Opinion
CV 03-753-PA.
July 27, 2004
OPINION AND ORDER DENYING DEFENDANT'S POST-TRIAL MOTION
A jury found in favor of Plaintiff Washington Alder on its claims for monopolization, and attempted monopolization, of the alder sawlog market from 1999 through 2001. The jury awarded $5,287,743 in damages, which automatically was trebled. Defendant Weyerhaeuser Company has filed a Renewed Motion for Judgment as a Matter of Law ("JMOL"). I deny the motion.
Plaintiff withdrew its claims concerning the finished alder lumber market, and failed to prove at least one element of its claims regarding the alder sawlog market in 2002.
Legal Standards
Judgment as a matter of law is proper if the evidence, construed in the light most favorable to the nonmoving party, permits only a conclusion contrary to the jury's verdict. Rivero v. City County of San Francisco, 316 F.3d 857, 863 (9th Cir. 2002). Although the court should review the record as a whole, it must disregard evidence favorable to the moving party that the jury is not required to believe, and may not substitute its view of the evidence for that of the jury. Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001).
Discussion
Defendant has not moved for a new trial or asked the court to reduce the verdict. Rather, Defendant adopts an all-or-nothing position. The court must either (1) reverse the jury verdict and enter judgment for Defendant, or (2) deny the motion.
1. "Predatory Pricing"
Defendant contends it is entitled to prevail, as a matter of law, because Plaintiff allegedly failed to satisfy the predatory pricing standard stated in Brooke Group Ltd. v. Brown Williamson Tobacco Corp., 509 U.S. 209 (1993). Two flaws are immediately apparent in this contention. First, deliberately driving up log prices was not the only anticompetitive act alleged by Plaintiff. Defendant errs by compartmentalizing each act and analyzing it in a vacuum while ignoring the cumulative impact of those acts. They were alleged to have been in furtherance of an overall scheme, not isolated acts.
Second, neither the Supreme Court nor the Ninth Circuit has applied the Brooke Group predatory pricing standard to a case such as the one before this court.
The Supreme Court carefully scrutinizes claims alleging predatory retail pricing because lower retail prices benefit consumers. The Court does not want to discourage price competition, which is lawful conduct.
The mechanism by which a firm engages in predatory pricing — lowering prices — is the same mechanism by which a firm stimulates competition; because cutting prices in order to increase business often is the very essence of competition. Mistaken inferences are especially costly, because they chill the very conduct the antitrust laws are designed to protect. It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high.Brooke Group, 509 U.S. at 226-27 (internal citations and punctuation omitted).
Weyerhaeuser contends the same standard should apply when a monopolist intentionally drives raw material prices up in an effort to destroy its competitors. However, the public policy implications in that circumstance are very different than in a predatory retail pricing case. Consumers don't benefit from higher raw material prices, or by logs rotting in the lumber yard. Nor is deliberately driving log prices up, simply to deprive competitors of logs, likely to be confused with legitimate competition.
The facts at trial, and the inferences to be drawn therefrom, were vigorously contested. Nevertheless, there was evidence from which the jury could have found that Weyerhaeuser deliberately drove alder sawlog prices up as part of a scheme to prevent competitors from obtaining logs at economical prices-even though that meant Defendant was paying up to twenty million dollars a year more for logs than was necessary. The jury could also have found that Defendant deliberately purchased more logs than it needed in an effort to deprive competitors of logs, even if that meant the excess logs spoiled or Weyerhaeuser was saddled with large inventories of finished lumber. The jury could reasonably have concluded that this conduct made economic sense only because of its anticipated adverse effect upon competition. Indeed, that was the explanation allegedly offered by senior Weyerhaeuser executives on more than one occasion. Such conduct is not mere price competition, as Weyerhaeuser suggests, nor — as framed — is it a matter of an inefficient rival being outbid for logs that both companies need. The jury was instructed that:
Cargill, Inc. v. Montfort of Colorado, Inc., 479 U.S. 105 (1986), is thus inapposite.
Honest competition for logs that Defendant needed to supply its own mills is not unlawful conduct, even if that meant Defendant outbid competitors when necessary or entered into contracts intended to assure a steady log supply. The antitrust laws are violated only when that behavior goes beyond satisfying Defendant's legitimate needs, and is undertaken for the purpose of preventing competitors from obtaining the logs they require, at reasonable prices.
