NicSand, Inc. v. 3M Company

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 07a0424p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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Plaintiff-Appellant, -

NICSAND, INC.,

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No. 05-3431

v.

,

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3M COMPANY, -

Defendant-Appellee. -

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Appeal from the United States District Court

for the Northern District of Ohio at Cleveland.

No. 03-02619—Ann Aldrich, District Judge.

Argued: March 7, 2007

Decided and Filed: October 17, 2007

Before: BOGGS, Chief Judge; MARTIN, SILER, BATCHELDER, DAUGHTREY, COLE,

CLAY, GILMAN, GIBBONS, ROGERS, SUTTON,* COOK, McKEAGUE, and GRIFFIN,

Circuit Judges.

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COUNSEL

ARGUED: Dennis E. Murray, Jr., MURRAY & MURRAY CO., L.P.A., Sandusky, Ohio, for

Appellant. Dean Ringel, CAHILL, GORDON & REINDEL, New York, New York, for Appellee.

ON BRIEF: Dennis E. Murray, Jr., MURRAY & MURRAY CO., L.P.A., Sandusky, Ohio, for

Appellant. Dean Ringel, CAHILL, GORDON & REINDEL, New York, New York, James P.

Murphy, SQUIRE, SANDERS & DEMPSEY, Washington, D.C., J. Philip Calabrese, SQUIRE,

SANDERS & DEMPSEY, Cleveland, Ohio, for Appellee.

SUTTON, J., delivered the opinion of the court, in which BOGGS, C. J., SILER,

BATCHELDER, GILMAN, GIBBONS, ROGERS, COOK, McKEAGUE, and GRIFFIN, JJ.,

joined. MARTIN, J. (pp. 13-22), delivered a separate dissenting opinion, in which DAUGHTREY,

COLE, and CLAY, JJ., joined.

*

The Honorable Karen Nelson Moore, Circuit Judge, took no part in the consideration or decision of the case.

1

No. 05-3431 NicSand, Inc. v. 3M Company Page 2

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OPINION

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SUTTON, Circuit Judge. Between 1987 and 2001, NicSand and 3M were the only

nationwide suppliers in the market for do-it-yourself automotive sandpaper, and they competed for

the business of six large retailers, which controlled 80% of the market and which (with one

exception) offered their shelf space on an exclusive basis for a year at a time. NicSand developed

this niche market and eventually gained a 67% share of it. Between 1997 and 2001, however, it lost

most of the market when 3M offered the large retailers greater up-front discounts and longer

exclusive agreements than NicSand had offered in the past or apparently was willing to offer in the

future.

When NicSand filed an antitrust lawsuit to complain about 3M’s conduct, the district court

dismissed the complaint for lack of antitrust standing and, more particularly, for lack of a cognizable

antitrust injury. Because 3M did not engage in below-cost—or predatory—pricing, because five of

the six large retailers demanded exclusivity as a precondition for doing business, because the

allegations show no more than that 3M competed with its rival on the same essential terms that

NicSand and the large retailers had already established for this market and because the antitrust laws

in the end protect competition, not competitors, we affirm.

I.

This case comes to us as an appeal from a Rule 12(b)(6) dismissal. We thus look to

NicSand’s allegations in the complaint (in truth, the first amended complaint) to determine the

details of the dispute—who the parties are, how the market for do-it-yourself automotive sandpaper

works and how the parties competed with each other.

The parties. NicSand is an Ohio corporation based in Berea, Ohio, and has been in business

since 1982. It makes a variety of products for automotive body repair, including automotive

sandpaper (technically speaking, coated abrasives), which consumers use before, during or after

painting a car or truck. Sales of automotive sandpaper accounted for one-half of NicSand’s revenue

in 1996. 3M is a Delaware corporation based in Maplewood, Minnesota. In addition to making a

variety of other products, 3M produces automotive sandpaper.

The market for do-it-yourself automotive sandpaper. NicSand “largely developed” the

market for do-it-yourself automotive sandpaper, increasing the number of products offered in the

market from 20 in 1987 to 80 in 2000. Am. Compl. ¶ 10. The development of the market, NicSand

claims, was “fueled primarily by [its] superior marketing, superior packaging, innovation, and

superior value.” Id. ¶ 11.

Between 1987 and 2000, just two companies supplied automotive sandpaper (and related

products) in the national market: NicSand and 3M. As of 1995, NicSand was the dominant player,

holding a 67% share of the market.

NicSand and 3M did not sell their automotive sandpaper products directly to consumers; they

instead relied on retailers to distribute the products through a “highly concentrated” retail market.

Id. ¶ 14. In 1997, just six large retailers—Advance Auto Parts, AutoZone, CSK Auto, Kmart, Pep

Boys, Wal-Mart—controlled 80% of the retail market, while smaller retailers divided up the

remaining 20% of the market.

Perhaps due to the relatively “small value” of the market, five of the six large retailers sold

just one brand of the product at a time, meaning they permitted NicSand or 3M, but not both, to sell

No. 05-3431 NicSand, Inc. v. 3M Company Page 3

its products at the stores. Id. ¶ 62. “In order to simplify planning and reduce costs,” the large

retailers also re-negotiated these single-brand agreements just once a year, giving the supplier a

year-long “de facto exclusive agreement” with each retailer. Id. ¶ 25. In order to replace an existing

supplier of automotive sandpaper, a new supplier not only had to offer favorable prices but also had

to (1) produce a full line of do-it-yourself automotive sandpaper, (2) provide racks and other display

equipment for the retailer, (3) provide a discount on the retailer’s first order and (4) purchase the

retailer’s existing supply of the sandpaper. Because the large retailers typically restocked the full

line of sandpaper products five to seven times a year, buying out a retailer’s existing supply of the

sandpaper could cost a supplier up to 14% to 20% of its annual revenues from that retailer.

NicSand complied with these requirements in seeking to obtain the large retailers’ business,

and by every measure it succeeded. By 1996, it was the exclusive supplier for four of the large

retailers: Kmart, Advance Auto, CSK Auto and AutoZone. And along with 3M it supplied Pep

Boys, the one large retailer that did not insist on an exclusive agreement.

3M was the sole supplier of the sixth large retailer—Wal-Mart. NicSand did not—and could

not—compete for this business, because Wal-Mart sought a single supplier that could meet all of

its sandpaper needs, which included providing two products that NicSand did not make: sandpaper

for Wal-Mart’s power tool and paint departments.

NicSand made substantial profits on its exclusive-sales agreements with four of the six large

retailers. In 1996, NicSand’s annual sales to Kmart totaled $475,000 with profit margins of 38%.

In 1997, its sales to Advance Auto totaled $550,000 with margins of 49%, and its sales to CSK Auto

totaled $369,000 with margins of 44%. In 1999, its sales to AutoZone totaled $2,200,000 with

margins of 39%.

Competition between the two companies from 1997 through 2001. According to NicSand,

3M sought to monopolize the market for do-it-yourself automotive sandpaper beginning in 1997.

To that end, 3M offered Kmart $300,000 in 1997 as an incentive to switch suppliers and to enter into

an “explicit or sub rosa” exclusive-dealing agreement for “several years.” Id. ¶ 23. Kmart accepted

3M’s offer and told NicSand that it would not review price quotes from NicSand for a “few years.”

Id. ¶ 26 (emphasis omitted).

One year later, 3M did the same thing with Advance Auto and CSK Auto, offering the one

$285,000 and the other $200,000 to switch suppliers and to enter into “multi-year” exclusive-dealing

agreements. Id. ¶¶ 30, 32. Advance Auto and CSK Auto accepted 3M’s offers and refused to

discuss switching suppliers with NicSand “for at least a few years.” Id. ¶ 37.

Two years later, in 2000, 3M offered a similar deal to AutoZone, which long had been

NicSand’s largest customer. 3M offered AutoZone $1,000,000 to switch suppliers and to enter a

“multi-year” exclusive-dealing agreement. Id. AutoZone accepted the offer. When contacted by

NicSand, AutoZone refused to discuss switching back to NicSand as a supplier “for at least a few

years.” Id.

By 2001, NicSand’s only remaining customers were Pep Boys (which sold NicSand and 3M

products) and several smaller retailers. With a significant drop in its sales volume, NicSand lost its

economies of scale; its “raw material costs increased dramatically,” id. ¶ 41; and it could no longer

“fill existing orders at an appropriate cost,” id. ¶ 60. Because NicSand could “no

longer . . . compete,” it left the market for do-it-yourself automotive sandpaper in 2001 and sought

to reorganize under Chapter 11 of the Bankruptcy Code. Id. ¶ 41. Since leaving the market,

NicSand alleges that retailers (though it makes no allegations about suppliers like 3M) have raised

consumer prices for do-it-yourself automotive sandpaper by as much as 70%.

No. 05-3431 NicSand, Inc. v. 3M Company Page 4

The complaint. On December 30, 2003, NicSand filed this lawsuit under § 4 of the Clayton

Act, claiming that 3M had monopolized, or attempted to monopolize, the market for automotive

sandpaper in violation of § 2 of the Sherman Act. See 15 U.S.C. §§ 2, 15. The complaint sought

(1) to recover NicSand’s “lost profits” or the “value” of NicSand’s business and (2) to treble those

damages as permitted under the antitrust laws. Compl. at 9. The district court dismissed the

complaint under Rule 12(b)(6) for lack of antitrust standing because NicSand “failed to . . . plead

an injury to competition resulting from 3M’s conduct.” D. Ct. Op. at 5.

II.

A.

At first glance, one might fairly wonder whether a complaint like this one should be

dismissed for lack of antitrust standing. Standing, in a conventional Article III sense, requires just

proof of actual injury, causation and redressability. See Lujan v. Defenders of Wildlife, 504 U.S.

555, 560–61 (1992). And NicSand readily satisfies these requirements: It was injured (when it lost

these accounts); 3M caused the injury (when it offered better terms to the retailers than NicSand had

offered in the past); and NicSand’s request for damages will redress its injury (by permitting it to

recover the profits—indeed, three times the profits—it made before 3M entered the picture).

