Amicus Curiae Brief — Sorbothane, Inc. v. McQuillan

"4

Nos. 7, and [oe

ourt, . S.

In the Supreme Court of the Huited Bisien

OCTOBER TERM, 1991

FOR 27 1992

FICE OF THE CLERK

SPECTRUM Sports, INC., ET AL., PETIT!

Uv.

SHIRLEY MCQUILLAN AND LARRY MCQUILLAN

dba SORBOTURF ENTERPRISES

SORBOTHANE, INC., ET AL., PETITIONERS

Vv.

SHIRLEY MCQUILLAN, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

KENNETH W. STARR

Solicitor General

JAMES F. RILL

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

CHARLES A. JAMES

Deputy Assistant Attorney Generar

ROBERT A. LONG, JR.

Assistant to the Solicitor

CATHERINE G. O’SULLIVAN

JAMES W. LOWE

Attorneys

Department of Justice

Washington, D.C. 20530

202) 514-2217

General

QUESTIONS PRESENTED

1. Whether wholly owned subsidiaries of a common

corporate parent may conspire with each other for pur-

poses of the Sherman Act.

2. Whether the jury was correctly instructed that it

could find liability for attempted monopolization under

Section 2 of the Sherman Act on the basis of predatory

conduct by the defendant, without proof of a relevant

market or the defendant’s market power.

3. Whether a private antitrust plaintiff establishes

antitrust injury merely by showing actual injury result-

ing from a per se violation of Section 1 of the Sherman

Act or attempted monopolization in violation of Section

2 of the Sherman Act.

(1)

TABLE OF CONTENTS

Page

EE AS A ee : 1

Teen ee re emus PRtadees 6

ss eiemasinioon 18

TABLE OF AUTHORITIES

Cases:

Advanced Health-Care Serv., Inc. v. Radford

Community Hosp., 910 F.2d 139 (4th Cir.

a GLY TEREST gn oe 13

American Key Corp. Vv. Cole Nat’l Corp., 762 F.2d

NE EN IID goseicncovesunnsinasceisecnssncctnenconsmennns 9

Atlantic Richfield Co. v. USA Petroleum Co., 495

sc cieilpa tnlunniocttnibinanenanal S, 11, 13, 17

Bright v. Moss Ambulance Service, 824 F.2d 819

ES ane 9

CVD v. Raytheon Corp., 769 F.2d 842 lst Cir.

1985), cert. denied, 475 U.S. 1016 (1986) _......... 9

City of Mt. Pleasant v. Associated Elec. Co-op.,

838 F.2d 268 (8th Cir. 1988) _..0000 i. 13

Cohen Vv. Primerica Corp., 709 F. Supp. 63

oc anpiainnempmmataeiaii 13

Copperweld Corp. Vv. Independence Tube Cerp.,

oon eee See Ceeeee .................................& @ F, B O, 22

Datagate, Inc. V. Hewlett-Packard Co., 941 F.2d

a csecmenannvecsdomenioen 16

Directory Sales Management vt. p. V. Ohio Bel!

Tel. Co., 883 F.2d 606 (6th Cin. 1987) _... 13

FMC Corp. V. Manitowoc Co., 654 F. Supp. 915

(N.D. Ill.), aff’d, 835 F.2d 1411 (Fed. Cir.

RARE SE ie SRE Oe al 9

General Indus. Corp. Vv. Hartz Mountain Corp.,

oa eae wee Coun Gar. 1O0s) ............................ 9

Greenwood Util. Comm’n V. Mississippi Power

Co., 751 F.2d 1484 (5th Cir. 1985) 0.0. 13

Griffin v. United States, 112 S. Ct. 466 (1991)... 11

Harold Friedman, Inc. v. Kroger Co., 581 F.2d

TI, UD oc sncssinesaeeessnnernsesnoncsane Petits 9

Cases—Continued:

International Distrib. Centers v. Walsh Trucking

Co., 812 F.2d 786 (2d Cir.), cert. denied, 482

eB SRO aE PS ee

Janicn Bros. Vv. American Distilling Co., 570 F.2d

848 (9th Cir. 1977), cert. denied, 439 U.S. 829

RIT IIIIE ceutdesiehicnaabtasddiandtindesateisabadpmemtedsdeucdcesnacedes cs

Kiefer-Stewart Co. v. Joseph E. Seagram & Sons,

ee sc I ce

Lake Communications v. ICC Corp., 738 F.2d 1473

I I a

Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614

(9th Cir. 1979), cert. denied, 447 U.S. 906

Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255

(7th Cir. 1981), cert. denied, 455 U.S. 921

UE icc nccteant ihe en ra Serr ae nt

Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th

Cir.), cert. denied, 377 US. 993 (1964) ..............

Monsanto Co. v. Spray-Rite Service Corp., 465

Os

Multiflexr v. Samuel Moore & ©o., 709 F.2d 980

(5th Cir. 1983), cert. denied, 465 U.S. 1100

| EE es. SSR ee, eee ae

Neumann Vv. Reinforced Earth Co., 186 F.2d 424

(D.C. Cir.), cert. denied, 479 U.S. 851 (1986)...

