United States Court of Appeals For the First Circuit
No. 01-1269
AUGUSTA NEWS COMPANY,
Plaintiff, Appellant,
v.
HUDSON NEWS CO., PORTLAND NEWS CO., and HUDSON-PORTLAND NEWS CO.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella and Selya, Circuit Judges.
William D. Robitzek with whom Berman & Simmons, P.A. was on brief for appellant. John M.R. Paterson with whom Ronald W. Schneider, Jr. and Bernstein, Shur, Sawyer & Nelson were on brief for appellees.
October 23, 2001 BOUDIN, Chief Judge. Augusta News brought this
antitrust case in district court against Portland News, Hudson
News, and Hudson-Portland News, LLC (the "LLC"). Augusta
alleged violations of both section 2(c) of the Clayton Act, 15
U.S.C. § 13(c), as amended by the Robinson-Patman Act, Pub. L.
No. 74-692, 49 Stat. 1527 (1936), and section 1 of the Sherman
Act, 15 U.S.C. § 1.1 After discovery was complete, the district
court granted summary judgment on all counts for the defendants
and Augusta appealed to this court. We begin with a statement
of background facts.
Prior to 1995, publishers seeking to sell magazines and
newspapers in Maine sold them to local wholesale distributors
who then resold the publications to retailers at a discount off
the printed cover price. Augusta News and Portland News were
two of five local wholesale distributors operating in Maine in
late 1995; the others were Magazines, Inc., Winebaum News and
Maine Periodical Distributors. Each wholesaler served a de
facto exclusive territory and operated as the sole supplier of
periodicals to all retailers within that locale.
1 The Maine antitrust statute, 10 M.S.R.A. §§ 1101-09 was also invoked in the complaint. Augusta treats the Maine antitrust claim as co-extensive with its federal claims so we do not address it separately.
-3- In late 1995, this system began to change in Maine (and
elsewhere) at the insistence of the large retail chains like
Wal-Mart, which comprised much of the distributors’ sales.
Rather than deal with numerous distributors, the large multi-
location retailers sought to consolidate regionally their
purchasing of publications and obtain from the chosen regional
distributor lower prices, centralized billing, and improved
service. In response to such retailer demands, two distributor
entities began to compete for chain business on a regional basis
in New England in 1995.
The first, Retail Product Marketing ("RPM"), was formed
in September 1995 by fifteen independent wholesale distributors
in New England, including two in Maine: Portland and Magazines,
Inc. Although Augusta was offered the opportunity to join RPM,
it declined to do so. RPM members agreed to bid for large
retail chain contracts exclusively through RPM. When an RPM bid
was successful, RPM says that it would then determine which RPM
member or members would service the retailer’s various locations
throughout New England, based on retailer preference and other
considerations such as the location of individual RPM members.
The second entity--which became the primary competitor
to RPM for regional business--was Hudson, a wholesale
distributor based in New Jersey with operations in New York and
-4- parts of New England. In November 1995, Hudson signed a
contract to supply all Wal-Mart stores in the Northeast,
including four stores previously serviced by Augusta accounting
for about 10 percent of Augusta’s business. In December 1995,
Hudson won a bid against RPM to supply all of Hannaford's 80
stores in the Northeast, including 11 stores previously serviced
by Augusta representing 40 percent of Augusta’s business.
In late December 1995, Hudson formed a joint venture
with Portland (the Hudson-Portland LLC) under which Portland
would service all of Hudson's customers in Maine, including
customers acquired after the agreement. Thereafter, Hudson
prevailed over RPM in bidding to supply K-Mart’s Northeast
stores (March 1996) and Cumberland Farms' New England stores
(late July 1996); Portland serviced these accounts. However,
Portland remained a member of RPM, eligible for any business RPM
won in competition with Hudson.
Like Hudson, RPM was successful in obtaining region-
wide business. In March 1996, it won a bid to supply 100 Shaw’s
Supermarkets locations throughout New England, two of which were
in Augusta's formerly exclusive territory. In April, RPM won
over all of Christy's stores in New England, including eight
locations previously served by Augusta, and all of CVS’s stores
in Maine, four of which had been serviced by Augusta. In July,
-5- RPM secured the contract for Rite Aid stores in Maine, some of
which had been serviced by Augusta.
