Opposition Brief — Metro Industries, Inc. v. Sammi Corp.
Supreme Court brief1996
Ask Donna
What actually matters in this document.
Text
(2) sie Supreme Court, U.S.
e234. BD
aan ae AUG 28 1996
3 CLERK |
In The pod
Supreme Court of the United States.
October Term, 1995
4
METRO INDUSTRIES, INC.,
Petitioner,
V.
SAMMI CORPORATION, SAMMI (AMERICA) CORP.,
and KEN CARTER INDUSTRIES, INC.,
Respondents. «
cy
Petition For Writ Of Certiorari
To The United States Court Of Appeals
For The Ninth Circuit
¢
BRIEF IN OPPOSITION
¢
Rosert J. BAGDASARIAN*
THomas G. Bamey, Jr.
JoHN E. TAaRDERA
WHITMAN Breep Assott & MorGAN
200. Park Avenue
New York, New York 10166
(212) 351-3000
Counsel for Respondents
*Counsel of Record
August 28, 1996
RULE 29.1 STATEMENT
Parent and Subsidiaries of the Respondents
(excluding wholly owned subsidiaries):
None
il
TABLE OF CONTENTS
Page
JURISDICTION AND STATUTORY PROVISIONS
EVO VG) oc pivcccesaseussreseveves nest aenunee 1
OPINIONS BELOW .. a cccdcccccvevtvensJacun view 2
STATEMENT OF THE CASE...........ccccccescoeses ‘2
REASONS WHY THE PETITION SHOULD BE
DINED 5 op cvcscvapescvwnsdasbevengen et eeernngs 7
I. The Holding In This Case Is Not Unique: It
Involves No More Than An Ordinary Failure
OF PYOOE. «2 osc ss ssaccale ons eves yee 7
II. This Court’s Prior Rulings Would Not Have
Permitted Per Se Treatment In Light Of
Metro’s Dependence On The Record From The
Volirath Case «otis vcandvsaevacnys kabuseteees 11
III. Consideration Of Petitioner’s Questions
Would Not Change The Result Below....... 15
IV. This Court Generally Avoids Rendering Advi-
BOTY OCOMNGGRS 6 aos cin c cade nkewseuwevacoueas 17
V. The Questions Presented Lack Any Special
EMPOTUATIOS 2... civics ree dsosvcnateee when ges 18
CONC AIIIN 6 icc sac evind bandas uavesbuss pee 21
PERRO a anim mi Ta eid lll
——————
iii
f
TABLE OF AUTHORITIES
Page
FEDERAL CAsEs
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ..... 8
Broadcast Music, Inc. v. Columbia Broadcasting Sys-
en RD ee 12, 14
Business Electronics Corp. v. Sharp Electronics Corp.,
Fs ose oie deka enn ssc 13
Celotex Corp. v. Catrett, 477 U.S. 317 | Ea as 8
FTC v. Indiana Federation of Dentists, 476 U.S. 447
co hE ES OSE TRIS TOES se 13
Flast v. Cohen, 392 US. 83 Ry ey erate 18
Goodman v. Lukens Steel Co., 482 US. 656 (1987)..... 16
Graver Tank and Mfg. Co. v. Linde Air Products Co.,
ee EE UO 5 soo ssy C2G% obi neck. ce. 16
Hartford Fire Insurance Co. v. California, 509 U.S.
EGS PSS en a 20
Matsushita Elect. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574 rd ig ee 3 a 8, 9, 18, 19
N.C.A.A. v. Board of Regents of the University of
Oklahoma, 468 U.S. 85 SOR ASI eet 14
National Society of Professional Engineers v. United
States, 435 U.S. 679 SSS RT Sec a nea 12
U.S. Nat’! Bank of Oregon v. Independent Ins. Agents
of America, Inc., 508 U.S. 439 | BP Sa See 18
United States v. Aluminum Co. of America, 148 F.2d
eR 8 Se il sae cee. 19
United States v. Topco Associates, Inc., 405 U.S. 596
(ERS ROSES Og 13
iv
TABLE OF AUTHORITIES —- Continued
Page
FEDERAL STATUTES
Foreign Trade Antitrust Improvements Act of
py ee. Bibs ey ” eee Perey rer iy ere rT 19
Snermat Act; 15: US. BF ois vase ceusnan 1; 3; 43
MIsCELLANEOUS
Ped. B63 Fe iis i tas avec ewes cae 16
ad, Be: Fe as Se iss hi ktinw inca teelas eee eee 8
BRIEF IN OPPOSITION
Respondents Sammi Corporation (“Sammi”), Sammi
America Corporation (“Sammi America”) and Ken Carter
Industries, Inc. (“Ken Carter”) (collectively “the Sammi
group” or “respondents”) respectfully submit this brief in
opposition to the petition for a writ of certiorari submitted
by petitioner Metro Industries, Inc. (“Metro” or “peti-
tioner”). As described herein, certiorari should be denied
in this case because:
1) The holding below involved nothing more than a
simple failure of proof on petitioner’s part;
2) Per se review was precluded by factual findings
on the prior record of the Vollrath case;
3) This Court’s consideration of the questions
sought to be presented would not change the result
below. Thus, the granting of certiorari would result in no
more than an advisory opinion of this Court; and
4) The issues raised by the petition are not “new” as
petitioner claims, but, rather, follow closely numerous
prior decisions of this Court. Nor do they present special
or important reasons for granting certiorari.
¢
JURISDICTION AND STATUTORY
PROVISIONS INVOLVED
Petitioner’s brief accurately describes the jurisdic-
tional grounds and the statutory provision involved, Sec-
tion 1 of the Sherman Act, 15 U.S.C. § 1.
¢
OPINIONS BELOW
In its section describing the “opinion below,” Peti-
tioner’s brief refers only to the opinion of the Ninth
Circuit and the order of the district court entered in this
case. Petitioner has failed to mention that, at petitioner’s
insistence,! the record before both the district court and
the Ninth Circuit incorporated the entire record from a
closely related case entitled The Vollrath Company v. Sammi
Corporation, Sammi (America) Corp. and Ken Carter Indus-
tries, Inc. The district court’s j.n.o.v. decision in Vollrath is
reported at 1990 Trade Reg. Rep. (CCH) { 68,955 (C.D.
Cal. 1989). See App. 1 hereto. The Ninth Circuit’s opinion
affirming the district court in Vollrath is reported at 9 F.3d
1455 (9th Cir. 1993). See App. 54 hereto. This Court’s
denial of certiorari was reported at 114 S. Ct. 2163 (1994).
See App. 74 hereto.
For purposes of this Court’s review, the district
court’s decision in Vollrath (App. 1-53) and the opinion of
the Ninth Circuit panel in Metro (Pet. at 1a-21a) contain
the vast majority of the consequential findings referred to
in either petitioner’s brief or this opposition.
¢
1 By letter dated August 17, 1994, petitioner’s counsel
designated only the record in Vollrath, in its entirety, as Metro’s
proposed record on its appeal. On August 23, 1994 Sammi
objected to petitioner’s omission of the entire record from Metro,
which was then included despite petitioner’s objection to all but
one transcript from this proceeding below. See Petition at 20a.
eS Ee =
STATEMENT OF THE CASE
Each of Petitioner’s references to testimony con-
tained in the Reporter’s Transcript or to documents
entered into evidence at trial refer to the record of the
seventeen day jury trial in Vollrath, not to the seven day
partial bench trial in Metro. Obviously, the evidence pre-
sented in the Vollrath trial had previously been the subject
of legal and factual conclusions entered by the district
court and the Ninth Circuit panel reviewing that case,
prior to its reconsideration by the courts below in this,
the Metro proceeding. Moreover, following this Court's
denial of certiorari in Vollrath (see App. 74), the factual
conclusions from Vollrath are no longer subject to collat-
eral attack.
The lone theory pursued by petitioner is whether the
district court should have granted summary judgment on
Metro’s Sherman Act Section 1 theory that Sammi and
other non-defendant members of the Korean Holloware
Association conspired with one another to create a “mar-
ket division arrangement” whereby they could control
the output of stainless steel steamers exported from
Korea to the United States.2 (Pet. at 9a). The crux of
petitioner’s argument is that the courts in Metro should
have accepted an advocate’s characterization of Sammi’s
acts as warranting application of a per se standard of
review, should have ignored factual findings to the
2 Petitioner has not appealed the district court’s grant of
summary judgment in favor of defendants Sammi America and
Ken Carter. These parties are included as respondents herein
only because petitioner has so identified them.
contrary by the Vollrath courts, and should have pro-
ceeded directly to a damages phase of a trial.
The Parties
Plaintiff/petitioner Metro was a privately owned
California corporation, with its principal place of busi-
ness located in Gardena, California. During the relevant
period of time, 1981-1985, Metro was an importer and
reseller of giftware, housewares, and a full line of stain-
less steel kitchenware products, including certain hollow
cooking vessels or accessories commonly known in the
industry as “holloware.” The stainless steel steamers at
issue herein were simply one of the dozens of products
within the holloware line distributed by Metro through-
out the relevant period.
Defendant/respondent Sammi was and is a trading
company incorporated under the laws of the Republic of
Korea with headquarters in Seoul, Korea. Sammi pur-
chases a large variety of Korean goods for export to the
U.S. and other countries, including a full line of hol-
loware, cookware, kitchenware and bakeware. Vollrath
R.T.3 Vol. 11, pp. 11-12. During the relevant time period,
Sammi imported and sold stainless steel steamers in the
United States.
Sammi is not itself a manufacturer of holloware but
arranged to purchase holloware from one or more of the
numerous independently owned factories in Korea.
3 For clarity, respondents’ references to the Vollrath
transcript of proceedings will be by “Vollrath R.T.” and to the
Metro transcript of proceedings will be “Metro R.T.”
e a i ici niet aed
—_
Sanur Men 1s he halewware, ether. ta a.dazen_or so
U.S. importers/distributors such as Metro and Vollrath‘,
or directly to large retail stores, or to its own subsidiaries
Sammi America and Ken Carter. Vollrath R.T. Vol. 11, pp.
25-30. By March 1988, Ken Carter and Sammi America
had left the industry and no longer exist as corporate
entities. Vollrath R.T. Vol. 9 p.m., p. 140.
Facts Regarding The Steamer Blockage
During the relevant period, Sammi was a member of
the Korean Metal Flatware Association, c only known
as the “Holloware Association,” and coat Ganon’ staff
members sat on the Holloware Association’s Design Reg-
istration Committee. Vollrath R.T. Vol. 11, pp. 147, 152.
Mr. K.H. “Tony” Park, a Managing Director of Sammi and
a then current member of the Holloware Association,
testified at the Vollrath trial that during the relevant
period, there were 30-40 Holloware Association members
who regularly exported stainless steel holloware to the
United States and that there were 13 members of the
4 As found at the Vollrath trial, the Vollrath Company was
also a large cookware and holloware fabricator and importer
until it withdrew from the consumer holloware business in May,
1984. App. 1 at 24a. The Vollrath trial record also evidenced that
besides Vollrath, Metro and the Sammi group, there were
numerous other U.S. importers and wholesalers of steamers
during the relevant period, including the Leyse Company
(Vollrath Ex. 851), National Silver (Vollrath Ex. 350),
Progressive, Trend Company, and Daeware. (Vollrath R.T. Vol.
4B at 21, 28-30, 128; Vollrath R.T. Vol. 6 at 19-20). No evidence
was presented in either the Vollrath or Metro proceedings to
indicate that any of the other importers experienced disruption
in their steamer supplies.
Design Registration Committee, three of whom came
from the Korean government or governmental agencies.
Vollrath R.T. Vol. 11, pp. 136-137, 152-153.
The Holloware Association adopted a design regis-
tration program entitling the first manufacturing regis-
trant and the first trading company registrant to a jointly
held exclusive right to manufacture and export newly
registered products for a three-year period. Vollrath R.T.
Vol. 11, pp. 152-156. Sammi, as a trading company, and
Dae Sung, an independent manufacturer, were granted
the initial export rights to the stainless steel steamers at
issue. Vollrath R.T. Vol. 5, pp. 157, 179; Vol. 3 p.m., p. 51.
When Vollrath tried to circumvent the system in 1983,
Sammi and Dae Sung apparently sought to invoke their
design registration rights to prevent another trading com-
pany, Dae Lim, from shipping its steamers for a short
period of time in the fall of 1983. App. 68-69. By late 1983,
Sammi had agreed to waive its design registration rights,
although Dae Sung continued to abject that Vollrath’s
steamer infringed on its pattern design. Vollrath R.T. Vol.
5, pp. 177-178; App. 69. Subsequently, Dae Sung also
waived its rights, and Vollrath received steamers begin-
ning in early January 1984. Vollrath R.T. Vol. 4-B,
pp. 29-30; Vollrath R.T. Vol. 9, pp. 28-29. Vollrath’s “block-
age” claim thus amounted to delay of a mere three
months. App. 68-69.
Evidence was also presented at the Vollrath trial, and
in the partial trial herein, that Metro experienced a dis-
ruption of steamer deliveries from Sammi at some point
during the 1983 time frame. (Pet. at 6a). However, as a
Metro vice president testified in the 1986 Metro trial, after
experiencing some delays at some time earlier in 1983,
starting in late 1983 Metro secured a source of steamers
from an independent Korean company called Sambo,
instead of Sammi, curing any disruption. Metro R.T. Vol.
3, pp. 58-61, 111; Pet. at 6a.
Both the district court in Vollrath and the Ninth Cir-
cuit panel in Metro concluded that despite the temporary
disruptions experienced by Metro and Vollrath, the pur-
ported “steamer blockage” did not result in any restraint
of trade, nor did it have any impact whatsoever on U.S.
markets. (App. 36; Pet. at 21a).
This Court shculd note that petitioner’s Statement of
the Case continues to contain many of the same mis-
characterizations and misstatements which originally
appeared in Vollrath’s papers opposing the Sammi
Group’s motion j.n.o.v. Such mischaracterizations were
previously described by the district judge in Vollrath as
“an outright distortion” of the record. (App. 35, n. 36).
For an objective statement of the pertinent factual back-
ground of this case, including a concise explanation of its
unusual procedural history, respondents respectfully
refer the Court to the section entitled “Facts and Pro-
cedural History” in the Ninth Circuit’s opinion in the
Metro case. (Pet. at 5a to 9a).
¢
REASONS WHY THE PETITION SHOULD BE DENIED
I. The Holding In This Case Is Not Unique: It Involves
No More Than An Ordinary Failure Of Proof.
Summary judgment was properly granted because, as
noted by the same district judge in both cases and by two
separate panels of the Ninth Circuit Court of Appeals,
petitioner failed to provide sufficient evidence to sustain
its claims. For the past decade, a troika of Supreme Court
cases decided in 1986 have set the standard for a non-
movant’s obligations in opposing a motion for summary
judgment. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574 (1986); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242 (1986); and Celotex Corp. v. Catrett, 477 U.S.
317 (1986). These cases provide that it is sufficient for
moving parties, such as the Sammi group, to demonstrate
that there is an absence of evidence to support the non-
moving party’s legal claims (Celotex, 477 U.S. at 325) or
that existing evidence precludes the non-movant from
prevailing. Liberty Lobby, 477 U.S. at 251-52. The nonmov-
ing party then must come forward with evidence suffi-
cient to demonstrate that there remain genuine issues of
material fact to be decided at trial. An issue is genuine “if
the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Liberty Lobby, 477 U.S.
at 248 Once challenged, the non-movant
must do more than simply show that there is
some metaphysical doubt as to the material
facts. .. . In the language of the Rule [56], the
nonmoving party must come forward with
“specific facts showing that there is a genuine
issue for trial.” .. . Where the record taken as a
whole could not lead a rational trier of fact to
5 The decision in Vollrath was affirmed by Ninth Circuit
Judges Hug, Norris, and Leavy. The Ninth Circuit panel in
Metro consisted of Judges Poole, Wiggins, and Rymer.
9
find for the norimoving party, there is no “genu-
ine issue for trial.”
Matsushita, 475 U.S. at 586-87 (internal citations omitted).
Metro failed to meet this burden. As the Ninth Circuit
panel in Metro has noted, Metro “merely suggests that it
could present evidence.” Pet. at 19a.
The decision to grant Sammi’s motion for summary
judgment was based on the lower court’s review of both
the Metro record (seven day partial bench trial) and the
Vollrath record (seventeen day jury trial). Despite the
length of the two proceedings, neither Metro nor Vollrath
provided evidence that supported any of their antitrust
claims. This complete failure of proof is emphasized
throughout the Ninth Circuit’s opinion in Metro:
° “[TJhere is no evidence that the purpose of
the design registration system was to restrain
trade. ...” Pet. at 12a.
* “Because the Vollrath panel determined on
the same facts before us that the relevant
market and Sammi’s power within that mar-
ket had not been sufficiently defined, Metro
cannot prove injury to competition based on
the Vollrath record and cannot recover on its
Sherman Act claim.” Pet. at 10a.
° “Metro has produced no evidence of actual
injury to competition in the United States.”
Pet. at 19a.
6 Upon the record in the Vollrath case, District Judge
Pfaelzer had granted j.n.o.v. on a similar, but slightly more
stringent standard, holding that a rational juror could not find
against the Sammi group.
10
e “Metro cannot make the more-commonly uti-
lized circumstantial showing of negative
impact on competition because the record
insufficiently establishes a relevant market.”
