Systemcare, Inc. v. Wang Laboratories ( 1996 )

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 24 1997
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
SYSTEMCARE, INC.,
Plaintiff-Counter-
Defendant-Appellant,
v. No. 95-1032
WANG LABORATORIES
CORPORATION,
Defendant-Counter-
Claimant-Appellee,
v.
MICHAEL WRIGHT,
Counter-Defendant,
-------------------------------
UNITED STATES OF AMERICA,
Amicus Curiae.
ON REHEARING EN BANC
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D. Ct. No. 89-B-1778)
Ronald Katz, Coudert Brothers, San Francisco, California (Janet Arnold Hart and
Paul S. Schmidtberger with him on the briefs) appearing for the Appellant.
Jerrold J. Ganzfried, Howrey & Simon, Washington, DC (Thomas E. Gilbertsen
and Timothy K. Armstrong, Howrey & Simon, Washington, DC, Michael J. Cook,
Faegre & Benson, Denver, Colorado, and Florinda J. Iascone, Wang Laboratories,
Inc., Billerica, Massachusetts, with him on the brief) appearing for the Appellee.
David Seidman, Attorney, U.S. Department of Justice, Washington, DC (Anne K.
Bingaman, Assistant Attorney General, Joel I. Klein, Deputy Assistant Attorney
General, and Catherine G. O’Sullivan, Attorney, with him on the brief), appearing
for Amicus Curiae.
Before SEYMOUR, Chief Judge, HOLLOWAY, PORFILIO, ANDERSON,
TACHA, BALDOCK, BRORBY, EBEL, KELLY, HENRY, BRISCOE, and
MURPHY, Circuit Judges.
TACHA, Circuit Judge.
On May 29, 1996, a panel of this court held that a tying arrangement
between a buyer and a seller does not satisfy the concerted action requirement of
section 1 of the Sherman Act, 15 U.S.C. § 1. Systemcare, Inc. v. Wang Labs.
Corp., 85 F.3d 465 (10th Cir. 1996). The panel held that to bring a claim under
section 1, a plaintiff must establish a conspiracy between a seller and a third party
to force a tying arrangement on a buyer. The panel therefore affirmed the entry of
summary judgment against plaintiff Systemcare, Inc. (“Systemcare”) and in favor
of defendant Wang Laboratories, Inc. (“Wang”).
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On September 6, 1996, we granted Systemcare’s request for rehearing en
banc to consider “whether a contract between a buyer and seller satisfies the
concerted action element of section 1 of the Sherman Act, 15 U.S.C. § 1, or
whether satisfaction of that element requires evidence of a contract, combination,
or conspiracy involving a third party to force agreement on a buyer.” Today we
hold that a contract between a buyer and seller satisfies the concerted action
element of section 1 of the Sherman Act where the seller coerces a buyer’s
acquiescence in a tying arrangement. Accordingly, we overrule City of Chanute
v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir. 1992), and McKenzie v.
Mercy Hospital, 854 F.2d 365 (10th Cir. 1988), to the extent that these cases are
inconsistent with today’s holding.
BACKGROUND
When this case commenced in 1989, Wang manufactured “VS”
minicomputers and created copyrighted software for use with them. By 1992,
Wang became a service-oriented company, offering both hardware and software
support services for its computers. Hardware support services involve
maintenance and repair of computer equipment. Software support services
include software maintenance, upgrades, and technical assistance. Because
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Wang’s software support services may require copying Wang’s proprietary
software, Wang alone provides those services to Wang computer customers.
Systemcare, an independent service organization, services computer
equipment that it does not manufacture. Systemcare services Wang computer
hardware in Colorado and competes with Wang in providing hardware support
services.
Beginning in 1985, Wang offered its minicomputer users a package of
hardware and software support services called Wang Software Services (“WSS”).
For the purposes of this opinion, we expressly assume, but do not decide, that
under the WSS contract, a customer must subscribe to Wang’s hardware support
program in order to obtain Wang’s software support services.
