Antitrust Law Daily Wrap Up, ANTITRUST—D. P.R.: Relevant product market for sewer systems not as limited as alleged, blocking antitrust action, (Feb 10, 2015)

By Edward L. Puzzo, J.D.

A manufacturer of vacuum sewer systems could not sustain antitrust claims against a competitor without showing that the relevant product market excluded other types of sewer systems, the federal district court in San Juan, Puerto Rico has ruled (Flovac, Inc. v. Airvac, Inc., February 6, 2015, Casellas, S.).

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 ERA 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 aforementioned actions Airvac used to attempt to deny Flovac the PRASA contract. Airvac moved for summary judgment.

Market power. The court stated that both antitrust claims required a threshold finding of market power; that is, a would-be monopolist’s ability to profitably charge more than the competitive price for a prolonged time. Determining market power requires first determining the relevant product and geographic markets. (The latter was not an issue here.) The relevant product market is composed of products that, from the perspective of the consumer, are reasonably interchangeable with what the antitrust defendant sells.

Relevant product market. Flovac argued that the relevant product market was the market for vacuum sewer systems. If Flovac’s interpretation of the relevant product market were to be accepted, Airvac, with 87 percent of the market for vacuum sewer systems, would clearly have both market power and monopoly power, the court conceded.

But Airvac argued that the relevant product market would include, not only vacuum sewer systems, but also competing types of sewer systems, such as gravity sewer systems, grinder-pump low pressure sewer systems, septic tank effluent pump systems, and septic tank effluent gravity sewer systems. All systems are used for the same purpose, and municipalities considering sewer projects generally consider multiple types of systems, Airvac argued. Under Airvac’s interpretation of the relevant product market, it would have only 2 percent of the market for all types of sewer systems and thus no market power or monopoly power.

Burden shift. Airvac’s position concerning the relevant product market, the court found, shifted the burden onto Flovac to point to competent evidence and specific facts to stave off summary judgment by creating a triable issue as to why other kinds of sewer systems should be excluded from the relevant product market.

Flovac failed to meet this burden, the court stated. It produced no expert opinion or other competent economic evidence in support of its theory that the relevant product market was limited to vacuum sewer systems. It also did not seek discovery from municipalities, the consumers of sewer systems, as to whether they viewed the different types of sewer systems as having different utility, efficiency, reliability, responsiveness, and continuity. Flovac produced only an affidavit from its President that vacuum sewer systems were allegedly more suitable for certain topographical areas than alternative sewer systems, but the court viewed this as too vague and conclusory to meet the specificity requirements of Federal Rule of Civil Procedure 56. Finally, the court stated that Flovac failed to offer evidence that consumers in the allegedly more suitable topographical areas did not consider gravity of pressure systems to be reasonably interchangeable with vacuum sewer systems. For these reasons, the court concluded, Flovac fell well short of creating a triable issue as to why the other types of sewer systems were not viable substitutes for Airvac’s vacuum sewer systems.

Antitrust claims often rise or fall on the definition of the relevant market, the court noted. Because vacuum sewer systems are not the relevant product market, Flovac failed to meet this threshold requirement for monopoly, the court found. It therefore need not evaluate the practices by which the defendant acquired or maintained its position in the market. The court ruled that Airvac was entitled to summary judgment.

The case is Civil Action No. 3:12-cv-01348-SEC.

Attorneys: Roberto E. Ruiz-Comas (RC Law and Litigation Services PSC) for Flovac, Inc. Ineabelle Santiago-Camacho and Rafael Escalera-Rodriguez (Reichard & Escalera) and Courtney A. Rosen, David M. Schiffman, John W. Treece and Zachary A. Madonia (Sidley Austin LLP) for Airvac, Inc.

Companies: Flovac, Inc.; Airvac, Inc.

Cases: Antitrust PuertoRicoNews