Petition for Writ of Certiorari — Stitt Spark Plug Co. v. Champion Spark Plug Co.

vugreme Court, US,

FILED

JUL 23 1988

JOSEPH F. SPANIOL, UR,

88-249

NO.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

STITT SPARK PLUG COMPANY,

Petitioner

Vv.

CHAMPION SPARK PLUG COMPANY,

Respondent

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

WAYNE H. Paris

550 Westlake Park Blvd.

Suite 700

Houston, Texas 77079

(713) 558-8989

Attorney for Petitioner

Stitt Spark Plug Company

REE RE

Alpha Law Brief Co., Inc.— 8748 Westpark—Houston, Texas 77063 — 789-2000

I

QUESTIONS PRESENTED FOR REVIEW

1. Whether or not the Honorable Fifth Circuit Court

of Appeals panel erred in holding that STITT, Peti-

tioner herein, did not produce an economically plausible

theory of anticompetitive effect, entitling it to reach the

jury upon its predatory pricing claim under Sherman

Act, Section 2, and Clayton Act (Robinson-Patman)

Section 2(a), when Petitioner produced substantial

probative evidence in the trial court of Respondent’s

predatory (below cost) pricing and selling within a

definable relevant geographic and product market for

industrial spark plugs, and thus, affirmed a directed

verdict by the District Court.

2. Whether or not the Honorable Fifth Circuit Court

of Appeals panel erred in affirming a directed verdict

by the District Court when Petitioner produced sub-

stantial probative evidence concerning Respondent’s vast

exclusive dealing activities within a definable relevant

geographic and product market for industrial spark

plugs in violation of Sherman Act, Section 1 and

Clayton Act, Section 3.

II

PARTIES TO THE PROCEEDINGS IN THE

COURT BELOW WHOSE JUDGMENT

IS SOUGHT TO BE REVIEWED

1. STITT SPARK PLUG COMPANY, Petitioner.

The STITT SPARK PLUG COMPANY does not have

any parent companies, affiliates, or non-wholly owned

subsidiaries and did not have throughout this proceeding.

2. CHAMPION SPARK PLUG COMPANY, Re-

spondent.

Il

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ...........

PARTIES TO THE PROCEEDINGS IN THE COURT

BELOW WHOSE JUDGMENT IS SOUGHT TO BE

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1. Course of Proceedings and Disposition in the Courts

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Page

284

IV

TABLE OF AUTHORITIES

CASES Page

Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735

F.2d 684, B90 (Sth Cie. 19664) .nccccccccccsccccescs 17

Bayou Bottling, Inc. v. Dr. Pepper Co., 725 F.2d 300, 305

} ee Ae Pr errrrrrTrirrrrerT errr ieee 18,19

Dillion Materials Handling, Inc. v. Ablion Industries, 567

F.26 1299 (CA. $, 1979) ..cccccccscccccscsssccecs 20

Dougherty v. Continental Oil Company, 579 F.2d 984 (Sth

Cir. 1978, jud. vac., 591 F.2d 1206) .........-+.2006: 19

Ford Motor Company v. United States, 405 U.S. 565

CRDTED. ccccncncdccanccdscccesacssseceocesssessecsase 15,19

Heatransfer Corp. v. Volkswagenwerk, Inc., 553 F.2d 964,

981 (5th Cir. 1977), reh. den., 562 F.2d 1257, cert. den.,

G34 DE. BRE ccccsccccrncssccdesvavcavisacovences 18

Hornsby Oil Company, Inc. v. Champion Spark Plug Com-

pany, 714 F.2d 1384 (Sth Cir. 1983) .............. 19

International Air Industries, Inc. v. American Excelsior Co.,

Si? P.28 784 CG Cie. FGFS) oc ccccccctcsscccccces 17

Matsushita Electric Industrial Company v. Zenith Radio

Corporation, 475 U.S. 574, 106 S. Ct. 1348, 89 L.Ed.

, FFs PPT TrriT Ty TrrirrercrTe 16,17

Pinder v. Hudgins Fish Co., Inc., 570 F.2d 1209, 1220

CE EE, BUUOD hccccccccoccosaceceasuvesacuanesss 19

NO.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

STITT SPARK PLUG COMPANY,

Petitioner

Vv.

CHAMPION SPARK PLUG COMPANY,

Respondent

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

OFFICIAL AND UNOFFICIAL REPORTS

OF ANY OPINION DELIVERED

The Honovable United States Court of Appeals for

the Fifth Circuit delivered its official opinion in this

matter on April 1, 1988.

2

GROUNDS UPON WHICH THE JURISDICTION

OF THIS COURT IS INVOKED

1. Judgment of the Honorable United States Couri of

Appeals for the Fifth Circuit was entered April 1, 1988.

2. Petition for Rehearing was denied by the Honorable

United States Court of Appeals for the Fifth Circuit on

April 29, 1988. Petition for Rehearing and Suggestion

for Rehearing en banc was denied by the Honorable

United States Court of Appeals for the Fifth Circuit on

May 9, 1988.

3. This Court has jurisdiction to review the Judg-

ment of the United States Court of Appeals for the Fifth

Circuit in a civil action by writ of certiorari pursuant to

Title 28, United States Code, Section 2101(c).

STATUTES WHICH THIS CASE INVOLVES

1. Sherman Act Section 1 (15 U.S.C. Section 1) pro-

vides that:

“Every contract, combination . . . or conspiracy,

in restraint of trade or commerce... is...

illegal”

2. Sherman Act Section 2 (15 U.S.C. Section 2) pro-

vides that:

“Every person who shall monopolize, or attempt to

monopolize, . . . or conspire with any other person

. to monopolize any part of the trade or com-

merce .. . Shall be . . . guilty of a. . . [violation

of the anti-trust laws]

3

3. Clayton Act Section 3 (15 U.S.C. Section 14) pro-

vides:

“That it shall be unlawful for any person engaged

in commerce . . . to contract for sale of

- + » ON condition, agreement, or understanding that

the . . . purchaser thereof shall not use or deal

in the goods . . . of a competitor or competitors

. Of the . . . seller where the effect of such

. . . Sale, or contract for sale or such condition,

agreement, or understanding may be to substantially

lessen competition or tend to create a monoply in

any line of commerce”

4. Robinson-Patman Act Section 2(a) (15 U.S.C. Sec-

tion 13(a)) provides:

“That it shall be unlawful for any person engaged

in commerce, in the course of such commerce,

either directly or indirectly, to discriminate in price

between different purchasers of commodities of like

grade or quality . . . where the effect of such dis-

crimination may be substantially to lessen compe-

tition or tend to create a monoply in any line of

commerce .. .”

5. Clayton Act Section 4 (15 U.S.C. Section i5)

authorizes:

“Any person who shall be injured in his business or

property by reason of anything forbidden in the

antitrust laws may sue therefore . . .

4

STATEMENT OF THE CASE

1. Course of Proceedings and Disposition in the

Courts Below

On April 16, 1982, STITT filed its Complaint against

CHAMPION in Cause No. H-82-1087, in the United

Staies District Court for the Southern District of Texas,

Houston Division, charging violations of Sections 1 and

2 of the Sherman Act, Section 3 of the Clayton Act and

Section 2(a) of the Robinson-Patman Act. STITT con-

tended that CHAMPION had violated these federal

statutes in the industrial spark plug market in the United

States at both the original equipment (OE) level and

after sales or replacement level of said market (sub-

markets) by basically three activities: (1) selling sub-

stastial industrial spark plugs of a like grade or quality

in the United States at predatory (below cost) prices at

the original equipment level in order to capture the re-

placement or after sales level of the market for industrial

plugs by way of the original equipment tie, (2) massive

exclusive dealing activities for industrial plugs in the

United States at the replacement or after sales level, and

(3) price discrimination for industrial plugs of like grade

or quality in the United States between sales to the origi-

nal equipment industrial engine manufacturers and dis-

tributors in the replacement or after sales market, and

further discrimination in price in its sales to after sales

or replacement distributor accounts, all of whom bought

industrial plugs from CHAMPION. STITT cla-_.ed dam-

ages under appropriate economic methods. After ex-

tensive discovery a First Amended Complaint was filed

under court order of April 21, 1986, in order to amplify

5

and more adequately describe these charges. (R.O.A.

2650, 652, 636). Early in the discovery, however, the

trial court restricted STITT’S discovery to matters subse-

quent to April 15, 1978, because the parties had earlier

settled a similar case on or about April 15, 1978.

(R.O.A. 2411, 2287). On April 6, 1984, the trial court

ordered CHAMPION to provide STITT with information

needed to compute whether CHAMPION charged prices

for original equipment industrial plugs below average

variable cost, which had previously been refused. (R.O.A.

1748). Somewhat of a delay resulted from the death of

Judge George Cire, however, the case was eventually

transferred to Judge Lynn Hughes, who set a trial date

of August 25, 1986 (R.O.A. 65). On August 18, 1986,

STITT filed its Pre-Trial Order, which was later approved

by the Court prior to trial, and on August 20, 1986,

CHAMPION filed its Motion in Limine which was

granted by the Court prior to trial (R.O.A. 449, 163).

