author: THORNTON, District Judge.

text:
    Martin L. TREPEL, D.O., individually and as the successor in interest of Trepel and Associates, Ltd., a Michigan partnership association, Plaintiff, v. PONTIAC OSTEOPATHIC HOSPITAL, Crittenton Hospital, City of Pontiac, City of Pontiac Hospital Building Authority, St. Joseph Mercy Hospital, Jack H. Whitlow, Ivan M. Forbes, Paul W. Trimmer and David A. Kellam, Defendants.
    Civ. No. 83-CV-4942-DT.
    United States District Court, E.D. Michigan, S.D.
    Dec. 28, 1984.

      James C. Foresman, Schlussel, Lifton, Simon, Rands, Kaufman, Galvin & Jackier, Southfield, Mich., Michael Wischkaemper, Reed, Goldstein & Jenkins-Reed, P.C., Phoenix, Ariz., for plaintiff. ■
    Roger K. Timm, Dykema, Gossett, Spencer, Goodnow & Trigg, Larry J. Saylor, Miller, Canfield, Paddock & Stone, Detroit, Mich., Robert A. Maxwell, Maxwell & Smith, Bloomfield Hills, Mich., for defendants.
   OPINION AND ORDER GRANTING SUMMARY JUDGMENT AND DISMISSAL OF ACTION

THORNTON, District Judge.

I. INTRODUCTION

This case is before the Court on the several defendants’ motion for summary judgment. Defendants argue that summary judgment is proper as (1) there is no evidence of the alleged conspiracy and defendants had a legitimate reason for non-renewal of plaintiffs’ contract; (2) the action is barred by the doctrine of res judicata; (3) the action is barred by the running of the statute of limitations; and (4) the plaintiffs have no standing to bring this antitrust claim.

Plaintiff Dr. Trepel was the hospital-based radiologist for Pontiac Osteopathic Hospital (POH). In 1975, after disagreements between the hospital and Dr. Trepel, POH and Dr. Trepel entered into a four-year extension contract for Dr. Trepel’s radiological services. As part of this agreement, Dr. Trepel agreed to drop legal charges he had planned to bring against the hospital. Plaintiffs and defendants agree that at the time of entering into the contract it was considered part of a settlement agreement and the terms were for four years and out with no option for renewal. However, Dr. Trepel alleges that during the ensuing four years, Mr. Whit-low of POH represented to the plaintiff that the hospital contract was susceptible to renewal at its expiration. The defendants deny these allegations.

The hospital defendants are all members of the North Oakland County Hospital Steering Committee. Plaintiffs allege that at the committee meetings the defendants conspired to force POH to terminate Dr. Trepel’s contract at its four-year expiration date. Plaintiffs further allege that the hospitals are all in competition for available hospital beds and that defendants’ motive was to force Dr. Trepel to abandon his support of Huron Valley Hospital (HVH), a new hospital to be constructed in the same geographic area as defendant hospitals. Dr. Trepel was the chief supporter of HVH and HVH would compete with the defendant hospitals for a limited number of available hospital beds.

In August 1979, the POH board informed Dr. Trepel that his contract would not be renewed. As a courtesy, the POH board agreed to give Dr. Trepel (accompanied by his attorney) an appeal hearing at the October and November POH board meetings. The board, however, stayed with its original decision not to renew his contract. This lawsuit is one of a series resulting from the aforementioned actions.

II. LACK OF EVIDENCE ARGUMENT

Defendants argue that summary judgment should be granted as to plaintiffs’ complaint of a conspiracy to restrain trade as there is no evidence of the alleged conspiracy, defendants had a legitimate reason to refuse to renew the contract of Dr. Trepel, and defendants have submitted affidavits which refute the conspiracy allegations. (See Defendants’ Exhibit L (Affidavit of Michael R. Schwartz), M (Affidavit of Jack Whitlow), N (Affidavit of James M. Wright), and 0 (Affidavit of Richard Zunker).

Plaintiffs counter that the affidavit of John P. Morris in conjunction with deposition testimony of Ivan M. Forbes (Forbes deposition, April 30, 1982, pp. 129-131) provides sufficient evidence to survive a motion for summary judgment.

In general courts are reluctant to dispose of antitrust actions by means of motions for summary judgment. In a leading case in this field the United States Supreme Court has stated:

[Sjummary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot. It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given their testimony can be appraised. Trial by affidavit is no substitute for trial by jury which so long has been the hallmark of “even handed justice.”

Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962).

In a later case, First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968), the Supreme Court held that mere allegations in the complaint are insufficient to withstand a motion for summary judgment.

Defendants interpret this- later case to mean that the denials of a conspiracy contained in their submitted affidavits along with the submitted proofs of refusing to renew the contracts for legitimate business reasons are sufficient to allow summary judgment in this case.

The Sixth Circuit, however, has recently interpreted the effect of First National Bank on the earlier Poller case: .

The lesson learned from Poller and First National Bank is that, although the court should treat antitrust plaintiffs leniently in examining their proofs for issues of fact on a summary judgment motion, those proofs must nonetheless provide some factual basis upon which the conspiracy and intent element must be reasonably inferred. Once the defendant has adequately rebutted the plaintiffs allegations by establishing legitimate alternative explanations for its conduct which disprove the inferences the plaintiffs seek to draw, then the plaintiffs must come forward with some “significant probative evidence tending to support the complaint.” (Citations and footnotes omitted.)

Smith v. Northern Michigan Hospitals, Inc., 703 F.2d 942, 948 (6th Cir.1983). The Court noted that the Supreme Court had granted summary judgment in First National Bank because the plaintiff had produced no evidence of conspiracy and because “the adversity of interests among co-conspirators ‘conclusively showed’ that the allegations were ‘not susceptible’ of the interpretation the plaintiff sought.” (Citations omitted) Smith, 703 F.2d at 947.

In the present case, the defendant hospitals share a common factor, they are hospitals in the same geographic area which must compete for the ability to obtain state approval for additional available hospital beds. As such, the defendant hospitals shared a common interest to assure that the state would not approve available hospital beds for Huron Valley Hospital, a new hospital to be constructed and for which Dr. Trepel is the main supporter.

Plaintiffs argue that this backdrop coupled with the evidence of the admission by Mr. Forbes that members of the North Oakland County Hospital Steering Committee almost “boycotted” POH for employing Dr. Trepel provides the requisite “significant probative evidence” in support of their complaint.

Alternatively, plaintiffs argue that summary judgment is inappropriate where there has been insufficient time for discovery. In response, defendants contend that other litigation involving the same parties has afforded plaintiffs ample opportunity for discovery. As plaintiffs correctly note, however, in the prior litigations defendants’ objections as to discovery concerning the allegedly conspiratorial meeting (on the ground of lack of relevancy) precluded effective discovery by plaintiffs. Thus without deciding whether the evidence proffered by plaintiffs meets the “significant probative evidence” standard by First National Bank and Smith, this Court concludes that summary judgment for failure to demonstrate significant probative evidence is inappropriate at this time as plaintiffs have not yet had sufficient opportunity for discovery.

III. RES JUDICATA ARGUMENT

Defendants argue that principles of res judicata serve to bar plaintiff's present suit. Defendants relied on the case of Trepel v. Pontiac Osteopathic Hospital, Civ. No. 79-198827, and consolidated cases, Oakland County Circuit Court, Michigan. In that case, the trial judge granted summary judgment as to Count I of plaintiff’s complaint which alleged breach of contract and summary judgment as to plaintiff’s counts which alleged tortious interference with contract and interference with prospective advantage.' Defendants argue that this summary judgment decision is a final judgment on the merits; that there is substantial identity of parties (addition of defendants not a bar); and that there is an identity of cause of action as plaintiff’s antitrust action is a claim which could have been brought in the action alleging tortious interference with contract and business relations. Since the hearing on the motion before this Court, the Michigan Court of Appeals has affirmed in part and reversed in part the state trial court’s prior decision. Trepel v. Pontiac Osteopathic Hospital, et al., 135 Mich.App. 361, 354 N.W.2d 341 (1984). In its opinion, the Michigan Court of Appeals reversed the state circuit court’s grant of summary judgment with respect to plaintiffs breach of contract claim while it affirmed the trial court’s grant of summary judgment with respect to the interference with contract and with prospective advantage. Id.

