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finding browsewrap agreement enforceable where Ticketmaster "placed in a prominent place on the home page the warning that proceeding further binds the user to the conditions of use."
Summary of this case from HealthPlanCRM, LLC v. AvMed, Inc.Opinion
Case No. CV99-7654-HLH (VBKx)
March 7, 2003
ATTORNEYS PRESENT FOR PLAINTIFFS: Steven E. Sletten, Esq., Robert E. Cooper, Esq., Robert H. Platt, Esq., Mark S. Lee, Esq., Mack Kenney,
ATTORNEYS PRESENT FOR DEFENDANTS: William Taylor, Esq., Howard Holderness, Esq.,
TICKETMASTER'S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT RE: ANTITRUST CLAIMS
The motion of counter-defendants Ticketmaster Corporation and Ticketmaster Online-CitySearch, Inc. (hereafter collectively TM) for summary judgment as to the anti-trust claims (Sherman Act and Cartwright Act) of the counterclaim (hereafter CC) of Tickets.Com, Inc. (hereafter TX) is granted and said claims are dismissed. This minute order is the order dismissing said claims; no judgment is entered at this time by reason of the existence of other claims against each other by both TM and TX.
While there are certain differences in the operative facts between the parties, the general background of the ticket business and the competition between TM and TX is largely undisputed. The conclusions to be drawn from the undisputed facts are highly disputed. Each party has presented the economic views of two highly qualified experts, Professor Daniel L. Rubinfeld for TX and Professor Benjamin Klein for TM. In stating the background and nature of the competition between the two contestants, the court has drawn heavily on the descriptions of the two experts where they do not conflict.
The battleground of this motion must be considered on the basis of the relevant market as described by Professor Rubinfeld for the simple reason that, on summary judgment, a dispute of fact must be assumed to be resolved on the basis of the view of the party resisting summary judgment. Thus, while Professor Klein has many cogent objections to the relevant market as opined by Professor Rubinfeld, since there is respectable reasoning behind Professor Rubinfeld's opinion as to the relevant market, it is accepted for purposes of this motion for summary judgment. The basic structure of the market must be described (as both parties describe it) to understand the significance of the description of the relevant market as contended by TX.
Both TM and TX are ticketing service companies for those in the entertainment business. They provide the service of marketing the product (tickets) of arenas (stadiums, auditoriums, theaters, sports arenas) which put on concerts, sports events, shows, and other events attended in person by customers, i.e., the public. The business of distributing tickets has become increasingly complex as the size of audiences has increased, and the size of arenas has increased to accommodate them. Thus, the task of selling tickets to the public has become more complex, proceeding from the straight-forward box office at the arena itself to the present day complex of four methods of selling tickets to large venues: the box office at the arena, remote box offices established in the community (primarily in chain retail outlets), sales by telephone from telephone centers, and most recently, and the fastest growing method of sales, over the internet. TM and TX compete, using all four of the sales methods depending on the needs of the venue. To sell tickets in all four modes at the same time demands the use of multiple networked computers operating at each of the points of sale, which have the software and capability to determine what tickets are available to be sold at any point in time, and to manage the inventory of tickets for each event so as to meet the ticket purchaser's desire for price and location. Obviously, this requires complex networking of computers placed at each point of sale with complicated software systems. Because of the complexity of selling tickets by the four methods, a high percentage of tickets for large arenas are sold by companies providing the necessarily specialized ticketing service.
The two major competitors nationwide in the business are TM and TX. However, there are local companies providing the services in particular areas, and there is a growing portion of the market where the arena itself does its own ticketing business using software sold or leased to it by Paciolan (a competitor whose business method is to license software to a venue) or TX (which has a software licensing division). However, Professor Rubinfeld defines the relevant market in a way which excludes the software licensing competitors and the small regional ticket sellers, as well as smaller arenas. He defines the relevant market as the market for full service ticket distribution services purchased by major venues. By full service ticketing, Professor Rubinfeld means the selling of tickets by all four methods (venue box office, retail outlets, telephone sales, and internet sales) for arenas with a capacity of over 5,000 reserved seats which sell over 100,000 single tickets annually for live events. He identifies 41 regional areas which have such arenas and which have about 150 qualifying arenas among them. Professor Klein has manifold objections to the description of the relevant market principally because there are many smaller arenas which have, in total, significant economic impact, and because the full service description leaves out a small but potentially growing market segment — that of licensed software to the arenas themselves which provides an alternative for arenas which do not care for either TM or TX. However, for the reasons stated above, Professor Rubinfeld's description of the relevant market is accepted for purposes of this motion.
