JESUS G. BERNAL, District Judge.
Before the Court are two motions for summary judgment filed by Defendants United Parcel Service Co. and FedEx Corporation. After considering all of the papers filed in support of and in opposition to the motions, as well as the arguments presented at the October 2, 2014, hearing, the Court GRANTS the motions.
Plaintiff AFMS LLC ("AFMS") commenced this antitrust action against United Parcel Service Co. ("UPS") and FedEx Corporation ("FedEx") (collectively, "Defendants") on August 5, 2010. (Doc. No. 1.) After AFMS filed a First Amended Complaint, ("FAC," Doc. No. 31), Defendants moved to dismiss, and, on May 27, 2011, the Court (Morrow, J.) granted their motions on the grounds that AFMS failed to plead sufficient facts to show that it had antitrust standing and failed to allege the type of anticompetitive conduct that would support a monopolization claim, ("MTD 1 Order," Doc. No. 55). The FAC alleged that AFMS suffered injury in the relevant market for the business of delivering time sensitive letters, documents, and packages within the United States and to and from foreign countries. (FAC ¶ 16.) The Court held that AFMS lacked standing because it is not a participant in the alleged market, since it is not "`in the chain of distribution' for shipping and delivery services," "rather it offer[s] advice and assistance to one side of the purchase/sale transaction." (MTD 1 Order at 17-18 (internal quotation omitted).) Consequently, the Court found AFMS had not adequately alleged that it suffered antitrust injury and dismissed, with leave to amend, AFMS's claim under Section 1 of the Sherman Act, 15 U.S.C. § 1. (Id. at 23-24.)
AFMS filed a Second Amended Complaint on June 24, 2011. ("SAC," Doc. No. 56.) Defendants again moved to dismiss, and this time, the Court (Morrow, J.) found that AFMS adequately alleged antitrust standing but dismissed the claims under Sections 1 and 2 of the Sherman Act on the grounds that they were conclusory and stated insufficient facts. ("MTD 2
On December 12, 2011, AFMS filed the operative Third Amended Complaint. ("TAC," Doc. No. 76.) The TAC states three claims under Section 1 of the Sherman Act, 15 U.S.C. § 1. The first claim alleges that, since the fall of 2009, FedEx and UPS "combined and conspired to unreasonably restrain trade and commerce in the market for shipping consultation services for the delivery of time sensitive letters, documents and packages by air or ground." (TAC ¶ 24.) Claim one alleges that Defendants refuse to deal with any third-party consultants ("TPCs") and refuse to negotiate or discuss discounts with shippers who share data with or retain TPCs. (Id.) As a result, the TAC contends that prices for the delivery of time sensitive materials increased, TPCs' businesses suffered, and competition between shipping consultants and Defendants' diminished. (Id. ¶¶ 24-27.) The second and third claims contend that UPS and FedEx, individually, have, "by a series of non-disclosure agreements and customer/carrier contracts ..., unreasonably restrained competition, trade, and commerce in the market for shipping consultation services for the delivery of time sensitive letters, documents and packages by air or ground." (Id. ¶¶ 30, 36.) According to AFMS, these agreements and contracts restrict or revoke the shippers' ability to share information with TPCs, thereby directly threatening the TPCs' business. (Id. ¶¶ 31, 37.) Due to Defendants' conduct, AFMS estimates that its damages are in the range of $15 to $20 million. (Id. ¶¶ 28, 34, 40.) Defendants answered the TAC on January 16, 2012. (Doc. Nos. 81, 82.)
On May 1, 2013, UPS and FedEx each filed a motion for summary judgment. (Doc. Nos. 130, 140.) While the motions were pending, UPS filed two motions in limine to exclude AFMS experts Stuart Brotman ("Brotman") and David Campbell ("Campbell"). (Doc. Nos. 167, 168.) FedEx joined UPS's motions in limine. (Doc. Nos. 172, 173.) The Court heard oral argument on the in limine motions on January 27, 2014, and issued an order granting them on February 5, 2014. ("MiL Order," Doc. No. 252.) The Court held that it would not consider the reports and testimony of Brotman and Campbell in deciding Defendants' motions for summary judgment. (Id. at 12.) Accordingly, in this Order, the Court does not rely on any exhibits or testimony from Brotman or Campbell.
The parties initially applied to seal a substantial portion of the summary judgment briefing and evidence. (See Doc. Nos. 139, 142, 146, 150, 161, 186, 197, 199, 203.) On January 15, 2014, the Court denied the parties' applications and stipulation to file the documents under seal because they failed to identify or meet the compelling reasons standard required for sealing documents connected to a dispositive motion. (Doc. No. 211.) The Court permitted the parties to renew their applications to seal. (Id. at 2-3.)
On February 4 and 5, 2014, the parties refiled their summary judgment documents, redacting significantly less material from their public filings and applying to seal limited portions of the record to prevent prejudice or harm from disclosure. (Doc. Nos. 217, 228, 235.) After reviewing the renewed applications to seal, the Court provisionally granted the majority of the parties' proposed redactions. (Doc. No. 263.) In its sealing order, the Court noted that its rulings were provisional because it "may reconsider its decision to seal in its ruling on summary judgment" in order to preserve the public's right to know the basis for the Court's decision on the merits of the action. (Id. at 6, 9.) Because none of the sealed documents were necessary to the Court's decision herein, the Court confirms its decision to seal the parties proposed redactions and removes their provisional status. The documents remain sealed.
