Opinion ID: 1974516
Heading Depth: 1
Heading Rank: 5

Heading: sufficiency of conley's evidence

Text: [10] ¶ 36. Even though the Brooke Group standard is being adopted as Wisconsin law for predatory pricing claims, Conley maintains its challenge to the circuit court's grant of summary judgment. ¶ 37. In response to the Journal's motion for summary judgment, Conley retained an expert, Dr. Frank Gollop, to present evidence of predatory pricing. Gollop provided an 11-page report stating, among other things, that both requirements of a predatory pricing scheme are present in the Journal's Sunday-daily conversion program. Specifically, he concluded that the Journal was supplying daily newspapers to Waukesha County subscribers for less than the relevant measure of cost, which he considered to be the incremental, or marginal, cost of producing and distributing an extra newspaper. [22] As to recoupment, Gollop stated that once the Journal drives the Freeman out of business it will have a monopoly in Waukesha County and, therefore, will recoup losses incurred during the time it sold newspapers at below cost. Gollop was the only expert who testified on Conley's behalf regarding the alleged predatory nature of the Journal's program. Meanwhile, the Journal offered expert testimony to disprove that any predatory pricing occurred under the program. ¶ 38. The circuit court ruled that Dr. Gollop failed to provide sufficient evidence as to the material issue of whether or not the total advertising revenue . . . [a]s folded into the price of the paper is below the cost to the Journal. In other words, the court concluded that Conley had presented incomplete evidence as to whether the Journal was providing its newspapers at unprofitable levels. Regarding the recoupment element, the court determined that Conley had failed to make any showing that the Journal would eventually be charging supracompetitive prices for its paper, what probable amount the Journal would need to recoup for its losses, or even that the Journal had suffered or will suffer a loss as a result of the Sunday-daily conversion program. ¶ 39. Conley contends that the circuit court, in reaching these conclusions, usurped the function of the jury by weighing conflicting expert testimony regarding the existence of predatory pricing. Conley argues that the proffered expert testimony was sufficient to raise a genuine issue of material fact as to whether the Journal's Sunday-daily conversion program constituted predatory pricing and, thus, is an unlawful, anticompetitive practice. According to Conley, summary judgment is never appropriate when qualified experts differ. ¶ 40. We disagree with Conley and conclude that it failed to offer sufficient expert testimony, or other prima facie evidence, to support its antitrust claim of predatory pricing. ¶ 41. As to the issue of below-cost pricing, we look to the specific conduct that is questioned. The Sunday conversion plan amounted, in effect, to a temporary, net discount of no more than 50% off the newspaper's published rates for certain subscribersnamely, those previously receiving Sunday service and who, after conversion, also receive daily service. The 50% discount benchmark was followed by the Journal because industry standards require that subscribers be charged at or above this rate if each subscription is to be included in the newspaper's audited circulation figures. It is undisputed in the record that the Journal has offered this Sunday-daily conversion at different times throughout the Milwaukee metropolitan area, not just in Waukesha County. In many locations where the discount was offered, the Journal already monopolized both the daily and Sunday newspaper market, obviating any issue of anticompetitive conduct in those regions. ¶ 42. The Journal does not argue that, if circulation costs and subscription revenue were the only appropriate measures of cost and revenue, there would be no evidentiary basis for a finding of below-cost pricing. The record demonstrates, based on circulation accounting alone, that the marginal costs of producing and distributing numerous weeks of the daily newspaper to these conversion subscribers would exceed the nominal subscription revenue the Journal received by slightly decreasing the length of its Sunday newspaper obligations. Although the Journal argues that increased subscribership after the promotional period ends may, in the long term, overcome this loss, this speculative result is too tenuous a basis for determining the Journal's actual net revenue from engaging in the program. ¶ 43. However, the Journal does contend that subscription revenue is an incomplete measure of the revenue that is directly derived from its Sunday-daily conversion program. In the newspaper industry, subscription rates represent a minority fraction of the revenue that a newspaper publisher garners from circulating each newspaper. According to an expert for the Journal, advertising revenue generally comprises 75% to 80% of total newspaper revenue. These figures are not controverted by Conley. We are mindful that many newspapers are distributed free. Although this observation has limited effect on our legal analysis, [23] it underscores the fact that advertising revenue may be virtually the exclusive source of revenue for some newspapers. [11] ¶ 44. The question, then, is whether advertising revenue directly derived from increased circulation, even when the circulation is generated by substantial