NicSand, Inc. v. 3M Company ( 2007 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 07a0424p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellant, -
NICSAND, INC.,
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No. 05-3431
v.
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3M COMPANY, -
Defendant-Appellee. -
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Appeal from the United States District Court
for the Northern District of Ohio at Cleveland.
No. 03-02619—Ann Aldrich, District Judge.
Argued: March 7, 2007
Decided and Filed: October 17, 2007
Before: BOGGS, Chief Judge; MARTIN, SILER, BATCHELDER, DAUGHTREY, COLE,
CLAY, GILMAN, GIBBONS, ROGERS, SUTTON,* COOK, McKEAGUE, and GRIFFIN,
Circuit Judges.
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COUNSEL
ARGUED: Dennis E. Murray, Jr., MURRAY & MURRAY CO., L.P.A., Sandusky, Ohio, for
Appellant. Dean Ringel, CAHILL, GORDON & REINDEL, New York, New York, for Appellee.
ON BRIEF: Dennis E. Murray, Jr., MURRAY & MURRAY CO., L.P.A., Sandusky, Ohio, for
Appellant. Dean Ringel, CAHILL, GORDON & REINDEL, New York, New York, James P.
Murphy, SQUIRE, SANDERS & DEMPSEY, Washington, D.C., J. Philip Calabrese, SQUIRE,
SANDERS & DEMPSEY, Cleveland, Ohio, for Appellee.
SUTTON, J., delivered the opinion of the court, in which BOGGS, C. J., SILER,
BATCHELDER, GILMAN, GIBBONS, ROGERS, COOK, McKEAGUE, and GRIFFIN, JJ.,
joined. MARTIN, J. (pp. 13-22), delivered a separate dissenting opinion, in which DAUGHTREY,
COLE, and CLAY, JJ., joined.
*
The Honorable Karen Nelson Moore, Circuit Judge, took no part in the consideration or decision of the case.
1
No. 05-3431 NicSand, Inc. v. 3M Company Page 2
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OPINION
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SUTTON, Circuit Judge. Between 1987 and 2001, NicSand and 3M were the only
nationwide suppliers in the market for do-it-yourself automotive sandpaper, and they competed for
the business of six large retailers, which controlled 80% of the market and which (with one
exception) offered their shelf space on an exclusive basis for a year at a time. NicSand developed
this niche market and eventually gained a 67% share of it. Between 1997 and 2001, however, it lost
most of the market when 3M offered the large retailers greater up-front discounts and longer
exclusive agreements than NicSand had offered in the past or apparently was willing to offer in the
future.
When NicSand filed an antitrust lawsuit to complain about 3M’s conduct, the district court
dismissed the complaint for lack of antitrust standing and, more particularly, for lack of a cognizable
antitrust injury. Because 3M did not engage in below-cost—or predatory—pricing, because five of
the six large retailers demanded exclusivity as a precondition for doing business, because the
allegations show no more than that 3M competed with its rival on the same essential terms that
NicSand and the large retailers had already established for this market and because the antitrust laws
in the end protect competition, not competitors, we affirm.
I.
This case comes to us as an appeal from a Rule 12(b)(6) dismissal. We thus look to
NicSand’s allegations in the complaint (in truth, the first amended complaint) to determine the
details of the dispute—who the parties are, how the market for do-it-yourself automotive sandpaper
works and how the parties competed with each other.
The parties. NicSand is an Ohio corporation based in Berea, Ohio, and has been in business
since 1982. It makes a variety of products for automotive body repair, including automotive
sandpaper (technically speaking, coated abrasives), which consumers use before, during or after
painting a car or truck. Sales of automotive sandpaper accounted for one-half of NicSand’s revenue
in 1996. 3M is a Delaware corporation based in Maplewood, Minnesota. In addition to making a
variety of other products, 3M produces automotive sandpaper.
The market for do-it-yourself automotive sandpaper. NicSand “largely developed” the
market for do-it-yourself automotive sandpaper, increasing the number of products offered in the
market from 20 in 1987 to 80 in 2000. Am. Compl. ¶ 10. The development of the market, NicSand
claims, was “fueled primarily by [its] superior marketing, superior packaging, innovation, and
superior value.” Id. ¶ 11.
Between 1987 and 2000, just two companies supplied automotive sandpaper (and related
products) in the national market: NicSand and 3M. As of 1995, NicSand was the dominant player,
holding a 67% share of the market.
NicSand and 3M did not sell their automotive sandpaper products directly to consumers; they
instead relied on retailers to distribute the products through a “highly concentrated” retail market.
Id. ¶ 14. In 1997, just six large retailers—Advance Auto Parts, AutoZone, CSK Auto, Kmart, Pep
Boys, Wal-Mart—controlled 80% of the retail market, while smaller retailers divided up the
remaining 20% of the market.
Perhaps due to the relatively “small value” of the market, five of the six large retailers sold
just one brand of the product at a time, meaning they permitted NicSand or 3M, but not both, to sell
No. 05-3431 NicSand, Inc. v. 3M Company Page 3
its products at the stores. Id. ¶ 62. “In order to simplify planning and reduce costs,” the large
retailers also re-negotiated these single-brand agreements just once a year, giving the supplier a
year-long “de facto exclusive agreement” with each retailer. Id. ¶ 25. In order to replace an existing
supplier of automotive sandpaper, a new supplier not only had to offer favorable prices but also had
to (1) produce a full line of do-it-yourself automotive sandpaper, (2) provide racks and other display
equipment for the retailer, (3) provide a discount on the retailer’s first order and (4) purchase the
retailer’s existing supply of the sandpaper. Because the large retailers typically restocked the full
line of sandpaper products five to seven times a year, buying out a retailer’s existing supply of the
sandpaper could cost a supplier up to 14% to 20% of its annual revenues from that retailer.
NicSand complied with these requirements in seeking to obtain the large retailers’ business,
and by every measure it succeeded. By 1996, it was the exclusive supplier for four of the large
retailers: Kmart, Advance Auto, CSK Auto and AutoZone. And along with 3M it supplied Pep
Boys, the one large retailer that did not insist on an exclusive agreement.
3M was the sole supplier of the sixth large retailer—Wal-Mart. NicSand did not—and could
not—compete for this business, because Wal-Mart sought a single supplier that could meet all of
its sandpaper needs, which included providing two products that NicSand did not make: sandpaper
for Wal-Mart’s power tool and paint departments.
NicSand made substantial profits on its exclusive-sales agreements with four of the six large
retailers. In 1996, NicSand’s annual sales to Kmart totaled $475,000 with profit margins of 38%.
In 1997, its sales to Advance Auto totaled $550,000 with margins of 49%, and its sales to CSK Auto
totaled $369,000 with margins of 44%. In 1999, its sales to AutoZone totaled $2,200,000 with
margins of 39%.
Competition between the two companies from 1997 through 2001. According to NicSand,
3M sought to monopolize the market for do-it-yourself automotive sandpaper beginning in 1997.
To that end, 3M offered Kmart $300,000 in 1997 as an incentive to switch suppliers and to enter into
an “explicit or sub rosa” exclusive-dealing agreement for “several years.” Id. ¶ 23. Kmart accepted
3M’s offer and told NicSand that it would not review price quotes from NicSand for a “few years.”
Id. ¶ 26 (emphasis omitted).
One year later, 3M did the same thing with Advance Auto and CSK Auto, offering the one
$285,000 and the other $200,000 to switch suppliers and to enter into “multi-year” exclusive-dealing
agreements. Id. ¶¶ 30, 32. Advance Auto and CSK Auto accepted 3M’s offers and refused to
discuss switching suppliers with NicSand “for at least a few years.” Id. ¶ 37.
Two years later, in 2000, 3M offered a similar deal to AutoZone, which long had been
NicSand’s largest customer. 3M offered AutoZone $1,000,000 to switch suppliers and to enter a
“multi-year” exclusive-dealing agreement. Id. AutoZone accepted the offer. When contacted by
NicSand, AutoZone refused to discuss switching back to NicSand as a supplier “for at least a few
years.” Id.
By 2001, NicSand’s only remaining customers were Pep Boys (which sold NicSand and 3M
products) and several smaller retailers. With a significant drop in its sales volume, NicSand lost its
economies of scale; its “raw material costs increased dramatically,” id. ¶ 41; and it could no longer
“fill existing orders at an appropriate cost,” id. ¶ 60. Because NicSand could “no
longer . . . compete,” it left the market for do-it-yourself automotive sandpaper in 2001 and sought
to reorganize under Chapter 11 of the Bankruptcy Code. Id. ¶ 41. Since leaving the market,
NicSand alleges that retailers (though it makes no allegations about suppliers like 3M) have raised
consumer prices for do-it-yourself automotive sandpaper by as much as 70%.
No. 05-3431 NicSand, Inc. v. 3M Company Page 4
The complaint. On December 30, 2003, NicSand filed this lawsuit under § 4 of the Clayton
Act, claiming that 3M had monopolized, or attempted to monopolize, the market for automotive
sandpaper in violation of § 2 of the Sherman Act. See 15 U.S.C. §§ 2, 15. The complaint sought
(1) to recover NicSand’s “lost profits” or the “value” of NicSand’s business and (2) to treble those
damages as permitted under the antitrust laws. Compl. at 9. The district court dismissed the
complaint under Rule 12(b)(6) for lack of antitrust standing because NicSand “failed to . . . plead
an injury to competition resulting from 3M’s conduct.” D. Ct. Op. at 5.
II.
A.
At first glance, one might fairly wonder whether a complaint like this one should be
dismissed for lack of antitrust standing. Standing, in a conventional Article III sense, requires just
proof of actual injury, causation and redressability. See Lujan v. Defenders of Wildlife, 504 U.S.
555, 560–61 (1992). And NicSand readily satisfies these requirements: It was injured (when it lost
these accounts); 3M caused the injury (when it offered better terms to the retailers than NicSand had
offered in the past); and NicSand’s request for damages will redress its injury (by permitting it to
recover the profits—indeed, three times the profits—it made before 3M entered the picture).
Seemingly making matters easier for NicSand, we look at its complaint through the prism of Rule
12(b)(6), requiring us to accept all of its allegations and all reasonable inferences from them as true.
Mich. Paytel Joint Venture v. City of Detroit, 287 F.3d 527, 533 (6th Cir. 2002).
Yet antitrust standing and Article III standing are not one and the same, and we not only
may—but we must—reject claims under Rule 12(b)(6) when antitrust standing is missing. In the
first place, an antitrust claimant must do more than make “allegations of consequential harm
resulting from a violation of the antitrust laws,” and that is true even when the complaint is
“buttressed by an allegation of intent to harm the [claimant].” Associated Gen. Contractors of Cal.,
Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 545 (1983). Even when a complaint makes
these allegations, it may not proceed when “[o]ther relevant factors—the nature of the [claimant’s]
injury, the tenuous and speculative character of the relationship between the alleged antitrust
violation and the [claimant’s] alleged injury, the potential for duplicative recovery or complex
apportionment of damages, and the existence of more direct victims of the alleged
conspiracy—weigh heavily against judicial enforcement.” Id. Most pertinently for our purposes,
antitrust standing “ensures that a plaintiff can recover only if the loss stems from a
competition-reducing aspect or effect of the defendant’s behavior.” Atl. Richfield Co. v. USA
Petroleum Co., 495 U.S. 328, 344 (1990). Far from being “a mere technicality,” antitrust standing
“is the glue that cements each suit with the purposes of the antitrust laws, and prevents abuses of
those laws” by claimants seeking to halt the strategic behavior of rivals that increases, rather than
reduces, competition. HyPoint Tech., Inc. v. Hewlett-Packard Co., 949 F.2d 874, 877 (6th Cir.
1991).
In the second place, antitrust standing is a threshold, pleading-stage inquiry and when a
complaint by its terms fails to establish this requirement we must dismiss it as a matter of law—lest
the antitrust laws become a treble-damages sword rather than the shield against
competition-destroying conduct that Congress meant them to be. “It is one thing to be cautious
before dismissing an antitrust complaint in advance of discovery, but quite another to forget that
proceeding to antitrust discovery can be expensive.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955,
1966–67 (2007). Given the limited “success of judicial supervision in checking discovery abuse”
and “the threat [that] discovery expense will push cost-conscious defendants to settle even anemic
cases before reaching those proceedings,” id. at 1967, the federal courts have been “reasonably
aggressive” in weeding out meritless antitrust claims at the pleading stage, Valley Prods. Co. v.
Landmark, 128 F.3d 398, 403 (6th Cir. 1997); see Bell Atl., 127 S. Ct. at 1966 (“[S]omething beyond
No. 05-3431 NicSand, Inc. v. 3M Company Page 5
the mere possibility of [relief] must be alleged, lest a plaintiff with a largely groundless claim be
allowed to take up the time of a number of other people, with the right to do so representing an in
terrorem increment of the settlement value.”) (internal quotation marks omitted).
For these reasons, it should come as no surprise that, in the seminal antitrust standing case,
the Supreme Court dismissed the claim under Rule 12(b)(6). See Associated Gen. Contractors, 459
U.S. at 545–46. And our court has dismissed numerous lawsuits for lack of antitrust standing under
Rule 12(b)(6). See Indeck Energy Servs. v. Consumers Energy Co., 250 F.3d 972, 977 (6th Cir.
2000); Valley Prods., 128 F.3d at 407; Hodges v. WSM, Inc., 26 F.3d 36, 39 (6th Cir. 1994); Peck
v. Gen. Motors Corp., 894 F.2d 844, 848 (6th Cir. 1990); Apperson v. Fleet Carrier Corp., 879 F.2d
1344, 1351–52 (6th Cir. 1989); Tennessean Truckstop, Inc. v. NTS, Inc., 875 F.2d 86, 90 (6th Cir.
1989); Axis, S.p.A. v. Micafil, Inc., 870 F.2d 1105, 1111 (6th Cir. 1989); Southaven Land Co. v.
Malone & Hyde, Inc., 715 F.2d 1079, 1088 (6th Cir. 1983); see also N.W.S. Mich., Inc. v. Gen. Wine
& Liquor Co., 58 F. App’x 127, 129–30 (6th Cir. Feb. 6, 2003); Park Ave. Radiology Assocs., P.C.
v. Methodist Health Sys., No. 98-5668, 1999 WL 1045098, at *7 (6th Cir. Nov. 10, 1999); Dry v.
Methodist Med. Ctr. of Oak Ridge, Inc., No. 89-5470, 1990 WL 3489, at *5 (6th Cir. Jan. 19, 1990).
B.
Of the various requirements for establishing antitrust standing, the one that concerns us here
is antitrust injury, which is a “necessary, but not always sufficient,” condition of antitrust standing.
Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 110 n.5 (1986). An antitrust claimant must
show more than merely an “injury causally linked” to a competitive practice; it “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.” Brunswick Corp. v. Pueblo Bowl-O-Mat,
Inc., 429 U.S. 477, 489 (1977) (emphasis added). At a minimum, this requirement means that one
competitor may not use the antitrust laws to sue a rival merely for vigorous or intensified
competition. “‘[I]t is inimical to [the antitrust] laws to award damages’ for losses stemming from
continued competition,” Cargill, 479 U.S. at 109–10 (quoting Brunswick, 429 U.S. at 488) (second
alteration in original), because “[t]he antitrust laws . . . were enacted for ‘the protection of
competition not competitors,’” Brunswick, 429 U.S. at 488 (quoting Brown Shoe Co. v. United
States, 370 U.S. 294, 320 (1962)); see id. (prohibiting competitor claim where the claimant sought
in damages “the profits they would have realized had competition been reduced”). Accordingly,
even though a claimant alleges that an injury is “causally related to an antitrust violation,” it “will
not qualify as ‘antitrust injury’ unless it is attributable to an anticompetitive aspect of the practice
under scrutiny.” Atl. Richfield, 495 U.S. at 334.
Moreover, a “naked assertion” of antitrust injury, the Supreme Court has made clear, is not
enough; an antitrust claimant must put forth factual “allegations plausibly suggesting (not merely
consistent with)” antitrust injury. Bell Atl., 127 S. Ct. at 1966; see id. at 1964–65 (“[A] plaintiff’s
obligation to provide the grounds of his entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . . [A]
complaint [must have] enough factual matter (taken as true) to suggest [that an antitrust injury
occurred].”) (internal quotation marks omitted); id. at 1966 (“[T]he threshold requirement of Rule
8(a)(2) [is] that the plain statement [in the complaint] possess enough heft to show that the pleader
is entitled to relief.”) (internal quotation marks omitted); id. (“[A] naked assertion . . . gets the
complaint close to stating a claim, but without some further factual enhancement it stops short of
the line between possibility and plausibility . . . .”).
All of this is not to say that one competitor may never sue another under the antitrust laws.
But courts typically have permitted such claims to proceed only when one of the rivals has engaged
in some form of predatory pricing or illegal tying—when the rival has engaged in something more
than vigorous price, product or service competition. See, e.g., Eastman Kodak Co. v. Image
No. 05-3431 NicSand, Inc. v. 3M Company Page 6
Technical Servs., Inc., 504 U.S. 451, 461–79 (1992) (illegal tying); Utah Pie Co. v. Cont’l Baking
Co., 386 U.S. 685, 696–98 (1967) (predatory pricing); Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431
F.3d 917, 921 (6th Cir. 2005) (predatory pricing); LePage’s Inc. v. 3M, 324 F.3d 141, 155–57 (3d
Cir. 2003) (illegal tying); Bell v. Cherokee Aviation Corp., 660 F.2d 1123, 1127–32 (6th Cir. 1981)
(illegal tying).
C.
In attempting to satisfy this requirement, NicSand targets three of 3M’s competitive tactics:
(1) the up-front payments that 3M offered to the four retailers; (2) the multi-year terms of the
agreements between 3M and the retailers; and (3) the exclusive nature of these agreements. Because
“the injury and damages” suffered by NicSand from these competitive practices, however, do not
“match the rationale for finding [an antitrust] violation,” HyPoint Tech., 949 F.2d at 879—but
indeed flow from the kind of competition that the antitrust laws were designed to foster—NicSand
has not established a cognizable antitrust injury.
The up-front discounts. NicSand first complains about the “cash payment[s]” that 3M
offered four of the large retailers to obtain their business—$300,000 to Kmart in 1997, $285,000 to
Advance Auto in 1998, $200,000 to CSK Auto in 1998 and $1 million to AutoZone in 2000. Br.
at 21; see Am. Compl. ¶¶ 21, 30, 32, 35. Even after accounting for these payments, however,
NicSand concedes that 3M did not engage in any form of predatory pricing—it concedes in other
words that 3M did not sell automotive sandpaper below cost with the goal of recouping its losses
by charging monopolistic prices later. See NicSand’s Mem. in Opp. to 3M’s Mot. to Dismiss, JA
132 (“NicSand’s Amended Complaint Is Not Premised On Predatory Pricing.”); Reply Br. at 6.
Given this concession and given the realities of this market, 3M’s payments do not show
antitrust injury. If the up-front payments, when combined with the price terms that 3M offered each
of these large retailers, “are not predatory, any losses flowing from them cannot be said to stem from
an anticompetitive aspect of defendant’s conduct. It is in the interest of competition to
permit . . . firms to engage in vigorous competition, including price competition.” Atl. Richfield, 495
U.S. at 340–41 (internal quotation marks and footnote omitted). The market conditions at the time
3M made these offers, according to NicSand’s own allegations, buttress the point. In 1997, this
market consisted primarily of six large retailers, and NicSand was the sole supplier of four of them.
NicSand controlled 67% of the market and earned 38–49% profit margins on its sales to these four
retailers. Am. Compl. ¶¶ 22, 31, 33, 36. NicSand gives no explanation why it has a right to preserve
38–49% margins—under the antitrust laws no less—on a product, sandpaper, that (so far as the
complaint is concerned) does not take any ingenuity to make.
Rather than upsetting the competition-enhancing goals of the antitrust laws, the payments
furthered them. The “payments” are nothing more than “price reductions offered to the buyers for
the exclusive right to supply a set of stores under multi-year contracts.” Augusta News Co. v.
Hudson News Co., 269 F.3d 41, 45 (1st Cir. 2001). “[C]utting prices in order to increase business
often is the very essence of competition”; and “mistaken inferences in cases such as this one are
especially costly, because they chill the very conduct the antitrust laws are designed to protect. We
must be concerned lest a rule or precedent that authorizes a search for a particular type of
undesirable pricing behavior end up by discouraging legitimate price competition.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986) (internal quotation marks and
citation omitted); accord Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
398, 414 (2004). “It would be ironic indeed if the standards” for establishing antitrust injury “were
so low that antitrust suits themselves became a tool for keeping prices high.” Brooke Group Ltd.
v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226–27 (1993).
No. 05-3431 NicSand, Inc. v. 3M Company Page 7
One of the existing barriers to entry in this market, moreover, required would-be suppliers
to offer up-front payments. Before they would consider switching suppliers, the large retailers
required new suppliers to offer to (1) purchase the retailer’s existing supply of automotive sandpaper
and (2) provide a discount on the retailer’s first order. Together these demands could cost a new
supplier up to 23% of its first year’s revenues. See Am. Compl. ¶¶ 48, 49, 51. All of this goes to
show that, by offering up-front discounts to the retailers, 3M was merely offering them something
that, generically speaking, they already insisted on receiving. That 3M offered greater discounts,
though still non-predatory discounts, to win the retailers’ business does not offend the antitrust laws,
much less undermine the competitive environment those laws were designed to foster.
The multi-year terms. Just as 3M’s advances amounted to legitimate competition, so did its
decision to enter into multi-year agreements. Once again, 3M did nothing more than compete on
terms that the market already required. A would-be supplier does not violate the antitrust laws by
offering a multi-year agreement in a market in which the retailers already require one-year “de
facto” agreements. See id. ¶ 25. If the buyers in a market demand one thing, the antitrust laws do
not prohibit an entrant from offering that same thing on slightly different terms. Cf. Verizon
Commc’ns, 540 U.S. at 411 (“Antitrust analysis must always be attuned to the particular structure
and circumstances of the industry at issue.”); Eastman Kodak, 504 U.S. at 466–67 (noting the
importance of considering “actual market realities” when reviewing an antitrust claim).
From the perspective of a retailer, multi-year agreements permit the retailer to insist that the
supplier charge lower prices. Committing to a multi-year agreement, indeed, is no different from
buying in bulk. From the perspective of a supplier, multi-year agreements ease an aspiring entrant’s
ability to clear existing market barriers. Here, the large retailers demanded that a new supplier buy
out the former supplier’s products and offer a discount on the first sale, all at a cost of up to 23% of
the new supplier’s first year sales. It is far easier for a market entrant to clear these barriers when
it is given several years, rather than just one, to recoup this investment. See 2 Areeda &
Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 348c (“[A]
temporary purchase commitment that overcomes an entry barrier increases rather than reduces
competition.”).
Had 3M used illegal tying to obtain a multi-year agreement, that might be another matter.
But NicSand makes no such allegation. Reply Br. at 11–12 (disclaiming any such contention).
What NicSand complains about instead is a quid pro quo—a multi-year (rather than a single-year)
agreement for 3M in return for a substantial price discount (rather than a smaller discount) for the
retailers. Having previously paid NicSand prices generating 38–49% profit margins, the large
retailers cannot be blamed for accepting better prices with 3M for several years, not just one.
Contrary to NicSand’s suggestion, the multi-year nature of the agreements makes the
accompanying advances less troublesome, not more so. It is true, as NicSand repeatedly asserts, that
the advances made by 3M to the retailers outpaced NicSand’s yearly profits from sales to each of
those retailers. See Reply Br. at 3; Supp. Br. at 9. But given a reasonable estimate of the length of
these “several year[]” agreements, say three to five years, NicSand’s complaint itself demonstrates
that it could have competed for the exact same multi-year agreements with its customers. Am.
Compl. ¶ 23. Had NicSand approached its customers with similar deals, it could have expected
profit margins of 17–39% on its sales to Kmart, Advance Auto, CSK Auto and AutoZone. Id. ¶¶ 21,
30, 32, 35. While these margins would have been lower than the 38–49% margins NicSand realized
before 3M’s entrance into the market, NicSand offers no explanation why this modest reduction in
profit margins on a product of this sort is a concern of the antitrust laws.
The exclusivity of the agreements. Unable to show that it suffered an antitrust injury from
3M’s vigorous price competition and unable to show that it suffered an antitrust injury from 3M’s
offer to extend the agreements to cover “at least a few years,” id. ¶ 37, NicSand argues that the
No. 05-3431 NicSand, Inc. v. 3M Company Page 8
exclusivity of the agreements establishes the requisite injury. While exclusive agreements in some
instances may create impermissible barriers for new entrants to a market and may permit a supplier
to charge monopoly prices, see Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961),
NicSand has not claimed—and cannot tenably claim—that it suffered these anticompetitive effects.
As with NicSand’s other complaints, so here: we cannot ignore the demands of the
marketplace in which these agreements arose. “Antitrust analysis must always be attuned to the
particular structure and circumstances of the industry at issue.” Verizon Commc’ns, 540 U.S. at 411;
see Bell Atl., 127 S. Ct. at 1972 (noting that industry history may provide “a natural explanation”
for conduct). According to NicSand’s own complaint, all but one of the large retailers made
exclusivity a condition for doing business with a new supplier. NicSand of course complied with
this requirement (and several others) in obtaining the business it held in 1997, and 3M complied
with this requirement (and several others) in winning some of that business away. If retailers have
made supplier exclusivity a barrier to entry, one cannot bring an antitrust claim against a supplier
for acquiescing to that requirement. Put another way, NicSand has not sued 3M because it wants
to share shelf space with its competitor; it sued 3M because it wants that shelf space all to
itself—just as it had it in 1997. This is just the kind of all-for-one-and-all-for-one competitor claim
that the antitrust laws do not protect.
Nor can NicSand plausibly argue that the exclusivity requirement created entry barriers for
it in this market. Before 1997, NicSand controlled 67% of the market and used the existing barriers
to entry—annual product reviews and exclusive shelf space—to preserve its lock on the market.
From 1997 to 2000, 3M competed for and won the business of four retailers that NicSand formerly
supplied. Through it all, however, NicSand was not a potential market entrant; it was the market
leader. Yet NicSand offers no explanation why it could not compete for these multi-year agreements
nor why (in view of its high margins) it could not match 3M’s discounts. As the market leader,
NicSand was on the inside looking out, and for whatever reason the company chose not to compete.
See 2 Areeda & Hovenkamp, supra, ¶ 348d3 (“Of course, a foreclosure alleged to be illegal because
it deters entry does not injure a plaintiff already in the market. Impeding the entry of others grants
a benefit to those already in the market.”) (footnote omitted).
To the extent exclusivity created a market barrier, it was 3M that faced the problem, and it
was 3M that overcame it. In 1997, according to the complaint, 3M won the business of Kmart with
its “several years” offer; as the incumbent, NicSand had every opportunity to compete and yet it
failed to do so. In 1998, 3M overcame a similar hurdle in obtaining the business of Advance Auto
and CSK Auto; again, NicSand faced no such barrier and yet still failed to compete. In 2000, when
NicSand was the exclusive supplier of only one big-box retailer, it still controlled a substantial
portion of the market due to the volume of its business with AutoZone. Compare Am. Compl. ¶ 36
($2,200,000 in sales to AutoZone), with id. ¶ 22 ($475,000 in sales to Kmart), id. ¶ 31 ($550,000 in
sales to Advance Auto), and id. ¶ 33 ($369,000 in sales to CSK Auto). Yet 3M successfully
competed for AutoZone’s business. Though NicSand declared bankruptcy in 2001, it says nothing
in the complaint about efforts before then to recoup the business from Kmart (which entered the 3M
agreement in 1997) or from Advance Auto or CSK Auto (which entered the agreements in 1998).
Nor does 3M’s size make a difference to the disposition of these allegations. See Brunswick, 429
U.S. at 487–88 (“Yet respondents’ injury . . . bears no relationship to the size of . . . its competitor[].
Respondents would have suffered the identical loss but no compensable injury had the acquired
centers instead . . . been purchased by shallow pocket parents . . . . Thus, respondents’ injury was
not of the type that the statute was intended to forestall.”) (internal quotation marks omitted). In the
end, NicSand simply has not alleged facts establishing that the agreements in and of themselves
created market-entry barriers that caused it a cognizable antitrust injury. See Bell Atl., 127 S. Ct.
at 1974 (holding that plaintiffs must allege “enough facts” to “nudge[] their claims across the line
from conceivable to plausible”).
No. 05-3431 NicSand, Inc. v. 3M Company Page 9
NicSand’s injury also does not stem from 3M’s alleged monopolization of the market. For
most of the time NicSand was losing business, it retained control of a significant share of the market.
While NicSand complains about the up-front discounts 3M offered, it does not allege that 3M was
selling below cost, and the numbers NicSand itself offers demonstrate that 3M’s advances were
comfortably within NicSand’s multi-year profit margins. While NicSand’s loss of business may
have propelled 3M into a dominant market position, its injury does not correspond to any allegedly
anticompetitive effect on the market but rather a truly competitive one.
Any doubt about the appropriate resolution of this case can be laid to rest by Indeck Energy
Services v. Consumers Energy Co., 250 F.3d 972 (6th Cir. 2000). There an energy supplier (Indeck)
alleged that a competitor (Consumers Energy) violated the antitrust laws by signing an exclusive
supply contract with General Motors for a period of five to ten years. Id. at 975. The contract came
on the heels of similar contracts with “17 other large industrial/commercial customers,” through all
of which Consumers Energy “succeeded in excluding competition from over 80 percent of the
Relevant At Risk Market.” Id. (internal quotation marks omitted). Central to the resolution of that
case, as to this one, was that “the only harm allegedly suffered by Indeck was in the company’s
capacity as a competitor in the marketplace, not as a defender of marketplace competition.” Id. at
977.
Indeck was the harder case. Consumers Energy controlled 80% of the market when its
contracts preserved its hold on the market, while NicSand controlled 67% of the market when it
began losing its hold on the market. Consumers Energy entered into longer exclusive contracts
(5–10 years) than 3M did (“several years,” “few years” or “multi-year”). And Consumers Energy
did not unseat the dominant market leader (as 3M did) but instead hindered a potential market
entrant. Indeck was hardly a dominant supplier of energy, as it provided cogeneration services
(recycling factory waste to create energy), which diminish a customer’s need for traditional energy
rather than supply such energy. Indeck, in short, was more akin (far more akin) to a market entrant
than NicSand.
In its en banc papers, NicSand does not claim that Indeck (or for that matter any of our
antitrust-injury precedents) should be overruled but insists that it can be distinguished—first on the
ground that today’s case involves a series of contracts with several retailers as opposed to several
contracts with one retailer. As a result, it submits, while Indeck’s harm resulted only from
competition, NicSand suffered not simply as a single competitor in the market, but as a proxy for
all competitors and thus for all competition. But this seems to invert the relative vices and virtues
of the two fact patterns. While NicSand originally held all of the contracts with the retailers in
question and lost them to competition, Indeck lost out on a single contract and alleged that it found
itself in a market where a single dominant firm controlled 80% of the market with exclusive
contracts of 5–10 years with all of the major industrial and commercial customers. If the harm to
the market is the entry barriers established by “exclusive contracts,” it is Indeck, not NicSand, that
makes the better proxy for injury to competition in the market rather than harm to a competitor.
NicSand had the opportunity to compete for each of the contracts, while Indeck never had that
opportunity because of the existing exclusive contracts. Nonetheless, we concluded in Indeck that
there was no harm to competition because Indeck “failed to allege how [the exclusive contracts]
have injured competition, especially in light of the discounted rates offered to the customers, in light
of the fact that the exclusive contracts were of limited duration, and in light of the fact that the
customers were free to seek other [providers] at the conclusion of the contracts.” 250 F.3d at
977–78. We rested our decision on these grounds, and these grounds control us here—with
NicSand, if anything, having the less compelling complaint. When one exclusive dealer is replaced
by another exclusive dealer, the victim of the competition does not state an antitrust injury. See 11
Areeda & Hovenkamp, supra, ¶ 1823b (“Clearly not a victim of antitrust injury is the exclusive
dealing partner whose business relationship was terminated in favor of a different exclusive dealing
partner.”).
No. 05-3431 NicSand, Inc. v. 3M Company Page 10
NicSand next maintains that Indeck can be distinguished on the ground that 3M’s exclusive
dealing arrangements have eliminated a superior product, noting that NicSand allegedly provides
a better variety of products and better service than 3M. Indeck, it is true, noted that antitrust actions
by marketplace competitors “must at least allege that exclusion of the competitor from the
marketplace results in the elimination of a superior product or a lower-cost alternative” because
these developments might show “that competition itself was harmed by an[] act of the defendant[].”
250 F.3d at 977. But the court still rejected Indeck’s claim even though the company had alleged
that its competitor’s conduct caused the market to become less diversified because Indeck provided
“alternative sources of electrical power,” namely thermal power, while its competitor supplied only
traditional electrical power. Id. at 975 (internal quotation marks omitted). As Indeck suggests, then,
such an allegation may be necessary to establish antitrust standing for a competitor, but it is not
sufficient. Under NicSand’s reading, every competitor could proceed to discovery (and avoid
showing a true antitrust injury) by asserting an unelaborated claim that it provides better service than
its competitors. Indeck did not permit such a pleading and neither will we.
Even aside from Indeck, NicSand suggests in its en banc papers, and the dissent echos the
point, that it is an efficient defender of the marketplace because the retailers face a “collective action
problem.” Dissent at 22. In its view, this collective action problem—that no retailer will accept the
higher prices of one supplier in order to keep competition in the supply market when all the other
retailers are accepting lower prices from a potentially emergent monopolist supplier—justifies
competitor standing in exclusive dealing cases. NicSand, however, did not raise this argument in
the district court, and accordingly it is waived.
The alleged problem, at any rate, is a mirage. If all that one can say about a supplier is that
it has offered lower prices (though not predatory prices) to a series of retailers and that the existing
monopolist refuses to match those prices, a retailer would have far more questions to answer for
refusing, than for accepting, the better deal. The entities with power in this market by the terms of
NicSand’s complaint were not the suppliers but the national retailers. It was these retailers after all
who initially demanded exclusivity in the market for automotive sandpaper, only reviewing their
choice of a single supplier once a year. That they have now signed longer exclusive agreements for
much better prices not only does not establish a market failure but also shows the retailers’
bargaining authority at work, to say nothing of adherence to their duties to consumers and
shareholders. Why not enter a multi-year contract for a steep discount on the prices NicSand was
charging? That helps the retailers and bodes well for consumers to boot. See Indeck, 250 F.3d at
977 (“No allegation in the complaint indicates in any manner whatsoever how [the customer] itself
was harmed or how other customers . . . suffered by agreeing to [an exclusive] agreement with a
lower bidder for such [product].”); see also Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., 477
F.3d 854, 872 (6th Cir. 2007) (“[I]f a higher discount is realistically and practically available, why
would a reasonable purchaser not take advantage of the best possible price?”); cf. Adam Smith, An
Inquiry into the Nature and Causes of the Wealth of Nations 201 (1838) (“[I]t always is, and must
be, the interest of the great body of the people, to buy whatever they want of those who sell it
cheapest.”).
What we have said here does not mean that a potential competitor may never bring an
antitrust claim for exclusive dealing. Had the large retailers and 3M conspired to eliminate NicSand
from the market, that would be another matter. And should 3M use these contracts and its current
market dominance to establish unreasonable barriers to entry in the future, a potential competitor
might have a legitimate antitrust claim. Nor is this to say that the future competitiveness of the
market lacks protection if 3M chooses to impose monopolist prices down the road. Aggrieved
retailers would have standing to sue for treble damages if that occurred. See Indeck, 250 F.3d at 977
(“[A]s the direct victim of the alleged antitrust violation in this regard, [the customer] could
prosecute its own cause of action should it deem the actions of [the supplier] inappropriate.”). “The
existence of an identifiable class of persons whose self-interest would normally motivate them to
No. 05-3431 NicSand, Inc. v. 3M Company Page 11
vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more
remote party such as the [plaintiff] to perform the office of a private attorney general. Denying the
[plaintiff] a remedy on the basis of its allegations in this case is not likely to leave a significant
antitrust violation undetected or unremedied.” Associated Gen. Contractors, 459 U.S. at 542
(footnote omitted).
But to allow this litigation to continue on these allegations is to allow one monopolist to sue
a competitor for seizing its market position by charging less for its goods. NicSand took advantage
of the very same exclusivity it now attacks to charge prices that made it vulnerable to 3M’s offers
in the first place. If 3M does the same by charging excessive prices itself, it will expose itself either
to competition or to a legitimate antitrust complaint from retailers or excluded competitors. But
until then, as the district court rightly concluded, NicSand has suffered no antitrust injury, and until
then NicSand has no antitrust standing to bring this case.
The dissent worries that our decision will drive out all but the “omniscient [antitrust]
plaintiffs that happen to know every relevant factual detail before the inception of litigation.”
Dissent at 15. That is not true, and there is no reason this decision should have any such effect. The
key failing in NicSand’s complaint is not that it has too few details but that it has too many. While
we must accept all of a claimant’s allegations as true at this stage of a case, that does not mean we
must ignore those allegations when they defeat the claim and when they show the claimant is doing
nothing more than invoking the antitrust laws to protect a competitor, not competition. See
Brunswick, 429 U.S. at 488. In considerable detail, NicSand’s amended complaint explained the
market for do-it-yourself automotive sandpaper, see Am. Compl. ¶¶ 25, 46, 47, 48, 51, explained
that the relevant retailers demanded exclusivity by refusing to stock more than one brand of the
sandpaper at a time, see id. ¶ 47, explained that the relevant retailers had “de facto” one-year
exclusive agreements with their suppliers, see id. ¶ 25, explained how all of the relevant retailers
demanded up-front payments before they would switch suppliers, see id. ¶¶ 21, 30, 32, 35,
highlighted NicSand’s domination of that market under these precise conditions, see id. ¶ 15,
detailed the 38–49% profit margins NicSand earned before 3M entered the picture (presumably to
enhance NicSand’s request for treble damages), see id. ¶¶ 22, 31, 33, 36, and spelled out the amounts
of the up-front discounts that 3M offered four of the retailers, see id. ¶¶ 21, 30, 32, 35.
Confirming what the details in its amended complaint showed, NicSand disclaimed in its
response to the Rule 12(b)(6) motion that 3M had engaged in predatory pricing or illegal tying.
When “the complaint itself gives reasons” to doubt plaintiff’s theory, Bell Atl., 127 S. Ct. at 1972,
and when later pleadings confirm those doubts, it is not our task to resuscitate the claim but to put
it to rest. Nothing prevents a plaintiff from pleading itself out of court, which is all that happened
here.
The dissent suggests that we can resuscitate this claim by returning to NicSand what it has
given away—a predatory-pricing claim. When a party concedes that it is not bringing a claim,
however, no purpose of Rule 12(b)(6) is served by overlooking the concession, and there is nothing
“misleading,” Dissent at 16, about reading and accepting the concession. Plainly and simply, the
company acknowledged that “NicSand’s Amended Complaint Is Not Premised On Predatory
Pricing.” JA 132; Reply Br. at 6. The plaintiff remains the master of its complaint, and when it says
that it is not bringing a predatory-pricing claim, we should take it at its word.
Nor, to be fair to NicSand’s counsel, was this an unusual concession to make. “[P]redatory
pricing schemes are rarely tried, and even more rarely successful.” Matsushita Elec. Indus., 475
U.S. at 589. Success requires not just below-cost pricing but a product market that will allow the
would-be monopolist to raise prices later without the threat of new market entrants. Id. at 591 n.15.
NicSand, in short, had ample reasons for conceding that 3M did not engage in a predatory-pricing
scheme, and we should accept the concession.
No. 05-3431 NicSand, Inc. v. 3M Company Page 12
The claim also cannot be revived based on the allegation that retail prices have risen a total
of 70% since NicSand left the market. Dissent at 21. An allegation about retail prices in the
context of a case against a supplier does not by itself show that the supplier engaged in
anticompetitive conduct and does not show that NicSand’s injury “flows from that which makes
[3M’s] acts unlawful.” Brunswick, 429 U.S. at 489. Res ipsa loquitur is not a theory of antitrust
injury, and it surely is not one after the Supreme Court’s decision in Bell Atlantic, which set out to
eliminate this kind of loose antitrust pleading. Just as in Bell Atlantic, where the Court held that,
“[w]ithout more, parallel conduct does not suggest conspiracy,” 127 S. Ct. at 1966, so here: a price
increase by retailers, without more, does not suggest anticompetitive behavior by suppliers.
NicSand’s speculations show at most the “possibility” of an entitlement to relief, id., which is just
what Bell Atlantic said would not suffice at the pleading stage, id. (requiring “allegations plausibly
suggesting (not merely consistent with)” an entitlement to relief). While it is assuredly true that Bell
Atlantic “in fact makes simpler the task before us in this case” than it was before the Supreme
Court’s decision, Dissent at 15, it is hard to see how that decision makes it “simpler” to rule in the
plaintiff’s favor, as the dissent contends, id.
The dissent adds that “[i]t is not the appropriate response under the law to answer
anticompetitive conduct with more anticompetitive conduct,” suggesting that the only way NicSand
could have responded to 3M’s courtship of NicSand’s customers over a four-year period would be
to compete illegally. Id. at 18. But why compete illegally if, as NicSand’s amended complaint says,
it had 38–49% margins before 3M entered the competitive picture? Such profits surely left NicSand
negotiating options over a four-year period between competing illegally and invoking the antitrust
laws to preserve these margins.
The dissent expresses skepticism about our decision in Indeck, relying on a commentator
who has questioned the decision. See id. at 18 n.8. But no party to this case, as we have noted, has
asked us to reconsider Indeck. And, what is more, the central criticism leveled by the commentator
concerns the statement in Indeck upon which the dissent principally relies, id. at 12—Indeck’s
requirement that the antitrust plaintiff must show the “elimination of a superior product or a lower-
cost alternative,” Indeck, 250 F.3d at 977; see Ronald W. Davis, Standing on Shaky Ground: The
Strangely Elusive Doctrine of Antitrust Injury, 70 Antitrust L.J. 697, 747–48 (2003). As we have
explained, Maj. Op. at 10, Indeck’s injury-to-the-market language need not detain us here because
it is at most a necessary, but not a sufficient, condition for proving antitrust standing. See Indeck,
250 F.3d at 977 (A competitor plaintiff “must at least allege” injury to the market.) (emphasis
added). And NicSand cannot meet another necessary requirement—that it suffered an antitrust
injury, as opposed to the ill effects of price competition, which understandably “hurts,” Dissent at
16, but which does not by itself state a cognizable antitrust claim. See Maj. Op. at 10. Otherwise,
every time an allegedly “superior product or a lower-cost alternative” was eliminated from the
market by competition, the producer of that product would have antitrust standing. That is not what
Indeck said or did.
III.
For these reasons, we affirm.
No. 05-3431 NicSand, Inc. v. 3M Company Page 13
_________________
DISSENT
_________________
BOYCE F. MARTIN, JR., Circuit Judge, dissenting, joined by Judges Daughtrey, Cole, and
Clay. In a recent dissent, Justice Stevens wrote nostalgically about times gone by, when most “high-
speed driving took place on two-lane roads rather than on superhighways” and “when split-second
judgments about the risk of passing a slow-poke in the face of oncoming traffic were routine.” Scott
v. Harris, 127 S. Ct. 1769, 1782 n.1 (2007). There is a time I reflect upon nostalgically as well —
a time when monopoly was an evil targeted by Congress and guarded against by the antitrust laws
of the United States. See United States v. Von’s Grocery Co., 384 U.S. 270, 274 (1966). Since their
enactment, it has been the purpose of the federal antitrust laws to prevent the emergence of
entrenched monopoly power and “to perpetuate and preserve, for its own sake and in spite of
possible cost,” the existence of competition in industry. Id. at 275 n.7 (quoting United States v.
Aluminum Co. of America, 148 F.2d 415, 429 (2d Cir. 1945) (Hand, J.)). Today, however, the
majority treats monopoly more as a board game than as an economic harm to the public. Because
I cannot read the antitrust laws so narrowly, I respectfully dissent.
I.
As noted by the majority, our main concern in this case is whether NicSand has sufficiently
alleged not only standing under Article III of the Constitution, but also standing under the antitrust
laws. To be sure, this is a more onerous task than that faced by most civil plaintiffs. Yet this task,
though challenging, should not be insurmountable. NicSand must allege more than mere economic
injury, for the antitrust laws were enacted for “the protection of competition, not competitors.”
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co.
v. United States, 370 U.S. 294, 320 (1962)). As the majority correctly notes, NicSand must show
that the injury it suffered is “of the type the antitrust laws were intended to prevent and [] flows from
that which makes defendants’ acts unlawful.” Id. at 489. That is, the injury “should reflect the
anticompetitive effect either of the violation or of anticompetitive acts made possible by the
violation.” Id. Despite what the majority holds today, NicSand has alleged that type of injury in
this case.
“The Supreme Court has articulated certain factors to be analyzed in determining whether
a plaintiff has established antitrust standing.” Indeck Energy Servs. v. Consumers Energy Co., 250
F.3d 972,976 (6th Cir. 2000) (citing Associated Gen. Contractors of Cal., Inc. v. California State
Council of Carpenters, 459 U.S. 519, 537-45 (1983)). Those factors include:
(1) the causal connection between the antitrust violation and harm to the plaintiff and
whether that harm was intended to be caused; (2) the nature of the plaintiff’s alleged
injury including the status of the plaintiff as consumer or competitor in the relevant
market; (3) the directness or indirectness of the injury, and the related inquiry of
whether the damages are speculative; (4) the potential for duplicative recovery or
complex apportionment of damages; and (5) the existence of more direct victims of
the alleged antitrust violation.
Id. (citations omitted). Moreover, “[a]ll five factors must be balanced, . . . with no one factor being
determinative.” Id. (citing Peck v. General Motors Corp., 894 F.2d 844, 846 (6th Cir. 1990)).
This case comes before us on appeal from the district court’s grant of 3M’s motion to
dismiss. The Supreme Court recently clarified the standard an antitrust plaintiff must satisfy at this
stage, holding that an antitrust plaintiff need only provide “a short and plain statement of the claim
showing that [he] is entitled to relief,” so that the defendant has “fair notice of what the . . . claim
No. 05-3431 NicSand, Inc. v. 3M Company Page 14
is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007)
(citations omitted).1 Although many commentators have intimated that Bell Atlantic represents a
significant departure from prior law, the decision in fact makes simpler the task before us in this
case.
In Bell Atlantic, the Court explained that “a plaintiff’s obligation to provide the grounds of
his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Id. at 1964-65 (internal quotation marks and citations
omitted). Thus, the key distinction is between a bare-bones complaint asserting only the elements
of a claim and a complaint asserting not only legal elements, but also facts to support those elements.
Courts are well-suited to distinguish between the two. Indeed, we do so all the time when reviewing
questions of fact, mixed questions of law and fact, and questions of law. It is not a controversial
assertion that, while a plaintiff need not assert detailed facts, a plaintiff must assert some facts.
“Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the
requirement of providing not only ‘fair notice’ of the nature of the claim, but also ‘grounds’ on
which the claim rests.” Id. at 1965 n.3 (citing 5 Wright & Miller § 1202, at 94, 95 (Rule 8(a)
“contemplates the statement of circumstances, occurrences, and events in support of the claim
presented” and does not authorize a pleader’s “bare averment that he wants relief and is entitled to
it”)). Thus, at the 12(b)(6) stage, “[f]actual allegations must be enough to raise a right to relief
above the speculative level, . . . on the assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Id. at 1965 (citations omitted).
NicSand’s complaint establishes a right to relief above the speculative level. Notably,
NicSand has provided detailed factual allegations regarding the payments made by 3M to retailers,
the years in which exclusive contracts were entered, and the approximate duration of the contracts.
In particular, with regard to the duration of the exclusive contracts, NicSand has alleged a reasonable
basis for inferring that they will last a few years — to wit, that the retailers told NicSand that they
could not even discuss the possibility of doing business with NicSand for at least a few years. These
factual allegations must be taken as true. Potentially relevant information may be missing from the
complaint, but it is exactly this additional information that, with the benefit of discovery, may entitle
NicSand to relief. Yet following today’s decision, it is difficult to see how any antitrust
plaintiff—short of those few omniscient plaintiffs that happen to know every relevant factual detail
before the inception of litigation and without the benefit of discovery—will be able to overcome a
motion to dismiss. See Freightliner of Knoxville, Inc. v. DaimlerChrysler Vans, LLC, 484 F.3d 865,
874 (6th Cir. 2007) (“[Plaintiff]’s claims under the [Robinson-Patman Act] may well be highly
speculative, and discovery may well reveal that they are futile, but we cannot—nor can the district
court—make such a determination based on the pleadings alone.”).
II.
For a number of years, NicSand had a significant share of the market for do-it-yourself retail
automotive coated abrasives. NicSand sold its products through a handful of retailers and 3M was
its only competitor.2 Agreements between suppliers and retailers for these products lasted one year
in the de facto sense because retailers did not want to change their inventories mid-year. According
to NicSand’s complaint, 3M pushed retailers into a series of multi-year exclusive dealing
1
The Court made clear that Rule 8(a)’s liberal notice pleading standard applied to antitrust actions, Bell Atl.,
127 S. Ct. at 1964, and not Rule 9’s “‘heightened’ pleading standard,” id. at 1973 n.14.
2
The majority characterizes 3M as a “market entrant.” Maj. Op. at 14. Given that 3M, as NicSand’s only
competitor, had approximately 33% of the market in 1995, 3M is hardly a “market entrant.” See Complaint ¶ 8 (“In
1995, NicSand had approximately 67% of the DIY [do-it-yourself] retail automotive coated abrasives market.”).
No. 05-3431 NicSand, Inc. v. 3M Company Page 15
arrangements, excluding NicSand from the market. The terms of these exclusive agreements, and
their harm to consumers by the creation of a monopoly, form the crux of this case.
The new agreements drastically changed the market and were more than simply a
regurgitation of the old agreements with “slightly different terms.” Maj. Op. at 14. For one thing,
3M offered unprecedented substantial, up-front cash payments to retailers. For another, 3M
contractually guaranteed multi-year exclusivity with retailers, cutting NicSand out of the market for
an extended period of time. 3M pushed retailers, including NicSand’s clients, into the exclusive
agreements.
First, let us focus on 3M’s up-front cash payments. Using figures provided in the complaint,
we are presented with the following picture for each of the four relevant big retailers:
1. Kmart: In 1996, NicSand’s sales to Kmart were $475,000 per year and its profits were
$180,000 per year. In 1997, 3M executed a contract with Kmart which provided for a
payment “in excess of $300,000.” This payment is equal to approximately 63% of
NicSand’s3sales to Kmart and 167% of NicSand’s annual profits on sales to Kmart from the
prior year.
2. Advance Auto: In 1997, NicSand’s sales to Advance Auto were $550,000 and its profits
were $272,000. In 1998, 3M executed a contract with Advance Auto which provided for a
payment of “over $285,000.” This payment is equal to approximately 52% of NicSand’s
sales to Advance Auto and 105% of NicSand’s annual profits on sales to Advance Auto from
the prior year.
3. CSK: In 1997, NicSand’s sales to CSK were $369,000 and its profits were $164,000. In
1998, 3M executed a contract with CSK which provided for a payment of “over $200,000.”
This payment is equal to approximately 54% of NicSand’s sales to Kmart and 122% of
NicSand’s annual profits on sales to CSK from the prior year.
4. AutoZone: In 1999, NicSand’s sales to AutoZone were $2,200,000 and its profits were
$865,000. In 2000 and 2001, 3M executed a contract with AutoZone which provided for a
payments totaling “over $1,000,000.” The annual value of these payments ($500,000) is
equal to approximately 23% of NicSand’s sales to AutoZone and 58% of NicSand’s annual
profits on sales to AutoZone from the prior year.
Complaint ¶¶ 21, 30, 32, 35.
As these numbers demonstrate, 3M’s cash payments exceeded NicSand’s profits from the
prior year for three of the retailers. In other words, from 1997 through 2000, 3M signed agreements
with three retailers, the terms of which NicSand could not possibly match on an individual basis
without selling below cost — an action that may have given 3M a cause of action under the Sherman
Act. See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1074 (2007).
If sales coupled with substantial up-front cash payments to those retailers would have
resulted in a loss for NicSand, then it is a reasonable inference that they may have been below cost
for 3M as well. However, it is obvious that without discovery NicSand would have had no way of
3
According to NicSand’s complaint, in addition to providing this up-front payment, 3M also agreed to pay the
cost of buying out Kmart’s stock of NicSand do-it-yourself retail automotive coated abrasives, thus increasing the
amount that 3M paid to secure Kmart’s exclusive business. Complaint ¶ 27. Although buying out a competitor’s stock
was the traditional practice during annual line reviews, it is unclear from the complaint whether 3M also bought out
NicSand’s remaining stock from the other three big-box retailers when it obtained its multi-year exclusive dealing
agreements with them.
No. 05-3431 NicSand, Inc. v. 3M Company Page 16
knowing with certainty 3M’s production or other overhead costs. It is telling that, in its
memorandum in support of its motion to dismiss, 3M noted that NicSand had made “no allegation
regarding how [NicSand] purports to measure 3M’s costs.” JA 83. This is the very purpose of
discovery in a civil case. It simply cannot be that a business must know everything about its
competitors before bringing suit in an antitrust case. After all, a business that knows everything
about its competitors is likely to dominate them, rather than fall prey to them, as NicSand did here.
The majority is quick to point out that “NicSand concedes that 3M did not engage in any
form of predatory pricing.” Maj. Op. at 12 (citing JA 132 and Reply Br. 6). This assertion is
misleading. In saying that its complaint is not based on “predatory pricing,” NicSand is simply
stating that 3M’s conduct is not premised on the type of conduct typically referred to as “predatory
pricing,” that is, the pricing of an individual item below the cost of its production. Cf. Black’s Law
Dictionary 1215 8th ed. 2004 (defining “predatory pricing” as “[u]nlawful below-cost pricing
intended to eliminate specific competitors and reduce overall competition.”). In other words,
NicSand’s allegations do not pertain to the price terms offered by 3M but rather to the
unprecedented and unusually large up-front cash payments used by 3M to secure exclusive-dealing
agreements. JA 132-134 & n.10. While NicSand did not use the magic words “predatory pricing”
in its complaint, the allegations that 3M charged competitive prices and offered substantial, up-front
payments, negating any possible profits, amounts to the same thing. Thus, the conduct alleged by
NicSand, a form of predatory pricing, is still predatory conduct that hurts, and in this case
eliminated, competition. See id. at 133 n.10. As NicSand aptly notes in its response to 3M’s motion
to dismiss, “[t]he point is not that 3M’s supracompetitive payments crossed the predatory pricing
line, but that they were part and parcel of a different, but equally insidious, form of predatory,
anticompetitive, conduct.” Id.
In fact, the majority, when defending the multi-year terms of 3M’s agreements, seems to
acknowledge that 3M effectively sold below cost. The majority explains that it would be easier for
a supplier such as 3M to gain a foothold in the market “when it is given several years, rather than
just one, to recoup this investment.” Maj. Op. at 14. The “investment” that 3M would “recoup” is
the loss it took by offering substantial, up-front payments. Those payments, upon further discovery,
might be revealed to have effectively amounted to below-cost pricing. Cf. Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 589 (1986) (“The success of any predatory scheme
depends on maintaining monopoly power for long enough both to recoup the predator’s losses and
to harvest some additional gain.”).
Perhaps recognizing that NicSand would have lost money had it offered matching lump-sum
payments to three out of the four retailers, 3M asks this court to compare NicSand’s aggregate
profits from four individual retailers in four individual years (Kmart in 1996, Advance Auto in 1997,
CSK in 1997, and AutoZone in 1999) to the aggregate of 3M’s payments over a later four-year
period (1997-2000). By aggregating in this manner, 3M attempts to gloss over the fact that NicSand
would have had to have sold below cost to three out of the four retailers. This approach asks us to
read NicSand’s complaint in the light most favorable to 3M. Nevertheless, even under that improper
approach, there is a small margin for error. According to 3M, the aggregate data for NicSand would
yield a profit margin of merely five percent — a meager profit indeed.4
The poor quality of the data at issue makes this potential five percent profit margin hinge on
several levels of assumptions, which could be—or could not be—confirmed through discovery. To
4
3M arrives at this profit margin by first adding NicSand’s annual sales and profits from each of the four
retailers in the four individual years, which amounts to $3,594,000 in sales and $1,481,000 in profits. 3M then takes the
total annual value of its four lump-sum payments made in the individual years to be $1,285,000 (3M divides its payment
to AutoZone in half). 3M then subtracts $1,285,000 from $1,481,000 to arrive at a total profit of $196,000, which, when
divided by sales of $3,594,000, yields a profit margin of approximately 5%. Appellee Supp. Br. at 8-9 n.4.
No. 05-3431 NicSand, Inc. v. 3M Company Page 17
be sure, on this record, we have little choice but to compare profit data for NicSand’s last year with
a particular retailer to the amount of 3M’s up-front payment to that retailer in the subsequent year.
That is the best we can do because NicSand was eliminated from the market, and therefore was not
around long enough to develop its own profit data in the later years. But when we aggregate this
data, we are forced to use 3M’s assumptions about how well NicSand might have performed in the
market with respect to individual retailers in years after 3M secured contracts with them, and to
compare those assumptions with the actual payments made by 3M. Moreover, the data fails to
account either for inflation or for any line of credit NicSand may have had, such that the estimated
profit margin may contain significant inaccuracy. And, the data also fails to account for the fact that
these agreements were made in secret, thereby depriving NicSand of an opportunity to compete by
offering comparable deals. In order to avoid elimination from the market, NicSand not only would
have had to match 3M’s payments, but also presumably would have had to pay the cost of inducing
a retailer to breach its exclusive contract with 3M. In contrast, 3M did not have to bear that cost
because the exclusivity of the prior agreements was merely de facto — retailers could switch at any
time without penalty.
Given the multiple levels of uncertainty incorporated into 3M’s analysis, it is impossible to
tell how accurate or solid that predicted profit margin is, or whether, indeed, NicSand would have
lost money in the aggregate. That realization is more troubling in light of the obviously sequential
conduct that took place in this case. 3M acquired three retailers over a series of years, each time
employing allegedly anticompetitive agreements. Only in the final year, when NicSand was already
on its last legs, was 3M able to recoup its losses on its deals with the other three retailers by securing
a more favorable agreement with AutoZone. Given our duty to read the facts in the light most
favorable to NicSand in this case, it is simply impossible to conclude that these agreements were not
anticompetitive.5
In addition to downplaying the importance of 3M’s substantial up-front payments, the
majority is also untroubled by the exclusivity of the agreements or the agreements’ multi-year terms.
The majority claims that the type of exclusivity demanded by 3M is the same type of exclusivity that
retailers demanded prior to 3M’s market dominance. But according to NicSand’s complaint, under
the retailers’ pre-1997 rules, exclusivity lasted no longer than the completion of one purchase order.
Retailers were free to switch suppliers from one purchase order to the next. See Complaint ¶ 25
(“[R]etailers would typically not change suppliers other than at the time of their annual line review.”
(Emphasis added)). A retailer carrying 3M’s products was free to suddenly solicit NicSand’s line
of products. Or alternatively, a retailer was free to do what Pep Boys did — carry both suppliers’
lines simultaneously. Although it appears that in reality, retailers opted to stick with one supplier
for a full year, these agreements were, at most, “de facto” exclusive in the sense that once a retailer
decided to receive its inventory from one supplier, it was unlikely to switch suppliers for one year.
Thus, while an individual retailer perhaps wisely chose to keep one supplier’s product on its shelves
for a period of one year, that retailer was simply not contractually bound to do so. There were no
actual “exclusive dealing agreements” prior to 1997. Rather, there were four retailers choosing an
economically reasonable course of business, and two suppliers competing fairly for that business.6
And even so, agreements with suppliers were reconsidered every year during annual line reviews.
5
3M also asks us to make another profits calculation by spreading each of the four payments and profits over
two years, which would yield a higher profit margin of 16%. Appellee Supp. Br. at 8-9 n.4. The majority goes even
farther, claiming that under another unspecified methodology, NicSand still could have had profit margins of 17%-39%.
Maj. Op. at 15. For the reasons already stated above, I believe that in light of the flaws already inherent in the
methodology discussed above, any such calculations would be excessively speculative at best and would require us to
misconstrue NicSand’s complaint in 3M’s favor.
6
Nor does the complaint state that the retailers were contemplating multi-year contracts or enacting any change
in the market. All changes in the market were a direct result of 3M’s conduct.
No. 05-3431 NicSand, Inc. v. 3M Company Page 18
Under this system, although NicSand may have been the more successful competitor in the market
for a time, it alleges its success was owed to its “superior marketing, superior packing, innovation,
and superior value,” id. ¶ 11, not to anticompetitive practices.
Contrary to the majority’s averments, NicSand should not have sought multi-year
arrangements with retailers like 3M did. It is not the appropriate response under the law to answer
anticompetitive conduct with more anticompetitive conduct. Moreover, in a battle for a monopoly
between NicSand and 3M, it is hard to imagine how NicSand could have prevailed. Given the
choice between a certain amount of money in one up-front payment or in installments over several
years, any reasonable retailer would have chosen the former. That is simply time-value-of-money
economics. 3M is a manufacturing powerhouse that obviously had the ability to subsidize its
operations in the do-it-yourself-retail-automotive-coated-abrasives market with revenues from other
sectors.7 NicSand, in contrast, may not have had the capital to match 3M’s substantial up-front
payments and may not have been able to do so without selling below cost. The majority opinion
lacks a certain real-world understanding of the relative positions of the two companies at issue in
this case.
In sum, under a plausible reading of NicSand’s complaint, 3M did the following. First, it
offered retailers unprecedented and substantial up-front payments — payments that may have, in
effect, been a form of below-cost pricing. 3M executed contracts with retailers that gave 3M
exclusivity for several years in order to guarantee 3M time to recoup any losses. This multi-year
exclusivity, when paired with its agreements with other retailers, also gave 3M a large enough share
of the market such that its sole competitor, NicSand, would no longer be able to stay afloat. These
agreements guaranteed 3M a monopoly in the do-it-yourself-retail-automotive-coated-abrasives
market. NicSand’s allegations of 3M’s anticompetitive conduct are further bolstered by the fact that
NicSand was forced into bankruptcy, id. ¶ 43, 3M now controls almost 100% of the market share,
id. ¶ 67, and prices for these products have risen by 70% since NicSand left the market, id. ¶ 63. As
discussed below, with this monopoly now established, 3M no longer has to worry about keeping a
superior and diverse product line or keeping its prices low.
III.
In Indeck, we explained that in a case where a competitor sues another competitor for an
alleged antitrust violation, the plaintiff “must at least allege that [its] exclusion . . . from the
marketplace results in the elimination of a superior product or a lower-cost alternative.” 250 F.3d
at 977.8 Since this case comes before us at the 12(b)(6) stage, we must focus on NicSand’s
particular allegations of harm to the market. To do so, we need look only to NicSand’s complaint,
which alleges, in pertinent part:
11. [The growth in NicSand’s market share] between 1987 and 2000 in DIY retail
automotive coated abrasives was fueled primarily by NicSand’s superior marketing,
superior packaging, innovation, and superior value. NicSand acquired and retained
7
Any good lawyer knows the value of Post-It Notes and Tabs. See, e.g., LePage’s, Inc. v. 3M, 324 F.3d 141,
157 (3d Cir. 2003)(finding ample evidence that 3M used exclusive agreements to entrench its monopoly over transparent
tape); see also N.J. Wood Finishing Co. v. Minn. Mining & Mfg. Co., 332 F.2d 346, 348 (3d Cir. 1964) (“3M [is] a highly
diversified company, manufacturing and selling a number of product lines and segments.”)
8
One commentator has noted that the continuing validity of Indeck as a correct application of the Supreme
Court’s five-factor test has been called into question by later cases. See Ronald W. Davis, Standing on Shaky Ground:
The Strangely Elusive Doctrine of Antitrust Injury, 70 Antitrust L. J. 697, 748 n.184 (2002-2003) (“In . . . Conwood [Co.
v. United States Tobacco Co., 290 F.3d 768 (6th Cir. 2002)], the court alluded to no requirement that the plaintiff’s snuff
had to taste better, or cost less, than the defendant monopolist’s snuff.”); see also id. at 737-43, 747-48 (criticizing the
Sixth Circuit’s precedent on the question of what a competitor must establish to show antitrust injury).
No. 05-3431 NicSand, Inc. v. 3M Company Page 19
its share of that market by offering better value than its competitors, providing on-
time delivery, instituting innovative programs designed to assist DIY retailers in
increasing their volume and profitability in the DIY retail automotive coated
abrasives market, offering more products in less space, offering flexible payment
terms, packaging each of its products in a manner consistent with that product’s
market orientation, and, creating new specialty products at the request of customers.
63. As a result of 3M’s attempted monopolization and/or monopolization of the
market for DIY retail automotive coated abrasives, consumer prices for DIY retail
automotive coated abrasives have risen significantly, in some cases, as much as 70%.
64. As a result of 3M’s attempted monopolization and/or monopolization of the
market for DIY retail automotive coated abrasives, the number of available DIY
retail automotive coated abrasives products available for purchase by consumers has
dropped by as much as half, from approximately eighty to approximately forty.
69. Consumers have suffered as a result of 3M’s unlawful monopolization of the
DIY retail automotive coated abrasives market, as prices have increased and
selection has decreased substantially since 3M established its monopoly.
Under a fair reading of the quoted paragraphs, NicSand has met Indeck’s requirements. First, it has
alleged that its products were superior to 3M’s products. Given that “superior” is a comparative
term and that 3M was NicSand’s only competitor during the relevant period, see Complaint ¶ 12
(“NicSand’s only competitor in the DIY retail automotive coated abrasives market during the period
1987 to 2000 was 3M.”), NicSand’s complaint could only have been alleging that its products were
superior to 3M’s. NicSand claimed superiority in several senses: “superior marketing, superior
packing, innovation, and superior value.” Id. ¶ 11; see also id. ¶ 58 (“3M did not offer a superior
product, superior pricing, or superior service.”).
The majority complains, however, that what NicSand offers us is simply “an unelaborated
claim that it provides better service than its competitors.” Maj. Op. at 21. Neither 12(b)(6) nor
Indeck requires much, if any, further elaboration. Nevertheless, NicSand does in fact explain what
it means, noting that it provided better value, on-time delivery, and “innovative programs designed
to assist DIY retailers in increasing their volume and profitability in the DIY retail automotive
coated abrasives market, offering more products in less space.” Complaint ¶ 11. NicSand also touts
its flexible payment terms, packaging, and perhaps most importantly, its “creat[ion of] new specialty
products at the request of customers.” Id. In addition to the allegation of superior products and
service, NicSand also alleges that since 3M established its monopoly, the selection of products has
decreased substantially. Id. ¶ 64, 69. Thus, NicSand has alleged a decrease not only in product
quality, but also in market diversity. While NicSand certainly could have alleged that its sandpaper
had a better coefficient of friction than 3M’s, or something else to similar effect, NicSand does not
need to supply such detailed factual information at the pleading stage, without the benefit of
discovery.
NicSand has also alleged that since its departure from the market, “consumer prices for DIY
retail automotive coated abrasives have risen significantly, in some cases, as much as 70%.” Id. ¶
63; see also id. ¶ 69 (“[P]rices have increased . . . since 3M established its monopoly.”). NicSand
has sufficiently alleged that its exclusion has “result[ed] in the elimination of . . . a lower-cost
alternative,” which in turn “ indicat[es] that competition itself was harmed by” 3M’s conduct.
