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

          January 15, 2013

          D&B Faces Federal Class Action Alleging “Pay To Play” Scam

          The plaintiff in a federal class action filed in the U.S. District Court for the Eastern District of Washington is accusing leading credit reporting company Dun and Bradstreet (“D&B”) and Dun and Bradstreet Credibility Corporation (“DBCC”) of conspiring to use high pressure sales tactics to create a monopoly in the small business credit reporting market.

          The complaint in O&R Construction, LLC v. Dun and Bradstreet Credibility Corporation alleges that thousands of small businesses were “deceived, misled and cheated” by D&B and DBCC in a “pay to play” scam that sold credit products in exchange for favorable credit ratings.

          Plaintiff O&R Construction claims D&B and DBCC misled small businesses into believing there were problems with their D&B credit reports in order to defraud them into buying DBCC’s “CreditBuilder” line of products to improve their credit ratings.  Plaintiff alleges D&B and DBCC violated antitrust laws by conspiring to make the CreditBuilder products the only products available on the market that can address D&B’s small business credit reports.

          Dun and Bradstreet has been a credit reporting agency for over 150 years.  The company has used its database of business credit information to develop a product that small businesses can use to monitor and improve their credit rating.  The complaint alleges that D&B spun off DBCC to sell the credit monitoring products and gave DBCC an exclusive license to use the small business data.  O&R argues that the 2010 agreement granting DBCC an exclusive license to D&B’s credit database has prevented new companies from competing in the market.

          According to the complaint, D&B and DBCC have used fraudulent sales tactics, including scaring business owners by falsely telling them they faced several credit inquiries because their ratings were low.  However, unless the small businesses purchased DBCC’s CreditBuilder to monitor their credit, they could not find out who had made the inquiries and improve their rating.  The complaint also alleges that D&B would downgrade a business’s credit rating if it cancelled its CreditBuilder service.

          O&R, which provides remodeling services mostly for government contracts, relies on D&B to provide accurate credit reports so that it can work with vendors.  O&R alleges that Home Depot, for example, decreased O&R’s line of credit after D&B downgraded O&R’s credit rating, which followed O&R’s cancellation of the CreditBuilder service.

          “Defendants are colluding to negligently, recklessly or intentionally falsify information in small business credit reports,” O&R alleges.

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          Categories: Antitrust Law and Monopolies, Antitrust Litigation

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