Stearns Airport Equi v. FMC Corporation ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
Nos. 97-10592 & 97-10781
STEARNS AIRPORT EQUIPMENT COMPANY, INCORPORATED,
Plaintiff-Appellant,
versus
FMC CORPORATION,
Defendant-Appellee.
Appeals from the United States District Court for the
Northern District of Texas
April 7, 1999
Before GARWOOD, BARKSDALE and STEWART, Circuit Judges.
GARWOOD, Circuit Judge:
Plaintiff-appellant Stearns Airport Equipment Co., Inc.
(Stearns) brought this suit against defendant-appellee FMC
Corporation (FMC), claiming FMC had violated the Sherman Act, the
Robinson-Patman Act, and Texas state law. Stearns appeals the
district court’s grant of summary judgment to FMC, and also
challenges certain expenses awarded to FMC as costs. We affirm.
Facts and Proceedings Below
Stearns and FMC are both manufacturers of boarding bridges,
the devices that allow passengers to enter and exit passenger
airplanes. Historically, the domestic market has been dominated by
Jetway, a brand previously produced by a division of a company not
a party to this case. In 1994, the Jetway division was purchased
by FMC, which continued its operation. Stearns, a wholly-owned
subsidiary of Trinity Industries, has been producing bridges since
the beginning of the 1980s. Both parties export their bridges
around the world, and about a dozen manufacturers produce bridges
abroad. While foreign competitors have bid on some projects and
sold a handful of bridges here, during the relevant time frame
actual foreign penetration in the North American market was
minimal. The record does show that foreign producers sporadically
expressed interest in the market, and one recently opened up a
sales office in the United States.
FMC and Stearns utilize competing technologies in their
bridges. Stearns relies on hydraulic systems for its bridges,
while FMC uses an electromechanical system. The record
establishes that at least some bridge purchasers felt that there
were substantial differences between the two systems under various
circumstances. In addition, FMC was in the process of developing
and introducing computerized controls in some of its models, called
“smart bridges,” during the relevant time frame. The “smart-
bridge” technology—which had some teething troubles—was
significantly different from the mechanism used by Stearns.
Prior to the mid-1980s, the dominant purchasers of bridges in
2
the United States had been airlines. The airlines had frequently
dealt exclusively with Jetway. However, during that period the
market began to shift and municipal airport authorities became the
primary purchasers of bridges. This shift led to most sales in the
industry being governed by competitive bid processes. After some
initial successes in this new market, Stearns began to lose market
share to FMC. Stearns alleges that its loss of sales to municipal
bidders was the product not of vigorous competition, but rather of
an orchestrated program by FMC to avoid fair competition through a
combination of exclusionary manipulation of municipal bids and
predatory pricing.
Stearns filed an antitrust action against FMC on December 4,
1995. The complaint initially alleged violation of Sections 1 and
2 of the Sherman Act, 15 U.S.C. §§ 1-2, Section 2(a) of the
Robinson-Patman Act, 15 U.S.C. § 13(a), and tortious interference
and unfair competition under state law. The district court granted
FMC’s motion for summary judgment on the Section 1 Sherman Act
claims on May 31, 1996. See Stearns Airport Equipment Co., Inc. v.
FMC Corp., 977 F. Supp. 1263 (N.D. Tex. 1996). Stearns does not
appeal that ruling. Discovery continued on the other claims, and
FMC filed another motion for summary judgment on December 20, 1996.
Stearns requested an extension of time for its response, which was
granted, and also filed a motion under Rule 56(f) to delay summary
judgment until the completion of discovery. The district court
3
denied the Rule 56(f) motion, but allowed discovery to continue
until March 26, 1997, when it granted summary judgment to FMC on
all claims. Stearns moved to reconsider and offered additional
evidence. This motion was denied and this appeal followed.
I. Standard of review.
We review a district court’s grant of summary judgment
employing the same standard it was required to apply in granting
the motion. Dutcher v. Ingalls Shipbuilding, 53 F.3d 723, 725 (5th
Cir. 1995). Summary judgment must be affirmed when the moving
party has identified material facts not in genuine dispute and the
nonmoving party fails to produce or identify in the record summary
judgment evidence sufficient to sustain a finding in its favor
respecting such of those facts as to which it bears the trial
burden of proof. In reviewing the record, we must view all facts
in the light most favorable to the nonmovant. We review questions
of law de novo. Id. We no longer maintain that summary judgment
is especially disfavored in categories of cases. See Little v.
Liquid Air Corporation, 37 F.3d 1069, 1075 n.14 (5th Cir. 1994) (en
banc) (“we reject any suggestion that the appropriateness of
summary judgment can be determined by the case classification.”).
Stearns’ attempt to invoke earlier cases in which we suggested that
summary judgment should be shunned when complex antitrust claims
are involved thus fails.
Stearns on this appeal treats its Robinson-Patman and state
4
law claims as derivative of its Sherman Act section 2 claim.
Accordingly, if we find that summary judgment should be affirmed on
the Section 2 claims, we must also affirm the dismissal of these
claims.
II. Exclusionary Conduct
A violation of section 2 of the Sherman Act is made out when
it is shown that the asserted violator 1) possesses monopoly power
in the relevant market and 2) acquired or maintained that power
wilfully, as distinguished from the power having arisen and
continued by growth produced by the development of a superior
product, business acumen, or historic accident. United States v.
Grinnell Corp., 86 S. Ct. 1698, 1704 (1966). For the purpose of
this summary judgment, we will assume, as the district court did,
that FMC does possess monopoly power in the North American market
for boarding bridges. Exclusionary conduct under section 2 is the
creation or maintenance of monopoly by means other than the
competition on the merits embodied in the Grinnell standard. See
Aspen Skiing Co. v. Aspen Highlands, 105 S. Ct. 2847, 2859 (1985)
(attempting to exclude on grounds other than efficiency); C.E.
Services, Inc. v. Control Data Corporation, 759 F.2d 1241, 1247
(5th Cir. 1985) (quoting 3 P. Areeda and D. Turner, Antitrust Law
p. 626, at 83 (1978)). The key factor courts have analyzed in
order to determine whether challenged conduct is or is not
competition on the merits is the proffered business justification
5
for the act. If the conduct has no rational business purpose other
than its adverse effects on competitors, an inference that it is
exclusionary is supported. See Aspen, 105 S. Ct. at 2860 (finding
failure to offer persuasive business justification “most
significant”). Summary judgment is appropriate in some cases where
defendant’s business justification is unchallenged. See Bell v.
Dow Chemical Co., 847 F.2d 1179, 1185-86 (5th Cir. 1988) (in a
refusal-to-deal case, rejecting contention that Aspen’s procedural
posture indicated that business justification was a matter for the
jury but going on to reject the proffered justification).
Stearns contends that FMC, threatened by the switch of
purchasing from the airlines to municipal airport authorities,
adopted a plan to avoid competition on the merits, and specifically
competition on price. The heart of this alleged plot is contained
in an FMC presentation directed to its marketing and sales
personnel. The presentation urged FMC’s employees to use four
strategies in pursuing sales to municipalities. First, FMC was to
attempt to convince municipalities that they should avoid
competitive bidding and strike a purchase agreement with FMC
directly—so called “sole-sourcing.” Second, if bidding appeared
inevitable, FMC should strive to drive the criteria for the award
away from price alone by requesting various product features be
weighted against cost in the final calculation of the best bid.
Third, efforts were to be made to insure that the specifications
6
adopted by a municipality were tailored to fit FMC’s product and
exclude Stearns. Lastly, FMC would “induce complexities in the
bidding process” by suggesting certain certifications and
restrictions be added that worked to the detriment of Stearns.1
Taken together, Stearns argues that these strategies constituted a
deliberate plan to exclude Stearns from competing in the municipal
bridge market, thus harming consumers by robbing them of a true
competitive process.