Oahu Gas Service, Inc. v. Pacific Resources, Inc.,

838 F.2d 360 (9th Cir.), cert. denied, 488 U.S.

RU UI cr

Odishelidze v. Aetna Life & Cas. Co., 853 F.2d 21

| a es

Sunkist Growers, Inc. v. Winckler & Smith Citrus

Products Co., 370 U.S. 19 (1962) ............0000..

Thurman Indus. v. Pay ’N Pak Stores, 875 F.2d

1369 (9th Cir. 1989) _......... x EE a

United States v. Dairymen, Inc., 660 F.2d 192

I an

Walker Process Equipment, Inc. v. Food Machin-

ery & Chemical Corp., 382 U.S. 172 (1965)

White Bag v. International Paper, 579 F.2d 1384

Se Ss cc cece eo

Page

11

15

Cases—Continued : Page

Wiicox V. First Interstate Bank of Oregon, N.A..,

616. 7.20 G2E (9th Cir. 1967} ..................:.............. 13

Statutes and rule:

Clayton Act, 15 U.S.C. 12 et seq.:

I ansenconnnningieeninsacsiondadianan 2-3

§ 4,15 U.S.C. 15 .................. Se enueasemcas 8, 4,12

Racketeer Influenced and Corrupt Organizations

Act, 18 U.S.C. 1961 et seq.:

Be hs, I isciteccncnsrinionensevenecinnsenuittichntinacnaaiitint 3

18 U.S.C. 1962 (b) ............... dacdaeaaabacaaaees auaaaaae 3

18 U.S.C. 1962 (c) ......... saieeaawenaiae Saclneitbaaauatvecal 3

i8 U.S.C. 1962 (d) ...... anand nichasinacspenmaniceeeaes _ 3

Be EE TIED, cictaciensccencsunsiencaccentiaatanabians . 3

Sherman Act, 15 U.S.C. 1 et seq.:

ESF >t oR RRR me Ree ot passim

| & Ete ° oh Se 2, 3, 4, 5, 9, 10, 11, 12, 15, 16

Cal. Cartwright Act, Cal. Bus. & Prof. Code

(West 1987 & Supp. 1992):

I ae 3

I eas 3

Cal. Bus. & Prof. Code (West 1987):

9th Cir. R. 36-3 ................ Gannaiicicduaiaisciiaea

Miscellaneous:

7 P. Areeda, Antitrust Law (1986) _........02.00000000000... 8

In the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-10

SPECTRUM SPORTS, INC., ET AL., PETITIONERS

v.

SHIRLEY MCQUILLAN AND LARRY MCQUILLAN

dba SORBOTURF ENTERPRISES

No. 91-32

SORROTHANE, INC., ET AL., PETITIONERS

v.

SHIRLEY MCQUILLAN, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

This brief is submitted in response to the Court’s in-

vitation to the Solicitor General to express the views of

the United States in this case.

STATEMENT

1. Sorbothane is a patented elastic polymer useful for

its shock-absorbing characteristics. Respondents Shirley

and Larry McQuillan, doing business as Sorboturf En-

terprises, were regional distributors of products made

(1)

2

from sorbothane from 1981 to mid-1983. Pet. App. A3-

A7.' In addition, Shirley McQuillan was involved in ef-

forts to develop equestrian products made from sorbo-

thane. Petitioner BTR, Inc., controlled the patent rights

to sorbothane. BTR initially licensed petitioner Hamilton-

Kent Manufacturing Company (Hamilton-Kent) to

manufacture sorbothane in the United States. In 1982,

petitioner Sorbothane, Inc., assumed Hamilton-Kent’s

sorbothane business. Pet. App. A3. At all relevant times,

BTR owned, directly or indirectly, both Hamilton-Kent

and Sorbothane. /bid. Petitioner Kenneth M. Leightcn,

Sr., served as president of Hamilton-Kent until the crea-

tion of Sorbothane, at which time he became president of

that company.* ZJbid. Petitioner Kenneth B. Leighton,

Jr., Leighton Sr.’s son, is a co-owner of petitioner Spec-

trum. Sports, Inc. (Spectrum). At all relevant times,

Spectrum was a distributor of sorbothane products.’

Ibid.

In 1983, Sorbothane, Inc., notified respondents that it

would no longer sell them sorbothane or sorbothane prod-

ucts. Shortly thereafter, Spectrum Sports became the na-

tional distributor of sorbothane athletic products. Re-

spondents attempted unsuccessfully to obtain sorbothane

from a British firm, Leyland and Birmingham (Ley-

land), which held a license to manufacture and sell sor-

bothane without territorial restriction. Pet. App. A4.

2. Respondents sued petitioners seeking damages for

alleged violations of Sections 1 and 2 of the Sherman Act,

15 U.S.C. 1 and 2, and Section 3 of the Clayton Act, 15

? Unless otherwise noted, references are to the appendix to the

petition for a writ of certiorari in No. 91-10.

