ZF Meritor LLC v. Eaton Corporation

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

Nos. 11-3301 and 11-3426

______

ZF MERITOR, LLC;

MERITOR TRANSMISSION CORPORATION,

Appellants, No. 11-3426

v.

EATON CORPORATION,

Appellant, No. 11-3301

______

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 1-06-cv-00623)

District Judge: Honorable Sue L. Robinson

______

Argued June 26, 2012

Before: FISHER and GREENBERG, Circuit Judges,

and OLIVER,* District Judge.

*

The Honorable Solomon Oliver, Jr., Chief Judge of

the United States District Court for the Northern District of

Ohio, sitting by designation.

(Filed: September 28, 2012 )

Caeli A. Higney

Thomas G. Hungar

Theodore B. Olson (Argued)

Cynthia E. Richman

Geoffrey C. Weien

Gibson, Dunn & Crutcher

1050 Connecticut Avenue, N.W., 9th Floor

Washington, DC 20036

Erik T. Koons

William K. Lavery

Joseph A. Ostoyich

Baker Botts

1299 Pennsylvania Avenue, N.W.

The Warner

Washington, DC 20004

Donald E. Reid

Morris, Nichols, Arsht & Tunnell

1201 North Market Street

P.O. Box 1347

Wilmington, DE 19899

Counsel for Eaton Corporation

Jay N. Fastow (Argued)

Dickstein Shapiro

1633 Broadway

New York, NY 10019

2

Robert B. Holcomb

Adams Holcomb

1875 Eye Street. N.W., Suite 810

Washington, DC 20006

Christopher H. Wood

1489 Steele Street, Suite 111

Denver, CO 80206

Counsel for ZF Meritor, LLC and

Meritor Transmission Corp.

Michael S. Tarringer

Cafferty Faucher

1717 Arch Street, Suite 3610

Philadelphia, PA 19103

Counsel for American Antitrust

Institute

______

OPINION OF THE COURT

______

FISHER, Circuit Judge.

This case arises from an antitrust action brought by ZF

Meritor, LLC (―ZF Meritor‖) and Meritor Transmission

Corporation (―Meritor‖) (collectively, ―Plaintiffs‖) against

Eaton Corporation (―Eaton‖) for allegedly anticompetitive

practices in the heavy-duty truck transmissions market. The

practices at issue are embodied in long-term agreements

3

between Eaton, the leading supplier of heavy-duty truck

transmissions in North America, and every direct purchaser of

such transmissions. Following a four-week trial, a jury found

that Eaton‘s conduct violated Section 1 and Section 2 of the

Sherman Act, and Section 3 of the Clayton Act. Eaton filed a

renewed motion for judgment as a matter of law, arguing that

its conduct was per se lawful because it priced its products

above-cost. The District Court disagreed, reasoning that

notwithstanding Eaton‘s above-cost prices, there was

sufficient evidence in the record to establish that Eaton

engaged in anticompetitive conduct—specifically that Eaton

entered into long-term de facto exclusive dealing

arrangements—which foreclosed a substantial share of the

market and, as a result, harmed competition. We agree with

the District Court and will affirm the District Court‘s denial

of Eaton‘s renewed motion for judgment as a matter of law.

We are also called upon to address several other

issues. Although the jury returned a verdict in favor of

Plaintiffs on the issue of liability, prior to trial, the District

Court granted Eaton‘s motion to exclude the damages

testimony of Plaintiffs‘ expert. The District Court also denied

Plaintiffs‘ request for permission to amend the expert report

to include alternate damages calculations. Consequently, the

issue of damages was never tried and no damages were

awarded. Plaintiffs cross-appeal from the District Court‘s

order granting Eaton‘s motion to exclude and the District

Court‘s subsequent denial of Plaintiffs‘ motion for

clarification. For the reasons set forth below, we will affirm

the District Court‘s orders to the extent that they excluded

Plaintiffs‘ expert‘s testimony based on the damages

4

calculations in his initial expert report, but reverse to the

extent that the District Court denied Plaintiffs‘ request to

amend the report to submit alternate damages calculations.

Finally, although the District Court awarded no damages, it

did enter injunctive relief against Eaton. On appeal, Eaton

argues that Plaintiffs lack standing to seek injunctive relief

because they are no longer in the heavy-duty truck

transmissions market, and have expressed no concrete desire

to re-enter the market. We agree and will vacate the District

Court‘s order issuing injunctive relief.

I. BACKGROUND

A. Factual Background

1. Market Background

The parties agree that the relevant market in this case

is heavy-duty ―Class 8‖ truck transmissions (―HD

transmissions‖) in North America. Heavy-duty trucks include

18-wheeler ―linehaul‖ trucks, which are used to travel long

distances on highways, and ―performance‖ vehicles, such as

cement mixers, garbage trucks, and dump trucks. There are

three types of HD transmissions: three-pedal manual, which

uses a clutch to change gears; two-pedal automatic; and two-

or-three-pedal automated mechanical, which engages the

gears mechanically through electronic controls. Linehaul and

performance transmissions, which comprise over 90% of the

5

market, typically use manual or automated mechanical

transmissions.1

There are only four direct purchasers of HD

transmissions in North America: Freightliner, LLC

(―Freightliner‖), International Truck and Engine Corporation

(―International‖), PACCAR, Inc. (―PACCAR‖), and Volvo

Group (―Volvo‖). These companies are referred to as the

Original Equipment Manufacturers (―OEMs‖). The ultimate

consumers of HD transmissions, truck buyers, purchase

trucks from the OEMs. Truck buyers have the ability to

select many of the components used in their trucks, including

the transmissions, from OEM catalogues called ―data books.‖

Data books list the alternative component choices, and

include a price for each option relative to the ―standard‖ or

―preferred‖ offerings. The ―standard‖ offering is the

component that is provided to the customer unless the

customer expressly designates another supplier‘s product,

while the ―preferred‖ or ―preferentially-priced‖ offering is the

lowest priced component in data book among comparable

products. Data book positioning is a form of advertising, and

standard or preferred positioning generally means that

customers are more likely to purchase that supplier‘s

components. Although customers may, and sometimes do,

request components that are not published in a data book,

doing so is often cumbersome and increases the cost of the

1

A third category of heavy-duty trucks, ―specialty‖

vehicles, such as fire trucks, typically use automatic

transmissions.

6

component. Thus, data book positioning is essential in the

industry.

Eaton has long been a monopolist in the market for

HD transmissions in North America.2 It began making HD

transmissions in the 1950s, and was the only significant

manufacturer until Meritor entered the market in 1989 and

began offering manual transmissions primarily for linehaul

trucks. By 1999, Meritor had obtained approximately 17% of

the market for sales of HD transmissions, including 30% for

linehaul transmissions. In mid-1999, Meritor and ZF

Friedrichshafen (―ZF AG‖), a leading supplier of HD

transmissions in Europe, formed the joint venture ZF Meritor,

and Meritor transferred its transmissions business into the

joint venture.3 Aside from Meritor, and then ZF Meritor, no

significant external supplier of HD transmissions has entered

the market in the past 20 years.4

One purpose of the ZF Meritor joint venture was to

adapt ZF AG‘s two-pedal automated mechanical

2

At trial, Eaton disputed that it was a monopolist, but

on appeal, does not challenge the jury‘s finding that it

possessed monopoly power in the HD transmissions market

in North America.

3

ZF AG is not a party to this lawsuit.

4

―External‖ transmission sales do not include

transmissions manufactured by Volvo Group for use in its

own trucks.

7

transmission, ASTronic, which was used exclusively in

Europe, for the North American market. The redesign and

testing took 18 months, and ZF Meritor introduced the

adapted ASTronic model into the North American market in

2001 under the new name FreedomLine. FreedomLine was

the first two-pedal automated mechanical transmission to be

sold in North America.5 When FreedomLine was released,

Eaton projected that automated mechanical transmissions

would account for 30-50% of the market for all HD

transmission sales by 2004 or 2005.

2. Eaton’s Long-Term Agreements

In late 1999 through early 2000, the trucking industry

experienced a 40-50% decline in demand for new heavy-duty

trucks. Shortly thereafter, Eaton entered into new long-term

agreements (―LTAs‖) with each OEM. Although long-term

supply contracts were not uncommon in the industry, and

were also utilized by Meritor in the 1990s, Eaton‘s new LTAs

were unprecedented in terms of their length and coverage of

the market. Eaton signed LTAs with every OEM, and each

LTA was for a term of at least five years.

Although the LTAs‘ terms varied somewhat, the key

provisions were similar. Each LTA included a conditional

rebate provision, under which an OEM would only receive

rebates if it purchased a specified percentage of its

5

Eaton did not produce a two-pedal automated

mechanical transmission at the time, and would not fully

release one until 2004.

8

requirements from Eaton.6 Eaton‘s LTA with Freightliner,

the largest OEM, provided for rebates if Freightliner

purchased 92% or more of its requirements from Eaton.7

Under Eaton‘s LTA with International, Eaton agreed to make

an up-front payment of $2.5 million, and any additional

rebates were conditioned on International purchasing 87% to

97.5% of its requirements from Eaton. The PACCAR LTA

provided for an up-front payment of $1 million, and

conditioned rebates on PACCAR meeting a 90% to 95%

market-share penetration target. Finally, Eaton‘s LTA with

Volvo provided for discounts if Volvo reached a market-share

penetration level of 70% to 78%.8 The LTAs were not true

6

We will refer to these as ―market-share‖ discounts or

―market-penetration‖ discounts. It is important to distinguish

such discounts from quantity or volume discounts. Quantity

discounts provide the buyer with a lower price for purchasing

a specified minimum quantity or volume from the seller. In

contrast, market-share discounts grant the buyer a lower price

for taking a specified minimum percentage of its purchases

from the seller. Phillip E. Areeda & Herbert Hovenkamp,

Antitrust Law ¶ 768, at 169 (3d ed. 2008).

7

In 2003, Freightliner and Eaton modified the

agreement from a fixed 92% goal to a sliding scale, which

entitled Freightliner to different rebates at different market-

penetration levels.

8

The share penetration targets in the Volvo LTA were

lower because Volvo also manufactured transmissions for use

in its own trucks. The commitment to Eaton, plus Volvo‘s

9

requirements contracts because they did not expressly require

the OEMs to purchase a specified percentage of their needs

from Eaton. However, the Freightliner and Volvo LTAs gave

Eaton the right to terminate the agreements if the share

penetration goals were not met. Additionally, if an OEM did

not meet its market-share penetration target for one year,

Eaton could require repayment of all contractual savings.

Each LTA also required the OEM to publish Eaton as

the standard offering in its data book, and under two of the

four LTAs, the OEM was required to remove competitors‘

products from its data book entirely. Freightliner agreed to

exclusively publish Eaton transmissions in its data books

through 2002, but reserved the right to publish ZF Meritor‘s

FreedomLine through the life of the agreement. In 2002,

Freightliner and Eaton revised the LTA to allow Freightliner

to publish other competitors‘ transmissions, but the revised

LTA provided that Eaton had the right to ―renegotiate the

rebate schedule‖ if Freightliner chose to publish a

competitor‘s transmission. Subsequently, Freightliner agreed

to a request by Eaton to remove FreedomLine from all of its

data books. Eaton‘s LTA with International also required that

International list exclusively Eaton transmissions in its

electronic data book. International did, however, publish ZF

Meritor‘s manual transmissions in its printed data book. The

Volvo and PACCAR LTAs did not require that Eaton

products be the exclusive offering, but did require that Eaton

products be listed as the preferred offering. Both Volvo and

own manufactured products, accounted for more than 85% of

Volvo‘s needs.

10

PACCAR continued to list ZF Meritor‘s products in their data

books. In the 1990s, Meritor‘s products were listed in all

OEM component data books, and in some cases, had

preferred positioning.

The LTAs also required the OEMs to ―preferential

price‖ Eaton transmissions against competitors‘ equivalent

transmissions. Eaton claims that it sought preferential pricing

to ensure that its low prices were passed on to truck buyers.

However, there were no express requirements in the LTAs

that savings be passed on to truck buyers (i.e., that Eaton‘s

prices be reduced) and there is evidence that the ―preferential

pricing‖ was achieved by both lowering the prices of Eaton‘s

products and raising the prices of competitors‘ products.

Eaton notes that it was ―common‖ for price savings to be

passed down to truck buyers, and a Volvo executive testified

that some of the savings from Eaton products were passed

down while others were kept to improve profit margins.

Plaintiffs, however, emphasize that according to an email sent

by Eaton to Freightliner, the Freightliner LTA required that

ZF Meritor‘s products be priced at a $200 premium over

equivalent Eaton products. Likewise, International agreed to

an ―artificial[] penal[ty]‖ of $150 on all of ZF Meritor‘s

transmissions as of early 2003, and PACCAR imposed a

penalty on customers who chose ZF Meritor‘s products.

Finally, each LTA contained a ―competitiveness‖

clause, which permitted the OEM to purchase transmissions

from another supplier if that supplier offered the OEM a

lower price or a better product, the OEM notified Eaton of the

competitor‘s offer, and Eaton could not match the price or

quality of the product after good faith efforts. The parties

11

dispute the significance of the ―competitiveness‖ clauses.

Eaton maintains that Plaintiffs were free to win the OEMs‘

business simply by offering a better product or a lower price,

while Plaintiffs argue and presented testimony from OEM

officials that, due to Eaton‘s status as a dominant supplier, the

competitiveness clauses were effectively meaningless.

3. Competition under the LTAs and

Plaintiffs’ Exit from the Market

After Eaton entered into its LTAs with the OEMs, ZF

Meritor shifted its marketing focus from the OEM level to a

strategy targeted at truck buyers. Also during this time

period, both ZF Meritor and Eaton experienced quality and

performance issues with their transmissions. For example,

Eaton‘s Lightning transmission, which was an initial attempt

by Eaton to compete with FreedomLine, was ―not perceived

as a good [product]‖ and was ultimately taken off the market.

ZF Meritor‘s FreedomLine and ―G Platform‖ transmissions

required frequent repairs, and in 2002 and 2003, ZF Meritor

faced millions of dollars in warranty claims.

During the life of the LTAs, the OEMs worked with

Eaton to develop a strategy to combat ZF Meritor‘s growth.

On Eaton‘s urging, the OEMs imposed additional price

penalties on customers that selected ZF Meritor products,

―force fed‖ Eaton products to customers, and sought to

persuade truck fleets using ZF Meritor transmissions to shift

to Eaton transmissions. At all times relevant to this case,

Eaton‘s average prices were lower than Plaintiffs‘ average

prices, and on several occasions, Plaintiffs declined to grant

price concessions requested by OEMs. Although Eaton‘s

12

prices were generally lower than Plaintiffs‘ prices, Eaton

never priced at a level below its costs.

By 2003, ZF Meritor determined that it was limited by

the LTAs to no more than 8% of the market, far less than the

30% that it had projected at the beginning of the joint venture.

ZF Meritor officials concluded that the company could not

remain viable with a market share below 10% and therefore

decided to dissolve the joint venture. After ZF Meritor‘s

departure, Meritor remained a supplier of HD transmissions

and became a sales agent for ZF AG to ensure continued

customer access to the FreedomLine. However, Meritor‘s

market share dropped to 4% by the end of fiscal year 2005,

and Meritor exited the business in January 2007.

B. Procedural History

On October 5, 2006, Plaintiffs filed suit against Eaton

in the U.S. District Court for the District of Delaware,

alleging that Eaton used unlawful agreements in restraint of

trade, in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1; acted unlawfully to maintain a monopoly, in violation of

Section 2 of the Sherman Act, 15 U.S.C. § 2; and entered into

illegal restrictive dealing agreements, in violation of Section 3

of the Clayton Act, 15 U.S.C. § 14. Specifically, Plaintiffs

alleged that Eaton ―used its dominant position to induce all

heavy duty truck manufacturers to enter into de facto

exclusive dealing contracts with Eaton,‖ and that such

agreements foreclosed Plaintiffs from over 90% of the market

for HD transmission sales. Plaintiffs sought treble damages,

pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, and

13

injunctive relief, pursuant to Section 16 of the Clayton Act,

15 U.S.C. § 26.

On February 17, 2009, Plaintiffs‘ expert, Dr. David

DeRamus (―DeRamus‖), submitted a report on both liability

and damages. On May 11, 2009, Eaton filed a motion,

pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc.,

509 U.S. 579 (1993), to exclude DeRamus‘s testimony. The

District Court ruled that DeRamus would be allowed to testify

regarding liability, but excluded DeRamus‘s testimony on the

issue of damages on the basis that his damages opinion failed

the reliability requirements of Daubert and the Federal Rules

of Evidence. ZF Meritor LLC v. Eaton Corp., 646 F. Supp.

2d 663 (D. Del. 2009). Plaintiffs filed a motion for

clarification, requesting that DeRamus be allowed to testify to

alternate damages calculations based on other data in his

expert report, or in the alternative, seeking permission for

DeRamus to amend his expert report to present his alternate

damages calculations. The District Court decided to defer

resolution of the damages issue and bifurcate the case.

The parties proceeded to trial on liability. On October

8, 2009, after a four-week trial, the jury returned a complete

verdict for Plaintiffs, finding that Eaton had violated Sections

1 and 2 of the Sherman Act, and Section 3 of the Clayton Act.

Following the verdict, Plaintiffs asked the District Court to

set a damages trial, but no damages trial was set at that time.

