Antitrust Law Daily Heavy construction equipment dealer maintains group boycott claim against manufacturers
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Tuesday, August 23, 2016

Heavy construction equipment dealer maintains group boycott claim against manufacturers

By Edward L. Puzzo, J.D.

A dealer of heavy construction equipment was unable to maintain exclusive dealing, monopolization and unlawful merger claims against heavy construction equipment manufacturers, but could maintain its group boycott claim, the federal district court in Wilmington, Delaware, has ruled (International Construction Products LLC v. Caterpillar Inc., August 22, 2016, Andrews, R.).

Plaintiff International Construction Products (ICP) is an importer and dealer of heavy construction equipment. Defendants Caterpillar, Komatsu and Volvo manufacture heavy construction equipment, and defendant Associated Auction Services (AAS) conducts auctions for used heavy construction equipment.

ICP brought various claims against the defendants alleging violations of the Sherman Act and the Clayton Act. Previously, the court had dismissed without prejudice counts related to group boycott and exclusive dealing, and dismissed with prejudice counts related to monopolization, attempted monopolization, conspiracy to monopolization and unlawful merger. Presently, ICP's amended its group boycott and exclusive dealing claims and moved for reconsideration and leave to amend the counts related to monopolization and unlawful merger. The defendants sought to dismiss.

Group boycott. The court previously dismissed without prejudice, as vague and conclusory, ICP’s allegation of a group boycott in violation of Section 1 of the Sherman Act. This claim requires an allegation of concerted action beyond mere parallel conduct that could be the result of independent action. In the Third Circuit, the court explained, “plus factors” are used to determine whether parallel conduct may give rise to an inference of agreement.

In its amended complaint, ICP alleged that a month after its announcement of a partnership with IronPlanet, the manufacturer defendants, investors in IronPlanet, threatened to withhold used equipment sales from IronPlanet if it continued to deal with ICP. ICP argued that the parallel threats were against self-interest, which was a “plus factor.” The defendants countered that each manufacturer defendant independently had sufficient power to influence IronPlanet on its own; hence there was no parallel action. But the court stated that defendants’ reasonable inference did not make ICP’s version of events implausible, so the “plus factor” requirement was satisfied. In addition, while only one “plus factor” is required, ICP pleaded more. ICP noted that the manufacturer defendants made the same threat to IronPlanet at the same time, while not having a legitimate reason to know of each other’s actions. This was suggestive of a traditional conspiracy. Thus the court found that ICP had satisfactorily pleaded more than mere parallel behavior and denied the defendants’ motion to dismiss ICP’s group boycott claim.

Exclusive dealing. Although there was no set formula for evaluating the legality of an exclusive dealing agreement allegedly violative of Section 1 of the Sherman Act and Section 3 of the Clayton Act, the court explained, pursuant to the rule of reason, courts in the Third Circuit generally require a showing of significant market power by the defendant, substantial foreclosure, contracts of sufficient duration to prevent meaningful competition by rivals, and an analysis of likely or actual anticompetitive effects considered in light of any procompetitive effects.

The court previously dismissed without prejudiceICP’s allegation of exclusive dealing for failing to adequately plead a lack of alternative distribution channels. ICP had acknowledged that direct sales over the internet was an alternate distribution mechanism for new heavy construction equipment, but alleged that this was not a bona fide alternative distribution channel to IronPlanet, which had exclusive dealing arrangements with the manufacturer defendants, and was dominant in the marketplace due to “network effects.” But the court noted that IronPlanet, itself an internet marketplace for used heavy construction equipment, was not the sole means of accessing the internet as a means of distributing new heavy construction equipment.

The court stated that ICP had not alleged facts that plausibly suggested that, when end-users would visit IronPlanet to buy new construction equipment, they would do so to the exclusion of other websites. The court again concluded that ICP failed to adequately plead a lack of alternative distribution channels, thereby failing to make a prima facie showing that the exclusive dealing arrangements foreclosed from competition any part of the relevant market, and thus failing to state a claim for exclusive dealing. The court therefore granted the defendants’ motion to dismiss ICP’s exclusive dealing claims.

Monopolization, attempted monopolization. ICP had directed a claim of monopolization and attempted monopolization against defendant Caterpillar, which the court had previously dismissed with prejudice. ICP sought reconsideration of that ruling.

The previous dismissal was based on failure to allege a relevant market and a failure to plead monopoly power. The amended complaint alleged that each and every state was a relevant geographic market, because end users typically did not purchase heavy construction equipment without an authorized service location within 75 miles. But the court found that 75-mile radius geographic markets were facially unsustainable, as they were unrelated to the political subdivisions ICP used to define its proposed markets. The court also found that the relevant geographic markets for new and used heavy construction equipment differed. The court found that ICP had failed to plausibly allege that any state was a market largely segregated from, independent of, or not affected by competition elsewhere. Having failed to adequately define a relevant market, there was no clear error of law justifying reconsideration. Thus the court denied ICP’s motion for reconsideration of its monopolization claim.

Unlawful merger. Finally, ICP’s allegation that the merger of IronPlanet with AAS was unlawful under Section 1 of the Sherman Act and Section 7 of the Clayton Act had been dismissed for the failure to allege that the merger had the substantial effect of lessening competition in the new heavy construction equipment market. ICP sought reconsideration of that ruling. The court noted that antitrust injury must be the direct effect of an antitrust violation, but ICP had failed to allege any harm directly traceable to the merger. The prospective harm to competition was entirely speculative, the court found. Thus there was no clear error of law or fact in the earlier ruling justifying reconsideration. Thus the court denied ICP’s motion for reconsideration of the dismissal of its unlawful merger claim.

The case is No. 1:15-cv-00108-RGA.

Attorneys: John W. Shaw (Shaw Keller LLP) for International Construction Products LLC. David J. Baldwin (Potter Anderson & Corroon LLP) for Caterpillar Inc. Denise Seastone Kraft (DLA Piper LLP) for Komatsu America Corp. James Harry Stone Levine (Pepper Hamilton LLP) for Volvo Construction Equipment North America LLC. Henry E. Gallagher, Jr. (Connolly Gallagher LLP) for Associated Auction Services LLC.

Companies: International Construction Products LLC; Caterpillar Inc.; Volvo Construction Equipment North America LLC; Associated Auction Services LLC

MainStory: TopStory Antitrust DelawareNews

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