Lepages Inc v. MN Mining Mfg Co

Opinions of the United

2003 Decisions States Court of Appeals

for the Third Circuit

3-25-2003

Lepages Inc v. MN Mining Mfg Co

Precedential or Non-Precedential: Precedential

Docket 00-1368

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Volume 1 of 2

PRECEDENTIAL

Filed March 25, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 00-1368 and 00-1473

LEPAGE’S INCORPORATED; LEPAGE’S MANAGEMENT

COMPANY, L.L.C.,

Appellees/Cross-Appellants

v.

3M (MINNESOTA MINING AND MANUFACTURING

COMPANY); KROLL ASSOCIATES, INC.

Minnesota Mining and Manufacturing Company,

Appellant/Cross-Appellee

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civ. No. 97-03983)

District Judge: The Honorable John R. Padova

Argued July 12, 2001

BEFORE: SLOVITER, ALITO, and GREENBERG, Circuit Judges

Reargued En Banc October 30, 2002

BEFORE: BECKER, Chief Judge, SLOVITER, SCIRICA,

NYGAARD, ALITO, McKEE, AMBRO, FUENTES, SMITH

and GREENBERG, Circuit Judges

(Filed: March 25, 2003)

2

Barbara W. Mather

Jeremy Heep

Pepper Hamilton LLP

18th & Arch Street

3000 Two Logan Street

Philadelphia, PA 19103-2799

Peter Hearn

Peter Hearn, P.C.

519 Pine Street

Philadelphia, PA 19106

Mark W. Ryan

Kerry Lynn Edwards

Donald M. Falk

Robert L. Bronston

David A.J. Goldfine

Mayer, Brown, Rowe & Maw

1909 K. Street, N.W.

Washington, D.C. 20006-1101

Roy T. Englert, Jr. (Argued)

Robbins, Russell, Englert,

Orseck & Untereiner

1801 K. Street, N.W.

Suite 411

Washington, D.C. 20006

Attorneys for Appellees/Cross-

Appellants

M. Laurence Popofsky (Argued)

Stephen V. Bomse

Paul Alexander

Marie L. Fiala

Heller Ehrman White & McAuliffe

333 Bush Street

Suite 3320

San Francisco, CA 94104

3

John G. Harkins, Jr.

Harkins Cunningham

2005 Market Street

2800 One Commerce Square

Philadelphia, PA 19103

Attorneys for Appellant/Cross-

Appellee

OPINION OF THE COURT

SLOVITER, Circuit Judge, with whom Becker, Chief Judge,

Nygaard, McKee, Ambro, Fuentes, and Smith, Circuit

Judges, join:

Minnesota Mining and Manufacturing Company (“3M”)

appeals from the District Court’s order entered March 14,

2000, declining to overturn the jury’s verdict for LePage’s in

its suit against 3M under Section 2 of the Sherman Act

(“§ 2”). 3M raises various objections to the trial court’s

decision but essentially its position is a legal one: it

contends that a plaintiff cannot succeed in a § 2

monopolization case unless it shows that the conceded

monopolist sold its product below cost. Because we

conclude that exclusionary conduct, such as the exclusive

dealing and bundled rebates proven here, can sustain a

verdict under § 2 against a monopolist and because we find

no other reversible error, we will affirm.

I.

FACTUAL BACKGROUND

3M, which manufactures Scotch tape for home and office

use, dominated the United States transparent tape market

with a market share above 90% until the early 1990s. It

has conceded that it has a monopoly in that market.

LePage’s,1 founded in 1876, has sold a variety of office

1. The plaintiffs in this action are LePage’s Incorporated and LePage’s

Management Company, L.L.C. Inasmuch as we can discern no

distinction between their interests, we refer to them jointly as LePage’s.

4

products and, around 1980, decided to sell “second brand”

and private label transparent tape, i.e., tape sold under the

retailer’s name rather than under the name of the

manufacturer. By 1992, LePage’s sold 88% of private label

tape sales in the United States, which represented but a

small portion of the transparent tape market. Private label

tape sold at a lower price to the retailer and the customer

than branded tape.

Distribution patterns and consumer acceptance

accounted for a shift of some tape sales from branded tape

to private label tape. With the rapid growth of office

superstores, such as Staples and Office Depot, and mass

merchandisers, such as Wal-Mart and Kmart, distribution

patterns for second brand and private label tape changed

as many of the large retailers wanted to use their “brand

names” to sell stationery products, including transparent

tape. 3M also entered the private label business during the

early 1990s and sold its own second brand under the name

“Highland.”

LePage’s claims that, in response to the growth of this

competitive market, 3M engaged in a series of related,

anticompetitive acts aimed at restricting the availability of

lower-priced transparent tape to consumers. It also claims

that 3M devised programs that prevented LePage’s and the

other domestic company in the business, Tesa Tuck, Inc.,

from gaining or maintaining large volume sales and that 3M

maintained its monopoly by stifling growth of private label

tape and by coordinating efforts aimed at large distributors

to keep retail prices for Scotch tape high.2 LePage’s claims

that it barely was surviving at the time of trial and that it

suffered large operating losses from 1996 through 1999.

LePage’s brought this antitrust action asserting that 3M

used its monopoly over its Scotch tape brand to gain a

competitive advantage in the private label tape portion of

the transparent tape market in the United States through

the use of 3M’s multi-tiered “bundled rebate” structure,

2. It appears that at least at the times material to this action, there were

no other domestic manufacturers of transparent tape. There were,

however, foreign manufacturers but they did not play a significant role

in the domestic market and 3M does not contend otherwise.

5

which offered higher rebates when customers purchased

products in a number of 3M’s different product lines.

LePage’s also alleges that 3M offered to some of LePage’s

customers large lump-sum cash payments, promotional

allowances and other cash incentives to encourage them to

enter into exclusive dealing arrangements with 3M.

LePage’s asserted claims for unlawful agreements in

restraint of trade under § 1 of the Sherman Act,

monopolization and attempted monopolization under § 2 of

the Sherman Act, and exclusive dealing under § 3 of the

Clayton Act. After a nine week trial, the jury returned its

verdict for LePage’s on both its monopolization and

attempted monopolization claims under § 2 of the Sherman

Act, and assessed damages of $22,828,899 on each. It

found in 3M’s favor on LePage’s claims under § 1 of the

Sherman Act and § 3 of the Clayton Act. 3M filed its

motions for judgment as a matter of law and for a new trial,

arguing that its rebate and discount programs and the

other conduct of which LePage’s complained did not

constitute the basis for a valid antitrust claim as a matter

of law and that, in any event, the court’s charge to the jury

was insufficiently specific and LePage’s damages proof was

speculative.3 The District Court granted 3M’s motion for

judgment as a matter of law on LePage’s “attempted

maintenance of monopoly power” claim but denied 3M’s

motion for judgment as a matter of law in all other respects

and denied its motion for new trial. LePage’s Inc. v. 3M, No.

CIV. A.97-3983, 2000 WL 280350 (E.D. Pa. Mar. 14, 2000).

The Court subsequently entered a judgment for trebled

damages of $68,486,697 to which interest was to be added.

LePage’s filed a cross appeal on the District Court’s

judgment dismissing its attempted maintenance of

monopoly power claim.

On appeal, the panel of this court before which this case

was originally argued reversed the District Court’s

judgment on LePage’s § 2 claim by a divided vote. LePage’s

Inc. v. 3M, Nos. 00-1368 and 00-1473 (3d Cir. Jan. 14,

2002). This court granted LePage’s motion for rehearing en

3. 3M unsuccessfully had moved for a judgment as a matter of law at the

close of LePage’s case and after the close of the entire case.

6

banc and, pursuant to its practice, vacated the panel

opinion. LePage’s Inc. v. 3M, Nos. 00-1368 and 00-1473 (3d

Cir. Feb. 25, 2002) (order vacating panel opinion). The

appeal was then orally argued before the court en banc.

II.

JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction over this case

pursuant to 28 U.S.C. §§ 1331 and 1337(a) because

LePage’s brought these claims under the Sherman and

Clayton Acts. We have jurisdiction over this appeal

pursuant to 28 U.S.C. § 1291.

We exercise plenary review over an order granting or

denying a motion for judgment as a matter of law. Shade v.

Great Lakes Dredge & Dock Co., 154 F.3d 143, 149 (3d Cir.

1998). When, as here, a defendant makes such a motion, a

court should grant it “only if, viewing the evidence in the

light most favorable to the nonmovant and giving it the

advantage of every fair and reasonable inference, there is

insufficient evidence from which a jury reasonably could

find liability.” Lightning Lube, Inc. v. Witco Corp., 4 F.3d

1153, 1166 (3d Cir. 1993). Thus, we review the evidence on

the appeal in the light most favorable to LePage’s. As the

historical facts are not in sharp dispute, and our opinion

turns largely on legal determinations, we review questions

of law underlying the jury verdict on a plenary basis. Bloom

v. Consolidated Rail Corp., 41 F.3d 911, 913 (3d Cir. 1994).

Our review of a jury’s verdict is limited to determining

whether some evidence in the record supports the jury’s

verdict. See Swineford v. Snyder County, 15 F.3d 1258,

1265 (3d Cir. 1994) (“A jury verdict will not be overturned

unless the record is critically deficient of that quantum of

evidence from which a jury could have rationally reached

its verdict.”).

7

III.

MONOPOLIZATION — APPLICABLE LEGAL PRINCIPLES

Section 2 of the Sherman Act provides:

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the trade

or commerce among the several States, or with foreign

nations, shall be deemed guilty of a felony, and, on

conviction thereof, shall be punished by fine not

exceeding $10,000,000 if a corporation, or, if any other

person, $350,000, or by imprisonment not exceeding

three years, or by both said punishments, in the

discretion of the court.

15 U.S.C. § 2 (2002). A private party may sue for damages

for violation of this provision and recover threefold the

damages and counsel fees. Id. § 15.

Because this section is in sweeping language, suggesting

the breadth of its coverage, we look to the Supreme Court

decisions for elucidation of the standard to be used in cases

alleging monopolization. Elucidation came in United States

v. Grinnell Corp., 384 U.S. 563 (1966), where the Court

declared that a defendant company which possesses

monopoly power in the relevant market will be found in

violation of § 2 of the Sherman Act if the defendant willfully

acquired or maintained that power. Id. at 570-71.

In this case, the parties agreed that the relevant product

market is transparent tape and the relevant geographic

market is the United States.4 Moreover, as to the issue of

monopoly power, as we noted above, 3M concedes it

possesses monopoly power in the United States transparent

tape market, with a 90% market share. In fact, the evidence

showed that the household penetration of 3M’s Scotch-

4. Although 3M originally challenged LePage’s selection of the United

States as the relevant geographic market, the District Court held that

LePage’s had introduced sufficient evidence from which the jury could

properly find that the relevant geographic market is the United States

and 3M does not challenge that market definition on appeal.

8

brand tape is virtually 100%. Therefore we need not dwell

on the oft-contested issue of market power. See Robert

Pitofsky, New Definitions of Relevant Market and the

Assault on Antitrust, 90 Colum. L. Rev. 1805, 1807 (1990)

(“In monopoly enforcement under section 2 of the Sherman

Act, the pivotal inquiry is almost always whether the

challenged party has substantial market power in its

relevant market.”).

The sole remaining issue and our focus on this appeal is

whether 3M took steps to maintain that power in a manner

that violated § 2 of the Sherman Act. A monopolist willfully

acquires or maintains monopoly power when it competes on

some basis other than the merits. See Aspen Skiing Co. v.

Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32

(1985).

LePage’s argues that 3M willfully maintained its

monopoly in the transparent tape market through

exclusionary conduct, primarily by bundling its rebates and

entering into contracts that expressly or effectively required

dealing virtually exclusively with 3M, which LePage’s

characterizes as de facto exclusive. 3M does not argue that

it did not engage in this conduct. It agrees that it offered

bundled rebates and entered into some exclusive dealing

contracts, although it argues that only the few contracts

that are expressly exclusive may be considered as such.

Instead, 3M argues that its conduct was legal as a matter

of law because it never priced its transparent tape below its

cost.5

This is the most significant legal issue in this case

because it underlies 3M’s argument. In its brief, 3M states

“[a]bove-cost pricing cannot give rise to an antitrust offense

as a matter of law, since it is the very conduct that the

antitrust laws wish to promote in the interest of making

consumers better off.” Appellant’s Br. at 30. For this

proposition it relies on the Supreme Court’s decision in

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,

509 U.S. 209, 222 (1993). It is an argument 3M repeated

frequently during its oral argument before the en banc

5. 3M states that its pricing was above its costs however costs are

calculated, and LePage’s has not contested 3M’s assertion.

9

court. Counsel stated, “if the big guy is selling above cost,

it has done nothing which offends the Sherman Act . . . .”

Tr. of Oral Argument, Oct. 30, 2002, at 11. This was the

theory upon which 3M’s counsel responded to all the

questions from the court. When asked whether its theory is

that because no one contended that 3M sold below its cost,

that is “the end of the story,” its counsel responded, “[w]ith

the exception of the inconsequential express contract,

absolutely.” Id.

It is therefore necessary for us, at the outset, to examine

whether we must accept 3M’s legal theory that after Brooke

Group, no conduct by a monopolist who sells its product

above cost — no matter how exclusionary the conduct —

can constitute monopolization in violation of § 2 of the

Sherman Act. The history of the interpretation of § 2 of the

Sherman Act demonstrates the lack of foundation for 3M’s

premise.

Although § 2 of the Sherman Act may have received less

judicial and scholarly attention than several of the other

more frequently invoked antitrust provisions, the Supreme

Court, in a series of decisions, has made clear the type of

conduct that will be held to constitute monopolization in

violation of § 2.

The modern era begins with the decision by Judge

Learned Hand in United States v. Aluminum Co. of America,

148 F.2d 416 (2d Cir. 1945) (“Alcoa”). Because four

members of the Supreme Court were disqualified, the

Supreme Court was required to apply the provision of the

Expediting Act, Section 29 of Title 15, U.S.C., 1940 ed.,

currently 28 U.S.C. § 2109, to certify the case to the three

most senior judges of the relevant circuit.6 Under the

statute, the decision of that court was “final and

conclusive,” thus equating it to a decision of the Supreme

Court.

At the time in question, Alcoa was the sole domestic

producer of aluminum and thus had a monopoly that the

6. The three most senior judges of the circuit were, fortuitously, the

legendary panel of Judges Learned Hand, Thomas Swan, and Augustus

Hand.

10

Government sought to disband. In the opinion on liability,

the court enunciated certain principles that remain fully

applicable today. One such principle is that it does not

follow that a company that has a monopoly has

“monopolized” the market because “it may not have

achieved monopoly; monopoly may have been thrust upon

it.” Id. at 429. As the court explained, “persons may

unwittingly find themselves in possession of a monopoly,

automatically so to say: that is, without having intended

either to put an end to existing competition, or to prevent

competition from arising when none had existed; they may

become monopolists by force of accident.” Id. at 429-30. On

the other hand, the court then quoted Justice Cardozo’s

statement in United States v. Swift & Co., 286 U.S. 106,

116 (1932), that “size carries with it an opportunity for

abuse that is not to be ignored when the opportunity is

proved to have been utilized in the past.” Alcoa, 148 F.2d

at 430.

