Unpublished Disposition, 895 F.2d 1417 (9th Cir. 1985)Annotate this Case
The HAAGEN-DAZS COMPANY, INC., Pillsbury Company, Plaintiffs-Appellees,v.DOUBLE RAINBOW GOURMET ICE CREAMS, INC., Two Count Company,Defendants-Appellants.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Nov. 13, 1989.Decided Feb. 8, 1990.
Before FARRIS, PREGERSON and RYMER, Circuit Judges.
Two Count and Double Rainbow appeal from the district court's grant of summary judgment dismissing their claims against Haagen-Dazs and approving Haagen-Dazs' exclusive distribution policy. We affirm.1
* We review a grant of summary judgment de novo. Kruso v. International Telephone & Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989). Under Fed. R. Civ. P. 56(c), summary judgment is appropriate if, viewing the evidence in the light most favorable to the nonmoving party, "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."
Haagen-Dazs manufactures ice cream and frozen dessert products, including Haagen-Dazs brand ice cream. Haagen-Dazs ice cream is made of high quality natural ingredients, contains a low volume of air, and is high in butterfat content. These characteristics distinguish the Haagen-Dazs product from other ice cream products, and cause Haagen-Dazs ice cream to be referred to as "super premium" ice cream. Haagen-Dazs was the first super premium ice cream distributed in the United States.
Haagen-Dazs distributes its ice cream via company-owned and selected independent distributors under an exclusive distribution policy. This policy states that Haagen-Dazs will refuse to sell its ice cream products to any distributor who also sells a comparable brand of ice cream. Considerations such as quality, image, packaging, price, and public perception determine whether a brand of ice cream is comparable to the Haagen-Dazs brand.
In 1976, Haagen-Dazs entered into an oral agreement, that contained no term of duration, with Two Count to distribute Haagen-Dazs ice cream in Northern California. In the years that followed, Two Count successfully sold and established Haagen-Dazs products in Northern California. However, in 1985 Two Count, fully aware of Haagen-Dazs' exclusive distribution policy, entered into a written distribution agreement with Double Rainbow. This agreement provided that Two Count was to use its "best efforts" to promote the sale of Double Rainbow products. Double Rainbow manufactures and sells an ice cream product that is comparable in quality and thus competes with the Haagen-Dazs product. The agreement with Double Rainbow violated Haagen-Dazs' exclusive distribution policy. Consequently, in May 1985 Haagen-Dazs notified Two Count that on August 1, 1985 the distribution arrangements between Haagen-Dazs and Two Count would end. Haagen-Dazs then entered into negotiations with Dreyers to set up a distribution agreement. Dreyers, however, also manufactured a super premium ice cream of comparable quality with Haagen-Dazs called Tres Chocolate. Any agreement with Dreyers would have created a conflict with Haagen-Dazs' distribution policy. To avoid this conflict, Haagen-Dazs and Dreyers concluded an agreement whereby Dreyers' trademark Tres Chocolate would be conveyed to Haagen-Dazs and would remain with Haagen-Dazs for as long as the distribution agreement was in force. The Haagen-Dazs/Dreyers distribution arrangement was terminated in 1986; Haagen-Dazs now acts as its own distributor in Northern California.
Two Count and Double Rainbow assert that Haagen-Dazs has a monopoly, or is attempting to monopolize, in violation of Sec. 2 of the Sherman Act. Section 2 of the Sherman Act provides in part:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony....
15 U.S.C. § 2 (1988). There are three elements to a monopolization claim: 1) possession of monopoly power in the relevant market, 2) willful acquisition or maintenance of that power, and 3) causal "antitrust" injury. Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 736 (9th Cir. 1987).
There are also three elements to a claim for attempted monopolization: 1) specific intent to control prices or destroy competition in the relevant market, 2) predatory or anticompetitive conduct directed to accomplishing the unlawful purpose, and 3) a dangerous probability of success. Id.
