IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 93-1211
ROY B. TAYLOR SALES, INC.,
Plaintiff-Appellee,
versus
HOLLYMATIC CORPORATION,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Texas
(August 3, 1994)
Before GOLDBERG, HIGGINBOTHAM, and EMILIO M. GARZA, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
Roy B. Taylor Sales, Inc., a dealer of hamburger patty
machines and patty paper, sues its supplier, Hollymatic
Corporation, a manufacturer of patty products. Taylor alleges that
Hollymatic violated the antitrust laws by requiring Taylor to
purchase patty paper as a condition to purchasing patty machines.
A Texas jury found that Hollymatic illegally tied the products in
violation of § 1 of the Sherman Act1 and § 3 of the Clayton Act,2
that Hollymatic conspired with its paper supplier, Bomarko
Corporation, to restrain trade in violation of § 2 of the Sherman
1
15 U.S.C. § 1.
2
15 U.S.C. § 14.
Act,3 and that Hollymatic established or attempted to establish a
monopoly in violation of § 1 of the Sherman Act.4 The district
court trebled the jury's award and entered judgment for Taylor. We
find insufficient evidence of either a threat or injury to
competition and reverse.
I.
Roy B. Taylor Sales, Inc., sells and services food handling
equipment and supplies. Hollymatic Corporation manufactures food
processing equipment and related products, including machines for
making hamburger patties and paper for handling hamburger patties.
Bomarko Corporation supplies Hollymatic with paper goods to make
patty paper.
Taylor began selling Hollymatic products in 1970 subject to an
agreement requiring Taylor not to stock or sell the merchandise of
Hollymatic's competitors. The parties forged a different agreement
in 1979 requiring Taylor to make its "best efforts" to promote,
sell, and service the full line of Hollymatic products. Taylor
alleges that while the 1979 agreement did not formally prohibit
Taylor from selling products other than Hollymatic's, Hollymatic
informally maintained the requirement. Taylor claims that
Hollymatic required Taylor, and other dealers and distributors, to
purchase exclusively Hollymatic patty paper as a condition for the
purchase of patty machines.
3
15 U.S.C. § 2.
4
15 U.S.C. § 1.
2
According to Taylor, Hollymatic and Bomarko conspired to
resist a decline in patty paper prices. Taylor suggests that
Hollymatic could sustain prices above the market rate for patty
paper because dealers and consumers were dependent on Hollymatic
for supplying and servicing its patty machines. Taylor further
alleges that Hollymatic offered rebates on patty paper only to some
customers. Taylor sought such rebates, but claims that it received
only a slight reduction in price in one instance and that it was
refused any reduction in others.5 After selling no patty paper
other than Hollymatic's for years, Taylor began in 1988 to purchase
a substitute.
Hollymatic officials confronted Taylor's president, Ronnie
Taylor, in 1990 about Taylor's decreased demand for Hollymatic's
product. When Mr. Taylor acknowledged purchasing patty paper from
another company, Hollymatic expressed an intention to end the
relationship with Taylor. Taylor offered to sell only Hollymatic
patty paper in the future and Hollymatic responded with a new
agreement that would result in probation rather than termination.
After the parties failed to come to terms over the amount of patty
paper that Taylor would purchase each month, Hollymatic severed
relations.
Taylor adduced statements made by Hollymatic executives
indicating a policy of requiring dealers to purchase exclusively
Hollymatic patty paper as a condition for purchasing other
5
Taylor does not claim that Hollymatic used the tie to
effect price discrimination in violation of the Robinson-Patman
Act. See 15 U.S.C. § 13, et seq.
3
Hollymatic products, and evincing an intent to make an example of
Taylor for failing to abide by that requirement. Hollymatic in
turn acknowledges that its dissatisfaction with Taylor stemmed in
part from Taylor's decision not to purchase patty paper from
Hollymatic beginning in 1988. Indeed, Hollymatic also accuses
Taylor of purchasing "counterfeit" Hollymatic spare parts.
