Opposition Brief — United States Tobacco Co. v. Conwood Co., L. P.

Supreme Court, US.

No. 02-603 FITED

IN THE | NOV 20 2002

Supreme Court of the United States

2 OFFICE UF THE CLERK |

UNITED STATES TOBACCO COMPANY , ET AL.,

Petitioners,

Vv.

CONWOOD COMPANY, L.P.,

CONWOOD SALES COMPANY, L.P.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Sixth Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

RICHARD C. ROBERTS MICHAEL K. KELLOGG

WHITLOW, ROBERTS, Counsel of Record

HOUSTON & STRAUB MARK C. HANSEN

Old National Bank Building DAVID C. FREDERICK

300 Broadway NEIL M. GORSUCH

Paducah, Kentucky 42002 KELLOGG, HUBER, HANSEN,

(270) 443-4516 TODD & EVANS, P.L.L.C.

1615 M Street, N.W.

Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Respondenis

November 20, 2002

QUESTIONS PRESENTED

1. Whether sufficient evidence supported the properly

instructed jury’s verdict that an admitted monopolist vio-

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

among other things, systematically removing and destroy-

ing hundreds of thousands of competitors’ display racks,

“point of sale” advertising, and products, and entering

into more than twenty thousand contracts that prevented

stores from displaying or advertising competitors’ prod-

ucts, where the evidence showed that this exclusionary

conduct led to higher prices and fewer choices for consum-

ers and where the monopolist conceded that the conduct

had no legitimate business purpose.

2. Whether sufficient evidence supported the properly

instructed jury’s award of $350 million in damages for an

admitted monopolist’s systematic and successful multi-

year campaign to “eliminate competitive distribution” and

thereby to preserve “the highest profit margin of any pub-

lic company,” where testimony from multiple witnesses

(most of whom were unchallenged by the monopolist) es-

timated damages between $313 and $488 milion.

il

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of the Rules of this Court,

respondents state the following:

Respondents Conwood Company, L.P., and Conwood

Sales Company, L.P., are neither publicly traded com-

panies nor subsidiaries or affiliates of a publicly owned

corporation.

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}

iil

TABLE OF CONTENTS

Page

IE LAINE) PRESENT TODD o.ccsssevsceccsosvescensconsccsovscesconesecsnee i

CORPORATE DISCLOSURE STATEMENT...............0.005 li

pe Py yt yy i. Vv

Ak chraeetiensibasttns icannuadsndewbssdancantcenstapsiemiconien 1

IT Sis Sai aclssalec areaideonstigniediannndbsganiabsntokennais 2

REASONS FOR DENYING THE PETITION.................. 11

I. USTC’S SUFFICIENCY CHALLENGE WAS

CORRECTLY REJECTED BY THE SIXTH CIR-

CUIT, WHICH APPLIED WELL-SETTLED

PRINCIPLES OF ANTITRUST LAW TO THE

NT aiikbiehishibntbibaxaicaniniandonssinnictibncisnbivtienresnsenseees 12

A. The Properly Instructed Jurys Finding

Of Exclusionary Conduct Was Based On

Overwhelming Evidence ...............cccccccssssscccssseeeees 12

B. The Decision Below Does Not Conflict With

Decisions Of Any Other Circuit .................cccceccc0ee 16

Il. USTC’S SUFFICIENCY CHALLENGE TO THE

DAMAGES EVIDENCE LACKS MERIT AND

RAISES NO CONFLICT WITH ANY CIRCUIT......... 22

A. USTC Has Failed To Preserve Any Legal

Issue Regarding Damages For The Court

IT Uiiisdieiittdiclassbicnsidaiiasnichinbéicndiniasdeneseubiioudeseesedees 22

B. Overwhelming Evidence Supported The

Properly Instructed Jury's Damages Award........ 23

iv

C. USTC’s Suggestion Of A “Conflict” On

I i I i iictissiessninsisctantinnctininnciessiiiatunnainiinn 28

CORT IIT cnnnsissnnnsinaerunivensiesativehaianatincicnagnentiveiahaitietbelies 30

Vv

TABLE OF AUTHORITIES

Page

CASES

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

SF Ss Ge Ce iihiicecsetsentianaeteeideindeindeat passim

Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d

eee GAGE Gite TED ssissiisnccccsdtentitaeniaddiaibabiags 18, 20, 21

Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251

EIEN wtcinisicensnaiiisicitiaaaiiaibaidaaniainadiadiimaceiiateen nae 23, 27

Blue Dane Simmental Corp. v. American Simmental

Ass'n, 178 F.3d 1035 (8th Cir. 1999) .............. ce eeeeeeees 29

Brooke Group Ltd. v. Brown & Williamson Tobacco

Corp., 509 U.S. 209 (19938)...........cccccccesssceeeee 13, 15, 20

Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039 (8th Cir.), cert. denied, 531 U.S. 979

| GOTIITED ‘aciepssciveshsnicibininssuasiaanidiidainiadinaabeece ieee eee eee passim

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579

CITED ickenlsinncssetliiseknidinieldibantiiiiibantehiiiesabaamle ak tae 10, 22, 28

Eastman Kodak Co. v. Image Technical Servs., Inc.,

Ee SA Ema EE Se 14, 15

EFCO Corp. v. Symons Corp., 219 F.3d 734 (8th Cir.

General Elec. Co. v. Joiner, 522 U.S. 136 (1997) ............. 29

Goodman v. Lukens Steel Co., 482 U.S. 656 (1987)......... 23

Image Technical Servs., Inc. v. Eastman Kodak Co.,

125 F.3d 1195 (9th Cir. 1997), cert. denied,

ee is Se Tita tiissiisiaceninenichncensetciiaadiieniaiensibaiancuin 29

vi

Phil Tolkan Datsun, Inc. v. Greater Milwaukee

Datsun Dealers’ Adver. Ass’n, 672 F.2d 1280

CEUE SANs PPI psccotssavvsnsicastenisakededecnssmumuassmbbasnimieatliiinn 18

Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d

BR Gee CIs GOIN tu ccscnscvescsoscussceitusentbehemnetibiads 16, 17

Texaco Inc. v. Hasbrouck, 496 U.S. 543 (1990).......... 22, 23

United States v. Doe, 465 U.S. 605 (1984) ..................ee0ee 21

United States v. Grinnell Corp., 384 U.S.~- 563

COMET dcvsiinnesinisnsansaipsiiaidniictedieleuasiiaenaiiseedaslenaaneseaiaiaamammaaiaal 17

United States v. Microsoft Corp., 253 F.3d 34 (D.C.

Cir.), cert. denied, 122 S. Ct. 350 (2001)............... 19, 20

Western Parcel Express v. United Parcel Serv. of

Am., Inc., 190 F.3d 974 (9th Cir. 1999)..................00 21

Yee v. City of Escondido, 503 U.S. 519 (1992).................. 22

Zenith Radio Corp. v. Hazeltine Research, Inc.,

Se Si Fe Ee eentncseineciteceniinaaaninnnannindiaiiiins 23, 27

STATUTES AND RULES

Sherman Act, 15 U.S.C. §§ 1 et seq.:

SII 0 8 ov sicicccassedricdiaceenenatasieian 18, 20

DT, Bar Se TF al ccancininesiniccenniiininananiale passim

8 | RTE OT ENTE NEE SE 19

OTHER MATERIALS

UST Inc. SEC Form 10-Q (8d Qtr. 2002) ...............eeeeeeeees 27

INTRODUCTION

The petition presents only a challenge to the sufficiency

of the evidence. USTC does not allege here a single error

of law in the month-long trial: no error in the jury in-

structions — which USTC approved; no error in the admis-

sion or exclusion of evidence; and no claim that USTC was

restrained in any way from challenging Conwood’s wit-

nesses or arguing its version of the facts to the jury.

USTC concedes, moreover, that the jury properly found

that moist snuff constitutes the relevant market and that

USTC, with 77 percent of that market at the time of trial,

was a monopolist with the power to raise prices, restrict

output, and exclude competition.

The sole basis for USTC’s petition is its claim that the

evidence — consisting of 66 witnesses and 364 representa-

tive documents — was insufficient as a matter of law to

support the jury's findings that USTC illegally main-

tained its monopoly through exclusionary conduct and

that Conwood suffered damages thereby of $350 million.

