Opinion ID: 1974516
Heading Depth: 1
Heading Rank: 3

Heading: predatory pricing law and brooke group

Text: ¶ 15. Conley alleges that the Journal's Sunday-daily conversion program in Waukesha County is an anti-competitive predatory pricing scheme that violates Wis. Stat. § 133.03. This section, which is modeled after 15 U.S.C. § 2 (2000), [6] the federal Sherman Antitrust Act of 1890, provides in subsection 2 that: Every person who monopolizes, or attempts to monopolize, or combines or conspires with any other person or persons to monopolize any part of trade or commerce may be fined not more than $100,000 if a corporation, or, if any other person, may be fined not more than $50,000 or imprisoned for not more than 7 years and 6 months or both. Wis. Stat. § 133.03(2). Although subsection (2) implies government enforcement, Chapter 133 also authorizes private actions for persons injured by violations of its prohibitions. See Wis. Stat. § 133.18. Such private plaintiffs may seek relief that includes treble damages and reasonable attorney fees. Id. ¶ 16. Predatory pricing occurs chiefly in cases in which a single firm, having a dominant share of the relevant market, cuts its prices in order to force competitors out of the market, or perhaps to deter potential entrants from coming in. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 584 n.8 (1986). [7] The practice has been prohibited under antitrust laws for many years. See Phillip Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 697 (1975); see also Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117-18 (1986). While claims premised on this theory have been litigated with some frequency in the federal courts, there is presently no Wisconsin case law governing predatory pricing claims under § 133.03(2). The dearth of state antitrust precedent is not surprising because the scope of Chapter 133 is limited to intrastate transactions. See Reese v. Associated Hosp. Serv., 45 Wis. 2d 526, 532, 173 N.W.2d 661 (1970). ¶ 17. Recognizing the relative infrequency of actions under Chapter 133, Wisconsin courts have followed federal court interpretations of Sections 1 and 2 of the Sherman Act and have construed Wisconsin antitrust statutes in conformity with these federal court interpretations. [8] This is longstanding policy. We have pointedly declared that the construction of sec. 133.01(1) [presently 133.03] is controlled by federal decisions under the Sherman Act. Prentice v. Title Ins. Co. of Minn., 176 Wis. 2d 714, 724, 500 N.W.2d 658 (1993) (quoting State v. Waste Mgmt. of Wis., Inc., 81 Wis. 2d 555, 569 n.12, 261 N.W.2d 147 (1978)); see also Pulp Wood Co. v. Green Bay Paper & Fiber Co., 157 Wis. 604, 625, 147 N.W. 1058 (1914) (citing cases). But see Carlson & Erickson Builders, Inc. v. Lampert Yards, Inc., 190 Wis. 2d 650, 665, 529 N.W.2d 905 (1995) (characterizing federal antitrust decisions as not controlling but merely guiding interpretations of state antitrust statutes). Our tradition of following federal antitrust law is nearly a century old, and Conley has not presented, nor have we located, any Wisconsin appellate decision applying Wisconsin antitrust law that has deviated from following a clear federal standard on similar antitrust matters. [9] ¶ 18. Our adherence to federal antitrust precedent supports important Wisconsin policies. First and foremost, when the Wisconsin legislature enacted the state's mini-Sherman Act, it intended for courts to construe Chapter 133 consistent with the interpretations provided for analogous federal laws. In Grams v. Boss, 97 Wis. 2d 332, 294 N.W.2d 473 (1980), we explained: We have repeatedly stated that sec. 133.01, Stats., [presently 133.03] was intended as a reenactment of the first two sections of the federal Sherman Antitrust Act of 1890, 15 U.S.C. secs. 1 and 2, with application to intrastate as distinguished from interstate transactions and that the question of what acts constitute a combination or conspiracy in restraint of trade is controlled by federal court decisions under the Sherman Act. Id. at 346. In the decades since this approach was adopted, we have relied upon the legislature's power to revise Chapter 133 if Wisconsin court adherence to federal antitrust doctrine is found to be objectionable. [10] ¶ 19. We also conform our antitrust doctrine to the decisions of federal courts because Wisconsin courts have much less experience in antitrust matters than federal courts. This case highlights that rationale. As noted by the court of appeals in its certification, there is no Wisconsin case law on the subject of predatory pricing under Wis. Stat. § 133.03(2). Until now, no Wisconsin case has ever cited the 1993 Brooke Group decision or Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967), the principal primary-line injury case before Brooke Group. Meanwhile, the breadth of federal antitrust precedentparticularly with regard to predatory pricingprovides the guidance of well-developed judicial experience in these matters. Conforming state law doctrine to federal law in this subject area avoids inconsistency and the resultant need for speculation as to the parameters of limited Wisconsin law. [7] ¶ 20. Consistency also achieves uniform treatment between state and federal antitrust laws for Wisconsin businesses and promotes predictability. Both Chapter 133 and federal antitrust law have the same primary goal, which is to promote competition. Compare Carlson, 190 Wis. 2d at 662 (Antitrust laws are intended to prevent restraints on free competition), with Matsushita, 475 U.S. at 594 (competition . . . [is] the very conduct the antitrust laws are designed to protect). Both prohibit the same types of conduct, namely, restraints of trade and monopolizing or attempting to monopolize markets through unfair business practices. Therefore, adherence to federal court precedent minimizes conflict between the enforcement of state and federal antitrust laws and avoids subjecting Wisconsin businesses to divergent regulatory and civil liability for the same conduct. ¶ 21. Conley asks