Petition for Writ of Certiorari — Weyerhaeuser v. Ross-Simmons Hardwood Lumber

File Date:

Sept 23 2005

No. 05-381

Jn the Supreme Court of the Anited States

WEYERHAEUSER COMPANY,

Petitioner,

V.

Ross-SIMMONS HARDWOOD LUMBER Co., INC...

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

STEPHEN V. BOMSE: - ANDREW J. PINCUS

M. LAURENCE POPOFSKY Counsel of Record

Heller, l:hrman, White CHARLES A. ROTHFELD

& McAuliffe LLP NICKOLAI G. LEVIN

333 Bush Street Mayer, Brown, Rowe

San brancisco, CA 94104 & Maw LLP

(415) 772-6000 1909 K Street, N.W.

Washington, DC 20006

KEVIN J. ARQUII 202) 263-3000

ports F marin Seeeer A Dewi

Simpson, Lhache Sad Gecemaenences

& Bartlett LLP ay as een

425 Lexington Avenue Weyerhaeuser ( ompany

New York. NY 10017 33663 iH everhaeuser Way S.

(212) 455-2000 bederal Way, WA YSO03

(253) 924-2345

QUESTION PRESENTED

In Brooke Group Lid. v. Brown & Williamson Tobacco

Corp., 509 U.S. 209 (1993), the Court held that an antitrust

plaintiff alleging predatory selling must prove that the defen-

dant (1) sold its product at a price level too low to cover its

costs and (2) had a dangerous probability of recouping its

losses once the scheme of predation succeeded.

The question in this case is whether a plaintiff alleging

predatory buying may, as the Ninth Circuit held, establish

liability by-persuading a jury that the defendant purchased

more inputs “than it needed” or paid a higher price for those

inputs “than necessary,” so as “to prevent the Plaintiffs from

obtaining the [inputs] they needed at a fair price”; or whether

the plaintiff instead must satisfy what the Ninth Circuit

termed the “higher” Brooke Group standard by showing that

the defendant (1) paid so much for raw materials that the

price at which it sold its products did not cover its costs and

(2) had a dangerous probability of recouping its losses.

i

RULE 29.6 STATEMENT

Pursuant to this Court’s Rule 29.6, petitioner states that

Weyerhaeuser Company (“Weyerhaeuser”) is a_ publicly

owned company that does not have a parent corporation. No

publicly owned company owns 10% or more of its stock.

However, based on its Schedule 13G as filed with the Securi-

ties and Exchange Commission on February 14, 2005, Capi-

tal Research and Management Company is deemed to be the

beneficial owner of 13% of Weyerhaeuser’s common stock

as a result of acting as an investment adviser to various in-

vestment companies registered under the Investment Com-

pany Act of 1940.

TABLE OF CONTENTS

Clause Page

ATLL MEE LD ATI |

EE ee IIT css ssivecidnsisconsinvenévencnccinescantdaslinnshonianeti il

SE HUtNT UII. Sic sccusnschccasvssich coasesepcbcisapasdontans iv

IE ETE RET OR AR EN EE NE eee AE A l

EER RUT Fee ee CPO Wh OER cw Tae l

STATUTORY PROVISION INVOLVED ©0000.

I a |

REASONS FOR GRANTING THE PETITION ................... 6

A. Ail Allegations Of Predatory Pricing Behavior

Must Be Evaluated Under Rigorous, Objective

a 8

1. The Standard Articulated in Brooke Group

Rests on the View that Objective Rules Are

Necessary To Distinguish Predatory from

ERE ROYER aes RR 8

to

Objective Rules Like Those Applied in

Brooke Group Should Govern Allegations of

ELI TS ae RR EE Lee SRN 1]

B. The Ninth Circuit Confused The Law And Un-

dermined Competition By Adopting A Test For

Liability That Is Pegged To Whether A Jury

Regards The Challenged Prices As “Fair” Or

aE RS ER SU Reco there ir are Ra Ne 22

C. The Decision Below Involves A Recurring Is-

sue Of Great Practical Importance 0.0... 26

I IIIIIIE (L: canscchubieynincccapusaciencesatodicaseonsihcadagmaanmaiiedoaae

IV

TABLE OF AUTHORITIES

Page(s)

Cases:

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,

881 F.2d 1396 (7th Cir. 1989), cert. denied, 494

SRA NE Ree ee 19

American Tobacco Co. v. United States,

II se osissnincinenicenniicaengibatasanictwenstevenivsnsiacds 13, 28

Apex Hosiery Co. v. Leader, 310 U.S. 469 (1940) o000000... 14

Aspen Skiing Co. v. Aspen Highlands Skiing Corp..

REE I Se end, MOA AW OE et 18

Associated Press vy. United States, 326 US. |

Ns keisardidandunbdedacsahiied Mnmhab td utc alias kiss odes ceove 13, 28

Ball Mem. Hosp., Inc. vy. Mutual Hosp. Ins., Ine..

Fe ee BP FIN, Cc aces nc ekeckckccdeesicsosvssepennds 16, 25

Balmoral Cinema, Inc. vy. Allied Artists Pictures

vo Ee PEL lk a nen nneeD 28

Barry Wright Corp. v. 1TT Grimell Corp.,

VA AE aE COUN GE, CO WOR verecnstiguscoscipagsisescseesecevies passim

Betaseed, Inc. v. U & 1 Ine., 681 F.2d 1203

AIRE SSE Ae EPRI CAE IN es Oa RR OT 28

Brooke Group Lid. v. Brown & Williamson 1o-

bacco Corp., 509 U.S. 209 (1993) ooo passim

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc..

gg, SIE nor MONTE ane CCE ORS 25

Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104

SRE ene =

(atalano, Inc. v. larget Sales, Inc., 446 U.S. 643

Vv

TABLE OF AUTHORITIES -- Continued

Page(s)

(opperweld Corp. v. Independence Lube Corp.,

EE SR CIE cvveiincnsaisciitacininciabambismegtubiccuaetiale 26

Lastman Kodak Co. v. Image Lechnical Servs.,

SOD, TI rs Ge Cer csnkensist joc calcxsmspecosscenns. 15, 20, 21

I1C vy. Consolidated loods Corp., 380 U.S. 592

I inkiesa hs oss-srscnasinthte eli dismal ala ia ucla aaa eee 13, 28

L1C vy. Indiana led'n of Dentists, 476 U.S. 447

NE tiessaskicdsinderuatinbediaacucbutesauien plieleiedatde inane 29

ITC vy. Motion Picture Adver. Sery. Co.,

ETE SOT Hatvsvescivivinnctealaniatdmaaenan 13, 28

TC vy. Superior Court Trial Lawyers Ass'n,

SF Fa EG CPD iitivnssiicteavenaxscettintiniiteemindn intemal 29

Harkins Amusemem laters. v. General Cinema

Corp., 350 F.2d 477 (9th Cir. 1988) 0.0.0... eeees 28

Houser vy. box theatres Mgmt. Corp.,

DOD © Bie Cee Ci Ge, CO crccnttenicessicennscssosecresscreisennes 28

In re Beef Indus. Antitrust Litig., 907 F.2d 510

EIS CO Ricsissscasidecchenkeasasbiousenelannmnan 8, 15, 16, 28

JIC Petroleum Co. vy. Piasa Motor Fuels, Ine.,

POOF Fe Fer Oe Ge, Ft i sk ic teteeeaniae 28

Kartell v. Blue Shield of Mass., Inc.,

749 F.2d 922 (ist Cir. 19B4)................c0c00000000. 7,9, 15, 23

Khan v. State Oil Co., 93 F.3d 1358 (7th Cir. 1996).

rev'd on other grounds, 522 U.S. 3 (V997) oo. 12

Klor’s, Ine. v. Broadway-Hale Stores, Inc..

