Full opinion text
PELL, Circuit Judge. The defendant, Fotomat Corporation, is engaged in the retail sale of film processing, film, and camera related products which are sold insofar as the present litigation is concerned from small (9' X 5'), “drive-thru” kiosks located generally in shopping center parking lots. It obtained the rights to this retailing concept in 1967 and opened its first stores in April of that year. It also began selling franchises, and by 1971,1,035 units were open, 680 company stores and 355 franchised stores. These stores sell mostly to amateur photographers. The customer drives up to the side of the kiosk and gives his exposed film to a “Fotomate” who operates the kiosk. He may also purchase film or other items from the Fotomate. One or two days later the customer returns and receives the processed work. In each metropolitan area in which it operates, Fotomat runs a pickup and delivery service to the kiosks from a central area office which is staffed by an area manager and some assistants. A route driver runs a daily pickup and delivery circuit of all the kiosks in the area, delivering the previous day’s developed film and picking up that day’s film. At the end of the route, the driver delivers the film to the processor. The plaintiff, Photovest Corporation, was formed in 1968 by three individuals desiring to invest in Fotomat franchises. Photo vest was incorporated for the purpose of operating a block of Fotomat kiosks in the Indianapolis area. On August 26,1968, Photovest signed a master franchise purchase agreement obligating it to purchase 15 franchises to operate 15 Fotomat stores in Marion County, Indiana. Specific store sites had not been selected, but each store was bound by the standard Fotomat franchise agreement and the standard Fotomat lease agreement, which would be separately signed upon the opening of each store. Photovest agreed to pay $21,000 for each franchise for a total of $315,000. It also agreed to pay Fotomat royalties and advertising fees based on monthly gross sales. Additional details of the franchise agreement as well as other pertinent facts will be set forth throughout this opinion where relevant to the specific argument being discussed. In December 1974, Photovest filed this action charging Fotomat, inter alia, with violations of both federal and state antitrust laws, breach of contract, fraud, and tortious breach of contract. After trial in the district court, the judge made extensive findings of fact and conclusions of law and awarded Photovest damages totaling $3,017,161.86. Prior to the district court’s decision, Fotomat had paid Photovest $41,-484.53 which reduced the final judgment to $2,923,557. In this appeal, Fotomat raises numerous arguments regarding the antitrust, breach of contract, and damages aspects of the district court’s decision. It also argues that some of the procedures followed by the district court judge violated Fotomat’s due process rights. We will address one of these procedural problems first. I. EXCHANGE OF BRIEFS PROCEDURE Fotomat argues that it was prejudiced, and indeed was deprived of due process, by the fact that Photovest submitted an extensive trial brief to the district court judge without at the same time providing Fotomat with a copy. On Friday, December 3, 1976, Fotomat’s counsel first discovered that Photovest had earlier filed a 207 page trial brief with the district court judge and that Photovest did not intend to serve a copy on Fotomat. Earlier that day Fotomat had given Photovest a copy of its trial brief. Since the trial was to begin on Monday, December 6, 1976, Fotomat immediately complained to the judge of the in camera filing. The judge found that the pretrial order did not require pretrial exchange of briefs and that there was no record of any agreement to such an exchange. He said he “would leave counsel where they find themselves.” At that time, Photovest agreed to return Fotomat’s trial brief which Fotomat had earlier served on it. On Monday, December 6, the first day of trial, Fotomat filed a motion to reconsider and the judge granted a hearing. After hearing arguments on the exchange of briefs issue, he ordered Photovest to serve its brief on Fotomat with some modifications. Photovest was allowed to edit and delete certain portions of its brief “to avoid tipping off Fotomat’s witnesses.” It served the edited brief on Fotomat on December 16, 1976, the ninth day of the trial. Trial was then recessed for two months. The judge advised Fotomat that it could submit a revised trial brief prior to resuming trial and could follow the same procedure as Photovest in submitting its trial brief. That is, Fotomat could submit a complete version to the court and a modified version to Photovest. All briefs were to be exchanged at the conclusion of the trial. In January, 1977, Fotomat served Photovest with its 38-page trial brief filed with the court on December 3,1976, and on February 11, 1977, Fotomat filed a 290-page supplemental trial brief and served a copy on Photovest. After the recess, trial resumed on February 14 at which time Fotomat again objected to not being served a copy of Photovest’s unedited trial brief. Photovest then voluntarily agreed to give Fotomat a copy of the unedited version which it did later that day. Fotomat contends that it was prejudiced by this procedure and that the procedure violates the Federal Rules of Civil Procedure and the Constitution. Before addressing the propriety of the delayed exchange of trial briefs, we note that there is in this case the additional factor that Fotomat was apparently unaware of the procedure until the first day of trial by which time Photo-vest had already submitted its unedited brief to the court. The record indicates that this was a result of a bona fide misunderstanding between counsel at the pretrial stages. Nothing in the record suggests any foul play or attempts to secure an unfair advantage by either party. Accordingly, the only issues are whether the procedure violates either the Federal Rules of Civil Procedure or the Constitution, or is otherwise undesirable, and if so, whether Fotomat was prejudiced by it. We also note that the delayed exchange of trial briefs is not an unusual procedure in the Southern District of Indiana. Local Rule 19(k) of the District Court for the Southern District of Indiana does not appear to require pretrial exchange of trial briefs and the practice in that district is not to exchange until the conclusion of trial. Fotomat contends that the procedure violates Rule 5(a), Fed.R.Civ.P., which requires service on all the parties of Every order required by its terms to be served, every pleading subsequent to the original complaint unless the court otherwise orders because of numerous defendants, every paper relating to discovery required to be served upon a party unless the court otherwise orders, every written motion other than one which may be heard ex parte, and every written notice, appearance, demand, offer of judgment, designation of record on appeal, and similar paper . (Emphasis added.) Fotomat argues that a trial brief is a “similar paper” under Rule 5(a) and thus that the procedure employed in this case is inconsistent with Rule 5(a). However, neither Fotomat nor Photovest has provided any federal case involving the application of the rule to trial briefs, and our independent research has been equally unsuccessful. Indeed, “the language of Rule 5 has given rise to little controversy.” 