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Eaton Case Could Allow Supreme Court To Refine Standards in Monopolization Cases

Steven J. Cernak, Gregory L. Curtner and Kimberly K. Kefalas, BNA Antitrust and Trade Regulation Report, 2013.

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A divided panel of the U.S. Court of Appeals for the Third Circuit in September 2012 upheld a jury verdict against Eaton Corporation and in favor of ZF Meritor LLC and Meritor Transmission Corp.

ZF Meritor LLC (ZFM) and Meritor Transmission Corp. (Meritor) had accused Eaton of illegal monopolization and exclusive dealing through use of a loyalty discount program and other sales tactics when selling their transmissions for heavy duty trucks. Soon, Eaton is expected to petition the U.S. Supreme Court for a writ of certiorari. If the Court grants the petition, it may provide in its decision clarification as to when allegedly exclusionary practices should be analyzed as predatory pricing. Even if the Court denies petition, the Third Circuit’s decision (both majority and dissenting opinions) is an important new step in the evolving law regarding the kinds of “exclusionary” contract terms that can be utilized by market participants with high market shares.

Eaton and Meritor made transmissions for heavy duty trucks. The vast majority of heavy duty trucks in the U.S. are linehaul trucks and nearly all of them use only manual or automated mechanical transmissions. Eaton was the only significant manual manufacturer for decades. Meritor entered the market in 1989 and had approximately 17% of the sales 10 years later. Also in 1999, Meritor and ZF Friedrichshafen of Germany formed ZFM to convert ZF’s automated mechanical transmissions to U.S. standards. Eaton responded to ZFM’s entry by introducing its own automated mechanical transmission and entering long-term agreements with the only four U.S. original equipment manufacturers (OEMs) of heavy duty trucks.

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