# Appendix — U. S. Anchor Manufacturing, Inc. v. Rule Industries, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1994
- **Citation:** 512 U.S. 1221

## Text

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Filed November 23, 1993

UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

No. 91-8854

U.S. ANCHOR MFG., INC., PLAINTIFF,
COUNTERCLAIM DEFENDANT, APPELLEE,
CROSS-APPELLANT,

V.

RULE INDUSTRIES, INC., DEFENDANT-
APPELLANT, CROSS-APPELLEE,

TIE DOWN, INC.,
A/K/A TIE DOWN ENGINEERING, INC.,
DEFENDANT, COUNTERCLAIM PLAINTIFF,
APPELLANT, CROSS-APPELLEE,

WILLIAM CHAPMAN, COUNTERCLAIM
DEFENDANT.

On Appeal from the United States District Court
for the Northern District of Georgia

2a
(1:86-cv-2447-JTC)

Anchor manufacturer brought action against
competitor and distributor alleging violation of antitrust law
and tortious interference with business relationships in
violation of Georgia law. The United States District Court
for the Northern District of Georgia No. 1:86-cv-2447-JTC,
Jack T. Camp, J., imposed civil liability for alleged
predatory pricing. Defendants appealed. The Court of
Appeals, Dubina, Circuit Judge, held that: (1) defendants
could not be held liable for antitrust violations in the absence
of showing that they had dangerous probability of success in
monopolization; (2) distributor could not be held liable for
conspiracy; and (3) pendent jurisdiction would be exercised
over Georgia claim.

Reversed and rendered in part and questions certified.

3a

COX and DUBINA

Circuit Judges

and GODBOLD,
Senior Circuit Judge

(Filed November 23, 1993)

HAROLD T. DANIEL, JR.
LAURIE WEBB DANIEL
WEBB & DANIEL
Atlanta, GA

for Tie Down, Inc.

CHARLES M. SHAFFER, JR.
J. KEVIN BUSTER

SEAN R. SMITH

Atlanta, GA

for Rule Industries, Inc.

J. ALEXANDER PORTER
SIMUEL F. DOSTER, JR.
PORTER & BARRETT
Atlanta, GA

for U.S. Anchor Mfg., Inc.

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TABLE OF CONTENTS

PROCEDURAL HISTORY ...........
CONTENTIONS OF THE PARTIES
STANDARD OF REVIEW ...........
ATTEMPTED MONOPOLIZATION
A Dangerous Probability of Success
|. Defining the Market ........
2. Measuring Power in the Market .
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B Anticompetitive Conduct, Specific
Intent and Damages ..........

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CLAIMS UNDER GEORGIA LAW .....

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OPINION OF THE COURT

DUBINA, Circuit Judge.

This is an appeal from a jury verdict imposing civil
liability for alleged predatory pricing in violation of the
antitrust laws. More specifically, appellants Rule Industries,
Inc. ("Rule") and Tie Down Engineering, Inc. ("Tie
Down"), defendants below, appeal the district court’s denial
of their motions for judgment notwithstanding the verdict on
claims by U.S. Anchor Manufacturing, Inc. ("U.S. Anchor”)
that Rule and Tie Down attempted and conspired to
monopolize the United States market for light weight fluke-
style anchors for small boats by means of below-cost pricing
intended to drive out competition. U.S. Anchor cross-
appeals the district court’s order of a directed verdict on its
state law claims arising from the same allegations. We
reverse the denial of defendants’ motions concerning the
federal claims. With respect to the state law claims, we
certify the dispositive issues for authoritative resolution by
the Supreme Court of Georgia.

I. FACTS

This case involves several manufacturers and
suppliers of light weight anchors for ultimate retail purchase
by owners of recreational boats and small commercial fishing
craft. As the district court observed in denying cross-
motions for summary judgment,

{a]nchors and other marine industry products
are generally sold by suppliers to wholesale

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distributors, who in turn sell the anchors to
boat Jealers, marinas, and other retailers for
ultimate resale to the consumer, the boat
owner. The supplier may either manufacture
its own anchors, as does U.S. Anchor, or
purchase them from another domestic
manufacturer, as [Rule] does from Tie Down,
or import them from abroad.

U.S. Anchor Mfg. v. Rule Indus., 717 F. Supp. 1565, 1568
(N.D. Ga. 1989).

Within the general category of fluke anchors are four
distinct product groups recognized in the industry:
(1) expensive premium anchors, (2) the "Danforth Standard"
brand line of anchors sold only by Rule, (3) so-called
"generic" versions of the Danforth Standard, and
(4) inexpensive economy anchors used primarily for lake
boating.

Rule is a diversified Massachusetts firm that sells an
assortment of marine, hardware and automotive products to
wholesale distributors. It entered the fluke anchor industry
in 1983 when it obtained the rights to sell the Danforth
brand line of anchors. Prior to 1985, Danforth anchors were
manufactured for Rule exclusively by the Jacquith Company
("Jacquith") in New York. Tie Down is a smaller
manufacturing firm in Georgia that began selling generic and
economy fluke anchors in the late 1970s under the "Hooker"
brand name. In May 1985 Rule obtained the Hooker
trademark and the exclusive nght to purchase and distribute
Tie Down’s anchor production in a transaction that U.S.
Anchor has characterized as a "merger." After it sold the
right to market its own anchors, Tie Down agreed to
manufacture both generic/economy and Danforth brand

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anchors for Rule. Tie Down’s only role in the fluke anchor
industry since 1985 has been as one of Rule’s suppliers.

U.S. Anchor is a Georgia company founded in 1985
by William Chapman ("Chapman"), the immediate past
president of Tie Down whose responsibilities there had
recently ended. U.S. Anchor both manufactures and
distributes generic and economy fluke anchors under the
"Sentinel" brand name. Between August 1985 when it first
sent out price lists and December 31, 1990, its market share
increased to between 45 and 68%, depending on how the
relevant product market is defined and measured.

Shortly after U.S. anchor entered the market in
August 1985, on the eve of the 1985-86 marine products
season,’ Rule and U.S. Anchor engaged in a price war.
Following publication of U.S. Anchor’s August price list,
Rule published prices in September that were approximately
11 to 18% higher than U.S. Anchor’s. Thus, U.S. Anchor’s
prices were 10 to 15% lower than Rule’s. (R30-27;
compare USTX 343 with USTX 345.) In October, after
U.S. Anchor had received substantial orders from Rule
customers, Rule cut its prices by 20%, i.e., to levels 6 to
12% below U.S. Anchor’s August prices (R49-28; RTX
584.) U.S. Anchor then matched Rule’s October prices. In
a written report to Rule, USTX 683, Tie Down’s president
Charles MacKarvich ("MacKarvich") estimated U.S.
Anchor’s costs of production and hypothetical projected sales
for a twelve-month period. He theorized that if Rule
lowered its prices further and offered extended credit terms

The annual marine products selling season begins each September with
a trade show.

U.S. Anchor’s tnal exhibits will be cited as "USTX__,” Rule’s tral
exhibits as "RTX_ " and Tie Down’s trial exhibits as “"TDTX_ *

8a

to customers, U.S. Anchor would be forced to adopt even
more attractive terms in order to compete. From his
estimates of cash flow and net revenue derived from these
cost and sales projections, he predicted that such terms
would subject U.S. Anchor to a negative cash flow and an
actual net loss over the 1985-86 marketing year. Rule
implemented price reductions consistent with MacKarvich’s
report in November 1985. In December, U.S. Anchor
merely matched Rule’s prices and did not attempt to
undercut them. (R30-39-40, USTX 351, 353, 543.) U.S.
Anchor contends that Rule’s first price cut in October was
predatory and that all subsequent sales at or below that level
were also predatory.

After the pricing conduct at issue in this case began,
distributors’ prices for generic brands in the smaller, popular
sizes ranged between $3 and $14 depending on weight, and
prices for Danforths were spread 50 to 96% higher.’
Among the more expensive, larger anchors the spread
between Danforth and generic brands was even greater.
Excluding premium anchors,‘ annual unit sales of fluke

> (USTX 372 (Rule’s 1989-90 price list; 50.4 to 96.2% spread); USTX
368 (Rule’s 1988-89 price list; 49.7 to 96.2% spread); USTX 362
(Rule’s 1987-88 price list; 73.4 to 91.7% spread); USTX 355 (Rule’s
1986-87 price list; 61.0 to 76.1% spread); see also USTX 371 (U.S.
Anchor’s 1989-90 price list); USTX 367 (U.S. Anchor’s 1988-89 price
list); USTX 365 (U.S. Anchor’s 1987-88 price list).) U.S. Anchor
repeatedly opened the marine season with prices higher than Rule’s only
to reduce its prices when Rule failed to follow U.S. Anchor’s pricing
strategy.

* The parties have treated this appeal as though premium fluke anchors
were irrelevant. They have also ignored other types of anchors designed
for holding on different bottom conditions (fluke anchors are most useful
on sandy bottoms and least effective in gripping grassy bottoms). We do
the same.

i

9a

anchors in the United States during the time relevant to this
case was varied from 232,000 to 347,000. (USTX 479.)

At trial the parties noted differing possible measures
of Rule’s share of the relevant product market after the
acquisition of Tie Down’s anchor line in May 1985, four
months before the close of the 1984-85 marine season at the
end of August. This dispute encompassed two aspects of
market share: whether to define the product market as
including the high priced Danforth anchors or only the less
expensive generic and economy models, and whether to
measure market shares in terms of unit sales or dollar
revenues. Including the Danforth line and measuring market
shares in revenue, U.S. Anchor asserts that Rule and Tie
Down together controlled 90.5% of the fluke anchor market
during the 1984-85 season, the last year before Rule’s
alleged predation began and the last year before the merger
with Tie Down, and that Rule possessed 60.0% of the
market during the 1985-86 selling year. (USTX 467.)
Using Rule’s most favorable calculation, which measures
share in units and excludes Danforths from the market, Rule
contends that the combined Rule/Tie Down market share in
1984-85 was only 61.5%, (RTX 674), and that Rule’s
aggregate 1985-86 share was 30.1%, (id.: RTX 675 at 1).°

Pale on:

AD NR ay AE a

* Although neither party adduced direct evidence of the combined
Rule/Tie Down unit market share on 1984-85 with Danforths included,
the jury must have concluded that the firms’ combined unit share for that
season with the higher-priced anchors included was somewhat greater
than the 61.5% unit share they garnered in the non-Danforth market
because only Rule marketed the Danforth line. U.S. Anchor’s USTX
467 indicates that Rule itself had no 1984-85 revenues in the non-

Danforth market. But Rule’s RTX 674, which appears to represent the
non-Danforth unit market (compare RTX 674, col. 1985-86 with RTX
675 at 1, rows 1985-86), shows Rule with 12.6% of that market in 1984-
85. We assume that RTX 674 attributes to Rule the non-Danforth

(continued...)

10a

Rule also submitted evidence that its 1985-86 unit market
share, including Danforths, was 43.1%. (RTX 675 at 1.)
Notably, all of these figures encompass an entire season and
none of them attempts to pinpoint Rule’s share at the exact
date when the alleged predation began in October 1985,
several months after U.S. Anchor entered the market. The
evidence shows, and the parties agree, that the Rule/Tie
Down market share consistently decreased after August 1985
when U.S. Anchor first began to solicit orders. The parties
also agree that the relevant geographic market was the
United States.

Il. PROCEDURAL HISTORY

In November 1985 Rule filed suit against U.S.
Anchor for various violations of state and federal law not
involving predatory pricing. The suit was settled on March
19, 1986, when U.S. Anchor and Rule executed an
agreement releasing each other from liability for all events
occurring prior to the date of the release. Tie Down was a
party to neither the litigation nor the ensuing release.

On November 13, 1986, U.S. Anchor sued Rule and
Tie Down, alleging that Rule had attempted to monopolize
the fluke anchor market in violation of section 2 of the
Sherman Act® beginning in October 1985 by engaging in

> (...continued)

production of Tie Down following the Rule-Tie Down transaction in the
final quarter of the 1984-85 season.

® Section 2 provides: “Every person who shall monopolize, or attempt
to monopolize, or combine or conspire with any other person or persons,
to monopolize any part of the trade or commerce among the several

(continued...)

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predatory pricing. U.S. Anchor also alleged that Rule and
Tie Down had conspired to restrain trade in violation of
section 1 of the Sherman Act’ and conspired to attain a
monopoly in violation of section 2, by agreeing to charge
predatory prices, also beginning in October 1985. U.S.
Anchor asserted an illegal tying arrangement by Rule,
whereby its newly patented and supposedly revolutionary
"Deepset” anchors allegedly were sold only to distributors
who abstained from buying generic fluke anchors from
suppliers other than Rule, in violation of section | of the
Sherman Act and section 3 of the Clayton Act, as amended
by the Robinson-Patman Act.’ U.S. Anchor further alleged

® (...continued)

States, or with foreign nations, shall be deemed guilty of a felony... .
15 U.S.C. § 2.

’ Section 1 provides in_ relevant part: “Every contract,
combination . . ., or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is declared to be
illegal.” 15 U.S.C. § 1.

* Section 3 of the Clayton Act provides in relevant part:

It shall be unlawful for any person engaged in commerce...
to lease or make a sale or contract for sale of goods.. .,
whether patented or unpatented, fcr use, consumption, or resale
within the United States . . . on the condition, agreement, or
understanding that the lessee or purchaser thereof shall not use
or deal in the goods . . . of a competitor or competitors of the
lessor or seller, where the effect of such lease, sale or contract

for sale or such condition . . . may be to substantially lessen
competition or tend to create a monopoly in any line of
commerce.

15 U.S.C. § 14. Among other possible differences between the Sherman
Act and Robinson-Patman Act tying provisions is that the Sherman Act
prohibition extends to arrangements affecting the sale of services and

(continued...)

