Assam Drug Co., Inc., Downtown, Inc., D/b/a Shoppers Cityliquor of Mitchell, S.d., Appellants, v. Miller Brewing Co., Inc., Appellee, 798 F.2d 311 (8th Cir. 1986)

Assam Drug Co., Inc., and Downtown, Inc., appeal the district court's¹  grant of summary judgment in their action against Miller Brewing Company, Inc., seeking damages and injunctive relief for alleged violations of South Dakota antitrust law. Assam and Downtown claimed that Miller restrained trade by its use of a distributor agreement defining exclusive territories where distributors may market Miller products. The district court, in granting Miller's motion for summary judgment, found that Miller had no power in the relevant market. The issue in this appeal is whether summary judgment should be granted in an antitrust case of vertical nonprice restraint where the plaintiff has not shown that the defendant has market power.

* Assam Drug Co. and Downtown, Inc., are corporations under the common ownership of a single family. Assam is located at Sioux Falls, South Dakota, and Downtown is located at Mitchell, South Dakota. Both corporations are retail sellers of beer and other alcoholic beverages. Miller Brewing Company produces and sells beer, which it distributes through a national network of more than 700 independent distributors.

Beginning in 1976, Assam and Downtown bought their Miller products through Brewster Distributing Company, a Watertown, South Dakota, distributor. Assam and Downtown chose to obtain their Miller products in Watertown because Brewster offered a lower price and an attractive discounting policy. In May 1983 Miller entered into a revised distributor agreement with Brewster and its other distributors. Prior distributor agreements used by Miller had assigned each distributor an area of primary responsibility but did not prohibit sales outside that area. Under the new distributor agreement, Brewster was appointed the sole Miller distributor for a limited geographical area.²  The area assigned to Brewster excluded Sioux Falls and Mitchell, the respective locations of Assam and Downtown.³  Consequently, Brewster discontinued selling Miller products to Assam and Downtown in order to comply with the distributor agreement.

Assam and Downtown sued Miller in South Dakota state court alleging that the exclusive territory provision of the distributor agreement violated South Dakota antitrust law. Assam and Downtown alleged that, as a result of the distributor agreement, competition in the sale of beer in South Dakota had been reduced and, more specifically, that Assam and Downtown were paying higher prices for beer than they had previously paid to Brewster.

Miller removed the action to the federal district court. After a year of discovery, Miller moved for summary judgment. Miller claimed that Assam and Downtown had failed to establish the threshold legal requirement of Miller's market power.⁴  The district court agreed with Miller. Assam Drug Co. v. Miller Brewing Co., 624 F. Supp. 411 (D.S.D. 1985). The court found that "the market power test is analytically sound and consistent with * * * pro-competitive values," id. at 413, concluded that "it is clear that defendant does not possess market power in the product market relevant to this case," id. at 414, and granted summary judgment for Miller.

II

* Although Assam and Downtown brought this suit under South Dakota antitrust law, S.D. Codified Laws Sec. 37-1-3.1 (1977), our analysis does not differ significantly from that applied to actions brought under the federal antitrust laws. The South Dakota statutory language governing restraint of trade⁵  is similar to section one of the Sherman Act,⁶  and the South Dakota legislature has indicated that federal court interpretations of the federal antitrust laws may be used as a guide in interpreting the state law. S.D. Codified Laws Sec. 37-1-22 (1977). Furthermore, the South Dakota Supreme Court has stated that in construing the state law "great weight should be given to the federal cases interpreting the federal statute." Byre v. City of Chamberlain, 362 N.W.2d 69, 74 (S.D.1985).

B

The central issue in this case is whether we should adopt a threshold requirement of market power for antitrust cases involving vertical nonprice restraints. Our analysis of this issue requires a brief background review of the antitrust treatment of vertical nonprice restraints.