In 1989, Systemcare brought this action under section 1 of the Sherman
Act, 15 U.S.C. § 1, alleging that Wang illegally tied the sale of its software
support services (the tying service) to the purchase of its hardware support
services (the tied service) through the WSS contracts. In late 1991, Wang moved
for summary judgment. Wang argued that (1) it did not condition the purchase of
software support on the purchase of hardware maintenance, and (2) it lacked
sufficient market power to appreciably restrain competition in the market for the
allegedly tied product.
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On February 5, 1992, the district court requested supplemental briefing on
the effect of City of Chanute v. Williams Natural Gas Co., 955 F.2d 641 (10th
Cir. 1992), on Systemcare’s section 1 claim. After considering the supplemental
briefing, the district court granted summary judgment in favor of Wang because
Systemcare failed to “establish a conspiracy between at least two parties” to
impose a tying arrangement on Wang’s customers as required by Chanute.
Systemcare, Inc. v. Wang Labs., Inc., 787 F. Supp. 179, 181-82 (D. Colo. 1992).
Relying on Chanute, a panel of this court affirmed the judgment of the district
court. Systemcare, Inc., 85 F.3d at 471. We granted Systemcare’s motion for a
rehearing en banc to consider whether as a matter of law a contract between a
buyer and seller satisfies the concerted action requirement of section 1 of the
Sherman Act.
DISCUSSION
A tying arrangement is “an agreement by a party to sell one product but
only on the condition that the buyer also purchases a different (or tied) product, or
at least agrees that he will not purchase that product from any other supplier.”
Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958). “[W]here the
buyer is free to take either product by itself there is no tying problem even though
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the seller may also offer the two items as a unit at a single price.” Northern Pac.
Ry Co., 356 U.S. at 6 n.4.
Section 1 of the Sherman Act prohibits “every contract, combination in the
form of trust or otherwise, or conspiracy in restraint of trade or commerce.” 15
U.S.C. § 1. A plaintiff who alleges a violation of section 1 must establish: (1)
concerted action in the form of a contract, combination, or conspiracy, and (2) an
unreasonable restraint of trade.
The Supreme Court has long held that some tying arrangements constitute
unreasonable restraints of trade, and therefore violate section 1 of the Sherman
Act. See International Salt Co. v. United States, 332 U.S. 392, 396 (1947) (tying
violates section 1 of the Sherman Act and section 3 of the Clayton Act); Times-
Picayune Pub. Co. v. United States, 345 U.S. 594, 608-09 (1953) (tying violates
section 1 of the Sherman Act); Northern Pac. Ry. Co. v. United States, 356 U.S.
1, 4-5 (1958) (tying violates section 1 of the Sherman Act). A tying arrangement
constitutes an unreasonable restraint of trade if “the seller has ‘appreciable
economic power’ in the tying product market and if the arrangement affects a
substantial volume of commerce in the tied market.” Eastman Kodak Co. v.
Image Technical Servs., Inc., 504 U.S. 451, 462 (1992) (quoting Fortner Enters.,
Inc. v. United States Steel Corp., 394 U.S. 495, 503 (1969)). Although a tying
arrangement may constitute an unreasonable restraint of trade, the Sherman Act
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also requires proof of concerted action. The issue before the court today concerns
the concerted action requirement of section 1.
Section 1 of the Sherman Act requires proof of concerted action in the form
of a contract, combination, or conspiracy in restraint of trade. 15 U.S.C. § 1.
Section 1 does not proscribe purely unilateral activity by a single entity. See
United States v. Colgate, 250 U.S. 300, 307 (1919). Wang argues that tying
arrangements that consist solely of a single seller imposing a tie on a buyer
constitute unilateral activity, which falls outside the scope of section 1. On the
other hand, Systemcare asserts that a tying agreement between a buyer and a seller
satisfies the contract, combination, or conspiracy requirement of section 1.
Consistent with Systemcare’s position, the United States as amicus curiae urges
us to conclude that the literal language of section 1 includes buyer-seller contracts
in restraint of trade. Because the parties rely upon different lines of Tenth Circuit
authority to justify their positions, we begin our resolution of this issue by
reviewing the relevant Tenth Circuit case law.
