July 24, 2013

Eleventh Circuit Rules Steel Is Too Elastic To Support Monopolization Claims

The U.S. Court of Appeals for the Eleventh Circuit has affirmed dismissal of monopolization claims against steel producer Nucor Corp., finding that the cross-elasticity of supply for various steel products defeated the limited product market alleged by the plaintiff.

The appellate court affirmed the district court’s grant of summary judgment in favor of Nucor in Gulf States Reorganization Group Inc. v. Nucor Corp.  Gulf States Reorganization Group (GSRG) sued Nucor for allegedly attempting to monopolize the market for black hot rolled coil steel, a popular type of steel which is rolled into a coil for ease of storage, handling and transportation.

Nucor is a leading manufacturer of black hot rolled coil steel.  In 1999, Gulf States Steel, one of Nucor’s main competitors, filed for bankruptcy.  After GSRG bought the bankrupt company’s non-steel-producing assets, it contracted with the bankruptcy trustee in 2002 to purchase the steel-producing assets for $5 million unless another party bid higher, which would cause a public auction.  Nucor entered into a confidential agreement with Casey Equipment Co., which buys steel-related equipment, to create a limited liability company to bid on Gulf States’ steel-producing assets.  The limited liability company bid $5.25 million for the assets, which triggered a public auction.  In the public auction, Nucor’s limited liability company bid $6.3 million.  Although GSRG bid $7 million, its bid was denied due to its failure to meet auction rules.  As a result, Nucor’s limited liability company purchased the steel-producing assets of Gulf States.

GSRG sued Nucor, alleging that it was attempting to obtain a monopoly in the black hot rolled coil steel market in the Southeast United States, in violation of § 2 of the Sherman Act.

The Court of Appeals affirmed the district court’s holding that GSRG’s proposed relevant product market—black hot rolled coil steel—was too limited because it failed to “account for the fact that manufacturers of pickled and oiled steel could, without much difficulty or cost, switch their production to that of black hot rolled coil steel.”  Pickled and oiled steel is simply black hot rolled coil steel that has been bathed in acid and coated with oil.

The Eleventh Circuit noted that one way to determine if manufacturers can take business away from a potential monopolist is to apply the concept of cross-elasticity of supply, which analyzes competition from the viewpoint of the producers of products, instead of consumers.  The court concluded that black hot rolled coil steel has a high cross-elasticity of supply because producers of pickled and oiled steel could easily and cheaply switch their production to black hot rolled coil steel.

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Categories: Antitrust Law and Monopolies, Antitrust Litigation

    July 8, 2013

    Contractor Alleges Graco Constructed Foam Insulation Equipment Monopoly

    A contractor has filed a class action complaint in the United States District Court for the Middle District of Pennsylvania alleging that Graco Inc. and its distributors harmed a class of contractors through anticompetitive conduct in the market for fast-set spray foam equipment, which is used by contractors for the installation of foam insulation in residential and commercial buildings.

    Insulate SB, Inc., a contractor that purchases and uses fast-set equipment, alleges in Insulate SB, Inc. v. Abrasive Products & Equipment, et al., that Graco Inc., Graco Minnesota (collectively “Graco”) and co-conspirator distributors violated the Sherman Act, the Clayton Act and various state antitrust, consumer protection and unfair competition laws. 

    Insulate’s suit follows the settlement of a similar action brought by the Federal Trade Commission (“FTC”).  In April of this year, the FTC filed a complaint alleging that Graco violated antitrust laws by buying its two closest competitors in the fast-set equipment market, Gusmer Corp. and GlasCraft, Inc.

    Fast-set equipment is a highly pressured, foam spray system almost exclusively used by building contractors to install foam insulation in residential and commercial buildings and to apply protective coating on structures such as bridges, holding tanks, pipelines and marine hulls.  It is considered to be “green” technology because of the superior insulating capabilities of the foam.

