OPINION OF THE COURT
FISHER, Circuit Judge.
This case arises from an antitrust action brought by ZF Meritor, LLC ("ZF Meritor") and Meritor Transmission Corporation ("Meritor") (collectively, "Plaintiffs") against Eaton Corporation ("Eaton") for allegedly anticompetitive practices in the heavy-duty truck transmissions market. The practices at issue are embodied in long-term agreements between Eaton, the leading supplier of heavy-duty truck transmissions in North America, and every direct purchaser of such transmissions. Following a four-week trial, a jury found that Eaton's conduct violated Section 1 and Section 2 of the Sherman Act, and Section 3 of the Clayton Act. Eaton filed a renewed motion for judgment as a matter of law, arguing that its conduct was per se lawful because it priced its products above-cost. The District Court disagreed, reasoning that notwithstanding Eaton's above-cost prices, there was sufficient evidence in the record to establish that Eaton engaged in anticompetitive conduct — specifically that Eaton entered into long-term de facto exclusive dealing arrangements — which foreclosed a substantial share of the market and, as a result, harmed competition. We agree with the District Court and will affirm the District Court's denial of Eaton's renewed motion for judgment as a matter of law.
We are also called upon to address several other issues. Although the jury returned a verdict in favor of Plaintiffs on the issue of liability, prior to trial, the District Court granted Eaton's motion to exclude the damages testimony of Plaintiffs' expert. The District Court also denied Plaintiffs' request for permission to amend the expert report to include alternate damages calculations. Consequently, the issue of damages was never tried and no damages were awarded. Plaintiffs cross-appeal from the District Court's order granting Eaton's motion to exclude and the District Court's subsequent denial of Plaintiffs' motion for clarification. For the reasons set forth below, we will affirm the District Court's orders to the extent that they excluded Plaintiffs' expert's testimony based on the damages calculations in his initial expert report, but reverse to the extent that the District Court denied Plaintiffs' request to amend the report to submit alternate damages calculations. Finally, although the District Court awarded no damages, it did enter injunctive relief against Eaton. On appeal, Eaton argues that Plaintiffs lack standing to seek injunctive relief because they are no longer in the heavy-duty truck transmissions market, and have expressed no concrete desire to re-enter the market. We agree and will vacate the District Court's order issuing injunctive relief.
A. Factual Background
1. Market Background
The parties agree that the relevant market in this case is heavy-duty "Class 8" truck transmissions ("HD transmissions") in North America. Heavy-duty trucks include 18-wheeler "linehaul" trucks, which are used to travel long distances on highways, and "performance" vehicles, such as cement mixers, garbage trucks, and dump trucks. There are three types of HD transmissions: three-pedal manual, which uses a clutch to change gears; two-pedal automatic; and two-or-three-pedal automated mechanical, which engages the gears mechanically through electronic controls. Linehaul and performance transmissions,
There are only four direct purchasers of HD transmissions in North America: Freightliner, LLC ("Freightliner"), International Truck and Engine Corporation ("International"), PACCAR, Inc. ("PACCAR"), and Volvo Group ("Volvo"). These companies are referred to as the Original Equipment Manufacturers ("OEMs"). The ultimate consumers of HD transmissions, truck buyers, purchase trucks from the OEMs. Truck buyers have the ability to select many of the components used in their trucks, including the transmissions, from OEM catalogues called "data books." Data books list the alternative component choices, and include a price for each option relative to the "standard" or "preferred" offerings. The "standard" offering is the component that is provided to the customer unless the customer expressly designates another supplier's product, while the "preferred" or "preferentially-priced" offering is the lowest priced component in data book among comparable products. Data book positioning is a form of advertising, and standard or preferred positioning generally means that customers are more likely to purchase that supplier's components. Although customers may, and sometimes do, request components that are not published in a data book, doing so is often cumbersome and increases the cost of the component. Thus, data book positioning is essential in the industry.
Eaton has long been a monopolist in the market for HD transmissions in North America.
One purpose of the ZF Meritor joint venture was to adapt ZF AG's two-pedal automated mechanical transmission, ASTronic, which was used exclusively in Europe, for the North American market. The redesign and testing took 18 months, and ZF Meritor introduced the adapted ASTronic model into the North American market in 2001 under the new name FreedomLine. FreedomLine was the first two-pedal automated mechanical transmission to be sold in North America.
2. Eaton's Long-Term Agreements
In late 1999 through early 2000, the trucking industry experienced a 40-50% decline in demand for new heavy-duty trucks. Shortly thereafter, Eaton entered into new long-term agreements ("LTAs") with each OEM. Although long-term supply contracts were not uncommon in the industry, and were also utilized by Meritor in the 1990s, Eaton's new LTAs were unprecedented in terms of their length and coverage of the market. Eaton signed LTAs with every OEM, and each LTA was for a term of at least five years.
Although the LTAs' terms varied somewhat, the key provisions were similar. Each LTA included a conditional rebate provision, under which an OEM would only receive rebates if it purchased a specified percentage of its requirements from Eaton.
Each LTA also required the OEM to publish Eaton as the standard offering in its data book, and under two of the four LTAs, the OEM was required to remove competitors' products from its data book entirely. Freightliner agreed to exclusively publish Eaton transmissions in its data books through 2002, but reserved the right to publish ZF Meritor's FreedomLine through the life of the agreement. In 2002, Freightliner and Eaton revised the LTA to allow Freightliner to publish other competitors' transmissions, but the revised LTA provided that Eaton had the right to "renegotiate the rebate schedule" if Freightliner chose to publish a competitor's transmission. Subsequently, Freightliner agreed to a request by Eaton to remove FreedomLine from all of its data books. Eaton's LTA with International also required that International list exclusively Eaton transmissions in its electronic
The LTAs also required the OEMs to "preferential price" Eaton transmissions against competitors' equivalent transmissions. Eaton claims that it sought preferential pricing to ensure that its low prices were passed on to truck buyers. However, there were no express requirements in the LTAs that savings be passed on to truck buyers (i.e., that Eaton's prices be reduced) and there is evidence that the "preferential pricing" was achieved by both lowering the prices of Eaton's products and raising the prices of competitors' products. Eaton notes that it was "common" for price savings to be passed down to truck buyers, and a Volvo executive testified that some of the savings from Eaton products were passed down while others were kept to improve profit margins. Plaintiffs, however, emphasize that according to an email sent by Eaton to Freightliner, the Freightliner LTA required that ZF Meritor's products be priced at a $200 premium over equivalent Eaton products. Likewise, International agreed to an "artificial penal[ty]" of $150 on all of ZF Meritor's transmissions as of early 2003, and PACCAR imposed a penalty on customers who chose ZF Meritor's products.
Finally, each LTA contained a "competitiveness" clause, which permitted the OEM to purchase transmissions from another supplier if that supplier offered the OEM a lower price or a better product, the OEM notified Eaton of the competitor's offer, and Eaton could not match the price or quality of the product after good faith efforts. The parties dispute the significance of the "competitiveness" clauses. Eaton maintains that Plaintiffs were free to win the OEMs' business simply by offering a better product or a lower price, while Plaintiffs argue and presented testimony from OEM officials that, due to Eaton's status as a dominant supplier, the competitiveness clauses were effectively meaningless.
3. Competition under the LTAs and Plaintiffs' Exit from the Market
After Eaton entered into its LTAs with the OEMs, ZF Meritor shifted its marketing focus from the OEM level to a strategy targeted at truck buyers. Also during this time period, both ZF Meritor and Eaton experienced quality and performance issues with their transmissions. For example, Eaton's Lightning transmission, which was an initial attempt by Eaton to compete with FreedomLine, was "not perceived as a good [product]" and was ultimately taken off the market. ZF Meritor's FreedomLine and "G Platform" transmissions required frequent repairs, and in 2002 and 2003, ZF Meritor faced millions of dollars in warranty claims.
During the life of the LTAs, the OEMs worked with Eaton to develop a strategy to combat ZF Meritor's growth. On Eaton's urging, the OEMs imposed additional price penalties on customers that selected ZF Meritor products, "force fed" Eaton products to customers, and sought to persuade truck fleets using ZF Meritor transmissions to shift to Eaton transmissions. At all times relevant to this case, Eaton's average prices were lower than Plaintiffs' average prices, and on several occasions, Plaintiffs declined to grant price concessions
By 2003, ZF Meritor determined that it was limited by the LTAs to no more than 8% of the market, far less than the 30% that it had projected at the beginning of the joint venture. ZF Meritor officials concluded that the company could not remain viable with a market share below 10% and therefore decided to dissolve the joint venture. After ZF Meritor's departure, Meritor remained a supplier of HD transmissions and became a sales agent for ZF AG to ensure continued customer access to the FreedomLine. However, Meritor's market share dropped to 4% by the end of fiscal year 2005, and Meritor exited the business in January 2007.
B. Procedural History
On October 5, 2006, Plaintiffs filed suit against Eaton in the U.S. District Court for the District of Delaware, alleging that Eaton used unlawful agreements in restraint of trade, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; acted unlawfully to maintain a monopoly, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; and entered into illegal restrictive dealing agreements, in violation of Section 3 of the Clayton Act, 15 U.S.C. § 14. Specifically, Plaintiffs alleged that Eaton "used its dominant position to induce all heavy duty truck manufacturers to enter into de facto exclusive dealing contracts with Eaton," and that such agreements foreclosed Plaintiffs from over 90% of the market for HD transmission sales. Plaintiffs sought treble damages, pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, and injunctive relief, pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26.
On February 17, 2009, Plaintiffs' expert, Dr. David DeRamus ("DeRamus"), submitted a report on both liability and damages. On May 11, 2009, Eaton filed a motion, pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), to exclude DeRamus's testimony. The District Court ruled that DeRamus would be allowed to testify regarding liability, but excluded DeRamus's testimony on the issue of damages on the basis that his damages opinion failed the reliability requirements of Daubert and the Federal Rules of Evidence. ZF Meritor LLC v. Eaton Corp., 646 F.Supp.2d 663 (D.Del.2009). Plaintiffs filed a motion for clarification, requesting that DeRamus be allowed to testify to alternate damages calculations based on other data in his expert report, or in the alternative, seeking permission for DeRamus to amend his expert report to present his alternate damages calculations. The District Court decided to defer resolution of the damages issue and bifurcate the case.
The parties proceeded to trial on liability. On October 8, 2009, after a four-week trial, the jury returned a complete verdict for Plaintiffs, finding that Eaton had violated Sections 1 and 2 of the Sherman Act, and Section 3 of the Clayton Act. Following the verdict, Plaintiffs asked the District Court to set a damages trial, but no damages trial was set at that time. On October 30, 2009, Plaintiffs supplemented their earlier motion for clarification, incorporating additional arguments based on developments at trial.
On November 3, 2009, Eaton filed a renewed motion for judgment as a matter of law, or in the alternative, for a new trial. Eaton's principal argument was that Plaintiffs failed to establish that Eaton engaged in anticompetitive conduct because Plaintiffs did not show, nor did they attempt to
On August 4, 2011, the District Court denied Plaintiffs' motion for clarification, and denied Plaintiffs' request to allow DeRamus to amend his expert report to include alternate damages calculations. The same day, the District Court entered an order awarding Plaintiffs $0 in damages. On August 19, 2011, the District Court entered an injunction prohibiting Eaton from "linking discounts and other benefits to market penetration targets," but stayed the injunction pending appeal. Eaton filed a timely notice of appeal and Plaintiffs filed a timely cross-appeal.
II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction over this case pursuant to 28 U.S.C. §§ 1331 and 1337. We have appellate jurisdiction under 28 U.S.C. § 1291.
We exercise plenary review over an order denying a motion for judgment as a matter of law. LePage's Inc. v. 3M, 324 F.3d 141, 145 (3d Cir.2003) (en banc). A motion for judgment as a matter of law should be granted "only if, viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Id. at 145-46 (quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993)). We review questions of law underlying a jury verdict under a plenary standard of review. Id. at 146 (citing Bloom v. Consol. Rail Corp., 41 F.3d 911, 913 (3d Cir.1994)). Underlying legal questions aside, "[a] jury verdict will not be overturned unless the record is critically deficient of that quantum of evidence from which a jury could have rationally reached its verdict." Swineford v. Snyder Cnty., 15 F.3d 1258, 1265 (3d Cir.1994).
We review a district court's decision to exclude expert testimony for abuse of discretion. Montgomery Cnty. v. Microvote Corp., 320 F.3d 440, 445 (3d Cir. 2003). To the extent the district court's decision involved an interpretation of the Federal Rules of Evidence, our review is plenary. Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d Cir.2000). We also review a district court's decisions regarding discovery and case management for abuse of discretion. United States v. Schiff, 602 F.3d 152, 176 (3d Cir.2010); In re Fine Paper Antitrust Litig., 685 F.2d 810, 817-18 (3d Cir.1982).
We review legal conclusions regarding standing de novo, and the underlying factual determinations for clear error. Interfaith Cmty. Org. v. Honeywell Int'l, Inc., 399 F.3d 248, 253 (3d Cir.2005).
A. Effect of the Price-Cost Test
The most significant issue in this case is whether Plaintiffs' allegations under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act are subject to the price-cost test or the "rule of reason" applicable to exclusive dealing claims. Under the rule of reason, an exclusive dealing arrangement will be unlawful only if its "probable effect" is to substantially lessen competition in the relevant market. Tampa Elec. Co. v. Nashville
Eaton urges us to apply the price-cost test, arguing that Plaintiffs failed to establish that Eaton engaged in anticompetitive conduct or that Plaintiffs suffered an antitrust injury because Plaintiffs did not prove — or even attempt to prove — that Eaton priced its transmissions below an appropriate measure of its costs. We decline to adopt Eaton's unduly narrow characterization of this case as a "pricing practices" case, i.e., a case in which price is the clearly predominant mechanism of exclusion. Plaintiffs consistently argued that the LTAs, in their entirety, constituted de facto exclusive dealing contracts, which improperly foreclosed a substantial share of the market, and thereby harmed competition. Accordingly, as we will discuss below, we must evaluate the legality of Eaton's conduct under the rule of reason to determine whether the "probable effect" of such conduct was to substantially lessen competition in the HD transmissions market in North America. Tampa Elec., 365 U.S. at 327-29, 81 S.Ct. 623. The price-cost test is not dispositive.
1. Law of Exclusive Dealing
An exclusive dealing arrangement is an agreement in which a buyer agrees to purchase certain goods or services only from a particular seller for a certain period of time. Herbert Hovenkamp, Antitrust Law ¶ 1800a, at 3 (3d ed. 2011). The primary antitrust concern with exclusive dealing arrangements is that they may be used by a monopolist to strengthen its position, which may ultimately harm competition. Dentsply, 399 F.3d at 191. Generally, a prerequisite to any exclusive dealing claim is an agreement to deal exclusively. Tampa Elec., 365 U.S. at 326-27, 81 S.Ct. 623; see Dentsply, 399 F.3d at 193-94; Barr Labs., 978 F.2d at 110 & n. 24.
Exclusive dealing agreements are often entered into for entirely procompetitive reasons, and generally pose little threat to competition. Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir.2010) ("[I]t is widely recognized that in many circumstances, [exclusive dealing arrangements] may be highly efficient — to assure supply, price stability, outlets, investment, best efforts or the like — and pose no competitive threat at all.") (quoting E. Food Servs. v. Pontifical Catholic Univ. Servs. Ass'n, 357 F.3d 1, 8 (1st Cir.2004)). For example, "[i]n the case of the buyer, they may assure supply, afford protection against rises in price, enable long-term planning on the basis of known costs, and obviate the expense and risk of storage in the quantity necessary for a commodity having a fluctuating demand." Standard Oil Co. v. United States, 337 U.S. 293, 306, 69 S.Ct. 1051, 93 L.Ed. 1371 (1949). From the seller's perspective, an exclusive dealing arrangement with customers may reduce expenses, provide protection against price fluctuations, and offer the possibility of a predictable market. Id. at 306-07, 69 S.Ct. 1051; see also Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 n. 17 (8th Cir.1987) (explaining that exclusive dealing contracts can help prevent dealer free-riding on manufacturer-supplied investments to promote rival's products). As such, competition to be an exclusive supplier may constitute "a vital form of rivalry," which the antitrust laws should encourage. Race Tires, 614 F.3d at 83 (quoting Menasha Corp. v. News Am. Mktg. In-Store, Inc., 354 F.3d 661, 663 (7th Cir.2004)).
However, "[e]xclusive dealing can have adverse economic consequences by allowing one supplier of goods or services unreasonably to deprive other suppliers of a market for their goods[.]" Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984) (O'Connor, J., concurring), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006); Barry Wright, 724 F.2d at 236 (explaining that "under certain circumstances[,] foreclosure might discourage sellers from entering, or seeking to sell in, a market at all, thereby reducing the amount of competition that
Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1802c, at 64 (2d ed. 2002). In some cases, a dominant firm may be able to foreclose rival suppliers from a large enough portion of the market to deprive such rivals of the opportunity to achieve the minimum economies of scale necessary to compete. Id.; see LePage's, 324 F.3d at 159.
Due to the potentially procompetitive benefits of exclusive dealing agreements, their legality is judged under the rule of reason. Tampa Elec., 365 U.S. at 327, 81 S.Ct. 623. The legality of an exclusive dealing arrangement depends on whether it will foreclose competition in such a substantial share of the relevant market so as to adversely affect competition. Id. at 328, 81 S.Ct. 623; Barr Labs., 978 F.2d at 110. In conducting this analysis, courts consider not only the percentage of the market foreclosed, but also take into account "the restrictiveness and the economic usefulness of the challenged practice in relation to the business factors extant in the market." Barr Labs., 978 F.2d at 110-11 (quoting Am. Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1251-52 n. 75 (3d Cir.1975)). As the Supreme Court has explained:
Tampa Elec., 365 U.S. at 329, 81 S.Ct. 623. In other words, an exclusive dealing arrangement is unlawful only if the "probable effect" of the arrangement is to substantially lessen competition, rather than merely disadvantage rivals. Id.; Dentsply, 399 F.3d at 191 ("The test [for determining anticompetitive effect] is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market's ambit.").
There is no set formula for evaluating the legality of an exclusive dealing agreement, but modern antitrust law generally requires a showing of significant market power by the defendant, Tampa Elec., 365 U.S. at 329, 81 S.Ct. 623; Race Tires, 614 F.3d at 74-75; LePage's, 324 F.3d at 158, substantial foreclosure, Tampa Elec., 365 U.S. at 327-28, 81 S.Ct. 623; United States v. Microsoft Corp., 253 F.3d 34, 69 (D.C.Cir.2001), contracts of sufficient duration to prevent meaningful competition by rivals, CDC Techs., Inc. v. IDEXX Labs., Inc., 186 F.3d 74, 81 (2d Cir.1999); Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1163 (9th Cir.1997), and an analysis of likely or actual anticompetitive effects considered in light of any procompetitive effects, Race Tires, 614 F.3d at 75; Dentsply,
2. Brooke Group and the Price-Cost test
We turn now to some fundamental principles regarding predatory pricing claims and the price-cost test. "Predatory pricing may be defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run." Cargill, Inc. v. Monfort of Colo., 479 U.S. 104, 117, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 584 n. 8, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 1191, 1198 (3d Cir.1995). The Supreme Court has expressed deep skepticism of predatory pricing claims. See Cargill, 479 U.S. at 121 n. 17, 107 S.Ct. 484 ("Although the commentators disagree as to whether it is ever rational for a firm to engage in such conduct, it is plain that the obstacles to the successful execution of a strategy of predation are manifold, and that the disincentives to engage in such a strategy are accordingly numerous.") (citations omitted); Matsushita, 475 U.S. at 589, 106 S.Ct. 1348 ("[P]redatory pricing schemes are rarely tried, and even more rarely successful.") (citations omitted). In the typical predatory pricing scheme, a firm reduces the sale price of its product to below-cost, intending to drive competitors out of the business. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318, 127 S.Ct. 1069, 166 L.Ed.2d 911 (2007). Then, once competitors have been eliminated, the firm raises its prices to supracompetitive levels. Id. For such a scheme to make economic sense, the firm must recoup the losses suffered during the below-cost phase in the supracompetitive phase. Id.; see Matsushita, 475 U.S. at 589, 106 S.Ct. 1348 (explaining that success under such a scheme is "inherently uncertain" because the firm must sustain definite short-term losses, but the long-run gain depends on successfully eliminating competition).
