UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK

Civil Case No.: 05-cv-0245
(GLS/GJD)

Judge Gary L. Sharpe
(Magistrate Di Bianco)

Delta Kappa Epsilon (DKE) Alumni Corporation, et al
Plaintiffs,

vs.
Colgate University, et al.
Defendants.

DKE’S POST-ARGUMENT BRIEF

BROUSE MCDOWELL, LPA
Thomas J. Wiencek (#0031465)
(Admission pro hac vice approved)
388 South Main Street, Suite 500
Akron, Ohio 44311-4407
(330) 535-5711, ext. 337
Fax: (330) 253-8601
MACKENZIE HUGHES, LLP
W. Bradley Hunt
101 South Salina Street, Suite 600
P. O. Box 4967
Syracuse, New York 13221-4967
Telephone: (315) 233-8386
Fax: (315) 474-1216

Counsel for Plaintiffs:
Delta Kappa Epsilon Alumni Corporation,
MU of DKE Foundation, and
Samuel Higgins

TABLE OF CONTENTS

I. INTRODUCTION 1
II. THE RELEVANT MARKET 1
III. ARGUMENT 2
A. Colgate’s Dominant Position and Thus Monopoly Power in the Hamilton, New York Rental Market Distinguishes this Case from Hamilton III and Hack II. 2
B. Colgate’s Parietal Rights are Irrelevant Here. 3
C. The Supreme Court in Kodak has Rejected Colgate’s “Primary” Market Theory. 6
D. DKE Also Has Raised Numerous Genuine Factual Disputes About Whether Colgate’s Primary Competition with Other Highly Competitive Colleges for Academically Qualified Students Makes a Local Rental Property Aftermarket in Hamilton, New York Impossible or Unreasonable. 9
IV. CONCLUSION 11

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
Judge Gary L. Sharpe
(Magistrate Di Bianco)

Civil Case No.: 05-cv-0245
(GLS/GJD)

Delta Kappa Epsilon (DKE) Alumni Corporation, et al.
Plaintiffs,

vs.

Colgate University, et al
Defendants.