The Court has reviewed and considered all publicly filed and sealed documents submitted in support of and in opposition to the motions.
FedEx separately moved for summary judgment, asserting its own arguments for dismissal and joining those made by UPS. ("FMSJ," Doc. No. 229.) FedEx attached a Statement of Uncontroverted Facts and Conclusions of Law, ("FSUF," Doc. No. 230), and an Appendix of Exhibits, ("App.," Doc. Nos. 233-234, 236-239, 241), which includes seventy-four exhibits.
AFMS filed an omnibus opposition to Defendants' motions. (Opp'n, Doc. No. 218.) AFMS's Statement of Genuine Disputes of Material Fact responds to the facts propounded in the USUF, ("AUSGI," Doc. No. 231 at 1-99), and in the FSUF, ("AFSGI," Doc. No. 231 at 108-207), and also sets forth its own undisputed material facts, ("ASUF," Doc. No. 231 at 220-261). In support of the Opposition, AFMS includes ninety-nine exhibits as attachments to the Declaration of Alyson C. Decker. ("Decker Decl.," Doc. Nos. 219-227, 232.)
Defendants filed separate replies. UPS filed the following documents with its Reply, ("UPS Reply," Doc. No. 248):
FedEx replied, ("FedEx Reply," Doc. No. 242), attaching the following documents:
Because UPS and FedEx incorporate the arguments made in the other's motion, (UMSJ at 38 n.45; FMSJ at 1), the Court addresses Defendants' motions together.
Rule 56(c) requires summary judgment for the moving party when the evidence, viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Tarin v. Cnty. of Los Angeles, 123 F.3d 1259, 1263 (9th Cir.1997).
The moving party bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party may satisfy its Rule 56(c) burden by "`showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Once the moving party has met its initial burden, Rule 56(e) requires the nonmoving party to go beyond the pleadings and identify specific facts that show a genuine issue for trial. See id. at 323-24, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A scintilla of evidence or evidence that is merely colorable or not significantly probative does not present a genuine issue of material fact. Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir.2000). Only genuine disputes over facts that might affect the outcome of the suit under the governing law, i.e., "where the evidence is such that a reasonable jury could return a verdict for the nonmoving party," will properly preclude the entry of summary judgment. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
Under Local Rules 56-2 and 56-3, these triable issues of fact must be identified in the non-moving party's "Statement of Genuine Issues" and supported by "declaration or other written evidence." See also Sullivan v. Dollar Tree Stores, Inc., 623 F.3d 770, 779 (9th Cir.2010) ("Federal Rule of Civil Procedure 56(e)(2) requires a party to `set out specific facts showing a genuine issue for trial.'"). If the non-moving party fails to identify the triable issues of fact, the court may treat the moving party's evidence as uncontroverted, so long as the facts are "adequately supported" by the moving party. L.R. 56-3; see also Int'l Longshoremen's Ass'n, AFL-CIO v. Davis, 476 U.S. 380, 398 n. 14, 106 S.Ct. 1904, 90 L.Ed.2d 389 (1986) ("[I]t is not [the Court's] task sua sponte to search the record for evidence to support the [parties'] claim[s]."). Neither will the Court sua sponte raise legal arguments which were not raised in the parties' summary judgment briefs. See Cambridge Elecs. Corp. v. MGA Elecs., Inc., 227 F.R.D. 313, 336 (C.D.Cal.2004) ("There is no burden upon the district court to distill every potential argument that could be made based upon the materials before it on summary judgment. Rather, the onus is upon the Parties to formulate arguments; grounds alleged in the complaint but not relied upon in summary judgment are deemed abandoned.") (quoting Resolution Trust
The Court has already remarked upon the volume of evidence submitted in conjunction with these motions. Given the breadth of the record, a well-organized record with clear and specific citations is paramount.
Despite these clear instructions, the evidence cited in AFMS's Statements of Genuine Disputes (AUSGI; AFSGI) and Statement of Undisputed Facts (ASUF) consists of unwieldy string cites omitting crucial information necessary to locate the purported evidence. For example, instead of separately tabbing each exhibit, as required by page 5 of the Standing Order, AFMS includes entire deposition transcripts as well as all deposition exhibits within a single exhibit tab.
FedEx objects to numerous subexhibits offered by AFMS due to lack of authentication. (See FedEx Obj. ¶¶ 8, 15, 31, 34, 42, 44, 47, 62.) These objections pertain to exhibits attached to deposition transcripts offered in support of the Opposition. In many instances, the deposition testimony authenticates the exhibit because it provides testimony from a person with knowledge that the document is what AFMS claims it to be. (See, e.g., Decker Decl., Exh. 42 14:1-15 (testimony from deponent sufficient to authenticate Subexhibit 2198).) Moreover, most of the objected-to exhibits were produced by Defendants in discovery and are deemed authentic when offered by AFMS. See Orr, 285 F.3d at 777 n. 20; Maljack Prods., Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 889 n. 12 (9th Cir.1996) (documents produced by a party in discovery were deemed authentic when offered by the party-opponent). Thus, the Court OVERRULES FedEx's authentication objections.