On October 30, 2009, Plaintiffs supplemented their earlier

motion for clarification, incorporating additional arguments

based on developments at trial.

14

On November 3, 2009, Eaton filed a renewed motion

for judgment as a matter of law, or in the alternative, for a

new trial. Eaton‘s principal argument was that Plaintiffs

failed to establish that Eaton engaged in anticompetitive

conduct because Plaintiffs did not show, nor did they attempt

to show, that Eaton priced its transmissions below its costs.

Sixteen months later, on March 10, 2011, the District Court

denied Eaton‘s motion, reasoning that Eaton‘s prices were not

dispositive, and that there was sufficient evidence for a jury to

conclude that Eaton‘s conduct unlawfully foreclosed

competition in a substantial portion of the HD transmissions

market. ZF Meritor LLC v. Eaton Corp., 769 F. Supp. 2d 684

(D. Del. 2011).

On August 4, 2011, the District Court denied

Plaintiffs‘ motion for clarification, and denied Plaintiffs‘

request to allow DeRamus to amend his expert report to

include alternate damages calculations. The same day, the

District Court entered an order awarding Plaintiffs $0 in

damages. On August 19, 2011, the District Court entered an

injunction prohibiting Eaton from ―linking discounts and

other benefits to market penetration targets,‖ but stayed the

injunction pending appeal. Eaton filed a timely notice of

appeal and Plaintiffs filed a timely cross-appeal.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction over this case

pursuant to 28 U.S.C. §§ 1331 and 1337. We have appellate

jurisdiction under 28 U.S.C. § 1291.

15

We exercise plenary review over an order denying a

motion for judgment as a matter of law. LePage’s Inc. v. 3M,

324 F.3d 141, 145 (3d Cir. 2003) (en banc). A motion for

judgment as a matter of law should be granted ―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.‖ Id. at 145-46

(quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153,

1166 (3d Cir. 1993)). We review questions of law underlying

a jury verdict under a plenary standard of review. Id. at 146

(citing Bloom v. Consol. Rail Corp., 41 F.3d 911, 913 (3d Cir.

1994)). Underlying legal questions aside, ―[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.‖ Swineford v. Snyder Cnty., 15

F.3d 1258, 1265 (3d Cir. 1994).

We review a district court‘s decision to exclude expert

testimony for abuse of discretion. Montgomery Cnty. v.

Microvote Corp., 320 F.3d 440, 445 (3d Cir. 2003). To the

extent the district court‘s decision involved an interpretation

of the Federal Rules of Evidence, our review is plenary.

Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d Cir. 2000). We

also review a district court‘s decisions regarding discovery

and case management for abuse of discretion. United States

v. Schiff, 602 F.3d 152, 176 (3d Cir. 2010); In re Fine Paper

Antitrust Litig., 685 F.2d 810, 817-18 (3d Cir. 1982).

We review legal conclusions regarding standing de

novo, and the underlying factual determinations for clear

16

error. Interfaith Cmty. Org. v. Honeywell Int’l, Inc., 399 F.3d

248, 253 (3d Cir. 2005).

III. DISCUSSION

A. Effect of the Price-Cost Test

The most significant issue in this case is whether

Plaintiffs‘ allegations under Sections 1 and 2 of the Sherman

Act and Section 3 of the Clayton Act are subject to the price-

cost test or the ―rule of reason‖ applicable to exclusive

dealing claims. Under the rule of reason, an exclusive

dealing arrangement will be unlawful only if its ―probable

effect‖ is to substantially lessen competition in the relevant

market. Tampa Elec. Coal Co. v. Nashville Coal Co., 365

U.S. 320, 327-29 (1961); United States v. Dentsply Int’l, 399

F.3d 181, 191 (3d Cir. 2005); Barr Labs., Inc. v. Abbott

Labs., 978 F.2d 98, 110 (3d Cir. 1992). In contrast, under the

price-cost test, to succeed on a challenge to the defendant‘s

pricing practices, a plaintiff must prove ―that the

[defendant‘s] prices are below an appropriate measure of [the

defendant‘s] costs.‖ Brooke Grp. Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 222 (1993).9

9

Although Plaintiffs brought claims under three

statutes (Sections 1 and 2 of the Sherman Act and Section 3

of the Clayton Act), our analysis regarding the applicability

of the price-cost test is the same for all of Plaintiffs‘ claims.

In order to establish an actionable antitrust violation, a

plaintiff must show both that the defendant engaged in

anticompetitive conduct and that the plaintiff suffered

17

antitrust injury as a result. Atl. Richfield Co. v. USA

Petroleum Co., 495 U.S. 328, 339-40 (1990). Because a lack

of anticompetitive conduct precludes a finding of antitrust

injury, the key question for us is whether Eaton engaged in

anticompetitive conduct. See id. at 339 (―Antitrust injury

does not arise . . . until a private party is adversely affected by

an anticompetitive aspect of the defendant‘s conduct.‖).

Sections 1 and 2 of the Sherman Act and Section 3 of

the Clayton Act each include an anticompetitive conduct

element, although each statute articulates that element in a

slightly different way. Under Section 1 of the Sherman Act, a

plaintiff must establish that the defendant was a party to a

contract, combination or conspiracy that ―imposed an

unreasonable restraint on trade.‖ 15 U.S.C. § 1; In re Ins.

Brokerage Antitrust Litig., 618 F.3d 300, 314-15 (3d Cir.

2010). Under Section 2, a plaintiff must demonstrate that the

defendant willfully acquired or maintained its monopoly

power in the relevant market. 15 U.S.C. § 2; United States v.

Grinnell Corp., 384 U.S. 564, 570-71 (1966). ―A monopolist

willfully acquires or maintains monopoly power when it

competes on some basis other than the merits.‖ LePage’s Inc.

v. 3M, 324 F.3d 141, 147 (3d Cir. 2003) (en banc) (citing

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.

585, 605 n.32 (1985)). Finally, Section 3 of the Clayton Act

makes it unlawful for a person to enter into an exclusive

dealing contract where the effect of such an agreement is to

substantially lessen competition or create a monopoly. 15

U.S.C. § 14.

18

Eaton urges us to apply the price-cost test, arguing that

Plaintiffs failed to establish that Eaton engaged in

anticompetitive conduct or that Plaintiffs suffered an antitrust

injury because Plaintiffs did not prove—or even attempt to

prove—that Eaton priced its transmissions below an

appropriate measure of its costs. We decline to adopt Eaton‘s

unduly narrow characterization of this case as a ―pricing

practices‖ case, i.e., a case in which price is the clearly

predominant mechanism of exclusion. Plaintiffs consistently

argued that the LTAs, in their entirety, constituted de facto

exclusive dealing contracts, which improperly foreclosed a

substantial share of the market, and thereby harmed

competition. Accordingly, as we will discuss below, we must

evaluate the legality of Eaton‘s conduct under the rule of

reason to determine whether the ―probable effect‖ of such

conduct was to substantially lessen competition in the HD

transmissions market in North America. Tampa Elec., 365

U.S. at 327-29. The price-cost test is not dispositive.

1. Law of Exclusive Dealing

Exclusive dealing claims may be brought under

Sections 1 and 2 of the Sherman Act and Section 3 of the

Clayton Act. LePage’s, 324 F.3d at 157. Additionally, the

Supreme Court has held that the price-cost test is not confined

to any one antitrust statute, and applies to pricing practices

claims under the Sherman Act, the Clayton Act, and the

Robinson-Patman Act. Brooke Grp. Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 222-23 (1993); Atl.

Richfield, 495 U.S. at 339-40. Thus, regardless of which test

applies, that test is applicable to each of Plaintiffs‘ claims.

19

An exclusive dealing arrangement is an agreement in

which a buyer agrees to purchase certain goods or services

only from a particular seller for a certain period of time.

Herbert Hovenkamp, Antitrust Law ¶ 1800a, at 3 (3d ed.

2011). The primary antitrust concern with exclusive dealing

arrangements is that they may be used by a monopolist to

strengthen its position, which may ultimately harm

competition. Dentsply, 399 F.3d at 191. Generally, a

prerequisite to any exclusive dealing claim is an agreement to

deal exclusively. Tampa Elec., 365 U.S. at 326-27; see

Dentsply, 399 F.3d at 193-94; Barr Labs., 978 F.2d at 110 &

n.24.10 An express exclusivity requirement, however, is not

necessary, LePage’s, 324 F.3d at 157, because we look past

the terms of the contract to ascertain the relationship between

the parties and the effect of the agreement ―in the real world.‖

Dentsply, 399 F.3d at 191, 194. Thus, de facto exclusive

dealing claims are cognizable under the antitrust laws.

LePage’s, 324 F.3d at 157.

Exclusive dealing agreements are often entered into for

entirely procompetitive reasons, and generally pose little

threat to competition. Race Tires Am., Inc. v. Hoosier Racing

10

Evidence of an agreement is expressly required

under Section 1 of the Sherman Act and Section 3 of the

Clayton Act. See 15 U.S.C. §§ 1 and 14. However, an

agreement is not necessarily required under Section 2 of the

Sherman Act, which can provide a vehicle for challenging a

dominant firm‘s unilateral imposition of exclusive dealing on

customers. See 15 U.S.C. § 2; Herbert Hovenkamp, Antitrust

Law ¶ 1821a, at 183 (3d ed. 2011).

20

Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010) (―[I]t is widely

recognized that in many circumstances, [exclusive dealing

arrangements] may be highly efficient—to assure supply,

price stability, outlets, investment, best efforts or the like—

and pose no competitive threat at all.‖) (quoting E. Food

Servs. v. Pontifical Catholic Univ. Servs. Ass’n, 357 F.3d 1, 8

(1st Cir. 2004)). For example, ―[i]n the case of the buyer,

they may assure supply, afford protection against rises in

price, enable long-term planning on the basis of known costs,

and obviate the expense and risk of storage in the quantity

necessary for a commodity having a fluctuating demand.‖

Standard Oil Co. v. United States, 337 U.S. 293, 306 (1949).

From the seller‘s perspective, an exclusive dealing

arrangement with customers may reduce expenses, provide

protection against price fluctuations, and offer the possibility

of a predictable market. Id. at 306-07; see also Ryko Mfg. Co.

v. Eden Servs., 823 F.2d 1215, 1234 n.17 (8th Cir. 1987)

(explaining that exclusive dealing contracts can help prevent

dealer free-riding on manufacturer-supplied investments to

promote rival‘s products). As such, competition to be an

exclusive supplier may constitute ―a vital form of rivalry,‖

which the antitrust laws should encourage. Race Tires, 614

F.3d at 83 (quoting Menasha Corp. v. News Am. Mktg. In-

Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004)).

However, ―[e]xclusive dealing can have adverse

economic consequences by allowing one supplier of goods or

services unreasonably to deprive other suppliers of a market

for their goods[.]‖ Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 466 U.S. 2, 45 (1984) (O‘Connor, J., concurring),

abrogated on other grounds by Ill. Tool Works Inc. v. Indep.

21

Ink, Inc., 547 U.S. 28 (2006); Barry Wright, 724 F.2d at 236

(explaining that ―under certain circumstances[,] foreclosure

might discourage sellers from entering, or seeking to sell in, a

market at all, thereby reducing the amount of competition that

would otherwise be available‖). Exclusive dealing

arrangements are of special concern when imposed by a

monopolist. See Dentsply, 399 F.3d at 187 (―Behavior that

otherwise might comply with antitrust law may be

impermissibly exclusionary when practiced by a

monopolist.‖). For example:

[S]uppose an established manufacturer has long

held a dominant position but is starting to lose

market share to an aggressive young rival. A

set of strategically planned exclusive-dealing

contracts may slow the rival‘s expansion by

requiring it to develop alternative outlets for its

product, or rely at least temporarily on inferior

or more expensive outlets. Consumer injury

results from the delay that the dominant firm

imposes on the smaller rival‘s growth.

Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1802c,

at 64 (2d ed. 2002). In some cases, a dominant firm may be

able to foreclose rival suppliers from a large enough portion

of the market to deprive such rivals of the opportunity to

achieve the minimum economies of scale necessary to

compete. Id.; see LePage’s, 324 F.3d at 159.

Due to the potentially procompetitive benefits of

exclusive dealing agreements, their legality is judged under

the rule of reason. Tampa Elec., 365 U.S. at 327. The

22

legality of an exclusive dealing arrangement depends on

whether it will foreclose competition in such a substantial

share of the relevant market so as to adversely affect

competition. Id. at 328; Barr Labs., 978 F.2d at 110. In

conducting this analysis, courts consider not only the

percentage of the market foreclosed, but also take into

account ―the restrictiveness and the economic usefulness of

the challenged practice in relation to the business factors

extant in the market.‖ Barr Labs., 978 F.2d at 110-11

(quoting Am. Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d

1230, 1251-52 n.75 (3d Cir. 1975)). As the Supreme Court

has explained:

[I]t is necessary to weigh the probable effect of

the contract on the relevant area of effective

competition, taking into account the relative

strength of the parties, the proportionate volume

of commerce involved in relation to the total

volume of commerce in the relevant market

area, and the probable immediate and future

effects which pre-emption of that share of the

market might have on effective competition

therein.

Tampa Elec., 365 U.S. at 329. In other words, an exclusive

dealing arrangement is unlawful only if the ―probable effect‖

of the arrangement is to substantially lessen competition,

rather than merely disadvantage rivals. Id.; Dentsply, 399

F.3d at 191 (―The test [for determining anticompetitive effect]

is not total foreclosure, but whether the challenged practices

bar a substantial number of rivals or severely restrict the

market‘s ambit.‖).

23

There is no set formula for evaluating the legality of an

exclusive dealing agreement, but modern antitrust law

generally requires a showing of significant market power by

the defendant, Tampa Elec., 365 U.S. at 329; Race Tires, 614

F.3d at 74-75; LePage’s, 324 F.3d at 158, substantial

foreclosure, Tampa Elec., 365 U.S. at 327-28; United States

v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001),

contracts of sufficient duration to prevent meaningful

competition by rivals, CDC Techs., Inc. v. IDEXX Labs., Inc.,

186 F.3d 74, 81 (2d Cir. 1999); Omega Envtl., Inc. v.

Gilbarco, Inc., 127 F.3d 1157, 1163 (9th Cir. 1997), and an

analysis of likely or actual anticompetitive effects considered

in light of any procompetitive effects, Race Tires, 614 F.3d at

75; Dentsply, 399 F.3d at 194; Barr Labs., 978 F.2d at 111.

Courts will also consider whether there is evidence that the

dominant firm engaged in coercive behavior, Race Tires, 614

F.3d at 77; SmithKline Corp. v. Eli Lilly & Co., 575 F.2d

1056, 1062 (3d Cir. 1978), and the ability of customers to

terminate the agreements, Dentsply, 399 F.3d at 193-94. The

use of exclusive dealing by competitors of the defendant is

also sometimes considered. Standard Oil, 337 U.S. at 309,

314; NicSand, Inc. v. 3M Co., 507 F.3d 442, 454 (6th Cir.

2007).

2. Brooke Group and the Price-Cost test

We turn now to some fundamental principles regarding

predatory pricing claims and the price-cost test. ―Predatory

pricing may be defined as pricing below an appropriate

measure of cost for the purpose of eliminating competitors in

the short run and reducing competition in the long run.‖

Cargill, Inc. v. Monfort of Colo., 479 U.S. 104, 117 (1986);

24

see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

U.S. 574, 584 n.8 (1986); Advo, Inc. v. Phila. Newspapers,

Inc., 51 F.3d 1191, 1198 (3d Cir. 1995). The Supreme Court

has expressed deep skepticism of predatory pricing claims.

See Cargill, 479 U.S. at 121 n.17 (―Although the

commentators disagree as to whether it is ever rational for a

firm to engage in such conduct, it is plain that the obstacles to

the successful execution of a strategy of predation are

manifold, and that the disincentives to engage in such a

strategy are accordingly numerous.‖) (citations omitted);

Matsushita, 475 U.S. at 589 (―[P]redatory pricing schemes

are rarely tried, and even more rarely successful.‖) (citations

omitted). In the typical predatory pricing scheme, a firm

reduces the sale price of its product to below-cost, intending

to drive competitors out of the business. Weyerhaeuser Co. v.

Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318

(2007). Then, once competitors have been eliminated, the

firm raises its prices to supracompetitive levels. Id. For such

a scheme to make economic sense, the firm must recoup the

losses suffered during the below-cost phase in the

supracompetitive phase. Id.; see Matsushita, 475 U.S. at 589

(explaining that success under such a scheme is ―inherently

uncertain‖ because the firm must sustain definite short-term

losses, but the long-run gain depends on successfully

eliminating competition).

