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Antitrust law has always struggled with when and how the conduct of a dominant firm should be restricted. A particularly problematic situation occurs when a dominant firm competes by lowering prices. On the one hand, a dominant firm may violate the law if it engages in predatory pricing-that is, pricing clearly below cost such that the dominant firm can drive rivals from the market and recoup its lost profits. Yet, while often alleged, predatory pricing is as rare as a white Bengal tiger. On the other hand, any effort to restrict the ability of any firm to lower prices-regardless of the firm’s market share-would appear to be anti-consumer because it would inhibit price competition. Ten years ago in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 940 (1993), the U.S. Supreme Court provided some objectivity for price competition in the context of the Robinson-Patman Act. It stated that low-cost pricing was not anti-competitive unless it was below some measure of cost. The court reasoned that, absent such an objective measurement, the imposition of liability for pricing decisions would chill the incentive of dominant firms to engage in vigorous competition, and that “it is in the interest of competition to permit dominant firms to engage in vigorous competition including price competition.” Rebate program was found to violate the Sherman Act The danger foreseen by Brooke Group is illustrated by the 3d U.S. Circuit Court of Appeals’ en banc decision in LePage’s v. 3M, 324 F.3d 141 (3d Cir. 2003), in which it condemned a bundled rebate program used by 3M Co. as an act of illegal monopolization. It did this even though there was no evidence that the bundled rebates were below any measure of cost, that there was significant harm to consumers (in terms of higher prices) or that the rebates made it impossible for LePage’s to compete with 3M profitably. The case creates significant uncertainty for dominant firms that wish to bundle products or engage in aggressive pricing. LePage’s, a manufacturer of private-label transparent tape, sued 3M, the manufacturer of Scotch brand tape, alleging that 3M used multitiered bundled rebates, exclusive dealing arrangements and other devices to monopolize the U.S. market for transparent tape. A jury found for LePage’s on both its monopolization and attempted monopolization claims under � 2 of the Sherman Act. On 3M’s motion, the district court reversed the attempted monopolization finding, but did not otherwise disturb the jury’s verdict. A three-judge panel of the 3d Circuit initially reversed the judgment in favor of LePage’s, but the full panel of the 3d Circuit affirmed that judgment. 3M is the dominant manufacturer in the U.S. transparent-tape market, with a market share above 90% until the early 1990s. In 1980, LePage’s began selling private-label transparent tape, and, by 1992, LePage’s was selling 88% of the private-label tape in the United States. At the time of the litigation, LePage’s private-label sales share had dropped to 67%. Private-label tape, however, represented only a small portion of the transparent-tape market. In a response to LePage’s competitive entry, 3M increased its sales of its private-label brand. 3M also offered customers multitiered bundled rebates, which provided higher rebates when customers purchased products in a number of 3M’s different product lines. The bundled rebates were conditioned on purchases spanning as many as six of 3M’s product lines. Failure to meet the growth target for any one product caused the customer to lose the rebate across all product lines. According to the 3d Circuit, “[t]his created a substantial incentive for each customer to meet the targets across all product lines to maximize its rebates,” which were “considerable.” The court found that “3M offered many of LePage’s major customers substantial rebates to induce them to eliminate or reduce their purchases of tape from LePage’s.” Id. at 154. 3M conceded that it possessed monopoly power in the U.S. transparent-tape market, thus making the primary issue for the 3d Circuit “whether 3M took steps to maintain that power in a manner that violated � 2 of the Sherman Act.” Relying primarily on Brooke Group, 3M argued that its conduct “was legal as a matter of law because it never priced its transparent tape below cost.” The 3d Circuit rejected that argument, and appeared to distinguish Brooke Group because it did not involve actions by a monopolist. The court also highlighted the fact that Brooke Group was concerned primarily with the Robinson-Patman Act, not � 2 of the Sherman Act. The court concluded that Brooke Group did not “dilute . . . the [Supreme Court's] consistent holding that a monopolist will be found to violate � 2 . . . if it engages in exclusionary or predatory conduct without a valid business justification.” Here, the 3d Circuit found that 3M’s rebate programs and exclusive dealing arrangements were exclusionary and designed to drive LePage’s and any other viable competitor from the transparent-tape market. In its analysis of 3M’s bundled rebate programs, the court first determined that the programs should be analogized to a tying arrangement, in which a firm conditions the purchase of one product on