The key point uniting these allegations is that they all
involved FMC’s attempts to persuade buyers to favor their product
prior to the actual bid. Courts that have considered whether
attempts to convince independent government purchasers to adopt
specifications in their favor prior to bidding are a violation of
the antitrust laws have uniformly found such behavior not to be a
violation. The Ninth Circuit, presented with a claim that a
monopolist’s contacts with county officials and architects led to
the specification of its product prior to a bid rejected the
contention that such contacts violated the Sherman Act. Security
Fire Door Co. v. County of Los Angeles, 484 F.2d 1028, 1030-31 (9th
Cir. 1973). The Security Fire Door court found that there had been
1
While this category is the most ominous sounding, it was
functionally identical to the specification effort. In both
instances, FMC attempted to get certain features it possessed and
Stearns did not—such as electromechanical design, certification
from an outside body, or a direct legal responsibility for the
product—incorporated in the specifications.
7
no injury to competition through these contacts since the
competitor was free to engage in similar persuasive efforts with
the relevant officials. Competition on the merits was assured as
long as the plaintiff had been “free to tout the virtues of his
particular [product] in an effort to secure favorable
specifications.” Id. at 1031. Other courts have agreed with this
reasoning. See Richard Hoffman Corp. v. Integrated Building
System, 610 F. Supp. 19, 23 (N.D. Ill. 1985) (reversing prior
determination that contractor had violated antitrust laws by
specifying product it distributed when drawing up specifications
used by the county after it was shown competitor had ample
opportunity to challenge specification and tout the virtues of its
product); Superturf, Inc. v. Monsanto Co., 660 F.2d 1275, 1280
(8th Cir. 1981) (“Even if one accepts SuperTurf’s argument that the
adoption of one product’s specifications precludes further
competition, it is also true that SuperTurf is free to press for
the adoption of its own product specifications.”); Triple M Roofing
Corp. v. Tremco, Inc., 753 F.2d 242, 246 (2nd Cir. 1985) (The court
found that defendant’s efforts to inform government of its product,
which led to its being specified by brand in the contract,
“exemplified those expected of an aggressive sales representative.”
It noted that these activities “promote rather than hinder
8
competition.”);2 Whitten v. Paddock Pool Builders, Inc., 508 F.2d
547, 558 (1st Cir. 1974) (endorsing lower court’s finding that
efforts to convince architects to include propriety specifications
in a contract was simply “salesmanship”).
While all of these cases involved section 1 of the Sherman Act
rather than section 2, and several also were in a different
procedural posture than we face here, their logic properly applies
to our inquiry. Under Aspen, we ask in section 2 exclusionary
conduct cases whether the challenged conduct involved competition
on the merits. Security Fire Door and its kin clarified that, in
the municipal bidding context, permissible competition is not
restricted to the bid itself but can also occur in the process of
“selling” specifications and contract forms, when companies “tout
the virtues” of their product. The choice of the consumer can be
expressed in specifications as well as the final bid. See Security
Fire Door, 484 F.2d at 1031. We therefore will examine FMC’s
behavior throughout the municipal contracting process to determine
whether it relied on a superior product or business acumen in
2
Stearns attempts to distinguish Superturf and Triple M because
these contracts had an “or equal” clause. This is a distinction
without a difference. In these cases, the specifications were for
a specific brand. The result of such a specification and the
addition of an “or equal” clause is essentially the same as that
generated by the general specification here. A contract might say
“FMC Bridge or equal” or it might say “electromechanical bridge.”
In either case, FMC would meet the specification but Stearns could
also qualify by demonstrating it could produce an electromechanical
bridge equal to FMC’s.
9
pursuing its goals, or had recourse to methods beyond competition
on the merits.
The first point that separates FMC’s behavior in the
contracting process from section 2 cases of exclusionary conduct is
its economic rationality. Generally, a finding of exclusionary
conduct requires some sign that the monopolist engaged in behavior
that—examined without reference to its effects on competitors—is
economically irrational. When there is no other possible
explanation for an action, there is a strong inference that it was
taken for the purpose of harming competitors rather than otherwise
advancing the monopolist’s business. For example, in the leading
modern case on exclusionary conduct, Aspen Skiing, two companies
ran ski lifts on several different mountains in the same resort
area. Traditionally the companies had honored ski passes that were
good on all mountains. The larger company stopped honoring the
joint passes, instead setting up tickets that only covered its
mountains. This decision violated long-standing industry practice
and “infuriated” the larger mountain’s customers. The Supreme
Court found that the defendant “was apparently willing to forgo
daily ticket sales” to these customers “because it was more
interested in reducing competition . . . by harming its smaller
competitor” and that the logical inference was that the defendant
“was not motivated by efficiency concerns and that it was willing
to sacrifice short-run benefits and consumer goodwill in exchange
10
for a perceived long-run impact on its smaller rival.” Aspen, 105
S. Ct. at 2860, 2861.
In short, Aspen involved a company willingly accepting a real
loss because it represented a relative gain.3 Here, the business
justification—independent of harm to competitors—for FMC’s actions
is obvious: it was trying to sell its product. While Stearns may
feel very much aggrieved at their success, the tactics it complains
of were all fairly simple attempts to generate sales by “touting
the virtues” of its bridges. “Acts which are ordinary business
practices typical of those used in a competitive market do not
constitute anti-competitive conduct violative of Section 2.” Trace
X Chemical, Inc. v. Canadian Industries, Ltd., 738 F.2d 261, 266
(8th Cir. 1984). FMC’s sales efforts produced real, not merely
relative, gains for the company. Certainly we have nothing akin to
the baffling (until the effect on competitors is examined) request
in Great Western that a supplier raise the prices it charged to the
3
Stearns relies heavily on a case in this Circuit without
recognizing that it was properly vacated pursuant to a settlement
agreement and thus carries no precedential weight. Great Western
Directories v. Southwestern Bell Telephone, 63 F.3d 1378, 1386 (5th
Cir. 1995), modified, 74 F.3d 613, vacated pursuant to settlement
agreement (August 21, 1996), cert dismissed, 117 S. Ct. 26 (August
27, 1996). However, Great Western also involved conduct that
harmed the monopolist and could only be understood when one
recognized that competitors suffered more severe harm. In Great
Western the defendant asked an affiliated supplier to raise prices
across the board, raising defendant’s costs but inflicting more
pain on its cash-starved competitor. Id. at 1386 (quoting expert
economic testimony that such behavior was irrational except as an
attempt to cripple competitors).
11
monopolist, or the withdrawal of a valued consumer item in Aspen.
The second distinguishing feature of this case is that all of
the alleged exclusionary conduct required the active approval of
the consumer—the party the Act protects. Aspen and other “refusal-
to-deal” exclusionary cases involve a unilateral decision by the
monopolist. The consumer has no input on a decision that affects
his interest. But here, the decision to sole-source a contract or
adopt a particular specification was always ultimately in the hands
of the consumer. The record indicates that FMC felt itself
obligated to come up with “selling points” to accompany its
strategies. Thus when attempting to obtain a sole-sourcing
agreement, FMC would stress its technological superiority. Having
convinced a municipality on this predicate merits argument, FMC
would then argue that sole-sourcing was a cheaper option since a
full bidding process involved substantial costs and legal
complications. Similarly, when “introducing complexities into the
bidding process” FMC agents were told to point out the advantages
for municipalities in possible product liability actions if outside
certifications were maintained or if independent distributors were
barred from bidding. And the record is full of evidence that FMC
aggressively touted its electromechanical and “smart-bridge”
technology as qualitatively superior to Stearns’ product.
