Intervest, Inc v. Bloomberg, L.p.

PRECEDENTIAL
Filed August 7, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-2975
INTERVEST, INC.
v.
BLOOMBERG, L.P.; SG COWEN SECURITIES;
LIBERTY BROKERAGE INVESTMENT;
LIBERTY BROKERAGE, INC.;
LIBERTY BROKERAGE SECURITIES, INC.;
DEUTSCHE BANK SECURITIES;
CANTOR FITZGERALD SECURITIES;
SALOMON SMITH BARNEY, INC.;
MERRILL LYNCH & CO.; J.P. MORGAN
SECURITIES, INC.
(D.C. Civil No. 98-cv-03278)
INTERVEST FINANCIAL SERVICES, INC.
v.
BEAR STEARNS, CO. INC.; CANTOR
FITZGERALD SECURTIES; S.G. COWEN
SECURITIES CORP.; DEUTCHE BANK
SECURITIES CORP.; LIBERTY BROKERAGE,
INC.; LIBERTY BROKERAGE SECURITIES, INC.;
LIBERTY BROKERAGE INVESTMENT, CORP.;
MERRILL LYNCH & CO., INC.; J.P. MORGAN
SECURITIES, INC.; SALOMON, SMITH, BARNEY, INC.;
BLOOMBERG, L.P.; CANTOR FITZGERALD, L.P.;
CANTOR FITZGERALD PARTNERS
(D.C. Civil No. 99-cv-05463)

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INTERVEST FINANCIAL SERVICES, INC.,
Appellant
(Amended per Clerk’s Order of 9/25/02)
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Nos. 98-cv-03278 and 99-cv-05463)
District Judge: Honorable Anita B. Brody
Argued April 8, 2003
Before: BECKER, Chief Judge,* BARRY and
BRIGHT,** Circuit Judges.
(Filed August 7, 2003)
LARRY H. SPECTOR, ESQUIRE
(ARGUED)
DEENA B. BEARD, ESQUIRE
Wolf, Block, Schorr &
Solis-Cohen LLP
1650 Arch Street
Philadelphia, PA 19103
Counsel for Appellant
STUART M. GERSON, ESQUIRE
(ARGUED)
Epstein Becker & Green, P.C.
1227 25th Street, N.W.
Washington, D.C. 20037
Counsel for Appellee
OPINION OF THE COURT
* Judge Becker completed his term as Chief Judge on May 4, 2003.
** Honorable Myron H. Bright, United States Circuit Judge for the Eighth
Circuit, sitting by designation.
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BECKER, Circuit Judge.
This is an antitrust case under Section 1 of the Sherman
Act. Plaintiff InterVest Financial Services, Inc. (“InterVest”)
created an electronic trading platform where its subscribers
could trade bonds and other forms of fixed income
securities, and entered into a contract with Bloomberg, L.P.
(“Bloomberg”) to place its system on Bloomberg’s
information network, which is widely used in the financial
world. According to InterVest, its trading system sought to
revolutionize the bond market by allowing investors access
to real-time pricing information and lower transaction costs
per trade. However, InterVest’s relationship with Bloomberg
was unsuccessful, and Bloomberg terminated its contract
with InterVest only 14 months after InterVest went live on
the Bloomberg network. Alleging that S.G. Cowen Securities
Corp. (“Cowen”) and certain other broker-dealers in the
bond market pressured Bloomberg to dump InterVest from
its system because the broker-dealers were threatened by
the prospect of InterVest undercutting the profits they
earned by exploiting their monopoly over bond pricing
information, InterVest brought suit under the Sherman Act
against the broker-dealers and Bloomberg in the District
Court for the Eastern District of Pennsylvania. InterVest
also alleged that the broker-dealers tortiously interfered
with its contract with Bloomberg.
All of the defendants settled with InterVest, except for
Cowen. After the completion of discovery, Cowen moved for
summary judgment, which the District Court granted. In
reviewing Cowen’s motion for summary judgment, the
District Court applied the special standard for Sherman Act
cases articulated by the Supreme Court in Monsanto Co. v.
Spray-Rite Serv. Corp., 465 U.S. 752 (1984), and Matsushita
Electronic Industrial Co. v. Zenith Radio Corp., 475 U.S. 574
(1986). In those cases, the Supreme Court explained that
“[c]onduct as consistent with permissible competition as
with illegal conspiracy does not, standing alone, support an
inference of antitrust conspiracy.” Matsushita, 475 U.S. at
588. Therefore in a conspiracy case, a nonmoving plaintiff
“must present evidence that ‘tends to exclude the
possibility’ that the alleged conspirators acted
independently” in order to survive a motion for summary
judgment. Id. (quoting Monsanto, 465 U.S. at 764).
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Cowen maintains that the Monsanto/Matsushita standard
was properly applied. InterVest argues that the Court
should not have used this standard because Cowen’s
participation as a broker-dealer in the bond market — a
market in which these firms controlled pricing information
on bonds and could therefore charge high spreads (or
markups) on transactions — was direct evidence of a
conspiracy. We disagree. As we will explain, the lack of
price transparency in the bond market benefits investors
who wish to transact anonymously and thus reduce the
market impact of their trades; furthermore, broker-dealers
provide the needed liquidity for investors who deal with
thinly traded bonds. And there is nothing in the structure
of the bond market that prevents the entry of new broker-
dealers. We do not believe that the entire bond market,
which includes thousands of broker-dealers trading various
types of securities, can fairly be described as a conspiracy.
Moreover, the cases require that direct evidence of an
illegal agreement be established with much greater clarity.
And as the District Court concluded, Cowen’s desire to
make money as a broker-dealer in the bond market “is, in
and of itself, perfectly rational and legal,” Intervest Financial
Services, Inc. v. S.G. Cowen Securities Corp., 206 F.
Supp.2d 702, 717 (E.D. Pa. 2002), not direct evidence of an
antitrust violation. Because the evidence InterVest submits
is at most ambiguous regarding Cowen’s participation in a
conspiracy to injure InterVest, we believe that the Court
correctly applied the summary judgment standard
articulated by the Supreme Court in Monsanto and
Matsushita.
In order to survive Cowen’s motion, InterVest must
present evidence that tends to exclude the possibility that
Cowen acted independently and leads to the reasonable
inference that Cowen engaged in an illegal conspiracy to
keep InterVest out of the bond market. InterVest cannot
meet this standard. There is no evidence in the record that
Cowen communicated with other broker-dealers regarding
InterVest. Although InterVest produces evidence tending to
show that Bloomberg might have severed its relationship
with InterVest at least in part due to pressure from broker-
dealers, InterVest does not present evidence indicating that
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Cowen threatened Bloomberg into doing so or that there
was an agreement or conspiracy between Cowen and
Bloomberg to harm InterVest. Moreover, there is ample
evidence in the record suggesting that Cowen’s decision not
to deal with InterVest was made independently in light of
(1) Cowen’s desire to maintain its business, which
depended on its ability to obtain the profits earned from the
spreads, or markups, on the transactions it brokered in the
bond market, and the confidentiality between the brokerage
and dealer aspects of the business; (2) InterVest’s unproven
technology; and (3) investors’ apparent lack of interest in
InterVest’s system as evidenced by the few transactions the
company conducted. Given this backdrop and the lack of
evidence tending to show that Cowen conspired with other
broker-dealers or Bloomberg rather than acting
individually, we will affirm the District Court’s order
granting Cowen’s motion for summary judgment on the
antitrust claim.
Finally, we also will affirm the District Court’s order
granting summary judgment in favor of Cowen on
InterVest’s tortious interference with contract claim
because InterVest can only point to an alleged complaint by
Cowen to Bloomberg to support its claim, an action which
we do not believe amounts to an improper interference
under § 767 of the Restatement (Second) of Torts.
I. Background
A. The Bond Market and the Role of Broker-Dealers;
Positive and Negative Aspects
We begin with a summary of the operation of the bond
market as it functioned during the relevant period (1993-
1998). Intervest sought to create an electronic exchange in
the secondary bond market, where bonds are bought and
sold among institutional investors and broker-dealers after
they are issued. All U.S. government and municipal bonds,
as well as the vast preponderance of corporate bonds, are
traded over-the-counter (“OTC”) through direct trades
between a buyer and seller.1 See Robert Zipf, How the Bond
1. The bond market in the United States is enormous. The Bond Market
Association (“BMA”), the industry’s trade association, estimates that as
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Market Works 139 (1997). A very small percentage of bonds
are traded on established exchanges, such as the New York
Stock Exchange.