GE BOOe CRON iiss eihikishcnihccodsheijuvndonilaeacdaaiaacmaneee

Mandeville Island arms v. American Crystal

Seema? Cr, -F54 UB. ZED CGP a vncevcccesessscrcsvscsisoneveses 13,14

vi

TABLE OF AUTHORITIES -- Continued

Page(s)

Matsushita Llec. Indus. Co. y. Zenith Radio Corp.,

I dnicipaaeal passim

Monsanto Co. vy. Spray-Rite Serv. Corp.,

SE nO 21

National Soc’y of Prof'l Lag 'rs v. United States,

a cnecipiodonscs 2

Northern Pac. Ry. Co. v. United States, 356 U.S. |

i casiinipobbvnscanenn 17

Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 US. 284 (1985) 0. 17

Palmer vy. BRG of Georgia, Inc., 498 U.S. 46 (1990).......... 30

Ouality Auto Body, Ine. v. Allstate Ins. Co.,

I, I ao, cc scscctnnnssacessnsssvenessess 28

Reid Brothers Logging Co. v. Ketchikan Pulp Co.,

GOD F 26 1292 CSU Civ. UGGS) v..n.....ccccccccccccccccccceccscesenees. 28

Schad v. Twentieth Century-Fox Film Corp.,

CUI... 5 cnscacnacecensvessssuniosanss 28

Seagood Trading Corp. v. Jerrico, Ine.,

924 F.2d 1555 (11th Cir. 1991)... ia inaadas 28

Stearns Airport Lquip. Co. v. /MC Corp.,

NE, CID, ss ccesecosveesasencecansvees 20, 25

lelecor Communications, lnc. v Southwestern

Bell fel. Co., 305 F.3d 1124 (10th Cir. 2002).

cert. denied, 538 U.S. 1031 (2003) 0000... 16

lown of Concord vy. Boston edison Co., 915 F.2d

a

lovs “R™ US, Ine. v. 1, 221 F.3d 928

TE Tm

Vil

TABLE OF AUTHORITIES -- Continued

United States vy. Addyston Pipe & Steel Co.,

85 F. 271 (6th Cir. 1898), aff'd, 175 US. 211

Sea icivieiniisnincinsshitbeisesiiiielanesbnsiiaaeaiidtenieiisiepedicialoecdiien

United States v. AMR Corp., 335 F.3d 1109

Ns MEE Rincecntiesetahaniendsaienstcmndelaapenientnebans

l/nited States v. Crescent Amusement Co.,

PR ee aiiic delsinenscicipveidesieaesienedepinciiin

United States v. Griffith, 334 U.S. 100 (1948) ......

United States v. Patten, 226 U.S. §25 (1913)........

United States v. Socony-Vacuum Oil Co.,

OO, Cc a

U/nited States vy. lrans-Missouri lreight Ass'n,

BR HLS, I

l/nited States vy. Trenton Potteries Cos..

273 U.S. 392 (1927)

lerizon Communications, Inc. v. Trinko, LLP.

540 U.S. 398 (2004)... jelscinbianinateiatagaciia

White Bear Theatre Corp. v. State Theatre Corp.

129 F.2d 600 (8th Cir. 1942)...

Statutes, Rules and Constitutional Provisions:

ISUSC.§

ISUSC §

S

S

Page(s)

oun 13, 28

Linkentineieats 28

aleaniiieiel 23

sasepcencale 23

... 8, 22, 23

Vii!

TABLE OF AUTHORITIES -- Continued

Page(s)

Miscellaneous:

P. Areeda & H. Hovenkamp, AN?) RUST LAW (2d

iain ne care oe, ae soe le 18, 29

T. Barnett, Deputy Assistant Attorney General, An-

titrust Division, Antitrust Lnforcement Priorities:

A Year in Review (November 19, 2004), available

at http://www.usdoj.gov/atr/public/speeches/

| REESE SEI SOP cS AN SN ree OME TER EER 22

R. Blair & J. Harrison, Antitrust Policy and

Monopsony, 76 CORNELL L. REV. 297 (1991) 0000... 16, 29

R. Blair & J. Harrison, MONOPSONY (1993) ............ 20, 22, 29

S. Calkins, Comments on Presentation of Steven C.

Salop, 56 ANTITRUST LJ. 65 (1987) oes 29

F. Easterbrook, On /dentifving L-xclusionary

Conduct, 61 NOTRE DAMP L. REV. 972 (1986)............. 7, 24

F. Easterbrook, /he Limits of Antitrust,

Sn ee 2]

P. Hammer & W. Sage, M/onopsony as an Agency

and Regulatory Problem in Health Care,

71 ANTITRUST L.J. 949 (2004)... fate ee PN. aa 29

J. Jacobson & G. Dorman, Joint Purchasing, Mo-

nopsony and Antitrust, 36 ANTITRUST BULL. |

INUIT Aicseibsisiaicltheislacoachisearicaaaaniehidaicnitadcedmnconianticiedsdbacuen

W. Jones, Concerted Refusals To Deal and the Pro-

ducer Interest In Antitrust, 80 O1WO St. LJ. 73

J. Kirkwood, Buyer Power and Lxclusionary

Conduct: Should Brooke Group Set the Standards

Jor Buyer-Induced Price Discrimination and

iX

TABLE OF AUTHORITIES -- Continued

Page(s)

Predatory Bidding?, 72 ANVITRUST LJ. 625

scales ciene cede catalina ela ae a cel a a 18, 29

T. Krattenmaker & S. Salop, Amticompetitive

hxclusion: Raising Rivals’ Costs to Achieve

Power Over Price, 96 YALE LJ. 209 (1986) ooo... 29

F. Miller, Health Insurance Purchasing Alliances:

Monopsony Threat or Procompetitive Rx for

Health Sector Ills?, 79 CORNELL L. REV. 1546

A EERE RSA E CS, ARIANA en IO NR AR RE AD 29

Brief for the United States and the Federal Trade

Commission as Amicus Curiae Supporting

Petitioner, | erizon Communications, Ine. v. Law

Offices of Curtis 1. lrinko, LLP, 540 U.S. 398

On 7

R. Noll, “Buyer Power” and l-conomic Policy,

Fo |g 12, 27, 29

R.H. Pate, /he Common Law Approach and

/mproving Standards for Analyzing Single kirm

(Conduct (Oct. 23, 2003), available at

http://www.usdoj.gov/atr/public/speeches/

GEES ION T 6S ice tee Raney 7, 19,21, 22

R. Posner & F. Easterbrook, ANI TI RUS! (2d ed.

ESSE SRORT So Crea Maso ne Sew Rn oe 29

S. Salop, Anticompetitive Overbuying By Power

Buyers, 72 ANTITRUST LJ. 669 (2005) ........... 18, 22, 25, 29

Testimony of R.H. Pate, Assistant Attorney Genera!

Antitrust Division, Before the Committee on the

Judiciary United States Senate Concerning Anti-

trust Enforcement in the Agricultural Marketplace

(October 30, 2003), available at

x

TABLE OF AUTHORITIES -- Continued

Page(s)

http://www.usdoj.gov/atr/public/testimony/

ES EEA Sa .. 12, 15, 16

R. Zerbe, Monopsony and the Ross-Simmons

Case: A Comment on Salop and Kirkwood,

Fg OR Renee 18, 29

Weyerhaeuser Company (“Weyerhaeuser”) respectfully

petitions the Court for a writ of certiorari to review the judg-

ment of the United States Court of Appeals for the Ninth Cir-

cuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la-27a)

is reported at 411 F.3d 1030. The order of the court of ap-

peals denying petitioner's rehearing petition (App., /fra,

48a) is unreported. The order of the district court denying

petitioner's motion for judgment as a matter of law (App.,

infra, 28a-46a) is unreported. The ordei of the district court

entering final judgment (App., ‘fra, 47a) is unreported.

JURISDICTION

The judgment of the court of appeals was entered on May

31, 2005, and a timely petition for rehearing was denied on

July 8, 2005. The jurisdiction of this Court rests on

28 U.S.C. § 12584(1).

STATUTORY PROVISION INVOLVED

Section 2 of the Sherman Act (15 U.S.C. § 2) provides in

pertinent part: “Every person who shall monopolize, or at-

tempt to monopolize * * * any part of the trade or commerce

among the seveval States * * * shall be deemed guilty of a

felony * * *.”

STATEMENT

This case involves a claim of predatory buying, in which

the plaintiff alleges that the defendant violated Section 2 of

the Sherman Act by paying too much for raw materials with

the goal of forcing competitors out of business by raising

their costs. In upholding a judgment for the plaintiff. the

Ninth Circuit ruled that liability may be imposed in a preda-

tory buying case if a jury concludes that the defendant pur-

chased more raw materials “than it needed” or paid a higher

price for them “than necessary.” so as to prevent competitors

tv

from obtaining those materials “at a fair price.” The court of

appeals refused to apply the standard that this Court has set

out to govern predatory se//ing cases, where the plaintiff can-

not prevail unless it proves (1) “that the prices complained of

are below an appropriate measure of its rival’s costs” and (2)

that the defendant had “a dangerous probability[] of recoup- .

ing its investment in below-cost prices.” Brooke Group Lid.

v. Brown & Williamson lobacco Corp., 509 U.S. 209, 222.

224 (1993). It did so even though this Court’s decisions in

other antitrust contexts, and settled economic theory, draw no

distinction between “buy-side” and “sell-side” claims.

The Ninth Circuit's holding is one,of exceptional practi-

cal and doctrinal importance. Brooke Group rests upon this

Court's recognition that “[p]rice is the ‘central nervous sys-

tem of the economy’” (National Soc’y of Prof'l Fag'rs vy.

United States, 435 U.S. 679, 692 (1978) (citation omitted))

and that legal standards that chill ordinary price competition

are therefore anathema to the Sherman Act. The Ninth Cir-

cuit’s standard inevitably will have that precise adverse effect

on price competition among buyers.

