Opposition Brief — Smith v. Multi-Flow Dispensers of Ohio, Inc.

No. 99-361

Supreme Court, Ua

FIDUp, D

SEP 27 i990

IN THE

Supreme Court of the GAnited States

LARRY S. SMITH AND ALL SYRUPS, INC.,

MULTI-FLOW DISPENSERS OF OHIO, INC.,

Petitioners,

Vv

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

ROBERT P. DUCATMAN

JONES, DAY, REAVIS & POGUE

901 Lakeside Avenue

Cleveland, Ohio 44114

(216) 586-3939

GREGORY G. KATSAS

(Counsel of record)

JONES, DAY, REAVIS & POGUE

51 Louisiana Avenue, N.W.

Washington, D.C. 20001

(202) 879-3939

Counsel for Respondent

Multi-Flow Dispensers of

Ohio, Inc.

hak

QUESTION PRESENTED

Whether the courts below properly dismissed an actual

monopolization claim under Section 2 of the Sherman Act, 15

U.S.C. § 2, for failure to either plead or proffer sufficient

evidence of a relevant product market.

PARTIES TO THE PROCEEDINGS

All parties below are listed in the caption. Respondent

Multi-Flow Dispensers of Ohio, Inc. has no parent corporation

or publicly held company that owns 10 percent or more of its

stock.

TABLE OF CONTENTS

Page

Ce nTIIEED fort evs veces pew lew ee i

PARTIES TO THE PROCEEDINGS ............... il

pp Ba) re rere iv

BiAtmneeren Ow 1h CASE .... ice eee |

REASONS FOR DENYING THE WRIT ............ 6

iV

TABLE OF AUTHORITIES

Page

Cases

Allen-Myland, Inc. v. IBM Corp., 33 F.3d 194 (3d Cir.),

cert. denied, 513 U.S. 1066 (1994) ........... eee 7

Brown Shoe Co. v. United States,

SPO Une CREE. ccbiniintinnemindaiiie 5, 6, 7, 10

Eastman Kodak Co. v. Image Technical Services, Inc.,

SOR TLE. SOE Ce. ceiitienain 8,9

H.J., Inc. v. ITT Corp., 867 F.2d 1531 (8th Cir. 1989) ...... 7

International Boxing Club of New York, Inc.

v. United States, 358 U.S. 242 (1959) 0.0.2.0... 7,10

NCAA v. Board of Regents of Univ. of Okla.,

SEG TE: BD tetinesttecdblincincencidddaeiinniade 9

Redmond v. Missouri Western State College,

No. 84-6139, 1988 WL 142119,

Se FE, LT ee ORD 9

Rothery Storage & Van Co. v. Atlas Van Lines, Inc.,

792 F.2d 210 (D.C. Cir. 1986), cert. denied,

SIF Ua Ce ED iit enieiiimitinlctnersibitinin 6

Satellite Television & Associated Resources, Inc.

v. Continental Cablevision of Va., Inc.,

788 Fae Ore Ce ee BEE. Cactaictcenrenetvereintiens 7

Smalley & Co. v. Emerson & Cuming, Inc.,

808 F. Supp. 1503 (D. Colo. 1992),

aff'd, 3 F.3d 366 (10th Cir. 1993) oo... 8

T. Harris Young & Associates, Inc. v. Marquette

Electronics, Inc., 931 F.2d 816 (11th Cir.),

cert. denied, 502 U.S. 1013 (1991) ............ 4,5,8,9

Tarrant Service Agency, Inc. v. American Standard, Inc.,

12 F.3d 609 (6th Cir. 1993), cert. denied,

DES Was CREE LEONE icticicaniatcntictianpnlinintctaaoalitaiums 2

Vv

TABLE OF AUTHORITIES (cont’d)

