Petition — D. E. Rogers Associates, Inc. v. Gardner-Denver Co.
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“8-1RGE
No ALEXANDER L. STEVAGD
c CLEBK
IN THE
Supreme Court of the United States
en
October Term, 1983
auaua@anes
D. E. ROGERS ASSOCIATES, INC., and
MICHIGAN SPECIALTIES MANUFACTURING COMPANY,
Petitioners,
v.
GARDNER-DENVER COMPANY,
Respondent.
—_—~e———
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
GREGORY L. CURTNER
Attorney for Petitioners
2500 Comerica Building
Detroit, Michigan 48226
(31.3) 963-6420
Of Counsel:
LARRY J. SAYLOR
Miller, Canfield, Paddock and Stone
2500 Comerica Building
Detroit, Michigan 48226
Interstate Briei & Record Co., Suite 731, David Whitney Building, Detro, MI 48226
(313) 962-8745
i
QUESTIONS PRESENTED
WHETHER A CLAIM OF PRICE DISCRIMINATION
UNDER § 2(a) OF THE ROBINSON-PATMAN ACT, 15
U.S.C. § 13a), CAN ONLY BE MADE OUT ON EXACTLY
THE SAME PROOF AS WOULD SUPPORT A CLAIM OF
MONOPOLIZATION OR ATTEMPT TO MONOPOLIZE
UNDER § 2 OF THE SHERMAN ACT, 15 U.S.C. §2,
BASED ON PREDATORY PRICING.
WHETHER THE COURT OF APPEALS PANEL IN THIS
CASE PROPERLY APPLIED A COST-BASED TEST IN DE-
TERMINING WHETHER THE DEFENDANT ENTER-
TAINED THE REQUISITE INTENT TO COMMIT
MONOPOLIZATION OR AN ATTEMPT TO MONOPOLIZE
IN VIOLATION OF § 2 OF THE SHERMAN ACT, 15 U.S.C.
§ 2.
TABLE OF CONTENTS
QUESTIONS PRESENTED ..........cccecccccees
RE GE PUMPER EEPIEE EID cc ccccccccescceccccce
ee Liles ec ween ee edengecn bere
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STATEMENT OF THE CASE:
ee raha ad diststnkieieecbes'c sees
The Parties And Market Share .................
Gardner-Denver's Anticompetitive Actions.......
i os cash ocwsceeenseceei a
Anticompetitive Impact and Rogers’ Damages....
THE PANEL'S HOLDING THAT THE PROOFS
NECESSARY TO MAKE OUT A PRICE DIS-
CRIMINATION CLAIM ARE IDENTICAL
TO THOSE NECESSARY TO MAKE OUT
A MONOPOLIZATION OR ATTEMPT TO
MONOPOLIZE CLAIM IS IN CONFLICT WITH
DECISIONS OF THIS COURT AND WITH
ENACTMENT OF THE ROBINSON-PATMAN
ACT AS A SEPARATE STATUTORY PROVI-
BET co Ce ccrccedwesdbssecesvescesseceseces
A. Elements Of A Price Discrimination Claim
B. Proof Of Possible Anticompetitive Effect
Page
Il. THE PANEL IMPROPERLY APPLIED A
COST-BASED TEST IN REJECTING ROGERS’
SEs & CAME 6b vccesscvcecctevescets 21
SET Ohencecauneccwesibessesebecsagees 30
APPENDIX
Opinion of the United States Court of Appeals in
D. E. Rogers Associates, Inc., et al. v.
Gardner-Denver Company, review of which is
I haa enbks caca bu ubatabesds ccenereees A-l
Judgment of the United States Court of Appeals,
ee SAE SE, BOE Sioncscsecdees bee veseus A-17
Order of the United States Court of Appeals De-
nying Petition for Rehearing and Suggestion of
Rehearing En Banc, filed January 18, 1984 ....A-18
Opinion of the United States District Court for the
Fastern District of Michigan, dated March 31,
SEU Wodseeweet+kskewitien el kad beneeTees ee A-19
Order of Dismissal of the United States District
Court for the Eastern District of Michigan, dated
Re Ee -avicettsinseeraxkbbensceoeaeast A-31
Sherman Act, Section 2, 15 U.S.C. §2.......... A-32
Clayton Act, Section 2(a), as amended by the
Robinson-Patman Act, 15 U.S.C. § 13(a) ...... A-32
Clayton Act, Section 2(b), as amended by the
Robinson-Patman Act, 15 U.S.C. § 13(b) ...... A-33
Vv
TABLE OF AUTHORITIES
Cases: Page
Arthur S. Langenderfer, Inc. v. S. E. Johnson Co..,
1984-1 Trade Cas. (CCH) § — (6th Cir. No. 80-
Pe, De Se as heh wcbaeesetebesean 25
Atlas Bldg. Prod. Co. v. Diamond Block & Gravel
Co., 269 F.2d 950 (10th Cir. 1959), cert. denied,
Pe Se Ee GE: Cae er eSe cis teucesawenawen 22
Barry Wright Corp. v. ITT Grinnell Corp. , 724 F.2d
Sr Se, PO cub Ge ceurcacusesesewasncs 25
Borden, Inc. v. F.T.C., 674 F.2d 498 (6th Cir.
1982), vacated, _. U.S. —, 103 S. Ct. 2115, 77
Seed GE CUED bon bbb eenevecesdceveeccus 23
Broadway Delivery Corp. v. United Parcel Service,
651 F.2d 122 (2d Cir.), cert. denied, 454 U.S. 968
SUE o44430 055 cok ou ade bee us Ce ekane oconeaes 23
California Computer Prods., Inc. v. International
Business Mach. Corp., 613 F.2d 727 (9h Cir.
PG tr habeus teokan TOC CRC nana 23, 29
Chillicothe Sand & Gravel Co. v. Martin Marietta
Corp., 615 F.2d 427 (7th Cir. 1980) ........... 23
Corn Prods. Refining Co. v. F.T.C., 324 U.S. 726
SUE Guba had ke ub wok aealedesieeaehnisuabennne 15
Dean Milk Co., 68 F.T.C. 710 (1965) ............ 13
D. E. Rogers Associates, Inc. v. Gardner-Denver
Co., 1981-1 Trade Cas. (CCH) 4 64,024 (E.D.
Mich. 1981), aff'd, 718 F.2d 1431 (6th Cir.
Pee caacucekeunssubws 2, 4, 11, 14, 19, 25, 28, 29
Falls City Industries, Inc. v. Vanco Beverages,
Inc., — U.S. —, 103 S. Ct. 1282, 75 L.Ed.2d 174
GENE 5 06000 vu onde apsiabaeanenenecenanes 18
Forster Mfg. Co. v. F.T.C., 335 F.2d 47 (1st Cir.
1953), cert. denied, 380 U.S. 906 (1965) ....... 14
F.T.C. v. Anheuser-Busch, Inc., 363 U.S. 536
i eh ous ebbuvéeeseuteeneneese< 13, 14
F.T.C. v. Morton Salt Co., 334 U.S. 37 (1948)... 13
F.T.C. v. Sun Oil Co., 371 U.S. 505 (1963) ...... 15
Hanson v. Shell Oil Co., 541 F.2d 1352 (9th Cir.
1976), cert. denied, 429 U.S. 1074 (1977) ...... 23
Holleb & Co. v. Produce Terminal Cold Storage
Co., 532 F.2d 29 (7th Cir. 1975)......... 13, 16, 19
In re IBM Peripheral EDP Devices Antitrust Liti-
gation, 481 F.Supp. 965 (N.D. Cal. 1979), aff'd
sub. nom. Transamerica Computer Co. v. Inter-
national Business Mach. Corp., 698 F.2d 1377
(9th Cir.), cert. denied, _ U.S. —, 104 S.Ct.
Oe ED SY CRD soo ccc cccccccsceves 29
International Air Indus., Inc. v. American Excel-
sior Co., 517 F.2d 714 (Sth Cir. 1975), cert. de-
ma, GOO UB. SES CIGD. onc ccccccccccce 15, 23
J. Truett Payne Co. v. Chrysler Motors Corp., 451
a naan ceueesaneews 19
Jacobs Mfg. Co., 49 F.T.C. 1463 (1953) ......... 13
Janich Bros., Inc. v. American Distilling Co., 570
F.2d 848 (9th Cir. 1977), cert. denied, 439 U.S.
ee vc ckerenshbikesscaueads-oe 1S, 23
Jefferson County Pharmaceutical Assn. v. Abbott
Laboratories, Inc., — U.S. —, 103 S.Ct. 1011,
Be EE CED oo nce cnccecccecceeesec 18
Lloyd A. Fry Roofing Co. v. F.T.C_, 371 F.2d 277
ER SE one Pg re 14, 20
Malcolm v. Marathon Oil Co., 642 F.2d 845 (Sth
Cir.), cert. denied, 454 U.S. 1125 (1981)....... 23
Page
MCI Communications Corp. v. AT&T, 708 F.2d
1081 (7th Cir.), cert. denied, — U.S. —, 104
S.Ct. 234, 78 L.Ed.2d 226 (1983) .......... i
Moore v. Mead's Fine Bread Co., 348 U.S. 115
NBR kgs ea 13, 14
Northwestern Tel. Co. v. AT&T, 651 F.2d 76 (2d
Cir. 1981), cert. denied, 455 U.S. 943 (1982)... 23
National Assn. of Regulatory Utility Commrs. v.
FCC, 525 F.2d 630 (D.C. Cir.), cert. denied, 425
i ee ee 23
O. Hommel Co. v. Ferro Corp., 659 F.2d 340 (3d
Cir. 1981), cert. denied, 455 U.S. 1017 (1982)... 15
Pacific Engineering & Production Cu. v. Kerr-
McGee Corp., 551 F.2d 790 (10th Cir.), cert. de-
RR 15, 23
Reynolds Metal Co. v. F.T.C., 309 F.2d 223 (D.C.
Te eae. eu ivadbeevacbeaceeedee 22
Richter Concrete Corp. v. Hilltop Concrete Corp.,
ee ee OD ls CED oc cv cece revbccsece 23
Standard Oil Co. v. F.T.C., 340 U.S. 231 (1951) 15
Standard Oil Co. v. United States, 22! U.S. 1
Re I eeu a eh ob eb eu eee heb oete tee 22
Superturf, Inc. v. Monsanto Co., 660 F.2d 1275
ces bee veehs Wiese boes 23
Swift & Co. v. United States, 196 U.S. 375 (1905) 21
Transamerica Computer Co. v. International Busi-
ness Mach. Corp. , 698 F.2d 1377 (9th Cir.), cert.
denied, _ US. —, 104 §.Ct. 370, 78 L.Ed.2d 329
i cece hscsmeeenahee ches eed ee 64060 6 25
United States v. American Tobacco Co., 221 U.S.
a a eo 22
Viii
Page
United States v. Borden Co., 370 U.S. 460 (1962) =16
United States v. Cooper Corp. , 312 U.S. 600 (1941) 18
United States v. Grinnell Corp., 384 U.S. 563
(err rer rrr st rere re rte corre 21
Utah Pie Co. v. Continental Baking Co., 386 U.S.
Gs. ier reer 13, 15, 21
William Inglis & Sons Baking Co. v. ITT Coniti-
nental Baking Co., 668 F.2d 1014 (9th Cir. 1981),
cert. denied, 455 U.S. 943 (1982)...... 15, 25, 26, 27
Statutes:
15 U.S.C. § 2 (§ 2 of the Sherman Act)...... 3, 4, 10,
11, 12, 15, 16, 20
1S U.S.C. § 13(a) (§ 2(a) of the Clayton Act, as
amended by the Robinson-Patman Act)..... 3, 10,
12, 13, 16, 20
1S U.S.C. § 13(b) (§ 2(b) of the Clayton Act, as
amended by the Robinson-Patman Act) ....... 13
Be reits OPM 6 ves er ct edencicouceresctuate 2
Court Rule:
ee ee SE kc ko kin aka caaddacacbaubnne 10
Secondary Sources:
American Bar Association Section of Antitrust Law
Monograph No. 4, The Robinson-Patman Act:
Pee Ge GO GH 6b cove cchedtenctendacns 17
Areeda & Turner, Predatory Pricing and Related
Practices Under Section 2 of the Sherman Act,
88 Harv. L. Rev. 697 (1975)............ 9, 15, 22
Areeda & Turner, Scherer on Predatory Pricing:
A Reply, 89 Harv. L. Rev. 891 (1976)......... 22
Areeda & Turner, Williamson on Predatory
Pricing, 87 Yale 1L..J. 1337 (1978) ............. 22
Page
D. Areeda & D. Turner, Antitrust Law (1978) Vol.
‘* @ilv Me, See > Ree 9, 15, 22, 28
Cooper, Aftfempts and Monopolization, A Mildly
Prophylactic Answer to the Riddle of Section
Two, 72 Mich. L. Rev. 373 (1974) ............ 24
Ewing, Pricing Practices - Department of Justice
Views, (CCH) Trade Reg. Rep. 4 50,417 (1980) 24
National Commission for the Review of Antitrust
Laws and Procedures, Report to the President
and the Attorney General, 150 (1979) ......... 24
R. Posner, Antitrust Law: An Economic Perspec-
Bee, TEOe Cate i kv cone nvacsekudes Keuewines 24
Scherer, Predatory Pricing and the Sherman Act: A
Comment, 89 Harv. L. Rev. 869 (1976) ....... 24
Scherer, Some Last Words on Predatory Pricing,
op Dee. 6. Bes Se TOE 6iccesecsaonuuee 24
Sherwood, Robinson-Patman Act Primary Line
Injury: Meanderings from Porto Rico to Utah -
and Beyond, 16 U.C.L.A. L. Rev. 304 (1969) 13, 14
Turner, Conglomerate Mergers and Section 7 of
the Clayton Act, 78 Harv. L. Rev. 1313 (1978) 24
U.S. Department of Justice, Report on the
Robinson-Patman Act (1976) ...... 0.0... 0005: 17
16C J. Von Kalinowsk:., Antitrust Laws and Trade
EN SE ob0kcéoccccatesscegeeeas 14
Williamson, A Preliminary Response , 87 Yale L.J.
I i Oe 24
Williamson, Predatory Pricing: A Strategic and
Welfare Analysis, 87 Yale L.J. 284 ('977) ..... 24
No.
IN THE
Supreme Court of the United States
a Pn
October Term, 1983
——— e —_—-
D. E. ROGERS ASSOCIATES, INC., and
MICHIGAN SPECIALTIES MANUFACTURING COMPANY,
Petitioners,
v.
GARDNER-DENVER COMPANY,
Respondent.
—_—e——
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
The petitioners D. E. Rogers Associates, Inc. and
Michigan Specialties Manufacturing Company, Inc.
(hereinafter collectively *‘Rogers’’)' respectfully request
that a writ of certiorari issue to review the opinion and
judgment of the United States Court of Appeals for the
Sixth Circuit entered on October 21, 1983.
