Beyond Derivatives: Seventh Circuit Holds Recoupment in Predatory Pricing Must Arise from Monopoly Prices, Not Financial Hedging

Introduction

United Wisconsin Grain Producers LLC, together with six other ethanol producers, filed an antitrust suit against Archer Daniels Midland Company (ADM) alleging that ADM depressed ethanol prices at the Argo Terminal by selling below cost while simultaneously profiting from short positions in ethanol-linked derivatives. The appellants claimed monopolization, attempted monopolization, and “market manipulation” under § 2 of the Sherman Act and corresponding Illinois provisions. The U.S. District Court for the Central District of Illinois dismissed the action under Rule 12(b)(6), and the Seventh Circuit affirmed. The appellate opinion—authored by Judge Jackson-Akiwumi—clarifies what counts as “recoupment” in a predatory-pricing theory, rejects a stand-alone “market manipulation” cause of action under § 2, and underscores waiver pitfalls for attempted-monopolization claims.

Summary of the Judgment

Predatory pricing claim: Plaintiffs failed to allege that ADM later charged monopoly prices to recover its below-cost losses. Profits obtained through derivatives trading do not satisfy the recoupment element.
Attempted monopolization claim: Deemed waived on appeal because the brief did not separately advance argument about “dangerous probability of recoupment.”
“Market manipulation” claim: § 2 does not recognize a generalized claim that low prices distort a benchmark; below-cost conduct by a single firm must fit within the predatory-pricing framework.
The Seventh Circuit therefore affirmed dismissal of all claims.

Analysis

1. Precedents Cited

The panel anchored its reasoning in a line of Supreme Court and Seventh Circuit cases setting rigorous standards for predatory-pricing liability:

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993):

Established the two-step predatory-pricing test—below-cost pricing plus a dangerous probability of recoupment through supracompetitive prices.

Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312 (2007):

Emphasized that “recoupment” means future higher product prices paid by consumers.

Pacific Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009):

Warned against expanding § 2 theories that would chill low pricing; single-firm “price squeezing” must still satisfy predatory-pricing standards.

Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990):

Rejection of “market-wide distortion” as a substitute for consumer-focused antitrust injury.

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989):

Stressed that antitrust law protects consumers, not competitors, from low prices that never become high.

Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325 (7th Cir. 1986):

Differentiated single-firm conduct from concerted price-fixing; low prices by one firm judged under § 2, not under per-se cartel rules.

2. Legal Reasoning

a) The core holding—recoupment must be via monopoly prices

The court held that, as a matter of law, recoupment in a predatory-pricing scheme requires the predator to recover losses through later supracompetitive pricing in the same product market. ADM’s simultaneous profits from ethanol derivatives—while economically clever—do not constitute recoupment because derivatives gains do not harm downstream ethanol buyers. Accordingly, plaintiffs’ factual allegations, even if true, fail to plead a necessary element of monopolization.

b) Waiver of attempted monopolization

On appeal, plaintiffs conflated their monopolization and attempted-monopolization theories, never arguing the “dangerous probability” prong distinct to the attempt claim. Under Seventh Circuit precedent, such conflation waives the separate cause of action.

c) Rejection of a freestanding “market manipulation” theory

Plaintiffs sought to frame ADM’s alleged price-index tampering as a unique § 2 offense. The panel reiterated two limiting principles:

General market distortion is not “antitrust injury” without consumer-price harm (Atlantic Richfield).
When conduct involves unilateral below-cost prices, predatory pricing is the exclusive doctrinal pathway (linkLine).

Consequently, courts may not recognize a nebulous “market manipulation” cause of action against a single firm.

3. Potential Impact

Financial-instrument strategies insulated: Firms can hedge or arbitrage through derivatives without fear of predatory-pricing liability so long as end-consumer prices remain low.
Narrowing the pleading window: Plaintiffs alleging predatory pricing must now plead—at the motion-to-dismiss stage—that the defendant either has already raised prices or has the power and plan to do so.
Benchmark-manipulation suits curtailed: Commodity producers cannot circumvent predatory-pricing standards by relabeling price-benchmark tampering as “market manipulation” under § 2.
Litigation strategy shift: Expect future plaintiffs to explore alternative statutes (e.g., Commodity Exchange Act, securities fraud) for benchmark-manipulation allegations instead of relying solely on Sherman Act § 2.
Regulatory implications: Antitrust agencies might address derivative-driven strategies through non-price-predation theories (e.g., exclusionary agreements, refusals-to-deal) if consumer-price effects can be shown.

Complex Concepts Simplified

Predatory Pricing: Selling below cost in the short term to drive competitors out, with an eye to raising prices later once rivals exit.
Recoupment: The phase where the predator recovers earlier losses by charging higher‐than-competitive (“monopoly”) prices to customers. Without a plausible path to this payoff, low prices are considered pro-competitive.
Monopolization vs. Attempted Monopolization: Monopolization: Monopoly power already acquired & maintained through exclusionary conduct. Attempted: Defendant does not yet have monopoly power but possesses specific intent and a “dangerous probability” of achieving it.
Market Manipulation (as used by plaintiffs): A term borrowed from securities/commodities law. The court made clear that § 2 of the Sherman Act does not recognize “market manipulation” as an independent violation where the conduct is simply unilateral below-cost sales.

Conclusion

The Seventh Circuit’s decision in United Wisconsin Grain Producers LLC v. Archer Daniels Midland Co. tightens the doctrinal screws on predatory-pricing litigation. The ruling establishes a clear, bright-line principle: recoupment means subsequent monopoly pricing; any alternative revenue stream—no matter how lucrative—cannot substitute for consumer-price injury. By simultaneously shutting the door on generalized “market manipulation” claims and penalizing briefing oversights, the court reinforces the consumer-welfare focus of antitrust law and preserves aggressive price competition as a protected strategy.

Practitioners must now draft antitrust complaints with meticulous attention to the recoupment element and be prepared to allege, with factual plausibility, how and when the predator will raise prices to consumers. Commodity-benchmark and derivatives-related grievances will likely migrate to other legal frameworks unless consumer-price effects can be concretely pleaded.