Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.

PETITIONER: Weyerhaeuser Company
RESPONDENT: Ross-Simmons Hardwood Lumber Company, Inc.
LOCATION: United States Court of Appeals for the Ninth Circuit

DOCKET NO.: 05-381
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 549 US 312 (2007)
GRANTED: Jun 26, 2006
ARGUED: Nov 28, 2006
DECIDED: Feb 20, 2007

ADVOCATES:
Andrew J. Pincus - argued the cause for Petitioner
Kannon K. Shanmugam - argued the cause for Petitioner
Michael E. Haglund - argued the cause for Respondent

Facts of the case

Ross-Simmons Hardwood Lumber Co. (Ross-Simmons) sued Weyerhaeuser, a competing sawmill, for "predatory buying" in violation of Section 2 of the Sherman Act. Specifically, Weyerhaeuser was accused of buying more raw materials than it needed at unnecessarily high prices. Ross-Simmons alleged that Weyerhaeuser's business practices were aimed at monopolizing the market for purchasing unprocessed sawlogs and forcing its competitors out of business. At the jury trial, jurors were instructed to rule against Weyerhaeuser if Ross-Simmons could prove that Weyerhaeuser bought more sawlogs "than it needed" and paid more "than necessary" for them. Weyerhaeuser objected, arguing that the more stringent guidelines in the case of Brooke Group v. Williamson Tobacco Corp. required a ruling in its favor. In Brooke Group, the Court held that in order for a company to be liable for "predatory pricing," a company must be shown to have been operating at a loss, and to have a "dangerous probability" of recouping its losses.

The District Court rejected Weyerhaeuser's motion, ruling that Brooke Group applies only to predatory pricing, where a company prices its products too low in order force competitors out of the market, and not to predatory buying. Under the less stringent guidelines, the jury found Weyerhaeuser to be in violation of the Sherman Act, and awarded Ross-Simmons $78.8 million in damages. On appeal, the Ninth Circuit Court of Appeals upheld the District Court, ruling that the higher standard of liability for predatory pricing compared to predatory buying is appropriate, because business practices that resemble predatory pricing may result in benefits such as efficiency incentives and lower prices for consumers.

Question

Does a plaintiff alleging predatory buying in violation of the Sherman Act need to establish that the defendant paid so much for raw materials that it operated at a loss and the defendant had a "dangerous probability" of recouping its losses?

Media for Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.

Audio Transcription for Oral Argument - November 28, 2006 in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.

Audio Transcription for Opinion Announcement - February 20, 2007 in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc.

John G. Roberts, Jr.:

Justice Thomas has the opinion in two cases this morning.

Clarence Thomas:

First case I have to announce is Weyerhaeuser versus Ross-Simmons Hardwood Lumber Company No. 05-381.

This case comes to us on a writ of certiorari to the United States Court of Appeals for the Ninth Circuit.

It involves two sawmills that competed to produce finished hardwood lumber in the Pacific Northwest.

Respondent Ross-Simmons blamed petitioner Weyerhaeuser for driving it out of business by bidding up the price of Red Alder saw logs which both mills processed into finished lumber.

Ross-Simmons filed an antitrust suit against Weyerhaeuser alleging monopolization, an attempted monopolization under Section 2 of the Sherman Act.

The District Court refused to issue a jury instruction that incorporated elements of the test we set forth for analyzing predatory-pricing claims in Brooke Group versus Brown & Williamson.

A jury found Weyerhaeuser liable, the Court of Appeals for the Ninth Circuit affirmed holding that Brooke Group did not provide the appropriate standard for predatory-bidding claims.

In an opinion filed with the court today we vacate the judgment of the Court of Appeals and remand the case for further proceedings.

In a predatory-bidding scheme the purchaser bids up the market price of an input so high that rival buyers cannot afford to purchase the input.

Once the predatory bidder has caused competing buyers to exit the market, it then attempts to drive down the prices of inputs.

By lowering input prices the predatory bidder stands to make supracompetitive profits that will at least offset the losses it incurred while bidding up input prices.

The close connection between predatory-bidding and predatory-pricing suggest that similar legal standards should apply to both.

Predatory-bidding mirrors aspects of predatory-pricing that we considered important in Brooke Group.

We concluded in Brooke Group that predatory-pricing schemes are rarely tired and even more rarely successful.

That conclusion applies with equal force to predatory-bidding because rational businesses will rarely suffer certain short-term losses on the unlikely chance that they might later make supracompetitive profits.

Predatory-bidding schemes are unlikely to occur frequently.

Also, like predatory-pricing, the actions that serve as a basis for liability, bidding up prices for inputs are often the very essence of competition.

There are a number of procompetitive reasons why an input purchaser might take actions that raise the price of inputs.

Given these and other similarities we are convinced that the test we applied to predatory-pricing in Brooke Group should also apply to predatory-bidding claims.

A predatory-bidding plaintiff must therefore make two showings to succeed on its claim.

First, it must prove that the defendant’s high bidding caused the cost of the relevant output to rise above the revenues generated by the sale of those outputs.

Second, a plaintiff must show that the defendant has a dangerous probability of recouping the losses incurred in bidding up input prices.

Ross-Simmons has conceded that it has not satisfied the Brooke Group test therefore its predatory-bidding theory of liability cannot support the jury’s verdict.

The opinion of the court is unanimous.