FTC Opinion Finds Domestic Pipe Fitter Unlawfully Maintained Its Monopoly

By on February 7, 2014

On February 6, 2014, the Federal Trade Commission (FTC) released its opinion and final order against McWane Inc., finding the company unlawfully maintained its monopoly by excluding competitors.  McWane Inc. is the largest domestic supplier of ductile iron pipe fittings, which are used in municipal and regional water distribution systems to change water flow or allow connectivity for hydrants, valves and water meters.

The administrative complaint alleged that McWane conspired with two of its competitors that altogether supply the majority of domestic fittings, to raise and stabilize prices.  Additionally, McWane was alleged to have excluded its competitors from the domestic pipe fittings market in order to unlawfully maintain its monopoly in violation of antitrust laws.

The Commission found McWane liable for unlawfully maintaining its monopoly in domestic pipe fittings, which constitute a separate market because many local, state and federal regulations required special fittings.  Consequently, imported products were not substitutable and domestic distributors required access to special fittings to supply all the project needs of their customers.  While one of McWane’s competitors sold the commonly used fitting sizes and configures that could be used in nearly 80 percent of projects, as a new entrant, it did not sell more specialized fittings.  Knowing that the competitor did not supply a full line of pipe fittings, McWane established an unlawful exclusive dealing program.  Under McWane’s “Full Support Program,” it threatened that distributors purchasing domestic fittings from Star would be prohibited from purchasing domestic fittings from McWane.  Thus, McWane was able to unlawfully maintain its monopoly by “foreclose[ing] [its competitor] and other potential entrants from accessing a substantial share of distributors.”  The Commission further found that McWane “created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market.”

While the Commission’s opinion found McWane liable for unlawfully maintaining its monopoly, the remaining counts in the administrative complaint were dismissed for a variety of reasons.  Although the two commissioners found McWane engaged in price-fixing behavior, the counts were dismissed in the public interest due to a lack of majority position.  The Commission’s final order precludes McWane from requiring exclusivity from its distributors, but still permits McWane to lure customers through discounts, rebates and other price and non-price incentives.

Lisa A. Peterson
Lisa A. Peterson focuses her practice on antitrust, regulatory and litigation matters. She assists clients across a variety of industries and has represented numerous clients in the health care, pharmaceutical, and biotechnology industries. Lisa advises clients on mergers and acquisitions, including obtaining clearance from the Federal Trade Commission (FTC) and Department of Justice (DOJ), as well as counsels clients on issues regarding antitrust compliance, pricing, and distribution. She also counsels clients on cartel prosecutions and defenses, including government investigations and the initiation and defense of civil class action litigation. Read Lisa Peterson's full bio.

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