Lepages Inc v. MN Mining Mfg Co
324 F.3d 141 (2003)
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Rule of Law:
A monopolist's use of exclusionary conduct, such as bundled rebates and exclusive dealing arrangements, can violate Section 2 of the Sherman Act if it harms competition, even if the monopolist's prices remain above its costs.
Facts:
- Minnesota Mining and Manufacturing Company (3M), manufacturer of Scotch tape, held a monopoly in the U.S. transparent tape market with a share exceeding 90%.
- LePage's sold lower-priced private label and "second brand" transparent tape, and by 1992, it controlled 88% of the private label tape submarket.
- In response to LePage's growth, 3M implemented bundled rebate programs for large retailers like Kmart, Wal-Mart, and Staples.
- These programs offered substantial rebates conditioned on customers meeting specific sales growth targets across multiple, diverse 3M product lines, including home care, auto products, and stationery.
- A customer's failure to meet a sales target in even one product line could result in the loss of the entire rebate across all purchased 3M product lines.
- LePage's, which primarily sold tape, could not offer a comparable multi-product rebate package to compete with 3M's extensive product catalog.
- 3M also offered some large customers lump-sum cash payments and other incentives that effectively created exclusive dealing arrangements, causing them to drop LePage's as a supplier.
- As a result of 3M's programs, LePage's lost major customers, its market share fell from 14.4% to 9.35% between 1992 and 1997, and it incurred significant operating losses.
Procedural Posture:
- LePage's sued 3M in the U.S. District Court for the Eastern District of Pennsylvania for violations of Sherman Act §§ 1 and 2, and Clayton Act § 3.
- A jury returned a verdict for LePage's on its Sherman Act § 2 monopolization and attempted monopolization claims, and for 3M on the Sherman § 1 and Clayton § 3 claims.
- 3M filed a post-trial motion for judgment as a matter of law (JMOL) and a new trial.
- The District Court granted 3M's JMOL motion on the attempted monopolization claim but denied the remainder of 3M's motions.
- The court entered a judgment for LePage's for over $68 million in trebled damages.
- 3M appealed to the U.S. Court of Appeals for the Third Circuit, where a three-judge panel initially reversed the judgment.
- The Third Circuit subsequently granted LePage's petition for a rehearing en banc and vacated the panel's opinion.
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Issue:
Does a monopolist's use of bundled rebates and exclusive dealing arrangements to maintain its monopoly violate Section 2 of the Sherman Act, even if the monopolist never prices its products below cost?
Opinions:
Majority - Sloviter, Circuit Judge
Yes, a monopolist's use of bundled rebates and exclusive dealing arrangements to maintain its monopoly can violate Section 2 of the Sherman Act, even without below-cost pricing. The Supreme Court's decision in Brooke Group applies to predatory pricing claims and does not immunize a monopolist from liability for other forms of exclusionary conduct. A monopolist violates § 2 when it willfully maintains its power through anticompetitive conduct, rather than through competition on the merits. 3M's bundled rebates exploited its monopoly power by leveraging its must-have Scotch tape and diverse product lines to foreclose competition from a less-diversified but efficient rival like LePage's, which could not make a comparable offer. This conduct, combined with exclusive dealing, was not justified by valid business reasons and had the anticompetitive effect of impairing LePage's ability to compete, thereby harming competition itself.
Dissenting - Greenberg, Circuit Judge
No, a monopolist's use of bundled rebates and other discounts does not violate Section 2 of the Sherman Act when its prices remain above its costs. The majority's decision misapplies antitrust principles to protect an inefficient competitor, LePage's, from lawful, aggressive price competition that ultimately benefits consumers. LePage's failed to prove that it was an equally efficient producer that was nevertheless unable to compete. 3M had valid business justifications for its programs, and the record shows that LePage's lost business for other reasons, such as quality concerns and foreign competition. By condemning above-cost discounting, the court risks chilling procompetitive behavior and discouraging companies from offering beneficial price reductions to customers.
Analysis:
This decision significantly clarifies the scope of illegal monopolization under Section 2 of the Sherman Act by holding that below-cost pricing is not a prerequisite for liability. It distinguishes the narrow predatory pricing test from Brooke Group from the broader analysis required for other forms of exclusionary conduct by a monopolist, particularly bundled rebates. The ruling establishes that leveraging monopoly power in one product to foreclose competition in another via multi-product discounts can be unlawful if it harms competition by raising barriers for smaller, less-diversified rivals. This precedent forces dominant firms to scrutinize their discount programs for potential anticompetitive effects, even if their prices are profitable.
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