In the vernacular of the bond market, the “buy-side”
consists of the customers, mostly institutional investors,
such as mutual funds, insurance companies, and pension
funds. The “sell-side” of the market is made up of
thousands of broker-dealers, including firms like Cowen.
Until very recently, broker-dealers transacted business
primarily over the telephone; electronic exchanges were not
widely introduced until the late 1990s. “Sell-side” firms are
called “broker-dealers” because they serve two main
functions: (1) as brokers, by acting as an agent for
customers who wish to buy and sell bonds; and (2) as
dealers, by serving as principal investors through the
trading of bonds in their own inventories. Id. at 140.
Broker-dealers may also act as “inter-dealer brokers” when
they serve as an agent in a transaction between two other
broker-dealers.
Broker-dealers receive different forms of compensation
depending on which role they are undertaking in the
transaction; however, a firm may only act in one role in any
single transaction. When serving as a broker (or an inter-
of 2002, the entire market (including money market instruments and
asset backed and mortgage-related securities) was valued at $20.2
trillion dollars in outstanding securities. See BMA, Debt Markets
Represented by The Bond Market Association as of 2002, available at
http://www.bondmarkets.com/Research/debtmkt.html. At the end of
2002, corporate debt securities represented the second largest sub-group
in the bond market (after mortgage-related securities) with $4.0 trillion
dollars of outstanding securities. U.S. Treasury securities amounted to
$3.2 trillion dollars and total municipal securities outstanding was
valued at $1.8 trillion. Id.
Not only is the market large, but the daily trading volume is
impressive. The BMA estimated the value of daily trading volume within
the relevant sectors as follows:
U.S. Treasury $366.4 billion
Corporate $18.9 billion
Municipal $10.7 billion
Id.
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dealer broker), the firm will receive a commission for
executing the customer’s order. By contrast, when acting as
a dealer, the firm will charge a markup on sales and a
markdown on purchases. Id. This markup or markdown is
the dealer’s spread (or profit), the amount of which is rarely
disclosed to the customer. Id. at 145.
The OTC bond market functions very differently from the
stock or equities markets. The stock markets may be
characterized as “auction” markets, where the price of the
stock is set by the highest bid or the lowest offer. The bond
market, however, is a “negotiated” market in which the
transaction price is set individually by the broker-dealer
and the investor. Id. at 140. Importantly, this characteristic
means that the bond market lacks price transparency, i.e.,
the ability of the investor to know the market price of the
bond for which he is bidding, particularly in the trading of
corporate bonds. See Speech of SEC Chairman Arthur
Levitt, Sep. 9, 1998, 1998 WL 614902 at *2.2 Whereas an
investor in the equities markets has ready access to current
price information on stocks, the same is not available in the
bond market. As Chairman Levitt put it, “The sad truth is
that investors in the corporate bond market do not enjoy
the same access to information as a car buyer or a home
buyer, or, dare I say, a fruit buyer.” Id. at *1.
This difference in relative price transparency between the
bond market and other markets is due to several unique
characteristics of the bond market, three of which are
particularly significant. First, the bond market is dominated
by a relatively small number of broker-dealers who serve as
market makers for particular types of bonds. These market
makers maintain a large inventory of bonds, which they
2. In the early 1990s, there were advances in the trading of U.S.
government and municipal bonds that increased the price transparency
of these respective markets. In 1991, the SEC and Congress encouraged
the formation of GovPX, a 24-hour distributor of real-time quotes on
transaction prices for U.S. Treasury and other government securities.
Four years later, the Municipal Securities Rulemaking Board (“MSRB”)
began collecting information on inter-dealer transactions of municipal
bonds and issuing daily summary reports. In 1998, the MSRB expanded
these activities to cover transactions between broker-dealers and their
customers. See Levitt Speech, 1998 WL 614902 at *3.
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trade with customers as dealers or with other firms as
inter-broker dealers. Zipf, at 140. Market makers take
advantage of their control over information on bond prices,
availability, and market activity, to charge a larger spread
than would be possible in a market with greater price
transparency.
A New York Times article illustrated how a professional
investor might interact with a market maker in order to
complete a transaction in the corporate bond market:
To get a market price, [a professional investor] must
conduct an unwieldy and imprecise shopping
expedition among a dozen or more dealers, or rely on
what one dealer tells them — or, for less active issues,
fall back on what may be little more than a wild guess.
Robert B. Hershey, Jr., Trading In Bonds On Line, At Last,
The New York Times, June 27, 1999, at C1. Yet, broker-
dealers also need to be resourceful in order to make money
in the bond market. As one book on the subject explained:
For all bond traders . . . the best source of information
consists of their contacts in the business. Who among
other firms’ traders has a certain type of bond in
inventory? Which of them owes a favor, and to whom?
Who quoted a favorable price on a certain bond just
this morning? Who is trying to sell a weak issue? And
so on. Information like this is so specialized and often
so fleeting that not even a highly automated quotation
system like NASDAQ can capture it. This is the kind of
information that is gathered during the course of
countless phone calls and used at the precise time of
its greatest effectiveness.
Zipf, at 143. Thus, broker-dealers provide unique and
specialized analysis to their customers, a service whose
cost is partly reflected in the spread.
Second, the number and complexity of bonds means that
they are much more thinly traded than equities. Broker-
dealers provide liquidity to the market by relieving investors
of the expense and difficulty of trying to find another buyer
or seller for a bond. They do this by serving as an
intermediary; they may keep bonds in their inventory until
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a buyer arrives. Broker-dealers can also buy a large block
of bonds from a single investor, disaggregate the package,
and then sell smaller blocks to investors as demand arises.
By creating a market for the investor, broker-dealers absorb
the risk associated with the transaction, i.e., the prospect
that they cannot sell the bond for more than its value when
they bought it from the investor. In the stock market, by
contrast, brokers merely execute the transaction on an
exchange for a fee, and do not accept any market risk
associated with this service.
Third, investors enjoy anonymity in their transactions
with broker-dealers. By not advertising publicly a selling
offer, an investor may gain from a dealer’s ability to gain a
higher price for the bond through its own contacts in the
market. This is even more important when an investor
needs to sell a large amount of a certain bond. If the
market were aware of the investor’s trading pattern, the
value of the bond would sink, thus harming the investor.
The anonymity provided by broker-dealers reduces the
impact of transactions on the market.
To summarize, the lack of price transparency in the bond
market has both positive and negative aspects. On the plus
side, investors benefit from anonymity in their transactions
and the specialized information and liquidity broker-dealers
provide. Yet on the negative side, investors are unable to
access a significant amount of information on the market
and thus are forced to pay higher spreads than would exist
if there was greater price transparency.
B. InterVest’s Business Model
Beginning in 1991, InterVest attempted to start an online
bond trading system that would allow investors and broker-
dealers to trade bonds with each other electronically and
anonymously. InterVest envisioned a system that would
display all current bids and offers as well as the actual
price at which trades had been executed, thus providing
the possibility of greater price transparency for its users.
This type of electronic trading system is known as a “cross
matching system,” because it automatically matches up
subscribers, either investors or broker-dealers, who post
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buy and sell orders with other subscribers who can fill the
requests with a “contra-order.” See BMA, Review of
Electronic Transaction Systems: Cross-Matching Systems,
available at http://www.bondmarkets.com/research/
ecommerce/crossmatch.shtml.
InterVest claimed that its system would increase market
efficiency and price transparency as well as eliminate the
multiple intermediary fees (or spreads) incurred by
investors. Unlike most broker-dealers, InterVest charged a
fixed commission for transactions on its system, which
would be less than the amount investors would otherwise
pay a broker-dealer in the form of the transaction’s spread.
InterVest’s business model relied on the prospect of
attracting a sufficient number of subscribers, with their
inventory of bonds to trade, in order to maintain an active
exchange. This is because in an exchange-type system, it is
the participants themselves who provide liquidity, as
opposed to a pure dealer system, in which the dealers
provide liquidity by acting as market intermediaries.