*Serbothane, Hamilton-Kent, BTR, Inc., and Kenneth M.

Leighton, Sr., are the petitioners in No. 91-32. In this brief, they

are collectively referred to as the “Sorbothane petitioners.”

Kenneth B. Leighton, Jr.. and Spectrum Sports, Inc., are the

petitioners in No. 91-10. In this brief, they are referred to as the

“Spectrum petitioners.”

3

U.S.C. 14.4 At the conclusion of the trial, the jury found

by special verdict that the Sorbothane petitioners had

engaged in resale price fixing and horizontal territorial

market allocation of sorbothane products in violation of

Section 1 of the Sherman Act, and had monopolized, at-

tempted to monopolize, or conspired to monopolize the

market for sorbothane products, in violation of Section 2

of the Sherman Act.’ The jury found that the Spectrum

petitioners were not liable for any Section 1 violation, but

did find them liable under Section 2.° The jury awarded

respondents $1,743,000 in compensatory damages on all

claims, and awarded an additional $500,000 in punitive

damages, which respondents later waived. The district

court trebled the compensatory damages upon entry of

judgment under Section 4 of the Clayton Act, 15 U.S.C.

15, RICO, 18 U.S.C. 1964(¢), and the California Cart-

wright Act, Cal. Bus. & Prof. Code § 16750(a) (West 1987

& Supp. 1992), and awarded an additional $912,032.50

in attorneys’ fees pursuant to Section 4 of the Clayton

* Respondents also alleged violations of the Racketeer Influenced

and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(a). (b),

(c) and (d), as well as fraud, breach of contract. interference with

prospective business advantage, bad faith denial of the existence of

an oral contract, conversion, and violations of California’s unfair

competition law, Cal. Bus. & Prof. Code § 17200 (West 1987), and

the California Cartwright Act, Cal. Bus. & Prof. Code § 16750

(West 1987 & Supp. 1992). See R.E. 1-47 (Second Amended

Complaint )

* The jury also found that the Sorbothane petitioners were liable

for all the alleged RICO and state law violations. The jury further

found that Sorbothane or Hamilton-Kent was the agent or alter ego

of BTR. Special Verdict Form I-X, XIV-XVIII.

*The jury found that the Spectrum petitioners were liable for

interference with prospective business advantage and for violations

of California’s unfair competition law and of Sections 1962(b). (c)

and (d) of RICO, but were not liable for fraud or for violations of

the Cartwright Act or Section 1962(a) of RICO. Special Verdict

Form II, VIII-IX, XIV-XVIII.

4

Act. All petitioners filed motions for judgment notwith-

standing the verdict or for a new trial, which were denied

by the district court. Pet. App. A2, A30-A31; 91-32 Pet.

App. 35-36; Special Verdict Form I-XIX.

3. The Sorbothane and Spectrum petitioners appealed,

and the Ninth Cireuit affirmed in an unpublished memo-

randum decision. Pet. App. Al-A28. The court of appeals

found a sufficient basis for the Sherman Act Section 1

market allocation claim against the Sorbothane petition-

ers, Pet. App. A8-A12, and for the Section 2 verdict as

to the Spectrum petitioners. Pet. App. A15-A22. Because

the jury found the same damages on all the claims against

petitioners, the court noted that affirming a single trebled

claim against each petitioner was sufficient to support the

verdict. The court of appeals thus declined to address

petitioners’ assertions regarding the other substantive

violations found by the jury. Pet. App. A27-A28.

a. The Sorbothane petitioners contended that, under

this Court’s decision in Copperweld Corp. v. Independence

Tube Corp., 467 U.S. 752 (1984), Sorbothane and Ley-

land could not have conspired to allocate the market for

sorbothane for purposes of Section 1 of the Sherman Act

because both corporations are wholly owned direct or in-

direct subsidiaries of a single corporate parent. The court

rejected that contention, concluding that Sorbothane and

Leyland, while “existing under a family of companies

controlled by BTR, PLC,” nonetheless operated ‘“autono-

mously.” Pet. App. Al0. Citing Kiefer-Stewart Co. Vv.

Joseph E. Seagram & Sons, 340 U.S. 211, 215 (1951),

and the Ninth Circuit’s own pre-Copperweld decision in

Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614, 617

(9th Cir. 1979), cert. denied, 447 U.S. 906 (1980), the

court held that common ownership and control does not

prevent members of a corporate family from conspiring

in violation of the antitrust laws where those corporate

family members operate autonomously. Pet. App. All.

5

b. The court of appeals noted that the jury had not

specified whether it found the defendants liable under

Section 2 of the Sherman Act for monopolizing, attempt-

ing to monopolize, or conspiring to monopolize, Pet. App.

