Record and brief — Falls City Industries, Inc. v. Vanco Beverage, Inc.

gee? No. 81-1271

In THE

Supreme Court of the United States

OcToBER TERM, 1982

FALLS CITY INDUSTRIES, INC.,

Petitioner,

V

VANCO BEVERAGE, INC.,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

MOTION BY RESPONDENT VANCO BEVERAGE, INC.

FOR LEAVE TO FILE SUPPLEMENTAL BRIEF

AFTER ORAL ARGUMENT AND SUPPLEMENTAL BRIEF

JohN T. Cusack

(Counsel of Record)

One First National Plaza

Suite 3300

Chi , Illinois 60603

(312) 726-2452

Counsel for

Vanco Beverage, Inc.

Of Counsel:

' Gorpon B. Nasu, Jr.

EDWARD B. HIRsHFELD

PRISCILLA A. WALTER

Micuag. E. Barry

MICHAEL P. PappEN

GARDNER, CARTrON & DouaGLas

One First National Plaza

Chicago, Illinois 60603

CHAS. P. YOUNG CHICAGO, INC.

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................

Motion by Respondent Vanco Beverage, Inc. for

Leave to File Supplemental Brief After Oral Argu-

oy pee CER ee ee EEO. at a ST ee: Oe

Respondent’s Supplemental Brief After Oral Argu-

—T:. . „

I.

II.

III.

IV.

FALLS CITY HAS WAIVED RELIANCE ON

THE INDIANA NON-IMPORTATION LAW

AND HAS AGREED THAT THE LAWS OF

INDIANA AND KENTUCKY DO NOT CON-

. c c

FALLS CITY CAUSED THE VIOLATION OF

THE INDIANA NON-IMPORTATION LAW.

APPLICABLE LEGAL PRINCIPLES .......

A. The Economie Reality of the Market

B. The Consistency between the State and Fed-

—.. ̃ ( ios ce conte

C. Publie Policy Considerations Support

— . ĩͤ a6 os Soe

iii

TABLE OF AUTHORITIES

Cases: PAGE

Brown Shoe Co. v. United States, 370 U.S. 294 (1962) 11

California v. Taylor, 353 U.S. 553 (1957) ....... 7

Dean Milk Co. v. FTC, 395 F.2d 696 (7th Cir. 1968) 14

Fashion Originators’ Guild v. FTC, 312 U.S. 457

% OSES SEY ee 13

Lawn v. United States, 355 U.S. 339 (1958) ..... 7

McCormack v. Theo. Hamm Brewing Co., 284

F.Supp. 158 (D.Minn. 1968)................ 8, 9

National Gerimedical Hospital v. Blue Cross, 452

00000000000 13

United States v. Connecticut National Bank, 418 US.

, ec 11

United States v. Estate of Donnelly, 397 U.S. 286

. NS ce 7

/ 6 OURS 956 hace bebe 7

United States v. Phillipsburg National Bank, 399

r 6 A Miva Hebd gba aba hs 11

Statutes:

,,, ace bs vicee eh ©

// „„

Ind. Code rel edeccinv cece We

Indiana Acts 1941, ch. 23277

Minnesota Statutes (1981) § 340.601 ...........

Other Authorities:

Rule 21.1(a) of the Rules of the Supreme Court of

Te Pe A 7

oo wo > &

iii

No. 81-1271

In THE

Supreme Court of the United States

OcrToBeR TERM, 1982

FALLS CITY INDUSTRIES, INC.,

Petitioner,

V.

VANCO BEVERAGE, INC.,

Respondent.

MOTION BY RESPONDENT VANCC BEVERAGE, INC.

FOR LEAVE TO FILE SUPPLEMENTAL BRIEF

AFTER ORAL ARGUMENT

Respondent Vanco Beverage, Inc. (“Vanco”) respectfully

moves this Court for leave to file RERSPONDEN TS SUP-

PLEMENTAL BRIEF AFTER ORAL ARGUMENT,

instanter.

