# Petition — Northwest Power Products, Inc. v. Omark Industries, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2073%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1979 - **Citation:** 439 U.S. 1116 ## Text 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 V. 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 I rs ln ha on ohimascnkimhinmne shee A's NE SR a A anc seks ch eed bedewb is sUnsdebeness PE HRC ece5 vid San pda Kd ebbnewekavaeed Ss nda nbs bedneeheosrih «sae seet i ee ee eas dikacvawisaeae esses. cari We ee eacn de eaiee-i as 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. 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 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. (c) The Pick-Barth doctrine is based on sound 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 19 19 37 41 46 II 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 (c) The antitrust laws and the laws of unfair com- 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 IV 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. EE 2 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 3 of that competitor by unfair competition will not give rise to an antitrust violation? (c) Are the antitrust laws and unfair competition laws 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. 4 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. 5 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 6 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. 7 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). 8 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). 9 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; (c) that the McElroys sell out to another distributor; 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 10 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 11 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). 12 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. 13 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- 14 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 15 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 16 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. 17 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 18 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 19 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 20 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; 21 (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. 22 “. . . 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. 23 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. 24 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 25 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 26 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- 27 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. 28 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. 29 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, 30 “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 31 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. 34 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, 35 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). 36 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. 37 (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. 38 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. 39 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. 40 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. 41 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.** 4) (c) The Pick-Barth doctrine is based on 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. 42 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, —--—- 43 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- 44 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.” 45 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- 46 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- 47 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 48 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 49 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 50 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 51 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. (c) The antitrust laws and the laws of unfair 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- 52 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 53 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 54 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. 55 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. 56 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 57 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 58 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 _— —_—— 59 (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 ».¥ : i 60 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 61 APPENDIX NORTHWEST POWER PRODUCTS, INC., Plaintiff-Appellant, v. 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. 62 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 63 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 64 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 “ 65 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 66 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 67 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 68 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 69 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 G [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2073%3A1. Public record. Not legal advice.