Cowen submits that InterVest’s software, the InterVest
2.0 trading platform, was incapable of supporting the
trading volume that InterVest anticipated in its business
plan. Cowen supplied strong evidence of this through the
report of a computer programming expert who analyzed
InterVest 2.0, and concluded that the trading platform was
plagued by numerous design flaws, including a risk of data
loss and inadequate system support. However, the expert
did not observe this software or the next version in
development, InterVest 3.0, in operation. In its brief,
InterVest rejects this expert’s conclusions, but fails to point
to any specific evidence in the record for support; rather,
the company relies on conclusory statements that InterVest
3.0 was “state of the art” and would remedy the problems
in InterVest 2.0. The District Court did not address this
issue, however, because it determined that InterVest could
not prove that Cowen had participated in concerted action
in violation of the Sherman Act, and thus the Court did not
need to consider whether Cowen’s actions caused InterVest
any injury. Intervest Financial Services, Inc. v. S.G. Cowen
Securities Corp., 206 F. Supp.2d 702, 720 (E.D. Pa. 2002).
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C. InterVest’s Early Contact with the Broker-Dealers
InterVest was founded by Larry Fondren, who beginning
in 1991 had started a number of other companies that
sought to provide electronic trading services to the bond
market. One such company, the Inter-Dealer Consortium,
offered an electronic trading system similar to that
ultimately developed for InterVest, except that its
subscribers were restricted to broker-dealers. When
Fondren approached broker-dealers seeking their
participation in the Inter-Dealer Consortium, he was
universally rebuffed.
For example, in his deposition, Fondren stated that a vice
president of Merrill Lynch informed him that he hoped the
project would “crash and burn.” Fondren also testified that
an employee of Salomon Brothers (“Salomon”), which is
now Salomon Smith Barney, was concerned about joining
the Inter-Dealer Consortium because Salomon was aware of
Fondren’s idea for InterVest, a company that might
threaten the broker-dealers’ market power. Specifically,
Fondren alleged that Salomon characterized InterVest as
“not playing by the rules” because it would allow investors
to see the prices at which bonds were trading. Fondren
received a similar response from Bear Stearns, which
“indicated that [InterVest] was contrary to the way the
market worked” because broker-dealers “prefer to have the
market not see prices at which transactions are occurring.”
Fondren stated that Bear Stearns intended to make its
concerns known to other broker-dealers. [Id.]
InterVest also points to an ACT Note, a record stored in
an electronic database system, from a meeting between
Fondren and William Matthews, the executive at Cowen in
charge of the bond desk, on June 11, 1993. The Note states
that Matthews “showed concern when it was explained that
institutional investors would have equal and anonymous
access to all pricing and order execution” because, quoting
Matthews, “this is just not the way the street works.”3
3. Fondren recorded his conversations and those of other InterVest
employees with broker-dealers in ACT Notes beginning in 1992. After a
meeting, Fondren and other InterVest employees would use a tape
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Matthews also opined that because Cowen acts both as a
broker-dealer and as an inter-dealer broker, it would be an
inappropriate breach of confidentiality for the firm to share
the prices of its bond transactions with InterVest. [Id.]
InterVest challenges this contention.
D. InterVest’s Relationship with Bloomberg and
the Response of the Broker-Dealers
InterVest achieved a potential breakthrough in 1995
when it entered into a contract with Bloomberg to provide
its system on Bloomberg’s network of terminals. Bloomberg
is a staple in financial firms, who rely on the myriad
information services accessible through “Bloomberg
terminals.” Firms on both the buy-side and sell-side of the
bond market, as well as those involved in other financial
markets, subscribe to the Bloomberg service. Between July
1995 and July 1998, the number of Bloomberg terminals
installed in financial firms doubled from 50,000 to 100,000.
Importantly, Bloomberg is a “two-sided” business, meaning
that it must attract subscribers from both the buy-side and
the sell-side of the financial markets in order to remain
successful. Its revenues come primarily from subscription
fees for the general use of the terminals and its information
outlets, not surcharges from the use of special services,
such as InterVest. Although Bloomberg is known mostly for
its financial information dissemination business, in the
1990s it began to offer subscribers the ability to execute
transactions in various markets through proprietary
recorder to record what transpired and then an assistant would
transcribe the tape into the ACT Notes system. Cowen argued in the
District Court that many, if not all, of the ACT Notes constituted
inadmissible hearsay. InterVest objected and invoked a number of
exceptions to the hearsay rule. InterVest also noted that Fondren’s
deposition repeated much of what the ACT Notes contain, although
Fondren admitted that he relied on the ACT Notes to refresh his memory
before the deposition. The District Court declined to rule on the
admissibility of the ACT Notes, but instead chose to treat them as
evidence of the alleged conspiracy for the purpose of the summary
judgment motion. Intervest, 206 F. Supp.2d at 706 n.4. Cowen does not
appeal this decision by the Court.
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services as well as those offered by third-parties. InterVest
was one of these third-party providers.
The relationship between Bloomberg and InterVest
quickly soured. After Bloomberg released an advertisement
stating that InterVest would soon be available on its
network, Bloomberg received several complaints from
broker-dealers. For example, an employee at ABN Amro
Securities, a broker-dealer not named in this suit, emailed
Bloomberg, stating his discomfort with the “concept of
InterVest” because it is “a service that competes with
[Bloomberg’s] subscribers,” and that he was sure that he
was “not the only one that feels [that] way.”
In response to these expressions of concern, Charles
Garcia, Bloomberg’s “relationship manager” for InterVest,
called Fondren on December 27, 1995, and notified him
that Bloomberg was placing a moratorium on its efforts to
integrate the InterVest system on the Bloomberg network.
Fondren testified that Garcia informed him that the
moratorium was Bloomberg’s response to the complaints
from several broker-dealers. [Id.]4 In response, InterVest’s
counsel threatened Bloomberg with “legal recourse.”
Bloomberg then lifted the moratorium and stated that it
would support InterVest for a minimum of one year after
the system went live. In December of 1996, InterVest and
Bloomberg announced the inauguration of the InterVest
system on the Bloomberg network at a press conference at
Bloomberg’s headquarters. An article appeared in the New
York Times the next day, previewing InterVest’s capabilities
and its ambition to change the operation of the bond
market. Fondren also gave an interview to a Bloomberg
4. Interestingly, Fondren proffered a different version of his conversation
with Garcia in a letter he sent to another employee of Bloomberg shortly
thereafter in an effort to resolve Bloomberg’s concerns. Fondren wrote
that Garcia explained to him that Bloomberg’s actions were the result of
its “assessment that, while no plans were currently formulated,
Bloomberg, or its broker-dealer affiliate, may at some future time
compete with its broker-dealer customers and that any future effort or
programming for InterVest would be counterproductive.” In other words,
Bloomberg or Merrill Lynch, which had an ownership stake in
Bloomberg, was contemplating creating a service similar to that of
InterVest.
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reporter that was instantly published through the
“Bloomberg Forum” on the Bloomberg network.
The day after InterVest went live on Bloomberg, Garcia
spoke with William Matthews from Cowen, who mentioned
that he had seen the New York Times article on InterVest.
That same day, Garcia called Fondren and notified him that
Bloomberg was placing a moratorium on the development of
a municipal bond trading platform for InterVest on its
network. According to Fondren, Garcia told him that
Bloomberg was “getting tremendous heat from Inter-Dealer
Brokers” and specifically named Cowen as well as a
municipal bond broker-dealer in Tokyo. Either on that day
or shortly thereafter, Bloomberg removed the interview with
Fondren that it had placed on the “Bloomberg Forum.”
Fondren also testified that Bloomberg limited the
functionality of InterVest on its network by not fixing a
service InterVest sought to provide that would allow
subscribers to benchmark the price of bids and offers of
corporate bonds against U.S. Treasury bonds. This feature,
sometimes referred to as “Treasury benchmarking,” is the
standard method of pricing corporate bonds. Neither did
InterVest appear on Bloomberg’s menu of “Electronic
Trading Systems” on the network.
In September 1997, Bloomberg began to wind down its
relationship with InterVest. Lou Eccleston, Bloomberg’s
Director of Sales, barred Bloomberg employees from
speaking to the press about InterVest. On December 11,
1997, a subordinate of Eccleston emailed him with the
question, “when does our contract with InterVest let us
throw them off the system . . . it would be nice to close
[InterVest] down.” On February 5, 1998, about 14 months
after the launch date, Bloomberg officially terminated its
agreement with InterVest. During the time InterVest was
available on Bloomberg, only 10 bond trades were executed,
all of which had been pre-arranged over the telephone.