FedEx makes a hearsay objection to five exhibits, all of which contain the same email between several FedEx employees concerning a conference call involving several FedEx vice presidents. (FedEx Obj. ¶ 34; Decker Decl., Exh. 39, Subexh. 2030; Exh. 41, Subexh. 2138; Exh. 42, Subexh. 2218; Exh. 45, Subexh. 2177; Exh. 46, Subexh. 2277.) The email is admissible as a statement of a party opponent under Federal Rule of Evidence 801(d)(2). Moreover, at the summary judgment stage, the Court does "not focus on the admissibility of the evidence's form," but rather on the admissibility of its contents. See Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir.2003). Because the email could be presented in an admissible form at trial, the Court may consider it in deciding the summary judgment motions. Id. at 1037. The Court OVERRULES FedEx's objections to Subexhibits 2030, 2138, 2218, 2177, and 2277.
Finally, UPS argues that the Court should disregard a Reply Expert Report of Robert Wunderlich offered by AFMS. (UPS Obj. ¶ 67; Decker Decl., Exh. 59.) The Report is attached to the declaration of counsel, and, although it is signed, it is not sworn under penalty of perjury to be true and correct. "[It] is well established, that an unsworn expert report is inadmissible" under Rule 56(e) to support or oppose summary judgment. Shuffle Master, Inc. v. MP Games LLC, 553 F.Supp.2d 1202, 1210 (D.Nev.2008) (citing cases); see Harris v. Extendicare Homes, Inc., 829 F.Supp.2d 1023, 1027 (W.D.Wash.2011) (striking expert reports because they were attached to a declaration of counsel, who "is not competent to testify about the matters therein," and were unsworn). The Court therefore
The Court previously ruled that all testimony and reports of experts Campbell and Brotman are excluded from the Court's consideration of the summary judgment
The Court addresses any remaining evidentiary objections in footnotes, as needed.
Contrary to the responses offered in the SGIs, after inspection of the cited evidence, the majority of material facts are undisputed. Rather than offering conflicting evidence, the parties merely dispute the characterization of the facts as presented in the SUFs and SGIs. In deciding the motions for summary judgment, the Court examines the underlying evidence, not the summary statements or, in Plaintiff's case, compound paragraphs
Unless specifically noted, the following material facts are sufficiently supported by admissible evidence and are uncontroverted; they are "admitted to exist without controversy" for purposes of the motions. L.R. 56-3. All disputed facts are explicitly noted.
Defendants UPS and FedEx are in the business of transporting and delivering packages. The parties refer to Defendants as "carriers" and their customers as "shippers." Defendants enter into complex term contracts with shippers. They charge shippers for their services, including any tailored supply chain services, via structured package delivery rates and other accessorial charges.
Defendants sell their services to customers through thousands of sales employees. The sales staff may attract new customers by responding to a Request for Proposals ("RFP") or approaching the shipper directly. The sales staff will also work with existing customers to retain the business when the shipper's contract expires or terminates. First, the sales staff gathers and analyzes data from the shipper or the carrier's internal records regarding their shipping history, including, for example, the volume of packages, types of products, destinations, timeliness of delivery, and dimensional weights. Next, they provide shippers with information regarding their carrier's delivery services and prices and offer the customer carrier-specific solutions and products to meet the customer's needs. Before signing a contract with a shipper, the carrier may negotiate price discounts on a customer-by-customer basis, based on the shipper's volume, types of packages, and market conditions. Once finalized, the carrier presents the contract to the shipper, explaining the services, rates, prices, and discounts. In its presentation to the customer, the carrier occasionally compares its rates and services to those of competing carriers, but only if the shipper provides the sales representative with the competitor's offer.
In their communications and negotiations with customers, FedEx and UPS do not recommend that shippers use the services of another carrier for their shipping needs.
Plaintiff is a third-party consultant ("TPC")
In the first step of its parcel contract optimization services, AFMS gathers the customer's historical shipping data, including invoices, parcel dimensions, weights and destinations, prior agreements with shippers, and rate charts. Next, AFMS analyzes this data to identify opportunities for savings. AFMS creates a shipper profile breaking down the shipment characteristics and associated charges and presents the customer with a distribution and opportunity analysis. The analysis primarily highlights savings in the form of potential rate discounts the shipper may be able to achieve through negotiations with carriers, also known as "targets." In addition to identifying targeted discounts from FedEx and UPS, AFMS also determines if the shipper could save money by using alternate carriers, such as the Unites States Postal Service ("USPS"), specialized carriers, or regional carriers. AFMS may also make recommendations to the shipper regarding parcel insurance, customs procedures and compliance, tariff payments, site location, which involves identifying the prime warehouse from which to ship goods, mode optimization, for example, transitioning from express to ground shipments, regulations covering the shipping of hazardous materials, and selecting packaging for products.