Businesses cannot know how to comply with a subjective

standard that hinges liability on whether a jury believes that

prices paid for materials are “necessary” or “fair.” As a con-

sequence, the decision below will generate pervasive confu-

sion about what bidding and buying practices are

permissible; will encourage baseless litigation: and will d-

minish buy-side competition by any firm that is subject to

suit in the Ninth Circuit — which, under the Sherman Act's

liberal venue provisions, includes a// companies doing busi-

ness nationwide — because firms will expect juries to be un-

able to distinguish between aggressive bidding and predation.

The Ninth Circuit's decision thus will cause economic dislo-

cation on a national scale: its rule potentially subjects every

procurement decision by every business with market power

in amy industry to an antitrust challenge, undermining the

ability of businesses to conduct their day-to-day operations.

By the same token, it hurts sellers of all inputs by crippling

vigorous price competition for their wares.

In sum, the Ninth Circuit erred both in failing to apply

Brooke Group and by adopting an extraordinarily vague

standard that is inconsistent with the decisions of this Court

and of other courts of appeals, which have emphasized the

importance of objective standards in determining antitrust

liability. Further review is warranted.

|. This case involves an allegation of predatory buying

in the market for alder sawlogs in the Pacific Northwest.

There are three principal participants in this market: timber-

land owners who supply the logs; production facilities, in-

cluding lumber sawmills, that buy and process the logs into

finished lumber; and purchasers who buy hardwood lumber

from production facilities. App., infra, 2a-3a. The plaintiff,

respondent here, was a sawmill operator that went out of

business in 2001.' The defendant, petitioner Weyerhaeuser,

also operates sawmills in the Pacific Northwest. Plaintiff has

conceded the quality and efficiency of Weyerhaeuser’ s facili-

ties; its state-of-the-art equipment and operations allow it to

hold down costs and increase lumber yield. ER 284-293.

299-300, 338-339. From 1996 to 2001, the alleged predation

period, Weyerhaeuser acquired approximately 65% of the

alder sawlogs available for processing in the Pacific North-

west and sold all of the alder lumber it could produce. ER

173. 210, 300. Nine hardwood sawmills in the Pacific

Northwest closed during this period, but four others opened

and others expanded their operations. ER 96, 443, 444.

' Plaintiff blamed rising log prices for its failure. although there

was evidence that it suffered from substandard equipment. ineffi-

cient Operations. increased natural gas prices. poor management.

and inadequate capital reinvestment. See ER 137, 257. 261. 266

269-270, 285-287, 321-324. 625, 634-635

4

There are many owners of standing timber in the Pacific

Northwest, including the state and federal governments, at

least seventeen private companies, and numerous individuals.

These timberland owners sell their logs through oral bids,

sealed written bids, and supply agreements. They all seek the

highest possible price on each sale, frequently “shop[ping]

th[eir] wood around the circuit” more than once to increase

the bidding. Owners also may withhold their timber from

sale — by leaving their trees uncut — in hopes of selling their

logs later at a higher price. EK 123, 141, 166, 218-221, 242-

243, 247-248, 367-368.

2. In this case, the plaintiff alleged that Weyerhaeuser

violated Section 2 of the Sherman Act, 15 U.S.C. § 2, by

monopolizing or attempting to monopolize the alder sawlog

market in the Pacific Northwest. In particular, the plaintiff's

theory was that Weyerhaeuser overpaid for alder sawlogs,

and occasionally stockpiled those it purchased, with the aim

of driving competing sawmills out of business; once free ot

competition, the claim continued, Weyerhaeuser planned to

recoup its overpayments by reducing future prices paid to log

suppliers.” The plaintiff supported its allegation with evi-

dence that sawlog prices increased though the price of fin-

ished lumber decreased during the predation period, that

~ The plaintiff alleged several other anticompetitive acts. but the

court of appeals based its decision upholding the verdict for piain-

tiff entirely on evidence that could be taken to show “that Wever-

haeuser engaged in anticompetitive conduct by overbidding for

sawlogs. App.. fra, 18a. The plaintiff also asserted that Wev-

erhacuser monopolized the output market for finished alder tum-

ber. but the jury rejected that claim because alder competes with

other hardwoods and there accordingly is no relevant market for

finished alder iumber in the United States. ER 581-582. Wever-

hacuser plainly lacks monopoly power as a seller in the lnighls

competitive market for hardwood lumber: it produces approxi-

mately 3°o of the product sold in the North American hardwood

lumber market. ER 405.

A)

Weyerhaeuser had a dominant share of the market for alder

sawlogs, and that Weyerhaeuser suffered declining profits

due to the high prices it paid for raw materials. App., fra,

17a-18a. The plaintiff did not allege, however, that Weyer-

haeuser paid so much for sawlogs that it sold its finished

lumber at a loss, and it is undisputed that both Weyerhaeuser

and its hardwoods division operated at a profit throughout the

alleged predation period.

At the close of trial, the district court instructed the jury

as follows:

One of Plaintiffs’ contentions in this case is that the De-

fendant purchased more logs than it needed or paid a

higher price for logs than necessary, in order to prevent

the Plaintiffs from obtaining the logs they needed at a fair

price. If you find this to be true, you may regard it as an

{ anticompetitive act. |

App., infra, 7a n.8&. The jury returned a verdict for plaintiff.

awarding $26,256,406 in damages. This amount was trebled

to $78,769,218. /d. at 4a.

*

3. The court of appeals affirmed. App., infra, la-27a.

Weyerhaeuser argued that the jury instruction was wrong and

the verdict insupportable because the plaintiff had not been

required to satisfy (and could not have satisfied) the require-

ments of Brooke Group by showing (1) that Weyerhaeuser

paid so much for logs that its price for finished lumber did

not cover its costs and (2) that Weyerhaeuser had a danger-

ous probability of recouping the losses it incurred during the

period of predation. The Ninth Circuit acknowledged that,

“to establish liability under Brooke Group, a plaintitt ha[s] to

show that its competitor operated at a loss and was likely to

recoup its losses.” /d. at 7a. But the court held that standard

inapplicable in this case because “Brooke Group does not

control in the buy-side predatory bidding context.” /d. at Sa.

6

In reaching this conclusion, the Ninth Circuit reasoned

that Brooke Group “established a high liability standard for

sell-side predatory pricing cases because of its concern with

the facts that consumers benefit from lower prices and that

cutting prices often fosters competition.” App., ‘fra, 8a.

But, the court continued, “an important factor distinguishes

predatory bidding cases from predatory pricing cases: bene-

fit to consumers and stimulation of competition do not neces-

sarily result from predatory bidding the way they do from

predatory pricing.” /d. at 8a-9a; see also id. at 10a. Because

the court of appeals accordingly held that “Brooke Group

does not govern in this case,” it ruled that the district court

“did not need to instruct the jury that overbidding for saw-

logs could be anticompetitive conduct only if Weyerhaeuser

operated at a loss and a dangerous probability of Weyer-

haeuser’s recoupment of its losses existed.” /d. at 13a.

The court added that the instructions given — which told

the jury to determine whether Weyerhaeuser purchased more

logs than “necessary,” paid a higher price than “needed,” and

prevented plaintiff from obtaining logs at a “fair” price” —

“provided sufficient guidance regarding how to determine

whether conduct was anticompetitive” App., /fra, at I4a.

The court went on to affirm the verdict under this instruction

because it found evidence that Weyerhaeuser engaged in

predatory conduct, had an intent to monopolize, and had a

dangerous probability of achieving monopoly power in the

reievant market. /d. at 12a-25a.

REASONS FOR GRANTING THE PETITION

The Ninth Circuit's decision presents a question of great

practical and doctrinal importance. The court of appeals held

that a business accused of predatory buying may be held li-

able for trebled antitrust damages if the jury believes that the

defendant purchased more inputs than it “needed” or paid a

higher price for those inputs than was “necessary,” so as to

prevent rivals from obtaining inputs “at a fair price.” This ts

7

the sort of liability standard that Judge Easterbrook has

equated with “[t]hrowing [a] arshmallow at a jury.” F.

Easterbrook, On J/dentifying lxclusionary Conduct, 61

NOTRE DAME L. REV. 972, 978 (1986). Under the Ninth Cir-

cuit’s wholly subjective rule, it is impossible for businesses

to know what pricing decisions conform with the law; firms

accordingly will be forced to curb aggressive — and desirable

— competitive bidding for fear of triggering unwarranted li-

ability, and baseless litigation will be encouraged.

As might be expected, the decision below is a striking

departure from this Court’s holdings. Then-Judge Breyer has

demonstrated the practical impossibility “of determining

what is a ‘reasonable’ or ‘competitive’ price” (Karte// v. Blue

Shield of Mass., Inc., 749 F.2d 922, 927 (1st Cir. 1984)); in

light of that concern, this Court in a series of decisions cul-

minating in Brooke Group decisively rejected a “reasonable-

ness standard of antitrust liability in the context of alleged

anticompetitive pricing in favor of rules that are objective.

predictable, and consistent with the goal of encouraging ag-

gressive competition. The Justice Department has endorsed

this approach, seeking “to apply standards of single firm

conduct that are transparent, objective and administrable, so

that antitrust laws do not unduly interfere with the competi-

tion they are meant to protect.” R.H. Pate, /he Common Law

Approach and Improving Standards for Analyzing Single

kirm Conduct, at 6 (Oct. 23, 2003), available at

http://www.usdoj.gov/atr/public/ speeches/202724 pdf.

