836 F.

2d 173
56 USLW 2405, 1987-2 Trade Cases 67,814

COMMONWEALTH OF PENNSYLVANIA, ex rel. LeRoy S.

ZIMMERMAN,
Attorney General of Pennsylvania, Appellant,
v.
PEPSICO, INC., Allegheny Pepsi-Cola Bottling Company, Inc.,
and Confair Bottling Company, Inc.
No. 87-5351.

United States Court of Appeals,

Third Circuit.
Argued Nov. 17, 1987.
Decided Jan. 4, 1988.

Fred A. Freund (Argued), Richard M. Steuer, Kaye, Scholer, Fierman,

Hays and Handler, New York City, Rod J. Pera, Alan R. Boynton, Jr.,
McNees, Wallace & Nurick, Harrisburg, Pa., Gerard W. Casey, Robert K.
Biggart, PepsiCo, Inc., Somers, N.Y., for appellees PepsiCo., Inc. and
Allegheny Pepsi-Cola Bottling Co., Inc.
James B. Kobak, Jr. (Argued), Robert J. Sisk, David W. Wiltenburg,
Hughes, Hubbard & Reed, New York City, J. David Smith, McCormick,
Rieder, Nichols, Sarno, Bahl & Knecht, Williamsport, Pa., for appellee
Confair Bottling Co., Inc.
Eugene F. Waye (Argued), LeRoy S. Zimmerman, Carl S. Hisiro, Kelly
H. Greensmith, Harrisburg, Pa., for appellant.
Before SEITZ, HUTCHINSON and ALDISERT, Circuit Judges.
OPINION OF THE COURT
ALDISERT, Circuit Judge.

The question for decision in this antitrust case of first impression under the Soft

Drink Interbrand Competition Act of 1980, 15 U.S.C. Secs. 3501-3503, is

whether the Commonwealth of Pennsylvania, as a parens patriae plaintiff,
properly set forth a claim on which relief could be granted in its complaint
against PepsiCo, Inc., a soft drink manufacturer, and two Pepsi-Cola bottlers.
After affording Pennsylvania an opportunity to amend, the district court
analyzed the amended complaint's allegations and, concluding that the plaintiff
had failed to mount the hurdles imposed by the Soft Drink Act, dismissed the
action for failure to state a claim under Rule 12(b)(6), F.R.Civ.P., 658 F.Supp.
816. Pennsylvania has appealed and we will affirm.
2

The district court had jurisdiction under 28 U.S.C. Sec. 1337. Jurisdiction on
appeal is proper based on 28 U.S.C. Sec. 1291.

I.
3

PepsiCo, Inc. makes soft drink syrup and concentrate, the flavoring ingredients
in its trademarked soft drinks. Allegheny and Confair are two Pepsi-Cola
bottlers; Allegheny is a wholly-owned subsidiary of PepsiCo. The bottlers buy
syrup and concentrate from PepsiCo to produce and sell carbonated soft drinks.
Each is licensed by PepsiCo to produce and market its soft drinks within an
exclusive geographic territory in Pennsylvania. Both Allegheny and Confair sell
soft drinks to distributors, retailers, and other resellers. These resellers are
independent operators having no licensing agreements with either PepsiCo or
the bottlers.

Although resellers generally sell retail, some sell wholesale to other resellers.
Under such circumstances, the wholesaling reseller becomes a competitor of
the wholesaling bottler. When resellers sell to other resellers outside of their
bottler's territory, the practice is known as "transshipping."

Pennsylvania alleges that PepsiCo, Allegheny, and Confair have conspired to

eliminate horizontal competition between bottlers and resellers by prohibiting
sales between resellers. Specifically, Pennsylvania claims that the three
defendants have engaged in the following practices: using a coding
identification system to trace and monitor soft drink sales; fining bottlers when
their product is shipped out of their territory; refusing to deal with resellers who
engage in transshipping; refusing to deal with resellers who buy from or sell to
other resellers; threatening termination of resellers who engage in such sales;
and limiting sales to resellers to the amount the reseller needs solely for its own
retail sales, in order to prevent that reseller from wholesaling.

Pennsylvania brought a parens patriae action in the district court, alleging that

Pennsylvania brought a parens patriae action in the district court, alleging that
defendants' practices violated section 1 of the Sherman Act, 15 U.S.C. Sec. 1,
and seeking an injunction against defendants pursuant to the Clayton Act, 15
U.S.C. Sec. 26. Defendants moved to dismiss for failure to state a claim on
which relief could be granted. Rule 12(b)(6), F.R.Civ.P. Pennsylvania filed an
amended complaint. defendants again moved to dismiss. On April 28, 1987, the
district court granted defendants' motion. Our standard of review of the district
court's dismissal is whether, taking the allegations of the complaint as true, and
liberally giving the plaintiff the benefit of all inferences that may be drawn
therefrom, it appears beyond doubt that the plaintiff can prove no set of facts
upon which relief could be granted. Wisniewski v. Johns-Manville Corp., 759
F.2d 271, 273 (3d Cir.1985).

