UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
decided: August 5, 1974.
PERRY MULLIS, D/B/A MULLIS PETROLEUM CO., PLAINTIFF
ARCO PETROLEUM CORP., ATLANTIC RICHFIELD CORP., DEFENDANTS
Appeal from U.S. District Court, Southern District of Indiana, Indianapolis Division.
Swygert, Chief Judge, and Stevens and Sprecher, Circuit Judges.
STEVENS, Cir. J.:
The question presented by this appeal is whether either the Robinson-Patman Act*fn1 or § 2 of the Sherman Act*fn2 protects a local jobber from an otherwise lawful termination at a time when, because of the existence of an acute shortage, he cannot find another source of supply.
Plaintiff has been a distributor of petroleum products for defendant, ARCO, or its predecessor, Sinclair, in Lawrence County, Indiana, and its environs for the past 20 years.*fn3 Notwithstanding occasional threats by plaintiff to take his patronage elsewhere, and notwithstanding various disputes which defendant emphasizes and plaintiff minimizes, nothing serious enough to cause a rupture in the business relationship occurred until shortly before the "energy crisis."
On February 15, 1973, defendant notified plaintiff that his distributorship was cancelled; the termination date, originally set for March 31, 1973, was extended to May 31, 1973.*fn4 Plaintiff canvassed some 20 other suppliers of petroleum products to obtain a new source, but none would agree to serve him. On May 7, 1973, he commenced this litigation. In his complaint plaintiff described his business, the receipt of the notice of cancellation and the current market situation, and alleged that ARCO's acts constituted "an attempt to monopolize the marketing area in which plaintiff operates," and resulted in discrimination against him. After an evidentiary hearing, the district court entered an order enjoining defendant from refusing to furnish petroleum products to the plaintiff until further order of court. Defendant appeals from that order.
There is no question about the sufficiency of plaintiff's proof of irreparable injury. His business, upon which he places a value of $500,000, involves the distribution of approximately 433,000 gallons of gas and 250,000 gallons of fuel oil per month. He services 20 retail gasoline stations, four of which he owns, and also supplies various governmental units, industrial customers and farms in and about Lawrence County, Indiana. Since he sells only ARCO petroleum products, and since he is unable to obtain a new supplier, it is reasonable to infer that termination of his distributorship will terminate his business.*fn5
Irreparable injury is not in itself a sufficient predicate for the entry of a preliminary injunction.*fn6 There must also be substantial reason to believe that the conduct of which the plaintiff complains is unlawful and is the cause of his threatened loss.*fn7 How clear the showing of illegality must be will vary from case to case; no doubt, the greater the urgency and the greater the extent of the impending injury, the more appropriate it may be to retain the status quo temporarily while the court appraises the strength of the legal claim. Thus, the requirement of a "reasonable likelihood of success" is necessarily a somewhat flexible standard that allows the chancellor room for the exercise of judgment. At the very least, however, plaintiff must demonstrate that his claims are " so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation and thus for more deliberate investigation. '"*fn8
In this case it is perfectly clear that, even if plaintiff is able to prove a violation of the Robinson-Patman Act, there is no causal connection between that violation and his termination. We are also convinced that there is no basis in the record for concluding that ARCO is violating § 2 of the Sherman Act. We therefore reverse.
ARCO sells gasoline directly to retail service stations in the Lawrence County area. These stations compete with the 20 stations that are supplied by plaintiff. Plaintiff has asserted that ARCO discriminates in favor of its own retail outlets and against plaintiff in two different ways.
First, in his complaint plaintiff apparently took the position that the termination itself was discriminatory since ARCO planned to continue supplying its own outlets while refusing to sell to him. It has long been settled, however, that such discrimination does not violate the Robinson-Patman Act.*fn9 For that statute does not require a seller to create or to maintain a customer relationship with any buyer or prospective buyer.*fn10
Second, on appeal plaintiff's Robinson-Patman claim is solely that a two cent per gallon rebate made available to retailers participating in defendant's so-called "Mini Service" program illegally discriminated against him.*fn11 Assuming that to be true, such illegality could be removed without modifying the "Mini Service" program simply by discontinuing sales to customers, such as plaintiff, who did not participate in that program. Since one method of terminating that illegality would be to terminate plaintiff's distributorship, it is manifest that an assumption that the "Mini Service" program was illegal does not justify an injunction imposing a continuing business relationship upon these parties.*fn12 More fundamentally, there is neither a finding nor evidence that plaintiff's termination was in any way connected to the "Mini Service" program. Accordingly, plaintiff's Robinson-Patman claim does not support the injunction entered by the district court.*fn13
Alternatively, plaintiff contends that his termination during a period of shortage will totally exclude him from the market and, therefore, violate § 2 of the Sherman Act. He characterizes the alleged violation as an attempt to monopolize, although presumably, if his theory were valid, as soon as the termination becomes effective, the attempt would ripen into a completed monopolization. Plaintiff's theory is not entirely clear, but apparently rests upon the premise that the competition which has heretofore existed between plaintiff and defendant in the sale of ARCO products in Lawrence County will be replaced by defendant's monopoly control of such sales after the termination becomes effective. It is first appropriate to identify the reasons why plaintiff's § 2 claim would be manifestly insufficient if there had been no shortage, and then to consider the relevance of the shortage.
