Petition — Ketchikan Kan Pulp Co. v. Reid Brothers Logging Co. (Nos. 83-307, 83-301)

Office-Supreme Court, Y

ae OE ee ae

83-307 ,

AGG 22? 1983

ii beware STEVAS,

In the Supreme Court

OF THE

United States

OctToBeR TERM 1983

KETCHIKAN PuLp CoMPany,

Petitioner,

Vs.

Reiw Brotuers Loceinc CoMpany,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Rosert D. Raven

COUNSEL OF RECORD

Peter J. PFISTER

Katuy J. Bacponas

Morrison & ForRsTER

One Market Plaza

Spear Street Tower

San Francisco, CA 94105

Telephone: (415) 777-6000

Attorneys for Petitioner

BOWNE OF SAN FRANCISCO, INC. *¢ 190 NINTH ST. ¢ S.F., CA 94103 © (415) 864-2300

QUESTIONS PRESENTED

1. Whether pricing or bidding can be found to be

predatory rather than competitive based solely on subjec-

tive evidence of intent without any objective analysis

whatsoever of a defendant’s costs.

2. Whether antitrust injury can be caused by a better-

than-competitive price, based solely on subsequent unfore-

seeable increases in end-product values unrelated to the

alleged antitrust misconduct.

3. Whether the courts below erred in finding defendants

liable under the antitrust laws based on evidence of

alleged conduct well outside the four year statute of limita-

tions period.

ii

STATEMENT REQUIRED BY RULE 28.1

Petitioner Ketchikan Pulp Company was a defendant

and appellant below on the issues presented for review.

Louisiana-Pacific Corporation is the parent corporation

of Ketchikan Pulp Company.

iii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ...........-ccccccccccrssessvecesesveesenres i

STATEMENT REQUIRED BY RULE 28,1 ................ ii

Re TE SD erctensanibinsncedessiacipermncsynianmaiapanias iii

pRB Ni 8! Ee v

gs Ay Cn a OR Se Oa Oe 1

IIIT stiches cseaaisracsoeensonszaeaaaietcieninenbentenihalGagiangeinien 1

CONSTITUTIONAL AND STATUTORY PROVI-

SE I cA ie ssa ctcnencaiennentiamialicnmentianaiiee 1

STATEMENT OF THE CASE ..............0..cccccecsscoserecseeces. 1

Pe i ER Ee REN 1

B. Background of the Timber Industry In South-

OE TE seestcesiaapisecsntussicindstapienanieneianintsianiibs 4

C. Facts Material to Question 1 Regarding the

Ninth Circuit’s Subjective Standard for Deter-

mining “Predatory” Bidding .....................:.:0:00000 6

D. Facts Material to Question 2 Regarding Cause

in Fact as an Element of Private Antitrust

DI iisciiiaiacdacssscitiediceatiliiabeeciadaaiien 7

I. Facts Material to Question 3 Regarding the Dis-

regard of the Statute of Limitations .................... 9

REASONS FOR GRANTING THE WRIT .................... 10

I

A Finding of “Predatory” Bidding Based Solely on

Evidence of Subjective Intent, Without Any Cost-

Based Evidence of Predation, Is Anticompetitive

and Conflicts with Decisions of Other Circuits .......... 10

iv

TaBLeE or ConTENTS

Page

II

A Better-Than-Competitive Price Cannot Cause Anti-

trust Injury Solely as the Result of Subsequent

Unforeseeable Increases in End Product Values

III

The Courts Below Erred in Finding Injury and Dam-

ages Based Upon Evidence Outside the Statute of

UII III cestenrcthatcsosesecdvetcninmesionven ipildcionsaauemasalen 25

IIIT aiapctininenesastehicsnescicanhebiuanpmronspesistaitelepensdatiehiiaiaiied 29

Vv

TABLE OF AUTHORITIES CITED

Cases

Page

Americana Indus. v. Wometco de Puerto Rico, Inc.,

a De 5 eae eee a Gene Oe ll

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d

263 (2d Cir. 1979), cert. denied, 44 U.S. 1093 (1980) 24

Berkey Photo, Inc. v. Eastman Kodak Co., 444 U.S.

1093 (1980), denying cert. to 603 F.2d 623 (2d Cir.

DI icicles ivsssitichiontscncntiacbincenchdeiipenieaaecetadaaadatas 17, 18, 28

Borden, Inc. v. FTC, 674 F.2d 498 (6th Cir. 1982),

vacated and remanded, 103 S.Ct. 2115 (1983) .......... 15, 16

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

Tee Ce Sere ose ee 11

Chillicothe Sand & Gravel Co. v. Martin Marietta Corp.

615 F.2d 427 (7th Cir. 1980) ............-..cccccccecseesecsereee 11, 14,15

Cleary v. National Distillers and Chemical Corp., 505

F.2d 695 (9th Cir. 1974) (per curiam) ............2..0......... 8

Farmington Dowel Products Co. v. Forster Mfg. Co.,

oe tf By De es Bele ee 23

Hanson v. Shell Oil Co., 541 F.2d 1352, (9th Cir. 1976),

cert. denied, 429 U.S. 1074 (1977) 22.2... eccccccseeeeseeeees 18

ILC Peripherals Leasing Corp. v. IBM, 458 F.Supp.

423 (N.D. Cal. 1978), aff'd sub. nom. Memorex v.

IBM, 636 F.2d 1188 (9th Cir. 1980), cert. denied, 452

ie EF _| mae Came OLS Samet HE at OD 25

In re IBM Peripheral EDP Devices Antitrust Litiga-

tion 481 F. Supp. 965 (N.D. Cal. 1979), aff’d sub.

nom. Transamerica Computer Co., Inc. vy. IBM, 698

F.2d 1377 (9th Cir. 1983), petition for cert. filed

(August 1, 1983) (No. 83-171) .......... 25

In Re Plywood Antitrust Litigation, 655 F. 2d 627 (5th

Cir. 1981), cert. granted sub nom. Weyerhauser Co.

v. Lyman Lamb Co., 457 U.S. 971 (1982), cert. dis-

missed, 51 U.S.L.W. 3903 (U.S. June 21, 1983)

EL eR ne ee ne 24

vi

TaBLe or AUTHORITIES

Cases

Page

International Air Indus. v. American Excelsior Co.,

517 F.2d 714 (5th Cir. 1975), cert. denied, 424 U.S.

UID, ccs ncccecasescialhccblcad ee lbs otis aedoabnoesbedipin 11, 14, 15

Janich Bros. v. American Distilling Co., 570 F.2d 848

(9th Cir. 1977), cert. denied, 439 U.S. 829 (1978) ....11, 18

J.T. Gibbons, Inc. v. Crawford Fitting Co., 704 F.2d

MU II I Sa ca hncclenieet tans 23

J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S.

Re Sai ci chines tein elicecentictlcas sosbdatcsicehiduboenadaiiouniiaac 23

MCI Communications Corp. v. AT&T, 708 F.2d 1081

(7th Cir. 1983), petition for cert. filed, 52 U.S.L.W.