Nevertheless, Hollymatic claims that its termination in 1990 of its
relationship with Taylor was not a response to Taylor selling the
products of other companies.
Taylor seeks damages for the loss of profits it suffered in
the five years subsequent to Hollymatic's cessation of business
relations. Taylor asserted at trial that it could have made
profits of approximately $80,000 each year for a present value
total of roughly $370,000. Taylor acknowledged that, after a lapse
of five years, it could recover from the loss of Hollymatic's
product line. The jury found for Taylor and awarded $296,662.60 in
damages, trebled as a matter of law to $889,987.80.6
6
Hollymatic appeals the district court's denial of its
motion to dismiss Taylor's complaint, its motion for summary
judgment, its motion for judgment as a matter of law, its renewed
motion for judgment as a matter of law, and its motion for a new
trial. See Fed. R. Civ. P. 12(b)(6), 56, 50(a), 50(b), and 59(a).
As a jury ruled on the evidence at trial, we need not consider
whether at any given stage Hollymatic might have prevailed. We
assess instead the propriety of the jury verdict. See, e.g.,
Bealmer v. Texaco, Inc., 427 F.2d 885, 886 (9th Cir.), cert.
denied, 400 U.S. 926 (1970) (refusing to entertain appeal of denial
of summary judgment after final resolution of case). Compare
Savarin Corporation v. National Bank of Pakistan, 447 F.2d 727, 732
(2d Cir. 1971) (entertaining challenge of denial of summary
judgment after final resolution of case) with Glaros v. H.H.
Robertson Co., 797 F.2d 1564, 1573 (Fed.Cir. 1986) (criticizing
Savarin and refusing to entertain appeal of denial of summary
judgment).
4
II.
Hollymatic argues that insufficient evidence supported the
jury's finding of a tie. Hollymatic also contends that the
evidence did not support the conclusion that Hollymatic threatened,
or caused the kind of harm, to competition necessary for an
antitrust violation. We do not pause over the question of whether
there was a tie because we conclude that, assuming there was one,
Taylor failed to prove that it was illegal.7 We also conclude that
the insufficiency of the evidence is fatal to Taylor's alternative
theories.
A.
Taylor does not claim that Hollymatic limited the choices
available to consumers. Hollymatic required Taylor, a dealer, to
provide only Hollymatic patty paper. Customers purchasing patty
machines from Taylor remained free to buy paper elsewhere. Only
Hollymatic provides support only for the contention that it
may appeal the district court's denial of its Rule 12(b)(6) and
summary judgment motions. Hollymatic cites two cases in which we
entertained interlocutory appeals of, respectively, denial of a
motion for summary judgment and of a motion under Rule 12(b)(6),
both requested on the basis of qualified immunity. See Spann v.
Rainey, 987 F.2d 1110, 1112 (5th Cir. 1993); Jackson v. Beaumont
Police Dept., 958 F.2d 616, 618 (5th Cir. 1992). Qualified
immunity provides a rare exception to the general rule that we will
not address on appeal a denial of summary judgment. Hollymatic
offers no grounds for entertaining appeals of motions denied prior
to the jury's verdict in cases that do not involve qualified
immunity.
7
We review the evidence to determine whether a reasonable
jury could have found for Taylor. R.D. Imports Ryno Indus. v.
Mazda Distrib., 807 F.2d 1222, 1224 (5th Cir.), cert. denied, 484
U.S. 818 (1987). Hollymatic also contends that the district court
committed reversible error in instructing the jury. We do not
address this issue because we rule for Hollymatic on other grounds.
5
Taylor was bound. As we examine Taylor's complaints about this
restriction, we must keep in mind that the antitrust laws protect
competition, not competitors.8 Ultimately, the consumer is the
beneficiary.
An illegal tie may be shown by proof that the tying firm
"exert[s] sufficient control over the tying market . . . to have a
likely anticompetitive effect on the tied market."9 This is
sometimes described as "per se" illegality. This label makes sense
when describing price fixing or horizontal market division, but is
confusing here because it insists on an inquiry into market power
as a predicate to "per se" illegality.