Against this background, the Ninth Circuit's repudiation

of the Brooke Group standard in cases alleging predatory

buying resurrects an antitrust dinosaur the* ‘nis Court's deci-

sions should have rendered extinct. The court of appeals an-

nounced a rule that requires businesses to ensure that their

rivals are able to obtain necessary inputs at a “fair price”

But as the United States recently put it in a brief to this

Court, the Sherman Act “is not a license for federal courts to

create codes of desirable business conduct.” No. 02-682.

8

Verizon Communications, Inc. v. Law Offices of Curtis V.

Trinko, LLP, Br. for the United States and the Federal Trade

Commission as Amici Curiae, at 9. Because the decision be-

low establishes an unintelligible and unadministrable stan-

dard, interferes with legitimate business practices and thereby

reduces competition, conflicts with decisions of other courts

of appeals (e.g., Jn re Beef Indus. Antitrust Litig., 907 F.2d

510, 515 (Sth Cir. 1990)), and throws the law into a state of

confusion, further review plainly is warranted. Indeed, the

Ninth Circuit’s holding constitutes such a sharp departure

from controlling antitrust principles that this Court may wish

to consider summary reversal of the decision below.

A. All Allegations Of Predatory Pricing Behavior

Must Be Evaluated Under Rigorous, Objective

Standards

I. The Standard Articulated in Brooke Group

Rests on the View that Objective Rules Are

Necessary To Distinguish Predatory from

Competitive Pricing

a. To appreciate the magnitude of the Ninth Circuit's er-

ror — and its destructive impact on competition — it is helpful

to start with the principles identified by this Court in review-

ing allegations of predatory pricing behavior. To begin with.

it “is settled law” that an offense under Section 2 of the

Sherman Act “requires, in addition to the possession of mo-

nopoly power in the relevant market, ‘the willful acquisition

or maintenance of that power as distinguished from growth

or development as a consequence of a superior product, busi-

ness acumen, or historic accident.” J erizon Communica-

tions, Inc. v. Lrinko, LLP, 540 U.S. 398, 407 (2004). Thus.

“the possession of monopoly power will not be found unlaw-

ful unless it is accompanied by an element of anticompetitive

conduct” Thid.. see Lown of Concord vy. Boston hadison Co..

915 F.2d 17, 21 (lst Cir. 1990) (Breyer, J).

9

Of particular relevance here, the Court has viewed with

great skepticism allegations that the requisite anticompetitive

conduct took the form of a predatory pricing scheme, in

which the defendant assertedly sacrificed available profits in

an effort to drive competitors out of business. As the Court

has explained in the context of predatory pricing by sellers,

such a scheme “is by nature speculative” because the defen-

dart must “forgo profits that free competition would offer.”

Matsushita I:lec. Indus. Co. vy. Zenith Radio Corp., 475 U.S.

574, 588 (1986). For such predatory conduct to be “ra-

tional,” the defendant

must have a reasonable anticipation of recovering, in the

form of later monopoly profits, more than the losses suf-

fered. * * * [T]he success of such a scheme is inherently

uncertain: the short-term loss is definite, but the long-

term gain depends on successfully neutralizing the com-

petition. Moreover, it is not enough simply to achieve

monopoly power, as monopoly pricing may breed quick

entry by new competitors eager to share in the excess

profits.

Id. at 588-589. “For this reason, there is a consensus among

commentators that predatory pricing schemes are rarely tried

and even more rarely successful.” /d. at 589.

The Court also has recognized that unique considerations

apply to legal standards for identifying anticompetitive pric-

ing. Because of the critical role of price in our market sys-

tem — as “the ‘central nervous system of the economy ”— the

Court has taken extraordinary care to fashion those standards

to avoid chilling ordinary price competition. Pointing to this

Court's decisions, then-Judge Breyer noted the “judicial rec-

ognition of the practical difficulties of determining what is a

‘reasonable’ or ‘competitive’ price” Aartell, 749 F.2d at

927-28 And the Court in M/atsushita adopted a stringent li-

ability standard because hard-charging pricing conduct that

inefficient rivals label predatory “often is the very essence of

10

competition. Thus, mistaken inferences in [such] cases * * *

are especially costly, because they chill the very conduct the

antitrust laws are designed to protect.” 475 U.S. at 594.

Courts “*must be concerned lest a rule or precedent that au-

thorizes a search for a particular type of undesirable pricing

behavior end up by discouraging legitimate price competi-

tion.” Adatsushita, 475 US. at 594 (quoting Barry Wright

Corp. v. 117 Grinnell Corp., 724 F.2d 227, 234 (ist Cir.

1983) (Breyer, J.)); see also Cargill, Inc. v. Monfort of Coloe.,

Inc., 479 US. 104, 121 n.17 (1986) (emphasizing that

“[c}laims of threatened injury from predatory pricing must

*** be evaluated with care” for the reasons identified in

Matsushita).

Thus, “[t}here is * * * a general agreement that the anti-

trust courts’ major task” in the context of standards for iden-

tifying unlawful pricing “is to set rules and precedents that

can segregate the economically harmful price-cutting goats

from the more ordinary price-cutting sheep, in a manner pre-

cise enough to avoid discouraging desirable price-cutting be-

havior.” Barry Wright, 724 F.2d at 232 (Breyer, J.). And in

doing so, it is emphatically os the goal of the antitrust laws

to insulate inefficient competitors from the effects of hard

competition. See sid.

b. In response to these two fundamental principles, the

Court in Brooke Group articulated its two-part test for assess-

ing a®sertions of predatory pricing behavior by sellers.

“First, a plaintiff seeking to establish competitive injury re-

sulting from a rival's low prices must prove that the prices

complained of are below an appropriate measure of its rival's

costs. * * * As a general matter. the exclusionary effect of

prices above a relevant measure of costs either reflects the

lower cost structure of the alleged predator, and so represents

competition on the merits, or is beyond the practical ability

of a judicial tribunal to control without courting intolerable

risks of chilling legitimate price cutting.” 509 US. at 222

If below-cost pricing is established,

[t]he second prerequisite to holdiag a competitor liable

under the antitrust laws for charging low prices is a dem-

onstration that the competitor had a reasonable prospect,

or, under § 2 of the Sherman Act, a dangerous probabil-

ity, of recouping its investment in below-cost prices.

*** Recoupment is the ultimate object of an unlawfiil

predatory pricing scheme, it is the means by which a

predator profits from predation.

Id. at 224. Absent such proof that the alleged predator

“would likely” recoup its losses, “the plaintiff's case has

failed.” Jd. at 226.

Brooke Group thus rests on the insight that schemes of

price predation are rare, speculative, and self-deterring be-

cause they require the predator to suffer a loss now in hopes

of obtaining uncertain benefits later. By the same token, the

rule of Brooke Group is supported by the reality that it is

very difficult to distinguish predation from tough competition

and that “false positive” findings of liability will deter the

very sort of aggressive competition that the antitrust laws

were designed to encourage. Brooke Group responded to

these concerns by insisting that antitrust plaintiffs who allege

predation satisfy rigorous and objective standards of proof.

2. Objective Rules Like Those Applied in Brooke

Group Should Govern Allegations of Predatory

Buying

There is no doubt that Weyerhaeuser would prevail if the

Brooke Group test applied here: the plaintiff made no attempt

to prove, and could not have proved, either that the prices

charged by Weyerhaeuser failed to cover its costs or that

there was a “dangerous probability” the company could re-

12

coup its allegedly excessive payments for raw materials.*

But the Ninth Circuit held such proof unnecessary here be-

cause it believed that predatory buying, as distinct from

predatory selling, should be exempted as a matter of law

from the Brooke Group requirements. This is so, the court

reasoned, because “an important factor distinguishes preda-

tory bidding cases from predatory pricing cases: benefit to

consumers and stimulation of competition do not necessarily

result from predatory bidding the way they do from predatory

pricing.” App., #fra, 8a-9a. Therefore, the court held, “the

standard for liability in this predatory bidding case need not

be as high as in predatory pricing cases” because mistaken

inferences of liability on the “buy side” are unlikely to chill

desirable competitive conduct. /d. at | la.