    The FTC’s complaint alleged that after Graco’s acquisition of its primary competitors in the fast-set equipment market in North America, Graco raised its prices on the equipment, reduced its product options, reduced innovation and raised barriers for entry for any fast-set equipment manufacturers through exclusivity requirements in contracts with its distributors.  When the FTC filed its complaint against Graco, Graco agreed to a consent order requiring it to end its exclusivity policies with its distributors.

    Insulate ’s complaint alleges a “hub-and-spoke conspiracy,” in which Graco—which controls over 90% of the fast-set equipment market in North America—used exclusivity agreements with its distributors to suppress competition in the market.  This conspiracy allegedly deprived the purported class of contractors fair access to innovations in the equipment, better quality, and lower-priced equipment that allegedly could have been provided by potential new market entrants.

    The plaintiff alleges that after Graco purchased Gusmer and GlasCraft, it closed the manufacturing facilities of these two companies and withdrew a less expensive and more reliable fast-set foam installation system from the market.  Graco then allegedly contracted with its distributors to exclusively sell its product with sophisticated electronics and hard-to-access mechanical parts that require expensive repairs by service professionals.  These contracts, the complaint alleges, enabled the distributors to charge contractors anticompetitive prices for the equipment.  Graco is also alleged to have maintained its monopoly by granting distributors substantial rebates, discounts, market share incentives, and geographic control of sales territories in exchange for excluding new fast-set equipment market entrants.

    The suit seeks class certification, trebled damages and injunctive relief declaring that Graco’s and the distributors’ actions violate the Sherman Act, the Clayton Act, and various state antitrust, consumer protection and unfair competition laws.

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    Categories: Antitrust Law and Monopolies, Antitrust Litigation

      June 18, 2013

      Pool Owners’ State Antitrust Claims Remain Afloat

      A Louisiana federal judge has denied motions to dismiss pool owners’ indirect purchaser claims brought under state antitrust laws against Pool Corporation, the nation’s largest distributor of pool products, and pool manufacturers.

      Judge Sarah Vance of the U.S. District Court for the Eastern District of Louisiana limited indirect purchasers’ state antitrust claims in In re Pool Products Distribution Market Antitrust Litigation to essentially mirror the federal claims of the direct purchaser plaintiffs.  Both groups of plaintiffs allege that Pool Corporation acquired competitors and entered into exclusive agreements with the defendant manufacturers in order to block competition from other pool distributors.

      In their motions to dismiss, defendants argued that the indirect purchaser plaintiffs lack standing to bring state antitrust claims just as they lack standing to bring federal antitrust claims under the authority of Illinois Brick Co. v. Illinois, which bars indirect purchasers from suing under federal antitrust laws.

      Judge Vance found that indirect purchasers have standing to bring state antitrust claims under the laws of California, Arizona, and Florida.  While the court found that Missouri antitrust laws follow the Illinois Brick prohibition on indirect purchaser suits, it also found that there was no such ban against the indirect purchasers’ claims for violation of the Missouri consumer protection statute, the Missouri Merchandising Practices Act (the “MMPA”).   Judge Vance noted that “the state legislature has expressed no intent to incorporate federal antitrust standing limits into the MMPA,” and that courts have previously held that indirect purchasers could bring claims under the MMPA.

      While the court denied the motions to dismiss the state antitrust claims, it granted the motions to dismiss state claims based on fraud and misrepresentation, finding that plaintiffs failed to meet the heightened pleading requirements for claims of fraud.

      Judge Vance previously granted motions to dismiss monopolization, group boycott, and fraud claims asserted by the direct purchaser plaintiffs, who are pool stores and maintenance companies that directly purchased supplies from Pool Corporation.  The court denied the motions to dismiss the direct purchasers’ attempted monopolization claim under Section 2 of the Sherman Act and their rule of reason claims under Section 1.

