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UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NEW YORK ________________________________________ ) UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
________________________________________
)
UNITED STATES OF AMERICA,
)
Plaintiff,
)
-vs-
)
97-CV-6294T
)
ROCHESTER GAS & ELECTRIC
)
CORPORATION,
)
Defendant.
)
________________________________________ )
PLAINTIFF UNITED STATES MEMORANDUM OF LAW IN
REPLY TO DEFENDANTS OPPOSITION TO PLAINTIFFS MOTION FOR
SUMMARY JUDGMENT
INTRODUCTION
In July of 1993, the University of Rochester (UR) authorized construction of a new
power plant that would have replaced its existing steam plant and supplied all of its electricity
needs, and then some. The electricity from that cogeneration plant posed a competitive threat to
RG&E -- the plant would have first taken URs electrical load off of RG&Es system, and the
excess power could have helped to satisfy the requirements of other RG&E customers. Rather
than building the plant, contracted with RG&E for its electricity supply at an attractive price.
But RG&E was not content solely to lock-up URs electricity needs -- it wanted to prevent UR,
and anyone working with UR, from building a steam plant that would generate electricity in
competition with RG&E.
RG&E could have responded to the threat posed by UR by simply, and lawfully, offering
UR a discounted rate of electricity, thereby altering URs incentive to build the proposed
cogeneration plant. A conventional supply contract would have been enough to keep URs load
on the system. But RG&E did more. It extracted URs promise not to interfere with the load of
UR will not solicit or join with other customers of RG&E to participate in any plan to
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provide them with electric power and/or thermal energy from any source other than RG&E. ISA
§ 6.3.
other customers, a promise not to compete that violates the antitrust laws. That promise should
not be complicated by unnecessary digressions into whether RG&E was justified in giving UR a
rate discount, or whether the electric industry is particularly complex. And neither should that
simple promise be confused with the electricity supply contract between RG&E and UR, a
contract which treats UR as a buyer (not a potential seller) of electricity. Nor, finally, should it
be thought that the State of New York, by encouraging competition in the electric generation
industry, has somehow authorized anticompetitive behavior in that same industry. RG&E
entered into a naked restraint of trade, subject to the per se rule, that is not protected by the state
action doctrine, and injunctive relief is the appropriate remedy.
I. REPLY ARGUMENT
A.
The Uncontested Facts Make Clear That RG&Es Agreement With UR Is
Illegal Per Se, and RG&Es Arguments For Avoiding the Per Se Rule Are
Unpersuasive.
Section 6.3 of the Individual Service Agreement (ISA) explicitly precludes UR from
competing with RG&E in the retail electric power market. RG&E acknowledges that the main
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purpose of the ISA was to provide the university with discounted electric rates in exchange for
the Universitys promise to forego the construction of a cogeneration plant and remain a
customer of RG&E . . ., and § 6.3 was necessary to ensure that RG&E would receive the
benefit of its bargain. (Def. Rep. Mem. at 23 (emphasis added).) Without § 6.3, and in spite of
the supply contract, RG&E would have faced the very real possibility of a competing supplier of
electricity. RG&E might be faced with everybody in town demand[ing] some kind of
discount, which is not what RG&E paid for. (Def. Rep. Mem. at 6 (quoting Thomas
These arguments are not necessarily consistent. According to RG&E, § 6.3 is at once
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ambiguous on its face (Def. Rep. Mem. at 5), meaningless for antitrust purposes (Def. Rep.
Mem. at 20), ancillary -- and thus by definition necessary -- to the ISA (Def. Rep. Mem. at
22), and so insignificant as to permit its removal from the ISA (Def. Rep. Mem. at 23). In effect,
RG&E claims we do not know what it means, it does not do anything, we need it, and we just
got rid of it.
Richards, President and Chief Operating Officer of RG&E).) As explained in detail in the United
States opening brief, such an agreement is a naked restraint of trade that is subject to per se
condemnation. See, e.g., Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49-50 (1990); United
States v. Topco Assocs. Inc. , 405 U.S. 596, 608 (1972); Engine Specialties, Inc. v. Bombardier
Ltd., 605 F.2d 1, 9 (1st Cir. 1979), cert. denied, 449 U.S. 890 (1980).
