ZF Meritor LLC v. Eaton Corp.

Justia.com Opinion Summary: There are four direct purchasers of heavy duty truck transmissions in North America. Truck buyers dealing with those direct purchasers can select many of the components for their trucks, including transmissions, from catalogues called data books. Data book positioning is significant to likelihood that a buyer will choose a particular component. Eaton is a monopolist in the market for such transmissions. ZF-Meritor entered the market in 1989; otherwise no significant external supplier has entered the market in 20 years. ZF-Meritor sued Eaton, alleging anticompetitive practices embodied in long-term agreements between Eaton and every direct purchaser, including provisions relating to data books. A jury found Sherman Act and Clayton Act violations. The district court reasoned that notwithstanding Eatonβ€˜s above-cost prices, there was sufficient evidence to establish long-term de facto exclusive dealing arrangements, which foreclosed a substantial share of the market and harmed competition. The Third Circuit affirmed. The claims are not subject to the price-cost test, but must be analyzed as de facto exclusive dealing claims under the rule of reason. There was sufficient evidence that Eaton engaged in anticompetitive conduct and of resulting antitrust injury. The court vacated an injunction, finding that plaintiffs lacked standing to pursue injunctive relief.

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PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ______ Nos. 11-3301 and 11-3426 ______ ZF MERITOR, LLC; MERITOR TRANSMISSION CORPORATION, Appellants, No. 11-3426 v. EATON CORPORATION, Appellant, No. 11-3301 ______ On Appeal from the United States District Court for the District of Delaware (D.C. No. 1-06-cv-00623) District Judge: Honorable Sue L. Robinson ______ Argued June 26, 2012 Before: FISHER and GREENBERG, Circuit Judges, and OLIVER,* District Judge. * The Honorable Solomon Oliver, Jr., Chief Judge of the United States District Court for the Northern District of Ohio, sitting by designation. (Filed: September 28, 2012 ) Caeli A. Higney Thomas G. Hungar Theodore B. Olson (Argued) Cynthia E. Richman Geoffrey C. Weien Gibson, Dunn & Crutcher 1050 Connecticut Avenue, N.W., 9th Floor Washington, DC 20036 Erik T. Koons William K. Lavery Joseph A. Ostoyich Baker Botts 1299 Pennsylvania Avenue, N.W. The Warner Washington, DC 20004 Donald E. Reid Morris, Nichols, Arsht & Tunnell 1201 North Market Street P.O. Box 1347 Wilmington, DE 19899 Counsel for Eaton Corporation Jay N. Fastow (Argued) Dickstein Shapiro 1633 Broadway New York, NY 10019 2 Robert B. Holcomb Adams Holcomb 1875 Eye Street. N.W., Suite 810 Washington, DC 20006 Christopher H. Wood 1489 Steele Street, Suite 111 Denver, CO 80206 Counsel for ZF Meritor, LLC and Meritor Transmission Corp. Michael S. Tarringer Cafferty Faucher 1717 Arch Street, Suite 3610 Philadelphia, PA 19103 Counsel for American Antitrust Institute ______ OPINION OF THE COURT ______ FISHER, Circuit Judge. This case arises from an antitrust action brought by ZF Meritor, LLC (―ZF Meritor‖) and Meritor Transmission Corporation (―Meritor‖) (collectively, ―Plaintiffs‖) against Eaton Corporation (―Eaton‖) for allegedly anticompetitive practices in the heavy-duty truck transmissions market. The practices at issue are embodied in long-term agreements 3 between Eaton, the leading supplier of heavy-duty truck transmissions in North America, and every direct purchaser of such transmissions. Following a four-week trial, a jury found that Eaton‘s conduct violated Section 1 and Section 2 of the Sherman Act, and Section 3 of the Clayton Act. Eaton filed a renewed motion for judgment as a matter of law, arguing that its conduct was per se lawful because it priced its products above-cost. The District Court disagreed, reasoning that notwithstanding Eaton‘s above-cost prices, there was sufficient evidence in the record to establish that Eaton engaged in anticompetitive conduct—specifically that Eaton entered into long-term de facto exclusive dealing arrangements—which foreclosed a substantial share of the market and, as a result, harmed competition. We agree with the District Court and will affirm the District Court‘s denial of Eaton‘s renewed motion for judgment as a matter of law. We are also called upon to address several other issues. Although the jury returned a verdict in favor of Plaintiffs on the issue of liability, prior to trial, the District Court granted Eaton‘s motion to exclude the damages testimony of Plaintiffs‘ expert. The District Court also denied Plaintiffs‘ request for permission to amend the expert report to include alternate damages calculations. Consequently, the issue of damages was never tried and no damages were awarded. Plaintiffs cross-appeal from the District Court‘s order granting Eaton‘s motion to exclude and the District Court‘s subsequent denial of Plaintiffs‘ motion for clarification. For the reasons set forth below, we will affirm the District Court‘s orders to the extent that they excluded Plaintiffs‘ expert‘s testimony based on the damages 4 calculations in his initial expert report, but reverse to the extent that the District Court denied Plaintiffs‘ request to amend the report to submit alternate damages calculations. Finally, although the District Court awarded no damages, it did enter injunctive relief against Eaton. On appeal, Eaton argues that Plaintiffs lack standing to seek injunctive relief because they are no longer in the heavy-duty truck transmissions market, and have expressed no concrete desire to re-enter the market. We agree and will vacate the District Court‘s order issuing injunctive relief. I. BACKGROUND A. Factual Background 1. Market Background The parties agree that the relevant market in this case is heavy-duty ―Class 8‖ truck transmissions (―HD transmissions‖) in North America. Heavy-duty trucks include 18-wheeler ―linehaul‖ trucks, which are used to travel long distances on highways, and ―performance‖ vehicles, such as cement mixers, garbage trucks, and dump trucks. There are three types of HD transmissions: three-pedal manual, which uses a clutch to change gears; two-pedal automatic; and twoor-three-pedal automated mechanical, which engages the gears mechanically through electronic controls. Linehaul and performance transmissions, which comprise over 90% of the 5 market, typically use manual or automated mechanical transmissions.1 There are only four direct purchasers of HD transmissions in North America: Freightliner, LLC (―Freightliner‖), International Truck and Engine Corporation (―International‖), PACCAR, Inc. (―PACCAR‖), and Volvo Group (―Volvo‖). These companies are referred to as the Original Equipment Manufacturers (―OEMs‖). The ultimate consumers of HD transmissions, truck buyers, purchase trucks from the OEMs. Truck buyers have the ability to select many of the components used in their trucks, including the transmissions, from OEM catalogues called ―data books.‖ Data books list the alternative component choices, and include a price for each option relative to the ―standard‖ or ―preferred‖ offerings. The ―standard‖ offering is the component that is provided to the customer unless the customer expressly designates another supplier‘s product, while the ―preferred‖ or ―preferentially-priced‖ offering is the lowest priced component in data book among comparable products. Data book positioning is a form of advertising, and standard or preferred positioning generally means that customers are more likely to purchase that supplier‘s components. Although customers may, and sometimes do, request components that are not published in a data book, doing so is often cumbersome and increases the cost of the 1 A third category of heavy-duty trucks, ―specialty‖ vehicles, such as fire trucks, typically use automatic transmissions. 