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General Leaseways Inc. v. National Truck Leasing Association

September 19, 1984


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83 C 6731 -- Frank J. McGarr, Chief Judge.

Posner, and flaum, Circuit Judges, and Campbell, Senior District Judge.*fn*

Author: Posner

POSNER, Circuit Judge

The defendants in this antitrust suit appeal under 28 U.S.C. § 1292(a)(1) from the grant of a preliminary injunction to the plaintiff, General Leaseways, a company engaged in the business of leasing trucks. The principal (and to simplify this opinion we shall assume the only) defendant is an association of such firms, the National Truck Leasing Association, which decided to suspend General Leaseways indefinitely -- the practical equivalent of expelling it.

The roughly 130 members of the Association lease trucks to businesses on a "full service" basis. This means that the lessor rather than the lessee is responsible for maintaining the trucks and for repairing them if they break down. The leases are short term or long term, local or "over the road." The last of these terms, which means that the lessee may drive the truck anywhere in the country, is critical to this case. Over-the-road customers demand full service. The members of the Association, however, are local companies, none of which owns service facilities throughout the nation. The Association was created in order to set up and administer a reciprocal service arrangement that would enable each member to lease trucks on a full-service over-the-road basis and thus compete with the national truck-leasing companies, which have their own service depots all over the United States. The rules of the Association require each member to give the trucks of the other members prompt and efficient repair service; this is the reciprocal service arrangement. The rules do not regulate the price of the service.

Although reciprocal service is the Association's raison d'etre, the members also exchange information of a type normally exchanged through a trade association, engage in some other joint programs (including joint purchasing of fuel), and share a trademark owned by the Association, "NationaLease." But neither the Association nor its members advertise or otherwise promote the trademark extensively, and most members do not even use the mark in their business names.

If this were all there was to the Association, there would be no antitrust controversy. But there is more. Each member operates under a franchise from the Association that designates the particular location at which he may do business as a National franchisee and forbids him to do business as a National franchisee at any other location. The rules of the Association also forbid the franchisee to affiliate with any other full-service truck-leasing enterprise, such as Hertz or Avis. The significance of the location restriction and the nonaffiliation requirement lies in the fact that the markets for full-service commercial truck leases are local: the lessee invariably leases the truck from a firm having an outlet within a few miles (no more than 25) of the lessee's place of business. For short-term leases the inconvenience of sending the lessee's driver a longer distance to pick up the truck is decisive. For long-term leases the decisive factor is that regular maintenance (as distinct from emergency repair) is part of the full-service package and is therefore provided at the outlet from which the truck is rented. In either case one truck-leasing firm can compete with another only if it has a sales and service outlet near the other's. But the Association's policy is to space franchise locations 10 or (more commonly) 20 miles apart, so that franchisees will not be able to compete for many of the same customers. The franchisee can if he wants open an outlet at an unauthorized location under a different name, but trucks rented under that name would not be entitled to reciprocal service; and even if the member were willing to forgo that advantage, he still could not open an outlet under license from another full-service truck-leasing enterprise such as Hertz or Avis without being expelled from the Association. The overall effect of the Association's rules is thus to severely limit over-the-road leasing competition between members of the Association, since, to engage in such competition, a lessor that does not have its own national service network or access to that of a national company such as Hertz or Avis needs reciprocal service.

General Leaseways decided to defy the location and nonaffiliation restrictions, and it brought this suit to prevent the Association from expelling it for its infractions. The preliminary injunction orders the Association not to expel it pending the trial on the merits. The Association's appeal requires us to consider the standards for granting preliminary injunctions and the outer bounds of permissible cooperation among competitors under section 1 of the Sherman Act, 15 U.S.C. § 1.

The cases in this circuit usually say that a district judge asked to issue a preliminary injunction must consider four things: the harm (1) to the plaintiff and (2) to the defendant from the denial or grant of the injunction, respectively, (3) the likelihood of the plaintiff's prevailing on the merits when the case is tried, and (4) the effect on the public of granting or denying the preliminary injunction. The latest such decision is Libertarian Party v. Packard, 741 F.2d 981 , slip op. at 4-5 (7th Cir. 1984). But as explained in Roland Machinery Co. v. Dresser Industries, Inc. , 749 F.2d 380, slip op. at 13-15 (7th Cir. 1984), the heart of the four-factor test is a comparison of the likelihood, and the gravity, of two types of error: erroneously granting a preliminary injunction, and erroneously denying it. The likelihood of an error depends on the merits of the case as they appear from the preliminary-injunction hearing. If the plaintiff seems quite likely to win the case when it is tried, then the probability that granting the preliminary injunction will give him an undeserved benefit will seem small, and granting the injunction will be the decision that minimizes the likelihood of an error. If, moreover, the plaintiff will be hurt more by denial of the preliminary injunction than the defendant will be hurt by its grant, the gravity of the error in denying the preliminary injunction should it turn out later that the plaintiff was entitled to the injunction (there would of course be no error if it turned out he was not entitled) will clearly exceed that of erroneously granting it; and the disparity will be further magnified if the public as well as the plaintiff will be harmed by denying but not by granting the injunction. The hypothetical case we have just described is an easy one for granting a preliminary injunction. And it is this case.

