Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Polyurethane plywood patch supplier allegedly used tying arrangements to foreclose competition, (Apr 13, 2016)

By Linda O’Brien, J.D., LL.M.

A polyurethane plywood patch supplier suppressed competition in the polyurethane patch product market by engaging in predatory pricing and entering into illegal tying arrangements with plywood manufacturers, according to a complaint filed in the federal district court in Baton Rouge, Louisiana (Clean Water Opportunities, Inc. v. The Willamette Valley Company, April 11, 2016).

The Willamette Valley Company is a multi-national corporation that manufactures polyurethane filling and patching materials used in the plywood manufacturing business.

The complaint charges that in 1990, David Edwards—through his company EML Enterprises—entered the business of supplying polyurethane plywood patch to plywood mills. Subsequently, Willamette purchased Georgia Pacific’s patent on patch and acquired Champion Wood Products. By 1997, Willamette and EML Enterprises were the only competitors for supplying patch in the Texas, Arkansas, Louisiana, Mississippi, and Alabama region.

In July 2000, Willamette bought EML Enterprises from Edwards. As part of the purchase agreement, Edwards agreed not to compete with Willamette for ten years. After the non-compete agreement concluded, Edwards began to develop and sell patch through his new company, Engineered Polyurethane Patching Systems (EPPS), the lawsuit claims.

According to the complaint, in July 2014, EPPS entered into a production contract with MARTCO, a Louisiana plywood manufacturing company. Under the contract, EPPS would supply patch and application equipment to MARTCO. EPPS agreed to sell patch to MARTCO for $15 a gallon, whereas Willamette had been selling the same product to MARTCO for $17 a gallon. Faced with competition for the first time in more than a decade, Willamette offered MARTCO a substantial discount on all the products Willamette sold to MARTCO. The purpose of the discount was to undercut EPPS, force EPPS from competition, and enable Willamette to regain its monopoly in the patch market, the complaint claims.

As a result of Willamette’s discount pricing, MARTCO terminated its contract with EPPS. Similarly, in February 2015, EPPS contacted Hood Industries in its plan to expand into the patch market. EPPS was invited to conduct a test run and began discussions to start selling patch to Hood. However, in April 2015, those discussions ceased and EPPS was advised that Hood had accepted a discount offered by Willamette on all of its products, the complaint alleges.

After the contract with MARTCO was terminated and attempts to enter into sales agreements with Hood and Coastal Plywood were blocked, it was no longer economically viable for EPPS to remain in business. Faced with insolvency, the complaint claims, Edwards entered into an agreement for the sale of EPPS’s business assets and a non-compete, consulting agreement with Willamette in June 2015.

As a result of its conduct, the complaint also alleges, Willamette has unlawfully monopolized the patch product market, engaged in predatory pricing, and entered into illegal tying agreements. Edwards was substantially injured in his business through the loss of income and profit and having to sell the business assets for less than market value.

The plaintiff asserts claims for monopolization, predatory pricing, restraint of trade, and illegal tying in violation of Section 2 of the Sherman Act and the Louisiana Unfair Trade Practices Act. The action seeks declaratory relief, damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:16-cv-00227-JWD-EWD.

Attorneys: Joseph R. Ward, Jr. (Ward & Condrey, LLC) and Stacy R. Palowsky (Palowsky Law, LLC) for Clean Water Opportunities, Inc.

Companies: Clear Water Opportunities, Inc.; The Willamette Valley Company

News: Antitrust LouisianaNews