Spectators' Communication Network Inc. v. Colonial Country Club

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
______________________

No. 98-11453
______________________

SPECTATORS' COMMUNICATION NETWORK
INC.; FRANK L. MITCHELL, Plaintiffs - Appellants,

versus

COLONIAL COUNTRY CLUB; ET AL., Defendants,

ANHEUSER-BUSCH, INC., Defendant - Appellee.

_________________________________________________________________
__

Appeal from the United States District Court for the
Northern District of Texas
_________________________________________________________________
__

May 31, 2001

Before POLITZ, GIBSON,* and HIGGINBOTHAM, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Spectators' Communication Network and its owner, Frank

Mitchell,1 appeal from the summary judgment entered in favor of

Anheuser-Busch, Inc., the only remaining defendant in their

antitrust suit alleging that Spectators' was excluded from

broadcasting professional golf tournaments. Spectators' contends

*
Circuit Judge of the Eighth Circuit, sitting by
designation.
1
We will refer to Spectators' and Mitchell collectively as
Spectators'.

1
that the PGA and the other defendants organized a group boycott

of Spectators' in order to put it out of business. We conclude

that Spectators' made an adequate showing of an antitrust

conspiracy that makes economic sense. Although Spectators' has

not shown a horizontal boycott that would constitute a per se

violation of the Sherman Act, it should be allowed the chance to

prove its case under the rule of reason. We therefore reverse

the entry of summary judgment for Anheuser-Busch on Spectators's

antitrust claim. However, we affirm the district court's entry

of judgment for Anheuser-Busch on Spectators's state law claims.

Spectators' pioneered the use of on-site radio broadcasting

at professional golf tournaments. Because golf fans at a

tournament can only see a small part of the action going on at

any time, Spectators' began to report events taking place at

other locations at the tournament. Broadcasts were available

only on the golf course and were transmitted through special low-

frequency radios. Spectators' made money by selling advertising

rights for on-air commercials and for logos which were placed on

the special radios.

The world of professional golf, in which Spectators'

operates, consists of several tiers of interests that figure in

this case. At the top is the Professional Golf Association, or

PGA, which controls the golfers through contracts that restrict

the golfers from playing in non-PGA events if they wish to remain

2
on the PGA Tour.

The second tier of interests is composed of the sponsors,

which in turn consist of two classes: "tournament sponsors," who

organize and conduct the tournament as co-sponsors with the PGA,

typically to raise money for local charities; and "corporate

sponsors," who support the Tour tournaments financially in

exchange for publicity. The sponsors were associated in an

organization called American Golf Sponsors, which included NEC,

K-Mart and Anheuser-Busch, all of whom were corporate sponsors of

tournaments. Through a standard Sponsor Agreement, the PGA

required the tournament sponsors to transfer all media rights,

including television and radio broadcast rights, to the PGA and

to give the PGA veto power over any radio broadcasting equipment

that would be placed on the golf course.

The third tier of interests consists of Spectators' and its

competitors in the on-site broadcasting business. Eventually,

the PGA took over the on-site broadcasting niche itself,

arranging to have the Tour events broadcast by Vanguard

International, LLC, broadcasting as the "PGA Tour Radio Network."

Spectators' contends that the relevant market is the market

for on-site advertising at golf tournaments. According to

Spectators', this market is not interchangeable with other kinds

of sports advertising because of the unusually desirable

demographic characteristics of the people who attend golf

3
tournaments, in that the spectators are affluent, highly

educated, and busy.

From 1986 to 1990, Spectators' dealt directly with the PGA,

which reserved the right to "exercise extensive controls" and to

charge Spectators' a fee for the privilege of broadcasting.

Their relationship ended in 1990, and Spectators' sued the PGA.