A jury was selected and trial commenced on August 25,

1986. On the tenth day of trial, September 9, 1986,

STITT rested its case and the trial court granted CHAM-

PION’S Motion for Directed Verdict, withdrew the case

from the jury, and discharged the jury (R.O.A. 94-95,

114-123). On February 2, 1987, the trial court entered

an Order Governing Release of Sealed Portions of the

Trial Transcript, and after a Request to the Fifth Circuit

Court of Appeals for Writ of Mandamus, the trial court

belatedly filed its Findings of Fact, Conclusions of Law,

and Final Judgment in this cause (R.O.A. 24, 8-10, 15).

From this Final Judgment STITT duly perfected its ap-

peal to the United States Court of Appeals for the Fifth

Circuit by timely filing its Notice of Appeal and other

appropriate documents (R.O.A. 6).

6

The case was argued before the Fifth Circuit panel

in December, 1987. On April 1, 1988, the Fifth Circuit

panel affirmed the Judgment of the United States District

Court for the Southern District of Texas, holding that

Petitioner had not presented an economically plausible

theory in order to sustain a reversal of the District Court’s

actions. A timely Motion for Rehearing was filed and

denied by the Fifth Circuit panel on April 29, 1988. A

Suggestion for Rehearing en banc was denied by the

Fifth Circuit on May 9, 1988, whereupon Petitioner

brings this Petition.

2. Statement of Facts

It was undisputed by the pleadings in this cause that

Respondent, CHAMPION, has its principal office in

Toledo, Ohio, and that it makes and sells spark plugs

for industrial application. It was further established by

the pleadings that the acts of CHAMPION were au-

thorized and accomplished by corporate officers, agents

and employees while they were actively engaged in the

management, control, and direction of CHAMPION’S

business. That in some instances spark plugs differ ac-

cording to the type of end use. That industrial spark plugs

are sold by plug manufacturers to engine manufacturers

for use in original equipment (“OE sales”). That plug

manufacturers also sell industrial plugs to warehouse dis-

tributors for resell to jobbers (“parts houses”), who in

turn resell them to end users. That CHAMPION manu-

factures industrial spark plugs at its plant in Toledo,

Ohio, and its industrial spark plug production is sold

from its Toledo plant to customers in all states through-

out this country. That CHAMPION’S business, including

the manufacture, sale and transportation of industrial

7

spark plugs, constitutes and involves interstate commerce.

That the entire process of manufacture, distribution and

sale of industrial spark plugs substantially affects inter-

state commerce. That STITT competes with CHAMPION

and operates a manufacturing facility in Conroe, Texas

(R.O.A. 449, 627, 636, 652).

STITT’S Amended Complaint alleges a product market

for industrial spark plugs, that is, those plugs manufactured

for industrial application, both in large and small in-

dustrial stationary engines. It alleges that there are dis-

tinct customers for these plugs, specialized vendors, in

soine cases a lack of interchangeability, in some cases

different manufacturing, and industry and public recog-

nition of these plugs as a separate market. It alleges that

the market is divided into submarkets for original equip-

ment (OE) and replacement sales, and that industrial

spark plugs are sold by plug manufacturers to engine

manufacturers for use as original equipment, and to ware-

house distributors for replacement sales. The warehouse

distributors then resell them to jobbers and end users.

It alleges that CHAMPION and STITT are the only

significant domestic manufacturers of industrial plugs in

the United States and that the United States constitutes a

relevant geographic market for the sales of these industrial

plugs. It further alleges that the two (2) submarkets (OE

and replacement) are tied together by what is known as the

“OE tie”, or simply put, the preference to use in the

replacement market the same brand plug as used in the

original equipment (R.O.A. 638-641). To the extent

that the trial court’s Findings of Fact in this case suggest

that STITT suggested in its pleadings or evidence, six

different markets, did not plead ali industrial plugs, em-

bodied its entire market claim in exhibits 277, and/or

8

pleaded a market with glow plugs and furnace starters,

said findings are clearly erroneous. To the extent that the

trial court’s Findings of Fact affirm the “OE tie” concept

they are correct. (R.O.A. 15-17). The Fifth Circuit

opinion assumes that Petitioner adequately defined a rele-

vant market. (Footnote 19, Page 2568).

The Petitioner’s trial presentation consisted of approxi-

mately eight (8) former CHAMPION employees, dis-

trict sales managers and territorial managers for Texas,

Oklahoma, and Louisiana, the deposition testimony of sev-

eral of CHAMPION’S present employees called as adverse

witnesses, the testimony of A. R. Brenholts, Jr. and A. R.

Brenholts, Sr., the President and Chairman of the Board

of STITT, the testimony of Charles Hereford, a certified

public accountant with Hereford, Lynch and Company,

and the testimony of Barry Wilbratte, an economist and

professor at the University of St. Thomas in Houston,

Texas. The product definition to be distilled from the Ap-

pellant’s witnesses at trial indicates that industrial plugs

are in fact defined as plugs used for industrial engines

and that these may be large or small stationary engines,

fueled by gasoline or natural gas. This is supported by

the testimony of former CHAMPION employees, Ray

Loard, Jerry Sartor, John Blesi, J. J. Maner, Kenneth

Revord, Sims Armstrong and Frank McCue. Mr. Bren-

holts, Sr. and Mr. Brenholts, Jr. gave similar definitions,

as well as Edwin Frost, the President of B. G. Service

Company. Finally, present employees of CHAMPION,

Zang, Schwalbe, Westenkirchner, Hoyt and Midgley, gave

essentially this definition (R.O.A. 162 [T. Loard] 10-11,

R.O.A. 45 T. Vol. II 10-11, 50, R.O.A. 45 T. Vol. Il

66-67, 75, R.O.A. 44 T. Vol. III 22, 40, R.O.A. 44 T.

Vol. III 95, 97, R.O.A. 44 T. Vol. III 180-182, R.O.A.

9

41 T. Vol. VI 128, R.O.A. 40 T. Vol. IV 67-68, R.O.A.

3° T. Vol. VIII 97-98, 101, 104, R.O.A. 37 T. Vol. IX

66, R.O.A. 37 T. Vol. IX 69, R.O.A. 37 T. Vol. IX

76, R.O.A. 37 T. Vol. IX 87).

Numerous former CHAMPION employees, as well as

Brenholts, Jr. and Brenholts, Sr., along with Edwin Frost,

also specifically discussed the distinguishing factors and

characteristics of industrial plugs as versus other types,

and distinguished certain examples of industrial plugs

manufactured by CHAMPION from other types, with

reference to heat range, electrode design, price, distinct

vendors, district customers, unique production facilities,

and views of the industry and public. (R.O.A. 162 T.

[Loard] 14-16, R.O.A. 45 T. Vol. II 21-22, R.O.A. 45

T. Vol. II 75, R.O.A. 44 T. Vol. III 2, R.O.A. 44 T. Vol.

Ill 97, R.O.A. 44 T. Vol. III 182-185, R.O.A. 42 T. Vol.

V 47-50, 56-58, 68, R.O.A. 41 T. Vol. VI 7, 12, 15-16,

18-20, 27-35, 44-45, 49-51, 55, 77, R.O.A. 38 T. Vol.

VIII 13-14, 42, R.O.A. 38 T. Vol. VIII 101-102, 104).

The several witnesses also defined the participants in

this industrial market as being primarily CHAMPION,

with STITT a distinct second, and a very small amount

of B. G. Witnesses, Loard and Sartor, former district

sales managers for CHAMPION, felt CHAMPION’S

share was in excess of 90%, witness Revord, a former

territorial manager, felt CHAMPION’S share was about

90%, and Brenholts, Jr. felt CHAMPION’S share ap-

proached 100%. Various witnesses also excluded A C.,

Autolite, and other companies from participation in the

market, and Barry Wilbratte, the STITT economist pro-

jected CHAMPION’S share at 99%. All of this testi-

mony was based primarily upon CHAMPION virtually

10

capturing nearly all of the original equipment contracts

with the industrial engines manufacturers. (R.O.A. 162,

T. Loard 98-102, R.O.A. 45 T. Vol. II 20, 77, R.O.A.

44 T. Vol. III 75, R.O.A. 44 T. Vol. II 98-99, 104-

105, 164-165, R.O.A. 44 T. Vol. III 185, 201, 208-

209, R.O.A. 42 T. Vol. V 42, 125, R.O.A. 41 T. Vol.

VI 22-52, 84-87, 102, R.O.A. 38 T. Vol. VIII 8, 19, 46,

R.O.A. 38 T. Vol. VII 105-106, 109-110, R.O.A. 37

T. Vol. IX 27, R.O.A. 36 T. Vol. X 3, 7, 113, 115,

118, 135).

All of the former CHAMPION employees, as well as

several current employees and the Brenholts, agreed

that the United States constituted a separate geographical

market for industrial spark plugs, that this geographic

market was distinguished from European and other

foreign markets, and was treated as such by the market

participants. To the extent that the trial court's Con-

clusions of Law and Findings of Fact indicate to the

contrary they are clearly erroneous. (R.O.A. 10-12, 15-

17) (See: R.O.A. 162 T. [Loard] 13-14, R.O.A. 45

Vol. II 9, 78, R.O.A. 44 T. Vol. Ill 3, R.O.A. 44

Vol. Ill 94, R.O.A. 44 T. Vol. Til 185, R.O.A. 41

Vol. VI 105, R.O.A. 41 T. Vol. IV 110, R.O.A. 38

Vol. VII 116, R.O.A. 37 T. Vol. IX 28, R.O.A. 37

Vol. IX 42-43, 67, R.O.A. 37 T. Vol. IX 82-83).