AFMS then develops a negotiation strategy based on its analysis and identified targets. At this point, AFMS may act as the shipper's representative in negotiations with the carrier, or it may provide advice and analysis behind the scenes. In conjunction with the shipper, AFMS may create an RFP, inviting the carriers to bid on the shipper's business.
Subsequently, AFMS analyzes the proposals submitted by the carriers and provides the shipper with a comparison of the rates, incentives, products, and service-levels
Once the final agreement is in place, AFMS assists with implementation by verifying that invoices reflect the new contract rates and that the shipper is meeting volume requirements, by monitoring carrier pricing trends and new service offerings, and by annually measuring the savings realized from the new contract.
Shippers generally compensate AFMS for its contract optimization services via a gain share arrangement, whereby the customer pays AFMS a percentage of the package delivery rate savings achieved by negotiating a new carrier contract. In the majority of its agreements, AFMS's fee is forty to fifty percent of the savings achieved for the shipper for a term of three years. Occasionally, AFMS enters into a fixed fee arrangement for its contract optimization services or portions thereof.
AFMS also offers shippers other post-contract services. For example, R.A.D.A.R., AFMS's proprietary software, provides auditing tools which monitor contract compliance and track shipments to compare actual delivery time with the carrier's guaranteed delivery time. The technology also assists shippers with recovering and obtaining refunds for lost, delayed, or nonexistent packages. AFMS also can assist the shipper with running various reports to monitor shipping costs and develop cost avoidance strategies. Shippers generally pay AFMS for post-agreement audit, contract compliance, and reporting services at a flat rate outside of the agreement for contract optimization services. These services represent a small share of AFMS's revenues.
Third Party Consultants include numerous entities which provide consulting services to shippers to assist them with their delivery needs. Like AFMS, these entities provide various services to shippers, including carrier contract negotiation, bill auditing, mode optimization, warehouse advice, and parcel insurance. Other TPCs provide advice regarding additional delivery issues such as inventory management, technology integration, tariff and customs issues, product returns, hazardous materials, packaging, and obtaining service refunds when carriers deliver packages late. TPCs mix and match these consulting services depending on a shipper's needs.
From 2006 to 2008, eleven percent of surveyed shippers reported that they used TPCs to negotiate rates with their parcel carrier. The same survey conducted in October 2011 reports that twelve percent of shippers used TPCs to assist with carrier negotiations, while eighty-five percent approached carriers on their own.
Shippers that do not use TPCs to negotiate their shipping contracts rely on in-house personnel and resources to engage in negotiations with carriers. Plaintiff does not provide any evidence to dispute this fact, but argues that in-house negotiators are "not adequate substitutes" for TPCs. (See AFSGI ¶ 127.)
In general, the parties agree that Defendants changed their policies with regard to interacting with select TPCs in 2009 and 2010. As is usually the case in antitrust cases, there is a fundamental disagreement as to whether the TPC Policy was adopted jointly or independently, but the Court need not reach these facts to dispose of the present motions. There is also substantial dispute regarding the timeline of enactment of Defendants' policy changes regarding TPCs. These disputes
For about seventeen years prior to 2009, Defendants generally permitted TPCs to participate directly in the negotiation of shipper contracts and to have access to shipper parcel data and carrier contracts. Between 2009 and 2010, Defendants reconsidered their relationship with TPCs who assist with negotiations and took steps to refuse to deal with these entities.
The minutes of a FedEx VP conference call on December 20, 2009, indicate that there was a "decision ... for all of Sales to adopt the ... hard line on not engaging with third party consultants negotiating [RFPs] for customers. Each VP will be responsible for exceptions in their region." ("Dec. 20, 2009, Mins.," Decker Decl., Exh. 45, Subexh. 2177.) A FedEx document entitled "Third Party Consultant Rules of Engagement for Field Sales," dated April 23, 2010, makes clear that in all three sales divisions the new TPC approach applied only to third parties that "focus strictly on rate negotiations"; in other words, entities which help shippers negotiate the pricing contained in their contracts with FedEx. ("Field Sales ROE," App., Exh. 26, Subexh. E at 7.) Excluded from the TPC policy were third party firms providing shippers with supply chain services, including warehouse and distribution improvements, fulfillment services, inventory and order management, and transportation management. (Id. at 8.) Also excluded were third parties that performed invoice auditing services, mode or network optimization services, advice on customs and international shipments, and contract negotiation services for freight, truckload, and ocean transport shipments. (Decker Decl., Exh. 40 at 210:11 to 211:15.) As to TPCs engaged solely in price negotiation, VPs had the "ability to exercise limited exceptions" to the TPC policy. (Field Sales ROE at 4.) VPs in each division addressed exceptions individually. (FSUF ¶ 166.)
