Proving once again that antitrust law protects competition, not competitors, on August 18, 2016 the Sixth Circuit affirmed a decision from the Eastern District of Michigan dismissing a plaintiff’s Sherman Act § 1 predatory pricing complaint for failure to state a claim. The case, Energy Conversion Devices Liquidated Trust et al. v. Trina Solar Ltd. et al., involved allegations by a US-based solar panel manufacturer that its Chinese competitors had conspired to lower their prices in the US to below cost in order to drive the plaintiff out of business.
Energy Conversion conceded that a predatory pricing claim under § 2 of the Sherman Act requires the plaintiff to plead and prove both that the defendant charged below-cost prices, and that the defendant had a reasonable prospect of recouping its investment. But it maintained that for a claim brought under § 1, the second element—recoupment—was not required.
The Sixth Circuit disagreed, holding that a plaintiff bringing a predatory pricing claim under § 1 must plead both below-cost pricing and recoupment. This is consistent with prior Supreme Court cases, including Matsushita Electric Industrial Co. v. Zenith Radio Corp., which the court noted “strongly suggest, if not hold, that both requirements apply to both sections of the Sherman Act.” The court explained that it would make no sense to impose a recoupment requirement in § 2 cases only, because the motivation underlying the requirement—to screen out claims “that will do more harm than good for consumers”—applies equally in both scenarios. In fact, the court noted, a recoupment requirement might be even more desirable in § 1 cases where the extremely low success rate of predatory pricing conspiracies means that the result is often simply lower prices for consumers. The court rejected Energy Conversion’s argument that a recoupment requirement was inappropriate in this particular case because the defendants purportedly operated in a “non-market economy” and were more interested in “eliminat[ing] American competition” than in making a profit. Even if this were true (something the court doubted), the outcome would be sustained low prices that benefited consumers.
Energy Conversion’s claim failed because it did not allege that the defendants had a reasonable prospect of recouping their losses. But the court also found a related defect that would have doomed the plaintiff’s claim in any event: failure to plead a cognizable antitrust injury. A conspiracy that drops prices without intending to recoup the losses later does not cause injury “of the type the antitrust laws were intended to prevent”; a plaintiff injured by such conduct is not harmed by a competition-reducing aspect of the defendant’s behavior and thus does not suffer antitrust injury. Nor could the plaintiff get around this flaw by alleging that the pricing behavior harmed innovation and reduced consumer choice by driving alternatives out of business. The court noted that competition can occur in both quality and price, and “consumers apparently preferred the quality-price combination offered by the Chinese companies to the combination offered by Energy Conversion.”
This case serves as a reminder of the difficulty competitors can face when seeking to bring predatory pricing claims within a legal scheme focused on consumer welfare. After all, as the court noted, in such cases “the conduct claimed to be illegal looks a lot like the robust competition that the antitrust statutes serve to promote.”