In the summer of 1991, the PGA gave Spectators' permission to

enter broadcasting deals with the sponsors of individual

tournaments. That fall Spectators' and Anheuser-Busch entered a

contract for Spectators' to broadcast sporting events as the

"Budweiser Spectators Network," which involved advertising

Anheuser-Busch products on-air and putting Anheuser-Busch logos

on the Spectators' radios at one golf tournament, a car race, and

a tennis match. In November 1992, Anheuser-Busch confirmed by

letter that it had agreed with Spectators' to sponsor the

broadcast of seven unspecified events in 1993, with a formal

contract to be drafted later. In April 1993, Anheuser-Busch and

Spectators' entered a contract for advertising in connection with

broadcasts at three golf tournaments: the K-Mart Greater

Greensboro Open, the Anheuser-Busch Classic, and the NEC World

Championship. Spectators' completed the first two broadcasts,

but was unable to do the third because the sponsor, NEC, refused

to permit Spectators' to broadcast from the golf course. Frank

Mitchell, the owner of Spectators', testified in an affidavit

that he learned from Barbara Burdick, an employee of NEC, that

4
NEC had "succumbed" to the PGA's requests not to allow

Spectators' to broadcast the NEC tournament. Similarly, Mitchell

testified that in the fall of 1993, a representative of the K-

Mart Greater Greensboro Open told him that the PGA would not

allow the Greensboro tournament or other tournaments to let

Spectators' broadcast at their tournaments.

Beginning in July 1993, Mitchell tape recorded several

conversations with Anheuser-Busch's David Brunette in which

Brunette said that Anheuser-Busch was under pressure from the PGA

not to use Spectators':

You know, so I don't know, I mean they [the PGA Tour]
don't want to give you, they don't mind if we do them
[on-site broadcasts,] but they don't want us using you.
. . .

The gist of these conversations was that the PGA, and in

particular, Gary Stevenson of the PGA, was hostile to Spectators'

because of Spectators's lawsuit against the PGA and that the PGA

would try to prevent Anheuser-Busch from working with

Spectators'. For instance, Brunette reported:

[I]t's just that obviously, the PGA's just concerned
about the fact that you know we're trying to deal with
you and at the same time you're suing them. It's
something that they have to grant us. We want to have
the rights to do this and if they're not willing to
grant us those rights, uh, you know, you've got
somewhat of a battle if you start trying to do these
things. . . . I mean, they're just pretty adamant
about the fact that they don't, they're not very happy
with what's going on and they don't cherish the fact
that we'd be working with you, but that still doesn't
have anything to do with the fact that the funding is
tight.

5
 Spectators' contends that the PGA also made concessions in

other aspects of its regulation of tournaments to persuade

Anheuser-Busch not to deal with Spectators'. Spectators contends

that the PGA previously had in place a "no alcohol" policy;

though the extent of such a policy is unclear, at the least the

PGA Commissioner limited the advertising of alcoholic products in

connection with the Tour. On September 22, 1993, Anheuser-Busch

representatives met with the PGA's Gary Stevenson and Leo

McCullagh. They reached an agreement on an extensive program

called the "Michelob 19th Hole" program, which involved Anheuser-

Busch becoming a sponsor of the Tour Championship, advertising

during golf events on television, using the PGA's logo in product

promotions, and maintaining a "19th Hole" pavilion, a mobile

exhibit that included substantial advertising at the tournament

site. Shortly after this meeting, Anheuser-Busch wrote

Spectators', cancelling the April 1993 contract.

Eventually, Anheuser-Busch's Michelob beer became the

"official beer" of the PGA Tour.

Spectators' brought this suit against Colonial Country Club,

NEC, K-Mart, American Golf Sponsors, Anheuser-Busch and the PGA

Tour and its employee, Stevenson. The complaint alleged state

commercial law and federal antitrust claims, in particular, that

the defendants had engaged in a conspiracy to restrain trade in

the market for professional golf tournament on-site advertising

services.