this court to depart from our longstanding practice and to ignore elements of the controlling federal law on predatory pricing. The seminal federal case addressing predatory pricing is the United States Supreme Court decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). According to the United States Supreme Court, to succeed on a claim of predatory pricing a plaintiff must prove, first, that the defendant's prices complained of are below an appropriate measure of its rival's costs, id. at 222, and, second, that the defendant has a dangerous probability of recouping its investment in below-cost prices, id. at 224. [11] ¶ 22. Characterizing the Brooke Group test as overly hostile to antitrust claims, Conley urges this court to modify the Court's standard for establishing predatory pricing. [12] In particular, Conley disputes Brooke Group 's formula for establishing recoupment. Under Brooke Group, to establish the requisite prospect of recoupment under the second prong of a predatory pricing analysis, [t]he plaintiff must demonstrate that there is a likelihood that the predatory scheme alleged would cause a rise in prices above a competitive level that would be sufficient to compensate for the amounts expended on the predation, including the time value of the money invested in it. Id. at 225. ¶ 23. Conley parses the preceding statement into two parts: (1) the likelihood of a rise in the predator's prices above a competitive level; and (2) the price increase would be sufficient to compensate for the losses incurred during the period of below-cost pricing. Conley then offers multiple, interrelated reasons for why this court should refrain from adopting the second half of the Brooke Group recoupment standard. ¶ 24. First, Conley contends that embracing both parts of the recoupment prong is inconsistent with the legislative command in Wis. Stat. § 133.01 that Chapter 133 be interpreted in a manner which gives the most liberal construction to achieve the aim of competition, Carlson, 190 Wis. 2d at 662, and with the aspiration for vigorous private enforcement of antitrust laws. Id. at 664 (quoting Illinois Brick Co. v. Illinois, 431 U.S. 720, 745 (1977)). These hortatory statements offer little help, however, in determining what substantive elements this court should adopt for a claim of predatory pricing. Wisconsin Stat. § 133.01 condemns only unfair and discriminatory business practices which destroy competition. (Emphasis added.) Despite Conley's intimations, Brooke Group does not eliminate or even constrict the enforcement of true antitrust violations. The decision simply defines what an antitrust violation is, at least under the theory of predatory pricing, and what aggressive business practices must accomplish to cross the line and improperly thwart the aims of competition. Therefore, citation to § 133.01 and discussion of the benefits of private enforcement beg the question of whether conduct that does not meet the standard set in Brooke Group is anticompetitive and unlawful, and should thus be prohibited. ¶ 25. Conley advances another argument for ignoring the second element of Brooke Group 's recoupment standard. According to Conley, the standard creates an evidentiary burden that no plaintiff can ever meet, resulting in a near impossibility of plaintiffs surviving summary judgment with claims of predatory pricing. Conley points to recent commentary observing that [j]udicial enforcement is at a low level following the Supreme Court's most important predatory pricing decision in modern times [ i.e., Brooke Group ]. Indeed, since Brooke was decided in 1993, no predatory pricing plaintiff has prevailed on the merits in the federal courts. Patrick Bolton et al., Predatory Pricing: Strategic Theory and Legal Policy, 88 Geo. L.J. 2239, 2241 (2000). ¶ 26. That predatory pricing claims have rarely, if ever, prevailed under the Brooke Group standard speaks little about the merits of the standard. [13] Contrary to Conley's assertions, the issue in deciding whether to adopt Brooke Group is not whether predatory pricing is, or should be, a prohibited practice. It is. Nor is the issue whether evidence can ever be presented to satisfy the standards for proving a true instance of predatory pricing. Such evidence can be marshaled in circumstances where predation has occurred. [14] Rather, Conley's quarrel is over how predatory pricing is defined and the criteria courts must use to assess whether a particular business practice violates the prohibition against predatory pricing. Brooke Group sets forth a rational and reasoned method for accomplishing this assessment. Other articulations of the prerequisites for recoupment under predatory pricing are plausible. Yet, even these alternative standards must face the ever-present quandary of predatory pricing litigation: Are the standards so over-inclusive that they prohibit lawful, yet aggressively competitive conduct, or so under-inclusive that they encourage unlawful conduct and permit it to go unpunished? See Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice § 6.5a at 281 (2d ed. 1999). [15] [8] ¶ 27. In Brooke Group, the Court justified its legal standard by observing that overzealous litigation that erroneously awards damages based on unwarranted predatory pricing claims stifles legitimate competition. According to the Court: [The Brooke Group ] prerequisites to recovery are not easy to establish, but they are not artificial obstacles to recovery; rather, they are essential components of real market injury. As we have said in the Sherman Act context, predatory pricing schemes are rarely tried, and even more rarely successful, Matsushita, [475 U.S.] at 589, and the costs of an erroneous finding of liability are high. [T]he mechanism by which a firm engages in predatory pricinglowering pricesis the same mechanism by which a firm stimulates competition; because `cutting prices in order to increase business often is the very essence of competition . . . [;] mistaken inferences . . . are especially costly, because they chill the very