Eleventh Circuit Rules Steel Is Too Elastic To Support Monopolization Claims

The U.S. Court of Appeals for the Eleventh Circuit has affirmed dismissal of monopolization claims against steel producer Nucor Corp., finding that the cross-elasticity of supply for various steel products defeated the limited product market alleged by the plaintiff.

The appellate court affirmed the district court’s grant of summary judgment in favor of Nucor in Gulf States Reorganization Group Inc. v. Nucor Corp.  Gulf States Reorganization Group (GSRG) sued Nucor for allegedly attempting to monopolize the market for black hot rolled coil steel, a popular type of steel which is rolled into a coil for ease of storage, handling and transportation.

Nucor is a leading manufacturer of black hot rolled coil steel.  In 1999, Gulf States Steel, one of Nucor’s main competitors, filed for bankruptcy.  After GSRG bought the bankrupt company’s non-steel-producing assets, it contracted with the bankruptcy trustee in 2002 to purchase the steel-producing assets for $5 million unless another party bid higher, which would cause a public auction.  Nucor entered into a confidential agreement with Casey Equipment Co., which buys steel-related equipment, to create a limited liability company to bid on Gulf States’ steel-producing assets.  The limited liability company bid $5.25 million for the assets, which triggered a public auction.  In the public auction, Nucor’s limited liability company bid $6.3 million.  Although GSRG bid $7 million, its bid was denied due to its failure to meet auction rules.  As a result, Nucor’s limited liability company purchased the steel-producing assets of Gulf States.

GSRG sued Nucor, alleging that it was attempting to obtain a monopoly in the black hot rolled coil steel market in the Southeast United States, in violation of § 2 of the Sherman Act.

The Court of Appeals affirmed the district court’s holding that GSRG’s proposed relevant product market—black hot rolled coil steel—was too limited because it failed to “account for the fact that manufacturers of pickled and oiled steel could, without much difficulty or cost, switch their production to that of black hot rolled coil steel.”  Pickled and oiled steel is simply black hot rolled coil steel that has been bathed in acid and coated with oil.

The Eleventh Circuit noted that one way to determine if manufacturers can take business away from a potential monopolist is to apply the concept of cross-elasticity of supply, which analyzes competition from the viewpoint of the producers of products, instead of consumers.  The court concluded that black hot rolled coil steel has a high cross-elasticity of supply because producers of pickled and oiled steel could easily and cheaply switch their production to black hot rolled coil steel.