# Petition — Zoslaw v. MCA Distributing Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_0532%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1983 - **Citation:** 460 U.S. 1085 ## Text o> <>} 7% A 6> ) Office-Sy apy ete a _ - _ & “ey | HHiCe- supreme Court, U.S. NO. . FILED IN THE SUPREME COURT FER o9 (983 OF THE ALEXANDER L. STEVAS, CLERK UNITED STATES October Term, 1982 Charles Zoslaw and Jane Zoslaw, husband and wife, dba Marin Music Centre, Petitioners, vs. MCA Distributing Corporation, Doug Robertson Advertising, Inc., MTS, Inc., Tower Enterprises, Inc., Warner/Elektra/Atlantic Corporation, ABC Records, Inc., Polygram Distribu- tion, Inc., Capitol Records, Inc. and Capitol Industries-EMI, Respondents. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT Maxwell Keith (COUNSEL OF RECORD) 50 California Street Suite 955 San Francisco, CA 94111 (415) 981-1361 Attorney for Petitioners, Charles Zoslaw and Jane Zoslaw, husband and wife, dba Marin Music Centre I CUESTIONS PRESENTED l. Are small ethical retailers of phono- graph records and tapes entitled to the protection of the Sherman Act when a powerful group of seven major nationwide distributors constituting 80% of the desired product agree with multi-chain retailers that their opening of full cata- logue record stores on a growth basis will be subsidized by special financial assistance and advertising funds with which to advertise the products of the group a few cents over the price the dis- tributors sell at wholesale to the small ethical retailer? a. Is not such an agreement implied as a matter of law from the proof of con- tinuous advertising by the few chain retailers named here at such prices? (Example: advertised sell prices of $3.66, $3.88 and $3.99 on $6.98 list com- pared to cost of the album to the retailer of $3.65.) b. Is not such an agreement to be proscribed in accordance with the purposes of the law of conscious parallelism? 2. Can a multi-state chain retailer of phonograph records and tapes who has ad- mittedly received the right to purchase at least 80% of the popular selling records and tapes at greatly reduced purchase prices, compared to the prices charged competitive retailers and who has an- nounced that he uses this price advantage to lower prices to "zing" competition escape liability for predatory pricing under Section 2 of the Sherman Act because he is not selling below his cost, although he knowingly utilizes price discrimina- tions to sell the product at below the cost of competitive retailers? 3. a. Does the Sherman Act prohibit a record company from refusing to sell its protected products to a retailer because the retailer has instituted an action to prove that the exclusively controlled products are subjects of restraints of trade? b. Assuming that Capitol Records can individually refuse to deal in order to prevent the litigation of its antitrust violations, can its refusal to deal pur~« suant to a conspiracy to monopolize the Sale of records at wholesale and at retail be determined in summary judgment on the showing of parallel conduct by it and its competitors as to list prices, allowance of favorable subdistributor prices to the named chain retailers, of the granting of special financial terms and advertising subsidies to the chain retailers and its attendance at group association meetings? 4. Did the courts have the constitutional power to determine facts on motions for summary. judgment especially when such determinations go to general conspiracy issues by reason of U.S CONST. art. I, III; amend. VII? TABLE OF CONTENTS I QUESTIONS PRESENTED......+s06- II LIST OF Pe aes bheeebeasevede III CITATIONS TO OPINIONS BELOW... IV GUMLPUECE EME ceeceeeecescecens V STATUTES TRVGUVEDcceceeeoeccee VI CONCISE STATEMENT OF THE CASE A. Cc. The Substance of the Case.. The gE ne eee 1. Manufacturers or DISCELBUCOLB. ccoccccccce 2. Respondent Retailers... Se GUROE ROCGLLOEB. cccceccs Concentration of Distribu- tion of Records and Tapes in the Hands of Seven Major Distributors and Price Uniformity Was Disclosed... Concurrently With the Con- solidation of Distribution in the Hands of Nationwide and Worldwide Companies, the Retailing of Phonograph Records and Tapes Became Concentrated in the Hands of Those who were Either Owned by Nationwide Distri- butors or Who Assured the Distributors They Would Undertake Chain Store Exjpansion on the West Coast and Who Would Enter into "Under the Table" or Frau- Page oondreuiwvyt _- & 16 ARGUMENT dulent Conduct to Obtain Discriminatory Allowances.. Analysis of the Relevant Markets Showed that the Nationwide Distributors Subsidized the Growth of Multi-chain Retailers...... l. 2. Preliminary: The ‘distribution and retailing of phonograph records and tapes...... a. The Basic Products b. Manner of Distri- | San Francisco-Marin County: A microcosm... Combination and Conspiracy l. The distributors directly financed the growth of the chain retailers on the West Ges oh 04 64s a884000068 There existed parallel refusals to allow peti- tioners to meet competition......seeees The Distributor-Defendants' Exclusion of Ethical Re- tailers Spread to the Entire West Coast and Presumably the Deen denedeews contac I. The Decision Below is in Total Conflict with the Decisions of this Court Which Prevent Com- petitive Suppliers From Combining ii. 18 20 20 20 21 23 27 27 33 45 to Establish a Fixed and Rigid POs 6000 60 0b bb.b00 660055685 A. This Court's Holdings Preventing Group Action by Those Dominating an Indus- try Have Been Ignored...... l. Paramount Pictures, Klors, preclude agree- ments to discriminate... B. The Determination That a Refusal to Deal Based Upon Reaction to an Antitrust Complaint is Lawful is in Conflict With the Decision of Another Panel of the Ninth Circuit, and the Third Geie 5 56ebe ee bb 600 sesee C. Interstate Circuit Has Been Erroneously Construed to Allow Determinations of Fact by Appellate Courts... De Deo cbsecesevoescetouseaceos APPENDICES Appendices A -- Opinion of the United States Circuit Court of Appeals for the Ninth Circuit. Appendices B -- Opinion of the United States District Court for the Northern District of California. Appendices C -- Pertinent pro- visions of the Sherman Act. Appendix D -- The Robinson- Patman Act. iii. 47 47 47 58 60 63 TABLE OF AUTHORITIES — U.S. Constitution U.8. Constitution, art. I, Iff, amend. i; Pere rerrrerrrrer. Statutes 15 U.S.C. §§ 1 and 2..cccceees 15 U.8.C.w § L3cceccccccccccces 15 U.8.C. § LSecccccccccccvces 28 U.S.C. § L254. ccccccccccces California Evid. Code § 665... Rules F. R. Civ. P. | See ee eee Trade Practice Rules Phonograph Industry, FTC Trade Practice Rules 29 F.R. 1394... Cases American Can Co. v. Bruce's Juices, Inc., 187 F.2d Bae (SOR SEE. ESSA) vcsvcoves Beacon Theatres v. Westover, 359 U.S. 500 (1959)........ Bergen Drug Co. v. Parke, iv. Page (s) 3,62 62 19 60 62 Davis & Co., 307 F.2d Fas C306 Cake 2OGE) savevees Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946).. Catalano v. Target Sales, Inc., 446 a - 643 (1980) cccccoee Cement Manufacturers' Protective Association v. United States, 260 GB. BES: CLAS) 6c cccees Corn Products Refining Co. v. FTC, 324 U.S. 726 (1945)... D & S Redi Mix v. Sierra Redi Mix & Contracting, 1982-83 Trade Cases, ¥ 65,017 (Sth Civ« TOSS) occ cvesseece FTC v. A.E. Staley Mfg. Co., 324 Gabe 746 64) eee FTC v. Cement Institute, 333 oP - 683 CL9GE cee acdevsds FTC v. National Lead Co., 352 U.B. 419 (1957) ccccccecs First National Bank of Arizona v. Cities Service Co., 391 om 253 (29GS) cccoccvcsecs Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (ZETO) 60s eudeneseeveveene er In Re U.S. Financial Securities Litigation, 609 F.2d 411 (9th Cie, ASTE) 000 ee vesoee Interstate Circuit, Inc. v. United States, 306 U.S. 208 CLOSE? cnc ccsecvcescdteceseeses Klor's, Inc. v. Broadway-Hale Vv. 58 48 56 55 57,60 56 57 57 57 61 57 62 48,60,63 Stores, Inc., 359 U.S. 207 (1959) ccccccccccccceccccese Lear, Inc. v. Adkins, 395 U.S. 653 (ASSP) coccccoccccccccoece Morton Salt Co. v. G.S. Suppiger, 314 U.S. 488 (1942) ccccccccccccccecccccs Ostrofe v. H.S. Crocker Co., Inc., 670 F.2d 1378 (9th Cie. LOGZ) ccoccccccccce Program Engineering, Inc. v. Triangle Publications, Inc., 634 F.2d 1188 (9th Cir. nr Poller v. Columbia Broadcasting System, 368 U.S. 464 (1962) Schine Chain Theatres, Inc. v. United States, 334 U.S. 110 SEED Se bceeeecoeecscecs Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173 eee eigeseeceeeececcece United States v. Griffith, 334 U.S. 100 (1948) ccccccce United State v. New York Great Atlantic & Pacific Tea Co., 173 F.2d 79 (7th Cir. 1949), affirming 67 F. Supp. 626 ce BhLe 1966) cccccccececs United States v. Paramount Pictures, Inc., 334 U.S. 47,48 59 59 58 58 61 48 59 48 54 131 (1948) cccccccccccccccecs 47,48,51 United States v. U.S. Gypsum Co., 438 U.S. 422 (1978)... vi. 57 NO, IN THE SUPREME COURT OF THE UNITED STATES October Term, 1982 Charles Zoslaw and Jane Zoslaw, husband and wife, dba Marin Music Centre, Petitioners, vs. MCA Distributing Corporation, Doug Robertson Advertising, Inc., MTS, Inc., Tower Enterprises, Inc., Warner/Elektra/Atlantic Corporation, ABC Records, Inc., Polygram Distribu- tion, Inc., Capitol Records, Inc. and Capitol Industries-EMI, Respondents. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT Maxwell Keith (COUNSEL OF RECORD) 50 California Street Suite 955 San Francisco, CA 94111 (415) 981-1361 Attorney for Petitioners, Charles Zoslaw and Jane Zoslaw, husband and wife, dba Marin Music Centre I QUESTIONS PRESENTED l. Are small ethical retailers of phono- graph records and tapes entitled to the protection of the Sherman Act when a powerful group of seven major nationwide distributors constituting 80% of the desired product agree with multi-chain retailers that their opening of full cata- logue record stores on a growth basis will be subsidized by special financial assistance and advertising funds with which to advertise the products of the group a few cents over the price the dis- tributors sell at wholesale to the small ethical retailer? a. Is not such an agreement implied as a matter of law from the proof of con- tinuous advertising by the few chain retailers named here at such prices? (Example: advertised sell prices of $3.66, $3.88 and $3.99 on $6.98 list com- pared to cost of the album to the retailer of $3.65.) l. (THIS PAGE INTENTIONALLY LEFT BLANK) b. Is not such an agreement to be proscribed in accordance with the purposes of the law of conscious parallelism? 2. Can a multi-state chain retailer of phonograph records and tapes who has ad- mittedly received the right to purchase at least 80% of the popular selling records and tapes at greatly reduced purchase prices, compared to the prices charged competitive retailers and who has an- nounced that he uses this price advantage to lower prices to "zing" competition escape liability for predatory pricing under Section 2 of the Sherman Act because he is not selling below his cost, although he knowingly utilizes price discrimina- tions to sell the product at below the cost of competitive retailers? 3. & Does the Sherman Act prohibit a record company from refusing to sell its protected products to a retailer because the retailer has instituted an action to prove that the exclusively controlled products are subjects of restraints of trade? b. Assuming that Capitol Records can individually refuse to deal in order to prevent the litigation of its antitrust violations, can its refusal to deal pur- suant to a conspiracy to monopolize the sale of records at wholesale and at retail be determined in summary judgment on the showing of parallel conduct by it and its competitors as to list prices, allowance of favorable subdistributor prices to the named chain retailers, of the granting of special financial terms and advertising subsidies to the chain retailers and its attendance at group association meetings? 4. Did the courts have the constitutional power to determine facts on motions for summary judgment especially when such determinations go to general conspiracy issues by reason of U.S CONST. art. I, III; amend. VII? 3. It LIST OF PARTIES A list of all the parties at the pro- ceeding is contained in the caption. Itt CITATIONS TO OPINIONS BELOW The opinion of the trial covrt which dismissed petitioners' Robinson-Patman Act Claims against Warner/Elektra/Atlantic, hereinafter referred to as WEA, is report- ed at 1977-2 Trade Cases q 61,756; a sim- ilar ruling in favor of Eric Mainland appears at 1977-2 Trade Cases q¥ 61,757. The order denying petitioners' motion for a preliminary injunction appears at 1977-1 Trade Cases q 61,334. The decision dis- missing Capitol Records and its parent Capitol Industries - EMI appears at 1978-2 Trade Cases 4 62,269. The decision of the trial court dis- missing petitioners’ Sherman Act claims is reported at 533 F. Supp. 540 (N.D. Cal. 1980). 4. The opinion of the Circuit Court of Appeals for the Ninth Circuit is, as yet, not officially reported and appears at 1982-83 Trade Cases, 4 65,078. A true copy of the opinion of the Circuit Court of Appeals is attached hereto as Appendix A. A true copy of the opinion of the trial court is attached hereto as Appendix B. IV JURISDICTION The judgment of the United States Court of Appeals for the Ninth Circuit was entered on December 1, 1982. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254. Vv STATUTES INVOLVED The statutory provisions are Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 and Section 15 of the Clayton Act, 15 U.S.C. § 15. The provisions of the Robinson-Patman Act, 15 U.S.C. § 13 are 5. also pertinent. These statutory pro- visions are attached hereto as Appendices C and D. VI CONCISE STATEMENT OF THE CASE A. The Substance of the Case This is an action brought under the Sherman Act and Robinson-Patman Act by the owners of a retail phonograph record and tape store located in Marin County, Cali- fornia, known as "Marin Music Centre." Petitioners opened a music store in August, 1965. The store was located in Strawberry Town and Country Shopping Cen- ter, Mill Valley, California, approximately 10.7 miles from Tower Records’ San Francisco store. The Straw- berry Town and Country Shopping Center is located off the major U.S. Highway 101. {Excerpt of the Record (hereinafter "ER") 1352, 1364.] Petitioners remained in business until May, 1977. The essence of the complaint and causes of action is the entry into a scheme to drive them and other ethical dealers out of business entered into by the seven major distributors of phonograph records and tapes, which as a group, con- trol approximately 80% of the total dollars of sales of the product in the United States (ER 1360-1361, 1865). The major Cevices used were the subsidizing of the advertising of records and tapes at retail prices a few cents over the cost to the small retailer through the favored retailers by the group of nationwide dis- tributors and the preventing of competi- tion to those prices by uniformly agreeing to charge wholesale prices to them at prices which prevented their competition. In addition, the evidence disclosed the national distributors to have subsidized the favored retailers through the device of granting extended payment times to them at non-interest bearing terms; in effect financing their retail operations. The Zoslaws lowered their prices in 1974 to match those of Tower Records (ER 1874). Their sales increased but so did their losses (Id.). The Zoslaws sought an injunction against the continuation of these pricing policies (ER 338-340). After failure the Zoslaws closed their Marin Music centre. B. The Parties 1. Manufacturers or Distributors Warner/Elektra/Atlantic Corporation (hereinafter "WEA") has been engaged in the business of distributing phonograph records and tapes since 1970 (ER 689). It distributes nationally. It is wholly owned by Warner Bros., Inc. whose parent company is Warner Communications (ER 118). It distributes the records and tapes of Warner Bros. Recording Co., At- lantic Recording Co. and Elektra. The classical line is Elektra Nonesuch. It utilizes the other corporations to manu- facture its records -- Columbia Records at Terre Haute, IND. and Specialty Records at Oliphant, PA. (ER 103). It has seven regional distribution centers (ER 286). WEA distributes a host of labels. Some of the label names are Warner, Atlantic, Elektra, Reprise, Atco, Cotillion and Asylum (ER 280, 1448). MCA Distributing Corp. (hereinafter referred to as "MCA") is a nationwide manufacturer and distributor of phonograph records and tapes (ER 1321 and 1327-28). It has been involved in sales and distri- bution of records and tapes since approxi- mately 1954. It acquired Decca in 1970 (Id.). It manufactures records and tapes at Pickneyville, IL and Gloversville, NY (ER 1327) and distributes them through five distribution centers (Id.). Polygram Distribution, Inc. was for- merly known as Phonodisc, Inc. and U.D.C., Inc. (ER 1283). During the period from 1971 to 1973, UDC distributed records man- ufactured by Polydor, MGM and United Ar- tist (ER 1303). Phonodisc, Inc. acquired U.D.C. in 1973 (ER 1029) and changed its name to Polygram Distribution, Inc. on or about March, 1978 (ER 1303). Polygram is a joint venture of Philips Lamp Works and A.G. Siemens (ER 829, 837). Its head- quarters are in Baarn, Holland. Phonodisc ceased to distribute United Artist records in mid-1975 (Id.). Since November, 1973 it has distributed the labels Mercury, Polydor, DGG (Deutsche Grammophon), Archive, MGM, Phonogram, Phillips, RSO and Verve (ER 829). It utilizes the manufacturing facilities of Columbia Records and PRC Recording (ER 829). ABC Records, Inc. (hereinafter "ABC") is a wholly owned subsidiary of American Broadcasting Company. It was a national manufacturer and distributor of records and tapes. Its labels include ABC, Dunhill and Impulse (ER 958, 998). It was acquired by MCA in 1977 (ER 1866). Capitol Records (hereinafter "Capi- tol") is a national distributor. It is wholly owned by Capitol Industries, EMI, a subsidiary of EMI, Ltd., an English cor- 10. poration (ER 961, 1003). Capitol has five manufacturing and six regional distribu- tion warehouses (ER 1072). Its artists include: The Beatles, Helen Reddy, Yehudi Mer. hin, Andre Previn and Beverly Sills (Id.). It acquired United Artists Records (ER 1866). Other nationwide distributors were named in the complaint: CBS, Inc. and RCA Corp. Eric-Mainland was a wholly owned sub- sidiary of United Artists Music and Re- cords Groups, Inc. (UAMARGI), owned by Transamerica. It was named as a defendant. Eric-Mainland was a regional distributor and rack jobber. It was ac- quired by UAMARGI on December 8, 1969 (ER 37, 321-322). It had distributed the A & M Records and Motown labels (Id.). It went out of business in 1976 (ER 1390). 2. Respondent Retailers MTS, Inc. (hereinafter "Tower Records") is a holding company of the various stock holdings in operating ll. companies founded by Russell Solomon and an operating company of three stores (ER 959-60, 1039, 1355). It grew from two stores in Sacramento to 15 stores in Cali- fornia, Washington and Arizona by August, 1976 (ER 1040, 1355, 397). Tower Enterprises, Inc. is a store operating company of the Tower Store in San Francisco (Id.) MTS' volume of sales in 1975 was $20,000,000 (ER 1364). Its majority stockholder and president, Mr. Russell Solomon, announced to the trade in a maga zine interview that “we let our competitor do his thing and then zing the shit out of him" (ER 1385 - 1386). MTS purports to do business as a distributor, Central Valley Record Rack (ER. 1365, 1451). All named distributors shipped direct to the Tower stores and picked and packed to its order as of the time of the filing of the com- plaint (ER 1377, 1520 - 1522). Tower Records was WEA's seventh ranked account, and ABC's third ranked account. 12. MCA showed that Tower Records accounted for 23% of its entire Northern California Sales and 56% of its San Francisco Bay Area sales (ER 1364-1365). Analysis of WEA's 1975 San Francisco branch sales (excluding IEC) showed Tower Records to have 24% of the total branch sales. At 24%, Tower Records, was WEA's largest purchaser in the branch (ER 186-189). By 1975 Tower Records was purchasing a mil- lion dollars of records a year from Capi- tol (ER 1099). Phonodisc sales to MTS were shown to be about $350,000 per pur- chasing cycle in 1975 (ER 2130). The Tower store in San Francisco be- came a showcase. The distributors painted hot selling album covers on the front of its stores, entered into extensive perfor- mer promotions at the store and gave the store a disproportionate amount of in- store servicing (ER 1409, 243-249). As stated in a WEA document dated 1974 dis- cussing the Tower Records account "I feel too much time is being spent catering to 13. the whims of MTS and this habit should be changed." (ER 254.)3. Other Retailers 3. Other Retailers Integrity Entertainment Corp. (herein- after “The Wherehouse" or "IEC" or “Inte- grity") opened stores in California in September 1970 (ER 959). It opened a central warehouse for distribution in 1974 the Gardena warehouse (ER 626, compare to ER 1986-1988). It began with 6 stores in the State of California (Id.). It grew to 90 stores by November, 1977 (Id.). Discount Records (from time to time called "Disro") acquired in 1969 by CBS, was a full catalogue retail record store operating ccupany doing business through- out the United States (ER 1365). Its national volume was about $20,000,000 (ER 1366). It operated 7 stores in the San Francisco Bay Area (Id.). From the time of acquisition it grew from a chain of 20 stores to 70 stores in 1973 (ER 1365). In 1976, many Discount Records stores were acquired by Pickwick 14. International. Pickwick was identified as being owned by Heileicher Bros., who also owned J.C. Marsh Co. and Musicland, a rack jobber and retailer. Pickwick has since been acquired by American Can Company (ER 1366). The Record Factory (Mighty Fine Dis- tributing) grew to 9 stores in four years, 1971-1975 (Id.). Its 1975 sales were $3,320,000 (ER 1366). It received the right to pay for products from WEA on the basis of non-interest bearing notes for the period October 1973-1974. Its presi- dent was Mr. John Iott (Id.). Odyssey Records (Cash and Carry) ex- panded to six stores in nine years, 1966- 1975. Its 1974 sales were $3,149,151 (ER 1367). Its president was Rich Bullock, an ex-employee of Tower Records (ER 1367). WEA had allowed it to pay for products with trade acceptances (Id.). Banana Records (Maya Corp.) was to grow to nine stores in one year, 1972, and was allowed non-interest bearing notes by 15. WEA to pay for its products (ER 1367-1368). Its 1975 sales were $1,140,942 (ER 1368). Advertising Agency. Doug Robertson, Inc. was named as a defendant herein. It was Tower Records' advertising agency at all times herein. It owned 5% of many of MTS's operating subsidiaries (ER 1355). It allowed Tower the use of invoices from radio stations to the agency for the pur- pose of passing on its advertising agency commission from the media of 15% to Tower Records in return for salary and stock (ER 1383-1385). Cc. Concentration of Distribution of Records an4 Yapes in the Hands of Seven Major Distributors and Price Uniformity Was Disclosed. 1. The defendant distributors consti- tuted approximately 85% of the popular records and tapes sold by the retailers involved here (ER 1359-1361, 1865). An analysis of MTS' 1974 accounts payable ledger (ER 1917) showed: Columbia Records - 25.8%; WEA - 9.46%; Capitol - 9.37%; MCA ~ 8.67%; Phonodisc - 10%; RCA - 9.59%; 16. Eric Mainland Co. - 7.35% (ER 1917, 1865, 1360-1361). 2. The price structure of major distributors of records are based upon a list price. The list price has been uni- formly raised along with uniform increase in price sheets to each class of trade by the identified group of major distribu- tors. Petitioners established the uniform increase upwards with substantial uniform- ity as to the increases to each classifi- cation of trade on three occasions between the period 1972 and 1978. As of 1972, the key list price was raised from $4.98 to $5.98 LP and $6.95 tape. Dealers were charged between $3.04 and $3.16. The sub- distributors were charged between $2.86 and $2.89 (ER 1497, 1523, 1454, 1449). By the fall of 1974 the key prices had been changed from $5.98 to $6.98 (ER 1498- 1503). Wholesale prices went up from $3.05-$3.16 to $3.61-$3.65 as to retailers and $3.38-$3.40 as to the sub-distributors (ER 1454, 1504). 17. The entire industry went from $5.98 to $6.98 with consequent changes at wholesale in a six month period of time (ER 1400). No respondent has proffered testimony that the upward movement of price lists to identical levels are based upon costs. No respondent has proffered any cost analysis to justify its adoption of the industry- wide key list prices or to justify the specific prices charged in each category. The price lists of the seven majors applied the prices as a national price without regard to costs of transportation and volume of orders as to all accounts from 1971 to the filing of the complaint Concurrently with the Consolida- tion of Distribution in the Hands of Nationwide and Worldwide Cona- panies, the Retailing of Phono- graph Records and Tapes Became Concentrated in the Hands of Those Who Were Either Owned by Nationwide Distributors or Who Assured the Distributors They Would Undertake Chain Store Ex- pansion on the West Coast and Who Would Enter into “Under the Table” or Fraudulent Conduct to Obtain Discriminatory Allowances. 18. A clear division took place between ethical and unethical dealers. Unethical retailers received sub-distributor prices notwithstanding the existence of Federal Trade Commission Trade Practice Rules for The Phonograph Industry originally published in November 8, 1964, 4 CCH Trade Reg. Rep. @ 41,067; 29 F.R. 1394. (These Trade Practice Rules were rescinded on September 22, 1978. 43 F.R. 44, 483; 4 Trade Reg. Rep. @ 41,014, p. 42, 127.) They required the good faith application of functional discounts (ER 1358-1359). See pages 29-30, infra. It will thus be shown that the indus- try has determined that the consumer is to do his shopping at a few subsidized loca- tions at the option of foregoing substan- tial price savings. The closing of peti- tioner's store based on inability to meet competitive prices is only what has occurred all over the West Coast of the United States, and, inferentially, the entire nation. 19. E. Analysis of the Relevant Markets Showed that the Nationwide Dis- tributors Subsidized the Growth of Multi-chain Retailers 1. Preliminary: The distribu- tion and retailing of phonograph records and tapes a. The basic products The basic product is a 33 RPM 12 inch record album referred to as an LP (ER 1357). Prerecorded tapes are also includ- ed. They are boxed in cartridges and cassettes (ER 117). Record albums are duplicated from master recordings. Master recordings may be recorded anywhere in the world (Id.). Record albums and tapes are sealed in clear plastic wrappers which are to be opened only by the ultimate pur- chaser (Id.). There are only a few com- panies involved in duplicating of tapes. Tape sales constitute approximately 30% of the sale of albums (ER 1357). Long play- ing albums record several performances. Albums most frequently record the perform- ances of known artists or groups (Id.). The record companies, such as Capitol 20. Records, enter into exclusive performance contracts with such artists (ER. 1072, 1131). Distributors also distribute "singles" which consist of a single performance of short duration (ER 1448). The product may also be categorized in terms of the music performed, i.e., pop and classical (ER 419-424, 1448). b. Manner of distribution The major distributors are the nation- wide distributors or their wholly owned subsidiaries. Distributors sell direct to retailers or sub-distributors. Sub-dis- tributors are divided into “rack jobbers" or “one stops" (ER 690, 350). Rack job- bers charge the retailer for the services of maintaining his inventory and supplying him with records (ER 350). “One stops" sell to retailers. "One Stops” do not maintain a full catalogue or all the new releases of major distributors. Sub-dis- tributors charge more than distributors in the resale to the retailer (Id.). Nation- al distributors allocate substantial sums 21. for newspaper and radio advertising. In- store promotions, promotional appearances by artists and promotional paraphernalia are also used to excite interest in re- cords (ER 1378-1380, 1407-1409). The key to higher volume is radio play. The consequent charting of playtime called "chart action" is self-perpetuating. The record gathers momentum when more and more Stations play it. This generates further orders which generates further promotions which generate further radio time until the record reaches the top echelon of the chart or loses ground. The promotional funds used in obtaining radio time and customer recognition is of utmost import- ance. Extensive dollars are spent by the major distributors on releases which are deemed to be potential successes. At this point a critical cost factor is met. Newspapers have established two different rates: nationwide rates and local rates. Nationwide distributors are charged higher rates than retail stores. 22. Radio stations, as do newspapers, grant volume discounts and enter into special contracts with volume users (ER 1378). 