Sterling Merchandising, Inc. v. Nestle, S.A. et al

Filing 246

***SELECTED PARTIES*** OPINION AND ORDER granting 191 Motion for Summary Judgment; granting in part and denying in part 206 Motion to Strike Rebuttal Declaration. Signed by Judge Salvador E Casellas on 6/23/2010.(THD)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 OPINION & ORDER Plaintiff, Sterling Merchandising, Inc. ("Sterling"), brings this action against defendant c o rp o ra tio n s, Nestlé, S.A., Nestlé Holdings, Inc., Nestlé Puerto Rico, Inc. ("Nestlé PR"), and P a yc o Foods Corporation ("Payco")(collectively, "Nestlé" or "Defendants"), alleging antitrust v io la tio n s and injury stemming from the merger of two local ice cream distributors, and several s u b s e q u e n t business practices. The complaint charges Defendants with: conspiracy to m o n o p o liz e , and unlawful restraint of trade in violation of Sections 1 & 3 of the Sherman A n titru s t Act ("Sherman Act"), 15 U.S.C. § 1, 3; monopolization in violation of Section 2 of th e Sherman Act, 15 U.S.C. § 2, exclusive dealing in violation of Section 3 of the Clayton A n titru s t Act ("Clayton Act"), 15 U.S.C. § 14; unlawful restraint of trade in violation of the P u e rto Rico Anti-Monopoly Act, 10 P.R. Laws Ann., §§ 257-276; and monopolization and a tte m p te d monopolization in violation of Section 260 of the Puerto Rico Anti-Monopoly Act, 1 0 P.R. Laws. Ann., § 260. Defendants have moved this court for summary judgment on Counts I through VIII of the Amended Complaint, which allege violations of Sherman Act Sections 1, 2 , and 3 (15 U.S.C. §§ 1-3), Clayton Act § 3 (15 U.S.C. § 14), and the Puerto Rico AntiM o n o p o ly Act (10 P.R. Laws Ann. §§ 257-276). Given the complex nature of the present suit, and after an unsuccessful effort at I N THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF PUERTO RICO S T E R L IN G MERCHANDISING, INC. Plaintiff v. N E S T L E , S.A., et al. Defendants C iv il No. 06-1015

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m e d ia tio n , this Court held a special hearing for the parties to further present any relevant a rg u m e n ts regarding the motion currently under review. Docket # 221. Taking into account the a rg u m e n ts presented there, and after reviewing the facts and the pertinent law, summary ju d g m e n t DISMISSING WITH PREJUDICE Sterling´s federal claims shall be GRANTED, w h ile all state law causes of action shall be DISMISSED WITHOUT PREJUDICE. Background 1 R e le v a n t Cast S te rlin g is an ice cream distributor, founded by John Williams ("Williams") and Stanley P a s a re ll ("Pasarell") in 1993. PSUF #1. From its beginnings, the company has had the exclusive rig h ts to distribute Edy's Ice Cream ("Edy´s") in Puerto Rico, a brand manufactured by Dreyer's G ra n d Ice Cream, Inc. ("Dreyer's"). Id. Williams and Pasarell each own 50% shares in Sterling. DSUF # 11(a)&(b). Williams is President and Pasarell is Chairman of the Board. Id. Nestlé S.A., headquartered in Vevey, Switzerland, is currently the largest ice cream m a n u f a c tu re r in the world. PSUF # 4. A subsidiary, Nestec S.A., is responsible for the analysis a n d review of merger, acquisition, and divestiture proposals within the Nestlé corporate s tru c tu re . DOSUF # 5. Nestlé S.A. operates in Puerto Rico through separate marketing s u b s id ia rie s that sell their products in the market. DSUF # 166. These include Nestlé PR, which o w n s 100% of the shares of Payco. DSUF # 2. Dreyer's, manufacturer of Edy's, is also a s u b s id ia ry of Nestlé S.A.2 DSUF # 182. T h o m a s Ward ("Ward") was the President and principal owner of Payco until the merger

Accompanying the Motion for Summary Judgment was Defendants' Statement of Uncontested Facts ( " D S U F " ) ( D o c k e t # 191), to which Plaintiff replied with its Opposition to Statement of Uncontested Material Facts ( " P O S U F " ) ( D o c k e t # 198). Defendants replied (Docket # 208-3), and Plaintiff sur-replied (Docket # 212). Plaintiff also s u b m itte d its own Statement of Material Facts in Opposition to Defendants' Motion for Summary Judgment ( " P S U F " ) ( D o c k e t # 197), Defendant replied (DOSUF)(Docket 208-33), and Plaintiff sur-replied (Docket # 213). 2 Dreyer's entered into an agreement in 2002, with an effective date of June 26, 2003, whereby it combined with Nestlé Ice C r e a m Company, LLC to form Dreyer's Grand Ice Cream Holdings, Inc.

