MTA also includes divisional administration, corporate interest, and technical development.
The extent to which some or all of these costs are variable is in doubt. In its own post-completion review, a Sonoco employee stated that incremental MTA and overhead costs "do tend to increase over time with volume as experience has clearly demonstrated." (DH. Ex-172 at 100326). That statement fits the definition of variable costs since they are costs that tend to increase with volume. In a deposition, the author of the report explained that such increases were probably in allocations based on increased capital investments. He testified that he was without information to conclude that such costs had experienced actual cash increases.
Traditionally, management expenses and irreducible overhead are considered fixed rather than variable. Sunshine Books, 524 F. Supp. at 482; Northeastern Telephone Company v. American Telephone and Telegraph Company, 651 F.2d 76, 86. Of course, a company's experience is the most telling evidence of the category into which costs belong. Sonoco's general manager of its plastics division testified that when the plastic core equipment was installed there was an increase in assignable period costs because of depreciation costs. If operations were stopped and the equipment sold, assignable period costs would be decreased to reflect the decrease in depreciation. He further testified that none of the plant management costs changed when the equipment was installed. The installation of the equipment had some effect on MTA although most costs were fixed. He testified that of the costs labeled "additional variable costs" in plaintiff's analysis, a great majority would not vary depending on the output of the business machine cores.
Plaintiff's accounting expert also recalculated Sonoco's labor costs by increasing the number of operators from 2 to 2 1/2. This resulted in an overstatement of direct labor costs because the plant, in fact, uses a two-person crew operating one shift.
With these recalculations, plaintiff's expert determined that Sonoco had been selling below its variable costs for plastic adding machine cores ("add cores") over a two year period by more than 10%. He also determined that the defendant was selling its paper cash register cores ("cash cores") and paper add cores to NCR below its average variable cost by 25%-38% on add cores and 4% on cash cores since October, 1980.
Defendant challenges both the recalculations performed by plaintiff's expert and the conclusions to be drawn from its own documents introduced at trial. The challenges to the plaintiff's expert go to the weight to be given the evidence of predatory pricing. D & S Redi-Mix v. Sierra Redi-Mix and Contracting Co., 692 F.2d 1245 (9th Cir. 1982). This court, as the finder of fact, is unpersuaded by plaintiff's proof of predatory pricing. While it is true that the defendant has not offered its own charts and proof of pricing above average variable cost, such proof is not the defendant's burden of proof in the first instance. Defendant has sufficiently cast doubt on plaintiff's method of analysis of fixed and variable cost to require a finding by this court that predatory pricing has not been proven.
Further, even if we were to find that predatory pricing has, in fact, been shown, we are persuaded that Sonoco's pricing, including its announced increases and ultimate rescissions of price, was not done with the requisite specific intent. We would be unable, then, to conclude that the intent to be inferred from a finding of predatory pricing, were such a finding made, is justified in this case.
The documents and testimony presented by Sonoco support an inference that its behavior over the past two years has been a result of stiff competition in selling business machine cores. The intent demonstrated by the defendant is to increase sales volume. As the Supreme Court has stated, increasing sales and increasing market share are normal business goals. U.S. Steel Corp. v. Fortner Enterprises, 429 U.S. 610, 612 n.1, 51 L. Ed. 2d 80, 97 S. Ct. 861, (1977). In the landmark Section 1 Sherman Act case of United States v. Aluminum Company of America, 148 F.2d 416, 430 (2d Cir. 1945), Judge Hand proclaimed: "The successful competitor, having been urged to compete, must not be turned upon when he wins."
In documents from Sonoco's files, memoranda between Sonoco's sales manager and its sales force highlight the price competition it encountered when it attempted to enter the plastic machine core business. Sonoco found its slightly higher pricing problematic in its effort to achieve volume. Its attempt to increase prices was met with a good deal of customer resistance as is documented by its internal memoranda. The resulting reduced price proves no more than the fact that price is the crucial factor in the selling of business machine cores and the beneficiaries of the pricing battle are the customers. This would appear to meet the goals of the antitrust laws rather than to violate them.
Double H did suffer from Sonoco's appearance on the scene. Rather than passively receiving orders and neglecting to "make house calls," it was forced to venture into its market and exhibit its wares. Its discomfort with competition, while sympathetic, does not automatically rise to victimization by a large, ill-intended corporation.
