Court Opinion

ID: 3049998
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:29:29.915931+00
Date Added: 2024-06-11T11:49:22.413289
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CASCADE HEALTH SOLUTIONS fka           
MCKENZIE-WILLAMETTE HOSPITAL,
an Oregon nonprofit corporation,
                Plaintiff-Appellant,
                 v.
PEACEHEALTH, a Washington State
nonprofit corporation,
               Defendant-Appellee,           No. 05-35627
                and                           D.C. No.
PACIFICSOURCE HEALTH PLANS,                CV-02-06032-ALH
                         Defendant,
REGENCE BLUECROSS
BLUESHIELD OF OREGON;
PROVIDENCE HEALTH PLAN;
MCKENZIE-WILLAMETTE REGIONAL
MEDICAL CENTER ASSOCIATES, LLC,
            Defendant-Intervenors.
                                       

                            11191
11192          CASCADE HEALTH v. PEACEHEALTH

MCKENZIE-WILLIAMETTE HOSPITAL,          
                  Plaintiff-Appellee,
                 v.
PEACEHEALTH, a Washington State
nonprofit corporation,
              Defendant-Appellant,
                and                          No. 05-35640
PACIFICSOURCE HEALTH PLANS,                   D.C. No.
                          Defendant,        CV-02-06032-HA
REGENCE BLUECROSS
BLUESHIELD OF OREGON;
PROVIDENCE HEALTH PLAN;
MCKENZIE-WILLIAMETTE REGIONAL
MEDICAL CENTER ASSOCIATES, LLC,
            Defendant-Intervenors.
                                        

MCKENZIE-WILLAMETTE HOSPITAL,           
                 Plaintiff-Appellee,
                                             No. 05-36153
                v.
                                              D.C. No.
PEACEHEALTH, a Washington State             CV-02-06032-HA
nonprofit corporation,
              Defendant-Appellant.
                                        
              CASCADE HEALTH v. PEACEHEALTH           11193

MCKENZIE-WILLAMETTE HOSPITAL,        
an Oregon nonprofit corporation,          No. 05-36202
              Plaintiff-Appellant,
               v.                          D.C. No.
                                         CV-02-06032-HA
PEACEHEALTH,                                OPINION
             Defendant-Appellee.
                                     
       Appeal from the United States District Court
                for the District of Oregon
       Ancer L. Haggerty, District Judge, Presiding

                 Argued and Submitted
            March 6, 2007—Portland, Oregon

                 Filed September 4, 2007

      Before: Ronald M. Gould, Richard A. Paez, and
          Johnnie B. Rawlinson, Circuit Judges.

                 Opinion by Judge Gould
              CASCADE HEALTH v. PEACEHEALTH           11197

                        COUNSEL

M. Laurence Popofsky, Heather N. Leal, and Adam J. Grom-
fin, Heller Ehrman LLP, San Francisco, California, James H.
Sneed and Linda M. Holleran, McDermott, Will & Emery,
Washington, D.C., Peter H. Glade, Markowitz, Herbold,
Glade & Mehlhaf, P.C., Portland, Oregon, for defendant-
appellant and cross-appellee PeaceHealth.

Thomas M. Triplett, Kelly T. Hagan, William B. Crow,
Nancy M. Erfle, and Michael T. Garone, Schwabe, William-
son & Wyatt, P.C., Portland, Oregon, Laurence E. Thorp,
Thorp, Purdy, Jewett, Urness & Wilkinson, P.C., Springfield,
Oregon, for plaintiff-appellee and cross-appellant Cascade
Health Solutions.

Jerrold J. Ganzfried, James F. Rill, Scott E. Flick, and
Thomas J. Dillickrath, Howrey LLP, Washington, D.C., John
11198          CASCADE HEALTH v. PEACEHEALTH
Thorne and Paul J. Larkin, Jr., Verizon Communications, Inc.,
Arlington, Virginia, Douglas S. Grandstaff, Caterpillar, Inc.,
Peoria, Illinois, for amici curiae Verizon Communications
Inc. and Caterpillar Inc.

Aidan Synnott, Paul, Weiss, Rifkind, Wharton & Garrison
LLP, New York, New York, for amici curiae law professors
Daniel A. Crane, Thomas A. Lambert, Thomas D. Morgan, D.
Daniel Sokol, and Richard C. Squire.

Michael Barnes, Sonnenschein Nath & Rosenthal LLP, San
Francisco, California, for amicus curiae Catholic Healthcare
Association of the United States.

Craig E. Stewart and Brian M. Hoffstadt, Jones Day, San
Francisco, California, Sharon Douglass Mayo, Arnold & Por-
ter LLP, San Francisco, California, for amici curiae Pacific
Bell Telephone Co. and Visa U.S.A. Inc.

David T. McDonald, Kirkpatrick & Lockhart Preston Gates
Ellis LLP, Seattle, Washington, for amicus curiae Microsoft
Corp.

Thomas H. Tongue, Brian R. Talcott, and David P. Rossmil-
ler, Dunn Carney Allen Higgins & Tongue, LLP, Portland,
Oregon, for amicus curiae Pacific Source Health Plans.

Michael E. Kipling, Kipling Law Group PLLC, Seattle,
Washington, for amicus curiae Regence BlueCross
BlueShield of Oregon.

Jonathan M. Jacobson, Wilson Sonsini Goodrich & Rosati
Professional Corporation, New York, New York, Scott A.
Sher, Wilson Sonsini Goodrich & Rosati Professional Corpo-
ration, Washington, D.C., Deborah L. Galvin, Kraft Foods,
Inc., Northfield, Illinois, Brian R. Henry, The Coca-Cola
Company, Atlanta, Georgia, Debra A. Valentine, United
Technologies Corp., Hartford, Connecticut, for amici curiae
               CASCADE HEALTH v. PEACEHEALTH              11199
Genentech, Inc., Honeywell International Inc., Kimberly-
Clark Corp., Kraft Foods, Inc., The Coca-Cola Company, and
United Technologies Corp.

Thomas A. Miller, Robins Kaplan Miller & Ciresi L.L.P., Los
Angeles, California, K. Craig Wildfang and Andrew M. Kep-
per, Robins Kaplan Miller & Ciresi L.L.P., Minneapolis, Min-
nesota, David A. Balto, Washington, D.C., for amici curiae
American Antitrust Institute, Consumer Federation of Amer-
ica, and Consumers Union.

                          OPINION

GOULD, Circuit Judge:

   McKenzie-Willamette Hospital (“McKenzie”) filed a com-
plaint in the district court against PeaceHealth asserting seven
claims for relief. Five of the claims arose under the federal
antitrust laws: monopolization, attempted monopolization,
conspiracy to monopolize, tying, and exclusive dealing. The
other two claims arose under Oregon state law: price discrimi-
nation and intentional interference with prospective economic
advantage.

   Before trial, the district court granted summary judgment in
favor of PeaceHealth on McKenzie’s tying claim. After a two-
and-a-half-week trial, the jury rendered a verdict in favor of
PeaceHealth on McKenzie’s claims of monopolization, con-
spiracy to monopolize, and exclusive dealing. However, the
jury found in favor of McKenzie on McKenzie’s claims of
attempted monopolization, price discrimination, and tortious
interference. The jury awarded McKenzie $5.4 million in
damages, which the district court trebled for a final award of
$16.2 million. The district court also awarded McKenzie
$1,583,185.57 in attorneys’ fees, costs, and expenses.
11200             CASCADE HEALTH v. PEACEHEALTH
   We vacate the jury’s verdict in favor of McKenzie on the
attempted monopolization, price discrimination, and tortious
interference claims, and we vacate the district court’s sum-
mary judgment in favor of PeaceHealth on the tying claim.
We also vacate the district court’s award of attorneys’ fees,
costs, and expenses. We remand for further proceedings.

                                   I

                                   A

   McKenzie and PeaceHealth are the only two providers of
hospital care in Lane County, Oregon. The jury found and, for
the purposes of this appeal, the parties do not dispute, that the
relevant market in this case is the market for primary and sec-
ondary acute care hospital services in Lane County. Primary
and secondary acute care hospital services are common medi-
cal services like setting a broken bone and performing a ton-
sillectomy. Some hospitals also provide what the parties call
“tertiary care,” which includes more complex services like
invasive cardiovascular surgery and intensive neonatal care.

   In Lane County, PeaceHealth operates three hospitals while
McKenzie operates one. McKenzie’s sole endeavor is
McKenzie-Willamette Hospital, a 114-bed hospital that offers
primary and secondary acute care in Springfield, Oregon.
McKenzie does not provide tertiary care. In the time period
leading up to and including this litigation, McKenzie had been
suffering financial losses, and, as a result, merged with Triad
Hospitals, Inc.1 so that it could add tertiary services to its
menu of care.

  The largest of PeaceHealth’s three facilities is Sacred Heart
Hospital, a 432-bed operation that offers primary, secondary,
  1
   As a result of the merger, McKenzie’s name changed to Cascade
Health Solutions. For the purposes of this opinion, we, like the parties,
continue to refer to Cascade Health Solutions as McKenzie.
                CASCADE HEALTH v. PEACEHEALTH               11201
and tertiary care in Eugene, Oregon. PeaceHealth also oper-
ates Peace Harbor Hospital, a 21-bed hospital in Florence,
Oregon and Cottage Grove Hospital, an 11-bed hospital in
Cottage Grove, Oregon. In Lane County, PeaceHealth has a
90% market share of tertiary neonatal services, a 93% market
share of tertiary cardiovascular services, and a roughly 75%
market share of primary and secondary care services.

   To understand the antitrust issues in this case, it is neces-
sary to appreciate the structure of the market in which this
case arises. The market for hospital services and medical care
is complex. However, based on the record, there appear to be
three major participants in the market for hospital services:
hospitals, insurers, and patients. Hospitals, like those operated
by PeaceHealth and McKenzie, provide services to patients
and sell services to insurers. Insurers are usually commercial
health insurance companies that seek to buy medical services
from hospitals on the best terms possible. The insurers in turn
sell insurance services to patients and employers. Patients buy
health insurance from insurers (often through their employers)
and sometimes buy services from hospitals.

   In the transaction between a hospital that sells care services
and an insurer that buys care services, the price agreed upon
is often referred to as a “reimbursement rate.” For example,
in a hospital-insurer contract, the agreed upon price might be
“a 90% reimbursement rate.” A 90% reimbursement rate price
means that, when the insurer must purchase services from the
hospital, the insurer gets a 10% discount off the hospital’s
regular price, also called the charge master or list price. It fol-
lows that hospitals prefer high reimbursement rates and insur-
ers prefer low reimbursement rates, as each group pursues its
own economic interest.

                                B

  Before trial, the district court granted summary judgment to
PeaceHealth on McKenzie’s tying claim, concluding that
11202              CASCADE HEALTH v. PEACEHEALTH
McKenzie had not presented any evidence that PeaceHealth
“coerced” insurers into purchasing primary and secondary
services from it in order for the insurers to obtain tertiary ser-
vices. The district court let the remainder of McKenzie’s
claims proceed to trial before a jury. On McKenzie’s monopo-
lization and attempted monopolization claims, McKenzie’s
primary theory was that PeaceHealth engaged in anticompeti-
tive conduct by offering insurers “bundled” or “package” dis-
counts. McKenzie asserted that PeaceHealth offered insurers
discounts of 35% to 40% on tertiary services if the insurers
made PeaceHealth their sole preferred provider for all
services—primary, secondary, and tertiary. McKenzie intro-
duced evidence of a few specific instances of PeaceHealth’s
bundled discounting practices.

   For example, in 2001, PeaceHealth was the only preferred
provider of hospital care under the preferred provider plan
(“PPP”) of Regence BlueCross BlueShield of Oregon
(“Regence”).2 At that time, Regence was paying PeaceHealth
a 76% reimbursement rate for all of PeaceHealth’s medical
services, including primary, secondary, and tertiary services.
Around that time, pursuant to McKenzie’s request, Regence
considered adding McKenzie to the PPP as a preferred pro-
vider of primary and secondary services. When Regence’s
contract with PeaceHealth came up for its annual renewal,
Regence solicited two proposals from PeaceHealth. Under
one proposal, PeaceHealth would remain the only preferred
provider. Under the other proposal, McKenzie would be
added as a preferred provider. PeaceHealth offered an 85%
reimbursement rate for all services if it remained Regence’s
sole preferred provider of primary, secondary, and tertiary
services, and a 90% reimbursement rate if McKenzie was
added as a preferred provider of primary and secondary ser-
  2
   In a preferred provider plan, health care providers contract with an
insurer to provide health care to the insurer’s customers. The insurer’s cus-
tomers pay much higher prices if they obtain services from providers other
than those with whom their insurer has contracted.
               CASCADE HEALTH v. PEACEHEALTH              11203
vices. Regence thereafter declined to include McKenzie as a
preferred provider.

   That same year, McKenzie sought and received admission
as a preferred provider of primary and secondary services
under the preferred plan offered by Providence Health Plan
(“Providence”). Until then, PeaceHealth was the only pre-
ferred provider of primary, secondary, and tertiary services in
the Providence preferred plan. Upon McKenzie’s admission
as a preferred provider, PeaceHealth increased its reimburse-
ment rate with Providence from 90% to 93%. The evidence
showed that insurers who made PeaceHealth their exclusive
preferred provider across all services, thus purchasing from
PeaceHealth a full complement of primary, secondary, and
tertiary services, paid lower reimbursement rates than insurers
who purchased tertiary services from PeaceHealth, but at least
some primary and secondary services from McKenzie.

