D.E. Rogers Associates, Inc. v. Gardner-Denver Co., GARDNER-DENVER

• Decision Date: 18 January 1984
• Docket Number: No. 81-1314,GARDNER-DENVER,81-1314
• Citation: 718 F.2d 1431
• Parties: 1983-2 Trade Cases 65,668 D.E. ROGERS ASSOCIATES, INC., a Michigan corporation; and Michigan Specialties Manufacturing Company, a Michigan corporation, Plaintiffs-Appellants, v.COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1431

718 F.2d 1431

1983-2 Trade Cases 65,668

D.E. ROGERS ASSOCIATES, INC., a Michigan corporation; and Michigan Specialties Manufacturing Company, a Michigan corporation, Plaintiffs-Appellants, v. GARDNER-DENVER COMPANY, Defendant-Appellee.

No. 81-1314.

United States Court of Appeals Sixth Circuit.

Argued Aug. 23, 1982.

Decided Oct. 21, 1983.

Rehearing and Rehearing En Banc Denied Jan. 18, 1984.

Roger K. Timm, Dykema, Gossett, Spencer, Goodnow & Trigg, Robert G. Cutler (argued), Detroit, Mich., for defendant-appellee.

Larry J. Saylor, Miller, Canfield, Paddock & Stone, Gregory L. Curtner (argued), Detroit, Mich., for plaintiffs-appellants.

Before MARTIN, Circuit Judge, BROWN, Senior Circuit Judge, and NEESE, Senior District Judge. ^*

BOYCE F. MARTIN, Jr., Circuit Judge.

In this private antitrust suit brought by D.E. Rogers Associates, Inc. seeking treble damages from Gardner-Denver Co., Rogers claims Gardner-Denver violated section 2 of the Sherman Act, 15 U.S.C. Sec. 2, and section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Sec. 13(a) when it reduced its prices for ratchet wrench parts sold in quantities of five or more to or below prices offered by Rogers for similar products. In a trial to the court without a jury, the district court dismissed the case following presentation of Rogers' evidence. We affirm.

Gardner-Denver, producers and marketers of a broad range of industrial tools, is the largest manufacturer of ratchet wrenches and their replacement parts in the United States. A ratchet wrench is a hand-held tool which uses pneumatic power to "set" or tighten mechanical nuts onto bolts or studs. It consists of a motor plus an attachment. It is most commonly used in the industrial mass-production of products such as automobiles and aircraft.

Until 1955, Keller Tool Company, the sole patent holder, monopolized the manufacture of ratchet wrenches. When the patent expired in 1955, Keller was acquired by Gardner-Denver and became the latter's Pneutronics Division. It continued to manufacture and market the wrenches and parts.

In 1964, Donald Rogers, a former Gardner-Denver employee, formed D.E. Rogers, Inc. and in conjunction with Michigan Specialties Manufacturing Company, a related concern, began selling ratchet wrench parts. Michigan Specialties manufactures many of the products sold by Rogers, although in some cases it relies on parts manufactured by others and in other cases it "jobs out" part of the manufacturing process to other manufacturers. Recently, Rogers has begun marketing a complete ratchet wrench tool.

From 1964 until late in 1971, Rogers and Gardner-Denver competed amicably in the ratchet wrench parts market. Throughout this period, Rogers was able to set its prices approximately thirty percent below Gardner-Denver's prices for the same or similar products. As testimony to its success, Rogers saw its gross sales grow from approximately $26,000 in 1964 to $300,670 in fiscal 1970.

On August 23, 1971, Gardner-Denver initiated a dual pricing system for ratchet wrench parts and components. Pivotal to the system was the "blue list." The blue list contained parts which, if purchased in quantities of five or more, were available for substantially less than standard "white list" prices. The parts listed were, with a few exceptions, those parts also sold by Rogers. Blue list prices initially averaged sixty-four percent of white list prices and approximately nine percent below Rogers' then current prices for the same items. The blue list was distributed only to Gardner-Denver sales employees.

On September 29, 1971, Rogers responded to the blue list with its own revised price list. Rogers new prices were set approximately twenty percent below Gardner-Denver's blue list prices. These relative prices existed for five months until, on February 28, 1972, Gardner-Denver reduced its blue list prices further. The new prices were either equal to or, in some cases, less than Rogers'. Simultaneously, Gardner-Denver increased its standard, white list prices about nine percent. Two weeks later, on March 15, Rogers further reduced its prices where necessary to match Gardner-Denver's blue list prices. It also introduced a two percent cash discount. Approximately twenty-five months later, on May 1, 1974 Gardner-Denver increased its blue list prices five percent. On September 28, 1976, use of the blue list was discontinued.