Page

United States Anchor Mfg., Inc. v. Rule Indus., Inc.,

7 F.3d 986 (1994) (11th Cir. 1993),

cert. denied, 512 U.S. 1221 (1994) occ eeeeeeeeeees 7

United States v. Continental Can Co.,

a ceatemeammnpndoncias 7

United States v. E.I. du Pont de Nemours & Co.,

Mo le Boy fa | See 5, 6, 7,9, 10

United States v. Paramount Pictures,

Pe ee ae I Ginichicceniadedlnedcntescinsicieevensineonns 10

United States v. Philadelphia Nat'l Bank,

ARE BR 2 G5 ERR en ee ene 10

White & White, Inc. v. American Hospital Supply Corp..,

Fe ee CG, TIS) sectcatciceivicsitencetivincnvee 7

Statutes

a l

Miscellaneous

P. Areeda, Antitrust Law (1996) ....cecssssssssssssssunsseeeseesieeee 7

STATEMENT OF THE CASE

Petitioners seek review of an unpublished court of appeals

Opinion unanimously affirming an unpublished district court

opinion dismissing an actual monopolization claim for failure

either to plead or to proffer sufficient evidence of a relevant

product market. The court of appeals opinion decides no

significant legal questions, but reflects only a straightforward

application of settled market definition principles. Moreover,

the petition for certiorari does not allege any circuit conflicts,

and it is meritiess. Further review in this Court is therefore

unwarranted.

1. Respondent Multi-Flow Dispensers of Ohio, Inc. sells

beverage products and services, including flavored syrups and

dispensing equipment, to retail businesses in the Cleveland,

Ohio metropolitan area. Petitioner Larry Smith is a former

sales representative of respondent. In January 1990, Smith

formed petitioner All Syrups, Inc., a competing beverage

wholesaler. Petitioners then began a campaign of meritless and

unsuccessful litigation against respondent. Pet. App. A2-A3.

In October 1990, petitioners filed a complaint against

respondent and nine other defendants in the Court of Common

Pleas of Cuyahoga County, Ohio. That complaint alleged

various state antitrust violations, as well as claims for

conversion, tortious interference of contract, and several other

claims. After discovery, the antitrust and conversion claims

were dismissed on the merits with prejudice, and the remaining

claims were later dismissed for failure to prosecute. Pet. App.

Bl4&n3.

In June 1993, petitioners filed another complaint against

respondent in the United States District Court for the Northern

District of Ohio. That complaint alleged an actual

monopolization claim under Section 2 of the Sherman Act, 15

U.S.C. § 2, as well as pendent state antitrust, conversion, and

tortious interference claims. Pet. App. B1. For purposes of

the Sherman Act claim, the complaint alleged at least three

2

distinct and contradictory product markets: “carbonated”

beverages and related services; “carbonated” beverages and

related services sold “to taverns and restaurants”; and “off-

brand” beverages and related services sold “to restaurants and

taverns.” Pet. App. A3-A4. The alleged geographic market

was the Cleveland metropolitan area. /d.

2. In February 1995, after discovery, respondent filed a

motion for summary judgment. Pet. App. A3, B2. Respondent

argued that summary judgment was appropriate because,

among other reasons, petitioners had failed to identify a single

relevant product market. Pet. App. B8.' In response,

petitioners abandoned the product markets alleged in their

complaint and, in their brief in opposition, alleged a fourth

product market: beverages and related services (“regardless of

brand and carbonation”) sold “to bars and restaurants.” Pet.

App. B8-B9.

The district court granted the motion for summary judgment

in part and denied the motion in part. The court accepted

petitioners’ redefined product market and concluded that the

evidence about that market was genuinely disputed. The court

therefore denied summary judgment on the Sherman Act claim.

Pet. App. B9-B11. The court also denied summary judgment

' Respondent also explained why, as a matter of law, none of the three

product markets alleged in the complaint could support monopolization

liability under Section 2. The alleged “off-brand” market,

opportunistically defined to eliminate all competing sales of dominant

national brands such as Coca Cola and Pepsi, was deficient under

controlling circuit precedent, see Tarrant Service Agency, Inc. v.

