Sanderson, Charles H v. Culligan Int'l ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-3253
CHARLES H. SANDERSON,
Plaintiff-Appellant,
v.
CULLIGAN INTERNATIONAL COMPANY,
Defendant-Appellee.
____________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. IP 00-0459-C H/K—David F. Hamilton, Judge.
____________
ARGUED APRIL 1, 2005—DECIDED JULY 11, 2005
____________
Before EASTERBROOK, MANION, and ROVNER, Circuit
Judges.
EASTERBROOK, Circuit Judge. Magnatech Corporation
sells “magnetic water conditioners.” Its sole stockholder
brought this suit in his own name, contending that
Culligan, a manufacturer of chemical and filtration systems
of water purification, violated the federal antitrust and
trademark laws by asserting that magnetic systems don’t
work. The suit might have been dismissed immediately, for
Magnatech rather than Sanderson is the appropriate
plaintiff. See, e.g., In re Industrial Gas Antitrust Litigation,
2 No. 04-3253
681 F.2d 514, 519-20 (7th Cir. 1982); Mid-State Fertilizer
Co. v. Exchange National Bank, 877 F.2d 1333, 1335-36 (7th
Cir. 1989). Sanderson does not claim to be injured as a
consumer; his injury (a reduction in the value of his stock)
is derivative of Magnatech’s. Cf. Illinois Brick Co. v.
Illinois, 431 U.S. 720 (1977). But Culligan did not catch
this, and it is not the sort of jurisdictional problem that a
court must notice on its own. See Associated General
Contractors v. California State Council of Carpenters, 459
U.S. 519, 535 & n.31 (1983); Hammes v. AAMCO
Transmissions, Inc., 33 F.3d 774, 778 (7th Cir. 1994).
Instead Culligan defended on the merits, prevailing in a
series of decisions. First the district court dismissed the
antitrust allegations for failure to state a claim on which
relief may be granted. 2001 U.S. Dist. LEXIS 8309 (S.D. Ind.
May 29, 2001). Then it granted summary judgment on the
Lanham Act claim to the extent that any of the statements
preceded the period of limitations. 2002 U.S. Dist. LEXIS
19212 (S.D. Ind. Sept. 20, 2002). Finally it terminated the
case, again by summary judgment, because none of the
remaining statements fits the Lanham Act’s definition of
advertising. 2004 U.S. Dist. LEXIS 15671 (S.D. Ind. July 23,
2004).
Because the case ended without a trial, we must assume
that magnetic systems can reduce lime scale deposits in
pipes, the only benefit that Magnatech and its Superior
Manufacturing Division claim for their products. (They do
not contend that magnetic treatment removes minerals or
biological agents from water.) On a motion to dismiss under
Fed. R. Civ. P. 12(b)(6), even highly unlikely propositions
must be taken as given. See, e.g., Miles v. Augusta City
Council, 710 F.2d 1542 (11th Cir. 1983) (assuming, as the
complaint alleged, that cats can talk). And the party op-
posing summary judgment receives the benefit of all rea-
sonable inferences. Some evidence in the record suggests
that magnetic systems can reduce lime buildup, though
No. 04-3253 3
whether this evidence, which has not been published in a
scientific journal, meets the standard of Fed. R. Evid. 702
is doubtful.
Lime deposits in plumbing are calcium carbonate
(CaCO3), which is non-magnetic. Sanderson’s lawyer could
not explain why magnets affect nonferrous materials, and
the unpublished study to which his brief refers at length
does not do so either. This study finds that non-chemical
devices can reduce the hardness of calcium carbonate build-
up in industrial air-conditioning systems, but only when the
water moves faster that 2.3 meters per second— and even
so the paper offers Sanderson little support, for it lumps
together a variety of non-chemical approaches and does not
report separately on the sort of magnetic systems that
Magnatech sells. See Young I. Cho, Efficiency of physical
water treatments in controlling calcium scale accumulation
in recirculating open cooling water system, American Society
of Heating, Refrigerating & Air-Conditioning Engineers
Research Project 1155-TRP (May 29, 2002). Positive reports
about magnetic water treatment are not replicable; this
plus the lack of a physical explanation for any effects are
hallmarks of junk science. For a review of the literature see
John S. Baker & Simon J. Judd, Magnetic amelioration of
scale formation, 30 Water Research 247 (1996). Nonethe-
less, we shall indulge the assumption that adverse state-
ments about Magnatech’s products are calumnies.
Sanderson’s antitrust claim rests on §1 of the Sherman
Act, 15 U.S.C. §1, and fails at the threshold because
Sanderson does not contend (in the complaint or anywhere
else) that Culligan has conspired with other producers to
set price or output, or that it possesses the sort of market
power that would lead to condemnation under the Rule of
Reason. See National Collegiate Athletic Association v.
University of Oklahoma, 468 U.S. 85 (1984). Recast under
§2 it would fare no better, because Sanderson does not
contend that Culligan possesses monopoly power or that
4 No. 04-3253
bad-mouthing Magnatech’s products creates a dangerous
probability of monopolization. See Spectrum Sports, Inc. v.
McQuillan, 506 U.S. 447 (1993).
The problem is not that the pleading is short, as
Fed. R. Civ. P. 8 contemplates. Complaints need not allege
facts or legal theories. See Swierkiewicz v. Sorema N.A., 534
U.S. 506 (2002); Bartholet v. Reishauer A.G. (Zürich), 953
F.2d 1073 (7th Cir. 1992). Sanderson’s problem, rather, is
that his complaint and other papers demonstrate that the
claim rests on a belief that the antitrust laws forbid all
“unfair” business tactics, without regard to the likelihood
that the adversary will achieve and retain a monopoly at
consumers’ expense. Not at all. The antitrust laws protect
consumers, not producers. They favor competition of all
kinds, whether or not some other producer thinks the
competition “fair.” Much competition is unfair, or at least
ungentlemanly; it is designed to take sales away from one’s
rivals. There is no obligation to be kindly or cooperative
toward other producers. See, e.g., Verizon Communications
Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398(2004). Some laws, including the Lanham Act, condemn
particular tactics deemed “unfair”; the Sherman Act is not
among these laws.