At oral argument held October 13, 1982 some of the Jus-

tices indicated a concern over the effect of the definition of

the proper geographic market of an unenforced Indiana law

which prohibited consumers from importing more than one

quart of beer. This issue was not raised in Falls City’s

Petition for Certiorari and was not briefed by the parties or

by the Amicus. Because this issue was first raised by this

Court at oral arguments, Vanco has not had an opportunity

adequately to present its position on this issue to this Court

nor to inform the Court that Falls City in its January 18,

1980 letter to the district court stated, in pertinent part, that:

The parties also agree that Vanco’s claim of indirect

injury based on alleged competitive effects at the retail

iv

level, are not controlled by the 21st Amendment or the

state laws of Indiana and Kentucky.

Vanco requests that this Court allow it such an opportunity

by granting leave to file the instant supplemental brief after

oral argument.

Respectfully submitted,

JohN T. Cusack

GoRDON B. Nasu, JR.

EDwWwaRD B. HIrsHFELD

PRISCILLA A. WALTER

MichAkl. E. BARRY

MICHAEL P. PADDEN

GARDNER, CARTON &

DOUGLAS

One First National Plaza

Suite 3300

Chicago, Illinois 60603

(312) 726-2452

December 3, 1982

a

¥

No. 81-1271

In THE

Supreme Court of the United States

Ocrozer TERM, 1982

FALLS CITY INDUSTRI&S, Nc.

Petitioner,

V.

VANCO BEVERAGE, INCO.

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

SUPPLEMENTAL BRIEF

AFTER ORAL ARGUMENT OF RESPONDENT

VANCO BEVERAGE, INC.

JohN T. Cusack

(Counsel of Record)

One First National Plaza

Suite 3300

Chi , Illinois 60603

(312) 726-2452

Counsel for

Vanco Beverage, Inc.

Of Counsel:

GorpDon B. Nasu, JR.

EDWARD B. HIrRsHFELD

Priscitua A. WALTER

Micnag. E. Barry

Micuag. P. PappENn

GAR, Carton & Doveias

One First National Plaza

Chicago, Illinois 60603

No. 81-1271

In THE

Supreme Court of the United States

OcToBER TERM, 1992

FALLS CITY INDUSTRIES, INC.,

Petitioner,

V.

VANCO BEVERAGE, INC.

Respondent.

SUPPLEMENTAL BRIEF AFTER ORAL ARGUMENT

OF RESPONDENT VANCO BEVERAGE, INC.

I. INTRODUCTION

Oral argument in this case was heard on October 13, 1982.

At that oral argument, some of the Justices asked whether it

was open to the Court to address the question, not raised in

Falls City’s Petition, of whether the Evansville-Henderson

area is one or two geographic markets. This concern was

based, apparently, on the fact that an unenforced Indiana

law prohibits a consumer from importing more than one

quart of beer into Indiana. The district court, affirmed by the

Seventh Circuit, held that the Evansville-Henderson area

was a single market for retail beer sales. That finding was

not challenged by Falls City in this Court.

At oral argument in this Court, counsel for Falls City

stated, in response to a question of whether the existence of

one or two geographic markets was a question of fact or law,

2

“1 think that is somewhat of a mixed question.” As ted

whether there were one or two markets as a matter of law,

counsel for Falls City responded, “Well, I think there are

many factual components in that...” and “I’m not asking

this Court to delve into the record to second-guess that

determination by the lower courts” (Transcript of Oral Argu-

ment, at 5-6).

In addit. on to the fact that Falls City has thus abandoned its

argument that there were two markets, Falls City has never

relied on the Indiana nonimportation law with regard to the

definition of the geographic market. The impact of that law on

this case was never raised or briefed by either of the parties.

This Brief is filed pursuant to Rule 35.6, upon leave of this

Court, to address for the first time the question of the effect of

the Indiana nonimportation law on the definition of the

proper geographic market.

II. FALLS CITY HAS WAIVED RELIANCE ON THE N.

DIANA NONIMPORTATION LAW AND HAS

AGREED THAT THE LAWS OF INDIANA AND KEN.

