Double H Plastics, Inc. v. Sonoco Products Co.

• Decision Date: 15 September 1983
• Docket Number: No. 83-1111,83-1111
• Citation: 732 F.2d 351
• Parties: 1984-1 Trade Cases 65,949 DOUBLE H PLASTICS, INC., Appellant, v. SONOCO PRODUCTS COMPANY, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 351

732 F.2d 351

1984-1 Trade Cases 65,949

DOUBLE H PLASTICS, INC., Appellant, v. SONOCO PRODUCTS COMPANY, Appellee.

No. 83-1111.

United States Court of Appeals Third Circuit.

Argued Sept. 15, 1983.

Resubmitted Before Original Panel

Pursuant to Third Circuit Rule 12(6)

Jan. 9, 1984.

Decided April 20, 1984.

Rehearing and Rehearing En Banc

Denied April 23, 1984.

Webster & Sheffield, New York City, and Lloyd S. Clareman (argued), Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for appellant.

Franklin Poul, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., and Samuel K. Abrams, Gerald A. Connell, Lee H. Simowitz (argued), Brian E. Moran, Baker & Hostetler, Washington, D.C., for appellee.

Before SEITZ, Chief Judge, and GIBBONS and ROSENN, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge:

Plaintiff Double H Plastics, Inc., appeals from a final order of the district court entering judgment in favor of the defendant Sonoco Products Company on the plaintiff's claim under section 2(a) of the Robinson-Patman Act, 15 U.S.C. Sec. 13(a) (1982). We have jurisdiction under 28 U.S.C. Sec. 1291.

I.

The plaintiff and defendant are competitors in the business of producing and selling business machine cores, small spools that carry the paper used in adding machines, cash registers, and other business machines. Slight differences in diameter distinguish the cores used in each type of machine. Traditionally the spools were made of paper, but since the mid-1970s various companies have made them of plastic. The new plastic cores have taken over the adding machine market, capturing 90% of the dollar volume of sales in 1980, but to date the cores have been less successful in the cash register market.

The plaintiff, through the knowledge and skill of its major shareholder Mr. Harry Harp, was a pioneer in producing and marketing plastic cores, and the company enjoyed great success in the late 1970s, eventually winning approximately 70% of the overall plastic core market. The other producers of plastic cores are the defendant, Vulcan Corporation, and Southern Metals & Plastics. Vulcan's percentage of the market has declined dramatically in the last few years, from 11.2% in 1980 to 2.2% in 1982, while Southern Metals & Plastics has experienced increasing success, going from 9.4% of the market in 1980 to 16.5% in 1982. ¹

The defendant, as the major producer of paper cores, has been a victim of the plaintiff's success in building the plastic core market. In 1978 the defendant contacted Mr. Harp and began negotiations to acquire the plaintiff company. These negotiations ended in 1979 when Mr. Harp rejected the defendant's offer. Thereafter the defendant acquired its own equipment and in 1980 began producing and selling plastic cores to compete in the adding machine market.

The defendant's major customer in the paper cash register core market is NCR Corp. For reasons that remain unclear, NCR has continued to buy paper cores from the defendant despite the fact that in recent years the plaintiff has offered to sell plastic cores at prices 11-12% lower than paper core prices. For example, in 1981 NCR purchased paper cores from the defendant at $9.59 per thousand, although the plaintiff was offering plastic cores at only $8.12. The evidence indicates that, economics aside, plastic cores are a suitable substitute for paper cores in cash registers.

The defendant sells its paper cash register cores at two prices, charging a lower price to NCR and a higher price to its other cash register customers. For example, in 1981 the defendant's price to NCR was $9.59 per thousand and $11.33 to other buyers. The defendant has admitted that the price difference is not cost-based.

NCR's refusal to switch to plastic is a problem for the plaintiff, because NCR is regarded as an industry leader. Many of the smaller buyers of cash register cores have refused to switch to plastic until NCR does so, and the plaintiff is therefore unable to make sales to a large segment of the cash register market. Despite this failure to invade the cash register core market, however, the plaintiff remains a successful company, making 65-70% of all plastic core sales in 1981 and 1982.

II.

In 1982 the plaintiff filed antitrust claims against the defendant under section 2 of the Sherman Act, 15 U.S.C. Sec. 2 (1982), and section 2(a) of the Robinson-Patman Act, 15 U.S.C. Sec. 13(a) (1982). The plaintiff based its Sherman Act claim on allegations that the defendant had sold both plastic and paper cores at predatory prices. The district court entered judgment in the defendant's favor on this claim, and the plaintiff has not appealed.