A. Tenth Circuit Precedent
We first addressed concerted action in the tying context in Black Gold, Ltd.
v. Rockwool Industries, Inc., 729 F.2d 676 (10th Cir. 1984) [hereinafter Black
Gold I]. In that case, a home insulation installer brought suit against an
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insulation manufacturer under section 1. Id. at 679. The installer contended that
the manufacturer refused to sell it blown wool (the tying product) unless the
installer also bought rolls of insulation known as batts (the tied product). Id. The
district court directed a verdict in favor of the manufacturer because there was no
evidence of a contract, combination, or conspiracy in restraint of trade. Id. at
685.
Two resale price maintenance cases framed our discussion of the concerted
action requirement in Black Gold I. Id. at 685-86 (citing Colgate, 250 U.S. at
307, and United States v. Parke, Davis & Co., 362 U.S. 29, 43 (1960)). In these
cases, the Supreme Court concluded that although a unilateral refusal to deal
without more does not satisfy the concerted action requirement, Colgate, 250 U.S.
at 307, the requirement is satisfied “if the producer secures adherence to his
suggested prices by means which go beyond his mere declination to sell to a
customer who will not observe his announced policy.” Parke, Davis & Co., 362
U.S. at 43. Applying these principles in the tying context, we adopted the
following rule:
[A] plaintiff who contends a seller has unlawfully used a refusal to
deal as a means of enforcing an anticompetitive practice (such as
tying or price fixing) may establish the requisite combination or
conspiracy in either of two ways: [1] by showing that he himself
unwillingly complied with the practice, or [2] by showing that
although he refused to acquiesce, other buyers agreed to the
arrangement under threat of termination.
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Black Gold I, 729 F.2d at 686 (citing Perma Life Mufflers v. International Parts
Corp., 392 U.S. 134, 142 (1968), overruled in part on other grounds by
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984)).
In reversing the directed verdict for the manufacturer, we noted that the
installer produced evidence that the manufacturer “communicated its desire to its
customers that they purchase both blown wool and batts.” Black Gold I, 729 F.2d
at 686. We also emphasized that while the manufacturer terminated sales of
blown wool to the installer, the manufacturer continued selling blown wool to
other installers who purchased batts in addition to blown wool. Id. Although the
plaintiffs refused to buy goods under the tying arrangement, we found that the
plaintiffs introduced sufficient evidence that other buyers agreed to the
arrangement under threat of termination to support the inference of concerted
action. Id.On rehearing prompted by the Supreme Court’s decision in Monsanto Co.
v. Spray-Rite Service Corp., 465 U.S. 752 (1984), we affirmed our holding:
“[W]e do not construe Monsanto as a retreat from those cases holding that a
combination occurs between a seller and buyers ‘whose acquiescence in [the
seller’s] firmly enforced restraints was induced by the communicated danger of
termination.’” Black Gold, Ltd. v. Rockwool Indus.,Inc., 732 F.2d 779, 780 (10th
Cir. 1984) [Black Gold II] (quoting Perma Life Mufflers, 392 U.S. at 142)
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(internal quotations omitted). Thus, under Black Gold I and Black Gold II, a
plaintiff satisfies section 1's concerted action element by showing a tying
agreement between a seller and a buyer.
We next addressed the concerted action requirement in the tying context in
McKenzie v. Mercy Hospital, 854 F.2d 365 (10th Cir. 1988). In that case, a
hospital revoked a doctor’s staff privileges because he violated hospital and
medical staff by-laws and engaged in unprofessional, disruptive conduct. Id. at
366. The doctor alleged that the hospital illegally tied the market for hospital
facilities and services (the tying product) to the market for physician services (the
tied product), in violation of section 1 of the Sherman Act. Id. The district court
granted the hospital’s motion for summary judgment because it found that the
doctor failed to demonstrate that the hospital undertook concerted action “with
any other persons” to unreasonably restrain trade. Id. at 366-67.
