No. 85-473
Argued: October 6, 1986Decided: December 9, 1986
Held:
- 1. A private plaintiff seeking injunctive relief under 16 must show a threat of injury “of the type the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 . Pp. 109-113.
- 2. The proposed merger does not constitute a threat of antitrust injury. A showing, as in this case, of loss or damage due merely to increased competition does not constitute such injury. And while predatory pricing is capable of inflicting antitrust injury, here respondent neither raised nor proved any claim of predatory pricing before the District Court, and thus the Court of Appeals erred in interpreting respondent’s allegations as equivalent to allegations of injury from predatory conduct. Pp. 113-119.
-
- 3. This Court, however, will not adopt in effect a per se rule denying competitors standing to challenge acquisitions on the basis of
- predatory-pricing theories. Nothing in the Clayton Act’s language or legislative history suggests that Congress intended this Court to ignore injuries caused by such anticompetitive practices as predatory pricing. Pp. 120-122.
761 F.2d 570, reversed and remanded.
BRENNAN, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and MARSHALL, POWELL, O’CONNOR, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in which WHITE, J., joined, post, p. 122. BLACKMUN, J., took no part in the consideration or decision of the case.
Ronald G. Carr argued the cause for petitioners. With him on the briefs were Robert F. Hanley, Alan K. Palmer, and Phillip Areeda.
Deputy Solicitor General Cohen argued the cause for the United States et al. as amici curiae urging reversal. With him on the brief were Solicitor General Fried, Assistant Attorney General Ginsburg, Deputy Assistant Attorney General Cannon, Jerrold J. Ganzfried, Catherine G. O’Sullivan, Andrea Limmer, and Marcy J. K. Tiffany.
William C. McClearn argued the cause for respondent. With him on the brief were James E. Hartley, Elizabeth A. Phelan, and Marcy G. Glenn. *
[ Footnote * ] Thomas B. Leary filed a brief for the Business Roundtable as amicus curiae urging reversal. David L. Foster and Kim Sperduto filed a brief for Royal Crown Cola Co. as amicus curiae.
JUSTICE BRENNAN delivered the opinion of the Court.
Under 16 of the Clayton Act, 38 Stat. 737, as amended, 15 U.S.C. 26, private parties “threatened [with] loss or damage by a violation of the antitrust laws” may seek injunctive relief. This case presents two questions: whether a plaintiff seeking relief under 16 must prove a threat of antitrust injury, and, if so, whether loss or damage due to increased competition constitutes such injury. [479 U.S. 104, 106]
I
Respondent Monfort of Colorado, Inc. (Monfort), the plaintiff below, owns and operates three integrated beef-packing plants, that is, plants for both the slaughter of cattle and the fabrication of beef. 1 Monfort operates in both the market for fed cattle (the input market) and the market for fabricated beef (the output market). These markets are highly competitive, and the profit margins of the major beef packers are low. The current markets are a product of two decades of intense competition, during which time packers with modern integrated plants have gradually displaced packers with separate slaughter and fabrication plants.
Monfort is the country’s fifth-largest beef packer. Petitioner Excel Corporation (Excel), one of the two defendants below, is the second-largest packer. Excel operates five integrated plants and one fabrication plant. It is a wholly owned subsidiary of Cargill, Inc., the other defendant below, a large privately owned corporation with more than 150 subsidiaries in at least 35 countries.
On June 17, 1983, Excel signed an agreement to acquire the third-largest packer in the market, Spencer Beef, a division of the Land O’Lakes agricultural cooperative. Spencer Beef owned two integrated plants and one slaughtering plant. After the acquisition, Excel would still be the second-largest packer, but would command a market share almost equal to that of the largest packer, IBP, Inc. (IBP). 2 [479 U.S. 104, 107]
Monfort brought an action under 16 of the Clayton Act, 15 U.S.C. 26, to enjoin the prospective merger. 3 Its complaint alleged that the acquisition would “violat[e] Section 7 of the Clayton Act because the effect of the proposed acquisition may be substantially to lessen competition or tend to create a monopoly in several different ways . . . .” 1 App. 19. Monfort described the injury that it allegedly would suffer in this way:
- “(f) Impairment of plaintiff’s ability to compete. The proposed acquisition will result in a concentration of economic power in the relevant markets which threatens Monfort’s supply of fed cattle and its ability to compete in the boxed beef market.” Id., at 20.