The pricing of Sonoco's fiber cores, at first glance, would appear predatory in that it sold its fiber add cores to NCR below its direct product cost. It has, however, sold its fiber cash register cores at a profit. The bulk of Sonoco's sales to NCR is cash register cores. When both fiber add cores and cash register cores are combined, Sonoco's fiber core line remains profitable. Its expressed intent to have NCR switch to Sonoco plastic cores, if and when that switch occurs, is a normal, in fact, expected business goal. Sonoco has successfully raised its prices to NCR even though it has met with their resistance. Its documented efforts to raise its price to NCR for its fiber cores belies the conclusion that it has intentionally sold below cost to keep NCR from switching to plastic so long as Double H is in the picture.
Double H also contends that Sonoco's effort to acquire Double H is another example of its anticompetitive conduct. Plaintiff points to Sonoco's effort to have Harry Harp and his sons sign a covenant not to compete as evidence of its intent. Yet, such a covenant is universally accepted as valid so long as it is reasonable. Westec Security Services, Inc. v. Westinghouse Electric Corp., 538 F. Supp. 108, 122 (E.D. Pa. 1982).
Finally, documents in Sonoco's files indicate that they expected their market share for the next five years to be heavily influenced by Double H. Double H's market share is projected at remaining at 60% for 1982-1986 while Sonoco's projected share is 30% for 1982-83, 31% for 1984-85 and 32% for 1986. (Defendant's Exhibit 305). The intent that can readily be inferred from this mid-1979 calculation is that of competition with Double H rather than its elimination.
Having found that plaintiff did not meet its burden in proving specific intent or anticompetitive conduct, this court need not reach the question as to whether or not there was a dangerous probability of Sonoco succeeding in its alleged attempt to monopolize.
III. LEGAL ANALYSIS: ROBINSON-PATMAN ACT
To establish a prima facie case of unlawful price discrimination under the Robinson-Patman Act, the plaintiff must show that: (1) the defendant has discriminated in the prices it has charged different customers for goods of "like grade and quality"; (2) the defendant is engaged in commerce and the sale was made in commerce; (3) the effect of such discrimination may be substantially to reduce competition or tend to create a monopoly. Edward J. Sweeney & Sons, Inc. v. Texaco, 637 F.2d 105, 119 (3d Cir. 1980). Once a plaintiff has established a prima facie case, defendant may rebut it by affirmatively proving that the discrimination was justified in a good faith effort to meet competition from others.
In addition to proving a violation of the Robinson-Patman Act, to recover, the plaintiff must prove that he has actually been injured in his business or property under Section 4 of the Clayton Act. 15 U.S.C. § 15. Proof of a violation of § 2(a) of the Robinson-Patman Act does not allow a court to presume damages. J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 563, 68 L. Ed. 2d 442, 101 S. Ct. 1923 (1981).
It is not disputed in this case that Sonoco sold fiber business machine cores to NCR below the prices at which it sold the products to other customers. Nor is there a dispute that the sales were "in commerce." Defendant argues that the evidence presented by the plaintiff is insufficient to carry the burden of proof as to whether or not competitive injury has resulted. There are two basic means of meeting the competitive injury requirement: (1) actual competitive injury shown by market analysis; (2) predatory intent from which competitive injury may be inferred. O. Hommel Co., 659 F.2d at 347. In determining competitive injury, it is the detrimental effect on competition, rather than a concern with individual competitors that is the focus. Id. (emphasis original) (citation omitted).
In the present case, the plaintiff has not offered evidence as to the effect Sonoco's price discrimination has had on market shares for the business machine core business generally. It has theorized, however, that such price discrimination "has precluded the competition that would otherwise exist among [sic] Double H and Sonoco for sales of cash register cores, both to NCR and to smaller customers who will not switch to plastic until NCR leads the way." (Plaintiff's Post-Trial Memorandum, p. 38). A similar theory of NCR's leadership position is expressed in an internal memorandum in which Sonoco's general manager of its plastics division states: "The main account on Group 1 (cash register) cores is N.C.R. and they have elected to stay with the paper cores until the economics favor switching to plastics. The remainder of the marketplace is reluctant to switch until N.C.R. makes the change." (P. Ex. DH-135 at 100382). By defendant's own admission, it was Sonoco's intent to retain NCR with the expectation that other paper converters would not convert to plastic until NCR did.
