Opposition Brief — First Comics, Inc. v. World Color Press, Inc.

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No. 89-970 MAN 23 0

— 3 JR,

In THE a

Supreme Court of the United States

OctToser TERM, 1989

First Comics, INc.,

Petitioner,

vs.

Wor_p Coior Press, INc.,

Respondent.

RESPONDENT’S BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Epwin D. Akers, Jr.*

HAROLD S. GOODMAN

*Counsel of Record

GALLOP, JOHNSON & NEUMAN

101 S. Hanley, Suite 1600

St. Louis, Missouri 63105

(314) 862-1200

MICHAEL D. FREEBORN

MARGARET S. GARVEY

WILLIAM C. HoLMes

FREEBORN & PETERS

11 South LaSalle Street

Suite 1500

Chicago, Illinois 60603

(312) 750-9524

Counsel for Respondent

Si. Louis Law Printing Co., Inc.,

13307 Manchester Road 63131

314-231-4477

QUESTIONS PRESENTED

Petitioner’s statement of ‘*‘Questions Presented for Review”’

violates the dictate of Supreme Court Rule 21.1(a) that ques-

tions should be expressed in the terms and circumstances of the

case. No portion of the Seventh Circuit’s opinion can be con-

strued as holding that comic books are not ‘‘commodities’’ for

Robinson-Patman Act purposes. To the contrary, the Seventh

Circuit explicitly observed that the physical books themselves

are commodities, and held that, based upon the facts of this

case, the act of printing the books for a publisher entails the

provision of a “‘service’’ to the publisher by the printer.

I —

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TABLE OF CONTENTS

Page

ee

I MT IED 6 wo cece cece rece ccvcccces iN

I UN ease e dee ceeeesesesees 2

Reasons For Denying The Writ ..................... 5

1. The Seventh Circuit’s Decision Is Consistent

Both With Established Caselaw Governing

The Distinction Between A ‘*Commodily”’

And A ‘Service’? And With Other Circuit

Ee CeCe le Ce tees cs Geb wh ve eos 5

Il. The Seventh Circuit’s Decision Is Consistent

Both With Established Caselaw Governing

Determination Of Whether Items Are ‘‘Of

Like Grade And Quality’? For Robinson-

Patman Act Purposes And With Other Cir-

LS ct eda weickewbieuat bash teed bins 9

ed awe ee 1]

TABLE OF AUTHORITIES

Page

Cases:

Advanced Office Systems v. Accounting Systems Co.,

Ae MS aa) ee eee 10

Aviation Specialties, Inc. v. United Technologies

Corp., 568 F.2d 1186 (Sth Cir. 1978) ............ 8

Bruce’s Juices, Inc. v. American Can Co., 87 F.Supp.

985 (S.D. Fla. 1949), 1987 F.2d 919 (Sth Cir.), cert.

ro ee Be po |.) } nn 10

FTC v. Borden Co., 383 U.S. 637 (1966) ............. 10

General Shale Prods. Corp. v. Struct Constr. Co.,

bee eo eS To a + ee 8

In the Matter of American News Co., 58 F.T.C. 10

RR SLAMS tind eA Be Le ee acme eed es 7

In the Matter of Archie Comic Publications, 61 F.T.C.

DERE. hace it ciraka are a ae a aeee at 7

In the Matter of Christmas Club, 25 F.1.C. 1116 (1937) 7

In the Matter of Doubleday & Co., Inc., 52 F.T.C. 169

PE Snes Fane ea en Ree eae ohare eered i 10

In the Matter of General Foods Corp., 52 F.T.C. 798

SE GLA cd kaedd eel eC eka Mee Cee es 10

In the Matter of National Comics Publications, Inc.,

SE APO Ter ane ere 7

Joseph A. Kaplan & Sons, Inc., 63 F.T.C. 1308 (1963),

mod. on other grounds, 347 F.2d 785 (D.C. Cir.

SEE cit 4 Gita ce eancbaneek eall ate meee sean 10

Morning Pioneer, Inc. v. Bismarck Tribune Co., 493

F.20 383 (Bth Cif. 1974) 2. ww tc ccc cc reece

Reid v. Harper & Bros., 235 F.2d 420 (2d Cir.), cert.

Genied, 332 U.S. PEL CIGSS) ..w cc cc cccccccuss

SCM Corp. v. Zerox Corp., 394 F.Supp. 384 (D.Conn.