Al5. The court asserted that the verdict must stand if

the evidence was sufficient to support any of the three

theories (ibid.), and proceeded to consider only whether

petitioners could properly have been found liable for at-

tempting to monopolize. The court rejected the Spectrum

petitioners’ argument that the Section 2 claim must fail

because there was no evidence that they intended to in-

jure competition and no evidence of market power that

could lead to the conclusion that any of the petitioners

were likely to succeed in monopolizing a relevant mar-

ket. Relying on its decision in Lessig v. Tidewater Oil

Co., 8327 F.2d 459 (9th Cir.), cert. denied, 377 U.S. 993

(1964), the court held that “if evidence of unfair or

predatory conduct is presented, it may satisfy both the

specific intent and dangerous probability elements of the

offense, without any proof of relevant market or the de-

fendant’s marketpower.” Pet. App. Al9. The court con-

cluded (Pet. App. A21):

There is sufficient evidence from which the jury

could conclude that [the Sorbothane petitioners] and

[the Spectrum petitioners] engaged in unfair or

predatory conduct and thus inferred that they had

the specific intent and the dangerous probability of

success and, therefore, McQuillan did not have to

prove relevant market or the defendant’s marketing

power.

ce. Finally, the court rejected petitioners’ contention

that the district court erred in failing to instruct the jury

that respondents were required to show antitrust injury

and in failing to grant JNOV in the absence of any such

showing. The court stated that horizontal market alloca-

tions and attempts to monopolize are treated as per se

6

violations of the Sherman Act, and that per se violations

are presumed to cause injury to competition. Pet. App.

A22. The court then held that “[t]he jury was properly

instructed on the antitrust violations and there was suffi-

cient evidence in the record to show that [respondents

were] injured as a result of the defendants’ conduct.”

Ibid. The court of appeals did not refer to this Court’s

decision in Atlantic Richfield Co. v. USA Petroleum Co.,

495 U.S. 328 (1990), which was decided after briefing

and oral argument but prior to the court of appeals’ de-

cision in this case.

Although the court of appeals denied petitioners’ re-

quest for rehearing and suggestion for rehearing en banc,

the panel amended its opinion to delete a statement that

petitioners had failed to object to the instruction incorpo-

rating the Lessig holding. Pet. App. A32-A33.

DISCUSSION

1. The court of appeals’ opinion contains three mani-

fest errors in legal analysis. First, the court’s analysis of

the intra-enterprise conspiracy issue is inconsistent with

the rationale of Copperweld Corp. v. Independence Tube

Corp., supra. Second, the court’s application of Lessig v.

Tidewater Oil Co., supra, perpetuates an unsound Ninth

Circuit doctrine that has been rejected by every other

court of appeals. Third, the court’s handling of the anti-

trust injury issue ignores this Court’s decision in Atlantic

Richfield Co. v. USA Petroleum Co., supra. Remarkably,

the court of appeals chose not to publish its decision in

this multi-million dollar case, even though it broke new

legal ground on the Copperweld issue and ignored con-

trolling Supreme Court precedent on the antitrust injury

issue.

a. First. The court of appeals concluded that wholly

owned subsidiaries of a common corporate parent can

conspire for pur oses of Section 1 of the Sherman Act if

7

the subsidiaries operate autonomously. The Sorbothane

petitioners correctly argue that the court’s conclusion con-

flicts with the rationale of Copperweld. The Court rea-

soned in Copperweld that the Sherman Act’s prohibition

of concerted activity in restraint of trade encompasses

only arrangements in which “two or more entities that

previously pursued their own interests separately are

combining to act as one for their common benefit.” 467

U.S. at 769. Coordination between a corporation and its

wholly owned subsidiary does not fall within that prohi-

bition because “[{t]heir objectives are common, not dis-

parate; their general corporate actions are guided or

determined not by two separate corporate conscicusnesses,

but one.” Jd. at 771.

In concluding that wholly owned subsidiaries of a com-

mon parent can conspire with each other for purposes of

Section 1, the court of appeals relied (Pet. App. A11)

on dicta from Kiefer-Stewart Co. v. Joseph E. Seayram

& Sons suggesting that the intra-enterprise conspiracy

doctrine applies where defendants “hold themselves out

as competitors.” 340 U.S. at 215. This Court expressly

repudiated that language in Copperweld. 467 U.S. at

763-764. In addition, Copperweld rejected, as applied to

a parent and a wholly owned subsidiary, the ‘so-called

‘single entity’ test” adopted in cases such as Las Vegas

Sun, Inc. Vv. Summa Corp., supra, the other decision on

which the court of appeals relied in this case. See 467

U.S. at 772 n.18. The Court observed in Copperweld that

criteria measuring the “separateness” of a wholly owned

subsidiary “simply describe the manner in which the par-

ent chooses to structure a subunit of itself. They cannot

overcome the basic fact that the ultimate interests of the

subsidiary and the parent are identical, so the parent and

the subsidiary must be viewed as a single economic unit.”

bid.