   The jury rejected McKenzie’s claims of monopolization,
conspiracy to monopolize, and exclusive dealing in its verdict
for PeaceHealth on those issues. However, the jury found in
favor of McKenzie on its claims of attempted monopolization,
price discrimination, and tortious interference. The jury
awarded damages of $5.4 million on each claim. McKenzie
elected to pursue its remedy under federal law on the
attempted monopolization claim, so the district court, pursu-
ant to § 4(a) of the Clayton Act, 15 U.S.C. § 15(a), trebled the
jury’s $5.4 million award on the attempted monopolization
claim for a final damage award of $16.2 million. The district
court denied PeaceHealth’s motion for judgment as a matter
of law on the claims the jury decided in McKenzie’s favor,
and also awarded McKenzie $1,583,185.57 in attorneys’ fees
and costs.

   PeaceHealth appeals the judgment entered pursuant to the
jury verdict in McKenzie’s favor. McKenzie cross-appeals the
district court’s grant of summary judgment to PeaceHealth on
11204               CASCADE HEALTH v. PEACEHEALTH
McKenzie’s tying claim. Both parties appeal the district
court’s award of attorneys’ fees and costs.

                                      II

  We first address PeaceHealth’s appeal of the jury verdict in
McKenzie’s favor on McKenzie’s claims of attempted
monopolization, price discrimination, and tortious interfer-
ence.

                                      A

    We address initially the attempted monopolization claim.
Section 2 of the Sherman Act makes it illegal to “attempt to
monopolize . . . any part of the trade or commerce among the
several States, or with foreign nations.” 15 U.S.C. § 2. “[T]o
demonstrate attempted monopolization a plaintiff must prove
(1) that the defendant has engaged in predatory or anticompe-
titive conduct with (2) a specific intent to monopolize and (3)
a dangerous probability of achieving monopoly power.” Spec-
trum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993);
Amarel v. Connell, 102 F.3d 1494, 1521 (9th Cir. 1996).3
  3
    The focus in attempted monopolization cases on a defendant’s “spe-
cific intent” to monopolize and on the “dangerous probability” that
monopoly will result traces its roots to the Supreme Court’s earliest pro-
nouncements on the Sherman Act. Over one hundred years ago, Justice
Holmes explained that the Sherman Act permits claims
      against combinations in restraint of commerce among the states
      and against attempts to monopolize the same. Intent is almost
      essential to such a combination, and is essential to such an
      attempt. Where acts are not sufficient in themselves to produce
      a result which the law seeks to prevent—for instance, the
      monopoly,—but require further acts in addition to the mere
      forces of nature to bring that result to pass, an intent to bring it
      to pass is necessary in order to produce a dangerous probability
      that it will happen. But when that intent and the consequent dan-
      gerous probability exist, this statute, like many others, and like
      the common law in some cases, directs itself against that danger-
      ous probability as well as against the completed result.
                   CASCADE HEALTH v. PEACEHEALTH                      11205
   PeaceHealth’s appeal centers on the first element of the
Spectrum Sports test, the conduct element. Anticompetitive
conduct is behavior that tends to impair the opportunities of
rivals and either does not further competition on the merits or
does so in an unnecessarily restrictive way. Aspen Skiing Co.
v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32
(1985). PeaceHealth contends that we should vacate the jury’s
verdict because the district court incorrectly instructed the
jury about when bundled discounting can amount to anticom-
petitive conduct. This leads us to consider at some length the
phenomena of bundles and bundled discounts.

                                      1

   [1] Bundling is the practice of offering, for a single price,
two or more goods or services that could be sold separately.
A bundled discount occurs when a firm sells a bundle of
goods or services for a lower price than the seller charges for
the goods or services purchased individually. See Daniel A.
Crane, Mixed Bundling, Profit Sacrifice, and Consumer Wel-

Swift & Co. v. United States, 196 U.S. 375, 396 (1905) (citation omitted).
By contrast, in monopolization cases, monopolistic intent can be inferred
from the exclusionary conduct of a firm with monopoly power. United
States v. Aluminum Co. of Am., 148 F.2d 416, 432 (2d Cir. 1945) (Hand,
J.) (noting that, in a monopolization case, “no intent is relevant except that
which is relevant to any liability, criminal or civil: i.e. an intent to bring
about the forbidden act”); United States v. United Shoe Mach. Corp., 110
F. Supp. 295, 346 (D. Mass. 1953) (“Defendant intended to engage in the
leasing practices and pricing policies which maintained its market power.
That is all the intent which the law requires when both the complaint and
the judgment rest on a charge of ‘monopolizing’, not merely ‘attempting
to monopolize’. Defendant having willed the means, has willed the end.”),
aff’d, 347 U.S. 521 (1954). In attempted monopolization cases, though, the
defendant firm “has not yet achieved a position of power in the market but
is trying to build up such a position. Being without power to exploit or
exclude, such a firm must be shown to have a specific intent to achieve
these results.” A.D. Neale & D.G. Goyder, The Antitrust Laws of the
United States of America 93 (3d ed. 1980).
11206          CASCADE HEALTH v. PEACEHEALTH
fare, 55 Emory L.J. 423, 425 (2006); David S. Evans &
Michael Salinger, Why Do Firms Bundle and Tie?, 22 Yale J.
on Reg. 37, 41 (2005); Thomas A. Lambert, Evaluating Bun-
dled Discounts, 89 Minn. L. Rev. 1688, 1693 (2005). As dis-
cussed above, PeaceHealth offered bundled discounts to
Regence and other insurers in this case. Specifically, Peace-
Health offered insurers discounts if the insurers made Peace-
Health their exclusive preferred provider for primary,
secondary, and tertiary care.

   Bundled discounts are pervasive, and examples abound.
Season tickets, fast food value meals, all-in-one home theater
systems—all are bundled discounts. Like individual consum-
ers, institutional purchasers seek and obtain bundled dis-
counts, too. See, e.g., LePage’s Inc. v. 3M, 324 F.3d 141, 154
(3d Cir. 2003) (en banc) (involving rebates offered by 3M to
retailers who purchased 3M’s full line of health care, home
care, home improvement, stationary, retail auto, and “Leisure
Time” products); Invacare Corp. v. Respironics, Inc., No.
1:04-CV-1580, 2006 WL 3022968, at *1 (N.D. Ohio Oct. 23,
2006) (involving a medical device manufacturer who bundled
the masks worn by persons with obstructive sleep apena with
the devices that blow air into the masks); Masimo Corp. v.
Tyco Health Care Group, L.P., No. CV 02-4770, 2006 WL
1236666, at *9 (C.D. Cal. Mar. 22, 2006) (involving rebates
offered by Tyco to hospitals that purchased both Tyco’s
oximetry and non-oximetry products together); J.B.D.L. Corp.
v. Wyeth-Ayerst Labs., Inc., No. 1:01-CV-704, 2005 WL
1396940, at *3 (S.D. Ohio June 13, 2005) (involving rebates
offered by Wyeth to pharmacy benefit managers based on
combined purchases of estrogen-replacement drugs, oral con-
traceptives, an antidepressant, an antibiotic, a calcium channel
blocker, and a beta blocker), aff’d, 485 F.3d 880 (6th Cir.
2007). The varied and pervasive nature of bundled discounts
illustrates that such discounts transcend market boundaries.
On the one hand, the world’s largest corporations offer bun-
dled discounts as their product lines expand with the conver-
                   CASCADE HEALTH v. PEACEHEALTH                     11207
gence of industries.4 On the other hand, a street-corner vendor
with a food cart—a merchant with limited capital—might
offer a discount to a customer who buys a drink and potato
chips to complement a hot dog. The fact that such diverse
sellers offer bundled discounts shows that such discounts are
a fundamental option for both buyers and sellers.5

   Bundled discounts generally benefit buyers because the dis-
counts allow the buyer to get more for less.6 Lambert, supra,
89 Minn. L. Rev. at 1726 (suggesting that bundled discounts
always provide some immediate consumer benefit in the form
of lower prices); 3 Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 749b at 324 (Supp. 2006) (explaining that
  4
     For example, in the telecommunications field, it is common for compa-
nies to offer not only phone service, but also Internet access and television
service, and many of these companies offer bundled discounts to custom-
ers who purchase their entire package. See Ken Belson, Dial M for
Merger, N.Y. Times, Jan. 28, 2005, at C1; Ken Belson, Cable’s Rivals
Lure Customers with Packages, N.Y. Times, Nov. 22, 2004, at C1.
   5
     That bundled discounts are a common feature of our current economic
system is relevant to our analysis of allegedly anticompetitive conduct
under § 2 of the Sherman Act. The Supreme Court, in assessing the stare
decisis effect of its prior precedents under § 1 of the Sherman Act,
recently noted that “[f]rom the beginning the Court has treated the Sher-
man Act as a common-law statute,” and that “[j]ust as the common law
adapts to modern understanding and greater experience, so too does the
Sherman Act’s prohibition on ‘restraint[s] of trade’ evolve to meet the
dynamics of present economic conditions.” Leegin Creative Leather
Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2720 (2007) (third alteration
in original). The frequency with which we see bundled discounts in varied
contexts does not insulate such discounts from antitrust review, but it
heightens the need to ensure that the rule adopted does not expose inven-
tive and legitimate forms of price competition to an overbroad liability
standard.
   6
     The Supreme Court has recognized the principle that package pricing
is usually procompetitive, noting that “[b]uyers often find package sales
attractive; a seller’s decision to offer such packages can merely be an
attempt to compete effectively—conduct that is entirely consistent with
the Sherman Act.” Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S.
2, 12 (1984).
11208              CASCADE HEALTH v. PEACEHEALTH
“[t]he great majority of discounting practices are procompeti-
tive” and “reflect hard bargaining”). Bundling can also result
in savings to the seller because it usually costs a firm less to
sell multiple products to one customer at the same time than
it does to sell the products individually. United States v.
Microsoft Corp., 253 F.3d 34, 87 (D.C. Cir. 2001) (per
curiam) (noting that “[b]undling obviously saves distribution
and consumer transaction costs” and allows firms to “capital-
ize on certain economies of scope”); Crane, supra, 55 Emory
L.J. at 430-33 (discussing how package discounts can create
economies of scope and transaction costs savings).7

    Not surprisingly, the Supreme Court has instructed that,
because of the benefits that flow to consumers from dis-
counted prices, price cutting is a practice the antitrust laws
aim to promote. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 594 (1986) (“[C]utting prices in
order to increase business often is the very essence of compe-
tition.”). Consistent with that principle, we should not be too
quick to condemn price-reducing bundled discounts as anti-
competitive, lest we end up with a rule that discourages legiti-
mate price competition. See Barry Wright Corp. v. ITT
Grinnell Corp., 724 F.2d 227, 234 (1st Cir. 1983) (Breyer, J.).

  However, it is possible, at least in theory, for a firm to use
a bundled discount to exclude an equally or more efficient
competitor and thereby reduce consumer welfare in the long
run. See Richard A. Posner, Antitrust Law 236 (2d ed. 2001);
Barry Nalebuff, Exclusionary Bundling, 50 Antitrust Bull.
321, 321 (2005). For example, a competitor who sells only a
  7
    The academic literature provides other examples of ways in which sell-
ers benefit from bundling. See, e.g., Crane, supra, 55 Emory L.J. at 430-
43 (suggesting sellers can use bundles to instill customer loyalty, lower net
prices to consumers by eliminating multiple monopoly-price markups on
complementary goods, and price discrimination); see also Antitrust Mod-
ernization Comm’n, Report and Recommendations 95 (2007) (suggesting
sellers can use bundled discounts to increase demand in lieu of advertis-
ing, encourage use of a new product, or enter a new market).
               CASCADE HEALTH v. PEACEHEALTH              11209
single product in the bundle (and who produces that single
product at a lower cost than the defendant) might not be able
to match profitably the price created by the multi-product
bundled discount. See Ortho Diagnostic Sys., Inc. v. Abbott
Labs., Inc., 920 F. Supp. 455, 467 (S.D.N.Y. 1996). This is
true even if the post-discount prices for both the entire bundle
and each product in the bundle are above the seller’s cost. See
Ortho, 920 F. Supp. at 467 (noting that “a firm that enjoys a
monopoly on one or more of a group of complementary prod-
ucts, but which faces competition on others, can price all of
its products above average variable cost and yet still drive an
equally efficient competitor out of the market”). Judge
Kaplan’s opinion in Ortho provides an example of such a situ-
ation:

    Assume for the sake of simplicity that the case
    involved the sale of two hair products, shampoo and
    conditioner, the latter made only by A and the for-
    mer by both A and B. Assume as well that both must
    be used to wash one’s hair. Assume further that A’s
    average variable cost for conditioner is $2.50, that its
    average variable cost for shampoo is $1.50, and that
    B’s average variable cost for shampoo is $1.25. B
    therefore is the more efficient producer of shampoo.
    Finally, assume that A prices conditioner and sham-
    poo at $5 and $3, respectively, if bought separately
    but at $3 and $2.25 if bought as part of a package.
    Absent the package pricing, A’s price for both prod-
    ucts is $8. B therefore must price its shampoo at or
    below $3 in order to compete effectively with A,
    given that the customer will be paying A $5 for con-
    ditioner irrespective of which shampoo supplier it
    chooses. With the package pricing, the customer can
    purchase both products from A for $5.25, a price
    above the sum of A’s average variable cost for both
    products. In order for B to compete, however, it must
    persuade the customer to buy B’s shampoo while
    purchasing its conditioner from A for $5. In order to
11210          CASCADE HEALTH v. PEACEHEALTH
    do that, B cannot charge more than $0.25 for sham-
    poo, as the customer otherwise will find A’s package
    cheaper than buying conditioner from A and sham-
    poo from B. On these assumptions, A would force B
    out of the shampoo market, notwithstanding that B
    is the more efficient producer of shampoo, without
    pricing either of A’s products below average vari-
    able cost.

Id.; see also 3 Areeda & Hovenkamp, supra, ¶ 749a at 318-19
(Supp. 2006) (providing a similar example). It is worth reiter-
ating that, as the example above shows, a bundled discounter
can exclude rivals who do not sell as great a number of prod-
uct lines without pricing its products below its cost to produce
them. Thus, a bundled discounter can achieve exclusion with-
out sacrificing any short-run profits. See Nalebuff, supra, 50
Antitrust Bull. at 339 (providing an example of exclusion
accomplished with an increase in profits).

