Contractor Alleges Graco Constructed Foam Insulation Equipment Monopoly

A contractor has filed a class action complaint in the United States District Court for the Middle District of Pennsylvania alleging that Graco Inc. and its distributors harmed a class of contractors through anticompetitive conduct in the market for fast-set spray foam equipment, which is used by contractors for the installation of foam insulation in residential and commercial buildings.

Insulate SB, Inc., a contractor that purchases and uses fast-set equipment, alleges in Insulate SB, Inc. v. Abrasive Products & Equipment, et al., that Graco Inc., Graco Minnesota (collectively “Graco”) and co-conspirator distributors violated the Sherman Act, the Clayton Act and various state antitrust, consumer protection and unfair competition laws. 

Insulate’s suit follows the settlement of a similar action brought by the Federal Trade Commission (“FTC”).  In April of this year, the FTC filed a complaint alleging that Graco violated antitrust laws by buying its two closest competitors in the fast-set equipment market, Gusmer Corp. and GlasCraft, Inc.

Fast-set equipment is a highly pressured, foam spray system almost exclusively used by building contractors to install foam insulation in residential and commercial buildings and to apply protective coating on structures such as bridges, holding tanks, pipelines and marine hulls.  It is considered to be “green” technology because of the superior insulating capabilities of the foam.

The FTC’s complaint alleged that after Graco’s acquisition of its primary competitors in the fast-set equipment market in North America, Graco raised its prices on the equipment, reduced its product options, reduced innovation and raised barriers for entry for any fast-set equipment manufacturers through exclusivity requirements in contracts with its distributors.  When the FTC filed its complaint against Graco, Graco agreed to a consent order requiring it to end its exclusivity policies with its distributors.

Insulate ’s complaint alleges a “hub-and-spoke conspiracy,” in which Graco—which controls over 90% of the fast-set equipment market in North America—used exclusivity agreements with its distributors to suppress competition in the market.  This conspiracy allegedly deprived the purported class of contractors fair access to innovations in the equipment, better quality, and lower-priced equipment that allegedly could have been provided by potential new market entrants.

The plaintiff alleges that after Graco purchased Gusmer and GlasCraft, it closed the manufacturing facilities of these two companies and withdrew a less expensive and more reliable fast-set foam installation system from the market.  Graco then allegedly contracted with its distributors to exclusively sell its product with sophisticated electronics and hard-to-access mechanical parts that require expensive repairs by service professionals.  These contracts, the complaint alleges, enabled the distributors to charge contractors anticompetitive prices for the equipment.  Graco is also alleged to have maintained its monopoly by granting distributors substantial rebates, discounts, market share incentives, and geographic control of sales territories in exchange for excluding new fast-set equipment market entrants.

The suit seeks class certification, trebled damages and injunctive relief declaring that Graco’s and the distributors’ actions violate the Sherman Act, the Clayton Act, and various state antitrust, consumer protection and unfair competition laws.