Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Chinese equipment importer alleges conspiracy to block competition in sales of new heavy construction equipment, (Feb 3, 2015)

By Linda O’Brien, J.D., LL.M.

A group of domestic construction equipment manufacturers and an affiliated auction services provider conspired to eliminate the threat of substantial new entry and competition in the market for new commercial and industrial construction equipment sold in the United States by blocking access by an importer of Chinese construction equipment to a leading online marketplace for new construction equipment sales, according to a complaint filed in the federal district court in Wilmington, Delaware (International Construction Products LLC v. Caterpillar Inc., January 29, 2015).

Caterpillar, Komatsu America, and Volvo Construction Equipment manufacture and sell commercial and industrial construction equipment in the United States. Associated Auction Services (“Cat Auction Services”) is a partnership of Caterpillar dealers that facilitates auctions of used heavy construction equipment. International Construction Products (ICP) imports and sells Chinese manufactured heavy construction equipment into the United States.

Sales of new heavy construction equipment exceeded $14 billion in the United States. Wholesale distributors, known as equipment dealers, are the primary channel of distribution of heavy construction equipment to end users, who are primarily contractors and equipment rental companies. Direct sales of new heavy construction equipment to end users have historically been uncommon. As a result, heavy equipment manufacturers have distributed their equipment through local equipment dealers in order to compete effectively in regions throughout the country, the complaint states.

The manufacture and sale of new heavy construction equipment in the United States is a highly concentrated market. Each of the defendant manufacturers, individually and collectively, has substantial market shares in the sale of specific types of new heavy construction equipment. Due to the distribution policies of the incumbent manufacturers that require de facto exclusivity from their equipment dealers, new entrants in the heavy construction equipment market are unable to compete successfully for distribution on the “all or nothing” terms imposed by the manufacturer defendants, the complaint charges.

The complaint alleges that the new heavy construction equipment market is protected by extremely high barriers to entry due to the manufacturers’ policies of requiring exclusivity from their equipment dealers. ICP’s innovative entry into the market—selling new, high quality equipment at low prices directly to consumers through IronPlanet, a popular online marketplace for heavy construction equipment sales—promised to substantially increase competition in the new equipment market. In response to ICP’s announced entry into that market, the defendants allegedly conspired to bar ICP’s access to IronPlanet.

IronPlanet, the largest online marketplace for the sale of heavy construction equipment, provided the means for new entrants to surmount the distribution barrier to entry in the construction equipment market. In March 2014, ICP and IronPlanet signed a hosted site agreement in which IronPlanet agreed to maintain website links that would allow customers to purchase ICP products and, in return, IronPlanet would earn commissions on those sales. ICP reasonably forecasted making hundreds of millions of dollars in revenues from its relationship with IronPlanet, it was alleged.

According to the complaint, the defendant manufacturers are some of the highest volume sellers of used heavy construction equipment through IronPlanet. Leveraging the importance of their used equipment sales to IronPlanet, the defendant manufacturers threatened to boycott and refuse to deal with IronPlanet if it did not refrain from doing business with ICP. The defendants induced IronPlanet to breach its contract with ICP with the sole purpose of maintaining their market power in the heavy construction equipment markets.

Having eliminated the immediate threat of ICP’s market entry through IronPlanet, Caterpillar and Cat Auction Services then conspired to forever eliminate the threat by bringing IronPlanet under the control of Caterpillar and its dealers, the plaintiffs claimed. The merger of IronPlanet and Cat Auction Services is anticompetitive due to its tendency to substantially reduce competition in heavy construction equipment sales markets and to foreclose the possibility of effective entry into those markets by new entrants. Deprived of efficient distribution through IronPlanet, ICP has no feasible way to reach consumers in the heavy construction equipment markets. ICP’s equity and goodwill allegedly has been damaged as a result of the defendants’ actions.

The plaintiff asserts claims for unreasonable restraints of trade, monopolization, attempted monopolization, tortious interference with contract, tortious interference with prospective business relations, civil conspiracy, aiding and abetting, and violations of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. The action seeks declaratory and injunctive relief, compensatory and treble damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-00108-UNA.

Attorneys: John W. Shaw (Shaw Keller LLP) and David Boies, James P. Denvir, and Christopher G. Renner (Boies, Schiller & Flexner LLP) for International Construction Products LLC.

Companies: International Construction Products LLC; Caterpillar Inc.; Komatsu America Corp.; Volvo Construction Equipment North America, LLC; Associated Auction Services, LLC

News: Antitrust DelawareNews