March 17, 1993    UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-1270

            U. S. HEALTHCARE, INC., ETC., ET AL.,

                   Plaintiffs, Appellants,

                              v.

                 HEALTHSOURCE, INC., ET AL.,

                    Defendants, Appellees

                                         

                         ERRATA SHEET

   The opinion of  this court  issued on February  26, 1993  is
amended as follows:

   In footnote 1, l. 2, replace "1992" with "1991".

   On page 7, l. 9, replace "mid-1992" with "mid-1991".

March 12, 1993    UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                         

No. 92-1270

            U. S. HEALTHCARE, INC., ETC., ET AL.,

                   Plaintiffs, Appellants,

                              v.

                 HEALTHSOURCE, INC., ET AL.,

                    Defendants, Appellees

                                         

                         ERRATA SHEET

   The opinion of  this court  issued on February  26, 1993  is
amended as follows:

   On page 7, three lines above section II, replace "1992" with
"1991".

February 26, 1993
                UNITED STATES COURT OF APPEALS
                    For The First Circuit
                                         

No. 92-1270

            U. S. HEALTHCARE, INC., ETC., et al.,

                   Plaintiffs, Appellants,

                              v.

              HEALTHSOURCE, INC., ETC., et al.,

                    Defendants, Appellees.

                                         

         APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF NEW HAMPSHIRE

          [William H. Barry, Jr., Magistrate Judge]
                                                  

                                         

                            Before

          Torruella, Cyr and Boudin, Circuit Judges.
                                                   

                                         

Franklin Poul with whom Dana B.  Klinges, Mark L. Heimlich,  Wolf,
                                                                 
Block, Schorr and Solis-Cohen, Andrew D. Dunn, Thomas Quarles, Jr. and
                                                             
Devine, Millimet &amp; Branch were on brief for appellants.
                     
Thomas Campbell with whom Deborah H. Bornstein, James W.  Teevans,
                                                                 
Gardner,  Carton &amp;  Douglas, William  J. Donovan,  Peter S.  Cowan and
                                                              
Sheehan, Phinney, Bass &amp; Green were on brief for appellees.
                          

                                         

                      February 26, 1993
                                         

     BOUDIN, Circuit Judge.   U.S. Healthcare and two related
                          

companies  (collectively  "U.S.  Healthcare")   brought  this

antitrust case  in the district  court against  Healthsource,

Inc.,  its founder and one  of its subsidiaries.   Both sides

are  engaged  in  providing medical  services  through health

maintenance organizations ("HMOs") in  New Hampshire.  In its

suit U.S.  Healthcare challenged an exclusive  dealing clause

in the contracts between the Healthsource HMO and doctors who

provide primary care for it in New Hampshire.   After a trial

in district  court, the magistrate judge  found no violation,

and U.S. Healthcare appealed.  We affirm.

                       I.  BACKGROUND 

     Healthsource New Hampshire is an HMO founded in 1985  by

Dr. Norman Payson  and a  group of doctors  in Concord,  N.H.

Its  parent company,  Healthsource,  Inc., is  headed by  Dr.

Payson and it manages or has interests in HMOs in a number of

states.  We  refer to  both the  parent company  and its  New

Hampshire HMO as "Healthsource."

     In  simpler  days, health  care  comprised  a doctor,  a

patient and sometimes a hospital, but the Norman Rockwell era

of medicine  has given  way to  a  new world  of diverse  and

complex insurance and provider arrangements.  One of the more

successful  innovations is  the  HMO, which  acts  both as  a

health  insurer  and  provider,  charging  employers  a fixed

premium for each employee who subscribes.  To provide medical

                             -2-

care to subscribers, an HMO of Healthsource's type--sometimes

called an individual practice association or "IPA" model HMO-

-contracts with independent doctors.  These doctors  continue

to treat other patients,  in contrast to a "staff"  model HMO

whose doctors  would normally  be full-time employees  of the

HMO.  

     HMOs  often can  provide health  care at  lower  cost by

stressing  preventative care, controlling  costs, and driving

hard bargains  with doctors or hospitals  (who thereby obtain

more   patients   in   exchange   for   a   reduced  charge).

Healthsource, like other HMOs, uses primary care physicians--

usually internists but  sometimes pediatricians or others--as

"gatekeepers"  who direct  the patients  to specialists  only

when necessary  and who  monitor hospital stays.   Typically,

the contracting primary care physicians do not charge  by the

visit but are paid  "capitations" by the HMO, a  fixed amount

per  month for  each patient  who selects  the doctor  as the

patient's  primary care  physician.   Unlike  a patient  with

ordinary health insurance, the HMO patient  is limited to the

panel of doctors who have contracted with the HMO.

