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From Antitrust Law Daily, April 22, 2015

Vehicle replacement part manufacturer failed to show competitor’s below-cost pricing

By Linda O’Brien, J.D., LL.M.

In an action by a U.S. manufacturer of vehicle replacement parts against a foreign vehicle replacement part manufacturer for conspiracy to drive the domestic company out of business through predatory pricing, the federal district court in Columbus, Ohio properly granted summary judgment to the foreign manufacturer, since the plaintiff failed to show that the defendant’s prices were below an appropriate measure of cost, the U.S. Court of Appeals in Cincinnati has ruled. Thus, the district court order was affirmed (Superior Production Partnership v. Gordon Auto Body Parts Co., Ltd, April 22, 2015, Gibbons, J.).

Gordon Auto Body Parts is one of a small group of Taiwanese manufacturers of replacement parts for vehicles that have been in collisions. Gordon and at least two other manufacturers had joint ventures related to shared investments in plant equipment and production of parts. Superior Production Partnership (PBSI) made replacement bumpers and expanded into the market for replacement hoods in 2006.

After PBSI entered the market, Gordon and the other manufacturers reduced their prices on the same hoods. PBSI could not compete on price and ceased its planned expansion into production of other replacement parts. PBSI filed suit against Gordon, alleging that Gordon and the other Taiwanese manufacturers engaged in a predatory pricing scheme to force PBSI to cease production of truck hoods in violation of Sections 1 and 2 of the Sherman Act.

During discovery, PBSI and Gordon submitted expert reports from economists regarding Gordon’s pricing strategy. The district court denied PBSI’s motion to exclude the expert testimony but granted Gordon’s motion to exclude PBSI’s expert’s reports. The court also granted summary judgment for Gordon and PBSI appealed both rulings.

Discovery. The district court did not abuse its discretion in excluding the plaintiff’s expert’s report as unreliable on the issues of predatory intent and below-cost pricing. A proposed expert’s opinion is admissible at the discretion of the trial court if the expert is qualified by knowledge, skill, experience, training, or education and the testimony is relevant and reliable.

The plaintiff’s expert utilized a “no economic sense” test under which losses from predation were measured as any downward deviation from a profit-maximizing price rather than focus on average variable or avoidable cost. In excluding the expert’s opinion that Gordon’s pricing strategy reflected an intent to force PBSI out of the market for replacement hoods, the district court determined that specialized knowledge would not aid in determining intent. According to the appellate court, the district court did not abuse its discretion in determining that the expert’s reliance on a “no economic sense” test was flatly contrary to law that the appropriate measure of cost was between average variable and average total cost.

Below cost pricing. The district court properly granted summary judgment to Gordon on the ground that there was no genuine dispute of material fact on either the issue of below-cost pricing or recoupment of losses. PBSI presented no metrics and its vague inferences to “predatory intent” or a “scheme’s predatory nature” were insufficient without expert analysis to show a cost-price comparison. Since price cuts are generally procompetitive, some comparison to cost was necessary to determine injury to competition. So long as Gordon’s prices were above cost, its price reductions suggested procompetitive behavior, the court concluded.

The case is No. 13-4466.

Attorneys: James Allison Wilson, Jr. (Vorys, Sater, Seymour & Pease LLP) for Superior Production Partnership. J. Scott Ballenger (Latham & Watkins LLP) for Gordon Auto Body Parts Co., Ltd.

Companies: Superior Production Partnership; Gordon Auto Body Parts Co., Ltd.

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