' During the 1971-76 period relevant to the complaint, petitioners D.
E. Rogers Associates, Inc. and Michigan Specialties Manufacturing
Company, Inc. were related Michigan corporations located in Troy.
Michigan. Michigan Specialties manufactured many of the products
sold Ly D. E. Rogers. Michigan Specialties was merged into D. E.
Rogers Associates, Inc. in 1979. Rogers is affiliated through a partial
common ownership with D&D Production, Inc., a Michigan
corporation.
2
OPINIONS BELOW
The opinion of the Court of Appeals is reported at 718
F.2d 1431. It also appears in the Appendix hereto at A-1 to
A-16.? The district court rendered an oral opinion on
March 31, 1981, the transcript of which appears at A-!9 to
A-30 and at J. App 782-800. The district court opinion is
unofficially reported at 1981-1 Trade Cas. (CCH) 4 64,024.
JURISDICTION
The judgment of the Court of Appeals was entered on
October 21, 1983. Rogers’ petition for rehearing and
suggestion for rehearing en banc were denied on January
18, 1984. A-18. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
STATUTES INVOLVED
This suit involved application of Section 2 of the
Sherman Act, 15 U.S.C. §2, and § 2(a) of the Clayton
Act, as amended by the Robinson-Patman Act, 15 U.S.C.
§ 13(a). These provisions appear at A-32.
2 Citations to the Appendix to this petition are in the above form.
The Joint Appendix in the Court of Appeals is cited as “J. App.’’.
3
STATEMENT OF THE CASE
Synopsis
Gardner-Denver for years had enjoyed a monopoly
position, originally founded on a patent, in the rachet
wrench tool and parts markets. In the early 1970s,
Gardner-Denver became concerned about the inroads into
its position being made by Rogers, which Gardner-Denver
considered to be a ‘‘pirate’’ manufacturer of replacement
parts for defendant's ratchet wrenches. Gardner-Denver
responded by selectively undercutting Rogers’ prices
through a secret “‘blue list."’ Gardner-Denver did not
simply meet Rogers’ prices, but substantially undercut
those prices on two separate occasions. The selective
price-cuts were limited to the parts Rogers produced and
were aimed directly at Rogers. Gardner-Denver's actions
caused severe losses in volume and profit to Rogers,
forced another small competitor, Transpneumatic,
completely out of the market, and deterred a large
potential competitor, Ingersoll-Rand, from entering the
market.
This matter went to trial on Rogers’ claims that
Gardner-Denver's actions were an unreasonable restraint
of trade and constituted monopolization and an attempt to
monopolize in violation of § 2 of the Sherman Act, 15
U.S.C. § 2, and constituted price discrimination in
violation of the Robinson-Patman Act, 15 U.S.C. § 13(a).
At the close of Rogers’ proofs, the district court dismissed
Rogers’ monopolization and attempt to monopolize claims
on several grounds, not all of which were addressed by the
Sixth Circuit panel. First, the panel held that the district
court's finding that there was insufficient direct evidence
of predatory intent was not clearly erroneous. Second, the
panel concluded that Rogers had failed to establish
predatory intent by implication through proof that
4
Gardner-Denver had priced its product below its average
variable costs or marginal costs. Third, the panel affirmed
the district court's dismissal of Rogers’ price
discrimination claim on the ground that, at least in the
absence of a detailed market study, the requisite likelihood
of anticompetitive effect could be made out only through
proof of predatory pricing which would also make out a
monopolization or attempt to monopolize claim under § 2
of the Sherman Act, 15 U.S.C. § 2. The panel thus held
that where a plaintiff ‘seeks to prove anticompetitive
effect ‘nferentially from proof of anticompetitive intent,
. proof of anticompetitive intent in Section 2(a) cases is
no different from its proof in Sherman Act cases.”’ 718
F.2d at 1439, A-15.
The Parties And Market Share
D. E. Rogers Associates, Inc., was founded in 1964 by
Donald Rogers, a former Gardner-Denver employee.
Rogers entered business by manufacturing and selling
replacement parts for Gardner-Denver ratchet wrenches?
at attractive prices. By reinvesting its modest profits,
Rogers was able by 1970 to offer a complete line of ratchet
wrench parts and complete attachments. It later began
marketing some complete ratchet wrenches.
> A ratchet wrench, as that term is used herein, is a particular
species of a broad class of pneumatic ‘‘nutsetters’’, hand-held
compressed air-powered industrial tools which tighten nuts onto bolts
or studs. A ratchet wrench consists both of a motor and an attachment.
An attachment, in turn, consists of various parts including a socket,
side plate, panel and push rod (J. App. 31, 67-73). The ratchet wrench is
used primarily in assembly operations such as the automobile industry.
It is a unique special purpose tool capable of working in areas with
much more limited access than other pneumatic nutsetters and differs
from other types of nutsetters in terms of speed, torque, cost, size and
other characteristics. As a result of its unique design, however, the
ratchet wrench has a slow recycle time, wears out quickly and is high in
maintenance cost. Customers therefore do not use the ratchet wrench
unless the particular assembly operation allows no alternative tool to be
utilized (J. App. 73-87, 105-06, 142-43, 198-200, 237-37).
5
During the 1971-76 period, defendant Gardner-Denver
Company was a Delaware corporation engaged in the
production and marketing of a broad range of industrial
tools.* In 1955, Gardner-Denver had acquired Keller Tool
Company, which had held a monopoly on ratchet wrench
production as the sole holder of patents which expired that
same year. Gardner-Denver has remained the industry
leader in ratchet wrenches and parts. During the period in
issue, Gardner-Denver sold about 80 percent of all ratchet
wrenches and replacement parts in the United States (J.
App. 774-75, 778-79, 789). Gardner-Denver's market
position in both parts and whole tools was entrenched by a
number of factors.’ While several other companies
produced very limited lines of ratchet wrenches and parts
at some time relevant to this action, only Rogers and
* In or about 1980, Gardner-Denver was acquired by and merged
into Cooper Industries, Inc.
* These factors include Gardner-Denver's well-developed sales
organization, market acceptance, image of quality, registrations with
customers, and the fact that it has always offered a line of complete
tools (J. App. 103-04, 410, 415, 424, 780-781). A particular barrier to
entry was posed by the purchasing practices of ratchet wrench
customers. A number of large customers, including the “big three”
auto manufacturers and the large automotive industry suppliers.
authorize the purchase of repair parts only through “blanket orders’’.
These “‘blanket orders’’ have proven difficult for small new suppliers
such as Rogers to obtain (J. App. 104-05, 266-70, 780-81). In addition,
even when a blanket order has been obtained or where it is not
required, ratchet wrench customers generally purchase only the tools
and parts listed on ‘tool crib cards’’ maintained by factory production
personnel. It has proven difficult for Rogers and other small suppliers to
get these cards updated to reflect them as suppliers, particularly during
the period of Gardner-Denver's price reductions (J. App. 87-90, 249-51,
259, 267-71). Rogers was also handicapped in its efforts to enter the
whole tool market by the unavailability of a suitable motor at a
reasonable price, and by Gardner-Denver's refusal to sell it such a
motor (Exhibits 89, 102; J. App. 137-39, 145-50, 427-28).
6
Gardner-Denver have marketed complete lines of ratchet
wrench tools and parts (J. App. 98-102, 234-41, 277-78,
426).°
Gardner-Denver’s Anticompetitive Actions
While Gardner-Denver had been concerned since at
least 1966 (see Exhibit 36; J. App. 394) about what its
officials viewed as ‘“‘encroachment’’ of a ‘‘pirate’’
manufacturer on ‘our ratchet wrench business’’ (Exhibit
6; J. App. 390), it first reacted to punish this ‘‘pirate’’ in
1970 by declining a normal increase in ratchet wrench
prices while increasing the prices on all of its other
product lines. When Rogers continued to make sales and
introduce new products, Gardner-Denver adopted a more
punishing strategy. In August 1971, after comparing its
prices with Rogers’ and calculating its losses if it reduced
prices (Exhibits 57, 58; J. App. 401-08), Gardner-Denver
introduced a secret ‘‘blue”’ price list for ratchet wrench
parts at prices below those of Rogers while maintaining its
public ‘‘white”’ list at the prior prices. Gardner-Denver's
sales manager admitted the company made no effort to
justify its blue list price reduction or its selection of the
number five for the volume discount in terms of cost
economics (J. App. 705).
The biue list covered only ratchet wrench parts and
included only those parts offered by Rogers (J. App. 32,
119-20, 216, 429-55). Unlike the white list, the blue list was
distributed only to Gardner-Denver employees, and not to
customers (J. App. 706-07, 750). Its stated purpose was to
improve Gardner-Denver's position with ‘‘pirate part
* The district court defined the relevant market to include all
power-driven nutsetters, and concluded that Gardner-Denver lacked
sufficient power in such market to commit the § 2 violations alleged (J.
App. 787-90, A-21-24). On appeal, Rogers argued that this holding was
unsupported by adequate findings of subsidiary fact, and was contrary
to the decisions of this Court respecting submarkets. The Sixth Circuit
did not reach this issue.
-
manufacturers’’ (Exhibit 26; J. App. 392). Significantly,
orders for parts at the blue list prices had to be specifically
marked ‘‘quoted"’ or the regular price would be charged
(id). Rogers’ prices had averaged about 70% of
Gardner-Denver's white list prices and the blue list prices
averaged about 61% of the white list prices (Exhibit 145;
Exhibit 148, Schedules A-! - A-3; J. App. 429-55, 462-64).
Gardner-Denver sales personnel reported the success of
this strategy in diverting sales from Rogers to
Gardner-Denver. For example, an internal memorandum
reflects that “‘[s]ince Ford [Motor Company] was made
aware’ of the blue list it ‘‘ceased purchasing all copies of
Gardner-Denver ratchet parts’ and determined “‘to buy
G.D. parts exclusively"’ (Exhibit 64; J. App. 410). Donald
Rogers testified to the drastic effect the blue list had on his
sales and his compelled decision to cut his prices in
response on September 29, 1971 to approximately 55% of
the white list price, just below the blue list price.
Gardner-Denrver again cut its blue list prices below Rogers
on February 23, 1972, while at the same time increasing its
white list prices. Rogers again was forced to reduce his
prices to meet the blue list price on March 15, 1972. The
blue list prices and Rogers’ prices were stabilized at an
average of 48% of the white list prices. Gardner-Denver
maintained this dual price structure until September 1976
(Exhibits 28, 145; J. App. 32-33, 393, 429-55).
Because the blue list was not distributed to customers
and applied only to invoices marked ‘‘quoted’’, Rogers
had to meet the blue list price but Gardner-Denver could
charge all of its customers on whom Rogers did not call
the white list price. Even though it was cheaper to buy five
parts at the blue list price than three parts at the white list
price, an analysis of Gardner-Denver's sales invoices
performed by Rogers’ expert accountant disclosed that in
1975 white list prices were charged 24% of the time when
five or more parts were ordered, that blue list prices were
charged 22% of the time when fewer than five parts were
ordered, and that many buyers purchased in patterns
which indicated that they were unaware of the blue list
prices (Exhibit 197; J. App. 317-28, 474-80).
Gardner-Denver’s Costs
Rogers’ expert accountant, Edward M. Parks, testified
extensively regarding the relationships between
Gardner-Denver's prices and costs. Based on a review of
Gardner-Denver's records and deposition testimony of its
officers, Parks found that Gardner-Denver had no
adequate system for determining the costs associated with
ratchet wrench replacement parts during the 1971-76
period, and had noi at any relevant time attempted to
determine the profitability of this product line (J. App.
294-97, 377-78). Instead, Gardner-Denver utilized
accounting conventions which allocated only a portion of
the actual overhead costs to the ratchet wrench product
line, anu which Gardner-Denver knew to be flawed (J.
App. 295-97, 368). Parks concluded that when costs were
fully and properly allocated, defendant's blue list prices
during the period February 1972 through September 1976
were in the area of his ‘‘accountant’s'’ determination of
average variable cost (J. App. 304-07).” Thus, by pricing at
that level, Gardner-Denver failed to recover any of its
fixed costs or imputed cost of capital, and failed to earn
any profit (J. App 309-13, 456).
’ Mr. Parks defined ‘variable costs’’ as those costs which would
vary with a given increase or decrease in production. Both ‘‘marginal’’
and ‘‘average variable’’ costs are variable costs. The former consist of
those variable costs which would be incurred by producing an
additional unit or units of output. ‘‘ Average variable costs"’ are the sum
of all variable costs over some given time period divided by output.
‘Fixed costs,"’ in contrast, are those costs which do not vary with a
change in output; and include the ‘‘opportunity cost’’ or a reasonable
return on invested capital. ‘Average cost'’ or average total cost is the
sum of all the variable and fixed costs over a given period divided by
output (J. App. 299-300, 472).
9
Parks further testified that had he utilized a more
inclusive ‘‘economist’s"’ definition of variable costs like
that advocated by professors Areeda and Turner®, about
half of what he considered fixed costs would instead be
variable costs. Thus, by Areeda and Turner's definition,
Gardner-Denver's blue list prices were substantially below
the level of average variable costs throughout the entire
period that list was in effect, August 1971 through
September 1976 (J. App. 306-07, 313-14, 386-89).
Moreover, Parks testified that Gardner-Denver's blue list
prices throughout that period were substantially below its
average total costs (J. App. 312-14).
Anticompetitive Impact And Rogers’ Damages
It was uncontradicted that the Gardner-Denver blue list
had a significant and immediate negative effect on Rogers’
sales. While subsequent increases in the blue list prices
ameliorated this effect, it continued until the blue list was
discontinued in September 1976 (J. App. 111-30, 209-10,
215-19, 257, 262-63, 266-67).° The evidence also showed
that the existence of the blue list caused at least one other
small competitor, Transpneumatic, to abandon the market,
and deterred a large potential competitor, Ingersoll-Rand,
which was planning to enter the market, from entering the
market (J. App. 246-48, 752-55).
* Areeda and Turner's definition of variable and fixed costs differs
from that utilized by Mr. Parks: they consider to be variable any costs
which would be avoided if the production of the commodity was
completely discontinued. They consider all other costs to be fixed. 3 D
Areeda & D. Turner, Antitrust Law 4712 at 172-74 (1978); Areeda &
Turner, Predatory Pricing and Related Practices Under Section 2 of the
Sherman Act, 88 Harv. L. Rev. 697, 700 (1975).
* Mr. Parks testified that forced reduction in Rogers’ price below
the previous competitive level, inability to make a normal 10% price
increase in 1974, failure to attain normal growth and inability to make
use of its lost profits during the period through December |977 had
resulted in total untrebled damages of $912,169.
