PSKS, Inc. v. Leegin Creative Leather Products, Inc. , 171 F. App'x 464 ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT March 20, 2006
Charles R. Fulbruge III
Clerk
No. 04-41243
PSKS, INC., doing business as Kay’s Kloset ... Kay’s Shoes;
TONI COCHRAN L.L.C., doing business as Toni’s,
Plaintiffs-Appellees,
versus
LEEGIN CREATIVE LEATHER PRODUCTS, INC.,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Texas
(2:03-CV-107-TJW)
Before BARKSDALE and CLEMENT, Circuit Judges, and ENGELHARDT,
District Judge*.
PER CURIAM:**
Leegin Creative Leather Products, Inc., primarily challenges
application of the antitrust per se rule to its imposing a vertical
minimum price-fixing agreement on its retailer, PSKS, Inc., doing
business as Kay’s Kloset ... Kay’s Shoes. Among other issues is
the awarded damages’ evidentiary basis. AFFIRMED.
*
District Judge of the Eastern District of Louisiana, sitting
by designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
I.
In 1995, Leegin, manufacturer of Brighton women’s accessories,
began selling its products to PSKS, a women’s clothing and
accessories specialty store. PSKS invested heavily in advertising
and promoting the Brighton brand; by 1999, Brighton was PSKS’ best-
selling and most profitable line.
In 1997, Leegin instituted the “Brighton Retail Pricing and
Promotion Policy”, stating it would do business only with retailers
following its suggested retail prices for Brighton products. In
doing so, Leegin made clear it would not do business with retailers
who engaged in discounting Brighton products they intended to
reorder.
Leegin subsequently introduced the “Heart Store Program”, a
new marketing initiative designed to provide incentives to certain
Brighton retailers to promote the brand within a separate section
of their stores. To become a Brighton Heart Store, retailers had
to pledge to “[f]ollow the Brighton Suggested Pricing Policy at all
times”.
In late 2002, after learning PSKS had violated Leegin’s
pricing policy by placing PSKS’ entire line of Brighton products on
sale, Leegin suspended all shipments of Brighton products to PSKS.
As a result, its sales and profits decreased substantially.
PSKS filed this action against Leegin under § 1 of the Sherman
Antitrust Act, 15 U.S.C. § 1: (1) claiming it entered into illegal
agreements with retailers to fix Brighton products’ prices and
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terminated PSKS as a result of those agreements; and (2) seeking
future-lost-profits damages. (Co-plaintiff Toni Cochran, L.L.C.’s
claims were dismissed at the close of plaintiffs’ evidence.
Cochran did not appeal.)
The jury found: Leegin and its retailers agreed to fix the
retail prices of Brighton products; this caused PSKS to suffer
antitrust injury; and PSKS was entitled to damages of $1.2 million.
Pursuant to 15 U.S.C. § 15(a), the district court trebled the
damages and awarded attorney’s fees. Post-judgment, Leegin renewed
its motion for judgment as a matter of law and moved for a new
trial. The motions were denied.
II.
Leegin does not challenge the jury’s finding it entered into
price-fixing agreements. Instead, it challenges, inter alia, the
application of the per se rule and the damages’ evidentiary basis.
A.
Leegin claims the rule of reason should apply to PSKS’
antitrust claims. This issue of law is reviewed de novo.
Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761, 772 (8th
Cir. 2004) (“[A]lthough a court’s determination that the per se
rule applies might involve many fact questions, the selection of a
mode [of analysis] is entirely a question of law.”) (alteration in
original; internal citation and quotation marks omitted). Each of
the following three challenges fails.
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1.
Leegin asserts: although the Supreme Court first applied the
per se rule to vertical price fixing in Dr. Miles Medical Co. v.
John D. Park & Sons Co., 220 U.S. 373 (1911), it has not applied
the rule consistently. The cases cited by Leegin in which the
Court applied the rule of reason, however, did not involve a
vertical minimum price-fixing agreement. See State Oil Co. v.
Khan, 522 U.S. 3 (1997) (considering the validity of the per se
rule against a vertical maximum price-fixing agreement); Bus.
Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988) (applying
the rule of reason to a vertical agreement that had the purpose and
effect of increasing retail prices, but without specifying the
price to be charged); Cont’l T. V., Inc. v. GTE Sylvania, Inc., 433
U.S. 36 (1977) (rejecting the per se rule for a vertical non-price
restriction).
Because the Court has consistently applied the per se rule to
such agreements, we remain bound by its holding in Dr. Miles
Medical Co. See also Simpson v. Union Oil Co. of Cal., 377 U.S.
13, 17 (1964) (“[A] supplier may not use coercion on its retail
outlets to achieve resale price maintenance”.); United States v.
Parke, Davis & Co., 362 U.S. 29, 44 (1960) (“When the
manufacturer’s actions ... go beyond mere announcement of his
policy and the simple refusal to deal, and he employs other means
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which effect adherence to his resale prices, ... he has put
together a combination in violation of the Sherman Act.”). In
Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 769 (1984)
(Brennan, J., concurring), Justice Brennan commented on the Court’s
continued application of the per se rule, consistent with
congressional intent, to distributor-termination cases in which
there is a concerted action to set prices:
As the Court notes, the Solicitor General has
filed a brief ... urging us to overrule the
Court’s decision in Dr. Miles Medical Co. ....
That decision has stood for 73 years, and
Congress has certainly been aware of its
existence throughout that time. Yet Congress
has never enacted legislation to overrule the
interpretation of the Sherman Act adopted in
that case. Under these circumstances, I see
no reason for us to depart from our
longstanding interpretation of the Act.
2.
In the alternative, Leegin claims: its pricing policy did not
result in competitive harm; therefore, it qualifies for an
exception to the per se rule. Leegin asserts both the Supreme
Court and this court have recognized exceptions to the rule’s
application in appropriate cases, citing Broadcast Music, Inc. v.
Columbia Broadcasting System, Inc., 441 U.S. 1 (1979); Abadir & Co.
v. First Mississippi Corp., 651 F.2d 422 (5th Cir. Unit A July
1981); and United States v. Realty Multi-List, Inc., 629 F.2d 1351
(5th Cir. 1980).
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As before, none of these cases involved vertical minimum price
fixing. Furthermore, each was decided before the Court reaffirmed
the per se rule’s application to vertical minimum price-fixing
agreements in Sharp Electronics Corp., Spray-Rite Service Corp.,
and Khan, as discussed supra.
3.
Leegin challenges the exclusion of its economic expert, who
opined: (1) economic conditions did not dictate the per se rule’s
application; and (2) Leegin’s pricing practices were pro-
competitive, justifying the rule of reason’s application. We
review for abuse of discretion. Watkins v. Telsmith, Inc., 121
F.3d 984, 988 (5th Cir. 1997) (“District courts enjoy wide latitude
in determining the admissibility of expert testimony, and the
discretion of the trial judge and his or her decision will not be
disturbed on appeal unless manifestly erroneous.”) (internal
citations and quotation marks omitted).
With the per se rule, expert testimony regarding economic
conditions and the pricing policy’s pro-competitive effects is not
relevant. Viazis v. Am. Ass’n of Orthodontists, 314 F.3d 758, 765
(5th Cir. 2002) (“If application of the per se rule is appropriate,
competitive harm is presumed, and further analysis is
unnecessary.”), cert. denied, 538 U.S. 1033 (2003); see also N.
Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958) (“[The]
principle of per se unreasonableness ... avoids the necessity for
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an incredibly complicated and prolonged economic investigation into
the entire history of the industry involved ... in an effort to
determine ... whether a particular restraint has been
unreasonable”.)
B.
Leegin claims PSKS did not prove antitrust injury, maintaining
it is required under both the per se rule and the rule of reason.
Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341-42
(1990). Because antitrust injury vel non is a component of
standing, we review de novo. DeLong Equip. Co. v. Wash. Mills
Electro Minerals Corp., 990 F.2d 1186, 1194 (11th Cir.), cert.
denied, 510 U.S. 1012 (1993); see also Doctor’s Hosp. of Jefferson,
Inc. v. Se. Med. Alliance, Inc., 123 F.3d 301, 305 (5th Cir. 1997)
(“Antitrust injury must be established for the plaintiff to have
standing under section 1 ... of the Sherman Act.”).