Seemingly making matters easier for NicSand, we look at its complaint through the prism of Rule

12(b)(6), requiring us to accept all of its allegations and all reasonable inferences from them as true.

Mich. Paytel Joint Venture v. City of Detroit, 287 F.3d 527, 533 (6th Cir. 2002).

Yet antitrust standing and Article III standing are not one and the same, and we not only

may—but we must—reject claims under Rule 12(b)(6) when antitrust standing is missing. In the

first place, an antitrust claimant must do more than make “allegations of consequential harm

resulting from a violation of the antitrust laws,” and that is true even when the complaint is

“buttressed by an allegation of intent to harm the [claimant].” Associated Gen. Contractors of Cal.,

Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 545 (1983). Even when a complaint makes

these allegations, it may not proceed when “[o]ther relevant factors—the nature of the [claimant’s]

injury, the tenuous and speculative character of the relationship between the alleged antitrust

violation and the [claimant’s] alleged injury, the potential for duplicative recovery or complex

apportionment of damages, and the existence of more direct victims of the alleged

conspiracy—weigh heavily against judicial enforcement.” Id. Most pertinently for our purposes,

antitrust standing “ensures that a plaintiff can recover only if the loss stems from a

competition-reducing aspect or effect of the defendant’s behavior.” Atl. Richfield Co. v. USA

Petroleum Co., 495 U.S. 328, 344 (1990). Far from being “a mere technicality,” antitrust standing

“is the glue that cements each suit with the purposes of the antitrust laws, and prevents abuses of

those laws” by claimants seeking to halt the strategic behavior of rivals that increases, rather than

reduces, competition. HyPoint Tech., Inc. v. Hewlett-Packard Co., 949 F.2d 874, 877 (6th Cir.

1991).

In the second place, antitrust standing is a threshold, pleading-stage inquiry and when a

complaint by its terms fails to establish this requirement we must dismiss it as a matter of law—lest

the antitrust laws become a treble-damages sword rather than the shield against

competition-destroying conduct that Congress meant them to be. “It is one thing to be cautious

before dismissing an antitrust complaint in advance of discovery, but quite another to forget that

proceeding to antitrust discovery can be expensive.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955,

1966–67 (2007). Given the limited “success of judicial supervision in checking discovery abuse”

and “the threat [that] discovery expense will push cost-conscious defendants to settle even anemic

cases before reaching those proceedings,” id. at 1967, the federal courts have been “reasonably

aggressive” in weeding out meritless antitrust claims at the pleading stage, Valley Prods. Co. v.

Landmark, 128 F.3d 398, 403 (6th Cir. 1997); see Bell Atl., 127 S. Ct. at 1966 (“[S]omething beyond

No. 05-3431 NicSand, Inc. v. 3M Company Page 5

the mere possibility of [relief] must be alleged, lest a plaintiff with a largely groundless claim be

allowed to take up the time of a number of other people, with the right to do so representing an in

terrorem increment of the settlement value.”) (internal quotation marks omitted).

For these reasons, it should come as no surprise that, in the seminal antitrust standing case,

the Supreme Court dismissed the claim under Rule 12(b)(6). See Associated Gen. Contractors, 459

U.S. at 545–46. And our court has dismissed numerous lawsuits for lack of antitrust standing under

Rule 12(b)(6). See Indeck Energy Servs. v. Consumers Energy Co., 250 F.3d 972, 977 (6th Cir.

2000); Valley Prods., 128 F.3d at 407; Hodges v. WSM, Inc., 26 F.3d 36, 39 (6th Cir. 1994); Peck

v. Gen. Motors Corp., 894 F.2d 844, 848 (6th Cir. 1990); Apperson v. Fleet Carrier Corp., 879 F.2d

1344, 1351–52 (6th Cir. 1989); Tennessean Truckstop, Inc. v. NTS, Inc., 875 F.2d 86, 90 (6th Cir.

1989); Axis, S.p.A. v. Micafil, Inc., 870 F.2d 1105, 1111 (6th Cir. 1989); Southaven Land Co. v.

Malone & Hyde, Inc., 715 F.2d 1079, 1088 (6th Cir. 1983); see also N.W.S. Mich., Inc. v. Gen. Wine

& Liquor Co., 58 F. App’x 127, 129–30 (6th Cir. Feb. 6, 2003); Park Ave. Radiology Assocs., P.C.

v. Methodist Health Sys., No. 98-5668, 1999 WL 1045098, at *7 (6th Cir. Nov. 10, 1999); Dry v.

Methodist Med. Ctr. of Oak Ridge, Inc., No. 89-5470, 1990 WL 3489, at *5 (6th Cir. Jan. 19, 1990).

B.

Of the various requirements for establishing antitrust standing, the one that concerns us here

is antitrust injury, which is a “necessary, but not always sufficient,” condition of antitrust standing.

Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 110 n.5 (1986). An antitrust claimant must

show more than merely an “injury causally linked” to a competitive practice; it “must prove antitrust

injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows

from that which makes the defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat,

Inc., 429 U.S. 477, 489 (1977) (emphasis added). At a minimum, this requirement means that one

competitor may not use the antitrust laws to sue a rival merely for vigorous or intensified

competition. “‘[I]t is inimical to [the antitrust] laws to award damages’ for losses stemming from

continued competition,” Cargill, 479 U.S. at 109–10 (quoting Brunswick, 429 U.S. at 488) (second

alteration in original), because “[t]he antitrust laws . . . were enacted for ‘the protection of

competition not competitors,’” Brunswick, 429 U.S. at 488 (quoting Brown Shoe Co. v. United

States, 370 U.S. 294, 320 (1962)); see id. (prohibiting competitor claim where the claimant sought

in damages “the profits they would have realized had competition been reduced”). Accordingly,

even though a claimant alleges that an injury is “causally related to an antitrust violation,” it “will

not qualify as ‘antitrust injury’ unless it is attributable to an anticompetitive aspect of the practice

under scrutiny.” Atl. Richfield, 495 U.S. at 334.

Moreover, a “naked assertion” of antitrust injury, the Supreme Court has made clear, is not

enough; an antitrust claimant must put forth factual “allegations plausibly suggesting (not merely

consistent with)” antitrust injury. Bell Atl., 127 S. Ct. at 1966; see id. at 1964–65 (“[A] plaintiff’s

obligation to provide the grounds of his entitlement to relief requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . . [A]

complaint [must have] enough factual matter (taken as true) to suggest [that an antitrust injury

occurred].”) (internal quotation marks omitted); id. at 1966 (“[T]he threshold requirement of Rule

8(a)(2) [is] that the plain statement [in the complaint] possess enough heft to show that the pleader

is entitled to relief.”) (internal quotation marks omitted); id. (“[A] naked assertion . . . gets the

complaint close to stating a claim, but without some further factual enhancement it stops short of

the line between possibility and plausibility . . . .”).

All of this is not to say that one competitor may never sue another under the antitrust laws.

But courts typically have permitted such claims to proceed only when one of the rivals has engaged

in some form of predatory pricing or illegal tying—when the rival has engaged in something more

than vigorous price, product or service competition. See, e.g., Eastman Kodak Co. v. Image

No. 05-3431 NicSand, Inc. v. 3M Company Page 6

Technical Servs., Inc., 504 U.S. 451, 461–79 (1992) (illegal tying); Utah Pie Co. v. Cont’l Baking

Co., 386 U.S. 685, 696–98 (1967) (predatory pricing); Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431

F.3d 917, 921 (6th Cir. 2005) (predatory pricing); LePage’s Inc. v. 3M, 324 F.3d 141, 155–57 (3d

Cir. 2003) (illegal tying); Bell v. Cherokee Aviation Corp., 660 F.2d 1123, 1127–32 (6th Cir. 1981)

(illegal tying).

C.

In attempting to satisfy this requirement, NicSand targets three of 3M’s competitive tactics:

(1) the up-front payments that 3M offered to the four retailers; (2) the multi-year terms of the

agreements between 3M and the retailers; and (3) the exclusive nature of these agreements. Because

“the injury and damages” suffered by NicSand from these competitive practices, however, do not

“match the rationale for finding [an antitrust] violation,” HyPoint Tech., 949 F.2d at 879—but

indeed flow from the kind of competition that the antitrust laws were designed to foster—NicSand

has not established a cognizable antitrust injury.

The up-front discounts. NicSand first complains about the “cash payment[s]” that 3M

offered four of the large retailers to obtain their business—$300,000 to Kmart in 1997, $285,000 to

Advance Auto in 1998, $200,000 to CSK Auto in 1998 and $1 million to AutoZone in 2000. Br.

at 21; see Am. Compl. ¶¶ 21, 30, 32, 35. Even after accounting for these payments, however,

NicSand concedes that 3M did not engage in any form of predatory pricing—it concedes in other

words that 3M did not sell automotive sandpaper below cost with the goal of recouping its losses

by charging monopolistic prices later. See NicSand’s Mem. in Opp. to 3M’s Mot. to Dismiss, JA

132 (“NicSand’s Amended Complaint Is Not Premised On Predatory Pricing.”); Reply Br. at 6.

Given this concession and given the realities of this market, 3M’s payments do not show

antitrust injury. If the up-front payments, when combined with the price terms that 3M offered each

of these large retailers, “are not predatory, any losses flowing from them cannot be said to stem from

an anticompetitive aspect of defendant’s conduct. It is in the interest of competition to

permit . . . firms to engage in vigorous competition, including price competition.” Atl. Richfield, 495

U.S. at 340–41 (internal quotation marks and footnote omitted). The market conditions at the time

3M made these offers, according to NicSand’s own allegations, buttress the point. In 1997, this

market consisted primarily of six large retailers, and NicSand was the sole supplier of four of them.