This odd use of the term "per se" is descriptive of a rule
located between a per se and a rule of reason inquiry. The best
that can be said for it is that it reflects the intermediate danger
tying arrangements pose to the market: unlike other "per se"
illegal arrangements, "not every refusal to sell two products
separately can be said to restrain competition."10 Rather, there
must be proof "as a threshold matter . . . [of] a substantial
8
See Brown Shoe Co. v. United States, 370 U.S. 294, 320
(1962) (antitrust laws provide "protection of competition, not
competitors."); Continental T. V., Inc. v. GTE Sylvania, Inc., 433
U.S. 36, 53 n.21 (1977) (antitrust jurisprudence deals primarily
with "market considerations," not with "restrictions on the
autonomy of independent businessmen").
9
Breaux Bros. Farms v. Teche Sugar Co., 21 F.3d 83, 86 (5th
Cir. 1994) (citing Jefferson Parish Hops. Dist. No. 2 v. Hyde, 466
U.S. 2, 15-18, 26-29 (1984)).
10
See Jefferson Parish, 466 U.S. at 11. See also id. at 32-
44 (O'Connor, J., concurring) (arguing that per se analysis should
not apply to tying arrangements).
6
potential for impact on competition in order to justify per se
condemnation" of a tie.11
The alleged tying arrangement between Hollymatic and Taylor
was a form of vertical nonprice restraint, that is, "an agreement
between entities at different levels of distribution that does not
purport to affect prices charged for . . . goods."12 Vertical
nonprice restraints are generally not subject to per se analysis.13
Ties, however, are often instrumental to suspect vertical nonprice
restraints. They may enable an entity to circumvent laws
proscribing anticompetitive or other behavior. Thus, for example,
a firm may avoid price regulation,14 may engage in price
discrimination,15 or may undertake predatory pricing through the use
11
Id. at 16.
12
Smith Machinery Co., Inc. v. Hesston Corp., 878 F.2d 1290,
1295 (10th Cir. 1989), cert. denied, 493 U.S. 1073 (1990) (footnote
and citations omitted). See Business Electronics Corp. v. Sharp
Electronics Corp., 485 U.S. 717, 730 (1988) ("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.")
(footnote omitted).
13
See Business Electronics, 485 U.S. at 735-36 ("[E]conomic
analysis supports the view, and no precedent opposes it, that a
vertical restraint is not illegal per se unless it includes some
agreement on price or price levels.").
14
See Jefferson Parish, 466 U.S. at 36 n.4 (O'Connor, J.,
concurring) ("In a regulated industry a firm with market power may
be unable to extract a supercompetitive profit because it lacks
control over the prices it charges for regulated products or
services. Tying may then be used to extract that profit from sale
of the unregulated, tied products or services.") (citations
omitted).
15
See id. ("Tying may . . . help the seller engage in price
discrimination by 'metering' the buyer's use of the tying
product.") (citations omitted).
7
of a tie.16 Taylor does not allege that Hollymatic pursued any of
these specific ends. More generally, a firm may leverage power in
one market into additional power in another. This leveraging can
force existing competitors from the tied market or create barriers
to entry.17 As the tied market weakens, the tying firm's market
power may increase.18
Tying arrangements that threaten competition come in myriad
industries. A seller of machines, for example, may condition the
availability of parts on the purchase of repair services,19 or a
hospital may provide care only if patients use particular
anesthesiologists.20 Their common ground is ultimate consumers have
to buy one product or service to receive another, removing them
from the market for the tied good.
Where, however, only dealers are subject to a tie,21
competitors do not lose a segment of the tied market if there are
16
See generally E. Thomas Sullivan and Jeffrey L. Harrison,
Understanding Antitrust and Its Economic Implications 183-85 (2d
ed. 1994) (summarizing rationales for proscribing tying
arrangements).
17
See Jefferson Parish, 466 U.S. at 14-15; id. at 36-40
(O'Connor, J., concurring).