1.
Antitrust “injury ... [is what] the antitrust laws were
intended to prevent and ... flows from that which makes defendants’
acts unlawful”. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429
U.S. 477, 489 (1977). “It ensures that the harm claimed ...
corresponds to the rationale for finding a violation of the
antitrust laws in the first place.” Atl. Richfield Co., 495 U.S.
at 342.
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In Doctor’s Hospital of Jefferson, Inc., 123 F.3d at 305, our
court explained: “[A]ntitrust injury for standing purposes should
be viewed from the perspective of the plaintiff’s position in the
marketplace, not from the merits-related perspective of the impact
of a defendant’s conduct on overall competition”. Thus, antitrust
injury is distinct from injury to competition, “the latter of which
is often a component of substantive liability”. Id.
PSKS suffered antitrust injury. Its refusal to follow
Leegin’s pricing policy resulted in inability to obtain its best-
selling and most profitable product line. See Pace Elecs., Inc. v.
Canon Computer Sys., Inc., 213 F.3d 118, 124 (3d Cir. 2000) (“[A]
dealer terminated for its refusal to abide by a vertical minimum
price fixing agreement suffers antitrust injury and may recover
losses flowing from that termination”.).
2.
In the alternative, Leegin claims the district court erred by
failing to instruct the jury on the definition of antitrust injury.
Because such injury is a component of standing for the court’s
determination, this claim necessarily fails. See Bell v. Dow Chem.
Co., 847 F.2d 1179, 1182 (5th Cir. 1988) (“Antitrust injury is a
component of the standing inquiry, not a separate qualification.”).
C.
8
The jury awarded approximately 70 percent of the requested
damages: $1.2, of the requested $1.7, million. Leegin contests
the damages’ evidentiary basis. The jury’s award of antitrust
damages is reviewed under a relaxed standard. Bell Atl. Corp. v.
AT&T Corp., 339 F.3d 294, 303 (5th Cir. 2003) (“[T]he nature of an
antitrust claim means that some plaintiffs can only hypothesize
about what the state of their affairs would have been absent the
wrong ... and we have, therefore, declined to hold antitrust
plaintiffs to the same burden of proof of damages as demanded of
plaintiffs in other civil cases”.) (internal citations and
quotation marks omitted); Park v. El Paso Bd. of Realtors, 764 F.2d
1053, 1067 (5th Cir. 1985) (“Once a plaintiff has proved by a
preponderance of the evidence the fact of injury, a jury may use
its discretion in determining the exact amount of damages resulting
from the antitrust violation.”), cert. denied, 474 U.S. 1102
(1986); Malcom v. Marathon Oil Co., 642 F.2d 845, 864 (5th Cir.
Unit B Apr.) (“The relaxation of standards of proof are
particularly appropriate in cases where the finder of fact must
estimate lost future profits.”) (emphasis added), cert. denied, 454
U.S. 1125 (1981).
In calculating damages, PSKS’ expert averaged the gross
profits PSKS earned from selling Brighton products in 2000
($289,516), 2001 ($201,591), and 2002 ($141,458), concluding it
would lose an estimated $210,855 in gross profits each year. (The
9
decline in gross profits during 2001 and 2002 was attributed to:
the 11 September 2001 terrorist attacks; and problems obtaining
Brighton products in 2002.) That amount was multiplied by ten, the
number of years PSKS’ co-owner estimated it would take PSKS to
recover from the termination of Brighton shipments, particularly
because of the line’s uniqueness. As discussed infra, PSKS offered
evidence that net profits were the same as gross profits; the total
was discounted to present value. Leegin did not offer an
alternative method for calculating damages. See Greene v. Gen.