The court determined that Alcoa, which controlled over

90% of the aluminum market, had utilized its size for

abuse. The court, noting that there had been at least “one

or two abortive attempts” by others to enter the industry,

concluded that Alcoa “effectively anticipated and forestalled

all competition, and succeeded in holding the field alone.”

Id. at 430. Finding Alcoa in violation of § 2, the court

continued:

Nothing compelled it to keep doubling and redoubling

its capacity before others entered the field. It insists

that it never excluded competitors; but we can think of

no more effective exclusion than progressively to

embrace each new opportunity as it opened, and to

face every newcomer with new capacity already geared

into a great organization, having the advantage of

experience, trade connections and the elite of

personnel.

Id. at 431.

One year later, in American Tobacco Co. v. United States,

328 U.S. 781 (1946), the Supreme Court endorsed the

Alcoa decision when upholding a jury verdict finding a § 2

violation. The government brought a criminal action against

11

various tobacco companies that between 1931 and 1939

accounted at all times for more than 68%, and usually for

more than 75%, of the nation’s domestic cigarette

production. Defendants were convicted and fined after the

jury found they had violated §§ 1 and 2 of the Sherman Act

by conspiring to control the price of leaf tobacco, to acquire

less expensive supplies of tobacco they did not need in

order to deprive rival manufacturers of cheaper brands, to

control cigarette prices, and to force cigarette distributors

to treat rival brands less favorably.

The court of appeals affirmed, finding the verdicts to be

supported by sufficient evidence. The Supreme Court

granted the tobacco companies’ petitions for certiorari only

as to their § 2 claims, seeking to answer the specific

question “whether actual exclusion of competitors is

necessary to the crime of monopolization under § 2 of the

Sherman Act.” Id. at 784. Answering that question in the

negative, the Court stated that “[n]either proof of exertion of

the power to exclude nor proof of actual exclusion of

existing or potential competitors is essential to sustain a

charge of monopolization under the Sherman Act.” Id. at

810. Furthermore, and importantly, the Court explicitly

“welcome[d] this opportunity to endorse” certain passages

from Judge Hand’s opinion. Id. at 813.

Of particular relevance, the American Tobacco Court

endorsed Judge Hand’s understanding of the Sherman Act,

namely that the Act contemplated the notion that

“ ‘unchallenged economic power deadens initiative’ ” and

“ ‘that immunity from competition is a narcotic, and rivalry

is a stimulant, to industrial progress.’ ” Id. (quoting Alcoa,

148 F.2d at 427). It further quoted Alcoa for the previously

mentioned propositions that monopolies can be “thrust”

upon entities rather than achieved and that specific intent

under § 2 was not required “ ‘for no monopolist monopolizes

unconscious of what he is doing.’ ” Id. at 813-14 (quoting

Alcoa, 148 F.2d at 432).

Section 2 of the Sherman Act was next considered by the

Supreme Court in Lorain Journal Co. v. United States, 342

U.S. 143 (1951). The United States had brought a civil suit

against the publisher of the Lorain Journal, the only

business disseminating news and advertising in the town of

12

Lorain, Ohio, alleging that it attempted to monopolize in

violation of § 2 of the Sherman Act because it refused to sell

advertising to persons that patronized the small radio

station that was established in a nearby community. The

Supreme Court held that although a trader has discretion

as to the parties with whom he will deal “[i]n the absence

of any purpose to create or maintain a monopoly,” id. at

155 (quoting United States v. Colgate & Co., 250 U.S. 300,

307 (1919)), the action of the Journal constituted a

purposeful means of regaining its previous monopoly over

the mass dissemination of news and advertising. Id.

Because this was an attempt to monopolize in violation of

§ 2, the Court approved the entry of an injunction ordering

the Journal to print the advertisements of the customers of

the radio station.

Thereafter, in United States v. Grinnell Corp., 384 U.S.

563 (1966), the Supreme Court reiterated that monopoly

power alone is not necessarily unlawful. The Court

summarized its prior cases, stating that § 2 of the Sherman

Act required two elements: “(1) the possession of monopoly

power in the relevant market and (2) the willful acquisition

or maintenance of that power as distinguished from growth

or development as a consequence of a superior product,

business acumen, or historic accident.” 384 U.S. at 570-71.

In Grinnell, the United States filed a civil suit against

several companies that offered central station protective

services, such as fire and burglary protective devices,

alleging violations of §§ 1 and 2 of the Sherman Act.

Referring to the two-pronged test under § 2, the Court

found that both prongs had been satisfied. Not only did the

companies have monopoly power (87% of the accredited

central station service business), but also they largely

achieved this power through the aid of pricing practices,

acquisitions of competitors, and noncompetition covenants,

all of which were deemed to be “unlawful and exclusionary

practices.” Id. at 576.

The Court’s later decision in Aspen Skiing Co. v. Aspen

Highlands Skiing Corp., 472 U.S. 585 (1985), is even more

pertinent to the case before us. In Aspen Skiing, a case that

also reached the Court only on the § 2 violation, Ski Co.,

the owner of three of the four major downhill skiing

13

facilities in Aspen, Colorado, discontinued its prior practice

of cooperating with the owner of the fourth facility by

issuing an interchangeable 6-day pass that could be used

on any of the four facilities. It replaced that pass with a 3-

area, 6-day ticket featuring only its mountains. It offered

the plaintiff, Highlands, owner of the fourth facility,

reinstatement of the 4-area ticket only if Highlands would

accept a fixed percentage of the revenue that was

considerably below Highlands’ historical average based on

usage. Ski Co. took additional actions that made it

extremely difficult for Highlands to market its own

multiarea package to replace the joint offering, and

Highlands’ share of the market declined along with its

revenues from associated skiing services. The jury found

that Ski Co. possessed monopoly power and awarded

Highlands a substantial money judgment as treble

damages. The court of appeals affirmed, holding there was

sufficient basis in Ski Co.’s actions to demonstrate an

abuse of its monopoly power.

In the Supreme Court, Ski Co. argued “that even a firm

with monopoly power has no duty to engage in joint

marketing with a competitor, that a violation of § 2 cannot

be established without evidence of substantial exclusionary

conduct, and that none of its activities can be characterized

as exclusionary.” Aspen Skiing, 472 U.S. at 600. The

Supreme Court agreed with the legal proposition, but

referred to its earlier opinion in Lorain Journal where it held

that a monopolist’s right to refuse to deal was not

unqualified. Id. at 600-01. After reviewing all the

circumstances, it affirmed the judgment for Highlands in a

unanimous opinion. It held that the jury had ample basis

to reject Ski Co.’s business justification defense and noted

that Ski Co. failed to offer any efficiency justification

whatever for its pattern of conduct. Id. at 608. The Court

stated, “[a]lthough Ski Co.’s pattern of conduct may not

have been as ‘bold, relentless, and predatory’ as the

publisher’s actions in Lorain Journal, the record in this case

comfortably supports an inference that the monopolist

made a deliberate effort to discourage its customers from

doing business with its smaller rival.” Id. at 610 (quoting

Lorain Journal, 342 U.S. at 149 (citation omitted)).

14

In a significant passage about the conduct that

constitutes monopolization in violation of § 2, the Court

stated that when the issue is monopolization rather than

an attempt to monopolize, “evidence of intent is merely

relevant to the question whether the challenged conduct is

fairly characterized as ‘exclusionary’ or ‘anticompetitive’ —

to use the words in the trial court’s instructions — or

‘predatory,’ to use a word that scholars seem to favor.” Id.

at 602. The Court continued, “[w]hichever label is used,

there is agreement on the proposition that ‘no monopolist

monopolizes unconscious of what he is doing.’ ” Id. (quoting

Alcoa, 148 F.2d at 432).

In Eastman Kodak Co. v. Image Technical Servs., Inc., 504

U.S. 451(1992), 18 independent service organizations

(“ISO’s”) that serviced Kodak copying and micrographic

equipment brought an antitrust action against Kodak for its

policies that sought to limit the availability of Kodak parts

to ISO’s. They alleged Kodak’s policies were unlawful under

both §§ 1 and 2 of the Sherman Act. The Supreme Court

considered the issues under the two provisions separately.

In its analysis under § 2, the Court first held that Kodak’s

control of nearly 100% of the parts market and 80% to 95%

of the service market was sufficient to support a claim of

monopoly power (an issue that is conceded here). As to the

issue whether Kodak adopted its parts and service policies

as part of a scheme of willful acquisition or maintenance of

monopoly power, the Court stated that there was evidence

that Kodak “took exclusionary action to maintain its parts

monopoly and used its control over parts to strengthen its

monopoly share of the Kodak service market.” Id. at 483.

Thus, Kodak could escape liability under § 2 only if it could

explain its actions on the basis of valid business reasons,

an issue as to which there were factual questions which

made the district court’s grant of summary judgment for

Kodak inappropriate. Id.

This extensive review of the Supreme Court’s § 2

decisions is set forth to provide the background under

which we must evaluate 3M’s contention that it was

entitled to judgment as a matter of law on the basis of the

decision in Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209 (1993), a decision that was

15

primarily concerned with the Robinson-Patman Act, not § 2

of the Sherman Act. In Brooke Group, Liggett, a cigarette

manufacturer responsible for the “innovative development”

of generic cigarettes, claimed that Brown & Williamson,

which introduced its own line of generic cigarettes, “cut

prices on generic cigarettes below cost and offered

discriminatory volume rebates to wholesalers to force

Liggett to raise its own generic cigarette prices and

introduce oligopoly pricing in the economy segment [of the

national cigarette market].” Brooke Group, 509 U.S. at 212.

It filed a Robinson-Patman action on the basis of these

allegations. Brown & Williamson’s deep price discounts or

rebates were concededly discriminatory, not cost justified,

and resulted in substantial loss to it. The Supreme Court

majority held that the defendant was entitled to judgment

as a matter of law because there was no evidence of injury

to competition. Id. at 243. The Court also held that the

evidence did not show that Brown & Williamson’s alleged

scheme “was likely to result in oligopolistic price

coordination and sustained supracompetitive pricing in the

generic segment of the national cigarette market. Without

this, Brown & Williamson had no reasonable prospect of

recouping its predatory losses and could not inflict the

injury to competition the antitrust laws prohibit.” Id.7

Unlike 3M, Brown & Williamson was part of an oligopoly,

six manufacturers whose prices for cigarettes “increased in

lockstep” and who “reaped the benefits of prices above a

competitive level.” Id. at 213. Brown & Williamson had 12%

of the oligopolistic market. Its conduct and pricing were at

all times necessarily constrained by the presence of

competitors who could, and did, react to its conduct by

undertaking similar price cuts or pricing behavior.8

7. In contrast, the District Court here noted that 3M had conceded that

it “ ‘could later recoup the profits it has forsaken on Scotch tape and

private label tape by selling more higher priced Scotch tape . . . if there

would be no competition by others in the private label tape segment

when 3M abandoned that part of the market to sell only higher-priced

Scotch tape.’ ” Le Page’s, 2000 WL 280350, at *7 (quoting Defendant’s

Mem. at 30).

8. The Brooke Group opinions, both for the majority and the dissent,

discuss the responses by members of the oligopoly to the introduction of

discounted cigarettes. Id. at 239-40; id. at 247-48 (Stevens, J.,

dissenting).

16

Assuming arguendo that Brooke Group should be read for

the proposition that a company’s pricing action is legal if its

prices are not below its costs, nothing in the decision

suggests that its discussion of the issue is applicable to a

monopolist with its unconstrained market power. Moreover,

LePage’s, unlike the plaintiff in Brooke Group, does not

make a predatory pricing claim. 3M is a monopolist; a

monopolist is not free to take certain actions that a

company in a competitive (or even oligopolistic) market may

take, because there is no market constraint on a

monopolist’s behavior. See, e.g., Aspen Skiing, 472 U.S. at

601-04.

Nothing in any of the Supreme Court’s opinions in the

decade since the Brooke Group decision suggested that the

opinion overturned decades of Supreme Court precedent

that evaluated a monopolist’s liability under § 2 by

examining its exclusionary, i.e., predatory, conduct. Brooke

Group has been cited only four times by the Supreme

Court, three times in cases that were not even antitrust

cases for propositions patently inapplicable here.9 In the

only antitrust case of the four, NYNEX Corp. v. Discon, Inc.,

525 U.S. 128, 137 (1998), the Court considered whether

the per se rule applicable to group boycotts under § 1 of the

Sherman Act should be applied “where a single buyer

favors one seller over another, albeit for an improper

reason.” Id. at 133. Holding that the rule of reason applies,

the Court quoted Brooke Group for the proposition that

“[e]ven an act of pure malice by one business competitor

against another does not, without more, state a claim

under the federal anti-trust laws.” Id. at 137 (quoting

Brooke Group, 509 U.S. at 225). The opinion does not

discuss, much less adopt, the proposition that a monopolist

does not violate § 2 unless it sells below cost. Thus, nothing

9. Brooke Group is cited in Gustafson v. Alloyd Co., 513 U.S. 561, 570

(1995), for the statutory construction rule that identical words used in

different parts of the same act are intended to have the same meaning;

in Strickler v. Greene, 527 U.S. 263, 300 n.3 (1999), a federal habeas

case, by Justice Souter in his partial concurrence/partial dissent, in

discussing the term “reasonable probability;” and in Weisgram v. Marley

Co., 528 U.S. 440, 454 (2000), in connection with discussing the weight

to be given an expert opinion.

17

that the Supreme Court has written since Brooke Group

dilutes the Court’s consistent holdings that a monopolist

will be found to violate § 2 of the Sherman Act if it engages

in exclusionary or predatory conduct without a valid

business justification.

IV.

MONOPOLIZATION — EXCLUSIONARY CONDUCT

A.

Illustrative Cases

Before turning to consider LePage’s allegation that 3M

engaged in exclusionary or anticompetitive conduct and the

evidence it produced, we consider the type of conduct § 2

encompasses.

As one court of appeals has stated: “ ‘Anticompetitive

conduct’ can come in too many different forms, and is too

dependent upon context, for any court or commentator ever

to have enumerated all the varieties.” Caribbean Broad.

Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087

(D.C. Cir. 1998) (reversing in part the district court’s

dismissal of complaint and holding that radio station’s

claim that defendants made misrepresentations to

advertisers and the government in order to protect its

monopoly stated § 2 Sherman Act claim).

Numerous cases hold that the enforcement of the legal

monopoly provided by a patent procured through fraud may

violate § 2. Walker Process Equip., Inc. v. Food Mach. &

Chem. Corp., 382 U.S. 172, 174 (1965); see also Medtronic

AVE, Inc. v. Boston Scientific Corp., No. CIV. A. 98-478-SLR,

2001 WL 652016 (D. Del. Mar. 30, 2001) (patentee could

have violated § 2 by bringing infringement action on patent

procured by fraud). Predatory pricing by a monopolist can

provide a basis for § 2 liability. See U.S. Philips Corp. v.

