The full case caption appears at the
end of this opinion. ROSENN, Circuit Judge. The issue in this appeal is whether the termination of awholesale dealer’s contract for its refusal to acquiesce in analleged vertical minimum price fixing conspiracy constitutesan antitrust injury that will support an action for damagesunder section 4 of the Clayton Act. The United StatesDistrict Court for the District of New Jersey reasoned thata dealer terminated under these circumstances does notsuffer an antitrust injury unless it can demonstrate that itstermination had an actual, adverse economic effect on arelevant market. After concluding that the plaintiff’scomplaint in the instant case failed to allege such an effect,the District Court dismissed the complaint for failure tostate a claim upon which relief may be granted. Because webelieve the court misconstrued the antitrust injuryrequirement, we will reverse.
[FOOTNOTE 1] I. The plaintiff, Pace Electronics, Inc. (“Pace”), a New Jerseycorporation, is engaged in the business of distributingvarious electronic products, including computer printersand related accessories. Pace purchases these productsfrom manufacturers and wholesale distributors and thenresells them to smaller retailers, who operate in the NewJersey and New York region. In April of 1996, Pace entered into a nonexclusive dealeragreement with defendant Canon Computer Systems, Inc.(“Canon”), a California corporation. Under this agreement,Pace obtained the right to purchase Canon-brand ink-jetprinters and related accessories from Canon at “dealerprices.” In consideration for the right to purchase theseproducts at “dealer prices,” Pace agreed to purchase certainminimum quantities of the products. The dealer agreement between Pace and Canon remainedin effect for approximately one year and three months.Thereafter, on July 1, 1997, Canon terminated theagreement with Pace on the stated ground that Pace failedto purchase the minimum quantities of Canon-brandproducts required of it under the dealer agreement.Although Pace concedes that it did not purchase theamount of Canon-brand products called for under thedealer agreement, Pace contends that it was unable to doso because Canon ignored its purchase orders. Pace furthercontends that Canon ignored its purchase orders becausePace refused to acquiesce in a vertical minimum price fixingagreement designed and implemented by Canon anddefendant Laguna Corporation (“Laguna”), Pace’s directcompetitor in the New Jersey and New York region. In this connection, Pace alleges that, prior to the time itentered its dealer agreement with Canon, Laguna hadentered into a similar dealer agreement with Canon.Additionally, Pace alleges that the agreement betweenCanon and Laguna contemplated the maintenance of aminimum resale price below which Laguna would not sellCanon-brand ink-jet printers. In support of its allegation,Pace asserts that after it entered into its dealer agreementwith Canon, the president of Canon repeatedly instructedPace’s president not to sell to past or existing customers ofLaguna and not to sell Canon brand ink-jet printers atprices less than those at which Laguna was selling itsproducts. Pace alleges that it has suffered financial losses as aresult of its termination as an authorized Canon-branddealer. Specifically, Pace avers that “[a]s a direct andproximate result of the actions of Defendants . . . Pace hassuffered significant financial detriment, consisting of, butnot necessarily limited to, lost profits. Pace’s losses resultdirectly and proximately from the efforts of Canon andLaguna to limit price competition in the market . . . forwhich both Laguna and Pace were competing.” Appellant’sApp. at 77. Although these allegations of loss appearsomewhat vague and conclusory, we accept them as true,as we must, for the purposes of this appeal. Pace also alleges that its termination as an authorizeddealer of Canon-brand products has harmed competition intwo respects. First, it contends that its termination as adealer has reduced price competition in the wholesalemarket for Canon-brand ink-jet printers (an intrabrandmarket) because Laguna no longer faces price competitionfrom Pace in selling these products to smaller retailers.Second, Pace asserts that its termination as a dealer hasreduced price competition in the wholesale market for allbrands of ink-jet printers (an interbrand market). In thisconnection, Pace alleges that: (1) Canon-brand ink-jetprinters enjoy an inherent competitive price advantage overthe ink-jet printers of other manufacturers; (2) until Canonpermits its distributors to take advantage of this priceadvantage, other manufacturers will not attempt to reducetheir production costs; and, (3) until an unrestrained freecompetitive market requires other manufacturers to reducetheir production costs, the price of all brands of ink-jetprinters will remain at an artificially high level. II. To state a claim for damages under section 4 of theClayton Act, 15 U.S.C. S 15, a plaintiff must allege morethan that it has suffered an injury causally linked to aviolation of the antitrust laws. See Brunswick Corp. v.Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Inaddition, it must allege antitrust injury, “which is to sayinjury of the type the antitrust laws were intended toprevent and that flows from that which makes defendants’acts unlawful.” Id. This is so even where, as in the instantcase, the alleged acts of the defendants constitute a per seviolation of the antitrust laws.