In Brooke Group Ltd. v. Brown & Williamson Tobacco

Corp., 509 U.S. at 222-24, the Supreme Court fashioned a

two-part test that reflected this ―economic reality.‖

Weyerhaeuser, 549 U.S. at 318. The Court held that, to

succeed on a predatory pricing claim, the plaintiff must

25

prove: (1) ―that the prices complained of are below an

appropriate measure of [the defendant‘s] costs‖; and (2) that

the defendant had ―a dangerous probability . . . of recouping

its investment in below-cost prices.‖ Brooke Grp., 509 U.S.

at 222-24 (citations omitted). We are concerned only with the

first requirement, which has become known as the price-cost

test. In adopting the price-cost test, the Court rejected the

notion that above-cost prices that are below general market

levels or below the costs of a firm‘s competitors are

actionable under the antitrust laws. Id. at 223. ―Low prices

benefit consumers regardless of how those prices are set, and

so long as they are above predatory levels [i.e., above-cost],

they do not threaten competition.‖ Id. (quoting Atl. Richfield

Co. v. USA Petroleum Co., 495 U.S. 328, 340 (1990)). Low,

but above-cost, prices are generally procompetitive because

―the exclusionary effect of prices above a relevant measure of

cost [generally] reflects the lower cost structure of the alleged

predator, and so represents competition on the merits[.]‖ Id.;

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

477, 488 (1977) (―The antitrust laws . . . were enacted for ‗the

protection of competition, not competitors.‘‖) (quoting Brown

Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). The

Court acknowledged that there may be situations in which

above-cost prices are anticompetitive, but stated that it ―is

beyond the practical ability of a judicial tribunal‖ to ascertain

whether above-cost pricing is anticompetitive ―without

courting intolerable risks of chilling legitimate price-cutting.‖

Brooke Grp., 509 U.S. at 223 (citing Phillip Areeda &

Herbert Hovenkamp, Antitrust Law ¶¶ 714.2, 714.3 (Supp.

2002)). ―To hold that the antitrust laws protect competitors

from the loss of profits due to [above-cost] price competition

26

would, in effect, render illegal any decision by a firm to cut

prices in order to increase market share. The antitrust laws

require no such perverse result.‖ Id. (quoting Cargill, 479

U.S. at 116). Significantly, because ―[c]utting prices in order

to increase business often is the very essence of competition .

. . , [i]n cases seeking to impose antitrust liability for prices

that are too low, mistaken inferences are ‗especially costly,

because they chill the very conduct that antitrust laws are

designed to protect.‘‖ Pac. Bell Tel. Co. v. linkLine

Commc’ns, Inc., 555 U.S. 438, 451 (2009) (quoting

Matsushita, 475 U.S. at 594) (additional citations omitted).

3. Effect of the Price-Cost Test on

Plaintiffs’ Exclusive Dealing Claims

Eaton argues that principles from the predatory pricing

case law apply in this case because Plaintiffs‘ claims are, at

their core, no more than objections to Eaton offering prices,

through its rebate program, which Plaintiffs were unable to

match. Eaton contends that Plaintiffs have identified nothing,

other than Eaton‘s pricing practices, that incentivized the

OEMs to enter into the LTAs, and because price was the

incentive, we must apply the price-cost test. We

acknowledge that even if a plaintiff frames its claim as one of

exclusive dealing, the price-cost test may be dispositive.

Implicit in the Supreme Court‘s creation of the price-cost test

was a balancing of the procompetitive justifications of above-

cost pricing against its anticompetitive effects (as well as the

anticompetitive effects of allowing judicial inquiry into

above-cost pricing), and a conclusion that the balance always

tips in favor of allowing above-cost pricing practices to stand.

See linkLine, 555 U.S. at 451; Brooke Grp., 509 U.S. at 223.

27

Thus, in the context of exclusive dealing, the price-cost test

may be utilized as a specific application of the ―rule of

reason‖ when the plaintiff alleges that price is the vehicle of

exclusion. See, e.g., Concord Boat Corp. v. Brunswick Corp.,

207 F.3d 1039, 1060-63 (8th Cir. 2000).

Here, Eaton argues that the price-cost test is

dispositive, and therefore that Plaintiffs‘ claims must fail

because Plaintiffs failed to show that the market-share rebates

offered by Eaton pursuant to the LTAs resulted in below-cost

prices. We do not disagree that predatory pricing principles,

including the price-cost test, would control if this case

presented solely a challenge to Eaton‘s pricing practices.11

11

Despite the arguments of amicus curiae, the

American Antitrust Institute, our decision in LePage’s v. 3M

does not indicate otherwise. In LePage’s, we declined to

apply the price-cost test to a challenge to a bundled rebate

scheme, reasoning that such a scheme was better analogized

to unlawful tying than to predatory pricing. See 324 F.3d at

155. In that case, the plaintiff (LePage‘s) was the market

leader in sales of ―private label‖ (store brand) transparent

tape. Id. at 144. As LePage‘s market share fell, it brought

suit against 3M, alleging that 3M, which manufactured

Scotch tape, some private label tape, and a number of other

products, leveraged its monopoly power over Scotch brand

tape and other products to monopolize the private label tape

market. Id. at 145. Specifically, LePage‘s challenged 3M‘s

multi-tiered bundled rebate program, which offered

progressively higher rebates when customers increased

purchases across 3M‘s different product lines. Id. The rebate

28

programs also set customer-specific target growth rates. Id. at

154. The sizes of the rebates were linked to the number of

product lines in which the targets were met; if a customer

failed to meet the target for any one product, it would lose the

rebates across all product lines. Id. LePage‘s could not offer

these discounts because it did not sell the same diverse array

of products as 3M. Id. at 155.

Relying on Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209 (1993), 3M argued that its

bundled rebate program was lawful because the rebates never

resulted in below-cost pricing. We disagreed, reasoning that

the principal anticompetitive effect of 3M‘s bundled rebates

was analogous to an unlawful tying arrangement: when

offered by a monopolist, the rebates ―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.‖ LePage’s, 324 at

155.

For several reasons, we interpret LePage’s narrowly.

Most important, in light of the analogy drawn in LePage’s

between bundled rebates and unlawful tying, which ―cannot

exist unless two separate product markets have been linked,‖

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 21

(1984), abrogated on other grounds by Ill. Tool Works Inc. v.

Indep. Ink, Inc., 547 U.S. 28 (2006), LePage’s is inapplicable

where, as here, only one product is at issue and the plaintiffs

have not made any allegations of bundling or tying. The

reasoning of LePage’s is limited to cases in which a single-

product producer is excluded through a bundled rebate

29

program offered by a producer of multiple products, which

conditions the rebates on purchases across multiple different

product lines. Accordingly, we join our sister circuits in

holding that the price-cost test applies to market-share or

volume rebates offered by suppliers within a single-product

market. See NicSand, Inc. v. 3M Co., 507 F.3d 442, 452 (6th

Cir. 2007); Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039, 1061 (8th Cir. 2000); Barry Wright Corp. v. ITT

Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983).

Additionally, several of the bases on which we

distinguished Brooke Group have been undermined by

intervening Supreme Court precedent, which counsels caution

in extending LePage’s. For example, we indicated in

LePage’s, 324 F.3d at 151, that Brooke Group might be

confined to the Robinson-Patman Act, but the Supreme Court

has made clear that the standard adopted in Brooke Group

also applies to predatory pricing claims under the Sherman

Act. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber

Co., 549 U.S. 312, 318 n.1 (2007). Additionally, LePage’s,

324 F.3d at 151-52, suggested that Brooke Group is not

applicable in cases involving monopolists, but the Supreme

Court has since applied Brooke Group‘s price-cost test to

claims against a monopolist, Pac. Bell Tel. Co. v. linkLine

Commc’ns, Inc., 555 U.S. 438, 447-48 (2009), and a

monopsonist, Weyerhaeuser, 549 U.S. at 320-25. Finally, we

observed in LePage’s that, in the years following Brooke

Group, the Supreme Court had only cited the case four times

(and for unrelated propositions), but since LePage’s, the

Court has reaffirmed and extended Brooke Group. See

30

The lesson of the predatory pricing case law is that, generally,

above-cost prices are not anticompetitive, and although there

may be rare cases where above-cost prices are

anticompetitive in the long run, it is ―beyond the practical

ability‖ of courts to identify those rare cases without creating

an impermissibly high risk of deterring legitimate

procompetitive behavior (i.e., price-cutting). linkLine, 555

U.S. at 452; Weyerhaeuser, 549 U.S. at 318-19; Brooke Grp.,

509 U.S. at 223. These principles extend to above-cost

discounting or rebate programs, which condition the

discounts or rebates on the customer‘s purchasing of a

specified volume or a specified percentage of its requirements

from the seller. See NicSand, 507 F.3d at 451-52 (applying

price-cost test to a challenge to up-front payments offered by

a supplier to several large retailers on the basis that such

payments were ―nothing more than ‗price reductions offered

to the buyers for the exclusive right to supply a set of stores

under multi-year contracts‘‖); Concord Boat, 207 F.3d at

1060-63 (applying price-cost test to volume discounts and

market-share discounts offered by a manufacturer); Barry

Wright, 724 F.2d at 232 (applying the price-cost test to

uphold discounts linked to a requirements contract); see also

linkLine, 555 U.S. at 447-48; Weyerhaeuser, 549 U.S. at 325.

In doing so, the Court emphasized the importance of Brooke

Group in light of ―developments in economic theory and

antitrust jurisprudence,‖ and downplayed the significance of

seemingly inconsistent circuit court antitrust precedent from

the 1950s and 1960s, some of which we referenced in

LePage’s. See linkLine, 555 U.S. at 452 n.3.

31

Race Tires, 614 F.3d at 79 (―[I]t is no more an act of

coercion, collusion, or [other anticompetitive conduct] for [a

supplier] . . . to offer more money to [a customer] than it is

for such [a] supplier[] to offer the lowest . . . prices.‖).

Moreover, a plaintiff‘s characterization of its claim as

an exclusive dealing claim does not take the price-cost test off

the table. Indeed, contracts in which discounts are linked to

purchase (volume or market share) targets are frequently

challenged as de facto exclusive dealing arrangements on the

grounds that the discounts induce customers to deal

exclusively with the firm offering the rebates. Hovenkamp ¶

1807a, at 132. However, when price is the clearly

predominant mechanism of exclusion, the price-cost test tells

us that, so long as the price is above-cost, the procompetitive

justifications for, and the benefits of, lowering prices far

outweigh any potential anticompetitive effects. See Brooke

Grp., 509 U.S. at 223; Concord Boat, 207 F.3d at 1062

(noting that there is always a legitimate business justification

for lowering prices: attempting to attract additional business).

In each of the cases relied upon by Eaton, the Supreme

Court applied the price-cost test, regardless of the way in

which the plaintiff cast its grievance, because pricing itself

operated as the exclusionary tool. For example, in Cargill,

Inc. v. Monfort of Colorado, Inc., the plaintiff argued that a

proposed merger between vertically integrated firms violated

Section 7 of the Clayton Act because the result of the merger

would have been to substantially lessen competition or create

a monopoly. 479 U.S. at 114. The plaintiff offered, as a

theory of antitrust injury, that it faced a threat of lost profits

stemming from the possibility that the defendant, after the

32

merger, would lower its prices to a level at or above-cost. Id.

at 114-15. The plaintiff claimed that it would have to respond

by lowering its prices, which would cause it to suffer a loss in

profitability. Id. at 115. The Supreme Court held that such a

theory did not present a cognizable antitrust injury, reasoning

that ―the antitrust laws do not require the courts to protect

small businesses from the loss of profits due to continued

[above-cost] competition.‖ Id. at 116.

Atlantic Richfield Co. v. USA Petroleum Co. involved

an allegation that a vertical price-fixing agreement was

unlawful under Section 1 of the Sherman Act. 495 U.S. at

331. In that case, the plaintiff was an independent retail

marketer of gasoline, which bought gasoline from major

petroleum companies for resale under its own name. Id. The

defendant was an integrated oil company, which sold directly

to consumers through its own stations, and sold indirectly

through brand dealers. Id. Facing competition from

independent marketers like the plaintiff, the defendant

adopted a new marketing strategy, under which it encouraged

its dealers to match the retail prices offered by independents

by offering discounts and reducing the dealers‘ costs. Id. at

331-32. The plaintiff brought suit under the Sherman Act,

alleging that the defendant conspired with its dealers to sell

gasoline at below-market levels. Id. at 332. The district court

granted summary judgment for the defendant on the basis that

the plaintiff had not shown that the defendant engaged in

predatory pricing, and thus had not shown any antitrust

injury. Id. at 333. The U.S. Court of Appeals for the Ninth

Circuit reversed, USA Petroleum Co. v. Atl. Richfield Co.,

859 F.2d 687, 693 (9th Cir. 1988), reasoning that a showing

33

of predatory pricing was not necessary to establish antitrust

injury; rather, the antitrust laws were designed to ensure that

market forces alone determine what goods and services are

offered, and at what price they are sold, and thus, an antitrust

injury could result from a disruption in the market. The

Supreme Court disagreed, explaining that where a firm (or a

group of firms) lowers prices pursuant to a vertical

agreement, but maintains those prices above predatory levels,

any business lost by rivals cannot be viewed as an

anticompetitive consequence of the agreement. Atl. Richfield,

495 U.S. at 337. ―A firm complaining about the harm it

suffers from nonpredatory price competition is really

claiming that it is unable to raise prices.‖ Id. at 337-38.

In Brooke Group, the plaintiff and the defendant were

competitors in the cigarette market in the early 1980s. 509

U.S. at 212. At that time, demand for cigarettes in the United

States was declining and the plaintiff, once a major force in

the industry, had seen its market share drop to 2%. Id. at 214.

In response, the plaintiff developed a line of generic

cigarettes, which were significantly cheaper than branded

cigarettes. Id. The plaintiff promoted the generic cigarettes

at the wholesale level by offering rebates that increased with

the volume of cigarettes ordered. Id. Losing volume and

profits on its branded products, the defendant entered the

generic cigarette market. Id. at 215. At the retail level, the

suggested price of the defendant‘s generic cigarettes was the

same as that of the plaintiff‘s cigarettes, but the defendant‘s

volume discounts to wholesalers were larger. Id. The

plaintiff responded by increasing its wholesale rebates, and a

price war ensued. Id. at 216. Subsequently, the plaintiff filed

34

a complaint against the defendant under the Robinson-Patman

Act, 15 U.S.C. § 13(a), alleging that the defendant‘s volume

rebates amounted to unlawful price discrimination. Id. The

plaintiff explained that it would have been unable to reduce

its wholesale rebates without losing substantial market share.

Id. Accordingly, because the ―essence‖ of the plaintiff‘s

claim was that its ―rival ha[d] priced its products in an unfair

manner with an object to eliminate or retard competition and

thereby gain and exercise control over prices in the relevant

market,‖ the plaintiff had an obligation to show that the

defendant‘s prices were below its costs. Id. at 222.

Here, in contrast to Cargill, Atlantic Richfield, and

Brooke Group, Plaintiffs did not rely solely on the

exclusionary effect of Eaton‘s prices, and instead highlighted

a number of anticompetitive provisions in the LTAs.

Plaintiffs alleged that Eaton used its position as a supplier of

necessary products to persuade OEMs to enter into

agreements imposing de facto purchase requirements of

roughly 90% for at least five years, and that Eaton worked in

concert with the OEMs to block customer access to Plaintiffs‘

products, thereby ensuring that Plaintiffs would be unable to

build enough market share to pose any threat to Eaton‘s

monopoly. Therefore, because price itself was not the clearly

predominant mechanism of exclusion, the price-cost test

cases are inapposite, and the rule of reason is the proper

framework within which to evaluate Plaintiffs‘ claims.

We recognize that Eaton‘s rebates were part of

Plaintiffs‘ case. DeRamus testified about the exclusionary

effect of the rebates, OEM officials testified that Eaton

offered lower prices, and Plaintiffs‘ counsel stated in oral

35

argument that part of the reason ZF Meritor could not

increase sales above a certain level was that ―the OEMs were

trying to hit those [share-penetration] targets to get their

money from Eaton.‖ Eaton‘s post-rebate prices were

attractive to the OEMs, and Eaton‘s low prices may, in fact,

have been an inducement for the OEMs to enter into the

LTAs. That fact is not irrelevant, as it may help explain why

the OEMs agreed to otherwise unfavorable terms and it may

help to rebut an argument that the agreements were

inefficient. Hovenkamp ¶ 1807b, at 134. However, contrary

to Eaton‘s assertions, that fact is not dispositive.

Plaintiffs presented considerable evidence that Eaton

was a monopolist in the industry and that it wielded its

monopoly power to effectively force every direct purchaser of

HD transmissions to enter into restrictive long-term

agreements, despite the inclusion in such agreements of terms

unfavorable to the OEMs and their customers. Significantly,

there was considerable testimony that the OEMs did not want

to remove ZF Meritor‘s transmissions from their data books,

but that they were essentially forced to do so or risk financial

penalties or supply shortages. Several OEM officials testified

that exclusive data book listing was not a common practice in

the industry and, in fact, it was probably detrimental to

customers. An email between Freightliner employees stated:

―From a customer perspective, publishing [ZF Meritor‘s]

product is probably the right thing to do and [it] should never

have been taken out of the book. It is a good product with

considerable demand in the marketplace.‖ The email went on

to conclude, however, that including ZF Meritor‘s products

would not be ―prudent‖ because it would jeopardize

36

Freightliner‘s relationship with Eaton. Eaton itself even

acknowledged that the OEMs were dissatisfied. Internal

Eaton correspondence reveals that PACCAR complained that

the LTAs were preventing it from promoting a competitive

product (FreedomLine), which was being demanded by truck

buyers. In fact, PACCAR felt that Eaton was holding it

―hostage.‖

Plaintiffs also introduced evidence that not only were

the rebates conditioned on the OEMs meeting the market

penetration targets, but so too was Eaton‘s continued

compliance with the agreements. As one OEM executive

testified, if the market penetration targets were not met, the

OEMs ―would have a big risk of cancellation of the contract,

price increases, and shortages if the market [was] difficult.‖

Eaton was a monopolist in the HD transmissions market, and

even if an OEM decided to forgo the rebates and purchase a

significant portion of its requirements from another supplier,

there would still have been a significant demand from truck

buyers for Eaton products. Therefore, losing Eaton as a

supplier was not an option.

