The Federal Trade Commission (“FTC”) has filed a complaint alleging price fixing against the three largest U.S. suppliers of ductile iron pipe fittings – Star Pipe Products, Ltd., McWane, Inc., and Sigma Corp.

The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

The Eleventh Circuit recently affirmed the decision of the U.S. District Court for the Middle District of Georgia to dismiss the FTC’s antitrust challenge to the proposed acquisition of Palmyra Park Hospital, Inc. (“Palmyra”) and the subsequent lease of Palmyra to Phoebe Putney Health System, Inc. (“PPHS”) or one of its subsidiaries.  As the district court did, the Eleventh Circuit predicated its decision on the state-action doctrine.

A subsidiary of PPHS currently leases Phoebe Putney Memorial Hospital (“Memorial”), a 443-bed hospital in Albany, Georgia that offers “inpatient general acute-care services.”  Memorial’s “only real competitor”—in the words of the Eleventh Circuit—is Palmyra, a 248-bed hospital offering similar services.  In its opinion, the Eleventh Circuit stated that “Memorial controls 75 percent and Palmyra 11 percent of their geographic market.”

In December 2010, PPHS announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), purchase Palmyra and lease Palmyra’s assets to PPHS or one of its subsidiaries.  The City of Albany and Dougherty County authorities created the Hospital Authority in 1941 pursuant to Georgia’s Hospital Authorities Law, in order to address public health needs of the area. 

In April 2011, the FTC brought a federal action to preliminarily enjoin the acquisition pending resolution of the FTC’s related administrative proceeding.  In its complaint for a preliminary injunction, the FTC alleged that the proposed acquisition was practically a “merger to monopoly” that “threaten[ed] substantial harm to competition in the relevant market for inpatient general acute-care hospital services sold to commercial health plans.” 

Defendants took the position that the state-action doctrine immunized the acquisition and planned operation of the hospitals from antitrust scrutiny.  On this point, the FTC alleged that the Hospital Authority was merely a straw-man that was included in the transaction for the sole purpose of shielding the transaction from antitrust scrutiny.  

The district court agreed with the defendants, finding that the state-action doctrine applied and therefore that the defendants were immunized from antitrust scrutiny.  Accordingly, the district court dismissed the complaint with prejudice.  The FTC appealed. 

On de novo review, the Eleventh Circuit agreed with the FTC that “the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  However, the court affirmed dismissal on the grounds of state-action immunity. 

The court began its analysis of the state-action doctrine by citing the seminal case of Parker v. Brown, 317 U.S. 341 (1943) and the doctrine’s emphasis on principles of federalism.  The court acknowledged that state-action immunity does not automatically extend to municipalities or political subdivisions.  To resolve whether the Hospital Authority, the political subdivision at issue, was entitled to state-action immunity, the court applied the rule announced in FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184, 1187-88 (11th Cir. 1994) (citing Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985)) that “a political subdivision … enjoys state-action immunity if it shows that, ‘through statues, the state generally authorizes [it] to perform the challenged action’ and that, ‘through statutes, the state has clearly articulated a state policy authorizing anticompetitive conduct.’”  Of interest, particularly given the FTC’s straw-man argument, the Eleventh Circuit did not cite or address the “active supervision” element of California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) and its progeny, presumably due to the statement in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) that “the active state supervision requirement should not be imposed in cases in which the actor is a municipality.”  

Finding first, that Georgia’s Hospital Authorities Law contemplated the anticompetitive effects and conduct alleged in the complaint; second, that the state legislature granted hospital authorities the power to purchase or lease “projects” (i.e., hospitals); and third, that the state legislature “must have anticipated anticompetitive harm when it authorized hospital acquisitions by the authorities,” the court held that state-action immunity protects the proposed plan. 

The appellate court rejected the FTC’s argument that the Hospital Authority acted as a mere straw-man by citing City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991) for the proposition that a court cannot scrutinize governmental actions to attempt to uncover “perceived conspiracies to restrain trade.” (internal quotes omitted).

The case is Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-12906, in the United States Court of Appeals for the Eleventh Circuit.

Federal Judge James Ware of the Northern District of California has certified a class of iPod purchasers, allowing an antitrust class action to proceed against Apple Computer, Inc. (“Apple”). 

The plaintiffs in The Apple iPod iTunes Antitrust Litigation contend that Apple violated state and federal antitrust laws by monopolizing markets for digital music downloads and portable digital media players, excluding competing portable digital media devices, and charging supracompetitive prices for iPods. 

The amended consolidated class action complaint, filed on January 26, 2010, charges that Apple engaged in these alleged suppressions of competition by: (1) offering protected music files encoded with FairPlay, Apple’s proprietary software, thereby rendering music files sold by iTunes inoperable on competitors’ portable digital media devices; and (2) making Apple’s portable digital media devices (e.g., iPod) incapable of playing protected music content sold by competing digital music stores.

On May 19, 2011, the court granted summary judgment for Apple on plaintiffs’ claims relating to iTunes 4.7 and denied summary judgment for Apple on plaintiffs’ claims relating to iTunes 7.0. 