The district court held that the Sec. 2 claims of Two Count and Double Rainbow failed because there was no genuine issue of material fact that Haagen-Dazs had monopoly power in the relevant market or any intent to conrol prices or destroy competition in a relevant market. The court defined the relevant product market as the ice cream market. Two Count and Double Rainbow claim that the product market determination is a question of fact for the jury, who could reasonably conclude that the relevant market or submarket is the super premium ice cream market. Although the issue of relevant market is generally a question for the jury, Syufy Enters. v. American Multicinema Inc., 793 F.2d 990, 994 (9th Cir. 1986), Two Count and Double Rainbow presented no evidence to create a genuine issue of material fact for the jury to decide. Consequently, the district court properly granted summary judgment on the product market issue. See Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors, Inc., 637 F.2d 1376, 1387 (9th Cir. 1981), cert. denied, 454 U.S. 831, 102 S. Ct. 128, 70 L. Ed. 2d 109 (1981).
The relevant market is generally determined by reference to both the relevant product market and the relevant geographic market. In a monopoly case the purpose behind defining the product market is to see whether the alleged monopolist has the power to maintain a price that will earn higher than competitive profits. The most fundamental principle to product market definition is cross-elasticity. "Market power is limited by the presence of substitutes to which buyers may turn (cross-elasticity of demand), and by the ability of other existing producers or new entrants to expand output from existing facilities or by building new capacity (elasticity of supply)." II P. Areeda & D. Turner, Antitrust Law Sec. 519, at 348 (1978). If either a number of substitute goods exist, or entry into an industry is reasonably easy, or both, a seller setting a product's price above the competitive level, cost plus a reasonable return, will encourage both consumer shifts to alternative substitute goods and new or increased seller entry into the market. A seller in a market with this structure will not be able to maintain monopoly prices, and thus cannot be said to have market power.
Cross-elasticity of demand
Products which are "reasonably interchangeable" for the same or similar use should be grouped in the same product market for antitrust purposes. Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962). Within a broad product market, however, distinct submarkets may exist which constitute product markets for antitrust purposes. Id. Two Count and Double Rainbow presented evidence attempting to establish that there are significant physical differences, pricing differences, distribution differences, and advertising/marketing differences between super premium ice cream and other ice cream. Further, Two Count and Double Rainbow presented evidence that Haagen-Dazs and the ice cream industry recognize that super premium ice cream competes in a different market from other ice cream. The Two Count/Double Rainbow evidence does not create an issue of fact that "super premium" is a distinct submarket of the ice cream market.
The producers in the ice cream market are monopolistic competitors. They attempt through advertising, quality and pricing to differentiate their brand as much as possible from other brands in direct competition with them. A producer of a successfully differentiated product, like a monopolist, can raise a product's price above the competition without losing all sales. However, even though each brand of a product is unique, each does not constitute a separate product market. "Courts have repeatedly rejected efforts to define markets by price variances or product quality variances." See, e.g., Brown Shoe. 370 U.S. at 326; Ron Tonkin Grand Turismo v. Fiat, 637 F.2d at 1379-80; Liggett & Myers, Inc. v. FTC, 567 F.2d 1273, 1274-75 (4th Cir. 1977); Beatrice Foods Co. v. FTC, 540 F.2d 303, 309-10 (7th Cir. 1976); JBL Enters. v. Jhirmack Enters., 509 F. Supp. 357, 371-72 (N.D. Cal. 1981); United States v. Jos. Schlitz Brewing Co., 253 F. Supp. 129, 145-46 (N.D. Cal. 1966) aff'd, 385 U.S. 37, 87 S. Ct. 240, 17 L. Ed. 2d 35 (1966). The reason is that differentiated products face intense competition from other brands of the same product.