Whether a complaint alleges monopolization or an attempt to monopolize, it is incumbent upon the plaintiff to define the relevant market in which the defendant's actions are to be appraised.*fn14 Since the statute has "both a geographical and distributive significance," Indiana Farmer's Guide Publishing Co. v. Prairie Farmer Publishing Co., 293 U.S. 268, 279, 79 L. Ed. 356, 55 S. Ct. 182, the market definition must include a description of both the territory encompassed and the product involved.*fn15
In this case plaintiff has not directly addressed the relevant market issue, but seems to assume that it consists of the sale of ARCO petroleum products in the Lawrence County area. That assumption is not supported by the evidence but is, in fact, contradicted by it. Plaintiff offered no evidence to prove that there are any legal or economic barriers to competition from areas immediately adjacent to Lawrence County. More significantly, there is no proof suggesting that ARCO products are in any way different from other brands of petroleum products available in Lawrence County. Even if we were to assume, without proof, that ARCO's gasoline or fuel oil is not a standardized commodity, either because of physical characteristics of the product or because advertising has enhanced its consumer acceptance, there is no evidence indicating the extent of its differentiation from other brands or the competitive significance of any such possible differentiation.*fn16 The only relevant evidence in the record proves that ARCO products are in active competition with other brands.*fn17 Under the kind of economic analysis employed by both the majority and the dissent in United States v. E. I. duPont de Nemours & Co., 351 U.S. 377, 100 L. Ed. 1264, 76 S. Ct. 994,*fn18 plaintiff clearly failed to prove that sales of ARCO petroleum products in Lawrence County, Indiana, constitute a relevant market.*fn19
Moreover, if we make the realistic assumption that the relevant market encompasses the sale of competing brands as well as ARCO products, plaintiff's evidence would place ARCO's position in the market far from the monopoly end of the spectrum that separates pure monopoly from pure competition. For the record indicates that at least 20 other suppliers of gasoline and oil sell in Lawrence County, and that ARCO's share of the business is less than 3% of the total.*fn20 There is no evidence that its share is growing, and certainly no basis for inferring any dangerous probability that it would ever approach monopoly proportions.*fn21 In sum, apart from the problem created by the shortage of petroleum, there is not even colorable support in the record for the conclusion that defendant is guilty of violating § 2 of the Sherman Act.
Plaintiff apparently contends that the shortage requires a different result in this case because alternative sources of supply were not in fact available to him and, therefore, the relevant market must be narrowly defined to include only ARCO products sold in the Lawrence County area. In appraising the legal significance of the shortage, we first review the evidence in the record and then consider whether taking judicial notice of the severity of the energy crisis which ensued would affect that analysis.
The supply available in any market may, of course, be affected by legal factors as well as purely economic factors. As far as this record discloses, at the time ARCO made its decision to cancel plaintiff's distributorship, there were no legal barriers to price changes, to changes in methods of distribution or to shifting custom from one seller to another or from one buyer to another. The record evidence of a shortage consisted merely of plaintiff's testimony that each of the 20 competitors of ARCO whom he approached would not supply him and, further, that ARCO's regional manager had told him that jobber contracts were not being renewed "because of the shortage of the product."*fn22
Nothing in this evidence would justify the conclusion that the relevant competitive market should be treated as including only ARCO products. It is entirely possible that all 20 of ARCO's competitors had valid reasons, unrelated to any shortage, for not wishing to establish business relations with plaintiff. If that should not be true, no reason is apparent from the record why he was not free to offer to pay a higher price, or to perform superior services, than existing distributors of competing brands of gasoline, and thereby to secure product from one of ARCO's competitors. Unquestionably, the constriction of supply would tend to force the price level to rise, but presumably ARCO and its 20-odd competitors would all be affected in a roughly comparable way. The fact that in such a market plaintiff might have to offer an unusually high price, or unusually favorable terms, in order to obtain a new source of supply, is not a reason for redefining the market to include less than all of the firms competing within it.