Upon agreement of the parties, the District Court consolidated the motion for a preliminary injunction with a full trial [479 U.S. 104, 108] on the merits. On the second day of trial, Excel moved for involuntary dismissal on the ground, inter alia, that Monfort had failed to allege or show that it would suffer antitrust injury as defined in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977). The District Court denied the motion. After the trial, the court entered a memorandum opinion and order enjoining the proposed merger. The court held that Monfort’s allegation of “price-cost `squeeze'” that would “severely narro[w]” Monfort’s profit margins constituted an allegation of antitrust injury. 591 F. Supp. 683, 691-692 (Colo. 1983). It also held that Monfort had shown that the proposed merger would cause this profit squeeze to occur, and that the merger violated 7 of the Clayton Act. 4 Id., at 709-710.
On appeal, Excel argued that an allegation of lost profits due to a “price-cost squeeze” was nothing more than an allegation of losses due to vigorous competition, and that losses from competition do not constitute antitrust injury. It also argued that the District Court erred in analyzing the facts relevant to the 7 inquiry. The Court of Appeals affirmed the judgment in all respects. It held that Monfort’s allegation of a “price-cost squeeze” was not simply an allegation of injury from competition; in its view, the alleged “price-cost squeeze” was a claim that Monfort would be injured by what the Court of Appeals “consider[ed] to be a form of predatory pricing in which Excel will drive other companies out of the market by paying more to its cattle suppliers and charging less for boxed beef that it sells to institutional buyers and consumers.” 761 F.2d 570, 575 (CA10 1985). On the 7 issue, the Court of Appeals held that the District Court’s decision was not clearly erroneous. We granted certiorari, 474 U.S. 1049 (1985). [479 U.S. 104, 109]
II
This case requires us to decide, at the outset, a question we have not previously addressed: whether a private plaintiff seeking an injunction under 16 of the Clayton Act must show a threat of antitrust injury. To decide the question, we must look first to the source of the antitrust injury requirement, which lies in a related provision of the Clayton Act, 4, 15 U.S.C. 15.
Like 16, 4 provides a vehicle for private enforcement of the antitrust laws. Under 4, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore in any district court of the United States . . ., and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. 15. In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., supra, we held that plaintiffs seeking treble damages under 4 must show more than simply an “injury causally linked” to a particular merger; instead, “plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants’ acts unlawful.” Id., at 489 (emphasis in original). The plaintiffs in Brunswick did not prove such injury. The plaintiffs were 3 of the 10 bowling centers owned by a relatively small bowling chain. The defendant, one of the two largest bowling chains in the country, acquired several bowling centers located in the plaintiffs’ market that would have gone out of business but for the acquisition. The plaintiffs sought treble damages under 4, alleging as injury “the loss of income that would have accrued had the acquired centers gone bankrupt” and had competition in their markets consequently been reduced. Id., at 487. We held that this injury, although causally related to a merger alleged to violate 7, was not an antitrust injury, since “[i]t is inimical to [the antitrust] laws to award damages” for losses stemming [479 U.S. 104, 110] from continued competition. Id., at 488. This reasoning in Brunswick was consistent with the principle that “the antitrust laws . . . were enacted for `the protection of competition, not competitors.'” Ibid., quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (emphasis in original).
Subsequent decisions confirmed the importance of showing antitrust injury under 4. In Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), we found that a health-plan subscriber suffered antitrust injury as a result of the plan’s “purposefully anticompetitive scheme” to reduce competition for psychotherapeutic services by reimbursing subscribers for services provided by psychiatrists but not for services provided by psychologists. Id., at 483. We noted that antitrust injury, “as analyzed in Brunswick, is one factor to be considered in determining the redressability of a particular form of injury under 4,” id., at 483, n. 19, and found it “plain that McCready’s injury was of a type that Congress sought to redress in providing a private remedy for violations of the antitrust laws.” Id., at 483. Similarly, in Associated General Contractors of California, Inc. v. Carpenters, 459 U.S. 519 (1983), we applied “the Brunswick test,” and found that the petitioner had failed to allege antitrust injury. Id., at 539-540. 5
Section 16 of the Clayton Act provides in part that “[a]ny person, firm, corporation, or association shall be entitled to sue for and have injunctive relief . . . against threatened loss [479 U.S. 104, 111] or damage by a violation of the antitrust laws . . . .” 15 U.S.C. 26. It is plain that 16 and 4 do differ in various ways. For example, 4 requires a plaintiff to show actual injury, but 16 requires a showing only of “threatened” loss or damage; similarly, 4 requires a showing of injury to “business or property,” cf. Hawaii v. Standard Oil Co., 405 U.S. 251 (1972), while 16 contains no such limitation. 6 Although these differences do affect the nature of the injury cognizable under each section, the lower courts, including the courts below, have found that under both 16 and 4 the plaintiff must still allege an injury of the type the antitrust laws were designed to prevent. 7 We agree. [479 U.S. 104, 112]
The wording concerning the relationship of the injury to the violation of the antitrust laws in each section is comparable. Section 4 requires proof of injury “by reason of anything forbidden in the antitrust laws”; 16 requires proof of “threatened loss or damage by a violation of the antitrust laws.” It would be anomalous, we think, to read the Clayton Act to authorize a private plaintiff to secure an injunction against a threatened injury for which he would not be entitled to compensation if the injury actually occurred.