(continued on following page)
10
Proceedings
Rogers’ complaint, filed August 12, 1974, alleged in
relevant part that Gardner-Denver's pricing and related
actions were an unreasonable restraint of trade and
constituted monopolization of and an attempt to
monopolize the markets for ratchet wrench replacement
parts and attachments in violation of § 2 of the Sherman
Act, 15 U.S.C. § 2, and constituted price discrimination in
violation of § 2(a) of the Clayton Act as amended by the
Robinson-Patman Act, 15 U.S.C. § 13(a).'°
The district court granted Gardner-Denver'’s motion to
dismiss Rogers’ claims at the close of Rogers’ proofs
pursuant to Fed. R. Civ. P. 41(b) (J. App. 782, A-31). In
essence, the district court held (1) that Rogers had failed
to establish a relevant product market in which
Gardner-Denver had the necessary market power to
commit a § 2 offense; (2) that Rogers had failed to prove
predatory intent by direct evidence; (3) that Rogers had
failed to establish predatory intent by proof that
Gardner-Denver had priced below its average variable
costs throughout the entire period the blue list was in
(continued from preceding page)
The district court concluded that Rogers had failed to satisfy its
burden of proving damages because Rogers had other difficulties during
the 1971-76 period which produced some or all of the losses complained
of. On appeal, Rogers argued that the district court had improperly
ignored the legal distinction between faci of injury (which was
essentially undisputed) and amount of damage (which need not be
proven with exactness), and had erroneously required Rogers to prove
that Gardner-Denver's actions were the sole cause of any financial
losses it suffered. This issue was not addressed by the Sixth Circuit.
‘© A claim that certain of Gardner-Denver's actions were unlawful
per se and pendent state law claims were dismissed before trial, and are
not at issue herein.
effect, which the court found to be fatal to both the
monopolization and price discrimination claims; and (4)
that Rogers had failed to show that it had suffered
compensable damage as a result of Gardner-Denver's
actions
The Sixth Circuit panel addressed only the second and
third of these grounds. First, the panel held that the
district court's finding that there was insufficient direct
evidence of predatory intent was not clearly erroneous.
718 F.2d at 1435, 1439, A-6, 14. Second, the panel
concluded that Rogers had failed to establish predatory
intent by implication through proof that Gardner-Denver
had priced its products below its average variable or
marginal costs. 718 F.2d at 1435-38, A-7-13. Third, the
panel affirmed the district court's dismissal of Rogers’
price discrimination claim on the ground that, at least in
the absence of a detailed market study, the requisite
anticompetitive effect for a price discrimination claim
could be made out only through proof of predatory pricing
which would also make out a monopolization or attempt to
monopolize claim under § 2 of the Sherman Act, 15
U.S.C. § 2. 718 F.2d at 1438-40, A-13-16.
REASONS FOR GRANTING THE WRIT
Review by this Court is necessary to resolve two issues
of paramount importance to the federal antitrust law.
First, Rogers submits that the panel's holding that the
proofs necessary to establish a price discrimination claim
are identical to those necessary to establish a § 2 claim
based on predatory pricing is in conflict with controlling
decisions of this Court and inconsistent with congressional
enactment of the Robinson-Patman Act as a separate
conduct-governing provision. The panel's analysis of the
price discrimination claim is also inconsistent with recent
decisions of this Court warning against judicial attempts to
repeal the Robinson-Patman Act.
12
Second, the way in which the panel applied its holding
regarding cost-based proof of predatory intent is novel and
inconsistent with decisions of other circuits. This holding
involves an important question of interpretation of the
federal antitrust laws which has not been, but should be,
settled by this Court.
THE PANEL’S HOLDING THAT THE PROOFS NECESSARY
TO MAKE OUT A PRICE DISCRIMINATION CLAIM ARE
IDENTICAL TO THOSE NECESSARY TO MAKE OUT A
MONOPOLIZATION OR ATTEMPT TO MONOPOLIZE
CLAIM IS IN CONFLICT WITH DECISIONS OF THIS COURT
AND WITH ENACTMENT OF THE ROBINSON-PATMAN ACT
AS A SEPARATE STATUTORY PROVISION
Both the district court and the panel accepted
Gardner-Denver's argument that the proof of anti-
competitive conduct necessary to make out a price
discrimination claim under § 2(a) of the Robinson-Patman
Act is ‘‘precisely the same as for predatory pricing under
Section 2 of the Sherman Act.’ J. App. 799, A-30. This
holding is in error. The proofs show that under the proper
legal standard, Rogers was entitled to judgment on its
§ 2(a) claim.
A. Elements Of A Price Discrimination Claim
Section 2(a) of the Clayton Act, as amended by the
Robinson-Patman Act, provides in pertinent part:
It shall be unlawful for any person engaged in
commerce ... to discriminate in price between
different purchasers of commodities of like grade
and quality ... where the effect of such
discrimination may be substantially to lessen
competition or tend to create a monopoly in any
line of commerce. ...
13
15 U.S.C. § 13(a). By its terms, the elements of a § 2(a)
violation include (1) proof of discrimination in price, and
(2) proof that such discrimination ‘‘may . . . substantially
.. . lessen competition or tend to create a monopoly” in
the relevant line of commerce. See F.T.C. v. Morton Salt
Co., 334 U.S. 37 (1948).
The courts have construed § 2(a) to proscribe two
classes of price discrimination: ‘‘primary-line,"’ in which
the anticompetitive impact of the price discrimination falls
upon a competitor of the seller, and ‘‘secondary-line,"’ in
which the impact falls upon a competitor of the purchaser.
See F.T.C. v. Anheuser-Busch, Inc., 363 U.S. 536, 542-45
(1960). The present case thus rests on primary-line price
discrimination. While § 2(a) is frequently applied to
primary-line geographic price discrimination, see, e.g.,
Utah Pie Co. v. Continental Baking Co., 386 U.S. 685
(1967); F.7.C. v. Anheuser-Busch, Inc., supra; Moore v.
Mead's Fine Bread Co., 348 U.S. 115 (1954), it is
well-settled that purported ‘quantity discounts’ constitute
primary-line price discrimination'' in violation of § 2(a)
where there is a reasonable possibility of harm to
competition and no statutory affirmative defense is
proven. !?
'! This Court in Morton Salt, a secondary-line case, applied § 2(a)
to a purported “quantity discount."’ Both the courts and the Federal
Trade Commission have applied the same analysis in primary-line
cases. See, ¢.g., Holleb & Co. v. Produce Terminal Cold Storage Co..,
532 F.2d 29, 34-36 (7th Cir. 1975); Forster Mfg. Co. v. F.T.C., 335 F.2d
47, 53-54 (1st Cir. 1963), cert. denied, 380 U.S. 906 (1965); Dean Milk
Co., 68 F.T.C. 710 (1965); Jacobs Mfg. Co., 49 F.T.C. 1463 (1953)
(consent order). See generally Sherwood, Robinson-Patman Act
Primary Line Injury: Meanderings from Porto Rico to Utah - And
Beyond, 16 U.C.L.A. L. Rev. 304, 360-74 (1969).
‘2 The statutory ‘‘cost-justification’’ and ‘good-faith meeting
competition’ affirmative defenses, 15 U.S.C. $$ i%ta), 13(b), are not at
issue in this appeal. Gardner-Denver has conceded that its blue list
prices were not cost-justified (J. App. 705). Moreover, there is no
evidence in the record and no finding by the district court regarding
whether the price cuts were ‘‘made in good faith to meet an equal or
lower price of a competitor."’ 15 U.S.C. § 13b).
14
B. Proof Of Possible Anticompetitive Effect
Both the district court and the Sixth Circuit panel took
‘‘as given that in utilizing the blue list, Gardner-Denver
satisfied the first requirement’’ of a price discrimination
claim. 718 F.2d at 1439, A-13-14. The lower courts held,
however, that in the absence of a general market study,
the second element, proof of a possibility of anticompeti-
tive effect, depends on proof of sales below average vari-
able cost or marginal cost and that Rogers had failed to
satisfy its burden of proof on this issue (J. App. 799, A-30;
718 F.2d at 1439-40, A-15-16). Rogers submits that the
lower courts erred as a matter of law.
The case law demonstrates proof of the requisite ‘‘may
.. Substantially . . . lessen competition’’ element may be
established by proof of actual effect or by a general market
analysis. Alternatively, because the statute requires only
that there ‘‘may be"’ an anticompetitive effect, such effect
may be inferred from proof of predatory intent. 16C J. Von
Kalinowski, Antitrust Laws and Trade Regulations,
q 29.01[4) (1976). Accord, Sherwood, Predatory Pricing,
supra, at 362. Predatory intent, in turn, either may be
proven directly, Lloyd A. Fry Roofing Co. v. F.T.C., 371
F.2d 277, 281-285 (7th Cir. 1967); Forster Mfg. Co. v.
F.T.C., supra, 335 F.2d 47, or may be inferred from
evidence of predatory pricing. F.7.C. v. Anheuser-Busch,
Inc., supra, 363 U.S. 536; Moore v. Mead's Fine Bread
Co., 348 U.S. 115 (1954).
The lower courts focused primarily on the second
alternative for establishing the requisite possibility of
anticompetitive effect, i.e., proof of predatory pricing, and
followed several decisions which have treated claims of
primary line price discrimination as equivalent to § 2
15
claims.'*? Each of these decisions in turn relied on Areeda
and Turner's comment that proof of possible effect under
§ 2(a) presents issues substantially similar to the proof of
predatory intent under § 2 of the Sherman Act, and thus
that predatory intent should be inferred only where the
defendant prices below average variable or marginal cost.
Areeda & Turner, Predatory Pricing and Related
Practices Under Section 2 of the Sherman Act, 88 Harv.
L. Rev. 891, 697 n.1 (1975), 724-28; 3 D. Areeda & D.
Turner, Antitrust Law, 9 720 (1978). Rogers submits that
this aspect of the Areeda and Turner hypothesis should be
rejected.
The courts that have adopted this hypothesis have
overlooked a substantial line of decisions by this Court
which have upheld findings of price discrimination in
violation of § 2(a) with no proof at all of defendant's costs.
See, e.g., F.T.C. v. Sun Oil Co., 371 U.S. 505 (1963);
Standard Oil Co. v. F.T.C., 340 U.S. 231 (1951); Corn
Products Refining Co. v. F.T.C., 324 U.S. 726 (1945). In
Utah Pie Co. v. Continental Baking Co., supra, 386 U.S.
at 698, the only price discrimination case in which this
Court even mentions costs, the Court reinstated a jury
verdict for the plaintiff on its price discrimination claim
where the defendant had priced ‘‘below cost,’’ which the
Court defined to be ‘‘less than ... direct cost plus an
allocation for overhead.’’ This definition is that for average
total cost, not marginal or average variable cost. The
'3 William Inglis & Son, Inc. v. ITT Continental Baking Co., 668
F.2d 1014, 1041 (9th Cir. 1981), cert. denied, 455 U.S. 943 (1982); O.
Hommel Co. v. Ferro Corp., 659 F.2d 340, 345-53 (3d Cir. 1981); Janich
Brothers, Inc. v. American Distilling Co., 570 F.2d 848 (9h Cir. 1977),
cert. denied, 439 U.S. 829 (1978); Pacific Engineering & Production Co.
v. Kerr-McGee Corp., 551 F.2d 790, 798-99 (10th Cir.), cert. denied,
434 U.S. 879 (1977); International Air Indus., Inc. v. American
Excelsior Co., 517 F.2d 714, 720-24 (Sth Cir 1975), cert. denied, 424
U.S. 943 (1976).
16
Areeda and Turner per se avarage variable or marginal
cost test is inconsistent with the total cost standard
suggested by this Court in Utah Pie, and with this Court's
decisions in the Sun Oil, Corn Products, and Standard Oil
cases where no proof of costs was required.
The lower courts’ analysis is unsound for another
reason. If applied to all § 2(a) claims, it would virtually
eliminate any differences between predatory pricing claims
under § 2 of the Sherman Act and price discrimination
claims under § 2(a) of the Clayton Act. Section 2(a)
recovery would be available only on facts which would
also support § 2 recovery. This judicial conclusion would
effectively repeal § 2(a) in many of its applications,
defeating the congressional intent underlying the
enactment of that section as a separate antitrust provision.
Moreover, the statutory cost-justification defense would
be eliminated, and the burden of proof transferred to the
plaintiff; the only inquiry would be the relationship
between the defendant's price and average variable or
marginal cost.'* These results are contrary to the intent of
Congress embodied in the enactment of the
Robinson-Patman Act, and encourage the very evils
Congress sought to prohibit.
'* The mischief worked by equating § 2 and § 2(a) analysis is well
illustrated by the district court's conclusion that Gardner-Denver's blue
and white list revenues should be merged when determining whether
revenue was below cost (J. App. 795, A-27). Existence of a price
differential is an essential element of a § 2(a) offense, and the courts
have held that a defendant may not satisfy the statutory
cost-justification defense by averaging or cumulating sales to its various
customers. United States v. Borden Co. , 370 U.S. 460 (1962); Holleb &
Co. v. Produce Terminal Cold Storage Co., 532 F.2d 29, 35 (7th Cir.
1975).
17
The critical issue can be simply stated: May the courts
judicially repeal the Robinson-Patman Act based upon the
view of academic commentators that the Act is unwise?
Rogers submits that the answer to this question is clearly
‘‘No.’’ The Robinson-Patman Act prohibition of price
discrimination may or may not be wise; but at this time it
remains the law of the land and may only be changed by
congressional action. The courts which have attempted to
rewrite the Robinson-Patman Act by replacing its
operative provisions with Sherman Act standards have
engaged in impermissible judicial legislation.
There can be no question that Congress enacted the
Robinson-Patman Act in 1936 with the express intent of
protecting small competitors against selective price cuts by
larger competitors. See 1 American Bar Association
Section of Antitrust Law Monograph No. 4, The
Robinson-Patman Act: Policy and Law 5-19 (1980). The
Antitrust Section also reviews various arguments for and
against the continuation of the Robinson-Patman Act as a
separate statute. /d. at 21-41. Indeed, in 1976, the
Department of Justice drafted a proposed price
discrimination act which, if enacted, would have repealed
the Robinsoa-Patman Act and replaced it with a standard
similar to that proposed by Professors Areeda and Turner.
Id. at 90, 137; U.S. Department of Justice, Report on the
Robinson-Patman Act 277 and App. C (1976). The fact
remains, however, that no such proposed reform has been
adopted by Congress. Unless and until Congress elects to
repeal the Robinson-Patman Act or replace it with a
different or lesser standard, the courts may not do so. The
courts which have sought in effect to repeal the
Robinson-Patman Act have acted beyond their
jurisdiction.