DKE’S POST-ARGUMENT BRIEF

I. INTRODUCTION
Colgate’s motion for summary judgment should be denied because: (1) DKE’s delineation of a local Hamilton, New York rental housing market in which Colgate has an 81% - 85% market share, and thus monopoly power, is reasonable – which is all that DKE must show to avoid summary judgment (see Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 468 (1992)); (2) Colgate concedes its parietal rights, for purposes of its summary judgment motion, are irrelevant and that it should be deemed an economic actor; (3) the Supreme Court in Kodak has rejected Colgate’s “primary” market theory as a basis for disposing of a case on summary judgment; and (4) DKE has raised numerous factual disputes about Colgate’s “primary” market theory.
II. THE RELEVANT MARKET
In its second amended complaint and its papers, DKE offered two alternate markets: (1) the Hamilton Student Rental Housing Market (“HSRHM”); and (2) the extended rental housing market in Hamilton, New York that included the HSRHM and all the other privately-owned rental property there. (Second Amended Complaint && 47, 50; Comanor Decl. & 9, 36 n. 25). See also, Queen City Pizza, 124 F.3d 430,435 (3rd Cir. 1997) (market definition can be based on complaint and papers.) Alternate markets were identified because, although the physical housing offered in those markets was highly substitutable, the terms arguably differed inasmuch as student housing was generally rented on a semester basis and non-student housing was generally rented on a monthly basis. In any event, under both alternatives, Colgate has market shares that establish its monopoly power.
At the parties’ February 16, 2006, oral argument, the court asked DKE’s counsel to specifically delineate one market in his post-argument papers. To be conservative, DKE will rely on its extended market, which is defined as, “the rental housing market in Hamilton, New York.” This is the most comprehensive local market for rental property because it includes all of Colgate’s properties, such as its dormitories, apartments and townhouses, Colgate’s recently acquired Greek-letter houses, and all of the rental housing units offered by private landlords in Hamilton, New York, including Colgate’s rental units for non-students. (See Vitullo 11/9/05 response letter, No. 2, p. 2; Hale Depo. p. 184).
III. ARGUMENT
A. Colgate’s Dominant Position and Thus Monopoly Power in the Hamilton, New York Rental Market Distinguishes this Case from Hamilton III and Hack II.
Colgate has not denied that as a result of forcing the sale of most of the Greek–lettered houses, it now owns between 81% and 85% of the beds available in rental properties in Hamilton, New York (WC 27-37) . It also concedes “a student cannot purchase a Colgate education and decide to live in Middlebury College’s housing.” (Br. p. 15) . DKE therefore has “properly defined [a] market [that] excludes other potential suppliers (1) whose product is…too far away and (2) who are not likely to shift promptly to offer [Colgate’s students] a suitably proximate (in both product and geographic terms) alternative.” Rolfing v. Manor Care, Inc., 172 F.R.D. 330, 345 (N.D. Ill. 1997).
Colgate’s 81% - 85% market share indicates monopoly power as a matter of law. Grinnell Corp. v. Automatic Fire Alarm, 384 U.S. 563, 571 (1966). This is the critical fact that distinguishes this case from Hamilton III and Hack II. Even if similar housing markets were defined for Clinton, New York in Hamilton III and for New Haven, Connecticut in Hack II, Hamilton College and Yale would not have Colgate’s current market share of the beds available in rental property in Hamilton, New York. Hamilton College and Yale were not a majority, let alone 81% - 85% owners of the number of beds supplied in the local rental housing market in Clinton and New Haven.
But the issue is not simply that Colgate is a monopolist in the local rental market. Colgate legally could have expanded its rental market share by building new dorms on campus. In the Hamilton case, “[f]ollowing the announcement of its new residential policy, Hamilton [College] began building residential space to accommodate the entire student population.” 1996 WL 172652 at *3 (Hamilton I) (emphasis added). In this case, Colgate increased its market share and monopoly of rental housing locally through the forced sale of most of the Greek-lettered properties by prohibiting students, including those 250 allowed to live off campus, from renting rooms, for example, from DKE as an independent landlord.
Hence, even after DKE gave up its status as a recognized fraternity at Colgate, and elected to be just another local landlord, Colgate imposed restrictions on students that singled out DKE in the market of private local landlords. This raises issues of illegal exclusionary conduct under Section 2 of the Sherman Act that compel further discovery and denial of Colgate’s summary judgment. Kodak, 504 U.S. at 483.
B. Colgate’s Parietal Rights are Irrelevant Here.
Although the court’s initial intuition is to view Colgate’s conduct as a parietal act, Colgate has conceded that for purposes of this motion, its parietal rights are irrelevant and that it should be treated strictly as an economic actor:
As in Hamilton III, for purposes of this motion, the Court need not consider the educational and reputational motivations for and benefits of Colgate’s New Residential Education Program although they would be relevant in any antitrust trial. For purposes of this motion, Colgate can be treated as if it were simply an economic actor.
(Br, p. 2) (emphasis added).
Thus, while Colgate is free to argue that its monopolization of the housing market is a legitimate exercise of academic discretion, rather than a violation of the Sherman Act, that is an issue of fact which – by Colgate’s own admission – must be resolved at trial. In this critical respect, this case is distinguishable from Hamilton III, which was a fact-driven case based largely on the plaintiffs’ unsuccessful challenge to Hamilton College’s parietal rights.
Even if Colgate’s parietal rights were relevant, Colgate’s assertion that its monopoly power is a result of a contract with students arising from those parietal rights (an alleged contract requiring students to live in Colgate-owned housing) is not dispositive here, because: (1) No per se rule exists that a contractual restriction precludes a finding of a relevant market for a unique product; (2) Colgate’s parietal rights were applied in violation of Section 2 of the Sherman Act; and (3) a genuine issue exists as to whether the policies promulgated pursuant to Colgate’s parietal rights formed the basis of an implied contract which students accepted upon matriculating at Colgate.
First, no per se rule exists that a contractual restriction precludes, as a matter of law, the delineation of a market of an otherwise unique product that is the subject of that restriction. Kodak shot that argument down. 504 U.S. at 481-82. Also, in this regard, Hamilton III’s reliance on Queen City Pizza, 124 F.3d 430 (3rd Cir. 1997), is instructive:
A court making a relevant market determination looks not to the contractual restraints assumed by a particular plaintiff when determining whether a product is interchangeable, but to the uses to which the product is put by consumers in general. Thus, the relevant inquiry here is not whether a Domino’s franchisee may reasonably use both approved or non-approved products interchangeably without triggering liability for breach of contract, but whether pizza makers in general might use such products interchangeably.

(124 F.3d at 438.)

