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From Antitrust Law Daily, May 9, 2013

ALJ Rejects Conspiracy Claims in Pipe Fittings Case

By Jeffrey May, J.D.

In an FTC administrative action against McWane, Inc.—the largest supplier of ductile iron pipe fittings in the United States—Chief Administrative Law Judge D. Michael Chappell has rejected claims that ductile iron pipe fittings (DIPF) suppliers conspired to fix prices or to exchange competitively sensitive sales information. The ALJ also ruled that McWane did not violate the FTC Act by inviting its competitors to collude. Complaint Counsel’s monopolization, attempted monopolization, and conspiracy to monopolize claims, as well as a restraint of trade claim, were, however, upheld (In the Matter of McWane, Inc., FTC Dkt. No. 9351, May 1, 2013, Chappell, D.).

In January 2012, the FTC announced its actions against McWane and two other suppliers of DIPFs. DIPFs are used in water distribution systems for the installation of valves, water meters, and hydrants and to change the flow of water. The other two suppliers, Star Pipe Products, Ltd., and Sigma Corporation, eventually agreed to settle the agency's charges.

In its seven-count complaint against McWane, the FTC alleged generally that McWane conspired to set and maintain prices for pipe fittings, and that McWane illegally maintained its monopoly power in the market for U.S.-made pipe fittings.

Conspiracy claims. Complaint Counsel failed to prove a conspiracy among the suppliers to stabilize and increase fittings prices by curtailing certain pricing programs and increasing price transparency, the ALJ ruled. "At best, the evidence shows interdependent or consciously parallel conduct, unaided by any agreement, which is not illegal," it was decided.

Similarly, the evidence failed to support a conspiracy to exchange competitively sensitive sales information based on the suppliers' participation in a trade association data reporting system. Complaint Counsel argued that the Ductile Iron Fittings Research Association (DIFRA) tons-shipped data reporting system constituted an unlawful "information exchange" because the data provided had the tendency or effect of "facilitating price collusion," in a market already susceptible to tacit coordination. While the reporting system constituted concerted action by the DIFRA members for purposes of Section 1 of the Sherman Act, it did not unreasonably restrain trade. The DIFRA aggregated data was insufficiently specific to facilitate price coordination, in the ALJ’s view.

Invitation to collude claim. Customer letters did not prove that McWane invited its competitors to collude to restrain price competition, the ALJ decided. Thus, Complaint Counsel's invitation to collude claim was dismissed. The ALJ did note, however, that a "solicitation to enter into an anticompetitive agreement (i.e., an ‘invitation to collude’) can justify a remedy under Section 5 of the FTC Act, even if the solicitation does not result in an unlawful agreement under Section 1 of the Sherman Act."

Monopoly claims. The ALJ did find that McWane monopolized or attempted to monopolize the Domestic Fittings market through exclusionary acts and practices. Complaint Counsel met its burden of proving that McWane had monopoly power based on its high market share in the domestic fittings market and its ability to control prices or exclude competitors. In addition, McWane engaged in monopolistic conduct by excluding Star from the market by threatening to penalize distributors if they bought Star's domestically produced DIPF. Generally, McWane communicated to distributors that if they purchased domestic fittings from Star, they would lose the ability to buy McWane's domestic fittings. McWane's distribution program was an "all-or-nothing exclusive dealing arrangement," according to the ALJ.

Unreasonable restraint of trade claim. Complaint Counsel also successfully challenged McWane's Master Distribution Agreement (MDA) with Sigma as an unreasonable restraint of trade and unfair method of competition. Because Sigma was not a potential competitor, the ALJ analyzed the MDA under the rule of reason. The ALJ concluded that "the history of the MDA, the reasons McWane entered into it, and the restrictive terms contained therein, demonstrate[d] the anticompetitive nature of the MDA." After rejecting McWane's proffered procompetitive justifications, the ALJ held that the MDA was an unreasonable restraint of trade in the domestic fittings market. The MDA also supported the agency's conspiracy to monopolize claim.

Remedy. The ALJ accepted Complaint Counsel’s proposed order as it related to the four successful counts in the complaint. Under the order, McWane is required to cease and desist from, among other things:

(1) allocating or dividing domestic DIPF markets, customers, contracts, transactions, business opportunities, lines of commerce, or territories;

(2) agreeing with competitors not to compete for each other’s customers, contracts, transactions, or business opportunities in the domestic DIPF market;

(3) inviting, entering into or enforcing certain customer exclusivity agreements in the domestic DIPF market;

(4) inviting, entering into or enforcing certain retroactive customer sales incentives in the domestic DIPF market; and

(5) discriminating against, penalizing, or otherwise retaliating against any customer that distributes, purchases or sells a competitor’s domestic DIPF.

Appeals process. The Initial Decision is subject to review by the full FTC on its own motion, or at the request of any party.

McWane's response. McWane issued a statement on May 8, saying that it applauds the ALJ's rejection of the collusion accusations.

"Judge Chappell’s conclusions that we did not collude or conspire to fix prices confirms what we have said all along," said McWane, Inc. President G. Ruffner Page, Jr. "We are very pleased that Judge Chappell dismissed these unwarranted and speculative allegations and that he recognized that McWane’s conduct was pro-competitive and legal."

The statement suggested that an appeal was likely.

Attorneys: Edward D. Hassi for FTC. Joseph A. Ostoyich (Baker Botts L.L.P.) and J. Alan Truitt (Maynard Cooper and Gale PC) for Respondent McWane, Inc.

Companies: Companies: McWane, Inc.; Star Pipe Products, Ltd.; Sigma Corp.

MainStory: TopStory Antitrust FederalTradeCommissionNews

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