Court Opinion

ID: 9474728
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:07:13.65739+00
Date Added: 2024-06-11T17:44:18.149384
License: Public Domain

CHOY, Senior Circuit Judge,
concurring:
I agree that the decision of the district court to grant summary judgment against the plaintiff, Marsann Company, should be reversed. However, I cannot support the reasoning employed by the majority in affirming the district court’s definition of the product. I would hold that the district court erred by defining the product as the straightening services sold specifically to United States Steel, and thereby incorrectly placed upon Marsann the burden of proving costs related to that specific project.
It is true that Brammall charged its alleged predatory price only to one customer, United States Steel, and that Marsann suffered from the loss of that customer. However, the majority’s attempt to carve out a “product” from the simple fact that the predatory pricing involved only the United States Steel account rests on questionable authority and introduces unnecessary complications to existing predatory pricing doctrine in this circuit.
First, the majority applies Janich Bros. v. American Distilling Co., 570 F.2d 848, 856-57 (9th Cir.1978), as governing precedent on product definition, which in my view provides no support for the majority’s position. In defining the “product” for the purpose of assessing below cost pricing, the Janich court chose between two, different goods, i.e. half-gallon bottles of gin and vodka and all-sized bottles. In the instant case, as the majority concedes, there is but a single, undifferentiated good, i.e. roll straightening services. See Majority Opinion, at 614 n. 2.
The majority relies simply on the fact that Brammall charged differential prices for its good (roll straightening services). “[T]he price in question is the price to United States Steel.” Majority Opinion, at 614. This leads to my second and more important objection to the majority opinion — that the majority conclusion makes proof of predatory pricing more difficult in predatory price discrimination cases than in across-the-board predatory pricing cases.
*616In the instant case, as well as in any predatory price discrimination claim, the challenged conduct is not the general pricing scheme, but the fact that a particular alleged predatory price has been charged. Specifically, plaintiffs will complain that they were unable to sell a good to a particular customer because the defendant made that same good available at an alleged predatory price. The majority would define the “product” as that portion of a defendant’s production that was sold at a predatory price, since it is the loss from that particular sale which tends to eliminate a rival. In the language of the majority, “To evaluate properly the economic motivations of [a defendant], we must isolate, as a separate product, the sales [made at the predatory price].” Majority Opinion, at 614.
This misuse of product definition in price discrimination cases imposes upon aggrieved plaintiffs, like Marsann, an almost impossible burden of proving predatory intent. In this circuit, predatory intent can be inferred from proof that the average variable cost for a product exceeded the price charged. See William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1036 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982). Average variable cost is the sum of all variable costs divided by output. Janich, 570 F.2d at 858 n. 11; see generally P. Areeda and D. Turner, Antitrust Law MI 712, 715.2a, 715d (1978 and 1982 Supp.). Average variable cost is employed as a proxy for marginal cost — the actual, short-run, economic cost of the particular item sold — since conventional business records rarely provide the data necessary to isolate the cost of a single, fungible item. See Janich, 570 F.2d at 858. By defining as the “product” a portion of total production of a fungible good, the majority requires the plaintiff to isolate costs related specifically to that portion of production. This places upon the plaintiff an impossible burden, similar to that of proving marginal cost. The majority, in effect, defines the “product” as the marginal unit of production, and thereby requires proof of the “average variable cost” of the marginal unit of production. Thus, under the guise of product definition, the majority strips all meaning from the average variable cost standard in predatory pricing cases, where the alleged predatory price is charged to particular customers rather than across-the-board.
In a lengthy footnote, the majority attempts to explain how a portion of the production of a good can have an average variable cost different from that of the good itself. See Majority Opinion, at 614 n. 2. Without commenting on its correctness, this economic analysis is, in my view, irrelevant to the discussion of product definition. While there may be a dispute about what cost categories should be considered variable in determining the average variable cost figure, the “product” is in any case the good (here, roll straightening services), not a portion of the total output of the good.1
Moreover, the possibility that surplus capacity or any other factor exists, suggesting the appropriateness of a downward adjustment in the average variable cost figure presented by Marsann, is irrelevant to the question of whether Marsann has established a prima facie case of predation. These are defenses, for which Brammall bears the burden of proof. Indeed, Inglis explicitly holds that “[e]ven when excess capacity exists, pricing below average variable cost, to repeat, is sufficiently questionable to support the inference that the prices were designed to eliminate competition.” 668 F.2d at 1036. Thus, the majority errs in requiring the plaintiff to merge excess capacity analysis into its calculation of average variable cost.
Finally, I comment briefly on the majority’s decision to reverse the district court grant of summary judgment. The decision appears charitable, in light of Marsann’s admission that conventional business *617records make it impossible to come up with cost figures related to the “product” as defined by the majority. However, the majority correctly notes that Inglis does not foreclose a finding of predation in the absence of a cost/price comparison. Nevertheless, allowing Marsann to prove predation without cost-based evidence is of little comfort to small businesses like Marsann, who may be victims of predatory price discrimination. First, “smoking gun” evidence is not likely to exist. And second, plaintiffs who cannot show that price is below total cost (and here, Marsann cannot show any cost) must prove a “compelling” case of predation, arguably an impossible burden. See Transamerica Computer Co. v. IBM Corp., 698 F.2d 1377, 1390 (9th Cir.) (Lucas, J., concurring), cert. denied, 464 U.S. 955, 104 S.Ct. 370, 78 L.Ed.2d 329 (1983).
Thus, I would treat equally cases involving discriminatory predatory pricing and across-the-board predatory pricing. In the instant case, Marsann presented evidence that Brammall’s average variable cost for roll straightening, calculated from costs associated with Brammall’s entire roll straightening division, exceeded the price charged to United States Steel. Because in my view the product is roll straightening, the evidence presented was sufficient to establish a prima facie case of predation. Surplus capacity and other disputes over which categories of costs should be considered variable are jury questions under Inglis. Thus, the district court’s narrow definition of the product and grant of summary judgment against Marsann were in error, and the case should be remanded for further proceedings in accordance herewith.

. A dispute about what cost categories should be considered variable presents a factual question, which must be decided by the jury. See Inglis, 668 F.2d at 1038.