Pet. at 20a.
e “Metro has produced no evidence of reduced
output or increased prices. Metro merely
relied on the Vollrath record and speculated
that it could provide direct evidence of injury
to competition in the future. These assertions
are insufficient to satisfy Matsushita's
requirement that Metro come forward with
specific facts supporting its claims of injury
to competition when responding to a motion
for summary judgment.” Pet. at 19a-20a.
The determination by the Ninth Circuit that Metro
completely failed to prove its claim restates the district
judge’s ultimate factual findings which provided the
grounds for her decision to grant j.n.o.v. in Vollrath:
e “There is no proof of harm to distributors or
to competition in the United States from the
temporary steamer blockage. . . . On this
state of the record, the harm to American
consumers of steamers or the distributors
selling those steamers is impossible to dis-
cern.” App. 36.
e “[{T]jhe record is also silent with respect to
proof of any of the requisite elements of an
antitrust case on any theory in relation to the
steamer blockage.” App. 50.
11
II. This Court’s Prior Rulings Would Not Have Permit-
ted Per Se Treatment In Light Of Metro’s Depen-
dence On The Record From The Vollrath Case
Although the Vollrath case involved identical facts,
most of the same theories, the same attorneys, the same
economic expert, and many of the same witnesses, no
violation meriting per se treatment was alleged or prop-
erly put before the Vollrath courts. Nonetheless, Metro
has elected to rest upon the Vollrath record alone, without
reference to any other facts or evidence whatsoever. (Pet.
at 20a). Thus, when the district court in Metro and subse-
quently the Ninth Circuit panel in Metro were asked to
consider Metro’s new per se theory concerning the alleged
market division arrangement, they did not have clean
slates before them. The Metro courts were confronted
with the Vollrath courts’ factual findings (left undisturbed
by this Court’s denial of certiorari), which effectively pre-
cluded them from extending per se treatment in response
to Metro’s new per se theory.
For instance, both Metro courts already knew from
the Vollrath record that the alleged “steamer blockage”
did not cause a substantial restraint of trade, as required
by Section 1 of the Sherman Act, but created, at most, a
three month delay in receiving steamers from the facto-
ries of choice. (App. 36; App. 68-69). The Metro courts
also knew that whatever impact the Korean design regis-
tration system may have had overseas, it created no dis-
cernable impact on U.S. commerce (App. 36). Nor did it
cause any perceptible injury to U.S. distributors or to
American consumers (App. 36). In short, the Metro courts
knew without a shadow of a doubt that they had no
authority to apply a per se standard to activities that were
12
not, in fact, so automatically pernicious as to require no
further scrutiny in terms of market impact or procompeti-
tive justifications.
As to Sammi’s role in the design registration system,
the district court in Vollrath had already made factual
findings: (i) that Sammi held pattern design rights jointly
with an unrelated manufacturer (App. 7); (ii) that Sammi
and the manufacturer briefly invoked their design rights
to try to prevent another trading company from infring-
ing such rights (App. 7-8); (iii) that after only a three
month delay, Sammi and the manufacturer waived their
rights and allowed the other trading company to ship its
steamers (App. 8). Further the Vollrath district court had
found that there was no evidence to indicate that Sammi
in any way dominated the association, (App. 35-36, n.37),
and that there was no evidence indicating that Sammi’s
temporary invocation of its design rights was made in
bad faith. (App. 34). The only restriction that might have
been caused by Sammi or the Holloware Association
proven at trial was that two of the importers experienced
brief delays in obtaining steamers from the factory of
their choice. App. 35, n.35; App. 68-69.
This Court has long reasoned that only where a
“practice facially appears to be one that would always or
almost always tend to restrict competition and decrease
output” and is not one that appears to be “designed to
increase economic efficiency and render markets more,
rather than less competitive,” it should it be deemed to be
per se illegal so that it is condemned without any further
analysis. Broadcast Music, Inc. v. Columbia Broadcasting
System, Inc., 441 U.S. 1, 19-20 (1979) (internal citations
omitted). See also National Society of Professional Engineers
ee
13
v. United States, 435 U.S. 679, 692 (1978) (agreements are
treated as per se illegal only if their “nature and necessary
effect are so plainly anticompetitive that no elaborate
study of the industry is needed to establish their ille-
gality.”)
Additionally, as this Court has repeatedly noted, per
se rules of antitrust illegality are reserved for those situa-
tions where experience shows that the risk of injury to
competition from the defendant’s behavior is so great
that it is unnecessary to conduct any factual inquiry into
the effects of the activities. Business Electronics Corp. v.
Sharp Electronics Corp., 485 U.S. 717, 723 (1988) (“Ordi-
narily, whether a particular concerted action violates § 1
of the Sherman Act is determined through case-by-case
application of the so-called rule of reason. . . . ”). This
Court has repeatedly emphasized that labels should not
be hastily applied to practices that have not become so
familiar to courts as to overcome the danger of wrongly
condemning those activities. “It is only after considerable
experience with certain business relationships that courts
classify them as per se violations of the Sherman Act.”
United States v. Topco Associates, Inc., 405 U.S. 596, 607-08
(1972). Finally, this Court has been very reluctant to
extend the application of the per se rule beyond situations
where a violation is obvious. FTC v. Indiana Federation of
Dentists, 476 U.S. 447, 458 (1986) (“we decline to resolve
this case by forcing the Federation’s policy into the ‘boy-
cott’ pigeonhole and invoking the per se rule.”).
On the state of the record presented to the Metro
courts, the courts already knew that the Holloware Asso-
ciation activities had no meaningful impact on U.S. mar-
kets, and that no holloware distributors or consumers
14
had been injured by respondents’ acts. (App. 36, App.
68-69). Under these circumstances, each of the above five
precedents, as well as a host of other decisions of this
Court, preclude treating the practices at issue as being so
plainly anticompetitive that no further analysis should be
required. Broadcast Music, 441 U.S. at 19-20.
Moreover, the gravaman of a “market division
arrangement,” such as that claimed by petitioner, is a
clear horizontal agreement to place an artificial ceiling or
limit on the quantity of products made available to the
public. See N.C.A.A. v. Board of Regents of the University of
Oklahoma, 468.U.S. 85 (1984). A decrease in the quantity of
available products is inevitably accompanied by an agree-
ment to set an artificially high uniform price for the
products. N.C.A.A., 468 U.S. at 96-100.
No evidence was introduced that the price of stain-
less steel steamers in the United States was artificially
high, as would be expected in an output restriction case.
In fact, petitioner tried to prove the exact opposite, that
respondents were selling steamers below cost as part of a
predatory scheme to drive competitors from the mar-
ketplace. (Vollrath R.T. Vol. 3 at 49-54; Vol. 5 at 180-181).
Based on the record sponsored by petitioner, the
Ninth Circuit panel in Metro reviewed the prior factual
findings of the courts in Vollrath and concluded that the
Korean Holloware Association: (i) was a quasi-govern-
mental group (Pet. at 12a); (ii) that it was formed to
ensure product and design quality and to protect from
copying (Pet. at 12a); (iii) that it was not a “classic hori-
zontal market division arrangement” (Pet. at 11a), and
(iv) that there was “no evidence that the purpose of the
15
design registration system was to restrain trade.” (Pet. at
12a).
In sum, petitioner did not produce any evidence at
either trial that the overall production of steamers manu-
factured in Korea or that the quantity of steamers
exported to and sold in the United States was reduced or
suppressed at any time. Accordingly, the lower courts
clearly understood that the factual premises assumed by
petitioner’s questions to this Court - that there were
market division arrangments - were completely unsup-
ported by the facts of record.
III. Consideration Of Petitioner’s Questions Would
Not Change The Result Below
The factual findings in the courts below would pre-
clude liability on any antitrust theory. Based on the evi-
dence introduced at the trial, the district court in Vollrath
justifiably concluded that no harm to competition in the
United States had been shown:
The record is also silent with respect to proof of any
of the requisite elements of an antitrust case on any
theory in relation to the steamer blockage. The
Court can only assume that the steamer incident
was introduced as a makeweight to bolster the
intent element of the predatory pricing claim.
{Emphasis supplied]
(App. 50).
The Vollrath district court’s holding that Vollrath had
failed to prove its claims was affirmed by the Ninth
Circuit panel in Metro on exactly the same basis. The
Ninth Circuit panel in Metro held:
16
[Blecause the facts of this case are identical to
and indistinguishable from the facts of Vollrath,
we follow Vollrath and conclude that Metro has
not presented sufficient evidence from which a
rational finder of fact could conclude... that
the Korean registration system had a negative
impact on competition or consumer welfare in
the United States.
(Pet. 21a).
Thus, petitioner’s claims under any Sherman Act
theory were simply doomed by its reliance on the prior
record in Vollrath. As this Court has stated on several
occasions, the Court is reluctant to disturb the factual
findings of lower courts unless they are clearly erro-
neous. F.R.C.P. 52(a). Moreover, when two or more lower
courts have made consistent factual findings on the same
factual issue, this Court is reluctant even to initiate a
review of such factual findings in the absence of a very
obvious and exceptional showing of error. Goodman v.
Lukens Steel Co., 482 U.S. 656, 665 (1987) (“[B]oth courts
below having agreed on the facts, we are not inclined to
examine the record for ourselves absent some extraordin-
ary reason for undertaking this task.”). See also Graver
Tank and Mfg. Co. v. Linde Air Products Co., 336 U.S. 271,
275 (1949) (Supreme Court “cannot undertake to review
concurrent findings of fact by two courts below in the
absence of a very obvious and exceptional showing of
error.”)
Notably, the facts of this case come before this Court
having been reviewed and fully agreed upon by a district
court judge in Vollrath and two separate panels of the
Ninth Circuit Court of Appeals. This Court should be
17
exceedingly reluctant to disturb such findings where
three lower courts have been in clear agreement.”
IV. This Court Generally Avoids Rendering Advisory
Opinions.
The questions presented by Petitioner might theo-
retically be of interest to this Court; however, since they
do not address the key holding of the Ninth Circuit in
Metro - that Metro failed to substantiate its case — the
verdict below will be unchanged however this Court
might decide such questions. The first question submitted
by the Petitioner, whether a “new” antitrust principle
should be established that foreign conduct cannot be
examined under the per se rule, is neither new nor inte- ;
gral to the determination of the case at bar. The Ninth
Circuit’s holding affirmed the grant of summary judg-
ment based on Metro’s failure to present sufficient evi-
dence in support of its claims to allow it to go forward.
As is always true in such circumstances, the language
” Petitioner’s inclusion of four pieces of evidence from the
Vollrath trial as Appendices D and E appear to be nothing more
than an effort to have this Court overrule the findings of the
courts below that these materials lacked significance. Appendix
D was discussed at length by the district court in Vollrath (see
App. 7, n.11). The telexes reproduced as Appendix E were
introduced without testimony in the Vollrath trial, were used by
petitioner in closing argument, and were argued to the Ninth
Circuit panel in Metro. (Excerpts of Record 4, 5, 6). We cannot
imagine that this Court can or would want to attribute any more
meaning to Appendices D and E than did the courts below.
18
stating that per se analysis is inapplicable to foreign con-
duct is clearly confined to the facts of the Metro and
Vollrath records, and is no more than an alternative
ground underlying the Ninth Circuit’s holding. This is
made clear by the Metro panel’s statement that, “Even if
Metro could prove that the registration system constitu-
ted a ‘market division’ . . . application of the per se rule is
not appropriate where the conduct in question occurred
in another country.” (Pet. at 12a) (emphasis added).
Whatever standard of analysis was appropriate, the
Ninth Circuit had already found grounds to affirm the
grant of summary judgment because Metro did not meet
its burden under Matsushita. (Pet. at 19a-20a). In effect,
petitioner has asked this Court to grant its petition
requiring that this Court render a decision that will be no
more than an advisory opinion vis-a-vis the facts of this
case. This Court has often cautioned that federal courts
should not render advisory opinions. See, e.g., U.S. Nat'l
Bank of Oregon v. Independent Ins. Agents of America, Inc.,
508 U.S. 439, 446 (1993). Accord Flast v. Cohen, 392 U.S. 83,
96 (1968) (“The oldest and most consistent thread in the
federal law of justiciability is that federal courts will not
give advisory opinions.”)
V. The Questions Presented Lack Any Special Impor-
tance
As the opinions of this Court demonstrate, the Ninth
Circuit’s caution in applying a per se standard to the set of
facts inherited by Metro from the Vollrath proceeding is
hardly revolutionary.
19
As was carefully noted by the Ninth Circuit panel in
Metro, certain basic factual analysis, akin to limited “rule
of reason” type analysis, is always required when review-
ing foreign activities in order to determine whether the
U.S. court has subject matter jurisdiction. (Pet. at
14a-18a). For years, it was fundamental under traditional
Sherman Act Section 1 analysis that subject matter juris-
diction does not exist unless agreements entered into and
consummated outside the United States by foreign com-
panies were “intended to affect U.S. imports” and did
materially affect them. See, e.g. United States v. Aluminum
Co. of America, 148 F.2d 416, 444 (2d Cir. 1945). More
recently, the “intended effects” language has been
amended by the Foreign Trade Antitrust Improvements
Act of 1982, codified at 15 U.S.C. § 6a, to permit subject
matter jurisdiction where effects on U.S. commerce,
though not deliberate, should have been “direct, substan-
tial and reasonably foreseeable.” Under either standard, a
federal court examining foreign conduct cannot, as the
Ninth Circuit suggested in Metro, simply skip to per se
treatment without first making sufficient factual analysis
to establish jurisdiction over the claims.
Furthermore, petitioner purports to challenge the
Ninth Circuit’s adoption of a “new” substantive princi-
ple, that foreign conduct should not be subjected to per se
review. Far from being “new”, the Ninth Circuit’s rulings
on this issue are dutifully respectful of this Court’s prior
rulings. In Matsushita, 475 U.S. at 582 n.6, this Court
unequivocably stated that “[t]he Sherman Act does reach
conduct outside our borders, but only when the conduct
has an effect on American commerce.” Both the district
20
‘
court in Vollrath and the Ninth Circuit panel >in Metro
applied this principle by measuring the “effect on Ameri-
can commerce” and found none. App. 36; Pet. at 19a. This
Court has also previously ruled in Hartford Fire Ins. Co. v.
California, 509 U.S. 764, 796 (1993), that “it is well estab-
lished by now that the Sherman Act applies to foreign
conduct that was meant to produce and did in fact produce
some substantial effect in the United States.” (Emphasis
supplied). Again, the Metro courts simply applied this
Court’s longstanding principles and, in the process,
decided that there was no evidence that the purpose of
the design registration system was to restrain trade, (Pet.
at 12a; App. 34), nor was there any discernable harm to
American consumers or distributors. App. 36. Although
the Ninth Circuit’s formulation of the standard of review
to be given to foreign activities may sound “new”, it
represents only the faithful application of years of juris-
prudence of this Court to the unique facts and unusual
record on appeal presented to it in this litigation.
+
21
CONCLUSION
For the foregoing reasons, the petition for certiorari
should be denied.
Respectfully submitted,
Rosert J. BAGDASARIAN*
THomas G. BAILey, Jr.
JoHN E. TARDERA
WHITMAN Breep Assott & MorGAN
200 Park Avenue
New York, New York 10166
(212) 351-3000
Counsel for Respondents
Dated: August 28, 1996
*Counsel of Record
poe ere ee
SSS Re eae SF NEES TY LE A RTS) Cit 5 REPEP INS NERO RANE I
App. 1
[Y 68,955] The Vollrath Co. v. Sammi Corp., Sammi
(America) Corp., and Ken Carter Industries, Inc.
U.S. District Court, Central District of California.
Case No. CV 85-820 MRP. Filed December 20, 1989.
For plaintiff: Weldon V. Zufelt, Gen. Counsel, The
Vollrath Co., Sheboygan, Wis., William P. Tedards, Jr.,
New York, N.Y., Eliot G. Disner, P.C., and Eric D.
Berkowitz, of Shapiro, Posell & Close, Los Angeles, Cal.,
for The Vollrath Co. For defendants: Whitman & Ransom,
Thomas G. Bailey, Jr., John E. Tardera and Glenn S. Ker-
ner, Los Angeles, Cal.
Memorandum of Decision
Pracizer, D.J.: Plaintiff the Vollrath Company (“Vol-
lrath”) is a Wisconsin corporation; Vollrath’s Consumer
Products Division was an importer and distributor of
stainless steel hollowware! in the United States. Defen-
dant Sammi Corporation (“Sammi”) is a Korean steel
manufacturer and trading company that, in one of its
lines of business, exports stainless steel hollowware.
Defendant Sammi (America) Corporation (“Sammi Amer-
ica”) is a Washington corporation and a wholly owned
subsidiary of Sammi. Defendant Ken Carter Industries,
Inc., is a New York corporation and a wholly owned
subsidiary of Sammi America; Ken Carter, like Vollrath,
was an importer and distributor of stainless steel hollow-
ware in the United States. Vollrath withdrew from the
stainless steel hollowware market in 1984 and subse-
quently filed this action, alleging that the anticompetitive
acts of defendants caused it to exit the market.
1 Hollowware is specialty cookware used in the kitchen for
food preparation and storage; hollowware includes mixing
bowls, colanders, roasters, steamers and similar accessories.
App. 2
This action was tried to a jury on several legal theo-
ries: (1) conspiracy to restrain trade under section 1 of the
Sherman Act, 15 U.S.C. §§ 1, (2) conspiracy to monopolize
under section 2 of the Sherman Act, 15 U.S.C. §§ 2, (3)
attempt to monopolize under section 2 of the Sherman
Act, 15 U.S.C. §§ 2, (4) price discrimination under section
2(a) of the Clayton Act as amended by the Robinson-
Patman Act, 15 U.S.C. § 13(a), and (5) violations of the
California Unfair Trade Practices Act, Cal. Bus. & Prof.