[FOOTNOTE 2] See also Atlantic RichfieldCo. v. USA Petroleum Co., 495 U.S. 328, 341 (1990). Inapplying the antitrust injury requirement, the SupremeCourt has inquired whether the injury alleged by theplaintiff “resembles any of the potential dangers” which ledthe Court to label the defendants’ alleged conduct violativeof the antitrust laws in the first instance. Id. at 336; seealso II AREEDA & HOVENKAMP, ANTITRUST LAW, AN ANALYSIS OFANTITRUST PRINCIPLES AND THEIR APPLICATION P 362a. (Revised ed.1995) [hereinafter AREEDA & HOVENKAMP] (“The [antitrustinjury requirement] forces . . . courts to connect the allegedinjury to the purposes of the antitrust laws. Compensationfor that injury must be consistent with . . . the rationale forcondemning the particular defendant.”). For example, in Atlantic Richfield, the plaintiff, anindependent retail marketer of gasoline, brought suitagainst ARCO, an integrated oil company which soldgasoline to consumers through its own stations andindirectly through ARCO-brand dealers, claiming thatARCO violated section 1 of the Sherman Act by conspiringwith its dealers to fix the maximum resale price of gasolineat an artificially low level. Id. at 331. Although the plaintiffconceded that the fixed prices were not predatory, itnevertheless maintained that it suffered antitrust injury, inthe form of lost profits, as a result of the vertical maximumprice fixing agreement between ARCO and its dealers. Seeid. at 334-35. The Supreme Court disagreed, noting thatthe plaintiff’s alleged injury did not resemble any of thedangers which caused the Court to label vertical maximumprice fixing per se illegal in Albrecht v. Herald Co., 390 U.S.145 (1968).
[FOOTNOTE 3] See id. at 336. In this connection, the Court identified four potentialadverse effects of vertical maximum price fixing agreementswhich led it to label those agreements per se illegal in theAlbrecht decision. First, it noted that a vertical maximumprice fixing agreement might intrude on the ability ofdealers to compete and survive ” ‘by substituting theperhaps erroneous judgment of a [supplier] for the forces ofthe competitive market.’ ” Id. at 335 (quoting Albrecht, 390U.S. at 152). Additionally, the Court observed that” ‘[m]aximum prices may be fixed too low for the dealer tofurnish services essential to the value which goods have forthe consumer or to furnish services and convenienceswhich consumers desire and for which they are willing topay.’ ” Id. at 335-36. Next, the Court explained that “ [b]ylimiting the ability of small dealers to engage in nonpricecompetition, a maximum-price-fixing agreement might’channel distribution through a few large or specificallyadvantaged dealers.’ ” Id. at 336. Finally, the Court notedthat ” ‘if the actual price charged under a maximum pricescheme is nearly always the fixed maximum price, which isincreasingly likely as the maximum price approaches theactual cost of the dealer, the scheme tends to acquire allthe attributes of an arrangement fixing minimum prices.’ “ Id. Having identified the potential dangers which led it tocondemn categorically vertical maximum price fixingagreements, the Supreme Court had little difficultydetermining that the plaintiff in Atlantic Richfield had notsuffered an antitrust injury. The Court noted that thedangers identified in the Albrecht decision focused on thepotential adverse effects of vertical maximum pricefixingagreements on dealers and consumers, not competitors ofdealers subject to such agreements. See id. The Courtexplained: “[i]ndeed, the gravamen of [the plaintiff's]complaint–that the price fixing scheme between[thedefendant] and its dealers enabled those dealers to increasetheir sales–amounts to an assertion that the