4 Wright & Miller, Federal Practice and Procedure: Civil § 1141 at 570 (1969). As a result, we are left to write on a clean slate. The inclusion of the words “and similar paper” in Rule 5(a) indicates that the drafters did not intend the preceding list of documents to be exhaustive. Wright and Miller state that the words suggest an expansive application of the rule. Id., § 1143 at 577. Even an expansive application of the rule does not, in our opinion, clearly mandate pretrial exchange of trial briefs. Rule 5(a) provides an extensive list of documents before concluding with the phrase “and similar paper.” Given the prominence and significance of the trial brief in the litigation process, its glaring absence from the list of documents specifically mentioned in the rule supports the inference that the drafters did not intend Rule 5(a) to apply to trial briefs. This inference is buttressed by the existence of local rules like the one before us, none of which, as far as we have been able to determine, have been successfully challenged as inconsistent with Rule 5(a). We also note that the rule does not address the timing of the service. The procedure in the present case clearly provided for service on all parties since it always contemplated exchange at the close of trial. The only unusual aspect was that service on the court occurred well before service on the opposing party. Therefore, arguably the rule does not have any application to the issue before us. Fotomat also argues that the delayed exchange procedure violates the Due Process Clause of the Fifth Amendment. Again we note the absence of any cases involving a due process challenge to a delayed exchange of trial briefs procedure. None of the cases cited by Fotomat involves a closely analogous situation, and instead, Fotomat relies on broad language from due process decisions all of which are clearly distinguishable. For example, Fotomat cites Haller v. Robbins, 409 F.2d 857, 859 (1st Cir. 1969), for the proposition that a party’s constitutional rights are infringed if counsel for the opposing party is allowed “to convey information or to discuss any matter relating to the merits of the case” with the trial judge in the absence of opposing counsel. Haller was a habeas corpus case in which the petitioner raised a due process challenge to ex parte communications by the county attorney. The petitioner entered a guilty plea to a kidnapping charge in the state court; but sometime between his arraignment and his sentencing, the county attorney, in the absence of petitioner and his attorney, informed the presiding judge of a statement made by the petitioner’s victim of an episode of sordid behavior by petitioner while the victim was in his custody. The judge sentenced petitioner without the petitioner knowing of the ex parte communication. The court of appeals held this to be a violation of due process. The present case differs in many respects, but a critical distinction is that the trial briefs were to be exchanged after trial giving both parties an opportunity to respond to any inaccuracies or misleading information before the court rendered judgment. This fact also distinguishes and renders unpersuasive Fotomat’s reliance on Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 288 n.4, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974); Home Box Office, Inc. v. F.C.C., 185 U.S. App.D.C. 142, 189, 567 F.2d 9, 56 (D.C.Cir. 1977); and United States v. Miller, 495 F.2d 362, 364-65 (7th Cir. 1974). Fotomat contends that exchange after trial is too late and that this timing transgressed the due process requirement that notice and opportunity to be heard “be granted at a meaningful time and in a meaningful manner.” Fuentes v. Shevin, 407 U.S. 67, 80, 92 S.Ct. 1983, 1994, 32 L.Ed.2d 556 (1972). However, we are of the opinion that exchange of trial briefs at the conclusion of trial is a sufficiently meaningful time for purposes of due process analysis. None of Fotomat’s authority on this issue suggests otherwise. See, e. g., Edelberg v. Illinois Racing Board, 540 F.2d 279, 285 n.9 (7th Cir. 1976), and cases cited therein. That the delayed exchange of trial briefs procedure is not inconsistent with Rule 5(a), Fed.R.Civ.P., and is not per se violative of due process protections does not mean that we approve of it without reservation. Indeed, we are of the opinion that exchange of trial briefs at the time they are filed with the court is sounder procedure, being one more consistent with the elimination of gamesmanship aspects of litigation and, indeed, with the quest for truth, presumably the ultimate aim of adversarial litigation. Any benefits that a delayed exchange may provide are outweighed by the increased potential for prejudice and by the added difficulties resulting from postponing until after trial the curing of any real prejudice caused by the trial briefs. The district court judge, particularly in the case of a long and complex trial, who has entertained incorrect concepts about some aspects of the case during the course of the trial because of an ex parte brief, is placed in the difficult position of returning to a status quo ante position prior to engaging in the decisional process. The district court judge in the present case explained his reasons for the procedure on the first day of trial: I have to go back and give you the basis for my position in the District for not exchanging briefs. 99 percent of our cases are not cases of this nature, that are well prepared by both sides, and I grew up in that period when we had a lot of counter-punchers practicing law, and they were educated by the opposing party and did little or no work, but they were very adept at using the work of counsel on the other side. That was basically the background of the rule that I have followed on exchange of briefs. Although we are somewhat sympathetic to the problem for which the delayed exchange procedure was designed, that problem can be mitigated to some degree by merely requiring the parties to submit their briefs for exchange simultaneously. Moreover, we are more concerned with assuring that a party at all times is as well advised of his opponent’s arguments as is the trial judge than we are with the problems of the “counterpuncher.” For these reasons under our supervisory power we hereby direct any district court of this circuit which now follows the practice of delayed exchange of trial briefs to require in all future cases each party to serve his trial brief on all other parties at some reasonably short time before or after he files the brief with the court or provides a copy to the judge. We find no reason to reverse the district court in the present case on this issue because although we deem more desirable the procedure just announced, the district court’s procedure in this case had not been demonstrated to have prejudiced the defendant. The delayed exchange procedure was abandoned early in the trial. Photo-vest gave Fotomat an edited version of its trial brief on the ninth day of trial, and after a two month recess in the trial, gave it the full, unedited version on the tenth day of trial. As to the first nine days of trial, Fotomat was given the right to call any