It is unclear from the record the precise manner in which Gardner-Denver utilized its blue list. It is certain that not every purchaser of five or more of the blue-listed parts received the blue list discount; nor were purchasers of less than five parts consistently billed at white list rates. Rogers' expert testified that an analysis of Gardner-Denver's sales invoices for 1975 showed white list prices charged in twenty-four percent of all purchases of five parts or more and blue list prices charged in twenty-two percent of all sales of less than five parts.

It is Rogers' position that the blue list was specifically designed to eliminate competition in the ratchet wrench parts market. According to Rogers, Gardner-Denver's blue list was below-cost pricing financed by company profits in other product areas. Financial resources derived from its diversified interests permitted this flexibility. By dropping its prices so precipitously, Rogers continues, Gardner-Denver hoped to drive its smaller, financially weaker competitors out of the market. As a result of the blue list, Rogers asserts, it lost profits and sales, was prevented from expanding its product line, and was, therefore, foreclosed from operating as a competitive force in the market.

The district court based its decision to dismiss the case on several factors. First, it found that Rogers had failed to prove Gardner-Denver's monopoly power in the relevant market. The relevant market, as held by the court, was not limited to ratchet wrench replacement parts but, rather, included mechanical "nutsetters" of all kinds. Although there was no evidence introduced as to market share in a market so defined, the court estimated that Gardner-Denver's share was from ten to fifteen percent. Citing the ease with which Rogers itself entered the market, the court further concluded that there existed no barriers to entry.

In addition the court held that Rogers had failed to prove that whatever sales and profit losses were incurred during the time Gardner-Denver's dual price list was in effect were the result of Gardner-Denver's actions. Rather, the court held, there were many other factors such as internal and organizational difficulties, other competitors, and quality control and distribution problems plaguing Rogers at the time which could easily have caused its losses. Next, the court found insufficient evidence of a direct or indirect nature of predatory intent on Gardner-Denver's part to support Rogers' allegations. The court employed a cost-based analysis for proof of intent by which Rogers was required to demonstrate Gardner-Denver's prices were below its average variable cost. This, the court found, Rogers was unable to do. Moreover, continued the court, it was a close question as to whether Gardner-Denver's prices were below average total cost.

Finally, the court held that the analysis in primary line price discrimination cases under section 2(a) of the Robinson-Patman Act is in all significant respects equivalent to the analysis undertaken in section 2 Sherman Act claims. Having found no proof of predatory pricing for Sherman Act purposes, the court held that Rogers had failed to prove the requisite anticompetitive effect for the Robinson-Patman Act claims.

The district court dismissed the case pursuant to Federal Rule of Civil Procedure 41(b). As this operates as an adjudication upon the merits, it is subject to the clearly erroneous standard of review. Simpson v. United States, 454 F.2d 691, 692 (6th Cir.1972), Marr v. Rife, 503 F.2d 735, 740 (6th Cir.1974). That standard in a case such as this requires us to affirm the findings of the district court unless, after viewing all the evidence, we are left with "the definite and firm conviction that a mistake has been made." Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969). "It is not enough ... that we might give the facts another construction, resolve the ambiguities differently, and reach a conclusion different from that of the district judge. Such a conclusion on our part does not make the finding 'clearly erroneous.' " Strickler v. Pfister Associated Growers, Inc., 319 F.2d 788, 790 (6th Cir.1963). Rather, Rogers must persuade us that no plausible view of the evidence would support the court's findings. This he has failed to do because of his inability to prove either directly or indirectly by a preponderance of the evidence that Gardner-Denver was engaged in predatory pricing. We find insufficient evidence of either a subjective or an objective, cost-based nature that Gardner-Denver's dual-pricing strategy was designed to discipline or eliminate competition. Because of this we need not reach the otherwise important issues of relevant market and causation, both of which were considered and disposed of below.

To prove Gardner-Denver attempted to monopolize the ratchet wrench parts market, Rogers must prove that Gardner-Denver "engaged in anticompetitive conduct with the specific intent to monopolize and that the attempt had a dangerous probability of success." Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818, 823 (6th Cir.1982) quoting United States v. Dairymen, Inc., 660 F.2d 192, 194 (6th Cir.1981). Accord William Inglis v. ITT Continental Baking Co., 668 F.2d 1014 (9th Cir.1981), cert. denied, --- U.S. ----, 103 S.Ct. 57, 74 L.Ed.2d 61 (1982); Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76 (2d Cir.1981), cert. denied, 455 U.S. 943,...