NicSand controlled 67% of the market and earned 38–49% profit margins on its sales to these four

retailers. Am. Compl. ¶¶ 22, 31, 33, 36. NicSand gives no explanation why it has a right to preserve

38–49% margins—under the antitrust laws no less—on a product, sandpaper, that (so far as the

complaint is concerned) does not take any ingenuity to make.

Rather than upsetting the competition-enhancing goals of the antitrust laws, the payments

furthered them. The “payments” are nothing more than “price reductions offered to the buyers for

the exclusive right to supply a set of stores under multi-year contracts.” Augusta News Co. v.

Hudson News Co., 269 F.3d 41, 45 (1st Cir. 2001). “[C]utting prices in order to increase business

often is the very essence of competition”; and “mistaken inferences in cases such as this one are

especially costly, because they chill the very conduct the antitrust laws are designed to protect. We

must be concerned lest a rule or precedent that authorizes a search for a particular type of

undesirable pricing behavior end up by discouraging legitimate price competition.” Matsushita

Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986) (internal quotation marks and

citation omitted); accord Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.

398, 414 (2004). “It would be ironic indeed if the standards” for establishing antitrust injury “were

so low that antitrust suits themselves became a tool for keeping prices high.” Brooke Group Ltd.

v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226–27 (1993).

No. 05-3431 NicSand, Inc. v. 3M Company Page 7

One of the existing barriers to entry in this market, moreover, required would-be suppliers

to offer up-front payments. Before they would consider switching suppliers, the large retailers

required new suppliers to offer to (1) purchase the retailer’s existing supply of automotive sandpaper

and (2) provide a discount on the retailer’s first order. Together these demands could cost a new

supplier up to 23% of its first year’s revenues. See Am. Compl. ¶¶ 48, 49, 51. All of this goes to

show that, by offering up-front discounts to the retailers, 3M was merely offering them something

that, generically speaking, they already insisted on receiving. That 3M offered greater discounts,

though still non-predatory discounts, to win the retailers’ business does not offend the antitrust laws,

much less undermine the competitive environment those laws were designed to foster.

The multi-year terms. Just as 3M’s advances amounted to legitimate competition, so did its

decision to enter into multi-year agreements. Once again, 3M did nothing more than compete on

terms that the market already required. A would-be supplier does not violate the antitrust laws by

offering a multi-year agreement in a market in which the retailers already require one-year “de

facto” agreements. See id. ¶ 25. If the buyers in a market demand one thing, the antitrust laws do

not prohibit an entrant from offering that same thing on slightly different terms. Cf. Verizon

Commc’ns, 540 U.S. at 411 (“Antitrust analysis must always be attuned to the particular structure

and circumstances of the industry at issue.”); Eastman Kodak, 504 U.S. at 466–67 (noting the

importance of considering “actual market realities” when reviewing an antitrust claim).

From the perspective of a retailer, multi-year agreements permit the retailer to insist that the

supplier charge lower prices. Committing to a multi-year agreement, indeed, is no different from

buying in bulk. From the perspective of a supplier, multi-year agreements ease an aspiring entrant’s

ability to clear existing market barriers. Here, the large retailers demanded that a new supplier buy

out the former supplier’s products and offer a discount on the first sale, all at a cost of up to 23% of

the new supplier’s first year sales. It is far easier for a market entrant to clear these barriers when

it is given several years, rather than just one, to recoup this investment. See 2 Areeda &

Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 348c (“[A]

temporary purchase commitment that overcomes an entry barrier increases rather than reduces

competition.”).

Had 3M used illegal tying to obtain a multi-year agreement, that might be another matter.

But NicSand makes no such allegation. Reply Br. at 11–12 (disclaiming any such contention).

What NicSand complains about instead is a quid pro quo—a multi-year (rather than a single-year)

agreement for 3M in return for a substantial price discount (rather than a smaller discount) for the

retailers. Having previously paid NicSand prices generating 38–49% profit margins, the large

retailers cannot be blamed for accepting better prices with 3M for several years, not just one.

Contrary to NicSand’s suggestion, the multi-year nature of the agreements makes the

accompanying advances less troublesome, not more so. It is true, as NicSand repeatedly asserts, that

the advances made by 3M to the retailers outpaced NicSand’s yearly profits from sales to each of

those retailers. See Reply Br. at 3; Supp. Br. at 9. But given a reasonable estimate of the length of

these “several year[]” agreements, say three to five years, NicSand’s complaint itself demonstrates

that it could have competed for the exact same multi-year agreements with its customers. Am.

Compl. ¶ 23. Had NicSand approached its customers with similar deals, it could have expected

profit margins of 17–39% on its sales to Kmart, Advance Auto, CSK Auto and AutoZone. Id. ¶¶ 21,

30, 32, 35. While these margins would have been lower than the 38–49% margins NicSand realized

before 3M’s entrance into the market, NicSand offers no explanation why this modest reduction in

profit margins on a product of this sort is a concern of the antitrust laws.

The exclusivity of the agreements. Unable to show that it suffered an antitrust injury from

3M’s vigorous price competition and unable to show that it suffered an antitrust injury from 3M’s

offer to extend the agreements to cover “at least a few years,” id. ¶ 37, NicSand argues that the

No. 05-3431 NicSand, Inc. v. 3M Company Page 8

exclusivity of the agreements establishes the requisite injury. While exclusive agreements in some

instances may create impermissible barriers for new entrants to a market and may permit a supplier

to charge monopoly prices, see Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961),

NicSand has not claimed—and cannot tenably claim—that it suffered these anticompetitive effects.

As with NicSand’s other complaints, so here: we cannot ignore the demands of the

marketplace in which these agreements arose. “Antitrust analysis must always be attuned to the

particular structure and circumstances of the industry at issue.” Verizon Commc’ns, 540 U.S. at 411;

see Bell Atl., 127 S. Ct. at 1972 (noting that industry history may provide “a natural explanation”

for conduct). According to NicSand’s own complaint, all but one of the large retailers made

exclusivity a condition for doing business with a new supplier. NicSand of course complied with

this requirement (and several others) in obtaining the business it held in 1997, and 3M complied

with this requirement (and several others) in winning some of that business away. If retailers have

made supplier exclusivity a barrier to entry, one cannot bring an antitrust claim against a supplier

for acquiescing to that requirement. Put another way, NicSand has not sued 3M because it wants

to share shelf space with its competitor; it sued 3M because it wants that shelf space all to

itself—just as it had it in 1997. This is just the kind of all-for-one-and-all-for-one competitor claim

that the antitrust laws do not protect.

Nor can NicSand plausibly argue that the exclusivity requirement created entry barriers for

it in this market. Before 1997, NicSand controlled 67% of the market and used the existing barriers

to entry—annual product reviews and exclusive shelf space—to preserve its lock on the market.

From 1997 to 2000, 3M competed for and won the business of four retailers that NicSand formerly

supplied. Through it all, however, NicSand was not a potential market entrant; it was the market

leader. Yet NicSand offers no explanation why it could not compete for these multi-year agreements

nor why (in view of its high margins) it could not match 3M’s discounts. As the market leader,

NicSand was on the inside looking out, and for whatever reason the company chose not to compete.

See 2 Areeda & Hovenkamp, supra, ¶ 348d3 (“Of course, a foreclosure alleged to be illegal because

it deters entry does not injure a plaintiff already in the market. Impeding the entry of others grants

a benefit to those already in the market.”) (footnote omitted).

To the extent exclusivity created a market barrier, it was 3M that faced the problem, and it

was 3M that overcame it. In 1997, according to the complaint, 3M won the business of Kmart with

its “several years” offer; as the incumbent, NicSand had every opportunity to compete and yet it

failed to do so. In 1998, 3M overcame a similar hurdle in obtaining the business of Advance Auto

and CSK Auto; again, NicSand faced no such barrier and yet still failed to compete. In 2000, when

NicSand was the exclusive supplier of only one big-box retailer, it still controlled a substantial

portion of the market due to the volume of its business with AutoZone. Compare Am. Compl. ¶ 36

($2,200,000 in sales to AutoZone), with id. ¶ 22 ($475,000 in sales to Kmart), id. ¶ 31 ($550,000 in

sales to Advance Auto), and id. ¶ 33 ($369,000 in sales to CSK Auto). Yet 3M successfully

competed for AutoZone’s business. Though NicSand declared bankruptcy in 2001, it says nothing

in the complaint about efforts before then to recoup the business from Kmart (which entered the 3M

agreement in 1997) or from Advance Auto or CSK Auto (which entered the agreements in 1998).

Nor does 3M’s size make a difference to the disposition of these allegations. See Brunswick, 429

U.S. at 487–88 (“Yet respondents’ injury . . . bears no relationship to the size of . . . its competitor[].

Respondents would have suffered the identical loss but no compensable injury had the acquired

centers instead . . . been purchased by shallow pocket parents . . . . Thus, respondents’ injury was

not of the type that the statute was intended to forestall.”) (internal quotation marks omitted). In the

end, NicSand simply has not alleged facts establishing that the agreements in and of themselves

created market-entry barriers that caused it a cognizable antitrust injury. See Bell Atl., 127 S. Ct.

at 1974 (holding that plaintiffs must allege “enough facts” to “nudge[] their claims across the line

from conceivable to plausible”).

No. 05-3431 NicSand, Inc. v. 3M Company Page 9

NicSand’s injury also does not stem from 3M’s alleged monopolization of the market. For

most of the time NicSand was losing business, it retained control of a significant share of the market.

While NicSand complains about the up-front discounts 3M offered, it does not allege that 3M was

selling below cost, and the numbers NicSand itself offers demonstrate that 3M’s advances were

comfortably within NicSand’s multi-year profit margins. While NicSand’s loss of business may

have propelled 3M into a dominant market position, its injury does not correspond to any allegedly

anticompetitive effect on the market but rather a truly competitive one.