18
Only last term, this Court acknowledged this debate, but
twice emphasized that any changes in the Robinson-Patman
Act must be made by Congress, not the courts:
The Robinson-Patman Act has been widely
criticized, both for its effects and for the policies
that it seeks to promote. Although Congress is well
aware of these criticisms, the Act has remained in
effect for almost half a century. And it certainly is
‘‘not for [this Court] to indulge in the business of
policy-making in the fic.’ of antitrust
legislation. ... Our function ends with the
endeavor to ascertain from the words used,
construed in the light of the relevant material, what
was in fact the intent of Congress.”
Jefferson County Pharmaceutical Assn. v. Abbott
Laboratories, Inc., — U.S. _, -, 103 S.Ct. 1011, 1023, 74
L.Ed.2d 882, 898 (1983), quoting United States v. Cooper
Corp., 312 U.S. 600, 606 (1941). Accord, Falls City
Industries, Inc. v. Vanco Beverage, Inc., — U.S. _, ~, 103
S.Ct. 1282, 1289, 75 L.Ed.2d 174, 186-87 (1983).
The price discrimination worked by Gardner-Denver
against Rogers in this case was most pernicious. Since the
parties competed in al! major markets in the country,
selected geographic price cuts would not have been
effective. Instead, Gardner-Denver accomplished the same
effect by selling from its public white list to those
customers who did not buy from or know about Rogers
and utilizing its secret blue list with those customers who
did. Gardner-Denver thus was able to depress all of
Rogers’ prices to an unprofitable level while keeping some
of its prices at their former, very profitable level. It even
was able to increase its white list prices during the
existence of the blue list. This is precisely the type of
unfair, anticompetitive behavior the Robinson-Patman Act
was designed to prevent.
19
In addition and in the alternative, there is sufficient
direct evidence in the present case of actual
anticompetitive effect to entitle Rogers to prevail. The
evidence in this case shows that Gardner-Denver's pricing
behavior had the actual effect of depriving Rogers of sales,
driving another small competitor from the market, and
precluding entry into the market by a large potential
competitor. There is also abundant evidence of
Gardner-Denver’s overwhelmingly dominant market
position and substantial barriers to entry. See p. 5 &
n.5, supra. The district court and the panel completely ig-
nored evidence other than that of harm to Rogers alone.
718 F.2d at 1439, A-14-15. Rogers submits that this proof
of anticompetitive effect was sufficient, as a matter of law,
to support a price discrimination claim. Compare J. Truett
Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 561-62
(1981).
Striking in its similarity to the present case is the
decision of the Seventh Circuit in Holleb & Co. v.
Produce Terminal Cold Storage Co., 532 F.2d 29, 34-36
(7th Cir. 1975), where the court inferred the existence of
the necessary effect from the defendant's actions. In
Holleb, the defendant offered identical frozen foods to
various of its customers from three different catalogs, its
‘yellow, white and blue catalogs,’ as well as five
undisclosed ‘“‘price cells,"’ 532 F.2d at 34. Unlike
Gardner-Denver, however, the defendant in Holleb sought
to justify these differentials as quantity discounts, 532 F.2d
at 35. The plaintiff, a competitor of the defendant, alleged
that sales at these differing prices constituted primary-line
price discrimination in violation of § 2(a). The Seventh
Circuit concluded that the purported cost justifications
were insufficient, and that since the plaintiff and defendant
‘““were competing for the same customers,’’ the evidence
presented a prima facie case of ‘reasonable probability of
20
injury’ to primary-line competition between the plaintiff
and defendant. 532 F.2d at 35. Applying the same analysis
to the present case, Rogers’ proofs on this issue are clearly
sufficient to prevail.
Moreover, there is ample direct evidence that
Gardner-Denver entertained predatory intent, including
both the duration of and products affected by the price
cuts, as well as memoranda and testimony regarding the
defendant's actual intent to vanquish Rogers and other
small competitors and preserve the markets for itself. The
lower courts erroneously disregarded this direct evidence.
As the Seventh Circuit concluded in Lloyd A. Fry Roofing
Co. v. F.T.C., 371 F.2d 277, 281 (7th Cir. 1967):
in most primary line cases under this statute, a
violation cannot be established without a close
study of the market, including data as to the
discriminator’s share of the market. However, in
cases of predatory intent, ‘‘injury to even a single
competitor should bring this Act into play.”’
The direct evidence of predatory intent in this case,
together with the other evidence of effect, requires the
conclusion that there was a sufficient likelihood of
anticompetitive impact to establish a price discrimination
violation under § 2(a).
In summary, Rogers submits that the panel's holding
that the proofs necessary to make out § 2 and § 2(a) claims
are icentical in effect repeals the prohibition of price
discrimination contained in the Robinson-Patman Act.
That section requires a plaintiff to prove only that ‘‘the
effect of such discrimination may be substantially to lessen
competition or tend to create a monopoly in any line of
commerce’’ (emphasis added). Proof of actual
anticompetitive effect is not required, in sharp contrast to
the requirements for a monopolization claim under § 2 of
21
the Sherman Act. Moreover, the fact that the
Robinson-Patman Act is a separate congressional
enactment is a strong indication that the conduct
proscribed by the Robinson-Patman Act is different from
the conduct prohibited by the Sherman Act.
The decisions of the panel and the district court in this
case, and similar decisions of several other circuits, are
inconsistent with the decisions of this Court which hold
that the requisite intent and possible effect on competition
may be inferred in a price discrimination case from
evidence of predatory pricing, but require no proof of
defendants’ costs for this purpose. The panel decision is
likewise inconsistent with Utah Pie Co. v. Continental
Baking Co. , 386 U.S. 695, 698 (1967), which suggests that
proof of pricing below total costs may be relevant in a
test. Finally, the panel decision is inconsistent with re-
cent decisions of this Court warning against judicial efforts
to repeal the Robinson-Patman Act. Grant of a writ of
certiorari in this case is necessary to correct the lower
courts’ fundamental misinterpretation of this important
piece of federal antitrust legislation.
Il.
THE PANEL IMPROPERLY APPLIED A COST-BASED TEST
IN REJECTING ROGERS’ SECTION 2 CLAIMS
As the Sixth Circuit noted, proof of the defendant's
intent is a necessary element of both a claim of
monopolization and a claim of attempt to monopolize
under § 2. A inonopolization claim requires proof of
general intent — that the defendant's acquisition or
maintenance of monopoly power has been willful. United
States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). An
attempt claim requires proof of specific intent to
monopolize. Swift & Co. v. United States, 196 U.S. 375,
22
396 (1905). The cases have always recognized that intent
can be proven directly or by inference from the
defendant's conduct; *‘predatory pricing’’ has merely been
a means by which the courts have inferred from the
defendant's activities the existence of the requisite intent.
See, e.g., United States v. American Tobacco Co., 221
U.S. 106, 182 (1911); Standard Oil Co. v. United States,
221 U.S. 1, 43 (1910); Reynolds Metal Co. v. F.T.C., 309
F.2d 223 (D.C. Cir. 1962); Atlas Bldg. Prod. Co. v.
Diamond Block & Gravel Co., 269 F.2d 950 (10th Cir.
1959), cert. denied, 363 U.S. 843 (1960). Thus, while
Rogers has characterized this case from the outset as one
involving ‘‘predatory pricing’’ by Gardner-Denver, all
direct and inferential evidence of Gardner-Denver's
predatory intent is relevant to a determination of whether
it entertained the requisite intent to commit a violation. '*
In 1975, Professors Areeda and Turner advocated a rigid
rule that an antitrust defendant's prices be considered per
se lawful unless proven to be below its marginal costs or
their surrogate in most circumstances, average variable
costs.'® Panels of the Fifth, Eighth, Ninth and Tenth
Circuits have expressed approval of variations of the
Areeda and Turner test. Each, however, has declined to
adopt a strict per se approach, instead leaving open the
possibility of proving intent by means other than proof of
'S In MCI Coramunications Corp. v. AT&T, 708 F.2d 1081, 1112
(7th Cir.), cert. denied, —. U.S. —, 104 S.Ct. 234, 78 L.Ed.2d 226
(1983), however, the court questioned whether direct evidence of
subjective intent is meaningful in such cases.
‘© Areeda & Turner, Predatory Pricing and Related Practices
Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697 (1975); 3 D.
Areeda & D. Turner, Antitrust Law, 4711-722 (1978); Areeda &
Turner, Williamson On Predatory Pricing, 87 Yale L.J. 1357 (1978);
Areeda & Turner, Scherer on Predatory Pricing: A Reply, 89 Harv. L.
Rev. 891 (1976).
23
pricing below marginal or average variable cost.'? More
recently, several courts have declined to adopt any
specific cost-based test, while observing that some proof
of defendant's costs was ‘‘relevant’’ and ‘‘useful’’ in
determining whether defendant's intent or conduct was
predatory.'® Others have suggested they would adopt a
non-per se marginal or average variable cost test, while
finding it unnecessary to do so.'%
The per se rule proposed by Areeda and Turner has
been strongly criticized by academic commentators, the
Department of Justice, and a presidential advisory
'7 Superturf, Inc. v. Monsanto Co., 660 F.2d 1275, 1281 (8th Cir
1981); California Computer Prods., Inc. vy. International Business
Machines Corp., 613 F.2d 727, 743 (9th Cir. 1979); Pacific Engineering
& Production Co. v. Kerr-McGee Corp., §51 F.2d 790 (10th Cir.), cert.
denied, 434 U.S. 879 (1977); Janich Bros., Inc. v. American Distilling
Co., 570 F.2d 848 (%h Cir. 1977), cert. denied, 439 U.S. 829 (1978);
Hanson v. Shell Oil Co., 541 F.2d 1352 (9th Cir. 1976), cert. denied, 429
U.S. 1074 (1977); International Air Indus., Inc. v. American Excelsior
Co., 517 F.2d 714 (Sth Cir. 1975), cert. denied, 424 U.S. 943 (1976)
(adopting a similar analysis in a price discrimination context). Compare
Northeastern Tel. Co. v. AT&T, 651 F.2d 76 (2d Cir. 1981), cert
denied, 455 U.S. 943 (1982), stating that prices above marginal or
average variable cost would be presumed non-predatory, but not
indicating whether this presumption was rebuttable. Also see National
Assn. of Regulatory Utility Commrs. v. FCC, 525 F.2d 630, 637-38 &
n.34 (D.C. Cir.), cert. denied, 425 U.S. 992 (1976)
‘8 Chillicothe Sand & Gravel Co. v. Martin Marietta Corp., 615
F.2d 427, §30-32 (7th Cir. 1980). Accord, Broadway Delivery Corp. v
United Parcel Serv., 651 F.2d 122, at 131 & n. 4 (2d Cir.), cert. denied,
454 U.S. 968 (1981).
'8 MCI Communications Corp. v. AT&T, 708 F.2d 1081, 1119-23
(7th Cir. 1983), cert. denied, — U.S. —, 104 S.Ct. 234, 78 L.Ed.2d 226
(1983); Richter Concrete Corp. v. Hilltop Concrete Corp. , 691 F.2d 818,
824 (6th Cir. 1982); Borden, Inc. v. F.T.C., 674 F.2d 498, 515 (6th Cir.
1982), vacated on other grds., — U.S. —, 103 S.Ct. 2115, 77 L.Ed.2d
1298 (1983); Malcolm v. Marathon Oil Co. , 642 F.2d 845, 853-54 & n.17
(Sth Cir.), cert. denied, 454 U.S. 1125 (1981).
24
commission.?° Indeed, Areeda and Turner themselves
have expressed concern about the possibility that their
rule might result in the exclusion of direct evidence of
intent.?!
Ignoring this scholarly and judicial criticism, the district
court in this case at Gardner-Denver's urging unqualifiedly
adopted Areeda and Turner's view that prices above
defendant's average variable or marginal costs should be
considered lawful per se (J. App. 795-96, A-27-28). The
Sixth Circuit, however, rejected this rigid test and instead
approved a “hybrid” test recently adopted by the Ninth
Circuit:
[W]e hold that to establish predatory pricing a
plaintiff must prove that the anticipated benefits of
defendant's price depended on its tendency to
discipline or eliminate competition and thereby
enhance the firm's long-term ability to reap the
benefits of monopoly power. If the defendant's
prices were below average total cost but above
average variable cost, the plaintiff bears the burden
of showing defendant's pricing was predatory. If,
20
Ewing, Pricing Practices - Department of Justice Views , (CCH)
Trade Reg. Rep. € 50,417 at 55,935-937 (1980); National Commission for
the Review of Antitrust Laws and Procedures, Report to the President
and the Attorney General 150 (1979); R. Posner, Antitrust Law: An
Economic Perspective, 184-96 (1976); Scherer, Predatory Pricing and
the Sherman Act: A Comment, 89 Harv.L.Rev. 869 (1976); Scherer,
Some Last Words on Predatory Pricing, 89 Harv.L.Rev. 901 (1976);
Williamson, A Preliminary Response, 87 Yale L.J. 1358 (1978);
Williamson, Predatory Pricing: A Strategic and Welfare Analysis, 87
Yale L.J. 284 (1977). Also see Cooper, Attempts and Monopolization, A
Mildly Prophylactic Answer to the Riddle of Section Two, 72 Mich. L.
Rev. 373 (1974).
2! Ewing, supra, at $5,936. Compare Turner, Conglomerate
Mergers and Section 7 of the Clayton Act, 78 Harv.L.Rev. 1313 (1978).
25
however, the plaintiff proves that the defendant's
prices were below average variable cost, the
plaintiff has established a prima facie case of
predatory pricing and the burden shifts to the
defendant to prove that the prices were justified
without regard to any anticipated destructive effect
they might have on competitors.
718 F.2d at 1436, A-9, quoting William Inglis & Sons
Baking Co. v. ITT Continental Baking Co. , 668 F.2d 1014,
1035-36 (9th Cir. 1981), cert. denied, 455 U.S. 943
(1982).22
However, even though the district court clearly did not
apply an analysis of this type, the panel nevertheless
affirmed the district court's dismissal of Rogers’ § 2
claims. In doing so, the Sixth Circuit itself failed properly
to apply the ‘‘hybrid’’ test, and its result is therefore
inconsistent with /nglis as well as with the Sixth Circuit's
own purported rationale.
The thrust of the recent cases is to permit competitive
price reductions where the market conditions are such that
the reduction can reasonably be expected to minimize
losses by expanding output and to prohibit them where the
firm is accepting temporary unnecessary losses to
discipline a competitor:
[C]ost categories are solely for the purpose of
providing aid in answering the ultimate question:
22 In Transamerica Computer Co. v. IBM Corp., 698 F.2d 1377 (9h
Cir.), cert. denied, — U.S. —, 104 S.Ct. 1370, 78 L.Ed.2d 329 (1983),
the Ninth Circuit explained its holding in /nglis, holding that prices
above average total cost could be predatory on clear and convincing
evidence. 698 F.2d at 138% However, in Arthur S. Langenderfer, Inc.
v. §. E. Johnson Co., 1984-1 Trade Cas. (CCH) 4 65,905 (6th Cir. 1984),
and Barry Wright Corp. v. ITT Grinnell Corp. , 724 F.2d 227, 230-36 (ist
Cir. 1983), the Sixth and First Circuits held that prices above average
total cost were per se lawful, rejecting the Transamerica extension of
Inglis .