E. Bloomberg and BondNet
(Another Electronic Exchange)
In order to establish a pattern of Bloomberg’s hostility to
electronic exchanges like InterVest that would provide
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pricing information to investors on the buy-side, InterVest
points to the experience of BondNet, another electronic
trading system that had a relationship with Bloomberg.
Originally, BondNet operated as a trading platform for
inter-dealer brokers, and did not provide access to pricing
information to investors on the buy-side of the bond
market. In 1997, BondNet was acquired by the Bank of
New York (“BONY”), and with its easy access to BONY’s
buy-side customers, BondNet contemplated opening its
system to investors, thus essentially following InterVest’s
business model.
Bloomberg imposed similar restrictions on BondNet’s
functionality as it did on InterVest. This is reflected in an
internal memorandum by an employee of BONY stating that
in mid-December 1997, “Bloomberg advised us . . . that
they wanted to stop adding any ‘Buy side’ customers
because of pressure from Wall Street.”
F. Other Evidence of InterVest’s Contact With Cowen
Aside from Garcia’s statement that Bloomberg received
criticism from Cowen for placing InterVest on its network,
InterVest points to several other pieces of evidence that it
asserts support its theory that Cowen participated in a
conspiracy to keep InterVest out of the bond market. While
InterVest was preparing to appear on the Bloomberg
network, Fondren and other InterVest employees met with
representatives of Cowen to urge them to use InterVest’s
system. On April 10, 1996, Fondren met with the two sons
of Joseph Cohen, Cowen’s chairman at the time. They
informed Fondren that Cowen was opposed to showing
prices to investors on the buy-side. They indicated,
however, that if InterVest limited itself to broker-dealers,
then Cowen would participate and perhaps even invest in
the operation.
On December 2, 1996, just a week before InterVest went
live on Bloomberg, Fondren met with Matthews, the head of
Cowen’s bond desk, and Joseph Cohen himself. Notes
written that day by an unidentified Cowen employee stated,
“Dealers want present structure not price disclosure,” and
asked, “What about Cowen brokers and spreads?” Fondren
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testified that Matthews informed him that InterVest’s
business plan was not “playing by the rules.”5 Fondren also
recorded in an ACT Note that Cowen indicated that
InterVest could make more money if it did not attempt to
“break the spreads.”
According to his ACT Notes, Fondren met again with
Matthews and Tom Evans, another Cowen executive, on
May 29, 1997. Fondren recorded that Evans initiated the
meeting to inquire whether InterVest might assist Cowen in
developing its own bond trading exchange over the internet.
Matthews, however, seemed less interested in dealing with
InterVest and told Fondren that doing business with
InterVest was “viewed by the street as ‘unhealthy.’ ” When
Fondren responded by charging that locking InterVest out
of the bond market was anti-competitive and could lead to
a lawsuit, Matthews allegedly laughed and said that even if
Cowen was forced to pay $10 or $20 million, “it would be
just a cost of doing business.”6
Finally, InterVest cites deposition testimony from Joseph
Cohen that it submits illustrates Cowen’s motives. Cowen
operated both as a broker-dealer and as an inter-dealer
broker. Thus, its relationship with other broker-dealers was
particularly critical. Cohen explained that Cowen could not
share with InterVest the prices of the bonds Cowen was
trading and breach the anonymity of its clients’
transactions, because other broker-dealers would not use
Cowen’s inter-dealer services. Notably, Cohen also said that
the same boycott would occur if Cowen let its dealers see
the types of bonds and their prices that its interdealer
brokers were trading.
5. InterVest received a similar response from other broker-dealers that,
like Cowen, decided not to do business with InterVest. Most of the firms
notified InterVest that its business was not the way “the street works”
and that it should “play by the rules.” (CS First Boston); see also A428
(J.P. Morgan); A429 (Smith Barney).
6. The record also includes two obscene communications to InterVest
from mid-level Cowen employees criticizing InterVest in scatological
terms. One is an email from May 20, 1996 in response to InterVest’s
advertising and the other is a call on October 23, 1996 from someone on
Cowen’s corporate bond desk.
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G. The Present Suit; the District Court’s Opinion
The underlying litigation originated when Bloomberg filed
suit against InterVest on June 25, 1998, seeking the
recovery of approximately $100,000 plus interest for unpaid
advertising expenses (the “Bloomberg Action”). InterVest
counterclaimed and alleged that Bloomberg had
participated in an antitrust conspiracy involving several
broker-dealers, including Cowen. InterVest then filed a
second lawsuit on November 3, 1999, against Cowen and
the following broker-dealers: Bear Stearns, Co., Inc.; Cantor
Fitzgerald Securities and several other Cantor Fitzgerald
entities; Deutsche Bank Securities Corp.; Liberty Brokerage
Securities, Inc. and several other Liberty entities; Merrill
Lynch & Co., Inc.; J.P. Morgan Securities, Inc.; and
Salomon Smith Barney, Inc. (the “Broker-dealer Action”).
InterVest charged the broker-dealers with a violation of
section 1 of the Sherman Act, 15 U.S.C. § 1, participation
in a restraint of trade in violation of Pennsylvania law, and
tortious interference with the contractual relationship
between Bloomberg and InterVest.
The two cases were consolidated for discovery purposes
only. In the meantime, InterVest settled with Bloomberg,
and the District Court dismissed the Bloomberg Action with
prejudice. InterVest also settled with all of the broker-
dealers in the Broker-dealer Action except for Cowen. Thus,
only Cowen moved for summary judgment, and the Court
analyzed InterVest’s claims as pertaining to Cowen as the
sole remaining defendant.
The District Court examined the evidence summarized
above. While the Court did not believe that any individual
piece of evidence constituted direct evidence that Cowen
engaged in an unlawful conspiracy, the Court looked at the
evidence as a whole and concluded that:
a rational finder of fact might draw the series of
inferences necessary to find that Cowen participated in
a conspiracy with Bloomberg and other broker-dealers
in order to maintain the existing closed bond trading
system. The establishment and perpetuation of a
closed system, the allusions by various broker-dealers,
including defendant Cowen, to the ‘rules,’ the universal
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refusal to deal with InterVest, the complaints to
Bloomberg, and Bloomberg’s subsequent resistance to
buy side and transparent bond trading, all support an
inference of conspiracy.
Intervest, 206 F. Supp.2d at 716.
Nevertheless, the Court determined that InterVest could
not survive summary judgment because “all of this evidence
supports equally well the inference that Cowen, other
broker-dealers, and Bloomberg acted independently and
rationally in light of their own interests and consumer
demand.” Id. at 716-17. The Court opined that “Cowen’s
desire to perpetuate a system in which it earned significant
profits is, in and of itself, perfectly rational and legal,” thus
rendering Cowen’s behavior ambiguous as to whether it
participated in an illegal conspiracy. Id. at 717. The Court
therefore concluded that “[b]ecause [InterVest] has
presented only circumstantial evidence of illegal conspiracy
and the conduct of [Cowen] is ambiguous, [InterVest] has
not offered sufficient evidence of concerted action to survive
Cowen’s motion for summary judgment.” Id. at 717. Since
InterVest could not prove concerted action, the Court did
not address Cowen’s allegation that InterVest could not
show antitrust injury. Intervest, 206 F. Supp.2d at 721.7
The Court also dismissed InterVest’s tortious interference
with contract claim because it concluded that Cowen’s
conduct was privileged. Id. at 721-23.
7. Although the District Court did not rule on the issue, Cowen argued
before the Court that it was not the proximate cause of InterVest’s
financial difficulties because the firm was in significant trouble before
Bloomberg terminated its relationship with InterVest. Cowen pointed to
InterVest’s 1997 losses of over $2.5 million, the fact that no active
subscribers signed onto the system, and the company’s purge of most of
its employees, which left only “a skeleton staff.” Intervest, 206 F.
Supp.2d at 709. Cowen also noted that a letter sent by InterVest’s
counsel, dated December 29, 1997, blamed EOS Partners, one of
InterVest’s investors, for its dire financial situation by usurping and
interfering in investment opportunities, and did not name Cowen or
other broker-dealers. Because we agree with the Court that InterVest
cannot survive summary judgment on the concerted action element, we
too decline to reach the issue of antitrust injury.
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The District Court had jurisdiction pursuant to 15 U.S.C.
§ 15(a) and 28 U.S.C. §§ 1331, 1337 and 1367. We have
appellate jurisdiction under 28 U.S.C. § 1291, and review
the Court’s decision to grant summary judgment de novo,
employing the same legal standards the Court was required
to use. Mass. Sch. of Law v. ABA, 107 F.3d 1026, 1032 (3d
Cir. 1997).
