Amicus Curiae Brief — Mercedes-Benz of North America, Inc. v. Metrix Warehouse, Inc.

No. 87-1560 . Q)

x

iS Rs IN THE

= x Supreme Court of the United States

v OCTOBER TERM, 1987

>

MERCEDES-BENZ OF NORTH AMERICA, INC.,

Petitioner,

Vv.

METRIX WAREHOUSE, INC. and CARL SCHWARTZ,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FOURTH CIRCUIT

MOTION OF AUTOMOBILE IMPORTERS OF AMERICA, INC.

AND MOTOR VEHICLE MANUFACTURERS ASSOCIATION OF

THE UNITED STATES, INC. FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE AND BRIEF OF AMICI CURIAE IN SUPPORT

OF THE PETITION

Charles H. Lockwood, II Ira M. Millstein

AUTOMOBILE IMPORTERS Counsel of Record

OF AMERICA, INC.

1725 Jefferson Davis Highway

Suite 1002

Arlington, Virginia 22202

(703) 979-5550

William H. Crabtree

MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC.

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311

Of Counsel

WEIL, GOTSHAL & MANGES

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Counsel for Amici Curiae

April 18, 1988

_— ee

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No. 87-1560

>

MERCEDES-BENZ OF NORTH AMERICA, INC.,

Petitioner,

Vv.

METRIX WAREHOUSE, INC. and CARL SCHWARTZ,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FOURTH CIRCUIT

>

MOTION OF AUTOMOBILE IMPORTERS OF AMER-

ICA, INC. AND MOTOR VEHICLE MANUFACTUR-

ERS ASSOCIATION OF THE UNITED STATES, INC.

FOR LEAVE TO FILE BRIEF AS AMICI CURIAE

To the Honorable Chief Justice and Associate Justices of the

Supreme Court of the United States:

Pursuant to Rule 36 of the Rules of this Court, Automobile

Importers of America, Inc. (‘‘AIA’’) and Motor Vehicle Manu-

facturers Association of the United States, Inc. (“‘*MVMA’’) re-

spectfully move for leave to file the accompanying brief as

amici curiae in support of the petition for a writ of certiorari.

Counsel for petitioner has consented to the filing of this brief;

counsel for respondents has not.

INTERESTS OF THE AMICI

AIA is a trade association organized as a non-profit District

of Columbia corporation. Its members’ are either foreign mo-

tor vehicle manufacturers, United States corporate affiliates of

such manufacturers, or United States importers authorized by

such manufacturers. MVMA is a trade association organized as

a not-for-profit New York corporation and composed of com-

panies engaged in the manufacture and sale of motor vehicles in

the United States.’

Both AIA and MVMA have a direct and substantial interest

in ensuring that their members are able to respond to the de-

mands of a vigorously competitive marketplace by, among

other things, creating distribution and service networks that

generate market efficiencies, promote brand awareness, foster

consumer goodwill and maintain product quality and safety.

Motor vehicles are complex, costly, and long-lasting products

which require sophisticated pre- and post-sale servicing. The

manufacturer’s relationship and responsibility to the consumer

lasts for the life of the car. After the purchase, the consumer

wants to have reliable and convenient service available. The

1 The members of AIA are: American Honda Motor Company, Inc.;

American Isuzu Motors, Inc.; BMW of North America, Inc.; Fiat

Auto U.S.A., Inc./Alfa Romeo, Inc.; Hyundai Motor America, Inc.;

Jaguar Cars Inc.; Mazda Motors of America (Central), Inc.; Mitsu-

bishi Motor Sales Corporation; Nissan Motor Corporation, USA;

Peugeot Motors of America, Inc.; Porsche Cars North America, Inc.;

Regie Nationale des Usines Renault; Rolls-Royce Motor Cars Inc.;

Saab-Scandia of America, Inc.; Subaru of America, Inc.; Suzuki of

America Automotive Corporation; Toyota Motor Sales, Inc.; Volvo

North America Corporation; and Yugo America, Inc.

2 The members of MVMA are: Chrysler Corporation; Ford Motor

Company; General Motors Corporation; Honda of America Manufac-

turing, Inc.; M.A.N. Truck & Bus Corporation; Navistar International

Corporation; PACCAR Inc.; and Volvo North America Corporation.

manufacturer strives to meet these consumer needs to maintain

consumer goodwill and thus achieve sales success.