There are cases where submarkets have been identified. In Brown Shoe, for instance, the Supreme Court recognized submarkets for men's, women's and children's shoes. 370 U.S. at 326. Each submarket was "noncompetitive with the others." Id. Similarly, the Federal Trade Commission has recognized that there is no "meaningful competition" between table wines and traditional sweet wines, In the Matter of Coca-Cola Bottling Company of New York, Inc., 93 F.T.C. 110 (1979) ("the host of a dinner party, faced with the wide variety of table wines available to him, would almost certainly not consider any of the Mogen David traditional [sweet] wines suitable to be served at his table"). The key to these cases is that the differences in the products are so pronounced that a consumer would not consider one a reasonable substitute for the other. See, e.g., Syufy Enters. v. American Multicinema, Inc., 793 F.2d 990, 994 (9th Cir. 1986) ("if the price for admission to E.T. goes up, audiences will not flock to My Dinner With Andre."). These products are not within a price and quality spectrum, rather they are so different that they are unsuited for the same purpose.
In contrast, the evidence presented by Two Count and Double Rainbow suggests that the differences between super premium ice cream and other ice cream products are within a price and quality spectrum. Two Count and Double Rainbow have not presented sufficient evidence to create a genuine issue of fact that people who buy super premium ice creams would not buy others which are lower in the spectrum of price or quality.
Elasticity of Supply
Supply also has its elasticity and cross-elasticity. This concept considers whether existing firms could rapidly expand production and/or outsiders could rapidly enter if prices in the product market were pushed above competitive levels. Generally, any ice cream plant can manufacture any grade of ice cream. For instance, Carnation, the maker of Double Rainbow ice cream, also makes ice cream for other companies. The ease of substituting manufacturers for any grade of ice cream suggests that a separate product market based upon the "super premium" distinction should not exist for antitrust purposes. See Twin City Sportserv., Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1271 (9th Cir. 1975) (given "the ability of firms in a given line of commerce to turn their productive facilities toward the production of commodities in another line because of similarities in technology between them ... the two commodities in question should be treated as part of the same market"). The classic barriers to entry that confer monopoly power are not present in this market.
Market power may be measured by market share. In United States v. Aluminum Co. of Am., 148 F.2d 416, 424 (2d Cir. 1945) (approved and adopted American Tobacco Co. v. United States, 328 U.S. 781, 811-14, 66 S. Ct. 1125, 90 L. Ed. 1575 (1946)), Judge Learned Hand established the rule of thumb that while a 90 percent market share is enough to constitute monopolization, "it is doubtful whether sixty or sixty-four percent would be enough; and certainly, thirty-three per cent is not." In Forro Precision, Inc. v. International Business Machines Corp., 673 F.2d 1045, 1058 (9th Cir. 1982), cert. denied, 471 U.S. 1130, 105 S. Ct. 2664, 86 L. Ed. 2d 280 (1985), this court stated that "a 35% market share, and particularly a declining 35% market share, provides little or no support to a claim of market power." Haagen-Dazs statistics indicate a market share in the San Francisco area ice cream market of four to five percent and a 4.6% market share nationwide. Two Count and Double Rainbow rely upon statistics that show Haagen-Dazs's nationwide market share at 5.1%. Thus, Two Count's and Double Rainbow's Sec. 2 claims cannot lie because Haagen-Dazs does not possess monopoly power in the ice cream market.
The appellants' claim of attempted monopolization under Sec. 2 also fails because the appellants failed to prove a dangerous probability of success. The dangerous probability element of attempted monopolization may be proven either from direct proof of market power or from proof of specific intent to control prices or destroy competition and predatory conduct. California Computer Products, Inc. v. IBM Corp., 613 F.2d 727, 737 (9th Cir. 1979). Haagen-Dazs does not possess market power in the ice cream market, and Two Count and Double Rainbow present no proof of both specific intent to monopolize and predatory conduct.
Since the relevant product market is all ice creams, we need not discuss the relevant geographic market. Haagen-Dazs' share of either the San Francisco Bay area or the nationwide ice cream market is too small to establish monopoly power or a dangerous probability of such power.