2. San Francisco-Marin County: A microcosm Media newspapers of general circula- tion: San Francisco Examiner; San Fran- cisco Chronicle; Sunday Examiner and Chronicle (ER 362); San Rafael Independent Journal (ER 349). Rock/Pop radio stations in San Fran- cisco: KSAN, KNEW, KYA, KFRC, KDIA, KJAZ, KSFX, KEEN, KSOL, KIME, KRE, K101, KSJO, KLIU, KTIM (San Rafael, ER 1363, See also 2071-2072) Classical radio stations in San Fran- cisco: KKHI, KDFC. The only record stores which advertis- ed in the San Francisco newspapers were Tower Records, The Wherehouse, Discount Records, Odyssey, Record Factory, Marin Music and Gramaphone (a plaintiff ina similar lawsuit which was to be consol- idated with the instant case) (ER 1364). 23. The named retailer conspirators domin- ated advertising and placed the ethical retailers into a price squeeze subsidized by the national distributors. Petitioners presented a schedule compiled from Doug Robertson's files containing the notes of telephone calls from distributor represen- tatives or media representatives and in- dicating the price to be advertised (ER 1380, 1455-1463). This schedule showed, in part, the following: National Distributor Advertising of $6.98 List Through Tower Records 1974-1975 Adver- Cost to Radio tised Zoslaws Station, National Price (ER 1454) Year Distributor $3.66 $3.57 1974, KYA MCA 3.66 3.65 1975, KFAC Capitol 3.64 3.99 1975, KSAN ABC 3.64 3.66 1975, KRE Phonodisc 3.65 3.99 KYA WEA(ER 1474) The record disclosed the total 1976 advertising subsidies to Tower Records as follows, in part (ER 1476): MCA $ 29,740 Capitol 127,325 ABC 49,429 Phonodisc 35,429 WEA 138,942 24. Mr. Zoslaw swore that there were con- stant price advertisements below his cost (ER 349, 1385, 1866). Tower's bin prices (at the store) were shown to be $3.66 and $4.66 on $6.98 list (ER 1385). By May, 1976 Tower Records was advertising with 306 radio spots every weekend in Northern California based on subsidized advertising funds from the major distributors (ER 1383-1385). These spots advertised the records and tapes of those defendants as a group, called 8 inl or 4 in 1 advertising (Id.). The story of week after week distributor advertising of $6.98 list at $3.88 and $3.99 through Tower Records for the entire period 1976- 1977 is disclosed at ER 2041-2104. The Wherehouse opened in Corte Madera, California, in 1971. 1971 list price for LP's was $4.98. Marin Music costs doi’ ‘the $4.98 list were $2.50 - $2.58. The advertised sales price of The Wherehouse for $4.98 list was $2.69 (ER 1386). Its second anniversary sale was in 1972. It 25. advertised $5.98 list at $2.99. (Marin Music Costs were $3.05 to $3.11 (ER 1454); The Wherehouse advertised $5.98 list at $2.99 in 1974 (ER. 1386).). In 1976 Banana Records and The Record Factory opened stores in Marin County. The $6.98 lists were advertised at $3.66, records and $4.66 tapes (ER 359), $3.77 (ER 360), five for $17.90 (ER 361). In July 1976, The Wherehouse's Corte Madera store had window posters showing $3.66 pricing (ER 1874). Discount Records were granted exten- sive funds for advertising in the San Francisco market (ER 150-165, 186-187, 557, 1099, 2003). Between the period from 1965 to 1977 six broad category record stores were in ‘operation, and three closed their doors (ER 1872). During the same period only seven of 33 limited inventory stores sur- vived. In composite, only 10 stores out of 39 which were engaged in selling records at retail in Marin County during 26. this period survived past July, 1977 (ER 1873). PF. Combination and Conspiracy 1. The distributors directly financed the growth of the chain retailers on the West Coast. The nationwide major distributors, as a group, became banker and consignor to the chain retailer, affording it the right to make payments based on special delayed payment terms, the acceptance of non-in- terest bearing notes and the granting of special return allowances. Retailers were advised that they were to make payment to the distributor on the basis of 60 days (WEA: ER 209, 214; MCA: ER 470; CBS: ER 652; Phonodisc: ER 841, 844; ABC: ER 1954; Others: See ER 1393-1394; 1402- 1403; See ER 1480-1481 "past due" refers to over 60 days; ER 1393). At meetings of the Credit Managers Association every month or when called, each named defendant distributor freely circulated the violation of the 60 day terms by the favored retailers and the 27. acceptance of notes or other devices to extend time of payments (ER 1393-1394, 1402-1403). The objective of centralizing the displaying of and the purchase of the group's phonograph records and tapes by the retailer defendants is disclosed in the following study of Mr. Charles Zoslaw as to Tower Records showing the acceptance of non-interest bearing notes by the in- dividual distributors (ER 1902-1913): WEA (between 10/76 & 11/74) $2,263,982 MCA (7/73) $34,498 ABC (9/72-3/74) $412,084 CBS (5/73 = 11/74) $615,989 Other chain retailers received the privilege to pay on such a basis (ER 1366, 1367, 1368). These credit manager meetings were used to discuss what action was to be taken in view of financial developments with specific West Coast accounts (ER 1393-1394; 1402-1403, 1537-1543, 2119- 2130). Group action was taken to maintain the chain retailers in operation when individual judgments would have jeopar- dized the credit risks freely granted (Id.). The Wherehouse was kept in busi- ness by not pulling the string when it reported a $1,000,000 theft of inventory (Id.). The opening of new stores by the fa- vored retaileis was the result of cooper- ation and special credit terms among the distributors (ER 1404-1405). Special return allowances by the distributors were generously allowed (ER 186, 557, 1099, 1876-1883). Defendant distributors became allied with the west coast or nationwide chain retailers. The record shows the following: 1. The distributors requested and received false affidavits that the retail- ers functioned as subdistributors and did not own retail stores (Capitol: ER 1370; MCA: ER 1372-1373; RCA: 1374) or 29. distributed through central warehouses (CBS: ER 641-647; 1514-1515). 2. The distibutors granted under the table or phony discount arrangements at between 6% to 10% of the chain purchases (ABC: ER 1369-1370; CBS: ER 1371-1372; UDC~Phonodisc: ER 1374-1375 (3% or $.05), 1377; WEA: ER 1375-1376; Eric-Mainland: ER 1377-1378 ($.07)). 3. After the filing of the Zoslaw complaint, WEA and CBS purported to base pricing on central distribution but enter- ed into sub rosa arrangements with their shippers to allow false designation of Origin of the shipments to be used (ER 1521-1522). MCA failed to apply its volume purchase structure to Tower Records and granted it an undeserved classifica- tion (ER 500-501; ER 1428-1429). This was at the very time it was attempting to prevent Tower from taking a 2% unearned timely discount allowance (ER 1403-1404). 4. Advertising funds were used by the group to price squeeze the ethical retail- 30. er into closing their stores or entering into bankruptcy (See Section “D" supra). The distributors pretended to extend co- operative advertising programs to retail- ers on a proportionately equal basis (ER 204-207, WEA; 2023-2032, ABC; 859-866, Phonodisc; 470, MCA; 1098-1100, Capitol). In fact, as has been seen, the distri- butors called the retailer's advertising agency or the media, placed the advertise- ments, specified the advertised sale price and give the authorization number for the retailer to make the claim for distributor payment (ER 1380, 1455, 1463). Often the distributor would send the radio station a spot, tag the name of the chain retailer at the end of the advertsement (ER 1380), and authorize credits for the radio costs to the chain retailer (ER 1464-1475). Petitioners proved the existence of the practice of Doug Robertson's purchase of radio time for 4 in 1 or 8 in 1 advertis- ing whereby a distributors’ labels would be advertised along with other members of 31. the group (ER 1384). 5. Grossly disproportionate allocs- tion of advertising funds was shown: WEA 1975 sales report disclosed $105,002 in advertising credits to Tower Records or 50.7% of the total advertising credits shown of $207,291 (ER 186-189). The record showed a special WEA advertising authorization log with Integrity (ER 241). MCA never disclosed to petitioners an asserted ability of all retailers to ob- tain 3% of purchases in advertising credits (ER 620-621). In fact, The Where- house received $27,820 from MCA in the first 8 months of 1976 or 5.7% of pur- chases (ER 557); Tower Records received $26,508 in 1975 or 3.6% of purchases (ER 556). The MCA advertising log disclosed disproportionate subsidies (ER 575-590). ABC's advertising analysis of the last 8 months of 1976 disclosed Tower and The Wherehouse received $37,852 of coop adver- tising funds or 27.7% of the total (ER 2002). The small retailers received a 32. total of $16,078, or 11.9% (Id.). Capitol Records for the year ended June 30, 1975 granted Tower Records and The Wherehouse approximately $140,000 in advertising subsidies. Marin Music Centre received $99 (ER 1099). Phonodisc did not inform petitioners of their special authorizations and promo- tions (ER 1533-1534). It subsidized Tower Records with $35,429 in advertising funds in 1976 (ER 1476). Further, the advertising credits granted by the distributor were knowingly in excess of the actual cost of the chain retailers' advertisements (ER 1383-1384). This allowed the retailers to make a pro- fit on the advertising itself. sis to allow petitioners to meet competition. Petitioners made a determined and unsuccessful attempt to obtain price qual- ity with other retailers. They wrote to each of the defendants named in the com- Plaint below and attempted to obtain equal 33. pricing and treatment. UDC had granted Marin Music a mid-price and so had London Records, (ER 1449, 381-382). This effort commenced about 1973. Eric Mainland: Mr. Zoslaw attempted to deduct the believed price differential granted by Eric-Mainland to the chain retailers from his payments in 1973. He was then placed on "hold" (ER 1390). Elliott Blaine, Eric-Mainland's General Manager, admitted to Mr. Zoslaw that "in- equality in business goes on all the time” (ER 354). ABC: In August, 1973 petitioners asked Mr. Lou Verzola, ABC's Manager, whether ABC sold to "The Wherehouse” at the same price it sold to him. A luncheon meeting was held September 1973. Mr. Verzola then threatened to call Mr. Zoslaw's employer, the President of the Oakland Tribune, and tell him that Mr. zoslaw was running a music store on the side. ABC had erroneously sent an invoice to petitioners showing sub-distributor 34. pricing, but then retracted and corrected them. At the luncheon meeting Mr. Verzola admitted that petitioners' competitors were obtaining better pricing (ER 351), but ABC refused to grant any allowances on the prices (ER 1449). Mr. Hartstone's, President of The Wherehouse, letter to Mr. Knowland, dated shortly after the luncheon meeting, complaining of his treatment and critical of Mr. Zoslaw, was found in the files of ABC (ER 1945). Capitol: The Branch Manager of Capi- tol Records, Mr. Larry Binns, was contacted in November, 1973. He told Mr. zoslaw to send him invoices. He was spe- cifically told that Capitol would like invoices from one of the following compan- ies: RCA, WEA, MCA, Columbia (ER 352, 368). An invoice for an RCA program was sent by Mr. Zoslaw (Id.). No response was received and on February 13, 1974 Mr. zoslaw requested answers. Mr. Zoslaw followed with a request to Mr. Zimmermann, 35. Vice President of Marketing of Capitol. No response was received from Mr. Zimmer- mann (Id.). The deposition of Mr. Zimmermann disclosed that Capitol Records was authorized to accept a retailer's invoices from UDC or London Records to justify lower prices (ER 1077) but no one at Capitol had ever informed Mr. Zoslaw of this fact (ER 1386). The first complaint was filed in January, 1975. Settlement was made in June, 1975 with Capitol. Immediately after the filing of the dis- missal, Capitol would no longer sell any product to the Marin Music Centre (ER 352- 353). It failed to disclose its intention to refuse to deal during the settlement negotiations (ER 1075, 453-454). RCA: In August, 1973, Mr. Zoslaw requested a meeting with Charles Rice, the Branch Manager. Mr. Zoslaw informed RCA that London and UDC (ER 354, 1387-1388) were selling him phonograph records and tapes at lower prices than RCA (Id.). The September, 1973, letter stated (ER 382): 36. "... in order to combat our sales losses and image of grossly over- pricing, I have lowered our sell- ing price to what apparently is the real retail price in our mar- ket. However, to sell at the competitive price and not to be purchasing at the equivalent price structure is a paradox ... we favor London Classical Catalog since our net price on the $5.98 list is $2.72 ... Your $6.98 list nets to us at $3.45 compared to a net of $3.23 from UDC ...." On December 22, 1973, Mr. Zoslaw urged RCA to advise him of its decision. RCA stated its policy as a two category system, deal- er and sub-distributor, and a willingness to sell to a customer at a lower price when it is satisfied that a major company is actually selling at a lower price and that it would meet, but not beat, competi- tion (ER 383). Mr. Zoslaw pointed out his ability to qualify for the lower price by telex 1/16/74 (ER 384). No allowance was ever received (ER 353). CBS: Mr. Zoslaw wrote a letter to CBS in June, 1973. His first communication was with Mr. Paley, the President (ER 1389). CBS' correspondence disclosed 37. inconsistent positions. Mr. Zoslaw was told by Donald E. Biederman that its price was cost-justified, that specifically The Wherehouse, a chain of more than 40 stores was serviced through one central warehouse and a salesman called at one location ra- ther than 40, and it billed one account rather than 40 (ER 353). Mr. Zoslaw replied by stating that Mr. Biederman's letter was in direct contrast to the statements of his West Coast Branch Manager, Mr. Chuck Inman and Mr. Del Costello, its West Coast Regional Manager (ER 353). They stated that CBS would service and ship direct to the individual retail stores of Tower and The Wherehouse but were billing them at the same prices charged Marin Music (Id.). In truth, of course, these chains were receiving direct delivery by store and were receiving sub- distributor prices (ER 1389). Columbia is one of the companies that gave "“under-the- table" credits via a billing transaction, Code 48, which allowed 6% and 10% of 38. total chain purchases as credits (ER 374- 375). WEA: In February, 1974, Mr. Zoslaw wrote to Russ Bach, Regional Branch Man- ager, seeking clarification of its pricing policies. He requested information as to whether or not other retail dealers in the Bay Area were charged a price lower than the Zoslaws, and, if so, what the prices were (ER 355). On February 26, 1974, Mr. Bach wrote a letter claiming a policy of only allowing differentials to accounts which fulfilled the sub-distributor func- tion (ER 385). He enumerated six conditions (ER 385-386): "l. Each sub- distributor will have a distinct facility for redistribution. 