Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division, No. IP 81 446 C, James E. Noland, Judge.
Bauer, Chief Judge, Easterbrook, Circuit Judge, and Robert A. Grant, Senior District Judge.*fn*
EASTERBROOK, Circuit Judge
Economists frequently give agricultural products such as wheat as examples of perfect competition. Concentration is low and the product fungible. Anyone who tries to charge more than the going price loses sales quickly, making the effort unprofitable. Price closes in on marginal cost and stays there. Sellers may enter or expand output as much as they please, at the potential expense of rivals but to the definite benefit of consumers: the growing producer will be able to sell its greater supplies only at the going price or less. Growth by the more efficient producers is an engine of lower prices, to be applauded.
Rose Acre Farms is a vertically integrated egg producer and processor. Rose Acre's chickens practically lay their eggs on conveyor belts, which carry them away to be graded, sorted by size, and crated in a continuous operation. The eggs, in cartons suitable for supermarket shelves, must be sold quickly: "sell 'em or smell 'em" is the industry motto. Hens do not always cooperate by laying eggs in the grades and sizes consumers want at the moment. Unintegrated processors (firms that pack and ship eggs they purchase from farmers, called "producers") cope with this by buying only the grades and sizes they need; integrated firms that are less mechanized than Rose Acre (and firms obliged by contract with producers) sell surplus eggs to "breakers" -- firms that use eggs to make bread and other finished products. Rose Acre sells its surplus not to breakers but to supermarkets, at concessionary prices.
"Specials" compete with the eggs offered by other processors. Seven of Rose Acre's rivals filed this suit, contending that the specials were priced too low, in violation of the Robinson-Patman amendments to § 2(a) of the Clayton Act, 15 U.S.C. § 13(a). Specials go for less than Rose Acre's other eggs, which the plaintiffs portray as price discrimination; the plaintiffs also maintained that Rose Acre sells the "specials" below its cost of production, which they describe as predatory. A jury agreed, returning a verdict of $9.3 million in damages, or $27.9 million after trebling. The district judge granted Rose Acre's motion for judgment notwithstanding the verdict, 683 F. Supp. 680 (S.D.Ind. 1988).
Because the jury found a verdict in the processors' favor, we take the facts and inferences in the light most favorable to them.
Rose Acre more than doubled the size of its operation between 1978 and 1982, borrowing $13 million and installing highly automated production facilities. In 1977 Rose Acre had 1.5 million laying hens; by 1982 it had 3.4 million, producing a billion eggs per year. This is approximately 1% of national production. Sales are more concentrated from regional perspectives. In 1978 Rose Acre processed 10.4% of all eggs in Indiana; by 1983 that figure was 23.1%. In a larger region (Ohio, Indiana, Illinois, Iowa, and Michigan), Rose Acre's share rose from 3.4% to 8.6%. In 1978 the four largest processors in Indiana (including Rose Acre) had a share of 20.8%; by 1982 that figure was 60.9%. (The record does not contain enough data to allow computation of the Hirfindahl-Hirschmann Index of concentration, nationally or for any region.)
Although Rose Acre more than doubled in size, national sales of eggs increased about 1% annually; Rose Acre's growth therefore came at other processors expense. Although until 1978 Rose Acre sold almost all of its eggs within 100 miles of Indianapolis, by 1982 it had cracked markets as far away as Buffalo. To do this it offered low prices. Pricing in the egg business is based on the "Urner Barry index", a daily compendium of egg prices. Processors bid in relation to that scale -- e.g., "five cents per dozen back of [== under] Urner Barry" -- so that they may strike long-term deals in a fluctuating market. A buyer who receives a bid well under the Urner Barry scale is assured of a relatively good buy even though the delivered price may move up or down with the market.
The plaintiff processors squawked about the prices Rose Acre used to win the business of ten large supermarket chains. Sometimes Rose Acre prevailed on a single, low quote. For example, to wrest the business of the southern division of the Fisher-Fazio chain in Ohio away from plaintiff Gressell Produce Co., Rose Acre offered large eggs at 6 cents per dozen back of Urner Barry if Fisher-Fazio would buy two trailer loads (24,960 dozen eggs per trailer) weekly. More frequently, Rose Acre's prices had two components: ordinary deliveries and a promise of "specials". Rose Acre got the business of Fisher-Fazio's northern division by offering a "special" price of an extra 4 cents off for one week each month. Boomsma Produce of Missouri, Inc., lost the account of Aldi-Noti in Chicago and St. Louis to Rose Acre's bid of 8 cents per dozen under Urner Barry for large eggs, plus "specials" four weeks per year at an additional 4 cents less than the index; in November 1981 Rose Acre quoted Aldi-Noti a price of 12 cents per dozen below Urner Barry for all trailer loads in excess of five per week, a deal Aldi-Noti could accept only by using Rose Acre's products in both Chicago and St. Louis -- which it did, freezing out Boomsma. Deals for other supermarket chains followed a similar pattern. Plaintiffs maintain that Rose Acre did not offer similar discounts in Indianapolis, its home territory, and that the specials tapered off after Rose Acre secured the business of each chain.
Willard F. Mueller, professor of economics at the University of Wisconsin and plaintiffs' expert witness, testified that Rose Acre's pricing strategy started the egg market rolling toward oligopoly and "materially contributed to a declining price structure" in the business. Professor Mueller concluded that the prices were discriminatory because Rose Acre gave proportionally more "specials" to buyers located farther away, although the transportation costs of delivering to those customers were higher. Drawing on the work of an accounting expert, Prof. Mueller also opined that Rose Acre's prices were predatory because they were less than its average total cost, and in 1980 were 2% less than its average variable cost.
Plaintiffs finally offered evidence of predatory intent. David Rust, the president of Rose Acre, once paid a call on Phillip Gressell and said: "We are going to run you out of the egg,business. Your days are numbered." Lois Rust, the firms treasurer, answered "No" to the question "Does your cost of production have anything to do with the selling price of your eggs?" She explained that Rose Acre grants specials to retailers instead of selling eggs to breakers because "it is the way to win in the long run."
Although this evidence impressed the jury, the district judge granted judgment to Rose Acre. Reversing conclusions he had articulated before and during the trial, the judge held that the evidence of bad intent could not support a verdict that was not otherwise justified by objective economic indicators. That objective information, the judge believed, was "not sufficient to find actual competitive injury in the egg market. . . . Even the most favorable viewing of the evidence in favor of the plaintiffs indicates a healthy, competitive market, marked by the growth of the plaintiffs and the entry and growth of other egg processors". 683 F. Supp. at 687. Evidence that plaintiff Hemmelgarn & Sons, Inc., had grown as fast as Rose Acre particularly impressed the judge, as did the fact that the gross revenues of the plaintiffs increased from $60 million in 1977 to $92 million in 1983. Entry from other firms also was impressive:
Companies located in the areas in which Rose Acre sold its eggs which entered the market or expanded significantly include Wabash Valley Produce which grew from 2 million to 3.3 million layers; Midwest Poultry Services which grew from under 1 million to 2.25 million layers by 1983; Croton Egg Farm entered the market and grew to 2.8 million layers by 1983; Daylay egg Farm also entered the market and grew to 1.2 million layers by 1983. Additionally, Creighton Brothers and Weaver Brothers, both located in Indiana, expanded operations and grew during this period of time.
Ibid. Plaintiffs contest the district court's emphasis on the growth of their revenues, pointing out that market prices drive revenues. They offer this table:
Percent Change in Cases of ...