Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.
125 L. Ed. 2d 168, 113 S. Ct. 2578 (1993)
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Rule of Law:
To prove primary-line price discrimination under the Robinson-Patman Act, a plaintiff must show not only that the defendant priced its products below an appropriate measure of cost, but also that the defendant had a reasonable prospect of recouping its investment in below-cost prices.
Facts:
- The U.S. cigarette industry was a highly concentrated oligopoly historically characterized by supracompetitive prices and little price competition among its six major firms, including Liggett and Brown & Williamson Tobacco Corporation (B&W).
- In 1980, Liggett, facing declining market share, pioneered the 'economy segment' by introducing a successful line of generic, 'black and white' cigarettes priced about 30% below branded cigarettes.
- Liggett's success eroded the sales of branded cigarettes, hitting B&W particularly hard, as many of its price-sensitive customers switched to Liggett's generics.
- In 1984, B&W entered the generic segment with its own black and white cigarettes, matching Liggett's list prices but offering substantially larger volume rebates to wholesalers.
- A fierce rebate war ensued, during which B&W maintained a net price advantage over Liggett. For an 18-month period, B&W's net prices for generic cigarettes were below its average variable costs.
- Following the period of below-cost pricing, from 1986 to 1989, list prices on all cigarettes, including generics, increased in tandem twice a year, narrowing the percentage price gap between generic and branded products.
- Despite the price increases, the generic segment's share of the total cigarette market continued to grow rapidly, from about 4% in 1984 to over 15% by 1989.
Procedural Posture:
- Liggett sued Brown & Williamson in the U.S. District Court for the Middle District of North Carolina for illegal price discrimination under the Robinson-Patman Act.
- Following a 115-day trial, a jury found in favor of Liggett and awarded damages of $49.6 million, which the court trebled to $148.8 million.
- The District Court granted Brown & Williamson's motion for judgment as a matter of law, setting aside the jury's verdict.
- Liggett, as appellant, appealed the District Court's decision to the U.S. Court of Appeals for the Fourth Circuit.
- The Court of Appeals, with Brown & Williamson as appellee, affirmed the District Court's judgment.
- The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.
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Issue:
Does a competitor's price-cutting scheme, which involves discriminatory volume rebates that result in below-cost prices, violate the Robinson-Patman Act where there is insufficient evidence to show a reasonable prospect that the competitor could recoup its losses through supracompetitive oligopoly pricing?
Opinions:
Majority - Justice Kennedy
No. A competitor's price-cutting scheme does not violate the Robinson-Patman Act without sufficient evidence of a reasonable prospect of recoupment. To establish primary-line injury, a plaintiff must satisfy a two-part test: (1) prove the rival's prices were below an appropriate measure of its costs, and (2) demonstrate that the competitor had a reasonable prospect of recouping its losses through later supracompetitive prices. Here, Liggett failed to satisfy the second prong. The evidence did not suggest B&W could likely obtain the power to raise generic cigarette prices above a competitive level, as the generic market's output expanded, not contracted, following B&W's entry. Furthermore, market conditions, including declining overall demand, excess capacity, and the complex pricing structure involving promotions and new 'subgeneric' products, made tacit coordination among competitors to sustain supracompetitive prices highly improbable.
Dissenting - Justice Stevens
Yes. The evidence was sufficient for the jury to find a reasonable possibility of injuring competition. The majority improperly reweighed the evidence and usurped the jury's role. The Robinson-Patman Act only requires a 'reasonable possibility' of harm to competition, a less stringent standard than the Sherman Act. The evidence of B&W's clear anticompetitive intent, its willingness to sustain millions in losses over 18 months, and the subsequent lockstep, supracompetitive price increases in an industry with a history of oligopolistic behavior was sufficient for a reasonable jury to infer that B&W's predatory scheme had a reasonable prospect of success. The jury was entitled to conclude that B&W's conduct was a disciplinary measure intended to restore supracompetitive pricing, thereby injuring competition.
Analysis:
This decision significantly heightened the evidentiary burden for plaintiffs in predatory pricing cases by harmonizing the standard for primary-line injury under the Robinson-Patman Act with the more rigorous standard under Section 2 of the Sherman Act. By requiring proof of a reasonable prospect of recoupment, the Court made it far more difficult to challenge aggressive price-cutting, especially in oligopolistic markets where recoupment via tacit collusion is considered speculative. The ruling prioritizes the consumer benefits of low prices over the protection of individual competitors from aggressive competition, effectively shielding low-pricing strategies from antitrust liability unless a clear path to future monopoly profits can be proven.
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