In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. at 222-24, 113 S.Ct. 2578, the Supreme Court fashioned a two-part test that reflected this "economic reality." Weyerhaeuser, 549 U.S. at 318, 127 S.Ct. 1069. The Court held that, to succeed on a predatory pricing claim, the plaintiff must prove: (1) "that the prices complained of are below an appropriate measure of [the defendant's] costs"; and (2) that the defendant had "a dangerous probability ... of recouping its investment in below-cost prices." Brooke Grp., 509 U.S. at 222-24, 113 S.Ct. 2578 (citations omitted). We are concerned only with the first requirement, which has become known as the price-cost test. In adopting the price-cost test, the Court rejected the notion that above-cost prices that are below general market levels or below the costs of a firm's competitors are actionable under the antitrust laws. Id. at 223, 113 S.Ct. 2578. "Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels [i.e., above-cost], they do not threaten competition." Id. (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 340, 110 S.Ct. 1884,
3. Effect of the Price-Cost Test on Plaintiffs' Exclusive Dealing Claims
Eaton argues that principles from the predatory pricing case law apply in this case because Plaintiffs' claims are, at their core, no more than objections to Eaton offering prices, through its rebate program, which Plaintiffs were unable to match. Eaton contends that Plaintiffs have identified nothing, other than Eaton's pricing practices, that incentivized the OEMs to enter into the LTAs, and because price was the incentive, we must apply the price-cost test. We acknowledge that even if a plaintiff frames its claim as one of exclusive dealing, the price-cost test may be dispositive. Implicit in the Supreme Court's creation of the price-cost test was a balancing of the procompetitive justifications of above-cost pricing against its anticompetitive effects (as well as the anticompetitive effects of allowing judicial inquiry into above-cost pricing), and a conclusion that the balance always tips in favor of allowing above-cost pricing practices to stand. See Linkline, 555 U.S. at 451, 129 S.Ct. 1109; Brooke Grp., 509 U.S. at 223, 113 S.Ct. 2578. Thus, in the context of exclusive dealing, the price-cost test may be utilized as a specific application of the "rule of reason" when the plaintiff alleges that price is the vehicle of exclusion. See, e.g., Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1060-63 (8th Cir. 2000).
Here, Eaton argues that the price-cost test is dispositive, and therefore that Plaintiffs' claims must fail because Plaintiffs failed to show that the market-share rebates offered by Eaton pursuant to the LTAs resulted in below-cost prices. We do not disagree that predatory pricing principles, including the price-cost test, would control if this case presented solely
Moreover, a plaintiff's characterization of its claim as an exclusive dealing claim does not take the price-cost test off the table. Indeed, contracts in which discounts are linked to purchase (volume or market share) targets are frequently challenged as de facto exclusive dealing arrangements on the grounds that the discounts induce customers to deal exclusively with the firm offering the rebates. Hovenkamp ¶ 1807a, at 132. However, when price is the clearly predominant mechanism of exclusion, the price-cost test tells us that, so long as the price is above-cost, the procompetitive justifications for, and the benefits of, lowering prices far outweigh any potential anticompetitive effects. See Brooke Grp., 509 U.S. at 223, 113 S.Ct. 2578; Concord Boat, 207 F.3d at 1062 (noting that there is always a legitimate business justification for lowering prices: attempting to attract additional business).
In each of the cases relied upon by Eaton, the Supreme Court applied the price-cost test, regardless of the way in which the plaintiff cast its grievance, because pricing itself operated as the exclusionary tool. For example, in Cargill, Inc. v. Monfort of Colorado, Inc., the plaintiff argued that a proposed merger between vertically integrated firms violated Section 7 of the Clayton Act because the result of the merger would have been to substantially lessen competition or create a monopoly. 479 U.S. at 114, 107 S.Ct. 484. The plaintiff offered, as a theory of antitrust injury, that it faced a threat of lost profits stemming from the possibility that the defendant, after the merger, would lower its prices to a level at or above-cost. Id. at 114-15, 107 S.Ct. 484. The plaintiff claimed that it would have to respond by lowering its prices, which would cause it to suffer a loss in profitability. Id. at 115, 107 S.Ct. 484. The Supreme Court held that such a theory did not present a cognizable antitrust injury, reasoning that "the antitrust laws do not require the courts to protect small businesses from the loss of profits due to continued [above-cost] competition." Id. at 116, 107 S.Ct. 484.
In Brooke Group, the plaintiff and the defendant were competitors in the cigarette market in the early 1980s. 509 U.S. at 212, 113 S.Ct. 2578. At that time, demand for cigarettes in the United States was declining and the plaintiff, once a major force in the industry, had seen its market share drop to 2%. Id. at 214, 113 S.Ct. 2578. In response, the plaintiff developed a line of generic cigarettes, which were significantly cheaper than branded cigarettes. Id. The plaintiff promoted the generic cigarettes at the wholesale level by offering rebates that increased with the volume of cigarettes ordered. Id. Losing volume and profits on its branded products, the defendant entered the generic cigarette market. Id. at 215, 113 S.Ct. 2578. At the retail level, the suggested price of the defendant's generic cigarettes was the same as that of the plaintiff's cigarettes, but the defendant's volume discounts to wholesalers were larger. Id. The plaintiff responded by increasing its wholesale rebates, and a price war ensued. Id. at 216, 113 S.Ct. 2578. Subsequently, the plaintiff filed a complaint against the defendant under the Robinson-Patman Act, 15 U.S.C. § 13(a), alleging that the defendant's volume rebates amounted to unlawful price discrimination. Id. The plaintiff explained that it would have been unable to reduce its wholesale rebates without losing substantial market share. Id. Accordingly, because the "essence" of the plaintiff's claim was that its "rival ha[d] priced its products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market,"
Here, in contrast to Cargill, Atlantic Richfield, and Brooke Group, Plaintiffs did not rely solely on the exclusionary effect of Eaton's prices, and instead highlighted a number of anticompetitive provisions in the LTAs. Plaintiffs alleged that Eaton used its position as a supplier of necessary products to persuade OEMs to enter into agreements imposing de facto purchase requirements of roughly 90% for at least five years, and that Eaton worked in concert with the OEMs to block customer access to Plaintiffs' products, thereby ensuring that Plaintiffs would be unable to build enough market share to pose any threat to Eaton's monopoly. Therefore, because price itself was not the clearly predominant mechanism of exclusion, the price-cost test cases are inapposite, and the rule of reason is the proper framework within which to evaluate Plaintiffs' claims.
We recognize that Eaton's rebates were part of Plaintiffs' case. DeRamus testified about the exclusionary effect of the rebates, OEM officials testified that Eaton offered lower prices, and Plaintiffs' counsel stated in oral argument that part of the reason ZF Meritor could not increase sales above a certain level was that "the OEMs were trying to hit those [share-penetration] targets to get their money from Eaton." Eaton's post-rebate prices were attractive to the OEMs, and Eaton's low prices may, in fact, have been an inducement for the OEMs to enter into the LTAs. That fact is not irrelevant, as it may help explain why the OEMs agreed to otherwise unfavorable terms and it may help to rebut an argument that the agreements were inefficient. Hovenkamp ¶ 1807b, at 134. However, contrary to Eaton's assertions, that fact is not dispositive.
Plaintiffs presented considerable evidence that Eaton was a monopolist in the industry and that it wielded its monopoly power to effectively force every direct purchaser of HD transmissions to enter into restrictive long-term agreements, despite the inclusion in such agreements of terms unfavorable to the OEMs and their customers. Significantly, there was considerable testimony that the OEMs did not want to remove ZF Meritor's transmissions from their data books, but that they were essentially forced to do so or risk financial penalties or supply shortages. Several OEM officials testified that exclusive data book listing was not a common practice in the industry and, in fact, it was probably detrimental to customers. An email between Freightliner employees stated: "From a customer perspective, publishing [ZF Meritor's] product is probably the right thing to do and [it] should never have been taken out of the book. It is a good product with considerable demand in the marketplace." The email went on to conclude, however, that including ZF Meritor's products would not be "prudent" because it would jeopardize Freightliner's relationship with Eaton. Eaton itself even acknowledged that the OEMs were dissatisfied. Internal Eaton correspondence reveals that PACCAR complained that the LTAs were preventing it from promoting a competitive product (FreedomLine), which was being demanded by truck buyers. In fact, PACCAR felt that Eaton was holding it "hostage."
Plaintiffs also introduced evidence that not only were the rebates conditioned on the OEMs meeting the market penetration targets, but so too was Eaton's continued compliance with the agreements. As one OEM executive testified, if the market penetration targets were not met, the OEMs "would have a big risk of cancellation of the contract, price increases, and shortages if the market [was] difficult."
Accordingly, this is not a case in which the defendant's low price was the clear driving force behind the customer's compliance with purchase targets, and the customers were free to walk away if a competitor offered a better price. Compare Concord Boat, 207 F.3d at 1063 (in deciding to apply price-cost test, noting that customers were free to walk away at any time and did so when the defendant's competitors offered better discounts), with Dentsply, 399 F.3d at 189-96 (applying exclusive dealing analysis where the defendant threatened to refuse to continue dealing with customers if customers purchased rival's products, and no customer could stay in business without the defendant's products). Rather, Plaintiffs introduced evidence that compliance with the market penetration targets was mandatory because failing to meet such targets would jeopardize the OEMs' relationships with the dominant manufacturer of transmissions in the market. See Dentsply, 399 F.3d at 194 (noting that "[t]he paltry penetration in the market by competitors over the years has been a refutation of" the theory that a competitor could steal the defendant's customers by offering a better deal or a lower price "by tangible and measurable results in the real world"); id. at 195 (explaining that an exclusivity policy imposed by a dominant firm is especially troubling where it presents customers with an "all-or-nothing" choice).
Although the Supreme Court has created a safe harbor for above-cost discounting, it has not established a per se rule of non-liability under the antitrust laws for all contractual practices that involve above-cost pricing. See Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 901 (9th Cir.2008) (stating that the Supreme Court's predatory pricing decisions have not "go[ne] so far as to hold that in every case in which a plaintiff challenges low prices as exclusionary conduct[,] the plaintiff must prove that those prices were below cost"). Nothing in the case law suggests, nor would it be sound policy to hold, that above-cost prices render an otherwise unlawful exclusive dealing agreement lawful. We decline to impose such an unduly simplistic and mechanical rule because to do so would place a significant portion of anticompetitive conduct outside the reach of the antitrust laws without adequate justification.
"[T]he means of illicit exclusion, like the means of legitimate competition, are myriad." Microsoft, 253 F.3d at 58; LePage's, 324 F.3d at 152 ("`Anticompetitive conduct' can come in too many different forms, and is too dependent on context, for any court or commentator ever to have enumerated all the varieties.") (quoting Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087 (D.C.Cir.1998)). The law has long recognized forms of exclusionary conduct that do not involve below-cost pricing, including unlawful tying, Jefferson Parish, 466 U.S. at 21, 104 S.Ct. 1551; Standard Oil, 337 U.S. at 305-06, 69 S.Ct. 1051, enforcement of a legal monopoly provided by a patent procured through fraud, LePage's, 324 F.3d at 152 (citing Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965)), refusal to deal, Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601-02, 105 S.Ct. 2847, 86 L.Ed.2d 467
Despite Eaton's arguments to the contrary, we find nothing in the Supreme Court's recent predatory pricing decisions to indicate that the Court intended to overturn decades of other precedent holding that conduct that does not result in below-cost pricing may nevertheless be anticompetitive. Rather, as we explained above, Brooke Group and the cases preceding it each involved an allegation that the defendant's pricing itself operated as the exclusionary tool. See Brooke Grp., 509 U.S. at 212-22, 113 S.Ct. 2578; Atl. Richfield, 495 U.S. at 331-38, 110 S.Ct. 1884; Cargill, 479 U.S. at 114-16, 107 S.Ct. 484. Eaton places particular emphasis on two recent cases, arguing that such cases demonstrate the Supreme Court's willingness to extend the price-cost test beyond the traditional predatory pricing context. However, neither of these cases suggests that the price-cost test applies to the exclusive dealing claims at issue in our case.
In Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. at 315, 320, 127 S.Ct. 1069, the Supreme Court applied the price-cost test to a case involving an allegation of predatory bidding by a monopsonist.
Contrary to Eaton's argument, neither Weyerhaeuser nor Linkline stands for the proposition that the price-cost test applies here. Weyerhaeuser established the straightforward principle that the exercise of market power on prices for the purpose of driving out competitors should be judged by the same standard, whether such power is exercised on the input or output side of the market. See 549 U.S. at 321, 325, 127 S.Ct. 1069. And Linkline did no more than hold that two antitrust theories cannot be combined to form a new theory of antitrust liability. See 555 U.S. at 457, 129 S.Ct. 1109. The plaintiffs' retail-level claim in Linkline was a traditional pricing practices claim, and therefore indistinguishable from the pricing practices claims in Brooke Group, Atlantic Richfield, and Cargill. 555 U.S. at 451-52, 457, 129 S.Ct. 1109.
B. Proof of Anticompetitive Conduct and Antitrust Injury
We turn now to Eaton's contention that even leaving aside the price-cost test, Plaintiffs failed to prove that Eaton's LTAs were anticompetitive or that they caused antitrust injury to Plaintiffs. The rule of reason governs Plaintiffs' claims under Section 1 and Section 2 of the Sherman Act, and Section 3 of the Clayton Act. See LePage's, 324 F.3d at 157 & n. 10 (explaining that exclusive dealing claims are cognizable under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act, and evaluated under the same rule of reason); see also Section III.A, supra, at n. 9. Under the rule of reason, an exclusive dealing arrangement is anticompetitive only if its "probable effect" is to substantially lessen competition in the relevant market, rather than merely disadvantage rivals. Tampa Elec., 365 U.S. at 328-29, 81 S.Ct. 623.
In addition to establishing a statutory violation, a plaintiff must demonstrate that it suffered antitrust injury. Race Tires, 614 F.3d at 75. To establish antitrust injury, the plaintiff must demonstrate: "(1) harm of the type the antitrust laws were intended to prevent; and (2) an injury to the plaintiff which flows from that which makes defendant's acts unlawful." Id. at 76 (quoting Gulfstream III Assocs. Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir.1993)) (additional citation omitted).
Our inquiry on appeal has several components. First, we examine whether the LTAs could reasonably be viewed as exclusive dealing arrangements, despite the fact that the LTAs covered less than 100% of the OEMs' purchase requirements and contained no express exclusivity provisions. Second, because the unique characteristics of the HD transmissions market bear heavily on our inquiry, we review Eaton's monopoly power, the concentrated
1. De Facto Partial Exclusive Dealing
A threshold requirement for any exclusive dealing claim is necessarily the presence of exclusive dealing. Eaton argues that Plaintiffs' claims must fail because the LTAs were not "true" exclusive dealing arrangements in that they did not contain express exclusivity requirements, nor did they cover 100% of the OEMs' purchases. Neither contention is persuasive because de facto partial exclusive dealing arrangements may, under certain circumstances, be actionable under the antitrust laws.
First, the law is clear that an express exclusivity requirement is not necessary because de facto exclusive dealing may be unlawful. Tampa Elec., 365 U.S. at 326, 81 S.Ct. 623; Dentsply, 399 F.3d at 193; LePage's, 324 F.3d at 157. For example, in United States v. Dentsply International, Inc., we held that transactions which were "technically only a series of independent sales" could form the basis for an exclusive dealing claim because the large share of the market held by the defendant and its conduct in excluding competitors, "realistically made the arrangements ... as effective as those in written contracts." 399 F.3d at 193 (citing Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 n. 9, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)). Likewise, in LePage's, we held that bundled rebates and discounts offered to major suppliers were designed to and did operate as exclusive dealing arrangements, despite the lack of any express exclusivity requirements. 324 F.3d at 157-58.
Here, there was sufficient evidence from which a jury could infer that, although the LTAs did not expressly require the OEMs to meet the market penetration targets, the targets were as effective as mandatory purchase requirements. See Tampa Elec., 365 U.S. at 326, 81 S.Ct. 623 (noting that "even though a contract does `not contain specific agreements not to use the (goods) of a competitor,' if `the practical effect is to prevent such use,' it comes within the condition of [Section 3] as to exclusivity") (citing United Shoe Mach. Corp. v. United States, 258 U.S. 451, 457, 42 S.Ct. 363, 66 L.Ed. 708 (1922)); Dentsply, 399 F.3d at 193-94. Evidence presented at trial indicated that not only were lower prices (rebates) conditioned on the OEMs meeting the market-share targets, but so too was Eaton's continued compliance with the LTAs. For example, Eaton's LTAs with Freightliner, the largest OEM, and Volvo explicitly gave Eaton the right to terminate the agreements if the market-share targets were not met. And despite the fact that Eaton did not actually terminate
Second, an agreement does not need to be 100% exclusive in order to meet the legal requirements of exclusive dealing. We acknowledge that "partial" exclusive dealing is rarely a valid antitrust theory. See Barr Labs., 978 F.2d at 110 n. 24 ("An agreement affecting less than all purchases does not amount to true exclusive dealing.") (citation omitted); Concord Boat, 207 F.3d at 1044, 1062-63 (noting that the defendant's discount program, which conditioned incremental discounts on customers purchasing 60-80% of their needs from the defendant, did not constitute exclusive dealing because customers were not required to purchase all of their requirements from the defendant, and in fact, could purchase up to 40% of their requirements from other sellers without foregoing the discounts); Magnus Petroleum Co. v. Skelly Oil Co., 599 F.2d 196, 200-01 (7th Cir.1979) (holding that contract requiring buyer to purchase a fixed quantity of goods that amounted to roughly 60-80% of its needs was not unlawful "[b]ecause the agreements contained no exclusive dealing clause and did not require [the buyer] to purchase any amounts of [the defendant's product] that even approached [its] requirements") (citations omitted). Partial exclusive dealing agreements such as partial requirements contracts and contracts stipulating a fixed dollar or quantity amount are generally lawful because market foreclosure is only partial, and competing sellers are not prevented from selling to the buyer. See Concord Boat, 207 F.3d at 1062-63; Magnus Petroleum, 599 F.2d at 200-01.
However, we decline to adopt Eaton's view that a requirements contract covering less than 100% of the buyer's needs can never be an unlawful exclusive dealing arrangement. See Eastman Kodak, 504 U.S. at 466-67, 112 S.Ct. 2072 ("Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law."). "Antitrust analysis must always be attuned to the particular structure and circumstances of the industry at issue." Verizon Commc'ns, 540 U.S. at 411, 124 S.Ct. 872. Therefore, just as "total foreclosure" is not required for an exclusive dealing arrangement to be unlawful, nor is complete exclusivity required with each customer. See Dentsply, 399 F.3d at 191. The legality of such an arrangement ultimately depends on whether the agreement foreclosed a substantial share of the relevant market such that competition was harmed. Tampa Elec., 365 U.S. at 326-28, 81 S.Ct. 623.
In our case, although the market-share targets covered less than 100% of the OEMs' needs, a jury could nevertheless find that the LTAs unlawfully foreclosed competition in a substantial share of the HD transmissions market. See id. There are only four direct purchasers of
2. Market Conditions in HD Transmissions Market
Exclusive dealing will generally only be unlawful where the market is highly concentrated, the defendant possesses significant market power, and there is some element of coercion present. See Tampa Elec., 365 U.S. at 329, 81 S.Ct. 623; Race Tires, 614 F.3d at 77-78; LePage's, 324 F.3d at 159. For example, if the defendant occupies a dominant position in the market, its exclusive dealing arrangements invariably have the power to exclude rivals. Tampa Elec., 365 U.S. at 329, 81 S.Ct. 623; Dentsply, 399 F.3d at 187. Here, the jury found that Eaton possessed monopoly power in the HD transmissions market, and Eaton does not contest that finding on appeal.
A hard look at the nature of the market in which the parties compete is equally important. Tampa Elec., 365 U.S. at 329, 81 S.Ct. 623. An exclusive dealing arrangement is most likely to present a threat to competition in a situation in which the market is highly concentrated, such that long-term contracts operate to "foreclose so large a percentage of the available supply or outlets that entry" or continued operation in "the concentrated market is unreasonably constricted." Race Tires, 614 F.3d at 76 (quoting E. Food Servs., 357 F.3d at 8); see Dentsply, 399 F.3d at 184 (noting that the relevant market was "marked by a low or no-growth potential" and the defendant had long dominated the industry with a 75-80% market share). Here, the HD transmissions market had long been dominated by Eaton. Except for Meritor's production of manual transmissions in the 1990s and the ZF Meritor joint venture, no significant external supplier has entered the market for the last twenty years. A jury could certainly infer that Eaton's dominance over the OEMs created a barrier to entry that any potential rival manufacturer would have to confront. See Concord Boat, 207 F.3d at 1059 ("If entry barriers to new firms are not significant, it may be difficult for even a monopoly company to control prices through some type of exclusive dealing arrangement because a new firm or firms easily can enter the market to challenge it [but] [i]f there are significant entry barriers ..., a potential competitor would have difficulty entering.")
