Antitrust Law Daily Wrap Up, TOP STORY—D. Colo.: Automotive paint distributor fails to show antitrust injury in action against DuPont, (Feb 27, 2014)

By Linda O’Brien, J.D., LL.M.

An automotive paint distributor failed to establish antitrust injury in its action against paint coating manufacturer E.I. DuPont De Nemours for providing financial assistance to a competing distributor, allowing it to lure away customers with discounts and incentives, in violation of Sections 1 and 2 of the Sherman Act and the Colorado Antitrust Act, the federal district court in Denver has ruled (JTS Choice Enterprises, Inc. v. E.I. DuPont De Nemours and Company, February 26, 2014, Martinez, W.).

E.I. DuPont De Nemours and Company manufactures paint coatings used to repaint automobiles and sells the paint coatings to distributors for resale. JTS Choice Enterprises, Inc. (Choice) is in the business of selling automotive coatings to auto body repair shops and retailers in the Denver area on behalf of DuPont. Choice, one of three DuPont distributors in the Denver market, was the largest DuPont distributor in the state and the only one that carried all of DuPont’s paint lines. DuPont operated a loyalty-based rewards program for its distributors under which the distributors could gain funds to be used to garner new business or retain existing business by offering incentives to customers. Distributors who participated in the program were required to sign a yearly contract with DuPont and were prohibited from actively soliciting existing business from another DuPont distributor.

To help grow its market share, DuPont financed the acquisition of one of three Denver distributors by an Illinois company, Metro Paint Supplies. As soon as Metro entered the Colorado market, it began to solicit existing Choice customers. Upon complaints by Choice about Metro’s business practices, DuPont contacted Metro to cease soliciting Choice customer accounts. In addition to giving Metro financial assistance to enter the Denver market, DuPont also provided Choice with loans and credit to help Choice maintain its customer base. While competing with Metro and other manufacturers of automotive paint coatings, Choice lost customers over time. In 2011, Choice ceased its distributor business and sold its assets to a third party. Choice filed suit against DuPont, alleging an unlawful restraint of competition between the distributors. Choice also alleged that DuPont attempted to monopolize and conspired to monopolize the Colorado market for automotive paint coatings. DuPont moved for summary judgment.

The court found that Choice failed to show that DuPont’s actions caused harm to the competitive process. An essential element of an antitrust claim is the establishment of an antitrust injury. Choice contended that it was injured by losing customers to Metro because DuPont’s financial assistance allowed Metro to offer deep discounts to customers. A loss of customers to a competitor did not constitute an antitrust injury since antitrust laws were enacted to protect competition and not to protect individual competitors, according to the court. The discounts offered by Metro resulted in lower prices to consumers, which is what antitrust statutes are designed to encourage.

Additionally, Choice offered no evidence that customers were harmed by Metro’s offer of lower prices only to customers that it was attempting to gain from Choice. The plaintiff cited no authority that required a distributor to offer the same pricing scheme to each of its customers and by definition, an incentive program will lead to different outcomes for different purchasers, the court noted.

Finally, Choice failed to allege that consumers were denied the ability to purchase competitor products altogether or that DuPont’s actions impaired the overall competitive market. Choice argued that customers were denied the opportunity to have their DuPont distributors sell them competitor products due to DuPont’s refusal to allow any distributor who sold competitor products to participate in its incentive program. If taken as true, DuPont prevented customers from buying competitor products only from a particular distributor. Manufacturers have wide latitude to limit the distribution of their products and can require distributors to sell their products exclusively. Regardless of how DuPont’s actions may have harmed Choice, there was no evidence that DuPont harmed the overall market for automotive paint coatings, the court concluded.

The case is No. 1:11-cv-03143-WJM-KMT.

Attorneys: Lauren Elizabeth Mosse (Theodore W. Rosen, P.C.) for JTS Choice Enterprises, Inc. David Matthew Stauss (Ballard Spahr, LLP) for E.I. Du Pont De Nemours and Company

Companies: JTS Choice Enterprises, Inc.; E.I. DuPont De Nemours and Company

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