The antitrust laws, both South Dakota and federal, contain broad prohibitions of "restraint of trade." 15 U.S.C. § 1 (1982); S.D. Codified Laws Sec. 37-1-3.1 (1977). But because it might be said that virtually all basic business arrangements restrain trade in some manner, the Supreme Court has confined the scope of the law to activity that unreasonably restrains trade. Standard Oil Co. v. United States, 221 U.S. 1, 60, 31 S. Ct. 502, 515, 55 L. Ed. 619 (1911). These restraints are judged by two standards. First, "there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific Railway v. United States, 356 U.S. 1, 5, 78 S. Ct. 514, 518, 2 L. Ed. 2d 545 (1958). Restraints of this type are categorized as per se violations of the law. The per se category is reserved for those activities that are "plainly anticompetitive." National Society of Professional Engineers v. United States, 435 U.S. 679, 692, 98 S. Ct. 1355, 1365, 55 L. Ed. 2d 637 (1978). Restraints the effects of which are not so immediately apparent are judged under a second standard, the rule of reason.⁷  Under the rule of reason "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97 S. Ct. 2549, 2557, 53 L. Ed. 2d 568 (1977).

The territorial restraint that we evaluate in this case is known as a vertical nonprice restraint.⁸  Vertical restraints are those imposed by persons or firms that are above the restrained person or firm in the chain of distribution.⁹  The antitrust treatment of vertical nonprice restraints has a lively past. In White Motor Co. v. United States, 372 U.S. 253, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963), a case that the Supreme Court described as its "first case involving a territorial restriction in a vertical arrangement," id. at 261, 83 S. Ct. at 701 (emphasis omitted), the Court refused to apply a per se rule to vertical nonprice restraints.¹⁰  Four years later in United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249 (1967), the Court held that " [o]nce the manufacturer has parted with title and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to whom the product may be transferred--whether by explicit agreement or by silent combination or understanding with his vendee--is a per se violation of Sec. 1 of the Sherman Act." Id. at 382, 87 S. Ct. at 1867. The per se rule announced in Schwinn was rejected, however, in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977). The Sylvania Court found that the rule of reason was the more appropriate test of the legality of vertical nonprice restraints. Id. at 59, 97 S. Ct. at 2562.

The Sylvania Court undertook a complete reexamination of the per se approach to vertical restraints, basing much of its analysis on the market impact of vertical restrictions. The Court noted that vertical restraints have the "potential for a simultaneous reduction of intrabrand competition and stimulation of interbrand competition."¹¹  Id. at 51-52, 97 S. Ct. at 2558. Vertical restraints may reduce intrabrand competition "by limiting the number of sellers of a particular product competing for the business of a given group of buyers." Id. at 54, 97 S. Ct. at 2559. On the other hand, vertical restraints may enhance interbrand competition "by allowing the manufacturer to achieve certain efficiencies in the distribution of his products." Id. Specifically, the Court noted at least three ways that vertical restraints may enhance interbrand competition: (1) new manufacturers and manufacturers entering new markets can use the restrictions to induce retailers to invest in capital and labor to the extent required to distribute products unknown to the consumer, id. at 55, 97 S. Ct. at 2560; (2) manufacturers can use the restrictions to induce retailers to engage in promotional activities or provide service and repair facilities, id.; and (3) manufacturers can use the restrictions to ensure product quality and safety. Id. at 55 n. 23, 97 S. Ct. at 2560 n. 23. Because of their potential for procompetitive effects, Sylvania held that vertical nonprice restraints should be tested by the rule of reason.¹² 

C

The vertical nonprice restraint at issue in this case is plainly subject to evaluation under the rule of reason. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977). The rule of reason, however, is a vacuous standard and as such it provides little concrete direction for evaluating the competitive effects of a challenged restraint.¹³  Some courts have narrowed the unlimited inquiry necessary under the rule of reason by requiring at the threshold that the plaintiff attacking a vertical nonprice restraint prove the defendant's substantial market power in a relevant market. See, e.g., Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221 (D.C. Cir. 1986); General Leaseways, Inc. v. National Truck Leasing Association, 744 F.2d 588, 596 (7th Cir. 1984); Graphic Products Distributors, Inc. v. Itek Corp., 717 F.2d 1560, 1568-69 (11th Cir. 1983); Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1202 (6th Cir. 1982), cert. denied sub nom. Service Merchandise Co. v. Amana Refrigeration, Inc., 466 U.S. 931, 104 S. Ct. 1718, 80 L. Ed. 2d 190 (1984); Valley Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d 742, 745 (7th Cir. 1982); Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292, 298 (5th Cir. 1981); O.S.C. Corp. v. Apple Computer, Inc., 601 F. Supp. 1274, 1291 n. 8 (C.D. Cal. 1985), aff'd, 792 F.2d 1464 (9th Cir. 1986). The theory of the market power approach has been explained by Professor, now Judge, Posner:

The absence of market power in the interbrand market implies that the defendant is in competition with firms that sell products regarded by the consumer as close substitutes for the defendant's. The defendant therefore will lose most or all of its sales if its retail price exceeds its competitors' retail price for any reason, including a lack of intrabrand competition that drives its costs of distribution up. To put the point slightly differently, if a firm lacks market power, it cannot affect the price of its product; that price is determined by the market.

Posner, supra note 12, at 16. The Supreme Court has instructed that " [i]nterbrand competition * * * is the primary concern of antitrust law." Sylvania, 433 U.S. at 52 n. 19, 97 S. Ct. at 2558 n. 19. Firms lacking market power, if they wish to survive, cannot adopt restraints that have anticompetitive effects. Thus such firms cannot have an effect on interbrand competition. Consequently, a finding of no market power precludes any need to further balance the competitive effects of a challenged restraint.¹⁴ 

We conclude that the market power approach is sound and economically consistent with the application of the rule of reason and evaluation of vertical nonprice restraints as explained in Sylvania.¹⁵  The theory of the approach as applied to this case is that Miller is in competition with other firms selling beers that are close substitutes for Miller beer. Miller would lose sales if any price increase resulted from reduced intrabrand competition growing out of the territorial restraint. Unless Miller has market power, market forces would compel it to employ territorial restraints only if the restraints had no depressive effect on sales. Thus, market power becomes the crucial issue because without it reduced intrabrand competition cannot have a parallel effect on interbrand competition.

III

Having determined that the market power approach is appropriate and useful in evaluating vertical nonprice restraints, we turn to the question of whether it is an appropriate basis for summary judgment.

Although summary procedures should be used "sparingly" in antitrust litigation, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962), that concern is greatest "where motive and intent play leading roles." Id. at 473, 82 S. Ct. at 491. Summary judgment is not precluded in antitrust litigation. 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure Sec. 2732.1 (2d ed. 1983). This court has upheld summary judgments in antitrust cases. See, e.g., Impro Products, Inc. v. Herrick, 715 F.2d 1267, 1276, 1280 (8th Cir. 1983), cert. denied, 465 U.S. 1026, 104 S. Ct. 1282, 79 L. Ed. 2d 686 (1984); Admiral Theatre Corp. v. Douglas Theatre Co., 585 F.2d 877, 889-90 (8th Cir. 1978); Willmar Poultry Co. v. Morton-Norwich Products, Inc., 520 F.2d 289, 293-94 (8th Cir. 1975) ("where there has been ample opportunity for discovery, summary judgment is appropriate in antitrust litigation"), cert. denied, 424 U.S. 915, 96 S. Ct. 1116, 47 L. Ed. 2d 320 (1976). The Supreme Court noted in First National Bank v. Cities Service Co., 391 U.S. 253, 290, 88 S. Ct. 1575, 1593, 20 L. Ed. 2d 569 (1968):

While we recognize the importance of preserving litigants' rights to a trial on their claims, we are not prepared to extend those rights to the point of requiring that anyone who files an anti-trust complaint setting forth a valid cause of action be entitled to a full-dress trial notwithstanding the absence of any significant probative evidence tending to support the complaint.

Recently, the Court again demonstrated the availability of summary judgment in antitrust cases when it reversed a court of appeals reversal of a district court grant of summary judgment in an antitrust case involving conspiracy issues. Matsushita Electric Industrial Co. v. Zenith Radio Corp., --- U.S. ----, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The Matsushita Court noted the relevance of economic realities in evaluating summary judgment motions, stating that "if the factual context renders respondents' claim implausible--if the claim is one that simply makes no economic sense--respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary." Id. 106 S. Ct. at 1356. Because a showing of market power is a threshold requirement to challenging a vertical nonprice restraint, a defendant who establishes, in accordance with the rules governing summary judgment, that it lacks market power a fortiori establishes that no genuine issue of material fact exists and is entitled to entry of judgment in its favor as a matter of law. Fed. R. Civ. P. 56(c).

