Antitrust Law Daily Tying, monopolization claims against insulation seller go forward
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Wednesday, March 25, 2020

Tying, monopolization claims against insulation seller go forward

By Nicole D. Prysby, J.D.

Claims that a calcium silicate thermal insulation seller unlawfully tied sales of insulation to sales of fiberglass pipe insulation and expanded perlite, and unlawfully disparaged a competitor’s calsil product, go forward.

A thermal insulation seller plausibly alleged tying and monopolization claims against a rival seller, held a federal district court in Colorado. Thermal Pipe Shields claimed that Johns Manville Corp. unlawfully tied sales of calsil insulation to sales of fiberglass pipe insulation and expanded perlite, and that Johns Manville unlawfully disparaged the Thermal Pipe calsil product. The tying claim survived a summary judgment motion based on allegations of specific instances in which Johns Manville threatened to refuse, or did in fact refuse, to sell fiberglass pipe insulation or expanded perlite to distributors that purchased calsil from Thermal Pipe. Given the high demand for fiberglass pipe insulation and expanded perlite generally and Johns Manville products specifically, the very limited number of suppliers, the high barriers to entry for new manufacturers, and the dynamics of the manufacturer-supplier-customer relationship, it was plausible that Johns Manville has either power to control price, power to exclude competition, or both. Monopolization claims also survived summary judgment. False advertising claims move forward in part: claims based on alleged misrepresentations attributed to Johns Manville sales managers go forward but claims based on statements on Johns Manville’s webpage failed for lack of injury (Chase Manufacturing, Inc. v. Johns Manville Corp., March 24, 2020, Hegarty, M.).

Johns Manville and Thermal Pipe sell calcium silicate thermal insulation ("calsil") and other mechanical insulation products, almost exclusively to distributors who resell those products to industrial customers. Customers require the distributors to carry other construction products made by Johns Manville, including fiberglass pipe insulation and expanded perlite products. Thermal Pipe alleges that Johns Manville has threatened to cut off sales, extend lead times, or alter rebate programs for fiberglass pipe insulation and/or expanded perlite as punitive measures to distributors who buy calsil from Thermal Pipe. It has also allegedly threatened to refuse to supply its own calsil to distributors who purchase calsil from Thermal Pipe. Thermal Pipe alleges that Johns Manville has made comments to Johns Manville customers regarding the quality and safety of Thermal Pipe’s calsil. Thermal Pipe brings three claims: tying and monopolization in violation of the Sherman Act, and false advertising in violation of the Lanham Act.

Tying and monopolization claims go forward. Thermal Pipe plausibly alleged that Johns Manville unlawfully tied sales of calsil to sales of fiberglass pipe insulation and expanded perlite, according to the court. The allegations were not ambiguous; they set forth three specific instances in which Johns Manville threatened to refuse, or did in fact refuse, to sell fiberglass pipe insulation or expanded perlite to distributors that purchased calsil from Thermal Pipe. Thermal Pipe identified the fiberglass pipe insulation and expanded perlite markets as the tying product markets for its tying claim and alleged that the geographic scope for these markets is national. It defines the relevant product markets for the fiberglass pipe insulation and expanded perlite tying products and sufficiently alleges Johns Manville’s economic power in the identified tying markets, the national markets for fiberglass pipe insulation and expanded perlite. It alleges Johns Manville is one of only three manufacturers of fiberglass pipe insulation in the United States and is one of only two North American suppliers of expanded perlite pipe and block insulation. It further alleges that both markets are capacity constrained, with end-user demand for both exceeding suppliers’ capacity to produce it, and that distributors must be able to carry Johns Manville products in order to meet their customers’ needs. Thermal Pipe alleged that it is not easy or practical for a new manufacturer to enter the market due to the high costs associated with, and technical expertise required for, building a plant, manufacturing product, establishing relationships with customers, and shipping product. Given the high demand for fiberglass pipe insulation and expanded perlite generally and Johns Manville products specifically, the very limited number of suppliers, the high barriers to entry for new manufacturers, and the dynamics of the manufacturer-supplier-customer relationship, it is plausible that Johns Manville has either power to control price, power to exclude competition, or both.

Although Thermal Pipe did not define the scope of the three specific calsil sales affected by the alleged tying, its allegations provided a sufficient basis from which the court could infer that more than a "de minimis" amount of business in calsil was affected. Plaintiff also plausibly alleged actual or potential anticompetitive effects in the calsil market: that Johns Manville restrained competition with its tying conduct, resulting in limitation of customer choice of suppliers, increased prices, and reduction in calsil output.

Thermal Pipe also pleaded plausible monopolization claims based on tying (for the same reasons as its stand-alone tying claim) and refusal to supply, exclusive dealing, and product disparagement, according to the court. Thermal Pipe alleged that Johns Manville discontinued selling expanded perlite and calsil to that distributor to prevent future sales of Thermal Pipe calsil. It alleges that Johns Manville has foreclosed nearly 100 percent of the calsil market and that the instances specified in the complaint are exemplary of a broader pattern of conduct. Thermal Pipe alleges specific disparaging statements made by Johns Manville sales representatives throughout 2018. For example, that Thermal Pipe’s calsil may have asbestos and may not meet specifications. Johns Manville has a high degree of credibility in the industry and because it made most of its statements to its own customers, it is reasonable the distributors that heard the disparaging remarks had no knowledge of the Thermal Pipe product’s safety or quality.

False advertising claim fails in part. Thermal Pipe stated a plausible claim for false advertising based on misrepresentations attributed to Johns Manville sales managers, according to the court. The alleged misrepresentations were sufficiently disseminated to constitute commercial advertising or promotion, in that they were conveyed to at least two large and two small distributors out of a population of only fifteen or so. However, with respect false advertising claims based on statements on Johns Manville’s webpage, Thermal Pipe failed to allege an injury. The sole allegation as to injury is that the claims are literally false. Thermal Pipe did not allege, for example, that any of its customers or potential customers viewed this webpage or that it lost sales because of the statements on the webpage.

The case is No. 1:19-cv-00872-MEH.

Attorneys: Alexandra H. Shear (Bona Law PC) and Geoffrey N. Blue (Geoffrey Blue Law Firm) for Chase Manufacturing, Inc. d/b/a Thermal Pipe Shields. Allison Kaye Kostecka (Gibson Dunn & Crutcher LLP) for Johns Manville Corp.

Companies: Chase Manufacturing, Inc.; Johns Manville Corp.

MainStory: TopStory Advertising Antitrust ColoradoNews GCNNews

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