In the relevant market as described, TM has by far the dominant share of the business. In 31 of the 41 regional areas, of the larger arenas, TM has exclusive contracts which cover 75% of the tickets sold. In 25 of the regional areas, TM's market share was about 90%. In addition to contracts with the arenas (or venues) themselves, TM has long term exclusive contracts with large scale promoters of events (SFX — now a division of Clear Channel —, SMG, and House of Blues) which produce shows as well as own or manage arenas, and which can sometimes select ticket vendors.
TM typically does business by signing a long term exclusive contract with a venue (or arena) which calls for TM to use all four methods of distribution. If the venue retains its own box office, TM provides the hardware and software and trains the box office staff. The contracts are exclusive, meaning that the venue may not sell tickets through any other company (with exceptions in the case of season tickets to sporting events). The contracts are long term, usually between three and ten years, and average six years. The contracts are negotiated at arms length between the venue and TM, and do not follow a standard form — there are no contracts of adhesion. Venues frequently demand and get substantial sums in advance and TM typically negotiates for repayment of these sums by taking a larger percentage of the take for a sufficient period to recoup the advance. (Among other things, venues frequently need large cash down-payments to build or modernize a stadium or arena.) The long term exclusive contracts come up for bid (the normal method of awarding contracts) at about 20% per year (or more). of the 140 or so contracts starting since 1998, TX and TM contested for every one.
TX does business in the same way. The typical negotiation is by contested bids (formal or informal, sometimes followed by individual negotiations). TX also typically signs venues to long term exclusive contracts, and, as does TM, makes cash advances with similar frequency. Unlike TM, TX will bid for portions of the ticket selling business. In one notable confrontation, Major League Baseball (MLB) requested bids for a national internet contract, with each team to retain other methods of sale (telephone, box office, retail outlets, etc.). Both TM and TX contested for the MLB internet contract, which was awarded to TX. TM, which had historically refused to interact with other ticket selling companies, then refused to negotiate with individual baseball teams for the balance of the ticket selling business. TX capitalized on this by obtaining a number of baseball full service contracts (including for the Giants' new Pac Bell stadium for ten years). When SFX, the nation's largest promoter of events and the owner or manager of many arenas, decided to contract out its ticket selling business, TM and TX were both in vigorous competition. SFX signed with TM, but TX had proposed an even longer term contract with a higher down payment than TM. There are numerous other instances where TX and TM have competed for the same long term exclusive contracts with numerous venues or multiples of venues.
As to the history of the industry, TM started in 1980 when by far the largest market share was held by Ticketron, one of the first of the nationwide computerized ticket companies. TM developed from a small start-up to be the dominant competitor in about 10 years, mainly through its highly developed computer system which could offer the customer the best available ticket in the house at any of its sales terminals (box office, retail, telephone, and, eventually, internet). In 1991, it acquired Ticketron and since has become the dominant company in the industry. It claims to have reached its lofty status in the industry by offering venues a better service and product than its rivals, and denies using predatory tactics. TX started in the mid-90's with a different game plan, focusing primarilly on the internet. As time went on, the internet developed into a major part of the business (about one third and expanding), but box office, retail, and telephone business have remained critical to a successful operation. TX has adapted and now competes for full service business using all the methods of sale for the contracts of major venues. Its method of doing internet business clashed with TM's concepts, leading to this lawsuit starting in 1999. For the history of this aspect of the case, see the court's order on the intellectual property parts of this action of this date and the prior orders on the motion to dismiss and the motion for preliminary injunction. The major dispute in this lawsuit is now TX's anti-trust CC now involved in this motion.