The court below carefully reviewed the voluminous trial

record and concluded that there was “ample documentary

and testimonial evidence” to support the judgment. Pet.

App. 30a. This Court does not sit to reweigh evidence

that two lower courts have already found sufficient. As to

damages, USTC concedes that the jury was properly in-

structed that it could only find damages due to USTC’s

antitrust violation. The jury's award was supported by

extensive evidence, from varied sources, which USTC ad-

mits that the jury could properly consider and which it

does not challenge here.

USTC asserts as many as 10 “conflicts” on myriad is-

sues, but the Sixth Circuit itself perceived no conflict with

any other court on any issue, and for good reason. The

cases that USTC cites as supposedly in “conflict” all in-

volved the application of settled legal principles to com-

pletely different factual situations.

2

STATEMENT

1. For almost a century, USTC was the only U.S. pro-

ducer of moist snuff. Pet. App. 4a. Respondent Conwood

entered the market in the late 1970s and made some ini-

tial inroads on USTC’s monopoly market share. Jd. But

by the mid-1990s, Conwood’s growth had been stopped at

approximately 13% percent. The only other two compa-

nies in the market, Swedish Match and Swisher Interna-

tional Group, had shares of 6 and 4 percent, respectively,

and were likewise stymied in their efforts to grow. Id.

USTC raised its prices approximately 8-10 percent per

year between 1979 and 1998. Jd. at 5a. In 1999, USTC

earned nearly $1 billion in profits from its moist snuff

business and had “the highest profit margin of any public

company in the country.” Jd. at 4a. Yet there was no new

market entrant after 1990, and USTC still controlled 77

percent of the market in 1999. Jd. at 5a. As Professor

Kamien of Northwestern University’s Kellogg Graduate

School of Business explained, only a monopolist exercising

market power can maintain such huge profit margins and

impose such consistent price increases (at more than dou-

ble the rate of inflation), while forestalling entry and

maintaining such a large market share. Trial Tr. 609-10.

2. Conwood brought this suit against USTC for, inter

alia, illegal maintenance of monopoly and attempted mo-

nopolization, in violation of Section 2 of the Sherman Act,

15 U.S.C. § 2. The trial evidence established that:

Beginning in the early 1990s, USTC perceived a threat

to its monopoly from the innovative products, packaging,

and accelerated marketing efforts of Conwood, Swedish

Match, and Swisher. USTC’s concerns were intensified

when, in the mid-1990s, Conwood and Swedish Match in-

troduced “price value” or half-priced brands of moist snuff.

USTC believed that competition, and particularly price-

value competition, was likely to erode its profits.

USTC recognized that it could compete on price and

quality. “If we were willing to lower our margins and re-

duce prices, we could stop the segment share erosion. But

this will create other issues.” C.A. App. 2536 (USTC Stra-

tegic Plan). Specifically, USTC feared that if it reduced

prices its shareholders would flee the stock as sharehold-

ers had fled Phillip Morris when it had embarked on a

price war (and produced a dramatic decline in its stock

price that became known as “Marlboro Friday”). See id.

at 2535. USTC thus decided not to compete on price. On

quality, too, USTC offered nothing new. Its president tes-

tified that USTC did not make a single product improve-

ment of any kind, or provide any additional value to the

consumer, in the 10 years preceding trial. Jd. at 875.

Rather than compete on the merits, USTC decided to

exercise its “market power” and “[p]rotect [its] market

share by creating barriers to competition.” Id. at 2492

(Steering Committee Outline). See id. at 2499 (“UST does

not ‘deal’ on its product’s prices, we don’t have to.”).

USTC’s senior executives chose to embark on a multi-

faceted campaign “to exclude competition from the moist

snuff market.” Pet. App. 22a.

Legal restrictions severely limit the opportunities for

tobacco companies to advertise their products. Accord-

ingly, USTC focused its exclusionary efforts on the point

of sale, where moist snuff manufacturers can advertise

their wares and alert customers to new product introduc-

tions and price promotions. Normally, each manufacturer

is allowed by the retail store to place its own rack, with its

own “header card” advertising affixed, and gravity-fed

slots (called “facings”) from which consumers can select a

can. “[The point at which the buyer makes his purchase

decision is the optimal time to convince the buyer to pur-

chase a particular brand of moist snuff.” Jd. at 5a. If the

manufacturer is unable to advertise or display its prod-

ucts and price promotions on a rack at the point of sale, it

loses the opportunity to compete for the customer’s busi-

ness. See id. at 5a-6a.

USTC accordingly used its market power in a number

of inter-dependent ways to exclude from stores its com-

petitors’ display racks, “point of sale” (“POS”) advertising,

and products. For example, USTC sales representatives,

while making their sales rounds, “would routinely discard

hundreds of thousands of Conwood racks and their ac-

companying POS.” Id. at 12a. Conwood’s Chairman, Wil-

liam Rosson, testified that Conwood “spent $100,000 a

month on replacement racks,” id., which represented

some 20,000 racks per month. “[A]bout 50 percent of

sales representatives’ staff time was spent repairing racks

destroyed by USTC representatives. Because two to three

months would sometimes pass before a sales representa-

tive could return to the same store, Conwood lost sales

even when it was able to restore racks.” Jd. at 13a. Nu-

merous USTC witnesses admitted that “they removed

racks and POS materials without retailer authorization.”

Id. at 15a.

USTC also established a so-called Consumer Alliance

Program (“CAP”), which provided inducements for retail-

ers to exclude rival racks, advertising, and products.

USTC itself described CAP as “a great incentive .. . for

the elimination of competitive products.” C.A. App. 2620.

“USTC was able to sign 37,000 retailers to the CAP,

which represents 80 percent of its overall volume in moist

snuff sales.” Pet. App. 12a. With more than 21,000 of the

most significant retailers, moreover, USTC had express

“exclusive vending” contracts that prevented those stores

from having any competitors’ display racks or POS adver-

tising. C.A. App. 1273-74.

USTC’s monopoly power also made it the only plausible

candidate to serve in the role of “category manager” for

moist snuff. In this capacity, USTC had substantial con-

trol over how retailers used store space to display moist

snuff and hence USTC could determine whether and how

the different brands of moist snuff were displayed. Pet.

App. 10a-l1la. There was ample space in stores for the

small, but highly profitable moist snuff cans; indeed,

stores had ample room to stock, and did stock, the far

bulkier and less profitable packs of loose leaf tobacco sold

by Conwood and others (but not USTC). But USTC

abused its market power by artificially constraining space

available to rival moist snuff and by “deliberately pro-

vid[{ing] false information to stores to exclude competitors

from the market.” Jd. at 8a.' In particular, USTC sought

to “control the number of Price Value product introduc-

tions,” C.A. App. 2486, and “control the merchandising

and the P.O.S. placements, which will make the consumer

awareness of the price differential difficult,” id. at 2656.

For USTC, it was “imperative that we continue with this

[c]lategory [mJanagement action plan to eliminate com-

petitive products.” Id. at 2561.

USTC’s high-level corporate documents confirmed that

USTC planned to “eliminat[e] competitive distribution”

through systematic removal of competitors’ racks, POS,

and facings; implemented that plan through its sales

force; monitored progress through periodic reviews of

market conditions and annual reviews of salesmen; and

tabulated success throughout the United States. Con-

wood C.A. Br. 17-18 (citing 55 trial exhibits); see also Pet.

App. 26a (noting that “[m]Juch of the evidence Conwood

highlights was documentary”).

At trial, USTC did not attempt to defend any of

these tactics as demand-enhancing or otherwise pro-

competitive. USTC senior executives readily admitted

that there was no shortage of shelf space in the stores and

that under ordinary competitive conditions each manufac-

turer would be permitted to place its ow racks and POS

advertising in the stores. The executives alsc admitted

that excluding - or inducing stores to exclude — another

competitor’s products, racks, or POS would be wrong and

harmful to competition. See, e.g., C.A. App. 381-85, 392-

95, 403-04, 858-59, 879-80, 968. USTC’s executives in-

* See, e.g., C.A. App. 2189 (USTC training document showing how to

create false impression about rival sales); id. at 703 (testimony that

USTC sought to constrain space for competitors’ products even though

there was room for multiple racks); id. at 745 (testimony that USTC

sought to control a greater percentage of facings to exclude rival prod-

ucts, even though USTC had “plenty of room” to sell its products).