     There  are  familiar  alternatives  to  HMOs.    At  the

"financing"  end, these include traditional insurance company

policies that reimburse patients for doctor or hospital bills

without  limiting the patient's choice of  doctor, as well as

Blue Cross/Blue  Shield plans  of various types  and Medicare

                             -3-

and  Medicaid programs.  At the "provider" end, there is also

diversity.  Doctors may now form so-called preferred provider

organizations, which may include  peer review and other joint

activities, and contract together to provide medical services

to large buyers like  Blue Cross or to "network"  model HMOs.

There are  also ordinary group  medical practices.   And,  of

course, there are still doctors engaged solely in independent

practice on a fee-for-service basis.

     Healthsource's  HMO operations in  New Hampshire  were a

success.  At the time of suit, Healthsource was the only non-

staff HMO in the  state with 47,000 patients (some  in nearby

areas of Massachusetts), representing  about 5 percent of New

Hampshire's  population.    Stringent controls  gave  it  low

costs,  including a  low  hospital utilization  rate; and  it

sought  and  obtained  favorable  rates  from  hospitals  and

specialists.      Giving   doctors   a   further   stake   in

Healthsource's success  and incentive to  contain costs,  Dr.

Payson apparently  encouraged doctors to  become stockholders

as well, and  at least 400  did so.  By  1989 Dr. Payson  was

proposing to make Healthsource  a publicly traded company, in

part to permit greater liquidity for its doctor shareholders.

     U.S.  Healthcare is  also in  the business  of operating

HMOs.  U.S.  Healthcare, Inc.,  the parent of  the other  two

plaintiff  companies--U.S.  Healthcare, Inc.  (Massachusetts)

and  U.S.  Healthcare  of  New Hampshire,  Inc.--may  be  the

                             -4-

largest  publicly  held  provider  of  HMO  services  in  the

country, serving  over one million patients  and having total

1990 revenues of well over a billion dollars.  Prior to 1990,

its Massachusetts subsidiary had  done some recruiting of New

Hampshire  doctors  to  act  as primary  care  providers  for

border-area residents  served by  its Massachusetts HMO.   In

1989, U.S. Healthcare had a substantial interest in expanding

into New Hampshire.  

     Dr.  Payson  was aware  in the  fall  of 1989  that HMOs

operating in other states  were thinking about offering their

services  in New Hampshire.  He was also concerned that, when

Healthsource  went public,  many  of its  doctor-shareholders

would  sell   their  stock,  decreasing  their   interest  in

Healthsource and their incentive to control its costs.  After

considering alternative incentives, Dr. Payson  and the HMO's

chief operating officer conceived the exclusivity clause that

has prompted this litigation.  Shortly after the Healthsource

public offering in  November 1989, Healthsource  notified its

panel doctors that they would receive greater compensation if

they agreed not to serve any other HMO.

     The  new  contract  term, effective  January  26,  1990,

provided for  an increase in the  standard monthly capitation

paid to  each primary  care physician, for  each Healthsource

HMO patient cared for by that doctor, if the doctor agreed to

                             -5-

the  following  optional  paragraph  in   the  basic  doctor-
                        

Healthsource agreement:

     11.01 Exclusive Services  of Physicians.  Physician
                                            
     agrees  during the  term of  this Agreement  not to
     serve  as a  participating physician for  any other
     HMO  plan;   this  shall  not,   however,  preclude
     Physician  from   providing  professional  courtesy
     coverage arrangements for brief periods of  time or
     emergency services to members of other HMO plans.

A doctor who adopted  the option remained free to  serve non-

HMO patients  under  ordinary indemnity  insurance  policies,

under  Blue  Cross\Blue  Shield  plans,  or  under  preferred

provider  arrangements.   A  doctor who  accepted the  option

could also return to  non-exclusive status by giving notice.1

     Although  Healthsource  capitation  amounts   varied,  a

doctor   who  accepted   the  exclusivity   option  generally

increased his  or her capitation  payments by  a little  more

than $1 per patient  per month; the magistrate judge  put the

amount at  $1.16  and said  that  it represented  an  average

increase of  about 14 percent as  compared with non-exclusive

status.  The dollar benefit of  exclusivity for an individual

doctor  obviously  varies with  the  number  of HMO  patients

handled by the doctor.  Many of the doctors had less than 100

Healthsource patients while about 50 of them had 200 or more.

                    

     1The  original notice  period was  180 days.   This  was
reduced to  30 days in March  or April 1991.   It appears, at
least  in  practice,  that  a  doctor  could  switch to  non-
exclusive  status more rapidly by returning some of the extra
compensation previously paid.

                             -6-

About 250  doctors, or  87 percent of  Healthsource's primary

care physicians, opted for exclusivity.