In its Robinson-Patman Act claim the plaintiff alleged that the defendant had sold paper cash register cores to NCR at illegally discriminatory prices. The district court agreed that the defendant had violated the Act but nonetheless ruled in the defendant's favor on the grounds that the plaintiff had failed to establish "actual injury" and damages. The plaintiff appeals from the order entering judgment on this claim.

III.

The plaintiff argues that it produced sufficient evidence at trial to prove actual injury and damages under the Robinson-Patman Act. The defendant rejects this contention and argues in addition that we may affirm the district court's order on the ground that the court was in error in finding a violation of the Act in the first instance. We need only consider this last contention.

In order to prove a violation of section 2(a) of the Robinson-Patman Act, the plaintiff must satisfy the jurisdictional requirements (not at issue in this case) and then establish the existence of a price discrimination and an illegal effect on competition. von Kalinowski, 4 Antitrust Laws and Trade Regulation Sec. 23.02 (1983).

The Supreme Court has ruled that any difference in price for the same product is a price discrimination. FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 549, 80 S.Ct. 1267, 1274, 4 L.Ed.2d 1385 (1960). As this court has previously recognized, however, "[p]rice discrimination is not illegal per se." O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 346 (3d Cir.1981). In order to establish a violation of section 2(a), the plaintiff must show that the price discrimination either injured or threatened to injure competition. Id. The plaintiff may do this either by market analysis or by proof of predatory intent. Id. at 347. Here the plaintiff has offered no market analysis and instead has relied on evidence of predatory intent. Predatory intent may be shown either by express evidence or by inference from below-cost pricing. Id. In the portion of its opinion considering the plaintiff's Sherman Act claim, the district court concluded that the defendant did not sell paper cores to NCR at prices below cost, and the plaintiff has not challenged that finding on appeal. The plaintiff's case therefore turns on express evidence of predatory intent.

In O. Hommel we explained that "[t]he legislative history of the Clayton Act indicates that predatory intent is an intent to destroy a rival with the ultimate purpose of acquiring a monopoly in a particular locality." Id. at 347. We therefore concluded that "express evidence of predatory intent should demonstrate the alleged predator's intention of sacrificing present revenues with the hope of obtaining monopoly profits." Id. at 348.

Before reviewing the plaintiff's evidence of predatory intent to determine whether it satisfies the requirement of O. Hommel, it is important to note the standard by which our review must be conducted. "Intent" in this case is a question of fact, and a reviewing court must respect the lower court's findings of fact unless those findings are clearly erroneous. Fed.R.Civ.P. 52(a). This standard applies both to findings "that deal with 'ultimate' and those that deal with 'subsidiary' facts." Pullman-Standard v. Swint, 456 U.S. 273, 287, 102 S.Ct. 1781, 1789, 72 L.Ed.2d 66 (1982). A finding is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948).

The district court based its finding of predatory intent primarily on one document, a Sonoco internal memorandum in which the defendant's general manager stated that "[t]he main account of [cash register] cores is N.C.R. and they have elected to stay with the paper cores until the economics favor switching to plastics. The remainder of the marketplace is reluctant to switch until N.C.R. makes the change." From this document the district court concluded that "it was Sonoco's intent to retain NCR with the expectation that other paper converters would not convert to plastic until NCR did." Double H Plastics, Inc. v. Sonoco Products Co., 575 F.Supp. 389, 391 (E.D.Pa.1983). The district court also relied on the testimony of NCR officials that "economics [were] the crucial factor in keeping NCR from switching from paper to plastic cash cores. The testimony reveals that while other companies have occasionally attempted to sell plastic cores to NCR, they are unable to compete with Sonoco's prices." Id. at 398. On the basis of this evidence, the district court concluded that the plaintiff had established "predatory intent in Sonoco's effort to retain NCR as a paper cash core customer thereby forestalling the industry-wide switch from paper to plastic. From the finding of predatory intent we may infer injury to competition." Id.

We agree with the district court that the evidence clearly establishes the defendant's awareness that NCR was an industry leader in the purchase of cash register cores and that other manufacturers of cash registers would not switch from paper to plastic cores until NCR did so. The evidence, however, establishes no more than this. The internal memorandum...