discounts that impose no additional costs to subscribers, must be considered when determining whether below-cost pricing occurred. We conclude that these revenues must be included, as a matter of law, when making this determination in a market analysis for daily paid newspapers. [24] If specific conduct is alleged to be predatory, then all revenue directly flowing from that challenged conduct must be offset against the costs of that enterprise. ¶ 45. The evidence presented by Dr. Gollop when he assessed whether the conversion program had net losses simply ignored this necessary measure of revenue attributable to increased circulation. Therefore, Gollop failed to adequately consider whether increased circulation, and its resultant increase in advertising revenue, could exceed the costs of the Sunday-daily conversion program. Because of this omission we must assume, on the basis of the summary judgment record, that each additional daily Journal Sentinel subscription generates approximately $200 in additional annual advertising revenue. The Journal offered these figures into evidence and Conley did not offer any competing estimates. Meanwhile, the only cost figures Gollop presented were losses of $66 for each subscriber who converted from a 26-week Sunday subscription to a 22-week Sunday and daily subscription. Extrapolating from this figure, the Journal's costs for converting a 52-week Sunday subscription would be proportionally larger than $66, but they would not be greater than $200. ¶ 46. Conley's only response to its failure to address the incremental advertising revenue earned by increased circulation is to assert that a disagreement exists between the experts as to whether this factor should be included in the calculus. [25] We have already explained why figures addressing these revenues must be included to satisfy a showing of predatory losses. In any event, Dr. Gollop never contended that advertising revenue should be excluded in an analysis of predatory pricing in the context of the newspaper conversion program. At his deposition, Gollop only stated that he did not believe that advertising revenue would overcome any losses incurred from subtracting incremental circulation costs from incremental circulation revenues, admitting that he did not have any figures concerning this matter: [Question]: Did your analysis take into account any increased advertising revenue associated with maintaining or increasing subscriptions? [Gollop]: It does so only in the following sense. That if each additional conversion program generates a net loss to the Journal of $66, I really didn't think it was necessary to say that one additional subscription would generate $66 in advertising revenue. If you can show that, that would be terrific. I don't have that kind of data, but I just can't believe one subscription generates $66 in added advertising revenue. [Question]: You don't know one way or another? [Gollop]: I don't. Doctor Gollop's conscious disregard of this revenue source cannot insulate Conley from its burden of presenting sufficient prima facie evidence of predatory pricing. ¶ 47. It is apparent that Conley wants the best of both worlds when it comes to the role of advertising revenue in a predatory pricing claim. On the one hand, Conley defends its expert's decision not to include advertising revenue from increased circulation as an appropriate component in a revenue-cost differential. [26] Meanwhile, Conley complains that one of the primary damages it suffers as a result of the Sunday-daily conversion program is the loss of advertising dollars from its decreased circulation. In Conley's own words, In the newspaper business, it is common knowledge that a decline in circulation leads to a decline in advertising revenues and that decline in advertisers leads to further declines in circulation. Conley's acknowledgment in this regard is fatal to its argument. [12] ¶ 48. As to recoupment, Conley fares no better. Assuming arguendo that below-cost sales occurred, to establish the recoupment element of a predatory pricing claim Conley had to present some proof of a dangerous probability that the Journal would recoup the discounted value of its predation losses by charging monopolistic prices after the Freeman was driven from the market. Brooke Group, 509 U.S. at 224. As noted by Judge Hassin, Dr. Gollop failed to present any evidence of how much the Journal would have to increase either its subscription rates or advertising rates, or for how long, in order for the Journal Sentinel to recover any purported losses. [27] Likewise, no evidence was presented regarding how the market would tolerate any price increases above competitive levels. Gollop never even surmised such results. ¶ 49. The Court in Brooke Group clearly stated that [d]etermining whether recoupment of predatory losses is likely requires an estimate of the cost of the alleged predation and a close analysis of both the scheme alleged by the plaintiff and the structure and conditions of the relevant market. Brooke Group, 509 U.S. at 226. Gollop did not perform a close analysis of the scheme alleged or the conditions of the market. Without such evidence, a jury could not reasonably determine whether Conley satisfied the recoupment element of Brooke Group without engaging in sheer speculation. The need for such evidence was made clear by the Court's additional instruction that, If market circumstances or deficiencies in proof would bar a reasonable jury