18
See generally Louis Kaplow, Extension of Monopoly Power
Through Leverage, 85 Colum. L. Rev. 515, 520-25 (1985).
19
See Eastman Kodak Co. v. Image Technical Servs., 112 S.Ct.
2072 (1992).
20
See Jefferson Parish, 466 U.S. at 4-5.
21
Cf. Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S.
495 (1969) (consumers and intermediaries in line of distribution
required to purchase home to receive loans on favorable terms) and
429 U.S. 610 (1977) (same case).
8
genuine alternative paths to consumers. Here, assuming a tie was
in place, customers could purchase Hollymatic patty machines from
Taylor and purchase patty paper elsewhere. Alternative
distributors did not have to be robust to compete; they merely had
to exist. Companies entering the patty paper market could attract
Taylor's customers provided they charged a lower price, produced a
superior product, or both. Ties that constrain only dealers, like
the one Taylor complains of, create relatively little danger to
competition,22 provided consumers may purchase the two goods
separately.23
As we have suggested, mechanical inquiry into the fit of per
se categories has little utility in exposing any injurious impact
upon competition of ties. Inquiry into Hollymatic's power in the
tying market tells us nothing of other patty paper distributors.
Ronnie Taylor testified, "Patty paper was I guess always available
through paper companies if customers called and asked paper
companies about it." When asked if paper "was always available to
end users in [his] territory," he replied, "Yes." The evidence
22
See Phillip E. Areeda, Antitrust Law, ¶ 1725b, at 316-18
(1991).
23
Where the only competition for an item occurs at the level
of the distributor, a tie at that level may foreclose part of the
market to competitors in the tied good. If a company sells canning
machinery on condition that a canner also buys cans, the consumers
will purchase the two as a single product. Competitors will not be
able to sell cans directly to consumers of canned goods. See id.
¶ 1725b, at 317 (providing this example). A similar situation
arose in United States v. Loew's, Inc., 371 U.S. 38 (1962).
Distributors conditioned purchases by television stations of
desirable films on purchases of undesirable films. Consumers
received transmission of both.
9
suggests that competition in patty paper sales was fierce, and that
Hollymatic was dependent on Taylor's aggressive efforts to move its
product. Under these circumstances, any obligation on Taylor to
carry only Hollymatic's patty paper would have enhanced competition
by ensuring Hollymatic access to the market. Yet assessing
Hollymatic's power in the tying market, and whether there was a not
insubstantial amount of commerce in the tied market, would not
uncover this fact.
The present situation is analogous to others in which a
manufacturer requires a dealer to carry one product in its line to
receive another. The Tenth Circuit addressed these circumstances
in Smith Machinery Co. v. Hesston Corp.,24 in which a manufacturer
conditioned sale of farm equipment to a dealer on purchase of its
tractors.25 The court acknowledged that the arrangement constituted
a tie but focused on the risk posed to competition rather than on
labels.26 Although free to sell tractors from other manufacturers,
the dealer complained that in light of its limited resources
purchase of one tractor would foreclose purchase of another. The
court responded that this claim "[e]ven if true" would not affect
its analysis.27 The court reasoned:
24
878 F.2d 1290 (10th Cir. 1989), cert. denied, 493 U.S. 1073
(1990).
25
Id. at 1291-92.
26
See id. at 1295 (citing Jefferson Parish, 466 U.S. at 21
n.34).
27
Id. at 1296.