Even if this Court were to decide that principles of res judicata could be applied to the federal claims raised in this case, the Court determines that the posture of the state court action is not proper for application of res judicata principles.

First, with the exception of Pontiac Osteopathic Hospital, none of the non-individual defendants charged with antitrust conspiracy in the present suit are parties to the state action. As plaintiff now alleges that these various hospitals conspired causing him antitrust injury, he has failed to meet the prerequisite standard of showing a substantial identity of parties. In addition due to the Court of Appeals reinstatement of the breach of contract claim, the state court decision is not yet a final decision. Although the decision of the trial court on the tortious interference claims has been affirmed, the claim for breach of contract (concerning the same subject matter which is present in this federal action) has not yet been determined. Therefore, the doctrine of res judicata cannot properly be applied to the cause of action presently before this Court.

Assuming, arguendo, that defendants had otherwise-demonstrated the necessary prerequisites for applying res judicata principles, under current Sixth Circuit law, res judicata cannot be applied to this federal antitrust action.

Defendants concede that in Cream Top Creamery v. Dean Milk Co., 383 F.2d 358 (6th Cir.1967), the Sixth Circuit held that res judicata cannot serve as a bar to the federal antitrust suit where the state forum cannot grant the relief sought in the federal forum. The Court noted that as federal courts have exclusive jurisdiction over federal antitrust claims, id. 363, plaintiff could have brought only a state antitrust claim in the state court. Furthermore, as the state antitrust action would not allow for treble damages, there was no identity of remedies. The Court concluded that as federal courts have exclusive jurisdiction over federal antitrust claims and as there was no identity of remedies, res judicata did not act to bar the federal action. Id.

The defendants concede that under Cream Top their argument must fail. Defendants argue, therefore, that because of three recent decisions in other circuits, the Sixth Circuit would now abandon its ruling in Cream Top and hold that the state judgment bars the federal antitrust claim. Defendants then propose that this Court should act on the anticipation of the Sixth Circuit reversing itself and hold that this federal antitrust claim is barred by res judicata.

Two of the three circuit cases cited by defendants explicitly acknowledged the validity of Cream Top and distinguished their decisions by noting that the state statutes involved allowed for the recovery of treble damages. Derish v. Mateo-Burlingame Board of Realtors, 724 F.2d 1347, 1351 (9th Cir.1983); Nash County Board of Education v. Biltmore Co., 640 F.2d 484, 491 (4th Cir.1981). Similarly, Marrese v. American Academy of Orthopaedic Surgeons, 726 F.2d 1150, 1155-56 (7th Cir. 1984) cert. granted, — U.S. -, 104 S.Ct. 3553, 82 L.Ed.2d 854 (1984) while acknowledging that a difference in remedy “might be an important difference” reasoned that difference was immaterial where the plaintiffs’ concern was for injunctive relief, a remedy available under both the state and federal laws. Therefore, none of the Circuit cases cited by defendants conflict with the Sixth Circuit’s decision in Cream Top or the facts of this case where the plaintiffs seek monetary damages.

Similarly, defendants’ reliance on Migra v. Warren City School District Board of Education, — U.S. -, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984) is inapposite. Migra held that a state court judgment could bar petitioner’s § 1983 federal court claim. Unlike the present case, however, the Supreme Court noted that the petitioner did not contend that she could not have brought her federal claim in the state court action. Id. Accordingly, this Court rejects the defendant’s invitation to ignore binding Sixth Circuit precedent and apply res judicata principles to bar the plaintiff’s federal antitrust claim.

IV. STATUTE OF LIMITATIONS ARGUMENT

Defendants also allege that this action is barred by the running of the four-year statute of limitations 15 U.S.C. § 15b. Defendants assert that the statute of limitations accrued in August 1979 when the POH board voted to allow the plaintiff’s contract to expire in December 1979, approximately four years and four months before this current lawsuit was filed.

Dr. Trepel’s complaint alleges that the defendants conspired to restrain trade and commerce in violation of section one of the Sherman Act, 15 U.S.C. § 1 through (1) eliminating plaintiffs as hospital based radiologists; (2) boycotting and refusing to deal with plaintiffs, and (3) terminating plaintiffs as the hospital-based radiologists at POH in order to prohibit the construction of Huron Valley Hospital. Plaintiffs allege that the defendants met, discussed, agreed to terminate and terminated plaintiffs as the hospital-based radiologists at POH by refusing to renew plaintiff’s contract unless Dr. Trepel gave up his support of Huron Valley Hospital. The only evidence of any such meetings at which the alleged conspiracy took place indicates that the suspect meetings were held some time in or prior to June or July, 1979. In Plaintiff’s Brief in Opposition to Defendants’ Motion to Dismiss, p. 7, plaintiffs concede that any alleged discussion predated the contract negotiations of 1979. Thus, the evidence demonstrates that the alleged conspiratal acts took place prior to the August 1979 termination. Furthermore, both plaintiffs and defendants agree that the POH board’s decision to terminate Dr. Trepel occurred in August 1979, a time predating the four-year statute of limitations. (Affidavit of John Morris; Affidavit of Ivan M. Forbes).

Plaintiffs argue, however, that the statute of limitations did not accrue in August, 1979 because further negotiations continued through November, 1979 such that no final decision was made until December 1979. Plaintiffs cite minutes of the October 24, 1979 and November 28, 1979 POH board meetings in support of their position that negotiations were continuing. However, in the October 24, 1979 minutes the board explicitly notes that Dr. Trepel’s contract was not terminated but simply the decision had been made not to renew it at its expiration. Furthermore, Dr. Trepel’s appearance is characterized as a request for an appeal. Again at the November 28 meeting, even Dr. Trepel’s attorney acknowledged that he was being offered a due process appeal hearing, and that the hearing was granted not by right but as a courtesy.

Alternately, plaintiffs argue that under Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971) plaintiffs’ action did not accrue until after Dr. Trepel had completed this administrative appeal process because until that time plaintiffs’ damages were at most “speculative.”

Initially, this Court notes that plaintiffs have conceded that any alleged “conspiratal acts” took place prior to the contract negotiations for 1979 and, therefore, necessarily prior to the August 1979 decision not to renew Dr. Trepel’s contract. See discussion, supra. Strictly speaking, then, as Dr. Trepel has not alleged attempts to obtain employment at any other hospitals, any claim based on an alleged conspiracy to prevent Dr. Trepel from obtaining employment as a hospital-based radiologist accrued with the August 1979 decision and is barred by the statute of limitations.

Plaintiffs apparently contend, however, that the “continuing negotiations” were continuing acts committed in furtherance of the alleged conspiracy. In Zenith the Supreme Court held that in a continuing conspiracy a cause of action accrues whenever a plaintiff is injured by an act of the defendants. Id. at 338, 91 S.Ct. at 806. The Court also ruled that where future damages are too speculative, the date of accrual is the date the damages are incurred. Id. at 339, 91 S.Ct. at 806. However, where future damages are provable as flowing from an act, the date of accrual is the date of the act. Id.

In the present case, plaintiffs are in error in their contention that the damages were too speculative as plaintiffs have conceded that they were aware the value of a four-year contract to Dr. Trepel was approximately four million dollars ($4,000,000.00). (Plaintiffs’ Brief in Opposition to Defendant’s Motion to Dismiss, p. 9). Barnosky Oils, Inc. v. Union Oil Co., 665 F.2d 74 (6th Cir.1981).