PEPE con Fisd so welded a cyouns Ge dnelieweubs is

Statutes and Rules:

eo Lhe 7 sa > 2 Eee meet eee PEA eon ee

Supreme Court Rule 21.1(a)..... reese ee eer

ONE SUE ee I sw coe hc ee eG en eee es

No. 89-970

IN THE

Supreme Court of the United States

OcTOBER TERM, 1989

First Comics, INC...

Petitioner,

VS.

WorRLD COLOR PREssS, INC.,

Respondent. '

RESPONDENT’S BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Respondent World Color Press, Inc. respectfully requests

that the Court deny the petition for writ of certiorari seeking

review of the decision in this case of the United States Court of

Appeals for the Seventh Circuit.

‘ In conformity with Supreme Court Rule 28.1, respondent states

that it is a wholly-owned subsidiary of -Printing Holdings, L.P., a

Delaware limited partnership; that it has no subsidiaries except ones

wholly owned by it; and that its affiliate is Commercial Printing

Holding Company.

as en

STATEMENT OF THE CASE

Background. In February, 1984, First Comics, Inc. (**FC’’)

filed the instant action against World Color Press, Inc.

(‘‘WCP’’) alleging, in relevant part, violations of Section 2(a) of

the Robinson-Patman Act, 15 U.S.C. §13(a) (the “‘Act’’).

FC is a Chicago-based publisher of comic books. As a

publisher, FC and its authors and artists produce the artwork

and stories that comprise the comic books which it publishes.

Further, as the publisher, FC owns the federal copyright rights

to publish, copy, distribute and sell its comic books.

WCP is a printer of comic books, magazines and other

periodicals. It is mo a publisher. As a printer, when dealing

with FC and other publishers, WCP provides a service in which

it supplies paper and ink and then prints the publisher’s artwork

and stories, using color separation screens owned and provided

by the publisher. WCP does not hold the federal copyright

rights of publication and sale of the printed works, which at all

times remain in the copyright-owning publishers throughout the

printing stage of production.

Comic books, like other books, are distinguished from one

another by several features which consumers and publishe

customers view as significant. These include differences as to

the characters, artwork, story, artist and author for each book,

and copyright restrictions that would prevent one publisher

from legally selling copyrighted works of another publisher.

Because of these differences, comic books printed for one

publisher (be it FC, Marvel Comics, DC Comics or anyone else)

are not substitutable to fill the print order of another publisher.

Rather, each publisher is interested only in those books bearing

its own characters, artwork, stories and copyrights. (See FC

App. 8-9).

FC’s Own Pricing Practices. The Robinson-Patman claim at

issue in this case concerned acknowledged differences in the

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prices charged by WCP to FC versus WCP’s largest volume

print customers, in particular, Marvel Comics and DC Comics.

FC was charged an average of 11.1 cents per copy, or 4.3 cents

more per copy than Marvel and DC. FC did not, however,

charge its wholesale customers the same added 4.3 cents. In-

stead, during the time period relevant to the case, FC charged its

wholesale customers Over fen cents more per copy than did its

competitors Marvel and DC. (i.e., more than /wice the amount

of the alleged cost discrimination). Moreover, FC set a retail list

price On its comic books of $1.00, when Marvel, DC and other

comic book publishers had list prices of only 60 cents to 75 cents

per copy, for a price spread at the consumer level of approx-

imately ten times (40 cents) the amount of the alleged printing

cost discrimination (4.3 cents). Despite the pricing behavior on

FC’s own part, evidence was presented that -FC remained pro-

fitable and that the market remained competitive. (See FC App.

14-15, 48-49).

Jury Verdict and Appeal. Before sending the case to the jury,

the trial judge directed findings that as a matter of law: (1) WCP

was engaged in the sale of commodities and not services for

Robinson-Patman Act purposes, and (2) the commodities

(finished comic books) were of like grade and quality for pur-

poses of the Act, notwithstanding their undisputed differences

in story, artwork, author and characters. Despite these directed

findings in favor of FC, the jury found for WCP, in light of

FC’s own pricing behavior and other evidence going to the

issues Of competitive effect and causation.