On the face of it, this is a most peculiar holding. Other

courts have recognized that monopsony pricing — which, as

the Ninth Circuit itself explained, is “[m]Jonopoly power ex-

ercised on the buy-side of the market” (App., ‘fra, 6a) — “is

analytically the same as monopoly or cartel pricing and so

treated by the law.” Khan vy. State Oil Co., 93 F.3d 1358,

1361 (7th Cir. 1996) (Posner, J.), rev'd on other grounds,

522 U.S. 3 (1997). The Department of Justice’s Antitrust

Division agrees that “[m]Jonopsony is the mirror image of

monopoly.” Testimony of RH. Pate, Assistant Attorney

General Antitrust Division, Before the Committee on the Ju-

diciary United States Senate Concerning Antitrust Enforce-

ment in the Agricultural Marketplace, at 3 (October 30,

2003), available at http://www usdoj gov/atr/public/testi

* Although there is some disagreement about the appropriate meas-

ure of costs when determining whether a predatory scheme (on

either the sell or the buy side) resulted in the defendant selling its

product below cost (see l/nited States vy. AMR Corp.. 335 F.3d

1109. TL18-19 (10th Cir, 2003)). Weverhacuser and its hardwoods

division unquestionably sold tts products at a profit throughout the

period of the alleged predation under any standard.

13

mony/201430 pdf. “{MJost antitrust scholars” likewise have

concluded that “asymmetric treatment of monopoly and mo-

nopsony has no basis in economic analysis.” R. Noll, “Buyer

Power” and lconomic Policy, 72 ANiViRUST LJ. 589, 590-

91 (2005).

And this Court has many times examined allegedly anti-

competitive uses of buying power without ever intimating

that different rules apply depending upon whether buy- or

sell-side conduct was involved.* We are not aware of an-

other appellate decision that draws this distinction.

It therefore is not surprising that the Ninth Circuit’s

analysis departs from the principles announced by this Court

in several related — and fundamental — respects. Indeed, each

of the lower court’s reasons for refusing to apply Brooke

Group is squarely inconsistent with decisions of this Court

and other courts of appeals.

a. The antitrust laws seek to assure that sellers bene-

fit from aggressive competition by buyers. The Ninth Cir-

cuit opined that Brooke Group “established a high liability

standard for sell-side predatory pricing cases” because “con-

sumers benefit from lower prices and * * * cutting prices of-

ten fosters competition” (App., ‘nfra, 8a), in contrast, the

court continued, there is no such necessary competitive bene-

fit from aggressive bidding on the buy side and therefore no

need for a “high liability standard” in monopsony cases. /d/

See. e.g.. /7C vy. Consolidated loods Corp... 380 US. 592.

5393-94 (1965). Klor’s. Inc. v. Broadway-Hale Stores. Inc. 359

U.S. 207, 209-10 (1959): 1 7C y. Motion Picture Adver. Serv. Co..

344 US. 392. 393. 395 (1953): Mandeville Island arms \.

American Crystal Sugar Co.. 334 US. 219, 235 (1948). United

States v. Griffith, 334 US. 100. 107 (1948): American Tobacco

Co. v. United States. 328 US. 781. 803-04 (1946): Associated

Press v. United States. 326 U.S. 1 (1945): United States v. Cres-

cem Amusement Co., 323 U.S. 173, 181 (1944): United States

Socony-bacnum Oi! Co... 310 US. 180, 178, 216, 219-20 (1940).

14

at 9a-lla” In this, however, the Ninth Circuit plainly was

wrong because the court wholly disregarded the interest of

sellers in aggressive and unconstrained buy-side competition.

From the seller's perspective, the “low” liability standard ap-

plied by the Ninth Circuit here threatens to discourage just as

much desirable competitive behavior on the buying side — the

willingness of buyers to compete hard to acquire goods — as

the low standard eschewed by the Court in Brooke Group

would have discouraged in the predatory selling context.

In its leading decisiot. in this area, the Court held:

The [Sherman Act] does not confine its protection to con-

sumers, or to purchasers, or to competitors, or to sellers.

Nor does it immunize the outlawed acts because they are

done by any of these. * * * The Act is comprehensive in

its terms and coverage, protecting all who are made vic-

tims of the forbidden practices by whomever they may be

perpetrated.

Mandeville Island arms, 334 U.S. at 236; see also, e.g..

Apex Hosiery Co. v. Leader, 310 U.S. 469, 493 (1940).

Indeed, “[t]he passage of the Sherman Act was strongly

influenced by injuries inflicted upon business firms, they

were among the most obvious victims of the trusts. * * *

The opportunity to sell at competitive prices has been pro-

tected as zealously as the opportunity to buy at competitive

prices.” W. Jones, Concerted Refusals lo Deal and the Pro-

ducer Interest In Antitrust, 50 Otto St. LJ. 73, 88, 89

(1989) The Antitrust Division agrees: “While we often

speak of consumers as the targeted beneficiary of antitrust

enforcement, suppliers also benefit, by having healthy incen-

tives to provide the best products and services they can, with

* The Ninth Circuit cited no authority of this (or any other) Court

in support of this observ ation

15

the expectation that they will be able to do so free from anti-

competitive interference.” Pate Testimony, supra, at 5.

Raising prices on the buy side therefore fosters desirable

competition just as much as does lowering prices on the sell

side. After all, as then-Judge Breyer put it, a buyer’s “com-

petitive instinct is to bid up price,” and “[a]ntitrust law rarely

stops the buyer of a service from trying to determine the

price or characteristics of the product that will be sold.” Kar-

fell, 749 F.2d at 925. Thus, just as price cuts by sellers gen-

erally are desirable, competition by buyers that increases the

price paid to suppliers “is almost certainly moving price in

the ‘right’ direction” Barry Wright, 724 F.2d at 234

(Breyer, J.). Independent action to bid up the price paid to

sellers accordingly should be encouraged because it is the

sort of conduct that “appears always or almost always to en-

hance competition.” /astman Kodak Co. v. Image lechnical

Servs., Inc., 504 U.S. 451, 479 (1992).

The rationale that underlay the Ninth Circuit's decision in

this case therefore was wrong: on the buy as well.as the sell

side, “the costs of an erroneous finding of liability are high.”

Brooke Group, 509 U.S. at 226. The mechanism by which a

firm engages in predatory buying — increasing prices paid to

sellers — “*is the same mechanism by which a [bidding] firm

stimulates competition,” which means that “‘mistaken infer-

ences _.. are especially costly. because they chill the very

conduct the antitrust laws are designed to protect” /hid.

(quoting Cargill, 479 U.S. at 122 n.17) (ellipses in original).

Other courts of appeals recognize that fundamental point.

Indeed, in a factual setting that is identical in principle to the

one here. the Fifth Circuit dismissed an allegation of buy-

side predation because the plaintiff failed to prove that the

price paid for materials was so high that it prevented the de-

fendant from making a profit. In /n re Beef Indusiry Antitrust

Litig., 907 F.2d at 515, the plaintiffs alleged, among other

things. that a beef packer “attempted to drive its competitors

16

out of the fed cattle procurement market by paying a higher

price for fed cattle than the market suggested.” The Fifth

Circuit held that this claim failed because the plaintiffs

presented no evidence that [the defendant} ever paid a

predatory price (in this case, a price higher than that

which would allow the packer to make a profit) for fed

cattle. Thus, the cattlemen’s allegation of predatory ac-

tivity by [the defendant] in the cattle procurement market

was not supported.

[hid. (emphasis added). The decision below cannot be rec-

onciled with the Fifth Circuit's holding.

Moreover, the Ninth Circuit’s reasoning is incorrect even

on its own flawed terms, because the court disregarded the

ways in which buy-side competition that increases prices for

sellers actually does benefit consumers. After all, it is gener-

ally accepted that consumers are likely to be harmed in the

long run when the price paid to suppliers decreases because

that diminishes the suppliers’ incentive to provide goods, “a

monopsonistic depression of price is as bad as a monopolistic

increase in price.” Ball Mem. Hosp., Inc. v. Mutual Hosp.

Ins., Inc., 784 F.2d 1325, 1338 (7th Cir. 1986) (Easterbrook,

J.).° And the converse is equally true: competition that

raises prices for sellers helps the ultimate purchaser by en-

" See R. Blair & J. Harrison, Antitrust Policy and Monopsony. 76

CORNELL L. REV. 297, 299 n. 17 (1991): Pate Testimony. supra. at

5 (If a buyer obtains market power * * *. and thereby 1s able to

depress prices for the inputs it purchases below competitive levels.

then producers of those inputs will have depressed incentives to

produce. which wiil result in too few resources utilized to produce

the imputs compared to what would be available in a competitive

market. This is likely tv harm both supplicrs and consumers. ):

sce also /elecor Communications, Inc. \. Southwestern Bell Tel

('o., 308 F.3d 1124. 1135-36 (10th Cir, 2002). (suppressing buy-

side competition leads to reduced production and quality. and

higher prices for consumers). cert. denied, 338 US. 1031 (2005)

17

couraging innovation and increased production Ay sellers.