While there were numerous anti-trust theories originally advanced, they have been reduced to the one specified by Professor Rubinfeld. Professor Rubinfeld's theory is that the use by TM of long term exclusive contracts have no reasonable economic justification and provide barriers to entry into the ticket business by their long term and exclusive nature. In his theory, the barriers to entry are exacerbated by the business power of TM's name, by the difficulty of establishing retail outlets before bidding, by the web of long terms contracts with multiple venue producers and venue managers and the desirable retail establishments, as well as the long term exclusive contracts with the individual venues. Professor Rubinfeld opines that the combination makes entry by a newcomer (i.e., TX) virtually impossible and gives TM the power to raise its rates above competitive levels and well as exclude others. In the court's opinion, the evidence does not justify these conclusions.
Section 2 of the Sherman Act prohibits monopolies, attempts to form monopolies, as well as combinations and conspiracies to do so. 15 U.S.C. § 2. The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in a properly defined relevant market; and (2) the willful acquisition or maintenance of that power by means of anticompetitive, predatory conduct, as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident. Grinnell Corp. `66 384 U.S. 563, 570-571, 16 L.Ed.2d 778. To prove attempted monopolization under Section 2, TX must establish: (1) a properly defined relevant market; (2) TM's specific intent to monopolize that market; (3) anticompetitive, predatory conduct by TM; and (4) that TM has a dangerous probability of achieving monopoly power. Spectrum Sports `93 506 U.S. 447, 456, 122 L.Ed.2d 247.
The power and reputation of the TM name and business reputation does give it a substantial advantage over its rivals. Its history of displacing Ticketron as the giant in the industry by better service, methods, and results continues to give it an advantage, particularly in retaining its incumbency among satisfied customers. However, at least in this circuit, brand name recognition or reputation alone is not considered a barrier to entry that counts against an anti-trust defendant. (Harcourt-Brace Jovanovich 9 Cir. 97, 108 F.3d 1147, 1154;Omega Environmental, Inc. 9 Cir. 97, 127 F.3d 1157, 1164.)
Size alone or heavy market share alone does not make one a monopolist (or in danger of becoming one). To qualify as a monopolist or have a dangerous likelihood of becoming one, one must have either the power to control prices or to exclude competition. In fact, the power to exclude competition is almost a necessity to be able to charge prices above competitive levels. (Grinnell Corp. `66 384 U.S. 563, 16 L.Ed.2d 778;Image Technical Services 9 Cir. 97, 125 F.3d 1195.) There must be evidence of the ability to control prices or exclude competitors. (Oahu Gas Servs. Inc. 9 Cir. 88, 838 F.2d 360.) The evidence here establishes that these conditions do not exist because of the bidding nature of the competition, in which TX is fully able to join, that the venues have the bargaining power to prevent being taken advantage of, that prices cannot be unilaterally raised because of the long term contracts controlling the prices, and that there are no meaningful barriers to entry by TX if it can convince venues that it can provide better service or a better price.
The evidence is uncontradicted that virtually all long term contracts are awarded after some form of bidding competition. The bidding may be more or less formal, but every time a contract is up for renewal (about 20% or more of the total per year), TX as well as TM have the opportunity to compete for the contract. TX has competed in all situations. The fact that TM has won the majority of these competitions shows only that the contracting venue believes that TM offers the better deal, not only in terms of price, but also in terms of reliability and ability to do a competent job. However, TM's victories are not unanimous. TX has prevailed in head to head competition in a number of regions, and most impressively in major league baseball. The bidding nature of the competition is a powerful deterrent against the existence of monopoly power so long as there are competitors to bid so as to give the customer an alternative, and TX has been a major alternative. There is a third option which may become more important in future years — that is the option that large venues have to establish their own ticket distribution service by leasing the software from TX or Paciolan and setting up their own local retail outlets, telephone and internet system. This has been done at a number of university venues (which have some special needs) and by at least one major league baseball team. This is a viable alternative which keeps the market power of TM from removing alternatives from the venues. That the use of a bidding system is an indication of lack of power to exclude competitors from the market can be deduced fromKirk-Mayer CDCA, 86 626 F. Supp. 1168 and Nat'l Reporting Co. 8 Cir. 85 763 F.2d 1020.