6 component. Thus, data book positioning is essential in the industry. Eaton has long been a monopolist in the market for HD transmissions in North America.2 It began making HD transmissions in the 1950s, and was the only significant manufacturer until Meritor entered the market in 1989 and began offering manual transmissions primarily for linehaul trucks. By 1999, Meritor had obtained approximately 17% of the market for sales of HD transmissions, including 30% for linehaul transmissions. In mid-1999, Meritor and ZF Friedrichshafen (―ZF AG‖), a leading supplier of HD transmissions in Europe, formed the joint venture ZF Meritor, and Meritor transferred its transmissions business into the joint venture.3 Aside from Meritor, and then ZF Meritor, no significant external supplier of HD transmissions has entered the market in the past 20 years.4 One purpose of the ZF Meritor joint venture was to adapt ZF AG‘s two-pedal automated mechanical 2 At trial, Eaton disputed that it was a monopolist, but on appeal, does not challenge the jury‘s finding that it possessed monopoly power in the HD transmissions market in North America. 3 ZF AG is not a party to this lawsuit. 4 ―External‖ transmission sales do not include transmissions manufactured by Volvo Group for use in its own trucks. 7 transmission, ASTronic, which was used exclusively in Europe, for the North American market. The redesign and testing took 18 months, and ZF Meritor introduced the adapted ASTronic model into the North American market in 2001 under the new name FreedomLine. FreedomLine was the first two-pedal automated mechanical transmission to be sold in North America.5 When FreedomLine was released, Eaton projected that automated mechanical transmissions would account for 30-50% of the market for all HD transmission sales by 2004 or 2005. 2. Eaton’s Long-Term Agreements In late 1999 through early 2000, the trucking industry experienced a 40-50% decline in demand for new heavy-duty trucks. Shortly thereafter, Eaton entered into new long-term agreements (―LTAs‖) with each OEM. Although long-term supply contracts were not uncommon in the industry, and were also utilized by Meritor in the 1990s, Eaton‘s new LTAs were unprecedented in terms of their length and coverage of the market. Eaton signed LTAs with every OEM, and each LTA was for a term of at least five years. Although the LTAs‘ terms varied somewhat, the key provisions were similar. Each LTA included a conditional rebate provision, under which an OEM would only receive rebates if it purchased a specified percentage of its 5 Eaton did not produce a two-pedal automated mechanical transmission at the time, and would not fully release one until 2004. 8 requirements from Eaton.6 Eaton‘s LTA with Freightliner, the largest OEM, provided for rebates if Freightliner purchased 92% or more of its requirements from Eaton.7 Under Eaton‘s LTA with International, Eaton agreed to make an up-front payment of $2.5 million, and any additional rebates were conditioned on International purchasing 87% to 97.5% of its requirements from Eaton. The PACCAR LTA provided for an up-front payment of $1 million, and conditioned rebates on PACCAR meeting a 90% to 95% market-share penetration target. Finally, Eaton‘s LTA with Volvo provided for discounts if Volvo reached a market-share penetration level of 70% to 78%.8 The LTAs were not true 6 We will refer to these as ―market-share‖ discounts or ―market-penetration‖ discounts. It is important to distinguish such discounts from quantity or volume discounts. Quantity discounts provide the buyer with a lower price for purchasing a specified minimum quantity or volume from the seller. In contrast, market-share discounts grant the buyer a lower price for taking a specified minimum percentage of its purchases from the seller. Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 768, at 169 (3d ed. 2008). 7 In 2003, Freightliner and Eaton modified the agreement from a fixed 92% goal to a sliding scale, which entitled Freightliner to different rebates at different marketpenetration levels. 8 The share penetration targets in the Volvo LTA were lower because Volvo also manufactured transmissions for use in its own trucks. The commitment to Eaton, plus Volvo‘s 9 requirements contracts because they did not expressly require the OEMs to purchase a specified percentage of their needs from Eaton. However, the Freightliner and Volvo LTAs gave Eaton the right to terminate the agreements if the share penetration goals were not met. Additionally, if an OEM did not meet its market-share penetration target for one year, Eaton could require repayment of all contractual savings. Each LTA also required the OEM to publish Eaton as the standard offering in its data book, and under two of the four LTAs, the OEM was required to remove competitors‘ products from its data book entirely. Freightliner agreed to exclusively publish Eaton transmissions in its data books through 2002, but reserved the right to publish ZF Meritor‘s FreedomLine through the life of the agreement. In 2002, Freightliner and Eaton revised the LTA to allow Freightliner to publish other competitors‘ transmissions, but the revised LTA provided that Eaton had the right to ―renegotiate the rebate schedule‖ if Freightliner chose to publish a competitor‘s transmission. Subsequently, Freightliner agreed to a request by Eaton to remove FreedomLine from all of its data books. Eaton‘s LTA with International also required that International list exclusively Eaton transmissions in its electronic data book. International did, however, publish ZF Meritor‘s manual transmissions in its printed data book. The Volvo and PACCAR LTAs did not require that Eaton products be the exclusive offering, but did require that Eaton products be listed as the preferred offering. Both Volvo and own manufactured products, accounted for more than 85% of Volvo‘s needs. 10 PACCAR continued to list ZF Meritor‘s products in their data books. In the 1990s, Meritor‘s products were listed in all OEM component data books, and in some cases, had preferred positioning. The LTAs also required the OEMs to ―preferential price‖ Eaton transmissions against competitors‘ equivalent transmissions. Eaton claims that it sought preferential pricing to ensure that its low prices were passed on to truck buyers. However, there were no express requirements in the LTAs that savings be passed on to truck buyers (i.e., that Eaton‘s prices be reduced) and there is evidence that the ―preferential pricing‖ was achieved by both lowering the prices of Eaton‘s products and raising the prices of competitors‘ products. Eaton notes that it was ―common‖ for price savings to be passed down to truck buyers, and a Volvo executive testified that some of the savings from Eaton products were passed down while others were kept to improve profit margins. Plaintiffs, however, emphasize that according to an email sent by Eaton to Freightliner, the Freightliner LTA required that ZF Meritor‘s products be priced at a $200 premium over equivalent Eaton products. Likewise, International agreed to an ―artificial[] penal[ty]‖ of $150 on all of ZF Meritor‘s transmissions as of early 2003, and PACCAR imposed a penalty on customers who chose ZF Meritor‘s products. Finally, each LTA contained a ―competitiveness‖ clause, which permitted the OEM to purchase transmissions from another supplier if that supplier offered the OEM a lower price or a better product, the OEM notified Eaton of the competitor‘s offer, and Eaton could not match the price or quality of the product after good faith efforts. The parties 11 dispute the significance of the ―competitiveness‖ clauses. Eaton maintains that Plaintiffs were free to win the OEMs‘ business simply by offering a better product or a lower price, while Plaintiffs argue and presented testimony from OEM officials that, due to Eaton‘s status as a dominant supplier, the competitiveness clauses were effectively meaningless. 