II.
7

Pennsylvania's case stands or falls on federal statutory authority. Just as the

Sherman and Clayton Acts were designed to define antitrust violations, the Soft
Drink Act was enacted to remove certain soft drink industry practices from the
reach of the antitrust laws:

8
Nothing
contained in any antitrust law shall render unlawful the inclusion and
enforcement in any trademark licensing contract or agreement ... of provisions ...
limiting the licensee, directly or indirectly, to the manufacture, distribution, and sale
of such product only for ultimate resale to consumers within a defined geographic
area: Provided, That such product is in substantial and effective competition with
other products of the same general class in the relevant market or markets.
9

15 U.S.C. Sec. 3501.

10

The Act insures that "[n]othing contained in any antitrust law" shall render
enforcement of territorial restraints unlawful, except where it is alleged and
proved that competition among soft drink brands--i.e., interbrand competition-is not substantial and effective.

11

The Act also includes a second substantive section that provides:

12
Nothing
in this chapter shall be construed to legalize the enforcement of provisions
described in section 3501 of this title in trademark licensing contracts or agreements
described in that section by means of price fixing agreements, horizontal restraints of
trade, or group boycotts, if such agreements, restraints, or boycotts would otherwise
be unlawful.
13

15 U.S.C. Sec. 3502.

14

The genesis of the Act is in the Supreme Court's rulings on vertical restraints,
and in the effect of those rulings on standard soft drink industry distribution
practices. See Note, The Soft Drink Interbrand Competition Act of 1980:
Antitrust Loses its Fizz, 18:1 Harv. J. on Legis. 91 (1981) (hereinafter "Note").
In 1967, the Supreme Court, in the now overruled Schwinn decision, held that,
under certain circumstances, manufacturer-imposed territorial restraints are per
se illegal under section 1 of the Sherman Act. United States v. Arnold, Schwinn
& Co., 388 U.S. 365, 382, 87 S.Ct. 1856, 1867, 18 L.Ed.2d 1249 (1967). The
Schwinn decision helped launch a Federal Trade Commission investigation into
soft drink industry distribution practices. In 1971, that investigation culminated
in the filing of complaints against seven soft drink syrup companies. See Note,
supra, at 108.

15

During the pendency of those actions, the Supreme Court overruled the
Schwinn decision in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36,
97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). In Sylvania, the Court held that the law
should "return to the rule of reason that governed vertical restrictions prior to
Schwinn." Id. at 59, 97 S.Ct. at 2562. In 1978, relying in part on Sylvania, the
FTC ruled that certain territorial restrictions existing in the soft drink industry
were unlawful. Coca Cola Co., 91 F.T.C. 517 (1978), 642 F.2d 1387
(D.C.Cir.1981) (remanding for dismissal); PepsiCo, Inc., 91 F.T.C. 680 (1978),
642 F.2d 1387 (D.C.Cir.1981) (same). Those decisions were the primary
stimuli to the enactment of the Soft Drink Act in 1980. See H.R.Rep. No. 1118,
96th Cong., 2d Sess. 6, reprinted in 1980 U.S. Code Cong. & Admin. News
2373, 2375; Note, supra, at 106.

16

The Soft Drink Act was adopted after Congress conducted an intensive
investigation into the soft drink industry. In passing the Act, Congress
determined that the exclusive territorial distribution agreements common to the
soft drink industry warranted protection because that industry was a prototype
of industries in which territorial restraints foster interbrand competition. See
H.Rep. No. 1118, reprinted in 1980 U.S. Code Cong. & Admin. News at 2377.
Such restraints encourage each bottler to invest and promote in his own
territory, and prevent "free riding" by sellers from outside the territory on the
bottler's investment and effort. As described in the Senate Report
accompanying the Act:

17
Under
the trademark licensing system which exists in the soft drink industry, the
franchise company produces and sells syrups or flavoring concentrates pursuant to
trademark licensing agreements with independent bottlers, participates in advertising
and promotional expenditures made in connection with the trademarked products,
provides advice and technical assistance on production, quality control,

management, and sales problems, and assists in development and test marketing of
new products and containers.
18 bottler, in turn, manufactures, distributes and sells the trademarked products and
The
provides the capital investment necessary for his market. He determines the plant
and equipment to be used, the volume of production by size and type of container,
the product mix, the wholesale price to be charged, and the manner in which he can
maximize his market penetration to secure the widest possible distribution of his
products throughout the territory.
19

S.Rep. No. 645, 96th Cong., 2d Sess. 3 (1980).

