Friday, January 17, 2014

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. case brief summary

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. case brief summary

Ligget alleged that B&W illegally used below cost sales in order to punish Ligget and force Ligget to raise the price it charged for generic cigarettes, which it had been aggressively marketing, resulting in a general reduction of cigarette pricing across the board. B&W only had a 12% market share while Ligget had approximately 5% of the market.

The Court overturned a jury verdict for Ligget because of a failure to demonstrate a dangerous probability of success (likely recoupment of costs) in the attempted monopolization claim.
  • The Court notes there was sufficient evidence to indicate intent to monopolize and found that there was adequate evidence to find pricing below cost.
  • Ligget failed to show actual supracompetitive prices or that market structure and B&W’s conduct indicated that it was likely to solve cartel problems, which was necessary to show recoupment of costs if relying upon tacit collusion among oligopolists.
  • Rising prices were equally consistent with increased demand, especially considering that Ligget failed to consider the subgeneric segment.
  • The Court finds that the market structure was not conducive to tacit collusion: there was declining demand, excess capacity, complicated pricing models with rebates, and a maverick (R.J. Reynolds priced a branded cigarette at a generic price point) as well as no evidence that pricing was actually used to communicate.
Legal Considerations
  • The Court declines to determine what measure of cost should be used, since the parties stipulated that average variable cost was the appropriate measure.
  • The Court here is extremely skeptical of predatory pricing schemes (citing Matsushita), especially in the context of an oligopoly as opposed to a monopoly.
  • As a threshold matter, the predatory pricing must be capable of exclusion or disciplining a defecting member of a cartel/oligopoly.

  • The product market is simply cigarettes, whereas generics are merely a market segment.
  • B&W actually had the most to gain from disciplining Ligget because its brands were weaker than Camel & Marlboro.
  • After Brooke Group, defendants have a significant advantage and a new defense of market structure at least in the oligopoly context.

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