The 7th Circuit Court of Appeals on January 9 - in an opinion by Judge Easterbrook - rung up a "no sale" for the antitrust claim by a seller of "atshelf" coupon dispensers against its much larger competitor. In Menasha Corp. v. News America Marketing In-Store, Inc., 2004 WL 42468, the court concluded that the plaintiff failed to establish the existence of a separate "relevant market" for "at-shelf" coupon dispensers distinct from the broader market for retail promotional devices.
Plaintiff and defendants are competing sellers of "at-shelf" coupon dispensers, with defendant enjoying considerably greater market share. The plaintiff accused its competitor of violating antitrust laws by locking up retailers in long-term exclusive contracts, and by playing "dirty tricks" (including ripping plaintiff's coupon devices off the shelves) to otherwise keep plaintiff's competing at-shelf coupon dispensers out of retail stores.
As a preliminary matter, Judge Easterbrook credited the plaintiff for "sensibly" abandoning its claim for per se treatment, intoning that "competition for the contract is a vital form of rivalry, and often the most powerful one, which the antitrust laws encourage rather than suppress." The court refused to accept that manufacturers and retailers would "shoot themselves in the feet by signing (retailers) or favoring (manufacturers) exclusive contracts that entrench [defendant] as a monopolist that then can apply the squeeze." Rather, the fact that "retailers and manufacturers like exclusive deals implies that they serve the interests of these, the consumers of couponing services." The court added that "[w]hen the consumers favor a product or practice, and only rivals squawk, the most natural inference is that the complained-of-practice promotes rather than undermines competition, for what helps consumers often harms other producers such as" plaintiff.
But the plaintiff failed to make a claim under the alternative "rule of reason" standard because there was no showing that the sale of at-shelf coupon dispensers constitutes a separate "relevant market". This was fatal because it meant that if the defendant cut output of at-shelf coupon dispensers, manufacturers could add more newspaper or on-package coupons, or stores could hold more sales, or a third competitor could supply more adds that draw attention to products, or stores could conduct more demonstrations and offer samples (with or without coupons handed out live). Ultimately, "[t]he number of ways to promote a product is large, and even a stranglehold over at-shelf coupon dispensers would affect only a tiny portion of these means."
In finding no relevant market for at-shelf coupon dispensers, the court faulted plaintiff for failing to establish a link between the price levels for atshelf coupon dispensers and that of promotional devices generally: the "prices of at-shelf coupon dispensers rise when the prices of other couponing systems rise, then they are probably in the same market; but if the price of one couponing system varies while the others stay the same, then they probably are different markets." Yet no analysis of the "covariance of prices" was introduced.
The court also rejected the plaintiff's reliance on a "potpourri of survey research and armchair economics," primarily in the form of a survey by a "journalist who asked friends and acquaintances whether they like at-shelf coupons better than other kinds of coupons." The court explained that the survey was akin to one showing that most people favor vanilla ice cream over other flavors. But it does not follow that vanilla ice cream is a separate market such that a rise in the price of vanilla would not cause consumers to switch to other flavors. For a closely related reason the conclusion that atshelf coupons uniquely appeal to "impulse shoppers'' (that is, shoppers who do not prepare in advance by clipping coupons from the Sunday supplements) does not identify an economic market. Attributes of shoppers do not identify markets.
The court similarly admonished that a relevant market cannot be defined based on an "assumption" as to how the market functions. The plaintiff tried to show a relevant market by assuming that at-shelf coupons are a market (that is, that consumers do not substitute between these and other devices). In this manner it is the assumption, and not the events under study, that ends up "defining" the market. The court dismissed this approach as "garbage in, garbage out."
Finally, the court rejected the contention that a jury could infer market power from the fact that the defendant's prices rose with its share of atshelf coupons and that defendant is consistently able to sell its dispensers at more than marginal cost: "plaintiff calls these facts evidence of market power. And that might well be if they were facts, which as far as we can tell they are not. What plaintiff calls 'price' is the list price of the dispensers, and it is undisputed that few if any dispensers sell for list price. [Defendant] offers evidence that transaction prices have fallen, and plaintiff has no effective counter. What plaintiff calls 'cost' is not the marginal cost of deploying the dispensers - a measure of cost that includes the wages and commissions of large sales and service staffs, which are variable rather than fixed costs - but the cost of manufacturing the dispensers."
Practice pointer: To some extent the plaintiff was undone by having presented an economist expert that Judge Easterbrook respected, because of the omission by the expert of evidence that the court needed to hear to find for the plaintiff. The judge observed that the plaintiff "introduced no econometric evidence of any kind, even though it engaged a group of specialists in industrial organization * * * and presented a lengthy expert report signed by * * * an economist well suited to provide such evidence if any existed," and were favorable to the plaintiff. Since the expert presented no such evidence, the court assumed it did not exist.
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