Although we generally "assume that a customer will make [its] decision only on the merits," Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 133 (3d Cir.2005) (quoting Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 524-25 (5th Cir.1999)), a monopolist may use its power to break the competitive mechanism and deprive customers of the ability to make a meaningful choice. See Race Tires, 614 F.3d at 77 (noting that coercion "has played a key, if sometimes unexplored, role" in antitrust law); Dentsply, 399 F.3d at 184 (observing that the defendant "imposed" an exclusivity policy on its customers); LePage's, 324 F.3d at 159 (explaining that because 3M occupied a dominant position in several different product markets, it was able to effectively force customers in the "private label" tape market to deal with 3M exclusively, despite the plaintiff's competitiveness in that market). A highly concentrated market, in which there is one (or a few) dominant supplier(s), creates the possibility for such coercion. And here, there was evidence that Eaton leveraged its position as a supplier of necessary products to coerce the OEMs into entering into the LTAs. Plaintiffs presented testimony from OEM officials that many of the terms of the LTAs were unfavorable to the OEMs and their customers, but that the OEMs agreed to such terms because without Eaton's transmissions, the OEMs would be unable to satisfy customer demand.
Accordingly, this case involves precisely the combination of factors that we explained would be present in the rare case in which exclusive dealing would pose a threat to competition. See Race Tires, 614 F.3d at 76.
3. Sufficiency of the Evidence: Anticompetitive Conduct
We turn now to a discussion of whether there was sufficient evidence for a jury to conclude that Eaton engaged in anticompetitive conduct. Our inquiry in a sufficiency of the evidence challenge is limited to determining whether, "viewing the evidence in the light most favorable to the [winner at trial] and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir.1993) (citation omitted). Eaton argues that even under the extraordinarily deferential standard, there was insufficient evidence for a reasonable jury to conclude that Eaton engaged in conduct that harmed competition. Guided by the principles set forth in Section III.A.1, supra, we disagree.
i. Extent of Foreclosure
First, the extent of the market foreclosure in this case was significant. "The share of the market foreclosed is important because, for the contract to have an adverse effect upon competition, `the opportunities for other[s] ... to enter into or remain in that market must be significantly limited.'" Microsoft, 253 F.3d at 69 (citing Tampa Elec., 365 U.S. at 328, 81 S.Ct. 623). Substantial foreclosure allows the dominant firm to prevent potential rivals from ever reaching "the critical level necessary" to pose a real threat to the defendant's business. Dentsply, 399 F.3d at 191. Here, Eaton entered into long-term agreements with every direct purchaser in the market, and under each agreement, imposed what could be viewed as mandatory purchase requirements of at least 80%, and up to 97.5%. The OEMs generally met these targets, which, as Plaintiffs' expert testified, resulted in approximately 15% of the market remaining open to Eaton's competitors by 2003.
ii. Duration of LTAs
Second, the LTAs were not short-term agreements, which would present little threat to competition. See, e.g., Christofferson Dairy, Inc. v. MMM Sales, Inc., 849 F.2d 1168, 1173 (9th Cir.1988) (upholding exclusive dealing arrangement of "short duration"); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir.1984) (noting that exclusive dealing contracts of less than one year are presumptively lawful); Barry Wright, 724 F.2d at 237 (citing two-year term in upholding requirements contract). Rather, each LTA was for a term of at least five years, and the PACCAR LTA was for a
Eaton acknowledges, as it must, the unprecedented length of the LTAs, but maintains that the LTAs were not anticompetitive because they were easily terminable. See, e.g., PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 111 (2d Cir.2002) (finding challenged contracts lawful, in part, because they were terminable at will); Omega Envtl., 127 F.3d at 1164 (noting easy terminability of agreements). Each LTA included a "competitiveness" clause, which permitted the OEM to purchase from another supplier or terminate the agreement if another supplier offered a better product or a lower price. However, Plaintiffs presented evidence that any language giving OEMs the right to terminate the agreements was essentially meaningless because Eaton had assured that there would be no other supplier that could fulfill the OEMs' needs or offer a lower price. Thus, a jury could very well conclude that "in spite of the legal ease with which the relationship c[ould] be terminated," the OEMs had a strong economic incentive to adhere to the terms of the LTAs, and therefore were not free to walk away from the agreements and purchase products from the supplier of their choice. Dentsply, 399 F.3d at 194.
iii. Additional Anticompetitive Provisions in LTAs
Third, the LTAs were replete with provisions that a reasonable jury could find anticompetitive. To begin, a jury could have found that the data book provisions were anticompetitive in that they limited the ability of ZF Meritor to effectively market its products, and limited the ability of truck buyers to choose from a full menu of available transmissions. See id. (discussing anticompetitive effect of limitations on customer choice). Eaton downplays the significance of the data book provisions, arguing that truck buyers always remained free to request unlisted transmissions, and ZF Meritor remained free to market directly to truck buyers. However, the mere existence of potential alternative avenues of distribution, without "an assessment of their overall significance to the market," is insufficient to demonstrate that Plaintiffs' opportunities to compete were not foreclosed. Id. at 196. An OEM's data book was the "most important tool" that any buyer selecting component parts for a truck would use. If a product was not listed in a data book, it was "a disaster for the supplier." Although truck buyers could request unpublished components, doing so involved additional transaction costs, and in practice, meant that truck buyers were far more likely to select a product listed in the data book. See id. at 193 (explaining that the key question was not whether alternative distribution methods allowed a competitor to "survive" but whether the alternative methods would
A jury could also have found that the "preferential pricing" provisions in the LTAs were anticompetitive. Although it was "common" for price savings to be passed down to truck buyers in the form of lower prices, and there are indications that at least some of the savings from Eaton transmissions were indeed passed down, there is also evidence that the preferential prices were achieved by artificially increasing the prices of Plaintiffs' products.
Additionally, the jury could have determined that the "competitiveness" clauses were of little practical import because Eaton's conduct ensured that no rival would be able to offer a comparable deal. There was also evidence that the competitiveness clauses were met with stiff resistance by Eaton.
iv. Anticompetitive Effects vs. Procompetitive Effects
Finally, the only procompetitive justification offered by Eaton on appeal is that the LTAs were crafted to meet customer demand to reduce prices, as well as engineering and support costs. See Barr Labs., 978 F.2d at 111 (explaining that courts must "evaluate the restrictiveness and the economic usefulness of the challenged practice in relation to the business factors extant in the market") (citations omitted). In response to the economic downturn in the heavy-duty trucking industry in the late 1990s and early 2000s, each OEM sought to negotiate lower prices, and some sought to reduce the number of suppliers. During this time, oversupply was a problem, as were low truck prices, and an unavailability of drivers. It appears that Eaton responded well to the downturn; despite persistent quality control problems and a relatively late introduction of two-pedal automated mechanical transmissions, the company cut costs and increased market share.
However, no OEM ever asked Eaton to be a sole supplier, and there was considerable testimony from OEM officials that it was in an OEM's interest to have multiple suppliers. Although long-term agreements offering market-share or volume discounts had been used in the industry in the past (for transmissions and for other truck components), OEM executives consistently testified that Eaton's new LTAs represented a substantial departure from past practice. For example, the longest supply agreements Freightliner and Volvo had ever signed previously were for two-year terms. Likewise, OEM officials testified that the provisions in the LTAs requiring exclusive data book listing and "preferential pricing" were not common. Critically, there was considerable evidence from which a jury could infer that the primary purpose of the LTAs was not to meet customer demand, but to take preemptive steps to block potential competition from the new ZF Meritor joint venture. Eaton devised the unprecedented LTAs only after Meritor formed the joint venture with ZF AG, which Eaton viewed as a "serious competitor." Eaton feared that the ZF Meritor joint venture would put Eaton's "[North American] position at risk" by introducing a new product (FreedomLine) for which there was significant
In sum, the LTAs included numerous provisions raising anticompetitive concerns and there was evidence that Eaton sought to aggressively enforce the agreements, even when OEMs voiced objections.
4. Sufficiency of the Evidence: Antitrust Injury
Having concluded that there was sufficient evidence from which a jury could determine that the LTAs functioned as unlawful exclusive dealing agreements, we have no difficulty concluding that there was likewise sufficient evidence that Plaintiffs suffered antitrust injury. See Atl. Richfield, 495 U.S. at 344, 110 S.Ct. 1884 (explaining that a plaintiff suffers antitrust injury if its injury "stems from a competition-reducing aspect or effect of the defendant's behavior"). Eaton's conduct unlawfully foreclosed a substantial share of the HD transmissions market, which would otherwise have been available for rivals, including Plaintiffs. ZF Meritor exited the market in 2003, followed by Meritor in 2006, because they could not maintain high enough market shares to remain viable. A jury could certainly conclude that Plaintiffs' inability to grow was a direct result of Eaton's exclusionary conduct.
C. Expert Testimony
1. Expert Testimony on Liability
Eaton raises two challenges to the District Court's decision to admit DeRamus's testimony on liability. First, Eaton argues that DeRamus failed to employ any recognized or reliable economic test for determining whether Eaton's conduct harmed competition and caused antitrust injury. Second, Eaton contends that DeRamus's opinion was contradicted by the facts. We disagree with both contentions.
Federal Rule of Evidence 702 provides:
Under Rule 702, the district court acts as a "gatekeeper" to ensure that "the expert's opinion [is] based on the methods and procedures of science rather than on subjective belief or unsupported speculation." Calhoun v. Yamaha Motor Corp., U.S.A., 350 F.3d 316, 321 (3d Cir.2003) (quoting In re Paoli R.R. Yard PCB Litig. (Paoli II), 35 F.3d 717, 741 (3d Cir.1994)). Here, as the District Court noted, DeRamus relied on the exclusionary nature of the LTAs to form his opinion. He defined the relevant market, determined whether Eaton has monopoly power, and engaged in an analysis of Eaton's conduct, taking into account market conditions and the extent of the exclusive dealing. He examined the effect of the LTAs on prices and consumer choice, and considered whether foreclosure of the market could be attributed to factors other than the LTAs, such as market conditions or quality issues with Plaintiffs' products. We find no error in the District Court's acceptance of DeRamus's methodologies as reliable under Rule 702. See LePage's, 324 F.3d at 154-64 (analyzing exclusive dealing by looking to many of the same factors considered by DeRamus).
Eaton also argues that DeRamus's opinion was contradicted by the facts. "When an expert opinion is not supported by sufficient facts to validate it in the eyes of the law, or when indisputable record facts contradict or otherwise render the opinion unreasonable, it cannot support a jury's verdict." Brooke Grp., 509 U.S. at 242, 113 S.Ct. 2578; Phila. Newspapers, 51 F.3d at 1198. In an antitrust case, an expert opinion generally must "incorporate all aspects of the economic reality" of the relevant market. Concord Boat, 207 F.3d at 1057. Here, the District Court properly rejected Eaton's argument that DeRamus's testimony should have been excluded on the basis that it was contradicted by other facts. Eaton's argument on this point really amounts to nothing more than a complaint that DeRamus did not adopt Eaton's view of the case. The District Court correctly noted that, although some of DeRamus's testimony may have been contradicted by other evidence, including the testimony of Eaton's expert, the existence of conflicting evidence was not a basis on which to exclude DeRamus's testimony. The respective credibility of Plaintiffs' and Eaton's experts was a question for the jury to decide. LePage's, 324 F.3d at 165. DeRamus was extensively cross-examined and Eaton presented testimony from its own expert, who opined that the LTAs had no anticompetitive effect. In the end, the jury apparently found DeRamus to be more credible. "[Eaton]'s disappointment as to the jury's finding of credibility does not constitute an abuse of discretion by the District Court in allowing [DeRamus's] testimony." Id. at 166.
2. Expert Testimony on Damages
In their cross-appeal, Plaintiffs argue that the District Court erred in excluding DeRamus's testimony on the issue of damages. The core of DeRamus's damages analysis was one page (titled "Five Year Product Line Profit and Loss") of ZF Meritor's Revised Strategic Business Plan ("SBP") for fiscal years 2002 through 2005, which was presented to ZF Meritor's
Our inquiry on appeal is two-fold. Initially, we must determine whether the District Court erred in excluding the expert opinion of DeRamus on the basis that it was not sufficiently reliable. Then, we must consider whether the District Court abused its discretion in denying Plaintiffs' request to allow DeRamus to testify to alternative damages calculations. We will address these issues in turn.
i. DeRamus's original damages calculations
First, we will consider Plaintiffs' contention that the District Court erred in determining that DeRamus's damages opinion was not sufficiently reliable. Federal Rule of Evidence 702, as amended in 2000 to incorporate the standards set forth in Daubert, imposes an obligation upon a district court to ensure that expert testimony is not only relevant, but reliable. Fed.R.Evid. 702; Paoli II, 35 F.3d at 744. As we have made clear, "the reliability analysis [required by Daubert] applies to all aspects of an expert's testimony: the methodology, the facts underlying the expert's opinion, [and] the link between the facts and the conclusion." Heller v. Shaw Indus., Inc., 167 F.3d 146, 155 (3d Cir. 1999); see also id. ("Not only must each stage of the expert's testimony be reliable, but each stage must be evaluated practically and flexibly without bright-line exclusionary (or inclusionary) rules."). As we explain below, the District Court did not abuse its discretion by finding that DeRamus's damages estimate, which was based heavily on the SBP projections, bore insufficient indicia of reliability to be submitted to a jury.
To determine the damages suffered by Plaintiffs as a result of Eaton's anticompetitive conduct, DeRamus conducted a two-part analysis. He computed Plaintiffs' lost profits for the period between 2000 and 2009, as well as the lost enterprise value of Plaintiffs' HD transmissions business. To calculate Plaintiffs' lost profits, DeRamus first estimated the incremental revenues that Plaintiffs would have earned "but for" Eaton's anticompetitive conduct, and then subtracted from that figure the incremental cost that Plaintiffs would have
Ordinarily, such an approach would be appropriate because "an expert may construct a reasonable offense-free world as a yardstick for measuring what, hypothetically, would have happened `but for' the defendant's unlawful activities." LePage's, 324 F.3d at 165 (citations omitted). However, the District Court's primary criticism of DeRamus's report was that he did not construct an offense-free world based on actual financial data, but instead relied on a one-page set of profit and volume projections without knowing the circumstances under which such projections were created or the assumptions on which they were based. In some circumstances, an expert might be able to rely on the estimates of others in constructing a hypothetical reality, but to do so, the expert must explain why he relied on such estimates and must demonstrate why he believed the estimates were reliable. See Fed.R.Evid. 702; Daubert, 509 U.S. at 592-95, 113 S.Ct. 2786; Paoli II, 35 F.3d at 748 n. 18 ("Arguably, [third-party estimates] that an expert relies on are not his underlying data, but rather the data that went into the [third-party estimates] in the first place are his underlying data.").
Plaintiffs contend that DeRamus's reliance on the SBP estimates was appropriate because a company's internal financial projections, like those in the SBP, are regularly and reasonably relied upon by economists in formulating opinions regarding a company's performance in an offense-free world. Plaintiffs are certainly correct that "internal projections for future growth" often serve as legitimate bases for expert opinions. See LePage's, 324 F.3d at 165; Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 566 (2d Cir.1970) (holding that damages testimony was admissible because the financial projections on which the testimony was based "were the product of deliberation by experienced businessmen charting their future course"). Businesses are generally well-informed about the industries in which they operate, and have incentives to develop accurate projections. As such, experts frequently use a plaintiff's business plan to estimate the plaintiff's expected profits in the absence of the defendant's misconduct. See Litigation Services Handbook: The Role of the Financial Expert 24:13 (4th ed. 2007). However, there is no per se rule of inclusion where an expert relies on a business plan; district courts must perform a case-by-case inquiry to determine whether the expert's reliance on the business plan in a given case is reasonable. See Heller, 167 F.3d at 155.
Here, the District Court concluded that the SBP could not serve as a reliable basis for DeRamus's opinion because he was unaware of the qualifications of the individuals who prepared the document, or the assumptions on which the estimates were based. Plaintiffs argue that these factual findings are contradicted by the record. Admittedly, the record indicates that DeRamus did not, as the District Court suggested, blindly accept the SBP estimates without question. DeRamus was aware that the SBP had been presented to ZF Meritor's Board of Directors, and that it was revised several times to "address and resolve queries management had about the reasonableness of the assumptions, projections, [and] forecasts." He also knew that the Board had relied on the SBP in making business decisions. Moreover, ZF Meritor's former president testified that he "did not submit SBPs to management for review unless [he] believed the projections, forecasts, and assumptions therein to be reliable."
Under the deferential abuse of discretion standard, we will not disturb a district court's decision to exclude testimony unless we are left with "a definite and firm conviction that the court below committed a clear error of judgment." In re TMI Litig., 193 F.3d 613, 666 (3d Cir.1999) (citation omitted). Plaintiffs cannot clear that high hurdle. Accordingly, we conclude that the District Court acted within its discretion in determining that one page of financial projections for a nascent company, the assumptions underlying which were relatively unknown, did not provide "good grounds," Paoli II, 35 F.3d at 742 (quoting Daubert, 509 U.S. at 590, 113 S.Ct. 2786), for DeRamus to generate his damages estimate. Compare LePage's, 324 F.3d at 165 (noting that plaintiff's expert considered the defendant's internal projections for growth, but also closely examined the market conditions, including the past performance of competitors).
Plaintiffs raise two additional challenges to the District Court's exclusion of DeRamus's testimony. First, Plaintiffs contend that because the SBP was admitted into evidence at trial, Rule 703 does not provide a basis for exclusion. However, this argument is based on the flawed assumption that the District Court excluded DeRamus's testimony under Rule 703, rather than Rule 702. Plaintiffs assume that because the District Court stated that "DeRamus manipulated the SBP using methodologies employed by economists," ZF Meritor, 646 F.Supp.2d at 667, the District Court necessarily concluded that Rule 702, which focuses on methodologies, was satisfied. However, the District Court explicitly stated that "the fundamental query" was "whether the [SBP] estimates pass[ed] the reliability requirements of Rules 104, 702, and 703." Id. Although it is not entirely clear from the District Court's opinion which rule the District Court relied upon in finding DeRamus's
Plaintiffs' suggestion that the reasonableness of an expert's reliance on facts or data to form his opinion is somehow an inappropriate inquiry under Rule 702 results from an unduly myopic interpretation of Rule 702 and ignores the mandate of Daubert that the district court must act as a gatekeeper. See Daubert, 509 U.S. at 589, 113 S.Ct. 2786; Heller, 167 F.3d at 153 ("While `the focus, of course, must be solely on principles and methodology, not on the conclusions that they generate,' a district court must examine the expert's conclusions in order to determine whether they could reliably flow from the facts known to the expert and the methodology used.") (emphasis added) (quoting Daubert, 509 U.S. at 595, 113 S.Ct. 2786). Where proffered expert testimony's "factual basis, data, principles, methods, or their application are called sufficiently into question, ... the trial judge must determine whether the testimony has `a reliable basis in the knowledge and experience of the relevant discipline.'" Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999) (quoting Daubert, 509 U.S. at 592, 113 S.Ct. 2786). A district court's inquiry under Rule 702 is "a flexible one" and must be guided by the facts of the case. Daubert, 509 U.S. at 591, 594, 113 S.Ct. 2786. Here, the District Court's analysis fell squarely within its flexible gatekeeping function under Daubert and Rule 702. See Kumho Tire Co., 526 U.S. at 149, 119 S.Ct. 1167; Paoli II, 35 F.3d at 748 n. 18; see also Elcock, 233 F.3d at 754 (explaining that an expert's testimony regarding damages must be based on a sufficient factual foundation); Tyger Constr. Co. v. Pensacola Constr. Co., 29 F.3d 137, 142 (4th Cir.1994) ("An expert's opinion should be excluded when it is based on assumptions which are speculative and not supported by the record.").
Second, Plaintiffs argue that the District Court did not provide fair notice that it intended to exclude DeRamus's testimony under Federal Rule of Evidence 703. Again, this argument rests on the flawed assumption that the District Court relied solely on Rule 703. However, even assuming the District Court mistakenly believed that its Rule 702 reliability analysis actually fell under Rule 703, Plaintiffs' notice argument would still be meritless. A district court must give the parties "an adequate opportunity to be heard on evidentiary issues." In re Paoli R.R. Yard PCB Litig. (Paoli I), 916 F.2d 829, 854 (3d Cir.1990). Here, there was extensive briefing regarding DeRamus's damages opinion, much of which focused on Eaton's argument that DeRamus's reliance on the SBP was improper. The District Court held not one, but two in limine hearings, in which DeRamus testified for several
ii. Alternate damages calculations
The District Court's opinion excluding DeRamus's damages testimony focused exclusively on DeRamus's damages estimates based on the SBP projections regarding ZF Meritor's market share and profit margin. However, his expert report also set forth market-share estimates based on an econometric model. The econometric model did not consider the SBP, but instead used economic variables, such as the number of heavy-duty trucks built and sold in the North American market, an index of consumer confidence in the United States, the average wholesale price of oil in the United States, and interest rates. The model also considered ZF Meritor's market share from the previous month "in order to capture market dynamics."