UPS sent an email to "Managers" on September 17, 2009, which "introduced some new contractual terms and conditions... on a case by case basis" to "avoid improper Third Party interference with our customer relationships." (Faby Decl., Exh. 4 at 1.) The changes included (1) issuing a thirty-day cancellation notice once UPS is notified of a shipper's "intent to authorize a Third party to act on behalf of the customer in the negotiations of their existing UPS agreement" and (2) including language in new contracts negotiated by a third party that allows UPS to assess a fee in the event a shipper terminated the agreement early or fails to meet minimum volume or revenue requirements. (Id.) UPS provided updated procedures to its sales force in an April 23, 2010, newsletter. (Gutmann Decl., Exh. 22.) If a sales representative has a customer that is "going to use a [Third Party Negotiator] in any capacity," the representative "MUST notify" the Strategy Room "to discuss next steps before taking any other action with the customer related to the [Third Party Negotiator]." (Decker Decl., Exh. 24, Subexh. 2573; Gutmann Decl. ¶ 46.) The Strategy Room decides how to proceed with the customer on a case-by-case basis, but UPS "generally say[s] `NO' to [Third Party Negotiators] unless there is an unusual circumstance." (Decker Decl., Exh. 24, Subexh. 2576 at 1376.) In most cases, the Strategy Room advised the sales representative to not engage in negotiations with anyone other than the customer. (Decker Decl., Exh. 24, Subexh. 2596 at 1392; cf. Kalt Decl., Exh. 1 ¶ 136 (stating that UPS proceeded with the negotiator involved with the customer in between six and thirty-eight percent of interactions from April 2010 to April 2012).) Other options offered by the Strategy Room included presenting the shipper who has engaged
Prior to the TPC Policy, Defendants used 2-way or 3-way nondisclosure agreements ("NDA") with shippers. The former is a contract between the shipper and carrier in which the parties agree not to share pricing information or contract terms with third parties. The latter, 3-way NDA permits a third-party to access pricing and contract information and binds the third-party to the confidentiality terms.
As part of the TPC Policy, FedEx implemented a more robust 3-way NDA for use with all TPCs, which included a $100,000 liquidated damages provision and gave FedEx the right to audit the third-party's use of the data. (AFSGI ¶¶ 48, 64; Declaration of Jimmy Russell Phillips, Jr. ¶¶ 11-12, App., Ex. 43.) UPS also modified its NDA policy. At times, the Strategy Room required a shipper to sign a strict 2-way NDA, which "require[d] that the information shared between UPS and [the shipper] is treated as confidential and may not be shared outside of our two companies." (Decker Decl., Exh. 22, Subexh. 2634 at 1149; USUF ¶ 52.) Another form of the 2-way NDA utilized by UPS had a limited exception which permitted TPCs to use UPS's confidential information to conduct contract analytics or bill auditing, but not to engage in negotiations. (USUF ¶ 53; AUSGI ¶ 53.) UPS also permitted 3-way NDAs in some circumstances, which allowed negotiators to access confidential pricing information. (USUF ¶ 55; USGI ¶ 55.)
Defendants offered several reasons for modifying their policies toward TPCs. Due to the recession, Defendants noted an increase in the number of TPCs and the number of shippers engaging TPCs in 2008 and 2009. During the same period, Defendants noticed that TPCs increasingly encouraged shippers to renegotiate their carrier contracts before the end of the contract term, costing Defendants money and time to renegotiate and undermining their ability to recover the cost of their services. Both Defendants state that TPCs interfered with their ability to provide specialized supply chain, also known as "value-added," services to shippers. (USUF ¶¶ 25-27; FSUF ¶ 30.) Numerous witnesses testified that TPCs obstructed Defendants' relationships with their customers and prevented them from working directly with the shippers, insisting that all communications go through the TPC. Defendants also sought to prevent TPCs from violating shipper NDAs by engaging in "benchmarking,"
Plaintiff contends that Defendants' modified approach toward TPCs, which was allegedly created after DHL departed from the market in 2009, was implemented in order to strengthen their purported duopoly in the delivery services market and to increase their revenues by forcing TPCs out of the market. (ASUF ¶ 43; AUSGI ¶ 36.)
Plaintiff cannot survive summary judgment because it fails to provide any evidence
The "validity of the `relevant market'" is "subject to factual testing by summary judgment or trial." Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir.2008). In a Section 1 claim, "[t]he plaintiff bears the initial burden of showing that the restraint produces `significant anticompetitive effects' within a `relevant market.'" Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir.2001) ("Failure to identify a relevant market is a proper ground for dismissing a Sherman Act claim.") (citing Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F.3d 1096, 1105 (9th Cir.1999)). The existence of a relevant market is crucial to ensure that Plaintiff possesses antitrust standing and an essential element of each of Plaintiff's causes of action. See Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 538, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (emphasizing, for purposes of antitrust standing, the "central interest in protecting the economic freedom of participants in the relevant market"); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th Cir.1991) ("To meet his initial burden in establishing that the practice is an unreasonable restraint of trade, plaintiff must ... delineate a relevant market and show that the defendant plays enough of a role in that market to impair competition significantly."); Los Angeles Mem'l Coliseum Comm'n v. Nat'l Football League, 726 F.2d 1381, 1392 (9th Cir.1984) ("The relevant market provides the basis on which to balance competitive harms and benefits of the restraint at issue. [citations omitted] Such evidence is essential in a section 1 case."). When a plaintiff produces "insufficient evidence to show either the geographic or the product market," summary judgment is appropriate. Morgan, Strand, Wheeler & Biggs v. Radiology, Ltd., 924 F.2d 1484, 1489 (9th Cir.1991).