In the decision below (App. at 1a-28a), the Court of Appeals

for the Fourth Circuit upheld a treble-damage verdict against

an automobile distributor that required its authorized dealers to

use factory-authorized replacement parts for repair and servic-

ing of the distributor’s vehicles when such parts were necessary

to the mechanical operation of those vehicles. The court con-

cluded that, notwithstanding the distributor’s legitimate busi-

ness purposes for imposing the restraint, the jury was free to

reject the proffered business justification defense because, in

the court’s view, there was evidence to suggest that the distrib-

uter might have achieved its valid business purposes by “‘less re-

strictive’’ means.

The decision below exposes automobile manufacturers and

distributors to legal uncertainties that threaten to chill their ef-

forts to develop and maintain the efficient and dependable deal-

ership service networks so crucial to their businesses. This

confusion is underscored by a subsequent decision of the Ninth

Circuit upholding a jury verdict that found the same restriction

to be legally justified by the very same commercial consider-

ations that had been brushed aside in the jury verdict upheld by

the Fourth Circuit.

AIA and MVMA submit that review by this Court would

provide much-needed clarification of the legal standard appli-

cable to business justifications proffered by manufacturers and

distributors in defense of alleged tying restraints upon autho-

rized dealers. Moreover, this Court should grant certiorari to

consider whether, in light of contemporary antitrust jurispru-

dence, a business justification defense should be available as a

matter of law for alleged tying restraints that (i)are shown to be

reasonably related to legitimate business objectives, and (ii) do

not restrict freedom of a consumer to deal with alternative out-

lets for the products or services involved.

4

For these important reasons, AIA and MVMA respectfully

request that the Court accept and consider the accompanying

brief.

Respectfully submitted,

Ira M. Millstein

Counsel of Record

Irving Scher

Michael A. Epstein

Martin S. Hyman

Holly J. Gregory

WEIL, GOTSHAL & MANGES

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Counsel for Amici Curiae

Charles H. Lockwood, II

AUTOMOBILE IMPORTERS

OF AMERICA, INC.

1725 Jefferson Davis Highway

Suite 1002

Arlington, Virginia 22202

(703) 979-5550

William H. Crabtree

MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC.

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311 :

Of Counsel

April 18, 1988

TABLE OF CONTENTS

TABLE OF AUTRROIRI TEES «6 <0 cnc cccccesccueaeaes

INTERESTS OF THE AMICT on... ccc ccccseinseses

SUMMARY OF ARGUMENT ...........cccceeeeees

ARCHIMEIIINS co vin bn denis davihe vi adenee eens eanenn

I. THE DECISION OF THE COURT OF AP-

PEALS HAS RESULTED IN INDUSTRY-

WIDE CONFUSION 2 occ cccccccescuscounes

Il. THE COURT SHOULD RECONSIDER THE

“LESS RESTRICTIVE ALTERNATIVE”

STANDARD IN LIGHT OF CONTEMPO-

RARY ANTITRUST JURISPRUDENCE .....

COMNCLIIGIING voce uincess iehenanedeeden seen

PAGE

TABLE OF AUTHORITIES

Cases:

American Motor Inns, Inc. v. Holiday Inns, Inc., 521

wer Tt fe A mr ry err

Continental T.V., Inc. v. GTE Sylvania Inc. , 433 U.S. 36

(1977)

Fortner Enters., Inc. v. United States Steel Corp.

(*‘Fortner I’’), 394 U.S. 495 (1969)

IBM Corp. v. United States, 298 U.S. 131 (1936)

International Salt Co. v. United States, 332 U.S. 392

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2

(1984)

“eee eee eneneneneneeneneneneneneneneneeernrnrnrrrer rere ee eee

Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752

(1984)

“eevee eeeneneeeneeeneneneneenenenneeneenenenenneneneneneneneneenee

Mozart Co. v. Mercedes-Benz of North America, Inc.,

833 F.2d 1342 (9th Cir. 1987)

National Collegiate Athletic Ass’n v. Board of Regents

of the Univ. of Okla., 468 U.S. 85 (1984)

“ese eeneneenene

Pick Mfg. Co. v. General Motors Corp. , 80 F.2d 641 (7th

Cir. 1935), aff'd per curiam, 299 U.S. 3 (1936)......

Reiter v. Sonotone Corp., 442 U.S. 330 (1979)

Standard Oil Co. v. United States (*‘Standard Sta-

tions’’), 337 U.S. 293 (1949)

United States Steel Corp. v. Fortner Enters., Inc.