   [2] In this case, McKenzie asserts it could provide primary
and secondary services at a lower cost than PeaceHealth.
Thus, the principal anticompetitive danger of the bundled dis-
counts offered by PeaceHealth is that the discounts could
freeze McKenzie out of the market for primary and secondary
services because McKenzie, like seller B in Judge Kaplan’s
example, does not provide the same array of services as
PeaceHealth and therefore could possibly not be able to match
the discount PeaceHealth offers insurers.

   [3] From our discussion above, it is evident that bundled
discounts, while potentially procompetitive by offering bar-
gains to consumers, can also pose the threat of anticompeti-
tive impact by excluding less diversified but more efficient
producers. These considerations put into focus this problem:
How are we to discern where antitrust law draws the line
between bundled discounts that are procompetitive and part of
the normal rough-and-tumble of our competitive economy
and bundled discounts, offered by firms holding or on the
                CASCADE HEALTH v. PEACEHEALTH              11211
verge of gaining monopoly power in the relevant market, that
harm competition and are thus proscribed by § 2 of the Sher-
man Act?

                                2

   In this case, the district court based its jury instruction
regarding the anticompetitive effect of bundled discounting
on the Third Circuit’s en banc decision in LePage’s Inc. v.
3M, 324 F.3d 141 (3d Cir. 2003) (en banc). In that case, the
plaintiff, LePage’s, was the market leader in sales of “private
label” (i.e., store brand) transparent tape. See id. at 144. As
LePage’s market share fell and its profitability declined, it
brought suit asserting that 3M, who manufactured Scotch
tape, some private label tape, and many other products that
LePage’s did not produce (like healthcare products and retail
automotive products), leveraged its monopoly over Scotch
brand tape to monopolize the private label tape market. Id. at
145, 154. Specifically, LePage’s alleged that 3M’s multi-
tiered bundled rebate structure was anticompetitive. Id. at
145. The bundled rebate structure offered progressively
higher rebates when customers increased purchases across
3M’s different product lines—discounts LePage’s could not
offer because it did not sell the same diverse array of products
as 3M. See id. A jury found that 3M’s conduct violated § 2
of the Sherman Act and 3M appealed. Id.

   The primary issue before the Third Circuit was whether 3M
unlawfully maintained its monopoly power through the bun-
dled discount program. See id. at 146-47. 3M argued that its
bundled rebate structure was legal as a matter of law because
it never priced below cost. Id. at 147. 3M relied heavily on the
United States Supreme Court’s decision in Brooke Group Ltd.
v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
In Brooke Group, a primary-line price discrimination case
brought under the Robinson-Patman Act, the Supreme Court
held that, in a single product predatory pricing case, a plaintiff
must prove (1) that its rival’s low prices were below an appro-
11212           CASCADE HEALTH v. PEACEHEALTH
priate measure of its rival’s costs and (2) that its rival “had a
reasonable prospect, or, under § 2 of the Sherman Act, a dan-
gerous probability, of recouping its investment in below-cost
prices.” Id. at 222, 224. In LePage’s, the Third Circuit, in a
7-3 en banc decision, refused to apply Brooke Group’s below-
cost pricing requirement to bundled discounting.

   The Third Circuit first distinguished Brooke Group by not-
ing that the defendant in that case was an oligopolist while
3M was a monopolist. LePage’s, 324 F.3d at 151-52. The
court reasoned that while Brooke Group’s requirement of
below-cost pricing with a probability of recoupment is appro-
priate when the defendant is an oligopolist who still faces
competition when it tries to recoup the losses it suffered dur-
ing the predation period, below-cost pricing and a probability
of recoupment should not be required when the defendant is
a monopolist whose behavior will be unconstrained by the
market after it eliminates its lone rival. See id. The court in
LePage’s also noted that the plaintiff in Brooke Group simply
challenged the defendant’s pricing practices, not bundling
accomplished through discounting. See id. at 151. The court
reasoned that Brooke Group did not require below-cost pric-
ing for any pricing practice to be deemed exclusionary. See id.

   The court noted that “[t]he principal anticompetitive effect
of bundled rebates as offered by 3M is that when offered by
a monopolist they may foreclose portions of the market to a
potential competitor who does not manufacture an equally
diverse group of products and who therefore cannot make a
comparable offer.” Id. at 155. The Third Circuit concluded
that the jury could reasonably have found that 3M used its
monopoly in transparent tape along with its extensive catalog
of other products to exclude LePage’s from the market and
that 3M did not present any adequate business justification for
its bundled discounting program. Id. at 164, 169. The court
thus affirmed the jury verdict in LePage’s favor, id. at 169,
even though LePage’s economist testified that LePage’s was
                  CASCADE HEALTH v. PEACEHEALTH                      11213
not as efficient a tape producer as 3M, see id. at 177 (Green-
burg, J., dissenting).8

   In this case, the district court used LePage’s to formulate
its jury instruction. Specifically, the district court instructed
the jury that

      plaintiff . . . contends that defendant has bundled
      price discounts for its primary, secondary, and terti-
      ary acute care products and that doing so is anti-
      competitive. Bundled pricing occurs when price dis-
      counts are offered for purchasing an entire line of
      services exclusively from one supplier. Bundled
      price discounts may be anti-competitive if they are
      offered by a monopolist and substantially foreclose
      portions of the market to a competitor who does not
      provide an equally diverse group of services and
      who therefore cannot make a comparable offer.

As 3M did in LePage’s, PeaceHealth argues that the jury
instruction incorrectly stated the law because it allowed the
jury to find that a defendant with monopoly power (or, in the
case of an attempted monopolization claim, a dangerous prob-
ability of achieving monopoly power) engaged in exclusion-
ary conduct by simply offering a bundled discount that its
competitor could not match. The instruction did not require
the jury to consider whether the defendant priced below cost.
LePage’s, PeaceHealth asserts, was wrongly decided because
it allows the jury to conclude, from the structure of the market
alone, that a competitor has been anticompetitively excluded
from the market.9 We generally review jury instructions for
  8
     Judge Scirica and then-Judge Alito joined Judge Greenburg’s dissent
from the majority opinion. The Third Circuit reaffirmed the rule of
LePage’s in United States v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d
Cir. 2005).
   9
     After oral argument, we issued an order inviting amicus briefing on the
issue of whether a plaintiff seeking to establish the anticompetitive con-
11214             CASCADE HEALTH v. PEACEHEALTH
abuse of discretion, but we review de novo whether jury
instructions correctly stated the law. Voohries-Larson v.
Cessna Aircraft Co., 241 F.3d 707, 713 (9th Cir. 2001).

   [4] As the bipartisan Antitrust Modernization Commission
(“AMC”)10 recently noted, the fundamental problem with the
LePage’s standard is that it does not consider whether the
bundled discounts constitute competition on the merits, but
simply concludes that all bundled discounts offered by a
monopolist are anticompetitive with respect to its competitors
who do not manufacture an equally diverse product line. Anti-
trust Modernization Comm’n, Report and Recommendations
97 (2007) [hereinafter AMC Report]. The LePage’s standard,
the AMC noted, asks the jury to consider whether the plaintiff
has been excluded from the market, but does not require the
jury to consider whether the plaintiff was at least as efficient
of a producer as the defendant. Id.; see also LePage’s, 324
F.3d at 175 (Greenberg, J., dissenting) (noting that “LePage’s

duct element of an attempted monopolization claim by showing that the
defendant offered bundled discounts must prove that the defendant’s
prices were below the defendant’s costs. Cascade Health Solutions v.
PeaceHealth, 479 F.3d 726, 727 (9th Cir. 2007). We also sought input on
the appropriate measure of costs if a plaintiff must prove below-cost pric-
ing. Id. Finally, we asked amici who were arguing that a plaintiff should
not be required to prove below-cost pricing to suggest alternative stan-
dards for the trier of fact to use in determining whether bundled discounts
are anticompetitive. Id. We thank the many amici who accepted our invita-
tion for their thoughtful briefs.
   10
      Congress created the AMC in the Antitrust Modernization Commis-
sion Act of 2002, Pub. L. No. 107-273, §§ 11051-60, 116 Stat. 1758,
1856-59. The Act entrusted the AMC with four tasks: (1) soliciting the
views of all parties concerned with the federal antitrust laws; (2) examin-
ing whether the antitrust laws needed modernization; (3) evaluating pro-
posals to modernize the antitrust laws; and (4) submitting a report to the
President and Congress containing a statement of the AMC’s findings and
conclusions and recommending any legislative or administrative action the
AMC considered appropriate. See id. §§ 11053, 11058. The procedure for
appointing the twelve commissioners ensured that both major political
parties were equally represented on the AMC. See id. § 11054.
               CASCADE HEALTH v. PEACEHEALTH            11215
did not even attempt to show that it could not compete by cal-
culating the discount that it would have had to provide in
order to match the discounts offered by 3M through its bun-
dled rebates”). Thus, the LePage’s standard could protect a
less efficient competitor at the expense of consumer welfare.
As Judge Greenberg explained in his LePage’s dissent, the
Third Circuit’s standard “risks curtailing price competition
and a method of pricing beneficial to customers because the
bundled rebates effectively lowered [the seller’s] costs.”
LePage’s, 324 F.3d at 179 (Greenberg, J., dissenting).

   The AMC also lamented that LePage’s “offers no clear
standards by which firms can assess whether their bundled
rebates are likely to pass antitrust muster.” AMC Report,
supra, at 94. The Commission noted that efficiencies, and not
schemes to acquire or maintain monopoly power, likely
explain the use of bundled discounts because many firms
without market power offer them. Id. at 95. The AMC thus
proposed a three-part test that it believed would protect pro-
competitive bundled discounts from antitrust scrutiny. The
AMC proposed that:

    Courts should adopt a three-part test to determine
    whether bundled discounts or rebates violate Section
    2 of the Sherman Act. To prove a violation of Sec-
    tion 2, a plaintiff should be required to show each
    one of the following elements (as well as other ele-
    ments of a Section 2 claim): (1) after allocating all
    discounts and rebates attributable to the entire bun-
    dle of products to the competitive product, the defen-
    dant sold the competitive product below its
    incremental cost for the competitive product; (2) the
    defendant is likely to recoup these short-term losses;
    and (3) the bundled discount or rebate program has
    had or is likely to have an adverse effect on competi-
    tion.

Id. at 99. The AMC reasoned that the first element would (1)
subject bundled discounts to antitrust scrutiny only if they
11216          CASCADE HEALTH v. PEACEHEALTH
could exclude a hypothetical equally efficient competitor and
(2) provide sufficient clarity for businesses to determine
whether their bundled discounting practices run afoul of § 2.
Id. at 100. The AMC concluded that the three-part test would,
as a whole, bring the law on bundled discounting in line with
the Supreme Court’s reasoning in Brooke Group. Id.

                               3

  We must decide whether we should follow LePage’s or
whether we should part ways with the Third Circuit by adopt-
ing a cost-based standard to apply in bundled discounting
cases.

   Observers have commented that, in some respects, bundled
discounts are similar to both predatory pricing and tying. See
Nalebuff, supra, 50 Antitrust Bull. at 365; Daniel L. Rubin-
feld, 3M’s Bundled Rebates: An Economic Perspective, 72 U.
Chi. L. Rev. 243, 252-56 (2005). As the Supreme Court
explained in Brooke Group, a plaintiff in a single product
predatory pricing case must establish that the defendant priced
below cost and that there was a probability the defendant
could recoup the losses it suffered during the predation
period. See Brooke Group, 509 U.S. at 222. In a normal tying
case, however, while a plaintiff must prove that it was “co-
erced” into buying the tied products from the defendant, a
plaintiff does not need to prove that the defendant priced the
products below cost, and therefore the plaintiff also does not
need to prove any recoupment of losses. See Datagate, Inc. v.
Hewlett-Packard Co., 60 F.3d 1421, 1423-24 (9th Cir. 1995).

   However, “[o]ne difference between traditional tying by
contract and tying via package discounts is that the traditional
tying contract typically forces the buyer to accept both prod-
ucts, as well as the cost savings.” 3 Areeda & Hovenkamp,
supra, ¶ 749b2 at 332 (Supp. 2006). Conversely, “the package
discount gives the buyer the choice of accepting the cost sav-
ings by purchasing the package, or foregoing the savings by
                CASCADE HEALTH v. PEACEHEALTH              11217
purchasing the products separately.” Id. The package discount
thus does not constrain the buyer’s choice as much as the tra-
ditional tie. For that reason, the late-Professor Areeda and
Professor Hovenkamp suggest that “[a] variation of the
requirement that prices be ‘below cost’ is essential for the
plaintiff to establish one particular element of unlawful bun-
dled discounting—namely, that there was actually ‘tying’—
that is, that the purchaser was actually ‘coerced’ (in this case,
by lower prices) into taking the tied-up package.” Id. at 331.