Plaintiff defines the relevant market as one for "shipping consultation services," which includes those business entities which advise shippers regarding the delivery of time sensitive letters, documents, and packages by air or by ground within the United States and to and from the United States to foreign countries. (Opp'n at 23; ASUF ¶ 53.) Defendants define the relevant market as the market for contract price negotiation services. (UMSJ at 16; FMSJ at 14-15.) The Court need not determine which characterization of the market is proper, as Plaintiff has not produced any evidence to demonstrate that its purported market is legally cognizable.
Plaintiff provides no expert evidence to support its market definition. The Court previously excluded Mr. Brotman's testimony under Federal Rule of Evidence 702 and does not consider it here. (See generally MiL Order.) Without any expert testimony to opine on the scope of the relevant market, it is difficult to see how Plaintiff could meet its evidentiary burden. See Plush Lounge Las Vegas LLC v. Hotspur Resorts Nev. Inc., 371 Fed.Appx. 719, 721 (9th Cir.2010) ("With large portions of the Katavic and Pressman declarations stricken, Plush had insufficient evidence to sustain a jury verdict on its proposed market definition."); In re Live Concert Antitrust Litig., 863 F.Supp.2d 966, 1000 (C.D.Cal.2012) (concluding that there is an "[in]adequate evidentiary basis in the record, absent Dr. Phillips' testimony, for a jury to find that Plaintiffs have defined an economically significant product market"); Hynix Semiconductor Inc. v. Rambus
A relevant market "must encompass the product at issue as well as all economic substitutes for the product." Newcal Indus., 513 F.3d at 1045. "As the Supreme Court has instructed, `The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.'" Id. (quoting Brown Shoe v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)).
Plaintiff evasively and confusingly avoids stating exactly what services are sold in the relevant market. Initially, Plaintiff contended that its market was simply for shipping advice. (ASUF ¶ 53.) It is unclear to the Court exactly what "advice" Plaintiff intended to include in the market. Perhaps recognizing the vagueness of its market definition, Plaintiff further contends that the market for shipping consultation services primarily includes gathering and analyzing a shipper's past shipping history and developing a strategy to help a shipper match its needs to a carrier's services and obtain maximum profit. (ASUF ¶ 3.) Even with this narrowing, the Court cannot define the products or services Plaintiff seeks to include in its selected market, which is fatal to Plaintiff's claims. See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177-78, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965) ("Without a definition of [the] market, there is no way to measure [Defendants'] ability to lessen or destroy competition."); Kaplan v. Burroughs Corp., 611 F.2d 286, 295 (9th Cir.1979) (affirming judgment notwithstanding the verdict because plaintiff presented only "vague references to the overall data processing market" and "the record [was] silent" as to the "question of market definition").
As best as it can be understood by the Court, Plaintiff's market definition represents only a subset of the services Plaintiff offers. Plaintiff admits its primary service is representing shippers in negotiating competitive shipping contracts with carriers, which represents ninety-five percent of its business. (USUF ¶ 1; AUSGI ¶ 1.) Plaintiff also analyzes carrier proposals, implements new agreements, and does an ongoing review of carrier pricing trends to monitor savings and contract compliance. (Gates Decl., Exh. 5 at 74.) However, these services are noticeably absent from Plaintiff's description of the shipping consultation services market.
The Court must "properly follow[] precedent in this area by restricting the relevant market to one in wherein commercial reality exists." Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1299 (9th Cir.1982). Plaintiff has produced no evidence to demonstrate that the arbitrary subset of Plaintiff's services selected for inclusion in the "shipping consultation services" market is a commercially cognizable market. In fact, Plaintiff has provided no evidence that its customers purchase only the "advice" component of its services. Defendants' evidence — the only evidence on this point in the record — demonstrates that the standalone "advice" component of Plaintiff's services represents approximately 0.51% of Plaintiff's revenue. (Harris Decl., Exh. 1 ¶ 21.) There is no evidence as to which additional TPCs, if any, sell this "advice," that Defendants sell this advice,
Further, Plaintiff admits that trade was only restrained in the market for negotiation services. (AUSGI ¶¶ 86; Opp'n at 2 (defining the TPC Policy as Defendants' agreement "not to deal with a TPC that the other had declined to allow[] to participate in negotiations").) Yet, contrary to established Ninth Circuit precedent, Plaintiff's definition of the relevant market includes services far beyond those it admits were restrained, including any advice based on a shipper's past history that helps it select carrier services and maximize profit. (ASUF ¶ 53.) See Exhibitors' Serv., Inc. v. Am. Multi-Cinema, Inc., 788 F.2d 574, 579 (9th Cir.1986) ("[T]he requirement laid down in Associated General Contractors is that the plaintiff and conspirators compete in the `market in which trade was restrained.'") (emphasis in original) (quoting Associated Gen. Contractors, 459 U.S. at 539, 103 S.Ct. 897). Plaintiff has not demonstrated that the additional services included in the market beyond those restrained are reasonably interchangeable therewith. See In re Air Passenger Computer Reservations Sys. Antitrust Litig., 694 F.Supp. 1443, 1457 (C.D.Cal.1988), aff'd sub nom. Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir.1991) ("[P]roducts and services which are `reasonably interchangeable' for the same or similar uses normally should be included in the same product market for antitrust purposes.") (citing Kaplan, 611 F.2d at 291).