TUCKY DO NOT CONTROL THIS CASE

The importation into Indiana of quantities of beer

purchased in Kentucky was technically illegal because of an

Indiana statute which was described in Vanco’s Brief in

Chief as follows:

By the laws of both Indiana and Kentucky, Indiana

retailers were required to purchase beer from Indiana

distributors, and Kentucky retailers from Kentucky dis-

tributors. However, beer consumers were free to

purchase beer from the retailers of their choice.’

"Indiana law prohibits consumers from importing more than

one quart of an alcoholic beverage without a permit. Ind.

Code §§ 7.1-5-4-1, 7.1-5-11-1 (1976). This law was generally not

enforced. On one occasion, when consumer importation of

beer became so notorious that it was reported in the newspa-

pers, several consumers were arrested by the Indiana police.

These arrests generated enormous controversy and no further

arrests were made (Tr. 122-23, 135-36; PX 57; J.A. 134-35).

Vanco’s Brief in Chief, filed July 28, 1982, at 6.

That quotation is the only mention of the nonimportation

law made by either of the parties to this suit in any of their

briefs filed in this Court or in either of the courts below.

Falls City has never disputed that the nonimportation law

was hardly ever enforce? and was not enforced at all after

July of 1974, or that beer consumers were free to purchase

beer from the retailers of their choice.’ Furthermore, it is not

disputed that it was not, and is not, illegal for Kentucky

retailers to sell beer to Indiana residents and that Kentucky

retailers directed advertising to Indiana residents.

Iu fact, Falls City has never relied on the Indiana

nonimportation law as in any way creating a barrier dividing

the Evansville-Henderson retail market. Thus, paragraph 2 of

Falls City’s Third Affirmative Defense states merely that

“defendant’s actions were in conformity” with the provisions

of the Indiana alcoholic beverage code. Falls City never

briefed that purported defense until specifically directed by the

district court either to file a brief relating to this defense or to

withdraw it.’ At that point Falls City filed a brief in which it

The Government, as Amicus, has conceded that Indiana con-

sumers traveled to Kentucky to purchase cheaper heer. Amicus

Brief in Support of Petition for a Writ of Certiorari, at 6

(“Vanco . . . was indirectly injured because consumers served by its

retailer customers crossed the horder to buy beer at lower retail

prices in Kentucky (see Pet. App. 6a-7a)”); Amicus Brief in Sup-

port of Reversal, at 5 (“As a matter of fact, however, some competi-

tion oceurred along the state border, because Indiana consumers

crossed the state line into Kentucky to purchase cheaper beer’).

* The district court’s order, dated November 28, 1979, was issued

after the trial and after Falls City had filed its proposed findings of

fact and conclusions of law and had replied to Vanco’s proposed

findings of fact and conclusions of law. The district court order stated

that: “The parties are ORDERED to advise the Court whether or not

the Third Affirmative Defense-has been withdrawn, and if not

(footnoie continued on next page)

4

never even mentioned the nonimportation law. Instead, Falls

City attempted to rely on Indiana’s single price law as

somehow exonerating its price discrimination.

Most significantly, by letter dated January 18, 1980, lead

counsel for Falls City wrote Judge Holder of the district

court a letter, the first paragraph of which is as follows:

Dear Judge Holder:

We have received the Response of Vanco Beverage,

Inc. to Falls City’s Brief in Support of its Amended

Third Affirmative Defense to Count II of Plaintiff’s

Amended Complaint. Although Falls City is entit!ed to

file a reply brief, we feel nothing more needs to be said

about the 21st Amendment issue in this case. The par-

ties are in agreement that state laws given primacy by

the 21st Amendment, preclude direct competition

between Vanco and the Henderson, Kentucky dis-

tributor, Dawson Springs (Vanco Response, p. 6). The

parties also agree that Vunco claim of indirect injury based

on alleged competitive effects at the retail level, are not com-

trolled by the 21st Amendment or the state laws of Indiana

and Kentucky. Instead, Vanco’s claims of indirect injury

depend upon issues of market definition, competitive

impact, business injury to Vanco and computation of

Robinson-Patman Act damages that have all been

abundantly briefed. (emphasis supplied) (a copy of this

letter, without the attachment thereto, is set forth in the

Appendix to this Supplemental! Brief).

