Antitrust Law Daily Wrap Up, ANTITRUST NEWS: PVC pipe manufacturers conspired to fix prices, says indirect purchaser, (Sep 5, 2024)

By Martin A. Steinberg, J.D.

PVC converters are accused of exploiting the COVID-19 supply chain disruptions to fix prices and overcharge their customers for PVC municipal water and PVC electrical conduit pipes.

A proposed class of PVC pipe purchasers has alleged that several PVC pipe manufacturers exploited the COVID-19 supply chain disruptions by fixing prices and overcharging customers. Six manufacturers, called converters, control approximately 90% of the wholesale market for PVC municipal water pipes and seven converters control approximately 95% of the wholesale market for PVC electrical conduit in U.S. OPIS, a reporting service that provides pricing and market intelligence in various industries to its paying subscribers, allegedly facilitated the sharing of information and served as a sounding board between the converters in order to advance the conspiracy. The indirect purchasers seek injunctive relief and damages (Bavolak v. Atkore, Inc., No. 1:24-cv-07639 (N.D. Ill. Aug. 23, 2024)).

Background. PVC municipal water pipe is PVC pipe that carries the municipal, potable water supply from reservoirs, lakes, or rivers to treatment facilities and from there to water mains that distribute water throughout communities. PVC electrical conduit pipe is used to protect bundled wires.

Plaintiff is a resident of Minneapolis and is the owner of Metropolitan Energy Service Inc., a Minnesota corporation that provides residential and commercial electrical services. During the Class Period, this company indirectly purchased PVC produced by one or more Defendants or their Co-conspirators.

OPIS is a commodity pricing service enabling users to buy, sell, and hedge fuel prices, including gasoline, diesel, propane, jet fuel, coal, and petrochemicals. It claimed to “uniquely price[] commodities throughout the supply chain—from the spot market to the wholesale rack or terminal market and ultimately to more than 400,000 retail locations across North America and Europe.” In the PVC Pipe industry, OPIS created a “backroom” that enabled Defendants to discuss their pricing activities, gain access to standardized pricing data from their competitors, and collectively extract artificially inflated profits from their customers. OPIS also served as a sounding board between Defendants, allowing them to communicate their intentions on pricing and keep the conspiracy viable.

OPIS publishes weekly PVC Pipe pricing data and converter commentary, which includes current pricing, specific forward-looking pricing signaling, and apparent invitations to coordinate on supra-competitive pricing. OPIS lists the categories of customers it seeks to serve with its PVC & Pipe Weekly reports. They are NGL & Petrochemical companies, PVC producers, PVC resin buyers, PVC pipe converters and distributors, traders, construction companies, and financial institutions. The Converter Defendants supposedly subscribed to PVC & Pipe Weekly. This pricing and market intelligence for PVC Pipes is not available to nonsubscribers. Few, if any, end users of PVC Pipes have access to PVC & Pipe Weekly.

Anticompetitive effect. Plaintiff alleged that the information exchanged by the Converter Defendants through OPIS is exactly the type of information exchange that the U.S. Supreme Court has recognized as likely to have anticompetitive effects under a rule of reason analysis. First, the data exchanged is current and forward looking, such as by telling competitors current future pricing strategies, which courts consistently hold as the greatest potential for generating anticompetitive effects. Second, the information in the reports is specific to converters, including information on prices. Third, none of OPIS’s pricing information is publicly available. In fact, OPIS was allegedly at the center of a prior price-fixing conspiracy in the petroleum market.

Profit margins. The historic profit margins caused in part by the COVID-19 pandemic motivated Defendants to implement their price fixing conspiracy. Converters raised their prices for PVC municipal water pipes by approximately 500% between late 2019 and the middle 2022. Similarly, converters raised their prices for PVC electrical conduit approximately 500% between late 2019 and late 2021. Defendants’ profit margins remain extremely elevated when compared to historic pricing data. Prior to the COVID pandemic, the prices for PVC pipes remained relatively constant.

