A three-judge panel of the Eleventh Circuit affirmed a Federal Trade Commission (FTC) decision finding that a dominant manufacturer of domestic ductile iron pipe fittings illegally maintained its monopoly through exclusive dealing, in violation of Section 2 of the Sherman Act. The decision provided a strong endorsement of the FTC’s approach to monopolization and a rebuke to dissenting Commissioner Wright’s attempt to erect a high evidentiary burden for exclusive-dealing cases.
The manufacturer, McWane, had a monopoly in the domestic ductile iron pipe fittings market, when the American Recovery and Reinvestment Act of 2009 disbursed billions of dollars for waterworks projects and required contractors to use materials manufactured in the United States. At the time, McWane was the only company that had domestic manufacturing capacity for iron pipe fittings, which are used to connect pipes in waterworks projects.
In response to threats of rival entry into the domestic market, McWane imposed an exclusive dealing policy on its distributors that restricted their ability to carry competitors’ products. After a full trial, an administrative law judge found that McWane’s exclusivity arrangements improperly foreclosed competitors from the market and illegally preserved its monopoly power. The FTC affirmed, and McWane appealed.
In its amicus brief supporting the FTC, the AAI argued that the antitrust laws prohibit dominant firms from using exclusionary methods and that protecting competition often requires protecting competitors from anticompetitive conduct, even if the competitors are not “equally efficient” rivals. And despite the antitrust laws’ emphasis on maintaining price competition, they also protect non-price competition, including product and service quality and consumer choice. Consistent with long-standing and sound monopolization doctrine, the AAI argued that the FTC had met its evidentiary burden in finding McWane liable for monopoly maintenance.
The Eleventh Circuit endorsed the Microsoft rule of reason (or balancing) approach to analyzing exclusive dealing by a monopolist, and a standard of causation requiring only that the plaintiff establish that the defendant’s conduct reasonably appears to significantly contribute to maintaining its monopoly power. The fact that the foreclosed rival was able to increase its market share during the relevant period neither precluded a finding that McWane had monopoly power nor that its exclusive dealing arrangement harmed competition.
Applying these legal standards, the Eleventh Circuit ruled that substantial evidence supported the FTC’s holding that McWane’s exclusive dealing harmed the competitive process and illegally maintained its monopoly. The court expressly rejected Commissioner Wright’s proposed “clear evidence” standard for exclusive-dealing claims under Section 2, a standard for which it could “find no foundation . . . in the caselaw.” The Supreme Court in Tampa Electric v. Nashville Coal spoke of “probable effect,” not “clear evidence.” In addition, the Eleventh Circuit has frequently stated that the focus in rule of reason cases is on effects—“actual or probable.”