Any doubt about the appropriate resolution of this case can be laid to rest by Indeck Energy

Services v. Consumers Energy Co., 250 F.3d 972 (6th Cir. 2000). There an energy supplier (Indeck)

alleged that a competitor (Consumers Energy) violated the antitrust laws by signing an exclusive

supply contract with General Motors for a period of five to ten years. Id. at 975. The contract came

on the heels of similar contracts with “17 other large industrial/commercial customers,” through all

of which Consumers Energy “succeeded in excluding competition from over 80 percent of the

Relevant At Risk Market.” Id. (internal quotation marks omitted). Central to the resolution of that

case, as to this one, was that “the only harm allegedly suffered by Indeck was in the company’s

capacity as a competitor in the marketplace, not as a defender of marketplace competition.” Id. at

977.

Indeck was the harder case. Consumers Energy controlled 80% of the market when its

contracts preserved its hold on the market, while NicSand controlled 67% of the market when it

began losing its hold on the market. Consumers Energy entered into longer exclusive contracts

(5–10 years) than 3M did (“several years,” “few years” or “multi-year”). And Consumers Energy

did not unseat the dominant market leader (as 3M did) but instead hindered a potential market

entrant. Indeck was hardly a dominant supplier of energy, as it provided cogeneration services

(recycling factory waste to create energy), which diminish a customer’s need for traditional energy

rather than supply such energy. Indeck, in short, was more akin (far more akin) to a market entrant

than NicSand.

In its en banc papers, NicSand does not claim that Indeck (or for that matter any of our

antitrust-injury precedents) should be overruled but insists that it can be distinguished—first on the

ground that today’s case involves a series of contracts with several retailers as opposed to several

contracts with one retailer. As a result, it submits, while Indeck’s harm resulted only from

competition, NicSand suffered not simply as a single competitor in the market, but as a proxy for

all competitors and thus for all competition. But this seems to invert the relative vices and virtues

of the two fact patterns. While NicSand originally held all of the contracts with the retailers in

question and lost them to competition, Indeck lost out on a single contract and alleged that it found

itself in a market where a single dominant firm controlled 80% of the market with exclusive

contracts of 5–10 years with all of the major industrial and commercial customers. If the harm to

the market is the entry barriers established by “exclusive contracts,” it is Indeck, not NicSand, that

makes the better proxy for injury to competition in the market rather than harm to a competitor.

NicSand had the opportunity to compete for each of the contracts, while Indeck never had that

opportunity because of the existing exclusive contracts. Nonetheless, we concluded in Indeck that

there was no harm to competition because Indeck “failed to allege how [the exclusive contracts]

have injured competition, especially in light of the discounted rates offered to the customers, in light

of the fact that the exclusive contracts were of limited duration, and in light of the fact that the

customers were free to seek other [providers] at the conclusion of the contracts.” 250 F.3d at

977–78. We rested our decision on these grounds, and these grounds control us here—with

NicSand, if anything, having the less compelling complaint. When one exclusive dealer is replaced

by another exclusive dealer, the victim of the competition does not state an antitrust injury. See 11

Areeda & Hovenkamp, supra, ¶ 1823b (“Clearly not a victim of antitrust injury is the exclusive

dealing partner whose business relationship was terminated in favor of a different exclusive dealing

partner.”).

No. 05-3431 NicSand, Inc. v. 3M Company Page 10

NicSand next maintains that Indeck can be distinguished on the ground that 3M’s exclusive

dealing arrangements have eliminated a superior product, noting that NicSand allegedly provides

a better variety of products and better service than 3M. Indeck, it is true, noted that antitrust actions

by marketplace competitors “must at least allege that exclusion of the competitor from the

marketplace results in the elimination of a superior product or a lower-cost alternative” because

these developments might show “that competition itself was harmed by an[] act of the defendant[].”

250 F.3d at 977. But the court still rejected Indeck’s claim even though the company had alleged

that its competitor’s conduct caused the market to become less diversified because Indeck provided

“alternative sources of electrical power,” namely thermal power, while its competitor supplied only

traditional electrical power. Id. at 975 (internal quotation marks omitted). As Indeck suggests, then,

such an allegation may be necessary to establish antitrust standing for a competitor, but it is not

sufficient. Under NicSand’s reading, every competitor could proceed to discovery (and avoid

showing a true antitrust injury) by asserting an unelaborated claim that it provides better service than

its competitors. Indeck did not permit such a pleading and neither will we.

Even aside from Indeck, NicSand suggests in its en banc papers, and the dissent echos the

point, that it is an efficient defender of the marketplace because the retailers face a “collective action

problem.” Dissent at 22. In its view, this collective action problem—that no retailer will accept the

higher prices of one supplier in order to keep competition in the supply market when all the other

retailers are accepting lower prices from a potentially emergent monopolist supplier—justifies

competitor standing in exclusive dealing cases. NicSand, however, did not raise this argument in

the district court, and accordingly it is waived.

The alleged problem, at any rate, is a mirage. If all that one can say about a supplier is that

it has offered lower prices (though not predatory prices) to a series of retailers and that the existing

monopolist refuses to match those prices, a retailer would have far more questions to answer for

refusing, than for accepting, the better deal. The entities with power in this market by the terms of

NicSand’s complaint were not the suppliers but the national retailers. It was these retailers after all

who initially demanded exclusivity in the market for automotive sandpaper, only reviewing their

choice of a single supplier once a year. That they have now signed longer exclusive agreements for

much better prices not only does not establish a market failure but also shows the retailers’

bargaining authority at work, to say nothing of adherence to their duties to consumers and

shareholders. Why not enter a multi-year contract for a steep discount on the prices NicSand was

charging? That helps the retailers and bodes well for consumers to boot. See Indeck, 250 F.3d at

977 (“No allegation in the complaint indicates in any manner whatsoever how [the customer] itself

was harmed or how other customers . . . suffered by agreeing to [an exclusive] agreement with a

lower bidder for such [product].”); see also Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., 477

F.3d 854, 872 (6th Cir. 2007) (“[I]f a higher discount is realistically and practically available, why

would a reasonable purchaser not take advantage of the best possible price?”); cf. Adam Smith, An

Inquiry into the Nature and Causes of the Wealth of Nations 201 (1838) (“[I]t always is, and must

be, the interest of the great body of the people, to buy whatever they want of those who sell it

cheapest.”).

What we have said here does not mean that a potential competitor may never bring an

antitrust claim for exclusive dealing. Had the large retailers and 3M conspired to eliminate NicSand

from the market, that would be another matter. And should 3M use these contracts and its current

market dominance to establish unreasonable barriers to entry in the future, a potential competitor

might have a legitimate antitrust claim. Nor is this to say that the future competitiveness of the

market lacks protection if 3M chooses to impose monopolist prices down the road. Aggrieved

retailers would have standing to sue for treble damages if that occurred. See Indeck, 250 F.3d at 977

(“[A]s the direct victim of the alleged antitrust violation in this regard, [the customer] could

prosecute its own cause of action should it deem the actions of [the supplier] inappropriate.”). “The

existence of an identifiable class of persons whose self-interest would normally motivate them to

No. 05-3431 NicSand, Inc. v. 3M Company Page 11

vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more

remote party such as the [plaintiff] to perform the office of a private attorney general. Denying the

[plaintiff] a remedy on the basis of its allegations in this case is not likely to leave a significant

antitrust violation undetected or unremedied.” Associated Gen. Contractors, 459 U.S. at 542

(footnote omitted).

But to allow this litigation to continue on these allegations is to allow one monopolist to sue

a competitor for seizing its market position by charging less for its goods. NicSand took advantage

of the very same exclusivity it now attacks to charge prices that made it vulnerable to 3M’s offers

in the first place. If 3M does the same by charging excessive prices itself, it will expose itself either

to competition or to a legitimate antitrust complaint from retailers or excluded competitors. But

until then, as the district court rightly concluded, NicSand has suffered no antitrust injury, and until

then NicSand has no antitrust standing to bring this case.

The dissent worries that our decision will drive out all but the “omniscient [antitrust]

plaintiffs that happen to know every relevant factual detail before the inception of litigation.”

Dissent at 15. That is not true, and there is no reason this decision should have any such effect. The

key failing in NicSand’s complaint is not that it has too few details but that it has too many. While

we must accept all of a claimant’s allegations as true at this stage of a case, that does not mean we

must ignore those allegations when they defeat the claim and when they show the claimant is doing

nothing more than invoking the antitrust laws to protect a competitor, not competition. See

Brunswick, 429 U.S. at 488. In considerable detail, NicSand’s amended complaint explained the

market for do-it-yourself automotive sandpaper, see Am. Compl. ¶¶ 25, 46, 47, 48, 51, explained

that the relevant retailers demanded exclusivity by refusing to stock more than one brand of the

sandpaper at a time, see id. ¶ 47, explained that the relevant retailers had “de facto” one-year

exclusive agreements with their suppliers, see id. ¶ 25, explained how all of the relevant retailers

demanded up-front payments before they would switch suppliers, see id. ¶¶ 21, 30, 32, 35,

highlighted NicSand’s domination of that market under these precise conditions, see id. ¶ 15,

detailed the 38–49% profit margins NicSand earned before 3M entered the picture (presumably to

enhance NicSand’s request for treble damages), see id. ¶¶ 22, 31, 33, 36, and spelled out the amounts

of the up-front discounts that 3M offered four of the retailers, see id. ¶¶ 21, 30, 32, 35.

Confirming what the details in its amended complaint showed, NicSand disclaimed in its

response to the Rule 12(b)(6) motion that 3M had engaged in predatory pricing or illegal tying.

When “the complaint itself gives reasons” to doubt plaintiff’s theory, Bell Atl., 127 S. Ct. at 1972,

and when later pleadings confirm those doubts, it is not our task to resuscitate the claim but to put

it to rest. Nothing prevents a plaintiff from pleading itself out of court, which is all that happened

here.