To reach his ultimate damages estimate, DeRamus averaged several damages calculations, each of which used a different combination of inputs for market share and profit margin. Following the District Court's order excluding DeRamus's testimony due to his reliance on the SBP, Plaintiffs filed a motion for clarification, asking the District Court to allow DeRamus to calculate damages using the same methodologies from his expert report, but using data independent of the SBP. Specifically, Plaintiffs proposed several revisions to DeRamus's damages estimate. First, Plaintiffs indicated that DeRamus could revise his "Eaton Operating Profit Method," which used as principal inputs the SBP estimates for market share and Eaton's actual operating profits for profit margin. Plaintiffs stated that DeRamus had recalculated lost profits using the same methodology, but replacing the market-share data from the SBP with market-share data from his econometric model. Second, Plaintiffs explained that DeRamus could similarly revise his "Econometric Method" of calculating lost profits, which used the econometric model for market share, and data from the SBP for profit margin. He could use the same methodology and replace the profit margin data from the SBP with profit margin data from Plaintiffs' actual sales data from 1996 through 2000.
Noting that all of the data necessary for DeRamus's recalculations were already in the expert report, Plaintiffs requested that DeRamus be able to testify to the alternate calculations using the existing expert report. Allowing DeRamus to testify to alternate damages numbers without amending his expert report would have left Eaton without advance notice of the new calculations, and thus would have been improper. As such, the District Court did not err in ruling that DeRamus could not testify to new calculations based on the existing expert report. However, the District Court's refusal to allow DeRamus to amend his expert report presents a much more difficult question, one that we will explore in depth.
Before beginning our analysis, it is necessary to provide some context regarding the procedural history because the way in
The jury delivered its verdict on liability on October 8, 2009, and the District Court entered judgment in favor of Plaintiffs on October 14. Two days later, Plaintiffs requested that the District Court set a trial on damages. Eaton opposed Plaintiffs' request, asserting that the judgment on liability was a final appealable decision. Although the District Court apparently agreed with Eaton initially, stating that it "d[id] not intend to address damages until liability has been finally resolved by the Third Circuit," the District Court subsequently issued an amended judgment, which stated that because damages had not been resolved, there was no final appealable order under Federal Rule of Civil Procedure 54(b). On November 3, 2009, Eaton filed its renewed motion for judgment as a matter of law or a new trial. The District Court did not rule on the motion until March 2011.
Following the District Court's denial of Eaton's motion, Plaintiffs renewed their request for a damages trial. On July 25, 2011, the District Court held a status conference, in which it heard arguments on whether the liability issue was appealable as a judgment on fewer than all claims under Rule 54(b). Although the District Court initially indicated that it would proceed under Rule 54(b), and once again defer resolution of the damages issue, after both parties agreed that the judgment on liability was not appealable under Rule 54(b) (and that it was unlikely that this Court would grant an interlocutory appeal), the District Court acknowledged that it would "need to go back to the papers and see how I extract myself from the procedural morass that I put myself in." The District Court then signaled the way in which it would extract itself, stating "so let's assume that I am going to resurrect a motion that is two years old [Plaintiffs' September 3, 2009 motion for clarification], and let's assume that I deny it, and we're left with the situation we have now. At that point, would it make sense to have
Several days later, on August 4, 2011, the District Court issued a memorandum opinion and order denying Plaintiffs' motion for clarification, and awarding $0 in damages. The District Court's entire analysis of Plaintiffs' request to modify DeRamus's report consisted of one paragraph. The District Court concluded that allowing Plaintiffs to amend DeRamus's expert report "would be tantamount to reopening expert discovery" because DeRamus would need to be deposed again and Eaton would have to prepare another rebuttal expert report. The District Court also noted that, when it granted leave for Plaintiffs to move for clarification, leave was granted only for Plaintiffs to show that DeRamus's report already contained an alternate damages calculation, and that Plaintiffs' motion requested permission to submit additional damages calculations. Therefore, the District Court concluded, "[a]t this stage of the litigation," it would not give Plaintiffs an opportunity to modify their damages estimate.
We provide this extensive review of the procedural history to make a basic point: while we appreciate the District Court's attempt to conserve judicial resources and refrain from addressing the damages issue unless absolutely necessary, it is apparent from the record that Plaintiffs' request for permission to submit alternative damages calculations was given little more than nominal consideration. We are mindful that the District Court has considerable discretion in matters regarding expert discovery and case management, and a party challenging the district court's conduct of discovery procedures bears a "heavy burden." In re Fine Paper, 685 F.2d at 817-18 ("We will not interfere with a trial court's control of its docket `except upon the clearest showing that the procedures have resulted in actual and substantial prejudice to the complaining litigant.'") (citation omitted); see Schiff, 602 F.3d at 176. Under Federal Rule of Civil Procedure 26(a)(2), a party is required to disclose an expert report containing "a complete statement of all opinions the witness will express and the basis and reasons for them." Fed.R.Civ.P. 26(a)(2)(B)(i) (emphasis added). Any additions or changes to the information in the expert report must be disclosed by the time the party's pretrial disclosures are due. Fed.R.Civ.P. 26(e)(2). Here, Plaintiffs were required to make all mandatory disclosures six months before trial, including all damages calculations. The damages estimates in DeRamus's report were found to be unreliable, and Plaintiffs sought, after the date by which discovery disclosures were due, to modify the estimates to reflect reliance on different data. Ordinarily, we will not disrupt a district court's decision to deny a party's motion to add information to an expert report under such circumstances. Schiff, 602 F.3d at 176; In re Fine Paper, 685 F.2d at 817. A plaintiff omits evidence necessary to sustain a damages award at its own risk. See Natural Res. Def. Council, Inc. v. Texaco Ref. & Mktg., Inc., 2 F.3d 493, 504 (3d Cir.1993).
However, exclusion of critical evidence is an "extreme" sanction, and thus, a district court's discretion is not unlimited. Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir.1997); see also E.E.O.C. v. Gen. Dynamics Corp., 999 F.2d 113, 116 (5th Cir.1993) (explaining that a continuance, as opposed to exclusion, is the "preferred means" of dealing with a party's attempt to offer new evidence after the time for discovery has closed). There are indeed times, even when control of discovery is at issue, that a
In considering whether the District Court abused its discretion in denying Plaintiffs' request to submit alternate damages calculations, we will consider: (1) "the prejudice or surprise in fact of the party against whom the excluded witnesses would have testified" or the excluded evidence would have been offered; (2) "the ability of that party to cure the prejudice"; (3) the extent to which allowing such witnesses or evidence would "disrupt the orderly and efficient trial of the case or of other cases in the court"; (4) any "bad faith or willfulness in failing to comply with the court's order"; and (5) the importance of the excluded evidence. Pennypack, 559 F.2d at 904-05. The importance of the evidence is often the most significant factor. See Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 302 (3d Cir.1991); Pennypack, 559 F.2d at 904 (observing "how important [the excluded] testimony might have been and how critical [wa]s its absence").
Applying the Pennypack factors to this case, we conclude that the District Court abused its discretion in denying Plaintiffs' request to allow DeRamus to submit his alternate damages estimates. As to the first and second factors, Eaton would not have suffered substantial prejudice if DeRamus were allowed to amend his expert report. DeRamus's new calculations will be based on data from the initial report, which Eaton has been aware of for nearly three years, and DeRamus will employ methodologies that the District Court has already recognized as being regularly and reliably applied by economists. As Plaintiffs noted in their motion for clarification, it would be "a straightforward matter of arithmetic" to substitute data from the econometric model and actual sales data for the SBP projections. For this reason, the District Court's concern that granting Plaintiffs' request would be "tantamount to reopening discovery" seems unfounded. Although Eaton will have to respond to new calculations, it will not have to analyze any new data, or challenge any new methodologies. Moreover, Plaintiffs specifically set forth in their motion for clarification the changes that DeRamus would make, and because the changes only involved the substitution of inputs, Eaton would not be unfairly surprised by the new damages estimates.
As to the third Pennypack factor, allowing DeRamus to submit additional damages calculations will not disrupt the orderly and efficient flow of the case. In
As to the fourth factor, there is no evidence of any bad faith on the part of Plaintiffs. However, under this fourth factor, we may also consider the Plaintiffs' justifications for failing to include alternative damages calculations in the event calculations based on the SBP were found to be insufficient. See Pennypack, 559 F.2d at 905; Gen. Dynamics Corp., 999 F.2d at 115-16. Given that DeRamus's report already included the data necessary to develop alternate damages estimates, he could very easily have provided such estimates. Plaintiffs have provided no persuasive explanation for his failure to do so, other than that he believed his existing estimates were sufficiently reliable. It is not the district court's responsibility to help a party correct an error or a poor exercise of judgment, and thus, Plaintiffs' conscious choice to rely so heavily on data that was ultimately found to be unreliable weighs against a finding of abuse of discretion. This is especially true in a case such as this, where the party submitting the flawed expert report is a large corporation with significant resources represented by highly competent counsel.
However, perhaps the most important factor in this case is the critical nature of the evidence, and the consequences if permission to amend is denied. Expert testimony is necessary to establish damages in an antitrust case. As such, without additional damages calculations, it is clear that Plaintiffs will be unable to pursue damages, despite the fact that they won at the liability stage. Compare Gen. Dynamics Corp., 999 F.2d at 116-17 (finding an abuse of discretion in the district court's exclusion of expert testimony, in part, because the total exclusion of such testimony "was tantamount to a dismissal of the [plaintiff's] ... claim"), with Sowell, 926 F.2d at 302 (finding no abuse of discretion in district court's exclusion of proffered expert testimony, in large part, because "the record [was] totally devoid of any indication of ... how th[e] testimony might have bolstered [the plaintiff's] case," and thus, there was "no basis whatever for believing that the admission of expert testimony would have influenced the outcome of th[e] case"). The District Court's decision therefore would clearly influence the
Significantly, in the antitrust context, a damages award not only benefits the plaintiff, it also fosters competition and furthers the interests of the public by imposing a severe penalty (treble damages) for violation of the antitrust laws. See Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972) ("Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress.... In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages.... By [so doing], Congress encouraged these persons to serve as `private attorneys general.'") (citations omitted); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 655, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) ("A claim under the antitrust laws is not merely a private matter. The Sherman Act is designed to promote the national interest in a competitive economy....") (quotation omitted). Thus, if Plaintiffs are not able to pursue damages, not only will they be unable to recover for the antitrust injury Eaton caused, the policy of deterring antitrust violations through the treble damages remedy will also be frustrated. See Paoli II, 35 F.3d at 750 ("[T]he likelihood of finding an abuse of discretion is affected by the importance of the district court's decision to the outcome of the case and the effect it will have on important rights.").
In sum, after weighing the Pennypack factors and taking into account the circumstances under which Plaintiffs' motion for clarification was ultimately denied, we conclude that the District Court abused its discretion in not permitting Plaintiffs to submit alternate damages calculations.
D. Article III Standing to Seek Injunctive Relief
Finally, we turn to Eaton's contention that Plaintiffs lack standing to seek injunctive relief. Eaton argues that Plaintiffs' complete withdrawal from the HD transmissions market in 2006 and their failure to present evidence showing anything more than a mere possibility that they will reenter the market precludes a finding of Article III standing as to injunctive relief. Although the District Court did not directly address standing, it noted in a footnote that, "[w]hile [P]laintiffs are no longer in business and are unable to directly benefit from an injunction, here, an injunction is appropriate because of the public's interest in robust competition and the possibility that [P]laintiffs may one day reenter the market." ZF Meritor LLC v. Eaton Corp., 800 F.Supp.2d 633, 639 (D.Del.2011). We agree with Eaton that this determination was improper, and we will therefore vacate the injunction issued by the District Court.
For example, in City of Los Angeles v. Lyons, the plaintiff sued the city, seeking damages, injunctive relief, and declaratory relief, for an incident in which he was allegedly choked by police officers. Id. at 97, 103 S.Ct. 1660. The Supreme Court held that, although the plaintiff clearly had standing to seek damages, he lacked standing to seek injunctive relief because he failed to establish a "real and immediate threat" that he would again be stopped by the police and choked. Id. at 105, 103 S.Ct. 1660. "Absent a sufficient likelihood that he [would] again be wronged in a similar way, [the plaintiff] [was] no more entitled to an injunction than any other citizen of Los Angeles." Id. at 111, 103 S.Ct. 1660. Likewise, in Summers v. Earth Island Institute, the Court held that an organization lacked standing to enjoin the application of Forest Service regulations in national parks where its members expressed only a "vague desire" to return to the affected parks. 555 U.S. at 496, 129 S.Ct. 1142. "Such some-day intentions — without any description of concrete plans, or indeed any specification of when the some day will be — do not support a finding of ... actual or imminent injury." Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 564, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)) (internal marks omitted); see also Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S.Ct. 2541,
Applying those principles to our case, we hold that Plaintiffs lack standing to seek an injunction. They clearly have standing to seek damages based on Eaton's violation of the antitrust laws while ZF Meritor and Meritor were competitors. However, the ZF Meritor joint venture operationally dissolved in 2003, Meritor stopped manufacturing HD transmissions in 2006, and Meritor has expressed no concrete desire to revive the joint venture or otherwise reenter the market. The sole evidence in the record of Meritor's future intentions is found in one page of trial testimony, in which a Meritor official stated that there had been internal discussions at the company about the possibility of reentry, but that no decision had been made. The official testified that Meritor "continue[d] to monitor the performance of the products that are in the marketplace[,]... ha[d] a very thorough understanding of how the products [we]re working[,] ... and [was] actively considering what [its] alternatives might be." He explained, however, that upon any attempt to reenter, Meritor would be confronted with the "same obstacle that caused the dissolution of the joint venture."
As the District Court acknowledged, this evidence establishes no more than a "possibility" that Meritor might one day reenter the market. Where the District Court went wrong, however, was in concluding that such a possibility is sufficient to confer Article III standing for injunctive relief. See McCray v. Fidelity Nat'l Ins. Co., 682 F.3d 229, 242-43 (3d Cir.2012) ("Allegations of possible future injury are not sufficient to satisfy Article III.") (internal marks and citation omitted). Plaintiffs were required to set forth sufficient facts to show that they were entitled to prospective relief, including that they were "likely to suffer future injury." McNair v. Synapse Grp. Inc., 672 F.3d 213, 223 (3d Cir.2012) (citation omitted) (emphasis added); see McCray, 682 F.3d at 243 (explaining that "a threatened injury must be certainly impending and proceed with a high degree of certainty") (internal marks and citation omitted). Absent a showing that they are likely to reenter the market and again be confronted with Eaton's exclusionary practices, Plaintiffs were "no more entitled to an injunction" than any other entity that has considered the possibility of entering the HD transmissions market. Lyons, 461 U.S. at 111, 103 S.Ct. 1660. "Vague" assertions of desire, "without any descriptions of concrete plans," are insufficient to support a finding of actual or imminent injury. See Summers, 555 U.S. at 496, 129 S.Ct. 1142. Although Plaintiffs claim that they might again enter the market, such a decision "w[ould] be their choice, and what that choice may be is a matter of pure speculation at this point." McNair, 672 F.3d at 225.
Plaintiffs seem to suggest that there is a lower threshold for standing in antitrust cases.
We agree with the District Court that there are strong public policy reasons for issuing an injunction in this case. However, the fact that there may be strong public policy reasons for enjoining Eaton's behavior does not mean that Plaintiffs are the appropriate party to seek such an injunction. Standing is a constitutional mandate, Doe v. Nat'l Bd. of Med. Exam'rs, 199 F.3d 146, 152 (3d Cir.1999), and the consequences that flow from a finding of lack of standing here, although concerning, cannot affect our analysis.
First, we hold that Plaintiffs' claims are not subject to the price-cost test, and instead must be analyzed as de facto exclusive dealing claims under the rule of reason. Second, we conclude that Plaintiffs presented sufficient evidence to support the jury's finding that Eaton engaged in anticompetitive conduct and that Plaintiffs suffered antitrust injury as a result. Third, we find no error in the District Court's decision to admit DeRamus's testimony on the issue of liability. Fourth, we hold that the District Court properly exercised its discretion in excluding DeRamus's damages testimony based on his expert report, but we conclude that the District Court abused its discretion by preventing DeRamus from submitting alternate damages calculations based on data already included in his initial report. Finally, we hold that Plaintiffs lack standing to pursue injunctive relief, and therefore, we will vacate the injunction issued by the District Court. We will remand to the District Court for further proceedings consistent with this opinion.
GREENBERG, Circuit Judge, dissenting.
Notwithstanding the majority's thoughtful and well-crafted opinion, I respectfully dissent as I would reverse the District Court's order that it entered following its opinion reported at ZF Meritor LLC v. Eaton Corp., 769 F.Supp.2d 684 (D.Del. 2011), denying Eaton's motion for judgment as a matter of law. Although the majority opinion recites in detail the factual background of this case, I nevertheless also set forth its factual predicate as I believe the inclusion of certain additional facts demonstrates even more clearly than the facts the majority sets forth why Eaton was entitled to judgment as a matter of law.
A. The HD Transmission Market
The parties stipulated before the District Court and do not now dispute that the relevant product market in this case is heavy-duty ("HD") truck transmissions and that the relevant geographic market is the United States, Canada, and Mexico, the so-called "NAFTA market." On appeal, Eaton does not dispute that it possessed monopoly power in that market during the events relevant to this case.
HD trucks include linehaul trucks, the familiar 18-wheelers used to travel long distances on highways, and performance trucks used on unfinished terrain or to carry heavy loads, such as cement mixers, garbage trucks, and dump trucks. There are three types of HD truck transmissions: manual, automatic, and automated mechanical.
As the majority indicates, the NAFTA HD truck transmission market functions in the following way. Original Equipment Manufacturers ("OEMs") construct HD trucks. There were four OEMs during the period relevant to this dispute: Freightliner Trucks ("Freightliner"); International Truck and Engine Corporation ("International"); PACCAR; and Volvo Group ("Volvo"). OEMs provide the purchasers of HD trucks with "data books" that list HD truck component part options, including transmissions, and thereby allow the customer to select from various options for certain parts of the HD trucks.
The data books list one option as the "standard" offering with which OEMs will fit the truck unless the customer selects otherwise. Additionally, the component part listed in the data book as the lowest-priced option is referred to as the so-called "preferred" or "preferentially-priced" option.
Data books, however, are not the exclusive means of advertising HD truck transmissions or other parts nor do they restrict the truck purchasers' choices. Component suppliers, such as appellees
B. The Parties and Market Conditions
During the 1950s, Eaton began manufacturing transmissions for HD trucks, and eventually it developed a full product line of transmissions in a range of speeds and styles. Prior to 1989, Eaton was the only
In 1999, Meritor entered into a joint venture with ZF Friedrichshafen ("ZF AG"), a large German company that previously had not sold HD truck transmissions in North America. The joint venture, called ZF Meritor ("ZFM"), sought to adapt for the NAFTA market ZF AG's "ASTronic" transmission, a linehaul 12-speed, 2-pedal, automated mechanical transmission. Meritor transferred its transmission business to ZFM, and ZFM introduced the ASTronic (renamed the "FreedomLine" for the NAFTA market) to these new markets around February 2001. At that time, Eaton did not have a two-pedal automated mechanical transmission and did not intend to release one until 2004. Appellees believe that the FreedomLine was technically superior to other HD truck transmissions available.
In late 1999, during the same time period that appellees formed ZFM, there was a severe economic downturn in the NAFTA market area that caused a sharp decline of HD truck orders. By 2001, around the time ZFM introduced the FreedomLine, HD truck orders had fallen by approximately 50%, with demand plummeting from more than 300,000 new HD truck orders per year to roughly 150,000 orders.
C. The Long-Term Agreements
In the 1980s and 1990s, Eaton entered into supply agreements with each of the four OEMs. These agreements set the prices for Eaton's transmissions and offered volume discounts to the OEMs, i.e., discounted prices based on the OEMs' purchase of a certain quantity of transmissions. Appellees do not allege that these agreements violated the antitrust laws. Beginning in late 2000, however, Eaton entered into new supply agreements with all four of the OEMs. Those agreements, to which the parties refer as long-term agreements ("LTAs"), are at the core of the present dispute.
Eaton's LTAs offered the OEMs rebates based on market-share targets. The discounts thus provided the OEMs with lower prices on Eaton's transmissions conditioned on their purchase of a certain percentage of their transmission needs from Eaton. Although the LTAs' terms varied, all of the LTAs at issue were consistent in two respects.
First, the LTAs were not explicitly exclusive-dealing contracts: each OEM remained free to buy parts from any other HD transmission manufacturer, including ZFM, and none of the LTAs conditioned Eaton's payment of rebates on an OEM's purchase of 100% of its transmission needs from it. Second, each LTA contained a so-called "competitiveness clause" that permitted the OEM to exclude an Eaton product from the share target and to terminate its LTA altogether if another manufacturer offered transmissions of better quality or lower price. Because the LTAs are at the crux of ZFM's claims, I review those four contracts and the circumstances of their formation in some detail.