dangers withwhich we were concerned in Albrecht have not materializedin the instant case.” Id. at 337. In sum, the Courtconcluded that the plaintiff had not suffered antitrustinjury because its losses did not flow from those aspects ofvertical maximum pricing that rendered it illegal. Id. at 337. Turning now to the instant case, we think it appropriateto ask whether Pace’s alleged injury resembles any of thedangers which have led the Supreme Court to condemnvertical minimum price fixing agreements under theantitrust laws. Pace alleges that it has suffered antitrustinjury because it was terminated as a wholesale dealer afterit sold Canon-brand products at prices below the minimumresale price allegedly fixed by Canon and Laguna. Pacefurther alleges that its termination as a wholesale dealerhas caused it to suffer lost profits because it may no longerobtain profits from selling Canon-brand products at “dealerprices.” Under the Supreme Court’s jurisprudence, theseallegations suffice to establish antitrust injury. On this point, Simpson v. Union Oil, 377 U.S. 13 (1964)is instructive. In Simpson, the plaintiff entered into a year-to-year “consignment” agreement with Union Oil. See id. at14. Under the agreement, which was terminable by eitherparty at the end of any one-year term, Union Oil requiredthe plaintiff to charge a minimum retail price for gasoline.See id. Contrary to the terms of the agreement with UnionOil, the plaintiff sold gasoline below the minimum retailprice. See id. at 15. Because he did so, Union Oilterminated its “consignment” agreement with the plaintiff atthe end of the first one-year term. See id. Sometime thereafter, the plaintiff brought suit againstUnion Oil seeking damages under section 4 of the ClaytonAct. See id. After two pretrial hearings, the District Courtgranted summary judgment in favor of Union Oil, holdingthat the plaintiff failed to establish a violation of section 1of the Sherman Act and that, even assuming the plaintiffhad established a violation, the plaintiff suffered noactionable damage. See id. at 15-16. The Court of Appealsaffirmed on the ground that the plaintiff suffered noactionable wrong or damage. See id. at 16. The SupremeCourt granted certiorari and reversed. In reversing, the Court placed primary focus on theconsignment agreement’s restriction on the ability ofdealers such as the plaintiff to make independent,competitive pricing decisions. For example, the Courtexplained:
We disagree with the Court of Appeals that there is no actionable wrong or damage if a Sherman Act violation is assumed. If the “consignment” agreement achieves resale price maintenance in violation of the Sherman Act, it and the lease are being used to injure interstate commerce by depriving independent dealers of the exercise of free judgment whether to become consignees at all, or remain consignees, and, in any event, to sell at competitive prices.
Id. (emphasis added). The Court also stated:
Dealers, like [the plaintiff], are independent businessmen; and they have all or most of the indicia of entrepreneurs, except for price fixing. . . . Their return is affected by the rise and fall in the market price, their commissions declining as retail prices drop. Practically the only power they have to be wholly independent businessmen, whose service depends on their own initiative and enterprise, is taken from them by the proviso that they must sell their gasoline at prices fixed by Union Oil. . . . The evil of the resale price maintenance program . . . is its inexorable potentiality for and even certainty in destroying competition in retail sales of gasoline by these nominal ‘consignees’ who are in reality small struggling competitors seeking retail gas customers.