     U.S.  Healthcare through  its  New Hampshire  subsidiary

applied  for a New Hampshire  state license in  the spring of

1990, following an earlier  application by its  Massachusetts

subsidiary.  A cease and desist order was entered against it,

limiting its  marketing efforts, because of  premature claims

that it  had approval to operate in the state.  The cease and

desist order  was withdrawn  on February  15,  1991, and  the

license  issued  on  February  21,  1991,  subject  to  later

approval  of marketing materials.  The present suit was filed

in district court by U.S. Healthcare against Healthsource and

Dr. Payson on March  12, 1991.  By mid-1991,  U.S. Healthcare

had  only two  New  Hampshire "accounts"  and  only about  18

primary care physicians.

     In  the district court,  U.S. Healthcare  challenged the

exclusivity clause under sections 1 and 2 of the Sherman Act,

15 U.S.C.     1-2, and  under state antitrust  and tort  law.

The parties  stipulated to  trial before a  magistrate judge.

After discovery,  two separate weeks of  trial were conducted

in August and September 1991.  In a decision filed on January

30, 1992, the  magistrate judge found  for the defendants  on

all counts.  This appeal followed.

                        II. DISCUSSION

                             -7-

     In this court,  U.S. Healthcare attacks the  exclusivity

clause primarily  as a  per se  or near per  se violation  of

section 1; accordingly we begin by examining the case through

the per se or  "quick look" lenses urged by  U.S. Healthcare.

We then  consider the claim  recast in the  more conventional

framework of  Tampa Electric Co.  v. Nashville Coal  Co., 365
                                                        

U.S.  320   (1961),  the  Supreme  Court's   latest  word  on

exclusivity contracts, appraising them under section 1's rule

of reason.  Finally,  we address U.S. Healthcare's claims  of

section 2 violation and  its attacks on the market-definition

findings of the magistrate judge.  

     The Per Se  and "Quick Look" Claims.   U.S. Healthcare's
                                        

challenge to  the exclusivity clause, calling it  first a per

se violation  and later  a monopolization offense,  invokes a

signal  aspect  of antitrust  analysis: the  same competitive

practice may be reviewed  under several different rubrics and

a plaintiff may prevail by establishing a claim under any one

of  them.   Thus, while  an exclusivity arrangement  is often

considered  under  section 1's  rule of  reason, it  might in

theory play  a role in a  per se violation of  section 1, cf.
                                                            

Eastern States Retail Lumber Dealers' Ass'n v. United States,
                                                            

234 U.S. 600 (1914), or as  an element in attempted or actual

monopolization, United States v. United Shoe Machinery Corp.,
                                                            

110 F.  Supp. 295 (D. Mass. 1953), aff'd per curiam, 347 U.S.
                                                   

                             -8-

521  (1954).   But  each rubric  has  its own  conditions and

requirements of proof.

     We begin, as U.S. Healthcare does, with the per se rules

of section 1 of the Sherman Act.  It is a familiar story that

Congress left the  development of the Sherman  Act largely to

the courts and they in turn responded by  classifying certain

practices as per se  violations under section 1.   Today, the

only serious candidates for this label are  price (or output)

fixing agreements  and  certain group  boycotts or  concerted
                               

refusals to  deal.2    The advantage to  a plaintiff is  that

given  a per se violation, proof of the defendant's power, of

illicit purpose and of anticompetitive effect are all said to

be irrelevant,  see United  States v. Socony-Vacuum  Oil Co.,
                                                            

310 U.S.  150 (1940); the  disadvantage is the  difficulty of

squeezing a practice into the ever narrowing per se nitch.

     U.S. Healthcare's main argument  for per se treatment is

to  describe the exclusivity clause  as a group  boycott.  To

understand why the claim  ultimately fails one must begin  by

recognizing that per se condemnation is  not visited on every

arrangement  that might, as a matter of language, be called a

group boycott  or concerted refusal  to deal.   Rather, today

that designation  is principally reserved for  cases in which

                    

     2Tying is sometimes  also described as a  per se offense
but, since some element  of power must be shown  and defenses
are  effectively available, "quasi" per se  might be a better
label.   See Eastman  Kodak Co. v.  Image Technical Services,
                                                             
Inc., 112 S. Ct. 2072 (1992).  
   

                             -9-

competitors agree with each other not to deal with a supplier

or distributor  if it  continues to serve  a competitor  whom

they  seek to injure.  This is the "secondary boycott" device

used in  such classic boycott cases as  Eastern States Retail
                                                             

Lumber  Dealers'  Ass'n,  and Fashion  Originators'  Guild of
                                                             

America, Inc. v. FTC, 312 U.S. 457 (1941).
                    

     We doubt  that the  modern Supreme  Court would use  the

boycott  label to describe, or the rubric to condemn, a joint

venture  among competitors in which participation was allowed

to some but not  all, compare Northwest Wholesale Stationers,
                                                             

Inc. v.  Pacific  Stationery &amp;  Printing  Co., 472  U.S.  284
                                             

(1985), with  Associated Press v.  United States, 326  U.S. 1
                                                

(1945), although  such a restriction might well  fall after a

more complete analysis  under the  rule of reason.   What  is

even more  clear is that  a purely  vertical arrangement,  by

which  (for example) a supplier  or dealer makes an agreement

exclusively to supply or serve a manufacturer, is not a group

boycott.   See Klor's, Inc. v. Broadway-Hale Stores, 359 U.S.
                                                   

207, 212 (1959);  Corey v.  Look, 641 F.2d  32, 35 (1st  Cir.
                                