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w ith Nestlé PR in 2003, with the exception of the period between 1999 and 2001. DSUF # 9(a); P O S U F # 9(a). However, even during said period, Ward acted as Chief Executive Officer (" C E O " ) and Chairman of the Board. Id. Valerie Cornut ("Cornut") is currently CEO of Payco, a position she has held since 2005. POSUF # 9(b). D r. Thomas Overstreet ("Overstreet") is an economist at CRA International, where he h o ld s the position of Vice President. Sterling retained his services "to conduct an economic a n a lys is of the issues raised in the Complaint filed in this matter." DSUF # 15(a). Sterling's o th e r expert is David W. Whitehouse, a marketing specialist, who conducted two surveys about th e ice cream market in Puerto Rico. DSUF # 15 (b).3 Defendants' experts are David S c h e f f m a n , an economist and Director of LECG, LLC, an international consulting company, a n d José J. Villamil, President and CEO of Estudios Técnicos, Inc., an economics and planning c o n s u ltin g firm in Puerto Rico. DSUF # 16. Unilever is a major Nestlé competitor in the ice cream business, producing brands such a s Breyers and Ben and Jerry's. DSUF # 6. Breyers is distributed by Payco, while Sterling d istrib u te s other Unilever products, such as Ben and Jerry's ice cream. See DSUF # 19, DUSF # 17, PSUF #3. M a r k e t Structure Beginning in 2002, Nestlé managers studied and discussed purchasing Payco, along with o th e r strategies within the Puerto Rico market. PSUF # 8. Nestlé also expanded its presence in
Defendants have also filed a Motion to Strike the Rebuttal Declaration of Dr. Thomas Overstreet (Docket # 206), w h ic h was filed in response to Defendant' Motion for Summary Judgment, and after the window for expert discovery had c lo s e d in the case management calendar. Inasmuch as said declaration incorporated sales data produced after his original r e p o r t was delivered and expounded upon his existing theories, Defendants' motion is DENIED. However, the report also in c lu d e s new theories of liability, including foreclosure in certain sub-segments of the ice cream market, which were p r e s e n te d after the closure of expert discovery. These are an improper attempt to reformulate arguments regarding the r e le v a n t market, and shall be struck from the record. The present case is not as extreme as Lohnes v. Level 3 C o m m u n ic a tio n s , Inc., 272 F.3d 49, 59 (1st . Cir. 2001), which is cited by Defendants. Nevertheless, the new theories r e g a r d in g sub-regions would require new market definitions and expert work for both parties, and should thus not proceed a t this advanced stage.
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th e world wide ice cream market after 2000, and in 2003 acquired Dreyer's. DSUF # 182. The F e d e ra l Trade Commission ("FTC") investigated and approved Nestlé Holdings, Inc.´s a c q u is itio n of Dreyer´s, but did not include Puerto Rico in its analysis. PSUF # 60. The FTC also re q u ire d Defendants to provide advance written notification of the acquisition of any direct store d e liv e ry ice cream distribution business for $7.5 million or more in the United States, except for th o s e in Puerto Rico. PSUF # 61. Dreyer's products first entered the Puerto Rico market in 1992, and in 1993 the company a s s ig n e d the exclusive right to distribute its Edy's line to Sterling. DSUF # 176. Sterling has d is trib u te d Dreyer's branded products in Puerto Rico since 1993. DSUF # 25. Since as early as A p ril, 2001, Edy's has been, and continues to be, the number one selling ice cream brand in P u e rto Rico.4 DSUF # 26. In August, 2000, Sterling purchased selected assets from Caribbean F ru itti, an ice cream distributor in Puerto Rico, and thereby acquired the distribution rights to c e rta in Unilever brands including Good Humor ice cream products. DSUF # 27. Sterling also a d d e d J & J Snacks, Rich's Ice Cream and Turkey Hill products to their offerings between 2005 a n d 2006. DSUF # 28. The amount and variety of ice cream brands and products offered in the re le v a n t market has not diminished significantly since Nestlé PR's acquisition of Payco.5 DSUF # # 32­33. N e s tlé PR entered the Puerto Rico ice cream distribution market in 1998 via the
T h is fact was not properly controverted with evidence to the contrary. Prior to the 2003 merger, the following brands, and possibly others, were available in Puerto Rico: Breyer's, H a ä g e n Dazs, Blue Bunny, M&M Mars (Snickers, Dove, M&Ms), Payco, Flav-o-Rich, various private labels, Healthy C h o ic e , Lady Richmond, Rich & Creamy, Blue Bell, and Carrusel, Nestlé imported range, Edy's, Ben & Jerry's, Unilever ( G o o d Humor), Barbers, Nestlé products; Budget Saver, Tofutti, Natural Fruit Corp, Parmalat ­ Kinnett, Hood, Schoep's. A s of 2008 the market included a similar number of options for the consumer: Breyer's, Haägen Dazs, Nestlé, Nestlé Gold, N e s tlé Payaso, Nestlé Nevada, Nestlé impulse products, Dole, M&M Mars (Snickers, Dove, M&Ms), Payco, Flav-o-Rich, v a r io u s private labels, Healthy Choice, Lady Richmond, Rich & Creamy, Blue Bell, and Carrusel, Edy's, Unilever (Good H u m o r ) , Natural Fruit Corp., Rich Ice Cream and Products, Turkey Hill, Schoeps, Ben & Jerry's, Hunter Farms, Budget S a v e r , J&J Snack, Old Meeting House, Gianni of New York ("Gianni") ice cream, and Gianni Italian ice. Plaintiffs have d is p u te d the presence of Blue Bunny, and the relevance of various limber companies. They have not been included in this C o u r t's analysis.
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a c q u is itio n of Mantecados Nevada, Inc.'s ("Nevada") ice cream manufacturing and distribution b u s in e s s . DSUF # 21. Prior to the acquisition of a local distributor, Nestlé PR sold its branded ic e cream products, mostly imported from the U.S. mainland, via local distributors, including S te rlin g , Payco, and Nevada. PSUF # 9. Nevada ran an ice cream factory in addition to its d is trib u tio n business, so Nestlé PR offered ice cream products that were manufactured in the P u e rto Rico factory, as well as Nestlé branded products. PSUF # 10. The company's ice cream s a le s volume in this period (1999-2001) fluctuated between $18.1 million and $ 18.6 million. P S U F # 11. Nearly contemporaneously, Payco reported sales of $27.8 million, $29.1 million, and $ 3 1 .1 million in 2000, 2001 and 2002, respectively. PSUF # 15. From the time of the 1998 Nevada acquisition until the Payco merger in June 2003, Nestlé P R 's ice cream division suffered heavy losses. DSUF # 22. In response to this reality, and before th e 2003 merger with Payco, Nestlé PR approached Sterling about a possible joint approach for re ta il space, but this option was never seriously pursued. PSUF # 155. This did not lead to an a g re e m e n t, and because Nestlé PR was not economically successful, it began merger talks with P a yc o in 2001, and the two merged on June 11, or July 1, 2003 through Nestlé´s acquisition of 5 0 % of Payco's stock, which was controlled by Ward.6 DSUF ## 23 & 209; PSUF ## 22 & 27. O n September 2, 2005, Nestlé PR acquired the remaining 50% of Payco's shares from Ward. D S U F # 210. After the Nestlé PR/Payco merger, Ward remained as President and CEO of Payco u n til 2005. PSUF # 53.

P la in tiffs allege that the motivation for this merger was ". . . that Nestlé executives responsible for investigating a n d approving the acquisition of Payco intended to monopolize ice cream distribution business in Puerto Rico and exclude o r limit competitors such as Sterling, Unilever and W e lls Dairy." POSUF # 23. Contemporaneous to this merger, between 2 0 0 2 and 2005, Sterling and Nestlé management discussed different possibilities for merger, purchase, or the sharing of d is tr ib u tio n rights. DSUF ## 203-208. No agreement was ever reached. Part of Nestlé P.R.´s pre merger difficulties were d u e to Payco´s distribution network."As Nestlé recognized that continued competition with Payco would likely lead to further lo s s e s , acquiring Payco became an attractive option," because the local company controlled the best locations and key d is tr ib u tio n channels. PSUF ## 24 & 28. Furthermore, this Court notes that the exact date of the merger is contested, but fin d s said fact to be immaterial for present purposes.

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T h e Puerto Rico Office of Monopolistic Affairs ("PROMA") reviewed and ultimately a p p ro v e d the Nestlé PR / Payco transaction, conditioned upon various stipulations.7 DSUF # 30. T h e then head of PROMA, José Díaz Tejera, has no knowledge that the terms of the agreement h a v e ever been breached. DUSF # 31. After the merger, all of the sales of ice cream that were p re v io u s ly made by Nestlé PR, including all Nestlé brands, were shifted to Payco. DSUF # 214. During the years prior to the Nestle PR/Payco merger, Nestlé explored the possibility of s tra te g ic collaboration, and even a possible merger with Sterling. PSUF # 51. Nestlé also studied th e possibility of exchanging its Unilever line for Sterling´s Edy´s line in order to promote brand a llia n c e rationalization. PSUF ## 86 & 90. This included discussions with Sterling´s co-owner, P a s a re ll, about the possible purchase of his share of the company. PSUF # 88. In the mid-1990s, Ward acquired Payco and began distributing various brands of ice c re a m . These came to include Payco, Lady Richmond, Carrusel, Flav-O-Rich, Unilever's B re ye r's ice cream line, Masterfood Interamerica's Mars novelty ice cream line, and Wells' D a iry, Inc.'s ("Wells' Dairy") Blue Bunny line of ice cream products. DSUF ## 17-20; PSUF # 13. Prior to the Nestlé PR / Payco merger in 2003, Blue Bunny ice cream products were P a yc o 's most successful ice cream line. DSUF # 36. The merger caused Wells' Dairy to te rm in a te its distributor agreement with Payco, because Payco started to distribute two of Blue B u n n y ice cream's main competitors, Breyers and Nestlé Gold. DSUF ## 36-37. Before Blue
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PROMA staff expressed concern about the transaction's potential anti-competitive effects. PSUF # 46. Plaintiffs d is p u te this fact, however, their objections are centered on the merits of the decision, and not its existence. PROMA staff n o te d that the Payco/Nestlé PR combination could create restrictions on competition, but the transaction was eventually a p p r o v e d , in part due to the fact that the Commonwealth wanted Nestlé to continue operating its local ice cream factory. P O S U F # 30. The approval was made official on M a r c h 25, 2003(DSUF # 223), and stipulated that Nestlé PR and Payco w o u ld not enter into exclusive contracts which closed more than 35% of the market to competition. DSUF # 224. Nestlé P.R. a ls o agreed that it would seek PROMA's approval before granting the distribution rights over Edy's ice cream, unless S te r lin g should acquire the distribution rights to either Breyer's or Blue Bunny ice cream (or any other brand with similar s a le s ) . PSUF # 49. PROMA defined the relevant market as dedicated to the distribution and sale of ice cream. PSUF # 47.

