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In one of the country’s most closely watched antitrust cases, a federal appeals court on Tuesday upheld a $68 million verdict against office supply giant 3M — the maker of Scotch-brand tape and Post-it Notes — in a monopoly suit brought by LePage’s Inc., a now-defunct Pennsylvania company that said 3M used exclusionary tactics to force it out of the market for transparent tape. Voting 7-3, an en banc panel of the 3rd U.S. Circuit Court of Appeals flatly rejected 3M’s argument that the theory of LePage’s case was flawed since there was no evidence that 3M ever sold any of its products at below-cost prices. Instead, the court said the evidence showed that 3M had set out to “kill” the niche market LePage’s had created for discount store-brand tape with customers such as Kmart and Staples. Writing for the court, 3rd Circuit Judge Dolores K. Sloviter found that 3M “sought to meet the competition that LePage’s threatened by exclusionary conduct that consisted of rebate programs and exclusive dealing arrangements designed to drive LePage’s and any other viable competitor from the transparent tape market.” Sloviter found that the jury “had before it evidence of the full panoply of 3M’s exclusionary conduct, including both the exclusive dealing arrangements and the bundled rebates which could reasonably have been viewed as effectuating exclusive dealing arrangements because of the way in which they were structured.” Sloviter’s majority opinion was joined by 3rd Circuit Chief Judge Edward R. Becker, and Circuit Judges Richard L. Nygaard, Theodore A. McKee, Thomas L. Ambro, Julio M. Fuentes and D. Brooks Smith. In dissent, Senior Circuit Judge Morton I. Greenberg’s opinion was joined by Circuit Judges Anthony J. Scirica and Samuel A. Alito Jr. “I agree with 3M that LePage’s simply did not establish that 3M’s conduct was illegal, as LePage’s did not demonstrate that 3M’s pricing was below cost,” Greenberg wrote. “In the absence of such proof, the record does not supply any other basis on which we can uphold the judgment,” Greenberg wrote. The decision turns the tables at the court since Sloviter had originally authored the dissent from a 2-1 decision authored by Greenberg that had overturned the verdict and ordered judgment in favor of 3M. In her January 2002 dissent, Sloviter complained that the majority’s ruling would “weaken Section 2 of the Sherman Act to the point of impotence” and that her colleagues were imposing new hurdles for antitrust plaintiffs that would harm competition. Now, writing for the majority, Sloviter held that LePage’s had built a valid case of illegal conduct by a monopolist by showing that 3M had lured away LePage’s biggest customers by offering bundled rebates that could be won only by meeting sales goals in six categories of 3M product lines. “The principal anti-competitive 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,” Sloviter wrote. “The jury could reasonably find that 3M used its monopoly in transparent tape, backed by its considerable catalog of products, to squeeze out LePage’s,” Sloviter wrote. The ruling is a victory for LePage’s trial team — attorneys Barbara W. Mather and Jeremy Heep of Pepper Hamilton in Philadelphia, along with sole practitioner Peter Hearn, and Mark W. Ryan and Kerry Lynn Edwards of Mayer Brown Rowe & Maw in Washington, D.C. Attorney Roy T. Englert joined the plaintiff’s team to argue before the en banc court. For 3M, attorney John G. Harkins of Harkins Cunningham in Philadelphia handled the trial and was joined in the appeal by attorneys M. Laurence Popofsky, Stephen V. Bomse, Paul Alexander and Marie L. Faia of Heller Ehrman White & McAuliffe in San Francisco. LePage’s claimed that 3M set out to drive LePage’s out of the market for transparent tape by offering “bundled” rebates to large retailers that, in reality, could be earned only by removing LePage’s products from their shelves. Such rebate deals, LePage’s said, amounted to “de facto” exclusive dealing arrangements. As a result, LePage’s said it lost some of its biggest customers, such as the office supply chain Staples, which canceled its contract with LePage’s to manufacture a store-brand tape to benefit from 3M’s lucrative rebate program. In April 1999, a jury found that 3M had abused its monopoly power, but cleared 3M on claims that it had engaged in exclusive dealing or unreasonably restrained trade. Technically, the jury awarded LePage’s $22.8 million in damages, but that figure was automatically trebled by U.S. District Judge John R. Padova for a total verdict of $68.4 million. Now the 3rd Circuit has ruled that LePage’s succeeded in proving that 3M engaged in illegal conduct designed to preserve its monopoly power. “Rather than competing by offering volume discounts which are concededly legal and often reflect cost savings, 3M’s rebate programs offered discounts to certain customers conditioned on purchases spanning six of 3M’s diverse product lines,” Sloviter wrote. Sloviter said the rebates were not only bundled, but set “customer-specific target growth rates” in each product line. The size of the rebate, she said, was linked to the number of product lines in which targets were met, and the number of targets met by the buyer determined the rebate it would receive on all of its purchases. A customer that failed to meet the target for any one product would lose the rebate across the line. “This created a substantial incentive for each customer to meet the targets across all product lines to maximize its rebates,” Sloviter wrote. Sloviter found that the rebates “were considerable,” and “not ‘modest’ as 3M states.” Kmart, which had constituted 10 percent of LePage’s business, received $926,287 in 1997; and in 1996 Wal-Mart received more than $1.5 million, Sloviter noted. Sloviter found that in practice, the rebates were a “powerful incentive” to customers to purchase 3M tape rather than LePage’s. GREENBERG’S DISSENT In dissent, Judge Greenberg found that LePage’s case was lacking in several critical areas. The evidence, Greenberg said, showed that LePage’s “lost business for reasons that could not possibly be attributable to any unlawful conduct by 3M.” The main flaw in LePage’s case, Greenberg found, was the lack of any proof that 3M had ever resorted to selling its products below cost in order to drive LePage’s from the market. Despite presenting evidence of the bundled rebates, Greenberg found that LePage’s “did not even attempt to show that it could not compete by calculating the discount that it would have had to provide in order to match the discounts offered by 3M through its bundled rebates, and thus its brief does not point to evidence along such lines.” Greenberg said he recognized that due to the size of 3M’s rebates as compared to LePage’s sales, that LePage’s “would have had to make substantial reductions in prices.” But LePage’s failed to prove that point with evidence, Greenberg said, since it “did not show the amount by which it lowered its prices in actual monetary figures or by percentage to compete with 3M and how its profitability thus was decreased.” Instead, Greenberg said, LePage’s simply used an expert to prove that “it would have had to cut its prices drastically to compete and thus would have gone out of business.” But Greenberg found it was “critically important to recognize that LePage’s had 67 percent of the private label business at the time of the trial.” As a result, he said, “notwithstanding 3M’s rebates, LePage’s was able to retain most of the private label business.” Greenberg said he found it “ironical that LePage’s complains of 3M’s use of monopoly power as the undisputed fact is that LePage’s, not 3M, was the dominant supplier of private label tape both before and after 3M initiated its rebate programs.” Rejecting LePage’s entire theory of the case, Greenberg said “in this case, Section 2 of the Sherman Act is being used to protect an inefficient producer from a competitor not using predatory pricing but rather selling above cost.”

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