All of these arguments made by FMC to its potential customers
may have been wrong, misleading, or debatable. But they are all
12
arguments on the merits, indicative of competition on the merits.
To the extent they were successful, they were successful because
the consumer was convinced by either FMC’s product or FMC’s
salesmanship. FMC—unsurprisingly—wanted to be picked over Stearns
on a contract. Also unsurprisingly, for that purpose it calculated
carefully what kind of specifications would insure that it would
get the contract because Stearns could not bid on a project.4 But
it could not ask municipalities to enter into a sole-sourcing
agreement or specify smart-bridge technology merely by asking them
to hurt Stearns. FMC had to convince the customer that FMC’s
approach was best for the customer, not best for FMC. Inferring an
attempt to circumvent competition on the merits is extraordinarily
difficult when the alleged violator takes the facially rational and
unproblematic step of attempting to sell its product, couches its
arguments to the customer in favor of a sale on the merits of the
product and procedures it recommends, and the consumer agrees.
Without a showing of some other factor, we can assume that a
consumer will make his decision only on the merits. To the extent
a competitor loses out in such a debate, the natural remedy would
4
Stearns continually refers back to FMC documents which
indicate that FMC was aware that a certain specification would
prevent Stearns from bidding, and was pleased by this fact. Writing
a memo saying that you are winning a competition on the merits
does not change the fact that it is a competition on the merits. If
Stearns reached the bidding stage, calculated its bid, and believed
that it could maintain an adequate margin at a price FMC could not
match, it would not violate section 2 by expressing its
satisfaction with the expected result.
13
seem to be an increase in the losing party’s sales efforts on
future potential bids, not an antitrust suit.
The only factor temporarily obscuring the flaws in Stearns’
argument is the municipal bidding context.5 This is because in the
municipal market, bidding statutes generally forbid considerations
other than price once a certain point in the process has been
reached—municipalities, unlike ordinary consumers, cannot decide at
the last minute to purchase a more expensive but higher quality
product. But we do not find that the form of these statutes
alters the inquiry demanded by Aspen—whether competition is or is
not on the merits. Nor do they indicate that “merit” in municipal
bidding can only be measured in terms of price.6 Competition
5
Apparently, a handful of negotiations between FMC and
municipalities may have led to technical violations of the relevant
public contracting statutes. Stearns was either silent or half-
hearted in complaining to the relevant authorities when these
violations occurred. It now attempts to claim that violation of
these municipal bidding statutes constitutes a per se antitrust
violation. But a major purpose of these state statutes is
protection of the municipal taxpayer from corruption—which we have
no evidence of (there is nothing to indicate that in any of these
instances the municipal authorities were acting in other than what
they thought was best for the municipality in respect to the
particular purchase being made). The Sherman Act, in contrast,
protects the consumer from anticompetitive forces. We decline
Stearn’s invitation. “Even a direct contract for the Guilbert
system, without any pretense of putting the job out for bid (and
thus a clear violation of the competitive bid statute), would not
in itself have constituted a restraint of trade under the Sherman
Act if the selection of Guilbert had been made in an atmosphere
free from anticompetitive restraints.” Security Fire Door, 484
F.2d at 1031.
6
Stearns fails to articulate how under its theory of the case
a municipality could ever make a decision to favor quality over
price when the higher quality producer has a strong market share.
14
grounded in nonprice considerations such as reliability,
maintenance support, and general quality is competition on the
merits. The municipal bidding process merely mandates a
bifurcation of the consumer’s decision on the merits. During the
first, pre-bid stage the municipality must attempt to insure that
its nonprice considerations are adequately addressed—and sales
efforts at this stage can enlighten a municipal consumer of new
advances. See Triple M, 753 F.2d at 246-247 (alternative
restorative method would have been unknown to contractor without
specification push by supplier, and thus unavailable to ultimate
consumer, the State of Georgia). The bidding itself can only
resolve a limited portion of the merits—the issue of price.
To be sure, if FMC is successful in its initial efforts,
Stearns may be effectively excluded from the final bid.7 But if
The logic of Stearns’ argument would not only make it impossible
for an informed municipal consumer to pick FMC’s smart bridge over
Stearns’ cheaper bridge, it would also bar a consumer from
purchasing aircraft boarding bridges in the first place. Stearns’
expert noted that other methods of boarding passengers on airplanes
exist—notably stairs—but bridges are “so superior to these other
methods that it has largely displaced them.” This superiority is
reflected in the specifications that airports now draw up—all of
the contracts at issue specified bridges. Thus even if a stair
assembly was cheaper, its manufacturer has been excluded from the
final bidding process. But no one would argue that a municipality
is forbidden from making this choice, even if Stearns and FMC
collectively have a lock on the passenger boarding device market.
Nor could it credibly be maintained—without evidence that the
bridge manufacturers had corrupted the judgment of the consumer’s
agents—that this exclusion was not on the merits.
7
But Stearns complains just as vociferously about FMC’s
attempts to include quality as a weighting factor in determining
bids—when it clearly could compete, albeit with some recognition of
15
FMC fails in persuading officials or Stearns intervenes, FMC’s
chief selling point is similarly barred from the final
consideration. Municipal contracting will always produce
distortions like this. The central insight of Security Fire Door
and the other section 1 cases is that jockeying over specifications
and bid procedures is a valid form of competition. There is no
indication that anything prevented Stearns from doing the necessary
research and finding what airports were beginning to prepare a
contract, and pushing its arguments at the specifications phase.
We decline to find that FMC violated section 2 of the antitrust law
by vigorously stressing the qualitative merits of its product
during the sole window in which municipalities allowed it to
present these nonprice arguments. This behavior was “simple
salesmanship” that enhanced rather than subverted competition on
the merits. If Stearns was “excluded,” it was excluded by FMC’s
superior product or business acumen.
Of course, this conclusion would be called into question if
there was evidence that the municipal consumer’s agents had been
co-opted by the monopolist to a degree that it could be inferred
the difference in technologies—as it does about bids in which it
was barred by a particular specification. And it should be noted
that nothing is stopping Stearns from developing smart-bridges and
electromechanical technologies that would match the specifications
it complains of. While the record indicates that the time and cost
involved in retooling make this impractical in regards to a
particular bid after its specifications have been announced, in
terms of future bids we have no evidence to sustain a finding that
Stearns could not begin this process tomorrow and thus expand its
ability to compete on such projects.
16
they were not acting in what they thought was the best interest of
the municipality as respects the particular decision being made.
Bribery and threats are not competition on the merits. Several
cases have found violations of section 2 when a monopolist engages
in what appears to be normal competitive behavior, but has
manipulated representatives of the consumer to the point that the
integrity of the decisional process has been violated. See, e.g.,
Indian Head, Inc. v. Allied Tube & Conduit Corp., 817 F.2d 938, 947
(2d Cir. 1987). Thus courts have found that an exclusionary claim
can lie when the monopolist has bribed the officials evaluating the
contract. See Buddie Contracting v. Seawright, 595 F. Supp. 422,
425 (N.D. Ohio 1984) (monopolist previously pleaded guilty to
criminal charges of unlawful interest in a public contract). And
in Indian Head, a manufacturer of traditional metal pipe paid for
the enrollment of hundreds of interested individuals in order to
“pack” a vote of a building association on whether to approve
specification of PVC pipe. Indian Head, 817 F.2d at 947. The
bought voters duly blocked the approval of the competitor’s PVC
product. The Second Circuit found that this behavior constituted
exclusionary conduct—while it might be permissible to argue the
case against PVC before the association, it was impermissible to
buy the jury.