Accordingly, this is not a case in which the

defendant‘s low price was the clear driving force behind the

customer‘s compliance with purchase targets, and the

customers were free to walk away if a competitor offered a

better price. Compare Concord Boat, 207 F.3d at 1063 (in

deciding to apply price-cost test, noting that customers were

free to walk away at any time and did so when the

defendant‘s competitors offered better discounts), with

Dentsply, 399 F.3d at 189-96 (applying exclusive dealing

analysis where the defendant threatened to refuse to continue

37

dealing with customers if customers purchased rival‘s

products, and no customer could stay in business without the

defendant‘s products). Rather, Plaintiffs introduced evidence

that compliance with the market penetration targets was

mandatory because failing to meet such targets would

jeopardize the OEMs‘ relationships with the dominant

manufacturer of transmissions in the market. See Dentsply,

399 F.3d at 194 (noting that ―[t]he paltry penetration in the

market by competitors over the years has been a refutation

of‖ the theory that a competitor could steal the defendant‘s

customers by offering a better deal or a lower price ―by

tangible and measurable results in the real world‖); id. at 195

(explaining that an exclusivity policy imposed by a dominant

firm is especially troubling where it presents customers with

an ―all-or-nothing‖ choice).

Although the Supreme Court has created a safe harbor

for above-cost discounting, it has not established a per se rule

of non-liability under the antitrust laws for all contractual

practices that involve above-cost pricing. See Cascade

Health Solutions v. PeaceHealth, 515 F.3d 883, 901 (9th Cir.

2007) (stating that the Supreme Court‘s predatory pricing

decisions have not ―go[ne] so far as to hold that in every case

in which a plaintiff challenges low prices as exclusionary

conduct[,] the plaintiff must prove that those prices were

below cost‖). Nothing in the case law suggests, nor would it

be sound policy to hold, that above-cost prices render an

otherwise unlawful exclusive dealing agreement lawful. We

decline to impose such an unduly simplistic and mechanical

rule because to do so would place a significant portion of

38

anticompetitive conduct outside the reach of the antitrust laws

without adequate justification.

―[T]he means of illicit exclusion, like the means of

legitimate competition, are myriad.‖ Microsoft, 253 F.3d at

58; LePage’s, 324 F.3d at 152 (―‗Anticompetitive conduct‘

can come in too many different forms, and is too dependent

on context, for any court or commentator ever to have

enumerated all the varieties.‖) (quoting Caribbean Broad

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

(D.C. Cir. 1998)). The law has long recognized forms of

exclusionary conduct that do not involve below-cost pricing,

including unlawful tying, Jefferson Parish, 446 U.S. at 21;

Standard Oil, 337 U.S. at 305-06, enforcement of a legal

monopoly provided by a patent procured through fraud,

LePage’s, 324 F.3d at 152 (citing Walker Process Equip., Inc.

v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965)),

refusal to deal, Aspen Skiing Co. v. Aspen Highlands Skiing

Corp., 472 U.S. 585, 601-02 (1985); Otter Tail Power Co. v.

United States, 410 U.S. 366 (1973), exclusive dealing, Tampa

Electric, 365 U.S. at 327; Dentsply, 399 F.3d at 184, and

other unfair tortious conduct targeting competitors, Conwood

Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002);

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

F.2d 1255 (8th Cir. 1980).

Despite Eaton‘s arguments to the contrary, we find

nothing in the Supreme Court‘s recent predatory pricing

decisions to indicate that the Court intended to overturn

decades of other precedent holding that conduct that does not

result in below-cost pricing may nevertheless be

anticompetitive. Rather, as we explained above, Brooke

39

Group and the cases preceding it each involved an allegation

that the defendant‘s pricing itself operated as the exclusionary

tool. See Brooke Grp., 509 U.S. at 212-22; Atl. Richfield, 495

U.S. at 331-38; Cargill, 409 U.S. at 114-16. Eaton places

particular emphasis on two recent cases, arguing that such

cases demonstrate the Supreme Court‘s willingness to extend

the price-cost test beyond the traditional predatory pricing

context. However, neither of these cases suggests that the

price-cost test applies to the exclusive dealing claims at issue

in our case.

In Weyerhaeuser Co. v. Ross-Simmons Hardwood

Lumber Co., 549 U.S. at 315, 320, the Supreme Court applied

the price-cost test to a case involving an allegation of

predatory bidding by a monopsonist.12 In a predatory bidding

scheme, a purchaser of inputs bids up the market price of a

critical input to such high levels that rival buyers cannot

survive, and as a result acquires or maintains monopsony

power. Id. Then, ―if all goes as planned,‖ once rivals have

been driven out, the predatory bidder will reap monopsonistic

profits to offset the losses that it suffered during the high-

bidding stage. Id. at 321. Therefore, the Court explained,

predatory pricing and predatory bidding claims are

―analytically similar.‖ Id. ―Both claims involve the

12

Monopsony power is market power on the buy (or

input) side of the market. Weyerhaeuser, 549 U.S. at 320.

―As such, a monopsony is to the buy side of the market what

a monopoly is to the sell side[.]‖ Id. (citing Roger Blair &

Jeffrey Harrison, Antitrust Policy and Monopsony, 76 Cornell

L. Rev. 297, 301, 320 (1991)).

40

deliberate use of unilateral pricing measures for

anticompetitive purposes.‖ Id. at 322. Moreover, the Court

noted, bidding up input prices, like lowering costs, is often

―the very essence of competition.‖ Id. at 323 (citing Brooke

Grp., 509 U.S. at 226). ―Just as sellers use output prices to

compete for purchasers, buyers use bid prices to compete for

scarce inputs. There are myriad legitimate reasons—ranging

from benign to affirmatively procompetitive—why a buyer

might bid up input prices.‖ Id. Furthermore, high bidding

will often benefit consumers because it will likely lead to the

firm‘s acquisition of more inputs, which will generally lead to

the manufacture of more outputs, and an increase in outputs

generally results in lower prices for consumers. Id. at 324.

Accordingly, the Supreme Court adopted a variation of the

price-cost test for allegations of predatory bidding: ―[a]

plaintiff must prove that the alleged predatory bidding led to

below-cost pricing of the predator‘s outputs.‖ Id. at 325. In

other words, the firm‘s predatory bidding must have caused

the cost of the relevant output to increase above the revenues

generated by the sale of such output. Id.

In Pacific Bell Telephone Co. v. linkLine

Communications, Inc., the Supreme Court relied, in part, on

the price-cost test to hold that the plaintiffs‘ price-squeezing

claim was not cognizable under the Sherman Act. 555 U.S. at

457. In that case, the plaintiffs alleged that the defendant, an

integrated firm that sold inputs at wholesale and sold finished

goods at retail, drove its competitors out of the market by

raising the wholesale price while simultaneously lowering the

retail price. Id. at 442. The Court held that, pursuant to

Verizon Communications Inc. v. Trinko, LLP, 540 U.S. at

41

409-10, the wholesale claim was not cognizable because the

defendant had no antitrust duty to deal with its competitors at

the wholesale level, and pursuant to Brooke Group, the retail

claim was not cognizable because the defendant‘s retail prices

were above cost. linkLine, 555 U.S. at 457. As to the retail

claim, the Court explained that ―recognizing a price-squeeze

claim where the defendant‘s retail price remains above cost

would invite the precise harm‖ the price-cost test was

designed to avoid: a firm might refrain from aggressive price

competition to avoid potential antitrust liability. Id. at 451-

52. Recognizing that the plaintiffs were trying to combine

two non-cognizable claims into a new form of antitrust

liability, the Court explained that ―[t]wo wrong claims do not

make one that is right.‖ Id. at 457.

Contrary to Eaton‘s argument, neither Weyerhaeuser

nor linkLine stands for the proposition that the price-cost test

applies here. Weyerhaeuser established the straightforward

principle that the exercise of market power on prices for the

purpose of driving out competitors should be judged by the

same standard, whether such power is exercised on the input

or output side of the market. See 549 U.S. at 321, 325. And

linkLine did no more than hold that two antitrust theories

cannot be combined to form a new theory of antitrust liability.

See 555 U.S. at 457. The plaintiffs‘ retail-level claim in

linkLine was a traditional pricing practices claim, and

therefore indistinguishable from the pricing practices claims

42

in Brooke Group, Atlantic Richfield, and Cargill. 555 U.S. at

451-52, 457.13

13

Eaton also relies heavily on the Supreme Court‘s

statement in Atlantic Richfield v. USA Petroleum Co. that

price-cost principles apply ―regardless of the type of antitrust

claim involved.‖ 495 U.S. at 340. When read in context,

however, it is clear that this statement means that the price-

cost test applies regardless of the statute under which a

pricing practices claim is brought, not that the price-cost

applies regardless of the type of anticompetitive conduct.

In Atlantic Richfield, the plaintiffs argued that no

showing of below-cost pricing was required to establish

antitrust injury for a claim of illegal price-fixing under

Section 1 of the Sherman Act because the price agreement

itself was illegal, and any losses that stem from such an

agreement, by definition, flow from that which makes the

defendant‘s conduct unlawful. Id. at 338. The Supreme

Court rejected that argument, reasoning that although price-

fixing is unlawful under Section 1, a plaintiff does not suffer

antitrust injury unless it is adversely affected by an

anticompetitive aspect of the defendant‘s conduct, and ―in the

context of pricing practices, only predatory pricing has the

requisite anticompetitive effect.‖ Id. at 339 (citing Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487 (1977))

(additional citations omitted). It was in this in context, in

rejecting an argument that Section 1 was somehow exempt

from the price-cost test, that the Supreme Court made the

broad statement that it has ―adhered to . . . [price-cost]

43

In contrast to the price-cost test line of cases, here,

Plaintiffs do not allege that price itself functioned as the

exclusionary tool. As such, we conclude that the price-cost

test is not adequate to judge the legality of Eaton‘s conduct.

Although prices are unlikely to exclude equally efficient

rivals unless they are below-cost, exclusive dealing

arrangements can exclude equally efficient (or potentially

equally efficient) rivals, and thereby harm competition,

irrespective of below-cost pricing. See Dentsply, 399 F.3d at

191. Where, as here, a dominant supplier enters into de facto

exclusive dealing arrangements with every customer in the

principle[s] regardless of the type of antitrust claim

involved.‖ See id. at 340.

The Court‘s discussion following this statement

supports our interpretation. The Court went on to explain

that, for purposes of determining whether a plaintiff has

suffered antitrust injury in a pricing practices case, Section 1

is no different than, for example, the plaintiff‘s allegation in

Cargill, Inc. v. Monfort of Colorado, Inc. that the defendants‘

unlawful merger under Section 7 of the Clayton Act caused

antitrust injury. Id. at 340 (citing Cargill, 479 U.S. at 116)

(―To be sure, the source of the price competition in the instant

case was an agreement allegedly unlawful under § 1 of the

Sherman Act rather than a merger in violation of § 7 of the

Clayton Act. But that difference is not salient.‖). Moreover,

Atlantic Richfield was decided before LePage’s and we did

not interpret the ―regardless of the type of antitrust claim

involved‖ language as mandating the application of the price-

cost test to 3M‘s bundled rebates.

44

market, other firms may be driven out not because they

cannot compete on a price basis, but because they are never

given an opportunity to compete, despite their ability to offer

products with significant customer demand. See id. at 191,

194. Therefore, Eaton‘s attempt to characterize this case as a

pricing practices case, subject to the price-cost test, is

unavailing. We hold that, instead, the rule of reason from

Tampa Electric and its progeny must be applied to evaluate

Plaintiffs‘ claims.

B. Proof of Anticompetitive

Conduct and Antitrust Injury

We turn now to Eaton‘s contention that even leaving

aside the price-cost test, Plaintiffs failed to prove that Eaton‘s

LTAs were anticompetitive or that they caused antitrust

injury to Plaintiffs. The rule of reason governs Plaintiffs‘

claims under Section 1 and Section 2 of the Sherman Act, and

Section 3 of the Clayton Act. See LePage’s, 324 F.3d at 157

& n.10 (explaining that exclusive dealing claims are

cognizable under Sections 1 and 2 of the Sherman Act and

Section 3 of the Clayton Act, and evaluated under the same

rule of reason); see also Section III.A, supra, at n.9. Under

the rule of reason, an exclusive dealing arrangement is

anticompetitive only if its ―probable effect‖ is to substantially

lessen competition in the relevant market, rather than merely

disadvantage rivals. Tampa Elec., 365 U.S. at 328-29.

In addition to establishing a statutory violation, a

plaintiff must demonstrate that it suffered antitrust injury.

Race Tires, 614 F.3d at 75. To establish antitrust injury, the

plaintiff must demonstrate: ―(1) harm of the type the antitrust

45

laws were intended to prevent; and (2) an injury to the

plaintiff which flows from that which makes defendant‘s acts

unlawful.‖ Id. at 76 (quoting Gulfstream III Assocs. Inc. v.

Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir.

1993)) (additional citation omitted).

Our inquiry on appeal has several components. First,

we examine whether the LTAs could reasonably be viewed as

exclusive dealing arrangements, despite the fact that the

LTAs covered less than 100% of the OEMs‘ purchase

requirements and contained no express exclusivity provisions.

Second, because the unique characteristics of the HD

transmissions market bear heavily on our inquiry, we review

Eaton‘s monopoly power, the concentrated nature of the

market, and the ability of a monopolist in Eaton‘s position to

engage in coercive conduct. Third, we discuss the

anticompetitive effects of the various provisions in the LTAs,

and consider Eaton‘s procompetitive justifications for the

agreements. Finally, we consider whether Plaintiffs

established that they suffered antitrust injury as a result of

Eaton‘s conduct.

1. De Facto Partial Exclusive Dealing

A threshold requirement for any exclusive dealing

claim is necessarily the presence of exclusive dealing. Eaton

argues that Plaintiffs‘ claims must fail because the LTAs were

not ―true‖ exclusive dealing arrangements in that they did not

contain express exclusivity requirements, nor did they cover

100% of the OEMs‘ purchases. Neither contention is

persuasive because de facto partial exclusive dealing

46

arrangements may, under certain circumstances, be actionable

under the antitrust laws.14

First, the law is clear that an express exclusivity

requirement is not necessary because de facto exclusive

dealing may be unlawful. Tampa Elec., 365 U.S. at 326;

Dentsply, 399 F.3d at 193; LePage’s, 324 F.3d at 157. For

example, in United States v. Dentsply International, Inc., we

held that transactions which were ―technically only a series of

independent sales‖ could form the basis for an exclusive

dealing claim because the large share of the market held by

the defendant and its conduct in excluding competitors,

―realistically made the arrangements . . . as effective as those

in written contracts.‖ 399 F.3d at 193 (citing Monsanto Co. v.

Spray-Rite Serv. Corp., 465 U.S. 752, 764 n.9 (1984)).

Likewise, in LePage’s, we held that bundled rebates and

discounts offered to major suppliers were designed to and did

14

Our dissenting colleague objects to the phrase ―de

facto partial exclusive dealing‖ as constituting a creative

neologism that ―distorts the English language‖ and

infrequently appears in a search of an online legal database.

Dissenting Op., Part II. ―De facto partial exclusive dealing‖

is certainly a neologism, but it also accurately represents that

an exclusive dealing claim does not require a contract that

imposes an express exclusivity obligation, Tampa Elec., 365

U.S. at 326; Dentsply, 399 F.3d at 193; LePage’s, 324 F.3d at

157, nor a contract that covers 100% of the buyer‘s needs,

Tampa Elec., 365 U.S. at 328 (―[T]he competition foreclosed

by the contract must be found to constitute a substantial share

of the relevant market.‖) (emphasis added).

47

operate as exclusive dealing arrangements, despite the lack of

any express exclusivity requirements. 324 F.3d at 157-58.

Here, there was sufficient evidence from which a jury

could infer that, although the LTAs did not expressly require

the OEMs to meet the market penetration targets, the targets

were as effective as mandatory purchase requirements. See

Tampa Elec., 365 U.S. at 326 (noting that ―even though a

contract does ‗not contain specific agreements not to use the

(goods) of a competitor,‘ if ‗the practical effect is to prevent

such use,‘ it comes within the condition of [Section 3] as to

exclusivity‖) (citing United Shoe Mach. Corp. v. United

States, 258 U.S. 451, 457 (1922)); Dentsply, 399 F.3d at 193-

94. Evidence presented at trial indicated that not only were

lower prices (rebates) conditioned on the OEMs meeting the

market-share targets, but so too was Eaton‘s continued

compliance with the LTAs. For example, Eaton‘s LTAs with

Freightliner, the largest OEM, and Volvo explicitly gave

Eaton the right to terminate the agreements if the market-

share targets were not met. And despite the fact that Eaton

did not actually terminate the agreements on the rare occasion

when an OEM failed to meet its target, the OEMs believed

that it might.15 Critically, due to Eaton‘s position as the

dominant supplier, no OEM could satisfy customer demand

without at least some Eaton products, and therefore no OEM

could afford to lose Eaton as a supplier. Accordingly, we

agree with the District Court that a jury could have concluded

15

In 2003, for example, PACCAR failed to meet its

market penetration target, and although Eaton withdrew all

contractual savings, it did not terminate the agreement.