RPM and Hudson each offered large up-front per-store
fees to the chain retailers. For example, Hudson paid Hannaford
$1,000 per store and K-Mart between $1,000 and $5,000 per store
to secure exclusive contracts. RPM paid from $667 per-store
for each existing CVS location to $15,000 per-store for each
Rite Aid location. The amounts were sometimes paid annually and
sometimes spread over the life of the contract. Some retailers
demanded the fees; one, Wal-Mart, declined to accept them.
Under the RPM charter, the fees were paid by the member which
serviced the store. Under the Hudson-Portland LLC agreement,
Portland agreed to pay the fees for every store it serviced.
Augusta, which refused to offer retailers up-front
fees, rapidly lost its chain store customers. Augusta says that
it thought such payments were illegal and unprofitable. Augusta
also chose not to service customers on a regional level, bidding
only for the local or state-wide business of the chains. In
July 1996, concluding that it could not stay in business without
the retail chain stores that it had lost to Hudson and RPM,
Augusta closed its doors.
In June 1999, Augusta filed this suit in the federal
district court in Maine. Augusta's complaint claimed that up-
-6- front fees paid by Hudson and Portland violated section 2(c) of
the Clayton Act, as amended by the Robinson-Patman Act, and
section 1 of the Sherman Act. In addition, Augusta charged that
Hudson and Portland (and possibly RPM’s other members) had
agreed to divide the Maine market, in violation of section 1 of
the Sherman Act.
Soon after the present suit was brought, Hudson merged
operations with RPM to form Hudson-RPM. Allegedly, it is now
the only regional distributor servicing large retail chains in
Maine. The new entity also stopped offering up-front fees to
retailers on new contracts.
After discovery was complete, Hudson and Portland moved
for summary judgment. In a careful opinion, the magistrate
judge recommended granting the motion, finding that the up-front
fees were price concessions, rather than brokerage payments, and
therefore not covered by section 2(c), and that Augusta’s
section 1 claim lacked merit because Augusta had failed to show
injury to competition. In a brief order, the district court
affirmed the recommendation and entered judgment for defendants.
This appeal followed.
We begin with Augusta's claims under the Robinson-
Patman Act: one, set forth in the complaint and resolved
adversely to Augusta in the district court, is that the up-front
-7- fees paid by Hudson and Portland were brokerage fees or other
concessions forbidden by section 2(c); the other is a claim that
these payments violated section 2(a)'s restriction on price
discrimination, a claim that Augusta belatedly sought to
introduce into the case after the magistrate judge's recommended
decision. The relationship between the two Robinson-Patman
provisions is relevant.
As adopted in 1914, the original section 2 of the
Clayton Act simply prohibited sellers from discriminating in
price among purchasers of commodities "where the effect of such
discrimination may be to substantially lessen competition or
tend to create a monopoly"--subject to a cost defense and a
meeting competition defense. Pub. Law No. 63-212, 38 Stat. 730-
31 (1914). When section 2 was revised in 1936 by the Robinson-
Patman Act, this anti-discrimination ban was re-designated as
section 2(a) (with a portion re-located into section 2(b) and
elaborated in certain respects not pertinent here).
At the same time, Congress added section 2(c) as a new
and more rigid ban on certain brokerage or other payments. The
full text of section 2(c) is as follows:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount
-8- in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.
15 U.S.C. § 13(c).
This convoluted paragraph has bewildered lawyers and
judges ever since, but its history provides some enlightenment.
The Robinson-Patman Act, unlike the ordinary antitrust laws, was
designed less to protect competition than (in the midst of the
Great Depression) to protect small businesses against chain
stores. A particular target were the discounts that
manufacturers furnished to large chain stores. The revamped
section 2(a) directly addresses such discounts; and the
protective purpose accounts for certain anti-competitive
rigidities in judicial interpretation of what might otherwise
appear to be a conventional antitrust statute.2
2The most notable departure from standard antitrust analysis is the treatment of any economic loss to the customer of a discriminating seller as injury to competition (so-called "secondary line" injury). FTC v. Morton Salt Co., 334 U.S. 37, 46 (1948). By contrast, where a competing seller is the plaintiff (a so-called "primary line" injury case), evidence of an actual threat to competition--not just economic loss to the disadvantaged seller--is required. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993).
-9- Section 2(c) was intended to close firmly a potential
loophole in the new regime. Sellers often employ brokers, who
are paid a commission, to seek out and arrange sales; one of the
ways that chains obtained discounts was through the seller's
payments to the buyer, or to an agent of the buyer, for
brokerage services not actually furnished or through a reduction
in the selling price purportedly furnished in lieu of brokerage.