The above statement by Falls City’s lead counsel, who argued

for Falls City in this Court, constitutes more than a waiver of

the Indiana nonimportation law as creating two markets

separating Evansville and Henderson. It constitutes forth-

right agreement that the “issue of market definition” in this

(footnote continued from preceding page)

withdrawn, to brief the issue and submit findings of fact and conclu-

sions of law in accurdance with” a set schedule.

N

4

5

case does not depend upon any or all the state laws of

Indiana and Kentucky.

As Vanco established in its Brief in Chief, the only state

law on which Falls City even attempted to rely, Indiana’s

single-price law, had no impact on Falls City’s pricing deci-

sions. Falls City, as a matter of policy, charged a single price

statewide in each and every one of the thirteen states in

which it sold beer, regardless of whether a uniform price was

required by state law (Vanco’s Brief in Chief, at 23-24). The

Indiana uniform price law could not have caused Falls City

to price higher in Indiana than elsewhere. This is especially

obvious since Falls City’s prices in West Virginia, which had

a similar one-price law, were lower than its Indiana prices

(Vanco’s Brief in Chief, at 16 n. 23).

Furthermore, there is evidence that in years prior to the

period at issue here the price level in Indiana was the same or

lower than in neighboring states, even though the single-price

law was then in effect. The Amicus introduced evidence in

United States v. Pabst Brewing Company, 384 U.S. 546 (1968),

and filed that evidence in this Court, which showed that the

prices charged by Pabst (which was identified by Falls City

as one of its two major competitors) and by Blatz, were the

same or lower in Indiana than in Kentucky.’ Since the Indiana

nondiscrimination law had been the law since at least 1941

(Acts 1941, ch. 237), and many years later there was no price

discrimination against Indiana wholesalers, that law clearly

cannot be responsible for the substantial (10% to 29%) price

discrimination that later developed and was sustained for at

least eight years.

*For a fuller description of the evidence in the Pabst case, see

Vanco’s Supplemental Brief, filed on October 6, 1982, at 6. Fur-

thermore, the Transcript of Record in the Pabst case, filed in this

Court by the United States and by Pabst, shows that Pabst’s prices

on its principal brand were the same in Indiana, Kentucky, Ohio,

Michigan and a number o other States (Transcript of Record, at

253-259).

Furthermore, the Indiana one-price law applied to all

alcoholic beverages, not just beer. However, the evidence

shows that liquor prices were lower in Indiana than in

Kentucky. As was mentioned in oral argument, this differ-

ence in the liquor prices is evident from the testimony of

Richard L. Powell, Manager of the House of Beverages.*

The House of Beverages is located in the Old Orchard Shop-

ping Center in Henderson, Kentucky, and had, prior to the

opening of the Cut Rate Liquor store in Evansville, been the

largest liquor store in the Evansville-Henderson area. Mr.

Powell testified as follows (on eross- examination):

Q. Uh, it is true sir that at the present time liquor prices

in Indiana are cheaper than liquor prices in

Kentucky?

A. From what I can hear and they have advertised at

Cut Rate cheaper liquor prices yes.

Q. Is this a concern to you?

>

Uh, yes in a way cause we're definitely loosing

business to Cut Rate in Evansville. I’ve had cus-

tomers come in and say they’ll go over there and buy

their alcoholic beverages.

(PX 215, Powell dep., at 22-23.)

Since the Indiana one price law, which applies to the sale of

all aleoholic beverages,* did not cause liquor prices to be

higher in Indiana than in Kentucky, there is no reason to

Suppose it could have caused Indiana beer prices to be higher.

Mr. Powell’s deposition was noticed by the defendant, Falls

City. It was offered in evidence at trial by the plaintiff, Vanco, and

admitted as PX 215.