Stearns has failed to introduce evidence that the independence
of the consumers’ judgment had been tainted by FMC. To bring the
17
case within the ambit of Indian Head, Stearns must allege that
there was a conspiracy or self-interest present strong enough to
overcome our assumption that agents will act with the purpose of
furthering the interest of their principal. To survive summary
judgment, an inference of conspiracy must be backed by evidence
that tends to disprove the assumption of independent action. See
Matsushita Electric Industrial Co. v. Zenith Radio Corp., 106 S. Ct.
1348, 1356-57 (1986) (discussing standard under section 1 of the
Sherman Act). Stearns’ argument is filled with ominous sounding
phrases suggesting that lower-echelon officers of the
municipalities were “induced” by FMC to adopt its nefarious
scheme8, and that the airlines were “friends” of FMC and exerted
pressure on its behalf. But constant repetition does not alter the
fact that Stearns could introduce no evidence of improper, disloyal
motive.
Stearns admitted at oral argument that there was no indication
that the employees of the consumer were driven by anything other
than the desire to obtain the best product possible. As for the
airlines, since they depend on the smooth functioning of bridges to
service their customers, they naturally expressed their preference
to the municipalities. While employees of airlines might indeed
be “friends” of any party that could provide them with reliable
8
And, at oral argument it was asserted that the “inducement”
had inevitably led to the officers ending up “in cahoots.”
18
equipment crucial to their business, there was nothing in the
record that indicated that the “friendship” could be traced to
anything other than their belief FMC produced a superior product.
Cf. Instructional System Development Corp. v. Aetna Casualty and
Surety Co., 817 F.2d 639, 647 (10th Cir. 1987) (evidence indicated
company exerted influence on municipality in favor of monopolist as
part of agreement to avoid monopolist challenging it in another
market). Any influence FMC had over these parties was won because
it convinced them of the virtues of its product—it competed on the
merits. Certainly we have no allegations of bribery, and nothing
here is akin to Indian Head, where the method of competition was
more ward boss than businessman.
Ultimately, Stearns does not and cannot claim that it has
been excluded from competing on the merits. Every sales pitch and
every suggestion that FMC made was evaluated by independent
municipal actors who were concerned solely with the merits of the
product they were charged with evaluating. Stearns was free to
engage in identical tactics and tout the virtues of its product.
Stearns is really complaining that its municipal consumers keep
picking the “wrong” product. Thus it introduces evidence that its
technology is sound and FMC’s sales pitches touting its product are
misleading. It appears to be assuming that if FMC’s product was
not objectively superior, then its victories were not on the
merits. But this Court is ill-suited to attempt to judge the
19
relative merits of electromechanical bridges versus hydraulic
bridges. That decision is left in the hands of the consumer, not
the courts, and to the extent this judgment is “objectively” wrong,
the inference is not that there has been a violation of section 2,
but rather that the winning party displayed superior business
acumen in selling its product. See Triple M, 753 F.2d at 246
(success enjoyed by embedding specifications in municipal contract
was “obtained by commercial initiative and skillful marketing”).
Competition, even the maintenance of monopoly, through superior
business acumen is allowed under section 2. See Grinell, 86 S. Ct.
at 1704. Thus regardless of whether its success can be traced to
a “truly” superior product or persuasive business acumen, FMC
competed on the merits and has not engaged in exclusionary conduct.
In the same vein, Stearns attempts to justify its request that
we overrule the consumer’s verdict by claiming that these municipal
consumers are too unsophisticated to make an unguided decision.
Again, this Court is ill-suited to attempt to judge the competence
of municipal purchasing agents. Further, while there was evidence
that FMC believed that the municipalities were less sophisticated
purchasers than the airlines had been, one of Stearns’ main
complaints was that the sophisticated airlines weighed in against
it as well. To the extent municipal officers may have lacked
perfect information, Stearns could have supplied them with the
missing perspective by matching FMC’s sales efforts. The municipal
20
authorities in question must be treated as if they were capable of
running the construction of multi-million dollar airports.
III. Predatory Pricing.
Stearns’ other contention alleges that when the exclusionary
strategy discussed above failed to work, FMC resorted to predatory
pricing of its bridges. Once Stearns has been vanquished by this
combined attack, it is claimed FMC will use its monopoly power to
raise prices again. We find Stearns’ evidence of the existence of
a predatory pricing scheme unconvincing, both because there has
been an inadequate showing that any under-cost bids occurred and
because there has been no showing that recoupment of the putative
FMC losses is possible in the bridge market.
The Supreme Court has expressed extreme skepticism of
predatory pricing claims. The central difficulty with such actions
is that the conduct alleged is difficult to distinguish from
conduct that benefits consumers. See Matsushita, 106 S. Ct. at 1360
(“[C]utting prices in order to increase business often is the very
essence of competition. Thus, mistaken inferences in cases such as
this one are especially costly, because they chill the very conduct
the antitrust laws are designed to protect.”). Moreover, the Court
has noted the consensus among economists that such schemes are
difficult if not impossible to successfully complete and thus
unlikely to be attempted by rational businessmen. See id. at 1357
(“[T]here is a consensus among commentators that predatory pricing
21
schemes are rarely tried, and even more rarely successful.”);
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 113 S. Ct.
2578, 2590 (1993) (“general implausibility of predatory pricing”);
Cargill, Inc. v. Montfort of Colorado, 107 S. Ct. 484, 495 n. 17
(1986) (“Although the commentators disagree as to whether it is
ever rational for a firm to engage in such conduct, it is plain
that the obstacles to the successful execution of a strategy of
predation are manifold, and that the disincentives to engage in
such a strategy are accordingly numerous.”)
Accordingly, the standard for inferring an impermissible
predatory pricing scheme is high. To succeed, such a claim must
demonstrate both that 1) the prices complained of are below an
appropriate measure of the alleged monopolist’s costs and 2) that
the alleged monopolist has a reasonable chance of recouping the
losses through below-cost pricing. Brooke Group, 113 S.Ct at
2587-88 (establishing unitary standard that includes section 2
claims)9. In other words, before a violation is found, a claimant
9
Stearns attempts to avoid the application of this standard by
claiming that here, unlike in Matsushita and Brooke Group, a single
defendant with overwhelming market share is involved. While the
Court noted that the multi-party nature of the claimed predatory
pricing conspiracies (between Japanese electronics manufacturers
and large tobacco companies, respectively) increased the
irrationality of the claimed conduct, on both occasions the Court
indicated that the reasoning of the opinions applies to claims
against a single firm. See Brooke Group, 113 S. Ct. at 2590
(schemes are “even more improbable” when multiple firms involved);
Matsushita, 106 S. Ct. at 1357 (“These observations apply even to
predatory pricing by a single firm seeking monopoly power.”). The
basic insight of these cases—that predation as a strategy is so
22
must be able to demonstrate both that there has been a specific
incident of underpricing and that the claimed scheme makes economic
sense. Of course, the Court’s skepticism towards these claims has
not altered the standards for summary judgment. See Eastman Kodak
Co. v. Image Technical Serv., Inc., 112 S. Ct. 2072, 2083 (1992).
But the standard adopted by the Court incorporates this skepticism,
and to survive summary judgment a plaintiff must have evidence that
the predation scheme is economically rational. See id. (“If the
plaintiff’s theory is economically senseless, no reasonable jury
could find in its favor, and summary judgment should be granted.”);
Advo, Inc. v. Philadelphia Newspapers, Inc., 51 F.3d 1191, 1196-97
(3rd Cir. 1995). We find that Stearns has failed to present
evidence to satisfy either prong of this test.
