeal filed Fifth Circuit, No. 78-

1362); Stifel, Nicolaus & Co. v. Dain, Kalman & Quail,

Inc., 430 F.Supp. 1234, 1241 (N.D. Iowa 1977); As-

sociated Radio Service Co. v. Page Airways, 414 F.

Supp. 1088, 1091-1094 (N.D. Tex. 1976) (notice of

appeal from subsequent order filed Fifth Circuit, No. 78-

1159); Mar Food Corp. v. Doane, 405 F.Supp. 730

(N.D. Ill. 1975) (McLaren, D. J.); Southland Reship,

Inc. v. Flegel, 401 F.Supp. 339, 347 (N.D. Ga. 1975)

(dictum); see du Pont Walston, Inc. v. E. F. Hutton &

Co., 368 F.Supp. 306 (S.D. Fla. 1973).

Scholarly analysis has also found little merit in the

Pick-Barth doctrine. Yoerg, Should a Trade Secrets Mis-

appropriation Claim Lie in a Procrustean Antitrust Bed?,

22 Antitrust Bull. 1 (1977); Boone, Single-Corporation

Competitive Torts and the Sherman Act, 2 Ga.L.Rev.

372 (1968); Comment, A Reexamination of Pick-Barth

Per Se Illegality Under Section 1 of the Sherman Aniti-

trust Act, 38 U.Pitt.L.Rev. 87 (1976); Note, Unfair

Competition Under the Sherman Act, 59 Iowa L.Rev.

1194 (1974); Note, Acts of Unfair Competition with In-

tent to Injure a Competitor Held a Per Se Violation,

42 Fordham L.Rev. 909 (1974).

Critics of Pick-Barth make several telling points. The

first is that the definition of “unfair means” is so vague

that the Pick-Barth cases fail to draw the bright line of

illegality which is essential if a per se rule is to achieve

its purpose as a guide to business planning. There is

no federal law of unfair competition. Pick-Barth and

Perryton rely on dictum concerning unfair competition

in the pre Erie case, Hitchman Coal & Coke Co. v.

Mitchell, 245 U.S. 229, 259, 38 S.Ct. 65, 62 L.Ed. 260

(1917). The language may be contrary to the law of un-

fair competition as it is now understood in the states.

See 45 Am.Jur.2d Interference § 46. Significantly, the

plaintiff in this case cites no non-Pick-Barth cases, state

or federal, that indicate the conduct of which he com-

plains has been recognized as unfair competition, though

offenses such as misappropriation of trade secrets and

disparagement are generally recognized. See Developments

in the Law—Competitive Torts, 77 Harv.L.Rev. 888

(1964). Even if we were to adopt the law of the forum

state, the cases defining unfair competition are likely

to be in noticeable disarray. In the words of one au-

thority, “Progress in the development of guiding prin-

ciples in the law of unfair competition is still ‘a consum-

mation devoutly to be wished.’ ” 1 R. Callmann, Unfair

Competition, Trademarks & Monopolies, iii (3d ed.

1967). The Texas courts even conflict on whether a cus-

tomer list is a trade secret. See Mercer v. C. A. Roberts

Co., 570 F.2d 1232, 1238-1239 (Sth Cir. 1978) (no

trade secret) (alternative holding).

[3] On a more fundamental level, the Pick-Barth

doctrine fails to perceive that the purposes of antitrust

law and unfair competition law generally conflict. The

thrust of antitrust law is to prevent restraints on competi-

tion. Unfair competition is still competition and the pur-

pose of the law of unfair competition is to impose re-

straints on that competition. The law of unfair com-

petition tends to protect a business in the monoply over

the loyalty of its employees and its customer lists, while

the general purpose of the antitrust laws is to promote

competition by freeing from monoply a firm’s sources of

labor and markets for its products. See Kinnear-Weed

Corp. v. Humble Oil & Refining Co., 214 F.2d 891,

894 (Sth Cir. 1954), cert. denied, 348 U.S. 912, 75

S.Ct. 292, 99 L.Ed. 715 (1955) (patent infringement

is not an injury cognizable under the Sherman Act);

ge Missappropriation Claim, 22 Antitrust Bull. at

33.

