Antitrust Law Daily Wrap Up, ANTITRUST—DNJ: Indirect Purchasers of Pipe Fittings Fail to Demonstrate Injury from Anticompetitive Conduct of Manufacturers and Distributors, (Mar 19, 2013)

By Tobias J. Gillett, J.D., LLM.

A class of indirect purchasers of ductile iron pipe fittings (DIPF) failed to state antitrust claims against manufacturers and distributors of the products because the purchasers failed to demonstrate that any of them had purchased DIPF at prices affected by the allegedly anticompetitive conduct, the federal district court in Trenton, New Jersey has ruled (In re Ductile Iron Pipe Fittings (“DIPF”) Indirect Purchaser Antitrust Litigation, March 18, 2013, Thompson, A.).

Star Pipe Products, Ltd., McWane, Inc., and Sigma Corporation are manufacturers and distributors of ductile iron pipe fittings used to join pipes in municipal water and waste distribution systems. According to the complaint, the companies reached an agreement to fix prices under which McWane agreed to raise prices in exchange for Star and Sigma agreeing to adopt business practices that would reduce the risk they would sell below the agreed prices. On January 11, 2008, McWane raised prices, with Star and Sigma later following suit. In June 2008, they renewed their agreement, with McWane agreeing to increase prices in coordination with Star and Sigma in exchange for sales information from those companies.

In February 2009, Congress enacted the American Recovery and Reinvestment Act (ARRA), which provided funds for water infrastructure projects and contained a provision requiring all funded projects to purchase domestically-produced materials. At that time, McWane was the only domestic producer of a full line of DIPF. Following the ARRA, Star made preparations to enter the domestic DIPF market, but McWane and Star allegedly reached an agreement to fix prices in that market.

When Sigma also sought to enter the domestic DIPF market, McWane and Sigma entered an agreement under which Sigma agreed not to enter the market as a manufacturer and McWane agreed to sell Sigma its domestic DIPF at a 20 percent discount. McWane would be Sigma’s sole source for domestic DIPF, Sigma would resell the DIPF at prices at or very near McWane’s prices, and McWane would sell its domestic DIPF at prices determined by its agreement with Star. McWane also transferred a share of its domestic DIPF sales and profits to Sigma. The complaint alleged that McWane monopolized the domestic DIPF market since February 2009 by excluding Sigma from the market and partially excluding Star.

A class of indirect purchasers of DIPF filed suit against Star, Sigma, and McWane, asserting that they had conspired to restrain trade, maintained a monopoly, and engaged in unfair competition or unfair trade practices in violation of Sections 1 and 2 of the Sherman Act, Section 3 of the Clayton Act, and a variety of state antitrust, consumer protection, and unfair competition statutes. Star, Sigma, and McWane filed motions to dismiss.

The court granted the motions, concluding that the indirect purchasers had failed to demonstrate that any of them had suffered a cognizable injury stemming from allegedly anticompetitive conduct. The court observed that, to state an antitrust claim, “there must be at least one indirect purchaser plaintiff who has experienced antitrust impact that flows from the anticompetitive behavior that gives rise to the claim.”

Here, the complaint alleged only that each indirect purchaser bought DIPF that originated from “one or more” of Star, Sigma, or McWane on a date between January 11, 2008 and the present. Six of the ten counts in the complaint pertained to conduct that occurred during a period shorter than that period, meaning that it was possible that none of the indirect purchasers had purchased DIPF during the periods in those counts. This failure to plead an injury required dismissal of those counts, in the court’s view.

Moreover, many claims only challenged conduct allegedly engaged in by only one or two of the defendants. Since the complaint merely stated that the indirect purchasers had purchased DIPF originating from “one or more” of the defendants, “it [was] not clear that any indirect purchaser plaintiff actually purchased DIPF produced by any of the defendants charged under those claims.” This flaw in the pleadings required dismissal of two of the remaining four claims.

Finally, the complaint did not state whether the DIPF purchased by each indirect purchaser was produced domestically or imported. No alleged facts indicated that “imported DIPF prices were affected by anticompetitive practices after January 2009.” Therefore, each of the indirect purchasers could have purchased imported DIPF after January 2009. This failure to demonstrate “that the prices they paid for DIPF were affected by the anticompetitive behavior” required dismissal of the remaining two claims.

The court therefore dismissed the complaint, but granted leave to amend it.

The case is No. 12-169.

Attorneys: Lisa J. Rodriguez (Trujillo Rodriguez & Richards, LLC) for Yates Construction Co., Inc. Erik T. Koons (Baker Botts LLP) for McWane, Inc. Jason Allen Leckerman (Ballard Spahr LLP) for Sigma Corporation. Gabrielle Elise Farina (Thompson & Knight LLP) for Star Pipe Products, LLP.

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

Cases: Antitrust NewJerseyNews