26
Did the justification for the defendant's price
depend upon its anticipated destructive effect on
competition or was the price justified as a
reasonably calculated means of maximizing profits,
minimizing losses, or achieving some other
legitimate end?
Inglis, 668 F.2d at 1038. Jnglis thus suggests that even
where defendant's prices exceed its average variable
costs, direct proof of the defendant's intent to engage in
pricing or other conduct, “the anticipated benefit of
[which] depended on their anticipated destructive effect
upon coinpetition and the consequent enhanced market
position of the defendant,’’ would bring any conduct by
defendant in furtherance of these ends within the
proscriptions of § 2.
In Inglis, the Ninth Circuit held that the direct evidence
of defendant Continental's intent was ‘‘inconclusive.”’
This evidence included a suggestion in a report prepared
by its consultants recommending various alternative
business strategies, including to ‘‘maintain price to hasten
wholesaler exit pace.’’ The court found, however, that
“there is no direct evidence in the record that any further
action was taken on this proposal or that Continental ever
considered or adopted it as a course of action.’’ 652 F.2d
at 943. The court further observed that ‘‘[r)easonably
interpreted, [the proposal] amounts to no more than a
recommendation of the intensified price competition.'* /d.
In the present case, in contrast, there was no evidence
that Gardner-Denver was trying to minimize losses and
there was abundant evidence that it was attempting to
damage Rogers and other small competitors and deter
entry by others. Gardner-Denver's internal worksheet
prepared prior to implementing the blue list reflects its
calculations of the losses in revenue it expected from its
actions without reflecting any offsetting gains in volume
27
(Exhibit £8; J. App. 404-08). Gardner-Denver did not
determine its own costs, and had no accounting system in
place which would have permitted such a determination (J.
App. 295-97, 368, 377-78). It thus knowingly endured
short-run losses with no business justification except the
prospect of eliminating actual and potential competitors.
The proofs show that Gardner-Denver's pricing actions
were intended to ‘‘discipline or eliminate competition and
thereby enhance the firm's long-term ability to reap the
benefits of monopoly power.’’ J/nglis, 652 F.2d at 940.
Under the proper standard, therefore, Gardner-Denver
entertained predatory intent which brings its actions within
the prohibitions of § 2. The panel, by deferring to findings
of ‘‘fact’’ made by the district court under an erroneous
legal test, erred as a matter of law.
The district court and Court of Appeals in this case also
committed an error of law by misconstruing Rogers’
expert's testimony regarding Gardner-Denver’s costs. The
uncontroverted evidence showed that Gardner-Denver's
blue list prices were substantially below its average
variable costs as defined by Areeda and Turner and the
courts adopting variants of their rationale.
In his report and testimony, Mr. Parks concluded that
based on his ‘‘accountant’s’’ definition of variable and
fixed costs, Gardner-Denver's blue list prices were on
average below its average variable costs. Mr. Parks
testified on cross-examination that based on his
‘‘accountant’s’’ definition, he could not state with
“specific confidence’ that the blue list prices were at ail
times below Gardner-Denver's average variable costs.
However, Mr. Parks further concluded in the same report
and testified that employing the more inclusive variable
cost definition of Professors Areeda and Turner, about half
of what he considered to be fixed costs would be variable,
and Gardner-Denver's blue list prices were substantially
28
below its average variable costs throughout the period the
blue list was in effect. Mr. Parks’ testimony based on the
Areeda and Turner definition was clear, unequivocal and
uncontroverted (Exhibit 149; J. App. 306-07, 313-14,
386-89, 792-93).
The opinion of the district court contains no reference to
Mr. Parks’ conclusions based on the Areeda and Turner
definition. The Court of Appeals’ panel inexplicably waves
this evidence away, instead basing its holding solely on
Parks’ qualified conclusions premised on a less inclusive
variable cost definition. 718 F.2d at 1437, A-10-11. The
panel fails to explain why even the testimony on which it
relied was not legally sufficient. No court has heretofore
imposed the nearly insurmountable burden that each and
every sale of thousands of individual parts over a six year
period by the defendant must conclusively be proven
below average variable cost. Parks’ testimony that
Gardner-Denver's sales on average were below that cost
measure should have been sufficient to trigger a
presumption of illegality.
Moreover, Mr. Parks’ uncontroverted conclusion based
on Areeda and Turner's definition of variable costs is
crucial, since all the courts which have adopted some
variant of an average variable cost test have done so based
on the Areeda and Turner analysis. Areeda and Turner
premised their rule that prices above average variable
costs are per se lawful on a broad ‘“‘economist's”™’
definition of variable costs. If a more restrictive definition
of variable costs is employed, the Areeda and Turner test
would legitimize virtually any price reduction. Compare 3
D. Areeda and D. Turner, supra, 4715c at 172-74. This
is particularly so where, as here, the defendant is
well-established and heavily capitalized, and therefore has
a high proportion of fixed costs.
The panel ultimately concluded that Parks’
‘‘accountant's’’ definition of costs testimony was an
29
accurate reflection of ‘‘the financial information available
to Gardner-Denver at the time it made its pricing
decisions,’* and thus showed no predatory intent. 718 F.2d
at 1437-38, A-11. This conclusion misses the point and is
completely without support in the record. Parks testified
without contradiction that based on his review of
Gardner-Denver's records, Gardner-Denver had not at any
relevant time attempted to determine the costs or
profitability of its ratchet wrench product line; indeed, it
was aware that its internal accounting system was
seriously flawed (J. App. 295-97, 368, 377-78).
Gardner-Denver's former sales manager readily admitted
that the company made no effort to justify its blue list cost
reduction or selection of the number five for the volume
discount in terms of cost economies (J. App. 705). The
only calculation Gardner-Denver actually made before
adopting the blue list was of its expected revenue losses,
without reflecting any expectation of offsetting gains in
volume (Exhibit 58; J. App. 401-08). In view of this
uncontroverted evidence, it makes no sense to consider an
alternative conclusion in Mr. Parks’ after-the-fact cost
study a reflection of Gardner-Denver's good intent. The
situation is completely unlike those where the courts have
deferred to the defendant's actual good faith cost
calculations made before a price reduction. See California
Computer Prods., Inc. v. IBM Corp. , 613 F.2d 727, 740-41
n.19 (9th Cir. 1979); In re IBM Peripheral EDP Devices
Antitrust Litigation, 481 F.Supp. 965, 997-1002 (N.D. Cal.
1979), aff'd sub. nom. Transamerica Computer Co. v.
IBM Corp., 698 F.2d 1377 (9th Cir.), cert. denied, — U.S.
—, 104 §.Ct. 370, 78 L.Ed.2d 329 (1983).
In sum, Rogers submits that the panel erred by
misapplying the ‘“‘hybrid’’ test which it claimed to adopt.
By utilizing an improper definition of variable costs, the
panel drastically lowered the level to which prices can be
reduced without being presumed unlawful. Moreover,
30
while purporting to reject the discredited rule that prices
above average variable cost are lawful per se, the panel in
effect refused to credit strong direct evidence of predatory
intent. The panel's conclusions would legitimize virtually
any price reduction by a well-entrenched mc~opolist,
allowing such monopolists to vanquish even more efficient
but less well-capitalized rivals at will by selective deep
price cuts. By these twin errors, the panel in effect adopts
a per se rule more pernicious than the one it purports to
reject. The facts of this case compel the conclusion that
Gardner-Denver was knowingly attempting to discipline
and exclude a rival, not make a profit. The decision below
ignores that common-sense conciusion and, by
transmuting a controversial economic standard never
adopted by this Court, imposes an impossible burden of
proof on any plaintiff in a § 2 case. It is hard to imagine
any § 2 case which would meet the burden set below.
Surely, neither Congress nor this Court intended for the
Sherman Act to be so eviscerated.
The issues raised in this case have been the subject of
numerous but inconsistent Court of Appeals decisions, and
involve important questions of federal law which have not
been, but should be, settled by this Court.
CONCLUSION
For the foregoing reasons, this petition for a writ of
certiorari should be granted.
Respectfully submitted,
Of Counsel:
LARRY J. SAYLOR GREGORY L. CURTNER
Miller, Canfield, Attorney for Petitioners
Paddock and Stone 2500 Comerica Building
2500 Comerica Building Detroit, Michigan 48226
Detroit, Michigan 48226 (313) 963-6420
Dated: Apnil 13, 1984
A-|
APPENDIX
OPINION
RECOMMENDED FOR FULL TEXT PUBLICATION
See, Sixth Circuit Rule 24
No. 81-1314
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
D. E. Rocers AssociaTes, INC., a
Michigan corporation; and MICcn- |
IGAN ECI LTIES MANUFACTURING
it ye hi - vr tion, | On Apreal from the
} AN } i } } ee P P
: a — ’| United States District
Plaintiffs-Appe'lants,! Oourt for the Kastor
y, District of Michigan.
GARDNER- DENVER COMPANY, |
Defendant-Appellee. !
Decided and Filed October 21, 1983
Before: Martin, Circuit Judge; Brown, Senior Circuit
Judge; and Negsg, Senior District Judge.°
Boyce F. Marti, Jr., Circuit Judge. In this private anti-
trust suit brought by D. E. Rogers Associates, Inc. seeking
treble damages from Gardner-Denver Co., Rogers claims
Gardner-Denver violated section 2 of the Sherman Act, 15
U.S.C. § 2, and section 2(a) of the Clayton Act, as amended
* Honorable C. G. Neese, Senior District Judge, United States
District Court for the Middle District of Tennessee, sitting by
designation.
A-2
by the Robinson-Patman Act, 15 U.S.C. § 13(a) when it re-
duced its prices for ratchet wrench parts sold in quantities of
five or more to or below prices offered by Rogers for similar
products. In a trial to the court without a jury, the district
court dismissed the case following presentation of Rogers’
evidence. We affirm.
Gardner-Denver, producers and marketers of a broad range
of industrial tools, is the largest manufacturer of ratchet
wrenches and their replacement parts in the United States. A
ratchet wrench is a hand-held tool which uses pneumatic
power to “set” or tighten mechanical nuts onto bolts or studs.
It consists of a motor plus an attachment. It is most com-
monly used in the industrial mass-production of products
such as automobiles and aircraft.
Until 1955, Keller Tool Company, the sole patent holder,
monopolized the manufacture of ratchet wrenches. When
the patent expired in 1955, Keller was acquired by Gardner-
Denver and became the latter’s Pneutronics Division. It con-
tinued to manufacture and market the wrenches and parts.
In 1964, Donald Rogers, a former Gardner-Denver em-
ployee, formed D. E. Rogers, Inc. and in conjunction with
Michigan Specialties Manufacturing Company, a related con-
cern, began selling ratchet wrench parts. Michigan Specialties
manufactures many of the products sold by Rogers, although
in some cases it relies on parts manufactured by others and
in other cases it “jobs out” part of the manufacturing process
to other manufacturers. Recently, Rogers has begun market-
ing a complete ratchet wrench tool.
From 1964 until late in 1971, Rogers and Gardner-Denver
competed amicably in the ratchet wrench parts market.
Throughout this period, Rogers was able to set its prices ap-
proximately thirty percent below Gardner-Denver’s prices
for the same or similar products. As testimony to its success,
Rogers saw its gross sales grow from approximately $26,000
in 1964 to $300,670 in fiscal 1970.
On August 23, 1971, Gardner-Denver initiated a dual pric-
A.3
ing system for ratchet wrench parts and components, Pivotal
to the system was the “blue list.” The blue list contained parts
which, if purchased in quantities of five or more, were avail-
able for substantially less than standard “white list” prices.
The parts listed were, with a few exceptions, those parts also
sold by Rogers, Blue list prices initially averaged sixty-four
percent of white list prices and approximately nine percent
below Rogers’ then current prices for the same items, The
blue list was distributed only to Gardner-Denver sales em-
ployees,
On September 29, 1971, Rogers responded to the blue list
with its own revised price list. Rogers new prices were set
approximately twenty percent below Gardner-Denver's blue
list prices, These relative prices existed for five months until,
on February 28, 1972, Gardner-Denver reduced its blue list
prices further, The new prices were either equal to or, in some
cases, less than Rogers’, Simultaneously, Gardner-Denver in-
creased its standard, white list prices about nine percent, Two
weeks later, on March 15, Rogers further reduced its prices
where necessary to match Gardner-Denver's blue list prices.
It also introduced a two percent cash discount, Approximately
twenty-five months later, on May 1, 1974, Gardner-Denver in-
creased its blue list prices five percent. On September 28,
1976, use of the blue list was discontinued,
It is unclear from the record the precise manner in which
Gardner-Denver utilized its blue list. It is certain that not
every purchaser of five or more of the blue-listed parts re-
ceived the blue list discount; nor were purchasers of less than
five parts consistently billed at white list rates, Rogers’ expert
testified that an analysis of Gardner-Denver's sales invoices for
1975 showed white list prices charged in twenty-four percent
of all purchases of five parts or more and blue list prices
charged in twenty-two percent of all sales of less than five
parts,
It is Rogers’ position that the blue list was specifically de-
A-4
signed to eliminate competition in the ratchet wrench parts
market, According to Rogers, Gardner-Denver's blue list was
below-cost pricing financed by company profits in other pro-
duct areas, Financial resources derived from its diversified
interests permitted this flexibility, By dropping its prices so
precipitously, Rogers continues, Gardner-Denver hoped to
drive its smaller, financially weaker competitors out of the
market, As a result of the blue list, Rogers asserts, it lost
profits and sales, was prevented from expanding its product
line, and was, therefore, foreclosed from operating as a com-
petitive force in the market,
The district court based its decision to dismiss the case on
several factors, First, it found that Rogers had failed to prove
Gardner-Denver's monopoly power in the relevant market,
The relevant market, as held by the court, was not limited to
ratchet wrench replacement parts but, rather, included me-
chanical “nutsetters” of all kinds, Although there was no
evidence introduced as to market share in a market so de-
fined, the court estimated that Gardner-Denver'’s share was
from ten to fifteen percent, Citing the ease with which Rogers
itself entered the market, the court further concluded that
there existed no barriers to entry,
In addition the court held that Rogers had failed to prove
that whatever sales and profit losses were incurred during the
time Gardner-Denver's dual price list was in effect were the re-
sult of Gardner-Denver's actions, Rather, the court held, there
were many other factors such as internal and organizational
difficulties, other competitors, and quality control and distri-
bution problems plaguing Rogers at the time which could
easily have caused its losses, Next, the court found insuffi-
cient evidence of a direct or indirect nature of predatory
intent on Gardner-Denver's part to support Rogers’ allega-
tions, The court employed a cost-based analysis for proof of
intent by which Rogers was required to demonstrate Gardner-
Denver's prices were below its average variable cost, This,
the court found, Rogers was unable to do, Moreover, con-
A-5
tinued the court, it was a close question as to whether Gard-
ner-Denver's prices were below average total cost,
Finally, the court held that the analysis in primary line
price discrimination cases under section 2(a) of the Robinson-
Patman Act is in all significant respects equivalent to the
analysis undertaken in section 2 Sherman Act claims, Having
found no proof of predatory pricing for Sherman Act purposes,
the court held that Rogers had failed to prove the requisite
anti-competitive effect for the Robinson-Patman Act claims,
The district court dismissed the case pursuant to Federal
Rule of Civil Procedure 41(b), As this operates as an adjudi-
cation upon the merits, it is subject to the clearly erroneous
standard of review, Simpson y, United States, 454 F.2d 691,
692 (6th Cir. 1972), Man vy, Rife, 503 F.2d 735, 740 (6th Cir,
1974). That standard in a case such as this requires us to
affirm the findings of the district court unless, after viewing
all the evidence, we are left with “the definite and firm con-
viction that a mistake has been made,” Zenith Radio Corp.