Code § 17000 et seq. After seventeen days of trial, the jury
returned a verdict against defendants Sammi and Ken
Carter as to all claims, and against defendant Sammi
America as to the Sherman Act claims only. The jury
awarded damages of $9,478,676 for the federal claims and
$711,803 for the state claims, making the total award of
damages, after trebling the federal claims, $29,147,831.
Defendants moved post-trial for judgment notwithstand-
ing the verdict or in the alternative for a new trial or
remittitur.
I. Facts.
Defendant Sammi’s business is located in Korea. Its
affiliate Sammi Steel supplies raw steel to small Korean
manufacturers to construct mixing bowls and other hol-
lowware items. Stipulated fact 30.2 These small manufac-
turers in turn supply Sammi, in its capacity as a trading
company, with the finished stainless steel hollowware for
export. There were at least 25 to 45 manufacturers of
stainless steel hollowware in Korea in the mid-1980’s.
Record at 3PM-96; 6-10. At the same time, there were 20
to 50 exporters of stainless steel hollowware in Korea. Of
2 All references to stipulations of fact refer to this Court’s
“Stipulation of Facts” as read to the jury and filed April 5, 1989.
App. 3
this number, there were three major exporters, Sammi
being the largest.3 Record at 3PM-95-99; 6-11.
Both Vollrath* and Ken Carter purchased their stain-
less steel hollowware from Korea and competed to sell it
to large retailers in the United States, such as Sears or
Target. Stipulated facts 26 and 27. Korean trading com-
panies other than Sammi also sold stainless steel hollow-
ware directly to retailers in the United States.5 Stipulated
fact 27.
Prior to November 6, 1981, Ken Carter had no legal
affiliation with Sammi or Sammi America. However, in
this period before November 1981, Ken Carter did a
substantial amount of business with Sammi, accumulat-
ing a debt of close to $2 million to Sammi for stainless
steel hollowware purchased on open credit terms. More-
over, On a number of occasions Ken Carter held itself out
to the American extension of Sammi® or Sammi America.”
On November 6, 1981, Sammi America acquired Ken
> The other two major exporters of stainless steel
hollowware were Hai Dong and Daewonsa.
* Prior to 1982, Vollrath manufactured stainless steel
kitchenware in the United States. During the time relevant to
this lawsuit, however, Vollrath was exclusively an importer and
distributor of products manufactured outside of the United
States. Stipulated fact 5.
° The evidence sustains defendants’ contention that there
are many market participants operating on multiple levels of
distribution.
© At least one document listed Sammi’s Korean address.
7 A number of invoices, documents and letters to retailers
from 1980 and 1981 identified Ken Carter as a “Division of
Sammisa (America) Corp.”
App. 4
Carter, and thereafter Ken Carter operated as a wholly
owned subsidiary of Sammi America.® According to
defendants, Sammi America acquired Ken Carter in order
to protect the large debt owing to Sammi and Sammi
America, and to avoid certain limitations imposed by
Korean law as to the amount of capital permitted to be
invested in an unaffiliated company abroad. Plaintiff
accepted defendants’ description of the limitations
imposed by Korean law, but argued that Sammi America
acquired Ken Carter to implement a predatory pricing
scheme aimed at driving Vollrath and other competitors
from the United States market for the distribution of
stainless steel hollowware. Sammi and Sammi America
are said to have enabled Ken Carter to set predatory
prices by extending low-interest and interest-free credit
and loans to it.
Although the record does not disclose the details of
defendants’ post-acquisition interrelationships, it does
contain uncontroverted evidence sufficient to permit an
understanding of the basic structure of the transactions
between Sammi, Sammi America and Ken Carter. After
Sammi America’s acquisition of Ken Carter, Ken Carter
8 Sammi America purchased all the stock of Keh Carter
from Kenneth Min, Ken Carter’s president and sole shareholder,
for $50.00. Under the terms of the acquisition, Sammi America
agreed to release Min from his personal guarantee on the $1.6
million debt owing to Sammi America. The acquisition also
provided for the resignation of the officers and directors of Ken
Carter. Under Sammi America’s management, Ken Carter
entered into a two-year employment agreement with Min, who
became Ken Carter’s marketing director. Stipulated facts 15 and
16.
App. 5
purchased all of its stainless steel hollowware from
Sammi or Sammi America.® Stipulated facts 11 and 17. All
of Sammi’s hollowware sales to Ken Carter were made on
“documents against acceptance” (hereinafter “D/A”)
terms. Plaintiff’s exhibit 486 at 41. Cf. Aimor Elec. Works,
Ltd. v. Omaha Nat'l Bank, 727 F.2d 688 (8th Cir. 1984)
(explaining documents against acceptance terms). Under
the D/A contracts, Ken Carter was not required to make
immediate payment for the hollowware purchased from
Sammi. Instead, Sammi and Ken Carter would agree to
the quantity and price of hollowware to be shipped, and
to a date for payment, ranging from 30 to 180 days after
receipt of the goods. Sammi would tender the bills of
lading and the bills of exchange to its negotiating bank in
Korea. The Korean bank then would forward the docu-
ments to its collecting bank in the United States. When
Sammi shipped the hollowware and Ken Carter accepted
the bills of exchange, the collecting bank would endorse
the bills of lading to allow Ken Carter to take delivery of
the goods.
Ken Carter’s payments were tendered to the collect-
ing bank in the United States. Ken Carter could only
obtain an extension of the payment date with the
approval of the banks; to seek an extension, Ken Carter
would contact the collecting bank in the United States,
and the collecting bank would seek approval from the
negotiating bank in Korea. Plaintiff’s exhibit 486 at 45-46.
® Ken Carter purchased hollowware from Sammi America
on letter of credit terms until sometime in 1982. There was no
evidence as to whether Ken Carter incurred any interest costs
from these purchases. Plaintiff’s exhibit 486 at 49.
App. 6
Although there is no evidence as to what it cost Sammi to
make these D/A terms available to Ken Carter, Sammi
did include a charge for interest in its invoice price of the
goods to Ken Carter. Plaintiff’s exhibit 486 at 43.
Plaintiff established that Ken Carter often did not
have sufficient funds to make the D.A. payments to the
collecting bank on a timely basis. To meet the required
payments, Ken Carter secured loans from Sammi Amer-
ica. James Kim, who was president of Ken Carter, was the
sole witness who testified as to the terms of these loans.
Kim stated that Sammi America did not require interest
payments on any loans made in 1983, and that Sammi
America charged Ken Carter interest at prime plus a half-
point on $2.1 million of loans made in 1984. Record at
10-86, 98; 8-216. Plaintiff argued that all along, the sched-
ule for D/A payments, on shipments by Sammi, and the
loans from Sammi America amounted to a continuing
“big bankroll” from Korea permitting Ken Carter to
underprice its competitors. Record at 6-162. Nevertheless,
plaintiff did not claim that Ken Carter engaged in any
predatory pricing until 1983. At trial, plaintiff’s theory
was that Ken Carter priced its products below cost
throughout 1983 and 1984, and that finally its pricing was
so low that Vollrath could no longer compete.
Vollrath also sought to show that in late 1983, when it
was feeling the pressure of Ken Carter’s prices, Sammi
prevented it from exporting a stainless steel steamer?
from Korea to the United States. Vollrath ordered this
10 Steamers are used on the top of the stove to steam
vegetables, rice and seafood. Stipulated fact 25.
App. 7
steamer, made to its specifications, from Daelim, a Korean
manufacturer. Sammi, as a trading company, and
Daesung, a hollowware manufacturer, were co-owners of
Korean design registration rights for a stainless steel
steamer sold by Ken Carter. These design rights had been
granted to them by the Korean Metal Flatware Associa-
tion’s Committee on Design Registration which, accord-
ing to plaintiff, is an association of private companies
empowered to grant export licenses.11 From October 1983
until January 1984, Sammi invoked its design rights to
prevent Daelim from shipping the Vollrath steamer to the
" Plaintiff relied on the declaration of Howard Kim, Ken
Carter’s sales manager, to prove that the Korean Metal Flatware
Association was a non-governmental entity. Plaintiff’s exhibit
783. Mr. Kim stated that the Association was a self-regulating
organization with no governmental or legal powers and that
registration of design rights did not confer any property rights
on the holder, or entitle the holder to protection. Rather, Kim
stated, “[The Association] is merely an administrative priority
for exporters.” Plaintiff’s exhibit 783 at 3.
Defendants insist that Mr. Kim’s description of the
Association misstates the role of the Korean government. To
contradict Mr. Kim’s declaration, defendants called Mr. Park, a
member of the Association, to testify at trial. Mr. Park stated
that the Korean Metal Flatware Association is a quasi-
governmental organization: the Association was established
with government approval and three of the thirteen
representatives were government officials. Record at 11-150,
153. The remaining representatives come from private industry:
officials of manufacturing and trading companies. Although the
Court found Mr. Park’s testimony more credible than Mr. Kim’s
testimony, since Mr. Park actually served on the Association
board, the Court accepts, for the purpose of the Motion for
Judgment Notwithstanding the Verdict, that the Association
was non-governmental.
App. 8
United States.12 Although the steamers were ultimately
shipped to Vollrath with Sammi’s consent, Vollrath claims
to have suffered this three or four month delay during a
time period critical to its survival in the hollowware
market.}5
In May 1984, according to the testimony of several
employees of Vollrath’s Consumer Product Division, Voll-
rath could no longer compete and made the decision to
withdraw from the stainless steel hollowware business.
Vollrath terminated all operations with respect to stain-
less steel hollowware by the end of that year. Record at
2-106 to 110; 3-54.
12 Plaintiff's witness Warren Kashuk, a buyer for Metro
Industries, testified that Mr. Nam, a section chief in Sammi’s
export division, stated that Sammi was “not going to let
[Daelim] ship the [Vollrath steamer] to the United States... .
Because [Sammi has] this design patent registration on the quart
unit.” Record at 3PM-58.
13 Some of plaintiff’s witnesses testified that the timing of
the steamer blockage was critical because Christmas is the
important shopping season for hollowware. Record at 2-82 to
83. After Carol Storn, Vollrath’s marketing director for the
Consumer Products Division, revealed that most of Vollrath’s
orders would not have been available until well after the
Christmas shopping season, however, Vollrath’s attorneys
abandoned this argument. Record at 4B-120; Record of
Proceedings on April 3, 1989 at 37. It is now argued that the
delay was critical because it harmed Vollrath’s reputation as a
supplier.
App. 9
II. Standard of Review.
A motion for judgment notwithstanding the verdict
should be granted where,
the evidence is such that, without weighing the
credibility of the witnesses or otherwise consid-
ering the weight of the evidence, there can be
but one conclusion as to the verdict that reason-
able men could have reached.
Walker v. KFC Corp., 728 F.2d 1215, 1223 (9th Cir. 1984)
(citations omitted). Although judgment notwithstanding
the verdict is an extreme remedy, a court may properly
enter judgment notwithstanding the verdict where the
jury verdict is not supported by substantial evidence. The
Jeanery, Inc. v. James Jeans, Inc. [1988-1 TRADE CASES
{I 67,988], 849 F.2d 1148, 1151 (9th Cir. 1988).
III. Attempt to Monopolize.
To succeed on a claim of attempted monopolization,
the plaintiff must prove four elements: (1) specific intent
to control prices or eliminate competition, (2) anticom-
petitive conduct directed at accomplishing the unlawful
objective, (3) a dangerous probability of success, and (4)
causal antitrust injury. Marsann Co. v. Brammall, Inc.
[1986-1 Trape Cases ¥ 67,072], 788 F.2d 611 (9th Cir. 1986).
The Ninth Circuit has recognized that these elements,
while distinct requirements for the proof of attempted
monopolization, necessarily interact. Because of the diffi-
culty of proving anticompetitive intent directly, the Ninth
Circuit has repeatedly held that proof of “conduct
App. 10
[which] is predatory or clearly in restraint of competi-
tion” may support an inference of specific intent. Thur-
man Indus., Inc. v. Pay ‘N Pak Stores, Inc. [1989-1 Trape
Cases J 68,592], 875 F.2d 1369, 1378 (9th Cir. 1989).
The Ninth Circuit has also circumscribed the neces-
sity of showing a dangerous probability of success.
Because this element is “not designed as a means of
screening out cases of minimal concern to antitrust pol-
icy,” William Inglis & Sons Baking Co. v. ITT Continental
Baking Co. [1981-2 Trave Cases { 64,229], 668 F.2d 1014,
1029 (9th Cir. 1981), cert. denied, 459 U.S. 825 (1982), a
plaintiff is not required to show a “probability of actual
monopolization.” Forro Precision, Inc. v. International Busi-
ness Machines Corp. [1982-1 Trape Cases | 64,708], 673
F.2d 1045, 1059 (9th Cir. 1982), cert. denied, 471 U.S. 1130
(1985). Rather, this element is “a way of gauging more
accurately the purpose of a defendant’s actions.” William
Inglis, 668 F.2d at 1029. Thus, a dangerous probability of
success may be inferred (1) from direct evidence of speci-
fic intent to control prices or eliminate competition
together with proof of conduct directed at accomplishing
that purpose, or (2) from evidence that the defendant’s
conduct was predatory or clearly in restraint of competi-
tion. Vollrath claims to have shown two types of conduct
by the defendants which were predatory or clearly in
restraint of competition: below cost pricing by Ken Carter
and blockage of steamer shipments by Sammi.
App. 11
A. Predatory pricing.
1. Legal standard.
Since lowering prices can be either the essence or the
antithesis of competition, courts must “distinguish preda-
tory price cuts intended to eliminate competition from
legitimate price cuts designed to meet or beat competi-
tion.” Transamerica Computer Co. v. International Business
Machines Corp. [1982-83 Trape Cases { 65,218], 698 F.2d
1377, 1384 (9th Cir.), cert. denied, 464 U.S. 955 (1983). To
assess whether pricing is predatory, a court must recog-
nize the economic reality that predatory pricing is “rarely
tried, and even more rarely successful.” Matsushita Elec.
Indus. Co. v. Zenith Radio Corp. [1986-1 Trape Cases
{ 67,004], 475 U.S. 574, 589 (1986). This reality stems from
the fact that to succeed at below cost pricing, a would-be
monopolist must forgo short-term profits long enough to
drive competitors from the market, and then maintain
monopoly power long enough to recoup the losses and
realize additional gain. Id. at 588-89.
Absent some assurance that the hoped-for
monopoly will materialize, and that it can be
sustained for a significant period of time, the
predator must make a substantial investment
with no assurance that it will pay off.
Id. at 589 (citations omitted).
To distinguish competitive from predatory pricing,
then, courts have focused on one or more of three kinds
of evidence. See A.A. Poultry Farms, Inc. v. Rose Acre
Farms, Inc. [1989-2 Trape Cases I 68,706], 881 F.2d 1396
(7th Cir. 1989) (collecting cases). First, some courts look to
the pricing firm’s intent, inquiring whether the defendant
App. 12
hoped that its prices would eliminate competition and
secure a monopoly. Second, some courts employ a com-
parison of the defendant’s costs and prices: prices below
some appropriate measure of cost may reveal a scheme to
sacrifice current profits in the hope of eliminating compe-
tition and reaping monopoly gains later. Third, some
courts focus on the back end of the predatory pricing
scheme, inquiring whether the monopolist could later
raise its prices to recoup its losses and realize monoply
gains. In focusing on recoupment, courts consider pri-
marily evidence of market structure and the possibility of
maintaining monopoly prices for a comfortable period
without inviting in new entrants whose costs are as low
as or lower than those of the monopolist.
The two most recent predatory pricing decisions of
the Supreme Court focus on recoupment.!* At least one
court has read these decisions to require a plaintiff alleg-
ing predatory pricing to establish, at a minimum, that the
market structure would permit the would-be monopolist
to maintain monopoly power long enough to recoup its
losses. See A.A. Poultry Farms, supra.5 In the Ninth
14 Cargill, Inc. v. Monfort of Colorado, Inc. [1986-2 TRADE
CASES { 67,366], 479 U.S. 104, 119-20 n.15 (1986) (“in order to
succeed in a sustained campaign of predatory pricing, a
predator must be able to absorb the market shares of its rivals
once prices have been cut... . It is also important to examine the
barriers to entry in the market because without barriers to entry
it would presumably be impossible to maintain
supracompetitive prices for an extended time.”); and
Matsushita, supra.
15 In A.A. Poultry Farm, supra, the Seventh Circuit adopted
the approach that in a predatory pricing case, it is plaintiff’s
initial burden to establish that recoupment is possible. The court
a plaintiff must Prove that the anticipated bene-
fits of defendant's Price depended on its ten-
dency to discipline or eliminate competition and
of litigation. Only if a market Structure makes recoupment
feasible need a court inquire into the relation between price and
cost.”
881 F.2d at 1401.
App. 14
thereby enhance the firm’s long-term ability to
reap the benefits of monopoly power.
Id. at 1035.
In applying this standard, this circuit employs a cost-
based test to allocate the burden of proof on the issue of
predation. Transamerica Computer, 698 F.2d at 1386. If a
plaintiff establishes that the defendant set its prices
below its average variable costs,!7 the defendant bears
the burden of showing that the prices were not predatory.
