The opinion of the court was delivered by: HOGAN
In this antitrust suit, Chrysler Corporation ("Chrysler") seeks to enjoin the joint venture of General Motors Corporation ("General Motors" or "GM"), the world's largest automobile company and Toyota Motor Corporation ("Toyota" or "TMC"), the world's third largest automobile company, to manufacture and market later this year a compact automobile which will be derived from Toyota's new front-wheel drive "Sprinter." That car is currently only manufactured and marketed in Japan.
The Federal Trade Commission ("FTC") has carefully scrutinized the joint venture to ensure that the combination does not violate the antitrust laws and has authorized, over the dissent of two of the five reviewing commissioners, a final plan which contains several modifications to the parties' submitted plan.
At this early stage of the case the defendants have raised two crucial questions. The first is whether Chrysler has standing to complain about an injury which may result from future manufacturing and marketing of a product. To answer that question, defendants stress that the Court must decide whether Chrysler is complaining about an antitrust injury or merely an increase in competition, for the antitrust laws only protect against the former. The Court also must consider what standard of pleading and proof it should require Chrysler to meet at this early stage. The second issue, broadly stated, is whether Toyota, a Japanese corporation, is properly before the Court. This issue addresses whether venue is appropriate here, whether the Court has personal jurisdiction under the antitrust laws and local law over Toyota and whether Toyota has been properly served. After careful consideration of the memoranda submitted by the parties, the applicable legal precedents and the arguments of counsel and for the following reasons, the Court finds that Chrysler has standing to maintain this action and has alleged, at this time, sufficient facts to state a claim upon which relief could be granted. The Court further finds that it has personal jurisdiction over Toyota.
Terms of the Joint Venture
The Memorandum of Understanding states that the Joint Venture ("JV") will be limited in scope to the vehicle to be produced and the agreement is not intended to establish a cooperative relationship between the parties in any other business. MOU at 1. Nevertheless, it is the intent of the parties to provide such assistance to the JV as is considered appropriate to the enhancement of the JV's success. Id. at 1. Toyota will retain design authority over the vehicle, in consultation as to vehicle appearance with GM, the purchaser. Id. The JV will begin production of the GM-specific vehicle as early as possible in the 1985 Model Year with nominal capacity of approximately 200,000 units per annum at GM's former assembly facility in Fremont, California (Id. at 2).
As part of its technical assistance, Toyota will take the initiative, in consultation with GM, in designing the Fremont manufacturing layout and coordinating the related acquisition and installation of its machinery, equipment and tooling. In this regard, if GM deems it necessary for orders to be placed for construction of buildings, JV machinery, equipment and tooling prior to the establishment of the JV to facilitate a timely introduction of the initial JV vehicle in the 1985 Model Year, GM may do so in its own name directly or through Toyota, and the parties agree to share equally any capital expenditures or cancellation charges arising from such orders. The only exceptions to the above are as follows: In the event the JV is not established as a result of unfavorable U.S. governmental review of the matters set forth in the Memorandum or, following consultations between the senior management of Toyota and GM, as a result of either party notifying the other on or prior to one hundred twenty (120) days following the signing of the Memorandum of Understanding by the parties that such party is not satisfied with the prospects for developing an acceptable employee relations structure, GM shall bear 100% of the cost of such expenditures and charges.
GM's annual requirements are presently expected to exceed 200,000 units per annum. Id. at 3. Both parties will therefore assist the JV in increasing its production to the maximum extent possible within the available capacity. Requirements for capacity beyond the first module will be the subject of a separate study. Id. The JV may later produce a variation of the JV vehicle for Toyota. Toyota and GM may also agree for GM to source the GM-specific vehicle from Toyota assembly plants in Japan, freeing JV capacity for Toyota's full or partial production of Toyota-specific vehicles. Id. All GM-specific vehicles produced by the JV will be sold directly to GM or its designated marketing units for resale through GM's dealer network. Id. at 4. If any variation of the JV vehicles should be produced by the JV for Toyota, such vehicles would be sold directly to Toyota or its designated marketing unit for resale through Toyota's dealer network. Id. Neither Toyota nor GM will consult the other with respect to the marketing of JV products, or any other products, through their respective marketing organizations. Id.
Vehicles sold by the JV should be priced by the JV to provide a reasonable profit for the JV, Toyota, and GM. Id. To accomplish this, production costs must be kept as low as possible through the combined best efforts of the JV, Toyota, GM and other major suppliers. Id. In this regard, the parties have been conducting extensive studies detailing how each can work to minimize JV expenses. Id.
