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A lawyer for office supply giant 3M — the maker of Scotch brand tape and Post-It notes — on Thursday urged a federal appeals court to overturn a verdict of $68.4 million in an antitrust suit brought by LePage’s Inc. that accused 3M of using its monopoly power to drive LePage’s out of the transparent tape market. In the spirited, hour-long argument before the three-judge panel, 3M’s lawyer argued that Judge John R. Padova of the U.S. District Court for the Eastern District of Pennsylvania had improperly expanded the scope of antitrust law to allow the jury to punish conduct that should be considered perfectly legal. But LePage’s lawyer, Barbara W. Mather of Pepper Hamilton, argued that 3M violated the Sherman Act by targeting LePage’s biggest customers — chain stores like Staples and Kmart that had agreed to have LePage’s manufacture their store-brand tape — and offering huge discounts on the entire line of 3M products if the chain stores would agree to drop LePage’s. In April 1999, a jury found that St. Paul, Minn.-based 3M used its monopoly power to drive LePage’s out of the market for transparent tape but cleared 3M on claims that it had engaged in exclusive dealing or unreasonably restrained trade. Technically, the jury awarded LePage’s $22,828,899 in damages, but that figure was automatically trebled for a total verdict of $68,486,697. In March 2000, Padova upheld the verdict, but threw out LePage’s claim for “attempted maintenance of monopoly power” after finding that no such cause of action exists under the Sherman Act. In Thursday’s argument, 3M’s lawyer, Steven V. Bomse of Heller Ehrman White & McAuliffe in San Francisco, argued that LePage’s case was fundamentally flawed since 3M never engaged in any “predatory pricing” as that term has been defined by the courts. “Pricing that is not below cost,” Bomse said, ” … may not be the basis of [Sherman Act] Section 2 liability.” The U.S. Supreme Court made that fact perfectly clear with its 1993 decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., Bomse said. But 3rd Circuit Judge Dolores K. Sloviter said, “You concede that there are cases after Brooke Group that go either way, both ways.” Bomse refused to concede the point, saying the one decision that seemed to say non-below-cost price could, in theory, be predatory nonetheless went on to find no proof of predatory pricing. Although Brooke Group was a case brought under the Robinson-Patman Act, Bomse said the Supreme Court went out of its way to say that the same logic applied in a Sherman Act Section 2 case. “Low prices are exactly what the Sherman Act wants. That is the essence of competition. And if, in fact, you chill that kind of behavior you are chilling the essence of competition,” Bomse said. NO PREDATORY PRICING LePage’s, he noted, had originally included a predatory pricing claim in its suit, but that claim was dropped. “In our minds, that really ought to be the end of the case because that really is all this is about,” Bomse said. But Sloviter asked Bomse what his “next best position” would be if the court disagreed with that argument. Bomse said LePage’s would also lose the suit under a theory that 3M was “leveraging” a monopoly since there was no claim or proof of that. “3M enjoys a monopoly — which is entirely lawful — in the market for transparent tape,” he said. “If you treat it as a monopoly leveraging case, they lose because they have no monopoly leveraging claim because there’s only a single market. If you view it as simply a single market case and therefore a predatory pricing case … there is no claim of predatory pricing.” Bomse then urged the court to approve of 3M’s conduct as fair competition in a capitalist society — even if it was setting out to oust LePage’s from the market. “Every party, we hope, in this capitalist system of ours, when they set out to do business, they intend to ‘do all of the business that they can’ — to quote [7th Circuit Chief] Judge [Richard] Posner — that is, they intend to put their rivals out of business. And we’ve attached no adverse inference to that fact. In fact, it is the subject of Sherman Act medals for exemplary behavior,” Bomse said. “Who gives them?” Judge Sloviter asked, eliciting laughs from a packed courtroom. “I hope, obviously, that this court will in this case,” Bomse said. “Unlike love and war, we acknowledge that all is not fair in competition,” Bomse continued. “But most is when it comes to price. The intent to put somebody out of business by pricing in a manner that is not below cost cannot, as a matter of law, post- Brooke, give rise to liability.” Bomse said there was a “danger” the court would encounter in its analysis. “It’s easy to confuse the intent that the Sherman Act applauds — that is, to do all the business that you can; to be the most efficient; to lower prices and drive your competitors out of business — it’s easy to confuse that with predatory or exclusionary intent,” he said. Judge Padova’s jury instructions created just such a problem, he said, because they “caused the jury perhaps to