The dissent suggests that we can resuscitate this claim by returning to NicSand what it has

given away—a predatory-pricing claim. When a party concedes that it is not bringing a claim,

however, no purpose of Rule 12(b)(6) is served by overlooking the concession, and there is nothing

“misleading,” Dissent at 16, about reading and accepting the concession. Plainly and simply, the

company acknowledged that “NicSand’s Amended Complaint Is Not Premised On Predatory

Pricing.” JA 132; Reply Br. at 6. The plaintiff remains the master of its complaint, and when it says

that it is not bringing a predatory-pricing claim, we should take it at its word.

Nor, to be fair to NicSand’s counsel, was this an unusual concession to make. “[P]redatory

pricing schemes are rarely tried, and even more rarely successful.” Matsushita Elec. Indus., 475

U.S. at 589. Success requires not just below-cost pricing but a product market that will allow the

would-be monopolist to raise prices later without the threat of new market entrants. Id. at 591 n.15.

NicSand, in short, had ample reasons for conceding that 3M did not engage in a predatory-pricing

scheme, and we should accept the concession.

No. 05-3431 NicSand, Inc. v. 3M Company Page 12

The claim also cannot be revived based on the allegation that retail prices have risen a total

of 70% since NicSand left the market. Dissent at 21. An allegation about retail prices in the

context of a case against a supplier does not by itself show that the supplier engaged in

anticompetitive conduct and does not show that NicSand’s injury “flows from that which makes

[3M’s] acts unlawful.” Brunswick, 429 U.S. at 489. Res ipsa loquitur is not a theory of antitrust

injury, and it surely is not one after the Supreme Court’s decision in Bell Atlantic, which set out to

eliminate this kind of loose antitrust pleading. Just as in Bell Atlantic, where the Court held that,

“[w]ithout more, parallel conduct does not suggest conspiracy,” 127 S. Ct. at 1966, so here: a price

increase by retailers, without more, does not suggest anticompetitive behavior by suppliers.

NicSand’s speculations show at most the “possibility” of an entitlement to relief, id., which is just

what Bell Atlantic said would not suffice at the pleading stage, id. (requiring “allegations plausibly

suggesting (not merely consistent with)” an entitlement to relief). While it is assuredly true that Bell

Atlantic “in fact makes simpler the task before us in this case” than it was before the Supreme

Court’s decision, Dissent at 15, it is hard to see how that decision makes it “simpler” to rule in the

plaintiff’s favor, as the dissent contends, id.

The dissent adds that “[i]t is not the appropriate response under the law to answer

anticompetitive conduct with more anticompetitive conduct,” suggesting that the only way NicSand

could have responded to 3M’s courtship of NicSand’s customers over a four-year period would be

to compete illegally. Id. at 18. But why compete illegally if, as NicSand’s amended complaint says,

it had 38–49% margins before 3M entered the competitive picture? Such profits surely left NicSand

negotiating options over a four-year period between competing illegally and invoking the antitrust

laws to preserve these margins.

The dissent expresses skepticism about our decision in Indeck, relying on a commentator

who has questioned the decision. See id. at 18 n.8. But no party to this case, as we have noted, has

asked us to reconsider Indeck. And, what is more, the central criticism leveled by the commentator

concerns the statement in Indeck upon which the dissent principally relies, id. at 12—Indeck’s

requirement that the antitrust plaintiff must show the “elimination of a superior product or a lower-

cost alternative,” Indeck, 250 F.3d at 977; see Ronald W. Davis, Standing on Shaky Ground: The

Strangely Elusive Doctrine of Antitrust Injury, 70 Antitrust L.J. 697, 747–48 (2003). As we have

explained, Maj. Op. at 10, Indeck’s injury-to-the-market language need not detain us here because

it is at most a necessary, but not a sufficient, condition for proving antitrust standing. See Indeck,

250 F.3d at 977 (A competitor plaintiff “must at least allege” injury to the market.) (emphasis

added). And NicSand cannot meet another necessary requirement—that it suffered an antitrust

injury, as opposed to the ill effects of price competition, which understandably “hurts,” Dissent at

16, but which does not by itself state a cognizable antitrust claim. See Maj. Op. at 10. Otherwise,

every time an allegedly “superior product or a lower-cost alternative” was eliminated from the

market by competition, the producer of that product would have antitrust standing. That is not what

Indeck said or did.

III.

For these reasons, we affirm.

No. 05-3431 NicSand, Inc. v. 3M Company Page 13

_________________

DISSENT

_________________

BOYCE F. MARTIN, JR., Circuit Judge, dissenting, joined by Judges Daughtrey, Cole, and

Clay. In a recent dissent, Justice Stevens wrote nostalgically about times gone by, when most “high-

speed driving took place on two-lane roads rather than on superhighways” and “when split-second

judgments about the risk of passing a slow-poke in the face of oncoming traffic were routine.” Scott

v. Harris, 127 S. Ct. 1769, 1782 n.1 (2007). There is a time I reflect upon nostalgically as well —

a time when monopoly was an evil targeted by Congress and guarded against by the antitrust laws

of the United States. See United States v. Von’s Grocery Co., 384 U.S. 270, 274 (1966). Since their

enactment, it has been the purpose of the federal antitrust laws to prevent the emergence of

entrenched monopoly power and “to perpetuate and preserve, for its own sake and in spite of

possible cost,” the existence of competition in industry. Id. at 275 n.7 (quoting United States v.

Aluminum Co. of America, 148 F.2d 415, 429 (2d Cir. 1945) (Hand, J.)). Today, however, the

majority treats monopoly more as a board game than as an economic harm to the public. Because

I cannot read the antitrust laws so narrowly, I respectfully dissent.

I.

As noted by the majority, our main concern in this case is whether NicSand has sufficiently

alleged not only standing under Article III of the Constitution, but also standing under the antitrust

laws. To be sure, this is a more onerous task than that faced by most civil plaintiffs. Yet this task,

though challenging, should not be insurmountable. NicSand must allege more than mere economic

injury, for the antitrust laws were enacted for “the protection of competition, not competitors.”

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co.

v. United States, 370 U.S. 294, 320 (1962)). As the majority correctly notes, NicSand must show

that the injury it suffered is “of the type the antitrust laws were intended to prevent and [] flows from

that which makes defendants’ acts unlawful.” Id. at 489. That is, the injury “should reflect the

anticompetitive effect either of the violation or of anticompetitive acts made possible by the

violation.” Id. Despite what the majority holds today, NicSand has alleged that type of injury in

this case.

“The Supreme Court has articulated certain factors to be analyzed in determining whether

a plaintiff has established antitrust standing.” Indeck Energy Servs. v. Consumers Energy Co., 250

F.3d 972,976 (6th Cir. 2000) (citing Associated Gen. Contractors of Cal., Inc. v. California State

Council of Carpenters, 459 U.S. 519, 537-45 (1983)). Those factors include:

(1) the causal connection between the antitrust violation and harm to the plaintiff and

whether that harm was intended to be caused; (2) the nature of the plaintiff’s alleged

injury including the status of the plaintiff as consumer or competitor in the relevant

market; (3) the directness or indirectness of the injury, and the related inquiry of

whether the damages are speculative; (4) the potential for duplicative recovery or

complex apportionment of damages; and (5) the existence of more direct victims of

the alleged antitrust violation.

Id. (citations omitted). Moreover, “[a]ll five factors must be balanced, . . . with no one factor being

determinative.” Id. (citing Peck v. General Motors Corp., 894 F.2d 844, 846 (6th Cir. 1990)).

This case comes before us on appeal from the district court’s grant of 3M’s motion to

dismiss. The Supreme Court recently clarified the standard an antitrust plaintiff must satisfy at this

stage, holding that an antitrust plaintiff need only provide “a short and plain statement of the claim

showing that [he] is entitled to relief,” so that the defendant has “fair notice of what the . . . claim

No. 05-3431 NicSand, Inc. v. 3M Company Page 14

is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007)

(citations omitted).1 Although many commentators have intimated that Bell Atlantic represents a

significant departure from prior law, the decision in fact makes simpler the task before us in this

case.

In Bell Atlantic, the Court explained that “a plaintiff’s obligation to provide the grounds of

his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of

the elements of a cause of action will not do.” Id. at 1964-65 (internal quotation marks and citations

omitted). Thus, the key distinction is between a bare-bones complaint asserting only the elements

of a claim and a complaint asserting not only legal elements, but also facts to support those elements.

Courts are well-suited to distinguish between the two. Indeed, we do so all the time when reviewing

questions of fact, mixed questions of law and fact, and questions of law. It is not a controversial

assertion that, while a plaintiff need not assert detailed facts, a plaintiff must assert some facts.

“Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the

requirement of providing not only ‘fair notice’ of the nature of the claim, but also ‘grounds’ on

which the claim rests.” Id. at 1965 n.3 (citing 5 Wright & Miller § 1202, at 94, 95 (Rule 8(a)

“contemplates the statement of circumstances, occurrences, and events in support of the claim

presented” and does not authorize a pleader’s “bare averment that he wants relief and is entitled to

it”)). Thus, at the 12(b)(6) stage, “[f]actual allegations must be enough to raise a right to relief

above the speculative level, . . . on the assumption that all the allegations in the complaint are true

(even if doubtful in fact).” Id. at 1965 (citations omitted).

NicSand’s complaint establishes a right to relief above the speculative level. Notably,

NicSand has provided detailed factual allegations regarding the payments made by 3M to retailers,

the years in which exclusive contracts were entered, and the approximate duration of the contracts.

