UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION THORTON ELLIOTT, EUGENE McQUEEN, ) VERNON JOHNSON, MICHAEL CHOICE, ) FAMIOUS FRENCH, MARCUS LYONS, ) DARRYL LANE, RONNIE NELLON, ) CHARLES J. BEYER, JACKIE SMITH, ) SAUL LOCKETT, ZEKE RAND, LEO ) JOHNSON, LAWRENCE RAND, ROBERT ) JOHNSON, LOUIS DAVIS, ANTOINETTE ) JOHNSON, AND HUBERT WEBB, ) ) Plaintiffs, ) ) V. ) NO. 95 C 5440 ) THE UNITED CENTER, A JOINT ) VENTURE f/k/a METRO-CHICAGO ) SPORTS STADIUM JOINT VENTURE ) INJUNCTIVE RELIEF ) Defendant. ) JUDGE CASTILLO PLAINTIFFS' MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION Plaintiffs, by counsel, file this memorandum of law in support of their motion for preliminary injunction and state: INTRODUCTION NOTE: The core antitrust concern with competition reflects a fundamental belief that economic questions generally are best determined in the American economy through a process of independent, competitive decision making by profit-seeking firms striving to serve consumers who seek maximum satisfaction through their choices among market alternatives. Antitrust law aims to protect economic competition by prohibiting collusive, exclusionary, and monopolistic practices that restrain competition and thereby pose a danger of increased prices and reduced output, quality, and innovation. (The Oxford Companion to the Supreme Court of the United States, 1992, pg. 34). Plaintiffs, vendors of peanuts outside of the United Center, bring this action against Defendant, a joint venture which owns and operates the United Center, for violations of section 2 of the Sherman Antitrust Act. Defendant currently prohibit all patrons of the United Center from bringing any food, including peanuts into the stadium. Plaintiffs seek injunctive relief against the food ban and granting them the right to compete with the Defendant for the sale of food concessions at the United Center. Plaintiffs respectfully request this Court order Defendant to cease and desist from this unlawful monopolization of food concessions at the United Center. Plaintiffs are entitled to such preliminary injunctive relief as set forth more fully below as they have both a property and liberty interest in their ability to earn a living, have and continue to suffer irreparable injury as a result of defendant's unlawful refusal to deal, have no other adequate remedy at law, and have a substantial likelihood of success on the merits. Moreover, the balance of hardships, and the public interest, clearly favors plaintiffs. OPERATIVE FACTS In September of 1994, with the opening of the United Center, the owners of new stadium, Jerry Reinsdorf and Bill Wirtz, instituted a policy prohibiting all food from being brought into the new stadium. Upon entrance into the stadium, patrons are now visually searched for food and, if any is found, it is confiscated by stadium security. The new policy has resulted in patrons no longer buying peanuts from the vendors on the public property surrounding the new stadium and has thus eliminated the livelihoods of many of the vendors who have historically hawked peanuts outside of the stadium. To be fair, a limited number of vendors continue to survive by hawking peanuts (a) to patrons willing to attempt to "smuggle" in their peanuts in violation of the new stadium policy or (b) to patrons unaware of the stadium prohibition. Yet even the vendors who continue to work report significant reductions in sales of up to two-thirds from previous years. PUBLICLY STATED JUSTIFICATION The publicly stated justification for the policy is that it is a cost-control measure to decrease clean-up costs. Stadium officials assert that peanut shells increase the costs of clean-up. To support their assertion, stadium officials point to the fact that peanuts are no longer sold inside the United Center. While this argument may appear plausible at first blush, upon analysis it has little merit. The fact is, peanuts do not increase clean-up costs. This assertion is supported by two major claims made by industry professionals. First, professionals in the janitorial services business report that peanuts and popcorn are both cleaned up the same way: a blower is used to blow the popcorn and peanut shells into big piles, and then both are picked up by hand. If popcorn is sold inside the stadium, which it is,peanuts add little, if any, additional clean-up costs. Second, the costs of clean-up are the same whether peanuts are sold or not. The owner of one of Chicago's largest janitorial services companies has stated that in all his years in the business he has never seen a contract to clean a stadium based on the type of food sold inside the stadium. Rather, janitorial contracts for stadiums are determined by two principle