U.S. Anchor Mfg., Inc. v. Rule Industries, Inc.

Decision Date23 November 1993
Docket NumberNo. 91-8854,91-8854
Citation7 F.3d 986
Parties1993-2 Trade Cases P 70,426 U.S. ANCHOR MFG., INC., Plaintiff, Counterclaim defendant, Appellee, Cross-Appellant, v. RULE INDUSTRIES, INC., Defendant-Appellant, Cross-Appellee, Tie Down, Inc., a/k/a Tie Down Engineering, Inc., Defendant, Counterclaim plaintiff, Appellant, Cross-Appellee, William Chapman, Counterclaim defendant.
CourtU.S. Court of Appeals — Eleventh Circuit

Harold T. Daniel, Jr., Laurie Webb Daniel, Webb & Daniel, Atlanta, GA, for Tie Down, Inc.

Charles M. Shaffer, Jr., J. Kevin Buster, Sean R. Smith, Atlanta, GA, for Rule Industries, Inc.

J. Alexander Porter, Simuel F. Doster, Jr., Porter & Barrett, Atlanta, GA, for U.S. Anchor Mfg., Inc.

Appeals from the United States District Court for the Northern District of Georgia.

Before COX and DUBINA, Circuit Judges, and GODBOLD, Senior Circuit Judge.

DUBINA, Circuit Judge:

This is an appeal from a jury verdict imposing civil liability for alleged predatory pricing in violation of the antitrust laws. More specifically, appellants Rule Industries, Inc. ("Rule") and Tie Down Engineering, Inc. ("Tie Down"), defendants below, appeal the district court's denial of their motions for judgment notwithstanding the verdict on claims by U.S. Anchor Manufacturing, Inc. ("U.S. Anchor") that Rule and Tie Down attempted and conspired to monopolize the United States market for light weight fluke-style anchors for small boats by means of below-cost pricing intended to drive out competition. U.S. Anchor cross-appeals the district court's order of a directed verdict on its state law claims arising from the same allegations. We reverse the denial of defendants' motions concerning the federal claims. With respect to the state law claims, we certify the dispositive issues for authoritative resolution by the Supreme Court of Georgia.

I. FACTS

This case involves several manufacturers and suppliers of light weight anchors for ultimate retail purchase by owners of recreational boats and small commercial fishing craft. As the district court observed in denying cross-motions for summary judgment,

[a]nchors and other marine industry products are generally sold by suppliers to wholesale distributors, who in turn sell the anchors to boat dealers, marinas, and other retailers for ultimate resale to the consumer, the boat owner. The supplier may either manufacture its own anchors, as does U.S. Anchor, or purchase them from another domestic manufacturer, as [Rule] does from Tie Down, or import them from abroad.

U.S. Anchor Mfg. v. Rule Indus., 717 F.Supp. 1565, 1568 (N.D.Ga.1989).

Within the general category of fluke anchors are four distinct product groups recognized in the industry: (1) expensive premium anchors, (2) the "Danforth Standard" brand line of anchors sold only by Rule, (3) so-called "generic" versions of the Danforth Standard, and (4) inexpensive economy anchors used primarily for lake boating.

Rule is a diversified Massachusetts firm that sells an assortment of marine, hardware and automotive products to wholesale distributors. It entered the fluke anchor industry in 1983 when it obtained the rights to sell the Danforth brand line of anchors. Prior to 1985, Danforth anchors were manufactured for Rule exclusively by the Jacquith Company ("Jacquith") in New York. Tie Down is a smaller manufacturing firm in Georgia that began selling generic and economy fluke anchors in the late 1970s under the "Hooker" brand name. In May 1985 Rule obtained the Hooker trademark and the exclusive right to purchase and distribute Tie Down's anchor production in a transaction that U.S. Anchor has characterized as a "merger." After it sold the right to market its own anchors, Tie Down agreed to manufacture both generic/economy and Danforth brand anchors for Rule. Tie Down's only role in the fluke anchor industry since 1985 has been as one of Rule's suppliers.

U.S. Anchor is a Georgia company founded in 1985 by William Chapman ("Chapman"), the immediate past president of Tie Down whose responsibilities there had recently ended. U.S. Anchor both manufactures and distributes generic and economy fluke anchors under the "Sentinel" brand name. Between August 1985 when it first sent out price lists and December 31, 1990, its market share increased to between 45 and 68%, depending on how the relevant product market is defined and measured.