American Standard, Inc., 12 F.3d 609, 615 (6th Cir. 1993), cert. denied,

512 U.S. 1221 (1994), holding as a matter of law that generic products

compete against their brand-name counterparts. R. 67 at 11-18, CA6

App. at 1640-47. Moreover, under the other two market definitions

alleged in the complaint, respondent would have a market share of under

18% — an amount that could not possibly support an inference of

monopoly power. R. 67 at 18-19, CA6 App. at 1647-48.

3

on the conversion and tortious interference claims (Pet. App.

B11-B13), but granted summary judgment on the state antitrust

claim (Pet. App. B13-B14)._ Finally, the court granted

summary judgment based on the preclusive effect of the prior

state-court dismissal, but only with respect to conduct alleged

to have occurred before October 1990. Pet. App. B14-B16.

3. Following the district court’s summary judgment order,

petitioners filed an amended complaint that changed their

product market allegations yet again. The amended complaint

alleged that the relevant market was beverages and related

services sold “‘to taverns and /ocally-owned restaurants in

metropolitan Cleveland.” Pet. App. C6 (quoting amended

complaint) (emphasis added).* The amended complaint did not

allege that the beverages and related services provided to

locally-owned restaurants are different in any way from those

provided to regionally-owned or nationally-owned restaurants.

Pet. App. A2. On the contrary, it affirmatively alleged that all

of these restaurants purchase “identical” beverage products.

Pet. App. Al0. Petitioners’ market allegations thus focused

not on distinctions among products, but on distinctions among

sellers and buyers. Specifically, petitioners complained that

many locally-owned restaurants purchased beverage products

from respondent, whereas many regionally-owned and

nationally-owned restaurants purchased the “same” products

directly from large national manufacturers such as Coca Cola

and PepsiCo. Pet. App. A9-A10.’

Petitioners’ purported justification for filing the amended complaint was

““to remove any doubt’” about what market they had previously alleged.

Pet. App. A4. In fact, however, the product market alleged in the

amended complaint was far narrower than the product markei that

petitioners had previously alleged in opposing summary judgment. Pet.

App. A4-AS5.

> In attempting to so distinguish among sellers and buyers, petitioners

apparently recognized that, if competing sales by Coca Cola and PepsiCo

4

Respondent moved to dismiss the amended complaint for

failure to state a claim. Respondent argued that the market

alleged in the amended complaint excluded, without

justification, “substantial numbers of potential customers —

specifically, non-locally owned restaurants.” Pet. App. AS.

After an initial round of briefing on the motion to dismiss, the

district court indicated that it was inclined to grant the motion,

but invited petitioners to file a supplemental memorandum in

- Opposition. In that memorandum, petitioners asked the court

to consider the evidentiary materials previously submitted in

connection with the summary judgment motion. /d.

4. The district court granted the motion to dismiss the

amended complaint. The court concluded that, “‘[w]hile a

relevant product market can be limited to a portion of

customers, such a limitation must be based on a distinction in

the product sold to those customers.’” Pet. App. C7 (quoting

T: Harris Young & Associates, Inc. v. Marquette Electronics,

Inc., 931 F.2d 816, 824 (11th Cir.), cert. denied, 502 U:S.

1013 (1991)); see also id. (“differentiating between ‘larger’ and

‘smaller’ customers, rather than alleging product or service

distinctions, is invalid as a matter of law’). Applying that

principle, the court concluded that the amended complaint did

not adequately allege a relevant product market:

The Complaint does not allege any facts that support

limiting the relevant market to locally-owned establishments.

The Complaint does not even allege that providing beverage

dispensing equipment and syrups to locally-owned

establishments is in fact distinct and non-competitive from

providing the same services to non-locally-owned

establishments.

Pet. App. C8.

were considered, petitioners could not possibly establish that respondent

had monopoly power in the relevant beverage markets.

