Olympia Equipment Leasing Co. v. Western Union Telegraph Co.
797 F.2d 370 (1986)
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Rule of Law:
A lawful monopolist has no general duty to provide positive assistance to its competitors, nor, having voluntarily provided such assistance, does it incur antitrust liability by discontinuing it, unless it obstructs a competitor's access to an essential facility or discriminates against a customer for competing. Additionally, a mere statement of intent to encourage market entry, even if acted upon by other parties, does not generally constitute a binding contractual offer, especially if it lacks promissory language and specific terms.
Facts:
- Western Union Telegraph Company developed and provided "Telex," a switched message transmission service, requiring subscribers to lease terminals from it, and bundled the price of service and terminals, a practice regulated by the FCC.
- In 1971, Western Union acquired TWX, a service similar to and competitive with Telex, subsequently creating a dominant position in the telex service market.
- The Federal Communications Commission (FCC) required Western Union to open the telex terminal equipment market to competition as a condition of its TWX acquisition.
- In 1973, Western Union voluntarily announced it was opening the telex terminal market, unbundled its service and equipment pricing, allowed subscribers to cancel leases, ceased buying additional terminals, and provided its salesmen with a list of independent vendors to show new telex subscribers.
- Olympia, formed in 1975, entered the telex terminal market, purchasing terminals from Teletype Corporation and relying primarily on referrals from Western Union’s salesmen for customers.
- For several months in 1975, when Western Union’s sales commission schedule encouraged promoting independently supplied terminals, Olympia successfully installed 1,800 terminals.
- Between August and October 1975, Western Union changed its commission structure to encourage its salesmen to sell its own terminals and stopped showing the list of independent vendors to subscribers.
- Olympia's new leases subsequently fell to zero, and its effort to compete by hiring its own salesmen to solicit existing Western Union lessees failed, leading Olympia to go out of business in 1976.
Procedural Posture:
- Olympia, along with its affiliated companies and assignee, brought suit in 1977 against Western Union Telegraph Company in a federal district court.
- The complaint alleged monopolization and attempted monopolization under Section 2 of the Sherman Act, and breach of contract under state law; a Section 1 Sherman Act count was dropped before trial.
- The case proceeded to a jury trial.
- The jury found in favor of Olympia, awarding $12 million in antitrust damages (which were trebled to $36 million by law) and, alternatively, $12 million for breach of contract.
- The district court ordered a remittitur, reducing the total judgment (after trebling) to $12 million, which Olympia accepted.
- Western Union filed motions for directed verdict during trial and a motion for judgment notwithstanding the verdict after the jury's decision, all of which were denied.
- Western Union appealed the district court's judgment to the United States Court of Appeals for the Seventh Circuit.
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Issue:
Does a firm with lawful monopoly power incur antitrust liability under Section 2 of the Sherman Act or breach of contract under state law by voluntarily initiating and then discontinuing programs that assist new competitors, where such assistance is not an essential facility and its withdrawal does not hinder the competitors' ability to independently compete?
Opinions:
Majority - Posner, Circuit Judge
No, a firm with lawful monopoly power does not incur antitrust liability under Section 2 of the Sherman Act or breach of contract under state law by voluntarily initiating and then discontinuing programs that assist new competitors, where such assistance is not an essential facility and its withdrawal does not hinder the competitors' ability to independently compete. Regarding the antitrust claim, the court held that Western Union's conduct did not violate Section 2 of the Sherman Act. While a rational jury could have found Western Union possessed monopoly power in telex service, monopolization requires both monopoly power and improper conduct designed to maintain or enhance that power. Western Union’s initial actions to open the market and assist independent vendors were voluntary and pro-competitive. Its subsequent decision to cease promoting independent vendors and to prioritize liquidating its own inventory was a legitimate business justification, not an anticompetitive abuse of power. The court emphasized that a lawful monopolist has no general duty to provide positive assistance to its competitors, even if it initially chooses to do so. The case was distinguished from "essential facility" cases like Otter Tail Power Co. and Aspen Skiing Co. v. Aspen Highlands Skiing Corp. because the vendor list was not an indispensable facility for Olympia to compete, and Western Union did not discriminate against customers for choosing competing equipment. Other independent vendors, unlike Olympia, successfully competed by employing their own sales forces. The court also stated that subjective intent to harm competitors is irrelevant if the conduct is objectively non-anticompetitive. Regarding the contract claim, the court found that Western Union's statements and actions encouraging independent vendors did not create a binding unilateral contract. An offer, to constitute a contract, must be intended to create legal relations upon acceptance and must contain clear promissory language and specific, definite terms. Western Union's statements, such as its salesmen furnishing a list of retailers, lacked the necessary promissory language and specificity. They were expressions of hope or desire, not a commitment to be legally bound to indefinitely assist new entrants. Olympia, as a sophisticated firm, understood the difference between a legally binding promise and hopeful encouragement, as evidenced by its own investor materials. Without clear terms regarding the duration or conditions of assistance, a court would have no basis to imply a contract. Finally, the court noted that even if liability had been established, the jury’s damage award, even after remittitur, was grossly excessive and speculative, bearing no relation to Olympia's business planning or economic reality, as such high projected rates of return would quickly invite intense competition.
Analysis:
This case clarifies the limits of a monopolist's duties under antitrust law, particularly concerning voluntary assistance to competitors. It strongly reinforces the principle that a lawful monopolist has no affirmative duty to help rivals, and withdrawal of such assistance does not constitute an antitrust violation unless it denies access to an essential facility or involves discriminatory practices. The ruling discourages imposing liability for a monopolist's voluntary pro-competitive gestures, fearing it would deter such actions. Furthermore, it sets a high bar for establishing implied contracts, requiring clear promissory intent and specific terms, especially for sophisticated parties, and reinforces judicial skepticism of speculative damages claims in antitrust cases.
