By Nicole D. Prysby, J.D.
Claims that Marathon restricted competition for reformulated gasoline in Kentucky failed for lack of a properly defined geographic market.
The Commonwealth of Kentucky’s expert witness did not have a reliable methodology for determining the geographic market and therefore the Commonwealth’s claims that a petroleum producer restricted competition in the reformulated gasoline market failed, the federal district court in Louisville, Kentucky, has decided. The Commonwealth alleged that Marathon Petroleum Corporation and its subsidiaries entered into contracts with gasoline retailers for the distribution of its reformulated gasoline that restricted its competitors’ ability to challenge Marathon’s market dominance, because the distribution agreements restricted the retailers’ ability to purchase reformulated gasoline from Marathon’s competitors. The expert did not explain his methodology for defining the market, did not use the hypothetical-monopolist (SSNIP) test, and failed to include "reasonably interchangeable" sources of the petroleum product. Therefore, his geographic market was rendered unreliable. His damages calculation was also unreliable, as it failed to establish a connection between Marathon’s allegedly anticompetitive behavior and harm to consumers, calculated damages based on a flawed comparison, and made no attempt to control for the impact of procompetitive behavior. Because the expert’s report was excluded, the Commonwealth was left without a properly defined market and the court dismissed all claims (Commonwealth of Kentucky v. Marathon Petroleum Co. LP, June 1, 2020, Hale, D.).
The Commonwealth of Kentucky claimed that Marathon entered into contracts with gasoline retailers for the distribution of its reformulated gasoline that restricted its competitors’ ability to challenge Marathon’s market dominance, because the distribution agreements restricted the retailers’ ability to purchase reformulated gasoline from Marathon’s competitors, and because separate contracts allegedly included deed restrictions preventing competitors from entering the market. The Commonwealth originally brought claims against Marathon LP and later added Marathon Petroleum Corp.—Marathon LP’s corporate parent—and Speedway—Marathon LP’s sister subsidiary. Marathon Petroleum Corp. argued that the claims against it should be dismissed for lack of personal jurisdiction, because as a parent corporation it had no direct connections with Kentucky and thus Kentucky’s long-arm statute did not allow the court to exercise jurisdiction over it.
Jurisdiction issues. The parties offered competing interpretations of personal jurisdiction issues, focusing on the circuit split regarding whether the venue and service-of-process provisions of the Clayton Act should be read together or separately—i.e., whether the provisions are "coupled" or "decoupled" for purposes of statutory interpretation. But the court found that issue to be irrelevant, because Marathon Petroleum Corp. did not raise a challenge to venue in its first affirmative pleading (it challenged only personal jurisdiction based on an alleged lack of minimum contacts with Kentucky). Therefore, it waived any challenge to venue. Because the challenge to venue was waived, Marathon Petroleum Corp.’s challenge to the court’s personal jurisdiction failed.
Expert witness and merits. All defendants motioned to exclude the Commonwealth’s only expert witness, based on an argument that the methodology he employed to reach his conclusions was technically deficient and rendered his opinion unreliable, irrelevant, and inadmissible. The Commonwealth alleged that Marathon monopolized the wholesale market for Summer reformulated gasoline (RFG), a special type of gasoline that gas stations must sell during the summer in certain parts of Kentucky. Reformulated blendstock for oxygenate blending (RBOB) is a type of gasoline that serves as the active and necessary ingredient of RFG. The crux of the Commonwealth’s argument was that Marathon dominates the wholesale RFG market because it controls the influx of RBOB, allowing it to monopolize the market for retail RFG, a downstream product of RBOB.
The Commonwealth’s expert testified that the geographic market should be limited to terminals in Kentucky that blend RBOB to produce and then sell Summer RFG. The court rejected this definition of a geographic market. The expert did not explain his methodology for defining the market and did not use the hypothetical-monopolist (SSNIP) test. Therefore, he did not have a reliable methodology for determining the geographic market. And even if he had, his opinion would still be excluded because his proposed market failed to consider where Marathon’s competitors could practicably turn for RBOB. For example, both Kroger and Marathon LP trucked in supplemental sources of RBOB from terminals in the Chicago and St. Louis areas. This evidence, dismissed by the Commonwealth’s expert, established that not only could wholesale customers turn to sources of RBOB from refineries well outside of the proposed geographic market, they already have. By failing to include "reasonably interchangeable" sources of RBOB, the expert’s geographic market was rendered unreliable.
The expert’s opinion also failed to establish a connection between Marathon’s allegedly anticompetitive behavior and harm to consumers. He employed a yardstick approach to calculate $173.6 million in damages. But his application of the yardstick approach was fundamentally flawed, as it did not account for factors such as population size, number of automobile drivers, and geographic proximity to different sources of supply. It also failed to account for whether the comparison markets utilize exchange agreements (particularly important variable here because the Commonwealth has identified Marathon’s use of exchange agreements as one of the three main forms of anticompetitive conduct that allegedly harmed consumers). Finally, it failed to disaggregate the portion of his ultimate damages figure that could be attributable to Marathon’s procompetitive conduct.
Because the expert’s report was inadmissible and he was the only Commonwealth expert who submitted a report, the Commonwealth lacked a properly defined market. Without a properly defined market, the Commonwealth could not establish that Marathon unreasonably restrained trade in the market or exercised monopoly power in the market. Further, without evidence of an antitrust injury, the Commonwealth could not establish that Marathon’s alleged wrongdoing harmed consumers.
This case is No. 3:15-cv-00354-DJH-CHL.
Attorneys: Elizabeth U. Natter, Kentucky Attorney General, for Commonwealth of Kentucky. Jason Emil Cellier (Jones Day) and Matthew C. Blickensderfer (Frost Brown Todd LLC) for Marathon Petroleum Co. LP, Marathon Petroleum Corp. and Speedway, LLC.
Companies: Commonwealth of Kentucky; Marathon Petroleum Co. LP; Marathon Petroleum Corp.; Speedway, LLC
MainStory: TopStory Antitrust GCNNews KentuckyNews
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