Petition for Writ of Certiorari — North American Philips Corp. v. Windmere Corp.
Supreme Court brief1989
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Supreme Court, U.S.
8§-16 Zu FILED
APR 5 1989
No. _ SPANIOL, JR.
CLERK
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
NORTH AMERICAN PHILIPS CORPORATION,
U.S. PHILIPS CORPORATION and
N.V. PHILIPS’ GLOEILAMPENFABRIEKEN,
V.
WINDMERE CORPORATION,
Petitioners,
Respondent.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
WILLIAM E. WILLIS
125 Broad Street
New York, New York 10004
(212) 558-4000
Counsel for Petitioners
GARRARD R. BEENEY
JOHN L. HARDIMAN
LISAMICHELLE DAVIS
SULLIVAN & CROMWELL
Of Counsel
April 5, 1989
Question Presented
Does a competitor with a large market share—who
intends to take business away from and thereby injure a
competitor—monopolize in violation of § 2 of the Sherman
Act by selling new products at low but profitable prices
that are above its average variable cost?
Rule 28.1 Statement
The parents, subsidiaries, and affiliates of petitioners
North American Philips Corporation and USS. Philips
Corporation, other than wholly owned subsidiaries, are
listed below:
N.V. Gemeenschappelijk Bezit van Aandeelen
Philips’ Gloeilampenfabrieken
N.V. Philips’ Gloeilampenfabrieken
FGP Corp.
Laser Magnetic Storage Company
Optimage Interactive Services
Philips and Dupont Optical Company
AirVision
Japan Magnavox Navigation Equipment Company,
Ltd.
Sanken-Airpax Co., Ltd.
The parents, subsidia’ tes, and affiliates of petitioner N.V.
Philips’ Gloeilampenfabricken, other than wholly owned
subsidiaries, are listed below:
Foreign
N.V. Gemeenschappelijk Bezit van Aandeelen
Philips’ Gloeilampenfabrieken Sisteval S.A.
Associated Radio Finance (Australia) Limited
Electric Lamp Manufacturers (Australia) Pty Ltd.
Lamp Partnership Agreement
Medical Applications Pty Limited
Neutrodyne Pty Ltd.
The Travel Software Company Pty Limited
Bangladesh Electrical Industries Limited
Bangladesh Lamps Limited
ACEC Lighting
ill
Cable and Wire Assemblies
Europese Mij voor Fabricage en Verkoop van
Gloeilampenonderdelien “E.M.G.O.”
Philips Coordination Center
Philips Matsushita Battery Corporation
SY MEA S.A.
Telecity DC-I
Unicar Travels S.A.
Vermont S.A.
Bankgeschaft Heinrich Behncke GmbH
BTS-Broadcast Television Systems GmbH
Polygram GmbH
Polygram S.A.
Polygram Leisure Ltd.
Clouth Gummiwerke AG
Euroventures Deutschland GmbH & Co. KG
Grundig Aktiengesellschaft
Grundig Elektrogerate Gessellschaft mbH
Grundig Verwaltungs-GmbH
Norddeutsche Seekabelwerke AG
Philips Kommunikations Industrie Aktiengesellschaft
Philips Mietsystem GmbH
Tellus Grundstuchsverwaltungs GmbH
Fonobras-Distribuidora Fonografica Brasileira Ltda.
Peterco do Nordeste Produtos Eletricos S.A.
Modu-Tronics Inc.
Beiiing Philips Audio/Video Corporation
Car Audio Electronics (China) Company Limited
Hua Fei Colour Display Systems Company, Ltd.
Shenzhen Shen Fei Laser Optical Systems
Company Ltd.
The Sino-Dutch International Engineering
Company Ltd.
Yangtze Optical Fibre and Cable Company, Ltd.
iV
Industria Andina de Iluminacion
Industrias Centrales del Acero S.A.—
“Induacero S.A.”
El Nasr Company for Electrical and Electronic
Apparatus (NEEASAA)
Philippine Glass Bulbs, Inc.
COGEDEP, Compagnie Generale Europeenne de
Distribution et d’Edition Phonographique S.A.
Compagnie Philips Eclairage
La Radiotechnique
Laura Hallyday Productions S.A.
S.A. d'Etudes et Realisations Nucleaires-
S.0.D.E.R.N.
Self Music S.A.
Service S.A.
Societe pour la standardisation et l’integration
de l'image a l’informatique (S.S.I.I.I.)
Sois Villes Lumieres
Telecommunications Radioe!ectriques et
Telephoniques “TRT” S.A.
Polygram Records Ltd.
Records Manufacturers (Ghana) Ltd.
Car Audio Electronics (Hong Kong) Limited
Cinepoly Records Co. Ltd.
Electronic Devices Limited
P & M Properties Ltd.
Zhen Shi Investments Ltd.
Silicon & Software Systems Limited
Stromsay Ltd.
Hind Lamps Ltd.
Music India Ltd.
Peico Electronics & Electricals Limited
Punjab Anand Lamp Industries Ltd.
P.T. Philips Development Corporation
P.T. Philips-Ralin Electronics
Daco Ltd. (Private Joint Stock Company)
Iranian Lamps Ltd. (Private Joint Stock Company )
Radioelectric Iran Ltd. (Public Joint Stock
Company )
Chapulin Edizioni Musicali S.r.1.
Denshi Media Services Company Limited
Japan Interactive Media Inc.
Japan New Media Systems, Inc. ;
K.K. Keystone
Marantz Japan, Inc.
Matsushita Electronics Corporation
Nihon Micro Motor Co. Ltd.
Nihon Philips Corporation
Nihon Tecnico K.K.
Nippon Phonogram Co. Ltd.
Philips Sensor Technology Corp.
PNN Corporation
Polydor K.K.
Red Bus Enterprise Inc.
Sanken-Airpax Co. Ltd.
Takahashi Kogei Co. Ltd.
Your Records K.K.
Light Incorporated and Trading S.A.L.
Binafon Telecommunications Sdn. Berhad
Electronic Systems (Malaysia) Sdn. Bhd.
Malaysian Lamps Sendirian Berhad
Maltronics Sendirian Berhad
Manufacture Nationale pour la Refrigeration
et ’ Electronique “MANAR”
Maroc Lumiere Industrie S.A.
Omnium de Participations et de Gestion
Maghrebin “O.P.G.M.”
Societe Anonyme Marocaine de Telecommunications
“SAMTEL”
Vi
Societe Marocaine de Commerce et Industrie
Electronique “SOMACIEL”
Societe Marocaine “MARIX”
Compania de Vidrio Industrial, S.A. de C.V.
Compania Mexicana de Componentes, S.A. de C.V.
Telecommunicaciones y Systemas Profesionales, S.A.
de C.V.
Art Data Institute B.V.
ASM Lithography B.V.
AT&T Network Systems International B.V.
Bank Mendes Gans N.V.
Business Logistics Systems (B.L.S.)
B.V. Grammoservice, Distributiemaatschappij voor
Grammofoonplaten
Circle Information Systems B.V.
Holco Computerservices & Software B.V.
Hollandse Signaalapparaten B.V.
Micro Scope B.V.
Optical Disc Mastering (ODM)
Philips and Du Pont Optical Company
Phonosongs (V.O.F.)
Polygram N.V.
Polysongs (V.O.F.)
Record Service Benelux (V.O.F.)
Splendor Gloeilampenfabrieken B.V.
Twilo B.V.
Whirlpool International B.V.
Wisselsongs (V.O.F.)
Amalgamated Finance Ltd.
Cablevision New Zealand Ltd.
Flourescent Lamp Partnership
New Zealand Electric Lamp Manufacturers Ltd.
Tisco Holdings (New Zealand Ltd. )
Associated Electronic Products (Nigeria) Limited
Polygram Records Ltd.
Vii
AKG Holding AG
“Philips” Mietfinanzierungs-GmbH
SELTRON International Export-Import
Gesellschaft mbH
Telekabel—Fernsehnetz Graz Betriebsgesellschaft
mbH
Telekabel—Fernsehnetz Klagenfurt
Betriebsgesellschaft mbH
Telekabel—Fernsehnetz Region Baden
Betriebsgesellschaft mbH
Telekabel—Fernsehnetz Wiener Neustadt/
Neunkirchen Betriebsgesel!schaft mbH
Telekabel Wien Gesellschaft mbH
Philips Electrical Industries of Pakistan Limited
Afalesa
Electro Valvuia S.A.
Industria Electronica de Comunicaciones S.A.
Infoservicios, S.A.
Union Electrodomesticos S.A.
Compact Disc Industries Co., Ltd.
Iwakura Press Industry Ltd.
Taiwan Lighting Industries Co., Ltd.
Taiwan Semiconductor Manufacturing Company
Limited
Electrical Lamp Manufacturers Thailand Limited
Windmill Company Ltd.
Avex A.S.
Societe Tunisienne d’Eclairage
Societe Tunisienne d’Industrie Electronique et de
Television “S.T.I.E.T.”
Birlesik Aydinlatma Sanayi ve Ticaret AS.
Turk Philips Aydinlatma Sanayi ve Ticaret Anonim
Sirketi
Turk Philips Sanayi Anonim Sirketi “Philisan”
Vili
Turk Philips Ticaret Anonim Sirketi
Adrawing Ltd.
Alto Music Ltd.
Bank Three Holdings Ltd.
Cedarwood Music Ltd.
Channel 5 Video Distribution Ltd.
Debonaire Music Ltd.
European Cables Ltd.
F.F.R.R. Music Ltd.
F.F.R.R. Records Ltd.
Go! Discs Ltd.
Gralto Music Ltd.
Kempston (1987) Ltd.
Pageant Music Ltd.
Paragon Publicity & Public Relations Ltd.
Philips Lighting Manufacturing Ltd.
Spencer Davis Music Ltd.
Tiger Music Ltd.
Validfirst Ltd.
Aberdare Cables Africa Limited
A.I.B. Investments (Pty) Ltd.
Associated Glass Works (Pty) Ltd.
Consolidated Cable Investments (Pty) Ltd.
Electric Lamp Manufacturers of South Africa
(partnership )
Electric Lamp Manufacturers of South Africa
(Pty) Ltd.
PEC Investments (Proprietary) Limited
Philips Electronics Holdings Limited
PISA Investments (Pty) Ltd.
Swiss Office Machinery Company (Pty) Ltd.
Hanwha Domestic Appliances Co. Ltd.
A.P. Radio, Goteborg
Grammo Rack Service AB
Dick James Music AG
ix
Discorack AG
Faselec AG
Flammesco AG
Gluhlampenfabrik Gloria AG
Studer and Philips CD Systems AG
Validfirst Ltd.
Domestic
American Interactive Media Inc.
Ice Ltd.
Laser Magnetic Storage International Company
OptImage Interactive Services Company
Philips and Du Pont Optical Company
Polygram Music Publishing Inc.
Polygram Songs Inc.
Polygram Tunes Inc.
The Educational Video Group Inc.
Airvision
TABLE OF CONTENTS
Rennes FONNEE oo ii ass ok x es oe eee
tle 26.8 UM... so be cee ei eee
Table of Authorities ......... Re NRA EAD Ayal
CE SI io ae Gang ise rege
PN er re ee er ce te eee
The Court of Appeals’ Decision ...........
Reasons for Granting the Petition .............
IRS neta aie a ea aaa er a ae
Appendix:
A.
B.
Opinion of the Court of Appeals, November
PRA cs presen rec ie ate eater a
Opinion of the District Court, June 8, 1988 ..
Judgment of the Court of Appeals, Novem-
EME DG, PGW, op oe kone ee De eaee es
Order of the Court of Appeals Denying Re-
hearmg, January 13, 1989 0... 6 ka
Order of the Court of Appeals Declining Sug-
gestion for Rehearing En Banc, January 27,
SOE een ae We he a ke
aon MN NY NY NY
Bi
Fl
Xli
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 U.S. 1160 (1965) .......02.22.. 15
American Tobacco Co. v. United States, 328 U.S.
ee ee ea a ek cee eae es 14-15
Arthur §. Langenderfer, Inc. v. S.E. Johnson Co.,
729 F.2d 1050 (6th Cir.), cert. denied, 469
ee a ir a a a ieck he we os a 11,14
Aspen Skiing Co. v. Aspen Highlands Skiing Corp..,
ee ee SD ok s Sk eas oes es 7, 14-15
Brown Shoe Co. v. United States, 370 U.S. 294
| Ae me ae ee ee ae 13
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429
Cire Sere) va Ch ba eh eke keene a 13
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.
Csi ew hs xs SA ee 2, 10, 13-14
Clamp-All Corp. v. Cast Iron Soil Pipe Institute,
851 F.2d 478 (Ist Cir. 1988), cert. denied, 109
es ee MENT Pare ttre Ue ee yes a4 11
Hayes v. Solomon, 597 F.2d 958 (Sth Cir. 1979),
cert. denied, 444 U.S. 1078 (1980) .......... 15
Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.
PR oe ea eRe iad ee ed eck aS 1]
Instructional Systems Development Corp. Vv. Aetna
Casualty and Surety Co., 817 F.2d 639 (10th
ee A hoa ee Ce eG ee ea ae 12
|
Xiii
PAGE
International Air Industries, Inc. V. American Ex-
celsior Co., 517 F.2d 714 (Sth Cir. 1975), cert.
denied, 424 U.S. 943 (1976) .............. 11
LSLJ Partnership v. Frito-Lay, Inc., 57 U.S.L.W.
ME EE OS es cae a red eee 12
Matsushita Electric Industrial Co. vy. Zenith Radio
Ct Sie Ce Pe LO 6 ok cos Sos oS a?
McGahee v. Northern Propane Gas Co., 858 F.2d
er © Re a BE bck wk 0.6 0 oo ode oe eee 12
MCI Communications Corp. v. AT&T, 708 F.2d
1081 (7th Cir.), cert. denied, 464 U.S. 891
ee rd Ge ag ee Pek ee a a 11
Monahan’s Marine, Inc. v. Boston Whaler, Inc.,
1989-1 Tr. Cases (CCH) 4 68,422 (lst Cir.
I ENS a acs GG Ck Ook < ot Aas Gace 11
Northeastern Tel. Co. v. AT&T, 651 F.2d 76
(2d Cir. 1981), cert. denied, 455 U.S. 943
AAC ea Seti at gl Ne A a a ee 11
Northern Pacific Ry. Co. v. United States, 356 U.S.
ASTI a SES ae eee ee 9
O. Hommel Co. v. Ferro Corp., 659 F.2d 340 (3d
Cir. 1981), cert. denied, 455 U.S. 1017 (1982) 2
Olympia Equipment Leasing Co. v. Western Union
Tel. Co., 797 F.2d 370 (7th Cir. 1986), cert.
gened, 600 US. 934 (1967) ............5. 15
Southern Pacific Communications Co. v. AT&T,
740 F.2d-980 (D.C. Cir. 1984), cert. denied,
OR SE oo) a 12
XIV
Transamerica Computer Co. v. IBM, 698 F.2d
1377 (9th Cir.), cert. denied, 464 U.S. 955
REE eke Oe CORO a eS
United States v. Grinnell Corp., 384 U.S. 563.
Ca ie eee es
Statutes and Rules
Title 28 United States Code
ee ein sa es Cee
ER 2 8 a ge ere ear
Title 15 United States Code
A ce ated Le Gotta SER ALL Pye Brae te
I Oe et eae ee a
Federal Rules of Civil Procedure
area ee nletk wie ee
Other Authorities
Areeda & Turner, Predatory Pricing and Related
Practices under Section 2 of the Sherman Act,
Oe Poery, ©. Wee, G7 CERT) bcs a eke ces
Sherer, Predatory Pricing: An Evaluation of lis
Potential for Abuse Under Government Procure-
ment Contracts, 6 J. Corp. L. 531 (1981) ....
PAGE
passim
10
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
No.
4
NORTH AMERICAN PHILIPS CORPORATION,
U.S. PHILIPS CORPORATION and
N.V. PHILIPS’ GLOEILAMPENFABRIEKEN,
Petitioners,
Vv.
WINDMERE CORPORATION,
Respondent.
‘
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
Petitioners North American’ Philips Corporation
(“NAPC”), U.S. Philips Corporation (“USPC”) and N.V.
Philips’ Gloeilampenfabrieken (“N.V. Philips”) respect-
fully pray that a writ of certiorari issue to review the judg-
ment of the United States Court of Appeals for the Federal
Circuit entered November 14, 1988.
Opinions Below
The opinion of the Court of Appeals for the Federal Cir-
cuit is reported at 861 F.2d 695 and is reprinted in Appen-
dix A, infra.’ The opinion of the District Court is reported
at 680 F. Supp. 361 (S.D. Fla. 1987), and is reprinted in
Appendix B, infra.
1 Citations preceded by a letter designation are to the appendices
to this petition.
Jurisdiction
The judgment of the Court of Appeals was dated and
entered November 14, 1988 (C 1). Rehearing was denied
on January 13, 1989 (D 1), and the suggestion for rehear-
ing en banc was declined on January 27, 1989 (E11). This
Court has jurisdiction under 28 U.S.C. § 1254(1).
Statute Involved
Section 2 of the Sherman Act, as amended, provides:
Every person who shall monopolize, or attempt to
monopolize, or combine or cons} ire with any other
person or persons, to monopolize any part of the
trade or commerce among the several states, or with
foreign nations, shall be deemed guilty of a felony,
and, on conviction thereof, shall be punished by
fine not exceeding one million dollars if a corpora-
tion, or, if any other person, one hundred thousand
dollars, or by imprisonment not exceeding three
years, or by both said punishments, in the discretion
of the court. (F 1)
Statement of the Case
Price cutting may constitute the vigorous competition
the antitrust laws encourage or reflect the unlawful use of
predatory pricing to perpetuate a monopoly. Although the
Court has recently recognized that “[t]here is a good deal
of debate” over what constitutes predatory pricing, Mat-
sushita Electric Industrial Co. v. Zenith Radio Corp., 475
U.S. 574, 584 n.8 (1986), it has refrained from precisely
defining the term. See Cargill, Inc. v. Monfort of Colorado,
Inc., 479 U.S. 104, 118 n.12 (1986). As a result, and
due to varied and conflicting decisions of virtually all the
Courts of Appeals, businesses throughout the nation, and
counsel who advise them, have no understanding of whether
the prices they charge are lawful or will result in lengthy
and expensive litigation and treble damage liability. Indeed,
as shown in detail at pages 10-12, infra, the same price
may be conclusively lawful in some circuits, presumptively
lawful in others, and evidence of unlawful monopolization
in yet other circuits. The opinion below has not only added
to this substantial confusion, but has also chilled vigorous
price competition and discouraged the setting of lower prices
in an economic era in which higher prices and inflation
have become increasingly prevalent evils.
In deciding when lower prices may violate § 2 of the
Sherman Act, the opinion below stands the Act on its head.
The decision prevents a competitor with a large market
share from engaging in price competition with a smaller
rival while protecting a new entrant from price competition
by providing a price umbrella. In effect, the opinion pro-
tects an individual competitor at the expense of competi-
tion. According to the court below, the Sherman Act pre-
vents petitioner NAPC from competing by selling new
products at prices that were above its average variable cost
because NAPC’s pricing—however profitable to it—elim-
inated a competitor.
The facts presenting what we respectfully submit is a
question of profound significance to the economy and the
maintenance of effective competition are straightforward.
In October of 1984, NAPC and its sister corporation USPC
sued Windmere Corporation (‘““Windmere”) and its sup-
plier Izumi Seimitsu Kogyo Kabushiki Kaisha for infringe-
ment of USPC’s electric shaver patent and for unfair com-
petition under the Lanham Act. Windmere responded by
filing a seven count counterclaim, charging NAPC, USPC
and their parent company N.V. Philips with violations of
sections 1 and 2 of the Sherman Act, the Robinson-Patman
Act, the Clayton Act, the Antidumping Act of 1916, and
various state laws.
Despite the breadth of Windmere’s allegations, the only
issue before the court below was whether the district court
properly directed a verdict on Windmere’s § 2 claim after
a three week jury trial.? In support of its claim under § 2.
Windmere attempted to show that NAPC monopolized the
rotary electric shaver market when, to compete with Wind-
mere’s new low priced products, NAPC introduced two new
models of electric shavers purportedly at prices below
NAPC’s average variable cost.°
Windmere presented two witnesses, both its own em-
ployees, to support its claim that NAPC “sold its 1320 and
1615 models below its average variable costs....” (AQ).
One witness testified that he had no understanding of what
the term “variable cost” meant and that his testimony re-
2 Only Windmere’s claim under the Sherman Act survived the
presentation of all evidence. Other claims were dismissed either
on summary judgment or directed verdict after the presentation of
Windmere’s case. Windmere did not appeal these rulings, and it
“abandoned” its claim under § 1 (A 2; see also A 23). Therefore,
the Court of Appeals reviewed only the directed verdict dismissing
the § 2 claim.
3 Electric shavers typically fall into two categories. NAPC's
primary product is a rotary electric shaver that NAPC purchases
from N.V. Philips and sells under the Norelco brand. Rotary shavers
generally have one or more rotating blades under a circular comb.
Both NAPC and Windmere, which sells under the Ronson brand,
also sell foil electric shavers that generally have blades that move
either in an oscillating or reciprocating manner under a perforated
foil. The trial court held that Windmere had presented sufficient
evidence to create a jury question on its claim that the relevant
market consisted solely of rotary shavers (B 7), and petitioners did
not contest that ruling. Thus, there was no dispute as to relevant
market in the court below.
garding NAPC’s costs was an “educated opinion.” Wind-
mere’s other witness actually testified that NAPC made “a
profit” on the two models at issue, using the cost account-
ing methodology proposed by Windmere’s counsel and
using NAPC’s actual costs. Windmere presented no expert
testimony on the issue.
Windmere also attempted to show that NAPC’s prices
were unlawfully low because NAPC allegedly “failed to
maximize profits.” While Windmere never articulated the
parameters of this claim, the testimony of its witnesses sug-
gested that NAPC’s prices on the low-end models of its
product line were unlawful because, according to Windmere,
each sale of a lower priced NAPC shaver took a sale away
from a much higher priced NAPC shaver. Under Wind-
mere’s theory, it would always be unlawful for a business
to offer a varied product line with a range of prices. This
alternative theory was not considered by the Court of
Appeals and is not a basis for its decision.
At the conclusion of this “evidence,” petitioners moved
for a directed verdict.
The District Court’s Decision
Although finding that a jury could conclude from the
evidence that NAPC and N.V. Philips “had market power
in Windmere’s proposed relevant market” (B 7), the district
court concluded that there was no evidence from which
a jury could conclude that petitioners unlawfully main-
tained or acquired a monopoly. Citing United States v.
Grinnell Corp., 384 U.S. 563 (1966), the court held that
“the Sherman Act prohibits only those monopolies that are
willfully acquired or maintained as distinguished from those
that result from a superior product, business acumen or
historic accident” (B 6).
The court examined the relevant case law, noted that
low prices are the hallmark of the competition the anti-
trust laws were designed to protect and promote (B 9-10),
and held that low prices may be evidence of monopoliza-
tion only if those prices are below defendant’s marginal
cost:
[M]arginal cost was chosen, even though prices at
or above it are not necessarily profit-maximizing,
because at the point where price equals marginal
cost, only less efficient firms will suffer larger losses
per unit of output than the alleged monopolist; more
efficient firms will be losing less cr operating profit-
ably.
(B 11).* The district court reasoned that notwithstanding
defendants’ supposed intent to vanquish a rival, low prices
that are profitable to defendants and beneficial to consumers
do not constitute evidence of a practice forbidden by the
antitrust laws (B 9-11).
In reviewing Windmere’s evidence, the district court ruled
that no reasonable juror could find that NAPC’s prices
were below its average variable cost. Although this holding
rested on a number of alternative grounds, the district court
principally held that the prices at issue were profitable to
NAPC if NAPC’s actual advertising expenditures were
used in the calculation, regardless of whether the other
“projected” costs and peculiar methodology advanced by
Windmere were also used (B 14-16). Thus, the district
court held that regardless of how Windmere manipulated
other figures or whether costs were categorized as fixed
or variable, NAPC made a profit on the models at issue
+ Average variable cost is normally used as a surrogate for mar-
ginal cost, i.e., the cost of making the last unit of output, because
average variable cost is easier to determine. Areeda & Turner,
Predatory Pricing and Related Practices under Section 2 of the
Sherman Act, 88 Harv. L. Rev. 697, 716 (1975).
when NAPC’s actual advertising expenditures—an amount
on which all parties agreed at trial—were used in the cal-
culation (B I2-16).°
The district court also rejected Windmere’s contention
that in Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
472 U.S. 585 (1985), the Court held that a competitor with
a large market share may not sell at low prices if it intends
thereby to harm a rival (B 16-17).
After granting the directed verdict, the district court
entered judgment under Fed. R. Civ. P. 54(b) and, pur-
suant to 28 U.S.C. § 1295(a)(1), Windmere appealed to
the Court of Appeals for the Federal Circuit.
The Court of Appeals’ Decision
The Court of Appeals, in a three-to-two decision, reversed
and held that a competitor with a large market share violates
the Sherman Act if it lowers prices with the intent to harm
a competitor:
Evidence that a firm holding 90 percent of a
market that has substantial entry barriers drastically
*> Windmere’s witnesses and its counsel admitted that there was
no dispute about this sole crucial figure. Windmere’s Vice President
of Finance tesiified that NAPC’s “total advertising expense for 1985
was $17,558,000” and its counse! agreed:
The Court: So the record evidence we have got shows
they actually spent seventeen million and change?
[Windmere’s Counsel]: Right.
Windmere’s counsel and witnesses also agreed that $6.6 million in
cooperative advertising support received by NAPC had to be de-
ducted from this figure. Although on appeal Windmere attempted
to backtrack from (i) its witnesses’ admissions, (ii) the demonstrative
evidence it introduced, and (iii) its counsel’s statement in argument
before the district court that “[w]hat the evidence shows is that the
6.6 million was given to North American Philips,” there was, in the
words of the dissent below, “no evidence to the contrary.” (A 26).
slashes its prices in response to the competition of
a new entrant, for the purpose and with the effect
of eliminating that entrant, is sufficient to show
monopolization, in violation of section 2 of the
Sherman Act. (A 18)°
The Court of Appeals held that liability for predatory
pricing under § 2 in no way turns on defendant's costs of
production or whether its lower prices reflect greater
efficiencies than those of its competitor. Rather, according
to the court below, liability under the Sherman Act for set-
ting lower prices depends only on the size of defendant's
market share, its intent, and the effect of its lower prices
on a single competitor.
Reasons for Granting the Petition
The decision below—holding that a competitor with a
large market share violates § 2 if its low prices are intended
to and do harm a rival—presents a substantial federal ques-
tion regarding the imterpretation of the Sherman Act,
reflects and adds to the confusion among the Courts of
6 The Court of Appeals also found that other issues—such as
the allocation of advertising expenses as fixed or variable and whether
projections may be used to prove actual costs—should have been
submitted to the jury (A 19). The Court of Appeals did not dis-
turb the district court’s holding with regard to NAPC’s actual ad-
vertising expenditures, although it ruled that the “proper treatment”
of this figure in determining variable costs “‘was an issue for the jury
to decide” (A 20). Therefore, although the Court of Appeals deter-
mined that the jury should decide whether NAPC’s advertising
costs were fixed or variable, it did not disturb the trial court’s ruling
that NAPC made a profit regardless of that allocation if actual ad-
vertising expenditures were used. Because that finding was not dis-
turbed, the Court of Appeals was simply wrong that “the evidence
was sufficiently in conflict to require submission of the issue to the
jury” under the average variable cost test applied by the District
Courts (see A 18). At trial, there was no conflict over this figure.
See n.5, supra.
Appeals as to what constitutes predatory pricing, and is
contrary to fundamental principles of antitrust law estab-
lished by this Court.
I.
The Sherman Act “rests on the premise that the unre-
strained interaction of competitive forces will yield the
best allocation of our economic resources, the lowest prices.
the highest quality and the greatest material progress, while
at the same time providing an environment conducive to
the preservation of our democratic political and social in-
stitutions.” Northern Pacific Ry. Co. v. United States,
356 U.S. 1, 4 (1958). Although “cutting price in order
to increase business often is the very essence of competi-
tion,” Matsushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574, 594 (1986), price cutting can, in
limited circumstances, be predatory and harm consumers,
thereby defeating the goals of the Sherman Act. The Courts
of Appeals have expressed divergent views on what distin-
guishes lawful price competition from unlawful predatory
pricing, and this Court has yet to resolve the issue or decide
whether, as the district court concluded, lowering prices to
profitable levels is not proscribed by the Sherman Act.
See id. at 584 n.8.
Wholly apart from the pernicious effects on competition
caused by the holding below, this state of uncertainty re-
garding the legality of pricing is itself harmful to vigorous
competition. Businesses are unlikely to charge prices that
are equal to or just above marginal cost—even though
sales at that level would be profitable and benefit con-
sumers—if the legality of such pricing remains unclear.
Indeed, the Court has previously recognized that erroneous
interpretations of the Sherman Act or uncertainty regarding
its scope can chill the very competitive conduct the Act
seeks to advance. /d. at 594.
10
The Court of Appeals decision in this case has precisely
this effect. Under the holding below, the lawfulness of a
price turns on a competitor’s intent and, perhaps worse,
the effect of its price cutting on a single competitor. Is a
competitor with a large market share precluded from intro-
ducing new products at lower prices because its salespersons
have recorded in colorful language an intent to harm their
rival? Must that competitor ensure that its prices will not
cause the demise of a less efficient firm? The opinion below
answers these questions in the affirmative, rendering pric-
ing decisions virtually impossible and chilling the very
essence of competition. As one commentator recognized
years ago:
It is imperative that courts timely establish objec-
tive and understandable pricing standards while
bringing into sharp focus the line which separates
commendable price reductions from predatory pric-
ing practices. Such standards are necessary for the
guidance of businessmen. . . . Businessmen should
net be put into the position where they must either
forego competitive price decreases or risk treble
damages in Sherman Act suits.
Sherer, Predatory Pricing: An Evaluation of Its Potential
tor Abuse Under Government Procurement Contracts, 6
J. Corp. L. 331,.539 (1981).
II.
The question of what distinguishes pro-competitive price
competition from predatory pricing has been answered by
ten Courts of Appeals in nine significantly different ways.
The confusion identified by the Court in 1986 in Cargill, Inc.
v. Monfort of Colorado, Inc., 479 U.S. 104, 118 n.12
(1986) (“[d]efinitions of predatory pricing also vary
among the Circuits”), has only become worse.
11
Thus, in the First Circuit, a predatory price is one (a)
below some undefined measure of cost that (b) has been
set with the intent of driving out competitors. Monahan's
Marine, Inc. v. Boston Whaler, Inc., 1989-1 Tr. Cases
(CCH) § 68,422 (1st Cir. 1989); Clamp-All Corp. v.
Cast Iron Soil Pipe Institute, 851 F.2d 478, 483 (1st Cir.
1988), cert. denied, 109 S. Ct. 789 (1989). The Seventh
Circuit has adopted the first but not the second part of the
First Circuit test. MCI Communications Corp. v. AT&T,
708 F.2d 1081, 1111-31 (7th Cir.), cert. denied, 464 US.
891 (1983).
A price above average variable cost is presumed non-
predatory in the Second and Eighth Circuits, Northeastern
Tel Co. v. AT&T, 651 F.2d 76, 87-88 (2d Cir. 1981),
cert. denied, 455 U.S. 943 (1982); Henry v. Chloride, Inc.,
809 F.2d 1334, 1344-46 (8th Cir. 1987), and is deemed
lawful in the Fifth Circuit if barriers to entry are not sub-
stantial. International Air Industries, Inc. v. American
Excelsior Co., 517 F.2d 714, 724 (Sth Cir. 1975), cert.
denied, 424 U.S. 943 (1976).
In the Sixth Circuit, pricing above average total cost is
deemed lawful, Arthur S. Langenderfer, Inc. v. S.E. Johnson
Co., 729 F.2d 1050, 1056 (6th Cir.), cert. denied, 469
U.S. 1036 (1984), and the Ninth Circuit agrees unless
predatory intent is proven by clear and convincing evi-
dence. See Transamerica Computer Co. v. IBM, 698 F.2d
1377, 1384-88 (9th Cir.), cert. denied, 464 U.S. 955
(1983). The Eleventh Circuit also agrees that prices
above average total cost are not predatory but defines
“average total cost” as including “the necessary minimum
profit” which can only be ascertained. according to the
court, through expert testimony, thereby subjecting every
predatory pricing claim—however spurious—to a jury trial.
McGahee v. Northern Propane Gas Co., 858 F.2d 1487,
1503 n.35 (11th Cir. 1988) (petition for certiorari filed
March 17, 1989).
Like the opinion below, the Tenth Circuit rejects any
cost-based test for predatory pricing but considers average
variable cost “a valuable indicator.” IJnstructional Systems
Development Corp. v. Aetna Casualty and Surety Co., 817
F.2d 639, 648 (10th Cir. 1987). Both the Third and the
District of Columbia Circuits have refused to adopt any
specific test, although the Third Circuit is “inclined to
accept the basic premise . . . that predatory intent may not
be inferred from sales at or above average variable cost.”
O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 352 (3d
Cir. 1981), cert. denied, 455 U.S. 1017 (1982); Southern
Pacific Communications Co. v. AT&T, 740 F.2d 980, 1006
(D.C. Cir. 1984), cert. denied, 470 U.S. 1005 (1985).’
Thus, under the current interpretation of the Sherman
Act by the Courts of Appeals, pricing above average
variable cost—such as that by NAPC here—is lawful in
the Fifth Circuit, presumptively lawful in the Second and
Eighth Circuits, possibly lawful or unlawful in the First
and Seventh Circuits depending on the definition of cost,
lawful if prices are also above total cost in the Sixth and
Eleventh Circuits, and lawful or unlawful depending on
defendant’s intent in the Ninth and Tenth Circuits and
according to the opinion below.
7 The confusion among the Circuits and the significance of the
question presented herein is confirmed by the filing in recent years
of no less than eight petitions for certiorari seeking the Court’s
determination of what constitutes predatory pricing. See pages
11-12, supra. Most recently, the Court has denied the petition
raising this question in LSLJ Partnership v. Frito-Lay, Inc., 57
U.S.L.W. 3550 (1989), while the petition in McGahee, supra, filed
March 17, 1989, remains pending.
13
This state of legal confusion is made all the more in-
tolerable because it not only affects a business decision
that constitutes the very essence of competition, but also
because thousands of businesses must make such decisions
every day for products sold nationwide. Moreover, the con-
flict among the Circuits not only chills price cutting by
subjecting businesses to both the risk of treble damages
and the prospect of lengthy and expensive litigation, but it
also encourages forum shopping by plaintiffs seeking the
most favorable definition of predatory pricing.
‘It is therefore critical to the public interest in properly
functioning markets and vigorous competition, and to the
administration of the antitrust laws as a whole, that the
Court consider and answer the question presented.
III.
The holding below—that a dominant firm violates § 2
by “slashing its prices in response to the competition of a
new entrant, for the purpose and with the effect of eliminat-
ing that entrant” (A 18)—proscribes not only unlawful
conduct, but also lawful price cutting, which the Court has
found to be the very essence of competition regardless of
the size of defendant’s market share. Reinforcing the prin-
ciple that the antitrust laws protect “competition[,] not
competitors,” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc..,
429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v.
United States, 370 U.S. 294, 320 (1962)), the Court in
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104
(1986), ruled:
Brunswick holds that the antitrust laws do not re-
quire courts to protect small businesses from the
loss of profits due to continued competition, but
only against the loss of profits from practices for-
14
bidden by the antitrust laws. The kind of competi-
tion 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 anti-
trust 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 “it 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 (6th Cir.), cert.
denied, 469 U.S. 1036 (1984).
Id. at 116 (emphasis added).
It is precisely the vigorous price competition by a
dominant firm the Court sought to protect in Cargill that
has been proscribed by the court below.*
The court below has also misconstrued the Court’s hold-
ings in Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
472 U.S. 585 (1985) and American Tobacco Co. V.
United States, 328 U.S. 781 (1946). In citing those de-
cisions as support for its holding (A 18), the court below
failed to distinguish between the business practice at issue
here—price cutting which is always imbued with the legiti-
mate justification of increasing sales—with the practices in
8 As the dissent below stated:
Nor can I agree that it is probative of violation of the Sher-
man Act to introduce a lower-priced model in response to
a competitor's low-price model. . . . Industrial competition
is not benevolent, and causing loss of profits to a competitor,
or making the market less attractive to a competitor, whereby
a less efficient or higher cost competitor leaves the market,
is not itself a violation of antitrust law.
(A 28-29).
15
Aspen (termination of joint business relations) and Amer-
ican Tobacco (price fixing, refusals to deal, sham bidding)
which, the Court found, had no legitimate business justifica-
tion.
Aspen and American Tobacco did not, contrary to the
holding below, establish the principle that a dominant firm
may not engage in price competition with a smaller rival
if it intends to harm that rival.° The decision below pro-
scribes lawful price competition by a dominant firm and
conflicts with the Court’s prior decisions.
° An intent to harm a rival rather than an intent to increase sales
cannot provide the demarcation between lawful and unlawful con-
duct. See Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car,
Inc., 735 F.2d 884, 887 (Sth Cir. 1984), cert. denied, 469 U.S.
1160 (1985) (“[A] manifestation of intent to triumph in the com-
petitive market . . . is not enough to establish an antitrust viola-
tion.”) (quoting Hayes v. Solomon, 597 F.2d 958, 977 (Sth Cir.
1979), cert. denied, 444 U.S. 1078 (1980)); see also Olympia
Equipment Leasing Co. v. Western Union Tel. Co., 797 F.2d 370.
375 (7th Cir. 1986), cert. denied, 480 U.S. 934 (1987).
16
Conclusion
For the reasons stated, a writ of certiorari should be
issued to review the judgment of the United States Court
of Appeals for the Federal Circuit.
Respectfully submitted.
WILLIAM E. WILLIS
125 Broad Street
New York, New York 10004
(212) 558-4000
Counsel for Petitioners
North American Philips
Corporation, U.S. Philips
Corporation and N.V. Philips’
Gloeilampenfabrieken
GARRARD R. BEENEY
JOHN L. HARDIMAN
LISAMICHELLE DAVIS
Of Counsel
April 5, 1989
APPENDIX A
an fe cei el oe ee oe
Opinion of the Court of Appeals,
November 14, 1988
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
87-1476
ry
v
U.S. PHILIPS CoRP. AND NORTH AMERICAN PHILIPS CorpP.,
Plaintiffs-Appeliees,
V.
WINDMERE CORPORATION,
Defendant-Appellant,
IZUMI SEIMITSU KoGyo KABUSHIKI KAISHA,
Defendant.
DECIDED: November 14, 1988
Before MARKEY, Chief Judge, FRIEDMAN, SMITH, NEWMAN,
and Mayer, Circuit Judges.
FRIEDMAN, Circuit Judge.
This case involves electric shavers. Windmere Corpora-
tion (Windmere) appeals from a final order of the United
States District Court for the Southern District of Florida
directing a verdict in favor of U.S. Philips Corp. and North
American Philips (colledtively Philips) on Windmere’s
antitrust counterclaims. Because we hold that there was
sufficient evidence to submit the antitrust claims to the
jury, we reverse and remand for a new trial on those claims.
I
A. The Proceedings in the District Court.
In October 1984, Philips filed suit in the district court
against Windmere and Izumi Seimitsu Kogyo Kabushiki
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Court of Appeals Opinion
Kaisha (hereinafter Izumi) (a Japanese corporation) for
infringement of Philips’ electric shaver patent and against
Windmere for unfair competition. Windmere filed a coun-
terclaim alleging that Philips had monopolized and at-
tempted to monopolize the electric rotary shaver market,
in violation of Section 2 of the Sherman Act, 15 U.S.C.
§ 2 (1982), and that Philips and Dutch Philips (N.V.
Philips Gloeilampenfabrieken) had conspired to restrain
trade in that market, in violation of Section 1 of that Act,
15 U.S.C. § 1 (1982). Windmere apparently has aban-
doned its Section 1 claim.
Both the antitrust and the patent issues were tried to a
jury. At the close of Windmere’s antitrust case, the dis-
trict court granted Philips’ motion for a directed verdict on
those issues. The court submitted the patent and unfair
competition issues to the jury, which ruled for Philips on
the patent claim and for Windmere on the unfair competi-
tion claim. Pursuant to Rule 54(b) of the Federal Rules
of Civil Procedure, the court certified its order directing a
verdict on the antitrust counterclaim as final and therefore
appealable.
B. The Evidence Relating to the Antitrust Counterclaim.
1. The product involved. Philips sells, among other
things, electric shavers under the NORELCO and the
SCHICK brand names. There are two styles of electric
shavers: rotary and foil. Rotary shavers use high-speed
rotating cutters under a circular comb. Foil shavers use
vibrating blades under an etched metal foil. Rotary shavers
are either cordless rechargeable models or less expensive
corded models.
Philips introduced its Norelco rotary shaver in 1948.
The first model contained a single head. This was followed
by a double- and then a triple-headed shaver; Philips intro-
al
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Court of Appeals Opinion
duced the latter in 1966. The Norelco triple-headed rotary
Shaver accounts for at least 75 to 80 percent of Philips’
total shaver sales. In 1981, Philips purchased the rights to
the SCHICK trademark and used it to market its foil
shaver.
2. The rotary shaver market.
a. The relevant market. Philips does not dispute that
there was sufficient evidence upon which the jury could
have concluded that for antitrust purposes electric rotary
shavers constituted a separate market from electric foil
shavers. There also was evidence that shavers priced above
$30 constituted a separate market from those priced below
that amount. Philips has tended to concentrate on the
higher priced models, which generally are the cordless or
rechargeable shavers. In 1983, the year before Windmere
entered the electric shaver market with its Ronson shaver,
Philips had 72.8 percent of the sales of above-$30 shavers.
b. The concentration of that market. Prior to the
entry of Windmere and Sears Roebuck into the rotary
shaver market, Philips’ Norelco shaver was the only product
there. Mr. Gould, Windmere’s economist expert, who had
worked for the Census Bureau and the Department of
Justice, estimated that “in 1985 the Norelco share of the
rotary market was of [sic] the order of ninety percent.”
Gould, who had studied the concentration ratios of more
than 400 industries, testified that Norelco’s share of the
rotary market was “the highest figure I have encountered
in all of my studies. ... Going back thirty years.”
c. Barriers to entry. There was evidence that a recog-
nized brand name was critical to successful entry into the
electric shaver market. In 1977, Windmere first attempted
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Court of Appeals Opinion
to market a foil shaver and used the manufacturer’s name
(Payer). The name was not well-known, and the shaver
line was discontinued. The president of Windmere testi-
fied that Windmere’s customers advised them “that there
was no way we could be in the electric shaver industry
without a brand. Windmere doesn’t qualify as a national
brand that was known in the electric shaver business which
is what they told us [sic] we needed.” Although this
testimony was admitted with a limiting instruction that it
was allowed to show only “state of mind” and not the “truth
of the answer,” the fact that Windmere believed that it
needed a brand name to succeed in the market is evidence
that such a name was necessary. -
Philips became aware in February 1980 that Windmere
had reached “an understanding” to acquire the SCHICK
brand name. Philips subsequently predicted that if anyone
bought the SCHICK name and used it to market Izumi
rotary shavers, as Windmere was attempting to do, Philips
would lose $15 million in sales and $2 million in profit dur-
ing a three-year period, as well as five points in market
share. Philips then bought the rights to the SCHICK brand
name and used it to begin marketing a line of foil shavers.
A Philips memorandum titled “FOIL SHAVER MARKET-
ING OPPORTUNITY” noted that one “of the factors which
have influenced our decision not to market this line [foil
shavers] in the past” was because
we [Philips] have been unwilling to commit the tens
of millions of dollars required to establish an en-
tirely new shaver brand in the U.S. market. Now,
however, we are faced with a unique opportunity
which may never come our way again. An estab-
lished brand name is available for a relatively
small investment. Virtually all roadblocks which
AS5
Court of Appeals Opinion
have stood in the way of the foil line are eliminated
by the availability of the brand name—SCHICK.
Philips’ own economist expert testified that entry into
Windmere’s proposed markets was relatively easy. Philips
also relied on the fact that following Windmere’s entry into
the rotary shaver market in 1984, Windmere obtained 3
to 5 percent of the total electric shaver market.
d. Windmere’s entry into the rotary shaver market
and Philips’ response. As noted, in 1977 Windmere unsuc- —
cessfully had attempted to enter the foil shaver market. In
the spring of 1984, Windmere again entered the electric
shaver market with both foil and rotary shavers manu-
factured in Japan, which Windmere sold under the
RONSON trademark.
Windmere introduced a cordless rotary (model RR-1)
shaver for $34.99 and a corded rotary (model RR-2)
shaver for $22. Windmere projected that, during its first
six months in the shaver business, it would sell 125,000
razors for total dollar sales of more than $3 million. In
the last nine months of 1984, Windmere actually sold more
than 300,000 units for approximately $6 million. Wind-
mere’s 1984 annual report, prepared after it had filed its
antitrust counterclaim, stated that “[d]espite a substantial
loss of sales and revenues resulting from Philips, i.e.,
Norelco’s business tactics the Ronson electric shavers
represent the most successful new product line introduction
in the history of the Company.”
Philips had described Windmere as “a financially ex-
tremely healthy enterprise which is capable of making life
very difficult for us.” A Philips “report of decison taken at
a management policy meeting” on January 5, 1984, stated:
“If Windmere launches rotary shavers on the U.S. market,
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Court of Appeals Opinion
Mr. Beasley [vice president of marketing for Noe: Ameri-
can Philips Consumer Product Division] proposes to kill
this stone dead by introducing old models at very low
pres...
After Windmere introduced its Ronson shavers at a
price lower than Philips’ shavers, an April 20, 1984
Philips weekly report, for the week ending April 21, 1984,
stated: “Ronson is getting a solid foothold and apparently
is willing and able to pay a high price to get into our busi-
ness. Let’s pound them into the sand.” The report sug-
gested that Philips introduce the model “1320” cordless
rotary shaver. The model 1320 was Philips’ old model
1312, which had an expected retail price of $44 during 1979
to 1980.
The model 1320, however, was introduced at a distribu-
tor price of $27.08, which was approximately 31 percent
less than the $39 price at which the same razor had been
sold as the model 1312 four years earlier, and approxi-
mately 23 percent less than the comparable Ronson model.
The introduction of the model 1320 was not mentioned in
Philips’ 1984 business plan, dated December 1983. Until
the 1320, Philips had never introduced a new product at a
lower price point.
Philips discussed the 1320 shaver in a March 1984
memorandum:
Until later in the year, Norelco has decided on an
absolute embargo on any form of publicity in con-
nection with the introduction of the HP 1320....
The negative effect of any premature release of in-
formation on the HP 1320 or 1337 is feared, just
at the very time when the intention is to introduce
the 1320 as a complete addition to the line and not
for it to take sales away from any of the existing
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Court of Appeals Opinion
range of standard shavers. ... The question was
asked whether it was the intention to include the
1320 in the line for 1985. Beasley and Co. have
taken no clear position on this subject. Given the
likely impossibility of driving Windmere off the U.S.
market completely, we foresee that a non-retracting
rechargeable shaver sold at an aggressive price level
will persist on the market for a rather longer time
and thus cannot be viewed as an incidental phe-
nomenon, so to speak (emphasis added).
Philips later described the 1320 model as a “200th anni-
versary special to be out for a limited period of time.”
A May 24, 1984 Philips memorandum stated: “As dis-
cussed at the policy meeting, we should attempt to formu-
late a short term strategy with regard to the competition
represented by the Ronson trademark, which in the hands
of Windmere Inc. of Florida has penetrated our market
segment.” The memorandum refers to a marketing strategy
wherein
[a] direct frontal attack on Ronson in the market-
place is probably the crudest and probably also one
of the most expensive means at our disposal. This
would involve, for example, us locating competing
dealers at every address where Ronson is sold and
selling Norelco and/or Philips shavers at a lower
price. Furthermore, every challenge issued by
Ronson in the form of actual discounts would have
to be countered by offering even lower discounts.
We can reward exclusivity by giving every dealer
who does not sell Ronson shavers an extra discount
of 5%.
A8&
Court of Appeals Opinion
Total attack strategy, that is to say that just as
Norelco is now doing, we would launch a multi-
plicity of activities against Windmere and at a later
stage against any other competitor who appears on
the scene.
The memo concludes that “legal measures” “should make
life difficult for Ronson on every front where it is at all
possible, on the basis of our patents” and that as a “tactical
measure” Philips should “[b]uy Izumi, and quickly.”
Windmere presented testimony that, after Philips intro-
duced its model 1320, substantial orders ($2-2.5 million)
were cancelled. No orders for Ronson products had been
cancelled before the Philips 1320 was introduced.
The 1984 Philips marketing plan included a model 1615
corded rotary shaver. The 1615 was to have been sold to
distributors for $27.99, who then would have sold the
shavers at a retail price of $29.99. The price of the 1615,
however, was dropped approximately 35 percent to a dis-
tributor price of $18.03, which was almost $4 less than the
distributor price for Ronson’s comparable corded rotary
shaver.
Philips’ response to Windmere’s entry affected other
models in its line. In its “Model policy 1985,” discussed in
May 1984, a twin-head model “1722” apparently was
scrapped:
Mainly on account of the action undertaken against
Ronson as well as because of the very presence of
Ronson on the market with its known price ad-
vantages, there is less room for this product on the
American market than had been originally planned.
Another mcdel, the “1622,” was also affected:
A9
Court of Appeals Opinion
Although . . . this should be an expensive model on
account of the enhanced specification compared
with the HP 1620, it appeared from the discussion
of this point that the matter of price was more im-
portant than the question of the specification.
Norelco maintained their view despite the poor
way in which sales of the HP 1620 had held up,
even in the USA as well. Later the product dis-
cussion turned to the question of a frontal attack
on Ronson. In this context, Groningen [Dutch
Philips] quite clearly declared it was ready to drop
the price of this product even below that of the
HP 1620 ($8.15) provided that Norelco were ready
to drop their gross margin by a considerable amount.
Such a frontal attack on Ronson must certainly be
accompanied by considerably more volume... .
In March 1985, one year after Windmere entered the
electric shaver market, a Philips memo of a sales meeting
and visits to buyers noted the damaging effect the 1615
and 1320 had on sales of other Philips models:
The HP 1615 and the HP 1320 clearly eat in on
the HP 1337, HP 1327D and the HP 1604/05/06.
This is a dramatic development since it appears that
the HP 1615, at a price point of $19.95 will be a
disturbing development. It is clear that this is a
planned development and that we cannot occupy
ourselves “crying over spilled milk,” but the fact
remains nonetheless.
e. Philips’ alleged predatory pricing. Windmere con-
tended that Philips sold its 1320 and 1615 models below
its average variable costs and sacrificed its short-term profits
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Court of Appeals Opinion
on those models in order to drive Windmere out of the
rotary shaver market. Windmere and Philips introduced
into evidence various calculations directed to the question
whether Philips sold below cost. As the parties framed the
issue, the answer depended upon which of Philips’ costs
properly were allocable to those two models.
The parties vigorously disputed whether Philips’ adver-
tising expenses were a variable cost of those models and,
if they were, the basis upon which advertising expenses
should be allocated. Philips contended that there should be
subtracted from the $17.5 million it spent for advertising
in 1985 the approximately $6.6 million it received for ad-
vertising in that year from its Dutch parent, N.V. Philips.
If that subtraction were made, there was evidence that
Philips made a profit on the sales of the shavers. Philips
also argued that advertising expenses should have been
allocated as a percentage of expenses based upon revenues
—an allocation under which Philips would have made a
profit. Windmere disputed these assumptions and calcula-
tions based on them. Each side presented evidence jus-
tifying and supporting its position.
The parties also disputed the allocation of costs other
than advertising. For example, Windmere relied upon its
projections of Philips’ 1985 costs of batteries, freight and
handling. Philips contended that based on its actual, as
distinguished from projected, costs for those items, it
realized a profit on its sales. Windmere responded that be-
cause Philips’ actual costs were nct available to it, its cal-
culations based upon projected costs were a reasonable
basis for determining whether Philips’ sales were at a profit.
f. Windmere’s withdrawal from the rotary shaver
market. In December 1985, less than two years after it
introduced its Ronson rotary shaver, Windmere announced
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Court of Appeals Opinion
its withdrawal from the rotary shaver market. (It remained
in the foil market. ) Shortly thereafter, Philips discontinued
the sale of its 1320 and 1615 rotary shavers. At a 1986
housewares show, Philips stated that “[t]hey were closing
[the model 1320] out and coming out with a new model
at a higher price.”
C. The Decision of the District Court Directing a Ver-
dict on the Antitrust Counterclaim.
In an opinion explaining “in detail” its “reasons for
granting” Philips’ motion for a directed verdict, the district
court stated that “reluctantly” it had found that “Windmere
had failed to present substantial evidence sufficient to create
a jury question on at least one element of its antitrust claims
—the willful acquisition or maintenance of monopoly
power via predatory pricing. . . .” (footnote omitted).
The court ruled that “Windmere presented a substantial
amount of evidence to support its definition of the relevant
market and to show that [Philips] had market power in
this market.” The court stated that “[t]he specific conduct
which Windmere alleged was anticompetitive and showed
Philips’ intent to monopolize, was Philips[’] alleged pre-
datory pricing scheme with regard to the sale of its model
1320 and 1615 rotary electric razors.” The court held that
under /nternational Air Industries, Inc. v. American Ex-
celsior Co., 517 F.2d 714 (Sth Cir. 1975), cert. denied,
424 U.S. 943 (1976), Windmere was required to show
that Philips was “ ‘charging a price below [its] average
variable cost in the competitive market,’ ” (quoting 517
F.2d at 724) and that “Windmere’s evidence of below-cost
pricing does not meet the substantial evidence standard
necessary to withstand a directed verdict.”
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Court of Appeals Opinion
The court stated:
The disputes regarding the evidence Windmere
introduced to prove predatory pricing involve two
primary issues: (1) the proper allocation of
Philips[’] advertising expenditures, and (2) the
proper method of proving costs—i.e., by using
actual costs or projections.
The court further stated that it was “undisputed that if
all of Philips[’] advertising expenditures are classified as
fixed costs, that Philips[’] prices for the model 1320 and
1615 razors exceeded their average variable cost.” The
court noted the testimony of Mr. Kamerschen, Philips’
expert, that “based on his review of Norelco’s business and
media plans, which he stated contained the type of informa-
tion an economist would generally rely upon in order to
make a judgment of this kind, that Norelco’s advertising
was a fixed cost,” and stated that “Windmere failed to bring
forth any information to the contrary on the cross-examina-
tion of this witness” (record reference omitted). The court
ruled that the evidence upon which Windmere relied to
show that advertising was a variable expense—Norelco’s
“1984 income statements . . . which listed advertising in a
category entitled variable expenses”—was insufficient be-
cause “such an accounting record cannot alone support the
classification of advertising as a variable expense for eco-
nomic purposes” (record reference omitted).
The court further held that “[e]ven assuming, however,
that advertising expenses here are properly characterized as
variable costs, there is a question whether cooperative ad-
vertising support given to Norelco by NVP should be de-
ducted before determining whether Norelco priced the 1615
and 1320 below its average variable cost.” It rejected, as
“wholly unsupported” by the evidence, Windmere’s “con-
Al3
Court of Appeals Opinion
tention” that the approximately $6.6 million Philips re-
ceived “in advertising support from NVP in 1985” either
was not actually paid or was in adidtion to and not a part
of the $17.5 million Norelco spent for advertising in 1985.
The court also held that Windmere had not introduced suf-
ficient evidence to justify submitting to the jury Windmere’s
contention that the advertising expenses should be allocated
to the 1615 and 1320 models “on a per unit basis” (foot-
note omitted). Finally, the court rejected Windmere’s evi-
dence of the cost of batteries, freight and handling because
that evidence was based on “projections of the 1985 year”
(emphasis in original).
II
A. This court has exclusive jurisdiction over an appeal
from a final judgment where the jurisdiction of the district
court was based in whole or in part on 28 U.S.C. § 1338(a)
(1982). 28 U.S.C. § 1295(a)(1) (1982). In filing its
complaint against Windmere and Izumi for patent infringe-
ment, Philips invoked the jurisdiction of the district court
under section 1338(a). Although Windmere’s antitrust
counterclaim, which is the subject of this appeal, did not
invoke the district court’s jurisdiction under that section,
our appellate jurisdiction depends upon the nature of the
case in the district court and not upon the issues presented
to us for review. See In re Innotron Diagnostics, 800 F.2d
1077, 1080, 231 USPQ 178, 180-81 (Fed. Cir. 1986)
(“the mere presence in a case of ‘issues’ other than those
within a substantive field within this court’s exclusive ap-
pellate jurisdiction [does not} oust this court of the juris-
diction it must and would otherwise exercise in carrying
out its mission.”); see also Atari, Inc. v. JS & A Group,
Inc., 747 F.2d 1422, 1431, 223 USPQ 1074, 1080 (Fed.
Cir. 1984) (en banc).
Al4
Court of Appeals Opinion
In the present case, the jurisdiction cf the district court
over this case was based in part on section 1338(a). That
fact gives us jurisdiction over this appeal, even though the
appeal presents no questions under the patent laws. See,
e.g., In re Innotron Diagnostics, 800 F.2d at 1080, 231
USPQ at 180 (where patent complaint was consolidated
with antitrust complaint, the Federal Circuit had exclusive
jurisdiction over appeal from final judgment); Cable £lec.
Prods., Inc. v. Genmark, Inc., 770 F.2d 1015, 1029, 226
USPQ 881, 890 (Fed. Cir. 1985) (where district court
exercised jurisdiction over patent count under § 1338(a),
the Federal Circuit has jurisdiction, under § 1295(a), to
review the appeal of the nonpatent counts).
B. In determining whether the district court correctly
directed a verdict on Windmere’s antitrust counterclaim, we
apply the law of the regional circuit in which the district
court sits to determine both the appropriateness of a di-
rected verdict and the antitrust law questions. Power Con-
trols Corp. v. Hybrinetics, Inc., 806 F.2d 234, 237, 231
USPQ 774, 776 (Fed. Cir. 1986); Loctite Corp. v. Ultra-
seal Ltd., 781 F.2d 861, 875, 228 USPQ 90, 99 (Fed. Cir.
1985) (“We must approach a federal antitrust claim as
would a court of appeals in the circuit of the district court
whose judgment we review.”); Panduit Corp. v. All States
Plastic Mfg. Co., 744 F.2d 1564, 1574-75, 223 USPQ 465,
471 (Fed. Cir. 1984).
We thus “apply [Eleventh] Circuit law primarily and
look to guidance (albeit non-binding) from other circuits,
especially in uncharted areas.” 781 F.2d at 875, 228 USPQ
at 99-100. Since the Eleventh Circuit treats as binding de-
cisions of the Fifth Circuit rendered before October 1,
1981, when the Eleventh Circuit came into being, Bonner
v. City of Prichard, Ala., 661 F.2d 1206, 1207 (11th Cir.
———
Al5
Court of Appeals Opinion
1981) (en banc), we also apply those earlier Fifth Circuit
decisions.
In the Eleventh Circuit, “[t]o avoid a directed verdict,
{[Windmere] must have presented sufficient evidence to
create a jury question with respect to each element of [its]
case.” Malcolm v. Marathon Oil Co., 642 F.2d 845, 848
(Sth Cir. Unit B April), cert. denied, 454 U.S. 1125
(1981).
In determining whether there is sufficient evi-
dence to submit a case to the jury following a mo-
tion for directed verdict, the district court should
consider all evidence and not just evidence support-
ing the non-mover’s case. The evidence must be
considered in the light and with all reasonable infer-
ences most favorable to the party opposed to the
motion. If the facts and inferences point so strongly
and overwhelmingly in favor of one party that rea-
sonable persons could not reach a different con-
clusion, the Court should direct a verdict.
Gregory V. Massachusetts Mut. Life Ins. Co., 764 F.2d
1437, 1440 (11th Cir. 1985). See also Boeing Co. v.
Shipman, 411 F.2d 365, 374 (Sth Cir. 1969) (en banc)
(for evidence to be sufficient to create a jury question it
must be of a quality and weight that reasonable, impartial,
and fair-minded jurors might reach different conclusions).
In Anderson v. Liberty Lobby, Inc., 477 U.S. 242
(1986), the Supreme Court held that the standard for
granting summary judgment under Rule 56(c) of the Fed-
eral Rules of Civil Procedure “mirrors the standard for a
directed verdict under Federal Rule of Civil Procedure
50(a), which is that the trial judge must direct a verdict
if, under the governing law, there can be but one reason-
able conclusion as to the verdict. If reasonable minds could
Al16
Court of Appeals Opinion
differ as to the import of the evidence, however, a verdict
should not be directed.” /d. at 250-51 (citation omitted).
The Court pointed out that “[c]redibility determinations,
the weighing of the evidence, and the drawing of legitimate
inferences from the facts are jury functions, not those of a
judge, whether he is ruling on a motion for summary judg-
ment or for a directed verdict. The evidence of the non-
movant is to be believed, and all justifiable inferences are
to be drawn in his favor.” /d. at 255.
Ill
“The offense of monopoly under § 2 of the Sherman Act
has two elements: (1) the possession of monopoly power
in the relevant market and (2) the willful acquisition or
maintenance of that power as distinguished from growth
or development as a consequence of a superior product,
business acumen, or historic accident.” United States Vv.
Grinnell Corp., 384 U.S. 563, 570-71 (1966). The dis-
trict court recognized, and Philips does not dispute, that
“Windmere presented a substantial amount of evidence to
support its definition of the relevant market [rotary electric
shavers] and to show that [Philips] had market power in
this market.” The question before us, therefore, is whether
Windmere presented sufficient evidence to entitle it to go
to the jury on the second element of monopolization:
whether Philips willfully had maintained its monopoly
power in the rotary shaver market.
The district court viewed the essence of Windmere’s case
on the second element as “the willful acquisition or mainte-
nance of monopoly power via predatory pricing,” and used,
as the standard for determining “predatory pricing,” pricing
“below average variable cost.” The court concluded that
Windmere had failed to present substantial evidence that
Al7
Court of Appeals Opinion
Philips had priced its 1615 and 1320 rotary shavers below
Philips’ average variable costs.
We conclude, however, that the district court took too
narrow a view of the kind of evidence that will support the
second element of monopolization and of the bases of Wind-
mere’s claims. Moreover, even under the district court's
narrow view of Windmeres’ theory, Windmere presented
sufficient evidence of predatory pricing to preclude a di-
rected verdict on that issue.
A. There was evidence from which the jury could have
concluded:
1. That entry barriers to the rotary electric
shaver market are substantial, if not high—the need
to have a well-known brand with wide consumer
acceptance, the limited number of brands that
satisfy this requirement, and the substantial ad-
vertising expenditures required to attain a foothold
in the market.
2. That Philips introduced its lower-priced older
models only in response to Windmere’s entry into
the market with its cheaper Ronson rotary electric
shover.
3. That Philips cut the price of its shavers in an
endeavor to eliminate Windmere from the market.
Mr. Beasley proposed that if Windmere started sell-
ing rotary shavers in the United States market,
Philips should “kill this stone dead by introducing
old models at very low prices...” A Philips weekly
report, made after Philips had introduced its rotary
shaver, suggested: “Let’s pound them into the
sand.” A Philips memorandum referred to “the
likely impossibility of driving Windmere off the U.S.
market completely... .” Although Philips attempts
to discredit this evidence as mere sales talk, it was
Al8
Court of Appeals Opinion
for the jury to determine what weight and sig-
nificance this evidence had.
That this purpose of Philips was further shown by the
evidence that, when Windmere withdrew from the rotary
shaver market, Philips promptly discontinued the sale of
its lower-priced old model.
4. That Philips’ willful maintenance of its mono-
poly position was further shown by Philips’ prior
acquisition of the SCHICK brand name after it had
learned about an understanding between Windmere
and Schick for Windmere to acquire that name.
To be sure, Philips introduced evidence designed to show
that its actions were legitimate competitive responses
prompted by the entry of Windmere into the market. The
evaluation of all the evidence bearing on the nature of
Philips’ actions and the inferences to be drawn from the evi-
dence, was for the jury to determine. If the jury had
credited Windmere’s evidence and rejected Philips’, it
could have returned a verdict for Windmere. Evidence that
a firm holding 90 percent of a market that has substantial
entry barriers drastically slashes its prices in response to
the competition of a new entrant, for the purpose and with
the effect of eliminating that entrant, is sufficient to show
monopolization, in violation of section 2 of the Sherman
Act. Cf. Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 472 U.S. 585, 610-11 (1985); American Tobacco
Co. v. United States, 328 U.S. 7881 (1946).
B. Even under the district court’s view that Windmere’s
case rested on its claim that Philips had sold below average
variable cost, the evidence was sufficiently in conflict to
require submission of the issue to the jury and precluded
a directed verdict. As the district court noted, the deter-
mination whether Philips sold below average variable cost
Al9
Court of Appeals Opinion
required resolution of two issues: (1) whether Philips’ ad-
vertising expenses were variable or fixed costs and, if vari-
able, whether the advertising allowance Philips received in
1985 from its Dutch parent should be deducted from
Philips’ own advertising expenditures; and (2) whether
Windmere’s projections for certain items of Philips’ cost—
batteries, freight and handling—were sufficient to establish
those costs. The district court held that on both of these
elements of its case, Windmere failed to present sufficient
evidence to create disputed factual issues for the jury. We
disagree.
1. In ruling that Windmere had not presented substan-
tial evidence that Philips’ advertising expenses were variable
rather than fixed costs to create a jury question on
that issue, the district court relied on the testimony of
Philips’ economist expert, Mr. Kamerschen, that the
Norelco advertising was a fixed cost, and stated that
“Windmere failed to bring forth any information to the
contrary on the cross-examination of this witness.” It was
for the jury, however, and not for the court, to determine
the credibility of this witness and the weight to be given his
testimony. The jury was not required to accept his expert
testimony, even if it was uncontradicted. See Quock Ting
v. United States, 140 U.S. 417, 420 (1891) (“There may
be such an inherent improbability in the statements of a
witness as to induce the court or jury to disregard his evi-
dence, even in the absence of any direct conflicting testi-
mony.”). See also Archer Vv. Commissioner, 227 F.2d 270,
273 (Sth Cir. 1955); Boyett v. Commissioner, 204 F.2d
205, 208 (Sth Cir. 1953).
To counter Mr. Kamerschen’s opinion, Windmere relied
on Norelco’s 1984 income statements, “which listed ad-
vertising in a category entitled variable expenses.” The
court rejected this evidence as insufficient to create an
issue for the jury because “[i]t is clear that such an account-
A20
Court of Appeals Opinion
ing record cannot alone support the classification of adver-
tising as a variable expense for economic purposes.” As
was the case with Mr. Kamerschen’s expert testimony, how-
ever, this was evidence that the jury was entitled to con-
sider in determining whether the advertising expenses were
variable or fixed costs. Indeed, the Areeda and Turner
antitrust treatise, which the district court cited as authority
for rejecting Philips’ own characterization of its advertis-
ing expenses as variable costs, states that “we have defined
marginal and average variable cost to include advertising
and other promotional expenditures.” 3 P. Areeda & D.
Turner, Antitrust Law 4 721a, at 191 (1978).
Similarly, we conclude that, in determining the amount
of Philips’ advertising expenses that are variable costs, the
proper treatment of the approximately $6.6 million Philips
received from its Dutch parent in 1985 was an issue for the
jury to decide.
2. The question whether Philips’ advertising expenses
should be allocated to the 1615 and 1320 models on a per
unit basis or on the basis of revenue received also was a
matter for the jury and not for the court to decide. We
reach that same conclusion with respect to the propriety of
Windmere’s use of 1986 projections, rather than Philips’
actual operating costs (which apparently were not avail-
able to Windmere), to determine Philips’ costs of batteries,
freight and handling.
IV
It is unfortunate that, as a result of our decision, the
lengthy and complex issues involved in Windmere’s anti-
trust counterclaim will have to be retried. That, however.
is the consequence of the district court’s directing a verdict
rather than allowing the case to go to the jury. As the
eas
A21
Court of Appeals Opinion
Eighth Circuit stated, in language that applies equally to
this case:
In short, the case was not clear enough to justify
a directed verdict. If this case had been tried to
the court, we would have had no difficulty in affirm-
ing, as not clearly erroneous, a finding for [Philips]
supported by the opinion the District Court ren-
dered here. But this case was not tried to the court.
It should have been permitted to go to the trier of
fact.
Dace Vv. ACF Indus., Inc., 722 F.2d 374, 379 (8th Cir.
1983). The court continued in a footnote:
This case illustrates again that it is usually better
practice for a district court, faced with a motion for
directed verdict, to allow the case to go to the jury,
and address the issue by way of judgment n.o.v. if
necessary. The jury may find for the moving party
in which case the issue disappears. If the verdict is
against the moving party, and if judgment n.o.v. is
granted, and if this Court decides on appeal that it
should have been denied, the verdict can simply be
reinstated, and no new trial is necessary.
Id. at 379-80 n.9. Accord Mattivi v. South African
Marine Corp., “Huguenot”, 618 F.2d 163, 166 n.2 (2d
Cir. 1980); Jamesbury Corp. v. Litton Indus. Prods., Inc.,
839 F.2d 1544, 1550, 5 USPQ2d 1779, 1784 (Fed. Cir.
1988).
CONCLUSION
The order of the district court granting a directed verdict
against Windmere on its antitrust counterclaim is reversed,
and the case is remanded to the district court for a new
trial on that counterclaim.
REVERSED AND REMANDED.
A22
Court of Appeals Opinion
NEWMAN, Circuit Judge, with whom MARKEY, Chief Judge,
joins, dissenting.
I respectfully dissent, for I believe that the district court
correctly directed a verdict in favor of the Philips com-
panies with respect to the asserted violation of Section 2
of the Sherman Act.
Perhaps a more cautious, or less confident, style of trial
management would have been to allow the jury to reach a
verdict and then review the decision. However, the law of
the Eleventh and Fifth Circuits fully supports the procedure
followed. See, e.g., J&H Auto Trim Co. v. Bellefonte Insur-
ance Co., 677 F.2d 1365, 1368 (lith Cir. 1982) (“There
must be a conflict in substantial evidence to create a jury
question.” (quoting Boeing Co. v. Shipman, 411 F.2d 365,
375 (Sth Cir. 1969) (en banc)); Malcolm v. Marathon
Oil Co., 642 F.2d 845, 848 (Sth Cir.) (the non-moving
party must present evidence sufficient to create a jury ques-
tion as to each element of the claim), cert. denied, 454 U.S.
1125 (1981).
In a carefully reasoned opinion, applying the standards
of the Supreme Court and the Eleventh and Fifth Circuits,
the district court held that Windmere’s evidence was “‘sim-
ply insufficient to permit the trier of fact to find facts in
connection with this matter.” Review of the record and
arguments shows that the district court was correct when
it held that, as a matter of law, Windmere had not adduced
sufficient evidence to support a jury verdict in its favor on
the asserted Section 2 violation. The most stalwart de-
fender of jury trials must also defend the authority of the
trial judge to manage the trial and, when appropriate, to
direct the verdict. Galloway v. United States, 319 U.S.
372, 392-395 (1943).
A23
Court of Appeals Opinion
A.
In response to a suit for patent infringement and for un-
fair competition (based on trade dress), Windmere as-
serted a counterclaim of monopolization and attempt to
monopolize against the Philips companies under Section
2 of the Sherman Act. Other antitrust counterclaims, also
decided against Windmere on the ground of insufficient
evidence, are not before us.
The district court stated that “Windmere had failed to
present substantial evidence sufficient to create a jury ques-
tion on at least one element of its antitrust claim—the
willful acquisition or maintenance of monopoly power via
predatory pricing”. The district court held, correctly, that
unless Windmere were able to create a jury question on this
element, Windmere could not prevail on its Sherman Act
charge. See Malcolm v. Marathon Oil, supra.
The court thus concentrated on Windmere’s evidence
on the issue of predatory pricing and concluded that, as a
matter of law, Windmere had not presented sufficient evi-
dence to create a jury question on the essential premises
thereof. Applying United States v. Grinnell Corp., 384
U.S. 563, 570-571 (1966), the district court observed that
it is not illegal to lower one’s price in view of competition,
(or in this case to bring in additional models at low price,
without lowering the price of the existing models) unless
in so doing the pricing is “predatory”. The applicable law
on determination of predatory pricing has recently been
reviewed in Cargill, Inc. v. Monfort of Colorado, Inc., 479
U.S. 104, 117 n.12 (1986), as follows:
No consensus has yet been reached on the proper
definition of predatory pricing in the antitrust con-
text, however. For purposes of decision in Mat-
A24
Court of Appeals Opinion
sushita Electric Industrial Co. v. Zenith Radio
Corp., 475 U.S. 574 (1986), for example, we de-
fined predatory pricing as either “(i) pricing below
the level necessary to sell their products, or (ii)
pricing below some appropriate measure of cost.”
Id., at 585, n.8. Definitions of predatory pricing
also vary among the Circuits. Compare Arthur
S. Langenderfer, Inc. v. S. E. Johnson Co., 729
F.2d 1050, 1056-1057 (CA6) (pricing below
marginal or average variable cost presumptively
illegal, pricing above such cost presumptively legal),
cert. denied, 469 U.S. 1036 (1984), with Trans-
america Computer Co. v. International Business
Machines Corp., 698 F.2d 1377 (CA9) (pricing
above average total costs may be deemed predatory
upon showing of predatory intent), cert. denied, 464
U.S. 955 (1983).
The district court, following this direction, looked to the
precedent of its own circuit for elaboration of the method
of determining predatory pricing. In /nternational Air
Industries, Inc. Vv. American Excelsior Co., 517 F.2d 714,
724 (Sth Cir. 1975), cert. denied, 424 U.S. 943 (1976),
the Fifth Circuit held:
In short, in order to prevail as a matter of law, a
plaintiff must at least show that either (1) a com-
petitor 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 enable the discriminator to reap the bene-
fits of predation before new entry is possible. [foot-
notes omitted]
A25
Court of Appeals Opinion
The first of the two [nternational Air tests, pricing below
average variable cost, was the lesser standard for Windmere
to meet. It is a commonly used test for predatory pricing
in the Fifth Circuit, see, e.g., Adjusters Replace-A-Car Inc.
Vv. Agency Rent-A-Car Inc., 735 F.2d 884 (5th Cir. 1984),
cert. denied, 469 U.S. 1160 (1985); and in other circuits,
see, e.g., MCI Communications Corp. v. American Tele-
phone & Telegraph Co., 708 F.2d 1081 (7th Cir.)
(criticizing the profit maximizing test), cert. denied, 464
U.S. 891 (1983); Barry Wright Corp. v. ITT Grinnell
Corp., 724 F.2d 227, 236 (1st Cir. 1983); Northeastern
Telephone Co. v. American Tel. & Tel. Co., 651 F.2d 76,
87-88 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982);
Southern Pacific Comm. Co. v. American Tel. & Tel. Co.,
556 F. Supp. 825, 927, 964 (D.D.C. 1983), aff'd, 740
F.2d 1011 (D.C. Cir. 1984), cert. denied, 470 U.S. 1005
(1985).
From the record and argument, it is apparent that Wind-
mere’s only way of attempting to show price below average
variable cost was by including Philips full advertising costs
as variable costs, attributed per unit to the reintroduced
obsolete models 1320 and 1615. Although the parties argue
the point on this appeal—the majority opinion refers to a
“vigorous dispute’—the district court looked to the evi-
dence.
The district court found that Windmere had presented
“no record evidence” to support either its method of alloca-
tion of advertising costs or its challenge to the total ad-
vertising expenditures; and that on Norelco’s established
advertising expenditures of $17,558,000, of which $6.6
million was paid by NVP, “even according to the testimony
of Windmere’s Vice President of Finance, Burton Honig,
Norelco achieved a profit on the sale of the 1320 and 1615
EEE
A26
Court of Appeals Opinion
in 1985”. Although Windmere argues the arithmetic on
appeal, there was no evidence to the contrary. Argument
of counsel is not evidence, as the Fifth Circuit has discussed:
Unsupported, self-serving testimony is not substan-
tial evidence sufficient to create a jury question.
Yoder Brothers, Inc. v. California-Florida Plant
Corp., 537 F.2d 1347, 1371 (Sth Cir. 1976), cert.
denied, 429 U.S. 1094, 97 S. Ct. 1108, 51 L. Ed.
2d 540 (1977). Similarly, inferences cannot stand
in the face of uncontradicted and substantial evi-
dence to the contrary. Scott Medical Supply Co. v.
Bedsole Surgical Supplies, Inc., 488 F.2d 934, 937
(5th Cir. 1974).
Comfort Trane Air Conditioning Co. v. Trane Co., 592
F.2d 1373, 1383 (5th Cir. 1979). Accord Janich Bros.,
Inc. v. American Distilling Co., 570 F.2d 848, 858 (9th
Cir. 1977), cert. denied, 439 U.S. 829 (1978) (affirming
directed verdict for a defendant on a predatory pricing claim
because of the inadequacy of plaintiffs accounting evi-
dence: “a firm’s marginal costs cannot be ascertained from
conventional business records. Conventional records do not
provide information which a jury can use as evidence of
marginal cost.”)
The district court remarked on the absence of evidence
of any advertising whatsoever of the 161£ and 1320 models;
and the court observed that Windmere had the burden
of proof. Referring to Windmere’s reliance on its proposed
projections of Philips’ costs rather than actual cost data,
the district court held that “[a]lthough some use of projec-
tions undoubtedly is necessary, we find that where such use
alone makes the difference between a loss or a profit on an
item that use is too extensive.” The district court cited
A27
Court of Appeals Opinion
the Supreme Court in Matsushita Electric Inc. Co. v. Zenith
Radio Corp., 475 U.S. 574, 589 (1986) on the necessity
of “direct evidence” of predatory pricing schemes.
Following the guidance of Matsushita, the district court
concluded that “Windmere’s evidence of below-cost pricing
does not meet the substantial evidence standard necessary
to withstand a directed verdict.” No error has been shown
in the district court’s careful analysis of the evidence
presented, or in its conclusion that the minimum evidentiary
standards on which a jury could have reached a verdict
of predatory pricing had not been met.
B.
Windmere argues in the alternative that the district court
Should have applied to its pricing analysis the second
standard of International Air, 517 F.2d at 724, viz. that
“the competitor is charging a price below its short-run,
profit-maximizing price and barriers to entry are great
enough to enable the discriminator to reap the benefits of
predation before new entry is possible.” The Fifth Circuit
Court explained the profit maximizing test as follows:
This standard should be applied only when the bar-
riers to entry are extremely high. The lower the
barriers to entry in a market, the closer to marginal
cost a monopolist would have to set its price in order
for a plaintiff to prevail as a matter of law, for we
see no social utility in insuring the survival of in-
efficient firms where a new entry is possible.
International Air, 517 F.2d at 725 n.31.
The district court did not rely in its decision on the
presence or absence of barriers to entry, presumably be-
cause Windmere did not argue that it encountered any
a
A28
Court of Appeals Opinion
actual barriers. It was undisputed that the Izumi shavers,
labeled with the Ronson trademark, experienced no entry
barriers whatsoever. In its first year Windmere sold six
million dollars’ worth, double its projections. In its 1984
Annual Report Windmere stated:
The most exciting new product introduced in 1984
was the Ronson shaver line, which included three
microfoii and two rotary shavers. We were success-
ful in gaining distribution of our shavers to many
of the major retailers in America. This was the most
successful product introduction in the Company’s
history.
Windmere’s sole argument as to entry barriers is based on
its reference to negotiations for the SCHICK trademark—
an event whose significance is belied by Windmere’s ap-
parently ready acquisition of the Ronson mark, and its im-
mediate market success. Accord, D.E. Rogers Associates,
Inc. v. Gardner-Denver Co., 718 F.2d 1431, 1434 (6th Cir.
1983), cert. denied, 467 U.S. 1242 (1984) (ease of entry
shows lack of barriers to entry). In addition, Windmere’s
Vice President of Sales testified that the Sunbeam brand
name was available and could be used to market electric
shavers.
Since Windmere did not meet the threshold burden, under
the profit-maximizing test, of presenting evidence whereby
a jury could find that it experienced high barriers to entry,
I respectfully disagree with my colleagues’ reliance on entry
barriers as contributing substantial evidence for the jury:
this is the first of the majority's four-point basis for remand
for jury trial. Nor can I agree that it is probative of viola-
tion of the Sherman Act to introduce a lower-price model
in response to a competitor's low-price model (the ma-
A29 -
Court of Appeals Opinion
jority’s second point); or to engage in vigorous price com-
petition (the majority’s third point). The fourth point, on
which the negotiations concerning the SCHICK trademark
were relied on as evidence of intent to monopolize, even
if established, is not probative without below-cost pricing.
Industrial competition is not benevolent, and Causing loss
of profits to a competitor, or making the market less attrac-
tive to a competitor, whereby a less efficient or higher cost
competitor leaves the market, is not itself a violation of
antitrust law. As stated in Ball Memorial Hospital, Inc.
V. Mutual Hospital Ins., 784 F.2d 1325, 1338, 1339 (7th
Cir. 1986):
[I]ntent to harm rivals is not a useful standard in
antitrust... . Vigorous competitors intend to harm
rivals, to do all the business if they can. To penalize
this intent is to penalize competition.
Windmere’s position, simply put, is that Philips was
obliged to preserve its pricing at the levels of the status
quo ante, and neither reduce its price nor bring in a lower-
price model. Windmere refers approvingly to Remington’s
failure to reduce its prices when Windmere introduced its
Ronson brand foil razor. Thus Windmere argues that
Philips must be barred by the antitrust laws from pricing
its obsolete 1320 and 1615 models at lower prices than
those at which they had sold when they were the current
models (the 1615 having been offered at $28.00 some
years before, and now reoffered at $17.50), since the
purpose was to offer these models at a lower price than
that at which Windmere was offering the Izumi shaver.
It is not the law that Philips was required to preserve its
prices and products as they were before Windmere offered
the Izumi product at a lower price. “It is not anticompeti-
tive for a company to reduce prices to meet lower prices
A30
Court of Appeals Opinion
already being charged by competitors. Indeed, ‘[t]o force a
company to maintain non-competitive prices would be to
turn the antitrust laws on their head.” D.E. Rogers, 718
F.2d at 1435 (citations omitted) (quoting Richter Con-
crete Corp. V. Hilltop Concrete Corp., 691 F.2d 818, 826
(6th Cir. 1982)). The district court applied this prin-
ciple in its statement that “[p]rice cutting between com-
petitors as a general rule is precisely the type of conduct
our laws are designed to promote.” Pertinent is the Su-
preme Court’s recent discussion in Matsushita, 475 US.
at 594:
But cutting 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 anti-
trust laws are designed to protect. See Monsanto,
supra, at 763-764, 79 L. Ed. 2d 775, 104 S. Ct.
2378. “[{W]e must be concerned lest a rule or
precedent that authorizes a search for a particular
type of undesirable pricing behavior end up by dis-
couraging legitimate price competition.” Barry
Wright Corp. v. ITT Grinnell Corp., 724 F.2d
227, 234 (CA1 1983).
The district court considered Windmere’s arguments as
to the applicable precedent, including a careful analysis
of Aspen Skiing Co. v. Aspen Highlandds Skiing Corp.,
472 U.S. 585 (1985). The court, for the purpose of this
motion, accepted Windmere’s definition of the relevant
market as limited to rotary shavers, but did not agree with
Windmere that it is always a violation of the Sherman Act
to reduce prices if the result is to “deliberately remove com-
petitors,” in Windmere’s words, or that Philips was required
to refrain from reacting to Windmere’s importation of the
A31
Court of Appeals Opinion
Izumi product. The court, following International Air,
held that it is insufficient evidence of Sherman Act violation
to show that a “large entrenched firm with a dominant
market share,” id. at 721, reduced its prices in “a program
of stunting the possible growth of [the new entrant].” Jd.
at 719. The court held, as /nternational Air requires, that
it is also necessary to show that the sales were below
average variabie cost. Jd. at 724. It is not the law that a
dominant company must make room for new entrants.
The Fifth Circuit has discussed the role of intent, stating
in Adjusters Replace-A-Car, Inc. v. Agency Rent-A-Car,
Inc., 735 F.2d 884, 887 (Sth Cir. 1984), cert. denied,
469 U.S. 1160 (1985) that:
A statement of intent to compete . . . even if per-
ceived as a threat is not unlawful. Such a manifesta-
tion of intent to triumph in the competitive market,
in the absence of unfair, anticompetitive or pre-
datory conduct, is not enough to establish an anti-
trust violation.
(quoting Hayes v. Solomon, 597 F.2d 958, 977 (Sth Cir.
1979), cert. denied, 444 U.S. 1078 (1980). It is not the
purpose of the antitrust laws to require that a lawful
monopolist “holdj] an umbrella over inefficient competi-
tors”. Olympia Equipment Leasing Co. v. Western Union
Telegraph Co., 797 F.2d 370, 375 (7th Cir. 1986), cert.
denied, 107 S. Ct. 1574 (1987).
Today it is clear that a firm with lawful monopoly
power has no general duty to help its competitors,
whether by holding a price umbrella over their
heads or by otherwise pulling its competitive
punches.
Id. at 375.
A32
Court of Appeals Opinion
Philips was not required to limit its products to those
pre-existing at higher prices, to provide an “umbrella” for
the importation by Windmere of the cheaper Izumi model,
or to refrain from selling an even cheaper model, even for
a limited time. The standard of the Fifth and Eleventh Cir-
cuits is that an essential element of a Section 2 violation is
proof of sale below a fair measure of cost, as discussed in
International Air. We, sitting in review of the district
court’s application of Fifth/Eleventh Circuit law, are unau-
thorized to set a different standard.
...
The district court concluded that there was insufficient
evidence to create a jury question on whether Philips was
pricing the re-introduced models below cost. It was the
trial court’s obligation to assure that the jury was presented
with evidence, not appeals to “passion and prejudice”.
Connell v. Sears Roebuck & Co., 722 F.2d 1542, 1546
(Fed. Cir. 1983). The Court stated in Zenith Radio Corp.
v. Hazeltine Research Inc., 395 U.S. 100, 124 ( 1969), that
“speculation and guesswork” can not support a verdict of
antitrust violation. See also Comfort Travel Air Condition
Co. v. Trane Co., 592 F.2d 1373, 1383 (Sth Cir. 1979)
(directed verdict granted when plaintiff failed to present
substantial evidence that defendant's illegal antitrust ac-
tivities were a material cause of plaintiff's injuries). Accord
Broadway Delivery Corp. V. United Parcel Service, Inc.,
651 F.2d 122, 131 (2d Cir.), cert. denied, 454 U.S. 968
(1981) (motion to dismiss after jury trial granted because
plaintiff's proof “did not permit a reasonable fact-finder
{to make] a careful assessment of the relationship between
the defendants’ prices and costs”); MCI Communications
Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1125,
A33
Court of Appeals Opinion
126, 1127 (7th Cir.) (affirming a directed verdict for
defendant on a predatory pricing claim because of insuf-
ficient evidence), cert. denied, 464 U.S. 891 (1983);
Janich Brothers, Inc. v. American Distilling Co., 570 F.2d
848, 858 (9th Cir. 1977) (jury verdict set aside because
of insufficient evidence of predatory pricing), cert. denied,
439 U.S. 829 (1979). See generally Areeda & Turner,
Predatory Pricing and Related Practices Under Section 2
of the Sherman Act, 88 Harv. L. Rev. 697 (1975).
The district court correctly concluded that Windmere
had not adduced sufficient evidence to create a jury ques-
tion of its Section 2 Sherman Act claim, as a matter of law.
The court thus acted within its authority in directing the
verdict on this issue, and should be affirmed.
APPENDIX B
Opinion of the District Court, June 8, 1987
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE No. 84-2508-CIV-MARCUS
U.S. PHiLips CORPORATION and NORTH AMERICAN
PHILIPS CORPORATION,
Plaintiffs,
VS.
WINDMERE CORPORATION and IZUMI SEIMITSU KoGyYo
KABUSHIKI KAISHA,
Defendants.
ry
v
THIS CAUSE came before the Court during the course
of a jury trial upon the motions of U.S. Philips Corpora-
tion (“USP”), North American Philips Corporation
(“NAPC”) and N.V. Philips Gloeilampen Fabrieken
(“NVP”) for a Directed Verdict as Counterdefendants
(USP and NAPC) and Third Party Defendant (NVP)
on Counts I and II of Windmere Corporation’s (““Wind-
mere”) and Izumi Setimitsu Kogyo Kabushiki Kaisha’s
(“Izumi”) Counterclaim against USP and NAPC, and third
party claim against NVP. On April 17, 1986, at the close
of Windmere’s antitrust case, USP, NAPC and NVP moved
for a directed verdict on Windmere’s counterclaim. At that
time, Windmere withdrew its claims under the Robinson-
Patman Act (Count III), Florida State Law (Count V)
and the Clayton Act (Count VII). The Court heard oral
argument on the remaining claims under Sections | and 2
of the Sherman Act on that date. Subsequently all parties
submitted supplemental memoranda addressing the remain-
ing counts, as well as questions raised by the Court at oral
argument.
B2
District Court Opinion
In their supplemental memorandum, USP and NAPC
alleged that they were entitled to a directed verdict because
Windmere had failed to offer substantial evidence that
Norelco sold its Model 1320 and 1615 razors below average
variable cost and that any evidence it had offered was in-
sufficient to avoid a directed verdict. NVP alleged in its
supplemental memorandum that Windmere had failed to
offer substantial evidence that NVP had monopolized or
attempted to monopolize any relevant market or that NVP
and Norelco were separate entities capable of conspiring
under § 1 of the Sherman Act. In response, Windmere
claimed that it did not have to show that Norelco main-
tained its monopoly by predatory acts in order to prove
its monopolization claim, or alternatively, that if proof of
predatory acts was necessary, that Windmere had produced
sufficient evidence of them to withstand a directed verdict
motion. Reluctantly we found that Windmere had failed
to present substantial evidence sufficient to create a jury
question on at least one element of its antitrust claims—
the willful acquisition or maintenance of monopoly power
via predatory pricing '—and accordingly we granted USP,
NAPC and NVP’s motions for a directed verdict in open
court on April 22, 1986. On April 22, 1986, a jury re-
turned a verdict for Plaintiffs on their patent infringement
claim and for Defendants on the unfair competition claim.
We revisit the directed verdict motions now to set forth
our reasons for granting them in detail.
1 The failure to prove predatory pricing is also fatal to Windmere’s
Section 1 claim against NVP. See Matsushita Electric Industrial
Co. v. Zenith Radio Corp., 106 S.Ct. 1348 (1986) (Section 1 case
which alleged predatory pricing).
B3
District Court Opinion
I. THE PARTIES
USP is a Delaware corporation which holds intellectual
property rights. NAPC is a Delaware corporation which is
engaged in a diversified line of commerce. It is a publicly
held corporation with stock traded on the New York
Stock Exchange. One of its divisions has been selling elec-
tric razors (foil) since 1948 and rotary electric razors since
1963. The brand name for the rotaries is Norelco. NVP
is related to NAPC in the following way: NVP is a Nether-
lands corporation wholly owned by the shareholders of
N.V. Gemeenschappelijk Bezit van Aandelen- Philips’
Gloeilampenfabricken (“Bezit”), a Netherlands corpora-
tion. Bezit is the beneficiary of United States Philips Trust,
which holds 60% of the common stock of NAPC. Answer
of NVP to Amended Third Party Complaint, at 2, Para. 4.
Windmere is a Florida corporation engaged in various
lines of commerce in the United States. Windmere began
marketing rotary razors under the Ronson trade name in
1984. Izumi is a Japanese corporation which manufactures
and sells electric razors to Windmere.
This action was commenced in October 1984 with the
filing of a Complaint by Plaintiffs USP and NAPC against
Windmere and Izumi for patent infringement and unfair
competition. The essence of the Complaint was that Wind-
mere’s Ronson rotary razors violated Plaintiffs’ patents on
Norelco rotaries, and that Windmere created confusion
among consumers by marketing the Ronson razor to appear
as if it were nearly identical to the Norelco rotaries> While
the patent infringement claim was directed against both
Windmere and Izumi, the unfair competition claims were
directed only at Windmere.
B4
District Court Opinion
Izumi counterclaimed against USP and NAPC seeking
declaratory judgment concerning U.S. letters Patent No.
4,227,301, which was the patent purportedly infringed by
Izumi. Izumi contended that the patent issued was invalid.
Windmere counterclaimed against USP and NAPC, Plain-
tiffs, and against NVP as a third party defendant. The only
remaining counts were Counts I and II. Count I was
brought under Section 2 of the Sherman Act, 15 U.S.C.
§ 2, and alleged an unlawful attempt by USP, NAPC and
NVP to monopolize, and monopolization of the electric
shaver market and the rotary shaver submarket in the
United States. Count II alleged a conspiracy to restrain
trade in the electric shaver market and rotary submarket
between NAPC, USP, and NVP.
II. DIRECTED VERDICT STANDARD
The standard to be applied to a directed verdict motion
has been stated by the Eleventh Circuit as follows:
On motions for directed verdict and for judgment
notwithstanding the verdict the Court should con-
sider all of the evidence—not just that evidence
which supports the non-mover’s case—but in the
light and with all reasonable inferences most favor-
able to the party opposed to the motion. If the facts
and inferences point so strongly and overwhelm-
ingly in favor of one party that the Court believes
that reasonable men could not arrive at a contrary
verdict, granting of the motions is proper. On the
other hand, if there is substantial evidence opposed
to the motions, that is, evidence of such quality
and weight that reasonable and fair-minded men
in the exercise of impartial judgment might reach
. B5
District Court Opinion
different conclusions, the motions should be denied,
and the case submitted to the jury. A mere scintilla
of evidence is insufficient to present a question for
the jury. The motions for directed verdict and
judgment n.o.v. should not be decided by which
side has the better of the case, nor should they be
granted only when there is a complete absence of
probative facts to support a jury verdict. There
must be a conflict in substantial evidence to create
a jury question. However, it is the function of the
jury as the traditional finder of the facts, and not
the Court, to weigh conflicting evidence and infer-
ences, and determine the credibility of witnesses.
L.A. Draper & Son, Inc. v. Wheelabrator-Frye, Inc., 735
F.2d 414, 419-20 (11th Cir. 1984), aff'd in part and rev’d
in part on other grounds, 813 F.2d 332 (11th Cir. 1987)
(quoting Boeing Co. v. Shipman, 411 F.2d 365, 374-75
(Sth Cir. 1976) (en banc).
In order to withstand a directed verdict motion, the non-
moving party must present substantial evidence sufficient to
create a jury question with respect to each element of its
claim. Malcolm v. Marathon Oil Co., 642 F.2d 845, 848
(Sth Cir. 1981), cert. denied, 454 U.S. 1125 (1981).
“Unsupported, self-serving testimony is not substantial evi-
dence sufficient to create a jury question.” Comfort Trane
Air Conditioning Co. v. Trane Co., 592 F.2d 1373, 1383
(Sth Cir. 1979) (citations omitted). “Similarly, inferences
cannot stand in the face of uncontradicted and substantial
evidence to the contrary.” Jd. (citation omitted).
USP, NAPC, and NVP acknowledged the strict standard
for a directed verdict yet strongly urged that a directed
verdict was appropriate because Windmere had failed to
present substantial evidence sufficient to create a jury ques-
tion primarily on its predatory pricing allegations.
B6
District Court Opinion
As we have noted, Counts I and II alleged a monopoly,
an attempt to monopolize and restraint of trade against
USP, NAPC and NVP. Windmere alleged that NVP was
the parent of USP and NAPC and that the three corpora-
tions were really a single economic unit acting in violation
of Section 2 of the Sherman Act. Alternatively, Windmere
alleged that NVP conspired with USP and NAPC in viola-
tion of Section 1 of the Sherman Act. While NVP moved ,
separately for a directed verdict in its favor, many of the
same arguments advanced by USP and NAPC applied to
NVP as well.’
Il]. THE SHERMAN ACT
In United States v. Grinnell Corp., the Supreme Court
stated that a Section 2 Sherman Act violation consists of
the following elements: “(1) the possession of monopoly
power in the relevant market and (2) the willful acquisi-
tion or maintenance of that power as distinguished from
growth or development as a consequence of a superior
product, business acumen, or historic accident.” 384 U.S.
563, 570-71 (1966). Moreover, to establish an attempt
to monopolize, the plaintiff must show a specific intent
to monopolize and a dangerous probability of achieving a
monopoly in the relevant market.
As we noted in our summary judgment Order of April
8. 1986, the crucial issue in antitrust analysis often is a
determination of the alleged monopolists’ market power.
Furthermore, the threshold fact question in determining
market power is definitional—what is the relevant market.
2 Thus, we shall refer to USP, NAPC, and NVP collectively as
“Philips” hereinafter.
B7
District Court Opinion
See, e.g., Grinnell, 384 U.S. at 570-71. In accord with the
importance of these determinations, Windmere presented a
substantial amount of evidence to support its definition of
the relevant market and to show that USP, NAPC and NVP
had market power in this market. Windmere’s memo-
randum in opposition to the directed verdict motion entitled
“Windmere’s Theories of Liability” also thoroughly covered
these arguments. Market power, however, is not the sole
element of a Sherman 2 violation. Although Windmere
claimed at oral argument that the Sherman Act “prevents
monopoly,” this is simply not so. As is clear from the
Grinnell test, the Sherman Act prohibits only those mono-
polies that are willfully acquired or maintained as distin-
guished from those that result from a superior product,
business acumen or historic accident. Thus, even assuming
that USP, NAPC, and NVP had market power in Wind-
mere’s proposed relative market, as we did for purposes
of this motion, Windmere still had to prove the “willful-
ness” or intent element in order to meet the requirement
that it present substantial evidence on each element of its
claim. Accordingly, it is the evidence with respect only
to this element of a Sherman 2 violation that we shall
review.
A. Monopolistic Intent
Specific intent to monopolize is an element of an attempt
to monopolize claim under § 2, but in cases of actual mono-
polization, the intent required under § 2 is a general intent
—a specific intent need not be proved. “The [requisite
specific] intent must be to do more than compete vigor-
Ously; vigorous competition is precisely what the antitrust
laws are designed to foster.” Adjusters Replace-A-Car, Inc.
Vv. Agency Rent-A-Car, Inc., 735 F.2d 884, 887 (Sth Cir.
B8
District Court Opinion
1984), cert. denied, 469 U.S. 1160 (1985). Accordingly,
in this Circuit,’ “[a] statement of intent to compete...
even if perceived as a threat, is not unlawful. Such a
manifestation of intent to triumph in the competitive market,
in the absence of unfair, anti-competitive or predatory
conduct, is not enough to establish an antitrust violation.”
Hayes v. Solomon, 597 F.2d 958, 977 (Sth Cir. 1979)
(footnote and citations omitted), cert. denied, 444 US.
1078 (1980). “Rather, the forbidden specific intent is that
of acquiring and exercising ‘the power to fix prices or to
exclude competition.’ ” Adjusters Replace-A-Car, Inc., 735
F.2d at 887 (quoting United States v. du Pont & Co., 351
U.S. 377, 391 (1956) ).
The less stringent standard of general intent is met where
a business which possesses monopoly power “undertakes a
course of action the consequences of which would be to
destroy or exclude competition, or if monopoly results as the
inevitable consequence of its conduct.” 3 Von Kalinowski,
Antitrust Laws & Trade Regulation § 8.02[4] (1986). Ifa
business’ conduct is unlawful, or in context evidences a will-
ful, deliberate or conscious acquisition or retention of mono-
poly power, a general intent to monopolize will be inferred.
Id. Because Windmere has made both monopolization and
attempted monopolization claims, each of which has a
different intent standard, we evaluated only the monopoliza-
tion claim, which carries with it the less rigorous general
intent standard, in determining whether Windmere offered
the substantial evidence necessary to withstand a motion for
a directed verdict.
3In Bonner v. City of Prichard, the Eleventh Circuit adopted
as binding precedent those decisions rendered by the former Fifth
Circuit prior to October 1, 1981. 661 F.2d 1206 (lith Cir. 1981).
B9
District Court Opinion
B. Predatory Pricing Standards
The specific conduct which Windmere alleged was anti-
competitive and showed Philips’ intent to monopolize, was
Philips alleged predatory pricing scheme with regard to the
sale of its model 1320 and 1615 rotary electric razors. As
has been noted by the Supreme Court recently, however,
predatory pricing, by either a single firm or as a conspiracy,
is by its nature very speculative. Matsushita Electric In-
dustrial Co. v. Zenith Radio Corp., 106 S.Ct. 1348, 1357-58
(1986). It requires a company or companies to sacrifice
present revenues in the expectation of greater future gains.
For this risk to be rational, the company or companies must
have a very substantial prospect that the losses they incur
will be exceeded by the monopoly profits to be earned after
rivals have been destroyed. /d.; see P. Areeda & D. Turner,
Predatory Pricing & Related Practices Under Section 2 of
the Sherman Act, 88 Harv. L. Rev. 697, 698 (1975) (here-
inafter “Areeda & Turner”). “Absent some assurance that
the hoped-for monopoly will materialize, and that it can
be sustained for a significant period of time. ‘[t]he predator
must make a substantial investment with no assurance that
it will pay off.’” Matsushita, 106 S. Ct. at 1357 (quoting
Easterbrook, Predatory Strategies and Counterstrategies, 48
U. Chi. L. Rev. 263, 268 (1981)). Repeated predation
is often necessary to destroy new entrants, too. Such a
strategy is costly, easy to detect and subject to severe sanc-
tion. Areeda & Turner, at 699. Consequently, the prospects
of an adequate future payoff will seldom be sufficient to
motivate predation. /d. Thus, “predatory pricing schemes
are rarely tried, and even more rarely successful.”
Matsushita, 106 S. Ct. at 1357-58 (citations omitted).
We are constantly reminded that the antitrust laws are
designed and intended to protect and promote competition.
B10
District Court Opinion
Price cutting between competitors as a general rule is pre-
cisely the type of conduct our laws are designed to promote.
Only when that behavior becomes predatory, that is when
the price cutting scheme falls below some measured
standard, does it become actionabie. Therefore, due to the
rarity with which true predatory schemes arise, it is im-
portant to carefully define this wrongful conduct, so as not
to punish properly competitive behavior. And it is critical
that the facts in a particular case be carefully examined
and measured against the appropriate standard. As has
been noted by the Fifth Circuit, judicial use of the term
“predatory intent” is troublesome because several cases hold
that a court may infer its existence from a finding of certain
actions. International Air Industries, Inc. Vv. American
Excelsior Co., 517 F.2d 714, 722 (Sth Cir. 1975), cert.
denied, 424 U.S. 943 (1976). Yet, predatory intent has
never been clearly defined. The Supreme Court has stated
that “predatory pricing” means pricing below some measure
of cost, however, it has not determined which “cost” is
relevant. Matsushita, 106 S. Ct. at 1355 n.8. The Fifth
Circuit, however, has made such a determination. It has
stated that in order for a plaintiff to prevail as a matter
of law on a predatory pricing claim, it must show that
either:
(1) acompetitor is charging a price below his aver-
age 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 enable the discriminator to reap
the benefits of predation before new entry is possible.
International Air, 517 F.2d at 724 (footnote omitted).
Bil
District Court Opinion
The court chose average variable cost as the appropriate
measure as a result of the following analysis. First, the
incremental cost of making and selling the last unit
(marginal cost), the truly appropriate cost measure, is often
difficult to calculate from conventional business accounts.
Areeda & Turner, at 716. Thus, average variable cost,‘
which is easier to calculate, may be substituted for marginal
cost in a predatory pricing analysis. /d. at 717-18, see
International Air, 517 F.2d at 724. Second, marginal cost
was chosen, even though prices at or above it are not neces-
sarily profit-maximizing, because at the point where price
equals marginal cost, only less efficient firms will suffer
larger losses per unit of output than the alleged monopolist;
more efficient firms will be losing less or operating profit-
ably. Areeda & Turner, at 711. “Establishing a price floor
above marginal cost would permit survival not only of
equally efficient firms, but less efficient ones as well... .
[T]o force the firm to charge a higher price would reduce
industry output and waste economic resources in the short
run.... Thus, pricing at marginal cost is the competitive
and socially optimal result.” 7d. at 711. Thus, in order
for Windmere to withstand-a directed verdict motion it
must have presented substantial evidence that Philips priced
the model 1320 and 1615 razors (1) below average variable
cost or (2) below its short-run, profit-maximizing price
(average variable cost) and that barriers to entry are great.°
* Average variable cost is the costs that vary with changes in
output divided by the output.
‘International Air Industries suggests that a short-run profit-
maximizing price is equa! to average variable cost.’ If this is so, we
fail to see how this additional test provides an alternative measure
of predatory pricing other than to add the requirement of high entry
(footnote continued on following page)
B12
District Court Opinion
Because the easier to meet of these two standards requires
proof only of pricing below average variable cost, this is
the standard we shall evaluate Windmere’s evidence
against.
IV. EVIDENCE ADDUCED AT TRIAL
OF PREDATORY PRICING
The disputes regarding the evidence Windmere intro-
duced to prove predatory pricing involve two primary issues:
(1) the proper allocation of Philips advertising expendi-
tures, and (2) the proper method of proving costs—i.e.,
by using actual costs or projections.
It is undisputed that if all of Philips advertising expendi-
tures are classified as fixed costs, that Philips prices for the
model 1320 and 1615 razors exceeded their average variable
cost. Windmere, however, claimed that “Norelco’s records
treated all advertising as “variable costs.” Windmere’s
Theories of Liability, at 10. Windmere, however, has failed
to cite to any record evidence to support this statement.
Rather, Windmere has cited to legai authority which indi-
cates that in specific cases, courts have found advertising
to be a variable cost.
Variable costs, as defined, are costs that vary with
changes in output. Areeda & Turner, at 700. Thus, to
determine whether a cost is fixed or variable, a court must
look at the business plans and records of the particular
(footnote continued from preceding page)
barriers. If the profit-maximizing price is actually intended to be
something greater than average variable cost, we note that this
test has been criticized by other courts and has not actually been
imposed by any circuit. See, e.g., Southern Pacific Communications
Co. Vv. American Telephone-& Telegraph Co., 556 F. Supp. 825,
964 (D.C. Cir. 1982), ai denied, 470 U.S. 1005 (1985).
B13
District Court Opinion
business before it—generalizations simply cannot be made
effectively. In the instant case, Philips offered the expert
testumony of Mr. Kamerschen on this very subject. Mr.
Kamerschen testified that based on his review of Norelco’s
business and media plans, which he stated contained the
type of information an economist would generally rely upon
in order to make a judgment of this kind, that Norelco’s
advertising was a fixed cost. (Tr. 2618-2623). Windmere
failed to bring forth any information to the contrary on
the cross-examination of this witness.
The only evidence which Windmere pointed to at oral
argument on this motion in support of its position were
1984 income statements of Norelco which listed advertising
in a Category entitled variable expenses. (Tr. 2429). It is
clear that such an accounting record cannot alone support
the classification of advertising as a variable expense for
economic purposes. As noted by Areeda & Turner:
Marginal, variable, and full costs are economic con-
cepts used to study markets. Financial statements
and accounts, on the other hand, are prepared by
accountants to aid management in operating the
business and also to guide shareholders and other
investors. For this reason, the court cannot simply
turn to the defendant’s financial statements to find
the marginal, variable, or full costs relevant for cost
based predatory pricing rules.
Areeda & Turner. Antitrust Law © 712.1, at 359 (1986
Supp.); see Janich Bros. Inc. v. American Distilling Co.,
570 F.2d 848, 858 (9th Cir. 1977), cert. denied, 439 USS.
829 (1978) (affirmance of directed verdict where plaintiff
presented evidence of prices below cost of merchandise
sold rather than average variable cost). Accordingly, we
B14
District Court Opinion
find that Windmere did not present any competent evidence,
much less substantial evidence, to support its claim that
Norelco’s advertising was a variable expense.
Even assuming, however, that advertising expenses here
are properly characterized as variable costs, there is a ques-
tion whether cooperative advertising support given to
Norelco by NVP should be deducted before determining
whether Norelco priced the 1615 and 1320 below its average
variable cost. NAPC claimed to have received $6,520,000
in advertising support from NVP in 1985. If this amount
is properly deducted, then even according to the testimony
of Windmere’s Vice President of Finance, Burton Honig,
Norelco achieved a profit on the sale of the 1320 and 1615
in 1985. (Tr. 2096). Windmere claimed, however, that
although this money was earmarked by NVP to be paid to
Norelco, that it was never actually paid (Tr. 2425), or
alternatively, that this sum was in addition to, rather than
part of, the $17.5 million spent by Norelco for advertising
in 1985. (Tr. 2424-2425). A review of the record evidence
shows that Norelco actually spent $17,558,000 for advertis-
ing in 1985 and that $6.6 million of this amount was paid
to it by NVP. (Tr. 2451-2452; Defendants’ Exhibits 931,
932, 933; Plaintiffs’ Exhibit 16). Consequently, we must
reject Windmere’s wholly unsupported contention.
Windmere next contended that the 1985 receipts for the
1615 and 1320 do not cover average variable costs when
advertising expenses are allocated to these models on a per
unit basis.© Philips responded that advertising should be
6 For purposes of this argument, we have considered 1985 ad-
vertising expenses to have been $17,558,000. This amount includes
the $6.6 million contribution which, as noted previously, we believe
should be deducted for purposes of this average variable cost
analysis. However, because we wish to evaluate Windmere’s argu-
ments independently from one another, we have included this sum,
as have all parties in reviewing this contention.
B15
District Court Opinion
allocated on the basis of revenue received, and that using
this method, total receipts tor the 1615 and 1320 exceeded
average variable costs. We can find no record evidence
to support either method of allocation. Aithough Windmere
claimed that Norelco allocated on a per unit basis (Tr.
2428), Philips denied this allegation. (Tr. 2446). Because
Windmere had the burden of proof on this issue, we cannot
say that it should be able to reach a jury on this contention
in the absence of substantial evidence which supports its
position.
Furthermore, we find that there is no record evidence
which shows that any advertising expenses were incurred
specifically for the 1615 and 1320. Windmere claimed that
the ads were geared toward the sale of three-headed rotary
shavers in general and presumably toward the 1615 and
1320. (Tr. 2431). Philips’ exhibits, in contrast, showed
that these two models were not nationally advertised. (Plain-
tiffs’ Exhibits 18, 205). Thus, it appears to us, that there
is no evidence to suggest that advertising expenses should
not be allocated across ihe full Norelco line of shavers
tather than just to the 1615 and 1320. Consequently, we
find that Windmere has not presented substantial evidence
on this issue.
Finally, we must consider the type of evidence Windmere
has offered to support its allegations. As discussed earlier,
predatory pricing is very speculative and in most situations,
irrational. As a result, a party attempting to prove such
allegations b@ars a heavy burden. The Supreme Court has
recently suggested that “[a]s a practical matter, it may be
that only direct evidence of below-cost pricing is sufficient
to overcome the strong inference that rational businesses
would not enter into [such activities].” Matsushita, 106
S. Ct. at 1355 n. 9. It is with these concerns in mind that
we evaluate Windmere’s evidence.
————
B16
District Court Opinion
Windmere admitted that its evidence of the cost of bat-
teries, freight, and handling was based on projections of
the 1985 year. Windmere’s Theories of Liability, at 12.
(Tr. 2484-85). Indeed, there is no record evidence of the
actual amounts paid for 1985. Moreover, the record is
silent as to whether Norelco paid any amount for batteries
or whether batteries were included in the cost of the razors
to Norelco. As noted by Philips, when the cost of batteries
is eliminated and these other costs are reduced, Norelco’s
alleged loss becomes a profit. (Defendants’ Exhibits 523,
922, 930). Accordingly, we cannot agree with Windmere
that these items are “minor.” Although some use of pro-
jections undoubtedly is necessary, we find that where such
use alone makes the difference between a loss or a profit
on an item that the use is too extensive. In view of the
Supreme Court’s admonition on the importance of direct
evidence in predatory pricing cases, we find that Wind-
mere’s evidence of below-cost pricing does not meet the
substantial evidence standard necessary to withstand a
directed verdict.
V. THE NECESSITY OF PROVING
BELOW-COST PRICING
Alternatively, Windmere contends that predatory pricing
need not be proven in order to prove a § 2 violation. Wind-
mere argued that by lowering their prices on the 1615 and
1320, Norelco intended to destroy Windmere and that such
conduct violates the Sherman Act. (Tr. 2413-2414).
Windmere relied primarily on Aspen Skiing Co. v. Aspen
Highlands Skiing Corp., 105 S. Ct. 2847 (1985), in making
this argument. According to Windmere, in Aspen the Su-
preme Court found the existence of an illegal monopoly
B17
District Court Opinion
where a business refused to continue a joint marketing
program—behavior which Windmere characterizes as
neither pernicious nor predatory. We reject Windmere’s
reading of Aspen. Aspen involved the question whether one
ski company had a duty to continue a joint marketing pro-
gram for lift tickets with another ski company in the Aspen
area. After determining that the relevant geographic market
was limited to the Aspen area, that only two companies
operated businesses in this area, and that the defendant had
market power, the Supreme Court evaluated whether one
company had a legal duty to continue to deal with the other
company. The High Court began by noting that “[i]n the
absence of any purpose to create or maintain a monopoly,
the [Sherman] act does not restrict the long recognized
right of trader or manufacturer engaged in an entirely
private business, freely to exercise his own independent
discretion as to parties with whom he will deal.” Aspen,
105 S. Ct. at 2857 (emphasis in original) (quoting United
States v. Colgate & Co., 250 U.S. 300, 307 (1919)). The
Court further noted that evidence of intent was relevant to
determine whether the challenged conduct was “exclusion-
ary,” “anticompetitive,” or “predatory.” Jd. In order to
determine whether the Aspen defendant’s conduct was pred-
atory, the High Court looked at its conduct to see if it was
“ ‘attempting to exclude rivals on some basis other than
efficiency.’”” Aspen, 105 S. Ct. at 2859 (emphasis added)
(quoting R. Bork, The Antitrust Paradox 138 (1978)).
After determining that the Aspen defendant had no legiti-
mate business justifications for its alleged predatory con-
duct, the Court found that “the evidence supports an
inference that [defendant] Ski Co. was not motivated by
efficiency concerns and that it was willing to sacrifice short
run benefits and consumer good will in exchange for a
B18
District Court Opinion
perceived long-run impact on its smaller rival.” Aspen,
105 S. Ct. at 2861-62.
A review of Aspen makes clear that apparent exclusionary
conduct, even by a monopolist, is not per se illegal. Rather
the conduct must be evaluated for efficiency justifications.
Only where there exists no efficiency justification does such
conduct violate the Sherman Act. Although Aspen in-
volved a refusal to deal, not predatory pricing as in this
case, the underlying standard and rationale remain un-
changed. Pricing below average variable cost violates the
Sherman Act because, based on sound economic theory,
there is no efficiency justification for it. Any price above
average variable cost may be supported by an efficiency
motivation. Accordingly, we reject Windmere’s arguments
that Aspen did not involve predatory conduct and that
Philips’ price-cutting alone, without a review of its efficiency,
necessarily constitutes a violation of § 2 of the Sherman
Act. For the foregoing reasons, it is hereby
ORDERED AND ADJUDGED that USP, NAPC, and
NVP’s Motions for a Directed Verdict are GRANTED.
DONE AND ORDERED in Miami, Florida this 8th day
of June, 1987.
/s/ STANLEY MARCUS
United States District Judge
Southern District of Florida
APPENDIX C
pie alls nba abe RAO
Judgment of the Court of Appeals, November 14, 1988
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
87-1476
U.S. PHILIPS Corp. and NORTH AMERICAN PHILIPS CorpP.,
Plaintiffs-Appellees,
V.
WINDMERE CORPORATION,
Defendant-Appellant.
IZUMI SEIMITSU KoGyo KABUSHIKI KAISHA,
Defendant.
JUDGMENT
ON APPEAL from the U.S. District Court, Southern Dis-
trict of Florida in CASE NO(S). 84-2508-CIV
This CAUSE having been heard and considered, it is
ORDERED and ADJUDGED: REVERSED and
REMANDED
ENTERED BY ORDER OF THE COURT
DATED NOV 14 1988
/s/ FRANCIS X. GINDHART
Francis X. Gindhart, Clerk
ISSUED AS A MANDATE: JAN 23 1989
APPENDIX D
Order Denying Petition for Rehearing
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
87-1476
*
U.S. Poitips Corp. and NORTH AMERICAN PHILIPS CorpP.,
Plaintiffs-A ppellees,
V.
WINDMERE CORPORATION,
Defendant-Appellant.
IZUMI SEIMITSU KOGYO KABUSHIKI KAISHA,
Defendant.
°
Before MARKEY, Chief Judge, FRIEDMAN, SMITH, NEWMAN,
and MAYER, Circuit Judges.
REVISED ORDER
A petition for rehearing having been filed in this case,
and a response thereto having been invited by the court and
filed,
UPON CONSIDERATION THEREOF, it is
ORDERED that the petition for rehearing be, and same
hereby is, denied.
Chief Judge Markey would grant the petition.
The suggestion for rehearing in banc is under considera-
tion.
FOR THE COURT
/s/ FRANCIS X. GINDHART
Clerk
January 13, 1989
APPENDIX E
Order Denying Petition for Rehearing In Banc
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
87-1476
#
U.S. PHiLips Corp. and NORTH AMERICAN PHILIPS CORP.,
Plaintiffs-A ppellees,
V.
WINDMERE CORPORATION,
Defendant-Appellant.
SEIMITSU KOGYO KABUSHIKI KAISHA,
Defendant.
ORDER
A suggestion for rehearing in banc having been filed in
this case,
UPON CONSIDERATION THEREOF, it is
ORDERED that the suggestion for rehearing in banc be,
and the same is declined.
FOR THE COURT
/s/ FRANCIS X. GINDHART
Clerk
January 27, 1989
APPENDIX F
15 U.S.C. §2
$2. Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to mo-
nopolize, or combine or conspire with any other person or
persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall be
deemed guilty of a felony, and, on conviction thereof, shall
be punished by fine not exceeding one million dollars if a
corporation, or, if any other person, one hundred thousand
dollars, or by imprisonment not exceeding three years, or by
both said punishments, in the discretion of the court.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.