6
 Eventually, all the defendants except Anheuser-Busch were

dismissed, either by the court or pursuant to agreements with the

plaintiffs. Anheuser-Busch moved for summary judgment, which the

district court granted. The court held that Spectators' failed

to perform its obligation under the 1993 contract to broadcast

the NEC tournament and therefore could not bring an action to

enforce the contract. The court held that the plaintiffs' claim

for civil conspiracy under Texas law failed for lack of evidence

of conspiracy or any unlawful overt acts pursuant to the alleged

conspiracy. As for the antitrust conspiracy, the court rejected

Spectators's group boycott theory. The court held that the

evidence did not show Anheuser-Busch had entered a combination

with the intent to restrain competition in the market for

advertising, and, in fact, such a claim would be nonsensical,

since Anheuser-Busch would not rationally act to cause injury to

purchasers of advertising, a class which includes Anheuser-Busch

itself. The court concluded that no anticompetitive combination

was shown by evidence that PGA conditioned the 19th Hole package

on Anheuser-Busch's discontinuation of business with Spectators':

"At best, Plaintiffs raise a fact issue regarding whether

[Anheuser-Busch] decided not to engage in further business

relations with [Spectators'] because it desired to engage in more

lucrative business relations with others, and was concerned that

its chances of securing the latter might be hampered by the

former."(emphasis added). The court held that Spectators'

7
evidence showed nothing more than competitive behavior by the

defendants, and therefore Spectators' was injured by too much

competition, not too little.

I.

We review the grant of summary judgment de novo. See Stewart

Glass & Mirror, Inc. v. U.S. Auto Glass Discount Centers, Inc., 200

F.3d 307, 312 (5th Cir. 2000). Summary judgment is appropriate

when there are no genuine issues of material fact and the movant is

entitled to entry of judgment as a matter of law. See id. The

party opposing the summary judgment motion must do more than show

there is some metaphysical doubt as to the material facts. See

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986).

Under section 1 of the Sherman Act, 15 U.S.C. § 1 (1994), the

substantive law limits the range of permissible inferences from

ambiguous evidence. See Matsushita, 475 U.S. at 588. In

particular, courts will not draw inferences to support a claim that

makes no economic sense; such a claim will require unusually

persuasive evidence to withstand summary judgment. See id. at 587,

596-98. Rational economic actors do not ordinarily conspire to

injure themselves.

Spectators' claims that the PGA combined with Anheuser-Busch

and other tournament sponsors to freeze Spectators' out of the

advertising market so that the PGA could appropriate Spectators's

8
business for itself. According to Spectators', the PGA

accomplished this both by coercion and by enticement. The PGA

could coerce the sponsors by invoking rights in its sponsorship

contracts giving the PGA the power to control broadcasts of PGA

Tour tournaments. The enticement took the form of changing the

existing PGA policies about alcohol-related advertising so that

Anheuser-Busch could purchase advertising opportunities, such as

the 19th Hole program, directly from the PGA. According to

Spectators', this concession was conditioned upon Anheuser-Busch

not using Spectators' for on-site broadcasts.

A claim under section 1 of the Sherman Act requires proof of

three elements: that the defendant (1)engaged in a conspiracy (2)

that restrained trade (3) in a particular market. See Stewart

Glass, 200 F.3d at 312. To prove conspiracy or "concerted action,"

the plaintiff must prove that the conspirators had a "conscious

commitment to a common scheme designed to achieve an unlawful

objective." Monsanto Co. v. Spray-Rite Serv. Corp, 465 U.S. 752,

768 (1984).

The district court held, and Anheuser-Busch argues, that there

was not sufficient evidence of a combination or conspiracy, because

it would have been irrational for Anheuser-Busch to conspire to

restrain competition in a market in which it was a purchaser:

As a consumer of on-site advertising at professional
golf tournaments, [Anheuser-Busch] has no economic
incentive to reduce competition in the market because
doing so would bring about its own economic harm. "[A]
theory of liability attributing irrationality to

9
 consumers does not get very far." Indeed, where an
antitrust claim simply makes no economic sense, more
persuasive evidence is required than would otherwise be
necessary. Plaintiffs fail to provide such evidence.

Slip op. at 27-28 (internal citations omitted).