A. Recoupment
We begin by examining the possibility of recoupment. This
inquiry is really into the economic rationality of the challenged
unlikely to reap rewards that it should not be inferred easily, and
that such an inference should be especially shunned since it is so
hard to disentangle from the type of vigorous price competition
that the antitrust laws seek to promote—is not altered when only
one defendant is involved. See American Academic Suppliers v.
Beckley-Cardy, Inc., 922 F.2d 1317, 1319-21 (7th Cir. 1991)
(affirming summary judgment for single defendant on section 1
predatory pricing claims by noting lack of evidence that defendant
could have hoped to recoup losses incurred during alleged scheme).
The size of defendant’s market share may of course be relevant in
determining the ease with which he may drive out a competitor
through his scheme—but it does not, standing alone, allow a
presumption that this can occur. Nor does market share tell us
anything about the problem of new entrants preventing the sustained
charging of supra-competitive prices necessary for recoupment.
23
conduct. If there is no likelihood of recoupment, it would seem
improbable that a scheme would be launched. Given the high error
cost of finding companies liable for cutting prices to the
consumer, the court should thus refuse to infer predation. See
Matsushita, 106 S. Ct. at 1360 (summary judgment is appropriate if
recoupment is unlikely and the monopolist thus had no motive to
engage in the alleged activity unless proper direct evidence of the
scheme is introduced). To achieve the recoupment requirement of
Brooke Group, a claimant must meet a two-prong test. First, a
claimant must demonstrate that the scheme could actually drive the
competitor out of the market. Second, there must be evidence that
the surviving monopolist could then raise prices to consumers long
enough to recoup his costs without drawing new entrants to the
market. Brooke Group, 113 S. Ct. at 2589.
1. Possibility of eliminating Stearns
In examining whether an alleged scheme could actually succeed
in eliminating a competitor, we must look to “the extent and
duration of the alleged predation” and the parties’ relative
strength. Brooke Group, 113 S. Ct. at 2589. Stearns has only
attempted to introduce evidence of underpricing in five bids spread
out over four years, and in four of these cases the bids were for
only two bridges apiece. A Stearns executive admitted that there
are an average of 60-100 bidding opportunities—usually for many
more than two bridges—annually in the domestic market alone. Yet
24
Stearns contends that this rare and intermittent underpricing could
somehow bring it to its knees. It certainly has not yet—Stearns
remains in the market—and it is difficult to see how these rare,
isolated incidents could have a serious effect on its health.
Boarding bridges constitute only forty percent of Stearns’
business—it also produces baggage-handling equipment—and its
corporate parent is a strong company.
Stearns claims that “even small amounts of predation are not
permissible under the antitrust laws.” This is true in an abstract
sense, but in applying the concept to this case Stearns completely
ignores the insight of Matsushita and Brooke Group—unless there is
a showing of reasonably possible success using the scheme, there is
no predation. “If market circumstances or deficiencies in proof
would bar a reasonable jury from finding that the scheme alleged
would likely result in sustained supracompetitive pricing, the
plaintiff’s case has failed.” Brooke Group, 113 S. Ct. at 2589. If
FMC’s pricing cannot drive Stearns out of the market, then it will
never have a chance to charge supracompetitive prices, let alone
sustain those levels.
Stearns relies on a case in which this Court found allegations
of predation involving only five service contracts could survive
summary judgment. C.E. Services, Inc. v. Control Data Corp., 759
F.2d 1241, 1247 (5th Cir. 1985). We initially note that this case
was decided under different legal standards. Not only did Control
25
Data predate the Supreme Court’s renewed examination of predation
claims that began in Matsushita, but it also came before the
Court’s contemporaneous clarification of the summary judgment
threshold. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317
(1986); Liquid Air Corporation, 37 F.3d at 1075 (acknowledging this
Circuit’s incorrect application of Rule 56 prior to Celotex). But
to the extent Control Data remains persuasive, it highlights
Stearns’ failure to meet its burden under Brooke Group. While
Control Data involved predation in only five contracts, these were
the plaintiff’s only service contracts at the time. The loss of
these contracts led to the plaintiff’s immediate bankruptcy.
Control Data, 759 F.2d at 1243. Here, of course, only five bid
opportunities are involved, in a market where 240-400 such chances
were available during the alleged predation. Stearns is citing a
case in which one hundred percent of the relevant bids were below-
cost to support an allegation that below-cost bidding in—at
most—two percent of the bids constituted predation.
Stearns’ response is to plead that the predation must be
understood in light of the exclusionary conduct—predation is FMC’s
backup strategy. But this begs the question. If FMC had engaged
in exclusionary conduct, Stearns would win in any case. But as
discussed above, we find that the challenged conduct is
permissible. Stearns has introduced no evidence that its survival
is threatened by the sales lost to the rare, sporadic predation
26
that it alleges, and does not claim that the continuation of below-
cost bids at this level—two percent at most—will drive it out of
business. Instead, it claims that it faces ruin because of FMC’s
pursuit of tactics we have found unobjectionable, coupled with the
alleged rare predation. We decline to find predation when there
has been no showing that the alleged below-cost pricing campaign
was of a sufficient duration and extent to independently force
Stearns out of the market and there has been no other valid claim
of antitrust-impermissible conduct.
2. Barriers to entry
Even if Stearns had advanced evidence that the alleged
predation could drive it out of the market, it has failed to meet
the second prong of the recoupment test. A competitor must be able
to not only eliminate its competitors through predation, but also
be able to maintain supracompetitive prices long enough to recoup
the losses it incurred in the predation campaign. If barriers to
entry in an industry are low, new entrants into the industry will
appear when the monopolist raises its prices, and the net effect of
the campaign will be a loss to the predator and a windfall for
consumers who paid the subcompetitive predatory price. See C.A.T.
Industrial Disposal, Inc. v. Browning-Ferris Industries, Inc., 884
F.2d 209, 211 (5th Cir. 1989); Advo, 51 F.3d at 1200 (“Such futile
below-cost pricing effectively bestows a gift on consumers, and the
Sherman Act does not condemn such inadvertent charity.”).
27
Stearns claims that recoupment will be possible because the
industry’s high barriers to entry prevent the emergence of new
challengers if FMC succeeds in disposing of Stearns. This would
seem rather difficult to credit. The record shows that a large
number of foreign firms produce bridges, and one of the most
recently successful was formed only in the 1980s. Putting aside
the lack of evidence that new American entrants could not take up
the standard if Stearns falters, it would seem probable that these
already established foreign manufacturers would leap into the
United States market if FMC began to charge supracompetitive
prices. There was no evidence of special industry conditions such
as special tariffs or domestic purchase limitations on
municipalities that would block such an entry.
Stearns asks the court to infer the existence of entry
barriers from the historical lack of success foreign firms have had
in the domestic market. This is irrelevant. “In evaluating entry
barriers in the context of a predatory pricing claim, however, a
court should focus on whether significant entry barriers would
exist after the merged firm had eliminated some of its rivals,
because at that point the remaining firms would begin to charge
supracompetitive prices, and the barriers that existed during the
competitive conditions might well prove insignificant.” Cargill,
107 S. Ct. at 494 n.15. Once FMC’s alleged plot has succeeded,
according to Stearns’ logic it will raise prices. The question is
28
what will stop foreign firms from appearing on the scene, pointing
out to municipalities the supracompetitive prices, and providing
an alternative. The only specific barriers to foreign entry
mentioned by Stearns are transportation costs, manufacturing costs,
and the “demonstrated ability of the dominant firm to charge
supracompetitive prices.”