v. Hazeltine Research, Inc,, 395 U.S, 100, 123 (1969), “It is
not enough that we might give the facts another con-
struction, resolve the ambiguities differently, and reach a
conclusion different from that of the district judge. Such a
conclusion on our part does not make the finding “clearly
erroneous, Strickler v, Pfister Associated Growers, Ine., 319
F.2d 788, 790 (6th Cir. 1963), Rather, Rogers must per-
suade us that no plausible view of the evidence would sup-
port the court's findings, This he has failed to do because
of his inability to prove either directly or indirectly by a
preponderance of the evidence that Gardner-Denver was en-
gaged in predatory pricing. We find insufficient evidence of
either a subjective or an objective, cost-based nature that
Gardner-Denver's dual-pricing strategy was designed to dis-
cipline or eliminate competition, Because of this we need not
reach the otherwise important issues of relevant market and
causation, both of which were considered and disposed of
below
A-6
To prove Gardner-Denver attempted to monopolize the
ratchet wrench parts market, Rogers must prove that Gardner-
Denver “engaged in anticompetitive conduct with the specific
intent to monopolize and that the attempt had a dangerous
probability of success.” Richter Concrete Corp. v. Hilltop
Concrete Corp., 691 F.2d 818, 823 (6th Cir. 1982) quoting
United States v. Dairymen, Inc., 660 F.2d 192, 194 (6th Cir.
1981). Accord William Inglis v. ITT Continental Baking Co.,
668 F.2d 1014 (9th Cir. 1981), cert. denied, 103 S.Ct. 57
(1982); Northeastern Telephone Co. v. American Telephone
& Telegraph Co., 651 F.2d 76 (2d Cir. 198:), cert. denied,
455 U.S. 943 (198—). As the Ninth Circuit in Inglis has care-
fully explained, the relationship between act and intent in
attempted monopolization claims is a close one. On the one
hand, direct evidence of specific intent to monopolize, with-
out corresponding evidence of some act taken to achieve the
goal, will never establish an antitrust violation. Inglis, 668
F.2d at 1028, n.7. On the other, evidence of anticompetitive
conduct may be used to support a finding of intent where
direct evidence of intent is unavailable. Id. at 1030. In this
case, the district court found “no proof in the record of an
intent to monopolize.” The record supports that finding.
In a review of the record for direct evidence of specific
intent to monopolize, we find actions which are at best am-
biguous in their implications. Rogers points to Gardner-
Denver correspondence referring to the plaintiff as a “pirate”
manufacturer. However, other evidence, including testimony
from Mr. Rogers himself, established that the term would
be and was often used to refer to companies, like Rogers,
which manufactured replacement or substitutes for equipment
originally manufac‘ured by another firm. Though the term
could be used in a belligerent sense, it might as easily be
employed in a neutral context to, we think, accurately de-
scribe a given manufacturing concern. That the district court
conchided that it was used in this latter context in this case
is not clearly erroneous.
A-7
Nor does the fact that Gardner-Denver’s price cuts were
directed at Rogers or other competitors conclusively prove
anticompetitive intent.
It is not anticompetitive for a company to reduce
prices to meet lower prices already being charged by
competitors. Indeed, “[t]o force a company to main-
tain non-competitive prices would be to turn the anti-
trust laws on their head. ILC Peripherals v. Interna-
tional Business Machines Corp., 458 F.Supp. 423, 433
(N.D.Cal. 1978), affd sub nom. Memorex vy. Interna-
tional Business Machines Corp., 636 F.2d 1188 (9th Cir.
1980), cert. denied, 452 U.S. 972, 101 S.Ct. 3126, 69
L.Ed.2d 983 (1981).
Richter Concrete, 691 F.2d at 826. As Judge Kennedy stated
in her dissent in Borden v. FTC, 674 F.2d 498, 519 (6th Cir.
1982). “[i]t is simply good business practice, not a use of
monopoly power, to lower prices only where the competition
is stiff.” “[Desire] to win the competitive struggle . . . without
more, is not unlawful.” Northeastern Telephone, 651 F.2d at
76.
Without direct evidence of intent, it fell to Rogers to prove
by inference from anticompetitive conduct the requisite in-
tent necessary to support a violation. In fact, Rogers’ Sherman
and Robinson-Patman Act claims rely entirely on what Rogers
claims was predatory pricing by Gardner-Denver. It alleges
that Gardner-Denver’s blue list was an attempt to drive the
prices of its smaller, financially weaker competitor low enough
to ruin it, whereupon Gardner-Denver would raise its prices
and recoup its losses. We agree with the district court that
Rogers failed to prove that Gardner-Denver’s pricing policy
was predatory.
In Richter Concrete, predatory pricing was defined as
follows:
Pricing is predatory when a company foregoes short-
term profits in order to develop a market position such
A-8
that the company can later raise prices and recoup
profits. William Inglis & Sons Banking Co. v. ITT Con-
tinental Baking Co., 668 F.2d 1014, 1031 (9th Cir. 1981).
Predatory pricing differs from healthy competitive pric-
ing in its motive: “a predator by his pricing practices
seeks ‘to impose losses on other firms, not garner gains
for itself.”” Malcolm v. Marathon Oil Co., 642 F.2d 845,
853-54 (5th Cir.), cert. denied, 454 U.S. 1125, 102 S.Ct.
975, 71 L.Ed.2d 113 (1981) (footnote omitted). Price
reductions that constitute a legitimate, competitive re-
sponse to market conditions are not predatory. William
Inglis & Sons Baking Co. v. ITT Continental Baking Co.,
668 F.2d 1014, 1031-32 (9th Cir. 1981).
Id. at 823 (emphasis added). Motive being the distinguishing
characteristic of predatory pricing, the courts and others have
developed various methods of ascertaining motive when, as
here, direct evidence is inadequate or unavailable. Id. Fore-
most amongst these methods is an objective cost-based test
first advocated by Professors Areeda and Turner. See Areeda
& Turner, Predatory Pricing & Related Practices Under the
Section 2 of the Sherman Act, 88 Harv. L. Rev. 697 (1975).
Generally speaking, the Areeda/Turner test relies on the re-
lationship between a product's marginal cost and its price to
determine whether or not the firm which sells the product is
engaged in anti competitive behavior. Because of the difficulty
inherent in accurately determinirg marginal cost, the Areeda/
Turner test uses average variable cost as a surrogate. Areeda &
Turner, supra, at 717. Pricing at or above marginal or average
variable cost, they argue, should be conclusively presumed
acceptable while pricing below that level conclusively pre-
sumed illegal or predatory. Id. at 711. See Inglis, 688 F.2d
at 1032.
This standard has not been adopted unqualifiedly. See
Richter Concrete, 691 F.2d at 823; Inglis, 668 F.2d at 1032.
Although the courts have accepted the marginal or average
variable cost standard as an indicator of intent, many allow
A-9
for consideration of other factors indicative of predation. A
leading example of this hybrid approach is that taken by the
Ninth Circuit in Inglis. There the position was taken that
although average variable cost is a generally reliable indicator,
there are market situations where a rational firm would find
it prudent to sell below its average variable cost. See id. at
1035, n.32. Conversely, it acknowledges that in certain situa-
tions, a firm selling above average variable cost could be guilty
of predation. See id. at 1035. Consequently, it focuses “on
what a rational firm would have expected its prices to ac-
complish.” Id. at 1034. Accordingly, it permits the introduc-
tion of any evidence, in addition to costprice figures, to il-
luminate the rationale behind the defendant's pricing policy.
[W]e hold that to establish predator pricing a plaintiff
must prove that the anticipated benefits of defendant's
price depended on its tendency to discipline or eliminate
competition and thereby enhance the firm’s long-term
ability to reap the benefits of monopoly power. If the
defendant's prices were below average total cost but
above average variable cost, the plaintiff bears the bur-
den of showing defendant's pricing was predatory. If,
however, the plaintiff proves that the defendant's prices
were below average variable cost, the plaintiff has es-
tablished a prima facie case of predatory pricing and the
burden shifts to the defendant to prove that the prices
were justified without regard to any anticipated destruc-
tive effect they might have on competitors.
Id. at 1035-36.. Cf. Northeastern Telephone, 651 F.2d at 88,
Superturf, Inc. v. Monsanto Co., 660 F.2d 1275, 1281 (8th
Cir. 1981).
Although this circuit has not had an occasion to enunciate
a specific cost-based test for predation, see Richter Concrete,
691 F.2d at 824, we feel that the Ninth Circuit’s modified
version of the Areeda/Turner test is appropriate. Applying
that standard to the case before us, we agree with the district
court’s finding that Rogers failed to introduce sufficient evi-
A-10
dence of either a direct or indirect nature to prove that
Gardner-Denver'’s motives in establishing the blue list were
predatory.
To review the evidence, we first reiterate that the record
lacks any conclusive or convincing direct evidence bearing
on the issue of motive. Rogers’ case is not helped, moreover,
by a cost-base analysis. Parks, an accountant called as an
expert witness by Rogers, testifying as to the extensive exami-
nation and analysis he undertook on Gardner-Denver’s finan-
cial records, could state only that Gardner-Denver sold “in
the vicinity of” average variable cost; that he could not say
“with specific confidence” that they sold beneath average var-
iable costs during the entire period. The district court ac-
cepted this testimony as proof that Gardner-Denver's prices
during the period were not below average variable cost.
Given the absence of any other evidence bearing on the issue,
we do not think the court's conclusion clearly erroneous. It
thus fell to Rogers to rebut through the introduction of addi-
tional evidence the presumption which arises from such a
finding that the defendant was not predatorily pricing. Inglis,
668 F.2d at 1035-36. This, as we have already discussed,
Rogers could not do.
Interestingly, Rogers argues against our acceptance of
Parks’ cost analysis. Specifically, it contends that Parks based
his calculations of costprice relationships on his “accountant’s”
definition of variable and fixed costs. Those calculations
yielded the conclusions discussed above. Rogers contends,
however, that if we follow the Areeda/Turner test for preda-
tion, we must also adopt Areeda’s and Turner’s “economists’”
definition of variable and fixed cost. Rogers then points to
Parks’ testimony that had he used this “more inclusive” defi-
nition of variable costs, Gardner-Denver’s average variable
costs would have significantly exceeded its price for ratchet
wrench parts.
Despite Rogers’ dire prediction that failure to employ the
Areeda/Turner broad definition of variable cost would render
A-11
a plaintiff's task of satisfying the test well nigh impossible, we
decline to require rigid categories of variable and fixed costs
be applied in every predatory pricing case. Beyond the gen-
eral statement that fixed costs are not affected by output while
variable costs are, it is impossible to determine in advance
and outside the specific factual context the variablity of any
particular expense. Inglis, 668 F.2d at 1037. That type of
fact specific, tailored inquiry into cost allocation by the de-
fendant seller is crucial because, as the district court stated,
costprice analysis is but a “surrogate” for intent. To determine
anticompetitive intent with any degree of certainty or justifi-
cation from objective examination of an alleged predator's
pricing policy, one must be certain that the categorization of
costs reflect the actual situation facing the seller. That will
vary with the facts of each case. Id. at 1038.
Parks’ general definitions of fixed and variable costs are in
accord with those proposed by Areeda and Turner and
adopted by us. Beyond these broad outlines, however, Parks
used an “accountant’s,” as opposed to an “economist’s” defini-
tions to more precisely allocate expenses. As plaintiff's exhibit
149, a letter from Parks to Rogers’ counsel, reflects, Parks’
allocative process was indepth, detailed, and thorough and
based upon all the financial information available to Gardner-
Denver at the time it made its pricing decisions. Presumably
this was precisely the task Rogers’ counsel set for Parks, al-
though it no doubt expected a different result. Be that as it
may, we think the cost allocation method employed by Parks
produced results which, insofar as they reflect a comprehen-
sive analysis of the economic horizon facing Gardner-Denver
at the time it instituted the blue list, produced a nearly ac-
curate projection of the cost factors facing Gardner-Denver.
Because the ascertainment of Gardner-Denver's intent is the
signal goal of this deductive process, only those factors are
important. Because Parks’ results do not conclusively prove
below average variable cost pricing, we find that the district
court's determination that the defendant's motives were non-
predatory was correct.
A-12
Rogers’ monopolization claim fails as well. To prove mo-
nopolization, Rogers was required to prove Gardner-Denver's
(1) possession of monopoly power in the relevant market and
(2) its willful acquisition or maintenance of that power as a
consequence of a superior product, business acumen, or his-
toric accident.” United States v. Grinnell, 384 U.S. 563, 570-71
(1966). Assuming, contrary to the district court’s finding but
without deciding, that Gardner-Denver possessed monopoly
power in the relevant market and that the power was lawfully
acquired, Rogers, on the record before us, has failed to prove
that Gardner-Denver willfully used its monopoly power to
maintain its position.
Whether or not a monopolist has grown and developed as
a consequence of willful acts directed at maintaining its mo-
nopoly or, in the alternative, as a consequence of a superior
product, business acumen, or historic accident is not always
an easy question to answer. It is made more difficult by the
fact that the acts or practices upon which a monopolization
claim may rest need not be in themselves illegal. Borden, 674
F.2d at 513; California Computer Products v. International
Business Machines, 613 F.2d 727, 735 (9th Cir. 1979). Nor is
it necessary that in commission of those acts, a monopolist
have had the specific intent to eliminate competition. Id.;
Dimmitt Agri Industries, Inc. v. CPC International, Inc., 679
F.2d 516, 531 (5th Cir. 1982), cert. denied, 51 U.S.L.W. 3756
(April 19, 1983). Nevertheless, not every act by a monopolist
which has lawfully acquired its monopoly power violates sec-
tion 2. California Computer Products, 613 F.2d at 736 n.7.
