Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Pest control firm charged with monopolizing installation, servicing of tube-in-the-wall systems, (Dec 2, 2014)

By Linda O’Brien, J.D., LL.M.

A large pest control company monopolized the installation and service of tube-in-the-wall pest control systems by installing locking port covers to prevent access the system service panels and informing homeowners that servicing by other companies would cause damage and void the system warranty, according to a complaint filed in the federal district court in San Francisco (Killian Pest Control, Inc. v. HomeTeam Pest Defense, Inc., November 26, 2014).

Larry Killian, operator of family-owned pest control business Killian Pest Control, contacted Environmental Safety Systems, Inc. (ESSI), creator and patent holder of a tube-in-the-wall pest control system, to obtain a franchise to install the systems in several western states. Tube-in-the-wall pest control systems are installed directly into the walls during construction of new homes. In 1994, Killian obtained a license from ESSI and began providing tube-in-the-wall installations and service. ESSI sold its Pest Defense brand and system to Centex Homes, which began operating the business as HomeTeam Pest Defense.

The complaint alleges that, in 1996, HomeTeam demanded Killian cease using any patented technology for installing and servicing tube-in-the-wall systems. Killian abandoned his attempts to install the systems but continued to service his customers and offered custom installations upon request. In 2003, ESSI assigned its patent on the tube-in-the-wall systems to HomeTeam, providing HomeTeam with exclusive rights to install the systems and enabled HomeTeam to monopolize the primary installation market though this patent protection.

HomeTeam installed locking port covers on the tube-in-the-wall systems for the express purpose of preventing competitors, such as Killian, from being able to service these systems, the lawsuit charged. HomeTeam allegedly deceived potential customers by informing them that other competitors would damage the systems and warranties for workmanship would become void if the homeowner used another service provider. HomeTeam knew there was no evidence that the systems would likely be damaged if serviced by other companies, the complaint alleges.

According to the complaint, HomeTeam used its monopoly in the installation market to monopolize the secondary service market. The company used its exclusive access to homebuilders’ lists of customers who had the tube systems installed and capitalized on a captive audience for selling tube-in-the-wall pest control services. HomeTeam further stifled competition by creating service agreements stating that the systems were actually owned by HomeTeam and prohibiting other service providers from servicing the systems.

The complaint contended that HomeTeam attempted to mislead customers and competitors by claiming the tube-in-the-wall system was protected by a patent. The patent expired in 2007 and the only active patents were for the locking port covers.

Additionally, HomeTeam allegedly attempted to tie the installation of the tube-in-the-wall systems with the sale of servicing the systems. HomeTeam offered homebuilders a low price for the installation of the systems and then obtained an exclusive right to service those systems.

Killian claimed that it has been harmed by HomeTeam’s anticompetitive business practices. These practices allegedly have prevented Killian from being able to compete in the tube-in-the-wall installation and service markets and caused irreparable damage to the development of these markets. Because tube-in-the-wall systems are superior to conventional pest control, there are no equivalent alternatives to tube-in-the-wall pest control.

The plaintiff asserts claims for unfair competition, monopolization, attempted monopolization, unlawful tying arrangements, in violation of Section 2 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, damages, pre-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

In a related action, a homeowner has filed a complaint in the federal district court in San Francisco, alleging that HomeTeam has monopolized the market for installation and serving tube-in-the-wall pest control systems and caused homeowners to pay inflated prices for servicing the tube-in-the wall systems installed in their homes (Garnica v. HomeTeam Pest Defense, Inc., November 26, 2014). The plaintiff, Jose Luis Garnica, purchased a home that included a tube-in-the-wall system installed by HomeTeam prior to the purchase. The system allegedly had a locked port preventing any other company from servicing the tube-in-the-wall system, and a key to the port was not provided to Garnica in accordance with HomeTeam’s company policy.

The cases are No. 3:14-cv-05239 and 3:13-cv-05243.

Attorneys: R. Rex Parris and Patricia K. Oliver (R. Rex Parris Law Firm), Don Howarth, Suzelle M. Smith, and Jessica L. Rankin (Howarth & Smith), and David S. Casey, Jr., Gayle M. Blatt, Jeremy Robinson, and Jason C. Evans (Casey Gerry Schenk Francavilla Blatt & Penfield LLP) for Killian Pest Control, Inc.

Companies: Killian Pest Control, Inc.; HomeTeam Pest Defense, Inc.

News: Antitrust CaliforniaNews