All imports will face transportation costs. However, domestic
producers will also incur some analogous costs shipping products
from their plants to end users. For transport costs to represent
a true barrier to entry, there must be a showing that in a
particular industry the costs incurred by new entrants
significantly exceed the transport costs incurred by the
monopolist. While the record indicates that costs of exporting in
the industry are substantial, we have no evidence of the costs to
FMC of shipping its bridges around the country. Moreover,
transport costs have not prevented both Stearns and FMC from
successfully competing in Europe and Asia against native bridge
manufacturers. Stearns’ expert admitted this, noting that in many
of these cases the American companies shipped components over to be
fabricated by local sub-contractors. It is unclear why a foreign
corporation could not use the same strategy in the American market,
and we have no evidence of how much this practice might affect
costs. The evidence in the record is for the export of complete
bridge units. The report relied on by Stearns’ expert also noted
that foreign manufacturers are intimidated by customer satisfaction
29
with Stearns and FMC—a situation which would likely change when
Stearns is gone and FMC raises its prices. In any case, Stearns’
expert also admitted that a foreign firm could circumvent the
transport issue entirely by setting up manufacturing plants in the
United States.10 Given the large percentage of world sales America
represents, it would not seem unreasonable to assume that they
would do so once FMC began to raise prices.
Stearns’ briefs referred to “other costs,” which appears to
refer to its expert’s brief mention of manufacturing costs and the
airlines’ familiarity with FMC’s “brand.” Stearns’ expert conceded
that manufacturing setup was not particularly onerous in the
industry. “The principal barrier to entry into the North American
PBB business is not the scale of manufacturing required.” New
entrants to a market will always face these kinds of entry costs.
They will also always face barriers stemming from consumer inertia
and unfamiliarity with its products. “New entrants and customers
in virtually any market emphasize the importance of a reputation
for delivering a quality good or service. . . . [Plaintiff’s
argument that reputation is entry barrier], without some limiting
principle (that it fails to supply), implies that there are
barriers to entry, significant in an antitrust sense, in all
markets.” Advo, 51 F.3d at 1201-02. The question is not whether
10
“[I]f transportation costs were the only problem, firms from
overseas could set up manufacturing facilities here in North
America.”
30
there are barriers to entry, but rather whether the barriers in a
particular industry are large enough to trigger judicial concern.
See Matsushita, 106 S. Ct. at 1348 n.15 (noting lack of evidence
that entry into the market was “especially” difficult); Cargill,
107 S. Ct. at 494 n.15 (issue is whether barriers are
“significant”). There was no evidence presented that industrial
set-up costs or the costs associated with overcoming consumers’
settled preferences created unusual barriers to entry in the bridge
market.11
The barrier to entry that Stearns’ expert focused on was the
same conduct that gave rise to exclusionary conduct claims. Just
as the core of the claimed predation threat to Stearns’ survival
was in actuality a restatement of these claims, Stearns’ allegation
here is merely another attempt to repackage these same allegations
as a barrier to entry. Since FMC can “induce” municipalities and
FMC’s “friends” in the airline industry to ignorantly (though
honestly) act against their own economic interests, it is claimed
that new competitors will be scared off. We have discussed above
that the conduct at issue did not violate the antitrust laws. It
was merely vigorous competition, and the ultimate consumer of the
11
Richard Pell, a former employee of FMC whose testimony is
critical for all of Stearns’ predatory pricing claims, was quite
emphatic that FMC could not rely on barriers to entry to protect it
from competition. “There will always be a competitor to Jetway.
There may be short periods when there aren’t; but if they manage to
put Stearns out of business, for example, within two years, there
will be another bridge manufacturer competing with Jetway.”
31
product at all times retained the power of choice.12 We decline to
find this unobjectionable conduct constitutes a barrier to market
entry. Moreover, while outside observers may indeed hesitate when
viewing FMC’s current success in wooing municipalities, the whole
theory of predation postulates that FMC’s behavior will
significantly change once Stearns is eliminated. When FMC is
charging supracompetitive prices, its quality arguments will become
less persuasive. A competitor could either match the quality
standards that FMC has convinced the municipalities to adopt and
underbid, or show them that the quality differential that
justified adoption of certain specifications at a lower price
cannot serve to mandate the same result at the supracompetitive
price.13
12
Summary judgment is appropriate when an ill-reasoned expert
opinion suggests the court adopt an irrational inference, or rests
on an error of fact or law. See Matsushita, 106 S. Ct. at 1360 n.19
(expert opinion on predation has little probative value in light of
economic factors that indicate expert’s scenario is irrational);
Bell, 847 F.2d at 1184 (affirming decision of district court on the
question of market power, since expert imprecisely defined the
market, which led to a legal error in his conclusion). Here,
Stearns’ expert rested his conclusion on an error of law—he assumed
FMC’s efforts to sell its products violated section 2 of the
Sherman Act.
13
Stearns places great reliance on its claim that when Stearns
does not bid on a project, FMC’s bids are significantly higher. It
directs the court in particular to two instances involving very
small projects in which FMC came to the bid armed with two
proposals. When Stearns failed to bid, it used its higher bid and
pocketed the other proposal. Insofar as we are asked to infer from
this that the lower, unused bid was predatory, we note that there
is no evidence showing the unused bid was below cost. If these
isolated episodes are relied on to show FMC’s intent and ability to
charge supracompetitive prices, we note that the antitrust laws
32
B. Below-Cost Pricing
The above analysis, which we find determinative, assumes
arguendo that all of Stearns’ allegations of below-cost pricing
were supported by evidence. Strengthening our above conclusion and
providing an independent ground for rejecting Stearns’ claim is our
support for the district court’s conclusion that Stearns had not in
fact put forth evidence of below-cost pricing. Under Brooke Group,
a claimant must demonstrate that the prices at issue were below an
appropriate measure of its rival’s costs. Brooke Group, 113 S. Ct.
at 2587-88 (declining to resolve conflict among circuits over what
constitutes a proper measure of cost, but finding only below-cost
prices can lead to liability). Stearns incorrectly relies on cases
in this Circuit predating Brooke Group, in which we left open the
possibility that prices above a monopolist’s variable costs could
be predatory under certain circumstances. See, e.g., Adjuster
Replace-A-Car, Inc. v. Agency Rent-A-Car, Inc., 735 F.2d 884, 889-
91 (5th Cir.1984) (allowing for predation when prices were above
cost but barriers to entry in an industry were high). The district
court case from which Stearns extracts its predatory pricing
standard was decided in the same month as, but before, Brooke
cannot protect consumers from the inadequacies of a competitor. A
new entrant to the market may not be as cavalier about letting
business opportunities pass as Stearns was in these instances. Of
course, documentation of these incidents would seem to provide
Stearns an excellent—albeit apparently unused—tool to persuade
municipalities that overreliance on FMC is not in their best
interest.
33
Group. See Continental Airlines, Inc. v. American Airlines, Inc.,
824 F. Supp. 689 (S.D.Tex. 1993) (discussing pricing above variable
cost but below short-run profit maximizing price). In the wake of
Brooke Group’s clarification of the standard, a plaintiff must show
pricing below the standard this Court has long embraced as an
appropriate measure of cost—average variable cost. See Adjuster,
735 F.2d at 891 (pricing below cost is pricing below average
variable cost); International Air Industries, Inc. v. American
Excelsior Co., 517 F.2d 714, 724 (5th Cir. 1975) (embracing
commentator’s proposal of average variable costs).