factors: (1) square footage and (2) the number of people in attendance. From a cost- control measure, it is thus irrelevant whether peanuts are sold inside the stadium. ACTUAL JUSTIFICATION In all likelihood consists of a combination of the following reasons: (1) Monopolization of Food Concessions: It would be silly to ignore the most obvious reason for instituting the new policy: it affords the owners of the United Center a 100% monopoly on concessions of food at the stadium. This will result in ever greater profits in concessions sales for the stadium owners. No longer able to buy an inexpensive bag of peanuts outside of the stadium to eat during the games, fans are now forced to eat only what is sold inside the stadium and only at the monopoly prices sold on the inside. Some will scoff at the amount of money at stake, dismissing this case as one of "mere peanuts" (figuratively and literally), but one peanut vendors put the situation into perspective when he quipped, "A $2.00 bag of peanuts on the outside satisfies an $8.00 junk food craving on the inside." (2) Promotion of Food Sales in the Skyboxes: Arguably, the prohibition on food also helps prevent skybox owners from bringing in their own dinners to the skyboxes. Currently, skybox patrons are not allowed to bring in their own dinners, say a box of Kentucky Fried Chicken, to the skyboxes; rather, if skybox patrons want to eat, they are rqeuired to buy their dinner or snacks via either the skybox catering service or the general concessions stands. To be fair, this probably constitutes a legitimate business justification. Stadium owners face huge fixed costs in providing a food catering service for skybox owners. In order to recover these fixed costs, it is arguably necessary for a certain number of skybox patrons to use the stadium's food service. To guarantee this minimum usage, stadium owners may feel that it is necessary to prevent any and all skybox patrons from bringing in their own food. But this justification--call it the "fixed-cost justification"--is not valid for prohibiting peanuts to the general public. Even though the stadium owners also accrue fixed costs in operating the general food concessions, such fixed costs do not make it economically necessary for the owners to ban peanuts. The owners would have to claim that the concessions would not be profitable if peanuts (or other small snack foods) were allowed in the stadium. This is an absurd claim. The long history of allowing peanuts inside the old Chicago Stadium, combined with what qualifies as the normal business practice among the majority of major league sports stadiums of allowing in peanuts, suggests the prohibition on peanuts is not necessary to cover the fixed costs of opearting a general concessions opearation. In short, though plaintiffs are willing to admit that it may be reasonable for skybox owners to be prohibited from bringing in their own catered dinners into skyboxes, it is unreasonable to prohibit peanuts from being brought in by stadium patrons. In contrast to prohibiting fill dinners, there is no valid business justification for prohibiting peanuts. (3) A Racial Matter: The vast bulk of the vendors are black; the vast bulk of the stadium's patrons are white. It is not a stretch to believe that the owners of the stadium may feel that their patrons would be more comfortable coming to the West Side with as few poor, black faces greeting them upon arrival as is possible. ARGUMENT In violation of section 2 of the Sherman Act, the owners of the United Center are using their monopoly control of access to the United Center and the presentation of live NHL and NBA sports in Chicago to create monopoly control of food concessions sales at the United Center. Peanut vendors compete in the same geographic and product market as the concessionaires inside the stadium. The relevant geographic market is sports and other entertainment events occurring at the United Center located in Chicago, Illinois at 1901 W. Madison Ave. Geography speaking, peanuts are the only food sold on the public sidewalks outside of the United Center, and peanut vendors are the only direct competitors to food concessions sold at the stadium. The vendors sell exclusively to stadium patrons on the day of the games. Though it is true that the vendors are restricted to selling their goods on the public sidewalks surrounding the stadium, they sell their goods solely to stadium patrons and solely during stadium events. In terms of product market, peanuts constitute a "substitute good" that is "reasonably interchangeable" with the other junk food sold inside the stadium, i.e., popcorn, candy, licorice, pretzels. By prohibiting stadium patrons from bringing in peanuts to the