Windmere Corp., 861 F.2d 695 (Fed. Cir. 1988) (reversing

district court’s directed verdict and ordering new trial on § 2

claims due to evidence that company had 90% of rotary

18

electric shaver market, existence of substantial entry

barriers, and company had drastically reduced prices to

eliminate potential competitors). A monopolist’s denial to

competitors of access to its “essential” goods, services or

resources has been held to violate § 2. See Otter Tail Power

Co. v. United States, 410 U.S. 366 (1973) (finding § 2

violation where monopolist utility company refused to sell

wholesale to municipalities and refused to transfer

competitors’ power over its lines); see also Fishman v.

Estate of Wirtz, 807 F.2d 520 (7th Cir. 1986) (finding

corporation liable under § 2 for refusing to lease Chicago

Stadium to plaintiff, a potential buyer of the Chicago Bulls

basketball team, after determining Stadium to be essential

to professional basketball in Chicago area). An arbitrary

refusal to deal by a monopolist may constitute a § 2

violation. See Byars v. Bluff City News Co., Inc., 609 F.2d

843 (6th Cir. 1979) (remanding case to district court for

fact-finding to determine whether defendant possessed

monopoly power and unlawfully refused to deal in violation

of § 2). Even unfair tortious conduct unrelated to a

monopolist’s pricing policies has been held to violate § 2.

See Int’l Travel Arrangers, Inc. v. Western Airlines, Inc., 623

F.2d 1255 (8th Cir. 1980) (upholding treble damages

antitrust award against airline with monopoly power after

finding sufficient evidence that airline placed false,

deceptive, and misleading advertisements discouraging

public patronage of travel group charters).

A recent decision of the United States Court of Appeals

for the Sixth Circuit, Conwood Co., L.P. v. U.S. Tobacco Co.,

290 F.3d 768 (6th Cir. 2002), cert. denied, 123 S. Ct. 876,

154 L.Ed. 2d 850 (2003), presents a good illustration of the

type of exclusionary conduct that will support a § 2

violation. That court upheld the jury’s award to plaintiff

Conwood of $350 million, which trebled was $1.05 billion,

against United States Tobacco Company (“USTC”) because

of USTC’s monopolization. USTC was the sole manufacturer

of moist snuff until the 1970’s when Conwood, Swisher,

and Swedish Match, other moist snuff manufacturers,

entered the moist snuff market. Not unexpectedly, USTC’s

100% market share declined and it took the action that

formed the basis of Conwood’s complaint against USTC

19

alleging, inter alia, unlawful monopolization in violation of

§ 2 of the Sherman Act.

The evidence that the district court and the court of

appeals held proved that USTC systematically tried to

exclude competition from the moist snuff market included

the following: USTC (1) removed and destroyed or discarded

racks that displayed moist snuff products in the stores

while placing Conwood products in USTC racks in an

attempt to bury Conwood’s products; (2) trained its

“operatives to take advantage of inattentive store clerks

with various ‘ruses’ such as obtaining nominal permission

to reorganize or neaten the moist snuff section” in an effort

to destroy Conwood racks; (3) misused its position as

category manager (manages product groups and business

units and customizes them on a store by store basis) by

providing misleading information to retailers in an effort to

dupe them into carrying USTC products and to discontinue

carrying Conwood products; and (4) entered into exclusive

agreements with retailers in an effort to exclude rivals’

products. Id. at 783.

On appeal, USTC — like 3M — did not challenge that it

had monopoly power and agreed that the relevant product

was moist snuff and the geographic market was nationwide.

Id. at 782-83. Instead, USTC contended that Conwood had

failed to establish that USTC’s power was acquired or

maintained by exclusionary practices rather than by its

legitimate business practices and superior product. Id. at

783. Both the district court and the court of appeals

rejected USTC’s argument, finding that there was sufficient

evidence for a jury to find willful maintenance by USTC of

monopoly power by engaging in exclusionary practices in

violation of § 2 of the Sherman Act. Id. at 788.

Similarly, 3M sought to meet the competition that

LePage’s threatened by exclusionary conduct that consisted

of rebate programs and exclusive dealing arrangements

designed to drive LePage’s and any other viable competitor

from the transparent tape market.

20

B.

Bundled Rebates

In considering LePage’s conduct that led to the jury’s

ultimate verdict, we note that the jury had before it

evidence of the full panoply of 3M’s exclusionary conduct,

including both the exclusive dealing arrangements and the

bundled rebates which could reasonably have been viewed

as effectuating exclusive dealing arrangements because of

the way in which they were structured.

Through a program denominated Executive Growth Fund

(“EGF ”) and thereafter Partnership Growth Fund (“PGF ”),

3M offered many of LePage’s major customers substantial

rebates to induce them to eliminate or reduce their

purchases of tape from LePage’s. Rather than competing by

offering volume discounts which are concededly legal and

often reflect cost savings, 3M’s rebate programs offered

discounts to certain customers conditioned on purchases

spanning six of 3M’s diverse product lines. The product

lines covered by the rebate program were: Health Care

Products, Home Care Products, Home Improvement

Products, Stationery Products (including transparent tape),

Retail Auto Products, and Leisure Time. Sealed App. at

2979. In addition to bundling the rebates, both of 3M’s

rebate programs set customer-specific target growth rates

in each product line. The size of the rebate was linked to

the number of product lines in which targets were met, and

the number of targets met by the buyer determined the

rebate it would receive on all of its purchases. If a customer

failed to meet the target for any one product, its failure

would cause it to lose the rebate across the line. This

created a substantial incentive for each customer to meet

the targets across all product lines to maximize its rebates.

The rebates were considerable, not “modest” as 3M

states. Appellant’s Br. at 15. For example, Kmart, which

had constituted 10% of LePage’s business, received

$926,287 in 1997, Sealed App. at 2980, and in 1996 Wal-

Mart received more than $1.5 million, Sam’s Club received

$666,620, and Target received $482,001. Sealed App. at

2773. Just as significant as the amounts received is the

21

powerful incentive they provided to customers to purchase

3M tape rather than LePage’s in order not to forego the

maximum rebate 3M offered. The penalty would have been

$264,000 for Sam’s Club, $450,000 for Kmart, and

$200,000 to $310,000 for American Stores.

3M does not deny that it offered these programs although

it gives different reasons for the discounts to each

customer. Instead it argues that they were no more

exclusive than procompetitive lawful discount programs.

And, as it responds to each of LePage’s allegations, it

returns to its central premise “that it is not unlawful to

lower one’s prices so long as they remain above cost.”

Appellant’s Br. at 36 (citing Brooke Group, 509 U.S. at 222).

However, one of the leading treatises discussing the

inherent anticompetitive effect of bundled rebates, even if

they are priced above cost, notes that “the great majority of

bundled rebate programs yield aggregate prices above cost.

Rather than analogizing them to predatory pricing, they are

best compared with tying, whose foreclosure effects are

similar. Indeed, the ‘package discount’ is often a close

analogy.” Phillip E. Areeda & Herbert Hovenkamp, Antitrust

Law ¶ 794, at 83 (Supp. 2002).

The treatise then discusses the anticompetitive effect as

follows:

The anticompetitive feature of package discounting is

the strong incentive it gives buyers to take increasing

amounts or even all of a product in order to take

advantage of a discount aggregated across multiple

products. In the anticompetitive case, which we

presume is in the minority, the defendant rewards the

customer for buying its product B rather than the

plaintiff ’s B, not because defendant’s B is better or

even cheaper. Rather, the customer buys the

defendant’s B in order to receive a greater discount on

A, which the plaintiff does not produce. In that case

the rival can compete in B only by giving the customer

a price that compensates it for the foregone A discount.

Id.

The authors then conclude:

22

Depending on the number of products that are

aggregated and the customer’s relative purchases of

each, even an equally efficient rival may find it

impossible to compensate for lost discounts on

products that it does not produce.

Id. at 83-84.

The principal anticompetitive effect of bundled rebates as

offered by 3M is that when offered by a monopolist they

may foreclose portions of the market to a potential

competitor who does not manufacture an equally diverse

group of products and who therefore cannot make a

comparable offer. We recognized this in our decision in

SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir.

1978), where we held that conduct substantially identical to

3M’s was anticompetitive and sustained the finding of a

violation of § 2. SmithKline is of interest not because the

panel decision is binding on the en banc court but because

the reasoning regarding the practice of bundled rebates is

equally applicable here. The defendant in SmithKline, Eli

Lilly & Company, the pharmaceutical manufacturer, sold

three of its cephalosporins to hospitals under the trade

names Kefzol, Keflin and Keflex. Cephalosporins are broad

spectrum antibiotics that were at that time indispensable to

hospital pharmacies. Lilly had a monopoly on both Keflin

and Keflex because of its patents. However, those drugs

faced competition from the generic drug cefazolin which

Lilly sold under the trade name Kefzol and which plaintiff

SmithKline sold under the trade name Ancef.

Lilly’s profits on the patented Keflin were far higher than

those it received from its sales of Kefzol where its pricing

was constrained by the existence of SmithKline. To preserve

its market position in Keflin and discourage sales of Ancef

and even of its own Kefzol, id. at 1061, Lilly instituted a

rebate program that provided a 3% bonus rebate for

hospitals that purchased specified quantities of any three of

Lilly’s five cephalosporins. SmithKline brought a § 2

monopolization claim, alleging that Lilly used these multi-

line volume rebates to maintain its monopoly over the

hospital market for cephalosporins.

The district court (Judge A. Leon Higginbotham, later a

member of this court) found that Lilly’s pricing policy

23

violated § 2. SmithKline Corp. v. Eli Lilly & Co., 427 F. Supp.

1089 (E.D. Pa. 1976). We affirmed by a unanimous

decision. Although customers were not forced to select

which cephalosporins they purchased from Lilly, we

recognized that the effect of the rebate program was to

induce hospitals to conjoin their purchases of Kefzol with

Keflin and Keflex, Lilly’s “leading sellers.” SmithKline, 575

F.2d at 1061. As we stated, “[a]lthough eligibility for the 3%

bonus rebate was based on the purchase of specified

quantities of any three of Lilly’s cephalosporins, in reality it

meant the combined purchases of Kefzol and the leading

sellers, Keflin and Keflex.” Id. The gravamen of Lilly’s § 2

violation was that Lilly linked a product on which it faced

competition with products on which it faced no

competition. Id. at 1065.

The effect of the 3% bundled rebate was magnified by the

volume of Lilly products sold, so that “in order to offer a

rebate of the same net dollar amount as Lilly’s, SmithKline

had to offer purchasers of Ancef rebates of some 16% to

hospitals of average size, and 35% to larger volume

hospitals.” Id. at 1062. Lilly’s rebate structure combining

Kefzol with Keflin and Keflex “insulat[ed] Kefzol from true

price competition with [its competitor] Ancef.” Id. at 1065.

LePage’s private-label and second-tier tapes are, as Kefzol

and Ancef were in relation to Keflin, less expensive but

otherwise of similar quality to Scotch-brand tape. Indeed,

before 3M instituted its rebate program, LePage’s had

begun to enjoy a small but rapidly expanding toehold in the

transparent tape market. 3M’s incentive was thus the same

as Lilly’s in SmithKline: to preserve the market position of

Scotch-brand tape by discouraging widespread acceptance

of the cheaper, but substantially similar, tape produced by

LePage’s.

3M bundled its rebates for Scotch-brand tape with other

products it sold in much the same way that Lilly bundled

its rebates for Kefzol with Keflin and Keflex. In both cases,

the bundled rebates reflected an exploitation of the seller’s

monopoly power. Just as “[cephalosporins] [were] carried in

. . . virtually every general hospital in the country,”

SmithKline, 575 F.2d at 1062, the evidence in this case

24

shows that Scotch-brand tape is indispensable to any

retailer in the transparent tape market.

Our analysis of § 2 of the Sherman Act in SmithKline is

instructive here where the facts are comparable. Speaking

through Judge Aldisert, we said:

With Lilly’s cephalosporins subject to no serious

price competition from other sellers, with the barriers

to entering the market substantial, and with the

prospects of new competition extremely uncertain, we

are confronted with a factual complex in which Lilly

has the awesome power of a monopolist. Although it

enjoyed the status of a legal monopolist when it was

engaged in the manufacture and sale of its original

patented products, that status changed when it

instituted its [bundled rebate program]. The goal of

that plan was to associate Lilly’s legal monopolistic

practices with an illegal activity that directly affected

the price, supply, and demand of Kefzol and Ancef.

Were it not for the [bundled rebate program], the price,

supply, and demand of Kefzol and Ancef would have

been determined by the economic laws of a competitive

market. [Lilly’s bundled rebate program] blatantly

revised those economic laws and made Lilly a

transgressor under § 2 of the Sherman Act.

Id. at 1065.

The effect of 3M’s rebates were even more powerfully

magnified than those in SmithKline because 3M’s rebates

required purchases bridging 3M’s extensive product lines.

In some cases, these magnified rebates to a particular

customer were as much as half of LePage’s entire prior tape

sales to that customer. For example, LePage’s sales to

Sam’s Club in 1993 totaled $1,078,484, while 3M’s 1996

rebate to Sam’s Club was $666,620. Similarly, LePage’s

1992 sales to Kmart were $2,482,756; 3M’s 1997 rebate to

Kmart was $926,287. The jury could reasonably find that

3M used its monopoly in transparent tape, backed by its

considerable catalog of products, to squeeze out LePage’s.

3M’s conduct was at least as anticompetitive as the

conduct which this court held violated § 2 in SmithKline.

25

C.

Exclusive Dealing

The second prong of LePage’s claim of exclusionary

conduct by 3M was its actions in entering into exclusive

dealing contracts with large customers. 3M acknowledges

only the expressly exclusive dealing contracts with Venture

and Pamida which conditioned discounts on exclusivity. It

minimizes these because they represent only a small

portion of the market. However, LePage’s claims that 3M

made payments to many of the larger customers that were

designed to achieve sole-source supplier status.

3M argues that because the jury found for it on LePage’s

claims under § 1 of the Sherman Act and § 3 of the Clayton

Act, these payments should not be relevant to the § 2

analysis. The law is to the contrary.10 Even though

exclusivity arrangements are often analyzed under § 1, such

exclusionary conduct may also be an element in a § 2

claim. U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d

589, 593 (1st Cir. 1993) (observing that exclusivity may

also “play a role . . . as an element in attempted or actual

monopolization”).

3M also disclaims as exclusive dealing any arrangement

that contained no express exclusivity requirement. Once

again the law is to the contrary. No less an authority than

the United States Supreme Court has so stated. In Tampa

Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961), a

case that dealt with § 3 of the Clayton Act rather than § 2

of the Sherman Act, the Court took cognizance of

10. The jury’s finding against LePage’s on its exclusive dealing claim

under § 1 of the Sherman Act and § 3 of the Clayton Act does not

preclude the application of evidence of 3M’s exclusive dealing to support

LePage’s § 2 claim. See, e.g., Barr Labs., Inc. v. Abbott Labs., 978 F.2d

98, 110-12 (3d Cir. 1992) (considering § 2 of the Sherman Act claims

after rejecting claims based on the same evidence under § 1 of the

Sherman Act and § 3 of the Clayton Act); SmithKline, 427 F. Supp. at

1092, aff ’d, 575 F.2d 1056 (imposing § 2 Sherman Act liability for

exclusionary conduct, after rejecting an exclusive dealing claim under § 3

of the Clayton Act).