If the plaintiff establishes that the prices were below
average total cost, but above average variable cost, the
plaintiff bears the burden of showing that the prices were
predatory. And, if defendant’s prices were above average
total cost, the plaintiff must show, by clear and convinc-
ing evidence, that the prices were predatory. Id. at
1386-88; William Inglis, 668 F.2d at 1035-36. Although this
cost-based test is a starting point in analyzing a firm’s
pricing behavior, the presumptions created by the test are
rebuttable.!8 The ultimate standard remains whether
17 Both parties’ economic experts defined variable costs as
those costs which rise in direct proportion to sales. Record at
6-117; 12-176. The determination as to which costs are fixed and
which costs are variable is a factual determination. William
Inglis, 668 F.2d at 1038.
18 Although the law of attempted monopolization seems to
eliminate considerations of market power after plaintiff offers
evidence of pricing below average variable cost, in order for a
defendant to effectively rebut the inference of predation,
defendant must be able to place market power, re and
a dangerous probability of success in issue.
A price is only predatory “if its anticipated benefits depended
on its tendency to eliminate competition.” William Inglis, 668
App. 15
defendant, viewing its position in the market, set its
Prices in the hope that competition would be eliminated,
allowing defendant to reap monopoly profits.19
F.2d at 1034 (emphasis added). Thus, the most effective way for
the defendant to rebut the presumption that its below average
In Janich Bros., Inc. v, American Distilling Co. [1978-1 TRADE
Cases J 61,826], 570 F.2d 848 (9th Cir. 1977), cert. denied, 439
“the product must be such that if Predatorily priced, rivals
are likely to be driven out of the market or excluded, allowing
App. 16
2. Plaintiff's proof.
As evidence that Sammi, Sammi America and
Ken Carter intended to control prices or eliminate
to drive out competition so that it can charge monopoly prices,
and reap monopoly profits, at a later time.”) (emphasis added).
At least one district court in this circuit, recognizing that
market power and recoupment are the keys to predatory
pricing, has implicitly adopted the showing of market power as
an essential element of a predatory pricing case. In re Air
Passenger Computer Reservations Sys. Antitrust Litig. [1988-2
Trave Cases { 68,316], 694 F.Supp. 1443, 1469-70 (C.D. Cal. 1988)
(allegation of predatory pricing makes no economic sense
unless alleged would-be monopolist has a significant market
share and barriers to entry in market are low).
If Vollrath were required to show that Ken Carter could
have maintained a monopoly over the import/distribution
stage of the United States hollowware market long enough to
recoup losses, plaintiff’s predatory pricing claim would fail as a
matter of law. In general, monopolization of the distribution
stage of most markets is considered to be implausible. P. Areeda
& H. Hovenkamp, Antitrust Law: 1988 Supplement 492-93 (1988).
Even if Ken Carter were to succeed in driving out the several
importer/distributors with which it competed, Ken Carter
could not possibly recoup its losses and raise prices. It is
undisputed that the retailers who were Ken Carter’s customers
could, and in fact did, purchase hollowware directly from
Korean trading companies other than Sammi. These retail
customers could, then, prevent any drastic increase in Ken
Carter’s prices.
Although plaintiff’s expert, Dr. Shepherd, testified that the
hollowware distribution market had “moderate” entry barriers,
Dr. Shepherd based his opinion on the fact that there were no
new entries into the market after Vollrath’s exit. Entry barriers
must be measured at the time of supra-competitive prices.
Cargill, Inc., 479 U.S. at 120, n.15.
App. 17
competition, Richard Hiteman, a Vollrath employee, testi-
fied that:
Mr. Min [Ken Carter’s vice-president of sales
and marketing] . . . stated directly to me [at a
trade show] that I better get out of this business
because I can’t make any money at all.
Record at 4-73. Although Min’s ambiguous statement
could be construed as an expression by Ken Carter of an
intent to eliminate Vollrath as a competitor, “the intent to
vanquish a rival in an honest competitive struggle cannot
help to establish an antitrust violation.” Airweld, Inc. v.
Airco, Inc. [1984-2 Trave Cases ] 66,197], 742 F.2d 1184,
1192 (9th Cir. 1984), cert. denied, 469 U.S. 1213 (1985)
(citations omitted) (evidence that defendant’s officials
targeted plaintiff’s accounts and stated that defendant
would increase market share “any way it could” is not
substantial evidence of specific intent). Evidence of speci-
fic intent must reveal an intent to vanquish the rival
“through unfair or predatory means.” William Inglis, 668
F.2d at 1028. Having no direct evidence of such an intent
on the part of any of defendants, Vollrath attempted to
prove predatory conduct from which the necessary infer-
ence of intent could be drawn.
Vollrath’s theory of predatory conduct treated
Sammi, Sammi America and Ken Carter as together
engaged in an attempt to monopolize the market for the
distribution of stainless steel hollowware in the United
States. Plaintiff argued that, even before Sammi Amer-
ica’s acquisition of Ken Carter, but certainly following it,
Sammi, Sammi America and Ken Carter “acted in a man-
ner which inexorably linked them together.” Plaintiff’s
App. 18
Opposition to Motion for JNOV at 46. Specifically, plain-
tiff contended that Sammi funded the predatory pricing
scheme by extending credit to Ken Carter through the
favorable payment schedule provided by D/A contracts.
Sammi America is also claimed to have funded the preda-
tory scheme by extending low interest and interest free
loans to Ken Carter to meet the D/A payments. Ken
Carter, then, used these favorable credit arrangements
and loans to carry out the predatory scheme aimed at
eliminating importer/distributors like Vollrath.2° The
financial arrangements between the three defendants are
the heart of the case for plaintiff. If an analysis of these
financial arrangements does not establish that Ken Carter
was engaged in predatory pricing, plaintiff’s case must
fall.
Plaintiff relied entirely on the testimony of its expert
witness Dr. John W. Buckley, an economist, to establish
that Ken Carter’s conduct was predatory in that its prices
were below cost. Dr. Buckley calculated average variable
cost by adding: (1) the invoice price that Sammi charged
Ken Carter, plus (2) Ken Carter’s costs to import and sell
the hollowware and Ken Carter’s variable general and
administrative expenses, plus (3) an “imputed interest”
cost. This last component of average variable cost -
20 As evidence of the close affiliation of the parent
corporations and their subsidiary, plaintiff established that the
three presidents of Ken Carter following the acquisition — Sil D.
Kim, Won In Rhee and James Kim - were all former Sammi
employees. Stipulated facts 7 and 10. Also, Howard Kim, Ken
Carter’s import manager throughout most of 1983, had
previously served as a sales manager for Sammi America and as
the head of the export department for Sammi. Stipulated fact 8.
App. 19
imputed interest - was an estimate of the cost of funds
made available to Ken Carter from Sammi and Sammi
America to permit Ken Carter to purchase inventory from
Sammi. To calculate imputed interest, Dr. Buckley multi-
plied, for each month, the dollar amount of Ken Carter’s
unpaid inventories by the interest rate on loans commer-
cially available in the United States to corporations like
Ken Carter for that month, the prime rate plus two
points. Plaintiff’s exhibits 701A and 720. Imputed inter-
est, then, represents the costs that Ken Carter would have
incurred if Ken Carter had been required to borrow
money from banks in the United States in order to pur-
chase inventory. Dr. Buckley testified that these interest
costs were variable and that, based on a proper analysis
of them, Ken Carter’s prices to retailers for a select
number of Ken Carter’s hollowware products were below
cost. See plaintiff’s exhibits 701A at 7-A to 7-E; 701D at
A-9 to A-10. Plaintiff’s proof of sales below cost is based
solely on Dr. Buckley’s testimony regarding imputed
interest.
[Market Power]
With respect to dangerous probability of success,
plaintiff called an expert, Dr. William G. Shepherd, also
an economist. He testified that stainless steel mixing
bowls constituted a distinct submarket of the United
States market for mixing bowls. He also testified that it
was his understanding that “more or less all” stainless
steel mixing bowls came from Korea in the period of time
relevant to this case. Other witnesses called by the plain-
tiff gave anecdotal testimony to support Dr. Shepherd’s
conclusions. Record at 7-17. This testimony furnishes the
App. 20
basis for plaintiff’s present contention that at trial it
clearly established power in a relevant market.
Plaintiff’s argument on market power is obscure, but
seems to be that if stainless steel mixing bowls constitute
the relevant submarket, and all these bowls came from
Korea, “tracking” Sammi’s share of the bowls exported
from Korea must somehow establish Ken Carter’s market
power in the United States. Thus, despite the fact that
Ken Carter was identified as the entity responsible for the
predatory pricing, Ken Carter’s share of the market for
the distribution of stainless steel mixing bowls to retailers
in the United States was not actually calculated, but
rather estimated at about 10%, and the evidence of mar-
ket power was focused instead on Sammi. Dr. Shepherd
calculated Sammi’s share of the Korean market to export
stainless steel mixing bowls to the United States, conclud-
ing that Sammi produced 40 percent of the bowls sold to
importer/distributors in the United States. Record at
7-136 to 150; 8-64 to 74.21 Presumably, the inference that
21 Vollrath argued that Sammi used its position as Korea’s
largest producer of stainless steel and as Korea’s largest or
second largest trading company to exploit the small
manufacturers of hollowware in Korea. This argument
represents pure speculation by Vollrath; there is no evidence
that Sammi actually used its leverage over the small
manufacturers. Assuming plaintiff’s argument is correct,
however, this fact would aid defendants’, not plaintiff’s case. If
‘Sammi were able to reduce its costs for producing stainless steel
bowls by leveraging its power as a supplier of steel and exporter
of bowls, any anticompetitive harm would be suffered by the
Korean hollowware manufacturers, not distributors such as
Vollrath or American consumers. The harm to the small Korean
manufacturers could not form the basis of an antitrust claim
App. 21
plaintiff asked the trier of fact to draw was that Ken
Carter engaged in predatory pricing as part of an attempt
to extend Sammi’s power into the market for the distribu-
tion of stainless steel hollowware in the United States. No
extended analysis of the proof as to relevant market or
market share is required or even possible. It is enough to
say that there was no proof of either. If plaintiff is to
prevail, it must do so in the absence of proof of these
elements.
a. Sammi, Sammi America and Ken Carter act-
ing as a single economic unit.
Defendants object to plaintiff’s attempt to aggregate
the conduct of Sammi, Sammi America and Ken Carter.”
Viewing each defendant separately, defendants claim that
the only act by Sammi of which plaintiff complains was
enabling Ken Carter to purchase hollowware on D/A
because “American antitrust laws do not regulate the
competitive conditions of other nations’ economies.”
Matsushita, 475 U.S. at 582. Nor could Vollrath complain of harm
to the small manufacturers, since Vollrath would suffer no
injury therefrom. Id. at 583.
22 Defendants view the three corporations as separate and
distinct entities whose acts cannot be attributed one to the other.
Defendants have taken this same position in support of their
argument that this Court cannot exercise personal jurisdiction
over Sammi Corporation. Defendants have maintained
throughout this litigation that Sammi does not have sufficient
minimum contacts with California to be subject to suit here.
Although this Court initially held that it did not have personal
jurisdiction over Sammi, the Court later reversed itself. Order
Granting Plaintiff Vollrath’s Motion to Reinstate Defendant
Sammi Corporation, entered February 17, 1988.
App. 22
terms; and the only act by Sammi America of which
plaintiff complains was making loans to Ken Carter to
enable it to purchase hollowware. Insisting that the cor-
porate conduct of the three defendants be viewed sep-
arately, defendants argue that Sammi and Sammi
America did not sell products below cost and cannot be
found to have priced predatorily. They are able to make
this argument because there is virtually no evidence that
would warrant treating the three defendants as one
excepting only their legal relationship to each other as
parent and subsidiary. The fact of the existence of this
relationship alone, however, does seriously impact the
analysis of the predatory pricing issue in this case and
requires examination.
In Copperweld Corp. v. Independence Tube Corp. [1984-2
TRADE Cases J 66,065], 467 U.S. 752 (1984), the Supreme
Court considered the applicability of Sherman Act theo-
ries to parent corporations and their wholly owned sub-
sidiaries. Although the Court in Copperweld articulated a
narrow holding - “[a corporation] and its wholly owned
subsidiary . . . are incapable of conspiring with each other
for purposes of § 1 of the Sherman Act,” id. at 777 — the
rationale of the case has broader implications. The hold-
ing in Copperweld builds on the
basic fact that the ultimate interests of the sub-
sidiary and the parent are identical, so the par-
ent and the subsidiary must be viewed as a
single economic unit.
Id. at 772 n.18. Certainly, in the situation where the parent
supplies the product and the subsidiary distributes the
product, it is not unreasonable to infer that the parent
App. 23
and subsidiary are acting with a “unity of purpose” — id.
at 771 -- to maximize profits on that product.
The evidence here was that Sammi, the parent, sup-
plied the products, sold them to Ken Carter on D/A
terms, and permitted its subsidiary, Sammi America, to
make loans to Ken Carter to pay for the products. From
these interrelated transactions the trier-of-fact could infer
that the three defendant corporations had a working
arrangement of some kind to market hollowware in the
United States. From the parent/subsidiary relationship
and this working arrangement, plaintiff argues that it is
appropriate to treat Sammi, Sammi America and Ken
Carter as a single economic unit for all purposes, includ-
ing liability for predatory pricing.
Treating the defendants as a single economic unit,
however, makes it impossible to accept Dr. Buckley’s
method of establishing that Ken Carter’s prices were
below average variable cost. The largest component of
average variable cost as calculated by Dr. Buckley was
the invoice price that Sammi charged Ken Carter for
hollowware.% For the purpose of a predatory pricing case
against these three related defendants, however, the
invoice price from Sammi to Ken Carter cannot be viewed
in the same way as Sammi’s invoice price to an unrelated
entity. Obviously, an intracorporate transfer price may
reflect profit to the parent/seller even as it reflects cost to
23 On every hollowware item, Dr. Buckley’s figures show
that the invoice cost from Sammi to Ken Carter constitutes the
“ ”
major component of average variable cost. Column “g” to
plaintiff’s exhibit 701A at 7-A to 7-E; and column “g” to
plaintiff’s exhibit 701D at A-9 and A-10.
App. 24
the subsidiary/buyer. Thus, to establish the cost of the
product to the single economic unit, the trier-of-fact
would have to know what Sammi’s margin of profit was.
Presumably, Sammi did make a profit on the product
because it is undisputed that it sold to Ken Carter’s
competitors at the same or lower invoice prices as it sold
to Ken Carter. And, if it did, that profit logically should
have found its way into Dr. Buckley’s calculations. Cer-
tainly, treating the defendants as a single economic unit,
Ken Carter’s invoice price is far less relevant than
Sammi’s cost figure. Plaintiff did not, however, introduce
any evidence as to Sammi’s cost.?4 Thus, if the plaintiff’s
theory was that these defendants were acting as a single
economic unit, Dr. Buckley’s calculation fails to take into
account the likely possibility that the single economic
unit was making a profit overall.?5
24 On cross-examination, Dr. Buckley testified:
“Q: [H]ave you tried to compute the average variable cost
of Sammi Corporation’s -
“A: No.
“Q: And would the same be true of Sammi America
Corporation. .. . [Y]ou never tried to compute average variable
—
“A: That’s correct.”
Record at 6-177.
25 Dr. Shepherd testified that after buying hollowware from
the Korean manufacturers, importer/distributors generally
marked up the price of the product 30 to 40 percent. This large
mark-up suggests that the combined entity could have made
money even if Ken Carter’s mark-up was very small. Record at
8-75.
App. 25
In determining whether there is harm to competitors
and competition, it is losses on the product, not losses to
the subsidiary, that the Sherman Act prohibits.26 The
26 Citing England v. Chrysler Corporation [1974-1 Trapve Cases
{ 74,931], 493 F.2d 269 (9th Cir. 1974), cert. denied, 419 U.S. 869
(1974), plaintiff argued, in opposition to the post-trial motions,
that Sammi could be held liable under the antitrust laws for
recklessly operating Ken Carter such that other distributors
would be forced to function at an unprofitable level. In England,
plaintiff Sunset Dodge — a privately owned Dodge dealer — sued
Chrysler Corporation - the manufacturer of Dodge cars — and
Van Ness Dodge - a Dodge dealer wholly owned by Chrysler.
Sunset argued that Chrysler operated Van Ness in an effort to
increase Chrysler’s share of the automobile market. Although
Chrysler turned a profit on all its sales, Chrysler allegedly
subsidized Van Ness and operated Van Ness regardless of Van
Ness’ retail profit, thereby pressuring Sunset and other
independent dealers to reduce prices. The Ninth Circuit
assumed, without deciding, that,
“the predominant emphasis on market penetration, which
results in the deliberately reckless operation of a subsidized
retailer and which has the inevitable effect of forcing competing
and non-subsidized dealers to function at an unprofitable level,
could, if proved, constitute an unreasonable restraint of trade.”
Id. at 273. The court further stated that plaintiff would have to
prove that the defendant parent deliberately determined to
manage the subsidiary regardless of retail profit. Since Sunset
failed to prove that Chrysler deliberately disregarded Van Ness’
profits, the court entered judgment for defendants.
England does not aid Vollrath. First, England addressed only
section 1 of the Sherman Act, stating that the reckless operation
of a subsidiary may be an unreasonable restraint of trade. Under
Copperweld, this theory is no longer valid; parents and their
wholly owned subsidiaries cannot conspire in violation of
section 1. Second, to the extent that Sammi could be accused of
attempting to monopolize the market to distribute hollowware
by reckless operation of Ken Carter, plaintiff would be required
——————
App. 26
rationale of Copperweld impels the conclusion that a plain-
tiff should not be permitted to isolate the distributor/
subsidiary transaction, treat the intracorporate transfer
price as a real cost, add imputed interest because of
financing by the parent, and hold the parent and the
subsidiary both liable for the subsidiary’s below cost
pricing.” If Sammi had opted to run Ken Carter as a
division, rather than as a subsidiary, Vollrath could not
have made a case by showing that, while Sammi may
have been making a profit on the production of the
hollowware, the division was losing money on the sale of
it. Under these circumstances, Vollrath would have been
required to present its predatory pricing case in the light
of economic reality. So should Vollrath have to do so here.