As of 1998, both Eaton and Meritor had respective three-year supply agreements with Freightliner, the largest of the OEMs. Meritor's agreement provided that it would reduce the price of its component
In October 2000, Freightliner notified Meritor, which by then had evolved into ZFM with respect to its transmission business, that Eaton had offered it 10-speed transmissions at a price significantly lower than Meritor's price, Eaton was offering certain transmissions that Meritor did not have available, and Eaton's transmissions were superior to Meritor's in price and technology. Pursuant to a provision in Meritor's supply agreement that required Meritor to remain competitive with respect to its products in terms of quality and technology, Freightliner notified Meritor that it had 90 days within which to match Eaton's inventory or Freightliner would delete Meritor's noncompetitive products from the agreement. Though Meritor disputed Freightliner's contention it did not make a counteroffer or offer to match Eaton's inventory.
Soon thereafter, in November 2000, Eaton entered into a five-year LTA with Freightliner, one of the four contracts that appellees challenge. The LTA provided rebates ranging from $200 to $700, contingent on a 92% share target for Eaton's transmissions and clutches, an additional truck component that Eaton manufactured. In 2003, Eaton and Freightliner amended the LTA by adopting a sliding scale that entitled Freightliner to varying lower rebates if it met lower market-share targets beginning at 86.5% and going up to 90.5%.
In exchange for the discounted prices, the LTA required Freightliner to list Eaton's transmissions as the "preferred" option in its data book. Significantly, however, Freightliner "reserve[d] the right to publish" the FreedomLine transmission "through the life of the agreement at normal retail price levels." J.A. at 1948. The LTA also provided that in 2002 Freightliner would publish Eaton's transmissions and clutches in its data book exclusively, but the parties amended that provision in 2001 to allow Freightliner to continue to publish Eaton's competitors' products. From 2002 onwards, Freightliner did not list ZFM's manual transmissions but it continued to list ZFM's other transmissions from 2000 to 2004. In 2004, however, Freightliner removed the FreedomLine from its data books because Meritor
Under the LTA, Eaton had the right to terminate the agreement if Freightliner did not meet its share targets. In 2002, however, even though Freightliner did not meet the 92% share target, Eaton did not terminate the agreement. In 2003, the parties amended the LTA so that it would last for a total of ten years, extending the agreement to 2010.
Eaton entered into a five-year LTA with International in July 2000. A representative from International stated that International entered into the LTA because it
In return, Eaton provided a $2.5 million payment to International, $1 million of which was payable in cash or in cost-savings initiatives. The LTA provided sliding scale rebates of 0.35% to 2% beginning at a market share of 80% and up to 97.5% and above. It also provided for sliding rebates based on a market share of Eaton's clutches. For current truck models, International agreed to list Eaton's transmission as the preferred option, and for future models, it agreed to publish Eaton's transmissions exclusively.
In July 2000, Eaton entered into a seven-year LTA with PACCAR. A PACCAR representative stated that PACCAR agreed to the market-share rebates because it "ma[d]e long term economic sense and it ha[d] a total value as to PACCAR." Id. at 1555. The PACCAR representative indicated that the "total value" concept incorporated such considerations as the "lower cost" provided by the LTAs, "providing a full product line of ... transmissions," "providing product during periods of peak demand and ensuring the product is available," "warranty provisions," and "aftermarket supply." Id. at 1555-56.
The representative indicated that PACCAR was in discussions with ZFM regarding a supply agreement but ultimately it declined to enter into an agreement with ZFM because, apart from Eaton's more appealing offer, ZFM suffered from negative considerations such as ZFM's restricted output of its products, "massive transmission failure in the marketplace that caused market unacceptance of their transmissions earlier," and ZFM's lack of a full product line. Id. at 1557, 1562. Additionally, PACCAR "always [paid] ... a higher cost [for a ZFM product] than a comparable Eaton product, independent of the rebate," particularly for the FreedomLine, which, according to the PACCAR representative, was "by design, a more expensive product" because of its European origins. Id. at 1558-59. In this regard, the representative stated that Eaton's rebates were not "the only thing that made them competitive." Id. at 1562.
Under the LTA, Eaton provided price reductions, a $1 million payment, firm pricing for seven years, and engineering and marketing support. PACCAR also could obtain rebates ranging from 2% to 3% in exchange for meeting 90% to 95% market share targets in both transmissions and clutches. In exchange, PACCAR was required to list Eaton as the standard and preferred option in its data book. At all times PACCAR continued to list ZFM's transmissions in its data book.
Eaton entered into a five-year LTA with Volvo in October 2002. A Volvo representative stated that Volvo entered into the LTA because it represented "the best overall value for Volvo" in terms of "price, delivery, quality manufacturing, and logistics." Id. at 1430. Indeed, another Volvo representative stated that "[p]ricing was significantly better with Eaton [even] excluding
The LTA provided sliding scale rebates of 0.5% to 1.5% originally set at 65% market share, and, as of 2004, a 70% to 78% market share. Eaton had the option of terminating the LTA if its market share at Volvo fell below 68%. In turn, Volvo agreed to position Eaton's transmissions and clutches as the standard and preferred offering. Volvo continued to list in its data books both ZFM's and Volvo's own transmissions that it manufactured only for installation in its own trucks.
D. ZFM's Business and Exit from the Market
As of July 2000, before Eaton signed any of the challenged LTAs, ZFM had lost nearly 20% of its market share in transmissions, its share declining from 16.1% to 13%. Minutes from a ZFM Board of Directors meeting held in July 2000 reveal that ZFM's President, Richard Martello, identified a number of factors that caused ZFM's falling market position, including:
J.A. at 3235.
Some explanation will illuminate Mr. Martello's observations. "Competitive equalization" payments are incentives a component manufacturer provides directly to truck purchasers for them to select its products from a data book. ZFM's internal documents, included in the trial record, demonstrate that "[d]uring the peak periods of production between March 1999 and September 1999, Meritor reduced [competitive equalization] payment[s] on deals trying to reduce the incentive [to] `war' with Eaton" but Eaton "continued ... to buy business when Meritor declined deals." Id. at 3028. "Controlled distribution" refers to the practice of purposefully limiting the quantity of a product available to the market — a practice that ZFM identified as the cause of it losing "various deals" due to ZFM's "lack of product" availability. Id. at 3030. The reference to ZFM's decrease in "Ryder business" appears to refer to the fact that ZFM lost the business of the OEM previously known as Mack-Ryder due to ZFM's controlled distribution practices. See id.
In that same meeting, Mr. Martello also observed that there were "significant forces in favor of direct drive, fully automated transmissions," including:
Mr. Martello also noted that the industry was turning away from the component part manufacturers' traditional focus on advertising directly to truck purchasers as an incentive for them to select their component part, so-called "pull" advertising, to focus instead on "the creation of closer relationships with the OEMs." Id. Along this line, Mr. Martello observed that the OEMs desired to have "single source, full product line suppliers" in an effort to reduce costs. See id. Additionally, Mr. Martello noted that OEMs were resistant to the prospect of engineering new products, such as the FreedomLine, into their trucks, and that, as sales of HD trucks declined, component part manufacturers provided rapidly increasing sales incentives to the OEMs. See id. To overcome these obstacles and increase ZFM's market share, Mr. Martello "recommended that a full line of automated products be released at every OEM and that [ZFM] develop a full [HD] product line." Id. at 3237.
Notwithstanding ZFM's awareness of the declining HD truck market, after the 2000 meeting ZFM refused to lower its prices despite certain OEMs' repeated requests that it do so. See, e.g., id. at 3596 (letter from Chris Benner, ZFM, to Paul D. Barkus, International (Sept. 19, 2002)) (stating ZFM's refusal to lower prices despite International's June 2002 request that it do so); id. at 1537-38 (deposition testimony of Paul D. Barkus, International) (indicating that ZFM refused International's request that ZFM lower its prices in December 2001); id. at 3953 (ZFM Board minutes) ("Board did not agree with providing any price decreases to Volvo/Mack."). To the contrary, at the end of 2003, ZFM raised the price of the FreedomLine by roughly 25%, an increase that caused significant consternation among the OEMs. Moreover, ZFM did not develop a full HD truck transmission product line as Mr. Martello had recommended. Furthermore, as the majority notes, at least two of ZFM's transmissions, including its flagship transmission, the FreedomLine, experienced significant performance problems resulting in frequent repairs, and, in 2002 and 2003, ZFM faced significant warranty claims on its products amounting to millions of dollars in potential liability.
Notwithstanding the trouble it experienced in 2000, ZFM experienced growth in some areas. From 2001 to 2003, the FreedomLine transmission went from comprising 0% of the linehaul market to 6% of the linehaul market, and between 2000 and 2003, ZFM's market share of linehaul HD truck transmissions increased at three of the four OEMs. From July 2000 to October 2003, ZFM's share of the total HD transmission market ranged between 8% and 14%.
In spite of its gains, ZFM believed that Eaton's LTAs limited ZFM's potential market share to approximately 8% of the transmission market, not the 30% that it had expected to gain as a result of the joint venture and which it needed to achieve for the venture to be a viable business. In December 2003, on the basis of that calculation, ZFM was dissolved. Following ZFM's dissolution, Meritor returned to the transmission business it had conducted before entering into the joint venture. In 2006, however, Meritor exited the HD truck transmission business entirely.
E. Eaton's Pricing
At trial, appellees did not allege or introduce any evidence that Eaton priced its transmissions below any measure of cost
Although it frames the question differently, as the majority recognizes the central question that emerges in this appeal is what effect, if any, does appellees' failure to allege, much less prove, that Eaton engaged in below-cost pricing have on its claims? Eaton, of course, contends that the effect is dispositive, arguing that Supreme Court precedent requires that courts apply the price-cost test of Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993), in any case in which a plaintiff challenges a defendant's pricing practices.
The majority appears to split the difference between the parties' two positions. The majority concludes that the Brooke Group price-cost test may be dispositive in a case where a plaintiff brings a claim challenging a defendant's pricing practices
As I explain further below, while I do not believe that the Supreme Court has held that the inferior courts must impose and give dispositive effect to the Brooke Group price-cost test in every claim challenging a defendant's pricing practices, the Court's unwavering adherence to the general principle that above-cost pricing practices are not anticompetitive and its justifications for that position lead me to conclude that this principle is a cornerstone of antitrust jurisprudence that applies regardless of whether the plaintiff focuses its claim on the price or non-price aspects of the defendant's pricing program. Thus, although the price-cost test may not bar a claim of exclusive dealing challenging a defendant's above-cost pricing
Allowing appellees that opportunity, the majority concludes that the plaintiffs adduced sufficient evidence at trial from which a jury reasonably could infer that the LTAs represented unlawful "de facto partial exclusive dealing."
A. The Supreme Court's Treatment of Antitrust Challenges to Pricing Practices
Beginning with Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986), the Supreme
The Court rejected Monfort's first theory of injury, stating "the antitrust laws do not require the courts to protect small businesses from the loss of profits due to continued competition, but only against the loss of profits from practices forbidden by the antitrust laws." Id. at 116, 107 S.Ct. at 492. Because the defendant's above-cost "competition for increased market share" was not "activity forbidden by the antitrust laws" but rather constituted "vigorous competition," Monfort could not demonstrate antitrust injury under its first theory. Id. In this regard, the Court noted that "[t]o hold that the antitrust laws protect competitors from the loss of profits due to such price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share." Id. The antitrust laws, the Court noted, "require no such perverse result" because "[i]t is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition." Id. (internal quotation marks and citation omitted). The Court rejected Monfort's second claim that the defendant would engage in below-cost, i.e. predatory pricing, following the merger because Monfort had failed to raise and failed to adduce adequate proof of that claim before the district court. See id. at 118-19, 107 S.Ct. at 494.
Four years later, in Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990), the Court reiterated that above-cost pricing practices generally are not anticompetitive, this time in the context of Section 1 of the Sherman Act. In Atlantic Richfield, USA Petroleum Company ("USA"), an independent retail marketer of gasoline, alleged that its competitor, Atlantic Richfield Company ("ARCO"), which sold gasoline through its own stations and indirectly through dealers, violated Sections 1 and 2 of the Sherman Act through a price-fixing scheme that set gasoline prices at below-market but above-cost levels through its offer of short-term discounts, such as volume discounts, and the elimination of credit-card sales to its dealers. See id. at 331-32, 110 S.Ct. at 1887-88. Only USA's Section 1 claim was before the Court, see id. at 333 n. 3, 110 S.Ct. at 1888 n. 3, and the question presented was whether USA had suffered an antitrust injury by virtue of ARCO's Section 1 violation, see id. at 335, 110 S.Ct. at 1889. At the time, ARCO's conduct was regarded as a per se violation of Section 1. See id. (citing Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968), overruled by State Oil Co. v. Khan, 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997)).
First, the Court rejected USA's claim that it automatically satisfied the antitrust injury requirement because ARCO's conduct constituted a per se violation of Section 1. 495 U.S. at 336-37, 110 S.Ct. at 1890-91. The Court then turned to USA's alternative claim that even if it was not
USA argued alternatively that it was "inappropriate to require a showing of predatory pricing before antitrust injury can be established when the asserted antitrust violation is an agreement in restraint of trade illegal under § 1 of the Sherman Act, rather than an attempt to monopolize prohibited by § 2." Id. at 338, 110 S.Ct. at 1891. As the Court noted, "[p]rice fixing violates § 1, for example, even if a single firm's decision to price at the same level would not create § 2 liability" because "the price agreement itself is illegal." Id. at 338, 110 S.Ct. at 1891. USA contended that therefore it had "suffered antitrust injury even if [ARCO's] pricing was not predatory under § 2 of the Sherman Act." Id. at 339, 110 S.Ct. at 1891.
In a passage that is significant in the context of the present case, the Court also rejected that contention. It explained:
Id. at 339-40, 110 S.Ct. at 1891-92 (citations omitted and some emphasis added).
The Court observed that it had "adhered to this principle regardless of the type of antitrust claim involved." Id. at 340, 110 S.Ct. at 1892 (citing Cargill, 479 U.S. at 116, 107 S.Ct. at 492; Brunswick Corp., 429 U.S. at 487, 97 S.Ct. at 696).
It is, of course, important to understand the significance of Cargill and Atlantic Richfield in the context of this case. Cargill and Atlantic Richfield involved the question of whether the plaintiffs had suffered antitrust injury, not whether above-cost pricing practices ever can violate Sections 1 and 2 of the Sherman Act or Section 3 of the Clayton Act. Indeed, at the time the Court decided Atlantic Richfield, vertical, maximum-price-fixing schemes were regarded as per se illegal under Section 1 of the Sherman Act, and the Court assumed in its analysis that even the above-cost scheme at issue in Atlantic Richfield was illegal under Section 1.
Nevertheless, though it was writing in the context of the antitrust injury requirement for the actions, the Court in Cargill and Atlantic Richfield forcefully rejected the notion that the above-cost pricing practices at issue threatened competition at all. See Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892 ("[S]o long as [prices] are above predatory levels, they do not threaten competition."); Cargill, 479 U.S. at 116, 107 S.Ct. at 492 (stating that Cargill's above-cost pricing practices aimed at increasing its market share was not "activity forbidden by the antitrust laws") (emphasis added). Because the antitrust laws at issue in this case require to fix liability on it that Eaton's behavior present a probable threat to or actually negatively impact competition in the relevant marketplace, these pronouncements are important here and should bear on our consideration of the question of whether the particular pricing practices involved in this case are anticompetitive and thus violate the antitrust laws.
Along this same line, other courts of appeals have looked to Atlantic Richfield's discussion of above-cost pricing practices not only in the context of considering whether the plaintiff has demonstrated antitrust injury but also in considering whether a defendant's conduct violates the antitrust laws. See Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 902-03 (9th Cir.2008) (relying on Atlantic Richfield, among other cases, to hold that bundled discounts are not exclusionary conduct under Section 2 of the Sherman Act unless the discounts result in below-cost pricing); Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256, 269 (2d Cir.2001) (stating in the context of a challenge to a volume-discount program that "[a]s long as low prices remain above predatory levels, they neither threaten competition nor give rise to antitrust injury") (citing Atl. Richfield, 495 U.S. at 340, 110
Indeed, three years after it decided Atlantic Richfield, the Court reemphasized this principle in concluding that below-cost pricing was necessary to establish liability under Section 2 of the Clayton Act in an attack on a defendant's pricing practices. In Brooke Group, Liggett, a generic cigarette manufacturer, alleged that Brown & Williamson Tobacco Corporation ("B & W") violated Section 2 of the Clayton Act when it offered below-cost price-cuts and volume rebates on "orders of very substantial size" to its wholesalers on B & W's generic cigarettes in an effort to reverse decreasing sales of its branded cigarettes. 509 U.S. at 216-17, 113 S.Ct. at 2584. The Court stated that "whether the claim alleges predatory pricing under § 2 of the Sherman Act or primary-line price discrimination under the Robinson-Patman Act, ..., a plaintiff seeking to establish competitive injury resulting from a rival's low prices must prove that the prices complained of are below an appropriate measure of its rival's costs" and "that the competitor had a reasonable prospect, or under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices." Id. at 222-24, 113 S.Ct. at 2587-88 (emphasis added). Because Liggett had failed to provide sufficient evidence that B & W had a reasonable prospect of recouping its allegedly predatory losses, the Court concluded that B & W was entitled to judgment as a matter of law. See id. at 243, 113 S.Ct. at 2598.
Importantly, in explaining the dual requirements set forth above, the Court noted that it had "rejected elsewhere the notion that above-cost prices that are below general market levels or the costs of a firm's competitors inflict injury to competition cognizable under the antitrust laws." Id. at 223, 113 S.Ct. at 2588 (citing Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892). In this connection, the Court reiterated Atlantic Richfield's principle that "`[l]ow prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition ... regardless of the type of antitrust claim involved.'" Id. (quoting Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892). The Court observed:
509 U.S. at 223, 113 S.Ct. at 2588.
The Court again rejected an attack on above-cost pricing practices with its decision in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 320-21, 127 S.Ct. 1069, 1075, 166 L.Ed.2d 911 (2007). Weyerhaeuser involved the unusual situation in which there was an allegation of "predatory bidding," meaning that a firm with monopoly buying power on the supply side drives up the price of that input to levels at which a competitor cannot compete. Id. at 320, 127 S.Ct. at 1075. Once the monopolist has caused competing buyers to exit the market for the input, "it will seek to restrict
In doing so, the Court noted that in Brooke Group it had been "particularly wary of allowing recovery for above-cost price cutting because allowing such claims could, perversely, `chil[l] legitimate price cutting,' which directly benefits consumers." Id. at 319, 127 S.Ct. at 1074 (quoting Brooke Grp., 509 U.S. at 223-24, 113 S.Ct. at 2588). Accordingly, the Court had "specifically declined to allow plaintiffs to recover for above-cost price cutting, concluding that `discouraging a price cut and ... depriving consumers of the benefits of lower prices ... does not constitute sound antitrust policy.'" Id., 127 S.Ct. at 1074-75 (quoting Brooke Grp., 509 U.S. at 224, 113 S.Ct. at 2588).
Most recently in Pacific Bell Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438, 129 S.Ct. 1109, 172 L.Ed.2d 836 (2009), the Court extended this principle to "price squeeze" claims. Price squeeze claims allege that a "vertically integrated firm [that] sells inputs at wholesale and also sells finished goods or services at retail" has "simultaneously raise[d] the wholesale price of inputs and cut the retail price of the finished good" thereby "squeezing the profit margins of any competitors in the retail market," and forcing the competitors to "pay more for the inputs they need ... [and] cut their retail prices to match the other firm's prices." Id. at 442, 129 S.Ct. at 1114. The Court noted that "[t]o avoid chilling aggressive price competition, [it] ha[d] carefully limited the circumstances under which plaintiffs can state a Sherman Act claim by alleging that prices are too low." Id. at 451, 129 S.Ct. at 1120. It reiterated the dual requirements of Brooke Group for predatory pricing claims, and noted, once more, Atlantic Richfield's principle that "so long as [prices] ... are above predatory levels, they do not threaten competition." Id. (quoting Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892).
The Supreme Court's decisions in the above cases require that inferior courts recognize that in general above-cost pricing practices are not anticompetitive and thus do not violate the antitrust laws. Time and time again, the Court has made clear that above-cost pricing practices generally do not threaten competition in the marketplace. Accord Cascade Health Solutions, 515 F.3d at 901 (observing in the context of challenge to bundled discount program that Brooke Group and Weyerhaeuser "strongly suggest that, in the normal case, above-cost pricing will not be considered exclusionary conduct for antitrust purposes"); Concord Boat, 207 F.3d at 1061 (stating in the context of a challenge
As the majority notes, it is also clear that the conditional nature of the price cuts or the fact that the prices and the conditions were memorialized in the LTAs does not render the precedent that I summarize above inapplicable.