48

that, under the circumstances, the market penetration targets

were as effective as express purchase requirements ―because

no risk averse business would jeopardize its relationship with

the largest manufacturer of transmissions in the market.‖ ZF

Meritor, 769 F. Supp. 2d at 692.

Second, an agreement does not need to be 100%

exclusive in order to meet the legal requirements of exclusive

dealing. We acknowledge that ―partial‖ exclusive dealing is

rarely a valid antitrust theory. See Barr Labs., 978 F.2d at

110 n.24 (―An agreement affecting less than all purchases

does not amount to true exclusive dealing.‖) (citation

omitted); Concord Boat, 207 F.3d at 1044, 1062-63 (noting

that the defendant‘s discount program, which conditioned

incremental discounts on customers purchasing 60-80% of

their needs from the defendant, did not constitute exclusive

dealing because customers were not required to purchase all

of their requirements from the defendant, and in fact, could

purchase up to 40% of their requirements from other sellers

without foregoing the discounts); Magnus Petroleum Co. v.

Skelly Oil Co., 599 F.2d 196, 200-01 (7th Cir. 1979) (holding

that contract requiring buyer to purchase a fixed quantity of

goods that amounted to roughly 60-80% of its needs was not

unlawful ―[b]ecause the agreements contained no exclusive

dealing clause and did not require [the buyer] to purchase any

amounts of [the defendant‘s product] that even approached

[its] requirements‖) (citations omitted). Partial exclusive

dealing agreements such as partial requirements contracts and

contracts stipulating a fixed dollar or quantity amount are

generally lawful because market foreclosure is only partial,

and competing sellers are not prevented from selling to the

49

buyer. See Concord Boat, 207 F.3d at 1062-63; Magnus

Petroleum, 599 F.2d at 200-01.

However, we decline to adopt Eaton‘s view that a

requirements contract covering less than 100% of the buyer‘s

needs can never be an unlawful exclusive dealing

arrangement. See Eastman Kodak, 504 U.S. at 466-67

(―Legal presumptions that rest on formalistic distinctions

rather than actual market realities are generally disfavored in

antitrust law.‖). ―Antitrust analysis must always be attuned to

the particular structure and circumstances of the industry at

issue.‖ Verizon Commc’ns, 540 U.S. at 411. Therefore, just

as ―total foreclosure‖ is not required for an exclusive dealing

arrangement to be unlawful, nor is complete exclusivity

required with each customer. See Dentsply, 399 F.3d at 191.

The legality of such an arrangement ultimately depends on

whether the agreement foreclosed a substantial share of the

relevant market such that competition was harmed. Tampa

Elec., 365 U.S. at 326-28.

In our case, although the market-share targets covered

less than 100% of the OEMs‘ needs, a jury could nevertheless

find that the LTAs unlawfully foreclosed competition in a

substantial share of the HD transmissions market. See id.

There are only four direct purchasers of HD transmissions in

North America, and Eaton, long the dominant supplier in the

industry, entered into long-term agreements with each of

them. Compare Concord Boat, 207 F.3d at 1044 (noting the

defendant was the market leader, but there were at least ten

other competing manufacturers). Each LTA imposed a

market-penetration target of roughly 90% (with the exception

of Volvo, which manufactured some of its own transmissions

50

for use in its own trucks), which we explained above, could

be viewed as a requirement that the OEM purchase that

percentage of its requirements from Eaton. Although no

agreement was completely exclusive, the foreclosure that

resulted was no different than it would be in a market with

many customers where a dominant supplier enters into

complete exclusive dealing arrangements with 90% of the

customer base. Under such circumstances, the lack of

complete exclusivity in each contract does not preclude

Plaintiffs‘ de facto exclusive dealing claim.16

2. Market Conditions in HD Transmissions Market

Exclusive dealing will generally only be unlawful

where the market is highly concentrated, the defendant

possesses significant market power, and there is some

element of coercion present. See Tampa Elec., 365 U.S. at

329; Race Tires, 614 F.3d at 77-78; LePage’s, 324 F.3d at

159. For example, if the defendant occupies a dominant

position in the market, its exclusive dealing arrangements

invariably have the power to exclude rivals. Tampa Elec.,

365 U.S. at 329; Dentsply, 399 F.3d at 187. Here, the jury

16

Additionally, the District Court instructed the jury

that Plaintiffs did not allege ―actual‖ exclusive dealing, but

instead alleged that ―the long-term supply contracts with

defendant, in effect, committed the OEMs to purchase at least

a substantial share of their transmissions from defendant.‖

The District Court defined such an arrangement as a ―‗de

facto‘ exclusive dealing contract.‖ Eaton does not challenge

this instruction on appeal.

51

found that Eaton possessed monopoly power in the HD

transmissions market, and Eaton does not contest that finding

on appeal.

A hard look at the nature of the market in which the

parties compete is equally important. Tampa Elec., 365 U.S.

at 329. An exclusive dealing arrangement is most likely to

present a threat to competition in a situation in which the

market is highly concentrated, such that long-term contracts

operate to ―foreclose so large a percentage of the available

supply or outlets that entry‖ or continued operation in ―the

concentrated market is unreasonably constricted.‖ Race

Tires, 614 F.3d at 76 (quoting E. Food Servs., 357 F.3d at 8);

see Dentsply, 399 F.3d at 184 (noting that the relevant market

was ―marked by a low or no-growth potential‖ and the

defendant had long dominated the industry with a 75-80%

market share). Here, the HD transmissions market had long

been dominated by Eaton. Except for Meritor‘s production of

manual transmissions in the 1990s and the ZF Meritor joint

venture, no significant external supplier has entered the

market for the last twenty years. A jury could certainly infer

that Eaton‘s dominance over the OEMs created a barrier to

entry that any potential rival manufacturer would have to

confront. See Concord Boat, 207 F.3d at 1059 (―If entry

barriers to new firms are not significant, it may be difficult

for even a monopoly company to control prices through some

type of exclusive dealing arrangement because a new firm or

firms easily can enter the market to challenge it [but] [i]f

there are significant entry barriers . . . , a potential competitor

would have difficulty entering.‖) (citations omitted). The

record shows that the barriers to entry in the North American

52

HD transmission market are especially high: HD

transmissions are expensive to produce; transmissions

developed for other geographic markets must be substantially

modified for the North American market; and all HD

transmission sales must pass through the highly concentrated

intermediate market in which the OEMs operate. Eaton‘s

theory that ZF Meritor or any new HD transmissions

manufacturer would be able to ―steal‖ an Eaton customer by

offering a superior product at a lower price ―simply has not

proved to be realistic.‖ Dentsply, 399 F.3d at 194 (citation

omitted); compare NicSand, 507 F.3d at 454 (in finding

exclusive dealing arrangements lawful, noting that the

plaintiff was the market leader, and lost business due to a new

entrant‘s competition). ―The paltry penetration in the market

by competitors over the years has been a refutation of

[Eaton‘s] theory by tangible and measurable results in the real

world.‖ Dentsply, 399 F.3d at 194; see Microsoft, 253 F.3d at

55 (noting importance of significant barriers to entry in

maintaining monopoly power, in spite of the plaintiffs‘ self-

imposed problems).

Although we generally ―assume that a customer will

make [its] decision only on the merits,‖ Santana Prods., Inc.

v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 133 (3d Cir.

2005) (quoting Stearns Airport Equip. Co. v. FMC Corp., 170

F.3d 518, 524-25 (5th Cir. 1999)), a monopolist may use its

power to break the competitive mechanism and deprive

customers of the ability to make a meaningful choice. See

Race Tires, 614 F.3d at 77 (noting that coercion ―has played a

key, if sometimes unexplored, role‖ in antitrust law);

Dentsply, 399 F.3d at 184 (observing that the defendant

53

―imposed‖ an exclusivity policy on its customers); LePage’s,

324 F.3d at 159 (explaining that because 3M occupied a

dominant position in several different product markets, it was

able to effectively force customers in the ―private label‖ tape

market to deal with 3M exclusively, despite the plaintiff‘s

competitiveness in that market). A highly concentrated

market, in which there is one (or a few) dominant supplier(s),

creates the possibility for such coercion. And here, there was

evidence that Eaton leveraged its position as a supplier of

necessary products to coerce the OEMs into entering into the

LTAs. Plaintiffs presented testimony from OEM officials

that many of the terms of the LTAs were unfavorable to the

OEMs and their customers, but that the OEMs agreed to such

terms because without Eaton‘s transmissions, the OEMs

would be unable to satisfy customer demand.17

17

Eaton emphasizes that the OEMs are multi-billion

dollar companies (or at least owned by multi-billion dollar

parent companies), and therefore claims that the OEMs

dictated terms to Eaton – not the other way around.

Significantly, in United States v. Dentsply International, Inc.,

we found coercion even though the relationship between the

customers and the defendant was not totally one-sided. 399

F.3d 181, 185 (3d Cir. 2005) (noting that the defendant

considered bypassing dealers and selling directly to customers

but abandoned that strategy out of fear that dealers might

retaliate by refusing to buy other products manufactured by

the defendant). Moreover, even assuming that the evidence

could support a conclusion that the OEMs had more power in

the relationship, the fact that two reasonable conclusions

54

Accordingly, this case involves precisely the

combination of factors that we explained would be present in

the rare case in which exclusive dealing would pose a threat

to competition. See Race Tires, 614 F.3d at 76.

3. Sufficiency of the Evidence: Anticompetitive Conduct

We turn now to a discussion of whether there was

sufficient evidence for a jury to conclude that Eaton engaged

in anticompetitive conduct. Our inquiry in a sufficiency of

the evidence challenge is limited to determining whether,

―viewing the evidence in the light most favorable to the

[winner at trial] 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)

(citation omitted). Eaton argues that even under the

extraordinarily deferential standard, there was insufficient

evidence for a reasonable jury to conclude that Eaton engaged

in conduct that harmed competition. Guided by the principles

set forth in Section III.A.1, supra, we disagree.

i. Extent of Foreclosure

First, the extent of the market foreclosure in this case

was significant. ―The share of the market foreclosed is

important because, for the contract to have an adverse effect

upon competition, ‗the opportunities for other[s] . . . to enter

could be drawn from the evidence does not make the jury‘s

adoption of Plaintiffs‘ view unreasonable.

55

into or remain in that market must be significantly limited.‘‖

Microsoft, 253 F.3d at 69 (citing Tampa Elec., 365 U.S. at

328). Substantial foreclosure allows the dominant firm to

prevent potential rivals from ever reaching ―the critical level

necessary‖ to pose a real threat to the defendant‘s business.

Dentsply, 339 F.3d at 191. Here, Eaton entered into long-

term agreements with every direct purchaser in the market,

and under each agreement, imposed what could be viewed as

mandatory purchase requirements of at least 80%, and up to

97.5%. The OEMs generally met these targets, which, as

Plaintiffs‘ expert testified, resulted in approximately 15% of

the market remaining open to Eaton‘s competitors by 2003.18

See LePage’s, 324 F.3d at 159 (noting that foreclosure of

40% to 50% is usually required to establish an exclusive

18

ZF Meritor‘s expert, Dr. David DeRamus, testified

at trial that Eaton‘s market share was consistently above 80%

from 2000 through 2007. Later in his testimony, DeRamus

concluded that Eaton‘s increased market share from 2000 to

2007 was the result of the LTAs. Furthermore, DeRamus

showed that ZF Meritor‘s market share percentages in the

linehaul transmissions market (i.e., the only portion of the

overall HD transmissions market in which ZF Meritor

competed), dropped from 32% to 24% between 2000 and

2002, and dropped even further from 24% to 12% between

2002 and 2003, before ultimately falling to 0% in 2007.

DeRamus concluded that the loss of ZF Meritor‘s linehaul

transmissions market share and its eventual exit from the

market were due to Eaton‘s conduct and, specifically, the

LTAs.

56

dealing violation under Section 1 of the Sherman Act (citing

Microsoft, 253 F.3d at 70)). From 2000 through 2003,

Plaintiffs‘ overall market share ranged from 8-14%, and by

2005, Plaintiffs‘ market share had dropped to 4%.

ii. Duration of LTAs

Second, the LTAs were not short-term agreements,

which would present little threat to competition. See, e.g.,

Christofferson Dairy, Inc. v. MMM Sales, Inc., 849 F.2d

1168, 1173 (9th Cir. 1988) (upholding exclusive dealing

arrangement of ―short duration‖); Roland Mach. Co. v.

Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984)

(noting that exclusive dealing contracts of less than one year

are presumptively lawful); Barry Wright, 724 F.2d at 237

(citing two-year term in upholding requirements contract).

Rather, each LTA was for a term of at least five years, and the

PACCAR LTA was for a seven-year term.19 See FTC v.

Motion Picture Adver. Serv. Co., 344 U.S. 392, 393-96

(1953) (upholding contracts of one year or less, but

condemning contract terms ranging from two to five years).

Although long exclusive dealing contracts are not per se

unlawful, ―[t]he significance of any particular contract

duration is a function of both the number of such contracts

and market share covered by the exclusive-dealing contracts.‖

Hovenkamp ¶ 1802g, at 98. Here, Eaton entered into long-

term contracts with every direct purchaser in the market,

which locked up over 85% of the market for at least five

19

Eaton and Freightliner revised their original LTA to

increase the duration to ten years.

57

years. Although long-term agreements had previously been

used in the HD transmissions industry, it was unprecedented

for a supplier to enter into contracts of such duration with the

entire customer base.

Eaton acknowledges, as it must, the unprecedented

length of the LTAs, but maintains that the LTAs were not

anticompetitive because they were easily terminable. See,

e.g., PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 111 (2d

Cir. 2002) (finding challenged contracts lawful, in part,

because they were terminable at will); Omega Envtl., 127

F.3d at 1164 (noting easy terminability of agreements). Each

LTA included a ―competitiveness‖ clause, which permitted

the OEM to purchase from another supplier or terminate the

agreement if another supplier offered a better product or a

lower price. However, Plaintiffs presented evidence that any

language giving OEMs the right to terminate the agreements

was essentially meaningless because Eaton had assured that

there would be no other supplier that could fulfill the OEMs‘

needs or offer a lower price. Thus, a jury could very well

conclude that ―in spite of the legal ease with which the

relationship c[ould] be terminated,‖ the OEMs had a strong

economic incentive to adhere to the terms of the LTAs, and

therefore were not free to walk away from the agreements and

purchase products from the supplier of their choice.

Dentsply, 399 F.3d at 194.

iii. Additional Anticompetitive Provisions in LTAs

Third, the LTAs were replete with provisions that a

reasonable jury could find anticompetitive. To begin, a jury

could have found that the data book provisions were

58

anticompetitive in that they limited the ability of ZF Meritor

to effectively market its products, and limited the ability of

truck buyers to choose from a full menu of available

transmissions. See id. (discussing anticompetitive effect of

limitations on customer choice). Eaton downplays the

significance of the data book provisions, arguing that truck

buyers always remained free to request unlisted

transmissions, and ZF Meritor remained free to market

directly to truck buyers. However, the mere existence of

potential alternative avenues of distribution, without ―an

assessment of their overall significance to the market,‖ is

insufficient to demonstrate that Plaintiffs‘ opportunities to

compete were not foreclosed. Id. at 196. An OEM‘s data

book was the ―most important tool‖ that any buyer selecting

component parts for a truck would use. If a product was not

listed in a data book, it was ―a disaster for the supplier.‖

Although truck buyers could request unpublished

components, doing so involved additional transaction costs,

and in practice, meant that truck buyers were far more likely

to select a product listed in the data book. See id. at 193

(explaining that the key question was not whether alternative

distribution methods allowed a competitor to ―survive‖ but

whether the alternative methods would ―pose[] a real threat‖

to the defendant‘s monopoly) (citing Microsoft, 253 F.3d at

71). Additionally, prior to the LTAs, it was not common

practice for one supplier to be given exclusive data book

listing. Historically, data books had included all product

offerings, including Meritor transmissions, and the OEMs

acknowledged that removing ZF Meritor products, especially

FreedomLine, from the data books was ―from a customer

perspective,‖ the wrong thing to do so because they were

59

―good product[s] with considerable demand in the

marketplace.‖

A jury could also have found that the ―preferential

pricing‖ provisions in the LTAs were anticompetitive.

Although it was ―common‖ for price savings to be passed

down to truck buyers in the form of lower prices, and there

are indications that at least some of the savings from Eaton

transmissions were indeed passed down, there is also

evidence that the preferential prices were achieved by

artificially increasing the prices of Plaintiffs‘ products.

Additionally, the jury could have determined that the

―competitiveness‖ clauses were of little practical import

because Eaton‘s conduct ensured that no rival would be able

to offer a comparable deal. There was also evidence that the

competitiveness clauses were met with stiff resistance by

Eaton.

iv. Anticompetitive Effects vs. Procompetitive Effects

Finally, the only procompetitive justification offered

by Eaton on appeal is that the LTAs were crafted to meet

customer demand to reduce prices, as well as engineering and

support costs. See Barr Labs., 978 F.2d at 111 (explaining

that courts must ―evaluate the restrictiveness and the

economic usefulness of the challenged practice in relation to

the business factors extant in the market‖) (citations omitted).