See generally Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284, 295 (1985). It is a

fundamental tenet of our economic system that prices fall and

consumers benefit when the most efficient producers are able

to obtain all the inputs they need. See Northern Pac. Ry. Co.

v. United States, 356 U.S. 1, 5 (1958) (“[the Sherman Act]

rests on the premise that the unrestrained interaction of com-

petitive forces will yield the best allocation of our economic

resources’). The court of appeals accordingly was wrong in

its view that the aggressive bidding in this case did not bene-

fit consumers.’

The Ninth Circuit also wholly ignored the procompetitive

(or, at worst, innocuous) explanations for what a plaintiff

may label excessive, or excessively costly, purchases on the

buy side. As Professor Salop has explained, “increased pur-

chases could be driven by an increase in demand for the

firm's product or a new business plan that involves market

share growth,” or by “the firm adopting a new production

process that uses the input more intensively.” or “could re-

flect changes in inventory policy, such as where the firm

chooses to hold more inventories to reduce the likelihood of

' The Ninth Circuit acknowledged that rising prices sometimes

encourage new producers to enter the market. but dismissed that

possibility in this case because “|t]he nature of the input supply at

issue here does not readily allow for market expansion.” App..

infra. \la. But this reasoning misses the point. For one thing. the

jury was not asked to make anv finding on the matter. For another.

even assuming that the Ninth Circuit's characterization of the alder

log market was correct as a factual matter (we note that the court

relied for its observation on an articie by plaintiff's expert rather

than the facts in the record in this case). the court disregarded the

possibility that higher prices led timber owners to market logs that

they otherwise would have withheld from sale. or led to increased

production of competing hardwoods that could be substituted for

alder

18

shortages or to hedge against future input price increases.” S.

Salop, Amticompetitive Overhuying By Power Buyers, 72

ANTITRUST L.J. 669, 682-83 (2005) (footnotes omitted);* see

IIIA P. Areeda & H. Hovenkamp, ANTITRUST LAw, 4 768a4,

at 143 (2d ed. 2002). The court below thus disregarded the

“central message of the Sherman Act,” which is “that a busi-

ness must find new customers and higher profits through in-

ternal expansion — that is, by competing successfully.”

Aspen Skiing Co. vy. Aspen Highlands Skiing Corp., 472 U.S.

585, 600 (1985).

b. Predatory buying schemes are irrational unless

there is a dangerous probability that the predator will

recoup its losses. At the same time, the Ninth Circuit ig-

nored another basic insight that undergirds the brooke Group

test. “[S]ince the losses” from a predatory scheme “accrue

before the gains, they must be ‘repaid’ with interest” for the

scheme to succeed. Matsushita, 475 U.S. at 592. This eco-

nomic reality tends to make predation “self-deterring: unlike

most other conduct that violates the antitrust laws, failed

predatory pricing schemes are costly’ to the defendant. /d/. at

595. For this reason, “it is plain that the obstacles to the suc-

cessful execution of a strategy of predation are manifold, and

the disincentives to engage in such a strategy are accordingly

numerous.” Cargill, 479 US. at 121 n.17 (citation and inter-

nal quotation marks omitted).

* We note that Professor Salop acted as a consultant to Wever-

hacuser in this case. On the other hand. two articles relied upon by

the Ninth Circuit were written by. respectively. a paid consultant

and an expert witness for plainuffs in this case. See App... infra. Ya

n.14 (citing J. Kirkwood. Buyer Power and Exclusionary Conduct:

Should Brooke Group Set the Standards for Buver-Induced Price

Discrimination and Predatory Bidding’. 72: ANTITRUST LJ. 6235.

635 (2005). and R. Zerbe. Monopsonv and the Ross-Simmons

Case: A Comment on Salop and Kirkwood, 72 ANITRUST LJ.

717, 724 (2005)).

19

That is why Brooke Group required that a plaintiff alleg-

ing a scheme of predation demonstrate a dangerous probabil-

ity that the defendant will recoup its losses. Indeed, as

Former Assistant Attorney General Pate explained, “[t]he

second part of the [Brooke Group] standard is especially im-

portant because there are a variety of situations in which it

can readily be determined that an alleged predator has no

prospect of future monopoly pricing.” Pate, Common Law

Approach, supra, at 21, see also A.A. Poultry farms, Ine. v.

Rose Acre larms, Inc., 881 F.2d 1396, 1401 (7th Cir. 1989)

(Easterbrook, J.). Proof of the likelihood of recoupment

therefore should be necessary to establish the existence of an

alleged predatory scheme even if, in the context of predatory

buying, the Court did not also insist on a showing of below-

cost pricing.

As both a logical and an economic matter, these points

are every bit as true of buy-side as they are of sell-side preda-

tion. As two leading scholars of monopsony have observed:

Successful monopsony predation is probably as unlikely

as successful monopoly predation. First, the predatory

firm would have to raise the price not only for the inputs

it originally purchased, but would have to be prepared to

purchase all of that input currently available in the market

at the higher price. * * * In addition, in the long run, in-

put suppliers that could substitute into the production of

this input would have an incentive to do so. making the

financial burden on the predatory firm even greater.

Second, the firm has the problem of what to do with the

input. One possibility is to destroy it, another is to store

it. Any effort to process the input into its final output

would likely increase the quantity of that output available

and depress its price. All of these options create further

financial burdens.

Finally, once the firm begins to take advantage of its mo-

nopsony power by depressing the price of the input, ei-

20

ther market conditions or actions by the monopsonist

must hoid off the reappearance of competing buyers. In

effect, the buyer must be able to “profit” from the lower

price for a long enough period of time that it can make up

its predatory “investment.” All of these hurdles mean

that the prospects for the predatory buyer are probably as

unlikely as they are for the predatory seller.

R. Blair & J. Harrison, MONOPSONY 66-67 (1993).

Accordingly, in the monopsony as in the monopoly con-

text, the alleged predatory scheme cannot be thought to make

sense unless the plaintiff is able to demonstrate a dangerous

probability of recoupment.” This requirement is an element

of the more general antitrust principle recognizing that, “[i]f

the plaintiff's theory is economically senseless, no reasonable

jury could find in its favor, and summary judgment should be

granted.” /vastman Kodak, 504 U.S. at 468-469, Stearns Air-

port quip. Co. v. /MC Corp., 170 F.3d 518, 528 (Sth Cir.

1999) (“to survive summary judgment, a plaintiff must have

evidence that the predation scheme is economically ra-

tional”). The Ninth Circuit erred when it failed to follow the

approach specified by this Court and adopted by other courts

of appeals and insist that plaintiff demonstrate the probability

of recoupment here.

c. The considerations that underlay use of an objec-

tive standard in Brooke Group apply in cases that involve

‘Contrary to the Ninth Circuit's view (sce App.. ifia. 16a-17a).

“it is not cnough simply to achieve monopoly power. as monopols

pricing may breed quick entry by new competitors cager to share

in the excess profits. The success of any predator scheme de-

pends on maintaining monopoly power for long enough both to

recoup the predator's losses and to harvest some additional gain ~

Matsushita. 475 US. at 589-90: see id. at 590 (“These observa-

tions apply even to predatory pricing by a single firm seeking mo-

nopoly power. ).

2)

allegations of predatory buying. Against this background,

all of the considerations that supported the holding in Brooke

Group are present here. An unwarranted finding of liability

when predatory buying is alleged will discourage desirable

competitive conduct, meaning that false positives could “‘end

up discouraging legitimate price competition.” Matsushita,

475 US. at 594 (quoting Barry Wright, 724 F.2d at 234).

False negatives, on the other hand, are a much lesser concern

where predation is concerned because it is self-deterring, as

“[m]onopoly prices eventually attract entry.” F. Easterbrook,

The Limits of Antitrust, 63 TEX. L. REV. 1, 2-3 (1984). True

predation by a single firm (whether buyer or seller) is “most

difficult to differentiate [from] healthy competition on the

merits.” Pate, Common Law Approach, supra, at 5: see

Barry Wright, 724 F.2d at 234 (Breyer, J.). And a predatory

buying scheme will make economic sense only if the preda-

tor will be able to recoup the costs of predation.

There accordingly is no reason that the considerations

giving rise to the Brooke Group test apply only in cases in-

volving claims of predatory selling. To be sure, Matsushita

and Brooke Group involved output price-cuts. See 509 US.

at 223, 475 U.S. at $94. But nothing in those decisions indi-

cates that the concern with “false positives” is limited to re-

ductions in output price. To the contrary, Brooke Group

used “legitimate price-cutting” as only one example of the

sort of “competition on the merits” that an overly restrictive

predatory pricing rule could chill. 509 U.S. at 223. Prior

decisions had made clear that deterrence concerns arise

whenever the challenged practice “appears always or almost

always to enhance competition” (/astman Kodak, 504 U.S.

at 479) or the applicable legal rule threatens to “*inhibit man-

agement’s exercise of independent business judgment”

(Afonsanto Co. v. Spray-Rite Serv. Corp., 405 US. 752. 764

(1984) (citation omitted)). More recently, the Court warned

that “|t]he cost of false positives counsels against an undue

22

expansion of § 2 liability” even though the case at hand did

not involve output price reductions. /rinko, 540 U.S. at 414.