FC appealed the jury verdict in WCP’s favor to the Seventh

Circuit, and WCP cross-appealed the trial court’s directed find-

ings On the issues of ‘‘commodity’’ and ‘“‘like grade and

quality.’” On appeal, the Seventh Circuit reversed the lower

court’s directed findings and held that, as a matter of law, a

printer such as WCP that prints for a publisher such as FC is

engaged in the service of printing publications that are not of

— em

like grade and quality for Robinson-Patman purposes.’ The

jury verdict in WCP’s favor was, thus, left intact on the

jurisdictional ground that FC’s Robinson-Patman claim should

not have been sent to the jury in the first place.

? The decision of the Seventh Circuit appears at 884 F.2d 1033.

=

REASONS FOR DENYING THE WRIT

I.

THE SEVENTH CIRCUIT’S DECISION IS CON-

SISTENT BOTH WITH ESTABLISHED CASELAW

GOVERNING THE DISTINCTION BETWEEN A

“COMMODITY” AND A “SERVICE” AND IS

WITH OTHER CIRCUIT CASES

FC greatly distorts the actual holding of the Seventh Circuit

in this case when it argues that the Circuit Court held, as a mat-

ter of law, that physical comic books are “‘not commodities’’

(FC Brief i, 11-13). This incorrect characterization of the Cir-

cuit Court’s ruling is the foundation of FC’s argument as to why

the writ should be granted on the commodity-versus-service

issue. Because the foundation is faulty, the petition for the writ

should be denied.

In fact, the Seventh Circuit did nor hold that the physical

comic books produced by WCP are not commodities. The Cir-

cuit Court specifically observed that ‘‘[t]he parties do not

dispute that comic books are commodities within the meaning

of the Act’’ (FC App. 5). What the court did hold was that the

*‘dominant nature of the transaction’’ between WCP and its

publisher customers was one for printing services consisting of

‘“‘transpos[ing] images from one surface to another’’ (FC App.

7). As observed by the court:

**[W]hat was First Comics buying? It was not buying the

comics themselves — First Comics’ artists and authors pro-

duce the comics. And it was not merely buying the paper

and ink. The tangible items provided by World Color

Press, the paper, ink and staples, are uniformly fungible

and not subject to significant price differentials among

printers. Rather, as First Comics argues in its brief, World

Color Press is ‘the only [printer] using the less costly ‘‘let-

terpress’’ method’ (Br. 3) — and that is what First Comics

=~

was purchasing, the letterpress method and process of

transposing and multiplying images. As explained in

Rowe, supra, at 60-61, price quotations fusing physical

elements with dominant intangible factors do not beget

price discrimination within the Act.

The singularly most important ingredient, the color

separations, were provided by First Comics. Defendant

was in essence multiplying what First Comics already pro-

duced. Borrowing from Advanced Office Systems v. Ac-

counting Systems Co., 442 F.Supp. 418, 423 (D.S.C. 1977)

(preparation of billing statements is a service), at the print-

ing stage the comic books lack real value to any entity

other than First Comics. World Color Press cannot sell

the finished comic books to any other buyer since First

Comics holds the copyright, nor would any of World Col-

or Press’ other clients be interested in finished comic books

bearing a First Comics story — rather each client wants

only the printed version of its own comic book.’’ (FC App.

8).

The decision of the Seventh Circuit is perfectly consistent

with those of other Circuit Courts. When confronted with the

issue Of whether a hybrid transaction involving a mix of services

and physical materials should be treated as a ‘‘commodity’”’ or a

**service’’ saie for Robinson-Patman purposes, other courts

have applied the same test utilized by the Seventh Circuit; they

have inquired as to the *‘dominant nature of the transaction’”’ in

light of the faets and circumstances relevant to the particular

case. (See, e.g., the cases cited at page 8, infra.)

The book and other publication cases cited by FC are not to

the contrary. Each of them involved sales of books, newspapers

or other printed publications by a publisher engaged in the sale

of identical already-printed publications to different wholesale

or retail customers. Reid v. Harper & Bros., 235 F.2d 420 (2nd

Cir.), cert. denied, 352 U.S. 952 (1956) (suit by book wholesaler

4,

against its publisher supplier); Morning Pioneer, Inc. v. Bismarck

Tribune Co., 493 F.2d 383, (8th Cir.), cert. denied, 419 U.S. 836

(1974) (suit by a competitor against a newspaper publisher); /n

the Matter of Archie Comic Publications, 61 F.T.C. 100 (1962)

