Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Law firm failed to state antitrust claims against competitor’s exclusive advertising contracts, (Oct 2, 2014)

By Linda O’Brien, J.D., LL.M.

In an action alleging monopolization of the market for legal services advertising through exclusive advertising contracts, the complaining law firm failed to adequately define the relevant product market, the federal district court in Philadelphia has ruled. Thus, the law firm’s antitrust claims were dismissed. However, the firm’s false and misleading advertising claims could proceed (Larry Pitt & Associates v. Lundy Law, LLP, September 30, 2014, Rufe, C.).

Larry Pitt & Associates is a law firm that provides representation primarily for personal injury, social security disability, and worker’s compensation law claims in the greater Philadelphia area. Lundy Law, LLP is a law firm that serves the same region and focuses on the same practice areas. The two firms directly compete for clients and for prime advertising opportunities that create name recognition. Prime advertising venues include: the exterior of public buses, radio time slots before and after traffic and weather updates, and inside sports arenas. Pitt had purchased advertising space on the exteriors and interiors of public transportation buses and trains and on public transportation bus stops. Pitt had also advertised on a local radio station during rush hour.

In 2012, Lundy obtained the exclusive right to advertise legal services on the exterior of public transportation buses in the greater Philadelphia area. The advertisements were sold by advertising firm, Titan Outdoor. Lundy also obtained exclusive contracts to advertise on the local radio station around weather and traffic updates in the desirable time slots and at a local sports and entertainment arena. Lundy received the exclusive contracts by paying premium advertising fees.

Pitt filed suit against Lundy and Titan, alleging violations of the Sherman Act and Lanham Act. Specifically, Pitt alleged that Lundy monopolized and attempted to monopolize the market for the advertising for legal services in their practice areas by entering into exclusive contracts which precluded other law firms from advertising at the desirable venues and resulted in a decline of Pitt’s client referrals. In December 2013, Lundy’s motion to dismiss the antitrust claims was granted, although the Lanham Act claims were allowed to proceed. After Pitt filed a second amended complaint, Lundy against moved for dismissal.

Monopolization. In dismissing Pitt’s claims for monopolization or attempted monopolization, the court found that Pitt did not adequately define the relevant product market. Pitt contended that Lundy has achieved or attempted to achieve a monopoly in the market for small personal injury, social security disability, and workers’ compensation law firms in the greater Philadelphia region. To state a claim under Section 2 of the Sherman Act, a plaintiff must define the relevant geographic and product market. According to the court, although Pitt adequately defined the proposed geographic market, it failed to sufficiently plead a product market. Pitt’s market definition of “small” law firms was unrealistically narrow and did not include all legal services providers that consumers might retain for the same purpose. Moreover, Pitt provided no factual basis for excluding from its market definition many law firms providing the same legal services as firms within the proposed market definition. Thus, Pitt’s market definition did not “encompass all interchangeable substitute products” such that the relevant market was legally insufficient.

Additionally, Pitt did not adequately plead that Lundy’s conduct created a dangerous probability of achieving monopoly power. The court noted that Lundy did not control all potentially effective advertising opportunities in the region and, while competitors may be relegated to using inferior or more expensive advertising opportunities, Pitt alleged no facts in which to infer that Lundy’s exclusive advertising contracts created or were likely to create a barrier to entry into the legal market. Furthermore, regarding the alleged payment of referral fees by doctors to whom Lundy refers clients, Pitt did not allege that the referrals or referral fees were necessary for the practice of law.

Exclusive dealing. Pitt also failed to adequately plead that the exclusive advertising contracts unduly restrained trade. Pitt’s contention that Lundy’s exclusive contract to advertise on the exterior of public buses constituted a conspiracy with Titan to engage in unlawful exclusive dealing was rejected. The court noted that advertising on the exteriors of public buses was not necessary for the survival of competition in the legal market, did not lessen competition, or create barriers to entry into the legal market.

The court determined that Pitt failed to plead facts in which to infer that Lundy’s advertising agreements with other law firms constituted a conspiracy to monopolize the market. It was equally plausible that the other law firms were aware of Lundy’s exclusive access to highly efficient advertising opportunities and entered into the agreements for rational business reasons.

Unfair competition. Finally, Pitt’s claims under state law that the exclusive advertising contracts and referral payments to doctors constituted unfair competition were dismissed. Pitt did not adequately allege that the conduct involved any misappropriation from or misrepresentation about Pitt, or any injury to Pitt’s reputation, manner of doing business, or commercial relations. However, Pitt’s unfair competition claim that Lundy engaged in false, misleading, and deceptive advertising could proceed. Pitt asserted that Lundy falsely advertised that it represented clients in social security and worker compensation cases when Lundy in fact referred such clients to other firms for representation in exchange for a referral fee. Since the court previously held that Pitt adequately pleaded a claim under the Lanham Act, it could pursue its unfair competition claim relating to its false or misleading advertising allegations.

The case is No. 13-2398.

Attorneys: Carl W. Hittinger (BakerHostetler LLP) for Larry Pitt & Associates. Brian Savage (Dechert LLP) for Lundy Law, LLP, Titan Outdoor LLC, and L. Leonard Lundy.

Companies: Larry Pitt & Associates; Lundy Law, LLP; Titan Outdoor LLC

Cases: Antitrust PennsylvaniaNews