Section 1 of the Sherman Act prohibits " [e]very contract, combination ... or conspiracy, in restraint of trade." 15 U.S.C. § 1 (1988). "To establish a section 1 violation, appellants must prove three elements: 1) an agreement or conspiracy, 2) resulting in an unreasonable restraint of trade, and 3) causing antitrust injury." Hahn v. Oregon Physicians' Service, 868 F.2d 1022, 1026 (9th Cir. 1988) (citation omitted), cert. denied, --- U.S. ----, 110 S. Ct. 140, 107 L. Ed. 2d 99 (1989). Haagen-Dazs's dealer exclusivity policy is a nonprice vertical restraint. Nonprice vertical restraints are judged under the rule of reason. Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 720, 108 S. Ct. 1515, 99 L. Ed. 2d 808 (1988).
Rule of Reason.
The district court found that Two Count and Double Rainbow had "not made a sufficient showing of a genuine issue of fact regarding an antitrust injury." The appellants claim that the Haagen-Dazs' exclusive distribution policy, by itself, satisfies this burden. However, exclusive distribution agreements, standing alone, do not violate the antitrust laws. See A.H. Cox & Co. v. Star Machinery Co., 653 F.2d 1302, 1306-07 (9th Cir. 1981). The mere discharge of, or injury to, a competitor is not itself a violation of the antitrust laws. "Indispensable to any section 1 claim is an allegation that competition has been injured rather than merely competitors." Rutman Wine Co. v. E & J Gallo Winery, 829 F.2d 729, 734 (9th Cir. 1987) (emphasis in original).
A termination is not unlawful because of some adverse effect on the distributor's business, even if the effect is the elimination of the distributor from the market. The complaining distributor must show that the refusal to deal was intended to or did bring about some restraint of trade beyond the loss of business suffered by the distributor or the market's loss of a distributor-competitor.
Knutson v. Daily Review, Inc., 548 F.2d 795, 803 (9th Cir. 1976) (citations omitted), cert. denied, 433 U.S. 910, 97 S. Ct. 2977, 53 L. Ed. 2d 1094 (1977). While the appellants plead injury to themselves, the conclusion that competition has been harmed does not follow. Haagen-Dazs' exclusive distribution policy has not injured competition. In fact, the level of competition in the super premium ice cream market has increased. For instance, competing distributors now handle Haagen-Dazs and Double Rainbow products instead of one distributor, Two Count, handling both. Thus, the competition between the two brands is more intense than it would have been had Two Count not been terminated as a Haagen-Dazs distributor. One could argue that Haagen-Dazs' exclusive distribution policy has pro-competitive effects. See Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 54-55, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977) (arguing that vertical restrictions can promote interbrand competition). Although vertical nonprice restraints limit the ability of a single manufacturer's distributors to compete with each other (i.e. intrabrand competition), vertical restraints also stimulate interbrand competition by allowing a manufacturer "to achieve certain efficiencies in the distribution of its product." Id. at 54. The purpose of Haagen-Dazs' distribution policy is to prevent free-riding on Haagen-Dazs' goodwill, reputation, and distribution, and to ensure that distributors are wholly committed to marketing Haagen-Daz products rather than the comparable products of competing manufacturers. These purposes are "both legitimate and lawful." O.S.C. Corp. v. Apple Computer, Inc., 792 F.2d 1464, 1468 (9th Cir. 1986). Additionally, Haagen-Dazs' market share appears to be shrinking relative to other brands of super premium ice cream; Two Count now represents several manufacturers and has prospered; and Double Rainbow has obtained other distributors nationwide. Consequently, one cannot say that Haagen-Dazs' exclusive distribution policy has had a "pernicious economic effect on interbrand competition." Id. at 1469. In fact, the ice cream market can be characterized as one involving vigorous interbrand competition.
The appellants next present evidence of the distribution agreement between Haagen-Dazs and Dreyers that, among other things, conveyed the Tres Chocolate trademark to Haagen-Dazs and thus removed Dreyers from the super premium market. The effect of Haagen-Dazs' exclusive distribution policy, the basis of the distribution agreement with Dreyers, was to remove a competitor of Haagen-Dazs from the super premium market. The appellants cite Industrial Bldg. Materials, Inc v. Interchemical Corp., 437 F.2d 1336, 1342 (9th Cir. 1970), for the proposition that this agreement had an anticompetitive purpose or effect and thus was evidence of a conspiracy between Haagen-Dazs and Dreyers to restrain trade. In Industrial Bldg. Materials, the court stated:
Here, Presstite is alleged to have monopoly power, or at least to hold a dominant position in the market, so that any action tending to strengthen that position would be an unreasonable restraint of trade.