Ind. Code 7.1-5-5-7 states that: “It is unlawful for a permittee in

a sale or contract to sell alcoholic beverages to discriminate

between purchasers by granting a price, discount, allowance, or

service charge which is not available to all purchasers at the same

time.

7

Thus, the only Indiana statute Falle City relied upon

simply does not support its case. As has been and will be

demonstrated in the ensuing section of this brief, the Indiana

nonimportation law also does not support Falls City. In any

event, Falls City conceded that neither that law nor any of

the other laws of Indiana or Kentucky were pertinent to the

issues in this case. Falls City not only did not argue on the

basis of the nonimportation law to the district court, but it

also never argued or briefed that law on appeal. The

nonimportation law was not mentioned in the auestions Falls

City asked this Court to review. Thus, reliance on the Indi-

ana nonimportation law has been waived by Falls City. As

this Court has repeatedly recognized, absent exceptional eir-

cumstances, questions not raised at the trial or appellate

levels should not be addressed by this Court. United States v.

Estate of Donnelly, 397 U.S. 286, 295 n.5 (1970); Lawn v. United

States, 355 U.S. 339, 362-63 n.16 (1958); California v. Taylor,

353 U.S. 553, 557-58 n.2 (1957).

Here there are no exceptiona! circumstances which would

justify consideration by this Court of issues as to which the

record has not been developed and which the trial and

appellate courts did not have the opportunity to consider and

resolve. Nor was there any “plain error” in the decisions by

the trial and appellate courts which would justify departure

from Rule 21.1(a) of this Court, which provides that “only

the questions set forth in the petition” for a writ of certiorari

“or fairly included therein will be considered by this Court.”

To the contrary, as the discussion below establishes, to the

extent the Indiana nonimportation law is relevant, it sup-

ports Vanco’s position rather than Falls City’s.

It is not surprising that Falls City does not and did not

rely on the nonimportation law in regard to the question of

the relevant geographic market. As Falls City’s own con-

temporaneous internal reports show, Falls City was well

aware that “Part of [the] decrease [in Vanco’s volume] is due

8

to the lower prices in the Kentucky markets” (PX 12).° Falls

City clearly recognized the existence of the single geographic

market found by the district court despite the Indiana

nonimportation law. That recognition accords with economic

reality and with established law, which recognizes that state

political boundaries are no hindrance to consumers purchas-

ing beer in one state and transporting that beer for consump-

tion into another state, regar” ess of state laws which declare

such transportation illegal. This reality was recognized, in

McCormack v. Theo. Hamm Brewing Co., 284 F. Supp. 158 (D.

Minn. 1968), where Judge Lord (now Chief Judge) denied

Hamm's motion for summary judgment on the plaintiff's

Robinson-Patman Act claim. The claim, which was almost

identical to the one in this case, was based on discrimination

against the plaintiff, Hamm’s Duluth, Minnesota distributor,

in favor of Hamm’s contiguous Superior, Wisconsin

distributor.

Judge Lord rejected the defendant’s contention that:

State laws which prohibit distributors from selling to

the same set of retailers, but which do not prohibit those

retailers from competing in the same market, effectively

prevent the distributors from being competitors within

the meaning of the Robinson-Patman Act.

This Court feels that it should not remain blind to the

fact that a distributor’s success depends in large part

upon the success of the retailers with which it deals. In

this case a Superior distributor which was the benefici-

ary of an unfair price discrimination could unfairly

compete by passing on this price advantage to his retail-

ers. The Superior retailers would then be able to attract

more customers and prosper at the expense of the

Duluth retailers, and consequently, at the expense of the

Duluth distributor. In this way the plaintiff, the

Duluth distributor, if not granted price terms com-

*See quotations from and discussions of other Falls City internal

documents in Vanco’s Brief in Chief, at 8.

9

parable to the terms afforded the Superior distributor

might suffer competitive disadvantage. For this reason

summary judgment is denied the defendant upon all

Robinson-Patman Act claims involving alleged price

discrimination between the plaintiff and the Superior,

Wisconsin distributor. (284 F.Supp., at 163.)

