Court: Court of Appeals for the Ninth Circuit; February 7, 2000; Federal Appellate Court
The case involves an agreement between a corporation, PADI, which serves retailers in the scuba industry, and Rodale Press, the publisher of a diving magazine. Plaintiff Nova Designs, Inc. (doing business as Performance) claims that PADI engaged in a conspiracy to restrict its access to the market by pressuring retailers to boycott Performance and not to advertise in Rodale's magazine. Performance alleges violations of the Sherman Act and the Cartwright Act, along with tortious interference and unfair competition. PADI moved for summary judgment, arguing that Performance failed to provide evidence of a conspiracy or illegal agreement. The district court granted summary judgment for PADI, applying a per se analysis and finding that Performance had waived its rule of reason claim. Performance did not contest this characterization but argued that PADI's lack of focus on the rule of reason in its motion contributed to its failure to present evidence supporting that claim. The court emphasized that the burden was on Performance to demonstrate a triable issue under the rule of reason, which it did not do. The court's decision is subject to de novo review under 28 U.S.C. § 1291.
Appellants cannot challenge the district court's judgment based on rule of reason analysis because they did not raise this argument in their response to Kodak's summary judgment motion. Arguments introduced for the first time on appeal are generally not considered. The focus of the review is whether Performance established a triable issue regarding PADI's conduct as a per se violation of the Sherman Act.
On January 13, 1992, PADI entered into an agreement with Rodale to access its membership database for subscription solicitation in exchange for advertising. The agreement included a policy that acknowledged scuba equipment requires certification for safe usage, emphasizing that mail order advertising was not acceptable. This policy was crucial for PADI to protect its relationships with member-retailers and to ensure safety, as untrained individuals buying scuba equipment present significant risks. Despite this, Rodale planned to accept mail order advertising from Performance, prompting complaints from retailers to PADI. PADI expressed its concerns to Rodale, which subsequently reversed its decision to accept mail order ads in May 1992. However, PADI terminated its agreement with Rodale in July 1992.
The Supreme Court has established that the prevailing standard for Section 1 analysis is rule of reason, with per se illegality applicable only to conduct that is clearly anticompetitive, eliminating the need for detailed analysis of harm or justification. The Court has previously rejected claims involving agreements that do not explicitly relate to pricing as per se violations.
The Court established a presumption favoring a rule-of-reason standard for antitrust analysis, requiring any departure from this standard to be justified by clear economic evidence. The agreement between PADI and Rodale for exchanging confidential member information in return for advertising failed to meet the per se rule requirements, as no evidence indicated it had an adverse economic impact on competition. Performance's attempt to classify the PADI-Rodale agreement as a horizontal group boycott lacked support, as there was no proof of an agreement among PADI's customer-members beyond mere membership. Even if PADI acted on behalf of its members, pressure from members does not imply an agreement, and the presence of complaints alone cannot justify inferring collusion. Additionally, for a per se violation to be established, there must be evidence of market power or control over essential market elements, which was not demonstrated by PADI or its members. The Court noted that PADI and Rodale are not competitors, which further negated the application of the per se rule for group boycotts, as such cases are limited to horizontal agreements among direct competitors. Consequently, Performance's claims under Section 1 of the Sherman Act, and subsequently under Section 2 regarding conspiracy to monopolize, failed. The Court confirmed that Performance's state law claims under the California Cartwright Act were also dismissed, as they are aligned with the Sherman Act. Performance's arguments for tortious interference and unfair competition were insufficient to raise triable issues. The summary judgment in favor of PADI on these state law claims was affirmed.