In separating out the predatory goats from the socially

desirable sheep identified by then-Judge Breyer, use of an

objective test is imperative. Application of such “objective

standards for the evaluation of monopolization and other sin-

gle firm conduct” is a “priority” for the Antitrust Division.

T. Barnett, Deputy Assistant Attorney General, Antitrust Di-

vision, Amiirust Lnforcement Priorities: A Year in Review, at

3 (November 19, 2004), available at http://www.usdoj.gov/

atr/public/speeches/206455 pdf.; Pate, Common Law Ap-

proach, supra, at ©. Scholars agree that, “given the complex-

ity of a full-blown test for predatory buying and the low

probability that it is a real threat to competition, a simple un-

der-inclusive test may be appropriate.” Blair & Harrison,

MONOPSONY, supra, at 156; see Salop, supra, at 703. The

Ninth Circuit accordingly departed from the clear and consis-

tent direction given by this Court when it held that the test of

Brooke Group should not govern claims of predatory buying.

B. The Ninth Circuit Confused The Law And

Undermined Competition By Adopting A Test

For Liability That Is Pegged To Whether A Jury

Regards The Challenged Prices As “Fair” Or

“Necessary”

Even if this Court were to conclude that a standard other

than the one stated in Brooke Group should apply to preda-

tory buying claims, review nonetheless is warranted in this

case because the standard that the Ninth Circuit adopted 1s so

clearly inconsistent with other decisions of this Court and the

courts of appeals

The court below determined that a defendant will be held

liable for predatory buying if a jury concludes that the defen-

dant “purchased more [product] than it needed or paid a

higher price for [the product] than necessary.” and that it did

so “to prevent the Plaintiffs from obtaining the [product] they

.23

needed at a fair price.” App., “fra, 7a n.8. It would be hard

enough for an expert administrative agency to determine

what price was “necessary” or “fair”; it is quite impossible

for “a generalist antitrust court” (/rinko, 540 U.S. at 414) -

let alone a jury — to make sense of that test. The Ninth Cir-

cuit’s vague standard warrants review for four reasons in ad-

dition to its inconsistency with Brooke Group.

lirst, this Court has emphatically rejected use of a

closely analogous “reasonableness” test under Section | of

the Sherman Act. Then-Judge Breyer has explained:

As the Supreme Court stated * * *, “[w]e should hesitate

to adopt a construction making the difference between le-

gal and illegal conduct in the field of business relations

depend upon so uncertain a test as whether prices are rea-

sonable — a determination which can satisfactorily be

made only after a complete survey of our economic or-

ganizations and a choice between rival philosophies.”

Kartell, 749 F.2d at 929 (quoting United States v. Trenton

Potteries Cos., 273 U.S. 392, 397-98 (1927)); see also U/nited

States v. lrans-Missouri lreight Ass'n, 166 US. 290, 331-32

(1897), United States v. Addyston Pipe & Steel Co., 85 F-

271, 283-84 (6th Cir. 1898) (Taft, J.), affd, 175 US. 211

(1899). Any contrary conclusion would “require judicial es-

timation of free market forces” (/rinko, 540 U.S. at 410), an

approach this Court has decisively repudiated. The Ninth

Circuit's approach is wholly inconsistent with this Court's

rejection of a reasonableness test, the question whether a

price is “fair” or “necessary” is, if anything, more subjective

and indeterminate than that of whether it is “reasonable.”

Second, the court of appeals’ standard inevitably will lead

to wholly arbitrary and unpredictable results — precisely the

opposite of what this Court has required of legal standards

governing allegedly anticompetitive pricing. Indeed, if the

Ninth Circuit had set out to maximize capricious judicial out-

comes with respect to the central issue of price, it could not

24

have done better than the standard it announced in this case.

Again quoting then-Judge Breyer, writing in the context of an

alleged “price squeeze”: '”

[Hjow is a judge or jury to determine a “fair price”?

*** Is it the price the competition “would have set”

were the primary level not monopolized? How can the

court determine this price without examining costs and

demands, indeed without acting like a rate-setting regula-

tory agency, the rate-setting proceedings of which often

last for several years? Further, how is the court to deter-

mine the proper size of the price “gap”? Must it be large

enough for all independent competing firms to make a

“living profit,” no matter how inefficient they may be? If

not, how does one identify the “inefficient” firms? And

how should the court respond when costs or demands

change over time, as they inevitably will?

flown of Concord, 9\5 F.2d at 25. The impossibility of giv-

ing consistent (or even intelligible) answers to these ques-

tions makes it inevitable that the outcomes in individual

cases decided under a “fair” and “necessary” standard will be

unpredictable and often erroneous. As Judge Easterbrook

has put it, a “fog-bound instruction * * * ensures that confu-

sion and random results will emerge.” along with “false posi-

tives and false negatives.” Easterbrook, On, supra, at 978 ""

A “price squeeze” may arise when a firm operates at two levels

of an industry and its competitors at one level are its customers at

the other. “|A] price squeeze occurs when the integrated firm's

price at the first level is too high. or its pnce at the second level is

too low. for the independent to cover its costs and stay in busi-

ness. /own of Concord. 915 F.2d at 18 (Brever. J).

‘' Compounding the problem. juries that are asked whether the

price paid by a defeated rival for inputs was “fair” may not fully

appreciate that “competition is a ruthless process. A firm that re-

duces costs and expands sales injures rivals — sometimes fatally.

** * These injurics to rivals are byproducts of vigorous competi-

25

third, the Ninth Circuit held that a firm may be found li-

able whenever it cuts into a less efficient competitor's profits

by moving aggressively to safeguard a supply of essential

inputs, if a jury concludes that the competitor was deprived

of a “fair” price. But this Court repeatedly has indicated that

the antitrust laws do not “protect competitors from the loss of

profits” caused by a rival’s aggressive competition, explain-

ing that a contrary approach would have the “perverse” effect

of “render[ing] illegal any decision by a firm to cut prices in

order to increase market share.” (Cargi//, 479 US. at 116.

The holding below would appear to mean that, the more /ne/-

ficiemt a competitor is, the more solicitous its rivals must be.

But businesses that take advantage of their low cost struc-

tures and efficient operations to out-compete their less-

efficient rivals are engaging in conduct that is encouraged by

the antitrust laws: when, as in this case, the nature of the

complaint is that the plaintiff was damaged by aggressive

competition, “[i]t is inimical to the purposes of these laws to

award damages for the type of injury claimed.” Arunswick

Corp. v. Pueblo Bowl-O-Mat, Ine., 429 U.S. 477, 488 (1977).

lourth, to the extent the Ninth Circuit's test has any sub-

stance at all, it resembles “a loose profit sacrifice test”

(Salop. supra, at 714 ), instructing the jury to condemn Wey-

erhaeuser for failing to maximize its short-term profit when it

paid more for logs than the jury deemed “necessary.” But

other courts of appeals have expressly rejected such a stan-

dard as unmanageable and inconsistent with antitrust poll-

cies. See Stearns, 170 F.3d at 533 n.14 (failure-to-maximize-

profit test “is no longer tenable in the wake of brooke

Group’), AMR Corp., 335 F.3d at 1118-19 (rejecting short-

run profit maximizing test as a matter of law, “[cJourts and

scholars have observed that such a sacrifice test would neces-

tion. and the antitrust laws are not balm for nvals’ wounds. The

antitrust laws are for the benefit of competition. not competitors. ~

Ball Mem. Hosp. 784 F.2d at 1338 (Easterbrook. J.).

26

sarily involve a great deal of speculation and often result in

injury to the consumer and a chilling of competition”), Barry

Wright, 724 F.2d at 235 (noting “the difficulty of deciding

whether or not a firm’s price cut is profit-maximizing in the

short-run, a determination that hinges not only on cost data,

but also on elasticity of demand, competitors’ responses to

price shifts, and changes in unit costs with variations in pro-

duction volume.”).

The Ninth Circuit's holding accordingly cannot be recon-

ciled with the principles announced by this Court and will

frustrate significant antitrust policies. It should be set aside.

C. The Decision Below Involves A Recurring Issue

Of Great Practical Importance

1. The Ninth Circuit’s decision is one of great impor-

tance, with implications for businesses across the Nation. As

we have explained, the holding below has generated im-

mense confusion on a practical level because it is impossible

for businesses (a) to know how to comply with a “fair” and

“necessary” standard or (b) to act with assurance that their

legitimate buy-side competitive efforts will not result in anti-

trust liability. After the Ninth Circuit’s ruling, businesses

cannot be certain of the constraints that apply when they seek

to procure valuable inputs, are asked to pay a premium for

especially desirable resources, or stockpile materials that

have an ongoing but unpredictable demand.

