Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.
Citation: 509 U.S. 209 (Supreme Court, 1993)
Facts
Liggett (later Brooke Group) introduced a line of generic cigarettes priced significantly below branded cigarettes. Brown & Williamson, a branded cigarette manufacturer, responded with its own generic line priced below its own cost, allegedly to discipline Liggett and drive it out of the generic segment. Liggett sued under the Robinson-Patman Act (price discrimination) and § 2 of the Sherman Act, claiming predatory pricing.
Issue
What standard governs predatory pricing claims, and what must a plaintiff prove to establish that below-cost pricing is anticompetitive?
Holding
The Supreme Court held that Liggett failed to establish a predatory pricing claim because it could not demonstrate a reasonable prospect that Brown & Williamson would recoup its below-cost investment after driving Liggett from the market.
Rule
To prevail on a predatory pricing claim, a plaintiff must prove two elements: (1) the prices complained of are below an appropriate measure of the defendant’s costs (below-cost pricing), and (2) the defendant has a dangerous probability of recouping its investment in below-cost pricing — i.e., that it will be able to raise prices above competitive levels long enough to recover its losses after the predation succeeds. Without recoupment probability, below-cost pricing is more likely to benefit consumers than harm competition.
Significance
Brooke Group establishes the two-part test (below-cost pricing + recoupment) that governs all federal predatory pricing claims. The recoupment requirement is a demanding one that makes successful predatory pricing claims rare, reflecting the Court’s skepticism that below-cost pricing is usually predatory rather than competitive. The case is central to understanding § 2 conduct standards and the Court’s general hostility to claims that low prices harm competition.