The initial JV selling price of the JV vehicle to be sold to GM during the 1985 Model Year will be determined at least 60 days prior to the start of production by negotiation between the JV and GM. Id. at 5. This negotiation will be based on the production cost estimated 90 days prior to the expected start of production by the JV, with estimates of said cost to be guided by the feasibility study. Id. In no event, however will the said initial JV selling price be higher than the upper limit nor lower than the lower limit, each as defined below. Id. The upper limit shall be determined by adjusting for feature differences the Dealer Net Price less 8% of Toyota's then current U.S. model front-wheel drive Corolla equipped comparably with the JV vehicle concerned, and the lower limit shall be determined by adjusting for feature differences the Dealer Net Price less 11% of said Corolla. Id. The adjustment for feature differences will be made by agreement between the JV and GM. Id.
Thereafter, although there may be exceptions, the JV vehicle selling price will be revised and determined for each model year. Id. The new selling price for the new model year will be determined by applying to the selling price for the previous model year the Index as defined in Exhibit A. Id. Since the calculations embodied in the Index may occasionally yield a selling price which is at significant variance with then current market conditions, the JV and GM will in such cases negotiate a more appropriate selling price. Id. at 6.
If model changes or specification changes of the vehicle manufactured by the JV are necessary, Toyota, GM and the JV will agree upon these model changes or specification changes. Id. Toyota will present to the JV the plan for the model changes or specification changes concerned. Id. Then, the JV will submit to and negotiate with GM the planned model changes and specification changes together with the planned price changes. These model changes and specification changes will be made as agreed upon by the JV and GM. Id.
The methodology to be employed in pricing optional equipment available on the JV vehicle (both initial and subsequent) will be comparable to that described in the three preceding paragraphs. Id.
The initial prices of Toyota and GM components purchased by the JV will be determined 90 days or more prior to the start of production by negotiation between the JV and component suppliers after the determination of the specifications of the JV vehicle. Id. Identification of the respective sources of supply and determination of the initial component prices will be guided by the feasibility study, with adjustments made for changes in specifications and appropriate economics. Id.
Thereafter, the prices of components will be reviewed semi-annually. Id. at 7. The new prices will be determined by negotiation between the JV and component suppliers. Id.
If it is anticipated that continuation of the above-mentioned methods for determination of the prices of the JV vehicles to be sold by the JV and of components to be purchased by the JV would cause those prices to be at such levels as the JV would incur the losses which could endanger the normal operation of the JV, Toyota, GM and the JV shall negotiate and take necessary measures. Id.
As a fundamental principle, Toyota and GM shall each be free to price and free to market the respective vehicles purchased from the JV without restrictions or influence from the other. Id.
Toyota will grant to the JV the license to manufacture the vehicle developed by Toyota, and in exchange for this license, the JV will pay a reasonable royalty to Toyota as may be agreed upon by the parties. Id. at 9. Toyota and GM will license the necessary industrial property rights to the JV, and in exchange for these rights, the JV will pay reasonable license fees to Toyota and/or GM as may be agreed upon by the parties. Toyota and GM will also provide technical assistance to the JV on a cost basis plus reasonable markup. Id.
As part of the technical assistance, GM agrees to assist Toyota and the JV in completing compliance tests for safety, emissions and other areas, as agreed upon by the parties. Id.
Purchase/Sale of Equity Interest
Toyota and GM (including, subject to the approval of the other party, their wholly or majority-owned subsidiaries) will each hold a 50% equity interest in the JV. Id. Neither party may transfer its equity interest in the JV to a third party without the written consent of the other. Id. The above notwithstanding, the JV will terminate not later than 12 years after start of production. Id. The methodology for disposition of Toyota and GM equity interests prior to or upon JV termination will be incorporated in the JV documentation. Any surplus or deficit of the JV as at termination of the JV will be shared equally by Toyota and GM, in line with Toyota and GM ownership. Id. at 10. Other issues relating to JV termination will be separately discussed. Id.
Both Toyota and GM will contribute cash and/or fixed assets to the JV in exchange for equity interests. Id. The amount to be contributed as equity will depend upon the JV's total projected capital requirements. Id. In the event that either lenders or lessors insist that payments made by the JV be subject to appropriate guarantees, Toyota and GM agree either to provide such guarantees based on their pro rata share of the JV or to temporarily advance funds to the JV on their own account (also on a pro rata basis). Id. To the extent permitted by creditors, Toyota and GM further agree that any security interests held by the parties in the JV assets will be shared equally. Id.