As the damages were provable as flowing from the August 1979 act of the POH board, the action accrued on that date. Zenith Radio Corp., supra. Therefore, in their contention that the appeals to the POH board stayed the accrual date, under Zenith plaintiffs must prove not only that the courtesy appeal hearings were additional acts in a continuing conspiracy but also that these acts caused further injury to the plaintiffs.

As plaintiffs have conceded that all allegations of conspiracy predaté the negotiations period, and as plaintiffs have no evidence of a conspiracy after August 1979, the only remaining issue is whether the appeal hearings constituted an act as part of a continuing antitrust violation which further injured plaintiff. Barnosky Oils, 665 F.2d at 82. As the decision not to renew plaintiff’s contract occurred in August 1979, it was at this time that Dr. Trepel initially incurred his damages of loss of future wages. Griffing v. Lucius O. Crosby Memorial Hospital, 1984-1 Trade Cas. (CCH) ¶ 65, 854 (S.D.Miss.1984). In the courtesy appeals process, the POH board committed no new acts. The board merely declined to reconsider its initial decision not to renew Trepel’s contract. Dr. Trepel incurred no new injury by these hearings as the injury and resulting damages of lost salary occurred in August 1979. Thus, after August 1979 defendants committed no new act which caused additional damages to the plaintiff. Zenith Radio Corp., 401 U.S. at 338-339, 91 S.Ct. at 806; Barnosky Oils, 665 F.2d at 81; see David Orgell, Inc. v. Geary’s Stores, 640 F.2d 936 (9th Cir.), cert. denied, 454 U.S. 816, 102 S.Ct. 92, 70 L.Ed.2d 84 (1981).

In another employment case, the United States Supreme Court addressed the issue of whether the accrual date for a claim under Title VII and 42 U.S.C. § 1981 occurred when a professor was notified of his denial of tenure or at the actual termination date of his employment. Delaware State College v. Ricks, 449 U.S. 250, 101 S.Ct. 498, 66 L.Ed.2d 431 (1980).

Although analyzed in the context of a discrimination suit, the Court’s reasoning as developed in an employment situation is applicable here. In Ricks, the plaintiff was notified in February 1973 that he would not receive a tenured position, although the college agreed to reconsider its decision a year later. In February 1974 the college reiterated its earlier position and formally denied tenure on March 13, 1974. Ricks, however, was granted a one-year termination contract to expire June 30, 1975. Ricks’ grievance, filed to appeal this decision, was also denied in September 1984. In April 1975, Ricks filed a discrimination charge with the EEOC which subsequently issued a right to sue letter in 1977. Ricks filed his complaint in September 1977. The Court held that Ricks’ discrimination claim accrued at the time of the tenure decision. Ricks, 449 U.S. at 258, 101 S.Ct. at 504. The Court held it was the time of the act itself and not the time of the consequences of the act which set the limitations period running. Id. The Court rejected plaintiff’s arguments that the pendency of the grievance procedure “held out to Ricks the possibility that he would receive tenure if the Board sustained his grievance,” id. at 260, 101 S.Ct. at 505, or, alternately, tolled the statute. Id. at 261, 101 S.Ct. at 505. It characterized the grievance procedure as “a remedy for a prior decision, not an opportunity to influence that decision before it is made.” Id. (Emphasis in original.) It reiterated its position that a grievance procedure “or some other method of collateral review of an employment decision” did not toll the statute. Id.

Applying the Court's reasoning to the present case, as the appeals process provided at most a possible remedy for the POH board’s prior decision, and not an occasion to influence a decision not yet made, plaintiffs’ contention that the possibility the Board would reverse its decision rendered plaintiffs’ damages speculative must also be rejected. Similarly, Dr. Trepel’s appeal of the Board’s decision at the October and November board meetings did not toll the statute.

In substance, plaintiffs’ argument asserts that the defendants were “committing a continuing violation by refusing to alter their decision.” Garland v. Shapiro, 579 F.Supp. 858, 861 (E.D.Mich.1984). As noted by that court:

If plaintiff were allowed to resurrect his stale ... claim by merely requesting the same relief as was initially denied, and thereby prompting a new refusal, the policies served by the statute of limitations as recognized by the Supreme Court in Ricks would be thoroughly frustrated.

Id. 861.

Therefore, as plaintiffs filed their claim in November 1983 and as plaintiffs’ claim accrued in August 1979 when Dr. Trepel was informed his contract would not be renewed; as plaintiffs’ damages at that time were not speculative, and as no conspiratal act causing additional injury occurred within the statutory period, the defendants’ motion for summary judgment is granted as plaintiffs’ claim is barred by the four-year statute of limitations.

V. FAILURE TO STATE A CLAIM/LACK OF STANDING ARGUMENT

Defendants also assert that they are entitled to summary judgment because the plaintiffs have not alleged and cannot prove antitrust injury. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). Such an argument is more properly categorized as a Rule 12(b)(6) motion to dismiss for failure to state a claim or for lack of standing to bring suit. Accordingly, in analyzing defendants’ argument, the allegations in plaintiffs’ complaint must be accepted as true. Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079, 1081 (6th Cir.1983).

In their complaint plaintiffs allege a conspiracy in restraint of trade and commerce in violation of 15 U.S.C. § 1 by causing plaintiffs to lose their position as hospital-based radiologists at POH as part of an anti-competitive conspiracy which had as its ultimate goal the prevention of the existence of Huron Valley Hospital.

At the hearing on this motion, plaintiffs’ counsel argued that the refusal to deal with Dr. Trepel “is, alone, an antitrust violation” in that “taking Dr. Trepel out of the market of radiology, hospital-based, is anti-competitive in nature.” [Tr. 38]. In addition, plaintiffs argue there is an “overlay” of the anti-trust conspiracy to prevent the formulation of Huron Valley Hospital and its resultant allotment of beds. [Tr. 36-38].

Initially, the Court must decide whether plaintiffs’ loss of employment as hospital-based radiologists states an antitrust violation. In Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283, 286 (6th Cir.1963) the Sixth Circuit held that a refusal to deal becomes a violation of the Sherman Act “only when it produces an unreasonable restraint of trade, such as price fixing, elimination of competition or the creation of a monopoly.”

The Court concluded that the substitution of one beer distributor for another did not constitute an antitrust violation where it did “not eliminate or materially diminish the existing competition of distributors ...” Id. 287. In the present case, the substitution of Dr. Trepel with another hospital-based radiologist does not constitute an antitrust violation as it does not cause price-fixing, elimination of competition or a monopoly for radiological services. See also Griffing v. Lucius O. Crosby Memorial Hospital, 1984-1 Trade Cas., ¶ 65, 854 (S.D.Miss.1984), where the court dismissed plaintiff’s antitrust claim when plaintiff radiologist alleged an illegal tying arrangement when he was substituted by another radiologist as the hospital-based radiologist.

Furthermore, although plaintiff alleges because of the conspiracy he is not required to attempt to obtain employment at the other three defendant hospitals, plaintiff does not explain or allege why he made no attempt to obtain employment at any of the other existing hospitals in the area. See Griffing. Accordingly, plaintiffs’ loss of employment as hospital-based radiologists did not constitute an antitrust violation.

Thus the only remaining allegation of antitrust violation is plaintiffs’ claim that defendants conspired in restraint of trade to keep Huron Valley Hospital out of the market for providing available hospital beds. The next step in the court’s analysis, therefore, is to determine whether plaintiffs have standing to bring this antitrust claim.

To support their lack of standing argument, defendants rely primarily on Brunswick Corp. v. Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977) in which the Supreme Court held:

Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be “the type of loss that the claimed violations ... would be likely to- cause.” (Citations omitted.) (Emphasis in original.)

The Court while emphasizing that antitrust laws are for “the protection of competition not competitors,” id. 488, 97 S.Ct. 697 (citation omitted) (emphasis in original), would not allow recovery which did not comport with the purpose of the antitrust statute. Id. 487, 97 S.Ct. 696.