6

stead claimed that the company did not engage in the

types of conduct alleged by Conwood, and that stores ex-

cluded Conwood without any prompting from USTC. See,

e.g., id. at 84-85, 904-06. The jury found otherwise.

The jury also found that USTC’s exclusionary conduct

harmed competition by leading to higher prices and fewer

choices for consumers. Pet. App. 1la (citing evidence

“that USTC’s conduct harmed consumers by limiting vari-

ety and raising prices”); id. (citing regression analysis

demonstrating that, “for every 10 percent increase in

USTC facings, retail prices for moist snuff rose by $.07”);

C.A. App. 2762-63 (chart showing that moist snuff output

declined where USTC was able to eliminate rival POS ad-

vertising and facings).

The district court heard evidence on Conwood’s dam-

ages from several different sources. Conwood’s national

sales manager, Terry Williams, compared the markets

where USTC had_rack exclusivity, which produced a mar-

ket share for Conwood “below its national average,” with

markets where it did not have such exclusivity. Pet. App.

43a. The evidence showed that, “in unimpeded competi-

tion, Conwood’s market share would have been approxi-

mately 25 percent instead of 13.5 percent nationally.” Id.

at 16a. This evidence was confirmed by a number of

USTC’s own witnesses, who testified that in their sales

regions, where Conwood’s racks and advertising had not

been excluded, Conwood’s share was around 25 percent.

See, e.g., C.A. App. 1787, 1795-97, 1874, 1995.

Conwood’s Chairman William Rosson testified that,

“had Conwood not been subjected to USTC tactics, it

would have had a national market share of approximately

22 to 23 percent.” Pet. App. 15a. This testimony was

supported by uncontested evidence that Conwood had

rapidly gained market share before USTC began its ex-

clusionary campaign; its approximately 40-percent mar-

ket share in the most closely related market — loose leaf —

where USTC did not offer a product; and by Conwood’s

performance in moist snuff markets where USTC’s tactics

7

were less effective. It was undisputed that “each addi-

tional point (one percent) of market share translates into

approximately $10 million in annual profits.” Jd. Thus,

testimony that Conwood lost 10 percent in national mar-

ket share supported damages, for the four years preceding

trial, of approximately $400 million in lost profits.

Rosson also testified that he had long noted a pattern in

Conwood’s growth: “[iJn places where [Conwood] had a

‘foothold,’ i.e., a relatively high market share in a given

area, it saw its market share increase during the 1990s to

a market share above 20 percent.” Jd. In places where

Conwood did not have a foothold market share — a share

large enough to ensure that customers would complain of

Conwood’s exclusion and retailers would have incentive to

resist — USTC’s tactics prevented Conwood from increas-

ing its market share.

Professor Richard Leftwich of the University of Chicago

Graduate School of Business, “who is recognized as an ex-

pert on business valuation and lost profits,” “tested Ros-

son’s hypothesis.” Jd. at 16a. “Using a regression analy-

sis, Leftwich found a statistically significant difference

between states in which Conwood had a foothold and

those in which it did not.” Id. Leftwich first determined

that, “in states where Conwood had a market share in

1990 of 20 percent or more, the market share grew on av-

erage an additional 8.1 percent from 1990 to 1997.” Id.

“In contrast, in states where Conwood had a lower mar-

ket share, the regression predicts that its share would

grow very little.” Jd. at 16a-17a (quoting district court

decision). Leftwich then “considered other factors to rule

out the possibility that [the] statistical relationship [he

found] was caused by factors other than USTC’s conduct.”

C.A. App. 88 (district court motion in limine opinion).

Leftwich examined all possible alternative explanations

for which data were available, including every possibility

that USTC’s expert suggested, and found that no other

factor besides USTC’s exclusionary conduct could explain

8

Conwood’s stunted growth in non-foothold states. Id. at

1104, 1111.

Leftwich accordingly determined that Conwood’s low

market growth was due to USTC’s exclusionary conduct

and that “increases in USTC’s exclusionary behavior in a

state reduced Conwood’s share of sales by a statistically

significant amount.” Pet. App. 17a. Leftwich assessed

Conwood’s damages from USTC’s actions to be in a range

from $313 million to $488 million. Jd. USTC offered no

evidence on the amount of Conwood’s damages and

claimed only that Conwood had sustained no damages.

The jury awarded damages of $350 million. Jd. After

statutory trebling, the court entered judgment for Con-

wood in the amount of $1.05 billion. Jd. at 48a.

3. On appeal, “USTC d[id] not challenge that it has

monopoly power; nor [wal]s there an issue as to the rele-

vant product (moist snuff) and geographic markets (na-

tionwide).” Jd. at 21a. USTC abandoned its “we didn’t do

it” defense, arguing instead that “the evidence presented

at trial amounted to no more than ‘insignificant’ tortious

behavior and acts of ordinary marketing services.” Id. at

18a. USTC also argued that the district court abused its

discretion by admitting testimony concerning Conwood’s

damages. See id. at 36a. The court of appeals affirmed.

a. Quoting Aspen Skiing Co. v. Aspen Highlands Ski-

ing Corp., 472 U.S. 585, 605 (1985), the court explained

that, “‘[i]f a firm has been attempting to exclude rivals on

some basis other than efficiency, it is fair to characterize

its behavior as predatory [or exclusionary]. Pet. App.

21a... Applying that standard to the evidence adduced at

trial, the court found “ample documentary and testimo-

nial evidence” to support the jury’s verdict that “USTC’s

pervasive practice of destroying Conwood’s racks and POS

materials and reducing the number of Conwood facings

through exclusive agreements with and misrepresenta-

tions to retailers was exclusionary conduct without a suf-

ficient justification, and that USTC maintained its mo-

nopoly power by engaging in such conduct.” Id. at 30a.

9

The court first rejected USTC’s claim that its acts were

“isolated sporadic torts” that did not rise to the level of

antitrust violations. Jd. at 22a-23a. The court noted that

USTC itself conceded that tortious activity can form the

basis for liability under the Sherman Act as long as “that

activity is pervasive and accompanied by other anti-

competitive conduct.” Jd. at 18a. The court recited the

extensive trial evidence and concluded that, “[cJonstruing

the evidence in the light most favorable to Conwood, these

incidents were neither sporadic nor isolated.” Id. at 25a.

The court also rejected USTC’s contention that retailers

“alone, not USTC, determined and controlled what racks

and POS were used in their stores.” Jd. at 26a. The court

cited extensive evidence (including USTC’s own docu-

ments) to support Conwood’s allegation that USTC

abused its power with retailers, as the monopoly provider

of moist snuff, “to control the number of price value

brands introduced in stores” (id.) and “to place USTC

racks exclusively in retail stores and hide competitor

products in its racks” (id. at 29a). USTC also made out-

right “misrepresentations to retailers to obtain exclusive

vending” (id. at 29a-30a), and entered into tens of thou-

sands of contracts that required retailers to eliminate

space and advertising for rivals’ products (id. at 12a).

The court further rejected USTC’s complaint that the

district court had erred in permitting the jury to consider

legal conduct as commingled with illegal conduct: the

court noted that “the district court properly instructed the

jury that USTC could not be held liable for conduct that

was part of the normal competitive process.” Jd. at 28a

n.4 (citing Aspen Skiing, 472 U.S. at 604-05).

Finally, the court recited the testimony of USTC’s

Chairman Vincent Gierer, who acknowledged in cross-

examination that his company had endorsed a “strategy of

eliminating competitive distribution,” which earlier in his

testimony he had conceded was “not a legitimate goal.”

Id. at 29a. As the court summarized it, “Gierer essen-

tially admitted that the activities about which Conwood

10

complains, particularly the misrepresentations to retail-

ers to obtain exclusive vending, was not competitive con-

duct spurred by efficiency. Moreover, USTC has failed to

offer any valid business reason for its representatives’

pervasive destruction of Conwood racks.” Id. at 29a-30a.