Ideally, an inquiry into whether a monopolist had sold his
product below cost would look at the true marginal cost—we would
attempt to discover the precise cost to the firm of producing the
extra product that it is alleged to have sold below cost. But
because the true marginal costs of production are difficult to
generate, this Court attempts to estimate them by using average
variable costs. See id. at 724. In this analysis, we attempt to
distinguish between costs that are fixed—at least over the short
term—and costs that vary with the amount produced. See Adjusters,
735 F.2d at 889. Thus salaried labor costs, rent or depreciation
on real estate, and certain capital expenses are considered fixed.
But inputs like hourly labor, the cost of materials, transport, and
electrical consumption at a plant will vary, and are relevant to a
predation inquiry.
34
This Court has found that judgment as a matter of law is
appropriate when a plaintiff fails to adequately specify how the
challenged pricing undercuts the defendant’s variable costs.
“Plaintiffs did not offer any evidence respecting [Defendant’s]
variable and fixed costs of operation. Rather, plaintiffs
interpreted [Defendant’s] admission that it had suffered ‘a net
loss from operations’ to be effectively an admission of predatory
pricing. This was a costly error.” Adjusters, 735 F.2d at 891
(affirming J.M.L. for defendants). Here, Stearns has similarly
erred. It has largely rested its allegation on evidence that FMC
may have bid at a “negative margin” without exploring the
relationship between variable costs, fixed costs, and profits.
Stearns has barely attempted to sort out what these costs may
have been on the projects in question. Its expert’s opinion for
the most part completely ignored the legal standard embraced by
this Court and instead opted to engage in a comparison of what FMC
bid for the Washington airport project when it was proposing a sole
source contract and what it charged when the project went to
competitive bid against Stearns.14 That the cost of the competitive
14
It must be noted that the expert relied on an erroneous
interpretation of the law regarding predatory pricing. The opinion
clearly indicated that the expert believed the law of this Circuit
allowed a finding of predation when prices are above a firm’s
variable costs but below a “short-run profit maximizing price.” As
we explained above, this position is no longer tenable in the wake
of Brooke Group. This error may explain, but does not excuse, the
expert’s failure to address the question of variable cost. In
affirming summary judgment, we may disregard the conclusions of an
35
bid was lower is evidence that the airport authority was wise to
reject the sole-sourcing proposal. It is not evidence of a bid
below variable cost.
For the bulk of the challenged bids, Stearns’ only evidence
was FMC’s risk memorandum on the challenged projects. The record
indicates, and Stearns was eager to point out when they were used
against it, that these documents are of little utility in
estimating the true costs of a project. Nevertheless, they are the
only evidence Stearns could produce that even suggested the costs
FMC incurred on the projects. On one of these documents, Stearns
claims it has found its smoking gun—a note on the bottom that part
C of the project would run at a negative operating margin of 3.7%.15
But this allegation is undermined by the fact that the table from
which the margin is drawn includes a section for general and
expert opinion grounded in an error of law. See Bell, 847 F.2d at
1184.
15
A threshold problem with this allegation is that even if part
C was bid below-cost, Stearns has not alleged that the project as
a whole was unprofitable. In an analogous case, we rejected an
argument that price cuts in the original equipment market could be
examined in isolation when the evidence indicated that the
replacement market and original equipment market were inseparable.
Stitt Spark Plug Co. v. Champion Spark Plug Co., 840 F.2d 1253,
1256 (5th Cir.1988) (“[A]ny meaningful comparison of price and cost
must encompass Champion’s sales to both markets. Stitt’s evidence
did not demonstrate that Champion’s practices were ‘predatory’
across both markets.”). Here, the fact that FMC may have chosen
for internal reasons or salesmanship purposes to shift costs in
this manner is not objectionable without a showing that the project
as a whole was not priced above its variable cost. When a company
has a “buy one, get one free” promotion, it would be incorrect to
look at the nominal price of the “free” product—zero—and infer
predation from this fact.
36
administrative expenses (“G&A”). FMC contends that G&A is one of
several categories in which profits are allocated. If this is
correct, then the negative margin referenced in the document
indicates only that a portion of the project failed to meet a
benchmark profit target, not a bid below cost—variable or
otherwise. Resolution of the G&A question is also critical for the
other challenged projects, for which the sole basis for Stearns’
charges of below-cost pricing is the fact that the G&A percentage
was reduced from its customary eighteen percent to ten percent.
FMC has produced evidence indicating that G&A is not a
variable cost. The risk memorandum contained allocation categories
for G&A, markup, and margin. FMC produced affidavits that stated
all three of these categories were expected profit on a deal, and
in other sections of the Washington risk memorandum G&A and margin
are combined and collectively referred to as margin. An
examination of the risk memoranda supports the conclusion that
these categories were at the least not a variable cost.16 Material,
manufacturing, and engineering were separate cost sections in the
memorandum, and these categories describe the bulk of the variable
costs one would expect on a project like this. Both the material
16
Even if we were to simply disregard FMC’s affidavit, there is
nothing inherent in the term “general and administrative” that
automatically allows an inference that this category was a variable
cost. Administrative costs may involve the work of salaried
workers not subject to overtime—which over the short term is a
fixed cost. And as a catch-all category G&A would seem a natural
place to allocate a percentage of long term fixed costs—like rent
and the salary of the CEO—for internal accounting purposes.
37
and manufacturing section contained percentage increases for
overhead. Thus after calculating the labor costs for a project,
the memorandum added a separate charge of 265% of labor costs for
manufacturing overhead. These overhead projections would seem to
be a logical place to find the full variable costs of the
project—including things like sales expenses.
Stearns nevertheless claims that G&A represents a variable
cost, not a profit margin or an internal allocation of fixed costs.
The difficulty with this assertion is that nothing supports it. We
have no attempt by Stearns to refute the credible evidence FMC has
put forth that removes G&A from the realm of variable costs. As
noted earlier, although Stearns’ expert mentioned the concept of
variable cost in passing, he erroneously concluded that it was
unnecessary to address it. He thus spent most of his argument on
a tangent that is irrelevant to our central inquiry. At no point
did the expert explain what G&A represented or state that it was a
variable cost. In its briefs, Stearns could only restate its
contention that G&A did not constitute profits. And, Stearns has
not offered a coherent explanation of what G&A represents if it
does not represent profits, let alone evidence that (or to what
extent) it is a variable cost to FMC.
Slightly more concrete evidence in favor of Stearns comes from
the testimony of Richard Pell. Mr. Pell, a former employee of FMC,
testified in his deposition that FMC’s marketing department and its
accountants maintained separate books. As an executive in
38
engineering, he reported that several times his department’s
estimate of its costs on projects were lowered by the marketing
department prior to a bid. The net result was that his department
experienced frequent cost overruns on projects trying to meet the
artificially low projection enshrined in the bids. It appears from
the record that these costs might be viewed as variable costs.
However, we are not concerned here with reviewing the
interoffice politics or internal cost allocations of FMC. Stearns
failed to develop Mr. Pell’s testimony or explain how manipulation
of the engineering variable cost could have rendered an entire
project—or even a discrete portion of one—below variable cost.
While one of Mr. Pell’s objections was that this kind of behavior
could lead to losing money on a project, he could not and did not
opine that any of the projects he worked on were on the whole below
variable cost. Stearns did not provide us with any evidence that
the understating of cost on the engineering projects in question
was severe enough to cancel out the ten to eighteen percent G&A
profits they generated. The risk memorandum that we have indicates
that engineering costs were a relatively minor cost compared to
materials and manufacturing.