5

The district court further held that summary judgment would

be proper even if it were to consider the evidentiary material

previously submitted by petitioners. Those materials consisted

primarily of two affidavits, from petitioner Smith and his

expert, alleging as yet another relevant product market “‘the

bar and restaurant market serviced by Multi-Flow.’” Pet. App.

C9-C10 (quoting affidavits). The court concluded that that this

alleged market also was invalid as a matter of law, because “[a]

relevant market includes all products that are reasonably

interchangeable — not simply the customers of a company.”

Pet. App. C10.

5. In a unanimous and unpublished opinion, the court of

appeals affirmed. In conducting its product market analysis,

the court of appeals considered both the “reasonable

interchangeability” and “cross-elasticity of demand” criteria

established by this Court in United States v. E.I. du Pont de

Nemours & Co., 351 U.S. 377. 394-404 (1956), as well as the

“practical indicia” later identified in Brown Shoe Co. v. United

States, 370 U.S. 294, 325 (1962). Pet. App. A7-A8. The

court reasoned that “identical” products are a /ortiori

“interchangeable,” and must therefore be included within the

same product market. Pet. App. Al0. Accordingly, the court

concluded that “an antitrust plaintiff may not narrow a relevant

product market to a select group of customers without

identifying a difference in the product supplied to that group of

customers.” Pet. App. All (emphasis in original) (citing 7.

Harris Young, 931 F.2d at 824). Because petitioners had

identified no difference in the beverage products supplied to the

various restaurants at issue, the court concluded that

petitioners’ attempted exclusion of regionally-owned and

nationally-owned restaurants from the relevant product market

amounted to an impermissible attempt “to define the relevant

market in terms of Multi-Flow’s own customer base.” /d.

a

6

REASONS FOR DENYING THE WRIT

Petitioners seek review based on their remarkable claim that,

even though locally-owned and other restaurants purchase the

same beverage products from wholesalers, the products

purchased by locally-owned restaurants constitute a different )

market from the products purchased by regionally-owned and |

nationally-owned restaurants. Petitioners allege no circuit |

conflicts, and they advance no other sound reason why this

Court should consider such a transparently meritless claim.

1. In their questions presented (Pet. i) and argument

headings (Pet. ili-iv), petitioners suggest that this case raises

basic issues about the proper role of reasonable |

interchangeability, cross-elasticity of demand, and “practical

indicia” in an analysis of the relevant product market. No such

question is presented. For over four decades, it has been clear

that products must be included within the same relevant market )

if they are “reasonably interchangeable.” See, e.g., du Pont,

351 US. at 394-404. Both the court of appeals (Pet. App. A7)

and the district court (Pet. App. C4) recognized this principle.

It is equally clear that one important measure of

interchangeability is the “cross-elasticity of demand” between

the products at issue. See, e.g., du Pont, 351 U.S. at 394-95.

Both the court of appeals (Pet. App. A7) and the district court

(Pet. App. C4) recognized this principle as well. Finally, it is

clear that the seven “practical indicia” identified by this Court

in Brown Shoe (370 U.S. at 325) also can serve as important

“evidentiary proxies for direct proof of substitutability.”

Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d

210, 218 (D.C. Cir. 1986) (Bork, J.), cert. denied, 479 U.S.

1033 (1987). Both the court of appeals (Pet. App. A8) and the

district court (Pet. App. C5-C6) also recognized this principle.‘

ee

* In emphasizing Brown Shoe’'s “submarket” terminology (Pet. 23),

petitioners perhaps intend to suggest that the analyses of “practical

7

Far from calling these basic principles into question, the

decision below reflects only their straightforward application.