(non-litigated consent order involving sales to wholesale and

retail customers by a publisher of comic books); /n the Matter

of National Comics Publications, Inc., 57 F.T.C. 69 (1959)

(non-litigated consent order involving sales to retail customers

by a publisher of comic books); Jn the Matier of Christmas

Club, 25 F.T.C. 1116, 1125 (1937) (FTC action against a

publisher of account books, passbooks and advertising

literature sold by it to banks and bank depositors);* Jn the Mat-

ter of American News Co., 58 F.T.C. 10 (1961) (FTC action

against a distributor for inducing price discriminations by

publishers in the sale of books, magazines and comic books). As

observed by the Seventh Circuit:

**{The Couri’s ruling] does not conflict with earlier deci-

sions holding that newspapers and books are commodities,

because in those cases the defendants were the publishers.

There the publishers were sued for discriminatory pricing

schemes for identical books and identical newspapers sold

to different retailers and consumers. The publishers were

indeed selling commodities, the predominant nature of the

transactions was between the publishers and_ their

customers and involved sales of identical products. Here

the transaction was for printing, a service which made

possible the production of commodities for future sales by

plaintiff. The Robinson-Patman Act was therefore inap-

plicable.’’ (FC App. 9).

‘In its Brief, FC erroneously characterized this case as not involving

a publisher. FC Brief 12-13. Actually, the respondent in Christmas

Club, like FC, was a publisher that owned all copyright rights in the

subject works and had them printed by other firms (like WCP) to its

specifications for sale by it to banks and consumers. 25 F.T.C. at

1125.

=

Equally misplaced is FC’s unsupported assertion that services

outside the Robinson-Patman Act ‘‘do not end with a tangible,

self-contained object’’ (FC Brief 14). The fact that a service

happens to contribute to the creation of a tangible object does

not ipso facto mean that the business providing the service is

engaged in the sale of the finished object. Rather, the deter-

mination must be made based upon an analysis of the facts of

each case to ascertain the ‘‘dominant nature of the

transaction.’’ See, e.g., Aviation Specialties, Inc. v. United

Technologies Corp., 568 F.2d 1186, 1191 (Sth Cir. 1978) (apply-

ing the dominant nature test to hold that a company that

repaired airplane engines was a service provider, even though its

service included parts as well as labor and resulted in a finished

tangible object); General Shale Products Corp. v. Struck Con-

struction Co., 132 F.2d 425, 428 (6th Cir. 1942) (applying the

dominant nature test to hold that a company that constructed

buildings was a service provider, even though its service includ-

ed bricks and other materials as well as labor and resulted in

finished buildings); SCM Corp. v. Xerox Corp., 394 F.Supp.

384 (D. Conn. 1975) (applying the dominant nature test to hold

that a xerography copying business was a service, even though it

resulted in finished photocopies of printed publications).

In affirming the jury verdict for WCP, the Seventh Circuit

applied precisely the same standard, i.e., what is the “‘dominant

nature of the transaction.’’ Moreover, it did so in a way that

achieved a realistic and workable distinction between the case

actually before it (involving a mere ‘“‘printer’’ of books that

brings to the transaction paper, ink and its printing service) and

the ‘‘publisher’’ cases on which FC relies (in which the defen-

— ne

dant is a publisher that sells already-printed books created by it

and over which it holds all federal rights of copyright).*

THE SEVENTH CIRCUIT’S DECISION IS

CONSISTENT BOTH WITH ESTABLISHED

CASELAW GOVERNING DETERMINATION OF

WHETHER ITEMS ARE ‘‘OF LIKE GRADE AND

QUALITY’? FOR ROBINSON-PATMAN ACT

PURPOSES AND WITH OTHER CIRCUIT CASES

Having argued that WCP is a seller of finished comic books,

FC engages in intellectual back pedalling when it comes to the

issue Of ‘‘like grade and quality.’ Here, FC argues that WCP is

not a seller of finished comic books. Rather, WCP is somehow

a seller of finished publications for which no consideration

whatever is to be given to story, artwork, author, artist or

publisher. (FC Brief 21-24). So stripped, WCP becomes a seller

of blank pieces of paper bound and stapled together.

As observed by the Seventh Circuit, this is most certainly not

what WCP’s publisher customers expected to get. Rather, each

customer expected ‘‘the printed version of its own comic

book,’’ (FC App. 8) i.e., a fully printed comic book that the

publisher could then sell to its readers.