The sections of Stearns’ expert testimony that even hinted at
FMC’s costs suffer from a similar defect. Dr. Eads testified that
on the Washington project FMC eliminated its inflation adjustment,
thus incurring the risk that the company’s costs would be higher
than anticipated for the sections of the project occurring in the
39
years following the initial bid. Assuming arguendo that the risk
that inflation will exceed the return FMC receives on its capital
over the life of the project is a variable cost, Dr. Eads was
silent as to the amount of the “cost” of this risk. He also
claimed that FMC’s bid on the maintenance section of the contract
was suspect because it was much lower than the analogous bid by
Stearns. Of course, the mere fact that a producer can or does
charge less than a competitor does not indicate below-cost pricing.
The opinion was silent as to what variable costs FMC could expect
to incur providing maintenance and how the bid was below them.
Because Stearns has failed to raise a genuine issue of
material fact regarding both its exclusionary conduct and predatory
pricing claims under the Sherman Act, summary judgment on these
claims must be affirmed. This result also mandates affirmation of
the summary judgment on Stearns’ Robinson-Patman and state law
claims, which are urged on appeal only derivatively of the Sherman
Act claims.
IV. Denial of Discovery motion.
Stearns contends that the district court erred in denying its
Rule 56(f) motion to suspend summary judgment pending the
completion of discovery. We review the denial of a Rule 56(f)
motion for abuse of discretion. See, e.g., Fontenot v. Upjohn
Company, 780 F.2d 1190, 1193 (5th Cir. 1986). Such motions are
generally favored, and should be liberally granted. See
40
International Shortstop, Inc. v. Rally’s Inc., 939 F.2d 1257, 1267
(5th Cir. 1991). However, to justify a continuance, the Rule 56(f)
motion must demonstrate 1) why the movant needs additional
discovery and 2) how the additional discovery will likely create a
genuine issue of material fact. Krim v. Banctexas Group, Inc., 989
F.2d 1435, 1442 (5th Cir. 1993). On appeal, we will not consider
justifications for granting a continuance that were not presented
with the original motion. See Solo Serve Corp. v. Westowne
Associates, 929 F.2d 160, 167 (5th Cir. 1992).
We begin our analysis by pointing out that this case had been
pending for over fifteen months prior to the district court’s entry
of final judgment in favor of FMC. The section 1 claim, on which
the district court had entered summary judgment earlier, required
almost identical factual support as the claims at issue here. The
record indicates that Stearns had reviewed over half a million FMC
documents and had also subpoenaed documents from twenty municipal
airport authorities. It had also conducted several depositions of
key FMC employees. While the district court’s scheduling order had
indicated that the final deadline for discovery was April 30, 1997,
the order clearly contemplated summary judgment prior to that date,
since its cutoff for the filing of such motions was almost two
months prior to the discovery cut-off. Stearns also delayed filing
its Rule 56(f) motion until the time its response to FMC’s summary
judgment motion was due, a deadline that the district court had
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already extended at Stearns’ request.
The district court denied Stearns’ motion because it lacked
specificity in identifying the needed discovery. On review of the
record, we cannot say that this ruling constituted an abuse of
discretion. Stearns’ motion specifically requested a stay pending
the deposition of several FMC executives. The motion explains that
all of the proposed deponents were in a position of authority and
were connected to several documents relied on by Stearns. Stearns
argued that deposing these parties was necessary because “Stearns
expects that the depositions will provide evidence on a number of
topics, including FMC’s predatory and exclusionary conduct, FMC’s
strategies to avoid competitive bidding and price competition, the
relevant product and geographic markets in this case and the
barriers to enter this market.” If these depositions proved
fruitful, Stearns put the court on notice that it might pursue
additional depositions of bridge customers which would develop
“testimony on topics including the market, FMC’s predatory conduct,
and the injuries to Stearns and competition caused by FMC’s
predatory conduct.”
While Stearns’ motion indicated how the desired discovery was
in a quite general sense relevant to the case, the district court
did not abuse its discretion in finding that the motion lacked
needed specificity. The movant must be able to demonstrate how
postponement and additional discovery will allow him to defeat
summary judgment; it is not enough to “rely on vague assertions
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that discovery will produce needed, but unspecified, facts.”
Washington v. Allstate Insurance Co., 901 F.2d 1281, 1285 (5th Cir.
1990). See also Krim, 989 F.2d at 1441 (must demonstrate how
discovery will lead to genuine issue of fact). Here, Stearns’
exclusionary conduct claims required either 1) a showing that the
conduct at issue could not be justified by FMC without reference to
its effect on its competitors or 2) a showing that the employees
and agents of consumers of bridges and those with influence on them
had somehow had the independence and integrity of their judgment
clouded by external forces so that we may not assume that their
decisions in FMC’s favor were intended by them to be in the best
interests of their employers. The motion fails to identify how
further discovery could prove either of these points. It does not
claim, for example, that further depositions will reveal that the
airlines and airport staff were bribed or otherwise driven by
anything other than their perceptions of the merits of the product
when they recommended FMC bridges or specifications to the
municipal authorities.
The motion is also unhelpful in detailing how the predatory
pricing claims could be saved from summary judgment. The crucial
issue of FMC’s variable costs is not even hinted at in the motion.
With regards to recoupment, while the motion does mention barriers
to entry, the predatory pricing claim required not only a showing
of such barriers, but also a demonstration that the extent and
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duration of the alleged below-variable cost pricing was sufficient
to drive Stearns from the market. There is nothing specific in the
motion suggesting that evidence of more below-variable cost pricing
would have been revealed by additional discovery.
Stearns claims that the district court’s ruling was an abuse
of discretion because concurrent with the denial of its motion, the
court allowed FMC to exceed the ten deposition limit imposed by the
Federal Rules. These are separate issues. FMC indicated that the
requested depositions were necessary to preserve the testimony of
parties who would not be available to testify at trial. We cannot
say that the granting of an unrelated request transforms the
district court’s proper exercise of judgment into an abuse of
discretion.
V. Taxation of Costs
The district court awarded FMC costs under 28 U.S.C. § 1920
and Rule 54(d)(1). On appeal, Stearns does not challenge the award
itself, but rather attacks the inclusion of certain deposition and
photocopying costs. Costs related to the taking of depositions and
the copying of documents are allowed if the materials were
necessarily obtained for use in the case. This Court reviews a
lower court’s allowance of costs for clear abuse of discretion,
granting the lower court “great latitude in this determination.”
Fogleman v. ARAMCO, 920 F.2d 278, 285-86 (5th Cir. 1991).
The record indicates that the lower court exercised oversight
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over FMC’s claimed costs, striking from its bill of costs items
such as mini-transcripts and computer copies. Stearns’ challenge
to the deposition costs is grounded in the fact that certain
depositions were not used in FMC’s summary judgment filings. It
thus claims that they were merely for general discovery and not
necessary to the case. But we have indicated that it is not
required that a deposition actually be introduced in evidence for
it to be necessary for a case—as long as there is a reasonable
expectation that the deposition may be used for trial preparation,
it may be included in costs. Id. at 285. We are satisfied that
the district court did not abuse its discretion in finding the
depositions in question could be expected to be used at trial.
Stearns’ challenge to FMC’s photocopying charges must also
fail. While we have indicated that multiple copies of relevant
documents may not be charged to an opponent, we have never held
that a district court may not award a litigant the cost of
preparing a single set of the documents in a case. See id. at 286.
The district court did not abuse its discretion in approving these
costs.
Conclusion
We find that summary judgment in favor of FMC on the Sherman
Act claims was warranted. Accordingly, we also affirm the summary
judgment on the derivative Robinson-Patman and state law claims.
We do not find that the district court abused its discretion in
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denying Stearns’ Rule 56(f) continuance motion and in its
determination of costs.
For the reasons stated above, the judgment of the district
court is
AFFIRMED.
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