In practice, however, a defendant's pricing practices may include both price and non-price elements. Further, I concur in the majority's conclusion that notwithstanding the Court's strong pronouncements favoring above-cost price cuts, the Supreme Court has not held that in every case in which a plaintiff challenges a defendant's pricing practices the Brooke Group test is dispositive and the plaintiff therefore must demonstrate that there has been below-cost pricing to succeed. See Cascade Health Solutions, 515 F.3d at 901 (noting that "in neither Brooke Group nor Weyerhaeuser did the Court go so far as to hold that in every case in which a plaintiff challenges low prices as exclusionary conduct the plaintiff must prove that those prices were below cost").
Where I part from my colleagues, however, is with their conclusion that if a plaintiff challenges a defendant's pricing practices but contends that the non-price aspects of defendant's conduct, rather than the prices themselves, constituted the anticompetitive conduct, the price-cost test is no longer relevant. While the Supreme Court has not held that the price-cost test is dispositive of all claims that attack a defendant's pricing practices, it is undeniable that its reasoning in the above cases establishes that courts ought to exercise a great deal of caution before condemning above-cost pricing practices. As the majority notes, in the precedent recited above the plaintiffs grounded their claims in the allegation that defendant's prices would cause or had caused them harm. Yet the purpose of my summary and my quotation of that precedent in such detail is to bear out the fact that the Court's holdings rejecting the respective plaintiffs' challenges in those cases were grounded in the fundamental and broader principle that above-cost pricing practices, even those embodied in discount and rebate programs memorialized in written agreements, generally are not anticompetitive and it is that point that is so critical here.
I believe that it is evident that the Supreme Court's reasoning with respect to above-costs pricing applies to a plaintiff's challenge to a defendant's pricing practices even if the plaintiff claims that the non-price aspects of the defendant's practices were the actual exclusionary tactics. Regardless of what components of Eaton's rebate program that appellees identify as the anticompetitive conduct, whether it is the prices or the conditions that Eaton attached to those prices, the question the jury considered at the trial and that we face on appeal is whether Eaton's rebate program and conduct as a whole was procompetitive or anticompetitive. See LePage's Inc. v. 3M, 324 F.3d 141, 162 (3d Cir.2003) (en banc) ("[T]he courts must look to the monopolist's conduct taken as a whole rather than considering each aspect in isolation.") (citing Cont'l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962)). Our inquiry in that regard should be an objective one that focuses on the facts of the program and our answer to that question should not turn on the circumstance that appellees had enough foresight specifically not to protest Eaton's prices.
Eaton's prices were, of course, the crux of the rebate program and are an inextricable element of the LTAs. Although appellees conveniently chose to ignore Eaton's prices in formulating their claims, in light of that economic reality and the Supreme Court's mandate that the inferior courts tread lightly when asked to condemn above-cost pricing practices, the nature of those prices must bear on the question of whether Eaton's rebate program as a whole was anticompetitive or not. Accordingly, I believe that if, as here, a plaintiff attacks both the price-based and non-priced-based elements of a defendant's pricing practices, a court should apply and give persuasive effect to the Brooke Group price-cost test such that a firm's above-cost pricing practices enjoy a presumption of lawfulness regardless of how a plaintiff
I recognize, however, that as is always true with respect to any nonconclusive presumption, there may be an exception to the presumption of lawfulness of above-cost pricing if a plaintiff challenging a defendant's above-cost pricing practices establishes that the defendant's conduct as a whole was anticompetitive notwithstanding the pricing aspect of its conduct. In this vein, I acknowledge that, as most contracts offering large-scale quantity discounts necessarily do, the LTAs had other provisions besides the reduced prices themselves, namely, the conditions Eaton attached to those reduced prices, i.e., the market-share targets and the data book placement provisions which appellees attack as anticompetitive. Applying and giving persuasive effect to the Brooke Group price-cost test would not preclude appellees from arguing that the non-price aspects of Eaton's conduct were anticompetitive even in the absence of below-cost pricing. In practice then, in a case such as this one, the Brooke Group price-cost test would operate only as one element, though a significant one, of a court's and jury's inquiry under the rule of reason.
In at least implicitly recognizing the dubious footing of an antitrust mode of analysis that hinges entirely on how a plaintiff crafts its claim, the majority states that a plaintiff may not escape the Brooke Group price-cost test simply by characterizing its claim as one of exclusive dealing but it does allow the plaintiff to avoid application of the test as long as the plaintiff brings an exclusive dealing claim and contends that the non-price aspects of the agreement offering the reduced prices operated as the exclusionary tool. The result of the majority's approach is that the strong procompetitive justifications driving the Supreme Court's repeated charge that inferior courts exercise caution before condemning above-cost pricing practices suddenly disappear so long as the plaintiff is clever enough to claim that the non-price aspects of the defendant's pricing practices, not the prices themselves, were anticompetitive. I do not believe that this is the result the precedent requires or prudence counsels.
I reject the notion that a plaintiff may engage in such legalistic maneuvering in an effort to circumvent the Supreme Court's charge that a court look with a skeptical eye at attacks on above-cost pricing practices. The non-price aspects of the LTAs which appellees challenge, namely the market-share targets and the data book placement provisions, and indeed the LTAs themselves would not exist without the reduced prices that Eaton offered as an incentive for the OEMs to enter the agreements. Conceptually severing the conditions Eaton attached to those prices ignores the economic realities of this case and allows a plaintiff essentially to commandeer a court's analysis through artificial distinctions.
IA Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 768b, at 148-50 (2d ed. 2000) (emphasis added).
This discussion is set forth in the treatise's treatment of market-share discounts in the context of Section 2 of the Sherman Act. However, for the same reasons recited above, Areeda and Hovenkamp take the identical position in the context of Section 1 Sherman Act challenges to market-share discounts:
XI Areeda & Hovenkamp, Antitrust Law ¶ 1807b2, at 132-33 (citing LePage's, 324 F.3d 141)
The treatise's reasoning as set forth above is clear and needs little further elaboration from me. While, as noted, the law allows a plaintiff to contend that non-price aspects of a defendant's pricing practices were anticompetitive under the rule of reason notwithstanding the defendant's above-cost prices, I believe that the treatise's extraordinarily detailed economic rationale for concluding that the price-cost test is appropriate in challenges to single-product market-share discounts show that my approach is on firm footing. See also Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232 (1st Cir.1983) (Breyer, J.) (Above-cost prices do not "have a tendency to exclude or eliminate equally efficient competitors. Moreover, a price cut that leaves prices above incremental costs was probably moving prices in the `right' direction — towards the competitive norm."); Herbert Hovenkamp, Discounts and Exclusion, 2006 Utah L.Rev. 841, 844 (2006) ("One of the factors driving the predatory pricing rule is that, as long as prices are above the relevant measure of cost, the discounts cannot exclude an equally efficient rival. The same is true of single-product discounts.").
In sum, I reiterate that Supreme Court precedent requires that courts exercise considerable caution before condemning above-cost pricing practices and that in a challenge to a defendant's pricing practices the Brooke Group price-cost test should apply and be given persuasive effect regardless of whether a plaintiff identifies non-price elements of a defendant's conduct that it alleges were anticompetitive. Having discussed this critical point, I now turn to the question of whether under the rule of reason analysis and the standards applicable to claims of unlawful exclusive dealing appellees demonstrated that a jury could hold that Eaton violated the antitrust laws notwithstanding its above-cost prices.
B. Clayton Act Section 3 and Sherman Act Section 1 Claims
Appellees contend that the LTAs were anticompetitive exclusive dealing arrangements in violation of Section 1 of the Sherman Act and Section 3 of the Clayton Act. They claim that through the LTAs "Eaton engaged in de facto exclusive dealing agreements and other conduct that denied any other supplier the ability to compete for even 10% of the market." Appellees' br. at 43.
In considering this argument, I start with the principle that even explicit exclusive-dealing arrangements, which preclude a buyer from purchasing the goods of another seller, are not per se unlawful. See Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir.2010); United States v. Dentsply Int'l, Inc., 399 F.3d 181,
While Section 3 requires that a plaintiff demonstrate that it is "probable that performance of the contract will foreclose competition in a substantial share of the line of commerce affected," Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 628, 5 L.Ed.2d 580 (1961) (emphasis added), under a Section 1 rule-of-reason case such as this case "the plaintiff bears the initial burden of showing that the [alleged] agreement produced an adverse, anticompetitive effect within the relevant geographic market," Burtch v. Milberg Factors, Inc., 662 F.3d 212, 222 (3d Cir.2011) (quotations marks and citation omitted) (emphasis added). Accordingly, if an arrangement "do[es] not infringe upon the stiffer standards of anti-competitiveness under the Clayton Act,... [it] will also be lawful under the less restrictive provisions of the Sherman Act." Barr Labs., 978 F.2d at 110 (citing Am. Motor Inns, 521 F.2d at 1250); see also CDC Techs., Inc. v. IDEXX Labs., Inc., 186 F.3d 74, 79 (2d Cir.1999) ("The conclusion that a contract does not violate § 3 of the Clayton Act ordinarily implies the conclusion that the contract does not violate the Sherman Act....") (citation omitted); Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1304 n. 9 (9th Cir.1982) ("[A] greater showing of anticompetitive effect is required to establish a Sherman Act violation than a section 3 Clayton Act violation in exclusive-dealing cases.") (citation omitted).
"The share of the market foreclosed is important because, for the contract to have an adverse effect upon competition, `the opportunities for other traders to enter into or remain in that market must be significantly limited.'" Microsoft Corp., 253 F.3d at 69 (quoting Tampa Elec. Co., 365 U.S. at 328, 81 S.Ct. at 628-29); see also Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45, 104 S.Ct. 1551, 1576, 80 L.Ed.2d 2 (1984) (O'Connor, J., concurring) ("Exclusive dealing is an unreasonable restraint on trade [under Section 1 of the Sherman Act] only when a significant fraction of buyers or sellers are frozen out of a market by the exclusive deal.") (citation omitted); Chuck's Feed & Seed Co. v. Ralston Purina Co., 810 F.2d 1289, 1294 (4th Cir.1987) ("[T]he courts' focus in evaluating exclusive dealing arrangements should be on their effect in shutting out competing manufacturers' brands from the relevant market."); Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369, 1374 (10th Cir.1979) ("[A] complaining trader [challenging an exclusive-dealing arrangement] must allege and prove that a particular arrangement unreasonably restricts the opportunities of the seller's competitors to market their product.") (citation omitted). Thus, "[f]ollowing Tampa Electric, courts considering antitrust challenges to exclusive contracts have taken care to identify the share of the market foreclosed." Microsoft Corp., 253 F.3d at 69 (citation omitted); see also E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 451 (4th Cir.2011) (noting that "the requirement of a significant degree of foreclosure serves a useful screening function") (internal quotation marks and citation omitted).
Nevertheless, the antitrust laws tolerate some degree of market foreclosure; Section 3 only condemns an agreement where the foreclosure represents a substantial
Under Tampa Electric, however, "the degree of market foreclosure is only one of the factors involved in determining the legality of an exclusive dealing arrangement." Barr Labs., 978 F.2d at 111 (citation omitted). Indeed, while a negligible degree of foreclosure "makes dismissal easy," a high degree of market foreclosure does not "automatically condemn" an exclusive-dealing arrangement. Stop & Shop Supermarket, 373 F.3d at 68. Rather, once a plaintiff identifies the degree of market foreclosure, to determine whether that preemption is "substantial," a court considers not only the quantitative aspect of the foreclosure but also the qualitative conditions of the particular market, such as "the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area," and the effect "preemption of that share of the market might have on effective competition therein." Tampa Elec. Co., 365 U.S. at 329, 81 S.Ct. at 629; see also Barr Labs., 978 F.2d at 111. Courts employing Tampa Electric's market analysis also consider the duration of the agreement, the ease of its terminability, the height of any entry barriers, alternative outlets competitors may employ to sell their product, and the buyer's and seller's business justifications for the arrangement. See Concord Boat, 207 F.3d at 1059; Omega Envtl., 127 F.3d at 1163-65; Barr Labs., 978 F.2d at 111; Barry Wright Corp., 724 F.2d at 236-37; R.J. Reynolds Tobacco Co., 199 F.Supp.2d at 389; see also XI Areeda & Hovenkamp, Antitrust Law ¶ 1821d, at 183-88.
In the past, we have expressed doubt as to whether an agreement involving less than all of a customer's purchases even falls within the ambit of Section 3. See Barr Labs., 978 F.2d at 110 n. 24 ("An agreement affecting less than all purchases does not amount to true exclusive dealing.") (citation omitted); see also W. Parcel Express v. United Parcel Serv. of Am., Inc., 190 F.3d 974, 976 (9th Cir.1999) (concluding that because volume discount contracts did "not preclude consumers from using other delivery services, they [we]re not exclusive dealing contracts that preclude[d] competition"); Magnus Petroleum Co. v. Skelly Oil Co., 599 F.2d 196, 200 (7th Cir.1979) ("Because the agreements contained no exclusive dealing clause and did not require plaintiffs to purchase any amounts of gasoline that even approached their requirements, they did not violate Section 3 of the Clayton Act.") (citations omitted).
Indeed, Section 3 explicitly applies only to those agreements entered into "on the condition, agreement, or understanding that the lessee or purchaser ... shall not use or deal in the goods ... of a competitor." 15 U.S.C. § 14; see also Standard Fashion Co., 258 U.S. at 356, 42 S.Ct. at 362 (Section 3 "deals with consequences to follow the making of the restrictive covenant limiting the right of the purchaser to deal in the goods of the seller only.").
The notion of de facto exclusive dealing has its roots in United Shoe Machinery Corp. v. United States, 258 U.S. 451, 457, 42 S.Ct. 363, 365, 66 L.Ed. 708 (1922), in which the Court held that a contract lacking an express agreement not to use the goods of a competitor falls within the ambit of Section 3 if "the practical effect is to prevent such use." As noted, the majority appears to interpret this statement as meaning that a contract that has the effect of causing the purchaser to buy most of its needs from one seller falls within Section 3 because it induces near-exclusivity. I disagree with this interpretation and believe instead that United Shoe and its "practical effect" standard stands for the proposition that a contract that is not facially exclusive may nonetheless fall within the ambit of Section 3 if, in the implementation of its terms, it induces actual exclusivity.
In United Shoe, the Court condemned as unlawful exclusive dealing a lease that included, among other things, a forfeiture provision to the effect that if the lessee failed to use exclusively machinery of certain kinds made by the lessor, the lessor had the right to cancel the lessee's right to use all such machinery, a provision that the lessee would not use the machinery on products that had not received particular operations upon certain of other lessor's machines, and a clause that required the lessee to purchase its supplies exclusively from the lessor. See id. at 456-57, 42 S.Ct. at 365. Lessees who used the lessor's competitors' machines in violation of the terms of the leases "had their attention called to the forfeiture provisions in the leases, which was understood, by many of the lessees, as warnings, in the nature of threats, that unless discontinued these covenants of the leases would be enforced." United States v. United Shoe Mach. Co., 264 F. 138, 145 (D.C.Mo.1920). These provisions, which the Court noted amounted in reality to "tying agreements," fell within the scope of Section 3 because they "effectually prevent[ed] the lessee from acquiring the machinery of a competitor of the lessor, except at the risk of forfeiting the right to use the machines furnished by the [lessor]." 258 U.S. at 457-58, 42 S.Ct. at 365. Thus, in practice, the lease induced actual, total exclusivity. Subsequent cases relying on United Shoe's "practical effect" formulation bear the point out.
In International Business Machines Corp. v. United States, 298 U.S. 131, 135, 56 S.Ct. 701, 703, 80 L.Ed. 1085 (1936), the Court, relying on United Shoe, concluded that a lease for tabulating machines that required the lessee to use only the tabulating cards of the lessor on its machines fell within Section 3 because in practice it required the exclusive use of the lessor's cards. The Court explained that while "the condition is not in so many words against the use of the cards of a competitor, but is affirmative in form, that the lessee shall use only appellant's cards in the leased machines," because "the lessee can make no use of the cards except with
Accordingly, while Section 3 encompasses agreements that do not contain express exclusivity provisions but in reality induce actual exclusivity, it does not, as the majority seems to believe, encompass agreements that do not contain express exclusivity provisions and do not induce actual exclusivity.
As noted above, under Tampa Electric a plaintiff first must identify the degree of market foreclosure. Despite a lengthy trial in the District Court, which has resulted in the creation of a nine-volume joint appendix and extensive briefing on this appeal, appellees do not identify clearly for us the precise degree of market foreclosure attributable to the LTAs. The majority, however, attempts to make up for appellees' deficiency in this regard by stating that appellees' expert, Dr. David DeRamus, testified that the LTAs left only 15% of the market remaining to Eaton's competitors, or stated another way, that the LTAs foreclosed competition in 85% of the market. In reality, however, Dr. DeRamus did not testify that the LTAs foreclosed competition in 85% of the market. The testimony on which the majority apparently relies for that figure deals not with Dr. DeRamus' opinion as to the extent to which the LTAs foreclosed competition in the HD truck transmission market but rather with Dr. DeRamus' calculation of Eaton's market share during the relevant time period in the context of his determination as to whether Eaton had monopoly power. See J.A. at 722 (Dr. DeRamus' testimony) (explaining the steps he took to ascertain whether "Eaton has monopoly power in the ... [NAFTA HD truck transmission market"); see also J.A. at 4758, 4760 (Dr. DeRamus' expert report) (setting forth the data reflecting Eaton's market share). I think it obvious that the inquiry into Eaton's market share is a question separate and apart from the LTAs' alleged foreclosure effect
In point of fact, Dr. DeRamus aimed much higher with his estimation of the LTAs' alleged foreclosure effect by stating explicitly in his expert report that "Eaton's exclusionary agreements with all four of the heavy-duty truck OEMs — the only significant manufacturers of heavy-duty trucks in the relevant geographic markets at issue in this case — foreclosed nearly 100 percent of the North American market or markets for HD [t]ransmissions." J.A. at 4814 (Dr. DeRamus' expert report). Dr. DeRamus arrived at this foreclosure percentage on the basis of the market-share targets the LTAs required for the OEMs to receive the rebates.
In Allied Orthopedic Appliances Inc. v. Tyco Health Care Group, 592 F.3d 991, 994-96 (9th Cir.2010), a group of hospitals and health care providers alleged, among other things, that Tyco, a monopolist in the U.S. pulse oximetry sensor market, unlawfully foreclosed competition in the market in contravention of Section 1 of the Sherman Act through its offer of market-share discounts. As here, the market-share agreements provided discounts conditioned on the customers' purchase of a certain percentage of the product in issue, i.e., pulse oximetry sensors, from Tyco, the discount increasing with Tyco's increasing market share. "The agreements did not contractually obligate Tyco's customers to buy anything from Tyco ... and [t]he only consequence of purchasing less than the agreed upon percentage of Tyco's products was loss of the negotiated discounts." Id. at 995.
The court of appeals concluded that the agreements did not foreclose competition in violation of Section 1 because the agreements did not require Tyco's customers to purchase anything from Tyco and because "[a]ny customer subject to one of Tyco's market-share discount agreements could choose at anytime to forego the discount offered by Tyco and purchase from a generic competitor." Id. at 997.
The Court of Appeals for the Eighth Circuit took a similar view of market-share discount agreements in Concord Boat. In that case, a group of boat builders that sold boats to dealers alleged that Brunswick, the market leader in the manufacture of stern drive engines, violated Section 1 through its offer of market-share discount agreements with the builders and dealers. The agreements offered reduced prices conditioned on market-share targets of 60% to 80%. See 207 F.3d at 1044.
The court employed the standards of Tampa Electric to conclude that the plaintiffs had "failed to produce sufficient evidence to demonstrate that Brunswick had foreclosed a substantial share of the ... market through anticompetitive conduct" and failed to show that "Brunswick's discount program was in any way exclusive" in violation of Section 1. Id. at 1059. The court reached that conclusion because the builders were "free to walk away from the discounts at any time," and "Brunswick's discounts, because they were significantly above cost, left ample room for new competitors... to enter the engine manufacturing market and to lure customers away by offering superior discounts." Id.; see also Se. Mo. Hosp. v. C.R. Bard, Inc., 642 F.3d 608, 612-13 (8th Cir.2011) (rejecting Sherman Sections 1 and 2 and Clayton Section 3 challenge to market-share discount program on the basis of Concord Boat where customers "were not required to purchase 100 percent of their ... needs from ... [defendant] or to refrain from purchasing from competitors" or indeed to purchase "anything from ... [defendant]"); Stitt Spark Plug Co. v. Champion Spark Plug Co., 840 F.2d 1253, 1258 (5th Cir.1988) (affirming district court's directed verdict in favor of defendant on Section 1 and Section 3 claims where plaintiff "proved no instance in which a distributor honored an exclusive dealing arrangement by refusing to purchase ... [plaintiff's] plugs, ... there was no testimony that any distributor agreed to refrain from selling competing plugs for any specific period of time, ... [and] [t]here was no evidence that a distributor who failed to abide by the agreement would be subject to any sanction").