An instance where the result of antitrust law and unfair

competition law enforcement may not conflict is when a

firm with substantial market power, perhaps approaching

that ofa monoply, uses unfair competition to augment its

position by eliminating a rival concern from the market.

But it is the elimination of the competition, by fair means

or foul, that is the concern of the antitrust law, and it is

only the unfair method on which the law of unfair com-

petition focuses.

The more modern courts examining the Pick-Barth

rule have stated that it applies only when the defendant is

a “significa: . existing competitor.” Southland Reship, Inc.,

401 F.Supp. at 346-347; see George R. Whitten, Jr., Inc.,

508 F.2d at 562; Tower Tire & Auto Center, Inc., 392

F.Supp. at 1108-1109. But see Atlantic Heel Co., 284

F.2d at 881; Metal Lubricants Co. v. Engineered Lubri-

cants Co., 411 F.2d 426, 430 (8th Cir. 1969). While

this requirement begins to limit Pick-Barth to Sherman

Act proportions, it fails to do the job entirely.

The Sherman Act was conceived as a weapon against

monopolies, trusts, and conspiracies which used agreement

instead of financial consolidation to achieve the same re-

sults. The market power of the defendant charged with

a Pick-Barth violation is crucial, for two reasons.

[4, 5] First, absent some market impact comparable

to that which would be forbidden by the law of mergers,

the interests protected by the antitrust laws never arise.

See, e.g., United States v. General Dynamics Corp., 415

U.S. 486, 494-498, 94 S.Ct. 1186, 39 L.Ed.2d 530

(1974). See generally, L. Sullivan, Antitrust § 204

(1977). If a defendant could achieve a desired result

either by lawful merger or by engaging in unfair compe-

tition, the choice of the unfair competion route alone

should not give rise to an antitrust violation.

[6] Second, only if the defendant can gain an incre-

ment of monoply through his unfair competition would

the additional sanctions of the Sherman Act, including

treble damages and criminal sanctions, be appropriately

used to deter him. Single damages or equivalent injunc-

tive relief is thought sufficient to compensate a firm for

unfair competition. Cf. R. Posner, Economic Analysis of

Law 28-29 (1973) (decrying remedies other than actual

damages for breach of a restrictive covenant).

The “significant existing competitor’ requirement

misses the mark in several respects. By not aiming at

market power, it omits a number of relevant considera-

tions, including the defendant’s market share before and

after the unfair conduct, the number and relative size of

firms in the market, the conditions of entry, the potential

competition from firms outside the market, and whether

a trend toward concentration exists. It also excludes cases

in which a new entrant possesses such dramatic market

power that his conduct, aimed at eliminating competition,

threatens the values protected by the Sherman Act. Cf.

United States v. Falstaff Brewing Corp., 410 U.S. 526,

93 S.Ct.. 1096, 35 L.Ed.2d 475 (1973) (certain market

extension mergers illegal).

ee ee

Cherokee Laboratories, Inc. was such a case. There

one of the defendants, the plaintiff's supplier, had an

exclusive dealing arrangement with the holder of a patent.

The plaintiff was its only distributor. The supplier decided

to begin its own distribution business. It hired away an

employee of the plaintiff, raised prices to the plaintiff,

and conspired to eliminate the plantiff from the market.

The supplier established a 150 percent markup on its

own distribution even though only 20 percent of the

market was being served..The plaintiff had unsuccessfully

attempted to distribute a rival and inferior product not

furnished by the defendant supplier. The district court

granted summary judgment for the defendants, and this

Court reversed. We held the patent monopoly could not

be extended past the first sale, that the high markup and

the low service in the distribution market indicated a

lack of competition there, and consequently the con-

spiracy established the “public injury,” or injury to com-

petition, necessary to establish a claim under Sherman

Act § 1. Cherokee Laboratories, Inc. is an unusual case,

because the defendant, although a new entrant in the

distribution market, was a potential monopolist because

of its control of supply.