The applicable state law in the Hamm’s ease prohibited the

importation into Minnesota of untaxed beer (Minnesota Stat-

utes 1981 §340.601, 1976 Amendment) and, according to this

opinion, this law was not relied on by Hamm.

III. FALLS CITY CAUSED THE VIOLATION OF THE

INDIANA NONIMPORTATION LAW

Before turning to the legal consequences of the fact that

much of the competition that resulted in injury to Vanco was

the result of consumers transporting beer from Kentucky into

Indiana (in excess of one quart per person), it is helpful to

reiterate a number of established facts. There is, of course, no

suggestion that Vanco ever violated the nonimportation law, or

that Vanco’s retailers violated it. Vanco’s retailers and Vanco

were, in fact, victims of the violation of the Indiara

nonimportation law by Indiana consumers. Those Indiana

consumers were induced to transport beer by Falls City’s

egregious price discrimination and by the active solicitation of

the custom of Indiana residents by the Kentucky retailers who

were the beneficiaries of that discrimination. Since it was well

known that the law was not enforced, those consumers were

only in technical violation of the law when they brought more

than one quart of beer per person into Indiana.

Similarly, there is no dispute that the nonimportation law

was generally not eaforced. On one occasion, when consumer

importation of beer became so notorious that it was reported

in the newspapers, several consumers were arrested by the

Indiana excise tax police. These arrests generated enormous

controversy and no further arrests were made.’ In fact, the

evidence in the record is that after July of 1974 no arrests

Tr. 22-23, 135-36, PX 57, J. A. 134-35. A newspaper article

entitled, “Beer Price ‘War’ Building Up Again”, by L. D. Seits, an

(footnote continued on nexi page)

10

whatsoever were made in the Evansville area for transport-

ing beer from Kentucky into Indiana.

Furthermore, as Vanco amply established at trial and as

was acknowledged by the Amicus (Amicus Brief in Support

of Petition for a Writ of Certiorari, at 6; Amicus Brief in

Support of Reversal, at 5, 8-9, 20), the Indiana and Kentucky

retailers were in actual competition with each other. The

Indiana retailers lost volume to the lower-priced Kentucky

retailers, some of whom advertised those lower prices in the

Indiana mass media.*

(footnote continued from preceding page)

Evansville Press staff reporter, who testified in Vanco’s case in chief,

stated, in pertinent part, that:

Prosecutor William Brune, who has questioned the in-

tervention of Indiana excise police in the beer price war, said

yesterday one of the six men arrested July 27 had said three

quarts of gin confiscated in his arrest and dumped by court

order was actually bought in Indiana.

The question of the legality came amid signs that Hender-

son retailers were getting increased business from Evansville

beer drinkers. One retailer on U.S. 41 north of Henderson but

south of the Ohio River said beer sales had increased

noticeably since the publieity surrounding the arrests, indicat-

ing that some Hoosiers had been unaware of the price gap

until then.

The disparity in prices amounts to more than $1 a case on

some beers.

Major Pomolese said last week the excise police have halted

surveillance such as that which brought the six arrests on

July 27 until the force receives word from Brune, who has

said he is investigating the matter.

*See Vanco’s Brief in Chief, at 7-11, for a fuller description of

this competition.

11

Finally, not all of the competition that injured Vanco was

the result of possibly illegal transportation. Competition for

on- premises consumption in taverns, restaurants and the like

involved no illegality. Vanco demonstrated a very substan-

tial and regular flow of people across the border in both

directions to shop and work. This flow included tens of

thousands of factory workers who lived in one state and

worked in the ocher. Indiana residents working in Kentucky

could choose to go down the street or to stop at The Strip for

an after-work beer, and Kentucky residents working in Indi-

ana could cross back into Kentucky before stopping for a

beer. For such on-premise trade, Indiana retailers were in

perfectly legal competition with Kentucky retailers. The

proliferation of bars along The Strip, located in Kentucky

just south of the Indiana border, testifies to the vigor of this

competition.“

IV. APPLICABLE LEGAL PRINCIPLES

Vanco believes that the economic reality of the market and

the omplete congruence in this case of the purposes of the

Indiana non-importation law and the Robinson-Patman Act

support the finding of Falls City’s liability. Further, as a

matter of public policy, Falls City should not be allowed io

escape antitrust liability by using as a shield asserted illegal-

ity under state law, which illegality was the direct result of

its own antitrust violation.