2. Shipments made by WEA will be made to the warehouse. Re- turns must be made from the warehouse. 3. Representatives will call only at the subdistributor centers. 4. All orders will be in a factory box lot quantity. 5. Proper representation of WEA product must be maintained. 6. Account must 39. redistribute the majority of record labels to qualify as a sub-distributor. The "{cledistribution of WEA products alone is not sufficient.” This reply was shown to be absolutely false (ER 355-356). Mr. Hartstone had written a letter on January 2, 1974 to RCA at approximately the same time as Mr. Bach's letter to petitioner (ER 1989). It was found in the files of ABC (ER 1944- 1945), stating in pertinent part: "... we receive direct all store freight prepaid freight services from all of your competitors ex- cept Columbia and WEA, and at the same Or lower prices than charged by you. Even in the case of WEA and Columbia there are ‘offsetting’ arrangements from time to time, including some di- rect store prepaid shipments and/or special handling of the freight involved." Mr. Zoslaw documented by means of the special coding between WEA and The Where- house the direct deliveries to its Corte Madera store (ER 289~290, 1389, 1479). WEA had granted Integrity 5% and 10% of sales as special discounts. Integrity 40. used blanket bills of lading (ER 356, 387, 279, 141-142). As to Tower Records, Tower never had a central warehouse, yet received the equivalent of the sub-distri- butor price (ER 1520-1522). At the time of Mr. Bach's letter, WEA was shipping direct to all Tower stores and it was giving Tower “under the table" credits of 7% (5% plus 2%) (ER 193-200). In February 1974, Mr. Russell Solomon demanded and re- ceived the subdistributor price (ER 193- 194). Mr. Solomon knew he did not have a central warehouse for redistribution; he knew he did not have a fulfillment ware- house at any address (ER 93, 195-199, 1377, 1521, 1947, 2138-2160). That the "A" price was given in 1975 after receipt of the letter is further evidence of MTS' commitment to a scheme. A subterfuge scheme was worked out between Tower and WEA for shipments to Tower Records. WEA allowed Tower to designate its warehouse as a pickup on a will-call basis for or- ders already picked and packed for deli- 4l. - very to each store. Direct shipment was made to all of the Southern California stores of Tower Records. The means used was a preprinted label provided the truck lines by Tower which falsely stated that shipment was from Sacramento to the num- bered store covertly encoded into the order number on the carton by its store number (ER 1521-1522). As for Tower's Northern California stores, deliveries were declared to have been made to Tower's Sacramento facility, but WEA prepacked and encoded each shipment for individual store delivery from Sacramento (Id.). Mr. Solomon does speak the truth when he stated that MTS “buys its records and tapes at sub-distributor prices or less from all of its vendors.” (ER 1451-1452). Phonodisc: UDC originally allowed the mid-price to petitioners. The retailer defendants herein received the rack price (ER 846-853). Special rebates were also granted (ER 1377). In the summer of 1975, after Phonodisc ceased to distribute Unit- 42. ed Artists records, petitioners were told that its prices would be raised (ER 1285- 1286). The chain stores continued to receive the rack price (ER 1377, 1451-52, 1450, 846-653). MCA: Mr. Zoslaw had registered com- plaints to MCA (ER 1387). In the latter part of 1974 the Regional Manager, Mr. Stan Layton, had visited Marin Music Cen- ter. Mr. Layton was questioned regarding the price differential that was in effect between retailers. He told Mr. Zoslaw it was wrong for MCA to sell the Zoslaws on a higher price than its competitors, but, he exclaimed (ER 354): “But what can I do about it!" WEA and other nationwide distributors made it clear to petitioners that they ought to close their store. Petitioners presented the court with an Affidavit of the Advertising Manager of the Strawberry Town and Country Village. Mrs. Zoslaw had invited the WEA Manager, Mr. Perasso, to have lunch with Mr. Rudolph, the adver- 43. tising Manager. Discussion was to concern shopping center mailers. She had been promised an allowance for the mailer by WEA. Mr. Perasso arrived and then turned to her in the presence of Mr. Rudolph and Stated: "I don't have to do business with you -- you're just a pest." Mr. Rudolph declared that he had never seen a repre- sentative of a reputable company come to work in the condition le was in and exhi- bit such a hostile attitude toward his customer (ER 1544-1545). CBS' Branch Manager told Mrs. Zoslaw if it was up to him, he would cut her off (ER 1407-1408). MCA's Branch Manager, Jim Fisher in- formed Mrs. Zoslaw that he simply could not service the account, that he had nine Tower stores to cover, and 1l or 12 ac- counts, that he should be in the Marin Music Centre every four weeks, but could not make it (Id.). WEA and Eric-Mainland placed petition- ers on hold over any dispute concerning 44. payment (ER 1390, 253) and Capitol dis- dained to do any business with the Zoslaws (supra). G. The Distributor-Defendants' Ex- clusion of Ethical Retailers Spread to the Entire West Coast and Presumably the Nation. The files of WEA and MCA expose the exclusion of the independents through the pricing and advertising practice disclosed herein. The WEA files contained a report by Russ Bach, Los Angeles Regional Manag- er, to Joel Freidman, President of WEA dated August 9, 1974. Mr. Bach reported on conditions at the San Francisco Branch as follows (ER 1382): "Rick Galliani reports that most of the small stores in Sacramento have been virtually driven out of business by the Tower Records. Rick is running to a lot of re- porting stores to make sure that the Warner Bros. product is get- ting airplay reports." MCA's files contain similar state- ments. The Jim Fisher Sales Manager Weekly Report, San Francisco Market, 3/21/75, stated (ER 1382-83): "Dealers in the San Jose area are 45. extremely upset and worried about the June opening of the new Tower Records store in their area. The smaller dealers in San Jose are currently just getting by and will most likely be completely out of business following the Tower open- ing. At this time the two Wherehouse stores and the Record Factory in San Jose are getting most of the business." The elimination of the ethical retail- ers was shown to have existed on a nation- wide basis. The record disclosed that Mr. Joel Freidman, President of WEA, gave the following speech at an assocation meeting of record merchandisers and distributors Called NARM in April 1974 (ER 1395, 1485- 1493): "I don't think we are doing our job too well. Witness the growing number of bankruptcies throughout the nation. Witness the number of retail outlets that are closing their stores, discarding records, phonograph departments, largely as a consequence of their inability to make a reasonable profit. eae Rack jobbers, as well as dealers, have the same responsibility not to give their profits away. I take public issue with Russ Solo- mon and others like him who adopt a policy that says they can only make money by selling for less. 46. They can only make money, and continue to make money as long as we, the manufacturers, the distri- butors, whether independent or otherwise, continue to make it possible for them to do so -- by the extension of unlimited credit, by the extension of unlimited advertising appropriations, by continued over-zealous selling practices, by offering unnecessary discount programs that merely result in returns." ARGUMENT Reasons for Granting the Writ I. The Decision Below is in Total Con- flict With the Decisions of This Court Which Prevent Competitive Suppliers From Combining to Establish a Fixed and Rigid Market. A. This Court's Holdings Preventing Group Action by Those Dominating an Industry Have Been Ignored. l. Paramount Pictures, Klors, preclude agreements to dis- criminate. This is not a case of each distributor supporting a volume discount price sheet based upon separate transactions and open- ly offered to all. This is a case of alliance and intrigue. The price sheets shown the court below were overtly based on functional classifications. Dealers were charged a distinct price. Those who 47. performed distribution services to service retailers were to obtain lower prices. What is involved here is precisely the kind of conduct involved in United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948); Schine Chain Theatres, Inc. v. ed States v. Griffith, 334 U.S. 100 (1948); Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939); Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946); Klor's Inc. v., Broadway-Hale Stores, Inc., 359 U.S. 207 (1959). Indiv- idual transactions, justified by reason- ableness in their context, are not involved. Continual discriminatory chain wide deals in which the dominant suppliers in the industry favor and protect. the chain, as a group, to the known exclusion of the independents have been proven. When the trial court and the appellate court became aware that the major distri- butor defendants controlled over 80% of the nations' phonograph records and tapes 48. had gone to the extent of financing the favored chain retailers, as a group, and had entered into the realm of using the retailers as advertising agents for their product, chosing group advertising rather than individual advertising, the courts were unable to view this case as indivi- dual reaction to large mass purchases. The defendant retailers, as respondent distributors must admit, are their finan- cial allies. Distributor financing virtually created the chain retailers through their discriminatory credit term policies, and through their protective refusal to grant equivalent advertising and financing terms to others. Major retailers, The Wherehouse and Tower Re- cords, were shown to have worked together through Capitol to prevent retail price competition in the Los Angeles Area in 1974 on Capitol labels (ER 1073-1074, 1086). Even assuming there was a showing of limited competition, no decision of this Court has ever required a plaintiff 49. in an antitrust case to prove that an agreement among competitors has ended all conceivable competition; only that an independent class of dealers was being excluded by the agreement. The opinion below unduly examined the relevant market as involving advertised retail price com~ petition among the chain dealers. Indeed, the very showing of such competition as only among the favored in the very geo- graphical area which petitioners operated and in which Capitol expressly disavowed their right to compete raises an exclu- sionary inference. Such one-sided analy- sis, it is respectfully submitted, has no place in an action brought by an ethical retailer who has shown an inability to maintain a presence in a market where his buying prices are held up by group action, higher than those charged his unethical retailer competitors. If the advertised selling prices were the result of the chain retailers individual action through the borrowing of funds from an independent 50. lending institution paying the going rate of interest, there might be an entirely different analysis. But it is these dis- tributors' monies channeled into hands of the mass retailer that paid for those advertisements. Retailers became af- filiates of the distributors and they were to be protected. It is clear that Para- mount Pictures, supra, allows this action to proceed to trial under alternative theories of liability: (1) Conspiracy to monopolize the distribution of phonograph records and tapes in the United States through the exclusion of small independent distributors and retailers; (2) conspiracy to monopolize the distribution and resale of phonograph records and tapes in the geographical areas of (i) West Coast of the United States; (ii) California; (iii) San Francisco Bay Area; and (iv) San Francisco-Marin County Area; (3) vertical conspiracy between the major distributor defendants and MTS and TEI and Doug Robertson Advertising Agency, (4) injury 5l. arising from the vertical agreements which discriminate against the independent classes of trade and which inevitably spell their exclusion in the affected geographical areas, or any of them, and (5) attempted monopolization of the retailing of records and tapes by MTS. The court's discussion of proof of intent to monopolize through predatory pricing has no pertinency to the facts at hand. It is well established that parties are presumed to intend the ordinary conse- quences of their acts (Cal. Evid. Code § 665). Persistent selling of records at $3.69, $3.88 and $3.99 when the cost to the competitor is $3.65, advertised on 307 spots every weekend, is proof of intent. Indeed, Mr. Solomon expressed his intent to utilize the prices to "zing the shit out of competition." (ER 1385-86.) This statement printed in a well read trade magazine gave the distributors knowledge of Mr. Solomon's intended purpose. Con- tinual subsidizing of this operation was 52. with knowledge of his intent. The major distributors involved here have decreed that the buying public can only rationally purchase: (a) at stores which heavily stock the product that they distribute; (b) with knowledge of current releases received only through the chosen retailers which are supplied with their advertising funds; (c) at prices the group choses to sell. The concept of predatory pricing based upon marginal costs might have application to a manufacturer in control of his own costs, but certainly can have no applica- tion in this case where the major costs are in products being resold. That price, in turn, is the object of an agreement to sell at greatly advantageous prices and terms. To allow a retailer who enters into such special allowance arrangements to escape liability on the grounds that he is selling above his costs is certainly not persuasive. It favors and protects expressly that which Congress outlaws. At 53. the very least, petitioners have uncovered a conspiracy of large proportions to vio- late the Robinson-Patman Act. That conspiracy is actionable as a Section 1 or Section 2 Sherman Act violation. Such a conspiracy on the scale shown here is violative of Section 2 of the Sherman Act. It is sufficient to support a spe- cific evidentiary showing of intent. See United States v. New York Great Atlantic and Pacific Tea Co., 173 F.2d 79 (7th Cir. 1949), affirming, 67 F. Supp. 626. Peti- tioners have been told that they must overcome