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From Antitrust Law Daily, April 5, 2016

Failure to define relevant market dooms sewer system manufacturer’s conspiracy claim

By Linda O’Brien, J.D., LL.M.

A manufacturer of vacuum sewer systems could not pursue conspiracy in restraint of trade claims against a competitor without showing that the relevant product market excluded other types of sewer systems, the U.S. Court of Appeals in Boston has decided. Thus, the district court’s entry of summary judgment was affirmed (Flovac, Inc. v. Airvac, Inc., April 4, 2016, Selya, B.).

Flovac, a Puerto Rico corporation, and Airvac, an Indiana corporation, were competitors in the manufacture and sale of vacuum sewer systems, primarily to municipalities, for use in wastewater collection and conveyance to treatment facilities.

After a sewer project contract with the Puerto Rico Aqueduct and Sewer Authority (PRASA) was awarded to Flovac, Airvac’s President Mark Jones wrote to PRASA, objecting to the award. Jones based his objection on the fact that the project was partially funded by American Recovery and Reinvestment Act of 2009 (ARRA) funds, which had a “Buy American” requirement, and Flovac’s valves were manufactured in the Netherlands. After PRASA reaffirmed its award decision, Airvac then brought its objection to the Environmental Protection Agency (EPA). The EPA recommended that Flovac manufacture the questioned valve component in Puerto Rico, and Flovac complied. However, Airvac’s objections delayed the project by 10 months, which caused additional expense to Flovac.

Consequently, Flovac brought antitrust claims against Airvac under Sections 1 and 2 of the Sherman Act, alleging a restraint of trade under the “rule of reason” analysis and monopolization, based on the actions Airvac used to attempt to deny Flovac the PRASA contract. In February 2015, the district court entered summary judgment in favor of Airvac. Flovac appealed.

Relevant product market. The district court appropriately dismissed Flovac’s antitrust claims, the appellate court found. The scope of the product market is determined by examining products that are considered to reasonably interchangeable by consumers for the same purpose, the court explained. Flovac offered only a single definition of the relevant product market—a product market restricted to vacuum sewer systems. Airvac contended that the relevant product market was comprised of all sewer systems, including both vacuum and non-vacuum systems.

There was uncontested evidence that there were a variety of sewer system options that all served the same basic purpose and prospective customers routinely considered those options when deciding what system to purchase. According to the court, Flovac’s evidence that vacuum sewer systems were a particular technology that was more suitable for certain geographic and topographic areas was probative only as to Flovac’s view of the relevant product market and did not speak at all to the perspective of consumers. Since that evidence has no bearing on the key questions of product interchangeability or cross-elasticity of demand, a jury could not find that the product market should be defined as Flovac proposed, the court concluded.

Flovac’s argument that the district court erroneously imposed a requirement that a plaintiff provide expert testimony to establish the relevant market was rejected. The court noted that, while expert testimony is common and useful in establishing a product market, the district court’s analysis relied on the inoffensive view that Flovac had the burden of introducing some type of economic evidence, which Flovac failed to do. Thus, Flovac’s scant evidence was insufficient to ward off the entry of summary judgment, the court concluded.

The case is No. 15-1571.

Attorneys: Roberto E. Ruiz-Comas (RC Law and Litigation Services PSC) for Flovac, Inc. Rafael Escalera-Rodriguez (Reichard & Escalera) and Courtney A. Hoffman and David M. Schiffman (Sidley Austin LLP) for Airvac, Inc.

Companies: Flovac, Inc.; Airvac, Inc.

MainStory: TopStory Antitrust MaineNews MassachusettsNews NewHampshireNews PuertoRicoNews RhodeIslandNews

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