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B u n n y terminated its distribution agreement with Payco, it was at one time available in a p p ro x im a te ly 80 percent of stores selling take home ice cream in Puerto Rico. PSUF # 65. W e lls ' Dairy then granted a newly formed distributor, Palm Industries, Inc. ("Palm"), the right to distribute Blue Bunny ice cream products in Puerto Rico. DSUF # 38. Palm only survived u n til 2006, when Wells' Dairy formed a subsidiary in Puerto Rico, Wells' Dairy Puerto Rico, to self-distribute Blue Bunny take home products. DSUF # 38. On October 8, 2008, Wells Dairy in f o r m e d Puerto Rico retailers that it would cease distributing Blue Bunny branded ice cream a n d novelty products no later than December 15, 2009. DSUF # 45. After the 2003 Nestlé PR/Payco merger there was analysis of whether Unilever would c o n tin u e to provide Payco with some of its products, such as Breyer's ice cream. In undertaking th is analysis, Unilever considered factors such as the reality that Defendants, by acquiring D re ye r's and Payco, became its distributor and also main competitor. Nevertheless, Breyer's was c o n c e rn e d that switching to Sterling could result in litigation due to breach of contract, and also th e potential difficulties of single-brand self-distribution. PSUF # 113. After weighing its o p tio n s , Unilever decided to stay with Payco, and in early 2006, entered into a new agreement w ith Nestlé PR/Payco by which the company was appointed as the exclusive distributor of U n ile v e r's Breyers as well as Good Humor brand packaged ice cream products in Puerto Rico.8 P S U F ## 116 & 117. Standard of Review T h e Court may grant a motion for summary judgment when "the pleadings, the discovery a n d disclosure materials on file, and any affidavits show that there is no genuine issue as to any m a t e r ia l fact and that the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56
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S te r lin g alleges that Breyer's sales have stagnated as a result of the agreement, but this fact is in controversy, and

n o t centrally relevant to the present motion.

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2 (c ); See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248(1986); Ramírez Rodríguez v. 3 B o e h rin g e r Ingelheim, 425 F.3d 67, 77 (1st Cir. 2005). In reaching such a determination, the 4 C o u rt may not weigh the evidence. Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 5 F .3 d 668 (1st Cir. 1994). At this stage, the court examines the record in the "light most favorable 6 to the nonmovant," and indulges all "reasonable inferences in that party's favor." Maldonado7 D e n is v. Castillo-Rodríguez, 23 F.3d 576, 581 (1 st Cir. 1994). 8 O n c e the movant has averred that there is an absence of evidence to support the

9 n o n m o v in g party's case, the burden shifts to the nonmovant to establish the existence of at least 10 o n e fact in issue that is both genuine and material. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 11 (1st Cir. 1990) (citations omitted). "A factual issue is `genuine' if `it may reasonably be resolved 12 in favor of either party and, therefore, requires the finder of fact to make `a choice between the 13 p a rtie s ' differing versions of the truth at trial.'" DePoutout v. Raffaelly, 424 F.3d 112, 116 (1 st 14 C ir. 2005) (citing Garside, 895 F.2d at 48 (1 st Cir. 1990)). 15 In order to defeat summary judgment, the opposing party may not rest on conclusory

16 a lle g a tio n s , improbable inferences, and unsupported speculation. See Hadfield v. McDonough, 17 4 0 7 F.3d 11, 15 (1st Cir. 2005) (citing Medina-Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 18 5 , 8 (1st Cir. 1990). Nor will "effusive rhetoric" and "optimistic surmise" suffice to establish a 19 g e n u in e issue of material fact. Cadle Co. v. Hayes, 116 F.3d 957, 960 (1 st Cir. 1997). Once the 20 p a rty moving for summary judgment has established an absence of material facts in dispute, and 21 th a t he or she is entitled to judgment as a matter of law, the `party opposing summary judgment 22 m u s t present definite, competent evidence to rebut the motion.' Méndez-Laboy v. Abbot Lab., 23 4 2 4 F.3d 35, 37 (1st Cir. 2005) (quoting Maldonado-Denis v. Castillo Rodríguez, 23 F.3d 576, 24 5 8 1 (1st Cir. 1994). "The non-movant must `produce specific facts, in suitable evidentiary form' 25 s u f f ic ie n t to limn a trial-worthy issue. [. . .] Failure to do so allows the summary judgment 26 Page 8

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2 e n g in e to operate at full throttle." Id.; see also Kelly v. United States, 924 F.2d 355, 358 (1 st Cir. 3 1 9 9 1 ) (warning that "the decision to sit idly by and allow the summary judgment proponent to 4 c o n f ig u re the record is likely to prove fraught with consequence."); Medina-Muñoz, 896 F.2d 5 a t 8, quoting Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 181 (1st Cir. 1989) (holding that 6 " [ t]h e evidence illustrating the factual controversy cannot be conjectural or problematic; it must 7 h a v e substance in the sense that it limns differing versions of the truth which a fact finder must 8 r e s o lv e ." ) . 9 10 11 Applicable Law & Analysis Relevant Market T h e re are three retail distribution channels in the ice cream market 1) take-home, 2)

12 im p u lse (single-serving packages sold for immediate consumption), and 3) food service 13 c u s to m e rs (restaurants, hotels, ice cream parlors, etc.). PSMF # 189. The market shares of said 14 d is trib u tio n channels are approximately two thirds take-home, and one fourth impulse, with the 15 re m a in d e r being food service customers, who make up less than one tenth of total ice cream 16 c o n s u m p tio n .9 17 S t e rlin g has presented the relevant product market as the Puerto Rico market for the

18 d is trib u tio n and sale of ice cream products. DSUF # 46. PROMA also defined the relevant 19 p ro d u c t market as the distribution of ice cream products, including the three segments in its 20 d e f in itio n .1 0 POSUF # 47. Defendants have not offered a competing definition. Id. Moreover, 21 S te rlin g 's definition of the relevant geographic market, Puerto Rico, is unchallenged. 22 D e f e n d a n ts' expert has not attempted to create a counter theory regarding the relevant product 23 24 25 26
T h is Court notes that Plaintiff posits its relevant market as the combination of these three segments. T h is conclusion is buttressed by practical idicia used by Overstreet, Plaintiff's expert. Internal Nestlé documents r e fe r to its competitors as Sterling, and Palm industries, excluding ice cream retailers. Accordingly, Sterling's expert d e te r m in e d that the data was not amenable to econometric analysis. Id.
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2 m a rk e t. POSUF # 48; PSUF # 187. 3 Instead, Defendants signal that Sterling failed to include many important ice cream

4 v e n d o rs in its relevant market definition, these include Baskin-Robbins1 1 (DSUF ## 66-70), 5 M c D o n a ld 's (DSUF # 71-74), and "limbers,"1 2 a Puerto Rican version of the popsicle (DSUF 6 # # 75-78). However, Defendants' own internal documents identify Sterling and Wells/Palm as 7 p rin c ip a l competitors, and do not identify McDonald's, Baskin Robbins, or other retailers as part 8 o f the competitive landscape. POSUF # 58; DSUF # 58. 9 Defendants also criticize Sterling for not performing an econometric cross-elasticity of

