DocketNumber： 79-1280
Citation Numbers： 617 F.2d 1302, 47 Rad. Reg. 2d (P & F) 117, 1980 U.S. App. LEXIS 19467
Judges： Lay, Heaney, Henley
Filed Date： 3/20/1980
Status： Precedential
Modified Date： 11/4/2024
TV Signal Company of Aberdeen, a South Dakota corporation, appeals the dismissal of its action brought under the antitrust laws against American Telephone & Telegraph (AT&T) and Northwestern Bell Telephone Company (Bell). It originally filed a complaint alleging that the defendants had refused to allow TV Signal to attach its cable, used for transmitting CATV signals, to the defendants’ poles. The complaint alleged facts showing that defendants entered into an illegal conspiracy the effect of which was to unreasonably restrain trade in violation of section 1 of the Sherman Act. In addition, it alleged violations of section 2 of the Sherman Act and the Robinson-Patman Act. The district court, the Honorable Axel J. Beck presiding, dismissed the action for failure to state a claim on which relief could be granted. TV Signal Co. v. American Telephone & Telegraph, 324 F.Supp. 725 (D.S.D.1971).
This court reversed and remanded for plenary trial on the alleged violations of sections 1 and 2 of the Sherman Act. TV Signal Co. v. American Telephone & Telegraph Co., 462 F.2d 1256 (8th Cir. 1972). We held that the allegations of the complaint were sufficient to state a claim under both sections 1 and 2 of the Sherman Act. In doing so we stated that because CATV had broadband potential, the threat of competition was sufficiently alleged:
CATV is “one important gateway to entering the broadband market.” . The dangers of monopolization have been recognized by the Federal Communications Commission which has said, .
“ * * * by reason of their control over utility poles or conduits, the tele- ■ phone companies were in a position to*1305 preclude or substantially delay an unaffiliated CATV system from commencing service and thereby eliminate competition.”
Id. at 1260.
Upon remand, trial on the issue of liability proceeded before the Honorable Andrew W. Bogue, sitting without a jury.
Facts.
In 1969 TV Signal Company of Aberdeen sought to obtain permission from Bell to attach a coaxial cable to telephone and utility poles within the City of Aberdeen, South Dakota in order to transmit CATV signals. Bell had previously entered into contracts with other utilities which gave it exclusive control over all available communication space on the poles. The Bell System (AT&T and its subsidiaries) had a policy at that time which allowed only one attachment per pole. Bell had already granted to another cable TV operator the right to attach its cable to Bell’s poles and on that basis refused to allow TV Signal the right to attach its cable to defendants’ poles. Bell offered to build a distribution system and lease it back to plaintiff for distribution of plaintiff’s signals. TV Signal refused. In May of 1969 it contracted with Anaconda Electronics Company to build an underground system at a rate of $5,000 per mile. In October of 1969 when defendants abandoned their one per pole policy because of government rulings, Bell acceded to TV Signal’s request and allowed it to attach cable to Bell’s poles. The cost of constructing the remainder of the distribution system by attaching cable to the poles was only $3,650 per mile. The entire distribution system was 63.34 miles in length; 15.10 miles of cable were attached to the defendants’ poles and 48.24 miles of cable were placed underground.
Standing.
The district court held that TV Signal did not intend nor was it able to compete in the area of broadband services and that plaintiff lacked standing because it failed to show that it was a potential competitor of Bell’s. It held that there was no proof of any compensable damage to the plaintiff. TV Signal Co. v. American Telephone & Telegraph Co., 465 F.Supp. at 1092. The district court concluded that in spite of the fact that plaintiff was forced to install an underground system at a greater cost, such a system “would have resulted in the complete offset of the initially higher construction costs within a two-year period.”
We respectfully disagree with this analysis. The notion that a business could not have been injured if it was sold for a profit finds little legal support. It is well recognized that even a profitable business may sustain damage to its property or busi
The district court held that the additional, cost of an underground system would be offset by ensuing benefits. Even if this were true,
Plaintiff urges that the “forced sale” of its business was not the allegation of its injury.
The district court also held that plaintiff lacked standing since it failed to prove that it was either a competitor or potential competitor in the communications market. The district court found that the evidence indicated the projected market had not yet developed; that defendants’ one per pole policy had no effect on the development of broadband services; that TV Signal had only minimal intent to engage in any business other than basic CATV services; and that it had not taken any preparatory steps which would have allowed it to provide other services. Id. at 1097-98.