Testimony of NCR personnel confirms the fact that economics is the crucial factor in keeping NCR from switching from paper to plastic cash cores. The testimony reveals that while other companies have occasionally attempted to sell plastic cores to NCR, they are unable to compete with Sonoco's prices. (Eggleston Dep. at 7-8, 40-43). Defendant points to evidence that some paper converters have, in fact, switched from paper to plastic cores. (Eggleston Dep. at 8, Harp Tr. 50). It is defendant's argument that because NCR has not, in fact, maintained a leadership position, no competitive harm has been shown.
We find, however, that the statements that one or two converters have switched to plastic cores is insufficient to disprove competitive harm. Further, the intent expressed in the Sonoco document, sufficiently establishes predatory intent in Sonoco's effort to retain NCR as a paper cash core customer thereby forestalling the industry-wide switch from paper to plastic. From the finding of predatory intent we may infer injury to competition. O. Hommel Co., 659 F.2d at 347, citing Pacific Engineering & Prod. Co. v. Kerr-McGee Corp., 551 F.2d 790, 798 (10th Cir. 1977), cert. denied 434 U.S. 977, 54 L. Ed. 2d 472, 98 S. Ct. 543 (1977).
Because plaintiff has established a prima facie case of violation of Section 2(a) of the Robinson-Patman Act, we turn to the defendant's proof of its affirmative defense: that the illegal price discrimination was made in a good-faith effort to meet competition. "The test for determining when a seller has a valid meeting competition defense is whether a seller can 'show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor.'" Great Atlantic & Pacific Tea Co., Inc. v. FTC, 440 U.S. 69, 82, 59 L. Ed. 2d 153, 99 S. Ct. 925 (1979) (quoting FTC v. A.E. Staley Mfg. Co., 324 U.S. 746, 759-60, 89 L. Ed. 1338, 65 S. Ct. 971 (1945)). "A good faith, rather than absolute certainty, that a price concession is being offered to meet an equally low price offered by a competitor is sufficient to satisfy the § 2(b) defense." United States v. United States Gypsum Co., 438 U.S. 422, 453, 57 L. Ed. 2d 854, 98 S. Ct. 2864 (1978).
The conduct required of the seller asserting the defense has been discussed by the Supreme Court and the Third Circuit. In its landmark case of FTC v. Staley, 324 U.S. 746, 89 L. Ed. 1338, 65 S. Ct. 971 (1944), the Supreme Court found that the defendant had failed to rebut the prima facie price discrimination suit established against it because it presented no evidence that the company's salesmen, after receiving verbal information that its competitors had offered a lower price, made any effort to investigate or verify the information. FTC v. Staley, 324 U.S. at 758. Nor was evidence presented that the salesmen had "knowledge of their informant's character and reliability." Id. There was an "entire absence of any showing that respondents had taken any precaution to conduct their business in such a manner as to prevent unwarranted discriminations in price." Id. at 759. The mere acceptance of the word of a company official, without corroboration by investigation or verification, is insufficient to prove good faith. Viviano Macaroni Co. v. F.T.C., 411 F.2d 255, 259 (3d Cir. 1969).
Because there is fear that direct price communication between competitors will lead to the evils of price collusion, Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. at 82, some limits on price verification are necessary. What is required is a showing of reliability of the informant who has personal knowledge of the bidding, coupled with an attempt to investigate by asking for more information about the competitive bid and the making of a credible threat of termination of purchases in the absence of a second offer. Id. at 84, n. 17.
In the case sub judice Sonoco has presented evidence that it was warned of the loss of NCR's business. NCR's purchasing agent, James T. Eggleston, told a Sonoco employee that its prices were higher than Crescent's for paper cores. Eggleston was unable, in a deposition, to recall in detail the amount of information he gave Sonoco. He testified that he would have given Sonoco a percentage range of the amount Sonoco's price exceeded Crescent's price. There was, at that time, a proposed price increase by Sonoco presented to NCR to which NCR reacted negatively. (Eggleston dep. at 27). Sonoco records show that, in reaction to being told that Crescent bid lower, it rolled back its prices to their level as of January, 1980 as requested by Eggleston. Sonoco's own records indicate it did so "to meet competitive pricing from Crescent." (Defendant's Exhibit 347).