Further, the witnesses testified as to the “OE tie”

between the original equipment level and the replacement

level of the industrial spark plug market, thereby con-

firming a product submarket at each level connected by

the OE tie (R.O.A. 162 T. [Loard] 41, R.O.A. 45 T.

Vol. II 13-15, R.O.A. 44 T. Vol. III 77, R.O.A. 44

T. Vol. III 104-107, 173, R.O.A. 44 T. Vol. Ili 210-

a are

11

211, 214-216, 225, 228, 231, R.O.A. 41 T. Vol. VI 56,

R.O.A. 41 T. Vol. VI, 157-58, R.O.A. 38 T. Vol. VIII

69, R.O.A. 38 T. Vol. VIII 106-106, R.O.A. 37 T. Vol.

IX 85-86, R.O.A. 37 T. Vol. IX 99, 103, 107).

The trial court in its Findings of Fact and Conclusions

of Law stated that STITT pleaded a market encompassed

in PX 277. This is clearly erroneous. The witnesses,

Brenholts, Jr. and Brenholts, Sr., testified that PX 277,

PX 283, as well as DX 3, were lists developed in dis-

covery based upon information CHAMPION supplied

in interrogatories on questions relating to industrial plugs.

Since designations of plug types were changed frequently

by CHAMPION, the lists attempted an industrial plug

framework for discovery at the original equipment level,

in order that STITT’S experts might have specific types

at hand to perform their work. STITT’S expert, C.P.A.

Hereford, excluded from projections those in which all

information was not available. Certain CHAMPION K

stock industrial plug information was never provided by

CHAMPION. At best, these lists were suggested samples

of the industrial spark plug original equipment market

based upon the information available, but were not

totally inclusive or exclusive, but did form discovery

parameters in order that the case could proceed properly

on pre-trial matters. The pleaded and proved market was

the industrial spark plug market (R.O.A. 41 T. Vol. VI

66, 94, R.O.A. 37 T. Vol. IX 12, R.O.A. 37 T. Vol. IX

30-31, R.O.A. 40 T. Vol. 7, 139-140, 165, R.O.A.

660-678, 693-705, R.O.A. 11-12, 16, 17).

STITT’S certified public accountant, Charles Hereford,

traveled to Toledo, Ohio, under court order, reviewed

statistical data and conducted an interview with CHAM-

12

PION personnel to determine average variable manu-

facturing cost or average variable cost of all CHAMPION

industrial plug types, supplied in answers to interroga-

tories on PX 283, 277 and 338. He analyzed all those

types of which CHAMPION supplied complete informa-

tion for, within time frames for said analysis from April

15, 1978 to July 31, 1985. The time frames basically

ran from August 1 to July 31 of each year. His in depth

analysis concluded that substantial amounts of industrial

types were sold below average variable cost in the original

equipment (OE) market and replacement market for

each of the time frames. These plugs included certain

CHAMPION types CHAMPION suggested to be non-

industrial at trial.’ (R.O.A. 40 T. Vol. Vil 130, 132-

137, 139, 141-165, 178, PX 277, 283, 341, 338, R.O.A.

161 T. Hereford 33-34, 36, 38, 41).

The contingent of former CHAMPION employees,

Loard, Sartor, Blesi, Maner, Revord, Armstrong, and

McCue, confirmed CHAMPION’S exclusive dealing ac-

tivities at the replacement level of the market for in-

dustrial plugs directed both at warehouse distributors

and jobbers. Specifically, there was testimony that in

many cases CHAMPION employees were removing

STITT plugs and that these removals were made under

conditions, agreements or understandings, that they

would phase out and do away with STITT, in order

to take on the CHAMPION industrial line, and this

1. An order from the trial court entered after the Final Judg-

ment prevents Appellant from an in depth analysis of the plug

types or the substance of Hereford’s testimony related to the exact

amounts of below cost sales. The court is directed to a complete

reading of R.O.A. 4C T. Vol. VII, PX 277, 283, 341, 338, and

R.O.A. 161 T. [Hereford] for this information (R.O.A. 24-26).

(See Appendix sealed portions).

13

was induced by offering awards, etc. to the warehouse

distributors and jobbers. (R.O.A. 162 T. Loard 25-26,

28-29, 31-33, 35-39, 44-49, 51, 86-87, 89-91. R.O.A.

45 T. Vol. II 15-16, 25-26, 28, 30, 32-35, 38-39, R.O.A.

44 T. Vol. III 36-38, R.O.A. 44 T. Vol. III 120-122,

126-127, R.O.A. 44 T. Vol. IIT 189-190, 195, 198-200,

207, R.O.A. 41 T. Vol. III 233, R.O.A. 41 T. Vol. VI

94, R.O.A. T. Vol. VI 117-118, 142, R.O.A. 40 T. Vol.

VIII 81, 86, 91-92).

STITT proferred evidence in the trial court that

CHAMPION had discriminated in price on its sale of

industrial plugs of the same grade or quality between

original equipment industrial engine accounts (OE) and

replacement or after sales accounts, and further had

discriminated in price in its sale of industrial spark plugs

of the same grade or quality to its replacement accounts

in sales to its warehouse and other intermediate level

distributors, who provided industrial spark plugs to

jobbers and end users of such plugs, i.e. NAPA v. normal

warehouse distributors, C-Fleet v. normal warehouse dis-

tribuiors, oil companys v. normal warehouse distributors.

Former and present CHAMPION employees testified as

to these practices. (R.O.A. 162 T. Loard 41, 42-43,

128-129, R.O.A. 45 T. Vol. II 29, R.O.A. 44 T. Vol.

Ill 115-116, 124, R.O.A. 44 T. Vol. III 237, 238, R.O.A.

43 T. Vol. IV 16, R.O.A. 41 T. Vol. VI 148-149,

R.O.A. 38 T. Vol. VIII 76-77, 81, 85-86, R.O.A. 37

T. Vol. IX 45-46, R.O.A. 37 T. Vol. IX 85-86).

Sufficient damage evidence was proferred by way of

testimony of A. R. Brenholts, Jr., and A. R. Brenholts,

Sr. and their economist, Barry Wilbratte, as well as sup-

porting documents and calculations. Brenholts, Jr. testi-

14

fied as to the fact of damage, and that but for the

CHAMPION activities, the productive capacity of his

plant would be three to five times what it was in the

relevant time frames. The effects of the CHAMPION’S

below cost selling, exclusive dealing activities and price

discrimination upon STITT’S business, and the fact of

damage, were fully discussed by both Brenholts, Jr. and

Brenholts, Sr. (R.O.A. 43 T. Vol. IV 37, 40-47, 56-58,

R.O.A. 42 T. Vol. V 74, 125, 139-140, 144, 147,

R.O.A. 38 T. Vol. VIII 114-115, R.O.A. T. Vol. TX 39).

Barry Wilbratte, the STITT economist, confirmed the

fact of damage based upon supporting data and com-

pwted the quantum of damages to STITT based upon

reduced STITT sales from CHAMPION activities, trans-

lating into reduction of STITT profits during the time

frames since April 15, 1978. He discussed the factors

creating damages to STITT and indicated the most im-

portant was predatory (below cost) selling, although

he included the factors of exclusive dealing and price

discrimination. (R.O.A. 37 T. Vol. IX 95-200, 105,

106-107). Wilbratte computed market shares over the

time period and found CHAMPION with 99%. He

computed STITT’S loss of profits from April 15, 1978,

to the present, and future damages from the present

period to 2009, used the appropriate rates, discounted

properly, and found damage figures of present and future

at $4,864.22 (for three times productive capacity),

present and future of $14,770.762 (for five times pro-

ductive capacity). All of these computations were sup-

ported by reasonable rates and calculations. (R.O.A. 36

T. Vol. X 3-25, 113-115, 117-118, 119-129, 135-138).

To the extent that the trial court’s Findings of Facts

and Conclusions of Law suggest that no fact of damage

15

was proved or that the damages were not adequately

separated from the pre-April 15, 1978, time period,

same are clearly erroneous. (R.O.A. 21-22, 23, R.O.A.

36 T. Vol. X 13, 111-113).

Both Brenholts, Jr. and Wilbratte explained thoroughly

entry barriers in the industrial spark plug business be-

cause of the OE tie and practices of CHAMPION.

(R.O.A. 43 T. Vol. IV 26, 37, 40, 56-57, R.O.A. 37

T. Vol. [IX 99-100, 193, 196, R.O.A. 36 T. Vol. X 8-11).

ARGUMENT

The Honorable panel of the United States Court of

Appeals for the Fifth Circuit has decided a federal ques-

tion in a way in conflict with the applicable decisions of

this Court and its own decisions, as set out below.

Specifically, the Fifth Circuit opinion in this case is

in conflict with this Court’s opinion in Ford Motor

Company v. United States, 405 U.S. 565 (1972) in an

industrial spark plug market setting.