With certain qualifications, section 2(c) sought to ban outright
both such brokerage payments from seller to buyer and reductions
in the selling price in lieu of brokerage; the ban covers other
variations as well but "the seller to buyer" payment ban is the
one pertinent here.3
If section 2(c) were limited to brokerage payments or
reductions in lieu of brokerage, then Augusta's claim would be
facially silly. The up-front payments in question have no
relationship to traditional brokerage services at all: they do
not purport to be for the sellers' performance of brokerage
services nor are they even claimed to correspond to amounts
3 On an initial reading, one might think that section 2(c) banned such brokerage payments only where they were shams, i.e., where they were not "for [brokerage] services rendered . . . ." Case law, possibly based on a misreading of what the quoted phrase modifies, has been less forgiving. See Quality Bakers of America v. FTC, 114 F.2d 393, 398-99 (1st Cir. 1940). Compare 14 Hovenkamp, Antitrust Law § 2362(d) (1999). This issue is not presented in this case.
-10- previously paid by the sellers to independent brokers to secure
sales for the publishers. Robinson v. Stanley Home Prods.,
Inc., 272 F.2d 601, 604 (1st Cir. 1959). The payments are
simply price reductions offered to the buyers for the exclusive
right to supply a set of stores under multi-year contracts.
Augusta makes no effort to identify any link between
the up-front payment and brokerage. Nor does it say that it
will offer evidence that such a link exists but has been
concealed. Rather, at least in this court, it relies on the
fact that section 2(c) itself speaks not solely of brokerage but
of "commission, brokerage, or other compensation." Ambitiously,
Augusta suggests that any payment from seller to buyer is within
the ban.
Admittedly, some courts have read the statute to apply
to outright commercial bribery whereby one party to the
transaction corrupts an agent of the other.4 This view builds
on, but obviously goes somewhat beyond, a statement by the
Supreme Court that congressional debates on section 2(c) show it
to proscribe "other practices such as the 'bribing' of a
seller's broker by a buyer." FTC v. Henry Broch & Co., 363 U.S.
4 Bridges v. MacLean-Stevens Studios, Inc., 201 F.3d 6, 11 (1st Cir. 2000) (collecting cases). This circuit has never decided whether a claim for commercial bribery is actionable under section 2(c). Id.
-11- 166, 169 n.6 (1960). Yet, a buyer might perform numerous
legitimate services for a seller--advertising, special shelf
space, warranty repairs--and the courts have never read section
2(c) as a general ban on seller-to-buyer payments without regard
to purpose.
In this case, there is no link to brokerage payments,
nothing was disguised, and Augusta does not claim that any agent
was bribed or corrupted. All that we have is a payment--
effectively a price reduction to the buyer--that was openly made
for the exclusive right to supply specific buyer stores for a
specific period. The antitrust laws are not automatically
hostile to price reductions or to exclusive dealing. Section
2(c) remains a ban directed to a particular evil; it is not a
mechanical prohibition on all price reductions cast in the form
of one-time payments. See Zeller Corp. v. Federal-Mogul, 173
F.3d 858 (6th Cir. 1999) (unpublished opinion).
A reduction in price to less than all customers may,
of course, violate section 2(a), if the required effect on or
threat to competition can be shown by the plaintiff and if the
defendant cannot make out one or more of the defenses allowed by
the statute. Augusta did not allege a violation of section 2(a)
in its complaint. Discovery was conducted, and the summary
judgment motions were filed and contested, on the assumption
-12- that section 2(a) was not part of the case. After the
magistrate judge's recommended decision, Augusta for the first
time sought to proffer a claim under section 2(a).
It did so by suggesting, in its objections to the
magistrate judge's recommended decision, that the district court
should allow an amendment to the complaint. The district court
did not comment on the suggestion. In this court, Augusta says
again that an amendment to the complaint should have been
allowed. Appellees respond that Augusta did not properly raise
the issue in the district court by filing a motion to amend and
that no claim of error can be based on the failure to grant a
motion that was never made. In any event, say appellees, the
refusal of the suggestion was not error.