the purchase of a second, unwanted product. The court took this approach even though the plaintiffs had abandoned an earlier tying theory and despite 3M’s claim that each product subject to the rebate program was available separately at reasonable prices. Unlawful tying, moreover, is predicated on anti-competitive effects on the sale of products that are “tied” to the sale of the monopoly product. Here, however, the alleged anti-competitive effect was the maintenance of the monopoly in the sale of tape. From the 3d Circuit’s perspective, the bundled rebates were anti-competitive and “reflected an exploitation of [3M's] monopoly power” because the rebates that “required purchases bridging 3M’s extensive product line” were as much as half of LePage’s entire prior tape sales to that customer. Antitrust courts typically discount evidence of intent because of its limited probative value. Yet the 3d Circuit relied on evidence that “3M intended to force LePage’s from the market, and then cease or severely curtail its own private-label and second-tier tape lines.” Id. at 163. The 3d Circuit rejected the contention that 3M had a legitimate business justification for the bundled rebates. The court found that 3M had failed to show that there were true efficiencies from the bundled pricing arrangements which equated to the amount of the rebates given to customers. It noted that the alleged justifications were pretextual because of evidence that 3M had entered into the private-label market only to “kill” it. Absent from the discussion is any consideration of the potentially pro-competitive effects for consumers or the likelihood that the bundled discount programs resulted in lower prices for consumers. Prior to the LePage’s decision, most firms expected that bundled discount or rebate packages were pro-competitive, or at least not anti-competitive, so long as they resulted in pricing that was above cost. Moreover, consumers benefit from lower prices and bundled-product discount arrangements. By removing the “below cost” objective rule, LePage’s effectively handcuffs the ability of large firms to engage in aggressive competition across multiple product lines. The standard applied by the 3d Circuit sets an extremely low threshold for demonstrating exclusionary conduct by a monopolist. The decision effectively permits a violation to be shown simply based on evidence of anti-competitive intent, plus harm to rivals. The Supreme Court has stated often that “the purpose of the antitrust laws is to protect competition, not competitors.” Although there may have been some harm to LePage’s in this case, it still remained a competitive force in the private-label segment, and there was little evidence that 3M ultimately raised prices to consumers. A more sound approach to these types of practices may be found in the Federal Trade Commission’s 2001 report on slotting allowances. Under the FTC approach, the first step of the analysis considers the extent that rival suppliers as a whole likely would be disadvantaged from a given marketing arrangement, including consideration of their ability to avoid or mitigate the disadvantage. Second, to show harm to competition, rather than to individual competitors, the analysis then examines the likely impact on competition in markets in which the disadvantaged suppliers seek to compete. Finally, if anti-competitive harm is a likely result of the challenged practice, the analysis looks at whether the practice produces pro-competitive benefits that likely would offset the harm and whether similar benefits could be obtained by practical, significantly less restrictive means: There would have to be some showing that consumers would suffer from the loss of competition. The decision may serve to dampen competition Firms typically act with great caution because antitrust litigation is immensely costly and protracted and the threat of treble damage liability can be daunting. LePage’s is likely to increase the frequency of firms “holding their competitive punches” and not competing aggressively-particularly on price. The lack of a bright-line test and the deference to juries in inferring anti-competitive intent will deter the ability of allegedly dominant firms to engage in price cutting or bundling, lest they become the next 3M. If the Supreme Court does not review LePage’s, it will cloud the ability of large firms to compete aggressively. That would be an unfortunate result. Twenty years ago, then-Judge Stephen Breyer observed that “the Congress that enacted the Sherman Act saw it as a way of protecting consumers against prices that were too high, not too low . . . .[C]ourts should be . . . reluctant to condemn too speedily-an arrangement that . . . appears to bring low price benefits to the consumer.” Kartell v. Blue Shield, 749 F.2d 922, 931 (1st Cir. 1984). The 3d Circuit could have benefited from that guidance to assure that consumers receive all the benefits of the competitive process. David Balto is a partner in the Washington office of the worldwide antitrust practice of New York’s White & Case. In the Clinton administration, he was director of the office of policy and evaluation in the Federal Trade Commission’s bureau of competition.

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