20

Congress considered what would happen if the long-standing practice of

territorial exclusivity was eradicated:

21territories are eliminated, wholesale prices for non-returnable packages may fall
If
temporarily for large volume accounts, principally chain stores. However, it is the
committee's opinion that it is unlikely that chain stores will pass on these reduced
prices to their customers because their past practice has been to maintain a retail
price differential between their own private label soft drinks and the franchised
brands. Moreover, it is clear that prices in non-chain stores, which account for 55-60
percent of sales, would rise and the cheaper returnable bottles would be more
difficult to find.
22

Id. at 9. From these findings, Congress concluded that "the public policy stated
in the antitrust laws would be better served by retention of the existing,
competitive structure of the soft drink industry under the standards of this bill."
Id.

III.
23

Having examined the statute at issue, we turn to the questions presented. At the
outset, we must address a threshold issue. Pennsylvania alleges that the district
court erred in concluding that the Soft Drink Act applied to defendants' conduct
without first making factual findings on the existence of substantial and
effective competition in the relevant market. In the district court, Pennsylvania
made no effort to contend by factual allegations or otherwise that the Act did
not apply because of an absence of "substantial and effective competition with
other products of the same general class in the relevant market or markets." 15
U.S.C. Sec. 3501. The House Report recommending passage of the bill placed
this burden squarely on the plaintiff. "If a plaintiff cannot establish that there is
an absence of substantial and effective competition within the territory, then the

existence and enforcement of such arrangements would not violate the antitrust
laws." H.Rep. No. 1118, reprinted in 1980 U.S. Code Cong. & Admin. News at
2373, 2389. Neither the original complaint nor the amended complaint alleged
that PepsiCo's products do not face "substantial and effective competition" from
other products in the same general class in the relevant market.
24

As Justice Stevens stated in Associated General Contractors of Cal. v.

California State Counsel of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 902,
74 L.Ed.2d 723 (1983), "[i]t is not proper to assume that [a plaintiff] can prove
facts that it has not alleged or that the defendants have violated the antitrust
laws in ways that have not been alleged." But there is another reason for putting
this issue aside. We have held on numerous occasions that "a trial court should
not be reversed on grounds that were never urged or argued in the court below."
Caisson Corp. v. Ingersoll-Rand Co., 622 F.2d 672, 680 (3d Cir.1980). Thus,
we cannot conclude that the district court erred in applying the Act without
making findings on the issue of substantial and effective competition in the
relevant market.

IV.
25

The centerpiece of Pennsylvania's complaint was the allegation that not only
did PepsiCo prohibit bottlers from transshipping directly into other territories,
but that all three defendants prohibited both bottlers and resellers from aiding
and abetting third party transshippers. The plain language of the Act flies in the
face of these crucial allegations. The Act explicitly provides for the
"enforcement" of agreements limiting extraterritorial sales both "directly or
indirectly," and is aimed at combatting both bottlers and third parties who
transship. Providing for the limitation of manufacture, distribution, and sale
"only for ultimate resale to consumers within a defined geographic area," the
language of the Act squarely applies to the entire chain of distribution, from
intial manufacture right through the ultimate sale to the consumer. We believe
that it is unquestionably permissible for PepsiCo to require a bottler to ensure
that the "ultimate" resales of the PepsiCo products it produces will be to
consumers within its own territory.

26

We do not find it necessary to go beyond the plain language of the Act to

conclude that it applies to transshipments by retailers as well as by bottlers. Yet
were it necessary, a resort to the legislative history makes no doubt about the
intent of Congress. A number of transshippers testified against the Act, but the
record shows that Congress unequivocally rejected their position. See Hearings
Before the Subcomm. on Monopolies and Commercial Law of the Comm. on
the Judiciary of the House of Representatives on H.R. 3567 and H.R. 3573,

96th Cong., 1st and 2d Sess. 196-317 (hereinafter 1980 Hearings ); see also
S.Rep. No. 645, 96th Cong., 2d Sess. 10 (1980) (bill precludes "indirect
evasions" of license agreements); Exclusive Territorial Allocation Legislation:
Hearings Before the Subcomm. on Antitrust and Monopoly of the Comm. on
the Judiciary of the United States Senate, 92d Cong., 2d Sess. 356 (1972) ("[I]f
we don't have this territorial exclusivity law, [transshipment] is just what is
going to happen") (remark by P. Chumbris); id. at 381-83 (remark by C.
Bangert); 1980 Hearings, 229-30, 518, 528 (questions posed by Chairman
Rodino) ("under this legislation, the retailer would not be able to purchase soft
drinks outside the territory"); 126 Cong.Rec. 11358 (1980) (remarks by Sen.
Baucus); S.Rep. No. 188, 93d Cong., 1st Sess. 5-6 (1973) (bill makes lawful
license provisions which have the effect of precluding indirect evasions of the
licensing agreement).V.
27

We now turn to the question of horizontal restraint. Pennsylvania has alleged a

conspiracy among PepsiCo, Allegheny, and Confair to eliminate competition
for sales of Pepsi-Cola to third parties. The Commonwealth alleged that the
defendants were consciously committed to a common scheme of withholding
the product from certain resellers so that the resellers could not compete with
the bottlers. At argument, Pennsylvania emphasized that it does not rely on
theories of vertical restraint and that such allegations in the complaint were set
forth only "to show the total scheme of restraints." Its brief makes the same
point: "This is a case of first impression, as no court has considered the Soft
Drink Act in the context of a horizontal conspiracy among soft drink bottlers
and their syrup manufacturer to restrain sales between resellers." Br. for
appellant at 8.

