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From Antitrust Law Daily, June 12, 2013

FTC to Take Up Appeals of Pipe Fittings Antitrust Case

By Jeffrey May, J.D.

The Federal Trade Commission has scheduled oral argument on August 7, 2013, to consider the appeals of an Initial Decision in an antitrust case against McWane, Inc.—the largest supplier of ductile iron pipe fittings in the United States. Both the McWane and Counsel for the Complaint have filed appeals of Chief Administrative Law Judge D. Michael Chappell's May 1 ruling (In the Matter of McWane, Inc., FTC Dkt. No. 9351).

In January 2012, the FTC announced its actions against McWane and two other suppliers of ductile iron pipe fittings (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 allegations. McWane decided to fight the charges.

Following an administrative trial, the ALJ rejected Complaint Counsel's allegations that the DIPF suppliers conspired to fix prices or to exchange competitively sensitive sales information. The ALJ also held that it was not shown that McWane violated the FTC Act by inviting its competitors to collude. Monopolization, attempted monopolization, and conspiracy to monopolize claims, as well as a restraint of trade claim, against McWane were, however, upheld by the ALJ.

Complaint Counsel appeals from the ALJ’s holdings that McWane was not liable under Count 1 (price fixing) and Count 2 (anticompetitive information exchange) of the agency's complaint. According to Complaint Counsel's appeal brief, the “Initial Decision contains several fundamental legal errors, and as a result, fails to advance a credible analysis of the concerted action evidence.”

It is asserted that the ALJ ignored evidence of the price fixing conspiracy and failed to properly evaluate the “plus factor” evidence as a whole, which tended to exclude the possibility of independent action. Complaint Counsel identifies 13 pus factors, including: characteristics that made the fittings market conducive to collusion; McWane's plan for collusive pricing; secret and price-related inter-firm communications; and McWane’s invitations to collude.

“When the evidentiary puzzle pieces are examined together, and not dissected individually, the picture is clear,” Complaint Counsel contends. “It is not a picture of recognized interdependence, but one of collusion.”

In McWane's appeal brief, the respondent disputes the ALJ's findings with respect to four counts based on McWane’s efforts to exclude competitors from the domestic fittings market.

McWane argues that the ALJ improperly found that McWane monopolized or attempted to monopolize the domestic fittings market through exclusionary acts and practices (Counts 6 and 7). McWane contends there is no separate domestic fittings market to support the monopoly claims. Domestic and imported fittings regularly compete against each other for the specification and are functionally interchangeable. Moreover, Star's eventual entry into the domestic fittings market undermined Complaint Counsel's theory that McWane adopted restrictive distribution policies to impede entry by competitors, according to the respondent.

McWane also contends that the ALJ's legal findings that McWane's master distribution agreement with Sigma—pursuant to which Sigma would purchase domestic fittings from McWane—unreasonably restrained trade and constituted a conspiracy to monopolize (Counts 4 and 5) were erroneous because the ALJ had found that Sigma was not an actual or potential domestic fittings competitor.

McWane faces an uphill battle in its appeal. Three of the four current commissioners joined to deny McWane's motion for summary decision in the case last August.

While the Commission opinion denied the motion on the ground that there were triable issues, the Commission rejected McWane's theory that Star’s “successful expansion” prevented a trier of fact from concluding that McWane had monopoly power or that its distribution policies were exclusionary for purposes of the monopolization and attempted monopolization claims. At that time, the Commission also questioned whether Sigma was a potential entrant into the domestic fittings market at the time it entered into the MDA with McWane.

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

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

MainStory: TopStory Antitrust FederalTradeCommissionNews

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