Petition for Writ of Certiorari — Northern Propane Gas Co. v. McGahee

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8 8 - ] 6 (0 3 Supreme Court, U.S.

| FILED

| MAR 20 1883

No. JOSEPH F. SPANIOL, JR.

ob ble K

In The

Supreme Court Of The United States

October Term 1988

NORTHERN PROPANE GAS COMPANY,

Petitioner

H. FLOYD McGAHEE,

Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

EMMET J. BONDURANT II

JANE F. VEHKO

BONDURANT, MIXSON &

ELMORE

3900 One Atlantic Center

1201 West Peachtree St., N.W.

Atlanta, Georgia 30309

(404) 881-4100

Counsel for Petitioner

March 17, 1989

Tower Printing Company, 1201 W. Peachtree St., Atlanta, GA (404) 873-3445

QUESTIONS PRESENTED

1. Do the federal antitrust laws require a firm with a large

market share to refrain from selling below its average total cost plus

a reasonable profit, and subject it to the risk that a trier of fact will

infer “predatory intent” if the firm reduces prices to protect its

market share and sells below average total cost, but above average

variable cost?

2. In view of the ruling in Matsushita Electric Industrial Co.

v. Zenith Radio Corp., 475 U.S. 574, 590 (1986), that the

“prospects of attaining monopoly power [by predatory pricing} seem

slight,” is evidence of a large market share alone sufficient in a

predatory pricing case to raise a triable issue of fact as to the

existence of a “dangerous probability” of monopolization, where

there are no barriers to entry, there has been a sharp decline in the

defendant’s market share at the hands of a new entrant during the

period of alleged predation, and defendant does not have the power

to raise prices in the market?

LIST OF PARTIES

Petitioner - Northem Propane Gas Company

Respondent - H. Floyd McGahee

Other firms, partnerships, or corporations that have an interest in the

outcome of this case:

Enron Corp.

Belco Petroleum Corporation (Delaware)

Belco Petroleum Corporation of Peru (Delaware)

Belco Petroleum Intemational, Ltd. (Delaware)

Belco Petroleum Israel, Ltd. (Delaware)

Belco Petroleum Latin America, S.A. (Delaware)

Belcoal Inc. (Delaware)

Sonnebom Associates Petroleum Corporation (Delaware)

Enron Americas, Inc. (Delaware)

Enron Peru, Inc. (Delaware)

Enron Arctic Gas Company (Delaware)

Enron (The) Art Foundation (Nebraska)

Enron Coal Company (Delaware)

Enron Coal Pipeline Company (Delaware)

Enron Bayou Co-Gen, Inc. (Texas)

Enron Cogeneration One Company (Delaware)

Enron Cogeneration Two Company (Delaware)

Enron Cogeneration Three Company (Delaware)

Enron Cogeneration Four Company (Delaware)

Enron Cogeneration Five Company (Delaware)

Enron Cogeneration Resources Company (Delaware)

Enron Cogeneration Six Company (Delaware)

Enron Engineering Intemational Co. (Delaware)

Enron Foundation - Houston (Texas)

Enron Foundation - Omaha (Nebraska)

Enron Gas Gathering, Inc. (Delaware)

Enron Gas Marketing, Inc. (Delaware)

Enron Gas Processing Company (Delaware)

Enron Gas Services Company

Enron Gas Supply Company

Enron Gas Transportation Company (Delaware)

Enron Helium Company (Delaware) wi

nen ae

Enron Holdings, Inc. (Delaware)

Enron Intemational Incorporated (Delaware)

Enron Canada Ltd. (Canada)

CGS Energy Inc. (Delaware)

Consolidated Natural Gas Lid. (Canada)

Norlands Petroleum Limited (Alberta)

Enron Gas Canada Lid.

Consoligas Management Limited (Canada)

Consolidated Pipe Lines Company (Own 44 6%) (Canada)

Enron Oil Corp. (Delaware)

Enron Oil Ltd. (Partnership) (London)

Enron Oil Private Ltd. (Singapore)

Enron Gas Liquids International, Ltd. (Delaware)

Enron Chemical International Division

Enron Chemical Orient Ltd. (Hong Kong)

Enron Gas Liquids International (U.K.), Ltd.

Enron Gas Liquids France S.A.R.L. (France)

(Formerly NLFI France S.A.R.L.)

IPI Orient, Ltd. (Hong Kong)

NLFI (Far East) Trading Private Limited

NLFI Products and Crude, Inc.

SatNorth (Own 50%)

InterNorth International Oil Incorporated, Ltd. (U.K.)

The Protane Corporation

Citadel Corporation Limited (Cayman Island)

Caribbean Applied Technology Centre

Citadel Venezolane S.A. (Venezuela)

Industrial Gas Limited

Manufacturero De Aparatos Domesticos, S.A. (Medosa)

Secoven Servicios Consolidados Ventane, S.A

Industrial Gases Limited

Industrial Lacarda, S.A.

Industrias Ventane, S.A.

ProCaribe, Inc.

ProCaribe Division of The Protane Corporation

Progasco, Inc. (Puerto Rico)

Servicios Vengas, S.A.

Transporte Mil Ruedas, S.A

Vengas De Caracas

Vengas De Centro, S.A.

Vengas De Occidente, S.A.

Enron Liquids Markeung Company ( Delaware )

Enron Liquids Pipeline Company (Delaware)

Enron Minerals Company (Delaware )

Enron Oil & Gas Company (Delaware)

Beico Petroleum North Amenica, Inc. (Delaware)

Beico Petroleum Australia, Inc. (Delaware)

Belico Petroleum Ecuador, Inc. (Delaware)

Enron Exploration Company (Texas)

Enron Producing Company (Delaware)

HNG Fossil Fuels Company (Texas)

HNG Oil (Sumatra) Inc. (Texas)

IN Holdings, Inc. (Delaware)

Enron Oil Canada, Lid. (Alberta, Canada)

Ocelot Oil Company (Delaware)

Southeastem Exploration Company (Florida)

Enron Oil Trading & Transportation Company (Delaware)

Enron Oil Trading & Transportation Canada Ltd. (Canada)

Falcoal, Inc. (Delaware)

J.E. Fowler Petroleum Products, Inc. (Louisiana)

Port Cordova, Inc. (Alabama)

Webster Transportation Company, Inc. (Louisiana)

Enron Overthrust Pipeline Company (Delaware)

Enron Trailblazer Pipeline Company (Delaware)

Houston Natural Gas Corporation (Texas)

The Bermuda Company (Texas)

Black Marlin Pipeline Company (Texas)

Coal Properties Corporation (Illinois)

Comanche Marketing, Inc. (Texas)

Continental Group Resources Company (Florida)

Cora Dock Corporation (Texas)

Enron Capital Corp. (Delaware)

Enron Clearing House Company (Texas)

Enron Co-Gen Fuels Company (Texas)

Enron Gas Pipeline Operating Company

Enron Holdings Corp. (Texas)

————SaeaEe

Enron Industrial Natural Gas Company (Texas)

Enron Interstate Pipeline Company (Delaware)

Enron Mojave, Inc. (Texas)

Enron Offshore Company (Texas)

Enron Resources, Inc. (Texas)

Enron Texoma Gas Company (Texas)

Florida Intrastate Pipeline Company (Flonda)

Gulf Company Ltd. (Bermuda)

HNG Capital Corp. (Delaware)

HNG Cortez Pipeline Company (Delaware)

HNG Holdings Corp. (Texas)

HNG Oil Company (Delaware)

HNG Offshore Properties, Inc. (Delaware)

HNG Synfuels Company

Houston Pipe Line Company (Texas)

Intratex Gas Company (Texas)

Marcoal Inc. (W. Virginia)

Northern Natural Gas Supply Co.

Pacific Atlantic Marketing, Inc. (Texas)

Panhandle Gas Company (Texas)

Pott Industries Inc. (Missouri)

Caruthersville Shipyard Inc. (Delaware)

The Dixie Dredge Export Corporation (Missoun )

Paducah Marine Ways Incorporated (Delaware)

Sunniland Pipe Line Company, Inc. (Florida)

Transgulf Pipeline Company (Florida)

Transwestem Pipeline Company (Delaware)

Valley Pipe Lines, Inc. (Texas)

[DT Gas Supply Company

Katy-Waha Gas Marketing

KMC Associates, Incorporated

NGP Pipeline Company (Delaware)

Northern Intrastate: Pipeline Company (Delaware)

Northern Natural Gas Supply Company (Delaware)

Northern Plains Natural Gas Company (Delaware)

AmNorth, Inc. (Nebraska)

Northern Border Pipeline Company (Delaware)

Northern Texas Intrastate Pipeline Company (Delaware)

Pathfinder Assurance Limited (Bermuda)

Seagull Shoreline System (A Texas Partnership composed of

Norther Intrastate Pipeline Company, HNG Offshore

Company and Seagull Transmission Company)

Joint Venture Companies:

Citrus Corp. (Delaware)

Sonat

HNG

Citrus Interstate Pipeline Company (Delaware)

Citrus Trading Corp. (Delaware)

Florida Gas Transmission Company (Delaware)

Florida Intrastate Pipeline Company (Florida)

Cogenron Inc. (Delaware)

Enron Cogeneration One Company

Long List of Investors

HT Gathering Company (Texas)

Tenngasco and HNG

Houston Natural Gas

Mojave Pipeline Operating Company (California)

HNG Mojave, Inc.

El Paso Mojave

Oasis Pipe Line Company (Delaware)

Houston Natural Gas Corporation

Dow Chemical Co.

Tenngasco

San Marco Pipeline Company (Colorado)

Houston Natural Gas Corporation

The Denver & Rio Grande Westem Railroad Co.

The Standard Shale Products Company (Colorado)

Conoco - 70%

———————aaaaeeEeee—————

Houston Natural Gas Corporation

Zapata Guif Marine Corporation ( Delaware)

Pott Industries Inc.

Zapata Corporation

Halliburton Company

Sperry Products, Inc.

Aero Mechanism, Inc.

Automation Systems, Inc

Refinery Engineering Limited

Southwest Steel Rolling Mills, Inc

Spartan Aviation, Inc.

Vicopa S.p.A.

Vitro Corporation

Vitro Jean, Inc.

Vitro Tullahoma, Inc.

Vitro Engineering Corporation

Penn Central Federal Systems Company

Vitro Services Corporanhon

Penn Central Telecommunications Company

Engineering and Technical Services, Inc

Sprague Electric Company

International Field-Effect Transistor Corporation

Northem Berkshire Manufacturing Co., Inc

Sprague Asia, Lid.

Sprague Electric Pte. Lid.

Sprague Aviation Company

Sprague Electric of Canada Limited

Sprague Electric (U.K.), Limited

Sprague Europe, Ltd.

Sprague Hong Kong Limited

Sprague Japan K.K.

Sprague Philippines, Inc.

Sprague Sales Canada Ltd.

Sprague Taiwan Corporation

Sprague World Trade Corporation

Sprague Electromag Belgium N.V

vill

Sprague Electric Coordination Center N.V.

Sprague Elekronik GmbH

Sprague France S.A.R.L.

Sprague Europe G.1.E.

Sprague Scandinavia A.B.

Tecnomil Ltd.

Telsta Network Services, Inc.

Tri-State Utility, Inc.

Ceat General de Colombia S.A. (2)

Electrofinance Limited (3)

Forest Lida. Fabrica de Condutores Eletricos

Industria Venezolana de Cables Electricos C.A. (4)

General Cable Compania S.A. (3)

Cables de Comunicaciones, S.A. (5)

Plasmica S.A. (6)

Saenger S.A. (6)

Depositos y Servicios-Bilbao S.A.

Depositos y Servicios-Madrid S.A.

Depositos y Servicios S.A.

Ferrell Companies, Inc. (Kansas)

Ferrellgas, Inc. (Nebraska)

Ferrellgas, Inc. (Delaware)

Ferrell Petroleum, Inc. (Texas)

Indian Wells Oil Company (Missoun )

Indian Wells Production Co. (Missouri)

Ferrell Leasing Corp. (Missouri)

One Liberty Plaza, Inc. (Missouri)

One Liberty Plaza Real Estate, Inc. (Missouri)

Liberty Plaza Real Estate Services, Inc. (Missouri)

Ferrell Securities, Inc. (Missouri)

Ferrell Development Co. (Missouri)

Penn Central Energy Group, Inc.:

Buckeye Management Company

Buckeye Pipe Line Company

GK Technologies, Incorporated

Canadian Puregas Equipment, Limited

General Cabie Corporation

General Cable Holdings, Inc.

General Cable International, Inc.

General Cable Export Corp.

General Cable Intemational Operations Limited

GK Export Corp.

General Cable Overseas N. V.

GK Technologies of Canada Lid.

Gencab of Canada Limited

GK Trucking Corp.

Indiana Steel & Wire Company

Network Distribution Services, Inc.

PCC Technical Industries, Inc.

Automation Industries GmbH

Automation International S.A.R.L.

California Electric Construction Co.

Canadian Sperry Products/Rail Limited

Conam Services, Inc.

G&H Technology, Inc.

Carrot Components Corp. (1)

Hydrotherm, Inc.

Installation Maintenance Services, Inc.

Nuclear Energy Services, Inc

Pacific Maintenance Corporation

Facilities Management Corporation

Penn Central (Holdings) Pty. Ltd.

Penn Central (Australia) Pty. Ltd.

Penn Central Pty. Lid.

GKT (Telecommunications) No. | Pty. Ltd.

Penn Central Technical Security Company

Qualcorp, Inc.

Cleveland Technical Center, Inc.

Great Southwest Corporation

GSC Development Corporation

Leadership Mortgage Investment Company

World Houston, Inc.

Gulf Energy Holding, Inc.

Gulf Energy Development Corporation

Gulf Energy Compression Company

Gulf Energy Gathering & Processing Corporation

Gulf Energy Marketing Company

Intrastate Gathering Corporation

Valley Gas Transmission, Inc.

Holden Energy Corporation (77% owned)

Holden Rig Company

Butler-Johnson, Inc.

Cubb Drilling, Inc.

Western Oil Well Service Co.

Willis Drilling Co., Inc.

Holden Service Company

American Energy Tubulars Company

Delta Production Services Company

Holland-Vacco, Inc.

Southern Crude Corp.

Marathon Manufacturing Companies, Inc.

Diversified Contractors, Inc.

Kelven, Inc.

Pearl River Development Corporation

LeToumeau Offshore, Inc.

Marathon Battery Company

Marathon Flite-Tronics Company

Marathon Leasing Company

Marathon LeToumeau Company

Marathon LeToumeau Sales & Service Company

Marathon LeTourneau Offshore Company

Marathon LeTourmeau Offshore Pte. Lid.

Marathon Manufacturing Company

Marathon Power Technologies Company

Marathon Steel Company

R. G. LeTourneau, Inc.

MCM Manufacturing Corporation

PCC 245 Leasing Corporation

Putnam Holdings, Inc.

Putnam Sub, Inc.

Solid State Scientific, Inc.

Solid State Scientif International, Inc.

PCC CHICAGO REALTY CORP

PCC FORDHAM REALTY CORP.

PCC GUN HILL REALTY CORP

PCC IRVINGTON REALTY CORP

PCC REAL ESTATE, INC.

PCC Billboard Realty Corp.

PCC SCARSDALE REALTY CORP

PCC SUBSIDIARY, INC.

PCC TUCKAHOE REALTY CORP

Xill

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED 000... ccceccccecescccsesecssseseseeecseseees i

RAG SOUT WPI I ibacsnsnsctsdscncvisiessucissvevensesensednassiminseossuosenese, ul

TPR I PUTER ES osc csv evsencecvesccecesessoacovcososososeses X1V

a a sia sind nia encsisiimanaieddeeebcas l

ae a ee 2

ae rN Pe Ts FIR reve cscncssecscososucconscncesessssccscocersooves 2

PR PU RMIT E COE” TIMES CASE ......ncccesnseseccececcsosososesrscace, 3

REASONS FOR GRANTING THE WRIT.........cccccccccccccee-. 11

I. The Decisions Of The Circuits Are In

Conflict As To The Proper Definition

Of Cost In Predatory Pricing Cases .........cccccccccesee-. 12

Il. The Ruling Below Also Conflicts With

Decisions Of This Court.................:ccccccccessssesesersoees 15

III. The Decision Below Presents An Important

Federal Queston That Has Not Been, But

Should Be Decided By This Court ...........cccccccccccscee. 18

[V. The Eleventh Circuit's Ruling On The

Dangerous Probability Issue Conflicts

With This Court’s Decisions In

Matsushita And Cargill And With The

Decisions Of Other Circuits...........ccceccccccccocesececeee 22

aN NI rosisiboianeebstesbsivesbadincdieseessliacansissaecssssececosoeooeceeeee, 28

APPENDIX A. Opinion of the Court of Appeals..........0.0..... la

APPENDIX B. Opinion of the District Court....................... 32a

APPENDIX C. Judgment of the Court of Appeals............... 46a

APPENDIX D. Order Denying Motion for Rehearing......... 48a

XIV

TABLE OF AUTHORITIES

Cases: Page

Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc.,

735 F.2d 884 (Sth Cir. 1984), cert. denied, 469

ay ena ciicossticctniosinnSasssndsbnipcimiiidiia tit iat 8, 13, 20

Airweld, Inc. v. Airco, Inc.,

742 F.2d 1184 (9th Cir. 1984), cert. denied,

i i 5 L1. . ) cece 14, 22

Arthur S. Langenderfer, Inc. v. SE. Johnson Co.,

729 F.2d 1050 (6th Cir.), cert. denied, 469 U.S.

Pe NI aiinndncectnsquenstercsninsisaretsnioubendiicteninses 'Z, 13, 15

Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc.,

784 F.2d 1325 (7th Cir. 1986) ............ 16, 17, 25, 26, 27

Barry Wright Corp. v. ITT Grinnell Corp.,

724 F.2d 227 (ist Cir. 1983)............... 17, 19

Bayou Bottling, Inc. v. Dr. Pepper Co.,

725 F.2d 300 (Sth Cir.), cert. denied, 469 U.S.

I UT cistdisnesibnnnsabisnteniiaiadntebeninicilineenindediedianseacntee 8, 13

California Computer Products, Inc. v. 1BM Corp.,

613 F.2d 727 (9th Cir. 1979)....................0. 14, 20, 22

Cargill, Inc. v. Monfort of Colorado, Inc.,

Fe eB I tnccsainicsentcattenssoseesensnces 11, 12, 18, 24

Celotex Corp. v. Catrett, 477 U.S. 317 (1986)........... a 8,18

D.E. Rogers Assocs., Inc. v. Gardner-Denver Co.,

718 F.2d 1431 (6th Cir. 1983), cert. denied,

Ee Se SAE ieee tiesto tnainsthacscessversvesnnseseene 13

Dehydrating Process Co. v. A.O. Smith Corp.,

yo ke fd A, | ) Ae 22

Hanson ~. Shell Oil Co., 541 F.2d 1352

(9th Cir. 1976), cert. denied, 429 U.S. 1074

SIP Fccensackacidbidiinedaiendaninentniniscontnckuies puleseenenia 14

Henry v. Chloride, Inc., 809 F.2d 1334

SE Sas cahdichacclcteshianndiahcanadesitidiianscedesiinintsacs 13

Indiana Grocery, Inc. v. Super Valu Stores, Inc.,

864 F.2d 1409 (7th Cir. 1989) oo... ee eee ar F<)

Page

International Air Indus. v. American Excelsior Co.

517 F.2d 714 (Sth Cir. 1975), cert. denied,

ee ii ictar tert ckerincctnedencaseseanssnssceoess 13

Janich Bros., Inc. v. American Distilling Co.,

570 F.2d 848 (9th Cir. 1977), cert. denied,

gg ERE enn Ee 8, 14, 20

Matsushita Electric Industrial Co. v. Zenith Radio Corp.,

47S U.S. S74 (1SGG)......0000:00ss000000. i, 11, 16, 18, 19, 22, 23

Monsanto Co. v. Spray-Rite Service Corp., 465 F.2d 752

EIEN cicuditdidha tidacdctecbadadenaddiadidinininavicnaansnaipeaneniint 16, 19

Morristown Block & Concrete Products Co. v

General Shale Products Co.,

1987 - 2 Trade Cas. (CCH)

q 67,713 (6th Cir. 1987, unpubl.)..........00.0000. 13

Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co.,

614 F.2d 832 (2nd Cir. 1980).....................c..cccceceee

Northeastern Tel Co. v. American Tel. & Tel. Co.,

651 F.2d 76 (2d Cir. 1981), cert. denied,

I is HE iia Xcuhichesntiesedintnnceinnsnnidniniaonisvennn 12

O. Hommel Co. v. Ferro, 659 F.2d 340 (3d Cir. 1981),

cert. denied, 455 U.S. 1017 (1982).......0000.c ee.

Pacific Engineering & Production Co. of Nevada v

Kerr-McGee Corp., 551 F.2d 790 (10th Cir.

1977), cert. denied, 434 U.S. 879 (1977)...........0.. 15, 16, 20

Richter Concrete Corp. v. Hilltop Concrete Corp.,

691 F.2d 818 (6th Cir. 1982)......................::000 ae 27

Superturf, Inc. v. Monsanto Co., 660 F.2d 1275

4 A. : Speen een sails 13

Transamerica Computer Co. v.1BM Corp.,

698 F.2d 1377 (9th Cir.), cert. denied, 464 U.S.

I acscetainicitsnpteinsndoveicatahnstisdisisithaatacnanenstincianmesicin 12, 14

XVI

Page

William Inglis & Sons Baking Co. v. ITT Continental

Baking Co., 668 F.2d 1014 (9th Cir.), cert.

denied, 439 U.S. $25 (19BZ) ......scceroscerrssesseseses 14, 17, 20

Statutes:

FD Cia ie Bevscenssninsesese entnegsesnaieuninsiaenceee y iy

Be Rh Soe 0 RAPD scenucectcccistasesonseienpenane 2

GS Eoiiiithe 0. LAMP icccnicosscsccnnsesessounasnneenstanelnueenanenainnnaal 2

BS CER. Tata vevecsnsescce cons stnnssnsiseuninneasneannanennn 2

Articles:

Areeda, Mergers and Markets A Centry Past and Future,

79 COLL BV, Fae CEST DP cevniswrepsernannaienenesns 18

Areeda & Tumer, Predatory Pricing and Related

Practices Under Section 2 of the Sherman Act,

OS FEV LV. GPT CRF TED sev csasecessenisstvcgseesesvaresinn’ 12, 19

Easterbrook, Predatory Strategies and Counter-Strategies,

4B UC Ey FRRV., BGS CEH) scccccessteccekssteniocaeariaenn 19

Koller, The Myth of Predatory Pricing — An Empirical Study,

4 Antitrust Law & Econ. Rev. 105 (1971).............. 19

No.

In The

Supreme Court Of The United States

October Term 1988

NORTHERN PROPANE GAS COMPANY,

Petitioner

H. FLOYD McGAHEE,

Respondent

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

The petitioner, Northem Propane Gas Company, respectfully

prays that a writ of certiorari issue to review the judgment and opinion

of the United States Court of Appeals for the Eleventh Circuit entered

on October 27, 1988, rehearing of which was denied on December 20,

. 1988.

OPINIONS BELOW

The opinion of the Court of Appeals for the Eleventh Circuit is

reported at 858 F.2d 1487, and is reprinted in the Appendix A, infra.

The opinion of the United States District Court for the Northem

District of Georgia is reported at 658 F. Supp. 189, and is reprinted in

the Appendix B, infra.

JURISDICTION

This action alleging violation of § 2 of the Sherman Act, 15

U.S.C. § 2, and § 2(a) of the Robinson-Patman Act, 15 U.S.C. §

13(a), was brought in the United States District Court for the

Northem District of Georgia on November 30, 1983. Subject matter

jurisdiction was based on 15 U.S.C. § 15(a).

On April 10, 1987, the district court granted defendant's

motion for summary judgment. See Appendix B, infra.

On October 27, 1988, the Eleventh Circuit entered a judgment

(Appendix C, infra) and opinion (Appendix A, infra) reversing the

district court’s order granting summary judgment.

On November 16, 1988, petitioner moved for rehearing,

which motion was denied on December 20, 1988. Appendix D,

infra.

Jurisdiction of the Supreme Court to review the judgment of

the Eleventh Circuit exists under 28 U.S.C. § 1254(1).

STATUTES INVOLVED

Section 2 of the Sherman Act, 15 U.S.C. § 2, provides:

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person Or persons, to monopolize any part of the trade or

commerce among the several States, or with foreign

nations, shall be deemed guilty of a misdemeanor, and,

on conviction thereof, shall be punished by fine not

exceeding fifty thousand dollars, or by imprisonment not

exceeding one year, or by both said punishments, in the

discretion of the court.

Section 2(a) of the Clayton Act, as amended by the Robinson-

Patman Act, 15 U.S.C. § 13(a), provides:

It shall be unlawfu! for any person engaged in

commerce, in the course of such commerce, . . . to

discriminate in price between different purchasers of

commodities of like grade and quality, where either or

any of the purchases involved in such discrimination are

in commerce, .. . and where the effect of such

discnmination may be substantially to lessen competition

or tend to create a monopoly in any line of commerce, or

to injure, destroy, or prevent competition with any

person who either grants or knowingly receives the

benefit of such discrimination, or with customers of

either of them ....

STATEMENT OF THE CASE

This case arises from a reversal by the Court of Appeals of a

summary judgment rendered in favor of the petitioner, Northern

Propane Gas Company, in a § 2 case brought by a former employee

tumed competitor alleging that Northern had attempted to

monopolize the sale of propane gas in two rural Georgia counties by

selling below its average total cost.

The relevant facts are summarized in the opinion of the Court

of Appeals, as follows:

McGahee and Northern Propane are retail

distributors of propane, a fuel used for heating. Retail

distributors primarily have two types of customers: (1)

residential and (2) commercial. Generally, distributors

sell propane to commercial users at a lower price.

Because propane is a fungible good, price is of prime

importance in its unregulated market.

At the time relevant to this action. Northern

Propane operated 180 retail distribution outlets in twenty-

five states. One of these retail distribution outlets was

based in Camilla, Georgia. Northern Propane produces

and buys propane in westem states and comingles the

propane with other companies’ propane to transport it by

pipeline to Georgia. The Northern Propane district office

in Camilla then takes delivery of the propane at the

pipeline terminal.

In a March 1982 internal report, Northern Propane

described the propane market in the Camilla district

(approximately Mitchell and Baker Counties). Northern

Propane estimated it had sixty percent of the total

propane market within the district.! Northem Propane

estimated Petrolane had twenty percent of the market, but

regarded Petrolane as competition only for large volume

commercial accounts. Northern Propane also estimated

that five competitors, working within the edges of the

district, split the remaining twenty percent. Because

transportation costs restrict economical delivery of

propane to a twenty-five to thirty mile radius from the

storage tanks and because these five competitors were

based outside of the Camilla district, these competitors

were only competitive with Northem Propane on the

edge of the Camilla district to which they were closest. In

addition, Northern Propane stated that, of other possible

fuels, only ‘free’ wood posed a competitive threat to

propane in the Camilla district and that conversion to

wood had stabilized.

When Northern Propane bought the retail

distribution outlet in Camilla, Floyd McGahee was its

district manager. McGahee had become a fixture in the

Camilla area, having worked at the same propane outlet

for approximately thirty years. In June 1981, Northern

Propane demoted McGahee to a salesperson position

! Although Northern Propane had a large market share while McGahee was

its general manager, its profit margin in the Camilla district was very low,

and Northern's sales volume was declining. Thus, Northern's total profit in

Camilla was under $1,300 in 1980, and only $62,400 in 1981, on total

sales of 2.74 million gallons of propane. Ingram Aff. Ex. D-30. McGahee

testified that despite Northern's large market share in Mitchell and Baker

Counties, Northern did not have the power to raise propane prices

unilaterally, but, to the contrary, had been forced to cut prices to

agricultural customers during the period that McGahee managed the Camilla

district, in order to meet lower prices offered by Petrolane, a regional

distributor that also had a distribution facility in Camilla. McGahee Dep. at

48-49.

rns

because, according to Northern Propane, he failed to

keep adequate records, to keep the accounts receivable

current, and to follow company directives. McGahee

resigned from Northern Propane on October 9, 1981,

under contentious circumstances.

After resigning from Northem Propane, McGahee

obtained an $800,000 Small Business Administration

(SBA) loan to finance his April 1982 entry into the

propane business in the Camilla area. By February 1982,

Northern Propane had obtained a copy of McGahee’s

SBA loan documents and other documents related to his

financial position.2 Before McGahee’s distributorship

opened, a Northern Propane internal report stated that its

new “district manager has taken the offensive and will

fight the former employee for the market.” At the end of

March 1982, Northem Propane lowered its residential

prices five cents per gallon and its commercial prices four

cents per gallon.?

In late April 1982, McGahee opened for business.

Not only did McGahee solicit Northern Propane’s

customers, he also hired three of Northern Propane’s

drivers and repairmen. McGahee’s market share went

from zero percent in 1981 to twenty-three percent in

1983, while Northem Propane’s market share dropped

from sixty or sixty-five percent in 1981 to thirty-five

percent in 1983. McGahee’s success in acquiring a

substantial share of the market was due both to his

personal familiarity with the local community and to his

willingness to compete with Norther Propane’s prices.

The direct head-to-head competition led to hard feelings,

with Norther Propane’s new district manager in Camilla

referring to McGahee in intemal documents as ‘Floyd

2 McGahee’s SBA loan application indicated that McGahee expected to

acquire 50% of Northern Propane’s accounts

3 Northern's price reduction passed through to its customers S¢ of a 14¢

reduction in Northern's cost of propane gas. McDaniel Aff. ¢ 12.

The S.0.B.” and setting ‘{c]ontribute to Floyd's financial

problems’ as a district goal for 1983.

During the price war, Northern Propane sold

propane at prices below its average total cost. McGahee

also contends that Northem Propane’s own documents

indicate that in some months Northern Propane sold

propane to commercial customers at prices below average

variable cost and cited documents that support this

contention. McGahee also contends that Northen

Propane’s own documents indicate that Northern

Propane sold propane in the Camilla district at lower

prices than in other districts and cites documents that

support this contention. Furthermore, Norther Propane

furnished propane tanks in the Camilla district rent free4

while charging rent in other districts realizing that

McGahee would be limited in the number of tanks he

could offer rent free.

858 F.2d at 1491-92.

McGahee’s complaint did not allege that McGahee Propane, or

any of the other five retail distributors that also competed for sales in

Mitchell and Baker Counties, had been driven from the market by

Northern’s price reductions, cash discounts, or free tank rental

policies. The thrust of McGahee’s complaint was that Nonhem

Propane should have maintained its prices at the levels that prevailed

before McGahee entered the market in competition with Northem,

and that Northern should not have reduced its prices below its

average total cost (plus a reasonable profit) when it began to lose

customers and market share to McGahee. McGahee Aff. 44 31, 32.

McGahee’s complaint prayed for an injunction requiring Northem

Propane to sell at a reasonable profit. Complaint.

* Northern Propane had a policy of providing tanks rent free during the

period that McGahee was its general manager. Northern discontinued this

policy in an effort to cut costs. As a consequence, it suffered a substantial

loss of customers who could obtain tanks rent free from other companies.

Northern reinstituted the policy as a competitive measure after it began to

lose substantial numbers of customers to McGahee. McGahee Aff. ¢ 24.

—————————

After completion of discovery, Northern moved for summary

judgment on the ground that there was not sufficient evidence to

support a finding in McGahee’s favor as to either the specific intent

or dangerous probability elements of his attempted monopolization

claims. Solely for purposes of its motion for summary judgment,

Norther assumed arguendo that Mitchell and Baker Counties were

a relevant geographic market. Northern’s motion for summary

judgment was supported by the affidavits of three of its employees

and the affidavit of Arthur Andersen & Co. The affidavits of

Northern’s employees attested to the fact that Northern's profit

margins in the Camilla District were low before McGahee entered

the market, and denied that Northern's price reductions and free tank

rental policies were an attempt by Northem to monopolize the sale of

propane or to intentionally inflict losses on McGahee. The affidavits

explained that each price reduction had been made to further

Northem’s own legitimate business interests, and were essentially

defensive steps taken by Northern to prevent the loss of its customer

base to McGahee. These affidavits also established that Northem

had excess capacity, and that all of Northem Propane’s sales (even

after deduction of maximum discounts) exceeded Northern's

average variable costs. By reducing prices, Northern was able to

retain customers that otherwise would have been lost to McGahee,

to earn an incremental profit and make a positive contribution to

payment of Northerm’s fixed costs, and reduce the size of the losses

that Northern would otherwise have sustained if Northem had not

reduced prices in response to the solicitation of its customers by

McGahee. Wade Aff. 44 23, 25: McDaniel Aff. ¢ 21; Ingram Aff. 4

Northern also retained Arthur Andersen & Co. to conduct a

thorough study of Northern’s costs and sales of propane and to

verify that the prices of propane sold by Norther exceeded

Norther ’s average variable costs and made a positive contribution

to payment of its fixed costs and overhead. First, Second & Third

Affidavits of Hugh Gower.

Although McGahee pointed to isolated documents that he

asserted supported his claims that Northern’s prices to a limited

number of customers during a two-month period might have fallen

below its average variable costs,> McGahee offered no counter-

affidavit to contradict the affidavits of Arthur Andersen & Co. and

those of Northern Propane’s employees that all of Northem

Propane’s sales of propane in Mitchell and Baker Counties were

made at prices that exceeded Northern’s average variable cost.

The District Court Ruling

The district court granted Northern Propane’s motion for

summary judgment. The district court ruled that it was the plainuff’s

burden under Celotex Corp. v. Catrett, 477 U.S. 317 (1986), to

produce sufficient admissible evidence to justify a finding in its

favor with respect to each essential element of his claims under § 2

in response to Northern’s motion for summary judgment, and that

Northem, by introducing affidavits that negated plaintiff's claims,

had gone beyond what is required of a defendant under Rule 56.

It was undisputed that neither McGahee nor any other of the

five distributors had been eliminated as competitors in the sale of

propane in Mitchell and Baker Counties, and that there were no

barriers to entry.

As to market conditions, the record demonstrates

that there were no significant entry barmers. . . . It is not

difficult to obtain a license to sell propane, and the fuel is

available to new firms. Certainly, the initial capital

investment is not prohibitive. Plaintiff was able to obtain

a Smail Business Administration loan and quickly gamer

a large share of the market. This scenario, in itself,

effectively rebuts plaintiffs contention that entry barriers

existed. See Adjusters Replace-A-Car, 735 F.2d at 893-

94. Furthermore, defendant has stated, without

> Prevailing case law requires that cost be computed on a defendant's entire

product line, and not on isolated sales or sales in particular sizes. See

Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 856 (9th Cir.

1977), cert. denied, 439 U.S. 829 (1978); Bayou Bottling, Inc. v. Dr

Pepper Co., 725 F.2d 300, 314-15 (Sth Cir.), cert. denied, 469 U.S. 833

(1984).

contradiction, that other former employees have

successfully started their own propane sales businesses.

To the extent customer loyalty or buyer preference is a

factor, plaintiff had the edge. Given plaintiff’s well-

established ties to the community, he was able to win

over many of defendant’s customers. The record

indicates that, even at a higher price, many propane users

preferred to buy from plaintiff.

658 F. Supp. at 195, Appendix B.

The district court rejected respondent’s contention that sales

below average total cost were sufficient to raise a material issue of

fact as to “predatory” (or specific) intent to monopolize, and also

rejected his argument that the jury should be allowed to resolve this

issue “under traditional subjective notions of intent.” 658 F. Supp.

at 193, Appendix B.

The district court held that the test that determines whether a

defendant’s prices are “predatory” is an objective one, and requires

proof that defendant sold below its average variable cost for a

sustained period of time in order to raise a material issue of fact of

predation. The district court followed the rulings of a majority of the

circuits in adopting average variable cost as an objective standard of

predation, and in refusing, in the absence of barriers to entry and

sales below average variable cost, to submit the issue of predatory

intent to a jury for a determination based on subjective evidence of

intent.

The district court also found that the respondent had failed to

demonsirate the existence of a triable issue of fact with respect to the

second element of his attempt to monopolize claim — whether,

assuming that Northern Propane’s prices were “predatory,” there

was a “dangerous probability” that Northern would succeed in

achieving monopoly power over the relevant market. Respondent

admitted on deposition that even though Northem Propane had

enjoyed a large market share when he was its general manager,

Norther Propane had not been able to control the price of propane

in Mitchell and Baker Counties, because of competition from other

distributors, particularly Petrolane, who had forced Northern

_—a a i

Propane to reduce prices to agricultural customers. McGahee Dep.

pp. 48-49. The district court found:

There is no evidence that defendant has ever been

able to obtain supracompetitive prices, and this prospect

seems unlikely. While defendant controlled a large

segment of the market, there were-four significant market

participants and two lesser lights. Any effort to charge

inflated prices would likely have caused defendant to lose

business to the other established firms. Even if price cuts

could temporarily drive all competitors from the putative

relevant market — Mitchell and Baker counties — they

would retum as soon as defendant raised its prices.

Furthermore, plaintiff's rapid success in the market

reveals that changing propane suppliers is simple. That

fact coupled with relatively low start-up costs suggests

that new sellers would enter the market even if defendant

could drive its competitors out of business entirely.

658 F. Supp. at 196.

The Ruling Of The Court Of Appeals

In reversing the district court, the Eleventh Circuit rejected the

rulings of a majority of the circuits and held that a fact finder is

allowed to infer specific intent to monopolize — or “predatory

intent” — from evidence that the seller sold below its average total

cost, even though the seller’s prices may have exceeded its average

variable costs. The Eleventh Circuit held that evidence that a

defendant’s prices fell below its average total cost, coupled with any

evidence of hostility toward the plaintiff (subjective intent), is

sufficient to raise a triable issue of specific intent to monopolize.

If a defendant's prices were below average total

cost and above short run marginal cost, then there is

circumstantial evidence of predatory intent. An inference

of predatory intent, however, may not rest solely on

prices of this nature. To withstand judgment as a matter

of law, a plaintiff must have other evidence, either

Objective or subjective, of predatory intent.

858 F.2d at 1503 (emphasis supplied).

With respect to the second essential element of respondent's

attempted monopolization claim, the Court of Appeals held that the

undisputed fact that Northern Propane had a 60%-65% market share

of the propane sold in Mitchell and Baker Counties before McGahee

entered the market, was sufficient standing alone to raise a material

issue of fact as to whether there was a “dangerous probability” that

Northern’s sales below cost would successfully drive out all

competition, and thus secure for Northern Propane a monopoly over

the sale of propane in the two-county area. 858 F.2d at 1506. The

court refused to give any weight to the absence of barriers to entry,

the sharp decline in Northern’s market share from 65% to 35%

following McGahee’s entry, or to the consensus noted by this Court

in Matsushita, 475 U.S. at 589, that predatory pricing schemes are

“rarely tried, and even more rarely successful.”

REASONS FOR GRANTING THE WRIT

This case presents an important question of federal antitrust

law as to which the decisions of the circuits are in conflict, and

which has not been but should be decided by this Court:

What measure of cost is to be used in dis-

tinguishing price reductions that are procompetitive from

those that are predatory?

This Court expressly refrained from deciding this issue in

Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 117-18

n.12 (1986) (“Most commentators reserve the term predatory pricing

for pricing below some measure of cost, although they differ on the

appropriate measure [citations omitted]. No consensus has yet been

reached on the proper definition of predatory pricing in the antitrust

context, however.”), and in Matsushita Electric Industrial Co. v.

Zenith Radio Corp., 475 U.S. 574, 584-85 nn.8&9 (1986) (“There

is a good deal of debate, both in the cases and in the law reviews

about which ‘cost’ is relevant in such cases. We need not resolve

this debate here .. . ” (n.8); “We do not consider whether recovery

should ever be available on a (predatory pricing] theory .. . when

the pricing is above some measure of incremental cost. See generally

Areeda & Tumer, Predatory Pricing and Related Practices Under

Section 2 of the Sherman Act, 88 Harv.L.Rev. 697, 709-18

(1975).” (n.9)).

I. The Decisions Of The Circuits Are In

Conflict As To The Proper Definition Of

Cost In Predatory Pricing Cases

This Court has recently recognized that the decisions of the

circuits are in conflict as to the proper definition of cost in predatory

pricing cases. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

104, 117-18 n.12 (1986).

No consensus has yet been reached on the proper

definition of predatory pricing in the antitrust context,

however .... Definitions of predatory pricing also vary

among the Circuits. Compare Arthur S. Langenderfer,

Inc. v. S.E. Johnson Co., 729 F.2d 1050, 1056-57 (CA

6) (pricing below marginal or average variable cost

presumptively illegal, pricing above such cost

presumptively legal), cert. denied, 469 U.S. 1036

(1984), with Transamerica Computer Co. v.

International Business Machines Corp., 698 F.2d 1377

(CA 9) (pricing above average total costs may be deemed

predatory upon showing of predatory intent), cert.

denied, 464 U.S. 955 (1983).

479 U.S. at 117-18 1.12.

In this case, the Eleventh Circuit held that sales below average

total cost are evidence of predatory intent. This ruling is in direct

conflict with the following decisions from other courts of appeals

that have held that sales above average variable cost are not evidence

of predatory intent, but, on the contrary, raise either a rebuttable or a

conclusive presumption that the prices were procompetitive.

Second Circuit: Northeastern Tel. Co. v. American Tel. &

Tel. Co., 651 F.2d 76, 88 (2d Cir. 1981) (“We agree with Areeda

and Tumer that in the general case at least, the relationship between

Boer wort

a firm’s prices and its marginal costs provides the best single

determinant of predatory pricing. Thus, prices below reasonably

anticipated marginal cost will be deemed predatory, while prices

above reasonable anticipated marginal cost will be presumed non-

predatory”), cert. denied, 455 U.S. 943 (1982).

Third Circuit: O. Hommel Co. v. Ferro, 659 F.2d 340, 352

(3d Cir. 1981) (dictum: “While we are inclined to accept the basic

premise of the Areeda and Tumer thesis that predatory intent may

not be inferred from sales at or above average variable cost... we

need not (decide the issue here].’), cert. denied, 455 U.S. 1017

(1982).

Fifth Circuit: Adjusters Replace-A-Car, Inc. v. Agency Rent-

A-Car, Inc., 735 F.2d 884, 891 (Sth Cir. 1984) (“[T]he law of this

circuit is that where barriers to entry are not pronounced predatory

pricing is not established unless defendant has set his price below

his average variable cost.”), cert. denied, 469 U.S. 1160 (1985);

Bayou Bottling, Inc. v. Dr. Pepper Co., 725 F.2d 300, 305 (Sth

Cir. 1984) (“Generally, in order to prove that defendant has

sacrificed present revenues, it is necessary to establish that the

defendant's prices were below marginal or average variable cost.”’),

cert. denied, 469 U.S. 833 (1984); International Air Indus. v.

American Excelsior Co., 517 F.2d 714 (Sth Cir. 1975), cert.

denied, 424 U.S. 943 (1976).

Sixth Circuit: D.E. Rogers Assocs., Inc. v. Gardner-Denver

Co., 718 F.2d 1431 (6th Cir. 1983) (sales above average variable

cost presumed to be lawful), cert. denied, 467 U.S. 1242 (1984);

Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050,

1056-57 (6th Cir.), cert. denied, 469 U.S. 1036 (1984) (same); cf.

Morristown Block & Concrete Products Co. v. General Shale

Products Co., 1987-2 Trade Cas. (CCH) § 67,713 (6th Cir. 1987,

unpubl.) (affirming summary judgment for defendant in a predatory

pricing case).

Eighth Circuit: Henry v. Chloride, Inc., 809 F.2d 1334, 1346

(8th Cir. 1987) (We “hold AVC to be a marker of rebuttable

presumptions, with the plaintiff holding the burden above and the

defendant below’’); Superturf, Inc. v. Monsanto Co., 660 F.2d

1275, 1281 (8th Cir. 1981) (“Pricing below ‘fully-allocated costs’

_ he a

but above average variable costs ‘is not per se predatory; to the

contrary, such pricing has been considered “the competitive and

socially optimal result” of § 2 enforcement.’ ’’).

Ninth Circuit: Airweld, Inc. v. Airco, Inc., 742 F.2d 1184,

1194 (9th Cir. 1984) (Affirming a j.n.o.v. for the defendant in a

predatory pricing case brought by a former distributor on the ground

that “[s]ince below average total cost pricing does not prove

Airweld’s claim [i.e., is presumptively lawful], Airweld was

required to offer additional proof of anticompetitive conduct.”), cert.

denied, 469 U.S. 1213 (1985); William Inglis & Sons Baking Co.

v. [TT Continental Baking Co., 668 F.2d 1014, 1031-36 (9th Cir.)

(“If the defendant’s prices were below average total cost but above

average variable cost, the plaintiff bears the burden of showing the

defendant’s pricing was predatory”), cert. denied, 459 U.S. 825

(1982)§; California Computer Products, Inc. v. IBM Corp., 613

F.2d 727, 742-43 (9th Cir. 1979) (“The boundaries of reasonable

price competition have recently been defined in this circuit [citing

Hanson and Janich Bros.}. The thrust of this analysis is that price

reductions up to the point of marginal cost are consistent with

competition on the merits .. . ”); Janich Bros., Inc. v. American

Distilling Co., 570 F.2d 848, 858 (9th Cir. 1977) (“Janich has not

come forth with sufficient evidence to go to the jury on the

contention that American sold gin and vodka below average variable

cost...’’), cert. denied, 439 U.S. 829 (1978); Hanson v. Shell Oil

Co., 541 F.2d 1352, 1359 (9th Cir. 1976) (The plaintiff’s failure to

show that the defendant’s prices were below its marginal or average

6 Transamerica Computer Co. v. IBM Corp., 698 F.2d 1377 (9th Cir.

1983), cert. denied, 464 U.S. 955 (1983), did not change the rule in /nglis

that prices above average variable cost are subject to a rebuttable

presumption that such prices are non-predatory. Transamerica held that in

the Ninth Circuit sales above average total cost are not conclusively

presumed to be lawful, but can still be shown to be “predatory” if “the

plaintiff . . . prove(s] by clear and convincing evidence — i.e., that it is

highly probably true — that the defendant’s pricing policy was predatory.”

698 F.2d at 1388. The Eleventh Circuit's ruling below is in direct conflict

with Transamerica, in that the Eleventh Circuit held that sales above

average total cost will be conclusively presumed to be lawful in the

Eleventh Circuit.

variable costs “was a failure as a matter of law to present a prima

facie case under § 2.””), cert. denied, 429 U.S. 1074 (1977).

Tenth Circuit: Pacific Engineering & Production Co. of

Nevada v. Kerr-McGee Corp.. 551 F.2d 790, 797 (10th Cir.)

(holding “prices below total cost (and above average variable cost to

be] . . . consistent with the competitive goals” and reversing verdict

in favor of plaintiff.), cert. denied, 434 U.S. 879 (1977).

Il. The Ruling Below Also Conflicts

With Decisions Of This Court

By allowing the trier of fact to infer predatory intent from sales

below average total cost, the Eleventh Circuit has also disregarded

well-established principles gleaned from decisions of this Court.

First, the decision threatens to penalize legitimate price

competition by firms that cut prices as a means of increasing market

share. In Cargill, however, this Court reasoned that even dominant

firms have a right under the antitrust laws to make offensive price

reductions aimed at increasing their market share — even though

such increases necessarily will come at the expense of small

competitors:

Brunswick holds that the antitrust laws do not require the

courts to protect small businesses from the loss of profits

due to continued competition, but only against the loss of

profits from practices forbidden by the antitrust laws.

The kind of competition that Monfort alleges here,

competition for increased market share, is not activity

forbidden by the antitrust laws. It is simply, as

petitioners claim, vigorous competition. To hold that the

antitrust laws protect competitors from the loss of profits

due to such price competition 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, for “[iJt is in the interest of competition

to permit dominant firms to engage in vigorous

competition, including price competition.” Arthur S.

Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d

1050, 1057 (CA 6), cert. denied, 469 U. S. 1036

(1984).

479 U.S. at 116.

See also Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784

F.2d 1325, 1338 (7th Cir. 1986).

The subjective test of predation endorsed by the Eleventh

Circuit conflicts with the ruling in Cargill and threatens to

discourage legitimate price competition by allowing juries to infer

“predatory intent” whenever a dominant firm reduces prices and

sells below its average total cost, even where such price reductions

are, as in this case, defensive in nature to preserve its share of the

market from erosion by a competitor or are in response to over-

capacity. See Pacific Engineering & Production Co. of Nevada v.

Kerr-McGee Corp., supra.

Second, the ruling of the Eleventh Circuit disregards the

substantive rule of antitrust law announced in Monsanto Co. v.

Spray-Rite Service Corp., 465 U.S. 752, 763-64 (1984), that limits

the inferences a fact finder may draw from ambiguous business

conduct. Accord Matsushita Electric Industrial Co. v. Zenith Radio

Corp., 475 U.S. 574, 577-78, 597 n.21 (1986). To prevent the

antitrust laws from being used to deter the procompetitive conduct

those laws were intended to foster, the Court fashioned a rule of

evidence in antitrust cases which prohibits a fact finder from

inferring illegal purposes from ambiguous business conduct, i.e.,

conduct as consistent with permissible competition as it is with

predation. See id. at 597 n.21. Under the rule, ambiguous conduct

is presumed to be lawful. To survive a motion for summary

judgment, it is not enough that the evidence of business conduct is

consistent with a finding of predatory intent; instead, the plaintiff

must present “evidence that tends to exclude the possibility” that the

conduct had a legitimate business purpose. Monsanto, 465 U.S. at

764.

In this case, however, none of the evidence on which the

Eleventh Circuit relied to raise an inference of predatory intent

tended to “exclude the possibility” of a legitimate business purpose

for the price reductions. Indeed all of the evidence on which it relied

was either procompetitive or ambiguous. Specifically, the Eleventh

Circuit held that a fact finder could infer predatory intent from such

potentially procompetitive activity as keeping abreast of a

competitor’s financial status and adopting a free tank rental policy,

plus “unfavorable” comments about the competitor. 858 F.2d at

1504, Appendix A.’

It is a rare case in which uncomplimentary statements about a

competitor are not found in a litigant’s files. Moreover, the number

or vehemence of such references is likely to increase in direct

proportion to the vigor of the legitimate competition between the

two. For this reason most courts, contrary to the Eleventh Circuit,

have held that such statements do not provide any meaningful

evidence of predatory intent and are not enough to create a triable

issue of fact of specific intent to monopolize. As the Seventh Circuit

has said:

So “intent to harm rivals” is not a useful standard in

antitrust. See also Barry Wright Corp. v. ITT Grinnell

Corp., 724 F.2d 227, 232 (Ist Cir. 1983): “‘[{I]ntent to

harm’ [rivals] without more offers too vague a standard

in a world where executives may think no further than

‘Let’s get more business,’ and long-term effects on

consumers depend in large measure on competitors’

responses.” Neither is “intent to do more business,”

which amounts to the same thing. Vigorous competitors

intend to harm rivals, to do all the business if they can.

To penalize this intent is to penalize competition. See also

7 Areeda, Antitrust, supra at § 1506.

Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins. Co.,

784 F.2d 1335, 1338-39 (7th Cir. 1986).

7 It was undisputed that Northern Propane obtained information on

respondent's financial status in order to determine whether the funds from

McGahee Family Farms, to whom McGahee had extended credit while

employed by Northern and whose $60,000 account with Northern was

delinquent, were being used to launch McGahee's competing business.

Similarly, respondent himself admitted that the free tank rental policy was

simply the reinstitution of a successful policy that Northern Propane had

employed while respondent was still its general manager.

See also William Inglis & Sons Baking Co. v. ITT Continental

Baking Co., 668 F.2d 1014, 1028 (9th Cir. 1981) (“intent to

vanquish a rival in an honest competitive struggle cannot help to

establish an antitrust violation”), cert. denied, 459 U.S. 825 (1982);

Areeda, Mergers and Markets A Century Past and Future, 79 Cal.L.

Rev. 959, 963 (1987).

In short, despite this Court’s admonition in Matsushita, the

Eleventh Circuit’s decision permits a plaintiff to escape summary

judgment on the basis of ambiguous evidence that does nor tend to

exclude the possibility of a legitimate business purpose for the price

reductions. In so holding, the Eleventh Circuit’s decision subverts

the salutary purpose of the summary judgment procedure as

articulated in Celotex and applied in Matsushita.

III. The Decision Below Presents An Important

Federal Question That Has Not Been, But Should

Be Decided By This Court.

In both Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

104, 117-18 n.12 (1986), and Matsushita Electric Industrial Co. v.

Zenith Radio Corp., 475 U.S. 574, 584-85 nn.8&9 (1986) (quoted

at pp. 11-12, supra), this Court expressly avoided the question of

what measure of cost should be used to distinguish procompetitive

from predatory price reductions. The question of the appropriate

cost standard is an important question of federal antitrust law that

has not been, but should be decided by this Court for three reasons.

First, this issue involves the most central and sensitive area of

antitrust policy — namely, price competition. The ability of a

competitor to reduce prices lawfully in order to preserve or increase

market share — in short, to compete vigorously — addresses the

core conduct that the antitrust laws are designed to promote.

Second, the consequences of either a mistaken standard or the

mere absence of a clear standard are costiy — namely, chilling

legitimate price competition — and justify this Court's attention to

the issue. This Court has expressed serious reservations as to

whether “predatory pricing” is more than a theoretical business

practice and whether, even if the practice exists, it presents a

genuine threat to competition. The Court has noted that while there

is disagreement among “commentators . . . as to whether it is ever

rational for a firm to engage” in predatory pricing (Cargill, 479 U.S.

at 121 n.17), there is at least "a consensus among commentators that

predatory pricing schemes are rarely tried, and even more rarely

successful.” Matsushita, 475 U.S. at 589. In light of the uncertainty

that surrounds predatory pricing, the Court should take this

Opportunity to adopt a clear and objective cost standard that avoids

chilling lawful price competition.

(C)utting prices in order to increase business often is the

very essence of competition. Thus, mistaken inferences

in cases such as this one are especially costly, because

they chill the very conduct the antitrust laws are designed

to protect. See Monsanto, supra, at 763-64. “{[WJe must

be concerned lest a rule or precedent that authorizes a

search for a particular type of undesirable pricing

behavior end up by discouraging legitimate price

competition.” Barry Wright Corp. v. ITT Grinnell

Corp., 724 F.2d 227, 234 (CA 1 1983).

Matsushita, supra, 475 U.S. at 594

By permitting a jury to draw a negative inference (predatory intent)

from a fact (sales above average variable cost) that in the

overwhelming majonity of cases represents procompetitive conduct,

the Eleventh Circuit’s ruling presents just such a threat

Professors Areeda and Tumer have persuasively demonstrated

that it is both rational and procompetitive for a business to sell its

goods below its average total cost in most, if not all, circumstances.

Areeda & Turmer, Predatory Pricing and Related Practices Under

Section 2 of the Sherman Act, 88 Harv. L. Rev. 697 (1975):

Easterbrook, Predatory Strategies and Counter-Strategies, 48 U

Chi. L. Rev. 263, 268 (1981); Koller, The Myth of Predatory

Pricing — An Empirical Study, 4 Antitrust Law & Econ. Rev. 105

1971)

Moreover, many courts of appeals have endorsed sales above

average vanable costs but below average total cost as economicall

desirable because they both promote efficiency by utilizing excess

capacity, and benefit consumers by offering lower prices. For

example, in Adjusters Replace-A-Car, inc. v. Agency Rent-A-Car,

Inc., 735 F.2d 884 (Sth Cir. 1984), cert. denied, 469 U.S. 1160

(1985), the Fifth Circuit explained:

According to Areeda and Tumer, a firm is always

acting reasonably if it charges a price for its output that

enables it to recover at least the average variable costs,

because at that price the company is recovering the costs

associated with producing each individual unit of output.

The firm will, of course, prefer to recover its average

total cost, but if it is unable to do so it will minimize its

losses if it produces those units of output for which it can

recover at least its variable costs. This is so because, in

the short run at least, a firm cannot escape paying its

fixed costs even if it reduces its production to zero.

735 F.2d at 889.

See also California Computer Products, Inc. v. 1BM Corp., 613

F.2d 727, 743 (9th Cir. 1979); Janich Bros., Inc. v. American

Distilling Co., 570 F.2d 848, 857 (9th Cir. 1977).

Indeed, the ability to reduce prices and sell below average total

cost may be essential to the survival of a firm with excess capacity.

See, e.g., William Inglis & Sons Baking Co. v. ITT Continental

Baking Co., supra, at 1035 (“Prices below the average total cost of

production, but above the average variable cost . . . [are] a legitimate

means of minimizing losses during the period of inadequate

demand.”’). As the Tenth Circuit has recognized, “[t]he common

circumstance in which sales below total cost may be expected is that

of excess capacity.” Pacific Engineering & Production Co. of

Nevada v. Kerr-McGee Corp., 551 F.2d 790, 796 (10th Cir.), cert.

denied, 434 U.S. 879 (1977). Excess capacity permits a business to

produce additional units at an incremental cost that is lower than the

average total cost of previous units. If such a business is allowed to

reduce prices and sell below its average total cost, but above its

average variable cost, it can attract additional sales that will expand

its Output, utilize its excess capacity, generate an incremental profit

for itself, and confer a benefit on its customers in the form of lower

prices. In such circumstances, it “may even be desirable and

certainly could not be considered ‘sinister’ ” for the seller to reduce

prices, even if the price reduction results in the elimination of a

competitor, because it allows the seller to operate more efficiently by

utilizing his capacity and benefits the consumer through lower per

unit prices. /d. In fact, as the Tenth Circuit acknowledges, sales

below average total cost may be the only alternative to harmful

oligopoly conduct for the business with excess capacity. /d. The

risk that a jury will be able to infer predatory intent from this

conduct, however, may chill this seller’s conduct and leave society

not only with idle and misallocated plant capacity, but consumers

will be required to pay higher unit costs than necessary. See id. By

allowing juries to make a subjective determination of predatory

intent based on sales above average variable cost, the Eleventh

Circuit has created a serious risk of penalizing procompetitive

conduct that is essential to the proper functioning of a free market

system.

Moreover, the mere uncertainty over whether a fact finder will

be permitted to find this conduct predatory will deter much

procompetitive price competition. Businesses need a clear, bright-

line standard to gover their conduct in this critical area of antitrust

policy.

Finally, the substantive rule announced by the Eleventh Circuit

amounts to a legal mandate that businesses must sell at a profit, and

creates a legal standard with which it is impossible for many

businesses to comply. By ruling that sales below average total cost

are evidence of predatory intent, the Eleventh Circuit rule would

require a business to raise its prices whenever its sales volume

declines to a break-even point at existing price levels, in order to

escape an inference of predatory intent. For example, as Northern's

sales volume began to decline as a result of the competitive activities

of McGahee, this decline in volume caused a corresponding increase

in Northern's average fixed costs and, therefore, in its average soul

costs per gallon of sales. To comply with the above-total-cost

standard adopted by the Eleventh Circuit, Northem Propane would

have been required to raise its prices as its sales volume was

declining to the break-even point in order to avoid an inference of

predatory intent.

In short, the above-total-cost standard not only would prohibit

a Seller in this circumstance from responding with price competition

of its own, but would affirmatively require the seller to raise its

prices to avoid an inference of predatory intent. As the Ninth Circuit

said in California Computer Products, Inc. v. IBM Corp., 613 F.2d

727, 742 (9th Cir. 1979), however, “ ‘the antitrust laws do not

> 99

require a business to cut its own throat’ ” (quoting Dehydrating

Process Co. v. A.O. Smith Corp., 292 F.2d 653, 657 (1st Cir.

1961)). See also Airweld, Inc. v. Airco, Inc., 742 F.2d 1184, 1194

(9th Cir. 1984) (to hold a defendant’s price reduction to be an unfair

means of competition simply because its competitors engaged in

only limited price competition “ ‘would support the perverse

rationale that a defendant may not compete by lowering its prices “‘if

competition would injure its competitors” ’ ’’) (citations omitted),

cert. denied, 469 U.S. 1213 (1985). The Eleventh Circuit’s

perverse interpretation of the antitrust laws merits this Court’s

review. .

IV. The Eleventh Circuit’s Ruling On The Dangerous

Probability Issue Conflicts With This Court’s

Decisions In Matsushita And Cargill And With The

Decisions Of Other Circuits.

The Eleventh Circuit held that evidence that petitioner had a

beginning market share of 65% of the propane sold in the two-

county area was sufficient standing alone to raise a triable issue of

fact as to the “dangerous probability of success,” which is the

second essentiai element of respondent’s claims under § 2. 858 F.2d

at 1506. The court did not, however. take issue with the district

court’s finding that there were no barriers to entry into the retail

propane gas market in southwest Georgia.

The Eleventh Circuit’s ruling on the dangerous probability

issue is in conflict in a number of respects with both the decisions of

this Court and the decisions of other circuits.

A. Conflict With Matsushita And Cargill

The Eleventh Circuit’s dangerous probability ruling conflicts

with this Court’s decision in Matsushita, supra, in two respects.

First. Matsushita clearly holds that barriers to entry are essential to a

successful predatory pricing claim, yet the Eleventh Circuit found a

triable issue of dangerous probability of monopolization in the

absence of any barriers to entry.

Among the reasons cited by this Court in Matsushita for

finding that Zenith’s claims of predatory pricing were “implausible,”

made “‘no economic sense” (475 U.S. at 587), and should have been

disposed of on summary judgment, was the absence of evidence of

barriers to entry to the business of manufacturing consumer

electronics. 475 U.S. at 591 n.15. The Court explained that the

success of any predatory pricing scheme depends not only on

keeping prices low enough long enough that all competitors are

driven from the market, but “on maintaining monopoly power for

long enough [after all competitors are driven from the market] both

to recoup the predator’s losses and harvest some additional gains,”

before new competition can enter the market and force the predator's

prices back to competitive levels. 475 U.S. at 589-91. The Court

held that barriers to entry by new competition are, therefore,

essential to the success of any predatory pricing scheme because

‘without barriers to entry, it would presumably be impossible to

maintain supracompetitive prices for an extended time.” 475 U.S. at

59 n.15.

Second, the Eleventh Circuit's ruling is also inconsistent with

this Court’s finding in Matsushita that “there is a consensus among

commentators that predatory pricing schemes are rarely tried and

even more rarely successful.” 475 U.S. at 589. More specifically, in

Matsushita, the Court ruled that the “prospects of attaining

monopoly power seem slight” (id. at 590) despite evidence that the

Japanese manufacturers’ “collective share rose rapidly during this

period [of alleged predation] from one-fifth or less of the relevant

market to close to 50%.” 475 U.S. at 591. If, as Matsushita held,

there was only a “slight” chance that the Japanese, whose market

share was rising rapidly, could successfully monopolize the

consumer electronics market, no rational fact finder could find that

there was a “dangerous probability” that Northem Propane —

whose market share fell from 60% to 35% in less than two years —

could monopolize the sale of propane in Mitchell and Baker

* Counties. In short, Matsushita’s holding demonstrates that this is

not one of the very rare cases in which a claim of predatory pricing

should go to a jury.

In finding a triable issue of dangerous probability of

monopolization based on Northern Propane’s 65% market share

prior to McGahee’s entry into the market, the Eleventh Circuit

further ignored this Court’s directive in Cargill, supra, that focus is

not on market share before the alleged predatory pricing, but on

market share and barriers to entry that are likely to exist after

competitors have been driven from the market and predatory pricing

has ended. In Cargill this Court not only reiterated that barriers to

entry are essential to any predatory pricing claim, but stressed that:

(I}n evaluating entry barriers in the context of a predatory

pricing claim . . . a court should focus on whether

significant entry barriers would exist after. . . {the}

elimination of rivals, because . . . that [is the] point...

[at which defendant] would begin to charge supra-

competitive prices, and the barriers that existed during

competitive conditions might-well prove insignificant.

479 US. at 120 n.15.

Disregarding the relevant time period for assessing market share, the

Eleventh Circuit held as follows:

When determining whether an issue of fact exists as

to whether defendant’s actions presented a dangerous

probability of defendant achieving a monopolist’s market

power, a court examines the relevant market and

defendant’s market power before the attempt to

monopolize began.

858 F.2d at 1505 (emphasis supplied).

B. Conflict With Decisions Of Other Circuits

The Eleventh Circuit’s holding on dangerous probability raises

two other points of conflict with the decisions of other circuits: (1)

in concluding that initial market share alone is sufficient to create an

inference of dangerous probability without regard to other economic

factors which negate the existence of market power, and (2) in

ignoring evidence of a significant decline in the defendant’s market

a sage desta

share, which other circuits have held sufficient to negate a finding of

dangerous probability.

The ruling of the Eleventh Circuit that dangerous probability

can be inferred from initial market share alone conflicts directly with

the decisions of the Seventh Circuit in /ndiana Grocery, Inc. vy.

Super Valu Stores, Inc., 864 F.2d 1409 (7th Cir. 1989), and Bail

Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325,

1335 (7th Cir. 1986).

In Ball Memorial Judge Easterbrook explained that market

Share does not indicate that a firm has market power, unless the firm

“controls a significant percentage of the productive assets in the

market’ and there are also significant entry barriers so that a firm can

“cut back the market’s total output and so raise price.” 784 F.2d at

1335. “To put these points a little differently, the lower the barriers

to entry, and the shorter the lag of new entry, the less power

existing firms have. When the supply is highly elastic, existing

market share does not signify power.”’ /d.

The Seventh Circuit applied these principles again in /ndiana

Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409 (7th Cir.

1989). In Indiana Grocery, the Seventh Circuit affirmed a summary

judgment in an antitrust case that charged Kroger with having

engaged in predatory pricing to monopolize the sale of groceries in

Indianapolis and in two submarkets. For purposes of the motion for

summary judgment, Kroger conceded Indiana Grocery’s allegations

that Indianapolis was a relevant market, and that its share of the

entire Indianapolis market and of two submarkets had increased to

35% and 50%, respectively. Kroger also “did not challenge, for

purposes of the motion, Indiana Grocery’s allegation that Kroger’s

revenues fell below its average variable costs in some submarkets

during certain periods.” 864 F.2d at 1414 (emphasis added).

Despite a stipulation that the barriers to entry in the retail grocery

business were high, it was undisputed that Kroger could never

control the supply of groceries to the Indianapolis market.’

’ Like Kroger, Northern Propane could not control the supply of propane

gas into Mitchell and Baker Counties. Northern, McGahee, and other retail

The Seventh Circuit affirmed the entry of summary judgment

in Kroger’s favor, reasoning that no reasonable trier of facts could

find that there was a “dangerous probability” that Kroger could

monopolize the sale of groceries in Indianapolis if it could not

controi the supply. According to the Seventh Circuit, Kroger’s

concession that it had sales below average variable cost, and that its

share of the markets had increased to 35% and 50%, were not

enough to raise a triable issue that there was a “dangerous

probability” that Kroger would succeed in monopolizing even the

submarkets.

The output of the Indianapolis retail grocery market is, of

course, groceries, and /ndiana Grocery concedes that

Kroger could never control the supply of groceries to the

Indianapolis retail market. If so, it is very difficult to see

how Kroger could ever restrict total market output and

thereby raise prices.

As if this is an unimportant concession, Indiana

Grocery argues that Kroger’s alleged predatory pricing

scheme nevertheless created a dangerous probability of

monopoly power because Kroger’s market share of

grocery sales during the alleged predation period rose to

35 percent in the Indianapolis area as a whole and to

nearly 50 percent in two submarkets. But while market

share may indicate market power in certain cases, the two

are not necessarily the same. Market share indicates

market power only when sales reflect control of the

productive assets in the business, for only then does it

reflect an ability to curtail total market output. Ball

Memorial, 784 F.2d at 1335. If a firm’s share of market

sales does not reflect control of a significant percentage

of the market’s productive assets, it does not indicate

market power.

864 F.2d at 1414 (emphasis in original)

distributors purchased their requirements >. wholesalers and took delivery

at the Colonial Pipeline terminal in Albany, Georgia

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Finally, the Eleventh Circuit’s total disregard of Northem

Propane’s drastic decline in market share from 65% to 35% after

McGahee’s entry into the market is inconsistent with the holdings of

a majority of the circuits. Most courts of appeals have held that

evidence of a significant decline in the defendant’s market share is

sufficient to negate the “dangerous probability” element of a § 2

case. See, e.g., Indiana Grocery, Inc. v. Super Valu Stores, Inc.,

supra, (In assessing “dangerous probability,” the Court said that

“‘we cannot help but notice that Cub Stores were able to enter the

Indianapolis market and control a substantial share of area grocery

sales in a short period of time); Ball Memorial Hosp., Inc. v. Mutual

Hosp. Ins., Inc., supra, at 1330; Richter Concrete Corp. v. Hilltop

Concrete Corp., 691 F.2d 818, 826 (6th Cir. 1982) (“During the

relevant period, Hilltop’s market share declined from approximately

40% to approximately 30%. Given the facts of the case, such a

share is not sufficient to establish Hilltop’s capacity to monopolize

... The fact that Hilltop’s share of the market was declining also

belies whatever inference of capacity to monopolize that may be

drawn from the size of its market share’’); Nifty Foods Corp. v.

Great Atlantic & Pacific Tea Co., 614 F.2d 832, 841 (2d Cir. 1980)

(“No reasonable jury could conclude from the rapid and continuing

decline of Pet’s market share, which reached a high point of 54.5%

in March 1969 and fell to 33% by 1974, that there was a probability

that Pet would monopolize the waffle market, let alone a dangerous

probability.’’).

The Eleventh Circuit’s ruling that the size of Northem

Propane’s market share in the period before McGahee entered the

market was alone sufficient to raise a triable issue of fact of

dangerous probability of success — without regard to the absence of

barriers to entry, the absence of any control by Norther over either

the prices or the supply of propane, and the drastic decline in

Northern’s market share at the hands of McGahee — is in direct

conflict with the above decisions and merits the issuance of a wnit of

certiorari.

CONCLUSION

For the foregoing reasons, petitioner respectfully prays that a

writ of certiorari issue to review the decision of the Eleventh Circuit

in this case.

Respectfully submitted,

EMMET J. BONDURANT II

JANE F. VEHKO

BONDURANT, MIXSON &

ELMORE

3900 One Adantic Center

1201 West Peachtree St., N.W.

Auanta, Georgia 30309

(404) 881-4100

Counsel for Petitioner

March 17, 1989

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Appendix A

H. Floyd McGAHEE,

Plaintiff-Appellant,

Vv.

NORTHERN PROPANE GAS COMPANY,

Defendant- Appellee.

No. 87-8379.

United States Court of Appeals,

Eleventh Circuit

Oct. 27, 1988.

Appeal from the United States District Court for the Northem

District of Georgia.

Before HATCHETT and EDMONDSON, Circuit Judges, and

LYNNE* , District Judge.

LYNNE, Senior District Judge:

Plaintiff-appellant H. Floyd McGahee (McGahee) brought this

antitrust action under Section 2 of the Sherman Act, 15 U.S.C. § 2,

and under § 2(a) of the Clayton Act, as amended by the Robinson-

Patman Act, 15 U.S.C. § 13(a), against defendant-appellee

Northem Propane Gas Company (Northern Propane). The district

court granted Northern Propane’s motion for summary judgment

and entered judgment against McGahee. McGahee v. Northern

Propane Gas Co., 658 F.Supp. 189 (N.D.Ga.1987) (Shoob, J.).

We reverse.

I. FACTS

McGahee and Northern Propane are retail distributors of

propane, a fuel used for heating. Retail distributors primarily have

two types of customers: (1) residential and (2) commercial.

Generally, distributors sell propane to commercial users at a lower

* Honorable Seybourn H. Lynne, Senior U.S. District Judge for the

Northern District of Alabama, sitting by designation.

NSS eee

price. Because propane is a fungible good, price is of prime

importance in its unregulated market.

At the time relevant to this action, Northern Propane operated

180 retaii distribution outlets in twenty-five states. One of these retail

distribution outlets was based in Camilla, Georgia. Nomhem

Propane produces and buys propane in wesierm states and

commingles the propane with other companies’ propane to transport

it by pipeline to Georgia. The Northern Propane district office in

Camilla then takes delivery of the propane at the pipeline terminal.

In a March 1982 internal report, Northern Propane described

the propane market in the Camilla district (approximately Mitchell

and Baker Counties). Northern Propane estimated it had sixty

percent of the total propane market within the district. Northern

Propane estimated Petrolane had twenty percent of the market, but

regarded Petrolane as competition only for large volume commercial

accounts. Northern Propane also estimated that five competitors,

_ working within the edges of the district, split the remaining twenty

~ percent. Because transportation costs restrict economical delivery of

propane to a twenty-five to thirty mile radius from the storage tanks

and because these five competitors were based outside of the

Camilla district, these competitors were only competitive with

Northern Propane on the edge of the Camilla district to which they

were closest. In addition, Northern Propane stated*that, of other

possible fuels, only “free” wood posed a competitive threat to

propane in the Camilla district and that conversion to wood had

stabilized. !

When Norther Propane bought the retail distribution outlet in

Camilla, Floyd McGahee was its district manager. McGahee had

| For the purpose of this summary judgment motion, Northern Propane

accepted that the relevant geographic market is Mitchell and Baker

Counties in southwest Georgia and that the relevant product market is

propane. The district court suggested that it had difficulties with this

definition of the relevant markets. McGahee, 658 F.Supp. at 192 n. 3. The

Northern Propane internal report discu»sing the markets does support this

definition of the relevant markets. See Plaintiff's Exhibit 87, p. INO1029.

Cf. Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 364-

66 (9th Cir.1988) (holding market definition to be jury issue in case with

similar facts).

become a fixture in the Camilla area, having worked at the same

propane outlet for approximately thirty years. In June 1981,

Northem Propane demoted McGahee to a salesperson position

because, according to Northern Propane, he failed to keep adequate

records, to keep the accounts receivable current, and to follow

company directives. McGahee resigned from Norther Propane on

October 9, 1981, under contentious circumstances.”

After resigning from Northem Propane, McGahee obtained an

$800,000 Small Business Administration (SBA) loan to finance his

April 1982 entry into the propane business in the Camilla area. By

February 1982, Northem Propane had obtained a copy of

McGahee’s SBA loan documents and other documents related to his

financial position. Before McGahee's distributorship opened, a

Northem Propane internal report stated that its new “district manager

has taken the offensive and will fight the former employee for the

market.” At the end of March 1982, Northern Propane lowered its

residential prices five cents per gallon and its commercial peices four

cents per gallon.3

In late April 1982, McGahee opened for business. Not only

did McGahee solicit Northem Propane’s customers, he also hired

three of Northern Propane’s drivers and repairmen. McGahee's

market share went from zero percent in 1981 to twenty-three percent

in 1983, while Northem Propane’s market share dropped from sixty

or sixty-five percent in 1981 to thirty-five percent in 1983.4

McGahee’s success in acquiring a substantial share of the market

was due both to his personal familiarity with the local community

2 Northern Propane filed a counterclaim against McGahee alleging that he

had breached his fiduciary duties while its employee by wrongfully

extending credit to McGahee Family, Inc.. a corporation in which McGahee

had a financial interest. Northern Propane voluntarily dismissed the

counterclaim on February 25, 1985.

> Plaintiff's Exhibit 5, compare p. C00333 with p. CO00328.

* These percentages are based on McGahee's estimates during his

deposition. Logically, two competitors engaging in a price war in which

other competitors do not participate should increase their combined share

of the market. These percentages indicate that Northern Propane’s and

McGahee’s ‘combined share of the market decreased despite their price war.

This anomaly is not explained in the record.

and to his willingness to compete with Northern Propane’s prices.

The direct head-to-head competition led to hard feelings, with

Northern Propane’s new district manager in Camilla referring to

McGahee in internal documents as “Floyd The S.0.B.” and setting

“{cjontribute to Floyd’s financial problems” as a district goal for

1983. ~

~ During the price war, Northem Propane sold propane at prices

below its average total cost. McGahee also contends that Northern

Propane’s own documents indicate that in some months Northern

Propane sold propane to commercial customers at prices below

average variable cost and cited documents that support this

contention.5 McGahee also contends that Northen Propane’s own

documents indicate that Northern Propane sold propane in the Cam-

illa district at lower prices than in other districts and cites documents

that support this contention.® Furthermore, Norther Propane fur-

nished propane tanks in the Camilla district rent free while charging

rent in other districts, realizing that McGahee would be limited in the

number of tanks he could offer rent free.’

5 Compare the prices in Plaintiff's Exhibit 15,.p. C00907, Plaintiff's

Exhibit 16, p. COO851, and Gower's First Affidavit, Exhibit D, p. 2, lines

10-13 to the average variable costs in Gower's First Affidavit, Exhibit C,

p. 3, lines 26-28. Northern Propane calls McGahee’s contention “a blatant

misrepresentation of the record,” but fails to explain why the documents do

not support McGahee's contention, except to claim one of the three

documents concerning prices had a typographical error that was corrected

later by Gower’s Third Affidavit. On the other hand, McGahee merely gives

prices and costs and cites their sources without fully explaining these

numbers.

® Northern Propane responds to this contention by calling it misleading

and explains why, but does not support this explanation with evidence in

the record. The district court assumes Northern Propane sold propane in the

Camilla district at prices below those charged in other districts. McGahee,

658 F.Supp. at 197. In March 1982, Northern Propane’s discount policy

gave each individual district the option of offering, with regional office

approval, cash discounts, class of customer discounts, and individual

commercial customer discounts. Plaintiff's Exhibit 1, pp. C10001-C10005.

Northern Propane’s internal documents show that its Camilla district offered

these discounts.

7 Plaintiffs Exhibit 80, p. C00832.

Il. STANDARD OF REVIEW

Our review of the district court's grant of summary judgment

is plenary and is to be conducted utilizing the same legal standards as

those imposed upon the district court. Mercantile Bank & Trust v.

Fidelity & Deposit Co., 750 F.2d 838, 841 (11th Cir.1985).

Summary judgment is appropriate only “if the pleadings,

depositions, answers to interrogatories, and admissions on fle.

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.” Fed.R.Civ.P. 56(c).

(1, 2] Three recent Supreme Court cases vacating appellate

reversals of district court orders granting summary judgment

illuminate the appropriate role of summary procedure. Celotex Corp.

v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986):

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505.

91 L.Ed.2d 202 (1986); Matsushita Electric Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538

(1986). A common theme found in these cases is that

(s]}ummary judgment procedure is properly regarded not as a

disfavored procedural shortcut, but rather as an integral part of

the Federal Rules as a whole, which are designed “to secure

the just, speedy and inexpensive determination of every

action.” Fed.R.Civ.P. 1.

Celotex, 106 S.Ct. at 2555. In Matsushita, the Supreme Court made

clear that summary judgment may be especially appropriate in an

antitrust case because of the chill antitrust litigation can have on

legitimate price competition. 106 S.Ct. at 1360. For this reason,

when opposing a motion for summary judgment, an antitrust

plaintiff must present evidence that tends, when interpreted in a light

most favorable to plaintiff, to exclude the possibility that defendant's

McGahee also contends that Northern Propane attempted to hinder and

harass him by not picking up its tanks when required by customers,

refilling customers’ tanks after being asked to disconnect them. and

reporting McGahee to the State Fire Marshal for disconnecting Northern

Propane’s tanks. Unfortunately, the primary source McGahee cites to

support these contentions of anticompetitive conduct is not part of the

record on appeal; therefore, we do not consider them

conduct was as consistent with permissible competition as with

illegal conduct. /d. at 1357.8

Ill. THE TEST FOR PREDATORY PRICING

(3, 4] A plaintiff must show two elements to establish an

attempted monopolization claim under Section 2 of the Sherman Act:

(1) the specific intent on the part of the defendant to achieve a

monopoly and (2) a dangerous probability the defendant would

succeed. Swift & Co. v. United States, 196 U.S. 375, 396, 25

S.Ct. 276, 279, 49 L.Ed. 518 (1905); Tiftarea Shopper, Inc. v.

Georgia Shopper, Inc., 786 F.2d 1115, 1118 (11th Cir.1986). The

first element can be satisfied by proof of predatory pricing, Cargill,

Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484,

93 L.Ed.2d 427 (1986), which is what McGahee has alleged in this

case. A problem arises, however, in determining whether a defend-

ant has engaged in predatory pricing.

[5] A plaintiff who is a competing seller such as McGahee

must show two elements to establish a Robinson-Patman Act claim:

(1) the defendant, in the course of interstate commerce,

discriminated in price between purchasers of commodities of like

grade and quality and (2) a reasonable possibility that this price

difference may harm competition. Falls City Industries, Inc. v.

Vanco Beverage, Inc., 460 U.S. 428, 434-35, 103 S.Ct. 1282,

1288, 75 L.Ed.2d 174 (1983); FTC v. Anheuser-Busch, 363 U.S.

536, 549, 80 S.Ct. 1267, 1274, 4 L.Ed.2d 1385 (1960). Price

discrimination, the first element, is merely a price difference. An-

heuser-Busch, 363 U.S. at 549, 80 S.Ct. at 1274. Harm to

competition, the second element, can be satisfied by proof of

predatory pricing.? Utah Pie Co. v. Continental Baking Co., 386

U.S. 685, 87 S.Ct. 1326, 18 L.Ed.2d 406 (1967). Again, the

8 Justification is not, however, an element of an antitrust plaintiff's prima

facie case, but is an affirmative defense. 15 U.S.C. § 13(b) (Robinson-

Patman Act); e.g., Otter Tail Power Co. v. United States, 410 U.S. 366, 93

S.Ct. 1022, 35 L.Ed.2d 359 (1973) (Sherman Act).

9 The predatory pricing issues are the same for Sherman Act Claims as for

Robinson-Patman Act claims. Malcolm v. Marathon Oil Co., 642 F.2d

845, 853 n. 16 (Sth Cir. Unit B), cert. denied, 454 U.S. 1125, 102 S.Ct.

975, 71 L.Ed.2d 113 (1981).

problem is determining whether a defendant has engaged in

predatory pricing.

A. The District Court’s Test for Predatory Pricing.

In its opinion, the district court discusses the economic theory

behind regulating predatory pricing, relying primarily on the work

of Professors Areeda and Tumer, in its quest for a test for

determining when a defendant has engaged in predatory pricing.

McGahee, 658 F.Supp. at 192-93. Although the district court

discusses the test from /nternational Air Industries v. American

Excelsior Co., 517 F.2d 714 (Sth Cir.1975), cert. denied, 424 U.S.

943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976), the district court

adopts a test proposed by Areeda and Turner, modifying the test

slightly to make it consistent with /niernational Air. McGahee, 658

F.Supp. at 192 n. 5. Cf. Bonner v. City of Prichard, 661 F.2d

1206 (11th Cir.1981) (decisions rendered by the former Fifth

Circuit before October 1, 1981, are binding upon courts of the

Eleventh Circuit). According to the district court,

(i]n /nternational Air, the former Fifth Circuit accepted Areeda

and Turner’s basic premises but added a significant gloss.

Specifically, the court formuiated a different standard for mar-

kets in which entry barriers are extremely high. In such cases,

a plaintiff can prevail by showing that the defendant is

“charging a price below its short-run, profit-maximizing price .

... 517 F.2d at 724.

McGahee, 658 F.Supp. at 194.

The Areeda and Tumer test has two primary rules for

predatory pricing claims: (1) a price at or above the defendant’s

average variable cost !9 is conclusively deemed lawful and (2) a

price below the defendant’s average variable cost is conclusively

deemed unlawful. Areeda & Tumer, Predatory Pricing and Related

Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev.

697, 733 (1975). Therefore, the Areeda and Turner test makes

10 The Areeda and Tumer test uses average variable cost, an accounting

concept, as a surrogate for marginal cost, an economic concept. For

definitions of variable cost and marginal cost, see P. Samuelson,

Economics 467-68 (10th ed. 1976).

evidence of a defendant’s subjective intent irrelevant; instead it relies

wholly upon a comparison between prices and average variable cost.

In /nternational Air, the plaintiff appealed a jury verdict for the

defendant, arguing that the district court erred in refusing to direct a

verdict in plaintiff's favor on its Robinson-Patman Act claim. 517

F.2d at 720. In arguing for judgment notwithstanding the jury

verdict, the plaintiff relied on evidence concerning defendant’s

subjective intent from defendant’s internal company memoranda and

related circumstantial evidence. /d. at 721-23. The Fifth Circuit

panel, however, said a court must apply objective evidence of

predatory pricing, based on defendant’s prices and costs, before it

could rule as a matter of law against the defendant. /d. at 723. The

court stated that

{iJn order to prevail as a matter of law,39 a plaintiff must at

least show that either (1) a competitor is charging a price below

his average variable cost in the competitive market or (2) the

competitor is charging a price below its short-run, profit-

maximizing price and barriers to entry are great enough to en-

able the discriminator to reap the benefits of predation before

new entry is possible.3!

Id. at 724.

In footnote 30 of /nternational Air, the Fifth Circuit panel

added this dicta:

Much of what we say here should be relevant to the

requisite elements of a prima facie Robinson-Patman case.

Indeed, in Utah Pie Co. v. Continental Baking Co., 386 U.S.

685, 696, n. 12, 702, n. 14, 87 S.Ct. 1326 [, 1333, n. 12,

1336, n. 14], 18 HEd2d 406 (1967) the Supreme Court

indicated that price below “cost” is perhaps, [sic] a necessary

element of a prima facie case. However, because the Court

repeatedly referred to “deteriorating price structure,” the

opinion may hold that it is not necessary to show a price below

marginal cost in order to make out a prima facie case. To the

extent that the opinion stands for the latter proposition, we

limit our discussion to the elements necessary to sustain a

motion for directed verdict.

Id. at n. 30. In determining the appropriate test, the district court

extended the dicta “should be relevant to the prima facie elements” as

used in footmote 30 of /nternational Air and followed new Fifth

Circuit cases that have interpreted /nternational Air as giving the

elements of a plaintiff's prima facie case. See Adjusters Replace-A -

Car, Inc. v. Agency Rent-A Car, Inc., 735 F.2d 884 (Sth

Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83

L.Ed.2d 924 (1985); Bayou Bottling, Inc. v. Dr. Pepper Co., 725

F.2d 300 (Sth Cir.), cert. denied, 469 U.S. 833, 105 S.Ct. 123, 83

L.Ed.2d 65 (1984).

[6] Accordingly, the district court applied the /nternational Air

test to defendant’s motion for summary judgment. First, the district

court found that the propane market had no significant barriers to

entry.!! Therefore, the district court did not apply the second part of

the test—the “gloss”—from /nternational Air. Then, the district

court found that the plaintiff did not produce any evidence that the

defendant sold propane below its average variable cost, !? ignoring

'! The district court apparently focused on the lack of trade secrets, patents,

and licenses in finding that there are no substantial barriers to entry in this

market. Other factors, such as large capital outlays required to start a new

business, the existence already of excess capacity by existing sellers, the

price inelasticity of the market (i.e., consumers do not consume much more

if the price goes down or much less if the price goes up), and the

difficulties buyers may have in changing suppliers are also relevant to this

question. See Oahu Gas Service, Inc. v. Pacific Resources, Inc., 938 F.2d

360, 366-67 (9th Cir.1988) (upholding jury finding that local propane

market had hish barriers to entry).

'2 McGahee brought to the district court's attention, several times, sales it

contended were below average variable cost as average variable cost was

computed by Northern Propane’s expert. See supra note 5. Moreover, the

district court expressed doubts about the allocation of variable and fixed

costs by Northern Propane’s expense, but made a factual finding

nonetheless. McGahee, 658 F.Supp. at 196 n. 11. As this court has

reiterated:

[T]he district court must not resolve factual disputes by

weighing conflicting evidence, see Warrior Tombigbee

Transportation Company v. M/V NAN FUNG, 695 F.2d 1294.

1298 (11th Cir.1983), since it is the province of the jury to

assess the probative value of the evidence, see Odum v.

Celotex Corp., 764 F.2d 1486, 1488 (11th Cir.1985). The

——

10a

any evidence of defendant’s subjective intent. McGahee, 658

F.Supp. at 192 (“the Court cannot and need not divine the intent

behind defendant’s pricing policy’’). Following Areeda and Tumer’s

proposed test, the district court concluded that “[t}hus, there is no

issue for trial under /nternational Air.” Id. at 196.

The Areeda and Tumer test is like the Venus de Milo: it is

much admired and of and often discussed, !> but rarely embraced. !4

Perhaps this reluctance to embrace is due to the substance from

which it is formed. The Areeda and Turner test is carved from

economic assumptions, not from antitrust statutes and judicial

precedents. Perhaps this reluctance is due to attacks upon it.!5 The

district court must not “assess{ | the probative value of any

evidence presented to it, for this would be an unwarranted

extension of the summary judgment device.” Gauck v.

Meleski, 346 F.2d 433, 436 (Sth Cir.1965).

Lane v. Celotex Corp., 782 F.2d 1526. 1528 (11th Cir.1986); Tippens v.

Celotex Corp., 805 F.2d 949, 953 (llth Cir.1986).

13 See Liebler, Whither Predatory Pricing? From Areeda and Turner to

Matsushita, 61 Notre Dame L.Rev. 1052 (1986) (discussing the academic

literature and summarizing 55 predatory pricing cases since Areeda and

Turner’s 1975 article).

'4 By embraced, we mean adopted essentially as offered by Areeda and

Turner. Arguably, both the Second and Fifth Circuits have embraced the

Areeda and Tumer test. Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car,

Inc., 735 F.2d 884 (Sth Cir.1984), cert. denied, 469 U.S. 1160, 105 S.Ci.

910, 83 L.Ed.2d 924 (1985); Northeastern Telephone Co. v. AT & T, 651

F.2d 76 (2d Cir.1981), cert denied, 455 U.S. 943, 102 S.Ct. 1438, 71

L.Ed.2d 654 (1982). The Fifth Circuit, however, carves an exception from

the Areeda and Turner test for markets with high entry barriers. Adjusters

Replace-A-Car, 735 F.2d at 891. For the various positions of our sister

circuits, see infra nn. 38-44 & accompanying text; 3 Von Kalinowski,

Antitrust Laws & Trade Regulation § 10.03151 & Table 10.1 (1988).

‘3 For a lengthy list of academic articles criticizing the Areeda and Turner

test, see E. Kinter, 2 Federal Antitrust Law § 13.3, 1988 Supplement to

Vol. II, n. 102¢ (1980).

lla

Areeda and Tumer test has been criticized for being impractical, ! 6

for using static short-run analysis,!” and for being too permissive of

predatory activity; !8 these J /iticisms break any notion that econo-

mists !9 agree that the Areeda and Tumer test is best.20 We, like our

sister Circuits other than the Second Circuit and the Fifth Circuit, our

Siamese twin, decline to embrace the Areeda and Tumer test.

B. Our Quest For a Test For Predatory Pricing.

[7] The case at bar presents an issue of first impression for the

Eleventh Circuit.2! What is the appropriate test for predatory pricing

16 A key problem in any application of economics to litigation is that the

economic definitions of cost have no counterparts in business accounting.

Carstensen, Predatory Pricing in the Courts: Reflection on Two Decisions,

61 Notre Dame L.Rev. 928, 945 & n. 62 (1986). Areeda and Turner have

responded to this criticism by redefining average variable cost to include

costs an accountant would consider fixed. 3 P. Areeda & D. Tumer, Antitrust

Law 4 715Sc, at 172-74, 176 (1978).

'7 E.g., Williamson, Predatory Pricing: A Strategic and Welfare Analysis,

87 Yale L.J. 284 (1977). Areeda and Turner's redefinition of average

variable cost also blunts this criticism. See supra n. 16.

18 E.g. R. Posner, Antitrust Law: An Economic Perspective 191-93 (1976);

Greer, A Critique of Areeda and Turner's Standard for Predatory Practices, 24

Antitrust Bull. 233 (1979).

19 As a social science built on assumptions and statistics, economics is

subject to the disparagement attributed by Mark Twain in his Autobiog-

raphy to B. Disraeli: “There are three kinds of lies: lies, damned lies, and

Statistics.”

20 For a summary of various alternative tests, see Calvani & Lynch,

“redatory Pricing Under the Robinson-Patman and Sherman Acts: An

Introduction, 51 Antitrust L.J. 375 (1983).

21 The former Fifth Circuit panels in /nternational Air Industries v.

American Excelsior Co., 517 F.2d 714, 724 n. 30 (Sth Cir.1975), cert

denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976), and in

Malcolm v. Marathon Oil Co., 642 F.2d 845, 854 n. 17 (Sth Cir. Unit B),

cert. denied, 454 U.S. 1125, 302 S.Ct. 975, 71 L.Ed.2d 113 (1981)

recognized that at that time the Fifth Circuit, as well as the Supreme Court,

had not established a definitive test for examining a plaintiff's prima facie

case when a defendant moves for summary judgment. The district court

below also recognized that /nternational Air did not establish the test that

the Eleventh Circuit must use in evaluating a defendant's motion for

summary judgment in an antitrust case based on predatory pricing.

McGahee, 658 F.Supp. at 192 n. 5. But see Adjusters Replace-A-Car, Inc.

12a

when an antitrust defendant moves for summary judgment or for a

directed verdict? We begin our quest for a test at sources other than

the thought provoking contributions of academics. We tum first to

the antitrust statutes and judicial precedent. Based on these sources,

we hold that when an antitrust defendant moves for judgment as a

matter of law, the test for predatory pricing must consider subjective

evidence and should use average total as the cost 22 above which no

inference of predatory intent can be made.

1. The Antitrust Statutes and Their Legislative History

[8-10] Under 15 U.S.C. § 15, a private plaintiff such as

McGahee may bring a civil action to recover threefold for damages

for a violation of the substantive antitrust provisions. McGahee has

alleged a Sherman Act claim and a Robinson-Patman Act claim.

Predatory pricing is relevant to McGahee’s claims because it is

circumstantial evidence. In the Sherman Act claim, predatory pricing

would be used to infer the intent necessary for an attempt to mo-

nopolize.?3 In the Robinson-Patman Act claim, proof of predatory

pricing would be used to infer injury to competition.24 On one

v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890 (Sth Cir.1984), cert.

denied, 469 U.S. 1160, 105 S.Ct. 910, 83 L.Ed.2d 924 (1985) (attempting

to harmonize /nternational Air and Malcolm with Bayou Bottling, Inc. v.

Dr. Pepper Co., 725 F.2d 300 (Sth Cir.), cert. denied, 469 U.S. 833, 105

S.Ct. 123, 83 L.Ed.2d 651 (1984)).

22 Average total cost is the sum of average variable cost and average fixed

cost. P. Samuelson, Economics 469 (10th ed. 1976).

23 A distinction between a monopolization claim and an attempt to

monopolize claim is that proof of specific intent is required for attempt

claims. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585,

602, 105 S.Ct. 2847, 2857, 86 L.Ed.2d 467 (1985); Sulmeyer v. Coca

Cola Co., 515 F.2d 835, 850-51 (Sth Cir. 1975), cert. denied, 424 U.S.

934, 96 S.Ct. 1148, 47 L.Ed.2d 343 (1976). By definition, an “attempt to

commit a crime, which is what a § 2 violation is, requires proof of (1) an

intent to commit the crime, (2) an overt act toward its commission, (3)

failure of consummation, and (4) the apparent possibility of commission.

Black’s Law Dictionary 116 (Sth ed. 1979).

24 Actually, in a Robinson-Patman Act claim, a double inference is made.

An inference is made that a defendant who lowered prices to a predatory

level intended to injure competition. From this inference of defendant's

intent, a second inference, that the defendant did indeed injure competition,

13a

hand, over one hundred years ago, Congress could not have

foreseen the development of antitrust law in general, much less have

foreseen the present debate over the appropriate test for predatory

pricing. On the other hand, the statutes and their legislative histories

reveal Congress’s intent, the linchpin in interpreting a statute, as to

what conduct the antitrust statutes prohibit.

(11) In relevant part, the Sherman Act provides that “fe}very

person who shall monopolize, or attempt to monopolize, . . . any

part of the trade or commerce among the several States . . . shall be

deemed guilty of a felony.” 15 U.S.C. § 2.25 The Congressional

debates® in 1890 indicate that Congress believed that under the

common law of the individual states, “these combinations [we]re

illegal without statute.” 21 Cong.Rec. 2458 (1890) (Senator Teller).

The public outcry over monopolies and the inadequacy of the states’

common law necessitated federal legislation regulating monopolies

involved in interstate commerce.?’ Accordingly, Congress drafted

is then made. Pacific Engineering & Production Co. v. Kerr-McGee Corp.

551 F.2d 790, 798 (10th Cir.), cert. denied, 434 U.S. 879, 98 S.Ct. 234.

54 L.Ed.2d 160 (1977).

25 As amended December 21, 1974, Pub.L. 93-528 § 3, 88 Stat. 1708. For

the legislative history of this amendment, see H.R.Rep. No. 1463, 93d

Cong., 2d Sess. 1, reprinted in 1974 U.S.Code Cong. & Admin.News 6535,

6540.

26 “Although debates may not be used as a means for interpreting a statute

(United States v. Trans-Missouri Freight Association, 166 U.S. [290] 318,

{17 S.Ct. $40, 550, 41 L.Ed. 1007 (1897)] and cases cited), that rule in the

nature of things is not violated by resorting to debates as a means of

ascertaining the environment at the time of the enactment of a particular

law, that is, the history of the period when it was adopted.” Standard Oil

Co. v. United States, 221 U.S. 1, 50, 31 S.Ct. 502, 512, 55 L.Ed. 619

(1910).

27 The debates in 1890 show “that the main cause whicW led to the

legislation was the thought that it was required by the economic conditions

of the times, that is, the vast accumulation of wealth in the hands of

corporations and individuals, . . . and the widespread impression that their

power had been and would be exerted to oppress individuals and injure the

public generally.” Standard Oil Co. v. United States, 221 U.S. 1, 50, 31

S.Ct. 502, 512, 55 L.Ed. 619 (1910). As Justice Harlan expressed it, “the

conviction was universal that the country was in real danger from another

kind of slavery sought to be fastened on the American people, namely, the

l4a

and enacted a broad, general statute that borrowed from the common

law. 21 Cong. Rec. 3152 (Senator Hoar); 21 Cong.Rec. 3148

(Senator Edmonds); 21 Cong.Rec. 2456 (Senator Sherman);

Standard Oil Co. v. United States, 221 U.S. 1, 51, 31 S.Ct. 502,

512, 55 L.Ed. 619 (1910); see generally Letwin, Congress and the

Sherman Antitrust Law: 1887-1890, 23 U.Chi.L.Rev. 221, 240-47

(1956). Under the common law,

prohibitions were placed upon the power of individuals to deal

under such circumstances and conditions as, according to the

conception of the times, created a presumption that the dealings

were not simply the honest exertion of one’s right to contract

for his own benefit unaccompanied by a wrongful motive to

injure others, but were the consequence of a contract or course

of dealing of such a character as to give rise to the presumption

of an intent to injure others through the means, for instance, of

a monopolistic increase of prices.

Standard Oil Co., 221 U.S. at 52, 31 S.Ct. at 512 (summarizing the

common law related to monopolies); see also id. at 54 & 58, 31

S.Ct. at 513 & 515 (same). Congress made § 2 of the statute even

broader than the common law. The common law prohibited acts that

produced a monopoly, which then meant an undue restraint of trade;

§ 2 of the statute also prohibited any attempt to monopolize, even

though the acts by which the attempt was made did not themselves

produce a monopoly. Id. at 61, 31 S.Ct. at516.

In passing antitrust legislation, Congress’s purpose was not

only an economic one, but was also a political one, a purpose of

curbing the power some individuals and corporations had over the

economy. See Letwin, 23 U.Chi.L.Rev. at 247-255; Pitofsky, The

Political Content of Antitrust, 127 U.Pa.L.Rev. 1051, 1052 (1979);

Sullivan, Economics and More Humanistic Disciplines: What are the

Sources of Wisdom for Antitrust?, 125 U.Pa.L.Rev. 1214, 1222-

23 (1977). As Senator Sherman himself explained, “{i]f we will not

endure a king as a political power we should not endure a king over

slavery that would result from aggregations of capital in the hands of a few

individuals and corporations .. . .” /d. at 83, 31 S.Ct. at 525 (Harlan, J.,

concurring and dissenting).

1Sa

the production, transportation, and sale of any of the necessaries of

life.” 21 Cong.Rec. 2457 (1890).

Enacted in 1936, the Robinson-Patman Act strengthened the

1914 Clayton Act’s prohibition of price discrimination. $.Rep. No.

1502 74th Cong., 2d Sess. 3 (1936); H.R. No. 2287, 74th Cong.,

2d Sess. 3, 16 (1936); FTC v. Anheuser-Busch, Inc., 363 U.S.

536, 545, 80 S.Ct. 1267, 1272, 4 L.Ed.2d 1385 (1960). Section 2

of the Clayton Act, as originally enacted in 1914, provided as

follows:

That it shall be unlawful for any person . . . to discriminate in

price between different purchasers of commodities, . . . where

the effect of such discrimination may be to substantially lessen

competition or tend to create a monopoly in any line of com-

merce: Provided, That nothing herein contained shall prevent

. . discrimination in price in the same or different

communities made in good faith to meet competition.

Clayton Act, ch. 323, § 2, 38 Stat. 730 (1914) (current version at

15 U.S.C. § 13 (1982)). The House Report stated that § 2 of the

Clayton Act was

expressly designed with the view of correcting and forbidding

a common and widespread unfair trade practice where by

Certain great corporations and also certain smaller concerns

which seek to secure a monopoly in trade and commerce by

aping the methods of the great corporations, have heretofore

endeavored to destroy competition and render unprofitable the

business of competitors by selling their goods, wares, and

merchandise at a less price in the particular communities where

their rivals are engaged in business than at other places

throughout the country . . . In the past it has been a most

common practice of great and powerful combinations engaged

in commerce—notably the Standard Oil Co., and the American

Tobacco Co., and others of less notoriety, but of great influ-

ence—to lower prices of their commodities, oftentimes below

the cost of production in certain communities and sections

where they had competition, with the intent to destroy and

make unprofitable the business of their competitors, and with

the ultimate purpose in view of thereby acquiring a monopoly

16a

in the particular locality or section in which the discriminating

price is made.

H.R.Rep. No. 2287, 74th Cong., 2d Sess. 8 (1914). In addition to

the reasons for prohibiting price discrimination given by the House

Report, the Senate Report added:

Every concem that engages in this evil practice must of neces -

sity recoup its losses in the particular communities where their

commodities are sold below cost or without a fair profit by

raising the price of the same class of commodities above their

fair market value in other sections or communities.

S.Rep, No. 698, 63d Cong., 2d Sess. 3 (1914). This legislative

history makes plain that § 2 of the Clayton Act “was bom of a desire

by Congress to curb the use by financially powerful corporations of

localized price-cutting tactics which had gravely impaired the

competitive position of other sellers.” FTC v. Anheuser-Busch,

Inc., 363 U.S. 536, 543, 80 S.Ct. 1267, 1271, 4 L.Ed.2d 1385

(1959).

In relevant part, the Clayton Act today, as amended by the

Robinson-Patman Act, provides that

{i]t shall he unlawful for any person .. . to discriminate be-

tween different purchasers of commodities of like grade and

quality . . . where the effect of such discrimination may be

substantially to lessen competition or tend to create a monopoly

in any line of commerce, or to injure, desiroy or prevent

competition . . . : Provided, That nothing herein contained

shall prevent differentials which make only due allowances in

the cost of manufacture, sale, or delivery resulting from the

different methods or quantities in which such commodities are

to be sold or delivered.

15 U.S.C. § 13(a). The 1936 Robinson-Patman amendments to the

Clayton Act, among other things, strengthened the prohibitions

against price discrimination by changing the exceptions carved from

the general rule (the exceptions are the parts of the statute following

“Provided ”’). As the Senate Judiciary Committee explained,

{t]he weakness of present section 2 lies principally in the fact

that: (1) It places no limit upon differentials permissible on

———eS

17a

account of differences in quantity; and (2) it permits discrimi-

nations tO Meet competition, and thus tends to substitute the

remedies of retaliation for those of law, with destructive conse-

quences to the central object of the bill. Liberty to meet com-

petition which can be met only by price cuts at the expense of

customers elsewhere, is in its unmasked effect the liberty to

destroy competition by selling locally below cost, a weapon

progressively the more destructive in the hands of the more

powerful, and most deadly to the competitor of limited re-

sources, whatever his merit and efficiency. While the bill as

now reported closes these dangerous loopholes, it leaves the

fields of competition free and open to the most efficient, and

thus in fact protects them the more securely against inundations

of mere power and size.

S.Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936).

{12} The Senate Report also explained that the amended

statute's Cost exception to the general rule

limits the differences in cost which may be honored in support

of price differentials, to those marginal differences demonstra-

ble as between the particular customers concemed in the dis -

crimination. It is designed, among other things, to preclude the

grant of a discrimination to a particular customer equal to the

whole saving in cost resulting to the seller's entire volume of

business as augmented by that customer's patronage; to pre -

clude also differentials based on allocated or imputed, as dis-

tinguished from actual, differences in cost, representing partic-

ular facilities or departments which the favored customer may

not have immediately utilized, but with which the seller cannot

dispense in the general conduct of his business.

Id. at 5-6.28 Translated into the language of economists such as

Areeda and Tumer, this part of the legislative history makes clear

28 The version of this provision proposed by the Senate Judiciary

Committee in 1936 differs slightly from the enacted statute in effect today,

but the differences are immaterial to the present discussion. In addition,

Congress illustrated this principle with an example based on injury to a

buyer, but the phrase being explained applies equally to a seller's

Robinson-Patman Act claim.

18a

that Congress intended to limit the cost exception to differences in

expenses particular to a customer, such as transportation savings,

but did not intend to include within the exception sales above

average variable cost even by a seller with excess capacity, who

could produce additional goods without increasing fixed costs. See

also H.R.Rep. No. 2287, 74th Cong., 2d Sess. 17 (giving other

examples of economies of scale that result in lower costs and could

lead to lower prices without violating the Act).

{13} In explaining the practices to be prohibited by the Act, the

House Judiciary Committee in the House Conference Report

expressed a similar concern with limiting differences to those

specific to a particular customer:

Discriminations in excess of sound economic differences be-

tween the customers concemed, in the treatment accorded

them, involve generally an element of loss, whether only of the

necessary minimum of profits or of actual costs, that must be

recouped from the business of customers not granted them.

Id. at 8; see also S.Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936)

(using similar language). Therefore, difference in price, even if the

lower price is only too low to provide the seller any profit, are

prohibited unless the difference is justified by differences between

the customers.

In summary, Congress's exact intent when enacting the

antitrust statutes as to what conduct established an antitrust violation

is beyond the reach of human knowledge, but the statutes, their

legislative histories, and common sense indicate that Congress

intended for subjective evidence of a defendant's intent to be

relevant. Predatory pricing provides only objective, circumstantial

evidence of predatory intent. In determining how Congress intended

proof to be made of antitrust violations, common sense suggests that

objective, circumstantial evidence of prices and costs and direct and

circumstantial evidence of subjective intent would both be impor-

tant.29 Cf. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S.

29 When considering the role Congress foresaw for objective evidence, i...

economics, in proving an antitrust violation, one must remember Congress

did not have the advantage of the plethora of academic writings now

ene deel

19a

752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) (direct or circumstan-

tial evidence may prove antitrust conspiracy). Furthermore, the

Sherman Act being a criminal statute codifying and expanding the

common law, and proof of its violation requiring a showing of

specific intent, in addition to the legislative background of public

outcry in 1890 against monopolies, Congressional concem with the

economic and political power of large combinations and with

restraining harmful but not all competition, and the distinction

discussed in 1936 between differences in prices due to differences in

costs related to a particular customer and to differences in price due

to excess Capacity, all make ignoring a de/endant's subjective intent

unsupportable.

The antitrust statutes and their legislative histories also indicate

that Congress intended average total cost to be the objective standard

used. The predatory pricing test requires a cost standard below

which it may be inferred that a defendant violated the antitrust

statutes. The Sherman Act and its legislative history do not offer

guidance as to what measure of cost is relevant, except indicating

that, as a codification of the common law, Sherman Act violations

could be proven in part through objective evidence. The legislative

history of both the Clayton Act and the Robinson-Patman Act, on

the other hand, both offer specific guidance. The Robinson-Patman

Act itself uses the word “cost,” which should be interpreted as

meaning all costs.29 Moreover, the legislative history specifically

explains that a seller cannot sell at average variable cost, without

covering any fixed costs, even if he has excess capacity.

available on the subject. The development of economic theory as applied to

antitrust law is not to be ignored—in fact, courts should use it vigorously

in furthering the Congressional intent of using objective evidence of prices

and costs. On the other hand, an original Congressional intent of using

evidence of a defendant's subjective intent is not to be ignored today just

because the science (art?) of economics has made great strides since

Original passage of the statutes. Economics provides the means for

evaluating the facts, not the elements of an antitrust violation.

30 “(Llegislation when not expressed in technical terms is addressed to the

common run of men and is therefore to be understood according to the

sense of the thing, as the ordinary man has a right to rely on ordinary

words addressed to him.” Addison v Holly Hill Fruit Products, Inc., 322

U.S. 607, 618, 64 S.Ct. 1215, 1221, 88 L.Ed. 1488 (1944)

20a

Furthermore, the Robinson-Patman Act’s legislative history refers to

“the necessary minimum of profits or of actual costs;” the Clayton

Act’s legislative history refers to “below cost or without a fair

profit.” In economic terms, the cost of capital, which can be

understood as the expected profit necessary to induce investors to

invest, are also costs.3! Including the cost of capital, expressed by

Congress as “a fair profit” and as “the necessary minimum profit,”

indicates Congress intended all costs to be part of the standard.

_ 2. Supreme Court Precedent

Three recent Supreme Court cases shed light on interpreting

these antitrust statutes. Although these cases do not directly address

the issues in this case, they suggest the proper definition of cost and

the role of subjective evidence and costs in summary procedure in

antitrust Cases.

In Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104,

107 S.Ct. 484, 93 L.Ed.2d 427 (1986), the Supreme Court held

that a private plaintiff seeking injunctive relief under 15 U.S.C. § 16

must show a threat of antitrust injury, which means threat of an

injury for which a plaintiff could eventually claim treble damages. In

Cargill, the Court reversed the Tenth Circuit because the plaintiff did

not show at the trial more than a threat of loss or damage due merely

to increased competition and neither raised nor proved any claim of

predatory pricing before the district court. In discussing predatory

pricing, the Court first defined the term: “Predatory pricing may be

defined as pricing below an appropriate measure of cost for the

purpose of eliminating competition in the short run and reducing

competition in the long run.” /d. 107 S.Ct. at 493. The Court

recognized the debate among the Circuit Courts of Appeal and

among academics conceming ‘“‘measure of cost’ but did not indicate

31 “A fair profit” or “the necessary minimum of profits” may reflect an

implicit or explicit cost, depending on how a company is capitalized. See

E. Mansfield, Microeconomics: Theory and Application 18] (4th ed. 1982)

(defining implicit and explicit costs). Regardless of whether it reflects an

implicit or explicit cost, it still should be considered a cost of production

under the alternative cost doctrine (also known as the opportunity cost

doctrine). See id. at 179 (defining and discussing the alternative cost doc-

trine).

2la

what “measure of cost” or “cost” was appropriate. /d. at n. 12. The

Court held that for the purposes of deciding Cargill, a definition of

predatory pricing consistent with a definition of pricing below cost

was sufficient,

because only below-cost pricing would threaten to drive

[plaintiff] from the market, see n. 9, supra, and because

(plaintiff] made no allegation that {defendant} would act with

predatory intent. Thus, in this case, as in Matsushita Electric

Indus. Co. v. Zenith Radio Corp., supra, we find it

unnecessary to “consider whether recovery should ever be

available . . . when the pricing in question is above some

measure of incremental cost.” [sic] 475 U.S. at 585, n. 9, 106

S.Ct. at 1355, n. 9, or whether above-cost pricing coupled

with predatory intent is ever sufficient to state a claim of

predation. See n. 11, supra.

Id. The Court concluded that the plaintiff did not prove any claim of

predatory pricing because the evidence “consist{ed] only of four

passing references, three in deposition testimony, to the possibility

that (defendant’s] prices might dip below costs.” /d. at 494. The

Court also commented that other factors, such as the defendant’s

market share capacity and the barriers to entry after competitors have

been driven from the market, must also be considered, because these

factors indicate whether an illegal predator is capable of successfully

pursuing a predatory scheme. /d. at n. 15. The Court wamed that

“{c]ourts should not find allegations of predatory pricing credible

when the alleged predator is incapable of successfully pursuing a

predatory scheme. See infra, n. 17.” Id. 32

In Matsushita Electric Industrial Co. v. Zenith Radio

Corporation, 475 U.S. 574, 588, 106 S.Ct. 1348, 1357 (1986), the

Supreme Court held that a plaintiff seeking damages for a violation

of § 1 of the Sherman Act must present evidence “that tends to

exclude the possibility” that the alleged conspirators acted

independently. As in Cargill, the Court in Matsushita recognized the

32 The note referred to by the Supreme Court discusses Matsushita and

emphasizes the care a court must use in evaluating a predatory pricing

claim.

22a

debate concerning what “cost” is relevant in a predatory pricing

Claim, but did not take sides in the debate. 106 S.Ct. at 1355 nn. 8

& 9. In Matsushita, rather than supporting a theory of conspiratorial

predatory pricing injuring the plaintiffs, the evidence of conspiracy

indicated a conspiracy that “actually tended to benefit” plaintiffs. /d.

at 1356. The Court stated that “if the factual context renders [plain-

tiffs] claim implausible—if the claim is one that simply makes no

economic sense—(plaintiffs} must come forward with more

persuasive evidence to support their claim than would otherwise be

necessary.” /d. The Court noted that in single firm cases, much less

conspiracy cases,

the likelihood that predatory pricing will benefit the predator is

“inherently uncertain: the short run loss [from pricing below

cost] is definite, but the long-run gain depends on successfuily

neutralizing the competition. . . . [and] on maintaining

monopoly power for long enough both to recoup the

predator’s losses and to harvest some additional gain.” 475

U.S. at 588, 106 S.Ct. at 1357.

Cargill, 107 S.Ct. at 495 n. 17 (quoting Matsushita). Accordingly,

the Court rejected the Court of Appeals’ theory of conspiracy as

making no practical sense.

In Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 87

S.Ct. 1326, 18 L.Ed.2d 406 (1967), the evidence at the trial below

showed that defendants, three large national companies, for over

three years sold frozen pies in the Salt Lake City marketing area at

prices below their cost and below their prices in other markets that

were Closer to their plants. The Court held this evidence was

sufficient to support a finding of injury to competition despite the

increasing sales volume of plaintiff, a local company, and the fact

that plaintiff continued to make a profit. /d. at 702-03, 87 S.Ct. at

1336. The Court’s opinion dealt with the conduct of each defendant

separately, concluding that “there was some evidence of predatory

intent with respect to each of these [defendants].” Utah Pie, 386

U.S. at 702, 87 S.Ct. at 1336. The Court said the first defendant

“suffered substantial losses on its frozen pie sales,” id. at 697, 87

S.Ct. at 1333, the second defendant had a price in Salt Lake City

23a

that “was less than its direct cost plus an allocation for overhead,”33

id. at 698, 87 S.Ct. at 1334, and the third defendant had prices that

were “admittedly well below its costs,” id. at 701, 87 S.Ct. at 1335.

In addition, as to the first defendant, the Court held that the jury

could rely on statements by the first defendant’s management that

plaintiff was “an unfavorable factor’ that “d{ujg holes in our

operation” in concluding that the first defendant’s discriminatory

pricing was aimed at injuring plaintiff. /d. at 696-97, 87 S.Ct. at

1332-33. Relying on this evidence to show predatory intent, the

Court then relied on this predatory intent to show injury to

competition. /d. See generally E. Kinter & J. Bauer, 3 Federal

Antitrust Law § 22.8 at 285 & nn. 165 & 166 (1983).

In summary, the recent Supreme Court cases are consistent

with the conclusions drawn from the survey above of the antitrust

statutes and their legislative histories. Utah Pie bears most directly

on the primary issues in the case at bar—whether subjective

evidence is to be used and what cost standard is to be used. In Utah

Pie, the Court used evidence of subjective intent in concluding a

defendant had the requisite intent. The Court did not decide what

cost standard should be used in the predatory pricing test, but held

that the relevant cost could be “direct cost plus an allocation for over-

head,” which is inconsistent with Areeda and Tumer’s proposed av-

erage variable cost test. Matsushita and Cargill recognize the debate

over the appropriate measure of cost, but in both cases the Supreme

Court declined to define an appropriate standard. In Cargill, the

Court considered objective evidence other than prices and costs,

which does not necessarily support the use of subjective evidence,

but is inconsistent with Areeda and Tumer’s predatory pricing test

used by the district court, which relies solely on objective evidence

of prices and costs.

C. The Eleventh Circuit Test for Predatory Pricing.

Determining that subjective evidence and average total cost are

relevant does not end the matter. The Eleventh Circuit test for

33 Overhead is a fixed cost. P. Samuelson, Economics 466 (10th ed. 1976).

Therefore, in Utah Pie the Supreme Court understood cost to be more than

average variable cost.

ain

24a

predatory pricing must still be spelled out. As given below, the

Eleventh Circuit test borrows from the tests used by a majority of

Our sister Circuits and relies on the cases cited in the notes as in

accord with our test for an explanation of the test’s origins.

[14] If a defendant’s prices were above average total cost then

there is no predatory pricing and thus no circumstantial evidence of

predatory intent.>4 Average total cost means the average of the total

economic cost, which includes the necessary minimum profit.?>

Average total cost should theoretically be measured by long run

marginal cost, but in appropriate cases a surrogate for total cost may

be used.76

34 Accord Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.1987); Arthur S.

Langenderfer, Inc. v. S. E. Johnson Co., 729 F.2d 1050 (6th Cir.), cert.

denied, 469 U.S. 1036, 105 S.Ci. 510, 511, 83 L.Ed.2d 401 (1984); Barry

Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227 (ist Cir.1983); MC/

Communications v. AT & T, 708 F.2d 1081 (7th Cir.), cert. denied, 464

U.S. 891, 104 S.Ct. 234, 78 L.Ed.2d 226 (1983); contra Transamerica

Computer Co. v. IBM Corp., 698 F.2d 1377 (9th Cir.) (allowing a plaintiff

to prove by clear and convincing evidence that a defendant's prices above

total cost were predatory), cert. denied, 464 U.S. 955, 104 S.Ct. 370, 78

L.Ed.2d 329 (1983).

35 The amount of profit that is a part of total economic cost is an issue of

fact requiring expert testimony particular to the market involved.

36 Two cases have turned, in part at least, on the choice between long run

marginal cost and fully distributed cost as the appropriate measure of total

cost. Southern Pacific Communications Co. v. AT & T, 740 F.2d 980,

1005-07 (D.C.Cir. 1984) (expressing doubt about the usefulness of fully

distributed costs as a measure of costs in predatory pricing cases), cert.

denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985); MC/

Communications v. AT & T, 708 F.2d 1081, 1114-123 (7th Cir.) (holding

that long run marginal cost, not fully distributed cost, is the appropriate

measure of total cost), cert. denied, 464 U.S. 891, 104 S.Ct. 234, 78

L.Ed.2d 226 (1983); see also Northeastern Telephone Co. v. AT & T, 651

F.2d 76, 86-91 (2d Cir.1981) (holding short run marginal cost and its

surrogate average variable cost, not fully distributed cost, is the appropriate

measure of cost), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71 L.Ed.2d

654 (1982). Long run marginal cost is an economic concept, which makes

it preferable, while fully distributed cost is a specialized accounting con-

cept. The relationship between fully distributed cost and long run marginal

cost is similar to the relationship between average variable cost and short

run marginal cost.

2Sa

(15, 16] If a defendant’s prices were below average total cost

and above short run marginal cost, then there is circumstantial

evidence of predatory intent. An inference of predatory intent,

however, may not rest solely on prices of this nature. To withstand

judgment as a matter of law, a plaintiff must have other evidence,

either objective or subjective, of predatory intent.37 See Matsushita

Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106

S.Ct. 1348, 1357, 89 L.Ed.2d 538 (1986) (antitrust plaintiff must

present evidence that tends to exclude the possibility that defendant’s

conduct was as consistent with permissible competition as with

illegal conduct). The closer a defendant’s price is to average total

cost, the stronger this other evidence must be for the plaintiff still to

avoid summary judgment. See Celotex Corp. v. Catrett, 477 U.S.

317, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (“{t]he moving

party is ‘entitled to judgment as a matter of law’ [if] the nonmoving

party has failed to make a sufficient showing on an essential element

of her case with respect to which she has the burden of proof”). As

57 Accord Instructional Systems Development Corp. v. Aetna Casualty &

Surety Co., 817 F.2d 639 (10th Cir.1987); Henry v. Chloride, 809 F.2d

1334 (8th Cir.1987); Arthur S. Langenderfer, Inc. v. S.E. Johnson Co..,

729 F.2d 1050 (6th Cir.), cert. denied, 469 U.S. 1036, 105 S.Ct. 510, 83

L.Ed.2d 401 (1984); William Inglis & Sons Baking Co. v. ITT Continental

Baking Co., 668 F.2d 1014 (9th Cir.1981), cert. denied, 459 U.S. 825,

103 S.Ct. 57, 74 L.Ed.2d 61 (1982); Chillicothe Sand & Gravel Co. v.

Martin Marietta Corp., 615 F.2d 427, 432 (7th Cir.1980); R. Posner, Anti-

trust Law, An Economic Perspective 188-193 (1976); contra Adjusters

Replace-A-Car, Inc. v. Agency Rent-Car, Inc., 735 F.2d 884 (Sth Cir.

1984) (in the general case, prices above average variable cost conclusively

presumed non-predatory), cert. denied, 469 U.S. 1160, 105 S.Ct. 910, 83

L.Ed.2d 924 (1985); Northeastern Telephone Co. v. AT& T, 651 F.2d 76

(2d Cir.1981) (same), cert. denied, 455 U.S. 943, 102 S.Ct. 1438, 71

L..Ed.2d 654 (1982).

The Ninth and Sixth Circuits’ cases above hold that prices above average

variable cost are “rebuttably presumed” to be nonpredatory. Because the

burden of proof on this issue is already on plaintiff, the effect is only to

require evidence in addition to prices above average variable cost before a

fact finder may infer predatory intent and to add verbiage that may confuse

a jury. Therefore, we do not use the same language as the Ninth and Sixth

Circuits, but the difference for those prices (below average total cost and

above short run marginal cost) is one of semantics and not of substance.

26a

suggested by Areeda and Tumer, average variable cost may usually

be used as a surrogate for short run marginal cost.38

[17, 18] Lf a defendant’s prices were below short run marginal

cost, then their circumstantial evidence is strong enough to create a

rebuttable presumption of predatory intent.>? See Matsushita, 106

S.Ct. at 1357 (antitrust plaintiff must present evidence that tends to

exclude the possibility that defendant’s conduct was as consistent

with permissible competition as with illegal conduct); Standard Oil

Co. v. United States, 221 U.S. 1, 52, 31 S.Ct. 502, 512, 55 L.Ed.

619 (1910) (summarizing the common law, from which the

Sherman Act borrowed, as recognizing presumptions created by

objective evidence); cf. Fed.R.Evid. 301 (presumptions in general

in civil actions). If a defendant’s prices were below short run

marginal cost and the other evidence, subjective or objective, is

sufficiently probative of defendant’s predatory intent, then as a

matter of law defendant has the predatory intent required to establish

the attempt to monopolize element of a Sherman Act claim and to

establish the injury to competition element of a Robinson-Patman

Act claim. /nternational Air Industries v. American Excelsior Co.,

517 F.2d 714, 723 (Sth Cir.1975), cert. denied, 424 U.S. 943, 96

S.Ct. 1411, 47 L.Ed.2d 349 (1976). Again, average variable cost

may be used as a surrogate for short run marginal cost.

38 When average variable cost is appropriate to use, as well as determining

what costs are variable, is an issue of fact requiring expert testimony.

39 Accord Henry v. Chloride, 809 F.2d 1334 (8th Cir.1987); Indian Coffee

Corp. v. Proctor & Gamble Co., 752 F.2d 891 (3d Cir), cert. denied, 474

U.S. 863, 106 S.Ct. 180, 88 L.Ed.2d 150 (1985); Arthur S. Langenderfer,

Inc. v. S.E. Johnson Co., 729 F.2d 1050 (6th Cir.1984); William Inglis &

Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014 (9th

Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 57, 74 L.Ed.2d 61 (1982);

but see Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d

884 (Sth Cir. 1984) (prices below average variable cost conclusively

establish plaintiff's prima facie case), cert. denied, 469 U.S. 1160, 105

S.Ct. 910, 83 L.Ed.2d 924 (1984); Northeastern Telephone Co. v. AT & T,

651 F.2d 76, 91 n. 24 (2d Cir.1981) (same), cert. denied, 455 U.S. 943,

102 S.Ct. 1438, 71 L.Ed.2d 654 (1982).

27a

IV. MCGAHEE’S SHERMAN ACT CLAIM

(19, 20] In McGahee’s Sherman Act claim, he must show that

Norther Propane intended to achieve a monopoly and that there

was a dangerous probability Northern Propane would succeed. In

granting summary judgment, the district court held that McGahee

could not prove predatory pricing, which is the theory McGahee

relies upon to establish the intent element.4° McGahee, 658 F.

Supp. at 192-96. Under the Eleventh Circuit test for predatory

pricing, McGahee has presented evidence from which a fact finder

could infer predatory intent. First, Northern Propane does not argue

that its prices were above average total cost. Second, McGahee

points to three items of evidence that are more than sufficient to

create a factual issue as to predatory intent for sales at prices below

average total cost and above average variable cost: (1) Northern

Propane’s investigation of McGahee’s financial position, (2)

Northern Propane’s new policy of rent-free tanks designed to take

advantage of McGahee’s weak financial position, and (3) Northem

Propane’s internal memorandum declaring “contribute to Floyd’s fi -

nancial problems” to be a goal for Northern Propane’s local office.

Third, McGahee has pointed to evidence that, on the record before

us, Could show that Norther Propane sold propane at prices below

its average variable cost.4! Therefore, McGahee has presented

evidence that creates a genuine issue of fact as to whether Northem

Propane had the intent necessary for an attempt to monopolize claim.

(21] The district court also altematively held that McGahee

cannot prove the second element of an attempted monopolization

claim. The court stated that it found no evidence that a predatory

pricing scheme had a dangerous probability of success, basing this

Statement on defendant’s inability to charge supracompetitive

*° We are not required in this case to decide what an antitrust plaintiff

relying on a theory other than predatory pricing must show to establish the

intent element of an attempt to monopolize claim.

*! Reducing the price to particular customers, as the evidence discussed

supra nn. 5 & 6 suggests Northern Propane did, is sufficient to create a jury

issue. C. E. Services, Inc. v. Control Data Corp., 759 F.2d 1241. 1247

(Sth Cir.), cert. denied, 474 U.S. 1037, 106 S.Ct. 604, 88 L.Ed.2d 583

(1985).

28a

prices,*? plaintiff's increasing market share,*> and the market's low

entry barriers.44 McGahee, 658 F.Supp. at 196-97. Although the

factors the district court discussed are relevant, proving a dangerous

probability of success in achieving a monopoly requires proof of the

defendant’s market power. H & B Equipment Co. v. International

Harvester Co., 577 F.2d 239, 242-43 (Sth Cir. 1978); Spectrofuge

Corp. v. Beckman Instruments, Inc., 575 F.2d 256, 266 (Sth

Cir.1978), cert. denied, 440 U.S. 939, 99 S.Ct. 1289, 59 L.Ed.2d

499 (1979); 3 Von Kalinowski, Anti-Trust Trade Law & Trade

Regulations § 9.01(2){a] (1988).

[22] When determining whether an issue of fact exists as to

whether defendant’s actions presented a dangerous probability of

defendant achieving a monopolist’s market power, a court examines

the relevant market and defendant’s market power before the attempt

to monopolize began. Walker Process Equipment, Inc. v. Food

Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347,

350, 15 L.Ed.2d 247 (1965) (dicta); Multiflex, Inc. v. Samuel

Moore & Co., 709 F.2d 980, 982 (Sth Cir. 1983), cert. denied, 465

U.S. 1100, 104 S.Ct. 1594, 80 L.Ed.2d 126 (1984); Volasco Prod-

ucts Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383, 390 (Sth

Cir.1962) (failure to determine defendant’s market share warranted

42 Although the record does not indicate supracompetitive prices in the

Camilla district, about 20 percent of Northern Propane’s districts had

“operating rates of return” of 18 percent or higher. Affidavit of Ronald E.

Ingram. Among other things, these high rates of return suggest that a retail

propane distributor can earn supracompetitive profits.

43 But see Multiflex, Inc. v. Samuel Moore & Co., 709 F.2d 980, 992-93

(Sth Cir.1983) (dangerous probability not negated by defendant’s market

share decrease from over 80 percent to 38 percent and plaintiff's market

share increase from zero percent to 60 percent), cert. denied 465 U.S. 1100,

104 S.Ct. 1594, 80 L.Ed.2d 126 (1984); cf. Utah Pie Co. v. Continental

Baking Co., 386 U.S. 685, 689, 87 S.Ct. 1326, 1329, 18 L.Ed.2d 406

(1967) (upholding jury verdict in Patman—Robinson case despite plaintiff's

steadily increasing sales volume).

44 See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 119-21 n.

15, 107 S.Ct. 484, 494 n. 15, 93 L.Ed.2d 427 (1986) (emphasizing impor-

tance of entry barriers in predatory pricing case); but see supra n. 11

(suggesting whether barriers to entry are high in this case is a question of

fact).

ers enna pee

29a

withdrawal of charge from jury), cert. denied, 372 U.S. 907, 83

S.Ct. 721, 9 L.Ed.2d 717 (1963); e.g., Quality Foods v. Latin

American Business Development Corp., 711 F.2d 989, 996 (Lith

Cir. 1983); see also Cargill, Inc. v. Monfort of Colorado, Inc., 479

U.S. 104, 119-21 n. 15, 107 S.Ct. 484, 494 n. 15, 93 L.Ed.2d

427 (1986) (emphasizing importance of market share in predatory

pricing case); but see Hunt-Wesson Foods, Inc. v. Ragu Foods,

Inc., 627 F.2d 919 (9th Cir.1980) (market power only a factor to

consider when determining whether defendant had the specific intent

to monopolize), cert. denied, 450 U.S. 921, 101 S.Ct. 1369, 67

L.Ed.2d 348 (1981).

[23, 24] Determining whether a defendant possesses sufficient

market power to be dangerously close to achieving a monopoly

requires analysis and proof of the same character, but not the same

quantum, as would be necessary to establish monopoly power for

an actual monopolization claim. See generally 3 Von Kalinowski:

Antitrust Laws & Trade Regulation § 9.01(2][a] (1988); L.

Sullivan, Antitrust 137 (1977). The best test from which market

power may be inferred is relative size, i.e., the percentage of market

share. United States v. Grinnell Corp., 384 U.S. 563, 571, 86

S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). The market share

necessary for a defendant to be capable of posing a threat of

achieving monopoly power depends on the type of factors

conceming Norther Propane and McGahee discussed by the district

court. McGahee, 658 F.Supp. at 196-97. Cf. United States v.

Columbia Steel Co., 334 U.S. 495, 528, 68 S.Ct. 1107, 1124, 92

L.Ed. 1533 (1948) (“the relative effect of percentage command of a

market varies with the setting in which that factor is placed’’) (actual

monopolization case); United States v. Empire Gas Corp., 537 F.2d

296, 305-07 (8th Cir.1976) (upholding finding of fact in nonjury

case that retail propane distributor with 50 percent market share did

not present dangerous probability of success), cert. denied, 429

U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d 572 (1977).

ities ————e

(25] In this case, it is “undisputed”? that Northern Propane

had sixty or sixty-five percent of the relevant market when the

alleged predatory pricing began. Without examining any factors to

determine what market share would be necessary for Northern

Propane’s alleged predatory pricing to present a dangerous

probability of success, we can say that a sixty or sixty-five percent

market share is a sufficiently large platform from which such a

scheme could be launched to create a genuine issue of material fact

as to whether there was a dangerous probability that Norther Pro-

pane would succeed in achieving a monopoly. Cf. American

Tobacco Co. v. United States, 328 U.S. 781, 797, 66 S.Ct. 1125,

1133, 90 L.Ed. 1575 (1946) (“over two-thirds of the entire field of

cigarettes, and .. . over 80 percent of the field of comparabie

cigarettes” held to constitute “a substantial monopoly”); Kelco

Disposal v. Browning-F erris Industries, 845 F.2d 404, 409 (2d

Cir.1988) (market share above fifty-five percent sufficient, along

with other market characteristics, to establish dangerous probability

of success); Richter Concrete Corp. v. Hilltop Concrete Corp., 691

F.2d 818, 826 (6th Cir.1982) (decline from forty percent to thirty

percent insufficient to establish defendant's “capacity to monopo-

lize”); Cliff Food Stores, Inc. v. Kroger, Inc., 417 F.2d 203, 207

n. 2 (Sth Cir. 1969) (fifty percent market share may be sufficient to

establish monopoly power).

V. MCGAHEE’S ROBINSON-PATMAN ACT CLAIM

(26] In McGahee’s Robinson-Patman Act claim, he must

show that Northern Propane, in the course of interstate commerce,

discriminated in price between different purchasers and a reasonable

possibility that this price difference may harm competition. The

district court held that McGahee’s Robinson-Patman Act claim failed

45 In McGahee’s brief, he relies on statements in affidavits by competitors

on the fringe of the relevant geographic market and on conclusory

statements of an expert, whose analysis focused on the proper test for

predatory pricing, to establish the dangerous probability of success

element. Northern Propane responds by attacking these sources of evidence

and by pointing out that it is “undisputed” that Northern Propane’s market

share declined from 65 percent in 1981 to 35 percent in 1983. Therefore,

we assume, arguendo, that Northern Propane’s market share when McGahee

opened for business was 65 percent. See also supra n. 4

3la

because McGahee could not establish predatory pricing.*®

McGahee, 658 F.Supp. at 197. Proof of predatory pricing can

Satisfy the second element, harm to competition, in a Robinson-

Patman claim brought against a competing seller.*” Utah Pie Co. v.

Continental Baking Co.. 386 U.S. 685, 87 S.Ct. 1326, 18 L.Ed.2d

406 (1967). As already explained in relation to McGahee’s Sherman

Act claim, McGahee has presented evidence of predatory prices

from which a fact finder could infer predatory intent. Therefore,

whether Norther Propane’s alleged discriminatory pricing caused

injury to competition presents genuine issues of material fact.

VI. CONCLUSION

Accordingly, the summary judgment granted by the district

court is reversed. The case is remanded for further proceedings

consistent with this opinion.

REVERSED AND REMANDED

discrimination and interstate commerce. The record indicates that there is an

issue of fact as to whether Northern Propane practiced price discrimination

See supra n. 6. In addition, the Supreme Court has held chat sales similar to

Northern Propane’s sales as described in McGahee's deposition were

interstate sales within the meaning of the Robinson-Patman Act. Standard

Oil Co. v. FTC, 340 U.S. 231, 236-38, 71 S.Ct. 240, 243-44, 95 L.Ed

239 (1951); see also Moore v. Mead's Fine Bread Co., 348 U.S. 115, 75

S.Ct. 148, 99 L.Ed. 145 (1954).

*? The reasonable possibility of harm to competition can be shown in two

ways: “either directly by market analysis showing injury to competition, or

by inference from injury to the plaintiff-competitor accompanied by

defendant's predatory intent, the logic for the latter method being that ‘an

illicit intemt accentuates the probability that a prohibited consequence will

come to pass."" Henry v. Chloride, Inc., 809 F.2d 1334, 1344 (8th Cir

1987) (quoting F. Rowe, Price Discriminatiuon Under the Robinson Patman

Act, 44 (1962)). Because of our holding concerning predatory pricing, we

do not reach the issue of whether McGahee could prove injury to

competition through market analysis. See generally 4 Van Kalinowski,

Antitrust Laws & Trade Regulation $§ 29.02 & 29.03 (1988): E. Kinter &

J. Bauer, 3 Federal Antitrust Law §§ 22.8 & 22.9 (1983)

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Appendix B

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

H. FLOYD McGAHEE,

Plaintiff, -: CIVIL ACTION

v. : C83-2617A

NORTHERN PROPANE GAS COMPANY,

Defendant.

ORDER

I. Introduction

Plaintiff H. Floyd McGahee (“McGahee”) brought this

antitrust action under Section 2 of the Sherman Act, 15 U.S.C. § 2,

and under the Robinson-Patman Act, 15 U.S.C. § 13(a), alleging

that defendant Northern Propane Gas Company (“Northern

Propane”) practiced predatory pricing in the retail sale of propane

gas. Defendant has moved for summary judgment pursuant to Rule

56, Fed.R.Civ.P. For the reasons stated below, the Court will grant

defendant's motion.

The following truncated version of the relevant facts should

suffice for present purposes. Propane is a liquid hydrocarbon by -

product of crude petroleum and natural gas. The fuel is used for

heating and for agricultural functions, such as crop-drying. Because

propane does not yield carbon monoxide when bumed, it is well-

Suited to operate industrial vehicles that are used indoors (e.g.,

forklifts). Propane is a fungible product; consequently, price is of

prime importance in the marketplace. Prior to 1981, propane prices

were subject to federal regulation. This case involves developments

after the market was deregulated in mid-1981.

During the relevant period, the parties operated competing

retail propane sales outlets in the Camilla, Georgia area. From

September, 1979 to June, 1981, McGahee served as Northern

Propane's district manager. McGahee had long been a fixture in the

Camilla area, having worked at the same propane outlet for

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approximately thirty years under several owners.' In June, 1981,

however, McGahee was demoted to a salesperson position because,

according to defendant, he failed to keep adequate records, to keep

the accounts receivable current, and to follow company directives.

McGahee resigned from defendant's employ on October 9, 1981,

under contentious circumstances.*

In May 1982, after obtaining a loan from the Small Business

Administration, plaintiff started his own propane sales business.

Once on his own, plaintiff acquired a significant percentage of the

market and of defendant's client base, and the price war giving rise

to this action ensued. With this limited background in place, the

Court will tum to the pending motion, highlighting additional facts

where appropniate.

II. Analysis

A) The Summary Judgment Standard

At the outset, the Court will set forth the standard controlling

practice under Rule 56. To prevail at summary judgment, the

moving party must demonstrate the absence of genuine disputes of

material fact and factual inferences. Thrasher v. State Farm Fire and

Casualty Co., 734 F.2d 637, 638-39 (11th Cir. 1984) (per curiam).

Recent Supreme Court cases have explained that the moving party

need not negate the nonmoving party's case: instead, “the burden on

the moving party may be discharged by ‘showing’ — that is,

‘In September, 1979, Northern Propane’s then-parent company,

InterNorth, Inc. (“InterNorth”), purchased the retail propane outlet in

Camilla from Amoco Oil. InterNorth employed Northern Propane, a wholly-

owned subsidiary, to operate its retail propane outlets in the United States.

On November 30, 1983, InterNorth sold all its stock in Northern Propane

to Penn Central Energy Group.

2 Defendant had filed a counterclaim against plaintiff, alleging that he

breached his fiduciary duties while under its employ. Specifically, defendant

alleged that plaintiff engaged in self-dealing by extending credit to a

corporation in which he had a financial interest, McGahee Family, Inc. In

addition to the alleged conflict of interest, the counterclaim asserted that

plaintiff's allocation of credit to McGahee Family, Inc. was wrongful

because the corporation was not credit-worthy. Defendant voluntarily

dismissed the counterclaim on February 25, 1985

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pointing out . . . — that there is an absence of evidence to support

the nonmoving party’s case.” Celotex Corp. v. Catrett, 106 S.Ct.

2548 (1986); see also Anderson v. Liberty Lobby, Inc., 106 S.Ct.

2505 (1986). If the moving party discharges this burden, the

nonmoving party cannot rest on its pleadings, but rather must point

to specific evidence giving rise to a triable issue. Celotex, 106 S.Ct.

at 2553-54. Thus, summary judgment is appropriate where there is

no genuine issue of material fact and, viewed in the light most

favorable to the nonmoving party, the undisputed facts warrant

judgment as a matter of law. /d. at 2555.

There are, to be sure, factual disputes in the record presented

here, but these disputes are not material under the applicable law.

Plaintiff argues that defendant acted in large measure out of personal

animus. Following this theme, plaintiff depicts himself as an

underdog facing a national company bent on destroying his business

and monopolizing the relevant market through predatory price cuts.

Defendant counters that it acted solely to maintain its share of a

stagnant market. In ruling on the instant motion, the Court cannot

and need not divine the intent behind defendant’s pricing policy.

Nonetheless, viewing the record objectively, as is proper in a

predatory pricing case, see, e.g., Bayou Bottling, Inc. v. Dr.

Pepper Co., 725 F.2d 300 (Sth Cir.), cert. denied, 469 U.S. 833

(1984), the Court concludes that plaintiff's claims fail as a matter of

law.

3 For the purposes of the instant motion, defendant conceded that the

relevant product market is propane and that the relevant geographic market

is Mitchell and Baker counties in the southwestern region of Georgia. The

Court notes, however, that there are some difficulties with plaintiff’s

asserted relevant geographic market. The cost of transportation limits the

range in which a retail propane seller can operate profitably, but there is

evidence that propane distributors who were active in Mitchell and Baker

counties were also active in neighboring counties. On the other hand, even

though other fuels may substitute for propane, there is, at the very least, an

issue of fact as to whether propane constitutes a distinct product market.

See United States v. Empire Gas Corp., 537 F.2d 296, 303-304 (8th Cir.

1976), cert. denied, 424 U.S. 1122 (1977)

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B) The Sherman Act Claim

To establish an attempted monopolization claim under Section

2 of the Sherman Act,‘ a plaintiff must show (1) that the defendant

attempted to achieve a monopoly, and (2) that there was a dangerous

probability of success. Swift & Co. v. United States, 196 U.S.

375, 396 (1905); Tiftarea Shopper, Inc. v. Georgia Shopper, Inc..,

786 F.2d 1115 (11th Cir. 1986) (per curiam); Quality Foods de

Centro America, S.A. v. Latin American Agribusiness Development

Corp., 711 F.2d 989, 996 (11th Cir. 1983). Plaintiff’s claim fails to

satisfy either element of this test.

1) Attempt to Monopolize

It is well-settled that proof of a predatory price scheme can

satisfy the first element of a Section 2 claim. E.g., id. There is vast

disagreement, however, regarding the proper standard for

determining whether a defendant has engaged in predatory pricing.°

* Section 2 of the Sherman Act provides the following:

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other person

Or persons, to monopolize any part of the trade or commerce

among the several States, or with foreign nations, shall be

deemed guilty of a misdemeanor, and, on conviction thereof,

shall be punished by fine not exceeding fifty thousand

dollars, or by imprisonment not exceeding one year, or by

both said punishments, in the discretion of the court.

> Most Circuits have followed some adaptation of the cost-based analysis

first advocated by Professors Areeda and Turer in their landmark article,

Areeda & Tumer, Predatory Pricing and Related Practices Under Section 2 of

the Sherman Act, 88 Harv.L.Rev. 697 (1975). See, e.g., Chillicothe Sand

& Gravel Co. v. Martin Marietta Corp., 615 F.2d 427 (7th Cir. 1980);

AT&T v. FCC, 602 F.2d 401, 410 n.49 (D.C. Cir. 1979); Pacific

Engineering & Production Co. of Nevada v. Kerr-McGee Corp., 551 F.2d

790, 797 (10th Cir.), cert. denied, 434 U.S. 879 (1977); Internatic ial Air

Industries v. American Excelsior Co., 517 F.2d 714 (Sth Cir. 1975), cert.

denied, 424 U.S. 943 (1976). The Supreme Court has also indicated a

preference for cost-based analysis over traditional notions of intent. See

Matsushita Electric Industrial Co. v. Zenith Radio Corp., 106 S.Ct. 1348,

1355 n.8, n.9 (1986).

In the instant case, plaintiff advocates a test relying on traditional

notions of intent and long-term cost analysis. Defendant argues that the

eerie

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Neither the Supreme Court nor the Eleventh Circuit has set forth a

definitive standard, so the Court must elect which of the competing

standards to employ. This task requires an understanding of the

nature of predatory pricing and the role such schemes play in the

economy.

In a predatory pricing scheme, a dominant firm drastically cuts

its prices to drive weaker rivals from the market or to deter new

rivals from entering the market. See, e.g., Matsushita Electric

Industrial Co. v. Zenith Radio Corp., 106 S.Ct. 1348, 1355 n.8

(1986). “Predation in any meaningful sense cannot exist unless there

is a temporary sacrifice of net revenues in the expectation of greater

future gains.” Areeda & Tumer, Predatory Pricing and Related

Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev.

697, 698 (1975); see also Matsushita, 106 S.Ct. at 1357;

International Air Industries v. American Excelsior Co., 517 F.2d

714, 723 (Sth Cir. 1975), cert. denied, 424 U.S. 943 (1976);

Easterbrook, Predatory Strategies and Counterstrategies, 48

U.Chi.L.Rev. 263, 268 (1981). Thus, to succeed, a predator must

tame the market sufficiently to achieve the power to set

supracompetitive prices; in addition, the predator must retain

monopoly power long enough for “(t]he . . . flow of profits,

appropriately discounted, . . . to exceed the present size of the

losses” incurred by the price cut. R. Bork, The Antitrust Paradox 4

145 (1978); Williamson, Predatory Pricing: A Strategic and Welfare

Analysis, 87 Yale L.J. 284, 292 (1977); Areeda & Tumer, supra,

88 Harv.L.Rev. at 698. Of course, in a market with pronounced

entry barriers, a predator’s investment is less risky, since it is easier

to retain monopoly power in such a market. /d. at 699; Adjusters

Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884,

891 (Sth Cir. 1984), cert. denied, 469 U.S.1160 (1985);

International Air, 517 F.2d at 724.

Court is bound by the modified Areeda/Turner test employed by the former

Fifth

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