Id. at 1343. Industrial Bldg. Materials may be distinguished from this case. The defendant in Industrial Bldg. Materials was alleged to have monopoly power. "Only if a manufacturer so dominates a market as to exert substantial monopoly or market power ... is there any danger of harm to competition from an intrabrand vertical restriction." 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). Vertical restrictions are reasonable as a matter of law, absent evidence that the defendant has market power. Hahn, 868 F.2d at 1026. Haagen-Dazs does not have monopoly power in the ice cream market. Thus, Two Count's and Double Rainbow's reliance on Industrial Bldg. Materials is misplaced.
Additionally, neither Two Count nor Double Rainbow has shown any antitrust injury resulting from the Haagen-Dazs/Dreyers agreement. The concept of antitrust injury was stated in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S. Ct. 690, 50 L. Ed. 2d 701 (1977): " [p]laintiff must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful." (emphasis in original). In Industrial Bldg. Materials the actions of the defendant left the plaintiff without the ability to continue distribution of products in competition with the defendant. 437 F.2d at 1342. The plaintiff suffered as a result of the defendant's actions. In this case, Two Count and Double Rainbow present no evidence as to any harm, let alone antitrust injury, that they suffered as a result of the Haagen-Dazs/Dreyers agreement. The district court properly granted summary judgment on this claim.
The distribution agreement between Two Count and Haagen-Dazs was oral and contained no express term of duration. Two Count argues that the agreement could not be terminated as long as Two Count was successful in building up sales, because Haagen-Dazs assured Two Count that "it would grow with Haagen-Dazs." This reason is legally insufficient to imply a durational term. See Alpha Distrib. Co. v. Jack Daniel Distillery, 454 F.2d 442, 447-48 (9th Cir. 1972), cert. denied, 419 U.S. 842, 95 S. Ct. 74, 45 L. Ed. 2d 70 (1974). Further, even if Two Count's argument that the distribution relationship could not be terminated except for good cause is accepted, the record establishes that good cause exists. Two Count's agreement to distribute a competitive brand of ice cream, Double Rainbow, constitutes good cause. The Two Count/Double Rainbow distribution agreement obligates Two Count to use its "best efforts" on behalf of Double Rainbow. This requirement creates a conflict of interest with Haagen-Dazs' interests in obtaining the best efforts of its distributors. Two Count cannot exercise its best efforts on behalf of all the competing brands it carries. Thus Haagen-Dazs had a legitimate business reason for terminating the distribution agreement.
We affirm the district court's decision to grant summary judgment in favor of appellees. First, the district court properly granted summary judgment on the issue of product market. Two Count and Double Rainbow presented no evidence that would create a genuine issue of fact with respect to whether the relevant product market was the super premium ice cream market. Haagen-Dazs' share of the ice cream market is insufficient for a claim of monopolization or attempted monopolization to succeed. Second, Two Count and Double Rainbow's section 1 claim was properly dismissed because they failed to allege facts sufficient to show antitrust injury. Finally, the oral distribution contract between Two Count and Haagen-Dazs contained no express or implied term of duration. As such, Haagen-Dazs did not breach this agreement when it terminated Two Count as a distributor.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
This appeal results from three cases consolidated in the Northern District. Two Count filed an action against Haagen-Dazs claiming breach of contract resulting from the termination of Two Count as a Haagen-Dazs distributor. Haagen-Dazs in turn sought a declaratory judgment that its exclusive distribution policy did not violate the law. Finally, Double Rainbow brought suit against Haagen-Dazs alleging violations of Sections 1 and 2 of the Sherman Act. Cross motions for summary judgment were made and on June 23, 1988 the district court filed its published opinion granting Haagen-Dazs' summary judgment motion and denying that of Double Rainbow and Two Count