“Antitrust liability [cannot] turn[{ ] on the garb in which a
corporate subunit [is] clothed.” Copperweld, 467 U.S. at
773.
to establish specific intent. England, however, held that reckless
operation of a subsidiary is not a per se violation of section 1, nor
a clearly predatory act. See also Mt. Lebanon Motors, Inc. v.
Chrysler Corp. [1968 Trape Cases { 72,523], 283 F.Supp. 453 (W.D.
Pa. 1968). Vollrath, then, would not be entitled to an inference of
specific intent. Having failed to prove specific intent directly,
any section 2 claim based on the theory assumed in England
must fail. See Marquis v. Chrysler Corporation [1978-2 Trape Cases
{ 62,155], 577 F.2d 624 at 640 n.27, and 641 (9th Cir. 1978). See
also In re Coordinated Pretrial Proceedings in Western Liquid
Asphalt Cases [1979-2 Trape Cases | 62,968], 478 F.Supp. 785
(N.D. Cal. 1979).
27 Since Vollrath was purchasing almost all of its
hollowware from other Korean trading companies - such as Hai
Dong - and could have purchased from a number of others, this
is not a price squeeze case.
App. 27
As stated, the defendants each have maintained
throughout that their individual conduct must be viewed
separately. Thus, the defendants did not introduce evi-
dence of Sammi’s costs either, viewing them as irrelevant
in a case based on Ken Carter’s costs. Defendants, of
course, did not have the burden of establishing anything
other than that plaintiff’s economic theory was wrong.
Plaintiff, on the other hand, chose this theory to prove its
predatory pricing case, and it had the burden of treating
the defendants in a manner consistent with the theory it
selected. The difficulty is that if the plaintiff’s theory was
that the defendants were acting together as a single eco-
nomic unit, there is a major flaw in Dr. Buckley’s calcula-
tion: it treats the invoice price in a manner consistent
only with their being separate and unreiated. For the pur-
pose of analyzing the antitrust claims in this case, the fact
that the three defendants are part of the same economic
unit has significance. The transactions between them
must be viewed in the light of that economic reality.
There is a further legal problem with Dr. Buckley’s
testimony. The predatory pricing claim stands or falls on
the concept that interest must be imputed to transactions
between parts of a single economic unit. In a proper case
involving separate and unrelated entities, imputing inter-
est in the calculation of cost might be warranted, but
what are in effect subsidies extended by a parent to a
subsidiary clearly require a different legal analysis. Par-
ents can subsidize and extend favorable treatment to
subsidiaries without violating the antitrust laws. A sub-
sidy or favorable treatment extended to a subsidiary by a
App. 28
parent, without more, does not establish an antitrust vio-
lation. England v. Chrysler Corporation, 493 F.2d 269 (9th
Cir. 1974), cert. denied, 419 U.S. 869 (1974).
b. Sammi, Sammi America and Ken Carter act-
ing as separate entities.
In order to treat Sammi’s invoice price as a true cost
for the purpose of this predatory pricing case, Ken Carter
must be treated as a separate and unrelated entity in its
transactions with Sammi and Sammi America. An anal-
ysis of the plaintiff’s arguments from this standpoint is
necessary to be sure that no injustice is done in the
evaluation of Dr. Buckley’s testimony. However, even
under this theory, plaintiff’s claim of predatory pricing
cannot be sustained.
In antitrust cases, “[rlealities must dominate the
judgment.” Appalachian Coals, Inc. v. United States
[1932-1939 Trape Cases J 55,025], 288 U.S. 344, 360 (1933).
Therefore, to prove that a competitor set prices below
cost, an antitrust plaintiff must calculate the actual costs
incurred by the would-be monopolist. Although an esti-
mate of defendant’s costs will always be imperfect,
because “[e]conomics is an inexact science,” D&S Redi-
Mix v. Sierra Redi-Mix and Contracting Co. [1982-83 TRapE
Cases J 65,017], 692 F.2d 1245, 1248 (9th Cir. 1982), the
plaintiff must, at a minimum, show that the defendant
actually incurred the costs that plaintiff attributes to
defendant. Thus, in Matsushita, the Supreme Court held
that an expert’s study had little probative value where
the expert did not base “on actual cost data” his finding
that defendants priced below average variable cost. 475
App. 29
U.S. at 594 n.19. Given the inherently speculative nature
of an allegation of predatory pricing, the Court dismissed
the expert’s calculations because they were “both implau-
sible and inconsistent with record evidence.” Id.78
Similarly, Dr. Buckley attributed to Ken Carter the
cost of “imputed interest” even though Dr. Buckley
repeatedly admitted that Ken Carter never incurred those
costs.29? Indeed, plaintiff did not offer any evidence to
rebut the testimony of defendants’ witnesses that Ken
Carter’s interest payments on purchases from Sammi
were included in the invoice price of the D/A contracts.
Ignoring this reality, Dr. Buckley’s estimate of interest
double counted Ken Carter’s costs by adding an addi-
tional amount of imputed interest to Sammi’s invoice cost
to Ken Carter. As to the loans from Sammi America to
28 The Ninth Circuit’s reasoning in D&S Redi-Mix v. Sierra
Redi-Mix & Contracting Co., 692 F.2d 1245 (9th Cir. 1982), also
supports the insistence on actual costs. In D&S Redi-Mix,
defendant concrete company’s financial statements did not
include the costs for equipment rental and materials used by
defendant; plaintiff’s economic expert, however, imputed these
costs to calculate whether defendant had priced predatorily. The
Court approved of the expert’s methodology because there was
no evidence that the actual “costs were other than as [plaintiff’s]
experts assumed.” Id. at 1248.
29 When asked, “[I]mputed interest is not something that
Ken Carter actually pays; is that right?” Buckley responded,
“Well, somebody paid for it. Money isn’t free. So if [Ken] Carter
didn’t pay for it, Sammi[] paid for it or Sammi America paid for
it. But it’s all part of the cost of doing business.” Record at 6-168;
Plaintiff’s exhibit 701C, Ref: MVCF-1 at S-4 “Evaluation of Ken
Carter Industries’ Financial Performance,” (recognizing that
Ken Carter was not required io pay interest on loans from
Sammi America, rather Sammi America carried the interest).
App. 30
Ken Carter, the record evidence is undisputed that these
loans were treated as investment capital; Ken Carter paid
interest on only a portion of these loans. Again, Dr.
Buckley’s imputed interest calculations ignored the real-
ity of the transactions, and attributed to Ken Carter inter-
est payments on all the loans from Sammi America.
Furthermore, Dr. Buckley used interest rates set by Amer-
ican banks for commercial loans. The only record evi-
dence as to the actual transactions, however, is that Ken
Carter paid Sammi America at a lesser rate. Dr. Buckley
made no effort to calculate the actual amount of debt on
which interest was required to be paid at the actual rate.
Once defendants are viewed as separate and unrelated
entities, then, imputed interest, as a cost incurred by Ken
Carter, is “inconsistent with record evidence” and should
be excluded from consideration.”
Without imputed interest, every product in Ken Car-
ter’s hollowware line was priced above average variable
cost, except for two mixing bowls and a colander in 1983,
30 This case presents an even stronger case for excluding
the expert’s calculations than Matsushita. In Matsushita, the
Court based its understanding of defendants’ actual costs on a
single affidavit of one of defendants’ officers. The Court granted
summary judgment for defendants based on the failure to show
an intent to price below costs. 475 U.S. at 594 n.19, aff’g Zenith
Radio Corp. v. Matsushita Elec. Industries Co., 505 F.Supp. 1313
(E.D. Pa. 1981). Here, the Court’s understanding of the
transactions at issue and of Ken Carter’s costs are based on the
full record at trial. Moreover, plaintiff’s expert freely admitted
that his cost estimates were not based upon debts Ken Carter
actually incurred.
App. 31
and a five-piece bowl set in 1984.5! Plaintiff argues, nev-
ertheless, that the below cost pricing on these few items
constitutes predatory conduct. This pricing behavior
would be “economically senseless”, however, and does
not constitute substantial evidence of anticompetitive
conduct and intent. Matsushita, 475 U.S. at 597-98. Plain-
tiff made no showing that the few products priced below
cost in 1983 would “necessarily drive out rivals who were
selling a full line [of hollowware],” as all of Ken Carter’s
competitors did. Janich Bros., Inc. v. American Distilling
Co., 570 F.2d 848, 856 (9th Cir. 1977), cert. denied, 439 U.S.
829 (1978). The record contains no evidence that the two
bowls and the colander priced below cost in 1983 were
particularly important products in the hollowware mar-
ket. As to the five-piece bowl set priced below cost in
1984, plaintiff did introduce evidence that a retailer might
select a hollowware supplier based on the price of similar
items.32 Even assuming, however, that below cost pricing
31 Dr. Buckley calculated the various components of
average variable cost for 18 Ken Carter products in 1983 and 19
Ken Carter products in 1984. Plaintiff’s exhibit 701A, at 7-A to
7-E; exhibit 701D, at A-9 and A-10. To calculate average variable
cost exclusive of imputed interest, the trier-of-fact would
subtract column “1” from column “m.” Comparing this figure to
the average selling price for each item, column “c,” only a few
items are below average variable cost: the “CLD-13” colander,
and “MB-2” and “MB-5” mixing bowls in 1983, and the “5108”
five-piece bowl set in 1984.
32 Harold Burgeson, a hollowware buyer for Montgomery
Wards, testified that the key item in the Vollrath line in 1983 was
a six-piece mixing bowl set; Burgeson stated that he might
purchase the entire line based on the price of that item. Record
at 7-42 to 43. Carol Storn, Vollrath’s director of marketing, also
emphasized the importance of the five-piece bowl set in
App. 32
of this single product could eventually drive competitors
from the market, Vollrath contends that Ken Carter’s
price on the five-piece bow] set caused Vollrath to exit the
entire hollowware market in a mere five months. The
short duration of this below cost pricing cannot support
an inference of predation. William Inglis & Sons Baking
Company, Inc., 668 F.2d at 1034 n. 29 (not all short-run
pricing below average variable cost is predatory). Plain-
tiff also contends that it has proved that Ken Carter
priced below average total cost, and that such pricing is
sufficient to sustain the jury’s verdict. Pricing below aver-
age total cost, however, is only anticompetitive if plaintiff
establishes by other evidence that the pricing was preda-
tory, id.; there is no substantial evidence in the record
from which the inference can be drawn that Ken Carter
intended anticompetitive consequences to flow from its
pricing.
B. Steamer blockage.
As stated, it is plaintiff’s position that the Korean
Metal Flatware Association is a non-governmental orga-
nization of flatware and hollowware manufacturers and
exporters. Upon application, the Association may grant
an exclusive export license for a particular product to a
manufacturer or trading company. Sammi, as a trading
company, and Daesung, a hollowware manufacturer,
were co-owners of the export rights to a quart steamer.
securing accounts of retailers. Record at 4B-44, 51, 55 and 56.
There was no testimony as to the amount a hollowware
distributor would have to cut prices on a bowl set in order to
win an account.
App. 33
Vollrath showed that from October 1983 until January
1984 Sammi invoked its design registration rights to pre-
vent Daelim from exporting the steamers to Vollrath.
Record at 4-25; 5-181. Plaintiff contends that Sammi
caused this delay of three months as part of its attempt to
monopolize the United States market to distribute stain-
less steel, top-of-stove, free standing steamers.* Dr.
Shepherd testified that these steamers could be treated as
a distinct product and “in a sense” could be viewed as
constituting “a market of their own.” Record at 7-111.
Plaintiff relies on Handgards, Inc. v. Ethicon, Inc.
[1984-2 Trape Cases J 66,134], 743 F.2d 1282 (9th Cir.
1984), cert. denied, 469 U.S. 1190 (1985), for the proposi-
tion that Sammi’s invocation of its design registration
rights, like misuse of a patent, may form the basis of an
attempted monopolization claim under section 2. Hand-
gards makes clear, however, that the mere invocation of
patent rights is not clearly predatory conduct from which
a trier-of-fact is entitled to infer specific intent to monop-
olize.34 Since Sammi’s conduct was consistent with a
33 Vollrath has argued that Sammi’s anticompetitive intent
in blocking the steamers is evidence of a specific intent to price
below cost. The argument is that if Sammi had an intent to
monopolize the market for steamers, a jury could infer that
Sammi had intent to monopolize the market for bowls as well.
The argument is untenable.
34 The concern in Handgards — that an attempt to enforce
patent rights is not to be considered clearly predatory conduct -
stems from an effort to reconcile the goals of the antitrust laws
and the patent laws. A holder of a patent should neither be
encouraged to invoke a patent to dampen competition, nor
discouraged from invoking a patent out of fear of a claim of
attempted monopolization. Thus, in Handgards, Inc. v. Ethicon,
App. 34
legitimate concern to protect its design registration
rights,
[Vollrath] had to prove that the agents, officers,
and directors of [Sammi] responsible for .. .
maintaining the [objection to Daelim’s export]
were in possession of facts that prevented them
from holding a good faith belief that the
[steamer design registration rights] were valid.
Handgards, 743 F.2d at 1290. It is the knowing misuse of
an inapplicable patent that makes the conduct anticom-
petitive, and a plaintiff must prove that knowledge and
intent by direct or circumstantial evidence.
The record in this case contains no evidence to sup-
port a finding that Sammi’s invocation of its design rights
was in bad faith. Plaintiff made no effort to establish
what criteria govern the scope of Sammi’s design rights,
whether Vollrath’s steamer did or did not infringe on
those rights, and whether Sammi’s objection to Daelim’s
export was so lacking in merit that a trier-of-fact could
Inc. [1979-1 Trapve Cases J 62,625], 601 F.2d 986, 996 (9th Cir.
1979), cert. denied, 444 U.S. 1025 (1980), the court held that a
patentee’s infringement action is presumptively in good faith,
and to prevail on a Sherman Act claim, a plaintiff must prove, by
clear and convincing evidence, that the patentee used the patent
in bad faith, knowing the patent to be invalid.
Although this case concerns rights granted by the Korean
Metal Flatware Association, not the United States Patent Office,
some of the concerns implicated in Handgards apply here. At a
minimum, as a factual matter, the trier-of-fact cannot infer bad
faith from defendant’s invocation of legitimate design rights.
App. 35
infer that Sammi knowingly invoked an inapplicable pat-
ent. Instead, plaintiff was content to rely on the state-
ments of several witnesses that they “liked” the Vollrath
steamer better than the Ken Carter steamer.*5 In an anti-
trust context, this testimony is meaningless.
Having failed to prove that Sammi acted to inten-
tionally abuse the rights granted by the Association,
plaintiff claims that the operation of the Korean Metal
Flatware Association itself violated the antitrust laws.
Arguing from unsupported innuendo,* plaintiff attempts
to portray the Association as an organization dominated
35 For example, in an effort to prove that Sammi’s design
rights did not cover the Daelim steamer, plaintiff cites the
testimony of Mr. Burgeson, a hollowware buyer for
Montgomery Wards. Mr. Burgeson said that he “liked the look”
of the Daelim steamer, that it “had a gourmetish flavor” and
that other steamers “didn’t appeal to [him] as much.” Plaintiff’s
Opposition to Motion for JNOV at 24. Several Vollrath
employees echoed Mr. Burgeson’s preference for the Daelim
steamer.
Despite the abundant testimony as to how Vollrath’s
steamer was aesthetically more pleasing than Sammi’s steamer,
plaintiff failed to introduce any evidence as to why Sammi’s
design rights would not cover the Vollrath product. Indeed,
Vollrath’s Manager of imported products, Ernest Keppler,
candidly admitted that Vollrath and Daelim “weren’t even
thinking of design registration” in producing the competing
steamer. Record at 5-170.
36 For example, plaintiff argued that Mr. Park, a member of
the Association, admitted that an “express purpose” of the
Association was to “stop price competition.” Plaintiff’s
Opposition to Motion for JNOV at 25. This is an outright
distortion of Mr. Park’s testimony; Mr. Park stated that the
purposes of the Association were to ensure product quality and
compliance with the laws against dumping. Record at 11-182.
App. 36
by Sammi’s whims. Plaintiff contends that Sammi used its
influence as a dominant trading company and steel sup-
plier to intimidate Daelim into withholding export of the
steamer to Vollrath. There is absolutely no evidentiary
support in the record for this factual theory.” Even if
plaintiff’s accusation were true, however, Vollrath could
not make an antitrust violation out of that one fact alone.
There is no proof of harm to distributors or to competi-
tion in the United States from the temporary steamer
blockage. The parties agree that Sammi offered to sell
steamers to Vollrath at the same price charged to Ken
Carter and numerous unaffiliated importer/distributors
and on the same terms. On this state of the record, the
harm to American consumers of steamers or the distribu-
tors selling those steamers is impossible to discern.%8
37 Indeed, plaintiff admits that the chairman of the Korean
Metal Flatware Association during the time of the steamer
blockage was the president of Daelim, the manufacturer of
Vollrath’s steamer. Record at 6-32 to 33. Yet Vollrath’s attorneys
insisted, without a shred of evidence, that Sammi’s power in
Korea was so great that even Daelim would collapse under
Sammi’s pressure or that Sammi controlled all of the other
members of the board. Moreover, if Sammi had such power,
there is no explanation in the record as to why Sammi relented
and ultimately permitted the Daelim steamer to be shipped.