There is no indication that Congress intended such a result. Indeed, the legislative history of 16 is consistent with the view that 16 affords private plaintiffs injunctive relief only for those injuries cognizable under 4. According to the House Report:
-
- “Under section 7 of the act of July 2, 1890 [revised and incorporated into Clayton Act as 4], a person injured in his business and property by corporations or combinations acting in violation of the Sherman antitrust law, may recover loss and damage for such wrongful act. There is, however, no provision in the existing law authorizing a person, firm, corporation, or association to enjoin threatened loss or damage to his business or property by the commission of such unlawful acts, and the purpose of this section is to remedy such defect in the law.” H. R. Rep. No. 627, 63d Cong., 2d Sess., pt. 1, p. 21 (1914) (emphasis added).
Sections 4 and 16 are thus best understood as providing complementary remedies for a single set of injuries. Accordingly, we conclude that in order to seek injunctive relief under 16, a private plaintiff must allege threatened loss or damage “of the type the antitrust laws were designed to prevent and that flows from that which makes defendants’ acts unlawful.” Brunswick, 429 U.S., at 489 . We therefore turn to the question whether the proposed merger in this case threatened respondent with antitrust injury.
III
Initially, we confront the problem of determining what Monfort alleged the source of its injury to be. Monfort’s complaint is of little assistance in this regard, since the injury [479 U.S. 104, 114] alleged therein – “an impairment of plaintiff’s ability to compete” – is alleged to result from “a concentration of economic power.” 1 App. 19. The pretrial order largely restates these general allegations. Record 37. At trial, however, Monfort did present testimony and other evidence that helped define the threatened loss. Monfort alleged that after the merger, Excel would attempt to increase its market share at the expense of smaller rivals, such as Monfort. To that end, Monfort claimed, Excel would bid up the price it would pay for cattle, and reduce the price at which it sold boxed beef. Although such a strategy, which Monfort labeled a “price-cost squeeze,” would reduce Excel’s profits, Excel’s parent corporation had the financial reserves to enable Excel to pursue such a strategy. Eventually, according to Monfort, smaller competitors lacking significant reserves and unable to match Excel’s prices would be driven from the market; at this point Excel would raise the price of its boxed beef to supracompetitive levels, and would more than recoup the profits it lost during the initial phase. 591 F. Supp., at 691-692.
From this scenario two theories of injury to Monfort emerge: (1) a threat of a loss of profits stemming from the possibility that Excel, after the merger, would lower its prices to a level at or only slightly above its costs; (2) a threat of being driven out of business by the possibility that Excel, after the merger, would lower its prices to a level below its costs. 9 We discuss each theory in turn.
A
Monfort’s first claim is that after the merger, Excel would lower its prices to some level at or slightly above its costs in order to compete with other packers for market share. [479 U.S. 104, 115] Excel would be in a position to do this because of the multi-plant efficiencies its acquisition of Spencer would provide, 1 App. 74-75, 369-370. To remain competitive, Monfort would have to lower its prices; as a result, Monfort would suffer a loss in profitability, but would not be driven out of business. 10 The question is whether Monfort’s loss of profits in such circumstances constitutes antitrust injury.
To resolve the question, we look again to Brunswick v. Pueblo Bowl-O-Mat, supra. In Brunswick, we evaluated the antitrust significance of several competitors’ loss of profits resulting from the entry of a large firm into its market. We concluded:
- “[T]he antitrust laws are not merely indifferent to the injury claimed here. At base, respondents complain that by acquiring the failing centers petitioner preserved competition, thereby depriving respondents of the benefits of increased concentration. The damages respondents obtained are designed to provide them with the profits they would have realized had competition been reduced. The antitrust laws, however, were enacted for `the protection of competition, not competitors,’ Brown Shoe Co. v. United States, 370 U.S., at 320 . It is inimical to the purposes of these laws to award damages for the type of injury claimed here.” Id., at 488.