In response to the economic downturn in the heavy-duty

trucking industry in the late 1990s and early 2000s, each

OEM sought to negotiate lower prices, and some sought to

reduce the number of suppliers. During this time, oversupply

60

was a problem, as were low truck prices, and an

unavailability of drivers. It appears that Eaton responded

well to the downturn; despite persistent quality control

problems and a relatively late introduction of two-pedal

automated mechanical transmissions, the company cut costs

and increased market share.

However, no OEM ever asked Eaton to be a sole

supplier, and there was considerable testimony from OEM

officials that it was in an OEM‘s interest to have multiple

suppliers. Although long-term agreements offering market-

share or volume discounts had been used in the industry in the

past (for transmissions and for other truck components), OEM

executives consistently testified that Eaton‘s new LTAs

represented a substantial departure from past practice. For

example, the longest supply agreements Freightliner and

Volvo had ever signed previously were for two-year terms.

Likewise, OEM officials testified that the provisions in the

LTAs requiring exclusive data book listing and ―preferential

pricing‖ were not common. Critically, there was considerable

evidence from which a jury could infer that the primary

purpose of the LTAs was not to meet customer demand, but

to take preemptive steps to block potential competition from

the new ZF Meritor joint venture. Eaton devised the

unprecedented LTAs only after Meritor formed the joint

venture with ZF AG, which Eaton viewed as a ―serious

competitor.‖ Eaton feared that the ZF Meritor joint venture

would put Eaton‘s ―[North American] position at risk‖ by

introducing a new product (FreedomLine) for which there

was significant customer demand, but for which Eaton did not

produce a comparable alternative.

61

In sum, the LTAs included numerous provisions

raising anticompetitive concerns and there was evidence that

Eaton sought to aggressively enforce the agreements, even

when OEMs voiced objections.20 Accordingly, we hold that

there was more than sufficient evidence for a jury to conclude

that the cumulative effect of Eaton‘s conduct was to adversely

affect competition.21

20

Judge Greenberg, in dissent, objects that our rule of

reason analysis fails to consider that Eaton‘s prices were

above cost. Dissenting Op., Part II. However, contrary to

this objection, and even though ZF Meritor does not contend

that Eaton‘s prices operated as an exclusionary tool, we do

not view Eaton‘s prices as irrelevant to the rule of reason

analysis. Rather than analyzing the alleged exclusionary

provisions in a vacuum, we analyze these provisions in the

larger context of the LTAs as a whole, and we recognize that

Eaton maintained above-cost prices. We conclude that ZF

Meritor presented sufficient evidence for the jury to find that,

even though not every provision was exclusionary, the LTAs

as a whole functioned as exclusive dealing agreements that

adversely affected competition.

21

It is worth noting that despite Eaton‘s contention

that Plaintiffs‘ higher prices and quality problems led to their

decline in market share, the OEMs felt differently. In 2002, a

Freightliner executive wrote: ―[t]his is a dangerous situation.

We have already killed Meritor‘s transmission business. It is

just a matter of time before they close their doors.‖ Likewise,

a 2006 Volvo presentation states: ―With all its OEM

customers, Eaton has established long term supply contracts

62

4. Sufficiency of the Evidence: Antitrust Injury

Having concluded that there was sufficient evidence

from which a jury could determine that the LTAs functioned

as unlawful exclusive dealing agreements, we have no

difficulty concluding that there was likewise sufficient

evidence that Plaintiffs suffered antitrust injury. See Atl.

Richfield, 495 U.S. at 344 (explaining that a plaintiff suffers

antitrust injury if its injury ―stems from a competition-

reducing aspect or effect of the defendant‘s behavior‖).

Eaton‘s conduct unlawfully foreclosed a substantial share of

the HD transmissions market, which would otherwise have

been available for rivals, including Plaintiffs. ZF Meritor

exited the market in 2003, followed by Meritor in 2006,

because they could not maintain high enough market shares to

remain viable. A jury could certainly conclude that Plaintiffs‘

inability to grow was a direct result of Eaton‘s exclusionary

conduct.

C. Expert Testimony

1. Expert Testimony on Liability

Eaton raises two challenges to the District Court‘s

decision to admit DeRamus‘s testimony on liability. First,

Eaton argues that DeRamus failed to employ any recognized

or reliable economic test for determining whether Eaton‘s

. . . [which] ha[ve] led to . . . Eaton‘s only North American

competitor, Meritor, [being] gradually marginalized to its

current market position with a 10% market share.‖

63

conduct harmed competition and caused antitrust injury.

Second, Eaton contends that DeRamus‘s opinion was

contradicted by the facts. We disagree with both

22

contentions.

Federal Rule of Evidence 702 provides:

A witness who is qualified as an expert by

knowledge, skill, experience, training, or

education may testify in the form of an opinion

or otherwise if: (a) the expert‘s scientific,

technical, or other specialized knowledge will

help the trier of fact to understand the evidence

or to determine a fact in issue; (b) the testimony

is based on sufficient facts or data; (c) the

testimony is the product of reliable principles

and methods; and (d) the expert has reliably

applied the principles and methods to the facts

of the case.

Under Rule 702, the district court acts as a ―gatekeeper‖ to

ensure that ―the expert‘s opinion [is] based on the methods

and procedures of science rather than on subjective belief or

unsupported speculation.‖ Calhoun v. Yamaha Motor Corp.,

U.S.A., 350 F.3d 316, 321 (3d Cir. 2003) (quoting In re Paoli

R.R. Yard PCB Litig. (Paoli II), 35 F.3d 717, 741 (3d Cir.

22

Eaton also argues that DeRamus‘s testimony was

contrary to law because he did not employ a price-cost test.

However, as we explained above, no price-cost test was

required in this case.

64

1994)). Here, as the District Court noted, DeRamus relied on

the exclusionary nature of the LTAs to form his opinion. He

defined the relevant market, determined whether Eaton has

monopoly power, and engaged in an analysis of Eaton‘s

conduct, taking into account market conditions and the extent

of the exclusive dealing. He examined the effect of the LTAs

on prices and consumer choice, and considered whether

foreclosure of the market could be attributed to factors other

than the LTAs, such as market conditions or quality issues

with Plaintiffs‘ products. We find no error in the District

Court‘s acceptance of DeRamus‘s methodologies as reliable

under Rule 702. See LePage’s, 324 F.3d at 154-64 (analyzing

exclusive dealing by looking to many of the same factors

considered by DeRamus).

Eaton also argues that DeRamus‘s opinion was

contradicted by the facts. ―When an expert opinion is not

supported by sufficient facts to validate it in the eyes of the

law, or when indisputable record facts contradict or otherwise

render the opinion unreasonable, it cannot support a jury‘s

verdict.‖ Brooke Grp., 509 U.S. at 242; Phila. Newspapers,

51 F.3d at 1198. In an antitrust case, an expert opinion

generally must ―incorporate all aspects of the economic

reality‖ of the relevant market. Concord Boat, 207 F.3d at

1057. Here, the District Court properly rejected Eaton‘s

argument that DeRamus‘s testimony should have been

excluded on the basis that it was contradicted by other facts.

Eaton‘s argument on this point really amounts to nothing

more than a complaint that DeRamus did not adopt Eaton‘s

view of the case. The District Court correctly noted that,

although some of DeRamus‘s testimony may have been

65

contradicted by other evidence, including the testimony of

Eaton‘s expert, the existence of conflicting evidence was not

a basis on which to exclude DeRamus‘s testimony. The

respective credibility of Plaintiffs‘ and Eaton‘s experts was a

question for the jury to decide. LePage’s, 324 F.3d at 165.

DeRamus was extensively cross-examined and Eaton

presented testimony from its own expert, who opined that the

LTAs had no anticompetitive effect. In the end, the jury

apparently found DeRamus to be more credible. ―[Eaton]‘s

disappointment as to the jury‘s finding of credibility does not

constitute an abuse of discretion by the District Court in

allowing [DeRamus‘s] testimony.‖ Id. at 166.

2. Expert Testimony on Damages

In their cross-appeal, Plaintiffs argue that the District

Court erred in excluding DeRamus‘s testimony on the issue

of damages. The core of DeRamus‘s damages analysis was

one page (titled ―Five Year Product Line Profit and Loss‖) of

ZF Meritor‘s Revised Strategic Business Plan (―SBP‖) for

fiscal years 2002 through 2005, which was presented to ZF

Meritor‘s Board of Directors in November 2000.23 The

District Court determined that, although DeRamus used

methodologies regularly employed by economists, his opinion

nevertheless failed the reliability requirements of Daubert and

the Federal Rules of Evidence because the underlying data

23

The SBP contained a five-year forecast of profit and

loss estimates based on estimated unit sales, unit prices,

manufacturing costs, operating expenses, and other

considerations.

66

was not sufficiently reliable. The District Court

acknowledged that experts often rely on business plans in

forming damages estimates, but concluded that DeRamus‘s

reliance on the SBP in this case was improper because he did

not know either the qualifications of the individuals who

prepared the SBP estimates or the assumptions upon which

the estimates were based. Plaintiffs filed a motion for

clarification, which asked the District Court to allow

DeRamus to testify based on his existing expert report to

damages estimates independent of the SBP, or, in the

alternative, to allow him to amend his report to include the

alternate damages estimates. The District Court did not

resolve the damages issue at that time, and bifurcated the

case. After the trial on liability, Plaintiffs supplemented their

pre-trial motion for clarification, adding several new

arguments based on developments at trial, and renewing their

request that DeRamus be allowed to testify based on alternate

calculations. The District Court denied Plaintiffs‘ motion and

awarded $0 in damages.

Our inquiry on appeal is two-fold. Initially, we must

determine whether the District Court erred in excluding the

expert opinion of DeRamus on the basis that it was not

sufficiently reliable. Then, we must consider whether the

District Court abused its discretion in denying Plaintiffs‘

request to allow DeRamus to testify to alternative damages

calculations. We will address these issues in turn.

i. DeRamus‘s original damages calculations

First, we will consider Plaintiffs‘ contention that the

District Court erred in determining that DeRamus‘s damages

67

opinion was not sufficiently reliable. Federal Rule of

Evidence 702, as amended in 2000 to incorporate the

standards set forth in Daubert, imposes an obligation upon a

district court to ensure that expert testimony is not only

relevant, but reliable. Fed. R. Evid. 702; Paoli II, 35 F.3d at

744. As we have made clear, ―the reliability analysis

[required by Daubert] applies to all aspects of an expert‘s

testimony: the methodology, the facts underlying the expert‘s

opinion, [and] the link between the facts and the conclusion.‖

Heller v. Shaw Indus., Inc., 167 F.3d 146, 155 (3d Cir. 1999);

see also id. (―Not only must each stage of the expert‘s

testimony be reliable, but each stage must be evaluated

practically and flexibly without bright-line exclusionary (or

inclusionary) rules.‖). As we explain below, the District

Court did not abuse its discretion by finding that DeRamus‘s

damages estimate, which was based heavily on the SPB

projections, bore insufficient indicia of reliability to be

submitted to a jury.

To determine the damages suffered by Plaintiffs as a

result of Eaton‘s anticompetitive conduct, DeRamus

conducted a two-part analysis. He computed Plaintiffs‘ lost

profits for the period between 2000 and 2009, as well as the

lost enterprise value of Plaintiffs‘ HD transmissions business.

To calculate Plaintiffs‘ lost profits, DeRamus first estimated

the incremental revenues that Plaintiffs would have earned

―but for‖ Eaton‘s anticompetitive conduct, and then

subtracted from that figure the incremental cost that Plaintiffs

would have had to incur to achieve such incremental sales.

Ordinarily, such an approach would be appropriate

because ―an expert may construct a reasonable offense-free

68

world as a yardstick for measuring what, hypothetically,

would have happened ‗but for‘ the defendant‘s unlawful

activities.‖ LePage’s, 324 F.3d at 165 (citations omitted).

However, the District Court‘s primary criticism of

DeRamus‘s report was that he did not construct an offense-

free world based on actual financial data, but instead relied on

a one-page set of profit and volume projections without

knowing the circumstances under which such projections

were created or the assumptions on which they were based.

In some circumstances, an expert might be able to rely on the

estimates of others in constructing a hypothetical reality, but

to do so, the expert must explain why he relied on such

estimates and must demonstrate why he believed the

estimates were reliable. See Fed. R. Evid. 702; Daubert, 509

U.S. at 592-95; Paoli II, 35 F.3d at 748 n.18 (―Arguably,

[third-party estimates] that an expert relies on are not his

underlying data, but rather the data that went into the [third-

party estimates] in the first place are his underlying data.‖).

Plaintiffs contend that DeRamus‘s reliance on the SBP

estimates was appropriate because a company‘s internal

financial projections, like those in the SBP, are regularly and

reasonably relied upon by economists in formulating opinions

regarding a company‘s performance in an offense-free world.

Plaintiffs are certainly correct that ―internal projections for

future growth‖ often serve as legitimate bases for expert

opinions. See LePage’s, 324 F.3d at 165; Autowest, Inc. v.

Peugeot, Inc., 434 F.2d 556, 566 (2d Cir. 1970) (holding that

damages testimony was admissible because the financial

projections on which the testimony was based ―were the

product of deliberation by experienced businessmen charting

69

their future course‖). Businesses are generally well-informed

about the industries in which they operate, and have

incentives to develop accurate projections. As such, experts

frequently use a plaintiff‘s business plan to estimate the

plaintiff‘s expected profits in the absence of the defendant‘s

misconduct. See Litigation Services Handbook: The Role of

the Financial Expert 24:13 (4th ed. 2007). However, there is

no per se rule of inclusion where an expert relies on a

business plan; district courts must perform a case-by-case

inquiry to determine whether the expert‘s reliance on the

business plan in a given case is reasonable. See Heller, 167

F.3d at 155.

Here, the District Court concluded that the SBP could

not serve as a reliable basis for DeRamus‘s opinion because

he was unaware of the qualifications of the individuals who

prepared the document, or the assumptions on which the

estimates were based. Plaintiffs argue that these factual

findings are contradicted by the record. Admittedly, the

record indicates that DeRamus did not, as the District Court

suggested, blindly accept the SBP estimates without question.

DeRamus was aware that the SBP had been presented to ZF

Meritor‘s Board of Directors, and that it was revised several

times to ―address and resolve queries management had about

the reasonableness of the assumptions, projections, [and]

forecasts.‖ He also knew that the Board had relied on the

SBP in making business decisions. Moreover, ZF Meritor‘s

former president testified that he ―did not submit SBPs to

management for review unless [he] believed the projections,

forecasts, and assumptions therein to be reliable.‖

70

However, contrary to Plaintiffs‘ assertions, these

excerpts from the record do not contradict the District Court‘s

ultimate findings. The record amply supports the District

Court‘s concern that, although DeRamus was generally aware

of the circumstances under which the SBP was created and

the purposes for which it was used, he lacked critical

information that would be necessary for Eaton to effectively

cross-examine him. An expert‘s ―lack of familiarity with the

methods and the reasons underlying [someone else‘s]

projections virtually preclude[s] any assessment of the

validity of the projections through cross-examination.‖ TK-7

Corp. v. Estate of Barbouti, 993 F.2d 722, 732 (10th Cir.

1993); compare Autowest, 434 F.2d at 566 (holding that

projections of company officials were admissible where such

officials ―set out at length the bases from which they derived

their figures, and consequently, [the opposing party] was able

to cross-examine them vigorously‖). Here, DeRamus knew

that the SBP was presented to the Board by experienced

management professionals, but he did not know who initially

calculated the SBP figures. He did not know whether the

SBP projections were calculated by ZF Meritor management,

lower level employees at ZF Meritor, or came from some

outside source. Nor did DeRamus know the methodology

used to create the SBP or the assumptions on which the SBP‘s

price and volume estimates were based.24

24

As the District Court noted, it is especially important

for an expert to identify and justify the assumptions

underlying financial projections when dealing with a new

company. Here, although Meritor had been in the HD

71

Under the deferential abuse of discretion standard, we

will not disturb a district court‘s decision to exclude

testimony unless we are left with ―a definite and firm

conviction that the court below committed a clear error of

judgment.‖ In re TMI Litig., 193 F.3d 613, 666 (3d Cir.

1999) (citation omitted). Plaintiffs cannot clear that high

hurdle. Accordingly, we conclude that the District Court

acted within its discretion in determining that one page of

financial projections for a nascent company, the assumptions

underlying which were relatively unknown, did not provide

―good grounds,‖ Paoli II, 35 F.3d at 742 (quoting Daubert,

509 U.S. at 590), for DeRamus to generate his damages

estimate. Compare LePage’s, 324 F.3d at 165 (noting that

plaintiff‘s expert considered the defendant‘s internal

projections for growth, but also closely examined the market

conditions, including the past performance of competitors).

Plaintiffs raise two additional challenges to the District

Court‘s exclusion of DeRamus‘s testimony. First, Plaintiffs

contend that because the SBP was admitted into evidence at

trial, Rule 703 does not provide a basis for exclusion.

However, this argument is based on the flawed assumption

that the District Court excluded DeRamus‘s testimony under

Rule 703, rather than Rule 702. Plaintiffs assume that

because the District Court stated that ―DeRamus manipulated

the SBP using methodologies employed by economists,‖ ZF

Meritor, 646 F. Supp. 2d at 667, the District Court necessarily

transmissions industry for over a decade, ZF Meritor was

offering a brand new line of transmissions that had never

before been sold in the North American market.