10 d e m a n d calculation to support its product market definition. Docket ## 47-48. They claim that 11 S te rlin g has not performed an analysis of the reasonable interchangeability of use between 12 p ro d u c ts , or a price study, that are alleged to be part of the relevant market and potential 13 s u b s titu te s . DSUF ## 49 & 52. Sterling does not deny that its expert ". . . has not produced 14 e c o n o m e t ric or regression computations relating specifically to cross-elasticity, but Plaintiff 15 d is p u te s Defendants' statement or implication that Plaintiff has not conducted an in-depth 16 e c o n o m ic analysis concerning the characteristics and firms in the relevant product and 17 g e o g ra p h ic market." POSUF # 48. 18 The rule of reason governs this Court's analysis of the relevant market. Recetas Por

19 M e n o s , Inc. V. Five Development Corp., 368 F.Supp. 2d 124, 132 (D.P.R. 2005). When proving 20 m o n o p o ly through indirect evidence, a market power analysis requires the prior identification 21 o f the relevant market, which is bifurcated into a test regarding the relevant product market and 22 a n o th e r focusing on the relevant geographic market. Id. at 131; Eastern Food Services, Inc. v. 23 P o n tif ic a l Catholic University Services Assn, 24 25 26
11

357 F.3d 1, 5-6 (1st Cir. 2004). Because

Baskin-Robbins distributed to a limited number of grocery stores at one point, but has since terminated this facet o f its business. POSUF # 68. 12 The name comes from a visit to the Island by Charles Lindbergh in the 1920s.

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2 D e f e n d a n ts do not contest Sterling's assertion that the relevant geographic market is the entire 3 g e o g ra p h ic territory of Puerto Rico, this Court will accept Sterling's definition for the purpose 4 o f all further analysis. However, Defendants' objection to Plaintiff's market definition requires 5 th is Court's review. 6 Supreme Court case law establishes that "[t]he outer boundaries of a product market are

7 d e te rm in e d by the reasonable interchangeability of use or the cross-elasticity of demand between 8 th e product itself and substitutes for it." Brown Shoe Co. v. U.S., 370 U.S. 294, 325, 82 S.Ct. 9 1 5 0 2 , 1524 (1962); see also Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 (3rd Cir. 10 2 0 0 7 ). This analysis concerns the fact that the ". . .ability of customers to turn to other suppliers 11 re s tra in s a firm from raising prices above the competitive level, [so] the definition of the relevant 12 m a rk e t rests on a determination of available substitutes." Federal Trade Comn v. Cardinal 13 H e a lth , Inc., 12 F.Supp. 2d 34, 46 (D.D.C. 1998). To wit, the competing products that customers 14 i n the market view as substitutes for the product in question. Id. Accordingly, the central 15 q u e s tio n is whether there are reasonable alternatives to the product in question. 16 In addition to this first test, a practical, fact-driven, approach may also guide a court's

17 a n a lys is as to, "[t]he boundaries of [. . .] submarket[s], [which] may be determined by examining 18 s u c h practical indicia as industry or public recognition of the submarket as a separate economic 19 e n tity, the products' peculiar characteristics and uses, unique production facilities, distinct 20 c u s to m e rs , distinct prices, sensitivity to price changes, and specialized vendors." Brown Shoe 21 C o ., 370 U.S. at 325. This entails taking into consideration the economic and commercial 22 re a litie s of a particular industry. Cardinal Health, 12 F.Supp. 2d at 46. Failure to define this 23 m a rk e t may lead to the dismissal of the anti-trust complaint. Broadcom, 501 F.3d at 307. 24 S te rlin g alleges that the market in question is a secondary market for the distribution and

25 s a le of ice cream, which is a market for distribution services and wholesale marketing to 26 Page 11

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2 in te rm e d ia rie s , and not for the sale of ice cream directly to its end consumers. Defendants contest 3 th a t ice cream retailers are direct competitors for their business, and that excluding retailers from 4 th e relevant market definition is a fatal flaw on Sterling's part. They argue that if the price of 5 E d y's , or another similar brand, were to rise sufficiently at a supermarket or impulse location, 6 c o n s u m e rs would migrate to retail firms such as McDonald's and Baskin-Robbins. 7 Whether one examines a sub-market, or a separate market for services, Sterling's

8 a rg u m e n ts prevail on this point, at least so far as a genuine dispute of material fact exists. It is 9 te llin g that during the relevant period, all of the companies involved have engaged in practically 10 th e same economic activity, which is importing ice cream into Puerto Rico and distributing it to 11 s u p e rm a rk e ts, restaurants, and impulse locations. None of the parties engages in significant retail 12 a c tiv ity,1 3 and they mutually consider each other to be their primary competitors. It is doubtful 13 th a t another unmentioned group of existing sellers and producers in the relevant geographic 14 m a rk e t could have, during the pendency of this action, deprived the parties in this complaint of 15 s ig n if ic a n t amounts of business. Newcal Instustries, Inc., 513 F.3d at 1045. While Defendants 16 a lle g e that firms such as McDonald's and Baskin-Robbins should be included in the ice cream 17 m a rk e t, their internal business communications belie the relevance of the retail ice cream market 18 f o r Sterling and Nestlé/Payco's operations. The consumers in this market are the retailers, not 19 th e end customers for the product. 20 This Court understands that the parties involved in the lawsuit provide a specific service

21 th a t is distinguishable from the business of selling ice cream directly to consumers. Furthermore, 22 e v e n if the relevant market includes competitors such as Baskin-Robbins and McDonald's, there 23 is most certainly a dispute of fact as to the existence of a submarket. Newcal Instustries, Inc. v. 24 25 26
T h e "limber" companies could be different, but Defendants have not presented evidence that "limber" distribution h a s had anything but a de minimis effect on the ice cream distribution market.
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2 I k o n Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008). Therefore, Defendants' prayer for 3 s u m m a ry judgment dismissing all claims for failure to properly define the relevant product 4 m a rk e t is DENIED. 5 6 Antitrust Injury S te rlin g alleges damages on two main fronts. First it avers that Nestlé PR/Payco's

7 e x c lu s iv e contracts with some Puerto Rico retailers have illegally restricted them from enjoying 8 a market share commensurate with their products' performance in competitive scenarios. 9 Secondly, Nestlé allegedly coordinated a "price squeeze" and restricted product support for 10 D re ye r´s products that Sterling distributes (i.e. Edy's). The Nestlé PR/Payco merger allegedly 11 le d to ". . . a panoply of anti-competitive conduct including price increases to Sterling, denial of 12 n e w products, and so forth." Docket # 198. Sterling argues that "but for" these activities, it 13 w o u ld have achieved greatly higher sales, and enjoyed the profits these sales would have 14 p ro d u c e d . 15 Specific antitrust standing is dependent on Sterling being able to show a plausible

16 a n titru s t injury, ". . . linked to an illegal presence in the market[,] . . . which is to say injury of 17 th e type the antitrust laws were intended to prevent and that flows from that which makes 18 d e f e n d a n ts' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 19 (1 9 7 7 ). The injury must originate in proscribed anti-competitive activity, "by reason of that 20 w h ic h made the [activity] unlawful," id. at 488, and it must also be sufficiently direct, non21 s p e c u la tiv e , and measurable to the extent that causality is not in doubt. Associated Gen. 22 C o n tra c to rs of Cal., Inc., v. Cal. State Council of Carpenters, 459 U.S. 533, 102 S.Ct. 8907, 906 23 (1 9 8 3 ). 24 The need for direct causality born from a specific anti-competitive act is of special

25 im p o rta n c e , because "antitrust claims are concerned not with wrongs directed against the private 26 Page 13