There is no reason to apply a different analysis to co-

ordination between two wholly owned subsidiaries of the

8

same corporate parent. See 7 P. Areeda, Antitrust Law

© 1464f, at 245-246 (1986). If each subsidiary shares the

ultimate interests of the same corporate parent, the ulti-

mate interests of the subsidiaries must also be identical,

and they are thus part of a single economic unit. As a

result, they are squarely embraced within this Court’s

reasoning in Copperweld that efficiencies or other advan-

tages achieved through utilization of organizational op-

tions within a single wholly owned enterprise are a

legitimate means of competition, rather than an element

of a Sherman Act violation. 467 U.S. at 772-774. And

“lalny anticompetitive activities of [the enterprise] * * *

may be policed adequately” under “§ 2 of the Sherman

Act and $5 of the Federal Trade Commission Act.” 467

U.S. at 777. Consequently, the court of appeals erred in

approving an instruction that allowed the jury to find a

conspiracy among affiliated corporations unless defend-

ants establish that they function as a single economic

enterprise. See Pet. App. All; 91-32 Pet. 11-12 n.11.7

b. Second. Both sets of petitioners challenge the court

of appeals’ reliance on the Lessig rule to uphold a jury

instruction allowing a finding of attempted monopoliza-

tion without consideration of a relevant market or proof

of a likelihood that actual monopolization will result. We

agree with petitioners that the district court’s Lessig in-

struction was erroneous.”

* This case does not present the question of corporate affiliations

involving less than one hundred percent ownership. The court of

appeals relied on evidence that the affiliated corporations operated

autonomously (Pet. App. All) and did not discuss the degree of

affiliation. The jury instructions allowed the jury to find an intra-

enterprise conspiracy even if wholly owned corporations were in-

volved and, to the extent that the record contains evidence on the

corporate relationships, it indicates that the ownership interests at

issue involved complete ownership. See Tr. 962, 1676-1684.

* The district court instructed the jury that “if the plaintiff has

Shown that the defendant engayed in predatory conduct, you may

9

This Court has recognized that “[t]o establish * * *

attempt to monopolize * * * it [is] necessary to appraise

the exclusionary power in terms of the relevant

market.” Walker Process Equipment, Inc. v. Food Ma-

chinery & Chemical Corp., 382 U.S. 172, 177 (1965). See

also Copperweld, 467 U.S. at 767 (“The conduct of a

single firm * * * is unlawful only when it threatens actual

monopolization.”). Every court of appeals except the

Ninth Circuit holds that proving an attempt to monopolize

requires proving a dangerous probability of monopoliza-

tion of a relevant market.’

The decisions of the other courts of appeals are correct.

The danger that conduct will create monopoly power can

be evaluated only in the context of a relevant market.

Market definition in Section 2 cases is the process of

identifying a product or group of products and a geo-

graphic area in which a hypothetical monopolist could

charge a price significantly higher than the price that

would prevail in a competitive market. If a seller has a

* *

infer from that evidence the specific intent and the danyerous

probability element of the offense without any proof of relevant

market or the defendant’s marketing power.” Pet. App. A20.

9 See, e.g., CVD v. Raytheon Corp., 769 F.2d 842, 851 (1st Cir.

1985), cert. denied, 475 U.S. 1016 (1986); International Distrib.

Centers V. Walsh Trucking Co., 812 F.2d 786, 790-791 (2d Cir.),

cert. denied, 482 U.S. 915 (1987); Harold Friedman, Inc. v. Kroger

Co., 581 F.2d 1068, 1079 (3d Cir. 1978) ; White Bag v. International

Paper, 579 F.2d 1384, 1387 (4th Cir. 1974); Multifler v. Samuel

Moore & Co., 709 F.2d 980, 991 (5th Cir. 1983), cert. denied, 465

U.S. 1100 (1984); United States v. Dairymen, Inc., 660 F.2d 192,

194 (6th Cir. 1981); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255,

27¢@ “7th Cir. 1981), cert. denied, 455 U.S. 921 (1982): General

Indus. Corp. V. Hartz Mountain Corp., 810 F.2d 795, 804 (8th Cir.

1987); Bright v. Moss Ambulance Serv., 824 F.2d 819, 824 (10th

Cir. 1987) ; American Key Corp. v. Cole Nat'l Corp., 762 F.2d 1569,

1579-1581 (11th Cir. 1985); Neumann vy. Reinforced Earth Co., 786

F.2d 424, 428-429 (D.C. Cir.), cert. denied, 479 U.S. 851 (1986):

FMC Corp. Vv. Manitowoc Co., 654 F. Supp. 915, 936 (N.D. IIL),

aff'd, 835 F.2d 1411 (Fed. Cir. 1987).

10

monopoly over a product or geographic area that is too

narrowly drawn to constitute a market, any attempt by

the seller to charge a monopoly price will prove unprofit-

able because too many consumers will shift to substitute

products or sellers. Thus, a seller who attempts to mon-

opolize something narrower than a relevant market can-

not cause significant economic harm.