28

Section 3502 of the Soft Drink Act exempts from the Act's protection "pricefixing agreements, horizontal restraints of trade, or group boycotts, if such
agreements, restraints, or boycotts would otherwise be unlawful." 15 U.S.C.
Sec. 3502. According to appellant, its allegations of horizontal conspiracy and
group boycott are sufficient to invoke the exemption provision of section 3502.
It thus contends that defendants are constrained from interposing the Soft Drink
Act as a total legal defense to the amended complaint.

29

We shall now proceed to examine Pennsylvania's horizontal conspiracy

contention, but before we do we make clear that we need not, and do not,
decide the extent to which the Act protects vertical restraints. Rather, our
inquiry is confined to the single issue of whether, given the protection of the
Soft Drink Act afforded the defendants, Pennsylvania's complaint can be fairly
read as properly alleging an illegal horizontal conspiracy.1

A.
30

A horizontal conspiracy is governed by section 1 of the Sherman Act, which

forbids "any contract, combination ... or conspiracy, in restraint of trade...." 15
U.S.C. Sec. 1. Economic values have played an important role in the
development of statutes and case law regulating the market by permitting or
prohibiting particular economic conduct. See, e.g., Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The dominant value, of course, is the maintenance of competitive commercial
and industrial activity in those areas to which the Sherman Act applies. See
Contintental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53
L.Ed.2d 568 (1976). In the present case, the concern is with the maintenance of
competition in those areas controlled by the Soft Drink Act. The other value to
which the courts have attached importance, as did Congress in adopting the
Soft Drink Act, is economic efficiency. See, e.g., Broadcast Music, Inc. v. CBS,
441 U.S. 1, 20, 99 S.Ct. 1551, 1562-63, 60 L.Ed.2d 1 (1979). In a competitive
economy, there is a clear goal of efficiency in production, distribution, and
resource allocation. We must agree that there is no basic conflict between
competition and efficiency.

31

Congress decided that the distribution practices of the soft drink industry
merited special protection on the theory that territorial restraints foster the
competitive spirit by encouraging each bottler to invest and promote in its own
territory. See H.Rep. No. 1118, reprinted in 1980 U.S. Code Cong. & Admin.
News at 2373, 2390. Congress also made the calculated judgment that sellers
outside a territory could not be intrusive beneficiaries of a bottler's investment
and effort. This summarizes, albeit in simplistic form, the basic foundation
upon which we must analyze Pennsylvania's allegation of a horizontal
conspiracy.

B.
32

The issued is joined head-on by the parties before us. Pennsylvania asserts that
the Soft Drink Act does not apply. It argues that the amended complaint alleges
a per se unlawful horizontal conspiracy, and that the Act excludes such per se
unlawful restraints from its coverage. PepsiCo, Allegheny, and Confair contend
that the conduct alleged in the amended complaint falls within the protection of
the Act. The question presented on this appeal comes down to whether the
appellant adequately pleaded a per se illegal horizontal conspiracy, which
would be excluded from the Act's protection. 15 U.S.C. Sec. 3502. If not, the
Act applies, and we must affirm the district court's dismissal of the amended
complaint.

33

Before examining the specifics of the complaint, we summarize the ruling case
law governing the pleading obligation of a plaintiff in an antitrust case. Our
starting point is Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957):

34 Federal Rules of Civil Procedure do not require a claimant to set out in detail
[T]he
the facts upon which he bases his claim. To the contrary, all the Rules require is "a
short and plain statement of the claim" that will give the defendant fair notice of
what the plaintiff's claim is and the grounds upon which it rests. The illustrative
forms appended to the Rules plainly demonstrate this. Such simplified "notice
pleading" is made possible by the liberal opportunity for discovery and the other
pretrial procedures established by the Rules to disclose more precisely the basis of
both claim and defense and to define more narrowly the disputed facts and issues.
35

Id. at 47-48, 78 S.Ct. at 103 (footnotes omitted).