By reasoning that a consumer would never wish to bring about

a restraint of trade in the market where it buys, the district

court has ignored salient facts of this case: Spectators' contends

that Anheuser-Busch was both coerced and enticed to comply with

the PGA's wishes. Though in the abstract Anheuser-Busch would have

nothing to gain from freezing a competitor out of the on-site

broadcasting market, in the actual case at hand, Spectators'

alleges that the PGA made it worth Anheuser-Busch's while to

cooperate, by opening up the new opportunity to advertise through

the 19th Hole exhibit and the designation of Michelob as the

official beer of the PGA tournament on the condition that Anheuser-

Busch not do business with Spectators'. Additionally, Spectators'

alleges that the PGA coerced Anheuser-Busch to boycott Spectators'

by exercising its contractual power to control radio broadcasts of

Tour events.

Antitrust law has never required identical motives among

conspirators, and even reluctant participants have been held liable

for conspiracy. In United States v. Paramount Pictures, Inc., 334

U.S. 131, 161 (1948), the Supreme Court refused to distinguish

between conspirators who fomented the conspiracy and those who only

participated because they were coerced:

10
 There is some suggestion . . . that large exhibitors with
whom defendants dealt fathered the illegal practices and
forced them onto the defendants. But as the District
Court observed, that circumstance if true does not help
the defendants. For acquiescence in an illegal scheme is
as much a violation of the Sherman Act as the creation
and promotion of one.

The Supreme Court describes group boycotts as "joint efforts

by a firm or firms to disadvantage competitors by 'either directly

denying or persuading or coercing suppliers or customers to deny

relationships the competitors need in the competitive struggle."

Northwest Wholesale Stationers, Inc. v. Pacific Stationery and

Printing Co., 472 U.S. 284, 294 (1985) (internal quotation omitted)

(emphasis added). This description implicitly recognizes that an

integral part of a boycott is often bringing pressure to bear

("persuading or coercing") on other participants who have no direct

motive to restrain trade. Conspirators who are not competitors of

the victim may have no interest in curtailing competition in a

market in which they do not compete; nevertheless, when they have

been enticed or coerced to share in an anticompetitive scheme,

there is still a combination within the meaning of the Sherman Act.

The Third Circuit rejected the idea that parties to a

conspiracy must share an identical anti-competitive motive in

Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 212 (3d

Cir. 1992). The court held that where an otherwise disinterested

party had some interest in the ringleader's economic success, the

conspiracy could make economic sense. In Fineman, a flooring

manufacturer, which wished to develop its own video program,

11
convinced a wholesaler not to deal with a company that developed a

"video magazine" to be used as a sales aid in the flooring

business. The video magazine company sued the manufacturer on a

vertical boycott theory. The manufacturer argued that there was no

illegal combination because the wholesaler did not compete with the

video magazine company and therefore had no interest in eliminating

it as a competitor of the manufacturer. The district court granted

the manufacturer a directed verdict on this theory. The Third

Circuit reversed, saying:

We conclude that the district court's novel approach is
misplaced as it renders section 1 claims unavailable to
private litigants suffering antitrust injury as a result
of concerted action in a vertical matrix. Such a
restrictive rule fails to recognize the difference
between motive and objective and would dramatically alter
the antitrust landscape in a manner unjustified by either
precedent or policy considerations. . . . A rational
factfinder could infer agreement with the objective from
knowledge of the objective and action calculated to
achieve the objective despite differing motives.

Id. at 212. Although the wholesaler did not act from the same

motive as the manufacturer, that did not mean that it had no motive

to conspire. Rather, its motive derived from its relationship with

the manufacturer: "Because [the wholesaler] relied upon sales of

[the manufacturer's] products for 90 percent of its gross revenues,

however, it would naturally perceive that that which is in [the

manufacturer's] interest also inures to [the wholesaler's own]

benefit." Id. at 212-13. Accord Full Draw Productions v. Easton

Sports, Inc., 182 F.3d 745, 751 (10th Cir. 1999) (boycott by

customers against supplier could make economic sense because

12
customers controlled competing supplier).