“The otherwise lawful conduct forbidden by section 2.. . is
a monopolist’s use of monopoly power in order to maintain
or improve its position in the market.” Borden, 674 F.2d at
518 (emphasis in original). See United States v. Girffith, 334
U.S. 100, 107 (1948); Berkey Photo, Inc. v. Eastman Kodak
Co., 603 F.2d 263, 274 (2d Cir. 1979), cert. denied, 444 US.
1093 (1980). Generally speaking, a monopolist uses its mo-
nopoly power in a manner prohibited by section 2 when it
A-13
acts “in an unreasonably exclusionary,” Byars, 609 F.2d at 853,
or “anticompetitive,” Borden, 674 F.2d at 518, manner towards
its rivals. See California Computer Products, 613 F.2d at 735
(“plaintiff must show that the defendant's acts ‘unnecessarily
excluded competition’ from the relevant market”).
In this case, our finding that Gardner-Denver did not
engage in predatory pricing compels the conclusion that there
was nothing unreasonably exclusionary or anticompetitive in
Gardner-Denver's pricing activity. We reiterate that “it is not
anticompetitive for a company to reduce prices to meet lower
prices already being charged by competitors.” Richter Con
crete, 691 F.2d at 826. Superturf, 660 F.2d at 1281. As we
found in our analysis of the claim of attempted monopoliza-
tion, despite substantial price reductions, Gardner-Denver
continued to price at or above marginal cost. Marginal cost
pricing, the “socially optimal” level, Areeda & Turner, supra
at 711, is consistent with competition on the merits, however.
California Computer Products, 613 F.2d at 743. “Where the
opportunity exists to increase or protect market share profit-
ably by offering equivalent or superior performance at a lower
price, even a virtual monopolist may do so.” Id. at 742.
Our analysis brings us, finally, to Regers’ price discrimina-
tion claim under section 2(a) of the Robinson-Patman Act.
The district court concluded that in this case, the legal an-
alysis of a section 2(a) claim is equivalent to that of a section
2 claim under the Sherman Act. Having found no violation of
the Sherman Act, the Court dismissed the section 2(a) claim.
We agree.
To successfully prove price discrimination, Rogers was re-
quired to prove that (1) Gardner-Denver discriminated “in
price between different purchasers of commodities of like
grade and quality,” and (2) the effect of such discrimination
may be substantially to lessen competition or tend to create
a monopoly in any line of commerce.” 15 U.S.C. § 13(a).
See FTC v. Morton Salt Co., 334 U.S. 37 (1948). We take as
A-14
given that in utilizing the blue list, Gardner-Denver satisfied
the first requirement. Our analysis here, therefore, focuses on
the anticompetitive effect of the defendant's actions.
Rogers’ complaint alleged primary line, non-geographic
price discrimination. Where, as here, the plaintiff in a primary
line case has not undertaken a general market analysis to
prove anticompetitive effect, many of the courts to have re-
cently considered Robinson-Patman Act claims look to evi-
dence of predatory intent from which to infer injury to com-
petition. See, e.g., Utah Pie Co. v. Continental Baking Co.,
386 U.S. 685, 696-98 ( 1967); International Air Industries, Inc.
v. American Excelsior Co., 517 F.2d 714, 722-23 (5th Cir.
1975), cert. denied, 424 U.S. 943 (1976); Pacific Engineering
& Production Co. of Nevada v. Kerr-McGee Corp., 551 F.2d
790, 798 (10th Cir. 1977), cert. denied, 434 U.S. 879 (1977);
Inglis, 668 F.2d at 1040. These same courts, moreover, agree
that the principles behind proof of predatory intent in Sher-
man Act claims are “equally applicable” to proof of predatory
intent in a Robinson-Patman Act suit. Inglis, 668 F.2d at 1041
and cases cited therein. “Where a price differential threatens
a primary line injury,” said the Ninth Circuit, “section 2 of
the Sherman Act .. . and section 2(a) of the Clayton Act...
are directed at the same economic evil and have the same
substantive content.” Janich Bros., Inc. v. American Dis-
tilling Co., 570 F.2d $48, 855 (9th Cir. 1977), cert. denied,
439 U.S. 829 (1978). Accord, Pacific Engineering & Produc-
tion, 551 F.2d 798.
In this case, there i: no evidence of anticompetitive effect,
direct or inferential, ir. the record. Rogers claims that as a
result of defendants predatory actions, it lost business and
profits, both of which, it further claims, directly evidenced
the requisite effect on competition. We disagree. Without
more, loss of business and profits is as likely the result of
honest competition as it is the result of illegal conduct. As
A-15
the Fifth Circuit stated in International Air Industries, a case
factually very similar to the case before this court,
It is settled law that a mere diversion of business from
one competitor to another does not signify detriment to
competition on the seller level. . . . Mere loss of profits
shows no more than that. . . [the plaintiff] . . . was
forced to charge a competitive price because it faced
competition. Similarly, the large size of the discriminator
and even the fact that its sales increased during the
period of discrimination would not necessarily make out
a case. Anheuser-Busch, Inc. v. FTC, 289 F.2d 835, 839,
843 (7th Cir. 1961). It is possible for damage to a single
competitor to meet the statutory requirements, see Bor-
den Co. v. FTC, 381 F.2d 175 (5th Cir. 1967), but e
showing of more than competitive pricing and a shift
of customers is necessary. Evidence of certain types of
predatory conduct, we feel, would fulfill the require-
ments.
517 F.2d at 721-22 (footnotes omitted ).
What Rogers cannot prove directly it is equally unsuccessful
proving inferentially. Accepting as we do the propositions
that a Robinson-Patman Act plaintiff may prove anticompeti-
tive effect inferentially from proof of a defendant's anticom-
petitive intent, and that proof of anticompetitive intent in sec-
tion 2(a) cases is no different from its proof in Sherman Act
cases, we agree with the district court that in this case Rogers’
failure to prove anticompetitive intent directly, supra or in-
directly through proof of pricing below average variable cost
is fatal to its price discrimination claim.
Contrary to Rogers’ arguments here, we do not think that
equating the proof required to show a Sherman Act violation
with that necessary to show a violation of the Robinson-Pat-
man Act will immasculate the latter provision. Only in cases
such as this, where the section 2(a) plaintiff is forced to
rely on proof of predatory intent to show that the defendant's
A-16
discriminatory pricing did or might have harmed competition
will the two provisions appear as one. Be that as it may, we
are not prepared to punish under any guise conduct which
we conclude was well within the competitive boundaries the
antitrust laws were enacted to protect.
The decision of the district court dismissing all claims by
Rogers against Gardner-Denver is affirmed.
A-1?
JUDGMENT
(United States Court of Appeals
for the Sixth Circuit)
(Filed October 21, 19834)
(D, BE. Rogers, Associates, Inc., et al., Plaintiffs
Appellants, v. Gardner-Denver Company, Defendant
Appellee No, 81-1314)
Before: Martin, Circuit Judge; Brown, Senior Circuit
Judge; and Neese, Senior District Judge
On Appeal from the United States District Court for the
Eastern District of Michigan
This Cause came on to be heard on the record from the
said District Court and was argued by counsel
On Consideration Whereof, It is now here ordered and
adjudged by this court that the judgment of the said
District Court in this case be and the same is hereby
affirmed
It is further ordered that Defendant-Appellee recover
from Plaintiffs-Appellants the costs on appeal, as itemized
below, and that execution therefor issue out of said
District Court, if necessary
Entered By Order Of The Court,
/s/ John P. Hehman,
Clerk
Issued as Mandate: January 26, 1984
Costs: None
(Certification Omitted)
A-18
ORDER
NOT RECOMMENDED FOR FULLTEXT PUBLICATION
(United States Court of Appeals
for the Sixth Circuit)
(Filed January 18, 1984)
(D, B, Rogers Associates, Inc,, a Michigan corporation;
and Michigan Specialties Manufacturing Company, a
Michigan corporation; Plaintiffs-Appellants, v. Gardner
Denver Company, Defendant-Appellee No, 81-1314)
Before: Martin, Circuit Judge; Brown, Senior Circuit
Judge; and Neese, Senior District Judge, *
On receipt and consideration of a petition for rehearing
and suggestion for rehearing en bane in the above styled
case; and
No judge in active service in this Court having moved
for rehearing en bane and the motion therefore having
been referred to the panel which heard the case; and
The panel having noted nothing of substance in said
motion for rehearing which had not been carefully
considered before issuance of the Court's opinion,
Now, therefore, the motion for rehearing is hereby
denied
Entered By Order Of The Court
s/ John P. Hehman,
Clerk
* Honorable C, G, Neese, Senior District Judge, United States
District Court for the Middle District of Tennessee, sitting by
designation
A-19
OPINION
(United States District Court
Eastern District of Michigan
Southern Division)
(D, B. Rogers Associates, Inc,, a Michigan corporation,
and Michigan Specialties, Inc, [sfc], a Michigan corpora
tion, Plaintiffs, v Gardner Denver Co,, a Delaware corpor
ation, Defendant No, 472222)
Proceedings had in the within-entitled matter before
Honorable Horace W., Gilmore, United States District
ludge, at Detroit, Michigan, commencing Thursday,
March 19, 1981
SESSION OF TUESDAY, MARCH 3/1, (98
(771) Detroit, Michigan
Tuesday, March 31, 198]
10:30 o'clock A.M
(The hearing of the cause resumed pursuant to the
adjournment of March 30, 1981.)
The Court: Good morning,
Mr, Cutler; Good morning, your Honor
Mr, Curtner; Good morning
The Court: I apologize for being so late in getting
started on this matter, however, | had a lot of work |
wanted to do on the case and the tragic events of
yesterday sort of slowed down the work
This matter is before the Court upon defendant's motion
for involuntary dismissal under Rule 41(b) which provides
in significant part:
‘After the plaintiff, in an action tried by the court
without a jury, has completed the presentation of
his evidence, the defendant, without waiving his
A-20
right to offer evidence in the event the motion is
not granted, may move for a dismissal on the
ground that upon the facts and the law the plaintiff
has shown no right to relief. The court as trier of
the facts may then determine them (772) and render
judgment against the plaintiff or may decline to
render any judgment until the close of all the
evidence, If the court renders judgment on the
merits against the plaintiff, the court shall make
fiindings as provided in Rule 52(a).”’
I want to first thank all counsel for the excellent job that
they have done in this case. I think it has been very well
presented and it’s a real pleasure to work with such
competent counsel as we have had here.
The case involved deals only with ratchet wrench
replacement parts. We are not dealing with the whole tool.
There is no claim here that at least survived pre-trial
proceedings that the defendant manufactures the whole
tool in any way that violates the antitrust law. The case is
basically an antitrust and Robinson-Patmon [sic] Act case
in three counts and it’s basically a predatory pricing case.
Some of the facts I think need to be spelled out as we
proceed into the disposition of this motion:
The plaintiff, Rogers, was for many years an employee
of the defendant and in 1964 he opened (773) his own
business and started to manufacture ratchet wrench
replacement parts which were manufactured by the
plaintiff from 1964 to 1971. The plaintiff sold his ratchet
wrench parts at 70 percent of defendant's list price.
In August, 1971, the defendant came out with a second
price list. Prior to that time it had one price list, the
so-called, white list, but it came out with a ‘‘blue price
list’’ in August of 1971, and the blue price list contained
prices at 62 percent of white list prices and under the
terms of the sales on the blue list a buyer could not envoke
[sic] the blue list price unless he purchased five or more
units.
A-21
In October of 1971, the plaintiff then lowered his prices
below the defendant's blue list price. I think it’s important
to point out the chronology of the prices of the plaintiff
and the blue list price of the defendant.
As I said the first blue list price in which the defendant
cut prices below the plaintiff's prices came out in August
of 1971. On October 15, 1971, the plaintiff dropped his
price below the blue list price. On February 28, 1972, the
defendant then dropped its prices again below the
plaintiff's prices, and on March 15, 1972, the plaintiff then
brought its price down to the same price as defendant.
(774) Shortly thereafter he offered a two percent cash
discount with payment by the 25th of the month. So, from
1973 on the plaintiff was selling at the same price as the
defendant but there was a two percent cash discount
which plaintiff testified 98 percent of the people took.
In May, 1974, the defendant raised his prices five
percent and the plaintiff retained the same price giving a
differential between the parties’ prices of seven percent,
with the defendant being seven percent higher, and in July,
1975, the defendant again raised prices by four percent and
the plaintiff remained the same, leaving a price differential
total of 11 percent, if a two percent discount were applied.
Thus, the only time in the entire period we are
concerned with when the defendant's blue list prices were
below those of plaintiff was a period from August to
October, 1971, and February 28, to March 15, 1972. In the
rest of the period of time either they were the same or the
defendant's prices were higher.
I think other preliminary facts we ought to consider are
the facts that in 1970 and ‘71, and for several years off and
on, the plaintiff experienced all kinds of problems in the
business. First of all, his brother-in-law, Mr. Whitcroft,
who had been in the (775) business with him, separated
from the plaintiff's business, formed his own competing
enterprise, Trans Penumatic, which produced ratchet
A-22
wrench replacement parts, and the brother-in-law took
with him shortly thereafter Mr. Jessup, the plaintiff's
principal sales person and other important personnel.
I need not detail in these findings all of the problems the
plaintiff had but it's clear from the record and from the
exhibits, that between 1970 and 1975, plaintiff had
recurring problems with distributors, recurring problems
with sales people and recurring problems with quality. The
quality eventually was cleaned up but early on there was
problems with quality of a product and this caused a great
deal of problems for the plaintiff.
In looking at this entire matter we must look at several
factors, the first of which is relevant market. Of course, a
relevant market is defined in two ways: product market
and geographical market. The question becomes what is
the relevant product market as to ratchet wrench
replacement tools?
In the cellophane case, U. S. v Dupont, 351 US 377, the
court, speaking of relevant market said:
(776) ‘‘We must include interchangeable
products even though certain products are better
suited for a particular purpose.”
In this case the ratchet wrench, the replacement parts
for which, and the attachments of which are the subject of
this case, is a wrench that goes into a very narrow space in
the manufacture of automobiles, airplanes and agricultural
implements.
The testimony shows that the ratchet wrench is often
unreliable. It breaks down easily and manufacturers are
constantly trying to design away from the ratchet wrench.
It does a very special job but I think there is no question
but what other types of wrenches that have been talked
about come within the relevant market.
A-23
First of all, there is no census definition for ratchet
wrenches and I find that impact wrenches, right angle
tools, Stanley ratchet wrenches, the crowfoots and
mechanical nutsetters of all kinds come within the relevant
product market. There are many other manufacturers
including Chicago Pneumatic, Cleco, Ingersoll Rand and
others.
So, I think it’s clear that the relevant (777) product
market here is not merely ratchet wrench replacement
parts and ratchet wrench attachments, but the relevant
market includes nutsetters of all kinds, including impact
wrenches, right angle tools, Stanley ratchet wrenches, the
crowfoots and other mechanical nutsetters. All of these
products compete.