1981).  Were the law otherwise, every distributor or retailer

who  agreed with a manufacturer  to handle only  one brand of

television  or bicycle would be engaged in a group boycott of

other manufacturers.

     There are multiple reasons why the law permits (or, more

accurately, does not condemn per se) vertical exclusivity; it

                             -10-

is enough to say here that the incentives for  and effects of

such arrangements  are usually more benign  than a horizontal

arrangement among competitors that none of them will supply a

company that deals  with one  of their competitors.   No  one

would think twice about  a doctor agreeing to work  full time

for a  staff HMO, an  extreme case  of vertical  exclusivity.

Imagine, by contrast, the motives and effects of a horizontal

agreement by  all of the doctors  in a town not to  work at a

hospital that  serves a  staff HMO  which  competes with  the

doctors.   

     In this case, the exclusivity arrangements challenged by

U.S. Healthcare are vertical in  form, that is, they comprise

individual  promises  to  Healthsource made  by  each  doctor

selecting  the option  not to  offer his  or her  services to

another HMO.    The closest  that U.S. Healthcare  gets to  a

possible  horizontal  case  is  this: it  suggests  that  the

exclusivity clause in question, although vertical in form, is

in substance an implicit  horizontal agreement by the doctors

involved.  U.S. Healthcare appears to argue that stockholder-

doctors dominate Healthsource and,  in order to protect their

individual interests (as  stockholders in Healthsource), they

agreed  (in their capacity as  doctors) not to  deal with any

other HMO  that might  compete with  Healthsource.   We agree

that  such  a  horizontal  arrangement, if  devoid  of  joint

venture efficiencies, might warrant per se condemnation.  

                             -11-

     The  difficulty is that there  is no evidence  of such a

horizontal agreement in this  case.  Although U.S. Healthcare

notes   that   doctor-stockholders    predominate   on    the

Healthsource board that adopted  the option, there is nothing

to  show that  the clause  was devised  or encouraged  by the

panel doctors.   On the  contrary, the record  indicates that

Dr.  Payson  and   Healthsource's  chief  operating   officer

developed the option  to serve Healthsource's own  interests.

Formally  vertical arrangements  used to  disguise horizontal

ones are not unknown, see Interstate  Circuit, Inc. v. United
                                                             

States, 306 U.S. 208 (1939), but U.S. Healthcare has supplied
      

us with no evidence of such a masquerade in this case.

     There  is   less  to  be  said   for  U.S.  Healthcare's

alternative argument that, if per se treatment is not proper,

then at least the exclusivity clause can be  condemned almost

as swiftly based  on "a quick look."   Citing FTC  v. Indiana
                                                             

Federation of  Dentists,  476 U.S.  447 (1986),  and NCAA  v.
                                                         

Board of  Regents, 468 U.S. 85 (1984), U.S. Healthcare argues
                 

that  the exclusivity clause is  so patently bad  that even a

brief  glance at  its impact,  lack  of business  benefit and

anticompetitive  intent suffice  to  condemn it.   The  cases

relied on provide little  help to  U.S. Healthcare  and, even

on  its own  version  of those  cases,  the facts  would  not

conceivably  justify  a  "quick  look"  condemnation  of  the

clause.

                             -12-

     In  the  cited   cases,  the   Supreme  Court   actually

contracted  the  per  se rule  by  refusing  to  apply it  to

horizontal agreements  that involved price  and output fixing

(television rights  by NCAA members) or the  setting of other

terms of trade  (refusal of dentists by  agreement to provide

x-rays  to  insurers).     Given  the  unusual  contexts  (an

interdependent sports league in one case; medical care in the

other), the  Court declined  to condemn the  arrangements per

se, without at least weighing the alleged justifications.  At

the same time it  required only the briefest  inspection (the

cited "quick look") for  the Court to reject the  excuses and

strike  down the  agreements.   Accord,  National Society  of
                                                             

Professional Engineers v. United States, 435 U.S. 679 (1978).
                                       

     In  any event,  no "quick  look" would  ever suffice  to

condemn  the  exclusivity  clause  at  issue  in  this  case.

Exclusive  dealing arrangements come  with the  imprimatur of

two leading Supreme Court decisions describing the  potential

virtues  of such  arrangements.   Tampa; Standard Oil  Co. of
                                                             

California v.  United States,  337 U.S. 293  (1949) (Standard
                                                             

Stations); see also Jefferson  Parish Hospital District No. 2
                                                             

v. Hyde,  466 U.S. 2,  46 (1984) (O'Connor,  J., concurring).
       