(*‘Fortner II’’), 429 U.S. 610 (1977)

PAGE

4)

PAGI

United States v. Loew ’s Inc., 371 L).S. 38 (1962) 5

Statutes:

, ~ 5

15 U.S.C.A. §§ 1400 et seg. (1982 & Supp. 1987) 2

15 U.S.C.A. §§ 2301 ef seq. (1982) 3

42 U.S.C.A. §§ 7521 ef seq (1983) 5

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No. 87-1560

te

MERCEDES-BENZ OF NORTH AMERICA, INC.,

Petitioner,

Vv.

METRIX WAREHOUSE, INC. and CARL SCHWARTZ,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FOURTH CIRCUIT

>

BRIEF OF AUTOMOBILE IMPORTERS OF AMER-

ICA, INC. AND MOTOR VEHICLE MANUFACTUR-

ERS ASSOCIATION OF THE UNITED STATES, INC.

AS AMICI CURIAE IN SUPPORT OF THE PETITION

INTERESTS OF THE AMICI

Automobile Importers of America, Inc. (‘‘AIA’’) and Motor

Vehicle Manufacturers Association of the United States, Inc.

(‘“MVMA’’) respectfully refer the Court to the interests articu-

lated in their Motion for Leave to File Brief as Amici Curiae, to

which this brief is attached.

5

SUMMARY OF ARGUMENT

The questions presented in the petition are worthy of review

by this Court because they involve important legal issues with

broad commercial implications. Among these issues is the via-

bility of the ‘‘less restrictive alternative’’ rationale as a basis for

negating an otherwise valid business justification for a suppli-

er’s requirement that its authorized dealers use only factory-

authorized replacement parts in the repair and servicing of

technologically sophisticated products. As amici curiae, AlA

and MVMA will emphasize: the industry-wide confusion cre-

ated by the court of appeals’ application of the ‘‘less restrictive

alternative’’ standard; and the need for this Court to consider

whether, in light of contemporary antitrust jurisprudence, a

business justification defense should be available as a matter of

law for alleged tying restraints that (i) are shown to be reasona-

bly related to legitimate business objectives, and (ii) do not re-

strict freedom of a consumer io deal with alternative outlets for

the products or services involved.

ARGUMENT

I. THE DECISION OF THE COURT OF APPEALS HAS

RESULTED IN INDUSTRY-WIDE CONFUSION

Manufacturers and distributors of technologically sophisti-

cated products, such as automobiles, are constantly faced with

the challenge of maintaining consumer goodwill and assuring

continued product quality and safety. To meet this challenge,

and thereby ensure their status as viable competitors, automo-

bile companies require their dealers to conform to certain prod-

uct service standards.' These standards require authorized

| Indeed, the ability of a manufacturer to comply with various war

ranty, safety and emission control laws, see, e.g., National Traffic and

Motor Vehicle Safety Act, 18 U.S.C.A. §§ 1400 et seg. (1982 & Supp.

1987) (safety, recall, notification, and repair requirements);

dealers to maintain factory-authorized service departments

staffed by factory-trained technicians who may, in some cases,

be obligated to use factory-authorized replacement parts in con-

nection with the repair and servicing of the manufacturer’s ve-

hicles. Consumer choice is not affected by these controls on a

supplier’s authorized dealer network. Consumers who wish to

deal with other technicians, or to accept other replacement

parts, have the option of patronizing repair facilities outside

that limited network.

The court below did not question the validity of any of the

defendant automobile distributor’s proffered business justifica-

tions for imposing an authorized replacement parts requirement

upon its network of authorized dealers.’ It nevertheless af-

firmed a treble-damage jury verdict in favor of the plaintiff—a

supplier of ‘‘other’’ replacement parts—by suggesting that the

jury might have concluded that such valid business purposes

could have been achieved by ‘“‘less restrictive’? means, and by

speculating about certain ‘‘less restrictive’? means that the de-

fendant might have utilized.

By relying upon conjecture and hindsight as bases for negat-

ing a recognized defense founded on demonstrably legitimate

business concerns, the decision below creates a confusing and

dangerous precedent that threatens to chill the efforts of auto-

mobile companies and other companies engaged in the produc-

tion, sale and maintenance of technologically sophisticated

products to develop the efficient and dependable dealer-service

networks so crucial to their success and so promotive of con-

Magnuson-Moss Warranty—Federal Trade Commission Improvement

Act, 15 U.S.C.A. §§ 2301 ef seg. (1982) (consumer warranty require

ments); Clean Air Act, 42 U.S.C.A. §§ 7521 ef seq. (1983) (emission

control requirements), is largely dependent upon the maintenance ol

an efficient dealer service network.

