Court Opinion

ID: 9774663
Source: CourtListenerOpinion
Date Created: 2023-08-29 18:29:09.486073+00
Date Added: 2024-06-11T07:32:12.900596
License: Public Domain

NYE, Chief Justice,
dissenting.
I would overrule Triad’s motion for rehearing and adhere to our original opinion for two reasons. First, evidence of subjective intent is irrelevant and should not be considered under the test set forth by the Fifth Circuit. Second, there is no evidence of pricing below total cost.
THE FIFTH CIRCUIT TEST
I disagree with the majority’s determination that the Fifth Circuit has not adopted the AVC rule in all cases except those in which barriers to entry are pronounced.1 I also disagree with the majority’s decision that we should not follow the Fifth Circuit.
The Fifth Circuit Court of Appeals has defined predatory conduct to mean that a defendant must have at least sacrificed present revenues for the purpose of driving its competitor out of business with a goal toward recouping losses through subsequent higher prices. International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 723 (5th Cir.1975). In Adjusters Replace-A-Car v. Agency Rent-A-Car, Inc., 735 F.2d 884, 890-91 (5th Cir.1984), the Fifth Circuit held that where barriers to entry are not pronounced, predatory pricing is not established unless the defendant has set his price below average variable cost. In Adjusters, the Court wrote:
The objective economic approach to predation that we adopted in American Excelsior is still the law of this circuit.... We were unwilling, in an attempted monopolization case, to relegate the intent element to the status of an automatic and irrebuttable inference.
The Court went further to hold:
Where the Malcolm [v. Marathon Oil Co., 642 F.2d 845 (5th Cir.1981)] panel noted the ongoing debate between partisans of an economic test for predation— The Areeda-Turner approach — and partisans of an intent test — the Sullivan approach — and disclaimed any view of the merits of these alternative analytical frameworks, this court had already joined the economic camp in American Excelsior, and that decision bound the panel deciding Malcolm as it binds this panel. Id. at 890.
This test was recently reiterated by the Fifth Circuit in Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95, 99 n. 4 (5th Cir.1988).
In instances in which the Fifth Circuit has been faced with the question of the requisite proof for establishing a predatory pricing claim, the Court has stated that the test includes pricing below marginal or average variable cost. Even in C.E. Services, Inc. v. Control Data Corp., 759 F.2d 1241 (5th Cir.1985), cited by Triad, the Court found evidence that the alleged monopolizer was selling below average variable cost. The reason that subjective intent was not raised in support of the predatory pricing claim in Adjusters is that the Court specifically held that when barriers to entry are not pronounced, predatory pricing is not established unless the defendant has set his price below average variable cost. An inquiry into subjective intent would be irrelevant to the Court’s determination of *175whether the trial court was correct in granting judgment notwithstanding the verdict.
Antitrust legislation is concerned primarily with the health of the competitive process, not with the individual competitor. These laws are concerned with substantial impairment of the vigor or health of the contest for business, regardless of which competitor wins or loses. These laws do not insure the right of every small businessman to succeed. These laws only insure that each businessman is not treated unfairly.
The evidence in the record before us showed that Caller-Times made some price reductions. This is no more exclusionary than permanent low prices. Low price, without evidence that the Caller-Times was operating below some measure of cost, is competitive rather than predatory. This is ideal, not illegal.
There are problems inherent in whatever test we choose to embrace. It is extremely difficult to determine whether a price set by a competitor was to attract customers and expand market share or to eliminate competitors. The former benefits competition; the latter stifles it. The objective test adopted by the Fifth Circuit is a means by which competitive behavior and predatory behavior can best be discerned. It is also a test which will allow us to properly carry out the purpose of our Texas Act and free competition generally.
THE PROPOSED TEST
The majority decides that the test for predatory pricing should be two-part. The plaintiff bears the burden of showing prices below average total cost. If this burden is met, the plaintiff bears the burden of proving that the defendant’s pricing was predatory. Non-cost factors indicating the defendant’s unreasonably anticompeti-tive behavior would be admissible, both objective and subjective. This proposed test is similar to that set forth in McGahee v. Northern Propane Gas Company, 858 F.2d 1487, 1502-4 (11th Cir.1988).
Even under the test proposed by the majority, the evidence in this case fails. There is no evidence in the record that the Caller-Times sold any advertising below its average total cost. Average total cost is the sum of average variable cost and average fixed cost. McGahee, 858 F.2d at 1496 n. 22. It means the average of the total economic cost, which includes the necessary minimum profit. The amount of profit that is part of total economic cost is generally an issue of fact requiring expert testimony, a burden upon all who seek to recover on an antitrust claim. The only evidence in the record concerning any economic factor was Stephen Sullivan’s testimony that the profit margin on both the Caller-Times and the Pennysaver was twelve percent, plus or minus five percent. There was testimony that both publications made a profit. There was no evidence offered concerning what it costs the Caller-Times to run an ad like the ones that were offered to Caller-Times customers at a discount.
The evidence which the majority primarily looks to as support for its claim is testimony that the Caller-Times offered half-price ads to auto dealers on Thursdays during the month of May 1985. Magel and Mock had purchased Wheels and Keels about a year earlier in mid-1984. They broke into the market for $10,000 and were still operational in May 1985, when the Caller-Times offered these ads. There was no evidence of any sort that a 50% discount on an ad was in any way below the total average cost for that advertisement. Evidence that the publication as a whole profited a certain percentage rate does not mean that the Caller-Times was operating unprofitably in regard to its automobile ads for those specific Thursdays in May 1985. No evidence was offered calculating the average total cost of running a page of advertising. No evidence was offered calculating the average total cost of running the newspaper. The evidence does not reflect whether the automobile ads in question generally cost more or less than the scores of other types of ads which are placed daily with the Caller-Times. Information of this nature should have been and could have been garnered through the nor*176mal discovery process. Evidence of the cost to produce an inch, a line, or a page of advertising would have been relatively simple to attain.2 To now allow Triad to use general testimony concerning total profitability of the newspaper to support its notion that the Caller-Times was selling advertising below total average cost is incorrect.
It is clear from the record that Triad saw no need for any “cost” threshold to be crossed in order for it to recover. It was relying totally on subjective intent. The majority holding essentially relieves Triad of proving the first element of the test it seeks to adopt.
I believe that the Fifth Circuit test provides an accurate means of separating truly predatory conduct from competitive conduct. We should follow it. If we choose to announce a new standard, we should give fair warning of the law we intend to follow.

. Here, it was undisputed that there were no insurmountable barriers to entry. Triad entered the market with a $10,000.00 investment.

. In Main Street Publishers, Inc. v. Landmark Communications, Inc., 701 F.Supp. 1289, 1293-4 (N.D.Miss.1988), the information on various costs of advertising was available to the parties. This case involved publications similar to the case at bar.