In particular, with regard to the duration of the exclusive contracts, NicSand has alleged a reasonable

basis for inferring that they will last a few years — to wit, that the retailers told NicSand that they

could not even discuss the possibility of doing business with NicSand for at least a few years. These

factual allegations must be taken as true. Potentially relevant information may be missing from the

complaint, but it is exactly this additional information that, with the benefit of discovery, may entitle

NicSand to relief. Yet following today’s decision, it is difficult to see how any antitrust

plaintiff—short of those few omniscient plaintiffs that happen to know every relevant factual detail

before the inception of litigation and without the benefit of discovery—will be able to overcome a

motion to dismiss. See Freightliner of Knoxville, Inc. v. DaimlerChrysler Vans, LLC, 484 F.3d 865,

874 (6th Cir. 2007) (“[Plaintiff]’s claims under the [Robinson-Patman Act] may well be highly

speculative, and discovery may well reveal that they are futile, but we cannot—nor can the district

court—make such a determination based on the pleadings alone.”).

II.

For a number of years, NicSand had a significant share of the market for do-it-yourself retail

automotive coated abrasives. NicSand sold its products through a handful of retailers and 3M was

its only competitor.2 Agreements between suppliers and retailers for these products lasted one year

in the de facto sense because retailers did not want to change their inventories mid-year. According

to NicSand’s complaint, 3M pushed retailers into a series of multi-year exclusive dealing

1

The Court made clear that Rule 8(a)’s liberal notice pleading standard applied to antitrust actions, Bell Atl.,

127 S. Ct. at 1964, and not Rule 9’s “‘heightened’ pleading standard,” id. at 1973 n.14.

2

The majority characterizes 3M as a “market entrant.” Maj. Op. at 14. Given that 3M, as NicSand’s only

competitor, had approximately 33% of the market in 1995, 3M is hardly a “market entrant.” See Complaint ¶ 8 (“In

1995, NicSand had approximately 67% of the DIY [do-it-yourself] retail automotive coated abrasives market.”).

No. 05-3431 NicSand, Inc. v. 3M Company Page 15

arrangements, excluding NicSand from the market. The terms of these exclusive agreements, and

their harm to consumers by the creation of a monopoly, form the crux of this case.

The new agreements drastically changed the market and were more than simply a

regurgitation of the old agreements with “slightly different terms.” Maj. Op. at 14. For one thing,

3M offered unprecedented substantial, up-front cash payments to retailers. For another, 3M

contractually guaranteed multi-year exclusivity with retailers, cutting NicSand out of the market for

an extended period of time. 3M pushed retailers, including NicSand’s clients, into the exclusive

agreements.

First, let us focus on 3M’s up-front cash payments. Using figures provided in the complaint,

we are presented with the following picture for each of the four relevant big retailers:

1. Kmart: In 1996, NicSand’s sales to Kmart were $475,000 per year and its profits were

$180,000 per year. In 1997, 3M executed a contract with Kmart which provided for a

payment “in excess of $300,000.” This payment is equal to approximately 63% of

NicSand’s3sales to Kmart and 167% of NicSand’s annual profits on sales to Kmart from the

prior year.

2. Advance Auto: In 1997, NicSand’s sales to Advance Auto were $550,000 and its profits

were $272,000. In 1998, 3M executed a contract with Advance Auto which provided for a

payment of “over $285,000.” This payment is equal to approximately 52% of NicSand’s

sales to Advance Auto and 105% of NicSand’s annual profits on sales to Advance Auto from

the prior year.

3. CSK: In 1997, NicSand’s sales to CSK were $369,000 and its profits were $164,000. In

1998, 3M executed a contract with CSK which provided for a payment of “over $200,000.”

This payment is equal to approximately 54% of NicSand’s sales to Kmart and 122% of

NicSand’s annual profits on sales to CSK from the prior year.

4. AutoZone: In 1999, NicSand’s sales to AutoZone were $2,200,000 and its profits were

$865,000. In 2000 and 2001, 3M executed a contract with AutoZone which provided for a

payments totaling “over $1,000,000.” The annual value of these payments ($500,000) is

equal to approximately 23% of NicSand’s sales to AutoZone and 58% of NicSand’s annual

profits on sales to AutoZone from the prior year.

Complaint ¶¶ 21, 30, 32, 35.

As these numbers demonstrate, 3M’s cash payments exceeded NicSand’s profits from the

prior year for three of the retailers. In other words, from 1997 through 2000, 3M signed agreements

with three retailers, the terms of which NicSand could not possibly match on an individual basis

without selling below cost — an action that may have given 3M a cause of action under the Sherman

Act. See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1074 (2007).

If sales coupled with substantial up-front cash payments to those retailers would have

resulted in a loss for NicSand, then it is a reasonable inference that they may have been below cost

for 3M as well. However, it is obvious that without discovery NicSand would have had no way of

3

According to NicSand’s complaint, in addition to providing this up-front payment, 3M also agreed to pay the

cost of buying out Kmart’s stock of NicSand do-it-yourself retail automotive coated abrasives, thus increasing the

amount that 3M paid to secure Kmart’s exclusive business. Complaint ¶ 27. Although buying out a competitor’s stock

was the traditional practice during annual line reviews, it is unclear from the complaint whether 3M also bought out

NicSand’s remaining stock from the other three big-box retailers when it obtained its multi-year exclusive dealing

agreements with them.

No. 05-3431 NicSand, Inc. v. 3M Company Page 16

knowing with certainty 3M’s production or other overhead costs. It is telling that, in its

memorandum in support of its motion to dismiss, 3M noted that NicSand had made “no allegation

regarding how [NicSand] purports to measure 3M’s costs.” JA 83. This is the very purpose of

discovery in a civil case. It simply cannot be that a business must know everything about its

competitors before bringing suit in an antitrust case. After all, a business that knows everything

about its competitors is likely to dominate them, rather than fall prey to them, as NicSand did here.

The majority is quick to point out that “NicSand concedes that 3M did not engage in any

form of predatory pricing.” Maj. Op. at 12 (citing JA 132 and Reply Br. 6). This assertion is

misleading. In saying that its complaint is not based on “predatory pricing,” NicSand is simply

stating that 3M’s conduct is not premised on the type of conduct typically referred to as “predatory

pricing,” that is, the pricing of an individual item below the cost of its production. Cf. Black’s Law

Dictionary 1215 8th ed. 2004 (defining “predatory pricing” as “[u]nlawful below-cost pricing

intended to eliminate specific competitors and reduce overall competition.”). In other words,

NicSand’s allegations do not pertain to the price terms offered by 3M but rather to the

unprecedented and unusually large up-front cash payments used by 3M to secure exclusive-dealing

agreements. JA 132-134 & n.10. While NicSand did not use the magic words “predatory pricing”

in its complaint, the allegations that 3M charged competitive prices and offered substantial, up-front

payments, negating any possible profits, amounts to the same thing. Thus, the conduct alleged by

NicSand, a form of predatory pricing, is still predatory conduct that hurts, and in this case

eliminated, competition. See id. at 133 n.10. As NicSand aptly notes in its response to 3M’s motion

to dismiss, “[t]he point is not that 3M’s supracompetitive payments crossed the predatory pricing

line, but that they were part and parcel of a different, but equally insidious, form of predatory,

anticompetitive, conduct.” Id.

In fact, the majority, when defending the multi-year terms of 3M’s agreements, seems to

acknowledge that 3M effectively sold below cost. The majority explains that it would be easier for

a supplier such as 3M to gain a foothold in the market “when it is given several years, rather than

just one, to recoup this investment.” Maj. Op. at 14. The “investment” that 3M would “recoup” is

the loss it took by offering substantial, up-front payments. Those payments, upon further discovery,

might be revealed to have effectively amounted to below-cost pricing. Cf. Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 589 (1986) (“The success of any predatory scheme

depends on maintaining monopoly power for long enough both to recoup the predator’s losses and

to harvest some additional gain.”).

Perhaps recognizing that NicSand would have lost money had it offered matching lump-sum

payments to three out of the four retailers, 3M asks this court to compare NicSand’s aggregate

profits from four individual retailers in four individual years (Kmart in 1996, Advance Auto in 1997,

CSK in 1997, and AutoZone in 1999) to the aggregate of 3M’s payments over a later four-year

period (1997-2000). By aggregating in this manner, 3M attempts to gloss over the fact that NicSand

would have had to have sold below cost to three out of the four retailers. This approach asks us to

read NicSand’s complaint in the light most favorable to 3M. Nevertheless, even under that improper

approach, there is a small margin for error. According to 3M, the aggregate data for NicSand would

yield a profit margin of merely five percent — a meager profit indeed.4

The poor quality of the data at issue makes this potential five percent profit margin hinge on

several levels of assumptions, which could be—or could not be—confirmed through discovery. To

4

3M arrives at this profit margin by first adding NicSand’s annual sales and profits from each of the four

retailers in the four individual years, which amounts to $3,594,000 in sales and $1,481,000 in profits. 3M then takes the

total annual value of its four lump-sum payments made in the individual years to be $1,285,000 (3M divides its payment

to AutoZone in half). 3M then subtracts $1,285,000 from $1,481,000 to arrive at a total profit of $196,000, which, when

divided by sales of $3,594,000, yields a profit margin of approximately 5%. Appellee Supp. Br. at 8-9 n.4.

No. 05-3431 NicSand, Inc. v. 3M Company Page 17

be sure, on this record, we have little choice but to compare profit data for NicSand’s last year with

a particular retailer to the amount of 3M’s up-front payment to that retailer in the subsequent year.

That is the best we can do because NicSand was eliminated from the market, and therefore was not

around long enough to develop its own profit data in the later years. But when we aggregate this

data, we are forced to use 3M’s assumptions about how well NicSand might have performed in the

market with respect to individual retailers in years after 3M secured contracts with them, and to

compare those assumptions with the actual payments made by 3M. Moreover, the data fails to

account either for inflation or for any line of credit NicSand may have had, such that the estimated

profit margin may contain significant inaccuracy. And, the data also fails to account for the fact that

these agreements were made in secret, thereby depriving NicSand of an opportunity to compete by

offering comparable deals. In order to avoid elimination from the market, NicSand not only would

have had to match 3M’s payments, but also presumably would have had to pay the cost of inducing

a retailer to breach its exclusive contract with 3M. In contrast, 3M did not have to bear that cost

because the exclusivity of the prior agreements was merely de facto — retailers could switch at any

time without penalty.