United Center, the owners have effectively eliminated all competition in the market for concession sales at the United Center. Their actions harm consumer welfare by reducing consumer choice and potentially raising prices for food concessions at the United Center. Not all actions which harm competition is prohibited under Section 2. Only action which is determined to be anticompetitive is prohibited. The existence of a legitimate efficiency justification undermines a claim of anticompetitive behavior. Section 2 cases all come down to the same question: Are the monopolist's actions anticompetitive? That is to say, are the actions of the monopolist meant merely to foreclose competition, gain a competitive advantage, or destroy a competitor, or are they based on a legitimate business purpose? Sometimes courts use the phrase "exclusionary behavior" or "predatory behavior" to describe the same thing, but whether it is called "anticompetitive," "exclusionary," or "predatory," it is behavior without a legitimate business purpose. Courts have established two different "tests" to help determine whether the behavior of a monopolist is anticompetitive. They are (1) the essential facilities test and (2) the intent test. Recent case law suggests these two tests are not separate and distinct but overlap in significant ways. For practical purposes, however, the two tests are probably best viewed separately, which is how we propose to view them in this case. Whehter separate and distinct or one and the same, the tests are mere guidelines and by themselves cannot answer the ultimate question, which is whether a certain type of behavior is anticompetitive and thus a violation of the antitrust laws. That question can only be determined by a careful analysis of the particular facts of the case and ultimately comes down to the question whether a legitimate business purpose exists for the defendants' actions. In this case, there seems to be no legitimate business purpose to prohibit peanuts into the United Center. The publicly stated justification for doing so is that peanuts increase clean-up costs. But industry experts say this is a pretext: (1) peanuts and popcorn are cleaned up the same way, and if popcorn is sold in the United Center, which it is, then peanuts add no additional clean-up costs; (2) contracts to clean-up stadiums are not based on the foods sold inside but on the square footage of the stadium and the number of patrons who use the stadium. LEGAL ARGUMENT Section 2 of the Sherman Act provides in pertinent part: "Every person who shall monopolize, or attempt to monopolize...any part of the trade or commerce among the several States...shall be deemed guilty of a felony..." 15 U.S.C. @ 2 (1988). The offense of monopoly under @2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). In order to violate @2, therefore, the monopolist must possess monopoly power and must also use that power anticompetitively. The primary type of anticompetitive conduct in section 2 cases--and the type of conduct at issue in this case--is a defendant's refusal to deal with a competitor. The most common type of refusal-to-deal cases involves monopoly leveraging. Monopoly leveraging occurs when a vertically integrated monopolist -- i.e., a monopolist that operates on several levels of the market -- uses its monopoly power on one level of the market to gain a competitive advantage on another level of the market. For example, in United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912), a group of railroads servicing the St. Louis area also owned the only railroad terminal that provided access to the city. The terminal owners used their monopoly power over the terminal to overcharge other railroads for access to the terminal and thereby to gain a competitive advantage in the downstream market for railroad service in St. Louis. The majority of refusal-to-deal cases under section 2 fall into this monopoly-leveraging category. See, for example, Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973); Associated Press v. United States, 326 U.S. 1, 65 S. Ct. 1416, 89 L.Ed. 2013 (1945); Eastman Kodak Co. v. Southern Photo Materials Co.,273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684 (1927); Terminal R.R., 224 U.S. at 383, 32 S. Ct. at 507; Fishman v. Estate of Wirtz, 807 F. 2d 520 (7th Cir. 1986), cert. denied 480 U.S. 934, 107 S.Ct. 1574, 94 L.Ed.2d 765 (1987); MCI Communications Corp. v. AT & T, 708 F.2d 1081 (7th Cir.), cert. denied, 464 U.S. 891, 104 S.Ct. 234, 78 L.Ed.2d 226 (1983). The key to any type of refusal-to-deal case is that the circumstances surrounding the refusal to deal must give rise to an inference of anticompetitive intent. Intent is rarely established by direct