Id. at 21 (emphasis added) (footnote and citations omitted). Thus, the Supreme Court considered a restriction ondealer independence with respect to pricing decisions to bean anticompetitive aspect of vertical minimum pricefixingagreements, and one that the antitrust laws have aninterest in forestalling. See Richard A. Posner, AntitrustPolicy and the Supreme Court: An Analysis of the RestrictedDistribution, Horizontal Merger and Potential CompetitionDecisions, 75 Colum. L. Rev. 281, 289-90 [hereinafterAntitrust Policy] (“According to the Court in Simpson, resaleprice maintenance is bad because it benefits themanufacturer and oppresses the dealer by taking from thelatter the power to price competitively.”). Accordingly, wethink that a maverick dealer, such as Pace, which isterminated for charging prices less than those set under avertical minimum price fixing agreement, suffers the type ofinjury which the antitrust laws are designed to prevent andmay recover damages, such as lost profits, whichflow fromthat termination. See generally AREEDA & HOVENKAMP, supra,PP 382a. and 382c. (discussing dealer standing to challengevarious vertical restraints and noting that a terminateddealer which “can reasonably show that he would havebeen able to profit in a market free of the illegalarrangements has presumably suffered both injury-in-factand antitrust injury.”); see also Simpson, 377 U.S. at 16(“There is an actionable wrong whenever the restraint oftrade has an impact on the market; and it matters not thatthe complainant may be only one merchant.”). Naturally, the defendants argue that the above analysismisses the mark. In essence, they contend that Simpson isno longer good law in light of the Supreme Court’s decisionin Atlantic Richfield. Furthermore, they urge, and thedistrict court agreed, that a terminated dealer seeking toestablish that it has suffered antitrust injury must allegefacts demonstrating that its termination as an authorizeddealer resulted in an actual, adverse economic effect oncompetition in a relevant interbrand market. In support oftheir position, the defendants primarily rely on theSupreme Court’s statement in Atlantic Richfield that aplaintiff can recover damages under section 4 of theClayton Act “only if [its] loss[es] stem[ ] from a competition-reducing aspect or effect of the defendant’s behavior.”Atlantic Richfield, 495 U.S. at 344. On the basis of this briefstatement, the defendants then argue that to be”competition-reducing” a defendant’s challenged conductmust have had an actual adverse effect on a relevantinterbrand market. Although the defendants’ syllogism mayhave some allure, we decline to construe the antitrustinjury requirement as suggested by the defendants for thefollowing reasons. First, we believe that requiring a plaintiff to demonstratethat an injury stemming from a per se violation of theantitrust laws caused an actual, adverse effect on arelevant market in order to satisfy the antitrust injuryrequirement comes dangerously close to transforming a perse violation into a case to be judged under the rule ofreason. The per se standard is reserved for certaincategories of conduct which experience has shown to be”manifestly anticompetitive.” Continental T.V., Inc. v. GTESylvania Inc., 433 U.S. 36, 39 (1977). That standard, whichis based on considerations of “business certainty andlitigation efficiency,” Arizona v. Maricopa County Med.Society, 457 U.S. 332, 344 (1982), allows a court topresume that certain limited classes of conduct have ananticompetitive effect without engaging in the type ofinvolved, market-specific analysis ordinarily necessary toreach such a conclusion. See Business Electronics Corp. v.Sharp Electronics Corp., 485 U.S. 717, 723 (1988) (“Certaincategories of agreements, however, have been held to be perse illegal, dispensing with the need for case-by-caseevaluation.”). Were we to accept the defendants’construction of the antitrust injury requirement, we would,in substance, be removing the presumption ofanticompetitive effect implicit in the per se standard underthe guise of the antitrust injury requirement. [FOOTNOTE 4] Second, we do not believe that the Supreme Court’sstatement in Altlantic Richfield that a plaintiff can recoverfor losses only if they stem “from a competition-reducingaspect or effect of the defendant’s behavior,” AtlanticRichfield, 495 U.S. at 344, when viewed in the context ofthe Court’s entire opinion, can be fairly read to require aterminated dealer to prove that its termination caused anactual, adverse economic effect on a relevant market. Inthis connection, we note that in determining that theplaintiff in