36

Speaking through Judge Seitz, this court in 1968 admonished that "we should
be extremely liberal in construing antitrust complaints." Knuth v. ErieCrawford Dairy Coop., 395 F.2d 420, 423 (3d Cir.1968), cert. denied, 410 U.S.
913, 93 S.Ct. 966, 35 L.Ed.2d 278 (1973). But, as Judge Joseph S. Lord III ably
pointed out in 1980, "[w]hile antitrust complaints are not subject to especially
stringent pleadings, see Knuth, supra, neither are they exempt from the federal
rules." Sims v. Mack Truck Corp., 488 F.Supp. 592, 608 (E.D.Pa.1980). Judge
Friendly hammered home the same point in Klebanow v. New York Produce
Exch., 344 F.2d 294, 299 (2d Cir.1965):

37mere allegation that defendants violated the antitrust laws as to a particular

A
plaintiff and commodity no more complies with Rule 8 than an allegation which
says only that a defendant made an undescribed contract with the plaintiff and
breached it, or that a defendant owns a car and injured plaintiff by driving it
negligently.
38

Even given the teachings of Conley, which we must follow in all events, the
plaintiff must allege sufficient facts in the complaint to survive a Rule 12(b)(6)
motion. Confronted with such a motion, the court must review the allegations
of fact contained in the complaint; for this purpose the court does not consider
conclusory recitations of law. Rule 8(a) requires "a short and plain statement of
the claim showing that the pleader is entitled to relief." Rule 8(a), F.R.Civ.P.
(emphasis added). The Court of Appeals for the Second Circuit has held that
dismissal with prejudice of a "bare bones" allegation of antitrust conspiracy
without any supporting facts is appropriate where, as here, the plaintiff has
already amended his complaint once with leave of the court. Heart Disease

Research Found. v. General Motors Corp., 463 F.2d 98, 100 (2d Cir.1972).
Moreover, in a case involving dismissal of an amended complaint, the Supreme
Court noted that the plaintiff "had an adequate opportunity to amend its
pleading to add failed allegations demonstrating that the District Court's
decision to dismiss the complaint was based on a misunderstanding of its
antitrust claim." Associated Gen. Contractors of Cal. v. California State
Counsel of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).
Speaking through Justice Stevens, the Court stated:
39 the case comes to us, we must assume that the [plaintiff] can prove the facts
As
alleged in its amended complaint. It is not, however, proper to assume that the
[plaintiff] can prove facts that it has not alleged or that the defendants have violated
the antitrust laws in ways that have not been alleged.
40

Id. at 526 n. 11.

41

Accordingly, we will review the plaintiff's amended complaint in detail,

keeping in mind that Pennsylvania's rights rise no higher than the facts it has
alleged, and that the defendants cannot be said to have violated the antitrust
laws in ways that have not been alleged.

C.
42

Both the original and the amended complaints alleged that PepsiCo had granted
two bottlers, Allegheny and Confair, exclusive trademark licenses to bottle and
sell PepsiCo soft drinks within exclusive geographic territories located in
sections of Pennsylvania. App. at 6, 56. In both complaints Pennsylvania
alleged that pursuant to the licenses, "defendants and their co-conspirators"
refused to sell to retailers or other resellers who made a practice of reselling
PepsiCo products to customers located outside the territory, in other bottlers'
territories. Id. at 10, 59.

43

Both complaints also asserted that "defendants and their co-conspirators"

refused to sell to resellers who bought PepsiCo products from or sold them to
other resellers wherever located. Id. The Commonwealth alleged that bottlers
were subject to monetary penalties if resellers in their territory engaged in
shipping to customers located outside the territory. Id. The amended complaint
added the allegation that "defendants and their co-conspirators" tracked any
such shipping by means of a coding identification system. Id. at 58. Further, the
original complaint alleged that "defendants and their co-conspirators" had
"told" retailers not to sell to other retailers, and had "terminated" them as
customers or "limited" their volume if they failed to comply. Id. at 10. The

amended complaint revised this allegation, asserting that "defendants and their
co-conspirators" would "combine with resellers not to sell soft drink to other
resellers," and would "threaten" to either terminate them or limit their volume if
they did not comply. Id. at 59.
44

The most prominent new feature in the amended complaint consisted of eight
paragraphs of background allegations. The first of these substituted the word
"resellers" for "retailers" (the term used in the original complaint), but defined
"resellers" to include virtually every type of retailer who bought soft drinks
from a bottler. Id. at 57. The amended complaint alleged that these resellers
were independent from the bottlers and from PepsiCo. Id. at 58. It further
alleged that Allegheny and Confair had territories that were proximate to one
another, that they sometimes charged different prices from one another for the
same item, and that they sometimes charged different prices to different
customers for the same item within their own territories. Id. Finally, the
amended complaint alleged that resellers bought from other resellers because
their local bottler "charge[d] higher prices," refused to supply them, or limited
their volume. Id.

45

In addition to the factual allegations, the amended complaint set forth two
averments of law:23. Defendants' conduct consisted of, among other things,
horizontal restraints of trade, group boycotts and agreements which, directly or
indirectly, fixed or stabilized prices.

46 Defendants' conduct is not exempt from the antitrust laws under the defense
24.
provided by the Soft Drink Interbrand Competition Act of 1980, 15 U.S.C. Secs.
3501 et seq.
47

App. at 59-60.

