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From Antitrust Law Daily, July 16, 2013

Improper market definition dooms attempted monopolization claim against steel maker

By Jeffrey May, J.D.

The U.S. Court of Appeals in Atlanta has upheld summary judgment in favor of steel maker Nucor Corporation in an action brought by Gulf States Reorganization Group (GSRG), a newly formed entity that unsuccessfully attempted to purchase assets of bankrupt Gulf States Steel in order to enter the black hot rolled coil steel market (Gulf States Reorganization Group, Inc. v. Nucor Corp., July 15, 2013, Jordan, A.).

The case was before the Eleventh Circuit a second time. Earlier, the appellate court vacated a dismissal order and remanded the matter to the district court for further proceedings. In that 2006 decision (466 F.3d 961, 2006-2 Trade Cases ¶75,442), the appellate court did not reach the merits; however, it concluded that GSRG, as a losing bidder for the assets of the bankrupt firm, had sufficiently alleged injury to proceed with its antitrust claims.

This time, the appellate court affirmed summary judgment based on a special master’s reports and the district court’s order. However, it expanded on one of the issues relevant to GSRG’s attempted monopolization claim, “in order to explain why cross-elasticity of supply is critical to defining the relevant market in this case.”

GSRG had alleged that Nucor, a leading manufacturer of black hot rolled coil steel, conspired with others to purchase the steel-producing assets of Gulf States Steel at the bankruptcy auction in order to block competition in the black hot rolled coil steel market. The winning bidder for the assets was an entity formed by Nucor and another company that bought and sold used steel equipment. The complaining company also contended that Nucor attempted to monopolize and conspired to monopolize the black hot rolled coil steel market in the Southeast.

The appellate court agreed with the district court's determination that GSRG failed to define a proper product market limited to black hot rolled coil steel to support its Sherman Act, Section 2 claims. Steel can have a variety of forms, the appellate court explained. Black hot rolled coil steel was just one type.

GSRG’s proposed relevant product market—black hot rolled coil steel—did not account for the fact that manufacturers of other forms of steel, such as pickled and oiled steel, could switch to production of black hot rolled coil steel “without much difficulty or cost,” according to the appellate court.

Although GSRG argued that pickled and oiled steel was not the equivalent of black hot rolled coil steel from the perspective of purchasers, a reasonable market definition had to be based on both demand and supply considerations. There was high cross-elasticity of supply between black hot rolled coil steel and pickled and oiled steel, according to the appellate court.

A pickled and oiled steel manufacturer can, without much or any cost, switch and produce black hot rolled coil steel. When new black hot rolled coil steel is bathed in acid and coated with oil, the resulting type of steel is called pickled and oiled steel. The “pickling” process removes rust and scale and makes the surface of the steel white, the court explained.

If Nucor obtained a monopoly over the black hot rolled coil steel market and raised prices, pickled and oiled steel manufacturers would likely cut the “pickling” processing short and sell the black hot rolled coil steel at the higher price to earn significant profits, in the court's view.

Because GSRG did not present evidence to create an issue of material fact with respect to the cross-elasticity of supply, summary judgment in favor of Nucor was affirmed. GSRG’s failure to account for cross-elasticity of supply was fatal to its attempted monopolization claim.

The case is No. 11-14983.

Attorneys: Philip Clark Jones (Greenburg Spence & Taylor, PC) for Gulf States Reorganization Group, Inc. Bert Walter Rein (Wiley Rein, LLP) for Nucor Corp.

Companies: Gulf States Reorganization Group, Inc.; Nucor Corp.

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