Plaintiff-appellant H. Floyd McGahee (McGahee) brought this antitrust action under Section 2 of the Sherman Act, 15 U.S.C. § 2, and under § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), against defendant-appellee Northern Propane Gas Company (Northern Propane). The district court granted Northern Propane's motion for summary judgment and entered judgment against McGahee. McGahee v. Northern Propane Gas Co., 658 F.Supp. 189 (N.D.Ga.1987) (Shoob, J.). We reverse.
McGahee and Northern Propane are retail distributors of propane, a fuel used for heating. Retail distributors primarily have two types of customers: (1) residential and (2) commercial. Generally, distributors sell propane to commercial users at a lower price. Because propane is a fungible good, price is of prime importance in its unregulated market.
At the time relevant to this action, Northern Propane operated 180 retail distribution outlets in twenty-five states. One of these retail distribution outlets was based in Camilla, Georgia. Northern Propane produces and buys propane in western states and comingles the propane with other companies' propane to transport it by pipeline to Georgia. The Northern Propane district office in Camilla then takes delivery of the propane at the pipeline terminal.
In a March 1982 internal report, Northern Propane described the propane market in the Camilla district (approximately Mitchell and Baker Counties). Northern Propane estimated it had sixty percent of the total propane market within the district. Northern Propane estimated Petrolane had twenty percent of the market, but regarded Petrolane as competition only for large volume commercial accounts. Northern Propane also estimated that five competitors, working within the edges of the district, split the remaining twenty percent. Because transportation costs restrict economical delivery of propane to a twenty-five to thirty mile radius from the storage tanks and because these five competitors were based outside of the Camilla district, these competitors were only competitive with Northern Propane on the edge of the Camilla district to which they were closest. In addition, Northern Propane stated that, of other possible fuels, only "free" wood posed a competitive threat to propane in the Camilla district and that conversion to wood had stabilized.
When Northern Propane bought the retail distribution outlet in Camilla, Floyd McGahee was its district manager. McGahee had become a fixture in the Camilla area, having worked at the same propane outlet for approximately thirty years. In June 1981, Northern Propane demoted McGahee to a salesperson position because, according to Northern Propane, he failed to keep adequate records, to keep the accounts receivable current, and to follow company directives. McGahee resigned from Northern Propane on October 9, 1981, under contentious circumstances.
After resigning from Northern Propane, McGahee obtained an $800,000 Small Business Administration (SBA) loan to finance his April 1982 entry into the propane business in the Camilla area. By February 1982, Northern Propane had obtained a copy of McGahee's SBA loan documents
In late April 1982, McGahee opened for business. Not only did McGahee solicit Northern Propane's customers, he also hired three of Northern Propane's drivers and repairmen. McGahee's market share went from zero percent in 1981 to twenty-three percent in 1983, while Northern Propane's market share dropped from sixty or sixty-five percent in 1981 to thirty-five percent in 1983.
During the price war, Northern Propane sold propane at prices below its average total cost. McGahee also contends that Northern Propane's own documents indicate that in some months Northern Propane sold propane to commercial customers at prices below average variable cost and cited documents that support this contention.
II. STANDARD OF REVIEW
Our review of the district court's grant of summary judgment is plenary and is to be conducted utilizing the same legal standards as those imposed upon the district court. Mercantile Bank & Trust v. Fidelity & Deposit Co., 750 F.2d 838, 841 (11th
Three recent Supreme Court cases vacating appellate reversals of district court orders granting summary judgment illulminate the appropriate role of summary procedure. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A common theme found in these cases is that
Celotex, 106 S.Ct. at 2555. In Matsushita, the Supreme Court made clear that summary judgment may be especially appropriate in an antitrust case because of the chill antitrust litigation can have on legitimate price competition. 106 S.Ct. at 1360. For this reason, when opposing a motion for summary judgment, an antitrust plaintiff must present evidence that tends, when interpreted in a light most favorable to plaintiff, to exclude the possibility that defendant's conduct was as consistent with permissible competition as with illegal conduct. Id. at 1357.