A. The Economic Reality of the Market. It is a funda-

mental premise of antitrust law that the relevant market is

the geographical and economic framework in which the

parties actually compete, not artificial or political bounda-

ries. Broun Shoe Co. v. United States, 370 U.S. 294, 336 (1962);

United States v. Phillipsburg National Bank, 399 U.S. 350, 362

(1970); United States v. Connecticut National Bank, 418 U.S. 656,

671 (1974). The courts have previously recognized the Evans-

How much of Vanco’s injury was caused by such legal competi-

tion is not before this Court. The point is merely that much of the

Indiana-Kentucky competition was perfectly legal.

12

ville-Henderson area as a single market, even for a perishable

commodity such as milk. Dean Milk Co. v. FTC, 395 F.2d 696

(7th Cir. 1968). The existence on the statute books of a law

that was known to be unenforced did not affect the economic

realities of this marketplace, and it would be inconsistent

with this Court’s longstanding interpretation of the antitrust

laws to ignore that economic reality.

B. The Consisten / between the State and Federal laws. In

this case there is no conflict between the state nonimportation

law and the Robinson-Patman Act. In fact, Falls City’s

violation of the Robinson-Patman Act induced the violation

of state law. It was only because price discrimination by

Falls City and other brewers resulted in Kentucky retail

prices that were irresistibly lower than the Indiana prices

that the illegal traffic developed in the first place. If Falls

City and other brewers had complied vith the Robinson-

Patman Act, enforcement of the state law would have been

unnecessary, since the motivation to violate it would not

have existed. If, on the other hand, Indiana had enforced its

nonimportation law effectively, the impact of Falls City’s

price discrimination would have been mitigated.“ Whether,

in that case, it would have been legal for Falls City to treat

Evansville and Henderson as two different markets is

academic, since the law was not enforced and Evansville-

Henderson was in fact, as demonstrated by Vanco and known

to Falls City, a single competitive retail beer market. Ap-

parently in recognition of this fact, Falls City has never

attempted to allege, even in answer to the questions posed at

oral argument in this Court, that it was entitled to treat

Evansville and Henderson as if they were two different

markets merely because of the unenforced nonimportation

law. The fact that Falls City did not even consider the

statute in its pricing decision is the ultimate proof of lack of

“The question of whether that price discrimination would

nevertheless have violated the Robinson-Patman Act because of

the remaining competition between on-premises retailers is not, of

course, presented by this case.

13

conflict between the nonimportation law and the Robinson-

Patman Act. This case therefore presents no conflict between

the state law and the Robinson-Patman Act.

C. Public Policy Considerations Support Vanco. Vanco

and its retailers neither caused nor profited from the competi-

tion in interstate beer sales. That competition was the direct

result of the price discrimination engaged in by Falls City

and other brewers, which benefited them by allowing them to

reap artificially high prices in Indiana. That competition

also benefited Falls City’s Kentucky wholesalers and retail-

ers, who were quick to capitalize on the situation by advertis-

ing their lower prices in Indiana newspapers and over Indi-

ana radio broadeasts. For the largest Henderson, Kentucky

beer retailer to advertise itself as the “largest in the Tri-State

area was certainly an attempt to cultivate cross-over con-

sumer purchases.

In other contexts, this Court has refused to allow antitrust

defendants to shelter behind their purported attempts to

comply with state law or state policies, even when the anti-

trust violations assertedly furthered federal and state’s goals.