3011 (U.S. July 19, 1983) (No. 83-32) ......11, 12, 13, 14,15

Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980)

(per curiam), cert. denied, 452 U.S. 972 (1981) .......... 25

Murphy Tugboat Co. v. Crowley, 658 F.2d 1256 (9th

Cir. 1981), cert. denied, 455 U.S. 1018 (1982) .............. 18

Northeastern Tel. v. AT&T, 651 F.2d 76 (2d Cir. 1981),

cert. denied, 455 U.S. 943 (1982) ............... 11, 14, 15, 24, 25

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

1981), cert. denied, 455 U.S. 1017 (1982) 00 11

Pacific Eng’g & Prod. Co. v. Kerr-McGee Corp., 551 F.2d

790 (10th Cir.), cert. denied, 434 U.S. 879 (1977) ....11, 14

Poster Exchange, Inc. v. National Screen Service

Corp., 517 F.2d 117 (Sth Cir. 1975) ................ccccsscesseeeeee 26

Standard Ou Co. v. Moore, 251 F.2d 188 (9th Cir. 1957),

cert. denied, 356 U.S. 975 (1958) ...............ccccccccccocesceoreee 23

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

Story Parchment Co. v. Paterson Parchment Paper

Co., 282 U.S. 555 (1931) .......... 23

Superturf, Inc. v. Monsanto Co., 660 F.2d 1975 (8th

RE NUTR D. -pelabiiecderheeei teisnsmineh dasa philiedeenpissliitisobisiny to 11,14

vii

TABLE oF AUTHORITIES

CasEs

Page

Telex Corp. v. IBM, 510 F.2d 894 (10th Cir.), cert.

dismissed, 423 U.S. 802 (1975) .............cccsccoccoceceersocecees 14

Tlingit and Haida Indians of Alaska v. United States,

eA fy a Me | ee cee eenmne mmm 23

Transamerica Computer Co. v. IBM, 698 F.2d 1377

(9th Cir. 1983), petition for cert. filed (August 1,

I PIES TD - srcctinsstcsonassnsconietienesdinctlabiconnsiatinee 12, 15, 18, 25

United States v. Marion, 404 U.S. 507 (1971) ........0......... 27

United States v. Oregon Lumber Co., 260 U.S. 290

SINNED “casbnicoha tite) esnshdcaiasiestuinedbassehhatiines dase tideliaaouaacanieabonil 27

Van Dyk Research Corp. v. Xerox Corp., 478 F. Supp.

1268 (D.N.J. 1979), aff'd, 631 F.2d 251 (3d Cir.

1980), cert. denied, 425 U.S. 905 (1981)... eee 25

William Inglis € Sons Baking Co. v. ITT Continental

Baking Co., 668 F.2d 1014 (9th Cir. 1981), cert.

denied, 103 S. Ct. 57 (1982) SST aaa eee 18

Zenith Radio Corp. v. Hazeltine Research, Inc., 395

SE OD ciceebhidetsn ce emtiicnniatadibednaee 23

Zenith Radio Corp v. Hazeltine Research, Inc., 401

ie Bh: ) RR reer ee eR eee ON 26

Constitutional Provisions, Statutes,

Rules and Regulations

Seventh Amendment to the United States Constitution 1, 2

Section 1 of the Sherman Act, 15 U.S.C. § 1 (1976) ..... 1,2

Section 2 of the Sherman Act, 15 U.S.C. § 2 (1976) .... 1

Section 4 of the Clayton Act, 15 U.S.C. 415 (Supp.

| al 1

Vili

ConstITuTIonaL Provisions, StaTuTEs,

Rvuies aND REGULATIONS

Page

28 U.S.C.:

SLID - ‘cicerncisbasissihiciesinisieaieabeineeacishnehaanonetaalaimmaan 1

CN isicheidiscascestesstininittihsinsisieSGucbsiinihgtonschaiateepnindbai aimee 1

SB re BCE CO ocnctnstittinnccisionittastntcincntatlerneent 5

Ge TR, tee, BS CII) crise cincsccsietcctenntpticcneivepsciniicnsibia 16

Fed. R. Civ. P.:

| ICED eA a aN MEET NE he i

STIRS ‘sncibisrsndisnimssnechabtentabeamiasiaodaiael tah eae 1,4

IR, GER, Tits. BID siecisctssnninsinsinsnecaleecahiapnasamacaiiiaadbieainiataiians 2

Other Authorities

Areeda & Turner, Predatory Pricing and Related

Practices Under Section 2 of the Sherman Act, 88

Harv. L. Rev. 697 (1975) ................ 13

Areeda, Predatory Pricing, 49 Antitrust L.J. 897 (1980) 13

Brodley & Hay, Predatory Pricing € Competing Eco-

nomic Theories and the Evolution of Legal Stan-

dards, 66 Cornell L. Rev. 738 (1981) .... ue 12

R. Posner, Antitrust Law—An Economic Perspective

| Rn ee IED ctosiianlitinpedieiiaa 13, 17

S. Rep. No. 619, 84th Cong., Ist Sess., reprinted in 1955

U.S. Code Cong. & Ad. News 2328 .. 28

Tongass National Forest, Oversight Hearings Before

the Subcomm. on Mining, Forest Management and

Bonneville Power Administration of the House

Comm. on Interior and Insular Affairs, 98th Cong.,

1st Sess. (June 29, 1983) +

No.

In the Supreme Court

OF THE

United States

Octoser Term 1983

Ketcuikan Pup Company,

Petitioner,

vs.

Rew Brotuers Loccinc Company,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Ketchikan Pulp Company petitions for a writ of certi-

orari to review the judgment and opinion of the United

States Court of Appeals for the Ninth Circuit entered in

this action on March 1, 1983.

OPINIONS BELOW

The opinions of the divided panel below are reported at

699 F.2d 1292 and are reprinted as Appendix A. The

opinion of the district court is not officially published, but

is unofficiaiiy reported at 1981-2 Trade Cas. (CCH)

| 64,228 and is reprinted as Appendix B.

JURISDICTION

The judgment of the court of appeals was entered on

March 1, 1983. A timely petition for rehearing with sug-

gestion for rehearing in bane was denied by order of May

23, 1983, and the order is reprinted as Appendix C. The

jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1). The jurisdiction of the district court was based

on 28 U.S.C. § 1337(a).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This suit involves application of the federal antitrust

laws, specifically, Sections 1 and 2 of the Sherman Act,

15 U.S.C. §§ 1 and 2 and Sections 4 and 4b of the Clayton

Act, 15 U.S.C. §§ 15 and 15b. The suit also involves the

Seventh Amendment to the United States Constitution and

Rules 38(d) and 39(a), Fed. R. Civ. P. These provisions

are set forth in Appendix D to this Petition.

STATEMENT OF THE CASE

A. Preliminary Statement

The questions addressed in this petition provide the

opportunity for this Court to resolve intercircuit conflicts

and to clarify the law on important issues in private anti-

2

trust litigation, including: (1) whether a purely subjective,

non cost-based standard can be used to determine the line

between predatory and competitive prices or bids; (2)

whether antitrust injury can be caused by a better-than-

competitive price offer; and (3) whether liability and dam-

ages can be based upon evidence well outside the statute

of limitations period.' These questions are but a few of the

serious errors made by the courts below.

This private antitrust action is directed at the timber

industry in Southeast Alaska. Plaintiff Reid Brothers Log-

ging Company (“RBLC”) accused defendants Ketchikan

Pulp Company (“KPC”) and Alaska Lumber and Pulp

Company (“ALP”), the only two pulp mills in Southeast

Alaska, of conspiracy and monopolization with respect to

every aspect of that industry. In an attempt to place some

focus on plaintiffs broad claims, defendants sought pre-

trial resolution of the many legal issues, including plain-

tiff’s standing, the statute of limitations, the standards for

allegedly “predatory bidding,” and whether defendants

caused RBLC’s claimed injury. RBLC was nevertheless

permitted to offer at trial its entire smorgasbord of con-

flicting claims and evidence. The legal issues were never

to be resolved. Even Judge Morrell Sharp’s early decision

rejecting RBLC’s attempt to avoid the statute of limita-

tions by pleading fraudulent concealment was to be

ignored.

‘Pursuant to Sup. Ct. R. 19.4, KPC incorporates the questions

presented and arguments made in Alaska Lumber and Pulp Com-

pany’s Petition for a Writ of Certiorari from the same judgment

on the issuer of: (1) whether the refusal to try this case to a

jury violated the Seventh Amendment to the United States Con-

stitution and Rules 38(d) and 39(a), Fed. R. Civ. P., and (2)

whether a finding of a conspiracy in violation of Section 1 of the

Sherman Act can be based on evidence of legitimate social and

business contacts and evidence of similar but not consciously

paral's! conduct.