Photovest witness who had testified during that portion of the trial. During the remaining 21 days of trial, Fotomat did not cite any prejudice from the delay in service. Indeed, in all of its briefs and arguments in this appeal, Fotomat has failed to demonstrate any specific instance of prejudice resulting from the trial brief procedure. II. ATTEMPT TO MONOPOLIZE The district court held that Fotomat violated § 2 of the Sherman Act, 15 U.S.C. § 2, and the Indiana statutory counterpart, Ind. Code 24-1-2-2. Section 2 of the Sherman Act prohibits attempts to monopolize. Generally, a plaintiff claiming that the defendant violated this section must prove specific intent and conduct manifesting that intent to monopolize and a dangerous probability of success in a relevant market. See generally L. Sullivan, Handbook of the Law of Antitrust §§ 50-52 (1977) (hereinafter Sullivan), and cases cited therein. Before discussing the specific intent and dangerous probability of success elements, we will first address the relevant market issue, one which the parties have vigorously contested. A. Relevant Market A definition of the relevant market is essential because “without a definition of that market there is no way to measure [the defendant’s] ability to lessen or destroy competition.” Walker Process Equipment, Inc. v. Ford Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 350, 15 L.Ed.2d 247 (1965). There is some authority for the proposition that in an attempt to monopolize case, as distinguished from a monopolization case, a definition of the relevant market is not necessary. In Lessig v. Tidewater Oil Co., 327 F.2d 459, 474-75 (9th Cir. 1964), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046, the court stated that “[w]hen the charge is attempt (or conspiracy) to monopolize, rather than monopolization, the relevant market is ‘not in issue.’ ” The great weight of authority, however, requires a definition of the relevant market. See, e. g., United States v. Empire Gas Corp., 537 F.2d 296, 298-99 (8th Cir. 1976), cert. denied, 429 U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d 572; Morton Bldgs, of Nebraska, Inc. v. Morton Bldgs., Inc., 531 F.2d 910, 919 (8th Cir. 1976); Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1348 (3d Cir. 1975); George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547, 550 (1st Cir. 1974), cert. denied, 421 U.S. 1004, 95 S.Ct. 2407, 44 L.Ed.2d 673; Bendix Corp. v. Balax, Inc., 471 F.2d 149, 161-64 (7th Cir. 1972), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51 (1973); Cooper, Attempts and Monopolization: A Mildly Expansionary Answer to the Prophylactic Riddle of Section Two, 72 Mich.L.Rev. 373, 385 & n.37 (1974). Indeed, one commentator has concluded that the Lessig approach “reeks of overkill.” Hibner, Attempts to Monopolize: A Concept in Search of Analysis, 34 A.B.A. Antitrust L.J. 165, 171 (1967). We are similarly unpersuaded by Lessig and thus shall proceed to analyze the relevant market in the present case. The district court concluded that Fotomat attempted to monopolize “the drive-thru retail photo processing submarket in the Indianapolis metropolitan area.” Fotomat argues that the district court erred in defining the submarket and that a proper definition of the relevant submarket is much broader and would include photo processing services offered in drugstores, supermarkets, etc. Under its broader market definition, it argues that its share of the market was insufficient as a matter of law to give rise to any probability that it could succeed in monopolizing that market. The relevant factors for defining the market in a § 2 Sherman Act case are similar to those used to define the market in a § 7 Clayton Act case. In United States v. Grinnell Corp., 384 U.S. 563, 572-73, 86 S.Ct. 1698, 1704-05, 16 L.Ed.2d 778 (1966), the Court stated that “in § 2 cases under the Sherman Act, as in § 7 cases under the Clayton Act (Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510) there may be submarkets that are separate economic entities,” and that “we see no reason to differentiate between ‘line’ of commerce in the context of the Clayton Act and ‘part’ of commerce for purposes of the Sherman Act.” See Twin City Sportservice, Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1270-71 (9th Cir. 1975); L. G. Balfour Co. v. F.T.C., 442 F.2d 1, 11 (7th Cir. 1971). Accordingly, the Brown Shoe opinion is instructive even though it is a Clayton Act § 7 case involving a product market rather than a service market. The Court stated: The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. The boundaries of such a sub-market may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. 370 U.S. at 325, 82 S.Ct. at 1523-24 (footnotes omitted). The market definition problem in the present case is whether drive-thru photo processing is, as found by the district court, a relevant submarket. One of the most important indicia suggested in Brown Shoe is whether drive-thru photo processing is offered' at prices distinct from other methods of photo processing. This is in essence asking whether there is a low level of cross-elasticity of demand between drive-thru and other methods. The concept of cross-elasticity, defined and explained in the margin, first appeared in the case law in Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 612 n. 31, 73 S.Ct. 872, 97 L.Ed. 1277 (1953), where the Court used it to support its conclusion that advertising in other media was not a close enough substitute for newspaper advertising to be included in the same market. High cross-elasticity between two products suggests that they are in the same market. The district court found that: Retail processing delivered to the amateur photographic consuming public by the drive-thru method has a very low or no significant price cross-elasticity with other methods of retailing processing. Fotomat contends that this finding is largely unsupported in the record. We cannot agree. The record indicates that Fotomat’s prices for photo processing were approximately 20% or more above conventional forms of retailing. Fotomat’s Vice-President of Marketing Services testified that Fotomat’s print processing prices were over 50% higher than those of most drug store or discount store services. Yet Fotomat was able to grow despite its significantly higher prices. Similar price differentials were found to be very significant in defining the submarket in Avnet, Inc. v. F.T.C., 511 F.2d 70 (7th Cir. 1975), cert. denied, 423 U.S. 833, 96 S.Ct. 56, 46 L.Ed.2d 51. One of the issues in Avnet was whether rebuilt or reconditioned used components (auto electrical units such as generators, alternators, etc.) should be included in the same market as comparable new components. This court upheld the F.T.C.’s decision to exclude the used components: The Commission found that prices for rebuilt or reconditioned used components varied from 25% to 50% below the prices of comparable new items. Moreover, it noted the absence of any substantial interaction in price between the two lines. These factors are sufficient to support the finding that they should be placed in different submarkets. Id. at 77. See also Cass Student Advertising, Inc. v. National Educational Advertising Service, Inc., 516 F.2d 1092, 1100 (7th Cir. 1975), cert. denied, 423 U.S. 986, 96 S.Ct. 394, 46 L.Ed.2d 303. Although Fotomat argues that the record establishes substantial similarity and interaction in prices between drive-thru and other retailers of processing, it has failed to provide any citation to the record in support of this argument, and in our independent review of the record we have not discovered any. Therefore, Fotomat’s ability to charge distinctive prices, albeit not determinative of a sub-market, is an important factor suggesting that the district court’s delineation of a submarket was correct. Because a primary aspect of the service at issue, photo processing, is nearly identical whether done by drive-thru kiosks or conventional retailing methods, we might have been inclined to afford the price differential less weight than in other situations where the products appear to be less similar. Our inclination derives from the possibility that the reason for the price differential may be price-insensitive consumers. Cf. Columbia Metal Culvert Co., Inc. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 28 & n. 22 (3d Cir. 1978), cert. denied, 439 U.S. 876, 99 S.Ct. 214, 58 L.Ed.2d 190 (1978). However, since there is no conclusive evidence that consumers in this market are price insensitive, we must afford the price differential its due weight. Moreover, a closer analysis of the products show that although the end product of the drive-thru and the conventional method is nearly identical, the total service is quite different. The differences in the total service provided by drive-thru as compared to conventional retailing are reflected by industry perception of the drive-thru submarket as a separate economic entity, another Brown Shoe factor suggesting a relevant submarket. The district court found that “the drive-thru retail photographic processing business has achieved recognition within the photographic industry as a separate method of doing business and a separate market.” More important than industry perception is consumer perception. Expert testimony indicated that consumers do treat drive-thru as a separate submarket. The convenience and service of drive-thru kiosks apparently segregate them from other forms of retailing. Consumers are willing to pay a premium for the convenience of drive-thru service. And the Fotomate, with whom a customer deals, is more of a specialist than salespersons in many drug stores or discount stores that offer photo processing. Another Brown Shoe factor, “specialized vendors,” also supports the district court’s finding of a drive-thru submarket. It is quite clear that kiosks are a specialized method of retailing distinct from other conventional methods. Fotomat is disturbed by the district court’s finding of a drive-thru submarket in view of the fact that the district court found that a given customer might purchase photo processing from both drive-thru and conventional retailers depending on which is more convenient under the circumstances. Fotomat suggests that this precludes the existence of a submarket. We cannot agree. The law does not require an exclusive class of customers for each relevant submarket. See, e. g., United States v. Aluminum Company of America, 377 U.S. 271, 84 S.Ct. 1283, 12 L.Ed.2d 314 (1964) (the Court recognized a distinction between markets for insulated aluminum and insulated copper wire despite the fact that the same customers bought each for similar purposes). Moreover, in the present case it is significant that at a given time a customer who finds a kiosk convenient will use it regardless of its higher prices. Recognizing that in defining the relevant submarket the legal “guidelines offer no precise formula for judgment and [that] they necessitate, rather than avoid, careful consideration based on the entire record,” we conclude that the district court properly defined the relevant submarket. B. Specific Intent & Conduct Having affirmed the district court’s delineation of the drive-thru submarket we turn now to the issue of whether Fotomat intended to monopolize the market. Although the case law contains some confusing dicta regarding the need to prove specific intent in an attempt to monopolize case, the Supreme Court has stated that: While the completed offense of monopolization under § 2 demands only a general intent to do the act, “for no monopolist monopolizes unconscious of what he is doing,” a specific intent to destroy competition or build monopoly is essential to guilt for the mere attempt now charged. Times-Picayune Publishing Co. v. United States, 345 U.S. at 626, 73 S.Ct. at 890. Accord, United States v. Griffith, 334 U.S. 100, 105, 68 S.Ct. 941, 92 L.Ed. 1236 (1948). Although the specific intent requirement has been criticized, see, e. g., Cooper, Attempts and Monopolization: A Mildly Expansionary Answer to the Prophylactic Riddle of Section Two, 72 Mich.L.Rev. at 398-400 (1974); III P. Areeda & D. Turner, Antitrust Law ¶ 822 (1978), and the requisite proof to establish it is not well-settled, the district court found, and the record supports its finding of, the requisite intent, and Fotomat has not argued error in this regard. Fotomat directs its argument to the district court’s finding of predatory conduct and contends that either the finding is not supported by the record or that its conduct was not the sort which is proscribed by the antitrust laws. Photovest’s theory, accepted by the district court, was that when Fotomat determined that owning the kiosks was more profitable then franchising them, Fotomat, among other things, saturated the market with company-owned kiosks to reduce severely the profitability of Photo-vest’s kiosks and thereby attempted to reduce substantially the value of Photovest’s kiosks so that Fotomat could buy them at a low price. Saturating the market was not the only method that Fotomat used, according to the district court, to reduce the profitability of Photovest’s kiosks. It found that Fotomat engaged in the following conduct in an intentional attempt to do so: concealment of discounts available from processors, retention of discounts from processors, the markup of film, the placement of company stores in such a manner as to siphon business from plaintiff, attempts to coerce plaintiff into remaining with Carhart, refusal to relocate losing stores, insistence on escalating rents and a. number of miscellaneous found facts. Each of these was designed to reduce plaintiff’s profits for purposes of reacquiring plaintiff’s stores at the lowest possible price. Although we will discuss only the primary components of Fotomat’s attempt to monopolize, an analysis of these components requires a thorough review of the factual context in which they occurred. From its inception in 1967, Fotomat intended to “blitz the industry,” that is, to preempt the desirable sites for drive-thru kiosks nationally. Because it did not have a vast capital supply with which to do this, it established a franchising arrangement to provide capital and operating management for its rapidly expanding network and to permit simultaneous development of many metropolitan areas. During its initial years of operation, the bulk of Fotomat’s revenue was derived from the sale Of franchises, not from operations. By about June 1969, Fotomat concluded that the profits it derived from company-owned kiosks were significantly greater than those it derived from franchised stores. After 