10
[W]here a dealer is serving as an intermediate link in a
distribution chain, if one manufacturer is foreclosed
from selling to a dealer because of [an] arrangement, it
is likely going to find another way to take its product
to market, providing a profit potential continues to
exist. In such a case, there is no ultimate foreclosure
to the consumer of a choice of goods. In other more
traditional tying arrangements there is an ultimate
foreclosure of choice to the ultimate consumer. Thus, a
foreclosure of choice to an ultimate consumer appears to
be the principal key to a tie that is illegal per se. No
such foreclosure occurs or is threatened in a typical
line forcing situation such as that at bar.28
We find the same to be true of the alleged tie in the present
case. The claimed arrangement between Hollymatic and Taylor
constituted a vertical nonprice restraint between a manufacturer
and a dealer on goods that the dealer offered to customers
independently. It was in effect an exclusive-dealing agreement in
which Hollymatic required Taylor to sell Hollymatic, and only
Hollymatic, patty paper.29 Such an arrangement is not the sort
"that would always or almost always tend to restrict competition
and decrease output."30 It does not threaten competition to the
28
Id. at 1297 (citing Jefferson Parish, 466 U.S. at 5; Loew's
Inc., 371 U.S. at 40; Northern Pac. Ry. Co. v. United States, 356
U.S. 1, 3 (1958); International Salt Co. v. United States, 332 U.S.
392, 393 (1947)).
29
See Roland Machinery Co. v. Dresser Indus., Inc., 749 F.2d
380, 393-94 (7th Cir. 1984) (Posner, J.) (arguing that exclusive-
dealing agreements which require dealer to sell only manufacturers
product line are assessed under "Rule of Reason") (cited with
approval in Stitt Spark Plug Co. v. Champion Spark Plug Co., 840
F.2d 1253, 1258 n.18 (5th Cir.), cert. denied, 488 U.S. 890
(1988)).
30
Business Electronics, 485 U.S. at 723 (quoting Northwest
Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.,
472 U.S. 284, 289-290 (1985) (quoting Broadcast Music, Inc. v.
Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20 (1979)))
(internal quotation marks omitted).
11
same extent as tying arrangements that bind ultimate customers.
Regardless of whether the restraint also constitutes a tying
arrangement, subjecting it to per se analysis would ignore our
directive from the Court.31 The measure of legality of
relationships between manufacturers and independent distributors
must not be allowed to turn on labels. Here the language of per se
violations has little utility in the absence of price fixing or
horizontal division of markets.
B.
The alleged tie was nevertheless illegal if it "had an actual
adverse effect on competition."32 Taylor's dissatisfaction resulted
from competition in the patty paper market. Taylor claims to have
lost business because Hollymatic's prices made it difficult for
Taylor to compete. Ronnie Taylor, a member of the family that
owned and ran Taylor Sales, Inc., complained that because of
Hollymatic's high patty paper prices, Taylor "began to lose
customers to competition." These signs of a healthy market in
31
See id. at 726 ("departure from [the rule-of-reason]
standard must be justified by demonstrable economic effect, such as
the facilitation of cartelizing, rather than formalistic
distinctions") (interpreting Monsanto Co. v. Spray-Rite Service
Corp., 465 U.S. 752 (1984) and Continental T.V., Inc. v. GTE
Sylvania, Inc., 433 U.S. 36 (1977)); Jefferson Parish, 466 U.S. at
21 n.34 ("The legality of . . . conduct depends on its competitive
consequences, not on whether it can be labeled 'tying.' If the
competitive consequences of [an] arrangement are not those to which
the per se rule is addressed, then it should not be condemned
irrespective of its label.").
32
Breaux Brothers, 21 F.3d at 86 (quoting Jefferson Parish,
466 U.S. at 31) (internal quotation marks omitted).
12
patty paper belie Taylor's claim that the tying arrangement harmed
patty paper purchasers.
Taylor's claim was, ironically, that it lost customers to
competitors; that the consumer's response to the asserted high
price of paper was to purchase paper elsewhere. Now, this may have
cost Taylor money--injured it--but it belies its claim of injury to
competition. Purchasers of machines from Taylor simply found a
different seller. Taylor's incentive to accept Hollymatic's
requirement that Taylor buy its paper rested on the profitability
of its machine sales.
Taylor characterizes as a threat to competition the
possibility that patty paper purchasers bought Hollymatic's paper
at supracompetitive prices. The claim is:
A customer receiving Hollymatic machines, parts, and
service from a Hollymatic dealer may well buy the
Hollymatic Patty Paper because of that "common tie" to
the dealer. After all, that is more convenient to the
customer than seeking an independent source who could
sell patty paper at a competitive price.