26

arrangements which, albeit not expressly exclusive,

effectively foreclosed the business of competitors.11

LePage’s introduced powerful evidence that could have

led the jury to believe that rebates and discounts to Kmart,

Staples, Sam’s Club, National Office Buyers and “UDI” were

designed to induce them to award business to 3M to the

exclusion of LePage’s. Many of LePage’s former customers

refused even to meet with LePage’s sales representatives. A

buyer for Kmart, LePage’s largest customer which

accounted for 10% of its business, told LePage’s: “I can’t

talk to you about tape products for the next three years”

and “don’t bring me anything 3M makes.” App. at 302-03,

964. Kmart switched to 3M following 3M’s offer of a $1

million “growth” reward which the jury could have

understood to require that 3M be its sole supplier.

Similarly, Staples was offered an extra 1% bonus rebate if

it gave LePage’s business to 3M. 3M argues that LePage’s

did not try hard enough to retain Kmart, its customer for

20 years, but there was evidence to the contrary.12 In any

11. If the dissent’s citation to FTC v. Motion Picture Advertising Serv. Co.,

344 U.S. 392 (1953), suggests that a one year exclusive dealing contract

should be considered as per se legal under § 2, that is not supported by

a reading of the decision. In that case, the FTC had appealed from a

decision of the Fifth Circuit holding that exclusive contracts are not

unfair methods of competition. The Supreme Court reversed, supporting

the FTC’s decision that the exclusive contracts of the respondent (a

producer and distributor of advertising motion pictures), unreasonably

restrain competition and tend to monopoly. It was the respondent who

argued that exclusive contracts of a duration in excess of a year are

necessary for the conduct of the business of the distributors. This

argument was rejected by the Supreme Court. The Supreme Court’s

decision did not suggest that exclusive dealing arrangements entered

into by a monopolist (which the respondent in that case was not),

together with other exclusionary action, did not violate § 2 of the

Sherman Act.

12. At trial, LePage’s presented the testimony of James Kowieski, its

former senior vice president of sales, who described LePage’s efforts

following Kmart’s rejection of its bid. LePage’s made a desperate second

sales presentation attended by its president, App. at 957 (“I felt it was

very critical to our company’s success or failure, so I insured that Mr.

Les Baggett, our president, attended the meeting with me.”), where

LePage’s vainly offered additional price concessions, App. at 959 (“We

went through the cost savings, the benefits, and we came up with some,

again, price concessions, and some programs of a special buy once a

year, because, I mean, as far as we were concerned, we were on our last

leg.”).

27

event, the purpose and effect of 3M’s payments to the

retailers were issues for the jury which, by its verdict,

rejected 3M’s arguments.

The foreclosure of markets through exclusive dealing

contracts is of concern under the antitrust laws. As one of

the leading treatises states:

unilaterally imposed quantity discounts can foreclose

the opportunities of rivals when a dealer can obtain its

best discount only by dealing exclusively with the

dominant firm. For example, discounts might be

cumulated over lengthy periods of time, such as a

calendar year, when no obvious economies result.

3A Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law

¶ 768b2, at 148 (2d Ed. 2002); see also 11 Herbert

Hovenkamp, Antitrust Law ¶ 1807a, at 115-16 (1998)

(quantity discounts may foreclose a substantial portion of

the market). Discounts conditioned on exclusivity are

“problematic” “when the defendant is a dominant firm in a

position to force manufacturers to make an all-or-nothing

choice.” Id. at 117 n.7 (citing LePage’s, 1997 WL 734005

(E.D. Pa. 1997)).

The Court of Appeals for the District of Columbia relied

on the evidence of foreclosure of markets in reaching its

decision on liability in United States v. Microsoft Corp., 253

F.3d 34, 69 (D.C. Cir. 2001). In that case, the court of

appeals concluded that Microsoft, a monopolist in the

operating system market, foreclosed rivals in the browser

market from a “substantial percentage of the available

opportunities for browser distribution” through the use of

exclusive contracts with key distributors. Id. at 70-71.

Microsoft kept usage of its competitor’s browser below “the

critical level necessary for [its rival] to pose a real threat to

Microsoft’s monopoly.” Id. at 71. The Microsoft opinion does

not specify what percentage of the browser market

Microsoft locked up — merely that, in one of the two

primary distribution channels for browsers, Microsoft had

exclusive arrangements with most of the top distributors.

Id. at 70-71. Significantly, the Microsoft court observed that

Microsoft’s exclusionary conduct violated § 2 “even though

the contracts foreclose less than the roughly 40% or 50%

28

share usually required in order to establish a § 1 violation.”

Id. at 70.

One noted antitrust scholar has written:

We might thus interpret the Microsoft holding as

follows: Conduct that intentionally, significantly, and

without business justification excludes a potential

competitor from outlets (even though not in the

relevant market), where access to those outlets is a

necessary though not sufficient condition to waging a

challenge to a monopolist and fear of the challenge

prompts the conduct, is “anticompetitive.”

Eleanor M. Fox, What Is Harm to Competition? Exclusionary

Practices and Anticompetitive Effect, 70 Antitrust L. J. 371,

390 (2002).

LePage’s produced evidence that the foreclosure caused

by exclusive dealing practices was magnified by 3M’s

discount practices, as some of 3M’s rebates were “all-or-

nothing” discounts, leading customers to maximize their

discounts by dealing exclusively with the dominant market

player, 3M, to avoid being severely penalized financially for

failing to meet their quota in a single product line. Only by

dealing exclusively with 3M in as many product lines as

possible could customers enjoy the substantial discounts.

Accordingly, the jury could reasonably find that 3M’s

exclusionary conduct violated § 2.

V.

ANTICOMPETITIVE EFFECT

It has been LePage’s position in pursuing its § 2 claim

that 3M’s exclusionary “tactics foreclosed the competitive

process by preventing rivals from competing to gain (or

maintain) a presence in the market.” Appellee’s Br. at 45-

46. When a monopolist’s actions are designed to prevent

one or more new or potential competitors from gaining a

foothold in the market by exclusionary, i.e. predatory,

conduct, its success in that goal is not only injurious to the

potential competitor but also to competition in general. It

has been recognized, albeit in a somewhat different context,

29

that even the foreclosure of “one significant competitor”

from the market may lead to higher prices and reduced

output. Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d

380, 394 (7th Cir. 1984).

The Microsoft court treated exclusionary conduct by a

monopolist as more likely to be anticompetitive than

ordinary § 1 exclusionary conduct. The inquiry in Microsoft

was whether the monopolist’s conduct excluded a

competitor (Netscape) from the essential facilities that

would permit it to achieve the efficiencies of scale necessary

to threaten the monopoly. 253 F.3d at 70-71.13 In Microsoft,

the court of appeals determined that Microsoft had

foreclosed enough distribution links to undermine the

survival of Netscape as a viable competitor. Id. at 71.

Similarly, in this case, the jury could have reasonably

found that 3M’s exclusionary conduct cut LePage’s off from

key retail pipelines necessary to permit it to compete

profitably.14 It was only after LePage’s entry into the market

that 3M introduced the bundled rebates programs. If 3M

were successful in eliminating competition from LePage’s

second-tier or private-label tape, 3M could exercise its

monopoly power unchallenged, as Tesa Tuck was no longer

in the market.

The District Court, recognizing that “this case presents a

unique bundled rebate program that the jury found had an

13. In one of the two distribution channels available for browsers,

Microsoft had locked up almost all the high volume distributors.

Microsoft, 253 F.3d at 70-71. In the seminal Terminal Railroad case, an

association of railroad operators locked up the cheapest route across the

Mississippi river, the sole railroad bridge crossing at St. Louis. United

States v. Terminal R.R. Ass’n, 224 U.S. 383 (1912). The Supreme Court

determined that the defendant’s agreement to provide access to the

bridge to other railroads on discriminatory terms violated § 1 of the

Sherman Act.

14. In the transparent tape market, superstores like Kmart and Wal-Mart

provide a crucial facility to any manufacturer—they supply high volume

sales with the concomitant substantially reduced distribution costs. By

wielding its monopoly power in transparent tape and its vast array of

product lines, 3M foreclosed LePage’s from that critical bridge to

consumers that superstores provide, namely, cheap, high volume supply

lines.

30

anti-competitive effect,” Le Page’s, 2000 WL 280350, at *5,

denied 3M’s motion for judgment as a matter of law

(“JMOL”), stating:

Plaintiff introduced evidence that Scotch is a monopoly

product, and that 3M’s bundled rebate programs

caused distributors to displace Le Page’s entirely, or in

some cases, drastically reduce purchases from Le

Page’s. Tr. Vol. 30 at 105-106; Vol. 27 at 30. Under

3M’s rebate programs, 3M set overall growth targets for

unrelated product lines. In the distributors’ view, 3M

set these targets in a manner which forced the

distributor to either drop any non-Scotch products, or

lose the maximum rebate. PX 24 at 3M 48136. Thus, in

order to qualify for the maximum rebate under the

EGF/PGF programs, the record shows that most

customers diverted private label business to 3M at

3M’s suggestion. Tr. Vol. 28 at 74-75; PX23, 28, 32,

34, 715. Similarly, under the newer Brand Mix rebate

program, 3M set higher rebates for tape sales which

produced a shift from private label tape to branded

tape. Tr. Vol. 31 at 79. PX 393 at 534906.

Furthermore, Plaintiff introduced evidence of

customized rebate programs that similarly caused

distributors to forego purchasing from Le Page’s if they

wished to obtain rebates on 3M’s products. Specifically,

the trial record establishes that 3M offered Kmart a

customized growth rebate and Market Development

Funds payment. In order to reach the $15 million sales

target and qualify for the $1 million rebate, however,

Kmart had to increase its consumer stationary

purchases by $5.5 million. Kmart substantially

achieved this “growth” by dropping Le Page’s and

another private label manufacturer, Tesa. PX 51 at 3M

102175, PX 121 at 156838. Likewise, 3M customized a

program with Staples that provided for an extra 1%

bonus rebate on Scotch tape sales “if Le Page’s

business is given to 3M.” PX 98 at 3M 149794. Finally,

3M provided a similar discount on Scotch tape to

Venture Stores “based on the contingency of Venture

dropping private label.” PX 712 at 3M 450738. Thus,

the jury could have reasonably concluded that 3M’s

31

customers were forced to forego purchasing Le Page’s

private label tape in order to obtain the rebates on

Scotch tape.

Id. (emphasis added).

In the same opinion, the District Court found that

“[LePage’s] introduced substantial evidence that the anti-

competitive effects of 3M’s rebate programs caused Le

Page’s losses.” Id. at *7. The jury was capable of calculating

from the evidence the amount of rebate a customer of 3M

would lose if it failed to meet 3M’s quota of sales in even

one of the bundled products. The discount that LePage’s

would have had to provide to match the discounts offered

by 3M through its bundled rebates can be measured by the

discounts 3M gave or offered. For example, LePage’s points

out that in 1993 Sam’s Club would have stood to lose

$264,900, Sealed App. at 1166, and Kmart $450,000 for

failure to meet one of 3M’s growth targets in a single

product line. Sealed App. at 1110. Moreover, the effect of

3M’s rebates on LePage’s earnings, if LePage’s had

attempted to match 3M’s discounts, can be calculated by

comparing the discount that LePage’s would have been

required to provide. That amount would represent the

impact of 3M’s bundled rebates on LePage’s ability to

compete, and that is what is relevant under § 2 of the

Sherman Act.

The impact of 3M’s discounts was apparent from the

chart introduced by LePage’s showing that LePage’s

earnings as a percentage of sales plummeted to below zero

—to negative 10%—during 3M’s rebate program. App. at

7037; see also App. at 7044 (documenting LePage’s healthy

operating income from 1990 to 1993, rapidly declining

operating income from 1993 to 1995, and large operating

losses suffered from 1996 through 1999). Demand for

LePage’s tape, especially its private-label tape, decreased

significantly following the introduction of 3M’s rebates.

Although 3M claims that customers participating in its

rebate programs continued to purchase tape from LePage’s,

the evidence does not support this contention. Many

distributors dropped LePage’s entirely.

Prior to the introduction of 3M’s rebate program, LePage’s

32

sales had been skyrocketing. Its sales to Staples increased

by 440% from 1990 to 1993. Following the introduction of

3M’s rebate program which bundled its private-label tape

with its other products, 3M’s private-label tape sales

increased 478% from 1992 to 1997.15 LePage’s in turn lost

a proportional amount of sales. It lost key large volume

customers, such as Kmart, Staples, American Drugstores,

Office Max, and Sam’s Club. Other large customers, like

Wal-Mart, drastically cut back their purchases.

As a result, LePage’s manufacturing process became less

efficient and its profit margins declined. In transparent tape

manufacturing, large volume customers are essential to

achieving efficiencies of scale. As 3M concedes, “ ‘large

customers were extremely important to [LePage’s], to

everyone.’ . . . Large volumes . . . permitted ‘long runs,’

making the manufacturing process more economical and

predictable.” Appellant Br. at 10 (quoting trial testimony of

Les Baggett, LePage’s former president and CEO) (citation

omitted).

There was a comparable effect on LePage’s share of the

transparent tape market. In the agreed upon relevant

market for transparent tape in the United States, LePage’s

market share dropped 35% from 1992 to 1997. In 1992,

LePage’s net sales constituted 14.44% of the total

transparent tape market. By 1997, LePage’s sales had

fallen to 9.35%. Sealed App. at 489. Finally, in March of

1997, LePage’s was forced to close one of its two plants.

That same year, the only other domestic transparent tape

manufacturer, Tesa Tuck, Inc., bowed out of the

transparent tape business entirely in the United States.

Had 3M continued with its program it could have

eventually forced LePage’s out of the market.

The relevant inquiry is the anticompetitive effect of 3M’s

exclusionary practices considered together. As the Supreme

Court recognized in Cont’l Ore Co. v. Union Carbide &

Carbon Corp., 370 U.S. 690, 699 (1962), the courts must

look to the monopolist’s conduct taken as a whole rather

than considering each aspect in isolation. The Court stated,

15. In 1992, 3M’s private-label tape sales were $1,142,000. By 1997, its

private-label tape sales had increased to $5,464,222. Sealed App. at 489.

33

“ ‘in a case like the one before us [alleging § 1 and § 2

violations], the duty of the jury was to look at the whole

picture and not merely at the individual figures in it.’ ” Id.

(citation omitted). See also City of Anaheim v. S. Cal. Edison

Co., 955 F.2d 1373, 1376 (9th Cir. 1992) (“[I]t would not be

proper to focus on specific individual acts of an accused

monopolist while refusing to consider their overall combined

effect. . . We are dealing with what has been called the

‘synergistic effect’ of the mixture of the elements.”)

(emphasis added). This court, when considering the

anticompetitive effect of a defendant’s conduct under the

Sherman Act, has looked to the increase in the defendant’s

market share, the effects of foreclosure on the market,

benefits to customers and the defendant, and the extent to

which customers felt they were precluded from dealing with

other manufacturers. Barr, 978 F.2d at 110-11.