Shortly after U.S. Anchor entered the market in August 1985, on the eve of the 1985-86 marine products season, 1 Rule and U.S. Anchor engaged in a price war. Following publication of U.S. Anchor's August price list, Rule published prices in September that were approximately 11 to 18% higher than U.S. Anchor's. Thus, U.S. Anchor's prices were 10 to 15% lower than Rule's. (R30-27; compare USTX 343 with USTX 345.) 2 In October, after U.S. Anchor had received substantial orders from Rule customers, Rule cut its prices by 20%, i.e., to levels 6 to 12% below U.S. Anchor's August prices. (R49-28; RTX 584.) U.S. Anchor then matched Rule's October prices. In a written report to Rule, USTX 683, Tie Down's president Charles MacKarvich ("MacKarvich") estimated U.S. Anchor's costs of production and hypothetical projected sales for a twelve-month period. He theorized that if Rule lowered its prices further and offered extended credit terms to customers, U.S. Anchor would be forced to adopt even more attractive terms in order to compete. From his estimates of cash flow and net revenue derived from these cost and sales projections, he predicted that such terms would subject U.S. Anchor to a negative cash flow and an actual net loss over the 1985-86 marketing year. Rule implemented price reductions consistent with MacKarvich's report in November 1985. In December, U.S. Anchor merely matched Rule's prices and did not attempt to undercut them. (R30-39-40, USTX 351, 353, 543.) U.S. Anchor contends that Rule's first price cut in October was predatory and that all subsequent sales at or below that level were also predatory.

After the pricing conduct at issue in this case began, distributors' prices for generic brands in the smaller, popular sizes ranged between $3 and $14 depending on weight, and prices for Danforths were spread 50 to 96% higher. 3 Among the more expensive, larger anchors the spread between Danforth and generic brands was even greater. Excluding premium anchors, 4 annual unit sales of fluke anchors in the United States during the time relevant to this case has varied from 232,000 to 347,000. (USTX 479.)

At trial the parties noted differing possible measures of Rule's share of the relevant product market after the acquisition of Tie Down's anchor line in May 1985, four months before the close of the 1984-85 marine season at the end of August. This dispute encompassed two aspects of market share: whether to define the product market as including the high priced Danforth anchors or only the less expensive generic and economy models, and whether to measure market shares in terms of unit sales or dollar revenues. Including the Danforth line and measuring market shares in revenue, U.S. Anchor asserts that Rule and Tie Down together controlled 90.5% of the fluke anchor market during the 1984-85 season, the last year before Rule's alleged predation began and the last year before the merger with Tie Down, and that Rule possessed 60.0% of the market during the 1985-86 selling year. (USTX 467.) Using Rule's most favorable calculation, which measures share in units and excludes Danforths from the market, Rule contends that the combined Rule/Tie Down market share in 1984-85 was only 61.5%, (RTX 674), and that Rule's aggregate 1985-86 share was 30.1%, (id.; RTX 675 at 1). 5 Rule also submitted evidence that its 1985-86 unit market share, including Danforths, was 43.1%. (RTX 675 at 1.) Notably, all of these figures encompass an entire season and none of them attempts to pinpoint Rule's share at the exact date when the alleged predation began in October 1985, several months after U.S. Anchor entered the market. The evidence shows, and the parties agree, that the Rule/Tie Down market share consistently decreased after August 1985 when U.S. Anchor first began to solicit orders. The parties also agree that the relevant geographic market was the United States.

II. PROCEDURAL HISTORY

In November 1985 Rule filed suit against U.S. Anchor for various violations of state and federal law not involving predatory pricing. The suit was settled on March 19, 1986, when U.S. Anchor and Rule executed an agreement releasing each other from liability for all events occurring prior to the date of the release. Tie Down was a party to neither the litigation nor the ensuing release.

On November 13, 1986, U.S. Anchor sued Rule and Tie Down, alleging that Rule had attempted to monopolize the fluke anchor market in violation of section 2 of the Sherman Act 6 beginning in October 1985 by engaging in predatory pricing. U.S. Anchor also alleged that Rule and Tie Down had conspired to restrain trade in violation of section 1 of the Sherman Act 7 and conspired to attain a monopoly in violation of section 2, by agreeing to charge predatory prices, also beginning in October 1985. U.S. Anchor also asserted an illegal tying arrangement by Rule, whereby its newly patented and supposedly revolutionary "Deepset" anchors allegedly were sold only to distributors who abstained from buying generic fluke anchors from suppliers other than Rule, in violation of section 1 of the Sherman Act and section 3 of the Clayton Act, as amended by the Robinson-Patman Act. 8 U.S. Anchor further alleged that Rule and Tie Down had conspired to restrain trade in violation of Georgia law.

The district court denied the parties' cross-motions for summary judgment. 717 F.Supp. 1565. A jury trial followed during which the defendants moved for directed verdicts 9 as to all claims. The court granted their motions on the state law claims because it concluded that Georgia...

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