The testimony is clear that if the buyer could get a
crowfoot, for example, instead of one of the defendant's
ratchet wrenches, it would do so. As I said, it’s significant
there is no census classification for ratchet wrenches as an
individual product.
So, I think when we look at the relevant market and
look at the definition in the cellophane case, U. S. v
Dupont, we have to find all of these items are in the
relevant product market. That being so we must, of
course, discount then the testimony of Mr. Sponsler, on
whom the plaintiff relies.
Mr. Sponsler, and I'm not saying he is wrong and I'm
not saying I don't believe him, but Mr. Sponsler testified
that Gardner Denver had 70 to 80 percent of the ratchet
wrench market. I don't dispute that figure because it's
really the only figure in the record. However, when you
look at the broader market as I defined it above,
defendant's share of the relevant market is much, much
less.
We don't have any evidence of what it (778) is but if you
look at the relevant product market, its a relatively small
percentage, certainly it does not approach 70 percent or 50
percent, certainly it's probably closer to 10 to 15 percent.
A-24
There is no testimony here other than that of Sponsler that
defendant controls a monopoly share of the relevant
market when the relevant product market is defined under
U. S. v Dupont. Certainly, I think it’s clear, the plaintiff
has not proved that defendant dominated the relevant
product market.
Another factor the Court must consider in determining
whether there has been a prima facie case made out here is
the whole area of ease of market entry. The earmark of
monopolization is the difficulty with which a new producer
or manufacturer can enter into the market. The fact that a
new competitor can enter the market easily indicates that
domination of the market does not exist.
In the present case it’s absolutely clear from the
testimony that the plaintiff got easily into the market. No
special preparation was required. I believe the testimony
was that he entered the ratchet wrench replacement parts
market with an original investment of only $1400, and, so,
I think it’s clear that plaintiff made no showing whatever
that the defendant had a dangerous probability of success
of monopolizing the market and excluding the plaintiff.
(779) There is also, as pointed out, a serious causation
problem. I fail to find proof that any of the losses were
directly attributable to the defendant. There were so many
other factors that exist that could cause any of the losses
plaintiff had, such as product problems, additional
competitors, internal sales problems, distribution
problems, just to mention a few, that it’s exceedinly
difficult to find the necessary causation here.
Plaintiff claims one of the big problems was the fact it
did not get its name on crib cards and, therefore, that there
was monopolization brough about by the defendant's
ability to stay on the crib cards. There is no evidence in
this record whatever that the defendant has the slightest
A-25
control over crib cards. The crib cards were controlled by
the individual manufacturers and so I think quite simply on
this issue the plaintiff has not borne the burden of proof
necessary to show that monopoly power was exercised
by the defendant.
He failed to prove the defendant had the power to
exclude the plaintiff from the relevant market, had the
relevant market been defined, and although the plaintiff
was not happy with the quotation of Mr. Cutler, I think his
statement, and the statement from cases, that the purpose
of the antitrust law is to protect competition not to protect
the plaintiff from competition, is a very (780) significant
statement and I think is a statement that applies closely,
very closely and very aptly to the facts as developed in
this case. That is basically what this case is all about.
Before I go on to make other findings, I think it’s
necessary that I say something about costs. I do not think
a determination of whether we should use the average
variable cost or average total cost is absolutely necessary
to a determination of this motion but I think because there
will undoubtedly be an appeal I should talk about my
findings on cost and talk about the testimony of Mr.
Edward Parks who, obviously, is a well-qualified,
competent certified public accountant.
I start out by saying it’s clear from the testimony of Mr.
Parks that sales at the blue list were not below average
variable cost. Mr. Parks testified on page 377 of the record
as follows:
‘‘A My position and analysis has been that they
sold at or below, using a sample like I did,
using the estimates that I have made, given
the kind of information taht we didn't have
either. I cannot say with specific confidence
that on my definition of variable and fixed
A-26
costs that they sold beneath (781) average
variable costs during the entire period.
The Court: You cannot say that they sold below
average variable costs?
A With certainty, that’s correct. I can say they
sold in the vicinity of it. Certainly my
calculations show them selling below but the
degree to which they are below is nominal
and within the range of statisical variations
that you get from a sample.”
In other words, his testimony was absolutely clear that
there is no evidence that the sales on the blue list were
below average variable cost and his testimony never
changed on that regard throughout the entire trial.
The Court, therefore, finds that the defendant at no time
in this case sold ratchet wrench replacement parts or
attachments below average variable cost. Moreover, I
think there is a serious question whether plaintiff has
proved that the defendant sold below average total cost.
In determining that they had, Mr. (782) Parks, and I do
not criticize him, although I do not agree with him, ignored
Gardner Denver's cost system they have been using for 30
years, where the burden had been allocated to individual
products in proportion to direct labor dollars. Mr. Parks
rejected this method, choosing instead to allocate the
burden on the basis of sales price.
This after-the-fact reallocation of burden had the effect
of substantially increasing the burden allocated to ratchet
wrench parts and I feel that Mr. Parks’ calculations there
artificially increased the average total cost to an extent
that they exceeded Gardner Denver's blue list price.
Thus, there is a serious question about whether
plaintiff's proofs are such as would show costs below
average total cost. In all events, plaintiff has not shown
A-27
predatory pricing using either average variable cost or
average total coast. The variable costs are clearly below
the blue price list and the average total costs were figured
contrary to Gardner Denver's calculation of the last 30
years. Of course, we only look at costs, either average
variable cost and average total costs, as a surrogate for
intent.
So, clearly, even if you use the average total cost the
fact that Gardner Denver had been using this, calculating
the burden this way for 30 years, (783) shows the Court
clearly that there is no, that this cannot be used as a factor
to prove predatory intent to violate the antitrust law.
I also feel that Mr. Parks in his calculation restricted the
figures to only blue list prices in figuring cost and I feel
that in getting an accurate picture of costs it is also
necessary, it would also have been necessary to use both
blue list and white list revenues.
With respect to what standard should be applied, I hold
the proper standard is average variable cost, contrary to
Judge Cook, for whom I have the greatest respect, but |
disagree with him and, as i indicated earlier in the trial, I
do not feel that Judge Cook's determination became the
law of the case. I think the case having been tried by me I
have the right to make the determination as to the
standard. I feel that the proper standard, correct standard,
in determining cost is average variable cost.
These are defined as the sum of the costs avoided if
production of a product in question is reduced to zero
divided by the number of product produced.
I feel, and find, that the use of average variable cost is
the proper economic method for a company with a
multiproduct line. Such a method allows (784) that
company to shift its costs from production of one product
to another, minimizing drastic increases in cost. So, witha
A-28
company like Gardner Denver I feel that average variable
cost rather than average total cost in the context of the
antitrust case, should be the proper test.
Although this is an open question in the Sixth Circuit,
there are cases in other circuits that enunciate the
principle of average variable costs, including California
Computer Products in 613 F.2d, 727, and Janich v The
American Distilling Company, 570 F.2d, 484.
As I said, there are three counts in this case. The first
count is the monopolization claim under Section 2 of the
Sherman Act, 15 USC 2. To establish this claim there must
be two elements established, the definition of relevant
market and establishment of monopoly power in that
market and the proof the defendant acquired monopoly
power in the relevant market willfully and intentionally.
Based on the findings of fact I already made in this case,
I hold there has been no such showing in the first place on
the relevant market, as I defined it. There is no showing
the defendant acquired monopoly power, and, secondly,
there is no showing here of willful and intentional
obtaining a monopoly power by the proofs (785) here and,
of course, the discussion of costs goes to that.
Costs, as Mr. Curtner argues, are just a surrogate for
intent. Further, I find no proof in this record of an intent to
monopolize as require by U. S. v Grinnell, 384 U. S. 563.
The second count is a claim of intent to monopolize and
requires four elements: Market power within the relevant
market, although less than necessary for a monopolization
claim, a specific intent to monopolize acts toward that end
and a dangerous probability of success in the relevant
market.
It appears clear in this case, and I have already found
that there is no specifc intent to monopolize. I found that
there have been no acts taken to that end because I can
see what it has done here is normal competition and,
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obviously, there is no dangerous probability of success in
the relevant market and, therefore, there is no basis for
Count Two; a failure of proof on Count Two.
As to Count Three, it’s brought under Section 2(a) of the
Clayton Act, 15 USC 13(a) which states in pertinent part:
‘It shall be unlawful for any person engaged in
commerce to discriminate in price between
different purchasers of (786) commodities of like
grade and quality where the effect of such
discrimination may be substantially to lessen
competition or tend to create a monopoly in any
line of commerce.”’
There are two elements of primary line discrimination
and that is what we are talking about here. First, that the
defendant did in fact engage in price discrimination, that
is, that defendant made at least two reasonably
contemporaneous sales of the same product to two
different purchasers at two different prices and that the
price discrimination had the requisite anticompetitive
effect.
It's essential for proof of price discrimination in this
count for the plaintiff to prove that the defendant acted in
an anticompetitive way. In the past practically all primary
line discrimination cases have been premised upon
geographic price discrimination in which the defendant
sold at a lower price in areas where it competed with the
plaintiff and it did in areas where there was no
competition.
Here, however, there is no claim that the defendant
engaged in geographic price discrimination. In such
circumstances the competitive injury requirement of a
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claim under Section 2(a) can only be satisfied by (787)
proof of predatory intent or a general market analysis.
Plaintiff has not undertaken such an analysis.
The most recent primary line price discrimination cases
that I have looked at have virtually eliminated any
difference between an analysis under Section 2(a) of the
Robinson-Patmon [sic] Act and Section 2 of the Sherman
Act. I cite Janich Bros. v American Distilling Co., 570
F.2d, 848, and William Inglis & Sons v ITT Continental
Baking Company, 461 F.Supp, 410.
The plaintiff's proof requirement for anticompetitive
conduct under Section 2(a) of Robinson-Patmon [sic], I
Suggest, is precisely the same as for predatory pricing
under Section 2 of the Sherman Act.
Now, we already covered that.
Plaintiff, I feel, has been unable to prove the defendant's
prices were below average total cost, average variable cost
and marginal costs and certainly has not proved predatory
intent, and, therefore, the plaintiff's proof failed to prove
the anticompetitive effect of the Robinson-Patmon [sic]
discrimination claims.
Therefore, for those reasons I will grant the defendant's
motion for involuntary dismissal under 41(b) and the
defendant may present his order on that.
Thank you all very much.
A-31
ORDER OF DISMISSAL
(United States District Court —
Eastern District of Michigan —
Southern Division)
(D. E. Rogers Associates, Inc., a Michigan corporation
and Michigan Specialties Manufacturing Company, Inc., a
Michigan corporation, Plaintiffs, vs. Gardner-Denver Co..,
a Delaware corporation, Defendant — Civil Action No.
47222; Honorable Horace W. Gilmore)
At a session of said Court held in the Federal Building,
Detroit, Michigan on Apr. 3, 1981.
Present: Honorable Horace W. Gilmore
Defendant Gardner-Denver Co. having moved, pursuant
to Federal Rule of Civil Procedure 41(b), for dismissal at
the close of plaintiff's presentation of evidence, the Court
having heard the testimony, examined the record and
made findings in its oral opinion rendered March 31, 1981,
as provided in Federal Rule of Civil Procedure 52(a),
It Is Ordered that, for the reasons set forth in the March
31, 1981 Opinion, each of the three counts which were
tried before this Court is dismissed with prejudice.
/s/ Horace W. Gilmore
United States District Judge
Approved as to form:
Miller, Canfield, Paddock and Stone
By: /s/ Larry Saylor (P28165)
Attorneys for Plaintiff
2500 Detroit Bank & Trust Bldg.
Detroit, Michigan 48226
(Certification Omitted)
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SHERMAN ACT, SECTION 2
1S U.S.C. § 2
§ 2. Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to
monopolize, or combine with any other person or persons,
to monopolize any part of the trade or commerce among
the several States, or with foreign nations, shall be deemed
guilty of a felony, and, on conviction thereof, shall be
punished by fine not exceeding one million dollars if a
corporation, or, if any other person, one hundred thousand
dollars or by imprisonment not exceeding three years, or
by both said punishments, in the discretion of the court.
CLAYTON ACT, SECTIONS 2a), (b)
AS AMENDED BY THE ROBINSON-PATMAN ACT
15 U.S.C. §§ 1Xa), (b)
§ /3. Discrimination in price, services, or facilities -
Price; selection of customers
(a) It shall be unlawful for any person engaged in
commerce, in the course of such commerce, either directly
or indirectly, to discriminate in price between different
purchasers of commodities of like grade and quality,
where either or any of the purchases involved in such
discrimination are in commerce, where such commodities
are sold for use, consumption, or resale within the United
States or any Territory thereof or the District of Columbia
or any insular possession or other place under the
jurisdiction of the United States, and where the effect of
such discrimination may be substantially to lessen
competition or tend to create a monopoly in any line of
commerce, or to injure, destroy, or prevent competition
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with any person who either grants or knowingly receives
the benefit of such discrimination, or with customers of
either of them: Provided, That nothing herein contained
shall prevent differentials which make only due allowance
for differences in the cost of manufacture, sale or delivery
resulting from the differing methods or quantities in which
such commodities are to such purchasers sold or
delivered: Provided, however, That the Federal Trade
Commission may, after due investigation and hearing to all
interested parties, fix and establish quantity limits, and
revise the same as it finds necessary, as to particular
commodities or classes of commodities, where it finds that
available purchasers in greater quantities are so few as to
render differentials on account thereof unjustly
discriminatory or promotive of monopoly in any line of
commerce; and the foregoing shall then not be construed
to permit differentials based on differences in quantities
greater than those so fixed and established: And provided
further, That nothing herein contained shall prevent
persons engaged in selling goods, wares, or merchandise in
commerce from selecting their own customers in bona fide
transactions and not in restraint of trade: And provided
further, That nothing herein contained shall prevent price
changes from time to time where in response to changing
conditions affecting the market for or the marketability of
the goods concerned, such as but not limited to actual or
imminent deterioration of perishable goods, obsolescence
of seasonal goods, distress sales under court process, or
sales in good faith in discontinuance of business in the
goods concerned.
Burden of rebutting prima-facie case of discrimination
(b) Upon proof being made, at any hearing on a
complaint under this section, that there has been
discrimination in price or services or facilities furnished,
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the burden or rebutting the prima-facie case thus made by
showing justification shall be upon the person charged with
a violation of this section, and unless justification shall be
affirmatively shown, the Commission is authorized to issue
an order terminating the discrimination: Provided,
however, That nothing herein contained shall prevent a
seller rebutting the prima-facie case thus made by showing
that his lower price or the furnishing of services or
facilities to any purchaser or purchasers was made in good
faith to meet an equally low price of a competitor, or the
services or facilities furnished by a competitor.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.