“Subjecting a single firm’s every action to judicial scru-

tiny for reasonableness would threaten to discourage the

competitive enthusiasm that the antitrust laws seek to pro-

mote.” Copperweld Corp. v. Independence Tube Corp., 467

U.S. 752, 775 (1984). After all,

antitrust rules are court-administered rules. They must be

clear enough for lawyers to explain them to clients. * * *

They must be designed with the knowledge that firms ul-

timately act, not in precise conformity with the literal

27

language of complex rules, but in reaction to what they

see as the likely outcome of court proceedings.

Lown of Concord, 915 F.2d at 22.

As then-Judge Breyer explained in similar circumstances,

“we ask ourselves what advice a lawyer, faced with the

[Ninth Circuit's] rule, would have to give a client considering

procompetitive [bidding] in a concentrated industry.” Barry

Wright, 724 F.2d at 235. And the answer to that question is

that no lawyer can give confident advice on what a jury will

think is an “unnecessary” purchase or an “unfair” price.

Businesses accordingly will err on the side of less aggressive

competition. The harm from this outcome will be felt not

only by the buyers, who will be constrained in obtaining nec-

essary inputs, but also by the sellers and small businesses that

will be denied the benefit of aggressive buy-side competition

for their products. The court of appeals’ rule thus will “prove

counter-productive, undercutting the very economic ends [it]

seek[s] to serve.” /d. at 234.

This uncertainty will be felt throughout the economy: on

its face, the Ninth Circuit's ruling applies to procurement de-

cisions of every kind of business purchasing every kind of

input, including produce, natural resources, livestock, sophis-

ticated components, even skilled employees — and there are

many concentrated input markets. See Noll, supra, at 589-

90.

Moreover, the Sherman Act’s liberal venue provisions al-

low amy firm conducting a national business to be sued in the

Ninth Circuit. See 15 U.S.C. 88 15,22. We can be confident

there will be no shortage of plaintiffs willing to take advan-

tage of the opportunity to bring suit in a forum with favorable

and malleable rules. As then-Judge Breyer put it, “if private

plaintiffs are allowed to attack [above-cost prices], we are

unlikely to lack for plaintiffs willing to make the effort. Af-

ter all, even the most competitive of price cuts may hurt ri-

vals; indeed, such may well be its object. And those rivals, if

28

seriously damaged, may well bring suit.” Barry Wright, 724

F.2d at 235. Such suits can be expected to arise with some

frequency: over the years there have been many cases in-

volving overbidding and/or overbuying allegations,'’ and

many more alleging buy-side exclusionary practices. “

2. The need for review is especially acute because the

Ninth Circuit’s holding has thrown the law into a state of

confusion. As we have noted, this Court has moved antitrust

law governing allegedly anticompetitive pricing in the direc-

tion of objective standards that leave no room for subjective,

indeterminate rules. Other courts of appeals likewise have

taken care to assure that antitrust rules are always “clear

enough for lawyers to explain them to clients” (7own of

Concord, 915 F.2d at 22) and do not “involve a great deal of

speculation” (AMR Corp., 335 F.3d at 1118-19). Against this

background, the decision below is an unfortunate throwback

"See. e.g.. American Tobacco, 328 US. at 803-04: United States

v. Patten, 226 U.S. 525, 538-39 & n4 (1913): Seagood Trading

Corp. v. Jerrico, Inc., 924 F.2d 1555, 1564-66 (11th Cir. 1991): Jn

re Beef Industry, 907 F.2d at 515: Reid Brothers Logging Co. v.

Ketchikan Pulp Co., 699 F.2d 1292. 1297-98 & ns (9th Cir.

1983): Houser v. Fox Theatres Mgmt. Corp.. 845 F.2d 1225, 1228.

1231 (3d Cir. 1988): Schad v. Twentieth Century-Fox bilm Corp..

136 F.2d 991. 997 (3d Cir. 1943). White Bear Theatre Corp. v.

State Theatre Corp., 129 F.2d 600, 604-05 (8th Cir, 1942).

'* See. e.g.. Consolidated loods, 380 U.S. at 393-94; Motion Pic-

ture Adver. Serv., 344 US. at 393. Griffith, 334 US. at 109, Asso-

ciated Press. 326 US. at 9: Crescent Amusement, 323 US. at 181:

Toys “R™ US. Inc. v. FTC, 221 F.3d 928. 930-31 (7th Cir. 2000);

JTC Petroleum Co. y. Piasa Motor luels, Inc... 190 F.3d 775, 776

(7th Cir. 1999): Balmoral Cinema, Inc. \. Allied Artists Pictures

Corp.. 885 F.2d 313. 316-17 (6th Cir. 1989): Harkins Amusement

knters. v. General Cinema Corp.. 830 F.2d 477, 488-89 (9th Cir.

1988): Betaseed. Inc. v. U & 7 Ine... 681 F.2d 1203. 1208, 1221

(9th Cir. 1982). Quality Auto Body. Inc. v. Allstate Ins. Co., 660

F.2d 1195. 1203 (7th Cir, 1981).

29

that, if left undisturbed, threatens to undo much of the pro-

gress this Court has made toward manageable, predictable,

and economically supportable antitrust standards.

Faced with similarly important questions, the Court has

not hesitated to grant review in antitrust cases even absent a

showing of a deep conflict among the lower courts.'* There

is no reason for the Court to hesitate before granting review

in this case, where the Ninth Circuit’s holding departs in sig-

nificant respects from the principles articulated by both this

Court and other courts of appeals. Issues of monopsony in

general, and of predatory buying in particular, have been ex-

amined extensively by scholarly commentators, which would

assist the Court in addressing the question presented.” Cf.

Matsushita, 475 U.S. at 589-90 (discussing scholarship on

predatory pricing). And this case presents an ideal vehicle to

clarify the rules governing predatory buying claims: the

'* Eg. FTC vy. Superior Court Trial Lawyers Ass'n, 493 U.S. 411

(1990): 7C y. Indiana led'n of Dentists, 476 U.S. 447 (1986).

' See. e.g. Areeda & Hovenkamp. supra. “* 517¢3, 575, 720a.

943e. 98la, 1LO3al, 16371, 1778b: see also id. 4 350b, 394¢.

2010, 201 1b, 2012b, 2135b: Blair & Harnson. MONOPSONY, sv-

pra, at 66-67, 154-58: R. Posner & F. Easterbrook. ANTITRUST

146-50. 719-20, 850-55 (2d ed. 1982): Blair & Harrison, Antitrust

Policy and Monopsony, supra. 8. Calkins. Comments on Presenta-

tion of Steven C. Salop, 36 ANVIIRUST LJ. 65, 68 & n.18(1987):

P. Hammer & W. Sage. Monopsony as an Agency and Regulatory

Problem in Health Care. 71 ANITIRUST LJ. 949 (2004): J. Jacob-

son & G. Dorman, Joint Purchasing. Monopsony and Antitrust, 36

ANTIPRUST BULL. 1 (1991): Kirkwood. supra: T. Krattenmaker &

S. Salop. Anticompetitive Lxclusion: Raising Rivals’ Costs to

Achieve Power Over Price. 96 YALE LJ. 209, 282 n.228 (1986): F.

Miller, Health Insurance Purchasing Alliances: Monopsony

lhreat or Procompetitive Rx for Health Sector Ils’, 79 CORNTLI

L. ReV. 1846. 1563-67 (1994): Noll. supra: Salop. supra: Zerbe.

supra.

30

Ninth Circuit addressed an issue of law that is unburdened by

factual complications. In these circumstances, “the benefits

of providing guidance” (Brooke Group, 509 US. at 230) -

and of straightening out the law — counsel strongly in favor

of review.'°

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

STEPHEN V. BOMSL ANDREW J. PINCUS

M. LAURENCE POPOFSKY Counsel of Record

Heller, Ehrman, White CHARLES A. ROTILFELD

& McAuliffe LLP NICKOLAIG. LEVIN

333 Bush Street Mayer, Brown, Rowe

San Francisco, CA 94104 & Maw LLP

(415) 772-6000 1909 K Street, N.W.

Washington, DC 20006

KEVIN J. ARQUIT 202) 263-3000

JOSEPH F. TRINGALI

mrss > ROBERT A. Downy

Simpson, thachei

«& Bartlett LLP GUY C. STEPHENSON

Weverhaeuser Company

33663 Weyerhaeuser Way S.

lederal Way, WA 98003

(253) 924-2345

425 Lexington Avenue

New York, NY 10017

(212) 455-2000

SPPTEMBER 2005

As we have suggested. the Court may wish to consider whether

summary reversal is appropriate in this case. See. e.g. Palmer v.

BRG of Georgia, Inc., 498 U.S. 46 (1990) (per cunam) (summanils

reversing antitrust decision that was in clear tension with prior de-

cisions of this Court), Catalano, Inc. \. Target Sales. Inc., 446

LS. 643 (1980) (per curram) (same).