II. The Antitrust Claim
A. Section 1 of the Sherman Act
Section 1 of the Sherman Act provides that “every
contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce . . . is
declared to be illegal.” 15 U.S.C. § 1.8 Although the
language in the statute is broad, the Supreme Court has
explained that this provision covers only unreasonable
restraints of trade. Business Elecs. Corp. v. Sharp Elecs.
Corp., 485 U.S. 717, 723 (1988). As is well known, courts
utilize two modes of analysis to determine whether a
restraint of trade is unreasonable. Under the “per se”
standard, “conduct that is ‘manifestly anticompetitive’ or
‘would always or almost always tend to restrict
competition,’ . . . is conclusively presumed to unreasonably
restrain competition ‘without elaborate inquiry as to the
precise harm [it has] caused or the business excuse for [its]
use.’ ” Rossi v. Standard Roofing, Inc., 156 F.3d 452, 461
(3d Cir. 1998) (quotations omitted). In these cases, the
plaintiff need only prove that the defendants conspired
among each other and that this conspiracy was the
proximate cause of the plaintiff ’s injury. Id. at 465.
By contrast, under the so-called “rule of reason”
standard, the defendants’ conduct is analyzed on a case-by-
8. In addition to its Sherman Act claim, InterVest alleges that Cowen
violated Pennsylvania antitrust law. Because Pennsylvania has no
separate antitrust statute, InterVest’s “allegation rises or falls with
plaintiff ’s federal antitrust claims.” Alvord-Polk, Inc. v. F. Schumacher &
Co., 37 F.3d 996, 1014 (3d Cir. 1993) (citing Collins v. Main Line Bd. of
Realtors, 452 Pa. 342 (1973)).
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case basis whereby the fact finder weighs all the
circumstances in a case to determine whether a particular
practice amounts to an unreasonable restraint of trade. Id.
at 464. In order to survive summary judgment in cases
where this standard applies, the plaintiff must show
concerted action, antitrust injury, evidence that the
conspiracy produced “adverse, anti-competitive effects
within the relevant product and geographic markets,” and
evidence “that the objects of and the conduct pursuant” to
that conspiracy were illegal. Id.
The parties did not discuss in the District Court or before
us which standard applies. In its decision, the District
Court noted that Cowen “acknowledge[d] that the
allegations warrant per se treatment,” and thus applied
that standard. Intervest, 206 F. Supp.2d at 711 n.15. We
will also apply the per se standard because under either
standard, InterVest will need to show the existence of a
genuine issue of material fact that (1) Cowen contracted,
combined, or conspired with others, and (2) InterVest was
injured as a proximate result of that conspiracy. Since we
do not believe that InterVest presents sufficient evidence to
survive summary judgment on these elements, the
distinctions between the per se and rule of reason
standards are immaterial.
B. The Summary Judgment Standard in
Antitrust Cases
1. Proving the Conspiracy
In Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996,
999 (3d Cir. 1993), we explained that “[t]he very essence of
a section 1 claim . . . is the existence of an agreement,”
because “section 1 liability is predicated upon some form of
concerted action.” Unilateral activity by a defendant, no
matter the motivation, cannot give rise to a section 1
violation. Rossi, 156 F.3d at 465. This is because a
business may “deal, or refuse to deal, with whomever it
likes, as long as it does so independently.” Monsanto Co. v.
Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984).
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In order to prove the existence of concerted action among
the defendant and other parties, a plaintiff may rely on
either direct or circumstantial evidence. Direct evidence “is
explicit and requires no inferences to establish the
proposition or conclusion being asserted.” In re Baby Foods
Antitrust Litig., 166 F.3d 112, 118 (3d Cir. 1999). Because
direct evidence, the proverbial “smoking gun,” is difficult to
come by, “plaintiffs have been permitted to rely solely on
circumstantial evidence (and the reasonable inferences that
may be drawn therefrom) to prove a conspiracy.” Rossi, 156
F.3d at 465.
Generally, the movant’s burden on a summary judgment
motion in an antitrust case “is no different than in any
other case.” Big Apple BMW, Inc. v. BMW of North America,
Inc., 974 F.2d 1358, 1363 (3d Cir. 1992). Summary
judgment shall be rendered when the evidence shows “that
there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of
law.” Fed. R. Civ. P. 56(c). When analyzing the sufficiency
of the evidence, the court must view the facts and any
reasonable inferences drawn therefrom in the light most
favorable to the party opposing summary judgment.
Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S.
451, 456 (1992). However, when a plaintiff relies solely on
circumstantial evidence in an antitrust case, we must apply
special considerations so that only reasonable inferences
are drawn from the evidence. This is because “antitrust law
limits the range of permissible inferences from ambiguous
evidence in a § 1 case.” Matsushita Electronic Industrial Co.
v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
In Monsanto and Matsushita, the Supreme Court
provided clear indications of what types of inferences may
not be drawn from circumstantial evidence in an antitrust
case. The Court cautioned in Matsushita that “conduct as
consistent with permissible competition as with illegal
conspiracy does not, standing alone, support an inference
of antitrust conspiracy.” 475 U.S. at 588. To survive a
motion for summary judgment, therefore, a plaintiff “must
present evidence that ‘tends to exclude the possibility’ that
the alleged conspirators acted independently.” Id. (quoting
Monsanto, 465 U.S. at 764).
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When undertaking such an analysis of the evidence, a
court must bear in mind that there is “often a fine line
separat[ing] unlawful concerted action from legitimate
business practice.” Petruzzi’s IGA Supermarkets, Inc. v.
Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir. 1993).
Nevertheless, Monsanto and Matsushita do “not mean that
antitrust defendants are entitled to summary judgment
merely by showing that there is a plausible explanation for
their conduct; rather, the focus must remain on the
evidence proffered by the plaintiff and whether that
evidence tends to exclude the possibility that [the
defendants] were acting independently.” Rossi, 156 F.3d at
466 (internal quotations omitted).
In sum, a court “must ascertain whether the plaintiffs
have presented ‘evidence that is sufficiently unambiguous’
showing that the defendants conspired.” In re Baby Foods,
166 F.3d at 124 (quoting Matsushita, 475 U.S. at 597).
When analyzing the evidence under this summary
judgment standard, “a court is not to weigh the evidence or
make credibility determinations”; these are tasks left for the
fact-finder. Petruzzi’s IGA, 998 F.2d at 1230. Further, “a
court should not tightly compartmentalize the evidence put
forward by the nonmovant, but instead analyze it as a
whole to see if together it supports an inference of
concerted action.” Id.
2. The Direct Evidence Exception to the
Monsanto/Matsushita Standard
a. InterVest’s Argument that the
Direct Evidence Exception Applies
We explained in Rossi that “under our jurisprudence, the
Matsushita standard applies only when the plaintiff has
failed to put forth direct evidence of conspiracy.” 156 F.3d
at 466 (citing Petruzzi’s IGA, 998 F.2d at 1233). This is
because direct evidence obviates the fact finder’s need to
make inferences of a conspiracy, “and therefore the
Supreme Court’s concerns over the reasonableness of
inferences in antitrust cases evaporate.” Id. InterVest
submits that the evidence it presented in this case qualifies
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for the direct evidence exception to the
Monsanto/Matsushita summary judgment standard and
consequently faults the District Court’s application of these
cases. Its central argument is that the Court misidentified
the conspiracy that led to InterVest’s alleged antitrust
injury.
InterVest contends that its treatment by Cowen, the other
broker-dealers, and Bloomberg “was merely one overt act to
carry out” the broader conspiracy of “perpetuating a closed
bond market that lacked price transparency and preserved
secret inflated spreads and prices.” In InterVest’s
submission, the District Court should not have focused on
whether InterVest presented evidence that would allow a
reasonable inference of a conspiracy to exclude InterVest
specifically from the bond market, but instead should have
concluded that the direct evidence of Cowen’s conduct as a
broker-dealer in the bond market “is anti-competitive on its
face and therefore requires no limitation on the inferences
that can properly be drawn from the circumstantial
evidence that such conduct took place.”