We will assume arguendo that Augusta's desire to amend
was made clear to the district court even if no formal motion
was ever filed. But a plaintiff's request to add a new claim to
the case after full discovery and after the grant of summary
judgment to the defendants on all existing claims would require
remarkable justification. See Hayes v. New England Millwork
Distr., Inc., 602 F.2d 15, 19-20 (1st Cir. 1979). Nothing
remotely close to a good excuse for failure to make the motion
earlier is provided by Augusta. Augusta's suggestion that
-13- defendants would not be prejudiced by the need now to try the
section 2(a) claim is not sufficient.5
Independent of the Robinson-Patman Act claims, Augusta
charged in its complaint that the defendants had violated
section 1 of the Sherman Act, which in essence forbids
agreements in restraint of trade. The magistrate judge
recommended dismissal of this claim as well on the ground that
Augusta's evidence did not establish a triable issue as to
injury to consumer welfare, e.g., through higher prices or
reduced consumer choice among publications stocked in retail
stores.
On appeal, Augusta's principal argument is that no such
evidence of injury to consumer welfare was required because the
facts made out, or at least provided a basis for trial on, two
different "per se" theories. Specifically, Augusta says that
"the agreements to pay up-front fees" were illegal and that the
defendants, although competitors, agreed to "a horizontal
5Because the suggestion came too late and without any justification, we need not consider whether it also may be barred because not first presented to the magistrate judge prior to the recommended decision. This court has previously warned against efforts to treat the magistrate judge proceeding as "mere dress rehearsal," reserving critical claims "for the second round" before the district judge. See Paterson-Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 991 (1st Cir. 1988).
-14- division of markets." Augusta also says that it made a showing
of injury to consumer welfare even though this is unnecessary
for a per se violation.
The premise from which Augusta departs is correct, but
only the premise. Almost any agreement that affects or has the
potential to affect interstate commerce is potentially within
the reach of section 1; but the legality of most kinds of
agreements (e.g., R&D projects, information sharing,
distribution contracts) is tested by the rule of reason. Under
that rule, adverse effects on consumer welfare are an important
part of the equation. U.S. Healthcare, Inc. v. Healthsource,
Inc., 986 F.2d 589, 595 (1st Cir. 1993); California Dental Ass'n
v. FTC, 224 F.3d 942, 958 (9th Cir. 2000). The evaluation is
not wholly ad hoc--there is a good deal of doctrine as to
specific practices--but it is hard to imagine a rule of reason
violation absent a potential threat to the public.
By contrast, a few agreements are deemed so pernicious
that they are condemned "per se" and without regard to the power
of the parties to accomplish their aims, regardless of
justification, and without any need to show an actual or
potential adverse effect on consumer welfare. United States v.
Socony-Vacuum Oil Co., 310 U.S. 150 (1940). The classic cases
are agreements to set prices, fix output or engage in horizontal
-15- market division. Minimum resale price maintenance remains a per
se violation. See Addamax Corp. v. Open Software Found., Inc.,
152 F.3d 48, 51 (1st Cir. 1998). Concerted refusals to deal may
or may not be so classed depending on various circumstances.
U.S. Healthcare, 986 F.2d at 593.
The categorical descriptions of per se offenses are
quite misleading for anyone not well versed in antitrust. For
example, price-fixing in its literal sense is not condemned per
se: virtually every sale is an agreement on price. The only
price-fixing agreements that are condemned per se, with one
narrow exception (minimum resale price-fixing), are agreements
(1) between competitors (2) as to competing products or services
(3) where, in addition, the agreement is not part of a larger,
legitimate economic venture. Broadcast Music, Inc. v. Columbia
Broadcasting Sys., Inc., 441 U.S. 1 (1979) (joint purchase of
surplus gasoline intended to boost prices). In short, the lay
use of terms like price-fixing are a poor guide to antitrust
rules.
Here, Augusta's first claim--that "the agreements to
pay up-front fees" were unlawful--reflects confusion by Augusta
on several levels. Insofar as the agreements were between a
legitimate selling entity and a buyer (e.g., between Hudson and
K-Mart), the up-front fees were discounts on vertical prices of
-16- the kind that are "fixed"--and quite lawfully so--every time a
buyer buys something from a seller. An agreement between
competing distributors to offer such up-front fees to retailers,
unconnected to any joint venture, might be a per se violation;
but there is no clear claim by Augusta that this happened, no
evidence for it, and no reason why competitors would make such
an agreement.
Sellers do need to cooperate to raise or stabilize
prices at a supra-competitive level because otherwise a hold-out
seller could undercut and defeat an increase. But to lower
prices, sellers have no reason to agree; each can implement a
decrease independently and the objective is normally to
undersell the competitor's undiscounted price and win the
customer. Of course, a competing seller will in the future
likely be forced to meet the lower price--which is why RPM and
Hudson each made such reductions in the same time frame--and a
seller who will not compete (like Augusta) will lose business.