We think the line drawn by the Pick-Barth doctrine

is sO vague, and the circumstances in which its applica-

tion manifests any injury to competition so dependent on

individual facts that it does not merit the per se charac-

terization some of the early cases give it. Defendants

should be permitted to argue that their competitive acts,

fair or unfair, have not produced an impermissible de-

gree of market power, and that their use of misappropri-

ated business resources evinces an increase in competi-

tion, not a reduction. An instructive analogy lies in the

law of mergers, where the rule of reason also controls.

See Brown Shoe Co. v. United States, 370 U.S. 294,

321-322, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); E.

Gelhorn, Antitrust Law & Economics 329-330 (1975).

[7, 8] One other consideration bolsters our conclusion.

Congress has repeatedly declined to create a federal

law of unfair competition. 1 R. Callmann, Unfair Com-

petition, Trademarks & Monopolies 4.3 at 137-142 (3d

ed. 1967) & 35 (Supp. 1976). The Federal Trade Com-

mission has the power to correct “unfair or deceptive

acts or practices,” 15 U.S.C.A. §45(a)(1), but the

language of the Sherman Act does not give that power

to private plaintiffs. Courts should be circumspect in

adopting doctrines that have even the appearance of

disturbing a congressional balance of remedies.

[9] We thus reject the per se rule of Pick-Barth and

adopt a rule of reason to be applied on a case-by-case

basis in situations where competitive forces protected

by the Sherman Act suffer some palpable injury.

IV. Anticompetitive Effect

[10, 11] To prove an antitrust violation under the

rule of reason, Northwest must show the defendants’

conduct adversely affected competition. That showing is

essential, because “[a]n anti-trust policy divorced from

market considerations would lack any objective bench-

marks.” Continental T. V., Inc., 433 U.S. at 53 n.21, 97

S.Ct. at 2560. See Posner, The Rule of Reason and the

Economic Approach: Reflections on the Sylvania De-

cision, 45 U.Chi.L.Rev. 1 (1977). An evil intent alone

is insufficient to establish a violation under the rule of

— ee

reason, although proof of intent may help a court assess

the market impact of the defendants’ conduct. See Chi-

cago Board of Trade, 246 U.S. at 238, 38 S.Ct. 242.

The district court held that Northwest had shown only

the substitution of one distributor for another, and so

had failed to produce facts which would demonstrate

anticompetitive effect upon the business of selling and

servicing PAT equipment in the North Texas region.

On that reading of the evidence, its legal conclusion

was impeccably correct. Burdett Sound, Inc., 515 F.2d

at 1248; Cherokee Laboratories, Inc., 383 F.2d at 104

(dictum); Craig, 515 F.2d at 224; Ace Beer Distributors,

Inc., 318 F.2d at 287.

The examination of this case, however, cannot stop

without an inquiry into the market power of the de-

fendants. Burdett Sound, Inc. indicated the evidence

there showed “no effort by either [defendant] to establish

market dominance,” 515 F.2d at 1248. In Cherokee

Laboratories, Inc. an anticompetitive effect was said to

exist when the new distributor, if effective in driving out

the old, would become a monopolist. See also Poller vy.

Columbia Broadcasting System, Inc., 368 U.S. 464, 469,

82 S.Ct. 486, 7 L.Ed.2d 458 (1962). Furthermore, this

case, like Cherokee Laboratories, Inc., entails interbrand

as well as intrabrand competition.

Omark and Bosco conspicuously lack the kind of

market power possessed by the defendants in Cherokee

Laboratories, Inc. The plaintiff does not assert that they

have patents that would make monopoly a possibility.

In fact, Omark only has a 25 percent share of the na-

tional manufacturing market, and faces eight other

competitors, one of which is larger than Omark. North-

west has not shown that either Omark or Bosco earns

an excessive profit on its business, or that the PAT

market as a whole lacks full service.