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2 in te re s t of an individual business but with conduct that stifles competition." E. Food Servs., 357 3 F .3 d at 4 (citing Brown Shoe Co., 370 U.S. at 344). Antitrust ". . . harm does not mean a simple 4 lo s s of business or even the demise of a competitor but an impairment of the competitive 5 s tru c tu re of the market." Recetas Por Menos, Inc., 368 F.Supp. 2d at 132 (citing Stop & Shop 6 S u p e rm a rk e t Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57 (1 st Cir. 2004)); see also 7 B ro w n Shoe Co., 370 U.S. at 344. In sum, federal antitrust law seeks "the protection of 8 c o m p e titio n , not competitors." Leegin Creative Leather Products Inc. V. PSKS, Inc., 551 U.S. 9 8 7 7 , 906, 127 S.Ct. 2705, 2724 (2007)(citing Atlantic Richfield Co. v. USA Petroleum Co., 495 10 U .S . 328, 338, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990)); see also Specturm Sports, Inc. v. 11 M c Q u illa n , 506 U.S. 447, 458, 113 S.Ct. 884, 891 (1993). 12 The law does not require that the illegal activity be the sole cause of the injury, "but only

13 th a t it was a material cause." Sullivan v. National Football League, 34 F.3d 1091, 1103 (1 st Cir. 14 1 9 9 4 )(c itin g Engine Specialties, Inc. v. Bombardier Ltd., 605 F.2d 1, 14 (1 st Cir. 1979)). 15 F u rth e rm o re , the First Circuit's standard includes "but-for causation," leading to a direct injury 16 re s u ltin g from anti-competitive activity. Morales-Villalobos v. Garcia-Llorens, 316 F.3d 51, 55 17 (1st Cir. 2003); see also SAS of P.R., Inc. v. P.R. Tel. Co., 48 F.3d 39, 43 (1 st Cir. 1995). 18 T h e Sterling damages model asks this Court to assume that "but for" the Nestlé PR/Payco

19 m e rg e r, the company would have had more than double the market share it had in 2003, when 20 th e period of Defendants' alleged anti-competitive and monopolistic actions began. Overstreet's 21 d a m a g e s model assumes that Sterling's sales accounted for roughly 50% of Supermax and 22 P u e b lo ice cream volume, and uses this volume as a benchmark.1 4 DSUF # 234. It concludes that 23 S t e r l i n g could have enjoyed up to a 50% market share, "but for" Payco's allegedly anti24 25 26
S te r lin g 's expert accepted on its face the report of the company's executives that Sterling's sales accounted for th e ice cream volume in SuperMax and Pueblo stores. DSUF # 235.
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2 c o m p e titiv e exclusivity agreements. DSUF # 230. Another benchmark used are depot center 3 s a le s , of which Sterling alleges it enjoys 50% market share, and Walmart, which does not use 4 e x c lu s iv e s , where Sterling enjoys 42% market share. DSUF ## 226-231. 5 Consistent with Plaintiff's theory of the case, its expert, Overstreet affirms that none of

6 th e ice cream distributors in Puerto Rico had market power prior to the summer of 2003, and 7 b e f o re said date the market was competitive. DSUF ## 79 & 80. Overstreet, concedes that 8 P a yc o , Nestlé PR, Wells', Sterling and Dreyer's did not have monopoly or unilateral market 9 p o w e r prior to the Nestlé PR/Payco merger. DSUF # 144. If the base-line for a competitive 10 e n v iro n m e n t in the ice cream market was the pre-merger landscape (see DSUF ## 79 & 80, 11 1 4 4 ), then Sterling should have to show how it was harmed, and how "but for" the merger and 12 th e alleged illegal activity, it would have achieved, through legitimate competition, greater sales, 13 m a rk e t share, profits, etc. 14 The primary reality undermining Sterling's request for "but for" damages, is that the

15 in f e re n c e that the company has been unfairly hindered either by the exclusives or by product 16 p ric e increases is implausible in light of Sterling's increased profits, sales, and market share. Far 17 f ro m showing that the merger hurt their business, the record shows that Plaintiff was better off 18 d u rin g the relevant period. 19 Despite the allegedly competitive marketplace, between fiscal years 2001 and 2003,

20 S te rlin g 's sales declined from $8.07 million to $ 7.01 million. DSUF # 90. However, after the 21 N e s tlé PR/Payco merger, Sterling's sales increased, expanding to $12.02 million by the end of 22 2 0 0 8 , a 70% increase over the company's 2003 results. DSUF # 90. By contrast, some products 23 d is trib u te d by Nestlé PR/Payco lost market share and access to important locations. See, e.g., 24 DSUF ## 119, 134, & 139 25 26 T h e same trend is observable in Sterling's gross profit, which rose by an annual rate of Page 15

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2 1 2 % between 2003 and 2008, and during which time its operating income increased by 300%. 3 In 2007, Sterling's gross profit was 60% higher than in 2003. DSUF # 93. Moreover, Sterling's 4 m a rk e t share grew, from approximately 12.6% in 2002 to 20.7 % in 2007, and the company is 5 e x p a n d in g its ice cream distribution operations by building new and larger facilities.1 5 DSUF ## 6 9 6 -9 7 & 100; PSUF # 196. In contrast, the Nestlé PR/Payco joint venture lost nearly $5 million 7 in sales revenue to Sterling and other competitors in its first six months of operations. DSUF # 8 139. 9 Regarding the market as a whole, Puerto Rico's ice cream distribution industry has grown

10 in terms of total sales since 2003. DSUF # 98. There is insufficient data in the record of the case 11 to evaluate how much Puerto Rico consumers paid at the retail level before the 2003 Nestlé 12 P R /P a yc o merger, and whether during the pre-merger period price increases to consumers were 13 g r e a t e r than or less than the rate of inflation, and supplier price increases.16 DSUF ## 82-85. 14 W h a t the record does show is that inflation in Puerto Rico averaged 11.9% annually between 15 2 0 0 3 and 2007, encompassing the relevant period for this action. DSUF # 87. Despite this, both 16 B lu e Bunny and Edy's ice cream retailed for lower prices in 2007 than in 2001. DSUF # 141. 17 Furthermore, Sterling alleges that exclusivity contracts between Defendants and many

18 P u e rto Rico retailers after the Nestlé PR/Payco merger caused it antitrust injury. However, 19 e x c lu s iv e contracts have been used in the Puerto Rico ice cream business since the 1990s. DSUF 20 # 113. Payco's sales of ice cream to exclusive accounts decreased from $15.16 million in 2004 21 to $10.62 million in 2007. DSUF # 116. Sterling's internal documents show that Payco's 22 23 24 25 26
For much of the relevant period, Sterling did not carry "cheap and sweet" ice cream lines, which are an im p o r ta n t seller at many supermarkets catering to lower income customer bases. DUSF ## 102-104. Furthermore, an im p o r ta n t customer, Unilever, complained that Sterling does not have specific routes for impulse, single serving, ice cream s a le s . DSUF # 110. These factors may have limited Sterling´s growth vis a vis Nestlé PR/Payco. Sterling responds to this fact with an affidavit by one of its lawyers of a review of advertised prices. POSUF # 8 4 . However, this Court finds said evidence insufficient to controvert these facts.
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2 e x c lu s iv e accounts foreclosed 28.2% of the Puerto Rico ice cream market in 2004, 30.8% in 3 2 0 0 5 , 29.4% in 2006, and 19.5% in 2007. DSUF # 118. Moreover, these exclusive contracts 4 w e re at the distribution level, and not directed at consumers. DSUF # 127. Defendants' 100% 5 e x c lu s iv e agreements are virtually all one or two years in duration.1 7 Docket # 128. Additionally, 6 O v e rstre e t did not find any evidence that Defendants ever sold ice cream products at prices 7 b e lo w their cost. DSUF # 142. 8 Nevertheless, it is not contested that Defendants' gross margins were higher in stores with

9 e x c lu s iv ity agreements. PSUF # 158.After the merger, Sterling managed to move into various 10 s u p e rm a rk e ts that had previously been covered by Payco exclusives. DSUF # 129. These stores 11 in c lu d e d Grande and Pitusa supermarkets, and, in 2007, Sterling also obtained a 30% exclusive 12 a g re e m e n t with Econo stores, which had previously been a Nestle PR/Payco exclusive retailer. 13 D S U F ## 132 & 133. 14 In terms of other competitors, Nestlé PR/Payco distributes Unilever's Breyers brand to

15 m o s t retailers, but Econo and military bases receive the brand through other routes. DSUF ## 16 1 5 0 - 1 5 1 . Matosantos Commercial Co. distributed Baskin Robins to Supermercados Grande, 17 b u t stopped doing so in 2007. DSUF # 157. At the end of 2008, Gianni of New York ("Gianni"), 18 a n ice cream and Italian ice distributor entered the Puerto Rico market, distributing to various 19 s u p e rm a rk e ts. DSUF # 160. 20 If the market place was competitive when Payco alone utilized exclusives, why should

21 th e same practice, at very similar levels, somehow injure Plaintiff now that Payco and Nestle PR 22 h a v e merged? Exclusives have existed in the Puerto Rico marketplace since before the merger, 23 24 25 26
A small number of Payco's agreements surpassed two years, including those with M r . Special, Supermax, and B lo c k b u s te r that were for three years. See Docket # 191-88 at 30-33. Sterling points out Payco's 5 year deal with Ralph's a s an example of an illegally long contract, but this was not 100% exclusive. Id. at 30. Plaintiff admits that it was 90% e x c lu s iv e . POSUF # 211. Additionally, Plaintiff alleges that Payco and Nestlé PR colluded regarding the terms of the Ralph's a g r e e m e n t about the payment terms to the supermarket chain. Id.
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2 a n d have not increased as a total percentage of market share since 2003. Beyond the fact that 3 e x c lu s iv e dealing is not per se illegal, and that in the present case Defendants' contracts have 4 n o t violated the law, as will be discussed further below in Section II, the pre-existence of the 5 p ra c tic e prior to the merger weakens any claim for antitrust injury. 6 While Sterling's business concerns regarding Defendants' acquisition of Dreyer's, who

7 m a n u f a c tu re s its marquee product (Edy's), are legitimate from a business point of view, they do 8 n o t involve any overt anti-competitive act. To wit, the acquisition was approved by the FTC 9 (P S U F # 60), and Defendants have not withdrawn Edy's, nor have they significantly increased 10 th e unit price to Sterling. DSUF # 87. Accordingly, prices to consumers have stayed stable and 11 v o lu m e of sales has increased, strongly suggesting that the competitive structure of the market 12 h a s not been harmed, thus precluding antitrust injury. 13 Furthermore, allegations regarding price increases, along with the non-assignment of

14 s o m e product lines (i.e. Skinny Cow), also cannot be linked to tangible damages. The facts of 15 th e case show that Sterling's business was not in rapid expansion before the merger (DSUF # 16 9 0 ), nor did it appear to be in a position to dominate the local market. After the merger, however, 17 S te rlin g 's sales grew by 70% (see DSUF # 90), and its market share grew from the low teens to 18 o v e r 20% during the relevant period. More importantly, the company's gross profit increased 19 b y 60% (DSUF ## 96-97), and it has not faced significant increases in its input costs for the 20 p ro d u c ts it purchases from Dreyer's. (DSUF ## 82-85 & 141). This expansion has been made 21 p o s s ib le through aggressive price competition and the successful entry into new retail outlets, 22 p re v io u s ly controlled by Payco in the pre-merger period and then by Defendants during the 23 re le v a n t period for this action. See, e.g., DUSF # 129. 24 S te rlin g argues that the benchmark that should be used are those stores where no

25 e x c lu s iv e s are in place, namely Walmart and depot centers, where they have achieved between 26 Page 18

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2 4 0 % and 50% sales shares. This Court finds the suggested benchmark speculative for various 3 re a s o n s . Foremost is that exclusive dealing contracts are not illegal per se, and it is not 4 re a s o n a b le to completely exclude their existence from the market when envisioning a 5 c o m p e titiv e marketplace. Moreover, in the pre-merger period Sterling's market share was 6 n o w h e re near this large, and it is unrealistic to posit that the company's sales and market 7 p re s e n c e would have grown four-fold had the Nestle PR/Payco merger never occurred. 8 Proving antitrust injury requires establishing a causal relationship between an illegal, anti-

9 c o m p e titiv e act and actual damages, or at minimum plausible "but for" damages. This Court 10 f in d s that Plaintiff has failed to present facts supporting a plausible theory of damages. As a 11 re s u lt, Plaintiff's damages model is too speculative and improbable to survive summary 12 ju d g m e n t. 13 This holding alone would support dismissal of all of Plaintiff's federal antitrust claims.

14 H o w e v e r, for the purpose of thoroughness, we will discuss each cause of action individually. 15 T h e discussion will address Plaintiff's three factual groupings of claims. Namely: 16 17 18 19 20 21 22 23 24 25 26 Page 19 IV. III. II. I. Plaintiff's first and fourth causes of action for Unlawful Restraint of Trade in V io la tio n of Sections 1 & 3 of the Sherman Act and Exclusive Dealing in V io la tio n of Section 3 of the Clayton Act. Plaintiff's second and third causes of action for Monopolization and Attempted M o n o p o liz a tio n under Section 2 of the Sherman Act. Plaintiff's fifth cause of action for Conspiracy to Monopolize in Violation of S e c tio n s 1 and 3 of the Sherman Act. Plaintiff's sixth, seventh, and eighth causes action, and Defendant's Counterclaim, b ro u g h t under Commonwealth Antimonopoly law.

1 2 3 4

Civil No. 06-1015(SEC) I. Unlawful Restraint of Trade (Causes of Action I and IV: Sherman Act Section 1 ; Clayton Act Section 3) The central component of Sterling's claims for unlawful restraint of trade under Section

5 1 of the Sherman Act and Section 3 of the Clayton Act are Defendants' exclusivity agreements 6 w ith some Puerto Rico retailers. Section 3 of the Clayton Act prohibits arrangements that have 7 a probability to ". . . substantially lessen competition or tend to create a monopoly in any line of 8 c o m m e rc e . " 18 U.S.C. § 15. Likewise, Section 1 of the Sherman Act requires a similar, but 9 10 11 12 13 14 15 s u b tly different showing, that ". . . the alleged agreement involved the exercise of power in a re le v a n t economic market, that this exercise had anti-competitive consequences, and that those d e trim e n ts outweighed efficiencies or other economic benefits. This is the rule of reason c a lc u lu s ." Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of Rhode Island, 373 F.3d 5 7 , 61 (1st Cir. 2004). S te rlin g 's claims for unlawful restraint of trade, and illegal exclusive dealing, are focused

16 o n contracts between Defendants and retailers for the exclusive use of freezer space in Puerto 17 R ic o stores and supermarkets. The Amended Complaint alleges that this practice has foreclosed, 18 o r cut off, a sufficient portion of the relevant market from the entrance of new competitors, 19 v io la tin g antitrust law, and stifling meaningful competition. However, because the Amended 20 21 22 23 24 25 26 Page 20 C o m p la in t has not alleged that the exclusive dealing arrangements in question (i.e. the " e x c lu s iv e s " ) are per se violations, this Court must balance the efficiencies gained by their im p le m e n ta tio n and contrast these with any harm to the structure of the market place. Id. at 62 (c itin g Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961)).

1 2

Civil No. 06-1015(SEC) S e c tio n 1 of the Sherman Act requires substantial foreclosure. Concord Boat Corp. v.