Given the multiple levels of uncertainty incorporated into 3M’s analysis, it is impossible to

tell how accurate or solid that predicted profit margin is, or whether, indeed, NicSand would have

lost money in the aggregate. That realization is more troubling in light of the obviously sequential

conduct that took place in this case. 3M acquired three retailers over a series of years, each time

employing allegedly anticompetitive agreements. Only in the final year, when NicSand was already

on its last legs, was 3M able to recoup its losses on its deals with the other three retailers by securing

a more favorable agreement with AutoZone. Given our duty to read the facts in the light most

favorable to NicSand in this case, it is simply impossible to conclude that these agreements were not

anticompetitive.5

In addition to downplaying the importance of 3M’s substantial up-front payments, the

majority is also untroubled by the exclusivity of the agreements or the agreements’ multi-year terms.

The majority claims that the type of exclusivity demanded by 3M is the same type of exclusivity that

retailers demanded prior to 3M’s market dominance. But according to NicSand’s complaint, under

the retailers’ pre-1997 rules, exclusivity lasted no longer than the completion of one purchase order.

Retailers were free to switch suppliers from one purchase order to the next. See Complaint ¶ 25

(“[R]etailers would typically not change suppliers other than at the time of their annual line review.”

(Emphasis added)). A retailer carrying 3M’s products was free to suddenly solicit NicSand’s line

of products. Or alternatively, a retailer was free to do what Pep Boys did — carry both suppliers’

lines simultaneously. Although it appears that in reality, retailers opted to stick with one supplier

for a full year, these agreements were, at most, “de facto” exclusive in the sense that once a retailer

decided to receive its inventory from one supplier, it was unlikely to switch suppliers for one year.

Thus, while an individual retailer perhaps wisely chose to keep one supplier’s product on its shelves

for a period of one year, that retailer was simply not contractually bound to do so. There were no

actual “exclusive dealing agreements” prior to 1997. Rather, there were four retailers choosing an

economically reasonable course of business, and two suppliers competing fairly for that business.6

And even so, agreements with suppliers were reconsidered every year during annual line reviews.

5

3M also asks us to make another profits calculation by spreading each of the four payments and profits over

two years, which would yield a higher profit margin of 16%. Appellee Supp. Br. at 8-9 n.4. The majority goes even

farther, claiming that under another unspecified methodology, NicSand still could have had profit margins of 17%-39%.

Maj. Op. at 15. For the reasons already stated above, I believe that in light of the flaws already inherent in the

methodology discussed above, any such calculations would be excessively speculative at best and would require us to

misconstrue NicSand’s complaint in 3M’s favor.

6

Nor does the complaint state that the retailers were contemplating multi-year contracts or enacting any change

in the market. All changes in the market were a direct result of 3M’s conduct.

No. 05-3431 NicSand, Inc. v. 3M Company Page 18

Under this system, although NicSand may have been the more successful competitor in the market

for a time, it alleges its success was owed to its “superior marketing, superior packing, innovation,

and superior value,” id. ¶ 11, not to anticompetitive practices.

Contrary to the majority’s averments, NicSand should not have sought multi-year

arrangements with retailers like 3M did. It is not the appropriate response under the law to answer

anticompetitive conduct with more anticompetitive conduct. Moreover, in a battle for a monopoly

between NicSand and 3M, it is hard to imagine how NicSand could have prevailed. Given the

choice between a certain amount of money in one up-front payment or in installments over several

years, any reasonable retailer would have chosen the former. That is simply time-value-of-money

economics. 3M is a manufacturing powerhouse that obviously had the ability to subsidize its

operations in the do-it-yourself-retail-automotive-coated-abrasives market with revenues from other

sectors.7 NicSand, in contrast, may not have had the capital to match 3M’s substantial up-front

payments and may not have been able to do so without selling below cost. The majority opinion

lacks a certain real-world understanding of the relative positions of the two companies at issue in

this case.

In sum, under a plausible reading of NicSand’s complaint, 3M did the following. First, it

offered retailers unprecedented and substantial up-front payments — payments that may have, in

effect, been a form of below-cost pricing. 3M executed contracts with retailers that gave 3M

exclusivity for several years in order to guarantee 3M time to recoup any losses. This multi-year

exclusivity, when paired with its agreements with other retailers, also gave 3M a large enough share

of the market such that its sole competitor, NicSand, would no longer be able to stay afloat. These

agreements guaranteed 3M a monopoly in the do-it-yourself-retail-automotive-coated-abrasives

market. NicSand’s allegations of 3M’s anticompetitive conduct are further bolstered by the fact that

NicSand was forced into bankruptcy, id. ¶ 43, 3M now controls almost 100% of the market share,

id. ¶ 67, and prices for these products have risen by 70% since NicSand left the market, id. ¶ 63. As

discussed below, with this monopoly now established, 3M no longer has to worry about keeping a

superior and diverse product line or keeping its prices low.

III.

In Indeck, we explained that in a case where a competitor sues another competitor for an

alleged antitrust violation, the plaintiff “must at least allege that [its] exclusion . . . from the

marketplace results in the elimination of a superior product or a lower-cost alternative.” 250 F.3d

at 977.8 Since this case comes before us at the 12(b)(6) stage, we must focus on NicSand’s

particular allegations of harm to the market. To do so, we need look only to NicSand’s complaint,

which alleges, in pertinent part:

11. [The growth in NicSand’s market share] between 1987 and 2000 in DIY retail

automotive coated abrasives was fueled primarily by NicSand’s superior marketing,

superior packaging, innovation, and superior value. NicSand acquired and retained

7

Any good lawyer knows the value of Post-It Notes and Tabs. See, e.g., LePage’s, Inc. v. 3M, 324 F.3d 141,

157 (3d Cir. 2003)(finding ample evidence that 3M used exclusive agreements to entrench its monopoly over transparent

tape); see also N.J. Wood Finishing Co. v. Minn. Mining & Mfg. Co., 332 F.2d 346, 348 (3d Cir. 1964) (“3M [is] a highly

diversified company, manufacturing and selling a number of product lines and segments.”)

8

One commentator has noted that the continuing validity of Indeck as a correct application of the Supreme

Court’s five-factor test has been called into question by later cases. See Ronald W. Davis, Standing on Shaky Ground:

The Strangely Elusive Doctrine of Antitrust Injury, 70 Antitrust L. J. 697, 748 n.184 (2002-2003) (“In . . . Conwood [Co.

v. United States Tobacco Co., 290 F.3d 768 (6th Cir. 2002)], the court alluded to no requirement that the plaintiff’s snuff

had to taste better, or cost less, than the defendant monopolist’s snuff.”); see also id. at 737-43, 747-48 (criticizing the

Sixth Circuit’s precedent on the question of what a competitor must establish to show antitrust injury).

No. 05-3431 NicSand, Inc. v. 3M Company Page 19

its share of that market by offering better value than its competitors, providing on-

time delivery, instituting innovative programs designed to assist DIY retailers in

increasing their volume and profitability in the DIY retail automotive coated

abrasives market, offering more products in less space, offering flexible payment

terms, packaging each of its products in a manner consistent with that product’s

market orientation, and, creating new specialty products at the request of customers.

63. As a result of 3M’s attempted monopolization and/or monopolization of the

market for DIY retail automotive coated abrasives, consumer prices for DIY retail

automotive coated abrasives have risen significantly, in some cases, as much as 70%.

64. As a result of 3M’s attempted monopolization and/or monopolization of the

market for DIY retail automotive coated abrasives, the number of available DIY

retail automotive coated abrasives products available for purchase by consumers has

dropped by as much as half, from approximately eighty to approximately forty.

69. Consumers have suffered as a result of 3M’s unlawful monopolization of the

DIY retail automotive coated abrasives market, as prices have increased and

selection has decreased substantially since 3M established its monopoly.

Under a fair reading of the quoted paragraphs, NicSand has met Indeck’s requirements. First, it has

alleged that its products were superior to 3M’s products. Given that “superior” is a comparative

term and that 3M was NicSand’s only competitor during the relevant period, see Complaint ¶ 12

(“NicSand’s only competitor in the DIY retail automotive coated abrasives market during the period

1987 to 2000 was 3M.”), NicSand’s complaint could only have been alleging that its products were

superior to 3M’s. NicSand claimed superiority in several senses: “superior marketing, superior

packing, innovation, and superior value.” Id. ¶ 11; see also id. ¶ 58 (“3M did not offer a superior

product, superior pricing, or superior service.”).

The majority complains, however, that what NicSand offers us is simply “an unelaborated

claim that it provides better service than its competitors.” Maj. Op. at 21. Neither 12(b)(6) nor

Indeck requires much, if any, further elaboration. Nevertheless, NicSand does in fact explain what

it means, noting that it provided better value, on-time delivery, and “innovative programs designed

to assist DIY retailers in increasing their volume and profitability in the DIY retail automotive

coated abrasives market, offering more products in less space.” Complaint ¶ 11. NicSand also touts

its flexible payment terms, packaging, and perhaps most importantly, its “creat[ion of] new specialty

products at the request of customers.” Id. In addition to the allegation of superior products and

service, NicSand also alleges that since 3M established its monopoly, the selection of products has

decreased substantially. Id. ¶ 64, 69. Thus, NicSand has alleged a decrease not only in product

quality, but also in market diversity. While NicSand certainly could have alleged that its sandpaper

had a better coefficient of friction than 3M’s, or something else to similar effect, NicSand does not

need to supply such detailed factual information at the pleading stage, without the benefit of

discovery.

NicSand has also alleged that since its departure from the market, “consumer prices for DIY

retail automotive coated abrasives have risen significantly, in some cases, as much as 70%.” Id. ¶

63; see also id. ¶ 69 (“[P]rices have increased . . . since 3M established its monopoly.”). NicSand

has sufficiently alleged that its exclusion has “result[ed] in the elimination of . . . a lower-cost

alternative,” which in turn “ indicat[es] that competition itself was harmed by” 3M’s conduct.