Under du Pont and its progeny, defining a product market

involves assessing the extent to which different products are

reasonably interchangeable, and thus fall within the same

relevant market. Compare United States v. Continental Can

Co., 378 U.S. 441, 449-53 (1964) (metal and glass containers

are reasonably interchangeable) and du Pont, 351 U.S. at 394-

404 (cellophane and other forms of “flexible packaging

material” are reasonably interchangeable) with /nternational

Boxing Club of New York, Inc. v. United States, 358 U.S. 242,

249-50 (1959) (championship boxing and nonchampionship

boxing are not reasonably interchangeable). The same product,

however, cannot fall within different markets. As the court of

appeals recognized, “identical” products (Pet. App. A10) are

indicia” and of reasonable interchangeability are distinct. However,

petitioners cite no authority for this suggestion, which the lower courts

have overwhelmingly rejected. See, e.g., Allen-Myland, Inc. v. IBM

Corp., 33 F.3d 194, 208 n.16 (3d Cir.) (“submarket” terminology “is

somewhat confusing,” because “relevant market” and “submarket” are

coextensive), cert. denied, 513 U.S. 1066 (1994); United States Anchor

Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 995 (11th Cir. 1993) (“defining

a ‘submarket’ is the equivalent of defining a relevant product market for

antitrust purposes”), cert. denied, 512 U.S. 1221 (1994); H.J., Inc. v. ITT

Corp., 867 F.2d 1531, 1540 (8th Cir. 1989) (“the same proof which

establishes the existence of a relevant product market also shows (or. . .

fails to show) the existence of a product submarket”); White & White, Inc.

v. American Hospital Supply Corp., 723 F.2d 495, 502 (6th Cir. 1983)

(Brown Shoe “utilized the submarket indicia to more precisely answer the

standard ‘reasonable interchangeability’ inquiry”); Satellite Television &

Associated Resources, Inc. v. Continental Cablevision of Va., Inc., 714

F.2d 351, 355 n.5 (4th Cir. 1983) (“relevant market” and Brown Shoe

“submarket” are coextensive); P. Areeda, Antitrust Law § 533, at 172-73

(1996) (“[SJubmarket indicia are best viewed as ‘proxies for cross-

elasticities of supply and demand, and thus the identification of a

submarket is in principle no different than the identification of a relevant

market.’” (citation omitted)).

8

by definition “reasonably interchangeable” (351 U.S. at 395)

within the meaning of du Pont. Further review is unnecessary

to confirm that tautology.

Petitioners likewise err in complaining (Pet. 22-23) that the

court of appeals failed to analyze cross-elasticity of demand.

Any such analysis presupposes the existence of different

products. As this Court recently explained, a “cross-elasticity

of demand” measures the “extent to which consumers will

change their consumption of one product in response to a price

change in another.” Eastman Kodak Co. v. Image Technical

Services, Inc., 504 U.S. 451, 469 (1992) (emphases added).

Having correctly concluded that the same product is

“reasonably interchangeable” with itself (Pet. App. A10), the

court of appeals can hardly be faulted for not also spelling out

why it is analytically incoherent to address, as petitioners insist,

the cross-elasticity of demand between a product and itself.

2. In concluding that “an antitrust plaintiff may not narrow

a relevant product market to a select group of customers

without identifying a difference in the product supplied to that

group of customers” (Pet. App. All) (emphasis in original),

the court of appeals followed the Eleventh Circuit decision in

T. Harris Young, which previously had held that, “[w]hile a

relevant product market can be limited to a portion of

customers, such a limitation must be based on a distinction in

the product sold to those customers” (931 F.2d at 824

(emphasis in original)). Although petitioners assert that 7.

Harris Young was wrongly decided (Pet. 17-18), they do not

cite a single lower-court opinion, much less a single court of

appeals opinion, with which it is inconsistent. To our

knowledge, the few lower-court cases addressing the issue are

all consistent with the decision below and 7. Harris Young.

See Smalley & Co. v. Emerson & Cuming, Inc., 808 F. Supp.

1503, 1512 (D. Colo. 1992) (granting summary judgment) (“a

single product sold to a single customer, given uncontested

—— ee

9

evidence of other consumers of that product, cannot represent

the relevant product market”(emphasis in original)), aff'd, 13

F.3d 366, 368 (10th Cir. 1993) (“Other consumers must be

accommodated in determining the relevant product market.”);

Redmond v. Missouri Western State College, No. 84-6139,

1988 WL 142119, *2 (W.D. Mo. Nov. 2, 1988) (“it seems

unprecedented to allow a claim that a defendant has

monopolized a class of customers as distinguished from a

product or service’).

