Antitrust Law Daily Wrap Up, TOP STORY—DNJ: Purchasers of Pipe Fittings Adequately Alleged Conspiracy, Monopoly Claims, (Mar 6, 2013)

By Jeffrey May, J.D.

The federal district court in Trenton, New Jersey, has denied a motion to dismiss antitrust claims against McWane, Inc., Star Pipe Products, Ltd., and Sigma Corporation for conspiring to fix prices for ductile iron pipe fittings (DIPF) and against McWane and Sigma for unlawfully maintaining McWane’s monopoly control of the domestic DIPF market. Complaining purchasers of DIPF adequately alleged their claims under Sections 1 and 2 of the Sherman Act (In re Ductile Iron Pipe Fittings (“DIPF”) Direct Purchaser Antitrust Litigation, March 5, 2013, Thompson, A.).

Ductile iron pipes are used in water and wastewater systems. Ductile iron pipes are joined together using DIPF.

The price fixing claim was brought on behalf of independent wholesale distributors and municipal and regional water authorities that purchased DIPF directly from the defendants. The Sherman Act, Section 1 claim was asserted against all three defendants. The plaintiffs contended that the defendants conspired to fix prices between January 2008 and May 2009 through frequent communications that resulted in similar price increases.

Separately, a proposed class of entities that purchased DIPF directly from McWane alleged that McWane monopolized the domestic DIPF market in violation of Section 2 of the Sherman Act. In addition, purchasers from McWane and Sigma alleged conspiracies to restrain trade in and to monopolize the domestic market for DIPF.

McWane sells imported and domestic DIPF. Prior to 2009, it “was the only producer of a full line of [d]omestic DIPF,” controlling nearly 100 percent of the domestic DIPF market. Sigma and Star had an incentive to enter the domestic DIPF market in 2009, when President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which allocated more than $6 billion to fund the construction of water infrastructure products. Through a “Buy American” provision, the ARRA required certain public works projects to use only goods produced in the United States and, thus, greatly expanded the market for domestic DIPF. In response, Star entered the domestic market. Sigma purportedly took steps to enter the market, but decided not to do so after reaching an agreement with McWane.

Standing. At the outset, the court rejected the defendants' attempt to dismiss the suit for lack of antitrust standing. It was sufficient at the pleading stage that the plaintiffs alleged that they purchased directly from the defendants and paid higher prices than they would have had competition not been restrained. The defendants urged the court to dismiss the claim because the plaintiffs did not specify the actual prices that they paid for DIPF. However, it was unclear how information about the specific price paid for the DIPF would enhance the plausibility of the claims.

The court also rejected the assertion that the plaintiffs lacked standing because they did not allege that they paid the fixed list prices rather than an individually negotiated deviation, such as a rebate, individual discount, cash discount, or special freight allowance. While a plaintiff was required to show that the transaction price, rather than the list price, was subject to the price fixing scheme, such specificity was not required at the pleading stage, the court reasoned.

The complaining purchasers stated the type of DIPF they purchased, from which defendant they purchased DIPF, and the time period during which the purchases were made. To require the plaintiffs to plead additional facts showing that they did not purchase DIPF at a discounted or individually negotiated price would require them to plead facts in anticipation of the defendants’ defenses.

Price fixing conspiracy. Looking at the evidence in sum, a price fixing conspiracy was adequately alleged, the court ruled. The defendants had contended that the complaining purchasers failed to allege anything other than lawful, follow-the-leader pricing decisions.

The complaining purchasers alleged that the defendants' parallel conduct, including “seemingly unilaterally announced price increases,” occurred in a context that suggested an agreement was made, in the court’s view. “Plus factors” that tend to demonstrate the existence of an agreement include: (1) evidence that the defendant had a motive to enter into a price-fixing conspiracy; (2) evidence that a defendant acted contrary to its interests; and (3) evidence implying a traditional conspiracy.

The plaintiffs adequately pled a motive to enter into a price fixing conspiracy. They alleged that DIPFs were commodity products; the market was highly concentrated; there were high barriers to market entry; and the defendants all published price books that listed per unit prices as well as multiplier discounts. In addition, the defendants allegedly participated in a trade association that facilitated an information exchange.

The defendants also were alleged to have acted contrary to their self-interest by raising prices during falling demand. This was behavior that would not have occurred in a competitive market, the court reasoned.

Lastly, the plausibility of a conspiracy was bolstered by alleged communications exchanging market information, trade association participation, and an FTC enforcement action challenging the conduct of the defendants and consent orders with Sigma and Star.

Monopolization, conspiracy to monopolize. The complaining purchasers adequately pled their monopoly claims against McWane, the court ruled. The relevant market could be limited to the domestic DIPF market in light of the ARRA’s “Buy American” provision, and McWane had monopoly power in that market. The fact that the McWane’s 100 percent market share decreased to 90 percent as a result of Star's entry into the market did not foreclose a conclusion that the complaining purchasers adequately pled monopoly power.

With respect to allegations of monopoly maintenance, the purchasers argued that McWane performed two unlawful acts to maintain its monopoly status (1) it entered into an exclusive distribution agreement with Sigma, under which Sigma agreed not to compete with McWane, by supplying its own domestic DIPF and, instead, distributing McWane’s domestic DIPF; and (2) McWane adopted exclusionary practices to restrain Star’s ability to effectively compete in the domestic DIPF market, including threatening distributors.

Exclusive dealing agreements may constitute an unlawful maintenance of monopoly power, particularly when “used by a monopolist to strengthen its position” and “ultimately harm competition.” The question of whether the alleged exclusive dealing arrangements foreclosed a substantial share of the line of commerce was a merits question not proper for the pleading stage, according to the court. Star’s ultimate entry into the domestic DIPF market did not preclude the complaining purchasers from demonstrating foreclosure of competition.

The court rejected an argument that claims against McWane and Sigma for conspiring to monopolize and restrain trade should be rejected because the agreement between them was a legitimate buy-sell relationship that did not actually exclude Sigma as a competitor in the domestic DIPF market. The complaining purchasers’ allegations were sufficient to show that McWane excluded Sigma from entering the domestic DIPF market, according to the court.

The case is Civ. No. 12-711.

Attorneys: Hollis Lee Salzman (Robins, Kaplan, Miller & Ciresi LLP) for plaintiffs. Erik T. Koons (Baker Botts LLP) for McWane, Inc.

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

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