The relevant market must include "the group or groups of sellers or producers who have actual or potential ability to deprive each other of significant levels of business." Thurman Indus., Inc. v. Pay `N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir.1989). Plaintiff contends that itself, Defendants, and "other similar TPCs" are participants in the market for shipping consultation services. (Opp'n at 23.) Plaintiff seeks to further define these "other TPCs" as entities which gather and analyze data, including shippers' past transactions, to develop a strategy, to advise and help a shipper negotiate or otherwise obtain maximum savings for their shipping needs, and to match the shipper's needs to a carrier's delivery services. (Opp'n at 3.)
"[M]arket definition must look at all relevant sources of supply, either actual rivals or eager potential entrants to the market." Kaplan, 611 F.2d at 292 (citations omitted). As Defendants point out, there are numerous other consultants that provide advice to shippers to help them select carrier services and save money on shipping costs, including entities that assist with warehouse location, inventory management, technology solutions, product returns, packaging, and auditing carrier bills. (USUF ¶¶ 70-81.) Plaintiff contends that none of these entities or services
In addition, Plaintiff arbitrarily excludes shippers' in-house employees who similarly gather and analyze shipper data to advise a shipper on methods of saving money on its carrier contracts. (See USUF ¶¶ 83-84; Opp'n at 37-38.) "[A] product market is typically defined to include the pool of goods or services that qualify as economic substitutes because they enjoy reasonable interchangeability of use and cross-elasticity of demand." Thurman Indus., 875, F.2d at 1374. Supreme Court precedent indicates that the demands of all consumers must be analyzed and the relevant market must include all suppliers and consumers of the particular product. See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 393-95, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). Over eighty percent of shippers do not hire TPCs to advise them on their shipping needs, yet they enter shipping contracts with carriers. Plaintiff provides no evidence or explanation for why these in-house advisors are not economic substitutes for TPCs. Plaintiff instead argues that TPCs are better at providing advice than in-house employees, thus in-house employees must be excluded. (See Opp'n at 37.) This is not a proper basis for exclusion. See In re Super Premium Ice Cream Distrib. Antitrust Litig., 691 F.Supp. 1262, 1268 (N.D.Cal.1988) ("Courts have repeatedly rejected efforts to define markets by price variances or product quality variances. Such distinctions are economically meaningless where the differences are actually a spectrum of price and quality differences."). Plaintiff also argues that Defendants, not shippers' in-house employees, provide advice when a TPC is not hired. (Opp'n at 37.) However, Plaintiff provides no evidence to support this asserted fact.
Without factual support, Plaintiff excludes USPS and regional carriers from its
Plaintiff attempts to construct a market for "shipping consultation services" that includes only Defendants, Plaintiff, and TPCs affected by the TPC Policy. The primary problem with Plaintiff's market is that there is no evidence that such a market exists or that it includes the participants or services Plaintiff identifies. "Plaintiff cannot artificially create antitrust claims by narrowly defining the market to create the appearance of an antitrust injury." Smalley & Co. v. Emerson & Cuming, Inc., 808 F.Supp. 1503, 1512 (D.Colo.1992), aff'd, 13 F.3d 366 (10th Cir. 1993); see also Gough v. Rossmoor Corp., 585 F.2d 381, 389 (9th Cir.1978) ("[I]n determining the relevant market the courts are not free to accept whatever market is suggested by the plaintiff as fitting most persuasively with his contention that his power to compete effectively has suffered injury."). Plaintiff has ignored its own business model and the realities of the services it provides. Plaintiff cannot avoid summary judgment by declaring that the "defining the market `is a factual inquiry for the jury.'" (Opp'n at 34 (citation omitted).) It remains Plaintiff's burden to present a factual question as to the relevant market in order to survive summary judgment. See Int'l Healthcare Mgmt. v. Haw. Coal. for Health, 332 F.3d 600, 604 (9th Cir.2003) ("Although antitrust cases are sometimes difficult to resolve on summary judgment because of their factual complexity, summary judgment is still appropriate in certain cases.") (internal quotation omitted); Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1435 (9th Cir.1995) ("If Rebel's evidence cannot sustain a jury verdict on the issue of market definition, summary judgment is appropriate."). Plaintiff has not done so; therefore summary judgment is appropriate.
Plaintiff relies heavily on the cases of Amarel v. Connell, 102 F.3d 1494 (9th Cir.1997), and Yellow Pages Cost Consultants, Inc. v. GTE Directories Corp., 951 F.2d 1158 (9th Cir.1991). (Opp'n at 23-26.)