In response, RG&E argues that the per se rule does not apply in this case because (1) the
electric industry is unique, (2) RG&E and UR were not potential competitors, and (3) § 6.3 is
ancillary to the ISA. In support of its first argument, RG&E accurately cites the Supreme
2
Courts recent decision in State Oil Co. v. Khan, 1997 U.S. Lexis 6705, at *10-11. But Khan
requires experience with a particular type of restraint prior to application of the per se rule, and
RG&E confuses that requirement with a requirement of experience with a particular industry.
To the contrary, the Supreme Court has unequivocally rejected the argument that per se rules
should not be applied in complicated or heavily regulated industries with which the courts have
limited experience:
[T]he argument that the per se rule must be rejustified for every industry that has not
been subject to significant antitrust litigation ignores the rationale for per se rules, which
in part is to avoid the necessity for an incredibly prolonged economic investigation into
the entire history of the industry involved, as well as related industries, in an effort to
determine at large whether a particular restraint has been unreasonable -- an inquiry so
often wholly fruitless when undertaken.
Arizona v. Maricopa County Medical Socy, 457 U.S. 332, 350-51 (1982) (quoting Northern
Pacific Ry. Co. v. United States, 356 U.S. 1, 5 (1958)); accord Addino v. Genesee Valley
Town of Concord v. Boston Edison, 915 F.2d 17 (1st Cir. 1990), cert. denied, 499 U.S.
3
931 (1991), cited by Defendant, stands for the unremarkable proposition that an evaluation of
anticompetitive effects -- which is wholly irrelevant to a per se case such as this -- must take into
account the industry in which the effects are alleged. See id. at 22.
Medical Care, Inc., 593 F. Supp. 892, 900 (W.D.N.Y. 1984) (apply[ing] general per se
principles to the unique facts of the health care industry). The per se rules apply in the electric
industry just like they apply in any other. See, e.g., Columbia Steel Casting Co. v. Portland
General Elec. Co., 111 F.3d 1427, 1444 (9th Cir.), petition for cert. filed, 66 U.S.L.W. 3085
(U.S. Sup. Ct. July 2, 1997); Yeagers Fuel, Inc. v. Pennsylvania Power & Light Co., 953 F.
Supp. 617, 653 (E.D. Pa. 1997).
3
RG&E next argues that the per se rule is inapplicable because UR was not a potential
competitor. To establish whether a party is a potential competitor, courts look to objective
factors, such as the concrete steps taken towards entry, see Engine Specialties, 605 F.2d at 9,
available means to enter, see Yamaha Motor Co., Ltd. v. FTC, 657 F.2d 971, 978 (8th Cir. 1981),
cert. denied, 456 U.S. 915 (1982), and, most tellingly, an agreement which has the purpose of
keeping the party from entering, see United States v. Sargent Elec. Co., 785 F.2d 1123, 1127
(3rd Cir.), cert. denied, 479 U.S. 819 (1986). Here, RG&Es own evidence establishes that UR
was a potential competitor. The affidavit of Richard Greene, Executive Vice President and
Treasurer of the University, makes clear that (1) the University Board of Trustees had approved
a proposal to develop a cogeneration facility, (2) the facility would have generated more
electricity than the University could use, and (3) the excess output could have been sold.
The uncontroverted evidence is that the University had not committed that excess output
to any particular customer. RG&E did not wait to find out what the University would do with it.
Instead, it negotiated § 6.3 of the ISA, a clause that deals with UR as a seller of electricity to
In its Reply Memorandum, RG&E argues that its evidence of URs intent entitles it to
4
summary judgment under the rule of reason. (Def. Rep. Mem. at 14.) This argument ignores the
fact that the United States disputes RG&Es assertion of the Universitys intent as to who
would be the first customer of URs cogeneration plant. See Plaintiffs Statement Setting Forth
Specific Facts as to Which There Is a Genuine Issue In Opposition To Defendants Motion for
Summary Judgment, ¶ 70, at 35.
RG&Es customers in competition with RG&E. RG&E would have the Court believe that § 6.3
is