On appeal, we held that the doctor could satisfy the concerted action
requirement only by demonstrating that the hospital allied itself with another
“individual” to tie a patient’s choice of a physician to the patient’s choice of
medical facilities. Id. at 367-68. We noted that the doctor had failed to identify
the involvement of any coconspirator. Id. at 368. We emphasized that in order to
satisfy the concerted action requirement, the doctor must identify an entity with
whom the hospital conspired to force the tying arrangement upon consumers:
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Here, we are not concerned with the legal possibility of a single
entity imposing a tying arrangement on its customers. The question
before the court--and to which we have replied in the negative--is
whether such an arrangement is proscribed by Section 1 of the
Sherman Act.
Id. at 368. Thus, in McKenzie we suggested that section 1 of the Sherman Act
does not prohibit a single entity from imposing a tying arrangement on its
customers.
Less than one year after we decided McKenzie, we again evaluated a tying
claim and addressed in dicta the issue presently before the court. In Smith
Machinery Co., Inc. v. Hesston Corp., 878 F.2d 1290 (10th Cir. 1989), a
franchisee alleged that its franchisor tied the franchise rights for a new line of
tractors (the tied product) to the franchise rights for other farm machinery (the
tying product). Id. at 1292. When the franchisee refused to offer the new line of
tractors, the franchisor terminated the franchisee’s dealership. Id. at 1291.
The franchisor did not raise the lack of concerted action as a defense before
the district court. Id. at 1295. Nevertheless, we noted in dicta that “to establish a
violation of section 1 of the Sherman Act, the complaining party must prove an
agreement or concerted activity between separate parties to restrain trade--that is,
a ‘contract, combination, or conspiracy.’” Id. at 1294 (citing McKenzie, 854 F.2d
at 367-68.). Further, we indicated that the concerted action requirement had not
been met because the franchisee neither contracted with the franchisor to sell the
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tractors nor identified other distributors whose acquiescence “was induced by ‘the
communicated danger of [dealership] termination.’” Id. at 1294 (quoting Perma
Life Mufflers, 392 U.S. at 142, and citing Black Gold I, 729 F.2d at 685-86 and
Black Gold II, 732 F.2d at 780). Thus, in Smith Machinery we attempted to
harmonize McKenzie, Black Gold I, and Black Gold II. We cited McKenzie for
the unremarkable proposition that a section 1 claim requires proof of concerted
activity by “separate parties,” but we continued to recognize the holding in Black
Gold I and Black Gold II that an agreement between a buyer and a seller alone
could satisfy this requirement.
Most recently, we addressed the concerted action requirement in the tying
context in City of Chanute v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir.
1992). There, eight cities in Kansas and Oklahoma alleged that a natural gas
company refused to transport natural gas to the cities (the tying service) unless
they bought gas produced by the gas company (the tied product). Id. at 649-50.
Without reference to Black Gold I or Black Gold II, a two-member majority of the
panel stated:
Before they can establish a § 1 violation, the Cities “must prove an
agreement . . . between separate parties to restrain trade.” Smith
Machinery Co., Inc. v. Hesston Corp., 878 F.2d 1290, 1294 (10th
Cir. 1989), cert. denied, 493 U.S. 1073 (1990). The Cities must
show the alleged tying arrangement is “concerted activity by
individual actors.” Card v. National Life Ins. Co., 603 F.2d 828, 834
(10th Cir. 1979). A violation of § 1 requires “‘unlawful conduct by
two or more parties pursuant to an agreement. . . . Solely unilateral
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conduct, regardless of its anticompetitive effects, is not prohibited.’”
McKenzie, 854 F.2d at 367 (quoting Contractor Utility Sales Co. v.
Certainteed Prods. Corp., 638 F.2d 1061, 1074 (7th Cir.1981)). “[A]
business retains the right under section 1 to unilaterally announce the
terms on which it will deal.” Reazin v. Blue Cross & Blue Shield of
Kansas, Inc., 899 F.2d 951, 963 (10th Cir.), cert. denied, 497 U.S.
1005 (1990). The Cities assert the requirements contract between
Williams and the Cities entered into after the pipeline had been
closed is a sufficient showing of an illegal agreement.