3. Competition under the LTAs and Plaintiffs’ Exit from the Market After Eaton entered into its LTAs with the OEMs, ZF Meritor shifted its marketing focus from the OEM level to a strategy targeted at truck buyers. Also during this time period, both ZF Meritor and Eaton experienced quality and performance issues with their transmissions. For example, Eaton‘s Lightning transmission, which was an initial attempt by Eaton to compete with FreedomLine, was ―not perceived as a good [product]‖ and was ultimately taken off the market. ZF Meritor‘s FreedomLine and ―G Platform‖ transmissions required frequent repairs, and in 2002 and 2003, ZF Meritor faced millions of dollars in warranty claims. During the life of the LTAs, the OEMs worked with Eaton to develop a strategy to combat ZF Meritor‘s growth. On Eaton‘s urging, the OEMs imposed additional price penalties on customers that selected ZF Meritor products, ―force fed‖ Eaton products to customers, and sought to persuade truck fleets using ZF Meritor transmissions to shift to Eaton transmissions. At all times relevant to this case, Eaton‘s average prices were lower than Plaintiffs‘ average prices, and on several occasions, Plaintiffs declined to grant price concessions requested by OEMs. Although Eaton‘s 12 prices were generally lower than Plaintiffs‘ prices, Eaton never priced at a level below its costs. By 2003, ZF Meritor determined that it was limited by the LTAs to no more than 8% of the market, far less than the 30% that it had projected at the beginning of the joint venture. ZF Meritor officials concluded that the company could not remain viable with a market share below 10% and therefore decided to dissolve the joint venture. After ZF Meritor‘s departure, Meritor remained a supplier of HD transmissions and became a sales agent for ZF AG to ensure continued customer access to the FreedomLine. However, Meritor‘s market share dropped to 4% by the end of fiscal year 2005, and Meritor exited the business in January 2007. B. Procedural History On October 5, 2006, Plaintiffs filed suit against Eaton in the U.S. District Court for the District of Delaware, alleging that Eaton used unlawful agreements in restraint of trade, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; acted unlawfully to maintain a monopoly, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; and entered into illegal restrictive dealing agreements, in violation of Section 3 of the Clayton Act, 15 U.S.C. § 14. Specifically, Plaintiffs alleged that Eaton ―used its dominant position to induce all heavy duty truck manufacturers to enter into de facto exclusive dealing contracts with Eaton,‖ and that such agreements foreclosed Plaintiffs from over 90% of the market for HD transmission sales. Plaintiffs sought treble damages, pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, and 13 injunctive relief, pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26. On February 17, 2009, Plaintiffs‘ expert, Dr. David DeRamus (―DeRamus‖), submitted a report on both liability and damages. On May 11, 2009, Eaton filed a motion, pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), to exclude DeRamus‘s testimony. The District Court ruled that DeRamus would be allowed to testify regarding liability, but excluded DeRamus‘s testimony on the issue of damages on the basis that his damages opinion failed the reliability requirements of Daubert and the Federal Rules of Evidence. ZF Meritor LLC v. Eaton Corp., 646 F. Supp. 2d 663 (D. Del. 2009). Plaintiffs filed a motion for clarification, requesting that DeRamus be allowed to testify to alternate damages calculations based on other data in his expert report, or in the alternative, seeking permission for DeRamus to amend his expert report to present his alternate damages calculations. The District Court decided to defer resolution of the damages issue and bifurcate the case. The parties proceeded to trial on liability. On October 8, 2009, after a four-week trial, the jury returned a complete verdict for Plaintiffs, finding that Eaton had violated Sections 1 and 2 of the Sherman Act, and Section 3 of the Clayton Act. Following the verdict, Plaintiffs asked the District Court to set a damages trial, but no damages trial was set at that time. On October 30, 2009, Plaintiffs supplemented their earlier motion for clarification, incorporating additional arguments based on developments at trial. 14 On November 3, 2009, Eaton filed a renewed motion for judgment as a matter of law, or in the alternative, for a new trial. Eaton‘s principal argument was that Plaintiffs failed to establish that Eaton engaged in anticompetitive conduct because Plaintiffs did not show, nor did they attempt to show, that Eaton priced its transmissions below its costs. Sixteen months later, on March 10, 2011, the District Court denied Eaton‘s motion, reasoning that Eaton‘s prices were not dispositive, and that there was sufficient evidence for a jury to conclude that Eaton‘s conduct unlawfully foreclosed competition in a substantial portion of the HD transmissions market. ZF Meritor LLC v. Eaton Corp., 769 F. Supp. 2d 684 (D. Del. 2011). On August 4, 2011, the District Court denied Plaintiffs‘ motion for clarification, and denied Plaintiffs‘ request to allow DeRamus to amend his expert report to include alternate damages calculations. The same day, the District Court entered an order awarding Plaintiffs $0 in damages. On August 19, 2011, the District Court entered an injunction prohibiting Eaton from ―linking discounts and other benefits to market penetration targets,‖ but stayed the injunction pending appeal. Eaton filed a timely notice of appeal and Plaintiffs filed a timely cross-appeal. II. JURISDICTION AND STANDARD OF REVIEW The District Court had jurisdiction over this case pursuant to 28 U.S.C. §§ 1331 and 1337. We have appellate jurisdiction under 28 U.S.C. § 1291. 15 We exercise plenary review over an order denying a motion for judgment as a matter of law. LePage’s Inc. v. 3M, 324 F.3d 141, 145 (3d Cir. 2003) (en banc). A motion for judgment as a matter of law should be granted ―only if, viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability.‖ Id. at 145-46 (quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993)). We review questions of law underlying a jury verdict under a plenary standard of review. Id. at 146 (citing Bloom v. Consol. Rail Corp., 41 F.3d 911, 913 (3d Cir. 1994)). Underlying legal questions aside, ―[a] jury verdict will not be overturned unless the record is critically deficient of that quantum of evidence from which a jury could have rationally reached its verdict.‖ Swineford v. Snyder Cnty., 15 F.3d 1258, 1265 (3d Cir. 1994). We review a district court‘s decision to exclude expert testimony for abuse of discretion. Montgomery Cnty. v. Microvote Corp., 320 F.3d 440, 445 (3d Cir. 2003). To the extent the district court‘s decision involved an interpretation of the Federal Rules of Evidence, our review is plenary. Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d Cir. 2000). We also review a district court‘s decisions regarding discovery and case management for abuse of discretion. United States v. Schiff, 602 F.3d 152, 176 (3d Cir. 2010); In re Fine Paper Antitrust Litig., 685 F.2d 810, 817-18 (3d Cir. 1982). We review legal conclusions regarding standing de novo, and the underlying factual determinations for clear 16 error. Interfaith Cmty. Org. v. Honeywell Int’l, Inc., 399 F.3d 248, 253 (3d Cir. 2005). III. DISCUSSION A. Effect of the Price-Cost Test The most significant issue in this case is whether Plaintiffs‘ allegations under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act are subject to the pricecost test or the ―rule of reason‖ applicable to exclusive dealing claims. Under the rule of reason, an exclusive dealing arrangement will be unlawful only if its ―probable effect‖ is to substantially lessen competition in the relevant market. Tampa Elec. Coal Co. v. Nashville Coal Co., 365 U.S. 320, 327-29 (1961); United States v. Dentsply Int’l, 399 F.3d 181, 191 (3d Cir. 2005); Barr Labs., Inc. v. Abbott Labs., 978 F.2d 98, 110 (3d Cir. 1992). In contrast, under the price-cost test, to succeed on a challenge to the defendant‘s pricing practices, a plaintiff must prove ―that the [defendant‘s] prices are below an appropriate measure of [the defendant‘s] costs.‖ Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222 (1993).9 9 Although Plaintiffs brought claims under three statutes (Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act), our analysis regarding the applicability of the price-cost test is the same for all of Plaintiffs‘ claims. In order to establish an actionable antitrust violation, a plaintiff must show both that the defendant engaged in anticompetitive conduct and that the plaintiff suffered 17 antitrust injury as a result. Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339-40 (1990). Because a lack of anticompetitive conduct precludes a finding of antitrust injury, the key question for us is whether Eaton engaged in anticompetitive conduct. See id. at 339 (―Antitrust injury does not arise . . . until a private party is adversely affected by an anticompetitive aspect of the defendant‘s conduct.‖). Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act each include an anticompetitive conduct element, although each statute articulates that element in a slightly different way. Under Section 1 of the Sherman Act, a plaintiff must establish that the defendant was a party to a contract, combination or conspiracy that ―imposed an unreasonable restraint on trade.‖ 15 U.S.C. § 1; In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314-15 (3d Cir. 2010). Under Section 2, a plaintiff must demonstrate that the defendant willfully acquired or maintained its monopoly power in the relevant market. 15 U.S.C. § 2; United States v. Grinnell Corp., 384 U.S. 564, 570-71 (1966). ―A monopolist willfully acquires or maintains monopoly power when it competes on some basis other than the merits.‖ LePage’s Inc. v. 3M, 324 F.3d 141, 147 (3d Cir. 2003) (en banc) (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985)). Finally, Section 3 of the Clayton Act makes it unlawful for a person to enter into an exclusive dealing contract where the effect of such an agreement is to substantially lessen competition or create a monopoly. 15 U.S.C. § 14. 18 Eaton urges us to apply the price-cost test, arguing that Plaintiffs failed to establish that Eaton engaged in anticompetitive conduct or that Plaintiffs suffered an antitrust injury because Plaintiffs did not prove—or even attempt to prove—that Eaton priced its transmissions below an appropriate measure of its costs. We decline to adopt Eaton‘s unduly narrow characterization of this case as a ―pricing practices‖ case, i.e., a case in which price is the clearly predominant mechanism of exclusion. Plaintiffs consistently argued that the LTAs, in their entirety, constituted de facto exclusive dealing contracts, which improperly foreclosed a substantial share of the market, and thereby harmed competition. Accordingly, as we will discuss below, we must evaluate the legality of Eaton‘s conduct under the rule of reason to determine whether the ―probable effect‖ of such conduct was to substantially lessen competition in the HD transmissions market in North America. Tampa Elec., 365 U.S. at 327-29. The price-cost test is not dispositive. 1. Law of Exclusive Dealing Exclusive dealing claims may be brought under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. LePage’s, 324 F.3d at 157. Additionally, the Supreme Court has held that the price-cost test is not confined to any one antitrust statute, and applies to pricing practices claims under the Sherman Act, the Clayton Act, and the Robinson-Patman Act. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-23 (1993); Atl. Richfield, 495 U.S. at 339-40. Thus, regardless of which test applies, that test is applicable to each of Plaintiffs‘ claims. 19 An exclusive dealing arrangement is an agreement in which a buyer agrees to purchase certain goods or services only from a particular seller for a certain period of time. Herbert Hovenkamp, Antitrust Law ¶ 1800a, at 3 (3d ed. 2011). The primary antitrust concern with exclusive dealing arrangements is that they may be used by a monopolist to strengthen its position, which may ultimately harm competition. Dentsply, 399 F.3d at 191. Generally, a prerequisite to any exclusive dealing claim is an agreement to deal exclusively. Tampa Elec., 365 U.S. at 326-27; see Dentsply, 399 F.3d at 193-94; Barr Labs., 978 F.2d at 110 & n.24.10 An express exclusivity requirement, however, is not necessary, LePage’s, 324 F.3d at 157, because we look past the terms of the contract to ascertain the relationship between the parties and the effect of the agreement ―in the real world.‖ Dentsply, 399 F.3d at 191, 194. Thus, de facto exclusive dealing claims are cognizable under the antitrust laws. LePage’s, 324 F.3d at 157. Exclusive dealing agreements are often entered into for entirely procompetitive reasons, and generally pose little threat to competition. Race Tires Am., Inc. v. Hoosier Racing 10 Evidence of an agreement is expressly required under Section 1 of the Sherman Act and Section 3 of the Clayton Act. See 15 U.S.C. §§ 1 and 14. However, an agreement is not necessarily required under Section 2 of the Sherman Act, which can provide a vehicle for challenging a dominant firm‘s unilateral imposition of exclusive dealing on customers. See 15 U.S.C. § 2; Herbert Hovenkamp, Antitrust Law ¶ 1821a, at 183 (3d ed. 2011). 20 Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010) (―[I]t is widely recognized that in many circumstances, [exclusive dealing arrangements] may be highly efficient—to assure supply, price stability, outlets, investment, best efforts or the like— and pose no competitive threat at all.‖) (quoting E. Food Servs. v. Pontifical Catholic Univ. Servs. Ass’n, 357 F.3d 1, 8 (1st Cir. 2004)). For example, ―[i]n the case of the buyer, they may assure supply, afford protection against rises in price, enable long-term planning on the basis of known costs, and obviate the expense and risk of storage in the quantity necessary for a commodity having a fluctuating demand.