To condemn such arrangements  after Tampa requires a detailed
                                         

depiction of  circumstances and the most  careful weighing of

alleged  dangers and potential benefits, which  is to say the

                             -13-

normal treatment afforded  by the  rule of reason.   To  that

subject we now turn.

     Rule of  Reason.  Exclusive  dealing arrangements,  like
                    

information exchanges or standard settings, come in a variety

of  forms and  serve a  range  of objectives.    Many of  the

purposes are benign, such as assurance of supply  or outlets,

enhanced ability to plan, reduced transaction costs, creation

of  dealer loyalty, and the like.  See Standard Stations, 337
                                                        

U.S. at 307.  But there is one common danger for competition:

an  exclusive  arrangement may  "foreclose"  so  much of  the

available supply or outlet capacity that existing competitors

or new entrants may be limited or excluded and, under certain

circumstances,  this may  reinforce  market  power and  raise

prices for consumers.  

     Although   the   Supreme   Court   once  said   that   a

"substantial"  percentage foreclosure of suppliers or outlets

would violate section 1, Standard Stations, the Court's Tampa
                                                             

decision effectively replaced  any such quantitative  test by

an  open-ended  inquiry into  competitive  impact.   What  is

required  under Tampa is to determine "the probable effect of
                     

the [exclusive]  contract on  the relevant area  of effective

competition,  taking into  account . .  . .  [various factors

including]  the probable immediate  and future  effects which

pre-emption  of  that  share  of  the  market  might have  on

effective  competition therein."  365 U.S. at 329.  The lower

                             -14-

courts have followed Tampa  and under this standard judgments
                          

for  plaintiffs are not  easily obtained.   See ABA Antitrust
                                               

Section, Antitrust  Law Developments 172-73,  176-78 (3d  ed.

1992) (collecting cases).

     On  this appeal  we  are handicapped  in appraising  the

extent and impact of  the foreclosure wrought by Healthsource

because  U.S.  Healthcare  has  not  chosen  to  present  its

argument in these traditional terms.  Tampa is not even cited
                                           

in the opening or reply briefs.  Some useful facts pertaining

to  the extent  of the  foreclosure are  adverted to  in U.S.

Healthcare's  opening  "statement  of  the  case"  but  never

seriously  developed in  the argument  section of  its brief.

Since the brief itself also describes countervailing evidence

of Healthsource, something more is  assuredly needed.  In the

two paragraphs  of its "quick look"  formulation addressed to

"anticompetitive impact," U.S. Healthcare simply asserts that

competitive impact  has already  been discussed and  that the

exclusivity clause has  completely foreclosed U.S. Healthcare

and any other non-staff HMO from operation in New Hampshire.

     This  is not a persuasive treatment of a difficult issue

or, rather, a host of issues.  First, the extent to which the

clause operated economically to restrict doctors is a serious

question.3   True,  most doctors  signed up  for it;  but who

                    

     3Even with no notice period, Healthsource's differential
pricing policy--paying  more to those  who exclusively  serve
Healthsource--would disadvantage competing HMOs.  Some courts

                             -15-

would not take the extra compensation  when no competing non-

staff HMO was  yet operating?   The extent  of the  financial

incentive to remain in an  exclusive status is unclear, since

it varies with patient  load, and the least loaded  (and thus

least constrained  by the  clause) doctors would  normally be

the  best  candidates  for  a competing  HMO.    Healthsource

suggests that  by relatively modest amounts,  U.S. Healthcare

could offset  the exclusivity bonus for  a substantial number

of  Healthsource  doctors.    U.S.  Healthcare's reply  brief

offers no response.  

     Second, along with the  economic inducement is the issue

of duration.  Normally an exclusivity clause terminable on 30

days' notice would be close to a de minimus constraint (Tampa
                                                             

involved a 20-year contract, and  one year is sometimes taken

as the trigger  for close scrutiny).   On the other  hand, it

may be that  the original 180-day  clause did frustrate  U.S.

Healthcare's initial efforts to enlist panel doctors, without

whom it would  be hard to sign up employers.   Perhaps even a

30-day  clause  would  have  this  effect,  especially  if  a

reimbursement penalty were visited  on doctors switching back

to non-exclusive status.  Once again, U.S. Healthcare's brief

offers conclusions  and a few record  references, but neither

                    

hesitate to apply the  exclusivity label to such arrangements
because  there  is no  continuing  promise not  to  deal (see
Antitrust Developments, supra, at  176), but the differential
                             
pricing  plan is  unquestionably part  of  a contract  and so
subject to section 1, whatever label may be applied.

                             -16-

the  precise  operation  of the  clause  nor  its effects  on

individual doctors are clearly settled.