evidence. By necessity it is established by circumstantial evidence: the nature of the defendant's conduct and its effect on competition in the market demonstrate that the defendant intended to foreclose competition in the relevant market. Thus, in order to determine whether a refusal to deal constitutes anticompetitive conduct under section 2, courts have developed two basic tests: (1) the "essential facilities doctrine" and (2) the "intent test." These tests aid the court in weighing and evaluating the circumstantial evidence in a given case to determine whether that evidence yields an inference of an intent to foreclose competition. ESSENTIAL FACILITIES The essential facilities doctrine holds that an antitrust defendant may have acted anticompetitively if the circumstances of a case satisfy a four-part test: (1) the defendant is a monopolist in control of a facility or resource that is essential to a competitor's operation; (2) the facility or resource cannot practically or reasonably be duplicated by competitors; (3) the monopolist refuses to deal with competitors; and (4) the monopolist could feasibly deal with competitors. See MCI, 708 F.2d at 912. If the four elements of this standard are satisfied, an inference of the defendant's anticompetitive intent may arise and thus justify the imposition under section 2. The Four-Prong Test Under the essential facilities doctrine, where, as here, a company exerts monopoly control over a facility essential to the competitor's business, that company may not refuse to deal with its competitor, Otter Tail Co. v United States, 410 U.S. 366, 93 S.Ct. 1022 (1973); Aspen Skiing Highlands Corp. v. Aspen Skiing Co., 738 F.2d 1081 (7th Cir. 1984); MCI Communications Corp. v. A.T.T., 708 F.2d 1081 (7th Cir. 1983). These cases establish a four-prong test as guide to evaluate circumstantial evidence to determine whether the defendant refused to deal with another firm with anticompetitive intent: (1) that defendant is a monopolist in control of a facility or resource essential to a competitor's operation; (2) that the facility or resource cannot practically or reasonably be duplicated; (3) that the monopolist refuses to deal with competitors; and (4) that the monopolist could reasonably deal with competitors. MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1132-33 (7th Cir.). Here the facts sworn to in Plaintiff's verified complaint establish each of the elements of defendant's illegal refusal to deal under the essential facilities doctrine. Prong-One The first prong of the test requires that the defendant be a monopolist who controls an essential facility. Taken in parts, this prong of the test really has two separate requirements: (1) the defendant be a monopolist and (2) the facility at issue be essential. Both elements are satisfied in this case. As the owners of the United Center, Defendants have a monopoly control over access to the United Center. The second element requires that the facility be "essential." Courts have offered several definitions as to what qualifies as "essential:" 1. "As the word essential indicates, a plaintiff must show more than an inconvenience, or even some economic loss; he must show that an alternative to the facility is not feasible." Twin Labs 900 F.2d. at 570. 2. "To be 'essential' a facility need not be indispensable; it is sufficient if duplication of the facility would be economically infeasible and if denial of its use inflicts a severe handicap on potential market entrants." Hecht v. Pro- Football, Inc., 570 F.2d 982, 991 (D.C. Cir., 1977). 3. "[A] facility becomes essential if, in restricting competitors' access to that facility, a monopolist gains a competitive advantage in another level of the market--that is, a market downstream or upstream from the market containing the facility itself." Consolidated Gas Company of Florida v. City Gas Company of Florida, 912 F.2d 1262, 1292 (11th Cir.,1990). Under any of these definitions, access to the United Center qualifies as essential to Plaintiffs who are trying to compete with concession sales at the United Center. People buy food concessions to enjoy while watching the game. If stadium patrons can't bring peanuts into the stadium, there is no purpose in buying them. Prong Two Prong two of the four-prong test requires that the competition be unable to practically or reasonably duplicate the facility. Duplication is impossible where, as here, the essential facility is a natural or actual monopoly incapable of reproduction. Prong Three The third prong of the four-prong test requires a refusal to deal on the part of the monopolist. The United Center has instituted a policy this year that prohibits all food from being brought into the stadium. Patrons