1969, no significant franchise sales were made except to fulfill commitments to “block” franchisees who had rights to purchase additional stores. In 1971, a new franchise relations director was employed by Fotomat with instructions to “work himself out of a job.” The franchise arrangement with Photo-vest began in 1968. The investors who ultimately formed Photovest responded to an advertisement in the Wall Street Journal in which Fotomat solicited the purchase of franchises in several states including Indiana. The Photovest principals made two trips to Fotomat’s headquarters in La Jolla, California, where they were given an extensive sales talk. Fotomat represented that each store had a “market area” consisting of the geographic area from which the store drew its customers and that as a general rule no store would be constructed within two miles of any existing store so as not to infringe on the market area of the existing store. It represented that it would select sites for the franchisees based on sophisticated demographic studies which it and others had conducted. It also represented that two stores would not overlap each other’s market areas because Fotomat’s royalties applied only to receipts of stores in excess of $2,500 per month and thus Fotomat could not afford to have overlapping in market areas. It described a store sales level of $60,000 per year as “modest,” $90,000 per year as “satisfactory,” $120,000 per year as “above average,” and $150,000 per year as “high.” Fotomat estimated that the Marion County (Indianapolis) area would support fifteen stores which it identified as the “saturation” level of the area. It told the investors that it would provide the franchisee with essential support services, including daily pickup and delivery of film, customer service, administrative support, kiosk maintenance and complete merchandising support. On August 26, 1968, Photovest signed a master franchise purchase agreement obligating it to purchase fifteen franchises to operate fifteen Fotomat stores in Marion County, Indiana. Each store was made subject to the standard Fotomat franchise agreement and the standard Fotomat lease agreement which would be separately signed when each store was opened. Photo-vest agreed to pay $21,000 for each franchise. The price was payment for use of Fotomat’s trademark name, a small amount of equipment, original inventory, and miscellaneous items of a value less than $1,000. Photovest also agreed to pay Fotomat as a royalty and continuing franchise fee 12% of the franchisee’s gross sales in excess of $2,500 per month. The franchisee was required to pay Fotomat an additional 3% of all gross sales to be “expended by Fotomat for the purpose of advertising, public relations, and the promotion of the total franchise operation.” The agreement expressly required that the franchisee “purchase all merchandise, photo-processing services and other services from Fotomat or from such other sources as have been approved in writing by Fotomat.” But Fotomat agreed to sell “all film and film processing” to the franchisee “at Fotomat’s cost without any markup whatsoever.” If Fotomat itself entered the photo processing business, it could charge the franchisee for its photo processing services, but only at such rates as “shall be comparable to or less than those prevailing in the industry in operator’s general market area.” The agreement required Photovest to lease the store from Fotomat at a rent of $375 per month with a cost-of-living escalator effective after five years. Expiration or termination of the lease would terminate the franchise. Fotomat agreed to perform “general services including frequent pickup and delivery of film, frequent delivery of inventory, maintenance of inventories, and regular merchandising services.” The term of the franchise was ten years with renewal options for three additional five year periods upon payment of $7,000 per period. Photovest had a right of first refusal which could be exercised on any additional stores Fotomat offered for sale in Marion County. 1. Saturating the Market In 1971, Fotomat’s executives in charge of site selection believed that Fotomat had an obligation to the franchisees “to not intentionally pull customers from [the franchisee’s] operating stores to ours [company stores] and to act in good faith in the performance of our positioning of the units relative to franchised stores.” These beliefs and the understanding or informal policy against “overlaps” of franchised stores were based on Fotomat’s knowledge of the basis on which the franchises were sold. As of June 16,1971, there were eighteen Fotomat stores in the Indianapolis vicinity; fifteen were Photovest’s franchised stores, all located in Marion County, and three were company stores located in adjoining counties. In about 1972, Fotomat began to modify its previous procedures and began to overlap franchised stores on a systematic basis. In 1973, Fotomat devised a “four point program” in response to a Kansas City franchisee’s objection to Fotomat’s placement of stores in proximity to a franchised store. The program provided that if a store were opened within two miles of a franchised store, the franchisee could either (1) buy a franchise for the store for $21,000 and take a lease at $375.00 per month, (2) choose either unit within six months of the opening of the new unit, (3) sell the franchised unit back to Fotomat “at a negotiated price” (Fotomat represented that the franchisee could choose a unit if, after a sufficient time, it is determined to close one of the units), or (4) do nothing. This four point policy was not disclosed to Photovest until June 1974, when a store was placed in Indianapolis within one and one half miles of one of Photovest’s best stores with an annual sales volume of $88,471. Photovest did exercise the option to buy, and that store became its sixteenth store. It believed at the time that the location was not good, but hoped to deter Fotomat from placing additional overlapping stores in Marion County and purchased to “set a precedent.” In 1974, two other stores were installed within two miles of a Photovest store. Neither was offered to Photovest under the four point program, and when such omission was called to Fotomat’s attention, its response was to ignore Photovest’s requests. Beginning on October 17, 1974, and up to the date of trial of this case, Fotomat opened ten more stores in and around Marion County. In March 1975, in its next four option offer, Fotomat announced that the price for a franchise store was now $30,000 and the required monthly rental would be $500 per month. It was not economically feasible for Photovest to accept new stores on those terms, a fact which was known to Fotomat. Since March 1974, Fotomat has opened fourteen new stores in the Indianapolis metropolitan area. Twelve of these represent new sites, while two of them are relocations. Over one-half of the new stores since 1973 have physically overlapped existing stores in Marion County, Indiana. Prior to the effect of the overlaps, three Photovest stores had attained all-time sales highs in excess of $90,000 per year, and two others exceeded $80,000. Although all were growing, by trial Photovest’s best store was at $70,576, and like most other stores, was dropping sharply. Photovest’s annual sales reached $1,071,670 in the