Before this Court decided Walker Process and Copper-

weld, however, the Ninth Circuit “reject[ed] the premise

that probability of actual monopolization is an essential

element of proof of attempt to monopolize.” Lessig, 327

F.2d at 474. In its view, “[wlhen the charge is attempt

(or conspiracy) to monopolize, rather than monopoliza-

tion, the relevant market is ‘not in issue.” Jbid. It

added that “the specific intent [to monopolize] itself is

the only evidence of dangerous probability the statute

requires—perhaps on the not unreasonable assumption

that the actor is better able than others to judge the

practical possibility of achieving his illegal objective.”

Ibid. Following this reasoning, the Ninth Circuit in a

number of cases has allowed a double inference in at-

tempt to monopolize cases: a finder of fact may use evi-

dence of predatory conduct to infer specific intent to

monopolize, and then may infer a dangerous probability

of success from the evidence of intent. See, e.g., Janich

Bros. v. American Distilling Co., 570 F.2d 848, 854 (9th

Cir. 1977), cert. denied, 439 U.S. 829 (1978).

The effect of the double inference sanctioned by Lessig

is to eliminate the element of dangerous probability of

actual monopolization from an attempted monopolization

case. That result blurs the fundamental distinction be-

tween unilateral conduct and concerted action incorpo-

rated in Sections 1 and 2 of the Sherman Act. Concerted

action that constitutes an unreasonable restraint of trade

is condemned under Section 1 without further inquiry

into the likelihood of actual monopolization. But the law

mandates a more cautious approach to single firm con-

11

duct. See Copperweld, 467 U.S. at 767; see also Monsanto

Co. Vv. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984).

Unilateral conduct that does not threaten actual monopoli-

zation is not subject to the Sherman Act “[i]n part be-

cause it is sometimes difficult to distinguish robust com-

petition from conduct with long-run anticompetitive ef-

fects.” Copperweld, 467 U.S. at 767-768. The Ninth Cir-

cuit’s Lessig rule, by allowing an inference of dangerous

probability based solely on conduct, undercuts that dis-

tinction and permits the imposition of liability for uni-

lateral conduct that has no ultimate anticompetitive

effect.’

ce. Third. Both sets of petitioners challenge the court

of appeals’ failure to address the question of antitrust

injury in light of this Court’s decision in Atlantic Rich-

field Co. v. USA Petroleum Co., 495 U.S. 328 (1990). In

Atlantic Richfield, the Court rejected the Ninth Circuit’s

conclusion in that case that antitrust injury could be pre-

sumed from a finding of a per se violation of the Sher-

man Act.

10 The district court gave the jury a Lessig instruction on at-

tempted monopolization, and the jury did not specify whether its

finding of liability under Section 2 of the Sherman Act was based

on monopolization, attempted monopolization, or conspiracy to

monopolize. Thus, it is possible that the verdict as to Section 2

rested on a finding of attempted monopolization, rather than

monopolization or conspiracy to monopolize. The Ninth Circuit

discussed only attempted monopolization, asserting that the Section

2 verdict must stand if any one of the three theories could support

liability. But this Court has held that, if one of the alternative

grounds for a general verdict is legally insufficient, the verdict

may not be affirmed. Sunkist Growers, Inc. v. Winckler & Smith

Citrus Products Co., 370 U.S. 19 (1962). Cf. Griffin v. United

States, 112 S. Ct. 466 (1991) (upholding general verdict where one

of the possible bases of conviction was supported by inadequate

evidence, and distinguishing factual insufficiency from legal inade-

quacy). Accordingly, the validity of the Lessig instruction is

presented by these petitions.

12

The per se rule is a presumption of unreasonableness

based on “business certainty and litigation effici-

ency.” * * *

The purpose of the antitrust injury requirement is

different. It ensures that the harm claimed by the

plaintiff corresponds to the rationale for finding a

violation of the antitrust laws in the first place, and

it prevents losses that stem from competition from

supporting suits by private plaintiffs for either dam-

ages or equitable relief.

495 U.S. at 342. Accordingly, a plaintiff seeking relief

under Section 4 of the Clayton Act for alleged violations

of the Sherman Act, whether or not those violations would

be viewed as per se violations, must show antitrust

injury.

The court of appeals did not refer to Atlantic Rich-

field, which was decided after briefing and oral argument

of this case in the court of appeals but before the court

issued its opinion. Instead, the court’s decision blurs the

distinction between whether the defendants’ alleged con-

duct causes injury to competition and whether the harm

claimed by the plaintiffs constitutes antitrust injury. The

court simply held that, because all petitioners had been

found to have committed per se violations of Section 1

and Section 2, “[i]njury to competition is presumed to

follow from the conduct proscribed by these Sections.

United States v. Topco, [405 U.S. 596 (1972)]; Walker

v. U-Haul Co. of Mississippi, 747 F.2d 1011 (5th Cir.

1984).” Pet. App. A22. The court failed to modify its

analysis of this issue on rehearing, although this Court’s

opinion in Atlantic Richfield was brought to its attention.