the inference of individual ac- tion because of the business desire for increased sales to the major chain stores. But there must first be an over- all view of the evidence in terms of protection of antitrust rights and obli- gation to obey the law. The issues of intent, commitment, and participation in light of the evidence of purpose and ef- fect here cannot be decided in summary. judgment. Competitive units may not agree 54. to achieve volume sales by the exclusion of a class of independents. Clearly, the significance of meetings between the cred- it manager of these nationwide distribu- tors is to be decided only by giving all favorable inferences to petitioners. The meetings involve exchange of information and the discussion of terms of credit which have been granted to favored retail- ers. This is unlike Cement Manufacturers Protective Association v. United States, 268 U.S. 588 (1925). These meetings con- cern specific discussion of the specific terms used to finance the chain retailers. They involve disclosure of the intended discriminatory terms (ER 1402- 1405, 1511). The specific function of the Credit Manager Meetings is to support heavy fi- nancial assistance to the chain retailer. The matter of definition is important. It is said that there is no exchange of pricing information. Yet the Ninth Circuit has recently held that the 55. extension of credit is an attribute of price. D&S Redi Mix v. Sierra Redi Mix and Contracting, 1982-83 Trade Cases, 4 65,017 (9th Cir. 1982). Further it ap- pears erroneous to heed Catalano v. Target Sales, Inc., 446 U.S. 643 (1980) to the effect that an agreement to fix credit terms is an illegal price fix but to ig- nore circumstantial evidence that such is precisely what is going on. The court's discussion as to vertical conspiracy is out of context with the facts. The evidence of the favored re- tailers' low pricing both at promotional prices and at shelf prices (ER 1385-1386, 2041, 2045-2104) is conclusive on the factual showing which meets the statement of law calling for such effect. A term of the unlawful agreement here is that the chain retailers will advertise at the stated prices. Assuming that the pricing is below cost of the small retailers, because of the group fixed prices the record cannot be analyzed in terms of the zoslaws alone. The small retailers ob- tained the same price category as did the zoslaws. The evidence showed the exclu- sion of petitioners under circumstances applicable to an entire class. Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (1979) demonstrates the distinc- tion involved in petitioners showing from that of an ordinary Robinson-Patman Act case. This record does not show isolated transactions but persistent continual discrimination. The meeting competition defense does not apply to a classification system or widespread discriminatory prac- tice. Corn Products Refining Co. v. FTC, 324 U.S. 726 (1945); FTC v. A.E. Staley Mfg. Co., 324 U.S. 746 (1945); FTC v. Cement Institute, 333 J.S. 683 (1948); FTC v. National Lead Co., 352 U.S. 419 (1957). Further, the respondents did precisely what they were not to do under Great Atlantic & Pacific Tea Co., supra; United States v. U.S. Gypsum Co., 438 U.S. 422 (1978); industry members of an oligo- polistic industry may not contact each 57. other to obtain pricing information. B. The Determination That a Refusal to Deal Based Upon Reaction to an Antitrust Complaint is Lawful is in Conflict With the Decision of Another Panel of the Ninth Cir- cuit, and the Third Circuit. Ostrofe v. H.S. Crocker, 670 F.2d 1378 (9th Cir. 1982); Bergen Drug Co. v. Parke, Davis and Co., 307 F.2d 725 (3rd Cir. 1962) are in conflict with the instant decision. See, also, Program Engineering, Inc. v. Triangle Publications, 634 F.2d 1188 (9th Cir. 1980). The public policy factors outlined by Judge Browning in Ostrofe, supra, are fully applicable to Capitol Records. Capitol enters into exclusive performance contracts, obtains the protection of the copyright laws and subsidizes the advertising of its exclu- sive performances. Certainly it is no great burden for the law to decree that those who utilize the protections which society grants cannot refuse to deal when its marketing decisions are deemed to be violations of the antitrust laws. It has always been thought that the enforcement of antitrust laws is of overriding impor- tance. The common law policy of estoppel has been held inapplicable for the speci- fic purpose of allowing adjudication of antitrust issues for the general protec- tion. This history of curtailment of common law doctrines to make certain that restraints of trade are litigated has not been applied here. Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173 (1942). Morton Salt Co. v. G.S. Suppiger, 314 U.S. 488 (1942); Lear, Inc. v. Adkins, 395 U.S. 653 (1969). Further, Capitol has been shown to be involved in a conspiracy to establish a fixed and rigid system of distribution in the retailing of phono- graph records and tapes. The learned court's use of the small quantities of purchase by the Zoslaws is erroneous. A court can hardly point to a victim's smaller purchases of products when it has seen a deliberate course of conduct by Capitol and its co-conspirators which , prevents volume purchasing. This Court is faced with a lower court giving sanction to the successful means used by Capitol in driving petitioners out of business. By reason of congressional intent, as ex- pressed in the antitrust statutes, such a viewpoint cannot prevail. On its face, the decision ignores the fact that the refusal to deal supports a Robinson-Patman violation which the deci- sion allows to go forward. A refusal to accord proportionately equal treatment to an established customer may be a violation of the provisions of Sections 2(d), 2(e) of the Clayton Act. Corn Products Refining Co. v. F.T.C., 324 U.S. 726, 743-744 (1945); American Can Co, v. Bruce's Juices, Inc., 187 F.2d 919 (5th Cir. 1951). c. Taterstate Circuit Has Been Erro- neous Y onstrued to Allow Determinations of Fact by Appel- late Courts In the Interstate Circuit case, supra, this Court determined that the “combina- tion or conspiracy" provisions of the Sherman Act prevent persons from accepting an invitation to participate in a plan, the necessary consequences of which, if carried out, is in restraint of interstate commerce. In 1962 this court held in Poller v. Columbia Broadcasting System, 368 U.S. 464 (1962) that summary judgment was inappropriate in Sherman Act conspir- acy cases. The thrust of the doctrine of conscious parallelism has now been reversed, It is respectfully submitted that the learned court of appeals has erroneously allowed trial courts to weigh the evidence, to determine the issue of the credibility of the witnesses and to allow, not an overall view of the plan, and the necessary consequences of the plan, viewed as a whole. Further, it is held that victims of alleged conspiratorial conduct must establish a plausible motive for the plan. The decision of this Court, is cited for support; First National Bank of Arizona v. Cities Service Co., 391 U.S. 61. 253 (1968). Cities Service, to the con- trary, establishes that when alleged conspirators move for summary judgment in a conspiracy case, they must conclusively establish that the facts cannot conceiv- ably, under any theory, support the allegations of conspiracy. In reality, Rule 56 is now being utilized to determine not whether there are issues of fact, but what the facts are. It is respectfully submitted that the United States Constitution prevents the courts from weighing the substantial evi- dence. F. R. Civ. P. 56 does not, and cannot, allow a departure from the Consti- tutional prohibitions against court fact weighing in jury cases. U.S. CONST. art. I, III, amend. VII. Beacon Theatres v. Westover, 359 U.S. 500 (1959), In Re U.S. Pinancial Securities Litigation, 609 F.2d 411 (9th Cir. 1979). Petitioners demanded a trial by jury. As seen above, there was a showing of uniformity in list prices, uniformity in the granting of sub- distributor prices tc the named retailers, 62. uniformity in the subsidization of retailer-defendants, and uniformity in the disallowance of meeting competition on behalf of the small retailer. That the effect of the advertised prices would result in the elimination of the small retailers was undisputably shown to have been known to each of the distributor- defendants. It was the price which each specified to be advertised that was carried over the media. The elimination of a class of dealers is a restraint of trade. This case should proceed to a jury trial on the conspiracy issue. CONCLUSION For the foregoing reasons, the peti- tion for a writ of certiorari should be granted. Dated February 18, 1983, San Francisco, California. Respectfully submitted - i xwe eit Attorney for Petitioners 63. UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT CHARLES ZOSLAW AND JANE ZOSLAW, husband and wife, dba MARIN MUSIC CENTRE, Plaintiff-Appellants, vs. MCA DISTRIBUTING CORPOR- ATION, DOUG ROBERTSON ADVERTISING, INC., MTS, INC., TOWER ENTERPRISES, INC., WARNER/ELEKTRA/AT- LANTIC CORPORATION, ABC RECORDS, INC., POLYGRAM DISTRIBUTION, INC., CAP- ITOL RECORDS, INC. and CAPITOL INDUSTRIES-EMI, Defendants~-Appellees. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Nos. 80-4330 80-4429 OPINION Appeal from the United States District Court for the Northern District of California Honorable Robert F. Peckham, Chief Judge, Presiding Argued and Submitted November 9, 1981 Before: BAZELON,* SKOPIL and POOLE, Cir- cuit Judges POOLE, Circuit Judge: *The Honorable David L. Bazelon, Senior Judge for the United States Court of Appeals for the District of Columbia Circuit, sitting by designation. APPENDIX A-1 This is an appeal by Charles and Jane zoslaw, the former owners of a retail record store, from a series of orders entered by the district court granting summary judgment in favor of appellee record distributors: Warner/Elektra/ At- lantic Corporation (WEA); MCA Distri- buting Corporation (MCA), Polygram Distri- bution Inc, (Polygram)2/, ABC Records, Inc. (ABC) and Capitol Records, Inc. and its parent corporation, Capitol Indus- tries-EMI (jointly, Capitol), appellee retailer, MTS, Inc. (mrs) 2/ and appellee Doug Robertson Advertising, Inc. (Doug Robertson). In this appeal the Zoslaws claim that the district ccurt erred in finding that they had failed to satisfy the “in commerce" jurisdictional require- ment of the Robinson-Patman Price Descri- mination Act, and in concluding that they had failed to raise an issue of material fact concerning their claims under sec- tions 1 and 2 of the Sherman Antitrust Act. We reverse the district court's APPENDIX A-2 ruling as to the Robinson-Patman claims except as to Doug Robertson and affirm as to the Sherman Act claims. I. STATEMENT OF CASE Appellants operated Marin Music Centre, a Mill Valley retail store which sold phonograph records and equipment, prerecorded tapes and related merchan- dise. They experienced startup losses in 1965 an 1966 and then claimed to have operated at a profit for the following two years. After that period, the store en- countered financial difficulties from which it never recovered, suffering losses from at least 1971 until it went out of business in 1977. The district court found that during the time the Zoslaws were in business the Marin County record market "changed dra- matically.” 533 F. Supp. 540, 546 (N.D. Cal. 1980). Several other retail record and tape stores opened in the area and the number of department stores, grocery stores and drug stores with record depart- APPENDIX A-3 ments also increased. Charles Zoslaw readily admitted that the store suffered losses because other stores sold records at lower prices. In January, 1975, appellants filed this action. They subsequently filed three amended complaints adding various defendants and factual contentions. As thus amended the complaint named all of the appellee record distributors: WEA, MCA, Polygram, Capitol and ABC. Several other named distributors, who subsequently settled with appellants, were CBS, Inc., RCA, Inc., Eric-Mainland Distributing Company, United Artists Music and Record Group, Inc. (UAMARGI) and Transamerica Company, the parent corporation of Eric- Mainland and UAMARGI. Appellants alleged that the distributor defendants violated section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), by selling records and tapes to retail chain stores at lower prices than those offered to single stores, such as Marin Music Centre, and APPENDIX A-4 that the distributors violated sections 2(d) and 2(e) of the Act, 15 U.S.C. §§ 13(d) and 13(e), by discriminating in favor of retail chain stores in granting promotional allowances and furnishing special services. They also alleged that the distributor defendants conspired among themselves and with the retailer defen- dants to favor the retail chain stores at the expense of individual stores in viola- tion of section 12 of the Sherman Act, 15 U.S.C. § l. Three retailers were named defen- dants: MTS, Integrity Entertainment Cor- poration (IEC), and CBS, Inc., doing busi- ness as Discount Records. The latter two subsequently settled. Also named defen- dant was Doug Robertson Advertising Agen- cy, with which Tower did business. Appel- lants alleged that the retailers violated sections 2(d), 2(e), and 2(f£), by knowing- ly inducing and receiving the alleged discriminations in price and other terms, allowances and services. The retailer APPENDIX A-5 defendants were also charged with violat- ing section 1 of the Sherman Act by con- spiring with the distributors to receive favorable treatment. Finally, appellants accused MTS with monopolizing or attempt- ing to monopolize the retail record market in violation of section 2 of the Sherman Act. In the two years after appellants instituted the action, four distributor defendants moved for partial summary judg- ment on the ground that the court lacked jurisdiction under Robinson-Patman because the allegedly discriminatory sales were not “in commerce" as required by that Act. The district court granted each of these motions: in fovor of WEA on June 21, 1976, see Zoslaw v. Columbia Broad- casting System, 1977-1 Trade Reg. Rep. (CCH) 4 61,756; in favor of Eric-Mainland on July 20, 1976; in favor of CBS on April 18, 1977; and in favor of Polygram (Limited to the period 1974 and 1976) on August 17, 1977.24 APPENDIX A-6 In October, 1977, appellants filed a motion for preliminary injunction to pre- vent the defendant distributors from fa- voring chain store retailers and to pre- vent the defendant retailers from accept- ing such preferences. The motion also sought to prohibit Capitol Records from refusing to sell phonograph records, tapes and cassettes to Marin Music Centre. This claim arose when Capitol, shortly after settling with the appellants, ceased sel- ling merchandise to them. Appellants then amended their complaint to reinstate Capitol as a defendant based on its re- fusal to deal. The district court denied the motion, finding that appellants had failed to demonstrate a likelihood of success on the merits or a showing of irreparable injury. In September, 1978, the district court granted Capitol's motion for summary judg- ment on the refusal to deal claim, finding that Capitol had legitimate business rea- sons for its action.