The NAM and the Business Roundtable filed an amicus brief urging the Supreme Court to review a Ninth Circuit decision that allows certain manufacturers to be sued if they pay too much for inputs to their manufacturing process. This is an antitrust case where a competitor claimed that Weyerhaeuser paid more than was “necessary” for hardwood logs in the Pacific Northwest in order to drive its competitors out of business.
The Ninth Circuit held that a jury could regard paying higher prices than necessary as an anticompetitive act, and the jury awarded a judgment for nearly $79 million against Weyerhaeuser. Our brief to the Supreme Court argued that the Ninth Circuit’s standard is dangerous and unworkable, and will subject purchasing decisions to judicial oversight, deterring companies from making efficient purchasing decisions to adjust to rapidly-evolving market conditions, fostering inefficiencies that ultimately harm consumers. Instead, a company should not be liable if it continues to make a profit and does not have any chance of succeeding in its alleged predatory scheme. The antitrust laws should not be used to punish efficient competitors.
On February 20, 2007, the Supreme Court unanimously agreed. It applied the standard of Brooke Group Ltd. V. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), which governs predatory selling claims. A plaintiff must now show, in cases where a defendant is alleged to have bid up the price of inputs to manufacturing, that the defendant lost money and that there was a dangerous probability that the defendant would recoup its losses after its scheme to shut out competitors succeeded.
The NAM and the Business Roundtable filed an amicus brief supporting this result. Our latest amicus brief argued that the antitrust laws are designed to protect competition, not competitors. Whether a price paid for an input to manufacturing is “necessary,” or the volume of inputs purchased is “more than is needed,” is irrelevant to allegations of predatory conduct. Rather, what is important is whether the company can continue to sell its products at a profit. If so, it is operating efficiently, and companies that cannot profit should try to become more efficient, not sue. Even if a company pays higher prices for inputs to manufacturing, as long as it is making money, its success is what competition is all about.
Moreover, many legitimate business reasons exist for a company to pay more for raw materials than others might consider “necessary.” There may be limited supplies available, and both market conditions and consumer demand may change rapidly. A manufacturer must have the flexibility to make buying and selling decisions without being second-guessed by judges applying vague standards of liability, particularly when treble damages and attorneys’ fees can be imposed for the wrong choice. Business needs rules that can be implemented on a day-to-day basis by ordinary business people – not by industrial organization economists or lawyers – so that they can continue to improve productivity and efficiency and compete in today’s marketplace.