IV

Having adopted the market power approach and having determined that it is an appropriate basis for summary judgment, we now review the district court's finding that Miller had no market power. Because this action is here on appeal of the district court's grant of Miller's motion for summary judgment, Assam¹⁶  must be given the benefit of every favorable inference that may be drawn from the evidence. Buford v. Tremayne, 747 F.2d 445, 447 (8th Cir. 1984). Summary judgment is proper only when there is no genuine issue of material fact so that the case may be decided as a matter of law. Id.

In order to establish that the defendant has market power, the plaintiff must show that the defendant has a dominant market share in a well-defined relevant market. Graphic Products Distributors, 717 F.2d at 1569 (quoting Cornwell Quality Tools Co. v. C.T.S. Co., 446 F.2d 825, 829 (9th Cir. 1971), cert. denied, 404 U.S. 1049, 92 S. Ct. 715, 716, 30 L. Ed. 2d 740 (1972)); Posner, supra note 12, at 16. The market must be defined in terms of both product and geography. Valley Liquors, 678 F.2d at 745. The district court, guided by the affidavit of Miller Assistant Secretary and Assistant General Counsel Carroll A. Bodie, an affidavit submitted by Miller in support of its motion for summary judgment, referred to "the interbrand beer market in South Dakota," Assam Drug, 624 F. Supp. at 414, as the relevant product and geographical market. Because Assam has not at any time contested that the "interbrand beer market" is the relevant product market here, we find no issue as to that fact. There has, however, been some confusion over the relevant geographical market. Although at various points in the proceedings in the trial court Assam asserted that the relevant geographical market is eastern South Dakota, eastern South Dakota and adjoining areas in Minnesota and Iowa, or the entire state of South Dakota, Assam has not on appeal challenged the district court's designation of South Dakota as the relevant geographical market. Even had it done so, the Bodie affidavit accepted by the district court shows that Miller's market share did not vary significantly in any of the markets asserted by Assam throughout this litigation.¹⁷  Consequently, the record admits of no inference for Assam on the geographical market issue that would raise an issue of fact.

The district court, again relying on the Bodie affidavit, found that Miller's market share in the interbrand beer market in South Dakota was 19.1%.¹⁸  Assam's response to this figure, contained in its response to Miller's motion for summary judgment, was that it was a "self-serving statistical conclusion [ ] by Miller of which the plaintiffs have no knowledge." Plaintiff's Response to Miller's Statements of Material Fact, Designated Record at 209, 210. Assam argues on appeal, however, that certain deposition statements of an owner of Assam create an issue as to market share.¹⁹ 

A party opposing a motion for summary judgment may not rely on the allegations of its pleadings but must respond to the motion by setting forth specific facts that raise a genuine issue of fact. Burst v. Adolph Coors Co., 650 F.2d 930, 932 (8th Cir. 1981); Willmar Poultry Co. v. Morton-Norwich Products, Inc., 520 F.2d 289, 293-94 (8th Cir. 1975), cert. denied, 424 U.S. 915, 96 S. Ct. 1116, 47 L. Ed. 2d 320 (1976). Assam's initial response did not meet that requirement, and we find its later reliance on ambiguous and unfounded deposition statements insufficient to raise a genuine issue of fact.²⁰  A party opposing a motion for summary judgment "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 106 S. Ct. at 1356.

V

The market power approach is a proper method of evaluating vertical nonprice restraints under the rule of reason and is an appropriate basis for summary judgment in such a case. If Miller lacks market power, the territorial restraints it imposed on Brewster in the distributor agreement cannot have an anticompetitive effect on interbrand competition.²¹  We agree with the district court that Assam has raised no genuine issue of material fact to deter the conclusion that Miller lacks market power. Accordingly, we affirm the summary judgment.