+/ Three of the four APPENDIX A-7 remaining distributor defendants, WEA, MCA, and Polygram, as well as MTS and Doug Robertson, then moved for summary judgment on all of the remaining claims against them. In January, 1980, the court granted all of the defendants' pending motions. In its opinion, the district court, held, first, that appellants failed to produce competent evidence to support their fac- tual allegation. The court noted that the appellants’ opposition papers “regularly and systematically" violated Rule 56 of the Federal Rules of Civil Procedure as well as Rule 220-8 of the Local Rules of the Northern District of California. The court observed that most of the documents submitted by appellants with their opposi- tion lacked authentication and that they often failed to support the factual in- ference for which they had been provided. The court then ruled that even if appellants had properly supported their factual allegation, summary judgment was still appropriate since they had failed to APPENDIX A-8 advance an adequate legal theory of the case. The remaining Robinson-Patman Claims were dismissed against two of the distributor defendants, MCA and Polygram, on the finding that appellants had failed to satisfy the “in commerce" requirement of the Act. The court also held that it lacked jurisdiction over appellants' Robinson-Patman claims against MTS and Doug Robertson because the Supreme Court's decision in Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (1979), precluded jurisdiction under section 2(f) and that there was no private right of action against buyers under sections 2(d) and 2(e). As for the Sherman Act, section 1 Claims, the court found no basis in the material submitted by appellants to sup- port any of the claims of conspiracies to restrain trade alleged by appellants, and found no reasonable factual inference in support of appellants' monopolization and APPENDIX A-9 attempted monopolization claims against MTS. In May, 1980, the last remaining de- fendant, ABC, filed its motion for summary judgment of both the Robinson-Patman and Sherman Act claims. The district court granted this motion and entered judgment in favor of all of the defendants in June, 1980,2/ Appellants challenge the district court's findings that the allegedly dis- criminatory sales were not "in commerce” as required by Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200 (1974), and therefore not within section 2(a) of the Robinson-Patman Act. Alternatively, they contend that even if section 2(a) is in- applicable, the court still had jurisdic- tion over the distributor defendants under sections 2(d) and 2(e), and over MTS and Doug Robertson under section 2(f). As for the Sherman Act, appellants claim that the district court erred in finding no genuine issue of material fact concerning the APPENDIX A-10 existence of a conspiracy among distribu- tors and retailers to favor certain chain retailers. They also contend that the district court erred in finding no eviden- tiary support for their claim that MTS attempted to monopolize trade. Finally, appellants contend that the district court ignored disputed factual issues when it concluded on motion for summary judgment that Capitol's refusal to deal was a uni- lateral act made for legitimate business reasons. II. ROBINSON-PATMAN JURISDICTION A. The Distributor Appellees Although the district court issued several opinions in granting summary judg- ment on the Robinson-Patman claims involv- ing the distributor appellees, the rele- vant facts regarding the sales by each appellee can be briefly summarized, Two of the distributor appellees, WEA and Polygram are wholly owned subsidiaries of corporations engaged in record and tape production.2/ During the relevant period APPENDIX A-11l the other two appellees, ABC and MCA, manufactured and distributed records and tapes nationwide.—/ Each distributor maintained a regional warehouse in Cali- fornia which supplied records and tapes for stores in the San Francisco Bay Area, including MTS and Marin Music Centre. Depending on the distributor involved, each of the warehouses received a varying percentage of records and tapes which were manufactured out of state. For example, WEA's California warehouse received ap- proximately 10% of its records and tapes from out of state, while Polygram's ware- house received approximately 15% of its goods from out of state.’ In certain instances, each distibutor made "drop shipments” to Bay Area retail record stores. A drop shipment occurred when the distributor's California ware- house was unable to fill an order from a retail store. In that case the distri- butor would order the out of state manu- facturing plant to send a shipment of APPENDIX A-12 records or tapes directly to the local retailer. Drop shipments occurred infre- quently. For example, MCA calculated its cumulative percentage of dollar sales to the San Francisco Bay Area attributable to drop shipments at 0.44%. To prove justification under section 2(a) of the Robinson-Patman Act, a plain- tiff must demonstrate: (1) that the de- fendant is “engaged in interstate com- merce;" (2) that the price discrimination occurred "in the course of such com- merce;" and (3) that "either or any of the purchases involved in such discrimina- tion are in commerce." William Ingliss & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1043 (9th Cir. 1981) .2/ In Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 (1974), the Supreme Court concluded that the jurisdictional "in commerce" language in section 2(a) is not as broad as the “affecting commerce" lan- guage in the Sherman Antitrust Act. In APPENDIX A-13 particular, the court interpreted the "purchases . .. in commerce” requirement as limiting the section's application to cases “where ‘at least one of the two transactions which, when compared generate a discrimination . . . cross[es] a state line.'" 419 U.S. at 200 (quoting Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4, 9 (5th Cir.), cert. denied, 396 U.S. 901 (1969)). See Ingliss, 668 F.2d at 1043. The district court, in applying Gulf Oil, concluded that the sales by the dis- tributor appellees were not "in commerce" and that the drop sales were de minimis and therefore would not support jurisdic- tion under section 2(a). Appellants chal- lenge both of these rulings. Re Were the Record and Tape Sales to Bay Area Stores "In Commerce?" In examining the interstate sales, the district court recognized that if goods from out of state are still within the "practical, economic continuity” of the APPENDIX A-14 interstate transaction at the time of the intrastate sale, the latter sale is con- sidered “in commerce" for purposes of the Robinson=-Patman Act. See Hampton v. Graff Vending Co., 516 F.2d 100, 102 (5th Cir. 1975) (quoting Gulf Oil Corp. v. Copp Paving Co., 419 U.S. at 195). In deter- mining whether the sales of records here were therefore in the flow of commerce the court relied on the traditional intent test derived from the Fair Labor Standards Act, and subsequently applied in Robinson- Patman cases .12/ See Walling v. Jackson- ville Paper Co., 317 U.S. 564, 570 (1942); Walker Oil Co. v. Hudson Oil Co., 414 F.2d 588, 590 (5th Cir.), cert. denied, 396 U.S. 1042 (1969); Food Bas- ket, Inc. v. Albertson's Inc., 383 F.2d 785 (10th Cir. 1967); 4 J. Von Kalinowski, Antitrust Laws and Trade Regulation § 26.02[3] (1969 & Supp. 1981). Under this approach, the flow of com- merce ends when goods reach their "“intend- ed" destination. Von Kalinowski, supra. APPENDIX A-15 In gauging the point of destination courts consider whether goods coming from out of state respond to a particular customer's order or anticipated needs. Walling, 317 U.S. at 567-70. If so, the sales meet the “in commerce" requirement even though the goods may be stored in a warehouse before actual sale to the buyer .22/ Walling, 317 U.S. at 570; Hampton, 516 F.2d at 102- 03. However, goods leave the stream of commerce when they are stored in a ware- house or storage facility for general inventory purposes, that is, with no par- ticular customer's needs in mind. Hampton, 516 F.2d at 103; Cliff Food Stores, Inc. v. Kroger, Inc., 417 F.2d 203, (5th Cir. 1969). In Walker Oil, 414 F.2d at 588, for example, the plaintiff service station owner charged the defendant, Judson Oil, with selling gasoline at a different price at its Florida station than at its Alabama station. Hudson purchased gasoline for the two stations from a supplier in APPENDIX A-16 Mobile, Alabama. The Fifth Circuit con- cluded that since Hudson's purchases from the Alabama supplier for its Florida sta- tion were not based on specific needs of retail customers of the service station, the flow of commerce ended when the gaso- line was delivered to the station. The district court here determined from affidavits submitted by appellees that the latter stocked their California warehouses for general inventory purposes depending on a record's anticipated per- formance, and did not order records for particular customers. That conclusion is supported by the record, and appellants do not offer serious dispute. Based on this finding, the court held that the subse- quent sales to Bay Area retailers were not in the flow of commerce. This emphasis on intended destination as a key to the statute's coverage has been criticized by some commentators as providing a means by which interstate producers may avoid Robinson-Patman liabi- APPENDIX A-17 lity by setting up local storage facili- ties in the secondary states. See l P. Areeda & Turner, Antitrust Law 4 233(b) (1978); ABA Antitrust Section, The Robin- son-Patman Act: Policy and Law 44-45 (1980). On the contrary, the cases relied on by the district court and cited by appellees primarily involve sales by out of state producers to distributors or retailers who then resell the goods intra- state at the allegedly discriminatory price. See, e.g., Walling, 317 U.S. at 564; Food Basket, 383 F.2d at 785; Hampton, 516 F.2d at 100. In such cases the analysis of intent is useful in deter- mining whether the initial sale from the out of state producer bears sufficient relationship to the subsequent allegedly discriminatory sale to conclude that the latter sale, is part of a continuous in- terstate transaction and hence in com- merce. See P. Areeda & D. Turner, Supra. Conversely, where a producer sim- ply moves goods manufactured out of state APPENDIX A-18 into the state and resells at the alleged- ly discriminatory price, there is no intermediate sale to break the flow of commerce. And indeed, it would seem that Standard Oil Co. v. FTC, 340 U.S. 231 (1951), in which the Supreme Court held that in state storage of gasoline by an interstate oil producer did not end the flow of commerce, imposes some limit upon the application of the intent rule. In Standard Oil, the defendant, ac- cused of discriminating in selling oil to Michigan jobbers, refined the oil out of state and then shipped it to its own stor- age facilities in Michigan from which delivery was made to customers upon indi- vidual orders. Although the gasoline rested up to several months in the storage facility, the court held that it remained part of the flow of commerce: Any other conclusion would fall short of the recognized purpose of the Robinson-Patman Act to reach the operations of large interstate businesses in competi- tion with small concerns. Such temporary storage of the gasoline APPENDIX A-19 as occurs . . . does not deprive the gasoline of its interstate character. 340 U.S. at 237-38 (citations omitted). Moreover, the Court specifically distin- guished the early Fair Labor Standard Act cases, including Walling, noting that in those cases “interstate commerce ceased on delivery to a local distributor," while “the sales involved here are those of an interstate producer and refiner to a local distributor." 340 U.S. at 238 n.6. We interpret Standard Oil to indicate that interstate producers of goods pro- duced out of state do not meaningfully interrupt the flow of commerce by simply storing them in the state of eventual sale. Viewed in this light we think the district court prematurely granted summary judgment to the appellee distributors. In particular, the declarations and answers to interrogatories submitted by ABC and MCA indicate that both manufactured re- cords and tapes outside of California, which were then placed in California ware- APPENDIX A-20 houses for eventual sale to retailers, Those actions were not alone sufficient to remove the goods from the stream of com- merce, WEA and Polygram did not themselves manufacture records, but they were wholly owned subsidiaries of companies engaged in record and tape production. Sales to subsidiaries in such instances do not necessarily remove such transactions from Robinson-Patman jurisdiction. See Perkins v. Standard Oil Co., 395 U.S. 642, 648 (1969) ("We find no basis for immunizing Standard's price discrimination simply because the product in question passed through an additional formal exchange before reaching the level of Perkin's actual competitor"). Similarly, "passage of title or the terms of shipment, al- though relevant, do not control." Hasbrouck v. Texaco, Inc., 663 F.2d 930, 934 (9th Cir. 1981); S & M Materials Co. v. Southern Stone Co., 612 F.2d 198, 200 APPENDIX A-21 (Sth Cir.), cert. denied, 449 U.S. 832 (1980). Therefore, as to the record and tape sales by the parent corporations to the WEA and Polygram warehouses in California, we examine the extent to which the subsi- diaries acted as independent distributors in their pricing and marketing decisions, in effect, breaking the flow of commerce between the manufacturer and the local retailer. See United States v. American Building Maintenance Industries, 422 U.S. 271, 285 (1975) ;22/ P. Areeda & D. Turner, Supra, at ¥ 233(b). Such thres- hold issues of jurisdiction are normally questions of fact for the jury to resolve. Hasbrouck, 663 F.2d at 933. Since the district court did not consider these controlling principles and it ap- pears that there are genuine issues of material fact in dispute regarding their resolution the grants of summary judgment in favor of WEA and Polygram were impro- per. APPENDIX A~-22 y De minimis interstate