Argument Preview: Weyerhaeuser Co. v. Ross-Simmons on 11/28

The following argument preview was written by Fred Smith of the Stanford Supreme Court Litigation Clinic.

In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., the Supreme Court outlined the elements a plaintiff must prove when alleging that the defendant engaged in predatory selling practices, in violation of Section 2 of the Sherman Antitrust Act. Specifically, the plaintiff must show that the defendant (1) sold its product at prices too low to cover its expenses; and (2) had a dangerous probability of eventually recouping its losses. Yet, the Brooke Group Court did not state whether this test applies in the context of predatory buying (i.e., bidding), when a plaintiff alleges that a defendant has paid too much for raw materials (“inputs”).

On Tuesday, the Supreme Court will hear arguments in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc. The question in this case is whether the Brooke Group standard applies when a plaintiff alleges that a defendant has engaged in predatory bidding. Or, put another way, may the plaintiff prove an anti-competitive scheme by showing that the defendant paid more for inputs than “necessary,” such that competitors cannot purchase inputs at a fair price.

Andrew Pincus of Mayer, Brown, Rowe & Maw will argue on behalf of petitioner Weyerhaeuser. He will divide his time with Assistant to the Solicitor General Kannon K. Shanmugam, who will argue on behalf of the United States as amicus curiae in support of petitioner. Michael Haglund of Portland’s Haglund, Kelley, Horngren, Jones & Wilde will argue on behalf of respondent Ross-Simmons Hardwood Lumber Co. The parties’ briefs are available here. The United States’s amicus brief is available here.

Both Weyerhaeuser and Ross-Simmons operated sawmills in the Pacific Northwest, where alder is the chief hardwood species. These sawmills purchase alder sawlogs and process them into finished lumber that can be used in products such as furniture. Between 1998 and 2001, the price of alder logs increased, while the price of finished lumber decreased. By the end of this period, Weyerhaeuser had obtained seventy-five percent of the market share for alder sawlogs in the Pacific Northwest. During this same period, thirty-one sawmills – including a plant owned by Ross-Simmons – closed in the region. Ross-Simmons filed a suit against Weyerhaeuser soon thereafter, alleging that Weyerhaeuser violated Section 2 of the Sherman Antitrust Act by engaging in the monopolization and attempted monopolization of the alder sawlog market in the Pacific Northwest. Among its theories of liability were allegations of both predatory overbidding (buying sawlogs at higher prices than necessary) and predatory overbuying (purchasing more sawlogs than needed). The district court instructed the jury that it constituted an “anti-competitive act” for Weyerhaeuser to buy more logs than needed or pay more for sawlogs than necessary to prevent competitors from obtaining logs at a fair price. The jury found in favor of Ross-Simmons, awarding the company roughly $80 million.

After the verdict, Weyerhaeuser appealed, arguing that the jury instructions on predatory bidding were contrary to the Supreme Court’s holding in Brooke Group. The Ninth Circuit rejected this contention. It held that that Brooke Group applied only to predatory selling claims and declined to extend that case to predatory buying schemes such as this one. The Ninth Circuit found persuasive, in part, the idea that consumers temporarily benefit from lower prices during predatory selling schemes, but not during predatory buying schemes—which could account for the “heightened” standard articulated in Brooke Group. After this ruling, characterizing the Ninth Circuit’s opinion as one of great importance, Weyerhaeuser sought Supreme Court review. After calling for the views of the Solicitor General (who recommended that certiorari be granted), the Supreme Court granted cert.

Weyerhaeuser argues that the Brooke Group standard that should apply equally to predatory buying claims. It explains that antitrust claims based upon unilateral pricing decisions have generally been viewed with skepticism. Moreover, it maintains that predatory buying schemes are identical in all relevant respects to the predatory selling schemes at issue in Brooke Group. Like predatory selling, it is illogical to find behavior improperly monopolistic if there is no danger that the defendant will eventually recoup losses incurred during the predation period. Moreover, just as consumers benefit from lower prices in the context of predatory selling, they also benefit from competition among buyers of inputs, as competition will result in more inputs being in the hands of efficient producers, leading to lower prices. Also, the higher prices paid by businesses for inputs, on their face, benefit those who sell inputs. Because predatory buying is thus analogous to the predatory selling in relevant respects, the Brooke Group standard should apply. In this case, Weyerhaeuser asserts, Ross-Simmons did not produce evidence that could establish either component of the Brooke Group standard, and so the Supreme Court should reverse the Ninth Circuit and vacate the district court judgment without a retrial.

The United States concurs with the petitioner’s position, arguing that Brooke Group provides the appropriate standard to determine whether a defendant has engaged in monopolistic predatory bidding. Although the purpose of the Sherman Act is to foster competition, the standard adopted by the Ninth Circuit contravenes this purpose by raising the specter of liability for procompetitive aggressive bidding among purchasers of inputs. Such aggressive bidding could occur when an efficient competitor is merely planning to increase production. Likewise, liability based on subjective amorphous concepts such as whether a price is “necessary” or “fair” fails to provide businesses with notice of how to distinguish competitive behavior from anti-competitive behavior, thereby further deterring competitive conduct. Additionally, consumers are seldom hurt by aggressive bidding and frequently benefit from it. Because these same considerations led the Court to adopt the Brooke Group approach when assessing predatory selling claims, that test should extend to the predatory bidding context.

Ross-Simmons embraces the Ninth Circuit’s approach, arguing that the proper standard to assess predatory bidding is whether the defendant paid a higher price for inputs than necessary to prevent competitors from obtaining these materials at a fair cost. In its brief, Ross-Simmons places a particular emphasis on evidence showing that Weyerhaeuser had a multi-pronged deliberate plan to increase its market-share from fifty to eighty-five percent. Between 1995 and 1998, Weyerhaeuser’s market share increased from fifty to sixty-five percent. Between 1998 and 2001, its market share swelled to seventy-five percent — a number Ross-Simmons calls unprecedented in the industry. Ross-Simmons also dismisses the claim that Brooke Group should apply to predatory bidding claims. Unlike predatory selling, in which a business lowers prices to overwhelm the competition, predatory bidding does not inherently lead to lower prices for consumers. Further, it refutes the notion that the Ninth Circuit’s test will chill procompetitive behavior, countering that (even intentional) anti-competitive behavior will go unchecked and undeterred under the Brooke Group standard.