If you find that Defendant deliberately purchased more logs than it needed, or paid a higher price for logs than necessary, in order to prevent the Plaintiff and other competitors from obtaining the logs they needed at a fair price, you may regard this as an anticompetitive act if you also find that, at the time it acted, Defendant had a reasonable expectation that it could recoup any losses sustained through this conduct, by paying lower log prices in the future due to a reduction in competition from other saw mills.
The jury was further instructed that:
The Sherman Act protects competition, not particular competitors. The mere fact that a particular company is unable to compete in the market place, or goes out of business, does not establish a violation of the antitrust laws. Only conduct that unfairly tends to destroy competition itself violates the Sherman Antitrust Act.
* * * *
Anti-competitive conduct is conduct that has the effect of wrongly preventing or excluding competition, or frustrating or impairing the efforts of other firms to compete within the relevant market, making it very difficult or impossible for competitors to engage in fair competition. Not everything that enables a company to gain or maintain a monopoly is anti-competitive.
In deciding whether conduct is anti-competitive, you should consider whether the conduct lacks a valid business purpose, or unreasonably or unnecessarily impedes the efforts of other firms to compete for raw materials or customers, or if the anticipated benefits of the conduct flow primarily from its tendency to hinder or eliminate competition. Anti-competitive conduct does not include ordinary means of competition, such as offering better products or services, exercising superior skill or business judgment, utilizing more efficient technology, better marketing, or exercising natural competitive advantages such as unique geographic access to raw materials or markets.
These instructions adequately guard against the risk of suppressing legitimate competition, which concerned the Court inBrooke Group. 2. Recoupment
Defendant contends it is entitled to JMOL because "plaintiff did not make a showing of the possibility of recoupment." The precise standard that Defendant cites on page 6 of its brief is incorrect. That should be obvious from the language Defendant quotes to justify its proposed standard, namely, that "[w]ithout recoupment, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced." Defendant's Memo. at 6, quoting Brooke Group, 509 U.S. at 224. Although Defendant persists in trying to hammer a square peg into a round hole, this is not a retail "predatory pricing" case. Excessive raw material prices and spoiled logs neither "produce lower aggregate prices in the market" nor enhance "consumer welfare."
The jury was correctly instructed that intentionally overpaying for logs, just to keep them from competitors, could be regarded as an anti-competitive act if, "at the time it acted, Defendant had a reasonable expectation that it could recoup any losses sustained through this conduct, by paying lower log prices in the future due to a reduction in competition from other saw mills."
There was evidence from which the jury could find that such expectation did motivate the forbidden conduct. Weyerhaeuser disputed this, but the jury was entitled to believe Plaintiff's evidence and to discredit Weyerhaeuser's evidence, along with the opinions of Defendant's very generously compensated expert witnesses.
Defendant argues that recoupment was not possible because, by some time during 2002, the market had returned to a state of equilibrium and Plaintiff was no longer in imminent danger of being forced out of business. Notably, though the claim in question concerns the period ending in 2001, Defendant's argument focuses almost entirely upon events during 2002 or later. For instance, Defendant asserts that Plaintiff is presently in good financial condition and not in danger of being forced out of the market. However, the jury heard evidence that the Plaintiff's financial condition was far more perilous during 1999 through 2001, and the company was in "survival mode" in 2000, deeply in debt and its accounts far in arrears.
Defendant argues that new companies could successfully enter the market, or existing competitors could expand Defendant persists in examining the evidence in the light most favorable to itself. The jury might reasonably have disagreed with Defendant's premise. In any event, this argument constitutes a forbidden collateral attack upon those portions of the jury's verdict inConfederated Tribes of Siletz Indians v. Weyerhaeuser, CV 00-1693-PA ("Siletz), that I determined should be given preclusive effect in the present case. Defendant is attempting to relitigate the extent of any barriers to entry and whether Weyerhaeuser had the power to control prices or exclude competition. The Siletz jury necessarily answered that question affirmatively when it determined that Weyerhaeuser had monopolized the alder sawlog market. Defendant cannot relitigate that issue here, yet that is precisely what Defendant is attempting to do. See, e.g., Defendant's Memo. at 10 ("[T]he evidence at trial showed that entry is not only possible, it has recently occurred.")
