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Parts and Electric Motors Inc. v. Sterling Electric Inc.

decided: December 1, 1988.

PARTS AND ELECTRIC MOTORS, INC., AN ILLINOIS CORPORATION, PLAINTIFF-APPELLEE,
v.
STERLING ELECTRIC, INC., A DELAWARE CORPORATION, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 83 C 2349 -- James F. Holderman, Judge.

Bauer, Chief Judge, Posner, and Coffey, Circuit Judges.

Author: Bauer

BAUER, Chief Judge.

This antitrust case is before us for the second time. See Parts and Electric Motors, Inc. v. Sterling Electric, Inc., 826 F.2d 712 (7th Cir. 1987) (hereinafter P & E I). In our view, it should not be. Here is why.

I.

As set forth in our first opinion, when A.O. Smith Corporation acquired defendant-appellant Sterling Electric, Inc. (Sterling) in May 1980, plaintiff-appellee Parts and Electric Motors, Inc. (P & E) was one of the largest of over four hundred nonexclusive wholesale distributors of Sterling electric motors and replacement parts, although it always carried and continues to carry a number of other brands of electric motors and/or parts. At that time, Sterling implemented a new distribution program, under which Sterling contracted with ten "stocking" parts distributors, including P & E, and a number of "referral" parts distributors. By agreement, stocking distributors were able to purchase Sterling parts at lower prices than referral distributors in return for purchasing and promoting minimum quantities of Sterling electric motors. Sterling thus conditioned its stocking distributors' rights to purchase Sterling parts upon their purchase of a quota of Sterling motors.

In the summer of 1982, Sterling warned P & E to buy more motors or risk termination of its right to buy both Sterling motors and parts. In response, P & E began steering customers toward Sterling motors even though, absent Sterling's warning, it would have recommended other brands. Although P & E boosted its purchases of Sterling motors somewhat in June and August of 1982, Sterling terminated P & E the following October because it regarded P & E's level of Sterling motor purchases as insufficient.

On April 4, 1983, P & E filed this action, charging that Sterling had violated section 1 of the Sherman Act, 15 U.S.C. § 1, and section 3 of the Clayton Act, 15 U.S.C. § 14, by tying sales of its electric motors (the "tied" product) to sales of its replacement parts (the "tying" product). After a trial in which P & E presented evidence with respect to the elements of a per se as well as a rule-of-reason tying claim, the jury returned a verdict for P & E. According to its answers to special interrogatories, the jury found that P & E had proved all the elements of its per se claim and, in addition, that Sterling's conduct amounted to an unreasonable restraint of trade. The jury fixed P & E's damages at $1,231,992, which amount was trebled to $3,695,976.

Sterling filed an alternative motion for a judgment notwithstanding the verdict or for a new trial, arguing, inter alia, that "even if the Sterling distribution program were a tying arrangement, plaintiff has failed to demonstrate the requisite anticompetitive impact on the relevant market." On April 14, 1986, the district court set aside the jury's verdict for P & E, granted Sterling's motion for judgment n.o.v., and granted conditionally Sterling's motion for a new trial contingent upon reversal of the judgment n.o.v. The district court held that the case "should not have been submitted to the jury because, among other things, the evidence clearly shows that P & E failed to satisfy the threshold criterion 'that the tying seller [Sterling] will acquire market power in the tied product [electric motor] market.'" In doing so, the district court relied upon Will v. Comprehensive Accounting Corp., 776 F.2d 665, 674 (7th Cir. 1985) (quoting Carl Sandburg Village Condominium Ass'n No. 1 v. First Condominium Dev. Co., 758 F.2d 203, 210 (7th Cir. 1985)), cert. denied, 475 U.S. 1129 (1986), an opinion we issued after the jury returned its verdict and judgment was entered in this case, and after Sterling filed its alternative motion for judgment n.o.v. or for a new trial.

P & E appealed from the district court's ruling, which brings us to our opinion in P & E I, in which the panel held initially that "even if a substantial threat of market power in the tied product is an essential element of a tying case, this point was not raised and preserved in the trial court for purposes of the judgment n.o.v." Id. at 717. The same was true with respect to the conditional grant of a new trial, the panel held, noting that "the district court conditionally granted the new trial based on a legal theory that Sterling had failed to raise at trial" and that "even if Sterling should be correct in its current view of the tied market power issue, it cannot obtain a new trial based on a legal issue that it failed to raise at trial." Id. The panel refused to take the extraordinary action of ordering a new trial on grounds not properly preserved because the "district court's failure to instruct the jury that market power in the new motor market was an essential element of the claim against Sterling was not plain error," and because it was not unfair to require Sterling "to live with the theory it presented at trial." Id. at 718. To the extent the district court's conditional grant of the new trial relied on the tied market power argument, therefore, it had to be reversed. Id.

The P & E I panel next considered Sterling's alternative arguments in support of the judgment n.o.v. and the conditional grant of a new trial. Id. Two of Sterling's alternative contentions are relevant here: (1) that there was no proof of market power in the tying product market; and (2) that there was no proof of any foreclosure of competition in the tied product market. Id. The panel first considered and rejected these alternative contentions as potential support for the judgment n.o.v. It then concluded that, under the instructions given, these same arguments did not provide alternative grounds for a new trial, and fashioned its mandate to the district court as follows:

In this case . . . the district court has not stated that the jury's verdict was contrary to the weight of the evidence when assessed against the instructions that guided the jury's deliberations. Moreover, the record, viewed from our comparatively remote vantage point, reveals no such imbalance. Nevertheless, we are reluctant to ignore the possibility that the district court perceived such an imbalance but declined to discuss it in the belief that Sterling's tied market power argument obviated the need to elaborate on these "other things." We will therefore remand the retrial order for clarification on this point. If the conditional retrial order rested solely on the stated grounds, judgment will be entered for P & E. If, on the other hand, the district court also believed, based on some previously unstated but substantial and defensible grounds, that the manifest weight of the evidence favored Sterling when assessed against the instructions under which the jury deliberated, then the court may proceed with the new trial.

Id. at 722.

The district court on remand provided the "clarification" the P & E I panel requested. After "review[ing] the record and the positions presented by the parties," the district court held that "the jury's verdict was not against the manifest weight of the evidence when assessed in the light of the instructions that guided the jury's deliberations." ...


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