1. THE FIFTH CIRCUIT COURT OF APPEALS

ERRED IN HOLDING THAT STITT DID NOT

PRODUCE AN ECONOMICALLY PLAUSIBLE

THEORY OF ANTICOMPETITIVE EFFECT EN-

TITLING IT TO REACH THE JURY ON ITS

PREDATORY PRICING CLAIM UNDER SHER-

MAN ACT SECTION 2, CLAYTON ACT SEC-

TION 2(a), AND PRICE DISCRIMINATION

UNDER CLAYTON ACT SECTION 2(a).

The Fifth Circuit panel in its opinion of April 1, 1988,

correctly recognized that both STITT and CHAMPION

sell their industrial plugs to two distinct kinds of pur-

16

chasers. One group consisting of those who manufacture

engines in which spark plugs are used as original equip-

ment, and the other group being warehouse distributors

and retail parts stores, that purchase for resale to engine

owners as replacement equipment. The panel further cor-

rectly recognized that this dichotomy created two “mar-

kets” (Paragraph I, Page 2564). The Court's panel also

observed that Champion sold its plugs to OE manufac-

turers at prices well below those of replacement plugs,

even though the products are otherwise identical. This

general statement is correct. However, the evidence

showed that the sales to the OE manufactures were

below average variable cost (Paragraph I, Page 2564).

The statistical analysis (PX 338, 341) even showed

numerous instances of the industrial plugs sold in the

replacement market at below average variable cost. This

is extremely significant to the courts erroneous findings

of fact and law, as will be pointed out, infra.

The Fifth Circuit’s decision of April 1, 1988, then

draws upon the claimed applicability of the recent Su-

preme Court case of Matsushita Electric Industrial Com-

pany v. Zenith Radio Corporation, 475 U.S. 574, 106

S. Ct. 1348, 89 L.Ed.2d 538 (1986), a case affirming

a summary judgment where the Plaintiff alleged a

Sherman Section 1 alleged predatory pricing conspiracy,

quoting the Matsushita language at pages 1356-1359

(Paragraph II A, Pages 2564-2565). The problem, and

error in the law, in finding Appellant’s position not

economically plausible, based upon Matsushita, is that

1) this was a Sherman Section | case and the Supreme

Court observed that “. . . antitrust law limits the range

of permissible inferences from ambiguous evidence in a

Section 1 case . . .” and 2) Matsushita is not a case

17

involving pricing below average variable cost by a single

firm, but one involving pricing at some level of incre-

mental costs, Matsushita at page 1355, footnotes 8-9,

page 1357. Unlike Matsushita, Stitt v. Champion is a

Sherman Act Section 2 case, with direct evidence of

virtually 100% of OE spark plugs sold below average

variable cost in the OE market, as well as numerous

instances of sales below average variable cost in the re-

placement market (PX 338, 341).

In an unbroken line of decisions the Fifth Circuit

had recognized and adopted the position that predatory

pricing may be demonstrated by showing that the De-

fendant sacrificed present revenues for the purpose of

driving Plaintiff out of the market, with the hope of

recouping losses through subsequent higher prices. The

Fifth Circuit had observed that in order to prove that

Defendant has sacrificed present revenues, it is only

necessary to establish that Defendant's prices were below

marginal or average variable cost. Adjusters Replace-A-

Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890

(Sth Cir. 1984); International Air Industries, Inc. v.

American Excelsior Co., 517 F.2d 714 (Sth Cir. 1975).

Precisely this has been shown in the evidence, in the

Fifth Circuit's recognized OE market (submarket), and

even in some instances, in the Fifth Circuit’s recognized

replacement market (submarket).

Hence, the Fifth Circuit’s decision of April 1, 1988,

is in conflict with its own decisions in the Adjusters-

Rent-A-Car, case, supra, and the International Air In-

dustries, case, supra, as well as footnote 9 of page 1355

of the Matsushita case, supra.

Champion was charged with not only attempted

monopolization, but also monopolization under Sherman

18

Act Section 2 and price discrimination under Clayton

Act Section 2(a). Below cost selling alone, in a definable

market, taken together with the size of the market share

(99% ), is probative of monopolization. The Fifth Cir-

cuit’s opinion of April 1, 1988, gives no effect whatsoever

to the monopolization claim or the market share evidence.

Given the evidence therefore, the Fifth Circuit decision

conflicts with its own decision in Heatransfer Corp. v.

Volkswagenwerk, Inc., 553 F.2d 964, 981 (Sth Cir.

1977), reh. den., 562 F.2d 1257, cert. den., 434 US.

1087.

The Fifth Circuit’s opinion of April 1, 1988, then

substitutes a fictional hypothesis in order to reach the

conclusion that Stitt failed to prove below cost selling

and hence predatory pricing. The Fifth Circuit panel

stated that when Champion sets prices for original equip-

ment plugs, the expected return also must include re-

placement purchases that will follow, (“. . . Hence, any

meaningful comparison of price and cost must encompass

Champion's sales to both markets. Stitt’s evidence did

not demonstrate that Champion's practices were “preda-

tory” across both markets . . .”) citing Bayou Bottling,

Inc. v. Dr. Pepper Co., 725 F.2d 300, 305 (Sth Cir.

1985) as authority for the proposition that a predatory

pricing analysis must include the entire product line.

Thus, the panel of the Fifth Circuit has used the concept

of OE tie, to take the position for the first time, that

when one market or submarket is tied to a second market

or submarket by such an OE tie, for whatever the reason,

in a predatory below cost pricing claim, the Plaintiff

must prove both below cost pricing at the OE market

and also at the replacement level, even though they are

two recognizably distinct markets. Under Bayou Bottling

19

supra, the panel suggests that if this is not done, the

entire product line is not analyzed. There are several

problems with this approach.

First, it allows the court to substitute its legal opinion

for the factual issue that in an OE tie case, where there

are two defined markets, there is really only one market

and that is the overall market at both levels for industrial

plugs. Such a substitution is inconsistent and in conflict

with the Fifth Circuit's opinions that relevant market

is a fact issue for the jury. Pinder v. Hudgins Fish Co.,

Inc., 570 F.2d 1209, 1220 (Sth Cir. 1978); Dougherty

v. Continental Oil Company, 579 F.2d 984 (Sth Cir.

1978, jud. vac., 591 F.2d 1206); Hornsby Oil Company,

Inc. v. Champion Spark Plug Company, 714 F.2d 1384

(Sth Cir. 1983). The opinion, including the assumption,

also conflicts with the case of Ford Motor Company v.

United States, 405 U.S. 565 (1972) which defines two

markets and not one market.

Secondly, the Bayou Bottling case, supra, can not

support this proposition. In that case there was only one

market, the product market for soft drinks. The full or

entire product line was within the one market, and the

below cost pricing was not shown for the entire line

within the one market. The Fifth Circuit has now expanded

this concept to include two markets, whenever connected

by an OE tie or consumer preference. This is in conflict

with the Fifth Circuit’s prior decisions and a case of

first impression.

Third, the Fifth Circuit panel's decision does not

square with the evidence in this cause. The decision

presumes there to be no below cost pricing in the re-

placement market. Such is not the case. Numerous in-

20

stances of below cost pricing were even found in the

replacement market, designated as after market upon

the CPA exhibits. True, they were not as extensive as

the OE market, but even these were substantial. (See

PX 341). Hence, both markets were analyzed and below

cost pricing actually occurred in both. The amount and

degree is just less in the replacement or after market.

Therefore, even under this panel’s interpretation, the

entire line was analyzed.

Further, the Fifth Circuit panel holds Stitt’s position

is not economically plausible. The panel has therefore

substituted its opinion for that of the economist, Mr.

Wilbratte, who concluded that Stitt had suffered injury

by the Champion practices under this theory of the case.

Champion brought no economist to testify that this was

an economically implausible theory. The case therefore

should have gone to the jury.

2. THE FIFTH CIRCUIT COURT OF APPEALS

DECISION OF APRIL 1, 1988, CONFLICTS

WITH ITS HOLDING IN DILLION MATERIALS

HANDLING, INC. v. ABLION INDUSTRIES,

567 F.2d 1299 (5th Cir. 1979).

The Fifth Circuit’s decision in Dillion, supra, lays out

the requisites for proof of exclusive dealing under Sher-

man Act Section 1 and Clayton Act Section 3. Jury

issues were raised under that case and the panel’s deci-

sion conflicts with such. Conditions, agreements, or

understandings from the basis of exclusive dealing claims

in violation of Sherman Act, Section 1, and Clayton Act,

Section 3, Dillion Materials Handling, Inc. v. Ablion

Industries, 567 F.2d 1299 (C.A. 5, 1979). Ray Loard

21

testified that he made an exclusive dealing agreement

with Oklahoma Rig through Mr. Schultz to replace Stitt

with Champion and get rid of Stitt. He further testified

that the agreement was complied with (R.O.A. 162 T.