credit the kind of intent that is benign under the Sherman Act as being somehow pernicious.” REFERENCE TO MICROSOFT Bomse said the recent appellate court decision in the Microsoft antitrust suit supported 3M’s argument because it rejected the Justice Department’s claim that Microsoft violated the law by giving away its Internet Explorer software. In the decision, he said, the court wrote that “the rare case of price predation aside, the antitrust laws do not condemn even a monopolist for offering its product at an attractive price … or even at a negative price.” Sloviter interrupted and said, “You might think from you that Microsoft won.” Bomse said Microsoft did win some issues and didn’t win others. The “important point,” he said, is that Microsoft “did win in a most ringing and apt fashion the issue that overlaps with the case here.” LEPAGE’S ARGUMENT LePage’s attorney, Pepper’s Mather, said she agreed with Bomse on one fundamental point — that the purpose of antitrust laws is to provide lower prices and benefits to consumers. But Mather said “what profoundly did not happen in 3M’s course of conduct here is any of those things.” Instead, she said, 3M succeeded in reducing alternatives for consumers by cutting back on the supply of unbranded, private label tape “which had been steadily cutting into the Scotch market.” Mather said it was important that 3M conceded it has monopoly power and that the record shows it has over 90 percent of the market for transparent tape. The strength of LePage’s case, Mather said, was in its evidence of 3M’s “intent.” Although 3M would say its conduct was “all about crushing the competitor,” Mather said it was actually “about foreclosing channels of distribution” and “raising the price.” Internal corporate memos from 3M, she said, showed that company executives were saying, “I don’t want private label products to be successful in the office supply business.” But Senior 3rd Circuit Judge Morton I. Greenberg asked: “What’s wrong with that? They have this fantastic brand label. … So naturally they want to discourage private labels from cutting into their business. Is there something wrong with that?” Mather said, “There’s nothing wrong with that Judge Greenberg; if you go out and cut the price of Scotch, you can go compete.” “They could cut the price of private label and go compete. That’s not what they did here. What they did instead is develop a series of programs which they then used to enforce sole-supplier status.” Greenberg asked why it was wrong for 3M to organize its discounts as across the entire line of its products — especially since LePage’s theory of the case was premised on a single market. “I mean, it’s not shocking; maybe it is,” Greenberg said. “Well, it’s shocking to me, your honor. Maybe I can make it shocking to you,” Mather said. “There are some things that monopolists can’t do that other people can do,” she said. What 3M did, Mather said, was offer “flat-out payments — sometimes payments that dwarf the entire sales that LePages was making — in exchange for exclusivity.” LePage’s customers, she said, began telling LePage’s “don’t bring us anything 3M makes.” The program was “very successful in keeping out private labels,” she said, because 3M paid rebates on all tape and stationery products. The result, she said, was “to bring huge dollars to bear … and those programs were based on specific sales targets.” After pitching the program to chain stores, she said, 3M would “tell them that to meet this program you’ve got to get rid of LePages.” Greenberg seemed unimpressed. “But isn’t that good, though, because if they did that, that meant that these major companies were paying less overall for these particular goods?” Greenberg asked if there was evidence “as to what actually happened in the marketplace.” Mather said LePage’s proof on that point was strong since its expert testified that the price of Scotch brand tape went up. While LePage’s had succeeded in getting up to almost 50 percent of the sales with its lower-priced store-brand tapes, she said, after it was ousted, the sales of 3M’s store-brand tapes dropped considerably. Judge Sloviter asked why 3M’s rebates shouldn’t be considered a perfectly legal version of volume discounts. “What was different about this that made them antitrust violations?” Sloviter asked. Mather said she wouldn’t oppose a general, average-volume rebate, but that what made 3M’s programs different was how they were structured and sold. To get the discount, she said, stores had to get rid of LePage’s products. “They were getting in effect sole-source status,” Mather said. “They were getting exclusivity; they were making exclusivity deals.” Judge Samuel A. Alito asked: “Why isn’t that just tantamount to lowering prices?” Mather insisted it was not because “at a certain point, the discounts, if they become large enough, are not really discounts — they’re payments, and we would say in return for exclusivity.” The jury, she said, “could easily have found that these were in exchange for sole-source agreements.”

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