Opinion
CAUSE NO. IP 97-1532-C H/G
September 25, 2001
ENTRY ON DEFENDANTS' SECOND MOTION FOR PARTIAL SUMMARY JUDGMENT
Plaintiffs in this case are several independent pay telephone providers. In the market for pay telephone services, they compete with defendants Indiana Bell Telephone Company, Inc., which does business as "Ameritech Indiana," and Ameritech Information Industry Services, Inc. (collectively "Ameritech"). Plaintiffs allege that Ameritech has violated federal and state antitrust laws in conducting its pay telephone business in Indiana.
In an earlier entry, the court granted Ameritech's first motion for partial summary judgment on two antitrust claims. See March 9, 1999, Entry on Defendants' Motion for Partial Summary Judgment (dismissing with prejudice plaintiffs' claims that Ameritech created a "price squeeze" and denied plaintiffs access to "essential facilities").
Following that decision, a discovery dispute arose. In resolving that dispute, the court ordered the parties to develop a plan for presenting the issues of market definition, barriers to entry, and antitrust injury for a decision on summary judgment. See November 24, 1999, Entry on Pending Motions. The court also ordered plaintiffs to identify any agreements allegedly violating Section 1 of the Sherman Act as restraints on trade.
Ameritech then filed its second motion for partial summary judgment. Ameritech seeks summary judgment on all remaining antitrust claims in the complaint which include claims under Sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1, 2, and Indiana Code § 24-1-2-2. Among other things, Ameritech contends: (1) plaintiffs cannot prove that Ameritech has monopoly power in the relevant market; (2) the supposedly anti-competitive conduct alleged by plaintiffs does not violate antitrust laws; and (3) plaintiffs cannot show antitrust injury.
As explained below, the court agrees with Ameritech and grants Ameritech's second partial summary judgment motion. The only remaining claim is one under Indiana law for tortious interference with contracts, which was not a subject of a summary judgment motion. The court relinquishes supplemental jurisdiction over that claim and therefore dismisses it without prejudice.
I. Preliminary Matters
To oppose summary judgment, plaintiffs rely on the Preliminary Economic Report of Dr. Owen R. Phillips, Ph.D. Dr. Phillips is an economics professor at the University of Wyoming. Ameritech objects to the admissibility of large portions of Dr. Phillips' report. Ameritech contends he is not qualified to serve as an expert in this case because he has not previously written on the pay telephone industry or on the other matters discussed in his report. Ameritech also challenges particular statements in Dr. Phillips' report on grounds that they: (1) assume facts not in evidence; (2) offer legal conclusions; (3) are not supported by an explanation of methodology or by evidence that the stated methodology is reliable; and (4) rely on data not shown to be the type on which experts in the field rely.
Ameritech's objections have considerable merit. However, many of the objections relate to assertions that are not material to the court's decision on Ameritech's motion. Accordingly, instead of ruling separately on each of the specific objections, the court considers the admissibility of Dr. Phillips' report below as it relates to the substantive issues in the case.
II. Summary Judgment Standard
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Under Rule 56(c) of the Federal Rules of Civil Procedure, the court should grant summary judgment if and only if there is no genuine issue as to any material fact, and the moving parties are entitled to judgment as a matter of law.
On a motion for summary judgment, the moving parties must first come forward and identify those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which the parties believe demonstrate the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving parties have met the threshold burden of supporting the motion, the opposing parties must "set forth specific facts showing that there is a genuine issue for trial" Fed.R.Civ.P. 56(e). Not all factual disagreements are material. Factual disagreements that are irrelevant or immaterial under the applicable substantive law do not preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48(1986).
The parties opposing the motion "may not rest upon mere allegations in the pleadings or upon conclusory statements in affidavits; [they] must go beyond the pleadings and support [their] contentions with proper documentary evidence." Chemsource, Inc. v. Hub Group, Inc., 106 F.3d 1358, 1361 (7th Cir. 1997); accord, Bombard v. Fort Wayne Newspapers, Inc., 92 F.3d 560, 562 (7th Cir. 1996) (evidence opposing summary judgment must be admissible at trial).
In reviewing the parties' submissions, the court must consider the evidence in the light reasonably most favorable to the non-moving parties, in this case the plaintiffs. The existence of some "metaphysical doubt," however, does not create a genuine issue of fact. Larsen v. City of Beloit, 130 F.3d 1278, 1282 (7th Cir. 1997). "A party must present more than mere speculation or conjecture to defeat a summary judgment motion." Sybron Transition Corp. v. Security Ins. Co. of Hartford, 107 F.3d 1250, 1255 (7th Cir. 1997). The issue is whether a rational trier of fact could reasonably find for the parties opposing the motion with respect to the particular issue. Vitug v. Multistate Tax Comm'n, 88 F.3d 506, 512 (7th Cir. 1996).
The court should neither "look the other way" to ignore genuine issues of material fact nor "strain to find" material factual issues where there are none. Mechnig v. Sears, Roebuck Co., 864 F.2d 1359, 1363-64 (7th Cir. 1988). Summary judgment is not a disfavored shortcut, but an essential part of the Federal Rules of Civil Procedure. Summary judgment is not discretionary; when a party is entitled to judgment as a matter of law, summary judgment must be granted.