The effect of 3M’s conduct in strengthening its monopoly

position by destroying competition by LePage’s in second-

tier tape is most apparent when 3M’s various activities are

considered as a whole. The anticompetitive effect of 3M’s

exclusive dealing arrangements, whether explicit or

inferred, cannot be separated from the effect of its bundled

rebates. 3M’s bundling of its products via its rebate

programs reinforced the exclusionary effect of those

programs.

3M’s exclusionary conduct not only impeded LePage’s

ability to compete, but also it harmed competition itself, a

sine qua non for a § 2 violation. LePage’s presented powerful

evidence that competition itself was harmed by 3M’s

actions. The District Court recognized this in its opinion,

when it said:

The jury could reasonably infer that 3M’s planned

elimination of the lower priced private label tape, as

well as the lower priced Highland brand, would

channel consumer selection to the higher priced Scotch

brand and lead to higher profits for 3M. Indeed,

Defendant concedes that “3M could later recoup the

profits it has forsaken on Scotch tape and private label

tape by selling more higher priced Scotch tape . . . if

there would be no competition by others in the private

34

label tape segment when 3M abandoned that part of

the market to sell only higher-priced Scotch tape.”

Le Page’s, 2000 WL 280350, at *7.

3M could effectuate such a plan because there was no

ease of entry. See Advo, Inc. v. Phila. Newspapers, Inc., 51

F.3d 1191, 1200 (3d Cir. 1995) (commenting that ease of

entry would prevent monopolist’s predatory pricing scheme

from succeeding); see also Edward A. Snyder & Thomas E.

Kauper, Misuses of the Antitrust Laws: The Competitor

Plaintiff, 90 Mich. L. Rev. 551, 564 (1991) (finding “barriers

to entry” to be one of two necessary conditions for

exclusionary conduct, the other being “market power”).

The District Court found that there was “substantial

evidence at trial that significant entry barriers prevent

competitors from entering the . . . tape market in the

United States. Thus, this case presents a situation in which

a monopolist remains unchecked in the market.” Le Page’s,

2000 WL 280350, at *7. In the time period at issue here,

there has never been a competitor that has genuinely

challenged 3M’s monopoly and it never lost a significant

transparent tape account to a foreign competitor.

There was evidence from which the jury could have

determined that 3M intended to force LePage’s from the

market, and then cease or severely curtail its own private-

label and second-tier tape lines. For example, by 1996, 3M

had begun to offer incentives to some customers to increase

purchases of its higher priced Scotch-brand tapes over its

own second-tier brand. The Supreme Court has made clear

that intent is relevant to proving monopolization, Aspen

Skiing, 472 U.S. at 602, and attempt to monopolize, Lorain

Journal, 342 U.S. at 154-55.

3M’s interest in raising prices is well-documented in the

record. In internal memoranda introduced into evidence by

LePage’s, 3M executives boasted that the large retailers like

Office Max and Staples had no choice but to adhere to 3M’s

demands. See Sealed App. at 2585 (“Either they take the

[price] increase . . . or we hold orders . . . .”); see also

Sealed App. at 2571 (3M’s directive when Staples objected

to price increase was “orders will be held if pricing is not up

to date on 1/1/98”). LePage’s expert testified that the price

35

of Scotch-brand tape increased since 1994, after 3M

instituted its rebate program. App. at 3246-47. In its

opinion, the District Court cited the deposition testimony of

a 3M employee acknowledging that the payment of the

rebates after the end of the year discouraged passing the

rebate on to the ultimate customers. App. at 2092. The

District Court thus observed, “the record amply reflects

that 3M’s rebate programs did not benefit the ultimate

consumer.” Le Page’s, 2000 WL 280350, at *7.

As the foregoing review of the evidence makes clear, there

was sufficient evidence for the jury to conclude the long-

term effects of 3M’s conduct were anticompetitive. We must

therefore uphold its verdict on liability unless 3M has

shown adequate business justification for its practices.

VI.

BUSINESS REASONS JUSTIFICATION

It remains to consider whether defendant’s actions were

carried out for “valid business reasons,” the only recognized

justification for monopolizing. See, e.g., Eastman Kodak,

504 U.S. at 483. However, a defendant’s assertion that it

acted in furtherance of its economic interests does not

constitute the type of business justification that is an

acceptable defense to § 2 monopolization. Paraphrasing one

corporate executive’s well publicized statement, whatever is

good for 3M is not necessarily permissible under § 2 of the

Sherman Act. As one court of appeals has explained:

In general, a business justification is valid if it relates

directly or indirectly to the enhancement of consumer

welfare. Thus, pursuit of efficiency and quality control

might be legitimate competitive reasons . . . , while the

desire to maintain a monopoly market share or thwart

the entry of competitors would not.

Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d

1147, 1183 (1st Cir. 1994) (citing Eastman Kodak, 504 U.S.

at 483; Aspen Skiing, 472 U.S. at 608-11).

It can be assumed that a monopolist seeks to further its

economic interests and does so when it engages in

36

exclusionary conduct. Thus, for example, exclusionary

practice has been defined as “a method by which a firm . . .

trades a part of its monopoly profits, at least temporarily,

for a larger market share, by making it unprofitable for

other sellers to compete with it.” Richard A. Posner,

Antitrust Law: An Economic Perspective 28 (1976). Once a

monopolist achieves its goal by excluding potential

competitors, it can then increase the price of its product to

the point at which it will maximize its profit. This price is

invariably higher than the price determined in a competitive

market. That is one of the principal reasons why

monopolization violates the antitrust laws. The fact that 3M

acted to benefit its own economic interests is hardly a

reason to overturn the jury’s finding that it violated § 2 of

the Sherman Act.

The defendant bears the burden of “persuad[ing] the jury

that its conduct was justified by any normal business

purpose.” Aspen Skiing, 472 U.S. at 608. Although 3M

alludes to its customers’ desire to have single invoices and

single shipments in defense of its bundled rebates, 3M cites

to no testimony or evidence in the 55 volume appendix that

would support any actual economic efficiencies in having

single invoices and/or single shipments. It is highly

unlikely that 3M shipped transparent tape along with retail

auto products or home improvement products to customers

such as Staples or that, if it did, the savings stemming from

the joint shipment approaches the millions of dollars 3M

returned to customers in bundled rebates.

There is considerable evidence in the record that 3M

entered the private-label market only to “kill it.” See, e.g.,

Sealed App. at 809 (statement by 3M executive in internal

memorandum that “I don’t want private label 3M products

to be successful in the office supply business, its

distribution or our consumers/end users”). That is

precisely what § 2 of the Sherman Act prohibits by covering

conduct that maintains a monopoly. Maintaining a

monopoly is not the type of valid business reason that will

excuse exclusionary conduct. 3M’s business justification

defense was presented to the jury, and it rejected the claim.

The jury’s verdict reflects its view that 3M’s exclusionary

conduct, which made it difficult for LePage’s to compete on

the merits, had no legitimate business justification.

37

VII.

DAMAGES

As an alternative to its argument that it is entitled to

JMOL on liability, 3M claims that it is entitled to a new trial

due to the District Court’s error in sustaining LePage’s

damages award. It gives two reasons. First, it contends that

the damage theory proffered by Terry Musika, LePage’s

damages expert, was based on improper assumptions and

should have been excluded.16 Second, 3M argues that

Musika’s theory failed to disaggregate the damages based

on lawful versus unlawful conduct by 3M.

We review the District Court’s decision to admit or

exclude expert testimony for abuse of discretion. Kumho

Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999).

Furthermore, we review de novo LePage’s damages evidence

to determine whether as a matter of law it can support the

jury’s verdict. Stelwagon Mfg. Co. v. Tarmac Roofing Sys.,

Inc., 63 F.3d 1267, 1271 (3d Cir. 1995).

To determine the amount of profits LePage’s lost between

1993 and 2000 due to 3M’s antitrust violations, Musika

constructed a “lost market share” model. Appellant’s Br. at

72. Musika first calculated the total United States

transparent tape sales during the damages period, using

actual financial data from 1992 to 1997 and projecting total

sales from 1998 to 2000. Next, he determined how those

sales would be divided between branded and private-label

parts of the market, projecting a 1% shift each year from

branded to private-label tape sales. In arriving at 1%,

Musika considered the actual growth in private-label tape

sales, the actual growth rate of all private-label products

16. 3M does not challenge Musika’s expert qualifications. Nonetheless,

we note that he holds a master’s degree in public finance, is a former

partner at a major accounting firm, and at the time of trial was President

and CEO of a business consulting firm. Furthermore, Musika frequently

has served as a court-appointed bankruptcy trustee, as an expert for

various government agencies, including the Department of Justice and

Securities and Exchange Commission, and as an expert witness in

complex cases, including five antitrust cases.

38

(i.e. not just tape), the growth rate of large customers, and

3M’s internal projections.

After determining the size of both segments of the

market, Musika estimated LePage’s share of the market,

predicting that LePage’s would have retained its 3.5% share

of the branded-label segment and its 88% share of the

private-label segment. He opined that LePage’s share of the

overall market for transparent tape would have increased

from 14.44% in 1992 to 21.2% in 2000 but for 3M’s

unlawful conduct. Finally, Musika subtracted LePage’s

actual sales from his projected sales to determine LePage’s

lost sales due to 3M’s unlawful conduct. He calculated

LePage’s projected profit margin by looking at LePage’s

actual profit margin for each year and adjusting it to show

declining prices and LePage’s consequential decreasing

efficiency due to decreasing sales. Based on those

adjustments, LePage’s profit margin decreased every year

during the damages period. Musika concluded that but for

3M’s unlawful conduct, LePage’s would have earned an

extra $36 million dollars.

Importantly, 3M does not challenge Musika’s basic

approach to calculating damages, conceding that “an expert

may construct a reasonable offense-free world as a

yardstick for measuring what, hypothetically, would have

happened ‘but for’ the defendant’s unlawful activities.”

Appellant’s Reply Br. at 37(citing Callahan v. A.E.V., Inc.,

182 F.3d 237, 254-58 (3d Cir. 1999); Rossi v. Standard

Roofing, Inc., 156 F.3d 452, 484-87 (3d Cir. 1998)).

Instead, 3M’s motion for judgment as a matter of law

attacked Musika’s underlying assumptions, the primary

assumption being that 3M did not want to succeed in the

private-label segment as it did not want to harm its high-

margin sales of Scotch brand. The District Court rejected

3M’s objections to LePage’s damages claims, stating that

“the record . . . demonstrates that Mr. Musika’s

assumptions were grounded in the past performances of

Scotch, Highland and Le Page’s tapes, as well as 3M’s own

internal projections for future growth.” LePage’s, 2000 WL

280350, at *8.

The credibility of LePage’s and 3M’s experts was for the

jury to determine. Inter Med. Supplies, Ltd. v. EBI Med.

39

Sys., Inc., 181 F.3d 446, 462-63 (3d Cir. 1999). Musika was

extensively cross-examined and 3M presented testimony

from its own damages expert who predicted more

conservative losses to LePage’s. In the end, the jury found

Musika to be credible. 3M’s disappointment as to the jury’s

finding of credibility does not constitute an abuse of

discretion by the District Court in allowing Musika’s

testimony.

3M next argues that Musika improperly failed to

disaggregate damages, thereby providing the jury with no

mechanism to discern damages arising from 3M’s lawful

conduct or other facts from damages arising from 3M’s

unlawful conduct. According to 3M, this resulted in

impermissible guesswork and speculation on the part of the

jury.

In Bonjorno v. Kaiser Aluminum & Chem. Corp., 752 F.2d

802, 812 (3d Cir. 1984), this court stated that “[i]n

constructing a hypothetical world free of the defendants’

exclusionary activities, the plaintiffs are given some latitude

in calculating damages, so long as their theory is not wholly

speculative.” Id. Once a jury has found that the unlawful

activity caused the antitrust injury, the damages may be

determined without strict proof of what act caused the

injury, as long as the damages are not based on

speculation or guesswork. Id. at 813. The Bonjorno court

noted that it would be extremely difficult, if not impossible,

to segregate and attribute a fixed amount of damages to

any one act as the theory was not that any one act in itself

was unlawful, but that all the acts taken together showed

a § 2 violation. Id.

Similarly, 3M’s actions, taken as a whole, were found to

violate § 2, thus making the disaggregation that 3M speaks

of to be unnecessary, if not impossible. In any event, we fail

to see how the jury engaged in speculation or guesswork.

The District Court clearly charged the jury to disregard

losses not caused by 3M: “You may not calculate damages

based only on speculation or guessing . . . . You may not

award damages for injuries or losses caused by other

factors.” App. at 5689. We find no evidence that the jury

failed reasonably to follow these instructions.

40

For the foregoing reasons, we will not disturb the jury’s

damages award to LePage’s.

VIII.

JURY INSTRUCTIONS

3M also argues that it should be awarded a new trial

because of allegedly improper jury instructions. In the

absence of a misstatement of law, jury instructions are

reviewed for abuse of discretion. Bhaya v. Westinghouse

Electric Corp., 922 F.2d 184, 191 (3d Cir. 1990). Because

the District Court provided the jury with meticulous

instructions, methodically explaining this area of the law in

a manner understandable to lay persons, we conclude that

it did not abuse its discretion.

The District Court, in instructing the jury on Count I,

which encompassed LePage’s claim of unlawful

maintenance of monopoly power under § 2, explained:

Count I in this case is unlawful maintenance of

monopoly power.

LePage’s alleges that it was injured by 3M’s unlawful

monopolization in the United States market for

invisible and transparent tape for home and office use.

To win on their claim of monopolization, LePage’s

must prove each of the following elements by a

preponderance of the evidence.

First, that 3M had monopoly power in the relevant

market.

Secondly, that 3M willfully maintained that power

through predatory or exclusionary conduct. . . .

And thirdly, that LePage’s was injured in its business

or property because of 3M’s restrictive or exclusionary

conduct.

App. at 5663-64.

3M complains that the District Court failed to provide

guidance that would instruct the jury how to distinguish

41

between unlawful predation and lawful conduct. However,

in explaining LePage’s maintenance of monopoly claim, the

District Court told the jury that in order to find for

LePage’s, it would have to find by a preponderance of the

evidence that 3M willfully maintained its monopoly power

through exclusionary or predatory conduct. App. at 5663.

It then summarized those of 3M’s actions that LePage’s

contended were unlawfully exclusionary or predatory,

including 3M’s rebate program, market development fund,

its efforts to control, reduce or eliminate private-label tape,

and its efforts to raise the price consumers pay for Scotch

tape. Thereafter, the judge provided the jury with the

following factors to determine whether 3M’s conduct was

either exclusionary or predatory: “its effect on its

competitors, such as LePage’s, its impact on consumers,

and whether it has impaired competition, in an

unnecessarily restrictive way.” App. at 5670.

Relevant portions of the charge were as follows:

The law directs itself not against conduct which is

competitive, even severely so, but rather against

conduct which tends to destroy competition itself.

App. at 5655.