Antitrust law condemns practices that drive up prices by
curtailing output. See, e.g., NCAA, 468 U.S. at 103-07;
Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 1920 (1979).
False statements about a rival’s goods do not curtail output
in either the short or the long run. They just set the stage
for competition in a different venue: the advertising market.
Schachar v. American Academy of Ophthalmology, Inc., 870
F.2d 397 (7th Cir. 1989), another antitrust case based on a
supposed commercial falsehood, makes this point forcefully.
We observed:
Warfare among suppliers and their different products
is competition. Antitrust law does not compel your com-
petitor to praise your product or sponsor your work. To
No. 04-3253 5
require cooperation or friendliness among rivals is to
undercut the intellectual foundations of antitrust law.
Unless one group of suppliers diminishes another’s
ability to peddle its wares (technically, reduces rivals’
elasticity of supply), there is not even the beginning of
an antitrust case, no reason to investigate further to
determine whether the restraint is “reasonable”.
870 F.2d at 399 (citations omitted; emphasis in original).
Magnatech remains free to sell to all who can be persuaded
that magnets reduce lime buildup; Culligan faces competi-
tion from dozens of other producers that use different,
though more conventional, technologies to filter, purify, or
reduce mineral content in water.
Sanderson contends that Schachar is incompatible
with American Society of Mechanical Engineers, Inc. v.
Hydrolevel Corp., 456 U.S. 556 (1982), but Schachar pointed
out that Hydrolevel depended on something missing there
(and here): an enforcement mechanism. Some producers
persuaded an engineering society to write standards in such
a way that only their products were acceptable. Because
many governmental bodies made compliance with the
standards mandatory (they were incorporated into building
codes and other legal mandates), this curtailed the avail-
able supply (rivals’ products having been knocked out) and
could have enabled the conspirators to raise prices.
Nothing comparable is alleged here. Although magnetic
devices were at one time banned from some trade shows
(supposedly at Culligan’s behest), that ban was lifted in the
mid-1990s and is outside the period of limitations, see 15
U.S.C. §15(b)—and anyway is some distance from the legal
restraint that led to Hydrolevel. Sanderson also maintains
that Culligan persuaded the Water Quality Association, a
trade group, to withhold its “Gold Seal” from magnetic
systems. No unit of government incorporates this “Gold
Seal” into any legal requirement; it is just a marketing
6 No. 04-3253
device. Anheuser-Busch might as well claim that by selling
a beer called “Blue Ribbon” Pabst has violated the antitrust
laws, unless Pabst is willing to bestow the same “Blue
Ribbon” on Budweiser. What producers say about each
others’ goods in an effort to sway consumers is competition
in action. Some other law may require judicial intervention
in order to increase the portion of truth in advertising; the
Sherman Act does not. Commercial speech is not actionable
under the antitrust laws. As we put it in Schachar: “There
can be no restraint of trade without a restraint.” 870 F.2d
at 397. See also Santana Products, Inc. v. Bobrick Wash-
room Equipment, Inc., 401 F.3d 123, 133 (3d Cir. 2005).
As for Sanderson’s claim under §43(a) of the Lanham Act,
15 U.S.C. §1125(a)(1)(B), the district court held that it
founders on the federal statute’s limited scope. Section 43(a)
covers only “commercial advertising or promotion”. The
district court concluded that Sanderson had just three
examples of supposedly false statements within the period
of limitations, and that all three were person-to-person
communications at trade shows. We held in First Health
Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 804 (7th
Cir. 2001), that §43(a) addresses “promotional material dis-
seminated to anonymous recipients”. This leaves to state
law the evaluation of oral statements and brochures at
trade shows. Sanderson does not contend that the state-
ments of which he complains are “commercial advertising
or promotion” as First Health Group understood that
phrase. Indeed, he does not mention that opinion, though it
was the mainstay of the district court’s decision.
For that matter, Sanderson does not contend that any
of the statements within the period of limitations was
uttered by Culligan. He attributes these oral statements
and handouts to its franchisees or distributors and says
that Culligan must be vicariously liable because it insists
that they live up to high standards of business ethics. That
Culligan tries to prevent its distributors from committing
business torts, and reserves the right to stop selling to
No. 04-3253 7
anyone who does, hardly makes any of the distributors its
agent for the purpose of defaming rivals. Unsuccessful ef-
forts at prevention do not imply agency or an assumption of
liability. If Culligan told its distributors to avoid reckless
driving and to obey all state laws, this would not make it
vicariously liable for their auto accidents or oblige it to pay
if a distributor shot his neighbor’s dog for barking late at
night.
Sanderson pursued some claims under state law, which
for reasons we have given is the only applicable body of
legal norms. The district judge granted summary judgment
to Culligan on all of the state-law claims, and Sanderson
does not contest this decision on appeal. His arguments
have been limited to the frivolous claims under federal law.
He should be thankful that Culligan has not filed a cross-
appeal from the district court’s order denying its motion for
sanctions. Neither the Sherman Act nor the Lanham Act is
designed to throw into federal courts all disputes about the
efficacy of competing products. Whether magnetic water
conditioners work is a question about science, not law, and
scientific disputes must be resolved by scientific means.
AFFIRMED
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-11-05