The Cities' assertion is erroneous. We held in McKenzie that a tying
arrangement imposed by a single entity is not proscribed by § 1 of
the Sherman Act. McKenzie, 854 F.2d at 368. In that case, the
plaintiff asserted “an arrangement which links two separate and
distinct product markets together” is sufficient proof of a tying
arrangement. Id. We disagreed and held the plaintiff must make a
preliminary showing of a conspiracy between two persons. Id. at
367-68. The Cities have only brought evidence that establishes
Williams tied its natural gas to its transportation facilities. The
Cities have not shown Williams acted in concert with any other
entity. The Cities name only one defendant. The other parties to the
allegedly illegal contracts to establish the conspiracy are the Cities
themselves. We conclude the Cities have failed to make the requisite
preliminary showing of a conspiracy to go forth with their tying
claims under § 1 of the Sherman Act and find summary judgment is
appropriate.
Chanute, 955 F.2d at 650-51 (footnotes omitted). 1
1
Judge Seymour wrote separately to disagree with the majority’s reliance upon
McKenzie in light of “the law of this and other circuits” in general and Black Gold in
particular. Chanute, 955 F.2d at 658-59 (Seymour, J., concurring). She also noted that
McKenzie was factually distinguishable because the doctor in McKenzie did not either
unwillingly comply with the hospital’s tying practice or identify others who unwillingly
agreed to the arrangement under threat of termination. Id. at 659 n.1. Judge Seymour
explained that unlike the doctor in McKenzie, the Chanute plaintiffs stated the requisite
combination or conspiracy by alleging that they were “coerced or forced by a seller into
an illegal tying arrangement.” Id. at 658-59 (citing Black Gold I, 729 F.2d at 686).
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In sum, in Black Gold I and Black Gold II, we held that an agreement
between a buyer and seller alone may satisfy the concerted action requirement. In
Chanute, we interpreted McKenzie as requiring a plaintiff to prove a contract,
combination, or conspiracy involving a third party to satisfy the concerted action
requirement. Today we must resolve this conflict. To that task we now turn.
B. Unilateral v. Concerted Activity
We hold that a contract between a buyer and seller satisfies the concerted
action element of section 1 of the Sherman Act where the seller coerces a buyer’s
acquiescence in a tying arrangement imposed by the seller. 2 The essence of
section 1's contract, combination, or conspiracy requirement in the tying context
is the agreement, however reluctant, of a buyer to purchase from a seller a tied
product or service along with a tying product or service. To hold otherwise would
be to read the words “contract” and “combination” out of section 1.
“A § 1 agreement may be found when the conspirators had a unity of
purpose or a common design and understanding, or a meeting of the minds in an
2
The mere fact of agreement to the tying restraint, of course, does not establish a
violation of § 1 of the Sherman Act. A plaintiff must also satisfy the additional elements
of a tying claim in order to establish a violation of section 1 of the Sherman Act. See
Eastman Kodak Co., 504 U.S. at 462 (A tying arrangement violates the Sherman Act “if
the seller has ‘appreciable economic power’ in the tying product market and if the
arrangement affects a substantial volume of commerce in the tied market.”) (citation
omitted).
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unlawful agreement.” Copperweld Corp. v. Independence Tube Corp., 467 U.S.
752, 771 (1984) (quotation omitted). Although a buyer is unlikely to desire a
provision restricting its ability to purchase a product from other suppliers, a buyer
might agree to such a term where the other provisions of the contract serve the
buyer’s interests. Even though a seller and a buyer may not share the same
motive for entering into the anticompetitive agreement, the concerted action
requirement is satisfied when their minds meet in an unlawful tying agreement.
See Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 215 (3d Cir. 1992)
(holding that a conspiracy in violation of section 1 does not require the sharing of
an identical anticompetitive motive, but requires only a shared commitment to a
common scheme that has an anticompetitive objective). To say that the buyer,
having agreed to the contract, did not agree to an express term because the buyer
would have preferred a contract without the term makes little sense. As the
Supreme Court noted in Perma Life Mufflers and reaffirmed in Copperweld, a
plaintiff “can clearly charge a combination between [the defendant] and himself,
as of the day he unwillingly complied with the restrictive . . . agreement[].”