Summary judgment is hardly unknown in antitrust cases, especially in cases like this one, where plaintiffs allege that a defendant has made its customers or suppliers too well off to allow the plaintiffs to compete effectively, and/or where the plaintiffs cannot show plausibly how the defendant might ultimately extract monopoly profits from the strategy. See, e.g., Matsushita Electric, 475 U.S. at 589-91 (affirming summary judgment in case alleging conspiracy to engage in predatory pricing); Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1412-13 (7th Cir. 1989) (affirming summary judgment on claim for attempted monopolization through predatory pricing).
In this case, it is useful to focus on the business conduct that plaintiffs believe Ameritech should have altered. Plaintiffs have contended that Ameritech should have raised (or sought regulatory approval to raise) its coin drop rates, and should have lowered (or sought regulatory approval to lower) its access charges to plaintiffs. Relying on the state action doctrine of antitrust law, the court rejected both of those contentions in deciding the first motion for summary judgment. With regard to the pending second motion, plaintiffs' principal contention is that Ameritech should offer to pay site owners lower commission payments so that plaintiffs would be able to match Ameritech's offers. In the absence of even an allegation, let alone evidence, that Ameritech has been losing money on its pay telephone business, this theory is not the stuff of antitrust laws, for multiple reasons explained in detail below.
III. Undisputed Facts
For purposes of Ameritech's second partial summary judgment motion, the following facts are either undisputed or reflect the record in the light reasonably most favorable to the plaintiffs, the non-moving parties.
A. Ameritech and the Pay Telephone Provider Market
Ameritech is authorized by the Indiana Utility Regulatory Commission ("IURC") to provide local exchange carrier ("LEC") services in certain noncontiguous areas of Indiana. The Ameritech service area constitutes about one third of the geographic area of Indiana, although it includes about two thirds of the state's population and telephones. See Gerald Decl. ¶ 2, Ex. A. Ameritech's Indiana service territory includes Indianapolis, South Bend, Evansville, Bloomington, New Albany, Gary, and Merrillville. See id. In addition to its local exchange services, Ameritech owns and operates pay telephones.
The plaintiffs are six Independent Payphone Providers ("IPPs" in telephonese). Plaintiffs and Ameritech provide pay telephone services by contracting with owners of properties to place pay telephones at locations where persons may desire to use them. Plaintiffs and Ameritech usually offer payment of a commission to the owner in exchange for the right to place a telephone.
To provide pay telephone services, plaintiffs must contract with a local telephone network provider to connect to the network for local calls and for access to long distance carriers. In Ameritech's Indiana service territory, plaintiffs contract with Ameritech for network access. Ameritech uses its own lines for network access for its own pay telephones in its Indiana territory. Ameritech contracts with other local exchange carriers to operate pay telephones outside of its territory. Gerald Dep. 79, 110-11.
Since 1987, the IURC has not required approval or registration of pay telephone providers or placed any legal barrier to exclude pay telephone providers in Indiana. Pay telephone providers headquartered and operating in many states other than Indiana have contracted for pay telephone locations in Indiana and compete with Ameritech Indiana for pay telephone locations. Gerald Aff. ¶¶ 7-8. Many pay telephone providers have pay telephones in more than one state, including four of the six plaintiffs in this case. Publicly-held pay telephone companies have telephones in dozens of states. Owners of pay telephone locations in Indiana and other states can and do turn to pay telephone providers headquartered and operating in many other states as contractors for placement of pay telephones. See Id.
There is no regulatory limit on the geographic area in which Ameritech may place pay telephones. Ameritech has placed pay telephones both inside and outside its LEC area in Indiana, although the vast majority of its pay telephones are inside its LEC area. Ameritech Indiana does not compete outside the borders of the State of Indiana. Gerald Dep. 138. Other Ameritech entities — Ameritech Illinois, Ameritech Ohio, Ameritech Michigan, and Ameritech Wisconsin — do not place pay telephones in Indiana. Id. at 139.
The number of pay telephones in operation nationwide has been in excess of 1, 500, 000 since 1993. FCC Statistics. Ameritech has owned and operated fewer than 26, 000 pay telephones in Indiana during the period 1990-99. Gerald Decl. ¶ 5. The number of pay telephones operated by Ameritech in its Indiana local service territory has fluctuated from a low of 23, 268 in 1990, to a high of 25, 860 in 1995, and back down to 24, 818 in 1999.
All of the plaintiffs increased or maintained their numbers of pay telephones operated in Ameritech's Indiana territory and in Indiana between year-end 1993 and 1997. Pl. Int. Ans. Collectively, the number of IPP pay telephones in Ameritech's Indiana service territory has increased from 3, 498 in 1993 to 4, 863 in 1999.