LePage’s must prove that 3M willfully maintained

monopoly power by predatory or exclusionary conduct,

rather than by supplying better products or services, or

by exercising superior business judgment, or just by

chance. So willful maintenance of monopoly power,

that’s an element LePage’s has to prove.

App. at 5668.

To prove that 3M acted willfully, LePage’s must prove

either that 3M engaged in predatory or exclusionary

acts or practices, with the conscious objective of

furthering the dominance of 3M in the relevant market,

or that this was the necessary direct consequence of

3M’s conduct or business arrangement.

App. at 5668.

I’m now giving you what LePage’s contentions are as to

what 3M did or did not do, that constituted predatory

42

or exclusionary conduct. Number one, 3M’s rebate

program, such as the EGF, executive growth fund, or

the PGF, the partnership growth fund, and the brand

mix program. Number two, 3M’s market development

fund called the MDS in some of the testimony, and

other payments to customers conditioned on customers

achieving certain sales goals or growth targets. Third,

3M’s efforts to control, or reduce, or eliminate private

label tape. Four, 3M’s efforts to switch customers to

3M’s more expensive branded tape, and Five, 3M’s

efforts to raise the price consumers pay for Scotch

tape. LePage’s claims that all of these things that I’ve

just gone through was predatory or exclusionary

conduct. Now, 3M denies in every respect that these

actions were predatory or exclusionary. 3M contends

that these actions were, in fact, pro-competitive.

App. at 5668-69.

Exclusionary conduct and predatory conduct

comprehends, at the most, behavior that not only, one,

tends to impair the opportunities of its rivals, but also,

number two, either does not further competition on the

merits, or does so in an unnecessarily restrictive way.

If 3M has been attempting to exclude rivals on some

basis other than efficiency, you may characterize the

behavior as predatory.

App. at 5670.

However, you may not find that a competent, willfully

maintained monopoly power, if that company has

maintained that power, solely through the exercise of

superior foresight or skill in industry, or because of

economic or technological efficiencies, or because of

size, or because of changes in customer and consumer

preferences, or simply because the market is so limited

that it is impossible to efficiently produce the product,

except by a plan large enough to supply the whole

demand.

App. at 5670-71.

Now with respect to Count 1, unlawfully maintaining

monopoly power, mere possession of monopoly power,

if lawfully acquired, does not violate the antitrust laws.

43

App. at 5671.

In determining whether there has been an unlawful

exercise of monopoly power, you must bear in mind

that a company has not acted unlawfully simply

because it has engaged in ordinary competitive

behavior that would have been an effective means of

competition if it were engaged in by a firm without

monopoly power, or simply because it is a large

company and a very efficient one.

App. at 5672.

The trial court further noted that if the jury found the

evidence to be insufficient to prove any of the elements, it

had to find for 3M and against LePage’s. It was careful to

note that intense business competition was not considered

predatory or exclusionary, explaining:

The acts or practices that result in the maintenance of

monopoly power must represent something other than

the conduct of business that is part of the normal

competitive process or even extraordinary commercial

success. [3M] must represent conduct that has made it

very difficult or impossible for competitors to engage in

fair competition.

App. at 5671.

The District Court closely followed the ABA sample

instructions when instructing the jury as to predatory and

exclusionary conduct, including its instructions

distinguishing between procompetitive and anticompetitive

conduct. See ABA, Sample Jury Instructions in Civil

Antitrust Cases C-20 to C-21 (1999 Ed.). Furthermore, the

jury instructions were a modified version of those given in

Aspen Skiing, which the Supreme Court did not find

objectionable. 472 U.S. at 596-97.

3M contends that the District Court was obligated to take

into account the decision in Brooke Group when crafting its

jury instructions. As we have explained, Brooke Group

involved claims of predatory pricing, a claim LePage’s never

alleged against 3M. It follows that the District Court need

not have, indeed should not have, instructed the jury as to

claims not at issue in the case.

44

The jury was given the following questions on Count I:

(1) Do you find that LePage’s has proven, by a

preponderance of the evidence, that the relevant

market is invisible and transparent tape for home and

office use in the United States?

(2) Do you find that LePage’s has proven, by a

preponderance of the evidence, that 3M unlawfully

maintained monopoly power as defined under the

instructions for Count I?; [and]

(2.1) Do you find that LePage’s has proven, as a matter

of fact and with a fair degree of certainty, that 3M’s

unlawful maintenance of monopoly power injured

LePage’s business or property as defined in these

instructions?

App. at 6523. The jury answered “yes” to each of the three

questions. It awarded LePage’s more than $22 million

before trebling.

The District Court gave the jury a thorough, clear charge

as to the § 2 claim. Based on its sound instructions, the

jury decided that LePage’s had met its evidentiary burden

as to its § 2 claim. Nothing in the jury charge constitutes

reversible error.

IX.

CROSS APPEAL

ATTEMPTED MONOPOLIZATION

LePage’s cross appeals from the District Court’s order

granting judgment as a matter of law to 3M on LePage’s

claim that 3M illegally attempted to maintain its monopoly.

In overturning the jury’s verdict for LePage’s on this claim,

the District Court stated that “ ‘an attempted maintenance

of monopoly power’ ” is “inherently illogical.” LePage’s, 2000

WL 280350, at *2.

LePage’s argues that the courts and commentators have

repeatedly found that defendants can be guilty of both

45

monopolization and attempted monopolization claims

arising out of the same conduct. See, e.g., Am. Tobacco Co.,

328 U.S. at 783 (affirming judgment that defendants were

guilty of monopolization and attempted monopolization);

Earl Kintner, 2 Federal Antitrust Law § 13.1 n.5 (1980). It

emphasizes that in Lorain Journal, the Supreme Court

upheld a § 2 attempted monopolization judgment against

the defendant newspaper, holding that “a single newspaper,

already enjoying a substantial monopoly in its area, violates

the ‘attempt to monopolize’ clause of § 2 when it uses its

monopoly to destroy threatened competition.” 342 U.S. at

154.

We need not consider the correctness of the District

Court’s ruling on the attempted monopolization claim

because we uphold its decision on the monopolization

claim. The jury returned the same amount of damages on

both claims and LePage’s concedes that under those

circumstances discussion of the attempted monopolization

is unnecessary.

X.

CONCLUSION

Section 2, the provision of the antitrust laws designed to

curb the excesses of monopolists and near-monopolists, is

the equivalent in our economic sphere of the guarantees of

free and unhampered elections in the political sphere. Just

as democracy can thrive only in a free political system

unhindered by outside forces, so also can market

capitalism survive only if those with market power are kept

in check. That is the goal of the antitrust laws.

The jury heard the evidence and the contentions of the

parties, accepting some and rejecting others. There was

ample evidence that 3M used its market power over

transparent tape, backed by its considerable catalog of

products, to entrench its monopoly to the detriment of

LePage’s, its only serious competitor, in violation of § 2 of

the Sherman Act. We find no reversible error. Accordingly,

we will affirm the judgment of the District Court.

46

Volume 2 of 2

48

GREENBERG, Circuit Judge, dissenting:

I respectfully dissent as I would reverse the district

court’s order denying the motion for judgment as a matter

of law on the monopolization claim but affirm on LePage’s’s

cross-appeal from the motion granting 3M a judgment as a

matter of law on the attempted maintenance of monopoly

claim. While I recognize that the majority opinion describes

the factual background of this case, I nevertheless also will

set forth its background as I believe that a more specific

exposition of the facts leads to a conclusion that LePage’s’s

case should not have survived 3M’s motion for a judgment

as a matter of law.

As the majority indicates, 3M dominated the United

States transparent tape market with a market share above

90% until the early 1990s. LePage’s around 1980 decided

to sell “second brand” and private label tape, i.e., tape sold

under the retailer’s, rather than the manufacturer’s name,

an endeavor successful to the extent that LePage’s captured

88% of private label tape sales in the United States by

1992. Moreover, growth of “second brand” and private label

tape accounted for a shift of some tape sales from branded

tape to private label tape so the size of the private label

tape business expanded. In the circumstances, not

surprisingly, during the early 1990s, 3M also entered the

private label tape business.

As the majority notes, LePage’s claims that, in response

to the growth of this competitive market, 3M engaged in a

series of related, anticompetitive acts aimed at restricting

the availability of lower-priced transparent tape to

consumers. In particular, it asserts that 3M devised

programs that prevented LePage’s and the other domestic

company in the business, Tesa Tuck, Inc., from gaining or

maintaining large volume sales and that 3M maintained its

monopoly by stifling growth of private label tape and by

coordinating efforts aimed at large distributors to keep

retail prices for Scotch tape high. LePage’s barely was

surviving at the time of trial and suffered large operating

losses from 1996 through 1999.

This case centers on 3M’s rebate programs that,

beginning in 1993, involved offers by 3M of “package” or

49

“bundled” discounts for various items ranging from home

care and leisure products to audio/visual and stationery

products. Customers could earn rebates by purchasing, in

addition to transparent tape, a variety of products sold by

3M’s stationery division, such as Post-It Notes and

packaging products. There is no doubt but that these

programs created incentives for retailers to purchase more

3M products and enabled them to have single invoices,

single shipments and uniform pricing programs for various

3M products. 3M linked the size of the rebates to the

number of product lines in which the customers met the

targets, an aggregate number that determined the rebate

percentage the customer would receive on all of its 3M

purchases across all product lines. Therefore, if customers

failed to meet growth targets in multiple categories, they did

not receive any rebate, and if they failed to meet the target

in one product line, 3M reduced their rebates substantially.

These requirements are at the crux of the controversy here,

as LePage’s claims that customers could not meet these

growth targets without eliminating it as a supplier of

transparent tape.

In practice, as 3M’s rebate program evolved, it offered

three different types of rebates: Executive Growth Fund,

Partnership Growth Fund and Brand Mix Rebates. 3M

developed a “test program” called Executive Growth Fund

(“EGF ”) for a small number of retailers, 11 in 1993 and 15

in 1994. Under EGF, 3M negotiated volume and growth

targets for each customer’s purchases from the six 3M

consumer product divisions involved in the EGF program.

A customer meeting the target in three or more divisions

earned a volume rebate of between 0.2-1.25% of total sales.

Beginning in 1995, 3M undertook to end the EGF test

program and institute a rebate program called Partnership

Growth Fund (“PGF ”) for the same six 3M consumer

products divisions. Under this program, 3M established

uniform growth targets applicable to all participants.

Customers who increased their purchases from at least two

divisions by $1.00 and increased their total purchases by at

least 12% over the previous year qualified for the rebate,

which ranged from 0.5% to 2%, depending on the number

of divisions (between two to five divisions) in which the

50

customer increased its purchases and the total volume of

purchases.

In 1996 and 1997, 3M offered price incentives called

Brand Mix Rebates to two tape customers, Office Depot and

Staples, to increase purchases of Scotch brand tapes. 3M

imposed a minimum purchase level for tape set at the level

of Office Depot’s and Staples’s purchases the previous year

with “growth” factored in. To obtain a higher rebate, these

two customers could increase their percentage of Scotch

purchases relative to certain lower-priced orders.

The evidence at trial focused on the parties’ dealings with

a limited number of customers and demonstrated that

LePage’s’s problems were attributed to a number of factors,

not merely 3M’s rebate programs. Thus, I describe this

evidence at length.

Wal-Mart

Before 1992, Wal-Mart bought private label tape only

from LePage’s but, in August 1992, decided to buy private

label tape from 3M as well. In response, LePage’s lowered

its prices and increased its sales to Wal-Mart. In 1997, Wal-

Mart stopped buying private label tape but offered

LePage’s’s branded tape as its “second tier” offering. In

1998, however, Wal-Mart told LePage’s that it was going to

switch to a tape program from 3M. LePage’s’s president

then visited Wal-Mart following which it changed its plans

and retained LePage’s as a supplier. Afterwards, Wal-Mart

designed a test comparing LePage’s’s brand against a 3M

Scotch utility tape to determine who would win Wal-Mart’s

“second tier” tape business. LePage’s added more inches

(approximately 20% more) to its rolls of tape and won the

test. 3M continued, however, to sell Scotch brand tapes to

Wal-Mart, and LePage’s saw its sales to Wal-Mart decline to

approximately $2,000,000 annually by the time of trial.

LePage’s claims that Wal-Mart cut back on its tape

purchases to qualify for 3M’s bundled rebate of $1,468,835

in 1995.

Kmart

Kmart accounted for 10% of LePage’s’s annual tape sales

when LePage’s lost its business to 3M in 1993. Kmart

51

asked its suppliers, including 3M, to provide a single bid on

its entire private label tape business for the following year.

LePage’s’s president believed, however, that Kmart was “too

lazy to make a change,” and that it would “never put their

eggs in one basket” by giving all its business to 3M.

LePage’s offered the same price it had offered the previous

year but also offered a volume rebate. 3M offered a lower

price and won the bid. Kmart asked for rebates and

“market development” funds as part of the private label

tape bid process. 3M offered $200,000 for promotional

activities and a $300,000 volume rebate if Kmart purchased

$10,000,000 of 3M’s Stationery Division products.

LePage’s claims that 3M offered Kmart $1,000,000 to

eliminate LePage’s and Tesa as suppliers and to make 3M

its sole tape supplier. LePage’s points to a 3M document

outlining 3M’s goal for Kmart to exceed $15,000,000 in 3M

purchases with the reward being that Kmart would receive

$75,000 in each of the first two quarters and $100,000 in

the last two quarters for promotional activities and would

receive $650,000 as a volume rebate if the sales exceeded

$15,000,000. If the sales were less, 3M would decrease the

rebate accordingly, e.g., a $400,000 rebate for $13,000,000

of sales. LePage’s claims that, as a practical matter, Kmart

had to eliminate LePage’s and Tesa to reach the growth 3M

required in order to qualify for the rebate. LePage’s asserts

that, despite its efforts to regain the private label business

from Kmart, one Kmart buyer told it that he could not talk

to LePage’s about tape products for the next three years.

Staples

Staples had been a LePage’s customer for several years.

From 1990 to 1993, LePage’s increased its sales to Staples

by 440%, growing from $357,000 to $1,954,000. In 1994,

Staples considered reducing suppliers and asked LePage’s

and 3M for their best offers in 1994. LePage’s assumed that

if 3M did make a good offer, LePage’s would have a chance

to make a better proposal. LePage’s did not make its lowest

offer, and 3M won the account. When LePage’s went back

to Staples with a new price, it was told that the decision

had been made. LePage’s claims that 3M offered an extra

1% bonus rebate on Scotch products if Staples eliminated

52

LePage’s as a supplier (a “growth” rebate that only could be

met by converting all of Staple’s private label business to

3M). 3M paid Staples an advertising allowance in four

payments totalling $1,000,000 in 1995 and gave it

$500,000 in free merchandise delivered during Staples’s

fiscal year 1994. 3M refers to a “$1.5 million settlement”

with Staples and refers to multiple payments for different

purposes. LePage’s, however, implies that these payments

bore some connection to Staples’s award of its second-tier

tape business to 3M.