If it is anticipated that the establishment or continuation of the JV would become difficult or infeasible due to any legal, political or labor-related reason which may arise in the United States, the parties will in good faith discuss the measures to be taken concerning the JV and endeavor to find appropriate solutions.
Standing and Rule 12(b)(6) Analysis
Chrysler brings this suit under Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2,
respectively, and Section 7 of the Clayton Act, 15 U.S.C. § 18 (1982). This Court has subject matter jurisdiction over this suit pursuant to 28 U.S.C. §§ 1331 and 1337 and Section 16 of the Clayton Act, 15 U.S.C. § 26.
Section 7 provides, in pertinent part,
Section 16 provides, in pertinent part,
Any person, firm, corporation or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, . . ., when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings, and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate, a preliminary injunction may issue. . . .
15 U.S.C. § 26 (1982). Section 16 of the Clayton Act, which authorizes injunctive relief for injuries threatened by a violation of the antitrust laws, is to be distinguished from Section 4, which authorizes recovery of treble damages where there is injury to a person in "his business or property by reason of anything forbidden in the antitrust laws . . .," 15 U.S.C. § 15 (1982).
In Merit Motors, Inc. v. Chrysler Corp., 187 U.S. App. D.C. 11, 569 F.2d 666 (D.C. Cir. 1977), this Circuit recognized that while Section 4 authorizes recovery of treble damages by one who has been injured, Section 16 allows a suit for an injunction where there has been a threatened injury. The Court explained,
The showing of injury required for a suit seeking an injunction is less than that required to sue for treble damages since only threatened rather than actual damages must be proved.
Id. at 670 n.14. In that case, where the programs which plaintiff challenged had been in existence long enough so that their potential effects on dealers could manifest themselves, the Court recognized that the difference in the two standards was not so consequential. Id.
Section 16 is further distinguished from Section 4 because the right to sue under Section 16 extends to "threatened as well as actual injuries and is not limited to injuries to a party's business or property." Optivision, Inc. v. Syracuse Shopping Center Assoc., 472 F. Supp. 665 (N.D.N.Y. 1978). The Supreme Court has recognized that a plaintiff seeking relief under Section 16 need not show actual injury caused by defendant's anticompetitive conduct; he need only demonstrate significant threat of injury from impending violation of the antitrust laws or from a contemporary violation that is likely to continue or recur. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 129-31, 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969), rev'd on other grounds, 401 U.S. 321, 28 L. Ed. 2d 77, 91 S. Ct. 795, reh'g denied, 401 U.S. 1015, 28 L. Ed. 2d 552, 91 S. Ct. 1247 (1971). In summary, to achieve standing under Section 16, the petitioner must demonstrate that he is threatened with loss or injury proximately resulting from the antitrust violation. Midwest Paper Products Co. v. Continental Group, 596 F.2d 573, 591-92 n.74, citing, Jeffrey v. Southwestern Bell, 518 F.2d 1129 (5th Cir. 1975).
With this distinction in mind but before it reviews the parties' arguments, the Court will set forth Chrysler's allegations. Chrysler alleges that GM has captured about 70% of the market for large automobiles, 27% of the market for small automobiles and 15% of the market for subcompact automobiles. (Complaint, para. 30). It further alleges that GM and Toyota are the price leaders in the relevant markets for domestic and foreign automobile manufacturers, respectively. (Id. at P 32). Chrysler defines the market affected as the manufacture, assembly, and sale of automobiles, including subcompacts and small and large automobiles and the geographic market as the United States. (Complaint, para. 24.) Chrysler alleges that subcompact automobiles play a major role in the marketing of all automobiles sold by major manufacturers because they serve as the starting point for the industry's price structure, as manufacturers establish prices for automobiles largely by maintaining certain differentials between the successive sizes of automobiles. (Id. at P 28 (a)) Furthermore, Chrysler alleges that subcompacts are crucial in determining the manufacturer's ability to attract customers to its dealer showrooms (id. at P 28(b)), are important in shaping long-term consumer attitudes toward a manufacturer and developing basic consumer loyalties (id. at P 28(c)) and their manufacture is essential to meeting the federal government's corporate average fuel economy standards. (para. 28(d).)
Chrysler asserts that the joint venture will lessen actual and potential competition and tend to create a monopoly in violation of Section 7 of the Clayton Act. In particular, it alleges in paragraph 35
(a) The proposed joint venture between GM and Toyota will destroy existing competition in the design and manufacture of subcompact automobiles. Chrysler maintains that were it not for the joint venture, GM would have to market its own existing subcompact or independently design and manufacture a subcompact model to replace it; ...