   In addition, the Supreme Court has forcefully suggested
that we should not condemn prices that are above some mea-
sure of incremental cost. See id. ¶ 737a at 393 (2d ed. 2002)
(quoting Brooke Group, 509 U.S. at 223). In Brooke Group,
the Court held that “a plaintiff seeking to establish competi-
tive injury resulting from a rival’s low prices must prove that
the prices complained of are below an appropriate measure of
its rival’s costs.” Brooke Group, 509 U.S. at 222. In the
course of rejecting the plaintiff’s argument that a predatory
pricing plaintiff need not prove below-cost pricing, the Court
wrote that it has “rejected . . . the notion that above-cost
prices that are below general market levels or the costs of a
firm’s competitors inflict injury to competition cognizable
under the antitrust laws.” Id. at 223 (citing Atl. Richfield Co.
v. USA Petroleum Co., 495 U.S. 328, 340 (1990)). The Court
went on to emphasize that “[l]ow prices benefit consumers
regardless of how those prices are set, and so long as they are
above predatory levels, they do not threaten competition.” Id.
(internal quotation omitted). The Court also noted the broad
application of the principle that only below-cost prices are
anticompetitive, stating that “[w]e have adhered to this princi-
ple regardless of the type of antitrust claim involved.” Id.
(internal quotation omitted). “As a general rule,” the Court
concluded, “the exclusionary effect of prices above a relevant
measure of cost either reflects the lower cost structure of the
alleged predator, and so represents competition on the merits,
or is beyond the practical ability of a judicial tribunal to con-
11218             CASCADE HEALTH v. PEACEHEALTH
trol without courting intolerable risks of chilling legitimate
price-cutting.” Id.; accord Matsushita, 475 U.S. at 594.

   The Court recently reemphasized these principles in
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.,
127 S. Ct. 1069, 1078 (2007), a case in which the Court held
that Brooke Group’s below-cost pricing requirement applies
in cases in which the plaintiff alleges that the defendant
engaged in predatory bidding—the practice of bidding up
input costs to drive rivals out of business. Specifically, the
Court held that a predatory bidding “plaintiff must prove that
the alleged predatory bidding led to below-cost pricing of the
predator’s outputs. That is, the predator’s bidding on the
[input] side must have caused the cost of the relevant output
to rise above the revenues generated in the sale of those out-
puts.” Weyerhaeuser, 127 S. Ct. at 1078.

   Of course, in neither Brooke Group nor Weyerhaeuser did
the Court go so far as to hold that in every case in which a
plaintiff challenges low prices as exclusionary conduct the
plaintiff must prove that those prices were below cost. But the
Court’s opinions strongly suggest that, in the normal case,
above-cost pricing will not be considered exclusionary con-
duct for antitrust purposes, and the Court’s reasoning poses a
strong caution against condemning bundled discounts that
result in prices above a relevant measure of costs.

    The Supreme Court’s long and consistent adherence to the
principle that the antitrust laws protect the process of compe-
tition, and not the pursuits of any particular competitor, rein-
force our conclusion of caution concerning bundled discounts
that result in prices above an appropriate measure of costs.
The Court voiced this principle most notably in Brunswick
Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977). In that
case, the plaintiffs challenged, under § 7 of the Clayton Act,11
  11
      Section 7 of the Clayton Act forbids acquisitions that “substantially
. . . lessen competition[ ] or tend to create a monopoly.” 15 U.S.C. § 18.
                CASCADE HEALTH v. PEACEHEALTH              11219
Brunswick’s acquisition of unprofitable bowling centers. Id.
at 479-80. The plaintiffs, like McKenzie, sought treble dam-
ages under § 4 of the Clayton Act. The Court considered the
“narrow” issue of “whether antitrust damages are available
where the sole injury alleged is that competitors were contin-
ued in business, thereby denying [the plaintiffs] an anticipated
increase in market shares.” Id. at 484. The Court observed
that the damages the plaintiffs sought were “designed to pro-
vide them with the profits they would have realized had com-
petition been reduced.” Id. at 488. Noting that “[t]he antitrust
laws, however, were enacted for ‘the protection of competi-
tion not competitors,’ ” the Court reasoned that “[i]t is inimi-
cal to the purposes of these laws to award damages for the
type of injury claimed here.” Id. (quoting Brown Shoe Co. v.
United States, 370 U.S., 294, 320 (1962)). The Court con-
cluded:

    We therefore hold that for plaintiffs to recover treble
    damages on account of § 7 violations, they must
    prove more than injury causally linked to an illegal
    presence in the market. Plaintiffs must prove anti-
    trust injury, which is to say injury of the type the
    antitrust laws were intended to prevent and that
    flows from that which makes defendants’ acts
    unlawful. The injury should reflect the anticompeti-
    tive effect either of the violation or of anticompeti-
    tive acts made possible by the violation.

Id. at 489.

   Subsequent to Brunswick, the Court has often reinforced
the principle that the antitrust laws’ prohibitions focus on pro-
tecting the competitive process and not on the success or fail-
ure of individual competitors. See, e.g., Volvo Trucks N. Am.,
Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, ___ 126 S. Ct.
860, 872 (2006) (“Interbrand competition, our opinions
affirm, is the primary concern of antitrust law.” (internal quo-
tation omitted)); Spectrum Sports, 506 U.S. at 458 (“The pur-
11220          CASCADE HEALTH v. PEACEHEALTH
pose of the [Sherman] Act is not to protect businesses from
the working of the market; it is to protect the public from the
failure of the market. The law directs itself not against con-
duct which is competitive, even severely so, but against con-
duct which unfairly tends to destroy competition itself.”); Atl.
Richfield, 495 U.S. at 331 (holding that a firm does not incur
an antitrust injury when it loses sales to a competitor charging
nonpredatory prices pursuant to a vertical, maximum-price-
fixing scheme); Cargill, Inc. v. Monfort of Colo., Inc., 479
U.S. 104, 113 (1986) (extending antitrust injury requirement
to suits for injunctive relief under § 16 of the Clayton Act, 15
U.S.C. § 26); J. Truett Payne Co. v. Chrysler Motors Corp.,
451 U.S. 557, 562 (1981) (extending antitrust injury require-
ment to price discrimination suits arising under § 2 of the
Clayton Act). The Court’s reasoning and conclusions in
Brooke Group, as reaffirmed recently in Weyerhauser,
accordingly show a measured concern to leave unhampered
pricing practices that might benefit consumers, absent the
clearest showing that an injury to the competitive process will
result. Microsoft, 253 F.3d at 58; Concord Boat Corp. v.
Brunswick Corp., 207 F.3d 1039, 1060-61 (8th Cir. 2000).

   One of the challenges of interpreting and enforcing the
amorphous prohibitions of §§ 1 and 2 of the Sherman Act is
ensuring that the antitrust laws do not punish economic
behavior that benefits consumers and will not cause long-run
injury to the competitive process. A bundled discount, how-
ever else it might be viewed, is a price discount on a collec-
tion of goods. The Supreme Court has undoubtedly shown a
solicitude for price competition. In Weyerhaeuser, Justice
Thomas, writing for the Court, reminded us that, in Brooke
Group, the Court had cautioned that “the costs of erroneous
findings of predatory-pricing liability were quite high because
[t]he mechanism by which a firm engages in predatory pricing
—lowering prices—is the same mechanism by which a firm
stimulates competition, and therefore, mistaken findings of
liability would chill the very conduct the antitrust laws are
                     CASCADE HEALTH v. PEACEHEALTH                     11221
designed to protect.” Weyerhaeuser, 127 S. Ct. at 1075 (inter-
nal quotations omitted, alteration in original).

   [5] Given the endemic nature of bundled discounts in many
spheres of normal economic activity, we decline to endorse
the Third Circuit’s definition of when bundled discounts con-
stitute the exclusionary conduct proscribed by § 2 of the Sher-
man Act. Instead, we think the course safer for consumers and
our competitive economy to hold that bundled discounts may
not be considered exclusionary conduct within the meaning of
§ 2 of the Sherman Act unless the discounts resemble the
behavior that the Supreme Court in Brooke Group identified
as predatory.12 Accordingly, we hold that the exclusionary
conduct element of a claim arising under § 2 of the Sherman
Act cannot be satisfied by reference to bundled discounts
unless the discounts result in prices that are below an appro-
priate measure of the defendant’s costs.13
  12
    McKenzie contends that Brooke Group is not persuasive in this case
because Brooke Group dealt with liability for primary-line price discrimi-
nation in violation of § 2(a) of the Robinson-Patman Act, whereas this
case arises under § 2 of the Sherman Act. However, the Court made clear
in Brooke Group that, whether a predatory pricing claim arises under
§ 2(a) of the Robinson-Patman Act or § 2 of the Sherman Act, the con-
cerns are essentially the same, noting that:
       There are, to be sure, differences between the two statutes. For
       example, we interpret § 2 of the Sherman Act to condemn preda-
       tory pricing when it poses “a dangerous probability of actual
       monopolization,” whereas the Robinson-Patman Act requires
       only that there be “a reasonable possibility” of substantial injury
       to competition before its protections are triggered. But whatever
       additional flexibility the Robinson-Patman Act standard may
       imply, the essence of the claim under either statute is the same:
       A business rival has priced its products in an unfair manner with
       an object to eliminate or retard competition and thereby gain and
       exercise control over prices in the relevant market.
Brooke Group, 509 U.S. at 222 (citations omitted).
   13
      Of course, even if the exclusionary conduct element is satisfied by
bundled discounts at price levels that yield a conclusion of below-cost
sales, under the appropriate measure, there cannot be Sherman Act § 2 lia-
bility for attempted monopolization unless the other elements of a specific
intent to monopolize and dangerous probability of success are satisfied.
11222          CASCADE HEALTH v. PEACEHEALTH
                              4

   The next question we must address is how we define the
appropriate measure of the defendant’s costs in bundled dis-
counting cases and how we determine whether discounted
prices fall below that mark. Defining the appropriate measure
of costs in a bundled discounting case is more complex than
in a single product case. In a single product case, we may sim-
ply ask whether the defendant has priced its product below its
incremental cost of producing that product because a rival that
produces the same product as efficiently as the defendant
should be able to match any price at or above the defendant’s
cost. However, as we discussed above, a defendant offering
a bundled discount, without pricing below cost either the indi-
vidual products in the bundle or the bundle as a whole, can,
in some cases, exclude a rival who produces one of the prod-
ucts in the bundle equally or more efficiently than the defen-
dant. Thus, simply asking whether the defendant’s prices are
below its incremental costs might fail to alert us to bundled
discounts that threaten the exclusion of equally efficient
rivals. Nonetheless, we are mindful that, in single product
pricing cases, the Supreme Court has not adopted rules con-
demning prices above a seller’s incremental costs. With these
considerations in mind, we assess the rules the parties and
amici propose for us to use in bundled discounting cases to
determine the appropriate measure of a defendant’s costs and
whether a defendant has priced below that level.

   PeaceHealth and some amici urge us to adopt a rule they
term the “aggregate discount” rule. This rule condemns bun-
dled discounts as anticompetitive only in the narrow cases in
which the discounted price of the entire bundle does not
exceed the bundling firm’s incremental cost to produce the
entire bundle. PeaceHealth and amici argue that support for
such a rule can be found in the Supreme Court’s single prod-
uct predation cases—Brooke Group and Weyerhaeuser.

  We are not persuaded that those cases require us to adopt
an aggregate discount rule in multi-product discounting cases.
               CASCADE HEALTH v. PEACEHEALTH              11223
As we discussed above, bundled discounts present one poten-
tial threat to consumer welfare that single product discounts
do not: A competitor who produces fewer products than the
defendant but produces the competitive product at or below
the defendant’s cost to produce that product may nevertheless
be excluded from the market because the competitor cannot
match the discount the defendant offers over its numerous
product lines. This possibility exists even when the defen-
dant’s prices are above cost for each individual product and
for the bundle as a whole. See Ortho, 920 F. Supp. at 467;
Nalebuff, supra, 50 Antitrust Bull. at 359 (“Whether or not a
collection of goods is sold at a profit does not reveal whether
one-good rivals were foreclosed.”). Under a discount aggrega-
tion rule, anticompetitive bundled discounting schemes that
harm competition may too easily escape liability.

   [6] Additionally, as commentators have pointed out,
Brooke Group’s safe harbor for above-cost discounting in the
single product discount context is not based on a theory that
above-cost pricing strategies can never be anticompetitive, but
rather on a cost-benefit rejection of a more nuanced rule. 3
Areeda & Hovenkamp, supra, ¶ 749b at 324 (Supp. 2006);
Lambert, supra, 89 Minn. L. Rev. at 1704; see also Verizon
Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540
U.S. 398, 414 (2004) (explaining that while above-cost preda-
tory pricing schemes may exist, they are “ ‘beyond the practi-
cal ability of a judicial tribunal to control’ ” (quoting Brooke
Group, 509 U.S. at 223)). That is, the safe harbor rests on the
premise that “any consumer benefit created by a rule that per-
mits inquiry into above-cost, single-product discounts, but
allows judicial condemnation of those deemed legitimately
exclusionary, would likely be outweighed by the consumer
harm occasioned by overdeterring nonexclusionary dis-
counts.” Lambert, supra, 89 Minn. L. Rev. at 1705; see
Weyerhaeuser, 127 S. Ct. at 1075 (noting the high costs of
erroneous findings of predatory-pricing liability because
“[t]he mechanism by which a firm engages in predatory
pricing—lowering prices—is the same mechanism by which
11224           CASCADE HEALTH v. PEACEHEALTH
a firm stimulates competition” (alteration in original, internal
quotations omitted)); 3 Areeda & Hovenkamp, supra, ¶ 749b
at 324 (Supp. 2006) (noting that “our measurement tools are
too imprecise to evaluate [above-cost discounting] strategies
without creating an intolerable risk of chilling competitive
behavior”). So, in adopting an appropriate cost-based test for
bundled discounting cases, we should not adopt an aggregate
discount rule without inquiring whether a rule exists that is
more likely to identify anticompetitive bundled discounting
practices while at the same time resulting in little harm to
competition.