Having found “ample” evidence of exclusionary conduct

without any attempt to defend that conduct as efficient,

the court upheld the verdict. Jd. at 30a.

b. The court next rejected USTC’s claim that Conwood

had failed to prove harm to competition in the national

moist snuff sales market. Citing the testimony of Profes-

sor Kamien, the court of appeals noted that, “as a result of

USTC’s exclusionary conduct, the consumer suffered by

having to pay higher prices, and that there was less vari-

ety in the market.” Jd. at 33a. Kamien further testified

that, “had there been true competition in the moist snuff

market, USTC’s market share, which dropped approxi-

mately 1 percent per year between 1979 and 1990, would

have fallen much faster.” Id. at 34a.

c. The court rejected USTC’s contention that the dis-

trict court had abused its discretion in allowing Professor

Leftwich to testify on damages under Daubert v. Merrell

Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The

court noted that USTC did “not challenge Leftwich’s

qualifications as an expert, but only his testimony and

damages study.” Pet. App. 38a. The court then reviewed

the Daubert factors to determine the reliability and rele-

vancy of Leftwich’s analysis. Id. at 38a-39a.

The court pointed out that Leftwich had used three

methods to test Conwood’s claims: a regression analysis,

a yardstick test, and a before-and-after test. Those modes

of analysis “are generally accepted methods for proving

antitrust damages.” Jd. at 40a. The court rejected

USTC’s complaint that Leftwich had “failed to take into

account any USTC ‘bad act.” Jd. at 41a. Contrary to

USTC’s submission, Leftwich had taken “USTC’s expert’s

own regression model” and used information from “sworn

affidavits compiled from 241 Conwood sales representa-

11

tives detailing USTC’s unethical activity in their areas” to

construct “three alternate measures of USTC’s bad acts

by state.” Id. The court concluded that Leftwich’s regres-

sion analysis “accounted for all variables raised by

USTC’s own expert.” Id. at 42a.

The court found no merit in USTC’s objections to Ros-

son’s damages testimony and to Leftwich’s study on the

grounds that they were too speculative and unlinked to

the evidence of wrongdoing. The court noted that “[t]he

jury was instructed that it could not award damages for

injuries caused by other factors” and that “it is undis-

puted that USTC did not object to the jury instructions

regarding damages.” Jd. The court thus “reject[ed]

USTC’s argument that Conwood failed to disaggregate

the injury caused by USTC as opposed to that caused by

other factors.” Jd. at 42a-43a. Accordingly, the court coni-

cluded that “there was sufficient evidence to support the

jury’s award of damages in this case” and that the jury’s

award was “well within th[e] range” of the $313-$488 mil-

lion estimated by Conwood’s witnesses. Id. at 43a.

USTC’s petition for rehearing and rehearing en banc

was denied. Jd. at 45a. No judge voted in favor of rehear-

ing or even requested a response.

REASONS FOR DENYING THE PETITION

I. USTC’s admitted failure to object to the jury instruc-

tions leaves it with only a sufficiency-of-the-evidence chal-

lenge. In rejecting that challenge, the court below faith-

fully applied this Court’s well-settled antitrust principles

to the facts presented. The court carefully scrutinized a

voluminous trial record and found “ample” evidence of

USTC’s extensive campaign of exclusionary conduct.

That fact-bound determination does not conflict with any

other court decision.

II. The court of appeals also properly concluded that

the damages award comported with well-established anti-

trust and evidentiary standards. The unchallenged jury

instructions required the jury not to award damages for

lawful conduct. USTC’s argument that the evidence was

12

insufficient to support a conclusion that the jury could

have segregated lawful from unlawful conduct was care-

fully considered and rejected by the court below. In this

Court, USTC largely repeats its attack on Conwood’s ex-

pert without acknowledging — as the court of appeals

pointed out — either that Conwood’s expert performed the

very analysis that USTC insists was necessary or that

there was ample additional evidence (unchallenged by

USTC) that supported the jurys award. USTC’s fact-

bound challenge presents no circuit conflict.

I. USTC’S SUFFICIENCY CHALLENGE WAS COR-

RECTLY REJECTED BY THE SIXTH CIRCUIT,

WHICH APPLIED WELL-SETTLED PRINCI-

PLES OF ANTITRUST LAW TO THE EVIDENCE

USTC frames its first question as whether “misleading

‘suggestions’ and ‘recommendations’ to retailers” may be a

basis for antitrust liability. Pet. i. But USTC does not

dispute that there was extensive evidence of USTC’s out-

right exclusion of its competitors’ products and advertis-

ing. Nor does USTC suggest that this evidence was insuf-

ficient to support the verdict. Moreover, USTC did not

. object to the admission of evidence regarding its false and

misleading statements to stores, and did not request a

jury instruction or special verdict on this issue. Accord-

ingly, USTC is left to argue that part of the trial evidence

was insufficient to support the verdict. That argument

falls of its own weight. Aspen Skiing, 472 U.S. at 604

(Court “must interpret the entire record in the light most

favorable” to the prevailing party) (emphasis added). In

any event, USTC is wrong to suggest that its fraudulent

conduct — which it admitted served no legitimate purpose

— was per se lawful, or that any court has so held.

A. The Properly Instructed Jury’s Finding Of

Exclusionary Conduct Was Based On Over-

whelming Evidence

USTC concedes that the jury was correctly instructed

under this Court’s holdings that exclusionary conduct is

“conduct that has the effect of preventing or excluding

13

competition or frustrating or impairing the efforts of other

firms to compete for customers.” C.A. App. 235 (Jury In-

struction No. 2.4). The district court also properly in-

structed the jury that USTC could not be held liable sim-

ply for “supplying better products or services,” or for

conduct that “is part of the normal competitive process.”

Id. In reviewing the judgment at trial, the court of ap-

peals expressly followed this Court’s direction to “assume

that the jury followed the court’s instructions.” Aspen

Skiing, 472 U.S. at 604; Brooke Group Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 243 (1993).

As the court below correctly held, ample evidence sup-

ported the jury’s finding that USTC impaired the oppor-

tunities of rivals and prevented competition on the merits.

Representative statistics from the trial are illuminating:

— 122 representative USTC documents, many from sen-

ior executives, instructed USTC representatives in the

field to prevent rival distribution and promotion, and

monitored the success of the plan as it was implemented;

— 74 USTC sales representatives admitted in either tes-

timony or trial exhibits that USTC had ordered them to

choke rival distribution and promotion as a matter of cor-

porate policy, and that they had followed that policy, often

by simply removing competitors’ products and displays

from the stores;

— 600 specific and representative instances of exclusion

from 22 states were admitted into evidence;

— Conwood was required, as a result of USTC’s cam-

paign, to replace 20,000 moist snuff sales racks per month

after 1990 at a cost of $1.2 million annually;

— Conwood’s more than 200 salespersons were required

to spend half their work time attempting to restore Con-

wood racks, POS advertising, and products after USTC

had excluded them from the stores;

— Conwood’s presence in stores (measured by the num-

ber of slots or “facings” occupied by Conwood products)

14

was reduced on average from 7 facings to only 2 after a

USTC representative visited a retail outlet;

— At least 21,000 retailers, including the nation’s most

significant chain outlets for moist snuff, were covered by

USTC contracts that explicitly required exclusion of com-

petitors’ racks/POS/products; and

— At least 37,000 retailers, representing 80 percent of

USTC’s U.S. moist snuff sales, were covered by USTC

contracts with features preventing free competition.”

That evidence proved USTC’s direct exclusion of rivals’

racks, products, and advertising, not just “misleading

‘suggestions’ and ‘recommendations’ to retailers.” Pet. i.

In this Court, USTC contends that the evidence re-

vealed only “legitimate business conduct” consisting of

“aggressive nonprice competition that is integral to the

everyday competitive process.” Pet. 2. But at trial USTC

never even attempted to offer “valid business reasons”

for any facet of the exclusionary conduct challenged by

Conwood, including its misrepresentations to retailers.