None of the parties in the present case, however, analyzed the standing issue under the guidelines more recently set forth by the Supreme Court in Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149 (1982) and Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

Both of these cases reasserted the basic principle set forth in Brunswick that the alleged injury must be of the type the antitrust statute attempted to remedy. Associated General Contractors, 459 U.S. at 540, 103 S.Ct. at 910; McCready, 457 U.S. at 479, 102 S.Ct. at 2548. The Sixth Circuit provided an exhaustive analysis and application of the various factors set forth in these cases in Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079 (6th Cir.1983).

The McCready decision would deny standing where there exists a risk of duplicative recovery or where the injuries complained of are too remote. Whether injuries are too remote is to be determined by an examination of the “physical and economic nexus between the alleged violation and the harm to the plaintiff” and by application of the statutory purpose limitation enunciated in Brunswick. McCready, 457 U.S. at 474-78, 102 S.Ct. at 2546-48.

In Associated General Contractors, the Court reasoned that a determination of standing would involve an inquiry as to (1) the plaintiffs injury, (2) the defendants’ wrongdoing, and (3) the relationship between the two. Id. 459 U.S. at 535, 103 S.Ct. at 907.

The factors identified by the Supreme Court in Associated General Contractors were summarized by the Sixth Circuit in Southaven Land Co., 715 F.2d at 1085, as:

inter alia, (1) the causal connection between the antitrust violation and harm to the plaintiff and whether the harm was intended to be caused; (2) the nature of the plaintiff’s alleged injury including the status of the plaintiff as consumer or competitor in the relevant market; (3) the directness or indirectness of the injury, and the related inquiry of whether the damages are speculative; (4) the potential for duplicative recovery or complex apportionment of damages; and (5) the existence of more direct victims of the alleged antitrust violation. (Citation omitted.)

Plaintiffs satisfy the first factor as they allege both a causal connection between plaintiffs’ loss of employment as hospital-based radiologists and restraint of trade as to Huron Valley Hospital and that the acts were intentionally done. This factor alone, however, is not sufficient to confer standing upon the plaintiffs. Associated General Contractors, 459 U.S. at 537, 103 S.Ct. at 908.

A second factor to consider is the nature of the plaintiffs injury with special focus on whether plaintiffs are competitors or consumers in the relevant market. In the case at bar, plaintiff does not claim standing as a consumer and the competitor against whom the antitrust violation is directed is identified as Huron Valley Hospital and not the plaintiffs. Plaintiffs do not have standing to assert the antitrust injury of Huron Valley Hospital. The injury claimed by plaintiffs is loss of employment as hospital-based radiologists. But this is not an antitrust injury as it is not the type of injury the antitrust statute was designed to remedy. Associated General Contractors, 459 U.S. at 540, 103 S.Ct. at 910; McCready, 457 U.S. at 478-79, 102 S.Ct. at 2548-49; Brunswick, 429 U.S. at 489, 97 S.Ct. at 697. Plaintiffs may have an action in tort, but not all tort injuries are actionable in antitrust.

While plaintiffs’ losses occurred “by reason of” the alleged unlawful conspiracy, they did not occur “by reason of” that which made the conspiracy an antitrust violation, paraphrasing, Brunswick 429 U.S. at 488, 97 S.Ct. at 697. Therefore, the plaintiffs have failed to satisfy the second factor.

Next the Court considers whether the injury is direct or indirect or derivative in nature. Plaintiff alleges that he lost his employment as a direct result of the coercive conspiratoral acts of the defendants in an attempt to boycott plaintiff. Thus this Court is faced with a situation as yet undecided by the Supreme Court whereby it must decide whether a direct victim who suffers injury unrelated to antitrust policy has standing to bring an antitrust action. Associated General Contractors, 459 U.S. at 540-41 n. 44, 103 S.Ct. at 910 n. 44.

Another factor to evaluate is whether there are more direct victims of the antitrust violation who have standing. In the present situation, the Sixth Circuit has already determined that Huron Valley Hospital is a direct victim and therefore has standing to bring an antitrust action alleging conspiracy in restraint of trade. Huron Valley Hospital, Inc. v. City of Pontiac, et al., 666 F.2d 1029 (6th Cir.1981). Thus, the possibility does not exist that denying plaintiffs’ standing is “likely to leave a significant antitrust violation undetected or unremedied.” Associated General Contractors, 459 U.S. at 542, 103 S.Ct. at 911. The pendency of the hospital’s action “diminishes the justification for allowing a more remote party” to have standing. Id.

Also, because plaintiffs’ injuries are not antitrust in nature, it increases the danger of multiple liability and the potential for duplicative recovery and complex apportionment of damages. Id. at 545, 103 S.Ct. at 912.

Finally, the Court notes that the plaintiffs’ injuries may be addressed in state common law actions in contract and tort. Associated General Contractors, 459 U.S. at 543, 103 S.Ct. at 911; Southaven Land Co., 715 F.2d at 1088. Indeed, it appears plaintiffs are already availing themselves of these opportunities. See discussion supra, p. 1488.

After an analysis and balancing of the relevant factors set forth in McCready, Associated General Contractors and Southaven Land Co., this Court determines that plaintiffs do not have standing to bring this antitrust action. Accordingly, the Court treats defendants’ summary judgment motion as a Rule 12(b)(6) motion to dismiss and grants defendants’ motion to dismiss for lack of standing and failure to state a claim upon which relief can be granted and the action is hereby DISMISSED.

For all the reasons discussed above, summary judgment is GRANTED to the defendants and the action is DISMISSED. No costs are allowed.

IT IS SO ORDERED.

      . Huron Valley Hospital could and did obtain approved hospital beds through a certificate of need furnished by the State Department of Public Health.

      . The Court recognizes and agrees with defendant Sisters of Mary Health Corporation’s (SMHC) position that the plaintiffs have as yet failed to produce evidence of a conspiratorial ad by SMHC. Plaintiffs, however, have had no opportunity for discovery on this subject.

      . Plaintiffs do, however, present their "overlay” argument in an attempt to wrap themselves within the alleged injury to Huron Valley Hospital. This type of argument was rejected by the Sixth Circuit in Meyer Goldberg, Inc. of Lorain v. Goldberg, 717 F.2d 290 (6th Cir.1983) in which the Court denied standing in an antitrust action to the sole shareholders of grocery stores.


source: Caselaw Access Project

author: WILLIAM T. HART, District Judge.

license: Public Domain

text:
    SEALY MATTRESS COMPANY OF MICHIGAN, INC., Plaintiff, v. SEALY, INC., Defendant.
    No. 84 C 4338.
    United States District Court, N.D. Illinois, E.D.
    Dec. 31, 1984.

      Edward L. Foote, James L. Perkins, Mary A. Martin, Winston & Strawn, Chicago, 111., for plaintiff.
    Stephen C. Shamberg, Howard R. Koven, Russ M. Strobel, Friedman & Koven, Max E. Wildman, Wildman, Harrold, Allen & Dixon, Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

This matter is before the Court on the motion of plaintiff Sealy Mattress Company of Michigan, Inc. (“Michigan”) for entry of a preliminary injunction restraining the defendant Sealy, Inc. (“Sealy”) from asserting directly or through its wholly-owned Canadian subsidiary, Sealy Canada, Ltd. (“Sealy Canada”), Canadian trademark rights so as to prevent Michigan from exporting its products from the United States to Canada. Michigan contends: (1) that the conduct of Sealy and its subsidiary violates a judgment of this Court prohibiting Sealy, and its subsidiaries from restricting Michigan “in any substantial way to sales of Sealy products within a prescribed territory;” and (2) that Sealy’s conduct violates the terms of a license agreement. Sealy denies that the terms of the judgment apply to the activities of its Canadian subsidiary; denies that it has violated any contractual rights of Michigan and asserts that this Court, for reasons of comity, should not enter any order which would prevent or hinder trademark infringement and registration proceedings in Canada.