III. THE TEST FOR PREDATORY PRICING
A plaintiff must show two elements to establish an attempted monopolization claim under Section 2 of the Sherman Act: (1) the specific intent on the part of the defendant to achieve a monopoly and (2) a dangerous probability the defendant would succeed. Swift & Co. v. United States, 196 U.S. 375, 396, 25 S.Ct. 276, 279, 49 L.Ed. 518 (1905); Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115, 1118 (11th Cir.1986). The first element can be satisfied by proof of predatory pricing, Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986), which is what McGahee has alleged in this case. A problem arises, however, in determining whether a defendant has engaged in predatory pricing.
A plaintiff who is a competing seller such as McGahee must show two elements to establish a Robinson-Patman Act claim: (1) the defendant, in the course of interstate commerce, discriminated in price between purchasers of commodities of like grade and quality and (2) a reasonable possibility that this price difference may harm competition. Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434-35, 103 S.Ct. 1282, 1288, 75 L.Ed.2d 174 (1983); FTC v. Anheuser-Busch, 363 U.S. 536, 549, 80 S.Ct. 1267, 1274, 4 L.Ed.2d 1385 (1960). Price discrimination, the first element, is merely a price difference. Anheuser-Busch, 363 U.S. at 549, 80 S.Ct. at 1274. Harm to competition, the second element, can be satisfied by proof of predatory pricing.
A. The District Court's Test for Predatory Pricing.
In its opinion, the district court discusses the economic theory behind regulating predatory pricing, relying primarily on the work of Professors Areeda and Turner, in
McGahee, 658 F.Supp. at 194.
The Areeda and Turner test has two primary rules for predatory pricing claims: (1) a price at or above the defendant's average variable cost
In International Air, the plaintiff appealed a jury verdict for the defendant, arguing that the district court erred in refusing to direct a verdict in plaintiff's favor on its Robinson-Patman Act claim. 517 F.2d at 720. In arguing for judgment notwithstanding the jury verdict, the plaintiff relied on evidence concerning defendant's subjective intent from defendant's internal company memoranda and related circumstantial evidence. Id. at 721-23. The Fifth Circuit panel, however, said a court must apply objective evidence of predatory pricing, based on defendant's prices and costs, before it could rule as a matter of law against the defendant. Id. at 723. The court stated that
Id. at 724.
In footnote 30 of International Air, the Fifth Circuit panel added this dicta:
Id. at n. 30. In determining the appropriate test, the district court extended the dicta"should be relevant to the prima facie elements" as used in footnote 30 of International Air and followed new Fifth
Accordingly, the district court applied the International Air test to defendant's motion for summary judgment. First, the district court found that the propane market had no significant barriers to entry.
The Areeda and Turner test is like the Venus de Milo: it is much admired and often discussed,
B. Our Quest For a Test For Predatory Pricing.
The case at bar presents an issue of first impression for the Eleventh Circuit.
1. The Antitrust Statutes and Their Legislative History
Under 15 U.S.C. § 15, a private plaintiff such as McGahee may bring a civil action to recover threefold for damages for a violation of the substantive antitrust provisions. McGahee has alleged a Sherman Act claim and a Robinson-Patman Act claim. Predatory pricing is relevant to McGahee's claims because it is circumstantial evidence. In the Sherman Act claim, predatory pricing would be used to infer the intent necessary for an attempt to monopolize.
In relevant part, the Sherman Act provides that "[e]very person who shall monopolize, or attempt to monopolize, ... any part of the trade or commerce among the several States ... shall be deemed guilty of a felony." 15 U.S.C. § 2.
Standard Oil Co., 221 U.S. at 52, 31 S.Ct. at 512 (summarizing the common law related to monopolies); see also id. at 54 & 58, 31 S.Ct. at 513 & 515 (same). Congress made § 2 of the statute even broader than the common law. The common law prohibited acts that produced a monopoly, which then meant an undue restraint of trade; § 2 of the statute also prohibited any attempt to monopolize, even though the acts by which the attempt was made did not themselves produce a monopoly. Id. at 61, 31 S.Ct. at 516.