The loss of profits to the competitors in Brunswick was not of concern under the antitrust laws, since it resulted only from continued competition. Respondent argues that the losses in Brunswick can be distinguished from the losses alleged here, since the latter will result from an increase, rather than from a mere continuation, of competition. The range of actions [479 U.S. 104, 116] unlawful under 7 of the Clayton Act is broad enough, respondent claims, to support a finding of antitrust injury whenever a competitor is faced with a threat of losses from increased competition. 11 We find respondent’s proposed construction of 7 too broad, for reasons that Brunswick illustrates. Brunswick holds that the antitrust laws do not require the courts to protect small businesses from the loss of profits due to continued competition, but only against the loss of profits from practices forbidden by the antitrust laws. The kind of competition that Monfort alleges here, competition for increased market share, is not activity forbidden by the antitrust laws. It is simply, as petitioners claim, vigorous competition. To hold that the antitrust laws protect competitors from the loss of profits due to such price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share. The antitrust laws require no such perverse result, for “[i]t is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition.” Arthur S. Langenderfer, Inc. v. S. E. Johnson Co., 729 F.2d 1050, 1057 (CA6), cert. denied, 469 U.S. 1036 (1984). The logic of [479 U.S. 104, 117] Brunswick compels the conclusion that the threat of loss of profits due to possible price competition following a merger does not constitute a threat of antitrust injury.
B
The second theory of injury argued here is that after the merger Excel would attempt to drive Monfort out of business by engaging in sustained predatory pricing. Predatory pricing may be defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run. 12 It is a practice [479 U.S. 104, 118] that harms both competitors and competition. In contrast to price cutting aimed simply at increasing market share, predatory pricing has as its aim the elimination of competition. Predatory pricing is thus a practice “inimical to the purposes of [the antitrust] laws,” Brunswick, 429 U.S., at 488 , and one capable of inflicting antitrust injury. 13
The Court of Appeals held that Monfort had alleged “what we consider to be a form of predatory pricing . . . .” 761 F.2d, at 575. The court also found that Monfort “could only be harmed by sustained predatory pricing,” and that “it is impossible to tell in advance of the acquisition” whether Excel would in fact engage in such a course of conduct; because it could not rule out the possibility that Excel would engage in predatory pricing, it found that Monfort was threatened with antitrust injury. Id., at 576.
Although the Court of Appeals did not explicitly define what it meant by predatory pricing, two interpretations are plausible. First, the court can be understood to mean that Monfort’s allegation of losses from the above-cost “price-cost squeeze” was equivalent to an allegation of injury from predatory conduct. If this is the proper interpretation, then the court’s judgment is clearly erroneous because (a) Monfort made no allegation that Excel would act with predatory intent after the merger, and (b) price competition is not predatory activity, for the reasons discussed in Part III-A, supra.
Second, the Court of Appeals can be understood to mean that Monfort had shown a credible threat of injury from below-cost pricing. To the extent the judgment rests on this ground, however, it must also be reversed, because Monfort [479 U.S. 104, 119] did not allege injury from below-cost pricing before the District Court. The District Court twice noted that Monfort had made no assertion that Excel would engage in predatory pricing. See 591 F. Supp., at 691 (“Plaintiff does not contend that predatory practices would be engaged in by Excel or IBP”); id., at 710 (“Monfort does not allege that IBP and Excel will in fact engage in predatory activities as part of the cost-price squeeze”). 14 Monfort argues that there is evidence in the record to support its view that it did raise a claim of predatory pricing below. This evidence, however, consists only of four passing references, three in deposition testimony, to the possibility that Excel’s prices might dip below costs. See 1 App. 276; 2 App. 626, 666, 669. Such references fall far short of establishing an allegation of injury from predatory pricing. We conclude that Monfort neither raised nor proved any claim of predatory pricing before the District Court. 15 [479 U.S. 104, 120]
IV
In its amicus brief, the United States argues that the “danger of allowing a competitor to challenge an acquisition [479 U.S. 104, 121] on the basis of necessarily speculative claims of post-acquisition predatory pricing far outweighs the danger that any anticompetitive merger will go unchallenged.” Brief for United States as Amicus Curiae 25. On this basis, the United States invites the Court to adopt in effect a per se rule “denying competitors standing to challenge acquisitions on the basis of predatory pricing theories.” Id., at 10.
We decline the invitation. As the foregoing discussion makes plain, supra, at 117-118, predatory pricing is an anticompetitive practice forbidden by the antitrust laws. While firms may engage in the practice only infrequently, there is ample evidence suggesting that the practice does occur. 16 It would be novel indeed for a court to deny standing to a party seeking an injunction against threatened injury merely because such injuries rarely occur. 17 In any case, nothing in [479 U.S. 104, 122] the language or legislative history of the Clayton Act suggests that Congress intended this Court to ignore injuries caused by such anticompetitive practices as predatory pricing.
V
We hold that a plaintiff seeking injunctive relief under 16 of the Clayton Act must show a threat of antitrust injury, and that a showing of loss or damage due merely to increased competition does not constitute such injury. The record below does not support a finding of antitrust injury, but only of threatened loss from increased competition. Because respondent has therefore failed to make the showing 16 requires, we need not reach the question whether the proposed merger violates 7. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
- It is so ordered.
JUSTICE BLACKMUN took no part in the consideration or decision of this case.
