Sixth Circuit dismisses a predatory pricing complaint in the solar panel industry

By Valerio Cosimo Romano

On 18 August 2016 the United States Court of Appeals for the Sixth Circuit, dismissed a predatory pricing complaint filed by Energy Conversion, a solar panel manufacturer based in the United States, against three Chinese competitors.

Energy Conversion alleged that the defendants had conspired to drive their rivals out of business. More specifically, plaintiff claimed that the defendants, with the support of the Chinese government, had agreed to increase their export of solar panels to the United States with the intention of selling their solar panels below cost. It is also worth noting that, in a separate judgment, the Department of Commerce and the International Trade Commission found that the Chinese firms had harmed American industry through illegal dumping.

In their first argument, plaintiff alleged that the three defendants had charged below-cost prices for their products. Energy Conversion maintained that a predatory-pricing claim based on § 1 of the Sherman Act does not require a prospect of recoupment in addition to the mere below-cost pricing (that is, according to the plaintiff, Energy Conversion has only to prove that defendants engaged in below-cost pricing in order to drive it out of business and not that defendants are reasonably planning to recoup their losses by charging supra-competitive prices to the consumers once the rivals have left the market). According to the Court, however, predatory-pricing claims based on § 1 of the Sherman Act require below-cost pricing and a reasonable prospect of recoupment, which would be what makes rational the choice to “forgo profits.” As plaintiff never alleged that Suntech, Trina, and Yingli had a reasonable prospect of recouping their losses, the Court dismissed the argument.

In its second argument, Energy Conversion went even further, explaining that the alleged conspiracy would be economically rational even if the conspirators never planned to make back their losses. The reason–plaintiff argued­­–is that defendants are all Chinese companies, and China is a “non-market economy.” Thus, its commercial entities have little (if no) interest in making a profit. Rather, they intended to eliminate American competition. The Court disagreed, arguing that the Chinese companies, “impervious to the profit motive,” were simply “happy to maintain low prices” as a “form of charity,” and would not make use of monopoly power to lower production.

Third, plaintiff alleged that the low prices charged by the defendants amounted to an antitrust injury because these low prices led to reduced consumer choice and loss of innovation. The Sixth Circuit dismissed this argument as well. According to the Court, companies compete not only on the quality of their products but also on their prices. Innovation, thus, need not be solely about better technology but also about cost reduction. Therefore, even if a superior form of technology is removed from the market, the outcome might nonetheless represent “a triumph of consumer choice” and not a limitation on it.

This case has many interesting facets. In addition to reaffirming the necessity of recoupment for antitrust claims brought under § 1 of the Sherman Act, it gives hints on the interplay between antitrust and anti-dumping laws, highlighting their mutual independence. Further, it questions–at least potentially–the validity of antitrust arguments based on a market economy against other forms of economic governance. Lastly, it opens up the floor for further discussions regarding the pursuit of innovation through cost reduction.