The evidence on ability to set prices is equivocal. TM points out that the long term contracts prevent TM from raising prices to its customers — the venue — during the contract. TX says that prices to consumers, i.e., the public, tend to increase with long term contracts. The parties are talking about two different things. However, the TX version is not particularly relevant here, since prices to the consumer are not affected by competition between the ticket service providers for the venues' business, which is the subject of this suit.
Among the barriers to entry suggested by Professor Rubinfeld is the lack of a local presence — meaning retail outlets — possessed by the firm bidding for contracts in a region. By his definition of the relevant market, ability to sell through local retail markets is assumed to be a necessary part of the analysis. But the evidence does not support the theory that such is a barrier to entry. The evidence shows that a ticketing company can establish local outlets after the contract is obtained, and that this is feasible for a new entry into the region. The cost to establish each local outlet is reasonable — about $5,000 apiece for the hardware and software. Retail facilities in general welcome such outlets in their stores because they increase traffic through the stores, and can be a source of revenue for them. In each case where TX was the winning bidder for a major venue, it was able in a short time to establish its network of retail box offices. In the instance pointed to by Professor Rubinfeld — Cincinnati — where he says that TM had tied up the "best" local retail outlets (including Krogers), TX was able to establish a chain of retail outlets in short order after obtaining the Reds' baseball contract. This has been true in each venue signed up by TX. Even through TM had already contracted with the most desirable retail venues (which appear to be record stores and chain grocery stores), TX has found alternatives sufficient to solve the problem. While having sufficient inventory of tickets is necessary, a single local major venue can provide the minimum needed to allow a ticketing service to operate profitably. And having obtained one major venue, others follow with more ease. Thus, the evidence does not support the theory that lack of pre-established retail outlets is a significant barrier to entry.
TX's major point is that long term exclusive contracts with large venues narrows the immediate field for competition for such contracts for TX. Undoubtedly, this is true. The question here, though, is whether such contracts are commercially reasonable. See Twin City Sportservice 9 Cir. 82 676 F.2d 1292, 1304, cert denied, Twin City Sportservice 82 459 U.S. 1009, 74 L.Ed.2d 400. The evidence points very strongly to the conclusion that the venues themselves prefer long term exclusive contracts for their own reasons, that they have the economic power to resist long term contracts if it were in their interests to do so, and overwhelmingly, they prefer the long term contracts and prefer them to include the retail outlets, the telephone centers, and the internet connections. This can be for a number of reasons. Where the venues run their own box office at the venue site, the computers need to be compatible with the computers at the other sites, which means that changing ticket servicers every few years means retraining staff on new computers and software. Changing servicers often also means changing retail outlets (with which their customers become accustomed to) and also changing telephone and (perhaps) internet addresses. If the ticket servicer has reasonable performance and price, continuity leads to customer usage and satisfaction. Costs can be fixed for a longer, more predictable future. But by far the most important reason why venues prefer long terms contracts is that this is the method by which they can obtain cash up-front from the ticket servicer, but at the cost of a long term contract, so that the ticket servicer may amortize the cost with the expected income over the years of the contract. Often, the large up-front payment is obtained to build the venue or to remodel it, to the mutual benefit of the ticketing service and the venue, but a long term contract is then needed to support the cash payment demanded by the venue. Some venues prefer exclusive contracts because it simplifies their bookkeeping and reduces the cost of renegotiating the contracts every few years. Virtually no venues have complained about long term contracts or felt forced into them against their desires. Both TX and TM use the long term exclusive contract to accommodate their customers' desires, to their mutual benefit. So does Paciolan and TX with licensing software. Thus, the evidence shows that the long term exclusive contract is not for the purpose of excluding competition, but for the mutual economic benefit of both competitors. It is a mutually desired reasonable business practice from which no anti-trust inferences may be drawn. The effect of such contracts on entry to the market is also overstated by TX. About 20% or more of the contracts come up for renewal each year. TX's, figures show that there are about 150 major venues in the country, meaning an average of about 30 come up for renegotiation each year, or 2 plus each month on the average. These renewals ought to be sufficient to give TX a chance to show that it can provide a better product, service, or price than can TM. The evidence does not support the argument that long term exclusive contracts are an unreasonable drag on real competition in the industry. Just as TM overhauled Ticketron in ten years, TX, if it has the better product, can overhaul TM. The evidence does not support the theory that long term exclusive contracts are an unreasonable business technique which leads to exclusion of TX from the market.