conduct the antitrust laws are designed to protect.' Cargill, [479 U.S.] at 122 n.17 (quoting Matsushita, [475 U.S.] at 594). It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high. Brooke Group, 509 U.S. at 226-27. We agree with the tenor and logic of this statement. If erroneous allegations of predatory pricing are leveled against a competitor who is merely selling at lower prices than its competitors but who has legitimate business reasons for this pricing strategy, it is not consonant with § 133.01's objective of competition to give these claims credence. [16] ¶ 28. Adoption of a predatory pricing standard authorizing successful claims when no harmful activity has occurred would be detrimental to market competition and consumer welfare in Wisconsin. Without the complete recoupment element of Brooke Group, there would be considerable uncertainty whether a predatory practice has occurred that will actually harm consumer interests through the charging of monopoly prices. As the Court noted in Brooke Group, recoupment of this nature is an essential element of real market injury. Id. at 226. It is competition, not competitors, that antitrust law protects. Id. at 224 (citing Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). [9] ¶ 29. Furthermore, the language that Conley asks this court to disregard is part of a restrictive clause to the sentence describing the recoupment standard. Therefore, if this court were to delete this clause, we would necessarily be altering the meaning of recoupment as stated by the Court. This observation is more than grammatical; it exposes a substantive flaw in Conley's argument. Conley concedes, as it must, that the charging of low prices, even if it destroys a competitor, does not harm consumers unless the alleged predator later raises its prices above a competitive level and charges monopoly prices exceeding those otherwise available in a competitive market. Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced. Id. at 224. ¶ 30. Without a required showing of recoupment as articulated under Brooke Group, courts would be permitted to find a dangerous probability of recoupment by inference, rather than by proof. This is precisely the legal standard that Conley asks this court to adopt in Brooke Group 's stead. As a replacement for the second clause of the recoupment requirement, Conley suggests that all that is required to demonstrate recoupment is a structural showing of the possibility of a monopoly, which would require proof of two factors: (1) that the relevant market is already highly concentrated; and (2) the existence of high barriers to the entry of former or new competitors into the market. See 3 Phillip Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application 297 (2d ed. 2002) (discussing this theory). In other words, if a monopoly results from a defendant's practice and the entry of competitors into the market is sufficiently difficult, then the demonstration of below-cost pricing would be sufficient for a competitor to succeed on a predatory pricing claim against its adversary and, as a result, be awarded treble damages from its competitor. ¶ 31. We recognize that leading antitrust commentators observe that the proof necessary to establish the second clause of recoupment has yet to be fully determined. See Areeda & Hovenkamp, supra, at 322. Brooke Group did not reach the issue of whether its test requires proof not only of significantly supracompetitive pricing, actual or prospective, but also of the amount and duration of that pricing. Id. (citing Brooke Group, 509 U.S. at 223). However, commentators also recognize that a business's attainment of monopoly positioning does not, ipso facto, mean that it has a dangerous probability of recouping all its losses. [17] While the existence of a monopoly indisputably facilitates an ability to recoup losses resulting from predatory pricing, and perhaps is a necessary condition for successful recoupment, it is not sufficient to assure recoupment. See Frank H. Easterbrook, Predatory Strategies and Counterstrategies, 48 U. Chi. L. Rev. 263, 272 (1981). A monopolizing enterprise will find it difficult to charge monopoly prices for a product when the demand for that product is relatively elastic (meaning that consumer demand is sensitive to price changes), so long as reasonable substitute products are available in the relevant market. [18] ¶ 32. Finally, Conley cites some scholarly criticism of Brooke Group 's requirement for establishing recoupment. Conley claims that these critiques suggest a transitory nature to current federal antitrust doctrine on predatory pricing, which counsels against this court's full adoption of Brooke Group. We have reviewed the sources that Conley purports demonstrate a declining confidence in the Brooke Group test. These sources do not approach such a critical mass in the legal commentary that they excite a conviction that the standards set forth in Brooke Group are erroneous or otherwise imprudent. [19] It is axiomatic that most judicial decisionsand certainly those of the United States Supreme Courtinspire some degree of commentary among other courts (or even within the same court, as in the case of a dissenting opinion) and among scholars. Some of this commentary will invariably be critical. More relevant to our present analysis is the silence within federal courts of any criticism over the Brooke Group test. In fact, federal courts have largely endorsed the Brooke Group rationale. [20] ¶ 33. In any event, the relative amount of scholarly criticism advanced against Brooke Group does not affect whether that decision is the controlling federal law on predatory pricing claims. Absent the Supreme Court modifying the Brooke Group test, we adopt it in its entirety for assessing predatory pricing claims under § 133.03. We see no compelling reason to depart from this court's sound and longstanding practice of deferring to federal antitrust principles and conforming our interpretations of Chapter 133 to federal court interpretations of the Sherman Antitrust Act.