{"id":31596,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/supreme-court-wants-government-s-view-on-3m.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"supreme-court-wants-government-s-view-on-3m","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/business-operations\/supreme-court-wants-government-s-view-on-3m.html","title":{"rendered":"Supreme Court Wants Government’s View on 3M"},"content":{"rendered":"
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The United States Supreme Court seeks the government's views on whether to review a monopoly maintenance case against 3M Corporation. (3M Co. v. LePage's Inc., U.S.<\/i>, No. 02-1865, 10\/6\/03).<\/p>

The case is noteworthy because an en banc United States Court of Appeals for the Third Circuit held that a finding of illegal monopoly maintenance can be made even if a monopolist's prices are above its costs. Basically, the Third Circuit upheld a treble damages award against 3M based on a finding of exclusionary conduct consisting of bundled rebate programs and exclusive dealing. The Third Circuit reinstated a 1999 jury verdict for LePage's Inc., which ordered 3M to pay LePage's Inc. $68 million in damages for illegally monopolizing sales of transparent tape with its Scotch brand and a variety of discounts and bundled rebates.<\/p>

LePage's claimed that 3M violated Section 2 of the Sherman Act by using monopoly power in the branded transparent tape market to gain a competitive advantage in the unbranded, or "private label" transparent tape market. LePage's cited a variety of 3M's marketing tactics, including 3M's program of bundled rebates and discounts, which were designed to thwart competition. The jury found that LePage's suffered $22.8 million in damages, which were trebled to $68.4 million.<\/p>

3M introduced transparent tape with its "Scotch" product over 70 years ago and dominated the transparent tape market in the United States with a market share above 90% until the early 1990s. In fact, 3M conceded in the course of the litigation that it has a monopoly in the transparent tape market. In the late 1980s and early 1990s, however, "private label" transparent tape began to make significant inroads into that market, particularly with the growth of large chains like Wal-Mart, Staples and OfficeMax, which began offering tape with their names on the label, supplied by companies such as LePage's. By 1992, LePage's gained an 88% share of the small market for private-label tape, and these sales of private label tape were beginning to cut into sales of 3M's branded tape.<\/p>

Thus, 3M responded by marketing its own private label tape. LePage's claims that 3M engaged in a series of anticompetitive acts aimed at curbing the availability of low-priced transparent tape. Basically, 3M began offering "bundled" or "package" rebates to its Scotch tape customers: if customers increased their sales of various 3M product lines by specified percentages, these rebates were awarded. The availability and the size of the rebates depended on the customers' purchase volumes of multiple product lines, including "Post-It" notes and packaging products. In addition, LePage's alleged that 3M offered to some of LePage's customers large lump-sum cash payments, promotional allowances and other cash incentives to encourage them to enter into exclusive arrangements.<\/p>

3M claimed that the programs offered customers convenience because the customers could deal with less invoices, less shipments, and less packaging. According to LePage's, however, the program was anticompetitive because it stifled the growth of private label manufacturers and prevented them from gaining or maintaining a large volume of sales. LePage's thus contended, and the jury agreed, that 3M was abusing monopoly power in branded tape to squeeze LePage's out of the private label tape market under Section 2 of the Sherman Act.<\/p>

A divided panel of the Third Circuit reversed the District Court's judgment on LePage's Section 2 claim. LePage's Inc. v. 3M<\/i>, Nos. 00-1368 and 00-1473 (3d Cir. Jan. 14, 2002). The Third Circuit then granted LePage's motion for rehearing en banc and vacated the panel opinion. 3M then petitioned the Supreme Court for a petition of certiorari.<\/p>

There are two essential elements of a monopolization claim: (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. The first element was easily met because 3M conceded that it had a monopoly. Thus, the Third Circuit focused on whether 3M willfully maintained its monopoly in the transparent tape market though exclusionary conduct without a valid business justification, primarily by bundling its rebates and entering into contracts that expressly or effectively required exclusive dealings.<\/p>

