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Ambook Enterprises v. Time Inc.

decided: October 29, 1979.


Appeal from an order of the District Court for the Southern District of New York, Thomas P. Griesa, Judge, 464 F. Supp. 1127 (1979), granting defendants' motion for summary judgment in an action charging that advertising agencies and publications media had violated § 1 of the Sherman Act, 15 U.S.C. § 1, by agreeing that advertisements placed through advertising agencies should receive a 15% discount from the "card rate", whereas directly placed advertisements should receive no discount. Affirmed in part, reversed in part and remanded.

Before Moore, Friendly and Feinberg, Circuit Judges.

Author: Friendly


This private antitrust action was commenced on June 1, 1972, in the District Court for the Eastern District of Pennsylvania. Plaintiff Ambook Enterprises a/k/a American Book Club (Ambook) is a Pennsylvania partnership which was organized to engage in the retail and wholesale selling of books and records in interstate commerce. The partners were two corporations, L-Club Corporation and American Book Club. L-Club Corporation is owned by eight persons connected with a highly regarded New York investment firm; an affidavit filed on its behalf states that this action has not been authorized by it.*fn1 American Book Club is owned by three individuals, one of them Cletus P. Lyman, a Philadelphia attorney, whose firm, Lyman & Ash, was counsel of record when the action was brought and has participated in its prosecution, although New York counsel has now been substituted. Ambook, which began operations in January, 1968 and conducted them as a partnership since December, 1969, discontinued these in mid-1972, shortly after this action was brought.

The defendants are Time Incorporated (Time), publisher of the well-known weekly magazine of that name; the New York Times Co. (N.Y. Times), publisher of the nation's foremost newspaper; four of the country's largest advertising agencies, J. Walter Thompson Co. (JWT); Young & Rubicam International, Inc. (Y & R); Batten, Barton, Durstine & Osborn, Inc. (BBD&O); and Ted Bates & Company, Inc. (Bates);*fn2 and American Association of Advertising Agencies (4As), a trade association engaged in formulating policies for and promoting its members including the above-named agency defendants. Ambook placed advertisements with Time and N.Y. Times, and 43 other non-defendant publications, but had no dealings with JWT, Y&R, BBD&O or Bates. It placed its ads at various times through three interrelated agencies, Newmark, Posner & Mitchell, Inc., Victor Schiff & Co. (a "division" of the Kaplan Agency), and Schiff/Brown & Co. (hereafter collectively referred to as Schiff-Brown),*fn3 none of which was named as a defendant.

Ambook sought in an amended complaint to bring the action "individually and in a representative capacity on behalf of the class of all similarly situated advertisers, namely, producers, wholesalers and retailers of goods and services in interstate commerce in the United States who advertise in publications." The gravamen of the complaint was that by agreement between the two named publishers and countless others, the 4As, the named agencies and countless others, plaintiff and the class it wished to represent had been forced to utilize the services of advertising agencies, since the publishers granted the agencies a uniform discount of 15%, whereas any advertiser who wished to place an advertisement directly with the publisher was forced to pay the charges set in rate cards, which were 17.6%*fn4 above the rates charged the agencies and, in addition, pay the costs of various services many of which were furnished by the agencies and paid for by them out of the 15% Discount. The complaint alleged that as a result of this conspiracy Ambook had paid the two publisher defendants $4,000 and other "conspirator publications" $20,000 more than if it had been able to receive the 15% Discount and pay its own expenses for doing what Schiff/Brown did. The corresponding figures for the class were estimated as at least $30 million for Time and the N.Y. Times and $300 million for unnamed "conspirator publications". Damages were sought against all defendants in an amount in excess of $500,000 for Ambook and in excess of $1 billion for members of the class. Injunctive relief was also requested. The District Court for the Eastern District of Pennsylvania transferred the action, pursuant to 28 U.S.C. § 1404, to the District Court for the Southern District of New York where it was assigned to Judge Griesa.

In February, 1973, Time moved for a determination that the action could not be maintained as a class action. Ambook cross-moved for an order which, Inter alia, would allow the filing of a second amended complaint and would determine that the action should proceed as a class action. One count in the proposed second amended complaint was based on the Robinson-Patman Act, 15 U.S.C. § 13. As a result of a hearing, Ambook submitted a revised definition of classes. This narrowed the field to three damage subclasses and one injunctive class. The damage subclasses were all advertisers in Time from January 1, 1968, all advertisers in the N.Y. Times excluding classified and retail advertisers from the same date, and all motion picture advertisers in the N.Y. Times from the same date;*fn5 the injunctive class consisted of "(a)ll persons and entities who have advertised or who are likely to advertise in the future in the publications" of Time and the N.Y. Times.