The district court reasoned that in order to have standing there must be overt and objective preparations to expand an existing business into a new market, relying on N. W. Controls, Inc. v. Outboard Marine Corp., 333 F.Supp. 493, 507 (D.Del.1971). We find the district court’s analysis does not fully address the precise issue presented here.
A. Broadband Services.
Internal AT&T memoranda demonstrate that the distribution of CATV signals was only the first step in the development of broadband services. This evidence affirmatively establishes defendants’ reliance on the belief that broadband was a logical extension of the already existing CATV market. The memoranda made by AT&T officials include these observations:
CATV opens the door to other broadband services that may be provided on facilities not owned by the Telephone Company. If we are to retain our future position in the broadband market, Mr. McKeage’s conclusion that we must own the facilities through which CATV, ETV, ITV, stay at home shopping, et al., are provided, appears valid.
Comments on 1967 Visual Mode Task Force, p. 1 (R. 721).
A Market Study of CATV, Phase I, completed in July 1967, pp. 3, 51 (R. 730, 757) stated:
CATV is more than just a cable transmission system for off-air television signals. It is a broadband service with channel capacity to provide additional services. As a result, the variety of services (e. g., ETV, public service programs, movies, signaling channels, etc.), and the numbers of channels available to CATV patrons will continue to increase.
This chart illustrates the rapid rate of growth that CATV, more appropriately called broadband services, has been having in the penetration of all telephone households. The rate of growth of telephone households being wired with a broadband facility is very significant considering that in the future, this facility may well be used for more than CATV.
A Broadband Market Study done in 1969 (R. 815) recited:
There are, at present, two media through which broadband communications can be provided. Obviously, the Bell System is the most practical medium because of the viability and capability of the organization and facilities which already exist. The CATV industry is the second medium that we can imagine providing broadband communications. Our reasoning is that CATV cables are presently capable of delivering enough spectrum to accommodate both CATV and broadband communications of various types.
The evidence demonstrates the broadband services market was the same as the CATV services market. The broadband market was not a new market but was simply an extension of an existing niarket. We find the reasoning of Heatransfer Corp. v. Volkswagenwerk, A. G., 553 F.2d 964, 986-89 n.20 (5th Cir. 1977), cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792 (1978), more applicable to these circumstances.
*1308 [T]he Court does not believe that a going concern, which is the victim of an anti-competitive practice, must forego damages for sales it would have made as the result of the natural expansion of its business simply because it was victimized early in its existence before its attempts to expand could ripen into evidence of preparedness and intent to increase its output. Thus, the question for the Court’s determination is whether, under the facts of the present case, the manufacture of units for each type of Volkswagen vehicle in the relevant market can be considered the expansion of a present business into a new market for purposes of standing, or simply one facet of growth in an ongoing business for purposes of damages. The line to be drawn between expansion into new areas and growth in established ones is not easily defined and one that must be determined from the facts of each case.
Heatransfer Corp. v. Volkswagenwerk, A. G., 553 F.2d at 988 n.20 (emphasis added). See also Forgett v. Scharf, 181 F.2d 754, 757 (3d Cir. 1950), cert. denied, 340 U.S. 825, 71 S.Ct. 59, 95 L.Ed. 606.
Once the cable was in the ground plaintiff had taken sufficient steps to establish itself as a potential competitor since it could eventually expand into broadband services. We make no judgment at this time, as to whether it can prove injury beyond the increased cost of construction. Assuming the trial court’s findings that broadband services have not expanded as anticipated and that plaintiff lacked the intent to expand into those services, it may very well be that any injuries other than those specified above would be too speculative and conjectural to prove under the antitrust laws.
B. Distribution Facilities.
There is also a basis in the record to hold that plaintiff was in actual competition with Bell. Bell’s one per pole policy provided plaintiff and any other independent operator with the choice of going underground at greater expense, with certain alleged deficiencies, or paying Bell for use of Bell’s own distribution system. The evidence showed that Bell could receive as much at 70% to 90% of the CATV revenue if it controlled the distribution of CATV signals. Thus, although plaintiff was not a builder and Bell was not in the CATV business, a fundamental requisite of operation was distribution of the CATV signal. Bell’s exclusive control under its one per pole policy placed it in direct competition with any operator who wished to distribute its own CATV signal.