* FC’s arguments (FC Brief 18-21) that the copyrighted nature of

the works in question should somehow simply be disregarded is ab-

surd on its face. The fact that WCP, as a printer, does not have the

legal right under federal copyright law to ‘“‘sell’’ a finished comic book

to any publisher except the one who ordered it is a powerful factor

bearing upon the true nature of the transaction. Copyright restric-

tions are similarly an important factor affecting publisher-customer

perceptions as to the substitutability of a book printed for one

publisher to meet the needs of a different publisher, i.e., the degree of

‘‘like grade and quality’’ between the books. The Seventh Circuit pro-

perly considered copyright restrictions in its analysis, just as it con-

sidered other relevant factors bearing upon the dominant nature of the

transaction and customer perceptions of what was actually being pur-

chased (FC App. 8-9).

The cases relied upon by FC are not to the contrary (FC Brief

22-23). In each of them, the defendant was either selling

physically identical goods or goods so closely identical as to con-

stitute ‘‘like grade and quality’’ substitutes where customers

were free to make such a substitution if they wished. Joseph A.

Kaplan & Sons, !nc., 63 F.T.C. 1308, 1347-48 (1963), mod. on

other grounds, 347 F.2d 785 (D.C. Cir. 1963) (minor pattern

differences as to otherwise identical shower curtains, where

customers were free to substitute one curtain for another); Ad-

vanced Office Systems v. Accounting Systems Co., 442 F.Supp.

418, 423 (D.S.C. 1977) (dictum that T-shirts with different pat-

terns might still be of like grade and quality, where freely

substitutable by the defendant’s customers); FTC v. Borden

Co., 383 U.S. 637 (1966) (identical milk products); Bruce’s

Juices, Inc. v. American Can Co., 87 F.Supp. 985 (S.D. Fla.

1949), aff'd, 187 F.2d 919 (Sth Cir.), cert. denied, 342 U.S. 875

(1951) (identical cans); Jn the Matter of General Foods Corp..

52 F.T.C. 798, 817 (1956) (slight variations in blends and

roastings of coffee products); Jn the Matter of Doubleday &

Co., Inc., 52 F.T.C. 169, 192-93 (1955) (in relevant part, not a

Robinson-Patman Act case, but a resale price fixing case).

The instant case could hardly be more different. A FC comic

book is not distinguished from a Marvel or a DC comic book by

minor ‘‘pattern’’ differences where WCP’s publisher customers

are free to substitute one book for another. Undisputed distinc-

tions as to characters, story content, artwork, artist, author,

and copyright rights of distribution and sale mean that the

finished comic books printed for one publisher ‘‘are of no use

to any other publisher’? (FC App. 9).

Also misplaced is FC’s argument that the Seventh Circuit er-

roneously applied an ‘‘ultimate consumer”’ test, rather than

measuring like grade and quality in terms of WCP’s own

customers: namely, WCP’s publisher customers such as FC and

Marvel (FC Brief 23-24). The Circuit Court did look to the

needs and perceptions of WCP’s publisher customers, and con-

ee |

cluded that ‘‘[s]ince the finished First Comics comic books are

of no use to any other publisher,’’ books printed for FC were

not of ‘‘like grade and quality’’ with books printed for other

publisher customers. (FC App. 8-9, n.6).

The Seventh Circuit’s decision, thus, did exactly what other

cases have done when faced with the issue of product like grade

and quality; it focused upon the physical similarities or

dissimilarities of the goods being compared and asked how the

dissimilarities, if any, affected customer purchasing behavior.

This is not, in the words of FC, a ‘‘sweeping, wholesale excision

from the Robinson-Patman Act’’; it is a straight-forward ap-

plication of established Robinson-Patman caselaw.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

EDWIN D. AKERS, JR.*

HAROLD S. GOODMAN

Gallop, Johnson & Neuman

101 South Hanley, Suite 1600

St. Louis, Missouri 63105

(314) 862-1200

MICHAEL D. FREEBORN

MARGARET S. GARVEY

WILLIAM C. HOLMES

Freeborn & Peters

11 South LaSalle Street

Suite 1500

Chicago, Illinois 60603

(312) 750-9524

Counsel for Respondent

*Counsel of Record