38 If Sammi did have monopoly power over steel
production and used that power to prevent Daelim from
entering the market to produce stainless steel steamers, that
conduct would certainly be anticompetitive in Korea. However,
the “American antitrust laws do not regulate the competitive
conditions of other nations’ economies,” Matsushita, 475 U.S. at
582. Thus, plaintiff would be required to prove how the harm to
Daelim affected competition in the United States.
App. 37
IV. Conspiracy.
Copperweld establishes that a parent and its wholly
owned subsidiary are legally incapable of conspiring
with each other under section 1 of the Sherman Act. The
Copperweld rule should be equally applicable to an allega-
tion of conspiracy under section 2. H.R.M., Inc. v. Tele-
Communications, Inc. [1987-1 Trape Cases ] 67,475], 653
F.Supp. 645, 648 (D. Colo. 1987). Copperweld recognized,
however, that where separate corporations become affili-
ated in furtherance of an illegal conspiracy, common
ownership and control do not protect subsequent action
from scrutiny under section 1. 467 U.S. at 761; see also Rio
Vista Oil Ltd. v. Southland Corp. [1987-2 Trape Cases
{ 67,696], 667 F.Supp. 757, 761 (D. Utah 1987). To avoid
the Copperweld prohibition against intra-corporate con-
spiracies, then, plaintiff contended that, prior to the
acquisition, Sammi and Sammi America conspired with
Ken Carter to price hollowware below cost.
Although plaintiff introduced evidence from which it
could be inferred that Sammi and Sammi America had
some sort of relationship with Ken Carter prior to the
acquisition, there is absolutely no evidence that this com-
bination had an anticompetitive purpose. Prior to the
acquisition, Ken Carter purchased substantial amounts of
inventory from Sammi, thereby incurring a debt as large
as $2 million, and at times Ken Carter held itself out to be
a division of Sammi or Sammi America. Plaintiff offered
no evidence that either the debt or the relationship
allowed Ken Carter to price its products below cost. In
fact, there is no evidence of sales below cost in this pre-
acquisition period. Nor has plaintiff identified any aspect
App. 38
of the acquisition documents that might tend to restrain
or injure competition.
Instead, Vollrath relied on defendants’ post-acquisi-
tion conduct to create an inference that Sammi America’s
intent in acquiring Ken Carter was to carry out a preda-
tory pricing scheme. There is no other evidence from
which such an inference could be drawn. As to the post-
acquisition conduct, of course, plaintiff failed to intro-
duce substantial evidence that Ken Carter actually set
prices below cost at any time, or that Sammi and Sammi
America operating through Ken Carter carried out a
predatory scheme. Thus, if plaintiff’s attempted monopo-
lization claim against the defendants fails, so must plain-
tiff’s conspiracy claim. Second, even if Vollrath had
succeeded on its attempted monopolization claim, plain-
tiff failed to offer any reason why a trier-of-fact could
reasonably infer that there was any anticompetitive
scheme in existence prior to the acquisition of Ken Carter
by Sammi America. Sammi America purchased Ken Car-
ter in November 1981, yet Ken Carter is not accused of
engaging in predatory pricing until 1983. The only legiti-
mate inference from the delay is that if defendants con-
ceived of a scheme, they did so long after the acquisition.
This is especially true since plaintiff has offered no expla-
nation of how or in what way the acquisition could have
aided defendants in their predatory pricing. There is
nothing in the record to suggest that the defendants
could do anything respecting pricing in 1983 that they
could not have done in 1981, before the acquisition.
Under these circumstances, the conspiracy claim under
section 2 must fail.
App. 39
V. Robinson-Patman Act.
A. Legal Standard.
In addition to its predatory pricing claims under
sections 1 and 2 of the Sherman Act, Vollrath attempted
to prove that Ken Carter sold hollowware at lower prices
to certain retailers than to other retailers in an effort tu
take over accounts serviced by Vollrath; plaintiff con-
tends that this discriminatory pricing violates section 2(a)
of the Clayton Act as amended by the Robinson-Patman
Act, 15 U.S.C. § 13(a). Although price discrimination and
predatory pricing are governed by distinct statutes, it is
critical to recognize that in this case, the two legal theo-
ries “are directed at the same economic evil and have the
same substantive content.” Janich Bros., 570 F.2d at 855.
Vollrath’s price discrimination claim is merely a subpart
of its predatory pricing claim; the predatory pricing claim
is that Ken Carter generally lowered its prices to elimi-
nate competition thereby attempting to gain a monopoly,
and the discriminatory pricing claim is that Ken Carter
selectively lowered prices to accounts serviced by Vollrath
to discipline or eliminate it from the market. Thus, the
evil which the Robinsun-Patman Act proscribes — where
the alleged injury is to the competitors of the price setting
firm (i.e. “primary-line” injury) — is the same evil pro-
scribed by the Sherman Act: the setting of an “improper
price.”39
39 P. Areeda & H. Hovenkamp, Antitrust Law: 1988
Supplement 574 (1988).
App. 40
With this general consideration as a guide, Vollrath
must prove several jurisdictional and substantive ele-
ments to prevail on its discriminatory pricing claim. First,
plaintiff must establish that Ken Carter made two or more
contemporaneous sales of like products to different
retailers at different prices; and, at least one of the sales
must have been made in interstate commerce. Rutledge v.
Elec. Hose & Rubber Co. [1975-1 Trape Cases J 60,151], 511
F.2d 668, 677 (9th Cir. 1975). Mere price discrimination,
however, does not violate section 2(a). Since selective
price cutting to particular customers, like the lowering of
prices generally, can be the essence or the antithesis of
competition, section 2(a) distinguishes “between vig-
orous, but honest, price competition and predatory
assaults on the competitive process.” William Inglis, 668
F.2d at 1042.
Therefore, plaintiff must also prove that the effect of
the price discrimination
may [have been] substantially to lessen competi-
tion or tend to create a monopoly in any line of
commerce, or to injure, destroy, or prevent com-
petition with [Ken Carter].
15 U.S.C. § 13(a). This requisite effect on competition may
be inferred from evidence of predatory intent, or, in the
absence of such evidence, from proof of predatory con-
duct. William Inglis, 668 F.2d at 1040-41. Because Voll-
rath’s discriminatory pricing claim is a subpart of its
predatory pricing claim, whether defendants’ conduct
will support an inference of predation is judged by the
same analytical standards applicable to attempt to
App. 41
monopolize claims under section 2 of the Sherman Act.
Id. at 1041.40
Finally, to prevail on a section 2(a) claim, a private
plaintiff must establish that the discrimination caused
actual harm to it. J. Truett Payne Co. v. Chrysler Motors
Corp. [1981-1 Trape Cases { 64,013], 451 USS. 557, 562
(1981).
B. Plaintiff's proof.
1. Ken Carter
The jury returned a verdict against both Sammi and
Ken Carter on the discriminatory pricing claim. This
claim is. based solely on the claim that Ken Carter
engaged in discriminatorily low pricing to Target stores, a
retailer that had been a Vollrath account. Plaintiff intro-
duced evidence that, in June 1983, Ken Carter sent price
quotes to Target for over twenty hollowware items. Plain-
tiff’s exhibit 110. On one of these items — The “5108” five-
piece mixing bowl set — Ken Carter’s offered price was
© Thus, the cost based test applicable to predatory pricing
claims under the Sherman Act also applies to Robinson-Patman
claims. A defendant's discriminatory pricing is presumptively
predatory if the lower price set by defendant is below
defendant’s average variable cost; if the lower price is above
average variable cost, however, the burden remains on plaintiff
to prove that the price is predatory. Ultimately, however, the
cost based test, as with the Sherman Act, merely serves to
allocate the burden of proof on the issue of predation. A
discriminatory price is predatory only if defendant justifies the
price on the anticipated benefit of disciplining or eliminating
competition.
App. 42
less than average variable cost.*! Target, however, did not
actually purchase any hollowware from Ken Carter in
1983. Plaintiff’s exhibit 701C, “Summary of Carter’s Sales
of Relevant Products to its Major Customers,” dated Sep-
tember 18, 1986, at 4.
Vollrath’s vice-president of marketing, Carol Storn,
testified that, in early 1984, Target pressured Vollrath to
lower its prices. Vollrath responded by offering a special
price on its own five-piece mixing bowl set for a Target
promotional sale in March 1984. See plaintiff’s exhibit
123. In its attempt to keep competitive, however, Vollrath
was losing money on each shipment of bowls to Target,
and in May 1984, Storn informed Target that Vollrath
would increase its prices. In response to Vollrath’s price
increase, Target told Vollrath that Target would seek a
new supplier.42 During this same month, Vollrath made
the decision to exit the hollowware distribution market.
41 Compare Dr. Buckley’s calculation of the average
variable cost to Ken Carter of selling a “5108” set in 1983 (less
imputed interest) —- $6.27 - to the price quoted to Target — $5.00.
Plaintiff’s exhibit 701A at C; plaintiff’s exhibit 110.
42 The following is Storn’s complete testimony as to these
events:
“We had extreme pricing pressure from Target and had to
lower our prices to them as a result of it. The ultimate result was
that every time we made a shipment to Target we were losing
money, and the next thing that I did - I went to see the buyer at
Target in Minneapolis, and one of the things that I learned is
that she was not going to add any other products to the line.
“They were strictly going to buy mixing bowls, and in effect
that meant we had no opportunity to make up lost profits [on
our mixing bowls], so I gaveher a price increase. I was informed
that they would look for another-supplier and buy from us only
App. 43
Subsequently, Ken Carter secured the Target account.
Although Carol Storn testified that Ken Carter may have
made sales to Target in May or June of 1984, plaintiff
offered evidence only of sales and the terms of sales from
Ken Carter to Target beginning in late July 1984; there is
substantial evidence that, from July through December
1984, Ken Carter sold its “5108” and “MBS-5C” bow! sets
to Target at prices below the prices charged to other
retailers. Plaintiff’s exhibit 701C, “Summary of Carter’s
Sales of Relevant Products to its Major Customers,” dated
September 18, 1986, at 2U-202. The prices offered to Target
on these two items were also below average variable cost.
Plaintiff’s Robinson-Patman claim, if it is based on
pricing pressure stemming from Ken Carter’s offer to sell
five-piece mixing bowls, fails to meet the jurisdictional
requirements of the statute. Section 2(a) expressly requires
that the price discrimination be based on two completed,
contemporaneous sales, and “a mere ‘offer’ to sell to com-
peting customers at different prices does not satisfy this
requirement.” Foremost Pro Color, Inc. v. Eastman Kodak Co.
[1983-1 Trape Cases ¥ 65,239], 703 F.2d 534, 547 (9th Cir.
1983), cert. denied, 465 U.S. 1038 (1984). Thus, plaintiff
must base its Robinson-Patman claim on the actual sales
that Ken Carter made to Target beginning in July 1984. If
plaintiff relies on these sales to support its price discrimi-
nation claim, however, the price disparities cannot have
caused any injury to Vollrath because it made the decision
to exit the hollowware business, in May. After Vollrath
if they had to, because they ran out of inventory in the
meantime.”
Record at 4B-61.
App. 44
made its decision to exit the market, there is no evidence
that Vollrath attempted to obtain the Target account, or
any other retailer’s account. Ken Carter’s discriminatory
pricing in 1984, then, did not cause Vollrath to lose the
Target account. Plaintiff has no standing to recover for an
alleged Robinson-Patman violation that did not cause it
any harm. J. Truett Payne, 451 U.S. at 562.
Even assuming that the record contained substantial
evidence that Ken Carter’s discriminatory prices to Tar-
get caused Vollrath to lose the Target account, plaintiff
did not establish the requisite effect on competition.
Although Vollrath boldly claimed that the loss of Target
“plunged” Vollrath into losses leading to the demise of
the Consumer Products Division, the record dos [sic] not
support the claim that Vollrath’s loss of the Target
account could have resulted in an immediate decision to
cease operations. Vollrath’s price discrimination claim, at
best, is based on the shifting of a single account from
Vollrath to Ken Carter, with no resulting change in the
number of importer/distributors in the market. Foremost
Pro Color, 703 F.2d at 548 (“injury to a specific competitor
is not enough from which a court may infer that an
alleged price discrimination may ‘substantially’ injure
competition.” )4#
43 Defendants also argue that judgment notwithstanding the
verdict should be granted because Ken Carter proved that it was
merely meeting competition by setting its five-piece bowl price at
five dollars. Defendants’ Reply to Opposition to Motion for
JNOV at 23. It is an absolute defense to a charge of violating
section 2(a) to show that defendant’s pricing “was a good faith
effort to meet price competition.” William Inglis, 668 F.2d at 1045.
Le a oe oe
App. 45
2. Sammi.
Plaintiff introduced absolutely no evidence that
Sammi sold hollowware to different purchasers at differ-
ent prices.* It is undisputed that Sammi sold its hollow-
ware to other importer/distributors at the same prices
charged to Ken Carter. Thus, there is no factual basis for
holding both Sammi and Ken Carter liable under section
2(a) unless Ken Carter was eng>ged in discriminatory
pricing and the acts of Ken Carter can be attributed to
Sammi.
No facts have been established which would furnish
a legal basis for attributing Ken Carter’s pricing conduct
with respect to Target to Sammi. All the record shows is
that Sammi is a parent and Ken Carter a subsidiary in the
same economic unit. Moreover, taking Sammi and Ken
Carter as part of a single economic unit, there is no
Although Vollrath’s Carol Storn admitted that Target’s
buyer told her that National Silver had offered its five-piece
bowl set for $4.90, a price lower than Ken Carter had offered,
Record at 5-4 to 5, this testimony alone does not satisfy the
demanding requirements for JNOV. Since the record does not
reveal whether Ken Carter made its offer in response to
National Silver or vice-versa, defendants have not established
the meeting competition defense as a matter of law. Id.
44 Plaintiff did not, and could not, allege that ‘ «mmi’s sales
of hollowware to Ken Carter on D/A terms conten “oraneously
with sales of hollowware to other importer/distributors on
other terms violated section 2(a); a parent corporation may set
prices more favorably to its subsidiary than to other buyers
without violating the laws against discriminatory pricing. See
Russ’ Kwik Car Wash, Inc. v. Marathon Petroleum Co. [1985-2
Trave Cases J 66,796], 772 F.2d 214 (6th Cir. 1985).
App. 46
evidence that defendants set prices below average vari-
able cost.4° The burden on predation, then, did not shift
to defendants, and plaintiff was required to introduce
other evidence that the pricing was predatory.
However, no basis for establishing the requisite
competitive injury, other than by proof of preda-
tory intent and predatory pricing, is evident in
the record before [the Court], nor has [Vollrath]
argued one. Certainly, the mere fact that [Voll-
rath] suffered losses and eventually ceased
operations is not sufficient to establish a section
2(a) Robinson-Patman Act violation.
William Inglis, 668 F.2d at 1042. Plaintiff did not do that.
Thus, the Robinson-Patman claim cannot stand as to
defendant Sammi.
VI. California Unfair Trade Practices Act.
The jury found Sammi and Ken Carter, but not
Sammi America, liable for violating two provisions of the
California Unfair Trade Practices Act: (1) the prohibition .
against sales below cost, Ca!. Bus. & Prof. Code § 17043,46
and (2) the loss leader provision, prohibiting a sale below
cost of one product to induce purchase of a full line of
45 See supra Part II.A.2.a.
46 Section 17043 states:
“It is unlawful for any person engaged in business within
this State to sell any article at less than the cost thereof to such
vendor .. . for the purpose of injuring competitors or destroying
competition.”
App. 47
products or to injure competitors, Cal Bus. & Prof. Code
§ 17044.47
Although Dr. Buckley’s study of Ken Carter’s pricing
practices, if accepted, is sufficient to prove that Ken Car-
ter, in 1983, sold two bowls and a colander and, in 1984,
sold its five piece mixing bowl set at less than cost,48
there is no evidence in the record that these sales took
place in California.49 Thus, Vollrath has not proved a
47 Section 17044 states:
“It is unlawful for any person engaged in business within
this State to seller [sic] use any article or product as a ‘loss
leader’... . ” Cal. Bus. & Prof. Code § 17030 defines a “loss
leader” as:
“any article or product sold at less than cost: (a) Where the
purpose is to induce, promote or encourage the purchase of
other merchandise; . . . (c) Where the effect is to divert trade
from or otherwise injure competitors.”
48 Cal. Bus. & Prof. Code § 17026 sets forth the relevant
definition of costs as to Ken Carter:
‘Cost’ as applied to distribution means the invoice . . . cost
of the article or product to the distributor and vendor, plus the
cost of doing business by the distributor and vendor.”
49 In fact, only one plaintiff witness even addressed
California. Mr. Kashuk, an employee of Metro, a competitor of
both Vollrath and Sammi, testified that Mervyns, a San
Francisco retailer, refused to purchase hollowware from Metro
because “[Mervyns could] continue to buy the goods from Ken
Carter at 10 percent less than the price [Metro] had offered.”
Record at 3PM-84 to 86.
Kashuk’s testimony only shows that Ken Carter offered to
sell products below Metro’s costs, not Ken Carter’s costs.
Moreover, even assuming that this testimony could support a
finding of injury to Metro, plaintiff Vollrath cannot rest its case
on injury to a competitor.
App. 48
nexus between Ken Carter’s pricing and any injury to
Vollrath or to consumers in California.