Petitioners err in contending (Pet. 15-17) that the decision

below and 7: Harris Young are inconsistent with this Court’s

decision in Kodak. The market definition question addressed

in Kodak — whether markets for service and parts can be

distinct for antitrust purposes (see 504 U.S. at 462-63) —

simply has nothing to do with the question presented here.

Equally irrelevant is this Court’s holding that lack of market

power in an equipment market does not foreclose, as a matter

of law, the possibility of market power in an aftermarket for

parts. See id. at 465-77. As explained above, the decisions

below and in 7. Harris Young do not rest on a court’s

assessment of what makes “‘economic sense,” id. at 467

(citation omitted), but on the straightforward legal proposition

that “identical” products, even if sold to different customers,

must be reasonably “interchangeable.” Pet. App. Al0. Far

from undercutting that proposition, Kodak confirms that the

relevant market must include “‘products that have reasonable

interchangeability.’”” 504 U.S. at 482, quoting du Pont, 351

US. at 404.

Petitioners also err in suggesting (Pet. 18-19, 21-22) that

this Court has approved product markets defined solely by

reference to customers. In every case cited by petitioners, the

market was defined by reference to product characteristics, and

by application of the standard criterion of reasonable

interchangeability. See, e.g., NCAA v. Board of Regents of

10

Univ. of Okla., 468 U.S. 85, 95 (1984) (live college football

television; “alternative programming has a significantly different

and lesser audience appeal” (citation omitted)); United States

v. Philadelphia Nat’l Bank, 374 U.S. 321, 356-57 (1963)

(commercial banking services sufficiently “distinctive” to

constitute product market); /nternational Boxing Club, 358

U.S. at 251 (championship boxing; “nonchampionship fights

are not ‘reasonably interchangeable for the same purpose’ as

championship contests” (quoting du Pont, 351 U.S. at 395));

United States v. Paramount Pictures, 334 U.S. 131, 172-73

(1948) (first-run feature films, which “constitut[e] the cream of

the exhibition business”).

3. Petitioners’ final argument (Pet. 23-30) is that the courts

below misapplied the seven “practical indicia” set forth in

Brown Shoe to the facts of this case. For at jeast three differen:

reasons, that contention warrants no further review. First, it is,

on its face, highly factbound. Second, it repeatedly rests on the

premise that, even though all restaurants purchase the same

beverage products, locally-owned restaurants purchase

beverage services that are typically more extensive than those

purchased by regionally-owned and _nationally-owned

restaurants. That premise, however, is inconsistent even with

petitioners’ amended complaint, which contained “no allegation

that the products and services provided to such restaurants

differed from the products and services provided to locally

owned restaurants.” Pet. App. A2 (emphases added). This

Court should not grant review to permit petitioners to change

their factual allegations yet again. Finally, even assuming that

this factbound argument had been properly preserved, it is

meritless in any event. As the court of appeals explained, even

this “total services” argument “does not explain why the

submarket should be limited to taverns and locally owned

restaurants,” because “[t]here is no allegation that non-locally

owned restaurants could not use all of the services provided by

Multi-Flow.” Pet. App. Al0-Al1. Nothing in that analysis, or

1]

in the remainder of the court of appeals’ straightforward

unpublished affirmance, warrants any further review by this

Court.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

ROBERT P. DUCATMAN

JONES, DAY, REAVIS & POGUE

901 Lakeside Avenue

Cleveland, Ohio 44114

(216) 586-3939

GREGORY G. KATSAS

(Counsel of record)

JONES, DAY, REAVIS & POGUE

51 Louisiana Avenue, N.W.

Washington, D.C. 20001

(202) 879-3939

Counsel for Respondent 7

Multi-Flow Dispensers of

Ohio, Inc.

September 1999