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From Antitrust Law Daily, June 13, 2013

Lack of Market Power Dooms Maintenance Services Provider’s Tying Claims Against Wind Turbine Manufacturer

By Tobias J. Gillett, J.D., LL.M.

A provider of operation and maintenance (O&M) services for wind turbines produced by a turbine manufacturer has failed to assert a claim that the manufacturer unlawfully tied the provision of O&M services for its turbines to the sale of the turbines, because the provider did not show that the manufacturer had power over the market for wind turbines, the federal district court in Chicago has ruled (McCoy v. Gamesa Technology Corp., Inc., June 12, 2013, Kocoras, C.).

Gamesa Technology Corp., Inc. manufactures wind turbines for the wind energy industry. Gamesa would require purchasers of its turbines to contract with it for O&M services for a period of time, and would subcontract the work to independent companies, including Outland Renewable Energy, LLC. Gamesa allegedly controlled 10 percent of the wind turbine market, and 100 percent of the market for O&M services for its turbines. Outland alleged that Gamesa was able to coerce purchasers into contracting for O&M services due to a scarcity of wind turbines.

In 2008, Outland and Gamesa entered into an agreement under which Outland would perform O&M services at wind farms owned by Iberdrola Renewables, Inc. In 2010, while following a modified “lock-out tag-out” procedure instituted by Gamesa and Iberdrola, an Outland technician was injured performing work at an Iberdrola facility, and Outland was cited by the Occupational Health and Safety Administration (OSHA).

By August 2010, Gamesa allegedly sought to eliminate Outland in order to establish an in-house O&M services group with experienced former Outland technicians. Gamesa allegedly plotted to destabilize Outland by promising an increase in business, causing Outland to invest in equipment and personnel, and then terminating all business. Outland refused a Gamesa offer to acquire Outland, and instead reached an agreement with Duke Energy, under which Outland would receive all of Duke’s O&M contracts for its wind farms, and Duke would acquire 25% of Outland.

However, Gamesa then sent a letter to Outland stating, allegedly in bad faith, that Outland had failed to comply with OSHA’s safety requirements and those of their agreement, and ceased all business with Outland. According to Outland, this action caused Duke to reduce its purchase price and terminate its O&M agreement, and eventually led to Outland transferring its business assets and personnel to Duke to avoid receivership.

In 2010, the technician injured at the Iberdrola facility filed a negligence claim against Gamesa and Iberdrola. Gamesa, Iberdrola, and Outland filed a series of crossclaims and counterclaims against each other. In the present motion, Outland moved to amend its pleadings to assert seven counts against Gamesa, including an antitrust claim under Section 1 of the Sherman Act.

Outland alleged that Gamesa had tied O&M services of Gamesa turbines to the sale of turbines, thus precluding Outland from competing against Gamesa for the provision of O&M services. Outland alleged that the scarcity in the supply of wind turbines gave Gamesa sufficient market power to coerce its customers into purchasing unwanted O&M services.

The court explained the market power is essential to establishing a tying claim. Sellers with sufficient market power could charge prices above competitive levels because their competitors would not be able to expand their output to bring prices back down.

Here, however, Gamesa only possessed 10 percent of the wind turbine market. Therefore, “any attempt by Gamesa to leverage what little power it possessed in the turbine market would be met by customers flocking to its competitors.” The court rejected Outland’s “novel theory” that the shortage of wind turbines gave Gamesa the requisite market power, noting that “if Gamesa were the only turbine manufacturer with inventory, it stands to reason that its market share would dramatically increase.” Thus, Outland failed to demonstrate that Gamesa had the necessary market power to force its customers into buying unwanted O&M services, and Outland’s tying claim failed, according to the court.

The case is No. 11 C 592.

Attorneys: Alexander Nicholas Loftus (Fichera & Miller, P.C.) for Aaron McCoy. Howard J. Roin (Mayer Brown LLP) for Iberdrola Renewables, Inc. Julie Beth Negovan (Kutak Rock LLP) for Gamesa Technology Corporation, Inc. Joseph Gerard Skryd (Mulherin, Rehfeldt & Varchetto, P.C.) for Outland Renewable Energy, LLC.

Companies: Gamesa Technology Corp., Inc.; Gamesa Wind US, LLC; Iberdrola Renewables, Inc.; Streator-Cayuga Ridge Wind Power, LLC; Outland Renewable Energy, LLC; Outland Energy Services, LLC

MainStory: TopStory Antitrust IllinoisNews

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