Lepage's Inc. v. 3M, CROSS-APPELLANTS

• Decision Date: 14 January 2002
• Docket Number: Nos. 00-1368 and 00-1473,CROSS-APPELLANTS,s. 00-1368 and 00-1473
• Citation: 277 F.3d 365
• Parties: (3rd Cir. 2002) LEPAGE'S INCORPORATED; LEPAGE'S MANAGEMENT COMPANY, LLC, APPELLEES/v. 3M (MINNESOTA MINING AND MANUFACTURING COMPANY); KROLL ASSOCIATES, INC. MINNESOTA MINING AND MANUFACTURING COMPANY, APPELLANT
• Court: U.S. Court of Appeals — Third Circuit

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277 F.3d 365 (3rd Cir. 2002) LEPAGE'S INCORPORATED; LEPAGE'S MANAGEMENT COMPANY, LLC, APPELLEES/CROSS-APPELLANTS
v.
3M (MINNESOTA MINING AND MANUFACTURING COMPANY); KROLL ASSOCIATES, INC. MINNESOTA MINING AND MANUFACTURING COMPANY, APPELLANT Nos. 00-1368 and 00-1473 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT Argued July 12, 2001
January 14, 2002

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 97-03983) District Judge: The Honorable John R. Padova

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Barbara W. Mather (argued), Jeremy Heep, Pepper Hamilton Llp, 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103-2799, Peter Hearn, Peter Hearn, P.C., 519 Pine Street Philadelphia, PA 19106, and Mark W. Ryan, Kerry Lynn Edwards, Donald M. Falk, Robert L. Bronston, David A.J. Goldfine, Mayer, Brown & Platt, 1909 K Street, N.W. Washington, D.C. 20006-1101, for Appellees/Cross-Appellants.

M. Laurence Popofsky, Stephen V. Bomse (argued), Paul Alexander, Marie L. Fiala, Heller Ehrman White & McAuliffe, 333 Bush Street San Francisco, CA 94104, and John G. Harkins, Jr., Harkins Cunningham, 2800 One Commerce Square 2005 Market Street Philadelphia, PA 19103, for Appellant/Cross-Appellee.

Before: Sloviter, Alito, and Greenberg, Circuit Judges

OPINION OF THE COURT

Greenberg, Circuit Judge.

This matter comes on before the court on defendant 3M's (Minnesota Mining and Manufacturing Company) appeal from an order of the district court entered March 14, 2000, partially granting and partially denying its motion for judgment as a matter of law and denying 3M's motion for a new trial and on plaintiff LePage's Incorporated's cross-appeal from the order partially granting 3M's motion for judgment as a matter of law.¹ LePage's brought this antitrust action asserting that 3M used its monopoly over its "Scotch" tape brand to gain a competitive advantage in the private label tape portion of the transparent tape market in the United States through the use of 3M's multi-tiered "bundled rebate" structure, which offered higher rebates when customers purchased products in a number of 3M's different product lines. LePage's also alleged that 3M offered some LePage's customers large lump-sum cash payments, promotional allowances and other cash incentives to encourage them to enter into exclusive dealing arrangements with 3M.

After the jury found in 3M's favor on LePage's's claims for unlawful agreements in restraint of trade and exclusive dealing but against 3M on LePage's's monopolization and attempted monopolization claims, 3M filed its motions for judgment as a matter of law and for a new trial, arguing that its rebate and discount programs and its other alleged conduct of which LePage's complained did not constitute the basis for a valid antitrust claim as a matter of law and that, in any event, the court's charge to the jury was insufficiently specific and LePage's's damages proof was speculative.² The district court granted 3M's motion for judgment as a matter of law on LePage's's "attempted maintenance of monopoly power" claim but denied 3M's motion for judgment as a matter of law in all other respects and denied its motion for new trial. See LePage's Inc. v. 3M, No. Civ. A. 97-3986, 2000 WL 280350 (E.D. Pa. Mar. 14, 2000). The court subsequently entered a judgment for trebled damages of $68,486,679 to which interest was to be added, and this appeal and cross-appeal then followed.

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We will affirm the district court's order granting the motion for judgment as a matter of law with respect to the "attempted maintenance of monopoly" claim but will reverse the district court's order denying the motion for judgment as a matter of law in all other respects. Thus, we will remand the case to the district court to enter judgment in favor of 3M.