In order to avoid having to put forth a rational and supported market definition, Plaintiff argues that the Court should find that Defendants have committed per se violations of the Sherman Act. (Opp'n at 7-8 (citing Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F.3d 1096, 1101-02 (9th Cir.1999) ("Elaborate market analysis and case-by-case evaluation are unnecessary in cases involving per se antitrust violations because the anticompetitive effects of the practice are presumed.")).) "Resort to per se rules is confined to restraints ... that would always or almost always tend to restrict competition and decrease output. To justify a per se prohibition a restraint must have manifestly anticompetitive effects, and lack ... any redeeming virtue." Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007) (second alteration in original) (internal citations and quotations omitted).
Fatal to Plaintiff's argument is the clear requirement that "the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason." Id. at 886-87, 127 S.Ct. 2705 (internal citations omitted). In order to fit it within per se treatment, Plaintiff characterizes the TPC Policy as an "illegal boycott." (Opp'n at 8.) However, Plaintiff has not pointed to a single case applying per se treatment which resembles the factual scenario here or characterizes facts similar to these as a group boycott.
The Supreme Court in FTC v. Indiana Federation of Dentists, 476 U.S. 447, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986), refused to apply the per se designation to an agreement by competing dentists to deny patient X-rays to insurance companies. The dentists did not want to share the X-rays because they wanted to prevent the insurance companies from reviewing the propriety of the dentists' charges. Id. at 455, 106 S.Ct. 2009. The Court declined to invoke the per se rule, reasoning that "the category of restraints classed as group boycotts is not to be expanded indiscriminately, and the per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor." Id. at 458, 106 S.Ct. 2009 (emphasis added). This definition does not fit the facts presented here. Plaintiff contends that Defendants "refus[ed] to deal with TPCs," but there is no dispute that Plaintiff and other TPCs are not "suppliers or customers"
The Ninth Circuit's test for the applicability of the per se standard to a group boycott confirms this conclusion. Three characteristics indicate the existence of a per se illegal boycott:
Adaptive Power Solutions, LLC v. Hughes Missile Sys. Co., 141 F.3d 947, 950 (9th Cir.1998) (quoting Hahn v. Or. Physicians' Serv., 868 F.2d 1022, 1030 (9th Cir.1988)).
Plaintiff has produced no evidence as to the second element. The record is devoid of proof that FedEx and UPS possess a dominant position in the market for "shipping consultation services." Moreover, although the Court does not evaluate the propriety of the TPC Policy, Defendants present a plausible argument that it is procompetitive because it allowed them to deal directly with their shipping customers, thereby increasing efficiency. (Williams Decl., Exh. 1 ¶¶ 9697.) Accordingly, the TPC Policy does not trigger the per se rule of a group boycott, and Plaintiff must prove the existence of the relevant market and anticompetitive effects.
In a footnote, Plaintiff also argues that "quick look" analysis should apply. (Opp'n at 8 n. 5.) "[T]his truncated rule of reason or `quick look' antitrust analysis may be appropriately used where an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets." California ex rel. Harris v. Safeway, Inc., 651 F.3d 1118, 1134 (9th Cir.2011) (internal quotation omitted). "Full rule of reason treatment is unnecessary where the anticompetitive effects are clear even in the absence of a detailed market analysis. But if an arrangement might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on competition, then a `quick look' form of analysis is inappropriate." Id. (internal citation and quotation omitted). As noted above, Plaintiff has presented a plausible procompetitive justification for the TPC Policy, thus a quick look will not suffice. See id. at 1138 ("Because we cannot reach a confident conclusion that the principal tendency of the [provision] is to restrict competition, truncated review is inappropriate."); Texaco Inc. v. Dagher, 547 U.S. 1, 7, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) ("But for the same reasons that per se liability is unwarranted here, we conclude that petitioners cannot be held liable under the quick look doctrine.").
Under rule of reason analysis, "the plaintiff bears the initial burden of showing that the restraint produces significant anticompetitive effects within a relevant market." Tanaka, 252 F.3d at 1063. Plaintiff has produced no evidence from which a reasonable jury could find that its market for "shipping consultation services" is the relevant market. See, e.g., Pacifica Kidney Ctr., Inc. v. Nat'l Med. Care, Inc., 995 F.2d 232 (9th Cir.1993) (granting summary judgment to defendant because "Pacifica has not adequately defined the relevant geographic market"); Morgan, Strand, Wheeler & Biggs, 924 F.2d at 1489 (granting summary judgment in favor of defendants based on plaintiffs' failure to "show the relevant market" because "[o]ne simply cannot conclude from the evidence who competes to supply radiology services
For the foregoing reasons, the Court GRANTS Defendants' motions for summary judgment, (Doc. Nos. 130, 140, 229, 246), and DISMISSES all causes of action in the Third Amended Complaint WITH PREJUDICE.
As stated above, UPS's application for leave to file a supplemental brief is DENIED. (Doc. No. 257.)
Because the Court denied the parties' initial applications to seal and denied in part the parties' renewed applications to seal, the parties amended and refiled their summary judgment documents several times in an effort to limit the number of redactions from the public record. For simplicity and ease of location, the Court cites to the most recent version of each document in this Order.