drop sales. After finding the sales to Bay Area retailers from the distributors' Califor- nia warehouses not “in commerce," the district court considered the impact of the interstate drop sales. It held the sales so “scattered an insignificant" that they insufficiently support a Robinson- Patman Act claim. We have ruled that summary judgment was improperly granted as to the sales from the warehouses but to avoid uncertainty on remand, it should be stated that in our view the district court correctly excluded the drop sales as a basis for jurisdiction. The principle of de minimis is usually appropriate in the light of a finding going to the substance of the action it- self that a claimed price discrimination did not "substantially lessen" competition as required by the statute. See e.g., Hanson v. Pittsburgh Plate Glass Indus- tries, Inc., 482 F.2d 220 (Sth: Cir. 1973), cert. denied, 414 U.S. 1136 (1974). How- APPENDIX A-23 ever, in several instances courts have made de minimis findings regarding juris- diction under the Act. Thus in Food Bas- ket, 383 F.2d 785, the court found that certain "drop-sales" of goods from out of state suppliers to a grocery chain were not sufficient to bring the chain under the Act where it received all of its other goods from warehouses located in the State. Accord Skinner v. United States Steel Corp., 233 F.2d 762 (5th Cir. 1956); Baldwin Hills Building Material Co. v. Fibreboard Paper Products Corp., 283 F. Supp. 202 (C.D. Cal. 1968). But see Von Kalinowski, supra, at § 26.01[2] (criticizing use of the de minimis test for jurisdictional purposes). Since the district court's decision in this case, we have had occasion to cule on the applicability of the de minimis rule to jurisdictional challenges under the Robinson-Patman Act. In William Inglis, 688 F.2d 1014, the defendant bakery lo- cated in California marketed its bread APPENDIX A-24 primarily in state. However, it also made sales to accounts in Nevada. We rejected the contention that the Nevada sales were de minimis and therefore insufficient to invoke jurisdiction. While recognizing that interstate sales which were merely "inadvertent or incidental" to a pattern of intrastate sales might justify applica- tion of a de minimis rule, 668 F.2d at 1044 n. 54, 23 concluded that the sales involved were part of a multi-state mar- keting operation and therefore not de minimis. 14.22/ In contrast the drop sales here were not part of the normal marketing or dis- tribution pattern of the distributors, which, instead focused on supplying Bay Area stores from California warehouses. Drop sales occurred when there were gaps in that distribution system. Given their relative size and sporadic nature the sales appear as an anomaly in the normal distribution pattern. See Food Basket, 383 F.2d at 788. We therefore determine APPENDIX A-25 that the circumstances here involve the narrow category in which application of de minimis principles to jurisdictional ques- tions is appropriate. 3. Jurisdiction under Sections 2(d) and 2 (e) of the Robinson-Patman Act. Appellants contend that even if sec- tion 2(a) does not apply to the distribu- tor appellees, sections 2(d) and 2(e) apply because the jurisdictional test for those sections is more liberal than the standard under section 2(a) 4/ Again, while we reverse the summary judgment that there was no jurisdiction under section 2(a), we conclude that the court correctly held that the jurisdictional reach of sections 2(d) and 2(e) goes no further than section 2(a). Section 2(d) relates to payments for services or facilities and requires that the seller be “engaged in commerce" and that the payment or benefit be "in the course of such commerce." Section 2(e) covers the furnishing of services or faci- APPENDIX A~-26 lities for processing and handling and contains no “in commerce" language. How- ever, it has been held that the omission of such language was inadvertent. See Elizabeth Arden, Inc. v. FTC, 156 F.2d 132, 134 (2d Cir. 1946), cert, denied, 331 U.S. 806 (1947). Neither section contains language as does section 2(a), referring to "purchases . .. in commerce." Appel- lants therefore argue that those sections are not limited by the requirement that there be an interstate sale. Sections 2(d) and 2(e) of the Robinson-Patman Act were enacted to pre- vent sellers from circumventing section 2(a) by discriminating between buyers in respects other than price. See FTC v. Simplicity Pattern Co., 360 U.S. 55, 68-69 (1959). It would therefore be incongruous to hold as appellants suggest, that those sections go beyond the coverage of section 2(a). See W. Patman, Complete Guide to the Robinson-Patman Act 132 (1963); F. Rowe, Price Discrimination Under the APPENDIX A-27 Robinson-Patman Act 393 (1962). There are decisions to the contrary, see American Macaroni Manufacturing Co. v. FTC, 321 F.2d 404, 408 (5th Cir. 1963), cert. denied, 375 U.S. 971 (1964), but in gene- ral cases have concluded that sections 2(d) and 2(e) have the same jurisdictional limitation as section 2(a). See L & L Oil Co. v. Murphy Oil Corp., 674 F.2d 1113, 1116 (5th Cir. 1982); Sun Cosmetic Shoppe, Inc. v. Elizabeth Arden Sales Corp., 178 F.2d 150 (2d Cir. 1949); R. S. E., Inc. v. Pennsy Supply, Inc., 489 F. Supp. 1227, 1236 (M.D. Penn. 1980), Rohrer v. Sears, Roebuck & Co., 1975-1 Trade Reg. Rep. (CCH) 4 60,302 (C.D. Mich. 1975). B. The Retailer Appellee —- MTS Section 2(f£) of the Robinson-Patman Act makes it unlawful for a buyer "engaged in commerce, in the course of such com- merce, knowingly to induce or receive a discrimination in price which is prohi- bited by this section." (Emphasis added). In Great Atlantic & Pacific Tea APPENDIX A~-28 Co,, 440 U.S. at 69 (1979), the Supreme Court held that a buyer does not violate section 2(f£) in receiving a discrimination in price unless the discrimination is unlawful under section 2(a). The district court, relying on Great Atlantic & Pacific Tea Co., correctly ruled that since the sales by distributors failed to meet the “in commerce" require- ment of section 2(a), MTS could not be liable under section 2(f) for receiving the allegedly discriminatory prices. However, since we reverse the court's grant of summary judgment as to the sec- tion 2(a) claims, we also reverse the ruling against the section 2(f) claim for further consideration in the light of this 15/ opinion. C. The Appellee Advertiser-Doug Robertson The district court found no "factual or legal basis upon which plaintiffs hope to hold Doug Robertson Advertising Agency liable." 533 F. Supp. at 551. We APPENDIX A=-29 agree. Doug Robertson handled MTS adver- tising. The uncontested declaration sub- mitted by it indicates that the only other connection between the two appellees was that Doug Robertson owned 5% of several MTS subsidiary corporations. It is there- fore clear that Doug Robertson did nothing to violate sections 2(a), 2(d) or 2(e) of the Robinson-Patman Act by providing dis- criminatory prices, promotional or other services to record retailers. Similiarly, it received no price discrimination from the record distributors. Accordingly, given the absence of any justiciable claim against it, the district court correctly granted summary judgment to Doug Robertson on the Robinson-Patman claims. III. THE SHERMAN ACT CLAIMS The district court granted summary judgment in favor of appellees on all of appellants’ claims under the Sherman Anti- trust Act. We are admonished by the Supreme Court to proceed with caution inconsidering summary judgment in anti- APPENDIX A-30 trust cases. Poller v. Columbia Broad- castina System, 368 U.S. 464, 473 (1962). See Program Engineering v. Triangle Publications, 634 F.2d 1188, 1192 (9th Cir. 1980); Ron Tonkin Gran Turismo v. Fiat Distributors, 637 F.2d 1376, 1381 (9th Cir. 1981), cert. denied, 102 S.Ct. 128 (1981). However, the Court has also indicated that clever pleading does not entitle an antitrust claimant to a trial with no regard for Rule 56 of the Federal Rules of Civil Procedure. First National Bank of Arizona v. Cities Service, Co., 391 U.S. 253, 289-90 (1968). See Ron Tonkin, 637 F.2d at 1381; Betaseed, Inc. v. U and I Inc., 681 F.2d 1203, 1207-08 (9th Cir. 1982). Under Rule 56, summary judgment is appropriate “where the record before the court on the motion reveals the absence of any material issue of fact and [where] the moving party is entitled to judgment as a matter of law." Portland Retail Druggists Association v. Kaiser Foundation Health APPENDIX A-31 Plan, 662 F.2d 641, 645 (9th Cir. 1981). The burden of demonstrating the absence of an issue of material fact lies with the moving party. British Airways Board v. Boeing Co., 585 F.2d 946, 951 (9th Cir. 1978), cert. denied, 441 U.S. 968 (1979). The opposing party must then "present specific facts demonstrating that there is a factual dispute about a mater- ial issue." Program Engineering, 634 F.2d at 1193; British Airways, 585 F.2d at 951. In this case, the district court found that the appellees carried their burden in demonstrating the absence of a genuine issue of material fact. It ruled, how- ever, that the opposition materials sub- mitted by appellants did not comply with the requirements of Rule 56(e) Fed. R. Civ. P. or Rule 220-8 of the Local Rules of the Northern District of California. The court therefore found that appellants failed to present competent evidence to dispute appellees' showing.=* APPENDIX A-32 Our review of the record amply con- firms the district court's finding. In the main, appellants sought to oppose the summary judgment motions by introducing literally hundreds of pages of documents purporting in their cumulative effect to show the existence of a genuine issue of material fact. To meet the requirements of Rule 56 as supplemented by the Local Rules of the district court, such mater- ials are required to be authenticated by affidavits or declarations of persons with personal knowledge through whom they could be introduced at trial. See United States v. Dibble, 429 F.2d 598, 602 (9th Cir. 1970) (writings are not admissible under motion for summary judgment without proper foundation); California Pacific Bank v. Small Business Administration, 557 F.2d 218, 222 (9th Cir. 1977). As the district court observed, most of the documents lacked any authentication whatsoever. Moreover, appellants made virtually no effort to organize the documents in a APPENDIX A-33 reasonably intelligible manner. In many particulars, entire correspondence files or sets of records were included with no attempt to sort out or identify that ma- terial which was relevant, A party may not prevail in opposing a motion for summary judgment by simply overwhelming the documentation. (The district court characterized it as “ersatz evidence.") But even were that organiza- tional prerequisite satisfied, we would be compelled to hold that the materials of- fered did not, even viewed in the light most favorable to appellants, give rise to a genuine issue of material fact suffi- cient to prevent a motion for summary judgment. See Cities Services, 391 U.S. at 253; British Airways, 585 F.2d at 95l- 52. A. The Section 1 Conspiracy Claims As the district court stated, appel- lants' Sherman Act allegations come through as an attempt to breath new life into their Robinson-Patman claims by re- APPENDIX A-34 casting them in the form of a conspiracy of which appellants suggest two possibili- ties. The first is an overall conspiracy among the record distributors and chain retailers to favor the latter group at the expense of small record retailers.2 The second sugestion is of a vertical conspir- acy to restrain competition between each distributor and each chain store retailer. l. The Horizontal Conspiracy Appellants claim error by the district court in granting summary judgment on the basis that there was no genuine issue of material fact regarding the existence of an overall conspiracy. We have repeatedly articulated the test for granting summary judgment in antitrust conspiracy cases: Once the allegations of conspir- ep made in the complaint are rebutted by probative evidence Supporting an alternative inter- pretation of a defendant's con- duct, if the plaintiff then fails to come forward with specific factual support of its allega- tions of conspiracy, summary judgment for the defendants be- comes proper. APPENDIX A-35 ALW, Inc. v. United Air Lines, Inc., 510 F.2d 52, 55 (9th Cir. 1975); Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620, 624 (9th Cir. 1977). In this case, since the appellees' affidavits all denied any conspiracy with the others, and since appellants presented no direct evidence of conspiracy, appellants’ only chance depended on their presentation of circumstantial evidence sufficient to support the inference of a “conscious parallelism" conspiracy theory and on such further inferences as appellants might be able to draw from trade association and credit managers' meetings among the vari- ous distributors. a. Conscious Parallelism In proof of the hypothesis of consci- ously parallel business behavior, appel- lants point to the distributors' use of similar account classifications, pricing structures and promotional policies. However, as the district court determined, appellants failed to make a proper showing APPENDIX A-36 of sufficiently similar conduct in such matters. See Independent Iron Works, Inc. v. United States Steel Corp., 322 F.2d 656, 661 (9th Cir.), cert. denied, 375 U.S. 922 (1963). Instead, appellees suc- cessfully demonstrated considerable varia- tion in the distributors’ account classi- fication systems as well as variance in prices offered to retailers by distribu- tors. Moreover, each distributor offered its own package of promotional offers and discounts which, in fact, substantially encouraged competition in the record busi- ness. Yet, even if appellants had success- fully demonstrated that the allegedly parallel acts were against each conspira- tor's self interest, that is, that the decision to act was not based on a good faith business judgment. See Theatre Enterprises, Inc. v. Paramount Film Dis- tributing Corp., 346 U.S. 537, 540-41 (1954); Syufy Enterprises v. National General Theatres Inc., 575 F.2d 233, 236 APPENDIX A-37 (9th Cir. 1978); Dahl, Inc. v. Roy Cooper Co., 448 F.2d 17, 19 (9th Cir. 1971). The appellees presented sufficient evidence of legitimate business decisions to justify their actions. For example, WEA justified its two-tier account classification system between “subdistributors” and "retailers" as a means of meeting the competition of those distributors who had previously entered the market and who maintained multiple-tier account classification. In addition, it presented evidence that the lower subdistributor price reflected cost savings to WEA because subdistributors had a centralized location for purchases, billings, returns and deliveries and sub- distributors made box-lot purchases of the same records. Certain distributors did give to chain store retailers discounts in addition to those to which they were entitled under their account classification systems. For example, WEA apparently gave MTS a sub- distributor price in 1975 even though MTS APPENDIX A-38 did not meet WEA's technical definition of a subdistributor. However, appellants’ own evidence indicated that the distribu- tors did so because of claims by the large retailers that they were receiving lower prices from the distributors' competitors and that failure to reduce price would adversely affect .he retailers’ merchan- dising of the distributor's records. Such evidence does not indicate a conspiracy to favor large record stores. In fact, the Sherman Act is intended’ to encourage such competition between sellers. See Great Atlantic & Pacific Tea Co., 440 U.S. at 83 n.16. Finally, appellants’ conscious paral- lelism claim is deficient because it never established a plausible motivation for the conspirators' conduct. In Cities Service the court found the plaintiff's conspiracy theory to be inadequate where the inter- ests of the alleged conspirators were divergent. In the absence of any common motivation, the court concluded, there APPENDIX A-39 existed no grounds for inferring a con- Spiracy. 