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From Antitrust Law Daily, March 18, 2014

Honeywell escapes tying, exclusive dealing, monopoly, and price discrimination claims raised by maintenance service provider

By Jeffrey May, J.D.

Honeywell International, Inc., the country’s largest manufacturer of auxiliary power units (APUs) for commercial aircraft, was entitled to summary judgment in its favor in an antitrust action brought by Aerotec International, Inc., an independent provider of maintenance, repair, and overhaul (MRO) services for APUs, the federal district court in Arizona has ruled (Aerotec International, Inc. v. Honeywell International, Inc., March 14, 2014, Sedwick, J.).

Aerotec alleged that Honeywell used its position as the predominant APU manufacturer and component parts supplier to engage in anticompetitive conduct in the MRO service market in violation of antitrust laws and price discrimination laws. Honeywell is both the supplier of component parts and a large competitor for MRO service contracts. Aerotec is a customer of Honeywell in the component parts market, buying Honeywell-branded OEM parts that it uses to perform MRO services on Honeywell APUs for airline customers.

Tying. The court rejected Aerotec’s claim that Honeywell engaged in per se illegal tying by using its power in the market for Honeywell APU component parts to coerce APU owners, who need Honeywell APU component parts for APU repairs, to purchase MRO services from Honeywell. Aerotec alleged that it was foreclosed from selling the same parts/repair service to APU owners that Honeywell provided, because Honeywell limited its access to component parts needed to complete repairs. Aerotec also objected to Honeywell’s bundling of parts and repairs at a discount, because it induced customers to buy repair services from Honeywell instead of other MRO providers. The court concluded that there was no direct evidence of coercion.

Exclusive dealing. Aerotec also failed to support its claims that Honeywell engaged in exclusive dealing and bundled pricing by using “exclusive dealing agreements with APU repair customers to foreclose a substantial portion of the APU repair market from rival repair providers” and imposing “a severe pricing penalty if customers do not commit to using Honeywell repair services.” Aerotec did not meet its initial burden to show that Honeywell’s customer agreements with exclusive dealing provisions had significant anticompetitive effects on the repair market for Honeywell APUs. Aerotec contended that it suffered a decline in its business, but any foreclosure of Aerotec—with its small market share—did not affect competition in the market in general, the court explained.

Monopolization. Aerotec’s “refusal to deal” theory of monopolization also was rejected by the court. Aerotec contended that Honeywell subjected it to an onerous ordering system, delayed shipments of needed component parts, refused to provide accurate information about parts deliveries, charged higher prices for parts than it did to non-rivals, refused to provide technical data, and implemented restrictive payment terms. These terms were not so onerous that they acted as an outright refusal to deal, it was decided. There was evidence that Aerotec continued to do business and obtain parts from Honeywell in addition to other sources. The court noted once again that the limited effects felt by Aerotec would not support an injury to the market as a whole to support the claim.

A monopolization claim could not be based on Honeywell’s bundled pricing of parts and repairs in its MRO service contracts, the court also ruled. To support its claim, Aerotec had to demonstrate that Honeywell engaged in below-cost pricing, and it failed to meet this burden. Honeywell produced evidence to show that it had measures in place to make sure its MRO service contracts were priced above cost. The court rejected Aerotec’s assertion that Honeywell’s evidence was insufficient.

Price discrimination. The court granted summary judgment in favor of Honeywell on Aerotec’s price discrimination claim under the Robinson-Patman Act. Aerotec alleged that it had to pay 15% above Honeywell’s catalog prices while affiliates and airlines received the catalog prices or lower. Aerotec could not base its price discrimination claim on the different prices offered to airline customers who bought component parts from Honeywell and then performed their own APU repairs, because the airlines operated on a different level than Aerotec and were not competitors, the court decided. With respect to the “favored” affiliated MRO service providers, they were parties to agreements with Honeywell that were materially different from the purchase-to-purchase agreements Aerotec had with Honeywell, the court noted. Honeywell successfully argued that it had a right to treat these favored providers differently.

The case is 2:10-cv-00433 JWS.

Attorneys: Carson Thomas H. Emmons (Baird Williams & Greer LLP) for Aerotec International, Inc. Eric Michael Fraser (Osborn Maledon PA) for Honeywell International, Inc.

Companies: Aerotec International, Inc.; Honeywell International, Inc.

MainStory: TopStory Antitrust ArizonaNews

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