Capital required for an individual or company to enter the pay telephone service provider business or for an existing provider to provide additional pay telephones is less than $5,000 per pay telephone. Gerald Aff. ¶ 6. The cost of installing a pay telephone is only one consideration in determining whether or not a pay telephone should be placed at a specific location. Gerald Dep. 27-29. Ameritech's decision to place a pay telephone in a given location also depends on the likelihood of whether or not that pay telephone can generate sufficient revenues through end-user use to make it profitable. Id. at 28-29, 140. There is a finite but large number of profitable pay telephone locations in Indiana. Id. at 140-41.
For budgeting purposes, Ameritech has used $50 per month as an estimate of the cost of providing network access to pay telephones in its service territory. Id. at 42, 46. The average bill for plaintiff Indiana Telcom's access to Ameritech's network in 1997 was $67 per pay telephone. Nelson Aff. ¶ 2. At busier locations, it was common for Indiana Telcom to receive bills in excess of $175 per month. Id., 3.
Ameritech has lost accounts in Indiana to several different IPP competitors over the past few years. Gerald Dep. Ex. 3. These competitors are headquartered in Florida, Illinois, Kentucky, Michigan, Ohio, Oregon, and Texas.
After October 7, 1997, when the FCC ended state regulation of coin-drop rates, Ameritech raised the coin-drop rates on its pay telephones to 35 cents, which is the same rate charged by IPPs at almost all locations. Gerald Decl. ¶ 9. However, some IPPs in Indiana, including some of the plaintiffs, offer flexible pricing schemes at their pay telephones, such as three minute calls for 25 cents anywhere in the United States. Nelson Aff. ¶ 12. In addition, some IPPs offer local coin-drop rates of less than 35 cents. Id. at 13.
B. Ameritech's Agreements with Site Owners
Plaintiffs have identified five site owners with which Ameritech is alleged to have entered agreements which effectively exclude competitor pay telephones. Phillips Report at 23-26, Ex. I-L.
Plaintiffs rely on publicly available information about these agreements. The court denied plaintiffs' motion to compel Ameritech to produce a much larger number of agreements with site owners. Ameritech has not objected to the admissibility of those portions of Dr. Phillips' report that describe the agreements at issue. Ameritech has referred to the terms of the agreements described in Dr. Phillips' report as "alleged" terms. For summary judgment purposes, the court assumes that Dr. Phillips has described the terms accurately.
1. Indianapolis Airport Authority, 1997-2002
Ameritech entered an agreement with the Indianapolis International Airport Authority in 1997. Gerald Dep. 116-17. The account is handled by Ameritech's "Premier Account Group," and Ameritech operates about 140 pay telephones at the airport. Id. at 117-18, 131. Under the agreement, Ameritech pays the Airport various components of compensation, with an annual floor of at least $400,000. Id. at 123. Ameritech paid the Airport a lump sum of $1,200,000 against which the Airport draws its monthly commission. Id. at 122-23.The Airport contract is described as non-exclusive; Ameritech's commission rate to the Airport declines if Ameritech's share of pay telephones at the Airport drops below 70 percent. However, no other competitors have placed pay telephones at the Airport. Gerald Dep. 118. The Airport account has been profitable for Ameritech during the entire term of the agreement. Id. at 120-21. (Plaintiff Indiana Telcom has asserted that it submitted a bid to the Airport. The only evidence of the terms of that bid is that matching Ameritech's bid would have caused Indiana Telcom to lose money. Nelson Aff. ¶ 8.)
2. 500 Liquors, 1986-1991
The 500 Liquors contract ran from 1986 to 1991 when Ameritech lost the account to a competitor. Gerald Decl. ¶ 10. Plaintiffs do not allege the agreement was exclusive by its terms. It required that 500 Liquors obtain a certain minimum number of pay telephones from Ameritech.
3. Marion County Sheriffs Department 1995-2000
This agreement has provided for pay telephones at the Marion County Jail and satellite detention facilities. Plaintiffs do not allege that the agreement is expressly exclusive. The agreement covers 222 Ameritech pay telephones in the jail and guarantees Ameritech the right to supply pay telephones as needed in present and future facilities. At the time of the parties' briefing in 2000, the agreement had renewable two-year terms.
4. Indiana Convention Center and RCA Dome, 1997-2000
This agreement covers 100 pay telephones. Plaintiffs do not allege that it is expressly exclusive. Ameritech may be refused a pay telephone location at the convention center only if all competitors are refused.
5. State of Indiana Department of Administration, 1993-99
In a series of two-year agreements, Ameritech contracted to place 550 pay telephones in state facilities. Plaintiffs allege that the agreement is exclusive but have not quoted any provision precluding other vendors.
Additional facts are stated below as needed, using the standard for deciding a summary judgment motion.
IV. Discussion
Plaintiffs' monopolization claims fail under federal and state law. Plaintiffs have not produced evidence that tends to show that Ameritech has or likely to achieve monopoly power in the market for providing pay telephone services. In addition, the alleged anti-competitive conduct about which plaintiffs complain does not violate antitrust laws and therefore does not support plaintiffs' attempted monopolization and restraint of trade claims. Finally, plaintiffs have no evidence of antitrust injury.