Eastman Kodak Co. v. Image Technical Servs., Inc., 504

U.S. 451, 483 (1992). See also Aspen Skiing, 472 U.S. at

605, 608-09 (excluding rivals on basis other than effi-

ciency is anticompetitive). To the contrary, USTC “essen-

tially admitted that the activities about which Conwood

complains, particularly the misrepresentations to retailers

to obtain exclusive vending, was not competitive conduct

spurred by efficiency.” Pet. App. 29a-30a (emphasis

added). See also p. 5, supra (collecting cites). Confronted

2 This summary, contained with citations in Conwood’s court of ap-

peals brief (at 37-38), was captured in great part by the court of ap-

peals’ opinion. See Pet. App. 6a-15a. Yet even the court’s opinion, rich

as it is in reflecting the record in this case, necessarily only references

a small part of the evidence presented during a month-long trial. Un-

der the Aspen Skiing standard, this Court would be required to review

the entire trial record — 6313 pages of testimony and 364 documentary

exhibits — and satisfy itself that no reasonable trier of fact could have

found USTC’s conduct to violate Section 2 before it could reverse the

court of appeals in upholding the district court’s judgment for Con-

wood. See Aspen Skiing, 472 U.S. at 604.

15

by the evidence at trial, USTC simply denied that it had

committed the acts that Conwood alleged to be illegal.

The case was accordingly contested at trial on that basis,

and USTC lost. It cannot now attempt to retry its case in

this Court, based on an efficiency defense that it never

asserted below.®

In any event, that defense has no merit. The court of

appeals canvassed the evidence detailing the wide range

of USTC’s anticompetitive acts: entering into agreements

that required stores to exclude competition; training its

personnel to destroy or remove Conwood’s products; mis-

using its position as category manager to exclude Con-

wood’s advertising and racks and reduce its product fac-

ings; and misleading stores as part of an effort to gain

their support for such exclusion. Pet. App. 23a-30a. The

court correctly characterized that evidence as presenting

“a systematic effort to exclude competition from the moist

snuff market,” and as sufficient to show that “USTC

sought to achieve its goals of excluding competition and

competitors’ products by numerous avenues.” Jd. at 22a.

“It is not customary for this Court to review the suffi-

ciency of the evidence.” Brooke Group, 509 U.S. at 230.

There is certainly no reason to do so here, where USTC

does not even attempt to dispute that the record as a

whole provides sufficient evidence of exclusionary con-

duct, and where USTC never even attempted to offer

“valid business reasons” for any facet of that conduct.

Eastman Kodak, 504 U.S. at 483.

8 Even USTC does not seek to offer any business justification for the

pervasive and unauthorized rack removals. Instead, USTC suggests

that the Court need not address the anticompetitive effect of those

“simple torts” because they were improperly aggregated by the court of

appeals with “procompetitive conduct.” Pet. 18 n.11. But, as noted,

USTC never objected to eviderce of any of the conduct that it now

strives to label as pro-competitive, never sought to present a business

justification for that conduct, and never requested a jury instruction or

special verdict on this issue. Accordingly, the exclusionary effect of all

that conduct was properly considered by the courts below.

16

B. The Decision Below Does Not Conflict With

Decisions Of Any Other Circuit

USTC asserts that the Sixth Circuit’s holding on suffi-

ciency of the evidence conflicts with the decisions of other

circuits in two respects: (1) the standards for “nonprice

competition” (Pet. 15-19), and (2) the requisite degree of

“foreclosure” to support a Section 2 violation (Pet. 19-20).

Particularly when viewed through the lens of USTC’s

failure to challenge the jury instructions and thus pre-

serve an argument that the law requires something more

than the existing settled standards under Section 2, the

claims of “conflicts” are without foundation.

1. USTC asserts (Pet. 16) that this Court’s guidance is

needed because of an alleged conflict between the decision

below regarding “nonprice competition” and “the analysis”

of Stearns Airport Equipment Co. v. FMC Corp., 170 F.3d

518 (5th Cir. 1999). But USTC did not challenge the jury

instructions on this issue and thus cannot complain that

the jury was wrongly instructed on the law. The court

below simply decided that extensive evidence supported

the jury’s finding that USTC engaged in exclusionary

conduct, based on the many witnesses and exhibits that

demonstrated how USTC used its power in myriad ways

to exclude its competitors’ racks, POS advertising, and

products, and because USTC had offered no pro-

competitive justification for any of the conduct challenged

by Conwood. The Sixth Circuit found no contrary rule of

law in Stearns, and there is none.

In Stearns, the court did not review for sufficiency an

extensive trial record documenting varied forms of mis-

conduct that the monopolist did not even attempt to jus-

tify. The Fifth Circuit considered, instead, a grant of

summary judgment (for defendant manufacturer of air-

plane-to-airport gate bridges) where the defendant had

allegedly misled airport buyers as part of a bidding com-

petition with the plaintiff. The plaintiff's evidence all in-

volved “fairly simple attempts [by the defendant] to gen-

erate sales by ‘touting the virtues’ of its bridges.” 170

17

F.3d at 524. That conduct, alone, was insufficient as a

matter of law for Section 2 liability, the Fifth Circuit held,

because even a monopolist can attempt to sell its own

products to customers “by vigorously stressing the quali-

tative merits of its product.” Id. at 526.

Nothing of the sort is at issue here. Rather than stress

the merits of its products, USTC abused its power to pre-

vent others from having the chance to sell theirs. As its

executives testified, USTC already had ample room to

sell, display, and “tout the virtues” of its own products in

stores. C.A. App. 703-04, 941-43, 961, 1592-94. The con-

duct challenged at trial was not conduct claimed by the

monopolist, as in Stearns, to be rational, pro-competitive

efforts to convince the customer to take its products over

the plaintiff's. Nor was it, as USTC now wishes to pre-

tend, mere “recommendations” or “suggestions” as to what

stores should do. The evidence showed that USTC itself

excluded competitors’ racks, POS, and products, and that

it either coerced or misled retailers into going along with

that exclusion. USTC defended against that evidence by

denying that it had engaged in such exclusion; but it

freely admitted that this conduct had no legitimate pur-

pose. Pet. App. 29a-30a. Accordingly, the extensive re-

cord before the Sixth Circuit was almost the exact oppo-

site of the narrow issue addressed by the Fifth Circuit on

review of summary judgment in Stearns. Both courts,

moreover, reached their conclusions by applying the same

standards from United States v. Grinnell Corp., 384 U.S.

563 (1966), and Aspen Skiing. Compare 170 F.3d at 522-

23 with Pet. App. 19a-20a.4

* USTC is also incorrect (Pet. 17) in asserting a conflict with deci-

sions of the Seventh and Eighth Circuits. Those decisions do not even

address “nonprice competition” under Section 2. For example, in

Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir.), cert.

denied, 531 U.S. 979 (2000), the court rejected a claim that price dis-

counting violated antitrust laws because, “[iJn the absence of predatory

prices, any losses caused by pricing ‘cannot be said to stem from an

anticompetitive aspect of the defendant’s conduct.” Id. at 1061 (foot-

note omitted). As the court there stressed, “[a] Section 2 defendant’s

18

Nor should this Court depart from its normal certiorari

standards to consider USTC’s generalized complaint (Pet.

18) that the Sixth Circuit’s ruling provides “no standard

to guide courts or competing firms on the boundary be-

tween lawful competition and illegal exclusionary conduct

or the criteria that should be applied in evaluating the

dominant firm’s marketplace conduct.” The jury instruc-

tions derived directly from this Court’s cases and were

accepted by USTC as properly stating the law applicable

to this case. USTC did not seek any additional “guidance”

for the jury on the line between lawful competition and

illegal exclusionary conduct. Nor can USTC plausibly

claim any uncertainty by the jury, where it freely admit-

ted that all of the conduct about which Conwood com-

plained — including “misrepresentations to retailers to ob-

tain exclusive vending” as well as the removal of racks,

POS, and products — was illegitimate and should not have

occurred. Pet. App. 29a-30a. In light of USTC’s failure to

object to the jury instructions, and its admissions that the

alleged conduct had no competitive justification, this case

proffered business justification is the most important factor in deter-

mining whether its challenged conduct is not competition on the mer-

its.” Id. at 1062. The manufacturer's justification for cutting prices in

Concord Boat — to increase sales of its products — thus contrasts mark-

edly with USTC’s unjustified and multi-faceted nonprice campaign,

which was designed to prevent competitors from selling their products

and in particular to prevent price competition from half-priced brands.