The Supreme Court rejected such reasoning in Jefferson Parish. The
fact that consumers might buy goods because of convenience created
by a tie does not suffice as evidence of an unreasonable restraint
on competition.33 Speculation about anticompetitive effects is not
enough. Taylor had to show that the tie "as it actually operate[d]
in the market"34 harmed competition. The record does not indicate
33
Id. at 29-30.
34
Id. at 29.
13
that consumers continued to purchase Hollymatic patty paper at
prices above the market.
III.
This lack of evidence also defeats Taylor's claim of
conspiracy under § 1 of the Sherman Act.35 Taylor claims that
Hollymatic conspired with Bomarko to restrain trade. The elements
of a § 1 claim are: "1) joint or concerted action between more
than one party that 2) unreasonably restrains trade in 3)
interstate or foreign commerce."36
Taylor's claim of conspiracy is derivative of its tying claim.
Taylor contended in its closing argument:
Hollymatic was being pressured to buy more paper than it
could sell. Hollymatic in turn was putting pressure on
its dealers. Why? Because Bomarko and Hollymatic
together could not compete in a free market--not and both
of them take double digit profits they were taking.
Taylor implicated Bomarko in the alleged tying arrangement.
This accusation is consistent with the request for damages
resulting from termination, which followed from enforcement of the
claimed tie. The conspiracy claim fails because the underlying tie
was not illegal--the concert of action did not unreasonably
restrain trade.
To establish an unreasonable restraint of trade, Taylor's
proof must have included evidence from which the jury could have
35
15 U.S.C. § 1.
36
R.D. Imports Ryno Indus. v. Mazda Distrib., 807 F.2d 1222,
1224 (5th Cir.), cert. denied, 484 U.S. 818 (1987). Hollymatic
argues that it and Bomarko were not distinct entities and that the
two therefore could not have conspired. We need not address this
issue because Taylor's § 2 claim fails in any case.
14
found that Hollymatic's actions had a "substantially adverse"
impact on competition.37 Assessing such an impact requires an
inquiry into the conditions of the relevant market.38 As we
explained, Taylor provided no basis for concluding that
Hollymatic's actions affected competition adversely.
Taylor also contends that Hollymatic amassed monopoly power in
the patty machine market in violation of § 2 of the Sherman Act.
Market power is the ability to control prices or exclude
competition.39 An assessment of market power requires a definition
of the relevant market.40 This definition requires two limiting
terms: "characterization of the product itself and
characterization of the relevant geographic market in which that
product is sold."41 Hollymatic complains that Taylor has never
defined the market in which Hollymatic wields power. We agree.
Taylor argues that its sales area drew the geographical lines
for the market in which Hollymatic possessed power. We find that
Taylor failed to offer evidence to support a jury finding that
Hollymatic possessed the requisite power in the market for any
37
Id.
38
Id. ("Market considerations provide the objective benchmark
for the measurement of competitive impact.") (citing Continental
T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 54 (1977); Daniels
v. All Steel Equipment, Inc., 590 F.2d 111, 113 (5th Cir. 1979)).
39
See Spectrofuge Corp. v. Beckman Instruments, Inc., 575
F.2d 256, 276 (5th Cir. 1978), cert. denied, 440 U.S. 939 (1979).
40
See Seidenstein v. National Medical Enterprises, Inc., 769
F.2d 1100, 1106 (5th Cir. 1985) ("Before a defendant's market power
can be determined, the relevant market must be defined.").
41
R.D. Imports, 807 F.2d at 1224-25.