‖ Standard Oil Co. v. United States, 337 U.S. 293, 306 (1949). From the seller‘s perspective, an exclusive dealing arrangement with customers may reduce expenses, provide protection against price fluctuations, and offer the possibility of a predictable market. Id. at 306-07; see also Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 n.17 (8th Cir. 1987) (explaining that exclusive dealing contracts can help prevent dealer free-riding on manufacturer-supplied investments to promote rival‘s products). As such, competition to be an exclusive supplier may constitute ―a vital form of rivalry,‖ which the antitrust laws should encourage. Race Tires, 614 F.3d at 83 (quoting Menasha Corp. v. News Am. Mktg. InStore, Inc., 354 F.3d 661, 663 (7th Cir. 2004)). However, ―[e]xclusive dealing can have adverse economic consequences by allowing one supplier of goods or services unreasonably to deprive other suppliers of a market for their goods[.]‖ Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 45 (1984) (O‘Connor, J., concurring), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. 21 Ink, Inc., 547 U.S. 28 (2006); Barry Wright, 724 F.2d at 236 (explaining that ―under certain circumstances[,] foreclosure might discourage sellers from entering, or seeking to sell in, a market at all, thereby reducing the amount of competition that would otherwise be available‖). Exclusive dealing arrangements are of special concern when imposed by a monopolist. See Dentsply, 399 F.3d at 187 (―Behavior that otherwise might comply with antitrust law may be impermissibly exclusionary when practiced by a monopolist.‖). For example: [S]uppose an established manufacturer has long held a dominant position but is starting to lose market share to an aggressive young rival. A set of strategically planned exclusive-dealing contracts may slow the rival‘s expansion by requiring it to develop alternative outlets for its product, or rely at least temporarily on inferior or more expensive outlets. Consumer injury results from the delay that the dominant firm imposes on the smaller rival‘s growth. Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1802c, at 64 (2d ed. 2002). In some cases, a dominant firm may be able to foreclose rival suppliers from a large enough portion of the market to deprive such rivals of the opportunity to achieve the minimum economies of scale necessary to compete. Id.; see LePage’s, 324 F.3d at 159. Due to the potentially procompetitive benefits of exclusive dealing agreements, their legality is judged under the rule of reason. Tampa Elec., 365 U.S. at 327. The 22 legality of an exclusive dealing arrangement depends on whether it will foreclose competition in such a substantial share of the relevant market so as to adversely affect competition. Id. at 328; Barr Labs., 978 F.2d at 110. In conducting this analysis, courts consider not only the percentage of the market foreclosed, but also take into account ―the restrictiveness and the economic usefulness of the challenged practice in relation to the business factors extant in the market.‖ Barr Labs., 978 F.2d at 110-11 (quoting Am. Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1251-52 n.75 (3d Cir. 1975)). As the Supreme Court has explained: [I]t is necessary to weigh the probable effect of the contract on the relevant area of effective competition, taking into account the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area, and the probable immediate and future effects which pre-emption of that share of the market might have on effective competition therein. Tampa Elec., 365 U.S. at 329. In other words, an exclusive dealing arrangement is unlawful only if the ―probable effect‖ of the arrangement is to substantially lessen competition, rather than merely disadvantage rivals. Id.; Dentsply, 399 F.3d at 191 (―The test [for determining anticompetitive effect] is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market‘s ambit.‖). 23 There is no set formula for evaluating the legality of an exclusive dealing agreement, but modern antitrust law generally requires a showing of significant market power by the defendant, Tampa Elec., 365 U.S. at 329; Race Tires, 614 F.3d at 74-75; LePage’s, 324 F.3d at 158, substantial foreclosure, Tampa Elec., 365 U.S. at 327-28; United States v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001), contracts of sufficient duration to prevent meaningful competition by rivals, CDC Techs., Inc. v. IDEXX Labs., Inc., 186 F.3d 74, 81 (2d Cir. 1999); Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1163 (9th Cir. 1997), and an analysis of likely or actual anticompetitive effects considered in light of any procompetitive effects, Race Tires, 614 F.3d at 75; Dentsply, 399 F.3d at 194; Barr Labs., 978 F.2d at 111. Courts will also consider whether there is evidence that the dominant firm engaged in coercive behavior, Race Tires, 614 F.3d at 77; SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1062 (3d Cir. 1978), and the ability of customers to terminate the agreements, Dentsply, 399 F.3d at 193-94. The use of exclusive dealing by competitors of the defendant is also sometimes considered. Standard Oil, 337 U.S. at 309, 314; NicSand, Inc. v. 3M Co., 507 F.3d 442, 454 (6th Cir. 2007). 2. Brooke Group and the Price-Cost test We turn now to some fundamental principles regarding predatory pricing claims and the price-cost test. ―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.‖ Cargill, Inc. v. Monfort of Colo., 479 U.S. 104, 117 (1986); 24 see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 584 n.8 (1986); Advo, Inc. v. Phila. Newspapers, Inc., 51 F.3d 1191, 1198 (3d Cir. 1995). The Supreme Court has expressed deep skepticism of predatory pricing claims. See Cargill, 479 U.S. at 121 n.17 (―Although the commentators disagree as to whether it is ever rational for a firm to engage in such conduct, it is plain that the obstacles to the successful execution of a strategy of predation are manifold, and that the disincentives to engage in such a strategy are accordingly numerous.‖) (citations omitted); Matsushita, 475 U.S. at 589 (―[P]redatory pricing schemes are rarely tried, and even more rarely successful.‖) (citations omitted). In the typical predatory pricing scheme, a firm reduces the sale price of its product to below-cost, intending to drive competitors out of the business. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318 (2007). Then, once competitors have been eliminated, the firm raises its prices to supracompetitive levels. Id. For such a scheme to make economic sense, the firm must recoup the losses suffered during the below-cost phase in the supracompetitive phase. Id.; see Matsushita, 475 U.S. at 589 (explaining that success under such a scheme is ―inherently uncertain‖ because the firm must sustain definite short-term losses, but the long-run gain depends on successfully eliminating competition). In Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. at 222-24, the Supreme Court fashioned a two-part test that reflected this ―economic reality.‖ Weyerhaeuser, 549 U.S. at 318. The Court held that, to succeed on a predatory pricing claim, the plaintiff must 25 prove: (1) ―that the prices complained of are below an appropriate measure of [the defendant‘s] costs‖; and (2) that the defendant had ―a dangerous probability . . . of recouping its investment in below-cost prices.‖ Brooke Grp., 509 U.S. at 222-24 (citations omitted). We are concerned only with the first requirement, which has become known as the price-cost test. In adopting the price-cost test, the Court rejected the notion that above-cost prices that are below general market levels or below the costs of a firm‘s competitors are actionable under the antitrust laws. Id. at 223. ―Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels [i.e., above-cost], they do not threaten competition.