The matter was referred to a magistrate to hear evidence and make a report and recommendations. The magistrate has filed a report and recommendations together with the record of the proceedings. The magistrate recommended that Michigan’s request for injunctive relief be denied. Neither party requested a de novo evidentiary hearing before the Court. For the most part, the facts are undisputed. However, the parties differ sharply over the correct legal conclusions to be drawn from the evidence.

Having examined the record and the magistrate’s report, the Court concludes that the magistrate’s recommendation (although not all of her findings) must be rejected and that a preliminary injunction should issue. The plaintiff has made a substantial showing of a likelihood of success on the merits of its charge that defendant and its subsidiary are misusing trademark rights to accomplish a territorial restriction contrary to this Court’s injunction. The plaintiff has demonstrated that the harm to it by refusing an injunction outweighs any harm to the defendant of granting an injunction. Further the public interest will be served by the strict enforcement of a prior judgment of this Court intended to prohibit any territorial restriction that prevents intrabrand competition in Sealy products. .

FINDINGS OF FACT

Based on the evidence presented the Court finds the facts to be as follows:

1. Defendant Sealy is a Delaware corporation engaged in the business of licensing others to manufacture and sell bedding products, including mattresses and foundation units, under the Sealy name and trademarks.

2. Plaintiff Michigan has been a contractual licensee and a substantial shareholder of Sealy since about 1940, manufacturing Sealy bedding products in the Detroit, Michigan area.

3. Michigan has filed a motion for preliminary injunction against Sealy seeking to enjoin Sealy Canada from proceeding with a previously filed Canadian suit, or from otherwise asserting its rights under Canadian law, and to compel Sealy to provide Michigan with Canadian manufacturing specifications. Sealy opposed the motion and an evidentiary hearing was held on July 11-13, 1984.

4. Michigan’s complaint against Sealy alleges: (1) breach of the Sealy, Inc. Uniform U.S. License Contract As Amended Effective July 3, 1975; (2) breach of a Supplemental Final Judgment entered by this Court in United States v. Sealy, No. 60 C 844; (3) tortious interference with Michigan’s actual and prospective business relationships; and (4) conspiracy and attempt to monopolize in violation of the Sherman Antitrust Act. Sealy has answered the Complaint by denying its principal allegations and raising various defenses.

THE 1967 JUDGMENT

5. In 1960, the United States filed a civil antitrust suit against Sealy alleging, among other things, that Sealy’s system of exclusive sales territories violated Section 1 of the Sherman Act. On June 12, 1967, the United States Supreme Court in United States v. Sealy, 388 U.S. 350, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967), held that Sealy’s system of exclusive sales territories violated Section 1 of the Sherman Act. The Supreme Court stated that “Sealy, Inc. is an instrumentality of the licensees for purposes of horizontal territorial allocation,” 388 U.S. at 354, 87 S.Ct. at 1851, and that “Sealy was a joint venture, of, by and for its. stockholder licensees; and the stockholder licensees are directly, without even the semblance of insulation, in charge of Sealy’s operations.” 388 U.S. at 353, 87 S.Ct. at 1850.

6. The Supreme Court also rejected Sealy’s contention that its exclusive sales territories were part of a lawful trademark licensing scheme stating, “A trademark cannot be legally used as a device for Sherman Act violation.” 388 U.S. at 356 n. 3, 87 S.Ct. at 1852 n. 3, quoting Timken Roller Bearing Co. v. United States, 341 U.S. 593, 599, 71 S.Ct. 971, 975, 95 L.Ed. 1199 (1951).

7. On remand, this Court entered a Supplemental Final Judgment (the “judgment”) on December 27, 1967. United States v. Sealy, CCH 1967 Trade Cases ¶ 72,327 (N.D.Ill.1967). That judgment expressly binds Sealy, all of Sealy’s subsidiaries and each of its licensees, who must consent to its terms as a condition of any franchise or license to manufacture or sell products in the United States under any Sealy trademark or tradename. The principal provision of the judgment prohibits any form of territorial restriction upon the sales of Sealy products by Sealy, its subsidiaries and any licensee:

Defendant and consenting manufacturers are each enjoined and restrained from maintaining, adhering to, enforcing or claiming any rights under any combination, contract, agreement, understanding, plan or program between or among themselves or any other manufacturer of Sealy products, to limit or restrict any manufacturer in any substantial way to sales of Sealy products within a prescribed territory.

Litigation Concerning the 1968 License Agreement

8. After entry of the judgment, Sealy prepared a new license agreement (the “1968 license agreement”) for its licensees, including Michigan. There have been certain amendments to the 1968 license agreement. That agreement, however, as last amended July 3, 1975, remains in effect. The 1968 license agreement provides that it was made “pursuant to the requirements of the ... [judgment],” and incorporates the judgment by reference. The licensing provision of the 1968 license agreement grants the licensee the right to manufacture Sealy products at its plant and “... to sell Sealy products and to use Sealy Marks in connection therewith.” Nothing in the 1968 licensee agreement prohibits the licensee from selling Sealy products in Canada or in any other geographic area.

9. The 1968 license agreement contained a number of new; provisions. The agreement redefined the licensees’ former exclusive sales territories as their “areas of primary responsibility” or “APR’s.” The agreement provided that licensees must obtain Sealy’s approval to establish a plant outside their APR’s, or to add or relocate a plant inside their APR’s. The agreement required licensees making sales of Sealy bedding products outside their APR’s to make substantial payments, called “passover payments” and “warranty repair charges” to the licensees whose territories had been “invaded.” Finally, the agreement granted Sealy a “right of first refusal” in the event that any licensee decided to sell its business to a third party.

10. Ohio-Sealy Mattress Mfg. Co. (“Ohio-Sealy”), a Sealy licensee, filed suit in this Court alleging that Sealy used a combination of the new license agreement provisions to continue unlawful market allocation in violation of Section 1 of the Sherman Act. As a result of this litigation Ohio-Sealy obtained a damage award of over $10 million as well as an equitable decree prohibiting and restricting the enforcement of certain license provisions relating to plant location, warranty repair charges and pass-over payments. The Seventh Circuit has upheld both of these judgments. See Ohio-Sealy Mattress Mfg. Co. v. Sealy, 585 F.2d 821 (7th Cir.1978) (damages); Ohio-Sealy Mattress Mfg. Co. v. Sealy, 669 F.2d 490 (7th Cir.1982) (equitable relief); and Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 745 F.2d 441 (7th Cir.1984) (remanded for post-verdict damages). The facts concerning Sealy’s unlawful creation and use of license agreement provisions to prevent intrabrand competition are matters of public record as set forth in the cited reported opinions.

11. Prior to 1968, Sealy itself owned no bedding manufacturing plants. Since 1968, however, Sealy has acquired 11 of its formerly independent licensees located in the United States.

12. In 1979, Ohio-Sealy filed an action against Sealy, alleging that Sealy had engaged in an unlawful allocation of territories to restrain competition by exercising its right of first refusal so as to prevent Ohio-Sealy from acquiring the Portland, Oregon Sealy licensee. That action is pending before this Court. In denying a temporary injunction but granting a hold-separate order in Ohio-Sealy’s favor, this Court observed:

Sealy objects to the magistrate’s frequent reference to this history of conduct in reaching his conclusion that Ohio is likely to prevail on the merits of the Section 1 claim. It contends that the right of first refusal in this case, exercised by a ‘blue-ribbon’ board of directors that is independent from the licensees, is clearly distinguishable from the prior exercises of that right as recounted in Ohio-Sealy. The Court agrees that Sealy should not be irrebuttably condemned in this case on account of its past behavior. Yet, neither can Sealy expect this Court — or a jury — to view the instant case in a vacuum. This is neither necessary nor desirable. There are a number of factual issues in this case concerning the intent of Sealy which cannot be fairly viewed without reference to the history of Sealy in general, and its relationship with Ohio in particular.