In a considered opinion, 60 F.R.D. 476 (S.D.N.Y.1973), Judge Griesa held that the action could not be maintained as a class action. Agreeing with that determination, we see no need to discuss all the reasons the judge gave for it. It suffices that Ambook was out of business and that there was no assurance that it was "in a position to carry on class litigation in this Court in a responsible and vigorous manner", 60 F.R.D. at 487; that Ambook had no dealings with the four agency defendants whom it had named and thus might stand differently from advertisers who had; and that, as subsequent discussion will reveal, much may hang on the ability of a particular advertiser to have established an "in house" advertising organization which the publishing defendants might have recognized or to perform equivalent services. The judge denied the motion to file the proposed second amended complaint without prejudice to a motion to file a further pleading devoid of class action allegations. An appeal to this court was dismissed for want of appellate jurisdiction, even under the "death-knell" doctrine then prevailing in this circuit but subsequently rejected by the Supreme Court in Coopers & Lybrand v. Livesay, 437 U.S. 463, 98 S. Ct. 2454, 57 L. Ed. 2d 351 (1978).

Plaintiff thereupon moved for leave to file a second amended complaint without class action allegations. The court granted this, with two exceptions. It struck a claim of discrimination under the Robinson-Patman Act on the ground that that statute deals only with the sale of commodities, and prayers for injunctive relief under 15 U.S.C. § 25, since § 25 refers only to suits by the United States, and 15 U.S.C. § 26, authorizing injunctive relief for private parties "against threatened loss or damage by a violation of the antitrust laws", since Ambook had been out of business since mid-1972 and was in the process of liquidation.

Although the quondam action for a billion dollars in damages and a sweeping injunction had thus dwindled to a relatively small damage suit on its own behalf, Ambook continued to pursue it with considerable vigor. After extensive pretrial proceedings, defendants moved for summary judgment in June, 1976, which was denied a year later, primarily on the ground of lack of sufficient evidence concerning the relationship between Ambook and Schiff-Brown, 464 F. Supp. at 1129-30. After further discussion of the issues, Ambook designated the witnesses it would call on that issue at a trial of the action. These were Victor Schiff and Stephen Brown, the principals of the three advertising agencies Ambook had used; K. Elia Georgiades, a former Vice President of Ambook; and Milton Pierce, a person in the advertising business who had introduced Ambook to Schiff. Their depositions were taken and plaintiff accepted their testimony as true except as noted in a letter of plaintiff's attorney dated March 24, 1978, which also indicated that Ambook might call an economist to testify what fees might be paid to advertising agencies in a free market environment.

On May 1, 1978, defendants renewed their motion for summary judgment. The court granted this on January 11, 1979, in a lengthy and reasoned opinion, 464 F. Supp. 1127. Plaintiff has appealed.


It will be convenient to deal at the outset with Ambook's contention that the court erred in striking its claim under the Robinson-Patman Act.

The Robinson-Patman Act, so far as here pertinent, makes it unlawful:

for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.

The question whether this applies to the sale of newspaper advertisements has not been determined by the Supreme Court, Times Picayune Pub. Co. v. United States, 345 U.S. 594, 609-10 n. 27, 73 S. Ct. 872, 97 L. Ed. 1277 (1953) (dealing with similar language in § 3 of the Clayton Act), or by this court, Syracuse Broadcasting Corp. v. Newhouse, 236 F.2d 522, 527 (1956).

National Tire Wholesale, Inc. v. Washington Post Co., 441 F. Supp. 81, 84-86 (D.D.C.1977), Aff'd 194 U.S.App.D.C. 81, 595 F.2d 888 (D.C.Cir.1979), squarely held as the district court had done here, that newspaper advertising was not a "commodity" under the Robinson-Patman Act. The same result was reached in interpreting the term "commodity" under § 3 of the Clayton Act, 15 U.S.C. § 14, in ALW, Inc. v. United Air Lines, Inc., 510 F.2d 52 (9 Cir. 1975). Many other relevant cases, although less directly in point, have taken a strict view of the meaning of the term "commodities".*fn6

As against all this Ambook relies on a recent opinion of the Federal Trade Commission, CCH FTC Complaints and Orders P 21,448 in The Times-Mirror Co., (July 27, 1978), that the Robinson-Patman Act applies to the sale of retail newspaper advertising, to which a district court deferred in Sun Communications, Inc. v. Waters Publications, Inc., 466 F. Supp. 387, 390-91 (W.D.Mo.1979). We decline to accord similar deference. The FTC opinion runs directly contrary to a statement by one of the bill's sponsors during the debate on the floor of the Senate:

Mr. Gore. I should like to ask the Senator from Kentucky what application the provision now under discussion would have to newspapers which merely act as advertising mediums or agencies. Would it prevent a differential charge on their part respecting advertisers, based on or measured by the amount of advertising carried?

Mr. Logan. No. (80 Cong.Rec. 3115, 3119 (March 3, 1936)) (emphasis added); See also 79 Cong.Rec. 9078-79 (June 11, 1935); H.R. 8277, 85th Cong., 1st Sess. (1957), discussed in Kennedy Theater Ticket Service v. Ticketron, supra, 342 F. Supp. at 926.