In order to support this type of analysis, InterVest cites
to our decision in Petruzzi’s IGA, supra. That case involved
an allegation of a restraint of trade in the fat and bone
rendering industry. 998 F.2d at 1228. The plaintiff
contended that three rendering companies created a cartel
that — through the use of various collusive agreements,
including an agreement not to bid on existing accounts
secured by other rendering companies and threats of
punishment for companies that failed to abide by these
“rules” — ensured that the price of raw materials for these
companies would be artificially low. Id. at 1233. While we
determined that Matsushita controlled our analysis of the
defendants’ motion for summary judgment, we noted that
the concerns motivating the Supreme Court in Matsushita
were not present. Id. at 1232.
In Matsushita, American makers of television sets alleged
that Japanese manufacturers conspired to fix prices below
market level so as to push the American companies out of
the market. To support their case, the plaintiffs presented
evidence that suggested that the Japanese companies
earned monopoly profits in Japan, which they then used to
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finance a coordinated predatory export pricing scheme in
the United States. 475 U.S. at 580-81. The Supreme Court
held that this evidence was insufficient to overcome
summary judgment. It noted that predatory pricing
schemes are generally unlikely to occur, especially when
the defendants could not recoup the short-term loss of
profits in the long-term. Id. at 588-89. Because the Court
was satisfied that the Japanese manufacturers were
unlikely to recoup such losses, it concluded that the
defendants lacked the motive to engage in the alleged
conspiracy. Id. at 592-93. The Court also determined that
the defendants’ behavior was equally consistent with lawful
conduct because “cutting prices in order to increase
business often is the very essence of competition.” Id. at
594.
In Petruzzi’s IGA, we identified two “important
circumstances” underlying the Court’s Matsushita decision:
“(1) that the plaintiff ’s theory of conspiracy was implausible
and (2) that permitting an inference of antitrust conspiracy
in these circumstances would have the effect of deterring
significant procompetitive conduct.” Petruzzi’s IGA, 998
F.2d at 1232 (quotation omitted). We have also explained
that the Matsushita Court was particularly concerned about
allowing “mistaken inferences to be drawn from the
defendants’ price cutting policies [because] it would chill
procompetitive behavior.” Id. Therefore, “the acceptable
inferences which can be drawn from circumstantial
evidence vary with the plausibility of the plaintiff ’s theory
and the dangers associated with such theories.” Id.
The alleged conspiracy in Petruzzi’s IGA, we concluded,
did not present the circumstances or concerns identified in
Matsushita for several reasons. First, we determined that
the plaintiff ’s theory was plausible and made “perfect
economic sense.” Id. Unlike in Matsushita, where it was
unlikely that the defendants would be able to make
monopoly profits in the long term, the defendants in
Petruzzi’s IGA could make profits in both the short and long
term (as a result of the alleged cartel). Id. Second, in
contrast to the price cutting in Matsushita, which the Court
characterized as “the very essence of competition,” 475 U.S.
at 594, the collusive practices in which the defendants in
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Petruzzi’s IGA allegedly engaged could hardly be described
as procompetitive conduct. Finally, we held that the
plaintiffs had presented very strong circumstantial evidence
that the defendants engaged in consciously parallel
behavior that could lead to the reasonable inference that
the defendants participated in an unlawful conspiracy.
Petruzzi’s IGA, 998 F.2d at 1232, 1242-46.
b. Why the Direct Evidence Exception Does Not
Apply in this Case
Distinctions similar to those are not present in this case.
As we noted above, InterVest maintains that the District
Court should have concluded that Cowen’s conduct as a
broker-dealer in the bond market “is anti-competitive on its
face and therefore requires no limitation on the inferences
that can properly be drawn from the circumstantial
evidence that such conduct took place.” Unlike the alleged
cartel in Petruzzi’s IGA, however, the entire bond market
cannot properly be labeled anticompetitive. Although Cowen
and other broker-dealers benefit from the relative lack of
price transparency in the bond market, this market hardly
resembles a collusive regime or an illegal conspiracy. As
explained extensively earlier, see supra Section I.A., the
lack of price transparency in the bond market benefits
investors who wish to transact anonymously and thus
reduce the market impact of their transactions. Further,
broker-dealers provide the needed liquidity to investors who
seek to deal in thinly traded bonds. Importantly, InterVest
does not contend that there is anything in the structure of
the bond market that prevents the entry of new broker-
dealers. InterVest emphasizes, however, when Cowen and
other broker-dealers told InterVest it would be more likely
to succeed if the company “played by the rules,” that this
advice represented a conspiracy on the part of the broker-
dealers.
We do not believe that this is direct evidence of a
conspiracy for several reasons. First, unlike the “rules” in
Petruzzi’s IGA, which included an agreement not to bid on
the other defendants’ accounts and punishment for those
who defected, the “rules” in this case are simply the
operation of the bond market as a whole. There are
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thousands of broker-dealers in the bond market, trading
various types of securities; it stretches credibility to suggest
that they all agreed on “rules” in a manner approximating
an illegal conspiracy.
Second, as the District Court ably explained in its
memorandum and order, the evidence InterVest produces
in this case does not approach the clarity of the direct
evidence of a conspiracy that we found in other cases,
including:
(1) a direct threat to the plaintiff from a competitor that
if he went into business his competitors would do
anything they could to stop him, including cutting
prices or supplies, see [Rossi, 156 F.3d] at 468; (2)
advising distributors that a supplier would cut off
access if the distributor failed to maintain a certain
price level, see Monsanto, 465 U.S. at 765; (3) a
memorandum produced by a defendant conspirator
detailing the discussions from a meeting of a group of
alleged conspirators, see Arnold Pontiac-GMC, Inc. v.
Buss Baer, Inc., 826 F.2d 1335, 1338 (3d Cir. 1987);
and (4) a public resolution by a professional
association recommending that its members withdraw
their affiliation with an insurer, see Pa. Dental Ass’n v.
Med. Serv. Ass’n of Pa., 815 F.2d 270, 273 (3d Cir.
1987).
Intervest, 206 F. Supp.2d at 713. Direct evidence “must be
. . . explicit and require[ ] no inferences to establish the
proposition or conclusion being asserted.” In re Baby Food
Antitrust Litig., 166 F.3d at 118. A vague reference to
“rules” is insufficiently explicit and requires ample
inferences of illegal actions that would constitute a
conspiracy among Cowen and other broker-dealers in
violation of section 1 of the Sherman Act.
Finally, and in a similar vein, we are mindful of the
Supreme Court’s warning in Monsanto that evidence must
not be too broadly construed lest such a conclusion “create
an irrational dislocation in the market.” 465 U.S. at 764.
The Court further cautioned against drawing unreasonable
inferences from evidence in such a manner that legal
practices will be deterred and the antitrust statute will be
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applied overinclusively. Id. at 763-64. InterVest in effect
invites us to turn on its head the summary judgment
standard articulated by the Supreme Court in Monsanto
and Matsushita by holding that Cowen’s role as a broker-
dealer in the bond market is direct evidence of conspiracy.
As we have explained above, however, Cowen’s operations
as a broker-dealer are not “facially anticompetitive and
exactly the harm the antitrust laws aim to prevent,”
Eastman Kodak, 504 U.S. at 478. We must therefore take
“special care . . . in assigning inferences to circumstantial
evidence,” Alvord-Polk, 37 F.3d at 1001, of Cowen’s
participation in an alleged conspiracy to harm InterVest.
Monsanto and Matsushita’s concerns about the chilling
effect on lawful conduct that would result from the
unreasonable interpretation of evidence are particularly
germane in this case because if we hold that the bond
market is a conspiracy, every broker-dealer would be
subject to antitrust liability. We must therefore analyze
Cowen’s motion for summary judgment under the
standards articulated in those cases.
C. Application of the Monsanto/Matsushita Standard
In reviewing Cowen’s motion for summary judgment, we
must determine whether a fact finder could draw a
reasonable inference from the evidence that Cowen
participated in a conspiracy that resulted in an antitrust
injury to InterVest. InterVest alleges two antitrust theories:
(1) a conspiracy on the part of Cowen and other broker-
dealers; and (2) a conspiracy between Bloomberg and
Cowen. We will review each of these theories separately, but
in doing so, we will take care to view the evidence as a
whole and not compartmentalize individual pieces of
evidence. See Petruzzi’s IGA, 998 F.2d at 1230.