3

After more than five years of pretrial proceedings, and

due to the illness of Judge Sharp, this action was trans-

ferred to Judge Barbara Rothstein immediately before

trial. Plaintiff RBLC then withdrew its demand for a jury.

Defendant ALP refused to consent to RBLC’s last-minute

withdrawal and KPC refused to consent to the withdrawal

unless all parties agreed. The district court nevertheless

refused to allow a trial by jury.

Having ruled that defendants had no right to a jury

trial, Judge Rothstein tried the case without a jury over a

four-month period. After trial, plaintiff submitted pro-

posed findings of fact and conclusions of law arguing a

sweeping conspiracy in existence from the moment KPC

and ALP began pulp operations in Southeast Alaska in

1959. The proposed findings were adopted virtually ver-

batim from plaintiff's proposals. Despite the extraordinary

breadth of plaintiff's allegations and despite thorough

briefing of critical legal issues through pretrial, trial and

post trial, the decision in the district court does not cite

a single case or otherwise address any of the legal issues

presented,

The Ninth Circuit voted 2-1 to affirm (Judge Tuttle sit-

ting by designation from the Eleventh Circuit and Chief

Judge Browning in the majority; Judge Reinhardt dis-

senting). Many of the legal issues raised on appeal were

ignored by the majority. The findings of antitrust violation

are replete with legal error and should not have been sus-

tained. Petitioner is left with conclusory findings of anti-

trust violation, the scope of which is impossible to deter-

mine, which provide no guidance to permissible conduct in

the industry.’

*Those findings are now being used in Congress and by various

interest groups to urge action that could force the defendant mills

—which provide the only significant basis for year-round employ-

4

More important, however, the prejudice of the legal

errors below could spread far beyond this industry. The

questions raised in this petition go to the heart of private

enforcement of the antitrust laws. This petition cannot and

does not raise all of the issues that require correction;

instead, petitioners raise only those few issues that, con-

sistent with this Court’s limited certiorari jurisdiction,

provide a unique opportunity for this Court to resolve con-

flicts between the circuits, to avoid uneven enforcement of

the antitrust laws, and to assure that the antitrust laws

are not enforced in such a way as to contradict their very

purposes.

B. Background of the Timber Industry in Southeast

Alaska

Ninety-seven percent of the commercial timber in South-

east Alaska is within the Tongass National Forest; it is

owned by the federal government and is controlled through

statutes and extensive regulations administered by the

United States Forest Service. The timber stands in South-

east Alaska are old and over-mature and are for the most

part suited only for the production of pulp. From the early

1900’s, the Forest Service sought to establish a pulp-based

industry in Southeast Alaska in order to utilize, consistent

with federal statutes, regulations and policies, the lower

quality timber, as well as to promote a stable popw'ation

and economy in Alaska. The government’s early efforts

were unsuccessful; no company was willing to make the

capital investment necessary to establish and operate a pulp

mill because other regions had significant cost advantages.

In recognition of the competitive disadvantages of timber

operations in the remote islands of Southeast Alaska, the

ment in Southeast Alaska—to close down. See, e.g., Tongass Na-

tional Forest, Oversight Hearings Before the Subcommittee on

Mining, Forest Management and Bonneville Power Administration

of the House Committee on Interior and Insular Affairs, 98th Cong.,

lst Sess. (June 29, 1983),

5

government promulgated regulations known as the “pri-

mary manufacture rule” to require that all timber cut on

national forest lands in Alaska be manufactured or pro-

cessed in Alaska. 36 C.F.R. § 221.25(i) (1975). Without the

primary manfacture rule, unprocessed logs would more

profitably have been exported directly to Japan, and no

mill industry in Alaska could have been established.

As a further inducement to establish pulp mills, the

Forest Service planned in the 1940’s and offered four 50-

year timber supply contracts, which guaranteed a timber

supply at a cost enabling competition with the Puget Sound

area, contingent upon the building and operation of pulp

and other mills in Alaska. The Forest Service awarded the

first 50-year pulp contract to petitioner KPC in 1951. The

contract explicitly recognized the significant risks KPC

was undertaking to establish a new and untested industry

under unique and isolated conditions. Although enterprises

such as Georgia-Pacific Corporation, St. Regis Paper Com-

pany, and U.S. Plywood-Champion Paper, Inc., considered

various proposals to establish pulp mills in Alaska, only

KPC and, in 1959, co-defendant ALP were willing to

undertake the costs and risks involved.

The primary manufacture rule compelled a logger who

purchased a National Forest timber sale in Alaska to sell

the logs suitable only for pulp to KPC or ALP. KPC and

ALP thus became the only market for a substantial propor-

tion of the logs cut in Southeast Alaska; to attain this

market position, their only act was to build the first and

only pulp mills in Southeast Alaska pursuant to their con-

tracts with the federal government, There has never been

any claim, evidence or finding to dispute the fact that

KPC’s and ALP’s operation of the only pulp mills in Alaska

is the result of actions and policies of the Forest Service,

federal statutes and regulations, and natural conditions in

Southeast Alaska.

6

C. Facts Material to Question 1 Regarding the Ninth Cir-

cuit’s Subjective Standard for Determining “Preda-

tory” Bidding

KPC’s long term contract with the government did not

contemplate that it could satisfy all of its log supply re-

quirement for its operations from its contract area. The

remainder of KPC’s supply was to be obtained from the

purchase of smaller, shorter term Forest Service timber

sales (called “independent” timber sales) or from the pur-

chase of logs from loggers or other sources.’ Defendants’

supplementation of their timber supply through the bidding

process took place in the face of a “chronic shortage of

timber that persisted throughout that entire period” (App.

A at A-4), with the Forest Service “hard pressed to meet

the requirements of the mills.” App. B at A-47. Thus, the

courts below recognized that defendants had a right and

need to bid for timber and that the timber was in short

supply.

RBLC claimed that the defendant pulp mills submitted

“predatory” bids on certain Forest Service timber sales in

1966-67 against ‘“‘would-be mill entrants.” KPC bid on only

two timber sales (in 1966 and 1967) against bidders desig-

nated by plaintiff and the courts below as “would-be mill

entrants.”* App. B at A-50. No evidence was presented

*The Forest Service provided for oral auctions for the express

purpose of allowing the existing mills and logging operators in

Southeast Alaska, all of which were dependent on Forest Service

timber, the opportunity to meet their competition openly and to

bid to protect their timber supply.

‘ALP was found to have bid “predatorily” against outsiders on

four occasions in 1966 and 1967. Plaintiff RBLC also bid success-

fully against the same “would-be entrants.” None of these mills ever

brought any complaint against defendants or RBLC, Had any com-

plaint regarding this bidding in 1966-67 been filed by the “would-be

entrants” on the date of RBLC’s complaint, it would plainly have

been barred by the four year statute of limitations. 15 U.S.C. § 15b.

RBLC’s claim of a derivative injury from conduct directed at the

“would-be entrants” is also time-barred. See Section III, infra.

7

that KPC bid to a point where it could not profitably

process the timber from those sales. To the contrary,

KPC showed that it never bid beyond the point where it

could profitably process and sell the wood products from

those sales at the price it bid, and that the location of

these timber sales relative to existing operations made

their acquisition important to those continuing operations.

The only evidence presented by plaintiff was from inter-

nal KPC documents which showed that KPC wanted to win,

i.e, to bid to protect a timber supply on which it was

dependent and as to which there was a chronic shortage.

The legal issue raised by these facts was simple: How high

could a defendant bid for timber before that bid would be

considered unlawful and predatory, rather than lawful and

competitive? Avoiding any answer to this question, the

Ninth Circuit rejected any objective, cost-based analysis

of defendants’ bidding and instead condemned that bid-

ding based solely on evidence of defendants’ subjective

intent to prevail.

D. Facts Material to Question 2 Regarding Cause in Fact

as an Element of Private Antitrust Actions

Plaintiff RBLC sold logs from timber sales it owned and

sold logging services on timber sales owned by others.