Furthermore, even if Ken Carter had violated the
California Unfair Practices Act, there is insufficient evi-
dence to support such a finding against Sammi. Sammi is
a supplier of stainless steel hollowware; thus, whether
Sammi priced below cost must be measured by its costs
of supplying stainless steel hollowware.*! There is no
evidence on the record, however, as to Sammi’s costs.
VII. Conclusion
Antitrust cases must be predicated on economic real-
ities. Here, however, plaintiff eschewed the realities in
favor of factual theories that were directly contradicted
by actual circumstances. In an attempt to piece together a
case, plaintiff picked and chose mismatched items of
50 Plaintiff never attempted to identify particular sales
affecting California. Rather, plaintiff claimed that since Ken
Carter eliminated Vollrath from competition and Vollrath
serviced retailers which operated nationally, California must
have been affected. Plaintiff has failed to establish, however,
that Ken Carter’s anticompetitive acts eliminated Vollrath.
Therefore, plaintiff must make a specific showing of harm to
California to prevail on the pendent claims.
51 Sammi’s costs would differ from those of Ken Carter;
Cal. Bus. & Prof. Code § 17026 states:
‘Cost’ as applied to production includes the cost of raw
materials, labor and all overhead expenses of the producer.”
To the extent that Sammi and Ken Carter are treated as a
single economic entity, it would be more rational to use the cost
of production in lieu of the invoice cost applicable to
distributors.
App. 49
evidence which taken together do not present a coherent
legal or factual theory. Actually, it is clear that the more
mixed up and confusing the theories became, the easier it
was for the jury to accept the kind of argument that was
made in closing.5? Plaintiff made that argument, of
course, based on absolutely neutral facts. First, defen-
dants are in a parent/subsidiary relationship with one
another. Second, they are in fact part of a single economic
unit. Third, Sammi supplied the product at issue here and
Ken Carter distributed it. Fourth, Sammi America loaned
large sums of money to Ken Carter to pay for the prod-
uct. Fifth, Sammi had Korean design rights in a steamer.
The difficulty is that these neutral facts, without more,
52 Vollrath seized upon the nationalistic undercurrents of
the dispute to sell its case to the jury. For example, in closing,
plaintiff’s attorney argued:
“What we are asking you to do is to find of course for
Vollrath . . . but there is another message too. What we are really
asking for is you [to] send a message to anyone who wishes to
come into our country to do business here, people even in our
country. Korea operates differently than us. You have heard Mr.
Park testify that the design registration system committee
concerned itself with price fixing. We don’t do that in this
country, at least not legally. That is fine. They can do that in
Korea. When Koreans or anyone else come into this country [ - ]
and we want them here - when they come here they ought to
obey our laws. They ought to obey the laws we have here. They
ought to know those laws and they ought to honor them. All we
are asking is that you give us what we deserve, but also send a
message to anyone who wants to come into this country that
they better do business by our laws, our way, if they want to
come here. And then we will have a marketplace that we are all
happier with and all the choice and all the variety that we want.
And that’s what we are are seeking.”
Record of Proceedings on April 4, 1989 at 35-36.
App. 50
cannot make Sammi and Sammi America liable for Ken
Carter’s acts, nor Ken Carter liable for Sammi’s. There
are, of course, various legal bases for the attribution of
the acts of one defendant to another defendant, but in the
antitrust context, the mere existence of a parent/subsid-
iary relationship — without more — is not enough to estab-
lish liability on the part of one for the acts of the other.
Looking at the evidence in this case, the Court cannot
find a basis for attributing the pricing conduct of Ken
Carter to Sammi or to Sammi America. Nor can it find
any basis for attributing Sammi’s steamer blockage con-
duct to Ken Carter or Sammi America. The proof shows,
at the most, only what appears to have been in effect
subsidization by way of credit and loans to a subsidiary
from a parent. With what intent this subsidization was
carried on, the record is silent. The record is also silent
with respect to proof of any of the requisite elements of
an antitrust case on any theory in relation to the steamer
blockage. The Court can only assume that the ste** -r
incident was introduced as a makeweight to bolster the
intent element of the predatory pricing claim.
The conspiracy allegations did not provide a basis for
attributing the acts of one defendant to the other, because
of Copperweld. To avoid Copperweld, plaintiff pieced
together whatever it could find in an attempt to establish
that Ken Carter was acquired to further the aims of an
already exising conspiracy. To this end, evidence was
offered to prove that prior to the acquisition of Ken
Carter in 1981, Ken Carter had some kind of working
relationship with Sammi, Sammi America and Ken Carter.
Yet, if the conspiracy existed prior to 1981, it was not
until 1983 that Ken Carter is claimed to have sold any
App. 51
goods at prices below cost. In the face of this reality, it is
nevertheless plaintiff’s position that Ken Carter’s post-
acquisition conduct proves that the conspiracy existed
pre-acquisition. The fact that defendants did it in 1983 is
offered to show that they conspired to do it before 1981.
This kind of evidence is persuasive in many antitrust
cases, but here it is pure surmise. If the post-acquisition
predatory pricing proof is disregarded, the pre-acquisi-
tion proof does not establish a conspiracy. Since there
cannot legally be one post-acquisition, plaintiff’s conspir-
acy claims must fail.
The same trick with timing mentioned above also
occurred with respect to the proof in support of the
Robinson-Patman Act claim. Plaintiff asked the trier-of-
fact to find that discriminatorily priced sales made in July
1984 were the cause of Vollrath losing an account in May
1984, despite testimony by plaintiff’s own witness that
the retailer terminated Vollrath due to a price increase
from Vollrath-befere May 1984. This is not a difference in
timing of @ few days; this is a crucial piece of evidence on
causation, and it does not fit.
Mixing facts and theories appears in its most objec-
tionable form in the proof of predatory pricing. Actually,
the jury verdict may be credited to a talented economist
who made the case by imputing interest on intra-corpo-
rate transactions between the defendants. The interest
imputed between the parent and the subsidiary furnished
the basis for the conclusion that some sales of some
products had been below cost, and, thus, there had been
predatory conduct. The predatory conduct furnished the
basis for an inference that the defendants intended to
control prices or eliminate competition as well as all the
App. 52
other elements of the plaintiff’s claims. The whole case is
based on imputed interest between a parent and a subsid-
iary. Yet, here too the theories do not go with the facts.
In a case in which the theory is that the supplier/
parent is directing and subsidizing the predatory pricing
conduct of the distributor subsidiary, it would seem clear
that the cost to the economic unit engaged in the scheme
should be the focus of the inquiry. On the other hand, the
evidence in a given case might show that the parent was
not involved in the predatory pricing. If so, a different
calculation of costs, focussed on the subsidiary alone,
would seem to be required. In short, the question of who
is in on the scheme necessarily impacts how the preda-
tor’s costs are to be calculated. Here, the theory was not
that Ken Carter was going it alone, but that Sammi,
Sammi America and Ken Carter were all in it together.
Nevertheless, Dr. Buckley’s calculation of Ken Carter’s
costs incorporates numbers appropriate for inclusion on
both the theory that Sammi, Sammi America and Ken
Carter were acting together, and on the theory that Ken
Carter was acting alone. Both theories are included in the
same calculation at the same time.
The most serious flaw in the plaintiff’s predatory
- pricing theory remains for final mention: it is simply that
a would-be monopolist confronting the market structure
at issue in this case surely would be aware that he could
not succeed. No matter how the market is defined — and
certainly plaintiff did not define it — the ease of entry into
it and the number of potential participants on every level
of it abundantly demonstrate that recoupment by the
monopolist would never be possible. This is the classic
case for the application of the teaching of Matsushita.
App. 53
r@ as
=*
¢
The motion for judgment not
is granted.
App. 54
The VOLLRATH COMPANY,
Plaintiff-Appellant,
Vv.
SAMMI CORPORATION; Ken Carter
Industries, Inc.; Sammisa (America) Corp.,
Defendants-Appellees.
No. 90-55201.
United States Court of Appeals,
Ninth Circuit.
Argued May 9, 1991.
Submission Deferred May 9, 1991.
Resubmitted Aug. 7, 1991.
Submission Withdrawn July 27, 1993.
Resubmitted Nov. 19, 1993.
Decided Nov. 29, 1993.
William P. Tedards, Jr., Washington, DC, for plaintiff-
appellant.
Thomas G. Bailey, Jr., Whitman & Ransom, New York
City, for defendants-appellees.
Appeal from the United States District Court for the
Central District of California.
Before: HUG, NORRIS, and LEAVY, Circuit Judges.
App. 55
OPINION
HUG, Circuit Judge:
Vollrath Company (“Vollrath”) appeals the district
court’s order granting the defendants’ motion for judg-
ment notwithstanding the verdict in Vollrath’s antitrust
action. Vollrath contends there was sufficient evidence
from which the jury could have concluded that the defen-
dants violated sections 1 and 2 of the Sherman Antitrust
Act by a predatory pricing scheme for stainless steel
mixing bowls and by restricting output in Korea of stain-
less steel steamer cookware. Vollrath further contends
there was sufficient evidence from which the jury could
reasonably have concluded the defendants’ pricing of the
stainless steel mixing bowls violated the California Unfair
Trade Practices Act. Vollrath also asserts that the district
court erred when ‘t barred Vollrath from amending its
complaint to allege a claim for tortious interference with
a contractual and business relationship. We affirm the
district court’s judgment.
I.
FACTS
The parties to this dispute include a number of cor-
porations engaged in the manufacture and distribution of
Stainless steel mixing bowls and steamers. Vollrath, a
Wisconsin company, was engaged in the business of
importing stainless steel steamers and mixing bowls pur-
chased from companies in Korea. Sammi Corporation
(“Sammi”) is a large Korean trading company that pur-
chases a large variety of Korean goods for export to the
App. 56
United States and other countries. Among the products
exported are stainless steel steamers (which are used in
the kitchen on stove burners to cook food by steaming)
and stainless steel mixing bowls (which are used in the
kitchen for preparation and storage). Sammisa (America)
Corporation (“Sammi America”) is Sammi’s United States
subsidiary, which is primarily engaged in the importation
and sale of industrial steel products. Ken Carter Indus-
tries is a subsidiary of Sammi America. Ken Carter Indus-
tries imports and sells stainless steel steamers and mixing
bowls exported by Sammi, which are the subject of this
action.
Vollrath sued Sammi, Sammi America, and Ken Car-
ter Industries for violating sections 1 and 2 of the Sher-
man Act and section 2(a) of the Clayton Act. Vollrath’s
complaint also included charges that the defendants vio-
lated California Bus. & Prof.Code §§ 17043 and 17044.
Before trial, Vollrath attempted to amend its complaint so
as to submit the additional charge that Sammi’s output
restriction gave rise to a claim of tortious interference
under California law. However, on March 10, 1989, the
first day of trial, the district court ruled that Vollrath
would not be able to proceed with its tortious interfer-
ence charge. The trial continued until April 5, 1989 and
on April 11, 1989, the jury returned a verdict in favor of
Vollrath on all of the federal and state claims. The jury
awarded $9,478,676 in federal damages and $711,803 in
state damages, making the total award of damages, after
trebling the award on the federal claims, $29,147,831.
The defendants moved for a judgment notwithstand-
ing the verdict (“JNOV”) and for a new trial on July 17,
1989. On November 15, 1989, the district court informed
App. 57
the parties the JNOV motion would be granted but that
the court would reserve judgment on the motion for new
trial until the appeal from the JNOV was resolved. The
court entered its judgment granting the JNOV motion on
December 27, 1989. Vollrath filed a notice of appeal on
January 22, 1990.1
Il.
JURISDICTION
Initially, we face a jurisdictional question. Rule 50(c)
of Federal Rules of Civil Procedure requires that, when a
motion for a new trial is joined with a motion for JNOV
or is prayed for in the alternative, the district court is
required to issue a conditional ruling on the new trial
motion.” The district court in this instance did not issue
* Vollrath does not contest on appeal the granting of the
JNOV on the claim under section 2(a) of the Clayton Act.
2 Effective December 31, 1991, Rule 50 of the Federal Rules
of Civil Procedure was amended. A motion for “directed
verdict” is redesignated as a motion for “judgment as a matter
of law,” and if not granted before submission to the jury, it is
deemed to have been submitted subject to a later determination
of the legal questions upon a motion for renewal of that motion.
Thus, the prior terminology of such a renewed motion as a
motion for judgment notwithstanding the verdict (“JNOV”) has
been replaced as a renewal of the motion for judgment as a
matter of law. The operation of Rule 50(c) remains unchanged,
though the reference is now to a judgment as a matter of law
rather than a judgment notwithstanding the verdict. Because
the motions here involved were made prior to the 1991
amendment, we shall continue to use the term JNOV and quote
the language from Rule 50(c) as it then existed. We note,
however, that our interpretation of Rule 50(c) is equally
App. 58
an alternate ruling as required by Fed.R.Civ.P. 50(c) but,
rather, reserved its ruling on the new trial until after the
appeal from the JNOV was resolved. There is no doubt
that this is error, but the question becomes whether this
deprives us of appellate jurisdiction. Rule 50(c) does not
specify the consequences for failure to issue a conditional
ruling on the new trial motion. Specifically, Rule 50(c)
does not indicate that such a conditional ruling is a
prerequisite to appellate jurisdiction.%
applicable to the new terminology. We also note that the
standard for granting the post-verdict motion is the same
whether designated as a JNOV or a renewed motion for
judgment as a matter of law. The change merely emphasizes that
the grounds for the motion must have been stated in the motion
made prior to submitting the case to the jury.
3 Rule 50(c) at the time of the order provided:
Conditional Rulings on Grant of Motion.
(1) If the motion for judgment notwithstanding
the verdict, provided for in subdivision (b) of this
rule, is granted, the court shall also rule on the motion
for a new trial, if any, by determining whether it
should be granted if the judgment is thereafter
vacated or reversed, and shall specify the grounds for
granting or denying the motion for the new trial. If
the motion for a new trial is thus conditionally
granted, the order thereon does not affect the finality
of the judgment. In case the motion for a new trial has
been conditionally granted and the judgment is
reversed on appeal, the new trial shall proceed unless
the appellate court has otherwise ordered. In case the
motion for a new trial has been conditionally denied,
the appellee on appeal may assert error in that denial;
and if the judgment is reversed on appeal, subsequent
proceedings shall be in accordance with the order of
the appellate court.
App. 59
In considering whether the failure to comply with the
requirements of Rule 50(c) deprives this court of appel-
late jurisdiction, we must consider Rule 50(c) itself and
also Fed.R.App.P. 4(a)(4). The authorities prior to the 1979
amendment adopting Fed.R.App.P. 4(a)(4) are in general
agreement that the district court’s failure to rule on a new
trial motion in the alternative is, at most, a procedural
flaw that does not affect appellate jurisdiction.
In at least two cases, this court has previously
addressed the merits of an appeal after explicitly noting
that the trial court failed to issue a conditional ruling
pursuant to Fed.R.Civ.P. 50(c). In both Cockrum v. Whitney,
479 F.2d 84, 85 (9th Cir.1973), and Gordon Mailloux Enter-
prises, Inc. v. Firemen’s Insurance Co. of Newark, 366 F.2d
740, 742 (9th Cir.1966), this court addressed the merits of
an appeal notwithstanding the trial court’s failure to
issue a conditional ruling and then subsequently
remanded the cause for a ruling on the new trial motion.
This approach is consistent with that of other authorities
which suggest it may be proper for a court of appeals
either to rule on the merits of an appeal or to decide the
pending new trial motion when a district court fails to
comply with Rule 50(c). See Motter v. Everest & Jennings,
Inc., 883 F.2d 1223, 1229 (3d Cir.1989) (appeals court
should treat new trial motion as granted); Mays v. Pioneer
Lumber Corp., 502 F.2d 106, 109-110 (4th Cir.1974), cert.
denied, 420 U.S. 927, 95 S.Ct. 1125, 43 L.Ed.2d 398 (1975).
See also 9 Wright & Miller, Federal Practice and Procedure,
§ 2539 (Supp.1993) (citing Mays with approval); 5A
Moore’s Federal Practice | 50.12 at 50-105 (court may
order either entry of judgment or a new trial or remand
App. 60
case to trial court for reconsideration of new trial
motion).
A somewhat closer question is presented by the sub-
sequent amendment to Fed.R.App.P. 4(a). That provision
was amended in 1979 so as to include subdivision 4(a)(4),
which provides:
If a timely motion under Federal Rules of
Civil Procedure is filed in the district court by
any party: (i) for judgment under Rule 50(b); (ii)
under Rule 52(b) to amend or make additional
findings of fact, whether or not an alteration of
the judgment would be required if the motion is
granted; (iii) under Rule 59 to alter or amend the
judgment; or (iv) under Rule 59 for a new trial,
the time for appeal for all parties shall run from
the entry of the order denying a new trial or
granting or denying any other such motion. A
notice of appeal filed before the disposition of
any of the above motions shall have no effect. A
new notice of appeal must be filed within the
prescribed time measured from the entry of the
order disposing of the motion as provided
above. ...
(Emphasis added.) Because the order granting the JNOV
under Rule 52(b) is an order granting “any other such
motion,” the time for appeal commences to run. A notice
of appeal is not rendered premature because no alternate
ruling on the motion for a new trial has been made. The
express words of Rule 4(a)(4) do not require such a result
and the policy behind the rule does not counsel that
result.