Perma Life Mufflers, Inc., 392 U.S. at 142; see Copperweld Corp., 467 U.S. at766 (citing Perma Life Mufflers, 392 U.S. at 141-42).
From a buyer’s perspective, tying most frequently constitutes a reluctant
combination and not an eager conspiracy. This fact does not diminish the
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adherence of our holding to the core purposes of the concerted action requirement
of section 1. The Sherman Act subjects concerted activity to particular scrutiny
because of the inherent anticompetitive risk that such activity will eliminate
“independent centers of decisionmaking that competition assumes and demands.”
Copperweld Corp., 467 U.S. at 769. Concerted action by two entities which
“previously pursued their own interests separately . . . reduces the diverse
directions in which economic power is aimed [and, therefore,] increases the
economic power moving in one particular direction.” Id. As with other concerted
activity, tying agreements between buyer and seller deprive the market of
“independent centers of decisionmaking” by forcing a buyer in need of the tying
product to purchase the tied product from the same seller. Id. The concerted
action requirement exists to prevent exactly such deprivation.
In holding as we do, we reject Wang’s argument that in imposing a tying
arrangement, a producer merely acts independently to establish a unilateral term
of sale. Wang misapprehends the proper distinction between “independent
activity by a single entity” in the form of a mere refusal to deal and “concerted
effort by more than one entity to . . . restrain trade” in the form of a tying
arrangement. Fisher v. City of Berkeley, California, 475 U.S. 260, 266 (1986)
(citing Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 763 (1984)).
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A producer who exercises “his . . . discretion as to parties with whom he
will deal” does not act concertedly when “he . . . announce[s] in advance the
circumstances under which he will refuse to sell.” Colgate, 250 U.S. at 307.
Thus, a producer may lawfully refuse to sell products to customers who fail to sell
the products at or above a minimum price. Colgate, 250 U.S. at 303, 307. A
producer goes beyond Colgate’s “limited dispensation,” Times-Picayune Pub. Co.,
345 U.S. at 626, and acts concertedly when the producer requires, as a condition
of sale, a buyer’s agreement to sell the goods that are the subject matter of the
contract at or above a minimum price. See, e.g., United States v. Bausch & Lomb
Optical Co., 321 U.S. 707, 719-20 (1944) (“The retail license provisions binding
dealers to sell at locally prevailing prices and only to the public constitute illegal
restraints.”).
A unilateral refusal to deal preserves a buyer’s individual free choice to sell
at any price goods already purchased. Thus, the buyer is free to independently
balance the possible inability to obtain a desired product in the future against the
competitive disadvantage of sale at or above the manufacturer’s suggested price.
When a producer requires goods to be resold at a minimum price as a condition of
sale, however, a buyer’s decision to sell the goods at the producer’s suggested
price is not a matter of independent competitive judgment. See Parke, Davis &
Co., 362 U.S. at 47. Rather, the buyer’s pricing decision is constrained by the
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terms imposed by the manufacturer as a condition of sale. “The product . . .
comes packaged in a competition-free wrapping . . . by virtue of concerted action
induced by the manufacturer.” Id.By their very nature, tying arrangements also limit the power of a buyer to
pursue its individual self-interest. The buyer can no longer make its purchase
decision based upon the relative merits of the tied product, but is coerced into
purchasing the tied product from the producer because of the producer’s market
power in the tying product. As with unlawful resale price maintenance, a tying
arrangement packages the tied product in a competition-free wrapping by virtue of
the buyer’s agreement to the seller’s terms. That agreement satisfies the
concerted action requirement of section 1.
Finally, we reject Wang’s argument that today’s holding deals more harshly
with non-price conduct than with price fixing. In particular, Wang contends that
our holding creates a lower standard of proof of concerted action for plaintiffs
alleging an unlawful tying agreement than for plaintiffs alleging unlawful resale
price maintenance. Contrary to Wang’s argument, the requirements for proof of
concerted action in a tying case are consistent with those applied in cases
involving other unreasonable restraints of trade.