are scrutinized for food prior to entering the stadium and, if any is found, are required to discard the food. Defendants may argue that the third prong of this test has not been met because the defendants have not refused to deal with a competitor. They will argue that Plaintiffs can still hawk their foods outside the stadium and that all that is being prevented is food from being brought inside the stadium. But Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 472 U.S. 587, 105 S.Ct. 2847 (1985) makes clear that a monopolist's refusal to deal with the customers of a competitor constitutes a refusal to deal when some cooperation is required for competition to exist. In Aspen, the Supreme Court held that a competitor's refusal to deal with another competitor violated the Sherman Act. The case involved concessions for skiing on four mountains in Aspen, Colorado. One company had the concession for three mountains. The other company held a concession for one mountain. Over the years, the companies had agreed to package ticket sales to permit skiers to pay one fee to ski at all four mountains if they chose. however, at some point, the owner of the concession to the three mountains decided it no longer wanted to package tickets with its competitor, and refused to deal with it. As Judge Posner wrote, "Aspen Highlands is not a conventional monopoly refusal-to-deal case like Otter Tail because Aspen Highlands was never a customer of Aspen Skiing; the skiers are the customers. But it is like the essential facilities cases in that the plaintiff could not compete with the defendant without being able to offer its customers access to the defendant's larger facilities." Olympia Equipment Leasing Company v. Western Union Telegraph Company, 797 F.2d 370, 377 (1986). Prong Four The fourth prong requires that the monopolist could reasonably deal with the competitor. This is easily shown. Peanuts have been allowed inside the old Chicago Stadium since it was first built in 1927. Peanuts are allowed in every other sports stadium in Chicago. In addition, peanuts are allowed in almost every sports stadium in the United States. Quite honestly, there appears to be nothing unique about the United Center that prevents peanuts from being allowed inside. LEGITIMATE BUSINESS PURPOSE A fair reading of the essential facility cases also reveals that the four-prong test is merely a guide to help evaluate the circumstantial evidence to determine whether the defendant acted -- i.e., refused to deal --with an anticompetitive intent. Not all refusals to deal on the part of a monopolist are ipso facto anti- competitive. Thus, the test only has validity only to the extent that they enable such a determination. Indeed, the fourth-prong requirement of "reasonableness" explicitly turns the four-prong test into a "reasonableness test," thereby bringing us to the ultimate question of this case, which is whether or not there exists a legitimate business purpose for prohibiting peanuts inside the stadium. If such a reason exists, it would make the defendants' refusal to admit peanuts "reasonable" and thus plaintiffs would fail to satisfy the fourth-prong of the essential facilities test. The four-prong test in actuality merely provides a shorthand formula for inferring the presence of anticompetitive intent when the circumstances of a case follow a certain pattern. INTENT TEST In various contexts courts have employed an intent test under which a "business is free to deal with whomever it pleases so long as it has no 'purpose to create or maintain a monopoly.'" Byars, supra, 609 F.2d at 855 (quoting United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed 992 (1919). These cases focus on the intent and competitive effect of the refusal to deal and not on whether the facility is "essential.' Lorain Journal Co. v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951). The basis of proving a violation under the intent test is whether the defendant's intent in refusing to deal or cooperate with the plaintiff was "to create or maintain a monopoly." Collate, supra, 250 U.S. at 307, 39 S.Ct. at 468. The semimal intent-test case is Loraine Journal Co. v. United States, 342 U.S. 143, 72 S.Ct 181, 96 L.Ed. 162 (1951), in which a newspaper publisher was enjoined by the Supreme Court from refusing to accept advertisement from customers who advertised with competing radio station. Between 1933 and 1948 the publisher of the Lorain Journal, a newspaper, was the only local buisness disseminating news and advertising in that Ohio town. In 1948, a small radio station was established in a nearby community. In an effort to destroy its small competitor, and thereby regain its "pre-1948 substantial monopoly over the