But this is not an agreement to restrain trade; it is just
competition at work.
Both the existence of RPM and the Hudson-Portland
distribution arrangement present more complex situations. In
forming RPM, local distributors who were at least potential
rivals (until then they had served exclusive territories)
-17- combined to seek region-wide customers; and incident to such
offers, they might be viewed as acting through RPM to "agree" on
up-front payments to the buyers. But it is a standard form of
joint venture for local firms to combine to provide offerings--
here, one stop service for large buyers--that none could as
easily provide by itself, and a joint venture often entails
setting a single price for the joint offering. See Rothery
Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 229
(D.C. Cir.), cert. denied, 479 U.S. 1033 (1986).
In particular cases, such joint ventures may well be
unlawful under the rule of reason on any of numerous grounds;
for example, the venturers may impermissibly collaborate beyond
the necessary scope of the venture, see Addamax, 152 F.3d at 52
n.5, or impermissibly exclude competitors from joining in the
venture, see Northwest Wholesale Stationers, Inc. v. Pacific
Stationery & Printing Co., 472 U.S. 284, 295-96 (1985). But
Augusta makes no effort to analyze the venture under the rule of
reason. Indeed, after asserting that there was a combination to
set up-front fees, it scarcely mentions the subject again,
turning instead to the charge that the defendants engaged in
horizontal market division.
The charge of horizontal market division is equally
devoid of support insofar as it claims a per se violation. The
-18- basic notion underlying this per se offense is that two
competitors may not agree not to compete for customers whether
identified individually or by class--for example, that one will
serve only customers in Massachusetts while the other will serve
only those in Maine. Despite unguardedly broad language in
United States v. Topco Associates, Inc., 405 U.S. 596 (1972), it
is commonly understood today that per se condemnation is limited
to "naked" market division agreements, that is, to those that
are not part of a larger pro-competitive joint venture.
Addamax, 152 F.3d at 52 n.5; Rothery, 792 F.2d at 229.
In all events, Augusta points to nothing to suggest
that there was any agreement among the defendants or the
defendants and others to divide markets in the sense of
promising not to compete. It is not a per se violation for
local competitors to join in providing region-wide service that
none alone provided before; nor is it unlawful per se for a
local competitor to agree to act as a local distributor for an
out-of-state competitor who won the contract to serve a local
store. Palmer v. BRG of Georgia, Inc., 498 U.S. 46 (1990),
cited by Augusta, was more or less a sham transaction to
disguise a naked market division arrangement and did not involve
a bona fide joint venture.
-19- It is worth stressing that the RPM joint venture, the
Hudson-Portland arrangements, and the final merger of RPM and
Hudson may all have been subject to antitrust attack under
section 1's rule of reason or, at least in the last instance,
possibly under section 7 of the Clayton Act. Furthermore, the
up-front payments were part of multi-year exclusive dealing
contracts that might in principle be attacked under the rule of
reason. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320,
327 (1961). But Augusta ignores or fails to develop these
possibilities.
There is no reason for us to consider Augusta's attacks
on the finding by the magistrate judge that consumer welfare was
not threatened or injured. The per se claims made by Augusta
are without basis and, in this court, Augusta does not even
attempt to make out a rule of reason case in which competitive
effects would be relevant. At most, Augusta suggests that there
were or may have been some negative effects on consumer price or
choice; its most specific claim is that what were once local de
facto monopolies in Maine, capable of fringe competition, have
now been replaced by a larger state-wide monopoly.
The short answer is that in a rule of reason case,
negative effects or threatened effects on consumer welfare are
almost always a necessary element but they are not sufficient.
-20- One still has to identify a specific agreement, locate it within
some doctrinal framework or body of precedent, and assess the
competitive benefits and disadvantages of the agreement (along
with the possibility of achieving the former through less
restrictive means). See U.S. Healthcare, 986 F.2d at 596-97.
This sounds like a difficult task and it usually is, which is
why antitrust plaintiffs try to make out per se violations and,
in default of them, rely heavily upon experts.
Nothing in Augusta's appellate briefs develops a rule
of reason case. It may well be that somewhere in the record
there are facts and expert testimony that could have been used
to construct such a case; but it is not the job of appeals
courts to rummage unaided through the record, nor can the other
side respond to a claim not seriously asserted on appeal. See
U.S. Healthcare, 986 F.2d at 595. Absent an organized rule of
reason case, it does not matter whether the magistrate judge got
right each of the factual points that Augusta disputes.
Affirmed.
-21-