Office Max

In 1998, after a dispute between Office Max and LePage’s,

Office Max accepted 3M’s offer that matched but did not

beat LePage’s’s price. LePage’s objected to 3M’s matching

whatever price LePage’s offered, and also objected to 3M’s

“clout” payment. Office Max required its suppliers to make

payments to help advertise the Office Max name, and

LePage’s had paid this “clout” payment in the years

previous to 1998 when it refused to pay it because of its

dispute with Office Max. Nevertheless, the buyer for Office

Max testified that its decision to give its business to 3M

was not related to its pricing and rebate program but rather

to the consistency of its service.

Walgreens

Walgreens had purchased private label tape from

LePage’s from 1992 until 1998, when it decided to import

tape from Taiwan. LePage’s’s chief executive officer

acknowledged that LePage’s did not lose the account due to

3M’s activities.

American Stores

Until 1995, LePage’s’s sales of private label tape to

American Stores exceeded $1,000,000 annually. According

to LePage’s, a month after American Stores decided that it

would try to maximize 3M’s PGF rebate, it shifted its tape

business to 3M. In 1995, American Stores decided to stop

buying LePage’s tape, principally because of quality

53

concerns. In a letter to James Kowieski, Senior Vice

President of Sales at LePage’s, Kevin Winsauer, the

manager of the private label department at American,

wrote: “After much deliberation comparing the pros and

cons of LePage’s program and 3M’s program, I have decided

to award the business to 3M. 3M’s proposal was very

competitive and I am sure LePage’s would meet their costs

to retain the business. However, the decision to move to 3M

is primarily based on Quality.” SJA 2050-51 (emphasis in

original). When American Stores decided to purchase from

3M, it was not participating in any rebate programs, and

Winsauer testified that he was not aware that there were

rebate programs. He also testified that even without the

volume incentive programs, 3M’s price was still slightly

lower than LePage’s’s.

Dollar General, CVS, and Sam’s Club

LePage’s lost Dollar General’s private label business to a

foreign supplier but later won the business back. According

to LePage’s’s president, Dollar General used the bid for

imported tape to leverage a price reduction from LePage’s.

3M bid on the CVS account, but LePage’s retained CVS as

a customer by lowering its prices and increasing its rebate.

At Sam’s Club, LePage’s tape had been selling well when its

buyers were directed by senior management to “maximize”

all purchases from 3M to maximize the EGF/PGF rebate.

Subsequently, Sam’s Club stopped purchasing from

LePage’s.

Other distributors and buying groups

LePage’s claimed that 3M’s pricing practices prevented or

hindered it from selling private label tape to certain

companies: (1) Costco. Costco, however, never has sold

private label tape. (2) Office Depot. Office Depot also never

has sold private label tape. LePage’s tried to convince Office

Depot to buy private label tape in 1991 or 1992 (before 3M

implemented the rebate programs), but Office Depot

decided to continue purchasing 3M brand tape. (3) Pamida

and Venture Stores. LePage’s claimed that 3M offered these

stores discounts conditioned on exclusivity, thereby

54

preventing LePage’s from selling private label tape to them.

LePage’s lost Venture Stores’ business in 1989, five years

before 3M provided the discount at issue. (4) Office Buying

Groups. 3M offered an optional 0.3% price discount to

certain buying groups if they exclusively promoted certain

3M products in their catalogs. If the buying group carried

a lower value brand alternative to 3M’s main brand (its

second line), then the group would receive a lower annual

volume rebate. LePage’s viewed these kind of contract

provisions as a “penalty” that coerced buying group

members to purchase tape only from 3M. For example, if a

buying group promoted the products of a competitor, it lost

rebates for purchases in three categories of products. 3M

argues that LePage’s could have offered its own discount or

rebate but instead refused in one instance to pay the

standard promotional fee charged suppliers for inclusion in

a catalog.

Notwithstanding the evidence which demonstrates that

LePage’s lost business for reasons that could not possibly

be attributable to any unlawful conduct by 3M, it argues

that 3M willfully maintained its monopoly through a

“monopoly broth” of anticompetitive and predatory conduct.

I would reject LePage’s’s argument as I agree with 3M that

LePage’s simply did not establish that 3M’s conduct was

illegal, as LePage’s did not demonstrate that 3M’s pricing

was below cost (a point that is not in dispute) and, in the

absence of such proof, the record does not supply any other

basis on which we can uphold the judgment.

There are two elements of a monopolization claim under

section 2 of the Sherman Act: “(1) the possession of

monopoly power in the relevant market and (2) the willful

acquisition or maintenance of that power as distinguished

from growth or development as a consequence of a superior

product, business acumen, or historic accident.” United

States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct.

1698, 1704 (1966). Willful maintenance involves using

anticompetitive conduct to “foreclose competition, to gain a

competitive advantage, or to destroy a competitor.” Eastman

Kodak Co. v. Image Technical Servs., 504 U.S. 451, 482-83,

112 S.Ct. 2072, 2090 (1992) (internal quotation marks

omitted). LePage’s contends that 3M’s bundled rebates were

55

anticompetitive and predatory. It also argues that 3M’s

other practices, such as exclusionary contracts and the

timing of its rebates, were also anticompetitive and

predatory. I discuss these claims in the order I have stated

them.

LePage’s primarily complains of 3M’s use of bundled

rebates. While, as the majority recognizes, we have held

that rebates on volume purchases are lawful, see Advo, Inc.

v. Philadelphia Newspapers, Inc., 51 F.3d 1191, 1203 (3d

Cir. 1995), LePage’s seeks to avoid that principle by

pointing out that 3M offered higher rebates if customers

met their target growth rate in different product categories,

in effect linking the sale of private label tape with the sale

of other products, such as Scotch tape, which customers

had to buy from 3M. Thus, LePage’s explains:

3M understood that, as a practical matter, every

retailer in the country had to carry Scotch-brand tape

. . . . It therefore decided to structure its rebates into

bundles that linked that product with the product

segment in which it did face competition from LePage’s

(second-line tape) . . . . To increase the leverage on the

targeted segment, 3M further linked rebates on

transparent tape with those for many other products

. . . . The rival would have to ‘compensate’ the

customer for the amount of rebate it would lose not

only on the large volume of Scotch-brand tape it had to

buy, but also for rebates on many other products

purchased from 3M.

Br. of Appellee at 40.

In making its argument LePage’s relies in part on

SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir.

1978), which, as the majority notes, does not bind this en

banc court but nevertheless can have precedential value. In

SmithKline, Eli Lilly & Co. had two products, Keflin and

Keflex, on which it faced no competition, and one product,

Kefzol, on which it faced competition from SmithKline’s

product, Ancef. See id. at 1061. Lilly offered a higher rebate

of 3% to companies that purchased specified quantities of

any three (which, practically speaking, meant combined

purchases of Kefzol, Keflin and Keflex) of Lilly’s

56

cephalosporin products. See id. “Although hospitals were

free to purchase SmithKline’s Ancef with their Keflin and

Keflex orders with Lilly, thus avoiding the penalties of a tie-

in sale,[1] the practical effect of that decision would be to

deny the Ancef purchaser the 3% bonus rebate on all its

cephalosporin products.” Id. at 1061-62 (internal footnote

added). Because of Lilly’s volume advantage, to offer a

rebate of the same net dollar amount as Lilly’s, SmithKline

would have had to offer companies rebates ranging from

16% for average size hospitals to 35% for larger volume

hospitals for their purchase of Ancef. See id. at 1062.

We concluded that Lilly willfully acquired and maintained

monopoly power by linking products on which it faced no

competition (Keflin and Keflex) with a competitive product,

resulting in the sale of all three products on a non-

competitive basis in what otherwise would have been a

competitive market between Ancef and Kefzol. See id. at

1065. Moreover, this arrangement would force SmithKline

to pay rebates on one product equal to rebates paid by Lilly

based on sales volume of three products. See id. Expert

testimony and the evidence on pricing showed that in the

circumstances SmithKline’s prospects for continuing in the

Ancef market were poor.

LePage’s argues that it does not have to show that 3M’s

package discounts could prevent an equally efficient firm

from matching or beating 3M’s package discounts. In its

brief, LePage’s contends that its expert economist explained

that 3M’s programs and cash payments have the same

anticompetitive impact regardless of the cost structure of

the rival suppliers or their efficiency relative to that of 3M.

See Br. of Appellee at 43. LePage’s alleges that the relative

efficiency or cost structure of the competitor simply affects

1. 3M also avoids the penalties of a tie-in sale, because its customers

were free to purchase its Scotch tape by itself. To prove an illegal tie-in,

a plaintiff must establish that the agreement to sell one product was

conditioned on the purchase of a different or tied product; the seller “has

sufficient economic power with respect to the tying product to

appreciably restrain free competition in the market for the tied product

and a ‘not insubstantial’ amount of interstate commerce is affected.”

Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 6, 78 S.Ct. 514, 518

(1958).

57

how long it would take 3M to foreclose the rival from

obtaining the volume of business necessary to survive. See

id. “Competition is harmed just the same by the loss of the

only existing competitive constraints on 3M in a market

with high entry barriers.” Id. The district court stated that

LePage’s introduced substantial evidence that the

anticompetitive effects of 3M’s rebate program caused its

losses. See LePage’s Inc. v. 3M, No. Civ. A. 97-3983, 2000

WL 280350, at *7-8 (E.D. Pa. Mar. 14, 2000). The majority

finds that “3M’s conduct was at least as anticompetitive as

the conduct which [we] held violated § 2 in SmithKline.”

Maj. Op. at 24.

I disagree with the majority’s use of SmithKline.

SmithKline showed that it could not compete by explaining

how much it would have had to lower prices for both small

and big customers to do so. SmithKline ascertained the

rebates that Lilly was giving to customers on all three

products and calculated how much it would have had to

lower the price of its product if the rebates were all

attributed to the one competitive product. In contrast,

LePage’s did not even attempt to show that it could not

compete by calculating the discount that it would have had

to provide in order to match the discounts offered by 3M

through its bundled rebates, and thus its brief does not

point to evidence along such lines.

While I recognize that it is obvious from the size of 3M’s

rebates as compared to LePage’s’s sales that Lepage’s would

have had to make substantial reductions in prices to match

the rebates 3M paid to particular customers, Lepage’s did

not show the amount by which it lowered its prices in

actual monetary figures or by percentage to compete with

3M and how its profitability thus was decreased. Rather,

LePage’s merely maintains, through the use of an expert,

that it would have had to cut its prices drastically to

compete and thus would have gone out of business.

Furthermore, it is critically important to recognize that

LePage’s had 67% of the private label business at the time

of the trial. Thus, notwithstanding 3M’s rebates, LePage’s

was able to retain most of the private label business. In the

circumstances, it is ironical that LePage’s complains of

3M’s use of monopoly power as the undisputed fact is that

58

LePage’s, not 3M, was the dominant supplier of private

label tape both before and after 3M initiated its rebate

programs. Indeed, the record suggests that inasmuch as

LePage’s could not make a profit with a 67% share of the

private label sales, it must have needed to be essentially the

exclusive supplier of such tape for its business to be

profitable as it in fact was when it had an 88% share of the

private label tape sales business.

Although I am not evaluating the expert’s method of

calculating damages as I would not reach the damages

issue, I emphasize that simply pointing to an expert to

support the contention that the company would have gone

out of business, without providing even the most basic

pricing information, is insufficient. “Expert testimony is

useful as a guide to interpreting market facts, but it is not

a substitute for them.” Brooke Group Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 242, 113 S.Ct.

2578, 2598 (1993); see also Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 594 n.19, 106 S.Ct.

1348, 1360 n.19 (1986); Advo, 51 F.3d at 1198-99; Virgin

Atlantic Airways Ltd. v. British Airways PLC, 69 F. Supp. 2d

571, 579 (S.D.N.Y. 1999) (“[A]n expert’s opinion is not a

substitute for a plaintiff ’s obligation to provide evidence of

facts that support the applicability of the expert’s opinion to

the case.”), aff ’d, 257 F.3d 256 (2d Cir. 2001). Without

such pricing information, it is difficult even to begin to

estimate how much of the market share LePage’s lost was

due to 3M’s bundled rebates. In fact, the evidence that I

described above conclusively demonstrates that LePage’s

lost private sale tape business for reasons not related to

3M’s rebates. Furthermore, some experts have questioned

the validity of attributing all the rebates to the one

competitive product in situations such as these.2 I do not

2. One court has mentioned a hypothetical situation where a low-cost

shampoo maker could not match a competitor’s package discount for

shampoo and conditioner even though both products were priced above

their respective costs. See Ortho Diagnostic Sys., Inc. v. Abbott Labs.,

Inc., 920 F. Supp. 455, 467 (S.D.N.Y. 1996). In that case, the court

suggested that the bundled price could be unlawful under section 2 even

though neither item in the package was priced below cost. If the entire

package discount were attributed to the one product where the two

59

need, however, to decide the validity of that method of

calculation, as LePage’s does not even attempt to meet that

less strict test by calculating how much it would have had

to lower its prices to match the rebates, even if they all

were aggregated and attributed to private label tape.3

LePage’s also has not satisfied the stricter tests devised

by other courts considering bundled rebates in situations

such as that here. In a case brought by a manufacturer of

products used in screening blood supply for viruses, Ortho

Diagnostic Systems, Inc. v. Abbott Laboratories, Inc., 920 F.

Supp. 455 (S.D.N.Y. 1996), the district court held, inter

alia, that the defendant’s discount pricing of products in

packages did not violate the Sherman Act. The defendant,

Abbott Laboratories, manufactured all five of the commonly

used tests to screen the blood supply for viruses. Ortho

parties compete, the low-cost shampoo maker could not lower its prices

on the product enough to match the total discount without selling below

its cost. See id. at 467-69. Commentators, however, suggests that this

analysis is incorrect. See III PHILLIP E. AREEDA & HERBERT HOVENKAMP,

ANTITRUST LAW: AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION

¶ 749, at 467 n.6 (rev. ed. 1996).

One aspect of this method of calculation worth noting is that the

volume of the products ordered has a drastic effect on how much the

competitor would have to lower its prices to compete. For example,

suppose in a similar rebate program, a company was the only producer

of products A and B but faced competition in C. If a customer orders 100

units each of A, B, and C at a price of $1.00 each, a 3% rebate would

be $9.00 (3% of the total of $300.00). If the rebate on all three products

were attributed to product C, then the competitor would have to lower its

price to $0.91 in order to compete with it. The results would be starkly

different, however, if a customer orders 100 units of A and B but only

needs 10 units of C. Then the 3% rebate on the total purchase amount

of $210.00 would be $6.30. If the rebate was attributed solely to product

C, then a competitor would have to lower its price to $.37 on product C

in order to match the company’s price.

3. The closest LePage’s comes to supplying such information in its brief

is its statement that “LePage’s made repeated efforts to save its tape

business with Staples, reducing its prices to 1990 levels, and then

reducing them again, to keep its plant open and people working.” Br. of

Appellee at 11. This is not close enough. Of course, Lepage’s’s prices

overall were low enough for it to have 67% of the private label business.