It also runs counter to a statement by Representative Patman in a book written only two years after passage of the Act, The Robinson-Patman Act, p. 75 (1938). We recognize that "post-passage remarks by legislators, however explicit, cannot serve to change the legislative intent of Congress expressed before the Act's passage." Regional Rail Reorganization Act Cases, 419 U.S. 102, 132, 95 S. Ct. 335, 353, 42 L. Ed. 2d 320 (1974). But here the term "commodities", in the ordinary use of language, would not be taken to include newspaper advertising. To regard advertisements as commodities would involve almost insolvable problems in determining whether these were of "like grade and quality". See Baum v. Investors Diversified Services, Inc., supra, 409 F.2d at 875. The page of the newspaper, the month, the day of the week, and many other factors would have to be weighed in answering this question, as well as in determining defenses allowed by the Act. Whatever the rule as to the deference to be accorded an agency's interpretation of a statute it has the duty to administer, see Federal Trade Comm'n v. Colgate-Palmolive Co., 380 U.S. 374, 385, 85 S. Ct. 1035, 13 L. Ed. 2d 904 (1965), "this is a case where understanding of the statute depends in no small measure on prior judicial decisions and legislative history subjects on which a court has a greater competence than the agency." Pittston Stevedoring Corp. v. Dellaventura, 544 F.2d 35, 50 (2 Cir. 1976), aff'd Sub nom. Northeast Marine Terminal Co. v. Caputo, 432 U.S. 249, 97 S. Ct. 2348, 53 L. Ed. 2d 320 (1977). The FTC's purported discovery, forty-two years after the event, of a meaning in the Robinson-Patman Act contrary to the ordinary reading of the language, disavowed on the floor of the Senate, disclaimed by the statute's principal author two years after its passage, raising grave problems of administration, and contrary to the consistent course of judicial decision on this and related matters, is a discovery of something that is not there. See Romero v. International Terminal Operating Co., 358 U.S. 354, 370-71, 79 S. Ct. 468, 3 L. Ed. 2d 368 (1959).


Turning to the claim under § 1 of the Sherman Act, we find no occasion for recapitulating at length the learning on the use of summary judgment in antitrust cases expressed in such leading decisions as Poller v. C.B.S., 368 U.S. 464, 467-73, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962), on the one hand, and First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289-90, 88 S. Ct. 1575, 20 L. Ed. 2d 569 (1968), on the other.*fn7 Still a few preliminary observations may be in order. The defendants stress that this is not a case where summary judgment was granted on affidavits alone. The parties engaged in extensive discovery including a number of depositions, although, as will appear, there was at least one question of credibility on a point of some importance. However, there is still the point that the body having the ultimate power to draw inferences, in this instance a jury, did not see and hear the witnesses. Summary judgment for the defendants can be sustained in such a case if but only if the reviewing court is satisfied that a properly instructed jury, giving full weight to plaintiff's evidence, drawing every reasonable inference in its favor,*fn8 and subjecting defendants' evidence to a critical eye,*fn9 could not rationally have found that plaintiff was entitled to any relief.

Since defendants submitted evidence contradicting Ambook's allegations, it was incumbent upon Ambook to provide some evidentiary support for its complaint, Fed.R.Civ.Pro. 56(e); First National Bank of Arizona v. Cities Service Co., supra, 391 U.S. at 289, 88 S. Ct. 1575, although this evidence did not have to be such as would require resolution of the substantive issues in Ambook's favor. Recognizing this, Ambook has not merely relied on its allegations but has submitted evidence.*fn10 The question is of its quality. As put in Cities Service, did plaintiff's case remain devoid "of Any significant probative evidence tending to support the complaint"? 391 U.S. at 290, 88 S. Ct. at 1593 (emphasis supplied).

Defendants' primary contention is that Ambook's evidence would not permit the finding of a "contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade" during the period from June 1, 1968 to June 1, 1972. There was an abundant showing that one had existed earlier. The record is replete with evidence that a prime objective of the 4As, organized in 1917, with JWT and a predecessor of BBD&O as members, was to perpetuate a dual price system. Advertisers dealing directly with the media would be charged a full card rate, whereas in the case of those employing recognized agencies, the latter would receive a 15% Deduction no more, no less none of which was rebated to the advertiser.*fn11 Advertisers were thus economically forced to utilize agencies, who would receive and retain 15% Of the card rate as reimbursement for the services they performed; to the extent that the advertiser could have performed these services for less, the conspiracy increased his cost of advertising by the difference.*fn12 The only exception was that a few large advertisers apparently had sufficient muscle that they were allowed to have "in house" agencies, who were treated in the same way as the independents.

This system was threatened when, on May 12, 1955, the United States filed a civil antitrust action in the District Court for the Southern District of New York. The defendants were the 4As and five media associations. The complaint alleged a number of conspiracies which we set forth in the margin.*fn13

In May 1956 the Government entered into a series of consent decrees with each of the defendants. These recited that no testimony had been taken and that defendants were consenting to the entry of judgment "without trial or adjudication of any issue of fact or law herein and without any findings of fact." The decree was to apply not only to each defendant and its officers, servants, employees, etc. but also "to any committee or groups of consenting defendant's membership when organized and functioning as committees or groups of consenting defendant, and to all other persons in active concert or participation with it who receive actual notice of the Final Judgment by personal service or otherwise." By paragraph IV A each defendant was

enjoined and restrained from entering into, adhering to, promoting or following any course of conduct, practice or policy, ...

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