Ohio-Sealy Mattress Mfg. Co. v. Duncan, 486 F.Supp. 1047, 1059 (N.D.Ill.1980).

13. The nature and results of continuing litigation with respect to the terms and effect of the 1968 license agreement are relevant to a consideration of Michigan’s charge that Sealy is again attempting to use trademarks to restrict Michigan to a specific territory thereby preventing intrabrand competition contrary to the intent and terms of this Court's judgment.

14. Under the 1968 license agreement, as amended effective July 3, 1975, Michigan produces and sells Sealy products. It is not disputed that Michigan’s products are produced in strict compliance with quantity specifications issued from time to time by Sealy. Sealy receives royalties on all sales of Sealy products made by Michigan. In 1983, Michigan paid Sealy about $350,000 in royalties. Michigan estimates that it will pay a greater sum in 1984.

Michigan’s Exports and Canadian Activity

15. Michigan has periodically investigated the possibility of making export sales of Sealy bedding products to customers located in Canada. Prior to 1983, however, such sales were not economically feasible, because of the relative prices of Sealy bedding products in the United States and Canada and the substantial Canadian import tariff on bedding. In 1983, Michigan found that changes in the relative prices of Sealy bedding products in the United States and Canada and a continuing reduction in the applicable Canadian tariff had made it economically possible to compete in Canada. At that time, Sealy’s Toronto licensee priced its products approximately 51% higher than Michigan.

16. Michigan began selling to Canadian customers in competition with Sealy’s Toronto licensee during October, 1983. By March of 1984, Michigan had sold Sealy bedding products to ten Canadian customers. Some of these customers had not previously bought Sealy products from any source. For the period from October, 1983 through June, 1984, Michigan’s sales to these customers totalled approximately $900,000.. All of these sales were f.o.b. Detroit, with title passing in Michigan. During this period, Michigan’s Canadian sales ran between 16 and 20% of its total sales.

17. Michigan has expended sums for cooperative advertising programs with Canadian retailers, and has spent time and effort in developing and servicing these accounts. From 1980-1984 Sealy Canada spent a total of $1,8 million on national advertising in the Canadian media and $1.2 million on cooperative advertising.

18. Michigan and the other Sealy licensees located in the United States, by advertising in American media, both individually and through Sealy, have contributed to the sale of Sealy bedding products in Canada. Advertising in American media, and in particular American television, has been an important means of establishing consumer recognition and acceptance in Canada. The vast majority of Canadians are exposed to the American media, including television, radio and newspaper. Michigan has spent substantial sums (nearly $500,000 in 1983 alone) on its own advertising of the Sealy name in Detroit through television, radio and newspapers, all of which are received in Canada. Individual expenditures by Michigan for media advertising have thus equalled those made by Sealy’s subsidiary for such advertising throughout all of Canada. Other Sealy licensees located in parts of the United States near the Canadian border conduct similar programs.

19. Sealy itself spends $4 million per year on advertising in American national media. National advertising expenditures are paid for by the royalties of the Sealy licensees, including Sealy Michigan. These expenditures are for the benefit of all Sealy licensees, not for the exclusive benefit of any Sealy subsidiary.

20. In selling to Canadian customers, Michigan did not offer prices lower than its prices in the United States. Michigan’s sales to Canadian customers have been profitable. When Michigan entered the Canadian market, however, its prices, even allowing for Canadian tariffs, were below those being offered for Sealy bedding products made in Canada. Michigan’s Canadian customers passed these lower prices on to consumers, and advertised substantially reduced retail prices. In some cases, Michigan’s entry into the Canadian market resulted in wholesale and retail price reductions of 50% or more.

21. In response to Michigan’s sales in Canada, Sealy Canada and its prior Toronto licensee reduced their prices for Sealy bedding products to levels comparable to those offered by Michigan in areas where Michigan makes sales. Sealy Canada did not make these same price reductions, however, in parts of Canada where Michigan does not make sales. Despite reduced prices, total dollar sales of Sealy Posturepedic bedding products by Sealy Canada’s Toronto plant during the period from January through May, 1984, are up 63% over the same period last year, and sales for May, 1984, were up 162% over May, 1983. Total sales of Sealy bedding products in Eastern Canada have also increased by the additional amount of Michigan’s sales. Cooperative advertising of Sealy bedding products with Canadian retailers has increased since Michigan began making Candían sales. Until Michigan entered Canada Sealy Canada did not advertise that its mattresses were “made in Canada.”

Sealy Canada, Ltd.

22. Sealy Canada is a wholly-owned Canadian corporation which manufactures and sells bedding products in Canada under Sealy Canadian marks. From 1954 until 1982 Sealy Canada and its predecessor licensed others to manufacture and sell bedding products in Canada, but did not itself manufacture or sell. Until 1982, Sealy Canada had only one employee and no physical assets.

23. In 1954, Sealy sold to Sealy Sleep Products, Inc., the predecessor of Sealy Canada, some of the trademarks which are the subject of Canadian litigation. At that time Sealy owned 52% of Sealy Sleep Products, Ltd. In October 1980, Sealy purchased all the licensee-held stock of its Canadian subsidiaries and since that time has owned 100% of Sealy Canada. It appears from exhibits in evidence that the trademarks sold to its subsidiary in 1954 were the same as those used in the United States and are identified on the registration statements as “first used in the United States.”

24. In 1982, Sealy Canada purchased the manufacturing plant, equipment and operations of its Western Canadian licensee. In January, 1984, a date subsequent to plaintiff’s entry into the Canadian market, Sealy Canada purchased the manufacturing plant, equipment and operations of its Eastern Canadian licensee. Sealy Canada now has 125 employees on its payroll, including about 20 persons on its sales force. It has a warehouse in Montreal and manufacturing plants in Toronto, Winnipeg and Edmonton. Sealy Canada now has no licensees and all Sealy products are manufactured, distributed and sold by Sealy Canada.

25. Michael Kaplan, vice-president of finance and treasurer of Sealy, serves as president of Sealy Canada. He spends 10% of his time on Sealy Canada’s business and the balance on Sealy matters. His office is in Chicago at Sealy headquarters. Three other officers of Sealy Canada, its executive vice-president, vice-president of operations who is also treasurer, and the assistant-secretary also have their offices at Sealy headquarters. Sealy issues the paychecks of the officers of Sealy Canada. Sealy Canada pays Sealy a management fee.

26. Sealy Canada has a two person board of directors. At his deposition, Kaplan did not know who the board members were and incorrectly believed that he was not a board member. Kaplan and a Canadian employee are the board members. At the hearing, Kaplan stated that the last Board meeting was held in 1982, although there was a telephone meeting held in December 1983 or January 1984.

27. Total sales in Canada by Sealy Canada for the period 1980-1984 were one hundred million dollars. Sealy products constituted 95% of total sales. Kaplan testified that wholesale prices for Sealy mattresses are set by Sealy Canada and retail prices by retailers. In the late summer or fall of 1983 he became aware of retailer complaints that competition in retail sales of Sealy mattresses had become difficult because some Canadian retailers were able to purchase Sealy mattresses at prices below those of Sealy Canada. Canadian manufacturing costs can be higher because some components have to be imported from the United States. He further testified that sales to retailer customers in Canada at lower prices adversely affected Sealy Canada’s profit margin and Sealy Canada was concerned that its market share was being eroded.

28. Beginning in 1983, Sealy Canada has filed 24 applications in Canada to register various Sealy names and logos. Michigan has filed oppositions to the registrations which have been published for comment.

29. In late February or early March, 1984, Sealy Canada filed a lawsuit in Canada against N. Tepperman, Ltd. (“Tepperman’s”), one of Michigan’s principal Canadian customers. This action, which alleges violations of Canadian trademark rights, seeks to prohibit Tepperman’s from making further purchases of Sealy products from Michigan. The trademarks allegedly violated are some of the same marks used by Sealy and its licensees in the United States.