RBLC sold logs to KPC, ALP, and other mills, and neither

KPC nor ALP ever refused to purchase its logs. RBLC’s

claim of injury does not rest on any allegation of depressed

prices paid for its logs or services. Instead, RBLC’s entire

claim for injury is based on its transfer of ownership of

a timber sale, the Muddy River #3 sale, to KPC in 1972.

App. A at A-12.

RBLC purchased the Muddy River #3 timber sale in

1972 without competition. As owner of the timber sale,

RBLC then solicited a single price offer for all of the logs

from the sale, which RBLC would produce in a two-year

period. KPC responded with a single price offer for the

8

entire production of logs, as did another mill. Due to finan-

cial problems unrelated to defendants’ conduct, RBLC

needed several hundred thousand dollars to finance its

logging. RBLC asked KPC for financing and KPC agreed

to provide it. As security for the financing, RBLC assigned

its rights to the Muddy River #3 sale to KPC (which

assignment was approved by the Forest Service at RLBC’s

request) and entered an agreement with KPC to log the

sale as a contract logger.

RBLC had claimed that it lost the ownership of the sale

because KPC’s offering price in 1972 was less than competi-

tive and kept RBLC from obtaining financing from another

source. However, the courts below found that KPC’s offer

in 1972 was in fact higher than the competitive 1972 price.

How could a better-than-competitive price cause RBLC to

give up ownership to a timber sale?

The majority condemned KPC for failing to offer® to

renegotiate the price annually based on increases or de-

creases in the end-product (pulp) market. App. A at A-14.

The majority recognized, however, that whether such a pro-

vision would injure or benefit RBLC depended entirely on

whether end-product prices later went up or down. The

courts below concluded that KPC’s better-than-competitive

offer in 1972 injured RBLC as the result of admittedly

unforseeable market increases in 1973 and early 1974, when

9

RBLC claimed it would log the sale, which were caused by

the Arab oil embargo. But the majority ignores the critical

fact that when the offer was made in 1972, neither KPC,

nor RBLC, nor anyone else, knew whether end-product

prices would later rise or fall. The majority’s conclusion

that KPC’s better-than-competitive offer caused RBLC

antitrust injury effectively eliminates cause in fact as an

element of a private antitrust action.

E. Facts Material to Question 3 Regarding the Disregard

of the Statute of Limitations

This case was tried and decided as if there were no statute

of limitations period in a private antitrust action involving

conspiracy allegations. RBLC first sought to toll the statute

by alleging fraudulent concealment. Judge Sharp, however,

found that these allegations were without basis, and

granted summary judgment for defendants on the issue of

fraudulent concealment. Thus, the law should have com-

pelled RBLC to proceed on whatever claims it may have

had during the four years between March 13, 1971 and

March 13, 1975, the date the complaint was filed. 15 U.S.C.

§ 15b.

RBLC was nevertheless allowed to take unlimited discov-

ery back to 1959, the first year both KPC and ALP oper-

ated in Southeast Alaska. Defendants then filed partial sum-

mary judgment motions directed at alleged conduct which

took place well outside the limitations period (such as the

alleged “predatory bidding” against outside mills). The

statute of limitations motions were denied as premature,

with Judge Sharp reserving until trial a ruling on whether

such pre-limitations period conduct could give rise to dam-

ages. Judge Rothstein, who took over for Judge Sharp,

never addressed the statute of limitations issues at trial,

admitting all pre-limitations period evidence offered by

plaintiff over defendants’ objections. Judge Rothstein's

10

opinion relied upon one example after another of pre-

limitations period evidence (adopted verbatim from plain-

tiff’s proposed findings) and drew no distinction between

pre- and post-limitations conduct. The elimination of the

statute of limitations was completed by the Ninth Circuit’s

cursory and erroneous treatment of the issue.

REASONS FOR GRANTING THE WRIT

I

A FINDING OF “PREDATORY” BIDDING BASED

SOLELY ON EVIDENCE OF SUBJECTIVE INTENT,

WITHOUT ANY COST-BASED EVIDENCE OF PRE-

DATION, IS ANTICOMPETITIVE AND CONFLICTS

WITH DECISIONS OF OTHER CIRCUITS

The Ninth Circuit flatly rejected the need to resort to

any objective cost-based evidence to establish “predatory”

bidding or pricing. The majority stated:

The defendants argue that the district court erred

in its finding of predatory bidding since there was no

evidence that the high prices paid for standing timber

would prevent the defendants from covering their mar-

ginal costs on the ultimate sale of the processed timber.

This rigid objective test, however, has been rejected

by this court as the exclusive means of determining

the legality of a particular price or bid, California

[Computer] Products, Inc. v. IBM Corp., 613 F.2d 727,

743 (9th Cir. 1979); a more subjective test has been

adopted, designed to avoid penalizing an innocent mis-

calculation and to assure appropriate sanctions against

those parties that can accomplish their evil ends with-

out violating the rigid criteria of the marginal cost

test. William Inglis et al. v. ITT Continental Baking,

668 F.2d 1014, 1034 (9th Cir. 1981). Where, as here,

there is direct evidence that the defendants aimed to

exclude competition in order to enhance their long-

term market position, the blind application of a nu-

11

merical test would only frustrate the intent of the

Sherman Act.

App. A at A-8 n.5 (emphasis added). The majority refers

to “the blind application of a numerical test,” but here

there was no application of a numerical test or of any ob-

jective evidence whatsoever. KPC submits that it is the

cost-blind conclusion of predation based solely on subjec-

tive intent, not a carefully applied cost-based test, that

- “would frustrate the intent of the Sherman Act.”

As the Seventh Circuit recently noted in MCI Communi-

cations Corp. v. AT&T, 708 F.2d 1081, 1113 (7th Cir. 1983),

petition for cert. filed, 52 U.S.L.W. 3011 (U.S. July 19, 1983)

(No. 83-32) (“MCI”), courts have nearly unanimously

adopted some form of cost-based standard in deciding

questions of predation. The Ninth Circuit cases of Cali-

fornia Computer Products, Inc. v. IBM, 613 F.2d 727 (9th

Cir. 1979) (“CalComp”) and Janich Bros. v. American

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

439 U.S. 829 (1978) (“Janich”), are cited by the Seventh

Circuit as reflections of the Ninth Circuit’s adoption of an

objective test. MC], 708 F.2d at 1113. The majority in the

instant case abandons the objective test of the Ninth and

other circuits and returns to such “vague formulations” as

its reference to defendants’ “evil ends” (App. A at A-8

*See, e.g., Americana Indus. v. Wometco de Puerto Rico, Inc.,

556 F.2d 625, 628 (lst Cir. 1977); Northeastern Tel. v, AT&T,

651 F.2d 76, 87-88 & n.15 (2d Cir. 1981), cert. denied, 455 U.S.

943 (1982); O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 351-353

(3d Cir. 1981), cert. denied, 455 U.S. 1017 (1982); International

Air Indus, 0. American Excelsior Co., 517 F.2d 714, 722-24 (5th

Cir. 1975), cert. denied, 424 U.S. 943 (1976); Chillicothe Sand &

Gravel Co. v. Martin Marietta Corp., 615 F.2d 427, 431-432 (7th

Cir. 1980); Superturf, Inc. v. Monsanto Co., 660 F.2d 1275, 1281

(8th Cir. 1981); Pacific Eng’g & Prod. Co. v. Kerr-McGee Corp.,

551 F.2d 790, 795-797 (10th Cir.), cert. denied, 434 U.S. 879 (1977).

12

n.5), which other courts have criticized as being an out-

dated method of antitrust analysis that is of “little pre-

dictive or precedential value.” MCI, 708 F.2d at 1113 n.40.

The Ninth Circuit’s adoption of a purely subjective test

of predatory bidding in this case thus presents this Court

with the opportunity to answer two questions:

(1) Must a finding of predatory bidding or pricing

be based on some analysis of a defendant’s costs?

(2) What should that cost-based test be?