Accordingly, if we assume that the competitive market remained free of any artificial restraint, the mere fact that lesser quantities were available for sale at higher prices would not limit the number of alternative sources which might reasonably be available to any firm desiring to obtain or to retain a distributorship. Indeed, if anything, a significant increase in the price of the raw product would tend to diminish the significance of transportation costs, and thereby enlarge the geographical area in which distributors were effectively competing both in the purchase and in the sale of the product. Moreover, if the existence of a shortage required us to construe the Sherman Act as making an otherwise lawful substitution of one distributor for another illegal -- or even of doubtful legality -- the statute would have the anomalous effect of creating, rather than removing, restraints on competition during periods of short supply. For such a construction of the law might be the deciding factor which would cause another oil company to deny plaintiff the opportunity to replace a less efficient distributor. We are satisfied that nothing in plaintiff's evidence justifies a redefinition of the relevant market.
Realistically, we recognize that, during periods of acute shortage or national emergency, the free market is often restrained by regulatory controls. A variety of restrictions may preclude the price changes which normally occur in response to fluctuations in supply and which may in turn have their impact upon the flow of capital and, ultimately, output. Plaintiff may appropriately ask us to take judicial notice of the fact that, during the energy crisis, oil companies were not entirely free to adjust prices or to take on a new distributor simply because it would be good business to do so. Conceivably, therefore, emergency controls might either require ARCO to retain plaintiff as a distributor or, if his cancellation had already become effective, prevent any of ARCO's competitors from accepting him as an additional or as a substitute distributor. Accordingly, depending upon the impact of those controls, plaintiff might be in a position to argue that the relevant market should be narrowly defined to include only the product which is in fact available to him.
Although exceptional regulatory controls may significantly restrain competition within the relevant market, we do not believe they justify a redefinition of the market. For the various brands of gasoline would retain the physical characteristics that make them readily interchangeable for essentially the same uses. Indeed, such factors as advertising of particular brands, which tend to differentiate otherwise similar products, become less significant in times of shortage. Whether viewed from the standpoint of the ultimate consumer, or of a distributor such as plaintiff, it would be less important to obtain a particular kind of gasoline than to purchase any gasoline at all. The so-called "cross elasticity of demand" would tend to enlarge the relative product market as the competition among buyers of petroleum products becomes more intense.
The fact that an injury to a particular competitor may be unusually severe is not a justification for adopting a market definition which only considers the particular product line which he has previously sold or purchased. For in Sherman Act litigation we must adhere to the admonition that the statute is concerned "with the protection of competition, not competitors."*fn23 And whether the competition is more intense on the seller's or the buyer's side of the market, we may not arbitrarily segregate one brand from equally acceptable substitutes in order to protect a particular competitor from injury.
If the artificial restraints imposed by the government during a period of shortage make it appropriate to characterize ARCO as a monopolist for purposes of construing the Sherman Act, it would seem to follow that each of the 20 other oil companies, and perhaps each of the independent jobbers who sell to retail service stations in the same area, is equally a monopolist. For, conceivably, if the shortage is sufficiently acute, any one of those distributors might have the power -- assuming that no contract or regulatory objection interferes -- to discontinue sales to a retailer and, therefore, to put him completely out of business. If each such action were violative of § 2, the Sherman Act would, in effect, outlaw any change in existing patterns of distribution until after an acute shortage was ameliorated.
From a broad policy standpoint, perhaps such a temporary freeze would serve the public interest. Such a freeze might be an appropriate, even a necessary, counterpart to an emergency price control program. Historically, however, that kind of regulation of the economy has only been undertaken by a public agency pursuant to express legislative authorization. The Sherman Act has never been construed as a broad charter authorizing the judiciary to fashion such controls.*fn24 Quite the contrary, it is such regulation, when accomplished by private action, that the Sherman Act was specifically intended to prohibit. Certainly that statute should not be construed as an authorization to the judiciary to engage in the kind of economic regulation that the statute was designed to outlaw.*fn25
To the extent that the antitrust laws remain applicable in an industry which is partially regulated by the government, their office remains the same as in an industry which is totally unregulated.*fn26 Regulatory controls may limit price, either in maximum or minimum terms which the seller may charge; may require the continuation of service to unprofitable accounts; or may direct that products in short supply be allocated to essential or priority uses.*fn27 Such functions, however, are not properly performed by laws which are designed to eliminate restraints of trade.*fn28
We therefore conclude that, whether we just consider the evidence of shortage in the record, or whether we also take cognizance of the distortions that may be produced by emergency measures, the injury of which plaintiff complains is not remediable under the Sherman Act. That statute does not authorize the judiciary to supplement imperfect regulatory controls imposed by other branches of government.*fn29