Defendants allegedly used price signaling statements and information exchanges through OPIS to implement their conspiracy. On May 17, 2024, the OPIS Newsletter reported that larger converters were complaining about a small regional competitor holding its pricing at $360/100 ft in the East while the larger converters were trying to get prices up to a minimum of $370-375/100 ft. In addition to reporting on the price increases, OPIS reported in May 2024 that the unanimous price increase effort from early May 2024 succeeded in driving PVC electrical conduit prices up from $3.70 on May 3 to $3.80/ft on May 24. Apparently, the Converter Defendants had accepted OPIS’s invitation to coordinate future pricing because on June 28, 2024, one week after reporting on the consensus of converters to seek a single price increase of 5% over the current market level, the OPIS Newsletter reported that all major converters raised prices with almost identical pricing in every region they served.

Plus Factors and Economic Analysis. Due to costs associated with industry standards, manufacturing processes, and regulatory compliance, PVC pipe converters tend to focus on specific PVC pipe market segments, such as municipal pipes, plumbing pipes, and electrical conduit. Sales in the PVC Pipe manufacturing industry are also highly concentrated. Defendants JM Eagle, Westlake, Diamond Plastics, National Pipe, Otter Tail, and Atkore control over 90% of the PVC Pipe market for municipal standard pipes. Similarly, Defendants Atkore, Prime Conduit, Cantex, National Pipe, JM Eagle, Southern Pipe, and IPEX control over 95% of the PVC Pipe market for electrical conduit pipes.

Barriers to entry. Substantial barriers impede entry into the PVC Pipe market because a new entrant into the market would face costly and lengthy start-up costs, including multi-million dollar costs associated with building production facilities. Additionally, the PVC Pipe market has been subject to increasing consolidation over the last several decades. Just three companies, Defendants Atkore, JM Eagle, and National Pipe, now produce about half the municipal and electrical conduit PVC Pipes in the United States.

Commodity. PVC pipes are mass-produced through standardized manufacturing processes and are designed to standardized technical and operational characteristics. When a product is characterized as a commodity, market participants primarily compete based on price. Where competition occurs principally on the basis of price, it is easier to implement and monitor collusive agreements because price is more often objectively measurable than non-price factors.

Inelastic demand. The FTC had found that pipes made from materials other than PVC are not close substitutes for PVC Pipes generally. For a cartel to profit from raising prices above competitive levels, demand must be inelastic at competitive prices such that cartel members are able to raise prices without triggering a decline in sales revenue that would make the artificial price increase unprofitable. Demand is inelastic when the loss in volume arising from a price increase is small relative to the magnitude of the increase in price, allowing higher prices to increase revenues and profits despite loss in sales.

Opportunity. Three seemingly separate Converter Defendants—Prime, Cantex, and Diamond Plastics—are owned wholly or in part by Mitsubishi Corporation. This common ownership gave Defendants another means to coordinate their conspiracy. Mitsubishi Corporation and its subsidiaries allegedly have a long history of antitrust violations. Plaintiff pointed to U.S. v. Mitsubishi Electric Corporation, No. 2:13-cr-20710, Criminal Plea Agreement, ECF No. 9 (E.D. Mich. Nov. 6, 2013), where there was a plea agreement concerning criminal violation of antitrust statutes relating to automobile parts.

Plaintiff’s theory. The complaint alleged that the Defendants’ coordinated horizontal conduct was a per se violation of the federal and state antitrust laws and consume protection laws. In the alternative, under Section 1 of the Sherman Act and the various state laws, Defendants’ agreement to unlawfully exchange competitively sensitive business information amongst PVC converters violated the rule of reason. Defendants ostensibly compete in the PVC pipes markets for sales to customers; however, Defendants’ agreement to exchange competitively sensitive business information through OPIS has enabled Defendants to reduce competition in these markets.

The Case is No. 1:24-cv-07639.

Judge: Hunt, L.

Attorneys: Eura Chang (Lockridge Grindal Nauen, P.L.L.P.) for George Bavolak.

Companies: Atkore, Inc., Cantex, Inc., Diamond Plastics Corporation, IPEX USA LLC, JM Eagle, National Pipe and Plastics, Inc., Otter Tail Corporation, Prime Conduit, Inc., Southern Pipe, Inc., Westlake Corporation, OPIS

News: Antitrust