Another way a ringleader can persuade a vertically aligned

actor to boycott the ringleader's competitor is by coercion. In

MCM Partners, Inc. v. Andrews-Bartlett & Associates, Inc., 62 F.3d

967 (7th Cir. 1995), two exhibition contractors refused to rent

equipment from MCM because of "threats of labor disruption by a

union official in cahoots with the would-be monopolist," id. at

972, a competitor of MCM. The effect of the exhibitors'

acquiescence to the coercion was to raise the price they had to pay

for the equipment, obviously not a result they would have chosen in

the absence of the threat. See id. at 971. MCM sued the

exhibitors for participating in a vertical boycott. The exhibitors

argued in their defense that they had only participated because of

coercion. The Seventh Circuit rejected the coercion defense,

concluding that "the 'combination or conspiracy' element of a

section 1 violation is not negated by the fact that one or more of

the co-conspirators acted unwillingly, reluctantly, or only in

response to coercion." Id. at 973. "So long as defendants knew

that they were acquiescing in conduct that was in all likelihood

unlawful, we have no difficulty concluding that they thereby joined

a combination or conspiracy for which they can be held accountable

under section 1." Id. at 975.

The Tenth Circuit applied similar reasoning to a tying case in

Systemcare, Inc. v. Wang Laboratories Corp., 117 F.3d 1137 (10th

Cir. 1997) (en banc). There, the court held that a combination

13
arose when a buyer made a coerced purchase forced on it by a seller

engaged in tying. Judge Tacha reasoned that when a buyer accedes

to the anticompetitive demands of a seller foisting an unwanted

product on him, it deprives the market of "independent centers of

decisionmaking," which is just what the concerted action

requirement of section 1 exists to prevent. Id. at 1143. Accord

Datagate, Inc. v. Hewlett-Packard Co., 60 F.3d 1421, 1426-27 (9th

Cir. 1995); Will v. Comprehensive Accounting Corp., 776 F.2d 665,

670 (7th Cir. 1985).

Applying these precedents, we conclude that there can be

sufficient evidence of a combination or conspiracy when one

conspirator lacks a direct interest in precluding competition, but

is enticed or coerced into knowingly curtailing competition by

another conspirator who has an anticompetitive motive. So even

though it was not directly in Anheuser-Busch's interest to

eliminate competition in the market for on-site advertising at

tournaments, other facts in this record made it economically

plausible for Anheuser-Busch to participate in a combination

fomented by the PGA.

Accordingly, the district court erred when it held that

Spectators' had not shown concerted action because its allegations

were not economically plausible.

II.

Even though Spectators' has established a case for concerted

14
action, the question remains whether the combination alleged was a

restraint of trade, or more precisely, an unreasonable restraint of

trade. See Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284, 289 (1985). If

Spectators' cannot prove an unreasonable restraint of trade, it

would be futile for us to remand the antitrust claim.

We assess whether a combination restrains trade unreasonably

by use of the "rule of reason," weighing all the circumstances of

the case, see Business Electronics Corp. v. Sharp Electronics

Corp., 485 U.S. 717, 723 (1988), unless the combination falls

within one of the categories of per se unreasonableness--conduct so

pernicious and devoid of redeeming virtue that it is condemned

without inquiry into the effect on the market in the particular

case at hand. See Northwest Stationers, 472 U.S. at 289.

Spectators' characterizes the combination as a "group boycott"

that was per se illegal. Some group boycotts fall into the

category of per se section 1 violations, but not all. "Exactly

what types of activity fall within the forbidden category is . . .

far from certain. '[T]here is more confusion about the scope and

operation of the per se rule against group boycotts than in

reference to any other aspect of the per se doctrine.'" Id. at 294

(quoting L. Sullivan, Law of Antitrust 229-30 (1977)).

Although the distinction between boycotts that are per se

illegal and those judged by the rule of reason is often a vexing

15
one, one rule is clear: only horizontal2 boycotts can be per se

violations of the Sherman Act. "[A]ntitrust law does not permit

the application of the per se rule in the boycott context in the

absence of a horizontal agreement, though in other contexts, say

vertical price fixing, conduct may fall within the scope of a per

se rule not at issue here." NYNEX Corp. v. Discon, Inc., 525 U.S.

