Lou Poller v. Columbia Broadcasting System, Inc.

284 F.2d 599, 109 U.S. App. D.C. 170, 1960 U.S. App. LEXIS 3356, 1960 Trade Cas. (CCH) 69,845

Opinions

WILBUR K. MILLER, Chief Judge.

This is a civil suit for threefold damages under Section 4 of the Clayton Act

Footnotes

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* brought by the appellant, Lou Poller, against the appellee, Columbia Broadcasting System, and others. He charged them with combining and conspiring to restrain trade and commerce in the television industry in violation of Section 1 of the Sherman Act,** and with monopolizing and attempting to monopolize trade and commerce in that industry in violation of Section 2 of the Sherman Act,† and alleged he had thereby been injured in his business and property.

Poller sued as assignee of Midwest Broadcasting Company, a dissolved corporation of which he had been president and in which he had been the dominant figure. Midwest had been the owner and operator of a UHF television broadcast station in Milwaukee from the time of construction in 1953 until February 27, 1955. Poller claimed CBS, in violation of the antitrust laws, had conspired with others to acquire his station at a price below its actual value. He states the basis of his suit as being that the alleged conspirators frustrated the efforts of others to acquire his station, secretly obtained an option on a competing station, and then cancelled the affiliation agreement CBS had had with Midwest. As a result of what he calls “this three-pronged maneuver,” Poller says the conspirators purchased his equipment from him at a price far less than its real value, although he admits the purchase was “on plaintiff’s entreaty.”

More specifically, the facts are these: Under a construction permit granted February 4, 1953, Midwest Broadcasting Company began the construction of a UHF television broadcast station in Milwaukee, where there was already a YHF station affiliated with NBC. On August 21, 1953, as its station neared completion, Midwest made an affiliation agreement with CBS, subject to the latter’s unilateral right to cancel at any time on six months’ notice.¹ *A short time later Bar-tell Broadcasters began operating another UHF station — WOKY-—-in Milwaukee. The Bartell station was neither as -elaborate nor as successful as Midwest’s.

In January, 1954, Midwest was informed by a broker that, if and when the Federal Communications Commission -adopted a multiple ownership rule which would permit George B. Storer to add a UHF station to the others owned by him, Storer would pay $2,000,000 for Midwest’s station. About that time the latter began adding substantial improvements to its facilities.

CBS says it had faith in UHF, although ■ general opinion in the industry was that it could not successfully compete with VHF. It therefore determined, later in 1954, to acquire a UHF station in Milwaukee, if and when the Commission should adopt the “5 and 2” rule,² which would permit it to do so. CBS had learned of Poller’s efforts to sell the Midwest station for approximately $2,000,000 —a price it considered to be substantially more than the property was worth, and “completely out of line.” Because of this, CBS chose not “to enter into any kind of trading” with Poller, but decided to attempt to acquire the other UHF station in Milwaukee. To that end, it employed one Thad Holt, an independent consultant, to obtain from Bartell an assignable option to purchase station WOKY. On July 29, 1954, Holt obtained such an option in his own name, without disclosing the identity of his principal. The option price was $335,000, which Holt said was arrived at by adding $50,000 to Bartell’s investment. This option, which endured until October 1, 1954, was extended to February 1, 1955. On September 17, 1954, the Commission adopted the 5 and 2 rule, effective October 22. On October 25,1954, Holt assigned the option to CBS, which immediately exercised it.

Meantime, on October 21, CBS notified Midwest that its affiliation agreement would be cancelled as of April 22, 1955. The day after the notice of cancellation was given, Poller flew to New York and pleaded with officials of CBS to reconsider the termination of his company’s affiliation, stating he had gone to great expense for a new studio and equipment, far more elaborate than that he would have required for a station which did not have a CBS affiliation. He stated he in tended to continue television broadcasting in Milwaukee but that he would not require for that purpose the expensive equipment he had contracted to purchase.

It was suggested that CBS might protect Midwest against the loss Poller feared by purchasing the physical equipment for which it had contracted and by taking over its studio lease. CBS agreed. It took over the studio and equipment, transferred to Midwest the equipment it had bought from Bartell, and paid Midwest the sum of $500,000. Midwest acknowledged that CBS had assumed liability for the work in progress and had paid it in full for the sums it had spent. Midwest also agreed to operate its station with the equipment formerly owned by Bartell, but failed to do so.

On February 17, 1955, CBS began operating its UHF station in Milwaukee, having paid Midwest $1,000 a day for advancing the cancellation date from April 22, 1955; but on March 21, 1959, the station was closed because its operation was marginal or unprofitable.³ Midwest ceased broadcasting February 27, 1955, and in December, 1955, its corporate existence was terminated and all its assets were transferred to Lou Poller, who had been its president and sole stockholder.

