At issue for CFOs: will the courts begin to move away from the antipathy they’ve shown to predatory-pricing lawsuits over the past 30 years? For three decades, laissez-faire theories championed at the University of Chicago have held sway in federal courts. “The Supreme Court has been receptive to the argument that predatory pricing is so rare that it’s not worth worrying about,” notes Albert A. Foer, president of the American Antitrust Institute, a research and advocacy group. “But there is no empirical evidence that that’s true.”
Regardless, no plaintiff has prevailed in a final determination of predation suits in federal courts since 1993. As Aaron Edlin, a professor of law and economics at the University of California, Berkeley, notes, businesses that hope to win pricing cases would do well to omit mention of “predatory” in their suits, because that often sets a standard that’s been virtually impossible to meet.
That may change. Advances in game theory and behavioral economics are casting doubt on the Chicago School’s views. And a decision rendered by an appeals court in 2003 seemed to suggest that jurists themselves may be having second thoughts. In its decision, the 10th Circuit Court of Appeals indicated it would not approach predation cases with “the incredulity that once prevailed.”
This slight lowering of the bar could encourage the Davids of the business world to go after the Goliaths. And as Daniel A. Crane, assistant professor of law at the Benjamin N. Cardozo School of Law in New York, argues, they may not necessarily care about winning. Predatory-pricing lawsuits, he says, are often launched with other aims in mind, such as intimidating a rival or sending a strong signal that prices should be adjusted upward.
Pricing remains problematic. In February, for example, market-research giant VNU NV agreed to pay $55 million to settle a lawsuit alleging the company had, among other things, engaged in predatory pricing. While many observers saw that as further proof that plaintiffs in such suits stand little chance in court, the settlement could be another sign that managers need to think long and hard about pricing strategies in 2006. — Scott Leibs
Bond Covenants: The Unbearable Lateness of Filing
Once, when asked to sum up lessons learned from the infamous Donner Party, one survivor said: “Never dawdle.”
Public companies take note. Indeed, late SEC filers may soon be dealing with an unforeseen problem: lenders are beginning to use tardy filings as cover to call in loans. “Bondholders are becoming more aggressive and taking action,” says Kenneth Eckstein, partner at Kramer Levin Naftalis & Frankel LLP.
Take the ongoing court case involving BearingPoint. Two holders of the consultancy’s convertible securities claim the firm is in default because it has yet to file periodic reports from 2004 and 2005. BearingPoint has bashed the lenders’ assertion, dismissing the claim as “a cynical attempt to extract leverage….”
With interest rates rising, expect more cynicism. In a sign of things to come, Navistar International Corp. recently received a default notice from bondholders because of a late filing.
More than 100 companies were late with their filings in the third quarter of 2005. You can almost see the lawyers flying lazy circles in the sky. — S.T.