A. Federal Sherman Act Claims
Ameritech seeks summary judgment on plaintiffs' claims under the Sherman Act. These include claims for monopolization and attempt to monopolize in violation of 15 U.S.C. § 2, and claims for agreements in restraint of trade in violation of 15 U.S.C. § 1.
To prove monopolization in violation of Section 2, plaintiffs must demonstrate: (1) the possession of monopoly power in the relevant market; and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. Eastman Kodak Co. v. Image Technical Servs, 504 U.S. 451, 481 (1992), citing United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966); United States v. Microsoft Corp., 253 F.3d 34, 50 (D.C. Cir. 2001).
To prove attempted monopolization in violation of Section 2, plaintiffs must show (1) specific intent to achieve monopoly power, (2) predatory or anti-competitive conduct directed to accomplishing this unlawful purpose, and (3) a dangerous probability that the attempt to monopolize will be successful, which requires proof of a relevant market. Indiana Grocery, 864 F.2d at 1413; accord, Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993).
To prove combinations or agreements in restraint of trade in the context of vertical agreements between Ameritech and its suppliers of pay telephone locations, plaintiffs must show that such agreements significantly limit the opportunities for others to compete for a substantial share of the business in a relevant market. In considering this issue, the court must keep in mind the opportunities competitors may have to compete for business periodically as such agreements expire. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 328-29 (1961) (exclusive dealing arrangement upheld against challenge under Section 3 of Clayton Act); Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996) (affirming dismissal for failure to state a claim); Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 478 (7th Cir. 1998) (affirming summary judgment).
As a matter of law, plaintiffs have not come forward with evidence that tends to support their Sherman Act claims. Ameritech does not have monopoly power in the relevant market and there is no evidence, let alone a dangerous probability, that any attempt by Ameritech to obtain monopoly power would be successful. In addition, plaintiffs have produced no evidence of anticompetitive conduct by Ameritech.
1. Market Definition
To determine whether monopoly or market power exists, the relevant product and geographic markets first must be defined. See Collins, 844 F.2d at 478. For summary judgment purposes, the parties assume that the relevant product market is the market for pay telephone services. The parties disagree on the relevant geographic market. Ameritech Indiana argues that the market is nationwide. Plaintiffs contend it is limited either to Indiana or to Ameritech's LEC service area in Indiana. According to plaintiffs, Ameritech's analysis is erroneous because it ignores the end-user and applicable regulatory schemes.
Ameritech has reserved the right to argue, if trial were necessary, that the relevant product market is the broader market for providing telephone service to people in transit. That market includes cellular telephones and other wireless telephone services. Ameritech contends that the availability of such wireless alternatives constrains the pricing of pay telephone services to end-users. That contention may well have merit, and that merit may strengthen over time, assuming the continued proliferation of alternatives to pay telephones. See generally SBC Communications, Inc. v. FCC, 56 F.3d 1484, 1493-94 (D.C. Cir. 1995) (affirming as "perfectly reasonable" an FCC decision combining cellular and landline interexchange services in the same product market). Because Ameritech has chosen to accept plaintiffs' proposed product definition for purposes of summary judgment, the court need not decide whether a broader definition would be more appropriate under the Sherman Act.
The traditional definition of the relevant geographic market is "the market area in which the seller operates, and to which the purchaser can practicably turn for supplies." United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 359 (1963). The relevant market thus includes potential sources of supply and competition.
For purposes of summary judgment, and for purposes of any claim based on restraint of trade in the consumer market for pay telephone services (as opposed to the market for pay telephone locations) the court accepts the plaintiffs' proposed geographic market of Ameritech's LEC territory in Indiana, but that definition is subject to a critical qualification because of the absence of entry barriers. From the perspective of a consumer seeking to make a telephone call on a pay telephone, the geographic market — the area in which the consumer can physically find the needed equipment — is quite narrow.
Professor Areeda's leading treatise on antitrust law explains:
Geographic markets become more difficult to define when (1) the supplier is stationary and produces a product or service that cannot easily be transported, and (2) customers are consumers guided by unspecified utility functions rather than by a readily specified cost curve. [C]onsumer tastes vary considerably; different consumers trade time for money at widely differing rates and pay widely differing amounts for various conveniences.
IIA Areeda, Hovenkamp Solow, Antitrust Law ¶ 553a at 238 (1995). These comments seem to apply directly to a consumer's decision about using a pay telephone. The supply source for the service — the telephone unit — is stationary; its service cannot be transported. The customers are consumers with widely varying utility functions in terms of trading cost for convenience. How far is any given consumer willing to walk to save 10 or 15 or 25 cents on a telephone call?
After pointing out the difficulty of defining geographic markets for such stationary consumer products and services, the authors of the Areeda treatise simply moved on: "For the remainder of this discussion, we postulate goods that can move to customers." Areeda, et al., ¶ 553a at 239. The courts cannot indulge in such postulates, however, and in some cases must still wrestle with the problem.
