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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1983

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0307%3A1. Public record. Not legal advice.