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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2007
- **Citation:** 549 U.S. 312

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0220%3A02. Public record. Not legal advice.