Queen City then distinguished Kodak, where repair parts and services for Kodak machines were not interchangeable with the services and parts used to fix other copiers. Upon distinguishing Kodak, the Queen City court emphasized that its decision turned more on the interchangeability of the actual products, rather than any contractual restriction:
But here, it is uncontested that contractual restraints aside, the sauce, dough, and other products and ingredients approved for use by Domino’s franchisees are interchangeable with other items available on the market.
(124 F.3d at 439) (emphasis added).
See also, Rohlfing v. Manor Care, Inc., 172 F.R.D. 330 (N.D. Ill. 1997) (easily available alternative nursing homes in the local market and not contract restriction on pharmaceutical services was real basis of the court’s decision not to narrowly define the market.).
Here, with respect to other highly select colleges with which it competes, Colgate’s housing is unique and non-interchangeable with those other colleges because it admits that one cannot live in Middlebury or New Haven and attend Colgate. See also, Rohlfing, 172 F.R.D. at 345 (suitably proximate alternative necessary to be interchangeable). Thus, the unique geographic nature of Colgate’s housing relative to its competitors dictates that Colgate’s monopoly position cannot simply be deemed the permissible result of a “contractual restriction.”
As in Queen City, this court must set aside the “contractual restriction” and ask, from a Colgate student’s perspective, if Yale and Middlebury can realistically fill his or her housing needs. Under Kodak and Queen City, the answer is no. Even without any alleged contract requiring them to live in Colgate-owned housing, Colgate students could never live in the housing provided by the other colleges that Colgate includes in its definition of the relevant market. Colgate’s “contractual restriction” arising out of its “parietal rights” therefore is irrelevant to defining the rental housing market in Hamilton, New York.
In addition, Colgate’s application of its parietal right to require that all students live in university housing also raises genuine issues of a violation of Section 2 of the Sherman Act. As noted by Kodak, “Liability turns, then, on whether ‘valid business reasons’ can explain [Colgate’s] conduct.” 504 U.S.at 483. Kodak argued, similar to Colgate, that its exclusion of independent suppliers was necessary to maintain and control high standards of quality. Id. Respondents’ evidence there that independent suppliers provided quality service and were preferred by some customers was “sufficient to raise a genuine issue of fact.” Id.
Colgate’s purported business reason for requiring the sale of the Greek-letter houses was to increase its management and oversight of the student members within them because of their alleged history of prior misconduct. Undisputed evidence exists, however, that student misconduct is exponentially higher in Colgate-owned rental property than in the Greek-letter houses. Colgate also admits privately-owned Greek letter houses achieve the same fundamental purposes as its Residential Program.(WC 16, n. 5; PX 87 and 88(Ex. 29 and 30 of DKE’s Response Brief); Weinberg depo., p.90-1 (Ex.11 DKE’s Response)). These facts raise genuine issues regarding Colgate’s actual reasons for its actions precluding summary judgment.
The record also demonstrates that Colgate did not have enough beds for Greek-letter students if their alumni corporations refused to sell their properties. Colgate described “nightmare scenarios” wherein none of the Greek-letter alumni corporations sold their properties and thus Colgate would be short on beds. At the same time, Colgate knew it could force the sale of the houses by prohibiting students from living in them and withdrawing Colgate recognition from the organizations that used them if they remained privately owned. Indeed, Colgate’s illegal abuse of its parietal right is underscored by its refusal to let any of the 250 students allowed to reside off campus to rent from DKE, not as a fraternity, but as a purely private local landlord. This raises genuine issues over Colgate’s intent to force the sale of DKE property to increase Colgate’s share of the local rental market (WC 13, n. 2, 18-26; PX 14, Bates 002700; SMF & 10-15).
Finally, in its response to DKE’s RFPD 30, for “All documents provided to … matriculating students…[informing them] that they may have no choice as to the residential housing services made available to them…,” Colgate provided its catalogues and prospectuses between 2003 and 2006. (Vitullo 10/27/05 and 10/21/05 responses). These documents disclaim any formation of a contract. Colgate therefore cannot rely on a contractual restriction as a defense to the delineation of a local rental housing market in Hamilton, New York.
C. The Supreme Court in Kodak has Rejected Colgate’s “Primary” Market Theory.
In the face of its undisputed 81% - 85% market share and its resulting monopoly power in the Hamilton, New York rental housing market, Colgate relies on a failed market theory right out of Kodak. Colgate asserts:
Colgate cannot raise the price it charges consumers (the students) for its product (an undergraduate degree) except at the risk of losing consumers to its competitors (the nation’s other highly select colleges).
(Br. p. 11)
The District Court in Kodak initially bought the “primary” market theory. The Court of Appeals for the Ninth Circuit refused to uphold the District Court’s grant of summary judgment “on this theoretical basis” because “market imperfections can keep economic theories about how consumers will act from mirroring reality.” 903 F.2d at 617. The Supreme Court then went on to reject any notion that a primary market automatically precludes, as a matter of law, the existence of monopoly power in the aftermarket:
The fact that the equipment market imposes a restraint on prices in the aftermarket by no means disproves the existence of power in those markets.
* * *
Thus, contrary to Kodak’s assertion, there is no immutable physical law – no ‘basic economic reality’ – insisting that competition in the equipment market cannot co-exist with market power in the aftermarkets.
(504 U.S. at 471)
Colgate’s identical theory that the “academic market imposes a restraint on the local rental housing market” should similarly be rejected at this stage of the litigation, for the same reasons outlined in Kodak. The court should allow further discovery about whether Colgate’s market theory actually reflects economic reality.
In addition, Kodak rejects Colgate’s “package only” argument: That a local rental housing market cannot exist, because “residential services are part of the product the colleges offer rather than a product sold separately.” (Br., p. 15). The company in Kodak made a similar unsuccessful argument in its brief, contending that “service costs (including the cost of parts)” were simply “an important component of total equipment costs.” Kodak argued as follows:
