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.
- 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.