I. BACKGROUND

A. FACTUAL BACKGROUND

3M, founded in 1902, introduced transparent tape for home and office use over 70 years ago. The readers of this opinion no doubt will recognize that 3M's Scotch products have become a familiar brand, and, in fact, 3M dominated the United States transparent tape market with a market share above 90% until the early 1990s. LePage's, founded in 1876, has sold a variety of office products and, around 1980, decided to sell "second brand" and private label tape, i.e., tape sold under the retailer's, rather than the manufacturer's name. This endeavor was successful to the extent that LePage's captured 88% of private label tape sales in the United States by 1992. Moreover, changing distribution patterns and consumer acceptance of"second brand" and private label tape accounted for a shift of some tape sales from branded tape to private label tape. These changes were attributable to the rapid growth of office superstores such as Staples and Office Depot and mass merchandisers such as Wal-Mart and Kmart, as many of these retailers wanted to use their "brand names" to sell stationery products including transparent tape. Not surprisingly, during the early 1990s, 3M also entered the private label business.

LePage's claims that, in response to the growth of this competitive market, 3M engaged in a series of related, anticompetitive acts aimed at restricting the availability of lower-priced transparent tape to consumers. It also claims that 3M devised programs that prevented LePage's and the other domestic company in the business, Tesa Tuck, Inc., from gaining or maintaining large volume sales and that 3M maintained its monopoly by stifling growth of private label tape and by coordinating efforts aimed at large distributors to keep retail prices for Scotch tape high.³ LePage's claims that it barely was surviving at the time of trial and that it suffered large operating losses from 1996 through 1999.

1. Rebate program

This case centers on 3M's programs that, beginning in 1993, involved offers by 3M of "package" or"bundled" discounts for various items ranging from home care and leisure products to audio/visual and stationery products. Customers could earn rebates by purchasing, in addition to transparent tape, a variety of products within 3M's stationery division, such as Post-It Notes and packaging products. These programs created incentives for retailers to purchase more 3M products and enabled customers to have single invoices, single shipments and uniform pricing programs for various products in its consumer products division. The size of the rebate, however, was linked to the number of product lines in which the customers met the targets, an aggregate number that determined the rebate percentage the customer was to receive on all of its 3M purchases across all product lines. Therefore, if customers failed to meet growth targets in multiple categories, they received

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no rebate, and if they failed to meet the target in one product line, 3M reduced their rebates substantially. These requirements are at the crux of the controversy here, as LePage's claims that customers could not meet these growth targets without eliminating LePage's as a supplier.

In practice, 3M's rebate program evolved so that it offered three different types of rebates: Executive Growth Fund, Partnership Growth Fund and Brand Mix Rebates. 3M developed a "test program" called Executive Growth Fund ("EGF ") for a small number of retailers, 11 in 1993 and 15 in 1994. Under EGF, 3M negotiated volume and growth targets for each customer's purchases from the six 3M consumer product divisions involved in the EGF program. A customer meeting the target in three or more divisions earned a volume rebate of between 0.2-1.25% of total sales.

Beginning in 1995, 3M undertook to end the EGF test program and institute a rebate program called Partnership Growth Fund ("PGF ") for the same six 3M consumer products divisions. Under this program, 3M established uniform growth targets applicable to all participants. Customers who increased their purchases from at least two divisions by $1.00 and increased their total purchases by at least 12% over the previous year qualified for the rebate, which ranged from 0.5% to 2%, depending on the number of divisions (between two to five divisions) in which the customer increased its purchases and the total volume of purchases. Under both the EGF and PGF programs, customers could use their rebates as they saw fit.

In 1996 and 1997, 3M offered price incentives called Brand Mix Rebates to two tape customers, Office Depot and Staples, to increase purchases of Scotch brand tapes. 3M imposed a minimum purchase level for tape set at the level of Office Depot's and Staples's purchases the previous year with "growth" factored in. To obtain a higher rebate, these two customers could increase their percentage of Scotch purchases relative to certain lower-priced orders.

2. The Major Customers

The evidence at trial focused on the parties' actual experience with a limited number of customers which we thus discuss at length.

Wal-Mart

Before 1992, Wal-Mart bought private label tape only from LePage's but, in August 1992, decided to buy private label tape from 3M as well. In response, LePage's lowered its prices and increased its sales to Wal-Mart. In 1997, Wal-Mart stopped buying private label tape but offered LePage's's branded tape as its "second tier" offering. In 1998, however, Wal-Mart told LePage's that it was going to switch to a tape program from 3M. LePage's's president then visited Wal-Mart following which Wal-Mart changed its plans and retained LePage's as a supplier. Afterwards, Wal-Mart designed a test comparing LePage's's brand against a 3M Scotch utility tape to determine who would win Wal-Mart's "second tier" tape business. LePage's added more inches (approximately 20% more) to its rolls of tape and won the test. 3M continued, however, to sell other Scotch brand tapes to Wal-Mart, and LePage's saw its sales...