Like all sophisticated business equipment, Kodak’s copiers and micrographics products require regular service and occasional repairs to function properly. So, as an integral part of its equipment sales business, Kodak sells service and makes or procures replacement parts used in service.
* * *
It is undisputed that purchasers of copiers and micrographics equipment consider service costs (including the cost of parts) to be an important component of total equipment costs. These aggregate ‘life cycle’ costs are the true economic costs of Kodak’s equipment. Any increase in parts or service prices necessarily increases life cycle costs, and, therefore, has the same effect as a direct increase in equipment prices. Accordingly, Kodak must price its parts and service offerings competitively; otherwise, the life cycle costs of using its products would be too expensive and businesses will simply buy another manufacturer’s machines.
(Eastman Kodak Sup. Ct. Brief, 1991 WL 530837 at * 3-4)
In Kodak, the Supreme Court rejected the notion that, as a matter of law, a single product or service from a company’s multiple, packaged offerings can never be a relevant market. 504 U.S. at 481. Kodak reasoned that the relevant market for antitrust purposes was determined by the choices available to Kodak equipment owners and that, because service and parts for Kodak equipment were not interchangeable with other manufacturers’ service and parts, the relevant market, from the Kodak equipment owners’ perspective, was composed of only those companies that provide parts and service for Kodak machines. Id. at 482. The Court then concluded that, “the proper market definition in this case can be determined only after a factual inquiry into the ‘commercial realities’ faced by consumers.” Id.
The same is true here. Housing in Hamilton, New York, by Colgate’s own admission (Br, p. 15), is not substitutable with housing in New Haven and elsewhere, just as machine parts designed for the copy machine equipment of other manufacturers were not substitutable for parts used in Kodak copiers. Kodak’s conclusion that a separate market can exist for parts and service used for a single brand of copiers directly implies that a separate market also can exist for rental housing used by students and non-students whose needs require them to live in Hamilton, New York. This commercial reality raises genuine issues for further discovery.
In addition, Kodak considered whether consumers would inform themselves of the total cost of the “package” so that the price of the aftermarket product could affect the price of the primary market product. 504 U.S. at 473. Under Kodak, where, as here, room is only a minor (9%) part of the total student “package,” and where student consumers are primarily focused in their selection on Colgate’s academic ranking relative to other schools, information about the cost of housing in Colgate’s total student “package” would not be a significant factor influencing their economic decision to attend Colgate. As stated by the Supreme Court:
If the costs of service are small relative to the equipment price, or if consumers are more concerned about equipment capabilities than service costs, they may not find it cost-efficient to compile the information.
(504 U.S. at 474-75).
Similarly, Colgate’s “package only” argument cannot draw support from Hamilton III’s reliance on the general principles of United States v. Philadelphia Nat’l Bank, 374 U.S. 321 (1963) and Grinnell Corp. v. American District Telegraph Co., et al., 384 U.S. 563 (1966). Philadelphia Nat’l Bank involved a commercial bank that the Court considered, “unique among financial institutions in that they alone are permitted by law to accept demand deposits.” 374 U.S. at 326. The Court reasoned that because the power to accept demand deposits makes these banks the intermediaries in most financial transactions, many of their services are highly integrated and only can be offered in a package. Id. Even in this context, the Court recognized that individual components of this package can be purchased and sold as separate products. Id. at 327, n.5, 328.
Grinnell involved central dispatching services that coordinated various automatic burglar and fire alarms. The central dispatching service and the alarms were considered a total integrated product that had to be purchased as a package because without the central dispatching services the alarms would be useless. 384 U.S. at 572. The commercial reality there was that the dispatching service provided a single use of receiving an alarm signal through a central station. Finally, as noted by the court during the parties’ February 16, 2006, oral argument, Hamilton III was a fact-driven case based primarily on the plaintiffs’ failed challenge there of Hamilton College’s parietal rights. The analytical essence of the case did not turn, as a matter of law, on whether Hamilton College could only offer rooms as part of a total student services package. Colgate cannot use Hamilton III here as an industry-standard pronouncement by this Federal District that universities can only offer rooms as a package of total student services. That is a fact question left to further discovery.
D. DKE Also Has Raised Numerous Genuine Factual Disputes About Whether Colgate’s Primary Competition with Other Highly Competitive Colleges for Academically Qualified Students Makes a Local Rental Property Aftermarket in Hamilton, New York Impossible or Unreasonable.
• DKE has presented evidence that students’ choices of highly select colleges are based on a Lexicographic consumer ordering in which students’ decisions are driven by colleges’ academic reputation and status – and not by competitive housing costs. Colgate’s own internal student survey confirms this preference. The U.S. News and World Report rankings of highly select colleges do not consider housing costs as a factor in the ranking process. 78% of those accepted to Harvard go there and 80% of those cross admitted to Colgate attend the higher ranked school. These facts lend credibility to the Lexicographic consumer ordering model. This student consumer behavior suggests that price competition between highly selective schools does not discipline the price Colgate charges for a room locally. (WC 42-71; Hausman reply & 14)
• DKE has presented evidence that the “net” prices of the “total student charges” of highly select colleges with which Colgate competes nationally vary as much as 100%, suggesting that the price competition among those schools is highly imperfect and does not discipline the cost of what Colgate charges for rooms locally. (WC 39-51)
• DKE has shown that Colgate relies on information relative to family disposable income and not just the market prices of other highly select colleges to determine total student charges. This suggests that price competition does not solely drive the cost of total student charges and thus cannot discipline Colgate’s price for a room locally. (WC 54, n. 33)

