Third Circuit Upholds Finding Of Antitrust Liability For Above-Cost Pricing Arrangement

The Third Circuit has been a source of important and controversial jurisprudence regarding antitrust liability for single-firm conduct. For example, in LePage's Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc), cert. denied, 542 U.S. 953 (2004), the court found that bundled discounts that had exclusionary effects violated the antitrust laws despite no showing of below-cost pricing. See also United States v. Dentsply Int'l, 399 F.3d 181 (3d Cir. 2005). In a recent split decision, the Third Circuit explicitly declined to establish a per se rule of non-liability for above-cost pricing. ZF Meritor, LLC v. Eaton Corporation, Nos. 11-3301 & 11-3426, 2012 WL 4483899 (3d Cir. Sept. 28, 2012). The Third Circuit further declined to create a rule that requirements contracts covering less than 100% of the buyer's needs are never unlawful exclusive dealing arrangements. While recognizing the Supreme Court's general safe harbor for above-cost discounting, the Third Circuit found that market-share discounts by a monopolist could amount to a de facto exclusive dealing arrangement that violates the antitrust laws even when prices remained above-cost. In affirming the jury verdict of liability, the Third Circuit also found that the district court had erred in denying plaintiffs an opportunity to amend its expert report on damages which resulted in no damages being awarded.

This case arose out of the alleged foreclosure of ZF Meritor, LLC and Meritor Transmission Corporation (collectively "Plaintiffs") from over 90% of the market for heavy-duty truck transmissions ("HD transmissions") as the result of Defendant Eaton Corporation's ("Eaton's") long-term agreements with direct purchasers of its HD transmissions. In 2009, a federal jury found that Eaton's conduct violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. In a renewed motion for judgment as a matter of law, Eaton had argued that its conduct was per se lawful because its products were priced above-cost. The district court disagreed, reasoning that Eaton had entered into long-term de facto exclusive dealing arrangements that harmed competition by foreclosing a substantial portion of the market. Eaton appealed.

Factual Background

In the North American trucking industry, there are only four direct purchasers of HD transmissions, collectively referred to as Original Equipment Manufacturers ("OEMs"). The ultimate consumers of HD transmissions are the buyers who purchase heavy duty...