American Antitrust Institute Rejects “Above Cost Safe Harbor” for Monopolist

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The American Antitrust Institute (AAI) has filed a friend-of-the-court brief with the U.S. Court of Appeals in Philadelphia, asking the court not to require an antitrust plaintiff challenging a monopolist’s market-share or loyalty rebates to prove below-cost pricing.

On appeal is a decision of the federal district court in Wilmington, Delaware (2012-1 Trade Cases ¶77,789), upholding a jury’s finding that a manufacturer of heavy-duty commercial truck transmissions violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act through its use of multi-year contracts with truck manufacturers that amounted to de facto exclusive dealing contracts.

Multiple issues were appealed by the defending manufacturer and a complaining former rival. However, AAI addressed only one issue: the defending transmission manufacturer’s argument that “[a]n antitrust plaintiff challenging a [monopolist’s] pricing practices must prove below-cost pricing using an accepted price-cost test.”

These pricing practices include conditional, share-based rebates that the defending manufacturer argues were the central focus of plaintiffs’ theory of antitrust liability and the jury’s verdict. AAI contends that the defending transmission manufacturer urged the appellate court to “adopt a rule that a monopolist is immune from liability for using ‘market share’ rebates to create an anticompetitive exclusive dealing arrangement unless the plaintiff provides the monopolist’s prices are below cost.”

“Neither policy nor precedent supports [the defending manufacturer’s] claimed above-cost safe harbor,” according to AAI’s brief. AAI maintains that “a cost-based safe harbor for discounts linked to market-share requirements would harm competition and consumers.”

AAI’s brief in ZF Meritor LLC v. Eaton Corp., Nos. 11-3301 and 11-3426, is available here.