   The first potential alternative cost-based standard we con-
sider derives from the district court’s opinion in Ortho. This
standard deems a bundled discount exclusionary if the plain-
tiff can show that it was an equally efficient producer of the
competitive product, but the defendant’s bundled discount
made it impossible for the plaintiff to continue to produce
profitably the competitive product. As the district court in
Ortho phrased the standard: a plaintiff basing a § 2 claim on
an anticompetitive bundled discount “must allege and prove
either that (a) the monopolist has priced below its average
variable cost or (b) the plaintiff is at least as efficient a pro-
ducer of the competitive product as the defendant, but that the
defendant’s pricing makes it unprofitable for the plaintiff to
continue to produce.” Ortho, 920 F. Supp. at 469. Under this
standard, above-cost prices are not per se legal. Cf. Brooke
Group, 509 U.S. at 222. Instead, this standard treats below-
cost prices as simply one beacon for identifying discounts that
create the risk of excluding firms that are as efficient as the
defendant—the unique anticompetitive risk posed by bundled
discounts. See Ortho, 920 F. Supp. at 466-67. Under Ortho’s
standard, an above-cost discount can still be anticompetitive
if a plaintiff proves it is as efficient a producer as the defen-
dant, but is excluded because the defendant sells in more
product markets than the plaintiff and can “spread the total
discount over all those product lines and . . . force competitors
to provide the entire dollar amount of the discount on a smal-
                  CASCADE HEALTH v. PEACEHEALTH                     11225
ler collection of products.” Lambert, supra, 89 Minn. L. Rev.
at 1728. As compared to the discount aggregation rule,
Ortho’s approach does a better job of identifying bundled dis-
counts that threaten harm to competition.

   However, one downside of Ortho’s standard is that it does
not provide adequate guidance to sellers who wish to offer
procompetitive bundled discounts because the standard looks
to the costs of the actual plaintiff. A potential defendant who
is considering offering a bundled discount will likely not have
access to information about its competitors’ costs, thus mak-
ing it hard for that potential discounter, under the Ortho stan-
dard, to determine whether the discount it wishes to offer
complies with the antitrust laws. Also, the Ortho standard,
which asks whether the actual plaintiff is as efficient a pro-
ducer as the defendant, could require multiple suits to deter-
mine the legality of a single bundled discount. While it might
turn out that the plaintiff in one particular case is not as effi-
cient a producer of the competitive product as the defendant,
another rival might be. This second rival would have to bring
another suit under the Ortho approach. We decline to adopt
a rule that might encourage more antitrust litigation than is
reasonably necessary to ferret out anticompetitive practices.
See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1966-67
(2007); see also Manual for Complex Litigation (Fourth) § 30
(2004) (“Antitrust litigation can . . . involve voluminous docu-
mentary and testimonial evidence, extensive discovery, com-
plicated legal, factual, and technical (particularly economic)
questions, numerous parties and attorneys, and substantial
sums of money . . . . Antitrust trials usually are long, and there
often are controversies over settlements and attorney fees.”).
Accordingly, we do not adopt Ortho’s approach, which we
believe would be unduly cumbersome for sellers to assess and
thus might chill procompetitive bundled discounting.

   [7] Instead, as our cost-based rule, we adopt what amici
refer to as a “discount attribution” standard.14 Under this stan-
  14
    In the academic literature, this standard is sometimes referred to as a
“discount allocation” or “discount reallocation” standard. See e.g., Daniel
11226             CASCADE HEALTH v. PEACEHEALTH
dard, the full amount of the discounts given by the defendant
on the bundle are allocated to the competitive product or
products. If the resulting price of the competitive product or
products is below the defendant’s incremental cost to produce
them, the trier of fact may find that the bundled discount is
exclusionary for the purpose of § 2. This standard makes the
defendant’s bundled discounts legal unless the discounts have
the potential to exclude a hypothetical equally efficient pro-
ducer of the competitive product.15 Cf. Ortho, 920 F. Supp. at
469 (deeming bundled discounts anticompetitive if the actual
plaintiff is excluded but equally efficient).

A. Crane, Multiproduct Discounting: A Myth of Nonprice Predation, 72
U. Chi. L. Rev. 27, 28 (2005).
   15
      A variation of the example from Ortho illustrates how the discount
attribution standard condemns discounts that could not be matched by an
equally or more efficient producer of the competitive product. Recall that
the example involves A, a firm that makes both shampoo and conditioner.
A’s incremental cost of shampoo is $1.50 and A’s incremental cost of con-
ditioner is $2.50. A prices shampoo at $3 and conditioner at $5, if pur-
chased separately. However, if purchased as a bundle, A prices shampoo
at $2.25 and conditioner at $3. Purchased separately from A, the total
price of one unit of shampoo and one unit of conditioner is $8. However,
with the bundled discount, a customer can purchase both products from A
for $5.25, a discount of $2.75 off the separate prices, but at a price that
is still above A’s variable cost of producing the bundle. Applying the dis-
count attribution rule to the example, we subtract the entire discount on
the package of products, $2.75, from the separate per unit price of the
competitive product, shampoo, $3. The resulting effective price of sham-
poo is thus $0.25, meaning that, if a customer must purchase conditioner
from A at the separate price of $5, a rival who produces only shampoo
must sell the shampoo for $0.25 to make customers indifferent between
A’s bundle and the separate purchase of conditioner from A and shampoo
from the hypothetical rival. A’s pricing scheme thus has the effect of
excluding any potential rival who would produce only shampoo, and
would produce it at an incremental cost above $0.25. However, as we
noted above, A’s incremental cost of producing shampoo is $1.50. Thus,
A’s pricing practices exclude potential competitors that could produce
shampoo more efficiently than A (i.e., at an incremental cost of less than
$1.50). A’s discount could thus be considered exclusionary under our rule,
supporting Sherman Act § 2 liability if the other elements were proved.
               CASCADE HEALTH v. PEACEHEALTH              11227
   In their leading treatise on antitrust law, Professors Areeda
and Hovenkamp support an approach that focuses on whether
a bundled discount excludes a hypothetical equally efficient
rival. Rejecting Ortho’s “actual plaintiff” standard, they
explain:

    [W]e would not require a showing that the actual
    plaintiff be equally efficient. The relevant question is
    not necessarily whether a particular plaintiff was
    equally efficient, but whether the challenged bun-
    dling practices would have excluded an equally effi-
    cient rival, without reasonable justification. This rule
    is preferable on grounds of both administrability and
    principle. On the first, proving whether a hypotheti-
    cal equally efficient rival is excluded by a multipro-
    duct discount is typically quite manageable. By
    contrast, proof that the plaintiff is equally efficient
    can be quite difficult, particularly in cases where the
    defendant produces a larger product line than the
    plaintiff and there are joint costs.

       A requirement that the bundling practice be suffi-
    ciently severe so as to exclude an equally efficient
    single-product rival, and without an adequate busi-
    ness justification, seems to strike about the right bal-
    ance between permitting aggressive pricing while
    prohibiting conduct that can only be characterized as
    anticompetitive. Requiring the defendant’s pricing
    policies to protect the trade of higher cost rivals is
    overly solicitous of small firms and denies customers
    the benefits of the defendant’s lower costs. Further,
    if the practice will exclude an equally efficient rival,
    then it will exclude whether or not the rival is
    equally efficient in fact.

3 Areeda & Hovenkamp, supra, ¶ 749a at 322-23 (Supp.
2006) (footnotes omitted); accord Nalebuff, supra, 50 Anti-
trust Bull. at 328-29. Judge Posner’s work on antitrust law
11228          CASCADE HEALTH v. PEACEHEALTH
also supports an approach that asks whether a bundled dis-
count excludes a hypothetical equally efficient rival, stating
that the acts of a monopolist should be deemed exclusionary
if “the challenged practice is likely in the circumstances to
exclude from the defendant’s market an equally or more effi-
cient competitor.” Posner, supra, at 194-95.

   Areeda and Hovenkamp also support using a discount attri-
bution approach to determine if a bundled discount is exclu-
sionary. They state:

    To see whether a package price is “exclusionary” . . .
    one simply attributes the entire discount on all prod-
    ucts in the package to the product for which exclu-
    sion is claimed. If the resulting price is less than the
    defendant’s cost, then the package discount is exclu-
    sionary as against a rival who makes only one of the
    two goods in the package.

3 Areeda & Hovenkamp, supra, ¶ 749b2 at 335-36 (Supp.
2006) (footnotes omitted); accord Nalebuff, supra, 50 Anti-
trust Bull. at 328. The discount attribution standard has also
been used by two of the district courts in the small number of
published opinions dealing with allegedly exclusionary bun-
dled discounts. See Info. Res., Inc. v. Dun & Bradstreet Corp.,
359 F. Supp. 2d 307, 307 (S.D.N.Y. 2004) (“When price dis-
counts in one market are bundled with the price charged in a
second market, the discounts must be applied to the price in
the second market in determining whether that price is below
that product’s average variable cost.”); Virgin Atl. Airways
Ltd. v. British Airways PLC, 69 F. Supp. 2d 571, 580 n.8
(S.D.N.Y. 1999) (holding that a bundled discount is exclu-
sionary “if the competitive product in the bundle [was] sold
for a price below average variable cost after the discounts on
the monopoly items in the bundle were subtracted from the
price of that competitive product”), aff’d, 257 F.3d 256 (2d
Cir. 2001). The discount attribution standard is also the stan-
dard endorsed by the AMC. AMC Report, supra, at 99
                     CASCADE HEALTH v. PEACEHEALTH                      11229
(requiring plaintiff to prove that “after allocating all discounts
and rebates attributable to the entire bundle of products to the
competitive product, the defendant sold the competitive prod-
uct below its incremental cost for the competitive product”).

   The discount attribution standard provides clear guidance
for sellers that engage in bundled discounting practices. A
seller can easily ascertain its own prices and costs of produc-
tion and calculate whether its discounting practices run afoul
of the rule we have outlined. See Nalebuff, supra, 50 Antitrust
Bull. at 330. Unlike under the Ortho standard, under the dis-
count attribution standard a bundled discounter need not fret
over and predict or determine its rivals’ cost structure.16

   We are aware that liability under the discount attribution
standard has the potential to sweep more broadly than under
the aggregate discount rule or the Ortho standard. However,
there is limited judicial experience with bundled discounts,
and academic inquiry into the competitive effects of bundled
discounts is only beginning.17 By comparison, the Supreme
Court’s decision in Brooke Group (prefaced by the Court’s
discussion of predatory pricing in Matsushita, 475 U.S. at
  16
    Professor Nalebuff identifies the practical problem of calculating a
rival firm’s costs as a compelling argument in favor of a standard that
focuses on whether bundled discounts would exclude a hypothetical
equally efficient competitor:
       There is . . . a practical problem in determining if a rival firm is
       equally efficient or not. The problem is compounded for the
       monopolist who is looking for a bright line test to know whether
       its bundled pricing might be exclusionary or not. The solution to
       both these problems is to pick the monopolist itself as the equally
       efficient rival.
Nalebuff, supra, 50 Antitrust Bull. at 330.
   17
      Although the volume of case law dealing with bundled discounting is
small, one thirty-year-old case shows that antitrust claims based on bun-
dled discounting practices are nothing new under the sun. See SmithKline
Corp. v. Eli Lilly & Co., 427 F. Supp. 1089, 1124 (E.D. Pa. 1976), aff’d,
575 F.2d 1056 (3d Cir. 1978).
11230              CASCADE HEALTH v. PEACEHEALTH
588-91) marked the culmination of nearly twenty years of
scholarly and judicial analysis of the feasibility and competi-
tive effects of single product predatory pricing schemes.18 Cf.
3 Areeda & Hovenkamp, supra, ¶ 749b at 323 (Supp. 2006)
(“[T]he theory of anticompetitive discounting is in much the
same position as the theory of predatory pricing was in the
1970s: no shortage of theories, but a frightening inability of
courts to assess them.”). The cost-based standard we adopt
will allow courts the experience they need to divine the preva-
lence and competitive effects of bundled discounts and will
allow these difficult issues to further percolate in the lower
courts. As the Solicitor General noted in his amicus brief urg-
ing the denial of certiorari in LePage’s:

       There is insufficient experience with bundled dis-
       counts to this point to make a firm judgment about
       the relative prevalence of exclusionary versus pro-
       competitive bundled discounts. Relative to the prac-
       tice of predatory pricing analyzed in Brooke Group,
       there is less knowledge on which to assess whether,
       or to what extent, the legal approach to a monopo-
       list’s allegedly exclusionary bundled discounts
  18
    A 1975 article by Professors Areeda and Turner ignited the modern
debate about predatory pricing, see Phillip Areeda & Donald F. Turner,
Predatory Pricing and Related Practices Under Section 2 of the Sherman
Act, 88 Harv. L. Rev. 697 (1975), and many prominent antitrust scholars
weighed in on the topic in the following decade-and-a-half. See, e.g., Rob-
ert H. Bork, The Antitrust Paradox 154-55 (1978); George A. Hay, Preda-
tory Pricing, 58 Antitrust L.J. 913 (1989); Frank H. Easterbrook,
Predatory Strategies and Counterstrategies, 48 U. Chi. L. Rev. 263
(1981); Paul L. Joskow & Alvin K. Klevorick, A Framework for Analyz-
ing Predatory Pricing Policy, 89 Yale L.J. 213 (1979); William J. Bau-
mol, Quasi-Permanence of Price Reductions: A Policy for Prevention of
Predatory Pricing, 89 Yale L.J. 1 (1979); Oliver E. Williamson, Preda-
tory Pricing: A Strategic and Welfare Analysis, 87 Yale L.J. 284 (1977);
see also Wesley J. Leibeler, Whither Predatory Pricing? From Areeda
and Turner to Matsushita, 61 Notre Dame L. Rev. 1052 (1986) (discuss-
ing the history of predatory pricing theory in the courts and academic liter-
ature).
               CASCADE HEALTH v. PEACEHEALTH              11231
    should be driven by a strong concern for false posi-
    tives and low risk of false negatives. Further empiri-
    cal development may shed light on that question.

Brief for United States as Amicus Curiae at 14, 3M Co. v.
LePage’s Inc., 124 S. Ct. 2932 (2004) (No. 02-1865), 2004
WL 1205191 (citation omitted). Pending further judicial and
academic inquiry into the prevalence of anticompetitive bun-
dled discounts, we think it preferable to allow plaintiffs to
challenge bundled discounts if those plaintiffs can prove a
defendant’s bundled discounts would have excluded an
equally efficient competitor.