128, 138 (1998); accord Sharp, 485 U.S. at 735-36 (vertical

restraint not per se illegal unless it includes agreement on price

or price levels). Thus, in order to bring its boycott claim within

the per se rule, Spectators' must point to a horizontal conspiracy,

in other words, a conspiracy between competitors, rather than a

vertical conspiracy between firms at different levels of

distribution. See Sharp Electronics, 485 U.S. at 730 and n.4

(explaining distinction between horizontal agreement and vertical

agreement with horizontal effects); Nova Designs, Inc. v. Scuba

Retailers Ass'n, 202 F.3d 1088, 1092 (9th Cir. 2000) (where only

parties to agreement are not competitors of each other, no

horizontal boycott).

To make a per se case, the horizontal agreement need not be

between competitors of the victim. In Klor's, Inc. v. Broadway-

Hale Stores, Inc., 359 U.S. 207 (1959), a boycott arranged by a

2
"Restraints imposed by agreement between competitors have
traditionally been denominated as horizontal restraints, and
those imposed by agreement between firms at different levels of
distribution as vertical restraints." Business Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717, 730 (1988).

16
single competitor of the victim retailer, but carried out by a

"wide combination" consisting of manufacturers and distributors, as

well as the competing retailer, led to per se liability. Id. at

212-13. NYNEX harmonized Klor's with its rule limiting per se

analysis to horizontal boycotts: "Although Klor's involved a

threat made by a single powerful firm, it also involved a

horizontal agreement among those threatened, namely, the appliance

suppliers, to hurt a competitor of the retailer who made the

threat." 525 U.S. at 135. Cf. Northwest Stationers, 472 U.S. at

294 (per se liability applied to "efforts by a firm or firms to

disadvantage competitors by either directly denying or persuading

or coercing suppliers or customers to deny relationships the

competitors need in the competitive struggle.")(internal quotations

omitted and emphasis added).

Spectators' relies on a theory of per se liability, but its

arguments are inconsistent with NYNEX. Spectators' contends: "[A]

group boycott formed for the simple purpose of eliminating a trader

from the market, or putting a company out of business, is always

illegal, regardless of who is involved in the conspiracy." This

pronouncement is simply contrary to NYNEX, where the Supreme Court

rejected the argument that the defendants' motive of putting the

plaintiff out of business brought the case within the per se rule.

525 U.S. at 137-38. The Supreme Court warned that decisions to put

a victim out of business are not always the stuff of antitrust

17
liability: "To apply the per se rule here–-where the buyer's

decision, though not made for competitive reasons, composes part of

a regulatory fraud–-would transform cases involving business

behavior that is improper for various reasons, say, cases involving

nepotism or personal pique, into treble-damages antitrust cases."

Id. at 136-37 (emphasis supplied). When Spectators' alleges that

"the PGA Tour, driven to a fury by Mitchell's daring to sue it in

a former case, set out to destroy [Spectators']," it is relying on

the kind of vendetta that Justice Breyer stated would not give rise

to antitrust liability.

Spectators' also hints that it has carried the burden of

showing a horizontal agreement by alleging that the PGA is a

"horizontal competitor" of Spectators'. Involvement by one

competitor of the victim does not alone make a horizontal restraint;

there must be an agreement between more than one competitor at the

same level to make a horizontal restraint. See supra at 16. The

Supreme Court emphasized in Sharp Electronics that "a restraint is

horizontal not because it has horizontal effects, but because it is

the product of a horizontal agreement." 485 U.S. at 730 n.4.