391 U.S. at 287. Accord Venzie Corp. v. United States Mineral Products Co,, 521 F.2d 1309, 1314 (3d Cir. 1975). Here, appellants are unable to advance any plausible reason why the major record distributors would conspire to favor cer- tain retailers, thus limiting the retail outlets for their own products. Appel- lants' theory of conspiracy would increase the bargaining power of the major chain stores against the distributors them- selves. Indeed, the statements of Joel Friedman, of WEA, which appellants at- tempted to introduce into evidence, indi- cates that WEA viewed the buying and mar- keting practices of chain store retailers as a threat to the distributors. In sum, aside from the most conclusory allega- tions, appellants have made no attempt to show why it should be held to have been in the interest of the record distributors to engage in conspiracy the result of which APPENDIX A-40 would be lowering of prices offered to 18/ their largest customers. b. Distributors meetings and discus- sions Aside fronm their conscious parallel- ism theory, appellants also attempt to prove the existence of a conspiracy on the basis of trade association meetings and exchanges of credit information among distributors. They contend that the par- ticipation of distributors at meetings of the National Association of Record Manu- facturers (NARM) evidences a “cartel.” However, in the absence of any indication of agreement or consent to an illegal arrangement, evidence of industry meetings is not sufficient to prove a conspiracy. Maple Flooring Manufacturers Association v. United States, 268 U.S. 563, 575 (1925); Hanson v. Shell Oil Co., 541 F.2d 1352, 1359 (9th Cir. 1976), cert. denied, 429 U.S. 1074 (1977). Moreover, appel- lants presented no evidence that the dis- tributors exchanged price information such APPENDIX A-41 as that found objectionable in United States v. Container Corp., 393 U.S. 333, 335 (1969) (exchange of information among competitors as to most recent prices charged specific customers). As for the exchange of credit infor- mation, appellants introduced evidence that the record distributors’ credit mana- gers attended meetings of the National Association of Credit Managers and its regional affiliate, the Credit Managers Association of Southern California, and that at those meetings they exchanged inforinmation regarding individual retail- ers' credit histories. Appellants suggest that the decision of the Supreme Court in Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980), is that all exchange of credit information is a per se violation of section 1 of the Sherman Act. On the contrary, the court stated that, assuming plaintiff could prove that the defendants agreed to fix credit terms to their customers, such an APPENDIX A-42 agreement would be a per se violation of section 1. In fact the court in Catalano Manufacturing Protective Association v. United States, 268 U.S. 588 (1925), per- mitting exchange of credit information for the individual use of each member in de- termining whether to exercise credit. 446 U.S. at 648 n.12. The appellants' evidence indicated that the information exchanged by the credit managers regarding certain retail- ers' credit standing was of the sort the distributors could use for self protection purposes. For example, the distributors exchanged information regarding individual retailers' total indebtedness. However, there was no indication of any agreement to fix credit terms aside from appellants' observation that large retailers in fact received more favorable credit terms than Marin Music Centre -- a hardly surprising result in light of their relative volume of sales. APPENDIX A-43 y Vertical Conspiracy Appellants allege a number of vertical conspiracies each based on the sales agreement between a distributor and a favored retailer which “caused discrimina- tion in the sale of phonograph records and tapes to the named retail chain stores." In essence, appellants suggest that price discrimination between individual buyers and sellers which would ordinarily form the basis of a secondary-line Robinson- Patman case is also a violation of section 1 of the Sherman Act. Yet the court have held that such an agreement, without proof of an arrangement to exclude others from the buyer's market does not give rise to a section 1 claim.22/ See e.g., National Tire Wholesale, Inc. v. Washington Post Co., 441 F. Supp. 81 (D.D.C. 1977), aff'd, 595 F.2d 888 (D.C. Cir. 1979); Rutledge v. Electric Hose & Rubber Co., 327 F. Supp. 1267 (C.D. Cal. 1971), aff'd, 511 F.2d 668 (9th Cir. 1975). APPENDIX A-44 In National Tire, for example, the court rejected the plaintiff's claim that a newspaper's failure to sell its adver- tising on the same terms as it gave to plaintiff's main competitor violated sec- tion 1, stating: {[P]laintiff does not allege any basis for a vertical combination in violation of section l. The contract for advertising space between the Post and Market, albeit a conbination, is not a combination within the scope of section 1. The contract sets forth the terms of dealings be- tween the parties; plaintiff does not allege that the terms of the contract in any way restrict either party's dealings with others. 441 F. Supp. at 81. Here appellants presented no evidence of any vertical agreement to exclude com- petitors. Instead, the record indicates that certain retailers negotiated a favor- able price . individual distributors. However, even were we to assume some evi- dence of an exclusionary effect, we have held that such vertical arrangements are not a per se violation of section 1. See APPENDIX A-45 Ron Tonkin, 637 F.2d at 1382-87; Gough v. Rossmoor, 585 F.2d 381, 388 (9th Cir. 1978); Mutual Fund Investors, 553 F.2d at 626; Joseph Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 78-79 (9th Cir. 1969). Therefore such agreements do not violate section 1 unless they are found to be unreasonable. Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1304 (9th Cir. 1982), cert. denied, 51 U.S.L.W. 3354 (U.S. Nov. 9, 1982) (No. 82-396). The reasonableness inquiry is "directed to a balancing of the competitive evils of the restraint against the anticompetitive benefits asserted on its behalf." Gough, 585 F.2d at 388-89. Here there is simply no indication that the sales agreements between individ- ual distributors and retailers constituted an unreasonable restraint of trade. In- deed, the Supreme Court has recognized that the price discrimination which re- sults where buyers seek competitive advan- APPENDIX A-46 tage from sellers encourages the aims of the Sherman Act, a respect in which the Sherman Act is inconsistent with the aims of the Robinson=-Patman Act. See Great Atlantic & Pacific Tea Co., 440 U.S. at 82, 83 n.16; Automatic Canteen Co. v. FTC, 346 U.S. 61, 73-74 (1953). And while appellants point to injury to their parti- cular business, they do not make the ne- cessary showing of a substantially adverse affect on competition in the record market in general. See Ron Tonkin, 637 F.2d at 1388; Mutual Fund Investors, 553 F.2d at 627. In fact, as the district court ob- served, appellants themselves acknowledge the competitive character of the record and tape sales market. Thus the district court correctly held that appellants had failed to raise a genuine issue of mater- ial fact in support of their vertical conspiracy charge. APPENDIX A-47 B. The Section 2 Attempted Monopoli- zation Claim Against MTS Appellants claim that MTS attempted to monopolize the retail market in record and tape sales in the San Francisco Bay Area in violation of section 2 of the Sherman Act. An attempted monopoly claim under section 2 consists of three elements: (1) a specific intent to control prices or destroy competition in some part of com- merce; (2) predatory or anticompetitive conduct directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success. Twin City Sport- service, 676 F.2d at 1308; Portland Retail Druggists, 662 F.2d at 647. William Inglis, 668 F.2d at 1027. In Inglis we discussed at length the interrelationship between the three ele- ments. Thus we observed that intent to monopolize may be inferred from anticompe- titive conduct but that to carry such a burden the conduct "must fall into one of two categories, either (1) conduct forming APPENDIX A-48 the basis for a substantial claim of re- straint of trade, or (2) conduct that is clearly threatening to competition or Clearly exclusionary." 668 F.2d at 1029 n.ll. In either case the conduct “must be such that its anticompetitive benefits [are] dependent upon its tendency to discipline or eliminate competition and thereby enhance the firm's long-term abil- ity to reap the benefits of monopoly power." Inglis, 668 F.2d at 1030. In turn, the dangerous probability of success requirement, which is usually although not necessarily, associated with market power may be inferred from direct evidence of intent implemented by conduct, or conduct alone of the sort described above, from which intent may be inferred. 668 F.2d at 1029. As the district court observed appel- lants presented no direct evidence of specific intent to monopolize, relying instead on MTS' alleged anticompetitive conduct to prove a violation of section APPENDIX A-49 2. Their chief claim in this regard is that Tower engaged in predatory pricing by setting its prices for records and tapes below appellants' cost of doing business. A predatory price exists “where the firm foregoes short-term profits in order to develop a market position such that the firm can later raise prices and recoup profits." Janich Brothers, Inc. v. American Distilling Co., 570 F.2d 848, 856 (9th Cir. 1977), cert. denied, 439 U.S. 829 (1978). In making such a determina- tion we have had occasion to identify as a useful standard for predation the test set out by Professors Areeda and Turner. See P. Areeda & D. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697 (1975); Inglis, 668 F.2d at 1033; Janich Bros., 570 F.2d at 858. Under this ap- proach a price is not predatory if it equals or exceeds the average variable cost of production. P. Areeda & D. Turner, Predatory Pricing, supra, at APPENDIX A-50 711. 2/ Pursuing such a guide, appellants’ predatory pricing claim would appear to be inadequate on its face since it does not suggest that MTS priced below its own average variable cost -- but that it was below only some unidentified cost of ap- pellants. In Inglis we indicated that a plaintiff might be able to prove a preda- tory pricing claim without showing that the defendant priced below its average variable cost, see 668 F.2d at 1035, or even possibly below its average total cost .22/ However, in such instances it is the plaintiff's burden to prove that the defendant “sacrificed greater profits or incurred greater losses than necessary in order to eliminate the plaintiff." Inglis, 688 F.2d at 1036. In the absence of such a claim on the part of appellants, much less any evidence of that effect, appellants' predatory pricing claim is inadequate as a matter of law. Indeed, any other conclusion would support the APPENDIX A-51 perverse rationale that a defendant may not compete by lowering its prices "if competition would injure its competi- tors." California Computer Products, Inc. v. International Business Machines Corp., 613 F.2d 727 (9th Cir. 1979). Appellants’ other example of MTS' predatory conduct concerns MTS' negotia- tion of favorable sales terms with the individual distributors. Yet we have already concluded that such conduct did not constitute an unreasonable restraint of trade under section 1 of the Sherman Act. And since, as we have previously stated, the reasonableness standard of section 1 governs parallel conduct under section 2, see Inglis, 668 F.2d at 1030 n.14; California Computer Products, 613 F.2d at 737, MTS' actions do not consti- tute a “substantial restraint of trade” in violation of section 2. Nor do we consi- der the attempt to negotiate favorable terms here “conduct that is clearly APPENDIX A-52 threatening to competition or clearly exclusionary." Our conclusion regarding MTS' conduct in this case is reinforced by the evidence in the record concerning its market power. In Inglis we recognized that a defendant may introduce evidence "that market conditions are such that a course of conduct described by the plaintiff would by unlikely to succeed in monopoliz- ing the market.” 668 F.2d at 1030. See also Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 936 (9th Cir. 1980), cert. denied, 450 U.S. 921 (1961). Aside from their claim of "breath-taking growth of monopoly power," appellants suggested no evidence of market power whatsoever. In contrast MTS, intro- duced evidence that it operated only two retail stores in the six San Francisco Bay Area counties which the appellants assert- ed constituted a relevant geographic mar- ket and that it accounted for no more than 10% of the total retail record and tape APPENDIX A-53 sales in that area. 22 The absence of significant market power on the part of the MTS and the existence of numerous other retail outlets lends further weight to our conclusion that the appellants failed to raise an isssue of material fact regarding the attempted monopolization 23/ claim. Cc. Capitol's Refusal to Deal Appellants contended that the district court erred in granting summary [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_IA40385010_0532%3A1. Public record. Not legal advice.