72

concluded that Rule 702, which focuses on methodologies,

was satisfied. However, the District Court explicitly stated

that ―the fundamental query‖ was ―whether the [SBP]

estimates pass[ed] the reliability requirements of Rules 104,

702, and 703.‖ Id. Although it is not entirely clear from the

District Court‘s opinion which rule the District Court relied

upon in finding DeRamus‘s testimony inadmissible, we may

affirm evidentiary rulings on any ground supported by the

record, Hughes v. Long, 242 F.3d 121, 122 n.1 (3d Cir. 2001),

and we conclude that DeRamus‘s opinion was properly

excluded because it failed the reliability requirements of Rule

702.25

Plaintiffs‘ suggestion that the reasonableness of an

expert‘s reliance on facts or data to form his opinion is

somehow an inappropriate inquiry under Rule 702 results

25

We base our affirmance of the District Court‘s

decision entirely on the fact that DeRamus‘s opinion failed

Rule 702, and do not decide whether Rule 703 provides an

additional basis for exclusion. We note, however, that

Plaintiffs‘ argument that Rule 703 somehow constrains a

district court‘s ability to conduct an assessment of reliability

under Rule 702 is misplaced. After all, a piece of evidence

may be relevant for one purpose, and thus admissible at trial,

but not be the type of information that can form the basis of a

reliable expert opinion. As the District Court stated, ―the fact

that [a piece of evidence] [i]s part of [the] plaintiffs‘ ‗story‘

does not mean, ipso facto,‖ that an expert opinion relying on

such evidence is admissible. ZF Meritor LLC v. Eaton Corp.,

800 F. Supp. 2d 633, 637 (D. Del. 2011).

73

from an unduly myopic interpretation of Rule 702 and ignores

the mandate of Daubert that the district court must act as a

gatekeeper. See Daubert, 509 U.S. at 589; Heller, 167 F.3d at

153 (―While ‗the focus, of course, must be solely on

principles and methodology, not on the conclusions that they

generate,‘ a district court must examine the expert‘s

conclusions in order to determine whether they could reliably

flow from the facts known to the expert and the methodology

used.‖) (emphasis added) (quoting Daubert, 509 U.S. at 595).

Where proffered expert testimony‘s ―factual basis, data,

principles, methods, or their application are called sufficiently

into question, . . . the trial judge must determine whether the

testimony has ‗a reliable basis in the knowledge and

experience of the relevant discipline.‘‖ Kumho Tire Co. v.

Carmichael, 526 U.S. 137, 149 (1999) (quoting Daubert, 509

U.S. at 592). A district court‘s inquiry under Rule 702 is ―a

flexible one‖ and must be guided by the facts of the case.

Daubert, 509 U.S. at 591, 594. Here, the District Court‘s

analysis fell squarely within its flexible gatekeeping function

under Daubert and Rule 702. See Kumho Tire Co. 526 U.S.

at 149; Paoli II, 35 F.3d at 748 n.18; see also Elcock, 233

F.3d at 754 (explaining that an expert‘s testimony regarding

damages must be based on a sufficient factual foundation);

Tyger Constr. Co. v. Pensacola Constr. Co., 29 F.3d 137, 142

(4th Cir. 1994) (―An expert‘s opinion should be excluded

when it is based on assumptions which are speculative and

not supported by the record.‖).

Second, Plaintiffs argue that the District Court did not

provide fair notice that it intended to exclude DeRamus‘s

testimony under Federal Rule of Evidence 703. Again, this

74

argument rests on the flawed assumption that the District

Court relied solely on Rule 703. However, even assuming the

District Court mistakenly believed that its Rule 702 reliability

analysis actually fell under Rule 703, Plaintiffs‘ notice

argument would still be meritless. A district court must give

the parties ―an adequate opportunity to be heard on

evidentiary issues.‖ In re Paoli R.R. Yard PCB Litig. (Paoli

I), 916 F.2d 829, 854 (3d Cir. 1990). Here, there was

extensive briefing regarding DeRamus‘s damages opinion,

much of which focused on Eaton‘s argument that DeRamus‘s

reliance on the SBP was improper. The District Court held

not one, but two in limine hearings, in which DeRamus

testified for several hours. Compare id. at 854-55 (holding

that the district court did not give the plaintiffs an adequate

opportunity to be heard where it failed to conduct an in limine

hearing and denied oral argument on the evidentiary issues).

As such, Plaintiffs were well aware of, and had ample

opportunity to be heard on, the question of whether

DeRamus‘s reliance on the SBP rendered his testimony

inadmissible.

ii. Alternate damages calculations

The District Court‘s opinion excluding DeRamus‘s

damages testimony focused exclusively on DeRamus‘s

damages estimates based on the SBP projections regarding

ZF Meritor‘s market share and profit margin. However, his

expert report also set forth market-share estimates based on

an econometric model. The econometric model did not

consider the SBP, but instead used economic variables, such

as the number of heavy-duty trucks built and sold in the North

American market, an index of consumer confidence in the

75

United States, the average wholesale price of oil in the United

States, and interest rates. The model also considered ZF

Meritor‘s market share from the previous month ―in order to

capture market dynamics.‖

To reach his ultimate damages estimate, DeRamus

averaged several damages calculations, each of which used a

different combination of inputs for market share and profit

margin. Following the District Court‘s order excluding

DeRamus‘s testimony due to his reliance on the SBP,

Plaintiffs filed a motion for clarification, asking the District

Court to allow DeRamus to calculate damages using the same

methodologies from his expert report, but using data

independent of the SBP. Specifically, Plaintiffs proposed

several revisions to DeRamus‘s damages estimate. First,

Plaintiffs indicated that DeRamus could revise his ―Eaton

Operating Profit Method,‖ which used as principal inputs the

SBP estimates for market share and Eaton‘s actual operating

profits for profit margin. Plaintiffs stated that DeRamus had

recalculated lost profits using the same methodology, but

replacing the market-share data from the SBP with market-

share data from his econometric model. Second, Plaintiffs

explained that DeRamus could similarly revise his

―Econometric Method‖ of calculating lost profits, which used

the econometric model for market share, and data from the

SBP for profit margin. He could use the same methodology

and replace the profit margin data from the SBP with profit

76

margin data from Plaintiffs‘ actual sales data from 1996

through 2000.26

Noting that all of the data necessary for DeRamus‘s

recalculations were already in the expert report, Plaintiffs

requested that DeRamus be able to testify to the alternate

calculations using the existing expert report. Allowing

DeRamus to testify to alternate damages numbers without

amending his expert report would have left Eaton without

advance notice of the new calculations, and thus would have

been improper. As such, the District Court did not err in

ruling that DeRamus could not testify to new calculations

based on the existing expert report. However, the District

Court‘s refusal to allow DeRamus to amend his expert report

presents a much more difficult question, one that we will

explore in depth.

Before beginning our analysis, it is necessary to

provide some context regarding the procedural history

because the way in which the damages issue was handled by

the District Court is significant to our determination that the

District Court abused its discretion. After the District Court

granted Eaton‘s motion to exclude DeRamus‘s damages

testimony, it granted leave for Plaintiffs to file a motion for

clarification to identify damages calculations in DeRamus‘s

expert report that were not based on the SBP. On September

26

Although the District Court did not address

DeRamus‘s lost enterprise value calculations, Plaintiffs

indicated in their motion for clarification that DeRamus could

make similar revisions to those calculations.

77

9, 2009, ten days before trial was set to begin, Plaintiffs filed

the motion, acknowledging that new calculations would be

required, but submitting that all of the necessary data was

already in the report. The next day, the District Court held a

pretrial conference, in which it considered Plaintiffs‘ motion,

and determined that it had two options: to ―basically punt‖ on

the damages issue and bifurcate the case, or to allow

Plaintiffs‘ new damages theory to go forward and allow Eaton

to depose DeRamus to examine his new theories. The

District Court concluded that the ―cleanest‖ option was to

defer the damages issue, bifurcate, and proceed to trial on

liability. That way, the District Court stated, the damages

issue would only need to be resolved if ―the jury c[ame] back

with a plaintiffs‘ verdict, which [was] [up]held on appeal.‖ In

opting to defer a decision on damages, the District Court

noted that it ―did not . . . at the moment, have the time to

parse [DeRamus‘s report] as carefully‖ as would be necessary

to satisfactorily address the parties‘ arguments regarding

damages.

The jury delivered its verdict on liability on October 8,

2009, and the District Court entered judgment in favor of

Plaintiffs on October 14. Two days later, Plaintiffs requested

that the District Court set a trial on damages. Eaton opposed

Plaintiffs‘ request, asserting that the judgment on liability was

a final appealable decision. Although the District Court

apparently agreed with Eaton initially, stating that it ―d[id]

not intend to address damages until liability has been finally

resolved by the Third Circuit,‖ the District Court

subsequently issued an amended judgment, which stated that

because damages had not been resolved, there was no final

78

appealable order under Federal Rule of Civil Procedure 54(b).

On November 3, 2009, Eaton filed its renewed motion for

judgment as a matter of law or a new trial. The District Court

did not rule on the motion until March 2011.27

Following the District Court‘s denial of Eaton‘s

motion, Plaintiffs renewed their request for a damages trial.

On July 25, 2011, the District Court held a status conference,

in which it heard arguments on whether the liability issue was

appealable as a judgment on fewer than all claims under Rule

54(b). Although the District Court initially indicated that it

would proceed under Rule 54(b), and once again defer

resolution of the damages issue, after both parties agreed that

the judgment on liability was not appealable under Rule 54(b)

(and that it was unlikely that this Court would grant an

interlocutory appeal), the District Court acknowledged that it

would ―need to go back to the papers and see how I extract

myself from the procedural morass that I put myself in.‖ The

District Court then signaled the way in which it would extract

itself, stating ―so let‘s assume that I am going to resurrect a

motion that is two years old [Plaintiffs‘ September 3, 2009

motion for clarification], and let‘s assume that I deny it, and

we‘re left with the situation we have now. At that point,

would it make sense to have a cross-appeal on liability, on the

Daubert decision, and get it up to the Third Circuit?‖

27

It is unclear from the record why sixteen months

passed between Eaton‘s motion and the District Court‘s

decision on the motion.

79

Several days later, on August 4, 2011, the District

Court issued a memorandum opinion and order denying

Plaintiffs‘ motion for clarification, and awarding $0 in

damages. The District Court‘s entire analysis of Plaintiffs‘

request to modify DeRamus‘s report consisted of one

paragraph. The District Court concluded that allowing

Plaintiffs to amend DeRamus‘s expert report ―would be

tantamount to reopening expert discovery‖ because DeRamus

would need to be deposed again and Eaton would have to

prepare another rebuttal expert report. The District Court also

noted that, when it granted leave for Plaintiffs to move for

clarification, leave was granted only for Plaintiffs to show

that DeRamus‘s report already contained an alternate

damages calculation, and that Plaintiffs‘ motion requested

permission to submit additional damages calculations.

Therefore, the District Court concluded, ―[a]t this stage of the

litigation,‖ it would not give Plaintiffs an opportunity to

modify their damages estimate.

We provide this extensive review of the procedural

history to make a basic point: while we appreciate the District

Court‘s attempt to conserve judicial resources and refrain

from addressing the damages issue unless absolutely

necessary, it is apparent from the record that Plaintiffs‘

request for permission to submit alternative damages

calculations was given little more than nominal consideration.

We are mindful that the District Court has considerable

discretion in matters regarding expert discovery and case

management, and a party challenging the district court‘s

conduct of discovery procedures bears a ―heavy burden.‖ In

re Fine Paper, 685 F.2d at 817-18 (―We will not interfere

80

with a trial court‘s control of its docket ‗except upon the

clearest showing that the procedures have resulted in actual

and substantial prejudice to the complaining litigant.‘‖)

(citation omitted); see Schiff, 602 F.3d at 176. Under Federal

Rule of Civil Procedure 26(a)(2), a party is required to

disclose an expert report containing ―a complete statement of

all opinions the witness will express and the basis and reasons

for them.‖ Fed. R. Civ. P. 26(a)(2)(B)(i) (emphasis added).

Any additions or changes to the information in the expert

report must be disclosed by the time the party‘s pretrial

disclosures are due. Fed. R. Civ. P. 26(e)(2). Here, Plaintiffs

were required to make all mandatory disclosures six months

before trial, including all damages calculations. The damages

estimates in DeRamus‘s report were found to be unreliable,

and Plaintiffs sought, after the date by which discovery

disclosures were due, to modify the estimates to reflect

reliance on different data. Ordinarily, we will not disrupt a

district court‘s decision to deny a party‘s motion to add

information to an expert report under such circumstances.

Schiff, 602 F.3d at 176; In re Fine Paper, 685 F.3d at 817. A

plaintiff omits evidence necessary to sustain a damages award

at its own risk. See Natural Res. Def. Council, Inc. v. Texaco

Ref. & Mktg., Inc., 2 F.3d 493, 504 (3d Cir. 1993).

However, exclusion of critical evidence is an

―extreme‖ sanction, and thus, a district court‘s discretion is

not unlimited. Konstantopoulos v. Westvaco Corp., 112 F.3d

710, 719 (3d Cir. 1997); see also E.E.O.C. v. Gen. Dynamics

Corp., 999 F.2d 113, 116 (5th Cir. 1993) (explaining that a

continuance, as opposed to exclusion, is the ―preferred

means‖ of dealing with a party‘s attempt to offer new

81

evidence after the time for discovery has closed). There are

indeed times, even when control of discovery is at issue, that

a district court will ―exceed[] the permissible bounds of its

broad discretion.‖ Drippe v. Tobelinski, 604 F.3d 778, 783

(3d Cir. 2010). In Meyers v. Pennypack Woods Home

Ownership Ass’n, 559 F.2d 894, 905 (3d Cir. 1977),

overruled on other grounds by Goodman v. Lukens Steel Co.,

777 F.2d 113 (3d Cir. 1985), we set forth five factors that

should be considered in deciding whether a district court‘s

exclusion of evidence as a discovery sanction constitutes an

abuse of discretion. Here, although the District Court‘s

decision was not a discovery sanction nor an exclusion of

proffered evidence, but rather an exercise of discretion to

control the discovery process and a refusal to allow

submission of additional evidence, we find the Pennypack

factors instructive, and thus they will guide our inquiry. See

Trilogy Commc’ns, Inc. v. Times Fiber Commc’ns, Inc., 109

F.3d 739, 744-45 (Fed. Cir. 1997) (applying factors similar to

those set forth in Pennypack to evaluate whether a district

court erred in denying the plaintiff‘s motion to supplement its

expert report with additional data); see also Hunt v. Cnty. of

Orange, 672 F.3d 606, 616 (9th Cir. 2012) (applying similar

factors to determine whether the district court abused its

discretion in denying a motion to amend a pretrial order).

In considering whether the District Court abused its

discretion in denying Plaintiffs‘ request to submit alternate

damages calculations, we will consider: (1) ―the prejudice or

surprise in fact of the party against whom the excluded

witnesses would have testified‖ or the excluded evidence

would have been offered; (2) ―the ability of that party to cure

82

the prejudice‖; (3) the extent to which allowing such

witnesses or evidence would ―disrupt the orderly and efficient

trial of the case or of other cases in the court‖; (4) any ―bad

faith or willfulness in failing to comply with the court‘s

order‖; and (5) the importance of the excluded evidence.

Pennypack, 559 F.2d at 904-05. The importance of the

evidence is often the most significant factor. See Sowell v.

Butcher & Singer, Inc., 926 F.2d 289, 302 (3d Cir. 1991);

Pennypack, 559 F.2d at 904 (observing ―how important [the

excluded] testimony might have been and how critical [wa]s

its absence‖).

Applying the Pennypack factors to this case, we

conclude that the District Court abused its discretion in

denying Plaintiffs‘ request to allow DeRamus to submit his

alternate damages estimates. As to the first and second

factors, Eaton would not have suffered substantial prejudice if

DeRamus were allowed to amend his expert report.

DeRamus‘s new calculations will be based on data from the

initial report, which Eaton has been aware of for nearly three

years, and DeRamus will employ methodologies that the

District Court has already recognized as being regularly and

reliably applied by economists. As Plaintiffs noted in their

motion for clarification, it would be ―a straightforward matter

of arithmetic‖ to substitute data from the econometric model

and actual sales data for the SBP projections. For this reason,

the District Court‘s concern that granting Plaintiffs‘ request

would be ―tantamount to reopening discovery‖ seems

unfounded. Although Eaton will have to respond to new

calculations, it will not have to analyze any new data, or

challenge any new methodologies. Moreover, Plaintiffs

83

specifically set forth in their motion for clarification the

changes that DeRamus would make, and because the changes

only involved the substitution of inputs, Eaton would not be

unfairly surprised by the new damages estimates.

As to the third Pennypack factor, allowing DeRamus

to submit additional damages calculations will not disrupt the

orderly and efficient flow of the case. In fact, our ruling on

the liability issues and remand to the District Court to resolve

damages is precisely what the District Court and the parties

envisioned all along. Eaton, well aware of the District

Court‘s desire to have this Court determine the liability issues

before setting a damages trial, suggested that the best way to

accomplish the District Court‘s objective was to amend the

JMOL order to include ―zero damages and no injunctive

relief.‖ As the District Court stated at the July 25, 2011 status

conference, ―[t]he way I handle complex litigation generally,

when I bifurcate, is that I enter a final judgment pursuant to

Rule 54(b) . . . and once the Circuit Court determines liability,

if there is a reason to have a damages trial, we have a

damages trial.‖ Thus, it cannot seriously be a surprise to any

of the parties that they will once again be required to address

damages in this case. Additionally, Eaton repeatedly states in

its brief that Plaintiffs seek to reopen discovery ―on the eve of

trial.‖ Although that may have been true when Plaintiffs‘

original motion for clarification was filed, it is no longer true.