However, despite its argument that a horizontal agreement is

not necessary to establish a per se case, Spectators' at least

pleaded a horizontal conspiracy. Its complaint alleged that the

conspiracy or combination involved members of the American Golf

Sponsors association, which included Anheuser-Busch, K-Mart, and

NEC. The sponsors operate at the same level. However, the only

18
evidence supporting NEC's participation in the conspiracy is

Mitchell's testimony that he learned from NEC's Barbara Burdick that

NEC had "succumbed" to PGA directives not to let Spectators'

broadcast the NEC tournament.3 Mitchell also testified that a

representative of the K-Mart Greater Greensboro Open told him that

the PGA would not allow Spectators' to broadcast PGA events. There

is thus evidence of sponsors separately agreeing with the PGA, but

no evidence of the competitors agreeing among themselves. This hub

and spoke sort of proof does not establish a horizontal combination.

See Royal Drug Co. v. Group Life and Health Ins. Co., 737 F.2d 1433,

1436-37 (5th Cir. 1984) (contracts entered separately between

powerful buyer and competing sellers not horizontal combination

without evidence of agreement among sellers); Brookins v.

International Motor Contest Ass'n, 219 F.3d 849, 852 n.3 (8th Cir.

2000); Lomar Wholesale Groc., Inc. v. Dieter's Gourmet Foods, Inc.,

824 F.2d 582, 590-95 (8th Cir. 1987) (distributor's separate

conspiracies with several suppliers to deny a competing distributor

access to the suppliers' products is not horizontal boycott); U.S.

Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 594 (1st Cir.

1993) (exclusive dealing arrangements of HMO with many doctors are

3
Mitchell's testimony about these conversations with
sponsors appears to be vulnerable to hearsay objection. However,
Anheuser-Busch does not object to it and Spectators' argues that
it is admissible as co-conspirator hearsay. Because the district
court did not rule on the admissibility of the evidence, we will
not do so in the first instance, but will consider it part of the
record for the sake of argument.

19
vertical, not horizontal, without showing that HMO was actually tool

for doctors themselves).

Spectators' has therefore failed to establish a horizontal

conspiracy subject to the per se rule. We now turn to its

allegations of a vertical conspiracy.4 The district court held that

Spectators' had not established a rule of reason case against

Anheuser-Busch because it had not shown that Anheuser-Busch, alone,

had market power and therefore could affect competition in any

relevant market. Slip op. at 23 n.16. Of course, Spectators'

alleges that PGA, not Anheuser-Busch, had market power. Apparently

because the district court held there was no combination, it did not

examine the market power of the alleged co-conspirator, the PGA.

But after all, the reason for looking at market power is to

determine whether the combination or conspiracy, not each individual

conspirator, has the power to hurt competition in the relevant

4
Although Spectators' devotes most of its brief to arguing
that it showed a horizontal conspiracy that is per se illegal, it
also makes vertical boycott, rule of reason arguments that
preserve the rule of reason issue for our review. Spectators'
argues at length that its case is comparable to Fineman v.
Armstrong World Industries, Inc., 980 F.2d 171 (3d Cir. 1992),
and MCM Partners, Inc. v. Andrews-Bartlett & Associates, Inc., 62
F.3d 967 (7th Cir. 1995), vertical boycott cases involving
coerced customers. Vertical boycotts are subject to the rule of
reason. See NYNEX, 525 U.S. at 138. Moreover, Spectators'
argues that the district court should have considered the
anticompetitive acts of the entire conspiracy, rather than those
of Anheuser-Busch alone; at the same time, Spectators' also
argues that proof of anticompetitive effects is irrelevant to a
per se case. Thus, by arguing the merits of an issue that is
irrelevant to per se analysis, Spectators' is evidently
challenging the district court's rule of reason holding.

20
market. See FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 460-61

(1986) ("Since the purpose of the inquiries into market definition

and market power is to determine whether an arrangement has the

potential for genuine adverse effects on competition, proof of

actual detrimental effects, such as a reduction of output, can

obviate the need for an inquiry into market power, which is but a

surrogate for detrimental effects.")(internal quotations omitted and

emphasis added). As the rule of reason theory was not addressed

squarely below, we remand for consideration in the first instance

by the district court of whether Spectators' has presented evidence

of a vertical boycott constituting an unreasonable restraint of

trade under the rule of reason.

III.