In September, 1956, Poller filed this suit in the United States District Court against Columbia Broadcasting System, CBS-TV, an unincorporated division of CBS, J. L. Van Volkenburg and H. K. Akerburg, respectively president and vice president of CBS-TV, Bartell Broadcasters, and Thad Holt. As we have said, he charged them with conspiring to acquire the Midwest station in violation of the antitrust laws and at a price below its actual value, and charged CBS with monopolization and an attempt to monopolize.

Poller prayed for damages which he computed as follows: he sold the Midwest property, which he says was worth $2,000,000 to CBS for $500,000 and the-transfer of the Bartell equipment, which he says was worth no more than $50,000;. therefore he claimed damages of $1,450,-000, trebled in accordance with the statute.

After extensive filings of interrogatories, depositions and affidavits, the District Court on June 9, 1959, entered an' order granting the defendants’ motion for summary judgment and dismissing the complaint as to CBS, Van Volkenburg and' Akerburg. The opinion of the District Court is reported at 1959, 174 F.Suppt 802. Poller appeals.

The first question is — assuming-without deciding that Midwest received! less than the fair value of its station— whether Midwest was forced to sell by anything CBS did. Poller admits that the large value he placed on the Midwest station — greatly in excess of its cost— depended upon a CBS affiliation not subject to cancellation on six months’ notice-Midwest did not have such an affiliation,, and from the beginning CBS had refused' to grant it. Poller realized from the outset the shakiness of his position and used the CBS insignia “with trepidation.” His sale to CBS was not sought by the-latter. On the contrary, CBS bought Poller’s equipment only at his importunity and to save him from the loss he-thought he was about to suffer because-he had improvidently contracted for construction of elaborate facilities which he would need only if he had the firm' affiliation CBS had consistently refused to give him.

We are of the opinion that Poller’s entreaty to CBS to buy his equipment was brought about by his own act of investing too heavily in the UHF equipment without having a firm network affiliation. Certainly he sought the sale and entered into it voluntarily.

If it be assumed, however, that Poller was forced to sacrifice his station by the nets of the alleged conspirators, other questions remain. Was there a conspiracy? If so, did the acts of the conspirators restrain trade or commerce in the television industry?

We turn to a consideration of the first of these questions: Did CBS and the individual appellees enter into a conspiracy in restraint of trade or commerce ■among the several States? The purpose ■of Section 1 is to prohibit joint action of two or more persons in combining their (economic power and restricting competition. Poller’s charge that CBS conspired with one of its unincorporated divisions ■and two of its employees is obviously unsound. It is in reality a charge that CBS conspired with itself. As the Fifth Circuit said in Nelson Radio & Supply Co. v. Motoxola: ⁴

■“'* * * It is basic in the law ■of conspiracy that you must have two persons or entities to have a conspiracy. A corporation cannot conspire with itself any more than a private individual can, and it is the general rule that the acts of the agent are the acts of the corporation. * * * '[A] corporation and its subsidiaries can be guilty of a conspiracy in restraint of trade but that involves separate corporate entities. * * ”

We conclude that CBS, its unincorporated division, and its employees were incapable of conspiring to restrain trade or commerce. The question becomes, then, whether CBS conspired with Bartell Broadcasters or Thad Holt to accomplish that purpose. Bartell and Holt are not now parties: the complaint was dismissed by the court as to the former upon its suggestion of improper venue, and the latter was never served with process.

The record shows Bartell gave an option to Holt without knowing he was acting for CBS, and did nothing more than sell its station as it was required to do by the option. Holt knew nothing of Poller or his station, and merely acted as agent for CBS in obtaining the Bartell option. In short, the record shows Bartell and Holt did not enter into a concerted scheme with CBS, but that the latter alone conceived and consummated the plan of acquiring the UHF station in Milwaukee which had been competing with Midwest.

Even if it be thought that Bartell and Holt combined with CBS to accomplish a common purpose, it does not seem to us that the purpose was to restrain trade or commerce. Poller complains that CBS cancelled Midwest’s affiliation. It had the contractual right to do that. He complains that CBS chose to buy the Bartell station instead of his own. Certainly CBS did not act illegally in making that choice; it was under no sort of obligation to buy the Midwest station.

Then, when CBS saved him from the loss he might have suffered had he been left with the expensive facilities he had bought to meet a network affiliation he did not have, Poller complains he was forced by CBS to make a sacrificial sale. But his real complaint is that CBS would not eliminate the six months’ cancellation clause from his affiliation agreement. He had never been led to believe this would be done; on the contrary, CBS had consistently refused to do it. Nevertheless, despite his “trepidation,” Poller recklessly proceeded to incur large liability for expanded facilities he knew he would not need without the affiliation which had been continuously denied him.