‖ Id. (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 340 (1990)). Low, but above-cost, prices are generally procompetitive because ―the exclusionary effect of prices above a relevant measure of cost [generally] reflects the lower cost structure of the alleged predator, and so represents competition on the merits[.]‖ Id.; see Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (―The antitrust laws . . . were enacted for ‗the protection of competition, not competitors.‘‖) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). The Court acknowledged that there may be situations in which above-cost prices are anticompetitive, but stated that it ―is beyond the practical ability of a judicial tribunal‖ to ascertain whether above-cost pricing is anticompetitive ―without courting intolerable risks of chilling legitimate price-cutting.‖ Brooke Grp., 509 U.S. at 223 (citing Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶¶ 714.2, 714.3 (Supp. 2002)). ―To hold that the antitrust laws protect competitors from the loss of profits due to [above-cost] price competition 26 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.‖ Id. (quoting Cargill, 479 U.S. at 116). Significantly, because ―[c]utting prices in order to increase business often is the very essence of competition . . . , [i]n cases seeking to impose antitrust liability for prices that are too low, mistaken inferences are ‗especially costly, because they chill the very conduct that antitrust laws are designed to protect.‘‖ Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438, 451 (2009) (quoting Matsushita, 475 U.S. at 594) (additional citations omitted). 3. Effect of the Price-Cost Test on Plaintiffs’ Exclusive Dealing Claims Eaton argues that principles from the predatory pricing case law apply in this case because Plaintiffs‘ claims are, at their core, no more than objections to Eaton offering prices, through its rebate program, which Plaintiffs were unable to match. Eaton contends that Plaintiffs have identified nothing, other than Eaton‘s pricing practices, that incentivized the OEMs to enter into the LTAs, and because price was the incentive, we must apply the price-cost test. We acknowledge that even if a plaintiff frames its claim as one of exclusive dealing, the price-cost test may be dispositive. Implicit in the Supreme Court‘s creation of the price-cost test was a balancing of the procompetitive justifications of abovecost pricing against its anticompetitive effects (as well as the anticompetitive effects of allowing judicial inquiry into above-cost pricing), and a conclusion that the balance always tips in favor of allowing above-cost pricing practices to stand. See linkLine, 555 U.S. at 451; Brooke Grp., 509 U.S. at 223. 27 Thus, in the context of exclusive dealing, the price-cost test may be utilized as a specific application of the ―rule of reason‖ when the plaintiff alleges that price is the vehicle of exclusion. See, e.g., Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1060-63 (8th Cir. 2000). Here, Eaton argues that the price-cost test is dispositive, and therefore that Plaintiffs‘ claims must fail because Plaintiffs failed to show that the market-share rebates offered by Eaton pursuant to the LTAs resulted in below-cost prices. We do not disagree that predatory pricing principles, including the price-cost test, would control if this case presented solely a challenge to Eaton‘s pricing practices.11 11 Despite the arguments of amicus curiae, the American Antitrust Institute, our decision in LePage’s v. 3M does not indicate otherwise. In LePage’s, we declined to apply the price-cost test to a challenge to a bundled rebate scheme, reasoning that such a scheme was better analogized to unlawful tying than to predatory pricing. See 324 F.3d at 155. In that case, the plaintiff (LePage‘s) was the market leader in sales of ―private label‖ (store brand) transparent tape. Id. at 144. As LePage‘s market share fell, it brought suit against 3M, alleging that 3M, which manufactured Scotch tape, some private label tape, and a number of other products, leveraged its monopoly power over Scotch brand tape and other products to monopolize the private label tape market. Id. at 145. Specifically, LePage‘s challenged 3M‘s multi-tiered bundled rebate program, which offered progressively higher rebates when customers increased purchases across 3M‘s different product lines. Id. The rebate 28 programs also set customer-specific target growth rates. Id. at 154. The sizes of the rebates were linked to the number of product lines in which the targets were met; if a customer failed to meet the target for any one product, it would lose the rebates across all product lines. Id. LePage‘s could not offer these discounts because it did not sell the same diverse array of products as 3M. Id. at 155. Relying on Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), 3M argued that its bundled rebate program was lawful because the rebates never resulted in below-cost pricing. We disagreed, reasoning that the principal anticompetitive effect of 3M‘s bundled rebates was analogous to an unlawful tying arrangement: when offered by a monopolist, the rebates ―may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products and who therefore cannot make a comparable offer.‖ LePage’s, 324 at 155. For several reasons, we interpret LePage’s narrowly. Most important, in light of the analogy drawn in LePage’s between bundled rebates and unlawful tying, which ―cannot exist unless two separate product markets have been linked,‖ Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 21 (1984), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006), LePage’s is inapplicable where, as here, only one product is at issue and the plaintiffs have not made any allegations of bundling or tying. The reasoning of LePage’s is limited to cases in which a singleproduct producer is excluded through a bundled rebate 29 program offered by a producer of multiple products, which conditions the rebates on purchases across multiple different product lines. Accordingly, we join our sister circuits in holding that the price-cost test applies to market-share or volume rebates offered by suppliers within a single-product market. See NicSand, Inc. v. 3M Co., 507 F.3d 442, 452 (6th Cir. 2007); Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1061 (8th Cir. 2000); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983). Additionally, several of the bases on which we distinguished Brooke Group have been undermined by intervening Supreme Court precedent, which counsels caution in extending LePage’s. For example, we indicated in LePage’s, 324 F.3d at 151, that Brooke Group might be confined to the Robinson-Patman Act, but the Supreme Court has made clear that the standard adopted in Brooke Group also applies to predatory pricing claims under the Sherman Act. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318 n.1 (2007). Additionally, LePage’s, 324 F.3d at 151-52, suggested that Brooke Group is not applicable in cases involving monopolists, but the Supreme Court has since applied Brooke Group‘s price-cost test to claims against a monopolist, Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438, 447-48 (2009), and a monopsonist, Weyerhaeuser, 549 U.S. at 320-25. Finally, we observed in LePage’s that, in the years following Brooke Group, the Supreme Court had only cited the case four times (and for unrelated propositions), but since LePage’s, the Court has reaffirmed and extended Brooke Group. See 30 The lesson of the predatory pricing case law is that, generally, above-cost prices are not anticompetitive, and although there may be rare cases where above-cost prices are anticompetitive in the long run, it is ―beyond the practical ability‖ of courts to identify those rare cases without creating an impermissibly high risk of deterring legitimate procompetitive behavior (i.e., price-cutting). linkLine, 555 U.S. at 452; Weyerhaeuser, 549 U.S. at 318-19; Brooke Grp., 509 U.S. at 223. These principles extend to above-cost discounting or rebate programs, which condition the discounts or rebates on the customer‘s purchasing of a specified volume or a specified percentage of its requirements from the seller. See NicSand, 507 F.3d at 451-52 (applying price-cost test to a challenge to up-front payments offered by a supplier to several large retailers on the basis that such payments were ―nothing more than ‗price reductions offered to the buyers for the exclusive right to supply a set of stores under multi-year contracts‘‖); Concord Boat, 207 F.3d at 1060-63 (applying price-cost test to volume discounts and market-share discounts offered by a manufacturer); Barry Wright, 724 F.2d at 232 (applying the price-cost test to uphold discounts linked to a requirements contract); see also linkLine, 555 U.S. at 447-48; Weyerhaeuser, 549 U.S. at 325. In doing so, the Court emphasized the importance of Brooke Group in light of ―developments in economic theory and antitrust jurisprudence,‖ and downplayed the significance of seemingly inconsistent circuit court antitrust precedent from the 1950s and 1960s, some of which we referenced in LePage’s. See linkLine, 555 U.S. at 452 n.3. 31 Race Tires, 614 F.3d at 79 (―[I]t is no more an act of coercion, collusion, or [other anticompetitive conduct] for [a supplier] . . . to offer more money to [a customer] than it is for such [a] supplier[] to offer the lowest . . . prices.‖). Moreover, a plaintiff‘s characterization of its claim as an exclusive dealing claim does not take the price-cost test off the table. Indeed, contracts in which discounts are linked to purchase (volume or market share) targets are frequently challenged as de facto exclusive dealing arrangements on the grounds that the discounts induce customers to deal exclusively with the firm offering the rebates. Hovenkamp ¶ 1807a, at 132. However, when price is the clearly predominant mechanism of exclusion, the price-cost test tells us that, so long as the price is above-cost, the procompetitive justifications for, and the benefits of, lowering prices far outweigh any potential anticompetitive effects. See Brooke Grp., 509 U.S. at 223; Concord Boat, 207 F.3d at 1062 (noting that there is always a legitimate business justification for lowering prices: attempting to attract additional business). In each of the cases relied upon by Eaton, the Supreme Court applied the price-cost test, regardless of the way in which the plaintiff cast its grievance, because pricing itself operated as the exclusionary tool. For example, in Cargill, Inc. v. Monfort of Colorado, Inc., the plaintiff argued that a proposed merger between vertically integrated firms violated Section 7 of the Clayton Act because the result of the merger would have been to substantially lessen competition or create a monopoly. 479 U.S. at 114. The plaintiff offered, as a theory of antitrust injury, that it faced a threat of lost profits stemming from the possibility that the defendant, after the 32 merger, would lower its prices to a level at or above-cost. Id. at 114-15. The plaintiff claimed that it would have to respond by lowering its prices, which would cause it to suffer a loss in profitability. Id. at 115. The Supreme Court held that such a theory did not present a cognizable antitrust injury, reasoning that ―the antitrust laws do not require the courts to protect small businesses from the loss of profits due to continued [above-cost] competition.‖ Id. at 116. Atlantic Richfield Co. v. USA Petroleum Co. involved an allegation that a vertical price-fixing agreement was unlawful under Section 1 of the Sherman Act. 495 U.S. at 331. In that case, the plaintiff was an independent retail marketer of gasoline, which bought gasoline from major petroleum companies for resale under its own name. Id. The defendant was an integrated oil company, which sold directly to consumers through its own stations, and sold indirectly through brand dealers. Id. Facing competition from independent marketers like the plaintiff, the defendant adopted a new marketing strategy, under which it encouraged its dealers to match the retail prices offered by independents by offering discounts and reducing the dealers‘ costs. Id. at 331-32. The plaintiff brought suit under the Sherman Act, alleging that the defendant conspired with its dealers to sell gasoline at below-market levels. Id. at 332. The district court granted summary judgment for the defendant on the basis that the plaintiff had not shown that the defendant engaged in predatory pricing, and thus had not shown any antitrust injury. Id. at 333. The U.S. Court of Appeals for the Ninth Circuit reversed, USA Petroleum Co. v. Atl. Richfield Co., 859 F.2d 687, 693 (9th Cir. 1988), reasoning that a showing 33 of predatory pricing was not necessary to establish antitrust injury; rather, the antitrust laws were designed to ensure that market forces alone determine what goods and services are offered, and at what price they are sold, and thus, an antitrust injury could result from a disruption in the market. The Supreme Court disagreed, explaining that where a firm (or a group of firms) lowers prices pursuant to a vertical agreement, but maintains those prices above predatory levels, any business lost by rivals cannot be viewed as an anticompetitive consequence of the agreement. Atl. Richfield, 495 U.S. at 337. ―A firm complaining about the harm it suffers from nonpredatory price competition is really claiming that it is unable to raise prices.‖ Id. at 337-38. In Brooke Group, the plaintiff and the defendant were competitors in the cigarette market in the early 1980s. 509 U.S. at 212. At that time, demand for cigarettes in the United States was declining and the plaintiff, once a major force in the industry, had seen its market share drop to 2%. Id. at 214. In response, the plaintiff developed a line of generic cigarettes, which were significantly cheaper than branded cigarettes. Id. The plaintiff promoted the generic cigarettes at the wholesale level by offering rebates that increased with the volume of cigarettes ordered. Id. Losing volume and profits on its branded products, the defendant entered the generic cigarette market. Id. at 215. At the retail level, the suggested price of the defendant‘s generic cigarettes was the same as that of the plaintiff‘s cigarettes, but the defendant‘s volume discounts to wholesalers were larger. Id. The plaintiff responded by increasing its wholesale rebates, and a price war ensued. Id. at 216. Subsequently, the plaintiff filed 34 a complaint against the defendant under the Robinson-Patman Act, 15 U.S.C. § 13(a), alleging that the defendant‘s volume rebates amounted to unlawful price discrimination. Id. The plaintiff explained that it would have been unable to reduce its wholesale rebates without losing substantial market share. Id. Accordingly, because the ―essence‖ of the plaintiff‘s claim was that its ―rival ha[d] priced its products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market,‖ the plaintiff had an obligation to show that the defendant‘s prices were below its costs. Id. at 222. Here, in contrast to Cargill, Atlantic Richfield, and Brooke Group, Plaintiffs did not rely solely on the exclusionary effect of Eaton‘s prices, and instead highlighted a number of anticompetitive provisions in the LTAs. Plaintiffs alleged that Eaton used its position as a supplier of necessary products to persuade OEMs to enter into agreements imposing de facto purchase requirements of roughly 90% for at least five years, and that Eaton worked in concert with the OEMs to block customer access to Plaintiffs‘ products, thereby ensuring that Plaintiffs would be unable to build enough market share to pose any threat to Eaton‘s monopoly. Therefore, because price itself was not the clearly predominant mechanism of exclusion, the price-cost test cases are inapposite, and the rule of reason is the proper framework within which to evaluate Plaintiffs‘ claims. We recognize that Eaton‘s rebates were part of Plaintiffs‘ case. DeRamus testified about the exclusionary effect of the rebates, OEM officials testified that Eaton offered lower prices, and Plaintiffs‘ counsel stated in oral 35 argument that part of the reason ZF Meritor could not increase sales above a certain level was that ―the OEMs were trying to hit those [share-penetration] targets to get their money from Eaton.