Spectators' contends that the district court erred in entering

judgment for Anheuser-Busch on Spectators's breach of contract

claim. The district court held that Spectators' had no claim for

breach of the April 1993 contract because it failed to perform its

obligation under that contract to broadcast the NEC tournament.

Spectators' contends that its performance was excused by Anheuser-

Busch. In support, Spectators' points to the assertion in

Mitchell's affidavit that "in late April or May 1993" Brunette of

Anheuser-Busch "instructed [Spectators'] not to schedule any further

golf events." Spectators' interprets this ambiguous instruction

from Brunette (schedule any further events after May? after the end

of the contract?) as proof that Anheuser-Busch repudiated the

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contract. However, the parties clearly did not act on the premise

that the contract was called off in April or May 1993, because

Spectators' broadcast the July 1993 Anheuser-Busch Classic. Because

the parties did not give any effect to the alleged repudiation by

Brunette, it does not excuse Spectators's failure to perform months

down the road.

Spectators' falls back on the November 1992 letter of intent,

arguing that it is an enforceable contract in its own right. The

letter, from Dave Brunette, stated that Anheuser-Busch had reviewed

Spectators's proposal and agreed to the broadcast of seven

unspecified "Spectators Communications events in 1993." There was

no mention of price or of what advertising Anheuser-Busch was to

receive. Brunette asked Spectators' to contact him to discuss which

events they would broadcast. Brunette stated that he would work

with Anheuser-Busch's legal department in the coming weeks to draft

a contract with "the appropriate business points as well as

representations, warranties, indemnities and other provisions

customarily included in Anheuser-Busch agreements." Eventually,

Anheuser-Busch produced such a contract, which is the April 1993

contract just discussed. The 1993 agreement and the November 1992

letter both covered the 1993 year, but the terms of the two

documents varied materially. The contract was much longer and more

detailed than the letter. Moreover, the contract specified the

broadcast of only three events, rather than the seven mentioned in

the letter. The 1993 contract contained a merger clause stating:

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"This Agreement constitutes the entire understanding between the

parties with respect to the subject matter hereof and supersedes all

prior or contemporaneous agreements, promises, understandings or

representations, written or oral, in regard thereto."

Anheuser-Busch argues that the 1992 letter was only an

agreement to agree and that the April 1993 agreement represented the

fruits of further negotiation that resulted in a complete contract

with a reduced broadcast schedule. Therefore, Anheuser-Busch

argues, the merger clause in the 1993 agreement establishes that the

formal contract superseded the 1992 letter. Spectators' responds

that the 1993 contract did not supersede the 1992 letter because the

two documents had different subject matters: the 1992 letter

referred to seven broadcasts, and the 1993 contract referred to only

three. Spectators's complaint and the record are devoid of any

support for this theory; it did not perform seven broadcasts in

1993. It pleaded performance of a total of two, the first two in

the 1993 contract. Because the subject matter of the 1992 letter

was obviously subsumed in the 1993 formal contract, the district

court properly granted summary judgment on this claim, and we need

not deal with Spectators's many other arguments on this point.

IV.

The district court entered judgment against Spectators' on its

claim under Texas law for civil conspiracy on the ground that

Spectators' had not proved a meeting of the minds to put Spectators'

out of business or any "unlawful overt acts" in furtherance of any

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conspiracy. Spectators' argues that it showed Anheuser-Busch

intended to put it out of business, but as the district court held,

the evidence shows only that Anheuser-Busch had an intent to quit

doing business with Spectators', rather than any design or thought

of driving Spectators' out of business. Spectators' has therefore

failed to prove civil conspiracy under Texas law, which requires

that the conspirators share "a preconceived plan and unity of design

and purpose." Schlumberger Well Surveying Corp. v. Nortex Oil and

Gas Corp., 435 S.W.2d 854, 857 (Tex. 1969); accord Ward v. Sinclair,

804 S.W.2d 929, 931 (Tex. Ct. App. 1990).

***

We affirm the judgment of the district court as to the contract

and civil conspiracy claims, but reverse as to the claim for

conspiracy to violate section 1 of the Sherman Act.

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