2 These justifications included the need to: assure quality control in

connection with parts necessary to the mechanical operation of the ve

hicle; prevent ‘‘free riding’’ by dealers seeking to increase profits by

using inferior, untested parts; and discourage practices that could

result in consumer deception. (App. at 13a-16a.)

cial

4

sumer peace of mind. It would be difficult to envision any

restraint—no matter how pro-competitive its purpose—for

which some “‘less restrictive’ alternative could not be hypothe-

sized.

The antitrust laws should not be applied in such a way as to

transform automobile manufacturers and distributors into ’

‘*guarantors that the imaginations of lawyers could not conjure

up some method of achieving [a valid business purpose] that

would result in a somewhat lesser restriction of trade.’’ Ameri-

can Motor Inns, Inc. v. Holiday Inns, Inc. , 521 F.2d 1230, 1249

(3d Cir. 1975). Nor should those laws be construed to permit

factfinders to impose treble-damage liability by ‘‘second-

guessing business judgments as to what arrangements would or

would not provide ‘adequate’ protection for legitimate com-

mercial interests.’ Jd. at 1249-50.

The confusion engendered by the decision below is under-

scored by the subsequent holding in Mozart Co. v. Mercedes-

Benz of North America, Inc., 833 F.2d 1342 (9th Cir. 1987). In

that later decision, the Court of Appeals for the Ninth Circuit

affirmed a jury verdict in favor of the same defendant on a tie-

in claim involving the same dealership agreement, clause and

proffered defenses as those at issue in the instant case. In both

Mozart and Metrix, the juries were instructed that the defen-

dant could not avail itself of the business justification defense if

the business purpose for the restraint could have been achieved

by less restrictive means.’ The juries rendered—and the circuit

courts upheld—opposite verdicts. Thus, the same restraint—

imposed by the same defendant—that was found in a Maryland

federal court to have violated the federal antitrust laws was

found not to have violated those laws in a California federal

court.

3 In Mozart, the Ninth Circuit emphasized that the existence of less re-

Strictive alternatives might not negate the defense if those alternatives

were found to be non-feasible or prohibitively expensive. 833 F.2d at

1349-51. The court below gave little, if any, consideration to such fac-

tors

If, under the amorphous “‘less restrictive alternative’’ ration-

ale currently being applied by the courts, a supplier can be sub-

ject to different verdicts in virtually identical cases, then other

suppliers who may impose analogous requirements on their au-

thorized dealers surely find themselves confronted with the

Same uncertainty in matters that go to the very heart of their

distribution systems. The Court should grant certiorari to elimi-

nate this confusion and provide much-needed guidance to the

business community.

Il. THE COURT SHOULD RECONSIDER THE ‘“‘LESS

RESTRICTIVE ALTERNATIVE’? STANDARD IN

LIGHT OF CONTEMPORARY ANTITRUST JURIS-

PRUDENCE

The decision below presents this Court with an opportunity

to reconsider an issue of major importance: whether the ‘‘less

restrictive alternative’’ standard constitutes an unwarranted

limitation on a supplier’s ability to assert a business justifica-

tion defense to an alleged tying restraint when, as here, that re-

straint is imposed upon a dealer network (and not upon

consumers), bears a reasonable relationship to the supplier’s

legitimate, pro-competitive commercial objectives, and does

not impair the free choice of consumers.”

In a series of decisions between 1947 and 1969, this Court

routinely condemned tying arrangements as lacking any re-

deeming competitive virtues.’ While the Court had grudgingly

4 This Court has recognized that consumer welfare is the primary ob-

jective of the antitrust laws. See, e.g., National Collegiate Athletic

Ass’n v. Board of Regents of the Univ. of Okla., 468 U.S. 85, 107

(1984) (consumer welfare is the ‘‘fundamental goal’’ of antitrust law);

Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (‘Congress de-

signed the Sherman Act as a ‘consumer welfare prescription.’ ”’).

5 See, e.g., Fortner Enters., Inc. vy. United States Steei Corp.

(‘‘Fortner I’’), 394 U.S. 495, 503 (1969); United States v. Loew’s Inc.,

371 U.S. 38, 44 (1962); Standard Oil Co. v. United States (‘‘Standard

Stations’’), 337 U.S. 293, 305-06 (1949) (‘Tying agreements serve

hardly any purpose beyond the suppression of competition.’’); /nter-

national Salt Co. v. United States, 332 U.S. 392, 396 (1947).