‖ Eaton‘s post-rebate prices were attractive to the OEMs, and Eaton‘s low prices may, in fact, have been an inducement for the OEMs to enter into the LTAs. That fact is not irrelevant, as it may help explain why the OEMs agreed to otherwise unfavorable terms and it may help to rebut an argument that the agreements were inefficient. Hovenkamp ¶ 1807b, at 134. However, contrary to Eaton‘s assertions, that fact is not dispositive. Plaintiffs presented considerable evidence that Eaton was a monopolist in the industry and that it wielded its monopoly power to effectively force every direct purchaser of HD transmissions to enter into restrictive long-term agreements, despite the inclusion in such agreements of terms unfavorable to the OEMs and their customers. Significantly, there was considerable testimony that the OEMs did not want to remove ZF Meritor‘s transmissions from their data books, but that they were essentially forced to do so or risk financial penalties or supply shortages. Several OEM officials testified that exclusive data book listing was not a common practice in the industry and, in fact, it was probably detrimental to customers. An email between Freightliner employees stated: ―From a customer perspective, publishing [ZF Meritor‘s] product is probably the right thing to do and [it] should never have been taken out of the book. It is a good product with considerable demand in the marketplace.‖ The email went on to conclude, however, that including ZF Meritor‘s products would not be ―prudent‖ because it would jeopardize 36 Freightliner‘s relationship with Eaton. Eaton itself even acknowledged that the OEMs were dissatisfied. Internal Eaton correspondence reveals that PACCAR complained that the LTAs were preventing it from promoting a competitive product (FreedomLine), which was being demanded by truck buyers. In fact, PACCAR felt that Eaton was holding it ―hostage.‖ Plaintiffs also introduced evidence that not only were the rebates conditioned on the OEMs meeting the market penetration targets, but so too was Eaton‘s continued compliance with the agreements. As one OEM executive testified, if the market penetration targets were not met, the OEMs ―would have a big risk of cancellation of the contract, price increases, and shortages if the market [was] difficult.‖ Eaton was a monopolist in the HD transmissions market, and even if an OEM decided to forgo the rebates and purchase a significant portion of its requirements from another supplier, there would still have been a significant demand from truck buyers for Eaton products. Therefore, losing Eaton as a supplier was not an option. Accordingly, this is not a case in which the defendant‘s low price was the clear driving force behind the customer‘s compliance with purchase targets, and the customers were free to walk away if a competitor offered a better price. Compare Concord Boat, 207 F.3d at 1063 (in deciding to apply price-cost test, noting that customers were free to walk away at any time and did so when the defendant‘s competitors offered better discounts), with Dentsply, 399 F.3d at 189-96 (applying exclusive dealing analysis where the defendant threatened to refuse to continue 37 dealing with customers if customers purchased rival‘s products, and no customer could stay in business without the defendant‘s products). Rather, Plaintiffs introduced evidence that compliance with the market penetration targets was mandatory because failing to meet such targets would jeopardize the OEMs‘ relationships with the dominant manufacturer of transmissions in the market. See Dentsply, 399 F.3d at 194 (noting that ―[t]he paltry penetration in the market by competitors over the years has been a refutation of‖ the theory that a competitor could steal the defendant‘s customers by offering a better deal or a lower price ―by tangible and measurable results in the real world‖); id. at 195 (explaining that an exclusivity policy imposed by a dominant firm is especially troubling where it presents customers with an ―all-or-nothing‖ choice). Although the Supreme Court has created a safe harbor for above-cost discounting, it has not established a per se rule of non-liability under the antitrust laws for all contractual practices that involve above-cost pricing. See Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 901 (9th Cir. 2007) (stating that the Supreme Court‘s predatory pricing decisions have not ―go[ne] so far as to hold that in every case in which a plaintiff challenges low prices as exclusionary conduct[,] the plaintiff must prove that those prices were below cost‖). Nothing in the case law suggests, nor would it be sound policy to hold, that above-cost prices render an otherwise unlawful exclusive dealing agreement lawful. We decline to impose such an unduly simplistic and mechanical rule because to do so would place a significant portion of 38 anticompetitive conduct outside the reach of the antitrust laws without adequate justification. ―[T]he means of illicit exclusion, like the means of legitimate competition, are myriad.‖ Microsoft, 253 F.3d at 58; LePage’s, 324 F.3d at 152 (―‗Anticompetitive conduct‘ can come in too many different forms, and is too dependent on context, for any court or commentator ever to have enumerated all the varieties.‖) (quoting Caribbean Broad Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087 (D.C. Cir. 1998)). The law has long recognized forms of exclusionary conduct that do not involve below-cost pricing, including unlawful tying, Jefferson Parish, 446 U.S. at 21; Standard Oil, 337 U.S. at 305-06, enforcement of a legal monopoly provided by a patent procured through fraud, LePage’s, 324 F.3d at 152 (citing Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965)), refusal to deal, Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601-02 (1985); Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), exclusive dealing, Tampa Electric, 365 U.S. at 327; Dentsply, 399 F.3d at 184, and other unfair tortious conduct targeting competitors, Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002); Int’l Travel Arrangers, Inc. v. Western Airlines, Inc., 623 F.2d 1255 (8th Cir. 1980). Despite Eaton‘s arguments to the contrary, we find nothing in the Supreme Court‘s recent predatory pricing decisions to indicate that the Court intended to overturn decades of other precedent holding that conduct that does not result in below-cost pricing may nevertheless be anticompetitive. Rather, as we explained above, Brooke 39 Group and the cases preceding it each involved an allegation