# ZF Meritor LLC v. Eaton Corporation

> Court of Appeals for the Third Circuit · September 28, 2012 · 696 F.3d 254

URL: https://www.frixlaw.com/law-library/cases/809423

## Case

- **Full name:** ZF MERITOR, LLC; Meritor Transmission Corporation, Appellants, No. 11-3426, v. EATON CORPORATION, Appellant, No. 11-3301
- **Court:** Court of Appeals for the Third Circuit
- **Decided:** September 28, 2012
- **Citations:** 696 F.3d 254; 2012 U.S. App. LEXIS 20342; 2012 WL 4483899
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Fisher, Greenberg, Oliver
- **Cited by:** 271 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/809423

## How later opinions describe it (automated extraction)

- finding the district court correctly noted that although some of Plaintiffs expert's testimony may have been contradicted by other evidence, including the testimony of Defendant's expert, the existence of conflicting evidence was not a basis on which to exclude Plaintiff's exp…
- finding the district court correctly noted that although some of Plaintiff's expert's testimony may have been contradicted by other evidence, including the testimony of Defendant's expert, the existence of conflicting evidence was not a basis on which to exclude Plaintiffs exp…
- holding that parallel long-term agreements between a single, upstream supplier and all downstream purchasers that contained exceedingly high market-penetration-target rebates constituted de facto exclusive dealing agreements and were, in the. aggregate, anticompetitive under t…
- holding that predatory pricing case law interpreting § 2 is relevant where price itself forms the "predominant method of exclusion,” and that rule of reason analysis under § 1 is appropriate where non-price provisions in contracts form the bedrock of plaintiff’s theory of harm…
- holding that “the rule of reason is the proper framework” for assessing whether conditional rebates on long-term contracts are anticompetitive because “price-cost test cases are inapposite” when “price itself was not the clearly predominant mechanism of exclusion”

## Opinion text

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

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United States, the average wholesale price of oil in the United
States, a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/809423. Public record. Not legal advice.