This court does not read Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1336-37 (7th Cir. 1986), as requiring a larger geographic market here. In that case, the plaintiffs brought an antitrust challenge against a large health insurer's preferred provider plan. The plaintiffs argued that the relevant geographic market was Indiana, where end-users ( i.e., patients) sought health care insurance and financing. The district court had found that the relevant market was regional or national. The Seventh Circuit affirmed:
This larger market may not seem useful from the perspective of consumers in Indiana, who must obtain their insurance from firms offering it there. It is highly pertinent, however, from the perspective of the Blues' rivals and potential rivals, and therefore from the perspective of constraints on the Blues' ability to raise price. The Blues' rivals, whose mobility is not restricted, protect consumers, whose mobility is restricted.784 F.2d at 1336-37. In Ball Memorial Hospital, however, the service in question was not health care but financing for health care. The transfer of money can easily be accomplished across great distances. Insurance companies far from Indiana could compete for business in financing health care in Indiana. The possibility of such competition constrained attempts to raise prices or reduce supply in the smaller geographic area.
Where the relevant product or service requires a physical connection — such as a delivery of eggs, a trip to a gas station, or a trip to a hospital for surgery — the focus is on the area in which the customer can reasonably find substitutes. See, e.g., A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1403 (7th Cir. 1989) (Indiana was not the relevant market for wholesale eggs: "Any given customer apparently could turn to processors within 500 miles as sources of supply"); Bathke v. Casey's General Stores, 64 F.3d 340, 346 (8th Cir. 1995) (relevant markets for retail gasoline in rural Iowa not limited to one small town each, but could extend to neighboring towns if consumers would view buying gas there as practical alternative; summary judgment affirmed where plaintiffs' proof failed to account for consumer alternatives); United States v. Rockford Memorial Corp., 898 F.2d 1278, 1284-85 (7th Cir. 1990) (affirming injunction against local hospital merger based on localized market; for all but highly specialized care, patients strongly prefer local hospital services close to their doctors and families).
To the extent this reasoning can lead to geographic markets too tiny to be deemed significant, however, there are lower limits for the size of geographic markets. See generally, e.g., Elliott v. United Center, 126 F.3d 1003, 1005 (7th Cir. 1997) (affirming dismissal of complaint based on theory that "food sales within United Center" in Chicago was relevant market).
To the extent that plaintiffs are complaining about alleged restraints in a different product market, a market for pay telephone locations, the geographic market is essentially national. The undisputed evidence shows that businesses or other property owners seeking to have a pay telephone installed can turn to many out-of-state providers of pay telephone services that operate in several states. Such companies can and do provide realistic alternatives for a property owner interested in leasing space for a pay telephone in return for commissions. See, e.g., Collins, 844 F.2d at 478-79 (relevant market was nationwide market in which doctors sought jobs and from which hospitals recruited, not the particular hospital where defendant had an exclusive contract); Doctor's Hospital v. Southeast Medical Alliance, Inc., 123 F.3d 301, 311 (5th Cir. 1997) ("[A] plaintiff must define the relevant market. . . . Critically, evidence must be offered demonstrating not just where consumers currently purchase the product, but where consumers could turn for alternative . . . sources of the product if a competitor raises prices.").
The undisputed evidence in this case shows that numerous pay telephone providers can and do compete in Ameritech's Indiana LEC service area. Any owner of a location who is unhappy with Ameritech's offer can seek better terms from many actual and potential competitors.
Plaintiffs suggest that state regulation might impose a barrier to entry in this market, but no evidence supports such a finding. There simply is no evidence that regulation creates a substantial barrier to entry in the market.
In Ball Memorial Hospital, the Seventh Circuit considered issues related to competition in the heavily regulated insurance industry. The court did not consider state regulation as a barrier to entry or as a consideration relevant to market definition:
[A]ll [health insurance firms] can expand on a moment's notice. "Entry barriers into the market for health care financing are extremely low. All that is needed to compete in Indiana, for example, is sufficient capital to underwrite the policies and a license from the Indiana Insurance Commissioner."
F.2d at 1332 (quoting district court's findings). In this case, the mere fact that Ameritech Illinois and Ameritech Indiana operate under different regulatory schemes does not affect the scope of the relevant market. There is no evidence that the regulatory scheme affects the pool of pay telephone service providers to which site owners turn when they wish to have a pay telephone installed.
When courts deal with claims for restraint of trade, they usually write about the possibility that market power will be used to raise prices. In the market for pay telephone locations, though, plaintiffs' theory in this case seems to be that Ameritech might gain monopsony power as a buyer and then exercise that power by reducing the amounts it is willing to pay for locations. If Ameritech were to try such a maneuver, there would be no significant obstacles preventing unhappy property owners from obtaining better offers from plaintiffs or many other competitors around the United States. Accordingly, the undisputed facts show here that Ameritech could not possibly have market power in the market for renting pay telephone locations. Ameritech is entitled to summary judgment on all claims based on that theory.
2. Monopoly Power and the Lack of Entry Barriers
Returning to the issue of the market for providing pay telephone services to consumers, the decisive issue is not the size of the geographic market but the absence of barriers to market entry. Plaintiffs contend that Ameritech has monopoly power. Plaintiffs point to Ameritech's market share, alleged inelastic demand in the market, and alleged barriers to entry in the market. Plaintiffs' claims of monopoly power fail as a matter of law.
