Abogado Aly: GM Rebate Saves Parts Seller from Below-Cost Predatory Pricing Claim, Fifth Circuit Rules

Thursday, January 29, 2015

GM Rebate Saves Parts Seller from Below-Cost Predatory Pricing Claim, Fifth Circuit Rules

Originally published by Barry Barnett .

A beastly hard theory

The latest antitrust ruling by the Fifth Circuit favors a giant, General Motors, despite its huge share of the parts market that the plaintiff accused it of monopolizing. But the case says less about the Fifth Circuit’s pro-defense leanings than it does about the steep odds against predatory-pricing cases in general.

The case

In Felder’s Collision Parts, Inc. v. All Star Advertising Agency, Inc. , No. 14-30410 (5th Cir. Jan. 27, 2015), the panel looked at whether the plaintiff Felder’s had alleged a plausible antitrust claim. Felders alleged that a GM parts dealer, All Star, had engaged in below-cost pricing in order to drive out rivals like Felder’s.

Speaking through Judge Gregg Costa — the Fifth Circuit’s newest member and a very bright fellow indeed — the court agreed with a Louisiana district judge that Felder’s could never prevail on its claim. A predatory pricing theory, the court noted, requires that the defendant sell something at less than “average variable cost”, aiming to starve competitors of profits and later (after they die or quit) to recoup the losses by charging monopoly prices. Felder’s , slip op. at 5 & 8.

Rebate saves the day

But the GM parts dealer didn’t charge less than its cost. Although All Star and others in GM’s “Bump the Competition” program did undercut Felder’s pricing and in doing so charged less than what they paid GM for the parts, GM gave the dealers rebates that turned nominal losses into real profits.

An alternative?

Why, you might ask, didn’t Felder’s complain about GM’s prices instead of the dealers’? The panel wondered the same thing:

[I]t would seem that a successful predatory pricing scheme of this nature would primarily benefit GM by driving aftermarket equivalent parts from the market. But Felder’s has never alleged that GM is selling parts below its costs, focusing instead on allegations that GM dealer All Star is selling parts at prices below its costs. The viability of Felder’s claims thus turns on whether it can show that All Star is engaged in predatory pricing at the dealer level.

Felder’s, slip op. at 6-7.

The answer likely lies in a simple fact about predatory pricing claims. If the claim had focused on what GM charged its dealers, Felder’s would have had to show that GM’s average variable cost of making the parts exceeded what GM sold the parts for. That task would require details about GM’s manufacturing processes for multiple parts, reports and testimony by an economics expert, and hundreds of thousands of dollars in expense. Far better to cite the delta between the nominal price that dealers paid GM and the (lower) price they charged customers, no?

Lesson

Antitrust claims promise treble damages, yet they require big outlays and entail high risk. Make sure you and your counsel understand the upside and downside of pursuing the claims.