The Third Circuit held that 3M's bundled rebate program was structured in such a way that LePage's customers had incentives to stop purchasing from LePage's and purchase exclusively from 3M to obtain the maximum rebate, which the Third Circuit found to be extremely generous. The Third Circuit found that LePage's introduced powerful evidence that could have led the jury to believe the rebates and discounts to retailers such as Kmart and wholesalers like Sam's Club were designed to induce them to award business to 3M and stop dealing with LePage's. Evidently, some of 3M's rebates were "all or nothing" discounts, which in effect foreclosed LePage's from dealing with its customers. To maximize substantial discounts, some of LePage's largest customers started dealing with 3M exclusively. The Third Circuit held that with this type of evidence, a jury could reasonably find that 3M's exclusionary conduct violated Section 2 of the Sherman Act.<\/p>

While there were procompetitive aspects to the rebate program, such as simpler invoices and single shipments, the Third Circuit found that LePage's relations and discussions with individual chains indicated that LePage's lost business because of the bundled rebates and exclusive dealing arrangements.<\/p>

Now that the case has made it to the Supreme Court, 3M and LePage's are framing the issue differently. 3M characterizes the question to be reviewed as whether a "dominant firm's discounted but above-cost prices for volume purchases, of either individual products or multiple products, may be condemned as unlawful under Section 2 of the Sherman Act based on the incentive such low prices offer to shift purchases away from smaller rivals." LePage's claims that the Supreme Court should review two questions: (1) Did the Third Circuit correctly reject "3M's legal theory that after Brooke Group, no conduct by a monopolist who sells its product above cost — no matter how exclusionary the conduct — can constitute monopolization in violation of Section 2 of the Sherman Act"; and (2) "whether certiorari review is foreclosed by 3M's failure, in its question presented, to address the Court of Appeals' holding that 3M's exclusive dealing practices independently support the jury verdict in this case".<\/p>

3M argues in its brief that the Third Circuit's decision conflicts with the U.S. government's position in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP<\/i>, which was argued October 14 before the court. 3M says that the government does not want to "chill" firms nationwide from selling more for less. The Third Circuit's decision, the brief contends, is a retreat from the bright-line principle that above-cost pricing provides a safe harbor. 3M maintains that the possibility of an exclusive dealing charge will prevent large companies with a single product from offering attractive pricing and will deter any number of large multi-product firms from offering discounts to customers buying a bundle of different products even when the package as a whole is above cost, when all individual components of the bundle are above cost, and when there is and can be no 'tying' claim based on using a monopoly to foreclose sales in a competitive market. 3M also maintains that the government's brief in Verizon is urging the Supreme Court to adopt an Aspen Skiing-based standard for predation, which basically means that Section 2 does not require dominant firms to avoid sales in order to allow small rivals to survive. (Aspen Skiing Co. v. Aspen Highlands Skiing Corp.<\/i>, 472 U.S. 585 (1985)).<\/p>

LePage's maintains in its brief in opposition that the Third Circuit applied settled law that does not conflict with Brooke Group or decisions in other circuits, that 3M's exclusive dealing practices independently support the Third Circuit's decision, that there is no reason for the Court to hold 3M's petition pending its decision in Trinko, and that the Third Circuit's decision "will not inhibit price cuts or other pro-competitive conduct." LePage's claims that the Third Circuit's ruling should be upheld because the decision applies only to businesses with monopoly power that take steps to maintain that power, substantial evidence of 3M's anticompetitive intent to eliminate private label tape was presented, 3M's anticompetitive intent had no legitimate business justification, and customers and distributors did not like the restrictions that foreclosed competition.<\/p>

The Supreme Court's decision on these issues will be significant because it will either indicate that a monopolist must be cautious in implementing a discount or rebate program that may have exclusionary or foreclosure effects, or that a monopolist has a clear bright line safe harbor on which to rely when offering discounts and rebates on bundled and single products.<\/p><\/div>","protected":false},"excerpt":{"rendered":"

The United States Supreme Court seeks the government’s views on whether to review a monopoly maintenance case against 3M Corporation. (3M Co. v. LePage’s Inc., U.S., No. 02-1865, 10\/6\/03). The case is noteworthy because an en banc United States …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6468,6467],"class_list":["post-31596","corporate","type-corporate","status-publish","hentry","corporate_categories-business-operations__antitrust-trade-regulation","corporate_categories-business-operations"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/31596","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=31596"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=31596"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}