Court Opinion

ID: 8919773
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:10:08.911367+00
Date Added: 2024-06-11T17:09:16.341251
License: Public Domain

WILHOIT, District Judge,
dissenting.
I respectfully dissent from the Court’s view that as a matter of law, Sherman Act liability on the basis of predatory pricing cannot be proven without some evidence that a defendant has charged prices below its average total cost. This circuit has previously taken the view that evidence of intent to predatorily price can be proven either by direct evidence (subjective proof) or by indirect evidence, through analysis, of whether a defendant was pricing above or below average variable cost (objective proof). The latter analysis provides a surrogate measurement for marginal cost at output levels at or near a firm’s optimal level of production. See D.E. Rogers Associates, Inc. v. Gardner-Denver Co., 718 F.2d 1431 (6th Cir.1983); Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818 (6th Cir.1982); Borden, Inc. v. Federal Trade Commission, 674 F.2d 498 (6th Cir.1982).1
*1061The Court takes a different approach today. It says, in effect, that irrespective of any direct evidence of intent to predatorily price, if a defendant can prove objectively that his prices were above his average total costs, his conduct is per se legal. This gives me pause. What the Court seems to do is to create a “free zone” in which monopolists can exploit their power without fear of Sherman Act scrutiny or sanctions. Transamerica Computer Co. v. IBM Corp., 698 F.2d 1377, 1387 (9th Cir.1983).
The fact is that the question of proving average variable and fixed costs can be most difficult. Indeed, another panel of this court recently confronted a perfect example of just how hard it is to allocate “costs” in antitrust cases. See D.E. Rogers, 718 F.2d at 1435. In that case there was a great deal of argument as to what should be included in the average cost figures. Due to the inherent uncertainty and imprecision in determining “cost,” I am persuaded by the view expressed by the Ninth Circuit Court of Appeals in that it is simply unwise to create a per se legal zone of predatory pricing irrespective of other conduct and circumstances. See Transamerica, 698 F.2d at 1387. To do so simply encourages litigants to skewer their accounting data to be above or below average total cost.
Beyond these practical problems of proof, the record in this case convinces me that Johnson was found to be guilty of monopolistic practices, including predatory pricing. The evidence is clear that Johnson specifically intended to drive Langenderfer out of business. Moreover, Johnson’s rapid and numerous vertical as well as horizontal acquisitions documents well that it had the power to carry out this intent.
The alleged predatory pricing in this case was nothing more than a manifestation of Johnson’s monopoly power. The majority readily admits that Johnson had “attained economies of scale which enabled it to operate at a much lower cost per paving project than its competitors.” Ante at 1058. It is clear, therefore, that Johnson possessed substantial market power over its competitors, market power which when coupled with the evidence of Johnson’s increasing market share (from 46.9% to 75.8%) indicates it undoubtedly possessed monopoly power.
Because Johnson possessed monopoly power, the only other issue for purposes of determining § 2 Sherman Act liability is whether Johnson acquired or maintained that power willfully and intentionally as opposed to mere growth due to a superior product or business acumen. See United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). In this case, I believe that Johnson willfully and intentionally used its inordinate market power to acquire and maintain a monopoly. Direct evidence of its intent substantiates this. But more importantly, Johnson’s conduct establishes it in my mind beyond all doubt.
In an industry such as involved here, entrance barriers are unusually high. Start-up costs are enormous. Moreover, Johnson raised these entrance barriers even higher by its many vertical acquisitions. Competitors and potential competitors were discouraged from competing with Johnson because they had to get their supplies from Johnson.
In addition, because of Johnson’s ability to operate at lower costs, a perfect climate existed for Johnson to predate. Johnson was able to bid paving contracts at price levels above its average total costs but low enough to drive competitors out of the market and discourage potential competitors from entering. This practice has sometimes been called “limit pricing” and the fear that a monopolist might undertake it was what probably inspired the Ninth Circuit in Transamerica,2
*1062The majority lays aside the many circumstances raised in this case and focuses instead on the pristine economic view that pricing at or above average total cost is what competition is supposed to effect.
Unfortunately, the real world is not as it is always assumed in economics. If predatory pricing were the only allegation made in this case and there were no other evidences of monopoly power or monopolistic conduct and intent, I would agree with the majority. Predatory pricing cannot and should not be a competitor’s complaint absent an abundance of evidence suggesting the alleged predator not only has the intent to predate, but also the ready ability, as in this case, to carry predation out. Cf. Transamerica, 698 F.2d at 1388.3
Nonetheless, as pointed out, I am firmly convinced by the record at hand that Johnson possessed monopoly power and that it used predatory pricing in the form of “limit pricing,” among other things such as restrictive contracts and acquisitions, to maintain that monopoly power.
For instance, the majority opinion seems to dismiss the testimony of Howard Shank, Johnson’s Vice-President, as mattering little. See ante at 1055 n. 10. The Court’s view of Shank’s testimony might be correct in other circumstances but on the facts of this case, it overlooks the extent of Johnson’s vertical integration. The Court states that “[i]t matters little that Johnson might have employed a below-cost figure for gravel or any other item so long as the final bid exceeded the company’s total projected costs.” Id. (emphasis in original).
This overlooks the fact that Johnson was probably the only supplier of gravel in the relevant region. It supplied both its own needs and that of its competitors. Johnson could, therefore, raise the price of gravel to its competitors and thereby subsidize sales of gravel to itself. These below-cost line items may very well be a significant indicator of how Johnson was able to keep its “average total cost” figures so low. Having convinced the court that its “costs” were low, indeed lower than its final bid, Johnson has all but successfully defended this action for under the rule announced today, skillful juggling of cost figures has put appellant in the per se legal zone, i.e., pricing above average total costs.
I, therefore, respectfully dissent from the majority’s view. I think Johnson possessed monopoly power and intended, as evidenced by its conduct, to maintain that power in contravention of Section 2 of the Sherman Act. I would therefore affirm *1063the district court and remand this case only with respect to the question of remedy.