In passing antitrust legislation, Congress's purpose was not only an economic one, but was also a political one, a purpose of curbing the power some individuals and
Enacted in 1936, the Robinson-Patman Act strengthened the 1914 Clayton Act's prohibition of price discrimination. S.Rep. No. 1502, 74th Cong., 2d Sess. 3 (1936); H.R. No. 2287, 74th Cong., 2d Sess. 3, 16 (1936); FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 545, 80 S.Ct. 1267, 1272, 4 L.Ed.2d 1385 (1960). Section 2 of the Clayton Act, as originally enacted in 1914, provided as follows:
Clayton Act, ch. 323, § 2, 38 Stat. 730 (1914) (current version at 15 U.S.C. § 13 (1982)). The House Report stated that § 2 of the Clayton Act was
H.R.Rep. No. 2287, 74th Cong., 2d Sess. 8 (1914). In addition to the reasons for prohibiting price discrimination given by the House Report, the Senate Report added:
S.Rep. No. 698, 63d Cong., 2d Sess. 3 (1914). This legislative history makes plain that § 2 of the Clayton Act "was born of a desire by Congress to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers." FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 543, 80 S.Ct. 1267, 1271, 4 L.Ed.2d 1385 (1959).
In relevant part, the Clayton Act today, as amended by the Robinson-Patman Act, provides that
15 U.S.C. § 13(a). The 1936 Robinson-Patman amendments to the Clayton Act, among other things, strengthened the prohibitions against price discrimination by changing the exceptions carved from the general rule (the exceptions are the parts of the statute following "Provided"). As the Senate Judiciary Committee explained,
S.Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936).
The Senate Report also explained that the amended statute's cost exception to the general rule
Id. at 5-6.
In explaining the practices to be prohibited by the Act, the House Judiciary Committee in the House Conference Report expressed a similar concern with limiting price differences to those specific to a particular customer:
Id. at 8; see also S.Rep. No. 1502, 74th Cong., 2d Sess. 4 (1936) (using similar language). Therefore, differences in price, even if the lower price is only too low to provide the seller any profit, are prohibited
In summary, Congress's exact intent when enacting the antitrust statutes as to what conduct established an antitrust violation is beyond the reach of human knowledge, but the statutes, their legislative histories, and common sense indicate that Congress intended for subjective evidence of a defendant's intent to be relevant. Predatory pricing provides only objective, circumstantial evidence of predatory intent. In determining how Congress intended proof to be made of antitrust violations, common sense suggests that objective, circumstantial evidence of prices and costs and direct and circumstantial evidence of subjective intent would both be important.
The antitrust statutes and their legislative histories also indicate that Congress intended average total cost to be the objective standard used. The predatory pricing test requires a cost standard below which it may be inferred that a defendant violated the antitrust statutes. The Sherman Act and its legislative history do not offer guidance as to what measure of cost is relevant, except indicating that, as a codification of the common law, Sherman Act violations could be proven in part through objective evidence. The legislative histories of both the Clayton Act and the Robinson-Patman Act, on the other hand, both offer specific guidance. The Robinson-Patman Act itself uses the word "cost," which should be interpreted as meaning all costs.
2. Supreme Court Precedent
Three recent Supreme Court cases shed light on interpreting these antitrust statutes. Although these cases do not directly address the issues in this case, they suggest the proper definition of cost and the role of subjective evidence and costs in summary procedure in antitrust cases.
In Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986), the Supreme Court held that a private plaintiff seeking injunctive relief under 15 U.S.C. § 16 must show a threat of antitrust injury, which means threat of an injury for which a plaintiff could eventually claim treble damages. In Cargill, the Court reversed the Tenth Circuit because the plaintiff did not show at the trial more than a threat of loss or damage due merely to increased competition and neither raised nor proved any claim of predatory pricing before the district court. In discussing predatory pricing, the Court first defined the term: "Predatory pricing may be defined as pricing below an appropriate measure of cost for the purpose of eliminating competition in the short run and reducing competition in the long run." Id. 107 S.Ct. at 493. The Court recognized the debate among the Circuit Courts of Appeals and among academics concerning "measure of cost" but did not indicate what "measure of cost" or "cost" was appropriate. Id. at n. 12. The Court held that for the purposes of deciding Cargill, a definition of predatory pricing consistent with a definition of pricing below cost was sufficient,
Id. The Court concluded that the plaintiff did not prove any claim of predatory pricing because the evidence "consist[ed] only of four passing references, three in deposition testimony, to the possibility that [defendant's] prices might dip below costs." Id. at 494. The Court also commented that other factors, such as the defendant's market share capacity and the barriers to entry after competitors have been driven from the market, must also be considered, because these factors indicate whether an illegal predator is capable of successfully pursuing a predatory scheme. Id. at n. 15. The Court warned that "[c]ourts should not find allegations of predatory pricing credible when the alleged predator is incapable of successfully pursuing a predatory scheme. See infra, n. 17." Id.