Indeck, 250 F.3d at 977 (emphasis in original). In other words, as a result of 3M eliminating its only

competitor through a series of exclusive dealing contracts, competition was lessened, and prices

increased as a result. And indeed, price increases of this magnitude certainly injure consumers. This

type of problem goes to the heart of what the antitrust laws were designed to prevent. Cf. Reiter v.

No. 05-3431 NicSand, Inc. v. 3M Company Page 20

Sonotone Corp., 442 U.S. 330, 342 (1979) (“The essence of the antitrust laws is to ensure fair price

competition in an open market.”).

Although the majority dispenses with these factual allegations by concluding that NicSand

has not alleged that 3M raised its prices, Maj. Op. at 6, it is a reasonable inference that at least some

portion of the 70% price increase could be due to 3M’s monopoly. The idea that the retailers might

be passing on some additional cost from 3M should not be controversial. Cf. Northwest Airlines v.

County of Kent, 510 U.S. 355, 376 (1994) (Thomas, J., dissenting) (“Any cost an airline bears is in

some sense an ‘indirect’ charge ‘on persons traveling in air commerce,’ because the airline

ultimately will pass that cost on to consumers in the form of higher ticket prices.”); Acadia Motors

v. Ford Motor Co., 44 F.3d 1050, 1056 (1st Cir. 1995) (“[I]t is quite commonplace for manufacturers

and other regulated entities to pass on to retailers and consumers their costs of complying with

regulatory statutes.”). Yet the majority believes this is not good enough, taking aim at NicSand for

not specifying that the apparent increase in prices was due to actions by 3M and not by retailers.

To dismiss this case on the pleadings on that basis defeats the whole point of notice pleading. When

retailers raise prices, they do not include on their price tags a footnote outlining their reasons. At

this point, before discovery, all NicSand can go by is what it sees in stores, and its allegations based

on those observations raise a reasonable inference that 3M has used its monopoly power to increase

prices. Nothing more should be required.

The majority apparently believes that NicSand has merely alleged that 3M’s conduct caused

the market to become less diversified, and argues that Indeck stands for the proposition that less

diversity in the marketplace, standing alone, is insufficient to establish antitrust standing. Maj. Op.

at 21. As discussed above, that is not all NicSand alleged in its complaint. However, assuming

arguendo that all NicSand has alleged is that the market has become less diverse, I would part ways

with the majority on its result because this “less diverse” market is now clearly a monopoly and the

facts, as alleged by NicSand, show that the special dangers inherent in monopoly power may exist

in this case. Von’s Grocery, 384 U.S. at 275, 277 & n.7.

Antitrust cases focus on exclusion from the relevant market, and the relevant market usually

has characteristics that pertain to the case at hand. Diversity is valuable in any marketplace, but

more so in some than in others. In Indeck, the relevant market was one for the commodity of electric

power. The relevant question about the diversity of the market was whether the exclusion of thermal

power from the market, in and of itself, was enough to establish antitrust standing. The Indeck court

apparently believed that it was not. However, the electric power market is entirely different from

the market at issue in this case. In most markets for electric power, it is not uncommon—given the

substantial start-up, maintenance, and regulatory costs of operating a power plant—for there to exist

long-term exclusive agreements with one producer. Cf. Tampa Electric Co. v. Nashville Coal Co.,

365 U.S. 320, 334 (1961) (upholding a 20-year requirements contract between a public utility and

a coal mining company, and noting that “at least in the case of public utilities the assurance of a

steady and ample supply of fuel is necessary in the public interest.”). But long-term, exclusive

contracts are obviously less essential in a retail-based market that supplies a product to consumers

that is hardly a necessary commodity, the production of which does not require as substantial an

investment of start-up capital as does a power plant, and that, as the majority quips, “does not take

any ingenuity to make.” Maj. Op. at 12. And, since prices of electricity are usually regulated in

some fashion by a governmental body, there is less risk of price gouging in those markets. Cf.

Hallie v. Eau Claire, 471 U.S. 34, 47 (1985) (“[T]here is little or no danger that [a city] is involved

in a private price-fixing arrangement.”). Moreover, Indeck focused on diversity in the source of

electric power. To the end user—that is, the consumer—a difference in source is not terribly

significant. Most consumers merely want reliable and affordable energy.

However, in the retail market, a 50% reduction in the variety of products is undoubtedly

meaningful. Different consumers desire different products for different needs. In a sense, diversity

No. 05-3431 NicSand, Inc. v. 3M Company Page 21

of products in the market for retail goods is a proxy for preserving the ability of consumers to choose

products that they deem superior or that cost less. In other words, to say that a reduction in

diversity does not reflect a reduction in the superiority of products or in the number of lower-cost

alternatives is to ignore the impact of consumers’ preferences. Those consumers who relied on the

forty products that have since disappeared from shelves may no longer have products that meet their

goals for the cost they are willing to pay (especially given the 70% increase in price since NicSand

was forced out of the market). This court, in essence, has decided on its own, without the benefit

of discovery, that consumers should not be able to choose what may be a “superior product.” This

court cannot make that decision, at least not at the motion-to-dismiss stage.9

The majority’s contention that there is no collective action problem in this case is also

problematical. It is quite unlikely that in this market, retailers are going to sue over a line of

sandpaper products, rather than simply pass the cost to consumers. It is a plausible inference from

NicSand’s complaint that this is what the retailers have done in this case, since retail prices allegedly

have risen seventy percent since NicSand’s exclusion from the market. Further, NicSand has

suffered substantial injury in this case, whereas the retailers, given the small size of the relevant

market, have suffered only marginal injury relative to their entire sales portfolios. Thus, they have

less motivation to bring suit against 3M, given litigation costs and the risk of hurting their

relationships with 3M, a company with substantial market presence across numerous product lines.

As the panel majority aptly noted:

the magnitude of the discounts (measured as a percentage of NicSand’s sales)

declined as 3M locked up a progressively larger share of the distribution market.

That is, as 3M seemed more likely to attain a monopoly position, the downstream

distributors demanded progressively smaller discounts—perhaps because they

expected NicSand to exit the market and hoped to assure themselves of some

discount (and not be the only one of the distributors not to have done so) before none

was available.

9

Neither the Indeck panel nor the majority in this case addressed our precedent’s “necessary predicate” test for

antitrust standing. I therefore will not address it in detail. I pause to note only that I believe the test is satisfied in this

case. The “necessary predicate” test was most recently examined by this court in In re Cardizem CD Antitrust Litigation,

332 F.3d 896 (6th Cir. 2003). There, plaintiffs, purchasers of a particular heart medication, sued the manufacturer of

the brand-name version of the drug and a manufacturer of a generic version of the drug, alleging that the former agreed

to pay the latter $40 million per year to delay introduction of its generic version. Defendants made an argument similar

to the one that 3M makes here: that plaintiffs failed to satisfy the necessary predicate test because even in the absence

of the contract, the generic manufacturer could have legally and unilaterally delayed introduction of the drug into the

market. Id. at 912. The In re Cardizem court rejected this logic, explaining that in the prior cases, “complaints were

dismissed for failure to allege antitrust injury because each of the defendants had taken an action that it was lawfully

entitled to take, independent of the alleged antitrust violation, which was the actual, indisputable, and sole cause of the

plaintiff’s injury.” Id. at 914. The court stated that “[t]he fact that [defendant] could have unilaterally, and legally,

decided not to bring its generic product to a manifestly profitable market ha[d] no relevance in assessing whether the

plaintiffs adequately alleged that the antitrust violation was the necessary predicate for their injury.” Id. at 915. The

court further observed:

[D]efendants’ position, if adopted, risks undermining a basic premise of antitrust law[:] . . . [that] in

many instances, an otherwise legal action — e.g. setting a price — becomes illegal if it is pursuant to

an agreement with a competitor. Under the defendants’ view, such an action would never cause

antitrust injury because a defendant could have unilaterally and legally set the same price.

Id. at 195 n.19.

The only issue in this case is whether the exclusive agreements at issue were anticompetitive and whether they

injured the market under the relevant precedent. Because they were and they did, there is nothing else at issue in this

case that suggests that 3M took any legal actions that were “the actual, indisputable, and sole cause of [NicSand]’s

injury.” Id. at 914. Accordingly, the “necessary predicate” test is satisfied here.

No. 05-3431 NicSand, Inc. v. 3M Company Page 22

NicSand, Inc. v. 3M Co., 457 F.3d 534, 546 n.8 (6th Cir. 2006), vacated by 2006 U.S. App. LEXIS

32342 (6th Cir. Nov. 22, 2006) (en banc). In essence, a collective action problem arose in this case

because each retailer’s choice to get on 3M’s bandwagon was profitable to that retailer in the short-

term and did not account for the potential long-term cost of a monopoly in the relevant market.

IV.

The majority seeks to characterize this case as one in which one company that had long

prospered in a particular niche market became lazy and fell victim to a more vigorous competitor

that simply played the game of business more effectively. While NicSand may have once been the

dominant competitor, that former status can neither legalize 3M’s anticompetitive business practices

nor make 3M immune from antitrust suit. Yes, NicSand was 3M’s competitor, and yes, it obviously

fell prey to 3M’s tactics. However, 3M now holds a monopoly over the market, products have been

eliminated and prices have correspondingly risen by seventy percent. The question here is whether

the tactics 3M employed to attain that status were legal and whether NicSand is an adequate

representative of the market’s interests in this suit. Contrary to the majority’s contentions, at this

stage of the case, it is impossible to conclude that NicSand has failed to meet its burden. The

dangers of monopoly are well-recognized in our law, see Von’s Grocery Co., 384 U.S. at 274-75,

and I believe the majority has improperly turned a blind eye to them in this case.

Accordingly, I respectfully dissent.