48

In both the original and amended complaints, appellant concluded by

requesting that the alleged agreements be "decreed per se unreasonable
restraints of trade in violation of section 1 of the Sherman Act, 15 U.S.C. Sec.
1," and that an injunction be issued against refusals to deal with resellers and
against imposing any system "to enforce geographic bottling territories against
resellers." App. at 11-12, 61.

VI.
49

It is one thing to set forth theories in a brief; it is quite another to make proper
allegations in a complaint. Because the soft drink industry is involved,
Pennsylvania has a pleading burden much higher than that in a mine-run

antitrust complaint. In a Rule 12(b)(6) motion resting on the Soft Drink Act, the
district court should look only to the complaint's averments in order to make
two critical determinations: what specific antitrust conduct was alleged in the
complaint, and what conduct was permitted or not covered by the Act. Thus, in
the case at bar, the legal theories set forth in Pennsylvania's brief are helpful
only to the extent that they find support in the allegations set forth in the
complaint. "[I]t is axiomatic that the complaint may not be amended by the
briefs in opposition to a motion to dismiss." Car Carriers, Inc. v. Ford Motor
Co., 745 F.2d 1101, 1107 (7th Cir.1984), cert. denied, 470 U.S. 1054, 105 S.Ct.
1758, 84 L.Ed.2d 821 (1984). Accordingly, we cannot see much strength in
two pillars supposedly constructed as mighty structures in Pennsylvania's
horizontal conspiracy case.
A.
50

First, Pennsylvania contends that it alleged in its complaint "[a] conspiracy

between two soft drink bottlers, with or without the help of their syrup
manufacturer, to eliminate competition by resellers and to boycott resellers...."
Br. for appellant at 19. The representation in the brief, however, does not
properly describe what was said in the complaint. The allegations in the
amended complaint consistently refer to conduct by "defendants and their coconspirators"--not otherwise identified. The complaint does not allege any
agreement or conspiracy attributable solely to the competing bottlers, without
PepsiCo. Moreover, Pennsylvania cannot base its claim on any conspiracy
between PepsiCo and Allegheny. A parent company cannot conspire with its
wholly owned subsidiary for purposes of section 1 of the Sherman Act.
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731,
81 L.Ed.2d 628 (1984); Garshman v. Universal Resources Holding Inc., 824
F.2d 223, 230 (3d Cir.1987).

51

Equally significant is the fact that Pennsylvania did not allege any meetings
between Allegheny and Confair, any communications between them, or any
other means by which their alleged conspiracy came about. This
notwithstanding that in this circuit, "[o]nly allegations of conspiracy which are
particularized ... will be deemed sufficient." Garshman v. Universal Resources
Holding, Inc., 641 F.Supp. 1359, 1370 (D.N.J.1986), aff'd 824 F.2d 223 (3d
Cir.1987) (quoting Kalmanovitz v. G. Heileman Brewing Co., 595 F.Supp.
1385, 1400 (D.Del.1984), aff'd, 769 F.2d 152 (3d Cir.1985)). Instead, all that
appellant was apparently prepared to plead was a naked conclusion dropped
into the amended complaint, reciting a bare-bones assertion that there had been
a "horizontal" conspiracy.

52

Although the Supreme Court in Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), addressed our
present concern in the context of a motion for summary judgment and not a
motion to dismiss, what the court said there is not irrelevant to our present
inquiry: "[T]o survive a motion for summary judgment ... plaintiff ... must
present evidence 'that tends to exclude the possibility' that the alleged
conspirators acted independently." Id. at 588, 106 S.Ct. at 1357 (quoting
Monsanto v. Spray-Rite Serv. Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 79
L.Ed.2d 775 (1984).

53

In Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1108 (7th Cir.1984),
cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985), the court
stated that the attachment of per se labels to defendants' conduct is inadequate
in itself to sustain a complaint. "The defendants' alleged activity must be
scrutinized to determine whether such a characterization is appropriate." Id. The
court further remarked that the pleader may not evade the requirements of
proper pleading "by merely alleging a bare legal conclusion." Id. at 1106. Thus,
a plaintiff must plead the essential facts of a horizontal restraint or group
boycott in order to plead either properly.