Likewise, there is no conflict (see Pet. 17) with Phil Tolkan Datsun,

Inc. v. Greater Milwaukee Datsun Dealers’ Advertising Association, 672

F.2d 1280, 1288 (7th Cir. 1982), a Sherman Act Section 1 case in which

an automobile dealer complained that a local dealer’s association re-

fused to admit it as a member. The court rejected the plaintiff’s claim

because the “plaintiff has made no showing that membership in the

defendant Association is necessary (or even desirable) to compete effec-

tively as a Datsun dealer.” Id. at 1286. And, in Barry Wright Corp. v.

ITT Grinnell Corp., 724 F.2d 227 (1st Cir. 1983) (Breyer, J.) (see Pet.

16 n.8), the court rejected a claim that price discounts and noncancella-

tion clauses with “legitimate business considerations” were anticom-

petitive means of maintaining monopoly power. 724 F.2d at 236.

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19

could not serve as a vehicle for any general exploration of

the line between lawful and unlawful nonprice conduct.°

2. USTC asserts (Pet. 19) that the court below “re-.

lieve[s] plaintiff of any foreclosure requirement” and thus

supposedly conflicts with the decisions of four circuits.

That contention, however, ignores that USTC sought no

jury instruction on its current foreclosure theory, and

thus cannot now complain that the jury was not asked to

find that a particular percentage of the moist snuff mar-

ket was foreclosed to competition. See Fed. R. Civ. P. 51

(“No party may assign as error the giving or the failure to

give an instruction unless that party objects thereto be-

fore the jury retires to consider its verdict, stating dis-

tinctly the matter objected to and the grounds of the

objection.”).

Nor, in any event, is USTC’s view the law. The Sixth

Circuit invoked Aspen Skiing to explain that, “whether

conduct may be characterized as exclusionary, ‘it is rele-

vant to consider its impact on consumers and whether it

has impaired competition in an unnecessarily restrictive

way.” Pet. App. 21a (quoting 472 U.S. at 605). The jury

here was instructed to consider the impact of USTC’s

campaign on competition and consumer choice. As the

court of appeals explained, the evidence not only showed

that USTC engaged in “exclusionary conduct without a

5 While taking no position on whether USTC engaged in exclusion-

ary conduct in violation of Section 2, amicus American Wholesale Mar-

keters Association asks the Court to grant the petition to explain “what

trade practices shall be acceptable, reasonable, and appropriate in the

convenience store chain of trade” (Br. 2). But (1) this Court does not

give advisory opinions; (2) AWMA’s suggestion that the Sixth Circuit

has called into question such common practices as the use of racks,

point-of-sale advertising, category managers, and promotional allow-

ances is blatantly incorrect (see, e.g., Pet. App. 28a); and (3) AWMA

fails to recognize the well-accepted principle that a monopolist exercis-

ing market power to exclude competitors without competitive justifica-

tion may be held liable under Section 2 when a non-monopolist en-

gaged in similar conduct could not. See United States v. Microsoft

Corp., 253 F.3d 34, 57-58, 72 (D.C. Cir.) (en banc) (per curiam), cert.

denied, 122 S. Ct. 350 (2001).

| SSS ae

20

sufficient justification,” it also demonstrated that “USTC

maintained its monopoly power by engaging in such con-

duct.” Id. at 30a. USTC does not challenge the jury’s

finding on that point, which itself was supported by sub-

stantial evidence. Id. at 33a (citing evidence that USTC’s

conduct harmed consumers by limiting variety and rais-

ing prices). See also pp. 4-6, supra (citing record sources).

The cases cited by USTC do not establish a foreclosure

requirement under Section 2. Curiously, USTC cites

United States v. Microsoft Corp. But there the D.C. Cir-

cuit rejected a specific foreclosure threshold. The court

explained that a Section 2 violation does not require proof

of any particular percentage of foreclosure, but rather

that “the monopolist’s conduct indeed has the requisite

anticompetitive effect.” 253 F.3d at 58-59 (citing Brooke

Group, 509 U.S. at 225-26). Cf. Pet. App. 33a (discussing

Brooke Group in context of exclusionary effects in growing

market). It then upheld a claim for monopoly mainte-

nance where the monopolist had engaged in a wide range

of anticompetitive acts even though the government could

not establish what direct effect any of those acts individu-

ally had on foreclosing competition but where the sum to-

tal of Microsoft’s anticompetitive campaign maintained its

monopoly power.°®

Similarly, in Barry Wright, the court upheld a district

court’s judgment for the defendant, finding that the evi-

dence presented did not establish “exclusion” from con-

tracts that required a manufacturer to sell its products at

a specially low price in exchange for the buyer’s agree-

6 In the passage cited by USTC, the court explicitly rejected the

claim that the “roughly 40% or 50% share usually required to establish

a § 1 violation” based on the “monopolist’s use of exclusive contracts”

was necessary to “give rise to a § 2 violation.” 253 F.3d at 70. Here, in

any event, the evidence supported a finding that USTC had contracts

that alone — and without reference to the other forms of misconduct

proved at trial — prohibited fair competition with retailers accounting

for 80 percent of its sales (Pet. App. 12a), which in turn consists of 61.6

percent of the U.S. moist snuff market. Thus, even by Section 1 stan-

dards, substantial foreclosure was established. 253 F.3d at 70.

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21

ment to take nearly all of its requirements from that

seller. 724 F.2d at 236-37. In rejecting a competitor's

Section 2 claim, the court explained that the evidence did

not establish “the severity of the foreclosure (a fact which,

other things being equal, suggests anticompetitive

harm).” Jd. at 237. Thus, in Barry Wright, “severity of

foreclosure” was simply an evidentiary factor in establish-

ing whether the monopolist had engaged in anticompeti-

tive conduct — it was not a stand-alone requirement for a

Section 2 violation, as USTC appears to assert (Pet. 20).

And, even if that is what the First Circuit intended,

USTC failed to preserve this argument through an objec-

tion to the jury instructions. See Pet. App. 53a-54a.

Nor is the decision below in conflict with Concord Boat

(207 F.3d at 1044-45). That court held that the alleged

predatory conduct was legitimate price competition that

helped consumers and that the defendant monopolist did

nothing to prevent the plaintiff from offering a better

deal. The court further noted that the challenged agree-

ments did not even require exclusive dealings with the

monopolist, but rather permitted purchasers to buy up to

40 percent of their requirements from other sellers with-

out forgoing the discount offered by the monopolist. On

those facts — without even looking at the share of the total

market covered by those agreements — the Eighth Circuit

found no exclusion, a factual conclusion that does not con-

flict in any way with the Sixth Circuit’s affirmance of the

district court in this case. See, e.g., United States v. Doe,

465 U.S. 605, 614 (1984) (“Traditionally, we . . . have been

reluctant to disturb findings of fact in which two courts

below have concurred.”).’

7 USTC’s reliance (Pet. 20) on Western Parcel Express v. United Par-

cel Service of America, Inc., 190 F.3d 974, 976 (9th Cir. 1999), is also

misplaced. That case concerned whether the defendant had market

power (see id. at 975) — an issue uncontested by USTC in this case.

22

II. USTC’S SUFFICIENCY CHALLENGE TO THE

DAMAGES EVIDENCE LACKS MERIT AND

RAISES NO CONFLICT WITH ANY CIRCUIT

A. USTC Has Failed To Preserve Any Legal Issue

Regarding Damages For The Court To Review

In the court of appeals, USTC contended that the dis-

trict court had erred under Daubert by admitting the tes-

timony of Conwood’s damages expert, Professor Richard

Leftwich. In this Court, USTC has abandoned its chal-

lenge to the lower courts’ application of Daubert, thus

conceding that Leftwich’s testimony was properly admit-

ted. See, e.g., Yee v. City of Escondido, 503 U.S. 519, 534-

38 (1992) (questions not framed in the petition for writ of

certiorari are deemed waived).