[Loard] 33-37, 86-87). He further testified that Mr.

and Mrs. Coldwell agreed to get rid of Stitt to become

a distributor for Champion. He stated that the Stitt plugs

in this instance were returned (R.O.A. 162 T. [Loard]

37-38). He further identified a company in Hennessey,

Oklahoma, that got rid of Stitt under an agreement with

Champion, and said that hundreds did the same thing

(R.O.A. 162 T. [Loard] 38).

Oklahoma Rig and other distributors, as well as

jobbers, were prevented from purchasing Stitt on a

national basis by these activities of Champion, as dis-

cussed above. Each of the former Champion employees

testified that this was a national Champion program.

Mr. Brenholts, Sr. testified as to the effect upon Stitt’s

business, as did the economist, Barry Wilbratte (R.O.A.

43 T. Vol. IV 37, 40-47, 56-58, R.O.A. 38 T. Vol. VIIT

111-115, R.O.A. T. Vol. IX 39, R.O.A. 37 T. Vol. IX

95-200, 105, 106-107).

In the light of this testimony, Champion can not

possibly contend that a significant fraction of the Stitt

business has not been lost. A jury issue was certainly

created. The economist, Mr. Wilbratte, projected an

impact upon Stitt’s national business by these foreclosures.

The Fifth Circuit’s decision substitutes the court’s opinion

for this testimony and is improper.

22

WHEREFORE, PREMISES CONSIDERED, Stitt

Spark Plug Company prays this Honorable Court grant

a Petition for Writ of Certiorari in the above styled

matter for the foregoing reasons.

Respectfully submitted,

Way&e H. Paris

550 Westlake Park Blvd.

Suite 700

Houston, Texas 77079

(713) 558-8989

Attorney for Petitioner

Stitt Spark Plug Company

CERTIFICATE OF SERVICE

I hereby certify that three true and correct copies of

this Petition for Writ of Certiorari and Appendix have

been forwarded to Mr. Rufus W. Oliver, III and N. K.

Alexander, Baker & Botts, 3000 One Shell Plaza, Hous-

ton, Texas 77002, and Mr. Donald F. Melhorne, Marshall

& Melhorne, Four Seagate, 8th Floor, Toledo, Ohio

43604, aca mail, return receipt requested, on

this the day of August, 1988.

(hepoll Pou

Waynyé H. PARIS

la

APPENDIX

STITT SPARK PLUG CO.,

Plaintiff-Appellant,

V.

CHAMPION SPARK PLUG CO.,

Defendant-Appellee.

No. 87-2656.

United States Court of Appeals,

Fifth Circuit.

April 1, 1988.

Industrial spark plug manufacturer brought antitrust

action against competing manufacturer of industrial, com-

mercial, and dual spark plugs. The United States District

Court for the Southern District of Texas, Lynn N.

Hughes, J., entered directed verdict for competing manu-

facturer, and plaintiff manufacturer appealed. The Court

of Appeals, Patrick E. Higginbotham, Circuit Judge, held

that: (1) plaintiff manufacturer did not present jury ques-

tion on predatory pricing claim on allegations competing

manufacturer sold spark plugs in original equipment market

at prices below cost in order to eliminate plaintiff manu-

facturer as competitor in replacement plug market; (2)

plaintiff manufacturer did not present jury question as

to whether price discrimination with anticompetitive effect

required for Robinson-Patman Price Discrimination Act

prohibition to apply existed; and (3) plaintiff manufac-

turer did not present jury question as to whether any

anticompetitive practice of competing manufacturer re-

2a

lating to agreements with distributors to carry competing

manufacturer’s plugs exclusively handicapped plaintiff

manufacturer.

Affirmed.

Appeal from the United States District Court for the

Southern District of Texas.

Before BROWN, JOHNSON and HIGGINBOTHAM,

Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Stitt Spark Plug Company brought this antitrust suit

against Champion Spark Plug Company alleging that

Champion engaged in anticompetitive practices, including

price discrimination, predatory pricing and exclusive deal-

ing, violative of the Sherman and Robinson-Patman Acts.

The district court entered a directed verdict for Champion

after Stitt presented its evidence to the jury. We find that

Stitt’s theory of predatory pricing is implausible and that

a reasonable jury could not have concluded that any ex-

clusive dealing agreements with dealers denied Stitt ac-

cess to the market for industrial spark plugs. We affirm.

I

Champion Spark Plug Company is the leading inde-

pendent manufacturer of spark plugs, and sells at least

three hundred different models of plugs, many of which

can be used in a variety of different engines. Champion’s

plugs fall into three broad categories: “industrial” plugs,

for use in large, stationary engines; “commercial” plugs,

for automotive and smaller engines; and “dual” plugs,

3a

which can be used in either industrial or commercial

engines. Stitt Spark Plug Company, a smaller manufac-

turer, makes over two hundred different models, nearly

all of which fall into the “industrial” category.

Both companies sell their spark plugs to two distinct

kinds of purchasers. One group of buyers consists of

companies that manufacture engines in which spark plugs

are included as original equipment. The other group con-

sists of warehouse distributors and retail part stores that

purchase spark plugs for resale to engine owners as re-

placement equipment. The two “markets” are related,

however, in that engine owners tend to purchase replace-

ment plugs of the same brand as the plugs that came

with the engine originally. Stitt’s witnesses provided at

least three explanations for this preference: (1) engine

operators have confidence in the original brand of plug

because it performed well; (2) operators trust that the

engine manufacturer selected the original brand because

it was well suited for the engine; and (3) operators fear

that use of a different brand will endanger the engine’s

warranty.

In order to capitalize on this consumer preference,

Champion sells spark plugs to original equipment manu-

facturers at prices well below the price of replacement

plugs, even though the products are otherwise identical.

Stitt brought this lawsuit alleging that Champion’s pric-

ing policy was predatory and in violation of the antitrust

laws. The suit also alleged that Champion was guilty of

price discrimination and exclusive dealing. After Stitt

presented its evidence to a jury, the district court issued a

directed verdict for Champion on all counts.

4a

II

Stitt accused Champion of three kinds of anticom-

petitive conduct: predatory pricing under Sherman Act

§ 2 and Clayton Act § 2(a); price-discrimination under

Clayton Act § 2(a); and exclusive dealing under Sherman

Act § 1 and Clayton Act § 3. We deal with each allega-

tion in turn, keeping in mind that the district court

Should have granted a directed verdict only if reason-

able people could not arrive at a verdict against Cham-

pion after considering all the evidence and all reasonable

inferences that can be drawn from it in a light most

favorable to Stitt’s case.’

A

[1] Stitt first argues that Champion sold spark plugs

in the original-equipment market at prices below cost

in order to eliminate Stitt as a competitor in the replace-

ment market. This conduct, according to Stitt, was an

illegal attempt to monopolize within the meaning of Sher-

man Act § 2° as well as unlawful price discrimination in

violation of Clayton Act § 2(a).* Because we use a simi-

lar standard for judging assertions of predatory pricing

under these statutes,‘ we discuss the claims together.

The Supreme Court recently discussed predatory pric-

ing in Matsushita Electric Industrial Co. v. Zenith Radio

1. See Boeing Co. v. Shipman, 411 F.2d 365, 374 (Sth Cir. 1969).

2%. UUs ee

3. 15 U.S.C. § 13(a).

4. See Malcolm v. Marathon Oil Co., 642 F.2d 845, 853 n. 16

(Sth Cir.), cert. denied, 454 U.S. 1125, 102 S. Ct. 975, 71 L.Ed.2d

113 (1981).

t-te

Sa

Corp. Matsushita considered the claim of American tele-

vision manufacturers that a group of Japanese competitors

conspired to lower the price of television sets in order to

drive American manufactures out of business. In holding

that the district court properly dismissed the case on

summary judgment, the Court noted that plaintiff's burden

was to “come forward with ‘specific facts showing that

there is a genuine issue for trial,’”* that is, one that is

economically plausible in light of the evidence presented.

“(I]f the factual context renders respondents’ claim im-

plausible—if the claim is one that simply makes no eco-

nomic sense—respondents must come forward with more

persuasive evidence to support their claim than would

otherwise be necessary [to avoid summary judgment].”’

The Court went on to hold that the economic disincentives

to predatory pricing often will justify a presumption that

an allegation of such behavior is implausible.

[T]he success of [predatory pricing] schemes is in-

herently uncertain: the short-run loss is definite, but

the long-run gain depends on successfully neutral-

izing the competition. Moreover, it is not enough

simply to achieve monopoly power, as monopoly

pricing may breed quick entry by new competitors

eager to share in the excess profits. The success of

any predatory scheme depends on maintaining mo-

nopoly power for long enough both to recoup the

predator’s losses and to harvest some additional gain.

5. 475 US. 574, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986); see

also Cargill, Inc. v. Monfort of Colorado, Inc., US. , 107

S. Ct. 484, 493-94, 93 L.Ed.2d 427 (1986) (discussing predatory

pricing).

6. Matsushita, 106 S. Ct. at 1356 (emphasis in opinion) (quot-

ing Fed. R. Civ. P. 56(e)).