App. 61
Rule 4(a) prevents a party from appealing a judgment
when a pending post-judgment motion renders the judg-
ment non-final. Fed.R.App.P. Rule 4(a). Specifically, the
Advisory Committee note to the 1979 amendment to Rule
4(a)(4) makes clear that the rule was intended to prevent
the appellate court from assuming jurisdiction in a case
“while the district court has before it a motion the grant-
ing of which would vacate or alter the judgment appealed
from.” Fed.R.App.P. 4(a)(4) Advisory Committee’s note to
1979 amendment (emphasis added). When a district court
grants a motion for JNOV, that order is the final judgment
of the court. The district court does not have before it a
motion “the granting of which would vacate or alter that
judgment.” The judgment based on the JNOV could be
altered only by reversal on appeal, not by any ruling by
the district court.
We therefore conclude that we may properly exercise
appellate jurisdiction over this case.
Il.
PLAINTIFF’S LEGAL THEORIES
Vollrath’s action was submitted to the jury on several
legal theories. The theories argued on appeal are:
(1) An attempt to monopolize in violation of
section 2 of the Sherman Act, based upon
(a) Ken Carter’s predatory pricing of
stainless steel mixing bowls, and
(b) Sammi’s invoking design registration
rights to prevent another exporter in Korea
from exporting stainless steel steamers.
ea |
App. 62
(2) Conspiracy to
(a) restrain trade in violation of section 1
of the Sherman Act, and
(b) monopolize in violation of section 2 of
the Sherman Act.
(3) Violations of the California Unfair Trade
Practices Act, Cal.Bus. & Prof.Code § 17000 et
seq.
Vollrath also raises for the first time on appeal a
contention that the restriction of output by Sammi was a
“naked restraint of trade” and a per se violation of Section
1 of the Sherman Act. Vollrath also asserts as error the
district court’s order denying Vollrath’s motion, on the
eve of trial, to amend its complaint to allege a state law
claim of tortious interference with a contractual and busi-
ness relationship.
In reviewing a district court’s order granting JNOV,
we review the decision de novo, applying the same stan-
dard as the district court. The Jeanery, Inc. v. James Jeans,
Inc., 849 F.2d 1148, 1151 (9th Cir.1988). A JNOV is proper
if the evidence, construed in the light most favorable to
the nonmoving party, permits only one reasonable con-
clusion, and that conclusion is contrary to the jury’s.
Venegas v. Wagner, 831 F.2d 1514, 1517 (9th Cir.1987).
The district court, in a thorough and carefully rea-
soned 54-page unpublished opinion, analyzed the evi-
dence presented in light of the governing law, and
concluded that the evidence could not support the verdict
and that a judgment for the defendants was required. We
affirm essentially for the reasons expressed in that
unpublished opinion.
App. 63
IV.
ATTEMPTED MONOPOLIZATION
Vollrath’s claims of attempted monopolization are
based upon two theories: (1) that Ken Carter engaged in
predatory pricing of stainless steel mixing bowls, and (2)
that Sammi invoked Korean design registration rights to
block another exporter in Korea from exporting stainless
steel steamers. In order to establish an attempt to monop-
olize “a plaintiff must prove (1) that the defendant has
engaged in predatory or anticompetitive conduct with (2)
a specific intent to monopolize and (3) a dangerous prob-
ability of achieving monopoly power.” Spectrum Sports,
Inc. v. McQuillan, __ US. P © inp Bid Ba Ee,
890-91, 122 L.Ed.2d 247 (1993).
A. Predatory Pricing of Stainless Steel Mixing Bowls
Two prerequisites to recovery under section 2 of the
Sherman Act for predatory pricing must be proved:
1. “[A] plaintiff seeking to establish competi-
tive injury resulting from a rival’s low prices
must prove that the prices complained of are
below an appropriate measure of its rival’s
costs.”
Brook Group, Ltd. v. Brown & Williamson Tobacco Corp., ___
U.S. ___, __, 113 S.Ct. 2578, 2587, 125 L.Ed.2d 168 (1993)
(footnote omitted).
2. “[T]he competitor had a . . . dangerous prob-
ability[ ] of recouping its investment in below-
cost prices.”
Id. at 2588.
App. 64
Economic reality is that, generally, price reduction is
the very essence of competition. Thus, care must be taken
in drawing the line between pricing that enhances com-
petition and predatory pricing that is designed to elimi-
nate competition. The Supreme Court has noted that
predatory pricing is “rarely tried, and even more rarely
successful.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 589, 106 S.Ct. 1348, 1357, 89 L.Ed.2d
538 (1986). The reason is that, in order for the business
entity to eliminate competition by pricing below cost, it
must forego short-term profits long enough to drive com-
petitors from the market and then maintain monopoly
power long enough to recoup the iosses and realize addi-
tional gain. Id. at 588-89, 106 S.Ct. at 1356-57. Thus, “the
predator must make a substantial investment with no
assurance it will pay off.” Id. at 589, 106 S.Ct. at 1357.
In this case, the alleged predatory pricing relates to
the stainless steel mixing bowls exported by Sammi and
sold by Ken Carter. The basis for the claim is that Ken
Carter sold the mixing bowls below its average variable
cost. As the district court noted, the basic defect is that
the plaintiff presented a mismatch of evidence to support
the claim. It sought to show below-cost sales by Ken
Carter as an independent entity by imputing costs from
Sammi and Sammi America and Ken Carter as a com-
bined unit. If Ken Carter is viewed as an independent
unit, then we must consider only the costs actually
incurred by Ken Carter to determine if it sold below its
costs. If Ken Carter, Sammi, and Sammi America are
considered as a combined unit, then the appropriate con-
sideration is the costs of the combined group to deter-
mine if the combined group sold below its costs.
App. 65
We first consider the claim viewing Ken Carter as an
independent unit. Vollrath contends there was sufficient
evidence from which the jury could have concluded that
Ken Carter priced its stainless steel mixing bowls below
average variable cost. At trial, Vollrath sought to show
that during the period from June 1981 to May 1982, Ken
Carter sold $2.8 million worth of Sammi products at
prices which were approximately 28% below its variable
costs.
The facts underlying Vollrath’s claim are as follows:
Prior to November 1981, Sammi America advanced over
$1 million worth of merchandise to Ken Carter on credit.
In November of 1981, Sammi America purchased Ken
Carter. During the ownership transaction, the unpaid
debt to Sammi America reached $3 million. In 1984,
Sammi America advanced another $2 million for working
capital. James Kim, from Ken Carter, testified that the
unpaid debt was treated by the companies as investment
capital which was not to be paid back. Vollrath objected
to the characterizations of the transactions and offered
the expert testimony of Dr. Buckley to show the average
variable cost of the products sold by Ken Carter was
higher than the company claimed.
Dr. Buckley’s testimony does not support a finding
that Ken Carter priced its product line of mixing bowls
below the average variable cost, with the exception of one
item in its product line. The testimony relied in large part
on the concept of “imputed interest,” which was an esti-
mate of the cost of the funds made available to Ken
Carter in order to permit Ken Carter to purchase inven-
tory from Sammi. The crux of Dr. Buckley’s testimony
was that Ken Carter would have had to borrow money
App. 66
from other sources and pay for interest on the borrowed
money in order to purchase the inventory.
Dr. Buckley’s testimony, however, is insufficient as a
matter of law. Even if Ken Carter dic not pay interest on
the funds or credit advanced, it would not mean that the
average variable cost of the goods was higher. The
absence of interest would only mean that Ken Carter
received favorable treatment from Sammi, not that Ken
Carter actually incurred a cost. Without proof that Ken
Carter somehow incurred a cost, the concept of imputed
interest is unsound. There was evidence that in 1983 and
1984 Ken Carter did sell one item of its product line
below costs without considering Dr. Buckley’s imputed
interest. This was the five-piece mixing bowl set. This
would be scant proof of an intent to monopolize.
The more serious flaw in the whole theory of viewing
Ken Carter as an individual unit engaged in predatory
pricing is that there was no possibility of Ken Carter
achieving monopoly power by predatory pricing because
it controlled only 10% of the market. There is no danger
of monopoly power, and there certainly would be no
hope of recouping losses from below-cost pricing.
If we consider Ken Carter as a part of an integrated
entity with Sammi and Sammi America, both before and
after its acquisition by Sammi America in 1981, there also
is a lack of proof of predatory pricing. The evidence
cannot sustain a finding that the integrated entity sold
below its average variable costs because there was no
evidence of Sammi’s costs. Vollrath’s entire argument is
based upon the contention that the subsidiary corpora-
tion, Ken Carter, sold below its average variable costs and
App. 67
that this was sufficient for a jury to find predatory pric-
ing. However, to show below-cost sales by the integrated
entity, the costs of the integrated entity must be proved.
Furthermore, there was insufficient evidence from which
the jury could reasonably conclude that there was a dan-
gerous probability of achieving monopoly power. There
also was no showing from the evidence that the defen-
dants could have recouped any losses from below-cost
pricing.
The Supreme Court recently stated that, “{[D]emon-
strating the dangerous probability of monopolization in
an attempt case . . . requires inquiry into the relevant
product and geographic market and the defendant's eco-
nomic power in that market.” Spectrum Sports, __ U.S. at
__ 113 S.Ct. at 892. As the district court noted, “No
matter how the market is defined — and certainly plaintiff
did not define it — the ease of entry into it and the number
of potential participants on every level of it abundantly
demonstrates that recoupment of the monopolist would
never be possible. This is the classic case for the applica-
tion of Matsushita.” Vollrath’s expert testimony was not
based upon sufficient evidence adduced at trial concern-
ing market power or market facts to justify a conclusion
that there was a dangerous probability of recouping an
investment in below-cost prices. As noted in the Brown &
Williamson decision:
When an expert opinion is not supported by
sufficient facts to validate it in the eyes of the
law, or when indisputable record facts contra-
dict or otherwise render the opinion unreason-
able, it cannot support a jury’s verdict. Expert
App. 68
*
testimony is useful as a guide to interpreting
market facts, but it is not a substitute for them.
Brown & Williamson, __ U.S. at __, 113 S.Ct. at 2598
(citation omitted).
B. Design Rights to Steamers
The evidence at trial showed the existence and func-
tion in Korea of the Korean Hollowware [sic] Association.
This association through a 13-member Pattern and Design
Registration Committee grants pattern and design regis-
tration rights for particular products to Korean manufac-
turers and trading companies based on shape,
appearance, and color of the products. The 13 members of
the committee are from the following groups: four mem-
bers from manufacturers, four members from trading
companies, one member from the Korean Holloware
Association, one member from the Association of patent
attorneys, atid three members from Korean government
organizations.
A trading company, such as Sammi, can only hold a
pattern design right jointly with a manufacturer. Sammi
was a co-holder of a pattern and design registration with
a manufacturer, Dae Sung, for certain stainless steel
steamers in the years 1983 and 1984. Vollrath tried to
have its steamer design registered but could not do so
because a similar design was already registered to Sammi
and Dae Sung.
Sammi and Dae Sung sought to invoke their design
registration rights to prevent another trading company,
Dae Lim, from shipping its steamers. This lasted for only
a three-month period from October, 1983 to January, 1984.
App. 69
Sammi and Dae Sung, although still claiming infringe-
ment of their design rights, waived their rights and Voll-
rath received steamers in early January, 1984.
This three-month assertion of Korean design rights
constitutes Vollrath’s sole claim for attempted monopoliz-
ation of a market Vollrath contended was the stainless
steel steamer market. There are many evidentiary defi-
ciencies in establishing this claim, which the district court
pointed out. There was no evidence that the assertion of
design rights in Korea was done with an intent to monop-
olize a stainless steel steamer market in the United States.
It was also highly doubtful that stainless steel steamers
constituted a relevant market. Vollrath’s expert testified
that these steamers could be treated as a product distinct
from other steamers, such as those made from aluminum
or other materials, and “in a sense” could be viewed as
constituting “a market of their own.” This is hardly a firm
conclusion of a separate market for stainless steel
steamers. Furthermore, even this inconclusive opinion
was not reasonably based on sound data. There was no
detailed examination of market data or any analysis of
cost, comparable usage, or comparative features of other
competing products. The opinion was based on limited
anecdotal evidence.
The most significant deficiency in the claim, also
noted by the district court, is that no evidence of a
dangerous probability of monopoly power in the United
States resulted from this three-month delay in shipment
of steamers to Vollrath. This is particularly true in light of
the Supreme Court’s recent decisions in Spectrum Sports
and Brown & Williamson. There was insufficient evidence
App. 70
concerning the relevant product and geographic market
and Sammi’s economic power in that market.4
V.
CONSPIRACY CLAIMS
The district court properly held that there could be
no conspiracy among Sammi, Sammi America, and Ken
Carter, after the latter’s acquisition, relying on Copperweld
Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct.
2731, 81 L.Ed.2d 628 (1984). Under Copperweld, companies
under common ownership and control cannot initiate
Sherman Act conspiracy violations among themselves.
Vollrath argues that Copperweld is inapplicable because
the evidence demonstrates Ken Carter was engaging in
predatory pricing even before Sammi, Sammi America,
and Ken Carter were combined.
Vollrath’s claim of conspiracy in the district court
was based solely on an alleged conspiracy among Ken
Carter, Sammi, and Sammi America and was submitted to
the jury on that basis. On appeal, Vollrath seeks to
expand the number of alleged conspirators to non-defen-
dants, Dae Sung and the Korean Holloware Association.
4 Vollrath also argues on appeal that Sammi and nonparty
Dae Sung engaged in a naked restraint of trade in Korea and
that this constituted a per se violation of section 1 of the Sherman
Act. This theory was not presented in the district court, and we
decline to consider it on appeal. See Kline v. Johns-Manville, 745
F.2d 1217, 1221 (9th Cir.1984).
App. 71
Here again, we decline to consider this expanded allega-
tion of a conspiracy when asserted for the first time on
appeal. See Johns-Manville, 745 F.2d at 1221.
We are thus concerned with whether there was a
conspiracy among Sammi, Sammi America, and Ken Car-
ter before Ken Carter became a subsidiary of Sammi
America. Vollrath sought to prove that Sammi America
acquired Ken Carter for the purpose of launching a pred-
atory pricing program. The district court concluded that
the record does not support any inference of an anti-
competitive conspiracy prior to Ken Carter’s acquisition.
Although there were advances of credit for merchandise
sold by Sammi and loans from Sammi America, and
Sammi dealt with Ken Carter as supplier and distributor,
the district court held that there was no evidence of anti-
competitive purpose. Vollrath contends that Sammi’s
motive before and after acquiring Ken Carter was to
engage in below-cost pricing so as to monopolize the
stainless steel mixing bow! market.
It is worth repeating the requirements to establish
such a competitive injury as set forth by the Supreme
Court in Brown & Williamson:
First, a plaintiff seeking to establish competitive
injury resulting from a rival’s low prices must
prove that the prices complained of are below
an appropriate measure of its rival’s costs.
The second prerequisite to holding a com-
petitor liable under the antitrust laws for charg-
ing low prices is a demonstration that the
competitor had a reasonable prospect, or under
App. 72
§ 2 of the Sherman Act, a dangerous probability,
of recouping its investment in below-cost prices.
=n Uo at =, 15 S.Ct. at Zon -eo.
For the reasons earlier expressed, there was insuffi-
cient evidence of below-cost pricing for the Sammi group
because the costs for the Sammi group were never
proved. Sammi was the alleged perpetrator and benefici-
ary of such a conspiracy; therefore, the costs of the whole
group are the relevant costs.
More significantly, for the reasons earlier expressed,
there is insufficient evidence to support a conclusion that
there was a reasonable prospect or a dangerous proba-
bility that Sammi could have recouped the losses from
any below-cost pricing. There was no evidence analyzing
the nature of the market, its participants, ease of entry,
and the defendants’ ability to lessen or destroy competi-
tion in that market.
VI.
VIOLATION OF CALIFORNIA LAW
Vollrath next contends there was sufficient evidence
showing that the Sammi group violated the California
Unfair Trade Practices Act.
The Cal.Bus. & Prof.Code § 17043 prohibits the sale,
within the state, of any product at less than the product’s
cost for the purpose of injuring competitors or destroying
App. 73
competition. Similarly, Cal.Bus. & Prof.Code § 17044 pro-
hibits the use of a “loss leader.”5 Vollrath did not present
any evidence to the jury that Sammi, Sammi America or
Ken Carter intended to sell or actually made any below-
cost or loss-leader sales in California. The district court
properly granted JNOV on this claim.
Vil.
MOTION TO AMEND COMPLAINT
Vollrath contends the district court erred when it
denied Vollrath’s motion to amend its complaint to
include a claim for tortious interference with a contrac-
tual or business relationship. This contention is meritless.
A motion for leave to amend is addressed to the
sound discretion of the district court. See Thomas-Lazear v.
FBI, 851 F.2d 1202, 1206 (9th Cir.1988). Here, Vollrath
waited until almost a year after being reinstated as a
party to the case before attempting to amend the com-
plaint. Additionally, by the time Vollrath attempted to
amend the complaint, the discovery cutoff date had
already passed. The district court did not abuse its discre-
tion when it rejected the amendment as untimely. See id.
at 1206-07.
The district court’s judgment is AFFIRMED.
5 Cal.Bus. & Prof.Code § 17030 defines a “loss leader” in
part as: “any article or product sold at less than cost: (a) Where
the purpose is to induce, promote or encourage the purchase of
other merchandise; . . . (c) Where the effect is to divert trade
from or otherwise injure competitors.”
App. 74
The VOLLRATH COMPANY, petitioner, v.
SAMMI CORPORATION, et al.
No. 93-1617.
June 6, 1994.
Case below, 9 F.3d 1455.
Petition for writ of certiorari to the United States
Court of Appeals for the Ninth Circuit denied.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.