mass dissemination of all news and advertising," the Journal refused to sell advertsing to persons that patronized the radio station. The court determined that, after a close discernment of all the facts and circumstances, it was apparent that the publisher's sole purpose in refusing advertising was to foster a monopoly. (Note: this section about Loraine Journal must be expanded: I must explain that according to the Aspen Court it was Lorain Journal's decision to make a change in the pattern of its operation that alerted the court to an anticompetitive intent. This was also the case with Aspen Skiing. And it also the case with the banning of peanuts. From the S. Ct's opinion in Aspen Skiing: "Ski Co.'s decision to terminate the all- Aspen ticket was thus a decsion by a monopolist to make an important change in the character of the ..." And then qouting Judge Bork in footnote 31: "In any business, patterns of distribution develop over time; these may reasonably be thought to be more efficient than alternative patterns that do not develop. The patterns that do develop and persist we may call optimal patterns. By disturbing optimal distribution patterns one rival can impose costs upon another, that is, force the other to accept higher costs." Bork 156. Which is precisely the situation in our case. A wide-eyed review of the facts and circumstances surrounding this case reveals that the defendant's decision to ban all food, including peanuts, is a willful attempt to obtain a monopoly: [Note; this section must be filled out. We must give all the reasons for why this is not a legitimate business move.] (1) The long history of peanuts having been allowed in the old Chicago Stadium; (2) the fact that an overwhelming majority of sports stadiums in the country still allow peanuts inside their stadiums, which shows that it is an ordinary business practice to sell peanuts in new and old stadiums, and (3) the complete absence of any legitimate business justification for banning peanuts reveals that, excluding the possibility that there is something unique about the United Center which makes it different from all other stadiums in the U.S., the only explanation for defendant's actions is an intent to create a monopoly in violation in violation of sec. 2. Courts have made it clear that a powerful tool to help determine whether something is a legitimate business purpose is whether it is an ordinary business practice. In this case, the prohibition on peanuts is the opposite of an ordinary business practice. Peanuts have been sold at, and allowed into, sporting events for time immemorial. Peanuts are allowed into, and sold at, every other sports stadium in Chicago. Peanuts have been allowed into, and sold at, the old Chicago Stadium from the time it opened in 1927. 22 of the other 25 NHL hockey rinks in the U.S. and Canada sell peanuts inside the stadium. None prohibit their patrons from bringing them inside. In this paragraph, I must analogize this case to the Supreme Court's opinion in Aspen Skiing. The Supreme Ct. did not even consider the question whether the mountains were an essential facililty, but focussed only on intent, finding that a change in buiness practice and the absence of an efficiency justification was enough. POSNER'S OLYMPIA OPINION Probably want to put a paragraph or two about Posner's Olympia Opinion and how even a jurist and scholar as cautious about an expansive reading of the antitrust laws as Judge Posner would recognize this case as a violation. 1. I should then acknowledge that Aspen can be read very broadly, but we are only asking this court to read it on its most narrowest terms, indeed on the same terms as Judge Posner read it in Olympia Equipment, which is that "a monopolist may be guilty of monopolization if it refuses to cooperate with a competitor in circumstances where some cooperation is indispensable to effective competition." 2. I must quote Posner in Olympia as saying, "Conjoined with other ethat lack of business justification may indicate probable anticompetitive effect." 3. Finally, must reiterate Posner's thoughts in Olympia about the essential facility cases be well-accepted examples of violations of the antitrust laws. CONCLUSION 1. The conclusion should be about the antitrust laws trying to protect consumers. Perhaps quote Posner in Olympia: "Most businessmen don't like their competitors, or for that matter competition. They want to make as much money as possible and getting monopoly is one way of making a lot of money. That is fine, however, so long as they do not use methods calculated to make consumers worse off in the long run." Anticompetitive acts like this one would harm consumers in the long-run. 2. (Back to OPENAIR-MARKET NET)