I also note that even the presence of a few new entrants would not preclude a finding of significant barriers to entry. Unless the new entrants are capable of taking significant business away from the defendant, they are unlikely to pose a serious challenge to the defendant's market power. See Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1440-41 (9th Cir. 1995); Oahu Gas Service, Inc. v. Pacific Resources, Inc., 838 F.2d 360, 367 (9th Cir. 1988).
Defendant denies trying to relitigate the question of monopolization in 1999 through 2001. Rather, Defendant contends that in order for Plaintiff to prevail, the jury must make specific findings that Weyerhaeuser continued to possess a monopoly after the years covered by Plaintiff's claim, throughout the prospective recoupment period. Defendant's Reply at 7. The jury did not make specific findings on whether Weyerhaeuser had monopoly power in 2002, nor did it make findings for 2005 or 2006 or 2010. Weyerhaeuser also argues that it is immaterial whether Weyerhaeuser acted with the intent of recouping any losses in the future. Rather, Weyerhaeuser argues, the issue is whether recoupment has actually occurred or is likely to occur. See Defendant's Reply at 6-8.
Although the jury found for Weyerhaeuser on the claims for 2002, this may have been because Plaintiff failed to prove it sustained damages during 2002 from specific anti-competitive acts by Weyerhaeuser.
I disagree. Plaintiff is not required to prove that Weyerhaeuser actually succeeded in recouping all losses the company sustained as a result of the alleged anti-competitive conduct. Suppose, for instance, that Plaintiff and a few other mills survived only because Weyerhaeuser modified its conduct after 2000 in the face of pending antitrust litigation. If Weyerhaeuser engaged in conduct that violated the antitrust laws, but its long-term plan was thwarted by the filing of an antitrust action, Weyerhaeuser would still be liable for the harm inflicted upon its competitors as a result of that abortive scheme. The alternative would be a rule that subjects a monopolist to liability only if its scheme succeeds, and would require competitors to wait until they are all driven out of business before relief is available from the courts. That would defeat the Congressional purpose in enacting the antitrust laws. EvenBrooke Group, the predatory pricing case on which Weyerhaeuser relies, did not impose such a requirement.
It is enough that it was "likely" Weyerhaeuser would have been able to recoup its losses, notwithstanding that intervening events (such as the filing of these antitrust cases) may have prevented Weyerhaeuser from actually doing so. See Brooke Group, 509 U.S. at 232-33. This determination must be made from the perspective of the time period at issue, rather than 20-20 hindsight, i.e.,, whether at the time Weyerhaeuser acted it had a reasonable expectation of being able to recoup any losses it expected to sustain as a result of the anticompetitive conduct. The jury was so instructed, and answered that question in the affirmative.
It would not be appropriate for the parties to present evidence specifically addressing Defendant's reaction to the pending litigation, and whether Defendant changed its conduct in the face of that litigation. This might require disclosure of privileged communications and potentially conflict with Fed.R.Evid. 407. That is one reason why likelihood of recoupment must be evaluated as of the time the illegal conduct occurred. In addition, since the prospect of recoupment may bear upon the likelihood that Defendant intentionally overpaid for logs and engaged in other anti-competitive conduct, it is appropriate to focus upon Defendant's reasonable expectations at the time it acted.
There was sufficient evidence to support that determination. The jury heard evidence that, in recent years, numerous alder sawmills had closed their doors or were acquired by Weyerhaeuser, that Weyerhaeuser executives made threats or statements evidencing an intent to drive competitors out of business, and that David Weyerhaeuser personally threatened a customer who expressed interest in opening his own alder saw mill. TheSiletz jury found that Weyerhaeuser's monopolization of the alder sawlog market through illegal anti-competitive means was a material cause of Ross-Simmons Lumber Company going out of business in May 2001. That finding was binding upon the jury here, as was the determination that Weyerhaeuser had monopolized the alder sawlog market from 1996 through 2001.
The jury heard evidence that Weyerhaeuser was pursuing a calculated strategy of industry "consolidation," and that Weyerhaeuser viewed itself as the "consolidator." Competitors would either go out of business, or be acquired by Weyerhaeuser.