In Matsushita Electric Industrial Co. v. Zenith Radio Corporation, 475 U.S. 574, 588, 106 S.Ct. 1348, 1357 (1986), the Supreme Court held that a plaintiff seeking damages for a violation of § 1 of the Sherman Act must present evidence "that tends to exclude the possibility" that the alleged conspirators acted independently. As in Cargill, the Court in Matsushita recognized the debate concerning what "cost" is relevant in a predatory pricing claim, but did not take sides in the debate. 106 S.Ct. at 1355 nn. 8 & 9. In Matsushita, rather than supporting a theory of conspiratorial predatory pricing injuring the plaintiffs, the evidence of conspiracy indicated a conspiracy that "actually tended to benefit" plaintiffs. Id. at 1356. The Court stated that "if the factual context renders [plaintiffs] claim implausible — if the claim is one that simply makes no economic sense — [plaintiffs] must come forward with more persuasive evidence to support their claim than would otherwise be necessary." Id.
Cargill, 107 S.Ct. at 495 n. 17 (quoting Matsushita). Accordingly, the Court rejected the Court of Appeals' theory of conspiracy as making no practical sense.
In Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 87 S.Ct. 1326, 18 L.Ed.2d 406 (1967), the evidence at the trial below showed that defendants, three large national companies, for over three years sold frozen pies in the Salt Lake City marketing area at prices below their cost and below their prices in other markets that were closer to their plants. The Court held this evidence was sufficient to support a finding of injury to competition despite the increasing sales volume of plaintiff, a local company, and the fact that plaintiff continued to make a profit. Id. at 702-03, 87 S.Ct. at 1336. The Court's opinion dealt with the conduct of each defendant separately, concluding that "there was some evidence of predatory intent with respect to each of these [defendants]." Utah Pie, 386 U.S. at 702, 87 S.Ct. at 1336. The Court said the first defendant "suffered substantial losses on its frozen pie sales," id. at 697, 87 S.Ct. at 1333, the second defendant had a price in Salt Lake City that "was less than its direct cost plus an allocation for overhead,"
In summary, the recent Supreme Court cases are consistent with the conclusions drawn from the survey above of the antitrust statutes and their legislative histories. Utah Pie bears most directly on the primary issues in the case at bar — whether subjective evidence is to be used and what cost standard is to be used. In Utah Pie, the Court used evidence of subjective intent in concluding a defendant had the requisite intent. The Court did not decide what cost standard should be used in the predatory pricing test, but held that the relevant cost could be "direct cost plus an allocation for overhead," which is inconsistent with Areeda and Turner's proposed average variable cost test. Matsushita and Cargill recognize the debate over the appropriate measure of cost, but in both cases the Supreme Court declined to define an appropriate standard. In Cargill, the Court considered objective evidence other than prices and costs, which does not necessarily support the use of subjective evidence, but is inconsistent with Areeda and Turner's predatory pricing test used by the district court, which relies solely on objective evidence of prices and costs.
C. The Eleventh Circuit Test for Predatory Pricing.
Determining that subjective evidence and average total cost are relevant does not end the matter. The Eleventh Circuit test for predatory pricing must still be spelled out. As given below, the Eleventh Circuit test borrows from the tests used by a majority of our sister circuits and relies on the cases cited in the notes as in accord with our test for an explanation of the test's origins.
If a defendant's prices were below average total cost and above short run marginal cost, then there is circumstantial evidence of predatory intent. An inference of predatory intent, however, may not rest solely on prices of this nature. To withstand judgment as a matter of law, a plaintiff must have other evidence, either objective or subjective, of predatory intent.