With regard to the second question, this Court might pre-

fer to allow the lower courts further time to refine and

reach consensus on which particular cost-based test must

be applied. Consideration of the first question, however, is

imperative at this time.’ This case presents this Court with

the unique opportunity to ratify that some objective cost-

based analysis is necessary to condemn a bid or price as

predatory rather than competitive and that purely sub-

jective evidence of an intent to win cannot be the basis of

a finding of illegality.

"The number of recent opinions addressing predatory pricing

and bidding confirms that this is an important question arising with

great frequency in the federal courts. Indeed, commentators have

referred to “a virtual explosion in the legal and economic literature

dealing with predatory pricing.” Brodley & Hay, Predatory Pricing:

Competing Economic Theories and the Evolution of Legal Stand-

ards, 66 Cornell L. Rev. 738, 740 (1981). Other petitions for certi-

orari on related issues of predatory conduct are also pending before

this court (MCI Communications Corp. v. ATT, 708 F.2d 1081

(7th Cir. 1983), petition for cert. filed, 52 U.S.L.W. 3011 (U.S. July

19, 1983) (No. 83-32); Transamerica Computer Co. v. IBM, 698

F.2d 1377 (9th Cir. 1983), petition for cert. filed (August 1, 1983)

(No. 83-171), although these cases do not so clearly present the

threshold question in the instant case of whether some objective

analysis of a defendant's costs is a necessary element of the test of

predatory pricing or bidding.

13

Predatory pricing or bidding is difficult to distinguish

from vigorous price or bid competition.’ The cost of

erroneously condemning such competition as predatory is

great: it punishes and therefore chills precisely the

behavior the antitrust laws are meant to promote. The less

reliable and understandable the test to determine when a

price or bid crosses the critical line between competitive

and predatory, the greater is the chill on competitive

behavior.

In order to determine the line between competitive and

predatory bidding or pricing, courts have widely accepted

aspects of an objective cost-based test first developed

in Areeda & Turner, Predatory Pricing and Related

Practices Under Section 2 of the Sherman Act, 88

Harv. L. Rev. 697 (1975). Professors Areeda and

Turner suggested that prices above marginal cost, even if

below total cost, should not be considered predatory. In

the bidding context, if plaintiff failed to show that a de-

fendant bid to the point where the defendant could not

recover its marginal costs in the sale of its end product,

plaintiff could not prove that the bidding was predatory

rather than competitive. Logically, if a defendant could

bid to a point where it could still make money on the

incremental unit produced, but the competitor could not

make money at that level, defendant is the more cost-

*As the Seventh Circuit stated:

There is no rational way to determine whether predatory pric-

ing has occurred without some comparison between the prices

charged and a rigorously defined measure of the cost of pro-

duction. A subjective test based wholly upon intent is almost

incapable of distinguishing between pro- and anti-competitive

price cuts by a monopolist.

MCI, 703 F.2d at 1112 (citing Areeda, Predatory Pricing, 49 Anti-

trust L.J. 897, 899 (1980); R. Posner, Antitrust Law—An Eco-

nomic Perspective, 188 (1976)) (emphasis added).

14

efficient producer and should prevail in the competitive

struggle.

The objective, cost-based test thus ties the question of

predatory bidding or pricing to considerations of efficiency.

Courts applying a cost-based test to allegations of preda-

tory pricing have rejected the idea that a firm, even a

monopolist, must maintain “a price ‘umbrella’ under which

less efficient firms could hide from the stresses and storms

of competition.” Northeastern Tel. v. AT&T, 651 F.2d

76, 87 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982).°

Courts have agreed with Areeda and Turner that pricing

at marginal cost is the “competitive and socially optimal

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

1281 (8th Cir. 1981); accord, Pacific Eng’g & Prod. Co.

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

denied, 434 U.S. 879 (1977). “[FJorcing a monopolist to

charge a price higher than marginal cost could reduce

industry output and waste economic resources... .” Inter-

national Air Indus. v. American Excelsior Co., 517 F.2d

714, 724 (5th Cir. 1975), cert. denied, 424 U.S. 943

(1976).

Courts have also found that the objective marginal cost

test offers an easily recognizable line which would provide

guidance as to permissible behavior to businessmen, courts

and enforcement agencies. See, e.g., MCI, 708 F.2d 1113,

1116-17. Moreover, when a price exceeds cost there is no

danger that a firm is “subsidizing’’ its price reductions

*See also Chillicothe Sand & Gravel Co. v. Martin Marietta Corp.,

615 F.2d 427, 433 (7th Cir. 1980) (underpricing a rival is “the

essence of competition,” not predatory pricing); Pacific Eng’g &

Prod. Co. v. Kerr-McGee Corp., 551 F.2d 790, 792, 795 (10th

Cir.), cert. denied, 434 U.S. 879 (1977) (monopolist had no obliga-

tion “to raise prices to a noncompetitive level in order to save

its smaller, undercapitalized rival”); Telex Corp. v. IBM, 510 F.2d

894, 926-28 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975).

15

with profits earned in less competitive markets; the fact

that prices are above cost means that every sale adds to

profits and none needs a subsidy. Northeastern Tel., 651

F.2d at 89; International Air Indus., 517 F.2d at 725.

For the above reasons, the marginal cost test has been

adopted or approved in substantial part by the First, Sec-

ond, Third, Fifth, Seventh, Eighth, and Tenth Circuits.

See n.6, supra, Courts have not uniformly adopted all

aspects of the Areeda-Turner analysis and have developed

a variety of formulations of the objective cost-based test.’

These questions regarding refinements in the cost-based

test do not arise in the instant case, however, since no

cost based test was applied to defendants’ bidding. Indeed,

no evidence of defendants’ costs and no evidence of any

relationship between costs and bidding was ever proffered

by plaintiff.

Only the Ninth Circuit in this case and the Sixth Circuit

in Borden, Inc. v. FTC, 674 F.2d 498 (6th Cir. 1982),

vacated and remanded, 103 S.Ct. 2115 (1983) (“Borden”)

have rejected an objective test based on a defendant’s

costs in favor of a test of predation based on subjective

evidence. The majority in Borden concluded that a defend-

ant’s prices can be found predatory on a showing that they

are below a competitor’s average variable costs. Id. at

°Most circuits have indicated that prices above average total

cost are presumptively, if not per se, legal. See, e.g., MCI, 708

F.2d at 1123 n. 58; Northeastern Tel., 651 F2.d at 86, 88; Inter-

national Air Indus., 517 F.2d at 723. But see Transamerica Com-

puter Co. v. IBM Corp., 698 F.2d 1377, 1386-88 (9th Cir. 1983),

petition for cert. filed (August 1, 1983) (No. 83-171). And most

circuits treat prices below average variable costs as presumptively

illegal. See, e.g., Northeastern Tel., 651 F.2d at 88. With respect

to prices above average variable costs but below average total

costs, courts have not unanimously accepted the per se rule of

legality suggested by Professors Areeda and Turner but have in-

stead considered other market factors in addition to the cost analy-

sis. See, e.g., Chillicothe Sand, 615 F.2d at 432-33.

16

515-16. Such a rule would forbid prices well above a

defendant's average variable costs, if the price did not

cover the average variable costs of a competitor, however

inefficient that competitor might be. The Sixth Circuit in

Borden also relied heavily on “direct evidence of Borden’s

general intent” to exclude competitors, which evidence was

found in various marketing plans and internal documents.

Id. at 513-14.

The FTC refused, however, to defend this improper test,

and successfully urged this Court to vacate the Sixth

Circuit’s affirmance and to remand for entry of a settle-

ment order. See Brief for the FTC Suggesting Mootness

(May 2, 1983), reprinted as Appendix E. The FTC recog-

nized that to base a finding of predation on a competitor's

costs would indeed create “a price umbrella . . . wholly

inconsistent with the concept of price competition the

Sherman Act was designed to promote” and that the sub-

jective intent earlier relied upon by the FTC to establish

predation in fact “simply reflects a purpose to compete in

defense of existing market share . . . wholly consistent with

zealous competition.” Appendix I. at A-78; see also Pro-

posed FTC Order Modification, 48 Fed. Reg. 9026 (1983).