National Gerimedical Hospital v. Blue Cross, 452 U.S. 378

(1981); Fashion Originators’ Guild v. FTC, 312 U.S. 457 (1941).

Here, where the antitrust violation actually caused the

unenforced state law to be violated, the public policy con-

siderations weigh heavily in favor of Vanco.

"See Vanco’s Brief in Chief, at 8.

"Id, n. 14.

T°” =.

14

V. CONCLUSION

For the foregoing reasons Vanco respectfully urges the

Court that the transportation home by Indiana consumers of

beer purchased from Kentucky retailers, and Falls City’s

involvement in that trade, is a factor supporting Falls City’s

liability.

Respectfully submitted,

JohN T. Cusack

Go DON B. Nash, IR.

Epwarp B. HIrRsHréLp

PRISCILLA A. WALTER

MICHAEL E. BARRY

MICHAEL P. PapDDEN

GARDNER, CARTON & DouGLas

One First National Plaza

Suite 3300

Chi , Illinois 60603

(312) 726-2452

December 3, 1982

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3 WHEN AN maven C .

January 18, 1980

The Honorable Cale J. Holder

United States District Court

Southern District of Indiana

United States Court House

Indianapolis, Indiana 46204

Re: Vanco Beverage Inc. v.

Palls City Brewing Co.,

No. EV 76~-170-C

Dear Judge Holder:

We have received the Response of Vanco Bever.ye, Inc.

to Falls City's Brief in Support of its Amended Third Affirma-

tive Defense to Count II of Plaintiff's Amended Conplaint.

Although Falls City is entitled to file a reply brief, we feel

nothing more needs to be said about the 2lst Amendment issue in

this case. The parties are in agieement that state laws given

primacy by the 2lst Amendment, preclude direct competition be-

tween Vanco and the Henderson, Kentucky distributor, Dawson

Springs (Vanco Response, p. 6). The parties also agree that

Vanco’s claim of indirect injury based on alleged competitive

effects at the retail level, are not controlled by the 2lst

Amendment or the state laws of Indiana and Kentucky. Instead,

Vanco's claims of indirect injury depend upon issues of market

definition, competitive impact, business injury to Vanco and

computation of Robiuson-Patman Act damages that have all been

—~ abundantly briefed.

While we, therefore, do not believe it necessary to

file a reply to the Vanco Response, we would like to take this

opportunity to call to the Court's attention the recent decision

by the Court of Appeals for the Fifth Circuit in Chrysier Credit

Berosox, BorxtaxD, Mamoous & ADLER

The Honorable Cale J. Holder

January 18, 1980

Page Two

Corp. X. J. iruett Payne, Inc., 1980-1 Trade Cas. 463,067 (Sth

at case, the court reversed the denial of

a directed verdict for defendant on the ground that plaintiff

had failed to introduce the requisite substantial evidence of

injury resulting from the alleged price discrimination. In

rejecting evidence similar to that offered by Vanco here, the

Court held: “Conclusory statements by the plaintiff, without

evidentiary support, as to the fact of damage caused by the

alleged antitrust violation are not sufficient." ([Id. at

77,307).

The Court in Chrysler Credit also aligned itself with

the numerous other courts erat have rejected the contention,

made here by Vanco, that damages under Section 2(a) of the

Robinson-Patman Act are determined merely by multiplying the

amount of the price difference by the number of products sold.

(See Vanco Post-Trial Brief at 18-19; Falls City Post-Trial

Brief at 36-39; Fails City Reply at 31-33). The Court stated:

Payne relied on its calculation of the al-

leged price discrimination to establish the

amount of its alleged lost sales and profits.

There is no necessary correlation, however,

and Payne failed to establish one.

i * *

A price difference without more does not in-

dicate the amount of lost sales or profits.

[Id. at 77,308, 77,309).

On this ground, as well, the court held defendant was entitled

to a directed verdict.

A copy of the Chrysler Credit opinion is enclosed for

Your Honcr's convenience.

Very truly yours,

HA: wlm

Enclosure

vec: John T. Cusack, Esquire

James W. Bradford, Esquire