There was evidence that one justification for acquiring Coast Mountain (and its timber licenses) was the belief that Washington Alder would "most likely go away" once Weyerhaeuser locked up the British Columbia alder log supply, and evidence from which the jury could have found that Weyerhaeuser used improper methods to weaken, maintain control of, and ultimately acquire Coast Mountain. There was evidence that Weyerhaeuser deliberately sought to lock up as much of the alder timber supply as it could, whether by outright acquisition, or through right-of-first refusal agreements and other exclusive contracts, by furnishing false information to the State of Oregon, or by conditioning the purchase from a vendor (or in some cases the sale) of softwood logs upon a promise to also sell Weyerhaeuser all of the vendor's hardwood logs.
Senior Weyerhaeuser executives projected that, in the near future, the company's share would increase to at least 85% of the sawlog market. They projected which competitors would be driven out of business, and approximately when. The company took steps to assert control over a greater share of the timber supply, while denying competitors access to logs. There was evidence that senior Weyerhaeuser executives believed the company had the ability to force log prices down over the long-term, and that they intended to pursue such a strategy. See, e.g., Ex. 8352 ("We are in a position to accelerate lower log prices AGGRESSIVELY. . . . We need to accomplish this and we WILL accomplish this") (emphasis in original). And, as noted above, there was evidence that senior Weyerhaeuser executives believed they could recoup any short-term losses resulting from the company's anticompetitive conduct.
3. Absence of Injury
Defendant argues that there was no evidence from which a reasonable jury could have found that Plaintiff sustained any antitrust injury during the period from 1999 through 2001. I disagree. The evidence at trial was not entirely one-sided, but there was sufficient evidence to sustain a verdict against Weyerhaeuser. The jury carefully and dispassionately distinguished between Plaintiff's claims, awarding damages for the earlier period, while declining to award any damages for 2002. It is not necessary to decide whether the evidence was sufficient to justify the entire sum awarded. So long as the jury could properly have awarded any measurable sum of damages to Plaintiff, Defendant is not entitled to JMOL.
Defendant's argument also misconstrues the evidence. For instance, Defendant suggests that Plaintiff had no difficulty obtaining logs. However, the jury heard evidence that Plaintiff sometimes had considerable difficulty obtaining quality logs at reasonable prices, and was forced to buy smaller-diameter and lower-quality logs, and pay substantially higher prices, just to keep the mill operating. Richard Tinney testified that Plaintiff "paid whatever was necessary to keep logs [flowing] into the mill so we could continue to operate." "[W]e had to wood the mill, and we would wood it at whatever price we had to pay for the log. Consequently we paid through the nose for them." The jury also heard evidence that Plaintiff was forced to develop innovative, and more costly, methods of producing lumber from logs that ordinarily would have been relegated to a pulp mill. The result of all this was higher costs and lower revenues, or so the jury could have found.
Defendant also persists in compartmentalizing each anticompetitive act, while ignoring the combined effects of that conduct upon competition. Or, to be more precise, Weyerhaeuser's post-trial arguments ignore those combined effects. There was evidence from which a jury could have concluded that Weyerhaeuser's management understood the impact this conduct was having upon its competitors.
Defendant also advances several frivolous arguments. For example, Defendant continues to argue over a stand-alone "tying" claim that never existed. Rather, that conduct was allegedly just one component of Weyerhaeuser's multi-faceted efforts to lock up the alder sawlog supply, e.g., by conditioning a purchase of softwood logs upon an agreement to sell Weyerhaeuser all hardwood logs.
Weyerhaeuser's reliance upon the "act of state" doctrine is frivolous. Evidence regarding the Canadian forest licenses was relevant to establish Weyerhaeuser's control over potential sources for alder sawlogs, the company's efforts to prevent competitors such as Washington Alder from gaining access to those logs, and the anticompetitive means — such as defrauding Coast Mountain — that Weyerhaeuser allegedly employed to achieve that end. Whether the Canadian government acted wisely in deciding to transfer those licenses to Weyerhaeuser, after the company engineered a takeover of Coast Mountain, is of no concern here. Nothing this court or the jury does will affect that decision.
4. Attempted Monopolization
Even assuming Weyerhaeuser could succeed in overturning the jury's verdict on the monopolization claim, the jury also found Weyerhaeuser liable for attempted monopolization, and awarded the same amount of damages. Defendant has not articulated any persuasive reason for rejecting the jury's verdict on that claim.
Conclusion
Defendant's Renewed Motion (# 323) for Judgment as a Matter of Law is denied.
IT IS SO ORDERED.