In the market for providing pay telephone services to consumers, Ameritech's market share is about 84 percent. That is a large market share, but without more, it is not sufficient to demonstrate monopoly power, which is the power to restrict output and raise prices. See Ball Memorial Hospital, 784 F.2d at 1336; Indiana Grocery, 864 F.2d at 1414 ("[M]arket share is at best an indicator of market power in certain cases. The ultimate inquiry . . . remains whether the defendant has or reasonably might come close to having the ability to control total market output and prices, . . ."). To demonstrate monopoly power, plaintiffs therefore would have to come forward with some viable theory of monopoly power in addition to market share. They have not done so.
Plaintiffs argue that demand for pay telephone services is inelastic, meaning that the seller can raise prices to end users and retain profits because the unit volume will not decline. Plaintiffs contend that inelastic demand is evidence of monopoly power. Even if that were the case in the absence of entry barriers (and it is not), plaintiffs have not produced evidence tending to show that demand for pay telephone services is inelastic. Plaintiffs rely on two assertions in Dr. Phillips' report that lack appropriate foundation.
Dr. Phillips first asserts that demand for pay telephone services is inelastic because Ameritech's revenues demonstrate that pay telephone customers generally are not sensitive to Ameritech's price increases. The record evidence does not support this proposition. Gerald testified that after Ameritech's 40% increase in the coin drop rate from 25 to 35 cents beginning in February 1998, Ameritech's total revenues increased temporarily, but substantially less than 40%. Revenues then decreased. Within two to three months, revenues were even below the level before the price increase, then continued to decline. See Gerald Dep. 113-14 ("[T]here "s a term in our business known as suppression that once a drop increase goes into effect, you notice a certain amount of individuals that will choose not to walk up to the phone and initiate their call. So, therefore, the decline."). That evidence is undisputed on this record, and it certainly does not show inelastic demand.
If it shows anything, the effect of the Ameritech price increase tends to show that the relevant product market cannot be limited to pay telephones because a price increase is likely to cause significant shifts away from pay telephones to cellular phones and other forms of mobile communication. As noted above in note 2, however, Ameritech has accepted the limited product market for purposes of summary judgment.
Dr. Phillips also wrote: "the arc elasticity of demand is .85." Dr. Phillips based this assertion on information and projections about price and revenue from the July 1995 Descriptive Memorandum of Ameritech's pay telephone operations by Merrill Lynch. In connection with Ameritech's first partial summary judgment motion, the court sustained Ameritech's authentication and hearsay objections to the Descriptive Memorandum. See Entry on Defendant's Motion, dated March 9, 1999, at 17.
Under the Federal Rules of Evidence, an expert may rely on inadmissible evidence only upon proof that his profession relies on that particular type of data. Fed.R.Evid. 703. Here, plaintiffs have made no effort to demonstrate that economists rely on data such as the Merrill Lynch report to make such determinations of price elasticity.
Ameritech's objections to Dr. Phillips' assertions about inelastic demand are sustained and those portions of his report are stricken. Without any support for their argument about inelastic demand, plaintiffs' argument on this point must fail. The point ultimately is not decisive, however, because even where demand is inelastic, a firm cannot exercise market power or monopoly power unless there are barriers to entry by competitors.
In an earlier entry, this court observed that in order for Ameritech to extract monopoly profits, there would need to be barriers to market entry that would protect Ameritech from new competition after it tried to reduce the amounts it would be willing to pay location owners. See Endsley v. City of Chicago, 230 F.3d 276, 283 (7th Cir. 2000) (city did not have monopoly power even though it operated the most desirable route between Indiana and Chicago: "If the Skyway tolls become too high, drivers will take one of the alternate routes. The availability of these very viable options for a high-speed access route linking Chicago to Indiana indicates that the City does not have monopoly power over the relevant market."). The undisputed evidence shows there are no legal barriers to entry into the retail pay telephone market. Potential competitors include other large telecommunications companies, such as AT T.
The Seventh Circuit has long held that low barriers to competition demonstrate the absence of monopoly power. See American Academic Suppliers, Inc., v. Beckley-Cardey, Inc., 922 F.2d 1317, 1320-21 (7th Cir. 1991) (no monopoly power where defendant in market for distributing school supplies faced a "horde of existing competitors" and market entry required "only a few hundred thousand dollars"); Ball Memorial Hospital, 784 F.2d at 1335 ("New firms may enter easily. Existing firms may expand their sales quickiy; . . . insurers need only a license and capital . . . ."); see also Indiana Grocery, 864 F.2d at 1415 (affirming summary judgment where defendant had no ability to control output of groceries; "[E]xisting firms do not face high barriers to increasing output, such as the need to acquire or build new productive assets.").