As was true of the contracts at issue in Allied Orthopedic and Concord Boat with respect to what are suggested to be, wrongly in my view, mandatory purchase obligations, the LTAs did not obligate the OEMs to purchase anything from Eaton, much less 100% of their transmission needs, nor did they preclude the OEMs from purchasing transmissions from any other manufacturer. Rather, the agreements provided for increasing rebates and thus lower prices based on the percentage of an OEM's transmission needs that it purchased from Eaton. In such a circumstance, the LTAs did not foreclose competition in any share of the market because Eaton's competitors were able to compete for this business as the OEMs were at liberty to walk away from the LTAs at any time.
Indeed, this point is precisely where the Brooke Group price-cost test comes into play. In a situation such as this one, where the contract in terms is not exclusive and merely provides discounted but above-cost prices conditioned upon a market-share target, any equally efficient competitor, including ZFM, if it was an equally efficient competitor, had an ongoing opportunity to offer competitive discounts to capture the OEMs' business. If Eaton's discounts had resulted in prices that were below-cost, a charge that appellees do not make, then even an equally-efficient competitor might not have the opportunity to compete for the business the LTAs covered and thus it could be said that competition was foreclosed in that share of the market notwithstanding the non-obligatory
The majority dismisses as inapplicable the reasoning of Allied Orthopedic and Concord Boat by stating that "this is not a case in which the defendant's low price was the clear driving force behind the customer's compliance with purchase targets, and the customers were free to walk away if a competitor offered a better price." Op. at 278. But the reality is to the contrary as the testimony I have summarized establishes it is precisely the case that Eaton's low prices led the OEMs to enter the LTAs and to strive to meet the market-share targets. Likewise, it is clearly the case that the OEMs were free to walk away from the market-share rebates the LTAs offered at any time. In attempting to overcome this crucial defect in appellees' claim and concluding that notwithstanding the LTAs' terms the LTAs were in fact mandatory agreements to which the OEMs were beholden against their will the majority sets forth two justifications.
First, the majority downplays the possibility that ZFM could "steal" Eaton's customers by offering a superior product or lower price because that possibility did not "prove to be realistic." Op. at 285. In other words, the majority appears to assume that because ZFM did not lure away Eaton's customers through offering superior products or lower prices, it could not have done so and the reason for its inability to do so was the LTAs. I find the majority's treatment of this point to be an unpersuasive answer to the logic of Allied Orthopedic and Concord Boat.
I hardly need make the logical point that one cannot assume that because an event did not happen it could not have happened. It appears that ZFM did not lure away Eaton's customers. That does not mean, however, that ZFM was incapable of doing so. It is beyond dispute and indeed a central point to this case that ZFM did not offer lower prices than Eaton's prices and ZFM did not develop a full product line as it knew it had to do in order to compete effectively with Eaton.
Second, the majority attempts to overcome this absolutely fundamental defect in appellees' case by concluding that notwithstanding the fact that the LTAs were not by their terms mandatory and the fact that Eaton's prices after consideration of the rebates were at all times above-cost such that appellees, were they equally efficient competitors, could have matched them, there nevertheless was sufficient evidence that the LTAs foreclosed competition in a substantial share of the HD truck transmission market because "the targets were as effective as mandatory purchase requirements." Op. at 282. In this regard, the majority reasons that "[c]ritically, due to Eaton's position as the dominant supplier no OEM could satisfy customer demand without at least some Eaton products, and therefore no OEM could afford to lose Eaton as a supplier." Id. at 283. Therefore, the majority reasons, "a jury could have concluded that, under the circumstances, the market penetration targets were as effective as express purchase requirements because no risk averse business would jeopardize its relationship with the largest manufacturer of transmissions in the market." Id. (internal quotation marks and citation omitted).
Undoubtedly, there is evidence in the record that the OEMs required Eaton's products, to the end that an OEM could not have afforded to lose Eaton as a supplier. However, there is not a scintilla of evidence that if an OEM did not meet its LTA's market-share target Eaton would have refused to supply it with transmissions. First, as the majority notes, only the Freightliner LTA and the Volvo LTA granted Eaton the right to terminate the
I understand that the LTAs are supply agreements that ensure that Eaton will meet the OEMs' transmission needs and do so at a certain price and under certain conditions, and an OEM lacking a supply agreement may be in an unfavorable position as it would prefer a supply agreement to set the terms of its relationship with Eaton. Nevertheless, although an OEM with a cancelled LTA would have lacked a supply agreement with Eaton, at least temporarily, one cannot infer from that fact that Eaton would not have supplied the OEM with its transmissions. Furthermore, the majority glosses over the fact that PACCAR's and International's LTAs did not include a provision granting Eaton the right to terminate the LTAs if those OEMs did not meet their respective market-share targets.
Nevertheless, regardless of whether the LTAs granted Eaton a right of termination, the majority's suggestion that the OEMs faced losing Eaton as a supplier if they failed to meet the market-share targets is contradicted by the market reality that while Eaton was the largest manufacturer of transmissions in the market there were only four OEMs that bought Eaton's transmissions. Accordingly, the idea that Eaton could or would have refused to deal with one of the OEMs in addition to being unsupported by the record is irrational from an economic viewpoint for if Eaton had done so it would have turned its back on a significant purchaser of its products measured in sales volume. The notion is completely unjustified.
Perhaps if appellees had produced evidence at the trial that Eaton had threatened to refuse to supply transmissions to an OEM that did not meet its market-share targets the non-mandatory market-share targets would have taken on an air of the mandatory threats that the majority insists they actually were. Literally the only evidence that I can identify relating to this contention is deposition testimony by a Volvo representative relaying an email he had received from one of his colleagues in which the colleague stated that Volvo needed to meet its market share target because if it was not successful it faced "a big risk of cancellation of the contract, price increases and shortages if the market is difficult," J.A. at 688, and a sentence from an internal Volvo presentation in which it speculated that if Eaton terminated its LTA it would have "[n]o delivery performance commitment (possibly disastrous)," id. at 2101. While I understand that we view a jury's verdict through a deferential lens, even under that standard I cannot conclude that one sentence of second-hand speculation from a contracting party but not from Eaton as to whether Eaton might provide an OEM with an insufficient volume of transmissions in the event of a market shortage and an unidentified Volvo representative's statement that if it did not have a delivery performance commitment from Eaton it could be potentially disastrous is sufficient to sustain the inference that facially voluntary market-share targets were in reality
I must address also an aspect of the majority's reasoning on this point that I find to suffer from a serious flaw with dangerous implications for antitrust jurisprudence. Perhaps the majority does not believe that any evidence was required to rebut the reality that even though the market-share targets were facially voluntary, the mere circumstances that Eaton was the dominant supplier in the market and that no OEM could afford to lose it as a supplier sufficed to render the LTAs mandatory. The majority's reasoning in this regard literally would mean that had Eaton not been the dominant supplier of HD truck transmissions in the NAFTA market, there would not have been sufficient evidence for the jury to conclude that the LTAs were de facto exclusive. While I realize that monopolists may face more constraints on their conduct under the antitrust laws than less dominant firms, see LePage's, 324 F.3d at 151-52, it is an unfair and unwarranted leap to create the specter of coercion out of reference to Eaton's market dominance, cf. R.J. Reynolds, 199 F.Supp.2d at 392 ("The strong position of Marlboro, however, does not, standing alone `coerce' retailers into signing... [market-share] agreements."). In sum, I cannot ascribe to the view that a non-mandatory, non-exclusive contract is transformed magically into a mandatory, exclusive contract by virtue of reference to the firm's market position alone such that dominant firms must be wary when they enter voluntary contracts that offer rebates or discounts lest a court later permit a jury to interpret those contracts as mandatory simply due to that firm's dominant position.
Apart from insinuating that Eaton's dominant market position coerced the OEMs into meeting the market-share targets, the majority adds to the picture of coercion it attempts to paint by stating that "there was evidence that Eaton leveraged its position as a supplier of necessary products to coerce the OEMs into entering into the LTAs." Op. at 285. Relatedly, the majority states that appellees "presented testimony from OEM officials that many of the terms of the LTAs were unfavorable to the OEMs and their customers, but that the OEMs agreed to such terms because without Eaton's transmissions, the OEMs would be unable to satisfy customer demand." Id.
In point of fact, there is not a trace of evidence beyond appellees' own baseless accusations and the majority does not bring our attention to any such evidence supporting its rather serious accusation that Eaton leveraged its position as a monopolist to force the OEMs to enter into agreements that the OEMs did not want to enter.
Likewise, there is no evidence that the LTAs represented unfavorable arrangements for the OEMs such that the OEMs only agreed to enter the contracts out of fear of losing Eaton as a supplier.
After studying the majority's treatment of the LTAs I am left with the impression
Tellingly, the evidence also shows that the OEMs used those arrangements to their advantage. An illuminating example of this market reality is found in a letter an International representative wrote to ZFM in June 2002, in which the representative recounted the HD truck market's dramatic slump and stated to ZFM that:
J.A. at 4596 (letter from Paul D. Barkus, International, to Robert S. Harrison, ZFM (June 18, 2002)). In fact, the record shows that six months prior to this correspondence, International had attempted to use its relationship with Eaton as leverage to gain further cost reductions from ZFM. See id. at 3727 (electronic mail from Paul D. Barkus, International, to Galynn Skelnik, International (Jan. 11, 2002)) ("I got a phone message from [ZFM] ... stating that after much internal discussion they have decided not to offer any transmission reductions even though their list prices could be increased.... Our strategy was to give Meritor the impression that our Partnership with Eaton provided us with HD reductions that would increase Meritor's list price if they didn't offset the widened price gap. That started out as a bluff, but when we look at our option prices between the two supplier[s] there appears to be some cost/price inconsistency."). In sum, because appellees failed to produce evidence to show that the LTAs and their voluntary, above-cost market-share target rebates could have or did foreclose competition in any, much less a substantial, share of the market, notwithstanding the jury's verdict it is obvious that appellees' claims must fail under Tampa Electric.
Before moving on, I think it appropriate to make a final point on the importance of the Tampa Electric standard and to illuminate fully why I depart from the majority's application of that case. As I already have noted, exclusive-dealing contracts are not per se unlawful and, indeed, may lead to
It is that foreclosure of competition, the elimination of the possibility that the seller's competitors can capture that portion of the market through vigorous competition, with which Section 3 (and Section 1 of the Sherman Act in exclusive-dealing cases) is concerned. See Tampa Elec. Co., 365 U.S. at 328, 81 S.Ct. at 629 (emphasis added) (observing that "the ultimate question" is "whether the contract forecloses competition in a substantial share of the line of commerce involved"). The Tampa Electric market-foreclosure analysis thus assumes that a circumstance existed which appellees seek and fail to prove existed here: that there was an exclusive-dealing arrangement between a market seller and purchaser.
Now consider the case at hand. The parties do not dispute that the LTAs did not require the OEMs to purchase anything, much less 100% of their needs, from Eaton and appellees do not contend that Eaton's prices were below cost. Accordingly, appellees remained free at all times to compete for the OEMs' (and the truck purchasers') business. Appellees, if they were equally efficient competitors, were at liberty to offer lower prices, better products, more logistical and technical support, or any other myriad considerations to make their products more attractive to the OEMs, and the OEMs and the truck purchasers were at all times free to accept appellees' products and services. Accordingly, the LTAs did not foreclose competition in any portion of the market. This basic point — that the LTAs were not in fact exclusive-dealing arrangements that foreclosed competition in any portion of the market — explains appellees' failure to identify before us any credible, precise percentage of market foreclosure. Appellees' failure to meet their burden under Tampa Electric to prove any quantitative degree of market foreclosure should spell the end of their Section 3 and Section 1 claims.
Although I believe that appellees' failure in this regard renders unnecessary discussion of the qualitative analysis under Tampa Electric, I note briefly that contrary to the majority's discussion, the qualitative inquiry elucidates further why the LTAs did not violate Section 3. Contrary to the majority's statement that the long duration of the contracts added to their alleged anticompetitiveness, the duration of the LTAs is of little to no significance because
Moreover, a claim of lack of ease of terminability is likewise a non-starter given the LTAs were terminable at will; the agreements simply would have lost their force once the OEMs decided to seek Eaton's competitors' products and forego the market-share rebate.
Additionally, "[t]he existence of legitimate business justifications for the contracts also supports the legality of the ... contracts." Barr Labs., 978 F.2d at 111. In this regard, evidence that the defendant's actions were motivated by an ordinary business motive is significant. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 608, 105 S.Ct. 2847, 2860, 86 L.Ed.2d 467 (1985) (noting that "[p]erhaps most significant ... is the evidence related to [defendant] itself, for [defendant] did not persuade the jury that its conduct was justified by any normal business purpose"). Eaton contends that the LTAs were designed to meet the OEMs' demands to lower prices by consolidating their component part suppliers and that the OEMs entered the contracts because they afforded the best possible prices. As I noted above, the record supports this assertion as representatives from each of the OEMs testified that the OEMs entered into the LTAs because those agreements were financially attractive, and ZFM itself noted in 2001 that the OEMs sought a single-source supplier.
In a similar circumstance, we concluded that a defendant drug manufacturer offered valid business justifications to defeat its competitor's Section 1 and Section 3
Undoubtedly, Eaton was motivated to tender the LTAs because of its desire to increase sales of its product. Although such a motivation could not excuse otherwise anticompetitive conduct, the desire to sell more product is an ordinary business purpose, and the antitrust laws do not prohibit such motivation. As the Supreme Court stated in Cargill, "competition for increased market share  is not activity forbidden by the antitrust laws. It is simply... vigorous competition." 479 U.S. at 116, 107 S.Ct. at 492 (emphasis added); see also Concord Boat, 207 F.3d at 1062 (noting that defendant's proffered reason that it was "trying to sell its product" through market-share discounts constituted valid, pro-competitive business justification for program); Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 524 (5th Cir. 1999) (observing that defendant's explanation that "it was trying to sell its product" was valid business justification).
Tampa Electric makes clear that "it is the preservation of competition which is at stake" under Section 3. 365 U.S. at 328, 81 S.Ct. at 628 (emphasis added and internal quotations marks and citation omitted). Here, appellees remained free at all times to compete for the OEMs' business and directly for customers' business and yet the majority permits a jury to condemn the LTAs. I cannot join in that conclusion. Appellees failed to supply an evidentiary basis to establish that the LTAs had the probable effect of foreclosing competition in a substantial share of the market and thus they failed to produce evidence that could demonstrate that Eaton violated Section 3 of the Clayton Act. Because Section 3 of the Clayton Act sweeps more broadly than Section 1 of the Sherman Act, appellees likewise failed to show that Eaton violated Section 1.
C. Sherman Act Section 2 Claim
Appellees presented the same evidence and same de facto exclusive dealing theory on which they based their Section 2 claim as they did to support their Clayton Act Section 3 and Sherman Act Section 1 claims. In light of my lengthy analysis of appellees' other claims, I will abbreviate my discussion of their Section 2 claim.
Section 2 targets defendants who "monopolize or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the
A monopolist willfully acquires or maintains monopoly power in contravention of Section 2 if it "attempt[s] to exclude rivals on some basis other than efficiency." Aspen Skiing Co., 472 U.S. at 605, 105 S.Ct. at 2859. "Anticompetitive conduct may take a variety of forms, but it is generally defined as conduct to obtain or maintain monopoly power as a result of competition on some basis other than the merits." Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 308 (3d Cir.2007) (citation omitted). "[E]xclusive dealing arrangements can be an improper means of maintaining a monopoly." Dentsply, 399 F.3d at 187 (citing Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698; LePage's, 324 F.3d at 157).
The District Court denied Eaton's motion seeking a judgment as a matter of law on appellees' Section 2 claim as it concluded that "[t]he jury found that [Eaton] had willfully acquired or maintained its monopoly power through LTAs that amounted to de facto exclusive dealing contracts having the power to foreclose competition from the marketplace." ZF Meritor, 769 F.Supp.2d at 697 (emphasis added). In this regard, the Court concluded that "`neither proof of exertion of the power to exclude nor proof of actual exclusion of existing or potential competitors is essential to sustain a charge of monopolization under the Sherman Act.'" Id. (quoting LePage's, 324 F.3d at 148).
The District Court's finding on this point reflected its misunderstanding of the requirements of Section 2. As we recently stated in Dentsply:
399 F.3d at 187 (citing LePage's, 324 F.3d at 162) (emphasis added) (citations omitted); see also Broadcom, 501 F.3d at 308 ("[T]he acquisition or possession of monopoly power must be accompanied by some anticompetitive conduct on the part of the possessor.") (citing Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407, 124 S.Ct. 872, 878-79, 157 L.Ed.2d 823 (2004)).
Indeed, in Dentsply we made clear that a plaintiff's demonstration that the defendant merely possessed the power to exclude is not a sufficient basis on which to build a claim that the defendant is culpable under Section 2; a plaintiff must show that the defendant used its power to foreclose competition. See 399 F.3d at 191 ("Having demonstrated that Dentsply possessed market power, the Government must also establish the second element of a Section 2 claim, that the power was used `to foreclose competition.'") (quoting United States v.
540 U.S. at 407, 124 S.Ct. at 879 (emphasis in original).
"Conduct that merely harms competitors... while not harming the competitive process itself, is not anticompetitive." Broadcom, 501 F.3d at 308; see also Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458, 113 S.Ct. 884, 892, 122 L.Ed.2d 247 (1993) (The Sherman Act "directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself."). To determine whether a practice is anticompetitive in violation of Section 2, we consider "whether the challenged practices bar a substantial number of rivals or severely restrict the market's ambit." Dentsply, 399 F.3d at 191 (citations omitted). Thus, the standard for ascertaining whether certain conduct is anticompetitive under Section 2 is quite similar to the market-foreclosure analysis under Section 3 of the Clayton Act. "Conduct that impairs the opportunities of rivals and either does not further competition on the merits or does so in an unnecessarily restrictive way may be deemed anticompetitive." W. Penn Allegheny Health Sys., 627 F.3d at 108 (internal quotation marks and citation omitted).
Accordingly, for largely the same reasons that appellees' Section 3 and Section 1 claims fail, so, too, does their Section 2 claim. Because the LTAs did not obligate the OEMs to purchase anything from Eaton and did not condition the rebates on Eaton having a 100% market share and because its prices were at all times above-cost, the LTAs allowed any equally efficient competitor, including appellees, if they were equally efficient competitors, to compete. Thus, the LTAs did not bar Eaton's competitors from the market nor did the LTAs impair their opportunities to compete with Eaton for the business the LTAs covered. Cf. NicSand, Inc. v. 3M Co., 507 F.3d 442, 452 (6th Cir.2007) (en banc) (plaintiff failed to demonstrate antitrust injury under Sherman Act Section 2 because defendant's rebates and up-front payments to retailers pursuant to exclusive dealing contract were above-cost).
In this regard, the LTAs stand in stark contrast to the contracts at issue in Dentsply, a case on which appellees and the majority rely heavily. In Dentsply we considered whether Dentsply, a monopolist in the field of the production of artificial teeth, violated Section 2 of the Sherman Act through a provision called "Dealer Criterion 6" in its contracts with dealers, who, in turn, sold the products to dental laboratories. See 399 F.3d at 184-85. The provision, which Dentsply "imposed ... on its dealers" prohibited the dealers from adding non-Dentsply tooth lines to their product offering. See id. Dealers who carried competing lines prior to the implementation of Dealer Criterion 6 were permitted to continue carrying non-Dentsply products, but Dentsply enforced Dealer Criterion 6 against all other dealers. See id.
We concluded that Dealer Criterion 6 violated Section 2 because "[b]y ensuring
Unlike Dealer Criterion 6, the LTAs did not impose an "all-or-nothing" choice on the OEMs because they did not prohibit the OEMs from purchasing or from offering to its HD truck purchasers non-Eaton transmissions. Accordingly, the LTAs did not suppress sales of appellees' products because the OEMs were able to and, in fact, did heed truck purchasers' requests for ZFM's products. Critically, at all times, truck purchasers retained the freedom to make the ultimate decision with respect to the transmissions they would select. Thus, the situation here differs from that in Dentsply because the LTAs did not have the effect of making Eaton the only choice for truck purchasers nor did it impair the purchasers' choice in the marketplace. See J.A. at 1530 (deposition testimony of Paul D. Barkus, International) (indicating that International's LTA included a clause explicitly stating that International was not precluded from dealing in Eaton's competitors' products because International "would never jeopardize a condition of sale based on a customer specifying a product that [it] would refuse to provide").
Adding to the specter of restricted customer choice, the majority states that the OEMs worked with Eaton to force feed Eaton's products to customers and to shift truck fleets from using ZFM transmissions to Eaton transmissions. It appears that there is some evidence in the record for the unsurprising contention that the OEMs sought to meet the market share targets and thus obtain the rebates in part by persuading their customers to select Eaton's products. Indeed, in all walks of life if a salesperson has more to gain by selling a customer product X as opposed to product Y it is to be expected that the salesperson will push the customer to select product X. Ultimately, however, the majority does not and cannot dispute the fact that the HD truck purchasers at all times were free to select any transmission, including ZFM's transmissions, for their truck orders.
