The Supreme Court’s unanimous decision today in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. (No. 05-381) concerns conduct known as "predatory bidding" — deliberately bidding up the price of inputs in order to prevent competitors from procuring sufficient supplies to manufacture finished products. The Court’s decision holds that the same stringent standard used to judge the lawfulness of predatory pricing must be applied to claims of predatory bidding as well.
Supreme Court’s Opinion
The Supreme Court unanimously reversed the Ninth Circuit’s holding that a defendant engages in anticompetitive predatory bidding if it pays "a higher price than necessary" in order to prevent a plaintiff from obtaining necessary inputs "at a fair price." Instead, the Court held that the test applied to claims of predatory pricing in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), also applies to claims of predatory bidding.
The Court found a number of similarities between predatory pricing and predatory bidding claims. Both predatory pricing and predatory bidding claims "involve the deliberate use of unilateral pricing measures for anticompetitive purposes," and both claims "logically require firms to incur short-term losses on the chance that they might reap supracompetitive profits in the future."
In addition, the Court found that predatory bidding activities mirror predatory pricing activities in three ways that the Court in Brooke Group found significant to its analysis:
- a rational business will rarely make the financial sacrifice necessary to engage in either predatory bidding or predatory pricing;
- the actions taken in allegedly predatory bidding and predatory pricing schemes are often "the very essence of competition," and legal rules should not deter such conduct; and
- failed predatory bidding or predatory pricing schemes may often result in lower consumer prices.
The analytical similarities between predatory pricing and predatory bidding convinced the Court that the two-pronged Brooke Group test should also apply to predatory bidding claims. Therefore, the Court held that in order to succeed on a claim of predatory bidding, a plaintiff must prove that (1) the alleged predatory bidding has led to below-cost pricing of the predator’s outputs, and (2) the defendant has a dangerous probability of recouping the losses incurred in the predatory scheme through the subsequent exercise of monopsony power (e.g., lowering the prices it pays for inputs below the competitive level).
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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