Facts of the Case

Ross-Simmons Hardwood Lumber Co. (Ross-Simmons) sued Weyerhaeuser, a competing sawmill, for "predatory buying" in violation of Section 2 of the Sherman Act. Specifically, Weyerhaeuser was accused of buying more raw materials than it needed at unnecessarily high prices. Ross-Simmons alleged that Weyerhaeuser's business practices were aimed at monopolizing the market for purchasing unprocessed sawlogs and forcing its competitors out of business. At the jury trial, jurors were instructed to rule against Weyerhaeuser if Ross-Simmons could prove that Weyerhaeuser bought more sawlogs "than it needed" and paid more "than necessary" for them. Weyerhaeuser objected, arguing that the more stringent guidelines in the case of Brooke Group v. Williamson Tobacco Corp. required a ruling in its favor. In Brooke Group, the Court held that in order for a company to be liable for "predatory pricing," a company must be shown to have been operating at a loss, and to have a "dangerous probability" of recouping its losses.

The District Court rejected Weyerhaeuser's motion, ruling that Brooke Group applies only to predatory pricing, where a company prices its products too low in order force competitors out of the market, and not to predatory buying. Under the less stringent guidelines, the jury found Weyerhaeuser to be in violation of the Sherman Act, and awarded Ross-Simmons $78.8 million in damages. On appeal, the Ninth Circuit Court of Appeals upheld the District Court, ruling that the higher standard of liability for predatory pricing compared to predatory buying is appropriate, because business practices that resemble predatory pricing may result in benefits such as efficiency incentives and lower prices for consumers.

Question

Does a plaintiff alleging predatory buying in violation of the Sherman Act need to establish that the defendant paid so much for raw materials that it operated at a loss and the defendant had a "dangerous probability" of recouping its losses?

Conclusion

Yes. The Court unanimously reversed the Ninth Circuit decision and ruled that the Brooke Group standard applies to predatory bidding as well as predatory pricing. The opinion by Justice Clarence Thomas noted the economic similarity between the monopoly conditions created by predatory pricing and the monopsony or "buyer's monopoly" conditions created by predatory bidding. The Court held that the "theoretical and practical similarities of predatory pricing and predatory bidding convince us that our two-pronged Brooke Group test should apply to predatory-bidding claims." Since Ross-Simmons had not met the Court's test, the jury's verdict against Weyerhaeuser was invalid.