Expulsion from the Association would force General Leaseways to cease doing business under the NationaLease name and, more important, would deny it the right to obtain prompt and efficient service from members of the Association. This would not wreck General Leaseways completely, because it has other franchises; and, in any event, if it wins the suit, it will be entitled to damages for the loss of business caused by its expulsion. But since its National franchises are a major part of General Leaseways' business, expulsion might be a grievous, though probably not a lethal, blow. Out of a total of 17 franchises under which General Leaseways does business, four are from National. We do not know what fraction of General Leaseways' business is done under them, but the difficulties of proving lost profits (on which see, e.g., Taylor v. Meirick, 712 F.2d 1112, 1119-22 (7th Cir. 1983), and Hayes v. Solomon, 597 F.2d 958, 976-77 (5th Cir. 1979)) make it chancy to rely on a damage award to provide full compensation even where as in this case a preliminary injunction is not necessary to keep the plaintiff afloat while the suit is proceeding toward final judgment.

The countervailing harm to the Association from being forced to clasp a viper to its breast during what may be the protracted period until final judgment is rendered must also be considered, see Jack Kahn Music Co. v. Baldwin Piano & Organ Co., 604 F.2d 755, 764 (2d Cir. 1979), but probably it is less than the harm to General Leaseways from being expelled. The principal thing the Association complains about is being forced to share confidential information with a firm whose expansion threatens to destroy the present balance among the Association's members. But the Association assures us that the information that members exchange under its auspices is the kind normally exchanged among members of a trade association, and is not so sensitive that it could significantly impair competition between General Leaseways and the other members -- if it were, the Association might stand condemned under other and clearer antitrust grounds than those advanced by General Leaseways. See United States v. United States Gypsum Co., 438 U.S. 422, 441 n. 16, 446 n. 22, 57 L. Ed. 2d 854, 98 S. Ct. 2864 (1978]A; Penne v. Greater Minneapolis Area Bd. of Realtors, 604 F.2d 1143, 1148 (8th Cir. 1979). It seems, then, that while the harm to General Leaseways if the preliminary injunction is denied is not of terminal gravity, the harm to the Association if the injunction is granted will, on the Association's own representations, be slight indeed.

Since the balance of harms strongly favors the grant of the preliminary injunction, it is not necessary for us to decide whether General Leaseways is certain or even highly likely to prevail at trial; it is enough that it has raised a substantial question on the merits. See, e.g., Roland Machinery Co. v. Dresser Industries, Inc., supra, slip op. at 12-14; American Hospital Ass'n v. Harris, 625 F.2d 1328, 1331 (7th Cir. 1980]A; Charlie's Girls, Inc. v. Revlon, Inc., 483 F.2d 953, 954 (2d Cir. 1973) (per curiam). Until a few years ago it would have been possible to opine confidently not only that General Leaseways had some chance of prevailing but that it had an overwhelming chance: that when firms in the same line of business agree not to enter each other's territories they violate section 1 of the Sherman Act even if they might be able to show that dividing markets had yielded economic benefits greater than any plausible estimate of the costs in diminished competition; that, in short, horizontal market divisions are illegal per se. See, e.g., United States v. Topco Associates, Inc., 405 U.S. 596, 608, 31 L. Ed. 2d 515, 92 S. Ct. 1126 (1972]A; United States v. Sealy, Inc., 388 U.S. 350, 356-57, 87 S. Ct. 1847, 18 L. Ed. 2d 1238 (1967]A; Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 95 L. Ed. 1199, 71 S. Ct. 971 (1951]A; United States v. Nationwide Trailer Rental System, Inc., 156 F. Supp. 800 (D. Kan.), aff'd without opinion, 355 U.S. 10, 2 L. Ed. 2d 20, 78 S. Ct. 11 (1957).

In both Sealy and Topco, a group of small competitors had divided markets on geographic lines as an incident to the sharing of a trademark, and the group argued that its market share was too small to make cartelization a palpable danger to competition or a plausible explanation of what it was doing. Apparently each group was just trying to prevent members from taking a free ride on other members' efforts to promote the trademark. And yet in both cases the market division was held to be a per se violation of section 1. In Sealy (as in Timken) the division of markets was coupled with price fixing, against which antitrust law has long come down very hard -- though, as we shall see, price fixing and division of markets have identical competitive effects. But Topco held that horizontal market division is illegal per se even if price fixing is not present. 405 U.S. at 609 at n. 9.

This case is even stronger for condemnation, because the free-rider argument made by National Truck Leasing Association is much weaker than the free-rider arguments in Sealy and Topco. A member of the Sealy group who promoted the Sealy trademark in his sales area by extensive (and expensive) advertising could not recoup his expenses by charging the people who saw his ads for the privilege of seeing them; virtually no one will pay to consume advertising. He could recoup only by selling his mattresses at a price that covered those expenses along with all his other costs. It is this form of recoupment that the free rider -- in Sealy, a manufacturer of mattresses under the same trademark who has not borne the expense of promoting the mark -- thwarts by invading the ...

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