7. Matsushita, 106 S. Ct. at 1356.

6a

Absent some assurance that the hoped-for monopoly

will materialize, and that it can be sustained for a

significant period of time, “[t]he predator must make

a substantial investment with no assurance that it

will pay off.” Easterbrook, Predatory Strategies and

Counterstrategies, 48 U. Chi. L. Rev. 263, 268

(1981). For this reason, there is a consensus among

commentators that predatory pricing schemes are

rarely tried, and even more rarely successful.*

As the Court recognized, predatory pricing can be

anticompetitive if it contributes to monopoly power; the

successful predator eliminates its competitors in order to

raise prices above competitive levels at a later time.”

Stitt’s theory here is different: Champion is accused of

cutting prices in one market—original equipment—in

order to capture concurrent gains in another market—

replacement equipment. It is central to Stitt’s theory that

purchasers of replacement spark plugs prefer the same

brand that came with the equipment when new.’®

Premised on this theory, Stitt’s evidence could not

support an economically plausible inference that Cham-

pion’s policy was aimed ultimately at raising prices above

competitive levels. Under Stitt’s theory that a sale to an

original-equipment manufacturer assures sales to the re-

8. Jd. at 1357-58.

9. See Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc.,

735 F.2d 884, 889 (5th Cir. 1984), cert. denied, 469 US. 1160,

105 S. Ct. 910, 83 L.Ed.2d 924 (1985): International Air Industries,

Inc. v. American Excelsior Co., 517 F.2d 714, 723 (5th Cir. 1975),

cert. denied, 424 U.S. 943, 96 S. Ct. 1411, 47 L.Ed.2d 349 (1976).

10. The phenomenon that consumers prefer the original plug for

replacement is not new to antitrust law. See Ford Motor Co. v.

United States, 405 U.S. 562, 565, 92 S. Ct. 1142, 1145, 31 L.Ed.2d

492 (1972) (discussing “OE tie” in automotive spark plugs).

Ta

placement market, an inquiry into competitive effect

must look at the original and replacement markets to-

gether. When Champion sets the prices for original-

equipment plugs, the expected return includes not only

the price paid by the original-equipment manufacturer,

but also the replacement purchases that probably will

follow. Hence, any meaningful comparison of price and

cost must encompass Champion’s sales to both markets.”*

Stitt’s evidence did not demonstrate that Champion’s

practices were “predatory” across both markets.

Looking at it another way, Stitt never proved that

Champion’s recoupment of losses on below-cost sales

depended upon the absence of Stitt as a competitor. No

action of Champion prevented Stitt from also pricing its

product to original-equipment manufacturers with an ex-

pectation of return from the replacement market. Stitt’s

own witnesses testified that the consumer preference can

be captured by any manufacturer who can place its plugs

with engine makers.’* Hence, any ability Champion may

have had to raise prices for replacement plugs was not

the result of market power. Without an economically

plausible theory of anticompetitive effect, Stitt was not

entitled to reach the jury on the predatory-pricing claim.

11. Cf. Bayou Bottling, Inc. v. Dr. Pepper Co., 725 F.2d 300,

305 (Sth Cir.) (stating that predatory-pricing analysis must include

entire product line), cert. denied, 469 U.S. 833, 105 S. Ce. 123,

83 L.Ed.2d 65 (1984).

12. Counsel for Stitt retreated from this admission at oral argu-

ment, contending for the first time that consumers tended to use

Champion plugs for replacement purposes because Champion’s ex-

clusive-dealing practices made other brands unavailable. Such a

theory is inconsistent with the essence of the predatory-pricing claim:

if Champion so dominated the replacement market, it would not

need to sell below cost in the original equipment market.

<<

8a

[2] Stitt also alleged that Champion engaged in two

kinds of illegal price-discrimination: Champion charged

different prices in the markets for original and replace-

ment equipment, as we discussed, and Champion varied

its prices between different warehouse distributors of

replacement plugs. Stitt contended that these practices

constituted an attempt to monopolize in violation of

Sherman Act § 2. Stitt also complained that this dis-

crimination violated the Robinson-Patman Act, which

prohibits either direct or indirect “discrimination in price

between different purchasers of commodities of like grade

and quality . . . where the effect of such discrimination

may be substantially to lessen competition or tend to

create a monopoly in any line of commerce. . . .”™*

We explained in /nternational Air v. American Ex-

celsior Co.,"* that when a company claims that its com-

petitor engaged in price discrimination—a “primary-line”

claim—injury to competition is not established by evi-

dence of “a mere diversion of business from one com-

petitor to another.”’* In International Air, we affirmed

entry of a directed verdict against a manufacturer of

cooling pads who sued a competitor alleging that the

compeitor charged lower prices in some cities than in

others. We found the directed verdict appropriate because

there was no evidence that the defendant predatorily

priced; in charging differential prices the defendant had

not “sacrificed present revenues for the purposes of

13. 15 U.S.C. § 13(a).

14. 517 F.2d 714 (Sth Cir. 1975).

15. Jd. at 721.

9a

driving [the plaintiff] out of the market.”’* For proof

of competitive effect, Stitt rests upon its assertion that

the differences in price constitute predatory behavior.

As we have explained, Stitt failed to prove that

Champion's pricing of spark plugs in the original and

replacement equipment markets was predatory. On this

record, then, there was no attempt to monopolize nor

proof of “lessened competition” within the meaning of

the Robinson-Patman Act.

Champion did not deny that it sold industrial spark

plugs to NAPA, a national chain of auto parts stores,

at a lower price than it sold to other warehouse dis-

tributors and intermediate sellers. However, Stitt never

produced evidence that the price difference inhibited

competition or even its ability to compete in the replace-

ment plug market; indeed, Stitt’s brief on appeal fails

to offer any theory as to why this should be so. Because

the Robinson-Patman Act only prohibits price-discrimi-

nation with the requisite anticompetitive effect, the dis-

trict court was justified in entering a directed verdict

on this issue.

Cc

[3] Stitt also alleged that Champion violated the

Clayton Act in making agreements with distributors to

carry Champion plugs exclusively. Section 3 of the Act

makes it unlawful to

make a sale or contract for sale of goods . . . on

the condition, agreement, or understanding that the

. . « purchaser thereof shall not . . . deal in the

16. Jd. at 723.

10a

goods . . . of a competitor . . . of the . . . seller, where

the effect of . . . such condition, agreement, or

understanding may be to substantially lessen com-

petition or tend to create a monopoly in any line

of commerce."’

The written agreement between Champion and its dis-

tributors disclaimed any obligation for the distributor to

carry only Champion products. Stitt alleges, however,

that Champion secured such agreements under the guise

of a promotional program known as “Feature Line

Selling.” Under the program, Champion analyzed the

distributor’s rate of inventory turnover to determine

which non-Champion brands were worth carrying; the

underlying principle was that a distributor could reduce

inventory costs by carrying only Champion’s full line

of plugs. Champion supplemented this persuasion by

offering distributors promotional gifts, ranging from

jackets to refrigerators, if they removed competing spark

plugs from their shelves. Several former Champion sales-

persons and supervisors testified that these incentives

persuaded at least three distributors to agree to stop

carrying Stitt plugs.

Whether there were exclusive dealing contracts was a

jury question, perhaps, but it does not follow that the

district court erred in its directed verdict. While Stitt

proved that a handful of distributors once removed Stitt

plugs from their shelves, Stitt proved no instance in

which a distributor honored an exclusive dealing agree-

ment by refusing to purchase Stitt plugs. In addition,

there was no testimony that any distributor agreed to

refrain from selling competing plugs for any specified

17. 15 U.S.C. § 14.

lla

period of time.'* There was no evidence that a distributor

who failed to abide by the agreement would be subject

to any sanction and hence no reason to believe dis-

tributors did not feel free to stock competing plugs.

More to the point, Stitt did not prove the extent to its

foreclosure from the replacement market; Stitt offered

no comparison between the number of distribution outlets

available and the number of those foreclosed. Without

more, no reasonable jury could have concluded that

Champion’s efforts foreclosed a “substantial share of the

relevant market.”””

Finally, Stitt's theory of the original-equipment prefer-

ence is inconsistent with its claim that Champion denied

Stitt access to the replacement market through exclusive-

dealing contracts. Stitt would not gain much from access

to distributors’ shelves if Stitt could not place its plugs in

original equipment and capture the consumer preference.

Stitt’s proof leads to the inescapable conclusion that the

main competitive battle in this industry is fought at the

front door of the original-equipment manufacturer. The

jury was offered no proof that any anticompetitive prac-

tice of Champion handicapped Stitt in that fight.

18. Cf. Denison Mattress Factory v. Spring-Air Co., 308 F.2d

403. 412 (Sth Cir. 1962) (finding exclusive-dealing contract per-

missible because it was terminable without cause in six months).

The Seventh Circuit also recently has concluded that because they

lack any serious anticompetitive effect, “le)xclusive-dealing contracts

terminable in less than a year are presumptively lawful under sec-

tion 3.” Roland Machinery Co. v. Dresser Indus., Inc., 749 F.2d

380, 395 (7th Cir. 1984).

19. See Tampa Electric Co. ¥. Nashville Coal Co., 365 US.

320, 328-29, 81 S. Ct. 623, 628-29, 5 L.Ed.2d 580 (1961). We

assume without deciding that Stitt adequately defined the relevant

market. The district court held that Stitt never demonstrated which

manufacturers and models of spark plugs should be included in the

market for industrial plugs. We need not reach the issue.