If a defendant's prices were below short run marginal cost, then the circumstantial evidence is strong enough to create a rebuttable presumption of predatory intent.
IV. McGAHEE'S SHERMAN ACT CLAIM
In McGahee's Sherman Act claim, he must show that Northern Propane intended to achieve a monopoly and that there was a dangerous probability Northern Propane would succeed. In granting summary judgment, the district court held that McGahee could not prove predatory pricing, which is the theory McGahee relies upon to establish the intent element.
The district court also alternatively held that McGahee cannot prove the second element of an attempted monopolization claim. The court stated that it found no evidence that a predatory pricing scheme had a dangerous probability of success, basing this statement on defendant's inability to charge supracompetitive prices,
When determining whether an issue of fact exists as to whether defendant's actions presented a dangerous probability of defendant achieving a monopolist's market power, a court examines the relevant market and defendant's market power before the attempt to monopolize began. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 350, 15 L.Ed.2d 247 (1965) (dicta); Multiflex, Inc. v. Samuel Moore & Co., 709 F.2d 980, 982 (5th Cir.1983), cert. denied, 465 U.S. 1100, 104 S.Ct. 1594, 80 L.Ed.2d 126 (1984); Volasco Products Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383, 390 (5th Cir.1962) (failure to determine defendant's market share warranted withdrawal of charge from jury), cert. denied, 372 U.S. 907, 83 S.Ct. 721, 9 L.Ed.2d 717 (1963); e.g., Quality Foods v. Latin American Business Development Corp., 711 F.2d 989, 996 (11th Cir.1983); see also Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 119-21 n. 15, 107 S.Ct. 484, 494 n. 15, 93 L.Ed.2d 427 (1986) (emphasizing importance of market share in predatory pricing case); but see Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919 (9th Cir.1980) (market power only a factor to consider when determining whether defendant had the specific intent to monopolize), cert. denied, 450 U.S. 921, 101 S.Ct. 1369, 67 L.Ed.2d 348 (1981).
Determining whether a defendant possesses sufficient market power to be dangerously close to achieving a monopoly requires analysis and proof of the same character, but not the same quantum, as would be necessary to establish monopoly power for an actual monopolization claim. See generally 3 Von Kalinowski: Antitrust Laws & Trade Regulation § 9.01 [a] (1988); L. Sullivan, Antitrust 137 (1977). The best test from which market power may be inferred is relative size, i.e., the percentage of market share. United States v. Grinnell Corp., 384 U.S. 563, 571, 86 S.Ct. 1698, 1704, 16 L.Ed.2d 778 (1966). The market share necessary for a defendant to be capable of posing a threat of achieving monopoly power depends on the type of factors concerning Northern Propane and McGahee discussed by the district court. McGahee, 658 F.Supp. at
In this case, it is "undisputed"
V. McGAHEE'S ROBINSON-PATMAN ACT CLAIM
In McGahee's Robinson-Patman Act claim, he must show that Northern Propane, in the course of interstate commerce, discriminated in price between different purchasers and a reasonable possibility that this price difference may harm competition. The district court held that McGahee's Robinson-Patman Act claim failed because McGahee could not establish predatory pricing.
Accordingly, the summary judgment granted by the district court is reversed. The case is remanded for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
McGahee also contends that Northern Propane attempted to hinder and harass him by not picking up its tanks when requested by customers, refilling customers' tanks after being asked to disconnect them, and reporting McGahee to the State Fire Marshal for disconnecting Northern Propane's tanks. Unfortunately, the primary source McGahee cites to support these contentions of anticompetitive conduct is not part of the record on appeal; therefore, we do not consider them.
The Ninth and Sixth Circuits' cases above hold that prices above average variable cost are "rebuttably presumed" to be nonpredatory. Because the burden of proof on this issue is already on plaintiff, the effect is only to require evidence in addition to prices above average variable cost before a fact finder may infer predatory intent and to add verbiage that may confuse a jury. Therefore, we do not use the same language as the Ninth and Sixth Circuits, but the difference for those prices (below average total cost and above short run marginal cost) is one of semantics and not of substance.