Though appellees also assert that the LTA provisions that required the OEMs to list Eaton's products as the preferred and standard option in their data books constituted anticompetitive conduct, those provisions no more support appellees' case than the rebates that the LTAs provided. Appellees claim that the provisions were anticompetitive because they required the OEMs to charge artificially higher prices for ZFM's products than for Eaton's. This is not the case, however, because the terms of the LTAs only required that the OEMs ensure that Eaton was priced as the lowest-cost option, which, with respect to the OEMs, was at all times the case.
As a PACCAR representative explained, a component part manufacturer "is going
Furthermore, the demand had the added consequence of assuring Eaton that it receive the favorable promotion for which it had bargained through its price concessions. If the LTAs did not include requirements regarding data book placement, an OEM would have been able to purchase Eaton's transmissions at a low cost while listing Eaton's products at a higher cost to the truck purchasers than ZFM's products in its data book, thereby reaping a greater profit on Eaton's transmissions. It was entirely reasonable for Eaton to avoid this scenario by insisting that the OEMs' data books reflect that Eaton's transmissions were the lowest-cost, highest-value product.
As the majority notes, it is unclear from the record whether the OEMs arrived at the preferential price by lowering the price of the preferred option or by raising the price of the non-preferred options until the preferred component part was the lowest-cost option. The LTAs simply required that the OEMs list Eaton as the preferred option but they did not require that the OEMs take either path in doing so, and thus it appears that the OEMs had the discretion to decide in which way they would make Eaton the preferred option. Of course, from the OEMs' perspective, keeping the price of Eaton's products stable and raising the price of Eaton's competitors' products was the more financially attractive option than keeping the prices of Eaton's competitors' products stable and dropping the price of Eaton's products and, as the majority points out it appears there is some evidence in the record that the OEMs took the first path.
Nevertheless, to the extent that the OEMs in some instances may have decided
While Meritor's prior LTA and ZFM's own attempts to achieve exclusive data book positioning do not, in themselves, defeat appellees' claim that those tactics are anticompetitive, their actions are of some significance. Cf. Race Tires, 614 F.3d at 82 (noting fact that plaintiff created and championed racing sanctioning bodies' rule that required the use of a single brand of tire during races and later alleged such rule violated the antitrust law); NicSand, 507 F.3d at 454 (plaintiff's prior use of exclusive-dealing contract undermined its attack on defendant's use of such arrangements). At a minimum, ZFM's conduct belies its contention that the LTAs were far afield from the normal practice of the HD truck transmission market.
In our consideration of this case we should remember that "[a]ntitrust analysis must always be attuned to the particular structure and circumstances of the industry at issue." Trinko, 540 U.S. at 411, 124 S.Ct. at 881. Practices from industry to industry do not come on a one-size-fits-all basis. Here, it appears that bargaining between the OEMs and their suppliers regarding data book positioning is quite typical of the marketplace with which we are dealing. See Race Tires, 614 F.3d at 79 (noting as relevant that it was "a common and generally accepted practice for a supplier to provide a sports sanctioning body ... financial support in exchange for a supply contract"); Concord Boat, 207 F.3d at 1062 (observing that "Brunswick's competitors also cut prices in order to attract additional business, confirming that such a practice was a normal competitive tool within the ... industry"); see also Trace X Chem., Inc. v. Canadian Indus., Ltd., 738 F.2d 261, 266 (8th Cir.1984) ("Acts which are ordinary business practices typical of those used in a competitive market do not constitute conduct violative of Section 2.").
But appellees' case fails for one more reason than its failure to show that Eaton engaged in anticompetitive conduct, in that their case also did not include evidence that the LTAs harmed competition. See Dentsply, 399 F.3d at 187 ("There must be proof that competition, not merely competitors, has been harmed."). Appellees contend that the LTAs harmed competition by depriving truck buyers of access to the FreedomLine, which appellees believe was a technologically innovative product, and by causing truck buyers to pay higher prices.
Appellees do not point to any evidence in support of their contention that truck purchasers paid higher prices as a result of the LTAs. The only evidence that I can find in the record relevant to appellees' allegation in this regard is Dr. DeRamus' statement in his expert report offered by appellees that after the LTAs went into effect Eaton reduced its "competitive equalization" or incentive payments that historically it had paid to truck buyers as an incentive to them to select Eaton's transmissions. See J.A. at 4830. While Dr. DeRamus put forth data demonstrating that Eaton decreased its competitive equalization payments on average by about $100 (dropping from roughly $500 on average to just below $400 on average) from 1999 to 2007, see id. at 4831, he did not present a scintilla of evidence that truck purchasers ultimately paid a higher price for Eaton's transmissions during the existence of the LTAs or following their expiration. Overall, it is clear that his testimony in this regard as an inadequate basis on which to predicate an antitrust case. In sum, appellees failed to put forth any — much less sufficient — evidence that Eaton engaged in anticompetitive conduct or that Eaton's conduct actually harmed competition, both of which are required elements of a claim under Section 2.
I offer a few final thoughts on this important case, which, though seemingly
But the basic facts are clear. Appellees do not bring a predatory pricing claim because they cannot do so as Eaton's prices were above cost. Instead, they seek refuge in the law of exclusive dealing to challenge the LTAs, which based on the record could not be found to be either facially or de facto exclusive or mandatory. After stripping this case of appellees' baseless insinuations that Eaton engaged in coercive or threatening conduct in regards to the LTAs, it becomes apparent that the core of appellees' claim really is their belief they had a superior product in the FreedomLine and the disappointing sales of that product relative to their expectations must have been attributable to Eaton's anticompetitive conduct. See appellees' br. at 32 ("Eaton's conduct harmed competition and ZFM. For the first time in this market, a better product, even combined with offers of discounts, could not elicit additional sales because Eaton's LTAs and other conduct had broken the competitive mechanism."). Appellees thus "appear to be assuming that if [Eaton's] product was not objectively superior, then its victories were not on the merits." Stearns Airport Equip., 170 F.3d at 527.
As the Court of Appeals for the Fifth Circuit stated in Stearns Airport Equipment in confronting a similar type of claim, courts are "ill-suited ... to judge the relative merits of" the parties' respective products. Id. "That decision is left in the hands of the consumer, not the courts, and to the extent this judgment is `objectively' wrong, the inference is not that there has been a[n] [antitrust] violation..., but rather that the winning party displayed superior business acumen in selling its product." Id. The truth is that neither judges nor juries have expertise in determining the best transmission to buy. Certainly, the purchasers of trucks and transmissions should make transmission decisions for themselves and so long as appellees manufactured their transmissions they had a chance to be their supplier.
I recognize that the record could support a finding that the FreedomLine was a technological innovation for which Eaton did not offer a technically comparable product, and I further recognize that Eaton engaged in vigorous competition through aggressive but above-cost methods
I note finally that courts' erroneous judgments in cases such as this one do not come without a cost to the economy as a whole. Discounts of all varieties, whether tied to the purchase of multiple products, exclusivity, volume, or market-share, are ubiquitous in our society. "Discounts are the age-old way that merchants induce customers to purchase from them and not from someone else or to purchase more than they otherwise would." Hovenkamp, Discounts and Exclusion, 2006 Utah L.Rev. at 843. Indeed, market-share discounts can be particularly pro-competitive because they can result in lower prices for a broader range of customers as they extend to smaller purchasers discounts typically reserved for the largest of purchasers under more common volume-discount programs. See IIIA Areeda & Hovenkamp, Antitrust Law ¶ 786b2, at 148. "[L]ower prices help consumers. The competitive marketplace that the antitrust laws encourage and protect is characterized by firms willing and able to cut prices in order to take customers from their rivals." Barry Wright Corp., 724 F.2d at 231. Accordingly, "mistaken inferences in cases such as this one are especially costly, because they chill the very conduct the antitrust laws are designed to protect." Matsushita Elec. Indus. Co., 475 U.S. at 594, 106 S.Ct. at 1360.
If Eaton's above-cost market-share rebate program memorialized in the LTAs, which were neither explicitly nor de facto exclusive or mandatory, can be condemned as unlawful de facto partial exclusive dealing on the basis of literally a handful of disjointed statements that amount at most to unsupported speculation as to the possibility that Eaton may have stopped supplying its transmissions if the OEMs did not meet the targets, firms face a difficult task indeed in structuring lawful discount programs. "Perhaps most troubling, firms that seek to avoid ... liability [for market-share rebate programs] will have no safe harbor for their pricing practices." Linkline, 555 U.S. at 452, 129 S.Ct. at 1121 (citing Town of Concord, 915 F.2d at 22) (Antitrust rules "must be clear enough for lawyers to explain them to clients."). What I find most troubling is that firms will play it safe by not formulating discount programs and that the result of this case will be an increase of prices to purchasers and the stifling of competition, surely a perverse outcome. It is ironical that the very circumstance that the majority's opinion is so thoughtful and well crafted that the risk that it poses is so great. On the other hand, the approach I believe the Supreme Court's precedent compels — applying and giving persuasive effect to the Brooke Group price-cost test and granting a presumption of lawfulness to pricing practices that result in above-cost prices — provides clear direction to firms engaging in price competition but still allows for an antitrust plaintiff to allege that a defendant has engaged in attendant anticompetitive conduct that renders its practices unlawful.
In sum, I conclude that Eaton was entitled to judgment as a matter of law on liability in all respects. Accordingly, I would reverse the judgment of the District Court and remand this case for entry of a judgment in favor of Eaton. My view of this facet of the case renders it unnecessary for me to consider the numerous other issues raised on this appeal, including the District Court's decision that appellees
Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act each include an anticompetitive conduct element, although each statute articulates that element in a slightly different way. Under Section 1 of the Sherman Act, a plaintiff must establish that the defendant was a party to a contract, combination or conspiracy that "imposed an unreasonable restraint on trade." 15 U.S.C. § 1; In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314-15 (3d Cir.2010). Under Section 2, a plaintiff must demonstrate that the defendant willfully acquired or maintained its monopoly power in the relevant market. 15 U.S.C. § 2; United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). "A monopolist willfully acquires or maintains monopoly power when it competes on some basis other than the merits." LePage's Inc. v. 3M, 324 F.3d 141, 147 (3d Cir.2003) (en banc) (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n. 32, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985)). Finally, Section 3 of the Clayton Act makes it unlawful for a person to enter into an exclusive dealing contract where the effect of such an agreement is to substantially lessen competition or create a monopoly. 15 U.S.C. § 14.
Exclusive dealing claims may be brought under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. LePage's, 324 F.3d at 157. Additionally, the Supreme Court has held that the price-cost test is not confined to any one antitrust statute, and applies to pricing practices claims under the Sherman Act, the Clayton Act, and the Robinson-Patman Act. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-23, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993); Atl. Richfield, 495 U.S. at 339-40, 110 S.Ct. 1884. Thus, regardless of which test applies, that test is applicable to each of Plaintiffs' claims.
Relying on Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993), 3M argued that its bundled rebate program was lawful because the rebates never resulted in below-cost pricing. We disagreed, reasoning that the principal anticompetitive effect of 3M's bundled rebates was analogous to an unlawful tying arrangement: when offered by a monopolist, the rebates "may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products and who therefore cannot make a comparable offer." LePage's, 324 F.3d at 155.
For several reasons, we interpret LePage's narrowly. Most important, in light of the analogy drawn in LePage's between bundled rebates and unlawful tying, which "cannot exist unless two separate product markets have been linked," Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 21, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006), LePage's is inapplicable where, as here, only one product is at issue and the plaintiffs have not made any allegations of bundling or tying. The reasoning of LePage's is limited to cases in which a single-product producer is excluded through a bundled rebate program offered by a producer of multiple products, which conditions the rebates on purchases across multiple different product lines. Accordingly, we join our sister circuits in holding that the price-cost test applies to market-share or volume rebates offered by suppliers within a single-product market. See NicSand, Inc. v. 3M Co., 507 F.3d 442, 452 (6th Cir.2007); Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1061 (8th Cir. 2000); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236 (1st Cir.1983).
Additionally, several of the bases on which we distinguished Brooke Group have been undermined by intervening Supreme Court precedent, which counsels caution in extending LePage's. For example, we indicated in LePage's, 324 F.3d at 151, that Brooke Group might be confined to the Robinson-Patman Act, but the Supreme Court has made clear that the standard adopted in Brooke Group also applies to predatory pricing claims under the Sherman Act. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318 n. 1, 127 S.Ct. 1069, 166 L.Ed.2d 911 (2007). Additionally, LePage's, 324 F.3d at 151-52, suggested that Brooke Group is not applicable in cases involving monopolists, but the Supreme Court has since applied Brooke Group's price-cost test to claims against a monopolist, Pac. Bell Tel. Co. v. Linkline Commc'ns, Inc., 555 U.S. 438, 447-48, 129 S.Ct. 1109, 172 L.Ed.2d 836 (2009), and a monopsonist, Weyerhaeuser, 549 U.S. at 320-25, 127 S.Ct. 1069. Finally, we observed in LePage's that, in the years following Brooke Group, the Supreme Court had only cited the case four times (and for unrelated propositions), but since LePage's, the Court has reaffirmed and extended Brooke Group. See Linkline, 555 U.S. at 447-48, 129 S.Ct. 1109; Weyerhaeuser, 549 U.S. at 325, 127 S.Ct. 1069. In doing so, the Court emphasized the importance of Brooke Group in light of "developments in economic theory and antitrust jurisprudence," and downplayed the significance of seemingly inconsistent circuit court antitrust precedent from the 1950s and 1960s, some of which we referenced in LePage's. See Linkline, 555 U.S. at 452 n. 3, 129 S.Ct. 1109.
In Atlantic Richfield, the plaintiffs argued that no showing of below-cost pricing was required to establish antitrust injury for a claim of illegal price-fixing under Section 1 of the Sherman Act because the price agreement itself was illegal, and any losses that stem from such an agreement, by definition, flow from that which makes the defendant's conduct unlawful. Id. at 338, 110 S.Ct. 1884. The Supreme Court rejected that argument, reasoning that although price-fixing is unlawful under Section 1, a plaintiff does not suffer antitrust injury unless it is adversely affected by an anticompetitive aspect of the defendant's conduct, and "in the context of pricing practices, only predatory pricing has the requisite anticompetitive effect." Id. at 339, 110 S.Ct. 1884 (citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977)) (additional citations omitted). It was in this in context, in rejecting an argument that Section 1 was somehow exempt from the price-cost test, that the Supreme Court made the broad statement that it has "adhered to ... [price-cost] principle[s] regardless of the type of antitrust claim involved." See id. at 340, 110 S.Ct. 1884.
The Court's discussion following this statement supports our interpretation. The Court went on to explain that, for purposes of determining whether a plaintiff has suffered antitrust injury in a pricing practices case, Section 1 is no different than, for example, the plaintiff's allegation in Cargill, Inc. v. Monfort of Colorado, Inc. that the defendants' unlawful merger under Section 7 of the Clayton Act caused antitrust injury. Id. at 340, 110 S.Ct. 1884 (citing Cargill, 479 U.S. at 116, 107 S.Ct. 484) ("To be sure, the source of the price competition in the instant case was an agreement allegedly unlawful under § 1 of the Sherman Act rather than a merger in violation of § 7 of the Clayton Act. But that difference is not salient."). Moreover, Atlantic Richfield was decided before LePage's and we did not interpret the "regardless of the type of antitrust claim involved" language as mandating the application of the price-cost test to 3M's bundled rebates.
The majority concedes that "partial exclusive dealing is rarely a valid antitrust theory." Op. at 283 (internal quotation marks omitted). Indeed, the only thing rarer may be what appellees actually allege here: "de facto partial exclusive dealing." I am not aware of any Supreme Court or court of appeals precedent recognizing such a claim, and a Westlaw search of the phrase reveals only one other case recognizing the concept as a viable antitrust claim. In a sign that we truly have come full circle, that case is a class action pending in the United States District Court for the District of Delaware brought by truck purchasers against Eaton, the four OEMs, and a handful of other entities, alleging that the same LTAs at issue here violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. See Wallach v. Eaton Corp., 814 F.Supp.2d 428, 442-43 (D.Del.2011).
The majority interprets the Supreme Court's statement it had adhered to the principle that "in the context of pricing practices only predatory pricing has the requisite anticompetitive effect" "regardless of the type of antitrust claim involved" to mean "that the price-cost test applies regardless of the statute under which a pricing practice claim is brought, not that the price-cost [test] applies regardless of the type of anticompetitive conduct." Op. at 280 n. 13. While the Supreme Court's statement undoubtedly makes clear that the principle that above-cost pricing is not anticompetitive applies regardless of which provision of the antitrust laws is at issue, I believe that the Court's rather clear statement that it had adhered to this principle "regardless of the type of antitrust claim involved" means exactly what it says — that whether the plaintiff challenges a defendant's pricing practices in the context of a challenge to an allegedly unlawful merger or whether it does so in the context of a claim that a defendant has entered a price-fixing agreement a plaintiff cannot contend that the prices resulting from those arrangements are anticompetitive unless they are below cost. While I do not believe that the Court's statement in this regard requires that the price-cost test apply with dispositive force in every challenge to a defendant's pricing practices because there may be other elements of a defendant's conduct that are anticompetitive notwithstanding its above-cost prices, the Court's reasoning undoubtedly lends support to my conclusion that the price-cost test must factor into a court's decision when it is asked to judge the lawfulness of such a defendant's rebate program.
LePage's dealt with bundled rebates, a practice which we analogized to tying arrangements in its exclusive potential and which we concluded may exclude an equally efficient but less diversified rival even if the bundled rebates resulted in above-cost prices. See 324 F.3d at 155 ("The principal anticompetitive effect of bundled rebates as offered by 3M is that when offered by a monopolist they may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products and who therefore cannot make a comparable offer."). Above-cost single-product market-share discounts, however, do not present the same putative danger of excluding an equally efficient but less diversified rival by virtue of that rival's limited production alone. For this exact reason, as I explain in further detail below, the same leading antitrust treatise upon which LePage's relied to analogize bundled rebates to tying concludes that single-product market-share discounts are more appropriately likened to straightforward price cuts and the Brooke Group rice-cost test should control challenges to such programs. Thus, I concur with the majority that our reasoning in that case necessarily is limited to a single-product producer's claim that it has been excluded through a more-diversified competitor's bundled rebate program that conditioned discounts on the purchase of products that the single-product producer did not offer.
Additionally, while I believe that LePage's' bases for distinguishing Brooke Group stood on questionable grounds when we set them forth nine years ago, as the majority notes the Supreme Court's subsequent decisions have eviscerated those bases and counsel that we do not extend LePage's beyond its original parameters. Furthermore, in concluding that LePage's must be confined to its facts, I think it appropriate to point out that there has been considerable academic criticism of our opinion in that case. See, e.g., J. Shahar Billbary, Predatory Bundling and the Exclusionary Standard, 67 Wash. & Lee L.Rev. 1231, 1246 (Fall 2010) ("[T]he main problem with the LePage's test is that it does not investigate whether a bundled discount is pro-competitive.... [It] may in fact protect a less efficient competitor (as LePage's admitted to be.")); Richard A. Epstein, Monopoly Dominance or Level Playing Field? The New Antitrust Paradox, 72 U. Chi. L.Rev. 49, 49, 61-72 (Winter 2005) (criticizing LePage's' reasoning and noting that the case "shows the deleterious consequences that flow from the aggressive condemnation of unilateral practices"). Moreover, another court of appeals specifically has declined to follow LePage's, see Cascade Health Solutions, 515 F.3d at 903. But perhaps most significantly, the Antitrust Modernization Commission, a statutorily-created bipartisan group tasked with evaluating the state of antitrust law and setting forth recommendations to Congress and the President for its modernization, criticized LePage's as potentially "harm[ing] consumer welfare," and proposed instead that courts adopt a three-part test modeled after Brooke Group's below-cost pricing test to evaluate the lawfulness of bundled discounts. See Antitrust Modernization Comm'n, Report and Recommendations 94-99 (2007) available at http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf
In this case, I make many more citations to the record than judges of this Court ordinarily would make in an opinion. I do so because while deference to the jury's verdict requires that we not reweigh the evidence and that we view the evidence in the light most favorable to appellees, where, as here, the evidence supporting that verdict falls so short of the standard required to sustain that verdict I believe it appropriate to point not only to the absence of evidence supporting the jury verdict but also to the considerable undisputed evidence contradicting that verdict.
In business as in life we rarely are presented with a perfect option. The fact that long-term supply agreements with ZFM and Eaton each had their respective advantages and disadvantages is hardly surprising and that Eaton would not have granted an OEM the generous discounts its LTA provided if it selected ZFM as its primary supplier is likewise not exactly an astonishing revelation. That the OEMs had to weigh these factors in deciding whether to enter into an LTA with Eaton hardly amounts to coercion.