TX did not point to any facts in opposition to TM's motion for summary judgment which would create a material issue of fact. Although the defendant generally has the burden of coming forward with a legitimate business justification after the plaintiff has shown evidence of monopolistic intent, the plaintiff, in this case TX, ultimately has the burden of proving that the defendant acted without a legitimate business justification. City of Vernon 9 Cir. 92, 955 F.2d 1361, 1366, cert denied, City of Vernon `92 506 U.S. 908, 121 L.Ed.2d 228; Calculators Hawaii 9 Cir. 83, 724 F.2d 1332, 1339. Cf. Aspen Skiing `85 472 U.S. 585, 608-611, 86 L.Ed.2d 467 (implying that defendant has burden of production and proof). In order to survive summary judgment, TX had to point to evidence demonstrating that there was a genuine issue of material fact as to whether TM in fact acted on the asserted grounds. Having failed to do so, summary judgment is appropriate.
TX points out that TM has enhanced its advantages with long term contracts by signing long terms exclusive agreements with producers such as SFX, SMG, and House of Blues (HOB). Many of these producers either own or manage venues and the long term contracts with them proliferate TM's advantage. This argument may have some merit if the basic theory has merit. However, the facts show that TX had opportunity to bid for the contracts for these multi-venue companies, and that it did so. There is no evidence that TX was excluded from contesting for the business or that any anti-competitive conduct prevented it from prevailing. The conclusion must be that the customer thought that TM had the better business deal. There is one aspect of the SFX and SMG contracts which is suspicious. Each contract calls for SFX or SMG to use its best efforts to obtain venues to sign contracts with TM. However, TX has not contended that these are more than incidental to its long term exclusive contract theory or that TX has lost business because of the best-efforts provisions in the SFX and SMG contracts.
TX contends that the refusal of TM to "unbundle" its business offerings (i.e., to do business with certain of the sales techniques but not all) is anti-competitive. TM's long standing policy is to do all of the ticket marketing that is done by retail outlets, telephone sales, and internet sales, and to supply the networking computer systems through which all tickets are sold. When TX won the internet contract for all of baseball, TM backed out of providing all forms of sale because of its policy of "bundling" all of its services or do none of them. In fact, this gave TX an opportunity to sign up many baseball teams for the non-internet business, which it did. TX established the local retail outlets necessary to handle the business as well as set up the telephone ordering systems. TX contends that the refusal of TM to "unbundle" its offering was an anti-competitive move meant to show baseball "who is boss". The contention seems outlandish. It is not supported by any evidence. It allowed TX in a door which it had found difficult to open before. TM explains its reason of not wanting to have to give up its trade secrets by having to merge its computer systems with a competitor and by losing control of ticketing inventory, which it believes is essential for it to do business. This would seem to be a legitimate business justification for the alleged refusal by TM to aid TX. Oahu Gas Serv. 9 Cir. 88, 833 F.2d 360, 368. In any event, no anti-competitive result is seen from this event and it does not support TX's position in the anti-trust case.
TX also claims that the long term exclusive contracts are violations of § 1 of the Sherman Act (combination in restraint of trade) as well as § 2 (monopolization), but similar considerations apply as with monopolization (the "rule of reason" applies in evaluating the effect of contracts on competition). See, e.g., Jefferson Parish Hosp. `84 466 U.S. 2, 30, n. 51, 80 L.Ed.2d 2; Morgan 9 Cir. 91, 924 F.2d 1484, 1488; Barry Wright 1 Cir. 83, 724 F.2d 227, 239. Thus, valid business reasons can justify challenged conduct. See Twin City Sportservice 9 Cir. 82, 676 F.2d 1292, 1308, cert denied, Twin City Sportservice `82 459 U.S. 1009, 74 L.Ed.2d 400. The result is the same as under the monopoly analysis.
The parties agree that the Cartwright Act claims are coextensive with the Sherman Act claims. The summary judgment motion is granted to remove the anti-trust issues from the CC in this case.
The parties have agreed that the CC for violation of BP Code § 17200 will be handled later and is not included in this motion.