Trial ended in October 2009 and thus, when the District Court

finally ruled on Plaintiffs‘ motion, there was no longer any

time-crunch problem. Any concern that granting Plaintiffs‘

motion would prevent Eaton from being able to effectively

prepare to address DeRamus‘s new damages estimates at trial

84

is no longer relevant, nor is there any risk that granting

Plaintiffs‘ motion would excessively delay a trial on liability.

As to the fourth factor, there is no evidence of any bad

faith on the part of Plaintiffs. However, under this fourth

factor, we may also consider the Plaintiffs‘ justifications for

failing to include alternative damages calculations in the

event calculations based on the SBP were found to be

insufficient. See Pennypack, 559 F.2d at 905; Gen. Dynamics

Corp., 999 F.2d at 115-16. Given that DeRamus‘s report

already included the data necessary to develop alternate

damages estimates, he could very easily have provided such

estimates. Plaintiffs have provided no persuasive explanation

for his failure to do so, other than that he believed his existing

estimates were sufficiently reliable. It is not the district

court‘s responsibility to help a party correct an error or a poor

exercise of judgment, and thus, Plaintiffs‘ conscious choice to

rely so heavily on data that was ultimately found to be

unreliable weighs against a finding of abuse of discretion.

This is especially true in a case such as this, where the party

submitting the flawed expert report is a large corporation with

significant resources represented by highly competent

counsel.

However, perhaps the most important factor in this

case is the critical nature of the evidence, and the

consequences if permission to amend is denied. Expert

testimony is necessary to establish damages in an antitrust

case. As such, without additional damages calculations, it is

clear that Plaintiffs will be unable to pursue damages, despite

the fact that they won at the liability stage. Compare Gen.

Dynamics Corp., 999 F.2d at 116-17 (finding an abuse of

85

discretion in the district court‘s exclusion of expert testimony,

in part, because the total exclusion of such testimony ―was

tantamount to a dismissal of the [plaintiff‘s] . . . claim‖), with

Sowell, 926 F.2d at 302 (finding no abuse of discretion in

district court‘s exclusion of proffered expert testimony, in

large part, because ―the record [was] totally devoid of any

indication of . . . how th[e] testimony might have bolstered

[the plaintiff‘s] case,‖ and thus, there was ―no basis whatever

for believing that the admission of expert testimony would

have influenced the outcome of th[e] case‖). The District

Court‘s decision therefore would clearly influence the

outcome of the case. See Sowell, 926 F.2d at 302.

Significantly, in the antitrust context, a damages award

not only benefits the plaintiff, it also fosters competition and

furthers the interests of the public by imposing a severe

penalty (treble damages) for violation of the antitrust laws.

See Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262

(1972) (―Every violation of the antitrust laws is a blow to the

free-enterprise system envisaged by Congress. . . . In

enacting these laws, Congress had many means at its disposal

to penalize violators. It could have, for example, required

violators to compensate federal, state, and local governments

for the estimated damage to their respective economies

caused by the violations. But, this remedy was not selected.

Instead, Congress chose to permit all persons to sue to

recover three times their actual damages . . . . By [so doing],

Congress encouraged these persons to serve as ‗private

attorneys general.‘‖) (citations omitted); Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 655

(1985) (―A claim under the antitrust laws is not merely a

86

private matter. The Sherman Act is designed to promote the

national interest in a competitive economy . . . .‖) (quotation

omitted). Thus, if Plaintiffs are not able to pursue damages,

not only will they be unable to recover for the antitrust injury

Eaton caused, the policy of deterring antitrust violations

through the treble damages remedy will also be frustrated.

See Paoli II, 35 F.3d at 750 (―[T]he likelihood of finding an

abuse of discretion is affected by the importance of the

district court‘s decision to the outcome of the case and the

effect it will have on important rights.‖).

In sum, after weighing the Pennypack factors and

taking into account the circumstances under which Plaintiffs‘

motion for clarification was ultimately denied, we conclude

that the District Court abused its discretion in not permitting

Plaintiffs to submit alternate damages calculations.28

28

We express no opinion as to the reliability or

admissibility of DeRamus‘s alternate damages calculations.

That is a matter left to the District Court on remand.

However, we note that Plaintiffs‘ motion for clarification only

sought to include damages calculations based on data already

in the expert report, and that fact is crucial to our holding that

prejudice to Eaton can be easily cured. Nothing in our

opinion should be read as requiring the District Court to allow

Plaintiffs to bring in entirely new data for the revised

damages estimates.

87

D. Article III Standing to Seek Injunctive Relief

Finally, we turn to Eaton‘s contention that Plaintiffs

lack standing to seek injunctive relief. Eaton argues that

Plaintiffs‘ complete withdrawal from the HD transmissions

market in 2006 and their failure to present evidence showing

anything more than a mere possibility that they will reenter

the market precludes a finding of Article III standing as to

injunctive relief. Although the District Court did not directly

address standing, it noted in a footnote that, ―[w]hile

[P]laintiffs are no longer in business and are unable to

directly benefit from an injunction, here, an injunction is

appropriate because of the public‘s interest in robust

competition and the possibility that [P]laintiffs may one day

reenter the market.‖ ZF Meritor LLC v. Eaton Corp., 800 F.

Supp. 2d 633, 639 (D. Del. 2011). We agree with Eaton that

this determination was improper, and we will therefore vacate

the injunction issued by the District Court.29

29

Even though Meritor was still technically in the HD

transmissions business at the time the complaint in this case

was filed, it is still appropriate to frame this issue as one of

standing, rather than one of mootness. Plaintiffs‘ complaint,

which was filed on October 5, 2006, stated that Meritor

intended to exit the HD transmissions business in January

2007, and did not indicate any intent to reenter. Thus, even at

the time the complaint was filed, Plaintiffs could not

demonstrate the requisite likelihood of future injury sufficient

to confer standing. See Davis v. F.E.C., 554 U.S. 724, 734

(2008) (―[T]he standing inquiry [is] focused on whether the

party invoking jurisdiction had the requisite stake in the

88

A plaintiff bears the burden of establishing that he has

Article III standing for each type of relief sought. Summers v.

Earth Island Inst., 555 U.S. 488, 493 (2009). In order to have

standing to seek injunctive relief, a plaintiff must show:

(1) that he is under a threat of suffering ―‗injury in fact‘ that is

concrete and particularized; the threat must be actual and

imminent, not conjectural or hypothetical‖; (2) a causal

connection between the injury and the conduct complained

of; and (3) a likelihood that a favorable judicial decision will

prevent or redress the injury. Id. (citing Friends of Earth, Inc.

v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-81 (2000)).

Even if the plaintiff has suffered a previous injury due to the

defendant‘s conduct, the equitable remedy of an injunction is

―unavailable absent a showing of irreparable injury, a

requirement that cannot be met where there is no showing of

any real or immediate threat that the plaintiff will be wronged

again[.]‖ City of Los Angeles v. Lyons, 461 U.S. 95, 111

(1983); see O’Shea v. Littleton, 414 U.S. 488, 495-96 (1974)

(―Past exposure to illegal conduct does not in itself show a

present case or controversy regarding injunctive relief . . . if

unaccompanied by any continuing, present adverse effects.‖).

Accordingly, a plaintiff may have standing to pursue

outcome when the suit was filed.‖) (citations omitted); U.S.

Parole Comm’n v. Geraghty, 445 U.S. 388, 397 (1980) (―The

requisite personal interest that must exist at the

commencement of the litigation (standing) must continue

throughout its existence (mootness).‖) (citation omitted).

Moreover, even if we treated this as a mootness question, our

conclusion would remain the same.

89

damages, but lack standing to seek injunctive relief. Lyons,

461 U.S. at 105.

For example, in City of Los Angeles v. Lyons, the

plaintiff sued the city, seeking damages, injunctive relief, and

declaratory relief, for an incident in which he was allegedly

choked by police officers. Id. at 97. The Supreme Court held

that, although the plaintiff clearly had standing to seek

damages, he lacked standing to seek injunctive relief because

he failed to establish a ―real and immediate threat‖ that he

would again be stopped by the police and choked. Id. at 105.

―Absent a sufficient likelihood that he [would] again be

wronged in a similar way, [the plaintiff] [was] no more

entitled to an injunction than any other citizen of Los

Angeles.‖ Id. at 111. Likewise, in Summers v. Earth Island

Institute, the Court held that an organization lacked standing

to enjoin the application of Forest Service regulations in

national parks where its members expressed only a ―vague

desire‖ to return to the affected parks. 555 U.S. at 496.

―Such some-day intentions—without any description of

concrete plans, or indeed any specification of when the some

day will be—do not support a finding of . . . actual or

imminent injury.‖ Id. (quoting Lujan v. Defenders of

Wildlife, 504 U.S. 555, 564 (1992)) (internal marks omitted);

see also Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541,

2559-60 (2011) (noting that employees who no longer

worked for Wal-Mart lacked standing to seek injunctive or

declaratory relief against Wal-Mart‘s employment practices).

Applying those principles to our case, we hold that

Plaintiffs lack standing to seek an injunction. They clearly

have standing to seek damages based on Eaton‘s violation of

90

the antitrust laws while ZF Meritor and Meritor were

competitors. However, the ZF Meritor joint venture

operationally dissolved in 2003, Meritor stopped

manufacturing HD transmissions in 2006, and Meritor has

expressed no concrete desire to revive the joint venture or

otherwise reenter the market. The sole evidence in the record

of Meritor‘s future intentions is found in one page of trial

testimony, in which a Meritor official stated that there had

been internal discussions at the company about the possibility

of reentry, but that no decision had been made. The official

testified that Meritor ―continue[d] to monitor the performance

of the products that are in the marketplace[,] . . . ha[d] a very

thorough understanding of how the products [we]re

working[,] . . . and [was] actively considering what [its]

alternatives might be.‖ He explained, however, that upon any

attempt to reenter, Meritor would be confronted with the

―same obstacle that caused the dissolution of the joint

venture.‖30

As the District Court acknowledged, this evidence

establishes no more than a ―possibility‖ that Meritor might

one day reenter the market. Where the District Court went

30

In a post-trial status conference, the District Court

asked Plaintiffs‘ counsel why an injunction would be

appropriate given that Plaintiffs were no longer in the

business. Plaintiffs‘ counsel could give no more concrete

information about Plaintiffs‘ plans than the witness, stating

simply that, if Eaton‘s conduct was enjoined, ―a different set

of calculations‖ would apply to Plaintiffs‘ discussions

regarding reentry into the market.

91

wrong, however, was in concluding that such a possibility is

sufficient to confer Article III standing for injunctive relief.

See McCray v. Fidelity Nat’l Ins. Co., 682 F.3d 229, 242-43

(3d Cir. 2012) (―Allegations of possible future injury are not

sufficient to satisfy Article III.‖) (internal marks and citation

omitted). Plaintiffs were required to set forth sufficient facts

to show that they were entitled to prospective relief, including

that they were ―likely to suffer future injury.‖ McNair v.

Synapse Grp. Inc., 672 F.3d 213, 223 (3d Cir. 2012) (citation

omitted) (emphasis added); see McCray, 682 F.3d at 243

(explaining that ―a threatened injury must be certainly

impending and proceed with a high degree of certainty‖)

(internal marks and citation omitted). Absent a showing that

they are likely to reenter the market and again be confronted

with Eaton‘s exclusionary practices, Plaintiffs were ―no more

entitled to an injunction‖ than any other entity that has

considered the possibility of entering the HD transmissions

market. Lyons, 461 U.S. at 111. ―Vague‖ assertions of

desire, ―without any descriptions of concrete plans,‖ are

insufficient to support a finding of actual or imminent injury.

See Summers, 555 U.S. at 496. Although Plaintiffs claim that

they might again enter the market, such a decision ―w[ould]

be their choice, and what that choice may be is a matter of

pure speculation at this point.‖ McNair, 672 F.3d at 225.

Plaintiffs seem to suggest that there is a lower

threshold for standing in antitrust cases.31 However,

31

Specifically, Plaintiffs argue that the appropriate

standard is found in Section 16 of the Clayton Act, which

provides that any person ―shall be entitled to sue for and have

92

Plaintiffs confuse the doctrines of constitutional standing and

antitrust standing. Although the doctrines often overlap in

practice, they are, in fact, distinct. Sullivan v. D.B. Invs., Inc.,

667 F.3d 273, 307 (3d Cir. 2011). Regardless of any

additional requirements applicable to a particular type of

action, a plaintiff must always demonstrate that a justiciable

case or controversy exists sufficient to invoke the jurisdiction

of the federal courts. Id. Plaintiffs‘ failure to do so here

renders any inquiry into antitrust (statutory) standing

unnecessary. See Conte Bros. Auto., Inc. v. Quaker State-

Slick 50, Inc., 165 F.3d 221, 225 (3d Cir. 1998).

We agree with the District Court that there are strong

public policy reasons for issuing an injunction in this case.

However, the fact that there may be strong public policy

reasons for enjoining Eaton‘s behavior does not mean that

Plaintiffs are the appropriate party to seek such an injunction.

Standing is a constitutional mandate, Doe v. Nat’l Bd. of Med.

Exam’rs, 199 F.3d 146, 152 (3d Cir. 1999), and the

consequences that flow from a finding of lack of standing

here, although concerning, cannot affect our analysis.32

injunctive relief . . . against threatened loss or damage by a

violation of the antitrust laws . . . when and under the same

conditions and principles as injunctive relief . . . is granted by

courts of equity.‖ 15 U.S.C. § 26.

32

Because we conclude that Plaintiffs lack standing to

pursue injunctive relief, we need not address Plaintiffs‘

argument that the District Court erred by refusing to allow

them to address the scope of injunctive relief.

93

IV. CONCLUSION

First, we hold that Plaintiffs‘ claims are not subject to

the price-cost test, and instead must be analyzed as de facto

exclusive dealing claims under the rule of reason. Second,

we conclude that Plaintiffs presented sufficient evidence to

support the jury‘s finding that Eaton engaged in

anticompetitive conduct and that Plaintiffs suffered antitrust

injury as a result. Third, we find no error in the District

Court‘s decision to admit DeRamus‘s testimony on the issue

of liability. Fourth, we hold that the District Court properly

exercised its discretion in excluding DeRamus‘s damages

testimony based on his expert report, but we conclude that the

District Court abused its discretion by preventing DeRamus

from submitting alternate damages calculations based on data

already included in his initial report. Finally, we hold that

Plaintiffs lack standing to pursue injunctive relief, and

therefore, we will vacate the injunction issued by the District

Court. We will remand to the District Court for further

proceedings consistent with this opinion.

94

Greenberg, Circuit Judge, dissenting

Notwithstanding the majority‟s thoughtful and well-

crafted opinion, I respectfully dissent as I would reverse the

District Court‟s order that it entered following its opinion

reported at ZF Meritor LLC v. Eaton Corp., 769 F. Supp. 2d 684

(D. Del 2011), denying Eaton‟s motion for judgment as a matter

of law. Although the majority opinion recites in detail the

factual background of this case, I nevertheless also set forth its

factual predicate as I believe the inclusion of certain additional

facts demonstrates even more clearly than the facts the majority

sets forth why Eaton was entitled to judgment as a matter of

law.1

I. FACTS

A. The HD Transmission Market

The parties stipulated before the District Court and do not

now dispute that the relevant product market in this case is

heavy-duty (“HD”) truck transmissions and that the relevant

geographic market is the United States, Canada, and Mexico, the

so-called “NAFTA market.” On appeal, Eaton does not dispute

1

Throughout this dissent I use the same standard of review that

the majority sets forth. Thus while I am exercising plenary

review of the order denying the motion for a judgment as a

matter of law within that review I am being deferential to the

jury verdict.

1

that it possessed monopoly power in that market during the

events relevant to this case.

HD trucks include linehaul trucks, the familiar 18-

wheelers used to travel long distances on highways, and

performance trucks used on unfinished terrain or to carry heavy

loads, such as cement mixers, garbage trucks, and dump trucks.

There are three types of HD truck transmissions: manual,

automatic, and automated mechanical.

As the majority indicates, the NAFTA HD truck

transmission market functions in the following way. Original

Equipment Manufacturers (“OEMs”) construct HD trucks.

There were four OEMs during the period relevant to this

dispute: Freightliner Trucks (“Freightliner”); International Truck

and Engine Corporation (“International”); PACCAR; and Volvo

Group (“Volvo”). OEMs provide the purchasers of HD trucks

with “data books” that list HD truck component part options,

including transmissions, and thereby allow the customer to

select from various options for certain parts of the HD trucks.

The data books list one option as the “standard” offering

with which OEMs will fit the truck unless the customer selects

otherwise. Additionally, the component part listed in the data

book as the lowest-priced option is referred to as the so-called

“preferred” or “preferentially-priced” option.2 For obvious

2

“Standard” and “preferred” positioning are not the same thing.

See J.A. at 2546 (PACCAR and Eaton‟s LTA) (stating that

PACCAR will list Eaton‟s product “as Standard Equipment and

the Preferred Option,” whereas “„Standard Equipment‟ means

2

reasons, positioning as the standard or preferred component part

option in a data book can be beneficial and a form of promotion

of the parts that the co

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