Instead USTC complains, first, that Conwood failed to

“disaggregate” legal from illegal conduct in its proof of

damages and, second, that Conwood failed to “link” its an-

titrust damages to specific antitrust misconduct.

On the first issue, USTC fails to acknowledge that the

jury in this case was specifically instructed to separate

lawful from unlawful conduct in calculating damages:

“[yjou may not... calculate damages based only on specu-

lation or guesswork, and you must remember that you can

award Conwood damages only for injuries caused by a vio-

lation of the antitrust laws. You may not award damages

for injuries or losses caused by other factors.” C.A. App.

243 (Jury Instruction No. 4). As the Sixth Circuit recog-

nized, a reviewing court “must assume that the jury fol-

lowed the court’s instructions.” Aspen Skiing, 472 U.S. at

604. The jury must, therefore, be presumed to have “dis-

aggregate[d] the injury caused by USTC as opposed to

that caused by other factors.” Pet. App. 42a-43a.

To the extent USTC suggests that the instruction given

to the jury was insufficient and some additional legal in-

struction should have been given, that argument was not

presented to the district court at trial and is, thus,

waived. E.g., Texaco Inc. v. Hasbrouck, 496 U.S. 543, 573

(1990) (any “possible flaw in the jury’s calculation of the

23

amount of damages would not be an appropriate basis for”

overturning verdict in absence of challenge to jury in-

structions). It is also incorrect. The damages instruction

given by the district court was perfectly in keeping with

the damages requirements imposed by this Court in other

antitrust cases.®

On the second issue, USTC asked for no instruction re-

quiring the jury to trace each dollar of antitrust damages

to specific instances of antitrust misconduct. Nor could it

have; USTC cites not a single case in which a court has

accepted such a requirement, much less a dispute about

this in the lower courts. USTC cannot ask for review in

the Court based on an instruction it did not request and

could not properly have gotten.

B. Overwhelming Evidence Supported The Prop-

erly Instructed Jury’s Damages Award

Because USTC failed to preserve any legal issue con-

cerning the jury instructions (or the admissibility of any

damages evidence), the only possible issue before this

Court is whether all the evidence, viewed in the light

most favorable to Conwood, was sufficient to support the

jury’s finding. But this Court’s cases make absolutely

clear that it does not sit to review the sufficiency of the

evidence. Goodman v. Lukens Steel Co., 482 U.S. 656, 665

(1987). In particular, the Court has stressed that evi-

dence on antitrust damages should not be reweighed on

appeal. Texaco, 496 U.S. at 573.

° See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S.

100, 114 n.9 (1969) (“[i]t is enough that the illegality is shown to be a

material cause of the injury”); Bigelow v. RKO Radio Pictures, Inc., 327

U.S. 251, 264 (1946) (noting the “well settled principle” that, “in the

absence of more precise proof, the jury could conclude as a matter of

just and reasonable inference from the proof of defendants’ wrongful

acts and their tendency to injure plaintiffs’ business, and from the evi-

dence of the decline in prices, profits and values, not shown to be at-

tributable to other causes, that defendants’ wrongful acts had caused

damage to the plaintiffs”).

24

In any event, USTC does not even purport to confront

all the record evidence on damages. USTC criticizes

Leftwich’s testimony, but it does not contest the other

evidence on damages. Moreover, USTC mischaracterizes

Leftwich’s testimony. As the court of appeals found,

Leftwich did carefully rule out causes of Conwood’s dam-

ages other than USTC’s exclusionary conduct. While

USTC finds that testimony unpersuasive, the question

was properly submitted to a jury, which found the testi-

mony credible.

1. USTC’s petition directs its fire on disaggregation

solely at the economic study performed by Professor Left-

wich. USTC simply ignores (Pet. 21-23) the other wit-

nesses on damages, whose testimony the Sixth Circuit

found independently sufficient to support the jury verdict.

Pet. App. 42a-44a. In “reject[ing] USTC’s argument that

Conwood failed to disaggregate the injury caused by

USTC as opposed to that caused by other factors,” id. at

43a, the court found that three different witnesses placed

the damages range between $313 million and $488 million

for the multi-year period in which USTC’s illegal cam-

paign harmed Conwood, id. at 43a-44a.

As previously explained (pp. 6-8, supra), the jury heard

evidence from two Conwood executives, each with decades

of experience in the smokeless tobacco market, who testi-

fied that, absent USTC’s unlawful campaign, Conwood’s

market share would have been in the mid-20s. Pet. App.

15a-16a, 42a-43a. That testimony was based not only on

their experience, but also on Conwood’s market share

growth in the years before USTC commenced its viola-

tions, Conwood’s performance in the most closely analo-

gous market (loose leaf), and Conwood’s performance in

local areas where it had a significant presence before

USTC began its campaign to exclude. Id. This testimony

was supported by USTC’s own witnesses, who testified

that in their sales regions, where Conwood’s racks and

advertising were not excluded, Conwood’s share was

around 25 percent. C.A. App. 1787, 1796-97, 1874, 4809.

nT rn, ineneeinn

25

Based on the undisputed figure of $10 million per market

share point in additional profit, see Pet. App. 15a, this

evidence supported Conwood’s claim to at least $400 mil-

lion in lost profits in the four years preceding trial arising

solely from USTC’s challenged anticompetitive conduct.

2. Even if USTC could view Professor Leftwich’s evi-

dence in isolation, his study plainly did disaggregate law-

ful from unlawful conduct. Using accepted statistical

methods, Leftwich tested Conwood’s assertion that its

growth had been stymied by USTC in states where it had

not established a foothold before USTC began its exclu-

sionary campaign. Leftwich testified that there was a

statistically significant difference between Conwood’s

growth after 1990 (when USTC began its campaign) in

foothold and non-foothold states, and that Conwood’s di-

minished growth could not be explained by any factor ex-

cept USTC’s challenged anticompetitive conduct.

For example, in his before-and-after test, Leftwich

found that, prior to the exclusionary campaign, there was

no relationship between Conwood’s foothold status and

market share growth rate, but that, after USTC’s cam-

paign had begun, there was a significant relationship be-

tween Conwood’s share of the moist snuff market in a

state and the rate of growth in that state. Id. at 41a.

In his yardstick test, Leftwich disproved claims that

aggressive competition by USTC, lack of innovation by

Conwood, or advertising restrictions caused the growth

differential by comparing Conwood’s performance in the

moist snuff market to its performance in the closely

analogous loose leaf tobacco market. Leftwich noted that,

in loose leaf, Conwood competed with the same sales

force, there was no more or less innovation, and the same

advertising constraints applied in precisely the same

stores. Yet in the loose leaf market, where USTC did not

compete, Conwood was able to achieve market growth in

all states, including those where it did not begin with a

relatively high share. Id. See also C.A. App. 1106-08.

26

In his initial regression analysis, Leftwich considered

an array of additional hypotheses for Conwood’s stunted

growth in non-foothold states and found that none could

explain Conwood’s losses. See, e.g., C.A. App. 1104-09

(testimony), 3517-28 (expert report), 4412-13 (expert re-

buttal report). To confirm further that Conwood’s losses

were attributable to USTC’s unlawful conduct, Leftwich

performed an additional regression, based on a model de-

veloped by USTC’s own expert. Pet. App. 4la. As the

Sixth Circuit noted, Leftwich employed nationwide sales

data and sworn declarations from 241 Conwood sales rep-

resentatives regarding the extent and relative intensity of

USTC’s challenged conduct in their territories and used

this information “to construct three alternate measures of

USTC’s bad acts by state.” Jd. Leftwich found that “in-

creases in UST’s exclusionary behavior in a state reduce

Conwood’s share of sales in stores in that state by a sta-

tistically significant amount.” C.A. App. 4415-16 (expert

rebuttal report). The Sixth Circuit thus expressly rejected

USTC’s complaint that Leftwich had “failed to take into

account any USTC ‘bad act.”” Pet. App. 41a.