54

What this court said on this subject almost 50 years ago bears repeating:

55 vital allegations [in stating a cause of action under the Sherman or Clayton
The
Acts] are similar to those in any civil conspiracy case. A general allegation of
conspiracy without a statement of the facts is an allegation of a legal conclusion and
insufficient of itself to constitute a cause of action. Although detail is unnecessary,
the plaintiffs must plead the facts constituting the conspiracy, its object and
accomplishment. The plaintiffs have pleaded none of these facts. Neither the date of
the alleged conspiracy nor its attendant circumstances are set forth. Nor is it averred
who made the statements, where, when or to whom.
56

Black & Yates v. Mahogany Ass'n, 129 F.2d 227, 231-32 (3d Cir.1941). The
law in this regard has not changed. See Garshman v. Universal Resources
Holding, Inc., 824 F.2d 223, 230 (3d Cir.1987) ("The allegation of unspecified
contracts with unnamed other entities to achieve unidentified anticompetitive
effects does not meet the minimum standards for pleading a conspiracy in
violation of the Sherman Act.") (citing Black & Yates ); Kalmanovitz v. G.
Heileman Brewing Co., 595 F.Supp. 1385, 1400 (D.Del.1984), aff'd, 769 F.2d
152 (3d Cir.1985).

57

In Car Carriers, the Court of Appeals for the Seventh Circuit emphasized the

importance of a consideration that has motivated this court over the years in
insisting upon reasonable specificity in antitrust complaints. The court
recognized that litigation today is too expensive a process to waste time on
fanciful claims:
58
When
the requisite elements are lacking, the costs of modern federal antitrust
litigation and the increasing caseload of the federal courts counsel against sending
the parties into discovery when there is no reasonable likelihood that the plaintiffs
can construct a claim from the events related in the complaint.
59

Car Carriers, 745 F.2d at 1106.

60

The same sentiment was expressed by Judge Pollak in Pao v. Holy Redeemer
Hospital, 547 F.Supp. 484, 491 (E.D.Pa.1982), where the court dismissed a
complaint with prejudice, saying:

61
Although
this is plaintiff's second attempt to state a valid Sherman Act claim, the
complaint still offers only uncertain clues as to plaintiff's theory of liability and the
facts which would support a finding of Sherman Act liability. It is simply not fair to
the defendants, and it would be an onerous imposition on the judicial process, to
permit litigation to go forward on the basis of such conclusory and speculative
allegations.
62

Likewise, in Havoco v. Shell Oil Co., 626 F.2d 549, 553 (7th Cir.1980),
affirming dismissal of a complaint for failure to state a claim, the court stated:

63 the allegations of the complaint fail to establish the requisite elements of the
[If]
cause of action, our requiring costly and time consuming discovery and trial work
would represent an abdication of our judicial responsibility.
64

There is no disagreement that the second section of the Soft Drink Act contains
an exception for "price fixing agreements, horizontal restraints of trade, or
group boycotts, if such agreements, restraints, or boycotts would otherwise be
unlawful." 15 U.S.C. Sec. 3502. The purpose of this section was to ensure that
certain per se violations would be excluded from the approved enforcement of
territorial exclusivity. H.Rep. No. 1118, reprinted in 1980 U.S. Code Cong. &
Admin. News at 2373, 2389. But the factual allegations of the amended
complaint did not come close to adequately pleading conduct amounting to any
of these per se offenses, and this failure cannot be cured by simply reciting that
appellees' conduct "consisted of" such offenses. Nor does it add anything to
tack on an ipse dixit legal conclusion that appellees' conduct "is not exempt"
under the Act.

B.
65

Pennsylvania's other major contention supporting its horizontal conspiracy

theory is the naked allegation, considerably fleshed out by brief and oral
argument, that there was a group boycott by the defendants designed "to
eliminate competition by resellers and to boycott resellers." Br. for appellant at
19. Here again, Pennsylvania recognizes the existence of the Soft Drink Act,
but says that it does not apply because the defendants' activities come within
the purview of the Act's exceptions for per se violations, including group
boycotts. See 15 U.S.C. Sec. 3502. But Pennsylvania cannot travel very far on
its group boycott argument.

66

This court has consistently limited application of the per se rule to the "classic"
boycott. See Malley-Duff & Assocs. v. Crown Life Ins. Co., 734 F.2d 133, 142
(3d Cir.1984), cert. denied, 469 U.S. 1072, 105 S.Ct. 564, 83 L.Ed.2d 505
(1984) (quoting Larry V. Muko, Inc. v. Southwestern Pa. Bldg. & Constr.
Trades Council, 670 F.2d 421, 430 (3d Cir.), cert. denied, 459 U.S. 916, 103
S.Ct. 229, 74 L.Ed.2d 182 (1982)). A classic boycott exists where there is
concerted action with "a purpose either to exclude a person or group from the
market, or to accomplish some other anti-competitive object, or both." Id.
(quoting De Filippo v. Ford Motor Co., 516 F.2d 1313, 1318 (3d Cir.1975),
cert. denied, 423 U.S. 912, 96 S.Ct. 216, 46 L.Ed.2d 141 (1975)).

