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From Antitrust Law Daily, February 6, 2017

Concerted refusal to deal claims against natural gas producers fail

By Jeffrey May, J.D.

Claims that natural gas producers engaged in a concerted refusal to deal with a nascent competitor were properly rejected on a motion for summary judgment because the complaining firm failed to establish an injury to competition resulting from its inability to gain access to a gas-gathering system, processing facility, and pipeline, the U.S. Court of Appeals in Denver has ruled. The complaining firm, Buccaneer Energy (USA) Inc., did not satisfy its initial burden of showing anticompetitive effects under rule-of-reason analysis because it did not properly define the market and/or establish market power (Buccaneer Energy (USA) Inc. v. Gunnison Energy Corp., February 3, 2017, McHugh, C.).

Buccaneer asserted that the Ragged Mountain Gathering System (RM System)—the gas-gathering system, processing facility, and pipeline—"was essential to effective competition for production rights and the sale of natural gas from the Ragged Mountain Area." The company claimed that, by refusing to provide Buccaneer access to the system on reasonable terms, the defendants violated Sections 1 and 2 of the Sherman Act. The RM System carried the gas 20 miles to an interconnection on a larger intrastate pipeline.

Even though the district court held that reasonable jurors could conclude that the defendants conspired to deny Buccaneer reasonable access to the RM System and "intentionally blocked Buccaneer from entering into competition with them as producers of gas in the Ragged Mountain Area," it granted summary judgment in favor of Gunnison Energy Corp., SG Interests I, Ltd., and SG Interests VII, Ltd.—co-owners of the pipe-line system. The lower court concluded that "Buccaneer lack[ed] evidence showing that the defendants caused or were capable of causing injury to competition in a defined market, as opposed to simply harm to Buccaneer, and because Buccaneer ha[d] not established antitrust standing."

Essential facilities doctrine. At the outset, the court rejected the defendants' assertions that Buccaneer was attempting to pursue an essential facilities that was barred by the U.S. Supreme Court's 2004 decision in Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398. Trinko did not speak to claims alleging concerted refusals to deal, the court explained. However, Buccaneer would not be able to prove the second traditional element of the essential facilities doctrine: "a competitor’s inability to duplicate the facility." The court could not conclude, in the absence of any evidence on the matter, that Buccaneer proved its inability to duplicate the RM System.

Competitive harm. Buccaneer failed to present facts from which a jury could find harm to competition in a defined market, according to the court. It did not properly define either a product market or geographic market for its proposed upstream production rights market. For instance, Buccaneer never clearly defined "production rights." And it failed to adequately define the RM Area. Even if Buccaneer had established a relevant market for upstream production rights in the RM Area, it had not shown that the defendants possessed market power there. Buccaneer did not demonstrate the defendants’ market share, the court pointed out.

Further, the court found the geographic boundaries of the market for downstream gas sales to be "byzantine." In any event, the court concluded that Buccaneer did not set forth facts from which a jury could find that the defendants possessed market power in that market. Thus, Buccaneer could not satisfy its related burden of demonstrating significant anticompetitive effect under the rule of reason.

The case is No. 15-1396.

Attorneys: Ronald L. Wilcox (Wilcox Law Firm, LLC) for Buccaneer Energy [USA] Inc. Timothy R. Beyer and Peter J. Korneffel, Jr. (Bryan Cave LLP) for Gunnison Energy Corp. L. Poe Leggette and Mark S. Barron (Baker & Hostetler LLP) for SG Interests I, Ltd. and SG Interests VII, Ltd.

Companies: Buccaneer Energy (USA) Inc.; Gunnison Energy Corp.; SG Interests I, Ltd.; SG Interests VII, Ltd.

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