By Jeffrey May, J.D.
A closely-watched petition for certiorari, questioning the proper standard for evaluating competitive harm caused by exclusive dealing arrangements, was denied by the U.S. Supreme Court today. Left standing is a decision of the U.S. Court of Appeals in Atlanta, upholding an FTC determination that McWane, Inc.—the largest supplier of ductile iron pipe fittings in the United States—used these vertical restraints to unlawfully maintain its monopoly power. The High Court’s decision not to take up the issue of exclusive dealing highlights the antitrust perils faced by suppliers who seek to require exclusivity from dealers (McWane, Inc. v. FTC, Dkt. 15-706).
In 2014, a divided Commission found that McWane unlawfully monopolized the domestic pipe fittings market through its Full Support Program, which generally required distributors to purchase all of their domestic fittings from McWane in order to receive rebates and avoid being cut off. The Commission’s opinion and order directing McWane to stop requiring exclusivity from distributors were upheld by the Eleventh Circuit. According to the appellate court, the FTC’s determination that the exclusivity program harmed competition was supported by substantial evidence in the record and was owed a deferential standard of review. The Commission’s legal conclusions were supported by the governing law.
In its petition for review, McWane argued that the successful entry and expansion of a competitor that took advantage of exceptions to exclusivity in the Full Support Program foreclosed a finding of monopoly power. It contended that, in the face of actual and successful entry, a partial exclusive dealing arrangement could not amount to unlawful monopolization. Moreover, McWane took issue with the Eleventh Circuit’s rejection of its business justifications for the conduct.
Question presented. The question presented was whether McWane’s partial exclusive-dealing arrangement was unlawful under antitrust principles as implemented in Section 5 of the FTC Act, notwithstanding the successful entry of a competitor in the relevant market during the period at issue and notwithstanding the company’s nonexclusionary business justifications for the conduct.
Calls for review. Former FTC Commissioner Joshua Wright was among the antitrust scholars who urged the Supreme Court to take the case. Wright had dissented from FTC’s decision finding liability against McWane for unlawful monopolization when he was a member of the Commission. While the Full Support Program harmed a rival, it did not harm competition, in Wright's view.
In calling for review, the former commissioner suggested that the FTC's opinion and the opinion of the Eleventh Circuit were in conflict with modern antitrust law and economic analysis. The petition had presented the Court with “a unique and timely opportunity for the Supreme Court to bring exclusive dealing law in line with modern antitrust law and economic analysis, to recalibrate the doctrine to focus on harm to competition, and to provide guidance to lower courts with respect to the application of rule of reason analysis in cases involving exclusive dealing arrangements,” Wright contended.
The U.S. Chamber of Commerce and National Association of Manufacturers also supported Supreme Court review. In their brief, the organizations called for clarity regarding the law applicable to exclusivity contracts.
FTC reaction. “We are pleased by the Supreme Court’s action,” said FTC Chairwoman Edith Ramirez. “The Eleventh Circuit correctly affirmed the Commission’s findings that McWane possessed monopoly power and that it acted unlawfully to maintain its monopoly, to the detriment of municipal water systems and their ratepayers across the country. The case reinforces that monopolists cannot resort to anticompetitive tactics to exclude would-be rivals. ”
Attorneys: Miguel A. Estrada (Gibson, Dunn & Crutcher LLP) for McWane, Inc. Donald B. Verrilli Jr., Solicitor General, for FTC.
Companies: McWane, Inc.
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