30. Kaplan testified he spoke with the president of Sealy before authorizing trademark infringement action in Canada. The magistrate found (and the Court agrees) that Kaplan’s testimony that this was an independent decision by him for Sealy Canada is not credible.

31. On March 7, 1984, Sealy Canada sent letters to each of Michigan’s Canádian customers. These letters advise that a lawsuit has been filed against Tepperman’s, demand assurances that the customer will make no further purchases of Sealy products from Michigan, demand that the customer pay damages to compensate Sealy Canada for the “breach of its rights” and threaten quick legal action if those demands are not promptly satisfied. Sealy Canada’s attorneys sent additional letters to those of Michigan’s customers who did not comply with the demands stated in Sealy's March 7th letter.

32. Sealy Canada’s ongoing conduct has injured Michigan’s sales to its Canadian customers, and has damaged Michigan’s relations with its Canadian retailers. All but two of those customers have stopped purchasing Sealy bedding products from Michigan. In order to keep even these two customers, Michigan has agreed to indemnify and hold them harmless against all costs, including attorneys fees, which might arise but of legal actions by Sealy Canada. Some of Michigan’s former customers, as a result of Sealy Canada’s threats have stopped purchasing Sealy bedding products entirely.

33. Sealy Canada’s threats and actions have prevented Michigan from obtaining additional Canadian customers. In its early months, Michigan’s Canadian business expanded rapidly. Soon, however, it became impossible for Michigan to obtain new Canadian customers. Michigan contacted many Canadian retailers who told Michigan that they would make purchases from Michigan only after the Canadian trademark issues with Sealy Canada were resolved. These retailers gave Michigan no other reason for declining to make purchases from Michigan. It is difficult to determine with any degree of accuracy the number of additional Canadian customers which Michigan would have been able to obtain but for Sealy Canada’s actions. Nor can it be determined with any degree of accuracy the amount of additional sales and profits, from both new and existing customers, lost by Michigan as a result of Sealy’s actions. Michigan’s Canadian business grew quickly and spanned a large area of Canada. Michigan’s plant has substantial excess capacity.

CONCLUSIONS OF LAW

The magistrate stated that she made no determination or recommendation on the parties’ contrary interpretation of the judgment. The Court believes that this statement may explain her recommendation against injunctive relief. However, an interpretation of the judgment is required to resolve some of the disputed questions in this case.

The judgment recites that on appeal by plaintiff “the Supreme Court of the United States reversed the judgment of this Court, with respect to the territorial allocation charge, and remanded the case for entry of an appropriate decree in accordance with its opinion.” Consequently, although the parties and the magistrate sometimes refer to the judgment as a “consent judgment,” it is not such; at least not in a reductionist sense that consent judgments or decrees are sometimes narrowly read and interpreted as contractual documents. See, e.g., Ferrell v. Pierce, 743 F.2d 454, 461 (7th Cir.1984); Alliance to End Repression v. Chicago, 742 F.2d 1007, 1013 (7th Cir.1984) (role of public interests in interpreting consent decree).

The Court concludes with respect to the judgment: (1) that by its terms it applies to the defendant Sealy, “its officers, agents, servants, employees, subsidiaries, successors and assigns, and to those persons in active concert or participation with any of them who receive actual notice” of the judgment; (2) that it prohibits “any plan or program” “to limit any manufacturer in any substantial way to sales of Sealy products within a prescribed territory;” (3) that this Court has retained jurisdiction to enforce the injunction on the application of any consenting manufacturer; and (4) that the judgment should be liberally construed to carry out the remedial intent of prohibiting any territorial restriction that restrains intrabrand competition.

Based on the construction of the judgment as stated, it is not necessary to determine at this time whether or not the conduct shown in this case separately amounts to a contract, combination or conspiracy in restraint of trade in violation of Section 1 of the Sherman Act. The issue before the Court is rather whether defendant, by and through its wholly-owned subsidiary, is using or asserting trademark rights to maintain territorial restrictions contrary to this Court’s injunction. Accordingly, it is also not necessary at this stage of the proceedings to decide whether changes in Sealy’s board, its program of vertical integration, or its acquisition policy have or have not changed its status as “an instrumentality of the licensees for purposes of the horizontal territorial allocation.” United States v. Sealy, Inc., 388 U.S. at 354, 87 S.Ct. at 1851. However, Sealy’s conduct with respect to its licensees as delineated in prior court proceedings is a factor which may be considered in analyzing its conduct and intent in this case.

Sealy and Sealy Canada’s conduct is sufficiently clear to warrant the conclusion, at this stage of the proceedings, that its efforts to enforce its trademark rights in Canada arose out of its desire to escape competition from Michigan. Moreover, the effect of such action if successful restricts Michigan to a territory outside of Canada contrary to this Court’s injunction.

The evidence establishes that Sealy Canada attempted to stop Michigan from selling in Canada for the sole purpose of eliminating intrabrand competition and stabilizing or maintaining higher prices. Kaplan, the president of Sealy Canada, admitted that the only complaints he has ever received from retailers regarding Michigan’s Canadian sales are that its prices are too low. He also admitted his concern that Sealy Canada would lose its market share if the low prices continue, despite the actual increase in sales that had occurred since Michigan entered the Canadian market and prices were reduced. After Sealy Canada acquired its Canadian licensees, it sued one of Michigan’s largest customers for infringement, threatened similar suits against all of Michigan’s other Canadian customers, and sought to enforce and expand its Canadian trademark rights.

Prior to Sealy Canada’s actions, Michigan enjoyed Canadian sales at an annualized rate at well in excess of $1 million and was gaining new customers. Despite Sealy Canada’s price reductions in the Eastern portion of Canada, Michigan continued to maintain its sales volume. However, after Sealy Canada’s strenuous assertion of its Canadian trademarks, all but two of Michigan’s customers stopped purchasing from Michigan. Several former and potential Michigan customers cited concern over trademark litigation as the reason for their refusal to deal with Michigan. The evidence of anticompetitive purpose and effect is clear.

The magistrate’s recommendation that preliminary injunctive relief be denied rests in part on her conclusion that Sealy and Sealy Canada are separate entities. However, even if this Court were to accept that conclusion as correct, Sealy Canada, as a “subsidiary” of Sealy, is bound by the terms of this Court’s injunction. Moreover, there is substantial evidence in the record to show that Sealy Canada is wholly controlled by and operated for the benefit of its parent Sealy, without any real semblance of independence between the two entities.

The Supreme Court held in Copperweld Corp. v. Independence Tube Corp., — U.S. -, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), that for purposes of Section 1 of the Sherman Act there is no distinction between a parent and a wholly-owned subsidiary, but that it is in reality no different than a corporate division.

____the coordinated activity of a parent and its wholly-owned subsidiary must be viewed as that of a single enterprise for purposes of § 1 of the Sherman Act. A parent and its wholly-owned subsidiary have a complete unity of interest. Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousnesses, but one. They are not unlike a multiple team of horses drawing a vehicle under the control of a single driver. With or without formal ‘agreement,’ the subsidiary acts for the benefit of the parent, its sole shareholder ____ [I]n reality a parent and a wholly-owned subsidiary always [emphasis in original] have a ‘unity of purpose or a common design.’ They share a common purpose whether or not the parent keeps a tight rein over the subsidiary; the parent may assert full control at any moment if the subsidiary fails to act in the parent’s best interests [emphasis added].

104 S.Ct. at 2742. The Copperweld holding reenforces the Court’s conclusion that on the evidence in the record all of the acts of Sealy Canada are attributable to Sealy.

Sealy attaches particular importance to the separate ownership of Canadian trademarks, the validity of those marks and its rights to proceed in the Canadian court. But this injunction proceeding is not concerned with the validity of those trademarks or whether they were or were not included in earlier license agreements. The question is whether Sealy is using foreign trademarks in a manner contrary to this Court’s prior injunction against territorial restraints.

