Antitrust Law Daily Wrap Up, ANTITRUST—NDGa: Fiberglass Maker’s Exclusive Dealing Claims Fail to State Federal Antitrust Claim, but Georgia Law Claim Survives, (Nov 29, 2012)

By E. Darius Sturmer, J.D.

A Korean manufacturer of fiberglass fabric—KPI, Co., Ltd.—could have violated Georgia antitrust law, but not the Sherman or Clayton Acts, by allegedly refusing to sell any products to a Georgia-based fiberglass manufacturer with which it had entered into an exclusive sales and product development arrangement 15 years earlier, the federal district court in Atlanta has ruled. (Atlanta Fiberglass USA, LLC v. KPI, Co., Ltd., November 28, 2012, Story, R.).

The federal antitrust claims asserted by the Georgia manufacturer, Atlanta Fiberglass USA, LLC (“AFG”), were doomed by their lack of relevant market definition. However, KPI’s failure to show that the elements of a Georgia state antitrust law claim mirrored those of a federal claim precluded dismissal of that claim on the same reasoning, and the court rejected an argument that the plaintiffs lacked standing to assert the claim. Therefore, KPI’s motion for dismissal of the state antitrust claim was denied, as were claims for breach of contract, defamation, misappropriation of trade secrets, and injunctive relief. Dismissal was granted with respect to the Georgia firm’s federal antitrust claims, along with claims for tortious interference with contractual relations and tortious interference with business relations.

AFG asserted that after it had rejected a KPI suggestion in March 2011 that the companies circumvent AFG’s network of distributors and resellers in order to “cut out the middle man,” KPI had informed AFG that it planned to materially breach the still-in-force agreement, most notably by selling its products directly to AFG’s customers instead of to AFG. According to AFG, KPI then not only disclosed AFG’s proprietary pricing information to AFG’s customers, but falsely represented to those customers that it was ceasing to deal with AFG because the Georgia company had failed to pay its invoices in a timely manner.

AFG alleged that KPI violated Sec. 1 of the Sherman Act and Sec. 3 of the Clayton Act “by imposing or attempting to impose a condition of an exclusive dealing arrangement upon former customers of AFG.” However, it failed to allege a relevant geographic market in which harm to competition was occurring or would occur as a result of KPI’s purported misconduct. As establishment of a relevant market was a requisite element of a federal antitrust claim, this shortcoming in the pleadings was fatal to the federal claims.

The court declined to dismiss AFG’s state antitrust law claim on the same basis. KPI had not come forward with any authority for the proposition that the elements of AFG’s state law antitrust claims were parallel to the elements of its federal claims, the court noted.

An additional argument by KPI that AFG had no standing to assert a claim for illegal contracts in restraint of trade arising from contracts in which it was not a party—namely, those contracts between KPI and former customers of AFG—was also unavailing, in the court’s view. The court explained that while this appeared correct under certain circumstances, it was unwilling to accept, as a general principle, that a third party may not challenge a contract to which it was a stranger as an illegal restraint on trade. Such a proposition appeared not to hold true in other circumstances, such as those presented in Brown v. Jacobs Pharmacy Co., 41 S.E. 553 (Ga. 1902), in which it was shown that parties to the contract conspired to injure a third-party plaintiff by destroying its business.

The case is Civil Action No. 1:11-CV-04367-RWS.

David Mark Messer (Briskin, Cross & Sanford, LLC) for Atlanta Fiberglass USA, LLC. Kevin A. Stine (Baker Donelson) for KPI, Co., Ltd.

Cases: Antitrust GeorgiaNews