15
particular product in Taylor's sales area. We assume without
deciding that the sales area was the appropriate geographical area
for measuring competition.42
Taylor's claim of monopoly tracks its allegation of a tying
arrangement. Taylor describes the "Hollymatic Patty Machine" as
the tying product, suggesting that Hollymatic amassed power in the
market for this machine and its competitors. However, Hollymatic
contends, and the record confirms, that the "Hollymatic Patty
Machine" does not exist. Taylor's arguments on appeal and the
record indicate that Taylor may have intended to refer to either of
two possible product markets: the market for the Super Patty
Machine, a particularly successful Hollymatic product; or the
market for all Hollymatic patty machines.43 Taylor failed to prove
that Hollymatic possessed monopoly power in either market, or that
the Super Patty Machine and comparable machines were sufficiently
insulated from competition to constitute a distinct market.
42
See id. at 1225 ("the geographic dimensions of [a] market
encompass[] the areas of effective competition in which the
particular product or its reasonably interchangeable substitutes
are traded") (quoting Hornsby Oil Co. v. Champion Spark Plug Co.,
714 F.2d 1384, 1393 (5th Cir. 1983)) (internal quotation marks
omitted).
43
Taylor relies on the pretrial order and the jury
instructions as identifying the "Hollymatic Patty Machine." The
pretrial order, however, describes "Hollymatic hamburger patty
machines as a tying product and Hollymatic patty paper as a tied
product." The district court's instruction to the jury similarly
explains, "Taylor has alleged that Hollymatic established a tying
arrangement whereby Hollymatic sold Taylor hamburger patty machines
(the tying product) conditioned on Taylor purchasing Hollymatic
patty paper (the tied product)." These sources indicate that the
jury addressed Hollymatic's power in the market for patty machines
in general, not in the market for the Super Patty Machine.
16
We could assume that Taylor meant the tying market to include
Hollymatic's Super Patty Machine and comparable machines sold by
other manufacturers. Taylor at times adopts this approach, noting
that all parties to the litigation acknowledge the prominent place
in the market of the Super Patty Machine. This testimony sometimes
suggested that the Super Patty Machine was a "lead product,"
"flagship product," "market leader," "dominant," and "premiere
product." Beyond these general descriptions of market success,
however, Taylor provides little basis for a conclusion that
Hollymatic possessed monopoly power in the market consisting of the
Super Patty Machine and its competitors. Taylor does not specify
the percentage of sales attributable to the Super Patty Machine in
any market44 or provide any basis for even a rough estimate of such
a figure, nor does Taylor recount information useful in assessing
the strength and scope of competition in the market for the Super
Patty Machine.45
Significantly, there was inadequate evidence about other
products available to Hollymatic's customers. Hollymatic faced
competition, for example, from manufacturers of machines that
produced patties on a larger scale than the Super Patty Machine.
In the mid-1980s, Wendy's, at the time a faithful customer of
Hollymatic, abandoned the Super Patty Machine for larger machines
sold by a rival of Hollymatic, which Wendy's stationed in central
44
See, e.g., Jefferson Parish, 466 U.S. at 26-28 (identifying
percentage of particular market garnered by tying product); Breaux
Bros., 21 F.3d at 86-88 (same).
45
See Jefferson Parish, 466 U.S. at 26-28.
17
locations. This event indicates that larger machines provided a
viable alternative to the Super Patty Machine, at least in a
substantial segment of the market. It also increased the supply of
used Super Patty Machines, which decreased sales in new machines.
Ronnie Taylor acknowledged selling used Super Patty Machines
at a profit equal to or greater than the profits available from
selling new machines, both before and after Hollymatic terminated
his dealership. These competitive threats to the Super Patty
Machine are at odds with a claim of market power--a concept that is
not interchangeable with market success. Despite these disquieting
features of the market, Taylor provided no evidence of the size and
strength of the market in used machines or the incidence of
customers changing to larger machines. This illustrates the
absence of focus upon market power. Without such basic information
about the market, the jury had no means to assess the market power
the Super Patty Machine conferred on Hollymatic.