Here, the plaintiffs have not come forward with evidence of any significant barriers to entry. The investment required to enter the pay telephone provider business is relatively small. One pay telephone costs about $5,000, and there is no evidence that successful entry requires entry on a huge scale. In addition, the FCC and IURC have found that no significant barriers exist based on the minimal capital required for entry or expansion in the pay telephone market, along with the large number of entrants and competitors. See FCC Report and Order of September 20, 1996, ¶ 232 ("We find the record demonstrates that the market for provision of payphone services has very low barriers to entry, and such entry would act to prevent the [Bell Operating Companies, like Ameritech Indiana] from sustaining prices above competitive levels . . . While we understand the arguments of the independent pay telephone providers that their small size makes them vulnerable to . . . predatory conduct, the existence of literally thousands of small competitors demonstrates that entry is relatively easy and does not require investment or scale levels that would deter many potential competitors."). See also COPT Service Competition in Indiana at 23 ("Although market concentration is high, other factors provide clear evidence that the market is competitive. That is, no one firm or group of firms has the ability to create or enhance market power in the provision of payphones to premise owners.").
The undisputed evidence also shows that the plaintiffs themselves have expanded their operations over time in Ameritech's LEC area. Their own growth belies their assertion that there are substantial barriers to entry. Expansion has continued over time since deregulation. The number of IPP phones in the Ameritech LEC area grew by 37 percent from 1995 to 1999.
In an attempt to raise a genuine issue of fact on entry barriers, plaintiffs rely on Dr. Phillips' report. He asserts that cost is a barrier because Ameritech allegedly charges itself less than it charges IPPs for access to its own network. He further asserts that Ameritech uses these savings, which he inexplicably calls "monopoly profits," to increase signing bonuses to location providers, to increase pay telephone advertising, and to raise the commissions it pays to pay telephone location providers. Through this conduct, Dr. Phillips opines that Ameritech is "raising rivals' costs, " which he views as a violation of antitrust law.
There is no claim here that Ameritech has been losing any money on its pay telephone operations. In the absence of such evidence, plaintiffs cite no legal authority for the proposition that one company's bare cost advantage over competitors constitutes a barrier to entry or expansion under antitrust laws. Moreover, this theory does no more than restate plaintiffs' price squeeze claim, which the court already has rejected as a matter of law on other grounds. Thus, plaintiffs have failed to raise a genuine issue of material fact as to whether Ameritech has or is dangerously likely to achieve monopoly power in the retail market for providing pay telephone services.
3. Agreements in Restraint of Trade?
Plaintiffs also have not shown that Ameritech has engaged in any anticompetitive conduct. Plaintiffs again try to revive their price squeeze claim, which the court has already rejected because both of the prices in question — the retail "coin drop rate" and the rates that IPPs pay for access to Ameritech's network — have been subject to active state supervision.
Beyond that, plaintiffs allege that Ameritech has violated Section 1 of the Sherman Act, which prohibits agreements in restraint of trade, by entering into exclusive agreements with site owners. There is no evidence, however, that any of the agreements identified by the plaintiffs contains exclusive language. See Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 392-93 (7th Cir. 1984) (Clayton Act claim; although exclusive agreement need not be express, a seller's preference for exclusive dealers and hostility towards non-exclusive dealers does not demonstrate an exclusive agreement).
Even if the agreements were shown or were construed to be exclusive, that would not be enough to show an antitrust violation. See id. at 393-94 (exclusive agreements are "condemned only if found to restrain trade unreasonably"), citing Tampa Electric Co., 365 U.S. at 328-29 (exclusive agreements raise antitrust concerns only when "the competition foreclosed by the contract [is] found to constitute a substantial share of the relevant market"). The exclusion of competitors is cause for antitrust concern only if it impairs the health of the competitive process itself. Roland Machinery Co., 749 F.2d at 394.
The court has not authorized discovery of Ameritech's contracts with location owners. (In the absence of evidence of entry barriers or some other threshold showing, the court saw no reason to require Ameritech to show its competitors copies of all its agreements with site owners.) Even if one assumes that Ameritech enters into exclusive agreements, and even if one assumes there are many such agreements, the available evidence shows that agreements are relatively short-term. See Paddock Publications, Inc., 103 F.3d at 45 (competing firms are entitled to enter exclusive agreements with favored users; "Other firms that want to enter the market can do so by competing at intervals for these contracts.").
The evidence in this case shows that the market relevant for this claim, the market for pay telephone locations, is national in scope. Ameritech could not possibly exercise market power in this market because of the many potential competitors, including some large telecommunications companies. If a site owner is unhappy with Ameritech's terms, the owner is free to negotiate with other competitors (including plaintiffs and many others) whenever the Ameritech agreement approaches the end of its term. Ameritech is entitled to summary judgment on this claim under Section 1.
4. Antitrust Injury
In addition to the reasons discussed above, Ameritech is entitled to summary judgment on all federal antitrust claims on another distinct basis. Plaintiffs seek damages under Section 4 of the Clayton Act. They assert that they have been injured because Ameritech has obtained pay telephone sites that plaintiffs could have obtained if Ameritech had paid lower commissions to site owners or if Ameritech had advertised less than it did.