Atlantic Richfield failed to satisfy the antitrustinjury requirement, the Supreme Court simply did notfocus on whether the challenged conduct of the defendanthad an actual, adverse economic effect on a relevantmarket. Rather, as outlined above, the Court focused onwhether the plaintiff’s injury stemmed from any of thepotential anticompetitive dangers which led the Court tolabel vertical maximum price fixing unlawful in the firstinstance. Implicit in the Court’s approach is that a plaintiffwho had suffered loss as a result of an anticompetitiveaspect of a per se restraint of trade agreement would havesuffered antitrust injury, without demonstrating that thechallenged practice had an actual, adverse economic effecton a relevant market. See generally Daniel C. Richman,Note, Antitrust Standing, Antitrust Injury, and the Per SeStandard, 93 Yale. L.J. 1309, 1312-14 (arguing that courtsshould recognize that “each per se rule presumes aparticular practice harms particular markets” and thatcourts should permit “only plaintiffs within those marketsto pursue per se claims”). The issue, thus, is not whetherthe plaintiff’s alleged injury produced an anticompetitiveresult, but, rather, whether the injury claimed resultedfrom the anticompetitive aspect of the challenged conduct. Finally, we point out that our holding — that a dealerterminated for its refusal to abide by a vertical minimumprice fixing agreement suffers antitrust injury and mayrecover losses flowing from that termination — is consistentwith the decisions of those courts which have explored theissue thus far. See, e.g., Sterling Interiors Group, Inc. v.Haworth, Inc., No. 94-9216, 1996 WL 426379 at *18-*19(S.D.N.Y. July 30, 1996) (“The anti-competitive dangers ofminimum price arrangements flow to both customers whopurchase at prices set higher than competitive levels, andto dealers who are effectively foreclosed from competing inthe marketplace.”). III. For the reasons set forth above, the district court’s orderdismissing Pace’s complaint will be reversed and the caseremanded to the district court for further proceedingsconsistent with this opinion. Costs taxed against theappellees. A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit :::FOOTNOTES::: FN1 The District Court exercised jurisdiction under 28 U.S.C. S 1331. Wehave appellate jurisdiction under 28 U.S.C. S 1291 and undertakeplenary review of the District Court’s order dismissing the plaintiff’scomplaint. FN2 Vertical minimum price fixing is, of course, per se unlawful undersection 1 of the Sherman Act, which outlaws “[e]very contractcombination . . . or conspiracy in restraint of trade or commerce amongthe several states.” 15 U.S.C. S 1; see also Dr. Miles Med. Co. v. John D.Park. & Sons Co., 220 U.S. 373 (1911). FN3 Albrecht’s specific holding — that vertical maximum price fixing is perse illegal — has since been overruled. See State Oil Co. v. Khan, 522 U.S.3, 7 (1997). However, Atlantic Richfield’s approach — i.e. discerning thereasons that led the Supreme Court to label certain conduct a per seviolation, and determining whether the harm suffered by the plaintiff isconsistent with the rationale for labeling the defendant’s conduct per seillegitimate — remains valid and is clearly applicable to the case beforeus. FN4 We recognize that various scholars have taken issue with the SupremeCourt’s per se treatment of vertical minimum price fixing agreementsand argued that these agreements may have significant, procompetitiveattributes. See, e.g., Antitrust Policy, 75 Colum. L. Rev. at 283. But,academic commentary, even if persuasive, does not permit us to expandthe antitrust injury requirement to a point which undermines theCourt’s categorical disapproval of vertical minimum price fixing.
Pace Electronics, Inc. v. Canon Computer Systems, Inc. Filed May 22, 2000 UNITED STATES COURT OF APPEALSFOR THE THIRD CIRCUIT No. 99-5728 PACE ELECTRONICS, INC. Appellant v. CANON COMPUTER SYSTEMS, INC. andLAGUNA CORPORATION On Appeal From the United States District CourtFor the District of New Jersey (D.C. Civ. No. 98-cv-03132) District Judge: Honorable John C. Lifland Argued: March 14, 2000 Before: MCKEE, RENDELL and ROSENN,Circuit Judges. (Filed: May 22, 2000) Elliott Joffe (Argued) Steven Robert Lehr, P.C. 33 Clinton Road Suite 100 West Caldwell, NJ 07006 Counsel for Appellant Pace Electronics, Inc. Richard H. Silberberg (Argued) Robert G. Manson Dorsey & Whitney LLP 250 Park Avenue New York, New York 10177 Counsel for Appellee Canon Computer Systems, Inc. Carl A. Rizzo Cole, Schotz, Meisel, Forman & Leonard 25 Main Street Hackensack, NJ 07601 Counsel for Appellee Laguna Corporation
