Court Opinion

ID: 9470234
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:00:06.75652+00
Date Added: 2024-06-11T17:41:47.492002
License: Public Domain

LUCAS, District Judge,
concurring:
I agree that the judgment of the district court in favor of defendant should be affirmed. I disagree, however, with the court’s modification of the trial court’s test for predatory pricing.
Professors Areeda and Turner, in their article, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697 (1975), proposed an exhaustive per se rule for determining whether pricing conduct should be deemed predatory: (1) prices above reasonably anticipated average variable cost should be conclusively presumed lawful; and (2) prices below reasonably anticipated average variable cost should be conclusively presumed unlawful.1 In the nearly seven years since this article appeared many courts have considered this suggestion. See Spivak, Monopolization Under Sherman Act, Section 2, 50 Antitrust Law Journal 285, 313-14 n. 132 (1982). Although it appears that no court has adopted this proposed rule without modification or qualification, many courts have agreed with Areeda and Turner that the relationship between prices and average variable cost is of significance in evaluating pricing behavior under the Sherman Act. Id. This court, in William Inglis & Sons, Co. v. ITT Continental Baking Co., Inc., 668 F.2d 1014 (9th Cir.1981), cert. denied, -— U.S. -, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982), made clear that the relationship was to be used to allocate the burden of proof on the issue of predation, rather than to resolve the issue conclusively. In thus modifying Areeda and Turner’s suggested rule, the court explicitly declined to address their *1390more modest yet important suggestion that prices above average total cost should be conclusively presumed legal.2 Judge Schnacke found this limited rule to be sound and used it in granting judgment in favor of defendant. In my opinion, the trial court was correct.
In rejecting the approach taken by Judge Schnacke, the court expresses four concerns. First the court points out that under certain circumstances price reductions might properly be labeled “predatory” even though prices never fall to average total cost or below. Two examples are given, both of which have often been discussed by the academics and by the courts: limit pricing and temporary price reductions in an industry with high entry barriers. See, e.g., Areeda & Turner, supra, at 705-09; In re IBM Peripheral EDP Devices Antitrust Litigation, Transamerica Computer Co. Inc. v. IBM, 481 F.Supp. 965 (N.D.Cal.1979) [Transamerica Computer]; Scherer, Predatory Pricing and the Sherman Act: A Comment, 89 Harv.L.Rev. 869 (1976). The second concern voiced by the court is that the district court erred in assuming that all “price reductions to average total cost result from efficient production and harm only less efficient competitors.” Ante, at 1387. This, however, merely restates the first concern noted by the court, for the only price reductions not attributable to efficient production which should be labeled “predatory” are those which harm equally or more efficient competitors. These fall into the two categories noted in the above examples. Indeed, the court’s final argument, that “we should hesitate to create a ‘free zone’ in which monopolists can exploit their power without fear of scrutiny by the law,” expresses the same fear voiced in the first two arguments.
The fear that some pricing conduct in the realm above average total cost might have socially undesirable effects in the long run does not, however, necessarily provide an adequate justification for adopting the rule approved by the court. One must also evaluate the practical utility of the rule, the consequences of adopting such a rule, and the advantages which a contrary rule, in this case a per se rule, might provide.
The court concedes that pricing conduct above average total cost will only “rarely” have socially undesirable effects and, thus, constitute predation. Ante, at 1388.3 Thus, even absent any practical problems of proof, the court’s rule will seldom yield a result different from that which a per se rule would yield. The court also recognizes, however, that there will be problems of proof in this area. Ante, at 1387 n. 14. It will be extremely difficult if not impossible to prove up facts sufficient to support a finding of predation where prices do not drop below average total cost. See Transamerica Computer, supra, 481 F.Supp. at 991. These practical difficulties, combined with the higher burden of proof imposed by the court today, raise a serious question as to whether liability will in fact be imposed in those rare cases in which it might be.
Yet, while the court’s rule is likely to have little practical utility, it could well inhibit socially desirable conduct. As Judge Schnacke noted below:
It would be all but impossible to distinguish between above cost limit pricing conduct and a monopolist’s procompetitive reaction to lower priced competitors. *1391One external characteristic is common to both cases, a lowered price. An attempt to attach liability to the one will surely inhibit the indistinguishable other.
Transamerica Computer, supra, at 991 (footnotes omitted). Furthermore, the rule approved by the court may well increase the number of meritless antitrust actions filed: without a reasonable “safe harbor” in which to seek shelter, every monopolist engaged in legal price competition above average total cost will be a potential target for attack by a competitor attempting to prove that its case is one of the rare instances of predatory pricing conduct.
In addition to these shortcomings, it cannot be doubted that the court’s rule will increase the difficulty of trying complex antitrust cases. Cf. Inglis, supra, at 1063-64 (Judge Wallace dissenting from denial to rehear en banc voiced similar concerns with the court’s rejection of the marginal cost rule). A per se rule, by contrast, would provide a manageable way of significantly simplifying some aspects of many cases.
In addition to the court’s fear of monopolist exploitation of the “free zone” above average total cost, the court gives an additional ground for rejecting a per se rule: the difficulty of calculating costs. Because such costs are difficult to calculate, the court finds it unwise to base conclusive presumptions on the price-cost relationship. Though difficult, the task of calculating costs is not impossible. As with other difficult factual issues, the finder of fact, aided by expert testimony, will, I believe, be able to determine average total cost with reasonable precision. Thus, I cannot agree that the difficulty of calculating costs warrants rejection of a useful and sound decisional tool such as the per se test tied to average total cost.
On balance, I find the limited per se rule adopted by Judge Schnacke to be preferable to the test approved by the court today. I would affirm the judgment without modifying the trial court’s test for predatory pricing.

. Noting that “marginal cost data are typically unavailable,” Professors Areeda and Turner use average variable cost as a surrogate for marginal cost. Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697, 717 (1975).

. Inglis, supra, 668 F.2d 1014, 1035 n. 30. Average total cost is, by definition, always higher than average variable cost. See Areeda & Turner, supra, note 1, at 700-01. A per se rule tied to average total cost creates, therefore, a smaller area in which pricing conduct will be presumed to be legal than a rule tied to average variable cost. (It is true that average variable cost is used as a surrogate for marginal cost and that marginal cost can, in some unusual cases, exceed average total cost. Id Areeda and Turner modify their marginal cost rule in these cases, however, to provide that prices below marginal cost are legal if they exceed average total cost. Id at 712-13.)

. Even Spivak, who disagrees vigorously with the price tests put forward by Areeda and Turner, concedes that where prices are above average total cost, courts could “almost invariably” decide the predatory pricing issue on cost data alone. See Spivak, Monopolization Under Sherman Act, Section 2, 50 Antitrust L.J. 285, 315-16 (1982).