For the same reasons, the Ninth Circuit’s new test should

be rejected.

The Ninth Circuit betrays the weakness of its own

new rule by its citation of evidence of subjective intent

which it uses to affirm the district court’s erroneous find-

ings. The majority focuses on the Devil’s Club No. 2

timber sale and refers to a KPC letter suggesting that

KPC “run [the bidding] up on [Alaska Prince] to the

point it will really hurt.” App. A. at A-7. But KPC never

even bid on the Devil’s Club No. 2 sale. Thus, the test

adopted by the Ninth Circuit not only fails to provide an

efficiency-related, cost-based test of conduct, but it fails to

analyze conduct at all. Instead, it punishes as predatory

17

the expressed intention to defeat a competitor in an

announced timber sale bid, even though the defendant

never even bids on the sale!"

The focus of the district court and the majority, perhaps

angered by the tone of the documents, resulted in a com-

mon error:

What juries (and many judges) do not understand is

that the availability of evidence of improper intent is

often a function of luck and of the defendant’s legal

sophistication, not of the underlying reality. A firm

of executives sensitized to antitrust problems will not

leave any documentary trail of improper intent; one

whose executives lack that sensitivity will often create

rich evidence of such intent simply by the clumsy

choice of words to describe innocent behavior.

R. Posner, Antitrust Law—An Economic Perspective, 189-

190 (1976)) (emphasis added). Defendants do not deny

that this case is marked by “rich evidence” of competitive

intent—but that “rich evidence” is a perfect example of

blunt and clumsy verbiage used to describe innocent behav-

ior. There could be no better case to manifest the danger

of a strictly subjective intent test.’

“The remaining evidence of subjective intent cited by the major-

ity is similarly contrary to what the objective evidence shows actu-

ally happened. The subjective evidence relied upon was primarily

the writings of Arthur Brooks, KPC’s timber manager. Mr. Brooks

left KPC in 1969, two years before the limitations period. RBLC’s

reliance upon Mr. Brooks’ subjective intent is particularly ironic

since RBLC made over a 40% return on its investment while Mr.

Brooks was KPC’s manager.

“To one not schooled in the niceties of antitrust litigation,” the

notion that exposure to treble damages under a “statute designed

to foster competition” can be predicated on an expressed desire

to prevail in a competitive struggle is “difficult to fathom.” Berkey

Photo, Inc. v. Eastman Kodak Co., 444 U.S. 1083, 1094 (1980)

(Rehnquist, J., dissenting), denying cert. to 603 F.2d 263 (2d Cir.

18

That this Court should address this issue now is demon-

strated not only by the inter-circuit conflict, but also by

the turnabout and inconsistency within the Ninth Circuit.

The Ninth Circuit has moved in the last several years from

a strict marginal cost-based test (see, e.g., Hanson v. Shell

Oil Co., 541 F.2d 1352, 1358-59 (9th Cir. 1976), cert. denied,

429 U.S. 1074 (1977) ; Janich, 570 F.2d at 857-58; CalComp,

613 F.2d at 742-43; Murphy Tugboat Co. v. Crowley, 658

F.2d 1256, 1259 (9th Cir. 1981), cert. denied, 455 U.S. 1018

(1982)); to a variant of that marginal cost test (see, e.g.,

William Inglis & Sons Baking Co. v. ITT Continental

Baking Co., 668 F.2d 1014, 1033-36 (9th Cir. 1981), cert.

denied, 103 S. Ct. 57 (1982) ( “Inglis”)); to reliance

solely on evidence of defendant’s subjective intent in this

case.* The Ninth Circuit has declined to reconcile its own

intracireuit conflicts on this issue. Despite vigorous dis-

agreement as to the proper test for predation (see, e.g.,

Inglis, 668 F.2d at 1058-59 (Peck, J., dissenting); Trans-

america Computer Co. v. IBM, 698 F.2d 1377, 1389-91 (9th

Cir. 1983) (Lucas, J., concurring), petition for cert. filed

(August 1, 1983) (No. 83-171)), in bane review has been

consistently denied.

At some point the Ninth Circuit must be brought in line

with other circuits and with the pro-competitive purposes

of the antitrust laws on this issue. The need for rejection

of the subjective intent standard adopted by the court

below is immediate because it provides no guidance at all

in determining whether conduct will later be held to violate

the antitrust laws. KPC and ALP must bid for timber to

1979). When the conclusions of the lower courts are inconsistent

with the very purposes of the antitrust laws, “this Court cannot

remain wholly above the battle.” Id. at 1096.

“Even the majority in Inglis rejected exclusive reliance on sub-

jective evidence, stating that “direct evidence of intent alone can

be ambiguous and misleading,” and “(direct evidence of intent to

vanquish a rival in an honest competitive struggle cannot help to

establish an antitrust violation.” 668 F.2d at 1028.

19

keep their mills operating, but they do not know under

what circumstances or to what price they may do so with-

out fear of a treble damage suit. This Court has the oppor-

tunity to address and correct the untenable and unfair

predatory bidding rule, to resolve the conflict between this

rule and the cost-based rules of other circuits, and to

assure that Sherman Act enforcement is squared with the

purpose of fostering competition.

II

A BETTER-THAN-COMPETITIVE PRICE CANNOT

CAUSE ANTITRUST INJURY SOLELY AS A RE.

SULT OF SUBSEQUENT UNFORESEEABLE IN-

CREASES IN END PRODUCT VALUES

RBLC’s entire claim of injury rested on its transfer in

1972 of the ownership of a timber sale to KPC. RBLC con-

tended that the critical iransfer was caused by an offer by

KPC in 1972 to buy the logs at a price alleged to be de-

pressed due to the conspiracy, which prevented RBLC

from obtaining financial assistance it needed to retain own-

ership of the sale. But the district court found that KPC’s

offer in 1972 was higher than the 1972 competitive price.

App. A at A-17.

The courts below rationalized their finding that KPC’s

better-than-competitive offer in 1972 caused RBLC’s in-

jury with the novel and erroneous finding that KPC should

have offered to renegotiate the price annually based on end

product price increases or decreases."* Although conclud-

“Plaintiff claimed and the district court agreed that defendants

did negotiate and renegotiate prices based on a loggers’ costs;

such cost-based pricing was deemed illegal. The district court did

not find any failure to renegotiate prices based on costs, because

KPC unquestionably gave adjustments based on costs—to other

loggers as well as to RBLC on this particular timber sale. Thus,

the only violation of the antitrust laws regarding KPC’s 1972 price

offer was the absence of an annual renegotiation provision based

on changes in end-product prices—an unprecedented and unsup-

portable conclusion.

20

ing that the absence of such a provision established the

fact of damage in 1972 (App. A at A-15), the majority con-

cedes that whether KPC’s failure in 1972 to offer to rene-

gotiate the price annually has any adverse impact on RBLC

is entirely fortuitous. 7d. at A-19. The majority states:

The logger and the mill may often suffer substantial

losses as a result of a falling market or conditions at

the logging site less favorable than anticipated; in

other cases, however, market prices may soar or costs

may be less than anticipated, and both the mill and the

logger will reap an unexpected windfall. Unfortunately

for the defendants, it was just such a bonanza that

their illegal actions prevented RBLC from enjoying

in the rapidly escalating market of 1973-1974.

Id, (emphasis added).

It is clear that the market for wood products rose tra=—~,

matically after the 1972 price offer (before crashing again

in 1974), so that with hindsight the district court and the

majority could conclude that annual renegotiations based

on end-product price changes would have benefitted RBLC.