• DKE has demonstrated that excess demand exists for admission to highly select colleges. Approximately 8000 students compete for about 700 coveted seats at Colgate. This raises questions about whether true price competition that could discipline the costs Colgate charges for a room locally can ever exist. (WC 55-6; Ross Aff. & 3)
• Actual room prices are determined “by default,” based on other universities’ total student charges that are driven by tuition costs. (Hale depo. p. 28, 133). Room price increases also are established as far out as ten years. (PX 20, Bates C002511; Hale Depo. p. 147). These practices do not support the “extensive” competition that would discipline Colgate’s price for rooms.
• Colgate’s claim that the average Colgate applicant applies to eight other schools in the same highly competitive market is unsupported by the record. Colgate has not demonstrated that most, if any, student applicants apply only to highly competitive schools. This raises issues of the degree of real competition Colgate faces in the highly select college market and its effect on how Colgate establishes room prices. It also supports DKE’s “lock-in” theory that the economic reality is that students admitted to limited-admissions schools like Colgate cannot shift freely to another highly select school because they feel the room price is 5% too high.
IV. CONCLUSION
As the Supreme Court stated in Kodak: “In the end, of course, [Colgate’s] arguments may prove to be correct. It may be that [Colgate’s education and housing] are components of one unified market, or that the [academic] market does discipline the [housing] aftermarket so that [both] are priced competitively overall…. But [this court] cannot reach these conclusions [at this stage] as a matter of law on a record this sparse.” 540 U.S. at 486. Accordingly, Colgate’s motion for summary judgment at this stage should be dismissed.

Respectfully submitted,

/s/ Thomas J. Wiencek
Thomas J. Wiencek (#0031465)
(Admission pro hac vice approved)
twiencek@brouse.com
Brouse McDowell, LPA
388 South Main Street, Suite 500
Akron, Ohio 44311-4407
(330) 535-5711, ext. 337
Fax: (330) 253-8601

W. Bradley Hunt
bhunt@mackenziehughes.com
Mackenzie Hughes, LLP
101 South Salina Street, Suite 600
P. O. Box 4967
Syracuse, New York 13221-4967
Telephone: (315) 233-8386
Fax: (315) 474-1216

Counsel for Plaintiffs 637405.3

Students & Alumni for Colgate, Inc.
2707 E. Willamette Lane, Greenwood Village, CO 80121
sa4c@sa4c.com

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK