Antitrust Law Daily Wrap Up, TOP STORY—Commission finds McWane monopolized domestic pipe fittings market, imposes “fencing-in” requirements, (Feb 6, 2014)

By Jeffrey May, J.D.

McWane, Inc.—the largest supplier of ductile iron pipe fittings in the United States—unlawfully monopolized the domestic pipe fittings market, a divided Commission has concluded. Today, the Commission released its Opinion and a Final Order that prohibits McWane from requiring exclusivity from its customers (In the Matter of McWane, Inc., FTC Dkt. No. 9351).

The Commission’s long-awaited Opinion comes nine months after Chief Administrative Law Judge (ALJ) D. Michael Chappell released an Initial Decision on the agency’s challenge to McWane’s conduct with respect to the supply of pipe fittings, which are used in water distribution systems for the installation of valves, water meters, and hydrants and to change the flow of water. In that decision, the ALJ found that Complaint Counsel failed to establish liability on three counts (Counts 1 through 3) of the agency’s seven-count complaint but that McWane was liable on four counts (Counts 4 through 7).

The Commission has now affirmed the ALJ’s decision in part. The Commission concluded that McWane was liable on Count 6 for unlawfully maintaining its monopoly in the domestic fittings market.

However, the Commission concluded that Complaint Counsel failed to establish that a distribution relationship between McWane and pipe fitting supplier Sigma Corporation under a Master Distribution Agreement (MDA) was unlawful. Therefore, the Commission reversed the ALJ’s decision with respect to Count 4, which alleged that McWane entered into the MDA to prevent Sigma from becoming an independent competitor in the domestic fittings market.

In light of the Commission’s conclusions on Counts 4 and 6, it decided that it was unnecessary to reach Count 5, alleging that McWane and Sigma conspired to monopolize the domestic fittings market through their distribution agreement, and Count 7, alleging that McWane’s exclusive dealing policy constituted attempted monopolization of the domestic fittings market.

In the absence of a majority decision, Count 1 (price fixing conspiracy) and Count 2 (anticompetitive information exchange) were dismissed in the public interest. Two Commissioners found that these allegations had been proven and two Commissioners did not.

Monopoly Maintenance.

The Commission concluded that McWane had monopoly power in a relevant market limited to domestic fittings, and that McWane acted to maintain its monopoly through anticompetitive conduct—an unlawful exclusive dealing policy, known as the Full Support Program. As part of the program, McWane sent a letter to its distributors stating that “McWane will adopt a program whereby our domestic fittings and accessories will be available to customers who elect to fully support McWane branded products … Customers who elect not to support this program may forgo participation in any unpaid rebates for domestic fittings and accessories.”

According to the majority, McWane designed and implemented the program to deny potential competitors access to distributors and impede their effective entry into the domestic fittings market. McWane’s program forced its distributors to carry McWane domestic fittings exclusively. There was harm to competition, and McWane failed to justify its conduct, it was decided.

Remedy.

The Commission’s Final Order prohibits McWane from: (1) implementing or enforcing any condition, policy, or practice requiring exclusivity with a customer; (2) implementing or enforcing any retroactive rebate program that would effectively demand exclusivity; (3) “[d]iscriminating against, penalizing or otherwise retaliating” against any customer that purchases a competitor’s domestic fittings or that “otherwise refuses to enter into or continue any condition [or] agreement” requiring exclusivity; and (4) “enforcing any condition, requirement, policy, agreement, contract or understanding that is inconsistent with the terms of [the] Order.”

McWane objected to the FTC’s remedy as moot. However, the Commission was persuaded that McWane had in fact ended its exclusive dealing policy. It had not publicly withdrawn the policy or notified distributors of any changes.

Wright Statement.

Wright issued a dissenting statement with respect to the finding that McWane engaged in monopolization of the Domestic Fittings market (Count 6). Wright conceded that there was ample record evidence demonstrating that the Full Support Program harmed McWane’s rival Star, but concluded that Complaint Counsel failed to establish that McWane’s conduct harmed competition.

Although Wright concurred with the Commission’s decision to dismiss the attempted monopolization count (Count 7), he questioned whether a firm with monopoly power could be held liable for attempting to maintain a monopoly position in the same market. He suggested that, while such a claim might be conceivable, a “better approach” would be to force a plaintiff to choose between a monopoly maintenance claim and an attempted monopolization claim. “I see no benefit in using the offense of attempted monopolization to prosecute conduct that might be viewed as exclusionary ex ante but turned out not to be ex post once the evidence has been examined,” Wright concluded.

Wright concurred with the Commission’s decision to reverse the Initial Decision on Counts 4 and 5 and with the Commission’s decision to dismiss Counts 1 and 2.

This is FTC Dkt. No. 9351.

Attorneys: Edward D. Hassi for FTC. J. Alan Truitt (Maynard Cooper and Gale PC) and Joseph A. Ostoyich (Baker Botts LLP) for McWane, Inc.

Companies: McWane, Inc.; Star Pipe Products, Ltd.; Sigma Corp.

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