Taylor may have meant the term "Hollymatic Patty Machine" to
refer, instead, to all of Hollymatic's patty machines. Thus, Roy
B. Taylor, a member of the family that owns Taylor, was asked, "And
you are saying that the continuation of being able to sell the
Super Machine is what forced you to sell paper at a higher price at
that amount of profit?" He responded, "No, sir. I am saying the
failure to sell all their patty machines." The jury did not,
however, have a sufficient basis for concluding that Hollymatic
possessed monopoly power in the market for all patty machines.
18
Taylor relies on only two statements that Roy B. Taylor made
about Hollymatic's presence in the patty machine market. First,
Mr. Taylor provided "just an estimate" that in 1979 of the 200 to
300 patty machines in his territory, no more than five were
manufactured by Hollymatic's competitors. This statement casts
little light on Hollymatic's power in the patty machine market at
relevant times. Second, Mr. Taylor responded to the question,
"What percentage or share of the patty machine market to the
customers that you were serving, customer base that you were
serving, did you have as a Hollymatic distributor?" Mr. Taylor
answered, "Conservatively I think I could honestly say 95 percent
of the business." While Mr. Taylor acknowledged that there were
machines competitive with Hollymatic's products, he claimed that
they did not "perform efficiently" and that "some" of them were no
longer on the market. Mr. Taylor did not define his "patty machine
market" such as the range of patty machines that the market
included. Testimony indicated that Hollymatic was "the industry
leader" in certain lines of patty machines but, as we explained,
did not suggest the share of the market Hollymatic controlled or
the nature of the competition Hollymatic faced. The evidence
indicates that customers could purchase used machines or replace
several small patty machines with a single large one sold by a
competitor of Hollymatic.
Importantly, there was no evidence of significant barriers to
entry. In the absence of barriers to entry such as a capital
intensive industry or patents, a competitor waiting on the
19
sidelines can deny those in the market the power to control prices-
-because current players cannot exclude competition.
In short, Taylor offered no direct evidence that Hollymatic
could control prices in the market for patty machines or for any
particular machine, and offered no evidence of Hollymatic's share
in either market. As a result, "[t]here was simply no evidence
from which the jury could begin to measure [Hollymatic's] power to
control prices or to exclude competition in [any] relevant
market."46 Taylor offers no reason to believe that Hollymatic
acquired or maintained,47 or threatened to acquire or maintain,48 a
monopoly. Taylor cannot succeed under § 2 of the Sherman Act.
Finally, Taylor claims that Hollymatic's actions violated the
Texas Free Enterprise and Antitrust Act.49 The parties agree that
46
Spectrofuge Corp., 575 F.2d at 286.
47
Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d
480, 487 (5th Cir. 1984) ("[T]he offense of monopoly under § 2 [of
the Sherman Act] has two elements: (1) the possession of monopoly
power in the relevant market and (2) the willful acquisition or
maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business
acumen, or historic accident.") (quoting United States v. Grinnell
Corp., 384 U.S. 563, 570-71 (1966)) (internal quotation marks
omitted).
48
See id. at 490 ("The offense of attempted monopolization
has two elements: (1) specific intent to accomplish the illegal
result; and (2) a dangerous probability that the attempt to
monopolize the relevant market will be successful.") (quoting
Dimmitt Agri Indus., Inc. v. CPC Int'l, Inc., 679 F.2d 516, 525
(5th Cir. 1982), cert. denied, 103 S.Ct. 1770 (1983); Spectrofuge
Corp. v. Beckman Instruments, Inc., 575 F.2d 256, 276) (5th Cir.
1978), cert. denied, 440 U.S. 939 (1979)) (internal quotation marks
omitted). See Spectrum Sports, Inc. v. McQuillan, 113 S.Ct. 884,
892 (1993) (requiring proof of dangerous probability of monopoly
for attempt claim under § 2 of Sherman Act).
49
Tex. Bus. & Comm. Code Ann. § 15.05(a)-(c).
20
Texas antitrust law mirrors federal law as applied to the present
case.50 State law does not offer an alternative grounds for
affirmance.
REVERSED.
50
See Caller-Times Pub. Co. v. Triad Communications, Inc.,
826 S.W.2d 576, 580 (Tex. 1992).
21