Opinion: 509 U.S. 209 (1993)

HOLDING:  The Robinson–Patman Act bans predatory pricing only to the extent that it threatens to injure competition, and a plaintiff seeking to establish competitive injury resulting from a rival’s low prices must prove that the prices complained of are below an appropriate measure of its rival’s costs and that the competitor had a reasonable prospect of recouping its investment in below-cost prices.

In the 1980s, the cigarette industry was dominated by six firms.  Liggett, one of the companies, developed a line of generic cigarettes that were about 30% cheaper than the branded cigarettes sold by competitors.  Generic cigarettes also came with wholesale rebates that increased with the volume of cigarettes ordered.  In 1984, as the market for generic cigarettes expanded, Brown & Williamson, another one of the six major companies, developed their own and priced them lower than Liggett’s.  They did this by selling them at the same list price as Liggett’s generic cigarettes but providing larger rebates to wholesale retailers.  This initiated a price war between the companies, ending with Brown & Williamson allegedly selling their generic cigarettes at a loss. 

Liggett filed a lawsuit against Brown & Williamson alleging trademark infringement, unfair competition, and price discrimination in violation of the Robinson-Patman Act.  Liggett claimed that the wholesale rebates provided by Brown & Williamson were a form of predatory pricing that had a reasonable possibility of injuring and lessening market competition.

After an extended trial, the jury returned a verdict in favor of Liggett, awarding it nearly $150 million.  But after reviewing the record, the District Court determined that Brown & Williamson was entitled to judgment as a matter of law because there was no evidence of coordination between the companies to lower prices and slow the growth rate of generic cigarettes.  Liggett appealed and the Fourth Circuit affirmed, holding that predatory pricing does not exist when two companies continuously lower their prices to compete, since that is how the market works when an industry is controlled by only a few companies.

The Supreme Court affirmed.  The Court held that for there to be a violation of the Robinson-Patman Act, a plaintiff must first prove that the competitor priced their products at a level below the cost to produce them.  Second, the plaintiff must prove that the competitor was likely to eventually recoup the money it lost from pricing their products below cost.  Because the evidence showed that it was unlikely that Brown & Williamson would recoup their losses by taking over market share and sales from Liggett, Liggett could not prove the second prong of its predatory pricing claim.  The District Court correctly determined that Brown & Williamson was entitled to judgment as a matter of law.