12a

III

Stitt also challenges the judgment on the basis of two

evidentiary rulings. One ruling precluded discovery and

admission of evidence as to any matter before April 15,

1978, the date of an existing antitrust settlement between

Stitt and Champion. The other ruling excluded from

evidence a 1953 cease-and-desist order entered against

Champion by the Federal Trade Commission. Keeping

in mind that such evidentiary rulings are reviewable for

abuse of discretion,”® we find neither ruling to be a basis

for reversal.

A

[4] The parties entered into a settlement on April 15,

1978, in which Stitt released Champion of any antitrust

claims Stitt may have had at that time. The district court

refused discovery of any document relating to Champion’s

activities before the settlement. The court also ordered

such evidence excluded at trial.

Stitt argues persuasively that even though it could not

sue Champion for conduct before the settlement, such

conduct may be relevant to Champion’s post-settlement

activities and thus discoverable and admissible.”* The

argument is sound, as far as it goes. However, we will

reverse a judgment for an evidentiary ruling such as this

only if it affects the “substantial rights of the parties.”*?

20. See Jon-T Chemicals, Inc. v. Freeport Chemical Co., 704

F.2d 1412, 1417 (Sth Cir. 1983).

21. Many courts have followed a similar principle in permitting

discovery of evidence pertaining to a defendant’s conduct occurring

before a limitations period has run. See Wright & Miller, Federal

Practice & Procedure: Civil § 2009 n. 38 (1970 and Supp. 1987).

22. See Fed. R. Evid. 103(a); Tugwell v. A. F. Klaveness &

13a

Stitt has yet to articulate a legitimate theory of antitrust

liability or to explain how the limit on discovery caused

any prejudice. On these facts we will not speculate that

the denial of discovery altered the result in this case.

B

[5] An FTC investigation of Champion begun in the

late 1940s resulted in a cease-and-desist order against the

company based on violations of the antitrust laws. Al-

though no copy of the 1953 order appears in the record,

Stitt urges that it would have tended to prove that

Champion engaged in a “common scheme or pattern of

conduct” to violate the antitrust laws and should have

been admitted. But such an aged order is not probative

of Champion’s present practices. Moreover, because the

order pertained only to Champion’s conduct in the market

for automotive spark plugs, it is of little relevance to

Champion’s present practices in the industrial-plug market.

[6] Nor did excluding the order contravene 15 U.S.C.

§ 16(a), which provides that “a final judgment or de-

cree” in an antitrust proceeding brought by the govern-

ment constitutes “prima facie evidence” against the de-

fendant in any subsequent proceeding brought by a non-

government party “as to all matters respecting which said

judgment or decree would be an estoppel as between

the parties thereto.” Again, the conduct of which Stitt

complains does not extend back three decades; the order

would have no collateral estoppel effect if the govern-

ment brought these claims.

AFFIRMED.

Co., 320 F.2d 866, 868 (5th Cir. 1963), cert. denied, 376 U.S. 951,

84 S. Ct. 967, 11 L.Ed.2d 970 (1964).

l4a

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 87-2656

D.C. Docket No. H-82-1087

STITT SPARK PLUG COMPANY,

Plaintiff-Appellant,

v.

CHAMPION SPARK PLUG COMPANY,

Defendant-Appellee.

Appeal from the United States Distict Court for the

Southern District of Texas

(Filed April 1, 1988)

Before BROWN, JOHNSON, and HIGGINBOTHAM,

Circuit Judges.

JUDGMENT

This cause came on to be heard on the record on

appeal and was argued by counsel.

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court that the judgment

of the District Court in this cause is affirmed.

IT IS FURTHER ORDERED that plaintiff-appellant

pay to defendant-appellee the costs on appeal, to be taxed”

by the Clerk of this Court.

April 1, 1988

ISSUED AS MANDATE: May 19, 1988.

15a

IN THE U:s:ITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT |

NO. 87-2656

STITT SPARK PLUG COMPANY,

Plaintiff-Appellant,

Vv.

CHAMPION SPARK PLUG COMPANY,

Defendant-Appellee.

Appeal from the United States District Court for the

Southern District of Texas

ON PETITION FOR REHEARING

(April 29, 1988)

Before BROWN, JOHNSON and HIGGINBOTHAM,

Circuit Judges.

PER CURIAM:

IT IS ORDERED that the petition for rehearing filed

in the above entitled and numbered cause be and the

same is hereby DENIED.

ENTERED FOR THE COURT:

/s/ PATRICK E. HIGGINBOTHAM

United States Circuit Judge

l6a

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

NO. 87-2656

STITT SPARK PLUG COMPANY,

Plaintiff-Appellant,

Vv.

CHAMPION SPARK PLUG COMPANY,

Defendant-Appellee.

Appeal from the United States District Court for the

Southern District of Texas

ON PETITION FOR REHEARING AND

SUGGESTION FOR REHEARING EN BANC

(Opinion April 1, 5 Cir., 1988, F.2d )

(May 9, 1988)

Before BROWN, JOHNSON and HIGGINBOTHAM,

Circuit Judges.

PER CURIAM:

The Petition for Rehearing is DENIED and no member

of this panel nor Judge in regular active service on the

Court having requested that the Court be polled on re-

hearing en banc, (Federal Rules of Appellate Procedure

and Local Rule 35) the Suggestion for Rehearing En

Banc is DENIED.

ENTERED FOR THE COURT:

/s/ PATRICK E. HIGGINBOTHAM

United States Circuit Judge

17a

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-82-1087

STITT SPARK PLUG COMPANY,

Plaintiff,

V.

CHAMPION SPARK PLUG COMPANY,

Defendants.

(Filed May 19, 1987)

FINDINGS OF FACTS

1. Jurisdiction.

The Stitt Spark Plug Company and the Champion

Spark Plug Company were founded in the second decade

of this century in Ohio. Since 1917, they have been

direct competitors. Stitt’s principal office now is in

Conroe, Texas. Champion’s headquarters remain in

Toledo, Ohio.

2. Geographic Market.

Although the evidence suggests several equally plau-

sible geographic markets, the court assumes that the

continental United States is the geographic market in

which Stitt and Champion compete because that is the

one that Stitt prefers.

3. Product Market.

There are six pret ct groupings that have been sug-

18a

gested as the relevant market to support Stitt’s antitrust

claims. They are:

(1) Whole: all plugs.

(2) Industrial: all plugs whose principal applications

are large or fixed installations.

(3) Commercial: includes all plugs whose principal

applications are automobiles, chain saws, generators, out-

board motors, and other small and mobile installations.

(4) Dual: all spark plugs whose applications are

equally efficient in commercial and industrial markets.

(S) Pleaded: includes (a) industrial only plugs, but

not all industrial plugs, plus (b) dual plugs manufactured

by Champion, excluding (c) dual plugs manufactured

by other companies. This is the market on which Stitt

builds its claim.

(6) Combination: the industrial only plugs plus the

dual use piugs (markets 2 plus 4).

There was no evidence about the market shares of Stitt

or Champion in the commercial, dual, or combination

markets. The market shares in the other groupings are:

Whole Industrial Pleaded

Stitt 0.1% 25% 3%

Champion 20.0% 10% 97%

Others 79.9% 5% 0%

There were several examples of excluded Champion

plugs that were indistinguishable from included Champion

plugs. The Stitt market claim is embodied in Stitt’s ex-

hibit 277 (Champion 41). Stitt developed this exhibit

eaereereereeseereeeesmneenstiereeneeitinniaitiiiiiieliitiaiiiiiaiiiailiiiaiiiiiiaaaiaauuaieae

19a

during discovery in response to an order to produce a

list of plugs by manufacturer and model that defined

the relevant product market.

There was no evidence to support the inclusion or

exclusion of plugs made by Stitt, Champion, or other

companies in the market defined by Stitt 277. Plugs that

were interchangeable with those on Stitt 277 were in-

explicably excluded. There must be evidence of some

factor that is relevant to market dominance for each

component of the market that the plaintiff claims is

dominated, for instance, manufacturing requirements

(equipment, materials, technology, or volume), produc-

tion costs, marketing costs, availability for interchange,

selling price, product acceptance in submarkets, or dis-

tribution limitations that rationally justify the inclusion

or exclusion.

There are other substantial manufacturers active in

the domestic United States plug market, yet no plug

manufactured by AC, Autolite, Bosch, Motorcraft, NGK,

or Nippodenso was included in Stitt 277. The pleaded

market includes diesel glow plugs and furnance starters

that are not spark plugs at all. Stitt treated a Champion

plug for commercial purposes that sold for about $3 and

a Stit plug for special purposes that sold for about $14

as equivalent plugs that could be categorized in the same

market.

4. Pricing.

Champion sells plugs to original equipment manufac-

turers at a price that is less than the price Champion

charges distributors. Original equipment manufacturers

(OEMs) are the companies that build equipment that

20a

requires plugs, like chainsaws, outboard motors, cars,

and lawnmowers. The consuming public frequently buys

a replacement plug on the sole basis of what plug came

with the machine. For a manufacurer to have its plugs

included with the equipment originally, then, is an effec-

tive marketing strategy for building a demand for its

plugs in the replacement market. Stitt is successful in

having its plugs included with the original equipment

in some cases. Stitt has been able to undercut Champion

in some sales to OEMs.