60

claimed that Abbott violated sections 1 and 2 of the

Sherman Act by contracting with the Council of Community

Blood Centers to give those members advantageous pricing

if they purchased a package of four or five tests from

Abbott, thereby using its monopoly position in some of the

tests to foreclose or impair competition by Ortho in the sale

of those tests available from both companies. See id. at

458. The district court stated that to prevail on a

monopolization claim in “a case in which a monopolist (1)

faces competition on only part of a complementary group of

products, (2) offers the products both as a package and

individually, and (3) effectively forces its competitors to

absorb the differential between the bundled and unbundled

prices of the product in which the monopolist has market

power,” the plaintiff must allege and prove “either that (a)

the monopolist has priced below its average variable cost or

(b) the plaintiff is at least as efficient a producer of the

competitive product as the defendant, but that the

defendant’s pricing makes it unprofitable for the plaintiff to

continue to produce.” Id. at 469.

Holding that the discount package pricing did not violate

the Sherman Act, the Ortho court explained that any other

rule would involve too substantial a risk that the antitrust

laws would be used to protect an inefficient competitor

against price competition that would benefit consumers.

See id. at 469-70 (“The antitrust laws were not intended,

and may not be used, to require businesses to price their

products at unreasonably high prices (which penalize the

consumer) so that less efficient competitors can stay in

business.”) (internal quotation marks omitted).

In this case, as the majority acknowledges, LePage’s now

does not contend that 3M priced its products below average

variable cost, an allegation which, if made, in any event

would be difficult to prove. See Advo, 51 F.3d at 1198-99.

Moreover, LePage’s’s economist conceded that LePage’s is

not as efficient a tape producer as 3M. Thus, in this case

section 2 of the Sherman Act is being used to protect an

inefficient producer from a competitor not using predatory

pricing but rather selling above cost. While the majority

contends that Brooke Group, a case on which 3M heavily

relies, is distinguishable as none of the defendants there

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had a monopoly in the market, the fact remains that the

Court in describing section 2 of the Sherman Act said flat

out in Brooke Group that “a plaintiff seeking to establish

competitive injury from a rival’s low prices must prove that

the prices complained of are below an appropriate measure

of its rival’s costs.” Brooke Group, 509 U.S. at 222, 113

S.Ct. at 2587. LePage’s simply did not do this.

I realize that the majority indicates that “LePage’s unlike

the plaintiff in Brooke Group, does not make a predatory

pricing claim.” Maj. Op. at 16. But that circumstance

weakens rather than strengthens LePage’s’s position as it

merely confirms the lawfulness of 3M’s conduct.

Furthermore, the circumstance that 3M is not dealing in an

oligopolistic market should not matter as the harm that

LePage’s claims to have suffered from the bundled rebates

would be no less if inflicted by multiple competitors.

Moreover, monopolist or not, 3M, even in the absence of

LePage’s and Tesa from the private label business, would

not be the only supplier of private lable tape for there are

foreign suppliers as is demonstrated plainly by the evidence

that both Walgreens and Dollar General dealt with such

suppliers.

Contrary to the majority’s view, this is not a situation in

which there is no business justification for 3M’s actions.

This point is important inasmuch as it is difficult to

distinguish legitimate competition from exclusionary

conduct that harms competition, see United States v.

Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir.), cert. denied,

534 U.S. 952, 122 S.Ct. 350 (2001), and some cases

suggest that when a company acts against its economic

interests and there is no valid business justification for its

actions, then it is a good sign that its acts were intended to

eliminate competition.

For example, Aspen Skiing Co. v. Aspen Highlands Skiing

Corp., 472 U.S. 585, 608, 105 S.Ct. 2847, 2860 (1985),

discussed by the majority, sets forth the lack of a valid

business reason as a basis for finding liability. In that case,

the Court affirmed a jury verdict for the plaintiff under

section 2 of the Sherman Act where the defendant

monopolist had stopped cooperating with the plaintiff to

offer a multi-venue skiing package for Aspen skiers. The

62

Court held that because the defendant had acted contrary

to its economic interests, by losing business and

customers, there was no other rationale for its conduct

except that it wished to eliminate the plaintiff as a

competitor. See id. at 608, 105 S.Ct. at 2860; see also

Eastman Kodak, 504 U.S. at 483, 112 S.Ct. at 2091

(exclusionary conduct properly is condemned if valid

business reasons do not justify conduct that tends to

impair the opportunities of a monopolist’s rivals or if a valid

asserted purpose would be served fully by less restrictive

means).

On the other hand, in Concord Boat Corp. v. Brunswick

Corp., 207 F.3d 1039, 1043, 1063 (8th Cir.), cert. denied,

531 U.S. 979, 121 S.Ct. 428 (2000), where boat builders

brought an antitrust action against a stern drive engine

manufacturer, the court held, inter alia, that the evidence

was insufficient to find that the engine manufacturer’s

discount programs restrained trade and monopolized the

market. Brunswick offered a higher percentage discount

when boat builders bought a higher percentage of their

engines from it, but there was no allegation that its pricing

was below cost. See id. at 1044, 1062. In Concord Boat the

district court cited the district court opinion in this case

when 3M filed its motion to dismiss. See LePage’s Inc. v.

3M, No. Civ. A. 97-3983, 1997 WL 734005 (E.D. Pa. Nov.

14, 1997). The Concord Boat district court agreed with the

plaintiff that it was not the price (above cost or not) that

was relevant but the “strings” attached to the price and

that the district court here was correct to distinguish

Brooke Group since there were no “strings” attached

(bundled rebates) in Brooke Group. In Concord Boat, the

“strings” attached were the exclusivity provisions. See

Concord Boat Corp. v. Brunswick Corp., 21 F. Supp. 2d 923,

930 (E.D. Ark. 1998).

The Court of Appeals for the Eighth Circuit, however,

disagreed with the district court in Concord Boat. The court

of appeals opinion reflected an application of Brooke

Group’s strong stance favoring vigorous price competition

and expressing skepticism of the ability of a court to

separate anticompetitive from procompetitive actions when

it comes to above-cost strategic pricing. See Concord Boat,

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207 F.3d at 1061. More importantly, the court perceived

that Brooke Group should be considered even with claims

based on pricing with strings. See id. “If a firm has

discounted prices to a level that remains above the firm’s

average variable cost, the plaintiff must overcome a strong

presumption of legality by showing other factors indicating

that the price charged is anticompetitive.” Id. (citing Morgan

v. Ponder, 892 F.2d 1355, 1360 (8th Cir. 1989)) (internal

quotation marks omitted). The court stated that a section 2

defendant’s proffered business justification is the most

important factor in determining whether its challenged

conduct is not competition on the merits. See id. at 1062.

The court distinguished cases such as SmithKline and

Ortho where products were bundled since they involved two

markets. See id. Of course, here we are dealing with a

single market.

Unlike the situation of the defendant in Aspen, 3M’s

pricing structure and bundled rebates were not contrary to

its economic interests, as they likely increased its sales. In

fact, that is exactly what LePage’s is complaining about.

Furthermore, other than the obvious reasons such as

increasing bulk sales, market share and customer loyalty,

there are several other potential “procompetitive” or valid

business reasons for 3M’s pricing structure and bundled

rebates: efficiency in having single invoices, single

shipments and uniform pricing programs for various

products. Moreover, the record demonstrates that, with the

biggest customers, 3M’s rebates were not eliminating the

competitive process, as LePage’s still was able to retain

some customers through negotiation, and even though it

lost other customers, the losses were attributable to their

switching to foreign suppliers or changing suppliers

because of quality or service without regard to the rebates.

Furthermore, overall LePage’s was quite successful in

holding its share of the private label sales as it had 67% of

the business at the time of the trial.

In sum, I conclude that as a matter of law 3M did not

violate section 2 of the Sherman Act by reason of its

bundled rebates even though its practices harmed its

competitors. The majority decision which upholds the

contrary verdict risks curtailing price competition and a

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method of pricing beneficial to customers because the

bundled rebates effectively lowered their costs. I regard this

result as a significant mistake which cannot be justified by

a fear that somehow 3M will raise prices unreasonably

later. In this regard I reiterate that in addition to LePage’s

there are foreign suppliers of transparent tape so that with

or without LePage’s there will be constraints on 3M’s

pricing.

LePage’s also claims that, through a variety of other

allegedly anticompetitive actions, 3M prevented LePage’s

from competing. LePage’s asserts that 3M foreclosed

competition by directly purchasing sole-supplier status.

There was some dispute as to whether the contracts were

conditioned on 3M being the sole supplier, and 3M claims

that there are only two customers for which there is any

evidence of a sole supplier agreement. I recognize, however,

that although most of 3M’s contracts with customers were

not conditioned on exclusivity, practically speaking some

customers dropped LePage’s as a supplier to maximize the

rebates that 3M was offering. Moreover, United Shoe

Machinery Corp. v. United States, 258 U.S. 451, 458, 42

S.Ct. 363, 365 (1922), explained that a contract that does

not contain specific agreements not to use the products of

a competitor still will come within the Clayton Act as to

exclusivity if its practical effect is to prevent such use.

Even assuming, however, that 3M did have exclusive

contracts with some of the customers, LePage’s has not

demonstrated that 3M acted illegally, as one-year exclusive

contracts have been held to be reasonable and not unduly

restrictive. See Fed. Trade Comm’n v. Motion Picture Adver.

Serv. Co., 344 U.S. 392, 395-96, 73 S.Ct. 361, 363-64

(1953) (holding that evidence sustained the Commission’s

finding that the distributor’s exclusive screening

agreements with theater operators unreasonably restrained

competition, but stating that the Commission had found

that the term of one-year exclusive contracts had become a

standard practice and would not be an undue restraint on

competition). See also Advo, 51 F.3d at 1204. In Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81

S.Ct. 623, 627-28 (1961), the Court stated that even if in

practical application a contract is found to be an exclusive-

65

dealing arrangement, it does not violate section 3 of the

Clayton Act unless the court believes it probable that

performance of the contract will foreclose competition in a

substantial share of the line of commerce affected. Using

that standard, although LePage’s’s market share in private

label tape has fallen from 88% to 67%, it has not been

established that, as a result of the allegedly exclusive

contracts, competition was foreclosed in a substantial share

of the line of commerce affected. Indeed, in view of

LePage’s’s two-thirds share of the private label business, its

attack on exclusivity agreements is attenuated.

There appear to be very few cases supporting liability

based on section 2 of the Sherman Act for exclusive

dealing, as some cases suggest that if, as is the case here

under the jury’s findings, there is no liability under section

3 of the Clayton Act, it is more difficult to find liability

under the Sherman Act since its scope is more restricted.4

In any event, the record shows only two allegedly exclusive

contracts (with the Venture and Pamida stores), and

“[b]ecause an exclusive deal affecting a small fraction of a

market clearly cannot have the requisite harmful effect

upon competition, the requirement of a significant degree of

foreclosure serves a useful screening function.” Microsoft,

253 F.3d at 69. The Microsoft court explained that although

exclusive contracts are commonplace, particularly in the

field of distribution, in certain circumstances the use of

exclusive contracts may give rise to a section 2 violation

even though the contracts foreclose less than the roughly

40 to 50% share usually required to establish a section 1

violation. See id. at 69-70. In this case, it cannot be

concluded that the two contracts with Venture and Pamida

were responsible for the total drop in LePage’s’s market

share. Furthermore, even if all 3M’s contracts were

considered exclusive, LePage’s’s total drop in market share

was only 21%, and some of this loss was shown in the

record to be due to quality or service consistency concerns,

as well as foreign competition, rather than to 3M’s tactics.

4. It is more common for charges of exclusive dealing to be brought

under section 1 of the Sherman Act or the Clayton Act, which the jury

found that 3M did not violate. See, e.g., Barr Labs., Inc. v. Abbott Labs.,

978 F.2d 98, 110 (3d Cir. 1992).

66

Therefore, there was not enough foreclosure of the market

to have an anticompetitive effect.

LePage’s also claims that by calculating the rebates only

once a year, 3M made it more difficult for a purchaser to

pass on the savings to its customers, thereby making it

harder for companies to switch suppliers and keeping retail

prices and margins high. As I discussed above, one-year

contracts may be considered standard, and even if they

make it more unlikely that rebates are passed on in the

form of lower retail prices, the discounts could be applied

towards lowering retail prices the following year or towards

other costs by companies that are factored into the retail

prices (such as advertising). In the circumstances, I am

satisfied that this conduct does not qualify as predatory or

anticompetitive so as to establish liability under section 2

of the Sherman Act.

LePage’s also alleges that 3M entered the retail private

label tape portion of the market to destroy the market and

thereby increase its sales of branded tape, but the case law

does not support liability under section 2 for this type of

action. In Brooke Group, 509 U.S. at 215, 113 S.Ct. at

2584, Liggett/Brooke Group alleged that Brown &

Williamson Tobacco Corporation (“B&W”) sold generic

cigarettes in order to decrease losses of sales in its branded

cigarettes. B&W sold generic cigarettes at the same list

price as Liggett but also offered large volume rebates to

certain wholesalers so they would buy their generic

cigarettes from B&W. See id. at 216, 113 S.Ct. at 2584.

B&W wanted to take a larger part of the generic market

from Liggett and drive Liggett to raise prices on generic

cigarettes, which B&W would match, thereby encouraging

consumers to switch back to branded cigarettes. See id. at

216-17, 113 S.Ct. at 2584. The Court held that because

B&W had no reasonable prospect of recouping its predatory

losses and could not inflict the injury to competition that

antitrust laws prohibit, it did not violate the Robinson-

Patman Act or the Sherman Act. See id. at 243, 113 S.Ct.

at 2598. In this case, however, 3M did not use below

average variable cost pricing (LePage’s does not charge

predatory pricing) and therefore 3M did not have predatory

costs to recoup.

67

I recognize that LePage’s attempts to distinguish Brooke

Group on the ground that “3M used other techniques [i.e.,

techniques other than predatory pricing] to extinguish the

private-label category subjecting itself to different legal

standards,” Br. of Appellee at 55, but I nevertheless cannot

accept LePage’s’s argument on this point. While LePage’s

does not contend that 3M engaged in predatory pricing, it

does contend that the goal of 3M’s other conduct was “to

extinguish the private-label category, subjecting itself to

different legal standards” than those applicable in Brooke

Group. See id. Moreover, though 3M denies that it was

attempting to eliminate the private label category of

transparent tape, the record supports a finding that it had

that intent. I am satisfied, however, that its efforts to

eliminate the private label aspect of the transparent tape

market are not unlawful as, “examined without reference to

its effects on competitors,” it is evident that in view of 3M’s

dominance in brand tape, that it was rational for it to want

the sale of tape to be concentrated in that category of the

market. See Stearns Airport Equip. Co. v. FMC Corp., 170

F.3d 518, 523 (5th Cir. 1999). Thus, we should not uphold

the verdict on that basis.

Accordingly, I conclude that 3M’s actions in the record,

including the bundled rebates and other elements of the

“monopoly broth,” were not anticompetitive and predatory

as to violate section 2 of the Sherman Act.5 Thus, I would

reverse the judgment of the district court and remand the

case for entry of judgment in favor of 3M. Judge Scirica and

Judge Alito join in this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

5. While I do not discuss the point I agree with the district court’s

disposition of the attempted maintenance of monopoly claim.