There is no evidence in the record that any Sonoco employee attempted to verify the existence of a Crescent lower price. Without a diligent attempt to verify the purported lower price by Crescent, Sonoco has not met the good faith standard set forth in Staley and Vivano. All that is established by defendant's evidence is that NCR negotiated a lower price for itself by presenting to Sonoco personnel an approximation of a competitor's lower price. Sonoco relies on its fear of losing business to Crescent as evidence of its good faith. Documents obtained from Sonoco's files indicate that, at least in 1978, it believed it had no competition for NCR's business. (Plaintiff's Exhibit DH-19 at 100125). Sonoco has produced no evidence that it believed that by 1981 its competition had changed so that threats by NCR to give its business to Crescent could reasonably be believed to be true. The testimony of Eggleston that Crescent does sell it "some high-volume items as well as low" (Eggleston Dep. at 35-36) is not sufficient to establish Sonoco's state of mind at the time it gave the discriminatory price.
Because Double H has established a prima facie case of unlawful price discrimination and defendant has failed to meet its burden in proving the unlawful price was given in a good-faith effort to meet competition, we find that Sonoco has violated Section 2(a) of the Robinson-Patman Act. The issue of actual injury to Double H will be discussed in Section V.
IV. STATE LAW CLAIM
Plaintiff argues that once it has established an antitrust violation under either § 2 of the Sherman Act or § 2(a) of the Robinson-Patman Act, it has sufficiently proven the Pennsylvania common law tort of intentional interference with its prospective business relations. Because we find that the requisite proof for damages has not been made for the Robinson-Patman violation, and plaintiff relies on the same proof for the common law claim, we shall not decide the tort allegations. Instead, we shall turn to the issue of damages.
V. DAMAGES: ROBINSON-PATMAN VIOLATION
It is plaintiff's argument that the proof of damages is substantially relaxed once it has established the elements of liability under the antitrust laws, citing Rea v. Ford Motor Co., 497 F.2d 577, 591-92 (3d Cir. 1974), cert. denied, 419 U.S. 868, 42 L. Ed. 2d 106, 95 S. Ct. 126 (1974). While it is true that a court is required to "observe the practical limits of the burden of proof which may be demanded of a treble-damage plaintiff who seeks recovery for damages from a partial or total exclusion from a market," Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 23 L. Ed. 2d 129, 89 S. Ct. 1562 (1969), we must be presented with "some showing of actual injury attributable to something the antitrust laws were designed to prevent." J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 562, 68 L. Ed. 2d 442, 101 S. Ct. 1923 (1981). Because proof of a violation of § 2(a) of the Robinson-Patman Act "establishes only that injury may result," id. (emphasis original), more proof is necessary for plaintiff to recover damages.
In the case sub judice the only evidence submitted toward proving plaintiff's damages under the Robinson-Patman Act, the only antitrust violation determined to have occurred, was Mr. Harp's testimony that he could have realized a 10% profit had he made sales to those cash core customers who had not switched from paper to plastic due to the unlawful price as well as to NCR. The speculative nature of both his profit margin of 10%, which he admits to having come "out of the air," and the extent to which he could have captured those customers, requires that this court find that plaintiff's case fails for lack of proof.
Nowhere does plaintiff present any evidence that it could have made additional sales to NCR. As noted earlier, price was a crucial factor to NCR's purchasing agent. The plaintiff has not shown this court at which price it could have offered plastic cores so as to encourage NCR to make the switch to plastic. Further, the more likely occurrence presented by the evidence is that, had Sonoco offered its paper cores to NCR at the same price it offered them to its other customers, NCR would have bought from Crescent. There is no evidence that Double H would have sold plastic cash register cores at prices that could compete with paper cash register cores. The fact that it has not yet sold a significant amount of such cores does not prevent it from presenting to this court some reasonable estimate of the price for which they could be sold. It is mere speculation that, had Sonoco not sold at an unlawful price, Double H would have captured all of the volume of sales to NCR. It is even more speculative that Double H could then have captured the rest of the cash register core market.