year the overlaps started, and the most recent data available at trial showed its annual sales at approximately $900,000, even with a sixteenth store. As of January 1977, ten of Photo-vest’s stores were below Photovest’s overall breakeven point, and five were below the incremental breakeven point of $50,000. By trial, Photovest was incurring substantial losses. It was valued by professional business appraisers as worthless and the district court agreed. The district court found that the new company stores were the principal cause of the decline in Photo-vest’s sales. The record supports this finding. Thus the critical issue in this regard is whether this conduct, albeit destructive of Photovest’s profit levels, is proscribed by § 2 of the Sherman Act. Fotomat poses the issue as whether the antitrust laws are violated by locating a store close to a competitor in the hopes of taking some customers from the competitor. It argues that the law does not proscribe such behavior because the antitrust laws specifically encourage competitive store locations and condemn competitors who allocate territories among themselves. It attempts to draw support for its arguments primarily from three cases, none of which we find provides persuasive support. National Society of Professional Engineers v. United States, 435 U.S. 679, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977); United States v. Topeo Associates, Inc., 405 U.S. 596, 611, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972). Topeo Associates was a cooperative association of regional supermarket chains. Its basic function was to serve as a purchasing agent for its members and to obtain for them high quality merchandise under private labels to make them competitive with larger national and regional chains. The Government sued Topeo under § 1 alleging that it combined and conspired with its members to enforce territorial allocation of markets. The territorial allocations effectively insulated members from competition in Topco-brand goods. The Court found the arrangement to be a per se violation of § 1 and was not persuaded to the contrary by the district court’s determination that the agreements among members allowed them to compete more effectively with the large supermarket chains. The district court had found for Topeo in part because “by limiting the freedom of its individual members to compete with each other, Topeo was doing a greater good by fostering competition between members and other large supermarket chains.” 405 U.S. at 610, 92 S.Ct. at 1135. Fotomat argues that the Supreme Court’s rejection of this reasoning suggests that the antitrust laws could not proscribe its adding stores in Indianapolis which overlapped the market areas of Photovest franchises. This quantum leap in legal reasoning ignores an important aspect of antitrust analysis. Fotomat’s reasoning ignores the whole concept of predatory practices which was not an issue in Topeo. Many predatory practices promote competition in the short run, but if they are used to effect a monopoly by eliminating competition, they are illegal under the Sherman Act. The enforcement of § 2 of the Sherman Act will often result in a sacrifice of the most competitive conduct in the short run if the ultimate goal of that conduct is the establishment of monopoly power. In Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 119, 68 S.Ct. 947, 952, 92 L.Ed. 1245 (1948), the Court sustained district court findings that the defendant “made threats to build theaters or to open closed ones in order to force sales of theaters in various towns or to prevent entry by an independent operator.” The Court stated that the district court was justified in drawing the inference of unlawful purpose from this conduct. Id. More recently, the Third Circuit found that there was sufficient evidence from which the jury could have found a § 2 violation, part of that evidence being the defendant’s intentional location of a competing factory in the immediate vicinity of the plaintiff’s plant. Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 31 (3d Cir. 1978). Each defendant’s conduct in Schine and Columbia Metal may have promoted competition in the short run, but that did not foreclose the possibility of antitrust liability. Fotomat’s citation of Brunswick and National Society of Professional Engineers is unpersuasive for the same reasons. Fotomat also contends that the evidence of record does not support the findings that it expanded in the Indianapolis market for anticompetitive purposes. It relies in great part on the fact that the franchise agreement did not contain a provision prohibiting it from opening new stores which overlapped Photovest’s franchised stores. But a party’s right to sue for antitrust violations is not dependent on the existence of a contract provision prohibiting the alleged anticompetitive behavior. Moreover, the record in this case clearly supports the district court’s findings regarding Fotomat’s purpose in locating new stores in Indianapolis. One example of support for this finding is Fotomat’s location decisions for its new stores in Indianapolis. It opened new stores in close proximity to Photovest's best stores. One of Photovest’s best stores was devastated by Fotomat’s opening of three new stores in its immediate market area. One of these new store’s sales never exceeded Fotomat’s incremental breakeven point and by trial were well below it. Notwithstanding Fotomat’s operations personnel recommendations to remove it, Fotomat did not close it, apparently willing to lose money in the short run hoping to reduce the profitability of Photovest’s store for future buy-back. Indeed, after being bracketed by these three new stores, Photo-vest’s store’s annual sales of $88,000 dropped 40%. A Fotomat internal memorandum written by an area manager establishes that Fotomat “anticipated” that the new store would “siphon” volume from Photovest’s store. Also, it should be remembered that Fotomat’s conduct regarding new store locations must be viewed along with its other behavior which in total was found to support a § 2 violation. Otherwise, lawful practices may become unlawful if they are part of an illegal scheme. See Schine Chain Theatres v. United States, 334 U.S. at 119, 68 S.Ct. 947. 2. Processing Discounts and Film Markups Another part of the scheme by Fotomat to reduce the profitability of Photovest’s stores so that they would eventually be less expensive to buy back was Fotomat's concealment of and retention of discounts it obtained on processing and its markup of Fotomat brand film. The franchise agreement obliged Fotomat to sell all film and processing to Photo-vest “at Fotomat’s cost without any markup whatsoever.” The arrangement between Fotomat and its processors involved processing prices stated in tiers of discounts from the retail price. For example, if the retail price was $1.00 and Fotomat was given a discount of 47% plus 10%, its wholesale price would be $0.477 ($1.00 ± 47% = $0.53; $0.53 ± 10% = $0.477). Over the years, the second tier discount increased. Fotomat passed on the first tier discount to Photovest but retained the second tier discount. Since the discount terms granted to Fotomat by its processors were highly confidential, Photovest was unaware of Fotomat’s retention of the second tier discounts. These discounts ultimately rose to 12% for print and 21.6% for chrome and were secretly retained by Fotomat, as the district court found, both in violation of the contract, and for the purpose of reducing Photovest’s profitability. Similarly, Fotomat introduced private label Fotomat brand film which Fuji and GAF manufactured and sold to Fotomat. Fotomat then sold it to Photovest at prices 7% to 26% above its cost, in violation of the franchise agreement and as part of its scheme to reduce Photovest’s profitability. 