2. Although the court of appeals made no fewer than

three legal errors, it is not clear that this case warrants

plenary review. As we mentioned before, the decision of

the court of appeals is unpublished. Although antitrust

practitioners may be aware of the court of appeals’ de-

cision, it lacks any precedential effect. See Ninth Circuit

13

Rule 36-3 (unpublished memorandum decisions “shall not

be regarded as precedent and shall not be cited to or by

this court or any district court in the Ninth Circuit * * *

except when relevant under the doctrines of law of the

case, res judicata, or collateral estoppel’). In addition,

more specific considerations suggest caution in granting

plenary review of any of the questions presented.

a. As to the Copperweld issue, we are aware of no

published decision holding that wholly owned subsidiaries

of a common parent can conspire with each other for

purposes of Section 1. The Ninth Circuit’s published

rulings since Copperweld have either reserved the_issue,

see Wilcox v. First Interstate Bank of Oregon, N.A., 815

F.2d 522, 527 (1987), or suggested that Copperweld

should apply to corporate families including multiple

wholly owned subsidiaries, see Lake Communications Vv.

ICC Corp., 738 F.2d 1473, 1480 (1984). And the four

other circuits that have considered the question have had

little difficulty concluding that the reasoning of Copper-

weld applies in this situation. Odishelidze v. Aetna Life

& Cas. Co., 853 F.2d 21, 23 (1st Cir. 1988): Advanced

Health-Care Serv., Inc. v. Radford Community Hosp., 910

F.2d 139, 146 (4th Cir. 1990); Greenwood Util. Comm’n

Vv. Mississippi Power Co., 751 F.2d 1484, 1496 (5th Cir.

1985) ; Directory Sales Management Corp. v. Ohio Bell

Tei. Co., 833 F.2d 606, 611 (6th Cir. 1987). See also

Cohen v. Primerica Corp., 709 F. Supp. 63, 65 (E.D.N.Y.

1989). Cf. City of Mt. Pleasant v. Associated Elec.

Co-op., 838 F.2d 268, 274-277 (8th Cir. 1988) (under

Copperweld, a group of related corporations comprising

part of a rural electric cooperative are a single economic

entity and cannot be found to have conspired).

In addition, the exact relationship among the BTR

subsidiaries is less than elaborately developed in the rec-

ord. Petitioners appear to have presented no evidence at

trial on this issue; the only testimony to the relationship

came from two of respondents’ witnesses, over the objec-

14

tion of counsel for the Sorbothane petitioners. Tr. 962,

1676-1684, Neither witness professed any expertise in

the corporate structure of the BTR companies and one,

Laurene Heinsohn, coneeded that her knowledge of the

BTR corporate structure was hearsay. Tr. 962. Conse-

quently, although the jury instruction upheld by the court

of appeals allowed the jury to ignore the affiliation be-

tween subsidiaries if it concluded that they operated

autonomously, the jury may have found a conspiracy be-

cause it did not believe that petitioners presented suffi-

cient evidence of their affiliation.”

The panel’s reasoning with respect to the Copperweld

issue is nevertheless troubling. Copperweld goes to the

heart of the manner in which families of related busi-

nesses conduct their operations. Thus, even an unpub-

lished opinion improperly limiting Copperweld could have

11 An additional uncertainty arises because the jury found the

Sorbothane petitioners liable for two separate Section 1 violations—

a horizontal agreement to divide markets and a vertical agreement

to fix resale prices. Special Verdict Form XI-XII. It is difficult to

determine whether the Copperweld error infected the jury’s verdict

on the resale price fixing claim. And the resale price fixing verdict

alone would suffice to support the entire award of damages, which

was the only relief awarded.

The jury found that the Sorbothane petitioners, but not the

Spectrum petitioners, had engaged in resale price fixing. Special

Verdict Form XI. Thus the jury’s verdict, standing alone, would

suggest that the jury thought the Sorbothane petitioners had con-

spired with themselves. But the district court instructed the jury

that “resale price fixing * * * is an agreement between firms, at

different levels of a chain of distribution to set the resale prices or

price ranges for production.” Tr. 4328. This raises the possibility

that the jury concluded that the Sorbothane petitioners (the manu-

facturers) conspired to fix resale prices with independent distribu-

tors that were not named as defendants in this lawsuit. If that is

so, the Section 1 verdict could stand despite the court’s misapplica-

tion of Copperweld. The issue is further complicated, however, by

the fact that IEM, one of Sorbothane’s principal unaffiliated dis-

tributors, distributed medical products rather than athletic prod-

ucts. See Pet. App. A5-A6.

15

the effect of deterring lawful, procompetitive behavior by

commonly owned firms. Consequently, although we do

not believe the Copperweld issue merits plenary review,

we believe it would be appropriate, should the Court wish

to do so, summarily to reverse the decision of the court

of appeals to the extent that it rests on a holding that

wholly owned subsidiaries of a common parent can con-

spire with each other.

b. The Lessig doctrine conflicts with the law of every

other circuit and has long been a source of confusion in

attempted monopolization cases in the Ninth Cireuit. We

believe that the Lessig doctrine is incorrect, but it re-

mains an established part of the law of the Ninth Circuit.