. As the Court notes in its opinion, this Circuit has recently adopted the Ninth Circuit’s modified "Areeda/Turner" rule. See ante at 1056. Areeda and Turner first propounded a most influential discussion of how a determination of average variable costs can fairly approximate marginal cost at output levels at or near a firm's optimal level of output. That level, of course, is where a firm is producing at its minimum average costs. Areeda & Turner, Predatory Pricing & Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697 (1975).
D.E. Rogers, 718 F.2d 1431, the case in which this circuit adopted the modified “Areeda/Turner” rule, makes no mention of what the rule should be in situations where, as here, the defendant was pricing at a level above average total cost. Areeda and Turner would presume such to be legal. The majority today agrees. I *1061do not, however, because I believe evidence of intent in circumstances such as presented in this case should play a substantial role in determining whether predatory pricing has occurred.

. In Transamerica, 698 F.2d at 1387, the Ninth Circuit discusses how, in an industry where a substantial initial investment is required, a monopolist could predate with a pricing strategy *1062that is above average total cost but below the profit maximizing price of competitors or potential competitors. This strategy is labeled “limit pricing", and appears to be the type of strategy employed by Johnson here.

. The Transamerica case's so-called "extension," see ante at 1056, of William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 58, 74 L.Ed.2d 61 (1982), which the majority today refuses to follow, is the natural outgrowth of the Inglis case. The Ninth Circuit has consistently indicated, even prior to Inglis, that given the right set of facts concerning a defendant's motive and conduct, it might very well hold a limit pricing strategy impermissible. See California Computer Product, Inc. v. IBM Corp., 613 F.2d 727, 743 (9th Cir.1979); Hanson v. Shell Oil Co., 541 F.2d 1352, 1358 n. 5 (9th Cir.1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977).
The Transamerica case takes the Inglis rule the next logical step and adopts a reasonable view of how to treat an alleged predator’s prices that are above its average total cost. It allocates a heavy burden upon the plaintiff to prove by clear and convincing evidence, that the defendant was predatorily pricing. Transamerica, 698 F.2d at 1388. At the same time, however, it does not allow a monopolist, such as Johnson in this case, to escape liability on the basis of predatory pricing merely because it did not price below its average total cost.
The D.E. Rogers, 718 F.2d at 1436, case in this circuit likewise suggests that the Sixth Circuit would not permit a limit pricing scheme at or above average total cost upon a strong showing of motive and/or other monopolistic conduct. While D.E. Rogers does not directly present the issue decided today, it does indicate just as Transamerica's predecessors that "direct evidence bearing on the issue of [a defendant's] motive" is an important consideration. Id. at 1437. Indeed, only because of the absence of, or ambiguous nature of, such direct evidence was a cost-based analysis even resorted to in that case. See id. at 1435.