     Third, even  assuming that the  financial incentive  and

duration  of the  exclusivity clause did  remove many  of the

Healthsource  doctors  from the  reach  of  new HMOs,  it  is

unclear how much this foreclosure impairs the ability  of new

HMOs to  operate.    Certainly the  number  of  primary  care

physicians  tied to Healthsource  was significant--one figure

suggested  is 25  percent or  more of  all such  primary care

physicians  in New  Hampshire--but this  still leaves  a much

larger number not  tied to Healthsource.  It may  be, as U.S.

Healthcare  urges,  that  many of  the  remaining "available"

doctors cannot  fairly be counted (e.g.,  those employed full
                                       

time elsewhere, or reaching retirement, or unwilling to serve

HMOs at all).   But  the dimensions of  this limitation  were

disputed  and, by the same  token, new doctors are constantly

entering the market with an immediate need for patients.

     U.S. Healthcare lays great stress upon claims, supported

by some meeting notes of Healthsource staff members, that the

latter was aware of new HMO entry and conscious that new HMOs

like  U.S.  Healthcare could  be  adversely  affected by  the

exclusivity clause.4   Healthsource  in turn says  that these

                    

     4Two examples  of these  staff notes give  their flavor:
"Looking at '90 rates - and a deterent [sic] to joining other
HMOs (like Healthcare)"; and "amend contract (sending this or
next  week) based on  exclusivity.  HMOs  only (careful about
restraint  of trade) will be sent to even those in Healthcare

                             -17-

were notes made in the absence  of policy-making officers and

that  its  real motivation  for  the  clause  was to  bolster

loyalty and cost-cutting incentives.   Motive can, of course,

be a guide  to expected  effects, but effects  are still  the

central concern of the antitrust laws, and motive is mainly a

clue,  see Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d
                                                  

227  (1st  Cir. 1983).   This  case  itself suggests  how far

motives in business arrangement  may be mixed, ambiguous, and

subject to dispute.   In any event, under Tampa  the ultimate
                                               

issue in  exclusivity cases remains the  issue of foreclosure

and its consequences.

     Absent   a   compelling   showing  of   foreclosure   of

substantial dimensions, we think  there is no need for  us to

pursue any  inquiry into  Healthsource's precise  motives for

the clause, the existence and measure of any claimed benefits

from exclusivity, the balance  between harms and benefits, or

the possible existence and  relevance of any less restrictive

means of achieving the benefits.  We are similarly spared the

difficulty of assessing the  fact that the clause  is limited

to  HMOs, a fact  from which more  than one  inference may be

drawn.   The point is  that proof of  substantial foreclosure

and  of  "probable  immediate  and  future  effects"  is  the

essential basis under  Tampa for an attack  on an exclusivity
                            

clause.  U.S. Healthcare has not supplied that basis.

                    

already . . . ."

                             -18-

     In formal terms U.S.  Healthcare has preserved on appeal

its claim that the exclusivity clause  unreasonably restrains

competition  in violation  of  section 1.    That concept  is

embraced  by  its complaint,  and  the  limited depiction  of

evidence  in its  appellate  briefs stirs  curiosity, if  not

suspicion.  But  putting to one  side its  per se claims  and

alleged  market  definition errors,  U.S.  Healthcare's basic

argument  in this court  must be that  the evidence compelled
                                                             

the  magistrate judge to  find substantial foreclosure having

an  unreasonable   adverse  effect  on   competition.    U.S.

Healthcare,  as  plaintiff at  trial  and  appellant in  this

court,  had  the burden  of  fully  mustering the  facts  and

applying the  analysis to establish such a claim.  It has not

done so.

     In this  discussion, we  have placed little  weight upon

the  formal  finding  of   the  magistrate  judge  that  "the

[exclusivity] restriction does not constitute an unreasonable

restraint of trade under Section 1 of the Sherman Act."   His

finding  rested primarily  on the  premise that  whatever the

impact  of the clause on HMOs, ample competition remains in a

properly defined market,  which he found to  be one embracing

all  health   care  offered  throughout  the   state  of  New

Hampshire.5  On this view of the antitrust laws,  it does not

                    

     5On  the other hand, we do  not accept U.S. Healthcare's
effort  to salvage something from the decision by arguing the
magistrate judge found substantial  foreclosure in fact.  For

                             -19-

matter whether substantial foreclosure of new entrants occurs

so long  as widespread  competition prevails in  the relevant

market, thereby protecting consumers.6

     Whether  the  law requires  such  a  further showing  of

likely impact on consumers is open  to debate.  Our own  case

law  is not crystal clear  on this issue.   Compare Interface
                                                             

Group, Inc. v. Mass Port Authority, 816 F.2d 9, 11 (1st  Cir.
                                  

1981), with Corey v.  Look, 641 F.2d at  36.  Ultimately  the
                          

issue turns upon antitrust  policy, where a permanent tension

prevails  between  the "no  sparrow  shall  fall" concept  of

antitrust,  see Klor's, 359 U.S. at 213 (violation "not to be
                      

tolerated  merely because  the  victim is  just one  merchant

whose business is so small that his destruction makes  little

difference  to the  economy"),  and the  ascendant view  that

antitrust  protects  "competition,  not  competitors".    See
                                                             

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488
                                          

(1977).   We need not confront this issue in a case where the

cardinal   requirement   of   a    valid   claim--significant

foreclosure  unreasonably  restricting  competitors--has  not

been demonstrated.