From a structural perspective, the defendants’ conduct

enhanced rivalry, rather than reducing it. Where, for

all practical purposes, only Northwest stood before, there

are now two: Northwest and Bosco. Northwest argues

that its fall in market share demonstrates an adverse

effect on competition, but that argument mistakes com-

petitors for competition. Certainly Northwest has been

injured but the fall from grace of the number two firm

which held a 20 percent market share, and its replace-

ment by a new firm with an 11.5 percent share, reduces

market concentration and increases the competitive possi-

bilities. That would be true even if Northwest’s two per-

cent share were eliminated entirely. It is also significant

that McLeroy Fasteners has stayed in the market and

Omark, the supplier, remains a potential competitor.

Northwest suggests injury to competition because past

Northwest customers who bought Omark tools cannot

get adequate service from Bosco. That may represent

nothing more than a temporary dislocation, because pur-

chasers of PAT products will buy other brands if Bosco’s

poor service is significant. At worst, it represents bad

business judgment by Omark. Given the competitive struc-

ture of the market, it cannot be taken as an indication

that Omark has market power.

[12] Finally, Northwest asserts competitive injury be-

cause it was forced to raise its prices to compensate for

overhead on its lower volume. Northwest’s ability to raise

ee eS eres

its prices may indicate that Northwest possessed un-

usual market power in some fashion, but it cannot be

taken as an indication that the defendants possessed

such power, or that their conduct affected prices in the

PAT market generally. See Kestenbaum vy. Falstaff

Brewing Corp., F.2d. (Sth Cir. 1978) (No. 76-

4290, slip opinion page 5087). Northwest has failed to

show anticompetitive effect and so cannot establish an

antitrust violation under the rule of reason.

AFFIRMED.

IN THE

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION .

CIVIL ACTION NO. CA-3-74-1104-D

NORTHWEST POWER PRODUCTS, INC.,

Plaintiff

OMARK INDUSTRIES, INC., BOB WOOTEN AND

BOSCO FASTENING SERVICE CENTER,

Defendants

(Filed April 7, 1977)

ORDER

The motions for summary judgment filed by all de-

fendants came on for consideration before the Honorable

Robert M. Hill, United States District Judge. The court

has considered the motions, the supporting and opposing

briefs, and the oral argument of all counsel, and is of

the opinion that the motions should be sustained.

The issue before this court has been distinctly defined.

The facts are undisputed in that for the purposes of their

motions for summary judgment the defendants have

admitted all facts as alleged by plaintiff which are sup-

ported by the evidence. The plaintiff has alleged only

anti-trust violations; no contract or tort theories are in-

volved. Plaintiff's attorney represented tc the court during

oral argument that plaintiff's case is exclusively based

on the theory that defendant Omark Industries, Inc.’s

(hereinafter “Omark”) refusal to deal with plaintiff was

part of a conspiracy by Omark and the other defendants

to establish market dominance and drive out an existing

competition, the plaintiff, Northwest Power Products,

Inc., (hereinafter “Northwest” ).’

In support of its cause of action Northwest cites the

decisions of Albert Pick-Barth Co. v. Mitchell Woodbury

Co., 57 F.2d 96 (1st Cir. 1932) and succeeding cases

which hold that a conspiracy to eliminate a substantial,

existing competition by unfair means constitutes an of-

fense under Section 1 of the Sherman Antitrust Act,

15 U.S.C. 1.’ These cases are inapplicable to the facts

shown in the instant case. In the cases cited by North-

west a fellow competitor, a manufacturer, or a supplier,

had forced an existing competitor out of the total rele-

vant market through unfair practices.

In the present case there is no substantial existing

competitor. Northwest has attempted to fit the facts of

its case into the proper mold by alleging that Omark

sold its products directly to the public in competition

with Northwest from a time shortly after Northwest

1. During oral argument, Northwest’s attorney alluded to charges

of price fixing, violations of the ‘“‘Schwinn doctrine,” and other viola-

tions which he felt were in the case but which he had not “considered

significant enough to mention” to the court in either Northwest’s

Complaint or its brief opposing defendants’ motions for summary

judgment. Since Northwest has not squarely presented these charges

to the court, the court has given Northwest’s additional allegations

only a cursory review. However, it is the court’s opinion that none

of these alleged anti-trust violations are present in the facts of

this case.

2. Originally Northwest charged violations of both 15 U.S.C. 1

and 2; however, as has been stated above Northwest has dropped all

charges other than its claim of an anti-competitive conspiracy, a

violation of 15 U.S.C. 1.

became Omark’s distributor until Northwest’s termination.

However, Northwest has produced no evidence to sup-

port this allegation and has made no attempt to refute

the statement of Omark’s counsel made during oral

argument that although it was true that Omark had

employed a salesman to sell Omark products directly

to the public early in Omark’s relationship with North-

west, this practice was discontinued sometime prior to

Omark terminating Northwest as its distributor. As to

defendant Bosco Fastening Service Center, Inc., (here-

inafter “Bosco”) prior to the time Bosco became Omark’s

distributor, Northwest admits Bosco was not a direct

competitor with it in the P.A.T. products line. (Ronald

R. Gibbs Affidavit; Plaintiffs Brief in Opposition to

Defendants’ Motions for Summary Judgment, pp. 20-21).

Northwest has not been excluded from the total rele-

vant market. In the facts as alleged by Northwest, North-

west has only been eliminated from the limited market

of Omark brand P.A.T. equipment, not the total market

of P.A.T. tools and supplies. Northwest is free to trade

in and is in fact selling and supplying tools and equip-

ment competitive with those manufactured by Omark.

(Plaintiff's Brief in Opposition to Defendants’ Motions

for Summary Judgment, p. 10).

In the court’s opinion the facts of the present case

involve nothing more than an exchange of ‘distributors,

and a conspiracy to terminate a distributorship, even if

key personnel are lured from a former distributor to a

newly established distributor, is not an antitrust violation.

Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245 (Sth

Cir. 1975); Perryton Wholesale, Inc. v. Pioneer Distribut-

ing Co. of Kansas, 353 F.2d 618 (10th Cir. 1965);

Roth Office Equipment Co. v. G F Business Equipment

Co., 1975-—2 Trade Reg. Rep. § 60,563 (E.D. Ohio

1975). Northwest may have a contract or tort cause of

action, but it has established no facts no support an

antitrust claim that the loss of its Omark distributorship

will have an anti-competitive effect upon the business

of selling and servicing P.A.T. equipment in the North

Texas region.

Accordingly, it is ORDERED that the defendants’

motions for summary judgment are sustained and this

cause is dismissed.

Dated this 7th day of April, 1977.

/s/ ROBERT M. HILL

United States District Judge

IN THE

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

CA 3-74-1104-D

NORTHWEST POWER PRODUCTS, INC.

OMARK INDUSTRIES, INC.,

BOB WOOTEN and

BOSCO FASTENING SERVICE CENTER, INC.

(December 19, 1977)

JUDGMENT

This action came on for hearing before the Court,

Honorable Robert M. Hill, District Judge, presiding, and

the issues having been duly heard and a decision having

been duly rendered,

It is ORDERED, ADJUDGED and DECREED that

the Defendants’ motions for summary judgment be, and

they are hereby, sustained, and this cause is dismissed.

ORDERED entered the 7th day of April, 1977, this

19th day of December, 1977.

/s/ ROBERT M. HILL

United States District Judge

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 77-1976

NORTHWEST POWER PRODUCTS, INC.,

Plaintiff-A ppellant,

OMARK INDUSTRIES, INC., BOB WOOTEN,

and BOSCO FASTENING SERVICE CENTER, INC.,

Defendants-A ppellees.

Appeal from the United States District Court for the

Northern District of Texas

ON PETITION FOR REHEARING AND

PETITION FOR REHEARING EN BANC

(Opinion 7/10/78, 5 Cir., 197, ___F.2d___).

(August 24, 1978)

Before THORNBERRY, RONEY and HILL, Circuit

Judges.

PER CURIAM:

The Petition for Rehearing is DENIED and no

member of this panel nor Judge in regular active service

on the Court having requested that the Court be polled

on rehearing en banc, (Rule 35 Federal Rules of Appel-

late Procedure; Local Fifth Circuit Rule 12) the Petition

for Rehearing En Banc is DENIED.

ENTERED FOR THE COURT:

/s/ PAUL H. RONEY

United States Circuit Judge

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