The court’s certification order dealt with the issue of whether to certify a putative class consisting of “[a]ll persons or entities in the United States (excluding [certain individuals and entities]) who purchased an iPod directly from Apple between September 12, 2006 and March 31, 2009.”  Specific models of iPods covered by the class definition are provided in the court’s November 22, 2011 Order and include iPod Standard, Classic, and Special Models; iPod shuffle Models; iPod touch Models; and iPod nano Models. 

Quoting the recent Supreme Court opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), Judge Ware applied the applicable – albeit ambiguous – standard for deciding a motion for class certification: “A trial court’s ‘rigorous analysis’ under Rule 23 will frequently ‘entail some overlap with the merits of the plaintiff’s underlying claim.’”  Judge Ware held that the court’s earlier decisions that the plaintiffs met the certification requirements of Rules 23(a) and 23(b)(3) still stand.  Therefore, the balance of the certification order focused on two issues: (1) whether the plaintiffs provided sufficient evidence to establish that antitrust impact and damages may be shown through accepted class-wide methodologies; and (2) whether resellers—as opposed to end-user consumers—should be included in the class.  

First, with respect to the plaintiffs’ methodologies to prove impact and damages on a class-wide basis, the court considered whether the plaintiffs intended to use “generalized proof common to the class” and whether the common issues would “predominate.”  The court relied on its previous determination that the plaintiffs offered an adequate method of proof and, in particular, found the three methodologies offered by plaintiffs sufficient, at least for class certification purposes. 

Second, with respect to the inclusion of resellers, the court was persuaded by plaintiffs’ arguments that resellers should be included in the certified class.  The court relied on Meijer, Inc. v. Abbot Labs., 251 F.R.D. 431, 433 (N.D. Cal. 2008) and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489-92 (1968) for the proposition that a reseller’s ability to raise prices and effectively pass the overcharge to its customers is irrelevant as to whether the reseller suffered an injury.  Since the possibility that resellers may pass on any overcharge was found to be irrelevant to the issue of injury, the court included resellers in the class.

Federal Judge Sue L. Robinson in the District of Delaware has given the go-ahead to a suit alleging truck manufacturers conspired to create and maintain a monopoly with supracompetitive prices in the market for heavy duty truck transmissions.

Judge Robinson has denied the defendants’ motion to dismiss the complaint in Wallach v. Eaton Corp.

The class action, brought by Mark S. Wallach, the bankruptcy trustee for Performance Transportation Services Inc., and Tauro Bros. Trucking Co., alleged that defendants conspired to create and maintain Eaton’s monopoly in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act.  Defendant Eaton is a manufacturer of heavy duty truck transmissions.  The other named defendants are original equipment manufacturers (OEMs) that purchase transmissions.  It is alleged that all defendants shared in the increased profits earned by Eaton.

The complaint alleges that in response to both a downturn in the market for heavy duty trucks and increased sales by Eaton’s competitor, ZF Meritor, the OEMs and Eaton conspired to remove ZF Meritor from the transmission market.

The alleged monopolization was enacted through the use of long term agreements.  Under these agreements, Eaton gave discounts and rebates to the co-defendants in exchange for their purchasing of transmissions exclusively from Eaton.  The agreements were allegedly de facto exclusive dealing contracts that forced ZF Meritor to leave the market for heavy duty truck transmissions.  According to the complaint, this enabled Eaton to charge higher prices to OEMs that were not members of the conspiracy.

Ruling that there was sufficient evidence to suggest both a conspiracy and the maintenance of increased prices, Judge Robinson ruled that the Sherman Act claims should proceed, though she dismissed the Clayton Act claim.

This litigation follows a suit in front of Judge Robinson in which ZF Meritor successfully proved antitrust violations by Eaton.  However, no damages were awarded in that case.

The U.S. Court of Appeals for the First Circuit has affirmed the dismissal of a claim that the 2003 merger between Nestlé S.A.’s subsidiary, Nestlé Puerto Rico (Nestlé PR), and ice cream distributer, Payco Foods Corp., violated the Sherman and Clayton Antitrust Acts.

The plaintiff in Sterling Merch., Inc. v. Nestlé S.A. et al. is a distributer of ice cream in Puerto Rico.  Nestlé S.A. manufactures ice cream that is sold and marketed in Puerto Rico by Nestlé PR.  Prior to the 2003 merger, Payco was a competitor of both Sterling and Nestlé PR.  Sterling alleged that Nestlé abused its market power to gain exclusive contracts, favor Payco in distribution agreements, and reduce competition in the Puerto Rican market.

The court of appeals affirmed the district court’s dismissal of plaintiff’s complaint on grounds of lack of standing based on an inability to prove antitrust injury.  Antitrust injury under Zenith Radio Corp. v. Hazeltine Research Inc. must “reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.”

According to the holding, Nestlé neither restricted output nor increased prices.  The court found that the price paid by many consumers fell after the merger and that Nestlé’s market share fell by 15% in the 4 years following the merger.  Sterling was unable to demonstrate antitrust injury due to its success in the same market.  While suffering from declining financial performance prior to 2003, Sterling’s post-merger net sales grew at an average of 11% per year with market share growth over 6% during the five years immediately following the merger.  The injury alleged by Sterling was that “in a but-for-2003-merger world,” its market share would have grown more than 6%.  In the court’s view, Sterling was unable to substantiate this claim.