12(N)(3)(b) Reply P 12. Plaintiff's expert concedes that Parts Unlimited, by itself, does not possess market power. Id.
F. Combined Market Share
For the years 1990-1994, Tucker/Rocky and Parts Unlimited, combined, held the following market share:
Table 6. Dunlop Motorcycle Tire Sales to
Select Distributors, 1990-94
T/R & PU 1990 1991 1992 1993 1994
Subtotal 44.2 51.1 51.9 67.9 61.4
12(N)(3)(b) Reply P 12. This data establishes that Tucker/Rocky and Parts Unlimited's combined market share at the end of 1993 rose by 16 percent, dropping off in 1994, but remaining 9.5 percent higher than their combined 1992 market share. The combined market share of Dunlop and Metzeler is currently about 85 percent. 12(N)(3)(b) Reply P 11.
G. The Economic Experts
Nichols has retained an economist, Dr. John Pisarkiewicz, as an expert to perform several tasks in this litigation. 12(M) PP 21, 196. Raymond S. Sims is a Vice President at A.T. Kearney, Inc., in Chicago, Illinois. He has been retained as an expert in this case by Dunlop. 12(M) P 201. The defendants also offer Professor David T. Sheffman, who has produced a report entitled "Trends in the Motorcycle Industry 1985-1993," which indicates that the number of motorcycle dealers selling motorcycles and other related products dropped from 12,953 to 9,264 from 1985 to 1993. The number of real dollars (per million) from these sales, according to this report, also dropped from $ 1,671 to $ 1,247 during that time period. DX 70.
II. The Antitrust Conspiracy Claims
A. The Sherman Act § 1
In Counts I, II, and III, plaintiff broadly alleges that the defendants unreasonably restrained trade by forming an illegal conspiracy to terminate smaller discounting distributors, like Nichols, to consolidate the market and implement an agreement to raise and stabilize resale dealer prices for Dunlop tires in violation of section 1 of the Sherman Antitrust Act. 12(N)(3)(b) P 12.
In particular, Nichols claims that Dunlop, Tucker/Rocky and Parts Unlimited performed vertical and horizontal combinations.
Section 1 states: "Every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States . . . is declared to be illegal." 15 U.S.C. § 1 (1995). According to the statute, a plaintiff claiming a section 1 violation must establish a combination or some form of concerted action between at least two legally distinct economic entities. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984). Under well-established principles of antitrust law, unilateral conduct ("independent action") by a single person or enterprise falls outside the scope of this provision. Monsanto Co. v. Spray Rite Serv. Corp., 465 U.S. 752, 761, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1984)(citing United States v. Colgate, 250 U.S. 300, 307, 63 L. Ed. 992, 39 S. Ct. 465 (1919)).
Whether an unlawful conspiracy or combination exists should be judged by what the parties actually did rather than by the words they used. See United States v. Parke, Davis & Co., 362 U.S. 29, 44, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960) (citing Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S. 600, 612, 58 L. Ed. 1490, 34 S. Ct. 951 (1914); see also United States v. General Motors Corp., 384 U.S. 127, 142, 16 L. Ed. 2d 415, 86 S. Ct. 1321 (1966) (holding explicit agreement is not a necessary part of a Sherman Act conspiracy where joint and collaborative effort is pervasive). Once a plaintiff establishes the existence of an illegal contract, combination or conspiracy ("an agreement"), it must then proceed to demonstrate that the agreement constituted an unreasonable (and therefore illegal) restraint of trade under either the per se rule or the rule of reason. The nature of the restraint (e.g., vertical price restraint, vertical nonprice restraint, horizontal price restraint etc.) determines which rule must be applied. See Denny's Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217, 1220 (7th Cir. 1993). The per se claims will be addressed first.
1. Count I: Per Se Violations
In Count I, plaintiff alleges that the defendants participated in a vertical and a horizontal conspiracy to fix prices in violation of section 1 of the Sherman Act. The plaintiff's theory in Count I is that these agreements were illegal per se. In particular, plaintiffs theory is that Dunlop, together with its two largest distributors, Tucker/Rocky and Parts Unlimited, conspired to terminate smaller discounting distributors, like Nichols, to consolidate their market share and implement an illegal agreement to raise and stabilize resale dealer prices for Dunlop motorcycle tires. There are two agreements under this theory: an agreement to terminate Nichols (because it was a discounter) and an agreement to fix prices. Plaintiff defines these agreements as both horizontal (between the two defendant distributors) and vertical (between Dunlop, Tucker/Rocky and Parts Unlimited) and admits that the proof of these conspiracies "tends to blend together." Transcript at 26. A review of the plaintiff's proof follows a short discussion of the applicable legal principles.
a. Legal Standards
Conduct a considered illegal per se is limited to cases where a defendant's actions are so plainly harmful to competition, Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724, 99 L. Ed. 2d 808, 108 S. Ct. 1515 (1988), that they are presumed illegal and the need for further proof of anticompetitive impact is unnecessary.
Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 109 L. Ed. 2d 333, 110 S. Ct. 1884 (1990); Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49-50, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977). Per se cases include horizontal and vertical price fixing agreements and certain types of group boycotts. See Capital Imaging v. Mohawk Valley Medical Assoc., 996 F.2d 537, 542-43 (2d Cir. 1993) (listing the types of per se violations recognized by the Supreme Court). Price-fixing agreements need not include an "explicit agreement on prices to be charged or that one party have the right to be consulted about the other's prices." Denny's Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1221 (7th Cir. 1993)(citing cases). Rather, price-fixing agreements need only have been formed for the purpose and effect of fixing or stabilizing the price of a product in interstate commerce.
Id. Tacit agreements are therefore actionable if they can be shown to exist. 6 P. Areeda, Antitrust Law § 1410 at 66 (1986).
An agreement that is illegal per se under section 1 is difficult to prove. Much like Title VII cases, the antitrust analysis proceeds in stages because it involves shifting burdens that lead to an ultimate burden of proof which is extremely difficult for a plaintiff to satisfy.
Market Force Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1171 (7th Cir. 1990). The Seventh Circuit has articulated a burden shifting formula: "when the defendants establish that their conduct is consistent with independent action, the plaintiffs are required to come forward with evidence tending to exclude the possibility of independent action." Id. If the plaintiff's evidence of a conspiracy is ambiguous, ( i.e., is as consistent with the defendant's permissible independent interests, then the case may not proceed to a jury). Id. Conversely, the case may proceed if the plaintiff can demonstrate, through specific evidence, that the "inference of conspiracy to fix prices is reasonable in light of the competing inference of independent action." Id. at 1171 (quoting Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 660-61 (7th Cir.), cert. denied, 484 U.S. 977, 98 L. Ed. 2d 486, 108 S. Ct. 488 (1987)).
These Seventh Circuit standards have been derived from the specific standards set out by the Supreme Court in Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1983). In Matsushita, the Supreme Court granted certiorari to articulate the standard that district courts must apply when deciding a motion for summary judgment in an antitrust conspiracy case. In Monsanto, the Court granted certiorari to articulate the standard of proof required to find a vertical price-fixing conspiracy in violation of section 1 of the Sherman Act. These two cases establish the legal parameters for this Court's decision.
In Monsanto, Justice Powell, writing for the Supreme Court, found that the plaintiff presented sufficient evidence of an agreement to terminate a distributor, pursuant to a vertical price-fixing conspiracy between a manufacturer and a large distributor, to create a jury issue. In reaching this conclusion, the Court articulated the proper standard to be applied to section 1 claims like the one before us. The Court also outlined several important distinctions that are worth repeating here because they address the very heart of this case:
This Court has drawn two important distinctions that are at the center of this and any other distributor-termination case. First, there is the basic distinction between concerted and independent action -- a distinction not always clearly drawn by the parties and the courts. Section 1 of the Sherman Act requires that there be a "contract, combination . . . or conspiracy" between the manufacturer and other distributors in order to establish a violation. 15 U.S.C. § 1. Independent action is not proscribed. A manufacturer of course generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently. United States v. Colgate & Co., 250 U.S. 300, 307, 63 L. Ed. 992, 39 S. Ct. 465 (1919); cf. United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960). Under Colgate, the manufacturer can announce its resale prices in advance and refuse to deal with those who fail to comply. And a distributor is free to acquiesce in the manufacturer's demand in order to avoid termination. The second important distinction in distributor-termination cases is that between concerted action to set prices and concerted action on nonprice restrictions. The former have been per se illegal since the early years of national antitrust enforcement. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-409, 55 L. Ed. 502, 31 S. Ct. 376 (1911). The latter are judged under the rule of reason, which requires a weighing of the relevant circumstances of a case to decide whether a restrictive practice constitutes an unreasonable restraint on competition. See Continental T.V. Inc. v. GTE Sylvania Inc., 433 U.S. 36, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977).