1. Concerted Action Among Cowen and
Other Broker-Dealers
a. Conspiracy on the Basis of
Circumstantial Evidence
Cowen’s principal defense is that any action it undertook
with respect to InterVest was unilateral. It emphasizes that
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InterVest fails to proffer a single piece of evidence that
reasonably suggests that Cowen communicated with other
broker-dealers in regards to InterVest. This is in stark
contrast to the evidence presented by plaintiffs in other
antitrust decisions rendered by this court. See, e.g.,
Petruzzi’s IGA, 998 F.2d at 1233-34 (evidence that
defendants had discussed a “code” of price fixing
strategies); Rossi, 156 F.3d at 468-70 (evidence of meetings
between the defendants in which price fixing was discussed
as well as specific evidence of other pressure tactics used
by defendants); Alvord-Polk, 37 F.3d at 1013-14 (evidence of
communications among defendants regarding actions they
individually were undertaking against competitors); Big
Apple BMW, 974 F.2d at 1367-68 (evidence of meetings
among dealers about how they were opposed to a new
franchisee and indicating continued efforts to pressure
manufacturer).
InterVest’s attempts to rebut this assertion are
unavailing. It notes that Garcia told Fondren that
Bloomberg’s decision to suspend development of InterVest’s
municipal bond trading platform was due to pressure from
Cowen and other “dealers” who had seen InterVest’s
advertisements. InterVest also points to an alleged
comment by a Bear Stearns representative that the firm
would share its concerns about InterVest with other broker-
dealers, and the internal BONY memorandum claiming that
Bloomberg ceased dealing with firms like InterVest and
BondNet because of “pressure from Wall Street.” While this
evidence might indicate that Bloomberg received and
responded to multiple complaints from various broker-
dealers, it does not reasonably establish as a matter of
evidentiary proof that the broker-dealers actually agreed to
work together to harm InterVest or even communicated
with each other about InterVest. At all events, InterVest
does not proffer any evidence indicating that Cowen, in
particular, spoke with other broker-dealers about InterVest.
InterVest points to comments by Joseph Cohen, the
former chairman of Cowen, regarding what would happen
to Cowen if it gave the prices and types of bonds it was
trading, known as “pictures,” to InterVest to place on its
system. InterVest interprets Cohen’s testimony in his
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deposition that he “would have lost [his] business” if he
gave the pictures to InterVest as meaning that the broker-
dealers in the bond market had “rules” that included
punishment by boycott if a firm dealt with a company like
InterVest. In InterVest’s submission, this is evidence of a
tacit agreement among broker-dealers.
Cowen argues that this is too much of a “stretch” to
satisfy evidentiary standards. We agree. It also submits that
this is not a reasonable interpretation of Cohen’s
statement. Cowen explains that because it operated both as
an inter-dealer broker and a dealer, it had to maintain
strict confidentiality between these two aspects of its
business. If it did not, Cowen’s use of such insider
information would harm the other broker-dealers using its
inter-dealer services or the investors using its broker-dealer
services. As explained earlier, anonymity is often sought by
investors in the bond market; if Cowen breached such
confidentiality, no investor or broker-dealer would use its
services, i.e., Cohen “would have lost [his] business.”
Therefore, in not dealing with InterVest, Cowen was
exercising a unilateral and perfectly reasonable course of
action.
InterVest counters that even if we believe Cowen’s
interpretation of Cohen’s statement, this raises a genuine
issue of material fact for the jury to decide. We disagree. In
Petruzzi’s IGA we explained that the Matsushita Court
“stated that the acceptable inferences which can be drawn
from circumstantial evidence vary with the plausibility of
the plaintiffs’ theory and the dangers associated with such
inferences.” 998 F.2d at 1232. In this case, InterVest would
ask the jury to draw an inference from Cohen’s statements
that is in contravention of the workings of the bond market
and would chill a lawful practice of broker-dealers who
operate both regular dealer and inter-dealer operations.
The evidence that Cowen refused to share its pictures
with InterVest is consistent with the Monsanto Court’s
statement that a business may “deal, or refuse to deal, with
whomever it likes, as long as it does so independently.” 465
U.S. at 761. There are many reasons that a broker-dealer
might independently choose not to partner with a fledgling
start-up whose technology and business model remained
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unproven. As noted above, in the entire time that InterVest
was on the Bloomberg system, only ten trades were
executed, all of which had been pre-arranged over the
telephone. Further, Cowen presented largely unrefuted
evidence from its expert in computer programming that
InterVest’s trading platform contained design flaws,
including a risk of data loss. Evidence of Cowen’s decision
not to do business with InterVest, therefore, does not
“tend[ ] to exclude the possibility” that Cowen acted
individually instead of conspiring with other broker-dealers.
Id. at 764.
b. Conspiracy on the Basis of Consciously
Parallel Behavior
Without any evidence of communication between the
broker-dealers or other reasonable inferences of concerted
action, InterVest would need to show that the broker-
dealers engaged in activity that approximates conscious
parallelism. In Petruzzi’s IGA, we explained that in order to
establish a conspiracy on the basis of “consciously parallel
behavior, a plaintiff must show: (1) that the defendants’
behavior was parallel; (2) that the defendants were
conscious of each other’s conduct and that this awareness
was an element in their decision-making processes; and (3)
certain ‘plus’ factors.” 998 F.2d at 1242-43. These “plus”
factors include: “(1) actions contrary to the defendants’
economic interests, and (2) a motivation to enter into such
an agreement,” each of which must be present. Id. at 1242.
We require these additional “plus” factors in order to allay
the concerns expressed by the Supreme Court in Monsanto
and Matsushita, “namely the desire not to curb
procompetitive behavior.” Id.
Even assuming that InterVest can fulfill the first two
requirements, it cannot prove both of the “plus” factors. As
for the first “plus” factor, InterVest cannot establish that
Cowen’s conduct with regard to InterVest was against
Cowen’s economic interests. The record is barren of
evidence of price fixing or any other non-competitive
behavior by Cowen that was against its economic interests.
Cf. In re Baby Food, 166 F.3d at 132-38 (lack of evidence
of price fixing or an agreement to preserve market share
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failed to fulfill “plus” factors needed to adduce a
conspiracy). Rather, as described extensively above, broker-
dealers benefit from the relative lack of price transparency
in the bond market through their ability to charge high
spreads on transactions. Cowen’s decision not to deal with
InterVest, therefore, was in alignment with its economic
interests.
With regard to the second “plus” factor, while there is
evidence tending to show that Cowen or other broker-
dealers could have viewed InterVest as a threat to their
business, that is not sufficient for any inference that Cowen
had sufficient motive to conspire to boycott or otherwise
harm InterVest. First, it is reasonable to conclude that
Cowen simply chose not to partner with a new company
with unproven technology that, in theory, could reduce the
profits the firms earned. Further, assuming that Cowen
took InterVest’s advertised potential to refashion the bond
market seriously, Cowen had a legitimate reason not to aid
InterVest in its pursuit so that Cowen could maintain the
level of profits it earned from the spreads on transactions.
This motivation is not evidence of a conspiracy. See id. at
137 (stating that companies “have a legitimate
understandable motive to increase profits” and that “[p]rofit
is the essence of a capitalistic society”). Given the paucity
of evidence of interaction between the broker-dealers
regarding InterVest, we cannot infer that Cowen had a
motivation to agree with other firms to injure InterVest. At
all events, because the first “plus” factor is clearly not
fulfilled, InterVest cannot survive summary judgment on a
conscious parallelism claim.
InterVest correctly argues in its reply brief that “there is
more here than the refusal of one dealer at a time to deal
with InterVest” — there is also the possibility of collusion
with Bloomberg. While this is not a response to Cowen’s
defense that it did not conspire with other broker-dealers,
it is another possible antitrust theory.
2. Concerted Action Between Cowen and Bloomberg
Having failed to present evidence that reasonably
suggests that Cowen conspired with other broker-dealers,
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InterVest attempts to save its case by arguing that Cowen
conspired with Bloomberg. To support this contention,
InterVest points to Fondren’s recollection that Charles
Garcia from Bloomberg told him that Bloomberg was
getting pressure from broker-dealers, and specifically
Cowen, because it was moving forward in its relationship
with InterVest. In that same conversation, Garcia notified
Fondren that Bloomberg was placing a moratorium on the
development of InterVest’s municipal bond trading
platform. InterVest also relies on the internal BONY
memorandum stating that Bloomberg wanted to stop
dealing with firms like BondNet and InterVest because of
“pressure from Wall Street.” Finally, InterVest cites several
internal Bloomberg communications, including an email
recalling that “Mike,” who likely is Michael Bloomberg, the
founder of Bloomberg and the current mayor of New York
City, “[said] no to firms like InterVest.”