The Department of Justice early recognized that CATV operators and telephone companies were both competitors and potential competitors. In 1970 it stated:
In the [Justice] Department’s Comments in Docket 18509, we emphasized that independent CATV operators and the telephone companies were present and direct competitors in the construction of CATV distribution systems. We also stressed the significant potential for future competition between telephone companies and the independent CATV operators in the many uses of broadband cable. This theme was recognized by the [Federal Communications] Commission in its Notice of Proposed Rule-Making in Docket 18397.
We wish to emphasize that the competition we are concerned about goes beyond the provision of television signals to customers. The key to competition between a telephone company and a CATV company is control of the wire or broadband cable which is connected to the premises of each customer. [1] Thus, by selecting a leaseback operator to provide CATV service subject to a restrictive tariff, the telephone company retains control of the cable system and reserves to itself the ability to develop (or block) new uses of the cable, e. g., for data transmission, meter reading, surveillance systems.
The telephone companies have made it clear that they regard cable operators as*1309 potential competitors for a variety of services. For example, while the Bell System is experimenting with meter reading by cable, its tariffs prohibit two-way transmission by a CATV operator.
Comments of the Department of Justice, in FCC Docket 17441, at 18, 20 (1970).
The Fifth Circuit recognized the evil of the one per pole policy in observing:
Since the telephone companies have a natural monopoly over the means required to conduct a CATV operation, i. e., the poles or conduits, they are in a position to pre-empt the market for this important service. CATV service is the initial practical application of broadband cable technology . . . . CATV is one important gateway to entering the broadband market . . . . There is no reason to deny independent operators the opportunity to participate in broadband cable development, yet without adequate regulation the power to deny entry would reside in the telephone companies.
General Telephone Co. of Southwest v. United States, 449 F.2d 846, 856-57 (5th Cir. 1971).
The plaintiff has amply demonstrated that it has standing since it was both a competitor and a potential competitor.
Relevant Market.
The district court held that plaintiff failed to establish the relevant market because it failed to show that it competed with defendants.
We are naturally competing in this area with the operator who chooses to construct his facilities, you know, as many of them do .
We conclude that plaintiff was in direct competition with defendants. The area, in which they competed was a submarket of the CATV industry, the construction of CATV distribution facilities and the distribution of CATV signals. See Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1523, 8 L.Ed.2d 510 (1962). The mere fact that TV Signal was building a distribution facility for its own use did not prevent it from being considered a competitor of Bell who builds such facilities for use by others. Cf. United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945) (Alcoa required to include aluminum produced for its own use in determining relevant market).
The fact that Bell allowed one operator to attach cable to its poles does not make the restriction reasonable. As defendants’ own records indicate, one of the reasons for allowing the single attachment was to placate those who might accuse them of violating the antitrust laws.
We thus find that plaintiff has demonstrated (1) standing as a competitor and potential competitor, (2) evidence of injury in fact based on its increased cost of construction which was, (3) proximately caused by Bell’s one per pole policy. On this basis we vacate the judgment in favor of the defendants and remand for further findings on the remaining issues.
. The term broadband is used in the communications industry to describe a wide range of communications services including, meter reading, stock market quotations, burglar and fire alarm services, at-home shopping services, data service, and two-way television. TV Signal Co. v. American Tel. & Tel. Co., 465 F.Supp. 1084, 1096 (D.S.D.1979); see General Tel. Co. of Southwest v. United States, 449 F.2d 846, 851 n.l (5th Cir. 1971).
. The district court limited the trial to the liability issue, with a trial on damages, if necessary, to follow.
. TV Signal did not own the distribution system for two years. Its assets, including the distribution system, were sold less than a year after it formally accepted the system. TV Signal Co. v. American Tel. & Tel. Co., 465 F.Supp. at 1095.
. The plaintiff adduced evidence that burying the cable was not only more expensive but detracted from its overall efficiency and use. In 1969 the cable industry had not yet developed satisfactory underground cable and accessories for use in a CATV system. TV Signal used aerial cable in its underground system and there was some evidence that aerial cable which was used underground would corrode rapidly. Underground construction was normally slower and maintenance expenses were greater. As a result of these and other difficulties, plaintiff claimed that aerial construction was far more desirable than underground construction.