Stitt offered no evidence of a single transaction in

which a sale was lost to Champion because of Champion’s

below cost sales to OEMs. Stitt did not compete directly

with many of the plugs that Champion sells to OEMs.

If Champion were under-pricing its OEM plugs, to

present an antitrust complaint Stitt would have to show

that Champion was making up the loss on some class of

plugs that were not subject to competition; this Stitt

has not done. While Champion is a large successful

spark plug company, it has no rationally defined market

in which there is an absence of competition.

Stitt challenged Champion’s sales tactics (including

pricing and promotion) with two categories of evidence:

(a) Champion salesmen recounting sales meeting pep

talks about driving the competition from the field and

similar hyperbole, and (b) whining by Stitt’s principals.

There was no evidence that Champion paid directly,

or lowered prices, to distributors who discontinued carry-

ing Stitt plugs. Champion apparently had a sales strategy

that was based on broad use of a few Champion plugs

for many applications under the interchange tables. This

was an appeal to the distributor’s profit margin by show-

ing him how to reduce his inventory costs.

2la

5. Predatory Pricing.

Assuming the evidence is true that Champion sold

plugs at a lower price to NAPA (a large chain of auto-

mobile parts stores) than it sold to other warehouse

distributors, there was no evidence that Stitt lost any

sales to NAPA or that the discount was not justified

on a volume and distribution savings. No evidence was

offered by Stitt to establish how the competing plug

manufacturers were pricing their products to NAPA or

original equipment manufacturers; indeed, at least two

of Champion’s largest competitors are wholly owned by

Ford and General Motors.

There was no evidence of any contract, combination,

or conspiracy to foreclose Stitt’s participation in any

market by Champion. No suggestion was made that there

was a shortage of any model plug whose delivery would

be provided by Champion if the dealer dropped Stitt,

or any variation on that theme.

During all of the years at issue, Champion sold its

products at a price above its average variable cost.

Champion’s internal cost accounting did not adjust for

high-labor low-volume plugs in reducing the share of

plant and machinery costs attributed to them. The con-

verse was true for highly automated plugs whose internal

costs apparently carried a disproportionate share of the

labor-determined overhead. Assuming some models were

sometimes sold below cost, the sales by year of all of

that model was not shown to be under Champion’s cost,

much less the company’s whole product line.

The only evidence of Champion’s predatory intent is

the statements of sales managers that Champion wanted

to sell more plugs. Champion was competing with others

22a

than Stitt, and it is impermissable to infer that the object

of every Champion price and tactic was Stitt.

6. Damages

There was no evidence that Stitt had been damaged

from any activity of Champion. The jury was left to

infer that Stitt’s sales and profits troubles were the result

of Champion. The only evidence that Stitt relied on as

a predicate for damage was its unused plant capacity,

but this was never linked to Champion. In this case,

Stitt had the burden of separating its damages in this

action from those that may have been caused by acts

of Champion before 1978, which damages were barred

by a settlement of an earlier suit. This was not done.

The only evidence Stitt’s accountant offered on pricing

was that, “assuming all other things to be equal,” some

Champion plugs that were interchangeable with a Stitt

plug were sold to some below what Champion's internal

cost process indicated the costs were. The assumption

cannot be accepted as evidence.

7. Entry Barriers.

No account of barriers to entry in the business by

reason of equipment, transportation, tariffs, marketing,

or patents was attempted. Neither was there any evidence

on the price-volume relationship, the price effect on non-

standard replacements and new market entrants. The

equipment for the manufacture of plugs is readily avail-

able. No particular location is required to make plugs;

any industrial site will do.

Signed on May 19, 1987, at Houston, Texas.

/s/ LYNN N. HUGHES

Lynn N. Hughes

United States District Judge

oe

23a

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-82-1087

STITT SPARK PLUG COMPANY,

Plaintiff,

v.

CHAMPION SPARK PLUG COMPANY,

Defendants.

(Filed May 19, 1987)

CONCLUSIONS OF LAW

1. Relevant Market.

Stitt failed to establish a relevant market. To form a

relevant market at law, Stitt must (1) define with rea-

sonable precision an area in which all the products that

compete among themselves do not compete with any

product from outside the area and (2) show that there

are substantial barriers to the entry into the market by

producers not presently active in the market; inactivity

in the market must be due to barriers like inaccessibility

of a territory or economic impracticability of making the

product. These barriers must subsist in the face of mono-

poly pricing within the market.

2. Geographic Component.

Stitt proposed the United States as its geographic mar-

ket. No evidence was offered to justify excluding Japa-

siete anineneeteeieneiill

24a

nese or European plug manufacturers or consumers,

especially the original equipment manufacturers. Stitt

and Champion sell worldwide. Stitt’s geographic market

fails.

3. Product Component.

Assuming the United States to be a properly limited

territory, Stitt defines the product market as those plugs

listed on Stitt 277 (Champion 41). The list can be de-

scribed as most of Stitt’s industrial and commercial plugs,

plus most of Champion's industrial plugs and most of

Champion's dual use plugs (either commercial or in-

dustrial uses), excluding the industrial only, commercial

only, and dual use plugs of all other manufacturers.

No rationale supports the exclusion and inclusion.

Stitt excluded some of its own industrial plug types with-

out explanation. Whether in terms of use, manufacturing

cost, sales price, manufacturing difficulty, territory of

consumption, place of manufacture, interchangeability,

and nature of original equipment manufacturers, the list

is contrived arbitrarily.

4. Replacement-OEM Distinction.

Stitt claimed a market distinction between original

equipment manufacturers and replacement sales. Stitt

admitted that the attractiveness of sales to OEMs was

that it enhanced the likelihood that the replacement

sales would be of a like kind. The interdependence of the

OEM sales and the replacement sales puts them in the

same market. Plug manufacturers, including Stitt, are

willing to sell plugs below cost to OEMs to reap the

profits from repeat replacement sales above costs.

ms

25a

The group defined by Stitt 277 is not a group of all

plugs that are sold as original equipment; if OEM sales

were a distinct market, all OEM sales must be accounted

for in the market data. There is no evidence on the sales

volumes or model types of other manufacturers, whether

in the OEM or replacement ends.

5. Excluded Competitors.

Stitt produced no evidence from which one could con-

clude that the price of Champion’s plugs on Stitt 277

was independent of the price of, for example, Autolite,

whose plugs are designed for the same application. This

failure is complete for every other manufacturer except

Stitt and Champion.

A monopolizer must be able to expect to recover his

losses from driving the competitor out of business by his

subcost pricing from later monopolistic sales at a high

profit. If Stitt were to fail, Champion would be con-

strained by competition from numerous other companies

from raising its prices. The Stitt evidence on the market

mechanism in spark plugs was non-existent.

6. Price Discrimination.

Stitt did not prove that Champion sold a full line of

its products to any class of customers at a price below

its average variable manufacturing cost. Below cost sales

to some OEMs on some plug types is not predatory

pricing.

Stitt’s calculation of Champion's cost did not account

for either the limitations inherent in its internal prac-

tices that distort the figures it uses or the revenue gen-

erated by the replacement sales attributable to the plug’s

26a

being in the original equipment. The loss on OEM sales

can be treated like an advertising expense that is in-

curred well before the market impact.

7. Entry Barriers.

Entry barriers sufficient to create a market in which

predatory, monopolistic pricing could occur with impun-

ity do not exist for spark plugs. The equipment for the

manufacture of plugs is generally available and indis-

tinct from countless other forms of capital equipment.

Plugs can be made anywhere, with no unique require-

ments for a site.

8. Exclusive Dealing.

Champion’s sales efforts do not amount to an at-

tempted exclusive dealing arrangement. The character of

the promotion was an accurate explanation of how deal-

ers could cut their costs. No shortages of popular models

existed that Champion exploited to get the dealers to

carry other Champion models or to quit carrying Stitt

plugs. Stitt identified no dealer who ceased selling Stitt

plugs because of any combination or agreement with

Champion; no lost sale was identified.

9. Damages.

Stitt identified no lost sale as a result of Champion’s

price reduction for NAPA under its other dealers’ prices.

The price differential between OEMs and replacements is

dictated by the benefits running to the supplier of original

equipment, not by the intent to destroy Stitt. Stitt has

suffered no antitrust injury as a result of the OEM pric-

ing.

27a

Stitt did not prove that an increase in Champion’s

price on any plug would enable it to sell more plugs than

it is selling now or at a higher price. There is no evi-

dence about what price or volume would attract either

new suppliers or new buyers to Stitt. Indeed, if Champion

were to fail, there was no evidence to support the con-

clusion that Stitt would benefit at all.

10. Prior Litigation.

No separation was made between pre-1978 practices

of Champion and their damage to Stitt and the acts and

damages in this suit.

11. Conclusion.

The Stitt Spark Plug Company is entitled to recover

nothing from the Champion Spark Plug Company. The

costs of court will be taxed against Stitt.

Signed on May 19, 1987, at Houston, Texas.

/s/ LYNN N. HUGHES

Lynn N. Hughes

United States District Judge