   To summarize, the primary anticompetitive danger posed
by a multi-product bundled discount is that such a discount
can exclude a rival is who is equally efficient at producing the
competitive product simply because the rival does not sell as
many products as the bundled discounter. Thus, a plaintiff
who challenges a package discount as anticompetitive must
prove that, when the full amount of the discounts given by the
defendant is allocated to the competitive product or products,
the resulting price of the competitive product or products is
below the defendant’s incremental cost to produce them. This
requirement ensures that the only bundled discounts con-
demned as exclusionary are those that would exclude an
equally efficient producer of the competitive product or prod-
ucts.

                               5

   [8] The next issue before us is the appropriate measure of
incremental costs in a bundled discounting case. In single
product predatory pricing cases, the appropriate measure of
incremental costs is an open question in this circuit. See Rebel
Oil Co. v. Atl. Richfield Co., 146 F.3d 1088, 1092 (9th Cir.
1998). The Supreme Court has likewise refused to decide the
matter. See Brooke Group, 509 U.S. at 222 n.1; Cargill, 479
U.S. at 118 n.12.
11232                CASCADE HEALTH v. PEACEHEALTH
   As our cases and the relevant academic literature thor-
oughly discuss, firms face both fixed costs—costs that a firm
must bear regardless of the amount of output—and variable
costs—costs that change with the amount of output. The sum
of fixed and variable costs is a firm’s total cost. Marginal cost
is the increase to total cost that occurs as a result of producing
one additional unit of output. Average cost is the sum of fixed
costs and total variable costs, divided by the amount of out-
put. In their oft-cited 1975 law review article, Professors
Areeda and Turner concluded that the optimal measure of a
firm’s cost in a predatory pricing case is marginal cost—the
cost to produce one additional unit and the price that would
obtain in the market under conditions of perfect competition.
See Phillip Areeda & Donald F. Turner, Predatory Pricing
and Related Practices Under Section 2 of the Sherman Act, 88
Harv. L. Rev. 697, 712, 716 (1975). However, Professors
Areeda and Turner also recognized that “[t]he incremental
cost of making and selling the last unit cannot readily be
inferred from conventional business accounts, which typically
go no further than showing observed average variable cost.”
Id. at 716. Thus, the professors adopted average variable cost
as a surrogate for marginal cost. Id. A number of circuits have
adopted the Areeda-Turner formulation and concluded that
prices below average variable cost can indicate predation. See,
e.g., Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518,
532 (5th Cir. 1999); Morgan v. Ponder, 892 F.2d 1355, 1360
(8th Cir. 1989); Barry Wright, 724 F.2d at 236; Ne. Tel. Co.
v. AT&T Co., 651 F.2d 76, 87-88 (2d Cir. 1981).19
  19
     At least one circuit has held that average total cost, not average vari-
able cost, is the appropriate baseline for determining predation. See
McGahee v. N. Propane Gas Co., 858 F.2d 1487, 1500 (11th Cir. 1988).
However, such an approach is inconsistent with the Supreme Court’s
instruction in Brooke Group that predatory prices are those below “ ‘some
measure of incremental cost.’ ” Brooke Group, 509 U.S. at 223 (quoting
Cargill, 479 U.S. at 117-18 n.12) (emphasis added). As the Antitrust Law
treatise explains:
       In the ordinary case a predator increases output out of existing
       facilities, cutting the price to predatory levels. For this reason the
                  CASCADE HEALTH v. PEACEHEALTH                    11233
   [9] Likewise, “we have approved the use of marginal or
average variable cost statistics in proving predation.” See Wil-
liam Inglis & Sons Baking Co. v. ITT Cont’l Baking Co., 668
F.2d 1014, 1033 (9th Cir. 1981).20 We have also held that a
plaintiff can establish a prima facie case of predatory pricing
by proving that the defendant’s prices were below average
variable cost. Id. at 1036. We see no reason to depart from
these principles in the bundled discounting context, and we
hold that the appropriate measure of costs for our cost-based
standard is average variable cost.

                                    6

   In summary, we hold the following: To prove that a bun-
dled discount was exclusionary or predatory for the purposes
of a monopolization or attempted monopolization claim under
§ 2 of the Sherman Act, the plaintiff must establish that, after
allocating the discount given by the defendant on the entire
bundle of products to the competitive product or products, the

    Supreme Court has emphasized that predators must have excess
    capacity from which to produce the increased output. But in that
    case, the only “incremental” cost of the predation is variable
    costs.
3 Areeda & Hovenkamp, supra, ¶ 741c at 444 (2d ed. 2002) (footnote
omitted).
   20
      In a number of cases decided before Brooke Group, we held that pric-
ing below marginal cost or average variable cost provided evidence that
a pricing scheme was predatory, but also held that that mode of proof was
not exclusive. See Transamerica Computer Co. v. IBM Corp., 698 F.2d
1377, 1385 (9th Cir. 1983); Inglis, 668 F.2d at 1033. We suggested that
an above-cost pricing policy could be predatory if accompanied by evi-
dence of predatory intent, market power, or “long-run behavior.” See
Transamerica, 698 F.2d at 1387. Other circuits rejected the notion that
predation could be proved through evidence of intent alone, see, e.g.,
Barry Wright, 724 F.2d at 232, and Brooke Group’s holding that “a plain-
tiff seeking to establish competitive injury resulting from a rival’s low
prices must prove that the prices complained of are below an appropriate
measure of its rival’s costs” put to rest any notion that predation can be
proven through evidence of intent alone, Brooke Group, 509 U.S. at 222.
11234              CASCADE HEALTH v. PEACEHEALTH
defendant sold the competitive product or products below its
average variable cost of producing them. The district court’s
jury instruction on the attempted monopolization claim, which
built on the holding of LePage’s that we have rejected, thus
contained an error of law.21
  21
   As we noted above, the AMC’s proposed standard in bundled dis-
counting cases, in addition to requiring below-cost pricing, also contains
two further proposed elements.
   The second element proposed by the AMC is that there is a dangerous
probability that the defendant will recoup its investment in the bundled
discounting program. AMC Report, supra, at 99. This requirement,
adopted from Brooke Group, is imported from the single product preda-
tory pricing context, but we think imported incorrectly. We do not believe
that the recoupment requirement from single product cases translates to
multi-product discounting cases. Single-product predatory pricing, unlike
bundling, necessarily involves a loss for the defendant. For a period of
time, the defendant must sell below its cost, with the intent to eliminate
its competitors so that, when its competition is eliminated, the defendant
can charge supracompetitive prices, recouping its losses and potentially
more. By contrast, as discussed above, exclusionary bundling does not
necessarily involve any loss of profits for the bundled discounter. See
Nalebuff, supra, 50 Antitrust Bull. at 327. As the example from Ortho
illustrates, a bundled discounter can exclude its rivals who do not sell as
many product lines even when the bundle as a whole, and the individual
products within it, are priced above the discounter’s incremental cost to
produce them. The trier of fact can identify cases that present this possibil-
ity for anticompetitive exclusion by applying the discount attribution stan-
dard outlined above. Under that standard, the ultimate question is whether
the bundled discount would exclude an equally efficient rival. But because
discounts on all products in the bundle have been allocated to the competi-
tive product in issue, a conclusion of below-cost sales under the discount
attribution standard may occur in some cases even where there is not an
actual loss because the bundle is sold at a price exceeding incremental
cost. In such a case, we do not think it is analytically helpful to think in
terms of recoupment of a loss that did not occur.
    The third element proposed by the AMC is that “the bundled discount
or rebate program has had or is likely to have an adverse effect on compe-
tition.” AMC Report, supra, at 99. We view this final element as redun-
dant because it is no different than the general requirement of “antitrust
injury” that a plaintiff must prove in any private antitrust action. See
Brunswick, 429 U.S. at 489 (defining antitrust injury as “injury of the type
the antitrust laws were intended to prevent and that flows from that which
                   CASCADE HEALTH v. PEACEHEALTH                     11235
   [10] McKenzie argues that we may nevertheless affirm the
jury’s verdict on the principle that flawed jury instructions are
a harmless error when the facts which needed to be proven are
strongly supported by the evidence presented at trial. See
Harmsen v. Smith, 693 F.2d 932, 945 (9th Cir. 1982); Cancel-
lier v. Federated Dep’t Stores, 672 F.2d 1312, 1316 (9th Cir.
1982). In support of this argument, McKenzie points out that
there was “undisputed evidence of [PeaceHealth’s] higher
prices and the need for [McKenzie] to sell beneath variable
cost to hold Regence harmless from [PeaceHealth’s] threat-
ened price increases.” However, as we have held, the relevant
inquiry is not whether PeaceHealth’s pricing practices forced
McKenzie to price below cost, but whether PeaceHealth
priced its own services below an appropriate measure of its
cost, as we have defined that concept using the discount attri-
bution rule. In this case, we cannot conclude that the error in
the jury instructions was harmless. We vacate the judgment
entered in McKenzie’s favor and remand for further proceed-
ings consistent with our opinion.22

makes defendants’ acts unlawful” and noting that “[t]he injury should
reflect the anticompetitive effect either of the violation or of anticompeti-
tive acts made possible by the violation”).
   For these reasons, while adopting the AMC’s proposal to require below-
cost sales to prove exclusionary conduct, we do not adopt the element of
recoupment, which we think may be inapplicable in some cases, and we
do not adopt the element of “adverse effect on competition” as we think
that is superfluous in light of the general and pre-existing requirement of
antitrust injury under Brunswick.
   22
      PeaceHealth also argues that because the jury found in its favor on
McKenzie’s claim of exclusive dealing under § 1 of the Sherman Act, it
is entitled to judgment as a matter of law on McKenzie’s claim of
attempted monopolization under § 2 of the Sherman Act. Our vacatur of
the jury’s verdict on the attempted monopolization claim makes it unnec-
essary for us to fully address that argument. However, we previously have
held that “[t]he ‘predatory or anticompetitive conduct’ element of § 2
attempt, like the conduct element of monopolization, encompasses more
than violations of § 1.” Cal. Computer Prods., Inc. v. IBM Corp., 613 F.2d
727, 737 (9th Cir. 1979). Specifically, § 1 is limited to concerted activity,
while § 2 reaches unilateral exclusive conduct. See id.; Microsoft, 253
F.3d at 70.
11236                CASCADE HEALTH v. PEACEHEALTH
                                       B

   After trial, the jury also returned a verdict in favor of
McKenzie on its claim of primary-line price discrimination23
under Oregon state law. McKenzie’s theory was that Peace-
Health discriminated in price as between Regence and Provi-
dence. Specifically, PeaceHealth, who was the exclusive
preferred provider in Regence’s PPP, charged Regence an
85% reimbursement rate while PeaceHealth charged Provi-
dence, an insurer with whom PeaceHealth had no exclusive
arrangement, a 93% reimbursement rate. McKenzie alleged
that PeaceHealth’s price discrimination injured McKenzie
because its pricing scheme was the cause of McKenzie’s
inability to obtain preferred status with Regence.

   The Oregon price discrimination statute,24 Or. Rev. Stat.
  23
      Price discrimination claims can take three forms: primary line, sec-
ondary line, or tertiary line. Primary-line price discrimination includes
conduct, like predatory pricing, that injures the direct competitors of the
discriminating seller. See Volvo Trucks, 546 U.S. at ___, 126 S. Ct. at 870.
Secondary-line price discrimination includes conduct that injures competi-
tion between the customers of a discriminating seller, as, for example,
when one seller charges two customers different prices for the same good.
See id. Tertiary-line price discrimination includes conduct that injures
competition between the customers of the direct purchasers of a discrimi-
nating seller. See id.
   24
      The Oregon statute provides:
       It is unlawful for any person engaged in commerce or food com-
       merce, or both, in the course of such commerce, either directly
       or indirectly, to discriminate in price between different purchas-
       ers of commodities, or services or output of a service trade, of
       like grade and quality or to discriminate in price between differ-
       ent sections, communities or cities or portions thereof or between
       different locations in sections, communities, cities or portions
       thereof in this state, where the effect of such discrimination may
       be substantially to lessen competition or tend to create a monop-
       oly in any line of commerce, or to injure, destroy or prevent com-
       petition with any person who either grants or knowingly receives
       the benefit of such discrimination, or with customers of either of
       them.
Or. Rev. Stat. § 646.040(1).
                     CASCADE HEALTH v. PEACEHEALTH                     11237
§ 646.040, is nearly identical to the federal price discrimina-
tion provisions in § 2 of the Robinson-Patman Act,25 15
U.S.C. § 13. Because section 646.040 is essentially a verbatim
reproduction of § 2 of the Robinson-Patman Act, Oregon
courts look to federal price discrimination law for guidance in
interpreting section 646.040. Yamaha Store of Bend, Or., Inc.
v. Yamaha Motor Corp., 798 P.2d 656, 659 n.6 (Or. 1990),
modified on reconsideration on other grounds, 806 P.2d 123
(Or. 1991); Redmond Ready-Mix, Inc. v. Coats, 582 P.2d
1340, 1346 (Or. 1978). The seminal federal case dealing with
primary-line price discrimination under the Robinson-Patman
Act is Brooke Group. In Brooke Group, as we discussed
above, the United States Supreme Court held that there are
two prerequisites to a claim of primary-line price discrimina-
tion under the Robinson-Patman Act. First, “a plaintiff seek-
ing to establish competitive injury resulting from a rival’s low
prices must prove that the prices complained of are below an
appropriate measure of its rival’s costs.” Brooke Group, 509
U.S. at 222. Second, the plaintiff must prove “that the com-
petitor had a reasonable prospect . . . of recouping its invest-
ment in below-cost prices.” Id. at 224.
  25
    The Robinson-Patman Act provides:
       It shall be unlawful for any person engaged in commerce, in the
       course of such commerce, either directly or indirectly, to discrim-
       inate in price between different purchasers of commodities of like
       grade and quality, where either or any of the purchases involved
       in such discrimination are in commerce, where such commodities
       are sold for use, consumption, or resale within the United States
       or any Territory thereof or the District of Columbia or any insular
       possession or other place under the jurisdiction of the United
       States, and where the effect of such discrimination may be sub-
       stantially to lessen competition or tend to create a monopoly in
       any line of commerce, or to injure, destroy, or prevent competi-
       tion with any person who either grants or knowingly receives the
       benefit of such discrimination, or with customers of either of
       them . . . .
15 U.S.C. § 13(a).
11238           CASCADE HEALTH v. PEACEHEALTH
   The district court in this case, however, did not instruct the
jury to consider whether PeaceHealth priced its services
below cost in deciding whether McKenzie established a claim
of primary-line price discrimination under Oregon law. The
district court instead instructed the jury as follows:

    [I]n order for the plaintiff to establish a violation of
    the price discrimination statute, it has the burden of
    proving each and every one of the following ele-
    ments by a preponderance of the evidence: (1) That
    there were contemporaneous sales by a defendant to
    other insurers in the relevant market; (2) that defen-
    dant has discriminated in price between insurers in
    the contemporaneous sale of hospital services; and
    (3) that the effect of defendant’s price discrimination
    was to substantially lessen competition or create a
    monopoly in the sale of hospital services in the rele-
    vant market, or to injure, destroy or prevent competi-
    tion between plaintiff and defendant.