from finding that the scheme alleged would likely result in sustained supracompetitive pricing, the plaintiff's case has failed. Id. While the Court followed this statement by indicating that the realization of a monopoly position is a market circumstance that would facilitate recoupment, it stopped short of adopting Conley's market structure argument. [28] It is this market structure argument, and only this premise, from which Gollop concluded that the Journal could meet the recoupment requirement for a predatory pricing claim. [29] In fact, we imagine that this flaw in Conley's proof is precisely why it advances the argument that this court should reject the bulk of Brooke Group 's recoupment standard. ¶ 50. Overall, we conclude that the circuit court did not usurp the jury's fact-finding role in granting summary judgment in this case. As did the circuit court, we have not assessed the credibility of Dr. Gollop's testimony. Rather, accepting his expert testimony, we conclude that Dr. Gollop's evidence failed to address material elements of Conley's claims. Under any view of the facts, essential elements of Conley's claim cannot be proved on this record and, therefore, summary judgment is appropriate. See Schurmann v. Neau, 2001 WI App 4, ¶ 7, 240 Wis. 2d 719, 624 N.W.2d 157. [13-17] ¶ 51. Once again, we look to Brooke Group for guidance on the role that experts play in summary judgment proceedings in cases alleging predatory pricing. [30] According to the Court: 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. Expert testimony is useful as a guide to interpreting market facts, but it is not a substitute for them. Brooke Group, 509 U.S. at 242 (citation omitted). Expert testimony provides a jury with insight it otherwise lacks due to a layperson's unfamiliarity with complex concepts. See County of Kenosha v. C & S Mgmt., Inc., 223 Wis. 2d 373, 415, 588 N.W.2d 236 (1999). In the domain of predatory pricing claims, cost accounting, the role of various measures of cost, and market phenomena are precisely the sort of complex matters for which experts are needed. However, a jury, which is the ultimate arbiter of the veracity of the facts offered, is not required to complete a complex economic analysis when the non-moving party does not present sufficient facts to establish an essential component of that analysis. In order to defeat a properly supported motion for summary judgment, a party may not rest on conclusory or incomplete expert analysis that lacks a sufficient factual foundation. See Advo Inc. v. Phila. Newspapers, Inc., 51 F.3d 1191, 1198-99 (3d Cir. 1995) (affirming summary judgment dismissing predatory pricing claim because expert affidavit failed to present facts establishing a genuine issue of below-cost pricing). [31] [18] ¶ 52. The evidence proffered by Conley, including its expert testimony on the predatory pricing claim, provides an insufficient basis to proceed to a jury trial. Because a reasonable jury faced with this evidence would have no factual basis for concluding that the Journal's promotional scheme was operating below-cost, there are no genuine issues of material fact. See Baxter v. DNR, 165 Wis. 2d 298, 312, 477 N.W.2d 648 (Ct. App. 1991) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). [O]nce sufficient time for discovery has passed, it is the burden of the party asserting a claim on which it bears the burden of proof at trial `to make a showing sufficient to establish the existence of an element essential to that party's case.' Transp. Ins. Co., Inc. v. Hunzinger Const. Co., 179 Wis. 2d 281, 291-92, 507 N.W.2d 136 (Ct. App. 1993) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). On the basis of the summary judgment record, Conley has failed to meet this requirement. ¶ 53. Finally, we briefly address Conley's argument regarding its evidence of the Journal's alleged predatory intent. Although Conley makes much of the Journal's aggressive efforts to target readership and strengthen its sales position in Waukesha County, this emphasis is not very probative of any specific anticompetitive practice. The population of Waukesha County at the time the contested programs were implemented was expanding and, as noted by Journal personnel, is composed of people the Journal assessed as the most likely to read a daily newspaper. Competition is a very harsh reality in the world of newspapers, and the market forces inherent in the daily newspaper market frequently lead to natural local monopolies. See Reilly v. Hearst Corp., 107 F. Supp. 2d 1192, 1198 (N.D. Cal. 2000). The Journal is permitted to lawfully compete against Conley, even to the extent of trying to have Freeman subscribers switch to becoming Journal Sentinel readers. See Indep. Milk Producers Co-op v. Stoffel, 102 Wis. 2d 1, 10, 298 N.W.2d 102 (Ct. App. 1980) (It is not illegal for a company to try to attract business, especially at the expense of a competitor. Such practices are everyday occurrences in the business world.). It is well understood that activities that have a legitimate business justification are not anticompetitive, even by a monopolist. See Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256, 266 (2d Cir. 2001) (even with monopoly power, a business entity is not guilty of predatory conduct through excluding its competitors from the market when it is simply exploiting competitive advantages legitimately available to it); United States v. AMR Corp., 140 F. Supp. 2d 1141, 1193 (D. Kan. 2001).