But RBLC was not injured by KPC’s offer in 1972; the

only “injury” occurred in 1973 and 1974 when and because

the market for end product prices soared temporarily due

to the Arab oil boycott. Thus, the cause of injury and the

only thing wrong with the 1972 offer was that the market

for end products happened to go up rather than down. The

absence of a provision for annual renegotiation based on

end product price fluctuations was neutral in 1972; it could

not have established the fact of damage.

The majority fails to offer any explanation why, as a

matter of law, a two-year contract can be deemed anticom-

petitive.’® The new rule that a two-year contract is anticom-

The Ninth Circuit's cursory treatment of this causation issue is

revealed by its citation to evidence of some contracts in the Puget

Sound area that were negotiated annually. App. A at A-15, But

21

petitive is devoid of common sense, let alone evidentiary,

legal, or economic support.

This Court has noted that even multi-year requirements

and output contracts can have legitimate business pur-

poses:

Requirements contracts ... may well be of economic

advantage to buyers as well as sellers, and thus indi-

rectly of advantage to the consuming public. In the

case of the buyer, they may assure supply, afford pro-

tection against rises in price, enable long-term plan-

ning on the basis of known costs, and obviate the ex-

pense and risk of storage in the quantity necessary for

a commodity having a fluctuating demand. From the

seller’s point of view, requirements contracts may

make possible the substantial reduction of selling ex-

penses, give protection against price fluctuations, and

—of particular advantage to a newcomer to the field

to whom it is important to know what capital expendi-

tures are justified—offer the possibilty of a predictable

market.

Standard Oil Co. v. United States, 337 U.S. 293, 306-07

(1949) (emphasis added). The offer by KPC and con-

demned by the courts below afforded these advantages. It

assured the buyer of a log supply under what the courts

below found were conditions of increasingly acute short-

age, and protected it against increases in its raw materials

costs. Such a contract correspondingly protected the seller

against market declines** and facilitated capital expendi-

the evidence did not show that such contracts were renegotiated

based on end product price fluctuations, and the evidence did show

that some Puget Sound loggers actively sought the protection of

long-term contracts.

*In condemning Standard Oil's use of exclusive supply contracts,

the Court specifically pointed out that Standard’s agreements did

not afford either party the advantages of certainty as to price be-

cause gasoline prices were pegged to a posted price that floated

22

tures by permitting the seller to make investments in equip-

ment with the confidence that the revenue for serving the

capital debt would be forthcoming.”

Thus, even in an “unrestrained market” a logger might

well prefer to protect itself against the possibility of a

falling market by having a two-year contract price.”* Ac-

cording to the majority’s new rule, however, KPC cannot

now grant such protection to a logger requesting it with-

out committing an antitrust violation and being liable for

treble damages if the market later happens to go up. The

majority has mandated that only one type of contract is

permissible in this industry—a price renegotiated annually

based solely on changes in end-product values—without

explanation of why other types of contracts (including con-

tracts renegotiated annually based on costs) are anticom-

petitive. The new rule is adopted without giving consider-

ation to the significant adverse impact the rule will have

with the market. 337 U.S. at 306 n.9. Here, KPC was condemned

for giving RBLC the advantage of certainty and failing to float

its price with the end-product market.

Although finding the evidence “very close” the Ninth Circuit

concluded that RBLC could have received financing with a con-

tract renegotiated year-to-year based on end product price fluctu-

ations, but could not get financing when it had the protection of

a better-than-competitive price without the risk of a falling market.

App. A at A-15. The Ninth Circuit has it backwards; RBLC’s ability

to obtain financing would be facilitated by protection from a falling

market.

In the district court, RBLC in fact made both arguments. It

claimed that it should have had annual renegotiations on the

Muddy River #3 sale, because the market rose; however, it

claimed that KPC should have honored a two-year contract price

at a different timber sale in 1971, because the market had dropped

and a price based on the end-product market was not as good

as the two-year contract price. Thus, plaintiff contended that it

was entitled to the benefit of a renegotiable price when the end-

product prices increased, but that it had to be protected from

market price decreases by a long-term price.

23

on loggers when, as in recent years, end-product prices of

timber products are dramatically depressed.

The majority's rule that an act may or may not be found

to be the cause of antitrust injury depending entirely on

events that will occur after the act takes place is without

precedent or justification." The majority below referred

to the “repeated holdings of the Supreme Court that a

lightened burden of proof is imposed upon a plaintiff seek-

ing to prove antitrust damages once violations of the law

have been established,” citing this Court’s decision in Ze-

nith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,

123 (1969). App. A at A-11, A-12 n.10. Whether or not the

Ninth Circuit erred in abolishing the distinction between

the standards of proving fact and amount of damage,”

however, even the lighter burden of proof was not met here.

“The new rule that a two-year offer is unlawful and is the cause

of antitrust injury if the market subsequently goes up also contra-

dicts the long-standing rule that the value of an asset lost as the

result of an alleged antitrust violation must be determined as of the

time of the loss. Standard Oil Co. v. Moore, 251 F.2d 188, 221 (9th

Cir, 1957), cert. denied, 356 U.S. 975 (1958); see also Farmington

Dowel Products Co. v. Foster Mfg. Co., 421 F.2d 61, 81 (1st Cir.

1969); Tlingit and Haida Indians of Alaska v. United States, 389

F.2d 778, 790-91 (Ct. Cl. 1968). RBLC allegedly lost the ownership

of the timber sale in 1972; whether that loss caused it any injury

should be determined as of the time of loss in 1972, not based on

subsequent events (such as the unexpected increase in end-product

values in 1973-74) that could not have had any impact on the loss

of the asset in 1972.

*°This Court has held that the standard of proof for establishing

fact of damage is stricter than that for establishing amount of

damages. Story Parchment Co. v. Paterson Parchment Paper Co.,

282 U.S, 555, 562 (1931); see also J.T. Gibbons, Inc. v. Crawford

Fitting Co., 704 F.2d 787, 791-92 (5th Cir. 1983) (declining to

interpret language in this Court’s decision in J. Truett Payne Co.

v. Chrysler Motors Corp., 451 U.S. 557 (1981) as changing the

Story Parchment distinction between standard of proving fact and

amount of damages),

24

Moreover, the courts below based their conclusion that

RBLC was injured on the prices that would have been paid

in 1973 and 1974 under conditions of perfect competition,

rather than the price that would have been paid in the

absence of the allegedly anticompetitive conduct. The “com-

petitive price theory” relied upon by the district court has

been expressly rejected, for reasons consistent with the

fundamental antitrust principle that a plaintiff is required

to prove that damages were caused by the particular action-

able conduct of defendants found to have violated the anti-

trust laws. See, e.g., Berkey Photo, Inc. v. Eastman Kodak

Co., 603 F.2d 263, 297-98 (2d Cir. 1979), cert. denied, 444

U.S. 1093 (1980). Even assuming that KPC’s better-than-

competitive price in 1972 did cause the loss of the sale,

the court’s perfectly competitive price in 1972 and 1974,

which was primarily based on end-product price increases

caused by the Arab oil embargo, does not measure the prof-

its RBLC lost as the result of defendants’ allegedly anti-

competitive conduct as the law requires.” See also North-

eastern Tel., 651 F.2d at 95; In re IBM Peripheral EDP

Devices Antitrust Litigation, 481 F.Supp. 965, 1019-20

"As a result of the failure to proffer evidence of any connection

between conduct alleged to be improper and plaintiff's alleged

damage, it is impossible to distinguish between the impact of

wrongful conduct and the impact of: (1) defendants’ natural

market power as a result of their unique position as pulp mills;

(2) government regulations, statutes and contracts; (3) conduct

prior to the statute of limitations period, such as the allegedly

predatory bidding in 1966-67; and (4) conduct that is lawful

under the proper legal standards, such as defendants’ bidding dis-

cussed in Section I above. Failure to attribute damages to antitrust

misconduct is a serious and recurring problem which cau give rise

to destructive damage awards unrelated to the misconduct. This

issue was recently addressed in a petition for certiorari granted by

this Court, though later dismissed, in In re Plywood Antitrust Liti-

gation, 655 F.2d 627 (5th Cir. 1981), cert. granted sub nom.,

Weyerhauser Co. v. Lyman Lamb Co., 457 U.S. 971 (1982), cert.

dismissed, 51 U.S.L.W. 3903 (U.S. June 21, 1983) (No. 81-1618).