Foods Corp., 517 F.2d 635, 665 (5th Cir. 1975) (noting defendant’s
failure “to demonstrate any better method of lost future profits
that could have been applied to the available data”), cert. denied,
424 U.S. 942 (1976).
Obviously, it is impossible to prove PSKS’ exact profits had
Leegin not terminated its Brighton shipments. Instead, PSKS
presented expert testimony, which “provide[d] a ‘just and
reasonable estimate of the damage based on relevant data’”. Bell
Atl. Corp., 339 F.3d at 303 (quoting Bigelow v. RKO Radio Pictures,
Inc., 327 U.S. 251, 264 (1946)). Accordingly, pursuant to our
relaxed standard of review, each of the following four challenges
fails.
1.
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Leegin challenges the ten-year future-damages period. The
expert relied on the above-referenced testimony that: it took PSKS
ten years to find Brighton; the business grew very fast once that
line was incorporated; and ten years was the absolute minimum it
would take PSKS to recover from the line’s termination. This
testimony by PSKS’ co-owner was based on his 17-years experience
building a profitable business.
The damages period is an issue for the jury. Lehrman v. Gulf
Oil Corp., 464 F.2d 26, 47 (5th Cir.) (“The duration of the period
during which plaintiff might be expected to profit will vary from
case to case; it is susceptible of no precise formulation, and must
be left to the processes of the jury informed by the presentation
of conflicting evidence.”), cert. denied, 409 U.S. 1077 (1972).
2.
Leegin claims insufficient evidence for the lost net-profits
calculation. In this regard, PSKS utilizes a point-of-sale system
to track the direct costs and selling price of its inventory,
allowing it to access information by an individual product or
product line. PSKS’ co-owner used this system to determine
Brighton’s contribution to PSKS’ net profits during the three years
prior to the termination, basing his projections on the average net
profits during those three years. In doing so, he did not project
any sales growth, despite testimony that the retail stores to which
Leegin sold in 2003 experienced a 16-percent increase in revenues.
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Also, he did not consider profits from cross sales to customers who
came to the store to purchase Brighton goods. Further, he
testified gross and net profits were the same in this instance,
because PSKS did not save costs as a result of its loss of the
Brighton line.
Our court has approved future-profits estimates based on
averages of past history. See Malcom, 642 F.2d at 859-60. As
noted, although PSKS’ average profits from Brighton declined during
the three years considered, this decline was attributed to the
events of 11 September 2001 and PSKS’ difficulty in obtaining
Brighton products in 2002.
3.
Leegin maintains the damages model failed to account for
mitigation of damages. It asserts PSKS profitably sold substitute
products shortly after it lost the Brighton line. Leegin’s
representative, however, testified that, as early as 1998, she saw
lines of handbags, shoes, and belts that competed with Brighton
products.
The mere presence of competing products does not show they
were substitutes for the Brighton line, or that their sale
mitigated PSKS’ loss. Its continued business of selling women’s
clothing and accessories, some of which are similar to the Brighton
line, does not negate the lost profits incurred from its inability
to sell Brighton products. See Bhan v. NME Hosps., Inc., 669 F.
12
Supp. 998, 1014 (E.D. Cal. 1987) (recognizing that providing an
antitrust violator with immunity simply because the victim
mitigated damages would contravene the goal of limiting
anticompetitive conduct), aff’d, 929 F.2d 1404 (9th Cir.), cert.
denied, 502 U.S. 994 (1991).
4.
Finally, Leegin claims the damages model impermissibly
utilized a risk-free discount rate for the present-value award.
“[T]he selection of a discount factor is a question of fact to be
determined by the trier of fact”. Bridas S.A.P.I.C. v. Gov’t of
Turkmenistan, 345 F.3d 347, 364 (5th Cir. 2003) (internal citations
and quotation marks omitted), cert. denied, 541 U.S. 937 (2004).
The jury was properly instructed to award only the present
value of future damages. It heard testimony, including on cross-
examination, regarding the rate utilized.
III.
For the foregoing reasons, the judgment is AFFIRMED;
attorney’s fees and expenses incurred for this appeal are AWARDED
PSKS, pursuant to 15 U.S.C. § 15(a). This case is REMANDED to
determine that amount.
AFFIRMED; ATTORNEY’S FEES and EXPENSES
AWARDED FOR APPEAL; REMANDED
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