Looking at this evidence in the best light for InterVest, we
cannot conclude that it establishes a reasonable basis for
inferring concerted action between Cowen and Bloomberg.
Even if the evidence showed that Bloomberg responded to
complaints from Cowen or other broker-dealers, this fact
would be legally insufficient to prove a conspiracy. Very
little of the evidence provided by InterVest relates
specifically to Cowen’s conduct with respect to Bloomberg.
At most, InterVest shows that Cowen complained to
Bloomberg about its relationship with InterVest. Evidence
of merely a complaint, without any other supporting
evidence tending to show illegal pressure or a conspiracy, is
insufficient to survive summary judgment because
“[p]ermitting an agreement to be inferred merely from the
existence of complaints, or even from the fact termination
came about ‘in response to’ complaints, could deter or
penalize perfectly legitimate conduct.” Monsanto, 465 U.S.
at 763.
InterVest ignores this legal standard, instead interposing
arguments that call into question Bloomberg’s proffered
reason for terminating its relationship with InterVest: the
high cost of developing and running the system compared
with its minimal use. InterVest claims that since Bloomberg
had an interest in the dissemination of information, it
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would be against Bloomberg’s business interest to frustrate
its relationship with InterVest, which aimed to open the
bond market to price transparency. For this reason,
InterVest submits, Bloomberg’s explanation that it severed
its relationship with InterVest because it was devoting an
inordinate amount of resources to a little-used service must
be pretextual.
Even assuming that this is a reasonable inference of
Bloomberg’s motivation and actions, InterVest’s focus on
Bloomberg’s purported conduct does not suggest that
Bloomberg did anything but act unilaterally, and therefore
this conduct cannot be used to prove an antitrust violation
on the part of Cowen. InterVest does not present any
evidence of Cowen threatening Bloomberg, e.g., by no
longer providing it with general information on its bond
trading or by refusing to use its information services, nor
does InterVest show an agreement between the parties to
thwart it.9 Rather, the evidence that InterVest presents of
Cowen’s concerted action with Bloomberg is at best
ambiguous and does not “tend[ ] to exclude the possibility”
that Cowen and Bloomberg acted independently. Monsanto,
465 U.S. at 764.
9. Michael Bloomberg explained in his deposition that some broker-
dealers would provide Bloomberg with “indications” of their bond trading,
meaning general information on the range of prices at which the firms
would trade bonds. Bloomberg described these indications as taking
various forms:
[Broker-dealers] would typically in some bonds give a general rate
level. In some markets they would give a specific price and say
whether or not they would be willing to buy or sell at that price. If
they were willing to buy, it was a bid. If they were willing to sell, it
would be an indication of an offer, but in none of those cases would
the term indication mean that they felt they had to go ahead with
the transaction.
Bloomberg also explained that the broker-dealers could specify which
customers on the Bloomberg network would have access to these
indications. Notably, the record does not show that Cowen gave
Bloomberg its indications.
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D. Allegation that the District Court Improperly
Weighed the Evidence
Finally, InterVest urges us to reverse on the ground that
the District Court stated that a reasonable jury could have
found InterVest’s conspiracy theory plausible but then
“proceeded to weigh the evidence on either side of the
conspiracy issue, to arrive at an outcome of exactly 50/50.
. . .” InterVest is referring to the section of the District
Court’s opinion in which it stated:
a rational trier of fact might draw the series of
inferences necessary to find that Cowen participated in
a conspiracy with Bloomberg and other broker-dealers
in order to maintain the existing closed bond trading
system. The establishment and perpetuation of a
closed system, the allusions by various broker-dealers,
including defendant Cowen, to the ‘rules,’ the universal
refusal to deal with InterVest, the complaints to
Bloomberg, and Bloomberg’s subsequent resistance to
buy side and transparent bond trading, all support an
inference of conspiracy.
InterVest, 206 F. Supp.2d at 716.
The Court then went on to conclude that InterVest “fails
to survive summary judgment because all of this evidence
supports equally well the inference that Cowen, other
broker-dealers, and Bloomberg acted independently and
rationally in light of their own interests and consumer
demand.” Id. While these passages, viewed out of context,
give the impression that the Court was improperly
balancing the evidence, a job left to the fact-finder, what
the Court clearly did was to conclude that the evidence
InterVest presents, when viewed as a whole and under the
standard established by Monsanto and Matsushita, could
not lead to the reasonable inference by a jury that Cowen
participated in an antitrust conspiracy, a conclusion with
which we agree. Although the Court might have been more
careful in its language, we do not believe it committed an
error in its analysis.
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III.
For all the foregoing reasons, the judgment of the District
Court with respect to the antitrust claim will be affirmed.
We will also affirm the Court’s summary judgment order on
the tortious interference with contract claim for the reasons
stated in the margin.10
10. InterVest contends that the District Court erred in granting Cowen’s
motion for summary judgment on its claim that Cowen tortiously
interfered with InterVest’s contract with Bloomberg. The elements of
InterVest’s tortious interference with contract claim are: (1) the existence
of a contractual relationship; (2) Cowen’s intent to harm InterVest by
interfering with its contractual relations; (3) the impropriety of the
interference; and (4) harm resulting from Cowen’s conduct. Windsor
Securities, Inc. v. Hartford Life Ins. Co., 986 F.2d 655, 663 (3d Cir. 1993).
Cowen contends that even if InterVest can establish the existence of a
contract with Bloomberg, and Cowen’s intent to harm InterVest by
interfering with the contract, InterVest cannot prove the last two factors.
When evaluating the “impropriety of the interference” with a contract,
Pennsylvania courts have adopted the following guidelines derived from
the Restatement (Second) of Torts § 767, which (inserting the parties’
names) are:
(a) the nature of Cowen’s conduct,
(b) Cowen’s motive,
(c) the interests of InterVest,
(d) the interests sought to be advanced by Cowen,
(e) the social interests in protecting the freedom of action of Cowen
and the contractual interests of InterVest,
(f) the proximity or remoteness of Cowen’s conduct to the
interference, and
(g) the relations between Cowen and InterVest.
Windsor Securities, 986 F.2d at 663.
Comment c. to § 767 of the Restatement provides that the “nature of
the actor’s conduct is a chief factor in determining whether the actor’s
conduct is improper or not, despite harm to the other person.” To
support its claim, InterVest only proffers evidence of an alleged
complaint by Cowen to Bloomberg about InterVest, a practice which is
not improper under antitrust law as explained above. While it is possible
that conduct insufficient to establish an antitrust violation might still be
actionable under a tortious interference with contract claim, see Yeager’s
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A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
Fuel Oil v. Pa. Power & Light Co., 953 F. Supp. 617, 667 (E.D. Pa. 1997),
InterVest provides no reason why Cowen’s alleged complaint was an
improper action.
Instead, InterVest supplies the analogy that “Cowen’s actions in the
Bloomberg termination of InterVest are comparable to Company A calling
the power utility and pressuring it to turn off the power of its competitor,
Company B.” The utility of this analogy is limited because it does not
look at the nature of Cowen’s actions but rather at the effect they had on
InterVest, assuming that this analogy is even appropriate under the facts
of this case. We do not think that evidence of only the existence of a
complaint, without any accompanying threats or real “pressure,” is proof
of an action of the nature that rises to an improper interference in
contractual relations. At all events, the Restatement does not indicate
that “pressure” is per se a tort, but rather instructs a court to look at the
nature and context of the pressure. For example, comment c. to § 767
states:
The question whether [economic] pressure is proper is answered in
the light of the circumstances in which it is exerted, the object
sought to be accomplished by the actor, the degree of the coercion
involved, the extent of the harm that it threatens, the effect upon
neutral parties drawn into the situation, the effects upon
competition, and the general reasonableness and appropriateness of
this pressure as a means of accomplishing the actor’s objective.
Because InterVest cannot point to any threats made by Cowen against
Bloomberg and can only refer to vague “complaints” or “pressure,” we do
not believe that InterVest has presented a genuine issue of material fact
as to whether Cowen’s conduct was improper. Moreover, InterVest does
not attempt to argue in this appeal that Cowen’s conduct was the
proximate cause of harm, although, as noted in the context of antitrust
injury above, this issue was not addressed by the District Court because
it did not need to reach it.
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