In J. Truett Payne the Supreme Court reviewed two earlier cases in which damages were inferred from the evidence. In Zenith the court found the evidence sufficient to support a jury finding of damages where the plaintiff had compared its sales in Canada, where it was subject to an antitrust violation, with it sales in the United States, where it was not. In Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 66 S. Ct. 574, 90 L. Ed. 652 (1946), "the plaintiff adduced evidence not only comparing its profits with a competitor not subject to the violation but also comparing its profits during the time of the violation with the period immediately preceding the violation." J. Truett Payne Co., 451 U.S. at 567. In comparing those cases with the evidence presented by the plaintiff in J. Truett Payne the court noted that the testimony of the petitioner's owner and an expert witness were not supported by documentary evidence as to the effect of the discrimination on retail prices. Id. at 564. The owner of the car dealership testified that the discrimination caused him to "overallow" on trade-ins, thus reducing his profits on his used car operation. The expert testified that the discrimination would ultimately cause retail prices to be held at an artificially high level and that petitioner made less money per car than its competitors. Id. This evidence was determined by the court to be weak even if construed favorably to the petitioner. Id. at 565.
On remand, the Court of Appeals, in examining the evidence on damages, which included an estimate of goodwill and projections of profit based on past earnings, found that it contained "self-serving and unsupported assumptions" and that the plaintiff "relied on nothing more than the mere fact of alleged price difference and the hypothesized effect of the difference on its business." Chrysler Credit Corp. v. J. Truett Payne Co., Inc., 670 F.2d 575, 582 (5th Cir. 1982). The court ordered the district court to enter a judgment for the defendant based on plaintiff's lack of proof of damages.
The plaintiff in the case sub judice has presented even less evidence to support an award for damages. The plaintiff's expert did not even analyze the damages issue in regard to the Robinson-Patman claim based on foreclosure from the cash register core market. Mr. Harp's testimony that he lost a 10% profit on the entire volume of sales by Sonoco to NCR is certainly without support.
Double H, in addition to requesting treble damages, has asked for injunctive relief. At this point, of course, we need to deal with such relief only with respect to the Robinson-Patman Act violation. The question that arises is whether this court can impose a permanent injunction once it has found that the Robinson-Patman Act has been violated but the plaintiff has failed to prove actual injury to itself.
Injunctive relief is an equitable remedy provided for under § 16 of the Clayton Act, 15 U.S.C. § 26. The remedy invokes traditional principles of equity and authorizes injunctive relief upon the demonstration of "threatened injury" [and is] characteristically available even though the plaintiff has not yet suffered actual injury." Zenith Corporation, 395 U.S. at 130 (citation omitted). To obtain relief under § 16, the plaintiff "need only demonstrate a significant threat of injury from an impending violation of the antitrust laws or from a contemporary violation likely to continue or recur." Id.
In the Zenith case itself the Supreme Court did find that injunctive relief was proper only after finding that treble damages were properly awarded by the District Court.
While the language in Zenith Corporation is somewhat equivocal, it would appear that a significant threat of injury or the fact of injury is still required for relief. Because Double H has been unable to demonstrate injury or threat of injury to itself, injunctive relief shall be denied.
Because plaintiff has failed to present sufficient evidence to support an award, even under the relaxed damages rules of antitrust law, see J. Truett, 451 U.S. at 567, this court shall enter judgment in favor of the defendant and against the plaintiff on the Robinson-Patman claim. The state law claim also must fail for lack of proof of damages. Finally, we shall enter judgment for the defendant and against the plaintiff on the Sherman Act claim due to plaintiff's failure to present sufficient evidence to persuade this court that the defendant had the requisite specific intent.
The above constitutes this court's findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 575 F. Supp.]
1. Judgment is entered in favor of the defendant and against the plaintiff on the Sherman Act § 2(a) claim.
2. Judgment is entered in favor of the defendant and against the plaintiff on the Robinson-Patman Act claim.
3. Judgment is entered in favor of the defendant and against the plaintiff on the state law claim of intentional interference with plaintiff's prospective business relations.
4. Plaintiff's request for an injunction is DENIED.
IT IS SO ORDERED.