3. The Processing Tie The master franchise agreement gave Photovest the option to purchase processing from Fotomat or “such other sources as have been approved in writing by Fotomat.” But twelve of the individual franchise agreements signed on the opening of new stores from December 30, 1968, through 1971 deleted all reference to “approved sources” and required processing to be purchased from Fotomat. In June 1971, Fotomat informed all franchisees that they could use any processor they wished despite the contract provision. In the summer of 1974, Photovest began looking for another print processor because of quality problems with Carhart (Fotomat’s processor). In September, Photovest informed Fotomat that it intended to switch its print processing to Colorcraft. Fotomat demanded that Photovest also change its chrome processor and perform its own pickup and delivery and customer service, despite the fact that Fotomat was contractually required to provide both pickup and delivery and customer service in return for royalty payments from Photo-vest. Although Fotomat’s refusal to perform pursuant to the contract exerted pressure on Photovest to stay with Carhart, Photovest persisted and ultimately signed a contract with Colorcraft. The pressure Fotomat exerted on Photo-vest to stay with Carhart put Photovest in a no-win situation. Either it stayed with Carhart and lost the discounts that Fotomat wrongly retained and suffered the loss in sales resulting from inferior quality processing, or it switched processors and lost the customer service and pickup and delivery services which Fotomat threatened to terminate. Either choice subjected Photo-vest to an economic loss which contributed to Fotomat’s plan to reduce Photovest’s profits. C. Dangerous Probability of Success [8] Having agreed with the district court’s delineation of the relevant submarket, it is quite clear that there was a dangerous probability that Fotomat would succeed in monopolizing the market. The only related issue worthy of discussion is whether Fotomat’s control of the market via buyback of the Photovest franchises would change the competitive dynamics of the market. Fotomat argues that since Photo-vest always followed Fotomat’s recommended pricing, the buy-back would have no effect on the pricing of the goods or services in the relevant market. It argues that the same amount of photo processing would be done whether Photovest or Fotomat owned the Indianapolis drive-thru kiosks, and that the number of sites preempted by Fotomat stores would remain constant. We are unpersuaded by this argument because it proceeds on the assumption that Fotomat’s pricing behavior is not influenced by the existence of Photovest franchises and thus that if Fotomat succeeded in buying back all the Photovest franchises and obtaining a monopoly, it would not change its pricing policies. Antitrust analysis does not recognize as a defense the possibility that if a defendant obtains a monopoly, he might nevertheless not abuse his monopoly power to extract monopoly profits. The recognition of such a defense in an attempt to monopolize case would devastate the impact of § 2. The fact that Photovest has always followed Fotomat’s suggested prices does not suggest, as Fotomat implies, that the same prices would be charged if Fotomat succeeded in buying back all Photovest stores. The forces of competition may well be restraining Fotomat’s recommended prices to its franchisees. The franchisees are not bound to follow these recommended prices. Without the restraints of competition, a monopolist often will find that it can maximize profits by selling a lower volume at higher prices than would prevail in a more competitive market. We cannot reverse the district court’s finding of a § 2 violation on the ground that Fotomat may not, if given the opportunity, follow the path of many monopolists. Accordingly, we affirm the district court’s conclusion that Fotomat violated § 2 of the Sherman Act. III. THE TYING ARRANGEMENTS The district court found that Fotomat engaged in illegal tying arrangements involving both photo processing and leasing of kiosks. The photo processing tie was held to be in violation of § 1 of the Sherman Act and its state law counterpart, Ind. Code § 24-1-2-1. The lease tie was held to be in violation of only this state statute apparently because of lack of sufficient effect on interstate commerce. A. The Photo Processing Tie The district court held that: Defendant’s securing of plaintiff’s agreement to purchase print processing from defendant, by means of the franchise agreements, defendant’s concealment of its discounts from processors, and its policies with respect to plaintiff’s use of independent processors, constitutes an unlawful restraint of trade in violation of Section 1 [and Ind. Code § 24-1-2-1]. Initially, the tying arrangement was part of the franchise agreement. From 1968 to 1971, twelve of the Photovest franchises included a contractual clause prohibiting Photovest from buying processing from anyone other than Fotomat. Then in June 1971, Fotomat wrote to its franchisees, apparently with knowledge of the then recent opinion in Siegel v. Chicken Delight, Inc., 311 F.Supp. 847 (N.D.Cal.1970), aff’d in part, 448 F.2d 43 (9th Cir. 1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972), advising them that they could use any processor they wished despite the provision in their agreements to the contrary. This letter, however, also assured the franchisees that Fotomat was selling processing at its cost without any markup whatsoever. Fotomat then adopted a policy that any franchisee who did switch print processors would have to supply its own pickup and delivery and would have to switch chrome processors. When Photovest decided to switch processors in September 1974, Fotomat responded, consistently with this policy, by demanding that Photovest change its chrome processor and do its own pickup and delivery and customer service. The district court apparently concluded that an illegal tying arrangement existed from the inception. Although the district court did not analyze the alleged tying conduct in temporal segments, we find it instructive to view the conduct in three segments: (1) prior to the June 1971 Chicken Delight letter; (2) from June 1971 to September 1974; and (3) after September 1974. In period one, prior to the June 1971 letter, the tying arrangement is clear, at least as to twelve of the sixteen Photovest franchises. These franchise agreements required Photovest to purchase its processing from Fotomat. Thus Fotomat tied the sale of processing to the franchise itself. A tying arrangement is defined as: an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, . . . . They [tying arrangements] are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product . Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). The law is well-settled that a franchise license itself can be the tying product. In Northern v. McGraw-Edison Co., 542 F.2d 1336, 1345 (8th Cir. 1976), cert. denied, 429 U.S. 1097, 97 S.Ct. 1115, 51 L.Ed.2d 544 (1977), the court stated: A franchise license constitutes a separate and distinct marketable item. The weight of judicial authority supports the proposition that if prospective franchisees are compelled to purchase equipment or other tied products in order to obtain the franchise and trademark, an illegal tying arrangement exists. Accord, Milsen Co. v. Southland Corp., 454 F.2d 363 (7th Cir. 1971); Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir. 1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1172, 31 L.Ed.2d 232 (1972). In the present case, Fotomat’s considerable economic power in the tying product, the trademark/franchise, was used to restrain competition in the processing market. Competing processors were effectively blocked from competing for Photovest’s processing needs, a not insignificant amount of processing. As to the four Photovest franchises which were permitted to purchase processing from Fotomat-approved sources, the tying arrangement was not established sufficiently. Photovest did not show that Fotomat unreasonably withheld approval. Indeed, it appears that Photovest never submitted a processor to Fotomat for approval during this time period. Photovest contends that the tie was nevertheless sufficiently established because Fotomat did not provide a list of approved processors. This does not in our opinion establish the requisite condition for illegal tying. Given the contractual language, which at least provides for the possibility of purchasing processing from non-Fotomat sources, we are reluctant to find a tying arrangement without some evidence that Fotomat applied the contract language so restrictively as to constitute a de facto tying clause. “The presence of the illegal condition may be inferred from an extrinsic course of conduct supplementing the written contract,” Advance Business Systems & Supply Co. v. SCM Corp., 415 F.2d 55, 64 (4th Cir. 1969), cert. denied, 397 U.S. 920, 90 S.Ct. 928, 25 L.Ed.2d 101 (1970), but in the present case Photovest has failed to provide evidence of any conduct from which to infer the tie. Accordingly, we are of the opinion that the district court erred in including these four franchises in the tying arrangement for the period before June 1971. In period two, from June 1971 to September 1974, we are again unable to agree with the district court’s finding of a tying arrangement. Photovest’s theory, which persuaded the district court, was that notwithstanding the “Chicken Delight” letter of June 1971, Fotomat’s fraudulent representation to Photovest that it was offering processing at its cost without markup, induced Photovest to continue to purchase its processing from Fotomat’s processor (Car-hart). When Fotomat informed its franchisees that they could purchase processing from whomever they wished, it also assured them that it was offering them processing at its cost. Photovest argues that it had no reason to look elsewhere for processing since it assumed it was receiving its processing at Fotomat’s cost and that Fotomat had substantial buying power. From this premise, Photovest concludes that Fotomat tied its processing to its trademark/franchise. It is at this step in the reasoning that Photovest’s argument fails. In essence, using Photovest’s reasoning, we would find an illegal tying arrangement whenever a franchisor tells a franchisee, “You can buy your supplies from whomever you desire, but my prices are lower” (knowing that its prices are not lower). This cannot constitute an illegal tie because a tying arrangement requires that the defendant use his economic power in the tying product to coerce the plaintiff to purchase the tied product on terms the plaintiff would not otherwise accept but for his desire to obtain the tying product. See, e. g., Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 377 (5th Cir. 1977); Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1326-31 (5th Cir. 1976). Photovest did not purchase processing from Fotomat because of Fotomat’s power over the trademark/franchise. Rather it purchased from Fotomat because of Fotomat’s untruthful representation that Fotomat was selling at cost. Fotomat’s untruthful representation may constitute breach of contract or fraud or other state law violations, but it cannot constitute the missing link in an illegal tying arrangement. Photovest cites Advance Business Systems & Supply Co. v. SCM Corp., 415 F.2d 55 (4th Cir. 1969), cert. denied 397 U.S. 920, 90 S.Ct. 928, 25 L.Ed.2d 101 (1970), in support of its tying theory which appears to be a tying by lying theory. SCM manufactured and sold office copying machines and the paper and other supplies used with the machines. The plaintiff was a distributor of paper and supplies for copying machines, but distributed a different brand of paper and supplies. The court held that SCM tied its paper and supplies to its service contracts. Its service contract stated, “Because SCM photocopy machines are designed to give excellent performance with SCM photocopy supplies, . . SCM reserves the right to suspend this agreement as to any machines in which other suppliers’ paper or other supplies have been used. . . . [and] [t]his agreement shall not apply to any repairs made necessary by the use . . . [of] supplies made by other than SCM and not approved by SCM for use in SCM equipment.” Id. at 65. SCM never approved any competitive paper for use in its machines even though it knew that the plaintiff’s paper was safe and as effective as SCM paper for such use. Moreover, SCM representatives deliberately misrepresented to customers that use of plaintiff’s supplies “would cause service calls and interrupt the continuous operation of their machines,” and threatened cancellation of rental agreements with customers who used non-SCM supplies in their SCM machines. The court held that both the restrictive contract language and the conduct designed to enforce the illegal restrictions violated the Sherman Act. Id. at 66. From this holding, Photovest tries to distill a rule that fraudulent inducements to purchase made by a defendant with market power in one product will entail an illegal tie. This goes too far. SCM Corp. is distinguishable from the present case because SCM threatened, both by contract and by conduct, to terminate its customers’ access to the tying product (either the service and maintenance of SCM copiers or the rental or lease of the copiers themselves) if the customers failed to use the tied product (SCM paper and supplies). The fraudulent misrepresentations were used merely to justify to its customers its enforcement of the tie. In the present case, however, the fraudulent misrepresentations stood alone; they were unaccompanied by either contract language or conduct which was invoked to enforce a tie. Fotomat did not threaten to terminate the franchise if Photovest refused to use Fotomat’s processor. It merely misrepresented the value to Photovest of using that processor. Indeed, the fraud was not linked in any significant way with the tying product. The principal evils of tying arrangements are the foreclosure of competitors in the tied product ma