                    

the most part, the statements to which it points appear to us
to  be  efforts  by  the  magistrate  judge to  describe  the
                                                             
allegations made by U.S. Healthcare.
           

     6See, e.g., Dep't of Justice Merger Guidelines,    4.21,
                                                   
4.213, June 14,  1984, 49 Fed.  Reg. 26824, 26835-36  (1984),
adopting  this position.    The 1992  DOJ-FTC guidelines  are
directed  only to horizontal  mergers and do  not address the
issue.  49 Fed. Reg. 26823 (1992).

                             -20-

     Section 2.  Exclusive contracts might in some situations
              

constitute  the  wrongful  act   that  is  an  ingredient  in

monopolization  claims  under section  2.    See United  Shoe
                                                             

Machinery Corp.  The  magistrate judge resolved these section
               

2 claims in  favor of Healthsource primarily  by defining the

market broadly  to include all  health care financing  in New

Hampshire.   So  defined, Healthsource  had a  share  of that

market  too small to support an attempt charge, let alone one

of  actual monopolization.   U.S. Healthcare argues, however,

that the market was misdefined.

     It may be  unnecessary to consider this claim  since, as

we  have already held, U.S.  Healthcare has failed  to show a

substantial foreclosure effect  from the exclusivity  clause.

After all, an act can be wrongful in the context of section 2

only  where  it  has  or  threatens  to  have  a  significant

exclusionary  impact.  But a  lesser showing of likely effect

might  be  required if  the actor  were  a monopolist  or one
     

within striking  distance.   Compare   Berkey  Photo Inc.  v.
                                                         

Eastman  Kodak Co., 603 F.2d  263, 272 (2d  Cir. 1979), cert.
                                                             

denied, 444 U.S. 1093 (1980).  More important, the magistrate
      

judge  dismissed  the  section   2  claims  based  on  market

definition and, if his  definition were shown to be  wrong, a

remand might  be required  unless we  were certain  that U.S.

Healthcare could never prevail.

                             -21-

     There is no subject in antitrust law more confusing than

market definition.  One  reason is that the concept,  even in

the pristine  formulation of economists,  is deliberately  an

attempt  to  oversimplify--for  working   purposes--the  very

complex economic interactions between a number of differently

situated  buyers and  sellers,  each of  whom in  reality has

different costs,  needs, and substitutes.   See United States
                                                             

v.  E.I.  du  Pont De  Nemours  &amp;  Co, 351  U.S.  377 (1956).
                                     

Further, when  lawyers and judges  take hold of  the concept,

they  impose   on  it  nuances  and   formulas  that  reflect

administrative and antitrust policy  goals.  This adaption is

legitimate (economists have no patent on the concept), but it

means that normative and descriptive ideas become intertwined

in the process of market definition.

     Nevertheless,   rational   treatment   is  assisted   by

remembering  to ask, in defining the market, why we are doing
                                                

so: that is, what is the antitrust question in this case that

market  definition aims  to answer?   This  threshold inquiry

helps  resolve U.S.  Healthcare's claim  that  the magistrate

judge  erred at the outset  by directing his  analysis to the

issue whether HMOs or health  care financing was the relevant

product  market.    This  approach,   says  U.S.  Healthcare,

mistakenly  focuses on  the  sale of  health  care to  buyers
                                 

whereas its  concern is Healthsource's buying  power in tying
                                             

up doctors needed by other HMOs in order to compete. 

                             -22-

     The magistrate  judge's approach  was correct.   One can

monopolize a  product as either a seller or a buyer; but as a

buyer of doctor services,  Healthsource could never achieve a

monopoly (monopsony is  the technical term),  because doctors

have  too   many  alternative  buyers  for  their  services.7

Rather,  the only way to cast Healthsource as a monopolist is

to  argue,  as  U.S.  Healthcare  apparently  did,  that  HMO

services  (or  even  IPA  HMOs) are  a  separate  health care

product sold  to consumers  such as employers  and employees.
            

If so, it  might become possible  (depending on market  share

and other  factors) to describe Healthsource  as a monopolist

or  potential  monopolist in  the sale  of  HMO (or  IPA HMO)

services in  New Hampshire, using the  exclusionary clause to

foster or reinforce the monopoly.

     Thus,  the  magistrate judge  asked the  right question.