25

(N.D. Cal. 1979), aff'd sub nom. Transamerica Computer

Co. v. IBM, 698 F.2d 1377 (9th Cir. 1983), petition for cert.

filed (August 1, 1983) (No. 83-171); Van Dyk Research

Corp. v. Xerox Corp., 478 F.Supp. 1268, 1316 (D.N.J. 1979),

aff'd, 631 F.2d 251 (3d Cir. 1980), cert. denied, 452 U.S.

905 (1981); ILC Peripherals Leasing Corp. v. IBM, 458

F.Supp. 423, 435-36 (N.D. Cal. 1978), aff'd sub nom. Memo-

rex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980), cert. denied,

452 U.S. 972 (1981). No evidence of the relationship be-

tween the alleged violations and the “competitive price” was

proffered in this case. The conclusion that KPC’s offer

caused RBLC antitrust injury is legally and factually

erroneous.

Ill

THE COURTS BELOW ERRED IN FINDING INJURY

AND DAMAGES BASED UPON EVIDENCE OUT-

SIDE THE STATUTE OF LIMITATIONS PERIOD

The Ninth Cirenit and the district court improperly

relied upon a collection of disparate pre-limitations period

acts and statements by defendants to find defendants

liable. The only conduct within the limitations period

identified as causing RBLC injury was the failure of KPC

in 1972 to offer to provide for annual renegotiation based

on end product price changes. That failure was deemed a

violation of the antitrust laws because of the “limited

market” faced by RBLC in 1972 due to pre-limitations

conduct and because of an “atmosphere” of cooperation

between KPC and ALP.” App. A at A-25. This combina-

tion of pre-limitations period conduct and “atmosphere”

effectively reads the statute of limitations out of a con-

spiracy case.

**This “atmosphere” apparently rendered it unnecessary for

RBLC even to ask KPC or ALP for the desired contract term, or

thereafter to prove that the absence of that term had any connec-

tion whatsoever to the alleged conspiracy.

26

The dependence upon pre-limitations period evidence

to transform otherwise legal conduct into an antitrust

violation shows the failure of the courts below to recog-

nize the critical difference between claims of continuing

injury from pre-limitations period conduct, on the one

hand, and claims of antitrust violative conduct within the

limitations period, on the other. In relying upon com-

pleted pre-limitations conduct that was alleged to have

had a continuing effect into the limitations period, the

Ninth Circuit has abandoned controlling decisions of this

Court (e.g., Zenith Radio Corp. v. Hazeltine Research,

Inc., 401 U.S. 321, 338 (1971)) and has created a conflict

with decisions of other courts of appeals. See Poster

Exchange, Inc. v. National Screen Service Corp., 517 F.2d

117, 128 (5th Cir. 1975) (“[A] ...claim for damages must

be based on some injurious act actually occurring during

the limitations period, not merely the abatable but un-

abated inertial consequences of some _ pre-limitations

action”).

The dilemma created by the Ninth Circuit’s approach to

the statute of limitations is immediate. If a logger today

asks KPC for the protection of a multi-year contract

price, and the market for end products happens to go up,

the “atmosphere” created by alleged pre-limitations mis-

conduct could still subject KPC to treble damages.

The Ninth Circuit’s wide-open reliance on pre-limitation

conduct premised on no more than a conclusory finding of

an all-encompassing “conspiracy” directly contravenes the

language and the strong policy behind the statute of limita-

tions in private antitrust actions. The central purpose be-

hind statutes of limitations generally has always been the

avoidance of stale claims and the protection of parties

against the prejudice which would result from the disap-

pearance of evidence and the fading of witnesses’ memories

27

over time.** Untted States v. Oregon Lumber Co., 260 U.S.

290, 299-300 (1922) (“The defense of the statute of limita-

tions is not a techaical defense, but substantial and merito-

rious. The great weight of modern authority is to this effect.

... Such statutes are not only statutes of repose, but they

supply the place of evidence lost or impaired by lapse of

time by raising a presumption which renders proof un-

necessary”) (citations omitted); see also United States v.

Marion, 404 U.S. 307, 322-23 n.14 (1971).

The congressional policy in favor of repose in private

antitrust suits appears in the congressional debates and

reports with respect to the four-year statute. The Report

of the Senate Committee on the Judiciary indicates that,

in adopting the four-year limitations period and its statu-

tory tolling provisions (15 U.S.C. § 15(b)), Congress was

concerned with the fact that:

[T]he long duration of [private antitrust] proceedings

taken in conjunction with a lengthy statute of limita-

tions may tend to prolong stale claims, unduly impair

efficient business operations, and overburden the calen-

dars of courts.

. . *

[The Committee] does not believe that the undue pro-

longation of proceedings is conducive to effective and

efficient enforcement of the antitrust laws.

*?Mr. Brooks, whose internal documents were so heavily relied

upon by RBLC, was in his 70’s when he testified to events from

decades past. His alleged co-conspirator from ALP, Mr. Charles

MacDonald, was too ill to be deposed and was deceased at the

time of trial. Many government officials responsible for setting up

the industry in Southeast Alaska were also either deceased or too

infirm to present testimony to counter the innuendo relied upon by

plaintiff. The unfairness is multiplied when one considers that the

delay was by RBLC’s own choice; as Judge Sharp ruled, RBLC had

knowledge of these claims more than four years before filing the

complaint. ;

28

S. Rep. No. 619, 84th Cong., Ist Sess., reprinted in 1955

U.S. Code Cong. & Ad. News, 2328, 2333.

Thus, not only does the Ninth Circuit decision undermine

the function of the statute of limitations as a statute of

repose, create unfairness to litigants caused by the lapse

of time, and leave KPC with the impossible and unfair

dilemma of conducting its business with the knowledge that

even requested, rational conduct can later be condemned

under the taint of pre-limitations period actions, but it also

has the potential to overburden the already strained federal

courts with meritless claims. An improperly enforced stat-

ute of limitations makes it difficult for parties to assess

with reasonable certainty their potential risks in litigation,

thus making settlement difficult, and creates the correspond-

ing potential for strike suits directed at conduct which

should otherwise have been long barred from suit.

The Ninth Circuit's approach conflicts with this Court’s

prior decisions and decisions in other circuits; this Court

should take this opportunity to give direction on this im-

portant issue.”

*The misconstruction of the statute of limitations is not an

isolated phenomenon in private antitrust actions. Confronted with

the disregard of the statute of limitations in Berkey Photo, Justice

Rehnquist, dissenting from denial of certiorari, noted:

I likewise think that the conclusion of the Court of Appeals

that significant parts of a defendant’s conduct which take

place before the statute of limitations period may nonetheless

be introduced in evidence is open to serious question under

our prior cases.

444 U.S. at 1095. If the admissibility of pre-limitations conduct is

suspect and deserving of this Court’s attention, surely the unlimited

and indiscriminate reliance on such evidence in this case stretching

back some 16 years before the lawsuit was filed, must be addresseed

and condemned.

29

CONCLUSION

Beyond its unfair impact on the litigants, the decisions

in the courts below give no rational guidance for ongoing

conduct in an industry vital to the economy of Southeast

Alaska. The new rules devised by the Ninth Circuit create

inter- and intra-circuit conflicts on the important issues of

predatory pricing, the fact of damage, the statute of limi-

tations, the standards for inferring a conspiracy and the

right to a jury trial. The Court should take this opportunity

to change the aberrant course the Ninth Circuit is taking

on these important issues.

Respectfully submitted,

Rosert D. Raven

Peter J. PFIsTer

Katuy J. Bagponas

Morrison & Foerster

By Rosert D. Raven

Attorneys for Defendant-

Appellant Ketchikan

Pulp Company