3 B ru n sw ic k Corp., 207 F.3d 1039, 1059 (8th Cir. 2000). A similar analysis applies to exclusive 4 d e a lin g claims under Section 3 of the Clayton Act. In other words, some instances of limited 5 f o re c lo s u re may be acceptable, and an antitrust plaintiff must show that the exclusivity has 6 " a n ti-c o m p e titiv e effects outweighing the legitimate economic advantages that it might provide." 7 E a ste rn , 357 F.3d at 5. Harm to competition requires that the practice ". . . create or enhance 8 m a rk e t power - meaning the power to control prices or exclude competition . . . ," but market 9 p o w e r is not in itself sufficient to "condemn the conduct" because potential benefits must also 10 11 12 13 14 15 Case law has established that exclusivity agreements can promote reduced-costs, stable lo n g -te rm supply, and "predictable prices," and as such are to be reviewed favorably. Stop & b e weighed. Id. Therefore, when analyzing a practice, which is not per se illegal, under the rule o f reason the courts must consider ". . . both a practice's likely anti-competitive effects and its b e n e f ic ia l business justifications." Leegin Creative, 551 U.S. at 909.

16 S h o p , 373 F.3d at 66; see also Eastern, 357 F.3d at 8 (elaborating "it is widely recognized that 17 in many circumstances [exclusivity contracts] may be highly efficient - to assure supply, price 18 s ta b ility, outlets, investment, best efforts or the like-and pose no competitive threat at all."). 19 A c c o rd in g ly, given the tendency to liberally review "exclusives," for them to be found illegal, 20 th e y must have harmed the very structure of the relevant market, and not competitors or 21 c o m p e tin g interests. This determination is made by examining if they have foreclosed a

22 s u f f ic ie n tly large, or crucial, part of the market to effectively block competitors from entering 23 o r expanding to compete for new business. 24 25 26 Page 21

1 2

Civil No. 06-1015(SEC) F irs t Circuit case law uses market share figures as initial guides for determining if

3 f o re c lo s u re rates are facially dubious or presumably harmless, but a significant share is only a 4 p re s u m p tiv e signal of market power as entry barriers may be low. Eastern, 357 F.3d at 6. The 5 in f e re n c e of market power requires an antitrust plaintiff to "plead and prove that a firm has a 6 d o m in a n t share in a relevant market, and that significant `entry barriers' protect that market." 7 B ro a d c o m , 401 F.3d at 307. In the case at bar, Plaintiff challenges the levels of foreclosure 8 c a u s e d by Nestlé PR/Payco exclusives, which are ". . . unlikely to be of concern when they are 9 le s s than 30 or 40 percent" of the market."Stop & Shop, 373 F.3d at 68. In other words, "low 10 n u m b e rs make dismissal easy," but high numbers do not guarantee success for a plaintiff. Id. 11 (citing Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 45-46 (1984); Areeda & 12 H o v e n k a m p , Federal Antitrust Policy, The Law of Competition and Its Practice, 3d). Beyond 13 First Circuit case law, PROMA's decision approving the Nestle PR/Payco merger echoes this 14 th re s h o ld rule by proffering a 35% market share as the highest possible permissible limit for 15 f o re c lo s u re due to the Nestlé PR/Payco exclusives. This limit has never been exceeded on a 16 P u e rto Rico wide basis. DSUF # 118-119. 17 18 19 20 21 22 23 24 25 26
I n fact, PROMA's guidelines would have allowed Nestlé/Payco exclusive to have constituted up to 35% of the r e le v a n t market.
18

In the present case, sales from stores participating in Nestlé PR/Payco exclusivity a g re e m e n ts have never exceed 30.8% of total market share and averaged just under 27% for the re le v a n t period, dropping to under 20% for the final year. This fact weighs strongly in favor o f Defendants because, as previously stated, ". . . foreclosure levels are unlikely to be of concern w h e re they are less than 30 or 40 percent."1 8 Stop & Shop, 373 F.3d at 68. These numbers are b e lo w the range of concern, and should not be considered anti-competitive. However, beyond

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2 th is threshold approach, the practices underlying the abovementioned foreclosure percentages 3 p re d a te the Nestlé PR/Payco merger, and have actually decreased since said merger. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 In responding to the Motion for Summary Judgment, Sterling points to higher than a c c e p ta b le foreclosure rates in some sub-regions of the Commonwealth. The argument is specious a s the market Plaintiff defined for purposes of the present suit is the sale and distribution of icec re a m in all of Puerto Rico. Analyzing sub-regions or sub-markets would call for not only local d a ta supporting individual claims for each region and market, but also fragmenting Plaintiff's b ro a d claims into many market-specific ones. In addition, Plaintiff also makes arguments about f o re c lo s u re rates in take-home sales of ice cream (see PSUF # 203 (citing that these could have b e e n as high as 36% during the relevant period)), but these too are misplaced as they do not In the post-merger period, the percentage of supermarkets covered by exclusives did not in c re a se , and both Sterling´s market share and total sales have grown. Presently, a Sterling brand, E d y's , is Puerto Rico's number one brand of ice cream. Sterling has also managed to enter (and e s ta b lis h preeminence with its Edy's brand) major Puerto Rico supermarkets, such as Grande, P itu s a , and Econo, where Defendants' brands had previously enjoyed exclusivity. DUSF # 129. S te rlin g 's inroads into new Puerto Rico retailers are not isolated instances of competitive success in the ice cream market. Gianni products also entered various important supermarket chains since 2 0 0 7 , and have maintained their presence to date. In fact, Nestlé PR/Payco's combined market s h a re is currently lower than in the pre-merger period.19

E v e n accepting arguendo that said agreements could be construed as illegal, the entry of Gianni, coupled with S te r lin g 's strong growth, clearly suggest the competitive structure of the market has not been impaired, and the market a p p e a r s to have equal or greater competitiveness than it did prior to the 2003 merger. It is therefore impossible for this Court to infer "but for" damages, where their calculation, even in the light most favorable to Sterling, "would `necessitate wide r a n g in g ' speculation." Sullivan v. Tagliabue, 25 F.3d 43, 51 (1st Cir. 1991). The rule of reason does not permit an inference th a t Sterling has experienced real anti-competitive prejudice, and would have been any more or less successful had these a g r e e m e n ts not existed.

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2 a d d re s s the relevant antitrust market. The problem with Plaintiff's analysis regarding take-home 3 s a le s is not the veracity of the data they proffer; rather it is that their data describes markets 4 b e yo n d the scope of this case. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 A s mentioned above, exclusive dealing is only considered a threat to competition in "very d is c re te circumstances," mostly concerning long-term foreclosure (i.e. contracts for longer than tw o years). Eastern, 357 F.3d at 8. Even given market concentration, if the exclusionary contracts a re short-term in nature, or entrance is easy, substantial foreclosure cannot be demonstrated. Id. a t 8-9. The tradition of exclusive dealing contracts in Puerto Rico ice cream distribution dates to By agreeing with Plaintiff that the correct relevant market is the sale and distribution of ic e cream in Puerto Rico, this Court precludes itself from making conclusions about antitrust v io la tio n s in sub-markets, not properly established in the four corners of the complaint. Other c o u rts have rejected similar gerrymandering of markets attempting to artificially show high levels o f foreclosure. See Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430 (3 rd Cir. 1997). T h e Amended Complaint is not framed to include sub-regions or sub-markets, and it is therefore u n n e c e s s a ry to examine foreclosure rates outside those of the already defined relevant market. D o in g so would lead to false analogies and unsubstantiated conclusions.