It was said in United States v. Colgate & Co., 1919, 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992:

“ * * * In the absence of any purpose to create or maintain a monopoly, the [Sherman] act does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discre tion as to parties with whom he will deal * *

1953, 345 U.S. 925, 73 S.Ct. 783, 97 L.Ed.

The Supreme Court has not departed from this rule, which has since been applied to broadcasting networks. In Federal Broadcasting System v. American Broadcasting Co., 1948, 167 F.2d 349, 351, certiorari denied 335 U.S. 821, 69 S.Ct. 43, 93 L.Ed. 375, the Second Circuit said:

“ * * * The principal ground urged in support of the charge of a boycott as a basis for the temporary injunction is that by concerted action the American and Mutual networks have cancelled their existing arrangements with the plaintiff. However, each did this pursuant to the terms of its agreement, and it is clear that if these defendants really acted individually and not jointly they wére within their rights. A network is not a common carrier and each therefore had the right in the absence of concerted action to make such contracts for the distribution of its programs as it chose. * *"

We conclude from the foregoing that the acts done by CBS and its co-defendants did not restrain trade or commerce. Hence, any injury tfe Poller’s business and property caused by those acts was not the result of a violation of Section 1 of the Sherman Act.

The next question is whether CBS monopolized any part of the trade or commerce among the several States.⁵

As we have seen, CBS cancelled its affiliation with Midwest, bought the Bar-tell UHF station, later traded the Bartell equipment for that of Midwest, and also paid a large cash consideration, and then attempted to operate a UHF station in Milwaukee but failed and closed the station. These acts do not manifest an attempt to monopolize any part of the trade or commerce in the television industry. There was no attempt to monopolize UHF in Milwaukee, for Poller expressly said he would continue to operate there with the less elaborate Bartell equipment which would be sufficient for operation without a CBS affiliation. He accepted the Bartell equipment for that purpose. The failure of UHF in Milwaukee seems to have been due to the superiority of the VHF competition.

Poller argues that each of the three national television networks — American Broadcasting Company, CBS and National Broadcasting Company — has a “vertical” monopoly, despite the fact they are fiercely competitive.⁶

The appellant says that, because a particular station can broadcast only one program at a time and only one program at a time can be heard on a receiving set, the broadcast of a network program results in vertical monopolization of every television station in the nation which receives and transmits it. This is the result of physical laws, and cannot be said to be monopolization by CBS or either of the other two networks.

Appellant goes on to argue that “In the great majority of markets where there are more than two stations each network requires that the station which takes its programs must become in effect its exclusive station”; that “The network does even more; it ties the stations to affiliation agreements which give the network exclusive control, yet keeps them dangling by the provision under which it can at will terminate the franchise upon which their financial fate depends.”

Poller asserts that the power of CBS to own and operate television stations is “a potent monopolistic weapon.” He characterizes it as an “element in the chain of monopoly practice.” This power, he says, is “a potential threat against every station in the country.” He expresses the belief “that, notwithstanding commission sanction,⁷ the ownership of stations by networks effects such a concentration of control in the television industry as is violative of the antitrust laws.”

Whether appellant’s assertions are valid is not before us. Nor are we called on to review the 5-2 regulation. Rather, the question is whether, by the exercise of the right to acquire the Bartell station and the Poller equipment, CBS monopolized or attempted to monopolize interstate trade or commerce in the television industry; and, if so, whether Pol-ler is thereby injured in his business or property. We perceive no monopoly or attempt to monopolize but, instead, an unsuccessful attempt to compete with other Milwaukee stations. For, after the Bar-tell acquisition, CBS had competition in Milwaukee from both VHF and UHF stations, and after acquiring Poller’s equipment its station continued to have YHF competition to which it finally yielded. Of course, the competitive situation among the networks continued as before.

Assuming, however, (without deciding) that by either acquisition CBS was monopolizing or attempting to monopolize, we are of the opinion, for reasons stated elsewhere in this opinion, that Poller was not thereby injured in his business or property. Such injury as he may have sustained, we repeat, was caused by his improvidence in contracting for elaborate equipment to meet the requirements of a firm affiliation he knew he did not have.

Such is the monopolization with which CBS is charged. The essence of it is that the network keeps the stations “dan gling” because of the provision it can cancel the franchise at will. That is to say, CBS is charged with monopolizing or attempting to monopolize some part of trade or commerce in the television industry because it kept Midwest “dangling” by retaining the right to terminate its affiliation on six months’ notice. The retention of the right to cancel was lawful, and Midwest agreed to it.