Indeck, 250 F.3d at 977 (emphasis in original). In other words, as a result of 3M eliminating its only
competitor through a series of exclusive dealing contracts, competition was lessened, and prices
increased as a result. And indeed, price increases of this magnitude certainly injure consumers. This
type of problem goes to the heart of what the antitrust laws were designed to prevent. Cf. Reiter v.
No. 05-3431 NicSand, Inc. v. 3M Company Page 20
Sonotone Corp., 442 U.S. 330, 342 (1979) (“The essence of the antitrust laws is to ensure fair price
competition in an open market.”).
Although the majority dispenses with these factual allegations by concluding that NicSand
has not alleged that 3M raised its prices, Maj. Op. at 6, it is a reasonable inference that at least some
portion of the 70% price increase could be due to 3M’s monopoly. The idea that the retailers might
be passing on some additional cost from 3M should not be controversial. Cf. Northwest Airlines v.
County of Kent, 510 U.S. 355, 376 (1994) (Thomas, J., dissenting) (“Any cost an airline bears is in
some sense an ‘indirect’ charge ‘on persons traveling in air commerce,’ because the airline
ultimately will pass that cost on to consumers in the form of higher ticket prices.”); Acadia Motors
v. Ford Motor Co., 44 F.3d 1050, 1056 (1st Cir. 1995) (“[I]t is quite commonplace for manufacturers
and other regulated entities to pass on to retailers and consumers their costs of complying with
regulatory statutes.”). Yet the majority believes this is not good enough, taking aim at NicSand for
not specifying that the apparent increase in prices was due to actions by 3M and not by retailers.
To dismiss this case on the pleadings on that basis defeats the whole point of notice pleading. When
retailers raise prices, they do not include on their price tags a footnote outlining their reasons. At
this point, before discovery, all NicSand can go by is what it sees in stores, and its allegations based
on those observations raise a reasonable inference that 3M has used its monopoly power to increase
prices. Nothing more should be required.
The majority apparently believes that NicSand has merely alleged that 3M’s conduct caused
the market to become less diversified, and argues that Indeck stands for the proposition that less
diversity in the marketplace, standing alone, is insufficient to establish antitrust standing. Maj. Op.
at 21. As discussed above, that is not all NicSand alleged in its complaint. However, assuming
arguendo that all NicSand has alleged is that the market has become less diverse, I would part ways
with the majority on its result because this “less diverse” market is now clearly a monopoly and the
facts, as alleged by NicSand, show that the special dangers inherent in monopoly power may exist
in this case. Von’s Grocery, 384 U.S. at 275, 277 & n.7.
Antitrust cases focus on exclusion from the relevant market, and the relevant market usually
has characteristics that pertain to the case at hand. Diversity is valuable in any marketplace, but
more so in some than in others. In Indeck, the relevant market was one for the commodity of electric
power. The relevant question about the diversity of the market was whether the exclusion of thermal
power from the market, in and of itself, was enough to establish antitrust standing. The Indeck court
apparently believed that it was not. However, the electric power market is entirely different from
the market at issue in this case. In most markets for electric power, it is not uncommon—given the
substantial start-up, maintenance, and regulatory costs of operating a power plant—for there to exist
long-term exclusive agreements with one producer. Cf. Tampa Electric Co. v. Nashville Coal Co.,
365 U.S. 320, 334 (1961) (upholding a 20-year requirements contract between a public utility and
a coal mining company, and noting that “at least in the case of public utilities the assurance of a
steady and ample supply of fuel is necessary in the public interest.”). But long-term, exclusive
contracts are obviously less essential in a retail-based market that supplies a product to consumers
that is hardly a necessary commodity, the production of which does not require as substantial an
investment of start-up capital as does a power plant, and that, as the majority quips, “does not take
any ingenuity to make.” Maj. Op. at 12. And, since prices of electricity are usually regulated in
some fashion by a governmental body, there is less risk of price gouging in those markets. Cf.
Hallie v. Eau Claire, 471 U.S. 34, 47 (1985) (“[T]here is little or no danger that [a city] is involved
in a private price-fixing arrangement.”). Moreover, Indeck focused on diversity in the source of
electric power. To the end user—that is, the consumer—a difference in source is not terribly
significant. Most consumers merely want reliable and affordable energy.
However, in the retail market, a 50% reduction in the variety of products is undoubtedly
meaningful. Different consumers desire different products for different needs. In a sense, diversity
No. 05-3431 NicSand, Inc. v. 3M Company Page 21
of products in the market for retail goods is a proxy for preserving the ability of consumers to choose
products that they deem superior or that cost less. In other words, to say that a reduction in
diversity does not reflect a reduction in the superiority of products or in the number of lower-cost
alternatives is to ignore the impact of consumers’ preferences. Those consumers who relied on the
forty products that have since disappeared from shelves may no longer have products that meet their
goals for the cost they are willing to pay (especially given the 70% increase in price since NicSand
was forced out of the market). This court, in essence, has decided on its own, without the benefit
of discovery, that consumers should not be able to choose what may be a “superior product.” This
court cannot make that decision, at least not at the motion-to-dismiss stage.9
The majority’s contention that there is no collective action problem in this case is also
problematical. It is quite unlikely that in this market, retailers are going to sue over a line of
sandpaper products, rather than simply pass the cost to consumers. It is a plausible inference from
NicSand’s complaint that this is what the retailers have done in this case, since retail prices allegedly
have risen seventy percent since NicSand’s exclusion from the market. Further, NicSand has
suffered substantial injury in this case, whereas the retailers, given the small size of the relevant
market, have suffered only marginal injury relative to their entire sales portfolios. Thus, they have
less motivation to bring suit against 3M, given litigation costs and the risk of hurting their
relationships with 3M, a company with substantial market presence across numerous product lines.
As the panel majority aptly noted:
the magnitude of the discounts (measured as a percentage of NicSand’s sales)
declined as 3M locked up a progressively larger share of the distribution market.
That is, as 3M seemed more likely to attain a monopoly position, the downstream
distributors demanded progressively smaller discounts—perhaps because they
expected NicSand to exit the market and hoped to assure themselves of some
discount (and not be the only one of the distributors not to have done so) before none
was available.
9
Neither the Indeck panel nor the majority in this case addressed our precedent’s “necessary predicate” test for
antitrust standing. I therefore will not address it in detail. I pause to note only that I believe the test is satisfied in this
case. The “necessary predicate” test was most recently examined by this court in In re Cardizem CD Antitrust Litigation,
332 F.3d 896 (6th Cir. 2003). There, plaintiffs, purchasers of a particular heart medication, sued the manufacturer of
the brand-name version of the drug and a manufacturer of a generic version of the drug, alleging that the former agreed
to pay the latter $40 million per year to delay introduction of its generic version. Defendants made an argument similar
to the one that 3M makes here: that plaintiffs failed to satisfy the necessary predicate test because even in the absence
of the contract, the generic manufacturer could have legally and unilaterally delayed introduction of the drug into the
market. Id. at 912. The In re Cardizem court rejected this logic, explaining that in the prior cases, “complaints were
dismissed for failure to allege antitrust injury because each of the defendants had taken an action that it was lawfully
entitled to take, independent of the alleged antitrust violation, which was the actual, indisputable, and sole cause of the
plaintiff’s injury.” Id. at 914. The court stated that “[t]he fact that [defendant] could have unilaterally, and legally,
decided not to bring its generic product to a manifestly profitable market ha[d] no relevance in assessing whether the
plaintiffs adequately alleged that the antitrust violation was the necessary predicate for their injury.” Id. at 915. The
court further observed:
[D]efendants’ position, if adopted, risks undermining a basic premise of antitrust law[:] . . . [that] in
many instances, an otherwise legal action — e.g. setting a price — becomes illegal if it is pursuant to
an agreement with a competitor. Under the defendants’ view, such an action would never cause
antitrust injury because a defendant could have unilaterally and legally set the same price.
Id. at 195 n.19.
The only issue in this case is whether the exclusive agreements at issue were anticompetitive and whether they
injured the market under the relevant precedent. Because they were and they did, there is nothing else at issue in this
case that suggests that 3M took any legal actions that were “the actual, indisputable, and sole cause of [NicSand]’s
injury.” Id. at 914. Accordingly, the “necessary predicate” test is satisfied here.
No. 05-3431 NicSand, Inc. v. 3M Company Page 22
NicSand, Inc. v. 3M Co., 457 F.3d 534, 546 n.8 (6th Cir. 2006), vacated by 2006 U.S. App. LEXIS
32342 (6th Cir. Nov. 22, 2006) (en banc). In essence, a collective action problem arose in this case
because each retailer’s choice to get on 3M’s bandwagon was profitable to that retailer in the short-
term and did not account for the potential long-term cost of a monopoly in the relevant market.
IV.
The majority seeks to characterize this case as one in which one company that had long
prospered in a particular niche market became lazy and fell victim to a more vigorous competitor
that simply played the game of business more effectively. While NicSand may have once been the
dominant competitor, that former status can neither legalize 3M’s anticompetitive business practices
nor make 3M immune from antitrust suit. Yes, NicSand was 3M’s competitor, and yes, it obviously
fell prey to 3M’s tactics. However, 3M now holds a monopoly over the market, products have been
eliminated and prices have correspondingly risen by seventy percent. The question here is whether
the tactics 3M employed to attain that status were legal and whether NicSand is an adequate
representative of the market’s interests in this suit. Contrary to the majority’s contentions, at this
stage of the case, it is impossible to conclude that NicSand has failed to meet its burden. The
dangers of monopoly are well-recognized in our law, see Von’s Grocery Co., 384 U.S. at 274-75,
and I believe the majority has improperly turned a blind eye to them in this case.
Accordingly, I respectfully dissent.