Even  so U.S. Healthcare argues that he gave the wrong answer

in finding that HMOs were not a  separate market (it uses the

phrase  "submarket" but this does not alter the issue).  This

is a legitimate contention  and U.S. Healthcare has  at least

                    

     7U.S.  Healthcare,  of  course, is  not  concerned  with
Healthsource's ability  as a monopsonist  to exploit doctors;
it is concerned with its own ability to find doctors to serve
it. The latter  question--one of foreclosure--depends  on the
available supply  of doctors,  the constraint imposed  by the
exclusivity  clause, the  prospect for  entry of  new doctors
into the market, and similar issues.  Whether U.S. Healthcare
is foreclosed, however, does  not depend on whether consumers
treat HMOs  as a part of health care financing or as a unique
and separate product.

                             -23-

some basis  for it:   HMOs are often cheaper  than other care

methods because they emphasize illness prevention  and severe

cost  control.   U.S.  Healthcare also  seeks to  distinguish

cases defining  a broader  "health  care financing  market"--

cases heavily relied on by the magistrate judge--as involving

quite  different types of antitrust claims.   See, e.g., Ball
                                                             

Memorial Hosp.,  Inc. v.  Mutual Hosp.  Ins., Inc., 784  F.2d
                                                  

1325  (7th Cir. 1986).  Once again,  we agree that the nature

of the claim can affect the proper market definition.

     The  problem with  U.S.  Healthcare's argument  is  that

differences in  cost and quality between  products create the

possibility of  separate markets, not  the certainty.   A car

with  more features and a higher price is, within some range,

in the  same market  as one  with less  features and  a lower

price.     The  issue  is  sometimes   described  as  one  of

interchangeability   of  products  or  services,  see  duPont
                                                             

(discussing  cross-elasticity  of   demand),  although   this

formula is itself only an aid in trying to infer the shape of

the invisible demand curve facing the accused monopolist.  In

practice, the frustrating but  routine question how to define

the product market  is answered in antitrust  cases by asking

expert  economists  to  testify.    Here,  the  issue  for an

economist would  be whether a  sole supplier of  HMO services

(or IPA  HMOs if that  is U.S. Healthcare's  proposed market)

could raise price far enough over cost, and for a long enough

                             -24-

period, to enjoy monopoly  profits.  Usage patterns, customer

surveys,  actual profit levels,  comparison of features, ease

of entry, and many other facts are pertinent in answering the

question.

     Once again,  U.S. Healthcare  has not  made its  case in

this court.  The (unquantified) cost advantage of HMOs is the

only important fact supplied;  consumers might, or might not,

regard this benefit as just about offset by the limits placed

on  the patient's choice  of doctors.  To  be sure, there was

some  expert testimony in the district court on both sides of

the market  definition issue.   But if  there is any  case in

which counsel has the obligation to cull the record, organize

the  facts, and present them in the framework of a persuasive

legal  argument, it  is a  sophisticated antitrust  case like

this one.  Without such a showing on appeal, we  have limited

ability  to reconstruct so complex  a record ourselves and no

basis for overturning the magistrate judge.

     Absent the showing of  a properly defined product market

in which  Healthsource could approach monopoly  size, we have

no reason to consider the geographic dimension of the market.

If  health  care financing  is  the  product market,  as  the

magistrate  judge determined,  plainly  Healthsource  has  no

monopoly or anything close  to it, given the number  of other

providers  in New  Hampshire, such  as insurers,  staff HMOs,

Blue  Cross/Blue  Shield and  individual  doctors.   This  is

                             -25-

equally  so whether  the  geographic market  is southern  New

Hampshire  (as U.S. Healthcare claims) or the whole state (as

the magistrate judge found).

                       III. CONCLUSION

     Once  the federal  antitrust claims  are  found wanting,

this appeal is resolved.  U.S. Healthcare offers no authority

to  suggest that  New Hampshire  antitrust law  diverges from

federal law;  indeed, the state statute  encourages a uniform

construction.   N.H. Rev.  Stat. Ann.    356:14.   As for the

state  tort-law claims, primarily interference with potential

contractual   relationships,   the  magistrate   judge  dealt

effectively  with them,  and U.S.  Healthcare says  little on

appeal  to undercut his dismissal of those counts.  Given the

arguments made and the record evidence arrayed in this court,

affirmance of  the magistrate judge's judgment  on all counts

is clearly in order.

     Nevertheless,  we  do  not  think  that  this  case  was

inherently frivolous.  The  timing and original 180-day reach

of the  exclusivity clause could reasonably excite suspicion;

the clause may  have some  impact though the  extent of  that

impact remains  unclear; and  the motives of  Healthsource in

adopting the clause  may well have  been mixed.   Competition

remains an essential force in controlling costs and improving

quality  in health  care.  Courts are  properly available  to

settle  claims  that  one   business  device  or  another  is

                             -26-

unlawfully  suppressing competition  in this  vital industry.

Although  U.S. Healthcare's per se shortcut has taken it to a

dead  end, we  have addressed  the antitrust  issues at  such

length precisely because of the importance of the subject.

     Affirmed.  
             

                             -27-