12a

that Rule and Tie Down had conspired to restrain trade in
violation of Georgia law. The district court denied the
parties’ cross-motions for summary judgment. 717 F. Supp.
1565. A jury trial followed during which the defendants
moved for directed verdicts’ as to all claims. The court
granted their motions on the state law claims because it
concluded that Georgia law did not permit damages to be
recovered for a conspiracy in restraint of trade. The jury
found Rule solely liable for attempted monopolization and
jointly liable with Tie Down on both conspiracy counts. The
verdict exonerated Rule of illegal tying. (R10-321). The
jury set damages for each of the three violations at
$1,638,028, which the court trebled to $4,914,084. Tie
Down and Rule both moved for judgment notwithstanding
the verdict on liability and for a new trial on the issue of
damages. (R11-348, 349.) The district court denied these
motions, awarded U.S. Anchor statutory attorney fees in the
stipulated amount of $800,000 and entered judgment
accordingly. (R14-382.) Rule and Tie Down appealed, and
U.S. Anchor cross-appealed with respect to the state law tort
claims. U.S. Anchor does not appeal the judgment on the
tying claim.

§ (...continued)

realty as well as goods. See, e.g. Tie-X-Press, Inc. v Omni Promotions
Co. , 815 F.2d 1407 (1 ith Cir. 1987) (tying arrangement conditioning the
lease of coliseum theater space upon the employment of a ticket-selling
agency affiliated with the lessor); see generally Thompson vy.
Metropolitan Multi-List, Inc. , 934 F.2d 1566, 1574-79 (11th Cir. 1991),
cert. denied, _U.S._ _, 113. S.Ct. 295, 121 L.Ed.2d 219 (1992).

* A motion for directed verdict is now deemed a motion for judgment
as matter of law, and motions for judgment notwithstanding the verdict
are now renewed motions for judgment as a matter of law. See Fed. R.
Civ. P. 50.

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13a
III. CONTENTIONS OF THE PARTIES

Rule contends that it engaged in no predatory conduct
and disputes U.S. Anchor’s showing of Rule’s and Tie
Down’s costs of producing the anchors. Since a predatory
pricing claim requires proof that defendants attempted or
conspired to drive a competitor out of the relevant market by
"pricing below some appropriate measure of cost,” the issue
of which costs to count may be vital. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585 n. 8,
106 S.Ct. 1348, 1355 n. 8, 89 L.Ed.2d 538 (1986) (noting
but not resolving debate over which costs are "relevant"), on
remand, In re Japanese Elec. Prods. Antitrust Litig., 807
F.2d 44 (3d Cir. 1986), cert. denied, 481 U.S. 1029, 107
S.Ct. 1955, 95 L.Ed.2d 527 (1987). Rule advances
numerous criticisms of U.S. Anchor’s expert testimony on
this point. Tie Down contends that U.S. Anchor failed to
adduce any evidence that Tie Down’s prices to Rule were
below Tie Down’s cost, that Tie Down had any knowledge
of (or control over) Rule’s other costs, or that it had any
control over Rule’s prices.

Rule also contends that it had no dangerous
probability of successfully achieving a monopoly. The
parties first dispute the existence of barriers to entry in the
relevant market. Rule and Tie Down contend that without
high barriers, a successful monopolist would not have been
able to recoup the foregone profits inherent in below-cost
pricing by charging supra-competitive prices following the
end of the victim’s competitive presence.” U.S. Anchor
contends that there was sufficient evidence of entry barriers

10

A predatory pricing scheme could be successful by driving the victim
out of business or by coercing him to reduce output to levels consistent
with profit-maximization by a firm or syndicate possessing monopoly
power. Either result would eliminate the victim's competitive presence.

l4a

to permit the jury to find them and that in any case actual
recoupment is not required as a matter of law before the jury
may find an attempt or conspiracy to monopolize. Second,
Rule points to U.S. Anchor’s own success and Rule’s
declining fortunes in the anchor market as evidence that it
could not have monopolized.

Rule and Tie Down also challenge the sufficiency of
the evidence of unlawful conspiracy. The parties dispute the
inference to be drawn from plaintiff's exhibit 683, the
MacKarvich market report. U.S. Anchor contends that
MacKarvich was proposing to drive the new entrant from the
marketplace. Defendants offered expert testimony,
corroborated by MacKarvich himself, that studies of
competitors’ costs and revenues are common in competitive
industries and that a projected loss after the first year of
operation is ordinarily not enough to drive any new entrant
from the market, since start-up companies must generally
expect early losses. In its cross-appeal U.S. Anchor
challenges the district court’s exclusion of certain evidence
that allegedly supports the existence of a conspiracy.

Rule and Tie Down challenge the sufficiency of U.S.
Anchor’s proof concerning damages. They argue that at
least some of their price cuts were instituted to meet
competition from foreign fluke anchor manufacturers and
any loss of sales by U.S. Anchor resulting from such
reductions is not antitrust injury. Moreover, they contend,
the base price from which U.S. Anchor’s revenue losses
were calculated should have reflected competitive levels as
shown by Rule’s and U.S. Anchor’s early, allegedly non-
predatory reductions rather than prices prevailing before
U.S. Anchor’s entry into the market.

Rule and U.S. Anchor dispute the scope and effect of
their settlement agreement in the prior litigation. Rule

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1Sa

contends that liability for all predatory sales before the date
of the release was discharged. Moreover, Rule maintains
that the alleged predatory scheme was ongoing at the time
the contract was executed and therefore all post-release
liability was discharged as well. U.S. Anchor contends that
a general release is ineffective to discharge undiscovered
antitrust liability as a matter of law and, moreover, that post-
release damages were not waived. We do not reach this
dispute as it applied to the federal antitrust claims.'' As
applied to the state law claims, we certify the question, along
with the substantive issues of Georgia law, for resolution by
the Supreme Court of Georgia.

In its cross-appeal U.S. Anchor also argues that the
district court should not have granted a directed verdict on
its state law claims because Georgia law allows private
damage actions for conspiracies in restraint of trade. Rule
and Tie Down disagree with U.S. Anchor’s interpretation of
Georgia law.

IV. STANDARD OF REVIEW

We review rulings on motions for judgment as a
matter of law by applying de novo the same legal standards
used by the district court. Miles v. Tennessee River Pulp &
Paper Co., 862 F.2d 1525, 1528 (11th Cir. 1989). Both
courts consider all the evidence, but all reasonable inferences
must be drawn in the nonmovant’s favor. If the jury verdict
is supported by substantial evidence—that is, enough evidence
that reasonable minds could differ concerning material

11

Federal common law, not the state law of contracts, determines the
effect of settlement agreements alleged to release federal antitrust claims.
Redel’s Inc. v. General Elec. Co., 498 F.2d 95, 98 & n. 2 (Sth Cir.
1974).

16a

facts—the motion should be denied. A mere scintilla of
evidence in the entire record, however, is insufficient to
support a verdict. See Hessen ex rel. Allstate Ins. Co. v
Jaguar Cars, Inc., 915 F.2d 641, 644 (11th Cir. 1990).
Denial of a motion for a new trial is reviewed for clear
abuse of discretion. /d. at 644-45. A district court’s
evidentiary rulings are not disturbed unless there is a clear
showing of abuse of discretion. /d. at 645.

V. ATTEMPTED MONOPOLIZATION

There are three essential elements of a claim alleging
attempted monopolization under section 2 of the Sherman
Act. First, the plaintiff must show that the defendant
possessed the specific intent to achieve monopoly power by
predatory or exclusionary conduct. Second, the defendant
must in fact commit such anticompetitive conduct. Third,
there must have existed a dangerous probability that the
defendant might have succeeded in its attempt to achieve
monopoly power. Spectrum Sports, Inc. v. McQuillan,
ia , 113 S.Ct. 884, 890, 122 L.Ed.2d
247 (1993); see McGahee v. Northern Propane Gas Co., 858
F.2d 1487, 1493 (11th Cir. 1988), cert. denied, 490 U.S.
1084, 109 S.Ct. 2110, 104 L.Ed.2d 670 (1989); 3 Phillip
Areeda & Donald F. Turner, Antitrust Law {4 820 at 312
(1978) [hereinafter Areeda & Turner, Antitrust Law]. We
address these elements in reverse order.

es *y.
A. Dangerous Probability of Success

To have a dangerous probability of successfully
monopolizing a market the defendant must be close to

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17a

achieving monopoly power.’* Monopoly power is "the
power to raise prices to supra-competitive levels or . . . the
power to exclude competition in the relevant market either
by restricting entry of new competitors or by driving existing
competitors out of the market." American Key Corp. v.
Cole Nat’l Corp., 762 F.2d 1569, 1581 (11th Cir. 1985).
Most attempts to measure monopoly power involve
quantifying the degree of concentration in a relevant market
and/or the extent of a particular firm’s ability to control
productive capacity in that market. In anaiyzing attempted
monopolization’s dangerous probability of success element,
the estimate of market power is necessarily speculative to
some extent because it requires an evaluation of future
behavior by market participants viewed at the time the
alleged attempt began. We are not without guideposts,
however.

Relevant determinants of the market power of
a prospective predator in this regard include
its absolute and relative market shares, and
those of competing firms; the strength and
Capacity of current competitors; the potential
for entry; the historic intensity of
competition; and the impact of the legal or
natural environment.

International Tel. & Tel. Corp., 104 F.T.C. 208, 412 (1984)
(citation and footnotes omitted). Despite the seemingly
broad array of factors employed by the Federal Trade
Commission, the principal judicial device for measuring
actual or potential market power remains market share,
typically measured in terms of a percentage of total market

12

The terms "monopoly power" and "market power” are synonymous
and are used interchangeably in this opinion.

18a

sales. Thus, at the outset the appropriate market must be
defined or identified."

Defining the market is a necessary step in any
analysis of market power and thus an indispensable element
in the consideration of any monopolization or attempt case
arising under section 2. Walker Process Equip., Inc. v.
Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S.Ct.
347, 350, 15 L.Ed.2d 247 (1965); American Key, 762 F.2d
at 1579. Although the issue is fully developed in the fact
section of Rule’s brief, the argument section does not
address the precise question of market definition. U.S.
Anchor, in the fact section of its brief, contends that the
question of market definition is not appropriately before us
because Rule does not argue the point. (U.S. Anchor’s Br.
at 3 n. 1.) We must consider the question nevertheless
before passing on the legal significance of evidence
concerning Rule’s potential market power. As the issue of
Rule’s dangerous probability of success has been preserved
through argument, the subsidiary question of market
definition is also preserved because it is set forth fully in the

13

This inquiry may be labelled more appropriately as “market
estimation.” See Herbert Hovenkamp, Economics and Federal Antitrust
Law 59 (1985).

19a

fact section of Rule’s brief.'* The issue was fully argued
before the district court.'*

The definition of the relevant market is essentially a
factual question, so the precise issue we first must address
is whether U.S. Anchor introduced sufficient evidence to
raise a jury question on the inclusion of Danforths. See,
e.g. Yoder Bros. v. California-Florid.: Plant Corp. , 537 F.2d
1347, 1366 (Sth Cir. 1976), cert. denied, 429 U.S. 1094, 97
S.Ct. 1108, 51 L.Ed.2d 540 (1977).'*

‘* See Fed. R. App. P. 28(a)(4) (brief shall include “a statement of the
facts relevant to the issues presented for review, with appropriate
references to the record"); of. Harris v. Plastics Mfg. Co., 617 F.2d 438,
440 n.1 (Sth Cir. 1980) (per curiam) (brief that merely stated an issue,
without providing any argument or facts, deemed to waive it). For
instance, the plaintiff's brief in American Key raised the question of
market definition but failed to raise, inter alia, the existence of monopoly
power. Although the omission technically “abandoned” the issue of
market power, the court addressed it anyway. 762 F.2d at 1579-81. We
believe Rule’s brief puts this case closer to American Key than cases in
which a brief merely stated an issue without fact and argument, or
actually ignored an entire claim or defense. Cf Joe Regueira, Inc. v.
American Distilling Co. , 642 F.2d 826, 833 n. 16 (Sth Cir. Unit B April
1981); In re Municipal Bond Reporting Antitrust Litig., 672 F.2d 436,
439 n. 6 (Sth Cir. 1982).

'S (See R10-301-4, Memo at 28-30 (Rule’s Motion for Directed Verdict
and Memorandum in Support); R9-299 Br. at 3-6 (Tie Down’s Motion
for Directed Verdict and Brief in Support).)

‘* Decisions of the iormer Fifth Circuit rendered before October 1,
1981, are binding upon panels of this court. Bonner v. City of Prichard,
661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

20a

l. Defining the Market

"Defining a relevant product market is primarily ’a
process of describing those groups of producers which,
because of the similarity of their products, have the
ability—actual or potential—to take significant amounts of
business away from each other.’" General Indus. Corp. v.
Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir. 1987)
(quoting SmithKline Corp. v. Eli Libby & Co., 575 F.2d
1056, 1063 (3d Cir.), cert. denied, 439 U.S. 838, 99 S.Ct.
123, 58 L.Ed.2d 134 (1978)). The reasonable
interchangeability of use or the cross-elasticity of demand”
between a product and its substitutes constitutes the outer
boundaries of a product market for antitrust purposes.
Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82
S.Ct. 1502, 1523, 8 L.Ed.2d 510 (1962).

[Within the broad market, well-defined
submarkets may exist which, in themselves,
constitute product markets for antitrust
purposes. The boundaries of such submarket
may be determined by examining such
practical indicia as industry or public
recognition of the submarket as a separate
economic entity, the product’s peculiar
characteristics and uses, unique production
facilities, distinct customers, distinct prices,
sensitivity to price changes, and specialized
vendors.... The cross-elasticity of
production facilities may also be an important
factor in defining a product market... .

'T Also known as “demand substitution.”

a

21a

Id. at 325 & n. 42, 82 S.Ct. at 1523-24 & n. 42 (citations

and footnotes omitted). As the Supreme Court’s language
itself suggests, defining a "submarket" is the equivalent of
defining a relevant product market for antitrasi purposes. ----
International Telephone & Telegraph adequately summarizes

our view of the relevant proof:

Reliable measures of supply and demand
elasticities provide the most accurate estimates
of relevant markets. However, it is ordinarily
quite difficult to measure cross-elasticities of
supply and demand accurately. Therefore, it
is usually necessary to consider other factors
that can serve as useful surrogates for cross-
elasticity data. ... In the case of product
market definition, these factors may include

whether the products and services
have sufficiently distinctive uses and
characteristics; whether industry firms
routinely monitor each other’s actions
and calculate and adjust their own
prices (at least in part) on the basis of
other firms’ prices; the extent to
which consumers consider various
categories of sellers... as
substitutes; and whether a sizeable
price disparity between different types
of... sellers . . . persists over time
for equivalent amounts of comparable
goods and services.

104 F.T.C. at 409 (quoting Grand Union Co., 102 F.T.C.
812, 1041 (1983)) (footnotes omitted).

-

22a

We note that Danforth brand anchors are functionally
interchangeable with their equivalent counterparts among the
generic brands. Indeed, among smaller sized anchors the
Hooker and Danforth anchors have always been virtually
identical. (R30-131-33; R33-129-31.) This
interchangeability suggests a likelihood that consumers of
generic brands would willingly switch to Danforths in the
event of significant price increases among generics.
Similarly, Danforth customers might switch to generic
brands if Rule implemented a significant increase in the price
of Danforths. The likelihood of demand substitution, if
proven, weighs strongly in favor of including the two
categories of product within a single market for antitrust
analysis. This is so because the very purpose of defining the
relevant market under section 2 is to determine whether a
monopolist, cartel or oligopoly in that market would be able
to reduce marketwide output simply by cutting its own
Output, and thereby raise marketwide prices above
competitive levels. United States v. E.l. du Pont de
Nemours & Co. (The Cellophane Case), 351 U.S. 377, 395,
76 §.Ct. 994, 1007, 100 L.Ed. 1264 (1956); Satellite
Television & Associated Resources, Inc. v. Continental
Cablevision, Inc., 714 F.2d 351, 356 (4th Cir. 1983), cert
denied, 465 U.S. 1027, 104 S.Ct. 1285, 79 L.Ed.2d 688
(1984)."*

We hold, however, that the relevant market in this
case constituted light weight generic and economy fluke
anchors. Four of the Brown Shoe factors weigh strongly in
favor of excluding Danforths from the relevant market;
distinctly higher prices, a distinct group of customers,
strongly inelastic demand and limited substitution of supply.

'* See also, e.g., Richard A. Posner, Antitrust Law: An Economic

Perspective 125-26 (1976); Hovenkamp, supra at 59.

23a

Moreover, the higher prices charged for Danforths are
evidence that a distinct group of customers was unwilling to
switch away from the prestigious branded product in
response to price increases above competitive levels. The
fact that this group remained loyal to Danforths despite
prices 50 to 96% and more above prices for functionally
interchangeable alternative products shows inelastic demand
and limited demand interdependence. More importantly,
U.S. Anchor showed no reasonably possibility that a
significant number of consumers would have switched to
Danforths, many of which were offered at nearly double the
price of their generic substitutes, in response to more modest
increases in generic prices. And as more fully discussed
below, there is no evidence that Rule had (or would have)
varied its output of Danforths in response to price changes
in the broader market. We hold, therefore, that the record
provides no support for finding significant cross-elasticity of
demand or supply between Danforths and generic anchors.

First, U.S. Anchor’s evidence was insufficient for a
reasonable juror to conclude that there was a significant
cross-elasticity of demand. U.S. Anchor’s evidence
demonstrated that an increase in the spread between prices
for Danforths and other anchors had coincided with lower
sales of Danforths. During the period from September 1985
until August 1990, sales of Danforths fell by 61.5% while
the spread between the prices of Danforths and other anchors
increased by 9.1%. (USTX 638; R40-106.) (According to
the exhibit, Danforth prices rose while Sentinel and Hooker
prices fell). Although we recognize that correlation is often
relied upon to infer causation, see, e.g., Cellophane, 351
U.S. at 400, 76 S.Ct. at 1010, we do not believe that this
aggregation of sales data over five years provided a
sufficiently close correlation between changes in demand and
price to justify the inference that consumers were willing and
able to switch away from Danforths because of increasing

24a

price differences. The exhibit wholly fails to take account
of factors other than price (or quality) which may have
affected demand for Danforths. If changes in relative prices
had been more closely correlated in time with shifting
purchases than it might have been reasonable to infer that the
demand shifts were caused by the price differences. As the
evidence stands, however, the datum aggregating demand
behavior from 1985 to 1990 fails to provide any basis from
which the jury could have inferred that the demand shifts
were caused by prices instead of other factors. Those non-
price, non-quality factors might well have included
consumers’ increased awareness of the similarities between
Danforths and other brands (perhaps caused by U.S.
Anchor’s successful promotion of its own products),
changing attitudes concerning thrift and the value of money,
the decline in demand for fluke anchors generally after the
1987-88 season, (see USTX 479), or competition from
Rule’s own more expensive premium Deepset line. Over
time the shape of a demand curve changes independently of
variations in the pricing and quality of particular substitute
products. Aggregate (or average) evidence of demand over
too long a period of time provides no support for inferring
that changes apparently correlated with substitute price
movements represent shifts in the curve caused by those
variations in prices. Given the changes in the behavior of
competitors that occurred over the five years in question,
namely the development of fierce price competition between
Rule and U.S. Anchor in the generic and economy market
and the introduction of Deepsets, we conclude that the
average Danforth sales statistic was insufficient evidence
from which the jury could have inferred demand cross-
elasticity in October 1985 or thereafter. Cf Yoder Bros.,
537 F.2d at 1367-68. This conclusion is buttressed by the
more precise sales data provided by USTX 508. Comparing
the 1985-86 and 1986-87 seasons, which are the two closest
in time to the date when the alleged predation began in

25a

October 1985 for which data were offered, the exhibit shows
that unit sales of Danforths fell 5.4%" despite a price
reduction of 0.5% and a simultaneous increase in the prices
of generic anchors of 0.8%. Id. at 2. Danforths suffered
this decline while the overali demand for fluke anchors
jumped 19%, from 273,000 to 325,000 in annual unit sales.
(USTX 479.)”

Just as an increase in Danforth prices might have
been expected to drive customers away from Rule and into
the arms of generic manufacturers, an increase in prices for
generic brands would likely cause some otherwise price-
sensitive Customers to prefer the more expensive Danforths.
Nonetheless, the present record provides no basis other than
guesswork for concluding that a shift away from generics
would have been significant in magnitude;” the large spread
in prices between generic anchors and Danforths tends to
suggest that the shift would not have been great. Thus, we
conclude that the record provides no support for finding
significant cross-elasticity of demand between Danforths and
generics.

'? U.S. Anchor’s unit sales exhibit, USTX 479, shows an even more
marked decrease in Danforth sales for the two seasons: a 7.8% drop
from 56,431 in 1985-86 to 52,035 in 1986-87. This is only one example
of inconsistency in the evidence offered by U.S. Anchor, but we assume
that the jury credited the version least favorable to Rule.

» Faced with this evidence, we can only note that the absence of proof
concerning changes in prices and sales before the Rule-Tie Down
transaction is an especially prominent flaw in U.S. Anchor’s case.

*' By “significant in magnitude” we refer to a shift that is large enough
to render unprofitable a monopolistic price increase in the broader
market. Again, we defer the task of establishing criteria for testing the
quantitative significance of changes in this variable.

26a

Second, the evidence was insufficient for a reasonable
juror to find a significant cross-elasticity of supply. The
jury could not reasonably have found that the manufacturing
capacity used to make Danforths likely would have been
switched to making generic anchors in response to moderate
price increases by a sole seller of the lower priced products.
To be sure, the productive processes employed in
manufacturing Danforths were virtually identical to those
used for generics. (R33-145-50.) Yet it defies logic to
suggest that a rational supplier” would switch from selling
branded products at high prices to selling equally costly
equivalent products at lower prices, even assuming that the
lower prices would yield significant supranormal profits.
Put another way, it would be unreasonable to expect Rule to
lower the price of Danforths and abandon its ability to
discriminate against brand-conscious boaters solely to earn
smaller profits. There was insufficient evidence of likely
supply substitution from which to conclude that any portion
of Danforth output would have served to constrain price
increases among the generic anchors.”

Moreover, the record demonstrates that the Danforth
line, although functionally equivalent to their counterparts,
may have constitutes its own market based on consumer
brand loyalty. The fluke anchor industry presented the
unusual circumstance of severe price discrimination against
a distinct group of consumers based solely on brand

2 There is no evidence that Rule was irrational in its pricing strategies,
although it may well have been misinformed or overly optimistic
concerning U.S. Anchor’s staying power in the market.

> Of course, Rule’s exclusive control over the Danforth trademark also
eliminated the possibility of supply substitution by other firms making
Danforths. This observation by itself, however, would not be sufficient
to show that Danforths and generics represented distinct markets.

27a

preference. U.S. Anchor’s expert, Dr. Williard F. Mueller,
testified on direct examination that "people have gotten an
attachment to the Danforth Standard in this case, it had kind
of a mystique about it at one time, . . . what happens in one
year, simply a price difference, doesn’t result in an
immediate king of shift." (R40-106.) Although interbrand
competition generally restrains the pricing behavior of
individual brand sellers, Continental T.V., Inc. v. GTE
Sylvania Inc., 433 U.S. 36, 52 n. 19, 97 S.Ct. 2549, 2558
n.19, 53 L.Ed.2d 568 (1977), on remand, 461 F. Supp.
1046 (N.D. Cal. 1978), affd, 694 F.2d 1132 (9th Cir.
1982), it is settled that customer brand loyalty may constitute
an impediment to competition and thus an aid in the exercise
of market power. See. e.g., United States v. Pabst Brewing
Co., 384 U.S. 546, 559-61, 86 S.Ct. 1665, 1672, 16
L.Ed.2d 765 (1966) (Harlan, J., concurring), on remand,
296 F. Supp. 994 (E.D. Wis. 1969).* A single branded
product may, in rare cases, constitute its own relevant
market. Los Angeles Mem. Coliseum Comm’n v. National
Football League, 726 F.2d 1381, 1393 (9th Cir.), cert.
denied, 469 U.S. 990, 105 S.Ct. 397, 83 L.Ed.2d 331
(1984).

The understanding that brand loyalty may facilitate
monopolization is consistent with the general proposition that
the ability to discriminate against a distinct group of
customers by charging higher prices for otherwise similar
products demonstrates the existence of market power with
respect to that group. See United States V. Grinnell Corp.,

* See also Cellophane. 351 U.S. at 392-93, 76 S.Ct. at 1005-06; Ware
v. Trailer Mart, Inc., 623 F.2d 1150, 1154 (6th Cir.1980); of. Justice
Department Guidelines, supra § 3.3 n. 33 (noting that case or difficulty
of long-term committed entry into a market may depend upon "the
relative appeal, acceptability and reputation of incumbents’ and entrants’
products”).

28a

384 U.S. 563, 574, 86 S.Ct. 1698, 1706, 16 L.Ed.2d 778
(1966).* The existence of such market power may, a a
practical matter, remove the higher priced product from the
broader market composed of its functional substitutes. See
C.E. Services, Inc. v Control Data Corp., 759 F.2d 1241,
1246 (Sth Cir.), cert. denied, 474 U.S. 1037, 106 S.Ct. 604,
88 L.Ed.2d 583 (1985) (holding that "a ubiquitous price
differential of some 20-25%" between branded and
unbranded services, combined with other Brown Shoe
factors, could justify finding a separate market for the
unbranded services and thus precluded summary judgment on
the issue of market definition).

We do not suggest that the existence or hypothetical
possibility of monopoly power over one _ product
automatically excludes it from a broader market.
"[SJubmarkets are not a basis for the disregard of broader
line of commerce that has economic significance.” United
States v. Phillipsburg Nat’l Bank & Trust Co., 399 U.S.
350, 360, 90 S.Ct. 2035, 2041, 26 L.Ed.2d 658 (1970). We
do hold, however, that regardless of which party in the case
bears the ultimate burden of persuasion, the broader
economic significance of a submarket must be supported by
demonstrable empirical evidence. Although perhaps difficult
to come by, evidence that the dominant firm within a
submarket costs of production were insensitive to changes in
the quantity of goods sold, suggesting that its only rational
response would be to increase output to satisfy the higher
demand in the event of price increases above competitive
levels in the broader market, might show that submarket

*% See also, e.g., 2 Areeda & Turner, Antitrust Law, supra { 514;
Phillip E. Areeda & Herbert Hovekamp, Antitrust Law {518.1d
(Supp. 1991) [hereinafter Areeda & Hovekamp, Antitrust Law]; Gregory
J. Werden, Market Delineation and the Justice Department's Merger
Guidelines, 1983 Duke L.J. 514, 522, 529-30.

29a

production in fact disciplined price leve:s in the broader
market. Especially if the submarket represents a premium-
priced segment of the broader market, the relevance of proof
regarding elasticity of supply would depend on the validity
of the assumption that significant numbers of consumers
would switch in response to significant price increases in the
broader market, an assumption that may or may not be
supported by evidence or common experience. In the
present case U.S. Anchor can rely upon neither evidence nor
inference. Simpler evidence of supply and demand
substitution, like proof that producers in the submarket had
actually increased or decreased their sales in response to
corresponding price changes in the broader market, would
also suffice. As we have pointed out, however, U.S.
Anchor failed to meet its burden of proving interdependent
market behavior by this method as well.

Considering all the evidence in light of the factors
identified by Cellophane and Brown Shoe and explained in
subsequent decisions, we conclude as a matter of law that the
relevant product market was light weight generic and
economy fluke anchors.

2. Measuring Power in the Market

The principal measure of actual monopoly power is
market share, and the primary measure of the probability of
acquiring monopoly power is the defendant’s proximity to
acquiring a monopoly share of the market. Thus, a
sufficiently large market share may alone create a genuine
dispute over whether the defendant possessed a dangerous
probability of successfully monopolizing a market despite the
existence of other facts tending to make monopolization
unlikely, thereby precluding summary judgment for the
defendant. McGahee v. Northern Propane Gas Co., 858
F.2d at 1506. When assessing market shares for the purpose

30a

of ascertaining market power the appropriate measure of a
firm’s share is the quantity of goods or services actually sold
to consumers. Although revenues are often relied upon as
a surrogate for quantity, actual unit sales must be used
whenever a price spread between various products would
make the revenue figure an inaccurate estimator of unit
sales. Brown Shoe, 370 U.S. at 341 n. 69, 82 S.Ct. at 1533
n. 69.

In McGahee we noted in dicta that several factors
may be relevant to whether a particular market share
evidences a dangerous probability of success. 858 F.2d at
1505 (citing McGahee v. Northern Propane Gas Co., 658 F.
Supp. 189, 196-97 (N.D. Ga. i987), rev’d, 858 F.2d 1487
(11th Cir. 1988)). In finding no dangerous probability of
success the district court had relied upon the ease of entry by
new firms and expansion from adjacent geographic markets,
the number and size of alleged victims of the predation and
the defendant’s declining market share during the alleged
attempt to monopolize. 658 F. Supp. at 196-97.
Nevertheless, we held:

Without examining any factors to determine
what market share would be necessary for
Northern Propane’s alleged predatory pricing
to present a dangerous probability of success,
we can say that a sixty or sixty-five percent
market share is a sufficiently large platform
from which such a scheme couid be launched
to create a genuine issue of material fact as to
whether there was a dangerous probability
that Northern Propane would succeed in
achieving a monopoly.

McGahee, 858 F.2d at 1506. Finding it “undisputed” that
the defendant possessed such a share, we reversed the

\

3la

district court’s order of summary judgment for the defendant
and remanded for further proceedings. Our holding in
McGahee ihat market share estimated with reasonable
confidence to fall between 60 and 65% suffices to raise a
jury question concerning dangerous probability of success is
binding circuit precedent. Sherry Mfg. Co. v. Towel King,
Inc., 822 F.2d 1031, 1034 n. 3 (11th Cir. 1987). We do
note, however, the tension between McGahee’s bright-line
approach and Cliff Food Stores, Inc. vy. Kroger, Inc., 417
F.2d 203 (Sth Cir. 1969), in which the court noted that "one
must be particularly wary of the numbers game of market
percentage when considering an ’attempt to monopolize’
suit” under the dangerous probability standard. 417 F.2d at
207 n. 2; cf. United States v. Columbia Steel Co., 334 U.S.
495, 528, 68 S.Ct. 1107, 1124, 92 L.Ed. 1533 (1948) ("the
relative effect of percentage command of a market varies
with the setting in which that factor is placed") (actual
monopolization case). We believe the cases may be
reconciled by requiring a careful definition of the relevant
market (as mandated by Walker Process and American
Key)” and an assessment of each firm’s ability to vary its
Output in calculating the size of the market and attributing
individual market shares. See, €.g., United States y.
General Dynamics Corp., 415 U.S. 486, 499-504, 508-10,
94 S.Ct. 1186, 1194-97, 1199-1200, 39 L.Ed.2d 530 (1974)
(measuring power in market for coal in terms of possession
or likely near-term acquisition of uncommitted reserves

* Notably, in McGahee itself the district court had observed that
despite the defendant’s concession for summary judgment purposes
concerning the relevant product market, "there is, at the very least, an
issue of fact as to whether propane constitutes a distinct product market.”
658 F. Supp. at 192 n. 3 (citing United States v. Empire Gas Corp. , 537
F.2d 296, 303-304 (8th Cir. 1976), cert. denied, 429 U.S. 1122, 97
S.Ct. 1158, 51 L.Ed.2d 572 (1977)).

32a

instead of overall sales, because most sales represented
fulfillment of existing long-term requirements contracts).

In Cliff Food Stores the former Fifth Circuit stated
that something more than 50% market share would be
required to show actual monopoly, at least in the absence of
collusive price leadership or tacit coordination in an
industry. 417 F.2d at 207 n. 2. The Second Circuit in
Broadway Delivery Corp. v. United Parcel Service of
America, Inc., 651 F.2d 122 (2d Cir.), cert. denied, 454
U.S. 968, 102 S.Ct. 512, 70 L.Ed.2d 384 (1981), similarly
suggested that the absence of actual monopoly power could
be found as a matter of law when the defendant supplies only
50% of the market, “or even somewhat above that figure,
{when} the record contains no significant evidence
concerning the market structure to show that the defendant’s
share of that market gives it monopoly power." 651 F.2d at
129. Despite these suggestions, we have discovered no cases
in which a court found the existence of actual monopoly
established by a bare majority share of the market.
Nevertheless, a dangerous probability of achieving monopoly
power may be established by a 50% share. For this reason,
it is usually necessary to evaluate the prospects for
monopolization as they existed when the alleged attempt
began. As shown by the undisputed facts discussed infra,
Rule never possessed a dangerous probability of success
during the time for which U.S. Anchor seeks damages.

U.S. Anchor points to the combined market shares of
Rule and Tie Down at the end of the 1984-85 season,
immediately before the transaction that eliminated Tie Down
as a supplier and transferred its production to Rule.
Accepting arguendo the implicit contention that Tie Down’s
pretransaction market share should be attributed to Rule, we
conclude from the undisputed evidence that Rule’s market
share on August 31, 1985, the eve of the 1985-86 season,

33a

was 61.5%, (RTX 674), and its aggregate (average) share
over the entire season was 30.1%, (id., RTX 675 at 1).

Rule has argued that we should not attribute all of Tie
Down’s pre-transaction market share to it. After the
transaction Tie Down had no need for its anchor sales
representatives, many of whom found engagements with
U.S. Anchor and employed their connections and reputation
on behalf of the newcomer’s selling efforts. Moreover, U.S.
Anchor’s Chapman was well known to customers from his
days with Tie Down. Thus, according to Rule, U.S. Anchor
stepped into Tie Down’s shoes and inherited at least some of
Tie Down’s pre-transaction market share, presumably that
portion which U.S. Anchor had the productive capacity to
satisfy. This argument is persuasive, although it may be
subject to rebuttal on at least two grounds. Cf. American
Academic Suppliers, Inc. vy. Beckley-Cardy, Inc., 922 F.2d
1317, 1321-22 (7th Cir. 1991). First, the depth of Rule’s
product line and the expertise of its own sales force
conferred competitive advantages which might have induced
some of Tie Down’s former customers to stay with the
Hooker line. Second, the anchor industry was highly
concentrated and customers had few alternative sources of
supply, a factor that is especially important in view of Rule’s
effort to link purchase of the Deepset anchors to exclusive
dealing arrangements with distributors. We need not reach
the merits of Rule’s contention, however, because even if we
consider Rule to have had 61.5% of the market on
August 31, 1985, there was insufficient evidence from which
the jury could have found a dangerous probability of
monopolization in October.

As we have outlined above, Rule’s average market
Share for the 1985-86 season was 30.1%, a fact which
strongly indicates that Rule’s share declined sharply from
61.5% after U.S. Anchor’s entry into the market in August.

34a

For the month of October, U.S. Anchor’s sales of generic
and economy anchors exceeded Rule’s by 5.7%. (RTX 675
at 15). Prior to October U.S. Anchor had no sales at all,
but the firm was accepting orders during this time and
apparently possessed the capacity to fill them. Thus, Rule
was never able to maintain a majority position in the market
during the 1985-86 season. Cf. General Dynamics, 415
U.S. at 501-02, 94 S.Ct. at 1196. Accordingly, because
Rule possessed less than 50% of the market at the time the
alleged predation began and throughout the time when it was
alleged to have continued, there was no dangerous
probability of success in October 1985 as a matter of law.

3. Recoupment

Rule argues that the district court should have granted
its motion for judgment notwithstanding the verdict based on
its contention that there can be no dangerous probability of
successful monopolization by predatory pricing unless it is
shown that the defendant would have recouped the foregone
revenues associated with its price-cutting strategy.” Our
disposition of this case, however, makes it unnecessary to
address Rule’s recoupment argument.

B. Anticompetitive Conduct, Specific Intent and
Damages

Our conclusion that U.S. Anchor failed to show a
dangerous probability of success makes it unnecessary for
purposes resolving its attempt claim to evaluate the evidence
of Rule’s and Tie Down’s costs, as would be required to

77 If we accepted Rule’s argument we could simply remand for a new
trial with directions to instruct the jury concerning this “element” of the
plaintiff's case, or we could evaluate the record to see whether the jury
could have found the element proven.

35a

classify its pricing conduct as anticompetitive. See
Matsushita, 475 U.S. at 585 n. 8, 106 S.Ct. at 1355 n. 8;
International Air Industries, Inc. v. American Excelsior Co..,
517 F.2d 714, 723-25 (Sth Cir. 1975). The same is true
with respect to the evidence of specific intent to achieve
monopoly power by unlawful conduct, although we note that
such intent may sometimes be inferred from predatory
conduct itself. Spectrum Sports, __' U.S. at_, 113
S.Ct. at 892; International Tel. & Tel., 104 F.T.C. at 401-
02; see also McGahee, 858 F.2d at 1503-04. Nor must we
decide whether to parse this evidence for the precise level
during each season at which Rule’s prices unlawfully
dropped below its costs in order to assess U.S. Anchor’s
proof of damages, as requested by Rule. See MCI
Communications Corporation v. American Telephone and
Telegraph Company, 708 F.2d 1081, 1162, 1165 (7th Cir.
1983).

VI. CONSPIRACY

U.S. Anchor’s conspiracy claims are distinct from its
attempted monopolization claim. The elements of a
conspiracy to monopolize under Section 2 are (1) an
agreement to restrain trade, (2) deliberately entered into with
the specific intent of achieving a monopoly rather than a
legitimate business purpose, (3) which could have had an
anticompetitive effect, and (4) the commission of at least one
overt act in furtherance of the conspiracy. Seagood Trading
Corp. v. Jerrico, Inc., 924 F.2d 1555, 1576 (11th Cir.
1991). The elements of a conspiracy to restrain trade under
Section 1 are (1) an agreement to enter a conspiracy
(2) designed to achieve an unlawful objective. Bolt v.
Halifax Hosp. Medical Ctr., 891 F.2d 810, 820 (11th Cir.),
cert. denied, 495 U.S. 924, 110 S.Ct. 1960, 109 L.Ed.2d
322 (1990), appeal after remand, 980 F.2d 1381 (11th Cir.

36a

1993). The plaintiff must also prove (3) "actual unlawful
effects [or] facts which radiate a potential for future harm”
to competition. Times-Picayune Publishing Co. v. United
States, 345 U.S. 594, 622, 73 S.Ct. 872, 888, 97 L.Ed.
1277 (1953).

There is no requirement, however, that a conspiracy
under either provision have a dangerous probability of
successfully achieving its objectives. Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 767-68, 104 S.Ct.
2731, 2740, 81 L.Ed.2d 628 (1984). Moreover, "[aj section
1 plaintiff . . . need not prove an intent on the part of the
co-conspirators to restrain trade or to build a monopoly. So
long as the purported conspiracy has an anticompetitive
effect, the plaintiff has made out a case under section 1."
Bolt, 891 F.2d at 819-20 (citations omitted). We have said,
however, that "a section 1 claim and a section 2 conspiracy
to monopolize claim require the same threshold showing—the
existence of an agreement to restrain trade." Seagood, 924
F.2d at 1576.

U.S. Anchor points to evidence of the unlawful intent
necessary to create such an agreement. We have reviewed
this evidence and find it sufficient to show an intent to
achieve an unlawful objective on Rule’s part, namely the use
of predatory means to monopolize the fluke anchor market.
Nevertheless, there is insufficient evidence linking Tie Down
to Rule’s efforts to support a finding of conspiracy between
them. Federal antitrust law requires a plaintiff to introduce
evidence that tends to exclude the possibility that the
defendants acted independently or legitimately. Bolt, 891
F.2d at 819; see also Monsanto Co. v. Spray-Right Serv.
Co., 465 U.S. 752, 764, 104 S.Ct. 1464, 1470, 79 L.Ed.2d
775 (1984). U.S. Anchor did not meet this heightened
standard of proof. Cf Boczar v. Manatee Hosps. & Health
Sys., Inc., 993 F.2d 1514, 1518-19 (11th Cir. 1993) (finding

37a

sufficient evidence when defendant's supposed legitimate
reasons for acting were shown to be fabricated and
contrived). The MacKarvich market report, USTX 683,
for instance, does not show that Tie Down desired to employ
predatory means to drive U.S. Anchor from the market.
Rather, it merely shows the prices at which it would be
possible to inflict losses on the newcomer. It Says nothing
about Rule’s costs, and U.S. Anchor does not dispute that
Tie Down had no knowledge of Rule’s costs other than the
price paid for anchors. Tie Down’s experts and MacKarvich
himself testified that such studies are common in competitive
industries and consistent with legitimate competition based
on price. MacKarvich’s recommendation to set prices low
enough to inflict losses on U.S. Anchor merely shows a
desire to win on the basis of efficiently producing a product
and selling it at a lower price than less efficient rivals. It is
not unlawful to slash prices in an attempt to obtain more
sales, even if the result is that a competitor happens to be
driven out of business. Ball Mem. Hosp., Inc. v. Mutual
Hosp. Ins. Inc., 784 F.2d 1325, 1338-39 (7th Cir. 1986).
Moreover, to suffer a loss in the first year of operation is
common in competitive industries, and for MacKarvich to
anticipate that U.S. Anchor would be temporarily
unprofitable does not necessarily show a desire or
expectation that the firm would be driven from the

* We have considered U.S. Anchor’s contention that the district court
abused its discretion by excluding certain evidence that Rule’s customers
perceived an attempt by Rule to eliminate U.S. Anchor from the market.
a perception based upon reported statements made by a Rule employee.
(See USTX 206.) This evidence has such little bearing on the existence
of an agreement between Rule and Tie Down that its exclusion on
hearsay grounds, even if erroneous, see United States v. Pendas

Martinez, 845 F.2d 938, 942-43 (1 1th Cir. 1988); Southern Stone Co. vy.
Singer, 665 F.2d 698, 703 (Sth Cir. Unit B Jan. 1982), was harmless.
Fed. R. Evid. 103(a). We see no abuse of discretion.

38a

marketplace. In short, we have examined the record closely
and find there is insufficient evidence linking Tie Down with
Rule’s scheme to constitute a conspiracy under the
substantive proof requirements of federal antitrust law.

Without Tie Down, there was no one with whom
Rule could have conspired. Hence, its unilateral conduct
was not actionable as a conspiracy under federal antitrust
law. The district court erred in denying judgment as a
matter of law for Rule and Tie Down on the Sherman Act
conspiracy claims.

VII. CLAIMS UNDER GEORGIA LAW

U.S. Anchor’s complaint alleged violations of article
Ill, § VI, 4 5 of the Georgia constitution and O.C.G.A.
§ 13-8-2(a)(2), which invalidate certain contracts in restraint
of trade. (R1-1, {4 60-62.) U.S. Anchor concedes that
these provisions merely render such agreements
unenforceable and provide no cause of action for damages to
those who are parties thereto, see E.T. Barwick Indus. v.
Walter E. Heller & Co., 692 F. Supp. 1331, 1349 (N.D.
Ga. 1987), but argues that Georgia recognizes a common
law tort action in favor of third parties who are injured by
a conspiracy in restraint of trade. We agree with U.S.
Anchor that its complaint stated a valid claim for damages as
a result of a conspiracy in restraint of trade. See Blackmon
v. Gulf Life Ins. Co., 179 Ga. 343, 175 S.E. 798, 802-03
(1934) (holding that allegations of predatory pricing
conspiracy with intent to monopolize stated a cause of
action); Atlanta Association of Fire Ins. Agents Vv.
McDonald, 181 Ga. 105, 181 S.E. 822, 828 (1935)
(awarding nominal damages and injunction for group
boycott); see also Harrison Co. v. Code Revision Comm’n,
244 Ga. 325, 260 S.E.2d 30, 34 (1979). The district court

SS

39a

erred in failing to perceive “the distinction between a
contract or agreement merely on restraint of trade as
between the parties, and a combination or contract to stifle
competition, or a conspiracy to ruin a competitor." Brown
v. Jacobs Pharmacy Co., 115 Ga.429, 41 S.E. 553, 556
(1902) (suit for damages and injunction). Although we have
found insufficient evidence of a conspiracy under federal law
standards, this does not answer the question of whether
Georgia courts would find sufficient evidence of conspiracy
under their substantive law. Cf. Sachdeva v. Smith, 167 Ga.
App. 80, 306 S.E.2d 19, 20 (1983).

We have previously held that Georgia law provides
a cause of action for tortious interference with the business
relationships between a plaintiff and its customers, suppliers
or representatives. To be held liable the defendant "must
have (1) acted improperly and without privilege,
(2) purposely and with malice with the intent to injure,
(3) induced a third party or parties not to enter into or
continue a business relationship with the plaintiff, and
(4) [caused] plaintiff [to] suffer[ ] some financial injury."
DeLong Equip. Co. v. Washington Mills Abrasive Co., 887
F.2d 1499, 1518 (11th Cir. 1989) (quotation omitted). , cert.
denied, 494 U.S. 1081, 110 S.Ct. 1813, 108 L.Ed.2d 943
(1990), appeal after remand, 990 F.2d 1186 (11th Cir.
1993), amended, 997 F.2d 1340 (llth Cir. 1993) (per
curiam); see also NAACP v. Overstreet, 221 Ga. 16, 142
S.Ed.2d 816, 822 (1965), cert. dismissed, 384 U.S. 118, 86
S.Ct. 306, 16 L.Ed. 2d 409 (1966). The defendant may
show that competitive conduct is privileged by establishing
that it used no improper means. Integrated Micro Sys., Inc.
v. NEC Home Elecs. (USA), Inc., 174 Ga. App. 197, 329
S.E. 2d 554, 559 (1985), cert. denied, No. 69405 (Ga.
Apr. 24, 1985).

40a

U.S. Anchor’s complaint adequately pleads a claim
for relief under this theory to present it for adjudication by
the district court. Count V gave full notice to the defendants
that U.S. Anchor sought recovery under Georgia law for
"Unfair Methods of Competition and Unfair Acts and
Practices," including conduct which was "inequitable, unfair,
unscrupulous, in violation of public policy and
unconscionable and tend[ing] to defeat or lessen
competition... ." (Rl-1 44 59-60.) The fact that
paragraph 60 of the complaint also refers to the
constitutional and statutory provisions which U.S. Anchor
concedes confer no independent damages remedy does not by
itself deprive the defendants of "fair notice of what the
plaintiff's claim is and the grounds upon which it rests."
Quality Foods de Centro Am., S.A. v. Latin Am.
Agribusiness Dev. Corp., 711 F.2d 989, 995 (11th Cir.
1983) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct.
99, 103, 2 L.Ed.2d 80 (1957)); see Fed. R. Civ. P. 8(a)(2).
The issue of whether the tort theory is applicable to the facts
of this case was adequately argued to the district court in
connection with U.S. Anchor’s requested jury instructions,
(R28-136-45), and thus preserved for appellate review. Cf.
Weaver v. Casa Gallardo, Inc., 922 F.2d 1515, 1519 (11th
Cir. 1991).

The novel questions presented are whether below-cost
pricing can satisfy the improper action element of the tort
and whether low prices, standing alone, can constitute a
prohibited inducement of the plaintiff's customers. C7.
Parks v. Atlanta News Agency, Inc., 115 Ga. App. 842, 156
S.E.2d 137, 140 (1967) (holding that solicitation of
competitor’s customers is not itself tortious, even when
combined with "preferential" prices), cert. denied, No.
42624 (Ga. July 14, 1967). We regard it as unclear whether
tortious interference with business relations under Georgia
law may be established by a showing of predatory pricing

4la

and, if so, what sort of pricing conduct would be deemed
predatory. We also have some doubt as to whether
intentional interference with business relations is a distinct
cause of action from the tort of conspiracy in restraint of
trade, or whether there is only a single theory of relief, so
that proof of a conspiracy to interfere with the plaintiff’s
business relations would be actionable as U.S. Anchor’s sole
remedy for the alleged joint conduct of Rule and Tie Down.
Compare Cook v. Robinson, 216 Ga. 328, 116 S.E.2d 742
(1960) with Jacobs Pharmacy, 41 S.E. at 554-57 (quoting
Doremus v. Hennessy, 176 Ill. 608, 52 N.E. 924 (1898));
see also Overstreet, 142 §.E.2d at 822. This is not a matter
of mere semantics, for while it appears settled that predatory
pricing by a group or conspiracy is actionable, we have
found no Georgia authority addressing predation by a single
defendant acting unilaterally.

Another issue affecting the outcome of U.S. Anchor’s
state law claims is the validity and effect of its settlement
agreement with Rule, executed on March 19, 1986. The
agreement provided that each party would release the other

from any and all actions, demands, claims or
causes of action whatsoever, which now exist
or which may arise in the future, as a result
of events which occurred prior to the
execution of the Settlement Agreement,
including, without limitation, any claims
which were or could have been presented by
way of complaint or counterclaim in Civil
Action Number C85-4466A.

(RTX 457.) Because the predatory pricing scheme allegedly
began in October 1985, Rule contends that the settlement
agreement operated as a release of U.S. Anchor’s cause of
action. U.S. Anchor contends that its predatory pricing

42a

claims were undiscovered at the time the release was
executed and therefore were not intended to be released. In
addition, it contends that injuries caused by predatory
conduct occurring after the release would not have been
discharged even if they arose as a result of a scheme or
conspiracy that was ongoing when the release was signed.”
The district court concluded that the federal predatory
pricing claims were undischarged because the agreement
unambiguously applied only to causes of action related to the
prior litigation. It also relied on Chapman’s oral testimony
concerning his intent at the time he signed the agreement and
on Covington v. Brewer, 101 Ga. App. 724, 115 S.E.2d
368, 372-73 (1960), in which the court held that the scope
of a release as intended by the parties could not be presumed
to encompass rights respecting a subject matter not clearly
referred to in the body of the agreement. But cf. Ingram
Corp. v. J. Ray McDermott & Co., 698 F.2d 1295, 1311-12
(Sth Cir. 1983).

The doctrine of pendent jurisdiction as outlined in
United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct.
1130, 16 L.Ed.2d 218 (1966), gives the district court power
to decide claims arising under the state law as to which there
was no independent basis for federal jurisdiction but which

* Compare Imperial Point Colonnades Condominium, Inc. yv.
Mangurian, 549 F.2d 1029, 1043-44 (Sth Cir. 1977), cert. denied, 434
U.S. 859, 98 S.Ct. 185, 54 L.Ed.2d 132 (1977), Poster Exchange, Inc.
v. National Screen Serv. Corp. , 517 F.2d 117, 127 (Sth Cir. 1975), cert.
denied, 423 U.S. 1054, 96 S.Ct. 784, 46 L.Ed.2d 643 and 425 U.S.
971, 96 S.Ct. 2166, 48 L.Ed.2d 793 (1976), appeal after remand, 542
F.2d 255 (Sth Cir. 1976) (per curiam), cert. denied, 431 U.S. 904, 97
S.Ct. 1697, 52 L.Ed.2d 388 (1977), and Redel’s Inc. v. General Elec.
Co., 498 F.2d 95, 99 (Sth Cir. 1974) with Record Club of Am., Inc. v.
United Artists Records, Inc., 611 F. Supp. 211, 217 & n. 8 (S.D.N.Y.
1985).

43a

share a common nucleus Of operative fact with federal
claims. The court also has discretion not to hear such state
law claims.

Under Gibbs, a federal court should consider
and weigh, in each case, and at every stage of
the litigation, the values of judicial economy,
convenience, fairness, and comity in order tc
decide whether to exercise jurisdiction over a
case brought in that court involving pendent
state-law claims. When the balance of these
factors indicates that a case properly belongs
in state court, as when the federal-law claims
have dropped out of the lawsuit in its early
Stages and only state-law claims remain, the
federal court should decline to exercise its
jurisdiction by dismissing the case without
prejudice.

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108
S.Ct. 614, 619, 98 L.Ed.2d 720 (1988) (footnote omitted).
While the doctrine is flexible one according great leeway to
the court, see id. at 350 n. 7, 108 S.Ct. at 619 n. 7, we
have found an abuse of discretion in failing to dismiss a case
when the federal claims were resolved early in the
proceedings and the state law claims posed issues of first
impression. See Hardy v. Birmingham Bd. of Educ., 954
F.2d 1546 (11th Cir. 1992).

In the present case, the federal claims have survived
through trial and have only been resolved on appeal. Thus,
the parties have already tried the state law claims in federal
court, although the district court’s ruling prevented the jury
from considering them. The legal issues have been decided
by the district court and are now properly before us for
review, so that judicial economy and convenience weigh in

44a

favor of retaining jurisdiction. On the other hand some of
the state law issues are novel, and comity between federal
and state judicial systems weighs in favor of determination
by state courts. Moreover, a ruling by this court in favor of
U.S. Anchor’s position would require a new federal trial in
which only state law claims would be put in issue. Fairness
to U.S. Anchor, however, prevents us from dismissing the
state law claims. Dismissal would require the plaintiff to re-
file its action in state court more than eight years after the
allegedly tortious conduct began, thereby losing a substantial
portion of its rights (if any) by application of Georgia’s four-
year statute of limitations.” We might have reached a

© The mechanics of Georgia’s statute of limitations have been explained
as follows:

The test to be applied in determining when the statute of
limitations begins to run against an action sounding in tort is in
whether the act causing the damage is in and of itself an
invasion of some right of the plaintiff, and thus constitutes a
legal injury and gives rise to a cause of action. If the act is of
itself not unlawful in this sense, and a recovery is sought only
on account of damage subsequently accruing from and
consequent upon the act, the cause of action accrues and the
statute begins to run only when the damage is sustained; but if
the act causing such subsequent damage is of itself unlawful in
the sense that it constitutes a legal injury to the plaintiff, and is
thus a completed wrong, the cause of action accrues and the
statute begins to run from the time the act is committed,
however slight the actual damage then may be.

Fox v. Ravinia Club, Inc., 202 Ga. App. 260, 414 S.E.2d 243, 244
(1991) (quotation omitted), cert. denied, No. A91A1136 (Ga. Feb. 4,
1992). As we understand the test, U.S. Anchor’s cause of action (if any)
continued to accrue with each predatory sale, and would be time-barred
under O.C.G.A. § 9-3-31 with respect to each transaction occurring more
than four years before commencement of the new action in state court.
See Cleveland Lumber Co. v. Proctor & Schwartz, Inc., 397 F. Supp.

(continued. ..)

45a

different result under the Judicial Improvements Act of 1990,
Pub.L. No. 101-650, § 310, 104 Stat. 5089, 5113-14,
codified at 28 U.S.C. § 1367. Under 28 U.S.C. § 1367(d),
the statute of limitations would be tolled while the claims
were pending until 30 days after an order of dismissal, thus
allowing the plaintiff time for filing a new action in state
court without a lapse of its rights. But the present case was
commenced before the statute’s effective date on December
1, 1990, and § 1367 is not retroactive. Yanez v. United
States, 989 F.2d 323, 327 n. 3 (9th Cir. 1993). In view of
the fact that the case may be certified to the Supreme Court
of Georgia for interlocutory resolution of the state law
issues, we conclude that the balance of factors involved in
the discretionary decision to retain pendent jurisdiction
weighs clearly against dismissal.”

Accordingly, we respectfully certify the following
questions of law to the Supreme Court of Georgia and the
Honorable Justices of that Court.

Questions for Certification

3 DOES A GENERAL RELEASE UNDER
GEORGIA LAW DISCHARGE LIABILITY FOR INJURY
CAUSED BY SUBSEQUENT ACTS IN THE COURSE OF
A SCHEME OR CONSPIRACY THAT WAS ONGOING

* (...continued)

1088, 1094 (N.D. Ga. 1975) (citing Georgia Power Co. v. Moore, 47
Ga. App. 411, 170 S.E. 520 (1933)); accord Zenith Radio Corp. v.
Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct. 795, 806, 28
L.Ed.2d 77 (1971) (federal antitrust law).

We need not decide whether § 1367 would allow the court of appeals
to decide the propriety of exercising supplemental jurisdiction or whether
such discretion is vested in the district court alone.

46a

AT THE TIME THE RELEASE WAS EXECUTED BUT
UNKNOWN TO THE RELEASING PARTY?

y B DOES A GENERAL RELEASE UNDER
GEORGIA LAW DISCHARGE LIABILITY FOR INJURY
CAUSED BY TORTIOUS CONDUCT ALREADY
COMMITTED THAT WAS UNKNOWN TO THE
RELEASING PARTY AT THE TIME THE RELEASE
WAS EXECUTED?

> DOES THE TORT OF INTENTIONAL
INTERFERENCE WITH BUSINESS RELATIONS
ENCOMPASS PREDATORY PRICING BELOW SOME
MEASURE OF THE DEFENDANT’S COSTS?

4. IF THE ANSWER TO QUESTION 3 IS YES,
THEN IN A CASE OF ACTIONABLE PREDATORY
PRICING BELOW SOME MEASURE OF COST BY A
CONSPIRACY OR A SINGLE DEFENDANT, WHAT IS
THE APPROPRIATE MEASURE OF THE
DEFENDANTS’ COSTS?

Our statement of the questions is not designed to limit
the inquiry of the Supreme Court of Georgia. Instead, the
Supreme Court has the widest possible latitude to consider
the problems and issues involved in this case as it perceives
them to be. Martinez v. Rodriquez, 394 F.2d 156, 159 n. 6
(Sth Cir. 1968), conformed to certified answer, 410 F.2d 729
(Sth Cir. 1969). To assist the Supreme Court, the entire
record in this case and copies of the parties’ briefs are
transmitted herewith.

47a
VIII. CONCLUSION

The judgment of the district court is reversed with
respect to all federal law causes of action and judgment is
rendered in favor of the defendants thereon. Dispositive
questions of law respecting the plaintiff’s state law causes of
action are certified to the Supreme Court of Georgia.

REVERSED and JUDGMENT RENDERED in part
and QUESTIONS CERTIFIED.

48a

U.S. ANCHOR MANUFACTURING,
INC., Plaintiff,

v.

RULE INDUSTRIES, INC. and Tie
Down, Inc., a/k/a Tie Down
Engineering, Inc., Defendants,

v.

William CHAPMAN and U.S. Anchor
Manufacturing, Inc., Defendants in
Counterclaim.

Civ. A. No. 86-CV-2447-JTC.

United States District Court,
N.D. Georgia,
Atlanta Division.

June 27, 1989.

49a

JAMES ALEXANDER PORTER
PORTER & DOSTER
ATLANTA, GEORGIA

for plaintiff.

JOHN A. CHANDLER,

KIMBERLY LOGUE WOODLAND
SUTHERLAND ASBILL & BRENNAN
ATLANTA, GEORGIA

for defendant Rule Industries, Inc.

HAROLD TURNER DANIEL, JR.
LAURIE WEBB DANIEL

WEBB & DANIEL

ATLANTA, GEORGIA

for Tie Down, Inc.

50a
ORDER OF COURT

CAMP, District Judge

This matter is before the Court on defendant Tie
Down, Inc.’s Motion for Summary Judgment; defendant
Rule Industries, Inc.’s Motion for Summary Judgment and
the motion of William Chapman and U.S. Anchor for
Summary Judgment. For the following reasons, the above
motions for summary judgment are DENIED. Defendant
Tie Down’s motion to file a supplemental brief and an
amendment to this motion is GRANTED.

This is an action for treble damages and injunctive
relief for alleged antitrust violations under Sections 1 and 2
of the Sherman Act, and Section 3 of the Clayton Act.
Plaintiff also alleges that defendants’ actions constitute an
unfair restraint of trade in violation of Article 3, Section VI,
Paragraph V of the Georgia Constitution and O.C.G.A.
§ 13-8-2. Defendants seek summary judgment on all of
plaintiff's theories for relief. Defendant Tie Down, Inc.,
a/k/a/ Tie Down Engineering, Inc. ("Tie Down") brings a
counterclaim against plaintiff U.S. Anchor Manufacturing,
Inc. ("U.S. Anchor") and William Chapman. This
counterclaim alleges a breach of ffiduciary duty;
misappropriation of confidential business information;
tortious interference with business relations; and common
law fraud and deceit. U.S. Anchor and William Chapman
seek summary judgment on Tie Down’s theories for relief in
its counterclaim.

I. FACTS

The present action involves several manufacturers and
suppliers of fluke anchors. Anchors and other marine

S5la

industry products are generally sold by suppliers to
wholesale distributors, who in turn sell the anchors to boat
dealers, marinas, and other retailers for ultimate resale to the
consumer, the boat owner. The supplier may either
manufacturer its own anchors, as does U.S. Anchor, or
purchase them from another domestic manufacturer, as Rule
Industries, Inc. ("Rule") does from Tie Down, or import
them from abroad.

In 1974, defendant Tie Down decided to expand its
business of manufacturing anchoring mechanisms for mobile
homes into the marine anchor business. Tie Down thus
began manufacturing and selling inexpensive "generic"
anchors under the "Hooker" tradename. These anchors were
among the earliest fluke style anchors. In 1974, Tie Down
expanded its Hooker line of anchors to include a fluke Style
anchor called the Danforth. Tie Down inexpensively
duplicated the Danforth anchor, whose patent had expired,
and sold it cheaply under the Super Hooker tradename.

Defendant Rule entered the recreational marine
anchor business in 1983 when it acquired the Danforth line
of anchors from the Eastern Company. In May 1985, Rule
agreed to acquire Tie Down’s marine anchor division,
including its anchor inventory, certain machinery and
equipment used in the manufacture of marine anchors, and
a license to exclusive use of Tie Down’s marine anchor trade
names ("Hooker", "Super Hooker", and "Hugger") for seven
years. In addition, Tie Down agreed not to sell anchors in
competition with Rule for at least five years. Tie Down
maintains that it negotiated this manufacturing agreement to
recoup losses it suffered at this time.

Plaintiff U.S. Anchor was organized by William
Chapman, Tie Down’s former President, in the Spring of
1985 to compete with Rule and Tie Down in the sale of

52a

inexpensive generic anchors. William Chapman was
employed by Tie Down in January, 1979, and appointed
President in July, 1984. Chapman maintains that he resigned
in January, 1985, as President of Tie Down because of
disagreements with Tie Down’s owner, Chuck MacKarvich,
over the proper methods of running the company and
Chapman’s lack of managerial authority. | Chapman
maintains that he did not contemplate starting a marine
anchor company until after his January resignation, at which
time, he generally advised MacKarvich that he might end up
with some form of competition with Tie Down. Chapman
maintains that it was not until April, 1985, when Tie Down
entered into an agreement to sell its marine anchor division
to Rule Industries, that he saw an opportunity to start a
marine anchor company.

Defendant Tie Down, however, contends that
Chapman actively prepared to go into business__in
competition with Tie Down while still serving as President
of Tie Down. Tie Down alleges that in early 1985, while
still employed by Tie Down, Chapman used Tie Down’s
resources, personnel and confidential business information to
set up his competing business, U.S. Anchor. These
allegations form the basis of Tie Down’s counterclaim.
MacKarvich testified that when he fired Chapman in late
April, 1985, for making disparaging remarks about Tie
Down, he did not know of Chapman’s plans to compete in
the marine anchor business.

Plaintiff now alleges that defendants have conspired
to engage in, and have engaged in, predatory pricing and
unlawful tying arrangements to eliminate plaintiff as a
competitor and to achieve a monopoly in the reievant product
market. Plaintiff maintains that it originally intended to set
its prices at 10-12% below that of the previous season’s
prices; however, these prices never went into effect because

a De es

Es

53a

Rule immediately reduced its prices by 15% to undercut
plaintiff's pricing. Plaintiff then maintains that it cut its
prices and, in response, Rule lowered its prices by an
additional 20%. Rule, however, argues that its price
reductions were in response to the influx of cheaper anchors
by foreign competitors.

Il. SUMMARY JUDGMENT STANDARD

Rule 56(c), Fed. R. Civ. P., defines the standard for
summary judgment: Courts should grant summary judgment
when "there is no genuine issue as to any material fact ...
and the moving party is entitled to judgment as a matter of
law." In Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct.
2548, 2554, 91 L.Ed.2d 265 (1986), the Supreme Court
interpreted Rule 56(c) to require the moving party to
demonstrate that the nonmoving party lacks evidence to
support an essential element of his claim. Thus, the
movant’s burden is easily "discharged by showing—that is,
pointing out to the district court—that there is an absence of
evidence to support the nonmoving party’s case." Once the
movant has met this burden, the opposing party must then
present evidence establishing a material issue of fact. Id.
The nonmoving party must go beyond the pleadings and
submit evidence in the form of affidavits, depositions,
admissions and the like, to demonstrate that a genuine issue
of material fact does exist. Jd. The Supreme Court stated
in Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct.
2505, 2514, 91 L.Ed.2d 202 (1986), "that the plaintiff, to
survive the defendant’s motion, need only present evidence
from which a jury might return a verdict in his favor. If he
does so, there is a genuine issue of fact that requires a trial.”

"[S]ummary judgment may be especially appropriate
in an antitrust case because of the chill antitrust litigation can

54a

have on legitimate price competition." McGahee v. Northern
Propane Gas Co., 858 F.2d 1487, 1493 (11th Cir. 1988),
cert. denied, _U.S.__, 109 S.Ct. 2110, 104 L.Ed.2d
670 (1989), citing, Matsushita Electric Industrial Co. v.
Zenith Radio Corporation, 475 U.S. 574, 595, 106 S.Ct.
1348, 1360, 89 L.Ed.2d 538 (1986). Thus, an antitrust
plaintiff must present evidence that tends, when interpreted
in a light most favorable to plaintiff, to exclude the
possibility that defendant’s conduct was consistent with
permissible competition as with illegal conduct. Jd.

Il. SHERMAN ACT CLAIMS

Plaintiff alleges a claim for attempted monopolization
pursuant to §2 of the Sherman Act; conspiracy and
combination to monopolize pursuant to § 2 of the Sherman
Act; and conspiracy to eliminate competitors in violation of
§ 1 of the Sherman Act. See 15 U.S.C. §§ 1, 2.

A § 1 Sherman Act claim for conspiracy to eliminate
a competitor requires (1) an agreement to engage in
anticompetitive conduct and (2) an adverse impact on the
relevant market as an “unreasonable restraint of trade". Hill
Aircraft & Leasing Corporation v. Fulton County, 561
F. Supp. 667, 676 (N.D. Ga. 1982), aff'd, 729 F.2d 1467
(11th Cir. 1984).

To sustain a § 2 Sherman Act claim of attempted
monopoly, a plaintiff must show: (1) the relevant product
and geographic markets; (2) that the defendant had the
specific intent to gain a monopoly position in the market;
and (3) that there was a dangerous probability of de facto
monopolization. See American Tobacco Co. v. United
States, 328 U.S. 781, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946);
Bill Beasely Farms, Inc. v. Hubbard Farms, 695 F.2d 1341,

\

55a

1342 (11th Cir. 1983); Photovest Corporation vy. Fotomat
Corporation, 606 F.2d 704, 711-21 (7th Cir. 1979), cert.
denied, 445 U.S. 917, 100 S.Ct. 1278, 63 L.Ed.2d 601
(1980). A §2 claim for combination or conspiracy to
monopolize requires proof of the same elements involved in
an attempt claim with the exception that it is not necessary
to show that the scheme to monopolize was ever "attempted
to any harmful extent." American Tobacco Co., 328 U.S.
at 811, 66 S.Ct. at 1139.

All of the plaintiff's Sherman Act claims require
defendant’s intent to engage in anticompetitive conduct.
Proof of predatory pricing can satisfy this element of intent
for all three of plaintiff’s Sherman Act claims. Cargill v.
Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484,
493, 93 L.Ed.2d 427 (1986); McGahee 858 F.2d at 1493.
To establish a claim for predatory pricing, the plaintiff may
show (1) that the defendants sold their product below the
average total cost of its production; and (2) that because of
such pricing, the defendants had a dangerous probability of
success on their Sherman Act claims. McGahee, 858 F.2d
at 1493.

A. The Areeda-Turner Average Variable Cost and The
Eleventh’s Circuit’s Test of Average Total Cost

The Eleventh Circuit has recently rejected the test of
Professors Areeda and Turner for determining predatory
pricing claims. See McGahee, 858 F.2d at 1487, citing,
Areeda & Turner, Predatory Pricing and Related Practices
Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697,

56a

733 (1975). In the past, binding authority’ required that
courts in this Circuit apply the Areeda & Turner test, and
thus subjective intent was irrelevant. Instead, intent to
engage in anticompetitive conduct through predatory pricing
was determined through comparison between prices and
average variable cost. See International Air Industries v.
American Excelsior Co. , 517 F.2d 714 (Sth Cir. 1975), cert.
denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349
(1976). The average variable cost of production is "the costs
associated with producing each individual unit of
output"... "which do vary with production and roughly
equal the cost of the resources necessary to produce
additional units of output." Adjusters Replace-A-Car v.
Agency Rent-A-Car, Inc., 735 F.2d 884, 889 (Sth Cir.
1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83
L.Ed.2d 924 (1985).

The Eleventh Circuit, however, has recently held that
circumstantial evidence of subjective intent to predatorily
price for the purposes of monopolization is also relevant in
determining antitrust injury. McGahee, 858 F.2d at 1487.
The Eleventh Circuit also now determines predatory pricing
by examining the "full" or "total" costs, the "average total
costs." Average total cost is the sum of average variable
cost and average fixed cost, and equates to the total
economic cost of selling and delivering a product.
McGahee, 858 F.2d at 1496, n. 22. To constitute a
meaningful economic concept, total economic cost must also
include a necessary minimum profit. /d. at 1503.

' See Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981)
(decisions rendered by the former Fifth Circuit before October 1, 1981,
are binding upon courts of the Eleventh Circuit).

S7a

The Eleventh Circuit three-part test that uses average
total cost to infer predatory pricing is as follows:

(1) "If a defendant’s prices were above average total
cost then there is no predatory pricing and thus no
circumstantial evidence of predatory intent. Average
total cost means the average of the total economic
cost, which includes the necessary minimum profit.
Average total cost should theoretically be measured
by long run marginal cost, but in appropriate cases a
surrogate for total cost may be used.”

(2) "If a defendant's prices were below average total
cost and above short run marginal cost, then there is
circumstantial evidence of predatory intent... . To
withstand judgment as a matter of law, a plaintiff
must have other evidence, either objective or
subjective of predatory intent.”

(3) “If a defendant’s prices were below short run
marginal cost, then the circumstantial evidence is
strong enough to create a rebuttable presumption of
predatory intent. ... If a defendant’s prices were
below short run marginal cost and the other evidence,
subjective or objective, is sufficiently probative of
defendant’s predatory intent, then as a matter of law,
defendant has the predatory intent required to
establish the attempt to monopolize element of a
Sherman Act claim .

McGahee, 858 F.2d at 1503-04.

As to parts (2) and (3) of this test, “average variable
cost" may be used as a surrogate for short min marginal
costs. Jd. at 1504.

58a

Applying this test, the Eleventh Circuit found that
McGahee had presented sufficient evidence to create an issue
of fact as to whether Northern Propane had the intent
necessary for an attempt to monopolize claim. /d. at pp.
1504-05. The defendant did not maintain that its sales were
above its average total cost during price wars. /d. at 1505.
The defendant’s own documents indicated that in some
months it sold propane to commercial customers at prices
below average variable cost. Jd. at 1492, 1495, n. 12.
Circumstantial evidence of predatory intent included the
defendant’s (1) investigation of McGahee’s financial
position; (2) its new policy of rent-free tanks designed to
take advantage of McGahee’s weak financial position; (3) its
internal memoranda declaring a goal of contributing to
McGahee’s financial problems; and (4) its price reductions
to particular customers. /d. at 1504, n. 41. This was
sufficient evidence from which a fact finder could infer
predatory intent.

Plaintiff has presented evidence from which a fact
finder could infer predatory intent under both the Areeda-
Turner test and the Eleventh Circuit’s test in McGahee.* An
issue Of fact exists as to whether Rule sold certain anchor
models below average variable cost. See Andrews First
Affidavit { 9; Moody Deposition, pp. 55-63, 99; Anastoes
Affidavit, 44. A question of fact also exists as to whether
defendant Tie Down was selling to Rule at prices below Tie
Down’s average variable costs on certain anchor models.

? The court notes that the standard for cost analysis to determine
predatory pricing changed from the Areeda-Turner average variable cost
to average total cost, as announced in McGahee while the motions for
summary judgment were pending in this court. Therefore, the parties
first submitted evidence in accordance with the average variable cost.
The parties have subsequently presently evidence in accordance with the
average total cost standard.

59a

See Andrews Affidavit, { 6-9, Exhs B-D; Appendix I to Tie-
Down’s Brief in Support of Summary Judgment. The
Eleventh Circuit specifically stated in McGahee that a district
court must not resolve factual disputes by weighing
conflicting evidence of average variable costs. McGahee,
858 F.2d at 1495, n. 12.

Under the less stringent test of McGahee, plaintiff has
also presented enough evidence to withstand summary
judgment on the issue of predatory intent. As seen, this test
is based on sales below average total costs. Jd. at 1503.
Plaintiff has submitted a second affidavit of its expert, John
Andrews, that analyzes defendants’ pricing in relation to
their average total costs. The second affidavit analyzes
defendants’ average total costs, which includes both variable
costs and fixed costs as well as a reasonable profit or return
on shareholder equity.’ Dr. Andrews concluded that Rule
consistently sold every single anchor model to its customers
at prices that were less than Rule’s average total cost for
each model from December, 1985, through April, 1988.

In rebuttal, Tie-Down contends that Andrews’
calculations for both average variable cost or average total
costs are erroneous because he did not consider the quantity
of units produced. Because the per unit cost varies with the
quantity of units produced, a costing analysis that does not
consider the quantity of units produced cannot provide an
accurate average variable cost or average total cost
computation.

_ _—

* Andrews’ first affidavit analyzed average variable costs, which
excluded any consideration of indirect or fixed costs or of any profit
margin.

60a

Andrews’ analysis of both the average variable costs
under the Areeda-Turner test and under the Eleventh
Circuit’s average total costs test takes output into account.
In calculating both average variable cost and average total
cost, Andrews arrived at the total costs of parts required for
each anchor by examining the actual manufacturing invoices
of the steel, galvanizing, slitting services, and related freight
costs at varying points in time from Tie Down’s steel and
galvanizing vendors. andrews Affidavit pp. 6-7, and
Deposition, p. 38. From these invoices, Andrews
determined the steel cost per part by multiplying the steel
required to produce the part by the steel cost per pound. See
Exhibits B-D to Andrews Deposition, filed March 6, 1989.
Andrews obtained the figure for the steel cost per pound
from weights from Tie Down’s cost analyses. See Andrews
Deposition, p. 27; Exh. 9; and Mackarvich Exh. 31.
Therefore, Andrews took into account the output by
determining from the actual invoices for raw materials the
price of steel used per part, based on Tie Down’s own
figures.

Andrews followed a similar method for determining
the amount of labor expended on each anchor part. See
MacKarvich Exh. 31. By adding together these amounts,
Andrews then came up with the total cost of parts for each
anchor. To this amount, Andrews added the cost of direct
labor to weld the anchor parts together and the galvanizing
cost. Andrews also determined the cost of this direct labor
from Tie Down’s internal numbers. Andrews Affidavit { 7;
Andrews Deposition, p. 41. He then calculated the cost of
galvanizing, slitting services, and related freight costs at
varying points in time from a review of all actual invoices
from Tie Down’s steel and galvanizing vendors. Andrews
Affidavit { 7 and Deposition p. 38. While defendants may
contest the evidence upon which these calculation are based,

6la

this manner of calculation considers Tie Down’s actual
output.

To this total cost for material and direct labor,
Andrews then added a variable overhead cost factor which
was derived from the financial statements, trail balances and
work papers prepared by Tie Down’s independent accounting
firm. d.; Affidavit ¢ 7; and Deposition pp. 41-44.
Defendant’s have not contested the computation of this
variable overhead cost calculation.

Defendants also maintain that Andrews’ calculations
for average total cost are inaccurate because they are based
on speculation and erroneous assumptions. Defendants
allege Andrews selectively picked the highest coil steel
prices from Tie Down’s invoices upon which to base his
calculations of steel costs; therefore, Andrews’ coil steel
costs are not representative of the costs actually experienced
by Tie Down. Defendants also maintain that Andrews’
average total cost calculations are based on an erroneous
scrap factor, arbitrarily selected by Andrews based on the
scrap factor of U.S. Anchor, a smaller company which does
not have the same purchasing power or efficiency as Tie
Down. Andrew’s coil steel cost also allegedly include
incorrect shipping costs from the steel company to the slitter
and incorrect freight cost from the slitter to Tie Down, and
erroneous slitting and galvanizing costs. Defendants further
allege that Andrews has used an erroneous "imputed profit"
in his calculations of average total cost.

Again, the contested evidence about calculations of
average total cost is exclusively for the jury. McGahee, 858
F.2d at 1495, n. 12. Moreover, several instances in which
sales were below average variable costs, and presumably
average total costs, are sufficient to overcome summary
judgment and create an issue of fact under the Eleventh

62a

Circuit test for predatory pricing. Jd. The amount of profit
to be calculated into total economic costs is also an issue of
fact. Id. at 1503, n. 35. Andrews expert opinion about the
amount of profit to be included in average total cost is based
on the average operating results for profitable companies
engaged in the business of manufacturing fabricated metal
products. See Exh. D attached to Andrews Second
Affidavit. This evidence is sufficient to create a fact
question as to the amouni of profit to be included in average
total costs.

The Eleventh Circuit’s adoption of an average total
cost standard in McGahee came at the close of discovery and
after motions for summary judgment had been filed in this
case. The average total cost is a more liberal standard than
the Areeda-Turner average variable cost standard because it
takes into account total cost. Plaintiff has presented
sufficient evidence to create an issue of fact about below
average variable cost. The Eleventh Circuit notes that
average variable costs may be used as a substitute for short
run marginal costs. McGahee, 858 F.2d at 1504. Andrews’
First and Second Affidavits support such a substitution in the
present case. /d. at n. 38. Therefore, under the Eleventh
Circuit test, an issue of facts exists as to whether defendants
priced below the short run marginal cost, based on the
contested evidence of pricing below average variable cost.

Under McGahee, subjective evidence of predatory
pricing must also be considered, in addition to cost analysis.
Subjective evidence exists in the present case similar to that
which existed in McGahee. Plaintiff has raised evidence that
defendants investigated plaintiff's financial position and that
defendants instituted new credits and discounts that plaintiff
could not match. Webb Affidavit, ¢ 7; Humphrey
Deposition, pp. 87-92; Gardner Deposition, p. 28; Hymel
Deposition, pp. 19-20; Pressman Deposition, pp. 17-18;

63a

Read Deposition, pp. 39, 67; Chapman 7/15/87 Deposition,
p. 56. Defendants’ internal memoranda reflect a goal of
contributing to U.S. Anchor’s financial problems. Bracco
Deposition, Exh. 6, p. 2; Anastoes Deposition, Exhs. 11 and
2; and defendant reduced its prices to particular customers
and offered new discounts. Anastoes Deposition Exh. 14.

B. Dangerous Probability of Success

The second requirement of an attempt to monopolize
claim is "a dangerous probability of the defendant would
succeed." McGahee, 858 F.2d at 1493. "[A] court must
examine the relevant market and defendant’s market power
before the attempt to monopolized began . . . . The best test
from which market power may be inferred is relative Size,
i.é., the percentage of market share." Jd. at 1505. In
McGahee, the court held that "a sixty or sixty-five percent
market share is sufficient to create an issue of fact as to
whether there was a dangerous probability” that the
defendant could succeed in achieving monopoly. /d. at
1506.

Defendants argue that they are entitled to summary
judgment because they do not possess nor do they come
close to possessing monopoly power in the relevant market.
An issue of fact, however, exists as to the relevant product
and geographic markets.‘ The relevant geographic market

* Defendants maintain that plaintiff's evidence is not expert economic

evidence of the relevant market share because James Webb and Gary
Potter are not economists. American Key Corporation v. Cole National
Corporation, 762 F.2d 1569 (11th Cir. 1985). Federal Rule of Evidence
702, however, provides that a witness may qualify as an expert "by
knowledge, skill, experience, training, or education." (emphasis added).
Potter and Webb’s affidavits reflect extensive knowledge, skill,

(continued. ..)

64a

area is in dispute. Plaintiff maintains that the geographic
market is the continental United States. See Response to
Second Interrogatories, No. 5; Chapman Deposition 7/15/87,
p. 131. In contrast, defendants contend that the relevant
geographic market is the United States and Canada. See
Anastos Deposition, p. 97.

The parties also dispute the relevant product market
with evidence, based on affidavits and depositions. Plaintiff
claims that the relevant product market includes lightweight,
galvanized penetrating anchors sold by U.S. Anchor and by
Rule, including Rule’s trademarked Danforth Standard
models. Defendant's limit this product market definition to
"generic" galvanized penetrating fluke-style anchor.
Defendants’ definition includes only seventeen anchor models
manufactured by Tie Down, falling into the Super Hooker,
Hooker Economy, and Hooker Slip-Ring anchors, [the
"Hooker" line] and includes all anchor models manufactured
by U.S. Anchor. Defendants’ product market definition,
however, excludes the Danforth Standard models.

The existence of a monopoly power is intertwined
with the definition of the relevant product and geographic
market. The question of relevant markets is ordinarily one
for the jv °. Associated Radio Service, 624 F.2d 1342, 1357
(Sth Cir. 1980). The court agrees with plaintiff that these
factual issues are disputed. Since the relevant markets are
contested, the court cannot assess the defendants’ arguments
that low entry barriers and foreign competition preclude
plaintiffs monopolization claims. Summary judgment, based
on defendants’ argument that they lacked a monopoly power

-

(...contunued )
experience, and training in determining markets in the marine anchor
industry. Accordingly, the court finds their evidence to be sufficient
expert testimony.

65a

in the relevant market, must be denied on plaintiff's Sherman
Act claims.

IV. EXCLUSIVE DEALING CLAIM
UNDER § | OF SHERMAN ACT
AND § 4 OF CLAYTON ACT

Plaintiff also alleges that Rule imposed an exclusive
dealing arrangement upon its customers in violation of § 1
of the Sherman Act and § 4 of the Clayton Act. Plaintiff
maintains that this tying arrangement further evidences
Rule’s intent to monopolize and to eliminate U.S. Anchor in
violation of § 1 and § 2 of the Sherman Act. This alleged
tying arrangement would also constitute an independent
violation of § 3 of the Clayton Act.

Exclusive dealing arrangements violate § 3 of the
Clayton Act, 15 U.S.C. § 14. Section 3 of the Clayton Act
makes it unlawful to sell goods on the condition, agreement,
or understanding that the purchaser shall not use or deal in
the goods of a competitor of the seller, where the effect may
be to substantially lessen competition or tend to create a
monopoly. These types of tying arrangements are
recognized as "inherently anticompetitive” because they tend
to shut other sellers out of the market by "tying up” potential
distributors or buyers. Brown Shoe Co. v. United States,
370 U.S. 294, 330, 82 S.Ct. 1502, 1526, 8 L.Ed.2d 510
(1962); United States v. Loew’s, Inc., 371 U.S. 38, 44-45,
83 S.Ct. 97, 101-102, 9 L.Ed.2d 11 (1962): Barry Wright
Corporation v. ITT Grinnel Corporation, 724 F.2d 227, 236
(1st Cir. 1983).