Horizontal territorial restraints are never justified solely as being ancillary to a trademark licensing system. Sealy, 388 U.S. at 356, n. 3, 87 S.Ct. at 1852, n. 3; Timken, 341 U.S. at 599, 71 S.Ct. at 975.

If a trademark may be the legal basis for allocating world markets, fixing of prices, and restricting competition, the unfailing device has been found to destroy every vestige of inhibition set up by the Sherman Act.

United States v. Timken Roller Bearing Co., 83 F.Supp. 284, 316 (N.D.Ohio 1949), affirmed, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951). See also General Leaseways, Inc. v. National Truck Leasing Ass’n, 744 F.2d 588, 589 (7th Cir.1984) (that Association members “share a trademark owned by the Association” did not justify territorial restraint).

Many courts including the Seventh Circuit Court of Appeals have recognized that anticompetitive conduct is not justified because it is incident or ancillary to a valid trademark licensing system. See General Leaseways, supra; Evans v. S.S. Kresge Company, 544 F.2d 1184, 1191 n. 24 (3d Cir.1976), cert. denied, 443 U.S. 908, 97 S.Ct. 2973, 53 L.Ed.2d 1092 (1977) (trademark license may not be used to avoid Sherman Act liability); Fontana Aviation, Inc. v. Beech Aircraft Corporation, 432 F.2d 1080, 1084 (7th Cir.1970), cert. denied, 401 U.S. 923, 91 S.Ct. 872, 27 L.Ed.2d 923 (1971) (restraints of trade cannot be justified as reasonable steps taken to implement a valid trademark licensing system); Switzer Brothers, Inc. v. Locklin, 297 F.2d 39, 46 (7th Cir.1961), cert. denied, 369 U.S. 851, 82 S.Ct. 934, 8 L.Ed.2d 9 (1962) (quality control provisions of the Lanham Act relating to trademark licenses cannot condone a violation of the antitrust laws); Jack Winter, Inc. v. Koratron Company, Inc., 375 F.Supp. 1, 62 (N.D.Cal.1974) (use of trademark license to effect a horizontal territorial division of a market is a per se violation of § 1 of the Sherman Act); Phi Delta Theta Fraternity v. J.A. Buchroeder & Co., 251 F.Supp. 968, 969, 974-980 (W.D.Mo.1966) (violation of antitrust laws is an affirmative defense to suits for trademark infringement). The conduct of Sealy is no exception.

Having concluded that Sealy and Sealy Canada are in violation of this Court’s injunction, it is arguable that it is not necessary to determine whether the harm to Michigan if an injunction is not issued is greater than the harm to Sealy if an injunction is issued. See In the Matter of Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 738 F.2d 209, 213 (7th Cir.1984); SEC v. Holschuh, 694 F.2d 130, 144 (7th Cir.1982). Nevertheless, an application of this test shows that the balance of harm favors the relief Michigan seeks.

Michigan has lost business and will be excluded from a market where its current business level is 16 to 20 percent of its total sales. Sealy did not dispute that its letters to Michigan’s Canadian customers threatening them with lawsuits if they continued to buy from Michigan had their intended effect. Michigan lost customers as a result of the letters. The president of Michigan had conversations with at least three of Michigan’s Canadian customers in which each customer stated that it was not buy: ing from Michigan because of the problems Sealy was creating.

The amount of business lost by Michigan — 16 to 20% of total sales, together with the fact it is business lost in a new market, constitute irreparable harm. Since Michigan has not had a long history of selling in Canada or to Canadian retailers and because its prices are substantially lower than Sealy’s prices, Michigan will not have a “yardstick” by which it will be able to measure the sales it could have made and the customers it could have acquired in Canada absent Sealy’s unlawful acts. The difficulty in evaluating lost sales, and so damages, renders the harm to Michigan irreparable. Roland Machinery Co. v. Dresser Industries, 749 F.2d 380, 383 & 385 (7th Cir.1984); General Leaseways, 744 F.2d at 591. Further, courts have found irreparable harm when challenged conduct was likely to result in a similar loss of business. See Continental Distributing Co. v. Somerset Importers, Ltd., 411 F.Supp. 754, 757 (N.D.Ill.1976) (5 to 7 percent loss); Beaute Craft Supply Co. v. Revlon, Inc., 402 F.Supp. 385, 389 (E.D. Mich.1975) (20 to 25 percent loss).

The magistrate’s finding that Michigan has not accumulated goodwill in Canada ignores the evidence that Michigan has spent significant resources to develop the Sealy name. Its efforts and those made by other licensees in the United States contributed to the development of the Sealy name in Canada. Because of Michigan’s promotional efforts, both in Canada and the United States, this case does not present an instance of a “free-rider” problem. See General Leaseways, 744 F.2d at 592-93.

Sealy admitted that, after Michigan started selling in Canada, Sealy started advertising for the first time that its mattresses were “made in Canada.” The purpose of this campaign obviously was to develop a distinction in the minds of the Canadian consumer that Sealy Canada’s mattresses are somehow different. If Sealy is successful in building a distinction between Sealy Canada and Michigan mattresses, Michigan’s name will be absent totally from the Canadian market. The absence of a party’s name from a market has been held to constitute irreparable harm, and, if Sealy is not enjoined, this harm will continue unabated. See Erewhon, Inc. v. Northeast Health Food Merchants, 428 F.Supp. 551, 554 (D.Mass.1977).

The harm Michigan will suffer if no injunction issues must be compared to the harm that might flow to Sealy if an injunction should issue. At the hearing, Kaplan admitted that the only “harm” Sealy was incurring by Michigan’s competition was that Sealy Canada might lose customers or sell fewer mattresses because of that competition. Moreover, Sealy Canada’s sales have risen since Michigan began selling in Canada. In the period from January through May, 1984, sales of Sealy products by Sealy’s Eastern Canadian plant are up 63 percent over the same period last year, and sales for May, 1984, increased 162 percent over May, 1983. The popularity of the Sealy name and Sealy Canada’s sales may have increased because of this competition.

As Kaplan testified, the only “harm” that Sealy will incur if the injunction issues is that its Canadian subsidiary, and, thus, Sealy may lose some sales to Michigan or will be forced to reduce prices to make sales. That “harm,” however, is nothing other than the risk of competition. The purpose of Sealy’s actions is to eliminate that risk by restricting Michigan’s exports and sales. If the injunction issues, Sealy may lose some sales if it does not meet market prices, but one of Sealy’s major licensees, Michigan, will gain sales and pay royalties. Either way Sealy products will be sold. If an injunction issues, they will be sold at a price based on competition; if it does not issue, they will be sold at the price set by Sealy without intrabrand competition. The balance of harm weighs strongly in favor of the issuance of a preliminary injunction.

The Court has no difficulty concluding that the public interest will be served by granting injunctive relief pending a trial on the merits. The issuance of an injunction that results in the enforcement of this Court’s judgment fosters intrabrand competition and will be in the public interest.

In compliance with Rule 65(c) of the Federal Rules of Civil Procedure, the Court has also considered whether a bond to cover possible damages to Sealy should be required although this question was not addressed in the parties’ extensive briefs. Inasmuch as Michigan pays royalties to Sealy on all of its sales and because Sealy cannot seek damages for harm from competition which is the only injury it could suffer, only a bond in the amount of $1,000 to cover costs will be required.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED as follows:

(1) Pending further order of this Court, Sealy, Inc., its officers, agents and subsidiaries are preliminarily enjoined from engaging in any conduct whether directly or through its wholly-owned Canadian subsidiary, Sealy Canada, Ltd., that directly or indirectly blocks, inhibits, impedes or restrains plaintiffs competitive efforts to export or sell Sealy products manufactured in the United States in Canada or to buyers having their place of business in Canada.

(2) This injunction shall be effective upon notice of filing an approved cost bond in the amount of $1,000.