This instruction is inconsistent with Brooke Group, which
requires a plaintiff to prove (1) below-cost pricing and (2)
likelihood of recoupment regardless of “whether the claim
alleges predatory pricing under § 2 of the Sherman Act or
primary-line price discrimination under the Robinson-Patman
Act.” Brooke Group, 509 U.S. at 222.

   Of course, we are not deciding a Robinson-Patman Act
case, but a case arising under Oregon’s price discrimination
statute. Because our decision rests upon a question of state
law, we must divine how the Oregon Supreme Court would
decide the issue before us. Burlington Ins. Co. v. Oceanic
Design & Constr., Inc., 383 F.3d 940, 945 (9th Cir. 2004).
McKenzie asserts that the Oregon Supreme Court would not
require a plaintiff to prove below-cost pricing as a prerequi-
site to a claim of primary-line price discrimination. McKenzie
relies primarily on the Oregon Supreme Court’s 1978 decision
in Redmond Ready-Mix for this argument.
                CASCADE HEALTH v. PEACEHEALTH              11239
   In Redmond Ready-Mix, the plaintiff brought a primary-line
price discrimination suit under section 646.040 against the
husband and wife who were the plaintiff’s competitor in the
market to sell retail pre-mixed concrete. 582 P.2d at 1342.
The plaintiff asserted that the defendants sold concrete for a
lower price in the geographic areas in which the plaintiff com-
peted with the defendants than in the geographic areas in
which the plaintiff did not compete. See id. at 1342-45. The
trial court found that the defendants did not violate section
646.040. See id. at 1342. The trial court reasoned that
although the defendants sold concrete at lower prices in the
competitive geographic area than in other areas, the plaintiff
did not establish that the lower prices lessened competition as
required by the section 646.040 because the “defendants were
not selling below their average cost.” Id. The Oregon
Supreme Court affirmed. Id. at 1352.

   In accordance with the prevailing federal case law at the
time, the Oregon Supreme Court noted that a claim of
primary-line price discrimination could be sustained upon a
showing that the defendant price discriminated with a “preda-
tory intent.” See id. at 1348. The court pointed out that preda-
tory intent could be implied from below-cost selling. Id. at
1350. The court held, however, that there was no evidence the
defendants priced below cost. See id.

   The court then noted that, alternatively, the plaintiffs could
establish a claim of primary-line price discrimination by
showing that the defendants’ price discrimination resulted in
a substantial impairment of competition. Id. The court noted
a number of factors it looked to in order to determine whether
the defendants’ price discrimination impaired competition.
See id. These factors included: (a) monopoly or overpowering
position of the seller in the market; (b) aggressive objectives
towards the seller’s smaller rivals; (c) deep, sustained under-
cutting of rivals’ prices; (d) persistent sales below the seller’s
cost; and (e) actual or impending demise of a seller’s sole
rival in a market. Id. The court held that the evidence did not
11240           CASCADE HEALTH v. PEACEHEALTH
demonstrate any impairment of competition and affirmed the
judgment of the trial court. See id. at 1352.

   McKenzie argues that under Oregon law, unlike under
Brooke Group, a plaintiff can establish a claim of primary-
line price discrimination by simply showing predatory intent
or a substantial impact on competition as defined by the five
factors outlined in Redmond Ready-Mix. However, the Ore-
gon Supreme Court decided Redmond Ready-Mix in 1978—
fifteen years before the United States Supreme Court’s deci-
sion in Brooke Group and at a time when “[m]uch of the ‘fed-
eral law’ on [primary-line price discrimination was] in a
recognized state of confusion.” Id. at 1346. Because of
Brooke Group federal law is clearer today (at least on one
issue)—a plaintiff in a primary-line price discrimination case
must prove that its rival priced below cost. Since Brooke
Group, no Oregon court has published an opinion interpreting
section 646.040. We believe the Oregon Supreme Court, if
given the opportunity, would follow Brooke Group.

   [11] First, the Oregon Supreme Court has held that federal
price discrimination cases are important persuasive authority
in interpreting Oregon’s price discrimination law. See
Yamaha, 798 P.2d at 659 n.6. Second, even though the Ore-
gon Supreme Court in Redmond Ready-Mix did not have the
benefit of Brooke Group, the court emphasized that below-
cost pricing was an important factor in its decision that the
defendants had not engaged in primary-line price discrimina-
tion. See Redmond, 582 P.2d at 1349 (emphasizing that preda-
tion can be implied from “below-cost selling” (internal
quotation omitted)). Provided the benefit of nearly thirty years
of evolution of predatory pricing theory and federal predatory
pricing law, we believe the Oregon Supreme Court, if pre-
sented with the opportunity, would follow Brooke Group and
require a plaintiff alleging primary-line price discrimination
to prove that its rival priced below cost.

   [12] As we noted above, the district court’s jury instruc-
tions in this case did not require the jury to find that, as a pre-
               CASCADE HEALTH v. PEACEHEALTH              11241
requisite to McKenzie’s claim of primary-line price
discrimination, PeaceHealth priced below cost. Because the
district court’s jury instructions were erroneous, we vacate the
jury’s verdict in favor of McKenzie on McKenzie’s claim of
primary-line price discrimination.

                               C

   [13] Finally, the jury found in favor of McKenzie on its
Oregon tort law claim of intentional interference with pro-
spective economic advantage. The parties agree that a claim
of tortious interference under Oregon law requires a comple-
mentary finding of a violation of the antitrust laws. See Kovac
v. Crooked River Ranch Club & Maint. Ass’n, 63 P.3d 1197,
1201 (Or. Ct. App. 2003); Willamette Dental Group, P.C. v.
Or. Dental Serv. Corp., 882 P.2d 637, 644 (Or. Ct. App.
1994). Because we have vacated the jury’s verdict in favor of
McKenzie on McKenzie’s antitrust claims, we also vacate the
jury’s verdict in favor of McKenzie on McKenzie’s claim of
intentional interference with prospective economic advantage.

                              III

  We next address McKenzie’s cross-appeal.

                               A

   Before trial, the district court granted PeaceHealth sum-
mary judgment on McKenzie’s claim that PeaceHealth ille-
gally tied primary and secondary services to its provision of
tertiary services in violation of § 1 of the Sherman Act, 15
U.S.C. § 1. The district court granted summary judgment
because McKenzie presented no evidence that the insurers
were coerced into taking the tied product.

   We review de novo the district court’s grant of summary
judgment. Welles v. Turner Entm’t Co., 488 F.3d 1178, 1183
(9th Cir. 2007). Federal Rule of Civil Procedure 56(c) entitles
11242              CASCADE HEALTH v. PEACEHEALTH
a party to summary judgment “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue
as to any material fact and that the moving party is entitled to
a judgment as a matter of law.” In deciding a motion for sum-
mary judgment, we view the evidence in the light most favor-
able to the non-moving party, and draw all justifiable
inferences in favor of the non-moving party. Anderson v. Lib-
erty Lobby, Inc., 477 U.S. 242, 255 (1986); Betz v. Trainer
Wortham & Co., 486 F.3d 590, 591 (9th Cir. 2007).

   A tying arrangement is a device used by a seller with mar-
ket power in one product market to extend its market power
to a distinct product market. Paladin Assocs., Inc. v. Mont.
Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003). To accom-
plish this objective, the seller conditions the sale of one prod-
uct (the tying product) on the buyer’s purchase of a second
product (the tied product).26 See Eastman Kodak Co. v. Image
Technical Servs., Inc., 504 U.S. 451, 461 (1992); Posner,
supra, at 197. Tying arrangements are forbidden on the theory
that, if the seller has market power over the tying product, the
seller can leverage this market power through tying arrange-
ments to exclude other sellers of the tied product.27 See Jeffer-
son Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 14 (1984);
Fortner Enters., Inc. v. U.S. Steel Corp., 394 U.S. 495, 517-
18 (1969) [hereinafter Fortner I] (White, J., dissenting).

   The Supreme Court has developed a unique per se rule for
illegal tying arrangements. For a tying claim to suffer per se
   26
      A § 1 violation can also occur when the customer promises not to take
the tied product from the defendant’s competitor, but courts “rarely
encounter[ ]” such a situation. 10 Areeda & Hovenkamp, supra, ¶ 1752c
n.8 at 263 (2d ed. 2004).
   27
      For criticism of the leverage theory, see Bork, supra, at 372. See also
Christopher R. Leslie, Cutting Through Tying Theory With Occam’s
Razor: A Simple Explanation of Tying Arrangements, 78 Tul. L. Rev. 727,
731-41 (2004) (summarizing the conflict between leverage theorists and
the Chicago School).
                CASCADE HEALTH v. PEACEHEALTH              11243
condemnation, a plaintiff must prove: (1) that the defendant
tied together the sale of two distinct products or services; (2)
that the defendant possesses enough economic power in the
tying product market to coerce its customers into purchasing
the tied product; and (3) that the tying arrangement affects a
“not insubstantial volume of commerce” in the tied product
market. See Paladin Assocs., Inc., 328 F.3d at 1159 (citing
Eastman Kodak, 504 U.S. at 461-62).

   As to the first element, McKenzie alleged two distinct
products: tertiary services (the tying or desired product) and
primary and secondary services (the tied or forced product).
As to the third element, PeaceHealth does not dispute that the
tying arrangement affected a substantial volume of commerce
in the market for primary and secondary services. See Fortner
I, 394 U.S. at 501. Thus, the only issue we must decide is
whether PeaceHealth coerced purchases of primary and sec-
ondary services.

   McKenzie first argues that, in this particular case, it need
not demonstrate coercion because it was a third party to the
tying arrangements between PeaceHealth and the insurers, or,
at the very least, that the standard for coercion is lower in
cases brought by a third-party plaintiff. For the premise that
the standard of coercion is lower or nonexistent for plaintiffs
who are not parties to the tying arrangement, McKenzie relies
heavily on the Fifth Circuit’s opinion in Heatransfer Corp. v.
Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir. 1977). In that
case, the Fifth Circuit suggested that, in cases brought by third
parties, “[t]he fact of coercion appears less important . . .
[than] the fact of foreclosure.” Id. at 978. But the Fifth Circuit
did not abandon the coercion requirement in third-party suits.
Instead, the court concluded that if the purchaser under the
tying arrangement is “coerced or ‘persuaded’ to buy goods
which they otherwise would not buy, with the result being tre-
mendous lessening of the market in which a competitor sells
his product, such a showing is sufficient to submit the ques-
tion of a Section 1 antitrust violation to the jury.” Id.
11244           CASCADE HEALTH v. PEACEHEALTH
   [14] Additionally, the suggestion that a lower (or no) coer-
cion standard must be satisfied in third party suits, and in par-
ticular the dictum in Heatransfer, has been criticized by
commentators:

    A few dicta have suggested that standards for prov-
    ing a tying condition—often expressed as “coercion”
    —should be lower for defendant’s rival than for its
    customers. This distinction was rightly rejected by
    the Eleventh Circuit, which correctly pointed out that
    every plaintiff must prove the tying condition,
    although of course the competitor need not show that
    it was itself was subjected to any such condition.
    Moreover, Supreme Court discussions about the
    existence of a tie have not varied according to the
    status of the plaintiff.

10 Areeda & Hovenkamp, supra, ¶ 1752d at 264 (2d ed.
2004) (footnotes omitted) (citing Tic-X-Press v. Omni Promo-
tions Co., 815 F.2d 1407, 1415 n.15 (11th Cir. 1987); Hea-
transfer, 553 F.2d at 978)). Indeed, the Supreme Court has
emphasized that the coerced purchase of the tied product is
the key aspect of an illegal tie:

    [T]he essential characteristic of an invalid tying
    arrangement lies in the seller’s exploitation of its
    control over the tying product to force the buyer into
    the purchase of a tied product that the buyer either
    did not want at all, or might have preferred to pur-
    chase elsewhere on different terms.