. Numerous cases have granted standing to plaintiffs who continued to make a profit or made a profit in the sale of their business, in spite of being the victim of an antitrust violation. Actually, this argument is a form of the pass-on theory — i. e. because the plaintiff could or did charge a higher price and made a profit it is not entitled to recover. This theory has been consistently rejected. Illinois Brick Co. v. Illinois, 431 U.S. 720, 728, 97 S.Ct. 2061, 2066, 52 L.Ed.2d 707 (1977); accord, Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489, 88 S.Ct. 2224, 2229, 20 L.Ed.2d 1231 (1968); Beckers v. International Snowmobile Indus. Ass’n, AMF, Inc., 581 F.2d 1308, 1310 (8th Cir. 1978), cert. denied, 440 U.S. 986, 99 S.Ct. 1801, 60 L.Ed.2d 248 (1979); Minnesota v. United States Steel Corp., 438 F.2d 1380, 1381—82 (8th Cir. 1971).
. The district court’s finding specifically supports the conclusion that Bell’s conduct was the proximate cause of the injury. TV Signal Co. v. American Tel. & Tel. Co., 465 F.Supp. at 1092.
. In finding no competitive injury the district court relied in part on this court’s decision in Reiter v. Sonotone, 579 F.2d 1077 (8th Cir. 1978). The opinion of the district court was handed down on February 16, 1979, before the Supreme Court’s unanimous reversal of this court in Reiter v. Sonotone, 442 U.S. 330, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). That case makes it clear that competitors are not the only persons who have standing under 15 U.S.C. § 15.
Bell argues as it did on the first appeal, that it is not illegal to enter into an exclusive dealing contract, as it had done here, allowing use of its facilities (poles) to only one operator. It relies on numerous cases: Donovan v. Pennsylvania Co., 199 U.S. 279, 26 S.Ct. 91, 50 L.Ed. 192 (1905); Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S.Ct. 404, 72 L.Ed. 681 (1928); Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251, 252-53 (6th Cir. 1970), cert. denied, 400 U.S. 1000, 91 S.Ct. 460, 27 L.Ed.2d 451 (1971); E. W. Wiggins Airways, Inc. v. Massachusetts Port Authority, 362 F.2d 52 (1st Cir.), cert. denied, 385 U.S. 947, 87 S.Ct. 320, 17 L.Ed.2d 226 (1966); Savon Gas Stations Number Six, Inc. v. Shell Oil Co., 309 F.2d 306 (4th Cir. 1962), cert. denied, 372 U.S. 911, 83 S.Ct. 725, 9 L.Ed.2d 719 (1963); Parmelee Transp. Co. v. Keeshin, 292 F.2d 794 (7th Cir. 1961), cert. denied, 368 U.S. 944, 82 S.Ct. 376, 7 L.Ed.2d 340 (1962). These cases (sometimes called the “Terminal” cases) are clearly distinguishable because in the present case there exists evidence that the purpose of Bell’s exclusion policy was to coerce operators to utilize Bell’s own equipment, thus yielding greater revenue to Bell, and deterring independent operators from entering the CATV and potential broadband communications fields.
. There exist two requirements under section 1 of the Sherman Act for proof of relevant market: Plaintiff must establish (1) the relevant geographic market, and (2) the relevant product market. The evidence strongly suggests that the relevant geographic market is Aberdeen. The relevant product market relates to the development of a distribution system and the distribution of CATV signals. Defendants’ one per pole policy tends to eliminate competition in the development of distribution systems and the distribution of CATV signals. Neither relevant product market nor relevant geographic market were discussed by the trial court once it determined that TV Signal did not compete with Bell. We feel in light of the remand the trial court should make specific factual findings related to the evidence on these issues. Although plaintiff asserts there is no requirement of proof of relevant market under section 1 of the Sherman Act in contrast to section 2, we disagree. No proof of relevant market is required under section 1 where a per se violation is established. See, e. g., United States v. Topco Assocs., Inc., 405 U.S. 596, 92, S.Ct. 1126, 31 L.Ed.2d 515 (1972); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); 1 von Kalinowski, Antitrust Laws and Trade Regulation, Ch. 6 (1979). However, where the Rule of Reason governs in section 1 cases, proof of relevant market is necessary to demonstrate the unreasonableness of the restraint. As stated in Columbia Metal Culvert Co., Inc. v. Kaiser Aluminum & Chem. Corp., 579 F.2d 20 (3d Cir.), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190 (1978):
The § 2 market definition looks to the existence of competitors as evidence of countervailing power which would preclude monopolization. § 1, in contrast, is concerned with patterns of competition as a means of judging whether a restraint of trade is unreasonable.
Id. at 27 n.ll (citations omitted).