In the present case, the plaintiff alleges that Rule
engaged in an "exclusive dealer” tying arrangement. In this
type of illegal tying arrangement, the seller conditions the

66a

sale of his product upon the buyer’s promise not to buy
similar products from the seller’s competitors. Northern
Pacific Railway v. United States, 356 U.S. 1, 5-6, 78 S.Ct.
514, 518, 2 L.Bd.2d 545 (1958).

Plaintiff's tying claim is based on the fact that
defendant Rule allegedly conditioned the sale of its new
"Deepset" anchor upon the customer’s promise not to buy
galvanized penetrating fluke-style anchors from any other
manufacturer. In September, 1985, Rule introduced the
Deepset anchor line, which it described as a new and
revolutionary product. Anastos Affidavit, {4 5-6. For two
years thereafter Rule refused to sell this product to any
customer who bought galvanizing penetrating fluke-style
anchors from any source other than Rule. This fact has been
confirmed by Rule’s literature and Rule’s customer’s.
Anastos Deposition, Exh. 11, 21, 22; York Deposition, pp.
23-26, 46; Howerth Deposition, pp. 12-14 and Exh. 1;
Pressman Deposition, \pp. 15-16 and Exh. 1; Landrith
Deposition, pp. 35, 44-46 and Exh. 1; Bouchard Deposition
pp. 28-29.

An exclusive dealership is illegal if it is probable that
the arrangement will foreclose competition in a substantial
share of the line of commerce affected. Tampa Electric Co.
v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623,
627, 5 L.Ed.2d 580 (1960). To determine whether this has
occurred, it is necessary to (1) identify the “line of
commerce” involved; (2) identify the market area in which
the defendant selier operates; and (3) determine whether the
opportunities foreclosed by the exclusive dealing
arrangement constitute a "substantial share” of the market in
that area. Id. at 327-28, 81 S.Ct. at 627-28.

As seen, the evidence regarding the appropriate
product and geographic markets is a contested factual issue

67a

appropriate for the jury’s determination. Plaintiff's exclusive
dealing arrangement claim is intertwined with these
definitions. Accordingly, summary judgment on plaintiff's
exclusive dealing claim under § 1 of the Sherman Act and
§ 3 of the Clayton Act would be inappropriate.

V. PLAINTIFF’S OTHER CLAIMS

In Count V, plaintiff incorporates its previously stated
allegations to state a claim under Georgia law for conspiracy
to restrain trade in violation of Article 3, Section Vi,
Paragraph V of the Georgia Constitution and O.C.G.A.
§ 13-8-2. Plaintiff also seeks injunctive relief under the
federal antitrust laws. Because issues of fact appropriate for
the jury exist regarding whether there has been any unlawful
conspiracies to restrain trade, threat of anticompetitive effect
in the marketplace, or injury caused by any illegal conduct,
defendants’ motion for summary judgment on these claims
must be denied.

VI. DEFENDANT TIE DOWN’S COUNTERCLAIM

Defendant Tie Down brings a counterclaim against
plaintiff U.S. Anchor and William Chapman. This
counterclaim alleges a breach of fiduciary duty;
misappropriation of confidential business information;
tortious interference with business relations: and common
law fraud and deceit. U.S. Anchor and William Chapman
seek summary judgment on Tie Down’s theories for relief in
its counterclaim.

Defendant Tie Down contends that C hapman actively
prepared to go into business in competition with Tie Down
while still serving as President of Tie Down. Tie Down

68a

alleges evidence that in early 1985 while still employed by
Tie Down, Chapman used Tie Down’s resources, personnel
and confidential business information to set up his competing
business, U.S. Anchor. These allegations form the basis of
Tie Down’s counterclaim.

A. Breach of Fiduciary Duty

As an officer of Tie Down and possibly as an
employee of Tie Down, Chapman would have owed the
corporation and his principal a fiduciary duty of good faith
and loyalty. See O.C.G.A. § 14-2-152; O.C.G.A. § 23-2-
58; General Information Processing Systems, Inc. Vv.
Sweeney, 176 Ga. App. 315, 316, 335, S.E.2d 722 (1985);
Cochran v. Murrah, 235 Ga. 304, 219 S.E.2d 421 (1975).
An employee breaches no fiduciary duty to the employer
simply by making plans to enter a competing business while
he is still employed. -E.D. Lacey Mills, Inc. v. Keith, 183
Ga. App. 357, 362, 359 S.E.2d 148 (1987). However, an
employee is not "entitled to solicit customers for [a] rival
business before the end of his employment nor can he
properly do other similar acts in direct competition with the
employer’s business." /d. at 363, 359 S.E.2d 148, citing,
Restatement 2nd of Agency, § 393 (1958). This fiduciary
duty is also violated by making numerous arrangements for
the competing business while still employed and by soliciting
the employer’s customers and sales representatives for the
rival business. /d.

Chapman maintains that he did not contemplate
Starting a marine anchor company until after his January
resignation, at which time he generally advised MacKarvich
that he might end up in some form of competition with Tie -
Down. It was not until April 1985, when Tie Down entered
into an agreement to sell its marine anchor division to Rule
Industries, that he allegedly saw an opportunity to start a

69a

marine anchor company. Chapman contends that he did not
solicit orders for U.S. Anchor from Tie Down’s customers,
or any potential customer, until approximately July, 1985, at
least three months after the termination of his employment
at Tie Down. Statement 4 30.

Tie Down has presented evidence that Chapman made
significant business arrangements to organize a competing
business and solicited Tie Down’s sales agents while still
employed by Tie Down. This evidence raises a genuine
issue of fact for trial as to Tie Down’s amended
counterclaim breach of fiduciary duty. Accordingly, U.S.
Anchor’s and Chapman’s motion for summary judgment on
Tie Down’s counterclaim is denied.

B. Misappropriation of Confidential Business
Information and Common Law Fraud and Deceit

U.S. Anchor and Chapman also seek summary
judgment on Tie Down’s amended counterclaim for
misappropriation about confidential business information and
common law fraud and deceit. These claims are based on
similar facts of whether Chapman obtained Tie Down’s
confidential business information through fraudulent
misrepresentations or theft.

A cause of action for misappropriation of confidential
business information exists when "[o]ne who, for the
purposes of advancing a rival business interest, procures by
improper means information about another’s business . . can
Restatement of Torts § 759. Wesley-Jessen, Inc. vy.
Armento, 519 F. Supp. 1352, 136i (N.D. Ga. 1981);
Durham v. Stand-by Labor, Inc., 230 Ga. 558, 563, 198
S.E.2d 145 (1973). "Improper means" may include theft or
fraudulent misrepresentation.

70a

To establish a claim for fraud, a party must prove the
following elements:

(1) | The defendant made the representations;

(2) At the time the representations were made,
the defendant knew they were false;

(3) The defendant made the representations with
the intention and purpose of deceiving the
plaintiff;

(4) ‘The plaintiff relied on the representations;

(5) The plaintiff sustained the alleged loss and
damage as the proximate result of the
representations having been made.

Bragg v. Sirockman, 169 Ga. App. 643, 314 S.E.2d 478
(1984).

A. cause of action for fraud may also arise when the
failure to perform the promised act, even as to a future
event, is coupled with a present intention not to perform.
Hayes v. Irwin, 541 F. Supp. 397, 438 (N.D. Ga. 1982),
citing Dye v. Dye, 231 Ga. 533, 202 S.E.2d 418 (1973);
Cowart v. Gay, 223 Ga. 635, 157 S.E.2d 466 (1967). An
opinion as to a legal matter is actionable if there is a
fiduciary relationship between the parties. See Capriulo v.
Bankers Life Co., 178 Ga. App. 635, 637-38, 344 S.E.2d
430 (1986); Clinton v. State Farm Mutual Automobile
Insurance Co., 110 Ga. App. 417, 138 S.E.2d 687 (1964).

U.S. Anchor and Chapman have presented evidence
by affidavit that Chapman did not possess or use any of Tie
Down’s confidential or proprietary business information.

Tla

Chapman also maintains that his knowledge of manufacturing
anchors, as well as the identity of potential anchor
customers, was subjective knowledge, and was not derived
from any confidential documents wrongfully obtained or
retained outside the course of his normal employment.
Statement, 29.

in rebuttal, Tie Down has presented evidence that
Chapman obtained access to Tie Down’s costing information
for use in U.S. Anchor’s business plan and gross profit
analysis by misrepresenting to MacKarvich that he wanted to
help recost Tie Down’s products for Tie Down’s benefit.
MacKarvich Affidavit, ¢ 8. Tie Down also points to
circumstantial evidence that Chapman misappropriated Tie
Down’s marine anchor engineering drawings, which were
discovered missing upon Chapman’s discharge from Tie
Down. MacKarvich Affidavit, ¢ 9. U.S. Anchor’s
machinist, however, testified that the tooling and dies were
not made or based on any of Tie Down’s engineering
drawings. Accordingly, there is an issue of fact that
precludes summary judgment as to whether Chapman
obtained confidential business information by improper
means.

c. Tortious Interference With Business Relations

U.S. Anchor and Chapman seek summary judgment
on Tie Down’s amended counterclaim for tortious
interference with business relations. A Claim based on
tortious interference with business relations does not require
evidence of a binding contract. Integrated & Micro Systems
Inc. v. NEC Home Electronics, 174 Ga. App. 197, 200, 329
S.E.2d 554 (1985). Instead, the party charged with tortious
interference with business relations must have "(1) acted
improperly and without privilege, (2) purposely and with
malice with the intent to injure, (3) induced a third party or

72a

parties not to enter into or continue a business relationship
with the plaintiff, and (4) for which the plaintiff suffered
some financial injury." /d., quoting, Hayes v. Irvin, 541 P.
Supp. at 429.

Interference with an employment relationship can be
tortious, even though the employment is at the will of the
employer and employee. See e.g., E.D. Lacey Mills, Inc. v.
Keith, 183 Ga. App. at 362, 359 S.E.2d 148; Nager v.
Lad’N Dad Slacks, 148 Ga. App. 401, 403, 251 S.E.2d 330
(1978); Architectural Manufacturing Co. v. Airotec, 119 Ga.
App. 245, 248, 166 S.E.2d 744 (1969). Interference with
the plaintiff's relationship with its customers, suppliers, or
representatives will support a cause of action for tortious
interference even though such relationships may be
terminable at will. E.D. Lacey Mills, Inc. v. Keith, 183 Ga.
App. at 362, 359 S.E.2d 148.

Interference with business relations may be excused
if privileged. Orkin Exterminating Co., Inc. v. Martin Co.,
240 Ga. 662, 667, 242 S.E.2d 135 (1975). "“[I]n order for
[the defendant] to come under the protection of the
competition privilege, it must establish inter alia that it did
employ improper means." Integrated & Micro Systems Inc.,
174 Ga. App. at 202, 329 S.E.2d 554. The privilege
defense is not available where interference is achieved
through actions taken in violation of a_ confidential
relationship. Haves v. Irwin, 541 F. Supp. at 430; E.D.
Lacey Millis, inc. v. Keith, 183 Ga. App. at 364, 359 S.E.2d
148.

Chapman and U.S. Anchor argue that Tie Down
cannot maintain this claim because Tie Down has only one
marine anchor customer, Rule, since the inception of U.S.
Anchor, and U.S. Anchor has never sold to Rule. Tie
Down allegedly has not pointed to evidence that U.S.

T3a

Anchor and Chapman induced Rule, the only party doing
business with Tie Down, not to enter or to continue the
business relationship.

The disputed evidence, however, is not limited to Tie
Down's relationship with Rule. The parties dispute whether
Chapman wrongfully interfered with Tie Down’s business
relations by soliciting Tie Down’s key employees, mobile
home and marine anchor sales representative, and marine
anchor distributors. Tie Down maintains that Chapman
made such solicitations while still employed at Tie Down in
violation of the confidential relationship owed Tie Down;
therefore, no privilege exists.

Based on the above evidence, factual disputes exist,
which are appropriate for the jury on Tie Down’s amended
counterclaim for tortious interference with business.
Accordingly, summary judgment on this claim is also
denied.

VII. CONCLUSION

In sum, defendant Tie Down, Inc.’s Motion for
Summary Judgment, defendant Rule Industries, Inc.’s
Motion for Summary Judgment, and the motion of William
Chapman and U.S. Anchor for Summary Judgment are all
DENIED. Defendant Tie Down’s motion to file a
supplemental brief and an amendment to this motion is
GRANTED.

SO ORDERED.

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

U.S. Anchor Mfg., Inc.

Plaintiff, :
: CIVIL ACTION FILENO.
v. : 1:86-CV-2447-JTC

Rule Industries, Inc. and
Tie Down, Inc. a/k/a
Tie Down Engineering, Inc.,:

Defendants.

ORDER

This action is presently before the court on plaintiff's
emergency motion for expedited ruling on plaintiff's motion
for injunctive relief; on plaintiff's motion for permanent
injunction [#325-1]; on defendant Rule’s motion to stay
execution of judgment without bond [#346-1], or for reduced
bond [#346-2]; on defendant Tie Down’s motion to stay
execution of judgment without bond [#347-1], or in the
alternative for reduced bond [#347-2]; on defendant Tie
Down's motion to stay execution of judgment without bond
[#347-1], or in the alternative for reduced bond [#347-2]; on
defendant Tie Down’s motion for J.N.O.V. [#348-1], or in
the alternative motion for new trial [#348-2]; on defendant
Rule’s motion for J.N.O.V. [#349-1]; on defendant Rule’s
motion for new trial [#350-1]; on the Daniels’ motion to
withdraw as counsel of record for defendant Tie Down
{#351-1]; on plaintiff's motion to register judgments in other
districts [4352-1]; on plaintiff's motion to compel defendants

75a

to post a supersedeas bond [#353-1]; on defendant Rule’s
motion for attorney’s fees and costs regarding the deposition
of Dr. Willard Mueller [#363-1]; and on plaintiff's motion
to hold defendant Rule in civil contempt [#369-1].

I. MOTION TO WITHDRAW

Harold T. Daniel, Jr. and Laurie Webb Daniel,
attorn

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386005_1618%3A2. Public record. Not legal advice.