In Monsanto, the plaintiff sought to establish concerted action by offering
proof that the manufacturer terminated the plaintiff’s distributorship following
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complaints from rival distributors that plaintiff refused to adhere to the
manufacturer’s suggested prices. Monsanto, 465 U.S. at 757. Although such
evidence is probative of the existence of concerted action, id. at 765, the Court
required the plaintiff to introduce “evidence that tends to exclude the possibility
that the manufacturer and nonterminated distributors were acting independently”
in order to establish concerted retail price fixing. Id. at 764. The Court added
this requirement because the Court found it difficult to distinguish between lawful
unilateral and unlawful concerted conduct where each has the same economic
effect:
For example, the fact that a manufacturer and its distributors are in
constant communication about prices and marketing strategy does not
alone show that the distributors are not making independent pricing
decisions. A manufacturer and its distributors have legitimate
reasons to exchange information about the prices and the reception of
their products in the market. . . . Thus, the manufacturer’s strongly
felt concern about resale prices does not necessarily mean that it has
done more than the Colgate doctrine allows.
Id. at 762-63.
Such evidentiary ambiguity is generally absent in the tying context. The
sale of a tied product pursuant to a tying arrangement fully implements the
restraint of trade at the time of the sale. Evidence that the buyer acquiesces in a
tying arrangement will unequivocally “exclude the possibility that the
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manufacturer and [buyers] were acting independently.” 3 Id. at 764. A seller that
imposes a tying arrangement on the purchasers of its product takes affirmative
action to avoid competition in sales of the tied product by inducing, indeed
forcing, its customers to accept the tying arrangement, thereby accomplishing a
restraint of trade contemporaneously with the sale. Therefore, “we do not
construe Monsanto as a retreat from those cases holding that a combination occurs
between a seller and buyers ‘whose acquiescence in [the seller’s] firmly enforced
restraints was induced by the communicated danger of termination.’” Black Gold
II, 732 F.2d at 780 (quoting Perma Life Mufflers, 392 U.S. at 142) (alteration in
original, quotations omitted).
We originally announced the rule we adopt today in Black Gold I and Black
Gold II, and its validity clearly survived both Copperweld and Monsanto.
Further, both the Seventh and Ninth Circuits have held expressly that the “coerced
sales contract for the tied item” satisfies the “contract, combination, or
conspiracy” requirement of section 1. Datagate, Inc. v. Hewlett-Packard Co., 60
3
We decline to address the applicability of Monsanto where a plaintiff bases his
claim upon an implicit tie. Compare Service & Training, Inc. v. Data General Corp., 963
F.2d 680, 685 (4th Cir. 1992) (“[A]ppellants must produce evidence of an express tying
agreement or evidence that affirmatively ‘tends to exclude the possibility’ that Data
General and its customers ‘were acting independently’ in the sales and purchase of
products.”) (quoting Monsanto, 465 U.S. at 764) with Will, 776 F.2d at 670 (“Monsanto
helps to separate the legitimate and illegitimate components of a generally cooperative
system of distribution and has nothing to say about the meaning of joint action
requirement in a tying case.”) (citing Black Gold II, 732 F.2d at 780).
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F.3d 1421, 1426-27 (9th Cir. 1995) (“A showing that the buyer of the tied product
was coerced by the tying arrangement into making the purchase is sufficient to
show that the buyer was not merely ‘acting independently.’”); Will v.
Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir. 1985) (holding that a
contract between a franchisor and a franchisee that ties data processing to
franchise rights satisfies the concerted action requirement). Today’s decision is
therefore in harmony with both the law of the Supreme Court and our sister
circuits.
CONCLUSION
To reiterate, we hold that a contract between a buyer and seller satisfies the
concerted action element of section 1 of the Sherman Act where the seller coerces
a buyer’s acquiescence in a tying arrangement imposed by the seller. Therefore,
we overrule City of Chanute v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir.
1992), and McKenzie v. Mercy Hospital, 854 F.2d 365 (10th Cir. 1988), to the
extent that they are inconsistent with this holding. Because both the district court
and the panel based their decisions entirely upon our opinion in Chanute, we
VACATE the panel opinion, REVERSE the decision of the district court, and
REMAND to the district court for proceedings consistent with this opinion.
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