6

acknowledged the possibility of a business justification defense

to a tie-in claim, it never upheld the defense when proffered,

and suggested that ‘‘tying arrangements generally serve no legit-

imate business purpose that cannot be achieved in some less re-

strictive way.’’ Fortner Enters., Inc. v. United States Steel

Corp. (‘‘Fortner I’’), 394 U.S. 495, 503 (1969).°

In contrast to these earlier cases, this Court’s more recent ty-

ing decisions reflect a willingness to consider actual market fac-

tors in determing whether a tie-in has truly had a deleterious

effect on competition. Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 466 U.S. 2, 16 (1984) (tying arrangement should be pro-

scribed only when shown to have ‘‘a substantial potential for

impact on competition’’; ‘‘we have refused to condemn tying

arrangements unless a substantial volume of commerce is fore-

closed thereby’’); United States Steel Corp. v. Fortner Enters.,

Inc. (‘‘Fortner IT’’), 429 U.S. 610, 620-21 (1977) (‘‘[T]he ques-

tion is whether the seller has some advantage not shared by his

competitors in the market for the tying product. Without any

such advantage differentiating his product from that of his

competitors, the seller’s product does not have the kind of

uniqueness considered relevant in the prior tying-clause

cases.’’).

Thus, the Court now recognizes the need to consider market

factors, including market efficiency justifications, when analyz-

ing the legality of tying arrangements. Certainly, it has stressed

such factors in assessing the legality of other non-price vertical

6 See also Standard Stations, 337 U.S. at 306 (protection of goodwill

is a valid justification only when specifications for tied product are so

detailed that they can not be practically supplied); /nternational Salt

Co., 332 U.S. at 397-98 (justification rejected when competitors could

produce comparable goods pursuant to specifications); /BM Corp. v.

United States, 298 U.S. 131, 138-40 (1936) (justification rejected when

competing suppliers could meet specifications),

7 See also Jefferson Parish, 466 U.S. at 41-42 (concurring opinion) (a

court’s decision ‘‘should depend upon the demonstrated economic ef-

fects of the challenged agreement. . . . A tie-in should be condemned

only when its anticompetitive impact outweighs its contribution to effi-

ciency.’’).

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

U.S. 752, 762-63 (1984) (‘‘In Sylvania we emphasized that the

legality of arguably anticompetitive conduct should be judged

primarily by its ‘market impact.’ ’’); Continental T.V., Inc. v.

GTE Sylvania Inc., 433 U.S. 36, 51, 54-59 (1977).

When, as here, an alleged tying restraint impacts only on a

supplier’s authorized dealer network, is reasonably related to

legitimate business objectives, and does not restrict the ability

of the consumer to deal with alternative outlets for the products

or services involved, there is simply no reason to allow a search

for hypothetical alternatives to control or obscure the competi-

tive inquiry. Cf. Sylvania, 433 U.S. at 58 n.29 (whether non-

price vertical restraint was the least or most restrictive provision

that supplier could have adopted is nor dispositive in assessing

the competitive effects of the restraint). Accordingly, this

would be an appropriate time for the Court to reconsider

whether, in light of contemporary antitrust jurisprudence, a

‘‘less restrictive alternative’’ rationale may properly be invoked

to deprive a supplier of an otherwise valid business justification

defense.®

8 Although the court below attached little significance to Pick Mfe.

Co. v. General Motors Corp., 80 F.2d 641 (7th Cir. 1935), aff'd per

curiam, 299 U.S. 3 (1936), it acknowledged that that decision could

properly be viewed as ‘‘an early example of a possible business justifi-

cation defense.’’ (App. at 12a, n.11.)

8

CONCLUSION

For the reasons set forth above, Automobile Importers of

America, Inc. and Motor Vehicle Manufacturers Association of

the United States, Inc. urge that the petition for a writ of certio-

rari be granted.

Respectfully submitted,

Ira M. Millstein

Counsel of Record

Irving Scher

Michael A. Epstein

Martin S. Hyman

Holly J. Gregory

WEIL, GOTSHAL & MANGES

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Counsel for Amici Curiae

Charles H. Lockwood, Il

AUTOMOBILE IMPORTERS

OF AMERICA, INC.

1725 Jefferson Davis Highway

Suite 1002

Arlington, Virginia 22202

(703) 979-5550

William H. Crabtree

MOTOR VEHICLE MANUFACTURERS

ASSOCIATION OF THE UNITED STATES, INC,

300 New Center Building

Detroit, Michigan 48202

(313) 872-4311

Of Counsel

April 18, 1988