All affiliation agreements between networks and stations are for fixed and limited terms, just as are station licenses granted by the Federal Communications Commission, but Poller does not claim this produced monopoly, even though the network is under no obligation to renew. It is the right of cancellation retained by CBS which he says kept his station “dangling.” Although he was unhappy about it, Poller knowingly accepted affiliation subject to cancellation on six months’ notice, as he could do no better. We see no reason for him to complain that the •option to cancel was exercised.

Whether or not Packard Motor Car Co. v. Webster Motor Car Co., 1957, 100 U.S. App.D.C. 161, 243 F.2d 418, is dispositive here, as the District Court held, that case is certainly relevant and indicative of the .applicable doctine. Several dealers in Baltimore had one-year contracts with Packard to sell its cars in that area. One ■of them informed Packard he would not .continue as dealer unless he were granted .an exclusive agency. Packard agreed, •and refused to renew the franchises of the other dealers. One of them sued Packard for triple damages, alleging the transaction constituted a conspiracy in restraint of trade in violation of the Sherman Act. We held there was no •contract or conspiracy to restrain trade within the meaning of the Sherman Act.

We have noted appellant’s argument that the national networks have coercive •and restrictive practices which extend the monopoly he asserts they have. These practices are: (1) the “must buy” policy which requires advertisers to buy time on .-a designated group of stations; (2) the “option time” practice under which affili.ates contract to accept and broadcast all network programs offered to them during designated hours of the broadcast day.

We need express no opinion regarding these practices because it does not appear that either played any part in causing the injury to the business and property of Poller, of which he complains.

In sum, we hold the record shows there was no illegal conspiracy to restrain trade or commerce among the several States, that no restraint of such trade or commerce appears, and that no monopoly or attempt at monopoly was shown.

Affirmed.

15 U.S.C.A. § 15.

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15 U.S.C.A. § 1.

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15 U.S.C.A. § 2.

1

. Poller “continuously” pleaded with CBS to eliminate the provision for cancellation on six months’ notice, but CBS refused. Poller said he used the CBS insignia “with trepidation,” because of the tenuous nature of the network affiliation.

2

. An amendment to the multiple ownership rule permitting one person to own five VHP and two UHP television stations,

3

. When CBS acquired its Milwaukee station, there were two VHF stations in that market and a third went on the air thereafter. The result was that CBS was operating the only UHF station in the nation which was in competition with three VHF stations in the same market.

4

. 1952, 200 F.2d 911, 914, certiorari denied 1356.

5

. It has already been shown that CBS did not combine or conspire with any person or persons to do the acts which are the basis of Poller’s complaint. Hence it did not “combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States.” So, the question is limited, as stated in the text above, to the question whether CBS itself monopolized any part of the trade or commerce among the several States, or attempted to do so.

6

. This notion is thus expressed in Poller’s brief:

“It is a vital fact that because of physical limitations a particular station can broadcast only one program at a time, and because programs can only be received on a particular set one at a time there is an automatic exclusion by each program of all others at that time.

“Accordingly, the broadcast of a network program results in a vertical monopolization of every station throughout the country which receives and transmits that program at the time it is broadcast. The case is no different than it would be if because of physical law three concerns doing the same thing could reach into only one of three separate areas of space. In a sense, they would be competing with each other. But it is equally true that each of them would have an exclusive monopoly in the entire area that it could possibly embrace. It is no less a monopolization by any one merely because there is another outside area unapproachable by it, in which others likewise hold exclusive sway.

* * * » *

“In the great majority of markets where there are more than two stations each network requires that the station, which takes its programs must become in effect its exclusive station. Thus, by the coercive power of its programming the network has accumulated what it calls a chain of affiliated stations. These affiliates are no part of the network’s investment of money or management. Others have made the investment; others have the burden of management; others run the risk of loss. But by virtue of the network having the program to sell, it requires by contract that these stations become in effect its subsidiaries. Thus, by an ironic perversion of the circumstances, the supplier dominates the customer. The network does even more; it ties the stations to affiliation agreements which give the network exclusive control, yet keeps them dangling by the provision under which it can at will terminate the franchise upon which their financial fate depends.”

7

. Tbe Commission sanction to which Pol-ler refers is the 5-2 regulation of the Federal Communications Commission permitting one concern to own as many as, but not more than, five YHF and two UHF stations. The Commission has thereby held in effect that a network’s ownership of that small number of stations is not against the public interest.

As monopolization or an attempt to monopolize any part of trade or commerce among the several States is contrary to the public interest, the effect of the expert Commission’s regulation is that such limited multiple ownership of facilities in the field it regulates does not violate Section 2 of the Sherman Act. Much weight should be given, we think, to the Commission’s holding.