McWane, Inc. v. Federal Trade Commission
783 F.3d 814 (2015)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An exclusive dealing arrangement imposed by a monopolist, even if not a formal long-term contract, violates antitrust laws if its practical effect is to foreclose a rival from a substantial share of the distribution market, raise the rival's costs, and thereby significantly contribute to the maintenance of the monopolist's power.
Facts:
- McWane, Inc. was the sole supplier of domestic ductile iron pipe fittings (DIPF) from 2006 to 2009, a product required for certain municipal and federally-funded waterworks projects.
- DIPFs are sold through intermediary distributors to end-users like municipal water authorities.
- In 2009, Star Pipe Products announced its entry into the domestic DIPF market as a competitor to McWane.
- In response, McWane implemented a "Full Support Program," informing its distributors that if they did not purchase all their domestic fittings from McWane, they could lose their accrued rebates and be cut off from McWane's supply for up to 12 weeks.
- McWane's internal documents stated the program's purpose was to prevent Star from reaching "critical market mass" and to avoid the "[e]rosion of domestic pricing."
- The nation's two largest distributors, HD Supply and Ferguson, complied with the program, canceling pending orders with Star and prohibiting their branches from purchasing Star's domestic fittings.
- The program significantly limited Star's sales, preventing it from generating sufficient revenue to acquire its own domestic foundry, which would have been a more cost-effective production method.
- After the program was implemented and Star's growth was stunted, McWane raised its prices for domestic fittings despite its production costs remaining flat.
Procedural Posture:
- The Federal Trade Commission (FTC) initiated an enforcement action by issuing an administrative complaint against McWane, Inc.
- Following a two-month trial, an Administrative Law Judge (ALJ) found that McWane's 'Full Support Program' constituted illegal maintenance of a monopoly.
- McWane appealed the ALJ's decision to the full Commission of the FTC.
- A divided Commission affirmed the ALJ's ruling on the monopoly maintenance count.
- McWane, Inc., as petitioner, petitioned the U.S. Court of Appeals for the Eleventh Circuit for review of the Commission's final order.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a monopolist's 'exclusive dealing' policy, which threatens to withhold rebates from and refuse to supply distributors who purchase from a new rival, constitute an unlawful maintenance of monopoly power under Section 5 of the Federal Trade Commission Act?
Opinions:
Majority - Marcus
Yes. McWane's policy constituted the unlawful maintenance of a monopoly. The court found that the relevant market was domestic fittings for domestic-only projects, where McWane possessed monopoly power due to its 90%+ market share and high barriers to entry. The 'Full Support Program' was an exclusionary practice whose practical effect, regardless of its informal nature, was to make it economically infeasible for distributors to switch to Star. This conduct foreclosed Star from a substantial share of the distribution market, raised its costs by preventing it from achieving a more efficient scale of production (i.e., owning its own foundry), and allowed McWane to maintain supracompetitive prices, thus significantly contributing to the maintenance of its monopoly in violation of the FTC Act.
Dissenting - Wright (summarized in the majority opinion)
No. The government failed to carry its burden to demonstrate that the 'Full Support Program' resulted in cognizable harm to competition, as opposed to simply harming a competitor. The dissent argued that modern economic theory requires showing that the exclusive dealing prevented the rival from attaining a minimum efficient scale needed to constrain monopoly power. It contended the government failed to prove this, pointing to Star's ability to enter the market and grow its market share despite the program as evidence that competition was not ultimately harmed.
Analysis:
This case solidifies the principle that courts will analyze the 'practical effect' of an exclusive dealing arrangement rather than its formalistic structure, especially when a monopolist is involved. It affirms that even terminable-at-will policies can be illegal if they create strong economic incentives that effectively lock distributors into exclusivity. The decision reinforces that conduct aimed at raising a rival's costs to stunt its growth and prevent it from becoming an effective competitor is a cognizable anticompetitive harm. This precedent makes it easier for antitrust enforcers to challenge a monopolist's coercive distribution policies that are not formalized in long-term contracts.
Unlock the full brief for McWane, Inc. v. Federal Trade Commission