This type of alleged injury is not "antitrust injury." The Supreme Court has explained what an antitrust plaintiff must prove:
We therefore hold that for the plaintiffs to recover treble damages on account of § 7 violations, they must prove more than injury causally linked to an illegal presence in the market. Plaintiffs 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 defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be "the type of loss that the claimed violations . . . would be likely to cause." Zenith Radio Corp. v. Hazeltime Research, 395 U.S. 1100, 125 (1969)].Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 489 (1977); see also International Brotherhood of Teamsters v. Philip Morris, Inc., 196 F.3d 818, 825 (7th Cir. 1999) ("To recover under the antitrust laws, the plaintiff must show that its injury flows from that which makes the conduct an antitrust problem: higher prices and lower output.").
Loss of business to a competitor is not, without more, an antitrust injury. Ehredt Underground v. Commonwealth Edison, 90 F.3d 238, 240 (7th Cir. 1996). The ultimate goal of antitrust law is to protect consumers from producers, not to protect producers from each other or to ensure that one firm rather than another gets more of the business. Id.
Plaintiffs have not shown more. They have not shown that Ameritech has reduced or is likely to reduce the availability or output of pay telephone services in any market. Instead, they complain that Ameritech has acquired too many locations for itself. This may hurt the plaintiffs' bottom line, but there is no evidence that it harms the public. Plaintiffs suggest that the public might be harmed because the drop-rates for pay telephone calls have not decreased since the market was deregulated at the federal level by the Telecommunication Act of 1996. However, the record here indicates that the IURC still regulates pay telephone rates in Indiana. All of plaintiffs' claims under the Sherman Act fail for lack of evidence of antitrust injury.
B. Plaintiffs' Antitrust Claim under Indiana Law
Plaintiffs allege that the facts underlying their Section 2 Sherman Act claim also give rise to liability under the Indiana antitrust statute, Indiana Code § 24-1-2-2. The statute provides that any person who monopolizes trade or commerce in Indiana commits a misdemeanor. Indiana Code § 24-12-7 allows any person injured by a monopoly to seek treble damages.
This court has supplemental jurisdiction over the state antitrust claim pursuant to 28 U.S.C. § 1367. "The general rule is that when as here the federal claim drops out before trial (here way before trial), the federal district court should relinquish jurisdiction over the supplemental claim." Van Harken v. Chicago, 103 F.3d 1346, 1354 (7th Cir. 1997); Boyce v. Fernandes, 77 F.3d 946, 951 (7th Cir. 1996). The most important exception to this rule applies where the supplemental claim is easily shown to have no possible merit. In such cases, dismissal on the merits is "a time saver for everybody." Boyce, 77 F.3d at 951, citing Korzen v. Local Union 705, 75 F.3d 285, 288-89 (7th Cir. 1996); accord, Bowman v. City of Franklin, 980 F.2d 1104, 1109-10 (7th Cir. 1992).
This exception applies to plaintiffs' state antitrust claims. Indiana's antitrust laws are interpreted using the same standards that govern federal antitrust claims. See Bi-Rite Oil v. Indiana Farm Bureau Coop. Ass'n, 720 F. Supp. 1363, 1378 (S.D. Ind. 1989), aff'd 908 F.2d 200 (7th Cir. 1990) (granting defendant summary judgment on federal and state antitrust claims on the same grounds); Agmax, Inc. v. Countrymark Co-op., Inc., 795 F. Supp. 888, 892 (S.D. Ind. 1992) (denying preliminary injunction); Perry v. Hartz Mountain Corp., 537 F. Supp. 1387, 1390 (S.D. Ind. 1982) (because Indiana antitrust statute was modeled after Sherman Act, plaintiff who lacked standing under federal law also lacked standing under state law); City of Auburn v. Mavis, 468 N.E.2d 584, 585 (Ind.App. 1984) (Indiana courts use federal decisions to interpret state antitrust statutes; federal "antitrust injury" requirement applied to state law claim). Plaintiffs have not tried to show any difference between their federal and state claims to argue for the possibility of different results. Accordingly, summary judgment for the defendants is appropriate on plaintiffs' claim under Ind. Code § 24-1-2-2 for all the reasons discussed above.
C. Plaintiffs' Tortious Interference with Contract Claim
Plaintiffs' only remaining claim is one under Indiana common law for tortious interference with contracts. This court has had supplemental jurisdiction over that claim pursuant to 28 U.S.C. § 1367, and the same general principles apply. Plaintiffs' claim for tortious interference with contract has not been the focus or subject of any effort in this lawsuit. Ameritech's motions for summary judgment have not addressed it. Thus, on the state tort claim, there is no reason for this court to depart from the usual course, which is to relinquish supplemental jurisdiction by dismissing the claim without prejudice.
V. Conclusion
The record before this court does not foreclose the possibility that state regulators have made rate decisions that make it difficult for these plaintiffs to compete as effectively against Ameritech as they would like. Those rate decisions are for the state regulators to make. Plaintiffs' antitrust challenge fails on its merits. For the reasons explained in this entry, defendants' second motion for partial summary judgment on plaintiffs' federal and state antitrust claims is granted. Plaintiffs' remaining state law claim for tortious interference with contract will be dismissed without prejudice for lack of subject matter jurisdiction. Final judgment will be entered accordingly.