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      Categories: Antitrust Law and Monopolies, Antitrust Litigation

        June 11, 2013

        Federal Judge Green Lights Antitrust Attack Of The Cloned Horses

        Breeders of cloned horses will get to advance their antitrust attack on a dominant horse breed registry that excludes cloned horses, following a ruling by a federal judge in Texas who denied American Quarter Horse Association’s motion for summary judgment.

        District Court Judge Mary Lou Robinson of the U.S. District Court for the Northern District of Texas ruled in Abraham & Veneklasen Joint Venture et al. v. American Quarter Horse Association that plaintiffs, who breed elite horses through a cloning technique, presented enough evidence to defeat summary judgment on their claims of antitrust conspiracy and monopolization.  

        Defendant, the American Quarter Horse Association, is a non-profit, membership organization that maintains a breed registry of competitive horses.  Without admission to the AQHA registry, a horse is barred from participation in the most lucrative competitions and races.

        According to the complaint, members of the Stud Book Registration Committee, who are themselves breeders, created a rule banning any cloned horses from the registry.  The AQHA argued that it neither conspired nor created a monopoly with the rule.

        “Even if the Board did not relegate control to the Committee on cloning matters, it did not review or question the Committee’s unanimous recommendations,” Judge Robinson stated in her opinion. “Thus, there is evidence that the AQHA is the conspiracy, because it is in fact controlled by competitors with interests to ban clones.”

        In order to uphold the monopolization claim, plaintiffs needed to present evidence indicating that AQHA maintains monopoly power.  The court held that “a factfinder could determine that the AQHA has monopoly power over the economically viable Quarter Horse market because its rules control not only market participation but whether, in turn, a horse is valuable or relatively worthless.”

        The court, however, did grant AQHQ summary judgment on plaintiffs’ attempted monopolization claim because plaintiffs alleged only that AQHA succeeded in obtaining monopoly power, not that it almost obtained monopoly power.

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        Categories: Antitrust Law and Monopolies, Antitrust Litigation

          April 8, 2013

          Court Spanks Baby Formula Claims As Too Speculative To Survive

          Antitrust claims against the main supplier of nutritional additives for infant formula in the United States have been thrown out because the plaintiff’s claims were too speculative to establish standing, a federal judge in Maryland has ruled.

          Judge William D. Quarles of the U.S. District Court for the District of Maryland granted defendant Martek Biosciences Corp. summary judgment in BNLfood Investment SARL v. Martek Biosciences Corp., finding that plaintiff BNLfood had failed to show an antitrust injury from Martek’s service agreements and alleged monopoly.

          BNLfood alleged that in 2002, Martek began providing infant formula manufacturers – the Mead Johnson Company, Nestle Ltd., Abbott Laboratories, and PBM Products LLC – with nutritional supplements for brain and eye development, known as ARA and DHA.  Martek’s customers controlled over 90 percent of the baby formula market.

          According to BNLfood’s complaint, three of the formula makers agreed to sole source agreements, in which they agreed to buy the nutrition supplements from only Martek.  Nestle did not sign a contract, but informally agreed to use only Martek for its ARA and DHA needs.

          BNLfood, a Belgian company that extracts ARA and DHA from foods, began expanding to serve larger markets like the United States in 2009.  BNLfood claims that it was turned away by all four of the major U.S. formula companies because the Martek sole source agreements reached into 2016.

          BNLfood also argued Martek employees investigated BNLfood by visiting BNL’s new facilities and collecting company information at trade shows.  The complaint included emails between Martek executives discussing how big of a threat BNL posed as a competitor.

          The court was unconvinced by BNLfood’s arguments.  Judge Quarles found that BNLfood was only speculating that the sole source agreements were the reason BNLfood’s expansion failed in the U.S.

           “This evidence does not suggest that Martek was specifically targeting BNLfood or trying to exclude it from the U.S. market.  Instead it was trying to determine whether BNLfood was actually a competitive threat,” Judge Quarles wrote.

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          Categories: Antitrust Law and Monopolies, Antitrust Litigation

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