20 a t least the 1990s, and the undisputed facts reveal that the present levels are well below their pre21 N e s tlé PR/Payco merger peak. In this context, low market-wide rates of foreclosure are sufficient 22 f o r this Court to sustain the legality of the exclusives. Nevertheless, the record also reflects that 23 m o s t of the exclusivity agreements in question were for periods of between one and two years. 24 T h e First Circuit has found that agreements of this length are lawful, because any possible 25 in te rru p tio n to competition that they might cause is only for a short period after which 26 Page 24

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2 c o m p e tito rs may gain entry to foreclosed outlets. Barry Wright Corp. v. ITT Grinnell Corp., 724
st 3 F .2 d 227. 236-238 (1 Cir. 1983). This Court notes a small number of the exclusivity agreements

4 a re for more than three years. See Docket # 191-88 & 200-8 - 200-13. Nevertheless, these do not 5 c o n s titu te a sufficient portion of the relevant market to sustain an antitrust claim. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 A rg u in g against the low foreclosure rates' significance, Sterling repeatedly urges this C o u rt to examine the practical effects of the exclusives, and not a more bright-line approach, and m e n tio n s various barriers to entry,2 0 and suggest that the market has had no new entries since the 1 9 9 0 s . This is not supported by the record, which shows that Gianni is a recent, albeit smaller e n try, and those retailers such as Costco, Sam's, and Econo have begun to market their own p riv a te label brands, and that distribution channels remain open. Omega Environmental v. G i lb a rc o , Inc., 127 F.3d 1157, 1664 (9th Cir. 1997). Furthermore, this Court disagrees with P la in tif f 's proposition that Law 75 creates a disincentive to the entry of new ice cream brands to
T o bolster its antitrust claims based on market foreclosure in detriment to competition, Sterling alleges that there a r e high entry barriers to the local ice cream distribution market, including: 1) the necessity of establishing a Direct Store D e liv e r y System ("DSD system"), 2) purchasing trucks and freezers, 3) establishing sufficient route density, 4) obtaining ic e cream brands to distribute, 5) failed entry by previous competitors, 6) market concentration between incumbents, 7) P u e r to Rico Law 75, and 8) Payco's exclusivity agreements. PSUF # 198-199. Plaintiff alleges that Puerto Rico is a unique m a r k e t because of its small size, and that local supermarkets, allegedly unlike those in the United States, do not have s u ffic ie n t freezer warehouse capacity to store ice cream as inventory, requiring investment in a DSD system. As a result, ic e cream must be frequently delivered in smaller quantities to in-store freezers, versus more infrequent deliveries to storage fr e e z e r s , which is allegedly how the market works in the continental United States. Plaintiff alleges that this leads market e n tr a n ts in Puerto Rico to face higher capital costs because they must invest in greater refrigeration technology and more fr e q u e n t routes.
20

Of course, this Court agrees with Plaintiff that there is no automatic percentage where m a rk e t foreclosure rates either ratify the legality of exclusivity agreements or make them per se ille g a l. The law does not seek to immunize potentially illegal activity in restraint of trade, but e x c lu s iv e dealing contracts are not disfavored, and the present case demonstrates no substantial h a rm to the market

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2 th e local market. On the contrary, Law 75 can potentially protect smaller distributors by 3 g u a ra n te e in g them a stable product supply and business relationship, granted they meet 4 re a s o n a b le sales expectations. Furthermore, prices have remained relatively stable, volume has 5 g ro w n , and so have Sterling's revenues. Therefore, even adopting the holistic view of the illegal 6 b e h a v io r, as put forth by Sterling, does not bolster its claims of unreasonable foreclosure. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Page 26 In sum, exclusive dealing contracts are a frequent practice in retail/wholesale food sales a n d distribution. Given their long-term presence before the Nestlé PR/Payco merger (DSUF # 1 1 3 ), there is minimal cause for concern. Joyce Beverages, Inc.. 555 F.Supp. 271, 277-278 (S .D .N .Y . 1983). The exclusivity agreements under analysis are licit, and have not negatively a f f e c te d the structure of the market. Moreover, the record does not reflect illegal horizontal a g re e m e n ts in the pre-merger period, and Plaintiff has not shown significant price increases to c o n s u m e rs , despite years of inflation. Therefore, Plaintiff's claims under Section 1 of the S h e rm a n Act for illegal restraint of trade and under Section 3 of the Clayton Act for illegal e x c lu s iv e dealing are DISMISSED WITH PREJUDICE. In addition to the exclusive dealing charges, Plaintiff also refers to per se illegal horizontal a g re e m e n ts and the allegedly unlawful coordination of activities between Nestlé PR and Payco b e f o re their merger. These both must be examined as part of a merger occurring nearly seven ye a rs ago. Absent other facts suggesting an intentional strategy to restrain trade and foreclose the m a rk e t, Ward's statements about controlling the local marketplace (see supra at 12-13) can only b e interpreted as isolated incidents (PSMF # 43) and do not constitute facts sufficient to support a claim under the relevant statutes, more so when market data does not support Plaintiff's c o n c lu s io n that the exclusionary contracts "choked" competition.

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Civil No. 06-1015(SEC) II. M o n o p o liz a tio n and Attempted Monopolization (Causes of Action II and II: Section 2 of the Sherman Antitrust Act) A s to the applicable law, ". . .§ 2 addresses the actions of single firms that monopolize or a tte m p t to monopolize, as well as conspiracies and combinations to monopolize." Spectrum S p o rts , Inc. v. McQuillan, 506 U.S. 447, 455, 113 S.Ct. 884, 890 (1993). The first is established b y showing: "(1) the defendant has monopoly power and (2) the defendant has engaged in im p e rm is s ib le `exclusionary' practices with the design or effect of protecting or enhancing its m o n o p o ly position." Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d 1 8 2 , 196 (1st Cir. 1996); see also Brunswick Corp v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,

9 7 S.Ct. 690 (1977); U. S. v. Grinell Corp., 384 U.S. 563, 570 (1966)(stating "This is d is tin g u ish e d from growth or development as a consequence of a superior product, business a c u m e n , or historical accident."). Case law has firmly established that "[t]he purpose of the [ S h e rm a n ] Act is not to protect businesses from the working of the market; it is to protect the p u b lic from the failure of the market." Spectrum Sports, 506 U.S. at 457. Finding anti-

c o m p e titiv e conduct requires identifying acts that ". . . harm the competitive process, and thereby h a rm consumers [. . .as opposed to] harm to one or more competitors . . ." U.S. v. Microsoft, 253 F .3 d 34, 58 (D.C. Cir. 2001); see also Cargill v. Monfort of Colo., 479 U.S. 104, 107 (1 9 8 6 )(s ta tin g "Plaintiffs must prove antitrust injury, which is to say injury of the type the a n titru s t laws were intended to prevent and that flows from that which makes defendants' acts u n la w f u l. The injury should reflect the anti-competitive effect either of the violation or of antic o m p e titiv e acts made possible by the violation."). Such prohibited conduct includes exclusionary a c ts , or others with an anti-competitive exclusionary effect, which "tend[] to destroy competition its e lf ." Spectrum, 506 U.S. at 447. Therefore, courts should not search for malice in business

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2 d e a lin g , rather they should look for those which may lead to lessened competition, Brooke Group 3 L td , 509 U.S. 209 (1993), in the sense that the potential injury is, as mentioned in the damages 4 s e c tio n , only "of the type that the statute was intended to forestall." Microsoft, 253 F.3d at 59 5 (c itin g Brunswick Corp., 429 U.S. at 487-488). If potentially anti-competitive conduct is found 6 to exist, then this Court must discern if the conduct also has pro competitive effects, and using 7 th e rule of reason, balance the harms. Id. However, this must focus on the acts, and not on "the 8 in te n t behind it." Id. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Likewise, attempted monopolization under Section 2 requires showing that the defendant h a s acted in a predatory or anti-competitive manner within the market place, that this reflects a " s p e c if ic intent to monopolize," and that there is a "dangerous probability of success." Ramallo B ro s . Printing, Inc. v. El Dia, Inc., 392 F.Supp. 2d 118, 30 (D.P.R. 2005)(citing Specturm Sports, In c . v. McQuillan, 506 U.S. 447 (1993)). Actual monopolizatio