USTC claims that Leftwich calculated damages as one

“ball of wax” and accordingly admitted that he swept legal

and illegal conduct alike into his opinion. Pet. 23. In fact,

Leftwich testified only that all of the unlawful conduct

went into his calculation, with no attempt to assign spe-

cific figures for separate rack removals, contracted exclu-

sions, or other kinds of exclusion. Because his analysis

identified USTC exclusionary conduct of all kinds as the

only explanation for Conwood’s stunted growth in the

non-foothold states, Leftwich did limit his damages esti-

mate to the effect of USTC’s unlawful conduct. USTC has

cited no authority for its claim that Leftwich was required

to disaggregate damages due to each species of unlawful

conduct, much less each instance of exclusion.

In short, Leftwich considered and ruled out all of the al-

ternative “explanations that USTC’s own expert sug-

gested as possible explanations for Conwood’s low market

27

share,” Pet. App. 40a-41a, and proved a direct link be-

tween increases in USTC’s anticompetitive conduct and

Conwood’s lost share. His testimony was subjected to vig-

orous cross-examination, yet USTC offered no contrary

evidence (other than to present an expert to argue that

Conwood had suffered no damages). It was up to the jury

to weigh the evidence, and its award of $350 million was

consistent with this Court’s decisions. See, e.g., Zenith,

395 U.S. at 116-19 (evidence as to what market share

would have been in the absence of antitrust injury suffi-

cient to sustain verdict); Bigelow, 327 U.S. at 264 (com-

parison of plaintiff’s receipts before and after defendant's

unlawful actions was sufficient to support jury’s verdict).

USTC complains about the imprecision of the proof re-

garding the substantial damage caused by its unlawful

corporate policy of abusing its power to harm competition

without ever having offered a better way to calculate

damages. Whatever uncertainty might exist in the calcu-

lation of damages, “[t]he most elementary conceptions of

justice and public policy require that the wrongdoer shall

bear the risk of the uncertainty which his own wrong has

created.” Bigelow, 327 U.S. at 265.°

® USTC repeatedly notes the size of the damages award, as if that

alone were a ground for certiorari. But “[t}he size of the damages

award ... confirms the substantial character of the effect of’ USTC’s

anticompetitive conduct. Aspen Skiing, 472 U.S. at 608. USTC’s focus

on the amount of the award after trebling is inappropriate. Congress

has determined that antitrust awards should be trebled, and an attack

on the trebled number is an attack on that statutory policy, not on the

jury's assessment of injury. Accordingly, the amount awarded prior to

trebling, $350 million, is the amount relevant to USTC’s suggested

analysis. When viewed from the perspective of 1 percentage point of

market share equaling $10 million per year in lost profits, the $350

million awarded is in fact a conservative number (representing the loss

of less than 9 market share points over a four-year period preceding

trial). Pet. App. 15a. The court below thus reasonably concluded that

the jury award was “well within that range” of evidence on damages.

Id. at 43a. We would also note that USTC itself has characterized the

award as “not expected to have a material adverse effect on [(USTC’s]

consolidated financial position.” UST Inc. SEC Form 10-Q (3d Qtr.

2002).

28

C. USTC’s Suggestion Of A “Conflict” On Dam-

ages Is Incorrect

USTC alleges numerous conflicts on the issue of dam-

ages. None is remotely convincing. As an initial matter,

most of the cases cited by USTC are Daubert cases deal-

ing with the “gatekeeper” function of the court in admit-

ting expert testimony, not with an analysis of the suffi-

ciency of properly admitted evidence. As noted, USTC

has waived its Daubert challenge in this Court. Moreover,

because USTC failed to preserve any legal issue concern-

ing the standard considered by the jury, this case involves

only the fact-bound application of undisputed legal prin-

ciples. USTC cannot identify any controlling legal princi-

ple on which the lower courts disagree.

In Concord Boat, the expert “construct[ed] a hypotheti-

cal market which was not grounded in the economic real-

ity” of the market at issue; assumed that the plaintiffs’

products were of the same quality as the defendants’

(when they were not); assumed (for no particular reason)

that antitrust damages would begin when one firm

reached 50 percent; assumed that, in his entirely fictive

market, prices would be set in accordance with an aca-

demic theory (“Cournot model”) that had never been held

a valid method for estimating antitrust damages; and,

then, from those compounded assumptions — none an-

chored in the facts — predicted substantial damages. 207

F.3d at 1056. Worse still, the expert’s assumptions con-

cededly were contradicted by “inconvenient evidence.” Id.

The expert admitted that he had “failed to account for

market events that both sides agreed were not related to

any anticompetitive conduct,” even though “such facts

could have been incorporated into his model.” Jd. Nota

single one of those glaring errors can be found in the

damages evidence below. Both the Eighth and Sixth Cir-

cuits applied the exact same standard to the evidence — in

Concord Boat, the expert failed to ground his opinion in

the facts; in this case, he did. USTC’s claimed conflict is

therefore illusory.

29

In Image Technical Services, Inc. v. Eastman Kodak

Co., 125 F.3d 1195 (9th Cir. 1997), cert. denied, 523 U.S.

1094 (1998), the court specifically noted that the plaintiff

made no effort to “segregate damages attributable to law-

ful competition from damages attributable to Kodak’s

monopolizing conduct.” Id. at 1224. Here, the courts be-

low in no way challenged this principle, but simply de-

termined, on this record, that there was an adequate ba-

sis in the record by which the jury could limit damages to

unlawful conduct. Pet. App. 43a. Once again, the courts

of appeals are in agreement on the proper standards, and

USTC complains only about the fact-bound application of

settled law to its case.

The Sixth Circuit’s rulings are not at all inconsistent

with General Electric Co. v. Joiner, 522 U.S. 136 (1997).

The Court there concluded that the district court had not

abused its discretion in excluding the testimony of experts

whose analyses “were so dissimilar to the facts presented

in this litigation.” Jd. at 144-45. In this instance, using

precisely the same standard of review articulated in

Joiner, the court of appeals found that the damages tes-

timony was properly tied to the facts of this litigation.

Pet. App. 41a-42a.

Nor is there a conflict with Eighth Circuit decisions. In

Blue Dane Simmental Corp. v. American Simmental Asso-

ciation, 178 F.3d 1035 (8th Cir. 1999), the court held that

the district court had not abused its discretion in exclud-

ing inherently implausible expert testimony, where the

expert declined to consider other concededly relevant fac-

tors and attributed the entire reduction in price for Ris-

inger cattle in an already falling market to the introduc-

tion of 19 head into a purebred market of 138,169

animals. Here the court of appeals found exactly the op-

posite: “no reasoned basis” fo overturn the district court’s

admission of Leftwich’s testimony. Pet. App. 39a; see also

id. at 40a-4l1a. Leftwich was “subject to vigorous cross

examination and an opportunity for [USTC] to introduce

countervailing evidence of its own.” Id. at 42a. USTC

30

simply does not like the results of that process. There is

no basis for USTC’s assertion that this issue would have

been decided differently in the Eighth Circuit. '°

* * +

USTC asks this Court to undo the verdict of a properly

instructed jury in an error-free, month-long trial in which

voluminous testimony was adduced on a wide-ranging,

comprehensive scheme to exclude Conwood’s products

from fair competition. Its sufficiency-of-the-evidence chal-

lenges, however, present no legal issue in conflict with the

decisions of this or any other court.

, CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

RICHARD C. ROBERTS MICHAEL K. KELLOGG

WHITLOW, ROBERTS, Counsel of Record

HOUSTON & STRAUB MARK C. HANSEN

Old National Bank Building DAVID C. FREDERICK

300 Broadway NEIL M. GORSUCH

Paducah, Kentucky 42002 KELLOGG, HUBER, HANSEN,

(270) 443-4516 TODD & EVANS, P.L.L.C.

1615 M Street, N.W.

Suite 400

Washington, D.C. 20036

(202) 326-7900

Counsel for Respondents

November 20, 2002

© Underscoring the absence of any split between the Sixth and

Eighth Circuits, in a more recent decision not cited by USTC, EFCO

Corp. v. Symons Corp., 219 F.3d 734, 739-40 & n.5 (8th Cir. 2000), the

Eighth Circuit itself expressly confirmed its traditional view that a

damages expert need not rule out all other possible causes of a plain-

tiff’s injuries to be admissible.