67

Although dressed in the pejorative appellation "group boycott," the specific

conduct complained of in this case, stripped of name-calling or label-pasting, is
nothing more than conduct expressly permitted by the provisions of section
3501. What Pennsylvania now describes as a "group boycott" is precisely the
conduct specifically authorized by the clear unambiguous language of the Soft
Drink Act and its legislative history as set forth in Part II of this opinion. As we
stated before, the Act provides for the "enforcement" of agreements limiting
extraterritorial sales either "directly or indirectly." It is designed to combat and
prevent transshipping by both bottlers and third parties. It is not for us to
determine in this case what conduct would be permitted by a business
enterprise not engaged in the manufacture and distribution of soft drinks. For
our purposes here and now, we have decided that the Soft Drink Act applies to
the entire chain of distribution--from the manufacturer all the way through to
the consumer. It permits the manufacturer to require a bottler to ensure that the
ultimate resale of the PepsiCo products it produces will be to consumers within
its own territory. Thus, it allows bottlers to refuse to sell to resellers whose
actions impede this goal.

C.

68

This, too, must be said. We believe that to adopt Pennsylvania's view that
section 3502 prevents the conduct described above would lead to a great
inconsistency. On the one hand, this view would say that the Act grants
suppliers the right to establish exclusive bottler territories; on the other hand,
those territories could not be enforced because to do so would amount to a
"horizontal restraint" or a "group boycott." We will not so implement this
statute. It is well settled that "a statute should be interpreted so as not to render
one part inoperative." Colautti v. Franklin, 439 U.S. 379, 392, 99 S.Ct. 675,
684, 58 L.Ed.2d 596 (1979).

69

Equally important, we reject Pennsylvania's interpretation because it contradicts

the express intent of Congress. When Congress enacted section 3502, it
explicitly did not "tak[e] away ... what it gave in Sec. [3501]." 126 Cong.Rec.
16,576 (1980) (remarks by Rep. Butler). Nor did it intend "to vitiate the t[h]rust
of section [3501]." Id. at 16,570 (remarks by Rep. Hall) (the Act "contemplates
not only the existence but also the enforcement of bottler territories"). Rather,
Congress enacted section 3502 to ensure that section 3501 did not sanction
bottler-instigated market division or conspiracies among syrup manufacturers.

70

At the hearings on the Act, an attorney for a transshipper testified that unless a
qualifying proviso like section 3502 were added, the first section of the Act
would permit "bottlers [to] get together and form their own policing
committees" and would permit the major syrup manufacturers to join together
to "boycott" supermarket chains that transshipped. See 1980 Hearings 191-92.
His interpretation of section 3501 concerned Judiciary Chairman Rodino that
bottlers might create restraints on their own, and foist them upon their supplier.
The Chairman asked the attorney if section 3501 would permit "bottlers [to]
conspire[ ] to divide markets or allocate customers, and have their supplier ...
enforce the agreement...." Id. at 195. The attorney replied that, unless qualified,
it would. Id. This is the conduct that section 3502 was intended to address. But
no such conduct was alleged in this case.

71

Section 3502 does not render bottlers impotent to seek enforcement of exclusive
territories lawfully granted by the supplier, and that is all that is alleged here.
On these facts, we reject the contention that section 3502 prevents the
interposition of the Soft Drink Act as a total legal defense to the appellant's
amended complaint.

VII
72

We have carefully considered the contentions of the appellant, the

Commonwealth of Pennsylvania. The judgment of the district court will be

affirmed.

Because this Act is sui generis to the soft drink industry, we need not analyze at
length the many cases on which Pennsylvania relies. Thus, even if the holding
of Cernuto Inc. v. United Cabinet Co., 595 F.2d 164 (3d Cir.1979), survives the
holding and rationale of Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752,
104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), it is of no help. In Cernuto, there were
no exclusive territories. The supplier had two competing dealers in the same
area and the first dealer allegedly undertook to eliminate the second. The same
was true in Tunis Bros. Co. v. Ford Motor Co., 763 F.2d 1482 (3d Cir.1985),
vacated and remanded, 475 U.S. 1105, 106 S.Ct. 1509, 89 L.Ed.2d 909 (1986),
on remand 823 F.2d 49 (3d Cir.1987). In United States v. General Motors
Corp., 384 U.S. 127 (1966), the supplier had many dealers. Some of them
discounted and the non-discounters persuaded the supplier to take action
against the discounters. Pennsylvania's so-called group boycott cases are not
relevant either. These spring from scenarios in which a group of competitors
hatched a plan to eliminate a competitor at the same level of competition
among themselves. They then issued ultimatums to all the suppliers or
customers in their market. See St. Paul Fire & Marine Ins. Co. v. Bamy, 438
U.S. 531, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978); Los Angeles Meat &
Provision Drivers Union v. United States, 371 U.S. 94, 83 S.Ct. 162, 9 L.Ed.2d
150 (1961); Radiant Burners, Inc. v. Peoples Gas Light & Coal Co., 364 U.S.
656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Fashion Originators' Guild v. FTC,
312 U.S. 457 (1941); Paramount Famous Lasky Corp. v. United States, 282
U.S. 30, 51 S.Ct. 42, 75 L.Ed. 145 (1930)