Jefferson Parish, 466 U.S. at 12 (emphasis added). Thus,
because coercion is often the touchstone issue in assessing a
claim of illegal tying, we reject McKenzie’s argument that,
because it was not a party to the tying arrangement, it does
not need to demonstrate coercion as part of its tying claim.
                   CASCADE HEALTH v. PEACEHEALTH                     11245
   [15] McKenzie next argues that, even if coercion must be
shown in tying cases brought by third parties, there was at
least a disputed factual issue regarding coercion in this case.
As evidence that no coercion was present in this case, the dis-
trict court, in granting summary judgment to PeaceHealth,
relied heavily on the deposition testimony of Farzenah Whyte,
Regence’s contract negotiator, who testified that Regence vol-
untarily entered into its contracts with PeaceHealth. Peace-
Health also points out that some insurers contracted to
purchase PeaceHealth’s services without exclusivity, indicat-
ing that PeaceHealth did not force those who wanted tertiary
services to purchase primary and secondary services from
PeaceHealth also.28 Cf. Moore v. Jas. H. Matthews & Co., 550
F.2d 1207, 1217 (9th Cir. 1977) (noting that “coercion may
be implied from a showing that an appreciable number of
buyers have accepted burdensome terms, such as a tie-in”).
However, when all justifiable factual inferences are drawn in
  28
     McKenzie has filed a motion to strike portions of PeaceHealth’s brief
citing to evidence that insurers had alternatives to taking all services from
PeaceHealth because the evidence PeaceHealth cites was not in the portion
of the record designated to the district court on summary judgment. Spe-
cifically, McKenzie argues that we should not permit PeaceHealth on
appeal to refer to portions of exhibits that, while submitted to the district
court in support of PeaceHealth’s motion for summary judgment, did not
have their relevant portions highlighted for the district court.
   Under the district court’s Local Rule 56.1(c)(3), the moving party is
required to highlight relevant portions of documents presented to the
court, and under Local Rule 56.1(e), “the Court has no independent duty
to search and consider any part of the court record not otherwise refer-
enced in the separate concise statements of the parties.” D. Or. R. 56.1.
However, all of the documents cited by PeaceHealth on appeal were
before the district court, even if not highlighted. Moreover, the principal
policy underlying local rules like Rule 56.1 is to obviate the need for the
district court to search the record for facts relevant to summary judgment.
Delange v. Dutra Constr., Co., 183 F.3d 916, 919 n.2 (9th Cir. 1999) (per
curiam). Such a policy has no impact on the scope of our appellate review.
See Fed. R. App. P. 10(a) (stating that the record on appeal consists of all
papers and exhibits filed in the district court). We therefore deny McKen-
zie’s motion to strike portions of PeaceHealth’s combined brief.
11246           CASCADE HEALTH v. PEACEHEALTH
McKenzie’s favor, there is no doubt that PeaceHealth’s prac-
tice of giving a larger discount to insurers who dealt with it
as an exclusive preferred provider may have coerced some
insurers to purchase primary and secondary services from
PeaceHealth rather than from McKenzie. We conclude that, as
a whole, the evidence shows genuine factual disputes about
whether PeaceHealth forced insurers either as an implied con-
dition of dealing or as a matter of economic imperative
through its bundled discounting, to take its primary and sec-
ondary services if the insurers wanted tertiary services.

   First, while Whyte testified that Regence was not explicitly
forced to deal exclusively with PeaceHealth, Whyte also testi-
fied that the higher prices PeaceHealth would have charged
Regence had McKenzie been admitted to Regence’s PPP
would have had a “large impact” on Regence. Also, Whyte
stated that she had been “held hostage” by PeaceHealth’s
pricing practices.

   Standing alone, the fact that a customer would end up pay-
ing higher prices to purchase the tied products separately does
not necessarily create a fact issue on coercion. Paladin, 328
F.3d at 1162; Robert’s Waikiki U-Drive, Inc. v. Budget Rent-
a-Car Sys., Inc., 732 F.2d 1403, 1407 (9th Cir. 1984). How-
ever, the record contains additional evidence of economic
coercion. For example, while PeaceHealth emphasizes that
four insurers in Lane County purchased PeaceHealth’s ser-
vices separately, “a trivial proportion of separate sales shows
that the package discount is as effective as an outright refusal
to sell [the tying product] separately.” 10 Areeda &
Hovenkamp, supra, ¶ 1758b at 327 (2d ed. 2004). In this case,
there are twenty-eight insurers operating in Lane County. The
fact that only four of them, or about 14% percent, made a sep-
arate purchase may indicate some degree of coercion, placing
this issue in the realm of disputed facts that must be tendered
to a jury. See id. at 328 (suggesting that a less than 10% pro-
portion of separate sales indicates an illegal tie). Additionally,
McKenzie provided some evidence that its prices on primary
                  CASCADE HEALTH v. PEACEHEALTH                      11247
and secondary services were lower than PeaceHealth’s prices
on those services. Again, while not dispositive evidence of an
illegal tie, it is a permissible inference that a rational customer
would not purchase PeaceHealth’s allegedly overpriced prod-
uct in the absence of a tie. See Data Gen. Corp. v. Grumman
Sys. Support Corp., 36 F.3d 1147, 1181 (1st Cir. 1994); 10
Areeda & Hovenkamp, supra, ¶ 1756b3 at 301 (2d ed. 2004);
cf. Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1501 (8th
Cir. 1992) (refusing to find an illegal tie in part because the
plaintiff did not demonstrate that defendant used its market
power in the tying product market “to shelter an inferior or
overpriced product from competition”). McKenzie also
offered expert testimony that Regence’s exclusive relationship
with PeaceHealth made no economic sense, evidencing coer-
cion.

   [16] Finally, the Supreme Court has condemned tying
arrangements when the seller has the market power to force
a purchaser to do something that he would not do in a compet-
itive market. Jefferson Parish, 466 U.S. at 17. PeaceHealth
was the only provider of tertiary services in the relevant geo-
graphic market. The substantial market power PeaceHealth
possessed as a result of being the exclusive provider of terti-
ary services in Lane County creates a possibility that Peace-
Health was able to force unwanted purchases of primary and
secondary services. In light of the evidence adduced by
McKenzie at summary judgment, whether PeaceHealth in fact
used its market power to effectively coerce purchases of pri-
mary and secondary services is a question that can be
answered only through further factual development. The need
for further factual development renders summary judgment on
McKenzie’s tying claim inappropriate.29 Because a trier of
  29
    The Supreme Court has also held that the unique character of the tying
product can provide a basis for holding that a defendant has sufficient eco-
nomic power in the tying product market to coerce acceptance of the tied
product. See U.S. Steel Corp. v. Fortner Enters., Inc., 429 U.S. 610, 619
(1977) [hereinafter Fortner II] (citing N. Pac. Ry. Co. v. United States,
11248              CASCADE HEALTH v. PEACEHEALTH
fact might reasonably determine McKenzie established a
claim of illegal tying based on the evidence in the record, we
vacate the district court’s order granting summary judgment
to PeaceHealth and remand for further proceedings.30

356 U.S. 1 (1958); Int’l Salt Co. v. United States, 332 U.S. 392 (1947)).
The Court in Fortner II recognized that the key question in establishing
sufficient market power is whether the seller has some cost advantage not
shared by its competitors which makes its competitors unable to provide
the tying product and that a mere showing that its competitors did not
want to provide the tying product is insufficient to establish an illegal tie.
Id. at 621-22. At the summary judgment stage, the evidence presented by
McKenzie was sufficient to create a factual issue about whether McKenzie
could not provide tertiary services or whether it was simply unwilling, as
a matter of business strategy, to provide tertiary services.
   30
      If, on remand, McKenzie stakes its tying claim not on a theory that
PeaceHealth explicitly (e.g., by contract) or implicitly coerced insurers to
purchase primary and secondary services from PeaceHealth as a condition
to obtaining tertiary services, but on a theory that PeaceHealth’s bundled
discounts effectively left insurers with no rational economic choice other
than purchasing tertiary services from PeaceHealth, such a claim might
raise the question of whether, to establish the coercion element of a tying
claim through a bundled discount, McKenzie must prove that PeaceHealth
priced below a relevant measure of its costs. Some commentators would
require a plaintiff alleging that a bundled discount amounts to an illegal
tie to prove below-cost prices. See, e.g., 3 Areeda & Hovenkamp, supra,
¶ 749b2 at 334 (Supp. 2006). It is unclear whether the AMC intended its
three-part test to apply when a plaintiff alleging an illegal tying arrange-
ment asserts that the defendant’s pricing practices coerced unwanted pur-
chases of the tied product. See AMC Report, supra, at 114 n.157 (“The
recommended three-part test is proposed here for challenges to bundled
pricing practices, and its purpose, as the text explains, is to avoid deterring
procompetitive price reductions. The Commission is not recommending
application of this test outside the bundled pricing context, for example in
tying or exclusive dealing cases. The Commission did not undertake to
study tying and exclusive dealing issues more generally.”). The parties
have not briefed this issue to us, and the parties did not raise the issue
before the district court. We therefore leave it to the district court, if nec-
essary, to decide the issue in the first instance on remand. Singleton v.
Wulff, 428 U.S. 106, 121 (1976).
               CASCADE HEALTH v. PEACEHEALTH              11249
                               B

   McKenzie raises two other issues on its cross-appeal
related to rulings made by the district court during the course
of the trial.

   First, McKenzie contends that the district court erred by not
admitting into evidence what McKenzie considered to be anti-
competitive conduct of PeaceHealth in petitioning the Oregon
attorney general to stop the McKenzie-Triad merger or condi-
tion approval of the merger on McKenzie taking certain
actions. McKenzie maintains that the district court erred in
holding that PeaceHealth’s activity was protected from anti-
trust scrutiny under the Noerr-Pennington doctrine, which
protects an antitrust defendant’s right to petition the govern-
ment. See United Mine Workers v. Pennington, 381 U.S. 657,
670 (1965); E. R.R. Presidents Conference v. Noerr Motor
Freight, Inc., 365 U.S. 127, 143-44 (1961). Because we
vacate the jury’s verdict in Part II of our opinion, McKenzie’s
argument, which challenges evidentiary rulings the district
court made at trial, is moot, and we decline to address it.

   The second issue McKenzie raises on its cross-appeal is
whether the jury instruction on “combination or conspiracy”
to monopolize was correct. As we discussed above, the jury
found for PeaceHealth on McKenzie’s conspiracy to monopo-
lize claim. The district court refused to give the following
instruction proposed by McKenzie: “The involuntary nature
of one’s participation in a conspiracy to monopolize is no
defense. An antitrust conspirator can be liable for damages
even though he participates only under duress.” McKenzie
culled this language from our opinion in Calnetics Corp. v.
Volkswagen of America, Inc., 532 F.2d 674, 682 (9th Cir.
1976) (per curiam), in which we wrote, “[t]he involuntary
nature of one’s participation in a conspiracy to monopolize is
no defense. An antitrust conspirator can be liable for damages
even though he participates only under coercion.” McKenzie
argues that, because this instruction was not given, the jury
11250          CASCADE HEALTH v. PEACEHEALTH
may have found in PeaceHealth’s favor because it viewed
Regence’s participation in PeaceHealth’s alleged conspiracy
to monopolize as involuntary.

   As we noted above, the general rule is that we “ ‘review[ ]
jury instructions to determine whether, taken as a whole, they
mislead the jury or state the law incorrectly to the prejudice
of the objecting party. So long as they do not, we review the
formulation of the instructions and the choice of language for
abuse of discretion.’ ” City of Long Beach v. Standard Oil Co.
of Cal., 46 F.3d 929, 933 (9th Cir. 1995) (quoting Reed v.
Hoy, 909 F.2d 324, 326 (9th Cir. 1989)).

   [17] While McKenzie’s proposed instruction is a correct
statement of the law of conspiracy as we explained it in Cal-
netic Corp., it was within the district court’s discretion to
refuse to give the requested instruction because the instruction
could have confused the jury. It is true that an antitrust con-
spirator “can be liable for damages” even though he partici-
pates in the conspiracy only under coercion. See Flintkote Co.
v. Lysfjord, 246 F.2d 368, 375 (9th Cir. 1957). But the only
conspirator who could have been “liable for damages” in this
case was PeaceHealth, the sole defendant. Conversely, if any-
one participated in the conspiracy under coercion, it was
Regence. “A district court has substantial latitude in tailoring
jury instructions . . . .” Kendall-Jackson Winery, Ltd. v. E. &
J. Gallo Winery, 150 F.3d 1042, 1051 (9th Cir. 1998). We
conclude that the district court was within its discretion in
refusing to give McKenzie’s proposed conspiracy instruction.

                              IV

   [18] The final issue before us is the appeal and cross-appeal
of the district court’s award of attorneys’ fees and costs to
McKenzie. Because we have vacated the district court’s judg-
ment in favor of McKenzie on the merits of McKenzie’s
attempted monopolization, price discrimination, and tortious
interference claims, McKenzie is no longer a prevailing party
                  CASCADE HEALTH v. PEACEHEALTH                   11251
for the purposes of Federal Rule of Civil Procedure 54(d)(1)
and § 4(a) of the Clayton Act, 15 U.S.C. § 15(a). McKenzie
is thus not entitled to attorneys’ fees, costs, and expenses, and
we vacate the district court’s order awarding fees, costs, and
expenses to McKenzie. If McKenzie prevails on remand, it
may renew its request for attorneys’ fees and costs. We dis-
miss McKenzie’s cross-appeal on attorneys’ fees and costs as
moot.

                                   V

  To summarize: In No. 05-35640, we VACATE the judg-
ment in favor of McKenzie and REMAND for further pro-
ceedings. In No. 05-35627, we VACATE the summary
judgment in favor of PeaceHealth and REMAND for further
proceedings.31 In No. 05-36153, we VACATE the district
court’s order awarding attorneys’ fees and costs to McKenzie.
In No. 05-36202, we DISMISS the appeal as moot. Each
party shall bear its own costs on appeal.

  31
    In No. 05-35627, we also decline to address McKenzie’s Noerr-
Pennington arguments because these related to an evidentiary ruling and
the issue may not arise on a retrial. Further, we hold that the district
court’s jury instruction on combination or conspiracy was not an abuse of
discretion.