The unpublished opinion in this case does not alter the

state of the law.

At the same time, the court of appeals applied Lessig

in a particularly expansive way by upholding the Section

2 verdict as to the Spectrum petitioners, who were not

found to have committed a per se violation of Section 1 of

the Sherman Act. That is quite troubling. In its pub-

lished decisions, however, the Ninth Circuit has indi-

cated that, in the absence of predatory or per se illegal

conduct, “[{mjarket analysis is essential because intent

to exclude competition or control prices cannot exist in

[a] vacuum; such intent only may exist within the

framework of a definable market”. Thurman Indus. Vv.

Pay ’N Pak Stores, 875 F.2d 1369, 1378 (9th Cir. 1989).

The court below simply did not discuss Thurman in ap-

plying Lessig to the Spectrum petitioners.

We also believe that the practical importance of Les-

sig has been diminished by the ruling in Oahu Gas Serv-

ice, Inc. V. Pacific Resources, Inc.. 8388 F.2d 360 (9th

Cir.), cert. denied, 488 U.S. 870 (1988). That case holds

that potentially anticompetitive conduct will not neces-

sarily lead to antitrust liability under Section 2 if there

are legitimate business justifications for the conduct.

Under Oahu Gas, the Lessig rule should not be used to

cael a

16

justify Section 2 liability for unilateral conduct that may

be procompetitive.

There is another fact-specific consideration weighing

in the Lessig balance. Although the Lessig issue is prop-

erly presented by each petition, it is not clear that re-

jection of the Lessig doctrine would alter the outcome of

this case. The Lessig issue alone could make no difference

to the outcome of the Sorbothane petitioners’ case (No.

91-32) because they were found liable on two Section 1

counts. Either of those claims is sufficient to support the

jury’s entire damages award. The Spectrum petitioners

(No. 91-10) were found liable for antitrust treble dam-

ages solely on the basis of Section 2. The jury, however,

was properly instructed on the elements of monopoliza-

tion and conspiracy to monopolize, and it appears that

the evidence on those theories may be sufficient to sup-

port a Section 2 verdict.

ce. In this error-ridden decision, the court of appeals—

in deciding the issue of antitrust injury—failed even to

acknowledge this Court’s controlling decision in Atlantic

Richfield. That case (which reversed another Ninth Cir-

cuit antitrust decision) was decided after briefing on

the merits and oral argument, but before the cvurt of ap-

peals issued its decision in this case. Then, to compound

its error, the court of appeals failed to modify its analysis

even though Atlantic Richfield was specifically brought to

the court’s attention in the petition for rehearing, and

even though the court modified another portion of its

opinion.

We do not assume that the Ninth Circuit will continue

to ignore Atlantic Richfield. Indeed, the Ninth Circuit

has followed Atlantie Richfield in a recent published opin-

ion. See Datagate, Inc. v. Hewlett-Packard Co., 941 F.2d

864, 868 (1991). In addition, although the court of ap-

peals in this case appears to have presumed antitrust in-

jury from the combination of a per se violation of the

antitrust laws and proof that respondents were injured

17

by petitioners’ conduct, the key language of the court of

appeals’ opinion states only that “[i]njury to competi-

tion is presumed to follow from” per se antitrust viola-

tions. Pet. App. A22 (emphasis added). Standing alone,

that statement is correct and does not conflict with Af-

lantie Richfield. See 495 U.S. at 342 (“per se rule is a

presumption of unreasonableness”; a restraint is unrea-

sonable if “its anticompetitive effects outweigh its pro-

competitive effects”). Moreover, respondents may well be

correct in arguing (91-32 Br. in Opp. 17) that the evi-

dence in this case justifies a finding of antitrust injury

under the analysis of Atlantic Richfield. Despite these

considerations, the court of appeals’ failure even to ac-

knowledge this Court’s decision in Atlantic Richfield is

striking. Accordingly, we believe it would be appropriate

to vacate the court of appeals’ decision and remand the ease

for further consideration in light of Atlantic Richfield.

18

CONCLUSION

For the reasons we have stated, plenary review is not

warranted in this case. The Court may, however, wish

summarily to reverse the decision of the court of appeals

to the extent that it rests on a holding that wholly owned

subsidiaries of a common parent may conspire for pur-

poses of Section 1 of the Sherman Act and to remand

for reconsideration of the antitrust injury issue in light

of Atlantic Richfield.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

JAMES F. RILL

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

CHARLES A. JAMES

Deputy Assistant Attorney General

ROBERT A. LONG, JR.

Assistant to the Solicitor General

CATHERINE G. O’SULLIVAN

JAMES W. LOWE

Attorneys

FEBRUARY 1992

w U. S$. GOVERNMENT PRINTING OFFICE; 1992 312324 458341